EX-99.1 2 c74605_ex99-1.htm

Exhibit 99.1

 

 

 

SiriusXM Reports Second Quarter 2013 Results

 

·Record Revenue of $940 Million, Up 12% From Second Quarter of 2012
·Net Income of $126 Million
·Adjusted EBITDA Grows 19% to a Record $283 Million
·Company Raises Full Year EBITDA Guidance to $1.14 Billion
·Share Repurchase Program Approaches $1.3 Billion Year to Date

 

NEW YORK – July 25, 2013 – Sirius XM Radio (NASDAQ: SIRI) today announced second quarter 2013 financial and operating results, including record revenue of $940 million, up 12% from the second quarter 2012 revenue of $838 million. Net income for the second quarter 2013 and 2012 was $126 million and $3.1 billion, respectively. Net income in the second quarter of 2012 benefitted from a $3 billion reversal of deferred income tax valuation allowances.

 

Income before income taxes rose 47% to $202 million in the second quarter compared to $138 million in the second quarter of 2012. Adjusted EBITDA for the second quarter of 2013 reached a record $283 million, up 19% from $237 million in the second quarter of 2012.

 

“SiriusXM’s second quarter results reflect record performance on almost every vital metric: the 25 million subscriber milestone, record revenue, adjusted EBITDA and adjusted EBITDA margin. We grew our revenue at double digit rates for the sixth consecutive quarter while being very mindful of our costs as we invest in advanced IP and telematics platforms designed to provide more services to our subscribers and automakers, noted Jim Meyer, Chief Executive Officer, SiriusXM.

 

“Our increase in adjusted EBITDA guidance speaks to our excellent first half performance as well as our outlook for further growth later this year. SiriusXM has now purchased 391 million shares of its common stock so far this year for nearly $1.3 billion, and we plan to continue using our growing free cash flow and strong balance sheet in a very disciplined way to reward our investors,” added Meyer.

 

Additional highlights of the second quarter include:

 

·Adjusted EBITDA Margin Reaches 30%. Adjusted EBITDA climbed 19% from last year’s second quarter to a record quarterly figure of $283 million, and a record adjusted EBITDA margin of 30%.
·Subscribers Exceed 25 Million Amid Record Growth. Net subscriber additions in the quarter were 715,762, up from 622,042 in the second quarter of 2012, marking the largest quarterly gain since the fourth quarter of 2007. Our total paid subscriber base reached a record 25.1 million, up 9% from the prior year period. Self-pay net subscriber additions were 423,076, while the self-pay subscriber base reached a record high of
 

 20.3 million, up 9% from the prior year period. Total paid and unpaid trials grew by 528,000 from the first quarter 2013 to 6.7 million.
·Free Cash Flow Reaches a Second Quarter Record. Free cash flow was $237 million, up from $230 million in the second quarter of 2012. Year-to-date free cash flow reached $379 million, an increase of 55% from the same period in 2012.

 

During the second quarter, we repurchased 195 million shares of our common stock for $650 million. We also repurchased approximately $130 million in principal amount of our outstanding debt during the second quarter. Following our $1 billion debt issuance in May, the Companys outstanding debt was approximately 3.2x our trailing adjusted EBITDA, below our target leverage of 3.5x. Combined with our strong cash position of $652 million and undrawn revolving credit facility of $1.25 billion, we have tremendous flexibility to continue pursuing capital returns, debt repurchases, and acquisitions, noted David Frear, SiriusXMs Executive Vice President and Chief Financial Officer.

 

2013 GUIDANCE

 

After increasing its total net additions guidance on July 9, 2013, the Company today increased its 2013 guidance for adjusted EBITDA and reiterated guidance for subscriber growth, revenue, and free cash flow:

 

·Self-pay net subscriber additions of approximately 1.6 million,
·Total net subscriber additions of approximately 1.5 million,
·Revenue of over $3.7 billion,
·Adjusted EBITDA of approximately $1.14 billion, and
·Free cash flow of approximately $915 million.
 

