EchoStar CORP Q1 FY2024 Earnings Call

Thank you, Rob. Welcome to EchoStar's First Quarter 2024 Earnings Call. We will begin with opening remarks from 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 identifying other participants or their firms in such reports. We also do not allow audio recording, which we ask that you respect. All statements we make 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 involve known and unknown risks, uncertainties, and other factors that could cause our actual results to be materially different from historical results and for any future results expressed or implied by the forward-looking statements. For a list of those factors and risks, please refer to our quarterly report on Form 10-Q for the quarter ended March 31, 2024, filed on May 8 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. Let me refer to OIBDA and free cash flow during this call. The comparable GAAP measure and a reconciliation for OIBDA is presented in our earnings release. And for free cash flow, those things are presented in our 10-Q. With that, I'll turn it over to Hamid.

Thank you, Dean. Welcome, everyone. We appreciate you joining us today. We're just over four months into the merger between DISH and EchoStar, and operations are progressing to plan for the year. Given the nature of earnings calls, our prepared remarks will focus mainly on the operating business. However, we understand that most of you are also interested in hearing about our efforts to refinance our maturing debt obligations and improve our cash flow position. To that end, we continue to work on a number of avenues. We have fielded a variety of offers and are pursuing those which can support our long-term objectives. The complex and delicate nature of this process demands time and confidentiality; we will certainly have more to share in due course. As for the operating business, in the first quarter, we met our budget targets in nearly all important metrics in each of our business units. We will elaborate on some of those results during this call today. To start, as I shared on our last call, our 2024 operating plan targets a positive operating free cash flow. This includes efficiencies, optimizations, and synergies, which result in a reduction in our annual total operating expenses of $1 billion. Our first quarter results keeps us on track for achieving that objective. We have sharpened our leadership and operating business into three distinct go-to-market business units. This allows for greater accountability and profitability-focused management while providing our business leaders greater flexibility when it's needed. We have tightened our focus on selectively acquiring and retaining higher-value subscribers, and our efforts are already showing up in Q1 numbers. Overall, ARPU is increasing in every business unit, while churn is down in Pay-TV and Retail Wireless. As we work to improve our operating profitability, we have not lost our focus on innovation. Our teams are hard at work developing and enhancing our catalog of offerings for consumer and enterprise customers, with many first-time wins in new sectors and channels. We have a state-of-the-art open RAN wireless network, which is now serving hundreds of thousands of satisfied customers and demonstrating its power and speed in trials. Our new Jupiter 3 broadband satellite, the largest ever launched, is attracting new customers at the fastest rate in many years, and the Pay-TV business unit's operational efficiency has improved year-over-year. We are pleased with our start to the year and plan to maintain the momentum through the rest of the year. With that, I will turn it over to Paul Orban for additional commentary on our Q1 numbers.

Thank you, Hamid. As of the last call, I will briefly touch on the going-concern qualification. Please read the financial statements contained in our 10-Q to see the precise disclosure. As a reminder, 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, and it does not allow us to consider any new funding sources unless that financing is committed as of today. As of the end of the first quarter, our cash and cash equivalents and marketable investment securities totaled $766 million. On February 16, we completed the purchase of SNR management's ownership interest in S&R HoldCo for $442 million, resulting in SNR now being wholly owned by EchoStar. On March 15, we paid off our $1 billion debt maturity with cash on hand. We have roughly $2 billion of debt maturing in November 2024, and we do not currently have the necessary cash on hand, our projected future cash flows to fund fourth quarter operations or the November 2024 debt maturity. To address our capital needs, as Hamid mentioned, we are in discussions with funding sources at all levels in our capital structure. As Hamid highlighted, our teams are focused on maintaining positive operating cash flow, defined as free cash flow, excluding debt service payments and one-time payments related to the construction of our EchoStar XXV satellite. We are on track to meet this goal in 2024, in part by continuing 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 high-quality and highly profitable subscribers. We are seeing the results in reported DISH and Retail Wireless churn. Now let's review our financial performance from the first quarter. Revenue was $4 billion in the first quarter of 2024. That's down 8% year-over-year, primarily due to subscriber declines across Pay-TV, Retail Wireless, and Broadband and Satellite Services. OIBDA was $470 million, down $231 million year-over-year, driven by the ramp in operating costs for the network as we have more sites online as well as decreased margin from having fewer subscribers year-over-year, as previously mentioned. Free cash flow was negative $226 million, down $66 million year-over-year. We had a decrease in capital spend for the network of $281 million, which was in line with our prior guidance. The decrease in capital spend was largely offset by the decrease in OIBDA and was also negatively impacted by working capital items, which we expect to reverse in Q2. After these working capital changes, we were flat to last year. As I discussed last call, we do expect CapEx for the year to be roughly half of what it was in 2023. With that, I'd like to turn it over to Gary to discuss our Pay-TV unit.

