filings.toolsItem 6. SELECTED FINANCIAL DATA
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Item 6. SELECTED FINANCIAL DATA
The following tables present selected information relating to our consolidated financial condition and results of operations for the past five years. The selected financial data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Accompanying Consolidated Financial Statements. Historical financial data presented below may not be indicative of future financial condition.
| For the years ended December 31, | ||||||||||||||||||||
| Statements of Operations Data: | 2019 | 2018 | 2017**(1)** | 2016 | 2015 | |||||||||||||||
| Total revenue (2) (3) | $ | 1,886,081 | $ | 1,762,638 | $ | 1,525,155 | $ | 1,447,223 | $ | 1,485,942 | ||||||||||
| Total costs and expenses | 1,813,004 | 1,726,501 | 1,494,593 | 1,325,364 | 1,380,939 | |||||||||||||||
| Operating income (loss) | $ | 73,077 | $ | 36,137 | $ | 30,562 | $ | 121,859 | $ | 105,003 | ||||||||||
| Net income (loss) from continuing operations attributable to EchoStar common stock | $ | (102,318 | ) | $ | (134,204 | ) | $ | 123,188 | $ | 43,886 | $ | 59,189 | ||||||||
| Basic earnings (losses) per share - continuing operations | $ | (1.06 | ) | $ | (1.39 | ) | $ | 1.29 | $ | 0.47 | $ | 0.64 | ||||||||
| Diluted earnings (losses) per share - continuing operations | $ | (1.06 | ) | $ | (1.39 | ) | $ | 1.27 | $ | 0.46 | $ | 0.63 |
| As of December 31, | ||||||||||||||||||||
| Balance Sheet Data: | 2019 | 2018 | 2017**(1)** | 2016 | 2015 | |||||||||||||||
| Cash, cash equivalents and current marketable investments securities | $ | 2,460,054 | $ | 3,210,458 | $ | 3,245,617 | $ | 3,092,881 | $ | 1,527,883 | ||||||||||
| Total assets | $ | 7,154,298 | $ | 8,661,294 | $ | 8,750,014 | $ | 9,008,859 | $ | 6,572,463 | ||||||||||
| Total debt and finance lease obligations | $ | 2,390,219 | $ | 3,305,784 | $ | 3,371,961 | $ | 3,360,387 | $ | 1,861,384 | ||||||||||
| Total stockholders’ equity | $ | 3,745,553 | $ | 4,155,474 | $ | 4,177,385 | $ | 4,006,805 | $ | 3,781,642 |
| For the years ended December 31, | ||||||||||||||||||||
| Cash Flow Data: | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| Net cash flows from: | ||||||||||||||||||||
| Operating activities | $ | 656,322 | $ | 734,522 | $ | 726,892 | $ | 803,343 | $ | 776,451 | ||||||||||
| Investing activities | $ | 821,958 | $ | (2,098,480 | ) | $ | (867,932 | ) | $ | (632,199 | ) | $ | (275,311 | ) | ||||||
| Financing activities | $ | (885,311 | ) | $ | (136,563 | ) | $ | 72 | $ | 1,475,689 | $ | (120,257 | ) |
| (1) | The 2017 Tax Act increased the complexity of our income tax accounting and resulted in significant adjustments to our deferred income tax accounts in 2017. As a result, our results of operations and balance sheet data for the years ended December 31, 2019, 2018 and 2017 are not comparable to our results of operations for the years ended December 31, 2016 and 2015. See Note 16 to our Accompanying Consolidated Financial Statements for further information. |
| (2) | On January 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective approach. As a result, total revenues for the year ended December 31, 2019 and 2018 may not be comparable to prior years. |
| (3) | On January 1, 2019, we adopted Topic 842, Leases, using the modified retrospective approach. As a result, total revenues for the year ended December 31, 2019 may not be comparable to prior years. |
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 should be read in conjunction with our Accompanying Consolidated Financial Statements and notes thereto. 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 in 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
EchoStar is a global provider of broadband satellite technologies, broadband internet services for consumer customers, which include home and small to medium-sized businesses, and satellite services. We also deliver innovative network technologies, managed services and communications solutions for enterprise customers, which include aeronautical and government enterprises.
In May 2019, we and BSS Corp. entered into the Master Transaction Agreement with DISH and Merger Sub with respect to the BSS Transaction. Pursuant to the terms of the Master Transaction Agreement, on September 10, 2019: (i) we transferred the BSS Business to BSS Corp.; (ii) we completed the Distribution and (iii) immediately after the Distribution, (1) BSS Corp. became a wholly-owned subsidiary of DISH such that DISH owns and operates the BSS Business, and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.23523769 shares of DISH Common Stock.
In connection with the BSS Transaction, we and DISH Network agreed to indemnify each other against certain losses with respect to breaches of certain representations and covenants and certain retained and assumed liabilities, respectively. Additionally, we and DISH and certain of our and their subsidiaries (i) entered into certain customary agreements covering, among other things, matters relating to taxes, employees, intellectual property and the provision of transitional services; (ii) terminated certain previously existing agreements; and (iii) amended certain existing agreements and entered into certain new agreements pursuant to which we and DISH Network will obtain and provide certain products, services and rights from and to each other.
The BSS Transaction was structured in a manner intended to be tax-free to us and our stockholders for U.S. federal income tax purposes and was accounted for as a spin-off to our shareholders as we did not receive any consideration. 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 all periods presented in our Accompanying Consolidated Financial Statements. See Note 5 in our Accompanying Consolidated Financial Statements for further discussion of our discontinued operations.
Prior to March 2017, we operated in three primary business segments: Hughes, EchoStar Technologies and ESS. On January 31, 2017, EchoStar Corporation and certain of our subsidiaries entered into a share exchange agreement with DISH and certain of its subsidiaries. We received all the shares of the Tracking Stock in exchange for 100% of the equity interests of certain of our subsidiaries that held substantially all of our former EchoStar Technologies businesses and certain other assets. Following the consummation of the Share Exchange, we no longer operate our former EchoStar Technologies businesses, the Tracking Stock was retired and is no longer outstanding, and all agreements, arrangements and policy statements with respect to the Tracking Stock terminated. As a result of the Share Exchange, the financial results of the EchoStar Technologies businesses are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented in our Accompanying Consolidated Financial Statements. See Note 5 in our Accompanying Consolidated Financial Statements for further discussion of our discontinued operations.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
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 operating 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 in our segment reporting.
