Sirius XM Radio Inc : SiriusXM Reports First Quarter 2012 Results
05/01/2012| 08:18am US/Eastern
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SiriusXM Reports First Quarter 2012 Results
- Subscribers Grow by 405,000 to a Record 22.3 Million
- Record Quarterly Revenue of $805 Million, Up 11%
- First Quarter 2012 Net Income of $108 Million, Up 38%
- Adjusted EBITDA Reaches $208 Million, Up 15%
- Company Raises Subscriber Guidance
NEW YORK, May 1,
2012/PRNewswire/ -- Sirius XM Radio (NASDAQ:
SIRI) today announced first quarter 2012 financial and
operating results, including revenue of $805
million, up 11% over first quarter 2011 revenue of
$724 million. Net income for the first
quarters of 2012 and 2011 were $108
millionand $78 million, respectively,
or $0.02and $0.01per diluted
share, respectively.
Adjusted EBITDA for the first quarter of 2012 was
$208 million, up 15% from $181
millionin the first quarter of 2011.
"SiriusXM is starting the year with tremendous
operational momentum. We grew subscribers faster
than any first quarter since our 2008 merger of Sirius
and XM, and we improved our self-pay monthly churn rate
to 1.9% despite implementing a price increase at the
beginning of the year. Rising auto sales and our
strong execution should enable us to exceed our prior
2012 subscriber growth guidance of 1.3 million, which
today we are raising to 1.5 million," noted
Mel Karmazin, Chief Executive Officer,
SiriusXM.
"In 2012, we continue to expect record revenue,
adjusted EBITDA, and free cash flow, and our subscriber
base will also finish this year at another all-time
record high," said Karmazin. "Our number
one focus is on delivering the best possible content to
our subscribers - we are rolling out more satellite
channels via factory-installed 2.0 radios, and we are
improving our online offering by delivering even more
live sports coverage, updated apps with enhanced
features, and later this year, on-demand content and
personalized radio. There has never been a better
time to be a SiriusXM subscriber, and we think our
unparalleled audio product will produce strong operating
and financial performance for our company in the years to
come, which should result in great value to our
stockholders."
Additional highlights from the first quarter include:
Subscriber growth accelerates. Self-pay net
subscriber additions improved by 148% to 299,348 and
the subscriber base rose to an all-time high of 22.3
million subscribers. Strong auto sales helped lift
total paid and unpaid trial inventory by more than
200,000 from year end to 5.7 million.
Churn improves. Self-pay monthly churn was 1.9%
in the first quarter of 2012, an improvement from 2.0%
in the first quarter of 2011. New vehicle
consumer conversion rate was 45% in the first quarter
of 2012, in-line with the first quarter of 2011.
Free cash flow grows. Free cash flow was
$15 millionin the first quarter of 2012,
an improvement from the ($17)
millionrecorded in the first quarter of 2011,
and represented the first time SiriusXM has shown
positive free cash flow in the first quarter of a
year.
"We ended the first quarter with $747
millionof cash, after the repurchase of
approximately $57 millionin aggregate
principal amount of our debt during the first
quarter. Our leverage at the end of the first
quarter improved to 3.9 times our adjusted EBITDA on a
gross basis and 2.9 times our adjusted EBITDA on a net
basis," said David Frear,
SiriusXM's Executive Vice President and Chief
Financial Officer. "Our growing cash flow is
reducing our leverage substantially, and this improving
credit profile should benefit stockholders as we
refinance or pay down more than $1 billionof
high coupon debt over the next 15 months."
2012 GUIDANCE
"With auto sales in the first quarter exceeding
expectations and better than expected churn, we now
expect to grow our net new subscribers by 1.5 million in
2012," said Karmazin. The Company reiterates
its existing 2012 revenue, adjusted EBITDA and free cash
flow guidance:
Revenue of approximately $3.3 billion,
Adjusted EBITDA of approximately $875
million, and
Free cash flow of approximately $700
million.
