Net Loss Narrows on Increased Revenue and Lower Subscriber Acquisition Costs Fifth Consecutive Quarter of Record Automotive Additions
WASHINGTON, July 22 /PRNewswire-FirstCall/ -- XM Satellite Radio Holdings
Inc. (Nasdaq: XMSR) today announced earnings for the three-month period ended
June 30, 2008. Revenue for the second quarter 2008 rose to $318 million, a
nearly 15 percent increase over second quarter 2007 revenue of $277 million.
(Logo: http://www.newscom.com/cgi-bin/prnh/20070313/XMLOGO )
XM ended second quarter 2008 with 9.65 million subscribers, a 17 percent
increase, compared to 8.25 million subscribers at the end of second quarter
2007. This growth was driven, in part, by a 39 percent year-over-year increase
in the number of gross additions through the automotive (OEM) channel. Second
quarter 2008 OEM gross additions were 857 thousand, the company's fifth
consecutive quarter of record OEM gross additions. This compared to 618
thousand OEM gross additions in second quarter 2007.
In second quarter 2008, XM reported total gross additions of 1.08 million,
and 322 thousand net subscriber additions, compared to 942 thousand gross
additions and 338 thousand net subscriber additions in second quarter 2007.
Net OEM subscriber additions of 360 thousand in the second quarter more than
offset a loss of 38 thousand net retail subscribers.
Second quarter 2008 adjusted operating loss narrowed to $37 million,
compared to a loss of $47 million in second quarter 2007. XM's second quarter
2008 net loss improved to $120 million, compared to a second quarter 2007 net
loss of $176 million. For a reconciliation of XM's net loss to adjusted
operating loss, see the attached financial schedules.
In second quarter 2008, XM's subscriber acquisition costs (SAC), a
component of cost per gross addition (CPGA), improved year over year to $65,
compared to $75 in second quarter 2007. CPGA in the second quarter was $100
and compares to $121 in the second quarter 2007.
XM continued to maintain stability in the key operating metrics of
conversion rate and churn, both of which improved year over year. Second
quarter 2008 conversion was 53.4 percent, compared to second quarter 2007
conversion of 52.7 percent. Second quarter 2008 churn improved to 1.67
percent, compared to second quarter 2007 churn of 1.84 percent.
XM announced its preliminary results for second quarter 2008 yesterday in
connection with an offering of senior notes associated with XM's pending
merger with SIRIUS.
About XM
XM (Nasdaq: XMSR) is America's number one satellite radio company with
more than 9.6 million subscribers. Broadcasting live daily from studios in
Washington, DC, New York City, Chicago, Nashville, Toronto and Montreal, XM's
2008 lineup includes more than 170 digital channels of choice from coast to
coast: commercial-free music, premier sports, news, talk radio, comedy,
children's and entertainment programming; and the most advanced traffic and
weather information.
XM, the leader in satellite-delivered entertainment and data services for
the automobile market through partnerships with General Motors, Honda,
Hyundai, Nissan, Porsche, Subaru, Suzuki and Toyota is available in 140
different vehicle models for 2008. XM's industry-leading products are
available at consumer electronics retailers nationwide. XM programming is also
available through XM Radio Online, as downloads of original XM shows via
podcasts from XM's Web site or the Apple's iTunes Store, and as streams of
commercial-free XM music channels to AT&T and Alltel wireless customers
through XM Radio Mobile. For more information about XM hardware, programming
and partnerships, please visit http://www.xmradio.com/.
Factors that could cause actual results to differ materially from those in
the forward-looking statements in this press release include demand for XM
Satellite Radio's service, our significant expenditures and losses, our
dependence on technology and third party vendors, our potential need for
additional financing, the health of our satellites, the impact of our proposed
merger with SIRIUS, our substantial indebtedness as well as other risks
described in XM Satellite Radio Holdings Inc.'s Form 8-K filed with the
Securities and Exchange Commission on 7-21-08. Copies of the filing are
available upon request from XM Radio's Investor Relations Department.
