August 2, 2011

SiriusXM Reports Second Quarter 2011 Results

- Subscribers Exceed 21 Million, an All-Time High
- Record Revenue of $744 Million, Up 6% Over Second Quarter 2010
- Record Adjusted EBITDA of $185 Million, Up 20% Over Second Quarter 2010
- Company Raises Guidance; 1.6 Million Net Subscriber Additions and Free Cash Flow Approaching $400 Million Expected in 2011

NEW YORK, Aug. 2, 2011 /PRNewswire/ -- Sirius XM Radio (NASDAQ: SIRI) today announced second quarter 2011 results, including revenue of $744 million, up 6% over second quarter 2010 revenue of $700 million, and adjusted EBITDA of $185 million, up 20% from $154 million in the second quarter of 2010.

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

"Our results in the second quarter were strong, and we are proud of our record levels of subscribers, revenue, and adjusted EBITDA and growth in free cash flow.  SiriusXM continues to perform well, and we are pleased to raise our subscriber guidance and, for the second time this year, our free cash flow guidance," said Mel Karmazin, Chief Executive Officer, SiriusXM.

Highlights from the quarter include:

  • Subscriber growth continues. Auto sales growth and higher OEM penetration year-over-year drove ending subscribers as of June 30, 2011 to 21,016,175, up 8% from the 19,527,448 subscribers reported as of June 30, 2010. Self-pay net additions in the second quarter of 2011 were 362,663, up 19% from 304,043 in the second quarter of 2010.
  • Churn stable. Average self-pay monthly churn was 1.9% in the second quarter 2011, compared to 2.0% in the first quarter 2011 and 1.8% in the second quarter of 2010.
  • SAC improves. Subscriber acquisition cost (SAC) per gross subscriber addition was $54 in the second quarter of 2011, an 8% improvement from the $59 reported in the second quarter of 2010.  

"Demand for satellite radio continues to grow, with gross additions reaching the highest level of any quarter since the merger of Sirius and XM.  Our all-time high OEM penetration rate is a reflection of the automakers' satisfaction and their commitment to offer our service to their customers," said Karmazin.  "We intend to drive future growth through innovations to our satellite and internet platforms, with the goal of better delivering our unparalleled content to our valued customers.  We're also excited to launch a variety of additional new music and talk channels later this year."

Free cash flow in the second quarter of 2011 was $165 million, a 53% improvement from the $108 million reported in the second quarter 2010. These improvements were driven by cash received from the Canada merger, a decline in satellite capital expenditures, and improved adjusted EBITDA. Net income in the second quarters of 2011 and 2010 was $173 million and $15 million, respectively, or $0.03 and $0.00 per diluted share, respectively.

"We ended the second quarter with $528 million of cash and cash equivalents after using approximately $75 million to repurchase debt in the second quarter," said David Frear, SiriusXM's Executive Vice President and Chief Financial Officer.  "We continue to make steady progress toward reaching our leverage target. Our net debt to adjusted EBITDA declined to 3.7x at the end of the second quarter of 2011 from 5.2x at the end of the second quarter of 2010.  The company is examining ways to start efficiently returning capital to shareholders beginning in 2012," added Frear.

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

2011 GUIDANCE

"With the excellent subscriber performance recorded in the first half of 2011, we are now confident that we will exceed our previously announced 1.4 million net subscriber addition guidance for 2011.  Today we are raising our full-year guidance to a projected 1.6 million net subscriber additions," added Karmazin.  "After a strong first half, we now expect free cash flow in 2011 will approach $400 million, up from our prior guidance of approaching $350 million."

In 2011, the company continues to expect full-year revenue of approximately $3 billion. SiriusXM's adjusted EBITDA projection remains at approximately $715 million. Full year self-pay churn and conversion rates for 2011 should be broadly similar to those seen in 2010.

SECOND QUARTER 2011 RESULTS

Subscriber Data.

