EchoStar(SATS) - 2023 Q3 - Quarterly Report

Disclosure Regarding Forward-Looking Statements This section outlines inherent risks and uncertainties in forward-looking statements, especially regarding the pending DISH merger and operational factors - The report contains forward-looking statements based on management's current views and assumptions, which involve potential known and unknown risks and uncertainties[6] - Key risks include those related to the pending merger with DISH Network Corporation, increased leverage post-merger, satellite operations, global business environment changes, third-party provider dependency, cybersecurity incidents, and human capital resources[7][10] Item 1. Financial Statements This section presents EchoStar's consolidated financial statements, including balance sheets, income, comprehensive income, cash flows, and equity changes, with detailed notes Consolidated Balance Sheets The Consolidated Balance Sheets present EchoStar Corporation's financial position as of September 30, 2023 (unaudited) and December 31, 2022 (audited), detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :--------------------------------- | :------------------- | :------------------ | | Assets: | | | | Total current assets | $2,472,937 | $2,125,381 | | Total non-current assets | $3,757,521 | $4,073,622 | | Total assets | $6,230,458 | $6,199,003 | | Liabilities: | | | | Total current liabilities | $396,679 | $422,831 | | Total non-current liabilities | $2,167,991 | $2,177,117 | | Total liabilities | $2,564,670 | $2,599,948 | | Stockholders' Equity: | | | | Total stockholders' equity | $3,665,788 | $3,599,055 | | Total liabilities and stockholders' equity | $6,230,458 | $6,199,003 | Consolidated Statements of Operations The Consolidated Statements of Operations summarize EchoStar Corporation's revenues, costs, and net income (loss) for the three and nine months ended September 30, 2023 and 2022, highlighting a significant decrease in net income Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenue | $413,074 | $497,387 | $1,305,780 | $1,498,237 | | Total costs and expenses | $390,994 | $450,353 | $1,211,080 | $1,360,229 | | Operating income (loss) | $22,080 | $47,034 | $94,700 | $138,008 | | Total other income (expense), net | $(13,001) | $(14,289) | $(18,483) | $32,327 | | Income (loss) before income taxes | $9,079 | $32,745 | $76,217 | $170,335 | | Income tax benefit (provision), net | $(8,547) | $(13,195) | $(38,780) | $(51,367) | | Net income (loss) | $532 | $19,550 | $37,437 | $118,968 | | Net income (loss) attributable to EchoStar Corporation common stock | $3,244 | $22,403 | $43,442 | $127,704 | | Basic EPS | $0.04 | $0.27 | $0.52 | $1.51 | | Diluted EPS | $0.04 | $0.27 | $0.52 | $1.51 | Consolidated Statements of Comprehensive Income (Loss) The Consolidated Statements of Comprehensive Income (Loss) detail the net income (loss) and other comprehensive income (loss) components for the three and nine months ended September 30, 2023 and 2022 Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $532 | $19,550 | $37,437 | $118,968 | | Total other comprehensive income (loss), net of tax | $(9,544) | $21,871 | $12,683 | $32,072 | | Comprehensive income (loss) | $(9,012) | $41,421 | $50,120 | $151,040 | | Comprehensive income (loss) attributable to EchoStar Corporation | $(4,397) | $46,529 | $54,166 | $159,467 | Consolidated Statements of Changes in Stockholders' Equity (Three Months) This statement outlines the changes in EchoStar Corporation's stockholders' equity for the three months ended September 30, 2023 and 2022, reflecting impacts from stock issuance, comprehensive income, and net income Changes in Stockholders' Equity (Three Months Ended September 30, in thousands) | Item | Balance, June 30, 2022 | Balance, Sep 30, 2022 | Balance, June 30, 2023 | Balance, Sep 30, 2023 | | :-------------------------------- | :--------------------- | :-------------------- | :--------------------- | :-------------------- | | Common Stock | $107 | $107 | $107 | $107 | | Additional Paid-in Capital | $3,355,238 | $3,361,219 | $3,379,997 | $3,383,671 | | Accumulated Other Comprehensive Income (Loss) | $(204,465) | $(180,339) | $(153,874) | $(161,515) | | Accumulated Earnings (Losses) | $761,767 | $784,170 | $873,715 | $876,959 | | Treasury Shares, at cost | $(514,418) | $(525,824) | $(525,824) | $(525,824) | | Non-controlling Interests | $101,327 | $96,219 | $97,005 | $92,390 | | Total | $3,499,556 | $3,535,552 | $3,671,126 | $3,665,788 | Consolidated Statements of Changes in Stockholders' Equity (Nine Months) This statement details the changes in EchoStar Corporation's stockholders' equity for the nine months ended September 30, 2023 and 2022, reflecting stock issuances, comprehensive income, net income, and treasury share repurchases Changes in Stockholders' Equity (Nine Months Ended September 30, in thousands) | Item | Balance, Dec 31, 2021 | Balance, Sep 30, 2022 | Balance, Dec 31, 2022 | Balance, Sep 30, 2023 | | :-------------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Common Stock | $106 | $107 | $107 | $107 | | Additional Paid-in Capital | $3,345,878 | $3,361,219 | $3,367,058 | $3,383,671 | | Accumulated Other Comprehensive Income (Loss) | $(212,102) | $(180,339) | $(172,239) | $(161,515) | | Accumulated Earnings (Losses) | $656,466 | $784,170 | $833,517 | $876,959 | | Treasury Shares, at cost | $(436,521) | $(525,824) | $(525,824) | $(525,824) | | Non-controlling Interests | $60,253 | $96,219 | $96,436 | $92,390 | | Total | $3,414,080 | $3,535,552 | $3,599,055 | $3,665,788 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows present the cash generated from or used in operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30, in thousands) | Activity | 2023 | 2022 | | :----------------------------------- | :---------- | :---------- | | Net cash provided by (used for) operating activities | $301,023 | $343,317 | | Net cash provided by (used for) investing activities | $88,857 | $115,008 | | Net cash provided by (used for) financing activities | $(1,518) | $(84,666) | | Effect of exchange rates on cash and cash equivalents | $1,622 | $(3,123) | | Net increase (decrease) in cash and cash equivalents | $389,984 | $370,536 | | Cash and cash equivalents, end of period | $1,095,866 | $907,410 | Notes to the Consolidated Financial Statements The Notes to the Consolidated Financial Statements provide detailed information on EchoStar Corporation's organization, significant accounting policies, revenue recognition, financial instruments, property and equipment, related party transactions, contingencies, segment reporting, and subsequent events, offering crucial context to the financial statements NOTE 1. Organization and Business Activities EchoStar Corporation is a holding company providing networking technologies and services through its Hughes and EchoStar Satellite Services (ESS) segments, with a pending merger with DISH Network Corporation - EchoStar operates in two business segments: Hughes (broadband satellite technologies and internet services) and EchoStar Satellite Services (ESS) (satellite services to government, ISPs, broadcasters, and enterprises)[29][31] - On October 2, 2023, an Amended Merger Agreement was signed for DISH Network to merge into EchoStar's wholly-owned subsidiary, with DISH surviving as a wholly-owned subsidiary of EchoStar[33] - Each share of DISH Class A and C Common Stock will convert into 0.350877 shares of EchoStar Class A Common Stock, and DISH Class B Common Stock into EchoStar Class B Common Stock at the same exchange ratio[33] NOTE 2. Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited consolidated financial statements, the use of estimates, principles of consolidation, and recently adopted and issued accounting pronouncements - Adopted ASU No. 2021-08 (Business Combinations) on January 1, 2023, requiring contract assets and liabilities acquired in a business combination to be recognized and measured per Topic 606[40] - Adopted ASU No. 2021-10 (Government Assistance) on January 1, 2022, requiring disclosures about government assistance received; for the three and nine months ended September 30, 2023, the Company recognized $4.6 million and $12.7 million, respectively, in Services and other revenue from government programs[41] - Upcoming guidance includes ASU No. 2023-05 (Joint Venture Formations) effective January 1, 2025, and ASU No. 2023-01 (Leases - Common Control Arrangements) effective for fiscal years beginning after December 15, 2023, neither of which are expected to have a material impact[43][44] NOTE 3. Revenue Recognition This note details EchoStar's revenue recognition practices, including contract balances, contract acquisition costs, and remaining performance obligations, disaggregating revenue by geographic market and by the nature of products and services for both the Hughes and ESS segments Contract Balances (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------------- | :------------------ | | Total trade accounts receivable and contract assets, net | $235,421 | $236,479 | | Total contract liabilities | $129,287 | $130,065 | - Revenue recognized from contract liabilities was $7.6 million for the three months and $80.2 million for the nine months ended September 30, 2023[47] - Remaining performance obligations for customer contracts totaled approximately $1.2 billion as of September 30, 2023, with 29% expected to be satisfied within one year and 71% greater than one year[50] Total Revenue by Geographic Market (in thousands) | Geographic Market | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America | $333,569 | $397,003 | $1,064,257 | $1,210,019 | | South and Central America | $39,843 | $40,290 | $119,528 | $125,256 | | Other | $39,662 | $60,094 | $121,995 | $162,962 | | Total Revenue | $413,074 | $497,387 | $1,305,780 | $1,498,237 | Total Revenue by Nature of Products and Services (in thousands) | Product/Service Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Services and other revenue | $359,349 | $401,382 | $1,108,386 | $1,234,890 | | Equipment revenue | $53,725 | $96,005 | $197,394 | $263,347 | | Total Revenue | $413,074 | $497,387 | $1,305,780 | $1,498,237 | NOTE 4. Marketable Investment Securities This note details EchoStar's marketable investment securities, comprising available-for-sale debt securities and equity securities, and provides fair value measurements categorized by Level 1 and Level 2 inputs Marketable Investment Securities (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------------- | :------------------ | | Available-for-sale debt