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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 JUNE 30, 2022
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.) |
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 | | The Nasdaq Stock Market LLC |
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 Exchange 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 July 26, 2022) |
Common stock, $0.001 par value | | 3,894,220,452 | 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 June 30, | | For the Six Months Ended June 30, | | |
(in millions, except per share data) | 2022 | | 2021 | | 2022 | | 2021 | | |
Revenue: | | | | | | | | | |
Subscriber revenue | $ | 1,719 | | | $ | 1,641 | | | $ | 3,432 | | | $ | 3,252 | | | |
Advertising revenue | 452 | | | 429 | | | 835 | | | 783 | | | |
Equipment revenue | 45 | | | 51 | | | 98 | | | 108 | | | |
Other revenue | 37 | | | 38 | | | 75 | | | 74 | | | |
Total revenue | 2,253 | | | 2,159 | | | 4,440 | | | 4,217 | | | |
Operating expenses: | | | | | | | | | |
Cost of services: | | | | | | | | | |
Revenue share and royalties | 711 | | | 662 | | | 1,381 | | | 1,303 | | | |
Programming and content | 153 | | | 136 | | | 292 | | | 265 | | | |
Customer service and billing | 125 | | | 128 | | | 251 | | | 244 | | | |
Transmission | 54 | | | 52 | | | 106 | | | 101 | | | |
Cost of equipment | 3 | | | 4 | | | 6 | | | 9 | | | |
Subscriber acquisition costs | 91 | | | 89 | | | 181 | | | 175 | | | |
Sales and marketing | 285 | | | 240 | | | 557 | | | 456 | | | |
Engineering, design and development | 72 | | | 65 | | | 139 | | | 130 | | | |
General and administrative | 127 | | | 130 | | | 250 | | | 251 | | | |
Depreciation and amortization | 135 | | | 131 | | | 270 | | | 263 | | | |
Impairment, restructuring and acquisition costs | 1 | | | (136) | | | 1 | | | 108 | | | |
Total operating expenses | 1,757 | | | 1,501 | | | 3,434 | | | 3,305 | | | |
Income from operations | 496 | | | 658 | | | 1,006 | | | 912 | | | |
Other (expense) income: | | | | | | | | | |
Interest expense | (104) | | | (103) | | | (206) | | | (203) | | | |
| | | | | | | | | |
Other (expense) income | (4) | | | 5 | | | (2) | | | 8 | | | |
Total other (expense) income | (108) | | | (98) | | | (208) | | | (195) | | | |
Income before income taxes | 388 | | | 560 | | | 798 | | | 717 | | | |
Income tax expense | (96) | | | (127) | | | (197) | | | (65) | | | |
Net income | $ | 292 | | | $ | 433 | | | $ | 601 | | | $ | 652 | | | |
Foreign currency translation adjustment, net of tax | (10) | | | 7 | | | (2) | | | 12 | | | |
Total comprehensive income | $ | 282 | | | $ | 440 | | | $ | 599 | | | $ | 664 | | | |
Net income per common share: | | | | | | | | | |
Basic | $ | 0.07 | | | $ | 0.11 | | | $ | 0.15 | | | $ | 0.16 | | | |
Diluted | $ | 0.07 | | | $ | 0.10 | | | $ | 0.15 | | | $ | 0.16 | | | |
Weighted average common shares outstanding: | | | | | | | | | |
Basic | 3,928 | | | 4,079 | | | 3,938 | | | 4,108 | | | |
Diluted | 4,005 | | | 4,163 | | | 4,016 | | | 4,193 | | | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| |
(in millions, except per share data) | June 30, 2022 | | December 31, 2021 |
ASSETS | (unaudited) | | |
Current assets: | | | |
Cash and cash equivalents | $ | 126 | | | $ | 191 | |
Receivables, net | 660 | | | 722 | |
| | | |
Related party current assets | 19 | | | 21 | |
Prepaid expenses and other current assets | 328 | | | 246 | |
Total current assets | 1,133 | | | 1,180 | |
Property and equipment, net | 1,467 | | | 1,450 | |
Intangible assets, net | 3,128 | | | 3,186 | |
Goodwill | 3,249 | | | 3,151 | |
Related party long-term assets | 527 | | | 526 | |
Deferred tax assets | 200 | | | 200 | |
Operating lease right-of-use assets | 336 | | | 358 | |
