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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 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: 333-179121

Hughes Satellite Systems Corporation

(Exact name of registrant as specified in its charter)

Colorado

45-0897865

(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)

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 1,078 shares of common stock, $0.01 par value per share.

The Registrant meets the conditions set forth in General Instructions (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with the reduced disclosure format.

* The Registrant currently is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and is filing this Quarterly Report on Form 10-Q on a voluntary basis. The Registrant 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 as if it were subject to such filing requirements during such period.

HUGHES SATELLITE SYSTEMS CORPORATION

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, 2023 (unaudited) and December 31, 2022 (audited)	1
	Consolidated Statements of Operations for the three and nine months ended Septem ber 30, 2023 and 2022 (unaudited)	2
	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 Stockholder’s Equity for the three months ended September 30, 2023 and 2022 (unaudited)	5
	Consolidated Statements of Changes in Stockholder's Equity for the nine months ended September 30, 2023 and 2022 (unaudited)	6
	Consolidated Statements of Cash Flows for the six months ended September 30, 2023 and 2022 (unaudited)	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Narrative Analysis of Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	*
Item 4.	Controls and Procedures	59

Part II - Other Information

Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*
Item 3.	Defaults Upon Major Securities	*
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	67
	Signatures	68

* This item has been omitted pursuant to the reduced disclosure format as set forth in General Instructions (H)(2) (a) of Form 10-Q.

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 the ability of our parent company, EchoStar Corporation (“EchoStar”) to complete and realize the expected benefits of the pending merger with DISH Network Corporation;

•risks relating to EchoStar’s 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 Narrative Analysis of 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

HUGHES SATELLITE SYSTEMS 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	$	925,246	$	653,132
Marketable investment securities	694,582		799,769
Trade accounts receivable and contract assets, net	235,402		236,336
Other current assets, net	303,972		275,202
Total current assets	2,159,202		1,964,439
Non-current assets:
Property and equipment, net	1,267,404		1,376,004
Operating lease right-of-use assets	142,973		150,632
Goodwill	532,710		532,491
Regulatory authorizations, net	408,148		408,619
Other intangible assets, net	13,975		15,698
Other investments, net	45,048		83,523
Other non-current assets, net	295,833		285,877
Total non-current assets	2,706,091		2,852,844
Total assets	$	4,865,293	$	4,817,283

Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable	$	79,434	$	98,229
Contract liabilities	122,288		121,739
Accrued expenses and other current liabilities	397,541		393,899
Total current liabilities	599,263		613,867
Non-current liabilities:
Long-term debt, net	1,497,396		1,496,777
Deferred tax liabilities, net	301,020		289,757
Operating lease liabilities	127,114		135,122
Other non-current liabilities	126,925		133,897
Total non-current liabilities	2,052,455		2,055,553
Total liabilities	2,651,718		2,669,420

Commitments and Contingencies (Note 13)

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


Shareholder's equity:
Preferred stock, $0.001 par value,1,000,000 shares authorized, none issued and outstanding at both September 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value, 1,000,000 shares authorized, 1,078 shares issued and outstanding at both September 30, 2023 and December 31, 2022	—		—
Additional paid-in capital	1,483,032		1,479,857
Accumulated other comprehensive income (loss)	(161,810)		(170,184)
Accumulated earnings (losses)	799,963		741,754
Total Hughes Satellite Systems Corporation shareholder's equity	2,121,185		2,051,427
Non-controlling interests	92,390		96,436
Total shareholder's equity	2,213,575		2,147,863
Total liabilities and shareholder's equity	$	4,865,293	$	4,817,283

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands)


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Revenue:
Services and other revenue	$	357,501	$	403,162	$	1,102,689	$	1,240,566
Equipment revenue	53,704		96,004		197,378		263,341
Total revenue	411,205		499,166		1,300,067		1,503,907
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	131,790		143,319		396,685		425,289
Cost of sales - equipment (exclusive of depreciation and amortization)	43,125		74,328		150,961		213,481
Selling, general and administrative expenses	97,614		105,518		304,166		323,961
Research and development expenses	6,464		9,181		21,560		25,562
Depreciation and amortization	96,630		103,648		292,204		327,190

Total costs and expenses	375,623		435,994		1,165,576		1,315,483
Operating income (loss)	35,582		63,172		134,491		188,424
Other income (expense):
Interest income, net	22,807		8,881		60,911		15,440
Interest expense, net of amounts capitalized	(22,037)		(22,787)		(66,770)		(69,261)
Gains (losses) on investments, net	22		—		252		214
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	(1,521)		(2,087)		4,792		1,690
Other, net	(13)		(256)		(1,232)		(684)
Total other income (expense), net	(2,720)		(17,675)		(38,522)		(57,042)
Income (loss) before income taxes	32,862		45,497		95,969		131,382
Income tax benefit (provision), net	(10,546)		(15,695)		(43,765)		(45,667)
Net income (loss)	22,316		29,802		52,204		85,715
Less: Net loss (income) attributable to non-controlling interests	2,712		2,854		6,005		8,736
Net income (loss) attributable to HSSC	$	25,028	$	32,656	$	58,209	$	94,451

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

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HUGHES SATELLITE SYSTEMS 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)	$	22,316	$	29,802	$	52,204	$	85,715
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(12,163)		(16,452)		10,387		(8,909)
Unrealized gains (losses) on available-for-sale securities	(83)		327		(304)		(189)
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities	21		—		250		3
Total other comprehensive income (loss), net of tax	(12,225)		(16,125)		10,333		(9,095)
Comprehensive income (loss)	10,091		13,677		62,537		76,620
Less: Comprehensive loss (income) attributable to non-controlling interests	4,615		5,108		4,046		8,427
Comprehensive income (loss) attributable to HSSC	$	14,706	$	18,785	$	66,583	$	85,047

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

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HUGHES SATELLITE SYSTEMS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Unaudited, in thousands)


	Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Earnings (Losses)		Non-controlling Interests		Total
Balance, June 30, 2022	$	1,477,604	$	(168,914)	$	654,136	$	101,327	$	2,064,153
Stock-based compensation	1,253		—		—		—		1,253


Other comprehensive income (loss)	—		(13,871)		—		(2,254)		(16,125)
Net income (loss)	—		—		32,656		(2,854)		29,802

Balance, September 30, 2022	$	1,478,857	$	(182,785)	$	686,792	$	96,219	$	2,079,083

Balance, June 30, 2023	$	1,481,996	$	(151,488)	$	774,935	$	97,005	$	2,202,448
Stock-based compensation	1,036		—		—		—		1,036


Other comprehensive income (loss)	—		(10,322)		—		(1,903)		(12,225)
Net income (loss)	—		—		25,028		(2,712)		22,316

Balance, September 30, 2023	$	1,483,032	$	(161,810)	$	799,963	$	92,390	$	2,213,575

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

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HUGHES SATELLITE SYSTEMS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Unaudited, in thousands)


	Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Earnings (Losses)		Non-controlling Interests		Total
Balance, December 31, 2021	$	1,489,776	$	(173,381)	$	692,341	$	60,253	$	2,068,989
Stock-based compensation	3,171		—		—		—		3,171
Issuance of equity and contribution of assets pursuant to the India JV formation	(14,090)		—		—		44,393		30,303
Dividend paid to EchoStar	—		—		(100,000)		—		(100,000)
Other comprehensive income (loss)	—		(9,404)		—		309		(9,095)
Net income (loss)	—		—		94,451		(8,736)		85,715

Balance, September 30, 2022	$	1,478,857	$	(182,785)	$	686,792	$	96,219	$	2,079,083

Balance, December 31, 2022	$	1,479,857	$	(170,184)	$	741,754	$	96,436	$	2,147,863
Stock-based compensation	3,175		—		—		—		3,175


Other comprehensive income (loss)	—		8,374		—		1,959		10,333
Net income (loss)	—		—		58,209		(6,005)		52,204

Balance, September 30, 2023	$	1,483,032	$	(161,810)	$	799,963	$	92,390	$	2,213,575

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

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HUGHES SATELLITE SYSTEMS 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)	$	52,204	$	85,715
Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities:
Depreciation and amortization	292,204		327,190
Losses (gains) on investments, net	(252)		(214)

Equity in losses (earnings) of unconsolidated affiliates, net	3,075		4,441
Foreign currency transaction losses (gains), net	(4,792)		(1,690)
Deferred tax provision (benefit), net	11,036		21,020
Stock-based compensation	3,175		3,171

Amortization of debt issuance costs	619		582
(Accretion of discounts) and amortization of premiums on debt investments	(20,010)		72
Other-than-temporary impairment losses on equity method investments	33,400		—
Other, net	2,430		27,575
Changes in assets and liabilities, net:
Trade accounts receivable and contract assets, net	2,821		(63,508)
Other current assets, net	(30,638)		12,348
Trade accounts payable	(21,338)		(7,083)
Contract liabilities	549		(13,759)
Accrued expenses and other current liabilities	4,516		(30,115)
Non-current assets and non-current liabilities, net	(18,964)		(19,857)
Net cash provided by (used for) operating activities	310,035		345,888

Cash flows from investing activities:
Purchases of marketable investment securities	(964,388)		(506,329)
Sales and maturities of marketable investment securities	1,092,773		866,353

Expenditures for property and equipment	(142,319)		(176,665)
Expenditures for externally marketed software	(22,373)		(16,926)

India JV formation	—		(7,892)
Dividend received from unconsolidated affiliate	—		2,000

Net cash provided by (used for) investing activities	(36,307)		160,541

Cash flows from financing activities:


Payment of in-orbit incentive obligations	(3,144)		(2,422)
Payment of finance lease obligations	—		(114)
Dividend paid to EchoStar	—		(100,000)

Net cash provided by (used for) financing activities	(3,144)		(102,536)

Effect of exchange rates on cash and cash equivalents	1,524		(3,007)
Net increase (decrease) in cash and cash equivalents	272,108		400,886
Cash and cash equivalents, including restricted amounts, beginning of period	654,473		430,148
Cash and cash equivalents, including restricted amounts, end of period	$	926,581	$	831,034

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

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HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES

Principal Business

Hughes Satellite Systems Corporation (which, together with its subsidiaries, is referred to as “HSSC,” the “Company,” “we,” “us” and “our”) is a holding company and a subsidiary of EchoStar Corporation (“EchoStar” and “parent”). 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 detail.

