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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019.

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                               TO                                .

Commission File Number: 0-26176

DISH Network Corporation

(Exact name of registrant as specified in its charter)

Nevada

88-0336997

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

9601 South Meridian Boulevard

Englewood, Colorado

80112

(Address of principal executive offices)

(Zip code)

(303) 723-1000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.01 par value

DISH

The Nasdaq Stock Market L.L.C.

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No  

As of July 22, 2019, the registrant’s outstanding common stock consisted of 231,528,662 shares of Class A common stock and 238,435,208 shares of Class B common stock.

Table of Contents

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Disclosure Regarding Forward-Looking Statements

i

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets —
June 30, 2019 and December 31, 2018 (Unaudited)

1

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

2

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

3

Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)

4

Notes to Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

65

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

91

Item 4.

Controls and Procedures

91

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

91

Item 1A.

Risk Factors

91

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

97

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Mine Safety Disclosures

None

Item 5.

Other Information

None

Item 6.

Exhibits

98

Signatures

99

Table of Contents

PART I — FINANCIAL INFORMATION

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Unless otherwise required by the context, in this report, the words “DISH Network,” the “Company,” “we,” “our” and “us” refer to DISH Network Corporation and its subsidiaries, “EchoStar” refers to EchoStar Corporation and its subsidiaries, and “DISH DBS” refers to DISH DBS Corporation, a wholly-owned, indirect subsidiary of DISH Network, and its subsidiaries.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, in particular, statements about our plans, objectives and strategies, growth opportunities in our industries and businesses, our expectations regarding future results, financial condition, liquidity and capital requirements, our estimates regarding the impact of regulatory developments and legal proceedings, and other trends and projections. Forward-looking statements are not historical facts and may be identified by words such as “future,” “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “will,” “would,” “could,” “can,” “may,” and similar terms. These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and represent management’s current views and assumptions. Forward-looking statements are not guarantees of future performance, events or results and involve known and unknown risks, uncertainties and other factors, which may be beyond our control. Accordingly, actual performance, events or results could differ materially from those expressed or implied in the forward-looking statements due to a number of factors, including, but not limited to, the following:

Competition and Economic Risks

As the pay-TV industry has matured and bundled offers combining video, broadband and/or wireless services have become more prevalent and competitive, we face intense and increasing competition from providers of video, broadband and/or wireless services, which may require us to further increase subscriber acquisition and retention spending or accept lower subscriber activations and higher subscriber churn.

Changing consumer behavior and competition from digital media companies that provide or facilitate the delivery of video content via the Internet may reduce our subscriber activations and may cause our subscribers to purchase fewer services from us or to cancel our services altogether, resulting in less revenue to us.

Economic weakness and uncertainty may adversely affect our ability to grow or maintain our business.

Our competitors may be able to leverage their relationships with programmers to reduce their programming costs and/or offer exclusive content that will place them at a competitive advantage to us.

Our over-the-top (“OTT”) Sling TV Internet-based services face certain risks, including, among others, significant competition.

If government regulations relating to the Internet change, we may need to alter the manner in which we conduct our Sling TV business, and/or incur greater operating expenses to comply with those regulations.

Changes in how network operators handle and charge for access to data that travels across their networks could adversely impact our business.

We face increasing competition from other distributors of unique programming services such as foreign language, sports programming and original content that may limit our ability to maintain subscribers that desire these unique programming services.

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Operational and Service Delivery Risks

If our operational performance and customer satisfaction were to deteriorate, our subscriber activations and our subscriber churn rate may be negatively impacted, which could in turn adversely affect our revenue.

If our subscriber activations continue to decrease, or if our subscriber churn rate, subscriber acquisition costs or retention costs increase, our financial performance will be adversely affected.

Programming expenses are increasing and may adversely affect our future financial condition and results of operations.

We depend on others to provide the programming that we offer to our subscribers and, if we fail to obtain or lose access to certain programming, our subscriber activations and our subscriber churn rate may be negatively impacted.