The following table contains actual subscriber data for the three and six months ended June 30, 2011 and 2010, respectively:


Unaudited


For the Three Months Ended June 30,


For the Six Months Ended June 30,


2011


2010


2011


2010









Beginning subscribers

20,564,028


18,944,199


20,190,964


18,772,758

Gross subscriber additions

2,179,348


2,020,507


4,231,715


3,741,355

Deactivated subscribers

(1,727,201)


(1,437,258)


(3,406,504)


(2,986,665)

Net additions

452,147


583,249


825,211


754,690

Ending subscribers

21,016,175


19,527,448


21,016,175


19,527,448









Self-pay

17,170,306


16,077,714


17,170,306


16,077,714

Paid promotional

3,845,869


3,449,734


3,845,869


3,449,734

Ending subscribers

21,016,175


19,527,448


21,016,175


19,527,448









Self-pay

362,663


304,043


483,507


373,782

Paid promotional

89,484


279,206


341,704


380,908

Net additions

452,147


583,249


825,211


754,690









Daily weighted average number of subscribers

20,715,630


19,139,926


20,475,720


18,962,580









Average self-pay monthly churn (1)

1.9%


1.8%


1.9%


1.9%









Conversion rate (2)

45.2%


46.7%


44.9%


45.9%



____________

See accompanying footnotes.

Subscribers. The improvement in the three months ended June 30, 2011 was due to the 8% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle penetration and returning activations.

Average Self-pay Monthly Churn increased in the three months ended June 30, 2011 due to changes in vehicle ownership which were offset by reductions in non-pay cancellation rates.

Conversion Rate. The decrease in the three months ended June 30, 2011 was primarily due to the changing mix of sales among auto manufacturers.

Metrics.

The following table contains our key operating metrics based on our unaudited adjusted results of operations for the three and six months ended June 30, 2011 and 2010, respectively:


Unaudited


For the Three Months Ended June 30,


For the Six Months Ended June 30,

(in thousands, except for per subscriber amounts)

2011


2010


2011


2010





ARPU (3)

$                    11.53


$                    11.81


$                    11.53


$                    11.65

SAC, per gross subscriber addition (4)

$                         54


$                         59


$                         56


$                         59

Customer service and billing expenses, per average








subscriber (5)

$                      1.00


$                      1.01


$                      1.04


$                      1.00

Free cash flow (6)

$                165,433


$                108,331


$                148,559


$                 (18,872)

Adjusted total revenue (8)

$                747,335


$                705,560


$             1,474,896


$             1,376,122

Adjusted EBITDA (7)

$                185,094


$                154,313


$                366,454


$                312,070



____________

See accompanying footnotes.

ARPU decreased in the three months ended June 30, 2011 by $0.28, primarily as a result of an increase in subscriber retention programs, the number of subscribers on OEM paid promotional plans and the decrease in the U.S. Music Royalty rate, partially offset by an increase in sales of premium services, including "Best of" programming, data services and streaming.

SAC, Per Gross Subscriber Addition, decreased in the three months ended June 30, 2011 primarily due to an 8% increase in gross subscriber additions and lower per radio subsidy rates for certain OEMs.

Customer Service and Billing Expenses, Per Average Subscriber, decreased in the three months ended June 30, 2011 primarily due to the 8% growth in daily weighted average subscribers relative to a 7% increase in customer service and billing expenses due to higher call volume and handle time per call and personnel costs.

Free Cash Flow increased in the three months ended June 30, 2011 principally as a result of improvements in net cash provided by operating activities and decreases in capital expenditures.  Net cash provided by operating activities increased $16 million to $195 million for the three months ended June 30, 2011, compared to the $179 million provided by operations for the three months ended June 30, 2010. The increase in net cash provided by operating activities was primarily the result of improved operating performance driving higher adjusted EBITDA, cash received from the Canada merger and higher collections from subscribers and distributors. Capital expenditures for property and equipment for the three months ended June 30, 2011 decreased $30 million to $40 million, compared to $70 million for the three months ended June 30, 2010. The decrease in capital expenditures for the three months ended June 30, 2011 was primarily the result of decreased satellite construction and launch expenditures due to the launch in the fourth quarter of 2010 of our XM-5 satellite. The increase in net cash from restricted and other investment activities was driven by the return of capital resulting from the Canada merger.