SECOND QUARTER 2013 RESULTS

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
(in thousands, except per share data)  2013   2012   2013   2012 
                     
Revenue:                    
Subscriber revenue  $814,718   $730,285   $1,598,060   $1,430,526 
Advertising revenue   21,757    20,786    41,968    39,456 
Equipment revenue   18,443    16,417    36,599    33,370 
Other revenue   85,192    70,055    160,881    138,912 
Total revenue   940,110    837,543    1,837,508    1,642,264 
Operating expenses:                    
Cost of services:                    
Revenue share and royalties   155,859    135,426    304,390    267,537 
Programming and content   70,381    65,169    144,991    135,265 
Customer service and billing   80,290    68,679    160,684    134,866 
Satellite and transmission   19,493    17,551    39,188    35,661 
Cost of equipment   5,442    7,150    12,469    12,956 
Subscriber acquisition costs   129,992    119,475    246,103    235,596 
Sales and marketing   68,058    57,422    133,956    115,781 
Engineering, design and development   15,052    6,272    29,894    18,962 
General and administrative   60,392    65,664    116,732    125,550 
Depreciation and amortization   67,415    66,793    134,433    132,910 
Total operating expenses   672,374    609,601    1,322,840    1,215,084 
Income from operations   267,736    227,942    514,668    427,180 
Other income (expense):                    
Interest expense, net of amounts capitalized   (49,728)   (72,770)   (95,902)   (149,742)
Loss on extinguishment of debt and credit facilities, net   (16,377)   (15,650)   (16,377)   (25,621)
Interest and investment income (loss)   294    (1,728)   1,932    (2,871)
Other income (loss)   256    (173)   502    (749)
Total other expense   (65,555)   (90,321)   (109,845)   (178,983)
Income before income taxes   202,181    137,621    404,823    248,197 
Income tax (expense) benefit   (76,659)   2,996,549    (155,699)   2,993,747 
Net income  $125,522   $3,134,170   $249,124   $3,241,944 
Foreign currency translation adjustment, net of tax   (109)   18    (281)   (38)
Total comprehensive income  $125,413   $3,134,188   $248,843   $3,241,906 
Net income per common share:                    
Basic  $0.02   $0.49   $0.04   $0.51 
Diluted  $0.02   $0.48   $0.04   $0.50 
Weighted average common shares outstanding:                    
Basic   6,354,755    3,765,573    6,307,541    3,766,508 
Diluted   6,447,517    6,506,159    6,526,698    6,521,614 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   June 30, 2013   December 31, 2012 
(in thousands, except share and per share data)  (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $651,769   $520,945 
Accounts receivable, net   101,203    106,142 
Receivables from distributors   111,288    104,425 
Inventory, net   16,688    25,337 
Prepaid expenses   149,408    122,157 
Related party current assets   9,127    13,167 
Deferred tax asset   894,303    923,972 
Other current assets   10,177    12,037 
Total current assets   1,943,963    1,828,182 
Property and equipment, net   1,523,615    1,571,922 
Long-term restricted investments   3,999    3,999 
Deferred financing fees, net   31,757    38,677 
Intangible assets, net   2,494,474    2,519,610 
Goodwill   1,815,365    1,815,365 
Related party long-term assets   36,506    44,954 
Long-term deferred tax asset   1,089,981    1,219,256 
Other long-term assets   11,526    12,878 
Total assets  $8,951,186   $9,054,843 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $550,959   $587,652 
Accrued interest   37,822    33,954 
Current portion of deferred revenue   1,539,841    1,474,138 
Current portion of deferred credit on executory contracts   71,854    207,854 
Current maturities of long-term debt   3,873    4,234 
Related party current liabilities   7,927    6,756 
Total current liabilities   2,212,276    2,314,588 
Deferred revenue   152,914    159,501 
Deferred credit on executory contracts   3,285    5,175 
Long-term debt   3,036,660    2,222,080 
Long-term related party debt   209,244    208,906 
Related party long-term liabilities   17,578    18,966 
Other long-term liabilities   80,383    86,062 
Total liabilities   5,712,340    5,015,278 
           
