EX-99.1 2 c79075_ex99-1.htm

Exhibit 99.1

 

 

 

SiriusXM Reports Third Quarter 2014 Results

 

  ·Revenue Increases 10% to a Record $1.1 Billion
  ·Net Income of $136 Million, Up 117%
  ·Adjusted EBITDA Climbed 29% to a Record $381 Million
  ·Share Repurchases Total Nearly $2.1 Billion Year-to-Date
  ·2014 Subscriber, Revenue and Free Cash Flow Guidance Raised

 

NEW YORK – October 28, 2014 – SiriusXM today reported its third quarter 2014 financial and operating results, including revenue of $1.057 billion, up 10% from $962 million in the third quarter of 2013. Net income was $136 million, or $0.02 per diluted share, in the third quarter of 2014, an increase of 117% from $63 million, or $0.01 per diluted share, in the third quarter of 2013.

 

Adjusted EBITDA climbed 29% to a record $381 million in the third quarter of 2014 from $296 million in the third quarter of 2013.

 

“We are very pleased with the performance of SiriusXM in the third quarter, and we are entering the fourth quarter with tremendous momentum. So far this year we have added nearly 1.2 million subscribers, grown our Adjusted EBITDA margin by more than five percentage points, and increased free cash flow by 32%,” said Jim Meyer, Chief Executive Officer, SiriusXM.

 

Additional third quarter 2014 financial and operating highlights:

 

 ·Strong subscriber growth. Net subscriber additions in the third quarter were 432,817, bringing total subscribers up nearly 5% to 26.7 million. Self-pay net subscriber additions in the third quarter were 379,598, bringing the self-pay subscriber base up nearly 7% to 22.0 million. Total trials underway at the end of the third quarter of 2014 were approximately 7.4 million, the largest in SiriusXM’s history, up from approximately 6.9 million at the end of the third quarter of 2013.
 ·Subscriber acquisition costs fall. Subscriber acquisition costs, per installation, fell 22% from $45 in the third quarter of 2013 to $35 in the third quarter of 2014.
 ·Tight expense management. Adjusted cash operating expenses grew just 1.5% in the third quarter of 2014 to $677.6 million from $667.6 million in the third quarter of 2013.
 ·Adjusted EBITDA margins reach new record high. Adjusted EBITDA as a percentage of revenue climbed approximately 530 basis points, from 30.7% in the third quarter of 2013 to 36.0% in the third quarter of 2014, which is the highest in the company’s history.
 ·Free cash flow per share climbs. Following a 9% increase in free cash flow and a 5% reduction in weighted average diluted common shares outstanding, free cash flow per diluted share climbed 15% to 4.5 cents in the third quarter 2014 from 3.9 cents in the third quarter of 2013.
 

“Share repurchases in 2014 total almost $2.1 billion, 2.5 times the $825 million of free cash flow we generated in the first nine months of the year. With the company’s leverage at 3.4 times before the anticipated conversion of our 7% Exchangeable Notes in early December and over $1 billion of undrawn capacity under our revolving credit facility, we retain substantial balance sheet flexibility to continue our capital returns and to capitalize on strategic opportunities that may arise,” said David Frear, Chief Financial Officer, SiriusXM.

 

2014 GUIDANCE

 

SiriusXM also raised its 2014 revenue, free cash flow and total net subscriber additions guidance and reaffirmed its other financial and subscriber guidance:

 

•Net self-pay subscriber additions of approximately 1.25 million,
•Total net subscriber additions of approximately 1.5 million,
•Revenue of approximately $4.150 billion,
•Adjusted EBITDA of approximately $1.425 billion, and
•Free cash flow of approximately $1.120 billion.
 

