February 15, 2011

SiriusXM Reports Record 2010 Results

- Subscribers Grow to Record 20.2 Million
- Revenue of $2.82 Billion, Up 14% Over 2009
- Adjusted EBITDA of $626 Million, Up 35% Over 2009
- Free Cash Flow of $210 Million, Up 14% Over 2009
- 2011 Guidance Expects Continued Growth

NEW YORK, Feb. 15, 2011 /PRNewswire/ -- Sirius XM Radio (Nasdaq: SIRI) today announced full year 2010 financial results, including revenue of $2.82 billion, up 14% over 2009 revenue of $2.47 billion, and adjusted EBITDA of $626 million, up 35% from $463 million in 2009.

(Logo:  http://photos.prnewswire.com/prnh/20101014/NY82093LOGO )

"SiriusXM's results in 2010 were exceptional, surpassing our guidance and achieving record revenues, adjusted EBITDA and free cash flow.  Our unparalleled content and the continuing improvements in the economy helped us attain a record-high subscriber base of 20.2 million. Our laser-like focus on profitable growth delivered a 35% increase in adjusted EBITDA to $626 million, and produced free cash flow of more than $200 million," noted Mel Karmazin, Chief Executive Officer, SiriusXM.

"Our renewed contracts with Howard Stern and the NFL, as well as investments in exciting new content, ensure that our subscribers will continue to enjoy the unparalleled entertainment that has made SiriusXM the largest subscription radio company in the world," said Karmazin. "With the outlook for improving U.S. auto sales, declining capital expenditures and the expanded functionality coming with the launch of SiriusXM 2.0, we look forward to another year of growth and strong financial performance."

This discussion of adjusted operating results, including adjusted EBITDA, excludes the effects of stock-based compensation and certain purchase price accounting adjustments. A reconciliation of these non-GAAP items to their nearest GAAP equivalent is contained in the financial supplements included with this release.

Net subscriber additions in 2010 were 1,418,206, compared to a net subscriber loss in 2009 of 231,098.  Ending subscribers as of December 31, 2010 were 20,190,964, up 8% from the 18,772,758 subscribers reported as of December 31, 2009.  Subscriber acquisition cost (SAC) per gross subscriber addition was $59 in 2010, a 6% improvement from the $63 reported in 2009.  Average self-pay monthly customer churn was 1.9% in 2010, as compared with 2.0% in 2009.

Free cash flow in 2010 was $210 million, compared to $185 million in 2009.  GAAP net income (loss) attributable to common stockholders for 2010 and 2009 was $43 million and ($538) million, respectively, or $0.01 and ($0.15) per diluted share, respectively. Excluding debt extinguishment and restructuring charges, our 2010 net income (loss) attributable to common stockholders for 2010 and 2009, would have been $227 million and ($238) million, respectively.

"Our strong incremental margins, combined with revenue growth and tight expense control have produced solid operating leverage, improving adjusted EBITDA by over $750 million from 2008 to 2010," said David Frear, SiriusXM's Executive Vice President and Chief Financial Officer.  "We ended the year with $587 million of cash after the early retirement of approximately $38 million of our 3.25% Convertible Notes due 2011.  Since the beginning of 2011, we have purchased another $131 million of our debt in the market.  With only $104 million of debt maturing before 2013, declining capital expenditures and growing free cash flow, our financial strength and flexibility has never been better."

FOURTH QUARTER 2010 RESULTS

Fourth quarter 2010 revenue of $736 million was up 9% from the $676 million in the fourth quarter of 2009, while fourth quarter 2010 adjusted EBITDA was $144 million, up 25% from the $115 million in the fourth quarter of 2009.

Net subscriber additions in the fourth quarter of 2010 were 328,789, versus net subscriber additions of 257,028 in the fourth quarter of 2009.  Subscriber acquisition cost (SAC) per gross subscriber addition was $58 in the fourth quarter of 2010, a 9% improvement from the $64 reported in the fourth quarter of 2009.  Average self-pay monthly customer churn was 1.9% in the fourth quarter of 2010, as compared with 2.0% in the fourth quarter of 2009.  

Free cash flow in the fourth quarter of 2010 was $167 million, compared to $150 million in the fourth quarter of 2009.  GAAP net (loss) income attributable to common stockholders for the fourth quarter of 2010 and 2009 was ($81) million and $12 million, respectively, or ($0.02) and $0.00 per diluted share, respectively.  Excluding debt extinguishment and restructuring charges, our net income attributable to common stockholders for fourth quarter 2010 and 2009, would have been $64 million and $18 million, respectively.

2011 GUIDANCE

In 2011, we expect full-year revenue of approximately $3 billion.  Our adjusted EBITDA is projected to approximate $715 million.

"With continuing improvements in auto sales, and self-pay churn and conversion rates for 2011 similar to our strong performance in 2010, we expect to grow our net new subscribers by another 1.4 million in 2011, continuing our track record of solid subscriber growth.  We also expect this year's free cash flow to approach $300 million," said Karmazin.

Subscriber Data.

