XM Satellite Radio Holdings Inc. Announces 3Q 2005 Results (LONG VERSION)

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    XM Satellite Radio Holdings Inc. Announces 3Q 2005 Results
    Press Release Source: XM Satellite Radio

    XM Satellite Radio Holdings Inc. Announces Third Quarter 2005 Results and Reaffirms 6 Million Subscriber Guidance
    Thursday October 27, 7:00 am ET Revenues up 134% to $153 million in third quarter, compared to prior year period; Subscribers double to 5,034,642 from prior year; Expands lead with 617,152 net additions; GM and Honda to produce more than 2 million 2006 XM-equipped vehicles

    WASHINGTON, Oct. 27 /PRNewswire-FirstCall/ -- XM Satellite Radio Holdings Inc. (Nasdaq: XMSR - News) today reported financial and operating results for the third quarter ended September 30, 2005. XM ended the quarter with 5,034,642 subscribers, doubling the 2,516,023 subscribers reported last year for the third quarter. The growth was driven by third quarter net subscriber additions of 617,152, a 48 percent increase over the 415,671 net subscribers added in the third quarter 2004. Given its strong performance in the first three quarters, XM reaffirms its guidance of exceeding 6 million subscribers by the end of 2005.

    (Logo: http://www.newscom.com/cgi-bin/prnh/20000724/XMSATLOGO )

    XM's net loss for the third quarter 2005 was ($131.9) million, as compared to ($118.0) million in the third quarter 2004. XM reported an EBITDA loss of ($73.8 ) million for the third quarter 2005 compared to a third quarter 2004 loss of ($62.9) million.

    Record Revenue from Cost-Effective Subscriber Growth

    For the quarter, XM reported revenue of $153 million, an increase of 134 percent over the $65 million reported in the third quarter 2004. XM's third quarter subscriber growth was driven by strong automotive and retail distribution performance with a range of full-featured products. Subscriber Acquisition Costs (SAC) in the third quarter 2005 were $53, a decrease from the $57 in the third quarter 2004. Cost Per Gross Addition (CPGA) in the third quarters of both 2005 and 2004 was $89. XM products are well stocked for the holiday season and XM expects to accelerate its subscriber and revenue growth through the fourth quarter.

    GM and Honda to produce more than 2 million 2006 XM-equipped vehicles

    In September, General Motors announced the production of its 3 millionth vehicle with a factory-installed XM radio. General Motors also announced it plans to manufacture 1.55 million vehicles factory-installed with XM in the 2006 calendar year. In addition, Honda announced its plans to produce 550,000 XM equipped vehicles in the 2006 model year, compared to a 2005 target of 400,000. XM's OEM partners represent 61 percent of the U.S. auto market, with automotive partners Toyota and Hyundai gearing up for XM factory installation beginning in the 2007 model year.

    XM Expands Sports, Talk and Women's Programming

    XM is the satellite radio leader in live sports content and will broadcast over 5,000 live sporting events each year. XM is capping off its inaugural season of exclusive Major League Baseball coverage with the biggest promotion in World Series history, offering every ticket holder to Game One a voucher to receive a free Delphi XM RoadyXT radio with a subscription commitment. In addition to MLB, XM is now broadcasting National Hockey League games as a part of a 10-year agreement. XM will become the exclusive satellite radio network of the NHL beginning with the 2007-2008 season. XM also carried the USTA US Open Tournament and PGA TOUR Golf, and it introduced a new Spanish-language sports channel XM Deportivo, which will offer 2006 World Cup Soccer. Earlier this month, XM also launched Take Five, a channel dedicated to women, featuring Ellen DeGeneres, Tyra Banks, the Satellite Sisters and content from the Food Network and HGTV. XM recently announced that the FOX News Talk channel will be available in January, featuring FOX News personalities Bill O'Reilly, Tony Snow, and others.

    XM Broadens Exposure with Strategic Partnerships

    XM continues to broaden its exposure by offering its content on AOL and soon DIRECTV (available in mid-November) and announcing XM+Napster, an online music download service, which will allow customers to purchase music heard on XM. All these strategic relationships complement XM's marketing partnerships with Starbucks Coffee, JetBlue, AirTran Airways, Hyatt Hotels, Avis, National and Alamo, which together help build XM brand awareness and trial.

    XM Canada Receives Final Regulatory Approval

    In September, the Canadian Federal Cabinet gave final regulatory approval to XM's Canadian partner. XM Canada plans to offer a broad range of music, sports, news, and talk radio channels in time for the holiday season.

    About XM Satellite Radio

    XM (Nasdaq: XMSR - News) is America's number one satellite radio service with more than 5 million subscribers. Broadcasting live daily from studios in Washington, DC, New York City and Nashville at the Country Music Hall of Fame, XM's 2005 lineup includes more than 150 digital channels of choice from coast to coast: the most commercial-free music channels, plus premier sports, talk, comedy, children's and entertainment programming; and 21 channels of the most advanced traffic and weather information. XM was named Best Radio Service at the 2004 Billboard Digital Entertainment Awards.