Other long-term assets | 230 | | | 223 | |
Total assets | $ | 10,270 | | | $ | 10,274 | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | |
Current liabilities: | | | |
Accounts payable and accrued expenses | $ | 1,219 | | | $ | 1,299 | |
Accrued interest | 164 | | | 173 | |
Current portion of deferred revenue | 1,432 | | | 1,454 | |
| | | |
Operating lease current liabilities | 49 | | | 49 | |
Related party current liabilities | 20 | | | 5 | |
Total current liabilities | 2,884 | | | 2,980 | |
Long-term deferred revenue | 87 | | | 97 | |
Long-term debt | 9,866 | | | 8,832 | |
| | | |
Deferred tax liabilities | 539 | | | 478 | |
Operating lease liabilities | 333 | | | 362 | |
Other long-term liabilities | 140 | | | 150 | |
Total liabilities | 13,849 | | | 12,899 | |
Commitments and contingencies (Note 15) | | | |
Stockholders’ equity (deficit): | | | |
Common stock, par value $0.001 per share; 9,000 shares authorized; 3,909 and 3,968 shares issued; 3,908 and 3,967 shares outstanding at June 30, 2022 and December 31, 2021, respectively | 4 | | | 4 | |
Accumulated other comprehensive income, net of tax | 13 | | | 15 | |
Additional paid-in capital | — | | | — | |
Treasury stock, at cost; 1 shares of common stock at June 30, 2022 and December 31, 2021 | (10) | | | (8) | |
Accumulated deficit | (3,586) | | | (2,636) | |
Total stockholders’ equity (deficit) | (3,579) | | | (2,625) | |
Total liabilities and stockholders’ equity (deficit) | $ | 10,270 | | | $ | 10,274 | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2022 |
| | 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, 2021 | | 3,968 | | | $ | 4 | | | $ | 15 | | | $ | — | | | 1 | | | $ | (8) | | | $ | (2,636) | | | $ | (2,625) | |
Cumulative effect of change in accounting principles | | — | | | — | | | — | | | — | | | — | | | — | | | (14) | | | (14) | |
Comprehensive (loss) income, net of tax | | — | | | — | | | (2) | | | — | | | — | | | — | | | 601 | | | 599 | |
Share-based payment expense | | — | | | — | | | — | | | 101 | | | — | | | — | | | — | | | 101 | |
Exercise of stock options and vesting of restricted stock units | | 8 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (39) | | | — | | | — | | | — | | | (39) | |
Capital contribution related to Tax Sharing Agreement with Liberty Media | | — | | | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | |
Cash dividends paid on common stock, $0.293923 per share | | — | | | — | | | — | | | (62) | | | — | | | — | | | (1,097) | | | (1,159) | |
| | | | | | | | | | | | | | | | |
Common stock repurchased | | — | | | — | | | — | | | — | | | 67 | | | (417) | | | — | | | (417) | |
Common stock retired | | (67) | | | — | | | — | | | — | | | (67) | | | 415 | | | (415) | | | — | |
Balance at June 30, 2022 | | 3,909 | | | $ | 4 | | | $ | 13 | | | $ | — | | | 1 | | | $ | (10) | | | $ | (3,586) | | | $ | (3,579) | |
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 June 30, 2022 |
| | 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 March 31, 2022 | | 3,940 | | | $ | 4 | | | $ | 23 | | | $ | — | | | — | | | $ | (2) | | | $ | (3,612) | | | $ | (3,587) | |
| | | | | | | | | | | | | | | | |
Comprehensive (loss) income, net of tax | | — | | | — | | | (10) | | | — | | | — | | | — | | | 292 | | | 282 | |
Share-based payment expense | | — | | | — | | | — | | | 51 | | | — | | | — | | | — | | | 51 | |
Exercise of stock options and vesting of restricted stock units | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (10) | | | — | | | — | | | — | | | (10) | |
Capital contribution related to Tax Sharing Agreement with Liberty Media | | — | | | — | | | — | | | — | | | — | | | — | | | (12) | | | (12) | |
Cash dividends paid on common stock, $0.0219615 per share | | — | | | — | | | — | | | (41) | | | — | | | — | | | (45) | | | (86) | |
