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SiriusXM Reports Second Quarter 2019 Results

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NEW YORK, July 30, 2019 /PRNewswire/ -- SiriusXM today announced second quarter 2019 operating and financial results. Total revenue of $2.0 billion increased 38% compared to the prior year period, boosted by the acquisition of Pandora Media on February 1, 2019. On a pro forma basis, revenue climbed 9% from $1.8 billion in the second quarter of 2018. The Company's net income totaled $263 million in the second quarter, compared to $293 million in the prior year period. Net income per diluted common share was $0.06 in the second quarter and the prior year period.

SIRIUS XM logo. (PRNewsFoto/SIRIUS XM Radio)

Adjusted EBITDA grew 22% to a record $618 million in the second quarter and resulted in an adjusted EBITDA margin of 31.2%, growing approximately 330 basis points from 27.9% in the second quarter 2018. The adjusted EBITDA margin in the quarter was driven primarily by revenue growth across the combined businesses and cost efficiencies in subscriber acquisition costs and revenue share and royalties.

"Our company produced outstanding financial and operating results once again this quarter, and I'm pleased by the quick progress we've made in integrating Pandora. Revenues and adjusted EBITDA each reached records in the period. We're thrilled with the results in the first half of the year, and we are raising 2019 guidance for revenue and adjusted EBITDA and reiterating our guidance for net subscriber additions and free cash flow," said Jim Meyer, Chief Executive Officer, SiriusXM.

"We continue to offer outstanding new programming across comedy, sports, talk and music, with some of the best brands in all of media. Lady Gaga played a once-in-a-lifetime show for SiriusXM subscribers and Pandora listeners in late June at Harlem's Apollo Theater, marking the first-ever combined SiriusXM and Pandora event. We debuted "Netflix Is A Joke Radio," a full-time comedy channel with Netflix, and announced plans for a new music channel with SoulCycle. We launched a new jam band channel with Phish, and special pop-up channels with Madonna, Cher, Dave Matthews Band and the music of Pavarotti. And, last week, we were thrilled to announce a groundbreaking and unprecedented collaboration with platinum-selling recording artist Drake — our content is a true competitive advantage," added Meyer.

Pro forma figures assume the Pandora acquisition closed on January 1, 2018.

SECOND QUARTER 2019 HIGHLIGHTS

SiriusXM operates two complementary audio entertainment businesses — our SiriusXM business and our Pandora business. Further information regarding these two segments will be contained in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2019. The pro forma financial and operating highlights of these two segments are presented separately below and exclude the impact of share-based payment expense.

SIRIUSXM

  • Self-Pay Subscribers Top 29.3 Million. SiriusXM added 290 thousand net new self-pay subscribers in the second quarter to end with more than 29.3 million self-pay subscribers. Total net subscriber additions in the second quarter were 174 thousand, resulting in more than 34.3 million total SiriusXM subscribers at the end of the period. Paid promotional subscribers decreased due to declines in shipments from automakers offering paid promotional subscriptions. Self-pay monthly churn for the quarter was 1.7%, compared to 1.6% in the second quarter of 2018.
  • Record SiriusXM Revenue Over $1.5 Billion. Second quarter revenue of $1.5 billion grew 7% compared to the prior year period. This growth was driven by a 3% increase in total SiriusXM subscribers and 4% growth in SiriusXM's average revenue per user (ARPU) to $13.83.
  • Gross Profit Grows 7%. Total cost of services at SiriusXM increased 7% to $594 million in the second quarter, driven primarily by higher revenue share and royalties and programming and content. Gross profit at SiriusXM in the quarter totaled $944 million, increasing 7% over the second quarter of 2018, and produced a gross margin of 61%, flat compared to the prior year period.
  • Major App Upgrades; Streaming Now Included for 30 Million Subs. SiriusXM Select subscribers now have unlimited streaming access to the hundreds of SiriusXM music, sports, talk, news and entertainment channels, at no additional cost, outside the car on a phone, at home and online. With this new streaming, customers will also get access to over 100 recently launched Xtra Music Channels and an expanded preview of SiriusXM Video. With the launch of Personalized Stations Powered by Pandora, subscribers to the SiriusXM All Access and SiriusXM Premier Streaming packages will now be able to create their own customized commercial-free music stations within the SiriusXM app.