FIRST QUARTER 2012 RESULTS
SIRIUS XM RADIO INC. AND
SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
For the Three Months
Ended March 31,
(in thousands, except per share
data)
2012
2011
Revenue:
Subscriber revenue
$
700,242
$
622,437
Advertising revenue, net of agency
fees
18,670
16,558
Equipment revenue
16,953
15,867
Other revenue
68,857
68,977
Total revenue
804,722
723,839
Operating expenses:
Cost of services:
Revenue share and royalties
132,111
106,929
Programming and content
70,095
72,959
Customer service and billing
66,187
65,836
Satellite and transmission
18,110
18,560
Cost of equipment
5,806
6,405
Subscriber acquisition costs
116,121
105,270
Sales and marketing
58,361
47,819
Engineering, design and development
12,690
11,135
General and administrative
59,886
56,354
Depreciation and amortization
66,117
68,400
Total operating expenses
605,484
559,667
Income from operations
199,238
164,172
Other income (expense):
Interest expense, net of amounts
capitalized
(76,971)
(78,218)
Loss on extinguishment of debt and credit
facilities, net
(9,971)
(5,994)
Interest and investment loss
(1,142)
(1,884)
Other (loss) income
(578)
1,617
Total other expense
(88,662)
(84,479)
Income before income taxes
110,576
79,693
Income tax expense
(2,802)
(1,572)
Net income
$
107,774
$
78,121
Foreign currency translation adjustment,
net of tax
(56)
67
Comprehensive income
$
107,718
$
78,188
Net income per common share:
Basic
$
0.03
$
0.02
Diluted
$
0.02
$
0.01
Weighted average common shares
outstanding:
Basic
3,767,443
3,735,136
Diluted
6,537,728
6,481,384
SIRIUS XM RADIO INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2012
December 31, 2011
(unaudited)
(in thousands, except share and per share
data)
ASSETS
Current assets:
Cash and cash equivalents
$
746,576
$
773,990
Accounts receivable, net
108,335
101,705
Receivables from distributors
96,037
84,817
Inventory, net
36,791
36,711
Prepaid expenses
177,515
125,967
Related party current assets
6,503
14,702
Deferred tax asset
144,798
132,727
Other current assets
20,539
6,335
Total current assets
1,337,094
1,276,954
Property and equipment, net
1,645,610
1,673,919
Long-term restricted investments
3,973
3,973
Deferred financing fees, net
38,848
42,046
Intangible assets, net
2,559,712
2,573,638
Goodwill
1,834,856
1,834,856
Related party long-term assets
54,229
54,953
Other long-term assets
27,402
35,657
Total assets
$
7,501,724
$
7,495,996
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
expenses
$
454,748
$
543,193
Accrued interest
77,562
70,405
Current portion of deferred revenue
1,404,919
1,333,965
Current portion of deferred credit on
executory contracts
281,270
284,108
Current maturities of long-term debt
1,540
1,623
Related party current liabilities
16,541
14,302
Total current liabilities
2,236,580
2,247,596
Deferred revenue
183,430
198,135
Deferred credit on executory
contracts
147,012
218,199
Long-term debt
2,625,533
2,683,563
Long-term related party debt
329,576
328,788
Deferred tax liability
1,024,734
1,011,084
Related party long-term liabilities
21,048
21,741
Other long-term liabilities
84,232
82,745
Total liabilities
6,652,145
6,791,851
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001;
50,000,000 authorized at March 31, 2012 and
December 31, 2011:
Series A convertible preferred stock; no
shares issued and outstanding at March 31,
2012
and December 31, 2011
-
-
Convertible perpetual preferred stock,
series B-1 (liquidation preference of $0.001 at
March 31, 2012
and December 31, 2011); 12,500,000 shares
issued and outstanding at March 31, 2012
and
December 31, 2011
13
13
Common stock, par value $0.001;
9,000,000,000 shares authorized at March 31, 2012
and
December 31, 2011; 3,788,755,725 and
3,753,201,929 shares issued and outstanding
at
March 31, 2012 and December 31, 2011
3,789
3,753
Accumulated other comprehensive income, net
of tax
15
71
Additional paid-in capital
10,522,080
10,484,400
Accumulated deficit
(9,676,318)
(9,784,092)
