Document

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 MARCH 31, 2020



☐		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.)

1221 Avenue of the Americas, 35th Floor, New York, NY

(Address of Principal Executive Offices)

10020

(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

Securities registered pursuant to Section 12(b) of the Act:



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, a smaller reporting company or an emerging growth 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 April 24, 2020)
Common stock, $0.001 par value	4,379,119,828	shares

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q



Item No.	Description

	PART I - Financial Information

Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019	2
	Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	3
	Consolidated Statements of Stockholders' Equity (Deficit) for the three months ended March 31, 2020 and 2019	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	6
	Notes to the Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	54
Item 4.	Controls and Procedures	54

	PART II - Other Information

Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	58
	Signatures	60

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	For the Three Months Ended March 31,
(in millions, except per share data)	2020			2019
Revenue:
Subscriber revenue	$	1,585		$	1,458
Advertising revenue	285			209
Equipment revenue	41			41
Other revenue	41			36
Total revenue	1,952			1,744
Operating expenses:
Cost of services:
Revenue share and royalties	570			492
Programming and content	118			106
Customer service and billing	118			113
Transmission	40			31
Cost of equipment	4			6
Subscriber acquisition costs	99			108
Sales and marketing	225			183
Engineering, design and development	71			54
General and administrative	107			135
Depreciation and amortization	132			107
Acquisition and other related costs	—			76
Total operating expenses	1,484			1,411
Income from operations	468			333
Other (expense) income:
Interest expense	(99		)	(90		)
Loss on extinguishment of debt	—			(1		)
Other (expense) income	4			1
Total other (expense) income	(95		)	(90		)
Income before income taxes	373			243
Income tax expense	(80		)	(81		)
Net income	$	293		$	162
Foreign currency translation adjustment, net of tax	(25		)	7
Total comprehensive income	$	268		$	169
Net income per common share:
Basic	$	0.07		$	0.04
Diluted	$	0.07		$	0.03
Weighted average common shares outstanding:
Basic	4,405			4,571
Diluted	4,515			4,678

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



(in millions, except per share data)	March 31, 2020			December 31, 2019
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	40		$	106
Receivables, net	604			670
Inventory, net	12			11
Related party current assets	15			22
Prepaid expenses and other current assets	212			194
Total current assets	883			1,003
Property and equipment, net	1,609			1,626
Intangible assets, net	3,429			3,467
Goodwill	3,843			3,843
Related party long-term assets	495			452
Deferred tax assets	89			153
Operating lease right-of-use assets	452			466
Other long-term assets	135			139
Total assets	$	10,935		$	11,149
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$	1,029		$	1,151
Accrued interest	98			160
Current portion of deferred revenue	1,923			1,930
Current maturities of debt	2			2
Operating lease current liabilities	47			46
Related party current liabilities	3			4
Total current liabilities	3,102			3,293
Long-term deferred revenue	126			130
Long-term debt	7,847			7,842
Deferred tax liabilities	70			70
Operating lease liabilities	444			456
Other long-term liabilities	93			94
Total liabilities	11,682			11,885
Commitments and contingencies (Note 15)
Stockholders’ equity (deficit):
Common stock, par value $0.001 per share; 9,000 shares authorized; 4,379 and 4,412 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	4			4
Accumulated other comprehensive income (loss), net of tax	(17		)	8
Additional paid-in capital	116			395
Treasury stock, at cost; 0 and 0 shares of common stock at March 31, 2020 and December 31, 2019, respectively	—			—
Accumulated deficit	(850		)	(1,143		)
Total stockholders’ equity (deficit)	(747		)	(736		)
Total liabilities and stockholders’ equity (deficit)	$	10,935		$	11,149

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)



For the Three Months Ended March 31, 2020
	Common Stock				Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Treasury Stock					Accumulated Deficit			Total Stockholders’ Equity (Deficit)
(in millions)	Shares		Amount		Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Shares		Amount			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance at December 31, 2019	4,412		$	4	$	8		$	395		—		$	—		$	(1,143	)	$	(736	)
Comprehensive income, net of tax	—		—		(25		)	—			—		—			293			268
Share-based payment expense	—		—		—			59			—		—			—			59
Exercise of stock options and vesting of restricted stock units	8		—		—			—			—		—			—			—
Withholding taxes on net share settlement of stock-based compensation	—		—		—			(36		)	—		—			—			(36		)
Cash dividends paid on common stock, $0.01331 per share	—		—		—			(59		)	—		—			—			(59		)
Common stock repurchased	—		—		—			—			41		(243		)	—			(243		)
Common stock retired	(41	)	—		—			(243		)	(41	)	243			—			—
Balance at March 31, 2020	4,379		$	4	$	(17	)	$	116		—		$	—		$	(850	)	$	(747	)