Thank you, Paul. On the Pay-TV side, we finished Q1 with approximately 8.2 million customers. We're seeing positive signs of increased operational efficiency in the business, and our focus on customer loyalty and improved quality, subscriber acquisition enabled us to reduce churn across our video services business versus last year while also increasing ARPU by 4.6% per subscriber. All in, the improved churn, ARPU, and significantly lower variable cost achieved by our savings for growth efforts resulted in higher per subscriber profitability. In particular, our media sales revenue per subscriber continues to grow year-over-year, and our ability to deliver linear, programmatic, and addressable advertising at scale is one of our strengths. We are really excited to have launched DISH Connected, a new first-of-its-kind service that allows us to deliver programmatic advertising to our set-top box based customers. We continue to experience competitive pressure from programmers who shift content from traditional pay-TV to their own direct-to-consumer services, and this was evident throughout Q1 during the college football bowl season, NFL playoffs, and both the men's and women's NCAA basketball tournaments. This has been most pronounced as MAX continues to offer NBA and NHL playoffs for free. Noteworthy also worth mentioning is the pending launch of the Disney Fox Warner Bros. Sports JV, which we find fundamentally anticompetitive and warrants an examination by the government. In regards to DISH TV, we finished the quarter with approximately 6.3 million subscribers with Q1 churn significantly lower compared to the same period in 2023. Our Q1 subscriber numbers for DISH TV were again negatively impacted by ongoing local broadcaster disputes. However, on that note, I'm pleased to report that we did settle a 17-month dispute with Cox Media Group last month, and we look forward to a less disruptive year in 2024. We're happy with our initial success in cross-selling Boost and HughesNet to our DISH TV base. DISH TV cross-sell accounted for 9% of HughesNet's gross adds in Q1, and we're working on ways to further integrate our products to improve the customer experience and our value proposition. Regarding the Sling business, one of the industry's only profitable streaming services, we finished the quarter with approximately 1.9 million subscribers, a loss of approximately 135,000 in Q1, about 100,000 better year-over-year. This improved churn is due to our purposeful focus on high-quality profitable subscribers and an improved customer experience. In fact, our increased product performance and 2023 features have led to an increase of 18% year-over-year viewership per subscriber, and we are already seeing early signs of higher engagement driven by new Q1 launches, including our rewards program, which is our new watch and win loyalty program for both Sling and Freestream FAST users, Arcade, which is the first streaming TV integrated watch and play casual gaming service, our new sports three-day and replay, which is a new feature for our DBR users that lets them watch the past three days of sports content, and we launched the FAST industry's first free DVR on Sling Freestream. With Arcade Rewards and Free DVR, our Freestream service is unique in the market and emerging as a significant and efficient funnel for new customer acquisition and additional media sales. I'm pleased with the momentum that we're building and look forward to where we take our business in 2024. Now I'd like to turn it over to Paul Gaske, who will 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 acquisition of subscribers on the Jupiter 3 satellite during the first quarter. We are pleased with the initial response to the new service plans introduced with the additional capacity of Jupiter 3. We also began upgrading existing subscribers on Jupiter 1 and 2, enabling them to benefit from the greater speed and data provided by the new plans. Our focus remains on attracting the highest value subscribers and reducing churn in 2024. As a result, our subscriber losses decreased to 26,000, the lowest reduction in 10 quarters. We finished Q1 with approximately 978,000 satellite broadband subscribers. We continue to work on expanding our Hughes enterprise business on several fronts, and we expect Hughes to cross over the 50% threshold of its revenues coming from enterprises this year. In our Hughes managed LEO business, we began initial shipments late last year of a Hughes manufactured user terminal based on our unique flat panel electronically steered antenna also known as E-S-A, which is manufactured in our U.S.-based facility. We've received very positive feedback from the marketplace on the performance and value of our ESA. As mentioned on our last call, Gartner upgraded us from a Challenger to a Leader position in the 2023 Gartner Magic Quadrant. We're one of the few companies that has the ability to deliver best-in-class enterprise services on a global scale, allowing us to address the broad managed services market. In one example of such opportunities, Hughes Defense teamed with Boost Wireless and was selected as one of the few providers to supply 5G connectivity and devices under the umbrella of a $2.7 billion 10-year IDIQ contract with the DoD. Lastly, our entry into the In-Flight Communications business is progressing as we complete key development milestones and prepare to provide service to airline customers such as Delta Airlines. With that, I will turn it back to Hamid for an update on our retail wireless business.

