SiriusXM Reports Record 2010 Results

NEW YORK, Feb. 15, 2011 /PRNewswire/ -- Sirius XM Radio (Nasdaq: SIRI) today announced full year 2010 financial results, including revenue of $2.82 billion, up 14% over 2009 revenue of $2.47 billion, and adjusted EBITDA of $626 million, up 35% from $463 million in 2009.

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"SiriusXM's results in 2010 were exceptional, surpassing our guidance and achieving record revenues, adjusted EBITDA and free cash flow.  Our unparalleled content and the continuing improvements in the economy helped us attain a record-high subscriber base of 20.2 million. Our laser-like focus on profitable growth delivered a 35% increase in adjusted EBITDA to $626 million, and produced free cash flow of more than $200 million," noted Mel Karmazin, Chief Executive Officer, SiriusXM.

"Our renewed contracts with Howard Stern and the NFL, as well as investments in exciting new content, ensure that our subscribers will continue to enjoy the unparalleled entertainment that has made SiriusXM the largest subscription radio company in the world," said Karmazin. "With the outlook for improving U.S. auto sales, declining capital expenditures and the expanded functionality coming with the launch of SiriusXM 2.0, we look forward to another year of growth and strong financial performance."

This discussion of adjusted operating results, including adjusted EBITDA, excludes the effects of stock-based compensation and certain purchase price accounting adjustments. A reconciliation of these non-GAAP items to their nearest GAAP equivalent is contained in the financial supplements included with this release.

Net subscriber additions in 2010 were 1,418,206, compared to a net subscriber loss in 2009 of 231,098.  Ending subscribers as of December 31, 2010 were 20,190,964, up 8% from the 18,772,758 subscribers reported as of December 31, 2009.  Subscriber acquisition cost (SAC) per gross subscriber addition was $59 in 2010, a 6% improvement from the $63 reported in 2009.  Average self-pay monthly customer churn was 1.9% in 2010, as compared with 2.0% in 2009.

Free cash flow in 2010 was $210 million, compared to $185 million in 2009.  GAAP net income (loss) attributable to common stockholders for 2010 and 2009 was $43 million and ($538) million, respectively, or $0.01 and ($0.15) per diluted share, respectively. Excluding debt extinguishment and restructuring charges, our 2010 net income (loss) attributable to common stockholders for 2010 and 2009, would have been $227 million and ($238) million, respectively.

"Our strong incremental margins, combined with revenue growth and tight expense control have produced solid operating leverage, improving adjusted EBITDA by over $750 million from 2008 to 2010," said David Frear, SiriusXM's Executive Vice President and Chief Financial Officer.  "We ended the year with $587 million of cash after the early retirement of approximately $38 million of our 3.25% Convertible Notes due 2011.  Since the beginning of 2011, we have purchased another $131 million of our debt in the market.  With only $104 million of debt maturing before 2013, declining capital expenditures and growing free cash flow, our financial strength and flexibility has never been better."

FOURTH QUARTER 2010 RESULTS

Fourth quarter 2010 revenue of $736 million was up 9% from the $676 million in the fourth quarter of 2009, while fourth quarter 2010 adjusted EBITDA was $144 million, up 25% from the $115 million in the fourth quarter of 2009.

Net subscriber additions in the fourth quarter of 2010 were 328,789, versus net subscriber additions of 257,028 in the fourth quarter of 2009.  Subscriber acquisition cost (SAC) per gross subscriber addition was $58 in the fourth quarter of 2010, a 9% improvement from the $64 reported in the fourth quarter of 2009.  Average self-pay monthly customer churn was 1.9% in the fourth quarter of 2010, as compared with 2.0% in the fourth quarter of 2009.  

Free cash flow in the fourth quarter of 2010 was $167 million, compared to $150 million in the fourth quarter of 2009.  GAAP net (loss) income attributable to common stockholders for the fourth quarter of 2010 and 2009 was ($81) million and $12 million, respectively, or ($0.02) and $0.00 per diluted share, respectively.  Excluding debt extinguishment and restructuring charges, our net income attributable to common stockholders for fourth quarter 2010 and 2009, would have been $64 million and $18 million, respectively.

2011 GUIDANCE

In 2011, we expect full-year revenue of approximately $3 billion.  Our adjusted EBITDA is projected to approximate $715 million.

"With continuing improvements in auto sales, and self-pay churn and conversion rates for 2011 similar to our strong performance in 2010, we expect to grow our net new subscribers by another 1.4 million in 2011, continuing our track record of solid subscriber growth.  We also expect this year's free cash flow to approach $300 million," said Karmazin.

Subscriber Data.

The following table contains actual subscriber data for the years ended December 31, 2010 and 2009, respectively:

____________

See accompanying footnotes.

Subscribers. The improvement was due to the 25% increase in gross subscriber additions, primarily resulting from increases in U.S. light vehicle sales, new vehicle penetration and returning activations.

