EchoStar Corporation

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sats-20230930

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, 2023.

☐ 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

(Trading 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 November 2, 2023, the registrant’s outstanding common stock consisted of 36,219,803 shares of Class A common stock and 47,687,039 shares of Class B common stock, each $0.001 par value.

ECHOSTAR CORPORATION

TABLE OF CONTENTS


Part I - Financial Information

	Disclosure Regarding Forward Looking Statements	i

Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 (audited)	1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended September 30, 2023 and 2022 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2023 and 2022 (unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64
Item 4.	Controls and Procedures	64

Part II - Other Information

Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
	Signatures	72

Table of Contents

PART I: FINANCIAL INFORMATION

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, 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:

•risks relating to our ability to complete and realize the expected benefits of the pending merger with DISH Network Corporation;

•risks relating to our substantially increased leverage following completion of the pending merger with DISH Network Corporation;

•significant risks related to our ability to launch, 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 changes in the global business environment, including regulatory and competitive considerations;

•our ability to implement and/or realize benefits of our investments and other strategic initiatives;

•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.

Table of Contents

ITEM 1. FINANCIAL STATEMENTS

ECHOSTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	As of
	September 30, 2023		December 31, 2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,094,531	$	704,541
Marketable investment securities	894,744		973,915
Trade accounts receivable and contract assets, net	235,421		236,479
Other current assets, net	248,241		210,446
Total current assets	2,472,937		2,125,381
Non-current assets:
Property and equipment, net	2,144,707		2,237,617
Operating lease right-of-use assets	143,726		151,518
Goodwill	532,710		532,491
Regulatory authorizations, net	459,463		462,531
Other intangible assets, net	13,975		15,698
Other investments, net	136,455		356,705
Other non-current assets, net	326,485		317,062
Total non-current assets	3,757,521		4,073,622
Total assets	$	6,230,458	$	6,199,003

Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable	$	82,291	$	101,239
Contract liabilities	122,288		121,739
Accrued expenses and other current liabilities	192,100		199,853
Total current liabilities	396,679		422,831
Non-current liabilities:
Long-term debt, net	1,497,396		1,496,777
Deferred tax liabilities, net	433,370		424,621
Operating lease liabilities	127,829		135,932
Other non-current liabilities	109,396		119,787
Total non-current liabilities	2,167,991		2,177,117
Total liabilities	2,564,670		2,599,948

Commitments and Contingencies (Note 13)

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

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ECHOSTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

(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 September 30, 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, 59,532,668 shares issued and 36,219,357 shares outstanding at September 30, 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 September 30, 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 September 30, 2023 and December 31, 2022	—		—
Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both September 30, 2023 and December 31, 2022	—		—
Additional paid-in capital	3,383,671		3,367,058
Accumulated other comprehensive income (loss)	(161,515)		(172,239)
Accumulated earnings (losses)	876,959		833,517
Treasury shares, at cost, 23,313,311 shares at both September 30, 2023 and December 31, 2022	(525,824)		(525,824)
Total EchoStar Corporation stockholders' equity	3,573,398		3,502,619
Non-controlling interests	92,390		96,436
Total stockholders' equity	3,665,788		3,599,055
Total liabilities and stockholders' equity	$	6,230,458	$	6,199,003

