EchoStar Corp (SATS) 2024 Q2 法說會逐字稿

Greetings, and welcome to the EchoStar Corporation Q2 2024 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Dean Manson, Chief Legal Officer. Thank you, Dean, you may begin.

Thank you and welcome to EchoStar second quarter 2024 earnings call. We will begin with opening remarks Hamid Akhavan, President and CEO; followed by Paul Orban, EVP, and Principal Financial Officer; Gary Schanman, EVP And Group President of Video Services; Paul Gaske, COO of Hughes; and John Swieringa, President of Technology and COO. We request that any participant producing a report not identify other participants or their firms in such report.

We also did not allow audio recording which we have to use that. All statements made during this call, other than statements of historical fact constitute forward-looking statements made pursuant to the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements as well known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied in the forward-looking statements.

For a list of those factors risks, please refer to our quarterly report on Form 10-Q for the quarter ended June 30, 2024, filed today and our subsequent filings made with the SEC. All cautionary statements we make during the call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place any undue reliance on any forward-looking statements.

We assume no responsibility for updating any forward-looking statements. We refer to OIBDA and free cash flow during this call. The comparable GAAP measure and a reconciliation from OIBDA is presented in our earnings release and in the case of free cash flow in our 10-Q.

With that, I'll turn it over to Hamid.

Thank you, Dean. Welcome, everyone. Thank you for joining us today. Through the first six months of the year, EchoStar has been performing as planned. You focus on integrating operations, advancing our 2024 plans, driving better alignment within our business units, realizing synergies, and managing costs. Our prepared remarks for today's earnings call will focus on our operating business units in the Pay-TV, wireless and broadband and satellite services sectors.

Many of you may also be interested in hearing about our efforts to refinance our maturing debt obligation due in November and to improve our liquidity, including addressing the going concern disclosure. On that front, we continue to make progress and are in constructive discussions with counterparties, which we feel best support our objectives. The nature of these discussions requires confidentiality.

While I cannot provide more detail today, we will have more to share what is appropriate. Our operating business continued to meet or exceed our budget targets in key metrics in the second quarter. We will elaborate on this later on the call. As we have stated the last earnings call our operating plan, achieving positive operating free cash flow for the year as we continue to drive efficiencies, optimization and synergies that increase our profits ability. After the first six months, we remain on track for meeting these key objective for the year.

In addition to our operational improvements, particularly in Pay-TV and broadband and satellite service business units, we continually refine and enhance our offerings for both consumer and enterprise customers. We remain committed to innovation with our state-of-the-art Open RAN wireless networks that now serves double the number of Boost Mobile customers since last quarter at over $0.5 million. On network, coupled with Boost Mobile pivot to a unified digital experience gives us the runway to increase our share of the wireless market.

In our broadband and satellite business we continue to march forward with our enterprise offerings and expect enterprise revenues to surpass that of our consumer revenues this year. On another positive front this morning, we received approval for Liberty Puerto Rico transaction so that transaction will close within the next 30 days or so. While there's still a lot of work ahead for the team, we are pleased with the performance from the first half of the year. We will use this positive momentum throughout the second half of 2024.

With that, I'll turn it over to Paul Orban for additional commentary on our Q2 numbers.

Thank you, Hamid. I will briefly touch on a going concern disclosure as a reminder, please read the financial statements contained in our 10-Q, to see the precise disclosure. This evaluation is a technical accounting determination that requires us to consider our current cash position and project our cash position one year from today does now allow us to consider any new funding sources unless it financing as committed as of today.

At the end of the second quarter, our cash and cash equivalents and marketable investment securities totaled $521 million. Roughly $2 billion of debt will be maturing this November. Currently, we do not have the necessary cash on hand and projected future cash flows to fund fourth quarter operations for the November 24, debt maturity.

As Hamid mentioned, we're currently working to address this with a refinancing activities in our discussion funding sources at all levels in our capital structure. As previously highlighted, our team focused on maintaining positive operating free cash flow as we have defined on our prior calls. We're on track to meet this goal this year in part by continued to execute on our plan to remove $1 billion of operating expenses from the business, which includes merger synergies.

We continue to manage all of our brands with a focus on financial discipline and a goal to onboard the highest quality subscribers. We continue to see the results of these efforts are DISH and Boost Mobile churn rates this quarter.

Now let's review our financial performance for the second quarter. Revenue was over $3.95 billion in the second quarter, down 9% year over year, primarily due to subscriber declines across all lines of business. OIBDA was $442 million, down $181 million year over year, driven by the ramp and operating cost for network as we have more sites on air as well as decreased margins from having fewer subscribers across all brands.

