XM Satellite Radio Holdings Inc. Announces Fourth Quarter and Full Year 2005 Results; XM to Exceed Nine Million Subscribers and Reach Cash Flow Break-4 March 2006
XM Satellite Radio Holdings Inc. (Nasdaq: XMSR) today reported financial and operating results for the fourth quarter and full year ended December 31, 2005. XM reported sharply higher 2005 revenue, and the Company said it expected to report positive cash flow from operations in the fourth quarter of 2006.
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"2005 was a significant growth year for XM in which we added more than 2.7 million net subscribers," said Hugh Panero, President and CEO of XM Satellite Radio. "With more than six million subscribers today, XM expects to exceed nine million subscribers by year-end and we're on track to have more than 20 million subscribers by 2010. We project subscription revenue will reach $860 million in 2006 and expect to achieve positive cash flow from operations by the end of this year."
Panero continued, "Last week, we reinforced XM's position as the premium content leader across all of radio with our announcement of the "Oprah & Friends" channel that will complement our music, talk and sports programming starting in September."
XM ended 2005 with 5,932,957 subscribers, an increase of 84 percent over 2004. Despite an intensely competitive marketplace in the fourth quarter, XM achieved net subscriber additions of 898,315. Later than expected activations from strong holiday sales brought the total to more than six million during the first week of January.
"XM achieved significant growth, added quality content and signed up important new automotive distribution partners in 2005," Panero said. "At the start of 2005, XM had 3.2 million subscribers and led the satellite radio competition by 2.1 million subscribers. Over the course of the year, XM increased that lead to 2.6 million subscribers."
Fourth Quarter and Full-Year Financial Results
For the fourth quarter of 2005, XM reported quarterly total revenue of $177 million, an increase of 113 percent over the $83.1 million total revenue reported in fourth quarter of 2004. XM's full year 2005 total revenue was $558.3 million, an increase of 128 percent over the $244.4 million total revenue recorded in 2004. These quarterly and annual increases in revenue were driven by our significant subscriber growth and increases in average revenue per subscriber in connection with our price increase implemented in the second quarter of 2005.
For the fourth quarter, subscriber acquisition cost (SAC), a component of cost per gross addition (CPGA) was $89 compared to $64 in the same period last year. CPGA in the fourth quarter was $141 compared to $104 in the same period last year. These increases were primarily due to higher marketing expenses to meet a one-time competitive event in the fourth quarter. For full year 2005, SAC was $64, a slight increase from $62 in 2004, and CPGA was $109, compared to $100 in 2004. In the first quarter of 2006, XM expects a more normalized market environment and projects that SAC and CPGA will decrease in 2006.
XM reported an EBITDA loss of ($199.4) million for the fourth quarter of 2005, including $25.3 million in de-leveraging charges, compared to an EBITDA loss of ($139.7) million for the fourth quarter of 2004, which included $41.6 million in de-leveraging charges. The full year EBITDA loss was ($434.3) million, including $27.6 million in de-leveraging charges, compared to a 2004 EBITDA loss of ($388.4) million which included $76.6 million of de-leveraging charges. The increased EBITDA loss primarily resulted from our increase in subscribers as well as the higher fourth quarter marketing expenses.
XM's net loss for the fourth quarter of 2005 was ($268.3) million as compared to a net loss of ($188.2) million in the fourth quarter of 2004. For the full year 2005, XM's net loss was ($666.7) million, compared to a net loss of ($642.4) million in 2004.
In 2005, we continued to strengthen XM's balance sheet by selected de-leveraging activities. Specifically, XM entered into agreements to exchange debt with carrying value of $80 million ($94 million accreted face value at maturity) for $41 million cash and 18.3 million common shares. This activity related to the retirement of 100 percent or $23 million face value of our 14% Senior Secured Notes due 2010, $15 million of our 12% Senior Secured Notes due 2010 and $56 million of our 10% Senior Secured Convertible Discount Notes due 2009. From these activities, we recognized de-leveraging charges of approximately $28 million while eliminating $45 million of future interest payments. In January 2006, XM exchanged $52 million aggregate of the 10% Senior Secured Convertible Discount Notes due 2009 for 17.1 million shares. The Company estimated that this transaction would release it from $21 million of interest payments over the next four years. XM will recognize approximately $18 million of de-leveraging charges in connection with this transaction in the first quarter of 2006.
XM ended the year with $711 million in cash and cash equivalents with additional capacity provided by our undrawn $135 million GM Facilities. XM will opportunistically continue to improve and reshape the balance sheet in 2006.
