XM Satellite Radio Holdings Inc. (XMSR) announced their 3Q07 earnings results. Revenue increased roughly 20% year over year to $287 million compared to $240 million in the 3Q06.
XM ended the quarter with approximately 8.57 million subscribers compared to approximately 7.19 million subscribers in the prior year period.
XM recorded gross subscriber additions of 952,000 and net subscriber additions of 315,000 - that's compared to 868,000 gross additions and 286,000 net subscriber additions in the same period last year.
"XM achieved year-over-year gains in both gross and net subscriber additions, despite weakness at retail, driven primarily by a record number of new automotive subscribers," said Nate Davis, XM President and CEO."We're already seeing the early results of the ramp in production of XM-equipped vehicles, which will provide XM with sustained subscriber growth for 2008 and beyond."
SAC rose to $70 compared to $59 in the same period last year - this includes ~$10 related to increased factory installations by new automotive partners. CPGA was $116 compared to $94 in 3Q06.
Adjusted operating loss (formerly adjusted EBITDA) was $47 million compared to a loss of $2 million in the same period of 2006. The 2007 third quarter adjusted operating loss includes $9 million in expenses related to the company's pending merger with Sirius Satellite Radio Inc..
XM's net loss was $145 million for 3Q07 - compared to a 3Q06 net loss of $84 million. XM's net loss is at $0.47 per share. On average, 25 analysts polled by First Call/Thomson Financial expected the company to report a loss of $0.44 per share.
Full financial report after the jump. Conference call kicks off at 10am ET today.
XM SATELLITE RADIO HOLDINGS INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months ended Nine Months ended
September 30, September 30,
(in thousands, except 2007 2006 2007 2006
share and per share
data)
Revenue:
Subscription $256,770 $214,817 $739,034 $605,084
Activation 4,929 4,213 14,348 11,733
Merchandise 4,310 3,164 15,265 11,644
Net ad sales 10,716 8,786 28,347 24,285
Other 10,731 9,464 31,849 23,549
Total revenue 287,456 240,444 828,843 676,295
Operating expenses:
Cost of revenue
(excludes
depreciation &
amortization, shown
below):
Revenue share &
royalties 52,416 33,406 149,565 105,605
Customer care &
billing
operations (1) 31,396 27,171 90,073 76,021
Cost of merchandise 9,585 10,177 40,555 28,424
Ad sales (1) 6,878 3,378 15,744 11,193
Satellite &
terrestrial (1) 13,808 11,670 41,163 36,290
Broadcast &
operations:
Broadcast (1) 6,139 6,158 19,569 17,180
Operations (1) 9,715 7,827 29,114 25,519
Total broadcast &
operations 15,854 13,985 48,683 42,699
Programming &
content (1) 46,825 38,873 132,603 118,769
Total cost of
revenue 176,762 138,660 518,386 419,001
Research &
development
(excludes
depreciation &
amortization, shown
below) (1) 8,343 8,849 23,812 28,348
General &
administrative
(excludes
depreciation &
amortization, shown
below) (1) 46,301 21,997 116,354 58,299
Marketing (excludes
depreciation &
amortization, shown
below):
Retention &
support (1) 11,504 7,288 31,878 22,778
Subsidies &
distribution 61,658 43,872 169,115 156,040
Advertising &
marketing 43,051 30,925 119,104 106,948
Marketing 116,213 82,085 320,097 285,766
Amortization of GM
liability 6,504 6,504 19,511 23,256
Total marketing 122,717 88,589 339,608 309,022
Depreciation &
amortization 46,402 43,109 139,789 124,837
Total operating
expenses (1) 400,525 301,204 1,137,949 939,507
Operating loss (113,069) (60,760) (309,106) (263,212)
Other income
(expense):
Interest income 3,495 5,216 11,277 18,165
Interest expense (27,757) (23,794) (87,789) (86,346)
Loss from de-
leveraging
transactions - (21) (2,965) (100,746)
Loss from impairment
of investments (481) - (36,305) (18,926)
Equity in net loss
of affiliate (4,546) (4,853) (12,723) (17,943)
Minority interest (3,302) - (8,265) -
Other income
(expense) 387 1,187 1,243 5,609
Net loss before
income taxes (145,273) (83,025) (444,633) (463,399)
(Provision for)
benefit from
deferred income
taxes (105) (794) 1,070 1,251
Net loss (145,378) (83,819) (443,563) (462,148)
8.25% Series B and C
preferred stock
dividend
requirement - (1,634) - (5,597)
8.25% Series B
preferred stock
retirement loss - - - (755)
Net loss attributable
to common
stockholders $(145,378) $(85,453) $(443,563) $(468,500)
Net loss per common
share - basic and
diluted $(0.47) $(0.32) $(1.45) $(1.78)
Weighted average
shares used in
computing net loss
per common share -
basic and diluted 306,931,732 268,363,377 306,418,280 262,740,383
Reconciliation of Net
loss to Adjusted
operating loss:
Net loss as reported $(145,378) $(83,819) $(443,563) $(462,148)
Add back Net loss
items excluded from
Adjusted operating
loss:
Interest income (3,495) (5,216) (11,277) (18,165)
Interest expense 27,757 23,794 87,789 86,346
Provision for
(benefit from)
deferred income
taxes 105 794 (1,070) (1,251)
Loss from de-
leveraging
transactions - 21 2,965 100,746
Loss from impairment
of investments 481 - 36,305 18,926
Equity in net loss
of affiliate 4,546 4,853 12,723 17,943
Minority interest 3,302 - 8,265 -
Other (income)
expense (387) (1,187) (1,243) (5,609)
Operating loss (113,069) (60,760) (309,106) (263,212)
Depreciation &
amortization 46,402 43,109 139,789 124,837
Stock-based
compensation (1) 19,987 16,047 48,198 42,022
Adjusted operating
loss (2) $(46,680) $(1,604) $(121,119) $(96,353)
Footnotes: Three Months ended Nine Months ended
September 30, September 30,
(1) These captions 2007 2006 2007 2006
include non-cash
stock-based
compensation
expense as follows:
(in thousands)
Customer care &
billing operations $726 $369 $1,663 $723
Ad sales 580 579 1,396 1,527
Satellite &
terrestrial 609 667 1,619 1,639
Broadcast 781 691 1,987 1,749
Operations 437 570 1,166 1,572
Programming &
content 2,458 2,644 6,685 6,662
Research &
development 2,204 2,161 5,646 5,398
General &
administrative 9,412 6,337 21,289 17,414
Retention & support 2,780 2,029 6,747 5,338
Total stock-based
compensation $19,987 $16,047 $48,198 $42,022
(2) Adjusted operating loss (formerly Adjusted EBITDA) 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 stock-based compensation. 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 stock-
based compensation expense and the subjective assumptions involved in
those determinations, we believe excluding stock-based compensation
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 (1) interest income,
(2) interest expense, (3) income taxes, (4) depreciation and
amortization, (5) loss from de-leveraging transactions, (6) loss from
impairment of investments, (7) equity in net loss of affiliate, (8)
minority interest, (9) other income (expense) and (10) stock-based
compensation, 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 unaudited Condensed 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
September 30, December 31,
(in thousands) 2007 2006
SELECTED BALANCE SHEET DATA (unaudited)
Cash and cash equivalents (1) $231,187 $218,216
Restricted investments 196 2,098
System under construction 145,849 126,049
Property and equipment, net 739,321 849,662
DARS license 141,412 141,387
Investments 42,682 80,592
Total assets (2) 1,708,957 1,840,618
Total subscriber deferred revenue 474,929 427,193
Total deferred income 135,920 140,695
Long-term debt, net of current
portion 1,474,200 1,286,179
Total liabilities (2) 2,432,592 2,238,498
Stockholders' deficit (2) (3) (789,599) (397,880)
Three Months ended September 30,
SELECTED OPERATING METRICS 2007 2006
Subscriber Data (in thousands,
except percentages):
OEM and Rental Car Company Gross
Subscriber Additions 700 553
Aftermarket and Data Gross
Subscriber Additions 251 316
Total Gross Subscriber Additions (4) 952 868
OEM and Rental Car Company Net
Subscriber Additions 332 217
Aftermarket and Data Net
Subscriber Additions (17) 69
Total Net Subscriber Additions (5) 315 286
Conversion Rate (6) 52.5% 52.2%
Churn Rate (7) 1.69% 1.82%
Aftermarket Subscribers 4,454 4,111
OEM Subscribers 3,291 2,410
Subscribers in OEM Promotional
Periods 726 614
XM Activated Vehicles with Rental
Car Companies 51 21
Data Services Subscribers 44 31
Total Ending Subscribers (8) 8,567 7,186
Percentage of Ending Subscribers
on Annual and Multi-Year Plans (9) 44.1% 43.0%
Percentage of Ending Subscribers
on Family Plans (9) 23.4% 21.2%
Revenue Data (monthly average):
Subscription Revenue per
Aftermarket, OEM & Other
Subscriber $10.41 $10.45
Subscription Revenue per
Subscriber in OEM Promotional
Periods $6.12 $6.15
Subscription Revenue per XM
Activated Vehicle with Rental Car
Companies $7.16 $4.67
Subscription Revenue per
Subscriber of Data Services $35.08 $31.89
Average Monthly Subscription
Revenue per Subscriber ("ARPU") (10) $10.17 $10.15
Net Ad Sales Revenue per
Subscriber (11) $0.42 $0.41
Activation, Equipment and Other
Revenue per Subscriber $0.80 $0.80
Total Revenue per Subscriber $11.39 $11.36
Expense Data:
Subscriber Acquisition Costs
("SAC") (12) $70 $59
Cost Per Gross Addition ("CPGA") (13) $116 $94
(Certain totals may not add due to
the effects of rounding)
Footnotes:
(1) In addition to the Cash and cash equivalents available to the
Company, the Company has a $250 million credit facility with a group
of banks and a $150 million credit facility with GM.
