- Sirius XM Self-Pay Net Subscriber Additions of 264,000 in Second Quarter

- Second Quarter Revenue of $1,874 Million

- Second Quarter Net Income of $243 Million; Diluted EPS of $0.05

- Adjusted EBITDA Roughly Unchanged at $615 Million in the Second Quarter

- Company Offers New 2020 Subscriber and Financial Guidance

- Buyback Authorization Expanded by $2 Billion; Company Reaches Agreement to Acquire Stitcher

NEW YORK, July 30, 2020 /PRNewswire/ -- Sirius XM today announced second quarter 2020 operating and financial results, including revenue of $1.9 billion, down 5% compared to the prior year period. The Company's net income was $243 million in the second quarter 2020, compared to $263 million in the prior year period. Net income per diluted common share was $0.05 in the second quarter 2020, compared to $0.06 in the prior year period.

Adjusted EBITDA in the second quarter totaled $615 million, roughly unchanged from $618 million in the prior year period, resulting in an adjusted EBITDA margin of 32.8%, an improvement of approximately 160 basis points from the 2019 period. The improvement in adjusted EBITDA margin was driven by a 7% decrease in total cash operating expenses, primarily in subscriber acquisition costs, revenue share and royalties, and sales and marketing, while revenue only decreased 5%.

"Sirius XM's business during this challenging period has been resilient, and with improving results and visibility into the remainder of the year, I'm pleased to resume offering subscriber and financial guidance.  Despite the incredible economic stresses brought about by the COVID-19 pandemic, our self-pay net subscriber additions grew by nearly 200,000 over the first quarter of the year, and we reported improved churn of just 1.6% per month with rising ARPU.  Although advertising revenue fell 34% in the quarter, substantial expense savings in SAC and other areas provided a complete offset, and we generated over half a billion dollars of free cash flow.  We are investing in our business, our people, and external opportunities to position ourselves for future growth," said Jim Meyer, Chief Executive Officer, Sirius XM.

"Our ongoing success highlights the strengths of our business model but also the talent, dedication and innovation of employees across our organization.  We simply haven't skipped a beat. We have announced that an array of new automakers will be deploying our 360L radios starting later this year.  We are optimizing our customer service operations with new tools and techniques, and we ramped up new streaming-centric and on-demand programming with the unprecedented help of artists and other media providers.  We've brought on new stellar talent like Gayle King, and our artist friends such as Bruce Springsteen are doing new programming that entertains but also addresses the current times. We opened up our SiriusXM service for free during a time when people needed news, information and entertainment and we saw millions of new listeners take advantage of it.  And earlier this month, we debuted new channels from stars such as the Beastie Boys, Bob Marley, Coldplay, Queen, and comedian Jim Gaffigan – not to mention U2, which debuted with deep involvement from the members of the band," added Meyer.

Additional information about our business, results of operations and the evolving impact of the COVID-19 pandemic on our business and operations is included below under "SPECIAL NOTE ON COVID-19 RESPONSE."  Additional information," regarding the impact of the COVID-19 pandemic on our business and operations is contained in our Quarterly Report on Form 10-Q, which will be filed with the Securities and Exchange Commission.

FURTHER UPDATE ON BUSINESS, LIQUIDITY, AND CAPITAL RETURNS

"We resumed share repurchases following our April earnings call, buying 29 million shares for $165 million in the second quarter.  With $58 million of dividends paid, total capital returns for the second quarter were $223 million. In June, we issued $1.5 billion of new 4.125% Senior Notes due 2030, and in July we completed the redemption of a similar principal amount of our 4.625% Senior Notes due 2023 and 5.375% Senior Notes due 2025.  At the end of the second quarter, our net debt to trailing 12 month adjusted EBITDA ratio was 3.0x, our $1.75 billion revolving credit facility was completely undrawn and fully available, and we retain ample liquidity to continue investing in the business," said David Frear, Chief Financial Officer, Sirius XM.