On August 8, 2023, EchoStar 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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On October 2, 2023, EchoStar 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 17. 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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(Unaudited)

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 shareholder’s 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 and $12.7 million in Service 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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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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, 2023		December 31, 2022
Trade accounts receivable and contract assets, net:
Sales and services	$	165,444	$	170,466
Leasing and other	9,856		7,935
Total trade accounts receivable	175,300		178,401
Contract assets	76,824		73,293
Allowance for doubtful accounts	(16,722)		(15,358)
Total trade accounts receivable and contract assets, net	$	235,402	$	236,336

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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(Unaudited)

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	$	(574)	$	330,594
South and Central America	39,843		—		—		39,843
Other	39,644		—		1,124		40,768
Total revenue	$	404,209	$	6,446	$	550	$	411,205

For the three months ended September 30, 2022
North America	$	389,181	$	4,981	$	(393)	$	393,769
South and Central America	40,290		—		—		40,290
Other	60,094		—		5,013		65,107
Total revenue	$	489,565	$	4,981	$	4,620	$	499,166

For the nine months ended September 30, 2023
North America	$	1,038,234	$	18,563	$	(1,624)	$	1,055,173
South and Central America	119,528		—		—		119,528
Other	121,977		—		3,389		125,366
Total revenue	$	1,279,739	$	18,563	$	1,765	$	1,300,067

For the nine months ended September 30, 2022
North America	$	1,187,301	$	14,305	$	(939)	$	1,200,667
South and Central America	125,256		—		—		125,256
Other	162,955		—		15,029		177,984
Total revenue	$	1,475,512	$	14,305	$	14,090	$	1,503,907

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(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 September 30, 2023
Services and other revenue:
Services	$	341,575	$	4,308	$	—	$	345,883
Lease revenue	8,925		2,138		555		11,618
Total services and other revenue	350,500		6,446		555		357,501
Equipment revenue:
Equipment	24,701				(5)		24,696
Design, development and construction services	26,235		—		—		26,235
Lease revenue	2,773		—		—		2,773
Total equipment revenue	53,709		—		(5)		53,704
Total revenue	$	404,209	$	6,446	$	550	$	411,205

For the three months ended September 30, 2022
Services and other revenue:
Services	$	383,738	$	3,247	$	—	$	386,985
Lease revenue	9,822		1,734		4,621		16,177
Total services and other revenue	393,560		4,981		4,621		403,162
Equipment revenue:
Equipment	33,585		—		(1)		33,584
Design, development and construction services	60,606		—		—		60,606
Lease revenue	1,814		—		—		1,814
Total equipment revenue	96,005		—		(1)		96,004
Total revenue	$	489,565	$	4,981	$	4,620	$	499,166

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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	$	—	$	1,066,553
Lease revenue	28,013		6,358		1,765		36,136
Total services and other revenue	1,082,361		18,563		1,765		1,102,689
Equipment revenue:
Equipment	72,348				—		72,348
Design, development and construction services	114,615		—		—		114,615
Lease revenue	10,415		—		—		10,415
Total equipment revenue	197,378		—		—		197,378
Total revenue	$	1,279,739	$	18,563	$	1,765	$	1,300,067

For the nine months ended September 30, 2022
Services and other revenue:
Services	$	1,181,460	$	9,343	$	—	$	1,190,803
Lease revenue	30,711		4,962		14,090		49,763
Total services and other revenue	1,212,171		14,305		14,090		1,240,566
Equipment revenue:
Equipment	86,878		—		—		86,878
Design, development and construction services	172,822		—		—		172,822
Lease revenue	3,641		—		—		3,641
Total equipment revenue	263,341		—		—		263,341
Total revenue	$	1,475,512	$	14,305	$	14,090	$	1,503,907

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	11,618		16,177		36,136		49,763
Total lease revenue	$	14,391	$	17,991	$	46,551	$	53,404

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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	$	145,942	$	154,580
Commercial paper	505,700		643,526
Other debt securities	42,940		1,663


Total marketable investment securities	$	694,582	$	799,769

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
Corporate bonds	$	145,970	$	57	$	(85)	$	145,942
Commercial paper	505,700		—		—		505,700
Other debt securities	42,945		—		(5)		42,940
Total available-for-sale debt securities	$	694,615	$	57	$	(90)	$	694,582
As of December 31, 2022
Corporate bonds	$	154,517	$	119	$	(56)	$	154,580
Commercial paper	643,553		—		(27)		643,526
Other debt securities	1,663		—		—		1,663
Total available-for-sale debt securities	$	799,733	$	119	$	(83)	$	799,769

The following table presents the activity on our available-for-sale debt securities:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Proceeds from sales	$	71,586	$	—	$	203,307	$	37,904

As of September 30, 2023, we have $686.8 million of available-for-sale debt securities with contractual maturities of one year or less and $7.8 with contractual maturities greater than one year.

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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 September 30, 2023
Cash equivalents (including restricted)	$	179	$	818,107	$	818,286
Available-for-sale debt securities:
Corporate bonds	$	—	$	145,942	$	145,942
Commercial paper	—		505,700		505,700
Other debt securities	38,272		4,668		42,940


Total marketable investment securities	$	38,272	$	656,310	$	694,582

As of December 31, 2022
Cash equivalents (including restricted)	$	496	$	548,058	$	548,554
Available-for-sale debt securities:
Corporate bonds	$	—	$	154,580	$	154,580
Commercial paper	—		643,526		643,526
Other debt securities	—		1,663		1,663


Total marketable investment securities	$	—	$	799,769	$	799,769

As of September 30, 2023 and December 31, 2022, we did not have any investments that were categorized within Level 3 of the fair value hierarchy.

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NOTE 5. PROPERTY AND EQUIPMENT

The following table presents the components of Property and equipment, net:


	As of
	September 30, 2023		December 31, 2022
Property and equipment, net:
Satellites, net	$	678,708	$	754,019
Other property and equipment, net	588,696		621,985
Total property and equipment, net	$	1,267,404	$	1,376,004

Satellites

As of September 30, 2023, our satellite fleet consisted of eight satellites, five of which are owned and three of which are leased. They are all in geosynchronous (“GEO”) orbit, approximately 22,300 miles above the equator.

The following table presents our GEO satellite fleet in service as of September 30, 2023:

GEO Satellite

Segment

Launch Date

Nominal Degree Orbital Location (Longitude)

Depreciable Life (In Years)

Owned:

SPACEWAY 3 (1)

Hughes

August 2007

95 W

EchoStar XVII

Hughes

July 2012

107 W

EchoStar XIX

Hughes

December 2016

97.1 W

Al Yah 3 (“AY3”) (2)

Hughes

January 2018

20 W

EchoStar IX (3) (4)

ESS

August 2003

121 W

Finance leases:

Eutelsat 65 West A

Hughes

March 2016

65 W

Telesat T19V

Hughes

July 2018

63 W

EchoStar 105/SES-11

ESS

October 2017

105 W

(1) Depreciable life represents the remaining useful life as of June 8, 2011, the date EchoStar completed the acquisition of Hughes Communications, Inc. (“Hughes Communications”) and its subsidiaries in 2011 (the “Hughes Acquisition”). The satellite is expected to de-orbit in the fourth quarter of 2023.

(2) Upon consummation of our joint venture with Al Yah Satellite Communications Company PrJSC (“Yahsat”) in Brazil in November 2019, we acquired the Brazilian Ka-band payload on this satellite with a remaining useful life of 7 years as of that time. In the second quarter of 2023 we reduced the estimated useful life of the satellite as a result of certain technical anomalies. In order to safeguard the future operability of the satellite, the Company has, in conjunction with recommendations from the satellite manufacturer, implemented immediate and long-term remedial actions. A revised estimate of the satellite’s remaining lifetime has been calculated using operational data of the first two quarters. The Company has updated the remaining useful life of AY3 and related ground assets prospectively from April 1, 2023, to reflect the change in estimate. This has increased the depreciation expense for the current nine-month period by $7.4 million. The increase is expected to be $11.1 million for the full year 2023 and $12.8 million for the year 2024, respectively. Although the anomalies are expected to shorten the remaining useful life of the satellite, they have not affected its current operation.

(3) We own the Ka-band and Ku-band payloads on this satellite.

(4) The Company placed the satellite in an inclined-orbit in the first quarter of 2023. Inclined-orbit will extend its life to enable further revenue generating opportunities.

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The following table presents the components of our satellites, net:


	Depreciable Life (In Years)	As of
		September 30, 2023		December 31, 2022
Satellites, net:
Satellites - owned	5 to 15	$	1,505,111	$	1,503,435
Satellites - acquired under finance leases	15	364,820		360,642
Total satellites		1,869,931		1,864,077
Accumulated depreciation:
Satellites - owned		(1,049,402)		(988,164)
Satellites - acquired under finance leases		(141,821)		(121,894)
Total accumulated depreciation		(1,191,223)		(1,110,058)
Total satellites, net		$	678,708	$	754,019

The following table presents the depreciation expense associated with our satellites, net:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Depreciation expense:
Satellites - owned	$	20,847	$	18,911	$	60,573	$	56,831
Satellites - acquired under finance leases	6,126		6,003		18,245		18,127
Total depreciation expense	$	26,973	$	24,914	$	78,818	$	74,958

The following table presents capitalized interest associated with our satellites and satellite-related ground infrastructure:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Capitalized interest	$	2,850	$	2,206	$	8,114	$	6,264

Satellite-Related Commitments

As of September 30, 2023 and December 31, 2022 our satellite-related commitments were $121.2 million and $143.5 million, respectively. These include payments pursuant to regulatory authorizations, non-lease costs associated with our finance lease satellites, in-orbit incentives relating to certain satellites, and commitments for satellite service arrangements.

In certain circumstances, the dates on which we are obligated to pay our contractual obligations could change.