PANDORA

  • Advertising Revenue Grows 13%. Ad revenue at Pandora reached a second quarter record of $306 million, growing 13% over the second quarter of 2018. Ad revenue was driven by record second quarter monetization of $80 per thousand hours, growing 17% over the second quarter 2018. Strength in audio and video programmatic and engagement-based video as well as the expansion of off-platform efforts and fees generated on the AdsWizz platform drove revenue growth. Total revenue for Pandora grew 15% to $441 million in the quarter, aided in part by an 18% increase in subscriber revenue to $135 million.
  • Total Ad Supported Listener Hours of 3.49 Billion. Monthly Active Users (MAUs) at Pandora were 64.9 million in the second quarter, down from 71.4 million in the prior year period. Total ad supported listener hours were 3.49 billion in the period, down from 3.86 billion in the second quarter of 2018.
  • Self-Pay Net Adds of 64 Thousand. Pandora added 64 thousand net new self-pay subscribers in the second quarter to end with over 6.2 million self-pay subscribers. Total Pandora subscribers were 7.0 million at the end of the period, an increase of 16% over the second quarter 2018.
  • Gross Profit Grows 40%. Total cost of services at Pandora in the second quarter 2019 of $284 million increased 4% compared with the second quarter 2018. This resulted in gross profit at Pandora of $157 million, up 40% over the second quarter 2018, and produced a gross margin in the quarter of 36%, growing approximately 700 basis points from 29% in the prior year period. This expansion was driven primarily by lower revenue share and royalties and customer service and billing expenses as a percentage of revenue.

Second quarter net income of $263 million declined 10% over the prior year period due primarily to a one-time $86 million benefit to other income last year driven by unrealized gains from the Company's investment in Pandora. The Company's effective tax rate for the second quarter 2019 was 22.4%, compared to 19.4% in the prior year period, with the change driven primarily by lower recognition of excess tax benefits related to share-based compensation.

"SiriusXM repurchased $898 million of its stock in the quarter. Total capital returned to stockholders, including dividends, is nearly $1.9 billion so far this year. Since the announcement of the Pandora acquisition, we have repurchased all of the common stock issued as part of that transaction. During the quarter, we issued $1.25 billion of 10-year 5.50% Senior Notes due 2029 to pay down our revolving credit facility balance. In early July, we issued $1.5 billion of 5-year 4.625% Senior Notes due 2024, the proceeds of which we used to redeem SiriusXM's outstanding 6.00% Senior Notes due 2024. At quarter-end, our debt to adjusted EBITDA was 3.3 times and we had cash on hand of $215 million with our entire $1.75 billion revolver available. We will continue to use our strong financial position and ample liquidity to invest in our business, make strategic investments and return capital to stockholders," noted David Frear, Chief Financial Officer, SiriusXM.

2019 GUIDANCE

The Company is reiterating its existing full-year 2019 guidance for SiriusXM self-pay net subscriber additions and free cash flow, and increasing guidance for pro forma revenue and adjusted EBITDA. The company's increased full-year guidance for the combined company, including Pandora, is as follows:

  • SiriusXM self-pay net subscriber additions approaching 1 million,
  • Pro forma revenue of approaching $7.8 billion,
  • Adjusted EBITDA of approaching $2.35 billion, and
  • Free cash flow of approximately $1.6 billion.

CAPITAL RETURN PROGRAM

Shares of common stock may be purchased from time to time on the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act of 1934, as amended, in privately negotiated transactions, including in accelerated stock repurchase transactions and transactions with Liberty Media and its affiliates, or otherwise. The Company expects to fund the repurchases through a combination of cash on hand, cash generated by operations and future borrowings. The size and timing of these purchases will be based on a number of factors, including price and business and market conditions.

The Company's dividend policy may change at any time without notice to stockholders. The declaration and payment of dividends is at the discretion of the Company's Board of Directors in accordance with applicable law after taking into account various factors, including the Company's financial condition, operating results, current and anticipated cash needs, limitations imposed by its indebtedness, legal requirements and other factors that the Board of Directors deems relevant.

