- Net Subscriber Additions of Over 100,000
- Pro Forma Total Revenue of $630 Million, Up 3%
- Pro Forma Adjusted Income from Operations of $106 Million - An Improvement of $143 Million Year-Over-Year
- EPS, Excluding Charges, ($0.00) vs. ($0.05) Year-Over-Year
- Company Affirms Full-Year 2009 Guidance and Issues New 2010 Guidance
NEW YORK, Nov. 5 /PRNewswire-FirstCall/ -- SIRIUS XM Radio (Nasdaq: SIRI) today announced third quarter 2009 financial and operating results, including $106 million in pro forma adjusted income from operations, marking the company's fourth consecutive quarter of positive pro forma adjusted income from operations. The company also announced a 19% decrease in pro forma total cash operating expenses compared to the same quarter last year.
(Logo: https://www.newscom.com/cgi-bin/prnh/20080819/NYTU044LOGO )
"We are very pleased with what we accomplished during the third quarter, especially when considering the macroeconomic issues affecting consumers and the auto industry," said Mel Karmazin, SIRIUS XM's CEO. "We managed to grow revenue, grow ARPU, reduce operating costs, increase adjusted income from operations significantly, and refinance higher cost debt. We look forward to continuing this performance. We grew subscribers and improved churn in the quarter, and we are well positioned to take advantage of an economic rebound. We expect to grow subscribers, revenue, and cash flow next year regardless of the magnitude of any recovery."
Third quarter 2009 pro forma total revenue was $630 million, up 3% from third quarter 2008 pro forma total revenue of $613 million. Third quarter 2009 pro forma subscription revenue was $587 million, up 3% from the third quarter 2008 pro forma subscription revenue of $572 million. Pro forma amounts exclude the effects of stock-based compensation, purchase accounting adjustments, and assume the merger of SIRIUS and XM occurred on January 1, 2008. Monthly average revenue per subscriber (ARPU) was $10.87 in the third quarter 2009, up 3% from $10.51 in the third quarter 2008.
SIRIUS XM ended the third quarter 2009 with 18,515,730 total subscribers, a decrease of 2% from the third quarter 2008 pro forma total subscribers of 18,920,911 and an increase of 102,295 from the second quarter 2009 subscribers of 18,413,435. Self-pay subscribers were 15,456,748, up 266,160 from the 15,190,588 self-pay subscribers in the third quarter 2008 and up 35,405 from the second quarter 2009. The self-pay monthly customer churn rate was 2.0% in the third quarter 2009, in-line with the second quarter 2009, and up from a pro forma 1.7% churn rate in the third quarter 2008. Ending promotional subscribers were 3,058,982 in the third quarter 2009.
In the third quarter 2009, SIRIUS XM achieved positive pro forma adjusted income from operations of $106 million as compared to a pro forma adjusted loss from operations of ($37) million in the third quarter 2008. The third quarter 2009 US GAAP net loss was ($149) million, or ($0.04) per share, and included $138 million, or ($0.04) per share, in net charges for the loss on the extinguishment of debt and credit facilities resulting from refinancing of debt at lower cost. Absent these charges, the US GAAP net loss per share was ($0.00). Third quarter 2009 free cash flow was $27 million compared to ($98) million of pro forma free cash flow in the third quarter 2008.
2009 AND 2010 OUTLOOK
SIRIUS XM affirmed its year 2009 guidance of over $400 million in pro forma full-year adjusted income from operations.
The company also provided guidance for 2010. "We expect the company's cash flow growth momentum to continue into 2010, and we project full-year adjusted income from operations to increase approximately 20% next year," said Mr. Karmazin. Based upon assumed 2010 automobile sales of 11.3 million units, SIRIUS XM expects to achieve positive full-year subscriber growth in 2010. The company also expects 2010 revenue growth of mid- to high-single digits, and growth in free cash flow compared to 2009.
"While the near future's macroeconomic performance is extremely difficult to predict, our business has reached sufficient scale to allow us to continue to grow cash flow," Mr. Karmazin added.
BALANCE SHEET IMPROVEMENTS
As previously reported, the company took advantage of strong credit markets during the third quarter by selling $257 million of new 9.75% Senior Secured Notes due 2015 in order to repay $250 million of 15% term loans that would have matured in 2011 and 2012.
"By refinancing at more favorable rates and extending maturities," noted David Frear, Executive Vice President and Chief Financial Officer, "the company has dramatically improved its near-term liquidity and doesn't face any material debt maturities until 2011. The two financing transactions completed in the second and third quarters have reset the company's capital structure, allowing us to execute our business plan without balance sheet constraints."
