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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTERLY PERIOD ENDED MARCH 31, 2023.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
Commission File Number: 001-33807
EchoStar Corporation
(Exact name of registrant as specified in its charter) | | | | | | | | | | | | | | |
Nevada | | 26-1232727 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
100 Inverness Terrace East, | Englewood, | Colorado | | 80112-5308 |
(Address of principal executive offices) | | (Zip Code) |
| | | | |
(303) | 706-4000 | | | Not Applicable |
(Registrant’s telephone number, including area code) | | (Former name, former address and former fiscal year, if changed since last report) |
| | | | |
Securities registered pursuant to Section 12(b) of the Act: | | |
Class A common stock | $0.001 par value | | The NASDAQ Stock Market LLC |
(Title of each class) | | (Name of each exchange on which registered) |
SATS | | |
(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 April 26, 2023, the registrant’s outstanding common stock consisted of 36,090,106 shares of Class A common stock and 47,687,039 shares of Class B common stock, each $0.001 par value.
TABLE OF CONTENTS
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| PART I - FINANCIAL INFORMATION | |
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Item 1. | Financial Statements | |
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| Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022 (unaudited) | |
| Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited) | |
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Item 4. | Controls and Procedures | |
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| PART II - OTHER INFORMATION | |
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Item 5. | Other Information | |
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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, including supply chain disruptions and inflation;
•risks related to cybersecurity incidents; and
•risks related to our human capital resources.
Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption Risk Factors in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Form 10-Q and in Part II, Item 7 of our Form 10-K and those discussed in other documents we file with the SEC.
All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described herein and should not place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievements. We do not assume responsibility for the accuracy and completeness of any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in any documents we file with the SEC, except as required by law.
Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECHOSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
| | (unaudited) | | |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 920,105 | | | $ | 704,541 | |
Marketable investment securities | | 755,169 | | | 973,915 | |
Trade accounts receivable and contract assets, net | | 251,871 | | | 236,479 | |
Other current assets, net | | 252,596 | | | 210,446 | |
Total current assets | | 2,179,741 | | | 2,125,381 | |
Non-current assets: | | | | |
Property and equipment, net | | 2,175,861 | | | 2,237,617 | |
Operating lease right-of-use assets | | 147,707 | | | 151,518 | |
Goodwill | | 532,858 | | | 532,491 | |
Regulatory authorizations, net | | 461,556 | | | 462,531 | |
Other intangible assets, net | | 15,151 | | | 15,698 | |
Other investments, net | | 364,954 | | | 356,705 | |
Other non-current assets, net | | 315,960 | | | 317,062 | |
Total non-current assets | | 4,014,047 | | | 4,073,622 | |
Total assets | | $ | 6,193,788 | | | $ | 6,199,003 | |
| | | | |
Liabilities and Stockholders' Equity | | | | |
Current liabilities: | | | | |
Trade accounts payable | | $ | 85,772 | | | $ | 101,239 | |
Contract liabilities | | 129,292 | | | 121,739 | |
Accrued expenses and other current liabilities | | 163,109 | | | 199,853 | |
Total current liabilities | | 378,173 | | | 422,831 | |
Non-current liabilities: | | | | |
Long-term debt, net | | 1,496,981 | | | 1,496,777 | |
Deferred tax liabilities, net | | 430,957 | | | 424,621 | |
Operating lease liabilities | | 131,881 | | | 135,932 | |
