XM Satellite Radio (XMSR) just announced their 1Q07 results, showing that revenue increased by 27 percent year over year to $264 million, net loss narrowed to $122 million, and 285,000 net subscribers were added.
XM announced that it recently surpassed 8 million subscribers.
For 1Q07, adjusted operating loss (formerly adjusted EBITDA) improved by 45 percent to a loss of $27 million from a loss of $49 million in the prior year period. The 1Q07 adjusted operating loss includes $8 million in expenses related to the company's pending merger with Sirius Satellite Radio.
In 1Q07, XM recorded gross subscriber additions of 868,000 and net subscriber additions of 285,000 - compared to the 1 million gross additions and 569,000 net subscriber additions in the same period the year before.
XM's subscriber acquisition costs (SAC), a component of cost per gross addition (CPGA), was $65 compared to $59 in the first quarter of 2006. CPGA in the 2007 first quarter was $103 compared to $93 in the first quarter of 2006.
As of March 31, 2007, the company had $319 million in cash compared to $218 million at the end of December 31, 2006. XM has a total available liquidity of $719 million.
XM Satellite Radio reaffirmed their 2007 guidance of between 9.0 million and 9.2 million subscribers (with higher seasonal growth expected to occur in the latter part of the year); subscription revenue in the 1 billion dollar range; and full-year positive cash flow from operations in 2008.
XM has though made some refinements to its prior guidance for the full-year 2007: CPGA is expected to be in the range of $111-$114; and XM has adjusted operating loss, excluding any merger-related or legal settlement costs, in the range of $170 million to $180 million.
Full financials after the jump...
XM SATELLITE RADIO HOLDINGS INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per Three months ended March 31,
share data) 2007 2006
Revenue:
Subscription $236,486 $188,102
Activation 4,654 3,579
Merchandise 5,297 3,551
Net ad sales 7,478 6,518
Other 10,197 6,216
Total revenue 264,112 207,966
Operating expenses:
Cost of revenue (excludes depreciation
& amortization, shown below):
Revenue share & royalties 47,426 34,276
Customer care & billing operations (1) 27,928 22,455
Cost of merchandise 18,277 7,993
Ad sales (1) 3,385 3,356
Satellite & terrestrial (1) 13,882 13,049
Broadcast & operations:
Broadcast (1) 6,544 5,852
Operations (1) 9,716 8,887
Total broadcast & operations 16,260 14,739
Programming & content (1) 43,952 37,643
Total cost of revenue 171,110 133,511
Research & development (excludes
depreciation & amortization,
shown below) (1) 7,310 10,981
General & administrative (excludes
depreciation & amortization,
shown below) (1) 34,185 17,630
Marketing (excludes depreciation &
amortization, shown below):
Retention & support (1) 9,756 8,047
Subsidies & distribution 43,602 55,473
Advertising & marketing 32,809 33,925
Marketing 86,167 97,445
Amortization of GM liability 6,504 9,313
Total marketing 92,671 106,758
Depreciation & amortization 46,882 39,882
Total operating expenses (1) 352,158 308,762
Operating loss (88,046) (100,796)
Other income (expense):
Interest income 3,544 6,573
Interest expense (27,609) (33,236)
Loss from de-leveraging transactions (2,965) (18,380)
Equity in net loss of affiliate (5,425) (8,884)
Minority interest (1,697) -
Other income 444 4,634
Net loss before income taxes (121,754) (150,089)
(Provision for) benefit from deferred
income taxes (684) 868
Net loss (122,438) (149,221)
8.25% Series B and C preferred
stock dividend requirement - (2,149)
Net loss attributable to common
stockholders $(122,438) $(151,370)
Net loss per common share - basic
and diluted $(0.40) $(0.60)
Weighted average shares used in
computing net loss per common
share - basic and diluted 305,877,670 253,213,066
Reconciliation of Net loss to
Adjusted operating loss:
Net loss as reported $(122,438) $(149,221)
Add back Net loss items excluded
from Adjusted operating loss:
Interest income (3,544) (6,573)
Interest expense 27,609 33,236
Provision for (benefit from) deferred
income taxes 684 (868)
Loss from de-leveraging transactions 2,965 18,380
Equity in net loss of affiliate 5,425 8,884
Minority interest 1,697 -
Other income (444) (4,634)
Operating loss (88,046) (100,796)
Depreciation & amortization 46,882 39,882
Stock-based compensation (1) 14,131 12,061
Adjusted operating loss (2) $(27,033) $(48,853)
Footnotes:
(1) These captions include non-cash
stock-based compensation expense
as follows:
(in thousands)
Customer care & billing operations $440 $86
