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8-K - FORM 8-K - SIRIUS XM HOLDINGS INC. | y91122e8vk.htm |
Exhibit 99.1
SiriusXM Reports First Quarter 2011 Results
| Subscribers Reach New High of 20.6 Million; 373,000 Net Subscriber Additions in First Quarter | ||
| Revenue of $724 Million, Up 9% Over First Quarter 2010 | ||
| Record Adjusted EBITDA of $181 Million, Up 15% Over First Quarter 2010 | ||
| Free Cash Flow Improves $110 Million Year-Over-Year |
NEW YORK May 3, 2011 Sirius XM Radio (NASDAQ: SIRI) today announced first quarter 2011
results, including revenue of $724 million, up 9% over first quarter 2010 revenue of $664 million,
and adjusted EBITDA of $181 million, up 15% from $158 million in the first quarter of 2010.
SiriusXMs first quarter results have put us on track to attain our full year goals for
subscriber, revenue, and adjusted EBITDA growth. Significantly, we are now in a position to raise
our free cash flow estimate for the year, said Mel Karmazin, Chief Executive Officer, SiriusXM.
Consumers are buying cars again and demand for our product is strong. Were it not for the OEM
supply chain uncertainty resulting from the tragedy in Japan, we would be in a position to raise
our subscriber guidance today.
Other highlights from the quarter include:
| Subscriber growth accelerates. Strong auto sales drove net subscriber additions in the first quarter of 2011 to 373,064, up 118% from 171,441 in the first quarter of 2010. Ending subscribers as of March 31, 2011 were 20,564,028, up 9% from the 18,944,199 subscribers reported as of March 31, 2010. |
| SAC improves. Subscriber acquisition cost (SAC) per gross subscriber addition was $57 in the first quarter of 2011, a 3% improvement from the $59 reported in the first quarter of 2010. |
| Churn stable. Average self-pay monthly customer churn was 2.0% in the first quarter 2011, in-line with the first quarter 2010 monthly average of 2.0%. |
We operate in a highly competitive audio entertainment marketplace, where there are more choices
than ever before, yet consumers continue to choose SiriusXM. We continue to invest in content,
expand distribution and improve our technology to deliver
the most compelling value proposition
possible to consumers across the country, Karmazin added.
Free cash flow in the first quarter of 2011 was ($17) million, a $110 million improvement from the
($127) million recorded in the first quarter 2010. These improvements were driven by declines in
satellite capital expenditures and improved adjusted EBITDA. Net income in the first quarters of
2011 and 2010 was $78 million and $42 million, respectively, or $0.01 per diluted share in each
period.
We ended the first quarter with $434 million of cash and cash equivalents after deploying
approximately $135 million to repurchase debt. In April, we repurchased approximately $74 million
of our 3.25% Convertible Notes due 2011 via a cash tender offer, said David Frear, SiriusXMs
Executive Vice President and Chief Financial Officer. We continue to make progress toward
reaching our leverage target. Our net debt to adjusted EBITDA declined to 4.1x at the end of the
first quarter of 2011 from 6.6x at the end of the first quarter of 2010.
The discussion of adjusted EBITDA excludes the effects of stock-based compensation and certain
purchase price accounting adjustments. A reconciliation of non-GAAP items to their nearest GAAP
equivalent is contained in the financial supplements included with this release.
2011 GUIDANCE
In 2011, we continue to expect full-year revenue of approximately $3 billion. Our adjusted EBITDA
projection remains at approximately $715 million. Full year self-pay churn and conversion rates for
2011 should be broadly similar to those seen in 2010, and we continue to expect to grow our net new
subscribers by 1.4 million in 2011. Free cash flow in 2011 should approach $350 million as compared
to previous guidance for free cash flow approaching $300 million.
FIRST QUARTER 2011 RESULTS
Subscriber Data.