Thank you, Paul. As has previously been shared, I've taken the helm of our Retail Wireless business unit as we search for a new leader for the segment. I'm happy to report that we have hit a number of new promising developments. We finished the quarter with approximately 7.3 million subscribers. And while it's not broken out in our numbers, Boost Mobile was net positive in subscriber growth for the month of March. We are not quite where we want to be, but we are encouraged by our record churn performance, the lowest churn we have had since acquiring the Boost business. We accomplished this while still maintaining what we believe is the highest ARPU in the prepaid market, which rose slightly during the past quarter. As in all our business units, our focus has been on acquiring the highest-quality subscribers, improving the customer experience, and optimizing our network. Our new family plans as well as our tax season offers received a positive response, and we'll continue to expand our customer base through additional competitive offers, flexible service options, and the economic benefits of using our own network. We intend to build up on this positive momentum, particularly as we hit critical selling seasons in the back half of the year. To further capitalize on our owner economics, we successfully initiated the migration of hundreds of thousands of customers from our partner networks to our own Boost network. This On-Net subscriber base will continue to grow throughout the year. In spite of this momentum in our prepaid business, we realize we have work to do to improve our offerings and execution in the postpaid space, a key objective for the back half of the year. With the expiration of government funding on June 1 for the ACP program, we are actively working with our ACP customers to transition them to appropriate plans within our Gen Mobile and Boost Mobile brands, including the National Lifeline program. Ensuring that Americans have access to high-speed Internet and mobile services is important to the development of our society, and we believe these are essential services in today's world. We will do what we can to the best of our means to support the continuation of service for these individuals. Nonetheless, we expect to lose some customers with the expiration of the program, but we do not expect these losses to have a material impact on our operations or financial performance. Let me now hand the call to John to cover our network deployment progress.

Thank you, Hamid. The team has been hard at work executing our network deployment plan and operating our first-of-its-kind open RAN cloud-native network. As Hamid mentioned, we are actively transitioning existing customers with network-compatible devices to our own network, and adding new customers as well. Among other tactics, we've enabled first-of-its-kind over-the-air migrations with minimal customer impact. Throughout this process, we've been pleased with the performance of the network and our ability to take greater advantage of owner economics. While we are still in the early stages of commercializing our network, our On-Net customers are experiencing accessibility, retainability, and throughput performance on par with competitive services. We also addressed a key product gap for our customers in the first quarter with our launch of global roaming services. During Q1, five out of ten devices sold and activated at Boost were compatible with our network. And three of those five activated directly On-Net. We now have network-compatible devices available from all of our major OEMs and options available in a wide variety of price points. As the number of network-compatible devices and our 5G voice coverage continues to grow throughout the year, we expect device activations on our network to increase. In March, we completed our network drive test and filed the results with the FCC, certifying that our 5G network provides download speeds of 35 megabits per second or greater to more than 70% of the U.S. population. This was an important and final component of our 2023 5G network deployment commitment. It confirms that the Boost network is delivering high-quality service to our customers, which is a major achievement and testament to the hard work of our team in building the world's first Open RAN network, and doing that in record time. We are focused on expanding and optimizing the Boost network to compete against the incumbents and on meeting our 2025 FCC milestones. In Q1, we invested $391 million, which is comparable to $672 million in Q1 of 2023. Our immediate focus has been on capital investments and optimizations required to have a competitive network for Boost customers within our existing and future footprint. This is a logical progression for us as we move from an accelerated build to running and optimizing our markets with a P&L mindset. Now I'd like to turn it back to Hamid.

