Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

The following table presents our consolidated results of operations for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:

						For the nine months ended September 30,												Variance
Statements of Operations Data						2021						2020						Amount						%
Revenue:
Services and other revenue						$	1,294,355					$	1,251,932					$	42,423					3.4
Equipment revenue						192,721						146,702						46,019						31.4
Total revenue						1,487,076						1,398,634						88,442						6.3
Costs and expenses:
Cost of sales - services and other						410,515						432,848						(22,333)						(5.2)
% of total services and other revenue						31.7		%				34.6		%
Cost of sales - equipment						161,982						115,529						46,453						40.2
% of total equipment revenue						84.0		%				78.8		%
Selling, general and administrative expenses						341,143						354,437						(13,294)						(3.8)
% of total revenue						22.9		%				25.3		%
Research and development expenses						22,960						21,378						1,582						7.4
% of total revenue						1.5		%				1.5		%
Depreciation and amortization						368,864						392,077						(23,213)						(5.9)
Impairment of long-lived assets						245						—						245						*
Total costs and expenses						1,305,709						1,316,269						(10,560)						(0.8)
Operating income (loss)						181,367						82,365						99,002						*
Other income (expense):
Interest income, net						16,914						33,707						(16,793)						(49.8)
Interest expense, net of amounts capitalized						(79,848)						(112,458)						32,610						(29.0)
Gains (losses) on investments, net						112,981						(37,764)						150,745						*
Equity in earnings (losses) of unconsolidated affiliates, net						(2,596)						(5,866)						3,270						(55.7)
Foreign currency transaction gains (losses), net						(10,045)						(2,603)						(7,442)						*
Other, net						(12,922)						(379)						(12,543)						*
Total other income (expense), net						24,484						(125,363)						149,847						*
Income (loss) before income taxes						205,851						(42,998)						248,849						*
Income tax benefit (provision), net						(63,047)						(6,309)						(56,738)						*
Net income (loss)						142,804						(49,307)						192,111						*
Less: Net loss (income) attributable to non-controlling interests						6,419						9,040						(2,621)						(29.0)
Net income (loss) attributable to EchoStar Corporation common stock						$	149,223					$	(40,267)					$	189,490					*
Other data:
EBITDA (1)						$	644,068					$	436,870					$	207,198					47.4
Subscribers, end of period						1,510,000						1,580,000						(70,000)						(4.4)

• 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 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

The following discussion relates to our results of operations for the nine months ended September 30, 2021 and 2020.

Services and other revenue. Services and other revenue totaled $1.3 billion for the nine months ended September 30, 2021, an increase of $42.4 million, or 3.4%, as compared to 2020. The increase was primarily attributable to increases in our Hughes segment related to sales of broadband services to our consumer customers of $41.2 million, partially offset by decreases in sales of broadband services to our enterprise customers of $1.6 million. Our Corporate and Other segment increased by $2.2 million. These variances reflect the negative impact of exchange rate fluctuations of $2.4 million, primarily attributable to our consumer customers.

Equipment revenue. Equipment revenue totaled $192.7 million for the nine months ended September 30, 2021, an increase of $46.0 million, or 31.4%, as compared to 2020. The increase was primarily attributable to increases in hardware sales of $53.9 million to our enterprise customers, partially offset by decreases in hardware sales of $5.5 million to our mobile satellite systems customers.

Cost of sales - services and other. Cost of sales - services and other totaled $410.5 million for the nine months ended September 30, 2021, a decrease of $22.3 million, or 5.2%, as compared to 2020. The decrease was primarily attributable to lower costs of services provided to our consumer customers associated with customer care and field services as well as a non-recurring decrease in a certain international regulatory fee of $4.5 million.