Other non-current liabilities | | 112,534 | | | 119,787 | |
Total non-current liabilities | | 2,172,353 | | | 2,177,117 | |
Total liabilities | | 2,550,526 | | | 2,599,948 | |
| | | | |
Commitments and contingencies | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
1
ECHOSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
| | | | | | | | | | | | | | |
Stockholders' equity: | | | | |
Preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding at both March 31, 2023 and December 31, 2022 | | — | | | — | |
Common stock, $0.001 par value, 4,000,000,000 shares authorized: | | | | |
Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 59,303,237 shares issued and 35,989,926 shares outstanding at March 31, 2023 and 58,604,927 shares issued and 35,291,616 shares outstanding at December 31, 2022 | | 59 | | | 59 | |
Class B convertible common stock, $0.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at both March 31, 2023 and December 31, 2022 | | 48 | | | 48 | |
Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both March 31, 2023 and December 31, 2022 | | — | | | — | |
Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both March 31, 2023 and December 31, 2022 | | — | | | — | |
Additional paid-in capital | | 3,376,169 | | | 3,367,058 | |
Accumulated other comprehensive income (loss) | | (166,931) | | | (172,239) | |
Accumulated earnings (losses) | | 862,558 | | | 833,517 | |
Treasury shares, at cost, 23,313,311 shares at both March 31, 2023 and December 31, 2022 | | (525,824) | | | (525,824) | |
Total EchoStar Corporation stockholders' equity | | 3,546,079 | | | 3,502,619 | |
Non-controlling interests | | 97,183 | | | 96,436 | |
Total stockholders' equity | | 3,643,262 | | | 3,599,055 | |
Total liabilities and stockholders' equity | | $ | 6,193,788 | | | $ | 6,199,003 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
2
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | | |
| | 2023 | | 2022 | | | | | | |
Revenue: | | | | | | | | | | |
Services and other revenue | | $ | 377,527 | | | $ | 418,811 | | | | | | | |
Equipment revenue | | 62,070 | | | 82,723 | | | | | | | |
Total revenue | | 439,597 | | | 501,534 | | | | | | | |
Costs and expenses: | | | | | | | | | | |
Cost of sales - services and other (exclusive of depreciation and amortization) | | 135,372 | | | 141,129 | | | | | | | |
Cost of sales - equipment (exclusive of depreciation and amortization) | | 51,662 | | | 69,114 | | | | | | | |
Selling, general and administrative expenses | | 110,061 | | | 118,170 | | | | | | | |
Research and development expenses | | 8,255 | | | 7,617 | | | | | | | |
Depreciation and amortization | | 102,858 | | | 120,436 | | | | | | | |
Impairment of long-lived assets | | 3,142 | | | — | | | | | | | |
Total costs and expenses | | 411,350 | | | 456,466 | | | | | | | |
Operating income (loss) | | 28,247 | | | 45,068 | | | | | | | |
Other income (expense): | | | | | | | | | | |
Interest income, net | | 28,596 | | | 6,422 | | | | | | | |
Interest expense, net of amounts capitalized | | (13,286) | | | (14,973) | | | | | | | |
Gains (losses) on investments, net | | (7,109) | | | 80,686 | | | | | | | |
Equity in earnings (losses) of unconsolidated affiliates, net | | (551) | | | (1,714) | | | | | | | |
Foreign currency transaction gains (losses), net | | 3,313 | | | 6,394 | | | | | | | |
| | | | | | | | | | |
Other, net | | 70 | | | (156) | | | | | | | |
Total other income (expense), net | | 11,033 | | | 76,659 | | | | | | | |
Income (loss) before income taxes | | 39,280 | | | 121,727 | | | | | | | |
Income tax benefit (provision), net | | (11,460) | | | (32,782) | | | | | | | |
Net income (loss) | | 27,820 | | | 88,945 | | | | | | | |
Less: Net loss (income) attributable to non-controlling interests | | 1,221 | | | 2,488 | | | | | | | |
Net income (loss) attributable to EchoStar Corporation common stock | | $ | 29,041 | | | $ | 91,433 | | | | | | | |
| | | | | | | | | | |
Earnings (losses) per share - Class A and B common stock: | | | | | | | | | | |
Basic | | $ | 0.35 | | | $ | 1.07 | | | | | | | |
Diluted | | $ | 0.35 | | | $ | 1.06 | | | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2023 | | 2022 |
Net income (loss) | | $ | 27,820 | | | $ | 88,945 | |
