Investor Relations

SiriusXM Reports Second Quarter 2012 Results

- Subscribers Grow by 622,000 to a Record 22.9 Million
- Record Revenue of $838 Million, Up 13%
- Net Income of $3.1 Billion Includes a $3.0 Billion Income Tax Benefit
- Adjusted EBITDA Grows 28% to a Record $237 Million
- Free Cash Flow Grows 39% to a Record $230 Million
- Company Raises 2012 Adjusted EBITDA Guidance to Approximately $900 Million

NEW YORK, Aug. 7, 2012 /PRNewswire/ -- Sirius XM Radio (NASDAQ: SIRI) today announced second quarter 2012 financial and operating results, including revenue of $838 million, up 13% over second quarter 2011 revenue of $744 million. Net income for the second quarter 2012 and 2011 was $3.1 billion and $173 million, respectively. Adjusted EBITDA for the second quarter of 2012 was $237 million, up 28% from $185 million in the second quarter of 2011.

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

"SiriusXM continued its exceptional performance in the second quarter, adding over 600,000 subscribers, which represents a post-merger record, despite the mixed macroeconomic trends. We also attained a record-level free cash flow of $230 million - the highest single quarterly free cash flow figure in SiriusXM's history. We are very pleased with the strong operating results we have delivered since the merger, especially our performance in 2012, as we have grown revenue, tightly controlled expenses, and produced substantial growth in adjusted EBITDA and free cash flow," remarked Mel Karmazin, Chief Executive Officer, SiriusXM.

"We've also raised our subscriber, revenue, and adjusted EBITDA guidance as the Company exceeds its targets and as subscribers demonstrate how much they love our great content. We are excited to deliver our new SiriusXM On-Demand service to our subscribers via the internet and smartphones, and our program to launch a personalized music feature via these same channels by the end of the year is on track. We intend to provide more innovative ways for our subscribers to access our best-in-class content, and we believe this focus on satisfying subscribers will also satisfy our shareholders," said Karmazin.

Additional highlights from the second quarter include:

  • Record subscriber growth. Self-pay net subscriber additions improved by 28% year-over-year to 463,000, pushing the self-pay subscriber base to an all-time high of 18.7 million subscribers. The total paid subscriber base rose to a record high 22.9 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by approximately 400,000 from the first quarter to 6.1 million.
  • Churn and conversion stable. Self-pay monthly churn was 1.9% in the second quarter of 2012, unchanged from the 1.9% reported in the second quarter of 2011. The new vehicle consumer conversion rate was 45% in the second quarter of 2012, also unchanged from the second quarter of 2011.
  • Free cash flow grows to record level. Free cash flow was $230 million in the second quarter of 2012, an improvement of 39% from the $165 million recorded in the second quarter of 2011, and SiriusXM attained an all-time record for free cash flow generated in a single quarter in the history of satellite radio.
  • Significant net income items. Included in the second quarter 2012 net income was an income tax benefit of approximately $3.0 billion related to a reversal of substantially all of the Company's deferred income tax valuation allowance. On a comparative basis, the second quarter 2011 net income included a gain of $84 million associated with the Canadian merger of Sirius and XM.

"We ended the second quarter with $868 million of cash, after the repurchase of approximately $101 million in aggregate principal amount of our debt during the quarter. Our leverage at the end of the second quarter of 2012 improved to 3.6x our adjusted EBITDA," said David Frear, SiriusXM's Executive Vice President and Chief Financial Officer. "We called the remaining $186 million of our 9.75% Senior Secured Notes due 2015 for redemption on September 1, 2012. Following the repayment of these notes, our gross debt will stand at approximately $2.7 billion and our leverage, based upon our 2012 adjusted EBITDA guidance, will be at our 3.0x target, a significant improvement from 4.4x one year ago."

2012 GUIDANCE

"Our increase in adjusted EBITDA guidance to approximately $900 million indicates strong confidence in our ability to continue to execute in the back half of the year," said Karmazin. "We were also pleased to raise our subscriber guidance for the second time this year just last month."

The Company's 2012 subscriber, revenue, adjusted EBITDA and free cash flow guidance are as follows:

  • Net subscriber growth approaching 1.6 million,
  • Revenue approaching $3.4 billion,
  • Adjusted EBITDA of approximately $900 million, and
  • Free cash flow of approximately $700 million.

