XM's fourth quarter/full year 2007 results
Thursday, February 28, 2008 at 8:23 AM
Tags: Earnings, XM, XMSR
The company saw a 22% increase in revenue to $1.1 billion (with a "b") for the full year, and for the fourth-quarter saw a total revenue of $308 million, a 20% increase over the $257 million from the same period the year prior.
XM ended the year with over 9 million subscribers (9,027,000 to be exact), which is an 18% increase of over 1.4 subscribers from the year prior (roughly 7.6 million subscribers in 2006).
In the fourth-quarter, XM subscriber base increased by 460,000 net subscribers, and 1,130,000 gross subscribers.
In 2007, XM's automotive partners increased production of XM-equipped vehicles by 64% over 2006, with 3.5 million OEM installs and more than a million in the fourth quarter alone. This led to an increase of 766,000 gross OEM subscribers in the fourth quarter, resulting in 361,000 net OEM subscribers.
For the fourth-quarter, XM added 364,000 gross retail subscribers which resulted in an 99,000 net retail subscriber additions.
Net loss for the fourth quarter of 2007 narrowed by $18 million over the prior year to ($239) million compared to a net loss for the fourth quarter 2006 of ($257) million. Full year net loss improved by $37 million over the prior year to ($682) million compared to a full year 2006 net loss of ($719) million.
Full year 2007 adjusted operating loss of $238 million included merger and settlement charges of $86 million which were excluded from our guidance range of $170 million to $180 million loss. Fourth Quarter adjusted operating loss of $117 million included $58 million of the aforementioned $86 million of merger and settlement charges.
ARPU increased to $10.14 for 4Q07 (from $10.05 in 4Q06), and $10.39 for the full-year (from $10.09 in FY06). SAC increased to $87 for 4Q07 (from $74 in 4Q06), and $75 for FY07 (from $65 in FY06). CPGA increased to $140 for 4Q07 (from $128 in 4Q06) and $121 for FY07 (from $108 in FY06).
Full financials after the jump...
XM SATELLITE RADIO HOLDINGS INC.
AUDITED CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended Twelve months ended
December 31, December 31,
(in thousands, except
share and per share
data) 2007 2006 2007 2006
(unaudited) (unaudited)
Revenue:
Subscription $266,445 $220,542 $1,005,479 $825,626
Activation 5,006 4,459 19,354 16,192
Merchandise 13,068 10,076 28,333 21,720
Net ad sales 10,801 11,045 39,148 35,330
Other 12,379 11,000 44,228 34,549
Total revenue 307,699 257,122 1,136,542 933,417
Operating expenses:
Cost of revenue (excludes
depreciation &
amortization,
shown below):
Revenue share & royalties 106,779 43,405 256,344 149,010
Customer care &
billing operations (1) 36,703 28,850 126,776 104,871
Cost of merchandise 21,448 20,525 62,003 48,949
Ad sales (1) 4,848 4,768 20,592 15,961
Satellite &
terrestrial (1) 13,271 12,729 54,434 49,019
Broadcast & operations:
Broadcast (1) 7,033 5,869 26,602 23,049
Operations (1) 9,351 9,164 38,465 34,683
Total broadcast &
operations 16,384 15,033 65,067 57,732
Programming & content (1) 51,297 46,427 183,900 165,196
Total cost of revenue 250,730 171,737 769,116 590,738
Research & development
(excludes depreciation
& amortization, shown
below) (1) 9,265 9,080 33,077 37,428
General & administrative
(excludes depreciation
& amortization, shown
below) (1) 33,755 30,327 150,109 88,626
Marketing (excludes
depreciation &
amortization,
shown below):
Retention & support (1) 12,702 9,064 44,580 31,842
Subsidies &
distribution (1) 90,028 68,822 259,143 224,862
Advertising &
marketing (1) 59,639 57,431 178,743 164,379
Marketing 162,369 135,317 482,466 421,083
Amortization of GM
liability 6,504 6,504 26,015 29,760
Total marketing 168,873 141,821 508,481 450,843
Depreciation & amortization 47,407 44,043 187,196 168,880
