SiriusXM Reports Third Quarter 2014 Results

NEW YORK, Oct. 28, 2014 /PRNewswire/ -- 

  • Revenue Increases 10% to a Record $1.1 Billion
  • Net Income of $136 Million, Up 117%
  • Adjusted EBITDA Climbed 29% to a Record $381 Million
  • Share Repurchases Total Nearly $2.1 Billion Year-to-Date
  • 2014 Subscriber, Revenue and Free Cash Flow Guidance Raised

SiriusXM today reported its third quarter 2014 financial and operating results, including revenue of $1.057 billion, up 10% from $962 million in the third quarter of 2013.  Net income was $136 million, or $0.02 per diluted share, in the third quarter of 2014, an increase of 117% from $63 million, or $0.01 per diluted share, in the third quarter of 2013.

SIRIUS XM logo

Adjusted EBITDA climbed 29% to a record $381 million in the third quarter of 2014 from $296 million in the third quarter of 2013.

"We are very pleased with the performance of SiriusXM in the third quarter, and we are entering the fourth quarter with tremendous momentum. So far this year we have added nearly 1.2 million subscribers, grown our Adjusted EBITDA margin by more than five percentage points, and increased free cash flow by 32%," said Jim Meyer, Chief Executive Officer, SiriusXM.

Additional third quarter 2014 financial and operating highlights:

  • Strong subscriber growth. Net subscriber additions in the third quarter were 432,817, bringing total subscribers up nearly 5% to 26.7 million. Self-pay net subscriber additions in the third quarter were 379,598, bringing the self-pay subscriber base up nearly 7% to 22.0 million.  Total trials underway at the end of the third quarter of 2014 were approximately 7.4 million, the largest in SiriusXM's history, up from approximately 6.9 million at the end of the third quarter of 2013.
  • Subscriber acquisition costs fall. Subscriber acquisition costs, per installation, fell 22% from $45 in the third quarter of 2013 to $35 in the third quarter of 2014.
  • Tight expense management. Adjusted cash operating expenses grew just 1.5% in the third quarter of 2014 to $677.6 million from $667.6 million in the third quarter of 2013.
  • Adjusted EBITDA margins reach new record high. Adjusted EBITDA as a percentage of revenue climbed approximately 530 basis points, from 30.7% in the third quarter of 2013 to 36.0% in the third quarter of 2014, which is the highest in the company's history.
  • Free cash flow per share climbs. Following a 9% increase in free cash flow and a 5% reduction in weighted average diluted common shares outstanding, free cash flow per diluted share climbed 15% to 4.5 cents in the third quarter 2014 from 3.9 cents in the third quarter of 2013.

"Share repurchases in 2014 total almost $2.1 billion, 2.5 times the $825 million of free cash flow we generated in the first nine months of the year.  With the company's leverage at 3.4 times before the anticipated conversion of our 7% Exchangeable Notes in early December and over $1 billion of undrawn capacity under our revolving credit facility, we retain substantial balance sheet flexibility to continue our capital returns and to capitalize on strategic opportunities that may arise," said David Frear, Chief Financial Officer, SiriusXM.

2014 GUIDANCE

SiriusXM also raised its 2014 revenue, free cash flow and total net subscriber additions guidance and reaffirmed its other financial and subscriber guidance:

  • Net self-pay subscriber additions of approximately 1.25 million,
  • Total net subscriber additions of approximately 1.5 million,
  • Revenue of approximately $4.150 billion,
  • Adjusted EBITDA of approximately $1.425 billion, and
  • Free cash flow of approximately $1.120 billion.

 

THIRD QUARTER 2014 RESULTS

 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)










For the Three Months Ended
September 30,


For the Nine Months
Ended September 30,

(in thousands, except per share data)

2014


2013


2014


2013

Revenue:








Subscriber revenue

$             902,514


$             834,053


$          2,632,110


$          2,432,113

Advertising revenue

25,300


21,918


73,012


63,886

Equipment revenue

23,129


17,989


74,723


54,588

Other revenue

106,144


87,549


310,298


248,430

Total revenue

1,057,087


961,509


3,090,143


2,799,017

Operating expenses:








Cost of services:








Revenue share and royalties

204,307


162,627


599,939


467,017

Programming and content

74,920


72,322


219,360


217,313

Customer service and billing

93,013


76,322


274,174


237,006

Satellite and transmission

21,794


19,853


64,446


59,041

Cost of equipment

9,485


5,340


29,319


17,809

Subscriber acquisition costs

119,778


125,457


367,207


371,560

Sales and marketing

83,906


75,638


237,992


209,594

Engineering, design and development

16,136


13,007


47,677


42,901

General and administrative

75,170


67,881


223,995


184,613

Depreciation and amortization

64,550


58,533


200,021


192,966

Total operating expenses

763,059


676,980


2,264,130


1,999,820

Income from operations

294,028


284,529


826,013


799,197

Other income (expense):








Interest expense, net of amounts capitalized

(75,416)


(54,629)


(197,029)


(150,531)

Loss on extinguishment of debt and credit facilities, net

-


(107,971)


-


(124,348)

Interest and investment income 

6,305


1,716


9,588


3,648

Loss on change in value of derivatives

-


-


(34,485)


-

Other income (loss)

297


407


(1,354)


909

Total other expense

(68,814)


(160,477)


(223,280)


(270,322)

Income before income taxes

225,214


124,052


602,733


528,875

Income tax expense

(89,044)


(61,158)


(252,614)


(216,857)

Net income

$             136,170


$               62,894


$             350,119


$             312,018

Foreign currency translation adjustment, net of tax

(58)


(11)


20


(292)

Total comprehensive income

$             136,112


$               62,883


$             350,139


$             311,726

Net income per common share:








Basic

$                   0.02


$                   0.01


$                   0.06


$                   0.05

Diluted

$                   0.02


$                   0.01


$                   0.06


$                   0.05

Weighted average common shares outstanding:








Basic

5,626,078


6,184,216


5,860,248


6,265,981

Diluted

5,974,047


6,287,353


6,208,569


6,446,082

 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



As of September 30,


As of December 31,


2014


2013

(in thousands, except share and per share data)

(Unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$                       103,585


$                       134,805

Accounts receivable, net

102,646


103,937

Receivables from distributors

104,147


88,975

Inventory, net

24,350


13,863

Prepaid expenses

126,131


110,530

Related party current assets

4,006


9,145

Deferred tax asset

784,143


937,598

Other current assets

10,444


20,160

Total current assets

1,259,452


1,419,013

Property and equipment, net

1,522,635


1,594,574

Long-term restricted investments

5,922


5,718

Deferred financing fees, net

12,679


12,604

Intangible assets, net

2,658,476


2,700,062

Goodwill

2,205,107


2,204,553

Related party long-term assets

1,679


30,164

Long-term deferred tax asset

775,147


868,057

Other long-term assets

8,260


10,035

Total assets

$                    8,449,357


$                    8,844,780

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued expenses

$                       552,412


$                       578,333

Accrued interest

75,984


42,085

Current portion of deferred revenue

1,612,388


1,586,611

Current portion of deferred credit on executory contracts

2,339


3,781

Current maturities of long-term debt

498,433


496,815

Current maturities of long-term related party debt

10,992


10,959

Related party current liabilities

3,268


20,320

Total current liabilities

2,755,816


2,738,904

Deferred revenue

148,474


149,026

Deferred credit on executory contracts

-


1,394

Long-term debt

4,259,646


3,093,821

Related party long-term liabilities

14,345


16,337

Other long-term liabilities

97,661


99,556

Total liabilities

7,275,942


6,099,038

Stockholders' equity:




Preferred stock, undesignated, par value $0.001 (liquidation preference of $0.001 per share);
50,000,000 shares authorized and 0 shares issued and outstanding at September 30, 2014
and December 31, 2013

-


-

Common stock, par value $0.001; 9,000,000,000 shares authorized; 5,542,621,493 and
6,096,220,526 shares issued; 5,538,190,736 and 6,096,220,526 outstanding at September 30,
2014 and December 31, 2013, respectively

5,543


6,096

Accumulated other comprehensive loss, net of tax

(288)


(308)

Additional paid-in capital

6,767,781


8,674,129

Treasury stock, at cost; 4,430,757 and 0 shares of common stock at September 30, 2014 and
December 31, 2013, respectively

(15,565)


-

Accumulated deficit

(5,584,056)


(5,934,175)

Total stockholders' equity

1,173,415


2,745,742

Total liabilities and stockholders' equity

$                    8,449,357


$                    8,844,780

 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



For the Nine Months Ended September 30,

(in thousands)

2014


2013

Cash flows from operating activities:




Net income

$                      350,119


$                      312,018

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




Depreciation and amortization

200,021


192,966

Non-cash interest expense, net of amortization of premium

16,515


16,506

Provision for doubtful accounts

32,875


28,571

Amortization of deferred income related to equity method investment

(2,081)


