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EchoStar CORP - Quarter Report: 2022 September (Form 10-Q)

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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 SEPTEMBER 30, 2022.

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

sats-20220930_g1.gif
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 valueThe NASDAQ Stock Market LLC
(Title of each class)(Name of each exchange on which registered)
SATS
(Ticker 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 filerAccelerated filer Emerging growth company
Non-accelerated filerSmaller 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 October 20, 2022, the registrant’s outstanding common stock consisted of 35,443,848 shares of Class A common stock and 47,687,039 shares of Class B common stock, each $0.001 par value.




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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, including the impact of the coronavirus pandemic (COVID-19), 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:
 
significant risks related to our ability to 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 the COVID-19 pandemic, including regulatory and competitive considerations;
our ability to implement and/or realize benefits of our investments and other strategic initiatives;
legal proceedings relating to the BSS Transaction or other matters that could result in substantial costs and material adverse effects to our business;
risks related to our foreign operations and other uncertainties associated with doing business internationally;
risks related to our dependency upon third-party providers; 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.
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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ECHOSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
(Unaudited)
 As of
 September 30, 2022December 31, 2021
Assets  
Current assets:  
Cash and cash equivalents$901,269 $535,894 
Marketable investment securities666,904 1,010,496 
Trade accounts receivable and contract assets, net243,683 182,063 
Other current assets, net229,214 198,444 
Total current assets2,041,070 1,926,897 
Non-current assets:  
Property and equipment, net2,251,258 2,338,285 
Operating lease right-of-use assets147,811 149,198 
Goodwill532,570 511,086 
Regulatory authorizations, net460,084 469,766 
Other intangible assets, net16,323 13,984 
Other investments, net352,778 297,747 
Other non-current assets, net323,411 338,241 
Total non-current assets4,084,235 4,118,307 
Total assets$6,125,305 $6,045,204 
Liabilities and Stockholders' Equity  
Current liabilities:  
Trade accounts payable$95,019 $109,338 
Contract liabilities127,584 141,343 
Accrued expenses and other current liabilities183,613 209,442 
Total current liabilities406,216 460,123 
Non-current liabilities:  
Long-term debt, net1,496,578 1,495,994 
Deferred tax liabilities, net434,043 403,684 
Operating lease liabilities133,197 134,897 
Other non-current liabilities119,719 136,426 
Total non-current liabilities2,183,537 2,171,001 
Total liabilities2,589,753 2,631,124 
Commitments and contingencies








The accompanying notes are an integral part of these Consolidated Financial Statements.
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ECHOSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
(Unaudited)

Stockholders' equity:  
Preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding at both September 30, 2022 and December 31, 2021
— — 
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, 58,604,927 shares issued and 35,291,616 shares outstanding at September 30, 2022 and 58,059,622 shares issued and 38,726,923 shares outstanding at December 31, 2021
59 58 
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, 2022 and December 31, 2021
48 48 
Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both September 30, 2022 and December 31, 2021
— — 
Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both September 30, 2022 and December 31, 2021
— — 
Additional paid-in capital3,361,219 3,345,878 
Accumulated other comprehensive income (loss)(180,339)(212,102)
Accumulated earnings (losses)784,170 656,466 
Treasury shares, at cost(525,824)(436,521)
Total EchoStar Corporation stockholders' equity3,439,333 3,353,827 
Non-controlling interests96,219 60,253 
Total stockholders' equity3,535,552 3,414,080 
Total liabilities and stockholders' equity$6,125,305 $6,045,204 
The accompanying notes are an integral part of these Consolidated Financial Statements.
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ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)

 For the three months ended September 30,For the nine months ended September 30,
 2022202120222021
Revenue:
Services and other revenue$401,382 $432,739 $1,234,890 $1,294,355 
Equipment revenue96,005 71,921 263,347 192,721 
Total revenue497,387 504,660 1,498,237 1,487,076 
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)145,189 138,179 430,553 410,515 
Cost of sales - equipment (exclusive of depreciation and amortization)74,329 62,328 213,497 161,982 
Selling, general and administrative expenses111,421 112,986 342,682 341,143 
Research and development expenses9,181 7,974 25,562 22,960 
Depreciation and amortization110,233 120,596 347,224 368,864 
Impairment of long-lived assets— — 711 245 
Total costs and expenses450,353 442,063 1,360,229 1,305,709 
Operating income (loss)47,034 62,597 138,008 181,367 
Other income (expense):
Interest income, net14,183 5,725 29,677 16,914 
Interest expense, net of amounts capitalized(13,845)(16,313)(43,125)(79,848)
Gains (losses) on investments, net(10,077)3,748 48,071 112,981 
Equity in earnings (losses) of unconsolidated affiliates, net(1,426)74 (4,441)(2,596)
Foreign currency transaction gains (losses), net(2,805)(6,641)(53)(10,045)
Other, net(319)775 2,198 (12,922)
Total other income (expense), net(14,289)(12,632)32,327 24,484 
Income (loss) before income taxes32,745 49,965 170,335 205,851 
Income tax benefit (provision), net(13,195)(19,748)(51,367)(63,047)
Net income (loss)19,550 30,217 118,968 142,804 
Less: Net loss (income) attributable to non-controlling interests2,853 3,192 8,736 6,419 
Net income (loss) attributable to EchoStar Corporation common stock$22,403 $33,409 $127,704 $149,223 
Earnings (losses) per share - Class A and B common stock:
Basic$0.27 $0.38 $1.51 $1.64 
Diluted$0.27 $0.38 $1.51 $1.64 

The accompanying notes are an integral part of these Consolidated Financial Statements.
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ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)

For the three months ended September 30,For the nine months ended September 30,
 2022202120222021
Net income (loss)$19,550 $30,217 $118,968 $142,804 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments18,853 (28,692)29,684 (15,414)
Unrealized gains (losses) on available-for-sale securities358 (234)(275)(214)
Other2,660 119 2,660 (4,792)
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities— (5)(12)
Total other comprehensive income (loss), net of tax21,871 (28,812)32,072 (20,432)
Comprehensive income (loss)41,421 1,405 151,040 122,372 
Less: Comprehensive loss (income) attributable to non-controlling interests5,108 8,760 8,427 9,257 
Comprehensive income (loss) attributable to EchoStar Corporation$46,529 $10,165 $159,467 $131,629 






























The accompanying notes are an integral part of these Consolidated Financial Statements.
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ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Amounts in thousands)
(Unaudited)
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Earnings
(Losses)
Treasury
Shares, at cost
Non-controlling
Interests
Total
Balance, June 30, 2021$106 $3,337,190 $(182,226)$699,405 $(343,869)$74,299 $3,584,905 
Issuances of Class A common stock:
Employee Stock Purchase Plan2,4732,473 
Stock-based compensation2,0882,088 
Contribution by non-controlling interest holder— 
Other comprehensive income (loss)(23,244)(5,568)(28,812)
Net income (loss)33,409(3,192)30,217 
Treasury share repurchase(62,426)(62,426)
Balance, September 30, 2021$106 $3,341,751 $(205,470)$732,814 $(406,295)$65,539 $3,528,445 
Balance, June 30, 2022$107 $3,355,238 $(204,465)$761,767 $(514,418)$101,327 $3,499,556 
Issuances of Class A common stock:
Employee benefits— 
Employee Stock Purchase Plan2,1262,126 
Stock-based compensation3,3553,355 
Other comprehensive income (loss)24,126(2,255)21,871 
Net income (loss)22,403(2,853)19,550 
Treasury share repurchase(11,406)(11,406)
Other 500500 
Balance, September 30, 2022$107 $3,361,219 $(180,339)$784,170 $(525,824)$96,219 $3,535,552 
The accompanying notes are an integral part of these Consolidated Financial Statements.
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ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Amounts in thousands)
(Unaudited)
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, 2020$105 $3,321,426 $(187,876)$583,591 $(174,912)$64,916 $3,607,250 
Issuances of Class A common stock:       
Employee benefits7,124 — — — — 7,125 
Employee Stock Purchase Plan— 7,288 — — — — 7,288 
Stock-based compensation— 5,913 — — — — 5,913 
Contribution by non-controlling interest holder— — — — — 9,880 9,880 
Other comprehensive income (loss)— — (17,594)— — (2,838)(20,432)
Net income (loss)— — — 149,223 — (6,419)142,804 
Treasury share repurchase— — — — (231,383)— (231,383)
Balance, September 30, 2021$106 $3,341,751 $(205,470)$732,814 $(406,295)$65,539 $3,528,445 
Balance, December 31, 2021$106 $3,345,878 $(212,102)$656,466 $(436,521)$60,253 $3,414,080 
Issuances of Class A common stock:
Employee benefits7,041 — — — — 7,042 
Employee Stock Purchase Plan— 7,173 — — — — 7,173 
Stock-based compensation— 8,401 — — — — 8,401 
Issuance of equity and contribution of assets pursuant to the India JV formation— (14,090)— — — 44,393 30,303 
Other comprehensive income (loss)— — 31,763 — — 309 32,072 
Net income (loss)— — — 127,704 — (8,736)118,968 
Treasury share repurchase— — — — (89,303)— (89,303)
Consideration received from DISH Network for R&D tax credits utilized— 6,316 — — — — 6,316 
Other — 500 — — — — 500 
Balance, September 30, 2022$107 $3,361,219 $(180,339)$784,170 $(525,824)$96,219 $3,535,552 

The accompanying notes are an integral part of these Consolidated Financial Statements.
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ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 For the nine months ended September 30,
 20222021
Cash flows from operating activities:
Net income (loss)$118,968 $142,804 
Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities:
Depreciation and amortization347,224 368,864 
Impairment of long-lived assets711 245 
Losses (gains) on investments, net(48,071)(112,981)
Equity in losses (earnings) of unconsolidated affiliates, net4,441 2,596 
Foreign currency transaction losses (gains), net53 10,045 
Deferred tax provision (benefit), net28,901 45,950 
Stock-based compensation8,401 5,913 
Amortization of debt issuance costs583 2,192 
Other, net35,609 16,691 
Changes in assets and liabilities, net:
Trade accounts receivable and contract assets, net(63,563)(20,894)
Other current assets, net(26,402)(7,841)
Trade accounts payable657 (15,386)
Contract liabilities(13,759)30,066 
Accrued expenses and other current liabilities(27,004)(103,457)
Non-current assets and non-current liabilities, net(23,432)63,055 
Net cash provided by (used for) operating activities343,317 427,862 
Cash flows from investing activities:
Purchases of marketable investment securities(540,447)(1,452,982)
Sales and maturities of marketable investment securities917,077 2,099,815 
Expenditures for property and equipment(249,374)(352,003)
Expenditures for externally marketed software(16,926)(25,634)
India JV formation(7,892)— 
Dividend received from unconsolidated affiliate2,000 — 
Sale of unconsolidated affiliate7,500 — 
Purchase of other investments— (50,000)
Sales of other investments3,070 10,951 
Net cash provided by (used for) investing activities115,008 230,147 
Cash flows from financing activities:
Repurchase and maturity of the 2021 Senior Unsecured Notes— (901,818)
Payment of finance lease obligations(114)(578)
Payment of in-orbit incentive obligations(2,422)(1,800)
Proceeds from Class A common stock issued under the Employee Stock Purchase Plan7,173 7,288 
Treasury share repurchase(89,303)(229,383)
Contribution by non-controlling interest holder— 9,880 
Other, net— (966)
Net cash provided by (used for) financing activities(84,666)(1,117,377)
Effect of exchange rates on cash and cash equivalents(3,123)(3,114)
Net increase (decrease) in cash and cash equivalents370,536 (462,482)
Cash and cash equivalents, including restricted amounts, beginning of period536,874 896,812 
Cash and cash equivalents, including restricted amounts, end of period$907,410 $434,330 

