EchoStar Corporation

View:

Download DOC

Download PDF

Download XLS

Download XBRL

sats-20220930

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 SEPTEMBER 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 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.

Table of Contents

TABLE OF CONTENTS


Disclosure Regarding Forward Looking Statements		i

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 (audited)	1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021 (unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended September 30, 2022 and 2021 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2022 and 2021 (unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 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

Table of Contents

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.

Table of Contents

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, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	901,269	$	535,894
Marketable investment securities	666,904		1,010,496
Trade accounts receivable and contract assets, net	243,683		182,063
Other current assets, net	229,214		198,444
Total current assets	2,041,070		1,926,897
Non-current assets:
Property and equipment, net	2,251,258		2,338,285
Operating lease right-of-use assets	147,811		149,198
Goodwill	532,570		511,086
Regulatory authorizations, net	460,084		469,766
Other intangible assets, net	16,323		13,984
Other investments, net	352,778		297,747
Other non-current assets, net	323,411		338,241
Total non-current assets	4,084,235		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 liabilities	127,584		141,343
Accrued expenses and other current liabilities	183,613		209,442
Total current liabilities	406,216		460,123
Non-current liabilities:
Long-term debt, net	1,496,578		1,495,994
Deferred tax liabilities, net	434,043		403,684
Operating lease liabilities	133,197		134,897
Other non-current liabilities	119,719		136,426
Total non-current liabilities	2,183,537		2,171,001
Total liabilities	2,589,753		2,631,124

Commitments and contingencies

The accompanying notes are an integral part of these Consolidated Financial Statements.

Table of Contents

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 capital	3,361,219		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' equity	3,439,333		3,353,827
Non-controlling interests	96,219		60,253
Total stockholders' equity	3,535,552		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.

Table of Contents

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,
	2022		2021		2022		2021
Revenue:
Services and other revenue	$	401,382	$	432,739	$	1,234,890	$	1,294,355
Equipment revenue	96,005		71,921		263,347		192,721
Total revenue	497,387		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 expenses	111,421		112,986		342,682		341,143
Research and development expenses	9,181		7,974		25,562		22,960
Depreciation and amortization	110,233		120,596		347,224		368,864
Impairment of long-lived assets	—		—		711		245
Total costs and expenses	450,353		442,063		1,360,229		1,305,709
Operating income (loss)	47,034		62,597		138,008		181,367
Other income (expense):
Interest income, net	14,183		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 taxes	32,745		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 interests	2,853		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.

Table of Contents

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,
	2022		2021		2022		2021
Net income (loss)	$	19,550	$	30,217	$	118,968	$	142,804
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	18,853		(28,692)		29,684		(15,414)
Unrealized gains (losses) on available-for-sale securities	358		(234)		(275)		(214)
Other	2,660		119		2,660		(4,792)
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities	—		(5)		3		(12)
Total other comprehensive income (loss), net of tax	21,871		(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 interests	5,108		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.

Table of Contents

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 Plan	—		2,473		—		—		—		—		2,473
Stock-based compensation	—		2,088		—		—		—		—		2,088
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 Plan	—		2,126		—		—		—		—		2,126
Stock-based compensation	—		3,355		—		—		—		—		3,355

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	—		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.

Table of Contents

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 benefits	1		7,124		—		—		—		—		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 benefits	1		7,041		—		—		—		—		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.

Table of Contents

ECHOSTAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	For the nine months ended September 30,
	2022		2021
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 amortization	347,224		368,864
Impairment of long-lived assets	711		245
Losses (gains) on investments, net	(48,071)		(112,981)
Equity in losses (earnings) of unconsolidated affiliates, net	4,441		2,596
Foreign currency transaction losses (gains), net	53		10,045
Deferred tax provision (benefit), net	28,901		45,950
Stock-based compensation	8,401		5,913
Amortization of debt issuance costs	583		2,192
Other, net	35,609		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 payable	657		(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 activities	343,317		427,862

Cash flows from investing activities:
Purchases of marketable investment securities	(540,447)		(1,452,982)
Sales and maturities of marketable investment securities	917,077		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 affiliate	2,000		—
Sale of unconsolidated affiliate	7,500		—
Purchase of other investments	—		(50,000)
Sales of other investments	3,070		10,951
Net cash provided by (used for) investing activities	115,008		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 Plan	7,173		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 equivalents	370,536		(462,482)
Cash and cash equivalents, including restricted amounts, beginning of period	536,874		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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

ECHOSTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

NOTE 3. REVENUE RECOGNITION

Contract Balances

The following table presents the components of our contract balances:


	As of
	September 30, 2022		December 31, 2021
Trade accounts receivable and contract assets, net:
Sales and services	$	187,675	$	154,676
Leasing	7,684		5,668
Total trade accounts receivable	195,359		160,344
Contract assets	64,558		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-current	8,797		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,
	2022	2021	2022	2021
Revenue	$