securities | $760,157 | $866,181 | | Equity securities | $142,590 | $118,790 | | Total marketable investment securities, including restricted amounts | $902,747 | $984,971 | | Less: Restricted marketable investment securities | $(8,003) | $(11,056) | | Total marketable investment securities | $894,744 | $973,915 | - As of September 30, 2023, $752.4 million of available-for-sale debt securities have contractual maturities of one year or less, and $7.8 million have maturities greater than one year[61] Fair Value Measurements of Marketable Investment Securities (in thousands) | Category | Level 1 (Sep 30, 2023) | Level 2 (Sep 30, 2023) | Total (Sep 30, 2023) | | :----------------------------------- | :--------------------- | :--------------------- | :------------------- | | Cash equivalents (including restricted) | $536 | $984,843 | $985,379 | | Available-for-sale debt securities | $61,212 | $698,945 | $760,157 | | Equity securities | $133,968 | $8,622 | $142,590 | | Total marketable investment securities, including restricted amounts | $195,180 | $707,567 | $902,747 | NOTE 5. Property and Equipment This note details EchoStar's property and equipment, net, primarily focusing on its satellite fleet, the launch of EchoStar XXIV, satellite anomalies, and the company's satellite insurance strategy Property and Equipment, Net (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :-------------------------- | :------------------- | :------------------ | | Satellites, net | $1,506,838 | $1,563,033 | | Other property and equipment, net | $637,869 | $674,584 | | Total property and equipment, net | $2,144,707 | $2,237,617 | - EchoStar's satellite fleet consists of ten GEO satellites (seven owned, three leased) as of September 30, 2023[67] - The EchoStar XXIV satellite was launched in July 2023, reached its orbital position in September 2023, and is expected to begin service in December 2023, providing consumer broadband capacity across North and South America[72] - An impairment charge of $3.1 million was recorded in Q1 2023 for the EG-3 nano-satellite due to lost contact; the estimated useful life of the Al Yah 3 satellite was reduced in Q2 2023 due to technical anomalies, increasing depreciation expense by $7.4 million for the nine-month period[76][77][68] - EchoStar generally does not carry in-orbit insurance on satellites due to cost, but has insurance for the Al Yah 3 Brazilian payload and EchoStar XXIV (launch plus first year of operations)[79][80][81] NOTE 6. Regulatory Authorizations This note presents the components of EchoStar's regulatory authorizations, net, distinguishing between finite-lived and indefinite-lived assets, and details the associated amortization expense Regulatory Authorizations, Net (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :------------------- | :------------------- | :------------------ | | Finite lived | $20,248 | $23,370 | | Indefinite lived | $439,215 | $439,161 | | Total | $459,463 | $462,531 | | Amortization expense (9 months) | $(3,856) | $(3,129) | NOTE 7. Other Investments This note provides details on EchoStar's other investments, including equity method investments, other equity investments, and other debt investments, highlighting an impairment charge for BCS and a loss on an equity investment Other Investments, Net (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :-------------------------- | :------------------- | :------------------ | | Equity method investments | $45,048 | $83,523 | | Other equity investments | $91,407 | $141,307 | | Other debt investments, net | $— | $131,875 | | Total other investments, net | $136,455 | $356,705 | - An impairment charge of $33.4 million was recorded for the investment in Broadband Connectivity Solutions (BCS) during the nine months ended September 30, 2023, due to increased competition and economic environment[87] - A loss of $24.4 million was recorded in Q3 2023 due to a decline in value of an equity investment previously held on a cost-basis method, as its fair value became determinable following a merger[91] - Received full repayment of $148.4 million for other debt investments in April 2023, resulting in a $7.6 million gain[92] NOTE 8. Long-Term Debt This note presents the carrying amount and fair values of EchoStar's long-term debt, which includes Senior Secured Notes and Senior Unsecured Notes, as of September 30, 2023, and December 31, 2022 Long-Term Debt, Net (in thousands) | Debt Type | Effective Interest Rate | Carrying Amount (Sep 30, 2023) | Fair Value (Sep 30, 2023) | Carrying Amount (Dec 31, 2022) | Fair Value (Dec 31, 2022) | | :--------------------------------- | :---------------------- | :----------------------------- | :------------------------ | :----------------------------- | :------------------------ | | 5 1/4% Senior Secured Notes due 2026 | 5.320% | $750,000 | $677,970 | $750,000 | $727,763 | | 6 5/8% Senior Unsecured Notes due 2026 | 6.688% | $750,000 | $642,195 | $750,000 | $707,490 | | Less: Unamortized debt issuance costs | | $(2,604) | — | $(3,223) | — | | Total long-term debt, net | | $1,497,396 | $1,320,165 | $1,496,777 | $1,435,253 | - The estimated fair value of publicly traded debt is primarily based on Level 1 inputs using quoted market values[96] NOTE 9. Income Taxes This note discusses EchoStar's income