"Sirius XM has also been active acquiring and investing in complementary businesses, with $428 million of capital committed to acquire Simplecast and Stitcher and for a minority investment in Soundcloud.  The Stitcher transaction, announced earlier this month, will substantially advance Sirius XM's position in podcasting, the fastest growing sector in audio entertainment.  We are now poised to offer audio publishers content hosting, data analytics, ad insertion and sales representation services through programmatic and direct sales.  We are excited to offer advertisers an attractive path for audience-based buys, including to over 150 million North American listeners across our platforms," added Frear.

2020 GUIDANCE

The Company's new full-year 2020 guidance for self-pay net subscriber additions, revenue, adjusted EBITDA and free cash flow are as follows:

Sirius XM self-pay net subscriber additions of approximately 500,000, Total revenue of approximately $7.7 billion, Adjusted EBITDA of approximately $2.4 billion, and Free cash flow approaching $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 2020 HIGHLIGHTS

Sirius XM operates two complementary audio entertainment businesses — our Sirius XM 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 quarter ended June 30, 2020. The pro forma financial and operating highlights below exclude the impact of share-based payment expense.

SIRIUS XM

• Self-Pay Subscribers Topped 30.3 Million. Sirius XM added approximately 264,000 net new self-pay subscribers in the second quarter. Self-pay monthly churn for the second quarter was 1.6%, down from 1.7% for the second quarter of 2019. Total net subscriber additions were (516,000), resulting in nearly 34.3 million total Sirius XM subscribers at the end of the period. Paid promotional subscribers decreased due to declines in shipments from automakers offering paid trial subscriptions with the purchase or lease of a vehicle. The total trial funnel stood at approximately 8.1 million at the end of the second quarter, down from approximately 9.1 million at the end of the first quarter as sales from automakers offering unpaid trials also declined. 
• Sirius XM Revenue Steady at $1.5 Billion.  Second quarter revenue was unchanged at $1.5 billion with growth in subscriber revenue offsetting declines in advertising and equipment revenue.  Monthly ARPU climbed 1% in the second quarter compared to the year ago period despite the reduction in advertising revenue per user. 
• Gross Profit and Margins Steady.  Total cost of services at Sirius XM decreased by 1% to $591 million in the second quarter, resulting in $949 million of gross profit, a 1% increase over the second quarter of 2019.  Gross profit margin was 62%, up 20 basis points compared to the prior year quarter.  
• New Car Penetration Rises; 360L Deployments Confirmed.  Sirius XM's new car penetration rate climbed to approximately 77% in the second quarter 2020, an increase of nearly 500 basis points from the second quarter of 2019.  The company confirmed planned rollouts this year of 360L at a variety of automakers including Audi, BMW, FIAT Chrysler, Ford, GM's Buick, Cadillac, Chevy, GMC brands and Volkswagen.

PANDORA

• Advertising Revenue Declined 31% to $211 million.  Second quarter ad revenue in the Pandora segment, which includes off-platform results such as our AdsWizz business, declined 31% year-over-year to $211 million.  Numerous categories of advertisers cancelled or paused orders during the second quarter in reaction to the COVID-19 pandemic.  Nevertheless, revenue declines moderated throughout the quarter, with April down 41%, May down 36%, and June down 18% versus the same months in 2019.  Monetization of $55 per thousand hours at Pandora was also down 31% year-over-year. 
• Total Ad Supported Listener Hours of 3.3 Billion.  Monthly Active Users (MAUs) at Pandora were 59.6 million in the second quarter, down from 64.9 million in the prior year period. Total ad supported listener hours were 3.29 billion in the period, down from 3.49 billion in the second quarter of 2019.  Average monthly listening hours per active ad-supported user increased 2.4% to 20.2 in the second quarter of 2020 versus 19.7 in the second quarter of 2019. 
• Self-Pay Net Adds of 40,000.  Pandora added 40,000 net new self-pay subscribers to its Pandora Plus and Pandora Premium services in the second quarter to end the period with over 6.3 million self-pay subscribers. Paid promotional subscribers remained near 46,000, flat quarter-on-quarter but down from 733,000 at the end of the second quarter of 2019, as a result of a reduction in paid promotional subscriptions due to the expiration of an agreement with T-Mobile in the third quarter of 2019. Total Pandora subscribers at the end of the period were 6.3 million. 
• Gross Profit Declined 55%. The sharp decline in advertising revenue greatly exceeded a 6% reduction in costs of services, resulting in gross profit at Pandora of $70 million, down 55% over the second quarter of 2019.  Gross margin for the quarter was 21%, down from 36% in the second quarter of 2019.

