SIRIUS XM Radio Reports Second Quarter 2010 Results
- Strong Double-Digit Revenue Growth Year Over Year
- Adjusted EBITDA of $154 million, Up 17% Year Over Year
- Company Raises Financial Guidance
NEW YORK, Aug. 4 /PRNewswire-FirstCall/ -- SIRIUS XM Radio (Nasdaq: SIRI) today announced second quarter 2010 financial and operating results, including:
- $705.6 million of adjusted revenue, up 16% over second quarter 2009 adjusted revenue of $607.8 million; and
- $154.3 million in second quarter 2010 adjusted EBITDA, an increase of 17% over second quarter 2009 adjusted EBITDA of $132.2 million.
(Logo: http://photos.prnewswire.com/prnh/20080819/NYTU044LOGO )
(Logo: http://www.newscom.com/cgi-bin/prnh/20080819/NYTU044LOGO )
The discussion of adjusted operating results excludes the effects of stock-based compensation and certain purchase price accounting adjustments. Financial measures and metrics previously reported as "pro forma" have been renamed "adjusted."
"The sharp subscriber growth and double-digit increase in adjusted revenue and adjusted EBITDA show that we continued to execute on our business plan during the second quarter," said Mel Karmazin, Chief Executive Officer, SIRIUS XM. "Compared to the year ago quarter, gross additions increased by 46%, deactivations declined by 8%, and customers paid us on average 11% more each month – clearly showing just how much subscribers love our service. Free cash flow in the second quarter 2010 was $108.3 million compared to $12.7 million in the second quarter of 2009. Our business has improved substantially in the past year, and we look forward to a strong second half and 2011."
SIRIUS XM ended second quarter 2010 with a record-high 19,527,448 subscribers, an increase of more than 1.1 million subscribers compared to the end of second quarter 2009. Net subscriber additions of 583,249 in the second quarter of 2010 improved significantly from a net loss of 185,999 subscribers in the second quarter of 2009. In the second quarter 2010, average revenue per subscriber (ARPU) was $11.81, an increase of 11% from ARPU of $10.66 in the second quarter 2009. The company's self-pay monthly customer churn rate was 1.8% in the second quarter 2010, as compared with self-pay monthly customer churn of 2.0% in the second quarter 2009.
In June, the company completed the redemption of all of the $114 million of XM's outstanding 10% Senior PIK Secured Notes due 2011. "We will continue to examine deleveraging opportunities as they arise with the objective of decreasing interest expense and improving free cash flow." said David Frear, SIRIUS XM's Chief Financial Officer. "The combination of increased adjusted EBITDA and lower debt has improved our leverage ratio to approximately 4.6x, a historic low for our company."
On a GAAP basis, net income (loss) attributable to common stockholders for the second quarter of 2010 and 2009 was $15.3 million and ($159.6) million, respectively, or $0.00 and ($0.04) per diluted share, on revenue of $699.8 million and $590.8 million, respectively. The company's reported net income (loss) attributable to common stockholders included losses on extinguishment of debt in the second quarter of 2010 and 2009 of $31.9 million and $107.8 million, respectively. For the six months ended June 30, 2010 and 2009, net income (loss) attributable to common stockholders was $56.9 million and ($398.5) million, respectively, or $0.01 and ($0.11) per diluted share, on revenue of $1.36 billion and $1.18 billion, respectively.
INCREASED 2010 OUTLOOK
The company is increasing guidance for the full year 2010, projecting adjusted revenue will approach $2.8 billion and free cash flow will approach $150 million. SIRIUS XM continues to target approximately $575 million of adjusted EBITDA in 2010.
As previously announced, SIRIUS XM increased its guidance for net subscriber additions to approximately 1.1 million for the full year.
ADJUSTED RESULTS OF OPERATIONS
Subscriber Data.
The following table contains actual subscriber data for the three and six months ended June 30, 2010 and 2009, respectively:
For the Three Months Ended | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
2010 | 2009 | 2010 | 2009 | |||||
Beginning subscribers | 18,944,199 | 18,599,434 | 18,772,758 | 19,003,856 | ||||
Gross subscriber additions | 2,020,507 | 1,380,125 | 3,741,355 | 2,719,086 | ||||
Deactivated subscribers | (1,437,258) | (1,566,124) | (2,986,665) | (3,309,507) | ||||
Net additions | 583,249 | (185,999) | 754,690 | (590,421) | ||||
Ending subscribers | 19,527,448 | 18,413,435 | 19,527,448 | 18,413,435 | ||||
Retail | 7,277,446 | 8,235,761 | 7,277,446 | 8,235,761 | ||||
OEM | 12,100,665 | 10,081,514 | 12,100,665 | 10,081,514 | ||||
Rental | 149,337 | 96,160 | 149,337 | 96,160 | ||||
Ending subscribers | 19,527,448 | 18,413,435 | 19,527,448 | 18,413,435 | ||||
Self-pay | 16,077,714 | 15,421,414 | 16,077,714 | 15,421,414 | ||||
Paid promotional | 3,449,734 | 2,992,021 | 3,449,734 | 2,992,021 | ||||
Ending subscribers | 19,527,448 | 18,413,435 | 19,527,448 | 18,413,435 | ||||
Retail | (142,757) | (301,295) | (448,304) | (669,326) | ||||
OEM | 709,226 | 123,165 | 1,169,713 | 85,561 | ||||
Rental | 16,780 | (7,869) | 33,281 | (6,656) | ||||
Net additions | 583,249 | (185,999) | 754,690 | (590,421) | ||||
Self-pay | 304,043 | (14,996) | 373,782 | (128,243) | ||||
Paid promotional | 279,206 | (171,003) | 380,908 | (462,178) | ||||
Net additions | 583,249 | (185,999) | 754,690 | (590,421) | ||||
Daily weighted average number of subscribers | 19,139,926 | 18,438,473 | 18,962,580 | 18,575,219 | ||||
Average self-pay monthly churn (1) | 1.8% | 2.0% | 1.9% | 2.1% | ||||
Conversion rate (2) | 46.7% | 44.3% | 45.9% | 44.5% | ||||
See accompanying footnotes. | ||||||||
Subscribers. The improvement in net additions for the three months ended June 30, 2010 was due to the 46% increase in gross subscriber additions, primarily resulting from an improvement in U.S. auto sales, and the 8% decline in deactivations resulting from improvements in the conversion rate in paid promotional trials and the average self-pay monthly churn.