Cost of sales - equipment. Cost of sales - equipment totaled $162.0 million for the nine months ended September 30, 2021, an increase of $46.5 million, or 40.2%, as compared to 2020. The increase was primarily attributable to the corresponding increase in equipment revenue.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $341.1 million for the nine months ended September 30, 2021, a decrease of $13.3 million, or 3.8%, as compared to 2020. The decrease was primarily attributable to decreased sales and marketing expenses of $5.2 million mainly associated with our consumer customers and decreases in bad debt expense of $9.1 million.

Depreciation and amortization. Depreciation and amortization expenses totaled $368.9 million for the nine months ended September 30, 2021, a decrease of $23.2 million, or 5.9%, as compared to 2020. The decrease was primarily attributable to (i) our SPACEWAY 3 satellite which was fully depreciated at the end of the first quarter of 2021, (ii) decreases in other property and equipment depreciation expense of $1.2 million, and (iii) decreases in amortization of intangibles of $4.7 million.

Interest income, net. Interest income, net totaled $16.9 million for the nine months ended September 30, 2021, a decrease of $16.8 million, or 49.8%, as compared to 2020, primarily attributable to decreases in the yield on our marketable investment securities and a decrease in our marketable investment securities average balance.

Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized totaled $79.8 million for the nine months ended September 30, 2021, a decrease of $32.6 million, or 29.0%, as compared to 2020. The decrease was primarily attributable to a decrease of $23.3 million in interest expense and the amortization of deferred financing cost as a result of the repurchases and maturity of our 7 5/8% Senior Unsecured Notes due 2021 and an increase of $6.6 million in capitalized interest relating to the EchoStar XXIV satellite program.

Gains (losses) on investments, net. Gains (losses) on investments, net totaled $113.0 million in gains for the nine months ended September 30, 2021, an increase of $150.7 million, as compared to 2020. The change was primarily attributable to increased gains on marketable investment securities of $113.7 million in 2021 as compared to 2020, gains on other equity securities of $7.1 million in 2021, and a $29.8 million impairment loss in 2020.

Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net totaled $2.6 million in losses for the nine months ended September 30, 2021, a decrease in losses of $3.3 million, or 55.7%, as compared to 2020. The decrease was related to net increased earnings from our investments in our equity method investees.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled $10.0 million in losses for the nine months ended September 30, 2021, as compared to $2.6 million in losses for the nine months ended September 30, 2020, a negative change of $7.4 million. The change was due to the net impact of foreign exchange fluctuations of certain currencies during the quarter.

Other, net. Other, net totaled $12.9 million in losses for the nine months ended September 30, 2021, as compared to $0.4 million in losses for the nine months ended September 30, 2020, an increase in losses of $12.5 million. The increase was primarily attributable to a litigation expense of $16.8 million and losses from debt repurchases on our 7 5/8% Senior Unsecured Notes due 2021 of $1.9 million, partially offset by dividends received from certain marketable equity securities of $2.2 million.

Income tax benefit (provision), net. Income tax benefit (provision), net was $(63.0) million for the nine months ended September 30, 2021, as compared to $(6.3) million for the nine months ended September 30, 2020. Our effective income tax rate was 30.6% and (14.7)% for the nine months ended September 30, 2021 and 2020, respectively. The variations in our current year effective tax rate from the U.S. federal statutory rate for the nine months ended September 30, 2021 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes. The variations in our effective tax rate from the U.S. federal statutory rate for the nine months ended September 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 the change in net unrealized gains that are capital in nature and research and experimentation credits.

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

						Amounts
Net income (loss) attributable to EchoStar Corporation for the nine months ended September 30, 2020						$	(40,267)
Decrease (increase) in income tax benefit (provision), net						(56,738)
Increase (decrease) in interest income, net						(16,793)
Increase (decrease) in other, net						(12,543)
Increase (decrease) in foreign currency transaction gains (losses), net						(7,442)
Decrease (increase) in net loss (income) attributable to non-controlling interests						(2,621)
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net						3,270
Decrease (increase) in interest expense, net of amounts capitalized						32,610
Increase (decrease) in operating income (loss), including depreciation and amortization						99,002
Increase (decrease) in gains (losses) on investments, net						150,745
Net income (loss) attributable to EchoStar Corporation for the nine months ended September 30, 2021						$	149,223