SECOND QUARTER 2019 RESULTS

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



For the Three Months Ended June 30,


For the Six Months Ended June 30,

(in millions, except per share data)

2019


2018


2019


2018









Revenue:








Subscriber revenue

$

1,537



$

1,304



$

2,995



$

2,562


Advertising revenue

358



47



567



89


Equipment revenue

41



37



82



72


Other revenue

41



44



77



84


Total revenue

1,977



1,432



3,721



2,807


Operating expenses:








Cost of services:








Revenue share and royalties

600



404



1,092



714


Programming and content

116



106



222



207


Customer service and billing

120



95



233



189


Transmission

40



24



71



46


Cost of equipment

6



8



12



15


Subscriber acquisition costs

104



120



212



243


Sales and marketing

232



119



415



226


Engineering, design and development

74



27



128



58


General and administrative

120



92



255



177


Depreciation and amortization

119



75



226



147


Acquisition and other related costs

7





83




Total operating expenses

1,538



1,070



2,949



2,022


Income from operations

439



362



772



785


Other (expense) income:








Interest expense

(97)



(86)



(187)



(176)


Loss on extinguishment of debt





(1)




Other (expense) income

(3)



88



(2)



124


Total other (expense) income

(100)



2



(190)



(52)


Income before income taxes

339



364



582



733


Income tax expense

(76)



(71)



(157)



(151)


Net income

$

263



$

293



$

425



$

582


Foreign currency translation adjustment, net of tax

7



(9)



14



(18)


Total comprehensive income

$

270



$

284



$

439



$

564


Net income per common share:








Basic

$

0.06



$

0.07



$

0.09



$

0.13


Diluted

$

0.06



$

0.06



$

0.09



$

0.13


Weighted average common shares outstanding:








Basic

4,568



4,482



4,569



4,487


Diluted

4,675



4,589



4,677



4,589


Dividends declared per common share

$

0.0121



$

0.0110



$

0.0242



$

0.0220


 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(in millions, except per share data)

June 30, 2019


December 31, 2018

ASSETS

(unaudited)



Current assets:




Cash and cash equivalents

$

215



$

54


Receivables, net

628



233


Inventory, net

17



22


Related party current assets

11



11


Prepaid expenses and other current assets

211



158


Total current assets

1,082



478


Property and equipment, net

1,583



1,513


Intangible assets, net

3,543



2,501


Goodwill

3,852



2,290


Related party long-term assets

456



960


Deferred tax assets

218



293


Operating lease right-of-use assets

442




Other long-term assets

140



138


Total assets

$

11,316



$

8,173


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)




Current liabilities:




Accounts payable and accrued expenses

$

1,102



$

736


Accrued interest

134



128


Current portion of deferred revenue

1,974



1,932


Current maturities of debt

3



3


Operating lease current liabilities

47




Related party current liabilities

4



4


Total current liabilities

3,264



2,803


Long-term deferred revenue

140



149


Long-term debt

7,843



6,885


Related party long-term liabilities

2



4


Deferred tax liabilities

48



47


Operating lease liabilities

418




Other long-term liabilities

90



102


Total liabilities

11,805



9,990


Stockholders' equity (deficit):




Common stock, par value $0.001 per share; 9,000 shares authorized; 4,497 and 4,346
   shares issued; 4,492 and 4,346 outstanding at June 30, 2019 and December 31, 2018,
   respectively

4



4


Accumulated other comprehensive income (loss), net of tax

8



(6)


Additional paid-in capital

1,159



242


Treasury stock, at cost; 5 and 0 shares of common stock at June 30, 2019 and
   December 31, 2018, respectively

(28)




Accumulated deficit

(1,632)



(2,057)


Total stockholders' equity (deficit)

(489)



(1,817)


Total liabilities and stockholders' equity (deficit)

$

11,316



$

8,173


 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



For the Six Months Ended June 30,

(in millions)

2019


2018

Cash flows from operating activities:




Net income

$

425



$

582


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

226



147


Non-cash interest expense, net of amortization of premium

7



5


Provision for doubtful accounts

27



24


Amortization of deferred income related to equity method investment

(1)



(1)


Loss on extinguishment of debt

1




Loss on unconsolidated entity investments, net

10




Gain on fair value instrument



(118)


Dividend received from unconsolidated entity investment

1



1


Share-based payment expense

127



70


Deferred income taxes

146



134


Changes in operating assets and liabilities:




Receivables

(69)



(29)


Inventory

6



1


Related party, net

(1)



(2)


Prepaid expenses and other current assets

(20)




Other long-term assets

4



8


Operating lease right-of-use assets

2




Accounts payable and accrued expenses

36



88


Accrued interest

6



(9)


Deferred revenue

(4)



85


Operating lease liabilities

7




Other long-term liabilities

5



8


Net cash provided by operating activities

941



994


Cash flows from investing activities:




Additions to property and equipment

(160)



(174)


Purchases of other investments

(7)



(7)