Average Self-pay Monthly Churn decreased in the three months ended June 30, 2010 due to an improving economy, the success of retention and win-back programs and reductions in non-pay cancellations.
Conversion Rate increased in the three months ended June 30, 2010 primarily due to marketing to promotional period subscribers and an improving economy.
Metrics.
The following table contains our key operating metrics based on our adjusted results of operations for the three and six months ended June 30, 2010 and 2009, respectively (in thousands, except for per subscriber amounts):
Unaudited Adjusted | |||||||||
For the Three Months Ended | For the Six Months Ended | ||||||||
June 30, | June 30, | ||||||||
2010 | 2009 | 2010 | 2009 | ||||||
ARPU (3) | $ 11.81 | $ 10.66 | $ 11.65 | $ 10.57 | |||||
SAC, per gross subscriber addition (4) | $ 59 | $ 57 | $ 59 | $ 59 | |||||
Customer service and billing expenses, per average | |||||||||
subscriber (5) | $ 1.01 | $ 1.05 | $ 1.00 | $ 1.06 | |||||
Free cash flow (6) | $ 108,331 | $ 12,694 | $ (18,872) | $ 9,048 | |||||
Adjusted total revenue (8) | $ 705,560 | $ 607,836 | $ 1,376,122 | $ 1,213,317 | |||||
Adjusted EBITDA (7) | $ 154,313 | $ 132,219 | $ 312,070 | $ 241,055 | |||||
See accompanying footnotes. | |||||||||
ARPU increased in the three months ended June 30, 2010 primarily due to the inclusion of the U.S. Music Royalty Fee, increased revenues from the sale of "Best of" programming, rate increases on multi-subscription and internet packages, and increased net advertising revenue.
SAC Per Gross Subscriber Addition increased in the three months ended June 30, 2010 due to the 103% increase in OEM production with factory-installed satellite radios compared to the 46% increase in gross additions, partially offset by lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from satellite radio manufacturers.
Customer Service and Billing Expenses Per Average Subscriber decreased in the three months ended June 30, 2010 primarily due to a lower call center expense as a result of moving calls to lower cost locations.
Free Cash Flow increased in the three months ended June 30, 2010 principally as a result of improvements in our adjusted EBITDA as well as increases in trade payables related to subsidies and commissions associated with the increase in our subscriber base and growth in deferred revenue; partially offset by growth in receivables from subscribers, radio manufacturers and distributors and the payment of related party obligations and accrued interest. In addition, capital expenditures in the three months ended June 30, 2010 increased by $13.7 million compared to the three months ended June 30, 2009, primarily due to increased satellite and related launch vehicle spending.
Adjusted Total Revenue. Set forth below are our adjusted total revenue for the three and six months ended June 30, 2010 compared with the three and six months ended June 30, 2009. Our adjusted total revenue includes the recognition of deferred subscriber revenues acquired in the merger of SIRIUS and XM that are not recognized in our post-merger results under purchase price accounting and the elimination of the benefit in earnings from deferred revenue associated with our investment in Canadian Satellite Radio acquired in the merger.
Unaudited Adjusted | ||||||||
For the Three Months Ended | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||
Revenue: | ||||||||
Subscriber revenue, including effects of rebates | $605,616 | $576,958 | $1,190,091 | $1,153,034 | ||||
Advertising revenue, net of agency fees | 15,797 | 12,564 | 30,323 | 24,869 | ||||
Equipment revenue | 18,520 | 10,928 | 32,802 | 20,837 | ||||
Other revenue | 65,627 | 7,386 | 122,906 | 14,577 | ||||
Adjusted total revenue | $705,560 | $607,836 | $1,376,122 | $1,213,317 | ||||
For the three months ended June 30, 2010, the increase in subscriber revenue was driven by the increase in subscribers as well as an increase in the sale of "Best of" programming and the rate increases on multi-subscription and internet packages. The increase in advertising revenue was driven by improvements in the national market for advertising and increases in our share of the market. The increase in equipment revenue was driven by royalties from increased OEM installations. The increase in other revenue was driven by the introduction of the U.S. Music Royalty Fee in the third quarter of 2009.
Adjusted EBITDA. Set forth below are our adjusted EBITDA for the three and six months ended June 30, 2010 compared with the three and six months ended June 30, 2009. Adjusted EBITDA is income (loss) from operations, excluding, if applicable: goodwill impairment; restructuring, impairments and related costs; depreciation and amortization; purchase price accounting adjustments and share-based payment expense.