The following table contains actual subscriber data for the three months ended March 31, 2011
and 2010, respectively:
Unaudited | ||||||||
For the Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Beginning subscribers |
20,190,964 | 18,772,758 | ||||||
Gross subscriber additions |
2,052,367 | 1,720,848 | ||||||
Deactivated subscribers |
(1,679,303 | ) | (1,549,407 | ) | ||||
Net additions |
373,064 | 171,441 | ||||||
Ending subscribers |
20,564,028 | 18,944,199 | ||||||
Self-pay |
16,807,643 | 15,773,671 | ||||||
Paid promotional |
3,756,385 | 3,170,528 | ||||||
Ending subscribers |
20,564,028 | 18,944,199 | ||||||
Self-pay |
120,844 | 69,739 | ||||||
Paid promotional |
252,220 | 101,702 | ||||||
Net additions |
373,064 | 171,441 | ||||||
Daily weighted average number of subscribers |
20,233,144 | 18,783,263 | ||||||
Average self-pay monthly churn (1) |
2.0 | % | 2.0 | % | ||||
Conversion rate (2) |
44.7 | % | 45.2 | % | ||||
See accompanying footnotes.
Subscribers. The improvement was due to the 19% increase in gross subscriber additions,
primarily resulting from an increase in U.S. light vehicle sales, new vehicle penetration and
returning activations.
Average Self-pay Monthly Churn. While churn remained flat, changes in vehicle ownership were
offset by reductions in non-pay cancellation rates.
Conversion Rate. The decrease was primarily due to changing mix of sales among auto
manufacturers.
Metrics.
The following table contains our key operating metrics based on our unaudited adjusted results
of operations for the three months ended March 31, 2011 and 2010, respectively:
Unaudited Adjusted | ||||||||
For the Three Months Ended March 31, | ||||||||
(in thousands, except for per subscriber amounts) | 2011 | 2010 | ||||||
ARPU (3) |
$ | 11.52 | $ | 11.48 | ||||
SAC, per gross subscriber addition (4) |
$ | 57 | $ | 59 | ||||
Customer
service and billing expenses, per average subscriber (5) |
$ | 1.08 | $ | 0.99 | ||||
Free cash flow (6) |
$ | (16,874 | ) | $ | (127,203 | ) | ||
Adjusted total revenue (8) |
$ | 727,561 | $ | 670,563 | ||||
Adjusted EBITDA (7) |
$ | 181,359 | $ | 157,757 |
See accompanying footnotes.
ARPU increased by $0.04, primarily driven by an increase in sales of premium services,
including Best of programming, data services and streaming and an increase in other revenue due
to additional subscribers subject to the U.S. Music Royalty Fee, partially offset by an increase in
subscriber retention programs and in the number of subscribers on promotional plans.
SAC, Per Gross Subscriber Addition, decreased primarily due to a 19% increase in gross
subscribers, lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations
and royalties from radio manufacturers, partially offset by an increase in OEM production with
factory-installed satellite radios compared to the three months ended March 31, 2010.
Customer Service and Billing Expenses, Per Average Subscriber, increased primarily due to
higher call volume and handle time per call, an increase to bad debt expense driven by an alignment
of policies and personnel costs, partially offset by lower general operating costs.
Free Cash Flow increased principally as a result of improvements in net cash provided by
operating activities and decreases in capital expenditures. Net cash provided by operating
activities increased $56 million to $18 million for the three months ended March 31, 2011, compared
to the ($38 million) used in operations for the three months ended March 31, 2010. Capital
expenditures for property and equipment for the three months ended March 31, 2011 decreased $64
million to $35 million, compared to $99 million for the three months ended March 31, 2010. The
increase in net cash
provided by operating activities was primarily the result of higher collections of amounts due
from subscribers, the timing of interest payments on our debt, and the early repayment in the first
quarter of 2010 of liabilities deferred in 2009 that were scheduled to be repaid, at 15% interest,
in monthly installments from April 2010 through March 2011. The decrease in capital expenditures
for the three months ended March 31, 2011 was primarily the result of decreased satellite
construction and launch expenditures due to the launch in the fourth quarter of 2010 of our XM-5
satellite.
