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

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

The following table presents our consolidated results of operations for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:

						For the nine months ended September 30,												Variance
Statements of Operations Data (1)						2022						2021						Amount						%
Revenue:
Services and other revenue						$	1,234,890					$	1,294,355					$	(59,465)					(4.6)
Equipment revenue						263,347						192,721						70,626						36.6
Total revenue						1,498,237						1,487,076						11,161						0.8
Costs and expenses:
Cost of sales - services and other						430,553						410,515						20,038						4.9
% of total services and other revenue						34.9		%				31.7		%
Cost of sales - equipment						213,497						161,982						51,515						31.8
% of total equipment revenue						81.1		%				84.0		%
Selling, general and administrative expenses						342,682						341,143						1,539						0.5
% of total revenue						22.9		%				22.9		%
Research and development expenses						25,562						22,960						2,602						11.3
% of total revenue						1.7		%				1.5		%
Depreciation and amortization						347,224						368,864						(21,640)						(5.9)
Impairment of long-lived assets						711						245						466						*
Total costs and expenses						1,360,229						1,305,709						54,520						4.2
Operating income (loss)						138,008						181,367						(43,359)						(23.9)
Other income (expense):
Interest income, net						29,677						16,914						12,763						75.5
Interest expense, net of amounts capitalized						(43,125)						(79,848)						36,723						(46.0)
Gains (losses) on investments, net						48,071						112,981						(64,910)						(57.5)
Equity in earnings (losses) of unconsolidated affiliates, net						(4,441)						(2,596)						(1,845)						71.1
Foreign currency transaction gains (losses), net						(53)						(10,045)						9,992						(99.5)
Other, net						2,198						(12,922)						15,120						*
Total other income (expense), net						32,327						24,484						7,843						32.0
Income (loss) before income taxes						170,335						205,851						(35,516)						(17.3)
Income tax benefit (provision), net						(51,367)						(63,047)						11,680						(18.5)
Net income (loss)						118,968						142,804						(23,836)						(16.7)
Less: Net loss (income) attributable to non-controlling interests						8,736						6,419						2,317						36.1
Net income (loss) attributable to EchoStar Corporation common stock						$	127,704					$	149,223					$	(21,519)					(14.4)
Other data:
EBITDA (2)						$	539,743					$	644,068					$	(104,325)					(16.2)
Subscribers, end of period						1,285,000						1,510,000						(225,000)						(14.9)

• 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. generally accepted accounting principles (“U.S. GAAP”) measure in our Consolidated Financial Statements, is included in Results of Operations. For further information on our use of EBITDA, see Explanation of Key Metrics and Other Items.

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, 2022 and 2021.

Services and other revenue. Services and other revenue totaled $1.2 billion for the nine months ended September 30, 2022, a decrease of $59.5 million, or 4.6%, as compared to 2021. The decrease was primarily attributable to our Hughes segment related to lower sales of broadband services to our consumer customers of $69.6 million due to lower broadband consumer customers, partially offset by higher sales of broadband services to our enterprise customers of $5.9 million and to our mobile satellite system and other customers of $3.5 million. These variances reflect an estimated negative impact of exchange rate fluctuations of $4.5 million, primarily attributable to our enterprise customers.

Equipment revenue. Equipment revenue totaled $263.3 million for the nine months ended September 30, 2022, an increase of $70.6 million, or 36.6%, as compared to 2021. The increase was primarily attributable to: i) increases in hardware sales to our enterprise customers of $68.4 million mainly associated with a certain customer in North America and to international customers and ii) increases in hardware sales to our mobile satellite system customers of $5.1 million, partially offset by decreases in hardware sales of $2.8 million to our consumer customers.

Cost of sales - services and other. Cost of sales - services and other totaled $430.6 million for the nine months ended September 30, 2022, an increase of $20.0 million, or 4.9%, as compared to 2021. The increase was attributable to a non-recurring decrease in a certain international regulatory fee of $4.5 million in 2021 and increases in cost of services provided to our consumer and enterprise customers, mainly related to service delivery expenses, such as field services and customer care.