We may not be able to obtain necessary retransmission consent agreements at acceptable rates, or at all, from local network stations.

We may be required to make substantial additional investments to maintain competitive programming offerings.

Any failure or inadequacy of our information technology infrastructure and communications systems or those of third parties that we use in our operations, including, without limitation, those caused by cyber-attacks or other malicious activities, could disrupt or harm our business.

We currently depend on EchoStar to provide the vast majority of our satellite transponder capacity and other related services to us. Our business would be adversely affected if EchoStar ceases to provide these services to us and we are unable to obtain suitable replacement services from third parties.

Technology in the pay-TV industry changes rapidly, and our success may depend in part on our timely introduction and implementation of, and effective investment in, new competitive products and services, and our failure to do so could cause our products and services to become obsolete and could negatively impact our business.

We rely on a single vendor or a limited number of vendors to provide certain key products or services to us such as information technology support, billing systems and security access devices, and the inability of these key vendors to meet our needs could have a material adverse effect on our business.

We rely on a few suppliers and in some cases a single supplier for many components of our new set-top boxes, and any reduction or interruption in supplies or significant increase in the price of supplies could have a negative impact on our business.

Our programming signals are subject to theft, and we are vulnerable to other forms of fraud that could require us to make significant expenditures to remedy.

We depend on independent third parties to solicit orders for our DISH TV services that represent a meaningful percentage of our total gross new DISH TV subscriber activations.

We have limited satellite capacity and failures or reduced capacity could adversely affect our DISH TV services.

Our owned and leased satellites are subject to construction, launch, operational and environmental risks that could limit our ability to utilize these satellites.

ii

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Satellite anomalies or technological failures could adversely affect the value of a particular satellite or result in a complete loss. Some of the satellites being acquired in the BSS Acquisition have experienced anomalies that may affect their useful lives or prohibit us from operating them to their currently expected capacity, and one or more of the satellites may suffer a technological failure, either of which could have an adverse effect on our business, financial condition and results of operations.

We generally do not carry commercial in-orbit insurance on any of the satellites that we use and could face significant impairment charges if any of its owned satellites fail.

We may have potential conflicts of interest with EchoStar due to our common ownership and management.

We rely on key personnel and the loss of their services may negatively affect our business.

Acquisition and Capital Structure Risks

We have made substantial investments to acquire certain wireless spectrum licenses and other related assets. In addition, we have made substantial non-controlling investments in the Northstar Entities and the SNR Entities related to AWS-3 wireless spectrum licenses.

We face certain risks related to our non-controlling investments in the Northstar Entities and the SNR Entities, which may have a material adverse effect on our business, results of operations and financial condition.

To the extent that we commercialize our wireless spectrum licenses, we will face certain risks entering and competing in the wireless services industry and operating a wireless services business.

Our wireless spectrum licenses are subject to certain interim and final build-out requirements, as well as certain renewal requirements. The failure to meet such build-out and/or renewal requirements may have a material adverse effect on our business, results of operations and financial condition.

We rely on highly skilled personnel for our wireless business, including without limitation our ability to meet build-out requirements, and if we are unable to hire and retain key personnel or hire qualified personnel then our wireless business may be adversely affected.

The Prepaid Business Sale may not be completed on the terms or timeline currently contemplated, or at all, as we and the Sellers may be unable to satisfy the conditions or obtain the approvals required to complete the Prepaid Business Sale or such approvals may contain material restrictions or conditions.
We may fail to realize all of the anticipated benefits of the Prepaid Business Sale.

The BSS Acquisition may not be completed on the terms or timeline currently contemplated, or at all, as we and EchoStar may be unable to satisfy the conditions or obtain the approvals required to complete the BSS Acquisition or such approvals may contain material restrictions or conditions.

The integration of the BSS Business may not be as successful as anticipated.

We may fail to realize all of the anticipated benefits of the BSS Acquisition.

Despite the acquisition of additional satellites as part of the BSS Acquisition, following closing we will continue to have limited satellite capacity, and failures or reduced capacity could adversely affect our DISH TV services.

iii

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Current DISH Network stockholders will have reduced ownership and voting interest in and will exercise less influence over management of DISH Network following the Transactions.