Satellite Anomalies and Impairments

In the second quarter of 2023, we reduced the estimated useful life of the Al Yah 3 satellite, which serves our Brazilian customers, as a result of certain technical anomalies. In order to safeguard the future operability of the satellite, the Company has, in conjunction with recommendations from the satellite manufacturers, implemented immediate and long-term remedial actions. A revised estimate of the satellite’s remaining lifetime has been calculated using operational data of two previous quarters. Although the anomalies are expected to shorten the remaining useful life of the satellite, they have not affected its current operation.

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Except as described above, we are not aware of any anomalies with respect to our owned or leased satellites or payloads that have had any significant adverse effect on their remaining useful lives, the commercial operation of the satellites or payloads or our operating results or financial position as of and for the three months ended September 30, 2023.

Satellite Insurance

We generally do not carry in-orbit insurance on our satellites or payloads because we have assessed that the cost of insurance is not economical relative to the risk of failures. Therefore, we generally bear the risk of any in-orbit failures.

Pursuant to the terms of our joint venture agreement with Yahsat, we are required to maintain insurance for the Al Yah 3 Brazilian payload during the commercial in-orbit service of such payload, subject to certain limitations on coverage. The insurance policies were procured by Yahsat, under which the Company and Yahsat are the beneficiaries of any claims in proportion to their shareholdings. An insurance claim was submitted in the second quarter of 2023 for compensation with respect to the reduction in estimated useful life of the Al Yah 3 satellite.

Fair Value of In-Orbit Incentives

As of September 30, 2023 and December 31, 2022, the fair values of our in-orbit incentive obligations approximated their carrying amounts of $47.1 million and $50.2 million, respectively.

NOTE 6. REGULATORY AUTHORIZATIONS

The following table presents our Regulatory authorizations, net:


	Finite lived
	Cost		Accumulated Amortization		Total		Indefinite lived		Total
Balance, December 31, 2021	$	10,733	$	(1,774)	$	8,959	$	400,000	$	408,959
Amortization expense	—		(617)		(617)		—		(617)
Currency translation adjustments	230		(30)		200		—		200
Balance, September 30, 2022	$	10,963	$	(2,421)	$	8,542	$	400,000	$	408,542

Balance, December 31, 2022	$	11,331	$	(2,712)	$	8,619	$	400,000	$	408,619
Amortization expense	—		(1,305)		(1,305)		—		(1,305)
Currency translation adjustments	1,072		(238)		834		—		834
Balance, September 30, 2023	$	12,403	$	(4,255)	$	8,148	$	400,000	$	408,148

Weighted-average useful life (in years)			11

NOTE 7. OTHER INVESTMENTS

The following table presents our Other investments, net:


	As of
	September 30, 2023		December 31, 2022
Other investments, net:
Equity method investments	$	45,048	$	83,523
Total other investments, net	$	45,048	$	83,523

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Equity Method Investments

Deluxe/EchoStar LLC

We own 50% of Deluxe/EchoStar LLC (“Deluxe”), a joint venture that we entered into in 2010 to build an advanced digital cinema satellite distribution network targeting delivery to digitally equipped theaters in the U.S. and Canada.

Broadband Connectivity Solutions (Restricted) Limited

We own 20% of Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”), a joint venture that we entered into in 2018 to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia operating over Yahsat's Al Yah 2 and Al Yah 3 Ka-band satellites. During the nine months ended September 30, 2023, we recorded an impairment charge of $33.4 million related to our investment as a result of increased competition and the economic environment for this business. We estimated the fair value of our investment by using the combination of the discounted cash flow model and market value approach.

The following table presents revenue recognized by the Company from our equity method investments:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Deluxe	$	1,445	$	1,243	$	4,233	$	3,901
BCS	$	924	$	2,600	$	2,573	$	6,321

The following table presents trade accounts receivable from our equity method investments:


	As of
	September 30, 2023		December 31, 2022
Deluxe	$	833	$	3,026
BCS	$	4,061	$	5,062

NOTE 8. LONG-TERM DEBT

The following table presents the carrying amount and fair values of our Long-term debt, net:


	Effective Interest Rate	As of
		September 30, 2023				December 31, 2022
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior Secured Notes:
5 1/4% Senior Secured Notes due 2026	5.320%	$	750,000	$	677,970	$	750,000	$	727,763
Senior Unsecured Notes:
6 5/8% Senior Unsecured Notes due 2026	6.688%	750,000		642,195		750,000		707,490
Less: Unamortized debt issuance costs		(2,604)		—		(3,223)		—
Total long-term debt, net		$	1,497,396	$	1,320,165	$	1,496,777	$	1,435,253

The estimated fair value of our publicly traded debt was primarily based on Level 1 inputs that use quoted market value for the debt.

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NOTE 9. INCOME TAXES

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. Our interim income tax provision and our interim estimate of our annual effective tax rate are influenced by several factors, including foreign losses and capital gains and losses for which related deferred tax assets are partially offset by a valuation allowance, changes in tax laws and relative changes in unrecognized tax benefits. Additionally, our effective tax rate can be affected by the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income or loss is lower.

Our income tax provision was $10.5 million for the three months ended September 30, 2023 compared to our income tax provision of $15.7 million for the three months ended September 30, 2022. Our effective income tax rate was 32.1% and 34.5% for the three months ended September 30, 2023 and 2022, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended September 30, 2023 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of research and development credits. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended September 30, 2022 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.

Our income tax provision was $43.8 million for the nine months ended September 30, 2023 compared to our income tax provision of $45.7 million for the nine months ended September 30, 2022. Our effective income tax rate was 45.6% for the nine months ended September 30, 2023, compared to 34.8% for the same period in 2022. The variations in our effective tax rate from the U.S. federal statutory rate for the nine months ended September 30, 2023 were primarily due to excluded investment impairment losses and excluded foreign losses where the Company carries a full valuation allowance. For the nine months ended September 30, 2022, the variations in our effective tax rate from the U.S. federal statutory rate were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.

NOTE 10. RELATED PARTY TRANSACTIONS - ECHOSTAR

The following is a summary of the transactions and the terms of the underlying principal agreements that have had or may have an impact on our consolidated financial condition and results of operations.

Shared Corporate Services. We and EchoStar, including EchoStar’s other subsidiaries, have agreed that we shall each have the right, but not the obligation, to receive from the other certain shared corporate services, including among other things: treasury, tax, accounting and reporting, risk management, cybersecurity, legal, internal audit, human resources, and information technology. These shared corporate services are generally provided at cost. We and EchoStar, including EchoStar’s other subsidiaries, may each terminate a particular shared corporate service for any reason upon at least 30 days’ notice. We recorded these expenses within Operating expenses - EchoStar.

Real Estate. We occupy certain office space in buildings owned or leased by EchoStar and its other subsidiaries and pay a portion of the taxes, insurance, utilities and maintenance of the premises in accordance with the percentage of the space we occupy. We recorded these expenses within Operating expenses - EchoStar.

Operating Expenses — EchoStar

The following table presents our operating expenses from EchoStar:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Operating expenses - EchoStar	$	17,167	$	19,586	$	58,314	$	54,945

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Receivables. EchoStar and its other subsidiaries reimburse us from time to time for amounts paid by us for costs and expenses attributable to EchoStar and its other subsidiaries. We report receivables under these arrangements within Related party receivables - EchoStar - current. No repayment schedule for these receivables has been determined.

EchoStar Mobile Limited Service Agreements. We provide services and lease equipment to support the business of EchoStar Mobile Limited, a subsidiary of EchoStar that is licensed by the EU to provide mobile satellite services and complementary ground component services covering the entire EU using S-band spectrum. Generally, the amounts EchoStar’s other subsidiaries pay for these services are based on cost plus a fixed margin. We recorded revenue in Services and other revenue of $1.1 million and $5.0 million for the three months ended September 30, 2023, and 2022, respectively, and $3.4 million and $15.0 million for the nine months ended September 30, 2023 and 2022, respectively, related to these services. Additionally, we have converted the receivables for certain of these services into loans, bearing an annual interest rate of 5%. We report these loans within Related party receivables - EchoStar - non-current.

The following table presents the corresponding related party receivables:


	As of
	September 30, 2023		December 31, 2022
Related party receivables - EchoStar - current	$	95,767	$	112,985
Related party receivables - EchoStar - non-current	58,048		55,834
Total related party receivables - EchoStar	$	153,815	$	168,819

Payables. We reimburse EchoStar and its other subsidiaries from time to time for amounts paid by EchoStar and its other subsidiaries for costs and expenses attributable to us. We report payables under these arrangements within Related party payables - EchoStar - current. No repayment schedule for these payables has been determined.

Cash Advances. EchoStar and certain of its other subsidiaries have also provided cash advances to certain of our foreign subsidiaries to fund certain expenditures pursuant to loan agreements that mature in 2023. Advances under these agreements bear interest at annual rates based on the one-year Secured Overnight Financing Rate plus 65 basis points. We report amounts payable under these agreements within Related party payables - EchoStar - non-current.

The following table presents the corresponding related party payables:


	As of
	September 30, 2023		December 31, 2022
Related party payables - EchoStar - current	$	236,928	$	216,504
Related party payables - EchoStar - non-current	23,287		23,423
Total related party payables - EchoStar	$	260,215	$	239,927

Construction Management Services for EchoStar XXIV satellite. In August 2017, a subsidiary of EchoStar entered into a contract with Maxar Space, LLC (formerly Space Systems/Loral, LLC), for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite. We provide construction management services to EchoStar’s subsidiary for the construction of the EchoStar XXIV satellite. We charged EchoStar’s subsidiary and reduced our operating expenses by the costs of such services of $0.4 million and $0.5 million for the three months ended September 30, 2023 and 2022 respectively, and $1.4 million and $1.2 million for the nine months ended September 30, 2023 and 2022, respectively.

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NOTE 11. RELATED PARTY TRANSACTIONS - DISH NETWORK

Overview

EchoStar and DISH have operated as separate publicly-traded companies since 2008 (the “Spin-off”) A substantial majority of the voting power of the shares of each of EchoStar and DISH is owned beneficially by Charles W. Ergen, our Chairman, and by certain entities established for the benefit of his family. See Note 1 - Organization and Business Activities and Note 17 - Subsequent Events for further details on the proposed merger with DISH.

