SiriusXM Reports First Quarter 2019 Results

NEW YORK, April 24, 2019 /PRNewswire/ -- SiriusXM today announced first quarter 2019 operating and financial results. Total revenue of $1.7 billion increased 27% compared to the prior year period, with growth driven by the acquisition of Pandora Media on February 1, 2019. The Company's net income totaled $162 million in the first quarter, compared to $289 million in the prior year period. Net income per diluted common share was $0.03 in the first quarter, compared to $0.06 in the prior year period.

Pro forma revenue increased 10% to $1.9 billion in the first quarter, up from $1.7 billion in the prior year period. Adjusted EBITDA grew 27% to $567 million in the first quarter and resulted in an adjusted EBITDA margin of 30.5%, growing over 400 basis points from 26.3% in the first quarter 2018. The adjusted EBITDA margin in the quarter was driven primarily by revenue growth across the combined businesses and cost efficiencies in subscriber acquisition costs and revenue share and royalties. The pro forma revenue and adjusted EBITDA figures assume the Pandora acquisition closed on January 1, 2018.

"SiriusXM's first quarter of 2019 was an exciting time for the company. We're thrilled to have completed the Pandora acquisition on February 1st and have been working quickly to integrate and coordinate the operations of the two businesses. The year is off to a strong start, and today we are issuing combined guidance for 2019 that shows continuing revenue, adjusted EBITDA and free cash flow growth," said Jim Meyer, Chief Executive Officer, SiriusXM.

"With the addition of Pandora to SiriusXM, we now have more to offer subscribers and listeners than ever before. Last month we created Pandora's first-ever content team, and those talented professionals launched our first joint offering, Pandora NOW, a full-time SiriusXM channel and Pandora station and playlist, curated from Pandora data of the top-trending artists. In addition, we announced an array of SiriusXM's top sports, comedy and talk hosts' shows are now available as podcasts on Pandora. We also added more than 100 new music channels on the SiriusXM streaming platform — the largest addition ever — all of them based on our existing popular channels but perfectly crafted to fit any mood, occasion or activity," added Meyer.

FIRST QUARTER 2019 HIGHLIGHTS

SiriusXM operates two complementary audio entertainment businesses — our SiriusXM business and our Pandora business. Further information regarding these two segments will be contained in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2019. The pro forma financial and operating highlights of these two segments are presented separately below and exclude the impact of share-based payment expense.

SIRIUSXM

• Self-Pay Subscribers Top 29 Million. SiriusXM added 131 thousand net new self-pay subscribers in the first quarter to end with nearly 29.1 million self-pay subscribers. Total net subscriber additions in the first quarter were 132 thousand, resulting in more than 34.2 million total SiriusXM subscribers at the end of the period. Self-pay monthly churn for the quarter was 1.8%, flat compared to the first quarter of 2018.
  
  
• SiriusXM Revenue of $1.5 Billion. First quarter revenue of $1.5 billion grew 8% compared to the prior year period. This growth was driven by a 3% increase in SiriusXM subscribers and 4% growth in SiriusXM's average revenue per user (ARPU) to $13.52.
  
  
• Gross Profit Grows 8%. Total cost of services at SiriusXM increased 9% to $569 million in the first quarter, driven primarily by higher revenue share and royalties. Gross profit at SiriusXM in the quarter totaled $926 million, increasing 8% over the first quarter of 2018, and produced a gross margin of 62%, approximately flat compared to the prior year period.
  
  
• Exclusive Performances, Legendary Artists. SiriusXM continued to demonstrate its ability to "go deep" with seminal artists with a special limited-time channel KISS Army Radio — accompanied by a subscriber concert on LA's Sunset Strip — as well as exclusively broadcasting a series of live concerts by country star Eric Church on The Highway channel and a special Twenty One Pilots performance on Alt Nation for an audience of SiriusXM subscribers.