(2,082)

Loss on extinguishment of debt and credit facilities, net

-


124,348

Gain on unconsolidated entity investments, net

(2,677)


(2,831)

Dividend received from unconsolidated entity investment

12,873


17,707

Loss on disposal of assets

217


128

Loss on change in value of derivatives

34,485


-

Share-based payment expense

57,832


49,774

Deferred income taxes

244,667


219,184

Other non-cash purchase price adjustments

(2,836)


(206,786)

Changes in operating assets and liabilities:




Accounts receivable

(31,584)


(25,207)

Receivables from distributors

(15,172)


23,606

Inventory

(10,487)


11,095

Related party assets

(995)


2,077

Prepaid expenses and other current assets

(16,319)


(6,665)

Other long-term assets

1,567


(363)

Accounts payable and accrued expenses

(36,861)


(58,680)

Accrued interest

33,899


19,964

Deferred revenue

25,225


34,530

Related party liabilities

(1,261)


(635)

Other long-term liabilities

(1,854)


(4,968)

Net cash provided by operating activities

888,168


744,257





Cash flows from investing activities:




Additions to property and equipment

(87,244)


(118,235)

Purchases of restricted and other investments

-


(1,719)

Acquisition of business, net of cash acquired 

1,144


-

Return of capital from investment in unconsolidated entity

24,178


-

Net cash used in investing activities

(61,922)


(119,954)





Cash flows from financing activities:




Proceeds from exercise of stock options

331


21,819

Taxes paid in lieu of shares issued for stock-based compensation

(24,781)


(27,913)

Proceeds from long-term borrowings and revolving credit facility, net of costs

2,151,205


2,532,137

Payment of premiums on redemption of debt

-


(116,410)

Repayment of long-term borrowings and revolving credit facility

(993,772)


(1,085,737)

Repayment of related party long-term borrowings

-


(150,000)

Common stock repurchased and retired

(1,990,449)


(1,602,360)

Net cash used in financing activities

(857,466)


(428,464)

Net (decrease) increase in cash and cash equivalents

(31,220)


195,839

Cash and cash equivalents at beginning of period

134,805


520,945

Cash and cash equivalents at end of period

$                      103,585


$                      716,784

 

Key Operating Metrics              

The following table contains our key operating metrics for the three and nine months ended September 30, 2014 and 2013, respectively. Subscribers to our connected vehicle services are not included in our subscriber count:

 


Unaudited

(in thousands, except subscriber, per subscriber
and per installation amounts)

For the Three Months Ended
September 30,


For the Nine Months
Ended September 30,

2014


2013


2014


2013









Self-pay subscribers

22,014,606


20,670,333


22,014,606


20,670,333

Paid promotional subscribers

4,719,792


4,911,733


4,719,792


4,911,733

Ending subscribers

26,734,398


25,582,066


26,734,398


25,582,066









Self-pay subscribers

379,598


372,597


932,789


1,100,059

Paid promotional subscribers

53,219


140,481


242,299


581,671

Net additions

432,817


513,078


1,175,088


1,681,730









Daily weighted average number of subscribers

26,487,969


25,267,241


26,035,178


24,646,938









Average self-pay monthly churn

1.9%


1.8%


1.9%


1.8%









New vehicle consumer conversion rate

41%


44%


42%


44%









ARPU

$                        12.47


$                        12.29


$                        12.34


$                        12.21

SAC, per installation

$                             35


$                             45


$                             34


$                             46

Customer service and billing expenses, per average subscriber

$                          1.07


$                          1.00


$                          1.07


$                          1.06

Free cash flow

$                    267,269


$                    245,262


$                    825,102


$                    624,303

Adjusted EBITDA

$                    381,251


$                    295,742


$                 1,086,469


$                    840,589

 

Glossary

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. We adjust EBITDA to exclude the impact of other income and expense, loss on extinguishment of debt, loss on change in value of derivatives as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable):  (i) certain adjustments as a result of the purchase price accounting for the merger of Sirius and XM, (ii) depreciation and amortization and (iii) 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 statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the merger of Sirius and XM. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure.  Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income as disclosed in our unaudited consolidated statements of comprehensive income. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income to the adjusted EBITDA is calculated as follows (in thousands):

 


Unaudited


For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2014


2013


2014


2013









Net income (GAAP):

$             136,170


$               62,894


$           350,119


$           312,018

Add back items excluded from Adjusted EBITDA:








Purchase price accounting adjustments:








Revenues

1,813


1,813


5,438


5,438

Operating expenses

(945)