In January 2017, EchoStar and certain of its subsidiaries entered into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries pursuant to which, in February 2017, we received all of the shares of preferred tracking stock previously issued by us and one of our subsidiaries (the “Tracking Stock”), representing an 80% economic interest in the residential retail satellite broadband business of our Hughes segment, in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of our EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). The Tracking Stock was retired in March 2017.

In September 2019, pursuant to a master transaction agreement (the “Master Transaction Agreement”) with DISH and a wholly-owned subsidiary of DISH (“DISH Merger Sub”), (i) we transferred certain real property and the various businesses, products, licenses, technology, revenues, billings, operating activities, assets and liabilities primarily related to the former portion of our ESS segment that managed, marketed and provided (1) broadcast satellite services primarily to DISH Network and our former joint venture Dish Mexico, S. de R.L. de C.V. and its subsidiaries (“Dish Mexico”), and (2) telemetry, tracking and control (“TT&C”) services for satellites owned by DISH Network and a portion of our other businesses (collectively, the “BSS Business”) to one of our former subsidiaries, EchoStar BSS Corporation (“BSS Corp.”), (ii) we distributed to each holder of shares of our Class A or Class B common stock entitled to receive consideration in the transaction an amount of shares of common stock of BSS Corp., par value $0.001 per share (“BSS Common Stock”), equal to one share of BSS Common Stock for each share of our Class A or Class B common stock owned by such stockholder (the “Distribution”); and (iii) immediately after the Distribution, (1) DISH Merger Sub merged with and into BSS Corp. (the “BSS Merger”), such that BSS Corp. became a wholly-owned subsidiary of DISH and with DISH then owning and operating the BSS Business, and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.235 shares of DISH Class A common stock, par value $0.001 per share ((i) - (iii) collectively, the “BSS Transaction”).

In connection with and following the Spin-off, the Share Exchange and the BSS Transaction, EchoStar, we and certain other of EchoStar’s subsidiaries and DISH Network entered into certain agreements pursuant to which we, EchoStar and certain of its other subsidiaries, on the one hand, obtain certain products, services and rights from DISH Network, on the other hand; DISH Network, on the one hand, obtains certain products, services and rights from us, EchoStar and certain of its other subsidiaries, on the other hand; and such entities indemnify each other against certain liabilities arising from their respective businesses. Generally, the amounts we and/or EchoStar and its other subsidiaries or DISH Network pay for products and services provided under the agreements are based on cost plus a fixed margin (unless noted differently below), which varies depending on the nature of the products and services provided. We and/or EchoStar and its other subsidiaries may also enter into additional agreements with DISH Network in the future.

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Services and Other Revenue — DISH Network

The following table presents our Services and other revenue - DISH Network:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Services and other revenue - DISH Network	$	3,015	$	4,258	$	9,620	$	13,589

The following table presents the related trade accounts receivable:


	As of
	September 30, 2023		December 31, 2022
Trade accounts receivable - DISH Network	$	2,097	$	1,992

Satellite Capacity Leased to DISH Network. Effective January 2008, DISH Network began leasing satellite capacity from us on the EchoStar IX satellite. We terminated the provision of this satellite capacity in December 2022.

Telesat Obligation Agreement. In September 2009, we entered into an agreement with Telesat Canada to lease satellite capacity from Telesat Canada on all 32 direct broadcast satellite (“DBS”) transponders on the Nimiq 5 satellite at the 72.7 degree west longitude orbital location (the “Telesat Transponder Agreement”). In September 2009, we entered into an agreement with DISH Network, pursuant to which DISH Network leased satellite capacity from us on all 32 of the DBS transponders covered by the Telesat Transponder Agreement (the “DISH Nimiq 5 Agreement”). Under the terms of the DISH Nimiq 5 Agreement, DISH Network made certain monthly payments to us that commenced in September 2009, when the Nimiq 5 satellite was placed into service. We transferred the Telesat Transponder Agreement to DISH Network in September 2019 as part of the BSS Transaction; however, we retained certain obligations related to DISH Network’s performance under that agreement and we entered into an agreement with DISH Network whereby DISH Network compensates us for retaining such obligations.

TerreStar Agreement. In March 2012, DISH Network completed its acquisition of substantially all the assets of TerreStar Networks Inc. (“TerreStar”). Prior to DISH Network’s acquisition of substantially all the assets of TerreStar and EchoStar’s completion of the Hughes Acquisition, TerreStar and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services for TerreStar’s ground-based communications equipment (the “TerreStar Agreements”). In December 2017, we and DISH Network amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DISH Network generally has the right to continue to receive warranty services from us for our products on a month-to-month basis unless terminated by DISH Network upon at least 21 days’ written notice to us. DISH Network generally has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis unless these services are terminated by DISH Network upon at least 90 days’ written notice to us. In addition, DISH Network generally may terminate any and all services for convenience subject to providing us with prior notice and/or payment of termination charges. In March 2020, we entered into an agreement with DISH Network pursuant to which we perform certain work and provide certain credits to amounts owed to us under the TerreStar Agreements in exchange for DISH Network’s granting us rights to use certain satellite capacity under the Amended and Restated Professional Services Agreement (as defined below). As a result, we and DISH Network amended the TerreStar Agreements to suspend our provision of warranty services to DISH Network from April 2020 through December 2020. Following the expiration of this suspension, we have recommenced providing warranty services to DISH Network. In May 2022, we and DISH Network amended the agreement for the provision of hosting services to extend the term until May 2027. The price for warranty and operations and maintenance services is only valid until December 31, 2023. As such, if those services are to continue beyond December 31, 2023, DISH Network and HNS must agree on the price for these services as of January 1, 2024.

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Hughes Broadband Distribution Agreement. Effective October 2012, we and DISH Network entered into a distribution agreement (the “Distribution Agreement”) pursuant to which DISH Network has the right, but not the obligation, to market, sell and distribute our Gen 4 HughesNet service. DISH Network pays us a monthly per subscriber wholesale service fee for our Gen 4 HughesNet service based upon a subscriber’s service level and based upon certain volume subscription thresholds. The Distribution Agreement also provides that DISH Network has the right, but not the obligation, to purchase certain broadband equipment from us to support the sale of the Gen 4 HughesNet service. The Distribution Agreement had an initial term of five years with automatic renewal for successive one-year terms unless terminated by either party with a written notice at least 180 days’before the expiration of the then-current term. In February 2014, we and DISH Network entered into an amendment to the Distribution Agreement which, among other things, extended the initial term of the Distribution Agreement until March 2024. Upon expiration or termination of the Distribution Agreement, we and DISH Network will continue to provide our Gen 4 HughesNet service to the then-current DISH Network subscribers pursuant to the terms and conditions of the Distribution Agreement.

DBSD North America Agreement. In March 2012, DISH Network completed its acquisition of all of the equity of DBSD North America, Inc. (“DBSD North America”). Prior to DISH Network’s acquisition of DBSD North America and EchoStar’s completion of the Hughes Acquisition, DBSD North America and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services of DBSD North America’s gateway and ground-based communications equipment. In December 2017, we and DBSD North America amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DBSD North America has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis, unless terminated by DBSD North America upon at least 120 days’ written notice to us. In February 2019, we further amended these agreements to provide DBSD North America with the right to continue to receive warranty services from us on a month-to-month basis until December 2023, unless terminated by DBSD North America upon at least 21 days’ written notice to us. The provision of hosting services will continue until February 2027 unless terminated by DBSD North America upon at least 180 days’ written notice to us. In addition, DBSD North America generally may terminate any and all such services for convenience, subject to providing us with prior notice and/or payment of termination charges. The price for warranty and operations and maintenance services is only valid until December 31, 2023. As such, if those services are to continue beyond December 31, 2023, DBSD North America and HNS must agree on the price for these services as of January 1, 2024.

Hughes Equipment and Services Agreement. In February 2019, we and DISH Network entered into an agreement pursuant to which we will sell to DISH Network our HughesNet Service and HughesNet equipment that has been modified to meet DISH Network’s internet-of-things specifications for the transfer of data to DISH Network’s network operations centers. This agreement has an initial term of five years expiring February 2024 with automatic renewal for successive one-year terms unless terminated by DISH Network with at least 180 days’ written notice to us or by us with at least 365 days’ written notice to DISH Network.

Operating Expenses — DISH Network

The following table presents our operating expenses related to DISH Network:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Operating expenses - DISH Network	$	1,154	$	1,197	$	3,408	$	3,401

The following table presents the related trade accounts payable:


	As of
	September 30, 2023		December 31, 2022
Trade accounts payable - DISH Network	$	733	$	567

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Amended and Restated Professional Services Agreement. In connection with the Spin-off, EchoStar entered into various agreements with DISH Network including a transition services agreement, satellite procurement agreement and services agreement, all of which expired in January 2010 and were replaced by a professional services agreement (the “Professional Services Agreement”). In January 2010, EchoStar and DISH Network agreed that EchoStar and its subsidiaries shall continue to have the right, but not the obligation, to receive the following services from DISH Network, among others, certain of which were previously provided under a transition services agreement: information technology, travel and event coordination, internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support services. Additionally, EchoStar and DISH Network agreed that DISH Network would continue to have the right, but not the obligation, to engage EchoStar and its subsidiaries to manage the process of procuring new satellite capacity for DISH Network (previously provided under a satellite procurement agreement), receive logistics, procurement and quality assurance services from EchoStar and its subsidiaries (previously provided under a services agreement) and provide other support services. In connection with the consummation of the Share Exchange, EchoStar and DISH amended and restated the Professional Services Agreement (as amended to date, the “Amended and Restated Professional Services Agreement”) to provide that EchoStar and its subsidiaries and DISH Network shall have the right to receive additional services that either EchoStar and its subsidiaries or DISH Network may require as a result of the Share Exchange, including access to antennas owned by DISH Network for our use in performing TT&C services and maintenance and support services for our antennas (collectively, the “TT&C Antennas”). In September 2019, in connection with the BSS Transaction, EchoStar and DISH further amended the Professional Services Agreement (“Amended and Restated Professional Services Agreement”) to provide that EchoStar and its subsidiaries and DISH Network shall have the right to receive additional services that either EchoStar and its subsidiaries or DISH Network may require as a result of the BSS Transaction and to remove our access to and the maintenance and support services for the TT&C Antennas. A portion of these costs and expenses have been allocated to us in the manner described in Note 10. Related Party Transactions - EchoStar. The term of the Amended and Restated Professional Services Agreement is through January 1, 2024 and renews automatically for successive one-year periods thereafter, unless the agreement is terminated earlier by either party upon at least 60 days’ notice. We or DISH Network may generally terminate the Amended and Restated Professional Services Agreement in part with respect to any particular service it receives for any reason upon at least 30 days’ notice, unless the statement of work for particular services states otherwise. Certain services provided under the Amended and Restated Professional Services Agreement may survive the termination of the agreement.