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)



For the Three Months Ended March 31, 2019
	Common Stock				Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Treasury Stock					Accumulated Deficit			Total Stockholders’ Equity (Deficit)
(in millions)	Shares		Amount		Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Shares		Amount			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance at December 31, 2018	4,346		$	4	$	(6	)	$	242		—		$	—		$	(2,057	)	$	(1,817	)
Comprehensive income, net of tax	—		—		7			—			—		—			162			169
Share-based payment expense	—		—		—			74			—		—			—			74
Exercise of stock options and vesting of restricted stock units	8		—		—			—			—		—			—			—
Withholding taxes on net share settlement of stock-based compensation	—		—		—			(34		)	—		—			—			(34		)
Cash dividends paid on common stock, $0.0121 per share	—		—		—			(57		)	—		—			—			(57		)
Issuance of common stock as part of Pandora Acquisition	392		1		—			2,354			—		—			—			2,355
Equity component of convertible note	—		—		—			68			—		—			—			68
Common stock repurchased	—		—		—			—			101		(604		)	—			(604		)
Common stock retired	(96	)	—		—			(576		)	(96	)	576			—			—
Balance at March 31, 2019	4,650		$	5	$	1		$	2,071		5		$	(28	)	$	(1,895	)	$	154

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	For the Three Months Ended March 31,
(in millions)	2020			2019
Cash flows from operating activities:
Net income	$	293		$	162
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	132			107
Non-cash interest expense, net of amortization of premium	5			4
Provision for doubtful accounts	19			14
Amortization of deferred income related to equity method investment	(1		)	(1		)
Loss on extinguishment of debt	—			1
Loss on unconsolidated entity investments, net	2			4
Loss (gain) on other investments	5			(2		)
Share-based payment expense	55			70
Deferred income taxes	72			77
Changes in operating assets and liabilities:
Receivables	47			(13		)
Inventory	(1		)	2
Related party, net	6			(1		)
Prepaid expenses and other current assets	(18		)	(31		)
Other long-term assets	2			3
Operating lease right-of-use assets	14			19
Accounts payable and accrued expenses	(131		)	15
Accrued interest	(62		)	(42		)
Deferred revenue	(11		)	20
Operating lease liabilities	(11		)	(17		)
Other long-term liabilities	(1		)	5
Net cash provided by operating activities	416			396
Cash flows from investing activities:
Additions to property and equipment	(62		)	(90		)
Purchases of other investments	(6		)	(6		)
Acquisition of business, net of cash acquired	—			313
Sale of short-term investments	—			72
Investments in related parties and other equity investees	(80		)	(5		)
Repayment from related party	3			—
Net cash (used in) provided by investing activities	(145		)	284
Cash flows from financing activities:
Taxes paid from net share settlements for stock-based compensation	(35		)	(33		)
Revolving credit facility, net of deferred financing costs	—			143
Proceeds from sale of capped call security	—			3
Principal payments of long-term borrowings	(2		)	(152		)
Common stock repurchased and retired	(243		)	(576		)
Dividends paid	(59		)	(57		)
Net cash used in financing activities	(339		)	(672		)
Net (decrease) increase in cash, cash equivalents and restricted cash	(68		)	8
Cash, cash equivalents and restricted cash at beginning of period	120			65
Cash, cash equivalents and restricted cash at end of period ⁽¹⁾	$	52		$	73

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(UNAUDITED)



	For the Three Months Ended March 31,
(in millions)	2020			2019
Supplemental Disclosure of Cash and Non-Cash Flow Information
Cash paid during the period for:
Interest, net of amounts capitalized	$	155		$	128
Income taxes paid	$	5		$	1
Non-cash investing and financing activities:
Treasury stock not yet settled	$	—		$	(28	)
Fair value of shares issued related to acquisition of a business	$	—		$	2,355
Accumulated other comprehensive income (loss), net of tax	$	(25	)	$	7


(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)	March 31, 2020		December 31, 2019		March 31, 2019		December 31, 2018
Cash and cash equivalents	$	40	$	106	$	62	$	54
Restricted cash included in Other long-term assets	12		14		11		11
Total cash, cash equivalents and restricted cash at end of period	$	52	$	120	$	73	$	65

See accompanying notes to the unaudited consolidated financial statements.