XM SATELLITE RADIO HOLDINGS INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except Three months endedSix months ended
share and per share June 30, June 30,
data) 2008 2007 20082007
Revenue:
Subscription$284,136 $245,778 $559,862$482,264
Activation 5,0444,766 10,188 9,419
Merchandise7,4915,658 11,812 10,955
Net ad sales 10,432 10,153 19,550 17,631
Other 10,932 10,921 25,078 21,118
Total revenue 318,035 277,276 626,490 541,387
Operating expenses:
Cost of revenue
(excludes
depreciation &
amortization, shown
below):
Revenue share &
royalties 73,586 49,723 142,408 97,149
Customer care &
billing operations (1) 36,388 30,749 70,698 58,677
Cost of merchandise 9,055 12,694 17,606 30,970
Ad sales (1) 4,8795,4809,583 8,866
Satellite &
terrestrial (1)13,472 13,472 26,653 27,354
Broadcast & operations:
Broadcast (1) 6,3086,885 13,269 13,429
Operations (1)11,0269,683 21,516 19,399
Total broadcast &
operations 17,334 16,568 34,785 32,828
Programming &
content (1)49,604 41,827 101,166 85,779
Total cost of revenue204,318 170,513 402,899 341,623
Research & development
(excludes depreciation
& amortization,
shown below) (1) 9,4148,159 20,435 15,469
General & administrative
(excludes depreciation
& amortization, shown
below) (1) 30,989 35,869 61,719 70,053
Marketing (excludes
depreciation &
amortization, shown
below):
Retention &
support (1) 11,032 10,618 22,829 20,374
Subsidies &
distribution 69,193 63,855 140,717 107,457
Advertising &
marketing36,865 43,244 63,367 76,053
Marketing 117,090 117,717 226,913 203,884
Amortization of GM
liability 6,5046,504 13,007 13,008
Total marketing 123,594 124,221 239,920 216,892
Depreciation &
amortization 32,438 46,506 77,921 93,387
Total operating
expenses (1) 400,753 385,268 802,894 737,424
Operating loss (82,718)(107,992)(176,404) (196,037)
Other income
(expense):
Interest income 7434,2382,419 7,781
Interest expense (30,480) (32,423) (59,807)(60,032)
Loss from de-leveraging
transactions --- (2,965)
Loss from impairment
of investments- (35,824) - (35,824)
Equity in net loss
of affiliate (4,373) (2,752) (8,550) (8,177)
Minority interest (3,153) (3,266) (6,390) (4,962)
Other income 1,082 413 895 856
Net loss before income
taxes(118,899)(177,606)(247,837) (299,360)
(Provision for)
benefit from
deferred income
taxes (673) 1,859 (1,004) 1,175
Net loss $(119,572) $(175,747) $(248,841) $(298,185)
Net loss per common
share - basic and
diluted (0.38) (0.57) (0.80) (0.97)
Weighted average
shares used in
computing net loss
per common share -
basic and diluted 310,886,180 306,425,375 310,283,700 306,154,565
Reconciliation of Net
loss to Adjusted
operating loss:
Net loss as reported $(119,572) $(175,747) $(248,841) $(298,185)
Add back Net loss
items excluded from
Adjusted operating
loss:
Interest income (743) (4,238) (2,419) (7,781)
Interest expense 30,480 32,423 59,807 60,032
Provision for (benefit
from) deferred
income taxes673 (1,859) 1,004 (1,175)
Loss from
de-leveraging
transactions --- 2,965
Equity in net loss
of affiliate 4,3732,7528,550 8,177
Minority interest 3,1533,2666,390 4,962
Other income (1,082)(413)(895) (856)
Operating loss (82,718)(107,992)(176,404) (196,037)
Depreciation &
amortization 32,438 46,506 77,921 93,387
Share-based payment
expense 12,947 14,080 30,451 28,211
Adjusted operating
loss (3) $(37,333)$(47,406)$(68,032) $(74,439)
Footnotes:
(1) These captions
include non-cash
share-based payment Three months ended Six months ended
expense as follows: June 30, June 30,
(in thousands) 2008 2007 20082007
Customer care &
billing operations $752 $497 $1,641$937
Ad sales 436 4601,044 816
Satellite &
terrestrial 447 4911,089 1,010
Broadcast 558 6061,351 1,206
Operations 359 351 829 729
Programming &
content 1,8202,0614,363 4,227
Research &
development 1,7021,7164,164 3,442
General &
administrative 4,6865,829 10,737 11,878
Retention & support 2,1872,0695,233 3,966
Total share-based
payment expense $12,947 $14,080 $30,451 $28,211
(2) Adjusted operating loss is net loss before interest income, interest
