SIRIUS XM Radio Reports Second Quarter 2010 Results
- Strong Double-Digit Revenue Growth Year Over Year
- Adjusted EBITDA of $154 million, Up 17% Year Over Year
- Company Raises Financial Guidance
NEW YORK, Aug. 4 /PRNewswire-FirstCall/ -- SIRIUS XM Radio (Nasdaq: SIRI) today announced second quarter 2010 financial and operating results, including:
-- $705.6 million of adjusted revenue, up 16% over second quarter 2009
adjusted revenue of $607.8 million; and
-- $154.3 million in second quarter 2010 adjusted EBITDA, an increase of
17% over second quarter 2009 adjusted EBITDA of $132.2 million.
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The discussion of adjusted operating results excludes the effects of stock-based compensation and certain purchase price accounting adjustments. Financial measures and metrics previously reported as "pro forma" have been renamed "adjusted."
"The sharp subscriber growth and double-digit increase in adjusted revenue and adjusted EBITDA show that we continued to execute on our business plan during the second quarter," said Mel Karmazin, Chief Executive Officer, SIRIUS XM. "Compared to the year ago quarter, gross additions increased by 46%, deactivations declined by 8%, and customers paid us on average 11% more each month – clearly showing just how much subscribers love our service. Free cash flow in the second quarter 2010 was $108.3 million compared to $12.7 million in the second quarter of 2009. Our business has improved substantially in the past year, and we look forward to a strong second half and 2011."
SIRIUS XM ended second quarter 2010 with a record-high 19,527,448 subscribers, an increase of more than 1.1 million subscribers compared to the end of second quarter 2009. Net subscriber additions of 583,249 in the second quarter of 2010 improved significantly from a net loss of 185,999 subscribers in the second quarter of 2009. In the second quarter 2010, average revenue per subscriber (ARPU) was $11.81, an increase of 11% from ARPU of $10.66 in the second quarter 2009. The company's self-pay monthly customer churn rate was 1.8% in the second quarter 2010, as compared with self-pay monthly customer churn of 2.0% in the second quarter 2009.
In June, the company completed the redemption of all of the $114 million of XM's outstanding 10% Senior PIK Secured Notes due 2011. "We will continue to examine deleveraging opportunities as they arise with the objective of decreasing interest expense and improving free cash flow." said David Frear, SIRIUS XM's Chief Financial Officer. "The combination of increased adjusted EBITDA and lower debt has improved our leverage ratio to approximately 4.6x, a historic low for our company."
On a GAAP basis, net income (loss) attributable to common stockholders for the second quarter of 2010 and 2009 was $15.3 million and ($159.6) million, respectively, or $0.00 and ($0.04) per diluted share, on revenue of $699.8 million and $590.8 million, respectively. The company's reported net income (loss) attributable to common stockholders included losses on extinguishment of debt in the second quarter of 2010 and 2009 of $31.9 million and $107.8 million, respectively. For the six months ended June 30, 2010 and 2009, net income (loss) attributable to common stockholders was $56.9 million and ($398.5) million, respectively, or $0.01 and ($0.11) per diluted share, on revenue of $1.36 billion and $1.18 billion, respectively.
INCREASED 2010 OUTLOOK
The company is increasing guidance for the full year 2010, projecting adjusted revenue will approach $2.8 billion and free cash flow will approach $150 million. SIRIUS XM continues to target approximately $575 million of adjusted EBITDA in 2010.
As previously announced, SIRIUS XM increased its guidance for net subscriber additions to approximately 1.1 million for the full year.
ADJUSTED RESULTS OF OPERATIONS
Subscriber Data.
The following table contains actual subscriber data for the three and six months ended June 30, 2010 and 2009, respectively:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Beginning subscribers 18,944,199 18,599,434 18,772,758 19,003,856
Gross subscriber additions 2,020,507 1,380,125 3,741,355 2,719,086
Deactivated subscribers (1,437,258) (1,566,124) (2,986,665) (3,309,507)
Net additions 583,249 (185,999) 754,690 (590,421)
Ending subscribers 19,527,448 18,413,435 19,527,448 18,413,435
Retail 7,277,446 8,235,761 7,277,446 8,235,761
OEM 12,100,665 10,081,514 12,100,665 10,081,514
Rental 149,337 96,160 149,337 96,160
Ending subscribers 19,527,448 18,413,435 19,527,448 18,413,435
Self-pay 16,077,714 15,421,414 16,077,714 15,421,414
Paid promotional 3,449,734 2,992,021 3,449,734 2,992,021
Ending subscribers 19,527,448 18,413,435 19,527,448 18,413,435
Retail (142,757) (301,295) (448,304) (669,326)
OEM 709,226 123,165 1,169,713 85,561
Rental 16,780 (7,869) 33,281 (6,656)
Net additions 583,249 (185,999) 754,690 (590,421)
Self-pay 304,043 (14,996) 373,782 (128,243)
Paid promotional 279,206 (171,003) 380,908 (462,178)
Net additions 583,249 (185,999) 754,690 (590,421)
Daily weighted average
number of subscribers 19,139,926 18,438,473 18,962,580 18,575,219
Average self-pay monthly
churn (1) 1.8% 2.0% 1.9% 2.1%
Conversion rate (2) 46.7% 44.3% 45.9% 44.5%
See accompanying footnotes.