The following table contains actual subscriber data for the years ended December 31, 2010 and 2009, respectively:


Unaudited


For the Years Ended December 31,


2010


2009





Beginning subscribers

18,772,758


19,003,856

Gross subscriber additions

7,768,827


6,208,482

Deactivated subscribers

(6,350,621)


(6,439,580)

Net additions

1,418,206


(231,098)

Ending subscribers

20,190,964


18,772,758





Retail

6,947,830


7,725,750

OEM

13,104,972


10,930,952

Rental

138,162


116,056

Ending subscribers

20,190,964


18,772,758





Self-pay

16,686,799


15,703,932

Paid promotional

3,504,165


3,068,826

Ending subscribers

20,190,964


18,772,758





Retail

(777,920)


(1,179,452)

OEM

2,174,020


935,114

Rental

22,106


13,240

Net additions

1,418,206


(231,098)





Self-pay

982,867


154,275

Paid promotional

435,339


(385,373)

Net additions

1,418,206


(231,098)





Daily weighted average number of subscribers

19,385,055


18,529,696





Average self-pay monthly churn (1)

1.9%


2.0%





Conversion rate (2)

46.2%


45.4%



____________

See accompanying footnotes.

Subscribers. The improvement was due to the 25% increase in gross subscriber additions, primarily resulting from increases in U.S. light vehicle sales, new vehicle penetration and returning activations.

Average Self-pay Monthly Churn. The decrease was due to an improving economy, the success of retention and win-back programs and reductions in non-pay cancellation rates.

Conversion Rate. The increase was primarily due to marketing to promotional period subscribers and an improving economy.

Metrics.

The following table contains our key operating metrics based on our unaudited adjusted results of operations for the years ended December 31, 2010 and 2009, respectively:


Unaudited Adjusted


For the Years Ended December 31,

(in thousands, except for per subscriber amounts)

2010


2009



ARPU (3)

$        11.73


$        10.95

SAC, per gross subscriber addition (4)

$             59


$             63

Customer service and billing expenses, per average




subscriber (5)

$          1.03


$          1.05

Free cash flow (6)

$    210,481


$    185,319

Adjusted total revenue (8)

$ 2,838,898


$ 2,526,703

Adjusted EBITDA (7)

$    626,288


$    462,539



____________

See accompanying footnotes.

ARPU increased in the year ended December 31, 2010 primarily due to the full year impact of the U.S. Music Royalty Fee, which was introduced in the third quarter of 2009, increased revenues from the sale of "Best of" programming, decreases in discounts on multi-subscription and internet packages, and increased net advertising revenue, partially offset by an increase in the number of subscribers on promotional plans.

SAC, Per Gross Subscriber Addition, decreased in the year ended December 31, 2010 primarily due to lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from radio manufacturers compared to the year ended December 31, 2009, partially offset by a 49% increase in OEM production with factory-installed satellite radios.

Customer Service and Billing Expenses, Per Average Subscriber, decreased in the year ended December 31, 2010 primarily due to lower call center expenses as a result of moving calls to lower cost locations, partially offset by higher call volume.

Free Cash Flow increased in the year ended December 31, 2010 principally as a result of improvements in net cash provided by operating activities, partially offset by increases in capital expenditures.  Net cash provided by operating activities increased $79 million to $513 million for the year ended December 31, 2010 compared to the $434 million provided by operating activities for the year ended December 31, 2009. Capital expenditures for property and equipment for the year ended December 31, 2010 increased $63 million to $312 million compared to $249 million for the year ended December 31, 2009. The increase in net cash provided by operating activities was primarily the result of growth in deferred revenue and changes in net assets.  The increase in capital expenditures for the year ended December 31, 2010 was primarily the result of satellite construction and launch expenditures for our XM-5 and FM-6 satellites.

Adjusted Total Revenue. Set forth below are our adjusted total revenue for the years ended December 31, 2010 and 2009, respectively. Our adjusted total revenue includes the recognition of deferred subscriber revenues acquired in the merger between  SIRIUS and XM (the "Merger") that are not recognized in our results under purchase price accounting and the elimination of the benefit in earnings from deferred revenue associated with our investment in XM Canada acquired in the Merger.


Unaudited Adjusted


For the Years Ended December 31,

(in thousands)

2010


2009



Revenue:


Subscriber revenue, including effects of rebates (GAAP)

$2,414,174


$2,287,503

Advertising revenue, net of agency fees (GAAP)

64,517


51,754

Equipment revenue (GAAP)

71,355


50,352

Other revenue (GAAP)

266,946


83,029

Total revenue (GAAP)

2,816,992


2,472,638

Purchase price accounting adjustments:




Subscriber revenue, including effects of rebates

14,655


46,814

Other revenue  

7,251


7,251

Adjusted total revenue

$2,838,898


$2,526,703



For the year ended December 31, 2010, the increase in subscriber revenue was driven by the increase in subscribers and an increase in the sale of "Best of" programming and the decreases in discounts on multi-subscription and internet packages, partially offset by an increase in the number of subscribers on promotional plans. The increase in advertising revenue was driven by more effective sales efforts and improvements in the national market for advertising. The increase in equipment revenue was driven by royalties from a greater number of OEM installations. The increase in other revenue was driven by the U.S. Music Royalty Fee, which was introduced in the third quarter of 2009.

