UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2023.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 001-33807
EchoStar Corporation
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
| Nevada | | 26-1232727 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
| | | |
| 100 Inverness Terrace East, Englewood, Colorado | | 80112-5308 | |
| (Address of principal executive offices) | | (Zip Code) | |
| | | | | |
(303) 706-4000 | | Not Applicable | |
| (Registrant’s telephone number, including area code) | | (Former name, former address and former fiscal year, if changed since last report) | |
| | | | | |
| Securities registered pursuant to Section 12(b) of the Act: | | | |
| Class A common stock | $0.001 par value | | The NASDAQ Stock Market LLC | |
| (Title of each class) | | (Name of each exchange on which registered) | |
| SATS | | | |
(TickerTrading symbol) | | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | Accelerated filer | ☐ | Emerging growth company | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of AugustNovember 2, 2023, the registrant’s outstanding common stock consisted of 36,162,28236,219,803 shares of Class A common stock and 47,687,039 shares of Class B common stock, each $0.001 par value.
ECHOSTAR CORPORATION
TABLE OF CONTENTS
ITEM 1:PART I: FINANCIAL INFORMATION
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements about our estimates, expectations, future developments, plans, objectives, strategies, financial condition, expected impact of regulatory developments and legal proceedings, opportunities in our industries and businesses and other trends and projections for the next fiscal quarter and beyond. All statements, other than statements of historical facts, may be forward-looking statements. Forward-looking statements may also be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “project,” “continue,” “future,” “will,” “would,” “could,” “can,” “may” and similar terms. These forward-looking statements are based on information available to us as of the date of this Form 10-Q and represent management’s current views and assumptions based on past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. Forward-looking statements are not guarantees of future performance, events or results and involve potential known and unknown risks, uncertainties, and other factors, many of which may be beyond our control and may pose a risk to our operating and financial condition both the near- and long-term. Accordingly, actual performance, events or results could differ materially from those expressed or implied in the forward-looking statements due to a number of factors including, but not limited to:
•risks relating to our ability to complete and realize the expected benefits of the pending merger with DISH Network Corporation;
•risks relating to our substantially increased leverage following completion of the pending merger with DISH Network Corporation;
•significant risks related to our ability to launch, operate, and control our satellites, operational and environmental risks related to our owned and leased satellites, and risks related to our satellites under construction;
•our ability and the ability of third parties with whom we engage to operate our business as a result of changes in the global business environment, including regulatory and competitive considerations;
•our ability to implement and/or realize benefits of our investments and other strategic initiatives;
•risks related to our foreign operations and other uncertainties associated with doing business internationally;
•risks related to our dependency upon third-party providers, including supply chain disruptions and inflation;
•risks related to cybersecurity incidents; and
•risks related to our human capital resources.
Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption Risk Factors in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Form 10-Q and in Part II, Item 7 of our Form 10-K and those discussed in other documents we file with the SEC.
All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described herein and should not place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievements. We do not assume responsibility for the accuracy and completeness of any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in any documents we file with the SEC, except as required by law.
Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
ITEM 1. FINANCIAL STATEMENTS
ECHOSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | | | | As of | | | As of |
| | | | June 30, 2023 | | December 31, 2022 | | | September 30, 2023 | | December 31, 2022 |
| | (unaudited) | | | | (unaudited) | | |
| Assets | Assets | | | | | Assets | | | | |
| Current assets: | Current assets: | | | | | Current assets: | | | | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 702,055 | | | $ | 704,541 | | Cash and cash equivalents | | $ | 1,094,531 | | | $ | 704,541 | |
| Marketable investment securities | Marketable investment securities | | 1,211,407 | | | 973,915 | | Marketable investment securities | | 894,744 | | | 973,915 | |
| Trade accounts receivable and contract assets, net | Trade accounts receivable and contract assets, net | | 238,967 | | | 236,479 | | Trade accounts receivable and contract assets, net | | 235,421 | | | 236,479 | |
| Other current assets, net | Other current assets, net | | 244,347 | | | 210,446 | | Other current assets, net | | 248,241 | | | 210,446 | |
| Total current assets | Total current assets | | 2,396,776 | | | 2,125,381 | | Total current assets | | 2,472,937 | | | 2,125,381 | |
| Non-current assets: | Non-current assets: | | | | | Non-current assets: | | | | |
| Property and equipment, net | Property and equipment, net | | 2,168,376 | | | 2,237,617 | | Property and equipment, net | | 2,144,707 | | | 2,237,617 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | | 144,055 | | | 151,518 | | Operating lease right-of-use assets | | 143,726 | | | 151,518 | |
| Goodwill | Goodwill | | 533,295 | | | 532,491 | | Goodwill | | 532,710 | | | 532,491 | |
| Regulatory authorizations, net | Regulatory authorizations, net | | 460,310 | | | 462,531 | | Regulatory authorizations, net | | 459,463 | | | 462,531 | |
| Other intangible assets, net | Other intangible assets, net | | 14,582 | | | 15,698 | | Other intangible assets, net | | 13,975 | | | 15,698 | |
| Other investments, net | Other investments, net | | 193,432 | | | 356,705 | | Other investments, net | | 136,455 | | | 356,705 | |
| Other non-current assets, net | Other non-current assets, net | | 326,218 | | | 317,062 | | Other non-current assets, net | | 326,485 | | | 317,062 | |
| Total non-current assets | Total non-current assets | | 3,840,268 | | | 4,073,622 | | Total non-current assets | | 3,757,521 | | | 4,073,622 | |
| Total assets | Total assets | | $ | 6,237,044 | | | $ | 6,199,003 | | Total assets | | $ | 6,230,458 | | | $ | 6,199,003 | |
| | Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | | Liabilities and Stockholders' Equity | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Trade accounts payable | Trade accounts payable | | $ | 91,118 | | | $ | 101,239 | | Trade accounts payable | | $ | 82,291 | | | $ | 101,239 | |
| Contract liabilities | Contract liabilities | | 107,977 | | | 121,739 | | Contract liabilities | | 122,288 | | | 121,739 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | | 199,086 | | | 199,853 | | Accrued expenses and other current liabilities | | 192,100 | | | 199,853 | |
| Total current liabilities | Total current liabilities | | 398,181 | | | 422,831 | | Total current liabilities | | 396,679 | | | 422,831 | |
| Non-current liabilities: | Non-current liabilities: | | | | | Non-current liabilities: | | | | |
| Long-term debt, net | Long-term debt, net | | 1,497,187 | | | 1,496,777 | | Long-term debt, net | | 1,497,396 | | | 1,496,777 | |
| Deferred tax liabilities, net | Deferred tax liabilities, net | | 432,877 | | | 424,621 | | Deferred tax liabilities, net | | 433,370 | | | 424,621 | |
| Operating lease liabilities | Operating lease liabilities | | 128,374 | | | 135,932 | | Operating lease liabilities | | 127,829 | | | 135,932 | |
| Other non-current liabilities | Other non-current liabilities | | 109,299 | | | 119,787 | | Other non-current liabilities | | 109,396 | | | 119,787 | |
| Total non-current liabilities | Total non-current liabilities | | 2,167,737 | | | 2,177,117 | | Total non-current liabilities | | 2,167,991 | | | 2,177,117 | |
| Total liabilities | Total liabilities | | 2,565,918 | | | 2,599,948 | | Total liabilities | | 2,564,670 | | | 2,599,948 | |
| | Commitments and contingencies (Note 13) | | |
| Commitments and Contingencies (Note 13) | | Commitments and Contingencies (Note 13) | |
The accompanying notes are an integral part of these Consolidated Financial Statements
1
ECHOSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | Stockholders' equity: | Stockholders' equity: | | | | | Stockholders' equity: | | | | |
| Preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding at both June 30, 2023 and December 31, 2022 | | — | | | — | | |
| Preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding at both September 30, 2023 and December 31, 2022 | | Preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding at both September 30, 2023 and December 31, 2022 | | — | | | — | |
| Common stock, $0.001 par value, 4,000,000,000 shares authorized: | Common stock, $0.001 par value, 4,000,000,000 shares authorized: | | Common stock, $0.001 par value, 4,000,000,000 shares authorized: | |
| Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 59,474,291 shares issued and 36,160,980 shares outstanding at June 30, 2023 and 58,604,927 shares issued and 35,291,616 shares outstanding at December 31, 2022 | | 59 | | | 59 | | |
| Class B convertible common stock, $0.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at both June 30, 2023 and December 31, 2022 | | 48 | | | 48 | | |
| Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both June 30, 2023 and December 31, 2022 | | — | | | — | | |
| Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both June 30, 2023 and December 31, 2022 | | — | | | — | | |
| Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 59,532,668 shares issued and 36,219,357 shares outstanding at September 30, 2023 and 58,604,927 shares issued and 35,291,616 shares outstanding at December 31, 2022 | | Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 59,532,668 shares issued and 36,219,357 shares outstanding at September 30, 2023 and 58,604,927 shares issued and 35,291,616 shares outstanding at December 31, 2022 | | 59 | | | 59 | |
| Class B convertible common stock, $0.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at both September 30, 2023 and December 31, 2022 | | Class B convertible common stock, $0.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at both September 30, 2023 and December 31, 2022 | | 48 | | | 48 | |
| Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both September 30, 2023 and December 31, 2022 | | Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both September 30, 2023 and December 31, 2022 | | — | | | — | |
| Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both September 30, 2023 and December 31, 2022 | | Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both September 30, 2023 and December 31, 2022 | | — | | | — | |
| Additional paid-in capital | Additional paid-in capital | | 3,379,997 | | | 3,367,058 | | Additional paid-in capital | | 3,383,671 | | | 3,367,058 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | (153,874) | | | (172,239) | | Accumulated other comprehensive income (loss) | | (161,515) | | | (172,239) | |
| Accumulated earnings (losses) | Accumulated earnings (losses) | | 873,715 | | | 833,517 | | Accumulated earnings (losses) | | 876,959 | | | 833,517 | |
| Treasury shares, at cost, 23,313,311 shares at both June 30, 2023 and December 31, 2022 | | (525,824) | | | (525,824) | | |
| Treasury shares, at cost, 23,313,311 shares at both September 30, 2023 and December 31, 2022 | | Treasury shares, at cost, 23,313,311 shares at both September 30, 2023 and December 31, 2022 | | (525,824) | | | (525,824) | |
| Total EchoStar Corporation stockholders' equity | Total EchoStar Corporation stockholders' equity | | 3,574,121 | | | 3,502,619 | | Total EchoStar Corporation stockholders' equity | | 3,573,398 | | | 3,502,619 | |
| Non-controlling interests | Non-controlling interests | | 97,005 | | | 96,436 | | Non-controlling interests | | 92,390 | | | 96,436 | |
| Total stockholders' equity | Total stockholders' equity | | 3,671,126 | | | 3,599,055 | | Total stockholders' equity | | 3,665,788 | | | 3,599,055 | |
| Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | | $ | 6,237,044 | | | $ | 6,199,003 | | Total liabilities and stockholders' equity | | $ | 6,230,458 | | | $ | 6,199,003 | |
The accompanying notes are an integral part of these Consolidated Financial Statements
2
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
| | | | | For the three months ended June 30, | | For the six months ended June 30, | | | | For the three months ended September 30, | | For the nine months ended September 30, | |
| | 2023 | | 2022 | | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 | |
| Revenue: | Revenue: | | | | | | | | | | Revenue: | | | | | | | | | |
| Services and other revenue | Services and other revenue | | $ | 371,510 | | | $ | 414,697 | | | $ | 749,037 | | | $ | 833,508 | | | Services and other revenue | | $ | 359,349 | | | $ | 401,382 | | | $ | 1,108,386 | | | $ | 1,234,890 | | |
| Equipment revenue | Equipment revenue | | 81,599 | | | 84,619 | | | 143,669 | | | 167,342 | | | Equipment revenue | | 53,725 | | | 96,005 | | | 197,394 | | | 263,347 | | |
| Total revenue | Total revenue | | 453,109 | | | 499,316 | | | 892,706 | | | 1,000,850 | | | Total revenue | | 413,074 | | | 497,387 | | | 1,305,780 | | | 1,498,237 | | |
| Costs and expenses: | Costs and expenses: | | | | | | | | | | Costs and expenses: | | | | | | | | | |
| Cost of sales - services and other (exclusive of depreciation and amortization) | Cost of sales - services and other (exclusive of depreciation and amortization) | | 132,724 | | | 144,235 | | | 268,096 | | | 285,364 | | | Cost of sales - services and other (exclusive of depreciation and amortization) | | 133,335 | | | 145,189 | | | 401,431 | | | 430,553 | | |
| Cost of sales - equipment (exclusive of depreciation and amortization) | Cost of sales - equipment (exclusive of depreciation and amortization) | | 56,162 | | | 70,054 | | | 107,824 | | | 139,168 | | | Cost of sales - equipment (exclusive of depreciation and amortization) | | 43,180 | | | 74,329 | | | 151,004 | | | 213,497 | | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | | 107,420 | | | 113,091 | | | 217,481 | | | 231,261 | | | Selling, general and administrative expenses | | 104,988 | | | 111,421 | | | 322,469 | | | 342,682 | | |
| Research and development expenses | Research and development expenses | | 6,842 | | | 8,764 | | | 15,097 | | | 16,381 | | | Research and development expenses | | 6,463 | | | 9,181 | | | 21,560 | | | 25,562 | | |
| Depreciation and amortization | Depreciation and amortization | | 105,588 | | | 116,555 | | | 208,446 | | | 236,991 | | | Depreciation and amortization | | 103,028 | | | 110,233 | | | 311,474 | | | 347,224 | | |
| Impairment of long-lived assets | Impairment of long-lived assets | | — | | | 711 | | | 3,142 | | | 711 | | | Impairment of long-lived assets | | — | | | — | | | 3,142 | | | 711 | | |
| Total costs and expenses | Total costs and expenses | | 408,736 | | | 453,410 | | | 820,086 | | | 909,876 | | | Total costs and expenses | | 390,994 | | | 450,353 | | | 1,211,080 | | | 1,360,229 | | |
| Operating income (loss) | Operating income (loss) | | 44,373 | | | 45,906 | | | 72,620 | | | 90,974 | | | Operating income (loss) | | 22,080 | | | 47,034 | | | 94,700 | | | 138,008 | | |
| Other income (expense): | Other income (expense): | | | | | | | | | | Other income (expense): | | | | | | | | | |
| Interest income, net | Interest income, net | | 23,526 | | | 9,072 | | | 52,122 | | | 15,494 | | | Interest income, net | | 26,209 | | | 14,183 | | | 78,331 | | | 29,677 | | |
| Interest expense, net of amounts capitalized | Interest expense, net of amounts capitalized | | (13,240) | | | (14,307) | | | (26,526) | | | (29,280) | | | Interest expense, net of amounts capitalized | | (12,650) | | | (13,845) | | | (39,176) | | | (43,125) | | |
| Gains (losses) on investments, net | Gains (losses) on investments, net | | (5,485) | | | (22,538) | | | (12,594) | | | 58,148 | | | Gains (losses) on investments, net | | (10,743) | | | (10,077) | | | (23,337) | | | 48,071 | | |
| Equity in earnings (losses) of unconsolidated affiliates, net | Equity in earnings (losses) of unconsolidated affiliates, net | | (546) | | | (1,301) | | | (1,097) | | | (3,015) | | | Equity in earnings (losses) of unconsolidated affiliates, net | | (1,978) | | | (1,426) | | | (3,075) | | | (4,441) | | |
| Other-than-temporary impairment losses on equity method investments | Other-than-temporary impairment losses on equity method investments | | (33,400) | | | — | | | (33,400) | | | — | | | Other-than-temporary impairment losses on equity method investments | | — | | | — | | | (33,400) | | | — | | |
| Foreign currency transaction gains (losses), net | Foreign currency transaction gains (losses), net | | 3,258 | | | (3,642) | | | 6,571 | | | 2,752 | | | Foreign currency transaction gains (losses), net | | (2,089) | | | (2,805) | | | 4,482 | | | (53) | | |
| Other, net | Other, net | | 9,372 | | | 2,673 | | | 9,442 | | | 2,517 | | | Other, net | | (11,750) | | | (319) | | | (2,308) | | | 2,198 | | |
| Total other income (expense), net | Total other income (expense), net | | (16,515) | | | (30,043) | | | (5,482) | | | 46,616 | | | Total other income (expense), net | | (13,001) | | | (14,289) | | | (18,483) | | | 32,327 | | |
| Income (loss) before income taxes | Income (loss) before income taxes | | 27,858 | | | 15,863 | | | 67,138 | | | 137,590 | | | Income (loss) before income taxes | | 9,079 | | | 32,745 | | | 76,217 | | | 170,335 | | |
| Income tax benefit (provision), net | Income tax benefit (provision), net | | (18,773) | | | (5,390) | | | (30,233) | | | (38,172) | | | Income tax benefit (provision), net | | (8,547) | | | (13,195) | | | (38,780) | | | (51,367) | | |
| Net income (loss) | Net income (loss) | | 9,085 | | | 10,473 | | | 36,905 | | | 99,418 | | | Net income (loss) | | 532 | | | 19,550 | | | 37,437 | | | 118,968 | | |
| Less: Net loss (income) attributable to non-controlling interests | Less: Net loss (income) attributable to non-controlling interests | | 2,072 | | | 3,395 | | | 3,293 | | | 5,883 | | | Less: Net loss (income) attributable to non-controlling interests | | 2,712 | | | 2,853 | | | 6,005 | | | 8,736 | | |
| Net income (loss) attributable to EchoStar Corporation common stock | Net income (loss) attributable to EchoStar Corporation common stock | | $ | 11,157 | | | $ | 13,868 | | | $ | 40,198 | | | $ | 105,301 | | | Net income (loss) attributable to EchoStar Corporation common stock | | $ | 3,244 | | | $ | 22,403 | | | $ | 43,442 | | | $ | 127,704 | | |
| | Earnings (losses) per share - Class A and B common stock: | Earnings (losses) per share - Class A and B common stock: | | | Earnings (losses) per share - Class A and B common stock: | | |
| Basic | Basic | | $ | 0.13 | | | $ | 0.16 | | | $ | 0.48 | | | $ | 1.24 | | | Basic | | $ | 0.04 | | | $ | 0.27 | | | $ | 0.52 | | | $ | 1.51 | | |
| Diluted | Diluted | | $ | 0.13 | | | $ | 0.16 | | | $ | 0.48 | | | $ | 1.24 | | | Diluted | | $ | 0.04 | | | $ | 0.27 | | | $ | 0.52 | | | $ | 1.51 | | |
The accompanying notes are an integral part of these Consolidated Financial Statements
3
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
| | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended September 30, | | For the nine months ended September 30, |
| | | | 2023 | | 2022 | | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 |
| Net income (loss) | Net income (loss) | | $ | 9,085 | | | $ | 10,473 | | | $ | 36,905 | | | $ | 99,418 | | Net income (loss) | | $ | 532 | | | $ | 19,550 | | | $ | 37,437 | | | $ | 118,968 | |
| Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | | 12,821 | | | (38,114) | | | 20,312 | | | 10,831 | | Foreign currency translation adjustments | | (9,020) | | | 18,853 | | | 11,292 | | | 29,684 | |
| Unrealized gains (losses) on available-for-sale securities | Unrealized gains (losses) on available-for-sale securities | | 1,903 | | | (66) | | | 1,688 | | | (633) | | Unrealized gains (losses) on available-for-sale securities | | (547) | | | 358 | | | 1,141 | | | (275) | |
| Other | | Other | | — | | | 2,660 | | | — | | | 2,660 | |
| Amounts reclassified to net income (loss): | Amounts reclassified to net income (loss): | | Amounts reclassified to net income (loss): | |
| Realized losses (gains) on available-for-sale debt securities | Realized losses (gains) on available-for-sale debt securities | | 227 | | | 3 | | | 227 | | | 3 | | Realized losses (gains) on available-for-sale debt securities | | 23 | | | — | | | 250 | | | 3 | |
| Total other comprehensive income (loss), net of tax | Total other comprehensive income (loss), net of tax | | 14,951 | | | (38,177) | | | 22,227 | | | 10,201 | | Total other comprehensive income (loss), net of tax | | (9,544) | | | 21,871 | | | 12,683 | | | 32,072 | |
| Comprehensive income (loss) | Comprehensive income (loss) | | 24,036 | | | (27,704) | | | 59,132 | | | 109,619 | | Comprehensive income (loss) | | (9,012) | | | 41,421 | | | 50,120 | | | 151,040 | |
| Less: Comprehensive loss (income) attributable to non-controlling interests | Less: Comprehensive loss (income) attributable to non-controlling interests | | 178 | | | 10,387 | | | (569) | | | 3,319 | | Less: Comprehensive loss (income) attributable to non-controlling interests | | 4,615 | | | 5,108 | | | 4,046 | | | 8,427 | |
| Comprehensive income (loss) attributable to EchoStar Corporation | Comprehensive income (loss) attributable to EchoStar Corporation | | $ | 24,214 | | | $ | (17,317) | | | $ | 58,563 | | | $ | 112,938 | | Comprehensive income (loss) attributable to EchoStar Corporation | | $ | (4,397) | | | $ | 46,529 | | | $ | 54,166 | | | $ | 159,467 | |
The accompanying notes are an integral part of these Consolidated Financial Statements
4
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNESEPTEMBER 30, 2023 AND 2022
(Unaudited, in thousands)
| | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Earnings (Losses) | | Treasury Shares, at cost | | Non-controlling Interests | | Total | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Earnings (Losses) | | Treasury Shares, at cost | | Non-controlling Interests | | Total |
| Balance, March 31, 2022 | | $ | 106 | | | $ | 3,343,056 | | | $ | (173,280) | | | $ | 747,899 | | | $ | (471,582) | | | $ | 111,714 | | | $ | 3,557,913 | | |
| Balance, June 30, 2022 | | Balance, June 30, 2022 | | $ | 107 | | | $ | 3,355,238 | | | $ | (204,465) | | | $ | 761,767 | | | $ | (514,418) | | | $ | 101,327 | | | $ | 3,499,556 | |
| Issuance of Class A common stock: | Issuance of Class A common stock: | | Issuance of Class A common stock: | |
| Employee benefits | | 1 | | — | | — | | — | | — | | — | | 1 | | |
| Employee Stock Purchase Plan | Employee Stock Purchase Plan | | — | | 2,679 | | — | | — | | — | | — | | 2,679 | | Employee Stock Purchase Plan | | — | | 2,126 | | — | | — | | — | | — | | 2,126 | |
| Stock-based compensation | Stock-based compensation | | — | | 3,187 | | — | | — | | — | | — | | 3,187 | | Stock-based compensation | | — | | 3,355 | | — | | — | | — | | — | | 3,355 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | — | | (31,185) | | — | | — | | (6,992) | | (38,177) | | Other comprehensive income (loss) | | — | | — | | 24,126 | | — | | — | | (2,255) | | 21,871 | |
| Net income (loss) | Net income (loss) | | — | | — | | — | | 13,868 | | — | | (3,395) | | 10,473 | | Net income (loss) | | — | | — | | — | | 22,403 | | — | | (2,853) | | 19,550 | |
| Treasury share repurchase | Treasury share repurchase | | — | | | — | | | — | | | — | | | (42,836) | | | — | | | (42,836) | | Treasury share repurchase | | — | | | — | | | — | | | — | | | (11,406) | | | — | | | (11,406) | |
| Consideration received from DISH Network for R&D tax credits utilized | | — | | | 6,316 | | | — | | | — | | | — | | | — | | | 6,316 | | |
| Balance, June 30, 2022 | | $ | 107 | | | $ | 3,355,238 | | | $ | (204,465) | | | $ | 761,767 | | | $ | (514,418) | | | $ | 101,327 | | | $ | 3,499,556 | | |
| | Balance, March 31, 2023 | | $ | 107 | | | $ | 3,376,169 | | | $ | (166,931) | | | $ | 862,558 | | | $ | (525,824) | | | $ | 97,183 | | | $ | 3,643,262 | | |
| Other | | Other | | $ | — | | | $ | 500 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 500 | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | | $ | 107 | | | $ | 3,361,219 | | | $ | (180,339) | | | $ | 784,170 | | | $ | (525,824) | | | $ | 96,219 | | | $ | 3,535,552 | |
| | Balance, June 30, 2023 | | Balance, June 30, 2023 | | $ | 107 | | | $ | 3,379,997 | | | $ | (153,874) | | | $ | 873,715 | | | $ | (525,824) | | | $ | 97,005 | | | $ | 3,671,126 | |
| Issuance of Class A common stock: | Issuance of Class A common stock: | | Issuance of Class A common stock: | |
| Employee benefits | | — | | — | | — | | — | | — | | — | | — | | |
| Employee Stock Purchase Plan | Employee Stock Purchase Plan | | — | | 1,045 | | — | | — | | — | | — | | 1,045 | | Employee Stock Purchase Plan | | — | | 810 | | — | | — | | — | | — | | 810 | |
| Stock-based compensation | Stock-based compensation | | — | | 2,783 | | — | | — | | — | | — | | 2,783 | | Stock-based compensation | | — | | 2,864 | | — | | — | | — | | — | | 2,864 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | — | | 13,057 | | — | | — | | 1,894 | | 14,951 | | Other comprehensive income (loss) | | — | | — | | (7,641) | | — | | — | | (1,903) | | (9,544) | |
| Net income (loss) | Net income (loss) | | — | | — | | — | | 11,157 | | — | | (2,072) | | 9,085 | | Net income (loss) | | — | | — | | — | | 3,244 | | — | | (2,712) | | 532 | |
| | Balance, June 30, 2023 | | $ | 107 | | | $ | 3,379,997 | | | $ | (153,874) | | | $ | 873,715 | | | $ | (525,824) | | | $ | 97,005 | | | $ | 3,671,126 | | |
| Balance, September 30, 2023 | | Balance, September 30, 2023 | | $ | 107 | | | $ | 3,383,671 | | | $ | (161,515) | | | $ | 876,959 | | | $ | (525,824) | | | $ | 92,390 | | | $ | 3,665,788 | |
The accompanying notes are an integral part of these Consolidated Financial Statements
5
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2023 AND 2022
(Unaudited, in thousands)
| | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Earnings (Losses) | | Treasury Shares, at cost | | Non-controlling Interests | | Total | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Earnings (Losses) | | Treasury Shares, at cost | | Non-controlling Interests | | Total |
| Balance, December 31, 2021 | Balance, December 31, 2021 | | $ | 106 | | | $ | 3,345,878 | | | $ | (212,102) | | | $ | 656,466 | | | $ | (436,521) | | | $ | 60,253 | | | $ | 3,414,080 | | Balance, December 31, 2021 | | $ | 106 | | | $ | 3,345,878 | | | $ | (212,102) | | | $ | 656,466 | | | $ | (436,521) | | | $ | 60,253 | | | $ | 3,414,080 | |
| Issuance of Class A common stock: | Issuance of Class A common stock: | | Issuance of Class A common stock: | |
| Employee benefits | Employee benefits | | 1 | | 7,041 | | — | | — | | — | | — | | 7,042 | | Employee benefits | | 1 | | 7,041 | | — | | — | | — | | — | | 7,042 | |
| Employee Stock Purchase Plan | Employee Stock Purchase Plan | | — | | 5,046 | | — | | — | | — | | — | | 5,046 | | Employee Stock Purchase Plan | | — | | 7,173 | | — | | — | | — | | — | | 7,173 | |
| Stock-based compensation | Stock-based compensation | | — | | 5,047 | | — | | — | | — | | — | | 5,047 | | Stock-based compensation | | — | | 8,401 | | — | | — | | — | | — | | 8,401 | |
| Issuance of equity and contribution of assets pursuant to the India JV formation | Issuance of equity and contribution of assets pursuant to the India JV formation | | — | | (14,090) | | — | | — | | — | | 44,393 | | 30,303 | | Issuance of equity and contribution of assets pursuant to the India JV formation | | — | | (14,090) | | — | | — | | — | | 44,393 | | 30,303 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | — | | 7,637 | | — | | — | | 2,564 | | 10,201 | | Other comprehensive income (loss) | | — | | — | | 31,763 | | — | | — | | 309 | | 32,072 | |
| Net income (loss) | Net income (loss) | | — | | — | | — | | 105,301 | | — | | (5,883) | | 99,418 | | Net income (loss) | | — | | — | | — | | 127,704 | | — | | (8,736) | | 118,968 | |
| Treasury share repurchase | Treasury share repurchase | | — | | | — | | | — | | | — | | | (77,897) | | | — | | | (77,897) | | Treasury share repurchase | | — | | | — | | | — | | | — | | | (89,303) | | | — | | | (89,303) | |
| Consideration received from DISH Network for R&D tax credits utilized | Consideration received from DISH Network for R&D tax credits utilized | | — | | | 6,316 | | | — | | | — | | | — | | | — | | | 6,316 | | Consideration received from DISH Network for R&D tax credits utilized | | — | | | 6,316 | | | — | | | — | | | — | | | — | | | 6,316 | |
| Balance, June 30, 2022 | | $ | 107 | | | $ | 3,355,238 | | | $ | (204,465) | | | $ | 761,767 | | | $ | (514,418) | | | $ | 101,327 | | | $ | 3,499,556 | | |
| Other | | Other | | — | | | 500 | | | — | | | — | | | — | | | — | | | 500 | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | | $ | 107 | | | $ | 3,361,219 | | | $ | (180,339) | | | $ | 784,170 | | | $ | (525,824) | | | $ | 96,219 | | | $ | 3,535,552 | |
| | Balance, December 31, 2022 | Balance, December 31, 2022 | | $ | 107 | | | $ | 3,367,058 | | | $ | (172,239) | | | $ | 833,517 | | | $ | (525,824) | | | $ | 96,436 | | | $ | 3,599,055 | | Balance, December 31, 2022 | | $ | 107 | | | $ | 3,367,058 | | | $ | (172,239) | | | $ | 833,517 | | | $ | (525,824) | | | $ | 96,436 | | | $ | 3,599,055 | |
| Issuance of Class A common stock: | Issuance of Class A common stock: | | Issuance of Class A common stock: | |
| Employee benefits | Employee benefits | | — | | 5,421 | | — | | — | | — | | — | | 5,421 | | Employee benefits | | — | | 5,421 | | — | | — | | — | | — | | 5,421 | |
| Employee Stock Purchase Plan | Employee Stock Purchase Plan | | — | | 2,143 | | — | | — | | — | | — | | 2,143 | | Employee Stock Purchase Plan | | — | | 2,953 | | — | | — | | — | | — | | 2,953 | |
| Stock-based compensation | Stock-based compensation | | — | | 5,375 | | — | | — | | — | | — | | 5,375 | | Stock-based compensation | | — | | 8,239 | | — | | — | | — | | — | | 8,239 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | — | | 18,365 | | — | | — | | 3,862 | | 22,227 | | Other comprehensive income (loss) | | — | | — | | 10,724 | | — | | — | | 1,959 | | 12,683 | |
| Net income (loss) | Net income (loss) | | — | | — | | — | | 40,198 | | — | | (3,293) | | 36,905 | | Net income (loss) | | — | | — | | — | | 43,442 | | — | | (6,005) | | 37,437 | |
| | Balance, June 30, 2023 | | $ | 107 | | | $ | 3,379,997 | | | $ | (153,874) | | | $ | 873,715 | | | $ | (525,824) | | | $ | 97,005 | | | $ | 3,671,126 | | |
| Balance, September 30, 2023 | | Balance, September 30, 2023 | | $ | 107 | | | $ | 3,383,671 | | | $ | (161,515) | | | $ | 876,959 | | | $ | (525,824) | | | $ | 92,390 | | | $ | 3,665,788 | |
The accompanying notes are an integral part of these Consolidated Financial Statements
6
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| | | | | For the six months ended June 30, | | | For the nine months ended September 30, |
| | | | 2023 | | 2022 | | | | 2023 | | 2022 | |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | | | Cash flows from operating activities: | | | | | |
| Net income (loss) | Net income (loss) | | $ | 36,905 | | | $ | 99,418 | | | Net income (loss) | | $ | 37,437 | | | $ | 118,968 | | |
| Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities: | Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities: | | | Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities: | | |
| Depreciation and amortization | Depreciation and amortization | | 208,446 | | | 236,991 | | | Depreciation and amortization | | 311,474 | | | 347,224 | | |
| Impairment of long-lived assets | Impairment of long-lived assets | | 3,142 | | | 711 | | | Impairment of long-lived assets | | 3,142 | | | 711 | | |
| Losses (gains) on investments, net | Losses (gains) on investments, net | | 12,594 | | | (58,148) | | | Losses (gains) on investments, net | | 23,337 | | | (48,071) | | |
| Equity in losses of unconsolidated affiliates, net | Equity in losses of unconsolidated affiliates, net | | 1,097 | | | 3,015 | | | Equity in losses of unconsolidated affiliates, net | | 3,075 | | | 4,441 | | |
| Foreign currency transaction losses (gains), net | Foreign currency transaction losses (gains), net | | (6,571) | | | (2,752) | | | Foreign currency transaction losses (gains), net | | (4,482) | | | 53 | | |
| Deferred tax provision, net | Deferred tax provision, net | | 7,872 | | | 24,412 | | | Deferred tax provision, net | | 8,088 | | | 28,901 | | |
| Stock-based compensation | Stock-based compensation | | 5,375 | | | 5,047 | | | Stock-based compensation | | 8,239 | | | 8,401 | | |
| Amortization of debt issuance costs | Amortization of debt issuance costs | | 410 | | | 386 | | | Amortization of debt issuance costs | | 619 | | | 583 | | |
| Gain on repayment of other debt securities | Gain on repayment of other debt securities | | (7,605) | | | — | | | Gain on repayment of other debt securities | | (7,605) | | | — | | |
| Other-than-temporary impairment losses on equity method investments | Other-than-temporary impairment losses on equity method investments | | 33,400 | | | — | | | Other-than-temporary impairment losses on equity method investments | | 33,400 | | | — | | |
| | (Accretion of discounts) and amortization of premiums on debt investments | | (Accretion of discounts) and amortization of premiums on debt investments | | (21,340) | | | 159 | | |
| Other, net | Other, net | | (22,498) | | | 27,397 | | | Other, net | | (6,634) | | | 35,450 | | |
| Changes in assets and liabilities, net: | Changes in assets and liabilities, net: | | | Changes in assets and liabilities, net: | | |
| Trade accounts receivable and contract assets, net | Trade accounts receivable and contract assets, net | | 975 | | | (39,271) | | | Trade accounts receivable and contract assets, net | | 2,940 | | | (63,563) | | |
| Other current assets, net | Other current assets, net | | (41,887) | | | (6,113) | | | Other current assets, net | | (46,216) | | | (26,402) | | |
| Trade accounts payable | Trade accounts payable | | (16,771) | | | 1,793 | | | Trade accounts payable | | (22,817) | | | 657 | | |
| Contract liabilities | Contract liabilities | | (13,762) | | | (6,487) | | | Contract liabilities | | 549 | | | (13,759) | | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | | 3,416 | | | (10,119) | | | Accrued expenses and other current liabilities | | (489) | | | (27,004) | | |
| Non-current assets and non-current liabilities, net | Non-current assets and non-current liabilities, net | | (13,580) | | | (24,648) | | | Non-current assets and non-current liabilities, net | | (21,694) | | | (23,432) | | |
| Net cash provided by (used for) operating activities | Net cash provided by (used for) operating activities | | 190,958 | | | 251,632 | | | Net cash provided by (used for) operating activities | | 301,023 | | | 343,317 | | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | Cash flows from investing activities: | | |
| Purchases of marketable investment securities | Purchases of marketable investment securities | | (900,560) | | | (183,529) | | | Purchases of marketable investment securities | | (1,015,650) | | | (540,447) | | |
| Sales and maturities of marketable investment securities | Sales and maturities of marketable investment securities | | 663,873 | | | 669,600 | | | Sales and maturities of marketable investment securities | | 1,150,683 | | | 917,077 | | |
| Expenditures for property and equipment | Expenditures for property and equipment | | (124,458) | | | (187,917) | | | Expenditures for property and equipment | | (206,862) | | | (249,374) | | |
| Refunds and other receipts related to capital expenditures | Refunds and other receipts related to capital expenditures | | 31,371 | | | — | | | Refunds and other receipts related to capital expenditures | | 34,611 | | | — | | |
| Expenditures for externally marketed software | Expenditures for externally marketed software | | (15,253) | | | (11,967) | | | Expenditures for externally marketed software | | (22,373) | | | (16,926) | | |
| Proceeds from repayment of other debt investment | Proceeds from repayment of other debt investment | | 148,448 | | | — | | | Proceeds from repayment of other debt investment | | 148,448 | | | — | | |
| India JV formation | India JV formation | | — | | | (7,892) | | | India JV formation | | — | | | (7,892) | | |
| Dividend received from unconsolidated affiliate | Dividend received from unconsolidated affiliate | | — | | | 2,000 | | | Dividend received from unconsolidated affiliate | | — | | | 2,000 | | |
| Sale of unconsolidated affiliate | | Sale of unconsolidated affiliate | | — | | | 7,500 | | |
| | Sales of other investments | | Sales of other investments | | — | | | 3,070 | | |
| Net cash provided by (used for) investing activities | Net cash provided by (used for) investing activities | | (196,579) | | | 280,295 | | | Net cash provided by (used for) investing activities | | 88,857 | | | 115,008 | | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | | | Cash flows from financing activities: | | | | | |
| | Payment of finance lease obligations | Payment of finance lease obligations | | — | | | (114) | | | Payment of finance lease obligations | | — | | | (114) | | |
| Payment of in-orbit incentive obligations | Payment of in-orbit incentive obligations | | (2,460) | | | (1,908) | | | Payment of in-orbit incentive obligations | | (3,144) | | | (2,422) | | |
| | Proceeds from Class A common stock issued under the Employee Stock Purchase Plan | Proceeds from Class A common stock issued under the Employee Stock Purchase Plan | | 2,143 | | | 5,046 | | | Proceeds from Class A common stock issued under the Employee Stock Purchase Plan | | 2,953 | | | 7,173 | | |
| Payment of equity registration fees | | Payment of equity registration fees | | (1,327) | | | — | | |
| Treasury share repurchase | Treasury share repurchase | | — | | | (77,095) | | | Treasury share repurchase | | — | | | (89,303) | | |
| | Net cash provided by (used for) financing activities | Net cash provided by (used for) financing activities | | (317) | | | (74,071) | | | Net cash provided by (used for) financing activities | | (1,518) | | | (84,666) | | |
| Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents | | 3,483 | | | (728) | | | Effect of exchange rates on cash and cash equivalents | | 1,622 | | | (3,123) | | |
| Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | (2,455) | | | 457,128 | | | Net increase (decrease) in cash and cash equivalents | | 389,984 | | | 370,536 | | |
| Cash and cash equivalents, including restricted amounts, beginning of period | Cash and cash equivalents, including restricted amounts, beginning of period | | 705,883 | | | 536,874 | | | Cash and cash equivalents, including restricted amounts, beginning of period | | 705,882 | | | 536,874 | | |
| Cash and cash equivalents, including restricted amounts, end of period | Cash and cash equivalents, including restricted amounts, end of period | | $ | 703,428 | | | $ | 994,002 | | | Cash and cash equivalents, including restricted amounts, end of period | | $ | 1,095,866 | | | $ | 907,410 | | |
The accompanying notes are an integral part of these Consolidated Financial Statements
7
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES
Principal Business
EchoStar Corporation (which, together with its subsidiaries, is referred to as “EchoStar,” the “Company,” “we,” “us” and “our”) is a holding company that was organized in October 2007 as a corporation under the laws of the State of Nevada. Our Class A common stock is publicly traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “SATS.”