Free cash flow was a negative $191 million, primarily driven by cash interest of $450 million. Year over year free cash flow was better by $316 million, driven by a decrease in capital spend from network of $565 million, which was in line with our prior guidance. This decrease in capital spend was largely offset by the $181 million decrease in OIBDA. As a reminder, we continue to expect CapEx for the year to be roughly half what it was in 2023.

With that, I'd like to turn it to Gary to discuss video services.

Thanks, Paul. On the Pay-TV side, we finished Q2 with approximately 8.1 million customers. Across the business we continued to see operational efficiency gains and our focus on engagement, customer loyalty and subscriber quality drove substantial quarter-over-quarter and year-over-year churn improvements across both DISH and SLING, while growing ARPU over 4%.

Improved churn combined with lower variable and fixed costs achieved by our savings for growth efforts resulted in higher per sub profitability. In particular, DISH TV SAC was significantly less first Q2 2023, and this improvement was primarily attributable to an increase in marketing efficiency per subscriber.

Similar to Q1 our media sales revenue per subscriber continues to grow year over year are disconnected product, which delivers programmatic advertising to our connected linear set-top-box subscribers continue to roll out and scale in Q2 underpinning ARPU gains on both platforms, significant addressable and programmatic market demand also help fuel this growth.

This business or bulk sale of the business has continued to experience year-over-year growth suite through our concerted efforts in the hospitality and senior living spaces. In the hospitality space, in particular, we increased our units by 30% compared to the same period last year and in the quarter with a total of 1.35 million hotel rooms. In addition to our wins in hospitality, this business ended Q2 with over 300,000 total active units in nursing care and assisted living facilities with over 21,000 units in Q2 alone.

In regards to DISH TV specifically, we finished the quarter with approximately 6.1 million subscribers with Q2 churn, 12 points lower than in Q2 2023. Our Q2 subscriber numbers for distribution were positively impacted by consistency and programming and improved product quality. We also continue to offer high value added services to our DISH subscribers, including cross-sell offers of HughesNet and Boost Mobile. Our objective moving forward into the second half of 2024 is to more closely integrate these products, improving the customer experience and lowering collective churn.

Also noteworthy is the launch of Netflix bundle for our existing subscribers which provide those subs, the ability to add Netflix to rate their existing this subscription at no additional out of pocket cost with additional commitment and watch Netflix through our hopper platform. Regarding our SLING business or the industry's only profitable streaming services. We finished the quarter with approximately 2 million subscribers, again of 70,000 in Q2.

This increase is due to our purpose will focus on acquiring high-quality, profitable subscribers despite competitive headwinds and an improved customer experience. Improvements to product performance and the continued adoption of features and services on SLING, including rewards, Arcade, free DVR and sports replay which launched in Q1 have led to an increase in viewership and engagement, and we expect that increase in adoption to continue into the second half of 2024.

I'd like to turn it over to Paul Gaske now who cover broadband and satellite services.

Thank you, Gary. Our broadband and satellite services segment operates in both the consumer and enterprise markets. Our consumer business under the HughesNet brand expanded subscriber acquisition on JUPITER 3. With the support of this new satellite, we've been able to increase our gross additions by roughly 14% year over year. JUPITER 3's additional capacity allows us to offer new high speed unlimited data service plans and at the same time, upgrade existing subscribers to similar plans on JUPITER 1 and 2, thus enabling them to benefit from faster speeds and increased data allowances.

We also launched the HughesNet, DISH TV bundle during the quarter, allowing customers opting for both services to benefit from a bundle discount and a two year price lock. We continue to focus on acquiring high-value customers and driving customer loyalty. And our efforts so far have reduced subscriber losses by more than 50% from Q2 of 2023.

We finished this past second quarter with approximately 955,000 broadband subscribers. As Hamid mentioned in the opening, our HughesNet enterprise business continues to grow as we drive to acquire the majority of our revenues from the enterprise market. In our Hughes managed LEO business, we have shipped over 5,000 of our Hughes manufactured user terminals based on our unique flat-panel electronically steered antenna, also known as [Isa] technology.

Feedback has been very positive, and demand increased in Q2. We anticipate launching new versions of this terminal starting early as the third quarter and that will boost our managed video services business. We received significant orders across the entirety of our enterprise business during the quarter, both domestically and internationally and continue to make progress in the in-flight communications business.

In Q2, we announced the deal and partnership with TCI and Turksat to supply AJet advanced in-flight connectivity for their passengers. In addition, we continue to execute on our previously announced programs with Delta Airlines and Gogo business aviation.

With that, I will turn it back to Hamid for an update on our wireless business.