Collocation and Antenna Space Agreements. We and DISH Network entered into an agreement pursuant to which DISH Network provided us with collocation space in El Paso, Texas. This agreement was for an initial period ending in July 2015, and provided us with renewal options for four consecutive three-year terms. We exercised our first renewal option for a period commencing in August 2015 and ending in July 2018, in April 2018 we exercised our second renewal option for a period ending in July 2021, and in May 2021 we exercised our third renewal option for a period ending in July 2024. In connection with the Share Exchange, effective March 2017, we also entered into certain agreements pursuant to which DISH Network provides collocation and antenna space to EchoStar through February 2022 at the following locations: Cheyenne, Wyoming; Gilbert, Arizona; New Braunfels, Texas; Monee, Illinois; Spokane, Washington; and Englewood, Colorado. In October 2019, we provided a termination notice for our New Braunfels, Texas agreement effective May 2020. In November 2020, we provided a termination notice for one of our Englewood, Colorado agreements effective May 2021. In November 2021, we exercised our right to renew the collocation agreements at Gilbert, Arizona, Cheyenne, Wyoming, Spokane, Washington, Englewood, Colorado and Monee, Illinois for a period ending in February 2025. In August 2017, we and DISH Network also entered into certain other agreements pursuant to which DISH Network provides additional collocation and antenna space to us in Monee, Illinois and Spokane, Washington through August 2022. In May 2022, we exercised our right to renew such other agreements at Monee, Illinois and Spokane, Washington through August 2025. Generally, we may renew our collocation and antenna space agreements for three-year periods by providing DISH Network with prior written notice no more than 120 days but no less than 90 days prior to the end of the then-current term. We may terminate certain of these agreements with 60 days’ prior written notice and certain other of these agreements with 180 days’ prior written notice. In September 2019, in connection with the BSS Transaction, we entered into an agreement pursuant to which DISH Network provided us with certain additional collocation space in Cheyenne, Wyoming for a period that ended in September 2020. The fees for the services provided under these agreements depend on the number of racks located at the location.

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Also in connection with the BSS Transaction, in September 2019, we entered into an agreement pursuant to which DISH Network provides us with antenna space and power in Cheyenne, Wyoming for a period of five years commencing in August 2020, with four three-year renewal terms, with prior written notice of renewal required no more than 120 days but no less than 90 days prior to the end of the then-current term. In March 2021, we entered into additional agreements pursuant to which DISH Network provides us with antenna space and power in Cheyenne, Wyoming, and the right to use an antenna and certain space in Gilbert, Arizona. Both agreements are for a period of five years with four three-year renewal terms, with prior written notice of renewal required no more than 120 days but no less than 90 days prior to the end of the then-current term.

Hughes Broadband Master Services Agreement. In conjunction with the launch of our EchoStar XIX satellite, in March 2017, we and DISH Network entered into a master service agreement (the “Hughes Broadband MSA”) pursuant to which DISH Network, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for our Gen 5 HughesNet service and related equipment and other telecommunication services and (ii) installs Gen 5 HughesNet service equipment with respect to activations generated by DISH Network. Under the Hughes Broadband MSA, we and DISH Network make certain payments to each other relating to sales, upgrades, purchases and installation services. The current term of the Hughes Broadband MSA is through March 2024 with automatic renewal for successive one-year terms. Either party has the ability to terminate the Hughes Broadband MSA, in whole or in part, for any reason upon at least 90 days’ notice to the other party. Upon expiration or termination of the Hughes Broadband MSA, we will continue to provide our Gen 5 HughesNet service to subscribers and make certain payments to DISH Network pursuant to the terms and conditions of the Hughes Broadband MSA. We incurred sales incentives and other costs under the Hughes Broadband MSA totaling $0.5 million and $1.8 million for the three months ended September 30, 2023 and 2022, respectively, and $1.4 million and $5.4 million for the nine months ended September 30, 2023 and 2022, respectively.

2019 TT&C Agreement. In September 2019, in connection with the BSS Transaction, we and a subsidiary of EchoStar entered into an agreement pursuant to which DISH Network provides TT&C services to us and EchoStar and its other subsidiaries for a period ending in September 2021, with the option for a subsidiary of EchoStar to renew for a one-year period upon written notice at least 90 days prior to the initial expiration (the “2019 TT&C Agreement”). The fees for services provided under the 2019 TT&C Agreement are calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which will vary depending on the nature of the services provided. Any party is able to terminate the 2019 TT&C Agreement for any reason upon 12 months’ notice. We have exercised our option to renew the 2019 TT&C Agreement on several occasions, and its current term expires in September 2024.

Referral Marketing Agreement. In June 2021, we and DISH Network entered into an agreement pursuant to which we will pre-qualify prospects contacting Hughes call centers and transfer those prospects to DISH Network for introduction to DISH Network’s video services, for prospects that convert Hughes will receive a commission. This agreement has an indefinite term and may be terminated by either party upon 90 days’ prior written notice.

Whidbey Island 5G Network Test Bed Subcontract. In June 2022, we and DISH Wireless entered into a subcontract (“DISH Subcontract”) pursuant to which DISH will provide access and use of a DISH lab, technical support and integration and testing support for the 5G network test bed to be delivered by Hughes to its customer. DISH Wireless additionally has agreed to lease certain licensed wireless spectrum to Hughes in connection with the project. Between June 2022 and October 2023 the scope of the DISH Subcontract has expanded to include additional spectrum leases and construction and related services work at Whidbey Island and the Lualualei Annex.

Other Receivables - DISH Network

Tax Sharing Agreement. Effective December 2007, EchoStar and DISH Network entered into a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs EchoStar and DISH Network and their respective subsidiaries’ respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network and DISH Network indemnifies EchoStar and its subsidiaries for such taxes. However, DISH Network is not liable for and does not indemnify EchoStar or its subsidiaries for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Internal Revenue Code of 1986, as amended (the “Code”), because of: (i) a direct or indirect acquisition of any of EchoStar’s stock, stock options or assets; (ii) any action that EchoStar or its subsidiaries take or fail to take or (iii) any action that EchoStar or its subsidiaries take that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, EchoStar and its subsidiaries will be solely liable for, and will indemnify DISH Network for any resulting taxes, as well as any losses, claims and expenses. The Tax Sharing Agreement will terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.

In light of the Tax Sharing Agreement, among other things, and in connection with EchoStar’s consolidated federal income tax returns for certain tax years prior to and for the year of the Spin-off, in September 2013, EchoStar and DISH Network agreed upon a supplemental allocation of the tax benefits arising from certain tax items resolved in the course of the IRS’s examination of EchoStar’s consolidated tax returns. As a result, DISH Network agreed to pay EchoStar an amount that includes the federal tax benefit DISH received as a result of our operations.

In August 2018, EchoStar and DISH Network amended the Tax Sharing Agreement and the 2013 agreements (the “Tax Sharing Amendment”). Under the Tax Sharing Amendment, DISH Network is required to compensate EchoStar for certain past and future excess California research and development tax credits generated by EchoStar and its subsidiaries and used by DISH Network.

Other Agreements

Master Transaction Agreement. In May 2019, EchoStar and BSS Corp. entered into the Master Transaction Agreement with DISH and Merger Sub with respect to the BSS Transaction. Pursuant to the terms of the Master Transaction Agreement, on September 10, 2019: (i) EchoStar and its subsidiaries and we and our subsidiaries transferred the BSS Business to BSS Corp.; (ii) EchoStar completed the Distribution; and (iii) immediately after the Distribution, (1) BSS Corp. became a wholly-owned subsidiary of DISH such that DISH owns and operates the BSS Business and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.235 shares of DISH Common Stock. Following the consummation of the BSS Transaction, we no longer operate the BSS Business, which was a substantial portion of our ESS segment. The Master Transaction Agreement contained customary representations and warranties by the parties, including EchoStar’s representations relating to the assets, liabilities and financial condition of the BSS Business, and representations by DISH Network relating to its financial condition and liabilities. EchoStar and DISH Network have agreed to indemnify each other against certain losses with respect to breaches of certain representations and covenants and certain retained and assumed liabilities, respectively.

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BSS Transaction Intellectual Property and Technology License Agreement. Effective September 2019, in connection with the BSS Transaction, we, EchoStar and DISH Network entered into an intellectual property and technology license agreement (the “BSS IPTLA”) pursuant to which we, EchoStar and its other subsidiaries and DISH Network license to each other certain intellectual property and technology. The BSS IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the BSS IPTLA, we, EchoStar and its other subsidiaries granted to DISH Network a license to our and their intellectual property and technology for use by DISH Network, among other things, in connection with its continued operation of the BSS Business acquired pursuant to the BSS Transaction, including a limited license to use the “ESS” and “ECHOSTAR SATELLITE SERVICES” trademarks during a transition period. EchoStar retains full ownership of the “ESS” and “ECHOSTAR SATELLITE SERVICES” trademarks. In addition, DISH Network granted a license back to us, EchoStar and its other subsidiaries, among other things, for the continued use of all intellectual property and technology that is used in our, EchoStar and its other subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the BSS Transaction.