Highlights from our financial results are as follows:
Consolidated Results of Operations for the Year Ended December 31, 2019
| • | Revenue of $1.9 billion |
| • | Operating income of $73.1 million |
| • | Net loss from continuing operations of $113.7 million |
| • | Net loss attributable to EchoStar common stock of $62.9 million and basic loss per share of common stock of $0.65 |
| • | Earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $577.6 million (see reconciliation of this non-GAAP measure in Results of Operations) |
Consolidated Financial Condition as of December 31, 2019
| • | Total assets of $7.2 billion |
| • | Total liabilities of $3.4 billion |
| • | Total stockholders’ equity of $3.7 billion |
| • | Cash, cash equivalents and current 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. The growth of our enterprise businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. Service costs related to ongoing support for our direct and indirect customers and partners are typically impacted most significantly by our growth.
Our Hughes segment currently uses capacity from three of our satellites (the SPACEWAY 3 satellite, the EchoStar XVII satellite and the EchoStar XIX satellite), our Al Yah 3 Brazilian payload and additional satellite capacity acquired
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
from third-party providers to provide services to our customers. Growth of our consumer subscriber base continues to be constrained in areas where we are nearing or have reached maximum capacity. While these constraints are expected to be resolved when 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.
In May 2019, we entered into an agreement with Yahsat pursuant to which, in November 2019, Yahsat contributed its satellite communications services business in Brazil to us in exchange for a 20% ownership interest in our existing Brazilian subsidiary that conducts our satellite communications services business in Brazil. The combined business provides broadband internet services and enterprise solutions in Brazil using the Telesat T19V satellite, the Eutelsat 65W satellite and Yahsat’s Al 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.
In May 2019, we also entered into an agreement with Bharti, pursuant to which Bharti will contribute its VSAT telecommunications services and hardware business in India 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.
In August 2018, we entered into an agreement with Yahsat to establish a new entity, BCS, to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia operating over Yahsat's Al Yah 2 and Al Yah 3 Ka-band satellites. The transaction was consummated in December 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.
In August 2017, we entered into a contract for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite, with a planned 2021 launch. 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. If the manufacture and/or delivery of the EchoStar XXIV satellite is not met or is delayed, such failure could have a material adverse impact on our business operations, future revenues, financial position and prospects and our planned expansion of satellite broadband services throughout North, South and Central America. Capital expenditures associated with the construction and launch of the EchoStar XXIV satellite are included in Corporate and Other in our segment reporting.
In March 2017, we and DISH Network entered into 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 expect churn in the existing wholesale subscribers to continue to reduce Services and other revenue in the future.
We continue our efforts to expand our consumer satellite services business outside of the U.S. We have been delivering high-speed consumer satellite broadband services in Brazil since July 2016 and are also providing satellite broadband internet service in several other Central and South American countries. Additionally, in September 2015, we entered into 15-year agreements with affiliates of Telesat Canada for Ka-band capacity on the Telesat T19V satellite located at the 63 degree west longitude orbital location, which was launched in July 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 in Central and South America.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Our broadband subscribers include customers that subscribe to our HughesNet services in North, Central and South America through retail, wholesale and small/medium enterprise service channels. Our approximate subscriber numbers as of December 31, 2019, 2018 and 2017 are as follows:
| As of December 31, | |||||||||
| 2019 | 2018 | 2017 | |||||||
| Broadband subscribers | 1,477,000 | 1,361,000 | 1,208,000 |
As of December 31, 2019, approximately 237,000 of our subscribers were in South and Central America. During the fourth quarter of 2019, we acquired approximately 20,000 new subscribers in connection with the consummation of our joint venture with Yahsat in Brazil (the “Acquired Subscribers”).
The approximate subscriber net additions for each quarter in 2019 are as follows:
| For the Three Months Ended | ||||||||||||
| December 31 | September 30 | June 30 | March 31 | |||||||||
| Net additions, excluding Acquired Subscribers | 20,000 | 22,000 | 26,000 | 28,000 |
During the fourth quarter of 2019, excluding the Acquired Subscribers:
| • | our gross subscriber additions were generally flat compared to the third quarter of 2019; and |
| • | our net subscriber additions decreased by approximately 2,000 compared to the third quarter of 2019, reflecting increased churn in the fourth quarter compared to the third quarter. |
As of December 31, 2019 and 2018, our Hughes segment had $1.4 billion of contracted revenue backlog. We define Hughes contracted revenue backlog as our expected future revenue, including lease revenue, under customer contracts that are non-cancelable, excluding agreements with customers in our consumer market. Of the total Hughes contracted revenue backlog as of December 31, 2019, we expect to recognize $455.6 million of revenue in 2020.
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. 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 December 31, 2019 and 2018, our ESS segment had contracted revenue backlog of $11.4 million and $5.8 million respectively. We define contracted revenue backlog for our ESS segment as contracted future satellite lease revenue. Of the total ESS contracted revenue backlog as of December 31, 2019, we expect to recognize $7.2 million of revenue in 2020.
Item 7. 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. In addition to fiber and wireless systems, other technologies such as geostationary high throughput satellites, LEO networks, MEO systems, balloons and High Altitude Platform Systems are expected 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 and commerce 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 markets and new 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. In December 2013, we acquired EML, which is licensed to provide MSS and CGC services covering the EU using S-band spectrum. EML’s services in the EU are supported by our EchoStar XXI satellite and the W2A payload. In October 2019, we acquired EchoStar Global, which holds global S-band non-geostationary satellite spectrum rights for mobile satellite service. Additionally, we have entered into a contract with Tyvak Nano-Satellite Systems, Inc. for the design and construction of S-band nano-satellites, with expected launches in the first half 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 December 31, 2019, we have no material future commitments in connection with these acquisitions.
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 of North 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.