Thank you, Paul. We had a number of positive developments for Q2. But before I jump into those, I want to comment on a few significant changes we made to the business last month. Our mid-July announcement regarding the new Boost Mobile, but the result of much of the hard work completed in Q2 more than just a brand refresh we unveiled a unified and unique prepaid and postpaid experience across the Boost Mobile website and app.

New and easy to understand rate plans in new marketing campaign and a 30-day money-back guarantee so customers can test our state-of-the-art network risk-free. As alluded to in previous calls, and as part of this overall effort to put forth a new Boost Mobile, we sunset the boost Internet brand and brought postpaid and prepaid together.

This continuum of experiences and offerings allows us to bridge the gap between pre and postpaid service and remove the binary nature of the mobile industry, giving customers access to more choices. Through these changes our single brand will be a driver of profitable growth and help maximize operational efficiencies across the retail wireless business.

In regard to the second quarter finished with approximately 7.3 million subscribers. Excluding the loss of net ACP subscribers, we added approximately 32,000 net retail wireless subscribers in the second quarter. With the loss of the government funded ACP program in the second quarter, many providers experienced ACP subscriber losses.

While we believe that ensuring Americans have access to high-speed Internet and mobile services is essential in today's world. These subscribers were not very profitable under our brands, and we have worked to transition them to cost effective solutions were available. ACP losses account for a total decrease in our wireless subscriber business base of only 16,000 compared to the decrease of 188,000 in the same period last year.

A positive sign and momentum for us to build upon. Additionally, we have seen further reductions in our churn numbers 2.93% in Q2 compared to 4.54% during the same period last year, a reduction of 35.5%. ARPU continues to increase as we focus on higher quality subscribers, improving the customer experience and optimizing our network.

Boost Mobile customer satisfaction and the overall brand sentiment is rapidly improving and in some studies already exceeding some incumbents. We are encouraged by the results this quarter and overall positive trends since the beginning of the year, we strive to profitably increase our share of the postpaid market with the power of having owner's economics.

While there is still work to be done in this area. As previously mentioned, we made great strides on the operational and marketing efficiencies with the efforts in Q2 and look forward to seeing those efficiencies continue as our new Boost Mobile brand ramps up through the end of the year.

Let me now hand the call to John to cover our network deployment progress.

Thank you, Hamid. The team has been hard at work expanding and optimizing the Boost Mobile network, which is now capable of reaching over 200 million Americans with 5G voice and over 250 million Americans with 5G mobile broadband. As Hamid referenced earlier, we continue to add on-net customers at a high success rate when activating network compatible devices in our 5G voice markets.

Our on-net customers experienced pure 5G on the Boost Mobile network as well as nationwide 5G and 4G coverage via our partner networks. The acceleration of on-net traffic allows us to further optimize and improve the world's first Open RAN cloud-native network, including speeds and coverage.

In certain key markets our third-party benchmarking shows that we have already moved ahead of some incumbents across key network stats and customer satisfaction, which allows us to confidently highlight our new network in the market. We are seeing a competitive network experience with room to run in the back half of the year further accelerating our transition to owner's economics.

Additionally, we were the first network operator to commercially launch simultaneous 2x top line and 4x downlink carrier aggregation for compatible devices this past quarter. This accomplishment is a further testament of our efforts to provide our customers with the most advanced wireless experience and technology available.

These are all positive developments, and we are pleased with the network's progress and performance as we further position ourselves to compete with the incumbents. We have met all of our FCC milestones to date. In the next year, we have some additional milestones, specifically June 14, 2025. Our fully constructed facilities, along with our construction in process will be sufficient to meet many of our build-out requirements over the next year, including our June 14, 2025 milestone.

These facilities are for licenses comprising approximately 90% of the aggregate carrying value, including capitalized interest for our 600 megahertz, 700 megahertz H block in AWS for licenses. However, for the remaining licenses that we have not yet constructed facilities sufficient to meet our build-out requirements, we will need to raise additional capital to continue our 5G network deployments.

In Q2, we invested $237 million in our network deployment, which is comparable to $802 million in Q2 of 2023. Our focus continues to be on capital investments and optimizations required to have a competitive network for mobile customers within our existing and future 5G voice footprint. As we discussed last quarter, this is a logical progression for us as we've transitioned from an accelerated build to running and optimizing our markets with the P&L mindset.

Now I'll turn it back over to Hamid.

Thank you. In summary, liquidity is a key factor for our long-term success. Significant attention is focused on this critical area. And as I already mentioned, we are in constructive discussions with counterparties at this time. In parallel, we are continuing to expertly and diligently operate our business, develop long-term opportunities and create value.

Pay-TV and Hughes to date are generating operating free cash flow ahead of our expectation and Boost Mobile has made good strides to find its footing this year. We have improved ARPU, reduce churn across both Pay-TV and wireless business units, and we'll keep our focus on attracting and retaining high-quality subscribers.

