Dish Network Corp.’s (DISH) second-quarter profit plunged 81% on litigation expenses related to TiVo Inc. (TIVO) and higher subscriber-related costs. The company reported earnings of $63.4 million, or 14 cents per share, compared to $335.9 million, or 73 cents in the year-ago quarter and significantly below the Zacks Consensus Estimate of 67 cents.
The Englewood, Colorado-based company said revenue came in at $2.90 billion, which was basically flat against the prior-year sales of $2.91 billion. The company added 26,000 new subscribers in the quarter, while average monthly subscriber churn rate (turnover) improved 14 basis points to 1.73%. The growth in subscribers was driven by the digital transition on June 12, completion of security access device replacement program and new sales and marketing initiatives.
Total subscriber base still decreased 1.3% year over year to 13.6 million, as it faced intense competition from larger rival DirecTV (DTV) as well as from cable providers and Internet-based pay TV operators. Dish Network, which focuses on the lower-end of the market, was also affected by sluggish economic conditions and by the termination of distribution relationship with AT&T (T) in January of this year. Monthly average revenue per subscriber (ARPU) recorded a growth of 1.9% year over year to $70.73 primarily due to price increases on popular programming packages, changes in the sales mix toward HD packages and advanced hardware offerings.
Subscriber-related expenses increased 7.6% year over year to $1.53 billion. This was attributable to higher programming content costs, increased expenses related to call center operations and higher customer retention expenses associated with upgrading existing customer base to HD and DVR receivers. Subscriber acquisition costs rose 4.5% year over year to $388.3 million mainly due to additional advertising costs per activation, partially offset by a shift in the mix of sales from independent retailers to direct sales, which reduced incentives.
The company also recorded an expense of $196.4 million pertaining to TiVo litigation. The expense includes $103 million in fines and interest imposed by a district court on Dish Network and former unit EchoStar (SATS) in June related to a 4-year old patent infringement case with TiVo. However, last month a federal circuit court stayed the order providing the company with temporary relief.
Meanwhile, G&A costs increased 15.5% to $155.9 million on higher personnel costs and professional fees to support the network. Static revenue coupled with higher expenses caused operating income to plunge 57.7% to $262.8 million, while operating margin slipped to 9.0% from the year-ago level of 21.3%.
Dish Network ended the first-half with cash and marketable securities of $1.32 billion, a reduction of 30% compared to the same period last year, primarily due to the weak earnings performance. During the period, cash was primarily deployed for buying marketable securities worth $1.77 billion, partially offset by $1.09 billion generated by sale of securities, and for capital expenditure of $466.7 million.
Last week, archrival DirecTV reported an 11% decline in second-quarter earnings to $407 million, or 40 cents per share, missing the Zacks Consensus Estimate by 3 cents. The company added 224,000 subscribers in the quarter, helped by the launch of a co-branded satellite service with AT&T.
Meanwhile, the Zacks Consensus Estimate, derived from 13 covering analysts, on Dish Network’s full-year earnings has climbed a penny over the past month and is currently pegged at $2.32 per share. The most accurate estimate is slightly bearish at $2.27 per share.
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