Other comprehensive income (loss), net of tax: | | | | |
Foreign currency translation adjustments | | 7,491 | | | 48,945 | |
Unrealized gains (losses) on available-for-sale securities | | (215) | | | (567) | |
| | | | |
| | | | |
| | | | |
Total other comprehensive income (loss), net of tax | | 7,276 | | | 48,378 | |
Comprehensive income (loss) | | 35,096 | | | 137,323 | |
Less: Comprehensive loss (income) attributable to non-controlling interests | | (747) | | | (7,068) | |
Comprehensive income (loss) attributable to EchoStar Corporation | | $ | 34,349 | | | $ | 130,255 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(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, 2021 | | $ | 106 | | | $ | 3,345,878 | | | $ | (212,102) | | | $ | 656,466 | | | $ | (436,521) | | | $ | 60,253 | | | $ | 3,414,080 | |
Issuance of Class A common stock: | | | | | | | | | | | | | | |
Employee benefits | | — | | 7,041 | | — | | — | | — | | — | | 7,041 | |
Employee Stock Purchase Plan | | — | | 2,367 | | — | | — | | — | | — | | 2,367 | |
Stock-based compensation | | — | | 1,860 | | — | | — | | — | | — | | 1,860 | |
Issuance of equity and contribution of assets pursuant to the India JV formation | | — | | (14,090) | | — | | — | | — | | 44,393 | | 30,303 | |
Other comprehensive income (loss) | | — | | — | | 38,822 | | — | | — | | 9,556 | | 48,378 | |
Net income (loss) | | — | | — | | — | | 91,433 | | — | | (2,488) | | 88,945 | |
Treasury share repurchase | | — | | | — | | | — | | | — | | | (35,061) | | | — | | | (35,061) | |
| | | | | | | | | | | | | | |
Balance, March 31, 2022 | | $ | 106 | | | $ | 3,343,056 | | | $ | (173,280) | | | $ | 747,899 | | | $ | (471,582) | | | $ | 111,714 | | | $ | 3,557,913 | |
| | | | | | | | | | | | | | |
Balance, December 31, 2022 | | $ | 107 | | | $ | 3,367,058 | | | $ | (172,239) | | | $ | 833,517 | | | $ | (525,824) | | | $ | 96,436 | | | $ | 3,599,055 | |
Issuance of Class A common stock: | | | | | | | | | | | | | | |
Employee benefits | | — | | 5,421 | | — | | — | | — | | — | | 5,421 | |
Employee Stock Purchase Plan | | — | | 1,098 | | — | | — | | — | | — | | 1,098 | |
Stock-based compensation | | — | | 2,592 | | — | | — | | — | | — | | 2,592 | |
Other comprehensive income (loss) | | — | | — | | 5,308 | | — | | — | | 1,968 | | 7,276 | |
Net income (loss) | | — | | — | | — | | 29,041 | | — | | (1,221) | | 27,820 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance, Balance, March 31, 2023 | | $ | 107 | | | $ | 3,376,169 | | | $ | (166,931) | | | $ | 862,558 | | | $ | (525,824) | | | $ | 97,183 | | | $ | 3,643,262 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2023 | | 2022 | | |
Cash flows from operating activities: | | | | | | |
Net income (loss) | | $ | 27,820 | | | $ | 88,945 | | | |
Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities: | | | | | | |
Depreciation and amortization | | 102,858 | | | 120,436 | | | |
Impairment of long-lived assets | | 3,142 | | | — | | | |
Losses (gains) on investments, net | | 7,109 | | | (80,686) | | | |
Equity in losses (earnings) of unconsolidated affiliates, net | | 551 | | | 1,714 | | | |
Foreign currency transaction losses (gains), net | | (3,313) | | | (6,394) | | | |
Deferred tax provision (benefit), net | | 6,521 | | | 25,538 | | | |
Stock-based compensation | | 2,592 | | | 1,860 | | | |
Amortization of debt issuance costs | | 204 | | | 191 | | | |
| | | | | | |
Other, net | | (24,078) | | | (2,528) | | | |
Changes in assets and liabilities, net: | | | | | | |
Trade accounts receivable and contract assets, net | | (14,041) | | | (8,480) | | | |
Other current assets, net | | (27,153) | | | (3,340) | | | |
Trade accounts payable | | (13,797) | | | 7,046 | | | |
Contract liabilities | | 7,553 | | | (3,142) | | | |
Accrued expenses and other current liabilities | | (28,257) | | | (27,033) | | | |
Non-current assets and non-current liabilities, net | | (1,286) | | | (9,774) | | | |
Net cash provided by (used for) operating activities | | 46,425 | | | 104,353 | | | |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Purchases of marketable investment securities | | (238,585) | | | (88,578) | | | |
Sales and maturities of marketable investment securities | | 457,776 | | | 492,812 | | | |
