SiriusXM Reports 2011 Results - Subscribers Grow to Record 21.9 Million

- Record Revenue of $3.01 Billion, Up 7% Over 2010

- Adjusted EBITDA Reaches Record $731 Million, Up 17% Over 2010

- Record Free Cash Flow of $416 Million, Up 98% Over 2010

- 2012 Adjusted EBITDA Guidance Raised to $875 Million

- Company Projects 1.3 Million Net Subscriber Additions in 2012

NEW YORK, Feb. 9, 2012 /PRNewswire/ -- Sirius XM Radio (NASDAQ: SIRI) today announced full year 2011 financial and operating results, including revenue of $3.01 billion, up 7% over 2010 revenue of $2.82 billion, and adjusted EBITDA of $731 million, up 17% from $626 million in 2010.

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

"We are proud to announce that SiriusXM delivered another record-setting year in 2011, meeting or exceeding all of our guidance.  Our strong content and subscriber focus helped set a post-merger record of 1.7 million net subscriber additions, and we achieved record levels of revenue, adjusted EBITDA and free cash flow.  We expanded our adjusted EBITDA margins to 24% by tightly controlling costs and growing our revenue.  Our improved profitability, coupled with lower capital expenditures, contributed to a substantial increase in our free cash flow," noted Mel Karmazin, Chief Executive Officer, SiriusXM.

"In 2012, we expect to accelerate our revenue and adjusted EBITDA growth, and we project our free cash flow will jump by approximately 70% to $700 million.  Our subscriber base will once again end this year at another all-time record high," said Karmazin.  "We continue to invest in improving the subscriber experience, all with the goal of keeping our subscribers engaged and entertained.  All of us here at SiriusXM look forward to another fantastic year of subscriber growth and improved financial performance."

Additional highlights from 2011 include:

  • Subscriber growth continues.  Gross additions climbed 12% to an all-time high of 8.7 million, net subscriber additions improved by 20% to 1.7 million from 1.4 million in 2010, and the subscriber base rose to an all-time high of 21.9 million subscribers at year-end.  Self-pay net additions were 1.2 million in 2011, up 24% from 1.0 million in 2010.
  • Stable churn.  Self-pay churn was 1.9% in 2011, in-line with 2010's results.  New vehicle consumer conversion rate was 45% in 2011 compared to 46% in 2010.
  • Strong cost controls.  Total cash operating expenses rose 3.7%, while fixed expenses declined by 1.9%.
  • SAC per gross addition declined.  Subscriber acquisition costs (SAC) per gross addition improved by 7% to $55 in 2011 from $59 in 2010.
  • Free cash flow grew.  Free cash flow climbed to $416 million, up 98% from the $210 million generated in 2010 due to higher operating cash flow and lower capital expenditures.

GAAP net income for 2011 and 2010 was $427 million and $43 million, respectively, or $0.07 and $0.01 per diluted share, respectively.

"We ended the year with $774 million of cash, even after reducing our long-term debt by over $200 million in 2011.  Our leverage at year-end improved to 4.1x our adjusted EBITDA on a gross basis and 3.1x on a net basis," said David Frear, SiriusXM's Executive Vice President and Chief Financial Officer.  "With no debt maturities due this year and our growing free cash flow, we expect to end 2012 with nearly $1.5 billion of cash."

FOURTH QUARTER 2011 HIGHLIGHTS

Fourth quarter 2011 revenue of $784 million was up 7% from the $736 million in the fourth quarter of 2010, while adjusted EBITDA was $167 million in the fourth quarter of 2011, up 16% from the $144 million in the fourth quarter of 2010.

