XM Satellite Radio Holdings Inc. Announces Fourth Quarter and Full Year 2007 Results
Fourth Quarter and Full Year Net Loss Narrows;
2007 Revenue Increases 22% to $ 1.1 Billion;
XM Surpasses 9 Million Subscribers in 2007;
XM-Equipped New Car Production Increases 64% in 2007
XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) today reported
financial and operating results for the fourth quarter and full year
ended December 31, 2007. XM announced that 2007 revenue increased year
over year by 22 percent to $1.1 billion. XM added 1.4 million net new
subscribers ending 2007 with more than 9 million subscribers, an 18
percent increase over the prior year. In 2007, XM’s automotive partners
increased production of XM-equipped vehicles by 64 percent over 2006,
with 3.5 million installs and more than a million in the fourth quarter
alone.
“XM substantially improved its business operations in 2007 as we
grew our subscriber base and revenues and narrowed our loss,
positioning us as a stronger and more focused company better positioned
to meet the competitive challenges of the future,” said Nate Davis,
president and chief executive officer, XM Satellite Radio. “XM has
doubled its revenues in the last two years and our investment and
robust performance in the new car market establishes a clear path for
sustained future growth.”
“Our pending merger will benefit shareholders and offer consumers
more programming choices and lower prices,” Davis continued. “We are
pleased with the strong support our merger has received from a broad
range of organizations, and we look forward to regulatory approval in
the near future.”
Fourth Quarter and Full-Year Financial Results
For the fourth quarter of 2007, XM reported total revenue of $308
million, an increase of 20 percent over the $257 million total revenue
reported in fourth quarter of 2006. XM’s full year 2007 total revenue
was $1.1 billion, an increase of 22 percent over the $933 million total
revenue recorded in 2006.
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.
Net loss per share for the fourth quarter was 78 cents, which
included a total of 25 cents for certain merger and settlement related
charges.
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.
Industry-leading Programming
2007 was another exceptional year for XM programming. XM kicked off
its third season of Major League Baseball and its first season of
college sports from all six major conferences: the ACC, BIG EAST, Big
Ten, Big 12, Pac-10, and SEC. The company introduced new channels,
including XMX, an innovative new channel featuring XM’s most popular
and critically-acclaimed original music shows all in one place. In
2007, Bob Dylan launched the second season of his award-winning show,
“Theme Time Radio Hour,” and XM recently marked the expansion of
exclusive programming on the popular Oprah & Friends channel. In
anticipation of the presidential primary season, XM debuted the
nation’s first radio channel dedicated to a presidential campaign,
POTUS ‘08, which was named “one of the ten most important voices to
listen to” this election year by Best Life magazine.
XM’s Automotive Partners Continue to Expand Availability of
XM-Equipped Vehicles - First Toyota Brands with Factory-Equipped XM Now
At Dealerships
In 2007, XM’s automotive partners produced 3.5 million XM-equipped
vehicles. The fourth quarter of 2007 saw XM’s automotive partners
continue to announce and introduce more vehicle models with
factory-equipped XM and the real-time traffic service XM NavTraffic.
The all-new 2009 Toyota Corolla and Matrix are now available with
factory-installed XM Radio. In addition, XM NavTraffic will be
available on Corolla and Matrix this spring. General Motors expanded XM
as standard equipment on all 2008 Buick, HUMMER, and Saab models.
Hyundai announced that the 2008 Tiburon, Accent, and Tuscon models with
standard XM will be available in the spring of 2008. Factory-equipped
XM and XM NavTraffic options for the 2009 Nissan Murano are available
now, and Kawasaki unveiled its first motorcycles with satellite radio
in partnership with XM.
XM Podcasts Debut on XMRadio.com and Apple’s iTunes Store
In December 2007, XM introduced free podcasts of select XM programs
made available on XMRadio.com and Apple’s iTunes Store. Two of XM’s
podcasts ranked among iTunes Top 10 Podcasts. For the first time,
consumers can download a variety of XM talk, music, comedy, and sports
podcasts for portable media players and personal computers. These
podcasts let consumers experience a small, but compelling, sample of
XM’s programming diversity.
XM Radios Take Top Honors in 2007 Year-End Reviews
XM’s newest radio, the XpressRC plug-and-play receiver, took top
honors in 2007 year-end product reviews by WIRED, Popular Science, and
Men’s Health magazines. In addition, XM received four Innovations
Awards for outstanding products at the 2008 Consumer Electronics Show.
Webcast and Conference Call Information
XM will host an earnings conference call to discuss its full year
and fourth quarter 2007 results today, February 28, at 10:00 AM Eastern
Time. Prior to the call, you can access XM Radio’s full year and fourth
quarter 2007 results on the Company’s website at http://www.xmradio.com/.
To listen to the conference call via telephone, please call one of the
following numbers approximately 10 minutes prior to the planned start
of the call:
Call-in number: (877) 265-5808 Local call-in number: (706) 679-7931 Conference ID#: 35479749
The conference call can also be accessed through a live webcast on the Company’s website at http://www.xmradio.com/(click
on “Investor Info” link at the bottom of the page). The webcast of the
call will also be archived on the Company’s Web site. A replay of the
conference call will be available after 11:30 a.m. ET on February 28
until May 28 via the following numbers:
Playback Numbers: (800) 642-1687 Local playback number: (706) 645-9291 Conference ID#: 35479749 About XM
XM (NASDAQ: XMSR) is America’s number one satellite radio company
with more than 9 million subscribers. Broadcasting live daily from
studios in Washington, DC, New York City, Chicago, Nashville, Toronto
and Montreal, XM’s 2008 lineup includes more than 170 digital channels
of choice from coast to coast: commercial-free music, premier sports,
news, talk radio, comedy, children’s and entertainment programming; and
the most advanced traffic and weather information.
XM, the leader in satellite-delivered entertainment and data
services for the automobile market through partnerships with General
Motors, Honda, Hyundai, Nissan, Porsche, Subaru, Suzuki and Toyota is
available in 140 different vehicle models for 2008. XM’s
industry-leading products are available at consumer electronics
retailers nationwide. XM programming is also available through XM Radio
Online, as downloads of original XM shows via podcasts from XM’s Web
site or the Apple’s iTunes Store, and as streams of commercial-free XM
music channels to AT&T and Alltel wireless customers through XM
Radio Mobile. 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, our significant expenditures
and losses, our dependence on technology and third party vendors, our
potential need for additional financing, the health of our satellites,
the impact of our proposed merger with Sirius, our substantial
indebtedness as well as other risks described in XM Satellite Radio
Holdings Inc.’s Form 10-K filed with the Securities and Exchange
Commission on 3-1-07. Copies of the filing are available upon request
from XM Radio’s Investor Relations Department.
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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