Cost of sales - equipment. Cost of sales - equipment totaled $213.5 million for the nine months ended September 30, 2022, an increase of $51.5 million, or 31.8%, as compared to 2021. The increase was primarily attributable to the corresponding increase in equipment revenue and change in product mix.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $342.7 million for the nine months ended September 30, 2022, an increase of $1.5 million, or 0.5%, as compared to 2021. The increase was primarily attributable to increases in: i) bad debt expense of $8.4 million primarily due to the recovery of bad debt reserves in 2021 and ii) other general and administrative expenses of $5.9 million, offset by decreases in: i) legal expenses of $4.4 million and ii) sales and marketing expenses of $8.4 million.

Depreciation and amortization. Depreciation and amortization expenses totaled $347.2 million for the nine months ended September 30, 2022, a decrease of $21.6 million, or 5.9%, as compared to 2021. The decrease was primarily attributable to (i) decreases in our satellite depreciation of $9.1 million, mainly related to our SPACEWAY 3 satellite which was fully depreciated at the end of the first quarter of 2021, (ii) decreases in amortization of intangibles of $2.2 million, and (iii) decreases in other property and equipment depreciation expense of $17.9 million. These decreases were partially offset by increases in amortization of our capitalized software of $6.5 million.

Interest income, net. Interest income, net totaled $29.7 million for the nine months ended September 30, 2022, an increase of $12.8 million, or 75.5%, as compared to 2021, primarily attributable to increases in the yield on our marketable investment securities.

Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized, totaled $43.1 million for the nine months ended September 30, 2022, a decrease of $36.7 million, or 46.0%, as compared to 2021. The decrease was primarily attributable to a decrease of $30.8 million in interest expense and the amortization of deferred financing cost as a result of the repurchases and maturity of our 7 5/8% Senior Unsecured Notes due 2021 and an increase of $4.9 million in capitalized interest relating to the EchoStar XXIV satellite program.

Gains (losses) on investments, net. Gains (losses) on investments, net totaled $48.1 million in gains for the nine months ended September 30, 2022, as compared to $113.0 million in gains for the nine months ended September 30, 2021, a negative change of $64.9 million. The change was related to net decreased gains on marketable investment securities and other equity securities of $33.8 million and a net loss of $28.3 million related to the exit of our investment in Dish Mexico in 2022.

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

Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net totaled $4.4 million in losses for the nine months ended September 30, 2022, as compared to $2.6 million in losses for the nine months ended September 30, 2021, a negative change of $1.8 million. The change was related to net increased losses from our investments in our equity method investees.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled $0.1 million in losses for the nine months ended September 30, 2022, as compared to $10.0 million in losses for the nine months ended September 30, 2021, a positive change of $10.0 million. The change was due to the net impact of foreign exchange rate fluctuations of certain foreign currencies during the period, primarily related to the Indian Rupee and Latin American currencies.

Other, net. Other, net totaled $2.2 million in gains for the nine months ended September 30, 2022, as compared to $12.9 million in losses for the nine months ended September 30, 2021, a positive change of $15.1 million. The change was primarily attributable to a litigation expense of $16.8 million in 2021.

Income tax benefit (provision), net. Income tax benefit (provision), net was $(51.4) million for the nine months ended September 30, 2022, as compared to $(63.0) million for the nine months ended September 30, 2021. Our effective income tax rate was 30.2% and 30.6% for the nine months ended September 30, 2022 and 2021, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the nine months ended September 30, 2022 were primarily due to excluded foreign losses where the Company carries a full valuation allowance, and the impact of state and local taxes. 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.

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

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

						Amounts
Net income (loss) attributable to EchoStar Corporation for the nine months ended September 30, 2021						$	149,223
Decrease (increase) in interest expense, net of amounts capitalized						36,723
Increase (decrease) in other, net						15,120
Increase (decrease) in interest income, net						12,763
Decrease (increase) in income tax benefit (provision), net						11,680
Increase (decrease) in foreign currency transaction gains (losses), net						9,992
Increase (decrease) in net income (loss) attributable to non-controlling interest						2,317
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net						(1,845)
Increase (decrease) in operating income (loss), including depreciation and amortization						(43,359)
Increase (decrease) in gains (losses) on investments, net						(64,910)
Net income (loss) attributable to EchoStar Corporation for the nine months ended September 30, 2022						$	127,704

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 Consolidated Financial Statements:

						For the nine months ended September 30,												Variance
						2022						2021						Amount						%
Net income (loss)						$	118,968					$	142,804					$	(23,836)					(16.7)
Interest income, net						(29,677)						(16,914)						(12,763)						75.5
Interest expense, net of amounts capitalized						43,125						79,848						(36,723)						(46.0)
Income tax provision (benefit), net						51,367						63,047						(11,680)						(18.5)
Depreciation and amortization						347,224						368,864						(21,640)						(5.9)
Net loss (income) attributable to non-controlling interests						8,736						6,419						2,317						36.1
EBITDA						$	539,743					$	644,068					$	(104,325)					(16.2)

The following table reconciles the change in EBITDA:

						Amounts
EBITDA for the nine months ended September 30, 2021						$	644,068
Increase (decrease) in other, net						15,120
Increase (decrease) in foreign currency transaction gains (losses), net						9,992
Decrease (increase) in net loss (income) attributable to non-controlling interests						2,317
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net						(1,845)
Increase (decrease) in gains (losses) on investments, net						(64,910)
Increase (decrease) in operating income (loss), excluding depreciation and amortization						(64,999)
EBITDA for the nine months ended September 30, 2022						$	539,743

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, 2022, as compared to the nine months ended September 30, 2021:

						Hughes						ESS						Corporate and Other						Consolidated Total
For the nine months ended September 30, 2022
Total revenue						$	1,475,512					$	14,305					$	8,420					$	1,498,237
Capital expenditures						176,665						—						72,709						249,374
EBITDA						546,108						9,658						(16,023)						539,743
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

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
						2022						2021						Amount						%
Total revenue						$	1,475,512					$	1,465,073					$	10,439					0.7
Capital expenditures						176,665						228,641						(51,976)						(22.7)
EBITDA						546,108						605,742						(59,634)						(9.8)

Total revenue was $1.5 billion for the nine months ended September 30, 2022, an increase of $10.4 million, or 0.7%, as compared to 2021. Services and other revenue decreased primarily due to lower sales of broadband services to our consumer customers of $69.6 million due to lower broadband consumer customers, partially offset by higher sales of broadband services to our enterprise customers of $5.9 million and to our mobile satellite system and other customers of $3.5 million. Equipment revenue increased primarily due to increases in hardware sales to our enterprise customers of $68.4 million mainly associated with a certain customer in North America and to international customers, and increases in hardware sales to our mobile satellite system customers of $5.1 million, partially offset by decreases in hardware sales of $2.8 million to our consumer customers. These variances reflect an estimated negative impact of exchange rate fluctuations of $5.1 million.

Capital expenditures were $176.7 million for the nine months ended September 30, 2022, a decrease of $52.0 million, or 22.7%, as compared to 2021, primarily due to decreases in expenditures associated with our consumer business and decreases in expenditures related to the construction of our satellite-related ground infrastructure.

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

						Amounts
EBITDA for the nine months ended September 30, 2021						$	605,742
Increase (decrease) in foreign currency transaction gains (losses), net						10,714
Decrease (increase) in net loss (income) attributable to non-controlling interests						2,317
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net						11
Increase (decrease) in gains (losses) on investments, net						(1,883)
Increase (decrease) in other, net						(4,303)
Increase (decrease) in operating income (loss), excluding depreciation and amortization						(66,490)
EBITDA for the nine months ended September 30, 2022						$	546,108

ESS Segment

						For the nine months ended September 30,												Variance
						2022						2021						Amount						%
Total revenue						$	14,305					$	12,808					$	1,497					11.7
EBITDA						9,658						6,481						3,177						49.0

Total revenue was $14.3 million for the nine months ended September 30, 2022, an increase of $1.5 million, or 11.7%, compared to 2021, primarily due to an increase in transponder services provided to third parties.

EBITDA was $9.7 million for the nine months ended September 30, 2022, an increase of $3.2 million, or 49.0%, as compared to 2021, primarily due to the increase in overall ESS segment revenue and lower expenses.

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

Corporate and Other Segment

						For the nine months ended September 30,												Variance
						2022						2021						Amount						%
Total revenue						$	8,420					$	9,195					$	(775)					(8.4)
Capital expenditures						72,709						123,362						(50,653)						(41.1)
EBITDA						(16,023)						31,845						(47,868)						*

Total revenue was $8.4 million for the nine months ended September 30, 2022, which is primarily flat compared to 2021.

Capital expenditures were $72.7 million for the nine months ended September 30, 2022, a decrease of $50.7 million, as compared to 2021, primarily due to decreases in expenditures related to the EchoStar XXIV satellite program.