BSS Transaction Tax Matters Agreement. Effective September 2019, in connection with the BSS Transaction, EchoStar, BSS Corp., and DISH entered into a tax matters agreement. This agreement governs certain rights, responsibilities and obligations of EchoStar and its subsidiaries with respect to taxes of the BSS Business transferred pursuant to the BSS Transaction. Generally, EchoStar is responsible for all tax returns and tax liabilities for the BSS Business for periods prior to the BSS Transaction and DISH is responsible for all tax returns and tax liabilities for the BSS Business from and after the BSS Transaction.

Both EchoStar and DISH made certain tax-related representations and are subject to various tax-related covenants after the consummation of the BSS Transaction. Both EchoStar and DISH Network have agreed to indemnify each other for certain losses if there is a breach of any the tax representations or violation of any of the tax covenants in the tax matters agreement and that breach or violation results in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar or its stockholders for U.S. federal income tax purposes. In addition, DISH Network has agreed to indemnify EchoStar if the BSS Business is acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons, where either it took an action, or knowingly facilitated, consented to or assisted with an action by its stockholders, that resulted in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar and its stockholders for U.S. federal income tax purposes. This tax matters agreement supplements the Tax Sharing Agreement outlined above and the Share Exchange Tax Matters Agreement outlined below, both of which continue in full force and effect.

BSS Transaction Employee Matters Agreement. Effective September 2019, in connection with the BSS Transaction, EchoStar and DISH Network entered into an employee matters agreement that addressed the transfer of employees from us to DISH Network, including certain benefit and compensation matters and the allocation of responsibility for employee related liabilities relating to current and past employees of the BSS Business. DISH Network assumed employee-related liabilities relating to the BSS Business as part of the BSS Transaction, except that EchoStar is responsible for certain pre-BSS Transaction compensation and benefits for employees who transferred to DISH Network in connection with the BSS Transaction.

Share Exchange Agreement. In February 2017 EchoStar consummated the Share Exchange, following which EchoStar and certain of its and our subsidiaries no longer operate the transferred EchoStar Technologies businesses and the Tracking Stock was retired and is no longer outstanding and all agreements, arrangements and policy statements with respect to such Tracking Stock terminated and are of no further effect. Pursuant to the Share Exchange Agreement, EchoStar and certain of its and our subsidiaries transferred certain assets, investments in joint ventures, spectrum licenses and real estate properties and DISH Network assumed certain liabilities relating to the transferred assets and businesses. The Share Exchange Agreement contained customary representations and warranties by the parties, including representations by EchoStar related to the transferred assets, assumed liabilities and the financial condition of the transferred businesses. EchoStar and DISH Network also agreed to customary indemnification provisions whereby each party indemnifies the other against certain losses with respect to breaches of representations, warranties or covenants and certain liabilities and if certain actions undertaken by EchoStar or DISH causes the transaction to be taxable to the other party after closing.

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Share Exchange Intellectual Property and Technology License Agreement. Effective March 2017, in connection with the Share Exchange, EchoStar and one of its other subsidiaries and DISH Network entered into an intellectual property and technology license agreement (“IPTLA”) pursuant to which we, EchoStar and its other subsidiaries and DISH Network license to each other certain intellectual property and technology. The IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the IPTLA, we, EchoStar and its other subsidiaries granted to DISH Network a license to our and their intellectual property and technology for use by DISH Network, among other things, in connection with its continued operation of the businesses acquired pursuant to the Share Exchange, including a limited license to use the “ECHOSTAR” trademark during a transition period. EchoStar retains full ownership of the “ECHOSTAR” trademark. In addition, DISH Network granted a license back to us, EchoStar and its other subsidiaries, among other things, for the continued use of all intellectual property and technology that is used in our, EchoStar and its other subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the Share Exchange.

Share Exchange Tax Matters Agreement. Effective March 2017, in connection with the Share Exchange, EchoStar and DISH entered into a tax matters agreement. This agreement governs certain rights, responsibilities and obligations of EchoStar and its subsidiaries with respect to taxes of the transferred businesses pursuant to the Share Exchange. Generally, EchoStar is responsible for all tax returns and tax liabilities for the transferred businesses and assets for periods prior to the Share Exchange and DISH Network is responsible for all tax returns and tax liabilities for the transferred businesses and assets from and after the Share Exchange. Both EchoStar and DISH Network made certain tax-related representations and are subject to various tax-related covenants after the consummation of the Share Exchange. Both EchoStar and DISH Network have agreed to indemnify each other if there is a breach of any such tax representation or violation of any such tax covenant and that breach or violation results in the Share Exchange not qualifying for tax free treatment for the other party. In addition, DISH Network has agreed to indemnify EchoStar if the transferred businesses are acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons and such acquisition results in the Share Exchange not qualifying for tax free treatment. The tax matters agreement supplements the Tax Sharing Agreement outlined above which continues in full force and effect.

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NOTE 12. RELATED PARTY TRANSACTIONS - OTHER

Hughes Systique Corporation

We contract with Hughes Systique Corporation (“Hughes Systique”) for software development services. In addition to our approximately 42% ownership in Hughes Systique, Mr. Pradman Kaul, the former President of our subsidiary Hughes Communications and Vice-Chair of our board of directors (effective January 1, 2023), and his brother, who is the Chief Executive Officer and President of Hughes Systique, own in the aggregate approximately 25%, on an undiluted basis, of Hughes Systique’s outstanding shares as of September 30, 2023. Furthermore, Mr. Pradman Kaul serves on the board of directors of Hughes Systique. Hughes Systique is a variable interest entity and we are considered the primary beneficiary of Hughes Systique due to, among other factors, our ability to direct the activities that most significantly impact the economic performance of Hughes Systique. As a result, we consolidate Hughes Systique’s financial statements in these Consolidated Financial Statements.

TerreStar Solutions

DISH Network owns more than 15% of TerreStar Solutions, Inc. (“TSI”) as of September 30, 2023. In May 2018, we and TSI entered into an equipment and services agreement pursuant to which we design, manufacture and install upgraded ground communications network equipment for TSI’s network and provide, among other things, warranty and support services. We recognized revenue from TSI of $0.5 million and $0.5 million for the three months ended September 30, 2023 and 2022, respectively, and $1.4 million and $1.5 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had no trade accounts receivable from TSI.

NOTE 13. CONTINGENCIES

Patents and Intellectual Property

Many entities, including some of our competitors, have, or may have in the future, patents and other intellectual property rights that cover or affect products or services directly or indirectly related to those that we offer. We may not be aware of all patents and other intellectual property rights that our products and services may potentially infringe. Damages in patent infringement cases can be substantial, and in certain circumstances can be tripled. Further, we cannot estimate the extent to which we may be required in the future to obtain licenses with respect to intellectual property rights held by others and the availability and cost of any such licenses. Various parties have asserted patent and other intellectual property rights with respect to our products and services. We cannot be certain that these parties do not own the rights they claim, that these rights are not valid or that our products and services do not infringe on these rights. Further, we cannot be certain that we would be able to obtain licenses from these parties on commercially reasonable terms or, if we were unable to obtain such licenses, that we would be able to redesign our products and services to avoid infringement.

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Certain Arrangements with DISH Network

In connection with EchoStar’s spin-off from DISH in 2008, EchoStar entered into a separation agreement with DISH Network that provides, among other things, for the division of certain liabilities, including liabilities resulting from litigation. Under the terms of the separation agreement, EchoStar assumed certain liabilities that relate to its and our business, including certain designated liabilities for acts or omissions that occurred prior to the Spin-off. Certain specific provisions govern intellectual property related claims under which EchoStar will generally only be liable for its and its subsidiaries’ acts or omissions following the Spin-off and DISH Network will indemnify EchoStar for any liabilities or damages resulting from intellectual property claims relating to the period prior to the Spin-off as well as DISH Network’s acts or omissions following the Spin-off. In connection with the Share Exchange and BSS Transaction, EchoStar and certain of its and our subsidiaries entered into the Share Exchange Agreement and the Master Transaction Agreement, respectively, and other agreements which provide, among other things, for the division of certain liabilities, including liabilities relating to taxes, intellectual property and employees and liabilities resulting from litigation and the assumption of certain liabilities that relate to the transferred businesses and assets. These agreements also contain additional indemnification provisions between EchoStar and us and DISH Network for, in the case of the Share Exchange, certain pre-existing liabilities and legal proceedings and, in the case of the BSS Transaction, certain losses with respect to breaches of certain representations and covenants and certain liabilities.

Litigation

We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities. Many of these proceedings are at preliminary stages and/or seek an indeterminate amount of damages. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable and to determine if accruals are appropriate. We record an accrual for litigation and other loss contingencies when we determine that a loss is probable, and the amount of the loss can be reasonably estimated. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made. There can be no assurance that legal proceedings against us will be resolved in amounts that will not differ from the amounts of our recorded accruals. Legal fees and other costs of defending legal proceedings are charged to selling, general and administrative expense as incurred.

For certain proceedings, management is unable to predict with any degree of certainty the outcome or provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons: (i) the proceedings are in various stages; (ii) damages have not been sought or specified; (iii) damages are unsupported, indeterminate and/or exaggerated in management’s opinion; (iv) there is uncertainty as to the outcome of pending trials, appeals, motions or other proceedings; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories to be presented or a large number of parties are involved (as with many patent-related cases). Except as described below, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial condition, operating results or cash flows, though there is no assurance that the resolution and outcomes of these proceedings, individually or in the aggregate, will not be material to our financial condition, operating results or cash flows for any particular period, depending, in part, upon the operating results for such period.

We intend to vigorously defend the proceedings against us. In the event that a court, tribunal, other body or jury ultimately rules against us, we may be subject to adverse consequences, including, without limitation, substantial damages, which may include treble damages, fines, penalties, compensatory damages and/or other equitable or injunctive relief that could require us to materially modify our business operations or certain products or services that we offer to our consumers.