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. 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 year ended December 31, 2019. 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.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
RESULTS OF OPERATIONS
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
The following table presents our consolidated results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018:
| For the years ended December 31, | Variance | ||||||||||||||
| Statements of Operations Data (1) | 2019 | 2018 | Amount | % | |||||||||||
| Revenue: | |||||||||||||||
| Services and other revenue | $ | 1,619,271 | $ | 1,557,228 | $ | 62,043 | 4.0 | ||||||||
| Equipment revenue | 266,810 | 205,410 | 61,400 | 29.9 | |||||||||||
| Total revenue | 1,886,081 | 1,762,638 | 123,443 | 7.0 | |||||||||||
| Costs and expenses: | |||||||||||||||
| Cost of sales - services and other | 561,353 | 563,907 | (2,554 | ) | (0.5 | ) | |||||||||
| % of total services and other revenue | 34.7 | % | 36.2 | % | |||||||||||
| Cost of sales - equipment | 226,002 | 176,600 | 49,402 | 28.0 | |||||||||||
| % of total equipment revenue | 84.7 | % | 86.0 | % | |||||||||||
| Selling, general and administrative expenses | 509,145 | 436,088 | 73,057 | 16.8 | |||||||||||
| % of total revenue | 27.0 | % | 24.7 | % | |||||||||||
| Research and development expenses | 25,739 | 27,570 | (1,831 | ) | (6.6 | ) | |||||||||
| % of total revenue | 1.4 | % | 1.6 | % | |||||||||||
| Depreciation and amortization | 490,765 | 457,116 | 33,649 | 7.4 | |||||||||||
| Impairment of long-lived assets | — | 65,220 | (65,220 | ) | (100.0 | ) | |||||||||
| Total costs and expenses | 1,813,004 | 1,726,501 | 86,503 | 5.0 | |||||||||||
| Operating income (loss) | 73,077 | 36,137 | 36,940 | * | |||||||||||
| Other income (expense): | |||||||||||||||
| Interest income | 82,352 | 80,275 | 2,077 | 2.6 | |||||||||||
| Interest expense, net of amounts capitalized | (251,016 | ) | (219,288 | ) | (31,728 | ) | 14.5 | ||||||||
| Gains (losses) on investments, net | 28,912 | (12,622 | ) | 41,534 | * | ||||||||||
| Equity in earnings (losses) of unconsolidated affiliates, net | (14,734 | ) | (5,954 | ) | (8,780 | ) | * | ||||||||
| Foreign currency transaction gains (losses), net | (11,590 | ) | (15,583 | ) | 3,993 | (25.6 | ) | ||||||||
| Other, net | (166 | ) | 11,249 | (11,415 | ) | * | |||||||||
| Total other income (expense), net | (166,242 | ) | (161,923 | ) | (4,319 | ) | 2.7 | ||||||||
| Income (loss) from continuing operations before income taxes | (93,165 | ) | (125,786 | ) | 32,621 | (25.9 | ) | ||||||||
| Income tax benefit (provision), net | (20,488 | ) | (6,576 | ) | (13,912 | ) | * | ||||||||
| Net income (loss) from continuing operations | (113,653 | ) | (132,362 | ) | 18,709 | (14.1 | ) | ||||||||
| Net income (loss) from discontinued operations | 39,401 | 93,729 | (54,328 | ) | (58.0 | ) | |||||||||
| Net income (loss) | (74,252 | ) | (38,633 | ) | (35,619 | ) | 92.2 | ||||||||
| Less: Net income (loss) attributable to non-controlling interests | (11,335 | ) | 1,842 | (13,177 | ) | * | |||||||||
| Net income (loss) attributable to EchoStar Corporation common stock | $ | (62,917 | ) | $ | (40,475 | ) | $ | (22,442 | ) | 55.4 | |||||
| Other data: | |||||||||||||||
| EBITDA (2) | $ | 577,599 | $ | 468,501 | $ | 109,098 | 23.3 | ||||||||
| Subscribers, end of period | 1,477,000 | 1,361,000 | 116,000 | 8.5 |
- 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 U.S. GAAP measure in our Accompanying 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. |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
The following discussion relates to our continuing operations for the years ended December 31, 2019 and 2018 unless otherwise stated.
Services and other revenue. Services and other revenue totaled $1.6 billion for the year ended December 31, 2019, an increase of $62.0 million or 4.0%, compared to 2018.
| • | Services and other revenue from our Hughes segment for the year ended December 31, 2019 increased by $74.9 million, or 5.0%, to $1.6 billion compared to 2018. The increase was primarily attributable to increases in sales of broadband services to our consumer customers of $102.0 million, primarily offset by a decrease in sales of services to our enterprise customers of $30.7 million. |
| • | Services and other revenue from our ESS segment for the year ended December 31, 2019 decreased by $11.0 million, or 40.3%, to $16.3 million compared to 2018. The decrease was due to a decrease of $9.2 million in transponder services provided to third parties and a decrease of $1.6 million in satellite capacity leased to DISH Network on the EchoStar IX satellite. |
Equipment revenue**.** Equipment revenue totaled $266.8 million for the year ended December 31, 2019, an increase of $61.4 million, or 29.9%, compared to 2018. The increase was primarily attributable to our Hughes segment due to increases in hardware sales of $45.9 million to our enterprise customers and $15.5 million to our mobile satellite systems customers.
Cost of sales - services and other. Cost of sales - services and other totaled $561.4 million for the year ended December 31, 2019, a decrease of $2.6 million, or 0.5%, compared to 2018. The decrease was primarily attributable to our Hughes segment due to lower costs of services provided to our enterprise customers, partially offset by an increase in costs of services to our consumer customers.
Cost of sales - equipment. Cost of sales - equipment totaled $226.0 million for the year ended December 31, 2019, an increase of $49.4 million, or 28.0%, compared to 2018. The increase was primarily attributable to our Hughes segment due to an increase in hardware sales to our enterprise customers and our mobile satellite systems customers.
Selling, general and administrative expenses**.** Selling, general and administrative expenses totaled $509.1 million for the year ended December 31, 2019, an increase of $73.1 million, or 16.8%, compared to 2018. The increase was primarily attributable to increases in (i) expense of $32.5 million related to certain legal proceedings, (ii) marketing and promotional expenses of $22.5 million from our Hughes segment mainly associated with our consumer business, (iii) bad debt expense of $5.0 million and (iv) other general and administrative expenses of $13.1 million.
Depreciation and amortization**.** Depreciation and amortization expenses totaled $490.8 million for the year ended December 31, 2019, an increase of $33.6 million, or 7.4%, compared to 2018. The increase was primarily from our Hughes segment and due to increases in depreciation expense of (i) $20.2 million relating to our customer premises equipment, (ii) $4.8 million relating the Telesat T19V satellite that was placed into service in the fourth quarter of 2018, (iii) $3.1 million relating to the decrease in depreciable life of the SPACEWAY 3 satellite and (iv) $2.0 million relating to the depreciation of assets acquired from Yahsat in Brazil.
Impairment of long-lived assets. There was no impairment of long-lived assets for the year ended December 31, 2019, compared to $65.2 million for the year ended December 31, 2018, which was primarily attributable to the determination that the fair value of our 45 degree west longitude regulatory authorization was de minimis and our recognition of a loss on the assets and in-substance liquidation of the business related to it.
Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized totaled $251.0 million for the year ended December 31, 2019, an increase of $31.7 million, or 14.5%, compared to 2018. The increase was primarily due to an increase of $76.3 million in interest expense associated with certain legal proceedings. The increase was partially offset by a decrease of $39.1 million in interest expense and the amortization of deferred financing cost as a result of the repurchase and maturity of our 6 1/2% Senior Secured Notes due 2019 (the “2019 Senior Secured Notes”) and a net increase of $4.3 million in capitalized interest relating to the construction of the EchoStar XXIV satellite.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Gains (losses) on investments, net**.** Gains (losses) on investments, net totaled $28.9 million of net gains for the year ended December 31, 2019, an increase of $41.5 million compared to 2018. The increase was primarily attributable to an increase in gains on marketable investment securities of $78.2 million in 2019, partially offset by $36.7 million in losses on certain investments in 2019.
Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net totaled $14.7 million in loss for the year ended December 31, 2019, an increase in loss of $8.8 million compared to 2018, which was related to an increase in loss from our equity method investments. Additionally, in the fourth quarter of 2019, we changed our accounting policy to record our share of net earnings or losses of investees on a three-month lag.
Foreign currency transaction gains (losses), net**.** Foreign currency transaction gains (losses), net totaled $11.6 million in losses for the year ended December 31, 2019, a decrease in losses of $4.0 million, or 25.6%, compared to 2018. The decrease in losses was due to the net strengthening of the U.S. dollar against certain foreign currencies in 2019 compared to 2018.
Other, net**.** Other, net totaled $0.2 million in loss for the year ended December 31, 2019 compared to $11.2 million in income for the year ended December 31, 2018. The decrease in income of $11.4 million was primarily due to a net gain of $9.6 million due to the one-time settlement of certain amounts due to and from a third party vendor in 2018 and a net decrease of $2.8 million in dividends received from certain marketable equity securities in 2019 compared to 2018.
Income tax benefit (provision), net. Income tax benefit (provision), net was $20.5 million in provision for the year ended December 31, 2019, an increase of $13.9 million, compared to 2018. Our effective income tax rate was (59.8)% and (5.5)% for the years ended December 31, 2019 and 2018, respectively. The variations in our current year effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2019 were primarily due to the increase in our valuation allowance associated with certain foreign losses and by the impact of state and local taxes partially offset by the change in valuation allowance related to net unrealized gains that are capital in nature and research and experimentation credits. For the year ended December 31, 2018, we recorded a tax provision of zero related to the tax on deemed mandatory repatriation of our unrepatriated foreign earnings. As a result of the release of new treasury regulations in June 2019, we have recorded additional tax expense of $1.5 million on deemed mandatory repatriation of certain deferred foreign earnings. The variations in our effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2018 were primarily due to research and experimentation credits and the change in our valuation allowance associated with unrealized gains that are capital in nature, partially offset by the impact of state and local taxes and the increase in our valuation allowance associated with certain foreign losses.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Net income (loss) attributable to EchoStar Corporation common stock. Net income (loss) attributable to EchoStar Corporation common stock was a net loss of $62.9 million for the year ended December 31, 2019 compared to a net loss of $40.5 million for the year ended December 31, in 2018 as set forth in the following table:
| Amounts | ||||
| Net income (loss) attributable to EchoStar Corporation for the year ended December 31, 2018 | $ | (40,475 | ) | |
| Increase (decrease) in gains on investments, net | 41,534 | |||
| Increase (decrease) in operating income, including depreciation and amortization | 36,940 | |||
| Decrease (increase) in net income attributable to non-controlling interests | 13,177 | |||
| Decrease (increase) in foreign currency transaction losses, net | 3,993 | |||
| Increase (decrease) in interest income | 2,077 | |||
| Increase (decrease) in equity in earnings of unconsolidated affiliates, net | (8,780 | ) | ||
| Increase (decrease) in other, net | (11,415 | ) | ||
| Decrease (increase) in income tax provision, net | (13,912 | ) | ||
| Decrease (increase) in interest expense, net of amounts capitalized | (31,728 | ) | ||
| Increase (decrease) in net income from discontinued operations | (54,328 | ) | ||
| Net income (loss) attributable to EchoStar Corporation for the year ended December 31, 2019 | $ | (62,917 | ) |
EBITDA. EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items below. The following table reconciles EBITDA to Net income (loss), the most directly comparable U.S. GAAP measure in our Accompanying Consolidated Financial Statements:
| For the years ended December 31, | Variance | ||||||||||||||
| 2019 | 2018 | Amount | % | ||||||||||||
| Net income (loss) | $ | (74,252 | ) | $ | (38,633 | ) | $ | (35,619 | ) | 92.2 | |||||
| Interest income | (82,352 | ) | (80,275 | ) | (2,077 | ) | 2.6 | ||||||||
| Interest expense, net of amounts capitalized | 251,016 | 219,288 | 31,728 | 14.5 | |||||||||||
| Income tax provision (benefit), net | 20,488 | 6,576 | 13,912 | * | |||||||||||
| Depreciation and amortization | 490,765 | 457,116 | 33,649 | 7.4 | |||||||||||
| Net (income) loss from discontinued operations | (39,401 | ) | (93,729 | ) | 54,328 | (58.0 | ) | ||||||||
| Net (income) loss attributable to non-controlling interests | 11,335 | (1,842 | ) | 13,177 | * | ||||||||||
| EBITDA | $ | 577,599 | $ | 468,501 | $ | 109,098 | 23.3 |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
EBITDA was $577.6 million for the year ended December 31, 2019, an increase of $109.1 million, or 23.3%, compared to 2018 as set forth in the following table:
| Amounts | ||||
| EBITDA for the year ended December 31, 2018 | $ | 468,501 | ||
| Increase (decrease) in gains on investments, net | 41,534 | |||
| Increase (decrease) in operating income, including depreciation and amortization | 36,940 | |||
| Increase (decrease) in depreciation and amortization | 33,649 | |||
| Decrease (increase) in net income attributable to non-controlling interests | 13,177 | |||
| Decrease (increase) in foreign currency transaction losses, net | 3,993 | |||
| Increase (decrease) in equity in earnings of unconsolidated affiliates, net | (8,780 | ) | ||
| Increase (decrease) in other, net | (11,415 | ) | ||
| EBITDA for the year ended December 31, 2019 | $ | 577,599 |
Segment Operating Results and Capital Expenditures
The following tables present our operating results, capital expenditures and EBITDA by segment for the year ended December 31, 2019 compared to the year ended December 31, 2018. Capital expenditures are net of refunds and other receipts related to property and equipment.
| Hughes | ESS | Corporate and Other | Consolidated Total | |||||||||||||
| For the year ended December 31, 2019 | ||||||||||||||||
| Total revenue | $ | 1,852,742 | $ | 16,257 | $ | 17,082 | $ | 1,886,081 | ||||||||
| Capital expenditures | 308,781 | — | 109,293 | 418,074 | ||||||||||||
| EBITDA | 625,660 | 6,994 | (55,055 | ) | 577,599 | |||||||||||
| For the year ended December 31, 2018 | ||||||||||||||||
| Total revenue | $ | 1,716,528 | $ | 27,231 | $ | 18,879 | $ | 1,762,638 | ||||||||
| Capital expenditures | 390,108 | (76,757 | ) | 164,091 | 477,442 | |||||||||||
| EBITDA | 601,319 | 17,764 | (150,582 | ) | 468,501 |
Hughes Segment
| For the years ended December 31, | Variance | ||||||||||||||
| 2019 | 2018 | Amount | % | ||||||||||||
| Total revenue | $ | 1,852,742 | $ | 1,716,528 | $ | 136,214 | 7.9 | ||||||||
| Capital expenditures | 308,781 | 390,108 | (81,327 | ) | (20.8 | ) | |||||||||
| EBITDA | 625,660 | 601,319 | 24,341 | 4.0 |
Total revenue was $1.9 billion for the year ended December 31, 2019, an increase of $136.2 million, or 7.9%, compared to 2018. The increase was primarily due to an increase of $102.0 million in sales of broadband services to our consumer customers and net increases in hardware sales of $45.9 million to our enterprise customers and $15.5 million to our mobile satellite systems customers. The increase was partially offset by a decrease of $30.7 million in sales of services to our enterprise customers.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Capital expenditures were $308.8 million for the year ended December 31, 2019, a decrease of $81.3 million, or 20.8%, compared to 2018, primarily due to net decreases in capital expenditures associated with the construction and infrastructure of our satellites and in our consumer and enterprise businesses.
