ECHOSTAR CORPORATION Unless the context indicates otherwise, the terms "we," "us," "EchoStar ," the "Company" and "our" refer toEchoStar Corporation and its subsidiaries. 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 accompanying Condensed Consolidated Financial Statements and notes thereto ("Accompanying Condensed Consolidated Financial Statements") in Item 1 of this Quarterly Report on Form 10-Q ("Form 10-Q"). 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. Refer to the Disclosure Regarding Forward-Looking Statements in this Form 10-Q for further discussion. For a discussion of additional risks, uncertainties and other factors that could impact our results of operations or financial condition, refer to the 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 theSecurities and Exchange Commission ("SEC"). Further, such forward-looking statements speak only as of the date of this Form 10-Q and we undertake no obligation to update them.
EXECUTIVE SUMMARY
InSeptember 2019 , pursuant to a master transaction agreement (the "Master Transaction Agreement") with DISH and a wholly-owned subsidiary of 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 and its subsidiaries (together with DISH, "DISH Network") and our joint venture Dish Mexico,S. de R.L. de C.V. ("Dish Mexico") and its subsidiaries, 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 ofBSS 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) Merger Sub merged with and intoBSS Corp. (the "Merger"), such thatBSS 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 byEchoStar stockholders was converted into the right to receive 0.23523769 shares of DISH Class A common stock, par value$0.001 per share ("DISH Common Stock") ((i) - (iii) collectively, the "BSS Transaction"). Following the consummation of the BSS Transaction, we no longer operate the BSS Business, which was a substantial portion of our ESS segment. As a result of the BSS Transaction, the financial results of the BSS Business, except for certain real estate that transferred in the transaction, are presented as discontinued operations and, as such, excluded from continuing operations and segment results for the three and six months endedJune 30, 2019 in our Accompanying Condensed Consolidated Financial Statements. Refer to Note 4. Discontinued Operations in our Accompanying Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q. We currently operate in two business segments: Hughes and ESS. These segments are consistent with the way we make decisions regarding the allocation of resources, as well as how operating results are reviewed by our chief operating decision maker, who is the Company's Chief Executive Officer. Our operations also include various corporate departments (primarily Executive,Treasury , Strategic Development, Human Resources, IT, Finance, Accounting, Real Estate and Legal) and other activities that have not been assigned to our business segments such as costs incurred in certain satellite development programs and other business development activities, and gains or losses from certain of our investments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other. 47
--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
All amounts presented in this Management's Discussion and Analysis reference results from continuing operations unless otherwise noted and are expressed in thousands ofUnited States ("U.S.") dollars, except share and per share amounts and unless otherwise noted.
Highlights from our financial results are as follows:
Consolidated Results of Operations for the Three Months Ended
•Revenue of$459.5 million •Operating income (loss) of$34.8 million •Net income (loss) from continuing operations of$(14.8) million •Net income (loss) attributable toEchoStar common stock of$(11.4) million and basic earnings (loss) per share of common stock of$(0.12) •Earnings before interest, taxes, depreciation and amortization, net income (loss) from discontinued operations and net income (loss) attributable to non-controlling interests ("EBITDA") of$156.8 million (refer to the reconciliation of this non-GAAP measure in Results of Operations)
Consolidated Financial Condition as of
•Total assets of$7.0 billion •Total liabilities of$3.4 billion •Total stockholders' equity of$3.6 billion •Cash and cash equivalents and marketable investment securities of$2.5 billion
Hughes Segment
Our Hughes segment is a global provider of broadband satellite technologies and broadband internet services to consumer customers and broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to consumer and enterprise customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers. We incorporate advances in technology to reduce costs and to increase the functionality and reliability of our products and services. Through advanced and proprietary methodologies, technologies, software and techniques, we continue to improve the efficiency of our networks. We invest in technologies to enhance our system and network management capabilities, specifically our managed services for enterprises. We also continue to invest in next generation technologies that can be applied to our future products and services. We continue to focus our efforts on growing our consumer revenue by maximizing utilization of our existing satellites while planning for new satellites to be launched or acquired. Our consumer revenue growth depends on our success in adding new and retaining existing subscribers in our domestic and international markets across wholesale and retail channels. Service 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 businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. As a result of the COVID-19 pandemic, in accordance with instructions received from some of our enterprise customers, we have deferred or canceled the delivery of some products or services. We expect to recognize revenue for those deferred products and services in the second half of 2020 and in 2021. Our Hughes segment currently uses capacity from three of our satellites (the SPACEWAY 3 satellite, the EchoStar XVII satellite and the EchoStar XIX satellite), ourAl Yah 3 Brazilian payload and additional satellite capacity acquired from third-party providers to provide services to our customers. Growth of our consumer subscriber base 48
