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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
| | | |
☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
OR
|
| | |
☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM __________ TO ________
COMMISSION FILE NUMBER 001-34295
SIRIUS XM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
|
| | | |
Delaware | | 38-3916511 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1290 Avenue of the Americas, 11th Floor, New York, NY
(Address of Principal Executive Offices)
10104
(Zip Code)
Registrant’s telephone number, including area code: (212) 584-5100
Former name, former address and former fiscal year, if changed since last report: Not Applicable
|
| | | | |
Title of each class | | Trading Symbol(s) | | Name of exchange on which registered |
Common stock, $0.001 par value | | SIRI | | NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
|
| | | | | | | |
Large accelerated filer | ☑ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ |
| | | | | | |
Smaller reporting company | ☐ | | Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
|
| | | |
(Class) | | (Outstanding as of October 29, 2019) |
Common stock, $0.001 par value | | 4,423,719,942 | shares |
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
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 millions, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
Revenue: | |
| | |
| | | | |
Subscriber revenue | $ | 1,556 |
| | $ | 1,340 |
| | $ | 4,551 |
| | $ | 3,903 |
|
Advertising revenue | 366 |
| | 46 |
| | 933 |
| | 135 |
|
Equipment revenue | 45 |
| | 41 |
| | 127 |
| | 113 |
|
Other revenue | 44 |
| | 40 |
| | 121 |
| | 124 |
|
Total revenue | 2,011 |
| | 1,467 |
| | 5,732 |
| | 4,275 |
|
Operating expenses: | |
| | |
| | | | |
Cost of services: | |
| | |
| | | | |
Revenue share and royalties | 592 |
| | 343 |
| | 1,684 |
| | 1,057 |
|
Programming and content | 116 |
| | 96 |
| | 338 |
| | 303 |
|
Customer service and billing | 119 |
| | 95 |
| | 352 |
| | 284 |
|
Transmission | 46 |
| | 24 |
| | 117 |
| | 70 |
|
Cost of equipment | 8 |
| | 7 |
| | 20 |
| | 22 |
|
Subscriber acquisition costs | 101 |
| | 109 |
| | 313 |
| | 352 |
|
Sales and marketing | 233 |
| | 117 |
| | 648 |
| | 344 |
|
Engineering, design and development | 78 |
| | 31 |
| | 206 |
| | 89 |
|
General and administrative | 124 |
| | 86 |
| | 379 |
| | 264 |
|
Depreciation and amortization | 118 |
| | 76 |
| | 344 |
| | 222 |
|
Acquisition and other related costs | — |
| | — |
| | 83 |
| | — |
|
Total operating expenses | 1,535 |
| | 984 |
| | 4,484 |
| | 3,007 |
|
Income from operations | 476 |
| | 483 |
| | 1,248 |
| | 1,268 |
|
Other (expense) income: | |
| | |
| | | | |
Interest expense | (104 | ) | | (86 | ) | | (291 | ) | | (263 | ) |
Loss on extinguishment of debt | (56 | ) | | — |
| | (57 | ) | | — |
|
Other (expense) income | — |
| | (42 | ) | | (2 | ) | | 82 |
|
Total other (expense) income | (160 | ) | | (128 | ) | | (350 | ) | | (181 | ) |
Income before income taxes | 316 |
| | 355 |
| | 898 |
| | 1,087 |
|
Income tax expense | (70 | ) | | (12 | ) | | (227 | ) | | (162 | ) |
Net income | $ | 246 |
| | $ | 343 |
| | $ | 671 |
| | $ | 925 |
|
Foreign currency translation adjustment, net of tax | (5 | ) | | 8 |
| | 9 |
| | (10 | ) |
Total comprehensive income | $ | 241 |
| | $ | 351 |
| | $ | 680 |
| | $ | 915 |
|
Net income per common share: | |
| | |
| | | | |
Basic | $ | 0.06 |
| | $ | 0.08 |
| | $ | 0.15 |
| | $ | 0.21 |
|
Diluted | $ | 0.05 |
| | $ | 0.07 |
| | $ | 0.15 |
| | $ | 0.20 |
|
Weighted average common shares outstanding: | |
| | |
| | | | |
Basic | 4,450 |
| | 4,474 |
| | 4,529 |
| | 4,482 |
|
Diluted | 4,564 |
| | 4,574 |
| | 4,641 |
| | 4,586 |
|
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
| | | | | | | |
(in millions, except per share data) | September 30, 2019 |