EBITDA was $625.7 million for the year ended December 31, 2019, an increase of $24.3 million, or 4.0%, compared to 2018 as set forth in the following table:
| Amounts | ||||
| EBITDA for the year ended December 31, 2018 | $ | 601,319 | ||
| Increase (decrease) in depreciation and amortization | 40,050 | |||
| Decrease (increase) in net income attributable to non-controlling interests | 13,177 | |||
| Decrease (increase) in foreign currency transaction losses, net | 2,613 | |||
| Increase (decrease) in other, net | (197 | ) | ||
| Increase (decrease) in equity in earnings of unconsolidated affiliates, net | (5,477 | ) | ||
| Increase (decrease) in gains on investments, net | (8,890 | ) | ||
| Increase (decrease) in operating income, including depreciation and amortization | (16,935 | ) | ||
| EBITDA for the year ended December 31, 2019 | $ | 625,660 |
ESS Segment
| For the years ended December 31, | Variance | ||||||||||||||
| 2019 | 2018 | Amount | % | ||||||||||||
| Total revenue | $ | 16,257 | $ | 27,231 | $ | (10,974 | ) | (40.3 | ) | ||||||
| Capital expenditures | — | (76,757 | ) | 76,757 | (100.0 | ) | |||||||||
| EBITDA | 6,994 | 17,764 | (10,770 | ) | (60.6 | ) |
Total revenue was $16.3 million for the year ended December 31, 2019, a decrease of $11.0 million, or 40.3%, compared to 2018. The decrease was attributable to a net decrease of $9.2 million in transponder services provided to third parties and a decrease of $1.6 million in satellite capacity leased to DISH Network on the EchoStar IX satellite.
There were no capital expenditures for the year ended December 31, 2019, as there were no new satellites under construction in our ESS segment during the year. The negative capital expenditure in 2018 for $76.8 million is primarily driven by a reimbursement of $77.5 million related to the EchoStar 105/SES-11 satellite received in the first quarter of 2018.
EBITDA was $7.0 million for the year ended December 31, 2019, a decrease of $10.8 million, or 60.6%, compared to 2018, primarily due to the decrease in overall ESS revenue.
Corporate and Other
| For the years ended December 31, | Variance | ||||||||||||||
| 2019 | 2018 | Amount | % | ||||||||||||
| Total revenue | $ | 17,082 | $ | 18,879 | $ | (1,797 | ) | (9.5 | ) | ||||||
| Capital expenditures | 109,293 | 164,091 | (54,798 | ) | (33.4 | ) | |||||||||
| EBITDA | (55,055 | ) | (150,582 | ) | 95,527 | (63.4 | ) |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Capital expenditures were $109.3 million for the year ended December 31, 2019, a decrease of $54.8 million, or 33.4%, compared to 2018, primarily due to decreases in satellite expenditures on the EchoStar XXIV satellite.
EBITDA was a loss of $55.1 million for the year ended December 31, 2019, a decrease in loss of $95.5 million, or 63.4% compared to 2018 as set forth in the following table:
| Amounts | ||||
| EBITDA for the year ended December 31, 2018 | $ | (150,582 | ) | |
| Increase (decrease) in operating income, including depreciation and amortization | 64,784 | |||
| Increase (decrease) in gains on investments, net | 50,423 | |||
| Decrease (increase) in foreign currency transaction losses, net | 1,380 | |||
| Increase (decrease) in equity in earnings of unconsolidated affiliates, net | (3,303 | ) | ||
| Increase (decrease) in depreciation and amortization | (6,538 | ) | ||
| Increase (decrease) in other, net | (11,219 | ) | ||
| EBITDA for the year ended December 31, 2019 | $ | (55,055 | ) |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
The following table presents our consolidated results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017:
| For the years ended December 31, | Variance | ||||||||||||||
| Statements of Operations Data (1) | 2018 | 2017 | Amount | % | |||||||||||
| Revenue: | |||||||||||||||
| Services and other revenue | $ | 1,557,228 | $ | 1,285,666 | $ | 271,562 | 21.1 | ||||||||
| Equipment revenue | 205,410 | 239,489 | (34,079 | ) | (14.2 | ) | |||||||||
| Total revenue | 1,762,638 | 1,525,155 | 237,483 | 15.6 | |||||||||||
| Costs and expenses: | |||||||||||||||
| Cost of sales - services and other | 563,907 | 500,773 | 63,134 | 12.6 | |||||||||||
| % of total services and other revenue | 36.2 | % | 39.0 | % | |||||||||||
| Cost of sales - equipment | 176,600 | 195,151 | (18,551 | ) | (9.5 | ) | |||||||||
| % of total equipment revenue | 86.0 | % | 81.5 | % | |||||||||||
| Selling, general and administrative expenses | 436,088 | 370,500 | 65,588 | 17.7 | |||||||||||
| % of total revenue | 24.7 | % | 24.3 | % | |||||||||||
| Research and development expenses | 27,570 | 31,745 | (4,175 | ) | (13.2 | ) | |||||||||
| % of total revenue | 1.6 | % | 2.1 | % | |||||||||||
| Depreciation and amortization | 457,116 | 385,662 | 71,454 | 18.5 | |||||||||||
| Impairment of long-lived assets | 65,220 | 10,762 | 54,458 | * | |||||||||||
| Total costs and expenses | 1,726,501 | 1,494,593 | 231,908 | 15.5 | |||||||||||
| Operating income (loss) | 36,137 | 30,562 | 5,575 | 18.2 | |||||||||||
| Other income (expense): | |||||||||||||||
| Interest income | 80,275 | 44,619 | 35,656 | 79.9 | |||||||||||
| Interest expense, net of amounts capitalized | (219,288 | ) | (184,389 | ) | (34,899 | ) | 18.9 | ||||||||
| Gains (losses) on investments, net | (12,622 | ) | 53,453 | (66,075 | ) | * | |||||||||
| Equity in earnings (losses) of unconsolidated affiliates, net | (5,954 | ) | 16,973 | (22,927 | ) | * | |||||||||
| Foreign currency transaction gains (losses), net | (15,583 | ) | 1,218 | (16,801 | ) | * | |||||||||
| Other, net | 11,249 | 5,364 | 5,885 | * | |||||||||||
| Total other income (expense), net | (161,923 | ) | (62,762 | ) | (99,161 | ) | * | ||||||||
| Income (loss) from continuing operations before income taxes | (125,786 | ) | (32,200 | ) | (93,586 | ) | * | ||||||||
| Income tax benefit (provision), net | (6,576 | ) | 155,107 | (161,683 | ) | * | |||||||||
| Net income (loss) from continuing operations | (132,362 | ) | 122,907 | (255,269 | ) | * | |||||||||
| Net income (loss) from discontinued operations | 93,729 | 270,582 | (176,853 | ) | (65.4 | ) | |||||||||
| Net income (loss) | (38,633 | ) | 393,489 | (432,122 | ) | * | |||||||||
| Less: Net income (loss) attributable to non-controlling interests | 1,842 | 928 | 914 | 98.5 | |||||||||||
| Net income (loss) attributable to EchoStar Corporation | $ | (40,475 | ) | $ | 392,561 | $ | (433,036 | ) | * | ||||||
| Other data: | |||||||||||||||
| EBITDA (2) | $ | 468,501 | $ | 492,304 | $ | (23,803 | ) | (4.8 | ) | ||||||
| Subscribers, end of period | 1,361,000 | 1,208,000 | 153,000 | 12.7 |
- Percentage is not meaningful.