Adjusted Total Revenue. Set forth below are our adjusted total revenue for the three and six months ended June 30, 2011 and 2010, 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


For the Three Months Ended June 30,


For the Six Months Ended June 30,

(in thousands)

2011


2010


2011


2010





Revenue:




Subscriber revenue, including effects of rebates (GAAP)

$                639,642


$                601,630


$             1,262,080


$             1,181,139

Advertising revenue, net of agency fees (GAAP)

18,227


15,797


34,785


30,323

Equipment revenue (GAAP)

17,022


18,520


32,889


32,802

Other revenue (GAAP)

69,506


63,814


138,482


119,280

Total revenue (GAAP)

744,397


699,761


1,468,236


1,363,544

Purchase price accounting adjustments:








Subscriber revenue, including effects of rebates

1,125


3,986


3,034


8,952

Other revenue  

1,813


1,813


3,626


3,626

Adjusted total revenue

$                747,335


$                705,560


$             1,474,896


$             1,376,122



For the three months ended June 30, 2011, the increase in subscriber revenue was primarily attributable to an 8% increase in daily weighted average subscribers and an increase in sales of premium services, including "Best of" programming, data services and streaming. The increase in other revenue was driven by an increase in subscribers subject to the U.S. Music Royalty Fee and increased royalty revenue from Sirius Canada.

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 Three Months Ended June 30,


For the Six Months Ended June 30,


2011


2010


2011


2010









Total revenue

$                747,335


$                705,560


$             1,474,896


$             1,376,122

Operating expenses:








Revenue share and royalties

147,875


134,318


284,737


257,857

Programming and content

78,226


83,931


161,499


174,402

Customer service and billing

62,284


57,763


127,772


113,340

Satellite and transmission

18,507


19,235


36,739


38,622

Cost of equipment

7,601


7,805


14,006


15,724

Subscriber acquisition costs

126,972


130,683


253,898


237,728

Sales and marketing

53,646


57,076


102,802


107,018

Engineering, design and development

12,965


9,635


22,988


19,462

General and administrative

54,165


50,801


104,001


99,899

Total operating expenses

562,241


551,247


1,108,442


1,064,052

Adjusted EBITDA

$                185,094


$                154,313


$                366,454


$                312,070



For the three months ended June 30, 2011, the increase in adjusted EBITDA was primarily due to an increase of 6%, or $42 million, in adjusted revenues, partially offset by an increase of 2%, or $11 million, in expenses included in adjusted EBITDA. The increase in adjusted revenue was primarily due to the increase in our subscriber base and by the additional subscribers subject to the U.S. Music Royalty Fee. The increase in expenses was primarily driven by higher revenue share and royalties expenses associated with growth in revenues and increased customer service and billing expenses associated with subscriber growth, partially offset by lower subscriber acquisition costs, sales and marketing expenses, and programming and content costs.

SIRIUS XM RADIO INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS



Unaudited Actual


For the Three Months Ended June 30,


For the Six Months Ended June 30,

(in thousands, except per share data)

2011


2010


2011


2010





Revenue:








Subscriber revenue

$                     639,642


$                     601,630


$                  1,262,080


$                  1,181,139

Advertising revenue, net of agency fees

18,227


15,797


34,785


30,323

Equipment revenue

17,022


18,520


32,889


32,802

Other revenue

69,506


63,814


138,482


119,280

Total revenue

744,397


699,761


1,468,236


1,363,544

Operating expenses:








Cost of services:








Revenue share and royalties

116,741


107,901


223,670


206,085

Programming and content

67,399


72,019


140,358


150,452

Customer service and billing

62,592


58,414


128,429


114,625

Satellite and transmission

18,998


19,982


37,558


40,100

Cost of equipment

7,601


7,805


14,006


15,724

Subscriber acquisition costs

105,162


110,383


210,432


199,762

Sales and marketing

51,442


56,177


99,261


105,294

Engineering, design and development

13,939


11,247


25,074


22,684

General and administrative

60,479


59,166


116,831


116,746

Depreciation and amortization

67,062


69,230


135,462


139,495

Restructuring, impairments and related costs

-


1,803


-


1,803

Total operating expenses

571,415


574,127


1,131,081


1,112,770

Income from operations

172,982


125,634


337,155


250,774

Other income (expense):








Interest expense, net of amounts capitalized

(76,196)


(76,802)


(154,414)


(154,670)

Loss on extinguishment of debt and credit facilities, net

(1,212)


(31,987)


(7,206)


(34,437)

Interest and investment income (loss)

80,182


378


78,298


(2,892)

Other income (loss)

183


(485)


1,799


728

Total other income (expense)

2,957


(108,896)


(81,523)


(191,271)

Income before income taxes

175,939


16,738


255,632


59,503

Income tax expense

(2,620)


(1,466)


(4,192)


(2,633)









Net income  

$                     173,319


$                       15,272


$                     251,440


$                       56,870

Net income per common share:








Basic

$                           0.05


$                           0.00


$                           0.07


$                           0.02

Diluted

$                           0.03


$                           0.00


$                           0.04


$                           0.01









Weighted average common shares outstanding:








Basic

3,744,375


3,683,595


3,739,731


3,682,750

Diluted

6,804,297


6,363,955


6,790,729


6,357,507



SIRIUS XM RADIO INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS



June 30, 2011


December 31, 2010


(unaudited)



(in thousands, except share and per share data)




ASSETS




Current assets:




Cash and cash equivalents

$                      528,327


$                      586,691

Accounts receivable, net

100,834


121,658

Receivables from distributors

81,014


67,576

Inventory, net

32,317


21,918

Prepaid expenses

156,530


134,994

Related party current assets

6,264


6,719

Deferred tax asset

54,828


44,787

Other current assets

5,167


7,432

Total current assets

965,281


991,775

Property and equipment, net

1,722,673


1,761,274

Long-term restricted investments

3,146


3,396

Deferred financing fees, net

48,062


54,135

Intangible assets, net

2,602,425


2,632,688

Goodwill

1,834,856


1,834,856

Related party long-term assets

71,323


33,475

Other long-term assets

56,019


71,487

Total assets

$                   7,303,785


$                   7,383,086

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued expenses

$                      481,977


$                      593,174

Accrued interest

70,565


72,453

Current portion of deferred revenue

1,295,653


1,201,346

Current portion of deferred credit on executory contracts

281,071


271,076

Current maturities of long-term debt

25,894


195,815

Related party current liabilities

15,802


15,845

Total current liabilities

2,170,962


2,349,709

Deferred revenue

244,573


273,973

Deferred credit on executory contracts

361,899


508,012

Long-term debt

2,671,770


2,695,856

Long-term related party debt

327,296


325,907

Deferred tax liability

927,120


914,637

Related party long-term liabilities

23,129


24,517

Other long-term liabilities

82,425


82,839

Total liabilities

6,809,174


7,175,450





Commitments and contingencies




Stockholders' equity:




Preferred stock, par value $0.001; 50,000,000 authorized at June 30, 2011 and December 31, 2010:




Series A convertible preferred stock; no shares issued and outstanding at June 30, 2011




and December 31, 2010

-


-

Convertible perpetual preferred stock, series B-1 (liquidation preference of $13 at June 30, 2011




and December 31, 2010); 12,500,000 shares issued and outstanding at June 30, 2011 and




December 31, 2010

13


13

Convertible preferred stock, series C junior; no shares issued and outstanding at




June 30, 2011 and December 31, 2010

-


-

Common stock, par value $0.001; 9,000,000,000 shares authorized at June 30, 2011 and




December 31, 2010; 3,948,913,078 and 3,933,195,112 shares issued and outstanding at




June 30, 2011 and December 31, 2010, respectively

3,949


3,933

Accumulated other comprehensive income (loss), net of tax

288


(5,861)

Additional paid-in capital

10,449,974


10,420,604

Accumulated deficit

(9,959,613)


(10,211,053)

Total stockholders' equity

494,611


207,636

Total liabilities and stockholders' equity

$                   7,303,785


$                   7,383,086



SIRIUS XM RADIO INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS



Unaudited Actual


For the Six Months Ended June 30,

(in thousands)

2011


2010



Cash flows from operating activities:




Net income

$                251,440


$                 56,870

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

135,462


139,495

Non-cash interest expense, net of amortization of premium

19,234


22,294

Provision for doubtful accounts

17,744


15,756

Restructuring, impairments and related costs

-


1,803

Amortization of deferred income related to equity method investment

(1,388)


(2,137)

Loss on extinguishment of debt and credit facilities, net

7,206


34,437

Gain on merger of unconsolidated entities

(83,718)


-

Loss on unconsolidated entity investments, net

6,045


6,065

Loss on disposal of assets

269


(18)

Share-based payment expense

23,591


33,083

Deferred income taxes

2,223


2,633

Other non-cash purchase price adjustments

(134,862)


(120,706)

Distribution from investment in unconsolidated entity

4,849


-

Changes in operating assets and liabilities:




Accounts receivable

3,080


(14,296)

Receivables from distributors

(13,438)


(26,655)

Inventory

(10,399)


2,467

Related party assets

31,076


(701)

Prepaid expenses and other current assets

(20,871)


10,245

Other long-term assets

15,974


10,947

Accounts payable and accrued expenses

(101,552)