| December 31, 2018 |
ASSETS | (unaudited) |
|
|
|
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 79 |
| | $ | 54 |
|
Receivables, net | 632 |
| | 233 |
|
Inventory, net | 14 |
| | 22 |
|
Related party current assets | 11 |
| | 11 |
|
Prepaid expenses and other current assets | 200 |
| | 158 |
|
Total current assets | 936 |
| | 478 |
|
Property and equipment, net | 1,609 |
| | 1,513 |
|
Intangible assets, net | 3,505 |
| | 2,501 |
|
Goodwill | 3,856 |
| | 2,290 |
|
Related party long-term assets | 451 |
| | 960 |
|
Deferred tax assets | 168 |
| | 293 |
|
Operating lease right-of-use assets | 428 |
|
| — |
|
Other long-term assets | 135 |
| | 138 |
|
Total assets | $ | 11,088 |
| | $ | 8,173 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| | |
|
Current liabilities: | |
| | |
|
Accounts payable and accrued expenses | $ | 1,156 |
| | $ | 736 |
|
Accrued interest | 104 |
| | 128 |
|
Current portion of deferred revenue | 1,938 |
| | 1,932 |
|
Current maturities of debt | 2 |
| | 3 |
|
Operating lease current liabilities | 47 |
|
| — |
|
Related party current liabilities | 4 |
| | 4 |
|
Total current liabilities | 3,251 |
| | 2,803 |
|
Long-term deferred revenue | 134 |
| | 149 |
|
Long-term debt | 7,904 |
| | 6,885 |
|
Related party long-term liabilities | 1 |
| | 4 |
|
Deferred tax liabilities | 48 |
| | 47 |
|
Operating lease liabilities | 407 |
|
| — |
|
Other long-term liabilities | 91 |
| | 102 |
|
Total liabilities | 11,836 |
| | 9,990 |
|
Commitments and contingencies (Note 15) |
|
| |
|
|
Stockholders’ equity (deficit): | |
| | |
|
Common stock, par value $0.001 per share; 9,000 shares authorized; 4,434 and 4,346 shares issued; 4,433 and 4,346 outstanding at September 30, 2019 and December 31, 2018, respectively | 4 |
| | 4 |
|
Accumulated other comprehensive income (loss), net of tax | 3 |
| | (6 | ) |
Additional paid-in capital | 638 |
| | 242 |
|
Treasury stock, at cost; 1 and 0 shares of common stock at September 30, 2019 and December 31, 2018, respectively | (7 | ) | | — |
|
Accumulated deficit | (1,386 | ) | | (2,057 | ) |
Total stockholders’ equity (deficit) | (748 | ) | | (1,817 | ) |
Total liabilities and stockholders’ equity (deficit) | $ | 11,088 |
| | $ | 8,173 |
|
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2019 |
| | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at December 31, 2018 | | 4,346 |
| | $ | 4 |
| | $ | (6 | ) | | $ | 242 |
| | — |
| | $ | — |
| | $ | (2,057 | ) | | $ | (1,817 | ) |
Comprehensive income, net of tax | | — |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | 671 |
| | 680 |
|
Share-based payment expense | | — |
| | — |
| | — |
| | 201 |
| | — |
| | — |
| | — |
| | 201 |
|
Exercise of stock options and vesting of restricted stock units | | 30 |
| | — |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | 8 |
|
Withholding taxes on net share settlement of stock-based compensation | | — |
| | — |
| | — |
| | (104 | ) | | — |
| | — |
| | — |
| | (104 | ) |
Cash dividends paid on common stock, $0.0363 per share | | — |
| | — |
| | — |
| | (167 | ) | | — |
| | — |
| | — |
| | (167 | ) |
Issuance of common stock as part of Pandora Acquisition | | 392 |
| | 1 |
| | — |
| | 2,354 |
| | — |
| | — |
| | — |
| | 2,355 |
|
Equity component of convertible note | | — |
| | — |
| | — |
| | 62 |
| | — |
| | — |
| | — |
| | 62 |
|
Common stock repurchased | | — |
| | — |
| | — |
| | — |
| | 335 |
| | (1,966 | ) | | — |
| | (1,966 | ) |
Common stock retired | | (334 | ) | | (1 | ) | | — |
| | (1,958 | ) | | (334 | ) | | 1,959 |
| | — |
| | — |
|
Balance at September 30, 2019 | | 4,434 |
| | $ | 4 |
| | $ | 3 |
| | $ | 638 |
| | 1 |
| | $ | (7 | ) | | $ | (1,386 | ) | | $ | (748 | ) |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended September 30, 2019 |
| | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at June 30, 2019 | | 4,497 |