(2) Total assets does not equal Total liabilities plus Stockholders'
deficit because of minority interest, which is not included in this
table.
(3) We have not declared or paid any dividends on our Class A common
stock since our date of inception.
(4) Gross Subscriber Additions are paying subscribers newly activated in
the reporting period. OEM subscribers include both newly activated
promotional and non-promotional subscribers.
(5) Net Subscriber Additions represent the total net incremental paying
subscribers added during the period (Gross Subscriber Additions less
Disconnects).
(6) We measure the success of the OEM promotional programs included in
our OEM promotional subscriber count based on the percentage of new
promotional subscribers that elect to receive the XM service and
convert to self-paying subscribers after the initial promotion
period. We refer to this as the "conversion rate."
(7) Churn Rate represents the percentage of self-paying Aftermarket, OEM
& Other Subscribers who discontinued service during the period
divided by the monthly weighted average ending subscribers. Churn
Rate does not include OEM promotional period deactivations or
deactivations resulting from the change-out of XM-enabled rental car
activity.
(8) 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, as well as XM
activated radios in vehicles for which we have a contractual right
to receive payment for the use of our service. We count radios
individually as subscribers. Aftermarket 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 has 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. Stand-alone XM Radio Online service is $7.99
per month. Stand-alone NavTraffic service is $9.95 per month.
(9) 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.
(10) Subscription Revenue includes monthly subscription revenues for our
satellite audio service and data services, net of any promotions or
discounts.
(11) Net Ad Sales Revenue includes sales of advertisements and program
sponsorships on the XM system, including barter recorded at fair
value, net of agency commissions.
(12) SAC - As noted in our Form 10-K for the year ended December 31,
2006, we have revised our calculation of SAC to allow for the
direct calculation of this metric using certain line items from our
Results of Operations and Key Metrics tables. 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." The previously reported amount under the prior definition
for the three months ended September 30, 2006 was $60.
(13) CPGA - As noted in our Form 10-K for the year ended December 31,
2006, we have revised our calculation of CPGA to allow for the
direct calculation of this metric using certain line items from our
Results of Operations and Key Metrics tables. 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). The previously
reported amount under the prior definition for the three months
ended September 30, 2006 was $93.
my sub chart now puts Sirius about 415,000 to 485,000 net mostly on increased Chrysler subs. their retail net will be dismal ... but not negative like XM's
Looks like XM is dead and Sirius wins. Soon XM wont exist anymore. Also, CBS will be dumping O&A soon. So they will be out of work completely.
http://www.musicradio77.com/wwwboard/messages/326593.html
SternFan:
You'd better hope that Sirius hangs on to Stern, and that the guy stays healthy. He's carrying that company.
Revshare per subscriber-month Q307: $2.08
Revshare per subscriber-month Q306: $1.63
what does this have to do with O&A and Howard?
Some other notes:
* XM's average subscriber count was roughly 8.416 million (dividing subscription revenue by 3 times subscription ARPU) during the quarter, an increase of about 344 thousand from the previous quarter, which indicates that a spurt of net adds occurred late in Q2 and/or early Q3, since this figure exceeds the net adds during Q3.
* Not a great operational report. Carrying cost of a subscriber is not coming down, and is the highest it's been since Q406, while the history for XM has been that the cheapest quarter is the third (since XM broke the streak of consecutive subsequent-quarter declines in carrying cost in Q205 (coincident with the baseball contract?), the progressions have been:
2005: $51.26 -> $54.47 -> $48.19 -> $58.70
2006: $43.92 -> $45.48 -> $40.26 -> $50.13
2007: $42.96 -> $44.59 -> $44.97 -> ???? {I would guess something in the $51 ballpark}
This metric encompasses both fixed costs (including depreciation, which is obviously a major expense) and variable costs (including those variable costs that are tied to subscriber count/revenue and those that are not that directly tied). It is designed to model what happens in a subscriber equilibrium (that is to say, when gross adds == deactivations), which, given that there is an upper limit to the subscriber count, is the best case end case for XM or Sirius, and thus it is based on operating expenses less (net adds times SAC (CPGA may be a better number for this purpose, but a) Sirius doesn't break one out and one can't be deduced from their income statement and b) CPGA times gross adds seems to have more of a fixed quality to it)).
Doing regression to figure out the marginal cost of XM having a subscriber leads to (depending on how far back the regression goes) figures of between $35 and $50 per subscriber per quarter. Taking it from rolling trailing twelve month periods dating back to the twelve months ending December 31, 2004 yields a figure of $36.48.
* Revenue slightly improved... $32.37 subscription+activation+advertising revenue per subscriber-quarter is a new record for the company (beating the $32.30 mark set in Q207 and Q406). Even going on total revenue, XM is only getting about $34 per subscriber-quarter while each subscriber adds an average of $36 or so per quarter to expenses.
It's becoming apparent to me that XM is losing a couple of bucks every quarter for each subscriber they have and is trying to make it up on volume...
I'll post a similar analysis when Sirius reports...