SiriusXM Reports Third Quarter 2012 Results - Subscribers Grow by 446,000 to a Record 23.4 Million - Record Revenue of $867 Million, Up 14% - Net Income of $75 Million, After Debt Extinguishment Charge of $107 Million - Adjusted EBITDA Grows 24% to a Record $245 Million - Free Cash Flow Grows 159% to $195 Million PR Newswire NEW YORK, Nov. 1, 2012 NEW YORK, Nov. 1, 2012 /PRNewswire/ --Sirius XM Radio (NASDAQ: SIRI) today announced third quarter 2012 financial and operating results, including revenue of $867 million, up 14% from third quarter 2011 revenue of $763 million. Net income for the third quarter 2012 and 2011 was $75 million and $104 million, respectively, including a loss on extinguishment of debt of $107 million in the third quarter of 2012. Adjusted EBITDA for the third quarter of 2012 was $245 million, up 24% from $197 million in the third quarter of 2011. (Logo: http://photos.prnewswire.com/prnh/20101014/NY82093LOGO ) "SiriusXM delivered a very strong third quarter for our shareholders, with 446,000 net subscriber additions, double-digit growth, and record levels of revenue, adjusted EBITDA, and free cash flow. The Company has produced more free cash flow in the first nine months of this year than in any full year in its history, and we've used this cash to reduce our debt to its lowest level since the merger of Sirius and XM," noted Mel Karmazin, Chief Executive Officer, SiriusXM. "We're excited about the increase in subscriber guidance to 1.8 million net additions that we reported earlier this month, as we believe growth in the fourth quarter will continue. We continue to make investments across our business, particularly in R&D, customer care, infrastructure, and programming. We are also investing in new businesses, such as the telematics service we announced in the third quarter with Nissan, and we believe these investments will reward our shareholders in the years to come," said Karmazin. Additional highlights from the third quarter include: oRecord subscriber growth. Self-pay net subscriber additions improved by 2% year-over-year to 371,000, pushing the self-pay subscriber base to an all-time high of 19.0 million subscribers. The total paid subscriber base rose to a record high 23.4 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by approximately 115,000 from the second quarter of 2012 to 6.2 million. oChurn and conversion stable. Self-pay monthly churn was 2.0% in the third quarter of 2012, compared to 1.9% reported in the third quarter of 2011. New vehicle consumer conversion rate was 44% in the third quarter of 2012, unchanged from the third quarter of 2011. oFree cash flow grows to record level. Free cash flow was $195 million in the third quarter of 2012, an improvement of 159% from the $75 million recorded in the third quarter of 2011. "Following the repurchase of approximately $868 million of our debt in the third quarter of 2012, SiriusXM ended the quarter with $556 million of cash. The company's leverage has improved dramatically in the past year, ending the third quarter at just 2.8x our adjusted EBITDA, down from 4.3x at the end of the third quarter of 2011," remarked David Frear, SiriusXM's Executive Vice President and Chief Financial Officer. "By eliminating our two most expensive debt instruments in the third quarter, we will reduce our interest costs significantly, and with no debt maturing in the next two years we now have more flexibility to pursue strategic initiatives," added Frear. 2012 GUIDANCE "Our increased subscriber guidance of approximately 1.8 million net additions shows we remain confident about growth in the fourth quarter," said Karmazin. "We were pleased to raise our subscriber guidance for the third time this year." The Company confirmed its 2012 subscriber, revenue, adjusted EBITDA and free cash flow guidance: oNet subscriber growth approaching 1.8 million, oRevenue approaching $3.4 billion, oAdjusted EBITDA of approximately $900 million, and oFree cash flow of approximately $700 million. THIRD QUARTER 2012 RESULTS SIRIUS XM RADIO INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months Ended For the Nine Months Ended September 30, September 30, (in thousands, except 2012 2011 2012 2011 per share