We are an industry leader in both networking technologies and services, innovating to deliver the global solutions that power a connected future for people, enterprises and things everywhere. We provide internet services to consumer customers, which include home and small to medium-sized businesses, and satellite and multi-transport technologies and managed network services to enterprise customers, telecommunications providers, aeronautical service providers and government entities, including the U.S. Department of Defense. We operate in the following two business segments:
•Hughes segment — which provides broadband satellite technologies and broadband internet products and services to consumer customers. We provide broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to government and enterprise customers. We also design, provide and install gateway and terminal equipment to customers for other satellite systems. In addition, we design, develop, construct and provide telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.
•EchoStar Satellite Services segment (“ESS segment”) — which provides satellite services on a full-time and/or occasional-use basis to U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers. We operate our ESS business using primarily the EchoStar IX satellite and the EchoStar 105/SES-11 satellite and related infrastructure. Revenue in our ESS segment depends largely on our ability to make continuous use of our available satellite capacity on behalf of existing customers and our ability to enter into commercial relationships with new customers. During the first quarter of 2023, we transitioned the EchoStar IX satellite into inclined operations to extend its usable life for our customers. With this inclined mode of operation, we are expecting to extend the life of the spacecraft into 2024 without diminishing its capacity.
Our operations include various corporate functions (primarily Executive, Treasury, Strategic Development, Human Resources, Information Technology, Finance, Accounting, Real Estate and Legal) and other activities. Operating expenses include costs incurred in certain satellite development programs and other business development activities, and other income or expenses includes gains or losses from certain of our investments, that have not been assigned to our business segments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other. We also divide our operations by primary geographic market as follows: (i) North America (the U.S. and its territories, Mexico, and Canada); (ii) South and Central America and (iii) Other (Asia, Africa, Australia, Europe, India, and the Middle East). Refer to Note 14. Segment Reporting for further details.
On August 8, 2023, the Company entered into an Agreement and Plan of Merger (“the Original Merger Agreement”) with DISH Network Corporation, a Nevada corporation (“DISH”), and Eagle Sub Corp (“Eagle Sub”), a Nevada corporation and a wholly owned subsidiary of DISH. The Original Merger Agreement provided, among other things, that subject to the satisfaction or waiver of the conditions set forth in the agreement, Eagle Sub would merge with and into EchoStar, with EchoStar surviving as a wholly owned subsidiary of DISH.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
On October 2, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “Amended Merger Agreement”) with DISH and EAV Corp., a Nevada corporation and a wholly owned subsidiary of EchoStar (“Merger Sub”). The Amended Merger Agreement revises the structure of the merger of DISH and EchoStar contemplated by the Original Merger Agreement. The Amended Merger Agreement provides, among other things, that subject to the satisfaction or waiver of the conditions set forth in the agreement,Amended Merger Agreement, Merger Sub will merge with and into EchoStar,DISH (the “Merger”), with EchoStarDISH surviving the Merger as a wholly owned subsidiary of DISH.EchoStar. The expected proportional ownership of existing EchoStar stockholders and DISH stockholders in the combined company upon the consummation of the Merger remains the same as the expected proportional ownership contemplated by the Original Merger Agreement. Pursuant to the Amended Merger Agreement, at the effective time of the Merger, (the “Effective Time”), each share of DISH Class A Common Stock, par value $0.01 per share (“DISH Class A Common Stock”) and DISH Class C Common Stock, par value $0.01 per share (“DISH Class C Common Stock”), outstanding immediately prior to the Effective Time, will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of EchoStar Class A Common Stock, par value $0.001 per share (“EchoStar Class A Common Stock”), equal to 0.350877 (the “Exchange Ratio”). On the terms and subject to the conditions set forth in the Amended Merger Agreement, at the Effective Time, each share of DISH Class B Common Stock, par value $0.01 per share (“DISH Class B Common Stock”), outstanding immediately prior to the Effective Time will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of EchoStar Class B Common Stock, par value $0.001 per share (the “EchoStar Class B Common Stock” and, together with the EchoStar Class A Common Stock, the “EchoStar Common Stock”), equal to the Exchange Ratio. Any shares of DISH Class A Common Stock, DISH Class B Common Stock and DISH Class C Common Stock (collectively, “DISH Common Stock”) that are held in DISH’s treasury or held directly by EchoStar or Merger Sub immediately prior to the Effective Time will be cancelled and cease to exist and no consideration shall be paid or payable in respect thereof. Refer to Note 16. Subsequent Events for further details.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
These unaudited Consolidated Financial Statements and the accompanying notes (collectively, the “Consolidated Financial Statements”) are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required for complete financial statements prepared in conformity with GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. However, our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.
All amounts presented in these Consolidated Financial Statements are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.
Refer to Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements in our Form 10-K for a summary and discussion of our significant accounting policies, except as updated below.
Use of Estimates
We are required to make certain estimates and assumptions that affect the amounts reported in these Consolidated Financial Statements. The most significant estimates and assumptions are used in determining: (i) inputs used to recognize revenue over time, including amortization periods for deferred contract acquisition costs;costs and relative standalone selling prices of performance obligations; (ii) allowances for doubtful accounts, and estimated credit losses on investments; (iii) deferred taxes and related valuation allowances, including uncertain tax positions; (iv) loss contingencies; (v) fair value of financial instruments; (vi) fair value of assets and liabilities acquired in business combinations; and (vii) assetsestimates of future cash flows used to evaluate and goodwill impairment testing.recognize impairments.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
We base our estimates and assumptions on historical experience, observable market inputs and on various other factors that we believe to be relevant under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results may differ from previously estimated amounts and such differences may be material to our financial statements. Additionally, changing economic conditions may increase the inherent uncertainty in the estimates and assumptions indicated above. We review our estimates and assumptions periodically and the effects of revisions thereto are reflected in the period they occur or prospectively if the revised estimate affects future periods.
Principles of Consolidation
We consolidate all entities in which we have a controlling financial interest. We are deemed to have a controlling financial interest in variable interest entities in which we are the primary beneficiary and in other entities in which we own more than 50% of the outstanding voting shares and other shareholders do not have substantive rights to participate in management. For entities we control but do not wholly own, we record a non-controlling interest within stockholders’ equity for the portion of the entity’s equity attributed to the non-controlling ownership interests. All significant intercompany balances and transactions have been eliminated in consolidation.
Recently Adopted Accounting Pronouncements
Business Combinations
On January 1, 2023, we adopted Accounting Standards Update (“ASU”) No. 2021-08 - Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides an exception to fair value measurement for contract assets and contract liabilities related to revenue contracts acquired in a business combination. The ASU requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU is applied to business combinations occurring on or after the adoption date.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Government Assistance
On January 1, 2022, we adopted ASU No. 2021-10 - Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities (except for not-for-profit entities and employee benefit plans) to disclose information about certain government assistance they receive. The Company is currently participating in three government programs: New York-Connect America Fund, New York Broadband, and Affordable Connectivity Plan. The purpose of these programs is to provide internet and connectivity services to qualifying households in the United States. The Company is entitled to reimbursement from the government for services provided. We record gross monies received from government entities in Services and other revenue, and associated expenses such as salaries and supplies are recorded in Cost of sales - services and other, Research and development or Selling, general and administrative expenses, depending on the nature of expenditure. We accrue for reimbursement requests submitted to government entities in Trade accounts receivable and contract assets, net. During the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized $4.4$4.6 million and $8.1$12.7 million in Services and other revenue, respectively. As of JuneSeptember 30, 2023, we have trade accounts receivable of $2.8 million relatedrelated to our government programs.
Income TaxesECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
On January 1, 2021, we adopted ASU No. 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the Financial Accounting Standards Board (“FASB”) overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. Our adoption of this ASU did not have a material impact on our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Business Combinations - Joint Venture Formations
In August 2023, the FASB issued ASU No. 2023-05 - Business Combinations—Joint Venture Formations to reduce diversity in practice and provide decision-useful information to a joint venture’s investors. The ASU requires that a joint venture apply a new basis of accounting upon formation. Specifically, the newly formed joint venture will be required to recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). The amendments in this ASU do not amend the definition of a joint venture, the accounting by an equity method investor for its investment in a joint venture, or the accounting by a joint venture for contributions received after its formation. The guidance in this ASU is effective prospectively for all joint ventures with a formation date on or after January 1, 2025. Early adoption is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. This ASU is applied prospectively to all newly formed joint ventures on or after the adoption date.
Leases - Common Control Arrangements
In March 2023, the FASB issued ASU No. 2023-01 - Leases (Topic 842): Common Control Arrangements. Among other things, this ASU requires all lessees to amortize leasehold improvements associated with common control leases over their useful life to the common control group and account for them as a transfer of assets between entities under common control at the end of the lease. Additional disclosures are required when the useful life of leasehold improvements to the common control group exceeds the related lease term. The guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We plan to adopt this new guidance prospectively to all new leasehold improvements recognized on or after January 1, 2024the adoption date and we do not expect it to have a material impact on our Consolidated Financial Statements.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), and all subsequent amendments to the initial guidance, codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2024. We expect to utilize the optional expedients provided by the guidance for contracts amended solely to use an alternative reference rate. We have evaluated the new guidance and we are in the process of implementing this ASU, and all subsequent amendments, and do not expect them to have a material impact on our Consolidated Financial Statements.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 3. REVENUE RECOGNITION
Contract Balances
The following table presents the components of our contract balances:
| | | | | As of | | | As of |
| | June 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| Trade accounts receivable and contract assets, net: | Trade accounts receivable and contract assets, net: | | | | | Trade accounts receivable and contract assets, net: | | | | |
| Sales and services | Sales and services | | $ | 178,050 | | | $ | 170,466 | | Sales and services | | $ | 165,456 | | | $ | 170,466 | |
| Leasing and other | Leasing and other | | 10,224 | | | 7,936 | | Leasing and other | | 9,856 | | | 7,936 | |
| Total trade accounts receivable | Total trade accounts receivable | | 188,274 | | | 178,402 | | Total trade accounts receivable | | 175,312 | | | 178,402 | |
| Contract assets | Contract assets | | 66,916 | | | 73,435 | | Contract assets | | 76,831 | | | 73,435 | |
| Allowance for doubtful accounts | Allowance for doubtful accounts | | (16,223) | | | (15,358) | | Allowance for doubtful accounts | | (16,722) | | | (15,358) | |
| Total trade accounts receivable and contract assets, net | Total trade accounts receivable and contract assets, net | | $ | 238,967 | | | $ | 236,479 | | Total trade accounts receivable and contract assets, net | | $ | 235,421 | | | $ | 236,479 | |
| | Contract liabilities: | Contract liabilities: | | Contract liabilities: | |
| Current | Current | | $ | 107,977 | | | $ | 121,739 | | Current | | $ | 122,288 | | | $ | 121,739 | |
| Non-current | Non-current | | 6,738 | | | 8,326 | | Non-current | | 6,999 | | | 8,326 | |
| Total contract liabilities | Total contract liabilities | | $ | 114,715 | | | $ | 130,065 | | Total contract liabilities | | $ | 129,287 | | | $ | 130,065 | |
The following table presents the revenue recognized in the Consolidated Statements of Operations that was previously included within contract liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Revenue | | $ | 11,586 | | | $ | 20,852 | | | $ | 72,549 | | | $ | 109,799 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Revenue | | $ | 7,608 | | | $ | 6,175 | | | $ | 80,157 | | | $ | 115,974 | |
Contract Acquisition Costs
The following table presents the activity in our contract acquisition costs, net:
| | | For the six months ended June 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Balance at beginning of period | Balance at beginning of period | | $ | 64,447 | | | $ | 82,986 | | Balance at beginning of period | | $ | 64,447 | | | $ | 82,986 | |
| Additions | Additions | | 23,601 | | | 30,645 | | Additions | | 34,708 | | | 45,172 | |
| Amortization expense | Amortization expense | | (32,135) | | | (39,653) | | Amortization expense | | (46,722) | | | (57,822) | |
| Foreign currency translation | Foreign currency translation | | 1,006 | | | 724 | | Foreign currency translation | | 681 | | | 156 | |
| Balance at end of period | Balance at end of period | | $ | 56,919 | | | $ | 74,702 | | Balance at end of period | | $ | 53,114 | | | $ | 70,492 | |
We recognized amortization expenses related to contract acquisition costs of $15.5$14.6 million and $19.5$18.2 million for the three months ended JuneSeptember 30, 2023 and 2022, respectively.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Performance Obligations
As of JuneSeptember 30, 2023, the remaining performance obligations for our customer contracts was approximately $1.0$1.2 billion. Performance obligations expected to be satisfied within one year and greater than one year are 35%29% and 65%71%, respectively. This amount and percentages exclude agreements with consumer customers in our Hughes segment, our leasing arrangements and agreements with certain customers under which collectability of all amounts due through the term of contracts is uncertain.
Disaggregation of Revenue
Geographic Information
Revenue is attributed to geographic markets based upon the billing location of the customer. The following tables present our revenue from customer contracts disaggregated by primary geographic market and by segment:
| | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the three months ended June 30, 2023 | | | | | | | | | |
| For the three months ended September 30, 2023 | | For the three months ended September 30, 2023 | | | | | | | | |
| North America | North America | | $ | 364,551 | | | $ | 6,120 | | | $ | 2,654 | | | $ | 373,325 | | North America | | $ | 324,722 | | | $ | 6,446 | | | $ | 2,401 | | | $ | 333,569 | |
| South and Central America | South and Central America | | 41,312 | | | — | | | — | | | 41,312 | | South and Central America | | 39,843 | | | — | | | — | | | 39,843 | |
| Other | Other | | 38,472 | | | — | | | — | | | 38,472 | | Other | | 39,644 | | | — | | | 18 | | | 39,662 | |
| Total revenue | Total revenue | | $ | 444,335 | | | $ | 6,120 | | | $ | 2,654 | | | $ | 453,109 | | Total revenue | | $ | 404,209 | | | $ | 6,446 | | | $ | 2,419 | | | $ | 413,074 | |
| | For the three months ended June 30, 2022 | | |
| For the three months ended September 30, 2022 | | For the three months ended September 30, 2022 | |
| North America | North America | | $ | 398,698 | | | $ | 4,850 | | | $ | 2,625 | | | $ | 406,173 | | North America | | $ | 389,181 | | | $ | 4,981 | | | $ | 2,841 | | | $ | 397,003 | |
| South and Central America | South and Central America | | 42,094 | | | — | | | — | | | 42,094 | | South and Central America | | 40,290 | | | — | | | — | | | 40,290 | |
| Other | Other | | 51,049 | | | — | | | — | | | 51,049 | | Other | | 60,094 | | | — | | | — | | | 60,094 | |
| Total revenue | Total revenue | | $ | 491,841 | | | $ | 4,850 | | | $ | 2,625 | | | $ | 499,316 | | Total revenue | | $ | 489,565 | | | $ | 4,981 | | | $ | 2,841 | | | $ | 497,387 | |
| | For the six months ended June 30, 2023 | | |
| For the nine months ended September 30, 2023 | | For the nine months ended September 30, 2023 | |
| North America | North America | | $ | 713,512 | | | $ | 12,117 | | | $ | 5,059 | | | $ | 730,688 | | North America | | $ | 1,038,234 | | | $ | 18,563 | | | $ | 7,460 | | | $ | 1,064,257 | |
| South and Central America | South and Central America | | 79,685 | | | — | | | — | | | 79,685 | | South and Central America | | 119,528 | | | — | | | — | | | 119,528 | |
| Other | Other | | 82,333 | | | — | | | — | | | 82,333 | | Other | | 121,977 | | | — | | | 18 | | | 121,995 | |
| Total revenue | Total revenue | | $ | 875,530 | | | $ | 12,117 | | | $ | 5,059 | | | $ | 892,706 | | Total revenue | | $ | 1,279,739 | | | $ | 18,563 | | | $ | 7,478 | | | $ | 1,305,780 | |
| | For the six months ended June 30, 2022 | | |
| For the nine months ended September 30, 2022 | | For the nine months ended September 30, 2022 | |
| North America | North America | | $ | 798,120 | | | $ | 9,324 | | | $ | 5,572 | | | $ | 813,016 | | North America | | $ | 1,187,301 | | | $ | 14,305 | | | $ | 8,413 | | | $ | 1,210,019 | |
| South and Central America | South and Central America | | 84,966 | | | — | | | — | | | 84,966 | | South and Central America | | 125,256 | | | — | | | — | | | 125,256 | |
| Other | Other | | 102,861 | | | — | | | 7 | | | 102,868 | | Other | | 162,955 | | | — | | | 7 | | | 162,962 | |
| Total revenue | Total revenue | | $ | 985,947 | | | $ | 9,324 | | | $ | 5,579 | | | $ | 1,000,850 | | Total revenue | | $ | 1,475,512 | | | $ | 14,305 | | | $ | 8,420 | | | $ | 1,498,237 | |
|
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Nature of Products and Services
The following tables present our revenue disaggregated by the nature of products and services and by segment:
| | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the three months ended June 30, 2023 | | | | | | | | | |
| For the three months ended September 30, 2023 | | For the three months ended September 30, 2023 | | | | | | | | |
| Services and other revenue: | Services and other revenue: | | Services and other revenue: | |
| Services | Services | | $ | 353,333 | | | $ | 3,910 | | | $ | 1,565 | | | $ | 358,808 | | Services | | $ | 341,575 | | | $ | 4,308 | | | $ | 1,344 | | | $ | 347,227 | |
| Lease revenue | Lease revenue | | 9,403 | | | 2,210 | | | 1,089 | | | 12,702 | | Lease revenue | | 8,925 | | | 2,138 | | | 1,059 | | | 12,122 | |
| Total services and other revenue | Total services and other revenue | | 362,736 | | | 6,120 | | | 2,654 | | | 371,510 | | Total services and other revenue | | 350,500 | | | 6,446 | | | 2,403 | | | 359,349 | |
| Equipment revenue: | Equipment revenue: | | | | | | | | | Equipment revenue: | | | | | | | | |
| Equipment | Equipment | | 26,682 | | | — | | | — | | | 26,682 | | Equipment | | 24,701 | | | — | | | 16 | | | 24,717 | |
| Design, development and construction services | Design, development and construction services | | 51,476 | | | — | | | — | | | 51,476 | | Design, development and construction services | | 26,235 | | | — | | | — | | | 26,235 | |
| Lease revenue | Lease revenue | | 3,441 | | | — | | | — | | | 3,441 | | Lease revenue | | 2,773 | | | — | | | — | | | 2,773 | |
| Total equipment revenue | Total equipment revenue | | 81,599 | | | — | | | — | | | 81,599 | | Total equipment revenue | | 53,709 | | | — | | | 16 | | | 53,725 | |
| Total revenue | Total revenue | | $ | 444,335 | | | $ | 6,120 | | | $ | 2,654 | | | $ | 453,109 | | Total revenue | | $ | 404,209 | | | $ | 6,446 | | | $ | 2,419 | | | $ | 413,074 | |
| | For the three months ended June 30, 2022 | | |
| For the three months ended September 30, 2022 | | For the three months ended September 30, 2022 | |
| Services and other revenue: | Services and other revenue: | | Services and other revenue: | |
| Services | Services | | $ | 397,320 | | | $ | 3,161 | | | $ | 1,349 | | | $ | 401,830 | | Services | | $ | 383,739 | | | $ | 3,247 | | | $ | 1,606 | | | $ | 388,592 | |
| Lease revenue | Lease revenue | | 9,902 | | | 1,689 | | | 1,276 | | | 12,867 | | Lease revenue | | 9,822 | | | 1,734 | | | 1,234 | | | 12,790 | |
| Total services and other revenue | Total services and other revenue | | 407,222 | | | 4,850 | | | 2,625 | | | 414,697 | | Total services and other revenue | | 393,561 | | | 4,981 | | | 2,840 | | | 401,382 | |
| Equipment revenue: | Equipment revenue: | | | | | | | | | Equipment revenue: | | | | | | | | |
| Equipment | Equipment | | 27,408 | | | — | | | — | | | 27,408 | | Equipment | | 33,585 | | | — | | | 1 | | | 33,586 | |
| Design, development and construction services | Design, development and construction services | | 56,311 | | | — | | | — | | | 56,311 | | Design, development and construction services | | 60,605 | | | — | | | — | | | 60,605 | |
| Lease revenue | Lease revenue | | 900 | | | — | | | — | | | 900 | | Lease revenue | | 1,814 | | | — | | | — | | | 1,814 | |
| Total equipment revenue | Total equipment revenue | | 84,619 | | | — | | | — | | | 84,619 | | Total equipment revenue | | 96,004 | | | — | | | 1 | | | 96,005 | |
| Total revenue | Total revenue | | $ | 491,841 | | | $ | 4,850 | | | $ | 2,625 | | | $ | 499,316 | | Total revenue | | $ | 489,565 | | | $ | 4,981 | | | $ | 2,841 | | | $ | 497,387 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
| | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the six months ended June 30, 2023 | | | | | | | | | |
| For the nine months ended September 30, 2023 | | For the nine months ended September 30, 2023 | | | | | | | | |
| Services and other revenue: | Services and other revenue: | | Services and other revenue: | |
| Services | Services | | $ | 712,773 | | | $ | 7,897 | | | $ | 2,852 | | | $ | 723,522 | | Services | | $ | 1,054,348 | | | $ | 12,205 | | | $ | 4,196 | | | $ | 1,070,749 | |
| Lease revenue | Lease revenue | | 19,088 | | | 4,220 | | | 2,207 | | | 25,515 | | Lease revenue | | 28,013 | | | 6,358 | | | 3,266 | | | 37,637 | |
| Total services and other revenue | Total services and other revenue | | 731,861 | | | 12,117 | | | 5,059 | | | 749,037 | | Total services and other revenue | | 1,082,361 | | | 18,563 | | | 7,462 | | | 1,108,386 | |
| Equipment revenue: | Equipment revenue: | | | | | | | | | Equipment revenue: | | | | | | | | |
| Equipment | Equipment | | 47,647 | | | — | | | — | | | 47,647 | | Equipment | | 72,348 | | | — | | | 16 | | | 72,364 | |
| Design, development and construction services | Design, development and construction services | | 88,380 | | | — | | | — | | | 88,380 | | Design, development and construction services | | 114,615 | | | — | | | — | | | 114,615 | |
| Lease revenue | Lease revenue | | 7,642 | | | — | | | — | | | 7,642 | | Lease revenue | | 10,415 | | | — | | | — | | | 10,415 | |
| Total equipment revenue | Total equipment revenue | | 143,669 | | | — | | | — | | | 143,669 | | Total equipment revenue | | 197,378 | | | — | | | 16 | | | 197,394 | |
| Total revenue | Total revenue | | $ | 875,530 | | | $ | 12,117 | | | $ | 5,059 | | | $ | 892,706 | | Total revenue | | $ | 1,279,739 | | | $ | 18,563 | | | $ | 7,478 | | | $ | 1,305,780 | |
| | For the six months ended June 30, 2022 | | |
| For the nine months ended September 30, 2022 | | For the nine months ended September 30, 2022 | |
| Services and other revenue: | Services and other revenue: | | Services and other revenue: | |
| Services | Services | | $ | 797,722 | | | $ | 6,096 | | | $ | 2,868 | | | $ | 806,686 | | Services | | $ | 1,181,461 | | | $ | 9,343 | | | $ | 4,474 | | | $ | 1,195,278 | |
| Lease revenue | Lease revenue | | 20,889 | | | 3,228 | | | 2,705 | | | 26,822 | | Lease revenue | | 30,711 | | | 4,962 | | | 3,939 | | | 39,612 | |
| Total services and other revenue | Total services and other revenue | | 818,611 | | | 9,324 | | | 5,573 | | | 833,508 | | Total services and other revenue | | 1,212,172 | | | 14,305 | | | 8,413 | | | 1,234,890 | |
| Equipment revenue: | Equipment revenue: | | | | | | | | | Equipment revenue: | | | | | | | | |
| Equipment | Equipment | | 53,293 | | | — | | | 6 | | | 53,299 | | Equipment | | 86,878 | | | — | | | 7 | | | 86,885 | |
| Design, development and construction services | Design, development and construction services | | 112,216 | | | — | | | — | | | 112,216 | | Design, development and construction services | | 172,821 | | | — | | | — | | | 172,821 | |
| Lease revenue | Lease revenue | | 1,827 | | | — | | | — | | | 1,827 | | Lease revenue | | 3,641 | | | — | | | — | | | 3,641 | |
| Total equipment revenue | Total equipment revenue | | 167,336 | | | — | | | 6 | | | 167,342 | | Total equipment revenue | | 263,340 | | | — | | | 7 | | | 263,347 | |
| Total revenue | Total revenue | | $ | 985,947 | | | $ | 9,324 | | | $ | 5,579 | | | $ | 1,000,850 | | Total revenue | | $ | 1,475,512 | | | $ | 14,305 | | | $ | 8,420 | | | $ | 1,498,237 | |
Lease Revenue
The following table presents our lease revenue by type of lease:
| | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Sales-type lease revenue: | Sales-type lease revenue: | | | | | | | | | Sales-type lease revenue: | | | | | | | | |
| Revenue at lease commencement | Revenue at lease commencement | | $ | 2,887 | | | $ | 583 | | | $ | 6,641 | | | $ | 1,221 | | Revenue at lease commencement | | $ | 2,272 | | | $ | 1,514 | | | $ | 8,913 | | | $ | 2,735 | |
| Interest income | Interest income | | 554 | | | 317 | | | 1,001 | | | 606 | | Interest income | | 501 | | | 300 | | | 1,502 | | | 906 | |
| Total sales-type lease revenue | Total sales-type lease revenue | | 3,441 | | | 900 | | | 7,642 | | | 1,827 | | Total sales-type lease revenue | | 2,773 | | | 1,814 | | | 10,415 | | | 3,641 | |
| Operating lease revenue | Operating lease revenue | | 12,702 | | | 12,867 | | | 25,515 | | | 26,822 | | Operating lease revenue | | 12,122 | | | 12,790 | | | 37,637 | | | 39,612 | |
| Total lease revenue | Total lease revenue | | $ | 16,143 | | | $ | 13,767 | | | $ | 33,157 | | | $ | 28,649 | | Total lease revenue | | $ | 14,895 | | | $ | 14,604 | | | $ | 48,052 | | | $ | 43,253 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 4. MARKETABLE INVESTMENT SECURITIES
The following table presents our Marketable investment securities:
| | | | | | | | | | | | | | |
| | | As of |
| | | June 30, 2023 | | December 31, 2022 |
| Marketable investment securities: | | | | |
| Available-for-sale debt securities: | | | | |
| Corporate bonds | | $ | 271,848 | | | $ | 160,559 | |
| Commercial paper | | 834,132 | | | 687,927 | |
| Other debt securities | | 17,255 | | | 17,695 | |
| Total available-for-sale debt securities | | 1,123,235 | | | 866,181 | |
| Equity securities | | 99,627 | | | 118,790 | |
| Total marketable investment securities, including restricted amounts | | 1,222,862 | | | 984,971 | |
| Less: Restricted marketable investment securities | | (11,455) | | | (11,056) | |
| Total marketable investment securities | | $ | 1,211,407 | | | $ | 973,915 | |
| | | | | | | | | | | | | | |
| | | As of |
| | | September 30, 2023 | | December 31, 2022 |
| Marketable investment securities: | | | | |
| Available-for-sale debt securities: | | | | |
| Corporate bonds | | $ | 175,444 | | | $ | 160,559 | |
| Commercial paper | | 518,641 | | | 687,927 | |
| Other debt securities | | 66,072 | | | 17,695 | |
| Total available-for-sale debt securities | | 760,157 | | | 866,181 | |