Thank you, John. In summary, we fully appreciate that liquidity is the most prominent objective at the moment, which is driving our share performance. While we focus significant attention on this critical activity, we are laser-focused on operating the business with greater efficiency and developing these long-term opportunities. We feel good about the prospects and trajectories in our two established business units, namely DISH and Hughes. Both business units are on track to deliver significantly higher efficiencies than last year. As for our nascent retail wireless business unit, it is getting its footing in the marketplace, starting with high On-Net customer satisfaction, its lowest historical churn, and the highest ARPU in the prepaid segment. We realize we are facing an oversaturated consumer market with a slow expansion in share of wallet from consumers and the competitive nature of the postpaid segment, where we are yet to tap some of the advantages that our agile, non-legacy infrastructure affords us. All in all, I'm encouraged by the operating momentum we have established early in the year, which will help us as we tackle the significant challenges ahead. With that, we'll open it for Q&A.

Our first question is from Rick Prentiss with Raymond James.

A couple of questions from my side. Hamid, you mentioned an oversaturated wireless market out there. Can you update us as far as what your thinking is on fixed wireless? That certainly seems to be a not-so-saturated market or one that wireless is taking share from, maybe easier to market with less cost than competing in the postpaid side. And related, the 5G private network wholesale aspect, can you update us on that? And then I'll have a quick follow-up.

Sure. Thank you, Rick. Good to hear from you. The fixed wireless is something that certainly is in the future in the cards for us, like everybody else is focused on. At the moment, a higher priority for us is to make sure that we get our prepaid and postpaid business on solid footing and migrate customers On-Net. The greatest economic advantage for us is loading the network that we have now. And certainly, we have access to a number of additional opportunities to focus on right after that. I don't see us doing that this year. For the rest of the year, we are solidly booked with optimizing the economics of bringing customers on that. As for the fixed wireless, there are also opportunities for 12 gigahertz for fixed wireless and CBRS at 345 to 355. We have access to that spectrum. And we think that those probably can offer even more advantageous fixed wireless options with greater bandwidth, greater availability, and better suited for that purpose. So we have in our arsenal those capabilities, which we need to develop. It will be a business modeling and trade-off to see which one is best and maybe all of them. But certainly, on the Boost side—on the Mobile side, we will not have an offering in the market for the fixed wireless this year. I think you had a second part related to wholesale 5G. Again, wholesale is yet another opportunity for 5G that we have some opportunities already in the works. You have heard us about, obviously, there with the government, you know that we have done a private 5G area that has expanded to become two basis. And we certainly think that has potential to be far, far larger, and we are in good contact with the officials and leaders at the government who seem to want to expand that. We are subject to their budget cycles, obviously, and that—but related to that, we just announced that we were one of the few suppliers, I think we have five or six suppliers altogether that got selected for a DoD Award of a 10-year program that they have. I think the total program is $2.7 billion. We certainly expect to get a fair share of that. To me, personally, the fair share is something that should be proportionate to our ability to deliver on 5G and ORAN, the way that has been beneficial to the government and for their purposes. So I'll leave it at that. But I think we have a lot of prospects in that area. But priority one right now this year is to get our basic prepaid and postpaid business significantly ramped up and brought On-Net.

Makes sense. In the financing world, obviously, like you said, it's complicated and delicate, but can you update us at least as far as how much unencumbered spectrum you have out there that we could consider that as a possible solution? And I think in past calls, Charlie has mentioned that it's inevitable that a DISH TV, DIRECTV combination might occur at some point. Update us kind of your view on that now that you're in the CEO role. What would it take to get to that inevitable? Is that something that still could be in the cards? And what would allow us to maybe proceed better?