(68,895)


(2,835)


(206,786)

Share-based payment expense (GAAP)

21,805


19,762


57,832


49,774

Depreciation and amortization (GAAP)

64,550


58,533


200,021


192,966

Interest expense, net of amounts capitalized (GAAP)

75,416


54,629


197,029


150,531

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

-


107,971


-


124,348

Interest and investment income (GAAP)

(6,305)


(1,716)


(9,588)


(3,648)

Loss on change in value of derivatives (GAAP)

-


-


34,485


-

Other (income) loss (GAAP)

(297)


(407)


1,354


(909)

Income tax expense (GAAP)

89,044


61,158


252,614


216,857

Adjusted EBITDA

$             381,251


$             295,742


$        1,086,469


$           840,589

 

Adjusted Net Income - We define this Non-GAAP financial measure as our actual net income adjusted to exclude the impact of certain purchase price accounting adjustments and the loss on change in value of derivatives, net of income tax expense. The following table reconciles our actual income before income taxes to our adjusted net income for the three and nine months ended September 30, 2014 and 2013 (in thousands):

 


Unaudited


For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2014


2013


2014


2013









Income before income taxes (GAAP):

$             225,214


$             124,052


$             602,733


$             528,875

Add back items excluded from adjusted net income:








Purchase price accounting adjustments:








Revenues

1,813


1,813


5,438


5,438

Operating expenses

(945)


(68,895)


(2,835)


(206,786)

Loss on change in value of derivatives (GAAP)

-


-


34,485


-

Adjusted income before income taxes

$             226,082


$               56,970


$             639,821


$             327,527

Allocable income tax expense

(87,946)


(22,218)


(248,890)


(127,736)

Adjusted net income

$             138,136


$               34,752


$             390,931


$             199,791

 

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 from the merger of Sirius and XM and share-based payment expense. We use this Non-GAAP financial measure to manage our business, to 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 nine months ended September 30, 2014 and 2013:

 


Unaudited For the Three Months Ended September 30, 2014

(in thousands)

As Reported


Purchase Price
Accounting
Adjustments


Allocation of
Share-based
Payment Expense


Adjusted









Revenue:








Subscriber revenue

$               902,514


$                         -


$                         -


$               902,514

Advertising revenue

25,300


-


-


25,300

Equipment revenue

23,129


-


-


23,129

Other revenue

106,144


1,813


-


107,957

Total revenue

$            1,057,087


$                   1,813


$                         -


$            1,058,900

Operating expenses








Cost of services:








Revenue share and royalties

$               204,307


$                         -


$                         -


$               204,307

Programming and content

74,920


945


(2,434)


73,431

Customer service and billing

93,013


-


(868)


92,145

Satellite and transmission

21,794


-


(1,185)


20,609

Cost of equipment

9,485


-


-


9,485

Subscriber acquisition costs

119,778


-


-


119,778

Sales and marketing

83,906


-


(4,265)


79,641

Engineering, design and development

16,136


-


(2,559)


13,577

General and administrative

75,170


-


(10,494)


64,676

Depreciation and amortization (a)

64,550


-


-


64,550

Share-based payment expense

-


-


21,805


21,805

Total operating expenses

$               763,059


$                      945


$                         -


$               764,004









(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 of Sirius and XM. The increased depreciation and amortization for the three months ended September 30, 2014 was $9,000.

 


Unaudited For the Three Months Ended September 30, 2013

(in thousands)

As Reported


Purchase Price
Accounting
Adjustments


Allocation of
Share-based
Payment Expense


Adjusted









Revenue:








Subscriber revenue

$               834,053


$                         -


$                         -


$               834,053

Advertising revenue

21,918


-


-


21,918

Equipment revenue

17,989


-


-


17,989

Other revenue

87,549


1,813


-


89,362

Total revenue

$               961,509


$                   1,813


$                         -


$               963,322

Operating expenses








Cost of services:








Revenue share and royalties

$               162,627


$                 41,942


$                         -


$               204,569

Programming and content

72,322


2,008


(2,232)


72,098

Customer service and billing

76,322


-


(647)


75,675

Satellite and transmission

19,853


-


(1,076)


18,777

Cost of equipment

5,340


-


-


5,340

Subscriber acquisition costs

125,457


20,342


-


145,799

Sales and marketing

75,638


4,603


(3,871)


76,370

Engineering, design and development

13,007


-


(2,177)


10,830

General and administrative

67,881


-


(9,759)


58,122

Depreciation and amortization (a)

58,533


-


-


58,533

Share-based payment expense

-


-


19,762


19,762

Total operating expenses

$               676,980


$                 68,895


$                         -


$               745,875









(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 of Sirius and XM. The increased depreciation and amortization for the three months ended September 30, 2013 was $12,000. 