Adjusted EBITDA.  EBITDA is defined as net income (loss) before interest and investment income (loss); interest expense, net of amounts capitalized; income tax expense and depreciation and amortization.  Adjusted EBITDA removes the impact of other income and expense, losses on extinguishment of debt as well as certain other charges, such as, goodwill impairment; restructuring, impairments and related costs; certain purchase price accounting adjustments and share-based payment expense.


Unaudited Adjusted


For the Years Ended December 31,

(in thousands)

2010


2009





Total revenue

$2,838,898


$2,526,703

Operating expenses:




Revenue share and royalties

543,377


486,990

Programming and content

353,213


370,470

Customer service and billing

239,754


232,405

Satellite and transmission

78,720


82,170

Cost of equipment

35,281


40,188

Subscriber acquisition costs

492,480


401,670

Sales and marketing

220,014


232,199

Engineering, design and development

40,042


36,152

General and administrative

209,729


181,920

Total operating expenses

2,212,610


2,064,164

Adjusted EBITDA

$   626,288


$   462,539



For the year ended December 31, 2010, the increase in Adjusted EBITDA was primarily due to an increase in revenue, partially offset by an increase in expenses included in adjusted EBITDA.  The increase in expenses was primarily driven by higher subscriber acquisition costs related to the 25% increase in gross additions and higher revenue share and royalty expenses associated with growth in revenues subject to revenue sharing and royalty arrangements.

The following table contains actual subscriber data for the three months ended December 31, 2010 and 2009, respectively:


Unaudited


For the Three Months Ended December 31,


2010


2009





Beginning subscribers

19,862,175


18,515,730

Gross subscriber additions

2,075,418


1,882,950

Deactivated subscribers

(1,746,629)


(1,625,922)

Net additions

328,789


257,028

Ending subscribers

20,190,964


18,772,758





Retail

6,947,830


7,725,750

OEM

13,104,972


10,930,952

Rental

138,162


116,056

Ending subscribers

20,190,964


18,772,758





Self-pay

16,686,799


15,703,932

Paid promotional

3,504,165


3,068,826

Ending subscribers

20,190,964


18,772,758





Retail

(140,732)


(200,154)

OEM

474,509


442,422

Rental

(4,988)


14,760

Net additions

328,789


257,028





Self-pay

350,980


247,182

Paid promotional

(22,191)


9,846

Net additions

328,789


257,028





Daily weighted average number of subscribers

19,990,447


18,576,151





Average self-pay monthly churn (1)

1.9%


2.0%





Conversion rate (2)

45.1%


46.4%



____________

See accompanying footnotes.

Subscribers. The improvement was due to the 10% increase in gross subscriber additions, primarily resulting from increases in U.S. light vehicle sales, new vehicle penetration and returning activations.

Average Self-pay Monthly Churn. The decrease was due to an improving economy, the success of retention and win-back programs and reductions in non-pay cancellation rates.

Conversion Rate. The decrease was primarily the result of the mix of vehicles transitioning to self-pay.

Metrics.

The following table contains our key operating metrics based on our unaudited adjusted results of operations for the three months ended December 31, 2010 and 2009, respectively:


Unaudited Adjusted


For the Three Months Ended December 31,

(in thousands, except for per subscriber amounts)

2010


2009



ARPU (9)

$     11.80


$     11.58

SAC, per gross subscriber addition (10)

$          58


$          64

Customer service and billing expenses, per average




subscriber (11)

$       1.11


$       1.06

Free cash flow (12)

$ 167,355


$ 149,547

Adjusted total revenue (14)

$ 740,239


$ 683,779

Adjusted EBITDA (13)

$ 144,493


$ 115,339



____________

See accompanying footnotes.

ARPU increased in the three months ended December 31, 2010 primarily due to increased revenue from the U.S. Music Royalty Fee, increased revenues from the sale of "Best of" programming, decreases in discounts on multi-subscription and internet packages, and increased net advertising revenue, partially offset by an increase in the number of subscribers on promotional plans.

SAC, Per Gross Subscriber Addition, decreased in the three months ended December 31, 2010 primarily due to lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from radio manufacturers compared to the three months ended December 31, 2009, partially offset by a 16% increase in OEM production with factory-installed satellite radios.

Customer Service and Billing Expenses, Per Average Subscriber, increased in the three months ended December 31, 2010 primarily due higher call volume, partially offset by lower call center expenses as a result of moving calls to lower cost locations.

Free Cash Flow increased in the three months ended December 31, 2010 principally as a result of improvements in net cash provided by operating activities, partially offset by increases in capital expenditures.  Net cash provided by operating activities increased $41 million to $222 million for the three months ended December 31, 2010 compared to the $181 million provided by operations for the three months ended December 31, 2009. Capital expenditures for property and equipment for the three months ended December 31, 2010 increased $23 million to $54 million compared to $31 million for the three months ended December 31, 2009. The increase in net cash provided by operating activities was primarily the result of growth in deferred revenue and changes in net assets.  The increase in capital expenditures for the three months ended December 31, 2010 was primarily the result of satellite construction and launch expenditures for our XM-5 and FM-6 satellites.

Adjusted Total Revenue. Set forth below are our adjusted total revenue for the three months ended December 31, 2010 and 2009, respectively.