| (1) | An explanation of our key metrics is included in Explanation of Key Metrics and Other Items. |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
| (2) | A reconciliation of EBITDA to Net income (loss), the most directly comparable U.S. GAAP measure in our Accompanying 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. |
Services and other revenue. Services and other revenue totaled $1.6 billion for the year ended December 31, 2018, an increase of $271.6 million, or 21.1%, compared to 2017.
| • | Services and other revenue from our Hughes segment for the year ended December 31, 2018 increased by $272.6 million, or 22.0%, to $1.5 billion compared to 2017. The increase was mainly due to increases in sales of broadband services to our consumer and enterprise customers of $271.0 million and $28.1 million, respectively. The increase was partially offset by a decrease of $32.5 million in residential wholesale broadband services. |
| • | Services and other revenue from our ESS segment for the year ended December 31, 2018 decreased by $3.2 million, or 10.5%, to $27.2 million compared to 2017. The decrease was primarily a result of a decrease in satellite capacity leased to DISH Network on the EchoStar IX satellite. |
Equipment revenue. Equipment revenue totaled $205.4 million for the year ended December 31, 2018, a decrease of $34.1 million, or 14.2%, compared to 2017. The decrease was primarily due to a decrease in hardware sales in our Hughes segment of $22.7 million to our domestic enterprise customers, $8.4 million to our mobile satellite systems customers and $5.8 million to our consumer customers. The decrease was partially offset by an increase in hardware sales in our Hughes segment of $3.1 million to our international enterprise customers.
Cost of sales - services and other. Cost of sales - services and other totaled $563.9 million for the year ended December 31, 2018, an increase of $63.1 million, or 12.6%, compared to 2017. The increase was from our Hughes segment and was mainly due to an increase in the costs of broadband services provided to our consumer and enterprise customers supporting the increased subscribers and revenue.
Cost of sales - equipment**.** Cost of sales - equipment totaled $176.6 million for the year ended December 31, 2018, a decrease of $18.6 million, or 9.5%, compared to 2017. The decrease was primarily attributable to a decrease in hardware sales in our Hughes segment provided to our consumer customers, domestic enterprise customers and mobile satellite systems customers, partially offset by an increase in hardware sales in our Hughes segment to our international enterprise customers.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $436.1 million for the year ended December 31, 2018, an increase of $65.6 million, or 17.7%, compared to 2017. Selling expenses increased $37.5 million primarily attributable to the amortization of contract acquisition and fulfillment costs from our Hughes segment and an increase in marketing and promotional costs from our Hughes segment mainly associated with our consumer business. General and administration expenses increased $32.3 million primarily attributable to increases in bad debt expense, costs associated with beginning operations in certain Central and South American countries and other administrative costs from our Hughes segment.
Depreciation and amortization. Depreciation and amortization expenses totaled $457.1 million for the year ended December 31, 2018, an increase of $71.5 million, or 18.5%, compared to 2017. The increase was primarily due to an increase in depreciation expense of: (i) $33.3 million relating to the EchoStar XIX satellite, the EchoStar XXI satellite and the EchoStar 105/SES-11 satellite that were placed into service in the first and fourth quarters of 2017, respectively and the Telesat T19V satellite that was placed into service in the fourth quarter of 2018, (ii) $28.2 million relating to our customer rental equipment, (iii) $10.7 million relating to machinery and equipment and (iv) $9.2 million relating to the decrease in depreciable life of the SPACEWAY 3 satellite. The increase in depreciation expense was partially offset by a decrease of $7.5 million in amortization expense from certain fully amortized other intangible assets in our Hughes segment.
Impairment of long-lived assets. During the year ended December 31, 2018, impairment of long-lived assets of $65.2 million was primarily attributable to the determination that the fair value of our 45 degree west longitude regulatory authorization was de minimis and our recognition of a loss on the assets and in-substance liquidation of the business related to it. During the year ended December 31, 2017, impairment of long-lived assets of $10.8 million was primarily
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
attributable to an impairment loss of $6.0 million relating to our regulatory authorizations with indefinite lives from our ESS segment and a loss of $4.8 million due to impairment of certain projects in construction in progress from Corporate and Other.
Interest income. Interest income totaled $80.3 million for the year ended December 31, 2018, an increase of $35.7 million, or 79.9% compared to 2017. The increase was primarily attributable to an increase in our percentage yield on marketable investments.
Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized totaled $219.3 million for the year ended December 31, 2018, an increase of $34.9 million, or 18.9%, compared to 2017. The increase was primarily due to a decrease of $44.6 million in capitalized interest relating to the EchoStar XIX satellite that was placed into service in the first quarter of 2017 and the EchoStar XXI satellite and the EchoStar 105/SES-11 satellite that were placed into service in the fourth quarter of 2017. The increase was partially offset by an increase of $10.7 million in capitalized interest relating to the construction of the EchoStar XXIV satellite.