 


Unaudited For the Nine Months Ended September 30, 2014

(in thousands)

As Reported


Purchase Price
Accounting
Adjustments


Allocation of
Share-based
Payment Expense


Adjusted









Revenue:








Subscriber revenue

$            2,632,110


$                         -


$                         -


$            2,632,110

Advertising revenue

73,012


-


-


73,012

Equipment revenue

74,723


-


-


74,723

Other revenue

310,298


5,438


-


315,736

Total revenue

$            3,090,143


$                   5,438


$                         -


$            3,095,581

Operating expenses








Cost of services:








Revenue share and royalties

$               599,939


$                         -


$                         -


$               599,939

Programming and content

219,360


2,835


(6,903)


215,292

Customer service and billing

274,174


-


(2,032)


272,142

Satellite and transmission

64,446


-


(3,087)


61,359

Cost of equipment

29,319


-


-


29,319

Subscriber acquisition costs

367,207


-


-


367,207

Sales and marketing

237,992


-


(11,238)


226,754

Engineering, design and development

47,677


-


(6,422)


41,255

General and administrative

223,995


-


(28,150)


195,845

Depreciation and amortization (a)

200,021


-


-


200,021

Share-based payment expense

-


-


57,832


57,832

Total operating expenses

$            2,264,130


$                   2,835


$                         -


$            2,266,965









(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 of Sirius and XM. The increased depreciation and amortization for the nine months ended September 30, 2014 was $29,000.

 


Unaudited For the Nine Months Ended September 30, 2013

(in thousands)

As Reported


Purchase Price
Accounting
Adjustments


Allocation of
Share-based
Payment Expense


Adjusted









Revenue:








Subscriber revenue

$            2,432,113


$                         -


$                         -


$            2,432,113

Advertising revenue

63,886


-


-


63,886

Equipment revenue

54,588


-


-


54,588

Other revenue

248,430


5,438


-


253,868

Total revenue

$            2,799,017


$                   5,438


$                         -


$            2,804,455

Operating expenses








Cost of services:








Revenue share and royalties

$               467,017


$               122,534


$                         -


$               589,551

Programming and content

217,313


6,965


(5,513)


218,765

Customer service and billing

237,006


-


(1,628)


235,378

Satellite and transmission

59,041


-


(2,753)


56,288

Cost of equipment

17,809


-


-


17,809

Subscriber acquisition costs

371,560


64,365


-


435,925

Sales and marketing

209,594


12,922


(10,114)


212,402

Engineering, design and development

42,901


-


(5,458)


37,443

General and administrative

184,613


-


(24,308)


160,305

Depreciation and amortization (a)

192,966


-


-


192,966

Share-based payment expense

-


-


49,774


49,774

Total operating expenses

$            1,999,820


$               206,786


$                         -


$            2,206,606









(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 of Sirius and XM. The increased depreciation and amortization for the nine months ended September 30, 2013 was $37,000.

 

Adjusted Cash Operating Expenses - We define this Non-GAAP financial measure as our actual operating expenses adjusted to exclude the impact of certain purchase price accounting adjustments from the merger of Sirius and XM, depreciation and amortization expense, and share-based payment expense. The following table reconciles our actual operating expenses to our adjusted cash operating expenses for the three and nine months ended September 30, 2014 and 2013:

 


Unaudited


For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2014


2013


2014


2013









Operating expenses (GAAP):

$             763,059


$             676,980


$          2,264,130


$          1,999,820

Items excluded from adjusted cash operating expenses:








Purchase price accounting adjustments

945


68,895


2,835


206,786

Share-based payment expense (GAAP)

(21,805)


(19,762)


(57,832)


(49,774)

Depreciation and amortization (GAAP)

(64,550)


(58,533)


(200,021)


(192,966)

Adjusted cash operating expenses

$             677,649


$             667,580


$          2,009,112


$          1,963,866

 

ARPU - is derived from total earned subscriber revenue, advertising revenue and other subscription-related revenue, excluding revenue associated with our connected vehicle business, 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.  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,


2014


2013


2014


2013









Subscriber revenue, excluding connected vehicle (GAAP)

$        880,093


$        834,053


$     2,568,742


$     2,432,113

Add: advertising revenue (GAAP)