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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. and its subsidiaries (collectively “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 March 31, 2020, our Sirius XM business had approximately 34.8 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 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 March 31, 2020, 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 2018, Pandora entered in to an agreement with SoundCloud Holdings, LLC ("SoundCloud") to be its exclusive US ad sales representative. Through this arrangement Pandora is able to offer advertisers the ability to execute campaigns in the US across the Pandora and SoundCloud listening platforms. In addition, through AdsWizz Inc., Pandora provides a comprehensive digital audio and programmatic advertising technology platform, which connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.

On February 10, 2020, Sirius XM invested $75 in SoundCloud. SoundCloud is the world’s largest open audio platform, with a connected community of creators, listeners, and curators. SoundCloud’s platform enables its users to upload, promote, share and create audio entertainment. The minority investment complements the existing ad sales relationship between SoundCloud and Pandora. Refer to Note 11 for more information on this investment. Together, Sirius XM, Pandora and SoundCloud reach more than 140 million listeners, creating North America's largest digital audio advertising marketplace.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

Impact of the coronavirus (“COVID-19”) pandemic

The extent to which the COVID-19 pandemic and the related economic impact may affect our financial condition or results of operations is uncertain. The extent of the impact on our operational and financial performance will depend on various factors, including the duration and spread of the outbreak and its impact on vehicle sales, advertising and consumer spending. To date, the pandemic has not increased our costs of or access to capital under our revolving credit facility, and we do not believe it is reasonably likely to in the future. In addition, we do not believe that the pandemic will affect our ongoing ability to meet the covenants in our debt instruments, including under our revolving credit facility. Due to the nature of our subscription business, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

Liberty Media

As of March 31, 2020, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 72% 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.

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.

In the opinion of our management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 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, 2019, which was filed with the SEC on February 4, 2020.

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 17 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 months ended March 31, 2020 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 and income taxes.

We are not presently aware of any events or circumstances arising from the COVID-19 pandemic that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur and additional information is obtained, any such changes will be recognized in the consolidated financial statements. Actual results could differ from estimates, and any such differences may be material to our financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)


(2)	Summary of Significant Accounting Policies

Fair Value Measurements

For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are based on unadjusted quoted prices in active markets for identical instruments. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. As of March 31, 2020 and December 31, 2019, the carrying amounts of cash and cash equivalents, receivables and accounts payable approximated fair value due to the short-term nature of these instruments.

Our liabilities measured at fair value were as follows:



	March 31, 2020						December 31, 2019
	Level 1	Level 2		Level 3	Total Fair Value		Level 1	Level 2		Level 3	Total Fair Value
Liabilities:
Debt ^(a)	—	$	8,013	—	$	8,013	—	$	8,378	—	$	8,378


(a)	The fair value for non-publicly traded debt is based upon estimates from a market maker and brokerage firm. Refer to Note 12 for information related to the carrying value of our debt as of March 31, 2020 and December 31, 2019.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive loss of $17 was primarily comprised of the cumulative foreign currency translation adjustments related to our investment in and loan to Sirius XM Canada (refer to Note 11 for additional information). During the three months ended March 31, 2020, we recorded foreign currency translation adjustment loss of $25, net of tax benefit of $8. During the three months ended March 31, 2019, we recorded foreign currency translation adjustment income of $7, net of a tax expense of $2.

Recently Adopted Accounting Policies

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees. The guidance in this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted including adoption in any interim period. The amendments will be applied prospectively to all implementation costs incurred after adoption. This ASU will not have a material impact on our consolidated statements of operations.


(3)	Acquisition

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 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.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

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

We recognized acquisition related costs of $76 that were expensed in Acquisition and other related costs in our unaudited consolidated statements of comprehensive income during the three months ended March 31, 2019.

Pro Forma Financial Information

Pandora was consolidated into our financial statements starting on the acquisition date, February 1, 2019. The aggregate revenue and net loss of Pandora consolidated into our financial statements was $251 and $122, respectively, for the three months ended March 31, 2019. The following pro forma financial information presents our results as if the Pandora Acquisition had occurred on January 1, 2019:



	For the Three Months Ended March 31,
	2020		2019
Total revenue	$	1,954	$	1,860
Net income	$	293	$	181

These pro forma results are based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had the acquisition actually occurred on January 1, 2019 and are not indicative of our consolidated results of operations in future periods. The pro forma results primarily include adjustments related to amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs, fair value gain or loss on the Pandora investment and associated tax impacts.