Average Self-pay Monthly Churn. The decrease was due to an improving economy, the success of retention and win-back programs and reductions in non-pay cancellation rates.

Conversion Rate. The increase was primarily due to marketing to promotional period subscribers and an improving economy.

Metrics.

The following table contains our key operating metrics based on our unaudited adjusted results of operations for the years ended December 31, 2010 and 2009, respectively:

____________

See accompanying footnotes.

ARPU increased in the year ended December 31, 2010 primarily due to the full year impact of the U.S. Music Royalty Fee, which was introduced in the third quarter of 2009, increased revenues from the sale of "Best of" programming, decreases in discounts on multi-subscription and internet packages, and increased net advertising revenue, partially offset by an increase in the number of subscribers on promotional plans.

SAC, Per Gross Subscriber Addition, decreased in the year ended December 31, 2010 primarily due to lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from radio manufacturers compared to the year ended December 31, 2009, partially offset by a 49% increase in OEM production with factory-installed satellite radios.

Customer Service and Billing Expenses, Per Average Subscriber, decreased in the year ended December 31, 2010 primarily due to lower call center expenses as a result of moving calls to lower cost locations, partially offset by higher call volume.

Free Cash Flow increased in the year ended December 31, 2010 principally as a result of improvements in net cash provided by operating activities, partially offset by increases in capital expenditures.  Net cash provided by operating activities increased $79 million to $513 million for the year ended December 31, 2010 compared to the $434 million provided by operating activities for the year ended December 31, 2009. Capital expenditures for property and equipment for the year ended December 31, 2010 increased $63 million to $312 million compared to $249 million for the year ended December 31, 2009. The increase in net cash provided by operating activities was primarily the result of growth in deferred revenue and changes in net assets.  The increase in capital expenditures for the year ended December 31, 2010 was primarily the result of satellite construction and launch expenditures for our XM-5 and FM-6 satellites.

Adjusted Total Revenue. Set forth below are our adjusted total revenue for the years ended December 31, 2010 and 2009, respectively. Our adjusted total revenue includes the recognition of deferred subscriber revenues acquired in the merger between  SIRIUS and XM (the "Merger") that are not recognized in our results under purchase price accounting and the elimination of the benefit in earnings from deferred revenue associated with our investment in XM Canada acquired in the Merger.

For the year ended December 31, 2010, the increase in subscriber revenue was driven by the increase in subscribers and an increase in the sale of "Best of" programming and the decreases in discounts on multi-subscription and internet packages, partially offset by an increase in the number of subscribers on promotional plans. The increase in advertising revenue was driven by more effective sales efforts and improvements in the national market for advertising. The increase in equipment revenue was driven by royalties from a greater number of OEM installations. The increase in other revenue was driven by the U.S. Music Royalty Fee, which was introduced in the third quarter of 2009.

Adjusted EBITDA.  EBITDA is defined as net income (loss) before interest and investment income (loss); interest expense, net of amounts capitalized; income tax expense and depreciation and amortization.  Adjusted EBITDA removes the impact of other income and expense, losses on extinguishment of debt as well as certain other charges, such as, goodwill impairment; restructuring, impairments and related costs; certain purchase price accounting adjustments and share-based payment expense.

For the year ended December 31, 2010, the increase in Adjusted EBITDA was primarily due to an increase in revenue, partially offset by an increase in expenses included in adjusted EBITDA.  The increase in expenses was primarily driven by higher subscriber acquisition costs related to the 25% increase in gross additions and higher revenue share and royalty expenses associated with growth in revenues subject to revenue sharing and royalty arrangements.

The following table contains actual subscriber data for the three months ended December 31, 2010 and 2009, respectively:

____________

See accompanying footnotes.

Subscribers. The improvement was due to the 10% increase in gross subscriber additions, primarily resulting from increases in U.S. light vehicle sales, new vehicle penetration and returning activations.

Average Self-pay Monthly Churn. The decrease was due to an improving economy, the success of retention and win-back programs and reductions in non-pay cancellation rates.

Conversion Rate. The decrease was primarily the result of the mix of vehicles transitioning to self-pay.

Metrics.

The following table contains our key operating metrics based on our unaudited adjusted results of operations for the three months ended December 31, 2010 and 2009, respectively:

____________

See accompanying footnotes.

ARPU increased in the three months ended December 31, 2010 primarily due to increased revenue from the U.S. Music Royalty Fee, increased revenues from the sale of "Best of" programming, decreases in discounts on multi-subscription and internet packages, and increased net advertising revenue, partially offset by an increase in the number of subscribers on promotional plans.

SAC, Per Gross Subscriber Addition, decreased in the three months ended December 31, 2010 primarily due to lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from radio manufacturers compared to the three months ended December 31, 2009, partially offset by a 16% increase in OEM production with factory-installed satellite radios.

Customer Service and Billing Expenses, Per Average Subscriber, increased in the three months ended December 31, 2010 primarily due higher call volume, partially offset by lower call center expenses as a result of moving calls to lower cost locations.