Expenditures for property and equipment | | (59,071) | | | (112,138) | | | |
Refunds and other receipts related to capital expenditures | | 15,000 | | | — | | | |
Expenditures for externally marketed software | | (6,962) | | | (5,093) | | | |
India JV formation | | — | | | (7,892) | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net cash provided by (used for) investing activities | | 168,158 | | | 279,111 | | | |
| | | | | | |
| | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | |
| | | | |
Payment of finance lease obligations | | — | | | (85) | |
Payment of in-orbit incentive obligations | | (1,834) | | | (1,444) | |
| | | | |
Proceeds from Class A common stock issued under the Employee Stock Purchase Plan | | 1,098 | | | 2,367 | |
Treasury share repurchase | | — | | | (33,307) | |
| | | | |
| | | | |
Net cash provided by (used for) financing activities | | (736) | | | (32,469) | |
| | | | |
Effect of exchange rates on cash and cash equivalents | | 1,659 | | | 3,480 | |
Net increase (decrease) in cash and cash equivalents | | 215,506 | | | 354,475 | |
Cash and cash equivalents, including restricted amounts, beginning of period | | 705,883 | | | 536,874 | |
Cash and cash equivalents, including restricted amounts, end of period | | $ | 921,389 | | | $ | 891,349 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
6
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES
Principal Business
EchoStar Corporation (which, together with its subsidiaries, is referred to as “EchoStar,” the “Company,” “we,” “us” and “our”) is a holding company that was organized in October 2007 as a corporation under the laws of the State of Nevada. Our Class A common stock is publicly traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “SATS.”
We are an industry leader in both networking technologies and services, innovating to deliver the global solutions that power a connected future for people, enterprises and things everywhere. We provide internet services to consumer customers, which include home and small to medium-sized businesses, and satellite and multi-transport technologies and managed network services to enterprise customers, telecommunications providers, aeronautical service providers and government entities, including the U.S. Department of Defense. We operate in the following two business segments:
•Hughes segment — which provides broadband satellite technologies and broadband internet products and services to consumer customers. We provide broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to government and enterprise customers. We also design, provide and install gateway and terminal equipment to customers for other satellite systems. In addition, we design, develop, construct and provide telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.
•EchoStar Satellite Services segment (“ESS segment”) — which provides satellite services on a full-time and/or occasional-use basis to U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers. We operate our ESS business using primarily the EchoStar IX satellite and the EchoStar 105/SES-11 satellite and related infrastructure. Revenue in our ESS segment depends largely on our ability to continuously make use of our available satellite capacity with existing customers and our ability to enter into commercial relationships with new customers. During the first quarter of 2023, we transitioned the EchoStar IX satellite into inclined operations to extend its usable life for our customers. With this inclined mode of operation, we are expecting to extend the life of the spacecraft into 2024.
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 14. 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 (“GAAP”) and the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required for complete financial statements prepared in conformity with GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. However, our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
All amounts presented in these Consolidated Financial Statements are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.
Refer to Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements in our Form 10-K for a summary and discussion of our significant accounting policies, except as updated below.