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 EBITDA to Net income (loss), the most directly comparable U.S. GAAP measure in our Accompanying Consolidated Financial Statements:

						For the nine months ended September 30,												Variance
						2021						2020						Amounts						%
Net income (loss)						$	142,804					$	(49,307)					$	192,111					*
Interest income, net						(16,914)						(33,707)						16,793						(49.8)
Interest expense, net of amounts capitalized						79,848						112,458						(32,610)						(29.0)
Income tax provision (benefit), net						63,047						6,309						56,738						*
Depreciation and amortization						368,864						392,077						(23,213)						(5.9)
Net loss (income) attributable to non-controlling interests						6,419						9,040						(2,621)						(29.0)
EBITDA						$	644,068					$	436,870					$	207,198					47.4

• Percentage is not meaningful.

The following table reconciles the change in EBITDA:

						Amounts
EBITDA for the nine months ended September 30, 2020						$	436,870
Increase (decrease) in gains (losses) on investments, net						150,745
Increase (decrease) in operating income (loss), excluding depreciation and amortization						75,789
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net						3,270
Decrease (increase) in net loss (income) attributable to non-controlling interests						(2,621)
Increase (decrease) in foreign currency transaction gains (losses), net						(7,442)
Increase (decrease) in other, net						(12,543)
EBITDA for the nine months ended September 30, 2021						$	644,068

Segment Operating Results and Capital Expenditures

The following tables present our total revenue, capital expenditures and EBITDA by segment for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020:

						Hughes						ESS						Corporate and Other						Consolidated Total
For the nine months ended September 30, 2021
Total revenue						$	1,465,073					$	12,808					$	9,195					$	1,487,076
Capital expenditures						228,641						—						123,362						352,003
EBITDA						605,742						6,481						31,845						644,068
For the nine months ended September 30, 2020
Total revenue						$	1,378,416					$	13,233					$	6,985					$	1,398,634
Capital expenditures						263,844						41						31,156						295,041
EBITDA						531,276						5,847						(100,253)						436,870

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

Hughes Segment

						For the nine months ended September 30,												Variance
						2021						2020						Amount						%
Total revenue						$	1,465,073					$	1,378,416					$	86,657					6.3
Capital expenditures						228,641						263,844						(35,203)						(13.3)
EBITDA						605,742						531,276						74,466						14.0

Total revenue was $1.5 billion for the nine months ended September 30, 2021, an increase of $86.7 million, or 6.3%, as compared to 2020. Services and other revenue increased primarily due to an increase of $41.2 million in sales of broadband services to our consumer customers, partially offset by decreases in sales of broadband services to our enterprise customers of $1.6 million. Equipment revenue increased primarily due to increases in hardware sales of $53.9 million to our enterprise customers, partially offset by decreases in hardware sales of $5.5 million to our mobile satellite systems customers. These variances reflect the negative impact of exchange rate fluctuations of $2.5 million.

Capital expenditures were $228.6 million for the nine months ended September 30, 2021, a decrease of $35.2 million, or 13.3%, as compared to 2020, primarily due to decreases in expenditures associated with our consumer business, partially offset by increased expenditures related to our enterprise business and construction of our satellite-related ground infrastructure in preparation the our launch of EchoStar XXIV.

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

						Amounts
EBITDA for the nine months ended September 30, 2020						$	531,276
Increase (decrease) in operating income (loss), excluding depreciation and amortization						75,288
Increase (decrease) in other, net						4,089
Increase (decrease) in gains (losses) on investments, net						2,249
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net						(4)
Decrease (increase) in net loss (income) attributable to non-controlling interests						(2,621)
Increase (decrease) in foreign currency transaction gains (losses), net						(4,535)
EBITDA for the nine months ended September 30, 2021						$	605,742

ESS Segment

						For the nine months ended September 30,												Variance
						2021						2020						Amounts						%
Total revenue						$	12,808					$	13,233					$	(425)					(3.2)
Capital expenditures						—						41						(41)						(100.0)
EBITDA						6,481						5,847						634						10.8

Total revenue was $12.8 million for the nine months ended September 30, 2021, a decrease of $0.4 million, or 3.2%, as compared to 2020, primarily due to a decrease in transponder services provided to third parties.

