Investor Relations

SiriusXM Reports Record Third Quarter 2011 Results

-- Subscribers Exceed 21.3 Million, Net Adds of 334,000
-- Record Revenue of $763 Million, Up 6%
-- Record Adjusted EBITDA of $197 Million, Up 16%
-- Free Cash Flow of $75 Million, Up 22%
-- Net Income of $104 Million, Up 54%

NEW YORK, Nov. 1, 2011 /PRNewswire/ -- Sirius XM Radio (NASDAQ: SIRI) today announced third quarter 2011 results, including 21.3 million subscribers, net subscriber additions of 334,000, revenue of $763 million, up 6% over third quarter 2010 revenue of $718 million, and adjusted EBITDA of $197 million, up 16% from $170 million in the third quarter of 2010.

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

"In the third quarter, we once again delivered record levels of subscribers, revenue and adjusted EBITDA, and we are confident our positive momentum will continue in the fourth quarter.  This has been an exciting year for SiriusXM, but I'm even more excited by the many opportunities awaiting us in 2012.  We plan to accelerate our revenue and adjusted EBITDA growth, deliver more free cash flow than ever before, and we are thrilled to offer exciting new content and innovations to our existing and future subscribers," said Mel Karmazin, Chief Executive Officer, SiriusXM.  

Highlights from the quarter include:

  • Free cash flow improves.  Free cash flow in the third quarter of 2011 was $75 million, a 22% improvement from the $62 million reported in the third quarter of 2010.
  • Subscribers reach new record high. Subscribers increased by 7% year-over-year to 21,349,858 at September 30, 2011. Self-pay net additions in the third quarter of 2011 were 364,004, up 41% from 258,105 in the third quarter of 2010, and the self-pay subscriber base reached an all-time high of 17,534,310, up 7% year-over-year.
  • Churn stable.  Average self-pay monthly churn was 1.9% in the third quarter of 2011, in-line with 1.9% in the second quarter of 2011 and the third quarter of 2010.  
  • Cost Efficient Growth.  Total cash operating expenses increased only 2.7% over the prior year quarter, while revenues increased 6% over the prior year quarter, resulting in an expansion of our adjusted EBITDA margin to a record 25.8%.

Net income in the third quarters of 2011 and 2010 was $104 million and $68 million, respectively, or $0.02 and $0.01 per diluted share, respectively.

"We ended the third quarter with more than $600 million of cash and cash equivalents," said David Frear, SiriusXM's Executive Vice President and Chief Financial Officer.  "Our ratio of net debt to adjusted EBITDA declined to 3.4x at the end of the third quarter of 2011 from 4.5x at the end of the third quarter of 2010.  Our free cash flow for the first nine months of 2011 of $224 million exceeded the $210 million of free cash flow generated for the entire year of 2010.  With the seasonally strong cash flow of the fourth quarter ahead of us, declining capital expenditures, the anticipated substantial 2012 growth in EBITDA and free cash flow, and declining debt maturities in 2012 our liquidity will continue to rapidly improve," added Frear.

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 AND 2012 GUIDANCE

SiriusXM reiterated the following subscriber and financial guidance for 2011:

  • Net subscriber additions of 1.6 million,
  • Full year self-pay churn and conversion rates for 2011 should be broadly similar to those seen in 2010,
  • Revenue of approximately $3 billion,
  • Adjusted EBITDA of approximately $715 million, and
  • Free cash flow approaching $400 million.

For 2012, the company reiterates its existing financial guidance:

  • Revenue growth of 10% to approximately $3.3 billion,
  • Adjusted EBITDA growth of 20% to approximately $860 million, and
  • Free cash flow growth of 75% to approximately $700 million.

THIRD QUARTER 2011 RESULTS

Subscriber Data.

The following table contains actual subscriber data for the three and nine months ended September 30, 2011 and 2010, respectively:


Unaudited


For the Three Months Ended September 30,


For the Nine Months Ended September 30,


2011


2010


2011


2010









Beginning subscribers

21,016,175


19,527,448


20,190,964


18,772,758

Gross subscriber additions

2,138,131


1,952,054


6,369,846


5,693,409

Deactivated subscribers

(1,804,448)


(1,617,327)


(5,210,952)


(4,603,992)