The operational momentum we have established over the first half of the year is promising, and we will work to maintain and accelerated in back half of the 2024.

With that, we will open it for Q&A from the analyst community.

(Operator Instructions)

Ric Prentiss, Raymond James.

Hi, everybody. Couple of a couple of quick questions from me. The first area, obviously you're in constructive discussions, but I think actually you can help us when do you need/want to have the cash on hand? And related to that, can you remind us how much unencumbered spectrum you have and is that securitization market open.

Great to hear from you. I will pass on the question regarding cash to Paul and then to comment on the unencumbered spectrum.

Thanks for the question. We're going to have sufficient cash on hand to pay our bills as they become due through the date before we actually had a $2 billion due. So we'd love to raise the money and as soon as possible. But the we have latitude to wait to have basically the day before if we had to.

And the unencumbered spectrum and securitization market?

Yeah, so there are -- in terms of the spectrum we certainly have a it's an ample amount of spectrum that we have not really valued in terms of incumbency, but go ahead, Paul.

Yeah. So right now, the only spectrum that is encumbered is the 600 megahertz today. There is an internal note on 3.45 of there is no third party debt on that. So everything else is on and cover, and we can use that to secure ties to raise capital.

Okay. And then operationally on the wireless side, help us understand what's the path to positive net adds? Obviously, you had some XHTP but more importantly, what's the path and timing to getting the retail wireless business to producing positive EBITDA.

That's something that Rick we have announced. And obviously it in due time, we will be more specific about guidance in a market. That's not something we have published today. But I want to say that what we have seen, what I have seen on the first half of the year will give you managed to achieve.

It's exceeded my own expectation candidly, I don't mean to be too bullish here about just a couple of quarters in a row, but we made some fundamental changes in the business. This business was hugely declining in terms of number of subscribers, you know, the first thing about it for growth is to arrest the fall and we have managed to do that and has not been an accident. And I don't see that as a one-time thing.

And now let us have to the end of the year. I mean, I wanted to get through this year just to see first of all, how the progress -- our progress is in terms of getting our team focused getting our strategy sharp and getting our execution honed before I put projections in a market, I certainly do not want to give projections in a market that are on that I cannot stand behind.

In addition, this is a very exceptional year for us. I mentioned that other than the fact that we have a merger and the fact that we have brands and there we are bringing together. We also have these financing activities that are taking a significant amount of our energy and attention. And also kind of some I would say, to some degree limits our ability to participate in the market.

In some regards, we're just targeting the most profitable customers and as some of the other segments that at the time we can afford to be in the market for. So all of that makes this a very special year. It would not be prudent for me to put a hard projection out there. But certainly I am very encouraged by what we have done so far under the circumstances and hopefully starting next year, we can be more specific about how our business is going to develop.

And then just last one for me is any update on 5G private networks? That was obviously a big part of the best use of the spectrum in the network. You're building any update on how that market is starting to gel?

It's a nascent market. Again, we have enormous hope and expectation for that market. Nothing, in the immediate future, though, I mean, as you know, enterprise sales in particularly in a brand new category where you know the customers and if there is no precedence strong precedence in the market. The bulk of our business development activities that have to go on before you see significant sales can be made.

We already have a couple of things will be solved. Now we are participating the Spiral 4 and DoD, and I think I came to maybe contract is about a $2.7 billion over 10 years, multiple operators are there, we are there. And so we see that coming in. We do have a couple of deployments that we have talked about in the past. I'm going to repeat those with the oil and why a few other places.

Those are early signs and we have seen success in all of those, but up but not at the point yet that I can put a big forecasts out there for it. I just want to say that with all of these AI news that isn't a market, much of it may be high, but certainly there is some truth to it. We believe we have the network is absolutely optimized to take advantage of that.

And we have plenty of great spectrum also for that. So we like it. We like that, and we're very excited about making a business that is very significant on that. But I want to preach a bit of patience there, not because we are not moving fast enough. We're able to move fast enough. It just that the market has to develop and that takes a bit of time.

Makes sense. Thanks, guys.

David Barden, Bank of America.

Great. Thanks for taking the question. This is Shipra, just calling in for David right now. Just two questions, if I could. Looking at the company holistically and collateral buckets that you have lots and spectrum licenses that you just touched on why -- what is left within the company that can be levered when LTV can be delevered at? And how are the current fraudulent conveyance lawsuits and other legal liabilities impacting your collateral pool and ongoing refinancing park that you're in right now?