Subscribers. The improvement in net additions for the three months ended June 30, 2010 was due to the 46% increase in gross subscriber additions, primarily resulting from an improvement in U.S. auto sales, and the 8% decline in deactivations resulting from improvements in the conversion rate in paid promotional trials and the average self-pay monthly churn.
Average Self-pay Monthly Churn decreased in the three months ended June 30, 2010 due to an improving economy, the success of retention and win-back programs and reductions in non-pay cancellations.
Conversion Rate increased in the three months ended June 30, 2010 primarily due to marketing to promotional period subscribers and an improving economy.
Metrics.
The following table contains our key operating metrics based on our adjusted results of operations for the three and six months ended June 30, 2010 and 2009, respectively (in thousands, except for per subscriber amounts):
Unaudited Adjusted
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2010 2009 2010 2009
ARPU (3) $ 11.81 $ 10.66 $ 11.65 $ 10.57
SAC, per gross subscriber
addition (4) $ 59 $ 57 $ 59 $ 59
Customer service and
billing expenses, per
average
subscriber (5) $ 1.01 $ 1.05 $ 1.00 $ 1.06
Free cash flow (6) $ 108,331 $ 12,694 $ (18,872) $ 9,048
Adjusted total revenue (8) $ 705,560 $ 607,836 $ 1,376,122 $ 1,213,317
Adjusted EBITDA (7) $ 154,313 $ 132,219 $ 312,070 $ 241,055
See accompanying footnotes.
ARPU increased in the three months ended June 30, 2010 primarily due to the inclusion of the U.S. Music Royalty Fee, increased revenues from the sale of "Best of" programming, rate increases on multi-subscription and internet packages, and increased net advertising revenue.
SAC Per Gross Subscriber Addition increased in the three months ended June 30, 2010 due to the 103% increase in OEM production with factory-installed satellite radios compared to the 46% increase in gross additions, partially offset by lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from satellite radio manufacturers.
Customer Service and Billing Expenses Per Average Subscriber decreased in the three months ended June 30, 2010 primarily due to a lower call center expense as a result of moving calls to lower cost locations.
Free Cash Flow increased in the three months ended June 30, 2010 principally as a result of improvements in our adjusted EBITDA as well as increases in trade payables related to subsidies and commissions associated with the increase in our subscriber base and growth in deferred revenue; partially offset by growth in receivables from subscribers, radio manufacturers and distributors and the payment of related party obligations and accrued interest. In addition, capital expenditures in the three months ended June 30, 2010 increased by $13.7 million compared to the three months ended June 30, 2009, primarily due to increased satellite and related launch vehicle spending.
Adjusted Total Revenue. Set forth below are our adjusted total revenue for the three and six months ended June 30, 2010 compared with the three and six months ended June 30, 2009. Our adjusted total revenue includes the recognition of deferred subscriber revenues acquired in the merger of SIRIUS and XM that are not recognized in our post-merger results under purchase price accounting and the elimination of the benefit in earnings from deferred revenue associated with our investment in Canadian Satellite Radio acquired in the merger.
Unaudited Adjusted
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(in thousands) 2010 2009 2010 2009
Revenue:
Subscriber revenue,
including effects of
rebates $605,616 $576,958 $1,190,091 $1,153,034
Advertising revenue, net of
agency fees 15,797 12,564 30,323 24,869
Equipment revenue 18,520 10,928 32,802 20,837
Other revenue 65,627 7,386 122,906 14,577
Adjusted total revenue $705,560 $607,836 $1,376,122 $1,213,317
For the three months ended June 30, 2010, the increase in subscriber revenue was driven by the increase in subscribers as well as an increase in the sale of "Best of" programming and the rate increases on multi-subscription and internet packages. The increase in advertising revenue was driven by improvements in the national market for advertising and increases in our share of the market. The increase in equipment revenue was driven by royalties from increased OEM installations. The increase in other revenue was driven by the introduction of the U.S. Music Royalty Fee in the third quarter of 2009.