| | $ | 4 |
| | $ | 8 |
| | $ | 1,159 |
| | 5 |
| | $ | (28 | ) | | $ | (1,632 | ) | | $ | (489 | ) |
Comprehensive income, net of tax | | — |
| | — |
| | (5 | ) | | — |
| | — |
| | — |
| | 246 |
| | 241 |
|
Share-based payment expense | | — |
| | — |
| | — |
| | 67 |
| | — |
| | — |
| | — |
| | 67 |
|
Exercise of stock options and vesting of restricted stock units | | 17 |
| | — |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | 8 |
|
Withholding taxes on net share settlement of stock-based compensation | | — |
| | — |
| | — |
| | (57 | ) | | — |
| | — |
| | — |
| | (57 | ) |
Cash dividends paid on common stock, $0.0121 per share | | — |
| | — |
| | — |
| | (54 | ) | | — |
| | — |
| | — |
| | (54 | ) |
Common stock repurchased | | — |
| | — |
| | — |
| | — |
| | 76 |
| | (464 | ) | | — |
| | (464 | ) |
Common stock retired | | (80 | ) | | — |
| | — |
| | (485 | ) | | (80 | ) | | 485 |
| | — |
| | — |
|
Balance at September 30, 2019 | | 4,434 |
| | $ | 4 |
| | $ | 3 |
| | $ | 638 |
| | 1 |
| | $ | (7 | ) | | $ | (1,386 | ) | | $ | (748 | ) |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2018 |
| | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at December 31, 2017 | | 4,531 |
| | $ | 4 |
| | $ | 19 |
| | $ | 1,713 |
| | 3 |
| | $ | (17 | ) | | $ | (3,243 | ) | | $ | (1,524 | ) |
Cumulative effect of change in accounting principles | | — |
| | — |
| | 4 |
| | 31 |
| | — |
| | — |
| | 10 |
| | 45 |
|
Comprehensive income, net of tax | | — |
| | — |
| | (10 | ) | | — |
| | — |
| | — |
| | 925 |
| | 915 |
|
Share-based payment expense | | — |
| | — |
| | — |
| | 100 |
| | — |
| | — |
| | — |
| | 100 |
|
Exercise of stock options and vesting of restricted stock units | | 25 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Withholding taxes on net share settlement of stock-based compensation | | — |
| | — |
| | — |
| | (112 | ) | | — |
| | — |
| | — |
| | (112 | ) |
Cash dividends paid on common stock, $0.0330 per share | | — |
| | — |
| | — |
| | (148 | ) | | — |
| | — |
| | — |
| | (148 | ) |
Common stock repurchased | | — |
| | — |
| | — |
| | — |
| | 104 |
| | (651 | ) | | — |
| | (651 | ) |
Common stock retired | | (106 | ) | | — |
| | — |
| | (662 | ) | | (106 | ) | | 662 |
| | — |
| | — |
|
Balance at September 30, 2018 | | 4,450 |
| | $ | 4 |
| | $ | 13 |
| | $ | 922 |
| | 1 |
| | $ | (6 | ) | | $ | (2,308 | ) | | $ | (1,375 | ) |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended September 30, 2018 |
| | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at June 30, 2018 | | 4,486 |
| | $ | 4 |
| | $ | 5 |
| | $ | 1,267 |
| | — |
| | $ | — |
| | $ | (2,647 | ) | | $ | (1,371 | ) |
Cumulative effect of change in accounting principles | | — |
| | — |
| | — |
| | 31 |
| | — |
| | — |
| | (4 | ) | | 27 |
|
Comprehensive income, net of tax | | — |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | 343 |
| | 351 |
|
Share-based payment expense | | — |
| | — |
| | — |
| | 42 |
| | — |
| | — |
| | — |
| | 42 |
|
Exercise of stock options and vesting of restricted stock units | | 11 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Withholding taxes on net share settlement of stock-based compensation | | — |
| | — |
| | — |
| | (41 | ) | | — |
| | — |
| | — |
| | (41 | ) |
Cash dividends paid on common stock, $0.0110 per share | | — |
| | — |
| | — |
| | (49 | ) | | — |
| | — |
| | — |
| | (49 | ) |
Common stock repurchased | | — |
| | — |
| | — |
| | — |
| | 48 |
| | (334 | ) | | — |
| | (334 | ) |
Common stock retired | | (47 | ) | | — |
| | — |
| | (328 | ) | | (47 | ) | | 328 |
| | — |
| | — |
|
Balance at September 30, 2018 | | 4,450 |
| | $ | 4 |
| | $ | 13 |
| | $ | 922 |
| | 1 |
| | $ | (6 | ) | | $ | (2,308 | ) | | $ | (1,375 | ) |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| | | | | | | |
| For the Nine Months Ended September 30, |