    XM, the leader in satellite-delivered entertainment and data services for the automobile market through partnerships with General Motors, Honda, Toyota, Hyundai, Nissan, Porsche, and Volkswagen/Audi, is available in more than 120 different vehicle models for 2005. XM's industry-leading products are available at consumer electronics retailers nationwide. For more information about XM hardware, programming and partnerships, please visit http://www.xmradio.com.

    Factors that could cause actual results to differ materially from those in the forward-looking statements in this press release include demand for XM Satellite Radio's service, the Company's dependence on technology and third party vendors, its potential need for additional financing, as well as other risks described in XM Satellite Radio Holdings Inc.'s Form 8-K filed with the Securities and Exchange Commission on 8-5-05. Copies of the filing are available upon request from XM Radio's Investor Relations Department.

    XM SATELLITE RADIO HOLDINGS INC.
    UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS

    (In thousands Except Share and Per Share Amounts)

    Three Months ended Nine Months ended
    September 30, September 30,
    2005 2004 2005 2004
    Revenue:
    Subscription $140,001 $59,616 $346,361 $147,867
    Activation 2,650 1,305 6,987 3,230
    Merchandise 2,640 1,414 9,555 3,147
    Net ad sales 5,332 2,062 12,820 4,459
    Other 2,489 961 5,408 2,601
    Total revenue 153,112 65,358 381,131 161,304

    Operating expenses:

    Cost of revenue:
    (excludes depreciation
    & amortization, shown
    below)
    Revenue share
    & royalties 25,788 10,823 65,985 36,780
    Customer care
    & billing 17,794 10,021 51,662 26,081
    Cost of
    merchandise 7,857 2,293 18,440 5,659
    Ad sales 2,547 1,504 6,414 4,148
    Satellite &
    terrestrial 11,813 8,622 31,003 27,855
    Broadcast &
    operations:
    Broadcast 4,274 2,782 11,903 7,882
    Operations 6,498 3,350 17,608 9,383
    Total broadcast
    & operations 10,772 6,132 29,511 17,265
    Programming
    & content 28,388 8,629 70,457 22,969

    Total cost of
    revenue 104,959 48,024 273,472 140,757

    Research & development
    (excludes depreciation
    and amortization,
    shown below) 7,885 6,684 20,970 19,584
    General & administrative
    (excludes depreciation
    and amortization,
    shown below) 12,534 7,435 30,651 19,826
    Marketing (excludes
    depreciation and
    amortization, shown
    below):
    Retention & support 6,092 3,552 15,691 9,490
    Subsidies &
    distribution 54,241 37,305 150,867 107,387
    Advertising &
    marketing 29,581 16,627 96,609 51,632
    Marketing 89,914 57,484 263,167 168,509
    Amortization of
    GM liability 9,313 9,313 27,938 27,938
    Total marketing 99,227 66,797 291,105 196,447

    Depreciation &
    amortization 38,040 36,998 106,841 116,036

    Total operating
    expenses 262,645 165,938 723,039 492,650

    Operating loss (109,533) (100,580) (341,908) (331,346)

    Interest income 7,266 1,463 16,368 3,628
    Interest expense (26,733) (19,007) (71,234) (66,353)
    Other income (expense) (2,290) 709 121 (33,365)

    Net loss before
    income taxes (131,290) (117,415) (396,653) (427,436)

    Provision for deferred
    income taxes (579) (579) (1,737) (26,731)

    Net Loss (131,869) (117,994) (398,390) (454,167)

    8.25% Series B and C
    preferred stock
    dividend requirement (2,149) (2,149) (6,448) (6,654)

    Net Loss attributable
    to common
    stockholders $(134,018) $(120,143) $(404,838) $(460,821)

    Basic and diluted
    net loss per share: $(0.60) $(0.59) $(1.88 ) $(2.37)
    Weighted average shares
    used in computing
    net loss per share
    - basic and
    diluted 221,949,069 204,553,656 215,484,949 194,714,000

    Reconciliation of
    Net Loss to EBITDA:
    Net loss as
    reported $(131,869) $(117,994) $(398,390) $(454,167)
    Add back
    non-EBITDA items
    included in
    net loss:
    Interest income (7,266) (1,463) (16,368) (3,628)
    Interest expense 26,733 19,007 71,234 66,353
    Depreciation &
    amortization 38,040 36,998 106,841 116,036
    Provision for
    deferred income
    taxes 579 579 1,737 26,731

    EBITDA $(73,783) $(62,873) $(234,946) $(248,675)


    SELECTED BALANCE As of As of
    SHEET DATA 9/30/2005 12/31/2004
    (Unaudited)

    Cash and cash
    equivalents $754,131 $717,867
    Restricted
    investments 5,446 4,492
    System under
    construction 194,048 329,355
    Property and
    equipment
    in service, net 685,440 461,333
    DARS licenses 147,496 148,391
    Total assets 2,073,147 1,821,635
    Deferred revenue 303,445 152,347
    Total long-term
    debt, net of
    current portion 1,086,054 948,741
    Total liabilities 1,809,122 1,485,472
    Stockholders'
    equity 264,025 336,163


    XM SATELLITE RADIO HOLDINGS INC.