The accompanying notes are an integral part of these Consolidated Financial Statements.
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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 and has operated as a separately traded public company from DISH Network Corporation (“DISH”) since 2008. 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 broadband satellite technologies, broadband internet services for consumer customers, which include home and small to medium-sized businesses, and satellite services. We also deliver innovative network technologies, managed services and communications solutions for enterprise customers, which include aeronautical and government enterprises. We operate in the following two business segments:
 
Hughes segment — which provides broadband satellite technologies and broadband internet services to domestic and international consumer customers and broadband network technologies, managed services, equipment, hardware, satellite services and communication solutions to service providers and enterprise customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.
Echostar Satellite Services segment (“ESS segment”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provide 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.

Our operations also include various corporate functions (primarily Executive, Treasury, Strategic Development, Human Resources, Information Technology, Finance, Accounting, Real Estate and Legal) and other activities, such as costs incurred in certain satellite development programs and other business development activities, and 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 segment in our segment reporting. 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 15. Segment Reporting for further detail.

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation

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 (“U.S. 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 U.S. 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.

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ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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; (ii) allowances for doubtful accounts; (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) assets and goodwill impairment testing.

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.

Goodwill

We test goodwill for impairment annually in our second fiscal quarter, or more frequently if indicators of impairment exist. All of our goodwill is assigned to our Hughes segment. We conducted our annual impairment test of goodwill during our second fiscal quarter on a qualitative basis and determined that no adjustment to the carrying value of goodwill was then necessary because the fair values exceeded carrying values. During the quarter ended September 30, 2022, we conducted a quantitative interim test of goodwill for all of our reporting units due to continuing decline in our stock price during that period. As a result of our interim test, no goodwill impairment was identified. The fair value of the Hughes reporting unit exceeded the carrying value by more than 10%. We concluded that there were no other indicators of impairment. Given the decline in our stock price during the quarter ended September 30, 2022, we believe it is reasonably possible that a sustained decline in our stock price and market capitalization will result in all or a significant portion of our goodwill becoming impaired. The impairment of goodwill has no effect on liquidity or capital resources. However, it would result in a material non-cash charge and would materially adversely affect our financial results in the period recognized.

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

On January 1, 2021, we adopted Accounting Standard Update (“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.

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ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
In November 2021, the FASB issued ASU 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 Topic 832 disclosure requirements include: (i) the nature of the transactions and the related accounting policy used; (ii) the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item; and (iii) significant terms and conditions of the transactions. Our adoption of this ASU did not have a material impact on our Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), 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, 2022. 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 impact of adopting this new guidance and do not expect it to have a material impact on our Consolidated Financial Statements.

In October 2021, the FASB issued ASU 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 effective for the Company for annual and interim periods in fiscal years beginning after December 15, 2022. Early adoption is permitted. The ASU is applied to business combinations occurring on or after the effective date.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables. The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of adopting this new guidance and we do not expect it to have a material impact on our Consolidated Financial Statements.


















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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
September 30, 2022December 31, 2021
Trade accounts receivable and contract assets, net:
Sales and services$187,675 $154,676 
Leasing7,684 5,668 
Total trade accounts receivable195,359 160,344 
Contract assets64,558 36,307 
Allowance for doubtful accounts(16,234)(14,588)
Total trade accounts receivable and contract assets, net$243,683 $182,063 
Contract liabilities:
Current$127,584 $141,343 
Non-current8,797 10,669 
Total contract liabilities$136,381 $152,012 

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 September 30,For the nine months ended September 30,
2022202120222021
Revenue$6,175 $16,521 $115,974 $81,543 
Contract Acquisition Costs

The following table presents the activity in our contract acquisition costs, net:

For the nine months ended September 30,
20222021
Balance at beginning of period$82,986 $99,837 
Additions45,172 54,701 
Amortization expense(57,822)(66,815)
Foreign currency translation156 (828)
Balance at end of period$70,492 $86,895 

We recognized amortization expenses related to contract acquisition costs of $18.2 million and $21.6 million for the three months ended September 30, 2022 and 2021, respectively.

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(Unaudited)
Performance Obligations

As of September 30, 2022, the remaining performance obligations for our customer contracts with original expected durations of more than one year was $1.0 billion. Performance obligations expected to be satisfied within one year and greater than one year are 38.0% and 62.0%, 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

The following tables present our revenue from customer contracts disaggregated by primary geographic market and by segment:
HughesESSCorporate and OtherConsolidated
Total
For the three months ended September 30, 2022
North America$389,181 $4,981 $2,841 $397,003 
South and Central America40,290 — — 40,290 
Other60,094 — — 60,094 
Total revenue$489,565 $4,981 $2,841 $497,387 
For the three months ended September 30, 2021
North America$412,805 $4,436 $3,278 $420,519 
South and Central America44,898 — — 44,898 
Other39,234 — 39,243 
Total revenue$496,937 $4,436 $3,287 $504,660 
For the nine months ended September 30, 2022
North America$1,187,301 $14,305 $8,413 $1,210,019 
South and Central America125,256 — — 125,256 
Other162,955 — 162,962 
Total revenue$1,475,512 $14,305 $8,420 $1,498,237 
For the nine months ended September 30, 2021
North America$1,216,665 $12,808 $9,163 $1,238,636 
South and Central America134,924 — — 134,924 
Other113,484 — 32 113,516 
Total revenue$1,465,073 $12,808 $9,195 $1,487,076 

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Nature of Products and Services

The following tables present our revenue disaggregated by the nature of products and services and by segment:
HughesESSCorporate and OtherConsolidated
Total
For the three months ended September 30, 2022
Services and other revenue:
Services$383,739 $3,247 $1,606 $388,592 
Lease revenue9,822 1,734 1,234 12,790 
Total services and other revenue393,561 4,981 2,840 401,382 
Equipment revenue:
Equipment33,585 — 33,586 
Design, development and construction services60,605 — — 60,605 
Lease revenue1,814 — — 1,814 
Total equipment revenue96,004 — 96,005 
Total revenue$489,565 $4,981 $2,841 $497,387 
For the three months ended September 30, 2021
Services and other revenue:
Services$415,287 $2,976 $1,749 $420,012 
Lease revenue9,730 1,460 1,537 12,727 
Total services and other revenue425,017 4,436 3,286 432,739 
Equipment revenue:
Equipment24,504 — 24,505 
Design, development and construction services45,025 — — 45,025 
Lease revenue2,391 — — 2,391 
Total equipment revenue71,920 — 71,921 
Total revenue$496,937 $4,436 $3,287 $504,660 



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HughesESSCorporate and OtherConsolidated
Total
For the nine months ended September 30, 2022
Services and other revenue:
Services$1,181,461 $9,343 $4,474 $1,195,278 
Lease revenue30,711 4,962 3,939 39,612 
Total services and other revenue1,212,172 14,305 8,413 1,234,890 
Equipment revenue:
Equipment86,878 — 86,885 
Design, development and construction services172,821 — — 172,821 
Lease revenue3,641 — — 3,641 
Total equipment revenue263,340 — 263,347 
Total revenue$1,475,512 $14,305 $8,420 $1,498,237 
For the nine months ended September 30, 2021
Services and other revenue:
Services$1,242,804 $8,550 $4,578 $1,255,932 
Lease revenue29,554 4,258 4,611 38,423 
Total services and other revenue1,272,358 12,808 9,189 1,294,355 
Equipment revenue:
Equipment84,054 — 84,060 
Design, development and construction services101,718 — — 101,718 
Lease revenue6,943 — — 6,943 
Total equipment revenue192,715 — 192,721 
Total revenue$1,465,073 $12,808 $9,195 $1,487,076 

Lease Revenue

The following table presents our lease revenue by type of lease:
For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Sales-type lease revenue:
Revenue at lease commencement$1,514 $2,220 $2,735 $6,597 
Interest income300 171 906 346 
Total sales-type lease revenue1,814 2,391 3,641 6,943 
Operating lease revenue12,790 12,727 39,612 38,423 
Total lease revenue$14,604 $15,118 $43,253 $45,366 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 4.    BUSINESS COMBINATIONS

In May 2019, we entered into an agreement with Bharti Airtel Limited (“BAL”) and its subsidiary, Bharti Airtel Services Limited (together with BAL, “Bharti”), pursuant to which Bharti agreed to contribute its very small aperture terminal (“VSAT”) telecommunications services and hardware business in India to Hughes Communications India Private Limited (“HCIPL”) and its subsidiaries, our less than wholly owned Indian subsidiaries, that conduct our VSAT services and hardware business in India. On January 4, 2022, this joint venture was formed (the “India JV”) and subsequent to the formation of the India JV, we hold a 67% ownership interest and Bharti holds a 33% ownership interest in HCIPL. The India JV combines the VSAT businesses of both companies to offer flexible and scalable enterprise networking solutions using satellite connectivity for primary transport, back-up and hybrid implementation in India. The results of operations related to the India JV have been included in these Consolidated Financial Statements from the date of formation. The costs associated with the closing of the India JV were not material and were expensed as incurred.

The fair value of the consideration transferred was $38.2 million. Net cash paid was $7.9 million, inclusive of amounts paid for the acquisition of, or of HCIPL shares from, entities that were shareholders of HCIPL prior to closing the India JV.

