EchoStar CORP (SATS) FY 2022 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of our Financial Condition and Results of Operations (“Management’s Discussion and Analysis”) should be read in conjunction with our Consolidated Financial Statements.  This Management’s Discussion and Analysis is intended to help provide an understanding of our financial condition, changes in our financial condition and our results of operations.  Many of the statements in this Management’s Discussion and Analysis are forward-looking statements that involve assumptions and are subject to risks and uncertainties that are often difficult to predict and beyond our control.  Actual results could differ materially from those expressed or implied by such forward-looking statements.  See Disclosure Regarding Forward-Looking Statements of this Form 10-K for further discussion.  For a discussion of additional risks, uncertainties and other factors that could impact our results of operations or financial condition, see Item 1A. Risk Factors of this Form 10-K.  Further, such forward-looking statements speak only as of the date of this Form 10-K and we undertake no obligation to update them.

EXECUTIVE SUMMARY

Overview

We currently operate in two business segments: our Hughes segment and our ESS segment. Our operations include various corporate functions 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 our Corporate and Other segment in our segment reporting.

All amounts presented in this Management’s Discussion and Analysis are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.

Hughes Segment

Our Hughes segment is 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 offer broadband satellite technologies and broadband internet products and services to consumer customers. We offer broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to government and enterprise customers.

Our Hughes segment continues to focus its efforts on optimizing financial returns of our existing satellites while planning for new satellite capacity to be launched, leased or acquired. Our consumer revenue growth depends on our success in adding new and retaining existing subscribers, as well as increasing our Average Revenue Per User/subscriber (“ARPU”). Service and acquisition costs related to ongoing support for our direct and indirect customers and partners are typically impacted most significantly by our growth. The growth of our enterprise and consumer businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. In most areas of the U.S. we are nearing or have reached capacity, which has resulted in our consumer subscriber base becoming increasingly limited. Our Latin America consumer subscriber base in certain areas has also become capacity constrained. These constraints are expected to be addressed by the launch of the EchoStar XXIV satellite.

To date, we have not experienced a material adverse impact from the Russia-Ukraine conflict and the associated sanctions.

On January 4, 2022, our India JV was formed, which allows us to offer flexible and scalable enterprise networking solutions using satellite connectivity for primary transport, back-up and hybrid implementation in India.

We expect to launch the EchoStar XXIV satellite in the second quarter of 2023. The EchoStar XXIV satellite is primarily intended to provide additional capacity for our HughesNet service in North, Central and South America as well as enterprise broadband services. Following delays of over two years, in November 2022 we negotiated an amendment to our contract with the manufacturer to provide for additional compensation for past delays and a realignment of remedies. See Item 1 Business – Hughes Segment of this Form 10-K for further information. Delay in the availability of the EchoStar XXIV satellite could have a material adverse impact on our business operations, future revenues, financial position and prospects, and our planned expansion of satellite broadband services

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throughout North, South and Central America. Capital expenditures associated with the construction and launch of the EchoStar XXIV satellite are included in our Corporate and Other segment in our segment reporting.

Our broadband subscribers include customers that subscribe to our HughesNet services in the U.S. and Latin America through retail, wholesale and small/medium enterprise service channels.

The following table presents our approximate number of broadband subscribers:

The following table presents the approximate number of net subscriber additions for each quarter in 2022:

Our ability to gain new customers and retain existing customers in the U.S. is being impacted by our capacity limitations as well as competitive pressure from satellite-based competitors and other technologies. For the three months ended December 31, 2022, these factors resulted in lower total subscribers as compared to the three months ended September 30, 2022.

Our ability to gain new customers and retain existing customers in Latin America is also being impacted by adverse economic conditions. In addition, capacity constraints in certain areas limit our ability to add new subscribers. For the three months ended December 31, 2022, the decline in net subscribers was primarily due to more selective customer screening and improved churn as compared to the three months ended September 30, 2022.

We continued to execute our strategy of maximizing financial returns by utilizing capacity for higher economic value enterprise and government applications in Latin America. Continued success of this strategy will further reduce the available capacity for consumer subscribers.

As of December 31, 2022 and 2021, our Hughes segment had $1.5 billion and $1.4 billion of contracted revenue backlog, respectively, an increase of 7.1% during that period, primarily due to an increase in contracts from our domestic and international customers. Of the total Hughes segment contracted revenue backlog as of December 31, 2022, we expect to recognize $461.0 million of revenue in 2023. We define Hughes segment contracted revenue backlog as our expected future revenue under enterprise customer contracts that are non-cancelable, including lease revenue.

Goodwill Impairment Assessment

We test goodwill for impairment annually in our second fiscal quarter, or more frequently if indicators of impairment exist. Goodwill is assessed for impairment at the reporting unit level. Reporting units are identified based on how segment management evaluates the results of segment operations and makes resource allocation decisions to such reporting units. All of our goodwill is assigned to our Hughes segment. We conducted our annual impairment test of goodwill during our second fiscal quarter on a qualitative basis and determined that no adjustment to the carrying value of goodwill was then necessary because the fair value exceeded carrying value for our Hughes reporting unit.