XM is the Premium Content Leader with an Unmatched Programming Lineup
The "Oprah & Friends" channel completes XM's programming plan to deliver the best in music, sports and talk to our customer base.
* Oprah & Friends: XM will launch the exclusive "Oprah & Friends" channel
this September. The channel will feature a broad range of original
programming including a weekly radio show hosted by Oprah Winfrey and
Gayle King. Other regular segments will be hosted by popular "Oprah"
personalities including Bob Greene, Dr. Mehmet Oz, Dr. Robin Smith,
Marianne Williamson, and Nate Berkus. The channel will be broadcast
from a new state-of-the-art XM studio at Harpo Studios in Chicago.
* Major League Baseball: XM's acclaimed coverage of Major League Baseball
gears up this month as pitchers and catchers report to spring training
in preparation for the 2006 season. XM's baseball coverage includes
live broadcasts of all 39 games of the inaugural World Baseball
Classic, plus live coverage of spring training games in Florida and
Arizona.
* Bob Dylan and more: Music legend Bob Dylan and hip-hop superstar
Ludacris are each hosting their own exclusive XM music show starting
this year. They join Tom Petty, Snoop Dogg, and Quincy Jones amongst
others to make XM's commercial-free music line-up even more appealing.
* Sports Talk: NASCAR champions Dale Earnhardt, Jr. and Jimmie Johnson
and Duke Basketball Coach Mike Krzyzewski, among others, have all
joined XM's sports radio talk line-up.
* Take Five: In 2005, XM debuted Take Five, a talk and lifestyle channel
focused on women. Take Five offers daily satellite radio broadcasts of
the "Ellen DeGeneres Show," the "Tyra Banks Show," the "Good Morning
America Radio Show," and also features content from the Food Network,
Home and Garden Television and the "Satellite Sisters."
* FOX News and Other Leading Talk Programming: XM offers the FOX News
Channel, the top-rated cable news network, as well as the recently
launched FOX News Talk radio channel, which features well known TV and
radio commentators from the FOX line-up. XM is also the exclusive
satellite radio home for Air America Radio, featuring Al Franken.
* NHL Hockey, World Cup Germany 2006 and College Sports: XM began
broadcasting NHL games this season and will become the NHL's exclusive
satellite radio broadcast partner for the 2007-8 season through a ten-
year agreement. This May, XM will broadcast the play-by-play of all 64
soccer matches of the 2006 FIFA(R) World Cup Germany in both English
and Spanish in cooperation with legendary sportscaster Andres Cantor.
We also recently expanded our college sports offering with BIG EAST
basketball and football broadcasts, adding to our existing ACC, PAC-10
and Big Ten broadcasts.
XM Introduces the First Integrated Portable XM Satellite Radio/MP3 Player
In January, at the Consumer Electronic Show in Las Vegas, XM unveiled the Pioneer Inno(TM) and Samsung Helix(TM). These products, smaller than a deck of cards, combine live XM and MP3, two of the most popular forms of audio entertainment over the past 20 years. Subscribers will be able to record XM favorites for enjoyment at their convenience -- similar to television recording capabilities -- plus purchase and download their own MP3 songs, and listen to their music anywhere and everywhere. These new products will begin shipping in March and be available in significant quantities during the second quarter.
Other key products for XM in 2006 will be the recently-introduced Audiovox XM Xpress, Delphi XM RoadyXT and the AGT Sportscaster plug-and-play radios as well as the XM Passport. The Passport is the first satellite radio "mini" tuner; a tiny, portable cartridge that delivers XM content to consumer electronic devices for the home, vehicle, and portable use via one subscription.
Nissan and Hyundai Join XM's Exclusive Factory-Installed OEM Partners, GM,
Honda and Toyota
In 2005, XM entered into exclusive arrangements for the distribution of factory-installed satellite radios in Nissan and Hyundai automobiles while our key OEM partners GM, Honda and Toyota expanded their distribution of vehicles with XM radios.
In 2006, XM expects to see solid growth in its OEM channel. General Motors expects to produce 1.55 million XM equipped vehicles during calendar 2006, up from 1.4 million in 2005. In September 2005, GM produced its 3 millionth XM- equipped vehicle. Honda announced in the fourth quarter of 2005 that it plans to factory install 550,000 XM radios in model year 2006, up from 400,000 in model year 2005. Toyota will expand XM availability and will launch its first factory-installed program later in 2006.