All assets and liabilities acquired in the India JV formation have been recorded at fair value. The following table presents our preliminary allocation of the purchase price:
Amounts
Assets:
Trade accounts receivable and contract assets, net$6,160 
Other current assets2,085 
Property and equipment4,669 
Goodwill23,086 
Other intangible assets4,428 
Total assets$40,428 
Liabilities:
Trade accounts payable$133 
Accrued expenses and other current liabilities986 
Deferred tax liabilities 1,114 
Total liabilities$2,233 
Total purchase price $38,195 

The preliminary valuation of assets acquired and liabilities assumed in the India JV were derived using primarily unobservable Level 3 inputs, which require significant management judgment and estimation, and resulted in a customer relationship intangible of $4.4 million with an estimated life of 5 years and is reported in Other intangible assets, net.
Goodwill associated with the India JV is attributable to expected synergies, the projected long-term business growth in current and new markets and an assembled workforce. Goodwill has been allocated entirely to our Hughes segment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 5.    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 September 30,For the nine months ended September 30,
 2022202120222021
Net income (loss) attributable to EchoStar Corporation common stock$22,403 $33,409 $127,704 $149,223 
Weighted-average common shares outstanding:
Basic83,140 88,457 84,424 90,986 
Dilutive impact of stock awards outstanding— 55 25 55 
Diluted83,140 88,512 84,449 91,041 
Earnings (losses) per share:
Basic$0.27 $0.38 $1.51 $1.64 
Diluted$0.27 $0.38 $1.51 $1.64 

The following table presents the number of anti-dilutive options to purchase shares of our Class A common stock which have been excluded from the calculation of our weighted-average common shares outstanding:

For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Number of shares6,4434,7666,4184,766

NOTE 6.    MARKETABLE INVESTMENT SECURITIES
 
The following table presents our Marketable investment securities:
 As of
 September 30, 2022December 31, 2021
Marketable investment securities:
Available-for-sale debt securities:
Corporate bonds$227,482 $289,784 
Commercial paper289,046 498,358 
Other debt securities12,917 92,673 
Total available-for-sale debt securities529,445 880,815 
Equity securities147,870 142,943 
Total marketable investment securities, including restricted amounts677,315 1,023,758 
Less: Restricted marketable investment securities(10,411)(13,262)
Total marketable investment securities$666,904 $1,010,496 

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Debt Securities
 
Available-for-Sale 

The following table presents the components of our available-for-sale debt securities:
 AmortizedUnrealizedEstimated
 CostGainsLossesFair Value
As of September 30, 2022    
Corporate bonds$228,094 $48 $(660)$227,482 
Commercial paper289,046 — — 289,046 
Other debt securities13,032 — (115)12,917 
Total available-for-sale debt securities$530,172 $48 $(775)$529,445 
As of December 31, 2021    
Corporate bonds$290,169 $— $(385)$289,784 
Commercial paper498,358 — — 498,358 
Other debt securities92,742 — (69)92,673 
Total available-for-sale debt securities$881,269 $— $(454)$880,815 

The following table presents the activity on our available-for-sale debt securities:

For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Proceeds from sales$— $128,423 $37,904 $390,918 
 
As of September 30, 2022, we have $518.0 million of available-for-sale debt securities with contractual maturities of one year or less and $11.5 million with contractual maturities greater than one year.

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,
2022202120222021
Proceeds from sales$34,121 $546 $34,374 $776 
Gains (losses) on investments, net$18,273 $(1,260)$26,536 $92,841 
 
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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 1Level 2Total
As of September 30, 2022
Cash equivalents (including restricted)$5,580 $819,531 $825,111 
Available-for-sale debt securities:
Corporate bonds$— $227,482 $227,482 
Commercial paper— 289,046 289,046 
Other debt securities10,411 2,506 12,917 
Total available-for-sale debt securities10,411 519,034 529,445 
Equity securities139,000 8,870 147,870 
Total marketable investment securities, including restricted amounts149,411 527,904 677,315 
Less: Restricted marketable investment securities(10,411)— (10,411)
Total marketable investment securities$139,000 $527,904 $666,904 
As of December 31, 2021
Cash equivalents (including restricted)$7,872 $423,123 $430,995 
Available-for-sale debt securities:
Corporate bonds$— $289,784 $289,784 
Commercial paper— 498,358 498,358 
Other debt securities14,274 78,399 92,673 
Total available-for-sale debt securities14,274 866,541 880,815 
Equity securities131,413 11,530 142,943 
Total marketable investment securities, including restricted amounts145,687 878,071 1,023,758 
Less: Restricted marketable investment securities(13,262)— (13,262)
Total marketable investment securities$132,425 $878,071 $1,010,496 

As of September 30, 2022 and December 31, 2021, we did not have any investments that were categorized within Level 3 of the fair value hierarchy.

NOTE 7.    PROPERTY AND EQUIPMENT

The following table presents the components of Property and equipment, net:
As of
September 30, 2022December 31, 2021
Property and equipment, net:
Satellites, net$1,575,202 $1,610,623 
Other property and equipment, net676,056 727,662 
Total property and equipment, net$2,251,258 $2,338,285 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Satellites
 
As of September 30, 2022, our satellite fleet consisted of ten geosynchronous (“GEO”) satellites, seven of which are owned and three of which are leased. They are all in geosynchronous orbit, approximately 22,300 miles above the equator. Our owned S-band low-earth orbit (“LEO”) nano-satellites are not included in the table below.

The following table presents our GEO satellite fleet as of September 30, 2022:

GEO Satellite
Segment
Launch Date
Nominal Degree Orbital Location (Longitude)
Depreciable Life (In Years)
Owned:
    
SPACEWAY 3 (1)
HughesAugust 200795 W10
EchoStar XVIIHughesJuly 2012107 W15
EchoStar XIXHughesDecember 201697.1 W15
Al Yah 3 (2)
HughesJanuary 201820 W7
EchoStar IX (3) (4)
ESSAugust 2003121 W12
EUTELSAT 10A (“W2A”) (5)
Corporate and OtherApril 200910 E-
EchoStar XXICorporate and OtherJune 201710.25 E15
     
Finance leases:
    
Eutelsat 65 West AHughesMarch 201665 W15
Telesat T19VHughesJuly 201863 W15
EchoStar 105/SES-11ESSOctober 2017105 W15
(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 (the “Hughes Acquisition”).
(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. Depreciable life represents the remaining useful life as of November 2019.
(3)    We own the Ka-band and Ku-band payloads on this satellite.
(4)    EchoStar IX is approaching its end of station-kept life. The Company expects to place the satellite in an inclined-orbit in the fourth quarter of 2022 or first quarter of 2023, but this ability is dependent upon events beyond our control and may not occur on schedule if at all. Inclined-orbit will extend its life but impact revenue generating capabilities.
(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, is not fully operational.

The following table presents the components of our satellites, net:
 Depreciable Life (In Years)As of
 September 30, 2022December 31, 2021
Satellites, net:
Satellites - owned
7 to 15
$1,807,256 $1,806,664 
Satellites - acquired under finance leases15357,163 354,170 
Construction in progress593,905 541,422 
Total satellites2,758,324 2,702,256 
Accumulated depreciation:
Satellites - owned(1,068,584)(995,962)
Satellites - acquired under finance leases(114,538)(95,671)
Total accumulated depreciation(1,183,122)(1,091,633)
Total satellites, net$1,575,202 $1,610,623 

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(Unaudited)
The following table presents the depreciation expense associated with our satellites, net:
 For the three months ended September 30,For the nine months ended September 30,
 2022202120222021
Depreciation expense:
Satellites - owned$24,176 $22,775 $72,654 $77,517 
Satellites - acquired under finance leases6,003 7,434 18,127 22,031 
Total depreciation expense$30,179 $30,209 $90,781 $99,548 

The following table presents capitalized interest associated with our satellites and satellite-related ground infrastructure:

For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Capitalized interest$11,130 $9,183 $32,395 $27,473 

Construction in Progress

In August 2017, we entered into a contract for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite. The EchoStar XXIV satellite is primarily intended to provide additional capacity for our HughesNet satellite internet service (the “HughesNet service”) in North, Central and South America as well as enterprise broadband services. Capital expenditures associated with the construction and launch of the EchoStar XXIV satellite are included in Corporate and Other segment in our segment reporting.

Satellite-Related Commitments

As of September 30, 2022 and December 31, 2021 our satellite-related commitments were $257.0 million and $342.2 million, respectively. These include payments pursuant to: i) agreements for the construction of the EchoStar XXIV satellite, ii) the EchoStar XXIV launch contract, iii) regulatory authorizations and 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.

Satellite Anomalies and Impairments
 
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 and nine months ended September 30, 2022.

Fair Value of In-Orbit Incentives

As of September 30, 2022 and December 31, 2021, the fair values of our in-orbit incentive obligations approximated their carrying amounts of $50.8 million and $53.2 million, respectively.

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NOTE 8.    REGULATORY AUTHORIZATIONS

The following table presents our Regulatory authorizations, net:
Finite lived
CostAccumulated AmortizationTotalIndefinite livedTotal
Balance, December 31, 2020$61,381 $(26,639)$34,742 $444,020 $478,762 
Amortization expense— (3,398)(3,398)— (3,398)
Currency translation adjustments(3,254)1,490 (1,764)(2,590)(4,354)
Balance, September 30, 2021$58,127 $(28,547)$29,580 $441,430 $471,010 
Balance, December 31, 2021$57,137 $(29,088)$28,049 $441,717 $469,766 
Amortization expense— (3,129)(3,129)— (3,129)
Currency translation adjustments(5,582)3,636 (1,946)(4,607)(6,553)
Balance, September 30, 2022$51,555 $(28,581)$22,974 $437,110 $460,084 
Weighted-average useful life (in years)13

NOTE 9.    OTHER INVESTMENTS

The following table presents our Other investments, net:
As of
September 30, 2022December 31, 2021
Other investments, net:
Equity method investments$84,785 $91,226 
Other equity investments141,307 91,636 
Other debt investments, net126,686 114,885 
Total other investments, net$352,778 $297,747 

Equity Method Investments

Dish Mexico

During the fourth quarter of 2021, we concluded that our 49% investment in DISH Mexico, S. de R.L. de C.V. and its subsidiaries (“Dish Mexico”), was not recoverable. Subsequently, in August 2022, we effected our exit from this investment. Therefore, in the third quarter of 2022, in conjunction with our exit, we recognized a net loss of $28.3 million, primarily due to the reclassification of accumulated foreign currency translation adjustment losses from Accumulated Other Comprehensive Income (Loss) to Gains (losses) on investments, net in the Statement of Operations.

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.

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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.