(in millions) | 2019 | | 2018 |
Cash flows from operating activities: | | | |
Net income | $ | 671 |
| | $ | 925 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 344 |
| | 222 |
|
Non-cash interest expense, net of amortization of premium | 12 |
| | 7 |
|
Provision for doubtful accounts | 40 |
| | 38 |
|
Amortization of deferred income related to equity method investment | (2 | ) | | (2 | ) |
Loss on extinguishment of debt | 57 |
| | — |
|
Loss on unconsolidated entity investments, net | 16 |
| | 2 |
|
Gain on fair value instrument | — |
| | (74 | ) |
Dividend received from unconsolidated entity investment | 1 |
| | 2 |
|
Share-based payment expense | 192 |
| | 100 |
|
Deferred income taxes | 210 |
| | 173 |
|
Changes in operating assets and liabilities: | |
| | |
|
Receivables | (85 | ) | | (42 | ) |
Inventory | 8 |
| | 1 |
|
Related party, net | — |
| | 2 |
|
Prepaid expenses and other current assets | (9 | ) | | (35 | ) |
Other long-term assets | 5 |
| | 6 |
|
Operating lease right-of-use assets | 16 |
| | — |
|
Accounts payable and accrued expenses | 79 |
| | 8 |
|
Accrued interest | (24 | ) | | (53 | ) |
Deferred revenue | (46 | ) | | 65 |
|
Operating lease liabilities | (4 | ) | | — |
|
Other long-term liabilities | 4 |
| | 1 |
|
Net cash provided by operating activities | 1,485 |
| | 1,346 |
|
Cash flows from investing activities: | |
| | |
|
Additions to property and equipment | (239 | ) | | (238 | ) |
Purchases of other investments | (7 | ) | | (7 | ) |
Acquisition of business, net of cash acquired | 313 |
| | (1 | ) |
Sale of short-term investments | 73 |
| | — |
|
Investments in related parties and other equity investees | (14 | ) |
| (8 | ) |
Repayment from related party | — |
| | 3 |
|
Net cash provided by (used in) investing activities | 126 |
| | (251 | ) |
Cash flows from financing activities: | |
| | |
|
Proceeds from exercise of stock options | 8 |
| | — |
|
Taxes paid from net share settlements for stock-based compensation | (104 | ) | | (111 | ) |
Revolving credit facility, net of deferred financing costs | (374 | ) | | (184 | ) |
Proceeds from long-term borrowings, net of costs | 2,715 |
| | — |
|
Proceeds from sale of capped call security | 3 |
| | — |
|
Principal payments of long-term borrowings | (1,663 | ) | | (12 | ) |
Payment of premiums on redemption of debt | (45 | ) | | — |
|
Common stock repurchased and retired | (1,959 | ) | | (662 | ) |
Dividends paid | (167 | ) |
| (148 | ) |
Net cash used in financing activities | (1,586 | ) | | (1,117 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash | 25 |
| | (22 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 65 |
| | 79 |
|
Cash, cash equivalents and restricted cash at end of period(1) | $ | 90 |
| | $ | 57 |
|
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)
|
| | | | | | | |
| For the Nine Months Ended September 30, |
(in millions) | 2019 | | 2018 |
Supplemental Disclosure of Cash and Non-Cash Flow Information | | | |
Cash paid during the period for: | | | |
Interest, net of amounts capitalized | $ | 300 |
| | $ | 305 |
|
Income taxes paid | $ | 6 |
| | $ | 6 |
|
Non-cash investing and financing activities: | | | |
Treasury stock not yet settled | $ | (7 | ) | | $ | 11 |
|
Fair value of shares issued related to Pandora Acquisition | $ | 2,355 |
| | $ | — |
|
Accumulated other comprehensive income (loss), net of tax | $ | 9 |
| | $ | (10 | ) |
| |
(1) | The following table reconciles cash, cash equivalents and restricted cash per the statement of cash flows to the balance sheet. The restricted cash balances are primarily due to letters of credit which have been issued to the landlords of leased office space. The terms of the letters of credit primarily extend beyond one year. |
|
| | | | | | | | | | | | | | | |
(in millions) | September 30, 2019 | | December 31, 2018 | | September 30, 2018 | | December 31, 2017 |
