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Table of Contents

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 JUNE 30, 2022.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-33807

EchoStar Corporation

(Exact name of registrant as specified in its charter)

Nevada

26-1232727

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

100 Inverness Terrace East, Englewood, Colorado

80112-5308

(Address of principal executive offices)

(Zip Code)

(303) 706-4000

Not Applicable

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Class A common stock

$0.001 par value

The NASDAQ Stock Market LLC

(Title of each class)

(Name of each exchange on which registered)

SATS

(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 filer

☒

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 28, 2022, the registrant’s outstanding common stock consisted of 35,485,315 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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TABLE OF CONTENTS


Disclosure Regarding Forward Looking Statements		i

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of June 30 , 2022 (unaudited) and December 31, 2021 (audited)	1
	Consolidated Statements of Operations for the three and six months ended June 30 , 2022 and 2021 (unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30 , 2022 and 2021 (unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended June 30 , 2022 and 2021 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30 , 2022 and 2021 (unaudited)	6
	Consolidated Statements of Cash Flows for the six months ended June 3 0 , 2022 and 2021 (unaudited)	7
	Notes to the Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	61
Item 4.	Controls and Procedures	61

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
	Signatures	64

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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
	June 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	991,595	$	535,894
Marketable investment securities	529,854		1,010,496
Trade accounts receivable and contract assets, net	224,016		182,063
Other current assets, net	211,877		198,444
Total current assets	1,957,342		1,926,897
Non-current assets:
Property and equipment, net	2,312,526		2,338,285
Operating lease right-of-use assets	151,967		149,198
Goodwill	533,505		511,086
Regulatory authorizations, net	464,523		469,766
Other intangible assets, net	17,018		13,984
Other investments, net	352,078		297,747
Other non-current assets, net	329,564		338,241
Total non-current assets	4,161,181		4,118,307
Total assets	$	6,118,523	$	6,045,204

Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable	$	103,680	$	109,338
Contract liabilities	134,856		141,343
Accrued expenses and other current liabilities	195,827		209,442
Total current liabilities	434,363		460,123
Non-current liabilities:
Long-term debt, net	1,496,379		1,495,994
Deferred tax liabilities, net	428,600		403,684
Operating lease liabilities	137,446		134,897
Other non-current liabilities	122,179		136,426
Total non-current liabilities	2,184,604		2,171,001
Total liabilities	2,618,967		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 June 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, 58,604,747 shares issued and 35,885,079 shares outstanding at June 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 June 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 June 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 June 30, 2022 and December 31, 2021	—		—
Additional paid-in capital	3,355,238		3,345,878
Accumulated other comprehensive income (loss)	(204,465)		(212,102)
Accumulated earnings (losses)	761,767		656,466
Treasury shares, at cost	(514,418)		(436,521)
Total EchoStar Corporation stockholders' equity	3,398,229		3,353,827
Non-controlling interests	101,327		60,253
Total stockholders' equity	3,499,556		3,414,080
Total liabilities and stockholders' equity	$	6,118,523	$	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 June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Revenue:
Services and other revenue	$	414,697	$	431,279	$	833,508	$	861,616
Equipment revenue	84,619		68,555		167,342		120,800
Total revenue	499,316		499,834		1,000,850		982,416
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	144,235		139,547		285,364		272,336
Cost of sales - equipment (exclusive of depreciation and amortization)	70,054		54,503		139,168		99,654
Selling, general and administrative expenses	113,091		114,038		231,261		228,157
Research and development expenses	8,764		7,441		16,381		14,986
Depreciation and amortization	116,555		118,982		236,991		248,268
Impairment of long-lived assets	711		15		711		245
Total costs and expenses	453,410		434,526		909,876		863,646
Operating income (loss)	45,906		65,308		90,974		118,770
Other income (expense):
Interest income, net	9,072		5,240		15,494		11,189
Interest expense, net of amounts capitalized	(14,307)		(28,868)		(29,280)		(63,535)
Gains (losses) on investments, net	(22,538)		30,633		58,148		109,233
Equity in earnings (losses) of unconsolidated affiliates, net	(1,301)		(4,044)		(3,015)		(2,670)
Foreign currency transaction gains (losses), net	(3,642)		665		2,752		(3,404)
Other, net	2,673		(12,767)		2,517		(13,697)
Total other income (expense), net	(30,043)		(9,141)		46,616		37,116
Income (loss) before income taxes	15,863		56,167		137,590		155,886
Income tax benefit (provision), net	(5,390)		(21,152)		(38,172)		(43,299)
Net income (loss)	10,473		35,015		99,418		112,587
Less: Net loss (income) attributable to non-controlling interests	3,395		2,280		5,883		3,227
Net income (loss) attributable to EchoStar Corporation common stock	$	13,868	$	37,295	$	105,301	$	115,814