Total stockholders' equity
849,579
704,145
Total liabilities and stockholders'
equity
$
7,501,724
$
7,495,996
SIRIUS XM RADIO INC. AND
SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Three Months Ended March 31,
(in thousands)
2012
2011
Cash flows from operating
activities:
Net income
$
107,774
$
78,121
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization
66,117
68,400
Non-cash interest expense, net of
amortization of premium
10,647
9,573
Provision for doubtful accounts
6,208
9,623
Amortization of deferred income related to
equity method investment
(694)
(694)
Loss on extinguishment of debt and credit
facilities, net
9,971
5,994
Loss on unconsolidated entity investments,
net
422
2,350
Loss on disposal of assets
-
266
Share-based payment expense
14,951
12,856
Deferred income taxes
1,572
1,111
Other non-cash purchase price
adjustments
(73,956)
(66,743)
Changes in operating assets and
liabilities:
Accounts receivable
(12,838)
11,291
Receivables from distributors
(11,220)
(8,982)
Inventory
(80)
(7,330)
Related party assets
8,347
(3,686)
Prepaid expenses and other current
assets
(65,753)
(39,232)
Other long-term assets
8,256
7,617
Accounts payable and accrued
expenses
(96,859)
(110,400)
Accrued interest
7,157
8,124
Deferred revenue
56,182
39,225
Related party liabilities
2,239
738
Other long-term liabilities
1,505
(113)
Net cash provided by operating
activities
39,948
18,109
Cash flows from investing
activities:
Additions to property and equipment
(25,187)
(34,983)
Net cash used in investing
activities
(25,187)
(34,983)
Cash flows from financing
activities:
Proceeds from exercise of stock
options
22,765
1,072
Payment of premiums on redemption of
debt
(6,602)
(4,094)
Repayment of long-term borrowings
(58,338)
(133,100)
Net cash used in financing
activities
(42,175)
(136,122)
Net decrease in cash and cash
equivalents
(27,414)
(152,996)
Cash and cash equivalents at beginning of
period
773,990
586,691
Cash and cash equivalents at end of
period
$
746,576
$
433,695
Subscriber Data and Operating
Metrics
The following table contains subscriber data and key
operating metrics for the three months ended March
31, 2012and 2011, respectively:
Unaudited
For the Three Months Ended March 31,
2012
2011
Beginning subscribers
21,892,824
20,190,964
Gross subscriber additions
2,161,693
2,052,367
Deactivated subscribers
(1,757,097)
(1,679,303)
Net additions
404,596
373,064
Ending subscribers
22,297,420
20,564,028
Self-pay
18,208,090
16,807,643
Paid promotional
4,089,330
3,756,385
Ending subscribers
22,297,420
20,564,028
Self-pay
299,348
120,844
Paid promotional
105,248
252,220
Net additions
404,596
373,064
Daily weighted average number of
subscribers
21,990,863
20,233,144
Average self-pay monthly churn
1.9%
2.0%
New Vehicle Consumer Conversion rate
45%
45%
ARPU
$
11.77
$
11.52
SAC, per gross subscriber addition
$
60
$
57
Subscribers. The improvement was due to the 5% increase
in gross subscriber additions, primarily resulting from
higher new vehicle shipments and light vehicle sales, as
well as an increase in conversions from unpaid
promotional trials and returning subscriber activations
inclusive of previously owned vehicles. This increase in
gross additions was partially offset by the 5% increase
in deactivations. The increase in deactivations was
primarily due to an increase in paid promotional trial
deactivations stemming from the increase in volume of
paid trials, along with growth in our subscriber base,
partially offset by a decline in the self-pay churn rate.
Average Self-pay Monthly Churn for the three months ended
March 31, 2012and 2011 was 1.9% and 2.0%,
respectively. The decrease in the churn rate was driven
by a reduction in the non-pay cancellation rate, as well
as a favorable shift in the subscriber mix towards
automotive vehicles, which churn at lower rates in
comparison to aftermarket products.
New Vehicle Consumer Conversion Rate for the three months
ended March 31, 2012and 2011 was 45%.