--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
in certain areas in theU.S. continues to be constrained where we are nearing or have reached maximum capacity. While these constraints are not expected to be resolved until we launch new satellites, we continue to focus on revenue growth in all areas and consumer subscriber growth in the areas where we have available capacity. InMay 2019 , we entered into an agreement with Al Yah Satellite Communications Company PrJSC ("Yahsat") pursuant to which, inNovember 2019 , Yahsat contributed its satellite communications services business inBrazil to us in exchange for a 20% ownership interest in our existing Brazilian subsidiary that conducts our satellite communications services business inBrazil (the "Yahsat Brazil JV Transaction"). The combined business provides broadband internet services and enterprise solutions inBrazil using the Telesat T19V satellite, the Eutelsat 65W satellite and Yahsat'sAl Yah 3 satellite. Under the terms of the agreement, Yahsat may also acquire, for further cash investments, additional minority ownership interests in the business in the future provided certain conditions are met. InMay 2019 , we also entered into an agreement with Bharti Airtel Limited ("BAL") and its subsidiary,Bharti Airtel Services Limited (together with BAL, "Bharti"), pursuant to which Bharti will contribute its very small aperture terminal ("VSAT") telecommunications services and hardware business inIndia to our two existing Indian subsidiaries that conduct our VSAT services and hardware business. The combined entities will provide broadband satellite and hybrid solutions for enterprise networks. Upon consummation of the transaction, Bharti will have a 33% ownership interest in the combined business. The completion of the transaction is subject to customary regulatory approvals and closing conditions. No assurance can be given that the transaction will be consummated on the terms agreed to or at all. InAugust 2018 , we entered into an agreement with Yahsat to establish a new entity,Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, "BCS"), to provide commercial Ka-band satellite broadband services acrossAfrica , theMiddle East and southwestAsia operating over Yahsat'sAl Yah 2 andAl Yah 3 Ka-band satellites. The transaction was consummated inDecember 2018 when we invested$100.0 million in cash in exchange for a 20% interest in BCS. Under the terms of the agreement, we may also acquire, for further cash investments, additional ownership interests in BCS in the future provided certain conditions are met. We supply network operations and management services and equipment to BCS. InAugust 2017 , we entered into a contract for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite. The EchoStar XXIV satellite is primarily intended to provide additional capacity for our HughesNet satellite internet service ("HughesNet service") in North, Central andSouth America as well as enterprise broadband services. In the first quarter of 2020,Space Systems/Loral, LLC ("SS/L"), the manufacturer of our EchoStar XXIV satellite, invoked the "force majeure" clause of our contract and notified us of a possible delay in completion of the satellite due to "shelter-in-place" orders affecting personnel at SS/L and its subcontractors, and other potential impacts of the COVID-19 pandemic. Since that time, we have continued to work with SS/L to monitor the impact of COVID-19 on the anticipated delivery schedule for our EchoStar XXIV satellite. We currently expect the EchoStar XXIV satellite to be launched no earlier than the second half of 2021. This or other delays or impediments to SS/L's meeting its obligations as a result of the COVID-19 pandemic and various economic and other consequences or otherwise could have a material adverse impact on our business operations, future revenues, financial position and prospects, the completion of manufacture of the EchoStar XXIV satellite and our planned expansion of satellite broadband services throughout North, South andCentral America . Capital expenditures associated with the construction and launch of the EchoStar XXIV satellite are included in Corporate and Other in our segment reporting. InMarch 2017 , we and DISH Network entered into a master service agreement (the "Hughes Broadband MSA"). Pursuant to the Hughes Broadband MSA, DISH Network, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for our HughesNet service and related equipment and other telecommunication services; and (ii) installs HughesNet service equipment with respect to activations generated by DISH Network. As a result of the Hughes Broadband MSA, we have not earned, and do not expect to earn in the future, significant equipment revenue from our distribution agreement with DISH Network.