Subscriber acquisition costs declined by 54% to $48 million in the second quarter driven by lower hardware subsidies as certain subsidy rates decreased as well as a decline in OEM installations as a result of the COVID-19 pandemic.  Sales and marketing costs decreased by 6% to a total of $201 million.  Engineering, design and development costs fell 15% to $52 million, and general and administrative expenses declined 3% to $102 million.

With revenue down 5% and total cash operating expenses down 7%, excluding depreciation and amortization, share-based payment expenses, and legal settlements and reserves, adjusted EBITDA was roughly unchanged.  Free cash flow grew by 6% to $503 million, driven by higher cash from operations.

SPECIAL NOTE ON COVID-19 RESPONSE

General

In general, the COVID-19 pandemic, coupled with government issued stay-at-home orders, has had, and is continuing to have, a widespread and broad reaching effect on the economy.  Beginning in late March, automakers idled plants and certain auto dealers have closed their retail operations.  Vehicle sales have declined, sporting events have been cancelled, theaters remain closed and concerts have been postponed indefinitely.  The impact of the COVID-19 pandemic on the travel industry has been far-reaching, adversely affecting airlines, hotels, cruise ships and theme parks.  Unemployment rates, while improving, remain high as non-essential businesses have been closed and workers have been furloughed.  Similarly, although media spending by businesses is recovering, spending continues to be down sharply compared to prior periods.  While certain regions of the United States are in various phases of reopening, which includes the resumption of production for automakers and the reopening of many auto dealer locations, it is unclear what an economic recovery will look like after this historic shutdown of the economy as the United States continues to struggle with rolling outbreaks of the virus.

Against this background and these broad-based economic effects, the full extent to which the COVID-19 pandemic may negatively impact our business is still uncertain.  The scope of the effects of the COVID-19 pandemic on our businesses depends on many factors beyond our control, and the effects are difficult to assess or predict with meaningful precision both generally and specifically as to our Sirius XM and Pandora businesses.  The COVID-19 pandemic did not have a material effect on our revenues and expenses for the first quarter ended March 31, 2020, with the effects on our business first emerging in the quarter ended June 30, 2020, primarily as discussed below under "Business Performance Update".

Liquidity

To date, the COVID-19 pandemic and its related economic impact has not affected our capital and financial resources, including our liquidity position.  We believe that we have sufficient cash and cash equivalents, as well as debt capacity, to cover our estimated short-term and long-term funding needs, including amounts necessary to construct, launch and insure replacement satellites, as well as fund future stock repurchases, future dividend payments and pursue strategic opportunities.  After initially halting our stock repurchase program, we resumed repurchasing of our common stock again during the quarter ended June 30, 2020 and expect to continue repurchasing our common stock subject to numerous factors, including but not limited to market conditions.  We have not suspended our quarterly common stock dividend payments as a result of the COVID-19 pandemic.  As of June 30, 2020, prior to the redemption of the $500 million aggregate principal amount of outstanding 4.625% Notes and the $1.0 billion aggregate principal amount of outstanding 5.375% Notes on July 9, 2020, we had approximately $1.770 billion of cash on hand and $1.749 billion was available for future borrowing under our revolving credit facility (after giving effect to outstanding letters of credit).

The COVID-19 pandemic to date has not impacted our ability to access our traditional funding sources.  The pandemic has not increased our costs of or reduced our access to capital under our revolving credit facility or the debt capital markets, and we do not believe it is reasonably likely to do so in the near-term.  In addition, we do not expect the pandemic to affect our ongoing ability to meet the covenants in our debt instruments, including under our revolving credit facility.  During the three months ended June 30, 2020, our subsidiary, Sirius XM, completed an offering of $1.5 billion of 4.125% Senior Notes due 2030.  Subsequent to quarter end, on July 9, 2020, Sirius XM used the net proceeds from this offering, together with cash on hand, to redeem all of its outstanding 5.375% Senior Notes due 2025 at a redemption price of 102.688% of the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date and to redeem all of its outstanding 4.625% Senior Notes due 2023 at a redemption price of 100.771% of the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date.  This financing was executed consistent with our past practices to opportunistically extend the maturities of our existing debt and not in response to the COVID-19 pandemic.