SECOND QUARTER 2012 RESULTS

SIRIUS XM RADIO INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


















For the Three Months
Ended June 30,


For the Six Months
Ended June 30,

(in thousands, except per share data)

2012


2011


2012


2011

Revenue:








Subscriber revenue

$           730,285


$           639,642


$      1,430,526


$       1,262,080

Advertising revenue, net of agency fees

20,786


18,227


39,456


34,785

Equipment revenue

16,417


17,022


33,370


32,889

Other revenue

70,055


69,506


138,912


138,482

Total revenue

837,543


744,397


1,642,264


1,468,236

Operating expenses:








Cost of services:








Revenue share and royalties

135,426


116,741


267,537


223,670

Programming and content

65,169


67,399


135,265


140,358

Customer service and billing

68,679


62,592


134,866


128,429

Satellite and transmission

17,551


18,998


35,661


37,558

Cost of equipment

7,150


7,601


12,956


14,006

Subscriber acquisition costs

119,475


105,162


235,596


210,432

Sales and marketing

57,422


51,442


115,781


99,261

Engineering, design and development

6,272


13,939


18,962


25,074

General and administrative

65,664


60,479


125,550


116,831

Depreciation and amortization

66,793


67,062


132,910


135,462

Total operating expenses

609,601


571,415


1,215,084


1,131,081

Income from operations

227,942


172,982


427,180


337,155

Other income (expense):








Interest expense, net of amounts capitalized

(72,770)


(76,196)


(149,742)


(154,414)

Loss on extinguishment of debt and credit facilities, net

(15,650)


(1,212)


(25,621)


(7,206)

Interest and investment (loss) income

(1,728)


80,182


(2,871)


78,298

Other (loss) income

(173)


183


(749)


1,799

Total other (expense) income

(90,321)


2,957


(178,983)


(81,523)

Income before income taxes

137,621


175,939


248,197


255,632

Income tax benefit (expense)

2,996,549


(2,620)


2,993,747


(4,192)

Net income

$        3,134,170


$           173,319


$      3,241,944


$          251,440

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

-


6,072


-


6,072

Foreign currency translation adjustment, net of tax

18


10


(38)


77

Comprehensive income

$        3,134,188


$           179,401


$      3,241,906


$          257,589

Net income per common share:








Basic

$                 0.83


$                 0.05


$               0.86


$                0.07

Diluted

$                 0.48


$                 0.03


$               0.50


$                0.04

Weighted average common shares outstanding:








Basic

3,765,573


3,744,375


3,766,508


3,739,731

Diluted

6,506,159


6,804,297


6,521,614


6,790,729

 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


June 30, 2012


December 31, 2011

(in thousands, except share and per share data)

(unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$               868,330


$               773,990

Accounts receivable, net

113,705


101,705

Receivables from distributors

97,076


84,817

Inventory, net

36,884


36,711

Prepaid expenses

163,009


125,967

Related party current assets

7,326


14,702

Deferred tax asset

899,485


132,727

Other current assets

8,600


6,335

Total current assets

2,194,415


1,276,954

Property and equipment, net

1,631,110


1,673,919

Long-term restricted investments

3,973


3,973

Deferred financing fees, net

35,552


42,046

Intangible assets, net

2,546,061


2,573,638

Goodwill

1,815,673


1,834,856

Related party long-term assets

51,827


54,953

Long-term deferred tax asset

1,237,393


-

Other long-term assets

19,077


35,657

Total assets

$           9,535,081


$            7,495,996

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued expenses

$              491,704


$               543,193

Accrued interest

62,971


70,405

Current portion of deferred revenue

1,440,983


1,333,965

Current portion of deferred credit on executory contracts

278,401


284,108

Current maturities of long-term debt

5,158


1,623

Related party current liabilities

15,803


14,302

Total current liabilities

2,295,020


2,247,596

Deferred revenue

170,525


198,135

Deferred credit on executory contracts

76,458


218,199

Long-term debt

2,543,249


2,683,563

Long-term related party debt

330,393


328,788

Deferred tax liability

-


1,011,084

Related party long-term liabilities

20,354


21,741

Other long-term liabilities

85,492


82,745

Total liabilities

5,521,491


6,791,851





Stockholders' equity:




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




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

-


-

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

13


13

Common stock, par value $0.001; 9,000,000,000 shares authorized at June 30, 2012 and December 31, 2011; 3,824,178,762 and 3,753,201,929 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

3,824


3,753

Accumulated other comprehensive income, net of tax

33


71

Additional paid-in capital

10,551,868


10,484,400

Accumulated deficit

(6,542,148)


(9,784,092)

Total stockholders' equity

4,013,590


704,145

Total liabilities and stockholders' equity

$            9,535,081


$            7,495,996





SIRIUS XM RADIO INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Six Months Ended June 30,

(in thousands)

2012


2011

Cash flows from operating activities:




Net income

$           3,241,944


$              251,440

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




Depreciation and amortization

132,910


135,462

Non-cash interest expense, net of amortization of premium

21,031


19,234

Provision for doubtful accounts

14,879


17,744

Amortization of deferred income related to equity method investment

(1,388)


(1,388)

Loss on extinguishment of debt and credit facilities, net

25,621


7,206

Gain on merger of unconsolidated entities

-


(83,718)

Loss on unconsolidated entity investments, net

3,469


6,045

Loss on disposal of assets

488


269

Share-based payment expense

28,869


23,591

Deferred income taxes

(2,995,542)


2,223

Other non-cash purchase price adjustments

(147,328)


(134,862)

Distribution from investment in unconsolidated entity

-


4,849

Changes in operating assets and liabilities:




Accounts receivable

(26,879)


3,080

Receivables from distributors

(12,259)


(13,438)

Inventory

(173)


(10,399)

Related party assets

6,813


31,076

Prepaid expenses and other current assets

(39,308)


(20,871)

Other long-term assets

16,579


15,974

Accounts payable and accrued expenses

(51,596)


(101,552)

Accrued interest

(7,434)


(1,888)

Deferred revenue

79,288


63,649

Related party liabilities

1,501


(42)

Other long-term liabilities

2,238


(194)

Net cash provided by operating activities

293,723


213,490





Cash flows from investing activities:




Additions to property and equipment

(48,944)


(75,298)

Release of restricted investments

-


250

Return of capital from investment in unconsolidated entity

-


10,117

Net cash used in investing activities

(48,944)


(64,931)





Cash flows from financing activities:




Proceeds from exercise of stock options

38,671


6,921

Payment of premiums on redemption of debt

(19,211)


(5,020)

Repayment of long-term borrowings

(169,899)


(208,824)

Net cash used in financing activities

(150,439)


(206,923)

Net increase (decrease) in cash and cash equivalents

94,340


(58,364)

Cash and cash equivalents at beginning of period

773,990


586,691

Cash and cash equivalents at end of period

$              868,330


$              528,327





Subscriber Data and Operating Metrics

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


Unaudited


For the Three Months Ended June 30,


For the Six Months Ended June 30,


2012


2011


2012


2011









Beginning subscribers

22,297,420


20,564,028


21,892,824


20,190,964

Gross subscriber additions

2,481,004


2,179,348


4,642,697


4,231,715

Deactivated subscribers

(1,858,962)


(1,727,201)


(3,616,059)


(3,406,504)

Net additions

622,042


452,147


1,026,638


825,211

Ending subscribers

22,919,462


21,016,175


22,919,462


21,016,175









 Self-pay

18,670,966


17,170,306


18,670,966


17,170,306

 Paid promotional

4,248,496


3,845,869


4,248,496


3,845,869

Ending subscribers

22,919,462


21,016,175


22,919,462


21,016,175









 Self-pay

462,876


362,663


762,224


483,507

 Paid promotional

159,166


89,484


264,414


341,704

Net additions

622,042


452,147


1,026,638


825,211









Daily weighted average number of subscribers

22,553,702


20,715,630


22,272,282


20,475,720









Average self-pay monthly churn

1.9%


1.9%


1.9%


1.9%









New vehicle consumer conversion rate

45%


45%


45%


45%









ARPU

$           11.97


$           11.53


$           11.87


$          11.53

SAC, per gross subscriber addition

$                54


$                54


$                57


$               56

Subscribers. The improvement was due to the 14% increase in gross subscriber additions, primarily resulting from new vehicle shipments and light vehicle sales, as well as an increase in conversions from unpaid promotional trials and returning subscriber activations including consumers in previously owned cars. This increase in gross additions was partially offset by an increase in deactivations. The increase in deactivations was primarily due to paid promotional trial deactivations stemming from the growth of paid trials, along with growth in our subscriber base. Self-pay net additions increased 28% as trial conversions increased and the self-pay churn rate declined.

