Current Report


 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

_____________________

 

FORM 8-K

 

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported): October 24, 2013

 

 

SIRIUS XM RADIO INC.

(Exact Name of Registrant as Specified in Charter)

 

 

Delaware 001-34295 52-1700207

(State or other Jurisdiction

of Incorporation)

(Commission File Number)

(I.R.S. Employer

Identification No.)

 

1221 Avenue of the Americas, 36th Fl., New York, NY 10020
(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code:   (212) 584-5100

 

_____________________________

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02      Results of Operations and Financial Condition

 

On October 24, 2013, we reported our financial and operating results for the three and nine months ended September 30, 2013. These results are discussed in the press release attached hereto as Exhibit 99.1, which is incorporated by reference in its entirety.

 

Item 9.01      Financial Statements and Exhibits

 

(d) Exhibits.

 

The Exhibit Index attached hereto is incorporated herein.

 

 

 

 

2
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  SIRIUS XM RADIO INC.
     
     
     
  By:  /s/ Patrick L. Donnelly               
         Patrick L. Donnelly
         Executive Vice President, General
         Counsel and Secretary

 

 

Dated: October 24, 2013

 

 

 

3
 

 

EXHIBITS

 

Exhibit

Description of Exhibit

 

99.1 Press Release dated October 24, 2013.
   

 

 

 

4

Exhibit 99.1

 

 

 

SiriusXM Reports Third Quarter 2013 Results

 

· Record Revenue of $962 Million, Up 11% From Third Quarter of 2012
· Net Income of $63 Million
· Adjusted EBITDA Grows 21% to a Record $296 Million
· Free Cash Flow Increases 26% to $245 Million
· Share Repurchase Program Reaches $1.6 Billion Year to Date
· Company Issues 2014 Financial Guidance

 

NEW YORK – October 24, 2013 – Sirius XM Radio (NASDAQ: SIRI) today announced third quarter 2013 financial and operating results, including record revenue of $962 million, up 11% from the third quarter 2012 revenue of $867 million. Net income for the third quarter of 2013 and 2012 was $63 million and $75 million, respectively, including losses on extinguishment of debt of $108 million and $107 million, respectively. Earnings per fully-diluted share were $0.01 each in the third quarter of 2013 and 2012.

 

Income before income taxes was $124 million in the third quarter 2013, an increase of 128% from $54 million in the third quarter of 2012. Adjusted EBITDA for the third quarter of 2013 reached a record $296 million, up 21% from $245 million in the third quarter of 2012.

 

“SiriusXM had a great quarter, with the 513,000 net subscriber additions and the 373,000 self-pay net additions setting post-merger records for the third quarter. We also saw double-digit growth in revenue for the seventh consecutive quarter, a new quarterly record for adjusted EBITDA and adjusted EBITDA margin, and significant growth in free cash flow. With continued growth in new automobile sales and an increasing number of existing self-pay subscribers selling their cars and rotating back into our trial funnel, we are increasing our guidance for net subscriber additions and reducing our guidance for self pay subscriber additions by equal amounts. We are also pleased to increase revenue guidance for 2013 and introduce new guidance for continued growth in 2014 in both revenue and adjusted EBITDA,” noted Jim Meyer, Chief Executive Officer, SiriusXM.

 

“We are proud of all we accomplished in the third quarter: strong operating results, significant improvements in our balance sheet, renewals of important long-term programming contracts, and the announced acquisition of the connected vehicle unit of Agero,” added Meyer.

 

Additional highlights of the third quarter include:

 

· Subscribers Reach Approximately 25.6 Million. Net subscriber additions in the quarter were 513,000, up from 446,000 in the third quarter of 2012. The total paid subscriber base reached a record 25.6 million, up 9% from the prior-year period. Self-pay net subscriber additions were 373,000, while the self-pay subscriber base reached a
 
record high of 20.7 million, up 9% from the prior year period. Total paid and unpaid trials grew by 247,000 from the second quarter of 2013 to 6.9 million.
· Adjusted EBITDA and Adjusted EBITDA Margin Achieve New Record Highs. Adjusted EBITDA climbed 21% from last year’s third quarter to a record quarterly figure of $296 million, and those results were accompanied by a record adjusted EBITDA margin of nearly 31%.
· Free Cash Flow Climbs 26% in the Third Quarter. Free cash flow in the third quarter of 2013 was $245 million, up 26% from $195 million in the third quarter of 2012. Free cash flow per fully-diluted share was 3.9 cents in the third quarter, up 31% from the third quarter of 2012. For the first nine months of the year, free cash flow climbed 42% to $624 million, and free cash flow per fully-diluted share was 9.7 cents, an increase of 51% over the same period in 2012.

 

We have taken significant steps over the past year to improve our balance sheet, lowering our average cost of debt from 9.2% last summer to just 5.5% following the redemption of the 7.625% Senior Notes due 2018. The new debt we have issued gives our Company greater flexibility to pursue capital returns and other strategic opportunities, said David Frear, SiriusXM s Executive Vice President and Chief Financial Officer.

 

During the third quarter, we repurchased approximately 124 million shares of our common stock for $459 million, bringing our year-to-date purchases to approximately 477 million shares for approximately $1.6 billion. We have approximately $2.4 billion remaining under our recently increased share repurchase authorization, and we anticipate using $500 million of this authorization to repurchase shares directly from Liberty Media in three installments beginning next month. At the end of the third quarter, and pro forma for the announced redemption of the 7.625% Senior Notes due 2018, our outstanding debt was a very conservative 3.0x trailing adjusted EBITDA, added Frear.

 

2013 AND 2014 GUIDANCE

 

The Company today increased its expectation for 2013 total net subscriber growth and revenue, reduced its estimate for 2013 self-pay net subscriber growth, and reiterated its existing guidance for adjusted EBITDA and free cash flow.

 

· Total net subscriber additions of approximately 1.6 million, up from previous guidance of 1.5 million,
· Self-pay net subscriber additions of approximately 1.5 million, down from previous guidance of approximately 1.6 million,
· Revenue of approximately $3.77 billion, up from previous guidance of over $3.7 billion,
· Adjusted EBITDA of approximately $1.14 billion, and
· Free cash flow of approximately $915 million.

 

The Company also provided initial guidance for 2014 revenue and adjusted EBITDA:

 

· Revenue of over $4.0 billion, and
· Adjusted EBITDA of approximately $1.38 billion.
 

THIRD QUARTER 2013 RESULTS

 

SIRIUS XM RADIO 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)   2013     2012     2013     2012  
                         
Revenue:                                
Subscriber revenue   $ 834,053     $ 757,672     $ 2,432,113     $ 2,188,199  
Advertising revenue     21,918       20,426       63,886       59,881  
Equipment revenue     17,989       17,813       54,588       51,183  
Other revenue     87,549       71,449       248,430       210,362  
Total revenue     961,509       867,360       2,799,017       2,509,625  
Operating expenses:                                
Cost of services:                                
Revenue share and royalties     162,627       141,834       467,017       409,371  
Programming and content     72,322       69,938       217,313       205,203  
Customer service and billing     76,322       77,768       237,006       212,635  
Satellite and transmission     19,853       18,319       59,041       53,980  
Cost of equipment     5,340       6,345       17,809       19,301  
Subscriber acquisition costs     125,457       112,418       371,560       348,014  
Sales and marketing     75,638       60,676       209,594       176,457  
Engineering, design and development     13,007       13,507       42,901       32,468  
General and administrative     67,881       68,235       184,613       193,786  
Depreciation and amortization     58,533       66,571       192,966       199,481  
Total operating expenses     676,980       635,611       1,999,820       1,850,696  
Income from operations     284,529       231,749       799,197       658,929  
Other income (expense):                                
Interest expense, net of amounts capitalized     (54,629 )     (70,035 )     (150,531 )     (219,777 )
Loss on extinguishment of debt and credit facilities, net     (107,971 )     (107,105 )     (124,348 )     (132,726 )
Interest and investment income (loss)     1,716       (321 )     3,648       (3,192 )
Other income (loss)     407       113       909       (637 )
Total other expense     (160,477 )     (177,348 )     (270,322 )     (356,332 )
Income before income taxes     124,052       54,401       528,875       302,597  
Income tax (expense) benefit     (61,158 )     20,113       (216,857 )     3,013,860  
Net income   $ 62,894     $ 74,514     $ 312,018     $ 3,316,457  
Foreign currency translation adjustment, net of tax     (11 )           (292 )     (38 )
Total comprehensive income   $ 62,883     $ 74,514     $ 311,726     $ 3,316,419  
Net income per common share:                                
Basic   $ 0.01     $ 0.01     $ 0.05     $ 0.52  
Diluted   $ 0.01     $ 0.01     $ 0.05     $ 0.49  
Weighted average common shares outstanding:                                
Basic     6,184,216       4,034,122       6,265,981       3,870,031  
Diluted     6,287,353       6,577,654       6,446,082       6,848,230  
 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    September 30, 2013     December 31, 2012  
(in thousands, except share and per share data)   (Unaudited)        
ASSETS                
Current assets:                
Cash and cash equivalents   $ 716,784     $ 520,945  
Accounts receivable, net     102,778       106,142  
Receivables from distributors     80,819       104,425  
Inventory, net     14,242       25,337  
Prepaid expenses     130,794       122,157  
Related party current assets     11,141       13,167  
Deferred tax asset     887,182       923,972  
Other current assets     7,525       12,037  
Total current assets     1,951,265       1,828,182  
Property and equipment, net     1,542,887       1,571,922  
Long-term restricted investments     5,718       3,999  
Deferred financing fees, net     29,377       38,677  
Intangible assets, net     2,482,367       2,519,610  
Goodwill     1,815,365       1,815,365  
Related party long-term assets     29,385       44,954  
Long-term deferred tax asset     1,036,708       1,219,256  
Other long-term assets     13,240       12,878  
Total assets   $ 8,906,312     $ 9,054,843  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued expenses   $ 528,173     $ 587,652  
Accrued interest     53,918       33,954  
Current portion of deferred revenue     1,522,513       1,474,138  
Current portion of deferred credit on executory contracts     3,904       207,854  
Current maturities of long-term debt     489,492       4,234  
Current maturities of long-term related party debt     49,383        
Related party current liabilities     6,121       6,756  
Total current liabilities     2,653,504       2,314,588  
Deferred revenue     145,656       159,501  
Deferred credit on executory contracts     2,339       5,175  
Long-term debt     3,161,372       2,222,080  
Long-term related party debt     10,948       208,906  
Related party long-term liabilities     16,884       18,966  
Other long-term liabilities     80,941       86,062  
Total liabilities     6,071,644       5,015,278  
                 
Stockholders’ equity:                
Preferred stock, par value $0.001; 50,000,000 authorized at September 30, 2013 and December 31, 2012:                
Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share); 0 and 6,250,100 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively           6  
                 
Common stock, par value $0.001; 9,000,000,000 shares authorized; 6,134,596,655 and 5,262,440,085 shares issued and outstanding, at September 30, 2013 and December 31, 2012, respectively     6,135       5,263  
Accumulated other comprehensive (loss) income, net of tax     (172 )     120  
Additional paid-in capital     8,828,077       10,345,566  
Accumulated deficit     (5,999,372 )     (6,311,390 )
Total stockholders’ equity     2,834,668       4,039,565  
Total liabilities and stockholders’ equity   $ 8,906,312     $ 9,054,843  
 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    For the Nine Months Ended September 30,  
(in thousands)   2013     2012  
Cash flows from operating activities:                
Net income   $ 312,018     $ 3,316,457  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     192,966       199,481  
Non-cash interest expense, net of amortization of premium     16,506       30,786  
Provision for doubtful accounts     28,571       24,953  
Amortization of deferred income related to equity method investment     (2,082 )     (2,082 )
Loss on extinguishment of debt and credit facilities, net     124,348       132,726  
(Gain) loss on unconsolidated entity investments, net     (2,831 )     4,014  
Dividend received from unconsolidated entity investment     17,707        
Loss on disposal of assets     128       567  
Share-based payment expense     49,774       46,361  
Deferred income taxes     219,184       (3,017,021 )
Other non-cash purchase price adjustments     (206,786 )     (220,336 )
Changes in operating assets and liabilities:                
Accounts receivable     (25,207 )     (26,211 )
Receivables from distributors     23,606       (2,956 )
Inventory     11,095       888  
Related party assets     2,077       6,905  
Prepaid expenses and other current assets     (6,665 )     (26,367 )
Other long-term assets     (363 )     24,454  
Accounts payable and accrued expenses     (58,680 )     (27,384 )
Accrued interest     19,964       (5,940 )
Deferred revenue     34,530       52,777  
Related party liabilities     (635 )     (1,314 )
Other long-term liabilities     (4,968 )     2,774  
Net cash provided by operating activities     744,257       513,532  
                 
Cash flows from investing activities:                
Additions to property and equipment     (118,235 )     (73,546 )
Purchases of restricted and other investments     (1,719 )      
Net cash used in investing activities     (119,954 )     (73,546 )
                 
Cash flows from financing activities:                
Proceeds from exercise of stock options     21,819       89,250  
Taxes paid in lieu of shares issued for stock-based compensation     (27,913 )      
Proceeds from long-term borrowings and revolving credit facility, net of costs     2,532,137       393,687  
Payment of premiums on redemption of debt     (116,410 )     (100,615 )
Repayment of long-term borrowings and revolving credit facility     (1,085,737 )     (914,028 )
Repayment of related party long-term borrowings     (150,000 )     (126,000 )
Common stock repurchased and retired     (1,602,360 )      
Net cash used in financing activities     (428,464 )     (657,706 )
Net increase (decrease) in cash and cash equivalents     195,839       (217,720 )
Cash and cash equivalents at beginning of period     520,945       773,990  
Cash and cash equivalents at end of period   $ 716,784     $ 556,270  

 

Subscriber Data and Operating Metrics

 

The following table contains subscriber data and key operating metrics for the three and nine months ended September 30 , 2013 and 2012, respectively:  

 

    Unaudited  
    For the Three Months Ended September 30,     For the Nine Months Ended September 30,  
    2013     2012     2013     2012  
                         
Beginning subscribers     25,068,988       22,919,462       23,900,336       21,892,824  
Gross subscriber additions     2,561,175       2,421,586       7,726,577       7,064,282  
Deactivated subscribers     (2,048,097 )     (1,975,665 )     (6,044,847 )     (5,591,723 )
Net additions     513,078       445,921       1,681,730       1,472,559  
Ending subscribers     25,582,066       23,365,383       25,582,066       23,365,383  
                                 
Self-pay     20,670,333       19,041,519       20,670,333       19,041,519  
Paid promotional     4,911,733       4,323,864       4,911,733       4,323,864  
Ending subscribers     25,582,066       23,365,383       25,582,066       23,365,383  
                                 
Self-pay     372,597       370,553       1,100,059       1,132,777  
Paid promotional     140,481       75,368       581,671       339,782  
Net additions     513,078       445,921       1,681,730       1,472,559  
                                 
Daily weighted average number of subscribers     25,267,241       23,008,693       24,646,938       22,519,544  
                                 
Average self-pay monthly churn     1.8 %     2.0 %     1.8 %     1.9 %
                                 
New vehicle consumer conversion rate     44 %     44 %     44 %     45 %
                                 
ARPU   $ 12.29     $ 12.14     $ 12.21     $ 11.96  
SAC, per gross subscriber addition   $ 52     $ 51     $ 52     $ 55  

 

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 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 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 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,  
    2013     2012     2013     2012  
                         
Net income (GAAP):   $ 62,894     $ 74,514     $ 312,018     $ 3,316,457  
Add back items excluded from Adjusted EBITDA:                                
Purchase price accounting adjustments:                                
Revenues     1,813       1,854       5,438       5,599  
Operating expenses     (68,895 )     (73,049 )     (206,786 )     (220,497 )
Share-based payment expense (GAAP)     19,762       17,492       49,774       46,361  
Depreciation and amortization (GAAP)     58,533       66,571       192,966       199,481  
Interest expense, net of amounts capitalized (GAAP)     54,629       70,035       150,531       219,777  
Loss on extinguishment of debt and credit facilities, net (GAAP)     107,971       107,105       124,348       132,726  
Interest and investment (income) loss (GAAP)     (1,716 )     321       (3,648 )     3,192  
Other (income) loss (GAAP)     (407 )     (113 )     (909 )     637  
Income tax expense (benefit) (GAAP)     61,158       (20,113 )     216,857       (3,013,860 )
Adjusted EBITDA   $ 295,742     $ 244,617     $ 840,589     $ 689,873  

 

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 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 revenues and operating expenses to our adjusted revenues and operating expenses for the three and nine months ended September 30, 2013 and 2012:

 
    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 Three Months Ended September 30, 2012  
(in thousands)   As Reported     Purchase Price
Accounting Adjustments
    Allocation of
Share-based
Payment Expense
    Adjusted  
                         
Revenue:                                
Subscriber revenue   $ 757,672     $ 41     $     $ 757,713  
Advertising revenue     20,426                   20,426  
Equipment revenue     17,813                   17,813  
Other revenue     71,449       1,813             73,262  
Total revenue   $ 867,360     $ 1,854     $     $ 869,214  
Operating expenses                                
Cost of services:                                
Revenue share and royalties   $ 141,834     $ 37,199     $     $ 179,033  
Programming and content     69,938       10,431       (1,736 )     78,633  
Customer service and billing     77,768             (512 )     77,256  
Satellite and transmission     18,319             (938 )     17,381  
Cost of equipment     6,345                   6,345  
Subscriber acquisition costs     112,418       21,712             134,130  
Sales and marketing     60,676       3,707       (2,931 )     61,452  
Engineering, design and development     13,507             (1,753 )     11,754  
General and administrative     68,235             (9,622 )     58,613  
Depreciation and amortization (a)     66,571                   66,571  
Share-based payment expense                 17,492       17,492  
Total operating expenses   $ 635,611     $ 73,049     $     $ 708,660  

 

(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, 2012 was $13,000.

 
    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.

 

    Unaudited For the Nine Months Ended September 30, 2012  
(in thousands)   As Reported     Purchase Price
Accounting
Adjustments
    Allocation of
Share-based
Payment Expense
    Adjusted  
                         
Revenue:                                
Subscriber revenue   $ 2,188,199     $ 161     $     $ 2,188,360  
Advertising revenue     59,881                   59,881  
Equipment revenue     51,183                   51,183  
Other revenue     210,362       5,438             215,800  
Total revenue   $ 2,509,625     $ 5,599     $     $ 2,515,224  
Operating expenses                                
Cost of services:                                
Revenue share and royalties   $ 409,371     $ 108,069     $     $ 517,440  
Programming and content     205,203       32,565       (4,342 )     233,426  
Customer service and billing     212,635             (1,327 )     211,308  
Satellite and transmission     53,980             (2,411 )     51,569  
Cost of equipment     19,301                   19,301  
Subscriber acquisition costs     348,014       69,328             417,342  
Sales and marketing     176,457       10,535       (7,343 )     179,649  
Engineering, design and development     32,468             (4,467 )     28,001  
General and administrative     193,786             (26,471 )     167,315  
Depreciation and amortization (a)     199,481                   199,481  
Share-based payment expense                 46,361       46,361  
Total operating expenses   $ 1,850,696     $ 220,497     $     $ 2,071,193  

 

(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, 2012 was $41,000.

 

ARPU - is derived from total earned subscriber revenue, 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 of Sirius and XM. 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,  
    2013     2012     2013     2012  
                         
Subscriber revenue (GAAP)   $ 834,053     $ 757,672     $ 2,432,113     $ 2,188,199  
Add: advertising revenue (GAAP)     21,918       20,426       63,886       59,881  
Add: other subscription-related revenue (GAAP)     75,999       60,095       211,784       176,569  
Add: purchase price accounting adjustments           41             161  
    $ 931,970     $ 838,234     $ 2,707,783     $ 2,424,810  
                                 
Daily weighted average number of subscribers     25,267,241       23,008,693       24,646,938       22,519,544  
                                 
ARPU   $ 12.29     $ 12.14     $ 12.21     $ 11.96  

 

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 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,  
    2013     2012     2013     2012  
                         
Customer service and billing expenses (GAAP)   $ 76,322     $ 77,768     $ 237,006     $ 212,635  
Less: share-based payment expense     (647 )     (512 )     (1,628 )     (1,327 )
    $ 75,675     $ 77,256     $ 235,378     $ 211,308  
                                 
Daily weighted average number of subscribers     25,267,241       23,008,693       24,646,938       22,519,544  
                                 
Customer service and billing expenses, per average subscriber   $ 1.00     $ 1.12     $ 1.06     $ 1.04  

 

Free cash flow - is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity. The calculations for free cash flow and free cash flow per fully-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,  
    2013     2012     2013     2012  
Cash Flow information                                
Net cash provided by operating activities   $ 302,236     $ 219,809     $ 744,257     $ 513,532  
Net cash used in investing activities   $ (56,974 )   $ (24,602 )   $ (119,954 )   $ (73,546 )
Net cash used in financing activities   $ (180,247 )   $ (507,267 )   $ (428,464 )   $ (657,706 )
Free Cash Flow                                
Net cash provided by operating activities   $ 302,236     $ 219,809     $ 744,257     $ 513,532  
Additions to property and equipment     (55,255 )     (24,602 )     (118,235 )     (73,546 )
Purchases of restricted and other investments     (1,719 )           (1,719 )      
Free cash flow   $ 245,262     $ 195,207     $ 624,303     $ 439,986  
                                 
Diluted weighted average common shares outstanding     6,287,353       6,577,654       6,446,082       6,848,230  
                                 
Free cash flow per fully-diluted share   $ 0.04     $ 0.03     $ 0.10     $ 0.06  

 

New vehicle consumer conversion rate - is defined as the percentage of owners and lessees of new vehicles that receive our 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. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. 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 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 purchase price accounting adjustments, divided by the number of gross subscriber additions 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 gross subscriber addition, 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,  
    2013     2012     2013     2012  
                         
Subscriber acquisition costs (GAAP)   $ 125,457     $ 112,418     $ 371,560     $ 348,014  
Less: margin from direct sales of radios and accessories (GAAP)     (12,649 )     (11,468 )     (36,779 )     (31,882 )
Add: purchase price accounting adjustments     20,342       21,712       64,365       69,328  
    $ 133,150     $ 122,662     $ 399,146     $ 385,460  
                                 
Gross subscriber additions     2,561,175       2,421,586       7,726,577       7,064,282  
                                 
SAC, per gross subscriber addition   $ 52     $ 51     $ 52     $ 55  

 

###

 

About Sirius XM Radio

 

Sirius XM Radio Inc. is the world’s largest radio broadcaster measured by revenue and has 25.6 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 forms of radio and audio services; 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; rapid technological and industry change; failure of third parties to perform; changes in consumer protection laws and their enforcement; 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, 2012, 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