Unaudited Adjusted


For the Three Months Ended December 31,

(in thousands)

2010


2009



Revenue:


Subscriber revenue, including effects of rebates (GAAP)

$620,916


$588,048

Advertising revenue, net of agency fees (GAAP)

18,221


14,467

Equipment revenue (GAAP)

20,730


19,008

Other revenue (GAAP)

76,032


54,650

Total revenue (GAAP)

735,899


676,173

Purchase price accounting adjustments:




Subscriber revenue, including effects of rebates

2,527


5,793

Other revenue  

1,813


1,813

Adjusted total revenue

$740,239


$683,779



For the three months ended December 31, 2010, the increase in subscriber revenue was driven by the increase in subscribers as well as an increase in the sale of "Best of" programming and the decreases in discounts on multi-subscription and internet packages, partially offset by an increase in the number of subscribers on promotional plans. The increase in advertising revenue was driven by more effective sales efforts and improvements in the national market for advertising. The increase in equipment revenue was driven by royalties from increased OEM installations. The increase in other revenue was driven by the increase in revenue from the U.S. Music Royalty Fee.

Adjusted EBITDA.  


Unaudited Adjusted


For the Three Months Ended December 31,

(in thousands)

2010


2009





Total revenue

$740,239


$683,779

Operating expenses:




Revenue share and royalties

143,539


124,527

Programming and content

89,939


92,857

Customer service and billing

66,446


58,887

Satellite and transmission

20,075


25,094

Cost of equipment

13,095


12,200

Subscriber acquisition costs

127,879


127,588

Sales and marketing

60,782


80,161

Engineering, design and development

9,739


8,018

General and administrative

64,252


39,108

Total operating expenses

595,746


568,440

Adjusted EBITDA

$144,493


$115,339



For the three months ended December 31, 2010, the increase in Adjusted EBITDA was primarily due to an increase in revenue, partially offset by an increase in expenses included in adjusted EBITDA.  The increase in expenses was primarily driven by higher general and administrative costs and higher revenue share and royalty expenses associated with growth in revenues subject to revenue sharing and royalty arrangements.

SIRIUS XM RADIO INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS




Actual


For the Three Months


For the Twelve Months


Ended December 31,


Ended December 31,

(in thousands, except per share data)

2010


2009


2010


2009


(Unaudited)


(Unaudited)




Revenue:








Subscriber revenue, including effects of rebates

$      620,916


$    588,048


$ 2,414,174


$     2,287,503

Advertising revenue, net of agency fees

18,221


14,467


64,517


51,754

Equipment revenue

20,730


19,008


71,355


50,352

Other revenue

76,032


54,650


266,946


83,029

Total revenue

735,899


676,173


2,816,992


2,472,638

Operating expenses:
















Cost of services:








Revenue share and royalties

114,843


100,355


435,410


397,210

Programming and content

77,318


77,297


305,914


308,121

Customer service and billing

66,441


58,887


241,680


234,456

Satellite and transmission

20,002


24,597


80,947


84,033

Cost of equipment

13,095


12,200


35,281


40,188

Subscriber acquisition costs

107,295


109,733


413,041


340,506

Sales and marketing

58,640


76,308


215,454


228,956

Engineering, design and development

10,181


8,056


45,390


41,031

General and administrative

70,036


44,601


240,970


227,554

Depreciation and amortization

66,747


77,826


273,691


309,450

Restructuring, impairments and related costs

59,730


2,640


63,800


32,807

Total operating expenses

664,328


592,500


2,351,578


2,244,312

Income from operations

71,571


83,673


465,414


228,326

Other income (expense):








Interest expense, net of amounts capitalized

(72,414)


(68,745)


(295,643)


(315,668)

Loss on extinguishment of debt and credit facilities, net

(85,426)


(3,879)


(120,120)


(267,646)

Interest and investment income (loss)

1,822


2,517


(5,375)


5,576

Other income

1,563


851


3,399


3,355

Total other expense

(154,455)


(69,256)


(417,739)


(574,383)

(Loss) income before income taxes

(82,884)


14,417


47,675


(346,057)

Income tax benefit (expense)

1,440


(2,637)


(4,620)


(5,981)









Net (loss) income

(81,444)


11,780


43,055


(352,038)

Preferred stock beneficial conversion feature

-


-


-


(186,188)

Net (loss) income attributable to common stockholders

$      (81,444)


$      11,780


$      43,055


$      (538,226)

Net (loss) income per common share:








Basic

$          (0.02)


$          0.00


$          0.01


$            (0.15)

Diluted

$          (0.02)


$          0.00


$          0.01


$            (0.15)









Weighted average common shares outstanding:








Basic

3,725,500


3,642,475


3,693,259


3,585,864

Diluted

3,725,500


6,264,259


6,391,071


3,585,864



SIRIUS XM RADIO INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS




As of December 31,


2010


2009

(in thousands, except share and per share data)




ASSETS




Current assets:




Cash and cash equivalents

$     586,691


$     383,489

Accounts receivable, net

121,658


113,580

Receivables from distributors

67,576


48,738

Inventory, net

21,918


16,193

Prepaid expenses

134,994


100,273

Related party current assets

6,719


106,247

Deferred tax asset

44,787


72,640

Other current assets

7,432


18,620

Total current assets

991,775


859,780

Property and equipment, net

1,761,274


1,711,003

Long-term restricted investments

3,396


3,400

Deferred financing fees, net

54,135


66,407

Intangible assets, net

2,629,200


2,695,115

Goodwill

1,834,856


1,834,856

Related party long-term assets

30,162


111,767

Other long-term assets

78,288


39,878

Total assets

$  7,383,086


$  7,322,206

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued expenses

$     593,174


$     543,686

Accrued interest

72,453


74,566

Current portion of deferred revenue

1,201,346


1,083,430

Current portion of deferred credit on executory contracts

271,076


252,831

Current maturities of long-term debt

195,815


13,882

Related party current liabilities

15,845


108,246

Total current liabilities

2,349,709


2,076,641

Deferred revenue

273,973


255,149

Deferred credit on executory contracts

508,012


784,078

Long-term debt

2,695,856


2,799,702

Long-term related party debt

325,907


263,579

Deferred tax liability

914,637


940,182

Related party long-term liabilities

24,517


46,301

Other long-term liabilities

82,839


61,052

Total liabilities

7,175,450


7,226,684





Commitments and contingencies




Stockholders' equity:




Preferred stock, par value $0.001; 50,000,000 authorized at December 31, 2010 and 2009:




Series A convertible preferred stock (liquidation preference of $0 at December 31, 2010 and $51,370 at




December 31, 2009); no shares issued and outstanding at December 31, 2010 and 24,808,959 shares issued and outstanding at December 31, 2009

-


25





Convertible perpetual preferred stock, series B (liquidation preference of $13 at December 31, 2010 and 2009); 12,500,000 shares issued and outstanding at December 31, 2010 and 2009

13


13

Convertible preferred stock, series C junior; no shares issued and outstanding at December 31, 2010 and 2009, respectively

-


-

Common stock, par value $0.001; 9,000,000,000 shares authorized at December 31, 2010 and 2009; 3,933,195,112 and 3,882,659,087 shares issued and outstanding at December 31, 2010 and 2009, respectively

3,933


3,882





Accumulated other comprehensive loss, net of tax

(5,861)


(6,581)

Additional paid-in capital

10,420,604


10,352,291

Accumulated deficit

(10,211,053)


(10,254,108)

Total stockholders' equity

207,636


95,522

Total liabilities and stockholders' equity

$  7,383,086


$  7,322,206



SIRIUS XM RADIO INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS




For the Years Ended December 31,

(in thousands)

2010


2009



Cash flows from operating activities:




Net income (loss)

$     43,055


$(352,038)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:




Depreciation and amortization

273,691


309,450

Non-cash interest expense, net of amortization of premium

42,841


43,066

Provision for doubtful accounts

32,379


30,602

Restructuring, impairments and related costs

66,731


26,964

Amortization of deferred income related to equity method investment

(2,776)


(2,776)

Loss on extinguishment of debt and credit facilities, net

120,120


267,646

Loss on investments, net

11,722


13,664

Loss on disposal of assets

1,017


-

Share-based payment expense

60,437


73,981

Deferred income taxes

2,308


5,981

Other non-cash purchase price adjustments

(250,727)


(202,054)

Changes in operating assets and liabilities:




Accounts receivable

(39,236)


(42,158)

Receivables from distributors

(11,023)


(2,788)

Inventory

(5,725)


8,269

Related party assets

(9,803)


15,305

Prepaid expenses and other current assets

75,374


10,027

Other long-term assets

17,671


86,674

Accounts payable and accrued expenses

5,420


(46,645)

Accrued interest

(884)


2,429

Deferred revenue

133,444


93,578

Related party liabilities

(53,413)


50,172

Other long-term liabilities

272


44,481

Net cash provided by operating activities

512,895


433,830





Cash flows from investing activities:




Additions to property and equipment

(311,868)


(248,511)

Sale of restricted and other investments

9,454


-

Net cash used in investing activities

(302,414)


(248,511)



Cash flows from financing activities:




Proceeds from exercise of warrants and stock options

10,839


-

Preferred stock issuance, net of costs

-


(3,712)

Long-term borrowings, net of costs

1,274,707


582,612

Related party long-term borrowings, net of costs

196,118


362,593

Payment of premiums on redemption of debt

(84,326)


(17,075)

Repayment of long-term borrowings

(1,262,396)


(755,447)

Repayment of related party long-term borrowings

(142,221)


(351,247)

Net cash used in financing activities

(7,279)


(182,276)

Net increase in cash and cash equivalents

203,202


3,043

Cash and cash equivalents at beginning of period

383,489


380,446

Cash and cash equivalents at end of period

$   586,691


$  383,489



Footnotes

Average self-pay monthly churn; conversion rate; ARPU; SAC, per gross subscriber addition; customer service and billing expenses, per average subscriber; adjusted revenue; adjusted EBITDA and free cash flow are not measures of financial performance under GAAP. We believe these operational and Non-GAAP financial performance measures provide meaningful supplemental information regarding our operating performance and are used by us for budgetary and planning purposes; when publicly providing our business outlook; as a means to evaluate period-to-period comparisons; and to compare our performance to that of our competitors. We believe that investors also use our current and projected metrics to monitor the performance of our business and to make investment decisions.

These operational and Non-GAAP financial performance measures are used in addition to and in conjunction with results presented in accordance with GAAP. These Non-GAAP financial performance measures may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.