Earnings (losses) per share - Class A and B common stock:
Basic	$	0.16	$	0.41	$	1.24	$	1.26
Diluted	$	0.16	$	0.41	$	1.24	$	1.25

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 June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Net income (loss)	$	10,473	$	35,015	$	99,418	$	112,587
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(38,114)		39,475		10,831		13,278
Unrealized gains (losses) on available-for-sale securities	(66)		106		(633)		20
Other	—		2,009		—		(4,911)
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities	3		—		3		(7)
Total other comprehensive income (loss), net of tax	(38,177)		41,590		10,201		8,380
Comprehensive income (loss)	(27,704)		76,605		109,619		120,967
Less: Comprehensive loss (income) attributable to non-controlling interests	10,387		(6,060)		3,319		497
Comprehensive income (loss) attributable to EchoStar Corporation	$	(17,317)	$	70,545	$	112,938	$	121,464

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 JUNE 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, March 31, 2021	$	106	$	3,333,047	$	(215,476)	$	662,110	$	(285,681)	$	63,759	$	3,557,865
Issuances of Class A common stock:
Employee Stock Purchase Plan	—		2,329		—		—		—		—		2,329
Stock-based compensation	—		1,814		—		—		—		—		1,814
Contribution by non-controlling interest holder	—		—		—		—		—		4,480		4,480
Other comprehensive income (loss)	—		—		33,250		—		—		8,340		41,590
Net income (loss)	—		—		—		37,295		—		(2,280)		35,015
Treasury share repurchase	—		—		—		—		(58,188)		—		(58,188)
Balance, June 30, 2021	$	106	$	3,337,190	$	(182,226)	$	699,405	$	(343,869)	$	74,299	$	3,584,905

Balance, March 31, 2022	$	106	$	3,343,056	$	(173,280)	$	747,899	$	(471,582)	$	111,714	$	3,557,913
Issuances of Class A common stock:
Employee benefits	1		—		—		—		—		—		1
Employee Stock Purchase Plan	—		2,679		—		—		—		—		2,679
Stock-based compensation	—		3,187		—		—		—		—		3,187

Other comprehensive income (loss)	—		—		(31,185)		—		—		(6,992)		(38,177)
Net income (loss)	—		—		—		13,868		—		(3,395)		10,473
Treasury share repurchase	—		—		—		—		(42,836)		—		(42,836)
Consideration received from DISH Network for R&D tax credits utilized	—		6,316		—		—		—		—		6,316
Balance, June 30, 2022	$	107	$	3,355,238	$	(204,465)	$	761,767	$	(514,418)	$	101,327	$	3,499,556

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 SIX MONTHS ENDED JUNE 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 benefits	1		7,124		—		—		—		—		7,125
Employee Stock Purchase Plan	—		4,815		—		—		—		—		4,815
Stock-based compensation	—		3,825		—		—		—		—		3,825
Contribution by non-controlling interest holder	—		—		—		—		—		9,880		9,880
Other comprehensive income (loss)	—		—		5,650		—		—		2,730		8,380
Net income (loss)	—		—		—		115,814		—		(3,227)		112,587
Treasury share repurchase	—		—		—		—		(168,957)		—		(168,957)
Balance, June 30, 2021	$	106	$	3,337,190	$	(182,226)	$	699,405	$	(343,869)	$	74,299	$	3,584,905