Highlights from the fourth quarter include:

  • Net subscriber additions climb.  Net subscriber additions were 542,966, up 65% compared to the fourth quarter of 2010.  Net self-pay subscriber additions were 374,432, an increase of 7% versus the fourth quarter of 2010.
  • SAC per gross addition improves.  Subscriber acquisition cost (SAC) per gross subscriber addition was $55 in the fourth quarter of 2011, a 5% improvement from the $58 reported in the fourth quarter of 2010.
  • Churn remained stable.  Average self-pay monthly customer churn was 1.9% in the fourth quarter of 2011, in-line with the 1.9% reported in the fourth quarter of 2010.  New vehicle consumer conversion rate was 44% in the fourth quarter of 2011 compared to 45% in the fourth quarter of 2010.
  • Free cash flow rises.  Free cash flow in the fourth quarter of 2011 was $192 million, an increase of 15% compared to $167 million in the fourth quarter of 2010.

GAAP net income (loss) for the fourth quarter of 2011 and 2010 was $71 million and ($81) million, respectively, or $0.01 and ($0.02) per diluted share, respectively.  

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.

2012 GUIDANCE

The Company expects its subscriber base to grow by approximately 1.3 million net subscribers and end the year at approximately 23.2 million.  The company now expects adjusted EBITDA in 2012 of approximately $875 million, an increase from prior guidance of $860 million.  The Company reiterates its existing 2012 revenue and free cash flow guidance:

  • Revenue of approximately $3.3 billion, and
  • Free cash flow of approximately $700 million.

"With auto sales expected to rise in 2012, and what appears to be only a modest increase in churn associated with our January price increase, we expect to grow our net new subscribers by roughly 1.3 million in 2012, continuing our strong multi-year track record of subscriber growth," said Karmazin.

2011 RESULTS

Subscriber Data.

The following table contains actual subscriber data for the three and twelve months ended December 31, 2011 and 2010, respectively:


Unaudited


For the Three Months Ended December 31,


For the Twelve Months Ended December 31,


2011


2010


2011


2010

















Beginning subscribers

21,349,858


19,862,175


20,190,964


18,772,758

Gross subscriber additions

2,326,174


2,075,418


8,696,020


7,768,827

Deactivated subscribers

(1,783,208)


(1,746,629)


(6,994,160)


(6,350,621)

Net additions

542,966


328,789


1,701,860


1,418,206

Ending subscribers

21,892,824


20,190,964


21,892,824


20,190,964









Self-pay

17,908,742


16,686,799


17,908,742


16,686,799

Paid promotional

3,984,082


3,504,165


3,984,082


3,504,165

Ending subscribers

21,892,824


20,190,964


21,892,824


20,190,964









Self-pay

374,432


350,980


1,221,943


982,867

Paid promotional

168,534


(22,191)


479,917


435,339

Net additions

542,966


328,789


1,701,860


1,418,206









Daily weighted average number of subscribers

21,542,690


19,990,447


20,903,908


19,385,055









Average self-pay monthly churn

1.9%


1.9%


1.9%


1.9%









New vehicle consumer conversion rate

44%


45%


45%


46%









____________

See accompanying glossary of terms.



Subscribers. The improvement in the twelve months ended December 31, 2011 was due to the 12% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle penetration, and returning subscriber activations, including those from previously owned vehicles.  This increase in gross additions was partially offset by the 10% increase in deactivations, which was primarily due to an increase in paid promotional trial volumes along with growth in the subscriber base.

Average Self-pay Monthly Churn remained flat at 1.9% for all periods presented.  The consistent churn rate exhibits stability in the continued demand for and satisfaction with our service from existing subscribers.

New Vehicle Consumer Conversion Rate. The decrease in the twelve months ended December 31, 2011 was primarily due to the changing mix of sales among OEMs and operational issues impacting the timing of the receipt of customer information and prompt marketing communications with buyers and lessees of vehicles.

Metrics.

The following table contains our key operating metrics based on our unaudited adjusted results of operations for the three and twelve months ended December 31, 2011 and 2010, respectively:


Unaudited Adjusted


For the Three Months Ended December 31,


For the Twelve Months Ended December 31,

(in thousands, except for per subscriber amounts)

2011


2010


2011


2010







ARPU

$                       11.61


$                       11.80


$                       11.58


$                       11.73

SAC, per gross subscriber addition

$                            55


$                            58


$                            55


$                            59

Customer service and billing expenses, per average








subscriber

$                         1.03


$                         1.11


$                         1.03


$                         1.03

Free cash flow

$                   191,806


$                   167,355


$                   415,742


$                   210,481

Adjusted total revenue

$                   785,696


$                   740,239


$                3,025,434


$                2,838,898

Adjusted EBITDA

$                   167,277


$                   144,493


$                   731,018


$                   626,288









____________

See accompanying glossary of terms.