expense, income taxes, depreciation and amortization, loss from
de-leveraging transactions, loss from impairment of investments,
equity in net loss of affiliate, minority interest, other income
(expense) and share-based payment expense. This non-GAAP measure
should be used in addition to, but not as a substitute for, the
analysis provided in the statement of operations. We believe Adjusted
operating loss is a useful measure of our operating performance and
improves comparability between periods. Adjusted operating loss is a
significant basis used by management to measure our success in
acquiring, retaining and servicing subscribers because we believe
this measure provides insight into our ability to grow revenues in a
cost-effective manner. We believe Adjusted operating loss is a
calculation used as a basis for investors, analysts and credit rating
agencies to evaluate and compare the periodic and future operating
performances and value of our company and similar companies in our
industry.
Because we have funded the build-out of our system through the
raising and expenditure of large amounts of capital, our results of
operations reflect significant charges for depreciation, amortization
and interest expense. We believe Adjusted operating loss provides
helpful information about the operating performance of our business
apart from the expenses associated with our physical plant or capital
structure. We believe it is appropriate to exclude depreciation,
amortization and interest expense due to the variability of the
timing of capital expenditures, estimated useful lives and
fluctuation in interest rates. We exclude income taxes due to our tax
losses and timing differences, so that certain periods will reflect a
tax benefit, while others an expense, neither of which is reflective
of our operating results. Because of the variety of equity awards
used by companies, the varying methodologies for determining
share-based payment expense and the subjective assumptions involved
in those determinations, we believe excluding share-based payment
expense enhances the ability of management and investors to compare
our core operating results with those of similar companies in our
industry.
Equity in net loss of affiliate represents our share of losses in a
non-US affiliate in a similar business and over which we exercise
significant influence, but do not control. Management believes it is
appropriate to exclude this loss when evaluating the performance of
our own operations. Additionally, we exclude loss from de-leveraging
transactions, loss from impairment of investments, minority interest
and other income (expense) because these items represent activity
outside of our core business operations and can distort period to
period comparisons of operating performance.
There are limitations associated with the use of Adjusted operating
loss in evaluating our company compared with net loss, which reflects
overall financial performance. Adjusted operating loss does not
reflect the impact on our financial results of (i) interest income,
(ii) interest expense, (iii) income taxes, (iv) depreciation and
amortization, (v) loss from de-leveraging transactions, (vi) loss
from impairment of investments, (vii) equity in net loss of
affiliate, (viii) minority interest, (ix) other income (expense) and
(x) share-based payment expense, which are included in the
computation of net loss. Users that wish to compare and evaluate our
company based on our net loss should refer to our Consolidated
Statements of Operations. Adjusted operating loss does not purport to
represent operating loss or cash flow from operating activities, as
those terms are defined under United States generally accepted
accounting principles, and should not be considered as an alternative
to those measurements as an indicator of our performance. In
addition, our measure of Adjusted operating loss may not be
comparable to similarly titled measures of other companies.
XM SATELLITE RADIO HOLDINGS INC.