Total operating expenses (1) 510,030 397,008 1,647,979 1,336,515
Operating loss (202,331) (139,886) (511,437) (403,098)
Other income (expense):
Interest income 2,807 3,499 14,084 21,664
Interest expense (28,816) (34,958) (116,605) (121,304)
Loss from de-leveraging
transactions (728) (21,443) (3,693) (122,189)
Loss from impairment of
investments (3,360) (57,646) (39,665) (76,572)
Equity in net loss of
affiliate (3,768) (5,286) (16,491) (23,229)
Minority interest (3,267) - (11,532) -
Other income (expense) 776 233 2,019 5,842
Net loss before income
taxes (238,687) (255,487) (683,320) (718,886)
(Provision for) benefit
from deferred income
taxes (131) (1,237) 939 14
Net loss (238,818) (256,724) (682,381) (718,872)
8.25% Series B and C
preferred stock
dividend requirement - (530) - (6,127)
8.25% Series B preferred
stock retirement loss - - - (755)
8.25% Series C preferred
stock retirement loss - (5,938) - (5,938)
Net loss attributable to
common stockholders $(238,818) $(263,192) $(682,381) $(731,692)
Net loss per common share
- basic and diluted $(0.78) $(0.90) $(2.22) $(2.70)
Weighted average shares
used in computing net
loss per common share
- basic and diluted 307,474,429 293,797,483 306,700,022 270,586,682
Reconciliation of Net
loss to Adjusted
operating loss:
Net loss as reported $(238,818) $(256,724) $(682,381) $(718,872)
Add back Net loss items
excluded from Adjusted
operating loss:
Interest income (2,807) (3,499) (14,084) (21,664)
Interest expense 28,816 34,958 116,605 121,304
Provision for (benefit
from) deferred income taxes 131 1,237 (939) (14)
Loss from de-leveraging
transactions 728 21,443 3,693 122,189
Loss from impairment of
investments 3,360 57,646 39,665 76,572
Equity in net loss of
affiliate 3,768 5,286 16,491 23,229
Minority interest 3,267 - 11,532 -
Other (income) expense (776) (233) (2,019) (5,842)
Operating loss (202,331) (139,886) (511,437) (403,098)
Depreciation & amortization 47,407 44,043 187,196 168,880
Total share-based payment
expense 38,001 26,024 86,199 68,046
Adjusted operating loss (2) $(116,923) $(69,819) $(238,042) $(166,172)
Footnotes: Three months Twelve months
(1) These captions include non-cash ended ended
share-based payment expense as December 31, December 31,
follows: 2007 2006 2007 2006
(in thousands) (unaudited)(unaudited)
Customer care & billing operations $820 $615 $2,483 $1,338
Ad sales 514 870 1,910 2,397
Satellite & terrestrial 689 1,010 2,308 2,649
Broadcast 729 1,131 2,716 2,880
Operations 434 853 1,600 2,425
Programming & content 2,170 4,216 8,855 10,878
Research & development 2,283 3,257 7,929 8,655
General & administrative 5,400 10,710 26,689 28,124
Retention & support 2,962 3,362 9,709 8,700
Subsidies & distribution 9,167 - 9,167 -
Advertising & marketing 12,833 - 12,833 -
Total share-based payment expense $38,001 $26,024 $86,199 $68,046
(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) December 31, 2007 December 31, 2006
SELECTED BALANCE SHEET DATA
Cash and cash equivalents $156,686 $218,216
System under construction 151,142 126,049
Property and equipment, net 710,370 849,662
DARS license 141,412 141,387
Investments 36,981 80,591
Total assets 1,609,230 1,840,618
Total subscriber deferred revenue 514,926 427,193
Total deferred income 134,803 140,695
Long-term debt, net of current portion 1,480,639 1,286,179
Total liabilities 2,533,787 2,238,499
Stockholders' deficit (984,303) (397,880)
Three months Twelve months
ended ended
December 31, December 31,
SELECTED OPERATING METRICS 2007 2006 2007 2006
Subscriber Data (in thousands,
except percentages):
OEM Gross Subscriber Additions (1) 766 524 2,622 2,085
Retail Gross Subscriber
Additions (2) 364 540 1,269 1,781
Total Gross Subscriber
Additions (3) 1,130 1,065 3,891 3,866
OEM Net Subscriber Additions (1) 361 172 1,213 884
Retail Net Subscriber Additions (2) 99 271 185 812