Cash received from Pandora Acquisition

313




Sale of short-term investments

72




Investments in related parties and other equity investees

(9)



(6)


Repayment from related party



3


Net cash provided by (used in) investing activities

209



(184)


Cash flows from financing activities:




Proceeds from exercise of stock options

1




Taxes paid from net share settlements for stock-based compensation

(47)



(71)


Revolving credit facility, net of deferred financing costs

(439)



(303)


Proceeds from sale of capped call security

3




Proceeds from long-term borrowings, net of costs

1,236




Principal payments of long-term borrowings

(156)



(8)


Common stock repurchased and retired

(1,474)



(334)


Dividends paid

(113)



(99)


Net cash used in financing activities

(989)



(815)


Net decrease in cash, cash equivalents and restricted cash

161



(5)


Cash, cash equivalents and restricted cash at beginning of period

65



79


Cash, cash equivalents and restricted cash at end of period(1)

$

226



$

74




(1)

The following table reconciles cash, cash equivalents and restricted cash per the statement of cash flows to the balance sheet. The restricted cash balances are primarily due to letters of credit which have been issued to the landlords of leased office space. The terms of the letters of credit primarily extend beyond one year.



(in millions)

June 30, 2019


December 31, 2018


June 30, 2018


December 31, 2017

Cash and cash equivalents

$

215



$

54



$

63



$

69


Restricted cash included in Other long-term assets

11



11



11



10


Total cash, cash equivalents and restricted cash at end of period

$

226



$

65



$

74



$

79


Unaudited Pro Forma Results

Set forth below are our pro forma results of operations for the three months ended June 30, 2019 compared with the three months ended June 30, 2018.  These pro forma results are based on estimates and assumptions, which we believe are reasonable.  They are not the results that would have been realized had the Pandora Acquisition actually occurred on January 1, 2018 and are not indicative of our consolidated results of operations in future periods.  The pro forma results primarily include adjustments related to amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs and associated tax impacts.  Please refer to the Footnotes to Results of Operations.










2019 vs 2018 Change


For the Three Months Ended
June 30,


For the Six Months Ended
June 30,


Three Months


Six Months

(in millions)

2019


2018


2019


2018


Amount


%


Amount


%

Revenue

(Pro Forma)


(Pro Forma)


(Pro Forma)


(Pro Forma)









Sirius XM:
















Subscriber revenue

$

1,402



$

1,304



$

2,772



$

2,562



$

98



8

%


$

210



8

%

Advertising revenue

52



47



98



89



5



11

%


9



10

%

Equipment revenue

41



37



82



72



4



11

%


10



14

%

Other revenue

43



46



81



89



(3)



(7)

%


(8)



(9)

%

Total Sirius XM revenue

1,538



1,434



3,033



2,812



104



7

%


221



8

%

Pandora:
















Subscriber revenue

135



114



269



218



21



18

%


51



23

%

Advertising revenue

306



271



537



486



35



13

%


51



10

%

Total Pandora revenue

441



385



806



704



56



15

%


102



14

%

Total consolidated revenue

1,979



1,819



3,839



3,516



160



9

%


323



9

%

Cost of services
















Sirius XM:
















Revenue share and royalties

360



404



707



714



(44)



(11)

%


(7)



(1)

%

Programming and content

113



106



215



207



7



7

%


8



4

%

Customer service and billing

99



95



197



189



4



4

%


8



4

%

Transmission

25



24



50



46



1



4

%


4



9

%

Cost of equipment

6



8



12



15



(2)



(25)

%


(3)



(20)

%

Total Sirius XM cost of services

603



637



1,181



1,171



(34)



(5)

%


10



1

%

Pandora:
















Revenue share and royalties

246



236



463



458



10



4

%


5



1

%

Programming and content

3



2



7



4



1



50

%


3



75

%

Customer service and billing

21



24



44



44



(3)



(13)

%




%

Transmission

15



12



26



24



3



25

%


2



8

%

Total Pandora cost of services

285



274



540



530



11



4

%


10



2

%

Total consolidated cost of services

888



911



1,721



1,701



(23)



(3)

%


20



1

%

Subscriber acquisition costs

104



120



212



243



(16)



(13)

%


(31)



(13)

%

Sales and marketing

232



217



451



423



15



7

%


28



7

%

Engineering, design and development

74



64



142



126



10



16

%


16



13

%

General and administrative

120



133



271



262



(13)



(10)