Adjusted Total Revenue. Set forth below are our adjusted total revenue for the three months
ended March 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 | ||||||||
For the Three Months Ended March 31, | ||||||||
(in thousands) | 2011 | 2010 | ||||||
Revenue: |
||||||||
Subscriber revenue, including effects of rebates (GAAP) |
$ | 622,437 | $ | 579,509 | ||||
Advertising revenue, net of agency fees (GAAP) |
16,558 | 14,527 | ||||||
Equipment revenue (GAAP) |
15,867 | 14,283 | ||||||
Other revenue (GAAP) |
68,977 | 55,465 | ||||||
Total revenue (GAAP) |
723,839 | 663,784 | ||||||
Purchase price accounting adjustments: |
||||||||
Subscriber revenue |
1,909 | 4,966 | ||||||
Other revenue |
1,813 | 1,813 | ||||||
Adjusted total revenue |
$ | 727,561 | $ | 670,563 | ||||
For the three months ended March 31, 2011, the increase in subscriber revenue was primarily
attributable to a 8% increase in daily weighted average subscribers, an increase in sales of
premium services, including Best of programming, data services and streaming. The increase in
other revenue was driven by additional subscribers subject to the U.S. Music Royalty Fee and
increased royalty revenue from Sirius Canada.
Adjusted EBITDA. EBITDA is defined as net income (loss) before interest and investment income
(loss); interest expense, net of amounts capitalized; income tax expense and depreciation and
amortization. Adjusted EBITDA removes the impact of other income and expense, losses on
extinguishment of debt as well as certain other charges, such as, goodwill impairment; certain
purchase price accounting adjustments and share-based payment expense.
Unaudited Adjusted | ||||||||
For the Three Months Ended March 31, | ||||||||
(in thousands) | 2011 | 2010 | ||||||
Total revenue |
$ | 727,561 | $ | 670,563 | ||||
Operating expenses: |
||||||||
Revenue share and royalties |
136,862 | 123,539 | ||||||
Programming and content |
83,273 | 90,471 | ||||||
Customer service and billing |
65,487 | 55,577 | ||||||
Satellite and transmission |
18,232 | 19,389 | ||||||
Cost of equipment |
6,405 | 7,919 | ||||||
Subscriber acquisition costs |
126,926 | 107,045 | ||||||
Sales and marketing |
49,156 | 49,942 | ||||||
Engineering, design and development |
10,024 | 9,826 | ||||||
General and administrative |
49,837 | 49,098 | ||||||
Total operating expenses |
546,202 | 512,806 | ||||||
Adjusted EBITDA |
$ | 181,359 | $ | 157,757 | ||||
For the three months ended March 31, 2011, the increase in adjusted EBITDA was primarily due
to an increase of 9%, or $57 million, in adjusted revenues, partially offset by an increase of 7%,
or $33 million, in expenses included in adjusted EBITDA. The increase in revenue was primarily due
to the increase in our subscriber base and by additional subscribers subject to the U.S. Music
Royalty Fee. The increase in expenses was primarily driven by higher subscriber acquisition costs
related to the 19% increase in gross additions, higher revenue share and royalties expenses
associated with growth in revenues subject to revenue sharing and royalty arrangements, and
increased customer service and billing expenses associated with subscriber growth, partially offset
by lower programming and content costs.