ARPU increased primarily due to the increase in certain
of our subscription rates beginning in January
2012, an increase in sales of premium services,
including Premier packages, data services and streaming,
partially offset by an increase in subscriber retention
programs and in the number of subscribers on promotional
plans and a decrease in the revenue from the U.S. Music
Royalty Fee due to the December
2010reduction in the rate from 15.3% to 10.8%.
SAC, Per Gross Subscriber Addition, increased in the
three months ended March 31, 2012primarily
due to higher subsidies related to increased OEM
installations occurring in advance of acquiring the
subscriber, partially offset by improved OEM subsidy
rates per vehicle compared to the three months ended
March 31, 2011.
Glossary
Adjusted EBITDA - EBITDA is defined as net income before
interest and investment loss; interest expense, net of
amounts capitalized; income tax expense and depreciation
and amortization. We adjust EBITDA to remove the impact
of other income and expense, loss on extinguishment of
debt as well as certain other charges discussed below.
This measure is one of the primary Non-GAAP financial
measures on which we (i) evaluate the performance of our
businesses, (ii) base our internal budgets and (iii)
compensate management. Adjusted EBITDA is a Non-GAAP
financial performance measure that excludes (if
applicable): (i) certain adjustments as a result of
the purchase price accounting for the Merger, (ii)
goodwill impairment, (iii) restructuring, impairments,
and related costs, (iv) depreciation and amortization and
(v) share-based payment expense. The purchase price
accounting adjustments include: (i) the elimination of
deferred revenue associated with the investment in XM
Canada, (ii) recognition of deferred subscriber revenues
not recognized in purchase price accounting, and (iii)
elimination of the benefit of deferred credits on
executory contracts, which are primarily attributable to
third party arrangements with an OEM and certain
programming providers. We believe adjusted EBITDA is a
useful measure of the underlying trend of our operating
performance, which provides useful information about our
business apart from the costs associated with our
physical plant, capital structure and purchase price
accounting. We believe investors find this Non-GAAP
financial measure useful when analyzing our results and
comparing our operating performance to the performance of
other communications, entertainment and media companies.
We believe investors use current and projected adjusted
EBITDA to estimate our current and prospective enterprise
value and to make investment decisions. Because we fund
and build-out our satellite radio system through the
periodic raising and expenditure of large amounts of
capital, our results of operations reflect significant
charges for depreciation expense. The exclusion of
depreciation and amortization expense is useful given
significant variation in depreciation and amortization
expense that can result from the potential variations in
estimated useful lives, all of which can vary widely
across different industries or among companies within the
same industry. We believe the exclusion of restructuring,
impairments and related costs is useful given the nature
of these expenses. We also believe the exclusion of
share-based payment expense is useful given the
significant variation in expense that can result from
changes in the fair value as determined using the
Black-Scholes-Merton model which varies based on
assumptions used for the expected life, expected stock
price volatility and risk-free interest
rates.
Adjusted EBITDA has certain limitations in that it does
not take into account the impact to our statement of
comprehensive income of certain expenses, as discussed
above. We endeavor to compensate for the limitations of
the Non-GAAP measure presented by also providing the
comparable GAAP measure with equal or greater prominence
and descriptions of the reconciling items, including
quantifying such items, to derive the Non-GAAP
measure. Investors that wish to compare and
evaluate our operating results after giving effect for
these costs, should refer to net income as disclosed in
our consolidated statements of comprehensive income.