THIRD QUARTER 2014 RESULTS

 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

 

   For the Three Months Ended
September 30,		    For the Nine Months Ended
September 30,		  
(in thousands, except per share data)    2014      2013      2014      2013  
Revenue:                    
Subscriber revenue  $902,514   $834,053   $2,632,110   $2,432,113 
Advertising revenue   25,300    21,918    73,012    63,886 
Equipment revenue   23,129    17,989    74,723    54,588 
Other revenue   106,144    87,549    310,298    248,430 
Total revenue   1,057,087    961,509    3,090,143    2,799,017 
Operating expenses:                    
Cost of services:                    
Revenue share and royalties   204,307    162,627    599,939    467,017 
Programming and content   74,920    72,322    219,360    217,313 
Customer service and billing   93,013    76,322    274,174    237,006 
Satellite and transmission   21,794    19,853    64,446    59,041 
Cost of equipment   9,485    5,340    29,319    17,809 
Subscriber acquisition costs   119,778    125,457    367,207    371,560 
Sales and marketing   83,906    75,638    237,992    209,594 
Engineering, design and development   16,136    13,007    47,677    42,901 
General and administrative   75,170    67,881    223,995    184,613 
Depreciation and amortization   64,550    58,533    200,021    192,966 
Total operating expenses   763,059    676,980    2,264,130    1,999,820 
Income from operations   294,028    284,529    826,013    799,197 
Other income (expense):                    
Interest expense, net of amounts capitalized   (75,416)   (54,629)   (197,029)   (150,531)
Loss on extinguishment of debt and credit facilities, net   —    (107,971)   —    (124,348)
Interest and investment income   6,305    1,716    9,588    3,648 
Loss on change in value of derivatives   —    —    (34,485)   — 
Other income (loss)   297    407    (1,354)   909 
Total other expense   (68,814)   (160,477)   (223,280)   (270,322)
Income before income taxes   225,214    124,052    602,733    528,875 
Income tax expense   (89,044)   (61,158)   (252,614)   (216,857)
Net income  $136,170   $62,894   $350,119   $312,018 
Foreign currency translation adjustment, net of tax   (58)   (11)   20    (292)
Total comprehensive income  $136,112   $62,883   $350,139   $311,726 
Net income per common share:                    
Basic  $0.02   $0.01   $0.06   $0.05 
Diluted  $0.02   $0.01   $0.06   $0.05 
Weighted average common shares outstanding:                    
Basic   5,626,078    6,184,216    5,860,248    6,265,981 
Diluted   5,974,047    6,287,353    6,208,569    6,446,082 
 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   As of September 30,    As of December 31,  
     2014      2013  
(in thousands, except share and per share data)  (Unaudited)   
ASSETS          
Current assets:          
Cash and cash equivalents  $103,585   $134,805 
Accounts receivable, net   102,646    103,937 
Receivables from distributors   104,147    88,975 
Inventory, net   24,350    13,863 
Prepaid expenses   126,131    110,530 
Related party current assets   4,006    9,145 
Deferred tax asset   784,143    937,598 
Other current assets   10,444    20,160 
Total current assets   1,259,452    1,419,013 
Property and equipment, net   1,522,635    1,594,574 
Long-term restricted investments   5,922    5,718 
Deferred financing fees, net   12,679    12,604 
Intangible assets, net   2,658,476    2,700,062 
Goodwill   2,205,107    2,204,553 
Related party long-term assets   1,679    30,164 
Long-term deferred tax asset   775,147    868,057 
Other long-term assets   8,260    10,035 
Total assets  $8,449,357   $8,844,780 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $552,412   $578,333 
Accrued interest   75,984    42,085 
Current portion of deferred revenue   1,612,388    1,586,611 
Current portion of deferred credit on executory contracts   2,339    3,781 
Current maturities of long-term debt   498,433    496,815 
Current maturities of long-term related party debt   10,992    10,959 
Related party current liabilities   3,268    20,320 
Total current liabilities   2,755,816    2,738,904 
Deferred revenue   148,474    149,026 
Deferred credit on executory contracts   —    1,394 
Long-term debt   4,259,646    3,093,821 
Related party long-term liabilities   14,345    16,337 
Other long-term liabilities   97,661    99,556 
Total liabilities   7,275,942    6,099,038 
Stockholders’ equity:          
Preferred stock, undesignated, par value $0.001 (liquidation preference of $0.001 per share); 50,000,000 shares authorized and 0 shares issued and outstanding at September 30, 2014 and December 31, 2013   —    — 
Common stock, par value $0.001; 9,000,000,000 shares authorized; 5,542,621,493 and 6,096,220,526 shares issued; 5,538,190,736 and 6,096,220,526 outstanding at September 30, 2014 and December 31, 2013, respectively   5,543    6,096 
Accumulated other comprehensive loss, net of tax   (288)   (308)
Additional paid-in capital   6,767,781    8,674,129 
Treasury stock, at cost; 4,430,757 and 0 shares of common stock at September 30, 2014 and December 31, 2013, respectively   (15,565)   — 
Accumulated deficit   (5,584,056)   (5,934,175)
Total stockholders’ equity   1,173,415    2,745,742 
Total liabilities and stockholders’ equity  $8,449,357   $8,844,780 
 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