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

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ECHOSTAR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Revenue:
Services and other revenue	$	359,349	$	401,382	$	1,108,386	$	1,234,890
Equipment revenue	53,725		96,005		197,394		263,347
Total revenue	413,074		497,387		1,305,780		1,498,237
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	133,335		145,189		401,431		430,553
Cost of sales - equipment (exclusive of depreciation and amortization)	43,180		74,329		151,004		213,497
Selling, general and administrative expenses	104,988		111,421		322,469		342,682
Research and development expenses	6,463		9,181		21,560		25,562
Depreciation and amortization	103,028		110,233		311,474		347,224
Impairment of long-lived assets	—		—		3,142		711
Total costs and expenses	390,994		450,353		1,211,080		1,360,229
Operating income (loss)	22,080		47,034		94,700		138,008
Other income (expense):
Interest income, net	26,209		14,183		78,331		29,677
Interest expense, net of amounts capitalized	(12,650)		(13,845)		(39,176)		(43,125)
Gains (losses) on investments, net	(10,743)		(10,077)		(23,337)		48,071
Equity in earnings (losses) of unconsolidated affiliates, net	(1,978)		(1,426)		(3,075)		(4,441)
Other-than-temporary impairment losses on equity method investments	—		—		(33,400)		—
Foreign currency transaction gains (losses), net	(2,089)		(2,805)		4,482		(53)
Other, net	(11,750)		(319)		(2,308)		2,198
Total other income (expense), net	(13,001)		(14,289)		(18,483)		32,327
Income (loss) before income taxes	9,079		32,745		76,217		170,335
Income tax benefit (provision), net	(8,547)		(13,195)		(38,780)		(51,367)
Net income (loss)	532		19,550		37,437		118,968
Less: Net loss (income) attributable to non-controlling interests	2,712		2,853		6,005		8,736
Net income (loss) attributable to EchoStar Corporation common stock	$	3,244	$	22,403	$	43,442	$	127,704

Earnings (losses) per share - Class A and B common stock:
Basic	$	0.04	$	0.27	$	0.52	$	1.51
Diluted	$	0.04	$	0.27	$	0.52	$	1.51

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

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ECHOSTAR CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	532	$	19,550	$	37,437	$	118,968
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(9,020)		18,853		11,292		29,684
Unrealized gains (losses) on available-for-sale securities	(547)		358		1,141		(275)
Other	—		2,660		—		2,660
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities	23		—		250		3
Total other comprehensive income (loss), net of tax	(9,544)		21,871		12,683		32,072
Comprehensive income (loss)	(9,012)		41,421		50,120		151,040
Less: Comprehensive loss (income) attributable to non-controlling interests	4,615		5,108		4,046		8,427
Comprehensive income (loss) attributable to EchoStar Corporation	$	(4,397)	$	46,529	$	54,166	$	159,467

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

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ECHOSTAR CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Unaudited, in thousands)


	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, 2022	$	107	$	3,355,238	$	(204,465)	$	761,767	$	(514,418)	$	101,327	$	3,499,556
Issuance of Class A common stock:
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

Balance, June 30, 2023	$	107	$	3,379,997	$	(153,874)	$	873,715	$	(525,824)	$	97,005	$	3,671,126
Issuance of Class A common stock:
Employee Stock Purchase Plan	—		810		—		—		—		—		810
Stock-based compensation	—		2,864		—		—		—		—		2,864
Other comprehensive income (loss)	—		—		(7,641)		—		—		(1,903)		(9,544)
Net income (loss)	—		—		—		3,244		—		(2,712)		532


Balance, September 30, 2023	$	107	$	3,383,671	$	(161,515)	$	876,959	$	(525,824)	$	92,390	$	3,665,788

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

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ECHOSTAR CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Unaudited, in thousands)


	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	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

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	—		2,953		—		—		—		—		2,953
Stock-based compensation	—		8,239		—		—		—		—		8,239
Other comprehensive income (loss)	—		—		10,724		—		—		1,959		12,683
Net income (loss)	—		—		—		43,442		—		(6,005)		37,437

Balance, September 30, 2023	$	107	$	3,383,671	$	(161,515)	$	876,959	$	(525,824)	$	92,390	$	3,665,788

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

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ECHOSTAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	For the nine months ended September 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	37,437	$	118,968
Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities:
Depreciation and amortization	311,474		347,224
Impairment of long-lived assets	3,142		711
Losses (gains) on investments, net	23,337		(48,071)
Equity in losses of unconsolidated affiliates, net	3,075		4,441
Foreign currency transaction losses (gains), net	(4,482)		53
Deferred tax provision, net	8,088		28,901
Stock-based compensation	8,239		8,401
Amortization of debt issuance costs	619		583
Gain on repayment of other debt securities	(7,605)		—
Other-than-temporary impairment losses on equity method investments	33,400		—