Net additions

333,683


334,727


1,158,894


1,089,417

Ending subscribers

21,349,858


19,862,175


21,349,858


19,862,175









Self-pay

17,534,310


16,335,819


17,534,310


16,335,819

Paid promotional

3,815,548


3,526,356


3,815,548


3,526,356

Ending subscribers

21,349,858


19,862,175


21,349,858


19,862,175









Self-pay

364,004


258,105


847,511


631,887

Paid promotional

(30,321)


76,622


311,383


457,530

Net additions

333,683


334,727


1,158,894


1,089,417









Daily weighted average number of subscribers

21,107,540


19,610,837


20,688,641


19,181,040









Average self-pay monthly churn (1)

1.9%


1.9%


1.9%


1.9%









Conversion rate (2)

44.4%


48.1%


44.7%


46.6%



____________

See accompanying footnotes.

Subscribers. The improvement in the three months ended September 30, 2011 was due to the 10% 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 remained flat at 1.9% for all periods presented.

Conversion Rate. The decrease in the three months ended September 30, 2011 was primarily due to the changing mix of sales among OEMs and operational issues impacting the timing of the receipt of customer information and prompt marketing communications with buyers and lessees of vehicles.

Metrics.

The following table contains our key operating metrics based on our unaudited adjusted results of operations for the three and nine months ended September 30, 2011 and 2010, respectively:


Unaudited


For the Three Months Ended September 30,


For the Nine Months Ended September 30,

(in thousands, except for per subscriber amounts)

2011


2010


2011


2010





ARPU (3)

$     11.66


$     11.81


$        11.57


$        11.70

SAC, per gross subscriber addition (4)

$          55


$          59


$             55


$             59

Customer service and billing expenses, per average








subscriber (5)

$       1.01


$       1.02


$          1.03


$          1.00

Free cash flow (6)

$   75,377


$   61,998


$    223,936


$      43,126

Adjusted total revenue (8)

$ 764,842


$ 722,537


$ 2,239,737


$ 2,098,659

Adjusted EBITDA (7)

$ 197,288


$ 169,727


$    563,741


$    481,799



____________

See accompanying footnotes.

ARPU decreased in the three months ended September 30, 2011 by $0.15, driven primarily by an increase in subscription discounts offered through customer acquisition and retention programs, the number of subscribers on OEM paid promotional plans and the decrease in the U.S. Music Royalty Fee, partially offset by an increase in sales of our premium services, including Premier packages, data services and streaming.

SAC, Per Gross Subscriber Addition, decreased in the three months ended September 30, 2011 primarily due to 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 September 30, 2010.

Customer Service and Billing Expenses, Per Average Subscriber, decreased in the three months ended September 30, 2011 primarily due to lower operating costs, partially offset by higher call volume, handle time per call, increased agent rates and personnel costs associated with the 8% growth in daily weighted average subscribers.

Free Cash Flow increased in the three months ended September 30, 2011 principally as a result of improvements in adjusted EBITDA and decreases in capital expenditures.  Net cash provided by operating activities decreased $35 million to $115 million for the three months ended September 30, 2011 compared to the $150 million provided by operations for the three months ended September 30, 2010. Capital expenditures for property and equipment for the three months ended September 30, 2011 decreased $48 million to $40 million compared to $88 million for the three months ended September 30, 2010. The decrease in net cash provided by operating activities was primarily the result of the timing of prepayments made to content providers, partially offset by improved operating performance driving higher adjusted EBITDA. The decrease in capital expenditures for the three months ended September 30, 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 and nine months ended September 30, 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 September 30,


For the Nine Months Ended September 30,

(in thousands)

2011


2010


2011


2010





Revenue:




Subscriber revenue (GAAP)

$660,837


$612,119


$1,922,917


$1,793,258

Advertising revenue, net of agency fees (GAAP)

18,810


15,973


53,595


46,296

Equipment revenue (GAAP)

15,504


17,823


48,392


50,625

Other revenue (GAAP)

67,399


71,633


205,882


190,914

Total revenue (GAAP)

762,550


717,548


2,230,786


2,081,093

Purchase price accounting adjustments:








Subscriber revenue

479


3,176


3,513


12,128

Other revenue  

1,813


1,813


5,438


5,438

Adjusted total revenue

$764,842


$722,537


$2,239,737


$2,098,659



For the three months ended September 30, 2011, the increase in subscriber revenue was primarily attributable to an increase of 8% in daily weighted average subscribers and an increase in sales of premium services, including Premier packages, data services and streaming, partially offset by the impact of subscription discounts offered through customer acquisition and retention programs. The increase in advertising revenue was primarily due to more effective sales efforts and greater demand for audio advertising resulting in increases in the number of advertising spots sold as well as the rate charged per spot. The decrease in equipment revenue was driven by a reduction in aftermarket hardware subsidies earned. The decrease in other revenue was primarily due to a reduction in the U.S. Music Royalty Fee, which was partially offset by increased royalty revenue from Sirius XM Canada and an increase in subscribers subject to the U.S. Music Royalty Fee.