data) Revenue: Subscriber revenue $ 757,672 $ 660,837 $ $ 2,188,199 1,922,917 Advertising revenue, net 20,426 18,810 59,881 53,595 of agency fees Equipment revenue 17,813 15,504 51,183 48,392 Other revenue 71,449 67,399 210,362 205,882 Total revenue 867,360 762,550 2,509,625 2,230,786 Operating expenses: Cost of services: Revenue share and 141,834 117,043 409,371 340,713 royalties Programming and content 69,938 70,509 205,203 210,867 Customer service and 77,768 64,239 212,635 192,667 billing Satellite and 18,319 19,681 53,980 57,238 transmission Cost of equipment 6,345 5,888 19,301 19,894 Subscriber acquisition 112,418 107,279 348,014 317,711 costs Sales and marketing 60,676 55,210 176,457 154,471 Engineering, design and 13,507 14,175 32,468 39,249 development General and 68,235 58,635 193,786 175,469 administrative Depreciation and 66,571 65,403 199,481 200,865 amortization Total operating expenses 635,611 578,062 1,850,696 1,709,144 Income from operations 231,749 184,488 658,929 521,642 Other income (expense): Interest expense, net of (70,035) (75,316) (219,777) (229,730) amounts capitalized Loss on extinguishment of debt and credit (107,105) - (132,726) (7,206) facilities, net Interest and investment (321) 292 (3,192) 78,590 (loss) income Other income (loss) 113 435 (637) 2,235 Total other expense (177,348) (74,589) (356,332) (156,111) Income before income 54,401 109,899 302,597 365,531 taxes Income tax benefit 20,113 (5,714) 3,013,860 (9,907) (expense) Net income $ 74,514 $ 104,185 $ $ 3,316,457 355,624 Realized loss on XM Canada investment - - - 6,072 foreign currency adjustment, net of tax Foreign currency translation adjustment, - 110 (38) 187 net of tax Comprehensive income $ 74,514 $ 104,295 $ $ 3,316,419 361,883 Net income per common share: Basic $ $ $ $ 0.01 0.02 0.52 0.06 Diluted $ $ $ $ 0.01 0.02 0.49 0.05 Weighted average common shares outstanding: Basic 4,034,122 3,747,381 3,870,031 3,742,309 Diluted 6,577,654 6,507,370 6,848,230 6,500,819 SIRIUS XM RADIO INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2012 December 31, 2011 (in thousands, except share and per (unaudited) share data) ASSETS Current assets: Cash and cash equivalents $ $ 556,270 773,990 Accounts receivable, net 102,963 101,705 Receivables from distributors 87,773 84,817 Inventory, net 35,823 36,711 Prepaid expenses 150,397 125,967 Related party current assets 8,221 14,702 Deferred tax asset 913,010 132,727 Other current assets 8,271 6,335 Total current assets 1,862,728 1,276,954 Property and equipment, net 1,601,363 1,673,919 Long-term restricted investments 3,973 3,973 Deferred financing fees, net 32,546 42,046 Intangible assets, net 2,532,455 2,573,638 Goodwill 1,815,673 1,834,856 Related party long-term assets 50,104 54,953 Long-term deferred tax asset 1,244,996 - Other long-term assets 11,204 35,657 Total assets $ $ 9,155,042 7,495,996 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ $ 514,479 543,193 Accrued interest 64,463 70,405 Current portion of deferred revenue 1,426,815 1,333,965 Current portion of deferred credit on 275,567 284,108 executory contracts Current maturities of long-term debt 4,326 1,623 Related party current liabilities 12,988 14,302 Total current liabilities 2,298,638 2,247,596 Deferred revenue 158,223 198,135 Deferred credit on executory 6,243 218,199 contracts Long-term debt 2,221,685 2,683,563 Long-term related party debt 208,742 328,788 Deferred tax liability - 1,011,084 Related party long-term liabilities 19,660 21,741 Other long-term liabilities 85,676 82,745 Total liabilities 4,998,867 6,791,851 Stockholders' equity: Preferred stock, par value $0.001; 50,000,000 authorized at September 30, 2012 and December 31, 2011: Series A convertible preferred stock; no shares issued and outstanding at - - September 30, 2012 and December 31, 2011 Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at September 30, 2012 and December 31, 6 13 2011); 6,250,100 and 12,500,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively Common stock, par value $0.001; 9,000,000,000 shares authorized at September 30, 2012 and December 31, 2011; 5,192,364,730 and 3,753,201,929 5,192 3,753 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively Accumulated other