And my next question, a company this year reshuffled some of its assets to create new pockets of collateral to borrow against to extend the life of the equity that wasn't welcomed by existing creditors. We asked this last quarter, but with the business cash performance where it is and the maturity wall where it is right now, what are the circumstances or management's obligation shifts from trying to extend the life of the equity market cap to maximizing the recovery for the $20 billion of debt outstanding? Thank you.

Thank you, several questions. I don't know if I'm going to be able to answer all of them, but if I don't, please repeat some of it. So I want to make sure I hit all the points. First of all, I sense that you believe our spectrum assets are not monetizable or not able to use as collateral and we need to refer to other. And I want to say vehemently and strongly that that is absolutely not the case zero.

Our spectrum assets unencumbered. We can and we will use those as collateral and the fact that we haven't done it yet is because we have not arrived as I mentioned, we had constructive discussions. We have not reached a point that we believe that the right deals can be made. And this is a matter of negotiations and progress has been made no guarantees deal to get done.

And we certainly will use the necessary time to make sure that we make a deal. You make opportunities and deals that are it's great for our long-term success and maximize our value. We certainly focused on that. So other collateral that we could use is not relevant relative to the size of the spectrum. We have significant ability to lever our spectrum and create liquidity for many, many years to come and a long runway.

I wanted to first position that because it would make no sense for me to talk about other collateral when we have so much dry powder per se. And there was I think it was a question about a cash position and maturity that we have believed that obviously we want to meet, and we continue to work on meeting all of our obligations. I will now be able to say much more about it until a new financing is there.

And I think that there may be a misunderstanding in the market that you know that certain lawsuits filed may prevent us from making progress. We don't believe that's the case. We've not seen any evidence of that today. So that I mean, the runway for us to make a transaction, it's really dependent on us being able to arrive at a satisfactory landing point with the parties that are counterparties we negotiated with.

I think I used probably more worth than necessary to explain the situation by. But I think I anticipated some other questions related to that. I thought this to be a good opportunity to address all of it. Did I miss any portion of your question. Please repeat that if I have.

Nope. That's great. Thank you.

Sebastiano Petti, JPMorgan.

Hi, thanks for taking the question. I mean, you sounded very positive on the retail wireless efforts. Obviously second quarter ex ACP, it would have been positive, and it seems as though we are with the Boost Mobile rebrand, that should persist. But I think last quarter you did mention that you would you anticipated retail wireless net additions to be positive for the year. Obviously, you have a little bit of ACP noise in there in the second quarter and uncertainty on that in the back half. Should we still expect that to be the case maybe strip out any potential ACP losses that you're -- you still feel confident in hitting that goal?

And then on the wireless network, I think you mentioned, but the number of subscribers served on your network had doubled quarter on quarter. Is that the right way to perhaps think about maybe you’re on-net versus off-net traffic as we kind of think about you know, the ability and the cost save opportunity on a go-forward basis. Any color around that to the extent you would like to share would be great. Thank you.

Yes, two questions. I'm happy to ask both, on a net positive adds for the year. Yes, absolutely. We that's our expectation that's our plan and we are very much seeing that we are able to execute on the plan. So I remain bullish and positive that's going to meet our objectives. And as it comes to the number of subscribers that are on-net, we really limited.

The only limitation we have that stands in our way is that the availability of compatible device, we are adding a significant majority of the devices that are capable on net as they come new devices that at home you reported as many compatible devices as we can or over without disrupting the customer. It is there's some trade-offs. There are some customers segments of customers that are have compatible devices.

But those devices require just because the legacy they require us to have the customer take a step or two changes SIM card because the legacy sometimes we pass those and we just accept the fact that it's better not to disrupt the customer and not them on net, but really the availability of devices is that, but the traffic is scaling very nicely on that. I think that we're very happy to see that I mean usage a customer set.

And for now, I just wanted to give you a glimpse of how rapidly we put in some customers there. But I don't necessarily think that just looking at on-net customers will give you the full picture will continue to give you more information about that as we go on, but data. But overall customer base is trending nicely. The business is growing in terms of ourselves and ARPU and customer satisfaction is both a testament I more than anything else that's a testament to a good offer, good network that we have.

We have not been marketing ourselves that much. And you may have noticed that this is just purely primarily word-of-mouth in some small marketing we have done and just the fact that we have a very loyal base of remaining customers. I think as much as I might be surprised to some boost has a very loyal following people see a lot of great value and they stay with us.

If I could ask one quick follow-up. Can you guys maybe I missed that on when does that device compatibility issue and maybe normalize? And then one other quick question. I think in the queue related to just your overall network spend, I think you know, obviously, I think Paul mentioned rate CapEx would be down year on year, but in the queue. I think it does say the as you prepare for the next build-out requirements in 25, you do expect CapEx to increase as you kind of approach those deadlines. How just help on maybe thinking about the phasing of CapEx here on the wireless side would be helpful. Thank you.