Total Net Subscriber Additions (4) 460 443 1,398 1,696
Conversion Rate (5) 53.9% 52.4% 52.7% 53.3%
Monthly Churn Rate (6) 1.72% 1.79% 1.75% 1.77%
OEM Subscribers 3,590 2,655 3,590 2,655
Retail Subscribers 4,552 4,380 4,552 4,380
Subscribers in OEM Promotional
Periods 777 555 777 555
XM Activated Vehicles with Rental
Car Companies 61 5 61 5
Data Services Subscribers 46 33 46 33
Total Ending Subscribers (7) 9,027 7,629 9,027 7,629
Percentage of Ending Subscribers
on Annual and Multi-Year Plans 44.8% 44.2% 44.8% 44.2%
Percentage of Ending Subscribers
on Family Plans 23.6% 22.5% 23.6% 22.5%
Revenue Data (monthly average):
Subscription Revenue per Retail,
OEM & Other Subscriber $10.42 $10.26 $10.39 $10.37
Subscription Revenue per Subscriber
in OEM Promotional Periods $5.97 $6.35 $6.15 $6.23
Subscription Revenue per XM
Activated Vehicle with Rental
Car Companies $6.75 $3.10 $7.03 $5.96
Subscription Revenue per Subscriber
of Data Services $35.95 $34.33 $34.77 $31.74
Average Monthly Subscription Revenue
per Subscriber ("ARPU") (8) $10.14 $10.05 $10.15 $10.09
Net Ad Sales Revenue per Subscriber $0.41 $0.50 $0.40 $0.43
Activation, Merchandise and Other
Revenue per Subscriber $1.16 $1.16 $0.93 $0.89
Total Revenue per Subscriber $11.71 $11.72 $11.48 $11.41
Expense Data:
Subscriber Acquisition Costs
("SAC") (9) $87 $74 $75 $65
Cost Per Gross Addition
("CPGA") (10) $140 $128 $121 $108
(Certain totals may not add due to the effects of rounding)
Footnotes:
(1) OEM subscribers include subscribers in OEM promotional periods as well
as XM activated vehicles with rental car companies.
(2) Retail subscribers include data services subscribers.
(3) Gross Subscriber Additions are paying subscribers newly activated in
the reporting period.
(4) Net Subscriber Additions represent the total net incremental paying
subscribers added during the period (Gross Subscriber Additions less
disconnects).
(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 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."
(6) Monthly Churn Rate represents the average percentage of self-paying
Retail, OEM & Other Subscribers that discontinued service during the
month divided by the monthly weighted average ending subscribers.
Monthly Churn Rate does not include OEM promotional period
deactivations or deactivations resulting from the change-out of XM-
enabled rental car activity.
(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, 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. 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. Stand-alone XM Radio Online
service is $7.99 per month. 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) Subscription Revenue includes monthly subscription revenues for our
satellite audio service and data services, net of any promotions or
discounts.
(9) SAC - 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 amounts under the prior
definition for the three and twelve months ended December 31, 2006
were $74 and $64, respectively.
(10) 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). The
previously reported amounts under the prior definition for the three
and twelve months ended December 31, 2006 were $128 and $108,
respectively.
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Comments
Subscribers are those who are receiving and have agreed to
pay for our service...In situations where XM receives no revenue from the
OEM during the trial period, the subscriber is not included in XM's
subscriber count.
SRI has no such limitation
Posted by: RonAndFezNoonTo2:40 | February 28, 2008 9:21 AM
You are incorrect. Sirius only counts paying subs... and parkinglot subs, prior to the sale of the car, but it is already been paid for.
If the car is sold and Sirius does not recieve payment, then it is not counted as a subscriber.