The company also reported that, in addition to the previously announced repurchase of $179 million of XM Holdings' 10% notes due in December 2009, it repurchased nearly $59 million of XM Holdings' 10% Senior PIK Secured Notes due 2011. "These debt repurchases demonstrate management's commitment to optimize the company's capital structure on an opportunistic basis," added Mr. Frear.
Based upon the company's current plans, it has sufficient cash, cash equivalents, and marketable securities to cover its estimated funding needs through cash flow breakeven, the point at which revenues are sufficient to fund expected operating expenses, capital expenditures, working capital requirements, interest payments and taxes. The company's projections are based on assumptions, which it believes are reasonable but contain uncertainties.
PRO FORMA RESULTS OF OPERATIONS
The discussion of operating results excludes the effects of stock-based compensation, purchase accounting adjustments, and assumes the merger of SIRIUS and XM occurred on January 1, 2008. All results discussed below are pro forma unless otherwise noted.
THIRD QUARTER 2009 VERSUS THIRD QUARTER 2008
For the third quarter of 2009, SIRIUS XM recognized total revenue of $630 million compared to $613 million for the third quarter 2008. This 3%, or $17 million, increase in revenue was driven by the sale of "Best of" programming, rate increases to the company's multi-subscription and Internet packages, and the U.S. Music Royalty Fee introduced this quarter.
Total ARPU for the three months ended September 30, 2009 was $10.87, compared to $10.51 for the three months ended September 30, 2008. The increase was driven mainly by the sale of "Best of" programming, increased rates on the company's multi-subscription and Internet packages, partially offset by a decline in net advertising revenue per average subscriber.
In the third quarter 2009, the company achieved positive adjusted income from operations of $106 million, compared to an adjusted loss from operations of ($37) million for the third quarter of 2008 (refer to the reconciliation table of net loss to adjusted income (loss) from operations). The improvement was driven by the increase in total revenue of $17 million and a $126 million, or 19%, decrease in expenses included in adjusted income (loss) from operations.
Satellite and transmission costs decreased 26%, or $6 million, in the three months ended September 30, 2009 compared to the same period in 2008 due to reductions in maintenance costs, repeater lease expense, and personnel costs.
Programming and content costs decreased 29%, or $38 million, in the three months ended September 30, 2009 compared to the same period in 2008, due mainly to a one-time payment recognized in 2008 to a programming provider upon completion of the merger with XM, reductions in personnel and on-air talent costs as well as savings on certain content agreements.
Revenue share and royalties increased 2%, or $3 million, compared to the same period in 2008, due mainly to the increase in the company's revenues and the statutory royalty rate for the performance of sound recordings.
Customer service and billing costs decreased 5%, or $3 million, due primarily to reductions in personnel and customer call center expenses.
Cost of equipment decreased 26%, or $4 million, in the three months ended September 30, 2009 compared to the same period in 2008 as a result of a decrease in the company's direct to customer sales and lower inventory write-downs.
Sales and marketing costs decreased 32%, or $25 million, and decreased as a percentage of revenue to 8% from 13% in the three months ended September 30, 2009 compared to the same period in 2008. The decrease in Sales and marketing costs was due to reduced advertising and cooperative marketing spend as well as reductions to personnel costs and third party distribution support expenses.
Subscriber acquisition costs decreased 17%, or $23 million, and decreased as a percentage of revenue to 17% from 22% in the three months ended September 30, 2009 compared to the same period in 2008. SAC per gross addition declined by 7% to $69 from $74 in the year ago period. This improvement was driven by lower OEM subsidies and lower aftermarket inventory charges as compared to the three months ended September 30, 2008. Subscriber acquisition costs also decreased as a result of the 13% decline in gross additions during the three months ended September 30, 2009 compared to the three months ended September 30, 2008.
General and administrative costs decreased 36%, or $28 million, mainly due to the absence of certain legal and regulatory charges incurred in 2008 and lower personnel costs.
Engineering, design and development costs decreased 8%, or $1 million, in the three months ended September 30, 2009 compared to the same period in 2008, due to lower costs associated with the manufacturing of radios, OEM tooling and manufacturing, and personnel.
Restructuring, impairments and related costs decreased 66%, or $5 million, due to fewer restructuring charges associated with the merger with XM.
Other expenses increased 182%, or $141 million, in the three months ended September 30, 2009 compared to the same period in 2008 driven mainly by the loss on extinguishment of debt and credit facilities of $138 million, and an increase in interest expense of $12 million, partially offset by a decrease of $7 million in loss on investments. The loss on the extinguishment of debt and credit facilities was incurred on the full repayment of SIRIUS' Credit Agreement with Liberty Media. Interest expense increased primarily due to the issuance of XM's 13% Senior Notes due 2013 and the 7% Exchangeable Senior Subordinated Notes due 2014 in the third quarter of 2008. The decrease in loss on investments was attributable to payments received from SIRIUS Canada in excess of SIRIUS' carrying value of its investments, partially offset by the company's share of SIRIUS Canada's and XM Canada's net losses for the three months ended September 30, 2009 compared to the same period in 2008.
NINE MONTHS ENDED SEPTEMBER 30, 2009 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2008
For the nine months ended September 30, 2009, SIRIUS XM recognized total revenue of $1,843 million compared with $1,793 million for the nine months ended September 30, 2008. This 3%, or $50 million, increase in revenue was primarily driven by an increase in subscriber revenue resulting primarily from a 2% growth in weighted average subscribers over the period as well as revenues from the sale of "Best of" programming, rate increases to the company's multi-subscription and Internet packages, and the U.S. Music Royalty Fee introduced in the quarter ended September 30, 2009.
Total ARPU for the nine months ended September 30, 2009 was $10.67, compared to $10.53 for the nine months ended September 30, 2008. The increase was driven mainly by the sale of "Best of" programming, increased rates on the company's multi-subscription packages and revenues earned on its Internet packages, partially offset by a decline in net advertising revenue per average subscriber.
The company's adjusted income from operations increased $515 million to $347 million for the nine months ended September 30, 2009 from a loss of ($168) million for the nine months ended September 30, 2008 (refer to the reconciliation table of net loss to adjusted income (loss) from operations). This increase was driven by a 3%, or $50 million, increase in revenue and a 24%, or $465 million, decrease in expenses included in adjusted income (loss) from operations.
Satellite and transmission costs decreased 25%, or $19 million, in the nine months ended September 30, 2009 compared to the same period in 2008 due to reductions in maintenance costs, repeater lease expense, and personnel costs.
Programming and content costs decreased 19%, or $64 million, in the nine months ended September 30, 2009 compared to the same period in 2008, due mainly to a one-time payment recognized in 2008 to a programming provider upon completion of the merger with XM, reductions in personnel and on-air talent costs as well as savings on certain content agreements.
Revenue share and royalties increased 2%, or $7 million, for the nine months ended September 30, 2009 compared to the same period in 2008, mainly due to the increase in the company's revenues and the statutory royalty rate for the performance of sound recordings.
Customer service and billing costs decreased 2%, or $4 million, for the nine months ended September 30, 2009 compared to the same period in 2008 due to scale efficiencies over a larger daily weighted average subscriber base.
Cost of equipment decreased 42%, or $20 million, in the nine months ended September 30, 2009 compared to the same period in 2008 as a result of a decrease in the company's direct to customer sales, aftermarket inventory charges and lower inventory write-downs.
Sales and marketing costs decreased 42%, or $109 million, and decreased as a percentage of revenue to 8% from 15% in the nine months ended September 30, 2009 compared to the same period in 2008. The decrease was due to reduced advertising and cooperative marketing spend as well as reductions to personnel costs and third party distribution support expenses.
Subscriber acquisition costs decreased 38%, or $170 million, and decreased as a percentage of revenue to 15% from 25% in the nine months ended September 30, 2009 compared to the same period in 2008. This decrease was driven by a 17% improvement in SAC, as adjusted, per gross addition due to fewer OEM installations relative to gross subscriber additions, decreased production of certain radios, lower OEM subsidies and lower aftermarket inventory reserves in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. Subscriber acquisition costs also decreased as a result of the 28% decline in gross additions during the nine months ended September 30, 2009.
General and administrative costs decreased 34%, or $73 million, mainly due to the absence of certain legal and regulatory charges incurred in 2008 and lower personnel costs.
Engineering, design and development costs decreased 33%, or $14 million, in the nine months ended September 30, 2009 compared to the same period in 2008, due to lower costs associated with the manufacturing of radios, OEM tooling and manufacturing, and personnel.
Restructuring, impairments and related costs increased $23 million mainly due to a loss of $24 million on capitalized installment payments, offset partially by a decrease in personnel related restructuring costs.
Other expenses increased 187%, or $334 million, in the nine months ended September 30, 2009 compared to the same period in 2008 driven mainly by the loss on extinguishment of debt and credit facilities of $264 million, and an increase in interest expense of $90 million, offset by an increase of $17 million in gain on investments. The loss on the extinguishment of debt and credit facilities was incurred on the full repayment of SIRIUS' Credit Agreement with Liberty Media and XM's Amended and Restated Credit Agreement and its Second-Lien Credit Agreement. Interest expense increased due primarily to the issuance of XM's 13% Senior Notes due 2013 and the 7% Exchangeable Senior Subordinated Notes due 2014 in the third quarter of 2008. The increase in gain on investments was attributable to payments received from SIRIUS Canada in excess of SIRIUS' carrying value of its investment, partially offset by the company's share of SIRIUS Canada's and XM Canada's net losses for the nine months ended September 30, 2009 compared to the same period in 2008.