(Accretion of discounts) and amortization of premiums on debt investments	(21,340)		159
Other, net	(6,634)		35,450
Changes in assets and liabilities, net:
Trade accounts receivable and contract assets, net	2,940		(63,563)
Other current assets, net	(46,216)		(26,402)
Trade accounts payable	(22,817)		657
Contract liabilities	549		(13,759)
Accrued expenses and other current liabilities	(489)		(27,004)
Non-current assets and non-current liabilities, net	(21,694)		(23,432)
Net cash provided by (used for) operating activities	301,023		343,317
Cash flows from investing activities:
Purchases of marketable investment securities	(1,015,650)		(540,447)
Sales and maturities of marketable investment securities	1,150,683		917,077
Expenditures for property and equipment	(206,862)		(249,374)
Refunds and other receipts related to capital expenditures	34,611		—
Expenditures for externally marketed software	(22,373)		(16,926)
Proceeds from repayment of other debt investment	148,448		—
India JV formation	—		(7,892)
Dividend received from unconsolidated affiliate	—		2,000
Sale of unconsolidated affiliate	—		7,500

Sales of other investments	—		3,070
Net cash provided by (used for) investing activities	88,857		115,008
Cash flows from financing activities:

Payment of finance lease obligations	—		(114)
Payment of in-orbit incentive obligations	(3,144)		(2,422)

Proceeds from Class A common stock issued under the Employee Stock Purchase Plan	2,953		7,173
Payment of equity registration fees	(1,327)		—
Treasury share repurchase	—		(89,303)


Net cash provided by (used for) financing activities	(1,518)		(84,666)
Effect of exchange rates on cash and cash equivalents	1,622		(3,123)
Net increase (decrease) in cash and cash equivalents	389,984		370,536
Cash and cash equivalents, including restricted amounts, beginning of period	705,882		536,874
Cash and cash equivalents, including restricted amounts, end of period	$	1,095,866	$	907,410

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. 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 make continuous use of our available satellite capacity on behalf of 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 without diminishing its capacity.

Our operations include various corporate functions (primarily Executive, Treasury, Strategic Development, Human Resources, Information Technology, Finance, Accounting, Real Estate and Legal) and other activities. Operating expenses include costs incurred in certain satellite development programs and other business development activities, and other income or expenses includes 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. 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 details.

On August 8, 2023, the Company entered into an Agreement and Plan of Merger (“the Original Merger Agreement”) with DISH Network Corporation, a Nevada corporation (“DISH”), and Eagle Sub Corp (“Eagle Sub”), a Nevada corporation and a wholly owned subsidiary of DISH. The Original Merger Agreement provided, among other things, that subject to the satisfaction or waiver of the conditions set forth in the agreement, Eagle Sub would merge with and into EchoStar, with EchoStar surviving as a wholly owned subsidiary of DISH.

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ECHOSTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

On October 2, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “Amended Merger Agreement”) with DISH and EAV Corp., a Nevada corporation and a wholly owned subsidiary of EchoStar (“Merger Sub”). The Amended Merger Agreement revises the structure of the merger of DISH and EchoStar contemplated by the Original Merger Agreement. The Amended Merger Agreement provides, among other things, that subject to the satisfaction or waiver of the conditions set forth in the Amended Merger Agreement, Merger Sub will merge with and into DISH (the “Merger”), with DISH surviving the Merger as a wholly owned subsidiary of EchoStar. The expected proportional ownership of existing EchoStar stockholders and DISH stockholders in the combined company upon the consummation of the Merger remains the same as the expected proportional ownership contemplated by the Original Merger Agreement. Pursuant to the Amended Merger Agreement, at the effective time of the Merger, (the “Effective Time”), each share of DISH Class A Common Stock, par value $0.01 per share (“DISH Class A Common Stock”) and DISH Class C Common Stock, par value $0.01 per share (“DISH Class C Common Stock”), outstanding immediately prior to the Effective Time, will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of EchoStar Class A Common Stock, par value $0.001 per share (“EchoStar Class A Common Stock”), equal to 0.350877 (the “Exchange Ratio”). On the terms and subject to the conditions set forth in the Amended Merger Agreement, at the Effective Time, each share of DISH Class B Common Stock, par value $0.01 per share (“DISH Class B Common Stock”), outstanding immediately prior to the Effective Time will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of EchoStar Class B Common Stock, par value $0.001 per share (the “EchoStar Class B Common Stock” and, together with the EchoStar Class A Common Stock, the “EchoStar Common Stock”), equal to the Exchange Ratio. Any shares of DISH Class A Common Stock, DISH Class B Common Stock and DISH Class C Common Stock (collectively, “DISH Common Stock”) that are held in DISH’s treasury or held directly by EchoStar or Merger Sub immediately prior to the Effective Time will be cancelled and cease to exist and no consideration shall be paid or payable in respect thereof. Refer to Note 16. Subsequent Events for further details.