(1) Average self-pay monthly churn represents the monthly average of self-pay deactivations for the quarter divided by the average number of self-pay subscribers for the quarter.  Average self-pay churn for the year is the average of the quarterly average self-pay churn.

(2) We measure the percentage of owners and lessees of new vehicles that receive our service and convert to become self-paying subscribers after the initial promotion period. We refer to this as the "conversion rate." At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive trial subscriptions ranging from three to twelve months. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. We measure conversion rate three months after the period in which the trial service ends.

(3) ARPU is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee, which was initially charged to subscribers in the third quarter of 2009. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting associated with the Merger. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):


Unaudited


For the Years Ended December 31,


2010


2009



Subscriber revenue (GAAP)

$ 2,414,174


$ 2,287,503

Net advertising revenue (GAAP)

64,517


51,754

Other subscription-related revenue (GAAP)

234,148


48,679

Purchase price accounting adjustments

14,655


46,814


$ 2,727,494


$ 2,434,750





Daily weighted average number of subscribers

19,385,055


18,529,696





ARPU

$        11.73


$        10.95



(4) Subscriber acquisition cost, per gross subscriber addition (or SAC, per gross subscriber addition) is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of gross subscriber additions for the period. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit of amortization of deferred credits on executory contracts recognized at the Merger date attributable to an OEM. SAC, per gross subscriber addition, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):


Unaudited


For the Years Ended December 31,


2010


2009



Subscriber acquisition costs (GAAP)

$  413,041


$  340,506

Less: margin from direct sales of radios and




accessories (GAAP)

(36,074)


(10,164)

Add: purchase price accounting adjustments

79,439


61,164


$  456,406


$  391,506





Gross subscriber additions

7,768,827


6,208,482





SAC, per gross subscriber addition

$           59


$           63



(5) Customer service and billing expenses, per average subscriber, is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments associated with the Merger, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber, is useful given the significant variation in expense that can result from changes in the fair market value of our common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit associated with incremental share-based payment arrangements recognized at the Merger date. Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):


Unaudited


For the Years Ended December 31,


2010


2009



Customer service and billing expenses (GAAP)

$    241,680


$    234,456

Less: share-based payment expense, net of purchase




price accounting adjustments (GAAP)

(2,207)


(2,504)

Add: purchase price accounting adjustments

281


453


$    239,754


$    232,405





Daily weighted average number of subscribers

19,385,055


18,529,696

Customer service and billing expenses, per average




subscriber

$          1.03


$          1.05



(6) Free cash flow is calculated as follows (in thousands):


Unaudited


For the Years Ended December 31,


2010


2009



Net cash provided by operating activities

$ 512,895


$ 433,830

Additions to property and equipment

(311,868)


(248,511)

Restricted and other investment activity

9,454


-

Free cash flow

$ 210,481


$ 185,319



(7) EBITDA is defined as net income (loss) before interest and investment income (loss); interest expense, net of amounts capitalized; taxes expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable):  (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) goodwill impairment, (iii) restructuring, impairments, and related costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our physical plant, capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our results and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use current and projected adjusted EBITDA to estimate our current and prospective enterprise value and to make investment decisions. Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation expense. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair market value of our common stock.  

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including share-based payment expense and certain purchase price accounting for the Merger. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure.  Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income (loss) as disclosed in our consolidated statements of operations. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income (loss) to the adjusted EBITDA is calculated as follows (in thousands):


Unaudited


For the Years Ended December 31,


2010


2009



Net income (loss) (GAAP):

$   43,055


$ (352,038)

Add back items excluded from Adjusted EBITDA:




Purchase price accounting adjustments:




    Revenues

21,906


54,065

    Operating expenses

(261,832)


(240,891)

Share-based payment expense, net of purchase price




accounting adjustments (GAAP)

63,309


78,782

Depreciation and amortization (GAAP)

273,691


309,450

Restructuring, impairments and related costs (GAAP)

63,800


32,807

Interest expense, net of amounts capitalized (GAAP)

295,643


315,668

Loss on extinguishment of debt and credit facilities, net (GAAP)

120,120


267,646

Interest and investment loss (income) (GAAP)

5,375


(5,576)

Other (income) (GAAP)

(3,399)


(3,355)

Income tax expense (GAAP)

4,620


5,981





Adjusted EBITDA

$ 626,288


$  462,539



(8) The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses:


Unaudited For the Year Ended December 31, 2010

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue, including effects of rebates

$2,414,174


$14,655


$-


$2,428,829

Advertising revenue, net of agency fees

64,517


-


-


64,517

Equipment revenue

71,355


-


-


71,355

Other revenue

266,946


7,251


-


274,197

Total revenue

$2,816,992


$21,906


$-


$2,838,898

Operating expenses








Cost of services:








Revenue share and royalties

435,410


107,967


-


543,377

Programming and content

305,914


57,566


(10,267)


353,213

Customer service and billing

241,680


281


(2,207)


239,754

Satellite and transmission

80,947


1,170


(3,397)


78,720

Cost of equipment

35,281


-


-


35,281

Subscriber acquisition costs

413,041


79,439


-


492,480

Sales and marketing

215,454


13,983


(9,423)


220,014

Engineering, design and development

45,390


520


(5,868)


40,042

General and administrative

240,970


906


(32,147)


209,729

Depreciation and amortization (a)

273,691


-


-


273,691

Restructuring, impairments and related costs

63,800


-


-


63,800

Share-based payment expense (b)

-


-


63,309


63,309

Total operating expenses

$2,351,578


$261,832


$-


$2,613,410









(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the year ended December 31, 2010 was $68,000.