Most importantly, however, 2006 will be the staging year for more dramatic OEM growth in 2007, 2008 and beyond as Hyundai, Nissan and Toyota production expands. Hyundai plans to offer XM as a standard feature in its vehicles, with installations starting at the end of 2006. Nissan plans to produce more than 500,000 vehicles with XM factory installed during model year 2008 and more than one million vehicles during model year 2010. XM's OEM leadership position has been secured for the long term with the biggest and fastest growing car companies.
2005 XM Strategic Initiatives
* Canadian Satellite Radio (CSR) (Toronto: XSR.SV): XM owns 23% of CSR,
which launched service in November 2005 as XM Canada and completed its
initial public offering in December 2005. XM Canada's channels include
XM commercial-free music and extensive NHL hockey play-by-play coverage
(exclusive to XM beginning with the 2007-2008 season).
* WorldSpace (Nasdaq: WRSP): In July 2005, XM invested $25 million in
WorldSpace. WorldSpace provides satellite radio services in Asia,
Europe, the Middle East and Africa.
* WCS Wireless: In July 2005, XM entered into an agreement to acquire WCS
Wireless, a private entity with wireless spectrum licenses in
geographic areas covering 163 million people throughout the US,
including 15 of the top 20 metropolitan markets, for 5.5 million
shares. XM and WCS Wireless are awaiting necessary regulatory approvals
for license and ownership transfer.
About XM Satellite Radio
XM (Nasdaq: XMSR) is America's number one satellite radio company with more than 6 million subscribers. Broadcasting live daily from studios in Washington, DC, New York City, the Country Music Hall of Fame in Nashville, Toronto and Montreal, XM's 2006 lineup includes 160 digital channels of choice from coast to coast: the most commercial-free music, premier sports, talk, 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, Toyota, Hyundai, Nissan, Porsche, Suzuki, Subaru and Volkswagen/Audi, is available in more than 130 different vehicle models for 2006. 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 10-Q filed with the Securities and Exchange Commission on 11-7-05. 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 Twelve Months ended
December 31, December 31,
2005 2004 2005 2004
Revenue:
Subscription $ 156,251 $ 72,601 $502,612 $220,468
Activation 3,079 1,584 10,066 4,814
Merchandise 8,627 4,115 18,182 7,261
Net ad sales 7,283 4,026 20,103 8,485
Other 1,895 814 7,303 3,145
Total revenue 177,135 83,140 558,266 244,443
Operating expenses:
Cost of revenue:
(excludes depreciation &
amortization, shown below)
Revenue share &
royalties 27,889 13,896 93,874 50,676
Customer care &
billing 24,560 14,806 76,222 40,887
Cost of merchandise 22,267 5,897 40,707 11,557
Ad sales 3,644 2,017 10,058 6,165
Satellite &
terrestrial 11,353 8,067 42,355 35,922
Broadcast & operations:
Broadcast 4,707 2,949 16,609 10,832
Operations 6,851 3,808 24,460 13,192
Total broadcast &
operations 11,558 6,757 41,069 24,024
Programming &
content 30,551 9,735 101,008 32,704
Total cost of revenue 131,822 61,175 405,293 201,935
Research & development
(excludes depreciation
and amortization,
shown below) 10,248 3,929 31,218 23,513
General & administrative
(excludes depreciation
and amortization,
shown below) 13,213 8,728 43,864 28,555
Marketing (excludes
depreciation and
amortization,
shown below):
Retention & support 6,584 3,811 22,275 13,286
Subsidies &
distribution 113,852 58,318 264,719 165,704
Advertising &
marketing 66,703 36,429 163,312 88,076
Marketing 187,139 98,558 450,306 267,066
Amortization of
GM liability 9,313 9,313 37,250 37,250
Total marketing 196,452 107,871 487,556 304,316
Depreciation &
amortization 39,028 31,129 145,870 147,165
Total operating
expenses 390,763 212,832 1,113,801 705,484
Operating loss (213,628) (129,692) (555,535) (461,041)
Interest income 7,218 2,610 23,586 6,239
Interest expense (36,557) (19,404) (107,791) (85,757)
Loss from
de-leveraging
transactions (25,345) (41,614) (27,552) (76,621)
Other income 579 485 2,907 2,129
Net loss before
income taxes (267,733) (187,615) (664,385) (615,051)
Provision for
deferred income taxes (593) (586) (2,330) (27,317)
Net Loss (268,326) (188,201) (666,715) (642,368)
8.25% Series B and C
preferred stock
dividend requirement (2,149) (2,149) (8,597) (8,802)
Net Loss attributable
to common
stockholders $(270,425) $(190,350) $(675,312) $(651,170)
Basic and diluted
net loss per share: $(1.22) $(0.93) $(3.07) $(3.30)
Weighted average
shares used in
computing net loss
per share - basic and
diluted 221,929,446 205,179,558 219,620,468 197,317,607
Reconciliation of Net Loss to EBITDA:
Net loss as
reported $(268,326) $(188,201) $(666,715) $(642,368)
Add back
non-EBITDA items
included in net loss:
Interest income (7,218) (2,610) (23,586) (6,239)
Interest expense 36,557 19,404 107,791 85,757
Provision for
deferred income
taxes 593 586 2,330 27,317
Depreciation &
amortization 39,028 31,129 145,870 147,165
EBITDA $(199,366) $(139,692) $(434,310) $(388,368)
As of As of
SELECTED BALANCE SHEET DATA 12/31/2005 12/31/2004
(Unaudited)
Cash and cash equivalents $710,991 $717,867
Restricted investments 5,438 4,492
System under construction 216,527 329,355
Property and equipment, net 673,672 461,333
DARS license 141,276 141,227
Equity investments 187,403 -
Total assets 2,223,661 1,821,635
Total subscriber
deferred revenue 360,638 152,347
Long-term debt, net of
current portion 1,035,584 948,741
Total liabilities 2,412,713 1,485,472
Stockholders' equity 80,948 336,163
XM SATELLITE RADIO HOLDINGS INC.