%


9



3

%

Depreciation and amortization

119



116



241



229



3



3

%


12



5

%

Total operating expenses

1,537



1,561



3,038



2,984



(24)



(2)

%


54



2

%

Income from operations

442



258



801



532



184



71

%


269



51

%

Other (expense) income:
















Interest expense

(97)



(93)



(189)



(190)



4



4

%


(1)



(1)

%

Loss on extinguishment of debt



(15)



(1)



(17)



(15)



(100)

%


(16)



(94)

%

Other (expense) income

(3)



4



(1)



11



(7)



(175)

%


(12)



(109)

%

Total other (expense) income

(100)



(104)



(191)



(196)



(4)



(4)

%


5



3

%

Income before income taxes

342



154



610



336



188



122

%


274



82

%

Income tax expense

(77)



(11)



(164)



(45)



(66)



(600)

%


(119)



(264)

%

Net income

$

265



$

143



$

446



$

291



$

122



85

%


$

155



53

%

















Adjusted EBITDA

$

618



$

507



$

1,184



$

954



$

111



22

%


$

230



24

%

Footnotes to Results of Operations

The following tables reconcile our results of operations as reported to our pro forma results of operations for the three months ended June 30, 2019 and 2018 which includes the Pandora pre-acquisition financial information for the applicable periods and the effects of purchase price accounting.  These pro forma results are based on estimates and assumptions, which we believe are reasonable.  They are not the results that would have been realized had the Pandora Acquisition actually occurred on January 1, 2018 and are not indicative of our consolidated results of operations in future periods.  The pro forma results primarily include adjustments related to amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs and associated tax impacts.


Unaudited for the Three Months Ended June 30, 2019

(in millions)

As Reported


Predecessor
Financial
Information


Purchase Price
Accounting
Adjustments


Ref


Pro Forma

Revenue










Sirius XM:










Subscriber revenue

$

1,402



$



$





$

1,402


Advertising revenue

52









52


Equipment revenue

41









41


Other revenue

41





2



(a)


43


Total Sirius XM revenue

1,536





2





1,538


Pandora:










Subscriber revenue

135









135


Advertising revenue

306









306


Total Pandora revenue

441









441


Total consolidated revenue

1,977





2





1,979


Cost of services










Sirius XM:










Revenue share and royalties

360









360


Programming and content

113









113


Customer service and billing

99









99


Transmission

25









25


Cost of equipment

6









6


Total Sirius XM cost of services

603









603


Pandora:










Revenue share and royalties

240





6



(b)


246


Programming and content

3









3


Customer service and billing

21









21


Transmission

15









15


Total Pandora cost of services

279





6





285


Total consolidated cost of services

882





6





888


Subscriber acquisition costs

104









104


Sales and marketing

232









232


Engineering, design and development

74









74


General and administrative

120









120


Depreciation and amortization

119









119


Acquisition and other related costs

7





(7)



(c)



Total operating expenses

1,538





(1)





1,537


Income (loss) from operations

439





3





442


Other (expense) income:










Interest expense

(97)









(97)


Loss on extinguishment of debt










Other (expense) income

(3)









(3)


Total other (expense) income

(100)









(100)


Income (loss) before income taxes

339





3





342


Income tax expense

(76)





(1)



(d)


(77)


Net income

$

263



$



$

2





$

265




(a)

This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.

(b)

This adjustment includes the impact of additional expense associated with minimum guarantee royalty contracts recorded as part of the Pandora Acquisition.

(c)

This adjustment eliminates the impact of acquisition and other related costs.

(d)

This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at June 30, 2019 to the pro forma adjustments of $3.

 


Unaudited for the Three Months Ended June 30, 2018

(in millions)

As Reported


Predecessor
Financial
Information (e)


Purchase Price
Accounting and Pro
Forma Adjustments


Ref


Pro Forma

Revenue










Sirius XM:










Subscriber revenue

$

1,304



$



$





$

1,304


Advertising revenue

47









47


Equipment revenue

37









37


Other revenue

44





2



(f)


46


Total Sirius XM revenue

1,432





2





1,434


Pandora:










Subscriber revenue



114







114


Advertising revenue



271







271


Total Pandora revenue



385







385


Total consolidated revenue

1,432



385



2





1,819


Cost of services










Sirius XM:










Revenue share and royalties

404









404


Programming and content

106









106


Customer service and billing

95









95


Transmission

24









24


Cost of equipment

8









8


Total Sirius XM cost of services

637









637


Pandora:










Revenue share and royalties



236







236


Programming and content



2







2


Customer service and billing



24







24


Transmission



12







12


Total Pandora cost of services



274







274


Total consolidated cost of services

637



274







911


Subscriber acquisition costs

120









120


Sales and marketing

119



98







217


Engineering, design and development

27



37







64


General and administrative

92



41







133


Depreciation and amortization

75



14



27



(g)


116


Total operating expenses

1,070



464



27





1,561


Income from operations

362



(79)



(25)





258


Other (expense) income:










Interest expense

(86)



(7)







(93)


Loss on extinguishment of debt



(15)







(15)


Other (expense) income

88



2



(86)



(h)


4


Total other (expense) income

2



(20)



(86)





(104)


Income before income taxes

364



(99)



(111)





154


Income tax expense

(71)



7



53



(i)


(11)


Net income

$

293



$

(92)



$

(58)





$

143




(e)

Represents Pandora's results for the period April 1, 2018 through June 30, 2018.

(f)

This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.

(g)

This adjustment includes the impact of the additional amortization associated with the acquired intangible assets recorded as part of the Pandora Acquisition that are subject to amortization, partially offset by normal depreciation associated with assets revalued in purchase accounting.

(h)

This adjustment eliminates the unrealized gain for the fair value adjustment of our preferred stock investment in Pandora.

(i)

This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at June 30, 2018 to the pro forma adjustments of $(111) and Pandora's loss before income tax of $(99).

 


Unaudited for the Six Months Ended June 30, 2019

(in millions)

As Reported


Predecessor
Financial
Information (j)


Purchase Price
Accounting and Pro
Forma Adjustments


Ref


Pro Forma

Revenue










Sirius XM:










Subscriber revenue

2,772









2,772


Advertising revenue

98









98


Equipment revenue

82









82


Other revenue

77





4



(k)


81


Total Sirius XM revenue

3,029





4





3,033


Pandora:










Subscriber revenue

223



46







269


Advertising revenue

469



68







537


Total Pandora revenue

692



114







806


Total consolidated revenue

3,721



114



4





3,839


Cost of services










Sirius XM:










Revenue share and royalties

707









707


Programming and content

215









215


Customer service and billing

197









197


Transmission

50









50


Cost of equipment

12









12


Total Sirius XM cost of services

1,181









1,181


Pandora:










Revenue share and royalties

385



71



7



(l)


463


Programming and content

7









7


Customer service and billing

36



8







44


Transmission

21



5







26


Total Pandora cost of services

449



84



7





540


Total consolidated cost of services

1,630



84



7





1,721


Subscriber acquisition costs

212









212


Sales and marketing

415



36







451


Engineering, design and development

128



14







142


General and administrative

255



16







271


Depreciation and amortization

226



6



9



(m)


241


Acquisition and other related costs

83



1



(84)



(n)



Total operating expenses

2,949



157



(68)





3,038


Income (loss) from operations

772



(43)



72





801


Other (expense) income:










Interest expense

(187)



(2)







(189)


Loss on extinguishment of debt

(1)









(1)


Other (expense) income

(2)



1







(1)


Total other (expense) income

(190)



(1)







(191)


Income (loss) before income taxes

582



(44)



72





610


Income tax expense

(157)





(7)



(o)


(164)


Net income

425



(44)



65





446




(j)

Represents Pandora's results for the period January 1, 2019 through January 31, 2019.

(k)

This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.

(l)

This adjustment includes the impact of additional expense associated with minimum guarantee royalty contracts recorded as part of the Pandora Acquisition.

(m)

This adjustment includes the impact of the additional amortization associated with the acquired intangible assets recorded as part of the Pandora Acquisition that are subject to amortization, partially offset by normal depreciation associated with assets revalued in purchase accounting.

(n)

This adjustment eliminates the impact of acquisition and other related costs.

(o)

This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at June 30, 2019 to the pro forma adjustments of $72 and Pandora's pre-acquisition loss before income tax of $(44).