Business Performance Update

We remain focused on the well-being of our employees, customers and all those we serve while also taking responsive measures to adapt to the current environment.  We have undertaken and are generally in the process of making a diverse range of operational adjustments in response to the effects of COVID-19 pandemic.  We have taken actions to help ensure the continuity of our audio entertainment service through the COVID-19 pandemic, including activating our business continuity plans and implementing measures to enable employees to work remotely.  From a customer care and support perspective, we have adjusted our operations with call center vendors as a result of their inability to fully staff their operations.  These adjustments have included shifting call center demand to "chat" platforms, activating interactive voice response (or "IVR") systems and online capabilities, and working with call center vendors to increase the capability for customer service agents to work remotely.  We are focused on optimizing customer support performance in this new environment.

Included below is information regarding certain trends related to our Sirius XM and Pandora businesses.

Sirius XM Business.  Sales of new cars in the United States were down approximately 48% in April compared to April 2019, to a seasonally adjusted annual rate of  8.6 million, recovering to 12.2 million in May, and 13.0 million in June.  Used vehicle trial starts were down 5% for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019, and up 15% for the month of June 2020 compared to June 2019.  For the first time in our history used car trial starts exceeded new car trial starts in the second quarter.  Our aggregate Sirius XM trial subscription starts in the second quarter declined and that will result in fewer opportunities in the third quarter to convert consumers from trial subscriptions to self-pay subscriptions.

During the second quarter, while we experienced some decline in the rate at which purchasers and lessees of new cars converted from trial subscribers to self-pay subscribers of our satellite radio service, the decline was less than we originally expected.  Similarly, used car conversion rates showed only a small impact from the COVID-19 pandemic.  After a temporary lull, consumer response to our marketing campaigns has rebounded.

Our average self-pay monthly subscriber churn rates decreased from 1.8% during the quarter ended March 31, 2020 to 1.6% for the three months ended June 30, 2020.  Vehicle related churn (churn resulting from a vehicle transaction by a consumer) and non-pay churn decreased during the second quarter, partially offset by an increase in voluntary churn (that is, churn resulting from consumers proactively canceling). 

Against this background, we reported 264 thousand net new self-pay subscribers for the quarter ended June 30, 2020.

During the quarter ended June 30, 2020, the penetration rate of satellite radios in new vehicle sales was approximately 77%, an increase of nearly 500 basis points compared to the prior year period.  This increase was due to rising penetration rate at certain OEMs, a favorable model-mix and a reduction in fleet vehicle sales as a percentage of total sales.  Installations decreased 57% for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019, but have begun to recover as installations were down approximately 81% in April, 75% in May and 26% in June, compared to the same periods last year, as automakers reopened factories in May and ramped up production.

Pandora Business.  Advertising revenue from our Pandora business has declined markedly since mid-March 2020.  Several categories of advertisers cancelled or paused orders during the second quarter, and while we have seen recent increases in advertising orders, the outlook for future advertising revenue is uncertain.  Pandora advertising revenue was down approximately 41% in April, 36% in May and 18% in June from the same periods last year.

Ad supported listener hours on our Pandora services decreased markedly following the implementation of stay-at-home orders in mid-March 2020, but improved during the second half of the quarter ended June 30, 2020 to modest declines on a year over year basis.  Ad supported listener hours were down approximately 10% in April, 4% in May and 3% in June from the same periods last year.