(b) Amounts related to share-based payment expense included in operating expenses were as follows:









Programming and content

$9,817


$450


$-


$10,267

Customer service and billing

1,926


281


-


2,207

Satellite and transmission

3,109


288


-


3,397

Sales and marketing

8,996


427


-


9,423

Engineering, design and development

5,348


520


-


5,868

General and administrative

31,241


906


-


32,147









Total share-based payment expense

$60,437


$2,872


$-


$63,309




Unaudited For the Year Ended December 31, 2009

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue, including effects of rebates

$2,287,503


$46,814


$-


$2,334,317

Advertising revenue, net of agency fees

51,754


-


-


51,754

Equipment revenue

50,352


-


-


50,352

Other revenue

83,029


7,251


-


90,280

Total revenue

$2,472,638


$54,065


$-


$2,526,703

Operating expenses








Cost of services:








Revenue share and royalties

397,210


89,780


-


486,990

Programming and content

308,121


72,069


(9,720)


370,470

Customer service and billing

234,456


453


(2,504)


232,405

Satellite and transmission

84,033


1,339


(3,202)


82,170

Cost of equipment

40,188


-


-


40,188

Subscriber acquisition costs

340,506


61,164


-


401,670

Sales and marketing

228,956


13,507


(10,264)


232,199

Engineering, design and development

41,031


977


(5,856)


36,152

General and administrative

227,554


1,602


(47,236)


181,920

Depreciation and amortization (a)

309,450


-


-


309,450

Restructuring, impairments and related costs

32,807


-


-


32,807

Share-based payment expense (b)

-


-


78,782


78,782

Total operating expenses

$2,244,312


$240,891


$-


$2,485,203









(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the year ended December 31, 2009 was $106,000.









(b) Amounts related to share-based payment expense included in operating expenses were as follows:









Programming and content

$9,064


$656


$-


$9,720

Customer service and billing

2,051


453


-


2,504

Satellite and transmission

2,745


457


-


3,202

Sales and marketing

9,608


656


-


10,264

Engineering, design and development

4,879


977


-


5,856

General and administrative

45,634


1,602


-


47,236









Total share-based payment expense

$73,981


$4,801


$-


$78,782



(9) ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):


Unaudited


For the Three Months Ended December 31,


2010


2009



Subscriber revenue (GAAP)

$    620,916


$    588,048

Net advertising revenue (GAAP)

18,221


14,467

Other subscription-related revenue (GAAP)

65,953


36,828

Purchase price accounting adjustments

2,527


5,793


$    707,617


$    645,136





Daily weighted average number of subscribers

19,990,447


18,576,151





ARPU

$        11.80


$        11.58



(10) SAC, per gross subscriber addition, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):


Unaudited


For the Three Months Ended December 31,


2010


2009



Subscriber acquisition costs (GAAP)

$  107,295


$  109,733

Less: margin from direct sales of radios




and accessories (GAAP)

(7,635)


(6,808)

Add: purchase price accounting adjustments

20,584


17,855


$  120,244


$  120,780





Gross subscriber additions

2,075,418


1,882,950





SAC, per gross subscriber addition

$           58


$           64



(11) Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):


Unaudited


For the Three Months Ended December 31,


2010


2009



Customer service and billing expenses (GAAP)

$      66,441


$      58,887

Less: share-based payment expense, net of purchase price accounting adjustments (GAAP)

(50)


(94)

Add: purchase price accounting adjustments

55


94


$      66,446


$      58,887





Daily weighted average number of subscribers

19,990,447


18,576,151

Customer service and billing expenses, per average subscriber

$          1.11


$          1.06



(12) Free cash flow is calculated as follows (in thousands):


Unaudited


For the Three Months Ended December 31,


2010


2009



Net cash provided by operating activities

$ 221,849


$ 180,723

Additions to property and equipment

(54,494)


(31,176)

Free cash flow

$ 167,355


$ 149,547



(13) The reconciliation of net income (loss) to the adjusted EBITDA is calculated as follows (in thousands):


Unaudited


For the Three Months Ended December 31,


2010


2009



Net (loss) income (GAAP):

$ (81,444)


$   11,780

Add back items excluded from Adjusted EBITDA:




Purchase price accounting adjustments:




    Revenues

4,340


7,606

    Operating expenses

(67,928)


(63,886)

Share-based payment expense, net of purchase price




accounting adjustments (GAAP)

10,033


7,480

Depreciation and amortization (GAAP)

66,747


77,826

Restructuring, impairments and related costs (GAAP)

59,730


2,640

Interest expense, net of amounts capitalized (GAAP)

72,414


68,745

Loss on extinguishment of debt and credit facilities, net (GAAP)

85,426


3,879

Interest and investment (income) (GAAP)

(1,822)


(2,517)

Other (income) (GAAP)

(1,563)


(851)

Income tax (benefit) expense (GAAP)