Adjusted EBITDA. Set forth below are our adjusted EBITDA for the three and six months ended June 30, 2010 compared with the three and six months ended June 30, 2009. Adjusted EBITDA is income (loss) from operations, excluding, if applicable: goodwill impairment; restructuring, impairments and related costs; depreciation and amortization; purchase price accounting adjustments and share-based payment expense.
Unaudited Adjusted
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(in thousands) 2010 2009 2010 2009
Total revenue $705,560 $607,836 $1,376,122 $1,213,317
Operating expenses:
Revenue share and royalties 134,318 117,671 257,857 238,932
Programming and content 83,931 87,707 174,402 184,386
Customer service and
billing 57,763 58,054 113,340 117,723
Satellite and transmission 19,235 18,659 38,622 38,401
Cost of equipment 7,805 8,051 15,724 16,044
Subscriber acquisition
costs 130,683 80,988 237,728 164,698
Sales and marketing 57,076 48,610 107,018 99,212
Engineering, design and
development 9,635 10,123 19,462 18,535
General and administrative 50,801 45,754 99,899 94,331
Total operating expenses 551,247 475,617 1,064,052 972,262
Adjusted EBITDA $154,313 $132,219 $ 312,070 $ 241,055
For the three months ended June 30, 2010, the increase in adjusted EBITDA was primarily due to an increase in revenues, the increase in our subscriber base and the inclusion of the U.S. Music Royalty Fee, as well as increased advertising and equipment revenue, rate increases on multi-subscription and internet packages, and an increase in the sale of "Best of" programming, partially offset by an increase in expenses, which was primarily driven by higher subscriber acquisition costs related to the 46% increase in gross additions, higher revenue share and royalties expenses associated with growth in revenues subject to revenue sharing and royalty arrangements and additional sales and marketing costs, primarily related to co-operative marketing.
SIRIUS XM RADIO INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(in thousands, except per
share data) 2010 2009 2010 2009
Revenue:
Subscriber revenue, including
effects of rebates $ 601,630 $ 561,763 $ 1,181,139 $ 1,121,151
Advertising revenue, net of
agency fees 15,797 12,564 30,323 24,869
Equipment revenue 18,520 10,928 32,802 20,837
Other revenue 63,814 5,574 119,280 10,951
Total revenue 699,761 590,829 1,363,544 1,177,808
Operating expenses
(depreciation and amortization
shown separately below):
Cost of services:
Revenue share and royalties 107,901 95,831 206,085 196,297
Programming and content 72,019 72,102 150,452 152,511
Customer service and billing 58,414 58,833 114,625 119,041
Satellite and transmission 19,982 19,615 40,100 39,894
Cost of equipment 7,805 8,051 15,724 16,044
Subscriber acquisition costs 110,383 67,651 199,762 140,719
Sales and marketing 56,177 48,693 105,294 100,116
Engineering, design and
development 11,247 11,944 22,684 21,723
General and administrative 59,166 66,716 116,746 126,031
Depreciation and amortization 69,230 77,158 139,495 159,524
Restructuring, impairments and
related costs 1,803 27,000 1,803 27,614
Total operating expenses 574,127 553,594 1,112,770 1,099,514
Income from operations 125,634 37,235 250,774 78,294
Other income (expense):
Interest expense, net of
amounts capitalized (76,802) (98,080) (154,670) (166,058)
Loss on extinguishment of debt
and credit facilities, net (31,871) (107,756) (34,437) (125,713)
Interest and investment income
(loss) 378 9,323 (2,892) 2,157
Other (loss) income (601) 749 728 1,259
Total other expense (108,896) (195,764) (191,271) (288,355)
Income (loss) before income
taxes 16,738 (158,529) 59,503 (210,061)
Income tax expense (1,466) (1,115) (2,633) (2,229)
Net income (loss) 15,272 (159,644) 56,870 (212,290)
Preferred stock beneficial
conversion feature - - - (186,188)
Net income (loss) attributable
to common stockholders $ 15,272 $ (159,644) $ 56,870 $ (398,478)
Net income (loss) per common
share:
Basic $ 0.00 $ (0.04) $ 0.02 $ (0.11)
Diluted $ 0.00 $ (0.04) $ 0.01 $ (0.11)
Weighted average common shares
outstanding:
Basic 3,683,595 3,586,742 3,682,750 3,555,489
Diluted 6,363,955 3,586,742 6,357,507 3,555,489
SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2010 December 31, 2009
(in thousands, except share and per share
data) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 258,854 $ 383,489
Accounts receivable, net 113,341 113,580
Receivables from distributors 83,208 48,738
Inventory, net 13,726 16,193
Prepaid expenses 193,440 100,273
Related party current assets 5,442 106,247
Deferred tax asset 77,570 72,640
Other current assets 14,591 18,620
Total current assets 760,172 859,780
Property and equipment, net 1,765,347 1,711,003
Long-term restricted investments 3,396 3,400
Deferred financing fees, net 59,224 66,407
Intangible assets, net 2,661,001 2,695,115
Goodwill 1,834,856 1,834,856
Related party long-term assets 28,416 111,767