Adjusted EBITDA.  EBITDA is defined as net income before interest and investment income (loss); interest expense, net of amounts capitalized; income tax expense and depreciation and amortization.  Adjusted EBITDA removes the impact of other income and expense, losses on extinguishment of debt as well as certain other charges, such as goodwill impairment; restructuring, impairments and related costs; certain purchase price accounting adjustments and share-based payment expense.


Unaudited Adjusted


For the Three Months Ended September 30,


For the Nine Months Ended September 30,


2011


2010


2011


2010









Total revenue

$764,842


$722,537


$2,239,737


$2,098,659

Operating expenses:








Revenue share and royalties

149,336


141,981


434,072


399,838

Programming and content

81,268


88,869


242,767


263,271

Customer service and billing

63,837


59,967


191,608


173,307

Satellite and transmission

18,946


20,023


55,684


58,645

Cost of equipment

5,888


6,463


19,894


22,187

Subscriber acquisition costs

127,899


126,873


381,797


364,600

Sales and marketing

56,976


52,213


159,778


159,231

Engineering, design and development

12,884


10,843


35,873


30,304

General and administrative

50,520


45,578


154,523


145,477

Total operating expenses

567,554


552,810


1,675,996


1,616,860

Adjusted EBITDA

$197,288


$169,727


$   563,741


$   481,799



For the three months ended September 30, 2011, the increase in adjusted EBITDA was primarily due to a 6% increase or $42 million, in adjusted revenues, partially offset by an increase of nearly 3%, or $15 million, in expenses included in adjusted EBITDA. The increase in adjusted revenues was primarily due to the increase in our subscriber base.  The increase in expenses was primarily driven by higher revenue share and royalties expenses associated with growth in revenues and increased customer service and billing expenses attributable to 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 September 30,


For the Nine Months Ended September 30,

(in thousands, except per share data)

2011


2010


2011


2010





Revenue:








Subscriber revenue

$      660,837


$    612,119


$   1,922,917


$   1,793,258

Advertising revenue, net of agency fees

18,810


15,973


53,595


46,296

Equipment revenue

15,504


17,823


48,392


50,625

Other revenue

67,399


71,633


205,882


190,914

Total revenue

762,550


717,548


2,230,786


2,081,093

Operating expenses:








Cost of services:








Revenue share and royalties

117,043


114,482


340,713


320,567

Programming and content

70,509


78,143


210,867


228,595

Customer service and billing

64,239


60,613


192,667


175,238

Satellite and transmission

19,681


20,844


57,238


60,944

Cost of equipment

5,888


6,463


19,894


22,187

Subscriber acquisition costs

107,279


105,984


317,711


305,745

Sales and marketing

55,210


51,519


154,471


156,813

Engineering, design and development

14,175


12,526


39,249


35,209

General and administrative

58,635


54,188


175,469


170,935

Depreciation and amortization

65,403


67,450


200,865


206,945

Restructuring, impairments and related costs

-


2,267


-


4,071

Total operating expenses

578,062


574,479


1,709,144


1,687,249

Income from operations

184,488


143,069


521,642


393,844

Other income (expense):








Interest expense, net of amounts capitalized

(75,316)


(68,559)


(229,730)


(223,230)

Loss on extinguishment of debt and credit facilities, net

-


(256)


(7,206)


(34,695)

Interest and investment income (loss)

292


(4,305)


78,590


(7,197)

Other income

435


1,108


2,235


1,837

Total other expense

(74,589)


(72,012)


(156,111)


(263,285)

Income before income taxes

109,899


71,057


365,531


130,559

Income tax expense

(5,714)


(3,428)


(9,907)


(6,060)









Net income  

$      104,185


$      67,629


$      355,624


$      124,499

Net income per common share:








Basic

$            0.03


$          0.02


$            0.10


$            0.03

Diluted

$            0.02


$          0.01


$            0.05


$            0.02









Weighted average common shares outstanding:








Basic

3,747,381


3,689,245


3,742,309


3,686,312

Diluted

6,507,370


6,369,831


6,500,819


6,361,090



SIRIUS XM RADIO INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


September 30, 2011


December 31, 2010


(unaudited)



(in thousands, except share and per share data)




ASSETS




Current assets:




Cash and cash equivalents

$                604,592


$               586,691

Accounts receivable, net

96,905


121,658

Receivables from distributors

79,934


67,576

Inventory, net

36,196


21,918

Prepaid expenses

146,946


134,994

Related party current assets

5,228


6,719

Deferred tax asset

58,493


44,787

Other current assets

4,908


7,432

Total current assets

1,033,202


991,775

Property and equipment, net

1,702,566


1,761,274

Long-term restricted investments

3,146


3,396

Deferred financing fees, net

45,093


54,135

Intangible assets, net

2,587,855


2,632,688

Goodwill

1,834,856


1,834,856

Related party long-term assets

69,943


33,475

Other long-term assets

48,176


71,487

Total assets

$             7,324,837


$            7,383,086

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued expenses

$                473,472


$               593,174

Accrued interest

78,925


72,453

Current portion of deferred revenue

1,276,996


1,201,346

Current portion of deferred credit on executory contracts

286,056


271,076

Current maturities of long-term debt

25,588


195,815

Related party current liabilities

16,541


15,845

Total current liabilities

2,157,578


2,349,709

Deferred revenue

219,344


273,973

Deferred credit on executory contracts

288,036


508,012

Long-term debt

2,677,550


2,695,856

Long-term related party debt

328,029


325,907

Deferred tax liability

935,805


914,637

Related party long-term liabilities

22,435


24,517

Other long-term liabilities

81,048


82,839

Total liabilities

6,709,825


7,175,450





Commitments and contingencies




Stockholders' equity:




Preferred stock, par value $0.001; 50,000,000 authorized at September 30, 2011 and December 31, 2010:




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




and December 31, 2010

-


-

Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 at September 30, 2011




and December 31, 2010); 12,500,000 shares issued and outstanding at September 30, 2011 and




December 31, 2010

13


13

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




September 30, 2011 and December 31, 2010

-


-

Common stock, par value $0.001; 9,000,000,000 shares authorized at September 30, 2011 and




December 31, 2010; 3,951,945,992 and 3,933,195,112 shares issued and outstanding at




September 30, 2011 and December 31, 2010, respectively

3,952


3,933

Accumulated other comprehensive income (loss), net of tax

398


(5,861)

Additional paid-in capital

10,466,078


10,420,604

Accumulated deficit

(9,855,429)


(10,211,053)

Total stockholders' equity

615,012


207,636

Total liabilities and stockholders' equity

$             7,324,837


$            7,383,086



SIRIUS XM RADIO INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


Unaudited Actual


For the Nine Months Ended September 30,

(in thousands)

2011


2010



Cash flows from operating activities:




Net income

$ 355,624


$ 124,499

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




Depreciation and amortization

200,865


206,945

Non-cash interest expense, net of amortization of premium

29,211


32,983

Provision for doubtful accounts

26,209


23,300

Restructuring, impairments and related costs

-


4,071

Amortization of deferred income related to equity method investment

(2,082)


(2,081)

Loss on extinguishment of debt and credit facilities, net

7,206


34,695

Gain on merger of unconsolidated entities

(84,855)


-

Loss on unconsolidated entity investments, net

10,259


8,990

Loss on disposal of assets

269


927

Share-based payment expense

37,574


50,944

Deferred income taxes

7,214


6,060

Other non-cash purchase price adjustments

(203,630)


(184,703)

Distribution from investment in unconsolidated entity

4,849


-

Changes in operating assets and liabilities:




Accounts receivable

(1,456)


(18,890)

Receivables from distributors

(12,358)


(22,430)

Inventory

(14,278)


(1,843)

Related party assets

30,300


(2,654)

Prepaid expenses and other current assets

(11,028)


41,794

Other long-term assets

23,969


11,765

Accounts payable and accrued expenses

(100,502)


(69,629)

Accrued interest

6,472


5,244

Deferred revenue

19,653


92,864

Related party liabilities

696


(50,940)

Other long-term liabilities

(1,547)


(865)

Net cash provided by operating activities

328,634


291,046





Cash flows from investing activities:




Additions to property and equipment

(115,065)


(257,374)