Financial Information for Our Equity Method Investments

The following table presents revenue recognized:

For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Deluxe$1,243 $1,315 $3,901 $4,175 
BCS
$2,600 $1,838 $6,321 $5,952 

The following table presents trade accounts receivable:

As of
September 30, 2022December 31, 2021
Deluxe$2,461 $934 
BCS
$6,231 $5,544 

Other Equity Investments

The following table presents the activity on our investments:

For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Gain (loss) on investments, net$— $5,000 $49,888 $21,256 
NOTE 10.    LONG-TERM DEBT

The following table presents the carrying amount and fair values of our Long-term debt, net:
 Effective Interest RateAs of
 September 30, 2022December 31, 2021
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Senior Secured Notes:
5 1/4% Senior Secured Notes due 20265.320%$750,000 $694,253 $750,000 $825,555 
Senior Unsecured Notes:
6 5/8% Senior Unsecured Notes due 20266.688%750,000 688,935 750,000 838,740 
Less: Unamortized debt issuance costs(3,422)— (4,006)— 
Total long-term debt, net$1,496,578 $1,383,188 $1,495,994 $1,664,295 

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(Unaudited)
NOTE 11.    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 $13.2 million for the three months ended September 30, 2022 compared to our income tax provision of $19.7 million for the three months ended September 30, 2021. Our estimated effective income tax rate was 40.3% and 39.5% for the three months ended September 30, 2022 and 2021, respectively. 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. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended September 30, 2021 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 $51.4 million for the nine months ended September 30, 2022 compared to our income tax provision of $63.0 million for the nine months ended September 30, 2021. Our estimated effective income tax rate was 30.2% and 30.6% for the nine months ended September 30, 2022 and 2021, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the nine 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. The variations in our effective tax rate from the U.S. federal statutory rate for the nine months ended September 30, 2021 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.

The Tax Cuts and Jobs Act (“TCJA”) was signed into law December 22, 2017 and included a significant change in the treatment of Research and Development (“R&D”) Expenditures under Section 174. Previously, the qualified amounts were deductible in the year incurred. Beginning in 2022, the amounts must be capitalized and amortized. EchoStar does not expect a material impact in 2022 and continues to evaluate the legislation.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. Among other provisions, the IRA includes a 15% corporate minimum tax rate applied to certain large corporations and a 1% excise tax on corporate stock repurchases made after December 31, 2022. We do not expect the IRA to have a material impact on our consolidated financial statements.

NOTE 12.    RELATED PARTY TRANSACTIONS - DISH NETWORK

Overview

EchoStar Corporation 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 Corporation and DISH is owned beneficially by Charles W. Ergen, our Chairman, and by certain entities established for the benefit of his family.

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.

In September 2019, pursuant to a master transaction agreement (the “Master Transaction Agreement”) with DISH and a wholly-owned subsidiary of DISH (“Merger Sub”), (i) we transferred certain real property and the various
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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 and its subsidiaries (“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) Merger Sub merged with and into BSS Corp. (the “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 0.23523769 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 September 30,For the nine months ended September 30,
2022202120222021
Services and other revenue - DISH Network$7,491 $8,729 $22,940 $26,179 

The following table presents the related trade accounts receivable:
As of
September 30, 2022December 31, 2021
Trade accounts receivable - DISH Network$5,424 $4,244 

Satellite Capacity Leased to DISH Network. Effective January 2008, DISH Network began leasing satellite capacity from us on the EchoStar IX satellite. Subject to availability, DISH Network generally has the right to continue leasing satellite capacity from us on the EchoStar IX satellite on a month-to-month basis.

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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. Effective December 2020, we amended this agreement to extend the license until December 2021. Effective December 2021, we amended this agreement to extend the license until December 2022. This agreement may be terminated by either party upon 180 days’ prior notice. Subsequent to December 2022, this agreement will be converted to a month-to-month lease agreement unless extended by mutual consent or terminated by one of the parties upon 30 days’ 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 2022. After December 2022, this agreement may be converted by mutual consent to a month-to-month lease agreement with either party having the right to terminate upon 30 days’ notice.
 
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.

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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’ 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.

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 September 30,For the nine months ended September 30,
2022202120222021
Operating expenses - DISH Network$1,401 $1,522 $4,070 $4,642 

The following table presents the related trade accounts payable:
As of
September 30, 2022December 31, 2021
Trade accounts payable - DISH Network$432 $503 


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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 term of the Amended and Restated Professional Services Agreement is through January 1, 2023 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.

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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 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 2023 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. 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 $1.8 million and $2.1 million for the three months ended September 30, 2022 and 2021, respectively, and $5.4 million and $5.9 million for the nine months ended September 30, 2022 and 2021, respectively.

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”). In June 2021, we amended the 2019 TT&C Agreement to extend the term until September 2022 and added the option for us to renew the 2019 TT&C Agreement up to an additional three years. In September 2022, we exercised the option to renew the 2019 TT&C Agreement until September 2023. 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.

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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 provide 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.

Other Receivables - DISH Network

The following table presents our other receivables owed from DISH Network:
As of
September 30, 2022December 31, 2021
Other receivables - DISH Network, current$— $12,705 
Other receivables - DISH Network, noncurrent$78,381 $77,920 

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.
 
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”).
 
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
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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 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 0.23523769 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.

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 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
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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.

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 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 13. 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 President of our subsidiary Hughes Communications and a member of our board of directors, 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 September 30, 2022. 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”). 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 of $0.5 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively, and $1.5 million and $1.4 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 we had $0.5 million of trade accounts receivable from TSI.

NOTE 14.    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.

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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 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.

Shareholder Litigation

On July 2, 2019, the City of Hallandale Beach Police Officers’ and Firefighters’ Personnel Retirement Trust, purporting to sue on behalf of a class of EchoStar Corporation’s stockholders, filed a complaint in the District Court of Clark County, Nevada against our directors, Charles W. Ergen, R. Stanton Dodge, Anthony M. Federico, Pradman P. Kaul, C. Michael Schroeder, Jeffrey R. Tarr, William D. Wade, and Michael T. Dugan; our chief financial officer, David J. Rayner; EchoStar Corporation; our subsidiary Hughes Satellite Systems Corporation (“HSSC”); our former subsidiary BSS Corp.; and DISH and its subsidiary Merger Sub. On September 5, 2019, the defendants filed motions to dismiss. On October 11, 2019, the plaintiffs filed an amended complaint removing Messrs. Dodge, Federico, Kaul, Schroeder, Tarr and Wade as defendants. The amended complaint alleges that Mr. Ergen, as our controlling stockholder, breached fiduciary duties to EchoStar Corporation’s minority stockholders by structuring the BSS Transaction with inadequate consideration and improperly influencing our and HSSC’s boards of directors to approve the BSS Transaction. The amended complaint also alleges that the other defendants aided and abetted such alleged breaches. The plaintiffs seek equitable and monetary relief, including the issuance of additional DISH Common Stock, and other costs and disbursements, including attorneys’ fees on behalf of the purported class. On November 11, 2019, we and the other defendants filed separate motions to dismiss plaintiff’s amended complaint and during a hearing on January 13, 2020 the court denied these motions. On February 10, 2020, we and the other defendants filed answers to the amended complaint. The Court certified plaintiff’s class on January 11, 2021. On June 18, 2021, the parties executed a settlement agreement to resolve all claims in this case. On the same day, the parties filed a joint motion for preliminary approval of the settlement agreement. The motion was granted by an order dated July 30, 2021. On December 9, 2021, the Court held a final settlement hearing. On December 10, 2021, the Court issued an Order granting final approval of the settlement agreement. In an order dated October 24, 2022, the Court granted plaintiff’s unopposed motion to approve the class distribution plan.

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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 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 March 31, 2021 and March 31, 2022.

The following table presents the components of the accrual:

As of
September 30, 2022December 31, 2021
Additional license fees$3,481 $3,812 
Penalties3,572 3,912 
Interest and interest on penalties78,294 81,389 
Less: Payments(18,072)(8,451)
Total accrual67,275 80,662 
Less: Current portion10,355 11,178 
Total long-term accrual$56,920 $69,484 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 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.

NOTE 15.    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, 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. 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents total revenue, capital expenditures and EBITDA for each of our business segments:

HughesESSCorporate and OtherConsolidated
Total
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 three months ended September 30, 2021
External revenue$496,937 $4,347 $3,376 $504,660 
Intersegment revenue— 89 (89)— 
Total revenue$496,937 $4,436 $3,287 $504,660 
Capital expenditures$74,259 $— $15,278 $89,537 
EBITDA$196,970 $2,319 $(14,948)$184,341 

HughesESSCorporate and OtherConsolidated
Total
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 
For the nine months ended September 30, 2021
    
External revenue$1,465,073 $12,543 $9,460 $1,487,076 
Intersegment revenue— 265 (265)— 
Total revenue$1,465,073 $12,808 $9,195 $1,487,076 
Capital expenditures$228,641 $— $123,362 $352,003 
EBITDA$605,742 $6,481 $31,845 $644,068 

The following table reconciles Income (loss) before income taxes in the Consolidated Statements of Operations to EBITDA:
 For the three months ended September 30,For the nine months ended September 30,
 2022202120222021
Income (loss) before income taxes$32,745 $49,965 $170,335 $205,851 
Interest income, net(14,183)(5,725)(29,677)(16,914)
Interest expense, net of amounts capitalized13,845 16,313 43,125 79,848 
Depreciation and amortization110,233 120,596 347,224 368,864 
Net loss (income) attributable to non-controlling interests2,853 3,192 8,736 6,419 
EBITDA$145,493 $184,341 $539,743 $644,068 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

NOTE 16.    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
September 30, 2022December 31, 2021
Other current assets, net:
Inventory$115,549 $103,084 
Prepaids and deposits71,585 57,287 
Trade accounts receivable - DISH Network5,424 4,244 
Other receivables - DISH Network— 12,705 
Other, net36,656 21,124 
Total other current assets$229,214 $198,444 
Other non-current assets, net:
Capitalized software, net$117,995 $124,701 
Contract acquisition costs, net70,492 82,986 
Other receivables - DISH Network78,381 77,920 
Restricted marketable investment securities10,411 13,262 
Deferred tax assets, net6,649 5,417 
Restricted cash6,141 980 
Contract fulfillment costs, net1,859 1,721 
Other, net31,483 31,254 
Total other non-current assets, net$323,411 $338,241 

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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
September 30, 2022December 31, 2021
Accrued expenses and other current liabilities:
Accrued compensation$59,694 $63,935 
Operating lease obligation17,389 16,781 
Accrued interest16,553 39,395 
Accrued taxes11,979 11,738 
Accrual for license fee dispute10,355 11,178 
Trade accounts payable - DISH Network432 503 
Other67,211 65,912 
Total accrued expenses and other current liabilities$183,613 $209,442 
Other non-current liabilities:
Accrual for license fee dispute$56,920 $69,484 
Contract liabilities8,797 10,669 
Other54,002 56,273 
Total other non-current liabilities$119,719 $136,426 

Inventory

The following table presents the components of inventory:
 As of
 September 30, 2022December 31, 2021
Raw materials$31,609 $13,778 
Work-in-process13,825 11,705 
Finished goods70,115 77,601 
Total inventory$115,549 $103,084 

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(Unaudited)
Supplemental and Non-cash Investing and Financing Activities

The following table presents the supplemental and non-cash investing and financing activities:
For the nine months ended September 30,
 20222021
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized$66,943 $96,714 
Cash paid for income taxes$32,577 $21,296 
Non-cash investing and financing activities:
Employee benefits paid in Class A common stock$7,042 $7,124 
Increase (decrease) in capital expenditures included in accounts payable, net$(22,146)$2,494 
Non-cash net assets received as part of the India JV formation$36,701 $— 

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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
 
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 broadband satellite technologies and broadband internet products and services for consumer customers, which include home and small to medium-sized businesses, and satellite services and solutions for enterprise customers, which include aeronautical and government enterprises.