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

New Vehicle Consumer Conversion Rate for the three months ended June 30, 2012 and 2011 was 45%.

ARPU increased primarily due to the increase in certain subscription rates beginning in January 2012 and an increase in sales of premium services, including Premier packages, data services and streaming. These factors were partially offset by an increase in subscriber retention programs, the number of subscribers on promotional plans and a decrease in the contribution from the U.S. Music Royalty Fee due to the December 2010 reduction in the rate from 15.3% to 10.8%.

SAC, Per Gross Subscriber Addition, remained flat at $54 for the three months ended June 30, 2012 and 2011. Higher subsidies related to increased OEM installations occurring in advance of acquiring the subscriber were offset by improved OEM subsidy rates per vehicle and a 14% increase in gross subscribers compared to the three months ended June 30, 2011.

Glossary

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

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










Unaudited


For the Three Months Ended
June 30,


For the Six Months Ended
June 30,


2012


2011


2012


2011









Net income (GAAP):

$     3,134,170


$        173,319


$    3,241,944


$      251,440

Add back items excluded from Adjusted EBITDA:








Purchase price accounting adjustments:








Revenues

1,867


2,938


3,747


6,660

Operating expenses

(73,423)


(68,623)


(147,449)


(136,595)

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

13,917


10,735


28,869


23,772

Depreciation and amortization (GAAP)

66,793


67,062


132,910


135,462

Interest expense, net of amounts capitalized (GAAP)

72,770


76,196


149,742


154,414

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

15,650


1,212


25,621


7,206

Interest and investment loss (income) (GAAP)

1,728


(80,182)


2,871


(78,298)

Other loss (income) (GAAP)

173


(183)


749


(1,799)

Income tax (benefit) expense (GAAP)

(2,996,549)


2,620


(2,993,747)


4,192

Adjusted EBITDA

$        237,096


$        185,094


$       445,257


$      366,454

Adjusted Revenues and Operating Expenses - We define this Non-GAAP financial measure as our actual revenues and operating expenses adjusted to exclude the impact of certain purchase price accounting adjustments and share-based payment expense. We use this Non-GAAP financial measure to manage our business, set operational goals and as a basis for determining performance-based compensation for our employees. The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the three and six months ended June 30, 2012 and 2011:


Unaudited For the Three Months Ended June 30, 2012

(in thousands)

As Reported


Purchase

Price Accounting Adjustments


Allocation of
Share-based
Payment
Expense


Adjusted









Revenue:








Subscriber revenue

$         730,285


$                  54


$                   -


$         730,339

Advertising revenue, net of agency fees

20,786


-


-


20,786

Equipment revenue

16,417


-


-


16,417

Other revenue

70,055


1,813


-


71,868

Total revenue

$         837,543


$             1,867


$                   -


$         839,410

Operating expenses








Cost of services:








Revenue share and royalties

135,426


36,024


-


171,450

Programming and content

65,169


10,431


(1,231)


74,369

Customer service and billing

68,679


-


(388)


68,291

Satellite and transmission

17,551


-


(688)


16,863

Cost of equipment

7,150


-


-


7,150

Subscriber acquisition costs

119,475


23,530


-


143,005

Sales and marketing

57,422


3,438


(2,053)


58,807

Engineering, design and development

6,272


-


(1,282)


4,990

General and administrative

65,664


-


(8,275)


57,389

Depreciation and amortization (a)

66,793


-


-


66,793

Share-based payment expense

-


-


13,917


13,917

Total operating expenses

$         609,601


$           73,423


$                   -


$         683,024









(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 June 30, 2012 was $14,000.