While the BSS Acquisition is pending, we are subject to certain interim operating covenants, including a covenant that requires us to maintain our business in the ordinary course, all of which could prohibit us from taking certain actions that might otherwise be beneficial to us and our stockholders.

If we were to take certain actions that could cause the Distribution to become taxable to EchoStar, we may be required to indemnify EchoStar for any resulting tax liability, and the indemnity amounts could be substantial.

We may incur significant transaction, merger-related and restructuring costs in connection with the Transactions.

We may pursue acquisitions and other strategic transactions to complement or expand our business that may not be successful, and we may lose up to the entire value of our investment in these acquisitions and transactions.

We may need additional capital, which may not be available on acceptable terms or at all, to continue investing in our business and to finance acquisitions and other strategic transactions.

We have substantial debt outstanding and may incur additional debt.

The conditional conversion features of our 3 3/8% Convertible Notes due 2026 (the “Convertible Notes due 2026”) and our 2 3/8% Convertible Notes due 2024 (the “Convertible Notes due 2024,” and collectively with the Convertible Notes due 2026, the “Convertible Notes”), if triggered, may adversely affect our financial condition.

The convertible note hedge and warrant transactions that we entered into in connection with the offering of the Convertible Notes due 2026 may affect the value of the Convertible Notes due 2026 and our Class A common stock.

We are subject to counterparty risk with respect to the convertible note hedge transactions.

From time to time a portion of our investment portfolio may be invested in securities that have limited liquidity and may not be immediately accessible to support our financing needs, including investments in public companies that are highly speculative and have experienced and continue to experience volatility.

It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders, because of our ownership structure.

We are controlled by one principal stockholder who is also our Chairman.

Legal and Regulatory Risks

The rulings in the Telemarketing litigation requiring us to pay up to an aggregate amount of $341 million and imposing certain injunctive relief against us, if upheld, would have a material adverse effect on our cash, cash equivalents and marketable investment securities balances and our business operations.

Our business may be materially affected by the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”). Negative or unexpected tax consequences could adversely affect our business, financial condition and results of operations.

Our business depends on certain intellectual property rights and on not infringing the intellectual property rights of others.

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We are, and may become, party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business, particularly lawsuits regarding intellectual property.

Our ability to distribute video content via the Internet, including our Sling TV services, involves regulatory risk.

Changes in the Cable Act of 1992 (“Cable Act”), and/or the rules of the Federal Communications Commission (“FCC”) that implement the Cable Act, may limit our ability to access programming from cable-affiliated programmers at nondiscriminatory rates.

The injunction against our retransmission of distant networks, which is currently waived, may be reinstated.

We are subject to significant regulatory oversight, and changes in applicable regulatory requirements, including any adoption or modification of laws or regulations relating to the Internet, could adversely affect our business.

Our DISH TV services depend on FCC licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted.

We are subject to digital high-definition (“HD”) “carry-one, carry-all” requirements that cause capacity constraints.

Our business, investor confidence in our financial results and stock price may be adversely affected if our internal controls are not effective.

We may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission (SEC”).

Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I,  Item 1A of our most recent Annual Report on Form 10-K (the “10-K”) filed with the SEC, those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the 10-K and those discussed in other documents we file with the SEC. All cautionary statements made or referred to herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described or referred to herein and should not place undue reliance on any forward-looking statements. The forward-looking statements speak only as of the date made, and we expressly disclaim any obligation to update these forward-looking statements.