Rick, it will be very difficult for me to go through the details of the spectrum ownership and covenants and other relationships here. I think there's some information publicly available for you guys to search through that. Some of it may be in our queue and some of it in other sources. But suffice it to say that we have a significant amount of spectrum. The vast majority of the spectrum value in the business is not encumbered. So I think far more than the value of the obligations we have. I would just leave it at that—at this level. Otherwise, you'd be—it would take too long for me to go through the details. And then regarding DIRECTV and DISH TV, is there something that might allow it to become closer to fruition if it's something that is of interest? For any sort of transaction, obviously, it takes more than one party to speak. So I can't speak how inevitable it is. I would say that to me, obviously, there's significant synergy there. When you look at the two businesses being in the same space and both businesses are in a space where we are under attack by content providers and a number of other challenges. I think that opportunity certainly has always been there and is there. It's a matter of us finding the right time and economics to look at it. Right now, my focus more than anything else is to address the two significant challenges ahead of us. One is, as I mentioned, just immediate financing needs and second is getting our business operationally to the point where—post-financing challenges are overcome, having a business that is sustainable and is generating significant economic value, and those two priorities right now are taking, I would say, 99% of my time. At the right time, I'll look at other opportunities through an M&A lens.

Appreciate it. Obviously, we get relatively few opportunities to engage with you guys about the business. So I want to ask some bigger picture questions. You've got a $4 billion equity market cap, and you've got bonds in 2026 maturing trading at $0.60 to a dollar. These two things seem incompatible. So can you—at a high level, walk us through the strategy where DISH doesn't or shouldn't file for bankruptcy? And given where you are with the funding situation, what are the facts and circumstances that present themselves that inform you that management's fiduciary obligation has shifted away from equity and towards the bondholders?

Looking at the overall situation, I observe that the business has substantial asset value compared to its liabilities. The challenge is to leverage this strong balance sheet—not solely in terms of cash, but also in terms of equity-to-debt and asset-to-debt ratios—to convert that into liquidity for business operations. This is fundamentally the task at hand. In discussions with capital sources, we focus on ensuring that we have access to cash and capital in the short to mid-term to advance our operating business. We take pride in our operations, particularly in our two established business units that are generating cash and have significant potential. The Hughes business, in particular, is promising and plays a crucial role in our enterprise operations. Furthermore, we have the unique ability to activate a direct-to-satellite business model—we possess global spectrum rights that match those in the U.S. This presents a substantial opportunity to enhance our existing global business both in valuation and operating cash flow. Our straightforward objective is to extend our debt maturities and create access to renewable financing so we can maintain sufficient cash to run our operations. We remain optimistic about the potential of our operating business if we secure the necessary capital to implement our plans.

We believe there are significant opportunities for enhancing our existing global business, both in valuation and operating cash flow. Our strategy is straightforward: can we extend the maturities and ensure we have access to renewable ones so that we have sufficient cash to run the business? We are very optimistic about the prospects of our operating business if we have the necessary capital to execute our plans.

Hey David, you're going to have to restate that question there. It was all garbled. Obviously, you're not on our network.

I think we need to move on to the next question.

Hamid, last quarter on the call, you said you were hoping to wrap up the negotiations with bondholders, put new cash on the balance sheet in one fell swoop rather than doing things incrementally. The goal was to come out of the process with two to three years of liquidity runway to just focus on running the business. I'm wondering how the DBS bondholder lawsuit complicates that, if it does. Is the lawsuit—because it's attempting to unravel the transaction—make it more difficult to raise capital against spectrum, either at EchoStar or DISH Network Corp? And then separately, a question for maybe John, if you could give us a sense of how much of your traffic is now riding over your own network, and where that might get to by the end of the year as you migrate subscribers over, that would be great.

Great. I'll answer the first part before passing to John. Look, our goal is still clear. We really would like to create a runway of several years to fully develop our opportunities. Most of the opportunities in front of us are not opportunities that can mature and get to full valuation in less than a year or two. We really need a longer runway. That's our objective. We hope to have a capital structure that affords us that time window and capital. Now, obviously, time will tell whether we get our objective or not, but that's what we hope to do and are actively working on. As it comes to the lawsuit, it really doesn't change anything in our calculus and our plans. Everything that we had done, everything we have done with respect to movement of the assets or any other actions we have has been reviewed, and we are fully confident that we are compliant with every right we have, and there’s no—that the lawsuit will not change the course for us or any of our prospects. I think one can expect that these outcomes show up in any sort of transaction. This isn't, at least for those close to our situation, a surprise. So I will leave it that way. Again, in summary, it's a fact that these occurrences do happen, and we've kind of had that in mind.