We continue our efforts to expand our consumer satellite services business
outside of the
49--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
entered into 15-year agreements with affiliates ofTelesat Canada for Ka-band capacity on the Telesat T19V satellite located at the 63 degree west longitude orbital location, which was launched inJuly 2018 . Telesat T19V was placed in service during the fourth quarter of 2018 and augmented the capacity being provided by the EUTELSAT 65 West A satellite and the EchoStar XIX satellite inSouth America . Our broadband subscribers include customers that subscribe to our HughesNet service inNorth and Latin America through retail, wholesale and small/medium enterprise service channels. In connection with the COVID-19 pandemic, we voluntarily signed on to the Federal Communications Commissions' ("FCC ") Keep Americans Connected Pledge (the "Pledge"), promising not to terminate residential or small business customers because of their inability to pay their bills due to the disruptions caused by the COVID-19 pandemic. As a result, we have provided HughesNet service to consumers who may not have the ability to pay for such services, but have excluded any subscribers whose HughesNet service would have ordinarily been terminated in the absence of the Pledge from our subscriber numbers as ofMarch 31, 2020 andJune 30, 2020 .
The following table presents our approximate subscribers:
As of
June 30, March 31, December 31,
2020 2020 2019
Broadband subscribers in the United
States 1,221,000 1,249,000 1,239,000
Broadband subscribers in Latin America 321,000 267,000 238,000
Total broadband subscribers 1,542,000 1,516,000 1,477,000
During the second quarter of 2020, our gross subscriber additions increased by
approximately 1,000 compared to the first quarter of 2020. Our net subscriber
additions for the second quarter decreased by 13,000 compared to the first
quarter of 2020, reflecting higher churn in the second quarter as compared to
the first quarter of 2020. Multiple factors explain this higher churn. First, as
more of our beams are operated at or near capacity particularly with the many
customers working and attending class at home due to the COVID19 pandemic, the
increased network congestion affects HughesNet customer satisfaction in some
cases. In addition, we count a number of HughesNet subscribers as having churned
even though we continue to provide service to them as a result of the Pledge.
As of June 30, 2020 and December 31, 2019 , our Hughes segment had $1.1 billion
and $1.4 billion of contracted revenue backlog, respectively. We define Hughes
contracted revenue backlog as our expected future revenue under enterprise
customer contracts that are non-cancelable, including lease revenue. Our
contracted revenue backlog as of June 30, 2020 decreased primarily due to the
bankruptcy of a certain customer and the effects of the COVID-19 pandemic,
including lengthened or delayed sales cycles with some of our enterprise
customers.
ESS Segment
Our ESS segment provides satellite services on a full-time and/or occasional-use basis toU.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 theEchoStar 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. Our ESS segment, like others in the fixed satellite services industry, has encountered, and may continue to encounter, negative pressure on transponder rates and demand.
As of
50--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Other Business Opportunities
Our industry continues to evolve with the increasing worldwide demand for
broadband internet access for information, entertainment and commerce. The
current COVID-19 pandemic has made even more evident the worldwide need and
demand for connectivity and communications to facilitate an ever-increasing
virtual global community and workplace. In addition to fiber and wireless
systems, technologies such as geostationary high throughput satellites,
low-earth orbit ("LEO") networks, medium-earth orbit ("MEO") systems, balloons
and High Altitude Platform Systems are expected to continue to play significant
roles in enabling global broadband access, networks and services. We intend to
use our expertise, technologies, capital, investments, global presence,
relationships and other capabilities to continue to provide broadband internet
systems, equipment, networks and services for information, the
internet-of-things, entertainment, education, remote-connectivity and commerce
across many industries and communities in North America and internationally for
consumer and enterprise customers. We are closely tracking the developments in
next-generation satellite businesses, and we are seeking to utilize our
services, technologies, licenses and expertise to find new commercial
opportunities for our business.
We intend to continue to selectively explore opportunities to pursue
investments, commercial alliances, partnerships, joint ventures, acquisitions,
dispositions and other strategic initiatives and transactions, domestically and
internationally, that we believe may allow us to increase our existing market
share, increase our satellite capacity, expand into new satellite and other
technologies, markets and customers, broaden our portfolio of services, products
and intellectual property, make our business more valuable, align us for future
growth and expansion, maximize the return on our investments and strengthen our
business and relationships with our customers. We may allocate or dispose of
significant resources for long-term value that may not have a short or
medium-term or any positive impact on our revenue, results of operations, or
cash flow.