Other long-term assets 88,520 39,878
Total assets $ 7,200,932 $ 7,322,206
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 519,181 $ 543,686
Accrued interest 68,541 74,566
Current portion of deferred revenue 1,169,090 1,083,430
Current portion of deferred credit on
executory contracts 263,998 252,831
Current maturities of long-term debt 8,280 13,882
Related party current liabilities 12,781 108,246
Total current liabilities 2,041,871 2,076,641
Deferred revenue 275,212 255,149
Deferred credit on executory contracts 647,691 784,078
Long-term debt 2,662,144 2,799,702
Long-term related party debt 357,806 263,579
Deferred tax liability 947,468 940,182
Related party long-term liabilities 26,655 46,301
Other long-term liabilities 61,657 61,052
Total liabilities 7,020,504 7,226,684
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001; 50,000,000
authorized at June 30, 2010 and December 31,
2009:
Series A convertible preferred stock
(liquidation preference of $51,370 at June 30,
2010 and
December 31, 2009); 24,808,959 shares issued
and outstanding at June 30, 2010
and December 31, 2009 25 25
Convertible perpetual preferred stock, series
B (liquidation preference of $13 at June 30,
2010
and December 31, 2009); 12,500,000 shares
issued and outstanding at June 30, 2010
and December 31, 2009 13 13
Convertible preferred stock, series C junior;
no shares issued and outstanding at
June 30, 2010 and December 31, 2009 - -
Common stock, par value $0.001; 9,000,000,000
shares authorized at June 30, 2010 and
December 31, 2009; 3,885,905,912 and
3,882,659,087 shares issued and outstanding
at June 30, 2010 and December 31, 2009,
respectively 3,885 3,882
Accumulated other comprehensive loss, net of
tax (5,987) (6,581)
Additional paid-in capital 10,379,730 10,352,291
Accumulated deficit (10,197,238) (10,254,108)
Total stockholders’ equity 180,428 95,522
Total liabilities and stockholders’ equity $ 7,200,932 $ 7,322,206
SIRIUS XM RADIO INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
(in thousands) 2010 2009
Cash flows from operating activities:
Net income (loss) $ 56,870 $(212,290)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 139,495 159,524
Non-cash interest expense, net of amortization of premium 22,294 31,322
Provision for doubtful accounts 15,756 16,278
Restructuring, impairments and related costs 1,803 27,614
Amortization of deferred income related to equity method
investment (2,137) (1,388)
Loss on extinguishment of debt and credit facilities, net 34,437 125,713
Loss on investments 6,065 6,353
Loss on disposal of assets (18) -
Share-based payment expense 33,083 49,878
Deferred income taxes 2,633 2,229
Other non-cash purchase price adjustments (120,706) (85,223)
Changes in operating assets and liabilities:
Accounts receivable (14,296) 8,483
Receivables from distributors (26,655) 12,277
Inventory 2,467 (3,424)
Related party assets (701) 11,629
Prepaid expenses and other current assets 10,245 24,052
Other long-term assets 10,947 34,476
Accounts payable and accrued expenses (76,144) (106,041)
Accrued interest (4,796) 997
Deferred revenue 105,004 22,504
Related party liabilities (54,978) 14,060
Other long-term liabilities 319 (2,164)
Net cash provided by operating activities 140,987 136,859
Cash flows from investing activities:
Additions to property and equipment (169,313) (127,811)
Sale of restricted and other investments 9,454 -
Net cash used in investing activities (159,859) (127,811)
Cash flows from financing activities:
Preferred stock issuance, net of costs - (3,712)
Long-term borrowings, net of costs 637,406 384,876
Related party long-term borrowings, net of costs 147,094 316,340
Payment of premiums on redemption of debt (24,065) (16,572)
Repayment of long-term borrowings (810,977) (427,871)
Repayment of related party long-term borrowings (55,221) (100,867)
Net cash (used in) provided by financing activities (105,763) 152,194
Net (decrease) increase in cash and cash equivalents (124,635) 161,242
Cash and cash equivalents at beginning of period 383,489 380,446
Cash and cash equivalents at end of period $ 258,854 $ 541,688
Footnotes to Adjusted Results of Operations
Average self-pay monthly churn; conversion rate; ARPU; SAC per gross subscriber addition; customer service and billing expenses, per average subscriber; and free cash flow are not measures of financial performance under GAAP. We believe these operational and Non-GAAP financial performance measures provide meaningful supplemental information regarding our operating performance and are used by us for budgetary and planning purposes; when publicly providing our business outlook; as a means to evaluate period-to-period comparisons; and to compare our performance to that of our competitors. We believe that investors also use our current and projected metrics to monitor the performance of our business and to make investment decisions.