Thanks, Hamid. Jonathan, I thought you might ask a question about this. So we're focused on loading the network and gaining owner economics. In my prepared remarks, I commented that about half the devices that we're activating on the network are compatible. We need that to cross with over 200 million POPs of under coverage to be able to get activations and upgrades On-Net. We're bending our business towards boost distribution in MNO markets. We expect that to ramp significantly, certainly as more devices become available and we really get moving with the optimization work that we need to do across some of the markets that we launched more recently, which includes New York, New Jersey, and Chicago, to name a few big ones. We're not going to provide a projection on traffic, but it's ramping significantly, doubling on us and doubling again, and we're sort of on our way. We're bullish about getting the Boost base moved over within the confines of our activation volumes or upgrade volumes, foot traffic, and those sorts of things. I think Hamid mentioned that we're preparing for fresh activity in the second half of the year, and we should expect to see more ramping then in terms of network. But we're happy with what we're seeing from customers on that. If you told me I could be where I am today 180 days ago, I would have taken it.

And just one other follow-up, John. The active drive testing that you submitted to the SEC, does submitting the filing basically end the process entirely? Or are you waiting for some kind of response from them?

Our understanding is that the process is complete.

Great. Maybe for Hamid, just to follow up on the commentary on Boost subs in March. I mean, a, I guess, what's really driving it? Are you seeing better gross adds? Is churn coming down? Just any of the competitive dynamics you're seeing in the prepaid market? And then do you expect these trends to continue as we scale up and move through the year? Just sort of any commentary—forward-looking commentary you have on what net adds could do over the next couple of quarters would be great.

So I'll start answering in reverse. Yes, we do expect this trend to continue. We are—the progress we saw in March, in my view, is not a one-time hit. We expect that business to continue to keep improving. I think we made a number of changes early in the year and even in the fourth quarter that puts more emphasis on maintaining and developing the prepaid business, which was actually a pretty good business and has been a home base for us, but had been somewhat under attended due to an overemphasis on the postpaid business at the expense of the prepaid business. We're kind of bringing it back now, both of them, to power level of attention. We have been increasing our incentive to the dealers. We've been doing a better job of targeting higher-value customers, not taking low-calorie customers, using credit checks better, doing ID checks better, doing a number of things that would basically improve our execution on the prepaid. Those things are lasting; those are not a one-time hit. Yes, we are encouraged with—the churn has come down to historically low levels, and ARPU is increasing, and we expect to keep it on our track. The postpaid business, I didn't mention much about it here simply because our initial approach to market was rushed. It came—it was one of those cases where the company has spent a significant amount of attention and time developing the infrastructure and coverage paramount as a minimum viable product and requirements for the spectrum. The focus of the business was primarily the coverage and not as much focus has been given to the go-to-market for the postpaid. The product did not meet all of our expectations in terms of feature sets and activations and support. We have to be working on improving those things, including our offers, and we do expect to do a better job in the second half of the year with postpaid, and we have not—we definitely want to—we realize that this is a critical part of the business that we need to succeed in, and we intend to do that. But the right thing to do was to push that out a bit, get the basics right. For instance, we did not have global roaming, which is a requirement for postpaid that we were not offering at that moment. This is all going to come back. We expect both business segments, both prepaid and postpaid, to do even better in the second half of the year.

Just a couple of things. First, just curious, going back to the subject of build, where is DISH on meeting the 2025 milestones? Is it the expectation to invest to meet those milestones, or do you plan on asking for an extension to maybe give you more time for that, given some of the comments that you've made in the past? And secondly, with respect to the cost-cutting, can you share where you are on that $1 billion of annualized savings that you're targeting? Are there incremental investments that also need to be considered that could offset some portion of those savings as we look at the expense trends over the course of this year?

Great. Two-part question. As for the first part, as John and I both mentioned, we are focused on meeting our 2025 FCC milestone, as well as investing in our financing needs, which include the capital required to meet those milestones. Some are tied together but we are certainly focused on those objectives for the build-out. As it comes to the $1 billion, I'll pass that to Paul who can comment further on it.

Thanks, Michael. This is Paul. It's a good question here. So the $1 billion ramps throughout the year. So we'll exit the year at a run rate of $1 billion. And to answer the question about do we—are there any material investments that we need to make to achieve that? The answer is no.