tax provision and effective tax rates for the three and nine months ended September 30, 2023 and 2022, explaining variations from the U.S. federal statutory rate Income Tax Provision and Effective Tax Rates | Period | Income Tax Provision (in thousands) | Effective Income Tax Rate | | :--------------------------------- | :-------------------------- | :------------------------ | | 3 Months Ended Sep 30, 2023 | $(8,547) | 94.1% | | 3 Months Ended Sep 30, 2022 | $(13,195) | 40.3% | | 9 Months Ended Sep 30, 2023 | $(38,780) | 50.9% | | 9 Months Ended Sep 30, 2022 | $(51,367) | 30.2% | - Variations in the effective tax rate for Q3 2023 were primarily due to excluded investment impairment losses and R&D credits; for Q3 2022, they were due to excluded foreign losses with full valuation allowance and state/local taxes[99] - Variations for the nine months ended September 30, 2023, were primarily due to excluded investment impairment losses and foreign losses with full valuation allowance; for 2022, they were due to excluded foreign losses with full valuation allowance and state/local taxes[100] NOTE 10. Earnings Per Share This note provides the calculation of basic and diluted earnings per share (EPS) for EchoStar's Class A and B common stock for the three and nine months ended September 30, 2023 and 2022, including weighted-average common shares outstanding and the dilutive impact of stock awards Earnings Per Share (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to EchoStar Corporation common stock | $3,244 | $22,403 | $43,442 | $127,704 | | Weighted-average common shares outstanding (Basic) | 83,850 | 83,140 | 83,653 | 84,424 | | Dilutive impact of stock awards outstanding | — | — | 27 | 25 | | Weighted-average common shares outstanding (Diluted) | 83,850 | 83,140 | 83,680 | 84,449 | | Basic EPS | $0.04 | $0.27 | $0.52 | $1.51 | | Diluted EPS | $0.04 | $0.27 | $0.52 | $1.51 | NOTE 11. Related Party Transactions - DISH Network This note details extensive related party transactions between EchoStar and DISH Network, both controlled by Charles W. Ergen, covering various agreements for services, equipment, real estate leases, intellectual property, and the proposed merger - EchoStar and DISH Network are separate publicly-traded companies, but a substantial majority of voting power in both is owned by Charles W. Ergen and his family entities[103] Services and Other Revenue from DISH Network (in thousands) | Period | 2023 | 2022 | | :--------------------------------- | :---------- | :---------- | | 3 Months Ended Sep 30 | $5,991 | $7,491 | | 9 Months Ended Sep 30 | $18,703 | $22,940 | Operating Expenses Related to DISH Network (in thousands) | Period | 2023 | 2022 | | :--------------------------------- | :---------- | :---------- | | 3 Months Ended Sep 30 | $1,910 | $1,401 | | 9 Months Ended Sep 30 | $4,717 | $4,070 | - Key agreements include the Tax Sharing Agreement (governing tax responsibilities post-Spin-off), Master Transaction Agreement (for the BSS Transaction), and Intellectual Property and Technology License Agreements (for shared IP use)[132][137][139][145] NOTE 12. Related Party Transactions - Other This note describes EchoStar's related party transactions with Hughes Systique Corporation, which is consolidated due to EchoStar being the primary beneficiary, and TerreStar Solutions, where DISH Network holds a significant ownership interest - EchoStar contracts with Hughes Systique Corporation for software development services and consolidates its financial statements due to being the primary beneficiary[148] - Revenue from TerreStar Solutions (where DISH Network owns >15%) was $0.5 million for the three months and $1.4 million for the nine months ended September 30, 2023, for equipment and services[149] NOTE 13. Contingencies This note addresses EchoStar's contingencies, including potential liabilities from patents and intellectual property, indemnification arrangements with DISH Network, and general litigation, providing a detailed update on the License Fee Dispute with the Government of India - EchoStar faces risks from patent and intellectual property infringement claims, with potential for substantial damages[151] - Indemnification agreements with DISH Network cover certain liabilities from the 2008 spin-off, Share Exchange, and BSS Transaction[152] - The License Fee Dispute with the Government of India requires annual payments through 2031; as of September 30, 2023, the total accrual was $60.6 million, with a long-term portion of $50.5 million[160][164] - On June 22, 2023, the U.S. Court of Appeals ruled that HCIPL (EchoStar's subsidiary) is entitled to indemnification from DirecTV for the India license fees[162] NOTE 14. Segment Reporting This note presents financial information for EchoStar's two business segments, Hughes and ESS, and the Corporate and Other category, providing total revenue, capital expenditures, and EBITDA for each segment for the three and nine months ended September 30, 2023 and 2022 Segment Financial Performance (3 Months Ended Sep 30, 2023 vs 2022, in thousands) | Segment | Total Revenue (2023) | Total Revenue (2022) | Capital Expenditures (2023) | Capital Expenditures (2022) | EBITDA (2023) | EBITDA (2022) | | :---------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | :-------------- | :-------------- | | Hughes | $404,209 | $489,565 | $51,214 | $50,783 | $142,204 | $175,010 | | ESS | $6,446 | $4,981 | $130 | $— | $4,868 | $3,446 | | Corporate and Other | $2,419 | $2,841 | $27,820 | $10,674 | $(45,812) | $(32,963) | | Consolidated Total | $413,074 | $497,387 | $79,164 | $61,457 | $101,260 | $145,493 | Segment Financial Performance (9 Months Ended Sep 30, 2023 vs 2022, in thousands) | Segment | Total Revenue (2023) | Total Revenue (2022) | Capital Expenditures (2023) | Capital Expenditures (2022) | EBITDA (2023) | EBITDA (2022) | | :---------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | :-------------- | :-------------- | | Hughes | $1,279,739 | $1,475,512 | $142,189 | $176,665 | $440,435 | $546,108 | | ESS | $18,563 | $14,305 | $130 | $— | $14,085 | $9,658 | | Corporate and Other | $7,478 | $8,420 | $29,932 | $72,709 | $(99,979) | $(16,023) | | Consolidated Total | $1,305,780 | $1,498,237 | $172,251 | $249,374 | $354,541 | $539,743 | NOTE 15. Supplemental Financial Information This note provides detailed breakdowns of other current assets, other non-current assets, inventory components, and accrued expenses and other current/non-current liabilities, along with supplemental and non-cash investing and financing activities Other Current Assets, Net (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :-------------------------- | :------------------- | :------------------ | | Inventory | $167,511 | $123,606 | | Prepaids and deposits | $58,865 | $61,877 | | Trade accounts receivable - DISH Network | $7,730 | $3,492 | | Other, net | $14,135 | $21,471 | | Total other current assets | $248,241 | $210,446 | Other Non-Current Assets, Net (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :-------------------------- | :------------------- | :------------------ | | Capitalized software, net | $117,473 | $116,841 | | Contract acquisition costs, net | $53,114 | $64,447 | | Other receivables - DISH Network | $77,751 | $74,923 | | Other receivables, net | $33,340 | $15,072 | | Restricted marketable investment securities | $8,003 | $11,056 | | Deferred tax assets, net | $8,955 | $8,011 | | Restricted cash | $1,335 | $1,342 | | Contract fulfillment costs, net | $1,780 | $1,931 | | Other, net | $24,734 | $23,439 | | Total other non-current assets, net | $326,485 | $317,062 | Accrued Expenses and Other Current Liabilities (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :--------------------------------- | :------------------- | :------------------ | | Accrued compensation | $56,310 | $56,337 | | Accrued expenses | $52,044 | $39,875 | | Operating lease obligation | $17,855 | $17,854 | | Accrued interest | $16,417 | $39,245 | | Accrued taxes | $14,197 | $12,603 | | Accrual for license fee dispute | $10,147 | $10,191 | | In-orbit incentive obligations | $4,737 | $5,369 | | Trade accounts payable - DISH Network | $1,465 | $669 | | Other | $18,928 | $17,710 | | Total accrued expenses and other current liabilities | $192,100 | $199,853 | NOTE 16. Subsequent Events This note details the Amended and Restated Agreement and Plan of Merger with DISH Network, signed on October 2, 2023, outlining the revised merger structure, exchange ratio, and expected closing timeline - On October 2, 2023, EchoStar entered into an Amended and Restated Agreement and Plan of Merger with DISH Network, revising the merger structure[181] - DISH will merge into EchoStar's wholly-owned subsidiary, with DISH surviving as a wholly-owned subsidiary of EchoStar[181] - Each share of DISH Class A and C Common Stock will convert into 0.350877 shares of EchoStar Class A Common Stock, and DISH Class B Common Stock into EchoStar Class B Common Stock at the same exchange ratio[181] - The merger was unanimously approved by EchoStar's board and is expected to close in the fourth calendar quarter of 2023, subject to regulatory approvals[183] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on EchoStar's financial condition and operational results, including segment performance, key metrics, liquidity, and accounting policies Executive Summary The Executive Summary provides an overview of EchoStar's two business segments, Hughes and ESS, details the pending merger with DISH Network, highlights the Hughes segment's focus on optimizing financial returns, and addresses recent satellite anomalies and cybersecurity posture - EchoStar operates in two segments: Hughes (broadband satellite technologies and services) and ESS (satellite services)[185][193][202] - The Amended Merger Agreement with DISH Network will result in DISH becoming a wholly-owned subsidiary of EchoStar, with an exchange ratio of 0.350877 shares of EchoStar Class A Common Stock for each DISH Class A and C Common Stock[189] - The EchoStar XXIV satellite launched in July 2023 and is expected to begin service in December 2023, aiming to increase consumer broadband capacity and generate sales in other markets[195] Broadband Subscribers (in thousands) | Region | September 30, 2023 | June 30, 2023 | | :------------- | :------------------- | :------------ | | United States | 801 | 846 | | Latin America | 262 | 276 | | Total | 1,063 | 1,122 | - Hughes segment's contracted revenue backlog was $1.5 billion as of September 30, 2023, primarily flat compared to December 31, 2022; ESS segment's backlog