These operational and Non-GAAP financial performance measures are used in addition to and in conjunction with results presented in accordance with GAAP. These Non-GAAP financial performance measures may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.
(1) Average self-pay monthly churn represents the monthly average of self-pay deactivations for the quarter divided by the average self-pay subscriber balance for the quarter.
(2) We measure the percentage of vehicle owners and lessees that receive our service and convert to self-paying after the initial promotion period. We refer to this as the "conversion rate." At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive between three and twelve month trial subscriptions. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. We measure conversion rate three months after the period in which the trial service ends. Based on our experience it may take up to 90 days after the trial service ends for vehicle owners and lessees to respond to our marketing communications and become self-paying subscribers.
(3) ARPU is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes amounts recognized on account of the U.S. Music Royalty Fee since the third quarter of 2009. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):
Unaudited
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Subscriber revenue (GAAP) $ 601,630 $ 561,763 $ 1,181,139 $ 1,121,151
Net advertising revenue
(GAAP) 15,797 12,564 30,323 24,869
Other subscription-related
revenue (GAAP) 56,694 - 104,641 -
Purchase price accounting
adjustments 3,986 15,195 8,952 31,883
$ 678,107 $ 589,522 $ 1,325,055 $ 1,177,903
Daily weighted average
number of subscribers 19,139,926 18,438,473 18,962,580 18,575,219
ARPU $ 11.81 $ 10.66 $ 11.65 $ 10.57
(4) SAC, per gross subscriber addition is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of gross subscriber additions for the period. Purchase price accounting adjustments include the elimination of the benefit of amortization of deferred credits on executory contracts recognized at the merger date attributable to third party arrangements with an OEM. SAC, per gross subscriber addition is calculated as follows (in thousands, except for subscriber and per subscriber amounts):
Unaudited
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Subscriber acquisition
costs (GAAP) $ 110,383 $ 67,651 $ 199,762 $ 140,719
Less: margin from direct
sales of radios and
accessories (GAAP) (10,715) (2,877) (17,078) (4,793)
Add: purchase price
accounting adjustments 20,300 13,337 37,966 23,979
$ 119,968 $ 78,111 $ 220,650 $ 159,905
Gross subscriber additions 2,020,507 1,380,125 3,741,355 2,719,086
SAC, per gross subscriber
addition $ 59 $ 57 $ 59 $ 59
(5) Customer service and billing expenses, per average subscriber is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber is useful given the significant variation in expense that can result from changes in the fair market value of our common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Purchase price accounting adjustments include the elimination of the benefit associated with share-based payment arrangements recognized at the merger date. Customer service and billing expenses, per average subscriber is calculated as follows (in thousands, except for subscriber and per subscriber amounts):
Unaudited
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Customer service and
billing expenses (GAAP) $ 58,414 $ 58,833 $ 114,625 $ 119,041
Less: share-based payment
expense, net of purchase
price accounting
adjustments (729) (905) (1,457) (1,561)
Add: purchase price
accounting adjustment 78 126 172 243
$ 57,763 $ 58,054 $ 113,340 $ 117,723
Daily weighted average
number of subscribers 19,139,926 18,438,473 18,962,580 18,575,219
Customer service and
billing expenses, per
average
subscriber $ 1.01 $ 1.05 $ 1.00 $ 1.06
(6) Free cash flow is calculated as follows (in thousands):
Unaudited
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Net cash provided by
operating activities $ 178,675 $ 69,988 $ 140,987 $ 136,859
Additions to property and
equipment (70,348) (56,671) (169,313) (127,811)
Merger related costs - (623) - -
Restricted and other
investment activity 4 - 9,454 -
Free cash flow $ 108,331 $ 12,694 $ (18,872) $ 9,048
(7) Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable): (i) certain adjustments as a result of the purchase price accounting for the merger, (ii) goodwill impairment, (iii) restructuring, impairments, and related costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in Canadian Satellite Radio, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. We believe adjusted EBITDA is a useful measure of our operating performance. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. We believe investors find this Non-GAAP financial measure useful when analyzing our results and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe that investors use current and projected adjusted EBITDA to estimate our current or prospective enterprise value and to make investment decisions.
Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our adjusted results of operations reflect significant charges for depreciation expense. We believe adjusted EBITDA provides useful information about the operating performance of our business apart from the costs associated with our physical plant. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair market value of our common stock.
Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including share-based payment expense and certain purchase price accounting for the merger. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure. Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income (loss) as disclosed in our consolidated statements of operations. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.
The reconciliation of net income (loss) to the adjusted EBITDA is calculated as follows (see footnote 8 for reconciliation of the adjusted amounts to their respective GAAP amounts) (in thousands):
Unaudited
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Net income (loss) (GAAP): $ 15,272 $ (159,644) $ 56,870 $ (212,290)
Add back items excluded
from Adjusted EBITDA:
Purchase price accounting
adjustment (59,058) (40,177) (114,889) (76,878)
Depreciation and
amortization 69,230 77,158 139,495 159,524
Restructuring, impairments
and related costs 1,803 27,000 1,803 27,614
Share-based payment
expense, net of purchase
price
accounting adjustments 16,704 31,003 34,887 52,501
Interest expense, net of
amounts capitalized 76,802 98,080 154,670 166,058
Loss on extinguishment of
debt and credit facilities,
net 31,871 107,756 34,437 125,713
Interest and investment
income (loss) (378) (9,323) 2,892 (2,157)
Other (loss) income 601 (749) (728) (1,259)
Income tax expense 1,466 1,115 2,633 2,229
Adjusted EBITDA $ 154,313 $ 132,219 $ 312,070 $ 241,055
(8) The following tables reconcile our adjusted results of operations to our actual results of operations:
Unaudited For the Three Months Ended June 30, 2010
Allocation
Purchase of Share-
Price based
As Accounting Payment
(in thousands) Reported Adjustments Expense Adjusted
Revenue:
Subscriber revenue,
including effects of rebates $601,630 $3,986 $- $605,616
Advertising revenue, net of
agency fees 15,797 - - 15,797
Equipment revenue 18,520 - - 18,520
Other revenue 63,814 1,813 - 65,627
Total revenue 699,761 5,799 - 705,560
Operating expenses
(depreciation and
amortization
shown separately below) (1)
Cost of services:
Revenue share and royalties 107,901 26,417 - 134,318
Programming and content 72,019 13,702 (1,790) 83,931
Customer service and billing 58,414 78 (729) 57,763
Satellite and transmission 19,982 303 (1,050) 19,235
Cost of equipment 7,805 - - 7,805
Subscriber acquisition costs 110,383 20,300 - 130,683
Sales and marketing 56,177 3,661 (2,762) 57,076
Engineering, design and
development 11,247 148 (1,760) 9,635
General and administrative 59,166 248 (8,613) 50,801
Depreciation and
amortization (2) 69,230 - - 69,230
Restructuring, impairments
and related costs 1,803 - - 1,803
Share-based payment expense - - 16,704 16,704
Total operating expenses 574,127 64,857 - 638,984
Income (loss) from
operations $125,634 $(59,058) $- $66,576
(1) Amounts related to share-based payment expense included in operating
expenses were as follows:
Programming and content $1,662 $128 $- $1,790
Customer service and billing 651 78 - 729
Satellite and transmission 968 82 - 1,050
Sales and marketing 2,643 119 - 2,762
Engineering, design and
development 1,612 148 - 1,760
General and administrative 8,365 248 - 8,613
Total share-based payment
expense $15,901 $803 $- $16,704
(2) Purchase price accounting adjustments included in the tables above exclude
the incremental depreciation and amortization associated with the $785 million
stepped up basis in property, equipment and intangible assets as a result of
the merger with XM. The increased depreciation and amortization for the three
months ended June 30, 2010 was $17 million.