Use of Estimates
We are required to make certain estimates and assumptions that affect the amounts reported in these Consolidated Financial Statements. The most significant estimates and assumptions are used in determining: (i) inputs used to recognize revenue over time, including amortization periods for deferred contract acquisition costs; (ii) allowances for doubtful accounts, and estimated credit losses on investments; (iii) deferred taxes and related valuation allowances, including uncertain tax positions; (iv) loss contingencies; (v) fair value of financial instruments; (vi) fair value of assets and liabilities acquired in business combinations; and (vii) 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.
Principles of Consolidation
We consolidate all entities in which we have a controlling financial interest. We are deemed to have a controlling financial interest in variable interest entities in which we are the primary beneficiary and in other entities in which we own more than 50% of the outstanding voting shares and other shareholders do not have substantive rights to participate in management. For entities we control but do not wholly own, we record a non-controlling interest within
stockholders’ equity for the portion of the entity’s equity attributed to the non-controlling ownership interests. All significant intercompany balances and transactions have been eliminated in consolidation.
Recently Adopted Accounting Pronouncements
Business Combinations
On January 1, 2023, we adopted Accounting Standards Update (“ASU”) No. 2021-08 - Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides an exception to fair value measurement for contract assets and contract liabilities related to revenue contracts acquired in a business combination. The ASU requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU is applied to business combinations occurring on or after the adoption date.
Government Assistance
On January 1, 2022, we adopted ASU No. 2021-10 - Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities (except for not-for-profit entities and employee benefit plans) to disclose information about certain government assistance they receive. The 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.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Income Taxes
On January 1, 2021, we adopted ASU No. 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the Financial Accounting Standards Board (“FASB”) overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. Our adoption of this ASU did not have a material impact on our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Leases - Common Control Arrangements
In March 2023, the FASB issued ASU No. 2023-01 - Leases (Topic 842): Common Control Arrangements. Among other things, this ASU requires all lessees to amortize leasehold improvements associated with common control leases over their useful life to the common control group and account for them as a transfer of assets between entities under common control at the end of the lease. Additional disclosures are required when the useful life of leasehold improvements to the common control group exceeds the related lease term. The guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We 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.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), and all subsequent amendments to the initial guidance, codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2024. We expect to utilize the optional expedients provided by the guidance for contracts amended solely to use an alternative reference rate. We have evaluated the new guidance and we are in the process of implementing this ASU, and all subsequent amendments, and do not expect them to have a material impact on our Consolidated Financial Statements.
NOTE 3. REVENUE RECOGNITION
Contract Balances
The following table presents the components of our contract balances:
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
Trade accounts receivable and contract assets, net: | | | | |
Sales and services | | $ | 193,348 | | | $ | 170,466 | |
Leasing | | 9,396 | | | 7,936 | |
Total trade accounts receivable | | 202,744 | | | 178,402 | |
Contract assets | | 65,319 | | | 73,435 | |
Allowance for doubtful accounts | | (16,192) | | | (15,358) | |
Total trade accounts receivable and contract assets, net | | $ | 251,871 | | | $ | 236,479 | |
| | | | |
Contract liabilities: | | | | |
Current | | $ | 129,292 | | | $ | 121,739 | |
Non-current | | 7,872 | | | 8,326 | |
Total contract liabilities | | $ | 137,164 | | | $ | 130,065 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 March 31, |
| | | | | | 2023 | | 2022 |
Revenue | | | | | | $ | 60,963 | | | $ | 88,947 | |
Contract Acquisition Costs
The following table presents the activity in our contract acquisition costs, net:
| | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2023 | | 2022 |
Balance at beginning of period | | $ | 64,447 | | | $ | 82,986 | |
Additions | | 11,973 | | | 15,788 | |
Amortization expense | | (16,638) | | | (20,197) | |
Foreign currency translation | | 452 | | | 1,995 | |
Balance at end of period | | $ | 60,234 | | | $ | 80,572 | |
Performance Obligations
As of March 31, 2023, the remaining performance obligations for our customer contracts with original expected durations of more than one year was approximately $1.0 billion. Performance obligations expected to be satisfied within one year and greater than one year are 26.8% and 73.2%, respectively. This amount and percentages exclude agreements with consumer customers in our Hughes segment, our leasing arrangements and agreements with certain customers under which collectability of all amounts due through the term of contracts is uncertain.