| Equity securities | | 142,590 | | | 118,790 | |
| Total marketable investment securities, including restricted amounts | | 902,747 | | | 984,971 | |
| Less: Restricted marketable investment securities | | (8,003) | | | (11,056) | |
| Total marketable investment securities | | $ | 894,744 | | | $ | 973,915 | |
Debt Securities
Available-for-Sale
The following table presents the components of our available-for-sale debt securities:
| | | | | Amortized | | Unrealized | | Estimated | | | Amortized | | Unrealized | | Estimated |
| | | | Cost | | Gains | | Losses | | Fair Value | | | Cost | | Gains | | Losses | | Fair Value |
| As of June 30, 2023 | | | | | | | | | |
| As of September 30, 2023 | | As of September 30, 2023 | | | | | | | | |
| Corporate bonds | Corporate bonds | | $ | 269,338 | | | $ | 2,622 | | | $ | (112) | | | $ | 271,848 | | Corporate bonds | | $ | 173,714 | | | $ | 1,830 | | | $ | (100) | | | $ | 175,444 | |
| Commercial paper | Commercial paper | | 834,135 | | | — | | | (3) | | | 834,132 | | Commercial paper | | 518,641 | | | — | | | — | | | 518,641 | |
| Other debt securities | Other debt securities | | 17,273 | | | — | | | (18) | | | 17,255 | | Other debt securities | | 66,083 | | | — | | | (11) | | | 66,072 | |
| Total available-for-sale debt securities | Total available-for-sale debt securities | | $ | 1,120,746 | | | $ | 2,622 | | | $ | (133) | | | $ | 1,123,235 | | Total available-for-sale debt securities | | $ | 758,438 | | | $ | 1,830 | | | $ | (111) | | | $ | 760,157 | |
| As of December 31, 2022 | As of December 31, 2022 | | | | | | | | | As of December 31, 2022 | | | | | | | | |
| Corporate bonds | Corporate bonds | | $ | 160,494 | | | $ | 125 | | | $ | (60) | | | $ | 160,559 | | Corporate bonds | | $ | 160,494 | | | $ | 125 | | | $ | (60) | | | $ | 160,559 | |
| Commercial paper | Commercial paper | | 687,956 | | | — | | | (29) | | | 687,927 | | Commercial paper | | 687,956 | | | — | | | (29) | | | 687,927 | |
| Other debt securities | Other debt securities | | 17,785 | | | — | | | (90) | | | 17,695 | | Other debt securities | | 17,785 | | | — | | | (90) | | | 17,695 | |
| Total available-for-sale debt securities | Total available-for-sale debt securities | | $ | 866,235 | | | $ | 125 | | | $ | (179) | | | $ | 866,181 | | Total available-for-sale debt securities | | $ | 866,235 | | | $ | 125 | | | $ | (179) | | | $ | 866,181 | |
The following table presents the activity on our available-for-sale debt securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Proceeds from sales | | $ | 99,368 | | | $ | 8,886 | | | $ | 137,477 | | | $ | 37,904 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Proceeds from sales | | $ | 71,586 | | | $ | — | | | $ | 209,063 | | | $ | 37,904 | |
As of JuneSeptember 30, 2023, we have $1,090.0$752.4 million of available-for-sale debt securities with contractual maturities of one year or less and $33.2$7.8 million with contractual maturities greater than one year.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Equity Securities
The following table presents the activity of our equity securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Proceeds from sales | | $ | 1,430 | | | $ | 34,121 | | | $ | 3,457 | | | $ | 34,374 | |
| Gains (losses) on investments, net | | $ | 13,637 | | | $ | 18,273 | | | $ | 816 | | | $ | 26,536 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Gains (losses) on investments, net | | $ | (5,715) | | | $ | (22,752) | | | $ | (12,821) | | | $ | 8,263 | |
Fair Value Measurements
The following table presents our marketable investment securities categorized by the fair value hierarchy, certain of which have historically experienced volatility:
| | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
| As of June 30, 2023 | | | | | | | |
| As of September 30, 2023 | | As of September 30, 2023 | | | | | | |
| Cash equivalents (including restricted) | Cash equivalents (including restricted) | | $ | 437 | | | $ | 602,325 | | | $ | 602,762 | | Cash equivalents (including restricted) | | $ | 536 | | | $ | 984,843 | | | $ | 985,379 | |
| Available-for-sale debt securities: | Available-for-sale debt securities: | | | | | | | Available-for-sale debt securities: | | | | | | |
| Corporate bonds | Corporate bonds | | $ | — | | | $ | 271,848 | | | $ | 271,848 | | Corporate bonds | | $ | — | | | $ | 175,444 | | | $ | 175,444 | |
| Commercial paper | Commercial paper | | — | | | 834,132 | | | 834,132 | | Commercial paper | | — | | | 518,641 | | | 518,641 | |
| Other debt securities | Other debt securities | | 12,922 | | | 4,333 | | | 17,255 | | Other debt securities | | 61,212 | | | 4,860 | | | 66,072 | |
| Total available-for-sale debt securities | Total available-for-sale debt securities | | 12,922 | | | 1,110,313 | | | 1,123,235 | | Total available-for-sale debt securities | | 61,212 | | | 698,945 | | | 760,157 | |
| Equity securities | Equity securities | | 89,436 | | | 10,191 | | | 99,627 | | Equity securities | | 133,968 | | | 8,622 | | | 142,590 | |
| Total marketable investment securities, including restricted amounts | Total marketable investment securities, including restricted amounts | | 102,358 | | | 1,120,504 | | | 1,222,862 | | Total marketable investment securities, including restricted amounts | | 195,180 | | | 707,567 | | | 902,747 | |
| Less: Restricted marketable investment securities | Less: Restricted marketable investment securities | | (11,455) | | | — | | | (11,455) | | Less: Restricted marketable investment securities | | (8,003) | | | — | | | (8,003) | |
| Total marketable investment securities | Total marketable investment securities | | $ | 90,903 | | | $ | 1,120,504 | | | $ | 1,211,407 | | Total marketable investment securities | | $ | 187,177 | | | $ | 707,567 | | | $ | 894,744 | |
| | As of December 31, 2022 | As of December 31, 2022 | | As of December 31, 2022 | |
| Cash equivalents (including restricted) | Cash equivalents (including restricted) | | $ | 657 | | | $ | 595,814 | | | $ | 596,471 | | Cash equivalents (including restricted) | | $ | 657 | | | $ | 595,814 | | | $ | 596,471 | |
| Available-for-sale debt securities: | Available-for-sale debt securities: | | | | | | | Available-for-sale debt securities: | | | | | | |
| Corporate bonds | Corporate bonds | | $ | — | | | $ | 160,559 | | | $ | 160,559 | | Corporate bonds | | $ | — | | | $ | 160,559 | | | $ | 160,559 | |
| Commercial paper | Commercial paper | | — | | | 687,927 | | | 687,927 | | Commercial paper | | — | | | 687,927 | | | 687,927 | |
| Other debt securities | Other debt securities | | 15,968 | | | 1,727 | | | 17,695 | | Other debt securities | | 15,968 | | | 1,727 | | | 17,695 | |
| Total available-for-sale debt securities | Total available-for-sale debt securities | | 15,968 | | | 850,213 | | | 866,181 | | Total available-for-sale debt securities | | 15,968 | | | 850,213 | | | 866,181 | |
| Equity securities | Equity securities | | 109,002 | | | 9,788 | | | 118,790 | | Equity securities | | 109,002 | | | 9,788 | | | 118,790 | |
| Total marketable investment securities, including restricted amounts | Total marketable investment securities, including restricted amounts | | 124,970 | | | 860,001 | | | 984,971 | | Total marketable investment securities, including restricted amounts | | 124,970 | | | 860,001 | | | 984,971 | |
| Less: Restricted marketable investment securities | Less: Restricted marketable investment securities | | (11,056) | | | — | | | (11,056) | | Less: Restricted marketable investment securities | | (11,056) | | | — | | | (11,056) | |
| Total marketable investment securities | Total marketable investment securities | | $ | 113,914 | | | $ | 860,001 | | | $ | 973,915 | | Total marketable investment securities | | $ | 113,914 | | | $ | 860,001 | | | $ | 973,915 | |
As of JuneSeptember 30, 2023 and December 31, 2022, we did not have any investments that were categorized within Level 3 of the fair value hierarchy.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 5. PROPERTY AND EQUIPMENT
The following table presents the components of Property and equipment, net:
| | | As of | | As of |
| | June 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| Property and equipment, net: | Property and equipment, net: | | | | | Property and equipment, net: | | | | |
| Satellites, net | Satellites, net | | $ | 1,514,141 | | | $ | 1,563,033 | | Satellites, net | | $ | 1,506,838 | | | $ | 1,563,033 | |
| Other property and equipment, net | Other property and equipment, net | | 654,235 | | | 674,584 | | Other property and equipment, net | | 637,869 | | | 674,584 | |
| Total property and equipment, net | Total property and equipment, net | | $ | 2,168,376 | | | $ | 2,237,617 | | Total property and equipment, net | | $ | 2,144,707 | | | $ | 2,237,617 | |
Satellites
As of JuneSeptember 30, 2023, our satellite fleet consisted of ten satellites, seven of which are owned and three of which are leased. They are all in geosynchronous (“GEO”) orbit, approximately 22,300 miles above the equator.
The following table presents our GEO satellite fleet in service as of JuneSeptember 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| GEO Satellite | | Segment | | Launch Date | | Nominal Degree Orbital Location (Longitude) | | Depreciable Life (In Years) |
| Owned: | | | | | | | | |
SPACEWAY 3 (1) | | Hughes | | August 2007 | | 95 W | | 10 |
| EchoStar XVII | | Hughes | | July 2012 | | 107 W | | 15 |
| EchoStar XIX | | Hughes | | December 2016 | | 97.1 W | | 15 |
Al Yah 3 (“AY3”) (2) | | Hughes | | January 2018 | | 20 W | | 5 |
EchoStar IX (3) (4) | | ESS | | August 2003 | | 121 W | | 12 |
EUTELSAT 10A (“W2A”) (5) | | Corporate and Other | | April 2009 | | 10 E | | - |
| EchoStar XXI | | Corporate and Other | | June 2017 | | 10.25 E | | 15 |
| | | | | | | | | |
| Finance leases: | | | | | | | | |
| Eutelsat 65 West A | | Hughes | | March 2016 | | 65 W | | 15 |
| Telesat T19V | | Hughes | | July 2018 | | 63 W | | 15 |
| EchoStar 105/SES-11 | | ESS | | October 2017 | | 105 W | | 15 |
(1) Depreciable life represents the remaining useful life as of June 8, 2011, the date EchoStar completed the acquisition of Hughes Communications, Inc. (“Hughes Communications”) and its subsidiaries in 2011 (the “Hughes Acquisition”). The satellite is expected to de-orbit in the fourth quarter of 2023.
(2) Upon consummation of our joint venture with Al Yah Satellite Communications Company PrJSC (“Yahsat”) in Brazil in November 2019, we acquired the Brazilian Ka-band payload on this satellite with a remaining useful life of 7 years as of that time. In the second quarter of 2023 we reduced the estimated useful life of the satellite as a result of certain technical anomalies. In order to safeguard the future operability of the satellite, the Company has, in conjunction with recommendations from the satellite manufacturers,manufacturer, implemented immediate and long-term remedial actions. A revised estimate of the satellite’s remaining lifetime has been calculated using operational data of the first two previous quarters. The Company has updated the remaining useful life of AY3 and related ground assets prospectively from April 1, 2023, to reflect the change in estimate. This has increased the depreciation expense for the current six monthnine-month period by $3.7$7.4 million. The increase is expected to be $11.1 million for the full year 2023 and $12.8 million for the year 2024, respectively. Although the anomalies are expected to shorten the remaining useful life of the satellite, they have not affected its current operation.
(3) We own the Ka-band and Ku-band payloads on this satellite.
(4) The Company placed the satellite in an inclined-orbit in the first quarter of 2023. Inclined-orbit will extend its life to enable further revenue generating opportunities.
(5) We acquired the S-band payload on this satellite in December 2013. Prior to acquisition, the S-band payload experienced an anomaly at the time of launch and, as a result, iswas not fully operational. The satellite was de-orbited in the fourth quarter of 2023.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents the components of our satellites, net:
| | | | | Depreciable Life (In Years) | | As of | | | Depreciable Life (In Years) | | As of |
| | | | June 30, 2023 | | December 31, 2022 | | | September 30, 2023 | | December 31, 2022 |
| Satellites, net: | Satellites, net: | | | | | | | Satellites, net: | | | | | | |
| Satellites - owned | Satellites - owned | | 5 to 15 | | $ | 1,807,036 | | | $ | 1,808,924 | | Satellites - owned | | 5 to 15 | | $ | 1,805,408 | | | $ | 1,808,924 | |
| Satellites - acquired under finance leases | Satellites - acquired under finance leases | | 15 | | 368,876 | | | 360,642 | | Satellites - acquired under finance leases | | 15 | | 364,820 | | | 360,642 | |
| Construction in progress | Construction in progress | | — | | 618,727 | | | 608,773 | | Construction in progress | | — | | 646,284 | | | 608,773 | |
| Total satellites | Total satellites | | 2,794,639 | | | 2,778,339 | | Total satellites | | 2,816,512 | | | 2,778,339 | |
| Accumulated depreciation: | Accumulated depreciation: | | Accumulated depreciation: | |
| Satellites - owned | Satellites - owned | | (1,142,989) | | | (1,093,412) | | Satellites - owned | | (1,167,853) | | | (1,093,412) | |
| Satellites - acquired under finance leases | Satellites - acquired under finance leases | | (137,509) | | | (121,894) | | Satellites - acquired under finance leases | | (141,821) | | | (121,894) | |
| Total accumulated depreciation | Total accumulated depreciation | | (1,280,498) | | | (1,215,306) | | Total accumulated depreciation | | (1,309,674) | | | (1,215,306) | |
| Total satellites, net | Total satellites, net | | $ | 1,514,141 | | | $ | 1,563,033 | | Total satellites, net | | $ | 1,506,838 | | | $ | 1,563,033 | |
The following table presents the depreciation expense associated with our satellites, net:
| | | | | For the three months ended June 30, | | For the six months ended June 30, | | | For the three months ended September 30, | | For the nine months ended September 30, |
| | | | 2023 | | 2022 | | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 |
| Depreciation expense: | Depreciation expense: | | | | | | | | | Depreciation expense: | | | | | | | | |
| Satellites - owned | Satellites - owned | | $ | 25,807 | | | $ | 24,282 | | | $ | 49,911 | | | $ | 48,478 | | Satellites - owned | | $ | 25,853 | | | $ | 24,176 | | | $ | 75,764 | | | $ | 72,654 | |
| Satellites - acquired under finance leases | Satellites - acquired under finance leases | | 6,101 | | | 6,137 | | | 12,119 | | | 12,124 | | Satellites - acquired under finance leases | | 6,126 | | | 6,003 | | | 18,245 | | | 18,127 | |
| Total depreciation expense | Total depreciation expense | | $ | 31,908 | | | $ | 30,419 | | | $ | 62,030 | | | $ | 60,602 | | Total depreciation expense | | $ | 31,979 | | | $ | 30,179 | | | $ | 94,009 | | | $ | 90,781 | |
The following table presents capitalized interest associated with our satellites and satellite-related ground infrastructure:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Capitalized interest | | $ | 11,603 | | | $ | 10,883 | | | $ | 23,374 | | | $ | 21,265 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Capitalized interest | | $ | 12,150 | | | $ | 11,130 | | | $ | 35,524 | | | $ | 32,395 | |
Construction in Progress
In August 2017, we entered into a contract for the design and construction of the EchoStar XXIV satellite, a next-generation, high throughput geostationary satellite. Once in service, the satellite is expected to bring further consumer broadband capacity across North and South America and generate additional sales in other markets, including in-flight Wi-Fi, enterprise networking and cellular backhaul for mobile network operators across the two continents. Capital expenditures associated with the construction and launch of the EchoStar XXIV satellite are included in Corporate and Other. The satellite was launched in July 2023 and reached its orbital position at 95.2W in September 2023. The satellite is currently under testing and is expected to begin service in the fourth quarter ofDecember 2023. See Note 16. Subsequent Events.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Satellite-Related Commitments
As of JuneSeptember 30, 2023 and December 31, 2022, our satellite-related commitments were $179.1$144.2 million and $169.3 million, respectively. These include payments pursuant to: the EchoStar XXIV launch contract,to regulatory authorizations, non-lease costs associated with our finance lease satellites, in-orbit incentives relating to certain satellites, and commitments for satellite service arrangements.
In certain circumstances, the dates on which we are obligated to pay our contractual obligations could change.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Satellite Anomalies and Impairments
Except as described above, we are not aware of any anomalies with respect to our owned or leased satellites or payloads that have had any significant adverse effect on their remaining useful lives, the commercial operation of the satellites or payloads or our operating results or financial position as of and for the three months ended June 30, 2023.
During the first quarter of 2023, we lost contact with our third nano-satellite (“EG-3”), which was launched in the second quarter of 2021 and brought into use our Sirion-1 ITU filing in the third quarter of 2021. As of the end of the first quarter of 2023, we have discontinued attempts to reestablish contact with EG-3, and have notified the ITU to suspend the filing. Consequently, we canceled our contract with the vendor who manufactured and operated our nano-satellites and recorded an impairment charge of $3.1 million related to EG-3 and other related assets in the first quarter of 2023 in Corporate and Other. We
In the second quarter of 2023, we reduced the estimated useful life of the Al Yah 3 satellite, which serves our Brazilian customers, as a result of certain technical anomalies. In order to safeguard the future operability of the satellite, the Company has, in accordance with recommendations from the satellite manufacturer, implemented immediate and long-term remedial actions. A revised estimate of the satellite’s remaining lifetime has been calculated using operational data of two previous quarters. Although the anomalies are expected to shorten the remaining useful life of the satellite, they have not affected its current operation.
Except as described above, we are not aware of any other anomalies with respect to our owned or leased satellites or payloads that have had any significant adverse effect on their remaining useful lives, the commercial operation of the satellites or payloads or our operating results or financial position as of and for the date of these Consolidated Financial Statements.three months ended September 30, 2023.
Satellite Insurance
We generally do not carry in-orbit insurance on our satellites or payloads because we have assessed that the cost of insurance is not economical relative to the risk of failures. Therefore, we generally bear the risk of any in-orbit failures.
Pursuant to the terms of our joint venture agreement with Yahsat, we are required to maintain insurance for the Al Yah 3 Brazilian payload during the commercial in-orbit service of such payload, subject to certain limitations on coverage. The insurance policies were procured by Yahsat, inunder which the Company and Yahsat are the beneficiaries of any claims in proportion to their shareholdings. An insurance claim was submitted in the second quarter of 2023 for compensation with respect to the reduction in estimated useful life of the Al Yah 3 satellite.
We also have obtained certain insurance for our EchoStar XXIV satellite covering launch plus the first year of operations. We will continue to assess circumstances going forward and make insurance-related decisions on a case-by-case basis.
Fair Value of In-Orbit Incentives
As of JuneSeptember 30, 2023 and December 31, 2022, the fair values of our in-orbit incentive obligations approximated their carrying amounts of $47.7$47.1 million and $50.2 million, respectively.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 6. REGULATORY AUTHORIZATIONS
The following table presents our Regulatory authorizations, net:
| | | Finite lived | | | Finite lived | |
| | Cost | | Accumulated Amortization | | Total | | Indefinite lived | | Total | | Cost | | Accumulated Amortization | | Total | | Indefinite lived | | Total |
| Balance, December 31, 2021 | Balance, December 31, 2021 | | $ | 57,137 | | | $ | (29,088) | | | $ | 28,049 | | | $ | 441,717 | | | $ | 469,766 | | Balance, December 31, 2021 | | $ | 57,137 | | | $ | (29,088) | | | $ | 28,049 | | | $ | 441,717 | | | $ | 469,766 | |
| Amortization expense | Amortization expense | | — | | | (2,120) | | | (2,120) | | | — | | | (2,120) | | Amortization expense | | — | | | (3,129) | | | (3,129) | | | — | | | (3,129) | |
| Currency translation adjustments | Currency translation adjustments | | (3,023) | | | 2,026 | | | (997) | | | (2,126) | | | (3,123) | | Currency translation adjustments | | (5,582) | | | 3,636 | | | (1,946) | | | (4,607) | | | (6,553) | |
| Balance, June 30, 2022 | | $ | 54,114 | | | $ | (29,182) | | | $ | 24,932 | | | $ | 439,591 | | | $ | 464,523 | | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | | $ | 51,555 | | | $ | (28,581) | | | $ | 22,974 | | | $ | 437,110 | | | $ | 460,084 | |
| | Balance, December 31, 2022 | Balance, December 31, 2022 | | $ | 55,316 | | | $ | (31,946) | | | $ | 23,370 | | | $ | 439,161 | | | $ | 462,531 | | Balance, December 31, 2022 | | $ | 55,316 | | | $ | (31,946) | | | $ | 23,370 | | | $ | 439,161 | | | $ | 462,531 | |
| Amortization expense | Amortization expense | | — | | | (2,444) | | | (2,444) | | | — | | | (2,444) | | Amortization expense | | — | | | (3,856) | | | (3,856) | | | — | | | (3,856) | |
| Currency translation adjustments | Currency translation adjustments | | 2,075 | | | (835) | | | 1,240 | | | (1,017) | | | 223 | | Currency translation adjustments | | 598 | | | 136 | | | 734 | | | 54 | | | 788 | |
| Balance, June 30, 2023 | | $ | 57,391 | | | $ | (35,225) | | | $ | 22,166 | | | $ | 438,144 | | | $ | 460,310 | | |
| Balance, September 30, 2023 | | Balance, September 30, 2023 | | $ | 55,914 | | | $ | (35,666) | | | $ | 20,248 | | | $ | 439,215 | | | $ | 459,463 | |
| | Weighted-average useful life (in years) | Weighted-average useful life (in years) | | 13 | | Weighted-average useful life (in years) | | 13 | |
NOTE 7. OTHER INVESTMENTS
The following table presents our Other investments, net:
| | | As of | | As of |
| | June 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| Other investments, net: | Other investments, net: | | | | | Other investments, net: | | | | |
| Equity method investments | Equity method investments | | $ | 47,025 | | | $ | 83,523 | | Equity method investments | | $ | 45,048 | | | $ | 83,523 | |
| Other equity investments | Other equity investments | | 146,407 | | | 141,307 | | Other equity investments | | 91,407 | | | 141,307 | |
| Other debt investments, net | Other debt investments, net | | — | | | 131,875 | | Other debt investments, net | | — | | | 131,875 | |
| Total other investments, net | Total other investments, net | | $ | 193,432 | | | $ | 356,705 | | Total other investments, net | | $ | 136,455 | | | $ | 356,705 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Equity Method Investments
Deluxe/EchoStar LLC
We own 50% of Deluxe/EchoStar LLC (“Deluxe”), a joint venture that we entered into in 2010 to build an advanced digital cinema satellite distribution network targeting delivery to digitally equipped theaters in the U.S. and Canada.
Broadband Connectivity Solutions (Restricted) Limited
We own 20% of Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”), a joint venture that we entered into in 2018 to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia operating over Yahsat's Al Yah 2 and Al Yah 3 Ka-band satellites. During the threenine months ended JuneSeptember 30, 2023, we recorded an impairment charge of $33.4 million related to our investment as a result of increased competition and the economic environment for this business. We estimated the fair value of our investment by using the combination of the discounted cash flow model and market value approach.
Financial Information for Our Equity Method InvestmentsECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents revenue recognized:recognized by the Company from our equity method investments:
| | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Deluxe | Deluxe | | $ | 1,456 | | | $ | 1,335 | | | $ | 2,788 | | | $ | 2,658 | | Deluxe | | $ | 1,445 | | | $ | 1,243 | | | $ | 4,233 | | | $ | 3,901 | |
| BCS | BCS | | $ | 827 | | | $ | 1,950 | | | $ | 1,649 | | | $ | 3,721 | | BCS | | $ | 924 | | | $ | 2,600 | | | $ | 2,573 | | | $ | 6,321 | |
The following table presents trade accounts receivable:receivable from our equity method investments:
| | | As of | | As of |
| | June 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| Deluxe | Deluxe | | $ | 1,052 | | | $ | 3,026 | | Deluxe | | $ | 833 | | | $ | 3,026 | |
| BCS | BCS | | $ | 3,392 | | | $ | 5,062 | | BCS | | $ | 4,061 | | | $ | 5,062 | |
Other Equity Investments
We hold investments without readily determinable fair values in a number of equity securities that are accounted for as cost method investments, which are recorded at cost, less impairment, and adjusted for observable price changes for identical or similar investments of the same issuer. There were no adjustments made
In the third quarter of 2023, we recorded a loss of $24.4 million related to a decline in value of an investment previously held on a cost-basis method, due to fair value becoming determinable as a result of a merger between that entity and a publicly traded entity. Starting September 30, 2023, and for impairments or observable price changes forall subsequent periods, the three and six months ended June 30, 2023.investment is classified as marketable investment securities.
The following table presents the activity on our investments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Gain (loss) on investments, net | | $ | — | | | $ | 217 | | | $ | — | | | $ | 49,888 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Gain (loss) on investments, net | | $ | (24,403) | | | $ | — | | | $ | (24,403) | | | $ | 49,888 | |
Other Debt Investments, Net
In April, 2023, we received full repayment with proceeds of $148.4 million related to our Other debt investments, net. As such, we recorded a gain of $7.6$7.6 million in Other, income (expense), net as of Junefor the nine months ended September 30, 2023.2023.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 8. LONG-TERM DEBT
The following table presents the carrying amount and fair values of our Long-term debt, net:
| | | | | Effective Interest Rate | | As of | | | Effective Interest Rate | | As of |
| | | | June 30, 2023 | | December 31, 2022 | | | September 30, 2023 | | December 31, 2022 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Senior Secured Notes: | Senior Secured Notes: | | | | | | | | | | | Senior Secured Notes: | | | | | | | | | | |
| 5 1/4% Senior Secured Notes due 2026 | 5 1/4% Senior Secured Notes due 2026 | | 5.320% | | $ | 750,000 | | | $ | 701,850 | | | $ | 750,000 | | | $ | 727,763 | | 5 1/4% Senior Secured Notes due 2026 | | 5.320% | | $ | 750,000 | | | $ | 677,970 | | | $ | 750,000 | | | $ | 727,763 | |
| Senior Unsecured Notes: | Senior Unsecured Notes: | | Senior Unsecured Notes: | |
| 6 5/8% Senior Unsecured Notes due 2026 | 6 5/8% Senior Unsecured Notes due 2026 | | 6.688% | | 750,000 | | | 705,833 | | | 750,000 | | | 707,490 | | 6 5/8% Senior Unsecured Notes due 2026 | | 6.688% | | 750,000 | | | 642,195 | | | 750,000 | | | 707,490 | |
| Less: Unamortized debt issuance costs | Less: Unamortized debt issuance costs | | (2,813) | | | — | | | (3,223) | | | — | | Less: Unamortized debt issuance costs | | (2,604) | | | — | | | (3,223) | | | — | |
| Total long-term debt, net | Total long-term debt, net | | $ | 1,497,187 | | | $ | 1,407,683 | | | $ | 1,496,777 | | | $ | 1,435,253 | | Total long-term debt, net | | $ | 1,497,396 | | | $ | 1,320,165 | | | $ | 1,496,777 | | | $ | 1,435,253 | |
The estimated fair value of our publicly traded debt was primarily based on Level 1 inputs that use quoted market value for the debt.
NOTE 9. INCOME TAXES
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our interim income tax provision and our interim estimate of our annual effective tax rate are influenced by several factors, including foreign losses and capital gains and losses for which related deferred tax assets are partially offset by a valuation allowance, changes in tax laws and relative changes in unrecognized tax benefits. Additionally, our effective tax rate can be affected by the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income or loss is lower.
Our income tax provision was $18.8$8.5 million for the three months ended JuneSeptember 30, 2023 compared to our income tax provision of $5.4$13.2 million for the three months ended JuneSeptember 30, 2022. Our effective income tax rate was 67.4%94.1% and 34.0%40.3% for the three months ended JuneSeptember 30, 2023 and 2022, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the for the three months ended JuneSeptember 30, 2023 were primarily due to excluded investment impairment losses and the impact of research and development credits. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended September 30, 2022 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.
Our income tax provision was $38.8 million for the nine months ended September 30, 2023 compared to our income tax provision of $51.4 million for the nine months ended September 30, 2022. Our effective income tax rate was 50.9% and 30.2% for the nine months ended September 30, 2023 and 2022, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the nine months ended September 30, 2023 were primarily due to excluded investment impairment losses and excluded foreign losses where the Company carries a full valuation allowance. The variations in our current year effective tax rate from the U.S. federal statutory rate for the threenine months ended JuneSeptember 30, 2022, were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of filing a US Federal amended return.