And are there also investments that you're just going to make, whether it’s in marketing and sales and other components of the expense base that will offset some of these $1 billion savings over the course of the year?

See, it's a very large list of optimizations. None of the optimizations fundamentally impact our ability to develop our business in the future or deprioritize our strategic growth opportunities. So there is nothing structural or fundamental. We just had a number of synergies here and opportunities. Some of it had to do with marketing, where we didn't need to spend, for instance, if we—I mean, I go to marketing because that's where you hit on first. If we are not focused on the postpaid side of the business on Retail Wireless, we are not optimizing our marketing approach; we kind of scaled that back for the time being until we get our offers and execution right. We were attracting customers to our sites, but we were not just able to convert them—that was just not an efficient way to spend marketing. There's a significant amount of efficiencies in moving customers from Off-Net to On-Net that vastly reduces our costs in certain areas, paying to the partners. This is an acceleration of the plan for us that John talked about. So we're ahead of schedule trying to do that, accelerating some of those technical aspects. John talked about migration—automatic migration over-the-air, something that others haven't done. We're really—out of necessity here, we are really good at doing that. The team has managed to develop that and accelerate that. We had no leakage and no loss trying to bring customers on—from Off-Net to On-Net. This generates a significant amount of synergies. You can go across the business and duplications between the merged companies— we have taken advantage of that very quickly upfront, early in the year, and by the way, there's more to come. I mean, all myself and the rest of the management team, we don't believe that $1 billion was the end of it. We think there's significantly more opportunities; we're not even touching any of the other aspects of the business.

I just want to go back to Michael's question. And the first one, at least to see if you can unpack it a little bit more with regard to the third deadline. Can you give some sense in terms of the individual licenses—like percentage of POPs or megahertz POPs that you've hit those deadlines? And I guess, more importantly, it's probably something the bondholders should consider. At what point is it too late in terms of getting the financing required to fulfill the deadlines for all of those licenses, in terms of the financing or refinancing the stuff that's coming due in November? I mean, is there kind of a date on the calendar where it's like, you waited that—this long now, even if we spend a ton of money without any relief from the FCC, we can't hit it on a certain percentage of these licenses that we have across the spectrum for this third deadline?

Walt, this is John. I'll take the first part of that and then see if Hamid has anything he wants to add. As you know, we've been in an accelerated deployment mode for years now. We know how to acquire sites. We know how to do careful planning. We know how to get teams activated and moving in the field to get coverage layered up quickly. As it relates to 600 megahertz, we've been in planning mode. As you know, it's a different kind of build; you need to capture the flag in every single license area versus coverage based on general population. But we've got the sites identified; we've got backups where the team is ready to roll on this. I am keeping my eyes on a few markets up in the north where it gets cold. But generally, we've got the time we need to execute on the 600 megahertz for '25 and also the unpaired uplink, which is a little bit after that.

I'll add a bit more color to John's response. Obviously, financing has to happen. It cannot be—we don't have an infinite amount of time to get the financing lined up to meet the obligation. So they are related. At the moment, we can meet the obligation; certainly, we're focused on it. Obviously, the financing has to come at the right time. We have that in mind in our discussions with the bondholders and sources of capital. I can't comment any further on that. Generally, we don't comment on our obligations publicly, but the issues that are all interrelated. We are focused on building—making the build and meeting our obligations again, conditioned on as you mentioned, the financing coming at the right time. There is no specific date that I can offer you, but that is something that we certainly have in mind as we progress.

And do you think the bondholders fully appreciate the risk to them as a result? Did they have a date in mind? Where they understand the risk to them in terms of underlying asset value?

I think that's a good question for the bondholders. I certainly will not be able to answer on their behalf. But I think you're raising a good question. I think it is a good question but it's certainly not for me. It's certainly for the bondholders to respond.

And just on operational, Hamid, what do you think it takes to get consumers to recognize the value proposition? Is there anything new that—I mean, obviously, Amazon when they first launched it kind of came and went—not, I would say, the perfect launch, I guess. But is there an opportunity to exploit that distribution channel going forward to try and get some better recognition of the product and get some actual sales onto the network—more material sales on the network?