PANDORA

• Ad Revenue Hit Q1 Record. Advertising revenue at Pandora reached a first quarter record of $231 million, growing 7% over the first quarter of 2018. Ad revenue was driven by record first quarter monetization of $62.60 per thousand hours, growing 13% over the first quarter 2018. Revenue growth was attributed to strength in audio and video programmatic and engagement-based video as well as the expansion of off-platform efforts and fees generated on the AdsWizz platform. Total revenue for Pandora grew 14% to $365 million in the quarter, driven by a 29% increase in subscriber revenue to $134 million.
  
  
• Total Ad Supported Listener Hours of 3.42 Billion. Monthly Active Users (MAUs) at Pandora were 66.0 million in the first quarter, down from 72.3 million in the prior year period. This resulted in total ad supported listener hours of 3.4 billion in the period, down from 3.8 billion in the first quarter of 2018.
  
  
• Self-Pay Net Adds of 246 Thousand. Pandora added 246 thousand net new self-pay subscribers in the first quarter to end with nearly 6.2 million self-pay subscribers. Total Pandora subscribers were 6.9 million at the end of the period.
  
  
• Gross Profit Grows 73%. Total cost of services at Pandora in the first quarter of 2019 of $254 million were relatively flat compared with the first quarter 2018, with lower revenue share and royalties offsetting slightly higher programming and content and customer service and billing expenses. Gross profit at Pandora totaled $111 million, increasing 73% over the first quarter of 2018. This produced a gross margin for Pandora in the quarter of 30%, growing approximately 1,000 basis points from 20% in the prior year period.
  
  
• Sound On: Spring Campaign and New Features. Pandora launched its Sound On brand campaign in iconic locations across Nashville, San Francisco, Oakland, NYC, Miami and Atlanta, featuring some of the season's most high-profile artists including Jonas Brothers, Maren Morris, Bebe Rexha, Khalid, 2 Chainz, John Legend and Becky G. During the quarter, Pandora also launched new features like Stories, which combine the best of podcasts and music playlists and Modes, which allows the user to select a more "lean forward" or "lean back" experience.

First quarter net income of $162 million declined 44% over the prior year period due to approximately $76 million of acquisition and other costs related to the Pandora acquisition, a $31 million one-time benefit to other income in the prior year period and a higher tax rate. The effective tax rate for the first quarter 2019 totaled 33.3%, compared to 21.7% in the prior year period, with the change driven primarily by an increase to the valuation allowance related to federal research and development credits that are unlikely to be realized as a result of the anticipated use of Pandora's NOLs.

"Solid revenue growth and strong performance from adjusted EBITDA has put the year off to a great start. Our new guidance shows our confidence in driving strong results following the acquisition of Pandora. Cost synergies are now expected to ultimately exceed $75 million. SiriusXM had yet another quarter of significant capital returns to stockholders, distributing over $660 million in the first quarter and nearly $900 million so far this year through April 22. Since the announcement of the Pandora acquisition, we have repurchased more than 63% of the stock issued in the transaction. At quarter-end, our pro forma debt to adjusted EBITDA was 3.2 times and we had cash on hand of $62 million with undrawn revolver capacity of approximately $1.2 billion. In 2019, we will continue to use our strong financial position and ample liquidity to invest in our business, make strategic investments and return capital to stockholders," noted David Frear, Chief Financial Officer, SiriusXM.

2019 GUIDANCE

The Company is reiterating its existing SiriusXM self-pay net subscriber additions guidance and issuing full-year 2019 guidance for the combined company, including Pandora:

• SiriusXM self-pay net subscriber additions approaching 1 million,
• Pro forma revenue of approximately $7.7 billion,
• Adjusted EBITDA of approximately $2.3 billion, and
• Free cash flow of approximately $1.6 billion.

CAPITAL RETURN PROGRAM

Shares of common stock may be purchased from time to time on the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act of 1934, as amended, in privately negotiated transactions, including in accelerated stock repurchase transactions and transactions with Liberty Media and its affiliates, or otherwise. The Company expects to fund the repurchases through a combination of cash on hand, cash generated by operations and future borrowings. The size and timing of these purchases will be based on a number of factors, including price and business and market conditions.