SIRIUS
XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Actual | ||||||||
For the Three Months | ||||||||
Ended March 31, | ||||||||
(in thousands, except per share data) | 2011 | 2010 | ||||||
Revenue: |
||||||||
Subscriber revenue |
$ | 622,437 | $ | 579,509 | ||||
Advertising revenue, net of agency fees |
16,558 | 14,527 | ||||||
Equipment revenue |
15,867 | 14,283 | ||||||
Other revenue |
68,977 | 55,465 | ||||||
Total revenue |
723,839 | 663,784 | ||||||
Operating expenses: |
||||||||
Cost of services: |
||||||||
Revenue share and royalties |
106,929 | 98,184 | ||||||
Programming and content |
72,959 | 78,434 | ||||||
Customer service and billing |
65,836 | 56,211 | ||||||
Satellite and transmission |
18,560 | 20,119 | ||||||
Cost of equipment |
6,405 | 7,919 | ||||||
Subscriber acquisition costs |
105,270 | 89,379 | ||||||
Sales and marketing |
47,819 | 49,117 | ||||||
Engineering, design and development |
11,135 | 11,436 | ||||||
General and administrative |
56,354 | 57,580 | ||||||
Depreciation and amortization |
68,400 | 70,265 | ||||||
Total operating expenses |
559,667 | 538,644 | ||||||
Income from operations |
164,172 | 125,140 | ||||||
Other income (expense): |
||||||||
Interest expense, net of amounts capitalized |
(78,218 | ) | (77,868 | ) | ||||
Loss on extinguishment of debt and credit facilities, net |
(5,994 | ) | (2,450 | ) | ||||
Interest and investment loss |
(1,884 | ) | (3,270 | ) | ||||
Other income |
1,617 | 1,213 | ||||||
Total other expense |
(84,479 | ) | (82,375 | ) | ||||
Income before income taxes |
79,693 | 42,765 | ||||||
Income tax expense |
(1,572 | ) | (1,167 | ) | ||||
Net income |
$ | 78,121 | $ | 41,598 | ||||
Net income per common share: |
||||||||
Basic |
$ | 0.02 | $ | 0.01 | ||||
Diluted |
$ | 0.01 | $ | 0.01 | ||||
Weighted average common shares outstanding: |
||||||||
Basic |
3,735,136 | 3,677,897 | ||||||
Diluted |
6,481,384 | 6,335,114 | ||||||
SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
March 31, 2011 | December 31, 2010 | |||||||
(in thousands, except share and per share data) | (unaudited) | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 433,695 | $ | 586,691 | ||||
Accounts receivable, net |
100,744 | 121,658 | ||||||
Receivables from distributors |
76,558 | 67,576 | ||||||
Inventory, net |
29,248 | 21,918 | ||||||
Prepaid expenses |
175,829 | 134,994 | ||||||
Related party current assets |
5,943 | 6,719 | ||||||
Deferred tax asset |
52,254 | 44,787 | ||||||
Other current assets |
4,243 | 7,432 | ||||||
Total current assets |
878,514 | 991,775 | ||||||
Property and equipment, net |
1,744,539 | 1,761,274 | ||||||
Long-term restricted investments |
3,396 | 3,396 | ||||||
Deferred financing fees, net |
50,954 | 54,135 | ||||||
Intangible assets, net |
2,617,385 | 2,632,688 | ||||||
Goodwill |
1,834,856 | 1,834,856 | ||||||
Related party long-term assets |
32,444 | 30,162 | ||||||
Other long-term assets |
67,332 | 74,800 | ||||||
Total assets |
$ | 7,229,420 | $ | 7,383,086 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 483,530 | $ | 593,174 | ||||
Accrued interest |
80,577 | 72,453 | ||||||
Current portion of deferred revenue |
1,252,144 | 1,201,346 | ||||||
Current portion of deferred credit on executory contracts |
278,063 | 271,076 | ||||||
Current maturities of long-term debt |
100,603 | 195,815 | ||||||
Related party current liabilities |
16,583 | 15,845 | ||||||
Total current liabilities |
2,211,500 | 2,349,709 | ||||||
Deferred revenue |
263,230 | 273,973 | ||||||
Deferred credit on executory contracts |
433,456 | 508,012 | ||||||
Long-term debt |
2,666,202 | 2,695,856 | ||||||
Long-term related party debt |
326,589 | 325,907 | ||||||
Deferred tax liability |