I have been part of the mobile business all of my life. In every generation of it, I've been front and center. I can say that we are realistic about what it takes to win in a saturated market, but there's also incredible advantages to having an underutilized national network. A couple of times I've told people, nothing is more dangerous in the mobile business than having an underutilized network. I think there's many ways we can approach this market. We've already paid to develop this network. You can imagine that I have the operating expenses and capital expenses already incurred. Can we sharpen our go-to-market in a way that others can't? I only have some ideas, and hopefully, we can execute on them. I wouldn't say one should read too much into our initial entry; we're still very excited, incredibly excited about Amazon as a channel. Other channels that are exciting and other developments are happening, the right thing to do is for us to reevaluate where we are and how we approach it. I don't want to have an approach to market that is either unprofitable or unsuccessful. But we believe we have a lot of arrows in our quiver to use, we just have not yet pulled them out. Time will tell. Our approach to a postpaid market will start in the back half of this year. It will be some work like everybody else, in perpetuity; that's going to be hand-to-hand combat in the market. We think we have enough tools to compete. The U.S. market is the richest market in the world for mobile communication, and we are just about to enter the age of AI, where everybody thinks that connectivity and data are going to go to the next level that nobody has ever seen. We feel we are prepared with the infrastructure that is underutilized, incredibly agile, ready for AI. There are enterprises and partners that are talking to us every day about their vision of where they can take their businesses, and we are excited about it. Even for the mobile telecommunications industry, it's always been known that 20% of every telecommunications carrier will change their supplier if they're given another choice. We are not looking for a dominant market share. Our profitability and sustainability will be incredibly good even with a modest share of the market as a fourth player in spite of our significant advantages in terms of infrastructure and technology that nobody else has today. Long answer to a short question, but we are excited about where we are. We just need time and capital. The roadmap for success is clear; we just need a timeline and the capital to execute on it.

So with that, operator, I think we'll take one more question.

That question is coming from the line of Sebastiano Petti with JPMorgan.

Just a couple of quick follow-ups. I mean, to John's question earlier about the trajectory of net additions. Hamid, you just talked about improvement in the back half. As you get through whatever potential headwind ACP may pose or not pose, can we get to positive growth as we kind of exit the year? Or is that the goal we should be anticipating as we get to the other side, maybe into 2025 as your efforts continue to ramp? And then relatedly, again, also following up on an earlier question on the cost savings side. Can you help us think about the geography of that $1 billion of cost savings as we're thinking about the business units? Obviously, Pay-TV, you have subscriber declines and there's some variable costs associated with that. But—and you're thinking about the retail side, but on the Retail Wireless side, you're probably making some investments to focus on these improved or higher value subscribers. So there's probably marketing cost, cost of service there. There's probably also cost of service as you load the network to an extent to scale the networks. So help us think about maybe geography-wise across your business units, where should we be thinking about these $1 billion of savings kind of appearing or hitting the bottom line?

I'll take the easy part of the question, and then I'll pass the difficult part to Paul. Yes, we do expect and plan on having a positive growth—net positive growth on the Retail Wireless business for this year. In our view, this business would have turned around by the end of the year, and we are already seeing the first installment of that in March coming out of the first quarter. The churn is low, as low as it's been since the business was acquired. The actions we have taken to reduce churn were not one-time lucky actions, and there was no market support to suggest that churn was accidental. So that will be—and this is our target and goal to get to a growth this year, and we see it at the moment where we sit today, that is clearly visible to us. Now I'll pass the second part to Paul.

So thanks for the question. That's a good question. I want to be clear though that the $1 billion does not include any cost reduction related to variable cost or a decline in the subscriber base. It's totally excluded from that. We will obviously see that in various segments. From a standpoint of where it sits, it's across all segments; all of our areas are tightening their belt, and we're using cost-cutting measures across the board. It happens in all captions in the P&L, whether it's cost of sales, cost of goods, or G&A. I think you saw that in our Q1 numbers, and you should continue to see that going forward.

I want to mention that we have—the least cut from where we face the market, and we have not endangered any strategic objectives or strategic opportunities that we have. I'm heavily focused on making sure that we position the business for long-term growth. We have a number of excellent long-term opportunities right now in our shop that we are nurturing and developing in. These cost optimizations are not coming at the expense of the future of the business. I can attest to that.

Okay. Thank you all for your interest. We look forward to updating you again next quarter. Thank you, everyone. Bye.

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