   For the Nine Months Ended September 30, 
(in thousands)  2014   2013 
Cash flows from operating activities:          
Net income  $350,119   $312,018 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   200,021    192,966 
Non-cash interest expense, net of amortization of premium   16,515    16,506 
Provision for doubtful accounts   32,875    28,571 
Amortization of deferred income related to equity method investment   (2,081)   (2,082)
Loss on extinguishment of debt and credit facilities, net   —    124,348 
Gain on unconsolidated entity investments, net   (2,677)   (2,831)
Dividend received from unconsolidated entity investment   12,873    17,707 
Loss on disposal of assets   217    128 
Loss on change in value of derivatives   34,485    — 
Share-based payment expense   57,832    49,774 
Deferred income taxes   244,667    219,184 
Other non-cash purchase price adjustments   (2,836)   (206,786)
Changes in operating assets and liabilities:          
Accounts receivable   (31,584)   (25,207)
Receivables from distributors   (15,172)   23,606 
Inventory   (10,487)   11,095 
Related party assets   (995)   2,077 
Prepaid expenses and other current assets   (16,319)   (6,665)
Other long-term assets   1,567    (363)
Accounts payable and accrued expenses   (36,861)   (58,680)
Accrued interest   33,899    19,964 
Deferred revenue   25,225    34,530 
Related party liabilities   (1,261)   (635)
Other long-term liabilities   (1,854)   (4,968)
Net cash provided by operating activities   888,168    744,257 
           
Cash flows from investing activities:          
Additions to property and equipment   (87,244)   (118,235)
Purchases of restricted and other investments   —    (1,719)
Acquisition of business, net of cash acquired   1,144    — 
Return of capital from investment in unconsolidated entity   24,178    — 
Net cash used in investing activities   (61,922)   (119,954)
           
Cash flows from financing activities:          
Proceeds from exercise of stock options   331    21,819 
Taxes paid in lieu of shares issued for stock-based compensation   (24,781)   (27,913)
Proceeds from long-term borrowings and revolving credit facility, net of costs   2,151,205    2,532,137 
Payment of premiums on redemption of debt   —    (116,410)
Repayment of long-term borrowings and revolving credit facility   (993,772)   (1,085,737)
Repayment of related party long-term borrowings   —    (150,000)
Common stock repurchased and retired   (1,990,449)   (1,602,360)
Net cash used in financing activities   (857,466)   (428,464)
Net (decrease) increase in cash and cash equivalents   (31,220)   195,839 
Cash and cash equivalents at beginning of period   134,805    520,945 
Cash and cash equivalents at end of period  $103,585   $716,784 

 

Key Operating Metrics

 

The following table contains our key operating metrics for the three and nine months ended September 30, 2014 and 2013, respectively. Subscribers to our connected vehicle services are not included in our subscriber count:

 
   Unaudited 
   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
(in thousands, except subscriber, per subscriber and per installation amounts)  2014   2013   2014   2013 
Self-pay subscribers   22,014,606    20,670,333    22,014,606    20,670,333 
Paid promotional subscribers   4,719,792    4,911,733    4,719,792    4,911,733 
Ending subscribers   26,734,398    25,582,066    26,734,398    25,582,066 
                     
Self-pay subscribers   379,598    372,597    932,789    1,100,059 
Paid promotional subscribers   53,219    140,481    242,299    581,671 
Net additions   432,817    513,078    1,175,088    1,681,730 
                     
Daily weighted average number of subscribers   26,487,969    25,267,241    26,035,178    24,646,938 
                     