    Three Months ended
    September 30,
    SELECTED OPERATING METRICS 2005 2004

    EBITDA (in thousands) (1) $(73,783) $(62,873)

    Subscriber Data:
    Net Subscriber Additions (2) 617,152 415,671

    Aftermarket, OEM & Other
    Subscribers (3) 4,367,945 2,092,600
    Subscribers in OEM Promotional
    Periods (4) 624,580 398,993
    XM Activated Vehicles with Rental
    Car Companies (5) 42,117 24,430
    Total Ending Subscribers
    (3) (4) (5) (6) 5,034,642 2,516,023

    Revenue Data:
    Subscription Revenue per Aftermarket, OEM
    & Other Subscriber $10.36 $9.24
    Subscription Revenue per Subscriber in OEM
    Promotional Periods $5.99 $5.63
    Subscription Revenue per XM Activated
    Vehicle with Rental Car Companies $10.25 $9.47

    Subscription Revenue per Subscriber (7) $9.78 $8.64
    Net Ad Sales Revenue per Subscriber (8 ) $0.37 $0.30
    Activation, Equipment and Other Revenue per
    Subscriber $0.54 $0.51
    Total Revenue per Subscriber $10.69 $9.45

    Expense Data:
    Subscriber Acquisition Costs (SAC) (9) $53 $57
    Cost Per Gross Addition (CPGA) (10) $89 $89

    (1) EBITDA is commonly referred to in our business as net loss before interest income, interest expense, income taxes, depreciation and amortization. Consistent with regulatory requirements, EBITDA includes Other Income (Expense). EBITDA is not a measure of financial performance under generally accepted accounting principles.
    We believe EBITDA is often a useful measure of a company's operating performance and is a significant basis used by our management to measure the operating performance of our business. Because we have funded and completed 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. EBITDA, which excludes this information, provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of the bases
    for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating loss or cash flow from operating activities, as those terms are defined under
    generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance.
    (2) Total net subscriber additions for the three months ended September 30, 2005, include 305,284 retail, 314,088 OEM, and (2,220) rental cars.
    (3) Ending subscribers include 831,425 family plan subscriptions at a multi-unit rate of $6.99 per radio per month.
    (4) OEM Promotional Subscribers are subscribers who have either a portion or all of their subscription fee paid for by an OEM for a fixed period following the initial purchase or lease of the vehicle. Currently, at the time of sale, vehicle owners generally receive a 3- month trial subscription. XM generally receives two months of the 3-month trial subscription from the vehicle manufacturer. The automated activation program provides activated XM radios on dealer lots for test drives. GM and Honda generally indicate the inclusion of 3 months free of XM service on the window sticker of XM-enabled vehicles. We measure the success of these programs based on the percentage that elect to continue to receive the XM service and convert to self-paying subscribers after the initial promotion period -- we refer to this as the "conversion rate". The conversion rate for the quarter ended September 30, 2005 is 56% and reflects the
    auto activation program, with all XM-enabled vehicles activated for the promotional period.
    (5) Rental car activity commenced in late June 2003. At September 30, 2005, there were 42,117 XM subscriptions in rental vehicles. For the initial Model Year 2003 XM-enabled rental vehicles, XM receives payments based on the use of the service. Customers are charged $2.99
    per day per vehicle for use of the XM service, on which XM receives a revenue share. For subsequent Model Year 2004 and later vehicles, XM receives $10 per subscription per month.
    (6) Subscribers are those who are receiving and have agreed to pay for our satellite audio 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 satellite audio service. Radios that are revenue generating are counted individually as subscribers. Promotional periods generally include the period of trial service plus 30 days for the receipt and processing of payments.
    (7) Subscription Revenue includes monthly subscription revenues for our satellite audio service, net of any promotions or discounts.
    (8 ) Net Ad Sales Revenue includes sales of advertisements and program sponsorships on the XM network net of agency commissions.
    (9) SAC is a subset of total CPGA and includes radio manufacturer subsidies, certain sales, activation and installation commissions, and hardware-related promotions. These costs are reported in subsidies & distribution. SAC also includes the negative margin on equipment sales. These expenses are divided by the appropriate per
    unit gross additions, or units manufactured.
    (10) CPGA includes all costs in SAC, as well as advertising and marketing expenses, divided by gross additions for the period.

    Source: XM Satellite Radio
     

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