923,272 | 914,637 | ||||||
Related party long-term liabilities |
23,823 | 24,517 | ||||||
Other long-term liabilities |
82,722 | 82,839 | ||||||
Total liabilities |
6,930,794 | 7,175,450 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock, par value $0.001; 50,000,000 authorized at March 31, 2011 and December 31, 2010: Series A
convertible preferred stock ; no shares issued and outstanding at March 31, 2011 and December
31, 2010 |
| | ||||||
Convertible perpetual preferred stock, series B-1 (liquidation preference of $13 at March 31, 2011 and
December 31, 2010); 12,500,000 shares issued and outstanding at March 31, 2011 and December 31, 2010 |
13 | 13 | ||||||
Convertible preferred stock, series C junior; no shares issued and outstanding at
March 31, 2011 and December 31, 2010 |
| | ||||||
Common stock, par value $0.001; 9,000,000,000 shares authorized at March 31, 2011 and December 31, 2010;
3,943,060,217 and 3,933,195,112 shares issued and outstanding at March 31, 2011 and December 31, 2010 |
3,943 | 3,933 | ||||||
Accumulated other comprehensive loss, net of tax |
(5,794 | ) | (5,861 | ) | ||||
Additional paid-in capital |
10,433,396 | 10,420,604 | ||||||
Accumulated deficit |
(10,132,932 | ) | (10,211,053 | ) | ||||
Total stockholders equity |
298,626 | 207,636 | ||||||
Total liabilities and stockholders equity |
$ | 7,229,420 | $ | 7,383,086 | ||||
SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Actual | ||||||||
For the Three Months Ended March 31, | ||||||||
(in thousands) | 2011 | 2010 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 78,121 | $ | 41,598 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
68,400 | 70,265 | ||||||
Non-cash interest expense, net of amortization of premium |
9,573 | 11,119 | ||||||
Provision for doubtful accounts |
9,623 | 7,502 | ||||||
Amortization of deferred income related to equity method investment |
(694 | ) | (2,194 | ) | ||||
Loss on extinguishment of debt and credit facilities, net |
5,994 | 2,450 | ||||||
Loss on investments, net |
2,350 | 2,729 | ||||||
Loss on disposal of assets |
266 | | ||||||
Share-based payment expense |
12,856 | 17,182 | ||||||
Deferred income taxes |
1,111 | 1,167 | ||||||
Other non-cash purchase price adjustments |
(66,743 | ) | (58,817 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
11,291 | (9,792 | ) | |||||
Receivables from distributors |
(8,982 | ) | (6,037 | ) | ||||
Inventory |
(7,330 | ) | 2,225 | |||||
Related party assets |
(3,686 | ) | 1,285 | |||||
Prepaid expenses and other current assets |
(39,232 | ) | (14,690 | ) | ||||
Long-term restricted investments |
| (10,160 | ) | |||||
Other long-term assets |
7,617 | 7,876 | ||||||
Accounts payable and accrued expenses |
(110,400 | ) | (115,469 | ) | ||||
Accrued interest |
8,124 | (11,373 | ) | |||||
Deferred revenue |
39,225 | 81,034 | ||||||
Related party liabilities |
738 | (57,207 | ) | |||||
Other long-term liabilities |
(113 | ) | 1,619 | |||||
Net cash provided by (used in) operating activities |
18,109 | (37,688 | ) | |||||
Cash flows from investing activities: |
||||||||
Additions to property and equipment |
(34,983 | ) | (98,965 | ) | ||||
Sale of restricted and other investments |
| 9,450 | ||||||
Net cash used in investing activities |
(34,983 | ) | (89,515 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of warrants and stock options |
1,072 | | ||||||
Long-term borrowings, net of costs |
| 637,406 | ||||||
Related party long-term borrowings, net of costs |
| 147,094 | ||||||
Payment of premiums on redemption of debt |
(4,094 | ) | | |||||
Repayment of long-term borrowings |
(133,100 | ) | (248,183 | ) | ||||
Restricted cash used for the redemption of debt |