Average self-pay monthly churn   1.9%   1.8%   1.9%   1.8%
                     
New vehicle consumer conversion rate   41%   44%   42%   44%
                     
ARPU  $12.47   $12.29   $12.34   $12.21 
SAC, per installation  $35   $45   $34   $46 
Customer service and billing expenses, per average subscriber  $1.07   $1.00   $1.07   $1.06 
Free cash flow  $267,269   $245,262   $825,102   $624,303 
Adjusted EBITDA  $381,251   $295,742   $1,086,469   $840,589 

 

Glossary

 

Adjusted EBITDA - EBITDA is defined as net income before interest and investment income (loss); interest expense, net of amounts capitalized; income tax expense and depreciation and amortization. We adjust EBITDA to exclude the impact of other income and expense, loss on extinguishment of debt, loss on change in value of derivatives 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 of Sirius and XM, (ii) depreciation and amortization and (iii) 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 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 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 statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the merger of Sirius and XM. 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 unaudited 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
September 30,		   For the Nine Months Ended
September 30,		 
   2014   2013   2014   2013 
                 
Net income (GAAP):  $136,170   $62,894   $350,119   $312,018 
Add back items excluded from Adjusted EBITDA:                    
Purchase price accounting adjustments:                    
Revenues   1,813    1,813    5,438    5,438 
Operating expenses   (945)   (68,895)   (2,835)   (206,786)
Share-based payment expense (GAAP)   21,805    19,762    57,832    49,774 
Depreciation and amortization (GAAP)   64,550    58,533    200,021    192,966 
Interest expense, net of amounts capitalized (GAAP)   75,416    54,629    197,029    150,531 
Loss on extinguishment of debt and credit facilities, net (GAAP)   —    107,971    —    124,348 
Interest and investment income (GAAP)   (6,305)   (1,716)   (9,588)   (3,648)
Loss on change in value of derivatives (GAAP)   —    —    34,485    — 
Other (income) loss (GAAP)   (297)   (407)   1,354    (909)
Income tax expense (GAAP)   89,044    61,158    252,614    216,857 
Adjusted EBITDA  $381,251   $295,742   $1,086,469   $840,589 

 

Adjusted Net Income - We define this Non-GAAP financial measure as our actual net income adjusted to exclude the impact of certain purchase price accounting adjustments and the loss on change in value of derivatives, net of income tax expense. The following table reconciles our actual income before income taxes to our adjusted net income for the three and nine months ended September 30, 2014 and 2013 (in thousands):

 

   Unaudited 
   For the Three Months Ended
September 30,		   For the Nine Months Ended
September 30,		 
   2014   2013   2014   2013 
                 
Income before income taxes (GAAP):  $225,214   $124,052   $602,733   $528,875 
Add back items excluded from adjusted net income:                    
Purchase price accounting adjustments:                    
Revenues   1,813    1,813    5,438    5,438 
Operating expenses   (945)   (68,895)   (2,835)   (206,786)
Loss on change in value of derivatives (GAAP)   —    —    34,485    — 
Adjusted income before income taxes  $226,082   $56,970   $639,821   $327,527 
Allocable income tax expense   (87,946)   (22,218)   (248,890)   (127,736)
Adjusted net income  $138,136   $34,752   $390,931   $199,791 

 

Adjusted Revenues and Operating Expenses - We define this Non-GAAP financial measure as our actual revenues and operating expenses adjusted to exclude the impact of certain purchase price accounting adjustments from the merger of Sirius and XM and share-based payment expense. We use this Non-GAAP financial measure to manage our business, to set operational goals and as a basis for determining performance-based compensation for our employees. The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the three and nine months ended September 30, 2014 and 2013:

 
   Unaudited For the Three Months Ended September 30, 2014 
(in thousands)  As Reported  Purchase Price
Accounting
Adjustments		  Allocation of
Share-based
Payment Expense		  Adjusted 
              