Free Cash Flow increased in the three months ended December 31, 2010 principally as a result of improvements in net cash provided by operating activities, partially offset by increases in capital expenditures.  Net cash provided by operating activities increased $41 million to $222 million for the three months ended December 31, 2010 compared to the $181 million provided by operations for the three months ended December 31, 2009. Capital expenditures for property and equipment for the three months ended December 31, 2010 increased $23 million to $54 million compared to $31 million for the three months ended December 31, 2009. The increase in net cash provided by operating activities was primarily the result of growth in deferred revenue and changes in net assets.  The increase in capital expenditures for the three months ended December 31, 2010 was primarily the result of satellite construction and launch expenditures for our XM-5 and FM-6 satellites.

Adjusted Total Revenue. Set forth below are our adjusted total revenue for the three months ended December 31, 2010 and 2009, respectively.

For the three months ended December 31, 2010, the increase in subscriber revenue was driven by the increase in subscribers as well as an increase in the sale of "Best of" programming and the decreases in discounts on multi-subscription and internet packages, partially offset by an increase in the number of subscribers on promotional plans. The increase in advertising revenue was driven by more effective sales efforts and improvements in the national market for advertising. The increase in equipment revenue was driven by royalties from increased OEM installations. The increase in other revenue was driven by the increase in revenue from the U.S. Music Royalty Fee.

Adjusted EBITDA.  

For the three months ended December 31, 2010, the increase in Adjusted EBITDA was primarily due to an increase in revenue, partially offset by an increase in expenses included in adjusted EBITDA.  The increase in expenses was primarily driven by higher general and administrative costs and higher revenue share and royalty expenses associated with growth in revenues subject to revenue sharing and royalty arrangements.

Footnotes

Average self-pay monthly churn; conversion rate; ARPU; SAC, per gross subscriber addition; customer service and billing expenses, per average subscriber; adjusted revenue; adjusted EBITDA and free cash flow are not measures of financial performance under GAAP. We believe these operational and Non-GAAP financial performance measures provide meaningful supplemental information regarding our operating performance and are used by us for budgetary and planning purposes; when publicly providing our business outlook; as a means to evaluate period-to-period comparisons; and to compare our performance to that of our competitors. We believe that investors also use our current and projected metrics to monitor the performance of our business and to make investment decisions.

These operational and Non-GAAP financial performance measures are used in addition to and in conjunction with results presented in accordance with GAAP. These Non-GAAP financial performance measures 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.

(1) Average self-pay monthly churn represents the monthly average of self-pay deactivations for the quarter divided by the average number of self-pay subscribers for the quarter.  Average self-pay churn for the year is the average of the quarterly average self-pay churn.

(2) We measure 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. We refer to this as the "conversion rate." 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.

(3) 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, which was initially charged to subscribers in the third quarter of 2009. 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):

(4) Subscriber acquisition cost, per gross subscriber addition (or SAC, per gross subscriber addition) is derived from subscriber acquisition costs and margins from the direct 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):

(5) Customer service and billing expenses, per average subscriber, is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments associated with the Merger, 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. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit associated with incremental share-based payment arrangements recognized at the Merger date. Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

(6) Free cash flow is calculated as follows (in thousands):

(7) EBITDA is defined as net income (loss) before interest and investment income (loss); interest expense, net of amounts capitalized; taxes 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 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 market value of our common stock.  

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including share-based payment expense and certain purchase price accounting for the Merger. 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 (loss) as disclosed in our consolidated statements of operations. 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 (loss) to the adjusted EBITDA is calculated as follows (in thousands):

(8) The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses:

(9) ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

(10) SAC, per gross subscriber addition, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

(11) Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

(12) Free cash flow is calculated as follows (in thousands):

(13) The reconciliation of net income (loss) to the adjusted EBITDA is calculated as follows (in thousands):

(14) The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses:

About Sirius XM Radio

Sirius XM Radio is America's satellite radio company.  SiriusXM broadcasts more than 135 channels of commercial-free music, and premier sports, news, talk, entertainment, traffic, weather, and data services to more than 20 million subscribers in cars, trucks, boats and aircraft, and through a wide range of mobile devices.

SiriusXM offers an array of content from some of the biggest names in entertainment, as well as from professional sports leagues, major colleges, and national news and talk providers. SiriusXM programming is also available at siriusxm.com, and on Apple iPhone and iPod touch, BlackBerry and Android-powered mobile devices using the SiriusXM Premium Online App.

SiriusXM has arrangements with every major automaker and its radio products are available at shop.siriusxm.com as well as retail locations nationwide.

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," "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 statement:  our dependence upon automakers and other third parties, our substantial indebtedness; the useful life of our satellites; and our competitive position versus other forms of audio and video entertainment.  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, 2009 and our Quarterly Report on Form 10-Q for the period ending September 30, 2010, which are 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.

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SOURCE Sirius XM Radio