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License Fee Dispute with Government of India, Department of Telecommunications

In 1994, the Government of India promulgated a “National Telecommunications Policy” under which the government liberalized the telecommunications sector and required telecommunications service providers to pay fixed license fees. Pursuant to this policy, our subsidiary Hughes Communications India Private Limited (“HCIPL”), formerly known as Hughes Escorts Communications Limited, obtained a license to operate a data network over satellite using VSAT systems. In 2002, HCIPL’s license was amended pursuant to a new government policy that was first established in 1999. The new policy eliminated the fixed license fees and instead required each telecommunications service provider to pay license fees based on its adjusted gross revenue (“AGR”). In March 2005, the Indian Department of Telecommunications (“DOT”) notified HCIPL that, based on its review of HCIPL’s audited accounts and AGR statements, HCIPL must pay additional license fees and penalties and interest on such fees and penalties. HCIPL responded that the DOT had improperly calculated its AGR by including revenue from licensed and unlicensed activities. The DOT rejected this explanation and in 2006, HCIPL filed a petition with an administrative tribunal (the “Tribunal”), challenging the DOT’s calculation of its AGR. The DOT also issued license fee assessments to other telecommunications service providers and a number of similar petitions were filed by several other such providers with the Tribunal. These petitions were amended, consolidated, remanded and re-appealed several times. On April 23, 2015, the Tribunal issued a judgment affirming the DOT’s calculation of AGR for the telecommunications service providers but reversing the DOT’s imposition of interest, penalties and interest on such penalties as excessive. Over subsequent years, the DOT and HCIPL and other telecommunications service providers, respectively, filed several appeals of the Tribunal’s ruling. On October 24, 2019, the Supreme Court of India (“Supreme Court”) issued an order (the “October 2019 Order”) affirming the license fee assessments imposed by the DOT, including its imposition of interest, penalties and interest on the penalties, but without indicating the amount HCIPL is required to pay the DOT, and ordering payment by January 23, 2020. On November 23, 2019, HCIPL and other telecommunication service providers filed a petition asking the Supreme Court to reconsider the October 2019 Order. The petition was denied on January 20, 2020. On January 22, 2020, HCIPL and other telecommunication service providers filed an application requesting that the Supreme Court modify the October 2019 Order to permit the DOT to calculate the final amount due and extend HCIPL’s and the other telecommunication service providers’ payment deadline. On February 14, 2020, the Supreme Court directed HCIPL and the other telecommunication service providers to explain why the Supreme Court should not initiate contempt proceedings for failure to pay the amounts due. During a hearing on March 18, 2020, the Supreme Court ordered that all amounts that were due before the October 2019 Order must be paid, including interest, penalties and interest on the penalties. The Supreme Court also ordered that the parties appear for a further hearing addressing, potentially among other things, a proposal by the DOT to allow for extended or deferred payments of amounts due. On June 11, 2020, the Supreme Court ordered HCIPL and the other telecommunication service providers to submit affidavits addressing the proposal made by the DOT to extend the time frame for payment of the amounts owed and for HCIPL and the other telecommunication providers to provide security for such payments. On September 1, 2020, the Supreme Court issued a judgment permitting a 10-year payment schedule. Under this payment schedule, HCIPL is required to make an annual payment every March 31, through 2031. Following the Supreme Court of India’s October 2019 judgment, HCIPL made payments during the first quarter of 2020, and additional payments on each March 31 thereafter.

Pursuant to the Contribution and Membership Interest Purchase Agreement (the “Purchase Agreement”) dated December 3, 2004 between The DirecTV Group, Inc. ("DirecTV") and certain other entities relating to the spinoff by DirecTV of certain of its subsidiaries, including HCIPL, DirecTV undertook indemnification obligations to HCIPL, and HCIPL has pursued indemnification claims against DirecTV under the Purchase Agreement in connection with the license fees assessed in this proceeding.

On June 22, 2023, the United States Court of Appeals for the Second Circuit ruled that, under the Purchase Agreement, HCIPL, is entitled to indemnification from DirecTV, with the amount of indemnification to be determined in further proceedings before the district court in New York.

The following table presents the components of the accrual:


	As of
	September 30, 2023		December 31, 2022
Additional license fees	$	3,411	$	3,425
Penalties	3,501		3,516
Interest and interest on penalties	81,592		78,327
Less: Payments	(27,855)		(17,785)
Total accrual	60,649		67,483
Less: Current portion	10,147		10,191
Total long-term accrual	$	50,502	$	57,292

Any eventual payments made with respect to the ultimate outcome of this matter may be different from our accrual and such differences could be significant.

Other

In addition to the above actions, we are subject to various other legal proceedings and claims, which arise in the ordinary course of business. As part of our ongoing operations, we are subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as by governmental/regulatory authorities responsible for enforcing the laws and regulations to which we may be subject. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the federal government. Some states have adopted similar state whistleblower and false claims provisions. In addition, we from time to time receive inquiries from federal, state and foreign agencies regarding compliance with various laws and regulations.

In our opinion, the amount of ultimate liability with respect to any of these other actions is unlikely to materially affect our financial position, results of operations or cash flows, though the resolutions and outcomes, individually or in the aggregate, could be material to our financial position, operating results or cash flows for any particular period, depending, in part, upon the operating results for such period.

We also indemnify our directors, officers and employees for certain liabilities that might arise from the performance of their responsibilities for us. Additionally, in the normal course of its business, we enter into contracts pursuant to which we may make a variety of representations and warranties and indemnify the counterparty for certain losses. Our possible exposure under these arrangements cannot be reasonably estimated as this involves the resolution of claims made, or future claims that may be made, against us or our officers, directors or employees, the outcomes of which are unknown and not currently predictable or estimable.

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NOTE 14. SEGMENT REPORTING

Business segments are components of an enterprise for which separate financial information is available and regularly evaluated by our chief operating decision maker (“CODM”), who is our Chief Executive Officer. We operate in two business segments: Hughes segment and ESS segment.

The primary measure of segment profitability that is reported regularly to our CODM is earnings before interest, taxes, depreciation and amortization, and net income (loss) attributable to non-controlling interests (“EBITDA”).

Total assets by segment have not been reported herein because the information is not provided to our CODM on a regular basis.

The following table presents total revenue, capital expenditures and EBITDA for each of our business segments:


	Hughes		ESS		Corporate and Other		Consolidated Total
For the three months ended September 30, 2023
External revenue	$	404,209	$	5,873	$	1,123	$	411,205
Intersegment revenue	—		573		(573)		—
Total revenue	$	404,209	$	6,446	$	550	$	411,205

Capital expenditures	$	51,214	$	130	$	—	$	51,344
EBITDA	$	142,204	$	4,868	$	(15,638)	$	131,434

For the three months ended September 30, 2022
External revenue	$	489,565	$	4,588	$	5,013	$	499,166
Intersegment revenue	—		393		(393)		—
Total revenue	$	489,565	$	4,981	$	4,620	$	499,166

Capital expenditures	$	50,783	$	—	$	—	$	50,783
EBITDA	$	175,011	$	3,446	$	(12,552)	$	165,905


	Hughes		ESS		Corporate and Other		Consolidated Total
For the nine months ended September 30, 2023
External revenue	$	1,279,739	$	16,940	$	3,388	$	1,300,067
Intersegment revenue	—		1,623		(1,623)		—
Total revenue	$	1,279,739	$	18,563	$	1,765	$	1,300,067

Capital expenditures	$	142,189	$	130	$	—	$	142,319
EBITDA	$	440,435	$	14,085	$	(54,483)	$	400,037

For the nine months ended September 30, 2022
External revenue	$	1,475,512	$	13,366	$	15,029	$	1,503,907
Intersegment revenue	—		939		(939)		—
Total revenue	$	1,475,512	$	14,305	$	14,090	$	1,503,907

Capital expenditures	$	176,665	$	—	$	—	$	176,665
EBITDA	$	546,109	$	9,658	$	(34,638)	$	521,129

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(Unaudited)

The following table reconciles Income (loss) before income taxes in the Consolidated Statements of Operations to EBITDA:


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Income (loss) before income taxes	32,862		$	45,497	95,969		131,382
Interest income, net	(22,807)		(8,881)		(60,911)		(15,440)
Interest expense, net of amounts capitalized	22,037		22,787		66,770		69,261
Depreciation and amortization	96,630		103,648		292,204		327,190
Net loss (income) attributable to non-controlling interests	2,712		2,854		6,005		8,736
EBITDA	$	131,434	$	165,905	$	400,037	$	521,129

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(Unaudited)

NOTE 15. SUPPLEMENTAL FINANCIAL INFORMATION

Other Current Assets, Net and Other Non-current Assets, Net

The following table presents the components of Other current assets, net and Other non-current assets, net:


	As of
	September 30, 2023		December 31, 2022
Other current assets, net:
Inventory	167,181		123,006
Related party receivables - EchoStar	$	95,767	$	112,985
Prepaids and deposits	24,792		23,948
Trade accounts receivable - DISH Network	2,097		1,992
Other, net	14,135		13,271
Total other current assets	$	303,972	$	275,202

Other non-current assets, net:
Capitalized software, net	$	117,473	$	116,844
Related party receivables - EchoStar	58,048		55,834
Contract acquisition costs, net	53,114		64,447
Deferred tax assets, net	8,766		7,822
Restricted cash	1,335		1,341
Contract fulfillment costs, net	1,780		1,931
Other receivables, net	33,517		15,249
Other, net	21,800		22,409
Total other non-current assets, net	$	295,833	$	285,877

Inventory

The following table presents the components of inventory:


	As of
	September 30, 2023		December 31, 2022
Raw materials	$	40,227	$	32,920
Work-in-process	25,316		16,408
Finished goods	101,638		73,678
Total inventory	$	167,181	$	123,006

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(Unaudited)

Accrued Expenses and Other Current Liabilities and Other Non-Current Liabilities

The following table presents the components of Accrued expenses and other current liabilities and Other non-current liabilities:


	As of
	September 30, 2023		December 31, 2022
Accrued expenses and other current liabilities:
Related party payables - EchoStar	$	236,928	$	216,504
Accrued compensation	42,562		40,684
Accrued expenses	37,626		35,909
Operating lease obligation	17,799		17,766
Accrued interest	16,399		39,194
Accrued taxes	12,309		10,631
Accrual for license fee dispute	10,147		10,191
In-orbit incentive obligations	4,737		5,369
Trade accounts payable - DISH Network	733		567
Other	18,301		17,084
Total accrued expenses and other current liabilities	$	397,541	$	393,899

Other non-current liabilities:
Accrual for license fee dispute	$	50,502	$	57,292
In-orbit incentive obligations	42,324		44,836
Related party payables - EchoStar	23,287		23,423
Contract liabilities	6,999		8,326
Other	3,813		20
Total other non-current liabilities	$	126,925	$	133,897

Supplemental and Non-cash Investing and Financing Activities

The following table presents the year-to-date supplemental and non-cash investing and financing activities:


	For the nine months ended September 30,
	2023		2022
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	92,257	$	92,795
Cash paid for income taxes, net of refunds	$	3,233	$	8,317

Non-cash investing and financing activities:
Increase (decrease) in capital expenditures included in accounts payable, net	$	(2,212)	$	(7,097)
Non-cash net assets received as part of the India JV formation	$	—	$	36,701

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(Unaudited)

NOTE 16. SUPPLEMENTAL GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

Certain of our wholly-owned subsidiaries (together, the “Guarantor Subsidiaries”) have fully and unconditionally guaranteed, on a joint and several basis, the obligations of our Notes. See Note 8. Long-term Debt for further information on our Notes.