Since adjusted EBITDA is a Non-GAAP financial performance
measure, our calculation of adjusted EBITDA may be
susceptible to varying calculations; may not be
comparable to other similarly titled measures of other
companies; and should not be considered in isolation, as
a substitute for, or superior to measures of financial
performance prepared in accordance with GAAP. The
reconciliation of net income to the adjusted EBITDA is
calculated as follows (in thousands):
Unaudited
For the Three Months Ended March 31,
2012
2011
Net income (GAAP):
$ 107,774
$ 78,121
Add back items excluded from Adjusted
EBITDA:
Purchase price accounting
adjustments:
Revenues
1,880
3,722
Operating expenses
(74,024)
(67,972)
Share-based payment expense, net of
purchase price
accounting adjustments
14,951
13,037
Depreciation and amortization (GAAP)
66,117
68,400
Interest expense, net of amounts
capitalized (GAAP)
76,971
78,218
Loss on extinguishment of debt and credit
facilities, net (GAAP)
9,971
5,994
Interest and investment loss (GAAP)
1,142
1,884
Other (income) loss (GAAP)
578
(1,617)
Income tax expense (GAAP)
2,802
1,572
Adjusted EBITDA
$ 208,162
$ 181,359
Adjusted Operating Expenses - We define this Non-GAAP
financial measure as our actual operating expenses
adjusted to exclude the impact of certain purchase price
accounting adjustments and share-based payment expense.
We use this Non-GAAP financial measure to manage our
business, set operational goals and as a basis for
determining performance-based compensation for our
employees. The following tables reconcile our
actual operating expenses to our adjusted operating
expenses for the three months ended March 31,
2012and 2011:
Unaudited For the Three Months Ended March
31, 2012
(in thousands)
As Reported
Purchase Price
Accounting
Adjustments
Allocation of
Share-based
Payment Expense
Adjusted
Operating expenses
Cost of services:
Revenue share and royalties
132,111
34,846
-
166,957
Programming and content
70,095
11,702
(1,374)
80,423
Customer service and billing
66,187
-
(427)
65,760
Satellite and transmission
18,110
-
(785)
17,325
Cost of equipment
5,806
-
-
5,806
Subscriber acquisition costs
116,121
24,085
-
140,206
Sales and marketing
58,361
3,391
(2,360)
59,392
Engineering, design and development
12,690
-
(1,432)
11,258
General and administrative
59,886
-
(8,573)
51,313
Depreciation and amortization (a)
66,117
-
-
66,117
Share-based payment expense
-
-
14,951
14,951
Total operating expenses
$605,484
$74,024
$-
$679,508
(a) Purchase price accounting adjustments
included above exclude the incremental
depreciation and amortization associated with the
$785,000 stepped up basis in property, equipment
and intangible assets as a result of the Merger.
The increased depreciation and amortization for
the three months ended March 31, 2012 was
$14,000.
Unaudited For the Three Months Ended March
31, 2011
(in thousands)
As Reported
Purchase Price
Accounting
Adjustments
Allocation of
Share-based
Payment Expense
Adjusted
Operating expenses
Cost of services:
Revenue share and royalties
106,929
29,933
-
136,862
Programming and content
72,959
12,824
(2,510)
83,273
Customer service and billing
65,836
18
(367)
65,487
Satellite and transmission
18,560
239
(567)
18,232
Cost of equipment
6,405
-
-
6,405
Subscriber acquisition costs
105,270
21,656
-
126,926
Sales and marketing
47,819
3,212
(1,875)
49,156
Engineering, design and development
11,135
31
(1,142)
10,024
General and administrative
56,354
59
(6,576)
49,837
Depreciation and amortization (a)
68,400
-
-
68,400
Share-based payment expense (b)
-
-
13,037
13,037
Total operating expenses
$559,667
$67,972
$-
$627,639
(a) Purchase price accounting adjustments
included above exclude the incremental
depreciation and amortization associated with the
$785,000 stepped up basis in property, equipment
and intangible assets as a result of the Merger.
The increased depreciation and amortization for
the three months ended March 31, 2011 was
$15,000.