Disaggregation of Revenue
Geographic Information
The following tables present our revenue from customer contracts disaggregated by primary geographic market and by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate and Other | | Consolidated Total |
For the three months ended March 31, 2023 | | | | | | | | |
North America | | $ | 348,961 | | | $ | 5,997 | | | $ | 2,405 | | | $ | 357,363 | |
South and Central America | | 38,373 | | | — | | | — | | | 38,373 | |
Other | | 43,861 | | | — | | | — | | | 43,861 | |
Total revenue | | $ | 431,195 | | | $ | 5,997 | | | $ | 2,405 | | | $ | 439,597 | |
| | | | | | | | |
For the three months ended March 31, 2022 | | | | | | | | |
North America | | $ | 399,422 | | | $ | 4,474 | | | $ | 2,947 | | | $ | 406,843 | |
South and Central America | | 42,872 | | | — | | | — | | | 42,872 | |
Other | | 51,812 | | | — | | | 7 | | | 51,819 | |
Total revenue | | $ | 494,106 | | | $ | 4,474 | | | $ | 2,954 | | | $ | 501,534 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Nature of Products and Services
The following tables present our revenue disaggregated by the nature of products and services and by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate and Other | | Consolidated Total |
For the three months ended March 31, 2023 | | | | | | | | |
Services and other revenue: | | | | | | | | |
Services | | $ | 359,440 | | | $ | 3,987 | | | $ | 1,287 | | | $ | 364,714 | |
Lease revenue | | 9,685 | | | 2,010 | | | 1,118 | | | 12,813 | |
Total services and other revenue | | 369,125 | | | 5,997 | | | 2,405 | | | 377,527 | |
Equipment revenue: | | | | | | | | |
Equipment | | 20,965 | | | — | | | — | | | 20,965 | |
Design, development and construction services | | 36,904 | | | — | | | — | | | 36,904 | |
Lease revenue | | 4,201 | | | — | | | — | | | 4,201 | |
Total equipment revenue | | 62,070 | | | — | | | — | | | 62,070 | |
Total revenue | | $ | 431,195 | | | $ | 5,997 | | | $ | 2,405 | | | $ | 439,597 | |
| | | | | | | | |
For the three months ended March 31, 2022 | | | | | | | | |
Services and other revenue: | | | | | | | | |
Services | | $ | 400,402 | | | $ | 2,935 | | | $ | 1,519 | | | $ | 404,856 | |
Lease revenue | | 10,987 | | | 1,539 | | | 1,429 | | | 13,955 | |
Total services and other revenue | | 411,389 | | | 4,474 | | | 2,948 | | | 418,811 | |
Equipment revenue: | | | | | | | | |
Equipment | | 25,885 | | | — | | | 6 | | | 25,891 | |
Design, development and construction services | | 55,905 | | | — | | | — | | | 55,905 | |
Lease revenue | | 927 | | | — | | | — | | | 927 | |
Total equipment revenue | | 82,717 | | | — | | | 6 | | | 82,723 | |
Total revenue | | $ | 494,106 | | | $ | 4,474 | | | $ | 2,954 | | | $ | 501,534 | |
Lease Revenue
The following table presents our lease revenue by type of lease:
| | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2023 | | 2022 |
Sales-type lease revenue: | | | | |
Revenue at lease commencement | | $ | 3,754 | | | $ | 638 | |
Interest income | | 447 | | | 289 | |
Total sales-type lease revenue | | 4,201 | | | 927 | |
Operating lease revenue | | 12,813 | | | 13,955 | |
Total lease revenue | | $ | 17,014 | | | $ | 14,882 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 4. EARNINGS PER SHARE
The following table presents the calculation of basic and diluted EPS for our Class A and B common stock:
| | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2023 | | 2022 |
Net income (loss) attributable to EchoStar Corporation common stock | | $ | 29,041 | | | $ | 91,433 | |
| | | | |
Weighted-average common shares outstanding: | | | | |
Basic | | 83,333 | | | 85,846 | |
Dilutive impact of stock awards outstanding | | — | | | 33 | |
Diluted | | 83,333 | | | 85,879 | |
| | | | |