In lieu of separate financial statements of the Guarantor Subsidiaries, accompanying consolidating financial information prepared in accordance with Rule 3-10(f) of Regulation S-X is presented below, including the accompanying balance sheet information, the accompanying statement of operations and comprehensive income (loss) information and the accompanying statement of cash flows information of HSSC, the Guarantor Subsidiaries on a combined basis and the non-guarantor subsidiaries of HSSC on a combined basis and the eliminations necessary to arrive at the corresponding information of HSSC on a consolidated basis.

The indentures governing our Notes contain restrictive covenants that, among other things, impose limitations on our ability and the ability of certain of our subsidiaries to pay dividends or make distributions, incur additional debt, make certain investments, create liens or enter into sale and leaseback transactions, merge or consolidate with another company, transfer and sell assets, enter into transactions with affiliates or allow to exist certain restrictions on the ability to pay dividends, make distributions, make other payments, or transfer assets.

The accompanying consolidating financial information (amounts in thousands) presented below should be read in conjunction with our Consolidated Financial Statements and notes thereto included herein.

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(Unaudited)

Consolidating Balance Sheet as of September 30, 2023


	Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Assets
Current assets:
Cash and cash equivalents	$	818,287	$	22,668	$	84,291	$	—	$	925,246
Marketable investment securities	694,582		—		—		—		694,582
Trade accounts receivable and contract assets, net	—		161,502		73,900		—		235,402
Other current assets, net	2,568		1,553,719		272,203		(1,524,518)		303,972
Total current assets	1,515,437		1,737,889		430,394		(1,524,518)		2,159,202
Non-current assets:
Property and equipment, net	—		1,083,111		184,293		—		1,267,404
Operating lease right-of-use assets	—		115,642		27,331		—		142,973
Goodwill	—		504,173		28,537		—		532,710
Regulatory authorizations, net	—		400,000		8,148		—		408,148
Other intangible assets, net	—		11,385		2,590		—		13,975
Other investments, net	8,659		—		36,389		—		45,048
Investment in subsidiaries	3,391,070		297,836		—		(3,688,906)		—
Other non-current assets, net	1,112		260,847		163,329		(129,455)		295,833
Total non-current assets	3,400,841		2,672,994		450,617		(3,818,361)		2,706,091
Total assets	$	4,916,278	$	4,410,883	$	881,011	$	(5,342,879)	$	4,865,293
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable	$	1	$	67,587	$	11,846	$	—	$	79,434
Contract liabilities	—		117,993		4,295		—		122,288
Accrued expenses and other current liabilities	1,297,696		323,497		300,866		(1,524,518)		397,541
Total current liabilities	1,297,697		509,077		317,007		(1,524,518)		599,263
Non-current liabilities:
Long-term debt, net	1,497,396		—		—		—		1,497,396
Deferred tax liabilities, net	—		300,160		1,451		(591)		301,020
Operating lease liabilities	—		104,835		22,279		—		127,114
Other non-current liabilities	—		106,302		149,487		(128,864)		126,925
Total non-current liabilities	1,497,396		511,297		173,217		(129,455)		2,052,455
Total liabilities	2,795,093		1,020,374		490,224		(1,653,973)		2,651,718
Shareholder's equity:
Total Hughes Satellite Systems Corporation shareholder's equity	2,121,185		3,390,509		298,397		(3,688,906)		2,121,185
Non-controlling interests	—		—		92,390		—		92,390
Total shareholder's equity	2,121,185		3,390,509		390,787		(3,688,906)		2,213,575
Total liabilities and shareholder's equity	$	4,916,278	$	4,410,883	$	881,011	$	(5,342,879)	$	4,865,293

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(Unaudited)

Consolidating Balance Sheet as of December 31, 2022


	Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Assets
Current assets:
Cash and cash equivalents	$	547,605	$	25,318	$	80,209	$	—	$	653,132
Marketable investment securities	799,769		—		—		—		799,769
Trade accounts receivable and contract assets, net	—		168,484		67,852		—		236,336
Other current assets, net	71		1,330,813		284,621		(1,340,303)		275,202
Total current assets	1,347,445		1,524,615		432,682		(1,340,303)		1,964,439
Non-current assets:
Property and equipment, net	—		1,140,294		235,710		—		1,376,004
Operating lease right-of-use assets	—		121,609		29,023		—		150,632
Goodwill	—		504,173		28,318		—		532,491
Regulatory authorizations, net	—		400,000		8,619		—		408,619
Other intangible assets, net	—		12,499		3,199		—		15,698
Other investments, net	8,920		—		74,603		—		83,523
Investment in subsidiaries	3,312,961		358,141		—		(3,671,102)		—
Other non-current assets, net	1,095		261,906		163,165		(140,289)		285,877
Total non-current assets	3,322,976		2,798,622		542,637		(3,811,391)		2,852,844
Total assets	$	4,670,421	$	4,323,237	$	975,319	$	(5,151,694)	$	4,817,283
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable	$	477	$	85,327	$	12,425	$	—	$	98,229
Contract liabilities	—		115,893		5,846		—		121,739
Accrued expenses and other current liabilities	1,121,740		296,666		315,796		(1,340,303)		393,899
Total current liabilities	1,122,217		497,886		334,067		(1,340,303)		613,867
Non-current liabilities:
Long-term debt, net	1,496,777		—		—		—		1,496,777
Deferred tax liabilities, net	—		288,716		1,451		(410)		289,757
Operating lease liabilities	—		111,052		24,070		—		135,122
Other non-current liabilities	—		113,183		160,593		(139,879)		133,897
Total non-current liabilities	1,496,777		512,951		186,114		(140,289)		2,055,553
Total liabilities	2,618,994		1,010,837		520,181		(1,480,592)		2,669,420
Shareholder's equity:
Total Hughes Satellite Systems Corporation shareholder's equity	2,051,427		3,312,400		358,702		(3,671,102)		2,051,427
Non-controlling interests	—		—		96,436		—		96,436
Total shareholder's equity	2,051,427		3,312,400		455,138		(3,671,102)		2,147,863
Total liabilities and shareholder's equity	$	4,670,421	$	4,323,237	$	975,319	$	(5,151,694)	$	4,817,283

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Consolidating Statement of Operations and Comprehensive Income (Loss)

For the Three Months Ended September 30, 2023


	Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Revenue:
Services and other revenue	$	—	$	291,125	$	74,474	$	(8,098)	$	357,501
Equipment revenue	—		50,989		7,106		(4,391)		53,704
Total revenue	—		342,114		81,580		(12,489)		411,205
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	—		96,841		43,917		(8,968)		131,790
Cost of sales - equipment (exclusive of depreciation and amortization)	—		42,046		4,438		(3,359)		43,125
Selling, general and administrative expenses	—		80,088		17,688		(162)		97,614
Research and development expenses	—		6,383		81		—		6,464
Depreciation and amortization	—		68,635		27,995		—		96,630
Total costs and expenses	—		293,993		94,119		(12,489)		375,623
Operating income (loss)	—		48,121		(12,539)		—		35,582
Other income (expense):
Interest income, net	21,071		1,422		1,197		(883)		22,807
Interest expense, net of amounts capitalized	(22,475)		1,815		(2,260)		883		(22,037)
Gains (losses) on investments, net	22		—		—		—		22
Equity in earnings (losses) of unconsolidated affiliates, net	681		—		(2,659)		—		(1,978)
Other-than-temporary impairment losses on equity method investments	—		—		—		—		—
Equity in earnings (losses) of subsidiaries, net	25,816		(16,449)		—		(9,367)		—
Foreign currency transaction gains (losses), net	—		724		(2,245)		—		(1,521)
Other, net	—		1		(14)		—		(13)
Total other income (expense), net	25,115		(12,487)		(5,981)		(9,367)		(2,720)
Income (loss) before income taxes	25,115		35,634		(18,520)		(9,367)		32,862
Income tax benefit (provision), net	(87)		(9,818)		(641)		—		(10,546)
Net income (loss)	25,028		25,816		(19,161)		(9,367)		22,316
Less: Net loss (income) attributable to non-controlling interests	—		—		2,712		—		2,712
Net income (loss) attributable to HSSC	$	25,028	$	25,816	$	(16,449)	$	(9,367)	$	25,028

Net income (loss)	$	25,028	$	25,816	$	(19,161)	$	(9,367)	$	22,316
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	—		—		(12,163)		—		(12,163)
Unrealized gains (losses) on available-for-sale securities	(83)		—		—		—		(83)
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale securities	21		—		—		—		21
Equity in other comprehensive income (loss) of subsidiaries, net	(10,260)		(10,260)		—		20,520		—
Total other comprehensive income (loss), net of tax	(10,322)		(10,260)		(12,163)		20,520		(12,225)
Comprehensive income (loss)	14,706		15,556		(31,324)		11,153		10,091
Less: Comprehensive loss (income) attributable to non-controlling interests	—		—		4,615		—		4,615
Comprehensive income (loss) attributable to HSSC	$	14,706	$	15,556	$	(26,709)	$	11,153	$

Hughes Satellite Systems Corp 10-Q