Our income tax provision was $30.2 million for the six months ended June 30, 2023 compared to our income tax provision of $38.2 million for the six months ended June 30, 2022. Our effective income tax rate was 45.0% and 27.7% for the six months ended June 30, 2023 and 2022, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the six months ended June 30, 2023 were primarily due to excluded investment impairment losses and excluded foreign losses where the Company carries a full valuation allowance. For the six months ended June 30, 2022, the variations in our effective tax rate from the U.S. federal statutory rate were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 10. EARNINGS PER SHARE
The following table presents the calculation of basic and diluted EPS for our Class A and B common stock:
| | | | | For the three months ended June 30, | | For the six months ended June 30, | | | For the three months ended September 30, | | For the nine months ended September 30, |
| (in thousands, except per share amounts) | (in thousands, except per share amounts) | | 2023 | | 2022 | | 2023 | | 2022 | (in thousands, except per share amounts) | | 2023 | | 2022 | | 2023 | | 2022 |
| Net income (loss) attributable to EchoStar Corporation common stock | Net income (loss) attributable to EchoStar Corporation common stock | | $ | 11,157 | | | $ | 13,868 | | | $ | 40,198 | | | $ | 105,301 | | Net income (loss) attributable to EchoStar Corporation common stock | | $ | 3,244 | | | $ | 22,403 | | | $ | 43,442 | | | $ | 127,704 | |
| | Weighted-average common shares outstanding: | Weighted-average common shares outstanding: | | Weighted-average common shares outstanding: | |
| Basic | Basic | | 83,770 | | | 84,317 | | | 83,553 | | | 85,077 | | Basic | | 83,850 | | | 83,140 | | | 83,653 | | | 84,424 | |
| Dilutive impact of stock awards outstanding | Dilutive impact of stock awards outstanding | | — | | | — | | | 41 | | | — | | Dilutive impact of stock awards outstanding | | — | | | — | | | 27 | | | 25 | |
| Diluted | Diluted | | 83,770 | | | 84,317 | | | 83,594 | | | 85,077 | | Diluted | | 83,850 | | | 83,140 | | | 83,680 | | | 84,449 | |
| | Earnings (losses) per share: | Earnings (losses) per share: | | Earnings (losses) per share: | |
| Basic | Basic | | $ | 0.13 | | | $ | 0.16 | | | $ | 0.48 | | | $ | 1.24 | | Basic | | $ | 0.04 | | | $ | 0.27 | | | $ | 0.52 | | | $ | 1.51 | |
| Diluted | Diluted | | $ | 0.13 | | | $ | 0.16 | | | $ | 0.48 | | | $ | 1.24 | | Diluted | | $ | 0.04 | | | $ | 0.27 | | | $ | 0.52 | | | $ | 1.51 | |
Diluted earnings per share excludes the following weighted average potential Class A common shares, as the effect would be antidilutive, as computed under the treasury stock method:
| | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended September 30, | | For the nine months ended September 30, |
| (in thousands) | (in thousands) | | 2023 | | 2022 | | 2023 | | 2022 | (in thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| Weighted-average stock options | Weighted-average stock options | | 5,619 | | | 6,491 | | | 5,673 | | | 6,491 | | Weighted-average stock options | | 5,595 | | | 6,443 | | | 5,650 | | | 6,418 | |
| Weighted-average restricted stock units | Weighted-average restricted stock units | | 200 | | | 300 | | | 159 | | | 300 | | Weighted-average restricted stock units | | 200 | | | — | | | 173 | | | — | |
NOTE 11. RELATED PARTY TRANSACTIONS - DISH NETWORK
Overview
EchoStar and DISH have operated as separate publicly-traded companies since 2008 (the “Spin-off”). A substantial majority of the voting power of the shares of each of EchoStar and DISH is owned beneficially by Charles W. Ergen, our Chairman, and by certain entities established for the benefit of his family. See Note 1 - Organization and Business Activities and Note 16 - Subsequent Events for further details on the proposed merger with DISH.
In January 2017, we and certain of our subsidiaries entered into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries pursuant to which, in February 2017, we received all of the shares of preferred tracking stock previously issued by us and one of our subsidiaries (the “Tracking Stock”), representing an 80% economic interest in the residential retail satellite broadband business of our Hughes segment, in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of our EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). The Tracking Stock was retired in March 2017.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
In September 2019, pursuant to a master transaction agreement (the “Master Transaction Agreement”) with DISH and a wholly-owned subsidiary of DISH (“DISH Merger Sub”), (i) we transferred certain real property and the various businesses, products, licenses, technology, revenues, billings, operating activities, assets and liabilities primarily related to the former portion of our ESS segment that managed, marketed and provided (1) broadcast satellite services primarily to DISH Network and our former joint venture Dish Mexico, and (2) telemetry, tracking and control (“TT&C”) services for satellites owned by DISH Network and a portion of our other businesses (collectively, the “BSS Business”) to one of our former subsidiaries, EchoStar BSS Corporation (“BSS Corp.”), (ii) we distributed to each holder of shares of our Class A or Class B common stock entitled to receive consideration in the transaction an amount of shares of common stock of BSS Corp., par value $0.001 per share (“BSS Common Stock”), equal to one share of BSS Common Stock for each share of our Class A or Class B common stock owned by such stockholder (the “Distribution”); and (iii) immediately after the Distribution, (1) DISH Merger Sub merged with and into BSS Corp. (the “Merger”“BSS Merger”), such that BSS Corp. became a wholly-owned subsidiary of DISH and with DISH then owning and operating the BSS Business, and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.235 shares of DISH Class A common stock, par value $0.001 per share (“DISH Common Stock”) ((i) - (iii) collectively, the “BSS Transaction”).
In connection with and following the Spin-off, the Share Exchange and the BSS Transaction, we and DISH Network entered into certain agreements pursuant to which we obtain certain products, services and rights from DISH Network; DISH Network obtains certain products, services and rights from us; and we and DISH Network indemnify each other against certain liabilities arising from our respective businesses. Generally, the amounts we or DISH Network pay for products and services provided under the agreements are based on cost plus a fixed margin (unless noted differently below), which varies depending on the nature of the products and services provided. We may also enter into additional agreements with DISH Network in the future.
The following is a summary of the transactions and the terms of the underlying principal agreements that have had or may have an impact on our consolidated financial condition and results of operations.
Services and Other Revenue — DISH Network
The following table presents our Services and other revenue - DISH Network:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Services and other revenue - DISH Network | | $ | 6,421 | | | $ | 7,492 | | | $ | 12,712 | | | $ | 15,449 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Services and other revenue - DISH Network | | $ | 5,991 | | | $ | 7,491 | | | $ | 18,703 | | | $ | 22,940 | |
The following table presents the related trade accounts receivable:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2023 | | December 31, 2022 |
| Trade accounts receivable - DISH Network | | $ | 8,517 | | | $ | 3,492 | |
| | | | | | | | | | | | | | |
| | As of |
| | September 30, 2023 | | December 31, 2022 |
| Trade accounts receivable - DISH Network | | $ | 7,730 | | | $ | 3,492 | |
Satellite Capacity Leased to DISH Network. Effective January 2008, DISH Network began leasing satellite capacity from us on the EchoStar IX satellite. We terminated the provision of this satellite capacity in December 2022.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Telesat Obligation Agreement. In September 2009, we entered into an agreement with Telesat Canada to lease satellite capacity from Telesat Canada on all 32 direct broadcast satellite (“DBS”) transponders on the Nimiq 5 satellite at the 72.7 degree west longitude orbital location (the “Telesat Transponder Agreement”). In September 2009, we entered into an agreement with DISH Network, pursuant to which DISH Network leased satellite capacity from us on all 32 of the DBS transponders covered by the Telesat Transponder Agreement (the “DISH Nimiq 5 Agreement”). Under the terms of the DISH Nimiq 5 Agreement, DISH Network made certain monthly payments to us that commenced in September 2009, when the Nimiq 5 satellite was placed into service. We transferred the Telesat Transponder Agreement to DISH Network in September 2019 as part of the BSS Transaction; however, we retained certain obligations related to DISH Network’s performance under that agreement and we entered into an agreement with DISH Network whereby DISH Network compensates us for retaining such obligations.
Real Estate Leases to DISH Network. We have entered into lease agreements pursuant to which DISH Network leases certain real estate from us. The rent on a per square foot basis for each of the leases is comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the leases or subsequent amendments. Additionally, DISH Network compensates us for its portion of the taxes, insurance, utilities and/or maintenance of the premises. The terms of each of the leases are set forth below:
•100 Inverness Occupancy License Agreement — In March 2017, we and DISH Network entered into a license agreement for DISH Network to use certain of our space at 100 Inverness Terrace East, Englewood, Colorado for an initial period ending in December 2020. We and DISH Network have amended this lease over time to, among other things, extend the term through December 2023. This agreement may be terminated by either party upon 180 days’ prior notice. In connection with the BSS Transaction, we transferred to DISH Network the Englewood Satellite Operations Center located at 100 Inverness Terrace East, including any and all equipment, hardware licenses, software, processes, software licenses, furniture and technical documentation associated with the satellites transferred in the BSS Transaction.
•Meridian Lease Agreement — The lease for all of 9601 S. Meridian Blvd., Englewood, Colorado was originally for a period ending in December 2016. We and DISH Network have amended this lease over time to, among other things, extend the term through December 2023.
TerreStar Agreement. In March 2012, DISH Network completed its acquisition of substantially all the assets of TerreStar Networks Inc. (“TerreStar”). Prior to DISH Network’s acquisition of substantially all the assets of TerreStar and our completion of the Hughes Acquisition, TerreStar and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services for TerreStar’s ground-based communications equipment (the “TerreStar Agreements”). In December 2017, we and DISH Network amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DISH Network generally has the right to continue to receive warranty services from us for our products on a month-to-month basis unless terminated by DISH Network upon at least 21 days’ written notice to us. DISH Network generally has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis unless these services are terminated by DISH Network upon at least 90 days’ written notice to us. In addition, DISH Network generally may terminate any and all services for convenience subject to providing us with prior notice and/or payment of termination charges. In March 2020, we entered into an agreement with DISH Network pursuant to which we perform certain work and provide certain credits to amounts owed to us under the TerreStar Agreements in exchange for DISH Network’s granting us rights to use certain satellite capacity under the Amended and Restated Professional Services Agreement (as defined below). As a result, we and DISH Network amended the TerreStar Agreements to suspend our provision of warranty services to DISH Network from April 2020 through December 2020. Following the expiration of this suspension, we have recommenced providing warranty services to DISH Network. In May 2022, we and DISH Network amended the agreement for the provision of hosting services to extend the term until May 2027. The price for warranty and operations and maintenance services is only valid until December 31, 2023. As such, if those services are to continue beyond December 31, 2023, DISH Network and HNS must agree on the price for these services as of January 1, 2024.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Hughes Broadband Distribution Agreement. Effective October 2012, we and DISH Network entered into a distribution agreement (the “Distribution Agreement”) pursuant to which DISH Network has the right, but not the obligation, to market, sell and distribute our Gen 4 HughesNet service. DISH Network pays us a monthly per subscriber wholesale service fee for our Gen 4 HughesNet service based upon a subscriber’s service level and based upon certain volume subscription thresholds. The Distribution Agreement also provides that DISH Network has the right, but not the obligation, to purchase certain broadband equipment from us to support the sale of the Gen 4 HughesNet service. The Distribution Agreement had an initial term of five years with automatic renewal for successive one-year terms unless terminated by either party with a written notice at least 180 days’ beforedays’before the expiration of the then-current term. In February 2014, we and DISH Network entered into an amendment to the Distribution Agreement which, among other things, extended the initial term of the Distribution Agreement until March 2024. Upon expiration or termination of the Distribution Agreement, we and DISH Network will continue to provide our Gen 4 HughesNet service to the then-current DISH Network subscribers pursuant to the terms and conditions of the Distribution Agreement.
DBSD North America Agreement. In March 2012, DISH Network completed its acquisition of all of the equity of DBSD North America, Inc. (“DBSD North America”). Prior to DISH Network’s acquisition of DBSD North America and our completion of the Hughes Acquisition, DBSD North America and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services of DBSD North America’s gateway and ground-based communications equipment. In December 2017, we and DBSD North America amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DBSD North America has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis, unless terminated by DBSD North America upon at least 120 days’ written notice to us. In February 2019, we further amended these agreements to provide DBSD North America with the right to continue to receive warranty services from us on a month-to-month basis until December 2023, unless terminated by DBSD North America upon at least 21 days’ written notice to us. The provision of hosting services will continue until February 2027 unless terminated by DBSD North America upon at least 180 days’ written notice to us. In addition, DBSD North America generally may terminate any and all such services for convenience, subject to providing us with prior notice and/or payment of termination charges. The price for warranty and operations and maintenance services is only valid until December 31, 2023. As such, if those services are to continue beyond December 31, 2023, DBSD North America and HNS must agree on the price for these services as of January 1, 2024.
Hughes Equipment and Services Agreement. In February 2019, we and DISH Network entered into an agreement pursuant to which we will sell to DISH Network our HughesNet Service and HughesNet equipment that has been modified to meet DISH Network’s internet-of-things specifications for the transfer of data to DISH Network’s network operations centers. This agreement has an initial term of five years expiring February 2024 with automatic renewal for successive one-year terms unless terminated by DISH Network with at least 180 days’ written notice to us or by us with at least 365 days' written notice to DISH Network.
Operating Expenses — DISH Network
The following table presents our operating expenses related to DISH Network:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Operating expenses - DISH Network | | $ | 1,470 | | | $ | 1,337 | | | $ | 2,807 | | | $ | 2,669 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Operating expenses - DISH Network | | $ | 1,910 | | | $ | 1,401 | | | $ | 4,717 | | | $ | 4,070 | |
The following table presents the related trade accounts payable:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2023 | | December 31, 2022 |
| Trade accounts payable - DISH Network | | $ | 839 | | | $ | 669 | |
| | | | | | | | | | | | | | |
| | As of |
| | September 30, 2023 | | December 31, 2022 |
| Trade accounts payable - DISH Network | | $ | 1,465 | | | $ | 669 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Amended and Restated Professional Services Agreement. In connection with the Spin-off, we entered into various agreements with DISH Network including a transition services agreement, satellite procurement agreement and services agreement, all of which expired in January 2010 and were replaced by a professional services agreement (the “Professional Services Agreement”). In January 2010, we and DISH Network agreed that we continue to have the right, but not the obligation, to receive the following services from DISH Network, among others, certain of which were previously provided under a transition services agreement: information technology, travel and event coordination, internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support services. Additionally, we and DISH Network agreed that DISH Network would continue to have the right, but not the obligation, to engage us to manage the process of procuring new satellite capacity for DISH Network (previously provided under a satellite procurement agreement), receive logistics, procurement and quality assurance services from us (previously provided under a services agreement) and provide other support services. In connection with the consummation of the Share Exchange, we and DISH amended and restated the Professional Services Agreement (as amended to date, the “Amended and Restated Professional Services Agreement”) to provide that we and DISH Network shall have the right to receive additional services that either we or DISH Network may require as a result of the Share Exchange, including access to antennas owned by DISH Network for our use in performing TT&C services and maintenance and support services for our antennas (collectively, the “TT&C Antennas”). In September 2019, in connection with the BSS Transaction, we and DISH further amended the Amended and Restated Professional Services Agreement to provide that we and DISH Network shall have the right to receive additional services that either we or DISH Network may require as a result of the BSS Transaction and to remove our access to and the maintenance and support services for the TT&C Antennas. The current term of the Amended and Restated Professional Services Agreement is through January 1, 2024 and renews automatically for successive one-year periods thereafter, unless the agreement is terminated earlier by either party upon at least 60 days’ notice. We or DISH Network may generally terminate the Amended and Restated Professional Services Agreement in part with respect to any particular service it receives for any reason upon at least 30 days’ notice, unless the statement of work for particular services states otherwise. Certain services provided under the Amended and Restated Professional Services Agreement may survive the termination of the agreement.
Real Estate Leases from DISH Network. Effective March 2017, we entered into a lease with DISH Network for certain space at 530 EchoStar Drive in Cheyenne, Wyoming for an initial period ending in February 2019. In August 2018, we exercised our option to renew this lease for a one-year period ending in February 2020. In connection with the BSS Transaction, we transferred the Cheyenne Satellite Operations Center, including any equipment, software licenses, and furniture located within, to DISH Network and amended this lease to reduce the space provided to us for the Cheyenne Satellite Access Center for a period ending in September 2021. In March 2021, we exercised our option to renew this lease for a one-year period ending September 2022 and amended the lease to provide us the option to renew this lease for up to three additional years. In November 2021, we exercised our option to renew this lease for a one-year period ending September 2023.2023, at which time this lease expired.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Collocation and Antenna Space Agreements. We and DISH Network entered into an agreement pursuant to which DISH Network provided us with collocation space in El Paso, Texas. This agreement was for an initial period ending in July 2015, and provided us with renewal options for four consecutive three-year terms. We exercised our first renewal option for a period commencing in August 2015 and ending in July 2018, in April 2018 we exercised our second renewal option for a period ending in July 2021, and in May 2021 we exercised our third renewal option for a period ending in July 2024. In connection with the Share Exchange, effective March 2017, we also entered into certain agreements pursuant to which DISH Network provides collocation and antenna space to EchoStar through February 2022 at the following locations: Cheyenne, Wyoming; Gilbert, Arizona; New Braunfels, Texas; Monee, Illinois; Spokane, Washington; and Englewood, Colorado. In October 2019, we provided a termination notice for our New Braunfels, Texas agreement effective May 2020. In November 2020, we provided a termination notice for one of our Englewood, Colorado agreements effective May 2021. In November 2021, we exercised our right to renew the collocation agreements at Gilbert, Arizona, Cheyenne, Wyoming, Spokane, Washington, Englewood, Colorado and Monee, Illinois for a period ending in February 2025. In August 2017, we and DISH Network also entered into certain other agreements pursuant to which DISH Network provides additional collocation and antenna space to us in Monee, Illinois and Spokane, Washington through August 2022. In May 2022, we exercised our right to renew such other agreements at Monee, Illinois and Spokane, Washington through August 2025. Generally, we may renew our collocation and antenna space agreements for three-year periods by providing DISH Network with prior written notice no more than 120 days but no less than 90 days prior to the end of the then-current term. We may terminate certain of these agreements with 60 days’ prior written notice and certain other of these agreements with 180 days’ prior written notice. In September 2019, in connection with the BSS Transaction, we entered into an agreement pursuant to which DISH Network provided us with certain additional collocation space in Cheyenne, Wyoming for a period that ended in September 2020. The fees for the services provided under these agreements depend on the number of racks located at the location.
Also in connection with the BSS Transaction, in September 2019, we entered into an agreement pursuant to which DISH Network provides us with antenna space and power in Cheyenne, Wyoming for a period of five years commencing in August 2020, with four three-year renewal terms, with prior written notice of renewal required no more than 120 days but no less than 90 days prior to the end of the then-current term. In March 2021, we entered into additional agreements pursuant to which DISH Network provides us with antenna space and power in Cheyenne, Wyoming, and the right to use an antenna and certain space in Gilbert, Arizona. Both agreements are for a period of five years with four three-year renewal terms, with prior written notice of renewal required no more than 120 days but no less than 90 days prior to the end of the then-current term.
Hughes Broadband Master Services Agreement. In conjunction with the launch of our EchoStar XIX satellite, in March 2017, we and DISH Network entered into a master service agreement (the “Hughes Broadband MSA”) pursuant to which DISH Network, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for our Gen 5 HughesNet service and related equipment and other telecommunication services and (ii) installs Gen 5 HughesNet service equipment with respect to activations generated by DISH Network. Under the Hughes Broadband MSA, we and DISH Network make certain payments to each other relating to sales, upgrades, purchases and installation services. The current term of the Hughes Broadband MSA is through March 2024 with automatic renewal for successive one-year terms. Either party has the ability to terminate the Hughes Broadband MSA, in whole or in part, for any reason upon at least 90 days’ notice to the other party. In July 2023, the parties agreed to amend the Hughes Broadband MSA, and a relevant Statements of Work thereunder, to remove DISH Network’s fulfillment and installation obligations as a HughesNet sales agent. No money will be exchanged under the Amendment. The parties also have agreed to enter into a buy-back agreement to address the return of, and payment for, equipment valued at up to $2.2 million previously purchased by DISH Network related to its fulfillment and installation obligations. Upon expiration or termination of the Hughes Broadband MSA, we will continue to provide our Gen 5 HughesNet service to subscribers and make certain payments to DISH Network pursuant to the terms and conditions of the Hughes Broadband MSA. We incurred sales incentives and other costs under the Hughes Broadband MSA totaling $0.2$0.5 million and $1.9$1.8 million for the three months ended JuneSeptember 30, 2023 and 2022, respectively, and $0.9$1.4 million and $3.6$5.4 million for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2019 TT&C Agreement. In September 2019, in connection with the BSS Transaction, we entered into an agreement pursuant to which DISH Network provides TT&C services to us for a period ending in September 2021, with the option for us to renew for a one-year period upon written notice at least 90 days prior to the initial expiration (the “2019 TT&C Agreement”). The fees for services provided under the 2019 TT&C Agreement are calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which will vary depending on the nature of the services provided. Any party is able to terminate the 2019 TT&C Agreement for any reason upon 12 months’ notice. We have exercised our option to renew the 2019 TT&C Agreement on several occasions, and its current term expires in September 2024.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Referral Marketing Agreement. In June 2021, we and DISH Network entered into an agreement pursuant to which we will pre-qualify prospects contacting Hughes call centers and transfer those prospects to DISH Network for introduction to DISH Network’s video services, for prospects that convert Hughes will receive a commission. This agreement has an indefinite term and may be terminated by either party upon 90 days’ prior written notice.
Whidbey Island 5G Network Test Bed Subcontract. In June 2022, we and DISH Wireless entered into a subcontract (“DISH Subcontract”) pursuant to which DISH will provideprovides access and use of a DISH lab, technical support and integration and testing support for the 5G network test bed to be delivered by Hughes to its customer. DISH Wireless additionally has agreed to lease certain licensed wireless spectrum to Hughes in connection with the project. Between June 2022 and October 2023, the scope of the DISH Subcontract has expanded to include additional spectrum leases and construction and related services work at Whidbey Island and the Lualualei Annex.
Launch Credit. EchoStar Global Australia Pty Ltd (“EchoStar Australia”) previously entered into four launch services agreements pursuant to which EchoStar Australia held credits that may be applied to a future launch for EchoStar Australia or an affiliate. To ensure the use of this credit prior to its expiration, EchoStar Australia and DISH Orbital II L.L.C. (“DISH Orbital II”) agreed that EchoStar Australia would transfer the launch credit to DISH Orbital II for application against costs of a launch for DISH Orbital II.DISH Orbital II agreed to make a cash payment to EchoStar Australia.
Other Receivables - DISH Network
The following table presents our other receivables owed from DISH Network:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2023 | | December 31, 2022 |
| | | | |
| Other receivables - DISH Network, noncurrent | | $ | 76,808 | | | $ | 74,923 | |
| | | | | | | | | | | | | | |
| | As of |
| | September 30, 2023 | | December 31, 2022 |
| | | | |
| Other receivables - DISH Network, noncurrent | | $ | 77,751 | | | $ | 74,923 | |
Tax Sharing Agreement. Effective December 2007, we and DISH Network entered into a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs our and DISH Network’s respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network and DISH Network indemnifies us for such taxes. However, DISH Network is not liable for and does not indemnify us for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Internal Revenue Code of 1986, as amended (the “Code”), because of: (i) a direct or indirect acquisition of any of our stock, stock options or assets; (ii) any action that we take or fail to take or (iii) any action that we take that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, we will be solely liable for, and will indemnify DISH Network for any resulting taxes, as well as any losses, claims and expenses. The Tax Sharing Agreement will terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
In light of the Tax Sharing Agreement, among other things, and in connection with our consolidated federal income tax returns for certain tax years prior to and for the year of the Spin-off, in September 2013, we and DISH Network agreed upon a supplemental allocation of the tax benefits arising from certain tax items resolved in the course of the IRS’s examination of our consolidated tax returns. Prior to the agreement with DISH Network in 2013, the federal tax benefits were reflected as a deferred tax asset for depreciation and amortization, which was netted in our non-current deferred tax liabilities. Under the agreement with DISH Network from 2013, DISH Network is paying us the federal tax benefit it receives at such time as we would have otherwise been able to realize such tax benefit. We recorded a current receivable from DISH Network in Other receivables - DISH Network, current and a non-current receivable from DISH Network in Other receivables - DISH Network, noncurrent and a corresponding increase in our Deferred tax liabilities, net to reflect the effects of this agreement. In addition, in September 2013, we and DISH Network agreed upon a tax sharing arrangement for filing certain combined state income tax returns and a method of allocating the respective tax liabilities between us and DISH Network for such combined returns, through the taxable period ending on December 31, 2017 (the “State Tax Arrangement”).
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
In August 2018, we and DISH Network amended the Tax Sharing Agreement and the 2013 agreements (the “Tax Sharing Amendment”). Under the Tax Sharing Amendment, to the extent permitted by applicable tax law, DISH Network is entitled to apply the benefit of our 2009 net operating losses (the “SATS 2009 NOLs”) to DISH Network’s federal tax return for the year ended December 31, 2008, in exchange for DISH Network paying us over time the value of the net annual federal income taxes paid by us that would have been otherwise offset by the SATS 2009 NOLs. The Tax Sharing Amendment also requires us and DISH Network to pay the other for the benefits of certain past and future federal research and development tax credits that we or DISH Network receive or received as a result of being part of a controlled group under the Code, and requires DISH Network to compensate us for certain past tax losses utilized by DISH Network and for certain past and future excess California research and development tax credits generated by us and used by DISH Network. In addition, the Tax Sharing Amendment extends the term of the State Tax Arrangement to the earlier of termination of the Tax Sharing Agreement, a change in control of either us or DISH Network or, for any particular state, if we and DISH Network no longer file a combined tax return for such state.
We and DISH Network filed combined income tax returns in certain states from 2008 through 2019. We have earned and recognized tax benefits for certain state income tax credits that we would be unable to fully utilize currently if we had filed separately from DISH Network. We have charged Additional paid-in capital in prior periods when DISH Network has utilized such tax benefits. We expect to increase Additional paid-in capital upon receipt of any consideration that DISH Network pays to us in exchange for these tax credits.
Other Agreements
Master Transaction Agreement. In May 2019, we and BSS Corp. entered into the Master Transaction Agreement with DISH and DISH Merger Sub with respect to the BSS Transaction. Pursuant to the terms of the Master Transaction Agreement, on September 10, 2019: (i) we transferred the BSS Business to BSS Corp.; (ii) we completed the Distribution; and (iii) immediately after the Distribution, (1) BSS Corp. became a wholly-owned subsidiary of DISH such that DISH owns and operates the BSS Business and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.235 shares of DISH Common Stock. Following the consummation of the BSS Transaction, we no longer operate the BSS Business, which was a substantial portion of our ESS segment. The Master Transaction Agreement contained customary representations and warranties by us and DISH Network, including our representations relating to the assets, liabilities and financial condition of the BSS Business, and representations by DISH Network relating to its financial condition and liabilities. We and DISH Network have agreed to indemnify each other against certain losses with respect to breaches of certain representations and covenants and certain retained and assumed liabilities, respectively.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
BSS Transaction Intellectual Property and Technology License Agreement. Effective September 2019, in connection with the BSS Transaction, we and DISH Network entered into an intellectual property and technology license agreement (the “BSS IPTLA”) pursuant to which we and DISH Network license to each other certain intellectual property and technology. The BSS IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the BSS IPTLA, we granted to DISH Network a license to our intellectual property and technology for use by DISH Network, among other things, in connection with its continued operation of the BSS Business acquired pursuant to the BSS Transaction, including a limited license to use the “ESS” and “ECHOSTAR SATELLITE SERVICES” trademarks during a transition period. EchoStar retains full ownership of the “ESS” and “ECHOSTAR SATELLITE SERVICES” trademarks. In addition, DISH Network granted a license back to us, among other things, for the continued use of all intellectual property and technology that is used in our retained businesses but the ownership of which was transferred to DISH Network pursuant to the BSS Transaction.
BSS Transaction Tax Matters Agreement. Effective September 2019, in connection with the BSS Transaction, we, BSS Corp., and DISH entered into a tax matters agreement. This agreement governs certain of our rights, responsibilities and obligations with respect to taxes of the BSS Business transferred pursuant to the BSS Transaction. Generally, we are responsible for all tax returns and tax liabilities for the BSS Business for periods prior to the BSS Transaction and DISH is responsible for all tax returns and tax liabilities for the BSS Business from and after the BSS Transaction. Both we and DISH made certain tax-related representations and are subject to various tax-related covenants after the consummation of the BSS Transaction. Both we and DISH Network have agreed to indemnify each other for certain losses if there is a breach of any the tax representations or violation of any of the
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
tax covenants in the tax matters agreement and that breach or violation results in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar or its stockholders for U.S. federal income tax purposes. In addition, DISH Network has agreed to indemnify us if the BSS Business is acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons, where either it took an action, or knowingly facilitated, consented to or assisted with an action by its stockholders, that resulted in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar and its stockholders for U.S. federal income tax purposes. This tax matters agreement supplements the Tax Sharing Agreement outlined above and the Share Exchange Tax Matters Agreement outlined below, both of which continue in full force and effect.
BSS Transaction Employee Matters Agreement. Effective September 2019, in connection with the BSS Transaction, we and DISH Network entered into an employee matters agreement that addressed the transfer of employees from us to DISH Network, including certain benefit and compensation matters and the allocation of responsibility for employee related liabilities relating to current and past employees of the BSS Business. DISH Network assumed employee-related liabilities relating to the BSS Business as part of the BSS Transaction, except that we are responsible for certain pre-BSS Transaction compensation and benefits for employees who transferred to DISH Network in connection with the BSS Transaction.
Share Exchange Agreement. In February 2017 we consummated the Share Exchange, following which we no longer operate the transferred EchoStar Technologies businesses and the Tracking Stock was retired and is no longer outstanding and all agreements, arrangements and policy statements with respect to such Tracking Stock terminated and are of no further effect. Pursuant to the Share Exchange Agreement, we transferred certain assets, investments in joint ventures, spectrum licenses and real estate properties and DISH Network assumed certain liabilities relating to the transferred assets and businesses. The Share Exchange Agreement contained customary representations and warranties by the parties, including representations by us related to the transferred assets, assumed liabilities and the financial condition of the transferred businesses. We and DISH Network also agreed to customary indemnification provisions whereby each party indemnifies the other against certain losses with respect to breaches of representations, warranties or covenants and certain liabilities and if certain actions undertaken by us or DISH causes the transaction to be taxable to the other party after closing.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Share Exchange Intellectual Property and Technology License Agreement. Effective March 2017, in connection with the Share Exchange, we and DISH Network entered into an intellectual property and technology license agreement (“IPTLA”) pursuant to which we and DISH Network license to each other certain intellectual property and technology. The IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the IPTLA, we granted to DISH Network a license to our intellectual property and technology for use by DISH Network, among other things, in connection with its continued operation of the businesses acquired pursuant to the Share Exchange, including a limited license to use the “ECHOSTAR” trademark during a transition period. EchoStar retains full ownership of the “ECHOSTAR” trademark. In addition, DISH Network granted a license back to us, among other things, for the continued use of all intellectual property and technology that is used in our retained businesses but the ownership of which was transferred to DISH Network pursuant to the Share Exchange.
Share Exchange Tax Matters Agreement. Effective March 2017, in connection with the Share Exchange, we and DISH entered into a tax matters agreement. This agreement governs certain of our rights, responsibilities and obligations with respect to taxes of the transferred businesses pursuant to the Share Exchange. Generally, we are responsible for all tax returns and tax liabilities for the transferred businesses and assets for periods prior to the Share Exchange and DISH Network is responsible for all tax returns and tax liabilities for the transferred businesses and assets from and after the Share Exchange. Both we and DISH Network made certain tax-related representations and are subject to various tax-related covenants after the consummation of the Share Exchange. Both we and DISH Network have agreed to indemnify each other if there is a breach of any such tax representation or violation of any such tax covenant and that breach or violation results in the Share Exchange not qualifying for tax free treatment for the other party. In addition, DISH Network has agreed to indemnify us if the transferred businesses are acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons and such acquisition results in the Share Exchange not qualifying for tax free treatment. The tax matters agreement supplements the Tax Sharing Agreement outlined above which continues in full force and effect.
Share Exchange Employee Matters Agreement. Effective March 2017, in connection with the Share Exchange, we and DISH Network entered into an employee matters agreement that addressed the transfer of employees from
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
us to DISH Network, including certain benefit and compensation matters and the allocation of responsibility for employee related liabilities relating to current and past employees of the transferred businesses. DISH Network assumed employee-related liabilities relating to the transferred businesses as part of the Share Exchange, except that we are responsible for certain pre-Share Exchange employee related litigation, and compensation and benefits for employees who transferred to DISH Network in connection with the Share Exchange.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 12. RELATED PARTY TRANSACTIONS - OTHER
Hughes Systique Corporation
We contract with Hughes Systique Corporation (“Hughes Systique”) for software development services. In addition to our approximately 42% ownership in Hughes Systique, Mr. Pradman Kaul, the former President of our subsidiary Hughes Communications and Vice-Chair of our board of directors (effective January 1, 2023), and his brother, who is the Chief Executive Officer and President of Hughes Systique, own in the aggregate approximately 25%, on an undiluted basis, of Hughes Systique’s outstanding shares as of JuneSeptember 30, 2023. Furthermore, Mr. Pradman Kaul serves on the board of directors of Hughes Systique. Hughes Systique is a variable interest entity and we are considered the primary beneficiary of Hughes Systique due to, among other factors, our ability to direct the activities that most significantly impact the economic performance of Hughes Systique. As a result, we consolidate Hughes Systique’s financial statements in these Consolidated Financial Statements.