Earnings (losses) per share: | | | | |
Basic | | $ | 0.35 | | | $ | 1.07 | |
Diluted | | $ | 0.35 | | | $ | 1.06 | |
The following table presents the number of anti-dilutive options to purchase shares of our Class A common stock which have been excluded from the calculation of our weighted-average common shares outstanding:
| | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2023 | | 2022 |
Number of shares | | 5,526 | | | 4,650 | |
NOTE 5. MARKETABLE INVESTMENT SECURITIES
The following table presents our Marketable investment securities:
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
Marketable investment securities: | | | | |
Available-for-sale debt securities: | | | | |
Corporate bonds | | $ | 189,211 | | | $ | 160,559 | |
Commercial paper | | 452,642 | | | 687,927 | |
Other debt securities | | 15,126 | | | 17,695 | |
Total available-for-sale debt securities | | 656,979 | | | 866,181 | |
Equity securities | | 109,990 | | | 118,790 | |
Total marketable investment securities, including restricted amounts | | 766,969 | | | 984,971 | |
Less: Restricted marketable investment securities | | (11,800) | | | (11,056) | |
Total marketable investment securities | | $ | 755,169 | | | $ | 973,915 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Debt Securities
Available-for-Sale
The following table presents the components of our available-for-sale debt securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized | | Unrealized | | Estimated |
| | Cost | | Gains | | Losses | | Fair Value |
As of March 31, 2023 | | | | | | | | |
Corporate bonds | | $ | 189,454 | | | $ | 158 | | | $ | (401) | | | $ | 189,211 | |
Commercial paper | | 452,643 | | | — | | | (1) | | | 452,642 | |
Other debt securities | | 15,152 | | | 1 | | | (27) | | | 15,126 | |
Total available-for-sale debt securities | | $ | 657,249 | | | $ | 159 | | | $ | (429) | | | $ | 656,979 | |
As of December 31, 2022 | | | | | | | | |
Corporate bonds | | $ | 160,494 | | | $ | 125 | | | $ | (60) | | | $ | 160,559 | |
Commercial paper | | 687,956 | | | — | | | (29) | | | 687,927 | |
Other debt securities | | 17,785 | | | — | | | (90) | | | 17,695 | |
Total available-for-sale debt securities | | $ | 866,235 | | | $ | 125 | | | $ | (179) | | | $ | 866,181 | |
The following table presents the activity on our available-for-sale debt securities:
| | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2023 | | 2022 |
Proceeds from sales | | $ | 38,109 | | | $ | 29,018 | |
As of March 31, 2023, we have $573.8 million of available-for-sale debt securities with contractual maturities of one year or less and $83.2 million with contractual maturities greater than one year.
Equity Securities
The following table presents the activity of our equity securities:
| | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2023 | | 2022 |
Gains (losses) on investments, net | | $ | (7,107) | | | $ | 31,015 | |
Fair Value Measurements
The following table presents our marketable investment securities categorized by the fair value hierarchy, certain of which have historically experienced volatility:
| | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Total |
As of March 31, 2023 | | | | | | |
Cash equivalents (including restricted) | | $ | 41,331 | | | $ | 772,068 | | | $ | 813,399 | |
Available-for-sale debt securities: | | | | | | |
Corporate bonds | | $ | — | | | $ | 189,211 | | | $ | 189,211 | |
Commercial paper | | — | | | 452,642 | | | 452,642 | |
Other debt securities | | 12,779 | | | 2,347 | | | 15,126 | |
Total available-for-sale debt securities | | 12,779 | | | 644,200 | | | 656,979 | |
Equity securities | | 100,287 | | | 9,703 | | | 109,990 | |
Total marketable investment securities, including restricted amounts | | |