(1,440)


2,637





Adjusted EBITDA

$ 144,493


$ 115,339



(14) The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses:


Unaudited For the Three Months Ended December 31, 2010

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue, including effects of rebates

$620,916


$2,527


$-


$623,443

Advertising revenue, net of agency fees

18,221


-


-


18,221

Equipment revenue

20,730


-


-


20,730

Other revenue

76,032


1,813


-


77,845

Total revenue

$735,899


$4,340


$-


$740,239

Operating expenses








Cost of services:








Revenue share and royalties

114,843


28,696


-


143,539

Programming and content

77,318


14,762


(2,141)


89,939

Customer service and billing

66,441


55


(50)


66,446

Satellite and transmission

20,002


273


(200)


20,075

Cost of equipment

13,095


-


-


13,095

Subscriber acquisition costs

107,295


20,584


-


127,879

Sales and marketing

58,640


3,290


(1,148)


60,782

Engineering, design and development

10,181


93


(535)


9,739

General and administrative

70,036


175


(5,959)


64,252

Depreciation and amortization (a)

66,747


-


-


66,747

Restructuring, impairments and related costs

59,730


-


-


59,730

Share-based payment expense (b)

-


-


10,033


10,033

Total operating expenses

$664,328


$67,928


$-


$732,256









(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the three months ended December 31, 2010 was $16,000.









(b) Amounts related to share-based payment expense included in operating expenses were as follows:









Programming and content

$2,059


$82


$-


$2,141

Customer service and billing

(5)


55


-


50

Satellite and transmission

148


52


-


200

Sales and marketing

1,066


82


-


1,148

Engineering, design and development

442


93


-


535

General and administrative

5,784


175


-


5,959









Total share-based payment expense

$9,494


$539


$-


$10,033




Unaudited For the Three Months Ended December 31, 2009

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue, including effects of rebates

$588,048


$5,793


$-


$593,841

Advertising revenue, net of agency fees

14,467


-


-


14,467

Equipment revenue

19,008


-


-


19,008

Other revenue

54,650


1,813


-


56,463

Total revenue

$676,173


$7,606


$-


$683,779

Operating expenses








Cost of services:








Revenue share and royalties

100,355


24,172


-


124,527

Programming and content

77,297


17,361


(1,801)


92,857

Customer service and billing

58,887


94


(94)


58,887

Satellite and transmission

24,597


327


170


25,094

Cost of equipment

12,200


-


-


12,200

Subscriber acquisition costs

109,733


17,855


-


127,588

Sales and marketing

76,308


3,522


331


80,161

Engineering, design and development

8,056


205


(243)


8,018

General and administrative

44,601


350


(5,843)


39,108

Depreciation and amortization (a)

77,826


-


-


77,826

Restructuring, impairments and related costs

2,640


-


-


2,640

Share-based payment expense (b)

-


-


7,480


7,480

Total operating expenses

$592,500


$63,886


$-


$656,386









(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the three months ended December 31, 2009 was $20,000.









(b) Amounts related to share-based payment expense included in operating expenses were as follows:









Programming and content

$1,646


$155


$-


$1,801

Customer service and billing

-


94


-


94

Satellite and transmission

(276)


106


-


(170)

Sales and marketing

(474)


143


-


(331)

Engineering, design and development

38


205


-


243

General and administrative

5,493


350


-


5,843









Total share-based payment expense

$6,427


$1,053


$-


$7,480



About Sirius XM Radio

Sirius XM Radio is America's satellite radio company.  SiriusXM broadcasts more than 135 channels of commercial-free music, and premier sports, news, talk, entertainment, traffic, weather, and data services to more than 20 million subscribers in cars, trucks, boats and aircraft, and through a wide range of mobile devices.

SiriusXM offers an array of content from some of the biggest names in entertainment, as well as from professional sports leagues, major colleges, and national news and talk providers. SiriusXM programming is also available at siriusxm.com, and on Apple iPhone and iPod touch, BlackBerry and Android-powered mobile devices using the SiriusXM Premium Online App.

SiriusXM has arrangements with every major automaker and its radio products are available at shop.siriusxm.com as well as retail locations nationwide.

This communication contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "intend," "plan,"  "projection," "outlook" or words of similar meaning.  Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control.  Actual results may differ materially from the results anticipated in these forward-looking statements.  

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statement:  our dependence upon automakers and other third parties, our substantial indebtedness; the useful life of our satellites; and our competitive position versus other forms of audio and video entertainment.  Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our Annual Report on Form 10-K for the year ended December 31, 2009 and our Quarterly Report on Form 10-Q for the period ending September 30, 2010, which are filed with the Securities and Exchange Commission (the "SEC") and available at the SEC's Internet site (http://www.sec.gov).  The information set forth herein speaks only as of the date hereof, and we disclaim any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this communication.

Follow SiriusXM on Twitter or like the SiriusXM page on Facebook.

E-SIRI

Contact Information for Investors and Financial Media:


Investors:


William Prip

212 584 5289

william.prip@siriusxm.com


Hooper Stevens

212 901 6718

hooper.stevens@siriusxm.com


Media:

Patrick Reilly

212 901 6646

patrick.reilly@siriusxm.com



SOURCE Sirius XM Radio

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