Cash and cash equivalents | $ | 79 |
| | $ | 54 |
| | $ | 46 |
| | $ | 69 |
|
Restricted cash included in Other long-term assets | 11 |
| | 11 |
| | 11 |
| | 10 |
|
Total cash, cash equivalents and restricted cash at end of period | $ | 90 |
| | $ | 65 |
| | $ | 57 |
| | $ | 79 |
|
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
| |
(1) | Business & Basis of Presentation |
This Quarterly Report on Form 10-Q presents information for Sirius XM Holdings Inc. (“Holdings”). The terms “Holdings,” “we,” “us,” “our,” and “our company” as used herein, and unless otherwise stated or indicated by context, refer to Sirius XM Holdings Inc. and its subsidiaries. “Sirius XM” refers to our wholly owned subsidiary Sirius XM Radio Inc. and its subsidiaries. “Pandora” refers to Sirius XM's wholly owned subsidiary Pandora Media, LLC (the successor to Pandora Media, Inc.) and its subsidiaries. Holdings has no operations independent of Sirius XM and Pandora.
Business
We operate two complementary audio entertainment businesses - our Sirius XM business and our Pandora business.
Sirius XM
Our Sirius XM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis. The Sirius XM service is distributed through our two proprietary satellite radio systems and through the internet via applications for mobile devices, home devices and other consumer electronic equipment. Satellite radios are primarily distributed through automakers, retailers and our website. Our Sirius XM service is also available through our user interface, which we call “360L,” that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience. The primary source of revenue from our Sirius XM business is generated from subscription fees, with most of our customers subscribing to monthly, quarterly, semi-annual or annual plans. We also derive revenue from advertising on select non-music channels, direct sales of our satellite radios and accessories, and other ancillary services. As of September 30, 2019, our Sirius XM business had approximately 34.6 million subscribers.
In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers and directly to consumers through aftermarket devices. These services are designed to enhance the safety, security and driving experience of consumers. We also offer a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings, a traffic information service that includes information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems, and real-time weather services designed for improving situational awareness in vehicles, boats and planes.
Sirius XM also holds a 70% equity interest and 33% voting interest in Sirius XM Canada Holdings Inc. ("Sirius XM Canada"). Sirius XM Canada's subscribers are not included in our subscriber count or subscriber-based operating metrics.
Pandora
Our Pandora business operates a music, comedy and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen, whether through mobile devices, car speakers or connected devices. Pandora enables listeners to create personalized stations and playlists, discover new content, hear artist- and expert-curated playlists, podcasts and select Sirius XM content as well as search and play songs and albums on-demand. Pandora is available as an ad-supported radio service, a radio subscription service, called Pandora Plus, and an on-demand subscription service, called Pandora Premium. As of September 30, 2019, Pandora had approximately 6.3 million subscribers. The majority of revenue from our Pandora business is generated from advertising on our Pandora ad-supported radio service. In addition, as a result of the May 2018 acquisition of AdsWizz Inc. by Pandora, we provide a comprehensive digital audio advertising technology platform, which connects audio publishers and advertisers. As of September 30, 2019, our Pandora business had approximately 63.1 million monthly active users.
Liberty Media
As of September 30, 2019, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 71% of the outstanding shares of our common stock. As a result, we are a “controlled company” for the purposes of the NASDAQ corporate governance requirements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
Basis of Presentation
The accompanying unaudited consolidated financial statements of Holdings have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All significant intercompany transactions have been eliminated in consolidation. Certain numbers in our prior period consolidated financial statements and footnotes have been reclassified or consolidated to conform to our current period presentation. Music Royalty Fee revenue was reported as Other revenue in our September 30, 2018 Quarterly Report on Form 10-Q. This revenue was reclassified to Subscriber revenue to conform with the current period presentation.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2018 | | For the Nine Months Ended September 30, 2018 |
| As Reported | | Reclassification | | Current Report | | As Reported | | Reclassification | | Current Report |
Subscriber revenue | $ | 1,162 |
| | $ | 178 |
| | $ | 1,340 |
| | $ | 3,419 |
| | $ | 484 |
| | $ | 3,903 |
|
Advertising revenue | 46 |
| | — |
| | 46 |
| | 135 |
| | — |
| | 135 |
|
Equipment revenue | 41 |
| | — |
| | 41 |
| | 113 |
| | — |
| | 113 |
|
Other revenue | 218 |
| | (178 | ) | | 40 |
| | 608 |
| | (484 | ) | | 124 |
|
Total revenue | $ | 1,467 |
| | $ | — |
| | $ | 1,467 |
| | $ | 4,275 |
| | $ | — |
| | $ | 4,275 |
|
In the opinion of our management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 have been made.
Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on January 30, 2019.
Public companies are required to disclose certain information about their reportable operating segments. Operating segments are defined as significant components of an enterprise for which separate financial information is available and is evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources to an individual segment and in assessing performance of the segment. We have determined that we have two reportable segments as our chief operating decision maker, our Chief Executive Officer, assesses performance and allocates resources based on the financial results of these segments. Refer to Note 16 for information related to our segments.
We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2019 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements. For a discussion of subsequent events that do not require adjustment to our unaudited consolidated financial statements refer to Note 18.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include asset impairment, depreciable lives of our satellites, share-based payment expense, income taxes, and the purchase accounting related to the Pandora Acquisition (defined below).
On February 1, 2019, through a series of transactions, Pandora Media, Inc., became an indirect wholly owned subsidiary of Sirius XM and continues to operate as Pandora Media, LLC (the “Pandora Acquisition”). In connection with the Pandora Acquisition, we purchased all of the outstanding shares of the capital stock of Pandora for $2,355 by converting each outstanding share of Pandora common stock into 1.44 shares of our common stock and we also canceled our preferred stock investment in Pandora for $524 for total consideration of $2,879. Net cash acquired was $313. As part of the Pandora
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
Acquisition, Holdings unconditionally guaranteed all of the payment obligations of Pandora under its outstanding 1.75% convertible senior notes due 2020 and 1.75% convertible senior notes due 2023.
The table below shows the value of the consideration paid in connection with the Pandora Acquisition:
|
| | | |
| Total |
Pandora common stock outstanding | 272 |
|
Exchange ratio | 1.44 |
|
Common stock issued | 392 |
|
Price per share of Holdings common stock | $ | 5.83 |
|
Value of common stock issued to Pandora stockholders | $ | 2,285 |
|
Value of replacement equity awards attributable to pre-combination service | $ | 70 |
|
Consideration of common stock and replacement equity awards for pre-combination service | $ | 2,355 |
|
Sirius XM’s Pandora preferred stock investment (related party fair value instrument) canceled | $ | 524 |
|
Total consideration for Pandora Acquisition | $ | 2,879 |
|
Value attributed to par at $0.001 par value | $ | 1 |
|
Balance to capital in excess of par value | $ | 2,354 |
|
The table below summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date:
|
| | | |
Acquired Assets: | |
Cash and cash equivalents | $ | 313 |
|
Receivables, net | 353 |
|
Prepaid expenses and other current assets | 109 |
|
Property and equipment | 65 |
|
Intangible assets | 1,107 |
|
|