TerreStar Solutions
DISH Network owns more than 15% of TerreStar Solutions, Inc. (“TSI”). as of September 30, 2023. In May 2018, we and TSI entered into an equipment and services agreement pursuant to which we design, manufacture and install upgraded ground communications network equipment for TSI’s network and provide, among other things, warranty and support services. We recognized revenue from TSI of $0.4$0.5 million and $0.5 million for the three months ended JuneSeptember 30, 2023 and 2022, respectively, and $0.9$1.4 million, and $1.0$1.5 million for the sixnine months ended JuneSeptember 30, 2023, and 2022, respectively. As of JuneSeptember 30, 2023 we had $0.5 million ofno trade accounts receivable from TSI.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 13. CONTINGENCIES
Patents and Intellectual Property
Many entities, including some of our competitors, have, or may have in the future, patents and other intellectual property rights that cover or affect products or services directly or indirectly related to those that we offer. We may not be aware of all patents and other intellectual property rights that our products and services may potentially infringe. Damages in patent infringement cases can be substantial, and in certain circumstances can be tripled. Further, we cannot estimate the extent to which we may be required in the future to obtain licenses with respect to intellectual property rights held by others and the availability and cost of any such licenses. Various parties have asserted patent and other intellectual property rights with respect to our products and services. We cannot be certain that these parties do not own the rights they claim, that these rights are not valid or that our products and services do not infringe on these rights. Further, we cannot be certain that we would be able to obtain licenses from these parties on commercially reasonable terms or, if we were unable to obtain such licenses, that we would be able to redesign our products and services to avoid infringement.
Certain Arrangements with DISH Network
In connection with our spin-off from DISH in 2008, we entered into a separation agreement with DISH Network that provides, among other things, for the division of certain liabilities, including liabilities resulting from litigation. Under the terms of the separation agreement, we assumed certain liabilities that relate to our business, including certain designated liabilities for acts or omissions that occurred prior to the Spin-off. Certain specific provisions govern intellectual property related claims under which we will generally only be liable for our acts or omissions following the Spin-off and DISH Network will indemnify us for any liabilities or damages resulting from intellectual property claims relating to the period prior to the Spin-off as well as DISH Network’s acts or omissions following the Spin-off. In connection with the Share Exchange and BSS Transaction, we entered into the Share Exchange Agreement and the Master Transaction Agreement, respectively, and other agreements which provide, among other things, for the division of certain liabilities, including liabilities relating to taxes, intellectual property and employees and liabilities resulting from litigation and the assumption of certain liabilities that relate to the transferred businesses and assets. These agreements also contain additional indemnification provisions between us and DISH Network for, in the case of the Share Exchange, certain pre-existing liabilities and legal proceedings and, in the case of the BSS Transaction, certain losses with respect to breaches of certain representations and covenants and certain liabilities.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Litigation
We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities. Many of these proceedings are at preliminary stages and/or seek an indeterminate amount of damages. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable and to determine if accruals are appropriate. We record an accrual for litigation and other loss contingencies when we determine that a loss is probable, and the amount of the loss can be reasonably estimated. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made. There can be no assurance that legal proceedings against us will be resolved in amounts that will not differ from the amounts of our recorded accruals. Legal fees and other costs of defending legal proceedings are charged to selling, general and administrative expense as incurred.
For certain proceedings, management is unable to predict with any degree of certainty the outcome or provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons: (i) the proceedings are in various stages; (ii) damages have not been sought or specified; (iii) damages are unsupported, indeterminate and/or exaggerated in management’s opinion; (iv) there is uncertainty as to the outcome of pending trials, appeals, motions or other proceedings; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories to be presented or a large number of parties are involved (as with many patent-related cases). Except as described below, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial condition, operating results or cash flows, though there is no assurance that the resolution and outcomes of these proceedings, individually or in the aggregate, will not be material to our financial condition, operating results or cash flows for any particular period, depending, in part, upon the operating results for such period.
We intend to vigorously defend the proceedings against us. In the event that a court, tribunal, other body or jury ultimately rules against us, we may be subject to adverse consequences, including, without limitation, substantial damages, which may include treble damages, fines, penalties, compensatory damages and/or other equitable or injunctive relief that could require us to materially modify our business operations or certain products or services that we offer to our consumers.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
License Fee Dispute with Government of India, Department of Telecommunications
In 1994, the Government of India promulgated a “National Telecommunications Policy” under which the government liberalized the telecommunications sector and required telecommunications service providers to pay fixed license fees. Pursuant to this policy, our subsidiary Hughes Communications India Private Limited (“HCIPL”), formerly known as Hughes Escorts Communications Limited, obtained a license to operate a data network over satellite using VSAT systems. In 2002, HCIPL’s license was amended pursuant to a new government policy that was first established in 1999. The new policy eliminated the fixed license fees and instead required each telecommunications service provider to pay license fees based on its adjusted gross revenue (“AGR”). In March 2005, the Indian Department of Telecommunications (“DOT”) notified HCIPL that, based on its review of HCIPL’s audited accounts and AGR statements, HCIPL must pay additional license fees and penalties and interest on such fees and penalties. HCIPL responded that the DOT had improperly calculated its AGR by including revenue from licensed and unlicensed activities. The DOT rejected this explanation and in 2006, HCIPL filed a petition with an administrative tribunal (the “Tribunal”), challenging the DOT’s calculation of its AGR. The DOT also issued license fee assessments to other telecommunications service providers and a number of similar petitions were filed by several other such providers with the Tribunal. These petitions were amended, consolidated, remanded and re-appealed several times. On April 23, 2015, the Tribunal issued a judgment affirming the DOT’s calculation of AGR for the telecommunications service providers but reversing the DOT’s imposition of interest, penalties and interest on such penalties as excessive. Over subsequent years, the DOT and HCIPL and other telecommunications service providers, respectively, filed several appeals of the Tribunal’s ruling. On October 24, 2019, the Supreme Court of India (“Supreme Court”) issued an order (the “October 2019 Order”) affirming the license fee assessments imposed by the DOT, including its imposition of interest, penalties and interest on the penalties, but without indicating the amount HCIPL is required to pay the DOT, and ordering payment by January 23, 2020. On November 23, 2019, HCIPL and other telecommunication service providers filed a petition asking the Supreme Court to reconsider the October 2019 Order. The petition was denied on January 20, 2020. On January 22, 2020, HCIPL and other telecommunication service providers filed an application requesting that the Supreme Court modify the October
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2019 Order to permit the DOT to calculate the final amount due and extend HCIPL’s and the other telecommunication service providers’ payment deadline. On February 14, 2020, the Supreme Court directed HCIPL and the other telecommunication service providers to explain why the Supreme Court should not initiate contempt proceedings for failure to pay the amounts due. During a hearing on March 18, 2020, the Supreme Court ordered that all amounts that were due before the October 2019 Order must be paid, including interest, penalties and interest on the penalties. The Supreme Court also ordered that the parties appear for a further hearing addressing, potentially among other things, a proposal by the DOT to allow for extended or deferred payments of amounts due. On June 11, 2020, the Supreme Court ordered HCIPL and the other telecommunication service providers to submit affidavits addressing the proposal made by the DOT to extend the time frame for payment of the amounts owed and for HCIPL and the other telecommunication providers to provide security for such payments. On September 1, 2020, the Supreme Court issued a judgment permitting a 10-year payment schedule. Under this payment schedule, HCIPL is required to make an annual payment every March 31, through 2031. Following the Supreme Court of India’s October 2019 judgment, HCIPL made payments during the first quarter of 2020, and additional payments on each March 31 thereafter.
Pursuant to the Contribution and Membership Interest Purchase Agreement (the “Purchase Agreement”) dated December 3, 2004 between The DirecTV Group, Inc. ("DirecTV") and certain other entities relating to the spinoff by DirecTV of certain of its subsidiaries, including HCIPL, DirecTV undertook indemnification obligations to HCIPL, and HCIPL has pursued indemnification claims against DirecTV under the Purchase Agreement in connection with the license fees assessed in this proceeding.
On June 22, 2023, the United States Court of Appeals for the Second Circuit ruled that, under the Purchase Agreement, HCIPL, is entitled to indemnification from DirecTV, with the amount of indemnification to be determined in further proceedings before the district court in New York.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents the components of the accrual:
| | | As of | | As of |
| | June 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| Additional license fees | Additional license fees | | $ | 3,457 | | | $ | 3,425 | | Additional license fees | | $ | 3,411 | | | $ | 3,425 | |
| Penalties | Penalties | | 3,548 | | | 3,516 | | Penalties | | 3,501 | | | 3,516 | |
| Interest and interest on penalties | Interest and interest on penalties | | 81,510 | | | 78,327 | | Interest and interest on penalties | | 81,592 | | | 78,327 | |
| Less: Payments | Less: Payments | | (28,234) | | | (17,785) | | Less: Payments | | (27,855) | | | (17,785) | |
| Total accrual | Total accrual | | 60,281 | | | 67,483 | | Total accrual | | 60,649 | | | 67,483 | |
| Less: Current portion | Less: Current portion | | 10,285 | | | 10,191 | | Less: Current portion | | 10,147 | | | 10,191 | |
| Total long-term accrual | Total long-term accrual | | $ | 49,996 | | | $ | 57,292 | | Total long-term accrual | | $ | 50,502 | | | $ | 57,292 | |
Any eventual payments made with respect to the ultimate outcome of this matter may be different from our accrual and such differences could be significant.
Other
In addition to the above actions, we are subject to various other legal proceedings and claims, which arise in the ordinary course of business. As part of our ongoing operations, we are subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as by governmental/regulatory authorities responsible for enforcing the laws and regulations to which we may be subject. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the federal government. Some states have adopted similar state whistleblower and false claims provisions. In addition, we from time to time receive inquiries from federal, state and foreign agencies regarding compliance with various laws and regulations.
In our opinion, the amount of ultimate liability with respect to any of these other actions is unlikely to materially affect our financial position, results of operations or cash flows, though the resolutions and outcomes, individually or in the
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
aggregate, could be material to our financial position, operating results or cash flows for any particular period, depending, in part, upon the operating results for such period.
We also indemnify our directors, officers and employees for certain liabilities that might arise from the performance of their responsibilities for us. Additionally, in the normal course of its business, we enter into contracts pursuant to which we may make a variety of representations and warranties and indemnify the counterparty for certain losses. Our possible exposure under these arrangements cannot be reasonably estimated as this involves the resolution of claims made, or future claims that may be made, against us or our officers, directors or employees, the outcomes of which are unknown and not currently predictable or estimable.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 14. SEGMENT REPORTING
Business segments are components of an enterprise for which separate financial information is available and regularly evaluated by our chief operating decision maker (“CODM”), who is our Chief Executive Officer. We operate in two business segments,segments: Hughes segment and ESS segment.
The primary measure of segment profitability that is reported regularly to our CODM is earnings before interest, taxes, depreciation and amortization, and net income (loss) attributable to non-controlling interests (“EBITDA”).
Total assets by segment have not been reported herein because the information is not provided to our CODM on a regular basis.
The following table presents total revenue, capital expenditures and EBITDA for each of our business segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the three months ended June 30, 2023 | | | | | | | | |
| External revenue | | $ | 444,335 | | | $ | 5,578 | | | $ | 3,196 | | | $ | 453,109 | |
| Intersegment revenue | | — | | | 542 | | | (542) | | | — | |
| Total revenue | | $ | 444,335 | | | $ | 6,120 | | | $ | 2,654 | | | $ | 453,109 | |
| | | | | | | | |
| Capital expenditures | | $ | 43,950 | | | $ | — | | | $ | 5,066 | | | $ | 49,016 | |
| EBITDA | | $ | 140,997 | | | $ | 4,562 | | | $ | (20,327) | | | $ | 125,232 | |
| | | | | | | | |
| For the three months ended June 30, 2022 | | | | | | | | |
| External revenue | | $ | 491,841 | | | $ | 4,502 | | | $ | 2,973 | | | $ | 499,316 | |
| Intersegment revenue | | — | | | 348 | | | (348) | | | — | |
| Total revenue | | $ | 491,841 | | | $ | 4,850 | | | $ | 2,625 | | | $ | 499,316 | |
| | | | | | | | |
| Capital expenditures | | $ | 64,861 | | | $ | — | | | $ | 10,918 | | | $ | 75,779 | |
| EBITDA | | $ | 179,928 | | | $ | 3,521 | | | $ | (42,401) | | | $ | 141,048 | |
| | | | | | | | |
| For the six months ended June 30, 2023 | | | | | | | | |
| External revenue | | $ | 875,530 | | | $ | 11,067 | | | $ | 6,109 | | | $ | 892,706 | |
| Intersegment revenue | | — | | | 1,050 | | | (1,050) | | | — | |
| Total revenue | | $ | 875,530 | | | $ | 12,117 | | | $ | 5,059 | | | $ | 892,706 | |
| | | | | | | | |
| Capital expenditures | | $ | 90,975 | | | $ | — | | | $ | 2,112 | | | $ | 93,087 | |
| EBITDA | | $ | 298,231 | | | $ | 9,217 | | | $ | (54,167) | | | $ | 253,281 | |
| | | | | | | | |
| For the six months ended June 30, 2022 | | | | | | | | |
| External revenue | | $ | 985,947 | | | $ | 8,778 | | | $ | 6,125 | | | $ | 1,000,850 | |
| Intersegment revenue | | — | | | 546 | | | (546) | | | — | |
| Total revenue | | $ | 985,947 | | | $ | 9,324 | | | $ | 5,579 | | | $ | 1,000,850 | |
| | | | | | | | |
| Capital expenditures | | $ | 125,882 | | | $ | — | | | $ | 62,035 | | | $ | 187,917 | |
| EBITDA | | $ | 371,098 | | | $ | 6,212 | | | $ | 16,940 | | | $ | 394,250 | |
|
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents total revenue, capital expenditures and EBITDA for each of our business segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the three months ended September 30, 2023 | | | | | | | | |
| External revenue | | $ | 404,209 | | | $ | 5,873 | | | $ | 2,992 | | | $ | 413,074 | |
| Intersegment revenue | | — | | | 573 | | | (573) | | | — | |
| Total revenue | | $ | 404,209 | | | $ | 6,446 | | | $ | 2,419 | | | $ | 413,074 | |
| | | | | | | | |
| Capital expenditures | | $ | 51,214 | | | $ | 130 | | | $ | 27,820 | | | $ | 79,164 | |
| EBITDA | | $ | 142,204 | | | $ | 4,868 | | | $ | (45,812) | | | $ | 101,260 | |
| | | | | | | | |
| For the three months ended September 30, 2022 | | | | | | | | |
| External revenue | | $ | 489,565 | | | $ | 4,588 | | | $ | 3,234 | | | $ | 497,387 | |
| Intersegment revenue | | — | | | 393 | | | (393) | | | — | |
| Total revenue | | $ | 489,565 | | | $ | 4,981 | | | $ | 2,841 | | | $ | 497,387 | |
| | | | | | | | |
| Capital expenditures | | $ | 50,783 | | | $ | — | | | $ | 10,674 | | | $ | 61,457 | |
| EBITDA | | $ | 175,010 | | | $ | 3,446 | | | $ | (32,963) | | | $ | 145,493 | |
| | | | | | | | |
| For the nine months ended September 30, 2023 | | | | | | | | |
| External revenue | | $ | 1,279,739 | | | $ | 16,940 | | | $ | 9,101 | | | $ | 1,305,780 | |
| Intersegment revenue | | — | | | 1,623 | | | (1,623) | | | — | |
| Total revenue | | $ | 1,279,739 | | | $ | 18,563 | | | $ | 7,478 | | | $ | 1,305,780 | |
| | | | | | | | |
| Capital expenditures | | $ | 142,189 | | | $ | 130 | | | $ | 29,932 | | | $ | 172,251 | |
| EBITDA | | $ | 440,435 | | | $ | 14,085 | | | $ | (99,979) | | | $ | 354,541 | |
| | | | | | | | |
| For the nine months ended September 30, 2022 | | | | | | | | |
| External revenue | | $ | 1,475,512 | | | $ | 13,366 | | | $ | 9,359 | | | $ | 1,498,237 | |
| Intersegment revenue | | — | | | 939 | | | (939) | | | — | |
| Total revenue | | $ | 1,475,512 | | | $ | 14,305 | | | $ | 8,420 | | | $ | 1,498,237 | |
| | | | | | | | |
| Capital expenditures | | $ | 176,665 | | | $ | — | | | $ | 72,709 | | | $ | 249,374 | |
| EBITDA | | $ | 546,108 | | | $ | 9,658 | | | $ | (16,023) | | | $ | 539,743 | |
| | | | | | | | |
The following table reconciles Income (loss) before income taxes in the Consolidated Statements of Operations to EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the three months ended June 30, | | For the six months ended June 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| Income (loss) before income taxes | | $ | 27,858 | | | $ | 15,863 | | | $ | 67,138 | | | $ | 137,590 | |
| Interest income, net | | (23,526) | | | (9,072) | | | (52,122) | | | (15,494) | |
| Interest expense, net of amounts capitalized | | 13,240 | | | 14,307 | | | 26,526 | | | 29,280 | |
| Depreciation and amortization | | 105,588 | | | 116,555 | | | 208,446 | | | 236,991 | |
| Net loss (income) attributable to non-controlling interests | | 2,072 | | | 3,395 | | | 3,293 | | | 5,883 | |
| EBITDA | | $ | 125,232 | | | $ | 141,048 | | | $ | 253,281 | | | $ | 394,250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the three months ended September 30, | | For the nine months ended September 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| Income (loss) before income taxes | | $ | 9,079 | | | $ | 32,745 | | | $ | 76,217 | | | $ | 170,335 | |
| Interest income, net | | (26,209) | | | (14,183) | | | (78,331) | | | (29,677) | |
| Interest expense, net of amounts capitalized | | 12,650 | | | 13,845 | | | 39,176 | | | 43,125 | |
| Depreciation and amortization | | 103,028 | | | 110,233 | | | 311,474 | | | 347,224 | |
| Net loss (income) attributable to non-controlling interests | | 2,712 | | | 2,853 | | | 6,005 | | | 8,736 | |
| EBITDA | | $ | 101,260 | | | $ | 145,493 | | | $ | 354,541 | | | $ | 539,743 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 15. SUPPLEMENTAL FINANCIAL INFORMATION
Other Current Assets, Net and Other Non-current Assets, Net
The following table presents the components of Other current assets, net and Other non-current assets, net:
| | | As of | | As of |
| | June 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| Other current assets, net: | Other current assets, net: | | | | | Other current assets, net: | | | | |
| Inventory | Inventory | | $ | 151,508 | | | $ | 123,606 | | Inventory | | $ | 167,511 | | | $ | 123,606 | |
| Prepaids and deposits | Prepaids and deposits | | 68,741 | | | 61,877 | | Prepaids and deposits | | 58,865 | | | 61,877 | |
| Trade accounts receivable - DISH Network | Trade accounts receivable - DISH Network | | 8,517 | | | 3,492 | | Trade accounts receivable - DISH Network | | 7,730 | | | 3,492 | |
| | Other, net | Other, net | | 15,581 | | | 21,471 | | Other, net | | 14,135 | | | 21,471 | |
| Total other current assets | Total other current assets | | $ | 244,347 | | | $ | 210,446 | | Total other current assets | | $ | 248,241 | | | $ | 210,446 | |
| | Other non-current assets, net: | Other non-current assets, net: | | Other non-current assets, net: | |
| Capitalized software, net | Capitalized software, net | | $ | 117,645 | | | $ | 116,841 | | Capitalized software, net | | $ | 117,473 | | | $ | 116,841 | |
| Contract acquisition costs, net | Contract acquisition costs, net | | 56,919 | | | 64,447 | | Contract acquisition costs, net | | 53,114 | | | 64,447 | |
| Other receivables - DISH Network | Other receivables - DISH Network | | 76,808 | | | 74,923 | | Other receivables - DISH Network | | 77,751 | | | 74,923 | |
| Other receivables, net | Other receivables, net | | 24,854 | | | 15,072 | | Other receivables, net | | 33,340 | | | 15,072 | |
| Restricted marketable investment securities | Restricted marketable investment securities | | 11,455 | | | 11,056 | | Restricted marketable investment securities | | 8,003 | | | 11,056 | |
| Deferred tax assets, net | Deferred tax assets, net | | 8,768 | | | 8,011 | | Deferred tax assets, net | | 8,955 | | | 8,011 | |
| Restricted cash | Restricted cash | | 1,373 | | | 1,342 | | Restricted cash | | 1,335 | | | 1,342 | |
| Contract fulfillment costs, net | Contract fulfillment costs, net | | 1,858 | | | 1,931 | | Contract fulfillment costs, net | | 1,780 | | | 1,931 | |
| Other, net | Other, net | | 26,538 | | | 23,439 | | Other, net | | 24,734 | | | 23,439 | |
| Total other non-current assets, net | Total other non-current assets, net | | $ | 326,218 | | | $ | 317,062 | | Total other non-current assets, net | | $ | 326,485 | | | $ | 317,062 | |
Inventory
The following table presents the components of inventory:
| | | | | As of | | | As of |
| | | | June 30, 2023 | | December 31, 2022 | | | September 30, 2023 | | December 31, 2022 |
| Raw materials | Raw materials | | $ | 39,905 | | | $ | 32,920 | | Raw materials | | $ | 40,227 | | | $ | 32,920 | |
| Work-in-process | Work-in-process | | 17,925 | | | 16,408 | | Work-in-process | | 24,964 | | | 16,408 | |
| Finished goods | Finished goods | | 93,678 | | | 74,278 | | Finished goods | | 102,320 | | | 74,278 | |
| Total inventory | Total inventory | | $ | 151,508 | | | $ | 123,606 | | Total inventory | | $ | 167,511 | | | $ | 123,606 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Accrued Expenses and Other Current Liabilities and Other Non-Current Liabilities
The following table presents the components of Accrued expenses and other current liabilities and Other non-current liabilities:
| | | As of | | As of |
| | June 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| Accrued expenses and other current liabilities: | Accrued expenses and other current liabilities: | | | | | Accrued expenses and other current liabilities: | | | | |
| Accrued compensation | Accrued compensation | | $ | 49,144 | | | $ | 56,337 | | Accrued compensation | | $ | 56,310 | | | $ | 56,337 | |
| Accrued expenses | | Accrued expenses | | 52,044 | | | 39,875 | |
| Operating lease obligation | Operating lease obligation | | 17,717 | | | 17,854 | | Operating lease obligation | | 17,855 | | | 17,854 | |
| Accrued interest | Accrued interest | | 38,277 | | | 39,245 | | Accrued interest | | 16,417 | | | 39,245 | |
| Accrued taxes | Accrued taxes | | 14,094 | | | 12,603 | | Accrued taxes | | 14,197 | | | 12,603 | |
| Accrual for license fee dispute | Accrual for license fee dispute | | 10,285 | | | 10,191 | | Accrual for license fee dispute | | 10,147 | | | 10,191 | |
| In-orbit incentive obligations | In-orbit incentive obligations | | 4,536 | | | 5,369 | | In-orbit incentive obligations | | 4,737 | | | 5,369 | |
| Trade accounts payable - DISH Network | Trade accounts payable - DISH Network | | 839 | | | 669 | | Trade accounts payable - DISH Network | | 1,465 | | | 669 | |
| Accrued expenses | | 43,553 | | | 39,875 | | |
| Other | Other | | 20,641 | | | 17,710 | | Other | | 18,928 | | | 17,710 | |
| Total accrued expenses and other current liabilities | Total accrued expenses and other current liabilities | | $ | 199,086 | | | $ | 199,853 | | Total accrued expenses and other current liabilities | | $ | 192,100 | | | $ | 199,853 | |
| | Other non-current liabilities: | Other non-current liabilities: | | Other non-current liabilities: | |
| Accrual for license fee dispute | Accrual for license fee dispute | | $ | 49,996 | | | $ | 57,292 | | Accrual for license fee dispute | | $ | 50,502 | | | $ | 57,292 | |
| In-orbit incentive obligations | In-orbit incentive obligations | | 43,209 | | | 44,836 | | In-orbit incentive obligations | | 42,324 | | | 44,836 | |
| Contract liabilities | Contract liabilities | | 6,738 | | | 8,326 | | Contract liabilities | | 6,999 | | | 8,326 | |
| Other | Other | | 9,356 | | | 9,333 | | Other | | 9,571 | | | 9,333 | |
| Total other non-current liabilities | Total other non-current liabilities | | $ | 109,299 | | | $ | 119,787 | | Total other non-current liabilities | | $ | 109,396 | | | $ | 119,787 | |
Supplemental and Non-cash Investing and Financing Activities
The following table presents the year-to-date supplemental and non-cash investing and financing activities:
| | | For the six months ended June 30, | | For the nine months ended September 30, |
| | | | 2023 | | 2022 | | | 2023 | | 2022 |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | | | Supplemental disclosure of cash flow information: | | | | |
| Cash paid for interest, net of amounts capitalized | Cash paid for interest, net of amounts capitalized | | $ | 27,685 | | | $ | 32,842 | | Cash paid for interest, net of amounts capitalized | | $ | 64,928 | | | $ | 66,943 | |
| Cash paid for income taxes, net of refunds | Cash paid for income taxes, net of refunds | | $ | 19,009 | | | $ | 23,962 | | Cash paid for income taxes, net of refunds | | $ | 19,976 | | | $ | 32,577 | |
| | Non-cash investing and financing activities: | Non-cash investing and financing activities: | | Non-cash investing and financing activities: | |
| Employee benefits paid in Class A common stock | Employee benefits paid in Class A common stock | | $ | 5,421 | | | $ | 7,042 | | Employee benefits paid in Class A common stock | | $ | 5,421 | | | $ | 7,042 | |
| Increase (decrease) in capital expenditures included in accounts payable, net | Increase (decrease) in capital expenditures included in accounts payable, net | | $ | (5,980) | | | $ | (9,910) | | Increase (decrease) in capital expenditures included in accounts payable, net | | $ | (3,453) | | | $ | (22,146) | |
| Non-cash net assets received as part of the India JV formation | Non-cash net assets received as part of the India JV formation | | $ | — | | | $ | 36,701 | | Non-cash net assets received as part of the India JV formation | | $ | — | | | $ | 36,701 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 16. SUBSEQUENT EVENTS
On July 28, 2023, the Company successfully launched EchoStar XXIV, our next generation ultra high density satellite. The satellite is expected to begin service in the fourth quarter of 2023. Once in service, the satellite is expected to bring further consumer broadband capacity across North and South America and catalyze sales in other markets, including in-flight Wi-Fi, enterprise networking and cellular backhaul for mobile network operators across the two continents. Until the satellite reaches its orbital position and completes in-orbit testing, we cannot reasonably estimate the impact the satellite will have to our Consolidated Financial Statements.
On August 8,October 2, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger with DISH Network Corporation, a Nevada corporation, and Eagle Sub Corp,EAV Corp., a Nevada corporation and a wholly owned subsidiary of EchoStar. The Amended Merger Agreement revises the structure of the merger of DISH (“and EchoStar contemplated by the Original Merger Sub”).Agreement. The Amended Merger Agreement provides, among other things, that subject to the satisfaction or waiver of the conditions set forth in the agreement,Amended Merger Agreement, Merger Sub will merge with and into EchoStar (the “Merger”),DISH, with EchoStarDISH surviving the Merger as a wholly owned subsidiary of DISH.
OnEchoStar. The expected proportional ownership of existing EchoStar stockholders and DISH stockholders in the terms and subjectcombined company upon the consummation of the Merger remains the same as the expected proportional ownership contemplated by the Original Merger Agreement. Pursuant to the conditions set forth in theAmended Merger Agreement, at the effective time of the Merger, (the “Effective Time”), each share of EchoStarDISH Class A Common Stock, par value $0.001$0.01 per share, (“EchoStar Class A Common Stock”), EchoStarand DISH Class C Common Stock, par value $0.001$0.01 per share, (“EchoStar Class C Common Stock”) and EchoStar Class D Common Stock, par value $0.001 per share (“EchoStar Class D Common Stock”), outstanding immediately prior to the Effective Time, will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of DISHEchoStar Class A Common Stock, par value $0.01$0.001 per share, (“DISH Class A Common Stock”), equal to 2.85 (the “Exchange Ratio”).0.350877. On the terms and subject to the conditions set forth in the Amended Merger Agreement, at the Effective Time, of the Merger, each share of EchoStarDISH Class B Common Stock, par value $0.001$0.01 per share, (“EchoStar Class B Common Stock”), outstanding immediately prior to the Effective Time will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of DISHEchoStar Class B Common Stock, par value $0.01$0.001 per share, (the “DISH Class B Common Stock” and, together with the DISH Class A Common Stock, the “DISH Common Stock”), equal to the Exchange Ratio. Any shares of EchoStarDISH Class A Common Stock, EchoStarDISH Class B Common Stock EchoStarand DISH Class C Common Stock and EchoStar Class D Common Stock (collectively, “EchoStar Common Stock”) that are held in EchoStar’sDISH’s treasury or held directly by DISHEchoStar or Merger Sub immediately prior to the Effective Time will be cancelled and cease to exist and no consideration shall be paid or payable in respect thereof.
Concurrently with the entry into the Amended Merger Agreement, Charles W. Ergen and Ergen family stockholders entered into aan amended support agreement with the Company and DISH, pursuant to which the Ergen stockholders agreed to convert a numbernot vote, or cause or direct to be voted, the shares of sharesEchoStar Class A Common Stock owned by them, other than with respect of any matter presented to the holders of EchoStar Class A Common Stock on which holders of EchoStar Class B Common Stock owned by themare not entitled to EchoStar Class A Common Stock prior tovote, for three years following the Effective Time (which number will be determined in accordance with the Merger Agreement) such that the Ergen stockholders’ voting power of DISH does not increase as a resultclosing of the Merger from the voting power owned by them as of the date of the entry into the Merger Agreement.Merger. The parties have agreed to enter into a registration rights agreement reasonably acceptable to the parties providing for the registration of the Ergen stockholders’ shares of DISHEchoStar Class A Common Stock or DISHEchoStar Class B Common Stock received as part of the Merger consideration and/or DISHEchoStar Class B Common Stock held by such stockholders immediately prior to the closing of the Merger.Merger, at EchoStar’s sole cost and expense.
The board of directors of the Company (the “Board”), acting upon the unanimous recommendation of a special transaction committee of independent directors of the Board, has unanimously approved, adopted and declared advisable the Amended Merger Agreement and the transactions contemplated by the Amended Merger Agreement. The closing of the Merger is expected to occur in the fourth calendar quarter of 2023, subject to the satisfaction of certain regulatory approvals and other customary closing conditions. The Amended Merger Agreement provides certain termination rights for each of DISHthe Company and the Company,DISH including, among others, if the consummation of the Merger does not occur on or before February 8,April 2, 2024.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context indicates otherwise, the terms “we,” “us,” “EchoStar,” the “Company” and “our” refer to EchoStar Corporation and its subsidiaries. The following Management’s Discussion and Analysis of our Financial Condition and Results of Operations (“Management’s Discussion and Analysis”) should be read in conjunction with our accompanying Consolidated Financial Statements and notes thereto (“Consolidated Financial Statements”) in Item 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”). This Management’s Discussion and Analysis is intended to help provide an understanding of our financial condition, changes in our financial condition and our results of operations. Many of the statements in this Management’s Discussion and Analysis are forward-looking statements that involve assumptions and are subject to risks and uncertainties that are often difficult to predict and beyond our control. Actual results could differ materially from those expressed or implied by such forward-looking statements. Refer to the Disclosure Regarding Forward-Looking Statements in this Form 10-Q for further discussion. For a discussion of additional risks, uncertainties and other factors that could impact our results of operations or financial condition, refer to the Risk Factors in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”). Further, such forward-looking statements speak only as of the date of this Form 10-Q and we undertake no obligation to update them.
EXECUTIVE SUMMARY
Overview
We currently operate in two business segments: our Hughes segment and our EchoStar Satellite Services segment (“ESS segment”). Our operations include various corporate functions that have not been assigned to our business segments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other.
All amounts presented in this Management’s Discussion and Analysis are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.
On August 8, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger“Original Merger Agreement”) with DISH Network Corporation, a Nevada corporation (“DISH”), and Eagle Sub Corp, a Nevada corporation and a wholly owned subsidiary of DISH. The Original Merger Agreement provided, among other things, that subject to the satisfaction or waiver of the conditions set forth in the agreement, Eagle Sub Corp would merge with and into EchoStar, with EchoStar surviving as a wholly owned subsidiary of DISH.