Revenue:                 
Subscriber revenue  $902,514  $—  $—  $902,514 
Advertising revenue   25,300   —   —   25,300 
Equipment revenue   23,129   —   —   23,129 
Other revenue   106,144   1,813   —   107,957 
Total revenue  $1,057,087  $1,813  $—  $1,058,900 
Operating expenses                 
Cost of services:                 
Revenue share and royalties  $204,307  $—  $—  $204,307 
Programming and content   74,920   945   (2,434)  73,431 
Customer service and billing   93,013   —   (868)  92,145 
Satellite and transmission   21,794   —   (1,185)  20,609 
Cost of equipment   9,485   —   —   9,485 
Subscriber acquisition costs   119,778   —   —   119,778 
Sales and marketing   83,906   —   (4,265)  79,641 
Engineering, design and development   16,136   —   (2,559)  13,577 
General and administrative   75,170   —   (10,494)  64,676 
Depreciation and amortization (a)   64,550   —   —   64,550 
Share-based payment expense   —   —   21,805   21,805 
Total operating expenses  $763,059  $945  $—  $764,004 

 

(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 of Sirius and XM. The increased depreciation and amortization for the three months ended September 30, 2014 was $9,000.

 

   Unaudited For the Three Months Ended September 30, 2013 
(in thousands)  As Reported  Purchase Price
Accounting
Adjustments		  Allocation of
Share-based
Payment Expense		  Adjusted 
              
Revenue:                 
Subscriber revenue  $834,053  $—  $—  $834,053 
Advertising revenue   21,918   —   —   21,918 
Equipment revenue   17,989   —   —   17,989 
Other revenue   87,549   1,813   —   89,362 
Total revenue  $961,509  $1,813  $—  $963,322 
Operating expenses                 
Cost of services:                 
Revenue share and royalties  $162,627  $41,942  $—  $204,569 
Programming and content   72,322   2,008   (2,232)  72,098 
Customer service and billing   76,322   —   (647)  75,675 
Satellite and transmission   19,853   —   (1,076)  18,777 
Cost of equipment   5,340   —   —   5,340 
Subscriber acquisition costs   125,457   20,342   —   145,799 
Sales and marketing   75,638   4,603   (3,871)  76,370 
Engineering, design and development   13,007   —   (2,177)  10,830 
General and administrative   67,881   —   (9,759)  58,122 
Depreciation and amortization (a)   58,533   —   —   58,533 
Share-based payment expense   —   —   19,762   19,762 
Total operating expenses  $676,980  $68,895  $—  $745,875 

 

(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 of Sirius and XM. The increased depreciation and amortization for the three months ended September 30, 2013 was $12,000.

 
   Unaudited For the Nine Months Ended September 30, 2014 
(in thousands)  As Reported   Purchase Price
Accounting Adjustments		   Allocation of
Share-based
Payment Expense		   Adjusted 
                     
Revenue:                    
Subscriber revenue  $2,632,110   $—   $—   $2,632,110 
Advertising revenue   73,012    —    —    73,012 
Equipment revenue   74,723    —    —    74,723 
Other revenue   310,298    5,438    —    315,736 
Total revenue  $3,090,143   $5,438   $—   $3,095,581 
Operating expenses                    
Cost of services:                    
Revenue share and royalties  $599,939   $—   $—   $599,939 
Programming and content   219,360    2,835    (6,903)   215,292 
Customer service and billing   274,174    —    (2,032)   272,142 
Satellite and transmission   64,446    —    (3,087)   61,359 
Cost of equipment   29,319    —    —    29,319 
Subscriber acquisition costs   367,207    —    —    367,207 
Sales and marketing   237,992    —    (11,238)   226,754 
Engineering, design and development   47,677    —    (6,422)   41,255 
General and administrative   223,995    —    (28,150)   195,845 
Depreciation and amortization (a)   200,021    —    —    200,021 
Share-based payment expense   —    —    57,832    57,832 
Total operating expenses  $2,264,130   $2,835   $—   $2,266,965 

 

(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 of Sirius and XM. The increased depreciation and amortization for the nine months ended September 30, 2014 was $29,000.