Stockholders’ equity:          
Preferred stock, par value $0.001; 50,000,000 authorized at June 30, 2013 and December 31, 2012:          
Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share); 0 and 6,250,100 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively       6 
Common stock, par value $0.001; 9,000,000,000 shares authorized; 6,257,721,498 and 5,262,440,085 shares issued; 6,247,221,498 and 5,262,440,085 shares outstanding, at June 30, 2013 and December 31, 2012, respectively   6,258    5,263 
Accumulated other comprehensive (loss) income, net of tax   (161)   120 
Additional paid-in capital   9,330,188    10,345,566 
Treasury stock, at cost; 10,500,000 and 0 shares of common stock at June 30, 2013 and December 31, 2012, respectively   (35,173)    
Accumulated deficit   (6,062,266)   (6,311,390)
Total stockholders’ equity   3,238,846    4,039,565 
Total liabilities and stockholders’ equity  $8,951,186   $9,054,843 
 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the Six Months Ended June 30, 
(in thousands)  2013   2012 
Cash flows from operating activities:          
Net income  $249,124   $3,241,944 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   134,433    132,910 
Non-cash interest expense, net of amortization of premium   10,932    21,031 
Provision for doubtful accounts   20,153    14,879 
Amortization of deferred income related to equity method investment   (1,388)   (1,388)
Loss on extinguishment of debt and credit facilities, net   16,377    25,621 
(Gain) loss on unconsolidated entity investments, net   (1,382)   3,469 
Dividend received from unconsolidated entity investment   13,217     
Loss on disposal of assets   126    488 
Share-based payment expense   30,012    28,869 
Deferred income taxes   159,191    (2,995,542)
Other non-cash purchase price adjustments   (137,889)   (147,328)
Changes in operating assets and liabilities:          
Accounts receivable   (15,214)   (26,879)
Receivables from distributors   (6,863)   (12,259)
Inventory   8,649    (173)
Related party assets   205    6,813 
Prepaid expenses and other current assets   (28,317)   (39,308)
Other long-term assets   1,353    16,579 
Accounts payable and accrued expenses   (69,310)   (51,596)
Accrued interest   3,868    (7,434)
Deferred revenue   59,116    79,288 
Related party liabilities   1,171    1,501 
Other long-term liabilities   (5,543)   2,238 
Net cash provided by operating activities   442,021    293,723 
           
Cash flows from investing activities:          
Additions to property and equipment   (62,980)   (48,944)
Net cash used in investing activities   (62,980)   (48,944)
           
Cash flows from financing activities:          
Proceeds from exercise of stock options   21,658    38,671 
Payment of premiums on redemption of debt   (14,719)   (19,211)
Repayment of long-term borrowings   (283,180)   (169,899)
Long-term borrowings, net of costs   1,136,640     
Common stock repurchased and retired   (1,108,616)    
Net cash used in financing activities   (248,217)   (150,439)
Net increase in cash and cash equivalents   130,824    94,340 
Cash and cash equivalents at beginning of period   520,945    773,990 
Cash and cash equivalents at end of period  $651,769   $868,330 
 

Subscriber Data and Operating Metrics

 

The following table contains subscriber data and key operating metrics for the three and six months ended June 30, 2013 and 2012, respectively:

 

   Unaudited 
   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2013   2012   2013   2012 
                 
Beginning subscribers   24,353,226    22,297,420    23,900,336    21,892,824 
Gross subscriber additions   2,655,488    2,481,004    5,165,402    4,642,697 
Deactivated subscribers   (1,939,726)   (1,858,962)   (3,996,750)   (3,616,059)
Net additions   715,762    622,042    1,168,652    1,026,638 
Ending subscribers   25,068,988    22,919,462    25,068,988    22,919,462 
                     
Self-pay   20,297,736    18,670,966    20,297,736    18,670,966 
Paid promotional   4,771,252    4,248,496    4,771,252    4,248,496 
Ending subscribers   25,068,988    22,919,462    25,068,988    22,919,462 
                     
Self-pay   423,076    462,876    727,462    762,224 
Paid promotional   292,686    159,166    441,190    264,414 
Net additions   715,762    622,042    1,168,652    1,026,638 
                     
Daily weighted average number of subscribers   24,651,268    22,553,702    24,331,646    22,272,282 
                     
Average self-pay monthly churn   1.7%   1.9%   1.8%   1.9%
                     
New vehicle consumer conversion rate   45%   45%   44%   45%
                     
ARPU  $12.28   $11.97   $12.16   $11.87 
SAC, per gross subscriber addition  $52   $54   $51   $57 

 

Glossary

 

Adjusted EBITDA - EBITDA is defined as net income before interest and investment income (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) depreciation and amortization and (iii) 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 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 June 30,   For the Six Months Ended June 30, 
   2013   2012   2013   2012 
                 
Net income (GAAP):  $125,522   $3,134,170   $249,124   $3,241,944 
Add back items excluded from Adjusted EBITDA:                    
Purchase price accounting adjustments:                    
Revenues   1,813    1,867    3,626    3,747 
Operating expenses   (69,479)   (73,423)   (137,889)   (147,449)
Share-based payment expense (GAAP)   15,494    13,917    30,012    28,869 
Depreciation and amortization (GAAP)   67,415    66,793    134,433    132,910 
Interest expense, net of amounts capitalized (GAAP)   49,728    72,770    95,902    149,742 
Loss on extinguishment of debt and credit facilities, net (GAAP)   16,377    15,650    16,377    25,621 
Interest and investment (income) loss (GAAP)   (294)   1,728    (1,932)   2,871 
Other (income) loss (GAAP)   (256)   173    (502)   749 
Income tax expense (benefit) (GAAP)   76,659    (2,996,549)   155,699    (2,993,747)
Adjusted EBITDA  $282,979   $237,096   $544,850   $445,257 