Ad sales 356 428
Satellite & terrestrial 520 461
Broadcast 600 481
Operations 378 583
Programming & content 2,166 1,892
Research & development 1,726 1,457
General & administrative 6,048 5,061
Retention & support 1,897 1,612
Total stock-based compensation $14,131 $12,061
(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 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 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 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 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) March 31, 2007 December 31, 2006
SELECTED BALANCE SHEET DATA (unaudited)
Cash and cash equivalents (1) $319,391 $218,216
Restricted investments 396 2,098
System under construction 138,760 126,049
Property and equipment, net 814,683 849,662
DARS license 141,387 141,387
Investments 75,015 80,592
Total assets (2) 1,943,164 1,840,618
Total subscriber deferred revenue 453,671 427,193
Total deferred income 138,989 140,695
Long-term debt, net of current
portion 1,478,936 1,286,179
Total liabilities (2) 2,388,140 2,238,498
Stockholders' equity (deficit) (2)(3) (504,373) (397,880)
Three months ended March 31,
SELECTED OPERATING METRICS 2007 2006
Subscriber Data:
OEM and Rental Car Company Gross
Subscriber Additions 537,175 490,890
Aftermarket and Data Gross
Subscriber Additions 330,892 516,416
Total Gross Subscriber Additions (4) 868,067 1,007,306
OEM and Rental Car Company Net
Subscriber Additions 224,830 265,280
Aftermarket and Data Net Subscriber
Additions 60,346 303,622
Total Net Subscriber Additions (5) 285,176 568,902
Conversion Rate (6) 51.5% 54.3%
Churn Rate (7) 1.78% 1.64%
Aftermarket Subscribers 4,437,593 3,882,324
OEM Subscribers 2,853,028 2,012,050
Subscribers in OEM Promotional
Periods 564,844 548,027
XM Activated Vehicles with Rental
Car Companies 22,938 37,184
Data Services Subscribers 35,325 22,274
Total Ending Subscribers (8) 7,913,728 6,501,859
Percentage of Ending Subscribers on
Annual and Multi-Year Plans (9) 44.0% 41.6%
Percentage of Ending Subscribers on
Family Plans (9) 23.2% 19.9%
Revenue Data (monthly average):
Subscription Revenue per Aftermarket,
OEM & Other Subscriber $10.34 $10.35
Subscription Revenue per Subscriber
in OEM Promotional Periods $6.39 $6.11
Subscription Revenue per XM
Activated Vehicle with Rental Car
Companies $7.51 $8.27
Subscription Revenue per Subscriber
of Data Services $33.72 $29.74
Average Monthly Subscription
Revenue per Subscriber ("ARPU") (10) $10.15 $10.07
Net Ad Sales Revenue per Subscriber (11) $0.32 $0.35
Activation, Equipment and Other
Revenue per Subscriber $0.87 $0.71
Total Revenue per Subscriber $11.34 $11.13
Expense Data:
Subscriber Acquisition Costs
("SAC") (12) $65 $59
Cost Per Gross Addition ("CPGA") (13) $103 $93
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'
equity (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 our OEM promotional programs based on the
percentage of 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, either by credit card or by invoice, 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. Radios that are revenue generating are counted 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. Currently, 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. The automated
activation program provides activated XM radios on dealer lots for
test drives but XM does not include these vehicles in their
subscriber count. XM's OEM partners generally indicate the inclusion
of three months free 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 with rental car companies which
govern the rate which XM receives for providing audio service. 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 receives a range of $9.99 -- $11.87 per month 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, net of agency commissions.
(12) SAC -- As described 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 March 31, 2006 was $62.
(13) CPGA -- As described 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 March 31, 2006 was $94.
Wall St. rightly perceived this as great news coming out of XM. A steadily expanding revenue base and control over costs... not a bad quarter indeed.
The better XM (and Sirius) does on its own the less appealing the merger seems to me. I can buy the argument that one company is better than none, but not that one is better than two.
Maybe it would be better to wait and see if these guys can reach break even in a couple years on their own and then revisit the issue if they can't.
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