We currently operate in two business segments:  Hughes segment and EchoStar Satellite Services segment (“ESS segment”). These segments are consistent with the way we make decisions regarding the allocation of resources, as well as how operating results are reviewed by our chief operating decision maker, who is the Company’s Chief Executive Officer.

Our operations include various corporate functions (primarily Executive, Treasury, Strategic Development, Human Resources, Information Technology, Finance, Accounting, Real Estate and Legal) and other activities, such as costs incurred in certain satellite development programs and other business development activities, and 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 our Corporate and Other segment in our segment reporting.

All amounts presented in this Management’s Discussion and Analysis, unless otherwise noted, are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.

Highlights from our financial results are as follows:
 
Consolidated Results of Operations for the Three Months Ended September 30, 2022:

 Revenue of $497.4 million
Operating income of $47.0 million
Net income of $19.6 million
Net income attributable to EchoStar common stock of $22.4 million and basic and diluted earnings per share of common stock of $0.27
Earnings before interest, taxes, depreciation and amortization, and net income (loss) attributable to non-controlling interests (“EBITDA”) of $145.5 million (see reconciliation of this non-GAAP measure in Results of Operations)



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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Consolidated Financial Condition as of September 30, 2022:

Total assets of $6.1 billion
Total liabilities of $2.6 billion
Total stockholders’ equity of $3.5 billion
Cash and cash equivalents and marketable investment securities of $1.6 billion
 
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 provide 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.
 
Our Hughes segment incorporates advances in technology to reduce costs and to increase the functionality and reliability of our products and services.  Through advanced and proprietary methodologies, technologies, software and techniques, we continue to improve the efficiency of our networks.  We invest in technologies to enhance our system and network management capabilities, specifically our managed services for enterprises.  We also continue to invest in next generation technologies that can be applied to our future products and services.

Our Hughes segment continues to focus its efforts on optimizing financial returns of our existing satellites while planning for new satellite capacity to be launched, leased or acquired. In addition, we are also providing wireline and wireless capacity to utilize in markets that include residential, community WiFi, backhaul, and other enterprise broadband and multi-transport services. 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. 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.

Our Hughes segment currently uses capacity from our owned and leased satellites, including additional satellite capacity leased from third-party providers to provide services to our customers. We also use other multi-transport capacity that includes cable, fiber, 5G, and 4G/LTE. In most areas of the U.S. we are nearing or have reached capacity, which has resulted in our consumer subscriber base becoming increasingly limited. Our Latin America consumer subscriber base in certain areas has also become capacity constrained. These constraints are expected to be addressed by the launch of the EchoStar XXIV satellite.

We test goodwill for impairment annually in our second fiscal quarter, or more frequently if indicators of impairment exist. All of our goodwill is assigned to our Hughes segment. We conducted our annual impairment test of goodwill during our second fiscal quarter on a qualitative basis and determined that no adjustment to the carrying value of goodwill was then necessary because the fair values exceeded carrying values. During the quarter ended September 30, 2022, we conducted a quantitative interim test of goodwill for all of our reporting units due to continuing decline in our stock price during that period. As a result of our interim test, no goodwill impairment was identified. The fair value of the Hughes reporting unit exceeded the carrying value by more than 10%. We concluded that there were no other indicators of impairment. Given the decline in our stock price during the quarter ended September 30, 2022, we believe it is reasonably possible that a sustained decline in our stock price and market capitalization will result in all or a significant portion of our goodwill becoming impaired. The impairment of goodwill has no effect on liquidity or capital resources. However, it would result in a material non-cash charge and would materially adversely affect our financial results in the period recognized.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
To date, we have not experienced a material adverse impact from the Russia-Ukraine conflict and the associated sanctions.

In May 2019, we entered into an agreement with Bharti Airtel Limited (“BAL”) and its subsidiary, Bharti Airtel Services Limited (together with BAL, “Bharti”), pursuant to which Bharti agreed to contribute its very small aperture terminal (“VSAT”) telecommunications services and hardware business in India to Hughes Communications India Private Limited (“HCIPL”) and its subsidiaries, our less than wholly owned Indian subsidiaries, that conduct our VSAT services and hardware business in India. On January 4, 2022, this joint venture was formed (the “India JV”) and subsequent to the formation of the India JV, we hold a 67% ownership interest and Bharti holds a 33% ownership interest in HCIPL. The India JV combines the VSAT businesses of both companies to offer flexible and scalable enterprise networking solutions using satellite connectivity for primary transport, back-up and hybrid implementation in India.

In August 2017, we entered into a long-term contract for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite. The EchoStar XXIV satellite is primarily intended to provide additional capacity for our HughesNet satellite internet service (the “HughesNet service”) in North, Central and South America as well as enterprise broadband services. The EchoStar XXIV satellite is expected to be launched in the first half of 2023. Delay in the availability of the EchoStar XXIV satellite could have a material adverse impact on our business operations, future revenues, financial position and prospects, and our planned expansion of satellite broadband services throughout North, South and Central America. In December 2020, we entered into an agreement with a launch provider for the launch of EchoStar XXIV. Capital expenditures associated with the construction and launch of the EchoStar XXIV satellite are included in our Corporate and Other segment in our segment reporting.

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
September 30, 2022June 30, 2022
United States973,000 1,019,000 
Latin America312,000 327,000 
Total broadband subscribers1,285,000 1,346,000 

The following table presents the approximate number of net subscriber additions:

For the Three Months Ended
September 30, 2022June 30, 2022
United States(46,000)(35,000)
Latin America(15,000)(25,000)
Total net subscriber additions(61,000)(60,000)

Our ability to gain new customers and retain existing customers in the U.S. is being impacted by our capacity limitations as well as competitive pressure from satellite-based competitors and other technologies. These factors resulted in higher churn and lower total subscribers as compared to the three months ended June 30, 2022.

Our ability to gain new customers and retain existing customers in Latin America is also being impacted by adverse economic conditions. In addition, capacity constraints in certain areas, limit our ability to add new subscribers. For the three months ended September 30, 2022, the reduced decline in net subscribers was primarily due to more selective customer screening and improved churn as compared to the three months ended June 30, 2022.

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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 consumer subscribers.

As of September 30, 2022, our Hughes segment had $1.5 billion of contracted revenue backlog, an increase of 13.1%, as compared to December 31, 2021, primarily due to an increase in contracts from our domestic and international customers. We define Hughes segment contracted revenue backlog as our expected future revenue under enterprise customer contracts that are non-cancelable, including lease revenue.

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 continuously make use of our available satellite capacity with existing customers and our ability to enter into commercial relationships with new customers.

As of September 30, 2022, our ESS segment had $15.8 million of contracted revenue backlog, an increase of 52.0%, as compared to December 31, 2021, primarily due to an increase in satellite service contracts with new and existing customers. We define contracted revenue backlog for our ESS segment as contracted future satellite lease revenue.

Other Business Opportunities
 
Our industry continues to evolve with the increasing worldwide demand for broadband internet access for information, entertainment and commerce. In addition to fiber and wireless systems, technologies such as geostationary high throughput satellites, low-earth orbit (“LEO”) networks, medium-earth orbit (“MEO”) systems and multi-transport networks using combinations of technologies are expected to continue to play significant roles in enabling global broadband access, networks and services. We intend to use our expertise, technologies, capital, investments, global presence, relationships and other capabilities to continue to provide broadband internet systems, equipment, networks and services for information, the internet-of-things, entertainment, education, remote-connectivity and commerce across industries and communities globally for consumer and enterprise customers. We are closely tracking the developments in next-generation satellite businesses, and we are seeking to utilize our services, technologies, licenses and expertise to find new commercial opportunities for our business.

We intend to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally, that we believe may allow us to increase our existing market share, increase our satellite capacity, expand into new satellite and other technologies, markets and customers, broaden our portfolio of services, products and intellectual property, make our business more valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our business and relationships with our customers. We may allocate or dispose of significant resources for long-term value that may not have a short or medium-term or any positive impact on our revenue, results of operations, or cash flow.

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S-Band Strategy

We continue to explore the development and deployment of S-band technologies that we expect will reduce the cost of satellite communications for internet-of-things, machine-to-machine communications, public protection, disaster relief and other end-to-end services worldwide and the integration of our products and services into new global, hybrid networks that leverage multiple satellites and terrestrial technologies. We believe we remain in a unique position to develop a hybrid mobile satellite service (“MSS”) and complementary ground component (“CGC”) network in Europe, including through the use of our EchoStar XXI satellite, which was placed into service in November 2017, and the EUTELSAT 10A payload.  In addition, we hold additional S-band MSS and terrestrial licenses in Mexico and Chile.

We have positioned ourselves to continue to develop the S-band spectrum globally by acquiring Sirion Global Pty Ltd., which we have renamed EchoStar Global Australia Pty Ltd (“EchoStar Global”). EchoStar Global has brought into use the International Telecommunication Union (“ITU”) global S-band non-geostationary satellite spectrum rights for MSS. We plan to use the nano-satellite we launched in the second quarter of 2021 to develop and test a wide range of potential S-band applications and services.

Cybersecurity

We and the third parties with whom we do business face a constantly evolving and increasingly complex landscape of systemic cybersecurity risk in which hackers and other parties use a variety of methods to execute cyberattacks and leverage security breaches and vulnerabilities. Our efforts in mitigating these risks through our cybersecurity program cannot eliminate all cybersecurity risk, including the risk of events that cascade through multiple internal networks or systems, or to one or more suppliers or customers. Disturbances in our systems caused by cyberattacks, including attacks on our third-party contractors and suppliers, could materially harm our ability to conduct our operations and may result in losses that could have a material adverse effect on our financial position. This may also create adverse consequences for our suppliers, third-party service providers, customers, and other third parties that we interact with on a regular basis. In addition, these types of security events could be widely publicized and could materially and adversely affect our reputation with our customers, vendors and shareholders and could harm our competitive position. Such incidents could also result in the release of confidential information about our operations, financial position and performance or about our customers or other third parties which could result in legal claims, fines, or liabilities that may not be covered by our insurance policies and could be material. Additionally, a security compromise or ransomware incident could require us to allocate significant management resources to recovery and mitigation and compel us to expend substantial additional resources to upgrade security measures to continue to protect our confidential information against cyberattacks.