comprehensive 33 71 income, net of tax Additional paid-in capital 10,618,579 10,484,400 Accumulated deficit (6,467,635) (9,784,092) Total stockholders' equity 4,156,175 704,145 Total liabilities and stockholders' $ $ equity 9,155,042 7,495,996 SIRIUS XM RADIO INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, (in thousands) 2012 2011 Cash flows from operating activities: Net income $ $ 3,316,457 355,624 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 199,481 200,865 Non-cash interest expense, net of 30,786 29,211 amortization of premium Provision for doubtful accounts 24,953 26,209 Amortization of deferred income (2,082) (2,082) related to equity method investment Loss on extinguishment of debt and 132,726 7,206 credit facilities, net Gain on merger of unconsolidated - (84,855) entities Loss on unconsolidated entity 4,014 10,259 investments, net Loss on disposal of assets 567 269 Share-based payment expense 46,361 37,574 Deferred income taxes (3,017,021) 7,214 Other non-cash purchase price (220,336) (203,630) adjustments Distribution from investment in - 4,849 unconsolidated entity Changes in operating assets and liabilities: Accounts receivable (26,211) (1,456) Receivables from distributors (2,956) (12,358) Inventory 888 (14,278) Related party assets 6,905 30,300 Prepaid expenses and other current (26,367) (11,028) assets Other long-term assets 24,454 23,969 Accounts payable and accrued expenses (27,384) (100,502) Accrued interest (5,940) 6,472 Deferred revenue 52,777 19,653 Related party liabilities (1,314) 696 Other long-term liabilities 2,774 (1,547) Net cash provided by operating 513,532 328,634 activities Cash flows from investing activities: Additions to property and equipment (73,546) (115,065) Release of restricted investments - 250 Return of capital from investment in - 10,117 unconsolidated entity Net cash used in investing activities (73,546) (104,698) Cash flows from financing activities: Proceeds from exercise of stock 89,250 9,045 options Long-term borrowings, net of costs 393,687 - Payment of premiums on redemption of (100,615) (5,020) debt Repayment of long-term borrowings (914,028) (210,060) Repayment of related party long-term (126,000) - borrowings Net cash used in financing activities (657,706) (206,035) Net (decrease) increase in cash and (217,720) 17,901 cash equivalents Cash and cash equivalents at beginning 773,990 586,691 of period Cash and cash equivalents at end of $ $ period 556,270 604,592 Subscriber Data and Operating Metrics The following table contains actual subscriber data and key operating metrics for the three and nine months ended September 30, 2012 and 2011, respectively: Unaudited For the Three Months Ended For the Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Beginning 22,919,462 21,016,175 21,892,824 20,190,964 subscribers Gross subscriber 2,421,586 2,138,131 7,064,282 6,369,846 additions Deactivated (1,975,665) (1,804,448) (5,591,723) (5,210,952) subscribers Net additions 445,921 333,683 1,472,559 1,158,894 Ending subscribers 23,365,383 21,349,858 23,365,383 21,349,858 Self-pay 19,041,519 17,534,310 19,041,519 17,534,310 Paid promotional 4,323,864 3,815,548 4,323,864 3,815,548 Ending subscribers 23,365,383 21,349,858 23,365,383 21,349,858 Self-pay 370,553 364,004 1,132,777 847,511 Paid promotional 75,368 (30,321) 339,782 311,383 Net additions 445,921 333,683 1,472,559 1,158,894 Daily weighted average number of 23,008,693 21,107,540 22,519,544 20,688,641 subscribers Average self-pay 2.0% 1.9% 1.9% 1.9% monthly churn New vehicle consumer conversion 44% 44% 45% 45% rate ARPU $ $ $ $ 11.57 12.14 11.66 11.96 SAC, per gross $ $ $ $ subscriber addition 51 55 55 55 Subscribers. The improvement was due to the 13% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle shipments and returning subscriber activations, including previously owned car activations. This increase in gross additions was partially offset by the 9% increase in deactivations. The increase in deactivations was primarily due to an increase in paid promotional trial deactivations stemming from the increase in volume of paid trials, along with growth in our subscriber base. Net additions increased 34% driven by an increase of 106,000 paid