SELECTED FINANCIAL AND OPERATING METRICS
As of
(in thousands) June 30, 2008 December 31, 2007
SELECTED BALANCE SHEET DATA(Unaudited)
Cash and cash equivalents$183,853 $156,686
System under construction 166,786 151,142
Property and equipment, net 660,274 710,370
DARS license 141,412 141,412
Investments37,19236,981
Total assets1,723,886 1,609,230
Total subscriber deferred revenue 547,377 514,926
Total deferred income 132,992 134,803
Long-term debt, net of current portion 1,480,226 1,480,639
Total liabilities 2,868,158 2,533,787
Stockholders' deficit (1,204,472) (984,303)
Three months ended June 30,
SELECTED OPERATING METRICS 2008 2007(15)
Subscriber Data (in thousands,
except percentages):
OEM Gross Subscriber Additions (1) 857 618
Retail Gross Subscriber Additions (2) (12) 224 323
Total Gross Subscriber Additions (12) 1,081 942
OEM Net Subscriber Additions (3)360 295
Retail Net Subscriber Additions (4) (38) 43
Total Net Subscriber Additions322 338
Conversion Rate (5) 53.4% 52.7%
Monthly Churn Rate (6) (12) 1.67% 1.84%
OEM Subscribers 4,178 3,047
Retail Subscribers (13) 4,433 4,459
Subscribers in OEM Promotional Periods 876 649
XM Activated Vehicles with Rental Car
Companies 9040
Data Services Subscribers5840
Outsourced Commercial Subscribers (13) 1817
Total Ending Subscribers (7)9,653 8,252
Percentage of Ending Subscribers on Annual
and Multi-Year Plans (12)44.7% 43.6%
Percentage of Ending Subscribers on Family
Plans (12) 22.7% 23.5%
Revenue Data (monthly average):
Subscription Revenue per Retail, OEM &
Other Subscriber (8) (14) $10.31$10.37
Subscription Revenue per Subscriber in
OEM Promotional Periods $5.68 $6.18
Subscription Revenue per XM Activated
Vehicle with Rental Car Companies$6.02 $7.07
Subscription Revenue per Subscriber of
Data Services $33.40$33.96
Average Monthly Subscription Revenue
per Subscriber ("ARPU") (9) (14) $9.98$10.15
Net Ad Sales Revenue per Subscriber $0.37 $0.42
Activation, Merchandise and Other Revenue
per Subscriber (14) $0.81 $0.88
Total Revenue per Subscriber $11.16$11.45
Expense Data:
Subscriber Acquisition Costs ("SAC")
(10) (12) $65 $75
Cost Per Gross Addition ("CPGA") (11) (12) $100 $121
(Certain totals may not add due to
the effects of rounding)
Footnotes:
(1) OEM gross subscriber additions are paying subscribers newly activated
in the reporting period and include Subscribers in OEM promotional
periods as well as XM activated vehicles with rental car companies.
(2) Retail gross subscriber additions are paying subscribers newly
activated in the reporting period and include Data services
subscribers and commercial subscribers for 2007 only.
(3) OEM net subscriber additions (OEM gross subscriber additions less
disconnects) represent the total net incremental paying subscribers
added during the period.
(4) Retail net subscriber additions (Retail gross subscriber additions
less disconnects) represent the total net incremental paying
subscribers added during the period, including net Outsourced
commercial subscribers for 2008.
(5) We measure the success of these promotional programs included in our
OEM promotional subscriber count based on the percentage of new
promotional subscribers that receive the XM service and convert to
self-paying subscribers after the initial promotion period. We refer
to this as the "conversion rate." At the time of sale, vehicle owners
generally receive a three month prepaid trial subscription.
Promotional periods generally include the period of trial service plus
30 days to handle the receipt and processing of payments. In
situations where audio service of 12 months or longer is bundled with
the sale of the vehicle, XM counts those subscribers for the first 3
months of service as OEM promotional subscribers and for the remainder
of the bundled service period as OEM subscribers. We measure
conversion rate three months after the period in which the trial
service ends. Based on our experience it may take up to 90 days after
the trial service ends for subscribers to respond to our marketing
communications and become self-paying subscribers. Vehicles that have
bundled service for 12 months or greater are counted in our conversion
rate calculation as being converted six months after the start of the
bundled service. These same vehicles are included as part of our
overall churn calculation after the date conversion is measured.