| (524,065 | ) | |||||
Net cash (used in) provided by financing activities |
(136,122 | ) | 12,252 | |||||
Net decrease in cash and cash equivalents |
(152,996 | ) | (114,951 | ) | ||||
Cash and cash equivalents at beginning of period |
586,691 | 383,489 | ||||||
Cash and cash equivalents at end of period |
$ | 433,695 | $ | 268,538 | ||||
Footnotes
(1) | Average self-pay monthly churn represents the monthly average of self-pay deactivations for the quarter divided by the average number of self-pay subscribers for the quarter. | |
(2) | We measure the percentage of owners and lessees of new vehicles that receive our service and convert to become self-paying subscribers after the initial promotion period. We refer to this as the conversion rate. At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive trial subscriptions ranging from three to twelve months. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. We measure conversion rate three months after the period in which the trial service ends. | |
(3) | ARPU is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting associated with the Merger. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts): |
Unaudited | ||||||||
For the Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Subscriber revenue (GAAP) |
$ | 622,437 | $ | 579,509 | ||||
Add: net advertising revenue (GAAP) |
16,558 | 14,527 | ||||||
Add: other subscription-related revenue (GAAP) |
58,531 | 47,947 | ||||||
Add: purchase price accounting adjustments |
1,909 | 4,966 | ||||||
$ | 699,435 | $ | 646,949 | |||||
Daily weighted average number of subscribers |
20,233,144 | 18,783,263 | ||||||
ARPU |
$ | 11.52 | $ | 11.48 | ||||
(4) | Subscriber acquisition cost, per gross subscriber addition (or SAC, per gross subscriber addition) is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding purchase price accounting adjustments, divided by the number of gross subscriber additions for the period. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit of amortization of deferred credits on executory contracts recognized at the Merger date attributable to an OEM. SAC, per gross subscriber |
addition, is calculated as follows (in thousands, except for subscriber and per subscriber amounts): |
Unaudited | ||||||||
For the Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Subscriber acquisition costs (GAAP) |
$ | 105,270 | $ | 89,379 | ||||
Less: margin from direct sales of radios and accessories (GAAP) |
(9,462 | ) | (6,364 | ) | ||||
Add: purchase price accounting adjustments |
21,656 | 17,666 | ||||||
$ | 117,464 | $ | 100,681 | |||||
Gross subscriber additions |
2,052,367 | 1,720,848 | ||||||
SAC, per gross subscriber addition |
$ | 57 | $ | 59 | ||||
(5) | Customer service and billing expenses, per average subscriber, is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments associated with the Merger, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber, is useful given the significant variation in expense that can result from changes in the fair market value of our common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit associated with incremental share-based payment arrangements recognized at the Merger date. Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts): |
Unaudited | ||||||||
For the Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Customer service and billing expenses (GAAP) |
$ | 65,836 | $ | 56,211 | ||||
Less: share-based payment expense, net of purchase
price accounting adjustments |
(367 | ) | (728 | ) | ||||
Add: purchase price accounting adjustments |
18 | 94 | ||||||
$ | 65,487 | $ | 55,577 | |||||
Daily weighted average number of subscribers |
20,233,144 | 18,783,263 | ||||||