The Company's dividend policy may change at any time without notice to stockholders. The declaration and payment of dividends is at the discretion of the Company's Board of Directors in accordance with applicable law after taking into account various factors, including the Company's financial condition, operating results, current and anticipated cash needs, limitations imposed by its indebtedness, legal requirements and other factors that the Board of Directors deems relevant.

FIRST QUARTER 2019 RESULTS

Unaudited Pro Forma Results

Set forth below are our pro forma results of operations for the three months ended March 31, 2019 compared with the three months ended March 31, 2018.  These pro forma results are based on estimates and assumptions, which we believe are reasonable.  They are not the results that would have been realized had the acquisition actually occurred on January 1, 2018 and are not indicative of our consolidated results of operations in future periods.  The pro forma results primarily include adjustments related to amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs and associated tax impacts.  Please refer to the Footnotes to Results of Operations.

Footnotes to Results of Operations

The following tables reconcile our GAAP results of operations to our non-GAAP pro forma results of operations for the three months ended March 31, 2019 and 2018 which includes the Pandora pre-acquisition financial information.  These pro forma results are based on estimates and assumptions, which we believe are reasonable.  They are not the results that would have been realized had the acquisition actually occurred on January 1, 2018 and are not indicative of our consolidated results of operations in future periods.  The pro forma results primarily include adjustments related to amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs and associated tax impacts.

Key Financial and Operating Performance Metrics

Subscribers and subscription related revenues and expenses associated with our connected vehicle services and Sirius XM Canada are not included in Sirius XM's subscriber count or subscriber-based operating metrics.

Set forth below are our subscriber balances as of March 31, 2019 compared to March 31, 2018:

The following table contains our Non-GAAP financial and operating performance measures which are based on our adjusted results of operations for the three months ended March 31, 2019 and 2018:

Glossary

Active users - the number of distinct registered users on the Pandora services, including subscribers, that have consumed content within the trailing 30 days to the end of the final calendar month of the period. The number of active users on the Pandora services may overstate the number of unique individuals who actively use our Pandora service, as one individual may use multiple accounts. To become a registered user on the Pandora services, a person must sign-up using an email address or phone number, or access our service using a device with a unique identifier, which we use to create an account for our service. Prior to the second quarter of 2018, Pandora defined active users as the number of distinct registered users, including subscribers, that have requested audio from our Pandora servers during the trailing 30 days to the end of the final calendar month of the period.

Average self-pay monthly churn - the monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period.

Adjusted EBITDA - EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization.  We adjust EBITDA to exclude the impact of other income as well as certain other charges discussed below.  Adjusted EBITDA is a Non-GAAP financial measure that excludes (if applicable): (i) certain adjustments as a result of the purchase price accounting for the XM Merger and the Pandora Acquisition, (ii) predecessor net income adjusted for certain expenses, including depreciation and amortization, other income (loss), and share-based payment expense for January 2019 and the three months ended March 31, 2018, (iii) share-based payment expense and (iv) other significant operating expense (income) that do not relate to the on-going performance of our business.  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 capital structure and purchase price accounting.  We believe investors find this Non-GAAP financial measure useful when analyzing our past operating performance with our current performance and comparing our operating performance to the performance of other communications, entertainment and media companies.  We believe investors use adjusted EBITDA to estimate our current enterprise value and to make investment decisions.  As a result of large capital investments in our satellite radio system, our results of operations reflect significant charges for depreciation expense.  We believe the exclusion of share-based payment expense is useful as it is not directly related to the operational conditions of our business.  We also believe the exclusion of the legal settlements and reserves, acquisition related costs, loss on extinguishment of debt and loss on disposal of assets, to the extent they occur during the period, is useful as they are significant expenses not incurred as part of our normal operations for the period.