Unaudited For the Three Months Ended June 30, 2009
Allocation
Purchase of Share-
Price based
As Accounting Payment
(in thousands) Reported Adjustments Expense Adjusted
Revenue:
Subscriber revenue,
including effects of rebates $561,763 $15,195 $- $576,958
Advertising revenue, net of
agency fees 12,564 - - 12,564
Equipment revenue 10,928 - - 10,928
Other revenue 5,574 1,812 - 7,386
Total revenue 590,829 17,007 - 607,836
Operating expenses
(depreciation and
amortization
shown separately below) (1)
Cost of services:
Revenue share and royalties 95,831 21,840 - 117,671
Programming and content 72,102 17,701 (2,096) 87,707
Customer service and billing 58,833 126 (905) 58,054
Satellite and transmission 19,615 354 (1,310) 18,659
Cost of equipment 8,051 - - 8,051
Subscriber acquisition costs 67,651 13,337 - 80,988
Sales and marketing 48,693 3,173 (3,256) 48,610
Engineering, design and
development 11,944 247 (2,068) 10,123
General and administrative 66,716 406 (21,368) 45,754
Depreciation and
amortization (2) 77,158 - - 77,158
Restructuring, impairments
and related costs 27,000 - - 27,000
Share-based payment expense - - 31,003 31,003
Total operating expenses 553,594 57,184 - 610,778
Income (loss) from
operations $37,235 $(40,177) $- $(2,942)
(1) Amounts related to share-based payment expense included in operating
expenses were as follows:
Programming and content $1,891 $205 $- $2,096
Customer service and billing 779 126 - 905
Satellite and transmission 1,177 133 - 1,310
Sales and marketing 3,072 184 - 3,256
Engineering, design and
development 1,821 247 - 2,068
General and administrative 20,961 407 - 21,368
Total share-based payment
expense $29,701 $1,302 $- $31,003
(2) Purchase price accounting adjustments included in the tables above exclude
the incremental depreciation and amortization associated with the $785 million
stepped up basis in property, equipment and intangible assets as a result of
the merger with XM. The increased depreciation and amortization for the three
months ended June 30, 2009 was $31 million.
Unaudited For the Six Months Ended June 30, 2010
Allocation
Purchase of Share-
Price based
As Accounting Payment
(in thousands) Reported Adjustments Expense Adjusted
Revenue:
Subscriber revenue, including
effects of rebates $1,181,139 $8,952 $- $1,190,091
Advertising revenue, net of
agency fees 30,323 - - 30,323
Equipment revenue 32,802 - - 32,802
Other revenue 119,280 3,626 - 122,906
Total revenue 1,363,544 12,578 - 1,376,122
Operating expenses
(depreciation and amortization
shown separately below) (1)
Cost of services:
Revenue share and royalties 206,085 51,772 - 257,857
Programming and content 150,452 28,850 (4,900) 174,402
Customer service and billing 114,625 172 (1,457) 113,340
Satellite and transmission 40,100 626 (2,104) 38,622
Cost of equipment 15,724 - - 15,724
Subscriber acquisition costs 199,762 37,966 - 237,728
Sales and marketing 105,294 7,186 (5,462) 107,018
Engineering, design and
development 22,684 334 (3,556) 19,462
General and administrative 116,746 561 (17,408) 99,899
Depreciation and amortization
(2) 139,495 - - 139,495
Restructuring, impairments and
related costs 1,803 - - 1,803
Share-based payment expense - - 34,887 34,887
Total operating expenses 1,112,770 127,467 - 1,240,237
Income (loss) from operations $250,774 $(114,889) $- $135,885
(1) Amounts related to share-based payment expense included in operating
expenses were as follows:
Programming and content $4,612 $288 $- $4,900
Customer service and billing 1,285 172 - 1,457
Satellite and transmission 1,919 185 - 2,104
Sales and marketing 5,198 264 - 5,462
Engineering, design and
development 3,222 334 - 3,556
General and administrative 16,847 561 - 17,408
Total share-based payment
expense $33,083 $1,804 $- $34,887
(2) Purchase price accounting adjustments included in the tables above exclude
the incremental depreciation and amortization associated with the $785 million
stepped up basis in property, equipment and intangible assets as a result of
the merger with XM. The increased depreciation and amortization for the six
months ended June 30, 2010 was $36 million.