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During the quarter ended December 31, 2022, we conducted a quantitative interim test of goodwill for all of our reporting units due to the decline of our stock price since our interim test in the third quarter of 2022. As a result of this interim test, no goodwill impairment was identified. The fair value of the Hughes reporting unit exceeded the carrying value by more than 20%. We concluded that there were no other indicators of impairment for the quarter ended December 31, 2022. Given the decline in our stock price during the year ended December 31, 2022, we believe it is reasonably possible that a further sustained decline in our stock price and market capitalization would result in all or a significant portion of our goodwill becoming impaired. The impairment of goodwill has no effect on liquidity or capital resources. However, it would result in a material non-cash charge and would materially adversely affect our financial results in the period recognized.

When estimating the fair value of our Hughes reporting unit, we used a combination of the discounted cash flow and market multiple methodologies. We weighted 50% of the fair value using a discounted cash flow methodology and 50% using a market multiple approach. Although we concluded that recent transactions further supported our estimate of fair value, we gave them no such weight as the discounted cash flow and market multiple methodologies were considered more relevant and more reliable to be used in our fair value estimate.

In our discounted cash flow methodology, we developed and utilized a range of inputs that we believe to be reasonable and appropriately conservative. These inputs included, but were not limited to, revenue growth, EBITDA margins, capital expenditures, a terminal growth rate and a discount rate. In our market multiple approach, we also utilized what we believe to be a reasonable and appropriately conservative range of revenue and EBITDA multiples.

ESS Segment

Our ESS segment provides satellite services on a full-time and/or occasional-use basis to U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers. We operate our ESS business using primarily the EchoStar IX satellite and the EchoStar 105/SES-11 satellite and related infrastructure. Revenue in our ESS segment depends largely on our ability to continuously make use of our available satellite capacity with existing customers and our ability to enter into commercial relationships with new customers.

As of December 31, 2022 and 2021, our ESS segment had contracted revenue backlog of $22.3 million and $10.4 million, respectively, an increase of 114.4% during that period, primarily due to an increase in satellite service contracts with existing and new customers. Of the total ESS segment contracted revenue backlog as of December 31, 2022, we expect to recognize $16.5 million of revenue in 2023. We define contracted revenue backlog for our ESS segment as contracted future satellite lease revenue.

Corporate and Other Segment

Satellite Anomalies and Impairments

During the first quarter of 2023, we lost contact with our third nano-satellite (“EG-3”), which was launched in the second quarter of 2021 and brought into use our Sirion-1 ITU filing in the third quarter of 2021. We are continuing attempts to reestablish contact with EG-3, and in the event we are unable to do so, we will have three years to place a new S-band spacecraft at the altitude prescribed in our Australian ITU filing. We expect the first group of S-band satellites recently ordered from Astro Digital to be launched well in advance of the three year replacement timeline. We are not aware of any other anomalies with respect to our owned or leased satellites as of the date of these Consolidated Financial Statements. There can be no assurance, however, that anomalies will not have a significant adverse effect in the future. In addition, there can be no assurance that we can recover critical transmission capacity in the event one or more of our satellites were to fail.

Cybersecurity

We are not aware of any cyber-incidents with respect to our owned or leased satellites or other networks, equipment or systems that have had a material adverse effect on our business, costs, operations, prospects, results of operation or financial position during the year ended December 31, 2022 and through February 22, 2023. There

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can be no assurance, however, that any such incident can be detected or thwarted or will not have such a material adverse effect in the future.

EXPLANATION OF KEY METRICS AND OTHER ITEMS

Services and other revenue.  Services and other revenue primarily includes the sales of consumer and enterprise broadband services, maintenance and other contracted services, revenue associated with satellite and transponder leases and services, satellite uplinking/downlinking, subscriber wholesale service fees for the HughesNet service, professional services and facilities rental revenue.

Equipment revenue.  Equipment revenue primarily includes broadband equipment and networks sold to customers in our consumer and enterprise markets.

Cost of sales - services and other.  Cost of sales - services and other primarily includes the cost of broadband services provided to our consumer and enterprise customers, maintenance and other contracted services, costs associated with satellite and transponder leases and services, professional services and facilities rental.

Cost of sales - equipment.  Cost of sales - equipment consists primarily of the cost of broadband equipment and networks provided to customers in our consumer and enterprise markets. It also includes certain other costs associated with the deployment of equipment to our customers.

Selling, general and administrative expenses.  Selling, general and administrative expenses primarily include selling and marketing costs and employee-related costs associated with administrative services (e.g., information systems, human resources and other services), including bad debt expense and stock-based compensation expense.  It also includes professional fees (e.g. legal, information systems and accounting services) and other expenses associated with facilities and administrative services.

Research and development expenses.  Research and development expenses primarily include costs associated with the design and development of products to support future growth and provide new technology and innovation to our customers.

Impairment of long-lived assets. Impairment of long-lived assets includes our impairment losses related to our property and equipment, goodwill, regulatory authorizations and other intangible assets.

Interest income, net.  Interest income, net primarily includes interest earned on our cash, cash equivalents and marketable investment securities, and other investments including premium amortization and discount accretion on debt securities.

Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized primarily includes interest expense associated with our debt and finance lease obligations (net of capitalized interest), amortization of debt issuance costs and interest expense related to certain legal proceedings.

Gains (losses) on investments, net.  Gains (losses) on investments, net primarily includes changes in fair value of our marketable equity securities and other investments for which we have elected the fair value option. It may also include realized gains and losses on the sale or exchange of our available-for-sale debt securities, other-than-temporary impairment losses on our available-for-sale securities, realized gains and losses on the sale or exchange of equity securities and debt securities without readily determinable fair value and adjustments to the carrying amount of investments in unconsolidated affiliates and marketable equity securities resulting from impairments and observable price changes.

Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net includes earnings or losses from our investments accounted for using the equity method.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net include gains and losses resulting from the re-measurement of transactions denominated in foreign currencies.

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Other, net.  Other, net primarily includes dividends received from our marketable investment securities and other non-operating income and expense items that are not appropriately classified elsewhere in the Consolidated Statements of Operations in our Consolidated Financial Statements.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as Net income (loss) excluding Interest income and expense, net, Income tax benefit (provision), net, Depreciation and amortization, and Net income (loss) attributable to non-controlling interests.  EBITDA is not a measure determined in accordance with U.S. generally accepted accounting principles (“GAAP”). This non-GAAP measure is reconciled to Net income (loss) in our discussion of Results of Operations section below. EBITDA should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with GAAP. EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors. Management believes EBITDA provides meaningful supplemental information regarding the underlying operating performance of our business and is appropriate to enhance an overall understanding of our financial performance. Management also believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate the performance of companies in our industry.

Subscribers. Subscribers include customers that subscribe to our HughesNet service, through retail, wholesale and small/medium enterprise service channels.

Highlights from our Financial Results

Consolidated Results of Operations for the Year Ended December 31, 2022:

• Revenue of $2.0 billion

•Operating income of $189.6 million

•Net income of $166.5 million

•Net income attributable to EchoStar common stock of $177.1 million and basic and diluted earnings per share of common stock of $2.10

•EBITDA of $707.6 million (see reconciliation of this non-GAAP measure in Results of Operations)

Consolidated Financial Condition as of December 31, 2022:

•Total assets of $6.2 billion

•Total liabilities of $2.6 billion

•Total stockholders’ equity of $3.6 billion

•Cash and cash equivalents and marketable investment securities of $1.7 billion

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RESULTS OF OPERATIONS

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

The following table presents our consolidated results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021:

(1)    An explanation of our key metrics is included in Explanation of Key Metrics and Other Items.

(2)    A reconciliation of EBITDA to Net income (loss), the most directly comparable GAAP measure in our Consolidated Financial Statements, is included in Results of Operations. For further information on our use of EBITDA, see Explanation of Key Metrics and Other Items.

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The following discussion relates to our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021:

Services and other revenue.  Services and other revenue totaled $1.6 billion for the year ended December 31, 2022, a decrease of $91.4 million, or 5.3%, as compared to 2021.  The decrease was primarily attributable to our Hughes segment related to lower sales of broadband services to our consumer customers of $103.1 million, partially offset by higher sales of broadband services to our enterprise customers of $5.3 million and to our mobile satellite system and other customers of $4.5 million. Our ESS segment increased by $2.9 million. These variances reflect an estimated negative impact of exchange rate fluctuations of $5.9 million, primarily attributable to our enterprise customers.

Equipment revenue.  Equipment revenue totaled $374.2 million for the year ended December 31, 2022, an increase of $103.7 million, or 38.4%, as compared to 2021.  The increase was primarily attributable to: i) increases in hardware sales to our enterprise customers of $102.6 million mainly associated with a certain customer in North America and to international customers, and ii) increases on our hardware sales to our mobile satellite system customers of $6.6 million, partially offset by decreases in hardware sales of $5.5 million to our consumer customers.

Cost of sales - services and other.  Cost of sales - services and other totaled $569.8 million for the year ended December 31, 2022, an increase of $18.1 million, or 3.3%, as compared to 2021. The increase was attributable to a non-recurring decrease in a certain international regulatory fee of $4.5 million in 2021 and increases in cost of services provided to our consumer and enterprise customers, mainly related to service delivery expenses, such as field services and customer care.

Cost of sales - equipment.  Cost of sales - equipment totaled $292.3 million for the year ended December 31, 2022, an increase of $60.3 million, or 26.0%, as compared to 2021. The increase was primarily attributable to the corresponding increase in equipment revenue and change in product mix.

Selling, general and administrative expenses.  Selling, general and administrative expenses totaled $455.2 million for the year ended December 31, 2022, a decrease of $6.5 million, or 1.4%, as compared to 2021. The decrease was primarily attributable to decreases in: i) sales and marketing expenses of $18.5 million and ii) legal expenses of $2.3 million, offset by increases in: i) bad debt expense of $7.4 million primarily due to the recovery of bad debt reserves in 2021 and ii) other general and administrative expenses of $6.9 million.

Depreciation and amortization.  Depreciation and amortization expenses totaled $457.6 million for the year ended December 31, 2022, a decrease of $33.7 million, or 6.9%, as compared to 2021.  The decrease was primarily attributable to: i) decreases in other property and equipment depreciation expense of $27.7 million, ii) decreases in our satellite depreciation of $8.9 million, mainly related to our SPACEWAY 3 satellite which was fully depreciated at the end of the first quarter of 2021, and iii) decreases in amortization of intangibles of $2.1 million. These decreases were partially offset by increases in amortization of our capitalized software of $5.7 million.

Interest income, net.  Interest income, net totaled $50.9 million for the year ended December 31, 2022, an increase of $28.1 million, or 123.2%, as compared to 2021, primarily attributable to increases in the yield on our marketable investment securities and an increase in our marketable investment securities average balance.

Interest expense, net of amounts capitalized.  Interest expense, net of amounts capitalized, totaled $57.2 million for the year ended December 31, 2022, a decrease of $38.3 million, or 40.1%, as compared to 2021.  The decrease was primarily attributable to a decrease of $30.8 million in interest expense and the amortization of deferred financing cost as a result of the repurchases and maturity of our 7 5/8% Senior Unsecured Notes due 2021 and an increase of $6.8 million in capitalized interest relating to the EchoStar XXIV satellite program.