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Item 1. FINANCIAL STATEMENTS

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

As of  

June 30,

December 31,

2019

    

2018

 

Assets

Current Assets:

Cash and cash equivalents

$

1,901,064

$

887,346

Marketable investment securities

831,318

1,181,471

Trade accounts receivable, net of allowance for doubtful accounts of $18,075 and $16,966, respectively

584,116

639,855

Inventory

331,138

290,733

Other current assets

270,219

289,800

Total current assets

3,917,855

3,289,205

Noncurrent Assets:

Restricted cash, cash equivalents and marketable investment securities

68,539

67,597

Property and equipment, net

1,895,338

1,928,180

FCC authorizations

25,236,938

24,736,961

Other investment securities

163,793

118,992

Operating lease assets

679,412

Other noncurrent assets, net

322,241

446,077

Total noncurrent assets

28,366,261

27,297,807

Total assets

$

32,284,116

$

30,587,012

Liabilities and Stockholders' Equity (Deficit)

Current Liabilities:

Trade accounts payable

$

361,048

$

233,753

Deferred revenue and other

667,190

655,312

Accrued programming

1,465,799

1,474,207

Accrued interest

268,924

268,479

Other accrued expenses

1,016,087

802,388

Current portion of long-term debt and finance lease obligations

2,416,453

1,341,993

Total current liabilities

6,195,501

4,776,132

Long-Term Obligations, Net of Current Portion:

Long-term debt and finance lease obligations, net of current portion

12,747,010

13,810,784

Deferred tax liabilities

2,589,197

2,474,907

Operating lease liabilities

455,917

Long-term deferred revenue and other long-term liabilities

461,284

470,932

Total long-term obligations, net of current portion

16,253,408

16,756,623

Total liabilities

22,448,909

21,532,755

Commitments and Contingencies (Note 10)

Redeemable noncontrolling interests (Note 2)

504,696

460,068

Stockholders’ Equity (Deficit):

Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 231,526,234 and 229,448,857 shares issued and outstanding, respectively

2,315

2,295

Class B common stock, $.01 par value, 800,000,000 shares authorized, 238,435,208 shares issued and outstanding

2,384

2,384

Additional paid-in capital

3,457,135

3,379,093

Accumulated other comprehensive income (loss)

149

(874)

Accumulated earnings (deficit)

5,869,594

5,212,790

Total DISH Network stockholders’ equity (deficit)

9,331,577

8,595,688

Noncontrolling interests

(1,066)

(1,499)

Total stockholders’ equity (deficit)

9,330,511

8,594,189

Total liabilities and stockholders’ equity (deficit)

$

32,284,116

$

30,587,012

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share amounts)

(Unaudited)

For the Three Months Ended 

For the Six Months Ended 

June 30,

June 30,

2019

    

2018

    

2019

    

2018

 

Revenue:

    

Subscriber-related revenue

$

3,162,572

$

3,419,760

$

6,310,342

$

6,842,464

Equipment sales and other revenue

48,740

41,085

88,114

76,868

Total revenue

3,211,312

3,460,845

6,398,456

6,919,332

Costs and Expenses (exclusive of depreciation shown separately below - Note 7):

Subscriber-related expenses

2,000,961

2,159,427

4,005,968

4,344,378

Satellite and transmission expenses

138,008

146,052

277,509

299,696

Cost of sales - equipment and other

51,073

36,117

91,457

67,743

Subscriber acquisition costs:

Cost of sales - subscriber promotion subsidies

3,007

9,108

9,524

25,038

Other subscriber acquisition costs

108,289

68,734

188,764

145,806

Subscriber acquisition advertising

126,782

105,420

233,689

208,429

Total subscriber acquisition costs

238,078

183,262

431,977

379,273

General and administrative expenses

202,758

190,625

401,672

360,402

Depreciation and amortization (Note 7)

149,702

172,702

302,841

365,674

Total costs and expenses

2,780,580

2,888,185

5,511,424

5,817,166

Operating income (loss)

430,732

572,660

887,032

1,102,166

Other Income (Expense):

Interest income

18,476

10,619

33,643

19,936

Interest expense, net of amounts capitalized

(5,650)

(2,865)

(11,571)

(5,822)

Other, net

2,832

21,432

11,920

(13,376)

Total other income (expense)

15,658

29,186

33,992

738

Income (loss) before income taxes

446,390

601,846

921,024

1,102,904

Income tax (provision) benefit, net

(105,824)

(141,560)