25,300


21,918


73,012


63,886

Add: other subscription-related revenue (GAAP)

85,380


75,999


249,138


211,784


$        990,773


$        931,970


$     2,890,892


$     2,707,783









Daily weighted average number of subscribers

26,487,969


25,267,241


26,035,178


24,646,938









ARPU

$            12.47


$            12.29


$            12.34


$            12.21

 

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 connected vehicle customer service and billing expenses and share-based payment expense, 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. 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,


2014


2013


2014


2013









Customer service and billing expenses, excluding connected
vehicle (GAAP)

$          85,868


$          76,322


$        252,677


$        237,006

Less: share-based payment expense (GAAP)

(868)


(647)


(2,032)


(1,628)


$          85,000


$          75,675


$        250,645


$        235,378









Daily weighted average number of subscribers

26,487,969


25,267,241


26,035,178


24,646,938









Customer service and billing expenses, per average subscriber

$              1.07


$              1.00


$              1.07


$              1.06

 

Free cash flow - is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity.  The calculation for free cash flow and free cash flow per diluted share are as follows (in thousands, except per share data):

 


Unaudited


For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2014


2013


2014


2013









Cash Flow information








Net cash provided by operating activities

$             296,096


$             302,236


$             888,168


$             744,257

Net cash used in investing activities

$             (28,827)


$             (56,974)


$             (61,922)


$           (119,954)

Net cash used in financing activities

$           (333,664)


$           (180,247)


$           (857,466)


$           (428,464)

Free Cash Flow








Net cash provided by operating activities

$             296,096


$             302,236


$             888,168


$             744,257

Additions to property and equipment

(28,827)


(55,255)


(87,244)


(118,235)

Purchases of restricted and other investments

-


(1,719)


-


(1,719)

Return of capital from investment in unconsolidated entity

-


-


24,178


-

Free cash flow

$             267,269


$             245,262


$             825,102


$             624,303









Diluted weighted average common shares outstanding

5,974,047


6,287,353


6,208,569


6,446,082









Free cash flow per diluted share

$                   0.04


$                   0.04


$                 0.13


$                 0.10

 

New vehicle consumer conversion rate - is defined as the percentage of owners and lessees of new vehicles that receive our satellite radio 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. 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 installation - or SAC, per installation, is derived from subscriber acquisition costs and margins from the sale of radios and accessories, excluding purchase price accounting adjustments, divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. Purchase price accounting adjustments associated with the merger of Sirius and XM 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 installation, is calculated as follows (in thousands, except for installation amounts):

 


Unaudited


For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2014


2013


2014


2013









Subscriber acquisition costs (GAAP)

$             119,778


$             125,457


$             367,207


$             371,560

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

(13,644)


(12,649)


(45,404)


(36,779)

Add: purchase price accounting adjustments

-


20,342


-


64,365


$             106,134


$             133,150


$             321,803


$             399,146









Installations

3,038,041


2,973,681


9,396,115


8,657,841









SAC, per installation

$                      35


$                      45


$                      34


$                      46

 

About SiriusXM

Sirius XM Holdings Inc. (NASDAQ: SIRI) is the world's largest radio broadcaster measured by revenue and has 26.7 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. and from retailers nationwide as well as at shop.siriusxm.com. SiriusXM programming is available through the SiriusXM Internet Radio App for smartphones and other connected devices as well as online at siriusxm.com. SiriusXM also provides premium traffic, weather, data and information services for subscribers in cars, trucks, RVs, boats and aircraft through SiriusXM Traffic™, SiriusXM Travel Link, NavTraffic®, NavWeather™, SiriusXM Aviation, SiriusXM Marine™, Sirius Marine Weather, XMWX Aviation™, and XMWX Marine™.  SiriusXM holds a minority interest in SiriusXM Canada which has more than 2 million subscribers.

On social media, join the SiriusXM community on Facebook, Twitter, Instagram, and YouTube.

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 radio and audio entertainment providers; our ability to attract and retain subscribers, which is uncertain; our dependence upon the auto industry; general economic conditions; failure of our satellites, which, in most cases, are not insured; the interruption or failure of our information and communications systems; the security of the personal information about our customers; royalties we pay for music rights, which increase over time; the unfavorable outcome of pending or future litigation; our failure to realize benefits of acquisitions; rapid technological and industry change; failure of third parties to perform; changes in consumer protection laws and their enforcement; failure to comply with FCC requirements and other government regulations; and our 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, 2013, 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.

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

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SOURCE Sirius XM Holdings Inc.