In both of those questions, maybe for John. John?

Thanks for the questions. It's John Swieringa, we talked about device compatibility on earlier calls, and we're really starting to get ahead of it. So I think I've mentioned on previous calls, our Android portfolio for new devices is now essentially all compatible with our 5G network.

On the flip side, when you look at the Apple portfolio, how we're really in iPhone 15 and forward and so if you look at the market, obviously, there's still older iPhones out there. We don't have a opportunity right now to put those on that in our open markets and we still have a vibrant BYOD business, and we view those activations as future leads for our network.

So we're definitely getting ahead of it. But remember, just two years ago, we had one device. Now we've got over 20, and that's climbing, and we're really on the bus now. So you'd see most devices entering the market is compatible with our network. So I think that was the first part.

And the second part was on network capital and what we're doing obviously, in our prepared remarks, we mentioned that our CapEx is down significantly compared to same quarter last year. When you think about what the back half of the year looks like. We do have some work to do, obviously to prepare ourselves and get ready to meet our June 2025 commitments.

We're doing all the work right now. That's not capital intensive the buy down time lines on those sorts of things to get ready to go. We have good plans. It's not our first rodeo we certainly have the ability to hit the gas where needed. And some of our capital, quite frankly, has pushed the second half of the year pending those outcomes.

And on top of that, we're really focused on making sure that the 5G voice markets we have are open, right, and we'll look to 2025 to have a good capital plan that's really focused on competition and making sure that we can compete in our 5G voice markets with Boost.

Thanks, John.

Walter Piecyk, LightShed.

Thanks. I want to go back to the prepared comments, I think you referred to the spectrum being 90% of the carrying value. I assume that’s not necessarily 90% of the total spectrum owned just based on how you’re valuing maybe city POPs versus rural POP. Can you kind of give a little bit more color on what you would -- like what you are funded for in terms of those build-out requirements in terms of maybe percentage of megahertz-POP, are there certain bands that you’d be willing to kind of not meet in that scenario versus other bands that are more important?

And then I guess the overriding on this is, in the discussion with the bondholders, is it given that this is an underlying asset overall, that’s extremely important to the company is obtaining the funding to get to 100%, a critical item to come into some resolution, at least in terms of this first maturity that you’re hitting.

Thank you for the question, Walter. First of all, it’s not our intention to lose any spectrum. So I want to be clear with that. Planning, we’re not in the process of or in any way, looking to dispose any of the spectrum or relinquish the ownership of any of the spectrum. Having said that, maybe I ask Paul to comment on the 90%.

Yeah. The 90% relates to spectrum that has a June 2025 deadline. So it includes the carrying value of the spectrum that has that deadline as well as the capitalized interest on that. And so as you can imagine, most of that probably skews towards cities and larger populations, the 90% does, and obviously, the 10% is probably rural America.

I don’t -- sorry, I don’t understand. You’re saying -- I think the comments you were saying was, you’re going to hit 90%, no problem, and then you’re just going to need incremental financing to get the last 10%. Is it -- did I understand that prepared comments correctly, is that...

No, you have that correct. So right now, we believe we’re going to hit 90% with where we are at --

So I guess my question is -- I get 90% is carrying value. I’m saying like in terms of -- is it kind of comparable to POPs owned? Because it could be 90% of the value but 50% of the POP’s coverage, right, to exaggerate, obviously.

Yeah. We don’t disclose that. But based on the comments that I said we’re going to complete most of our large cities and so forth, you can imagine the POPs would be large.

Yeah. I mean, it’s -- we don’t have a precise math to share with you, but when we talk about 90% of the value, you can imagine that larger markets, all the metro and all the places where population in any way significant would be already protected.

Understood. And then you can obviously rely on the wholesale agreements for the rest, which kind of goes into the second question, which is do you need -- I know you’re talking about securitization, there’s another potential way to monetize rather than using the spectrum to borrow against, it’s just selling it. I understand that maybe under existing regulations, that’s not possible, but we have a potential administration change coming up. Do you need all of the spectrum that you currently own in order to operate on your mobile business plan?

So several assumptions and questions. I hope I can parse them each. We have more spectrum that we need to execute our business plan. We -- in our wildest success streams, we probably won’t need all of the spectrum that we’ve acquired. Do we want to sell that spectrum today even if you have the opportunity to do that? No, we not. We are looking at refinancing options and liquidity options that are not requiring a sale of the spectrum, even if that was available today, that would not be something we’d potentially be working on right now.