(4)	Earnings per Share

Basic net income per common share is calculated by dividing the income available to common stockholders by the weighted average common shares outstanding during each reporting period. Diluted net income per common share adjusts the weighted average number of common shares outstanding for the potential dilution that could occur if common stock equivalents (stock options, restricted stock units and convertible debt) were exercised or converted into common stock, calculated using the treasury stock method. We had no participating securities during the three months ended March 31, 2020 and 2019.

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(Dollars and shares in millions, except per share amounts)

Common stock equivalents of 40 and 60 for the three months ended March 31, 2020 and 2019, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive. We issued 392 shares of our common stock in connection with the Pandora Acquisition.



	For the Three Months Ended March 31,
	2020		2019
Numerator:
Net Income available to common stockholders for basic net income per common share	$	293	$	162
Effect of interest on assumed conversions of convertible notes, net of tax	2		1
Net Income available to common stockholders for dilutive net income per common share	$	295	$	163
Denominator:
Weighted average common shares outstanding for basic net income per common share	4,405		4,571
Weighted average impact of assumed convertible notes	29		25
Weighted average impact of dilutive equity instruments	81		82
Weighted average shares for diluted net income per common share	4,515		4,678
Net income per common share:
Basic	$	0.07	$	0.04
Diluted	$	0.07	$	0.03


(5)	Receivables, net

Receivables, net, includes customer accounts receivable, receivables from distributors and other receivables. We do not have any customer receivables that individually represent more than ten percent of our receivables.

Customer accounts receivable, net, includes receivables from our subscribers, advertising customers and other customers, and is stated at amounts due, net of an allowance for doubtful accounts. Our allowance for doubtful accounts is based upon our assessment of various factors. We consider historical experience, the age of the receivable balances, current economic conditions, industry experience and other factors that may affect the counterparty’s ability to pay. Bad debt expense is included in Customer service and billing expense in our unaudited consolidated statements of comprehensive income.

Receivables from distributors primarily include billed and unbilled amounts due from automakers for services included in the sale or lease price of vehicles, as well as billed amounts due from wholesale distributors of our satellite radios. Other receivables primarily include amounts due from manufacturers of our radios, modules and chipsets where we are entitled to subsidies and royalties based on the number of units produced. We have not established an allowance for doubtful accounts for our receivables from distributors or other receivables as we have historically not experienced any significant collection issues with automakers or other third parties.

Receivables, net, consists of the following:



	March 31, 2020			December 31, 2019
Gross customer accounts receivable	$	481		$	546
Allowance for doubtful accounts	(17		)	(14		)
Customer accounts receivable, net	$	464		$	532
Receivables from distributors	115			113
Other receivables	25			25
Total receivables, net	$	604		$	670

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(Dollars and shares in millions, except per share amounts)


(6)	Inventory, net

Inventory consists of finished goods, refurbished goods, chipsets and other raw material components used in manufacturing radios and connected vehicle devices. Inventory is stated at the lower of cost or market. We record an estimated allowance for inventory that is considered slow moving or obsolete or whose carrying value is in excess of net realizable value. The provision related to products purchased for resale in our direct to consumer distribution channel and components held for resale by us is reported as a component of Cost of equipment in our unaudited consolidated statements of comprehensive income. The provision related to inventory consumed in our OEM channel is reported as a component of Subscriber acquisition costs in our unaudited consolidated statements of comprehensive income.

Inventory, net, consists of the following:



	March 31, 2020			December 31, 2019
Raw materials	$	4		$	3
Finished goods	12			13
Allowance for obsolescence	(4		)	(5		)
Total inventory, net	$	12		$	11


(7)	Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment of our two reporting units is performed as of the fourth quarter of each year, and an assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASC 350, Intangibles - Goodwill and Other, states that an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASC 350 also states that a reporting unit with a zero or negative carrying amount is not required to perform a qualitative assessment. Our Sirius XM reporting unit, which has an allocated goodwill balance of $2,290, had a negative carrying amount as of March 31, 2020.

As of March 31, 2020, there were no indicators of impairment, and no impairment losses were recorded for goodwill during the three months ended March 31, 2020 and 2019. As of March 31, 2020, the cumulative balance of goodwill impairments recorded was $4,766, which was recognized during the year ended December 31, 2008 and is included in the carrying value of the goodwill allocated to our Sirius XM reporting unit.

As of March 31, 2020 and December 31, 2019, the carrying amount of goodwill for our Sirius XM and Pandora reporting units was $2,290 and $1,553, respectively. There was no activity related to goodwill during the three months ended March 31, 2020.