| | | | | | | | | | | | | | | | |
Common stock repurchased | | — | | | — | | | — | | | — | | | 35 | | | (217) | | | — | | | (217) | |
Common stock retired | | (34) | | | — | | | — | | | — | | | (34) | | | 209 | | | (209) | | | — | |
Balance at June 30, 2022 | | 3,909 | | | $ | 4 | | | $ | 13 | | | $ | — | | | 1 | | | $ | (10) | | | $ | (3,586) | | | $ | (3,579) | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2021 |
| | Common Stock | | Accumulated Other Comprehensive Income | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at December 31, 2020 | | 4,176 | | | $ | 4 | | | $ | 15 | | | $ | — | | | 3 | | | $ | (19) | | | $ | (2,285) | | | $ | (2,285) | |
Comprehensive income, net of tax | | — | | | — | | | 12 | | | — | | | — | | | — | | | 652 | | | 664 | |
Share-based payment expense | | — | | | — | | | — | | | 104 | | | — | | | — | | | — | | | 104 | |
Exercise of stock options and vesting of restricted stock units | | 23 | | | — | | | — | | | 6 | | | — | | | — | | | — | | | 6 | |
Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (43) | | | — | | | — | | | — | | | (43) | |
| | | | | | | | | | | | | | | | |
Cash dividends paid on common stock, $0.029282 per share | | — | | | — | | | — | | | (71) | | | — | | | — | | | (50) | | | (121) | |
Issuance of restricted stock in connection with business acquisition | | — | | | — | | | — | | | 4 | | | — | | | — | | | — | | | 4 | |
Common stock repurchased | | — | | | — | | | — | | | — | | | 138 | | | (844) | | | — | | | (844) | |
Common stock retired | | (140) | | | — | | | — | | | — | | | (140) | | | 856 | | | (856) | | | — | |
Balance at June 30, 2021 | | 4,059 | | | $ | 4 | | | $ | 27 | | | $ | — | | | 1 | | | $ | (7) | | | $ | (2,539) | | | $ | (2,515) | |
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 June 30, 2021 |
| | Common Stock | | Accumulated Other Comprehensive Income | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at March 31, 2021 | | 4,107 | | | $ | 4 | | | $ | 20 | | | $ | — | | | 2 | | | $ | (13) | | | $ | (2,614) | | | $ | (2,603) | |
Comprehensive income, net of tax | | — | | | — | | | 7 | | | — | | | — | | | — | | | 433 | | | 440 | |
Share-based payment expense | | — | | | — | | | — | | | 49 | | | — | | | — | | | — | | | 49 | |
Exercise of stock options and vesting of restricted stock units | | 6 | | | — | | | — | | | 6 | | | — | | | — | | | — | | | 6 | |
Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (23) | | | — | | | — | | | — | | | (23) | |
| | | | | | | | | | | | | | | | |
Cash dividends paid on common stock, $0.014641 per share | | — | | | — | | | — | | | (36) | | | — | | | — | | | (24) | | | (60) | |
Issuance of restricted stock in connection with business acquisition | | — | | | — | | | — | | | 4 | | | — | | | — | | | — | | | 4 | |
Common stock repurchased | | — | | | — | | | — | | | — | | | 53 | | | (328) | | | — | | | (328) | |
Common stock retired | | (54) | | | — | | | — | | | — | | | (54) | | | 334 | | | (334) | | | — | |
Balance at June 30, 2021 | | 4,059 | | | $ | 4 | | | $ | 27 | | | $ | — | | | 1 | | | $ | (7) | | | $ | (2,539) | | | $ | (2,515) | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | | | |
| For the Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | |
Cash flows from operating activities: | | | | | |
Net income | $ | 601 | | | $ | 652 | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 270 | | | 263 | | | |
Non cash impairment and restructuring costs | — | | | 245 | | | |
Non-cash interest expense, net of amortization of premium | 9 | | | 10 | | | |
| | | | | |
Provision for doubtful accounts | 29 | | | 24 | | | |
| | | | | |
| | | | | |
(Gain) loss on unconsolidated entity investments, net | (3) | | | 3 | | | |
| | | | | |