 

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 six months ended June 30, 2013 and 2012:

 
   Unaudited For the Three Months Ended June 30, 2013 
(in thousands)  As Reported   Purchase Price
Accounting
Adjustments
   Allocation of
Share-based
Payment Expense
   Adjusted 
                 
Revenue:                    
Subscriber revenue  $814,718   $   $   $814,718 
Advertising revenue   21,757            21,757 
Equipment revenue   18,443            18,443 
Other revenue   85,192    1,813        87,005 
Total revenue  $940,110   $1,813   $   $941,923 
Operating expenses                    
Cost of services:                    
Revenue share and royalties  $155,859   $40,831   $   $196,690 
Programming and content   70,381    2,478    (1,639)   71,220 
Customer service and billing   80,290        (511)   79,779 
Satellite and transmission   19,493        (827)   18,666 
Cost of equipment   5,442            5,442 
Subscriber acquisition costs   129,992    22,017        152,009 
Sales and marketing   68,058    4,153    (3,182)   69,029 
Engineering, design and development   15,052        (1,634)   13,418 
General and administrative   60,392        (7,701)   52,691 
Depreciation and amortization (a)   67,415            67,415 
Share-based payment expense           15,494    15,494 
Total operating expenses  $672,374   $69,479   $   $741,853 

 

(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 June 30, 2013 was $12,000.

 

   Unaudited For the Three Months Ended June 30, 2012 
(in thousands)  As Reported   Purchase Price
Accounting
Adjustments
   Allocation of
Share-based
Payment Expense
   Adjusted 
                 
Revenue:                    
Subscriber revenue  $730,285   $54   $   $730,339 
Advertising revenue   20,786            20,786 
Equipment revenue   16,417            16,417 
Other revenue   70,055    1,813        71,868 
Total revenue  $837,543   $1,867   $   $839,410 
Operating expenses                    
Cost of services:                    
Revenue share and royalties  $135,426   $36,024   $   $171,450 
Programming and content   65,169    10,431    (1,231)   74,369 
Customer service and billing   68,679        (388)   68,291 
Satellite and transmission   17,551        (688)   16,863 
Cost of equipment   7,150            7,150 
Subscriber acquisition costs   119,475    23,530        143,005 
Sales and marketing   57,422    3,438    (2,053)   58,807 
Engineering, design and development   6,272        (1,282)   4,990 
General and administrative   65,664        (8,275)   57,389 
Depreciation and amortization (a)   66,793            66,793 
Share-based payment expense           13,917    13,917 
Total operating expenses  $609,601   $73,423   $   $683,024 

 

(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 June 30, 2012 was $14,000.

 
   Unaudited For the Six Months Ended June 30, 2013 
(in thousands)  As Reported   Purchase Price
Accounting
Adjustments
   Allocation of
Share-based
Payment Expense
   Adjusted 
                 
Revenue:                    
Subscriber revenue  $1,598,060   $   $   $1,598,060 
Advertising revenue   41,968            41,968 
Equipment revenue   36,599            36,599 
Other revenue   160,881    3,626        164,507 
Total revenue  $1,837,508   $3,626   $   $1,841,134 
Operating expenses                    
Cost of services:                    
Revenue share and royalties  $304,390   $80,592   $   $384,982 
Programming and content   144,991    4,956    (3,281)   146,666 
Customer service and billing   160,684        (981)   159,703 
Satellite and transmission   39,188        (1,677)   37,511 
Cost of equipment   12,469            12,469 
Subscriber acquisition costs   246,103    44,022        290,125 
Sales and marketing   133,956    8,319    (6,243)   136,032 
Engineering, design and development   29,894        (3,281)   26,613 
General and administrative   116,732        (14,549)   102,183 
Depreciation and amortization (a)   134,433            134,433 
Share-based payment expense           30,012    30,012 
Total operating expenses  $1,322,840   $137,889   $   $1,460,729 

 

(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 six months ended June 30, 2013 was $25,000.