promotional subscribers. Average Self-pay Monthly Churn for the three months ended September30, 2012 and 2011 was 2.0% and 1.9%, respectively. New Vehicle Consumer Conversion Rate for the three months ended September30, 2012 and 2011 was 44%. ARPU increased primarily due to the increase in certain subscription rates beginning in January 2012, an increase in sales of premium services, including Premier packages, data services and streaming, and an increase in other revenue due to additional subscribers subject to the U.S. Music Royalty Fee. The rise in ARPU was partially offset by an increase in subscriber retention programs and in the number of subscribers on promotional plans and a decrease in the revenue from the U.S. Music Royalty Fee due to a reduction in the rate in December 2010. SAC, Per Gross Subscriber Addition, improved to $51 for the three months ended September30, 2012 from $55 for the same period in 2011. The decrease was driven by improved OEM subsidy rates per vehicle and a 13% increase in gross subscribers compared to the three months ended September30, 2011, partially offset by higher subsidies related to increased OEM installations occurring in advance of acquiring a subscriber. Glossary Adjusted EBITDA - EBITDA is defined as net income before interest and investment loss; interest expense, net of amounts capitalized; income tax expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a non-GAAP financial performance measure that excludes (if applicable): (i) certain adjustments as a result of the purchase price accounting for the merger of Sirius and XM, (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 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 For the Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Net income (GAAP): $ $ $ 3,316,457 $ 74,514 104,185 355,624 Add back items excluded from Adjusted EBITDA: Purchase price accounting adjustments: Revenues 1,854 2,292 5,599 8,951 Operating expenses (73,049) (68,878) (220,497) (205,472) Share-based payment expense, net of purchase 17,492 13,983 46,361 37,755 price accounting adjustments Depreciation and 66,571 65,403 199,481 200,865 amortization (GAAP) Interest expense, net of amounts capitalized 70,035 75,316 219,777 229,730 (GAAP) Loss on extinguishment of debt and credit 107,105 - 132,726 7,206 facilities, net (GAAP) Interest and investment 321 (292) 3,192 (78,590) loss (income) (GAAP) Other loss (income) (113) (435) 637 (2,235) (GAAP) Income tax (benefit) (20,113) 5,714 (3,013,860) 9,907 expense (GAAP) Adjusted EBITDA $ $ $ $ 244,617 197,288 689,873 563,741 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 September30, 2012 and 2011: Unaudited For the Three Months Ended September 30, 2012 Purchase Price Allocation of (in thousands) As Reported Accounting Share-based Adjusted Adjustments Payment Expense Revenue: Subscriber revenue $ $ $ $ 757,672 41 - 757,713 Advertising revenue, net of 20,426 - - 20,426 agency fees 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 141,834 37,199 - 179,033 royalties Programming and 69,938 10,431 (1,736) 78,633 content Customer service 77,768 - (512) 77,256 and billing Satellite and 18,319 - (938) 17,381 transmission Cost of equipment 6,345 - - 6,345 Subscriber 112,418 21,712 - 134,130 acquisition costs Sales and marketing 60,676 3,707 (2,931) 61,452 Engineering, design 13,507 - (1,753) 11,754 and development General and 68,235 - (9,622) 58,613 administrative Depreciation and 66,571 - - 66,571 amortization (a) Share-based payment - - 17,492 17,492 expense 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 Three Months Ended September 30, 2011 Purchase Price Allocation of (in thousands) As Reported Accounting Share-based Adjusted Adjustments Payment Expense Revenue: Subscriber revenue $ $ $ $ 660,837 479 - 661,316 Advertising revenue, 18,810 - - 18,810 net of agency fees Equipment revenue 15,504 - - 15,504 Other revenue 67,399 1,813 - 69,212 Total revenue $ $ $ $ 762,550 2,292 - 764,842 Operating expenses Cost of services: Revenue share and 117,043 32,293 - 149,336 royalties Programming and 70,509 12,034 (1,275) 81,268 content Customer service and 64,239 - (402) 63,837 billing Satellite and 19,681 - (735) 18,946 transmission Cost of