Dividend received from unconsolidated entity investment | — | | | 1 | | | |
| | | | | |
Loss (gain) on other investments | 9 | | | (4) | | | |
Share-based payment expense | 92 | | | 98 | | | |
Deferred income tax expense | 60 | | | 37 | | | |
Amortization of right-of-use assets | 21 | | | 28 | | | |
Changes in operating assets and liabilities: | | | | | |
Receivables | 35 | | | (11) | | | |
| | | | | |
Related party, net | 1 | | | 11 | | | |
Prepaid expenses and other current assets | (83) | | | (136) | | | |
Other long-term assets | 6 | | | (4) | | | |
Accounts payable and accrued expenses | (81) | | | (99) | | | |
Accrued interest | (9) | | | (1) | | | |
Deferred revenue | (32) | | | (145) | | | |
Operating lease liabilities | (30) | | | (26) | | | |
Other long-term liabilities | (7) | | | (18) | | | |
Net cash provided by operating activities | 888 | | | 928 | | | |
Cash flows from investing activities: | | | | | |
Additions to property and equipment | (196) | | | (164) | | | |
| | | | | |
Sale (purchases) of other investments | 1 | | | (3) | | | |
Acquisition of business, net of cash acquired | (137) | | | (14) | | | |
| | | | | |
Investments in related parties and other equity investees | (1) | | | (11) | | | |
Repayment from related party | — | | | 2 | | | |
Net cash used in investing activities | (333) | | | (190) | | | |
Cash flows from financing activities: | | | | | |
Proceeds from exercise of stock options | — | | | 6 | | | |
Taxes paid from net share settlements for stock-based compensation | (39) | | | (43) | | | |
Revolving credit facility, net | 510 | | | (649) | | | |
Proceeds from long-term borrowings, net of costs | 499 | | | 1,976 | | | |
Principal payments of long-term borrowings | (2) | | | (2) | | | |
| | | | | |
Payment of contingent consideration for business acquisition | (3) | | | — | | | |
Distribution to parent related to Tax Sharing Agreement | (11) | | | — | | | |
Common stock repurchased and retired | (415) | | | (856) | | | |
Dividends paid | (1,159) | | | (121) | | | |
Net cash (used in) provided by financing activities | (620) | | | 311 | | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | (65) | | | 1,049 | | | |
Cash, cash equivalents and restricted cash at beginning of period (1) | 199 | | | 83 | | | |
Cash, cash equivalents and restricted cash at end of period (1) | $ | 134 | | | $ | 1,132 | | | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)
| | | | | | | | | | | | | |
| For the Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | |
Supplemental Disclosure of Cash and Non-Cash Flow Information | | | | | |
Cash paid during the period for: | | | | | |
Interest, net of amounts capitalized | $ | 205 | | | $ | 193 | | | |
Income taxes paid | $ | 145 | | | $ | 34 | | | |
Non-cash investing and financing activities: | | | | | |
Capital lease obligations incurred to acquire assets | $ | 3 | | | $ | — | | | |
Treasury stock not yet settled | $ | (2) | | | $ | 12 | | | |
| | | | | |
Accumulated other comprehensive (loss) income, net of tax | $ | (2) | | | $ | 12 | | | |
Capital contribution pursuant to Tax Sharing Agreement | $ | 14 | | | $ | — | | | |
(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) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 | | December 31, 2020 |
Cash and cash equivalents | $ | 126 | | | $ | 191 | | | $ | 1,124 | | | $ | 71 | |
Restricted cash included in Other long-term assets | 8 | | | 8 | | | 8 | | | 12 | |
Total cash, cash equivalents and restricted cash at end of period | $ | 134 | | | $ | 199 | | | $ | 1,132 | | | $ | 83 | |
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. 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 and its subsidiaries. Holdings has no operations independent of Sirius XM and Pandora.