Sale of restricted and other investments

-


9,454

Release of restricted investments

250


-

Return of capital from investment in unconsolidated entity

10,117


-

Net cash used in investing activities

(104,698)


(247,920)



Cash flows from financing activities:




Proceeds from exercise of stock options

9,045


4,906

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

(5,020)


(24,321)

Repayment of long-term borrowings

(210,060)


(820,224)

Repayment of related party long-term borrowings

-


(55,221)

Net cash used in financing activities

(206,035)


(110,360)

Net increase (decrease) in cash and cash equivalents

17,901


(67,234)

Cash and cash equivalents at beginning of period

586,691


383,489

Cash and cash equivalents at end of period

$ 604,592


$ 316,255



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 September 30,


For the Nine Months Ended September 30,


2011


2010


2011


2010





Subscriber revenue (GAAP)

$    660,837


$    612,119


$ 1,922,917


$ 1,793,258

Add: net advertising revenue (GAAP)

18,810


15,973


53,595


46,296

Add: other subscription-related revenue (GAAP)

58,168


63,554


174,341


168,195

Add: purchase price accounting adjustments

479


3,176


3,513


12,128


$    738,294


$    694,822


$ 2,154,366


$ 2,019,877









Daily weighted average number of subscribers

21,107,540


19,610,837


20,688,641


19,181,040









ARPU

$        11.66


$        11.81


$        11.57


$        11.70



(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 September 30,


For the Nine Months Ended September 30,


2011


2010


2011


2010





Subscriber acquisition costs (GAAP)

$  107,279


$  105,984


$  317,711


$  305,745

Less: margin from direct sales of radios and accessories (GAAP)

(9,616)


(11,360)


(28,498)


(28,438)

Add: purchase price accounting adjustments

20,620


20,889


64,086


58,855


$  118,283


$  115,513


$  353,299


$  336,162









Gross subscriber additions

2,138,131


1,952,054


6,369,846


5,693,409









SAC, per gross subscriber addition

$           55


$           59


$           55


$           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 September 30,


For the Nine Months Ended September 30,


2011


2010


2011


2010





Customer service and billing expenses (GAAP)

$      64,239


$      60,613


$    192,667


$    175,238

Less: share-based payment expense, net of purchase








price accounting adjustments

(402)


(700)


(1,077)


(2,157)

Add: purchase price accounting adjustments

-


54


18


226


$      63,837


$      59,967


$    191,608


$    173,307









Daily weighted average number of subscribers

21,107,540


19,610,837


20,688,641


19,181,040









Customer service and billing expenses, per average subscriber

$          1.01


$          1.02


$          1.03


$          1.00



(6) Free cash flow is calculated as follows (in thousands):


Unaudited


For the Three Months Ended September 30,


For the Nine Months Ended September 30,


2011


2010


2011


2010





Net cash provided by operating activities

$ 115,144


$ 150,059


$ 328,634


$ 291,046

Additions to property and equipment

(39,767)


(88,061)


(115,065)


(257,374)

Restricted and other investment activity

-


-


10,367


9,454

Free cash flow

$   75,377


$   61,998


$ 223,936


$   43,126



(7) EBITDA is defined as net income before interest and investment income (loss); interest expense, net of amounts capitalized; income tax expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable):  (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) goodwill impairment, (iii) restructuring, impairments, and related costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our physical plant, capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our results and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use current and projected adjusted EBITDA to estimate our current and prospective enterprise value and to make investment decisions. Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation expense. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair value as determined using the Black-Scholes-Merton model which varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates.

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including share-based payment expense and certain purchase price accounting for the Merger. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure.  Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income as disclosed in our consolidated statements of operations. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income to the adjusted EBITDA is calculated as follows (in thousands):


Unaudited


For the Three Months Ended September 30,


For the Nine Months Ended September 30,


2011


2010


2011


2010





Net income (GAAP):

$ 104,185


$   67,629


$ 355,624


$ 124,499

Add back items excluded from Adjusted EBITDA:








Purchase price accounting adjustments:








Revenues

2,292


4,989


8,951


17,566

Operating expenses

(68,878)


(66,438)


(205,472)


(193,904)

Share-based payment expense, net of purchase price








accounting adjustments

13,983


18,390


37,755


53,277

Depreciation and amortization (GAAP)

65,403


67,450


200,865


206,945

Restructuring, impairments and related costs

-


2,267


-


4,071

Interest expense, net of amounts capitalized (GAAP)