S-Band Strategy
We continue to explore the development and deployment of S-band technologies and
believe that our products and services will be integrated into new global,
hybrid networks that leverage multiple satellites and terrestrial technologies.
The current COVID-19 pandemic has made even more evident the worldwide need and
demand for such networks. In December 2013 , we acquired EchoStar Mobile Limited
("EML"), an entity based in Dublin, Ireland , which is licensed to provide mobile
satellite service ("MSS") and complementary ground component ("CGC") services
covering the European Union and its member states ("EU") using the S-band
spectrum. EML's services in the EU are supported by the EchoStar XXI satellite
and the EUTELSAT 10A payload. In October 2019 , we acquired Sirion Global Pty
Ltd. , which we have renamed EchoStar Global Australia Pty Ltd ("EchoStar
Global"), which holds global S-band non-geostationary satellite spectrum rights
for MSS. Additionally, we have entered into a contract with Tyvak Nano-Satellite
Systems, Inc. for the design and construction of S-band nano-satellites. We
expect to launch two nano-satellites in the third quarter of 2020. We expect
our nano-satellites to facilitate our continued growth in the global S-band
market and enable us to leverage our acquisition of EchoStar Global. In
addition, in November 2019 , we were granted an S-band spectrum license for
terrestrial rights in Mexico . As of June 30, 2020 , we have no material future
commitments in connection with these acquisitions or satellites.
Cybersecurity
As a global provider of satellite technologies and services, internet services and communications equipment and networks, we may be prone to more targeted and persistent levels of cyber-attacks than other businesses. These risks may be more prevalent as we continue to expand and grow our business into other areas of the world outside ofNorth America , some of which are still developing their cybersecurity infrastructure maturity. Detecting, deterring, preventing and mitigating incidents caused by hackers and other parties may result in significant costs to us and may expose our customers to financial or other harm that have the potential to significantly increase our liability. 51
--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Due to the COVID-19 pandemic, a large portion of our workforce has been working remotely and we expect certain portions of our workforce to continue to do so from time to time. While we have cybersecurity risk management tools to help protect our technology, information and networks that our employees access remotely, we cannot guarantee the security of the network that they will be using, the security status of the other non-company managed devices that might be on the network to which they are connected or the devices or networks used by third parties with whom our employees conduct business, such as customers, suppliers, vendors and other persons. Additionally, there continues to be a significant amount of COVID-19 related cyber-fraud and phishing attacks that continue to target our employees, vendors, suppliers, customers and others. Accordingly, we continue to focus our efforts and resources on improving cybersecurity as a result of the COVID-19 pandemic. We treat cybersecurity risk seriously and are focused on maintaining the security of our and our partners' systems, networks, technologies and data. We regularly review and revise our relevant policies and procedures, invest in and maintain internal resources, personnel and systems and review, modify and supplement our defenses through the use of various services, programs and outside vendors. Additionally, we provide resources to assist employees in better securing their home networks and remote connections. We also maintain agreements with third party vendors and experts to assist in our remediation and mitigation efforts if we experience or identify a material incident or threat. In addition, senior management and the Audit Committee of our Board of Directors are regularly briefed on cybersecurity matters. 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 three and six months endedJune 30, 2020 and throughAugust 6, 2020 . There 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. 52
--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS
Three Months Ended
The following table presents our consolidated results of operations for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 : For the three months ended June 30, Variance Statements of Operations Data 2020 2019 Amounts % Revenue: Services and other revenue$ 417,043 $ 402,786 $ 14,257 3.5 Equipment revenue 42,423 57,645 (15,222) (26.4) Total revenue 459,466 460,431 (965) (0.2) Costs and expenses: Cost of sales - services and other 141,019 142,680 (1,661)
(1.2)
% of total services and other revenue 33.8 % 35.4 % Cost of sales - equipment 32,542 46,549 (14,007) (30.1) % of total equipment revenue 76.7 % 80.8 % Selling, general and administrative expenses 113,798 149,209 (35,411)
(23.7)
% of total revenue 24.8 % 32.4 % Research and development expenses 7,448 6,388 1,060 16.6 % of total revenue 1.6 % 1.4 % Depreciation and amortization 129,887 120,266 9,621 8.0 Total costs and expenses 424,694 465,092 (40,398) (8.7) Operating income (loss) 34,772 (4,661) 39,433 * Other income (expense): Interest income, net 10,760 23,213 (12,453) (53.6) Interest expense, net of amounts capitalized (38,258) (53,749) 15,491