Unaudited Adjusted | ||||||||
For the Three Months Ended | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||
Total revenue | $705,560 | $607,836 | $1,376,122 | $1,213,317 | ||||
Operating expenses: | ||||||||
Revenue share and royalties | 134,318 | 117,671 | 257,857 | 238,932 | ||||
Programming and content | 83,931 | 87,707 | 174,402 | 184,386 | ||||
Customer service and billing | 57,763 | 58,054 | 113,340 | 117,723 | ||||
Satellite and transmission | 19,235 | 18,659 | 38,622 | 38,401 | ||||
Cost of equipment | 7,805 | 8,051 | 15,724 | 16,044 | ||||
Subscriber acquisition costs | 130,683 | 80,988 | 237,728 | 164,698 | ||||
Sales and marketing | 57,076 | 48,610 | 107,018 | 99,212 | ||||
Engineering, design and development | 9,635 | 10,123 | 19,462 | 18,535 | ||||
General and administrative | 50,801 | 45,754 | 99,899 | 94,331 | ||||
Total operating expenses | 551,247 | 475,617 | 1,064,052 | 972,262 | ||||
Adjusted EBITDA | $154,313 | $132,219 | $ 312,070 | $ 241,055 | ||||
For the three months ended June 30, 2010, the increase in adjusted EBITDA was primarily due to an increase in revenues, the increase in our subscriber base and the inclusion of the U.S. Music Royalty Fee, as well as increased advertising and equipment revenue, rate increases on multi-subscription and internet packages, and an increase in the sale of "Best of" programming, partially offset by an increase in expenses, which was primarily driven by higher subscriber acquisition costs related to the 46% increase in gross additions, higher revenue share and royalties expenses associated with growth in revenues subject to revenue sharing and royalty arrangements and additional sales and marketing costs, primarily related to co-operative marketing.
SIRIUS XM RADIO INC. AND SUBSIDIARIES | ||||||||
For the Three Months | For the Six Months | |||||||
Ended June 30, | Ended June 30, | |||||||
(in thousands, except per share data) | 2010 | 2009 | 2010 | 2009 | ||||
Revenue: | ||||||||
Subscriber revenue, including effects of rebates | $ 601,630 | $ 561,763 | $ 1,181,139 | $ 1,121,151 | ||||
Advertising revenue, net of agency fees | 15,797 | 12,564 | 30,323 | 24,869 | ||||
Equipment revenue | 18,520 | 10,928 | 32,802 | 20,837 | ||||
Other revenue | 63,814 | 5,574 | 119,280 | 10,951 | ||||
Total revenue | 699,761 | 590,829 | 1,363,544 | 1,177,808 | ||||
Operating expenses (depreciation and amortization | ||||||||
shown separately below): | ||||||||
Cost of services: | ||||||||
Revenue share and royalties | 107,901 | 95,831 | 206,085 | 196,297 | ||||
Programming and content | 72,019 | 72,102 | 150,452 | 152,511 | ||||
Customer service and billing | 58,414 | 58,833 | 114,625 | 119,041 | ||||
Satellite and transmission | 19,982 | 19,615 | 40,100 | 39,894 | ||||
Cost of equipment | 7,805 | 8,051 | 15,724 | 16,044 | ||||
Subscriber acquisition costs | 110,383 | 67,651 | 199,762 | 140,719 | ||||
Sales and marketing | 56,177 | 48,693 | 105,294 | 100,116 | ||||
Engineering, design and development | 11,247 | 11,944 | 22,684 | 21,723 | ||||
General and administrative | 59,166 | 66,716 | 116,746 | 126,031 | ||||
Depreciation and amortization | 69,230 | 77,158 | 139,495 | 159,524 | ||||
Restructuring, impairments and related costs | 1,803 | 27,000 | 1,803 | 27,614 | ||||
Total operating expenses | 574,127 | 553,594 | 1,112,770 | 1,099,514 | ||||
Income from operations | 125,634 | 37,235 | 250,774 | 78,294 | ||||
Other income (expense): | ||||||||
Interest expense, net of amounts capitalized | (76,802) | (98,080) | (154,670) | (166,058) | ||||
Loss on extinguishment of debt and credit facilities, net | (31,871) | (107,756) | (34,437) | (125,713) | ||||
Interest and investment income (loss) | 378 | 9,323 | (2,892) | 2,157 | ||||
Other (loss) income | (601) | 749 | 728 | 1,259 | ||||
Total other expense | (108,896) | (195,764) | (191,271) | (288,355) | ||||
Income (loss) before income taxes | 16,738 | (158,529) | 59,503 | (210,061) | ||||
Income tax expense | (1,466) | (1,115) | (2,633) | (2,229) | ||||
Net income (loss) | 15,272 | (159,644) | 56,870 | (212,290) | ||||
Preferred stock beneficial conversion feature | - | - | - | (186,188) | ||||
Net income (loss) attributable to common stockholders | $ 15,272 | $ (159,644) | $ 56,870 | $ (398,478) | ||||
Net income (loss) per common share: | ||||||||
Basic | $ 0.00 | $ (0.04) | $ 0.02 | $ (0.11) | ||||
Diluted | $ 0.00 | $ (0.04) | $ 0.01 | $ (0.11) | ||||
Weighted average common shares outstanding: | ||||||||
Basic | 3,683,595 | 3,586,742 | 3,682,750 | 3,555,489 | ||||
Diluted | 6,363,955 | 3,586,742 | 6,357,507 | 3,555,489 | ||||
SIRIUS XM RADIO INC. AND SUBSIDIARIES | ||||
June 30, 2010 | December 31, 2009 | |||
(in thousands, except share and per share data) | (unaudited) | |||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | $ 258,854 | $ 383,489 | ||
Accounts receivable, net | 113,341 | 113,580 | ||
Receivables from distributors | 83,208 | 48,738 | ||
Inventory, net | 13,726 | 16,193 | ||
Prepaid expenses | 193,440 | 100,273 | ||
Related party current assets | 5,442 | 106,247 | ||
Deferred tax asset | 77,570 | 72,640 | ||
Other current assets | 14,591 | 18,620 | ||
Total current assets | 760,172 | 859,780 | ||
Property and equipment, net | 1,765,347 | 1,711,003 | ||
Long-term restricted investments | 3,396 | 3,400 | ||
Deferred financing fees, net | 59,224 | 66,407 | ||
Intangible assets, net | 2,661,001 | 2,695,115 | ||
Goodwill | 1,834,856 | 1,834,856 | ||
Related party long-term assets | 28,416 | 111,767 | ||
Other long-term assets | 88,520 | 39,878 | ||
Total assets | $ 7,200,932 | $ 7,322,206 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
Current liabilities: | ||||
Accounts payable and accrued expenses | $ 519,181 | $ 543,686 | ||
Accrued interest | 68,541 | 74,566 | ||
Current portion of deferred revenue | 1,169,090 | 1,083,430 | ||
Current portion of deferred credit on executory contracts | 263,998 | 252,831 | ||
Current maturities of long-term debt | 8,280 | 13,882 | ||
Related party current liabilities | 12,781 | 108,246 | ||
Total current liabilities | 2,041,871 | 2,076,641 | ||
Deferred revenue | 275,212 | 255,149 | ||
Deferred credit on executory contracts | 647,691 | 784,078 | ||
Long-term debt | 2,662,144 | 2,799,702 | ||
Long-term related party debt | 357,806 | 263,579 | ||
Deferred tax liability | 947,468 | 940,182 | ||
Related party long-term liabilities | 26,655 | 46,301 | ||
Other long-term liabilities | 61,657 | 61,052 | ||
Total liabilities | 7,020,504 | 7,226,684 | ||
Commitments and contingencies | ||||
Stockholders’ equity: | ||||
Preferred stock, par value $0.001; 50,000,000 authorized at June 30, 2010 and December 31, 2009: | ||||
Series A convertible preferred stock (liquidation preference of $51,370 at June 30, 2010 and | ||||
December 31, 2009); 24,808,959 shares issued and outstanding at June 30, 2010 | ||||
and December 31, 2009 | 25 | 25 | ||
Convertible perpetual preferred stock, series B (liquidation preference of $13 at June 30, 2010 | ||||
and December 31, 2009); 12,500,000 shares issued and outstanding at June 30, 2010 | ||||
and December 31, 2009 | 13 | 13 | ||
Convertible preferred stock, series C junior; no shares issued and outstanding at | ||||
June 30, 2010 and December 31, 2009 | - | - | ||
Common stock, par value $0.001; 9,000,000,000 shares authorized at June 30, 2010 and | ||||
December 31, 2009; 3,885,905,912 and 3,882,659,087 shares issued and outstanding | ||||
at June 30, 2010 and December 31, 2009, respectively | 3,885 | 3,882 | ||
Accumulated other comprehensive loss, net of tax | (5,987) | (6,581) | ||
Additional paid-in capital | 10,379,730 | 10,352,291 | ||
Accumulated deficit | (10,197,238) | (10,254,108) | ||
Total stockholders’ equity | 180,428 | 95,522 | ||
Total liabilities and stockholders’ equity | $ 7,200,932 | $ 7,322,206 | ||
SIRIUS XM RADIO INC. AND SUBSIDIARIES | ||||
For the Six Months | ||||
Ended June 30, | ||||
(in thousands) | 2010 | 2009 | ||
Cash flows from operating activities: | ||||
Net income (loss) | $ 56,870 | $(212,290) | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||
Depreciation and amortization | 139,495 | 159,524 | ||
Non-cash interest expense, net of amortization of premium | 22,294 | 31,322 | ||
Provision for doubtful accounts | 15,756 | 16,278 | ||
Restructuring, impairments and related costs | 1,803 | 27,614 | ||
Amortization of deferred income related to equity method investment | (2,137) | (1,388) | ||
Loss on extinguishment of debt and credit facilities, net | 34,437 | 125,713 | ||
Loss on investments | 6,065 | 6,353 | ||
Loss on disposal of assets | (18) | - | ||
Share-based payment expense | 33,083 | 49,878 | ||
Deferred income taxes | 2,633 | 2,229 | ||
Other non-cash purchase price adjustments | (120,706) | (85,223) | ||
Changes in operating assets and liabilities: | ||||
Accounts receivable | (14,296) | 8,483 | ||
Receivables from distributors | (26,655) | 12,277 | ||
Inventory | 2,467 | (3,424) | ||
Related party assets | (701) | 11,629 | ||
Prepaid expenses and other current assets | 10,245 | 24,052 | ||
Other long-term assets | 10,947 | 34,476 | ||
Accounts payable and accrued expenses | (76,144) | (106,041) | ||
Accrued interest | (4,796) | 997 | ||
Deferred revenue | 105,004 | 22,504 | ||
Related party liabilities | (54,978) | 14,060 | ||
Other long-term liabilities | 319 | (2,164) | ||
Net cash provided by operating activities | 140,987 | 136,859 | ||
Cash flows from investing activities: | ||||
Additions to property and equipment | (169,313) | (127,811) | ||
Sale of restricted and other investments | 9,454 | - | ||
Net cash used in investing activities | (159,859) | (127,811) | ||
Cash flows from financing activities: | ||||
Preferred stock issuance, net of costs | - | (3,712) | ||
Long-term borrowings, net of costs | 637,406 | 384,876 | ||
Related party long-term borrowings, net of costs | 147,094 | 316,340 | ||
Payment of premiums on redemption of debt | (24,065) | (16,572) | ||
Repayment of long-term borrowings | (810,977) | (427,871) | ||
Repayment of related party long-term borrowings | (55,221) | (100,867) | ||
Net cash (used in) provided by financing activities | (105,763) | 152,194 | ||
Net (decrease) increase in cash and cash equivalents | (124,635) | 161,242 | ||
Cash and cash equivalents at beginning of period | 383,489 | 380,446 | ||
Cash and cash equivalents at end of period | $ 258,854 | $ 541,688 | ||
Footnotes to Adjusted Results of Operations
Average self-pay monthly churn; conversion rate; ARPU; SAC per gross subscriber addition; customer service and billing expenses, per average subscriber; and free cash flow are not measures of financial performance under GAAP. We believe these operational and Non-GAAP financial performance measures provide meaningful supplemental information regarding our operating performance and are used by us for budgetary and planning purposes; when publicly providing our business outlook; as a means to evaluate period-to-period comparisons; and to compare our performance to that of our competitors. We believe that investors also use our current and projected metrics to monitor the performance of our business and to make investment decisions.
These operational and Non-GAAP financial performance measures are used in addition to and in conjunction with results presented in accordance with GAAP. These Non-GAAP financial performance measures may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.
(1) Average self-pay monthly churn represents the monthly average of self-pay deactivations for the quarter divided by the average self-pay subscriber balance for the quarter.
(2) We measure the percentage of vehicle owners and lessees that receive our service and convert to self-paying after the initial promotion period. We refer to this as the "conversion rate." At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive between three and twelve month trial subscriptions. 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. Based on our experience it may take up to 90 days after the trial service ends for vehicle owners and lessees to respond to our marketing communications and become self-paying subscribers.
(3) ARPU is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes amounts recognized on account of the U.S. Music Royalty Fee since the third quarter of 2009. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):
Unaudited | ||||||||
For the Three Months Ended | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
2010 | 2009 | 2010 | 2009 | |||||
Subscriber revenue (GAAP) | $ 601,630 | $ 561,763 | $ 1,181,139 | $ 1,121,151 | ||||
Net advertising revenue (GAAP) | 15,797 | 12,564 | 30,323 | 24,869 | ||||
Other subscription-related revenue (GAAP) | 56,694 | - | 104,641 | - | ||||
Purchase price accounting adjustments | 3,986 | 15,195 | 8,952 | 31,883 | ||||
$ 678,107 | $ 589,522 | $ 1,325,055 | $ 1,177,903 | |||||
Daily weighted average number of subscribers | 19,139,926 | 18,438,473 | 18,962,580 | 18,575,219 | ||||
ARPU | $ 11.81 | $ 10.66 | $ 11.65 | $ 10.57 | ||||
(4) 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 include the elimination of the benefit of amortization of deferred credits on executory contracts recognized at the merger date attributable to third party arrangements with 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 | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
2010 | 2009 | 2010 | 2009 | |||||
Subscriber acquisition costs (GAAP) | $ 110,383 | $ 67,651 | $ 199,762 | $ 140,719 | ||||
Less: margin from direct sales of radios and | ||||||||
accessories (GAAP) | (10,715) | (2,877) | (17,078) | (4,793) | ||||
Add: purchase price accounting adjustments | 20,300 | 13,337 | 37,966 | 23,979 | ||||
$ 119,968 | $ 78,111 | $ 220,650 | $ 159,905 | |||||
Gross subscriber additions | 2,020,507 | 1,380,125 | 3,741,355 | 2,719,086 | ||||
SAC, per gross subscriber addition | $ 59 | $ 57 | $ 59 | $ 59 | ||||
(5) Customer service and billing expenses, per average subscriber is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments, 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 include the elimination of the benefit associated with 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 | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
2010 | 2009 | 2010 | 2009 | |||||
Customer service and billing expenses (GAAP) | $ 58,414 | $ 58,833 | $ 114,625 | $ 119,041 | ||||
Less: share-based payment expense, net of purchase | ||||||||
price accounting adjustments | (729) | (905) | (1,457) | (1,561) | ||||
Add: purchase price accounting adjustment | 78 | 126 | 172 | 243 | ||||
$ 57,763 | $ 58,054 | $ 113,340 | $ 117,723 | |||||
Daily weighted average number of subscribers | 19,139,926 | 18,438,473 | 18,962,580 | 18,575,219 | ||||
Customer service and billing expenses, per average | ||||||||
subscriber | $ 1.01 | $ 1.05 | $ 1.00 | $ 1.06 | ||||
(6) Free cash flow is calculated as follows (in thousands):
Unaudited | ||||||||
For the Three Months Ended | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
2010 | 2009 | 2010 | 2009 | |||||
Net cash provided by operating activities | $ 178,675 | $ 69,988 | $ 140,987 | $ 136,859 | ||||
Additions to property and equipment | (70,348) | (56,671) | (169,313) | (127,811) | ||||
Merger related costs | - | (623) | - | - | ||||
Restricted and other investment activity | 4 | - | 9,454 | - | ||||
Free cash flow | $ 108,331 | $ 12,694 | $ (18,872) | $ 9,048 | ||||
(7) 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 Canadian Satellite Radio, (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 our operating performance. 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. 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 that investors use current and projected adjusted EBITDA to estimate our current or 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 adjusted results of operations reflect significant charges for depreciation expense. We believe adjusted EBITDA provides useful information about the operating performance of our business apart from the costs associated with our physical plant. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair market value of our common stock.
Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including share-based payment expense and certain purchase price accounting for the merger. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure. Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income (loss) as disclosed in our consolidated statements of operations. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.
The reconciliation of net income (loss) to the adjusted EBITDA is calculated as follows (see footnote 8 for reconciliation of the adjusted amounts to their respective GAAP amounts) (in thousands):
Unaudited | ||||||||
For the Three Months Ended | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
2010 | 2009 | 2010 | 2009 | |||||
Net income (loss) (GAAP): | $ 15,272 | $ (159,644) | $ 56,870 | $ (212,290) | ||||
Add back items excluded from Adjusted EBITDA: | ||||||||
Purchase price accounting adjustment | (59,058) | (40,177) | (114,889) | (76,878) | ||||
Depreciation and amortization | 69,230 | 77,158 | 139,495 | 159,524 | ||||
Restructuring, impairments and related costs | 1,803 | 27,000 | 1,803 | 27,614 | ||||
Share-based payment expense, net of purchase price | ||||||||
accounting adjustments | 16,704 | 31,003 | 34,887 | 52,501 | ||||
Interest expense, net of amounts capitalized | 76,802 | 98,080 | 154,670 | 166,058 | ||||
Loss on extinguishment of debt and credit facilities, net | 31,871 | 107,756 | 34,437 | 125,713 | ||||
Interest and investment income (loss) | (378) | (9,323) | 2,892 | (2,157) | ||||
Other (loss) income | 601 | (749) | (728) | (1,259) | ||||
Income tax expense | 1,466 | 1,115 | 2,633 | 2,229 | ||||
Adjusted EBITDA | $ 154,313 | $ 132,219 | $ 312,070 | $ 241,055 | ||||
(8) The following tables reconcile our adjusted results of operations to our actual results of operations:
Unaudited For the Three Months Ended June 30, 2010 | ||||||||
(in thousands) | As | Purchase | Allocation | Adjusted | ||||
Revenue: | ||||||||
Subscriber revenue, including effects of rebates | $601,630 | $3,986 | $- | $605,616 | ||||
Advertising revenue, net of agency fees | 15,797 | - | - | 15,797 | ||||
Equipment revenue | 18,520 | - | - | 18,520 | ||||
Other revenue | 63,814 | 1,813 | - | 65,627 | ||||
Total revenue | 699,761 | 5,799 | - | 705,560 | ||||
Operating expenses (depreciation and amortization | ||||||||
shown separately below) (1) | ||||||||
Cost of services: | ||||||||
Revenue share and royalties | 107,901 | 26,417 | - | 134,318 | ||||
Programming and content | 72,019 | 13,702 | (1,790) | 83,931 | ||||
Customer service and billing | 58,414 | 78 | (729) | 57,763 | ||||
Satellite and transmission | 19,982 | 303 | (1,050) | 19,235 | ||||
Cost of equipment | 7,805 | - | - | 7,805 | ||||
Subscriber acquisition costs | 110,383 | 20,300 | - | 130,683 | ||||
Sales and marketing | 56,177 | 3,661 | (2,762) | 57,076 | ||||
Engineering, design and development | 11,247 | 148 | (1,760) | 9,635 | ||||
General and administrative | 59,166 | 248 | (8,613) | 50,801 | ||||
Depreciation and amortization (2) | 69,230 | - | - | 69,230 | ||||
Restructuring, impairments and related costs | 1,803 | - | - | 1,803 | ||||
Share-based payment expense | - | - | 16,704 | 16,704 | ||||
Total operating expenses | 574,127 | 64,857 | - | 638,984 | ||||
Income (loss) from operations | $125,634 | $(59,058) | $- | $66,576 | ||||
(1) Amounts related to share-based payment expense included in operating expenses were as follows: | ||||||||
Programming and content | $1,662 | $128 | $- | $1,790 | ||||
Customer service and billing | 651 | 78 | - | 729 | ||||
Satellite and transmission | 968 | 82 | - | 1,050 | ||||
Sales and marketing | 2,643 | 119 | - | 2,762 | ||||
Engineering, design and development | 1,612 | 148 | - | 1,760 | ||||
General and administrative | 8,365 | 248 | - | 8,613 | ||||
Total share-based payment expense | $15,901 | $803 | $- | $16,704 | ||||
(2) Purchase price accounting adjustments included in the tables above exclude the incremental depreciation and amortization associated with the $785 million stepped up basis in property, equipment and intangible assets as a result of the merger with XM. The increased depreciation and amortization for the three months ended June 30, 2010 was $17 million. | ||||||||
Unaudited For the Three Months Ended June 30, 2009 | ||||||||
(in thousands) | As | Purchase | Allocation | Adjusted | ||||
Revenue: | ||||||||
Subscriber revenue, including effects of rebates | $561,763 | $15,195 | $- | $576,958 | ||||
Advertising revenue, net of agency fees | 12,564 | - | - | 12,564 | ||||
Equipment revenue | 10,928 | - | - | 10,928 | ||||
Other revenue | 5,574 | 1,812 | - | 7,386 | ||||
Total revenue | 590,829 | 17,007 | - | 607,836 | ||||
Operating expenses (depreciation and amortization | ||||||||
shown separately below) (1) | ||||||||
Cost of services: | ||||||||
Revenue share and royalties | 95,831 | 21,840 | - | 117,671 | ||||
Programming and content | 72,102 | 17,701 | (2,096) | 87,707 | ||||
Customer service and billing | 58,833 | 126 | (905) | 58,054 | ||||
Satellite and transmission | 19,615 | 354 | (1,310) | 18,659 | ||||
Cost of equipment | 8,051 | - | - | 8,051 | ||||
Subscriber acquisition costs | 67,651 | 13,337 | - | 80,988 | ||||
Sales and marketing | 48,693 | 3,173 | (3,256) | 48,610 | ||||
Engineering, design and development | 11,944 | 247 | (2,068) | 10,123 | ||||
General and administrative | 66,716 | 406 | (21,368) | 45,754 | ||||
Depreciation and amortization (2) | 77,158 | - | - | 77,158 | ||||
Restructuring, impairments and related costs | 27,000 | - | - | 27,000 | ||||
Share-based payment expense | - | - | 31,003 | 31,003 | ||||
Total operating expenses | 553,594 | 57,184 | - | 610,778 | ||||
Income (loss) from operations | $37,235 | $(40,177) | $- | $(2,942) | ||||
(1) Amounts related to share-based payment expense included in operating expenses were as follows: | ||||||||
Programming and content | $1,891 | $205 | $- | $2,096 | ||||
Customer service and billing | 779 | 126 | - | 905 | ||||
Satellite and transmission | 1,177 | 133 | - | 1,310 | ||||
Sales and marketing | 3,072 | 184 | - | 3,256 | ||||
Engineering, design and development | 1,821 | 247 | - | 2,068 | ||||
General and administrative | 20,961 | 407 | - | 21,368 | ||||
Total share-based payment expense | $29,701 | $1,302 | $- | $31,003 | ||||
(2) Purchase price accounting adjustments included in the tables above exclude the incremental depreciation and amortization associated with the $785 million stepped up basis in property, equipment and intangible assets as a result of the merger with XM. The increased depreciation and amortization for the three months ended June 30, 2009 was $31 million. | ||||||||
Unaudited For the Six Months Ended June 30, 2010 | ||||||||
(in thousands) | As | Purchase | Allocation | Adjusted | ||||
Revenue: | ||||||||
Subscriber revenue, including effects of rebates | $1,181,139 | $8,952 | $- | $1,190,091 | ||||
Advertising revenue, net of agency fees | 30,323 | - | - | 30,323 | ||||
Equipment revenue | 32,802 | - | - | 32,802 | ||||
Other revenue | 119,280 | 3,626 | - | 122,906 | ||||
Total revenue | 1,363,544 | 12,578 | - | 1,376,122 | ||||
Operating expenses (depreciation and amortization | ||||||||
shown separately below) (1) | ||||||||
Cost of services: | ||||||||
Revenue share and royalties | 206,085 | 51,772 | - | 257,857 | ||||
Programming and content | 150,452 | 28,850 | (4,900) | 174,402 | ||||
Customer service and billing | 114,625 | 172 | (1,457) | 113,340 | ||||
Satellite and transmission | 40,100 | 626 | (2,104) | 38,622 | ||||
Cost of equipment | 15,724 | - | - | 15,724 | ||||
Subscriber acquisition costs | 199,762 | 37,966 | - | 237,728 | ||||
Sales and marketing | 105,294 | 7,186 | (5,462) | 107,018 | ||||
Engineering, design and development | 22,684 | 334 | (3,556) | 19,462 | ||||
General and administrative | 116,746 | 561 | (17,408) | 99,899 | ||||
Depreciation and amortization (2) | 139,495 | - | - | 139,495 | ||||
Restructuring, impairments and related costs | 1,803 | - | - | 1,803 | ||||
Share-based payment expense | - | - | 34,887 | 34,887 | ||||
Total operating expenses | 1,112,770 | 127,467 | - | 1,240,237 | ||||
Income (loss) from operations | $250,774 | $(114,889) | $- | $135,885 | ||||
(1) Amounts related to share-based payment expense included in operating expenses were as follows: | ||||||||
Programming and content | $4,612 | $288 | $- | $4,900 | ||||
Customer service and billing | 1,285 | 172 | - | 1,457 | ||||
Satellite and transmission | 1,919 | 185 | - | 2,104 | ||||
Sales and marketing | 5,198 | 264 | - | 5,462 | ||||
Engineering, design and development | 3,222 | 334 | - | 3,556 | ||||
General and administrative | 16,847 | 561 | - | 17,408 | ||||
Total share-based payment expense | $33,083 | $1,804 | $- | $34,887 | ||||
(2) Purchase price accounting adjustments included in the tables above exclude the incremental depreciation and amortization associated with the $785 million stepped up basis in property, equipment and intangible assets as a result of the merger with XM. The increased depreciation and amortization for the six months ended June 30, 2010 was $36 million. | ||||||||
Unaudited For the Six Months Ended June 30, 2009 | ||||||||
(in thousands) | As | Purchase | Allocation | Adjusted | ||||
Revenue: | ||||||||
Subscriber revenue, including effects of rebates | $1,121,151 | $31,883 | $- | $1,153,034 | ||||
Advertising revenue, net of agency fees | 24,869 | - | - | 24,869 | ||||
Equipment revenue | 20,837 | - | - | 20,837 | ||||
Other revenue | 10,951 | 3,626 | - | 14,577 | ||||
Total revenue | 1,177,808 | 35,509 | - | 1,213,317 | ||||
Operating expenses (depreciation and amortization | ||||||||
shown separately below) (1) | ||||||||
Cost of services: | ||||||||
Revenue share and royalties | 196,297 | 42,635 | - | 238,932 | ||||
Programming and content | 152,511 | 36,592 | (4,717) | 184,386 | ||||
Customer service and billing | 119,041 | 243 | (1,561) | 117,723 | ||||
Satellite and transmission | 39,894 | 681 | (2,174) | 38,401 | ||||
Cost of equipment | 16,044 | - | - | 16,044 | ||||
Subscriber acquisition costs | 140,719 | 23,979 | - | 164,698 | ||||
Sales and marketing | 100,116 | 6,831 | (7,735) | 99,212 | ||||
Engineering, design and development | 21,723 | 548 | (3,736) | 18,535 | ||||
General and administrative | 126,031 | 878 | (32,578) | 94,331 | ||||
Depreciation and amortization (2) | 159,524 | - | - | 159,524 | ||||
Restructuring, impairments and related costs | 27,614 | - | - | 27,614 | ||||
Share-based payment expense | - | - | 52,501 | 52,501 | ||||
Total operating expenses | 1,099,514 | 112,387 | - | 1,211,901 | ||||
Income (loss) from operations | $78,294 | $(76,878) | $- | $1,416 | ||||
(1) Amounts related to share-based payment expense included in operating expenses were as follows: | ||||||||
Programming and content | $4,381 | $336 | $- | $4,717 | ||||
Customer service and billing | 1,318 | 243 | - | 1,561 | ||||
Satellite and transmission | 1,934 | 240 | - | 2,174 | ||||
Sales and marketing | 7,358 | 377 | - | 7,735 | ||||
Engineering, design and development | 3,188 | 548 | - | 3,736 | ||||
General and administrative | 31,699 | 879 | - | 32,578 | ||||
Total share-based payment expense | $49,878 | $2,623 | $- | $52,501 | ||||
(2) Purchase price accounting adjustments included in the tables above exclude the incremental depreciation and amortization associated with the $785 million stepped up basis in property, equipment and intangible assets as a result of the merger with XM. The increased depreciation and amortization for the six months ended June 30, 2009 was $62 million. | ||||||||
About SIRIUS XM Radio
SIRIUS XM Radio is America's satellite radio company delivering to subscribers commercial-free music channels, premier sports, news, talk, entertainment, and traffic and weather.
SIRIUS XM Radio has content relationships with an array of personalities and artists, including Howard Stern, Martha Stewart, Oprah Winfrey, Rosie O'Donnell, Jamie Foxx, Barbara Walters, Opie & Anthony, Bubba the Love Sponge®, Bob Edwards, Chris "Mad Dog" Russo, Jimmy Buffett, The Grateful Dead, Willie Nelson, Bob Dylan and Tom Petty. SIRIUS XM Radio is the leader in sports programming as the Official Satellite Radio Partner of the NFL, Major League Baseball®, NASCAR®, NBA, NHL®, and PGA TOUR® and major college sports.
SIRIUS XM Radio has arrangements with every major automaker. SIRIUS XM Radio products are available at shop.sirius.com and shop.xmradio.com, and at retail locations nationwide, including Best Buy, RadioShack, Wal-Mart and independent retailers.
SIRIUS XM Radio also offers SIRIUS Backseat TV, the first ever live in-vehicle rear seat entertainment featuring Nickelodeon, Disney Channel and Cartoon Network; XM NavTraffic® service for GPS navigation systems delivers real-time traffic information, including accidents and road construction, for more than 80 North American markets.
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, the combined company's 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 SIRIUS XM's management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond the control of SIRIUS and XM. Actual results may differ materially from the results anticipated in these forward-looking statements.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statement: our dependence upon automakers and other third parties, the substantial indebtedness of SIRIUS and XM; the useful life of our satellites; and our competitive position versus other forms of audio and video entertainment. Additional factors that could cause SIRIUS' and XM's results to differ materially from those described in the forward-looking statements can be found in SIRIUS' Annual Report on Form 10-K for the year ended December 31, 2009 and XM's Annual Report on Form 10-K for the year ended December 31, 2009, which are filed with the Securities and Exchange Commission (the "SEC") and available at the SEC's Internet site (http://www.sec.gov). The information set forth herein speaks only as of the date hereof, and SIRIUS and XM disclaim any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this communication.
E-SIRI
Contact Information for Investors and Financial Media: | |
Investors: | |
William Prip | |
212 584 5289 | |
Hooper Stevens | |
212 901 6718 | |
Media: | |
Patrick Reilly | |
212 901 6646 | |
SOURCE SIRIUS XM Radio
Share this article