75,316


68,559


229,730


223,230

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

-


256


7,206


34,695

Interest and investment (income) loss (GAAP)

(292)


4,305


(78,590)


7,197

Other income (GAAP)

(435)


(1,108)


(2,235)


(1,837)

Income tax expense (GAAP)

5,714


3,428


9,907


6,060









Adjusted EBITDA

$ 197,288


$ 169,727


$ 563,741


$ 481,799



(8) The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the three and nine months ended September 30, 2011 and 2010:


Unaudited For the Three Months Ended September 30, 2011

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue

$660,837


$479


$-


$661,316

Advertising revenue, net of agency fees

18,810


-


-


18,810

Equipment revenue

15,504


-


-


15,504

Other revenue

67,399


1,813


-


69,212

Total revenue

$762,550


$2,292


$-


$764,842

Operating expenses








Cost of services:








Revenue share and royalties

117,043


32,293


-


149,336

Programming and content

70,509


12,034


(1,275)


81,268

Customer service and billing

64,239


-


(402)


63,837

Satellite and transmission

19,681


-


(735)


18,946

Cost of equipment

5,888


-


-


5,888

Subscriber acquisition costs

107,279


20,620


-


127,899

Sales and marketing

55,210


3,931


(2,165)


56,976

Engineering, design and development

14,175


-


(1,291)


12,884

General and administrative

58,635


-


(8,115)


50,520

Depreciation and amortization (a)

65,403


-


-


65,403

Restructuring, impairments and related costs

-


-


-


-

Share-based payment expense (b)

-


-


13,983


13,983

Total operating expenses

$578,062


$68,878


$-


$646,940









(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 September 30, 2011 was $15,000.









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









Programming and content

$1,275


$-


$-


$1,275

Customer service and billing

402


-


-


402

Satellite and transmission

735


-


-


735

Sales and marketing

2,165


-


-


2,165

Engineering, design and development

1,291


-


-


1,291

General and administrative

8,115


-


-


8,115









Total share-based payment expense

$13,983


$-


$-


$13,983




Unaudited For the Three Months Ended September 30, 2010

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue

$612,119


$3,176


$-


$615,295

Advertising revenue, net of agency fees

15,973


-


-


15,973

Equipment revenue

17,823


-


-


17,823

Other revenue

71,633


1,813


-


73,446

Total revenue

$717,548


$4,989


$-


$722,537

Operating expenses








Cost of services:








Revenue share and royalties

114,482


27,499


-


141,981

Programming and content

78,143


13,955


(3,229)


88,869

Customer service and billing

60,613


54


(700)


59,967

Satellite and transmission

20,844


272


(1,093)


20,023

Cost of equipment

6,463


-


-


6,463

Subscriber acquisition costs

105,984


20,889


-


126,873

Sales and marketing

51,519


3,506


(2,812)


52,213

Engineering, design and development

12,526


93


(1,776)


10,843

General and administrative

54,188


170


(8,780)


45,578

Depreciation and amortization (a)

67,450


-


-


67,450

Restructuring, impairments and related costs

2,267


-


-


2,267

Share-based payment expense (b)

-


-


18,390


18,390

Total operating expenses

$574,479


$66,438


$-


$640,917









(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 September 30, 2010 was $16,000.









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









Programming and content

$3,148


$81


$-


$3,229

Customer service and billing

646


54


-


700

Satellite and transmission

1,042


51


-


1,093

Sales and marketing

2,732


80


-


2,812

Engineering, design and development

1,683


93


-


1,776

General and administrative

8,610


170


-


8,780









Total share-based payment expense

$17,861


$529


$-


$18,390




Unaudited For the Nine Months Ended September 30, 2011

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue

$1,922,917


$3,513


$-


$1,926,430

Advertising revenue, net of agency fees

53,595


-


-


53,595

Equipment revenue

48,392


-


-


48,392

Other revenue

205,882


5,438


-


211,320

Total revenue

$2,230,786


$8,951


$-


$2,239,737

Operating expenses








Cost of services:








Revenue share and royalties

340,713


93,359


-


434,072

Programming and content

210,867


36,645


(4,745)


242,767

Customer service and billing

192,667


18


(1,077)


191,608

Satellite and transmission

57,238


313


(1,867)


55,684

Cost of equipment

19,894


-


-


19,894

Subscriber acquisition costs

317,711


64,086


-


381,797

Sales and marketing

154,471


10,961


(5,654)


159,778

Engineering, design and development

39,249


31


(3,407)


35,873

General and administrative

175,469


59


(21,005)


154,523

Depreciation and amortization (a)

200,865


-


-


200,865

Restructuring, impairments and related costs

-


-


-


-

Share-based payment expense (b)

-


-


37,755


37,755

Total operating expenses

$1,709,144


$205,472


$-


$1,914,616









(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 nine months ended September 30, 2011 was $45,000.