(28.8)
Gains (losses) on investments, net (6,090) 12,855 (18,945) * Equity in earnings (losses) of unconsolidated affiliates, net (6,345) (4,754) (1,591) 33.5 Foreign currency transaction gains (losses), net 1,560 1,753 (193) (11.0) Other, net (391) 7 (398) * Total other income (expense), net (38,764) (20,675) (18,089) 87.5 Income (loss) from continuing operations before income taxes (3,992) (25,336) 21,344 (84.2) Income tax benefit (provision), net (10,851) (4,692) 6,159
*
Net income (loss) from continuing operations (14,843) (30,028) 15,185
(50.6)
Net income (loss) from discontinued operations - 24,968 (24,968) (100.0) Net income (loss) (14,843) (5,060) (9,783)
*
Less: Net loss (income) attributable to non-controlling interests
3,431 (632) 4,063 *
Net income (loss) attributable to EchoStar Corporation common
stock $ (11,412) $ (5,692) $ (5,720) *
Other data:
EBITDA (1) $ 156,824 $ 124,834 $ 31,990 25.6
Subscribers, end of period 1,542,000 1,415,000 127,000 9.0
* Percentage is not meaningful. (1) A reconciliation of EBITDA to Net income (loss), the most directly comparable generally accepted accounting principles in theU.S. ("U.S. GAAP") measure in our Accompanying Condensed Consolidated Financial Statements, is included in Results of Operations. For further information on our use of EBITDA, refer to the Explanation of Key Metrics and Other Items. 53
--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
The following discussion relates to our continuing operations for the three
months ended
Services and other revenue. Services and other revenue totaled$417.0 million for the three months endedJune 30, 2020 , an increase of$14.3 million , or 3.5%, compared to 2019. •Services and other revenue from our Hughes segment for the three months endedJune 30, 2020 increased by$16.5 million , or 4.2%, to$410.7 million compared to 2019. The increase was primarily attributable to increases in sales of broadband services to our consumer customers of$27.2 million , partially offset by a decrease in sales of broadband services to our enterprise customers of$9.4 million . Both of these variances reflect the negative impact of exchange rate fluctuations. •Services and other revenue from Corporate and Other for the three months endedJune 30, 2020 decreased by$2.7 million , or 56.3%, to$2.1 million compared to 2019, primarily attributable to a decrease in income from certain real estate previously leased to DISH Network and transferred as part of the BSS Transaction. Equipment revenue. Equipment revenue totaled$42.4 million for the three months endedJune 30, 2020 , a decrease of$15.2 million , or 26.4%, compared to 2019. The decrease was primarily attributable to a decrease in sales to our international enterprise customers and the bankruptcy of a certain customer. Cost of sales - services and other. Cost of sales - services and other totaled$141.0 million for the three months endedJune 30, 2020 , a decrease of$1.7 million , or 1.2%, compared to 2019. The decrease was primarily attributable to our Hughes segment due to the decrease in sales of broadband services to our enterprise customers, partially offset by increases in sales of broadband services to our consumer customers. Cost of sales - equipment. Cost of sales - equipment totaled$32.5 million for the three months endedJune 30, 2020 , a decrease of$14.0 million , or 30.1%, compared to 2019. The decrease was primarily attributable to the corresponding reduction in equipment revenue. Selling, general and administrative expenses. Selling, general and administrative expenses totaled$113.8 million for the three months endedJune 30, 2020 , a decrease of$35.4 million , or 23.7%, compared to 2019. The decrease was primarily attributable to (i) expenses related to certain legal proceedings of$24.5 million in 2019, (ii) decreased marketing and promotional expenses in 2020 of$6.6 million , and (iii) decreases in bad debt expense of$4.5 million in 2020. Depreciation and amortization. Depreciation and amortization expenses totaled$129.9 million for the three months endedJune 30, 2020 , an increase of$9.6 million , or 8.0%, compared to 2019. The increase was primarily from our Hughes segment and due to increases in depreciation expense of$8.0 million relating to our customer premises equipment and$2.4 million relating to the depreciation of assets acquired in the Yahsat Brazil JV Transaction. Interest income, net. Interest income, net totaled$10.8 million for the three months endedJune 30, 2020 , a decrease of$12.5 million , or 53.6%, compared to 2019, which was primarily attributable to decreases in the yield of our marketable investment securities and a decrease in our marketable investment securities balance. Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized totaled$38.3 million for the three months endedJune 30, 2020 , a decrease of$15.5 million , or 28.8%, compared to 2019. The decrease was primarily due to a decrease of$13.0 million in interest expense and in amortization of deferred financing cost as a result of the repurchase and maturity inJune 2019 of our 6 1/2% Senior Secured Notes due 2019 and an increase of$1.4 million in capitalized interest in 2020 related to theEchoStar XXIV satellite and its related infrastructure.