In addition to our efforts to mitigate cybersecurity risk within our business, we are making investments to alleviate potential cybersecurity risk to our products. As a result of these efforts, we could discover new vulnerabilities within our products and systems. We may not discover all such vulnerabilities due to the scale of activities on our platforms, or due to other factors, including factors outside our control.

We are not aware of any 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 three and nine months ended September 30, 2022. 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.
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RESULTS OF OPERATIONS

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

The following table presents our consolidated results of operations for the three months ended September 30, 2022 compared to the three months ended September 30, 2021:
For the three months ended September 30,Variance
Statements of Operations Data (1)
20222021Amount%
Revenue:    
Services and other revenue$401,382 $432,739 $(31,357)(7.2)
Equipment revenue96,005 71,921 24,084 33.5 
Total revenue497,387 504,660 (7,273)(1.4)
Costs and expenses:
Cost of sales - services and other145,189 138,179 7,010 5.1 
% of total services and other revenue36.2 %31.9 %
Cost of sales - equipment74,329 62,328 12,001 19.3 
% of total equipment revenue77.4 %86.7 %
Selling, general and administrative expenses111,421 112,986 (1,565)(1.4)
% of total revenue22.4 %22.4 %
Research and development expenses9,181 7,974 1,207 15.1 
% of total revenue1.8 %1.6 %
Depreciation and amortization110,233 120,596 (10,363)(8.6)
Impairment of long-lived assets— — — *
Total costs and expenses450,353 442,063 8,290 1.9 
Operating income (loss)47,034 62,597 (15,563)(24.9)
Other income (expense):
Interest income, net14,183 5,725 8,458 *
Interest expense, net of amounts capitalized(13,845)(16,313)2,468 (15.1)
Gains (losses) on investments, net(10,077)3,748 (13,825)*
Equity in earnings (losses) of unconsolidated affiliates, net(1,426)74 (1,500)*
Foreign currency transaction gains (losses), net(2,805)(6,641)3,836 (57.8)
Other, net(319)775 (1,094)*
Total other income (expense), net(14,289)(12,632)(1,657)13.1 
Income (loss) before income taxes32,745 49,965 (17,220)(34.5)
Income tax benefit (provision), net(13,195)(19,748)6,553 (33.2)
Net income (loss)19,550 30,217 (10,667)(35.3)
Less: Net loss (income) attributable to non-controlling interests2,853 3,192 (339)(10.6)
Net income (loss) attributable to EchoStar Corporation common stock$22,403 $33,409 $(11,006)(32.9)
Other data:
EBITDA (2)
$145,493 $184,341 $(38,848)(21.1)
Subscribers, end of period1,285,000 1,510,000 (225,000)(14.9)
*    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 U.S. 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.

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The following discussion relates to our results of operations for the three months ended September 30, 2022 and 2021.

Services and other revenue.  Services and other revenue totaled $401.4 million for the three months ended September 30, 2022, a decrease of $31.4 million, or 7.2%, as compared to 2021. The decrease was primarily attributable to our Hughes segment related to lower sales of broadband services to our consumer customers. These variances reflect an estimated negative impact of exchange rate fluctuations of $3.2 million, primarily attributable to our enterprise customers.

Equipment revenue.  Equipment revenue totaled $96.0 million for the three months ended September 30, 2022, an increase of $24.1 million, or 33.5%, as compared to 2021. The increase was primarily attributable to increases in hardware sales of $22.6 million to our enterprise customers mainly associated with a certain customer in North America and to international customers.

Cost of sales - services and other.  Cost of sales - services and other totaled $145.2 million for the three months ended September 30, 2022, an increase of $7.0 million, or 5.1%, as compared to 2021. The increase was primarily attributable to increases in cost of services provided to our consumer and enterprise customers, mainly related to service delivery expenses, such as field services and customer care.

Cost of sales - equipment. Cost of sales - equipment totaled $74.3 million for the three months ended September 30, 2022, an increase of $12.0 million, or 19.3%, as compared to 2021. The increase was primarily attributable to the corresponding increase in equipment revenue and change in product mix.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $111.4 million for the three months ended September 30, 2022, a decrease of $1.6 million, or 1.4%, as compared to 2021. The decrease was primarily attributable to decreases in sales and marketing expenses of $7.6 million, offset by increases in other general and administrative expenses of $3.2 million and bad debt expense of $2.1 million.

Depreciation and amortization.  Depreciation and amortization expenses totaled $110.2 million for the three months ended September 30, 2022, a decrease of $10.4 million, or 8.6%, as compared to 2021. The decrease was primarily attributable to decreases in other property and equipment depreciation expense of $12.0 million, partially offset by increases in amortization of our capitalized software of $1.7 million.

Interest income, net.  Interest income, net totaled $14.2 million for the three months ended September 30, 2022, an increase of $8.5 million, as compared to 2021, primarily attributable to increases in the yield on our marketable investment securities.

Interest expense, net of amounts capitalized.  Interest expense, net of amounts capitalized totaled $13.8 million for the three months ended September 30, 2022, a decrease of $2.5 million, or 15.1%, as compared to 2021. The decrease was primarily attributable to an increase of $1.9 million in capitalized interest relating to the EchoStar XXIV satellite program.

Gains (losses) on investments, net.  Gains (losses) on investments, net totaled $10.1 million in losses for the three months ended September 30, 2022, as compared to $3.7 million in gains for the three months ended September 30, 2021, a negative change of $13.8 million. The change was related to a net loss of $28.3 million related to the exit of our investment in Dish Mexico in 2022, partially offset by a loss of $14.2 million in other equity securities in 2021.
 
Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net totaled $1.4 million in losses for the three months ended September 30, 2022, as compared to $0.1 million in earnings for the three months ended September 30, 2021, a negative change of $1.5 million. The change was related to net increased losses from our investments in our equity method investees.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled $2.8 million in losses for the three months ended September 30, 2022, as compared to $6.6 million in losses for the three months ended September 30, 2021, a positive change of $3.8 million. The change was due to the net impact
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of foreign exchange rate fluctuations of certain foreign currencies during the quarter, primarily related to the Indian Rupee and Latin American currencies.

Income tax benefit (provision), net.  Income tax benefit (provision), net was $(13.2) million for the three months ended September 30, 2022, as compared to $(19.7) million for the three months ended September 30, 2021. Our effective income tax rate was 40.3% and 39.5% for the three months ended September 30, 2022 and 2021, respectively. 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. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended September 30, 2021 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. Among other provisions, the IRA includes a 15% corporate minimum tax rate applied to certain large corporations and a 1% excise tax on corporate stock repurchases made after December 31, 2022. We do not expect the IRA to have a material impact on our consolidated financial statements.

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 September 30,2021$33,409 
Increase (decrease) in interest income, net8,458 
Decrease (increase) in income tax benefit (provision), net6,553 
Increase (decrease) in foreign currency transaction gains (losses), net3,836 
Decrease (increase) in interest expense, net of amounts capitalized2,468 
Decrease (increase) in net loss (income) attributable to non-controlling interests(339)
Increase (decrease) in other, net(1,094)
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net(1,500)
Increase (decrease) in gains (losses) on investments, net(13,825)
Increase (decrease) in operating income (loss), including depreciation and amortization(15,563)
Net income (loss) attributable to EchoStar Corporation for the three months ended September 30, 2022$22,403 

EBITDA.  EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items below.  The following table reconciles EBITDA to Net income (loss), the most directly comparable U.S. GAAP measure in our Consolidated Financial Statements:
 For the three months ended September 30,Variance
20222021Amounts%
Net income (loss)$19,550 $30,217 $(10,667)(35.3)
Interest income, net(14,183)(5,725)(8,458)*
Interest expense, net of amounts capitalized13,845 16,313 (2,468)(15.1)
Income tax provision (benefit), net13,195 19,748 (6,553)(33.2)
Depreciation and amortization110,233 120,596 (10,363)(8.6)
Net loss (income) attributable to non-controlling interests2,853 3,192 (339)(10.6)
EBITDA$145,493 $184,341 $(38,848)(21.1)

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The following table reconciles the change in EBITDA:
Amounts
EBITDA for the three months ended September 30, 2021$184,341 
Increase (decrease) in foreign currency transaction gains (losses), net3,836 
Decrease (increase) in net loss (income) attributable to non-controlling interests(339)
Increase (decrease) in other, net(1,094)
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net(1,500)
Increase (decrease) in gains (losses) on investments, net(13,825)
Increase (decrease) in operating income (loss), excluding depreciation and amortization(25,926)
EBITDA for the three months ended September 30, 2022$145,493 

Segment Operating Results and Capital Expenditures

The following tables present our total revenue, capital expenditures and EBITDA by segment for the three months ended September 30, 2022, as compared to the three months ended June 30, 2021:
HughesESSCorporate and OtherConsolidated
Total
For the three months ended September 30, 2022    
Total revenue$489,565 $4,981 $2,841 $497,387 
Capital expenditures50,783 — 10,674 61,457 
EBITDA175,010 3,446 (32,963)145,493 
For the three months ended September 30, 2021
Total revenue$496,937 $4,436 $3,287 $504,660 
Capital expenditures74,259 — 15,278 89,537 
EBITDA196,970 2,319 (14,948)184,341 
 
Hughes Segment
 For the three months ended September 30,Variance
 20222021Amount%
Total revenue$489,565 $496,937 $(7,372)(1.5)
Capital expenditures50,783 74,259 (23,476)(31.6)
EBITDA175,010 196,970 (21,960)(11.1)
 
Total revenue was $489.6 million for the three months ended September 30, 2022, a decrease of $7.4 million, or 1.5%, as compared to 2021.  Services and other revenue decreased primarily due to lower sales of broadband services to our consumer customers. Equipment revenue increased primarily due to increases in hardware sales of $22.6 million to our enterprise customers mainly associated with a certain customer in North America and to international customers. These variances reflect an estimated negative impact of exchange rate fluctuations of $3.8 million, primarily attributable to our enterprise customers.
 
Capital expenditures were $50.8 million for the three months ended September 30, 2022, a decrease of $23.5 million, or 31.6%, as compared to 2021, primarily due to decreases in expenditures related to the construction of our satellite-related ground infrastructure and decreases in expenditures associated with our consumer business.