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 benefits	1		7,041		—		—		—		—		7,042
Employee Stock Purchase Plan	—		5,046		—		—		—		—		5,046
Stock-based compensation	—		5,047		—		—		—		—		5,047
Issuance of equity and contribution of assets pursuant to the India JV formation	—		(14,090)		—		—		—		44,393		30,303
Other comprehensive income (loss)	—		—		7,637		—		—		2,564		10,201
Net income (loss)	—		—		—		105,301		—		(5,883)		99,418
Treasury share repurchase	—		—		—		—		(77,897)		—		(77,897)
Consideration received from DISH Network for R&D tax credits utilized	—		6,316		—		—		—		—		6,316
Balance, June 30, 2022	$	107	$	3,355,238	$	(204,465)	$	761,767	$	(514,418)	$	101,327	$	3,499,556

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 six months ended June 30,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	99,418	$	112,587
Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities:
Depreciation and amortization	236,991		248,268
Impairment of long-lived assets	711		245
Losses (gains) on investments, net	(58,148)		(109,233)
Equity in losses (earnings) of unconsolidated affiliates, net	3,015		2,670
Foreign currency transaction losses (gains), net	(2,752)		3,404
Deferred tax provision (benefit), net	24,412		34,024
Stock-based compensation	5,047		3,825
Amortization of debt issuance costs	386		2,008
Other, net	27,397		6,198
Changes in assets and liabilities, net:
Trade accounts receivable and contract assets, net	(39,271)		(3,363)
Other current assets, net	(6,113)		(1,120)
Trade accounts payable	1,793		(9,631)
Contract liabilities	(6,487)		23,251
Accrued expenses and other current liabilities	(10,119)		621
Non-current assets and non-current liabilities, net	(24,648)		(5,114)
Net cash provided by (used for) operating activities	251,632		308,640

Cash flows from investing activities:
Purchases of marketable investment securities	(183,529)		(939,255)
Sales and maturities of marketable investment securities	669,600		1,824,332
Expenditures for property and equipment	(187,917)		(262,466)
Expenditures for externally marketed software	(11,967)		(16,835)
India JV formation	(7,892)		—
Dividend received from unconsolidated affiliate	2,000		—
Purchase of other investments	—		(50,000)
Sales of other investments	—		10,516
Net cash provided by (used for) investing activities	280,295		566,292

Cash flows from financing activities:
Repurchase and maturity of the 2021 Senior Unsecured Notes	—		(901,818)
Payment of finance lease obligations	(114)		(476)
Payment of in-orbit incentive obligations	(1,908)		(1,431)
Proceeds from Class A common stock issued under the Employee Stock Purchase Plan	5,046		4,815
Treasury share repurchase	(77,095)		(163,822)
Contribution by non-controlling interest holder	—		9,880
Other, net	—		(966)
Net cash provided by (used for) financing activities	(74,071)		(1,053,818)

Effect of exchange rates on cash and cash equivalents	(728)		(443)
Net increase (decrease) in cash and cash equivalents	457,128		(179,329)
Cash and cash equivalents, including restricted amounts, beginning of period	536,874		896,812
Cash and cash equivalents, including restricted amounts, end of period	$	994,002	$	717,483

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) asset 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.

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.

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.

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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.

NOTE 3. REVENUE RECOGNITION

Contract Balances

The following table presents the components of our contract balances:


	As of
	June 30, 2022		December 31, 2021
Trade accounts receivable and contract assets, net:
Sales and services	$	178,114	$	154,676
Leasing	5,593		5,668
Total trade accounts receivable	183,707		160,344
Contract assets	57,413		36,307
Allowance for doubtful accounts	(17,104)		(14,588)
Total trade accounts receivable and contract assets, net	$	224,016	$	182,063

Contract liabilities:
Current	$	134,856	$	141,343
Non-current	9,922		10,669
Total contract liabilities	$	144,778	$	152,012

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The following table presents the revenue recognized in the Consolidated Statements of Operations that was previously included within contract liabilities:


	For the three months ended June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Revenue	$	20,852	$	1,941	$	109,799	$	65,022

Contract Acquisition Costs

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


	For the six months ended June 30,
	2022		2021
Balance at beginning of period	$	82,986	$	99,837
Additions	30,645		37,408
Amortization expense	(39,653)