 

 


Unaudited For the Three Months Ended June 30, 2011

(in thousands)

As Reported


Purchase

Price Accounting Adjustments


Allocation of
Share-based
Payment
Expense


Adjusted









Revenue:








Subscriber revenue

$       639,642


$           1,125


$                 -


$       640,767

Advertising revenue, net of agency fees

18,227


-


-


18,227

Equipment revenue

17,022


-


-


17,022

Other revenue

69,506


1,813


-


71,319

Total revenue

$       744,397


$           2,938


$                 -


$       747,335

Operating expenses








Cost of services:








Revenue share and royalties

116,741


31,134


-


147,875

Programming and content

67,399


11,787


(960)


78,226

Customer service and billing

62,592


-


(308)


62,284

Satellite and transmission

18,998


74


(565)


18,507

Cost of equipment

7,601


-


-


7,601

Subscriber acquisition costs

105,162


21,810


-


126,972

Sales and marketing

51,442


3,818


(1,614)


53,646

Engineering, design and development

13,939


-


(974)


12,965

General and administrative

60,479


-


(6,314)


54,165

Depreciation and amortization (a)

67,062


-


-


67,062

Share-based payment expense (b)

-


-


10,735


10,735

Total operating expenses

$       571,415


$         68,623


$                 -


$       640,038









(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 June 30, 2011 was $15,000.









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









Programming and content

$              960


$                 -


$                 -


$              960

Customer service and billing

308


-


-


308

Satellite and transmission

565


-


-


565

Sales and marketing

1,614


-


-


1,614

Engineering, design and development

974


-


-


974

General and administrative

6,314


-


-


6,314

Total share-based payment expense

$         10,735


$                 -


$                 -


$         10,735



Unaudited For the Six Months Ended June 30, 2012

(in thousands)

As Reported


Purchase

Price Accounting Adjustments


Allocation of
Share-based
Payment
Expense


Adjusted









Revenue:








Subscriber revenue

$       1,430,526


$                121


$                   -


$        1,430,647

Advertising revenue, net of agency fees

39,456


-


-


39,456

Equipment revenue

33,370


-


-


33,370

Other revenue

138,912


3,626


-


142,538

Total revenue

$       1,642,264


$             3,747


$                   -


$        1,646,011

Operating expenses








Cost of services:








Revenue share and royalties

267,537


70,870


-


338,407

Programming and content

135,265


22,134


(2,606)


154,793

Customer service and billing

134,866


-


(815)


134,051

Satellite and transmission

35,661


-


(1,473)


34,188

Cost of equipment

12,956


-


-


12,956

Subscriber acquisition costs

235,596


47,616


-


283,212

Sales and marketing

115,781


6,829


(4,413)


118,197

Engineering, design and development

18,962


-


(2,714)


16,248

General and administrative

125,550


-


(16,848)


108,702

Depreciation and amortization (a)

132,910


-


-


132,910

Share-based payment expense

-


-


28,869


28,869

Total operating expenses

$       1,215,084


$         147,449


$                   -


$        1,362,533









(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 six months ended June 30, 2012 was $28,000.

 


Unaudited For the Six Months Ended June 30, 2011

(in thousands)

As Reported


Purchase

Price Accounting Adjustments


Allocation of
Share-based
Payment
Expense


Adjusted









Revenue:








Subscriber revenue

$       1,262,080


$           3,034


$                 -


$    1,265,114

Advertising revenue, net of agency fees

34,785


-


-


34,785

Equipment revenue

32,889


-


-


32,889

Other revenue

138,482


3,626


-


142,108

Total revenue

$       1,468,236


$           6,660


$                 -


$    1,474,896

Operating expenses








Cost of services:








Revenue share and royalties

223,670


61,067


-


284,737

Programming and content

140,358


24,611


(3,470)


161,499

Customer service and billing

128,429


18


(675)


127,772

Satellite and transmission

37,558


313


(1,132)


36,739

Cost of equipment

14,006


-


-


14,006

Subscriber acquisition costs

210,432


43,466


-


253,898

Sales and marketing

99,261


7,030


(3,489)


102,802

Engineering, design and development

25,074


31


(2,117)


22,988

General and administrative

116,831


59


(12,889)


104,001

Depreciation and amortization (a)

135,462


-


-


135,462

Share-based payment expense (b)

-


-


23,772


23,772

Total operating expenses

$       1,131,081


$       136,595


$                 -


$    1,267,676









(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 six months ended June 30, 2011 was $30,000.