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The following table reconciles the change in the Hughes Segment EBITDA: 
Amounts
EBITDA for the three months ended September 30, 2021$196,970 
Increase (decrease) in foreign currency transaction gains (losses), net4,263 
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net(189)
Decrease (increase) in net loss (income) attributable to non-controlling interests(338)
Increase (decrease) in other, net(1,013)
Increase (decrease) in operating income (loss), excluding depreciation and amortization(24,683)
EBITDA for the three months ended September 30, 2022$175,010 

ESS Segment
 For the three months ended September 30,Variance
20222021Amounts%
Total revenue$4,981 $4,436 $545 12.3 
EBITDA3,446 2,319 1,127 48.6 

Total revenue was $5.0 million for the three months ended September 30, 2022, an increase of $0.5 million, or 12.3%, as compared to 2021, primarily due to an increase in transponder services provided to third parties.

EBITDA was $3.4 million for the three months ended September 30, 2022, an increase of $1.1 million, or 48.6%, as compared to 2021, primarily due to the increase in overall ESS segment revenue and lower expenses.

Corporate and Other Segment
 For the three months ended September 30,Variance
 20222021Amounts%
Total revenue$2,841 $3,287 $(446)(13.6)
Capital expenditures10,674 15,278 (4,604)(30.1)
EBITDA(32,963)(14,948)(18,015)*
*    Percentage is not meaningful.

Total revenue was $2.8 million for the three months ended September 30, 2022, a decrease of $0.4 million, or 13.6%, as compared to 2021, which was primarily attributable to decreased services and other revenue from DISH Network.

Capital expenditures were $10.7 million for the three months ended September 30, 2022, a decrease of $4.6 million, or 30.1%, as compared to 2021, primarily due to decreases in expenditures related to the EchoStar XXIV satellite program.

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The following table reconciles the change in the Corporate and Other Segment EBITDA:
Amounts
EBITDA for the three months ended September 30, 2021$(14,948)
Increase (decrease) in gains (losses) on investments, net(13,826)
Increase (decrease) in operating income (loss), excluding depreciation and amortization(2,371)
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net(1,311)
Increase (decrease) in foreign currency transaction gains (losses), net(333)
Increase (decrease) in other, net(174)
EBITDA for the three months ended September 30, 2022$(32,963)

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Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

The following table presents our consolidated results of operations for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:
For the nine months ended September 30,Variance
Statements of Operations Data (1)
20222021Amount%
Revenue:    
Services and other revenue$1,234,890 $1,294,355 $(59,465)(4.6)
Equipment revenue263,347 192,721 70,626 36.6 
Total revenue1,498,237 1,487,076 11,161 0.8 
Costs and expenses:
Cost of sales - services and other430,553 410,515 20,038 4.9 
% of total services and other revenue34.9 %31.7 %
Cost of sales - equipment213,497 161,982 51,515 31.8 
% of total equipment revenue81.1 %84.0 %
Selling, general and administrative expenses342,682 341,143 1,539 0.5 
% of total revenue22.9 %22.9 %
Research and development expenses25,562 22,960 2,602 11.3 
% of total revenue1.7 %1.5 %
Depreciation and amortization347,224 368,864 (21,640)(5.9)
Impairment of long-lived assets711 245 466 *
Total costs and expenses1,360,229 1,305,709 54,520 4.2 
Operating income (loss)138,008 181,367 (43,359)(23.9)
Other income (expense):    
Interest income, net29,677 16,914 12,763 75.5 
Interest expense, net of amounts capitalized(43,125)(79,848)36,723 (46.0)
Gains (losses) on investments, net48,071 112,981 (64,910)(57.5)
Equity in earnings (losses) of unconsolidated affiliates, net(4,441)(2,596)(1,845)71.1 
Foreign currency transaction gains (losses), net(53)(10,045)9,992 (99.5)
Other, net2,198 (12,922)15,120 *
Total other income (expense), net32,327 24,484 7,843 32.0 
Income (loss) before income taxes170,335 205,851 (35,516)(17.3)
Income tax benefit (provision), net(51,367)(63,047)11,680 (18.5)
Net income (loss)118,968 142,804 (23,836)(16.7)
Less: Net loss (income) attributable to non-controlling interests8,736 6,419 2,317 36.1 
Net income (loss) attributable to EchoStar Corporation common stock$127,704 $149,223 $(21,519)(14.4)
Other data:
EBITDA (2)
$539,743 $644,068 $(104,325)(16.2)
Subscribers, end of period1,285,000 1,510,000 (225,000)(14.9)
*    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 U.S. generally accepted accounting principles (“U.S. 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.





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The following discussion relates to our results of operations for the nine months ended September 30, 2022 and 2021.

Services and other revenue.  Services and other revenue totaled $1.2 billion for the nine months ended September 30, 2022, a decrease of $59.5 million, or 4.6%, as compared to 2021.  The decrease was primarily attributable to our Hughes segment related to lower sales of broadband services to our consumer customers of $69.6 million due to lower broadband consumer customers, partially offset by higher sales of broadband services to our enterprise customers of $5.9 million and to our mobile satellite system and other customers of $3.5 million. These variances reflect an estimated negative impact of exchange rate fluctuations of $4.5 million, primarily attributable to our enterprise customers.

Equipment revenue.  Equipment revenue totaled $263.3 million for the nine months ended September 30, 2022, an increase of $70.6 million, or 36.6%, as compared to 2021.  The increase was primarily attributable to: i) increases in hardware sales to our enterprise customers of $68.4 million mainly associated with a certain customer in North America and to international customers and ii) increases in hardware sales to our mobile satellite system customers of $5.1 million, partially offset by decreases in hardware sales of $2.8 million to our consumer customers.

Cost of sales - services and other.  Cost of sales - services and other totaled $430.6 million for the nine months ended September 30, 2022, an increase of $20.0 million, or 4.9%, as compared to 2021. The increase was attributable to a non-recurring decrease in a certain international regulatory fee of $4.5 million in 2021 and increases in cost of services provided to our consumer and enterprise customers, mainly related to service delivery expenses, such as field services and customer care.

Cost of sales - equipment.  Cost of sales - equipment totaled $213.5 million for the nine months ended September 30, 2022, an increase of $51.5 million, or 31.8%, as compared to 2021. The increase was primarily attributable to the corresponding increase in equipment revenue and change in product mix.

Selling, general and administrative expenses.  Selling, general and administrative expenses totaled $342.7 million for the nine months ended September 30, 2022, an increase of $1.5 million, or 0.5%, as compared to 2021. The increase was primarily attributable to increases in: i) bad debt expense of $8.4 million primarily due to the recovery of bad debt reserves in 2021 and ii) other general and administrative expenses of $5.9 million, offset by decreases in: i) legal expenses of $4.4 million and ii) sales and marketing expenses of $8.4 million.

Depreciation and amortization.  Depreciation and amortization expenses totaled $347.2 million for the nine months ended September 30, 2022, a decrease of $21.6 million, or 5.9%, as compared to 2021.  The decrease was primarily attributable to (i) decreases in our satellite depreciation of $9.1 million, mainly related to our SPACEWAY 3 satellite which was fully depreciated at the end of the first quarter of 2021, (ii) decreases in amortization of intangibles of $2.2 million, and (iii) decreases in other property and equipment depreciation expense of $17.9 million. These decreases were partially offset by increases in amortization of our capitalized software of $6.5 million.

Interest income, net.  Interest income, net totaled $29.7 million for the nine months ended September 30, 2022, an increase of $12.8 million, or 75.5%, as compared to 2021, primarily attributable to increases in the yield on our marketable investment securities.

Interest expense, net of amounts capitalized.  Interest expense, net of amounts capitalized, totaled $43.1 million for the nine months ended September 30, 2022, a decrease of $36.7 million, or 46.0%, as compared to 2021.  The decrease was primarily attributable to a decrease of $30.8 million in interest expense and the amortization of deferred financing cost as a result of the repurchases and maturity of our 7 5/8% Senior Unsecured Notes due 2021 and an increase of $4.9 million in capitalized interest relating to the EchoStar XXIV satellite program.

Gains (losses) on investments, net.  Gains (losses) on investments, net totaled $48.1 million in gains for the nine months ended September 30, 2022, as compared to $113.0 million in gains for the nine months ended September 30, 2021, a negative change of $64.9 million. The change was related to net decreased gains on marketable investment securities and other equity securities of $33.8 million and a net loss of $28.3 million related to the exit of our investment in Dish Mexico in 2022.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net totaled $4.4 million in losses for the nine months ended September 30, 2022, as compared to $2.6 million in losses for the nine months ended September 30, 2021, a negative change of $1.8 million. The change was related to net increased losses from our investments in our equity method investees.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled $0.1 million in losses for the nine months ended September 30, 2022, as compared to $10.0 million in losses for the nine months ended September 30, 2021, a positive change of $10.0 million. The change was due to the net impact of foreign exchange rate fluctuations of certain foreign currencies during the period, primarily related to the Indian Rupee and Latin American currencies.

Other, net. Other, net totaled $2.2 million in gains for the nine months ended September 30, 2022, as compared to $12.9 million in losses for the nine months ended September 30, 2021, a positive change of $15.1 million. The change was primarily attributable to a litigation expense of $16.8 million in 2021.

Income tax benefit (provision), net.  Income tax benefit (provision), net was $(51.4) million for the nine months ended September 30, 2022, as compared to $(63.0) million for the nine months ended September 30, 2021. Our effective income tax rate was 30.2% and 30.6% for the nine months ended September 30, 2022 and 2021, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the nine 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. The variations in our current year effective tax rate from the U.S. federal statutory rate for the nine months ended September 30, 2021 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. Among other provisions, the IRA includes a 15% corporate minimum tax rate applied to certain large corporations and a 1% excise tax on corporate stock repurchases made after December 31, 2022. We do not expect the IRA to have a material impact on our consolidated financial statements.