Gains (losses) on investments, net.  Gains (losses) on investments, net totaled $47.1 million in gains for the year ended December 31, 2022, as compared to $69.5 million in gains for the year ended December 31, 2021, a negative change of $22.4 million. The change was primarily attributable to a net loss of $28.3 million related to the exit of our investment in Dish Mexico in 2022.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled $5.2 million in gains for the year ended December 31, 2022, as compared to $12.6 million in losses for the year ended

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December 31, 2021, a positive change of $17.8 million. The change was due to the net impact of foreign exchange rate fluctuations of certain foreign currencies during the period, primarily related to the Brazilian Real, Indian Rupee, and the European Euro.

Other-than-temporary impairment losses on equity method investments. Other-than-temporary impairment losses on equity method investments was $55.3 million for the year ended December 31, 2021, related to the impairment of our investment in Dish Mexico. Given changing market trends, conditions, and company-specific events, we concluded that our investment in Dish Mexico was not recoverable.

Other, net. Other, net totaled $3.2 million in gains for the year ended December 31, 2022, as compared to $12.4 million in losses for the year ended December 31, 2021, a positive change of $15.6 million. The change was primarily attributable to a litigation expense of $16.8 million in 2021.

Income tax benefit (provision), net.  Income tax benefit (provision), net was $(66.7) million for the year ended December 31, 2022, as compared to $(65.6) million for the year ended December 31, 2021. Our effective income tax rate was 28.6% and 51.1% for the year ended December 31, 2022 and 2021, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2022 were primarily due to excluded foreign losses where the Company carries a full valuation allowance, and the impact of state and local taxes. The variations in our current year effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2021 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. Among other provisions, the IRA includes a 15% corporate minimum tax rate applied to certain large corporations and a 1% excise tax on corporate stock repurchases made after December 31, 2022. We do not expect the IRA to have a material impact on our Consolidated Financial Statements.

Net income (loss) attributable to EchoStar Corporation common stock.  The following table reconciles the change in Net income (loss) attributable to EchoStar Corporation common stock:

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EBITDA.  EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items section.  The following table reconciles EBITDA to Net income (loss), the most directly comparable GAAP measure in our Consolidated Financial Statements:

The following table reconciles the change in EBITDA:

Segment Operating Results and Capital Expenditures

The following tables present our total revenue, capital expenditures and EBITDA by segment for the year ended December 31, 2022, as compared to the year ended December 31, 2021:

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Hughes Segment

Total revenue was $2.0 billion for the year ended December 31, 2022, an increase of $10.4 million, or 0.5%, as compared to 2021.  Services and other revenue decreased primarily due to lower sales of broadband services to our consumer customers of $103.1 million, partially offset by higher sales of broadband services to our enterprise customers of $5.3 million and to our mobile satellite system and other customers of $4.5 million. Equipment revenue increased primarily due to: i) increases in hardware sales to our enterprise customers of $102.6 million mainly associated with a certain customer in North America and to international customers, and ii) increases on our hardware sales to our mobile satellite system customers of $6.6 million, partially offset by decreases in hardware sales of $5.5 million to our consumer customers. These variances reflect an estimated negative impact of exchange rate fluctuations of $6.7 million, primarily attributable to our enterprise customers.

Capital expenditures were $239.4 million for the year ended December 31, 2022, a decrease of $56.9 million, or 19.2%, as compared to 2021, primarily due to decreases in expenditures associated with our consumer business, and decreases in expenditures related to the construction of our satellite-related ground infrastructure.

The following table reconciles the change in the Hughes Segment EBITDA:

ESS Segment

Total revenue was $20.5 million for the year ended December 31, 2022, an increase of $2.9 million, or 16.1%, compared to 2021, primarily due to an increase in transponder services provided to third parties.

EBITDA was $14.4 million for the year ended December 31, 2022, an increase of $5.2 million, or 57.0%, as compared to 2021, primarily due to the increase in overall ESS segment revenue and lower expenses.

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Corporate and Other Segment

Total revenue was $11.0 million for the year ended December 31, 2022, which is primarily flat compared to 2021.

Capital expenditures were $86.5 million for the year ended December 31, 2022, a decrease of $55.6 million, as compared to 2021, primarily due to decreases in expenditures related to the EchoStar XXIV satellite program.

The following table reconciles the change in the Corporate and Other Segment EBITDA:

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Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

The following table presents our consolidated results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020:

*    Percentage is not meaningful.

(1)    An explanation of our key metrics is included in Explanation of Key Metrics and Other Items.

(2)    A reconciliation of EBITDA to Net income (loss), the most directly comparable GAAP measure in our Consolidated Financial Statements, is included in Results of Operations. For further information on our use of EBITDA, see Explanation of Key Metrics and Other Items.

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The following discussion relates to our results of operations for the years ended December 31, 2021 compared to the year ended December 31, 2020:

Services and other revenue.  Services and other revenue totaled $1.7 billion for the year ended December 31, 2021, an increase of $33.0 million, or 2.0%, as compared to 2020. The increase was primarily attributable to our Hughes segment related to higher sales of broadband services to our consumer customers of $27.8 million and to our mobile satellite system customers of $1.4 million. Sales of broadband services to our enterprise customers remained flat compared to 2020. Our Corporate and Other segment increased by $2.1 million. These variances reflect the negative impact of exchange rate fluctuations of $4.6 million, primarily attributable to our consumer customers.

Equipment revenue.  Equipment revenue totaled $270.4 million for the year ended December 31, 2021, an increase of $64.8 million, or 31.5%, as compared to 2020. The increase was primarily attributable to increases in hardware sales of $76.7 million to our enterprise customers, partially offset by decreases in hardware sales to our mobile satellite system customers of $8.0 million and to our consumer customers of $3.9 million.

Cost of sales - services and other.  Cost of sales - services and other totaled $551.7 million for the year ended December 31, 2021, a decrease of $26.3 million, or 4.5%, as compared to 2020. The decrease was attributable to lower costs of services provided to our consumer customers associated with customer care and field services as well as a non-recurring decrease in a certain international regulatory fee of $4.5 million.

Cost of sales - equipment. Cost of sales - equipment totaled $232.0 million for the year ended December 31, 2021, an increase of $65.5 million, or 39.4%, as compared to 2020. The increase was primarily attributable to the corresponding increase in equipment revenue and product mix.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $461.7 million for the year ended December 31, 2021, a decrease of $13.2 million, or 2.8%, as compared to 2020. The decrease was primarily attributable to decreases in bad debt expense of $4.7 million and decreases in other selling, general and administrative expenses of $7.1 million.

Depreciation and amortization.  Depreciation and amortization expenses totaled $491.3 million for the year ended December 31, 2021, a decrease of $33.7 million, or 6.4%, as compared to 2020. The decrease was primarily attributable to (i) decreases in our satellite depreciation of $27.1 million, mainly related to our SPACEWAY 3 satellite which was fully depreciated at the end of the first quarter of 2021, (ii) decreases in amortization of intangibles of $6.5 million, and (iii) decreases in other property and equipment depreciation expense of $2.9 million.

Impairment of long-lived assets. Impairment of long-lived assets totaled $0.2 million for the year ended December 31, 2021, a decrease of $1.4 million, or 85.5%, as compared to 2020. The decrease was primarily attributable to an impairment loss related to our nano-satellites which experienced technical anomalies following launch in 2020.

Interest income, net.  Interest income, net totaled $22.8 million for the year ended December 31, 2021, a decrease of $17.2 million, or 43.0%, as compared to 2020, primarily attributable to decreases in the yield on our marketable investment securities and a decrease in our marketable investment securities average balance.

Interest expense, net of amounts capitalized.  Interest expense, net of amounts capitalized totaled $95.5 million for the year ended December 31, 2021, a decrease of $52.4 million, or 35.4%, as compared to 2020. The decrease was primarily attributable to a decrease of $41.4 million in interest expense and the amortization of deferred financing cost as a result of the repurchases and maturity of our 7 5/8% Senior Unsecured Notes due 2021 and an increase of $9.8 million in capitalized interest relating to the EchoStar XXIV satellite program.

Gains (losses) on investments, net.  Gains (losses) on investments, net totaled $69.5 million in gains for the year ended December 31, 2021, an increase of $100.8 million, as compared to 2020. The change was primarily attributable to increased gains on marketable investment securities of $ 63.7 million in 2021 as compared to 2020, gains on other equity securities of $7.1 million in 2021 and a $29.8 million impairment loss in 2020.

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Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net totaled $5.2 million in losses for the year ended December 31, 2021, a decrease in losses of $2.1 million, or 28.9%, as compared to 2020. The decrease was related to net increased earnings from our investments in our equity method investees.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled $12.6 million in losses for the year ended December 31, 2021, as compared to $6.0 million in gains for the year ended December 31, 2020, a negative change of $18.6 million. The change was due to the net impact of foreign exchange rate fluctuations of certain foreign currencies during the year.

Other-than-temporary impairment losses on equity method investments. Other-than-temporary impairment losses on equity method investments was $55.3 million for the year ended December 31, 2021, related to the impairment of our investment in Dish Mexico. Given changing market trends, conditions, and company-specific events, we concluded that our investment in Dish Mexico was not recoverable.

Other, net. Other, net totaled $12.4 million in losses for the year ended December 31, 2021, as compared to $0.2 million in gains for the year ended December 31, 2020, an increase in losses of $12.6 million. The increase was primarily attributable to a litigation expense of $16.8 million and losses from debt repurchases on our 7 5/8% Senior Unsecured Notes due 2021 of $1.9 million, partially offset by dividends received from certain marketable equity securities of $2.5 million..

Income tax benefit (provision), net.  Income tax benefit (provision), net was $(65.6) million for the year ended December 31, 2021, as compared to $(24.1) million for the year ended December 31, 2020. Our effective income tax rate was 51.1% and (86.5)% for the years ended December 31, 2021 and 2020, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2021 were primarily due to certain foreign losses and impairments where the Company carries a full valuation allowance, and the impact of state and local taxes. The variations in our current year effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2020 were primarily due to the increase in our valuation allowance associated with certain foreign losses, permanent book tax differences, and by the impact of state and local taxes, partially offset by the change in net losses that are capital in nature and research and experimentation credits.

Net income (loss) attributable to EchoStar Corporation common stock. The following table reconciles the change in Net income (loss) attributable to EchoStar Corporation common stock:

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EBITDA.  EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items section.  The following table reconciles EBITDA to Net income (loss), the most directly comparable GAAP measure in our Consolidated Financial Statements:

*    Percentage is not meaningful.

The following table reconciles the change in EBITDA:

Segment Operating Results and Capital Expenditures

The following tables present our total revenue, capital expenditures and EBITDA by segment for the year ended December 31, 2021, as compared to the year ended December 31, 2020:

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Hughes Segment

Total revenue was $2.0 billion for the year ended December 31, 2021, an increase of $95.4 million, or 5.1%, as compared to 2020.  Services and other revenue increased primarily due to increases in sales of broadband services to our consumer customers of $27.8 million and to our mobile satellite system customers of $1.4 million. Sales of broadband services to our enterprise customers remained flat compared to 2020. Equipment revenue increased primarily due to increases in hardware sales of $76.7 million to our enterprise customers, partially offset by decreases in hardware sales to our mobile satellite system customers of $8.0 million and to our consumer customers of $ 3.9 million. These variances reflect the negative impact of exchange rate fluctuations of $4.7 million.

Capital expenditures were $296.3 million for the year ended December 31, 2021, a decrease of $58.9 million, or 16.6%, as compared to 2020, primarily due to decreases in expenditures associated with our consumer business, partially offset by increased expenditures related to our enterprise business and construction of our satellite-related ground infrastructure in preparation of the launch of EchoStar XXIV.

The following table reconciles the change in the Hughes Segment EBITDA:

ESS Segment

Total revenue was $17.7 million for the year ended December 31, 2021, which is primarily flat compared to 2020.

EBITDA was $9.2 million for the year ended December 31, 2021, an increase of $1.3 million, or 16.7%, as compared to 2020, primarily due to the recovery of a bad debt reserve.

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Corporate and Other Segment

*    Percentage is not meaningful.

Total revenue was $11.8 million for the year ended December 31, 2021, an increase of $2.1 million, or 22.1%, as compared to 2020, primarily due to increased services and other revenue from DISH Network.

Capital expenditures were $142.1 million for the year ended December 31, 2021, an increase of $88.6 million, as compared to 2020, primarily due to increases in expenditures related to the EchoStar XXIV satellite program.

The following table reconciles the change in the Corporate and Other Segment EBITDA:

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LIQUIDITY AND CAPITAL RESOURCES

Cash, Cash Equivalents and Marketable Investment Securities

We consider all liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk of this Form 10-K for further discussion regarding our marketable investment securities.

As of December 31, 2022 and 2021, our cash, cash equivalents and marketable investment securities totaled $1.7 billion and $1.5 billion, respectively, of which $1.0 billion and $1.0 billion, respectively, we held as marketable investment securities, consisting of various debt and equity instruments including corporate bonds, corporate equity securities, government bonds and mutual funds.

The following discussion highlights our cash flow activities for the years ended December 31, 2022, 2021 and 2020.

Cash Flow Activities

The following table summarizes our cash flows provided by (used for) operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows:

Cash flows provided by (used for) operating activities decreased by $102.6 million primarily attributable to changes in assets and liabilities, net of $(85.6) million, other-than-temporary impairment losses on equity method investments of $(55.3) million, depreciation and amortization of $(33.7) million, other, net of $(23.5) million, foreign currency translation losses (gains), net of $(17.8) million, deferred tax provision (benefit), net of $(16.2) million, losses (gains) on investments, net of $22.4 million and changes in net income (loss) of $103.8 million.

Cash flows provided by (used for) investing activities decreased by $434.1 million primarily attributable to our marketable investment securities net activity, other investments net activity, a decrease in expenditures for property and equipment, a decrease in expenditures in externally marketed software, and the India JV formation.

Cash flows provided by (used for) financing activities improved by $1.1 billion primarily attributable to the repurchase and maturity of our 7 5/8% Senior Unsecured Notes due 2021 of $901.8 million and decreases in treasury share repurchases of $172.1 million.

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Cash flows provided by (used for) operating activities increased by $97.8 million primarily attributable to changes in net income (loss) of $114.6 million, gains (losses) on investments, net of $(100.8) million, foreign currency translation losses (gains), net of $18.6 million, deferred tax provision (benefit), net of $19.5 million, other-than-temporary impairment losses on equity method investments of $55.3 million, and changes in assets and liabilities, net of $(1.3) million.

Cash flows provided by (used for) investing activities increased by $1.3 billion primarily attributable to our marketable investment securities net activity, other investments net activity and an increase in expenditures for property and equipment.

Cash flows provided by (used for) financing activities decreased by $1.1 billion primarily attributable to the repurchase and maturity of our 7 5/8% Senior Unsecured Notes due 2021 of $(901.8) million and treasury share repurchases of $(261.4) million.

Obligations and Future Capital Requirements

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2022:

(1)    Assumes all long-term debt is outstanding until scheduled maturity.

(2) Includes payments pursuant to: i) the EchoStar XXIV launch contract, ii) regulatory authorizations, iii) non-lease costs associated with our finance lease satellites, iv) in-orbit incentives relating to certain satellites and v) commitments for satellite service arrangements.

(3)    Operating leases consist primarily of leases for office space, data centers and satellite-related ground infrastructure.

(4) The table excludes amounts related to deferred tax liabilities, unrecognized tax positions and certain other amounts recorded in our non-current liabilities as the timing of any payments is uncertain.

(5) The table excludes long-term deferred revenue and other long-term liabilities that do not require future cash payments.

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

Off-Balance Sheet Arrangements

We generally do not engage in off-balance sheet financing activities or use derivative financial instruments for hedge accounting or speculative purposes.

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As of December 31, 2022, we had foreign currency forward contracts with a notional value of $8.3 million in place to partially mitigate foreign currency exchange risk. From time to time, we may enter into foreign currency forward contracts, or take other measures, to mitigate risks associated with foreign currency denominated assets, liabilities, commitments and anticipated foreign currency transactions.

Letters of Credit and Surety Bonds

The following table presents the components of our letters of credit and surety bonds as of December 31, 2022:

Certain letters of credit are secured by assets of our foreign subsidiaries.

Satellites

As our satellite fleet ages, we will evaluate whether and to what extent to utilize replacement alternatives such as acquiring, leasing or constructing additional satellites, with or without customer commitments for capacity. We may also construct, acquire or lease additional satellites or satellite capacity in the future to provide satellite services at additional orbital locations, to improve the quality of our satellite services or to provide new satellites services.

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. We have obtained certain insurance for our EchoStar XXIV satellite covering launch plus the first year of operations. We will continue to assess circumstances going forward and make insurance-related decisions on a case-by-case basis.

Future Capital Requirements

We primarily rely on our existing cash and marketable investment securities balances, as well as cash flow generated through our operations, to fund our business. Revenue in our ESS segment depends largely on our ability to continuously make use of our available satellite capacity with existing customers and our ability to enter into commercial relationships with new customers. Consumer revenue in our Hughes segment depends on our success in adding new and retaining existing subscribers and driving higher ARPU. Revenue in our enterprise and equipment businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. There can be no assurance that we will have positive cash flows from operations. Furthermore, if we experience negative cash flows, our existing cash and marketable investment securities balances may be reduced.

We have a significant amount of outstanding indebtedness. As of December 31, 2022, our total indebtedness was $1.5 billion. Our liquidity requirements will continue to be significant, primarily due to our remaining debt service requirements. We may from time to time seek to purchase amounts of our outstanding debt in open market purchases, privately negotiated transactions or otherwise, depending on market conditions, our liquidity needs and other factors. The amounts we may repurchase may be material. In the future, we may require material capital expenditures to make significant acquisitions or investments in infrastructure, technologies or joint ventures to support and expand our business, or if we decide to purchase or build additional satellites or other technologies or assets. Other aspects of our business operations may also require additional capital. We also expect to owe U.S. Federal income tax for 2022.

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We anticipate that our existing cash and marketable investment securities are sufficient to fund the currently anticipated operations of our business through the next twelve months.

Stock Repurchases

On November 2, 2021, our Board of Directors authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2022 through and including December 31, 2022. In addition, on October 20, 2022, our Board of Directors authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2023 through and including December 31, 2023. Purchases under our repurchase authorizations may be made through privately negotiated transactions, open market repurchases, one or more trading plans in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or otherwise, subject to market conditions and other factors. We may elect not to purchase the maximum amount or any of the shares allowable under these authorizations and we may also enter into additional share repurchase programs authorized by our Board of Directors. During the year ended December 31, 2022, we repurchased 3,980,612 shares of our Class A common stock for $89.3 million under this program. The remaining authorization under this program, which expired on December 31, 2022, was $410.7 million.

CRITICAL ACCOUNTING POLICIES

For a summary of our significant accounting policies, including those discussed below, see Note 2 in our Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES

The preparation of our Consolidated Financial Statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheets, the reported amounts of revenue and expenses for each reporting period, and certain information disclosed in our Consolidated Financial Statements.  We base our estimates, judgments and assumptions on historical experience and on various other factors that we believe to be relevant under the circumstances.  Actual results may differ from previously estimated amounts, and such differences may be material to our Consolidated Financial Statements.  We review our estimates and assumptions periodically, and the effects of revisions are reflected in the period they occur or prospectively if the revised estimate affects future periods.  The following represent what we believe are the critical accounting policies that may involve a high degree of estimation, judgment and complexity.

Contingent Liabilities

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.  Legal fees and other costs of defending legal proceedings are charged to expense as incurred.  A significant amount of management judgment is required in determining whether an accrual should be recorded for a loss contingency and the amount of such accrual.  Estimates generally are developed in consultation with legal counsel and are based on an analysis of potential outcomes.  Due to the inherent uncertainty in determining the likelihood of potential outcomes and the potential financial statement impact of such outcomes, it is possible that upon further development or resolution of a contingent matter, charges related to existing loss contingencies could be recorded in future periods, which could be material to our consolidated results of operations and financial position.

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Revenue Recognition

Our Hughes segment enters into contracts to design, develop and deliver telecommunication networks to customers in our enterprise and mobile satellite systems markets.  Those contracts require significant effort to develop and construct the network over an extended time period.  Revenue from such contracts is recognized over time using an appropriate method to measure progress toward completion.  Depending on the nature of the arrangement, we measure progress toward completion using the cost-to-cost input method or the units-of-delivery output method. Under the cost-to-cost method, revenue reflects the ratio of costs incurred to estimated total costs at completion. Under the units-of-delivery method, revenue and related costs are recognized as products are delivered based on the expected profit for the entire agreement.  Profit margins on long-term contracts are based on estimates of total revenue and costs at completion.  We review and revise our estimates periodically and recognize related adjustments in the period in which the revisions are made.  Estimated losses on contracts are recorded in the period in which they are identified.  Changes in our periodic estimates for these contracts could result in significant adjustments to our revenue or costs, which could be material to our consolidated results of operations.

Impairment of Assets

Impairment of long-lived assets

We evaluate our long-lived assets other than goodwill and intangible assets with indefinite lives for impairment whenever events and changes in circumstances indicate that their carrying amounts may not be recoverable.  The carrying amount of a long-lived asset or asset group is considered to not be recoverable when the market value or estimated future undiscounted cash flows from such asset or asset group is less than its carrying amount.  In that event, an impairment loss is recorded in the determination of operating income based on the amount by which the carrying amount exceeds the estimated fair value of the long-lived asset or asset group.  The estimated fair value is determined primarily using market value or cash flow techniques reflecting the estimated cash flows and discount rate that would be assumed by a market participant for the asset or asset group under review.  Our discounted cash flow estimates typically include assumptions based on unobservable inputs and may reflect probability-weighting of alternative scenarios.  Estimated losses on long-lived assets to be disposed of by sale may be determined in a similar manner, except that fair value estimates are reduced for estimated selling costs.  Changes in estimates of future cash flows, discount rates and other assumptions could result in recognition of additional impairment losses in future periods.

We evaluate goodwill and intangible assets with indefinite lives for impairment on an annual basis or whenever events and changes in circumstances indicate the reporting unit’s fair value is more likely than not less than carrying value. Impairments may result from, among other things, deterioration in financial and operational performance, declines in stock price, increased attrition, adverse market conditions, adverse changes in applicable laws and/or regulations, deterioration of general macroeconomic conditions, fluctuations in foreign exchange rates, increased competitive markets in which we operate in, declining financial performance over a sustained period, changes in key personnel and/or strategy, and a variety of other factors. Our impairment assessment typically begins with a qualitative assessment to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount. The qualitative assessment includes comparing the overall financial performance against the planned results. In the performance of the qualitative assessment, we analyze a variety of events or factors that may influence the fair value of the reporting unit, that could include, but are not limited to: macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity-specific events which requires significant judgment. If we determine in the qualitative assessment that it is more likely than not that the fair value is less than its carrying value, then we perform a quantitative assessment to determine the estimated fair value of the indefinite lived asset or reporting unit. We could also choose the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. In the quantitative assessment, fair value is usually estimated using two valuation approaches: the discounted cash flows method and the market comparable method. In the performance of the quantitative assessment, we use a variety of inputs, some of which may require significant judgment, that influence the fair value of the reporting unit, that could include, but are not limited to: discount rate, revenue growth rate, amount and timing of future cash flows, control premium, guideline public company metrics, and comparable market transactions. In addition, we also perform a market capitalization reconciliation to compare the estimated fair value, determined using the discounted cash flows method and the market comparable method, to the Company’s market capitalization as of the date of the test. If the carrying value exceeds the estimated fair value, then an impairment is recognized for the difference.

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Impairment of investments

We periodically evaluate all of our investments to determine whether events or changes in circumstances have occurred that may have a significant adverse effect on the fair value of the investment and/or if there has been observable price changes in orderly transactions for identical or similar securities of the same issuer. We consider information if provided to us by our investees such as current financial statements, business plans, investment documentation, capitalization tables, liquidation waterfalls, and board materials, and we may make additional inquiries of investee management.

Indicators of impairment may include, but are not limited to, unprofitable operations, material loss contingencies, changes in business strategy, changes in the investees’ enterprise value and changes in the investees’ investment pricing. When we determine that one of our other investments is impaired we reduce its carrying value to its estimated fair value and recognize the impairment loss. Additionally, when there has been an observable price change to a cost method investment, we adjust the carrying amount of the investment to its then estimated fair value and recognize the investment gain or loss.

Income Taxes

Our income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carryforwards. Determining necessary valuation allowances requires us to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities. We periodically evaluate our need for a valuation allowance based on both historical evidence, including trends, and future expectations in each reporting period. Any such valuation allowance is recorded in either Income tax benefit (provision), net on our Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) or Accumulated other comprehensive income (loss) within Stockholders' equity on our Consolidated Balance Sheets. Future performance could have a significant effect on the realization of tax benefits, or reversals of valuation allowances, as reported in our consolidated results of operations.

Management evaluates the recognition and measurement of uncertain tax positions based on applicable tax law, regulations, case law, administrative rulings and pronouncements and the facts and circumstances surrounding the tax position. Changes in our estimates related to the recognition and measurement of the amount recorded for uncertain tax positions could result in significant changes in our Income tax benefit (provision), net, which could be material to our consolidated results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

For a discussion of new accounting pronouncements, refer to Note 2. Summary of Significant Accounting Policies in our Consolidated Financial Statements.

SEASONALITY

For our Hughes segment, service revenue is generally not impacted by seasonal fluctuations other than those associated with fluctuations related to sales and promotional activities.

Our ESS segment is not generally affected by seasonal impacts.

We cannot predict with any certainty whether these trends will continue in the near future.

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INFLATION AND SUPPLY CHAIN

Inflation started to impact our operations in 2021 as we have continued to experience increased costs in certain functional areas including field services and customer care. We are unable to predict the extent or nature of any future inflationary pressure at this time. Our ability to increase the prices charged for our products and services in future periods will depend primarily on competitive pressures or contractual terms.

The worldwide interruptions and delays in the supply of components, materials and parts, although not materially impacting our operations during 2022, may impact our ability to timely provide equipment deliveries in the future. These interruptions and delays could also increase the cost of our equipment which we may not be able to pass onto our customers.