On October 2, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “Amended Merger Agreement”) with DISH and EAV Corp., a Nevada corporation and a wholly owned subsidiary of EchoStar (“Merger Sub”). The Amended Merger Agreement revises the structure of the merger of DISH and EchoStar contemplated by the Original Merger Agreement. The Amended Merger Agreement provides, among other things, that subject to the satisfaction or waiver of the conditions set forth in the agreement,Amended Merger Agreement, Merger Sub will merge with and into EchoStarDISH (the “Merger”), with EchoStarDISH surviving the Merger as a wholly owned subsidiary of DISH.
OnEchoStar. The expected proportional ownership of existing EchoStar stockholders and DISH stockholders in the terms and subjectcombined company upon the consummation of the Merger remains the same as the expected proportional ownership contemplated by the Original Merger Agreement. Pursuant to the conditions set forth in theAmended Merger Agreement, at the effective time of the Merger, (the “Effective Time”), each share of EchoStarDISH Class A Common Stock, par value $0.001$0.01 per share (“EchoStarDISH Class A Common Stock”), EchoStar and DISH Class C Common Stock, par value $0.001$0.01 per share (“EchoStarDISH Class C Common Stock”) and EchoStar Class D Common Stock, par value $0.001 per share (“EchoStar Class D Common Stock”), outstanding immediately prior to the Effective Time, will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of DISHEchoStar Class A Common Stock, par value $0.01$0.001 per share (“DISHEchoStar Class A Common Stock”), equal to 2.850.350877 (the “Exchange Ratio”). On the terms and subject to the conditions set forth in the Amended Merger Agreement, at the Effective Time, of the Merger, each share of EchoStarDISH Class B Common Stock, par value $0.001$0.01 per share (“EchoStarDISH Class B Common Stock”), outstanding immediately prior to the Effective Time will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of DISHEchoStar Class B Common Stock, par value $0.01$0.001 per share (the “DISH“EchoStar Class B Common Stock” and, together with the DISHEchoStar Class A Common Stock, the “DISH“EchoStar Common Stock”), equal to the Exchange Ratio. Any shares of EchoStarDISH Class A Common Stock, EchoStarDISH Class B Common Stock EchoStarand DISH Class C Common Stock and EchoStar Class D Common Stock (collectively, “EchoStar“DISH Common Stock”) that are held in EchoStar’sDISH’s treasury or held directly by DISHEchoStar or Merger Sub immediately prior to the Effective Time will be cancelled and cease to exist and no consideration shall be paid or payable in respect thereof.
Concurrently with the entry into the Amended Merger Agreement, Charles W. Ergen and Ergen family stockholders entered into aan amended support agreement with the Company and DISH, pursuant to which the Ergen stockholdersthey have agreed to not
vote, or cause or direct to be voted, the shares of DISHEchoStar Class A Common Stock owned by them, other than with respect of any matter presented to the holders of DISHEchoStar Class A Common Stock on which holders of DISHEchoStar Class B Common Stock are not entitled to vote, for three years following the closing of the Merger, such thatMerger. Under the terms of the amended support agreement, EchoStar and the Ergen stockholders’ voting power of DISH does not increase as a result of the Merger from the voting power owned by them as of the date of the entry into the Merger Agreement. The parties have agreed toStockholders will enter into a registration rights agreement reasonably acceptable to the parties prior to the closing of the Merger providing for the registration of the Ergensuch stockholders’ shares of DISHEchoStar Class A Common Stock or DISHEchoStar Class B Common Stock received as part of the Merger consideration and/or DISHshares of EchoStar Class B Common Stock held by such stockholders immediately prior to the closing of the Merger.Merger, at EchoStar’s sole cost and expense.
Upon the consummation of the Merger, the Company Board will consist of eleven directors, comprised of (i) seven individuals who were members of the DISH board as of immediately prior to the Merger, (ii) three individuals who were independent directors on the Company Board as of immediately prior to the Merger and (iii) the President and Chief Executive Officer of EchoStar. The Company and DISH will consult with each other in connection with selecting the directors of the existing Company Board who will continue to serve on the Company Board from and after the Merger.
The board of directors of the Company (the “Board”), acting upon the unanimous recommendation of a special transaction committee of independent directors of the Board, has unanimously approved, adopted and declared advisable the Amended Merger Agreement and the transactions contemplated by the Amended Merger Agreement. The closing of the Merger is expected to occur in the fourth calendar quarter of 2023, subject to the satisfaction of certain regulatory approvals and other customary closing conditions. The Amended Merger Agreement provides certain termination rights for each of DISHthe Company and the Company,DISH, including, among others, if the consummation of the Merger does not occur on or before February 8,April 2, 2024.
Hughes Segment
Our Hughes segment is an industry leader in both networking technologies and services, innovating to deliver the global solutions that power a connected future for people, enterprises and things everywhere. We offer broadband satellite technologies and broadband internet products and services to consumer customers. We offer broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to government and enterprise customers.
Anticipating the launchcommencement of commercial operations of the EchoStar XXIV satellite, as discussed below, our consumer business, marketed under the HughesNet® brand, has been focused on optimizing financial returns of our existing satellites, while planning for new satellite capacity. Our consumer revenue growth depends on our success in adding new and retaining existing subscribers, as well as increasing our Average Revenue Per User/Subscriber (“ARPU”). Service and acquisition costs related to ongoing support for our direct and indirect customers and partners are typically impacted most significantly by our growth. We expect that our enterprise business will also benefit from the new capacity added with EchoStar XXIV. The growth of our enterprise and consumer businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. Prior to the launch of EchoStar XXIV, we were nearing or had reached capacity in most areas of the U.S., which constrained growth within our consumer subscriber base. Growth within our Latin America consumer subscriber base in certain areas had also become capacity constrained. These constraints are expected to be addressed by the launch of the EchoStar XXIV satellite.
The EchoStar XXIV satellite was launched in July 2023 and is expected to begin service in the fourth quarter ofDecember 2023. Once in service, the satellite is expected to bring further consumer broadband capacity across North and South America and generate additional sales in other markets, including in-flight Wi-Fi, enterprise networking and cellular backhaul for mobile network operators across the two continents.
Our broadband subscribers include customers that subscribe to our HughesNet services in the U.S. and Latin America through retail, wholesale and small/medium enterprise service channels.
The following table presents our approximate number of broadband subscribers:
| | | As of | | | As of | |
| | June 30, 2023 | | March 31, 2023 | | | September 30, 2023 | | June 30, 2023 | |
| United States | United States | | 846,000 | | | 890,000 | | | United States | | 801,000 | | | 846,000 | | |
| Latin America | Latin America | | 276,000 | | | 287,000 | | | Latin America | | 262,000 | | | 276,000 | | |
| Total broadband subscribers | Total broadband subscribers | | 1,122,000 | | | 1,177,000 | | | Total broadband subscribers | | 1,063,000 | | | 1,122,000 | | |
The following table presents the approximate number of net subscriber decreases:
| | | For the three months ended | | For the three months ended |
| | June 30, 2023 | | March 31, 2023 | | | September 30, 2023 | | June 30, 2023 | |
| United States | United States | | (44,000) | | | (41,000) | | | United States | | (45,000) | | | (44,000) | | |
| Latin America | Latin America | | (11,000) | | | (10,000) | | | Latin America | | (14,000) | | | (11,000) | | |
| Total net subscriber decreases | Total net subscriber decreases | | (55,000) | | | (51,000) | | | Total net subscriber decreases | | (59,000) | | | (55,000) | | |
Our ability to gain new customers and retain existing customers in the U.S. is being impacted by our capacity limitations, competitive pressure from satellite-based competitors and other technologies, and increased bandwidth usage on average by our existing customers. For the three months ended JuneSeptember 30, 2023, these factors resulted in lower total subscribers as compared to the three months ended March 31,June 30, 2023.
Our ability to gain new customers and retain existing customers in Latin America were tempered by our focus on more profitable consumer segments and our allocation of capacity to enterprise opportunities. Capacity constraints in certain other areas also limit our ability to add new subscribers. For the three months ended JuneSeptember 30, 2023, the decline in net subscribers was primarily due to more selective customer screening as compared to the three months ended March 31,June 30, 2023.
We continued to execute our strategy of maximizing financial returns by utilizing capacity for higher economic value enterprise and government applications in Latin America. Continued success of this strategy will further reduce the available capacity for consumers.
As of JuneSeptember 30, 2023, our Hughes segment had $1.5 billion of contracted revenue backlog, which was primarily flat compared to December 31, 2022. We define Hughes segment contracted revenue backlog as our expected future revenue under enterprise customer contracts that are non-cancelable, including lease revenue.
To date, we have not experienced a material adverse impact from the Russia-Ukraine conflict and the associated sanctions.
ESS Segment
Our ESS segment provides satellite services on a full-time and/or occasional-use basis to U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers. We operate our ESS business using primarily the EchoStar IX satellite and the EchoStar 105/SES-11 satellite and related infrastructure. Revenue in our ESS segment depends largely on our ability to make continuous use of our available satellite capacity on behalf of existing customers and our ability to enter into commercial relationships with new customers. During the first quarter of 2023, we transitioned the EchoStar IX satellite into inclined operations to extend its usable life for our customers. With this inclined mode of operation, we are expecting to extend the life of the spacecraft into 2024 without diminishing its capacity.
As of JuneSeptember 30, 2023, our ESS segment had $14.6$13.2 million of contracted revenue backlog, a decrease of 34.6%40.8%, as compared to December 31, 2022, primarily due to the recognition of revenue of existing contracts. We define contracted revenue backlog for our ESS segment as contracted future satellite lease revenue.
Satellite Anomalies and Impairments
During the first quarter of 2023, we lost contact with our third nano-satellite (“EG-3”), which was launched in the second quarter of 2021 and brought into use through our Sirion-1 ITU filing in the third quarter of 2021. Consequently, we canceled our contract with the vendor who manufactured and operated our nano-satellites and recorded an impairment charge of $3.1 million related to EG-3 and other related assets in the first quarter of 2023 in Corporate and Other. As a result, the ITU has suspended the filing, and we have three years from the date of suspension to place a new S-band spacecraft at the altitude prescribed in our Australian ITU filing. We expect the first group of S-band satellites ordered from our supplier, Astro Digital, to be launched well in advance of the three-year replacement deadline.
In the second quarter of 2023, we reduced the estimated useful life of the Al Yah 3 satellite, which serves our Brazilian customers, as a result of certain technical anomalies. In order to safeguard the future operability of the satellite, the Company has, in conjunction with recommendations from the satellite manufacturers,manufacturer, implemented immediate and long-term remedial actions. A revised estimate of the satellite’s remaining lifetime has been calculated using operational data of two previous quarters. Although the anomalies are expected to shorten the remaining useful life of the satellite, they have not affected its current operation.
We are not aware of any other anomalies with respect to our owned or leased satellites as of JuneSeptember 30, 2023. There can be no assurance, however, that undetected existing or future anomalies will not have a significant adverse effect on our operations or revenue in the future. In addition, there can be no assurance that we can recover critical transmission capacity in the event one or more of our satellites were to fail.
Cybersecurity
We are not aware of cyber-incidents with respect to our owned or leased satellites or other networks, equipment or systems that have had a material adverse effect on our business, costs, operations, prospects, results of operation or financial position during the sixnine months ended JuneSeptember 30, 2023 and through August 8,November 6, 2023. There can be no assurance, however, that any such incident can be detected or thwarted or will not have such a material adverse effect in the future.
EXPLANATION OF KEY METRICS AND OTHER ITEMS
Services and other revenue. Services and other revenue primarily includes the sales of consumer and enterprise broadband services, maintenance and other contracted services, revenue associated with satellite and transponder leases and services, satellite uplinking/downlinking, subscriber wholesale service fees for the HughesNet service, professional services, and facilities rental revenue.
Equipment revenue. Equipment revenue primarily includes broadband equipment and networks sold to customers in our consumer and enterprise markets.
Cost of sales - services and other. Cost of sales - services and other primarily includes the cost of broadband services provided to our consumer and enterprise customers, maintenance and other contracted services, costs associated with satellite and transponder leases and services, professional services, and facilities rental expenses.
Cost of sales - equipment. Cost of sales - equipment consists primarily of the cost of broadband equipment and networks provided to customers in our consumer and enterprise markets. It also includes certain other costs associated with the deployment of equipment to our customers.
Selling, general and administrative expenses. Selling, general and administrative expenses primarily include selling and marketing costs and employee-related costs associated with administrative services (e.g., information systems, human resources and other services), including bad debt expense and stock-based compensation expense. It also includes professional fees (e.g., legal, information systems and accounting services) and other expenses associated with facilities and administrative services.
Research and development expenses. Research and development expenses primarily include costs associated with the design and development of products to support future growth and provide new technology and innovation to our customers.
Impairment of long-lived assets. Impairment of long-lived assets includes our impairment losses related to our property and equipment, regulatory authorizations and other intangible assets.
Interest income, net. Interest income, net primarily includes interest earned on our cash, cash equivalents and marketable investment securities, and other investments including premium amortization, discount accretion on debt securities, and changes in allowance for estimated credit losses on investments.
Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized primarily includes interest expense associated with our debt and finance lease obligations (net of capitalized interest), amortization of debt issuance costs, and interest expense related to certain legal proceedings.
Gains (losses) on investments, net. Gains (losses) on investments, net primarily includes changes in fair value of our marketable equity securities and other investments for which we have elected the fair value option. It may also include realized gains and losses on the sale or exchange of our available-for-sale debt securities, other-than-temporary impairment losses on our available-for-sale securities, realized gains and losses on the sale or exchange of equity securities and debt securities without readily determinable fair value, and adjustments to the carrying amount of investments in unconsolidated affiliates and marketable equity securities resulting from impairments and observable price changes.
Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net includes earnings or losses from our investments accounted for using the equity method.
Other-than-temporary impairment losses on equity method investments. Other-than-temporary impairment losses on equity method investments primarily includes impairment charges for losses on our equity method investments which were deemed permanent in nature.
Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net include gains and losses resulting from the re-measurement of transactions denominated in foreign currencies.
Other, net. Other, net primarily includes dividends received from our marketable investment securities, gains from repayment of other debt investments, transaction costs related to the proposed merger with DISH Network Corporation, and other non-operating income and expense items that are not appropriately classified elsewhere in the Consolidated Statements of Operations in our Consolidated Financial Statements.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as Net income (loss) excluding Interest income and expense, net, Income tax benefit (provision), net, Depreciation and amortization, and Net income (loss) attributable to non-controlling interests. EBITDA is not a measure determined in accordance with U.S. GAAP. This non-GAAP measure is reconciled to Net income (loss) in our discussion of Results of Operations section below. EBITDA should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with GAAP. EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors. Management believes EBITDA provides meaningful supplemental information regarding the underlying operating performance of our business and is appropriate to enhance an overall understanding of our financial performance. Management also believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate the performance of companies in our industry.
Subscribers. Subscribers include customers that subscribe to our HughesNet service, through retail, wholesale and small/medium enterprise service channels.
Highlights from our Financial Results
Consolidated Results of Operations for the Three Months Ended JuneSeptember 30, 2023:
• Revenue of $453.1$413.1 million
•Operating income of $44.4$22.1 million
•Net income of $9.1$0.5 million
•Net income attributable to EchoStar common stock of $11.2$3.2 million and basic and diluted earnings per share of common stock of $0.13$0.04
•EBITDA of $125.2$101.3 million (see reconciliation of this non-GAAP measure in Results of Operations)
Consolidated Financial Condition as of JuneSeptember 30, 2023:
•Total assets of $6.2 billion
•Total liabilities of $2.5 billion
•Total stockholders’ equity of $3.7 billion
•Cash and cash equivalents and marketable investment securities of $1.9$2.0 billion
RESULTS OF OPERATIONS
Three Months Ended JuneSeptember 30, 2023 Compared to the Three Months Ended JuneSeptember 30, 2022
The following table presents our consolidated results of operations for the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022:
| | | For the three months ended June 30, | | Variance | | For the three months ended September 30, | | Variance |
Statements of Operations Data (1) | Statements of Operations Data (1) | | 2023 | | 2022 | | Amount | | % | Statements of Operations Data (1) | | 2023 | | 2022 | | Amount | | % |
| Revenue: | Revenue: | | | | | | | | | Revenue: | | | | | | | | |
| Services and other revenue | Services and other revenue | | $ | 371,510 | | | $ | 414,697 | | | $ | (43,187) | | | (10.4) | | Services and other revenue | | $ | 359,349 | | | $ | 401,382 | | | $ | (42,033) | | | (10.5) | |
| Equipment revenue | Equipment revenue | | 81,599 | | | 84,619 | | | (3,020) | | | (3.6) | | Equipment revenue | | 53,725 | | | 96,005 | | | (42,280) | | | (44.0) | |
| Total revenue | Total revenue | | 453,109 | | | 499,316 | | | (46,207) | | | (9.3) | | Total revenue | | 413,074 | | | 497,387 | | | (84,313) | | | (17.0) | |
| Costs and expenses: | Costs and expenses: | | | | | | | | Costs and expenses: | | | | | | | |
| Cost of sales - services and other | Cost of sales - services and other | | 132,724 | | | 144,235 | | | (11,511) | | | (8.0) | | Cost of sales - services and other | | 133,335 | | | 145,189 | | | (11,854) | | | (8.2) | |
| % of total services and other revenue | % of total services and other revenue | | 35.7 | % | | 34.8 | % | | % of total services and other revenue | | 37.1 | % | | 36.2 | % | |
| Cost of sales - equipment | Cost of sales - equipment | | 56,162 | | | 70,054 | | | (13,892) | | | (19.8) | | Cost of sales - equipment | | 43,180 | | | 74,329 | | | (31,149) | | | (41.9) | |
| % of total equipment revenue | % of total equipment revenue | | 68.8 | % | | 82.8 | % | | % of total equipment revenue | | 80.4 | % | | 77.4 | % | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | | 107,420 | | | 113,091 | | | (5,671) | | | (5.0) | | Selling, general and administrative expenses | | 104,988 | | | 111,421 | | | (6,433) | | | (5.8) | |
| % of total revenue | % of total revenue | | 23.7 | % | | 22.6 | % | | % of total revenue | | 25.4 | % | | 22.4 | % | |
| Research and development expenses | Research and development expenses | | 6,842 | | | 8,764 | | | (1,922) | | | (21.9) | | Research and development expenses | | 6,463 | | | 9,181 | | | (2,718) | | | (29.6) | |
| % of total revenue | % of total revenue | | 1.5 | % | | 1.8 | % | | % of total revenue | | 1.6 | % | | 1.8 | % | |
| Depreciation and amortization | Depreciation and amortization | | 105,588 | | | 116,555 | | | (10,967) | | | (9.4) | | Depreciation and amortization | | 103,028 | | | 110,233 | | | (7,205) | | | (6.5) | |
| Impairment of long-lived assets | | — | | | 711 | | | (711) | | | (100.0) | | |
| Total costs and expenses | Total costs and expenses | | 408,736 | | | 453,410 | | | (44,674) | | | (9.9) | | Total costs and expenses | | 390,994 | | | 450,353 | | | (59,359) | | | (13.2) | |
| Operating income (loss) | Operating income (loss) | | 44,373 | | | 45,906 | | | (1,533) | | | (3.3) | | Operating income (loss) | | 22,080 | | | 47,034 | | | (24,954) | | | (53.1) | |
| Other income (expense): | Other income (expense): | | | | | | | | Other income (expense): | | | | | | | |
| Interest income, net | Interest income, net | | 23,526 | | | 9,072 | | | 14,454 | | | * | Interest income, net | | 26,209 | | | 14,183 | | | 12,026 | | | 84.8 | |
| Interest expense, net of amounts capitalized | Interest expense, net of amounts capitalized | | (13,240) | | | (14,307) | | | 1,067 | | | (7.5) | | Interest expense, net of amounts capitalized | | (12,650) | | | (13,845) | | | 1,195 | | | (8.6) | |
| Gains (losses) on investments, net | Gains (losses) on investments, net | | (5,485) | | | (22,538) | | | 17,053 | | | (75.7) | | Gains (losses) on investments, net | | (10,743) | | | (10,077) | | | (666) | | | 6.6 | |
| Equity in earnings (losses) of unconsolidated affiliates, net | Equity in earnings (losses) of unconsolidated affiliates, net | | (546) | | | (1,301) | | | 755 | | | (58.0) | | Equity in earnings (losses) of unconsolidated affiliates, net | | (1,978) | | | (1,426) | | | (552) | | | 38.7 | |
| Other-than-temporary impairment losses on equity method investments | | (33,400) | | | — | | | (33,400) | | | * | |
| Foreign currency transaction gains (losses), net | Foreign currency transaction gains (losses), net | | 3,258 | | | (3,642) | | | 6,900 | | | * | Foreign currency transaction gains (losses), net | | (2,089) | | | (2,805) | | | 716 | | | (25.5) | |
| Other, net | Other, net | | 9,372 | | | 2,673 | | | 6,699 | | | * | Other, net | | (11,750) | | | (319) | | | (11,431) | | | * |
| Total other income (expense), net | Total other income (expense), net | | (16,515) | | | (30,043) | | | 13,528 | | | (45.0) | | Total other income (expense), net | | (13,001) | | | (14,289) | | | 1,288 | | | (9.0) | |
| Income (loss) before income taxes | Income (loss) before income taxes | | 27,858 | | | 15,863 | | | 11,995 | | | 75.6 | | Income (loss) before income taxes | | 9,079 | | | 32,745 | | | (23,666) | | | (72.3) | |
| Income tax benefit (provision), net | Income tax benefit (provision), net | | (18,773) | | | (5,390) | | | (13,383) | | | * | Income tax benefit (provision), net | | (8,547) | | | (13,195) | | | 4,648 | | | (35.2) | |
| Net income (loss) | Net income (loss) | | 9,085 | | | 10,473 | | | (1,388) | | | (13.3) | | Net income (loss) | | 532 | | | 19,550 | | | (19,018) | | | (97.3) | |
| Less: Net loss (income) attributable to non-controlling interests | Less: Net loss (income) attributable to non-controlling interests | | 2,072 | | | 3,395 | | | (1,323) | | | (39.0) | | Less: Net loss (income) attributable to non-controlling interests | | 2,712 | | | 2,853 | | | (141) | | | (4.9) | |
| Net income (loss) attributable to EchoStar Corporation common stock | Net income (loss) attributable to EchoStar Corporation common stock | | $ | 11,157 | | | $ | 13,868 | | | $ | (2,711) | | | (19.5) | | Net income (loss) attributable to EchoStar Corporation common stock | | $ | 3,244 | | | $ | 22,403 | | | $ | (19,159) | | | (85.5) | |
| | Other data: | Other data: | | Other data: | |
EBITDA (2) | EBITDA (2) | | $ | 125,232 | | | $ | 141,048 | | | $ | (15,816) | | | (11.2) | | EBITDA (2) | | $ | 101,260 | | | $ | 145,493 | | | $ | (44,233) | | | (30.4) | |
| Subscribers, end of period | Subscribers, end of period | | 1,122,000 | | | 1,346,000 | | | (224,000) | | | (16.6) | | Subscribers, end of period | | 1,063,000 | | | 1,285,000 | | | (222,000) | | | (17.3) | |
* Percentage is not meaningful.
(1) An explanation of our key metrics is included in Explanation of Key Metrics and Other Items.
(2) A reconciliation of EBITDA to Net income (loss), the most directly comparable GAAP measure in our Consolidated Financial Statements, is included in Results of Operations. For further information on our use of EBITDA, see Explanation of Key Metrics and Other Items.
The following discussion relates to our results of operations for the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022:
Services and other revenue. Services and other revenue totaled $371.5$359.3 million for the three months ended JuneSeptember 30, 2023, a decrease of $43.2$42.0 million, or 10.4%10.5%, as compared to 2022. The decrease was primarily attributable to our Hughes segment related to lower sales of broadband services to our consumer customers of $43.8$40.4 million.
Equipment revenue. Equipment revenue totaled $81.6$53.7 million for the three months ended JuneSeptember 30, 2023, a decrease of $3.0$42.3 million, or 3.6%44.0%, as compared to 2022. The decrease was primarily attributable to decreases in hardware sales to our North American enterprise customers of $27.0 million and a decrease in hardware sales to our international enterprise customers of $13.0 million, partially offset by an increase of $5.5 million in sales to our mobile satellite system customers and a net increase of $5.0 million related to our North American customers due to lower hardware sales and positive adjustments on profit margin on long-term contracts.$16.0 million.
Cost of sales - services and other. Cost of sales - services and other totaled $132.7$133.3 million for the three months ended JuneSeptember 30, 2023, a decrease of $11.5$11.9 million, or 8.0%8.2%, as compared to 2022. The decrease was primarily attributable to lower sales of broadbandthe corresponding decrease in services and corresponding decreases in cost of services provided to our consumer and enterprise customers of $11.9 million, mainly related to service delivery expenses, such as space segment, customer care and field maintenance.other revenue.
Cost of sales - equipment. Cost of sales - equipment totaled $56.2$43.2 million for the three months ended JuneSeptember 30, 2023, a decrease of $13.9$31.1 million, or 19.8%41.9%, as compared to 2022. The decrease was primarily attributable to the corresponding decrease in equipment revenue, partially offset by an increase in our warranty reserve.revenue.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $107.4$105.0 million for the three months ended JuneSeptember 30, 2023, a decrease of $5.7$6.4 million, or 5.0%5.8%, as compared to 2022. The decrease was primarily attributable to decreases in sales and marketing expenses of $7.3$5.4 million partially offset by increases in general and administrative expenses.bad debt expense of $1.1 million.
Depreciation and amortization. Depreciation and amortization expenses totaled $105.6$103.0 million for the three months ended JuneSeptember 30, 2023, a decrease of $11.0$7.2 million, or 9.4%6.5%, as compared to 2022. The decrease was primarily attributable to decreasesa decrease in other property and equipmentnon-satellite depreciation expense of $11.9$9.6 million, partially offset by an increase in satellite depreciation expense of $2.0 million.
Interest income, net. Interest income, net totaled $23.5$26.2 million for the three months ended JuneSeptember 30, 2023, an increase of $14.5$12.0 million, as compared to 2022, primarily attributable to increases in the yield on our marketable investment securities and an increase in our marketable investment securities average balance.
Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized totaled $13.2$12.7 million for the three months ended JuneSeptember 30, 2023, a decrease of $1.1$1.2 million, or 7.5%8.6%, as compared to 2022. The decrease was primarily attributable to an increase of $0.7$1.0 million in capitalized interest relating to the EchoStar XXIV satellite program.
Gains (losses) on investments, net.Gains (losses) on investments, net totaled $5.5$10.7 million in losses for the three months ended JuneSeptember 30, 2023 as compared to $22.5$10.1 million in losses for the three months ended JuneSeptember 30, 2022.2022, an increase in losses of $0.7 million. The positive change was primarily due to a loss of $17.1$28.3 million was related to the exit of our investment in Dish Mexico for the three months ended September 30, 2022 compared to a loss of $24.4 million due to a decline in value of an equity investment previously held on a cost-basis method during the three months ended September 30, 2023, partially offset by a decrease in net decreased lossesgains on marketable investment securities.equity securities of $4.6 million.
Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled $3.3 million in gains for the three months ended June 30, 2023, as compared to $3.6$2.1 million in losses for the three months ended JuneSeptember 30, 2023, as compared to $2.8 million in losses for the three months ended September 30, 2022. The positive change of $6.9$0.7 million was attributableprimarily due to the net impact of foreign exchange rate fluctuations of certain foreign currencies in Latin and Central America.
Other, net. Other, net totaled $9.4$11.8 million expense for the three months ended JuneSeptember 30, 2023, as compared to $2.7$0.3 million expense for the three months ended JuneSeptember 30, 2022. The increase was primarily attributable to a recognized gain ontransaction costs related to the repayment of an other debt investment in April 2023.
Other-than-temporary impairment losses on equity method investments. Other-than-temporary impairment losses on equity method investments was $33.4 million for the three months ended June 30, 2023, related to the impairment of our investment in Broadband Connectivity Solutions (Restricted) Limited (BCS) as the result of increased competition and the economic environment for this business.
Income tax benefit (provision), net. Income tax benefit (provision), net was $18.8$8.5 million provision for the three months ended JuneSeptember 30, 2023, as compared to $5.4$13.2 million provision for the three months ended JuneSeptember 30, 2022. Our effective income tax rate was 67.4%94.1% and 34.0%40.3% for the three months ended JuneSeptember 30, 2023 and 2022, respectively. The variations in our effective tax rate from the U.S federal statutory rate for the three months ended September 30, 2023 were primarily due to excluded investment impairment losses and the impact of research and development credits. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended June 30, 2023 were primarily due to excluded investment impairment losses and excluded foreign losses where the company carries a full valuation allowance. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended JuneSeptember 30, 2022 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of filing a US Federal amended return.state and local taxes.
Net income (loss) attributable to EchoStar Corporation common stock. The following table reconciles the change in Net income (loss) attributable to EchoStar Corporation common stock:
| | | | | | | | |
| | Amounts |
Net income (loss) attributable to EchoStar Corporation for the three months ended JuneSeptember 30, 2022 | | $ | 13,868 | |
Decrease (increase) in gains (losses) on investments, net | | 17,05322,403 | |
| Increase (decrease) in interest income, net | | 14,45412,026 | |
| Decrease (increase) in income tax benefit (provision), net | | 4,648 | |
| Decrease (increase) in interest expense, net of amounts capitalized | | 1,195 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 6,900716 | |
| | |
Increase (decrease) in other, net income (loss) attributable to non-controlling interest | | 6,699 | |
Decrease (increase) in interest expense, net of amounts capitalized | | 1,067 (141) | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 755 (552) | |
| Decrease (increase) in gains (losses) on investments, net | | (666) | |
Increase (decrease) in other, net income (loss) attributable to non-controlling interest | | (1,323)(11,431) | |
| Increase (decrease) in operating income (loss), including depreciation and amortization | | (1,533) | |
Decrease (increase) in income tax benefit (provision), net | | (13,383) | |
Decrease (increase) in other-than-temporary impairment losses on equity method investments | | (33,400)(24,954) | |
Net income (loss) attributable to EchoStar Corporation for the three months ended JuneSeptember 30, 2023 | | $ | 11,1573,244 | |
EBITDA. EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items section. The following table reconciles EBITDA to Net income (loss), the most directly comparable GAAP measure in our Consolidated Financial Statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the three months ended June 30, | | Variance |
| | 2023 | | 2022 | | Amount | | % |
| Net income (loss) | | $ | 9,085 | | | $ | 10,473 | | | $ | (1,388) | | | (13.3) | |
| Interest income, net | | (23,526) | | | (9,072) | | | (14,454) | | | * |
| Interest expense, net of amounts capitalized | | 13,240 | | | 14,307 | | | (1,067) | | | (7.5) | |
| Income tax provision (benefit), net | | 18,773 | | | 5,390 | | | 13,383 | | | * |
| Depreciation and amortization | | 105,588 | | | 116,555 | | | (10,967) | | | (9.4) | |
| Net loss (income) attributable to non-controlling interests | | 2,072 | | | 3,395 | | | (1,323) | | | (39.0) | |
| EBITDA | | $ | 125,232 | | | $ | 141,048 | | | $ | (15,816) | | | (11.2) | |
* Percentage is not meaningful. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the three months ended September 30, | | Variance |
| | 2023 | | 2022 | | Amount | | % |
| Net income (loss) | | $ | 532 | | | $ | 19,550 | | | $ | (19,018) | | | (97.3) | |
| Interest income, net | | (26,209) | | | (14,183) | | | (12,026) | | | 84.8 | |
| Interest expense, net of amounts capitalized | | 12,650 | | | 13,845 | | | (1,195) | | | (8.6) | |
| Income tax provision (benefit), net | | 8,547 | | | 13,195 | | | (4,648) | | | (35.2) | |
| Depreciation and amortization | | 103,028 | | | 110,233 | | | (7,205) | | | (6.5) | |
| Net loss (income) attributable to non-controlling interests | | 2,712 | | | 2,853 | | | (141) | | | (4.9) | |
| EBITDA | | $ | 101,260 | | | $ | 145,493 | | | $ | (44,233) | | | (30.4) | |
The following table reconciles the change in EBITDA:
| | | | | | | | |
| | Amounts |
EBITDA for the three months ended JuneSeptember 30, 2022 | | $ | 141,048 | |
Increase (decrease) in gains (losses) on investments, net | | 17,053145,493 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 6,900716 | |
| | |
Increase (decrease)Decrease (increase) in other, net loss (income) attributable to non-controlling interests | | 6,699 (141) | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 755 (552) | |
Decrease (increase)Increase (decrease) in gains (losses) on investments, net loss (income) attributable to non-controlling interests | | (1,323)(666) | |
| Increase (decrease) in other, net | | (11,431) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (12,500) | |
Decrease (increase) in other-than-temporary impairment losses on equity method investments | | (33,400)(32,159) | |
EBITDA for the three months ended JuneSeptember 30, 2023 | | $ | 125,232101,260 | |
Segment Operating Results and Capital Expenditures
The following tables present our total revenue, capital expenditures and EBITDA by segment for the three months ended JuneSeptember 30, 2023, as compared to the three months ended JuneSeptember 30, 2022:
| | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the three months ended June 30, 2023 | | | | | | | | | |
| For the three months ended September 30, 2023 | | For the three months ended September 30, 2023 | | | | | | | | |
| Total revenue | Total revenue | | $ | 444,335 | | | $ | 6,120 | | | $ | 2,654 | | | $ | 453,109 | | Total revenue | | $ | 404,209 | | | $ | 6,446 | | | $ | 2,419 | | | $ | 413,074 | |
| Capital expenditures | Capital expenditures | | 43,950 | | | — | | | 5,066 | | | 49,016 | | Capital expenditures | | 51,214 | | | 130 | | | 27,820 | | | 79,164 | |
| EBITDA | EBITDA | | 140,997 | | | 4,562 | | | (20,327) | | | 125,232 | | EBITDA | | 142,204 | | | 4,868 | | | (45,812) | | | 101,260 | |
| | For the three months ended June 30, 2022 | | |
| For the three months ended September 30, 2022 | | For the three months ended September 30, 2022 | |
| Total revenue | Total revenue | | $ | 491,841 | | | $ | 4,850 | | | $ | 2,625 | | | $ | 499,316 | | Total revenue | | $ | 489,565 | | | $ | 4,981 | | | $ | 2,841 | | | $ | 497,387 | |
| Capital expenditures | Capital expenditures | | 64,861 | | | — | | | 10,918 | | | 75,779 | | Capital expenditures | | 50,783 | | | — | | | 10,674 | | | 61,457 | |
| EBITDA | EBITDA | | 179,928 | | | 3,521 | | | (42,401) | | | 141,048 | | EBITDA | | 175,010 | | | 3,446 | | | (32,963) | | | 145,493 | |
Capital expenditures are net of refunds and other receipts related to property and equipment.