decreased by 40.8% to $13.2 million[200][203] - An impairment charge of $3.1 million was recorded in Q1 2023 for the EG-3 nano-satellite due to lost contact; the estimated useful life of the Al Yah 3 satellite was reduced in Q2 2023 due to technical anomalies[204][205] Explanation of Key Metrics and Other Items This section defines key financial and operational metrics used in EchoStar's financial reporting, including various revenue and cost categories, operating expenses, interest income/expense, gains/losses on investments, equity in unconsolidated affiliates, foreign currency impacts, and non-GAAP measures like EBITDA and subscriber counts - Services and other revenue primarily includes consumer and enterprise broadband services, maintenance, satellite leases, and professional services[208] - Equipment revenue primarily includes broadband equipment and networks sold to consumer and enterprise markets[209] - EBITDA is a non-GAAP measure 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, used by management to evaluate operating efficiency and financial performance[219] - Subscribers include customers of HughesNet service through retail, wholesale, and small/medium enterprise channels[220] Highlights from Our Financial Results This section provides a concise overview of EchoStar Corporation's consolidated financial performance and condition for the three months ended September 30, 2023 Consolidated Results of Operations (3 Months Ended Sep 30, 2023) | Metric | Amount (in millions) | | :--------------------------------------- | :------------------- | | Revenue | $413.1 | | Operating income | $22.1 | | Net income | $0.5 | | Net income attributable to EchoStar common stock | $3.2 | | Basic and diluted earnings per share | $0.04 | | EBITDA | $101.3 | Consolidated Financial Condition (As of Sep 30, 2023) | Metric | Amount (in billions) | | :--------------------------------------- | :------------------- | | Total assets | $6.2 | | Total liabilities | $2.5 | | Total stockholders' equity | $3.7 | | Cash and cash equivalents and marketable investment securities | $2.0 | Results of Operations (Three Months) EchoStar's consolidated revenue decreased by 17.0% to $413.1 million for the three months ended September 30, 2023, compared to the same period in 2022, driven by lower broadband services and equipment sales; net income attributable to EchoStar common stock significantly declined by 85.5% to $3.2 million, and EBITDA decreased by 30.4% to $101.3 million Consolidated Results of Operations (3 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | Variance Amount | Variance % | | :--------------------------------------- | :---------- | :---------- | :-------------- | :--------- | | Total revenue | $413,074 | $497,387 | $(84,313) | (17.0)% | | Services and other revenue | $359,349 | $401,382 | $(42,033) | (10.5)% | | Equipment revenue | $53,725 | $96,005 | $(42,280) | (44.0)% | | Operating income (loss) | $22,080 | $47,034 | $(24,954) | (53.1)% | | Net income (loss) attributable to EchoStar Corporation common stock | $3,244 | $22,403 | $(19,159) | (85.5)% | | EBITDA | $101,260 | $145,493 | $(44,233) | (30.4)% | - The decrease in services and other revenue was primarily due to lower sales of broadband services to consumer customers ($40.4 million decrease)[226] - Equipment revenue decreased due to lower hardware sales to North American enterprise customers ($27.0 million decrease) and international enterprise customers ($16.0 million decrease)[227] - Interest income, net, increased by $12.0 million (84.8%) due to higher yields and average balances of marketable investment securities[232] - Gains (losses) on investments, net, showed a $0.7 million increase in losses, primarily due to a $24.4 million loss on an equity investment in 2023, compared to a $28.3 million loss on Dish Mexico in 2022[234] - Other, net, increased to an $11.8 million expense, primarily due to transaction costs related to the proposed merger with DISH Network[236] Segment Operating Results (3 Months Ended Sep 30, in thousands) | Segment | Total Revenue (2023) | Total Revenue (2022) | EBITDA (2023) | EBITDA (2022) | | :---------------- | :------------------- | :------------------- | :-------------- | :-------------- | | Hughes | $404,209 | $489,565 | $142,204 | $175,010 | | ESS | $6,446 | $4,981 | $4,868 | $3,446 | | Corporate and Other | $2,419 | $2,841 | $(45,812) | $(32,963) | Results of Operations (Nine Months) For the nine months ended September 30, 2023, EchoStar's consolidated revenue decreased by 12.8% to $1.3 billion, and net income attributable to EchoStar common stock decreased by 66.0% to $43.4 million; EBITDA saw a 34.3% decline to $354.5 million, primarily due to lower broadband service sales, equipment sales, and significant investment impairment losses Consolidated Results of Operations (9 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | Variance Amount | Variance % | | :--------------------------------------- | :---------- | :---------- | :-------------- | :--------- | | Total revenue | $1,305,780 | $1,498,237 | $(192,457) | (12.8)% | | Services and other revenue | $1,108,386 | $1,234,890 | $(126,504) | (10.2)% | | Equipment revenue | $197,394 | $263,347 | $(65,953) | (25.0)% | | Operating income (loss) | $94,700 | $138,008 | $(43,308) | (31.4)% | | Net income (loss) attributable to EchoStar Corporation common stock | $43,442 | $127,704 | $(84,262) | (66.0)% | | EBITDA | $354,541 | $539,743 | $(185,202) | (34.3)% | - Services and other revenue decreased primarily due to lower sales of broadband services to consumer customers ($123.7 million decrease)[252] - Equipment revenue decreased due to lower hardware sales to international enterprise customers ($37.6 million decrease) and North American enterprise customers ($33.8 million net decrease), partially offset by increased sales to mobile satellite system customers ($7.1 million increase)[253] - Interest income, net, increased by $48.7 million due to higher yields and average balances of marketable investment securities[259] - Gains (losses) on investments, net, saw a negative change of $71.4 million, shifting from a $48.1 million gain in 2022 to a $23.3 million loss in 2023, primarily due to a $24.4 million loss on an equity investment in 2023[261] - Other-than-temporary impairment losses on equity method investments totaled $33.4 million in 2023, related to the investment in Broadband Connectivity Solutions (BCS)[264] Segment Operating Results (9 Months Ended Sep 30, in thousands) | Segment | Total Revenue (2023) | Total Revenue (2022) | EBITDA (2023) | EBITDA (2022) | | :---------------- | :------------------- | :------------------- | :-------------- | :-------------- | | Hughes | $1,279,739 | $1,475,512 | $440,435 | $546,108 | | ESS | $18,563 | $14,305 | $14,085 | $9,658 | | Corporate and Other | $7,478 | $8,420 | $(99,979) | $(16,023) | Liquidity and Capital Resources EchoStar's liquidity and capital resources are primarily supported by existing cash, cash equivalents, and marketable investment securities, totaling $2.0 billion as of September 30, 2023; operating cash flows decreased by $42.3 million, while financing activities increased by $83.1 million due to reduced treasury share repurchases; the company has significant outstanding indebtedness of $1.5 billion, and its stock repurchase program is currently suspended due to merger covenants - As of September 30, 2023, cash, cash equivalents, and marketable investment securities totaled $2.0 billion[279] Cash Flow Activities (9 Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | Variance Amount | | :----------------------------------- | :---------- | :---------- | :-------------- | | Operating activities | $301,023 | $343,317 | $(42,294) | | Investing activities | $88,857 | $115,008 | $(26,151) | | Financing activities | $(1,518) | $(84,666) | $83,148 | - Operating cash flows decreased by $42.3 million, primarily due to lower net income, other net expenses, and depreciation, partially offset by investment impairment losses and changes in assets/liabilities[280] - Financing cash flows increased by $83.1 million, primarily due to a decrease in treasury share repurchases ($89.3 million)[282] - Total indebtedness was $1.5 billion as of September 30, 2023; the stock repurchase program is suspended due to interim operating covenants in the Amended Merger Agreement[290][292] Critical Accounting Policies This section states that there have been no significant changes in EchoStar's critical accounting policies from those presented in its most recent Annual Report on Form 10-K - No significant changes in critical accounting policies from the Form 10-K[293] Critical Accounting Estimates This section indicates that there have been no significant changes in EchoStar's critical accounting estimates from those presented in its most recent Annual Report on Form 10-K - No significant changes in critical accounting estimates from the Form 10-K[294] New Accounting Pronouncements This section refers readers to Note 2, 'Summary of Significant Accounting Policies,' for a discussion of new accounting pronouncements relevant to EchoStar Corporation - Refer to Note 2 for a discussion of new accounting pronouncements[295] Seasonality EchoStar's Hughes segment service revenue is generally not significantly affected by seasonal fluctuations, apart from sales and promotional activities; the ESS segment is also generally not impacted by seasonal trends - Hughes segment service revenue is generally not impacted by seasonal fluctuations, except for sales and promotional activities[296] - The ESS segment is generally not affected by seasonal impacts[297] Inflation and Supply Chain EchoStar has experienced increased costs in field services and customer care due to inflation; while supply chain disruptions have not materially impacted operations in the nine months ended September 30, 2023, future interruptions could increase equipment costs, which may not be passed on to customers - Inflation has led to increased costs in field services and customer care[299] - Worldwide supply chain interruptions and delays, though not material in the past nine months, could impact future equipment deliveries and increase costs[300] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that EchoStar's market risks have not materially changed from those presented in its most recent Form 10-K - As of September 30, 2023, EchoStar's market risks have not materially changed from those presented in its Form 10-K[302] Item 4. Controls and Procedures This section addresses the effectiveness of EchoStar's disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures EchoStar's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of September 30, 2023, and concluded they were effective - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023[303] Changes in Internal Control Over Financial Reporting There have been no material changes in EchoStar's internal control over financial reporting during the three months ended September 30, 2023 - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2023[304] Part II - Other Information This section covers various other information, including legal proceedings, updated risk factors, equity security sales, defaults, mine safety disclosures, other information, exhibits, and signatures Item 1. Legal Proceedings This section refers to Note 13, 'Contingencies - Litigation,' in Part I, Item 1 of this Form 10-Q for a comprehensive discussion of EchoStar's legal proceedings - Refer to Note 13. Contingencies - Litigation for a discussion of legal proceedings[307] Item 1A. Risk Factors This section updates the risk factors from the Form 10-K, primarily focusing on risks associated with the pending DISH merger, including business uncertainties, significant expenses, restrictions on alternative transactions, challenges in employee retention, potential lawsuits, market value volatility of common stock, and the conditions for merger completion; post-merger risks include substantially higher leverage, integration difficulties, and continued control by a principal stockholder - The pending merger with DISH Network creates business uncertainties, contractual restrictions, and may divert management attention, potentially adversely affecting EchoStar's business[309][310] - EchoStar expects to incur significant nonrecurring costs related to the merger, including legal, accounting, and financial advisory fees, which may not be offset by benefits[311] - The Amended Merger Agreement restricts EchoStar's ability to pursue alternative acquisition proposals, and the required stockholder vote has already been obtained by Ergen family stockholders[312] - Failure to attract, motivate, and retain key employees during and after the merger could disrupt operations and diminish anticipated benefits[313] - The merger is subject to conditions, including regulatory approvals; failure to complete could adversely affect stock price, business, and financial condition, and incur significant costs[321][322] - Post-merger, EchoStar stockholders will hold equity in a company with substantially higher leverage (combined long-term debt of approximately $22.7 billion) compared to EchoStar's pre-merger leverage[324] - Integration of EchoStar and DISH Network businesses may be complex, costly, and time-consuming, potentially leading to lower revenues, higher costs, and diversion of management time[328][329] - Following the merger, EchoStar will continue to be a 'controlled company' by Charles W. Ergen, who will beneficially own approximately 90.4% of the total voting power for three years[330][331] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds EchoStar did not repurchase any shares of its Class A common stock during the nine months ended September 30, 2023; the existing stock repurchase program is currently suspended due to interim operating covenants in the Amended Merger Agreement - Zero shares of Class A common stock were repurchased during the nine months ended September 30, 2023[334] - The stock repurchase program is suspended due to an interim operating covenant in the Amended Merger Agreement, prohibiting repurchases until the merger's effective time or termination[334] Item 3. Defaults Upon Senior Securities This item is not applicable to EchoStar Corporation for the reporting period - Not applicable[335] Item 4. Mine Safety Disclosures This item is not applicable to EchoStar Corporation for the reporting period - Not applicable[336] Item 5. Other Information EchoStar issued a press release on November 6, 2023, announcing its financial results for the quarter ended September 30, 2023; additionally, no Rule 10b5-1 trading arrangements were adopted, modified, or terminated by the Company's directors or Section 16 officers during the fiscal quarter - A press release announcing Q3 2023 financial results was issued on November 6, 2023[337] - No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or Section 16 officers during the quarter ended September 30, 2023[338] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including the Amended and Restated Agreement and Plan of Merger, related support agreements, and certifications - Key exhibits include the Amended and Restated Agreement and Plan of Merger (Exhibit 2.1), Amendment No. 4 and 5 to the JUPITER 3 Satellite Program contract (Exhibit 10.1, 10.2), Amended and Restated Support Agreement (Exhibit 10.3), and Section 302 and 906 Certifications (Exhibit 31.1, 32.1)[339] Signatures The Form 10-Q is duly signed on November 6, 2023, by Hamid Akhavan, Chief Executive Officer and President (Principal Executive Officer and Principal Financial Officer), and Veronika Takacs, Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) - The Form 10-Q was signed by Hamid Akhavan (CEO and President) and Veronika Takacs (VP, Chief Accounting Officer and Controller) on November 6, 2023[346]