ARPU decreased in the twelve months ended December 31, 2011.  The decrease of $0.15 was driven primarily by an increase in subscription discounts offered through customer acquisition and retention programs and the decrease in the U.S. Music Royalty Fee, partially offset by an increase in sales of our premium services, including Premier packages, data services and Internet subscriptions.

SAC, Per Gross Subscriber Addition, decreased in the twelve months ended December 31, 2011 primarily due to lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from radio manufacturers compared to the twelve months ended December 31, 2010.

Customer Service and Billing Expenses, Per Average Subscriber, remained flat in the twelve months ended December 31, 2011, as a result of lower operating costs offset by higher call volume, handle time per call, increased agent rates and personnel costs associated with the 8% growth in daily weighted average subscribers.

Free Cash Flow for the twelve months ended December 31, 2011 increased principally as a result of improvements in adjusted EBITDA and decreases in capital expenditures.  Net cash provided by operating activities increased $31 million to $544 million for the year ended December 31, 2011 compared to the $513 million provided by operations for the year ended December 31, 2010. Capital expenditures for property and equipment for the year ended December 31, 2011 decreased $175 million to $137 million compared to $312 million for the year ended December 31, 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 merger of Sirius Canada and Canadian Satellite Radio, higher collections from subscribers and distributors, and the repayment in the first quarter of 2010 of liabilities deferred in 2009. The decrease in capital expenditures for the year ended December 31, 2011 was primarily the result of decreased satellite construction and launch expenditures due to the launch in 2010 of our XM-5 satellite. The increase in restricted and other investment activities was driven by the return of capital resulting from the merger of Sirius Canada and Canadian Satellite Radio, partially offset by proceeds from the sale of investment securities in the year ended December 31, 2010.

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


For the Three Months Ended December 31,


 For the Twelve Months Ended December 31,

(in thousands)

2011


2010


2011


2010





Revenue:




Subscriber revenue (GAAP)

$                   672,498


$                   620,916


$                2,595,414


$                2,414,174

Advertising revenue, net of agency fees (GAAP)

20,077


18,221


73,672


64,517

Equipment revenue (GAAP)

22,658


20,730


71,051


71,355

Other revenue (GAAP)

68,505


76,032


274,387


266,946

Total revenue (GAAP)

783,738


735,899


3,014,524


2,816,992

Purchase price accounting adjustments:








Subscriber revenue

145


2,527


3,659


14,655

Other revenue  

1,813


1,813


7,251


7,251

Adjusted total revenue

$                   785,696


$                   740,239


$                3,025,434


$                2,838,898



For the twelve months ended December 31, 2011, the increase in subscriber revenue was primarily attributable to an increase of 8% in daily weighted average subscribers and an increase in sales of premium services, including Premier packages, data services and Internet subscriptions, partially offset by the impact of subscription discounts offered through customer acquisition and retention programs. The increase in advertising revenue was primarily due to greater demand for audio advertising resulting in increases in the number of advertising spots sold as well as the rate charged per spot. The decrease in equipment revenue was primarily due to a reduction in aftermarket hardware subsidies earned, partially offset by increased royalties from higher OEM production. The increase in other revenue was due to increased royalty revenue from Sirius XM Canada, which was partially offset by a reduction in 2010 to the U.S. Music Royalty Fee charged on primary subscriptions.