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the XM Merger and the Pandora Acquisition.  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 unaudited consolidated statements of comprehensive income.  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:   

Free cash flow - is derived from cash flow provided by operating activities, net of additions to property and equipment and purchases of other investments.  Free cash flow is a metric that our management and board of directors use to evaluate the cash generated by our operations, net of capital expenditures and other investment activity.  In a capital intensive business, with significant investments in satellites, we look at our operating cash flow, net of these investing cash outflows, to determine cash available for future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders.  We exclude from free cash flow certain items that do not relate to the on-going performance of our business, such as cash flows for acquisitions, strategic and short-term investments, and net loan activity with related parties and other equity investees.  We believe free cash flow is an indicator of the long-term financial stability of our business.  Free cash flow, which is reconciled to "Net cash provided by operating activities," is a Non-GAAP financial measure.  This measure can be calculated by deducting amounts under the captions "Additions to property and equipment" and deducting or adding Restricted and other investment activity from "Net cash provided by operating activities" from the unaudited consolidated statements of cash flows.  Free cash flow should be used in conjunction with other GAAP financial performance measures and may not be comparable to free cash flow measures presented by other companies.  Free cash flow should be viewed as a supplemental measure rather than an alternative measure of cash flows from operating activities, as determined in accordance with GAAP.  Free cash flow is limited and does not represent remaining cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt maturities.  We believe free cash flow provides useful supplemental information to investors regarding our current cash flow, along with other GAAP measures (such as cash flows from operating and investing activities), to determine our financial condition, and to compare our operating performance to other communications, entertainment and media companies.  Free cash flow is calculated as follows:

ARPU - Sirius XM ARPU is derived from total earned subscriber revenue (excluding revenue associated with our connected vehicle services), advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period.  Pandora ARPU is defined as average monthly subscriber revenue per paid subscriber on our Pandora subscription services. 

Ad supported listener hours - is based on the total bytes served over our advertising supported platforms for each track that is requested and served from our Pandora servers, as measured by our internal analytics systems, whether or not a listener listens to the entire track. For non-music content such as podcasts, episodes are divided into approximately track-length parts, which are treated as tracks. To the extent that third-party measurements of advertising hours are not calculated using a similar server-based approach, the third-party measurements may differ from our measurements.

RPM - is calculated by dividing advertising revenue, excluding AdsWizz and other off-platform revenue, by the number of thousands of listener hours on our Pandora advertising-based service.

LPM - is calculated by dividing advertising licensing costs by the number of thousands of listener hours on our Pandora advertising-based service.

LPU - is calculated by dividing subscriber licensing costs by the number of paid subscribers on our Pandora subscription services.

About SiriusXM

Sirius XM Holdings Inc. (NASDAQ: SIRI) is the world's largest audio entertainment company, and the premier programmer and platform for subscription- and advertising-supported audio products. With the recent addition of Pandora, the largest streaming music provider in the U.S., SiriusXM reaches more than 100 million people with its audio products. For more about the new SiriusXM, please go to: www.siriusxm.com.

FORWARD-LOOKING STATEMENTS

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," "believe," "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 and the timing of events may differ materially from the results anticipated in these forward-looking statements.

The following factors, among others, could cause actual results and the timing of events to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: our substantial competition, which is likely to increase over time; our ability to attract and retain subscribers and listeners, which is uncertain; the effectiveness of our marketing efforts; our ability to attract advertisers to our platform and maintain revenue growth; interference to our service from wireless operations; consumer protection laws and their enforcement; unfavorable outcomes of pending or future litigation; the market for music rights, which is changing and subject to uncertainties; our dependence upon the auto industry; general economic conditions; the security of the personal information about our customers; existing or future government laws and regulations could harm our business; failure of our satellites would significantly damage our business; the interruption or failure of our information technology and communications systems; our failure to realize benefits of acquisitions or other strategic initiatives; rapid technological and industry changes; failure of third parties to perform; our failure to comply with FCC requirements; modifications to our business plan; our indebtedness; our principal stockholder has significant influence over our affairs and over actions requiring stockholder approval and its interests may differ from interests of other holders of our common stock; impairment of our business by third-party intellectual property rights; and changes to our dividend policies which could occur at any time. 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, 2018, 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.

Source: SiriusXM

Contact for SiriusXM:

Hooper Stevens
212-901-6718
[email protected]

Patrick Reilly
212-901-6646
[email protected]

SOURCE Sirius XM Holdings Inc.