(219,159)

(257,297)

Net income (loss)

340,566

460,286

701,865

845,607

Less: Net income (loss) attributable to noncontrolling interests, net of tax

23,523

21,569

45,061

39,330

Net income (loss) attributable to DISH Network

$

317,043

$

438,717

$

656,804

$

806,277

Weighted-average common shares outstanding - Class A and B common stock:

Basic

469,655

467,425

468,809

467,036

Diluted

527,983

525,849

527,107

525,607

Earnings per share - Class A and B common stock:

Basic net income (loss) per share attributable to DISH Network

$

0.68

$

0.94

$

1.40

$

1.73

Diluted net income (loss) per share attributable to DISH Network

$

0.60

$

0.83

$

1.25

$

1.53

Comprehensive Income (Loss):

Net income (loss)

$

340,566

$

460,286

$

701,865

$

845,607

Other comprehensive income (loss):

Foreign currency translation adjustments

138

(657)

185

(257)

Unrealized holding gains (losses) on available-for-sale securities

385

49

1,391

154

Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)

(296)

(3)

(296)

(5)

Deferred income tax (expense) benefit, net

(21)

(13)

(257)

(39)

Total other comprehensive income (loss), net of tax

206

(624)

1,023

(147)

Comprehensive income (loss)

340,772

459,662

702,888

845,460

Less: Comprehensive income (loss) attributable to noncontrolling interests, net of tax

23,523

21,569

45,061

39,330

Comprehensive income (loss) attributable to DISH Network

$

317,249

$

438,093

$

657,827

$

806,130

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Unaudited)

 

Accumulated

Class A and B

Additional

Other 

Accumulated

 

Redeemable

Common

Paid-In

Comprehensive

Earnings

Noncontrolling

Noncontrolling

    

Stock

    

Capital

    

Income (Loss)

    

(Deficit)

    

Interests

    

Total

    

Interests

 

Balance, December 31, 2017

$

4,664

$

3,296,488

$

882

$

3,635,380

$

492

$

6,937,906

$

383,390

Issuance of Class A common stock:

Exercise of stock awards

2

3,535

3,537

Employee Stock Purchase Plan

2

4,452

4,454

Non-cash, stock-based compensation

9,060

9,060

Change in unrealized holding gains (losses) on available-for-sale securities, net

103

103

Deferred income tax (expense) benefit attributable to unrealized gains (losses) on available-for-sale securities

(26)

(26)

Foreign currency translation

400

400

ASU 2014-09 cumulative catch-up adjustment

2,320

2,320

Net income (loss) attributable to noncontrolling interests

(51)

(51)

17,812

Net income (loss) attributable to DISH Network

367,560

367,560

Balance, March 31, 2018

$

4,668

$

3,313,535

$

1,359

$

4,005,260

$

441

$

7,325,263

$

401,202

Issuance of Class A common stock:

Exercise of stock awards

(107)

(107)

Employee benefits

6

27,315

27,321

Employee Stock Purchase Plan

1

3,845

3,846

Non-cash, stock-based compensation

9,712

9,712

Change in unrealized holding gains (losses) on available-for-sale securities, net

46

46

Deferred income tax (expense) benefit attributable to unrealized gains (losses) on available-for-sale securities

(13)

(13)

Foreign currency translation

(657)

(657)

Net income (loss) attributable to noncontrolling interests

2,191

2,191

19,378

Net income (loss) attributable to DISH Network

438,717

438,717

Other

(192)

(192)

Balance, June 30, 2018

$

4,675

$

3,354,300

$

735

$

4,443,977

$

2,440

$

7,806,127

$

420,580

Balance, December 31, 2018

$

4,679

$

3,379,093

$

(874)

$

5,212,790

$

(1,499)

$

8,594,189

$

460,068

Issuance of Class A common stock:

Exercise of stock awards

227

227

Employee Stock Purchase Plan

2

4,520

4,522

Non-cash, stock-based compensation

11,537

11,537

Change in unrealized holding gains (losses) on available-for-sale securities, net