We think that there are other avenues that we’re making progress on that are constructive and moving forward, will in the future be opportunities for spectrum trades -- that is always the nature of the industry. We don’t know how the world develops. We don’t know what areas of wireless we are going to further develop, whether it be fixed wireless, whether it be additional coverage, additional services that’s right now – not the immediate focus. The immediate focus is using the spectrum we have potentially as collateral in a prudent way to address our liquidity issues. And then certainly, the spectrum ownership is very strong right now, and you should expect that we will continue to have a strong spectrum position going forward.

Okay. And then just one last one. The language in the 10-Q basically says having enough cash for future cash flows or the maturity, it’s not and so when I look at your free cash flow, especially given the asset sale that’s going to be completed in the third quarter. I assume you don’t have a big working capital need coming up, you should be able to have cash going into next year. So is there -- are there things -- are there working capital payments that are required between now and end of year that you can highlight for us, if any?

Well, so to clarify, we don't have cash on hand or future cash flows to fund the fourth quarter operations as well as the $2 billion maturity past November 14. So if you read that in there, I think you --

It says or though, meaning like I get it like if you don't have $2 billion unless it's refied, but or implies both as opposed to combined would otherwise be and, no? Maybe I'm overreading that, but...

I think you're overreading that, that disclosure's been the same way now for a couple of quarters on that. But again, we have ample cash on hand to get us through the debt maturity to fund operations as well as run the business. However, we don't have cash subsequent to the November 15 debt maturity payment.

But as it comes to cash, I want to make sure everyone on the call realizes that we are fully cognizant and aware of how important it is for us to address our liquidity, and it is not a second or third or fourth priority for us. But having said that, I just want to reiterate that we are focused on it. We're making progress. We're having constructive discussions, and we're not allowing it -- with good judgment we're not allow it to impact our operating business beyond a certain level that we can't control.

What I mean by that is that our team is really heavily focused on success. We're running a business for success. Would I have done a better job? Would we have done a better job in terms of add, subscribers or develop additional growth if we have access to additional cash? Yes. But is that – but are we damaging the business just because -- or that -- is the business opportunity getting damaged or opportunities being fundamentally lost because we don't have additional cash at hand? I would say absolutely not. We're not there. We focus on success, and we hope that with the constructive discussions we are having, all of this will be behind us, we hope. And we certainly affording the foundation for a very successful operating business.

Okay. Can I just give one operational one. I mean the gross adds for wireless that seems to be the thing that you're obviously -- turn a trajectory in the right direction. But what -- I guess, what are the major friction items? You're an early company. Obviously, everyone's got their early learnings dealing with Amazon, whatever it is. What are the major friction items that are preventing your gross adds from ramping? And what are the plans specifically, I guess, to get rid of that friction in order for you to get to this positive growth by the end of the year?

Well, there are a number of things that have to be developed for us to go from what the company has been, which has been an MVNO and to a company that is MNO, has his own network, has probably the best network, if you look at it even on earlier stages of his life that has not even been fully optimized on the load is already performing better than competition in many areas. So there are many, but I can highlight just a couple of them. And none of them are fundamentally unsolvable or in any way, issues that we cannot address in due time.

But let me say that first of all, our distribution is less than the competition. They have, I don't know, five times more stores that we have. We will focus heavily on digital experience, the digital experience. We just launched our combined prepaid and postpaid app and website. And I'll ask you to -- so anyone who's interested, I'll challenge you, ask you, please go ahead and download our app, use our app and see if you have seen any better -- whether you have seen anything better in the marketplace, and please send me feedback, and I'll take it.

The other issues we have is that the phones that are locked today to the other carriers and unlocking is a very big issue for us. And I think the FCC is heading in the right direction by giving customers and consumers in a market a competitive choice. But asking that the carriers unlock the phones after 60 days, and we'd be very supportive to that competition.

We think we're willing to go head on and hand to hand competing in a fair and open market as opposed to a market that is locked to three oligarchs, oligopoly, the three carriers are keeping the customers in a locked position for a market this size, that's just -- in the number one market in the world, I think that's just it's not appropriate, not appropriate level of competition. So that's -- to me, that is an unfair placement for both the consumers and us.

I think to develop our brand is yet another one. Our brand has not been a postpaid brand, but it's been a prepaid brand and a community of other prepaid brands. We need to elevate ourselves, and you will see some of that to the second half of the year where we show up and how do we position our brand. We're going to have to fix that.

So the multitude of areas to develop, every one of those, by the way, have been experienced by other companies. If you go back to the incumbents, if you go back 20 years, even I would say one of the incumbents was in exactly the same position and now they're in a much better position. So there's a recipes for doing that. We're looking forward to doing all of that.

And by the way, I want to say that we have a network that is excellent and is empty, and I continue to say there is nothing more dangerous than an empty network, and we certainly intend to take advantage of the available capacity we have just -- with quality and the offers we have in the market, I think we have a path that we have charted for capturing proper market share.