(76,144)

Accrued interest

(1,888)


(4,796)

Deferred revenue

63,649


105,004

Related party liabilities

(42)


(54,978)

Other long-term liabilities

(194)


319

Net cash provided by operating activities

213,490


140,987





Cash flows from investing activities:




Additions to property and equipment

(75,298)


(169,313)

Sale of restricted and other investments

-


9,454

Release of restricted investments

250


-

Return of capital from investment in unconsolidated entity

10,117


-

Net cash used in investing activities

(64,931)


(159,859)



Cash flows from financing activities:




Proceeds from exercise of stock options

6,921


-

Long-term borrowings, net of costs

-


637,406

Related party long-term borrowings, net of costs

-


147,094

Payment of premiums on redemption of debt

(5,020)


(24,065)

Repayment of long-term borrowings

(208,824)


(810,977)

Repayment of related party long-term borrowings

-


(55,221)

Net cash used in financing activities

(206,923)


(105,763)

Net decrease in cash and cash equivalents

(58,364)


(124,635)

Cash and cash equivalents at beginning of period

586,691


383,489

Cash and cash equivalents at end of period

$                528,327


$               258,854



Footnotes

(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.  

(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. 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 Three Months Ended June 30,


For the Six Months Ended June 30,


2011


2010


2011


2010





Subscriber revenue (GAAP)

$                639,642


$                601,630


$             1,262,080


$             1,181,139

Add: net advertising revenue (GAAP)

18,227


15,797


34,785


30,323

Add: other subscription-related revenue (GAAP)

57,642


56,694


116,173


104,641

Add: purchase price accounting adjustments

1,125


3,986


3,034


8,952


$                716,636


$                678,107


$             1,416,072


$             1,325,055









Daily weighted average number of subscribers

20,715,630


19,139,926


20,475,720


18,962,580









ARPU

$                    11.53


$                    11.81


$                    11.53


$                    11.65



(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 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 Three Months Ended June 30,


For the Six Months Ended June 30,


2011


2010


2011


2010





Subscriber acquisition costs (GAAP)

$                105,162


$                110,383


$                210,432


$               199,762

Less: margin from direct sales of radios and accessories (GAAP)

(9,421)


(10,715)


(18,883)


(17,078)

Add: purchase price accounting adjustments

21,810


20,300


43,466


37,966


$                117,551


$                119,968


$                235,015


$               220,650









Gross subscriber additions

2,179,348


2,020,507


4,231,715


3,741,355









SAC, per gross subscriber addition

$                         54


$                         59


$                         56


$                        59



(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 Three Months Ended June 30,


For the Six Months Ended June 30,


2011


2010


2011


2010





Customer service and billing expenses (GAAP)

$                  62,592


$                  58,414


$                128,429


$                114,625

Less: share-based payment expense, net of purchase








price accounting adjustments

(308)


(729)


(675)


(1,457)

Add: purchase price accounting adjustments

-


78


18


172


$                  62,284


$                  57,763


$                127,772


$                113,340









Daily weighted average number of subscribers

20,715,630


19,139,926


20,475,720


18,962,580









Customer service and billing expenses, per average subscriber

$                      1.00


$                      1.01


$                      1.04


$                      1.00



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


Unaudited


For the Three Months Ended June 30,


For the Six Months Ended June 30,


2011


2010


2011


2010





Net cash provided by operating activities

$                195,381


$                178,675


$                213,490


$                140,987

Additions to property and equipment

(40,315)


(70,348)


(75,298)


(169,313)

Restricted and other investment activity

10,367


4


10,367


9,454

Free cash flow

$                165,433


$                108,331


$                148,559


$                (18,872)



(7) EBITDA is defined as net income 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 value as determined using the Black-Scholes-Merton model which varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates.

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 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 to the adjusted EBITDA is calculated as follows (in thousands):


Unaudited


For the Three Months Ended June 30,


For the Six Months Ended June 30,


2011


2010


2011


2010





Net income (GAAP):

$                173,319


$                  15,272


$                251,440


$                 56,870

Add back items excluded from Adjusted EBITDA:








Purchase price accounting adjustments:








Revenues

2,938


5,799


6,660


12,578

Operating expenses

(68,623)


(64,857)


(136,595)


(127,467)

Share-based payment expense, net of purchase price








accounting adjustments

10,735


16,704


23,772


34,887

Depreciation and amortization (GAAP)

67,062


69,230


135,462


139,495

Restructuring, impairments and related costs

-


1,803


-


1,803

Interest expense, net of amounts capitalized (GAAP)

76,196


76,802


154,414


154,670

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

1,212


31,987


7,206


34,437

Interest and investment (income) loss (GAAP)

(80,182)


(378)


(78,298)


2,892

Other (income) loss (GAAP)

(183)


485


(1,799)


(728)

Income tax expense (GAAP)

2,620


1,466


4,192


2,633









Adjusted EBITDA

$                185,094


$                154,313


$                366,454


$               312,070



(8) The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the three and six months ended June 30, 2011 and 2010:


Unaudited For the Three Months Ended June 30, 2011

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue, including effects of rebates

$            639,642


$            1,125


$                 -


$          640,767

Advertising revenue, net of agency fees

18,227


-


-


18,227

Equipment revenue

17,022


-


-


17,022

Other revenue

69,506


1,813


-


71,319

Total revenue

$            744,397


$            2,938


$                 -


$          747,335

Operating expenses








Cost of services:








Revenue share and royalties

116,741


31,134


-


147,875

Programming and content

67,399


11,787


(960)


78,226

Customer service and billing

62,592


-


(308)


62,284

Satellite and transmission

18,998


74


(565)


18,507

Cost of equipment

7,601


-


-


7,601

Subscriber acquisition costs

105,162


21,810


-


126,972

Sales and marketing

51,442


3,818


(1,614)


53,646

Engineering, design and development

13,939


-


(974)


12,965

General and administrative

60,479


-


(6,314)


54,165

Depreciation and amortization (a)

67,062


-


-


67,062

Restructuring, impairments and related costs

-


-


-


-

Share-based payment expense (b)

-


-


10,735


10,735

Total operating expenses

$            571,415


$          68,623


$                 -


$          640,038









(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 June 30, 2011 was $15,000.









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













Programming and content

$                    960


$                     -


$                  -


$                  960

Customer service and billing

308


-


-


308

Satellite and transmission

565


-


-


565

Sales and marketing

1,614


-


-


1,614

Engineering, design and development

974


-


-


974

General and administrative

6,314


-


-


6,314









Total share-based payment expense

$                10,735


$                     -


$                  -


$             10,735




Unaudited For the Three Months Ended June 30, 2010

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue, including effects of rebates

$            601,630


$             3,986


$                      -


$           605,616

Advertising revenue, net of agency fees

15,797


-


-


15,797

Equipment revenue

18,520


-


-


18,520

Other revenue

63,814


1,813


-


65,627

Total revenue

$            699,761


$             5,799


$                      -


$           705,560

Operating expenses








Cost of services:








Revenue share and royalties

107,901


26,417


-


134,318

Programming and content

72,019


13,702


(1,790)


83,931

Customer service and billing

58,414


78


(729)


57,763

Satellite and transmission

19,982


303


(1,050)


19,235

Cost of equipment

7,805


-


-


7,805

Subscriber acquisition costs

110,383


20,300


-


130,683

Sales and marketing

56,177


3,661


(2,762)


57,076

Engineering, design and development

11,247


148


(1,760)


9,635

General and administrative

59,166


248


(8,613)


50,801

Depreciation and amortization (a)

69,230


-


-


69,230

Restructuring, impairments and related costs

1,803


-


-


1,803

Share-based payment expense (b)

-


-


16,704


16,704

Total operating expenses

$            574,127


$           64,857


$                      -


$           638,984









(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 June 30, 2010 was $17,000.









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













Programming and content

$                 1,662


$                 128


$                       -


$                 1,790

Customer service and billing

651


78


-


729

Satellite and transmission

968


82


-


1,050

Sales and marketing

2,643


119


-


2,762

Engineering, design and development

1,612


148


-


1,760

General and administrative

8,365


248


-


8,613









Total share-based payment expense

$               15,901


$                 803


$                       -


$               16,704




Unaudited For the Six Months Ended June 30, 2011

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue, including effects of rebates

$         1,262,080


$                 3,034


$                  -


$            1,265,114

Advertising revenue, net of agency fees

34,785


-


-


34,785

Equipment revenue

32,889


-


-


32,889

Other revenue

138,482


3,626


-


142,108

Total revenue

$         1,468,236


$                 6,660


$                  -


$            1,474,896

Operating expenses








Cost of services:








Revenue share and royalties

223,670


61,067


-


284,737

Programming and content

140,358


24,611


(3,470)


161,499

Customer service and billing

128,429


18


(675)


127,772

Satellite and transmission

37,558


313


(1,132)


36,739

Cost of equipment

14,006


-


-


14,006

Subscriber acquisition costs

210,432


43,466


-


253,898

Sales and marketing

99,261


7,030


(3,489)


102,802

Engineering, design and development

25,074


31


(2,117)


22,988

General and administrative

116,831


59


(12,889)


104,001

Depreciation and amortization (a)

135,462


-


-


135,462

Restructuring, impairments and related costs

-


-


-


-

Share-based payment expense (b)

-


-


23,772


23,772

Total operating expenses

$         1,131,081


$             136,595


$                  -


$            1,267,676









(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 six months ended June 30, 2011 was $30,000.









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













Programming and content

$                 3,443


$                       27


$                   -


$                    3,470

Customer service and billing

657


18


-


675

Satellite and transmission

1,113


19


-


1,132

Sales and marketing

3,462


27


-


3,489

Engineering, design and development

2,086


31


-


2,117

General and administrative

12,830


59


-


12,889









Total share-based payment expense

$               23,591


$                     181


$                   -


$                  23,772




Unaudited For the Six Months Ended June 30, 2010

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue, including effects of rebates

$       1,181,139


$             8,952


$               -


$        1,190,091

Advertising revenue, net of agency fees

30,323


-


-


30,323

Equipment revenue

32,802


-


-


32,802

Other revenue

119,280


3,626


-


122,906

Total revenue

$       1,363,544


$           12,578


$               -


$        1,376,122

Operating expenses








Cost of services:








Revenue share and royalties

206,085


51,772


-


257,857

Programming and content

150,452


28,850


(4,900)


174,402

Customer service and billing

114,625


172


(1,457)


113,340

Satellite and transmission

40,100


626


(2,104)


38,622

Cost of equipment

15,724


-


-


15,724

Subscriber acquisition costs

199,762


37,966


-


237,728

Sales and marketing

105,294


7,186


(5,462)


107,018

Engineering, design and development

22,684


334


(3,556)


19,462

General and administrative

116,746


561


(17,408)


99,899

Depreciation and amortization (a)

139,495


-


-


139,495

Restructuring, impairments and related costs

1,803


-


-


1,803

Share-based payment expense (b)

-


-


34,887


34,887

Total operating expenses

$        1,112,770


$         127,467


$               -


$         1,240,237









(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 six months ended June 30, 2010 was $36,000.









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













Programming and content

$                4,612


$                 288


$                -


$                 4,900

Customer service and billing

1,285


172


-


1,457

Satellite and transmission

1,919


185


-


2,104

Sales and marketing

5,198


264


-


5,462

Engineering, design and development

3,222


334


-


3,556

General and administrative

16,847


561


-


17,408









Total share-based payment expense

$              33,083


$              1,804


$                -


$               34,887



About Sirius XM Radio

Sirius XM Radio is America's satellite radio company.  SiriusXM broadcasts more than 135 satellite radio channels of commercial-free music, and premier sports, news, talk, entertainment, traffic, weather, and data services to over 21 million subscribers. SiriusXM offers an array of content from many of the biggest names in entertainment, as well as from professional sports leagues, major colleges, and national news and talk providers.

SiriusXM programming is available on more than 800 devices, including pre-installed and after-market radios in cars, trucks, boats and aircraft, smartphones and mobile devices, and consumer electronics products for homes and offices. SiriusXM programming is also available at siriusxm.com, and on Apple, BlackBerry and Android-powered mobile devices.

SiriusXM has arrangements with every major automaker and its radio products are available for sale 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 competitive position versus other forms of audio and video entertainment; our ability to retain subscribers and maintain our average monthly revenue per subscriber;  our dependence upon automakers and other third parties; the first quarter tragedy in Japan, which may have certain adverse effects on automakers, radio manufacturers and other third parties; our substantial indebtedness; and the useful life of our satellites, which, in most cases, are not insured.  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, 2010, which is 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:

Hooper Stevens
212 901 6718
hooper.stevens@siriusxm.com

Media:

Patrick Reilly
212 901 6646
patrick.reilly@siriusxm.com

SOURCE Sirius XM Radio

News Provided by Acquire Media


Close window | Back to top

Copyright 2014 SiriusXM Radio