Hughes Segment
| | | | | For the three months ended June 30, | | Variance | | | | For the three months ended September 30, | | Variance | |
| | | | 2023 | | 2022 | | Amount | | % | | | | 2023 | | 2022 | | Amount | | % | |
| Total revenue | Total revenue | | $ | 444,335 | | | $ | 491,841 | | | $ | (47,506) | | | (9.7) | | | Total revenue | | $ | 404,209 | | | $ | 489,565 | | | $ | (85,356) | | | (17.4) | | |
| Capital expenditures | Capital expenditures | | 43,950 | | | 64,861 | | | (20,911) | | | (32.2) | | | Capital expenditures | | 51,214 | | | 50,783 | | | 431 | | | 0.8 | | |
| EBITDA | EBITDA | | 140,997 | | | 179,928 | | | (38,931) | | | (21.6) | | | EBITDA | | 142,204 | | | 175,010 | | | (32,806) | | | (18.7) | | |
Total revenue was $444.3$404.2 million for the three months ended JuneSeptember 30, 2023, a decrease of $47.5$85.4 million, or 9.7%17.4%, as compared to 2022. Services and other revenue decreased primarily due to lower sales of broadband services to our consumer customers of $43.8$40.4 million. Equipment revenue decreased primarily due to a decrease in hardware sales to our international enterprise customers of $13.0 million, partially offset by an increase of $5.5 million in sales to our mobile satellite system customers and a net increase of $5.0 million related to our North American customers due to lower hardware sales and positive adjustments on profit margin on long-term contracts.$43.0 million.
Capital expenditures were $44.0$51.2 million for the three months ended JuneSeptember 30, 2023, a decreasean increase of $20.9$0.4 million, or 32.2%0.8%, as compared to 2022, primarily due to decreases in expenditures associated with our consumer business and construction of our satellite-related ground infrastructure in preparation of the launch of EchoStar XXIV.2022.
The following table reconciles the change in the Hughes Segment EBITDA:
| | | | | | | | |
| | Amounts |
EBITDA for the three months ended JuneSeptember 30, 2022 | | $ | 179,928175,010 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 6,205 596 | |
| Increase (decrease) in other, net | | 243 | |
| Decrease (increase) in net loss (income) attributable to non-controlling interests | | (142) | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 506 | |
Increase (decrease) in gains (losses) on investments, net | | (217) | |
Increase (decrease) in other, net | | (1,005) | |
Decrease (increase) in net loss (income) attributable to non-controlling interests | | (1,323)(915) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (9,697)(32,588) | |
Decrease (increase) in other-than-temporary impairment losses on equity method investments | | (33,400) |
| | |
EBITDA for the three months ended JuneSeptember 30, 2023 | | $ | 140,997142,204 | |
ESS Segment
| | | | | For the three months ended June 30, | | Variance | | | For the three months ended September 30, | | Variance |
| | 2023 | | 2022 | | Amount | | % | | 2023 | | 2022 | | Amount | | % |
| Total revenue | Total revenue | | $ | 6,120 | | | $ | 4,850 | | | $ | 1,270 | | | 26.2 | | Total revenue | | $ | 6,446 | | | $ | 4,981 | | | $ | 1,465 | | | 29.4 | |
| | Capital expenditures | | Capital expenditures | | 130 | | | — | | | 130 | | | * |
| EBITDA | EBITDA | | 4,562 | | | 3,521 | | | 1,041 | | | 29.6 | | EBITDA | | 4,868 | | | 3,446 | | | 1,422 | | | 41.3 | |
* Percentage is not meaningful.
Total revenue was $6.1$6.4 million for the three months ended JuneSeptember 30, 2023, an increase of $1.3$1.5 million, or 26.2%29.4%, compared to 2022, primarily due to an increase in transponder services provided to third parties.
EBITDA was $4.6$4.9 million for the three months ended JuneSeptember 30, 2023, an increase of $1.0$1.4 million, or 29.6%41.3%, primarily due to the increase in overall ESS segment revenue.
Corporate and Other
| | | | | For the three months ended June 30, | | Variance | | | For the three months ended September 30, | | Variance |
| | | | 2023 | | 2022 | | Amounts | | % | | | 2023 | | 2022 | | Amounts | | % |
| Total revenue | Total revenue | | $ | 2,654 | | | $ | 2,625 | | | $ | 29 | | | 1.1 | | Total revenue | | $ | 2,419 | | | $ | 2,841 | | | $ | (422) | | | (14.9) | |
| Capital expenditures | Capital expenditures | | 5,066 | | | 10,918 | | | (5,852) | | | (53.6) | | Capital expenditures | | 27,820 | | | 10,674 | | | 17,146 | | | * |
| EBITDA | EBITDA | | (20,327) | | | (42,401) | | | 22,074 | | | (52.1) | | EBITDA | | (45,812) | | | (32,963) | | | (12,849) | | | 39.0 | |
Total revenue was $2.7$2.4 million for the three months ended JuneSeptember 30, 2023, which is primarily flat compared to 2022.
Capital expenditures, net of refunds were $5.1$27.8 million for the three months ended JuneSeptember 30, 2023, a decreasean increase of $5.9$17.1 million, as compared to 2022, primarily due to refunds related toan increase in expenditures for EchoStar XXIV expenditures, partially offset by increases in expenditures related to the construction of our S-band satellites.
The following table reconciles the change in the Corporate and Other EBITDA:
| | | | | | | | |
| | Amounts |
EBITDA for the three months ended JuneSeptember 30, 2022 | | $ | (42,401) | |
Increase (decrease) in gains (losses) on investments, net | | 17,270 | |
Increase (decrease) in other, net | | 7,706 | |
Increase (decrease) in foreign currency transaction gains (losses), net | | 693 (32,963) | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 249 361 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 121 | |
| Increase (decrease) in gains (losses) on investments, net | | (666) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (3,844)(990) | |
| Increase (decrease) in other, net | | (11,675) | |
| | |
EBITDA for the three months ended JuneSeptember 30, 2023 | | $ | (20,327)(45,812) | |
SixNine Months Ended June September 30, 2023 Compared to the SixNine Months Ended June September 30, 2022
The following table presents our consolidated results of operations for the sixnine months ended JuneSeptember 30, 2023 compared to the sixnine months ended JuneSeptember 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, | | Variance |
Statements of Operations Data (1) | | 2023 | | 2022 | | Amount | | % |
| Revenue: | | | | | | | | |
| Services and other revenue | | $ | 749,037 | | | $ | 833,508 | | | $ | (84,471) | | | (10.1) | |
| Equipment revenue | | 143,669 | | | 167,342 | | | (23,673) | | | (14.1) | |
| Total revenue | | 892,706 | | | 1,000,850 | | | (108,144) | | | (10.8) | |
| Costs and expenses: | | | | | | | | |
| Cost of sales - services and other | | 268,096 | | | 285,364 | | | (17,268) | | | (6.1) | |
| % of total services and other revenue | | 35.8 | % | | 34.2 | % | | | | |
| Cost of sales - equipment | | 107,824 | | | 139,168 | | | (31,344) | | | (22.5) | |
| % of total equipment revenue | | 75.1 | % | | 83.2 | % | | | | |
| Selling, general and administrative expenses | | 217,481 | | | 231,261 | | | (13,780) | | | (6.0) | |
| % of total revenue | | 24.4 | % | | 23.1 | % | | | | |
| Research and development expenses | | 15,097 | | | 16,381 | | | (1,284) | | | (7.8) | |
| % of total revenue | | 1.7 | % | | 1.6 | % | | | | |
| Depreciation and amortization | | 208,446 | | | 236,991 | | | (28,545) | | | (12.0) | |
| Impairment of long-lived assets | | 3,142 | | | 711 | | | 2,431 | | | * |
| Total costs and expenses | | 820,086 | | | 909,876 | | | (89,790) | | | (9.9) | |
| Operating income (loss) | | 72,620 | | | 90,974 | | | (18,354) | | | (20.2) | |
| Other income (expense): | | | | | | | | |
| Interest income, net | | 52,122 | | | 15,494 | | | 36,628 | | | * |
| Interest expense, net of amounts capitalized | | (26,526) | | | (29,280) | | | 2,754 | | | (9.4) | |
| Gains (losses) on investments, net | | (12,594) | | | 58,148 | | | (70,742) | | | (121.7) | |
| Equity in earnings (losses) of unconsolidated affiliates, net | | (1,097) | | | (3,015) | | | 1,918 | | | (63.6) | |
| Other-than-temporary impairment losses on equity method investments | | (33,400) | | | — | | | (33,400) | | | * |
| Foreign currency transaction gains (losses), net | | 6,571 | | | 2,752 | | | 3,819 | | | 138.8 | |
| Other, net | | 9,442 | | | 2,517 | | | 6,925 | | | * |
| Total other income (expense), net | | (5,482) | | | 46,616 | | | (52,098) | | | (111.8) | |
| Income (loss) before income taxes | | 67,138 | | | 137,590 | | | (70,452) | | | (51.2) | |
| Income tax benefit (provision), net | | (30,233) | | | (38,172) | | | 7,939 | | | (20.8) | |
| Net income (loss) | | 36,905 | | | 99,418 | | | (62,513) | | | (62.9) | |
| Less: Net loss (income) attributable to non-controlling interests | | 3,293 | | | 5,883 | | | (2,590) | | | (44.0) | |
| Net income (loss) attributable to EchoStar Corporation common stock | | $ | 40,198 | | | $ | 105,301 | | | $ | (65,103) | | | (61.8) | |
| | | | | | | | |
| Other data: | | | | | | | | |
EBITDA (2) | | $ | 253,281 | | | $ | 394,250 | | | $ | (140,969) | | | (35.8) | |
| Subscribers, end of period | | 1,122,000 | | | 1,346,000 | | | (224,000) | | | (16.6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the nine months ended September 30, | | Variance |
Statements of Operations Data (1) | | 2023 | | 2022 | | Amount | | % |
| Revenue: | | | | | | | | |
| Services and other revenue | | $ | 1,108,386 | | | $ | 1,234,890 | | | $ | (126,504) | | | (10.2) | |
| Equipment revenue | | 197,394 | | | 263,347 | | | (65,953) | | | (25.0) | |
| Total revenue | | 1,305,780 | | | 1,498,237 | | | (192,457) | | | (12.8) | |
| Costs and expenses: | | | | | | | | |
| Cost of sales - services and other | | 401,431 | | | 430,553 | | | (29,122) | | | (6.8) | |
| % of total services and other revenue | | 36.2 | % | | 34.9 | % | | | | |
| Cost of sales - equipment | | 151,004 | | | 213,497 | | | (62,493) | | | (29.3) | |
| % of total equipment revenue | | 76.5 | % | | 81.1 | % | | | | |
| Selling, general and administrative expenses | | 322,469 | | | 342,682 | | | (20,213) | | | (5.9) | |
| % of total revenue | | 24.7 | % | | 22.9 | % | | | | |
| Research and development expenses | | 21,560 | | | 25,562 | | | (4,002) | | | (15.7) | |
| % of total revenue | | 1.7 | % | | 1.7 | % | | | | |
| Depreciation and amortization | | 311,474 | | | 347,224 | | | (35,750) | | | (10.3) | |
| Impairment of long-lived assets | | 3,142 | | | 711 | | | 2,431 | | | * |
| Total costs and expenses | | 1,211,080 | | | 1,360,229 | | | (149,149) | | | (11.0) | |
| Operating income (loss) | | 94,700 | | | 138,008 | | | (43,308) | | | (31.4) | |
| Other income (expense): | | | | | | | | |
| Interest income, net | | 78,331 | | | 29,677 | | | 48,654 | | | * |
| Interest expense, net of amounts capitalized | | (39,176) | | | (43,125) | | | 3,949 | | | (9.2) | |
| Gains (losses) on investments, net | | (23,337) | | | 48,071 | | | (71,408) | | | * |
| Equity in earnings (losses) of unconsolidated affiliates, net | | (3,075) | | | (4,441) | | | 1,366 | | | (30.8) | |
| Other-than-temporary impairment losses on equity method investments | | (33,400) | | | — | | | (33,400) | | | * |
| Foreign currency transaction gains (losses), net | | 4,482 | | | (53) | | | 4,535 | | | * |
| Other, net | | (2,308) | | | 2,198 | | | (4,506) | | | * |
| Total other income (expense), net | | (18,483) | | | 32,327 | | | (50,810) | | | * |
| Income (loss) before income taxes | | 76,217 | | | 170,335 | | | (94,118) | | | (55.3) | |
| Income tax benefit (provision), net | | (38,780) | | | (51,367) | | | 12,587 | | | (24.5) | |
| Net income (loss) | | 37,437 | | | 118,968 | | | (81,531) | | | (68.5) | |
| Less: Net loss (income) attributable to non-controlling interests | | 6,005 | | | 8,736 | | | (2,731) | | | (31.3) | |
| Net income (loss) attributable to EchoStar Corporation common stock | | $ | 43,442 | | | $ | 127,704 | | | $ | (84,262) | | | (66.0) | |
| | | | | | | | |
| Other data: | | | | | | | | |
EBITDA (2) | | $ | 354,541 | | | $ | 539,743 | | | $ | (185,202) | | | (34.3) | |
| Subscribers, end of period | | 1,063,000 | | | 1,285,000 | | | (222,000) | | | (17.3) | |
* Percentage is not meaningfulmeaningful.
(1) An explanation of our key metrics is included in Explanation of Key Metrics and Other Items.
(2) A reconciliation of EBITDA to Net income (loss), the most directly comparable GAAP measure in our Consolidated Financial Statements, is included in Results of Operations. For further information on our use of EBITDA, see Explanation of Key Metrics and Other Items.
The following discussion relates to our results of operations for the sixnine months ended JuneSeptember 30, 2023 compared to the sixnine months ended JuneSeptember 30, 2022:
Services and other revenue. Services and other revenue totaled $749.0 million$1.1 billion for the sixnine months ended JuneSeptember 30, 2023, a decrease of $84.5$126.5 million, or 10.1%10.2%, as compared to 2022. The decrease was primarily attributable to our Hughes segment related to lower sales of broadband services to our consumer customers of $83.3$123.7 million.
Equipment revenue. Equipment revenue totaled $143.7$197.4 million for the sixnine months ended JuneSeptember 30, 2023, a decrease of $23.7$66.0 million, or 14.1%25.0%, as compared to 2022. The decrease was primarily attributable to a decrease of $21.6$37.6 million in hardware sales to our international enterprise customers and a net decrease of $6.8$33.8 million related to our North American enterprise customers due to lower hardware sales and positive adjustments on profit margin oncertain long-term contracts, partially offset by an increase of $6.1$7.1 million in sales to our mobile satellite system customers.
Cost of sales - services and other. Cost of sales - services and other totaled $268.1$401.4 million for the sixnine months ended JuneSeptember 30, 2023, a decrease of $17.3$29.1 million, or 6.1%6.8%, as compared to 2022. The decrease was primarily attributable to lower sales of broadbandthe corresponding decrease in services and corresponding decreases in cost of services provided to our consumer and enterprise customers of $16.7 million, mainly related to service delivery expenses, such as space segment, customer care and field maintenance.other revenue.
Cost of sales - equipment. Cost of sales - equipment totaled $107.8$151.0 million for the sixnine months ended JuneSeptember 30, 2023, a decrease of $31.3$62.5 million, or 22.5%29.3%, as compared to 2022. The decrease was primarily attributable to the corresponding decrease in equipment revenue, partially offset by an increase in our warranty reserve.revenue.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $217.5$322.5 million for the sixnine months ended JuneSeptember 30, 2023, a decrease of $13.8$20.2 million, or 6.0%5.9%, as compared to 2022. The decrease was primarily attributable to decreases in sales and marketing expenses of $17.0 million, partially offset by increases general and administrative expenses.$22.4 million.
Depreciation and amortization. Depreciation and amortization expenses totaled $208.4$311.5 million for the sixnine months ended JuneSeptember 30, 2023, a decrease of $28.5$35.8 million, or 12.0%10.3%, as compared to 2022. The decrease was primarily attributable to decreases in other property and equipmentnon-satellite depreciation expense of $27.6$37.2 million.
Impairment of long-lived assets. Impairment of long-lived assets totaled $3.1 million for the sixnine months ended JuneSeptember 30, 2023. This impairment charge was related to our EG-3 nano-satellite and other related assets abandoned during the first quarter of 2023 due to lost contact with EG-3.
Interest income, net. Interest income, net totaled $52.1$78.3 million for the sixnine months ended JuneSeptember 30, 2023, an increase of $36.6$48.7 million as compared to 2022, primarily attributable to increases in the yield on our marketable investment securities and an increase in our marketable investment securities average balance.
Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized, totaled $26.5$39.2 million for the sixnine months ended JuneSeptember 30, 2023, a decrease of $2.8$3.9 million, or 9.4%9.2%, as compared to 2022. The decrease was primarily attributable to a decreasean increase of $2.1$3.1 million in capitalized interest relating to the EchoStar XXIV satellite program.
Gains (losses) on investments, net. Gains (losses) on investments, net totaled $12.6$23.3 million in losses for the sixnine months ended JuneSeptember 30, 2023, as compared to $58.1$48.1 million in gains for the sixnine months ended JuneSeptember 30, 2022, a negative change of $70.7$71.4 million. The change was primarily related to net decreased gainsa gain of $49.8 million on a cost-method investment from an adjustment for observable price changes and a $29.5 million gain on marketable investment securities and decreased gains other equity securities, offset by a net loss of $50.0 million.$28.3 million related to the exit of our investment in Dish Mexico during the nine months ended September 30, 2022, compared to a loss of $24.4 million from a decline in value of an investment previously held on a cost-basis method whose fair value subsequently became determinable as a result of a merger between that entity and a publicly traded entity, and a $1.1 million gain on marketable equity securities during the nine months ended September 30, 2023.
Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled $6.6$4.5 million in gains for the sixnine months ended JuneSeptember 30, 2023, as compared to $2.8$0.1 million in gainslosses for the sixnine months ended JuneSeptember 30, 2022, a positive change of $3.8$4.5 million. The change was due to the net impact of foreign exchange rate fluctuations of certain foreign currencies in Latin and Central America.
Other, net. Other, net totaled $9.4$2.3 million expense for the sixnine months ended JuneSeptember 30, 2023, as compared to $2.5$2.2 million income for the sixnine months ended JuneSeptember 30, 2022. The increasedecrease was primarily attributable to transaction costs incurred related to the proposed merger with DISH Network Corporation, partially offset by a recognized gain on the repayment of an other debt investment in April 2023.
Other-than-temporary impairment losses on equity method investments. Other-than-temporary impairment losses on equity method investments was $33.4 million for the sixnine months ended JuneSeptember 30, 2023, related to the impairment of our investment in Broadband Connectivity Solutions (Restricted) Limited (BCS) as a result of increased competition and the economic environment for this business.
Income tax benefit (provision), net. Income tax benefit (provision), net was $30.2$38.8 million provision for the sixnine months ended JuneSeptember 30, 2023, as compared to $38.2$51.4 million provision for the sixnine months ended JuneSeptember 30, 2022. Our effective income tax rate was 45.0%50.9% and 27.7%30.2% for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the sixnine months ended JuneSeptember 30, 2023 were primarily due to excluded investment impairment losses and excluded foreign losses where the Company carries a full valuation allowance, and the research tax credit.allowance. The variations in our effective tax rate from the U.S. federal statutory rate for the sixnine months ended JuneSeptember 30, 2022, were primarily due to excluded foreign losses where the Company carries a full valuation allowance, and the impact of state and local taxes.
Net income (loss) attributable to EchoStar Corporation common stock. The following table reconciles the change in Net income (loss) attributable to EchoStar Corporation common stock:
| | | | | | | | |
| | Amounts |
Net income (loss) attributable to EchoStar Corporation for the sixnine months ended JuneSeptember 30, 2022 | | $ | 105,301127,704 | |
| Increase (decrease) in interest income, net | | 36,62848,654 | |
| Decrease (increase) in income tax benefit (provision), net | | 7,939 | |
Increase (decrease) in other, net | | 6,92512,587 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 3,8194,535 | |
| Decrease (increase) in interest expense, net of amounts capitalized | | 2,7543,949 | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 1,9181,366 | |
| Increase (decrease) in net income (loss) attributable to non-controlling interest | | (2,590)(2,731) | |
Increase (decrease) in operating income (loss), including depreciation and amortizationother, net | | (18,354)(4,506) | |
| Decrease (increase) in other-than-temporary impairment losses on equity method investments | | (33,400) | |
| Increase (decrease) in operating income (loss), including depreciation and amortization | | (43,308) | |
| Increase (decrease) in gains (losses) on investments, net | | $ | (70,742)(71,408) | |
Net income (loss) attributable to EchoStar Corporation for the sixnine months ended JuneSeptember 30, 2023 | | $ | 40,19843,442 | |
EBITDA. EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items section. The following table reconciles EBITDA to Net income (loss), the most directly comparable GAAP measure in our Consolidated Financial Statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the six months ended June 30, | | Variance |
| | | 2023 | | 2022 | | Amount | | % |
| Net income (loss) | | $ | 36,905 | | | $ | 99,418 | | | $ | (62,513) | | | (62.9) | |
| Interest income, net | | (52,122) | | | (15,494) | | | (36,628) | | | * |
| Interest expense, net of amounts capitalized | | 26,526 | | | 29,280 | | | (2,754) | | | (9.4) | |
| Income tax provision (benefit), net | | 30,233 | | | 38,172 | | | (7,939) | | | (20.8) | |
| Depreciation and amortization | | 208,446 | | | 236,991 | | | (28,545) | | | (12.0) | |
| Net loss (income) attributable to non-controlling interests | | 3,293 | | | 5,883 | | | (2,590) | | | (44.0) | |
| EBITDA | | $ | 253,281 | | | $ | 394,250 | | | $ | (140,969) | | | (35.8) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the nine months ended September 30, | | Variance |
| | | 2023 | | 2022 | | Amount | | % |
| Net income (loss) | | $ | 37,437 | | | $ | 118,968 | | | $ | (81,531) | | | (68.5) | |
| Interest income, net | | (78,331) | | | (29,677) | | | (48,654) | | | * |
| Interest expense, net of amounts capitalized | | 39,176 | | | 43,125 | | | (3,949) | | | (9.2) | |
| Income tax provision (benefit), net | | 38,780 | | | 51,367 | | | (12,587) | | | (24.5) | |
| Depreciation and amortization | | 311,474 | | | 347,224 | | | (35,750) | | | (10.3) | |
| Net loss (income) attributable to non-controlling interests | | 6,005 | | | 8,736 | | | (2,731) | | | (31.3) | |
| EBITDA | | $ | 354,541 | | | $ | 539,743 | | | $ | (185,202) | | | (34.3) | |
* Percentage is not meaningfulmeaningful.
The following table reconciles the change in EBITDA:
| | | | | | | | |
| | Amounts |
EBITDA for the sixnine months ended JuneSeptember 30, 2022 | | $ | 394,250 | |
Increase (decrease) in other, net | | 6,925539,743 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 3,8194,535 | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 1,9181,366 | |
| Decrease (increase) in net loss (income) attributable to non-controlling interests | | (2,590)(2,731) | |
| Increase (decrease) in other, net | | (4,506) | |
| Decrease (increase) in other-than-temporary impairment losses on equity method investments | | (33,400) | |
| Increase (decrease) in gains (losses) on investments, net | | (71,408) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (46,899) | |
Increase (decrease) in gains (losses) on investments, net | | (70,742)(79,058) | |
EBITDA for the sixnine months ended JuneSeptember 30, 2023 | | $ | 253,281354,541 | |
Segment Operating Results and Capital Expenditures
The following tables present our total revenue, capital expenditures and EBITDA by segment for the sixnine months ended JuneSeptember 30, 2023, as compared to the sixnine months ended JuneSeptember 30, 2022:
| | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total | | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the six months ended June 30, 2023 | | | | | | | | | |
| For the nine months ended September 30, 2023 | | For the nine months ended September 30, 2023 | | | | | | | | |
| Total revenue | Total revenue | | $ | 875,530 | | | $ | 12,117 | | | $ | 5,059 | | | $ | 892,706 | | Total revenue | | $ | 1,279,739 | | | $ | 18,563 | | | $ | 7,478 | | | $ | 1,305,780 | |
| Capital expenditures | Capital expenditures | | 90,975 | | | — | | | 2,112 | | | 93,087 | | Capital expenditures | | 142,189 | | | 130 | | | 29,932 | | | 172,251 | |
| EBITDA | EBITDA | | 298,231 | | | 9,217 | | | (54,167) | | | 253,281 | | EBITDA | | 440,435 | | | 14,085 | | | (99,979) | | | 354,541 | |
| | For the six months ended June 30, 2022 | | |
| For the nine months ended September 30, 2022 | | For the nine months ended September 30, 2022 | |
| Total revenue | Total revenue | | $ | 985,947 | | | $ | 9,324 | | | $ | 5,579 | | | $ | 1,000,850 | | Total revenue | | $ | 1,475,512 | | | $ | 14,305 | | | $ | 8,420 | | | $ | 1,498,237 | |
| Capital expenditures | Capital expenditures | | 125,882 | | | — | | | 62,035 | | | 187,917 | | Capital expenditures | | 176,665 | | | — | | | 72,709 | | | 249,374 | |
| EBITDA | EBITDA | | 371,098 | | | 6,212 | | | 16,940 | | | 394,250 | | EBITDA | | 546,108 | | | 9,658 | | | (16,023) | | | 539,743 | |
Capital expenditures are net of refunds and other receipts related to property and equipment.
Hughes Segment
| | | | | For the six months ended June 30, | | Variance | | | For the nine months ended September 30, | | Variance |
| | | | 2023 | | 2022 | | Amount | | % | | | 2023 | | 2022 | | Amount | | % |
| Total revenue | Total revenue | | $ | 875,530 | | | $ | 985,947 | | | $ | (110,417) | | | (11.2) | | Total revenue | | $ | 1,279,739 | | | $ | 1,475,512 | | | $ | (195,773) | | | (13.3) | |
| Capital expenditures | Capital expenditures | | 90,975 | | | 125,882 | | | (34,907) | | | (27.7) | | Capital expenditures | | 142,189 | | | 176,665 | | | (34,476) | | | (19.5) | |
| EBITDA | EBITDA | | 298,231 | | | 371,098 | | | (72,867) | | | (19.6) | | EBITDA | | 440,435 | | | 546,108 | | | (105,673) | | | (19.4) | |
Total revenue was $875.5 million$1.3 billion for the sixnine months ended JuneSeptember 30, 2023, a decrease of $110.4$195.8 million, or 11.2%13.3%, as compared to 2022. Services and other revenue decreased primarily due to lower sales of broadband services to our consumer customers of $83.3$123.7 million. Equipment revenue decrease was primarily attributable to a decrease of $21.6$37.6 million in hardware sales to our international enterprise customers and a net decrease of $6.8$33.8 million related to our North American customers due to lower hardware sales and positive adjustments on profit margin oncertain long-term contracts, partially offset by an increase of $6.1$7.1 million in sales to our mobile satellite system customers.
Capital expenditures were $91.0$142.2 million for the sixnine months ended JuneSeptember 30, 2023, a decrease of $34.9$34.5 million, or 27.7%19.5%, as compared to 2022, primarily due to decreases in expenditures associated with our consumer business and decreases in expenditures related to the construction of our satellite-related ground infrastructure.
The following table reconciles the change in the Hughes Segment EBITDA:
| | | | | | | | |
| | Amounts |
EBITDA for the sixnine months ended JuneSeptember 30, 2022 | | $ | 371,098546,108 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 2,6253,220 | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 1,298386 | |
| Increase (decrease) in gains (losses) on investments, net | | (217) | |
| Increase (decrease) in other, net | | (788)(547) | |
| Decrease (increase) in net loss (income) attributable to non-controlling interests | | (2,589)(2,731) | |
| Decrease (increase) in other-than-temporary impairment losses on equity method investments | | (33,400) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (39,796)(72,384) | |
EBITDA for the sixnine months ended JuneSeptember 30, 2023 | | $ | 298,231440,435 | |
ESS Segment
| | | | | For the six months ended June 30, | | Variance | | | For the nine months ended September 30, | | Variance |
| | | | 2023 | | 2022 | | Amount | | % | | | 2023 | | 2022 | | Amount | | % |
| Total revenue | Total revenue | | $ | 12,117 | | | $ | 9,324 | | | $ | 2,793 | | | 30.0 | | Total revenue | | $ | 18,563 | | | $ | 14,305 | | | $ | 4,258 | | | 29.8 | |
| | Capital expenditures | | Capital expenditures | | 130 | | | — | | | 130 | | | * |
| EBITDA | EBITDA | | 9,217 | | | 6,212 | | | 3,005 | | | 48.4 | | EBITDA | | 14,085 | | | 9,658 | | | 4,427 | | | 45.8 | |
* Percentage is not meaningful.
Total revenue was $12.1$18.6 million for the sixnine months ended JuneSeptember 30, 2023, an increase of $2.8$4.3 million, or 30.0%29.8%, compared to 2022, primarily due to an increase in transponder services provided to third parties.
EBITDA was $9.2$14.1 million for the sixnine months ended JuneSeptember 30, 2023, an increase of $3.0$4.4 million, or 48.4%45.8%, as compared to 2022, primarily due to the increase in overall ESS segment revenue and lower expenses.
Corporate and Other
| | | | | For the six months ended June 30, | | Variance | | | For the nine months ended September 30, | | Variance |
| | | | 2023 | | 2022 | | Amount | | % | | | 2023 | | 2022 | | Amount | | % |
| Total revenue | Total revenue | | $ | 5,059 | | | $ | 5,579 | | | $ | (520) | | | (9.3) | | Total revenue | | $ | 7,478 | | | $ | 8,420 | | | $ | (942) | | | (11.2) | |
| Capital expenditures | Capital expenditures | | 2,112 | | | 62,035 | | | (59,923) | | | (96.6) | | Capital expenditures | | 29,932 | | | 72,709 | | | (42,777) | | | (58.8) | |
| EBITDA | EBITDA | | (54,167) | | | 16,940 | | | (71,107) | | | * | EBITDA | | (99,979) | | | (16,023) | | | (83,956) | | | * |
* Percentage is not meaningful.
Total revenue was $5.1$7.5 million for the sixnine months ended JuneSeptember 30, 2023, which is primarily flat compared to 2022.