 


Unaudited for the Six Months Ended June 30, 2018

(in millions)

As Reported


Predecessor
Financial
Information (p)


Purchase Price
Accounting and Pro
Forma Adjustments


Ref


Pro Forma

Revenue










Sirius XM:










Subscriber revenue

2,562









2,562


Advertising revenue

89









89


Equipment revenue

72









72


Other revenue

84





5



(q)


89


Total Sirius XM revenue

2,807





5





2,812


Pandora:










Subscriber revenue



218







218


Advertising revenue



486







486


Total Pandora revenue



704







704


Total consolidated revenue

2,807



704



5





3,516


Cost of services










Sirius XM:










Revenue share and royalties

714









714


Programming and content

207









207


Customer service and billing

189









189


Transmission

46









46


Cost of equipment

15









15


Total Sirius XM cost of services

1,171









1,171


Pandora:










Revenue share and royalties



458







458


Programming and content



4







4


Customer service and billing



44







44


Transmission



24







24


Total Pandora cost of services



530







530


Total consolidated cost of services

1,171



530







1,701


Subscriber acquisition costs

243









243


Sales and marketing

226



197







423


Engineering, design and development

58



68







126


General and administrative

177



85







262


Depreciation and amortization

147



28



54



(r)


229


Total operating expenses

2,022



908



54





2,984


Income (loss) from operations

785



(204)



(49)





532


Other (expense) income:










Interest expense

(176)



(14)







(190)


Loss on extinguishment of debt



(17)







(17)


Other (expense) income

124



4



(117)



(s)


11


Total other (expense) income

(52)



(27)



(117)





(196)


Income (loss) before income taxes

733



(231)



(166)





336


Income tax expense

(151)



7



99



(t)


(45)


Net income

582



(224)



(67)





291




(p)

Represents Pandora's results for the period January 1, 2018 through June 30, 2018.

(q)

This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.

(r)

This adjustment includes the impact of the additional amortization associated with the acquired intangible assets recorded as part of the Pandora Acquisition that are subject to amortization, partially offset by normal depreciation associated with assets revalued in purchase accounting.

(s)

This adjustment eliminates the unrealized gain for the fair value adjustment of our preferred stock investment in Pandora.

(t)

This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at June 30, 2018 to the pro forma adjustments of $(166) and Pandora's loss before income tax of $(231).

 










2019 vs 2018 Change

(in millions)

For the Three Months Ended
June 30,


For the Six Months Ended
June 30,


Three Months


Six Months

Sirius XM:

2019


2018


2019


2018


Amount


%


Amount


%

Revenue

(Pro Forma)


(Pro Forma)


(Pro Forma)


(Pro Forma)









Subscriber revenue

$

1,402



$

1,304



2,772



2,562



$

98



8

%


$

210



8

%

Advertising revenue

52



47



98



89



5



11

%


9



10

%

Equipment revenue

41



37



82



72



4



11

%


10



14

%

Other revenue

43



46



81



89



(3)



(7)

%


(8)



(9)

%

Total Sirius XM revenue

1,538



1,434



3,033



2,812



104



7

%


221



8

%

Cost of services
















Revenue share and royalties (a)

360



335



707



645



25



7

%


62



10

%

Programming and content (b)

106



96



201



189



10



10

%


12



6

%

Customer service and billing (b)

98



94



195



187



4



4

%


8



4

%

Transmission (b)

24



22



48



43



2



9

%


5



12

%

Cost of equipment

6



8



12



15



(2)



(25)

%


(3)



(20)

%

Total Sirius XM cost of services

594



555



1,163



1,079



39



7

%


84



8

%

Gross Profit

$

944



$

879



$

1,870



$

1,733



$

65



7

%


$

137



8

%

Gross Margin %

61

%


61

%


62

%


62

%


%


%


%


%



(a)

For the three and six months ended June 30, 2018 revenue share and royalties includes $69 related to the legal settlement that resolved all outstanding claims, including ongoing audits, under Sirius XM's statutory license for sound recordings for the period January 1, 2007 through December 31, 2017.

(b)

For the three months ended June 30, 2019, we have excluded share-based compensation expense of $7 related to programming and content, $1 related to customer service and billing and $1 related to transmission.  For the three months ended June 30, 2018, we have excluded share-based compensation expense of $10 related to programming and content, $1 related to customer service and billing and $2 related to transmission.  For the six months ended June 30, 2019, we have excluded share-based compensation expense of $14 related to programming and content, $2 related to customer service and billing and $2 related to transmission.  For the six months ended June 30, 2018, we have excluded share-based compensation expense of $18 related to programming and content, $2 related to customer service and billing and $3 related to transmission.