EBITDA was $6.5 million for the nine months ended September 30, 2021, an increase of $0.6 million, or 10.8%, as compared to 2020, primarily due to the recovery of a bad debt reserve.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

Corporate and Other

						For the nine months ended September 30,												Variance
						2021						2020						Amounts						%
Total revenue						$	9,195					$	6,985					$	2,210					31.6
Capital expenditures						123,362						31,156						92,206						*
EBITDA						31,845						(100,253)						132,098						*

• Percentage is not meaningful.

Total revenue was $9.2 million for the nine months ended September 30, 2021, an increase of $2.2 million, or 31.6%, as compared to 2020, primarily due to increased services and other revenue from DISH Network.

Capital expenditures were $123.4 million for the nine months ended September 30, 2021, an increase of $92.2 million, as compared to 2020, primarily due to increases in expenditures related to the EchoStar XXIV satellite program.

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

						Amounts
EBITDA for the nine months ended September 30, 2020						$	(100,253)
Increase (decrease) in other, net						(16,633)
Increase (decrease) in foreign currency transaction gains (losses), net						(2,907)
Increase (decrease) in operating income (loss), excluding depreciation and amortization						(132)
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net						3,275
Increase (decrease) in gains (losses) on investments, net						148,495
EBITDA for the nine months ended September 30, 2021						$	31,845

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

LIQUIDITY AND CAPITAL RESOURCES

Cash, Cash Equivalents and Marketable Investment Securities

We consider all liquid investments purchased with an original maturity of 90 days or less to be cash equivalents.

As of September 30, 2021 our cash, cash equivalents and marketable investment securities totaled $1.6 billion, of which $1.1 billion, we held as marketable investment securities, consisting of various debt and equity instruments including corporate bonds, corporate equity securities, government bonds and mutual funds.

Cash Flow Activities

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

						For the nine months ended September 30,												Variance
						2021						2020
Operating activities						$	427,862					$	365,402					$	62,460
Investing activities						230,147						(1,331,246)						1,561,393
Financing activities						(1,117,377)						16,548						(1,133,925)
Effect of exchange rates on cash and cash equivalents						(3,114)						(8,348)						5,234
Net increase (decrease) in cash and cash equivalents						$	(462,482)					$	(957,644)					$	495,162

Cash flows provided by (used for) operating activities increased by $62.5 million primarily attributable to changes in net income (loss) of $192.1 million and deferred tax provision (benefit), net of $41.5 million, partially offset by changes in gains (losses) on investments, net of $150.7 million and depreciation and amortization of $23.2 million.

Cash flows provided by (used for) investing activities increased by $1.6 billion primarily attributable to our marketable investment securities and other investments net activity and an increase in expenditures for property and equipment.

Cash flows provided by (used for) financing activities decreased by $1.1 billion primarily attributable to the repurchase and maturity of our 7 5/8% Senior Unsecured Notes due 2021 of $901.8 million and from increased treasury share repurchases of $223.5 million.

Obligations and Future Capital Requirements

Contractual Obligations

As of September 30, 2021, our satellite-related commitments were $354.6 million. These primarily include payments pursuant to: i) agreements for the construction of the EchoStar XXIV satellite, ii) the EchoStar XXIV launch contract, iii) regulatory authorizations, and non-lease costs associated with our finance lease satellites, in-orbit incentives relating to certain satellites and commitments for satellite service arrangements.