Adjusted EBITDA.  EBITDA is defined as net income 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 December 31,


 For the Twelve Months Ended December 31,

(in thousands)

2011


2010


2011


2010









Total revenue

$                   785,696


$                   740,239


$                3,025,434


$                2,838,898

Operating expenses:








Revenue share and royalties

164,017


143,539


598,090


543,377

Programming and content

81,427


89,939


324,194


353,213

Customer service and billing

66,627


66,446


258,235


239,754

Satellite and transmission

17,852


20,075


73,537


78,720

Cost of equipment

13,201


13,095


33,095


35,281

Subscriber acquisition costs

138,175


127,879


519,973


492,480

Sales and marketing

70,036


60,782


229,813


220,014

Engineering, design and development

12,743


9,739


48,615


40,042

General and administrative

54,341


64,252


208,864


209,729

Total operating expenses

618,419


595,746


2,294,416


2,212,610

Adjusted EBITDA

$                   167,277


$                   144,493


$                   731,018


$                   626,288



For the twelve months ended December 31, 2011, the increase was primarily due to an increase of 7%, or $187 million, in adjusted revenues, partially offset by an increase of 4%, or $82 million, in expenses included in adjusted EBITDA. The increase in adjusted revenues was primarily due to the increase in our subscriber base.  The increase in expenses was primarily driven by higher revenue share and royalties expenses associated with growth in revenues, increased customer service and billing expenses associated with subscriber growth and higher subscriber acquisition costs related to the 12% increase in gross additions, partially offset by lower programming and content costs.

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)

2011


2010


2011


2010


(Unaudited)


(Unaudited)




Revenue:








Subscriber revenue

$               672,498


$                 620,916


$            2,595,414


$              2,414,174

Advertising revenue, net of agency fees

20,077


18,221


73,672


64,517

Equipment revenue

22,658


20,730


71,051


71,355

Other revenue

68,505


76,032


274,387


266,946

Total revenue

783,738


735,899


3,014,524


2,816,992

Operating expenses:
















Cost of services:








Revenue share and royalties

130,436


114,843


471,149


435,410

Programming and content

70,367


77,318


281,234


305,914

Customer service and billing

67,052


66,441


259,719


241,680

Satellite and transmission

18,663


20,002


75,902


80,947

Cost of equipment

13,201


13,095


33,095


35,281

Subscriber acquisition costs

116,771


107,295


434,482


413,041

Sales and marketing

68,302


58,640


222,773


215,454

Engineering, design and development

14,186


10,181


53,435


45,390

General and administrative

63,270


70,036


238,738


240,970

Depreciation and amortization

67,015


66,747


267,880


273,691

Restructuring, impairments and related costs

-


59,730


-


63,800

Total operating expenses

629,263


664,328


2,338,407


2,351,578

Income from operations

154,475


71,571


676,117


465,414

Other income (expense):








Interest expense, net of amounts capitalized

(75,208)


(72,414)


(304,938)


(295,643)

Loss on extinguishment of debt and credit facilities, net

-


(85,426)


(7,206)


(120,120)

Interest and investment (loss) income

(4,620)


1,822


73,970


(5,375)

Other income

1,017


1,563


3,252


3,399

Total other expense

(78,811)


(154,455)


(234,922)


(417,739)

Income (loss) before income taxes

75,664


(82,884)


441,195


47,675

Income tax (expense) benefit

(4,328)


1,440


(14,234)


(4,620)









Net income (loss)

$                 71,336


$                 (81,444)


$               426,961


$                   43,055

Net income (loss) per common share:








Basic

$                     0.02


$                     (0.02)


$                     0.11


$                       0.01

Diluted

$                     0.01


$                     (0.02)


$                     0.07


$                       0.01









Weighted average common shares outstanding:








Basic

3,751,423


3,725,500


3,744,606


3,693,259

Diluted

6,501,014


3,725,500


6,500,822


6,391,071



SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS






As of December 31,


2011


2010

(in thousands, except share and per share data)




ASSETS




Current assets:




Cash and cash equivalents

$                 773,990


$                586,691

Accounts receivable, net

101,705


121,658

Receivables from distributors

84,817


67,576

Inventory, net

36,711


21,918

Prepaid expenses

125,967


134,994

Related party current assets

14,702


6,719

Deferred tax asset

132,727


44,787

Other current assets

6,335


7,432

Total current assets

1,276,954


991,775

Property and equipment, net

1,673,919


1,761,274

Long-term restricted investments

3,973


3,396

Deferred financing fees, net

42,046


54,135

Intangible assets, net

2,573,638


2,632,688

Goodwill

1,834,856


1,834,856

Related party long-term assets

54,953


33,475

Other long-term assets

35,657


71,487

Total assets

$              7,495,996


$             7,383,086

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued expenses

$                 543,193


$                593,174

Accrued interest

70,405


72,453

Current portion of deferred revenue

1,333,965


1,201,346

Current portion of deferred credit on executory contracts

284,108


271,076

Current maturities of long-term debt

1,623


195,815

Related party current liabilities

14,302


15,845

Total current liabilities

2,247,596


2,349,709

Deferred revenue

198,135


273,973

Deferred credit on executory contracts

218,199


508,012

Long-term debt

2,683,563


2,695,856

Long-term related party debt

328,788


325,907

Deferred tax liability

1,011,084


914,637

Related party long-term liabilities

21,741


24,517

Other long-term liabilities

82,745


82,839

Total liabilities

6,791,851


7,175,450





Commitments and contingencies




Stockholders' equity:




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




Series A convertible preferred stock; no shares issued and outstanding at December 31, 2011 and 2010

-


-

Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at December 31, 2011




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

13


13

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




December 31, 2011 and 2010

-


-

Common stock, par value $0.001; 9,000,000,000 shares authorized at December 31, 2011 and 2010;




3,753,201,929 and 3,933,195,112 shares issued and outstanding at December 31, 2011 and 2010, respectively            

3,753


3,933

Accumulated other comprehensive income (loss), net of tax

71


(5,861)

Additional paid-in capital

10,484,400


10,420,604

Accumulated deficit

(9,784,092)


(10,211,053)

Total stockholders' equity

704,145


207,636

Total liabilities and stockholders' equity

$              7,495,996


$             7,383,086



SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS




For the Years Ended December 31,

(in thousands)

2011


2010



Cash flows from operating activities:




Net income

$           426,961


$             43,055

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




Depreciation and amortization

267,880


273,691

Non-cash interest expense, net of amortization of premium

39,515


42,841

Provision for doubtful accounts

33,164


32,379

Restructuring, impairments and related costs

-


66,731

Amortization of deferred income related to equity method investment

(2,776)


(2,776)

Loss on extinguishment of debt and credit facilities, net

7,206


120,120

Gain on merger of unconsolidated entities

(75,768)


-

Loss on unconsolidated entity investments, net

6,520


11,722

Loss on disposal of assets

269


1,017

Share-based payment expense

53,190


60,437

Deferred income taxes

8,264


2,308

Other non-cash purchase price adjustments

(275,338)


(250,727)

Distribution from investments in unconsolidated entity

4,849


-

Changes in operating assets and liabilities:




Accounts receivable

(13,211)


(39,236)

Receivables from distributors

(17,241)


(11,023)

Inventory

(14,793)


(5,725)

Related party assets

30,036


(9,803)

Prepaid expenses and other current assets

8,525


75,374

Other long-term assets

36,490


17,671

Accounts payable and accrued expenses

(32,010)


5,420

Accrued interest

(2,048)


(884)

Deferred revenue

55,336


133,444

Related party liabilities

(1,542)


(53,413)

Other long-term liabilities

152


272

Net cash provided by operating activities

543,630


512,895





Cash flows from investing activities:




Additions to property and equipment

(137,429)


(311,868)

Purchase of restricted and other investments

(826)


-

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

(127,888)


(302,414)



Cash flows from financing activities:




Proceeds from exercise of warrants and stock options

11,553


10,839

Long-term borrowings, net of costs

-


1,274,707

Related party long-term borrowings, net of costs

-


196,118

Payment of premiums on redemption of debt

(5,020)


(84,326)

Repayment of long-term borrowings

(234,976)


(1,262,396)

Repayment of related party long-term borrowings

-


(142,221)

Net cash used in financing activities

(228,443)


(7,279)