Capital expenditures, net of refunds and other receipts related to property and equipment were $2.1$29.9 million for the sixnine months ended JuneSeptember 30, 2023, a decrease of $59.9$42.8 million, as compared to 2022, primarily due to decreases in expenditures, as well as refunds and other receipts, related to the EchoStar XXIV satellite program.
The following table reconciles the change in the Corporate and Other EBITDA:
| | | | | | | | |
| | Amounts |
EBITDA for the sixnine months ended JuneSeptember 30, 2022 | | $ | 16,940 | |
Increase (decrease) in other, net | | 7,715 (16,023) | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 1,1931,315 | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 620 981 | |
| Increase (decrease) in other, net | | (3,959) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (10,111)(11,102) | |
| Increase (decrease) in gains (losses) on investments, net | | (70,524)(71,191) | |
EBITDA for the sixnine months ended JuneSeptember 30, 2023 | | $ | (54,167)(99,979) | |
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Marketable Investment Securities
We consider all liquid investments purchased with an original maturity of 90 days or less to be cash equivalents.
As of JuneSeptember 30, 2023 our cash, cash equivalents and marketable investment securities totaled $1.9$2.0 billion, $1.2$0.9 billion of which we held as marketable investment securities, consisting of various debt and equity instruments including corporate bonds, corporate equity securities, government bonds and mutual funds.
Cash Flow Activities
The following table summarizes our cash flows provided by (used for) operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows:
| | | For the six months ended
June 30, | | Variance | | For the nine months ended
September 30, | | Variance |
| | 2023 | | 2022 | | | 2023 | | 2022 | |
| Operating activities | Operating activities | | $ | 190,958 | | | $ | 251,632 | | | $ | (60,674) | | Operating activities | | $ | 301,023 | | | $ | 343,317 | | | $ | (42,294) | |
| Investing activities | Investing activities | | (196,579) | | | 280,295 | | | (476,874) | | Investing activities | | 88,857 | | | 115,008 | | | (26,151) | |
| Financing activities | Financing activities | | (317) | | | (74,071) | | | 73,754 | | Financing activities | | (1,518) | | | (84,666) | | | 83,148 | |
| Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents | | 3,483 | | | (728) | | | 4,211 | | Effect of exchange rates on cash and cash equivalents | | 1,622 | | | (3,123) | | | 4,745 | |
| Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | $ | (2,455) | | | $ | 457,128 | | | $ | (459,583) | | Net increase (decrease) in cash and cash equivalents | | $ | 389,984 | | | $ | 370,536 | | | $ | 19,448 | |
Cash flows provided by (used for) operating activities decreased by $60.7$42.3 million primarily attributable to decreases in net income of $62.5$81.5 million, other, net, of $49.9$42.1 million, depreciation and amortization of $28.5$35.8 million, accretion of discounts on debt investments of $21.5 million, deferred tax provision, net of $16.5$20.8 million, and gain on repayment of other debt securities of $7.6 million, partially offset by losses (gains) on investments, net of $70.7 million, other-than-temporary impairment losses on equity method investments of $33.4 million, and changes in assets and liabilities, net of $3.2$65.8 million, and losses (gains) on investments, net of $71.4 million.
Cash flows provided by (used for) investing activities decreased by $476.9$26.2 million primarily attributable to a decreasedecreases in our marketable investment securities net expendituresactivities of $722.8$241.6 million and an increase in externally marketed software expenditures of $3.3$5.4 million, partially offset by proceeds from repayment of other debt investments of $148.4 million, a decrease in expenditures for property and equipment of $94.8$77.1 million, and the absence of expenditures for the India JV formation in 2022 of $7.9 million.
Cash flows provided by (used for) financing activities increased by $73.8$83.1 million primarily attributable to decreases in treasury share repurchases of $77.1$89.3 million.
Obligations and Future Capital Requirements
Off-Balance Sheet Arrangements
We generally do not engage in off-balance sheet financing activities or use material derivative financial instruments for hedge accounting or speculative purposes.
Letters of Credit and Surety Bonds
The following table presents the components of our letters of credit and surety bonds as of JuneSeptember 30, 2023:
| | | | | | | | |
| | Amounts |
| Letters of credit secured by restricted cash | | $ | 11,0887,797 | |
| Surety bonds | | 16,63816,246 | |
| Credit arrangement available to our foreign subsidiaries | | 28,23626,846 | |
| Total letters of credit and surety bonds | | $ | 55,96250,889 | |
Certain letters of credit are secured by assets of our foreign subsidiaries.
Satellites
As our satellite fleet ages, and as our business plans evolve, we will evaluate whether and to what extent to utilize replacement alternatives such as acquiring, leasing or constructing additional satellites, with or without customer commitments for capacity. We may also construct, acquire or lease additional satellites or satellite capacity in the future to provide satellite services at additional orbital locations, to improve the quality of our satellite services or to provide new satellites services.
Satellite Insurance
We generally do not carry in-orbit insurance on our satellites or payloads because we have assessed that the cost of insurance is not economical relative to the risk of failures. Therefore, we generally bear the risk of any in-orbit failures.
Pursuant to the terms of our joint venture agreement with Yahsat, we are required to maintain insurance for the Al Yah 3 Brazilian payload during the commercial in-orbit service of such payload, subject to certain limitations on coverage. The insurance policies were procured by Yahsat, inunder which the Company and Yahsat are the beneficiaries of any claims in proportion to their shareholdings. An insurance claim was submitted in the second quarter of 2023 for compensation with respect to the reduction in estimated useful life of the Al Yah 3 satellite.
We also have obtained certain insurance for our EchoStar XXIV satellite covering launch plus the first year of operations. We will continue to assess circumstances going forward and make insurance-related decisions on a case-by-case basis.
Future Capital Requirements
We primarily rely on our existing cash and marketable investment securities balances, as well as cash flow generated through our operations, to fund our business. Revenue in our ESS segment depends largely on our ability to make continuous use of our available satellite capacity on behalf of existing customers and our ability to enter into commercial relationships with new customers. Consumer revenue in our Hughes segment depends on our success in adding new and retaining existing subscribers and driving higher ARPU. Revenue in our enterprise and equipment businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. There can be no assurance that we will have positive cash flows from operations in the future. Furthermore, if we experience negative cash flows, our existing cash and marketable investment securities balances may be reduced.
We have a significant amount of outstanding indebtedness. As of JuneSeptember 30, 2023, our total indebtedness was $1.5 billion. Our liquidity requirements will continue to be significant, primarily due to our remaining debt service requirements. We may from time to time seek to repurchase amounts of our outstanding debt in open market purchases, privately negotiated transactions or otherwise, depending on market conditions, our liquidity needs and other factors. The amounts we may repurchase may be material. In the future, we may require material capital expenditures to make significant acquisitions or investments in infrastructure, technologies or joint ventures to support and expand our business, or if we decide to purchase or build additional satellites or invest in other technologies or assets. Other aspects of our business operations may also require additional capital. We also expect to owe U.S. federal income tax for 2023.
We anticipate that our existing cash and marketable investment securities are sufficient to fund the currently anticipated operations of our business through the next twelve months.
Stock Repurchases
On November 2, 2021, our Board of Directors authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2022 through and including December 31, 2022. In addition, on October 20, 2022, our Board of Directors authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2023 through and including December 31, 2023. Purchases under our repurchase authorizations may be made through privately negotiated transactions, open market repurchases, one or more trading plans in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or otherwise, subject to market conditions and other factors. We may elect not to purchase the maximum amount or any of the shares allowable under these authorizations and we may also enter into additional share repurchase programs authorized by our Board of Directors. During the sixnine months ended JuneSeptember 30, 2023, we repurchased zero shares of our Class A common stock under this program. Notwithstanding this authorization, Section 4.1(a)(vii) of the Amended Merger Agreement contains an interim operating covenant that prohibits us from repurchasing our stock during the period between October 2, 2023, and the Effective Time of the Merger. As a result, we do not plan to undertake any stock repurchases until after the occurrence of either (a) the Merger Effective Time, or (b) the termination of the Amended Merger Agreement.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are described in Note 2.Summary of Significant Accounting Policies to our Consolidated Financial Statements in our Form 10-K. There have been no significant changes in our critical accounting policies from those presented in our Form 10-K.
CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates are described in our Form 10-K under the heading Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no significant changes in our critical accounting estimates from those presented in our Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion of new accounting pronouncements, refer to Note 2. Summary of Significant Accounting Policies in our Consolidated Financial Statements.
SEASONALITY
For our Hughes segment, service revenue is generally not impacted by seasonal fluctuations other than those related to sales and promotional activities.
Our ESS segment is not generally affected by seasonal impacts.
We cannot predict with any certainty whether these trends will continue in the near future.
INFLATION AND SUPPLY CHAIN
Inflation has impacted our operations as we have continued to experience increased costs in certain functional areas including field services and customer care. We are unable to predict the extent or nature of any future inflationary pressure at this time. Our ability to increase the prices charged for our products and services in future periods depends primarily on competitive pressures, contractual terms, and inflationary pressures.
Worldwide interruptions and delays in the supply of components, materials and parts, although not materially impacting our operations during the sixnine months ended JuneSeptember 30, 2023, may impact our ability to timely provide equipment deliveries in the future. Any such future interruptions and delays could increase the cost of our equipment, and we may not be able to pass these higher costs on to our customers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to our Form 10-K, under the heading Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk, for a more complete discussion of our risks. As of JuneSeptember 30, 2023, our market risks have not changed materially from those presented in our Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q such that the information required to be disclosed in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the three months ended JuneSeptember 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We continue to review our internal control over financial reporting and may from time to time make changes aimed at enhancing its effectiveness and to ensure that our systems evolve with our business.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, refer to Part I, Item 1. Financial Statements - Note 13. Contingencies - Litigation in this Form 10-Q.
ITEM 1A. RISK FACTORS
The following information updates, and should be read in conjunction with, the information in Part I, Item 1A, Risk Factors, of our Form 10-K for the year ended December 31, 2022.
Risks Relating to the DISH Merger
Because the market price of DISH common stock will fluctuate, EchoStar stockholders cannot be sure of the value of DISH common stock they will receive in the Merger. In addition, because the exchange ratio is fixed, the number of shares of DISH common stock to be received by EchoStar stockholders in the Merger will not change between now and the timeWhile the Merger is completed to reflect changes in the trading prices of DISH common stock or EchoStar common stock.
As a result of the Merger, each share of EchoStar Class A common stock and each share of EchoStar Class B common stock issued and outstanding immediately prior to the effective time (other than shares held directly by EchoStar as treasury shares or by DISH) will be converted automatically into 2.85 shares of DISH Class A common stock and 2.85 shares of DISH Class B common stock, respectively. The exchange ratio is fixed and will not be adjusted prior to the closing to account for changes in the trading prices of DISH common stock or EchoStar common stock or, except as otherwise set forth in the merger agreement, other factors. The exact value of the consideration to EchoStar stockholders will therefore depend on the price per share of DISH common stock at the closing of the Merger, which may be greater than, less than or the same as the price per share of DISH common stock at the time of entry into the Merger Agreement.
The market price of DISH common stock is subject to general price fluctuations in the market for publicly traded equity securities and has experienced volatility in the past. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the business, operations and prospects of DISH or EchoStar and regulatory considerations, many of which are factors beyond DISH’s and EchoStar’s control.
Wepending, we will be subject to business uncertainties andas well as contractual restrictions whileunder the Amended Merger is pendingAgreement that may have an adverse effect on our business.
UncertaintyThe Merger will occur only if stated conditions are met, many of which are outside of our control. In addition, we and DISH Network each have the right to terminate the Merger Agreement under specified circumstances. Accordingly, there may be uncertainty regarding the completion of the Merger. Further, there may be uncertainty about the effect of the Merger on employees, commercial partners and customers may have an adverse effect on us. These uncertainties may impair our ability to retain and motivate key personnel andcustomers. Such uncertainty could cause customers and others that deal with us to defer or decline entering into or extending contracts with, us or making other decisions concerning, us EchoStar and/or DISH Network, or to seek to change existing business relationships with us. Certaineither of them. Such uncertainty also may impair our contracts contain changeand/or DISH Network’s ability to retain and motivate key personnel. These uncertainties may have an adverse effect on the companies’ respective businesses and, consequently, on EchoStar following the completion of control restrictions that may give rise to a right of termination or cancellation in connection with the Merger.
In addition, if key employees depart because of uncertainty about their future roles and the potential complexities of the Merger, our business could be harmed. Furthermore, theAmended Merger Agreement contains restrictions on our ability to take certain actions outsidecustomary covenants which restrict each of EchoStar and DISH Network, without the ordinary course of business prior to the closingconsent of the other party, from taking certain specified actions until the Merger whichcloses or the Amended Merger Agreement terminates. These restrictions may delay or prevent us and DISH Network from undertaking certain actions orpursuing otherwise attractive business opportunities that may arise prior to the closing.completion of the Merger or termination of the Amended Merger Agreement.
We will incur significant expenses in connection with the Merger, which may adversely affect our business, financial condition and results of operation.
We expect to incur significant, nonrecurring costs in connection with the completion of the Merger and the integration of the operations of the two companies, and may incur additional costs to maintain employee morale and to retain key employees. These nonrecurring costs include significant fees and expenses relating to legal, accounting and financial advisory fees, regulatory filings and other costs associated with the Merger. These expenses, certain of which are payable whether or not the Merger is completed, may not be offset by any benefits ultimately realized as a result of the Merger and could adversely affect our business, financial condition and results of operations.
The Amended Merger Agreement restricts our ability to pursue alternatives to the MergerMerger.
The merger agreementAmended Merger Agreement contains provisions that make it more difficult for us to enter into alternative transactions.transactions with third parties. The merger agreementAmended Merger Agreement prohibits us from soliciting alternative acquisition proposals from third parties, providing information to third parties in connection with an alternative acquisition proposal and engaging in discussions with third parties regarding alternative acquisition proposals. These provisions could discourage a potential third-party acquirer that might have an interest in us from considering or pursuing an alternative transaction with us, or proposing such a transaction, even if it were prepared to pay consideration with a higher per share value than the total value proposed to be paid in the Merger. Further, because the required EchoStar stockholder vote was obtained by virtue of the delivery of written consents of the Ergen family stockholders, no other action by our stockholders is required to complete the Merger, and therefore we cannot solicit, initiate, facilitate or otherwise take any further action relating to any alternative acquisition proposal.
Failure to attract, motivate and retain executives and other key employees could diminish the anticipated benefits of the Merger.
The success of the Merger will depend in part on the retention of personnel critical to the business and operations of EchoStar and DISH Network due to, for example, their technical skills or management expertise. Competition for qualified personnel can be intense and qualified personnel can be in high demand. Current and prospective employees of EchoStar and DISH Network may experience uncertainty about their future role until strategies with regard to these employees are announced or executed, which may impair each company’s ability to attract, retain and motivate key management, technical and other personnel prior to and following the Merger. Employee retention may be particularly challenging during the pendency of the Merger. If we and DISH Network are unable to retain personnel, including key management, who are critical to the successful integration and future operations of the companies, we could face, among other risks, disruptions in operations, loss of existing customers, loss of key information, expertise or know- how, and unanticipated additional recruitment and training costs. In addition, the loss of key personnel could diminish the anticipated benefits of the Merger.
Certain of our directors, executive officers and employees have interests in the Merger that may be different from, or in addition to, the interests of our stockholders.
Certain of our directors, executive officers and employees have interests in the Merger that may be different from, or in addition to, the interests of our stockholders. These interests include, among others, Mr. Ergen’s continuation as director and Chairman of EchoStar after the Merger, Hamid Akhavan, the Chief Executive Officer and President of EchoStar, serving as President and Chief Executive Officer of the combined company following the Merger, the continued employment of other of our other executive officers after the Merger, the continued positions of certain of our directors as directors of EchoStar after the Merger, and directors’, executive officers’ and employees’ equity holdings in EchoStar. Our special transaction committee and our Board were aware of and considered these interests, among other matters, in deciding to recommend and approve the terms of the Amended Merger Agreement and the Merger.
We may be subject to lawsuits relating to the Merger, which may impact the timing of the closing and the parties’ ability to close the Merger and may adversely impact our business.
We and our directors, officers and advisors may be subject to lawsuits relating to the Merger. Litigation is very common in connection with the sale of public companies, and lawsuits are often brought in an effort to enjoin the relevant merger or seek monetary relief. In particular, the interests of our directors, executive officers and employees in the Merger may increase the risk of litigation intended to enjoin or prevent the Merger and the risk of other dissident stockholder activity related thereto. In the past, and in particular following the announcement of a significant transaction, periods of volatility in the overall market or declines in the market price of a company’s securities, stockholder litigation and dissident stockholder proposals have often been instituted against companies alleging conflicts of interest in business dealings with affiliated or related persons and entities. The affiliation between EchoStar and DISH Network and the interests of their respective directors, executive officers and employees in the Merger may precipitate such activities by dissident stockholders and, if instituted, such activities could result in substantial costs, a material delay or prevention of the Merger and a diversion of management’s attention, even if the stockholder action is without merit or ultimately unsuccessful.
We cannot predict whether such lawsuits will be brought, or the outcome of such lawsuits or others, nor can we predict the amount of time and expense that will be required to resolve such litigation. An unfavorable resolution of any such litigation surrounding the Merger could delay or prevent the completion of the Merger, which may adversely affect our business, financial condition and results of operations. Further, the defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is completed may adversely affect our business, financial condition, results of operations and cash flows following the Merger.
The market value of our Class A Common Stock may vary significantly prior to the Merger, and we therefore cannot be sure of the value of the consideration that we will pay in the Merger.
At the effective time of the Merger, (i) each share of DISH Network Class A Common Stock and DISH Network Class C Common Stock outstanding immediately prior to the Effective Time will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of EchoStar Class A Common Stock equal to the Exchange Ratio (with all shares of DISH Network Class C Common Stock outstanding, if any, treated for purposes of this calculation as if converted into DISH Network Class A Common Stock at the effective conversion rate set forth in the DISH Network Articles of Incorporation) and (ii) each share of DISH Network Class B Common Stock outstanding immediately prior to the Effective Time will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of EchoStar Class B Common Stock equal to the Exchange Ratio.
EchoStar Class B Common Stock and DISH Network Class B Common Stock are not listed or traded on a national securities exchange, and there are no shares of DISH Network Class C Common Stock outstanding. The market value of EchoStar Class A Common Stock and DISH Network Class A Common Stock at the effective time of the Merger may vary significantly from the market value of such stock on October 2, 2023 (the last full trading day before the public announcement of the signing of the Amended Merger Agreement). Because the Exchange Ratio will not be adjusted to reflect any changes in the market price of EchoStar Class A Common Stock or DISH Network Class A Common Stock, the market price of EchoStar Class A Common Stock issued to DISH Network Class A stockholders in the Merger and the market value of DISH Network Class A Common Stock converted in the Merger may each be higher or lower than the values of those shares on earlier dates. Accordingly, at any time prior to the completion of the Merger, we will not know or be able to determine the value of the EchoStar Class A Common Stock that will be paid to DISH Network Class A Stockholders as consideration in the Merger.
Changes in the market price of EchoStar Class A Common Stock and DISH Network Class A Common Stock may result from a variety of factors that are beyond the companies’ control, including, but not limited to, changes in their respective businesses, operations and prospects, governmental actions, legal proceedings and developments and other matters generally affecting the securities market. Market assessments of the benefits of the Merger, the likelihood that the Merger will be completed and general and industry-specific market and economic conditions may also have an effect on the market price of EchoStar Class A Common Stock and DISH Network Class A Common Stock. Neither party is permitted to terminate the Amended Merger Agreement solely because of changes in the market prices of EchoStar Class A Common Stock or DISH Network Class A Common Stock.
The Merger is subject to a number of conditions, including receipt of certain regulatory approvals. Failure to complete the Merger could negatively impactadversely affect the market price of our Class A Common Stock, as well as our business, financial condition and results and stock priceof operations.
The completionrespective obligations of EchoStar and DISH Network to consummate the transactions contemplated by the Amended Merger isAgreement are subject to the satisfaction or waiver of a number of conditions, including, among others, the receipt of certain regulatory approvals. As a condition to granting the necessary approvals or clearances, governmental authorities may impose requirements, limitations or costs or place restrictions on the conduct of the business of the combined company after the completion of the Merger. Any one of these requirements, limitations, costs, or restrictions could jeopardize or delay the completion, of or reduce the anticipated benefits, of the Merger. In addition, there is no guarantee that the conditions to closing will be satisfied (or, if applicable, validly waived) in a timely manner or at all, in which case the closing of the Merger may be delayed or may not occur and the benefits expected to result from the Merger may not be achieved. If the Merger is not completed for any reason, our ongoing business may be adversely affected, and we will be subject to several risks and consequences, including, but not limited to, the following:
•we will be required to pay certain costs relating to the Merger regardless of whether or not the Merger is completed, such as significant fees and expenses relating to financial advisory, legal, accounting, consulting and other advisory fees and expenses employee-benefit and related expenses and regulatory filings; and
•matters relating to the Merger may require substantial commitments of time and resources by our management and the expenditure of significant funds in the form of fees and expenses, which could otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us.
In addition, if the Merger is not completed, we may experience negative reactions from the financial markets and from our employees, commercial partners and customers.
We also could also be subject to litigation, including litigation related to failure to complete the Merger, or to enforce DISH’s’DISH Network’s obligations under the Amended Merger Agreement.
If the Merger is not consummated, there can be no assurancecompleted, we cannot assure you that the risks described above will not materially affect our stock price, business, financial condition and results and stock price.of operations.
Litigation relatingDISH Network currently has significant indebtedness as compared to EchoStar. Following the Merger, may be filed against our board of directors and/or our special committee that could prevent or delay the closing of the Merger and/or resultEchoStar stockholders will hold equity interests in the payment of damages following the closing
In connectiona company with the Merger, it is possible that our stockholders may file lawsuits against our board of directors and/or our special committee. Among other remedies, these stockholders could seek damages and/orsubstantially higher leverage than EchoStar had prior to enjoin the Merger. The outcome of any litigation is uncertain and any such potential lawsuits could prevent or delay the closing and/or result in substantial costs to us. Any such actions may create uncertainty relating to the Merger and may be costly and distracting to management. Further, the defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is completed may adversely affect the combined company’s business, financial condition, results of operations and cash flows following the Merger.
The sharesAs of September 30, 2023, EchoStar had consolidated long-term debt outstanding of $1.5 billion in principal amount and total assets of approximately $6.2 billion, and DISH common stockNetwork had consolidated long-term debt outstanding of approximately $21.2 billion in principal amount and total assets of approximately $53.7 billion. After giving effect to be received bythe Merger, EchoStar and its subsidiaries will have consolidated long-term debt of approximately $22.7 billion in principal amount on a combined basis and total consolidated assets of approximately $59.9 billion. Therefore, after the completion of the Merger, EchoStar stockholders uponwill hold equity interests in a company with substantially higher leverage than EchoStar had prior to the closing willMerger. DISH Network’s indebtedness could have different rights from shares of EchoStar common stocksignificant consequences, including, but not limited to:
Upon•making it more difficult for EchoStar to satisfy its obligations;
•a dilutive effect on EchoStar’s outstanding equity capital or future earnings;
•increasing EchoStar’s vulnerability to general adverse economic conditions, including, but not limited to, changes in interest rates;
•requiring EchoStar to devote a substantial portion of its cash toward making interest and principal payments on its indebtedness, thereby reducing the closing, our stockholdersamount of cash available for other purposes, resulting in limited financial and operating flexibility to changing economic and competitive conditions;
•limiting EchoStar’s ability to raise additional capital because it may be more difficult for it to obtain debt financing on attractive terms or at all; and
•placing EchoStar at a disadvantage compared to its competitors that are less leveraged.
We may operate DISH Network’s business different from how it has been operated in the past.
After the completion of the Merger, DISH Network will be a wholly owned subsidiary of EchoStar and will no longer be stockholdersa publicly traded company. We may operate DISH Network’s business in a manner different from how DISH Network has operated in the past, and may pursue different strategic objectives than DISH Network has pursued to date as a separate public company. As a result, DISH Network’s prior results may not be indicative of EchoStar. Instead, our former stockholders will become DISH stockholdersNetwork’s future performance as a subsidiary of EchoStar, and their rightssuch results should not be relied upon as an indicator of DISH stockholders will be governed byNetwork’s performance after the termscompletion of the certificate of incorporation and bylaws of DISH. These documents are in some respects different than the terms of our certificate of incorporation and bylaws, which currently govern the rights of our stockholders.Merger.
Risks Related to Our businessBusiness Following the Merger
The businesses of EchoStar and DISH Network may not be integrated successfully or such integration may be more difficult, time consuming or costly than expected. Operating costs, customer loss and business disruption, including, but not limited to, difficulties in maintaining relationships with employees, customers, suppliers or vendors, may be greater than expected following the Merger. Synergies from the Merger may not be realized within expected timeframes or at allall.
The Merger involves the combination of two companies that, although under common control and subject to existing commercial relationships, currently operate as separate public companies. The combination of two separate businessescompanies is complex, costly and time-consuming and may divertrequire significant management attention and resources to combiningwhich may divert attention from our and DISH’s business practicesongoing businesses and operations. This process may disrupt our business. The failure to meet the challenges involved in combining the two businessescompanies and to realize the anticipated benefits of the Merger could cause an interruption of, or a loss of momentum in, theour activities of DISH and could adversely affect the results of operations of the combined company following the Merger. The
overall combination of our and DISH’s businessesthe two companies may also result in material unanticipated problems, expenses, liabilities, competitive responses and loss of customer and other business relationships. The difficulties of combining the operations of the companies include, among others:
•the diversion of management and employee attention to integration matters;
•difficulties in integrating operations and systems, including, intellectual property andbut not limited to, communications systems, administrative and information technology infrastructure and financial reporting and internal control systems;
•challenges in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies;
•difficulties in integrating employees and teams of the respective businesses, and attracting and retaining key personnel;
•challenges in retaining existing, and obtaining new customers, suppliers and other commercial relationships;
•difficulties in managing the expanded operations of a significantly larger and more complex company; and
•potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the Merger.
Many of these factors are outside of our control and/or will be outside the control of DISH and any one of them could result in lower revenues, higher costs and diversion of management time and energy, which could materially impact theour business, financial condition and results of operations of DISH.after the Merger. In addition, even if the operations of our and DISH’s businessesthe companies are integrated successfully, the full benefits of the Merger may not be realized, including, among others, the synergies, cost savings or sales or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame or at all. All of these factors could negatively impact the price of the DISH common stockour Class A Common Stock following the Merger. As a result, it cannot be assured that the combination of us and DISHthe two companies will result in the realization of the full benefits expected from the Merger within the anticipated time frames, or at all.
The market price for DISH common stock following the closing of the Merger may be affected by factors different from those that historically have affected or currently affect our common stock
Upon the closing of the Merger, our stockholders will receive shares of DISH common stock. DISH’s business and financial position will differ from our business and financial position before the closing and, accordingly, the results of operations of DISH will be affected by some factors that are different from those currently affecting our operating results. Accordingly, the market price and performance of DISH common stock is likely to be different from the performance of our common stock in the absence of the Merger. In addition, it is anticipated that DISH will issue a significant number of shares of DISH common stock in the Merger. The issuance of these new shares could have the effect of depressing the market price of the DISH common stock.
Following the Merger, DISHwe will continue to be controlled by one principal stockholderstockholder.
Charles W.EchoStar and DISH Network are each controlled by Mr. Ergen, our Chairman andwho also serves as the Chairman of DISH,both companies and will continue to serve as the Chairman of EchoStar following the consummation of the Merger. Mr. Ergen beneficially owns approximately 93%93.4% of the total voting power of all classes of our sharesEchoStar equity securities, and also beneficially owns approximately 90.4%90.3% of the total voting power of all classes of DISH shares. Network equity securities.
Pursuant to the amended support agreement, Mr. Ergen and relatedthe other Ergen stockholders have agreed pursuantnot to the support agreement entered into in connection with the Merger,to not vote, or cause or direct to be voted, the shares of DISHEchoStar Class A Common Stock owned by them, other than with respect ofto any matter presented to the holders of DISHEchoStar Class A Common Stock on which holders of DISHEchoStar Class B Common Stock are not entitled to vote, for three years following the closing of the Merger,Closing, such that the Ergen stockholders’Stockholders’ voting power of DISH does not increase as a result of the Merger from the voting power owned by them as of the date of the entry into the Merger Agreement.EchoStar will be approximately 90.4% for such three- year period. Through his beneficial ownership of EchoStar and DISH’sour equity securities, Mr. Ergen has the ability to elect a majority of the directors and to control all other matters requiring the approval of EchoStar or DISHour stockholders, and will continue to have such ability as to DISH following completion of the Merger. As a result of Mr. Ergen’s voting power, we and DISH currently each are, and following the Merger DISH will continue to be, a “controlled company” as defined in the NASDAQ listing rules and, therefore, not subject to certain NASDAQ requirements relating to director independence and nomination and board committee composition. In addition, following the Merger, it may be difficult for a third party to acquire DISH, even if doing so may be beneficial to shareholders, because of DISH’s ownership structure. In addition, future sales of DISH common stock by Mr. Ergen could adversely affect the DISH stock price. The parties have agreed to enter into a registration rights agreement reasonably acceptable to the parties providing for the registration of the Ergen
Following the Merger, we will continue to be controlled by our principal stockholder and it will be difficult for a third party to acquire us without Mr. Ergen’s approval, even if doing so may be beneficial to stockholders.
In addition, pursuant to the amended support agreement, prior to the Merger closing, we and the Ergen stockholders will enter into a registration rights agreement providing for the registration of the Ergen stockholders’ shares of DISHour Class A Common Stock or DISH Class B Common Stock received as part of the Merger consideration and/or DISHour Class B Common Stock held by such stockholders immediately prior to the closing of the Merger.
Our directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of our other stockholders
Aside from their interests as stockholders, certain of our directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally. These interests include, among others, rights to continuing indemnification and directors’ and officers’ liability insurance. Charles Ergen, director and Chairman of both EchoStar and DISH, will serve as a director and Chairman of DISH following the Merger. In addition, Hamid Akhavan, the President and Chief Executive Officer of EchoStar, will serve as President and Chief Executive Officer of the combined company following the Merger. Our special committee was aware of and considered these interests, among other things, in negotiating and deciding to approve, and recommend to the our board of directors, the merger agreement and the Merger, and the our board of directors was aware of and considered these interests, among other things, in deciding to approve the merger agreement and the Merger.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Pursuant to a stock repurchase program approved by our board of directors, we are authorized to repurchase up to $500.0 million of our Class A common stock through December 31, 2023. During the sixnine months ended JuneSeptember 30, 2023, we repurchased zero shares of our Class A common stock under this program. Notwithstanding this authorization, Section 4.1(a)(vii) of the Amended Merger Agreement contains an interim operating covenant that prohibits us from repurchasing our stock during the period between October 2, 2023, and the Effective Time of the Merger. As a result, we do not plan to undertake any stock repurchases until after the occurrence of either (a) the Merger Effective Time, or (b) the termination of the Amended Merger Agreement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Financial Results
On August 8,November 6, 2023, we issued a press release (the “Press Release”) announcing our financial results for the quarter ended JuneSeptember 30, 2023. A copy of the Press Release is furnished herewith as Exhibit 99.1. The foregoing information, including the exhibit related thereto, is furnished in response to Item 2.02 of Form 8-K and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise, and shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Securities Exchange Act of 1934, as amended, except as otherwise expressly stated in any such filing.
Rule 10b5-1 Trading Plans
None of the Company’s directors or Section 16 officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended JuneSeptember 30, 2023.
ITEM 6. EXHIBITS
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| Exhibit No. | | Description |
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| 101.INS | | XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | | XBRL Taxonomy Extension Schema. |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase. |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase. |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase. |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase. |
| 104 | | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
(H) Filed herewith.
(I) Furnished herewith.
+ Schedules, annexes and/or exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules, annexes and/or exhibits upon request by the SEC; provided, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for any schedules so furnished.
* Certain portions of the exhibit have been omitted in accordance with the Securities and Exchange Commission’s rules and regulations regarding confidential treatment.
** Constitutes a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | ECHOSTAR CORPORATION |
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Date: August 8,November 6, 2023 | By: | /s/ Hamid Akhavan |
| | | Hamid Akhavan |
| | | Chief Executive Officer and President |
| | | (Principal Executive Officer and Principal Financial Officer) |
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Date: August 8,November 6, 2023 | By: | /s/ Veronika Takacs |
| | | Veronika Takacs |
| | | Vice President, Chief Accounting Officer and Controller |
| | | (Principal Accounting Officer) |