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 nine months ended September 30, 2021$149,223 
Decrease (increase) in interest expense, net of amounts capitalized36,723 
Increase (decrease) in other, net15,120 
Increase (decrease) in interest income, net12,763 
Decrease (increase) in income tax benefit (provision), net11,680 
Increase (decrease) in foreign currency transaction gains (losses), net9,992 
Increase (decrease) in net income (loss) attributable to non-controlling interest2,317 
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net(1,845)
Increase (decrease) in operating income (loss), including depreciation and amortization(43,359)
Increase (decrease) in gains (losses) on investments, net(64,910)
Net income (loss) attributable to EchoStar Corporation for the nine months ended September 30, 2022$127,704 

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
EBITDA.  EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items below.  The following table reconciles EBITDA to Net income (loss), the most directly comparable U.S. GAAP measure in our Consolidated Financial Statements:
 For the nine months ended September 30,Variance
 20222021Amount%
Net income (loss)$118,968 $142,804 $(23,836)(16.7)
Interest income, net(29,677)(16,914)(12,763)75.5 
Interest expense, net of amounts capitalized43,125 79,848 (36,723)(46.0)
Income tax provision (benefit), net51,367 63,047 (11,680)(18.5)
Depreciation and amortization347,224 368,864 (21,640)(5.9)
Net loss (income) attributable to non-controlling interests8,736 6,419 2,317 36.1 
EBITDA$539,743 $644,068 $(104,325)(16.2)


The following table reconciles the change in EBITDA:
Amounts
EBITDA for the nine months ended September 30, 2021$644,068 
Increase (decrease) in other, net15,120 
Increase (decrease) in foreign currency transaction gains (losses), net9,992 
Decrease (increase) in net loss (income) attributable to non-controlling interests2,317 
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net(1,845)
Increase (decrease) in gains (losses) on investments, net(64,910)
Increase (decrease) in operating income (loss), excluding depreciation and amortization(64,999)
EBITDA for the nine months ended September 30, 2022$539,743 

Segment Operating Results and Capital Expenditures

The following tables present our total revenue, capital expenditures and EBITDA by segment for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021:
HughesESSCorporate and OtherConsolidated
Total
For the nine months ended September 30, 2022
   
Total revenue$1,475,512 $14,305 $8,420 $1,498,237 
Capital expenditures176,665 — 72,709 249,374 
EBITDA546,108 9,658 (16,023)539,743 
For the nine months ended September 30, 2021
Total revenue$1,465,073 $12,808 $9,195 $1,487,076 
Capital expenditures228,641 — 123,362 352,003 
EBITDA605,742 6,481 31,845 644,068 

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Hughes Segment
 For the nine months ended September 30,Variance
 20222021Amount%
Total revenue$1,475,512 $1,465,073 $10,439 0.7 
Capital expenditures176,665 228,641 (51,976)(22.7)
EBITDA546,108 605,742 (59,634)(9.8)
 
Total revenue was $1.5 billion for the nine months ended September 30, 2022, an increase of $10.4 million, or 0.7%, as compared to 2021.  Services and other revenue decreased primarily due to lower sales of broadband services to our consumer customers of $69.6 million due to lower broadband consumer customers, partially offset by higher sales of broadband services to our enterprise customers of $5.9 million and to our mobile satellite system and other customers of $3.5 million. Equipment revenue increased primarily due to increases in hardware sales to our enterprise customers of $68.4 million mainly associated with a certain customer in North America and to international customers, and increases in hardware sales to our mobile satellite system customers of $5.1 million, partially offset by decreases in hardware sales of $2.8 million to our consumer customers. These variances reflect an estimated negative impact of exchange rate fluctuations of $5.1 million.

Capital expenditures were $176.7 million for the nine months ended September 30, 2022, a decrease of $52.0 million, or 22.7%, as compared to 2021, 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 nine months ended September 30, 2021$605,742 
Increase (decrease) in foreign currency transaction gains (losses), net10,714 
Decrease (increase) in net loss (income) attributable to non-controlling interests2,317 
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net11 
Increase (decrease) in gains (losses) on investments, net(1,883)
Increase (decrease) in other, net(4,303)
Increase (decrease) in operating income (loss), excluding depreciation and amortization(66,490)
EBITDA for the nine months ended September 30, 2022$546,108 

ESS Segment
 For the nine months ended September 30,Variance
 20222021Amount%
Total revenue$14,305 $12,808 $1,497 11.7 
EBITDA9,658 6,481 3,177 49.0 

Total revenue was $14.3 million for the nine months ended September 30, 2022, an increase of $1.5 million, or 11.7%, compared to 2021, primarily due to an increase in transponder services provided to third parties.
 
EBITDA was $9.7 million for the nine months ended September 30, 2022, an increase of $3.2 million, or 49.0%, as compared to 2021, primarily due to the increase in overall ESS segment revenue and lower expenses.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Corporate and Other Segment
 For the nine months ended September 30,Variance
 20222021Amount%
Total revenue$8,420 $9,195 $(775)(8.4)
Capital expenditures72,709 123,362 (50,653)(41.1)
EBITDA(16,023)31,845 (47,868)*

Total revenue was $8.4 million for the nine months ended September 30, 2022, which is primarily flat compared to 2021.

Capital expenditures were $72.7 million for the nine months ended September 30, 2022, a decrease of $50.7 million, as compared to 2021, primarily due to decreases in expenditures related to the EchoStar XXIV satellite program.

The following table reconciles the change in the Corporate and Other Segment EBITDA:
Amounts
EBITDA for the nine months ended September 30, 2021$31,845 
Increase (decrease) in other, net19,425 
Increase (decrease) in foreign currency transaction gains (losses), net(722)
Increase (decrease) in operating income (loss), excluding depreciation and amortization(1,686)
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net(1,858)
Increase (decrease) in gains (losses) on investments, net(63,027)
EBITDA for the nine months ended September 30, 2022$(16,023)
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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 September 30, 2022 our cash, cash equivalents and marketable investment securities totaled $1.6 billion, $0.7 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 nine months ended September 30,Variance
20222021
Operating activities$343,317 $427,862 $(84,545)
Investing activities115,008 230,147 (115,139)
Financing activities(84,666)(1,117,377)1,032,711 
Effect of exchange rates on cash and cash equivalents(3,123)(3,114)(9)
Net increase (decrease) in cash and cash equivalents$370,536 $(462,482)$833,018 

Cash flows provided by (used for) operating activities decreased by $84.5 million primarily attributable to changes in net income (loss) of $(23.8) million, depreciation and amortization of $(21.6) million, gains (losses) on investments, net of $64.9 million, foreign currency translation losses (gains), net of $(10.0) million, deferred tax provision (benefit), net of $(17.0) million, and other, net of $18.9 million and changes in assets and liabilities, net of $(99.0) million.

Cash flows provided by (used for) investing activities decreased by $115.1 million primarily attributable to our marketable investment securities net activity, other investments net activity, a decrease in expenditures for property and equipment, and the India JV formation.

Cash flows provided by (used for) financing activities improved by $1.0 billion primarily attributable the repurchase and maturity of our 7 5/8% Senior Unsecured Notes due 2021 of $901.8 million and due to decreases in treasury share repurchases of $140.1 million.

Obligations and Future Capital Requirements
 
Contractual Obligations

As of September 30, 2022, our satellite-related commitments were $257.0 million. These primarily include payments pursuant to: i) agreements for the construction of the EchoStar XXIV satellite, ii) the EchoStar XXIV launch contract, iii) regulatory authorizations, and 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.

Off-Balance Sheet Arrangements
 
We generally do not engage in off-balance sheet financing activities or use derivative financial instruments for hedge accounting or speculative purposes.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Letters of Credit

The following table presents the components of our letters of credit as of September 30, 2022:
Amounts
Restricted cash$14,837 
Insurance bonds7,305 
Credit arrangement available to our foreign subsidiaries26,939 
Total letters of credit$49,081 

Certain letters of credit are secured by assets of our foreign subsidiaries.

Satellites

As our satellite fleet ages, we will be required to evaluate 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 or to improve the quality of our satellite 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 Al Yah Satellite Communications Company PrJSC (“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. Our satellites and other payloads, either in orbit or under construction, are not covered by launch or in-orbit insurance. 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 continuously make use of our available satellite capacity with 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. 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 September 30, 2022, our total indebtedness was $1.5 billion. Refer to our Form 10-K for a discussion of the terms of our long-term debt. Our liquidity requirements will continue to be significant, primarily due to our remaining debt service requirements. We may from time to time seek to purchase 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 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 2022.

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.


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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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 (the “2022 Authorization”). 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 three and nine months ended September 30, 2022, we repurchased 593,643 and 3,980,612 shares of our Class A common stock for $11.4 million and $89.3 million, respectively under this program. The remaining authorization under the 2022 Authorization was $410.7 million as of September 30, 2022.
CRITICAL ACCOUNTING POLICIES
 
Our critical accounting policies are described in Note 2. Summary of Significant Accounting Policies in 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 associated with fluctuations 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 started to impact our operations in 2021 and 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 will depend primarily on competitive pressures or contractual terms.

The worldwide interruptions and delays in the supply of components, materials and parts, although not materially impacting our operations during the nine months ended September 30, 2022, may impact our ability to timely provide equipment deliveries in the future. These interruptions and delays could also increase the cost of our equipment, which we may not be able to pass onto our customers.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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.

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 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, goodwill, 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 and discount accretion on debt securities.
 
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.
 
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 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.
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Earnings before interest, taxes, depreciation and amortization, and Net income (loss) attributable to non-controlling interests (“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 above. EBITDA should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with U.S. 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.

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 September 30, 2022, our market risk has 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 September 30, 2022 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.
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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings, refer to Part I, Item 1. Financial Statements - Note 14. Contingencies - Litigation in this Form 10-Q.

ITEM 1A.    RISK FACTORS
 
Item 1A, Risk Factors, of our Form 10-K for the year ended December 31, 2021 includes a detailed discussion of our risk factors.

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, 2022. During the year ended December 31, 2021, we repurchased 10,941,872 shares of our Class A common stock.

The following table provides information regarding repurchases of our Class A common stock during the three months ended September 30, 2022:

PeriodTotal Number of Shares (or Units) PurchasedAverage Price Paid Per Share (or Unit)Total Number of Shares (or Units) Purchased as Part of Publicly Disclosed Plans or Program
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased under the Plans or Program (1)
July 1 - 31414,822 $19.15 414,822 $414,194 
August 1 - 31178,821 19.34 178,821 410,736 
September 1 - 30— — — 410,736 
Total593,643 $19.20 593,643 $410,736 
(1) 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. All shares repurchased reflected in the table above have been converted to treasury shares.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.    MINE SAFETY DISCLOSURES
 
Not applicable.

ITEM 5.    OTHER INFORMATION

Financial Results

On November 2, 2022, we issued a press release (the “Press Release”) announcing our financial results for the quarter ended September 30, 2022. 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.
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ITEM 6.    EXHIBITS
 
Exhibit No.Description
 
 
101.INSXBRL 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.
 
(H)    Filed herewith.
(I)    Furnished herewith.
*    Incorporated by reference.
** Constitutes a management contract or compensatory plan or arrangement.

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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.
 
  ECHOSTAR CORPORATION
Date: November 2, 2022By:
/s/ Hamid Akhavan
  Hamid Akhavan
  Chief Executive Officer and President
  (Principal Executive Officer and Principal Financial Officer)
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