Net increase in cash and cash equivalents

187,299


203,202

Cash and cash equivalents at beginning of period

586,691


383,489

Cash and cash equivalents at end of period

$           773,990


$           586,691



Glossary

Adjusted EBITDA - EBITDA is defined as net income before interest and investment income (loss); interest expense, net of amounts capitalized; income tax 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 December 31,


For the Twelve Months Ended December 31,


2011


2010


2011


2010





Net income (loss) (GAAP):

$                     71,336


$                   (81,444)


$                   426,961


$                     43,055

Add back items excluded from Adjusted EBITDA:








Purchase price accounting adjustments:








    Revenues

1,958


4,340


10,910


21,906

    Operating expenses

(71,785)


(67,928)


(277,258)


(261,832)

Share-based payment expense, net of purchase price








accounting adjustments (GAAP)

15,614


10,033


53,369


63,309

Depreciation and amortization (GAAP)

67,015


66,747


267,880


273,691

Restructuring, impairments and related costs (GAAP)

-


59,730


-


63,800

Interest expense, net of amounts capitalized (GAAP)

75,208


72,414


304,938


295,643

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

-


85,426


7,206


120,120

Interest and investment loss (income) (GAAP)

4,620


(1,822)


(73,970)


5,375

Other (income) (GAAP)

(1,017)


(1,563)


(3,252)


(3,399)

Income tax expense (GAAP)

4,328


(1,440)


14,234


4,620









Adjusted EBITDA

$                   167,277


$                   144,493


$                   731,018


$                   626,288



Adjusted Revenues and Operating ExpensesWe define this Non-GAAP financial measure as our actual revenues and operating expenses adjusted to exclude the impact of certain purchase price accounting adjustments and share-based payment expense. We use this Non-GAAP financial measure to manage our business, set operational goals and as a basis for determining performance-based compensation for our employees.  The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the three and twelve months ended December 31, 2011 and 2010:


Unaudited For the Three Months Ended December 31, 2011

(in thousands)

As Reported


Purchase Price
Accounting
Adjustments


Allocation of
Share-based
Payment Expense


Adjusted









Revenue:








Subscriber revenue

$672,498


$145


$-


$672,643

Advertising revenue, net of agency fees

20,077


-


-


20,077

Equipment revenue

22,658


-


-


22,658

Other revenue

68,505


1,813


-


70,318

Total revenue

$783,738


$1,958


$-


$785,696

Operating expenses








Cost of services:








Revenue share and royalties

130,436


33,581


-


164,017

Programming and content

70,367


12,527


(1,467)


81,427

Customer service and billing

67,052


-


(425)


66,627

Satellite and transmission

18,663


-


(811)


17,852

Cost of equipment

13,201


-


-


13,201

Subscriber acquisition costs

116,771


21,404


-


138,175

Sales and marketing

68,302


4,273


(2,539)


70,036

Engineering, design and development

14,186


-


(1,443)


12,743

General and administrative

63,270


-


(8,929)


54,341

Depreciation and amortization (a)

67,015


-


-


67,015

Restructuring, impairments and related costs

-


-


-


-

Share-based payment expense (b)

-


-


15,614


15,614

Total operating expenses

$629,263


$71,785


$-


$701,048









(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, 2011 was $14,000.









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













Programming and content

$1,467


$-


$-


$1,467

Customer service and billing

425


-


-


425

Satellite and transmission

811


-


-


811

Sales and marketing

2,539


-


-


2,539

Engineering, design and development

1,443


-


-


1,443

General and administrative

8,929


-


-


8,929









Total share-based payment expense

$15,614


$-


$-


$15,614




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

$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 Year Ended December 31, 2011

(in thousands)

As Reported


Purchase Price
Accounting
Adjustments


Allocation of
Share-based
Payment Expense


Adjusted









Revenue:








Subscriber revenue

$2,595,414


$3,659


$-


$2,599,073

Advertising revenue, net of agency fees

73,672


-


-


73,672

Equipment revenue

71,051


-


-


71,051

Other revenue

274,387


7,251


-


281,638

Total revenue

$3,014,524


$10,910


$-


$3,025,434

Operating expenses








Cost of services:








Revenue share and royalties

471,149


126,941


-


598,090

Programming and content

281,234


49,172


(6,212)


324,194

Customer service and billing

259,719


18


(1,502)


258,235

Satellite and transmission

75,902


313


(2,678)


73,537

Cost of equipment

33,095


-


-


33,095

Subscriber acquisition costs

434,482


85,491


-


519,973

Sales and marketing

222,773


15,233


(8,193)


229,813

Engineering, design and development

53,435


31


(4,851)


48,615

General and administrative

238,738


59


(29,933)


208,864

Depreciation and amortization (a)

267,880


-


-


267,880

Restructuring, impairments and related costs

-


-


-


-

Share-based payment expense (b)

-


-


53,369


53,369

Total operating expenses

$2,338,407


$277,258


$-


$2,615,665









(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, 2011 was $59,000.









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













Programming and content

$6,185


$27


$-


$6,212

Customer service and billing

1,484


18


-


1,502

Satellite and transmission

2,659


19


-


2,678

Sales and marketing

8,166


27


-


8,193

Engineering, design and development

4,820


31


-


4,851

General and administrative

29,874


59


-


29,933









Total share-based payment expense

$53,188


$181


$-


$53,369




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

$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



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 Three Months Ended December 31,


For the Twelve Months Ended December 31,


2011


2010


2011


2010





Subscriber revenue (GAAP)

$                   672,497


$                   620,916


$                2,595,414


$                2,414,174

Net advertising revenue (GAAP)

20,077


18,221


73,672


64,517

Other subscription-related revenue (GAAP)

57,561


65,953


231,902


234,148

Purchase price accounting adjustments

145


2,527


3,659


14,655


$                   750,280


$                   707,617


$                2,904,647


$                2,727,494









Daily weighted average number of subscribers

21,542,690


19,990,447


20,903,908


19,385,055









ARPU

$                       11.61


$                       11.80


$                       11.58


$                       11.73



Average self-pay monthly churn – is defined as the monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period.  Average self-pay churn for the year is the average of the quarterly average self-pay churn.

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 December 31,


For the Twelve Months Ended December 31,


2011


2010


2011


2010





Customer service and billing expenses (GAAP)

$                     67,052


$                     66,441


$                   259,719


$                   241,680

Less: share-based payment expense, net of purchase








price accounting adjustments (GAAP)

(425)


(50)


(1,502)


(2,207)

Add: purchase price accounting adjustments

-


55


18


281


$                     66,627


$                     66,446


$                   258,235


$                   239,754









Daily weighted average number of subscribers

21,542,690


19,990,447


20,903,908


19,385,055

Customer service and billing expenses, per average








subscriber

$                         1.03


$                         1.11


$                         1.03


$                         1.03



Free cash flow - is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity.  Free cash flow is calculated as follows (in thousands):


Unaudited


For the Three Months Ended December 31,


For the Twelve Months Ended December 31,


2011


2010


2011


2010





Net cash provided by operating activities

$                   214,996


$                   221,849


$                   543,630


$                   512,895

Additions to property and equipment

(22,364)


(54,494)


(137,429)


(311,868)

Restricted and other investment activity

(826)


-


9,541


9,454

Free cash flow

$                   191,806


$                   167,355


$                   415,742


$                   210,481



New vehicle consumer conversion rate – is defined as 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. 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.

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 Three Months Ended December 31,


For the Twelve Months Ended December 31,


2011


2010


2011


2010





Subscriber acquisition costs (GAAP)

$                   116,771


$                   107,295


$                   434,482


$                   413,041

Less: margin from direct sales of radios and








accessories (GAAP)

(9,457)


(7,635)


(37,956)


(36,074)

Add: purchase price accounting adjustments

21,404


20,584


85,491


79,439


$                   128,718


$                   120,244


$                   482,017


$                   456,406









Gross subscriber additions

2,326,174


2,075,418


8,696,020


7,768,827









SAC, per gross subscriber addition

$                            55


$                            58


$                            55


$                            59



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; potential economic recessionary trends and uncertain economic outlook; 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



RELATED LINKS
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