 










2019 vs 2018 Change

(in millions)

For the Three Months Ended
June 30,


For the Six Months Ended
June 30,


Three Months


Six Months

Pandora:

2019


2018


2019


2018


Amount


%


Amount


%

Revenue

(Pro Forma)


(Pro Forma)


(Pro Forma)


(Pro Forma)









Subscriber revenue

$

135



114



269



218



$

21



18

%


$

51



23

%

Advertising revenue

306



271



537



486



35



13

%


51



10

%

Total Pandora revenue

441



385



806



704



56



15

%


102



14

%

Cost of services
















Revenue share and royalties

246



236



463



458



10



4

%


5



1

%

Programming and content

3



2



7



4



1



50

%


3



75

%

Customer service and billing

21



24



44



44



(3)



(13)

%




%

Transmission (c)

14



11



24



22



3



27

%


2



9

%

Total Pandora cost of services

284



273



538



528



11



4

%


10



2

%

Gross Profit

$

157



$

112



$

268



$

176



$

45



40

%


$

92



52

%

Gross Margin %

36

%


29

%


33

%


25

%


7

%


24

%


8

%


32

%



(c)

For the three months ended June 30, 2019, we have excluded share-based compensation expense of $1 related to transmission.  For the three months ended June 30, 2018, we have excluded share-based compensation expense of $1 related to transmission.  For the six months ended June 30, 2019, we have excluded share-based compensation expense of $2 related to transmission.  For the six months ended June 30, 2018, we have excluded share-based compensation expense of $2 related to transmission.

Key Financial and Operating Performance Metrics

Subscribers and subscription related revenues and expenses associated with our connected vehicle services and Sirius XM Canada are not included in Sirius XM's subscriber count or subscriber-based operating metrics.

Set forth below are our subscriber balances as of June 30, 2019 compared to June 30, 2018:


As of June 30,


2019 vs 2018 Change

(subscribers in thousands)

2019


2018 (1)


Amount


%

Sirius XM








Self-pay subscribers

29,336



28,203



1,133



4

%

Paid promotional subscribers

5,009



5,292



(283)



(5)

%

Ending subscribers

34,345



33,495



850



3

%

Traffic users

9,150



8,118



1,032



13

%

Sirius XM Canada subscribers

2,702



2,648



54



2

%









Pandora








Active users - all services

64,948



71,435



(6,487)



(9)

%

Self-pay subscribers

6,224



5,976



248



4

%

Paid promotional subscribers

733





733



nm


Ending subscribers

6,957



5,976



981



16

%



(1)

Includes Pandora's results as of June 30, 2018.

The following table contains our Non-GAAP financial and operating performance measures which are based on our adjusted results of operations for the three and six months ended June 30, 2019 and 2018:










For the 2019 vs 2018 Change


For the Three Months Ended
June 30,


Six Months Ended
June 30,


Three Months


Six Months

(subscribers in thousands)

2019


2018 (2)


2019 (1)


2018 (3)


Amount


%


Amount


%

Sirius XM
















Self-pay subscribers

290



483



421



690



(193)



(40)

%


(269)



(39)

%

Paid promotional subscribers

(116)



(54)



(115)



69



(62)



115

%


(184)



(267)

%

Net additions

174



429



306



759



(255)



(59)

%


(453)



(60)

%

Weighted average number of subscribers

34,126



33,197



34,071



33,013



929



3

%


1,058



3

%

Average self-pay monthly churn

1.7

%


1.6

%


1.7

%


1.7

%


0.1

%


6

%




%

ARPU (4)

$

13.83



$

13.30



$

13.67



$

13.13



$

0.53



4

%


$

0.54



4

%

SAC, per installation

$

22.74



$

27.54



$

23.40



$

27.86



$

(4.80)



(17)

%


$

(4.46)



(16)

%

















Pandora
















Self-pay subscribers

64



350



310



498



(286)



(82)

%


(188)



(38)

%

Paid promotional subscribers

(3)





(23)





(3)



nm



(23)



nm


Net additions

61



350



287



498



(289)



(83)

%


(211)



(42)

%

Weighted average number of subscribers

6,873



5,803



6,791



5,663



1,070



18

%


1,128



20

%

ARPU

$

6.53



$

6.52



$

6.61



$

6.41



$

0.01



%


$

0.20



3

%

Ad supported listener hours (in billions)

3.49



3.86



6.91



7.71



(0.37)



(10)

%


(0.80)



(10)

%

Advertising revenue per thousand listener hours (RPM)

$

80.14



$

68.75



$

71.46



$

62.15



$

11.39



17

%


$

9.31



15

%

Licensing costs per thousand listener hours (LPM)

$

37.91



$

36.87



$

37.28



$

36.61