Thank you.

Jonathan Chaplin, New Street.

Thanks guys. Hamid, first, just a quick process question on the lawsuit. So it looks like the trustee has amended the complaint. Do you have to refile a motion to dismiss, and if so, can that be sort of filed and decided on before November. And I'm wondering how the potential to get that result quickly may be impacting your discussions on refinancing?

And then I was really curious about your comment about there being nothing more dangerous than an empty network. Last quarter it sort of suggested the potential for something really disruptive on the pricing front and the new plants that you guys launched on July 17. Look, the pricing looks pretty similar to the price you had in the market already, not that disruptive. I'm wondering if there could be something more disruptive on the way.

Let me take the second piece first, and then I'll pass the last to Dean, our General Counsel to comment on. Look, I mentioned that not as a prediction of things to come, I certainly would not want to do that. But I just wanted to say that this is a marketplace where we do expect a fair playing field. And I hope that, that fair playing field is established by FCC by and the environment that we are playing in, and there's many constituents in the environment. But certainly, it is not beyond the options on the table, possibilities at the table for us to provide service to our consumers with a much greater value.

We certainly have no intention of destroying marketplace. That's not -- we're not trying to do that. But I think there's plenty of room for fair competition in the marketplace. We are very measured with our approach. But we do have a network that can support a great portion of the marketplace today, and we are hoping that under fair conditions and fair rules of engagement in play that FCC and others allow us to operate in or make it available for us that we captured a fair market share.

I can't be more specific today, but you should expect that we continue to remain one of the most competitive offers in the market. We continue to provide great service and our recognition in the marketplace will certainly really rise in the next six months. By end of the year, we'll be in a better position hopefully, next year will be a much better year for us.

I know that's somewhat a softer answer that you expect, but you would not expect me to give you all of our strategic planning and all of our pricing and any plans we have on this call that will be inappropriate. So I hope I give you some feel for it, but I realize it's probably not as precise as you like. Dean, maybe you can answer, please, the lawsuit question.

Sure. Hi. Jonathan, Dean here. So yes, on your question about procedure, Yeah, we'll have to either file a motion to dismiss or answer that amended complaint. We don't see it as significantly changing the scope of valuations that this group of lenders is asserting. But more to the point or to the other part of your question, we don't see the need to have that resolved before November is and it’s critical, as Hamid alluded to earlier. It's not really getting in the way of the discussions that we're having on the refinancing front. So we'll deal with the lawsuit in due course, which we're in the process of doing.

Yeah. And just adding to that, not from a legal language, but from my own personal view. Certainly, there are multiple parties in the market that are working constructively with us to make progress and be working with them. Each parties that we have been working with, collaborating with has taken a different approach. Some parties have taken the approach of trying to go through a legal process and be more -- using the perceived legal options, and this is a group that we're speaking about. But that doesn't prevent the other groups who are much more constructive, and they're not concerned about this to the degree that you expect.

Alicia, we'll take one more question here.

Marilyn Pereira, Bank of America.

Hi, thank you for taking the questions. Just a quick one on your working capital. It looks like your trade payables increased about $85 million. So I'm just curious how, one, we should think about EchoStar's working capital, give us a sense of the seasonality within that? And can you continue to extend payables. Just some color on how we think about that. And also if you can provide maybe perhaps some of your larger vendors?

Yeah, this is Paul. So we won't provide our largest vendors, but I mean it's pretty apparent to who our -- customers are. We're continuing to pay in the same pattern and practice that we have historically. The changes that you are seeing are all timing related seasonality, one of the things they're due and so forth. But again, we have not changed anything on how we pay people historically. It's the same pattern and practice.

Got it. And I'm sorry, in terms of any seasonality?

Yeah. It obviously depends on -- there's all kinds of purchases when we're buying devices whether it be for the 5G build, for instance, obviously, our CapEx and operating costs are -- the CapEx is down. So obviously, your payables are going to be down from that or could fluctuate it for buying more CapEx. Also, it depends on retail wireless, on the devices that we purchase to put in the channel and things of that sort. So there is seasonality that goes into it as well as timing of when the payments are made and so forth.

Got it. And I mean, can you just give us a sense of where you think working capital will kind of shake out for the full year?

I believe where we're at today, you'll probably see working capital get a little bit better for us as we move throughout the year. I think our inventory balances will probably end up coming down slightly both on a retail wireless and on a Pay-TV side. So it gets slightly better. But I think what you see today is probably what you're going to see come year-end, pretty done close to it.

Got it. Thank you. That’s all I have.

Great. Thanks, everyone, for participating. That will bring our call to a close. Alicia, do you want to --

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.