 

   Unaudited For the Six Months Ended June 30, 2012 
(in thousands)  As Reported   Purchase Price
Accounting
Adjustments
   Allocation of
Share-based
Payment Expense
   Adjusted 
                 
Revenue:                    
Subscriber revenue  $1,430,526   $121   $   $1,430,647 
Advertising revenue   39,456            39,456 
Equipment revenue   33,370            33,370 
Other revenue   138,912    3,626        142,538 
Total revenue  $1,642,264   $3,747   $   $1,646,011 
Operating expenses                    
Cost of services:                    
Revenue share and royalties  $267,537   $70,870   $   $338,407 
Programming and content   135,265    22,134    (2,606)   154,793 
Customer service and billing   134,866        (815)   134,051 
Satellite and transmission   35,661        (1,473)   34,188 
Cost of equipment   12,956            12,956 
Subscriber acquisition costs   235,596    47,616        283,212 
Sales and marketing   115,781    6,829    (4,413)   118,197 
Engineering, design and development   18,962        (2,714)   16,248 
General and administrative   125,550        (16,848)   108,702 
Depreciation and amortization (a)   132,910            132,910 
Share-based payment expense           28,869    28,869 
Total operating expenses  $1,215,084   $147,449   $   $1,362,533 

 

(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 six months ended June 30, 2012 was $28,000.

 

ARPU - is derived from total earned subscriber revenue, 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 June 30,   For the Six Months Ended June 30, 
   2013   2012   2013   2012 
                 
Subscriber revenue (GAAP)  $814,718   $730,285   $1,598,060   $1,430,526 
Add: advertising revenue (GAAP)   21,757    20,786    41,968    39,456 
Add: other subscription-related revenue (GAAP)   71,648    58,753    135,785    116,474 
Add: purchase price accounting adjustments       54        121 
   $908,123   $809,878   $1,775,813   $1,586,577 
                     
Daily weighted average number of subscribers   24,651,268    22,553,702    24,331,646    22,272,282 
                     
ARPU  $12.28   $11.97   $12.16   $11.87 

 

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, 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. 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 June 30,   For the Six Months Ended June 30, 
   2013   2012   2013   2012 
                 
Customer service and billing expenses (GAAP)  $80,290   $68,679   $160,684   $134,866 
Less: share-based payment expense   (511)   (388)   (981)   (815)
   $79,779   $68,291   $159,703   $134,051 
                     
Daily weighted average number of subscribers   24,651,268    22,553,702    24,331,646    22,272,282 
                     
Customer service and billing expenses, per average subscriber  $1.08   $1.01   $1.09   $1.00 

 

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 June 30,   For the Six Months Ended June 30, 
   2013   2012   2013   2012 
Cash Flow information                    
Net cash provided by operating activities  $273,106   $253,775   $442,021   $293,723 
Net cash used in investing activities  $(36,546)  $(23,757)  $(62,980)  $(48,944)
Net cash provided by (used in) financing activities  $208,482   $(108,264)  $(248,217)  $(150,439)
Free Cash Flow                    
Net cash provided by operating activities  $273,106   $253,775   $442,021   $293,723 
Additions to property and equipment   (36,546)   (23,757)   (62,980)   (48,944)
Free cash flow  $236,560   $230,018   $379,041   $244,779 

 

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 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 June 30,   For the Six Months Ended June 30, 
   2013   2012   2013   2012 
                 
Subscriber acquisition costs (GAAP)  $129,992   $119,475   $246,103   $235,596 
Less: margin from direct sales of radios and accessories (GAAP)   (13,001)   (9,267)   (24,130)   (20,414)
Add: purchase price accounting adjustments   22,017    23,530    44,022    47,616 
   $139,008   $133,738   $265,995   $262,798 
                     
Gross subscriber additions   2,655,488    2,481,004    5,165,402    4,642,697 
                     
SAC, per gross subscriber addition  $52   $54   $51   $57 

 

###

 

About Sirius XM Radio

 

Sirius XM Radio Inc. is the world’s largest radio broadcaster measured by revenue and has more than 25 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.

 

On social media, join the SiriusXM community on Facebook, facebook.com/siriusxm, Twitter, twitter.com/siriusxm, Instagram, instagram.com/siriusxm, and YouTube at youtube.com/siriusxm.

 

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 radio and audio services; 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; rapid technological and industry change; failure of third parties to perform; changes in consumer protection laws and their enforcement; 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, 2012, 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.

 

E-SIRI

 

Contact Information for Investors and Financial Media:

 

Investors:

 

Hooper Stevens

212 901 6718

hooper.stevens@siriusxm.com

 

Media:

 

Patrick Reilly

212 901 6646

patrick.reilly@siriusxm.com