Potential Impact on our Results of Operations

It is difficult to predict how the COVID-19 pandemic will affect our company in the long-term.  Based on what we have observed to date, however, we have attempted below to provide an explanation of how the pandemic has affected, and will likely continue to affect, our business, including our revenue and expenses, over the next six months.  We presently believe that the COVID-19 pandemic and its related economic impact has and will likely continue to:

• adversely affect our subscriber revenue due to the decline in sales of vehicles, reduced drive time, and the inability of our vendors to fully staff call centers;
• cause a decline in advertising revenues in our Pandora and Sirius XM businesses as third parties pull back on advertising spending generally;
• have an adverse effect on our equipment revenue and the sale of satellite radios, components and accessories;
• negatively impact our other revenue as the pandemic is anticipated to have similar adverse effects on Sirius XM Canada and its service as well as adversely affect our connected services business;
• reduce our revenue share and royalties expenses, although in our Pandora ad-supported service royalty reductions may not be commensurate with the decline in ad revenues;
• not significantly affect our programming and content expenses as we expect to continue to honor our agreements to acquire, create, promote and produce content, including our obligations in some cases to sports leagues that have cancelled significant portions of their seasons;
• reduce our customer service and billing costs as we may experience lower costs as a result of the inability of our vendors to fully staff the operation and management of customer service centers and the move of some customer service interactions to digital channels, although such cost reductions may be partially offset by increased bad debt expense;
• not significantly affect our transmission expenses and costs of equipment expenses;
• reduce subscriber acquisition costs as hardware subsidies paid to radio manufacturers, distributors and automakers and subsidies paid for chipsets and certain other components used in manufacturing radios are expected to decline as a result of a reduction in vehicle production;
• decrease sales and marketing expenses as the reduction in auto sales is anticipated to reduce trial subscription starts, the volume of our marketing campaigns and the associated expenses related to direct mail, outbound telemarketing and email communications, and as we may reduce our spending on marketing, advertising, media and production, and digital performance media;
• reduce our engineering, design and development expenses as a slower pace of hiring may slow the development of new products and services, including streaming and connected vehicle services, and research and development efforts in the ordinary course;
• reduce our general and administrative expenses as a result of reductions in compensation, travel and entertainment and other costs; and
• not affect our depreciation and amortization expenses.

Other Potential Impacts

We have taken actions to help ensure that our audio entertainment service will continue uninterrupted through the COVID-19 pandemic, including activating our business continuity plans and implementing steps to enable employees to work remotely.  The impact of these actions on our workforce are also difficult to assess, but the experience has presented new challenges for our employees as they balance the demands of the pandemic with their daily operational role.  To date, however, we do not believe that these remote work arrangements have adversely affected our ability to maintain our financial reporting systems, internal control over financial reporting and disclosure controls and procedures.  In addition, we do not expect to encounter any significant challenges to our ability to maintain these systems and controls. 

We also do not expect the pandemic to affect the assets on our balance sheet and our ability to timely account for those assets.  For example, we do not anticipate making any significant changes as a result of the pandemic in judgments in determining the fair-value of assets measured in accordance with generally accepted accounting principles.

In addition, we do not anticipate any material impairments with respect to goodwill, indefinite life and definite life intangible assets, right of use assets or investments, increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that would have an adverse impact on our financial statements.

We are taking advantage of recent Federal tax relief to defer our portion of the social security payroll tax.  This tax relief will not have a material impact on our liquidity position in either the short- or long-term.  We have not received any financial assistance in the form of loans under the CARES Act.

You should not place undue reliance on any of our forward-looking statements.  In addition, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrence of unanticipated events or otherwise, except as required by law.  New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

For additional discussion of the risks to our business related to the COVID-19 pandemic, see "Risk factors—Risks related to our business—The current coronavirus (COVID-19) pandemic is adversely impacting our business" contained in our Quarterly Report on Form 10-Q for the three months ended March 31, 2020.  To the extent the COVID-19 pandemic or any other global health crisis does adversely impact our business or financial condition, it may also have the effect of heightening many of the other "Risk factors" included in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the three months ended March 31, 2020.

Unaudited Pro Forma Results

Set forth below are our pro forma results of operations for the three and six months ended June 30, 2020 compared with the three and six months ended June 30, 2019.  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, 2019 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, fair value gain or loss on the Pandora investment and associated tax impacts.  Pro forma adjustments are not included for the acquisition of Simplecast.  Please refer to the Footnotes to Results of Operations.

Footnotes to Pro Forma Results of Operations

The following tables reconcile our results of operations as reported to our pro forma results of operations for the three and six months ended June 30, 2020 and 2019 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, 2019 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, fair value gain or loss on the Pandora investment and associated tax impacts.