 

   Unaudited For the Nine Months Ended September 30, 2013 
(in thousands)  As Reported   Purchase Price
Accounting Adjustments		   Allocation of
Share-based
Payment Expense		   Adjusted 
                     
Revenue:                    
Subscriber revenue  $2,432,113   $—   $—   $2,432,113 
Advertising revenue   63,886    —    —    63,886 
Equipment revenue   54,588    —    —    54,588 
Other revenue   248,430    5,438    —    253,868 
Total revenue  $2,799,017   $5,438   $—   $2,804,455 
Operating expenses                    
Cost of services:                    
Revenue share and royalties  $467,017   $122,534   $—   $589,551 
Programming and content   217,313    6,965    (5,513)   218,765 
Customer service and billing   237,006    —    (1,628)   235,378 
Satellite and transmission   59,041    —    (2,753)   56,288 
Cost of equipment   17,809    —    —    17,809 
Subscriber acquisition costs   371,560    64,365    —    435,925 
Sales and marketing   209,594    12,922    (10,114)   212,402 
Engineering, design and development   42,901    —    (5,458)   37,443 
General and administrative   184,613    —    (24,308)   160,305 
Depreciation and amortization (a)   192,966    —    —    192,966 
Share-based payment expense   —    —    49,774    49,774 
Total operating expenses  $1,999,820   $206,786   $—   $2,206,606 

 

(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 of Sirius and XM. The increased depreciation and amortization for the nine months ended September 30, 2013 was $37,000.

 

Adjusted Cash 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 from the merger of Sirius and XM, depreciation and amortization expense, and share-based payment expense. The following table reconciles our actual operating expenses to our adjusted cash operating expenses for the three and nine months ended September 30, 2014 and 2013:

 

   Unaudited 
   For the Three Months Ended
September 30,		   For the Nine Months Ended
September 30,		 
   2014   2013   2014   2013 
                 
Operating expenses (GAAP):  $763,059   $676,980   $2,264,130   $1,999,820 
Items excluded from adjusted cash operating expenses:                    
Purchase price accounting adjustments   945    68,895    2,835    206,786 
Share-based payment expense (GAAP)   (21,805)   (19,762)   (57,832)   (49,774)
Depreciation and amortization (GAAP)   (64,550)   (58,533)   (200,021)   (192,966)
Adjusted cash operating expenses  $677,649   $667,580   $2,009,112   $1,963,866 

 

ARPU - is derived from total earned subscriber revenue, advertising revenue and other subscription-related revenue, excluding revenue associated with our connected vehicle business, 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. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

 

   Unaudited 
   For the Three Months Ended
September 30,		   For the Nine Months Ended
September 30,		 
   2014   2013   2014   2013 
Subscriber revenue, excluding connected vehicle (GAAP)  $880,093   $834,053   $2,568,742   $2,432,113 
Add: advertising revenue (GAAP)   25,300    21,918    73,012    63,886 
Add: other subscription-related revenue (GAAP)   85,380    75,999    249,138    211,784 
   $990,773   $931,970   $2,890,892   $2,707,783 
                     
Daily weighted average number of subscribers   26,487,969    25,267,241    26,035,178    24,646,938 
                     
ARPU  $12.47   $12.29   $12.34   $12.21 

 

Average self-pay monthly churn - is defined as the monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period.

 

Customer service and billing expenses, per average subscriber - is derived from total customer service and billing expenses, excluding connected vehicle customer service and billing expenses and share-based payment expense, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber, is useful given the significant variation in expense that can result from changes in the fair market value of our common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

 
   Unaudited 
   For the Three Months Ended
September 30,		   For the Nine Months Ended
September 30,		 
   2014   2013   2014   2013 
Customer service and billing expenses, excluding connected vehicle (GAAP)  $85,868   $76,322   $252,677   $237,006 
Less: share-based payment expense (GAAP)   (868)   (647)   (2,032)   (1,628)
   $85,000   $75,675   $250,645   $235,378 
                     
Daily weighted average number of subscribers   26,487,969    25,267,241    26,035,178    24,646,938 
                     
Customer service and billing expenses, per average subscriber  $1.07   $1.00   $1.07   $1.06 

 

Free cash flow - is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity. The calculation for free cash flow and free cash flow per diluted share are as follows (in thousands, except per share data):

 

   Unaudited 
   For the Three Months Ended
September 30,		   For the Nine Months Ended
September 30,		 
   2014   2013   2014   2013 
Cash Flow information                    
Net cash provided by operating activities  $296,096   $302,236   $888,168   $744,257 
Net cash used in investing activities  $(28,827)  $(56,974)  $(61,922)  $(119,954)
Net cash used in financing activities  $(333,664)  $(180,247)  $(857,466)  $(428,464)
Free Cash Flow                    
Net cash provided by operating activities  $296,096   $302,236   $888,168   $744,257 
Additions to property and equipment   (28,827)   (55,255)   (87,244)   (118,235)
Purchases of restricted and other investments   —    (1,719)   —    (1,719)
Return of capital from investment in unconsolidated entity   —    —    24,178    — 
Free cash flow  $267,269   $245,262   $825,102   $624,303 
                     
Diluted weighted average common shares outstanding   5,974,047    6,287,353    6,208,569    6,446,082 
                     
Free cash flow per diluted share  $0.04   $0.04   $0.13   $0.10 

 

New vehicle consumer conversion rate - is defined as the percentage of owners and lessees of new vehicles that receive our satellite radio service and convert to become self-paying subscribers after the initial promotion period. At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive trial subscriptions ranging from three to twelve months. We measure conversion rate three months after the period in which the trial service ends. The metric excludes rental and fleet vehicles.

 

Subscriber acquisition cost, per installation - or SAC, per installation, is derived from subscriber acquisition costs and margins from the sale of radios and accessories, excluding purchase price accounting adjustments, divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. Purchase price accounting adjustments associated with the merger of Sirius and XM 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 installation, is calculated as follows (in thousands, except for installation amounts):

 
   Unaudited 
   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2014   2013   2014   2013 
Subscriber acquisition costs (GAAP)  $119,778   $125,457   $367,207   $371,560 
Less: margin from direct sales of radios and accessories (GAAP)   (13,644)   (12,649)   (45,404)   (36,779)
Add: purchase price accounting adjustments   —    20,342    —    64,365 
   $106,134   $133,150   $321,803   $399,146 
                     
Installations   3,038,041    2,973,681    9,396,115    8,657,841 
                     
SAC, per installation  $35   $45   $34   $46 

 

###

 

About SiriusXM

 

Sirius XM Holdings Inc. (NASDAQ: SIRI) is the world’s largest radio broadcaster measured by revenue and has 26.7 million subscribers. SiriusXM creates and broadcasts commercial-free music; premier sports talk and live events; comedy; news; exclusive talk and entertainment; and the most comprehensive Latin music, sports and talk programming in radio. SiriusXM is available in vehicles from every major car company in the U.S. and from retailers nationwide as well as at shop.siriusxm.com. SiriusXM programming is available through the SiriusXM Internet Radio App for smartphones and other connected devices as well as online at siriusxm.com. SiriusXM also provides premium traffic, weather, data and information services for subscribers in cars, trucks, RVs, boats and aircraft through SiriusXM Traffic™, SiriusXM Travel Link, NavTraffic®, NavWeather™, SiriusXM Aviation, SiriusXM Marine™, Sirius Marine Weather, XMWX Aviation™, and XMWX Marine™. SiriusXM holds a minority interest in SiriusXM Canada which has more than 2 million subscribers.

 

On social media, join the SiriusXM community on Facebook, Twitter, Instagram, and YouTube.

 

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 radio and audio entertainment providers; our ability to attract and retain subscribers, which is uncertain; our dependence upon the auto industry; general economic conditions; failure of our satellites, which, in most cases, are not insured; the interruption or failure of our information and communications systems; the security of the personal information about our customers; royalties we pay for music rights, which increase over time; the unfavorable outcome of pending or future litigation; our failure to realize benefits of acquisitions; rapid technological and industry change; failure of third parties to perform; changes in consumer protection laws and their enforcement; failure to comply with FCC requirements and other government regulations; and our 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, 2013, 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

 

Contact Information for Investors and Financial Media:

 

Investors:

 

Hooper Stevens

212 901 6718

hooper.stevens@siriusxm.com

 

Media:

 

Patrick Reilly

212 901 6646

patrick.reilly@siriusxm.com