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

Off-Balance Sheet Arrangements

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

Letters of Credit

The following table presents the components of our letters of credit as of September 30, 2021**:**

						Amounts
Restricted cash						$	17,858
Insurance bonds						4,496
Credit arrangement available to our foreign subsidiaries						31,094
Total letters of credit						$	53,448

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

Satellites

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

Satellite Insurance

We generally do not carry in-orbit insurance on our satellites or payloads because we have assessed that the cost of insurance is not economical relative to the risk of failures. Therefore, we generally bear the risk of any in-orbit failures. Pursuant to the terms of our joint venture agreement with Al Yah Satellite Communications Company PrJSC (“Yahsat”), we are required to maintain insurance for the Al Yah 3 Brazilian payload during the commercial in-orbit service of such payload, subject to certain limitations on coverage. Our satellites and other payloads, either in orbit or under construction, are not covered by launch or in-orbit insurance. We will continue to assess circumstances going forward and make insurance-related decisions on a case-by-case basis.

Future Capital Requirements

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

We have a significant amount of outstanding indebtedness. As of September 30, 2021, our total indebtedness was $1.5 billion. Refer to our Form 10-K for a discussion of the terms of our long-term debt. Our liquidity requirements will continue to be significant, primarily due to our remaining debt service requirements and the design and construction of our new EchoStar XXIV satellite. We may from time to time seek to purchase amounts of our outstanding debt in open market purchases, privately negotiated transactions or otherwise, depending on market conditions, our liquidity needs and other factors. The amounts we may repurchase may be material. In addition, our future capital expenditures are likely to increase if we make acquisitions or additional investments in infrastructure, technologies or joint ventures to support and expand our business, or if we decide to purchase or build additional satellites or other technologies or assets. Other aspects of our business operations may also require additional capital. We also expect to owe U.S. Federal income tax for 2021.

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

Stock Repurchases

Our Board of Directors previously authorized us to repurchase up to $500.0 million of our Class A common stock. On November 2, 2021, our Board of Directors terminated the prior repurchase authorization effective December 31, 2021, and authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2022 through and including December 31, 2022. Purchases under our repurchase authorizations may be made through privately negotiated transactions, open market repurchases, one or more trading plans in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or otherwise, subject to market conditions and other factors. We may elect not to purchase the maximum amount or any of the shares allowable under these authorizations and we may also enter into additional share repurchase programs authorized by our Board of Directors. During the three and nine months ended September 30, 2021, we repurchased 2,592,885 and 9,738,051 shares of our Class A common stock for $62.4 million and $231.4 million, respectively under this program. The remaining authorization under this program was $225.2 million as of September 30, 2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies are those that involve a high degree of estimation, judgment and complexity. Our critical accounting policies are those related to (i) contingent liabilities, (ii) revenue recognition and (iii) impairment of assets.

Our critical accounting policies are described in our Form 10-K under the heading Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no significant changes in our critical accounting policies from those presented in our Form 10-K.

NEW ACCOUNTING PRONOUNCEMENTS

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

SEASONALITY

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

Our ESS segment is not generally affected by seasonal impacts.

We cannot predict with any certainty whether these trends will continue in the near future as the economy and our customers react to the COVID-19 pandemic and experience associated disruptions and dislocations.

INFLATION AND SUPPLY CHAIN

Inflation has not materially affected our operations during the past three years, but we are unable to predict the extent or nature of any future inflationary pressure at this time, especially considering current worldwide supply chain disruptions. We believe that our ability to increase the prices charged for our products and services in future periods will depend primarily on competitive pressures or contractual terms. However, we may not be able to maintain pricing levels consistent with inflationary pressure on expenses.

During 2021 there have been worldwide interruptions and delays in the supply of components, materials and parts, which may impact our ability to deliver equipment in a timely manner. These interruptions and delays could also increase the cost of our equipment which we may not be able to pass onto our customers.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

EXPLANATION OF KEY METRICS AND OTHER ITEMS

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

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

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