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









Programming and content

$4,718


$27


$-


$4,745

Customer service and billing

1,059


18


-


1,077

Satellite and transmission

1,848


19


-


1,867

Sales and marketing

5,627


27


-


5,654

Engineering, design and development

3,376


31


-


3,407

General and administrative

20,946


59


-


21,005









Total share-based payment expense

$37,574


$181


$-


$37,755




Unaudited For the Nine Months Ended September 30, 2010

(in thousands)

As Reported


Purchase Price

Accounting

Adjustments


Allocation of

Share-based

Payment Expense


Adjusted









Revenue:








Subscriber revenue

$1,793,258


$12,128


$-


$1,805,386

Advertising revenue, net of agency fees

46,296


-


-


46,296

Equipment revenue

50,625


-


-


50,625

Other revenue

190,914


5,438


-


196,352

Total revenue

$2,081,093


$17,566


$-


$2,098,659

Operating expenses








Cost of services:








Revenue share and royalties

320,567


79,271


-


399,838

Programming and content

228,595


42,805


(8,129)


263,271

Customer service and billing

175,238


226


(2,157)


173,307

Satellite and transmission

60,944


897


(3,196)


58,645

Cost of equipment

22,187


-


-


22,187

Subscriber acquisition costs

305,745


58,855


-


364,600

Sales and marketing

156,813


10,692


(8,274)


159,231

Engineering, design and development

35,209


427


(5,332)


30,304

General and administrative

170,935


731


(26,189)


145,477

Depreciation and amortization (a)

206,945


-


-


206,945

Restructuring, impairments and related costs

4,071


-


-


4,071

Share-based payment expense (b)

-


-


53,277


53,277

Total operating expenses

$1,687,249


$193,904


$-


$1,881,153









(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 nine months ended September 30, 2010 was $52,000.









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









Programming and content

$7,760


$369


$-


$8,129

Customer service and billing

1,931


226


-


2,157

Satellite and transmission

2,960


236


-


3,196

Sales and marketing

7,930


344


-


8,274

Engineering, design and development

4,905


427


-


5,332

General and administrative

25,458


731


-


26,189









Total share-based payment expense

$50,944


$2,333


$-


$53,277



About Sirius XM Radio

Sirius XM Radio is America's satellite radio company.  SiriusXM broadcasts more than 135 satellite radio channels of commercial-free music, and premier sports, news, talk, entertainment, traffic, weather, and data services to over 21 million subscribers. SiriusXM offers an array of content from many of the biggest names in entertainment, as well as from professional sports leagues, major colleges, and national news and talk providers.

SiriusXM programming is available on more than 800 devices, including pre-installed and after-market radios in cars, trucks, boats and aircraft, smartphones and mobile devices, and consumer electronics products for homes and offices. SiriusXM programming is also available at siriusxm.com, and on Apple, BlackBerry and Android-powered mobile devices.

SiriusXM has arrangements with every major automaker and its radio products are available for sale at shop.siriusxm.com as well as retail locations nationwide.

This communication contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "intend," "plan,"  "projection," "outlook" or words of similar meaning.  Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control.  Actual results may differ materially from the results anticipated in these forward-looking statements. 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statement:  our competitive position versus other forms of audio and video entertainment; our ability to retain subscribers and maintain our average monthly revenue per subscriber;  our dependence upon automakers and other third parties; the first quarter tragedy in Japan, which may have certain adverse effects on automakers, radio manufacturers 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 SEC's Internet site (http://www.sec.gov).  The information set forth herein speaks only as of the date hereof, and we disclaim any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this communication.

Follow SiriusXM on Twitter or like the SiriusXM page on Facebook.

E - SIRI

Contact Information for Investors and Financial Media:

Investors:

Hooper Stevens
212 901 6718
hooper.stevens@siriusxm.com

Media:

Patrick Reilly
212 901 6646
patrick.reilly@siriusxm.com

SOURCE Sirius XM Radio

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