(b) Amounts related to share-based payment
expense included in operating expenses were as
follows:
Programming and content
$2,483
$27
$-
$2,510
Customer service and billing
349
18
-
367
Satellite and transmission
548
19
-
567
Sales and marketing
1,848
27
-
1,875
Engineering, design and development
1,111
31
-
1,142
General and administrative
6,517
59
-
6,576
Total share-based payment expense
$12,856
$181
$-
$13,037
ARPU - is derived from total earned subscriber revenue,
net advertising revenue and other subscription-related
revenue, net of purchase price accounting adjustments,
divided by the number of months in the period, divided by
the daily weighted average number of subscribers for the
period. Other subscription-related revenue includes the
U.S. Music Royalty Fee. Purchase price accounting
adjustments include the recognition of deferred
subscriber revenues not recognized in purchase price
accounting associated with the Merger. ARPU is calculated
as follows (in thousands, except for subscriber and per
subscriber amounts):
Unaudited
For the Three Months Ended March 31,
2012
2011
Subscriber revenue (GAAP)
$
700,242
$
622,437
Add: net advertising revenue (GAAP)
18,670
16,558
Add: other subscription-related revenue
(GAAP)
57,721
58,531
Add: purchase price accounting
adjustments
67
1,909
$
776,700
$
699,435
Daily weighted average number of
subscribers
21,990,863
20,233,144
ARPU
$
11.77
$
11.52
Free cash flow - is derived from cash flow provided by
operating activities, capital expenditures and restricted
and other investment activity. Free cash flow is
calculated as follows (in thousands):
Unaudited
For the Three Months Ended March 31,
2012
2011
Cash Flow information
Net cash provided by operating
activities
$
39,948
$
18,109
Net cash used in investing
activities
(25,187)
(34,983)
Net cash used in financing
activities
(42,175)
(136,122)
Free Cash Flow
Net cash provided by operating
activities
$
39,948
$
18,109
Additions to property and equipment
(25,187)
(34,983)
Free cash flow
$
14,761
$
(16,874)
Subscriber acquisition cost, per gross subscriber
addition - or SAC, per gross subscriber addition, is
derived from subscriber acquisition costs and margins
from the sale of radios and accessories, excluding
share-based payment expense and purchase price accounting
adjustments, divided by the number of gross subscriber
additions for the period. Purchase price accounting
adjustments associated with the Merger include the
elimination of the benefit of amortization of deferred
credits on executory contracts recognized at the Merger
date attributable to an OEM. SAC, per gross subscriber
addition, is calculated as follows (in thousands, except
for subscriber and per subscriber amounts):
Unaudited
For the Three Months Ended March 31,
2012
2011
Subscriber acquisition costs (GAAP)
$
116,121
$
105,270
Less: margin from direct sales of radios
and accessories (GAAP)
SiriusXM programming is available on more than 800
devices, including pre-installed and after-market radios
in cars, trucks, boats and aircraft, smartphones and mobile devices, and
consumer electronics products for homes and offices. SiriusXM
programming is also available at siriusxm.com,
and on
Apple, BlackBerry and
Android
-powered mobile devices.
This communication contains "forward-looking
statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such
statements include, but are not limited to, statements
about future financial and operating results, our plans,
objectives, expectations and intentions with respect to
future operations, products and services; and other
statements identified by words such as "will likely
result," "are expected to," "will
continue," "is anticipated,"
"estimated," "believe,"
"intend," "plan,"
"projection," "outlook" or words of
similar meaning. Such forward-looking statements
are based upon the current beliefs and expectations of
our management and are inherently subject to significant
business, economic and competitive uncertainties and
contingencies, many of which are difficult to predict and
generally beyond our control. Actual results may
differ materially from the results anticipated in these
forward-looking statements.
The following factors, among others, could cause actual
results to differ materially from the anticipated results
or other expectations expressed in the forward-looking
statements: our competitive position versus other
forms of audio entertainment; our dependence upon
automakers; general economic conditions; failure of our
satellites, which, in most cases, are not insured; our
ability to attract and retain subscribers at a profitable
level; royalties we pay for music rights; the unfavorable
outcome of pending or future litigation; failure of third
parties to perform; and our substantial
indebtedness. Additional factors that could cause
our results to differ materially from those described in
the forward-looking statements can be found in our Annual
Report on Form 10-K for the year ended December 31,
2011, which is filed with the Securities and
Exchange Commission (the "SEC") and available
at the SEC's Internet site ( http://www.sec.gov). The
information set forth herein speaks only as of the date
hereof, and we disclaim any intention or obligation to
update any forward looking statements as a result of
developments occurring after the date of this
communication.
E - SIRI
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