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









Programming and content

$              3,443


$                27


$                 -


$           3,470

Customer service and billing

657


18


-


675

Satellite and transmission

1,113


19


-


1,132

Sales and marketing

3,462


27


-


3,489

Engineering, design and development

2,086


31


-


2,117

General and administrative

12,830


59


-


12,889

Total share-based payment expense

$            23,591


$              181


$                 -


$         23,772

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
June 30,


For the Six Months Ended
June 30,


2012


2011


2012


2011









Subscriber revenue (GAAP)

$       730,285


$       639,642


$      1,430,526


$     1,262,080

Add: net advertising revenue (GAAP)

20,786


18,227


39,456


34,785

Add: other subscription-related revenue (GAAP)

58,753


57,642


116,474


116,173

Add: purchase price accounting adjustments

54


1,125


121


3,034


$       809,878


$       716,636


$      1,586,577


$     1,416,072









Daily weighted average number of subscribers

22,553,702


20,715,630


22,272,282


20,475,720









ARPU

$           11.97


$           11.53


$             11.87


$            11.53

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

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
June 30,


For the Six Months Ended
June 30,


2012


2011


2012


2011









Customer service and billing expenses (GAAP)

$          68,679


$          62,592


$        134,866


$        128,429

Less: share-based payment expense, net of purchase price accounting adjustments

(388)


(308)


(815)


(675)

Add: purchase price accounting adjustments

-


-


-


18


68,291


62,284


134,051


127,772









Daily weighted average number of subscribers

22,553,702


20,715,630


22,272,282


20,475,720









Customer service and billing expenses, per average subscriber

$              1.01


$              1.00


$              1.00


$              1.04

Free cash flow - is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity. Free cash flow is calculated as follows (in thousands):


Unaudited


For the Three Months Ended
June 30,


For the Six Months Ended
June 30,


2012


2011


2012


2011









Cash Flow information








Net cash provided by operating activities

$      253,775


$      195,381


$      293,723


$      213,490

Net cash used in investing activities

(23,757)


(29,948)


(48,944)


(64,931)

Net cash used in financing activities

(108,264)


(70,801)


(150,439)


(206,923)

Free Cash Flow








Net cash provided by operating activities

$      253,775


$      195,381


$      293,723


$      213,490

Additions to property and equipment

(23,757)


(40,315)


(48,944)


(75,298)

Restricted and other investment activity

-


10,367


-


10,367

Free cash flow

$      230,018


$      165,433


$      244,779


$      148,559

New vehicle consumer conversion rate - is defined as 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. 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. The metric excludes rental and fleet vehicles.

Subscriber acquisition cost, per gross subscriber addition - or SAC, per gross subscriber addition, is derived from subscriber acquisition costs and margins from the 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 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
June 30,


For the Six Months Ended
June 30,


2012


2011


2012


2011









Subscriber acquisition costs (GAAP)

$     119,475


$     105,162


$   235,596


$   210,432

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

(9,267)


(9,421)


(20,414)


(18,883)

Add: purchase price accounting adjustments

23,530


21,810


47,616


43,466


$     133,738


$     117,551


$   262,798


$   235,015









Gross subscriber additions

2,481,004


2,179,348


4,642,697


4,231,715









SAC, per gross subscriber addition

$             54


$              54


$            57


$           56

About Sirius XM Radio

Sirius XM Radio Inc. is the world's largest radio broadcaster measured by revenue and has nearly 23 million subscribers. SiriusXM creates and broadcasts commercial-free music; premier sports talk and live events; comedy; news; exclusive talk and entertainment; and the most comprehensive Latin music, sports and talk programming in radio. SiriusXM is available in vehicles from every major car company in the U.S., from retailers nationwide, and online at siriusxm.com. SiriusXM programming is also available through the SiriusXM Internet Radio App for Android, Apple, and BlackBerry smartphones and other connected devices. SiriusXM also holds a minority interest in SiriusXM Canada which has more than 2 million subscribers.

This communication contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "believe," "intend," "plan," "projection," "outlook" or words of similar meaning. Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. Actual results 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 statements: our competitive position versus other forms of audio entertainment; our dependence upon automakers; general economic conditions; failure of our satellites, which, in most cases, are not insured; our ability to attract and retain subscribers at a profitable level; royalties we pay for music rights; the unfavorable outcome of pending or future litigation; failure of third parties to perform; and our substantial indebtedness. 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, 2011, 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.

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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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