Gains (losses) on investments, net. Gains (losses) on investments, net were
54--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
of$18.9 million . The change was primarily attributable to$12.0 million of net negative variances on marketable investment securities compared to 2019 and an$8.5 million loss in Other Equity Investments in 2020.
Equity in earnings (losses) of unconsolidated affiliates, net. Equity in
earnings (losses) of unconsolidated affiliates, net totaled
Income tax benefit (provision), net. Income tax benefit (provision), net was$(10.9) million for the three months endedJune 30, 2020 compared to$(4.7) million for the three months endedJune 30, 2019 . Our effective income tax rate was (271.8)% and (18.5)% for the three months endedJune 30, 2020 and 2019, respectively. The variations in our effective tax rate from theU.S. federal statutory rate for the three months endedJune 30, 2020 were primarily due to the increase in our valuation allowance associated with certain foreign losses and the impact of state and local taxes, partially offset by research and experimentation credits. The variations in our effective tax rate from theU.S. federal statutory rate for the three months endedJune 30, 2019 were primarily due to the change in net unrealized gains that are capital in nature and research and experimentation credits, partially offset by the impact of state and local taxes and the increase in our valuation allowance associated with certain foreign losses. Additionally, during the three months endedJune 30, 2019 , we recorded additional tax expense of$2.0 million on deemed mandatory repatriation of certain deferred foreign earnings as the result of new treasury regulations. Net income (loss) attributable toEchoStar Corporation common stock. Net loss attributable toEchoStar Corporation common stock totaled$11.4 million for the three months endedJune 30, 2020 , compared to net loss attributable toEchoStar Corporation common stock of$5.7 million for the three months endedJune 30, 2019 , an increase in loss of$5.7 million as set forth in the following table:
Amounts
Net income (loss) attributable to
39,433
Decrease (increase) in interest expense, net of amounts capitalized
15,491
Decrease (increase) in net income attributable to non-controlling interests
4,063
Increase (decrease) in foreign currency transaction gains, net (193)
Increase (decrease) in other, net (398)
Decrease (increase) in equity in losses of unconsolidated affiliates, net
(1,591)
Decrease (increase) in income tax provision, net (6,159)
Increase (decrease) in interest income, net (12,453)
Increase (decrease) in gains on investments, net
(18,945)
Increase (decrease) in net income from discontinued operations
(24,968)
Net income (loss) attributable toEchoStar Corporation for the three months ended June 30, 2020$ (11,412) 55
--------------------------------------------------------------------------------
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
EBITDA. EBITDA is a non-GAAP financial measure and is described under
Explanation of Key Metrics and Other Items below. The following table
reconciles Net income (loss), the most directly comparable
For the three months ended June
30, Variance
2020 2019 Amounts %
Net income (loss) $ (14,843) $ (5,060) $ (9,783) *
Interest income, net (10,760) (23,213) 12,453 (53.6)
Interest expense, net of amounts capitalized 38,258 53,749 (15,491) (28.8)
Income tax provision (benefit), net 10,851 4,692 6,159 *
Depreciation and amortization 129,887 120,266 9,621 8.0
Net loss (income) from discontinued operations - (24,968) 24,968 (100.0)
Net loss (income) attributable to
non-controlling interests 3,431 (632) 4,063 *
EBITDA $ 156,824 $ 124,834 $ 31,990 25.6
* Percentage is not meaningful.
EBITDA was
Amounts
EBITDA for the three months endedJune 30, 2019
49,054
Decrease (increase) in net income attributable to non-controlling interests
4,063
Increase (decrease) in foreign currency transaction gains, net (193)
Increase (decrease) in other, net (398)
Decrease (increase) in equity in losses of unconsolidated affiliates, net
(1,591)
Increase (decrease) in gains on investments, net (18,945)
EBITDA for the three months endedJune 30, 2020
© Edgar Online, source