Customer service and billing expenses, per average subscriber |
$ | 1.08 | $ | 0.99 | ||||
(6) | Free cash flow is calculated as follows (in thousands): |
Unaudited | ||||||||
For the Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Net cash provided by (used in) operating activities |
$ | 18,109 | $ | (37,688 | ) | |||
Additions to property and equipment |
(34,983 | ) | (98,965 | ) | ||||
Restricted and other investment activity |
| 9,450 | ||||||
Free cash flow |
$ | (16,874 | ) | $ | (127,203 | ) | ||
(7) | EBITDA is defined as net income (loss) before interest and investment income (loss); interest expense, net of amounts capitalized; taxes expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable): (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) goodwill impairment, (iii) restructuring, impairments, and related costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our physical plant, capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our results and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use current and projected adjusted EBITDA to estimate our current and prospective enterprise value and to make investment decisions. Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation expense. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We 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 (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 (in thousands):
Unaudited | ||||||||
For the Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Net income (GAAP): |
$ | 78,121 | $ | 41,598 | ||||
Add back items excluded from Adjusted EBITDA: |
||||||||
Purchase price accounting adjustments: |
||||||||
Revenues |
3,722 | 6,779 | ||||||
Operating expenses |
(67,972 | ) | (62,610 | ) | ||||
Share-based payment expense, net of purchase price
accounting adjustments |
13,037 | 18,183 | ||||||
Depreciation and amortization (GAAP) |
68,400 | 70,265 | ||||||
Interest expense, net of amounts capitalized (GAAP) |
78,218 | 77,868 | ||||||
Loss on extinguishment of debt and credit facilities, net (GAAP) |
5,994 | 2,450 | ||||||
Interest and investment loss (GAAP) |
1,884 | 3,270 | ||||||
Other income (GAAP) |
(1,617 | ) | (1,213 | ) | ||||
Income tax expense (GAAP) |
1,572 | 1,167 | ||||||
Adjusted EBITDA |
$ | 181,359 | $ | 157,757 | ||||
(8) | The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the three months ended March 31, 2011 and 2010: |
Unaudited For the Three Months Ended March 31, 2011 | ||||||||||||||||
Purchase Price | Allocation of | |||||||||||||||
Accounting | Share-based | |||||||||||||||
(in thousands) | As Reported | Adjustments | Payment Expense | Adjusted | ||||||||||||
Revenue: |
||||||||||||||||
Subscriber
revenue,
including
effects of
rebates |
$ | 622,437 | $ | 1,909 | $ | | $ | 624,346 | ||||||||
Advertising
revenue, net of
agency fees |
16,558 | | | 16,558 | ||||||||||||
Equipment revenue |
15,867 | | | 15,867 | ||||||||||||
Other revenue |
68,977 | 1,813 | | 70,790 | ||||||||||||
Total revenue |
$ | 723,839 | $ | 3,722 | $ | | $ | 727,561 | ||||||||
Operating expenses |
||||||||||||||||
Cost of services: |
||||||||||||||||
Revenue
share and
royalties |
106,929 | 29,933 | | 136,862 | ||||||||||||
Programming
and content |
72,959 | 12,824 | (2,510 | ) | 83,273 | |||||||||||
Customer
service and
billing |
65,836 | 18 | (367 | ) | 65,487 | |||||||||||
Satellite
and
transmission |
18,560 | 239 | (567 | ) | 18,232 | |||||||||||
Cost of
equipment |
6,405 | | | 6,405 | ||||||||||||
Subscriber
acquisition
costs |
105,270 | 21,656 | | 126,926 | ||||||||||||
Sales and
marketing |
47,819 | 3,212 | (1,875 | ) | 49,156 | |||||||||||
Engineering,
design and
development |
11,135 | 31 | (1,142 | ) | 10,024 | |||||||||||