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.

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 and relative standalone selling prices of performance obligations; (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) estimates of future cash flows used to evaluate and recognize impairments.

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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 Company is currently participating in three government programs: New York-Connect America Fund, New York Broadband, and Affordable Connectivity Plan. The purpose of these programs is to provide internet and connectivity services to qualifying households in the United States. The Company is entitled to reimbursement from the government for services provided. We record gross monies received from government entities in Services and other revenue, and associated expenses such as salaries and supplies are recorded in Cost of sales - services and other, Research and development or Selling, general and administrative expenses, depending on the nature of expenditure. We accrue for reimbursement requests submitted to government entities in Trade accounts receivable and contract assets, net. During the three and nine months ended September 30, 2023, the Company recognized $4.6 million and $12.7 million in Services and other revenue, respectively. As of September 30, 2023, we have trade accounts receivable of $2.8 million related to our government programs.

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Recently Issued Accounting Pronouncements Not Yet Adopted

Business Combinations - Joint Venture Formations

In August 2023, the FASB issued ASU No. 2023-05 - Business Combinations—Joint Venture Formations to reduce diversity in practice and provide decision-useful information to a joint venture’s investors. The ASU requires that a joint venture apply a new basis of accounting upon formation. Specifically, the newly formed joint venture will be required to recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). The amendments in this ASU do not amend the definition of a joint venture, the accounting by an equity method investor for its investment in a joint venture, or the accounting by a joint venture for contributions received after its formation. The guidance in this ASU is effective prospectively for all joint ventures with a formation date on or after January 1, 2025. Early adoption is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. This ASU is applied prospectively to all newly formed joint ventures on or after the adoption date.

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 plan to adopt this new guidance prospectively to all new leasehold improvements recognized on or after the adoption date 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.

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NOTE 3. REVENUE RECOGNITION

Contract Balances

The following table presents the components of our contract balances:


	As of
	September 30, 2023		December 31, 2022
Trade accounts receivable and contract assets, net:
Sales and services	$	165,456	$	170,466
Leasing and other	9,856		7,936
Total trade accounts receivable	175,312		178,402
Contract assets	76,831		73,435
Allowance for doubtful accounts	(16,722)		(15,358)
Total trade accounts receivable and contract assets, net	$	235,421	$	236,479

Contract liabilities:
Current	$	122,288	$	121,739
Non-current	6,999		8,326
Total contract liabilities	$	129,287	$	130,065

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,
	2023		2022		2023		2022
Revenue	$	7,608	$	6,175	$	80,157	$	115,974

Contract Acquisition Costs

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


	For the nine months ended September 30,
	2023		2022
Balance at beginning of period	$	64,447	$	82,986
Additions	34,708		45,172
Amortization expense	(46,722)		(57,822)
Foreign currency translation	681		156
Balance at end of period	$	53,114	$	70,492

We recognized amortization expenses related to contract acquisition costs of $14.6 million and $18.2 million for the three months ended September 30, 2023 and 2022, respectively.

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Performance Obligations

As of September 30, 2023, the remaining performance obligations for our customer contracts was approximately $1.2 billion. Performance obligations expected to be satisfied within one year and greater than one year are 29% and 71%, 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

Revenue is attributed to geographic markets based upon the billing location of the customer. 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 September 30, 2023
North America	$	324,722	$	6,446	$	2,401	$	333,569
South and Central America	39,843		—		—		39,843
Other	39,644		—		18		39,662
Total revenue	$	404,209	$	6,446	$	2,419	$	413,074

For the three months ended September 30, 2022
North America	$	389,181	$	4,981	$	2,841	$	397,003
South and Central America	40,290		—		—		40,290
Other	60,094		—		—		60,094
Total revenue	$	489,565	$	4,981	$	2,841	$	497,387