During Q2 2008 if we calculated conversion rate by excluding 12 months
or greater bundled service subscribers from the calculation, our
conversion rate would have been 52.7% for the three months ended
June 30, 2008.
(6) Monthly churn rate for the quarter represents the weighted average
Churn rate for each month in the quarter. Churn rate represents the
average percentage of self-paying Retail, OEM & other subscribers that
discontinued service during the month divided by the average of these
beginning and ending subscribers for the month. Churn rate does not
include OEM promotional period deactivations and deactivations
resulting from the change-out of XM activated vehicles with rental car
companies.
(7) Subscribers -- Subscribers are those who are receiving and have agreed
to pay for our service, including those who are currently in
promotional periods paid in part by vehicle manufacturers, XM
activated radios in vehicles for which we have a contractual right to
receive payment for the use of our service and commercial
establishments that receive our service through our relationship with
a third party vendor. We count radios individually as subscribers.
Retail subscribers consist primarily of subscribers who purchased
their radio at retail outlets, distributors, or through XM's direct
sales efforts. OEM subscribers are self-paying subscribers whose XM
radio was installed by an OEM and are not currently in OEM promotional
programs. OEM promotional subscribers are subscribers who receive a
fixed period of XM service where XM receives revenue from the OEM for
the trial period following the initial purchase or lease of the
vehicle. In situations where XM receives no revenue from the OEM
during the trial period, the subscriber is not included in XM's
subscriber count. At the time of sale, some vehicle owners receive a
three month prepaid trial subscription. Promotional periods generally
include the period of trial service plus 30 days to handle the receipt
and processing of payments. The automated activation program provides
activated XM radios on dealer lots for test drives but XM does not
include these vehicles in its subscriber count. XM's OEM partners
generally indicate the inclusion of three months of XM service on the
window sticker of XM-enabled vehicles. XM, historically and including
the 2006 model year, receives a negotiated rate for providing audio
service to rental car companies. Beginning with the 2007 model year,
XM entered into marketing arrangements which govern the rate which XM
receives for providing audio service on certain rental fleet vehicles.
Data services subscribers are those subscribers that are receiving
services that include stand-alone XM WX Satellite Weather service,
stand-alone XM Radio Online service and stand-alone NavTraffic
service. Stand-alone XM WX Satellite Weather service packages range in
price from $29.99 to $99.99 per month. XM charges up to $7.99 per
month for stand-alone XM Radio Online service. Stand-alone NavTraffic
service is $9.95 per month. XM generally charges a range of
$9.99-$11.87 per month for its audio service for annual and multi-year
plans and $6.99 per month for a family plan.
(8) Other subscribers include weather and other stand-alone service
subscribers.
(9) Subscription revenue includes monthly subscription revenues for our
satellite audio service and data services, net of any promotions or
discounts.
(10) Subscriber Acquisition Costs -- Subscriber acquisition costs include
Subsidies & distribution and the negative gross profit on merchandise
revenue. Subscriber acquisition costs are divided by gross additions
to calculate what we refer to as "SAC."
(11) Cost Per Gross Addition ("CPGA") -- CPGA costs include the amounts in
SAC, as well as Advertising & marketing. These costs are divided by
the gross additions for the period to calculate CPGA. CPGA costs do
not include marketing staff (included in Retention & support) or the
amortization of the GM guaranteed payments (included in Amortization
of GM liability).
(12) Outsourced commercial subscribers are excluded for 2008.
(13) Approximately 17 thousand subscribers, previously reported as Retail
subscribers, are presented as Outsourced commercial subscribers for
2007 for comparability.
(14) Beginning in 2008, revenue from Outsourced commercial subscribers,
previously reported as Subscription revenue, is reported as Other
revenue.
(15) No previously reported metrics have been adjusted to reflect the
exclusion of Outsourced commercial subscribers except for as stated
in footnote 13.
SOURCE XM Satellite Radio Holdings Inc.