Three Months ended Twelve Months ended
SELECTED OPERATING METRICS 12/31/2005 12/31/2004 12/31/2005 12/31/2004
(Unaudited)
EBITDA (in thousands) (1) $(199,366) $(139,692) $(434,310) $(388,368)
Subscriber Data:
Net Subscriber
Additions (2) 898,315 713,101 2,703,833 1,868,896
Aftermarket, OEM & Other
Subscribers (3) 5,409,066 2,800,501 5,409,066 2,800,501
Subscribers in OEM
Promotional Periods (4) 460,615 401,988 460,615 401,988
XM Activated Vehicles with
Rental Car Companies (5) 43,928 26,635 43,928 26,635
Data Services
Subscribers (6) 19,348 - 19,348 -
Total Ending Subscribers
(3) (4) (5) (6) (7) 5,932,957 3,229,124 5,932,957 3,229,124
Revenue Data (monthly average):
Subscription Revenue per
Aftermarket, OEM & Other
Subscriber $10.21 $9.20 $9.97 $9.26
Subscription Revenue per
Subscriber in OEM
Promotional Periods $5.84 $5.94 $5.79 $5.82
Subscription Revenue per XM
Activated Vehicle with
Rental Car Companies $9.64 $10.22 $9.88 $9.26
Subscription Revenue per
Subscriber of Data
Services $34.23 $- $34.23 $-
Average Monthly
Subscription Revenue per
Subscriber (ARPU) (8) $9.85 $8.74 $9.51 $8.68
Net Ad Revenue per
Subscriber (9) $0.46 $0.49 $0.38 $0.33
Activation, Equipment and
Other Revenue per
Subscriber $0.86 $0.75 $0.68 $0.58
Total Revenue per
Subscriber $11.17 $9.98 $10.57 $9.59
Expense Data:
Subscriber Acquisition
Costs (SAC) (10) $89 $64 $64 $62
Cost Per Gross Addition
(CPGA) (11) $141 $104 $109 $100
(1) Net loss before interest income, interest expense, income taxes,
depreciation and amortization is commonly referred to in our business
as "EBITDA." EBITDA is not a measure of financial performance under
generally accepted accounting principles. Consistent with regulatory
requirements, EBITDA includes Loss from de-leveraging transactions
and Other income. 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 December
31, 2005, include 782,420 retail (includes data services), 114,084
OEM, and 1,811 rental car net additions.
(3) Ending subscribers at December 31, 2005 include 1,127,350 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 their entire 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 December 31, 2005 is 54 percent 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 December 31,
2005, there were 43,928 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) Data Services Subscribers are those subscribers that are receiving
services that include stand-alone XM WX Satellite Weather service and
stand-alone XM Radio Online 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.
(7) Subscribers are those who are receiving and have agreed to pay for
our satellite audio service and/or data services, 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 and/or
data services. 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.
(8) Subscription Revenue includes monthly subscription revenues for our
satellite audio service and data services, net of any promotions or
discounts.
(9) Net Ad Sales Revenue includes sales of advertisements and program
sponsorships on the XM network net of agency commissions.
(10) 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.
(11) CPGA includes all costs in SAC, as well as advertising and marketing
expenses, divided by gross additions for the period.
Source: prnewswire
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