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

						Amounts
EBITDA for the nine months ended September 30, 2021						$	31,845
Increase (decrease) in other, net						19,425
Increase (decrease) in foreign currency transaction gains (losses), net						(722)
Increase (decrease) in operating income (loss), excluding depreciation and amortization						(1,686)
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net						(1,858)
Increase (decrease) in gains (losses) on investments, net						(63,027)
EBITDA for the nine months ended September 30, 2022						$	(16,023)

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, 2022 our cash, cash equivalents and marketable investment securities totaled $1.6 billion, $0.7 billion of which 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
						2022						2021
Operating activities						$	343,317					$	427,862					$	(84,545)
Investing activities						115,008						230,147						(115,139)
Financing activities						(84,666)						(1,117,377)						1,032,711
Effect of exchange rates on cash and cash equivalents						(3,123)						(3,114)						(9)
Net increase (decrease) in cash and cash equivalents						$	370,536					$	(462,482)					$	833,018

Cash flows provided by (used for) operating activities decreased by $84.5 million primarily attributable to changes in net income (loss) of $(23.8) million, depreciation and amortization of $(21.6) million, gains (losses) on investments, net of $64.9 million, foreign currency translation losses (gains), net of $(10.0) million, deferred tax provision (benefit), net of $(17.0) million, and other, net of $18.9 million and changes in assets and liabilities, net of $(99.0) million.

Cash flows provided by (used for) investing activities decreased by $115.1 million primarily attributable to our marketable investment securities net activity, other investments net activity, a decrease in expenditures for property and equipment, and the India JV formation.

Cash flows provided by (used for) financing activities improved by $1.0 billion primarily attributable the repurchase and maturity of our 7 5/8% Senior Unsecured Notes due 2021 of $901.8 million and due to decreases in treasury share repurchases of $140.1 million.

Obligations and Future Capital Requirements

Contractual Obligations

As of September 30, 2022, our satellite-related commitments were $257.0 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, 2022**:**

						Amounts
Restricted cash						$	14,837
Insurance bonds						7,305
Credit arrangement available to our foreign subsidiaries						26,939
Total letters of credit						$	49,081

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 ARPU. Revenue in our enterprise and equipment businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. There can be no assurance that we will have positive cash flows from operations. Furthermore, if we experience negative cash flows, our existing cash and marketable investment securities balances may be reduced.

We have a significant amount of outstanding indebtedness. As of September 30, 2022, 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. We may from time to time seek to purchase amounts of our outstanding debt in open market purchases, privately negotiated transactions or otherwise, depending on market conditions, our liquidity needs and other factors. The amounts we may repurchase may be material. In the future, we may require material capital expenditures to make significant acquisitions or investments in infrastructure, technologies or joint ventures to support and expand our business, or if we decide to purchase or build additional satellites or other technologies or assets. Other aspects of our business operations may also require additional capital. We also expect to owe U.S. Federal income tax for 2022.

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

On November 2, 2021, our Board of Directors authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2022 through and including December 31, 2022 (the “2022 Authorization”). In addition, on October 20, 2022, our Board of Directors authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2023 through and including December 31, 2023. Purchases under our repurchase authorizations may be made through privately negotiated transactions, open market repurchases, one or more trading plans in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or otherwise, subject to market conditions and other factors. We may elect not to purchase the maximum amount or any of the shares allowable under these authorizations and we may also enter into additional share repurchase programs authorized by our Board of Directors. During the three and nine months ended September 30, 2022, we repurchased 593,643 and 3,980,612 shares of our Class A common stock for $11.4 million and $89.3 million, respectively under this program. The remaining authorization under the 2022 Authorization was $410.7 million as of September 30, 2022.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are described in Note 2. Summary of Significant Accounting Policies in our Consolidated Financial Statements in our Form 10-K. There have been no significant changes in our critical accounting policies from those presented in our Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Our critical accounting estimates 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 estimates 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 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.

INFLATION AND SUPPLY CHAIN

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

The worldwide interruptions and delays in the supply of components, materials and parts, although not materially impacting our operations during the nine months ended September 30, 2022, may impact our ability to timely provide equipment deliveries in the future. These interruptions and delays could also increase the cost of our equipment, which we may not be able to pass onto our customers.

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 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, and Net income (loss) attributable to non-controlling interests (“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.