Business
We operate two complementary audio entertainment businesses - one of which we refer to as “SiriusXM” and the second of which we refer to as “Pandora and Off-platform”.
Sirius XM
Our Sirius XM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels and other content, as well as podcasts and infotainment services, in the United States on a subscription fee basis. Sirius XM packages include live, curated and certain exclusive and on demand programming. The Sirius XM service is distributed through our two proprietary satellite radio systems and streamed 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 in-car 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 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, which is sold under the SXM Media brand, direct sales of our satellite radios and accessories, and other ancillary services. As of June 30, 2022, our Sirius XM business had approximately 34.0 million subscribers.
In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers. 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 and Off-platform
Pandora operates a music and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen, whether through computers, tablets, mobile devices, vehicle 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 (1) an ad-supported radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium). As of June 30, 2022, Pandora had approximately 6.3 million subscribers.
The majority of revenue from Pandora is generated from advertising on our Pandora ad-supported radio service which is sold under the SXM Media brand. We also derive subscription revenue from our Pandora Plus and Pandora Premium subscribers.
We also sell advertising on other audio platforms and in widely distributed podcasts, which we consider to be off-platform services. We have an arrangement with SoundCloud Holdings, LLC (“SoundCloud”) to be its exclusive ad sales representative in the US and certain European countries and are able to offer advertisers the ability to execute campaigns across the Pandora and SoundCloud platforms. We also have arrangements to serve as the ad sales representative for certain podcasts.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
In addition, through AdsWizz Inc., we provide 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.
Liberty Media
As of June 30, 2022, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 82% 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. Refer to Note 11 for more information regarding related parties.
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 June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 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, 2021, which was filed with the SEC on February 1, 2022.
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 and six months ended June 30, 2022 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.
(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 June 30, 2022 and December 31, 2021, the carrying amounts of cash and cash equivalents, receivables and accounts payable approximated fair value due to the short-term nature of these instruments.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
Our liabilities measured at fair value were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
Liabilities: | | | | | | | | | | | | | | | |
Debt (a) | — | | | $ | 8,793 | | | — | | | $ | 8,793 | | | — | | | $ | 9,052 | | | — | | | $ | 9,052 | |
(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 June 30, 2022 and December 31, 2021.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income of $13 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 and six months ended June 30, 2022, we recorded foreign currency translation adjustment loss of $10 and $2, respectively, net of tax benefit of $4 and $1, respectively. During the three and six months ended June 30, 2021, we recorded foreign currency translation adjustment income of $7 and $12, respectively, net of tax expense of $2 and $4, respectively.
Recently Adopted Accounting Policies
Accounting Standard Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06 which removes the separation models for convertible debt with cash conversion or beneficial conversion features. ASU 2020-06 also requires the application of the if-converted method for calculating diluted earnings per share as the treasury stock method will no longer be permitted for convertible instruments. During the three months ended March 31, 2022, we adopted ASU 2020-06 as of January 1, 2022 using the modified retrospective approach and recorded a $14 increase to the carrying value of Pandora's 1.75% Convertible Senior Notes due 2023 and a corresponding increase to our accumulated deficit. The adoption of ASU 2020-06 did not have a material impact on our diluted earnings per share.
(3)Acquisitions
On May 20, 2022, we completed an acquisition for total cash consideration of $93. We recognized goodwill of $69, indefinite-lived intangible assets of $1 and other assets of $23. The other assets represent acquired content which will be amortized over its estimated useful life to Programming and content in our unaudited consolidated statements of comprehensive income.
On January 12, 2022, we completed an acquisition for total cash consideration of $44. We recognized goodwill of $29, other definite-lived intangible assets of $19 and liabilities of $4.