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(Dollars and shares in millions, except per share amounts)


(8)	Intangible Assets

Our intangible assets include the following:



		March 31, 2020							December 31, 2019
	Weighted Average Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Indefinite life intangible assets:
FCC licenses	Indefinite	$	2,084	$	—		$	2,084	$	2,084	$	—		$	2,084
Trademarks	Indefinite	251		—			251		251		—			251
Definite life intangible assets:
OEM relationships	15 years	220		(94		)	126		220		(90		)	130
Licensing agreements	12 years	45		(43		)	2		45		(42		)	3
Software and technology	7 years	35		(26		)	9		35		(25		)	10
Due to Pandora Acquisition:
Indefinite life intangible assets:
Trademarks	Indefinite	$	331	$	—		$	331	$	331	$	—		$	331
Definite life intangible assets:
Customer relationships	8 years	403		(62		)	341		403		(49		)	354
Software and technology	5 years	373		(88		)	285		373		(69		)	304
Total intangible assets		$	3,742	$	(313	)	$	3,429	$	3,742	$	(275	)	$	3,467

Indefinite Life Intangible Assets

We have identified our FCC licenses and XM, Pandora and Automatic trademarks as indefinite life intangible assets after considering the expected use of the assets, the regulatory and economic environment within which they are used and the effects of obsolescence on their use.

We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. Each of the FCC licenses authorizes us to use radio spectrum, a reusable resource that does not deplete or exhaust over time.

Our annual impairment assessment of our identifiable indefinite lived intangible assets is performed as of the fourth quarter of each year. An assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. If the carrying value of the intangible assets exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. As of March 31, 2020, there were no indicators of impairment, and no impairment loss was recognized for intangible assets with indefinite lives during the three months ended March 31, 2020 and 2019.

Definite Life Intangible Assets

Amortization expense for all definite life intangible assets was $38 and $27 for the three months ended March 31, 2020 and 2019, respectively. There were no retirements of definite lived intangible assets during the three months ended March 31, 2020.

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(Dollars and shares in millions, except per share amounts)

The expected amortization expense for each of the fiscal years 2020 through 2024 and for periods thereafter is as follows:



Years ending December 31,	Amount
2020 (remaining)	$	114
2021	146
2022	144
2023	134
2024	69
Thereafter	156
Total definite life intangible assets, net	$	763


(9)	Property and Equipment

Property and equipment, net, consists of the following:



	March 31, 2020			December 31, 2019
Satellite system	$	1,587		$	1,587
Terrestrial repeater network	100			100
Leasehold improvements	106			105
Broadcast studio equipment	138			137
Capitalized software and hardware	1,083			1,086
Satellite telemetry, tracking and control facilities	88			87
Furniture, fixtures, equipment and other	90			89
Land	38			38
Building	63			63
Construction in progress	554			505
Total property and equipment	3,847			3,797
Accumulated depreciation and amortization	(2,238		)	(2,171		)
Property and equipment, net	$	1,609		$	1,626

Construction in progress consists of the following:



	March 31, 2020		December 31, 2019
Satellite system	$	384	$	371
Terrestrial repeater network	8		7
Capitalized software and hardware	141		107
Other	21		20
Construction in progress	$	554	$	505

Depreciation and amortization expense on property and equipment was $94 and $80 for the three months ended March 31, 2020 and 2019, respectively. Property and equipment of $29 was retired during the three months ended March 31, 2020.

We capitalize a portion of the interest on funds borrowed to finance the construction and launch of our satellites. Capitalized interest is recorded as part of the asset’s cost and depreciated over the satellite’s useful life. Capitalized interest costs were $5 and $4 for the three months ended March 31, 2020 and 2019, respectively, which related to the construction of our SXM-7 and SXM-8 satellites. We also capitalize a portion of share-based compensation related to employee time for capitalized software projects. Capitalized share-based compensation costs were $4 and $3 for the three months ended March 31, 2020 and 2019, respectively.

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(Dollars and shares in millions, except per share amounts)

Satellites

As of March 31, 2020, we owned a fleet of five satellites. The chart below provides certain information on our satellites as of March 31, 2020:



Satellite Description	Year Delivered	Estimated End of Depreciable Life
SIRIUS FM-5	2009	2024
SIRIUS FM-6	2013	2028
XM-3	2005	2020
XM-4	2006	2021
XM-5	2010	2025

Each satellite requires an FCC license, and prior to the expiration of each license, we are required to apply for a renewal of the FCC satellite licenses. The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred.