For the nine months ended September 30, 2023
North America	$	1,038,234	$	18,563	$	7,460	$	1,064,257
South and Central America	119,528		—		—		119,528
Other	121,977		—		18		121,995
Total revenue	$	1,279,739	$	18,563	$	7,478	$	1,305,780

For the nine months ended September 30, 2022
North America	$	1,187,301	$	14,305	$	8,413	$	1,210,019
South and Central America	125,256		—		—		125,256
Other	162,955		—		7		162,962
Total revenue	$	1,475,512	$	14,305	$	8,420	$	1,498,237

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Nature of Products and Services

The following tables present our revenue disaggregated by the nature of products and services and by segment:


	Hughes		ESS		Corporate and Other		Consolidated Total
For the three months ended September 30, 2023
Services and other revenue:
Services	$	341,575	$	4,308	$	1,344	$	347,227
Lease revenue	8,925		2,138		1,059		12,122
Total services and other revenue	350,500		6,446		2,403		359,349
Equipment revenue:
Equipment	24,701		—		16		24,717
Design, development and construction services	26,235		—		—		26,235
Lease revenue	2,773		—		—		2,773
Total equipment revenue	53,709		—		16		53,725
Total revenue	$	404,209	$	6,446	$	2,419	$	413,074

For the three months ended September 30, 2022
Services and other revenue:
Services	$	383,739	$	3,247	$	1,606	$	388,592
Lease revenue	9,822		1,734		1,234		12,790
Total services and other revenue	393,561		4,981		2,840		401,382
Equipment revenue:
Equipment	33,585		—		1		33,586
Design, development and construction services	60,605		—		—		60,605
Lease revenue	1,814		—		—		1,814
Total equipment revenue	96,004		—		1		96,005
Total revenue	$	489,565	$	4,981	$	2,841	$	497,387

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	Hughes		ESS		Corporate and Other		Consolidated Total
For the nine months ended September 30, 2023
Services and other revenue:
Services	$	1,054,348	$	12,205	$	4,196	$	1,070,749
Lease revenue	28,013		6,358		3,266		37,637
Total services and other revenue	1,082,361		18,563		7,462		1,108,386
Equipment revenue:
Equipment	72,348		—		16		72,364
Design, development and construction services	114,615		—		—		114,615
Lease revenue	10,415		—		—		10,415
Total equipment revenue	197,378		—		16		197,394
Total revenue	$	1,279,739	$	18,563	$	7,478	$	1,305,780

For the nine months ended September 30, 2022
Services and other revenue:
Services	$	1,181,461	$	9,343	$	4,474	$	1,195,278
Lease revenue	30,711		4,962		3,939		39,612
Total services and other revenue	1,212,172		14,305		8,413		1,234,890
Equipment revenue:
Equipment	86,878		—		7		86,885
Design, development and construction services	172,821		—		—		172,821
Lease revenue	3,641		—		—		3,641
Total equipment revenue	263,340		—		7		263,347
Total revenue	$	1,475,512	$	14,305	$	8,420	$	1,498,237

Lease Revenue

The following table presents our lease revenue by type of lease:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Sales-type lease revenue:
Revenue at lease commencement	$	2,272	$	1,514	$	8,913	$	2,735
Interest income	501		300		1,502		906
Total sales-type lease revenue	2,773		1,814		10,415		3,641
Operating lease revenue	12,122		12,790		37,637		39,612
Total lease revenue	$	14,895	$	14,604	$	48,052	$	43,253

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NOTE 4. MARKETABLE INVESTMENT SECURITIES

The following table presents our Marketable investment securities:


	As of
	September 30, 2023		December 31, 2022
Marketable investment securities:
Available-for-sale debt securities:
Corporate bonds	$	175,444	$	160,559
Commercial paper	518,641		687,927
Other debt securities	66,072		17,695
Total available-for-sale debt securities	760,157		866,181
Equity securities	142,590		118,790
Total marketable investment securities, including restricted amounts	902,747		984,971
Less: Restricted marketable investment securities	(8,003)		(11,056)
Total marketable investment securities	$	894,744	$	973,915

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 September 30, 2023