On April 23, 2021, we completed an acquisition for total consideration of $27 which included $20 in cash, a $3 deferred cash payment and $4 in restricted stock units. We recognized goodwill of $23 and other assets of $5.
Acquisition related costs for the three and six months ended June 30, 2022 were $1 and $3, respectively. Acquisition related costs of $3 were recognized for the three and six months ended June 30, 2021.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
(4)Restructuring Costs
No restructuring costs were recognized during the three and six months ended June 30, 2022.
There were no restructuring charges recorded during the three months ended June 30, 2021. During the six months ended June 30, 2021, we evaluated our office space needs and, as a result of such analysis, surrendered certain office leases primarily in New York, New York and Oakland, California. We assessed the recoverability of the carrying value of the operating lease right of use assets related to these locations. Based on that assessment, the carrying values of the assets were not recoverable, and we recorded an impairment of $18 to reduce the carrying value of the assets to their fair values. Additionally, we accrued expenses of $6 for which we will not recognize any future economic benefits and wrote off leasehold improvements of $1. The fair values of the assets were determined using a discounted cash flow model based on management's assumptions regarding the ability to sublease the locations and the remaining term of the leases. The total charge of $25 was recorded to Impairment, restructuring and acquisition costs in our unaudited consolidated statements of comprehensive income for the six months ended June 30, 2021.
(5)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 and six months ended June 30, 2022 and 2021.
Common stock equivalents of 84 and 96 for the three months ended June 30, 2022 and 2021, respectively, and 81 and 93 for the six months ended June 30, 2022 and 2021, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| For The Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Numerator: | | | | | | | | | |
Net Income available to common stockholders for basic net income per common share | $ | 292 | | | $ | 433 | | | $ | 601 | | | $ | 652 | | | |
Effect of interest on assumed conversions of convertible notes, net of tax | 1 | | | 2 | | | 3 | | | 4 | | | |
Net Income available to common stockholders for dilutive net income per common share | $ | 293 | | | $ | 435 | | | $ | 604 | | | $ | 656 | | | |
Denominator: | | | | | | | | | |
Weighted average common shares outstanding for basic net income per common share | 3,928 | | | 4,079 | | | 3,938 | | | 4,108 | | | |
Weighted average impact of assumed convertible notes | 31 | | | 30 | | | 31 | | | 30 | | | |
Weighted average impact of dilutive equity instruments | 46 | | | 54 | | | 47 | | | 55 | | | |
Weighted average shares for diluted net income per common share | 4,005 | | | 4,163 | | | 4,016 | | | 4,193 | | | |
Net income per common share: | | | | | | | | | |
Basic | $ | 0.07 | | | $ | 0.11 | | | $ | 0.15 | | | $ | 0.16 | | | |
Diluted | $ | 0.07 | | | $ | 0.10 | | | $ | 0.15 | | | $ | 0.16 | | | |
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
(6)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 and advertising customers, including advertising agencies 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 and do not expect issues in the foreseeable future.
Receivables, net, consists of the following:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Gross customer accounts receivable | $ | 586 | | | $ | 636 | |
Allowance for doubtful accounts | (11) | | | (10) | |
Customer accounts receivable, net | $ | 575 | | | $ | 626 | |
Receivables from distributors | 55 | | | 62 | |
Other receivables | 30 | | | 34 | |
Total receivables, net | $ | 660 | | | $ | 722 | |
(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 June 30, 2022.
As of June 30, 2022, there were no indicators of impairment, and no impairment losses were recorded for goodwill during the three and six months ended June 30, 2022 and 2021. As of June 30, 2022, the cumulative balance of goodwill impairments recorded was $5,722, of which $4,766 was recognized during the year ended December 31, 2008 and is included in the carrying amount of the goodwill allocated to our Sirius XM reporting unit and $956 was recognized during the year ended December 31, 2020 and is included in the carrying amount of the goodwill allocated to our Pandora and Off-platform reporting unit.
As of June 30, 2022, the carrying amount of goodwill for our Sirius XM and Pandora and Off-platform reporting units was $2,290 and $959, respectively. During the six months ended June 30, 2022, we recorded $