equipment 5,888 - - 5,888 Subscriber 107,279 20,620 - 127,899 acquisition costs Sales and marketing 55,210 3,931 (2,165) 56,976 Engineering, design 14,175 - (1,291) 12,884 and development General and 58,635 - (8,115) 50,520 administrative Depreciation and 65,403 - - 65,403 amortization (a) Share-based payment - - 13,983 13,983 expense (b) Total operating $ $ $ $ expenses 578,062 68,878 - 646,940 (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, 2011 was $15,000. (b) Amounts related to share-based payment expense included in operating expenses were as follows: Programming and $ $ $ $ content 1,275 - - 1,275 Customer service and 402 - - 402 billing Satellite and 735 - - 735 transmission Sales and marketing 2,165 - - 2,165 Engineering, design 1,291 - - 1,291 and development General and 8,115 - - 8,115 administrative Total share-based $ $ $ $ payment expense 13,983 - - 13,983 Unaudited For the Nine Months Ended September 30, 2012 Purchase Price Allocation of (in thousands) As Reported Accounting Share-based Adjusted Adjustments Payment Expense Revenue: Subscriber revenue $ $ $ $ 2,188,199 161 - 2,188,360 Advertising revenue, net of 59,881 - - 59,881 agency fees 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 409,371 108,069 - 517,440 royalties Programming and 205,203 32,565 (4,342) 233,426 content Customer service 212,635 - (1,327) 211,308 and billing Satellite and 53,980 - (2,411) 51,569 transmission Cost of equipment 19,301 - - 19,301 Subscriber 348,014 69,328 - 417,342 acquisition costs Sales and 176,457 10,535 (7,343) 179,649 marketing Engineering, design and 32,468 - (4,467) 28,001 development General and 193,786 - (26,471) 167,315 administrative Depreciation and 199,481 - - 199,481 amortization (a) Share-based - - 46,361 46,361 payment expense Total operating $ $ 220,497 $ $ expenses 1,850,696 - 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. Unaudited For the Nine Months Ended September 30, 2011 Purchase Allocation of Price (in thousands) As Reported Share-based Adjusted Accounting Payment Adjustments Expense Revenue: Subscriber revenue $ $ $ $ 1,922,917 3,513 - 1,926,430 Advertising revenue, net of 53,595 - - 53,595 agency fees Equipment revenue 48,392 - - 48,392 Other revenue 205,882 5,438 - 211,320 Total revenue $ $ $ $ 2,230,786 8,951 - 2,239,737 Operating expenses Cost of services: Revenue share and 340,713 93,359 - 434,072 royalties Programming and 210,867 36,645 (4,745) 242,767 content Customer service 192,667 18 (1,077) 191,608 and billing Satellite and 57,238 313 (1,867) 55,684 transmission Cost of equipment 19,894 - - 19,894 Subscriber 317,711 64,086 - 381,797 acquisition costs Sales and marketing 154,471 10,961 (5,654) 159,778 Engineering, design 39,249 31 (3,407) 35,873 and development General and 175,469 59 (21,005) 154,523 administrative Depreciation and 200,865 - - 200,865 amortization (a) Share-based payment - - 37,755 37,755 expense (b) Total operating $ $ $ $ expenses 1,709,144 205,472 - 1,914,616 (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, 2011 was $45,000. (b) Amounts related to share-based payment expense included in operating expenses were as follows: Programming and $ $ $ $ content 4,718 27 - 4,745 Customer service 1,059 18 - 1,077 and billing Satellite and 1,848 19 - 1,867 transmission Sales and marketing 5,627 27 - 5,654 Engineering, design 3,376 31 - 3,407 and development General and 20,946 59 - 21,005 administrative Total share-based $ $ $ $ payment expense 37,574 181 - 37,755 ARPU - is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting associated with the merger of Sirius and XM. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts): Unaudited For the Three Months Ended For the Nine Months September 30, Ended September 30, 2012 2011 2012 2011 Subscriber revenue (GAAP) $ $ $ $ 757,672 660,837 2,188,199 1,922,917 Add: net advertising 20,426 18,810 59,881 53,595 revenue (GAAP) Add: other subscription-related 60,095 58,168 176,569 174,341 revenue (GAAP) Add: purchase price 41 479 161 3,513 accounting adjustments $ $ $ $ 838,234 738,294 2,424,810 2,154,366 Daily weighted average 23,008,693 21,107,540 22,519,544 20,688,641 number of subscribers ARPU $ $ $ $ 12.14 11.66 11.96 11.57 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 and purchase price accounting adjustments associated with the merger of Sirius and XM, 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 of Sirius and XM 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): Unaudited For the Three Months Ended For the Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Customer service and billing expenses $ 77,768 $ 64,239 $ 212,635 $ 192,667 (GAAP) Less: share-based payment expense, net of purchase price (512) (402) (1,327) (1,077) accounting adjustments Add: purchase price accounting - - - 18 adjustments 77,256 63,837 211,308 191,608 Daily weighted average number of 23,008,693 21,107,540 22,519,544 20,688,641 subscribers Customer service and $ $ $ $ billing expenses, per 1.12 1.01 1.04 1.03 average subscriber Free cash flow - is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity. Free cash flow is calculated as follows (in thousands): Unaudited For the Three Months Ended For the Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Cash Flow information Net cash provided by $ 219,809 $ $ 513,532 $ 328,634 operating activities 115,144 Net cash used in (24,602) (39,767) (73,546) (104,698) investing activities Net cash used in (507,267) 888 (657,706) (206,035) financing activities Free Cash Flow Net cash provided by $ 219,809 $ $ 513,532 $ 328,634 operating activities 115,144 Additions to property (24,602) (39,767) (73,546) (115,065) and equipment Restricted and other - - - 10,367 investment activity Free cash flow $ 195,207 $ $ 439,986 $ 223,936 75,377 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 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 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 For the Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Subscriber acquisition $ 112,418 $ $ 348,014 $ 317,711 costs (GAAP) 107,279 Less: margin from direct sales of radios (11,468) (9,616) (31,882) (28,498) and accessories (GAAP) Add: purchase price 21,712 20,620 69,328 64,086 accounting adjustments $ 122,662 $ $ 385,460 $ 353,299 118,283 Gross subscriber 2,421,586 2,138,131 7,064,282 6,369,846 additions SAC, per gross $ $ $ $ subscriber addition 51 55 55 55 Sirius XM Radio Inc. is the world's largest radio broadcaster measured by revenue and has 23.4 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., from retailers nationwide, and online at siriusxm.com. SiriusXM programming is also available through the SiriusXM Internet Radio App for Android, Apple, and BlackBerry smartphones and other connected devices. SiriusXM also holds a minority interest in SiriusXM Canada which has more than 2 million subscribers. This communication contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "believe," "intend," "plan," "projection," "outlook" or words of similar meaning. Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. Actual results may differ materially from the results anticipated in these forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: our competitive position versus other forms of audio entertainment; our dependence upon automakers; general economic conditions; failure of our satellites, which, in most cases, are not insured; our ability to attract and retain subscribers at a profitable level; royalties we pay for music rights; the unfavorable outcome of pending or future litigation; failure of third parties to perform; and our substantial indebtedness. Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our Annual Report on Form 10-K for the year ended December 31, 2011, which is filed with the Securities and Exchange Commission (the "SEC") and available at the SEC's Internet site (http://www.sec.gov). The information set forth herein speaks only as of the date hereof, and we disclaim any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this communication. Follow SiriusXM on Twitter orlike the SiriusXM page on Facebook. E-SIRI Contact Information for Investors and Financial Media: Investors: Hooper Stevens 212 901 6718 firstname.lastname@example.org Media: Patrick Reilly 212 901 6646 email@example.com SOURCE Sirius XM Radio Website: http://www.siriusxm.com
SiriusXM Reports Third Quarter 2012 Results
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