Unaudited For the Six Months Ended June 30, 2009
Allocation
Purchase of Share-
Price based
As Accounting Payment
(in thousands) Reported Adjustments Expense Adjusted
Revenue:
Subscriber revenue, including
effects of rebates $1,121,151 $31,883 $- $1,153,034
Advertising revenue, net of
agency fees 24,869 - - 24,869
Equipment revenue 20,837 - - 20,837
Other revenue 10,951 3,626 - 14,577
Total revenue 1,177,808 35,509 - 1,213,317
Operating expenses
(depreciation and amortization
shown separately below) (1)
Cost of services:
Revenue share and royalties 196,297 42,635 - 238,932
Programming and content 152,511 36,592 (4,717) 184,386
Customer service and billing 119,041 243 (1,561) 117,723
Satellite and transmission 39,894 681 (2,174) 38,401
Cost of equipment 16,044 - - 16,044
Subscriber acquisition costs 140,719 23,979 - 164,698
Sales and marketing 100,116 6,831 (7,735) 99,212
Engineering, design and
development 21,723 548 (3,736) 18,535
General and administrative 126,031 878 (32,578) 94,331
Depreciation and amortization
(2) 159,524 - - 159,524
Restructuring, impairments and
related costs 27,614 - - 27,614
Share-based payment expense - - 52,501 52,501
Total operating expenses 1,099,514 112,387 - 1,211,901
Income (loss) from operations $78,294 $(76,878) $- $1,416
(1) Amounts related to share-based payment expense included in operating
expenses were as follows:
Programming and content $4,381 $336 $- $4,717
Customer service and billing 1,318 243 - 1,561
Satellite and transmission 1,934 240 - 2,174
Sales and marketing 7,358 377 - 7,735
Engineering, design and
development 3,188 548 - 3,736
General and administrative 31,699 879 - 32,578
Total share-based payment
expense $49,878 $2,623 $- $52,501
(2) Purchase price accounting adjustments included in the tables above exclude
the incremental depreciation and amortization associated with the $785 million
stepped up basis in property, equipment and intangible assets as a result of
the merger with XM. The increased depreciation and amortization for the six
months ended June 30, 2009 was $62 million.
About SIRIUS XM Radio
SIRIUS XM Radio is America's satellite radio company delivering to subscribers commercial-free music channels, premier sports, news, talk, entertainment, and traffic and weather.
SIRIUS XM Radio has content relationships with an array of personalities and artists, including Howard Stern, Martha Stewart, Oprah Winfrey, Rosie O'Donnell, Jamie Foxx, Barbara Walters, Opie & Anthony, Bubba the Love Sponge®, Bob Edwards, Chris "Mad Dog" Russo, Jimmy Buffett, The Grateful Dead, Willie Nelson, Bob Dylan and Tom Petty. SIRIUS XM Radio is the leader in sports programming as the Official Satellite Radio Partner of the NFL, Major League Baseball®, NASCAR®, NBA, NHL®, and PGA TOUR® and major college sports.
SIRIUS XM Radio has arrangements with every major automaker. SIRIUS XM Radio products are available at shop.sirius.com and shop.xmradio.com, and at retail locations nationwide, including Best Buy, RadioShack, Wal-Mart and independent retailers.
SIRIUS XM Radio also offers SIRIUS Backseat TV, the first ever live in-vehicle rear seat entertainment featuring Nickelodeon, Disney Channel and Cartoon Network; XM NavTraffic® service for GPS navigation systems delivers real-time traffic information, including accidents and road construction, for more than 80 North American markets.
This communication contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, the combined company's plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as "will likely result," " are expected to," "will continue,"" is anticipated," "estimated," "intend," "plan", "projection," "outlook" or words of similar meaning. Such forward-looking statements are based upon the current beliefs and expectations of SIRIUS XM's management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond the control of SIRIUS and XM. Actual results may differ materially from the results anticipated in these forward-looking statements.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statement: our dependence upon automakers and other third parties, the substantial indebtedness of SIRIUS and XM; the useful life of our satellites; and our competitive position versus other forms of audio and video entertainment. Additional factors that could cause SIRIUS' and XM's results to differ materially from those described in the forward-looking statements can be found in SIRIUS' Annual Report on Form 10-K for the year ended December 31, 2009 and XM's Annual Report on Form 10-K for the year ended December 31, 2009, which are filed with the Securities and Exchange Commission (the "SEC") and available at the SEC's Internet site (http://www.sec.gov). The information set forth herein speaks only as of the date hereof, and SIRIUS and XM disclaim any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this communication.
E-SIRI
Contact Information for Investors and Financial Media: Investors: William Prip 212 584 5289 william.prip@siriusxm.com Hooper Stevens 212 901 6718 hooper.stevens@siriusxm.com Media: Patrick Reilly 212 901 6646 patrick.reilly@siriusxm.com
SOURCE SIRIUS XM Radio
Released August 4, 2010