Posted by: Brian R. | February 28, 2008 9:56 AM
You are both correct however XM does not count parkinglot subs Sirius does and if in the parking lot for 7 months that’s a 7 month sub. Also during the free trial that sirius give for a year that is counted as a sub. XM does not count until an individual account is paid after the free trial
Posted by: Anonymous Coward | February 28, 2008 10:08 AM
XM does not count until an individual account is paid after the free trial
And then gives half of the money to GM for a GM car.
Posted by: John | February 28, 2008 12:06 PM
Sirius also gives money to their OEM partners for every install, but they still count it as a sub whether in a parking lot or in a free trial stage. So we see Sirius, bleeding red and still 2 million subs behind.
Posted by: pfreak | February 28, 2008 2:54 PM
John said,
>>>XM does not count until an individual account is paid after the free trial
And then gives half of the money to GM for a GM car.
This is partially incorrect.
Installs by GM, Honda, Acura and any other OEM that pays XM for a portion of the promo period, all become subs. XM receives payment from these OEM's, based on the installation number -- however, XM does not count them in their sub count until the "promo period" is activated, which is when the car is sold and driven off the lot. The sub becomes a promotional subscriber and it is counted in the sub count. According to today's release -- XM has approximately 777,000 promotional period subs that they are counting in their subcount, because they received revenue for them.
Conversely, installs by Hyundai, Nissan, Infinity, Toyota and Lexus -- do not pay XM for their promotional period. So XM does NOT count them when their promotional period is activated and the car is driven off the lot. This is a new method of accounting for these subs, that XM instituted last year. It is still early for this, but XM previously said that they may eventually put out a number on the size of this group of promo subs, while noting that they are not a part of XM's actual count. For now, I'd guestimate that there are approximately 200,000 of these "promo" and "uncounted" subs... purely based on the number that XM gave last quarter of OEM installs that were not sold yet.
FROM XM FILINGS:
"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"
Regarding revenue share... yes, there is a revenue share with the OEM's. All OEM's get a revenue share. Whether it's GM, Honda, Ford, Chrysler, Toyota, Nissan... you name it. The amount of the revenue shares from XM or Sirius to them is unknown. There are claims of 50% to GM, however that has never been substantiated beyond speculation. Though it is believed to be a lot... at the same time, the revenue share between Sirius and Chrysler is also believed to be quite high too, rumored to be as much as 40%. The others' share is unknown, but they get something... all of them do.
Regardless, the accounting by each is very different. Sirius receives payment for 1 year from their OEM's -- and the sub is counted. Though the vehicle sits on the lot for 30-90 days before it is sold, it is still counted as a sub -- though the revenue on it is not being recognized yet. After sale, it then goes through the 12 month promo period -- and like XM, a possible 30 day grace/accounting period before it is canceled. Added up, a Sirius promo sub can be counted for 15-16 months, although they do receive payment for 12 of those months.
XM receives payment for 2 of the 3 months of the promo period from GM and Honda, but they do not receive payment on the promo period for most of the others. As XM noted on their CC this morning, they had over 1 million OEM installs manufactured during the quarter. They too have a 30-90 day window that the car goes through before it is actually sold. Although XM received payment on most of these subs (since GM/Honda make up over 80% of these subs) -- XM does not count them yet. Then when they're sold, they will be counted -- as noted above. The remaining 20% (or whatever the split is) where XM did not receive payment for them, not only are they not counted now but they will not be counted once sold. As XM noted on their conference call today -- if they included their "parking lot subs" (where they got revenue from the install but they have not been sold yet), XM's sub count would be 10.3 million.
However to complicate matters -- XM immediately begins to recognize the SAC/CPGA expenses (subsidy's) related to ALL of these installs upon manufacture... not after they're sold and the promo period starts. So there is a lag -- with the expenses starting before the revenue starts to be recognized. This is a very conservative method of recognizing the expenses and revenue -- and costly too, because during ramp up of the newer OEM's (Toyota, Nissan, Hyundai) XM is taking huge hits at SAC/CPGA while not getting any revenue benefit from them. And XM's ramp from 2 million to "over 5 million" annually is only halfway there. They've got a lot more of "this" to go.
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