10-Q: XM SATELLITE RADIO HOLDINGS INC
06:10 a.m. 05/03/2007 Provided by
(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with our unaudited Condensed Consolidated Financial Statements and accompanying Notes in Item 1. to Part I of this Form 10-Q, and with our Management's Discussion and Analysis of Financial Condition and Results of Operations and audited Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 1, 2007.
Proposed Merger
On February 19, 2007, XM and Sirius Satellite Radio Inc. ("Sirius") entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which XM and Sirius will combine our businesses through a merger of XM and a newly formed, wholly owned subsidiary of Sirius (the "Merger").
Each of XM and Sirius has made customary representations and warranties and covenants in the Merger Agreement. The completion of the Merger is subject to various closing conditions, including obtaining the approval of XM's and Sirius' stockholders and receiving certain regulatory and antitrust approvals (including from the Federal Communications Commission ("FCC") and under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended).
We filed a Notification and Report Form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("the HSR Act"), with respect to the transactions contemplated by the Merger Agreement between XM and Sirius. On April 12, 2007, both we and Sirius received from the Department of Justice requests for additional information and documentary material relating to the merger, generally referred to as a "Second Request." The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after we and Sirius have substantially complied with the Second Request.
On March 20, 2007, we and Sirius filed a Consolidated Application for Authority to Transfer Control with the FCC with respect to the Merger Agreement. We anticipate that the FCC will issue a public notice in the near future that sets a schedule to comment on the Merger. The public notice will trigger a comment period followed by a reply period.
Executive Summary
We are America's leading satellite radio service company, providing music, news, talk, information, entertainment and sports programming for reception by vehicle, home and portable radios nationwide and over the Internet to over 8 million subscribers to date. Our basic monthly subscription fee is $12.95. We believe XM Radio appeals to consumers because of our innovative and diverse programming, nationwide coverage, many commercial-free music channels and digital sound quality.
Our channel lineup includes more than 170 digital channels of choice from coast to coast. We broadcast from our studios in Washington, DC, New York City, including Jazz at Lincoln Center, Chicago and the Country Music Hall of Fame in Nashville. We have added new and innovative programming to our core channel categories of music, sports, news, talk and entertainment. Also included in the XM Radio service, at no additional charge, are the XM customizable sports and stock tickers available to users of certain receivers and other online services.
Our target market includes the more than 240 million registered vehicles including the 16.5 million new cars sold each year as well as the over 110 million households in the United States. In addition, some of our recent and upcoming product offerings focus on the portable and wearable audio markets. Broad distribution of XM Radio through new automobiles and through mass market retailers is central to our business strategy. We are the leader in satellite-delivered entertainment and data services for new automobiles through partnerships with General Motors, Honda/Acura, Toyota/Lexus/Scion, Hyundai, Nissan/Infiniti, Porsche, Suzuki and Isuzu and available in more than 140 different vehicle models for model year 2007. XM radios are available under the Delphi, Pioneer, Samsung, Alpine, Audiovox, Sony, Polk and other brand names at national consumer electronics retailers, such as Best Buy, Circuit City, Wal-Mart, Target and other national and regional retailers. These mass market retailers support our expanded line of car stereo, home stereo, plug and play and portable handheld products.
Operational Highlights
We summarize our business growth and operational results through the metrics of subscriber growth, revenue growth, ARPU, SAC, CPGA and Adjusted operating loss (formerly referred to as Adjusted EBITDA).
Table of Contents
Total revenue increased from $208.0 million in the first quarter of 2006 to $264.1 million in the first quarter of 2007, a 27% quarter over quarter increase.
Average monthly subscription revenue per subscriber (ARPU) increased from $10.07 in the first quarter of 2006 to $10.15 in the first quarter of 2007.
Subscriber Acquisition Costs (SAC) increased from $59 in the first quarter of 2006 to $65 in the first quarter of 2007, which included inventory charges that represented approximately $6 per gross connect.
Cost Per Gross Acquisition (CPGA) increased from $93 in the first quarter of 2006 to $103 in the first quarter of 2007, which included inventory charges that represented approximately $6 per gross connect.
Adjusted operating loss decreased from $48.9 million in the first quarter of 2006 to $27.0 million in the first quarter of 2007.
Other Highlights
Sale-leaseback - We entered into a sale-leaseback transaction of the transponders on the XM-4 satellite, which provided us with an additional net $245 million in liquidity