The following table outlines the years in which each of our satellite licenses expires:



FCC satellite licenses		Expiration year
SIRIUS FM-5		2025
SIRIUS FM-6		2022
XM-3		2021
XM-4		2022
XM-5		2026


(10)	Leases

We have operating and finance leases for offices, terrestrial repeaters, data centers and certain equipment. Our leases have remaining lease terms of less than 1 year to 18 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year. We elected the practical expedient to account for the lease and non-lease components as a single component. Additionally, we elected the practical expedient to not recognize right-of-use assets or lease liabilities for short-term leases, which are those leases with a term of twelve months or less at the lease commencement date.

The components of lease expense were as follows:



	For the Three Months Ended March 31,
	2020		2019
Operating lease cost	$	20	$	17
Finance lease cost	—		1
Sublease income	—		(1		)
Total lease cost	$	20	$	17


(11)	Related Party Transactions

In the normal course of business, we enter into transactions with related parties such as Sirius XM Canada and SoundCloud.

Liberty Media

As of March 31, 2020, Liberty Media beneficially owned, directly and indirectly, approximately 72% of the outstanding shares of our common stock. Liberty Media has one executive, one senior advisor and one of its directors on our board of

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directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.

Sirius XM Canada

Sirius XM holds a 70% equity interest and 33% voting interest in Sirius XM Canada, a privately held corporation. We own 591 shares of preferred stock of Sirius XM Canada, which has a liquidation preference of one Canadian dollar per share. Sirius XM also made a loan to Sirius XM Canada in the aggregate amount of $131. The loan is denominated in Canadian dollars and is considered a long-term investment with any unrealized gains or losses reported within Accumulated other comprehensive (loss) income. During the three months ended March 31, 2020 and 2019, Sirius XM Canada repaid $3 and less than $1 of the principal amount of the loan, respectively.

Sirius XM has a Services Agreement and an Advisory Services Agreement with Sirius XM Canada. Each agreement has a thirty year term. Pursuant to the Services Agreement, Sirius XM Canada currently pays Sirius XM 25% of its gross revenues on a monthly basis, and pursuant to the Advisory Services Agreement, Sirius XM Canada pays Sirius XM 5% of its gross revenues on a monthly basis.

Sirius XM Canada is accounted for as an equity method investment, and its results are not consolidated in our unaudited consolidated financial statements. Sirius XM Canada does not meet the requirements for consolidation as we do not have the ability to direct the most significant activities that impact Sirius XM Canada's economic performance.

Our related party long-term assets balance as of March 31, 2020 and December 31, 2019 included the carrying value of our investment balance in Sirius XM Canada of $300 and $321, respectively, and, as of March 31, 2020 and December 31, 2019, also included $118 and $131, respectively, for the long-term value of the outstanding loan to Sirius XM Canada.

Sirius XM Canada paid gross dividends to us of less than $1 during each of the three months ended March 31, 2020 and 2019. Dividends are first recorded as a reduction to our investment balance in Sirius XM Canada to the extent a balance exists and then as Other (expense) income for any remaining portion.

We recorded revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income of $25 and $24 for the three months ended March 31, 2020 and 2019, respectively.

SoundCloud

On February 10, 2020, Sirius XM completed a $75 investment in SoundCloud's Series G Membership Units ("Series G Units"). The Series G Units are convertible at the option of the holders at any time into shares of ordinary membership units of SoundCloud at a ratio of one ordinary membership unit for each Series G Unit. The investment in SoundCloud is accounted for as an equity method investment which is recorded in Related party long-term assets in our unaudited consolidated balance sheet. Sirius XM has appointed two individuals to serve on SoundCloud's nine-member board of managers. For the three months ended March 31, 2020, we recorded less than $1 representing our share of SoundCloud's net loss in Other income (expense) in our unaudited consolidated statement of comprehensive income.

In addition to our investment in SoundCloud, in 2018 Pandora entered in to an agreement with SoundCloud to be its exclusive US ad sales representative. Through this arrangement Pandora offers advertisers the ability to execute campaigns in the US across the Pandora and SoundCloud listening platforms. We recorded revenue share expense of $12 and $3 related to this agreement during the three months ended March 31, 2020 and 2019, respectively. We also had related party liabilities of $18 as of March 31, 2020 related to this agreement.

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(UNAUDITED)

(Dollars and shares in millions, except per share amounts)


(12)	Debt

Our debt as of March 31, 2020 and December 31, 2019 consisted of the following: