SiriusXM Reports Third Quarter 2012 Results - Subscribers Grow by 446,000 to a Record 23.4 Million

- Record Revenue of $867 Million, Up 14%

- Net Income of $75 Million, After Debt Extinguishment Charge of $107 Million

- Adjusted EBITDA Grows 24% to a Record $245 Million

- Free Cash Flow Grows 159% to $195 Million

NEW YORK, Nov. 1, 2012 /PRNewswire/ -- Sirius XM Radio (NASDAQ: SIRI) today announced third quarter 2012 financial and operating results, including revenue of $867 million, up 14% from third quarter 2011 revenue of $763 million.  Net income for the third quarter 2012 and 2011 was $75 million and $104 million, respectively, including a loss on extinguishment of debt of $107 million in the third quarter of 2012.  Adjusted EBITDA for the third quarter of 2012 was $245 million, up 24% from $197 million in the third quarter of 2011.

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

"SiriusXM delivered a very strong third quarter for our shareholders, with 446,000 net subscriber additions, double-digit growth, and record levels of revenue, adjusted EBITDA, and free cash flow.  The Company has produced more free cash flow in the first nine months of this year than in any full year in its history, and we've used this cash to reduce our debt to its lowest level since the merger of Sirius and XM," noted Mel Karmazin, Chief Executive Officer, SiriusXM.

"We're excited about the increase in subscriber guidance to 1.8 million net additions that we reported earlier this month, as we believe growth in the fourth quarter will continue.  We continue to make investments across our business, particularly in R&D, customer care, infrastructure, and programming.  We are also investing in new businesses, such as the telematics service we announced in the third quarter with Nissan, and we believe these investments will reward our shareholders in the years to come," said Karmazin.

Additional highlights from the third quarter include:

  • Record subscriber growth.  Self-pay net subscriber additions improved by 2% year-over-year to 371,000, pushing the self-pay subscriber base to an all-time high of 19.0 million subscribers.  The total paid subscriber base rose to a record high 23.4 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by approximately 115,000 from the second quarter of 2012 to 6.2 million.
  • Churn and conversion stable.  Self-pay monthly churn was 2.0% in the third quarter of 2012, compared to 1.9% reported in the third quarter of 2011.  New vehicle consumer conversion rate was 44% in the third quarter of 2012, unchanged from the third quarter of 2011.
  • Free cash flow grows to record level.  Free cash flow was $195 million in the third quarter of 2012, an improvement of 159% from the $75 million recorded in the third quarter of 2011.

"Following the repurchase of approximately $868 million of our debt in the third quarter of 2012, SiriusXM ended the quarter with $556 million of cash.  The company's leverage has improved dramatically in the past year, ending the third quarter at just 2.8x our adjusted EBITDA, down from 4.3x at the end of the third quarter of 2011," remarked David Frear, SiriusXM's Executive Vice President and Chief Financial Officer.  "By eliminating our two most expensive debt instruments in the third quarter, we will reduce our interest costs significantly, and with no debt maturing in the next two years we now have more flexibility to pursue strategic initiatives," added Frear.

2012 GUIDANCE

"Our increased subscriber guidance of approximately 1.8 million net additions shows we remain confident about growth in the fourth quarter," said Karmazin.  "We were pleased to raise our subscriber guidance for the third time this year."

The Company confirmed its 2012 subscriber, revenue, adjusted EBITDA and free cash flow guidance:

  • Net subscriber growth approaching 1.8 million,
  • Revenue approaching $3.4 billion,
  • Adjusted EBITDA of approximately $900 million, and
  • Free cash flow of approximately $700 million.

THIRD QUARTER 2012 RESULTS









SIRIUS XM RADIO INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


















For the Three Months Ended September 30,


For the Nine Months Ended September 30,

(in thousands, except per share data)

2012


2011


2012


2011

Revenue:








Subscriber revenue

$    757,672


$    660,837


$   2,188,199


$   1,922,917

Advertising revenue, net of agency fees

20,426


18,810


59,881


53,595

Equipment revenue

17,813


15,504


51,183


48,392

Other revenue

71,449


67,399


210,362


205,882

Total revenue

867,360


762,550


2,509,625


2,230,786

Operating expenses:








Cost of services:








Revenue share and royalties

141,834


117,043


409,371


340,713

Programming and content

69,938


70,509


205,203


210,867

Customer service and billing

77,768


64,239


212,635


192,667

Satellite and transmission

18,319


19,681


53,980


57,238

Cost of equipment

6,345


5,888


19,301


19,894

Subscriber acquisition costs

112,418


107,279


348,014


317,711

Sales and marketing

60,676


55,210


176,457


154,471

Engineering, design and development

13,507


14,175


32,468


39,249

General and administrative

68,235


58,635


193,786


175,469

Depreciation and amortization

66,571


65,403


199,481


200,865

Total operating expenses

635,611


578,062


1,850,696


1,709,144

Income from operations

231,749


184,488


658,929


521,642

Other income (expense):








Interest expense, net of amounts capitalized

(70,035)


(75,316)


(219,777)


(229,730)

Loss on extinguishment of debt and credit facilities, net

(107,105)


-


(132,726)


(7,206)

Interest and investment (loss) income

(321)


292


(3,192)


78,590

Other income (loss) 

113


435


(637)


2,235

Total other expense

(177,348)


(74,589)


(356,332)


(156,111)

Income before income taxes

54,401


109,899


302,597


365,531

Income tax benefit (expense)

20,113


(5,714)


3,013,860


(9,907)

Net income

$     74,514


$   104,185


$   3,316,457


$      355,624

Realized loss on XM Canada investment foreign currency adjustment, net of tax

-


-


-


6,072

Foreign currency translation adjustment, net of tax

-


110


(38)


187

Comprehensive income

$     74,514


$   104,295


$   3,316,419


$     361,883

Net income per common share:








Basic

$         0.01


$         0.02


$           0.52


$          0.06

Diluted

$         0.01


$         0.02


$           0.49


$          0.05

Weighted average common shares outstanding:








Basic

4,034,122


3,747,381


3,870,031


3,742,309

Diluted

6,577,654


6,507,370


6,848,230


6,500,819









 

 





SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



September 30, 2012


December 31, 2011

(in thousands, except share and per share data)

(unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$                       556,270


$                       773,990

Accounts receivable, net

102,963


101,705

Receivables from distributors

87,773


84,817

Inventory, net

35,823


36,711

Prepaid expenses

150,397


125,967

Related party current assets

8,221


14,702

Deferred tax asset

913,010


132,727

Other current assets

8,271


6,335

Total current assets

1,862,728


1,276,954

Property and equipment, net

1,601,363


1,673,919

Long-term restricted investments

3,973


3,973

Deferred financing fees, net

32,546


42,046

Intangible assets, net

2,532,455


2,573,638

Goodwill

1,815,673


1,834,856

Related party long-term assets

50,104


54,953

Long-term deferred tax asset

1,244,996


-

Other long-term assets

11,204


35,657

Total assets

$                    9,155,042


$                    7,495,996

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued expenses

$                       514,479


$                       543,193

Accrued interest

64,463


70,405

Current portion of deferred revenue

1,426,815


1,333,965

Current portion of deferred credit on executory contracts

275,567


284,108

Current maturities of long-term debt

4,326


1,623

Related party current liabilities

12,988


14,302

Total current liabilities

2,298,638


2,247,596

Deferred revenue

158,223


198,135

Deferred credit on executory contracts

6,243


218,199

Long-term debt

2,221,685


2,683,563

Long-term related party debt

208,742


328,788

Deferred tax liability

-


1,011,084

Related party long-term liabilities

19,660


21,741

Other long-term liabilities

85,676


82,745

Total liabilities

4,998,867


6,791,851





Stockholders' equity:




Preferred stock, par value $0.001; 50,000,000 authorized at September 30, 2012 and December 31, 2011:




Series A convertible preferred stock; no shares issued and outstanding at September 30, 2012 and December 31, 2011

-


-

Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at September 30, 2012 and December 31, 2011); 6,250,100 and 12,500,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

6


13

Common stock, par value $0.001; 9,000,000,000 shares authorized at September 30, 2012 and December 31, 2011; 5,192,364,730 and 3,753,201,929 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

5,192


3,753

Accumulated other comprehensive income, net of tax

33


71

Additional paid-in capital

10,618,579


10,484,400

Accumulated deficit

(6,467,635)


(9,784,092)

Total stockholders' equity

4,156,175


704,145

Total liabilities and stockholders' equity

$                    9,155,042


$                    7,495,996





 

 





SIRIUS XM RADIO INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Nine Months Ended September 30,

(in thousands)

2012


2011

Cash flows from operating activities:




Net income

$             3,316,457


$               355,624

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




Depreciation and amortization

199,481


200,865

Non-cash interest expense, net of amortization of premium

30,786


29,211

Provision for doubtful accounts

24,953


26,209

Amortization of deferred income related to equity method investment

(2,082)


(2,082)

Loss on extinguishment of debt and credit facilities, net

132,726


7,206

Gain on merger of unconsolidated entities

-


(84,855)

Loss on unconsolidated entity investments, net

4,014


10,259

Loss on disposal of assets

567


269

Share-based payment expense

46,361


37,574

Deferred income taxes

(3,017,021)


7,214

Other non-cash purchase price adjustments

(220,336)


(203,630)

Distribution from investment in unconsolidated entity

-


4,849

   Changes in operating assets and liabilities:




Accounts receivable

(26,211)


(1,456)

Receivables from distributors

(2,956)


(12,358)

Inventory

888


(14,278)

Related party assets

6,905


30,300

Prepaid expenses and other current assets

(26,367)


(11,028)

Other long-term assets

24,454


23,969

Accounts payable and accrued expenses

(27,384)


(100,502)

Accrued interest

(5,940)


6,472

Deferred revenue

52,777


19,653

Related party liabilities

(1,314)


696

Other long-term liabilities

2,774


(1,547)

Net cash provided by operating activities

513,532


328,634





Cash flows from investing activities:




Additions to property and equipment

(73,546)


(115,065)

Release of restricted investments

-


250

Return of capital from investment in unconsolidated entity

-


10,117

Net cash used in investing activities

(73,546)


(104,698)





Cash flows from financing activities:




Proceeds from exercise of stock options

89,250


9,045

Long-term borrowings, net of costs

393,687


-

Payment of premiums on redemption of debt

(100,615)


(5,020)

Repayment of long-term borrowings

(914,028)


(210,060)

Repayment of related party long-term borrowings

(126,000)


-

Net cash used in financing activities

(657,706)


(206,035)

Net (decrease) increase in cash and cash equivalents

(217,720)


17,901

Cash and cash equivalents at beginning of period

773,990


586,691

Cash and cash equivalents at end of period

$                556,270


$                604,592









 

 

Subscriber Data and Operating Metrics              

The following table contains actual subscriber data and key operating metrics for the three and nine months ended September 30, 2012 and 2011, respectively:










Unaudited


For the Three Months Ended September 30,


For the Nine Months Ended September 30,


2012


2011


2012


2011









Beginning subscribers

22,919,462


21,016,175


21,892,824


20,190,964

Gross subscriber additions

2,421,586


2,138,131


7,064,282


6,369,846

Deactivated subscribers

(1,975,665)


(1,804,448)


(5,591,723)


(5,210,952)

Net additions

445,921


333,683


1,472,559


1,158,894

Ending subscribers

23,365,383


21,349,858


23,365,383


21,349,858









  Self-pay

19,041,519


17,534,310


19,041,519


17,534,310

  Paid promotional

4,323,864


3,815,548


4,323,864


3,815,548

Ending subscribers

23,365,383


21,349,858


23,365,383


21,349,858









  Self-pay

370,553


364,004


1,132,777


847,511

  Paid promotional

75,368


(30,321)


339,782


311,383

Net additions

445,921


333,683


1,472,559


1,158,894









Daily weighted average number of subscribers

23,008,693


21,107,540


22,519,544


20,688,641









Average self-pay monthly churn

2.0%


1.9%


1.9%


1.9%









New vehicle consumer conversion rate

44%


44%


45%


45%









ARPU

$         12.14


$          11.66


$           11.96


$       11.57

SAC, per gross subscriber addition

$              51


$               55


$                55


$            55









Subscribers. The improvement was due to the 13% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle shipments and returning subscriber activations, including previously owned car activations. This increase in gross additions was partially offset by the 9% increase in deactivations.  The increase in deactivations was primarily due to an increase in paid promotional trial deactivations stemming from the increase in volume of paid trials, along with growth in our subscriber base. Net additions increased 34% driven by an increase of 106,000 paid promotional subscribers.

Average Self-pay Monthly Churn for the three months ended September 30, 2012 and 2011 was 2.0% and 1.9%, respectively.

New Vehicle Consumer Conversion Rate for the three months ended September 30, 2012 and 2011 was 44%.

ARPU increased primarily due to the increase in certain subscription rates beginning in January 2012, an increase in sales of premium services, including Premier packages, data services and streaming, and an increase in other revenue due to additional subscribers subject to the U.S. Music Royalty Fee.  The rise in ARPU was partially offset by an increase in subscriber retention programs and in the number of subscribers on promotional plans and a decrease in the revenue from the U.S. Music Royalty Fee due to a reduction in the rate in December 2010.

SAC, Per Gross Subscriber Addition, improved to $51 for the three months ended September 30, 2012 from $55 for the same period in 2011.  The decrease was driven by improved OEM subsidy rates per vehicle and a 13% increase in gross subscribers compared to the three months ended September 30, 2011, partially offset by higher subsidies related to increased OEM installations occurring in advance of acquiring a subscriber.

Glossary

Adjusted EBITDA - EBITDA is defined as net income before interest and investment 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 of Sirius and XM, (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 statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the merger of Sirius and XM. 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 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 (in thousands):










Unaudited


For the Three Months Ended September 30,


For the Nine Months Ended September 30,


2012


2011


2012


2011









Net income (GAAP):

$          74,514


$        104,185


$    3,316,457


$      355,624

Add back items excluded from Adjusted EBITDA:








Purchase price accounting adjustments:








Revenues

1,854


2,292


5,599


8,951

Operating expenses

(73,049)


(68,878)


(220,497)


(205,472)

Share-based payment expense, net of purchase price accounting adjustments

17,492


13,983


46,361


37,755

Depreciation and amortization (GAAP)

66,571


65,403


199,481


200,865

Interest expense, net of amounts capitalized (GAAP)

70,035


75,316


219,777


229,730

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

107,105


-


132,726


7,206

Interest and investment loss (income) (GAAP)

321


(292)


3,192


(78,590)

Other loss (income) (GAAP)

(113)


(435)


637


(2,235)

Income tax (benefit) expense (GAAP)

(20,113)


5,714


(3,013,860)


9,907

Adjusted EBITDA

$        244,617


$        197,288


$       689,873


$      563,741