General and
administrative |
56,354 | 59 | (6,576 | ) | 49,837 | |||||||||||
Depreciation and
amortization (a) |
68,400 | | | 68,400 | ||||||||||||
Share-based
payment expense
(b) |
| | 13,037 | 13,037 | ||||||||||||
Total operating
expenses |
$ | 559,667 | $ | 67,972 | $ | | $ | 627,639 | ||||||||
(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 March 31, 2011 was $15,000. | |
(b) | Amounts related to share-based payment expense included in operating expenses were as follows: |
Programming and
content |
$ | 2,483 | $ | 27 | $ | | $ | 2,510 | ||||||||
Customer service
and billing |
349 | 18 | | 367 | ||||||||||||
Satellite and
transmission |
548 | 19 | | 567 | ||||||||||||
Sales and marketing |
1,848 | 27 | | 1,875 | ||||||||||||
Engineering, design
and development |
1,111 | 31 | | 1,142 | ||||||||||||
General and
administrative |
6,517 | 59 | | 6,576 | ||||||||||||
Total share-based
payment expense |
$ | 12,856 | $ | 181 | $ | | $ | 13,037 | ||||||||
Unaudited For the Three Months Ended March 31, 2010 | ||||||||||||||||
Purchase Price | Allocation of | |||||||||||||||
Accounting | Share-based | |||||||||||||||
(in thousands) | As Reported | Adjustments | Payment Expense | Adjusted | ||||||||||||
Revenue: |
||||||||||||||||
Subscriber
revenue,
including
effects of
rebates |
$ | 579,509 | $ | 4,966 | $ | | $ | 584,475 | ||||||||
Advertising
revenue, net of
agency fees |
14,527 | | | 14,527 | ||||||||||||
Equipment revenue |
14,283 | | | 14,283 | ||||||||||||
Other revenue |
55,465 | 1,813 | | 57,278 | ||||||||||||
Total revenue |
$ | 663,784 | $ | 6,779 | $ | | $ | 670,563 | ||||||||
Operating expenses |
||||||||||||||||
Cost of services: |
||||||||||||||||
Revenue
share and
royalties |
98,184 | 25,355 | | 123,539 | ||||||||||||
Programming
and content |
78,434 | 15,147 | (3,110 | ) | 90,471 | |||||||||||
Customer
service and
billing |
56,211 | 94 | (728 | ) | 55,577 | |||||||||||
Satellite
and
transmission |
20,119 | 323 | (1,053 | ) | 19,389 | |||||||||||
Cost of
equipment |
7,919 | | | 7,919 | ||||||||||||
Subscriber
acquisition
costs |
89,379 | 17,666 | | 107,045 | ||||||||||||
Sales and
marketing |
49,117 | 3,525 | (2,700 | ) | 49,942 | |||||||||||
Engineering,
design and
development |
11,436 | 186 | (1,796 | ) | 9,826 | |||||||||||
General and
administrative |
57,580 | 314 | (8,796 | ) | 49,098 | |||||||||||
Depreciation and
amortization (a) |
70,265 | | | 70,265 | ||||||||||||
Share-based
payment expense(b) |
| | 18,183 | 18,183 | ||||||||||||
Total operating
expenses |
$ | 538,644 | $ | 62,610 | $ | | $ | 601,254 | ||||||||
(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 March 31, 2010 was $19,000. | |
(b) | Amounts related to share-based payment expense included in operating expenses were as follows: |
Programming and
content |
$ | 2,950 | $ | 160 | $ | | $ | 3,110 | ||||||||
Customer service
and billing |
634 | 94 | | 728 | ||||||||||||
Satellite and
transmission |
951 | 102 | | 1,053 | ||||||||||||
Sales and marketing |
2,555 | 145 | | 2,700 | ||||||||||||
Engineering, design
and development |
1,610 | 186 | | 1,796 | ||||||||||||
General and
administrative |
8,482 | 314 | | 8,796 | ||||||||||||
Total share-based
payment expense |
$ | 17,182 | $ | 1,001 | $ | | $ | 18,183 | ||||||||
###
About Sirius XM Radio
Sirius XM Radio is Americas 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 20.6 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; 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 SECs 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
212 901 6718
hooper.stevens@siriusxm.com
Media:
Patrick Reilly
212 901 6646
patrick.reilly@siriusxm.com
212 901 6646
patrick.reilly@siriusxm.com