Gains (losses) on investments, net**.** Gains (losses) on investments, net totaled $12.6 million in losses for the year ended December 31, 2018 compared to $53.5 million in gains for the year ended December 31, 2017. For the year ended December 31, 2018, the net loss included (i) unrealized losses of $16.6 million on certain marketable equity securities and (ii) unrealized gains of $4.2 million on certain debt securities that we account for using the fair value option. For the year ended December 31, 2017, the net gain included (i) gains of $45.0 million attributable to unrealized gains on certain marketable equity securities, (ii) gains of $8.9 million from the sale of our investment in Invidi Technologies Corporation (“Invidi”) to an entity owned in part by DISH Network, (iii) gains of $2.8 million from the sales of certain available-for-sale securities and (iv) an other-than-temporary impairment loss of $3.3 million on one of our available-for-sale securities.
Equity in earnings (losses) of unconsolidated affiliates, net. Equity in losses of unconsolidated affiliates, net totaled $6.0 million for the year ended December 31, 2018 compared to $17.0 million in earnings for the year ended December 31, 2017. The change of $22.9 million was primarily related to a decrease in earnings from our investments in our unconsolidated affiliates.
Foreign currency transaction gains (losses), net**.** Foreign currency transaction gains (losses), net totaled $15.6 million in losses for the year ended December 31, 2018 compared to $1.2 million in gains for the year ended December 31, 2017. The increase in losses was due to the strengthening of the U.S. dollar against certain foreign currencies in 2018.
Other, net. Other, net totaled $11.2 million in income for the year ended December 31, 2018, an increase of $5.9 million, compared to 2017. The increase was mainly due to a net gain of $9.6 million due to the one-time settlement of certain amounts due to and from a third party vendor in the second quarter of 2018, partially offset by a decrease of $2.9 million in dividends received from certain marketable equity securities in 2018.
Income tax benefit (provision), net. Income tax provision was $6.6 million for the year ended December 31, 2018 compared to an income tax benefit of $155.1 million for the year ended December 31, 2017. Our effective income tax rate was (5.2)% and 536.0% for the year ended December 31, 2018 and 2017, respectively. The variations in our current year effective tax rate from the U.S. federal statutory rate 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. In addition, we did not record any tax benefit from the impairment of long-lived assets in Brazil as we do not expect to realize a tax benefit from this loss in the foreseeable future. This resulted in further variance from the U.S. statutory effective rate in 2018. The variations in our effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2017 were primarily due to the 2017 Tax Act, the recognition of a one-time tax benefit for the revaluation of our deferred tax assets and liabilities due to a change in our state effective tax rate as a result of the Share Exchange, the increase in our valuation allowance associated with unrealized gains that are capital in nature, and change in the amount of unrecognized tax benefit from uncertain tax positions. The tax benefit recognized from the change in our effective tax rate was partially offset by the increase in our valuation allowance associated with certain state and foreign losses.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Net income (loss) attributable to EchoStar Corporation. Net income (loss) attributable to EchoStar Corporation common stock was a net loss of $40.5 million for the year ended December 31, 2018, compared to net income of $392.6 million for the year ended December 31, 2017, as set forth in the following table:
| Amounts | ||||
| Net income (loss) attributable to EchoStar Corporation for the year ended December 31, 2017 | $ | 392,561 | ||
| Increase (decrease) in interest income | 35,656 | |||
| Increase (decrease) in other, net | 5,885 | |||
| Increase (decrease) in operating income, including depreciation and amortization | 5,575 | |||
| Decrease (increase) in net income attributable to non-controlling interests | (914 | ) | ||
| Decrease (increase) in foreign currency transaction losses, net | (16,801 | ) | ||
| Increase (decrease) in equity in earnings of unconsolidated affiliates, net | (22,927 | ) | ||
| Decrease (increase) in interest expense, net of amounts capitalized | (34,899 | ) | ||
| Increase (decrease) in gains on investments, net | (66,075 | ) | ||
| Decrease (increase) in income tax provision, net | (161,683 | ) | ||
| Increase (decrease) in net income from discontinued operations | (176,853 | ) | ||
| Net income (loss) attributable to EchoStar Corporation for the year ended December 31, 2018 | $ | (40,475 | ) |
EBITDA. EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items below. The following table reconciles EBITDA to Net income (loss), the most directly comparable U.S. GAAP measure in our Accompanying Consolidated Financial Statements:
| For the years ended December 31, | Variance | ||||||||||||||
| 2018 | 2017 | Amount | % | ||||||||||||
| Net income (loss) | $ | (38,633 | ) | $ | 393,489 | $ | (432,122 | ) | * | ||||||
| Interest income | (80,275 | ) | (44,619 | ) | (35,656 | ) | 79.9 | ||||||||
| Interest expense, net of amounts capitalized | 219,288 | 184,389 | 34,899 | 18.9 | |||||||||||
| Income tax (benefit) provision, net | 6,576 | (155,107 | ) | 161,683 | * | ||||||||||
| Depreciation and amortization | 457,116 | 385,662 | 71,454 | 18.5 | |||||||||||
| Net (income) loss from discontinued operations | (93,729 | ) | (270,582 | ) | 176,853 | (65.4 | ) | ||||||||
| Net (income) loss attributable to non-controlling interests | (1,842 | ) | (928 | ) | (914 | ) | 98.5 | ||||||||
| EBITDA | $ | 468,501 | $ | 492,304 | $ | (23,803 | ) | (4.8 | ) |
- Percentage is not meaningful.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
EBITDA was $468.5 million for the year ended December 31, 2018, a decrease of $23.8 million, or 4.8%, compared to 2017 as set forth in the following table:
| Amounts | ||||
| EBITDA for the year ended December 31, 2017 | $ | 492,304 | ||
| Increase (decrease) in depreciation and amortization | 71,454 | |||
| Increase (decrease) in other, net | 5,885 | |||
| Increase (decrease) in operating income, including depreciation and amortization | 5,575 | |||
| Decrease (increase) in net income attributable to non-controlling interests | (914 | ) | ||
| Decrease (increase) in foreign currency transaction losses, net | (16,801 | ) | ||
| Increase (decrease) in equity in earnings of unconsolidated affiliates, net | (22,927 | ) | ||
| Increase (decrease) in gains on investments, net | (66,075 | ) | ||
| EBITDA for the year ended December 31, 2018 | $ | 468,501 |
Segment Operating Results and Capital Expenditures
The following tables present our operating results, capital expenditures and EBITDA by segment for the year ended December 31, 2018 compared to the year ended December 31, 2017. Capital expenditures in the table above are net of refunds and other receipts related to property and equipment.
| Hughes | ESS | Corporate and Other | Consolidated Total | |||||||||||||
| For the year ended December 31, 2018 | ||||||||||||||||
| Total revenue | $ | 1,716,528 | $ | 27,231 | $ | 18,879 | $ | 1,762,638 | ||||||||
| Capital expenditures | 390,108 | (76,757 | ) | 164,091 | 477,442 | |||||||||||
| EBITDA | 601,319 | 17,764 | (150,582 | ) | 468,501 | |||||||||||
| For the year ended December 31, 2017 | ||||||||||||||||
| Total revenue | $ | 1,477,918 | $ | 30,417 | $ | 16,820 | $ | 1,525,155 | ||||||||
| Capital expenditures | 376,502 | 20,026 | 169,157 | 565,685 | ||||||||||||
| EBITDA | 475,222 | 16,074 | 1,008 | 492,304 |
Hughes Segment
| For the years ended December 31, | Variance | |||||||||||||
| 2018 | 2017 | Amount | % | |||||||||||
| Total revenue | $ | 1,716,528 | $ | 1,477,918 | $ | 238,610 | 16.1 | |||||||
| Capital expenditures | 390,108 | 376,502 | 13,606 | 3.6 | ||||||||||
| EBITDA | 601,319 | 475,222 | 126,097 | 26.5 |
Total revenue was $1.7 billion for the year ended December 31, 2018, an increase of $238.6 million, or 16.1%, compared to 2017. The increase was primarily due to an increase in sales of broadband services to our consumer and domestic enterprise customers of $271.0 million and $28.1 million, respectively, and an increase in hardware sales of $3.1 million to our international enterprise customers. The increase was partially offset by (i) a decrease of $32.5 million in residential wholesale broadband services and (ii) decreases in hardware sales of $22.7 million to our domestic enterprise customers, $8.4 million to our mobile satellite systems customers and $5.8 million to our consumer customers.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Capital expenditures were $390.1 million for the year ended December 31, 2018, an increase of $13.6 million, or 3.6%, compared to 2017, primarily due to increases in capital expenditures relating to the Telesat T19V satellite and our enterprise business of $31.3 million. The increases were partially offset by a decrease of $17.8 million in capital expenditures mainly associated with satellite ground facilities.
EBITDA was $601.3 million for the year ended December 31, 2018, an increase of $126.1 million, or 26.5%, compared to 2017 as set forth in the following table:
| Amounts | ||||
| EBITDA for the year ended December 31, 2017 | $ | 475,222 | ||
| Increase (decrease) in operating income, including depreciation and amortization | 83,596 | |||
| Increase (decrease) in depreciation and amortization | 51,802 | |||
| Increase (decrease) in gains on investments, net | 1,545 | |||
| Increase (decrease) in other, net | 694 | |||
| Decrease (increase) in net income attributable to non-controlling interests | (260 | ) | ||
| Decrease (increase) in foreign currency transaction losses, net | (11,280 | ) | ||
| EBITDA for the year ended December 31, 2018 | $ | 601,319 |
ESS Segment
| For the years ended December 31, | Variance | ||||||||||||||
| 2018 | 2017 | Amount | % | ||||||||||||
| Total revenue | $ | 27,231 | $ | 30,417 | $ | (3,186 | ) | (10.5 | ) | ||||||
| Capital expenditures | (76,757 | ) | 20,026 | (96,783 | ) | * | |||||||||
| EBITDA | 17,764 | 16,074 | 1,690 | 10.5 | |||||||||||
| * Percentage is not meaningful |
Total revenue was $27.2 million for the year ended December 31, 2018, a decrease of $3.2 million, or 10.5%, compared to 2017. The decrease was a result of a decrease in satellite capacity leased to DISH Network on the EchoStar IX satellite.
Capital expenditures were a net reimbursement of $76.8 million for the year ended December 31, 2018, a decrease in net capital expenditures of $96.8 million compared to 2017, primarily attributable to a reimbursement of $77.5 million in 2018 and a decrease in satellite expenditure as a result of the EchoStar 105/SES-11 satellite that was placed into service in the fourth quarter of 2017.
EBITDA was $17.8 million for the year ended December 31, 2018, an increase of $1.7 million, or 10.5%, compared to 2017 as set forth in the following table:
| Amounts | ||||
| EBITDA for the year ended December 31, 2017 | $ | 16,074 | ||
| Increase (decrease) in depreciation and amortization | 7,108 | |||
| Increase (decrease) in operating income, including depreciation and amortization | (5,418 | ) | ||
| EBITDA for the year ended December 31, 2018 | $ | 17,764 |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Corporate and Other
| For the years ended December 31, | Variance | ||||||||||||||
| 2018 | 2017 | Amount | % | ||||||||||||
| Total revenue | $ | 18,879 | $ | 16,820 | $ | 2,059 | 12.2 | ||||||||
| Capital expenditures | 164,091 | 169,157 | (5,066 | ) | (3.0 | ) | |||||||||
| EBITDA | (150,582 | ) | 1,008 | (151,590 | ) | * | |||||||||
| * Percentage is not meaningful |
Capital expenditures were $164.1 million for the year ended December 31, 2018, a decrease of $5.1 million, or 3.0%, compared to 2017, primarily related to increases of $44.5 million in satellite expenditures on the EchoStar XXIV satellite, primarily offset by decreases of $37.6 million in satellite expenditures on the EchoStar XIX satellite and the EchoStar XXI satellite. The EchoStar XIX satellite and the EchoStar XXI satellite were placed into service in 2017 and the EchoStar XIX satellite was contributed to the Hughes segment in the first quarter of 2017. The EchoStar XXIV satellite is primarily intended to provide additional capacity for our HughesNet service in North, South and Central American countries.
EBITDA was a loss of $150.6 million for the year ended December 31, 2018, compared to EBITDA of $1.0 million for the year ended December 31, 2017, a decrease of $151.6 million, as set forth in the following table:
| Amounts | ||||
| EBITDA for the year ended December 31, 2017 | $ | 1,008 | ||
| Increase (decrease) in depreciation and amortization | 12,548 | |||
| Increase (decrease) in other, net | 5,191 | |||
| Decrease (increase) in net income attributable to non-controlling interests | (655 | ) | ||
| Decrease (increase) in foreign currency transaction losses, net | (5,524 | ) | ||
| Increase (decrease) in equity in earnings of unconsolidated affiliates, net | (22,927 | ) | ||
| Increase (decrease) in gains on investments, net | (67,619 | ) | ||
| Increase (decrease) in operating income, including depreciation and amortization | (72,604 | ) | ||
| EBITDA for the year ended December 31, 2018 | $ | (150,582 | ) |
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Current 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 in this Form 10-K for further discussion regarding our marketable investment securities.
As of December 31, 2019 and 2018, our cash, cash equivalents and current marketable investment securities, totaled $2.5 billion and $3.2 billion, respectively.
As of December 31, 2019 and 2018, we held $940.6 million and $2.3 billion, respectively, of marketable investment securities, consisting of various debt and equity instruments including corporate bonds, corporate equity securities, government bonds and mutual funds.
Previous: Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES · Next: Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued