SIRIUS XM HOLDINGS INC. All amounts referenced in this Item 2 are in millions, except subscriber amounts are in thousands and per subscriber and per installation amounts are in ones, unless otherwise stated. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year endedDecember 31, 2021 . This Quarterly Report on Form 10-Q presents information forSirius XM Holdings Inc. ("Holdings"). The terms "Holdings," "we," "us," "our," and "our company" as used herein, and unless otherwise stated or indicated by context, refer toSirius XM Holdings Inc. and its subsidiaries. "Sirius XM" refers to our wholly owned subsidiarySirius XM Radio Inc. and its subsidiaries. "Pandora" refers toSirius XM's wholly owned subsidiaryPandora Media, LLC and its subsidiaries. Holdings has no operations independent ofSirius XM and Pandora.
Special Note Regarding Forward-Looking Statements
The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in forward-looking statements made in this Quarterly Report on Form 10-Q and in other reports and documents published by us from time to time. Any statements about our beliefs, plans, objectives, expectations, assumptions, future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "intend," "plan," "projection" and "outlook." Any forward-looking statements are qualified in their entirety by reference to the factors discussed throught this Quarterly Report on Form 10-Q and in other reports and documents published by us from time to time, including the risk factors described under "Risk Factors" in Part I, Item 1A, of our Annual Report on Form 10-K for the year endedDecember 31, 2021 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein and in Part II, Item 7, of our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Among the significant factors that could cause our actual results to differ materially from those expressed in the forward-looking statements are:
•We have been, and may continue to be, adversely affected by certain supply chain issues •We face substantial competition and that competition is likely to increase over time •If our efforts to attract and retain subscribers and listeners, or convert listeners into subscribers, are not successful, our business will be adversely affected •We engage in extensive marketing efforts and the continued effectiveness of those efforts is an important part of our business •We rely on third parties for the operation of our business, and the failure of third parties to perform could adversely affect our business •We may not realize the benefits of acquisitions or other strategic investments and initiatives •The ongoing COVID-19 pandemic has introduced significant uncertainty to our business •A substantial number of ourSirius XM service subscribers periodically cancel their subscriptions and we cannot predict how successful we will be at retaining customers •Our ability to profitably attract and retain subscribers to ourSirius XM service as our marketing efforts reach more price-sensitive consumers is uncertain •Our business depends in part upon the auto industry •Failure of our satellites would significantly damage our business •Our Sirius XM service may experience harmful interference from wireless operations •Our Pandora ad-supported business has suffered a substantial and consistent loss of monthly active users, which may adversely affect our Pandora service •Our failure to convince advertisers of the benefits of our Pandora and Off-platform ad-supported service could harm our business •If we are unable to maintain revenue growth from our advertising products our results of operations will be adversely affected •Changes to mobile operating systems and browsers may hinder our ability to sell advertising and market our services •If we fail to accurately predict and play music, comedy or other content that our Pandora listeners enjoy, we may fail to retain existing and attract new listeners •Privacy and data security laws and regulations may hinder our ability to market our services, sell advertising and impose legal liabilities •Consumer protection laws and our failure to comply with them could damage our business 28
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•Failure to comply with FCC requirements could damage our business •If we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement actions and private litigation and our reputation could suffer •Interruption or failure of our information technology and communications systems could impair the delivery of our service and harm our business •The market for music rights is changing and is subject to significant uncertainties •Our Pandora services depend upon maintaining complex licenses with copyright owners, and these licenses contain onerous terms •The rates we must pay for "mechanical rights" to use musical works on our Pandora service have increased substantially and these rates may adversely affect our business •Failure to protect our intellectual property or actions by third parties to enforce their intellectual property rights could substantially harm our business and operating results •Some of our services and technologies may use "open source" software, which may restrict how we use or distribute our services or require that we release the source code subject to those licenses •Rapid technological and industry changes and new entrants could adversely impact our services •We have a significant amount of indebtedness, and our debt contains certain covenants that restrict our operations •We are a "controlled company" within the meaning of the NASDAQ listing rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements •While we currently pay a quarterly cash dividend to holders of our common stock, we may change our dividend policy at any time •Our principal stockholder has significant influence, including over actions requiring stockholder approval, and its interests may differ from the interests of other holders of our common stock •If we are unable to attract and retain qualified personnel, our business could be harmed •Our facilities could be damaged by natural catastrophes or terrorist activities •The unfavorable outcome of pending or future litigation could have an adverse impact on our operations and financial condition •We may be exposed to liabilities that other entertainment service providers would not customarily be subject to •Our business and prospects depend on the strength of our brands. Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any of these 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.
Executive Summary
We operate two complementary audio entertainment businesses -
OurSirius XM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels and other content, as well as podcasts and infotainment services, inthe United States on a subscription fee basis.Sirius XM's packages include live, curated and certain exclusive and on demand programming. TheSirius XM service is distributed through our two proprietary satellite radio systems and streamed via applications for mobile devices, home devices and other consumer electronic equipment. Satellite radios are primarily distributed through automakers, retailers and our website. OurSirius XM service is also available through our in-car user interface, which we call "360L," that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience. The primary source of revenue from ourSirius XM business is subscription fees, with most of our customers subscribing to monthly, quarterly, semi-annual or annual plans. We also derive revenue from advertising on select non-music channels, which is sold under the SXM Media brand, direct sales of our satellite radios and accessories, and other ancillary services. As ofMarch 31, 2022 , ourSirius XM business had approximately 34.0 million subscribers. 29
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In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers. These services are designed to enhance the safety, security and driving experience of consumers. We also offer a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings, a traffic information service that includes information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems, and real-time weather services in vehicles, boats and planes.Sirius XM also holds a 70% equity interest and 33% voting interest inSirius XM Canada .Sirius XM Canada's subscribers are not included in our subscriber count or subscriber-based operating metrics.
Pandora and Off-platform
Pandora operates a music and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen, whether through computer, tablets, mobile devices, vehicle speakers or connected devices. Pandora enables listeners to create personalized stations and playlists, discover new content, hear artist- and expert-curated playlists, podcasts and selectSirius XM content as well as search and play songs and albums on-demand. Pandora is available as (1) an ad-supported radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium). As ofMarch 31, 2022 , Pandora had approximately 6.3 million subscribers.
The majority of revenue from Pandora is generated from advertising on our Pandora ad-supported radio service which is sold under the SXM Media brand. We also derive subscription revenue from our Pandora Plus and Pandora Premium subscribers.
We also sell advertising on other audio platforms and in widely distributed podcasts, which we consider to be off-platform services. We have an arrangement withSoundCloud Holdings, LLC ("SoundCloud") to be its exclusive ad sales representative in the US and certain European countries and are able to offer advertisers the ability to execute campaigns across the Pandora andSoundCloud listening platforms. We also have arrangements to serve as the ad sales representative for certain podcasts. In addition, throughAdsWizz Inc. , we provide a comprehensive digital audio and programmatic advertising technology platform, which connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.
Liberty Media
As ofMarch 31, 2022 , Liberty Media beneficially owned, directly and indirectly, approximately 81% of the outstanding shares of our common stock. As a result, we are a "controlled company" for the purposes of the NASDAQ corporate governance requirements. 30
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Results of Operations
Set forth below are our results of operations for the three months endedMarch 31, 2022 compared with the three months endedMarch 31, 2021 . The results of operations are presented for each of our reporting segments for revenue and cost of services and on a consolidated basis for all other items. For the Three Months Ended March 2022 vs 2021 Change 31, 2022 2021 Amount % Revenue Sirius XM: Subscriber revenue$ 1,582 $ 1,481 $ 101 7 % Advertising revenue 47 42 5 12 % Equipment revenue 53 57 (4) (7) % Other revenue 37 36 1 3 % Total Sirius XM revenue 1,719 1,616 103 6 % Pandora and Off-platform: Subscriber revenue 131 130 1 1 % Advertising revenue 336 312 24 8 % Total Pandora and Off-platform revenue 467 442 25 6 % Total consolidated revenue 2,186 2,058 128 6 % Cost of services Sirius XM: Revenue share and royalties 382 378 4 1 % Programming and content 129 120 9 8 % Customer service and billing 103 98 5 5 % Transmission 41 33 8 24 % Cost of equipment 3 4 (1) (25) % Total Sirius XM cost of services 658 633 25 4 % Pandora and Off-platform: Revenue share and royalties 288 262 26 10 % Programming and content 11 10 1 10 % Customer service and billing 22 19 3 16 % Transmission 10 15 (5) (33) % Total Pandora and Off-platform cost of 331 306 25 8 % services Total consolidated cost of services 989 939 50 5 % Subscriber acquisition costs 90 86 4 5 % Sales and marketing 272 217 55 25 % Engineering, design and development 67 64 3 5 % General and administrative 123 121 2 2 % Depreciation and amortization 135 132 3 2 % Impairment, restructuring and - 245 (245) (100) % acquisition costs Total operating expenses 1,676 1,804 (128) (7) % Income from operations 510 254 256 101 % Other (expense) income: Interest expense (103) (100) (3) (3) % Other income 2 3 (1) (33) % Total other (expense) income (101) (97) (4) (4) % Income before income taxes 409 157 252 161 % Income tax (expense) benefit (100) 62 (162) (261) % Net income$ 309 $ 219 $ 90 41 % 31
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Sirius XM Revenue
Sirius XM Subscriber Revenue includes fees charged for self-pay and paid
promotional subscriptions,
For the three months endedMarch 31, 2022 and 2021, subscriber revenue was$1,582 and$1,481 , respectively, an increase of 7%, or$101 . The increase was primarily driven by a 9% increase in ARPU as a result of higher self-pay revenue andU.S. Music Royalty Fees, partially offset by lower revenue generated from automakers offering paid promotional subscriptions.
We expect subscriber revenues to increase based on increases in the average price and growth in our self-pay subscriber base.
Sirius XM Advertising Revenue includes the sale of advertising on
For the three months ended
We expect our
Sirius XM Equipment Revenue includes revenue and royalties from the sale of satellite radios, components and accessories.
For the three months endedMarch 31, 2022 and 2021, equipment revenue was$53 and$57 , respectively, a decrease of 7%, or$4 . The decrease was primarily driven by lower OEM royalties due to supplier cost increases related to the semiconductor supply shortages and lower sales of components and accessories, partially offset by higher chipset volume.
We expect equipment revenue to remain relatively flat.
Sirius XM Other Revenue includes service and advisory revenue from
For the three months endedMarch 31, 2022 and 2021, other revenue was$37 and$36 , respectively, an increase of 3%, or$1 . The increase was primarily driven by higher revenue generated bySirius XM Canada .
We expect other revenue to remain relatively flat.
Pandora and Off-platform Revenue
Pandora and Off-platform Subscriber Revenue includes fees charged for Pandora Plus, Pandora Premium and Stitcher subscriptions.
For the three months endedMarch 31, 2022 and 2021, Pandora and Off-platform subscriber revenue was$131 and$130 , respectively, an increase of 1%, or$1 . The increase was primarily driven by an increase in the mix of Premium plans compared to Plus plans.
We expect Pandora and Off-platform subscriber revenues to remain relatively flat.
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Pandora and Off-platform Advertising Revenue is generated primarily from audio, display and video advertising from on-platform and off-platform advertising.
For the three months endedMarch 31, 2022 and 2021, Pandora and Off-platform advertising revenue was$336 and$312 , respectively, an increase of 8%, or$24 . The increase was primarily due to growth in ourAdsWizz platform as well as higher podcast revenue from increased downloads.
We expect Pandora and Off-platform advertising revenue to increase as our off-platform and podcast revenue grows.
Total Consolidated Revenue
Total Consolidated Revenue for the three months ended
Sirius XM Cost of Services
Sirius XM Cost of Services includes revenue share and royalties, programming and content, customer service and billing, and transmission expenses.
Sirius XM Revenue Share and Royalties include royalties for transmitting content, including streaming royalties, as well as automaker, content provider and advertising revenue share.
For the three months endedMarch 31, 2022 and 2021, revenue share and royalties were$382 and$378 , respectively, an increase of 1%, or$4 , but decreased as a percentage of totalSirius XM revenue. The increase was driven by overall greater revenues subject to revenue share.
We expect our
Sirius XM Programming and Content includes costs to acquire, create, promote and produce content. We have entered into various agreements with third parties for music and non-music programming that require us to pay license fees and other amounts.
For the three months ended
We expect ourSirius XM programming and content expenses to increase as we offer additional programming and renew or replace expiring agreements. Sirius XM Customer Service and Billing includes costs associated with the operation and management of internal and third-party customer service centers, and our subscriber management systems as well as billing and collection costs, bad debt expense, and transaction fees. For the three months endedMarch 31, 2022 and 2021, customer service and billing expenses were$103 and$98 , respectively, an increase of 5%, or$5 , but decreased as a percentage of totalSirius XM revenue. The increase was driven by higher transaction costs and bad debt expense resulting from a higher average self-pay subscriber base.
We expect our
Sirius XM Transmission consists of costs associated with the operation and maintenance of our terrestrial repeater networks; satellites; satellite telemetry, tracking and control systems; satellite uplink facilities; studios; and delivery of our Internet and 360L streaming and connected vehicle services.
For the three months endedMarch 31, 2022 and 2021, transmission expenses were$41 and$33 , respectively, an increase of 24%, or$8 , and increased as a percentage of totalSirius XM revenue. The increase was primarily driven by higher wireless costs associated with consumers using our 360L platform and our connected vehicle services as well higher data center costs. 33
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We expect our
Sirius XM Cost of Equipment includes costs from the sale of satellite radios, components and accessories and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels.
For the three months ended
We expect our
Pandora and Off-platform Cost of Services
Pandora and Off-platform Cost of Services includes revenue share and royalties, programming and content, customer service and billing, and transmission expenses.
Pandora and Off-platform Revenue Share and Royalties includes licensing fees paid for streaming music or other content costs related to podcasts as well as revenue share paid to third party ad servers. We make payments to third party ad servers for the period the advertising impressions are delivered or click-through actions occur, and accordingly, we record this as a cost of service in the related period. For the three months endedMarch 31, 2022 and 2021, revenue share and royalties were$288 and$262 , respectively, an increase of 10%, or$26 , and increased as a percentage of total Pandora and Off-platform revenue. The increase was primarily due to costs related to the acquisition of rights to certain podcasts.
We expect our Pandora and Off-platform revenue share to increase as streaming revenue increases and our royalty costs to increase due to higher podcast costs.
Pandora and Off-platform Programming and Content includes costs to produce live listener events and promote content.
For the three months ended
We expect our Pandora and Off-platform programming and content costs to increase as we offer additional programming and produce live listener events and promotions.
Pandora and Off-platform Customer Service and Billing includes transaction fees on subscription purchases through mobile app stores and bad debt expense.
For the three months endedMarch 31, 2022 and 2021, customer service and billing expenses were$22 and$19 , respectively, an increase of 16% or$3 , and increased as a percentage of total Pandora and Off-platform revenue. The increase was primarily driven by higher bad debt expense.
We expect our Pandora and Off-platform customer service and billing costs to remain relatively flat.
Pandora and Off-platform Transmission includes costs associated with content streaming, maintaining our streaming radio and on-demand subscription services and creating and serving advertisements through third-party ad servers. For the three months endedMarch 31, 2022 and 2021, transmission expenses were$10 and$15 , respectively, a decrease of 33%, or$5 , and decreased as a percentage of total Pandora and Off-platform revenue. The decrease was driven by lower data center costs due to consolidation of facilities and lower streaming costs resulting from a decline in listener hours.
We expect our Pandora and Off-platform transmission costs to fluctuate primarily as a result of changes in listener hours.
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Operating Costs
Subscriber Acquisition Costs are costs associated with our satellite radio service and include hardware subsidies paid to radio manufacturers, distributors and automakers; subsidies paid for chipsets and certain other components used in manufacturing radios; device royalties for certain radios and chipsets; product warranty obligations; and freight. The majority of subscriber acquisition costs are incurred and expensed in advance of acquiring a subscriber. Subscriber acquisition costs do not include advertising costs, marketing, loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios. For the three months endedMarch 31, 2022 and 2021, subscriber acquisition costs were$90 and$86 , respectively, an increase of 5%, or$4 , but decreased as a percentage of total revenue. The increase was driven by higher OEM installations. We expect subscriber acquisition costs to fluctuate with OEM installations. We intend to continue to offer subsidies and other incentives to induce OEMs to include our technology in their vehicles.
Sales and Marketing includes costs for marketing, advertising, media and production, including promotional events and sponsorships; cooperative and artist marketing; and personnel related costs including salaries, commissions, and sales support. Marketing costs include expenses related to direct mail, outbound telemarketing, email communications, social media, television and digital performance media, and third party promotional offers.
For the three months endedMarch 31, 2022 and 2021, sales and marketing expenses were$272 and$217 , respectively, an increase of 25%, or$55 , and increased as a percentage of total revenue. The increase was primarily due to additional investments in advertising and marketing to support our brands, digital marketing expenditures as well as higher personnel-related costs.
We anticipate that sales and marketing expenses will increase with growth in our free trial subscriber base, as we expand programs to retain our existing subscribers, win back former subscribers, and attract new subscribers and listeners, and as we grow advertising revenue.
Engineering, Design and Development consists primarily of compensation and related costs to develop chipsets and new products and services, including streaming and connected vehicle services, research and development for broadcast information systems and the design and development costs to incorporateSirius XM radios into new vehicles manufactured by automakers.
For the three months ended
We expect engineering, design and development expenses to increase in future periods as we continue to develop our infrastructure, products and services.
General and Administrative primarily consists of compensation and related costs for personnel and facilities, and include costs related to our finance, legal, human resources and information technologies departments. For the three months endedMarch 31, 2022 and 2021, general and administrative expenses were$123 and$121 , respectively, an increase of 2%, or$2 , but decreased as a percentage of total revenue. The increase was driven by higher legal and consulting costs, partially offset by lower personnel-related costs.
We expect our general and administrative expenses to remain relatively flat.
Depreciation and Amortization represents the recognition in earnings of the cost of assets used in operations, including our satellite constellations, property, equipment and intangible assets, over their estimated service lives.
For the three months ended
Impairment, Restructuring and Acquisition Costs represents impairment charges,
net of insurance recoveries, associated with the carrying amount of an asset
exceeding the asset's fair value, restructuring expenses associated with the
abandonment of certain leased office spaces and acquisition costs.
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For the three months endedMarch 31, 2022 , there were no impairment, restructuring and acquisition costs. For the three months endedMarch 31, 2021 , impairment, restructuring and acquisition costs were$245 . During the three months endedMarch 31, 2021 , we recorded an impairment charge of$220 to write down the value of our SXM-7 satellite after it experienced failures of certain payload units during in-orbit testing and restructuring costs of$25 resulting from the termination of leased office space.
Other (Expense) Income
Interest Expense includes interest on outstanding debt.
For the three months endedMarch 31, 2022 and 2021, interest expense was$103 and$100 , respectively. The increase was primarily driven by a higher average outstanding debt balance as well as a higher average drawn balance of the Credit Facility, partially offset by lower interest rates. Other Income primarily includes realized and unrealized gains and losses from our Deferred Compensation Plan and other investments, interest and dividend income, our share of the income or loss from equity investments inSirius XM Canada andSoundCloud , and transaction costs related to non-operating investments. For the three months endedMarch 31, 2022 and 2021, other income was$2 and$3 , respectively. For the three months endedMarch 31, 2022 and 2021, we recorded our share ofSirius XM Canada's net income and interest earned on our loan toSirius XM Canada , which was partially offset by trading losses associated with the investments held for our Deferred Compensation Plan.
Income Taxes
Income Tax Expense includes the change in our deferred tax assets, current federal and state tax expenses, and foreign withholding taxes.
For the three months ended
Our effective tax rate for the three months endedMarch 31, 2022 and 2021 was 24.4% and (39.5)%, respectively. The effective tax rate for the three months endedMarch 31, 2022 was primarily impacted by a benefit associated with the recognition of excess tax benefits related to share-based compensation. The effective tax rate for the three months endedMarch 31, 2021 was primarily impacted by a$95 benefit associated with a state tax audit settlement and the recognition of excess tax benefits related to share-based compensation. We estimate our effective tax rate for the year endingDecember 31, 2022 will be approximately 25%. 36
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Key Financial and Operating Performance Metrics
In this section, we present certain financial performance measures, some of which are presented as Non-GAAP items, which include free cash flow and adjusted EBITDA. We also present certain operating performance measures. Our adjusted EBITDA excludes the impact of share-based payment expense. Additionally, when applicable, our adjusted EBITDA metric excludes the effect of significant items that do not relate to the on-going performance of our business. We use these Non-GAAP financial and operating performance measures to manage our business, to set operational goals and as a basis for determining performance-based compensation for our employees. See the accompanying Glossary for more details and for the reconciliation to the most directly comparable GAAP measure (where applicable). We believe these Non-GAAP financial and operating performance measures provide useful information to investors regarding our financial condition and results of operations. We believe these Non-GAAP financial and operating performance measures may be useful to investors in evaluating our core trends because they provide a more direct view of our underlying costs. We believe investors may use our adjusted EBITDA to estimate our current enterprise value and to make investment decisions. We believe free cash flow provides useful supplemental information to investors regarding our cash available for future subscriber acquisitions and capital expenditures, to repurchase or retire debt, to acquire other companies and our ability to return capital to stockholders. By providing these Non-GAAP financial and operating performance measures, together with the reconciliations to the most directly comparable GAAP measure (where applicable), we believe we are enhancing investors' understanding of our business and our results of operations. Our Non-GAAP financial measures should be viewed in addition to, and not as an alternative for or superior to, our reported results prepared in accordance with GAAP. In addition, our Non-GAAP financial measures may not be comparable to similarly-titled measures by other companies. Please refer to the Glossary for a further discussion of such Non-GAAP financial and operating performance measures and reconciliations to the most directly comparable GAAP measure (where applicable). Subscribers and subscription related revenues and expenses associated with our connected vehicle services andSirius XM Canada are not included inSirius XM's subscriber count or subscriber-based operating metrics. 37
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Set forth below are our subscriber balances as ofMarch 31, 2022 compared toMarch 31, 2021 . As of March 31, 2022 vs 2021 Change (subscribers in thousands) 2022 2021 Amount %Sirius XM Self-pay subscribers 32,014 31,013 1,001 3 % Paid promotional subscribers 1,940 3,486 (1,546) (44) % Ending subscribers 33,954 34,499 (545) (2) % Sirius XM Canada subscribers 2,523 2,600 (77)
(3) %
Pandora and Off-platform Monthly active users - all services 50,554 55,870 (5,316) (10) % Self-pay subscribers 6,328 6,392 (64) (1) % Paid promotional subscribers - 64 (64) (100) % Ending subscribers 6,328 6,456 (128) (2) % The following table contains our Non-GAAP financial and operating performance measures which are based on our adjusted results of operations for the three months endedMarch 31, 2022 and 2021. For the Three Months 2022 vs 2021 Change Ended March 31, (subscribers in thousands) 2022 2021 Amount % Sirius XM Self-pay subscribers (25) 126 (151) (120) % Paid promotional subscribers (54) (341) 287 84 % Net additions (79) (215) 136 63 % Weighted average number of 33,890 34,462 (572) (2) % subscribers Average self-pay monthly churn 1.6 % 1.6 % - % - % ARPU (1)$ 15.53 $ 14.30 $ 1.23 9 % SAC, per installation$ 12.73 $ 10.90 $ 1.83 17 % Pandora and Off-platform Self-pay subscribers 4 113 (109) (96) % Paid promotional subscribers (69) 2 (71) (3,550) % Net additions (65) 115 (180) (157) % Weighted average number of 6,356 6,385 (29) - % subscribers Ad supported listener hours (in 2.87 (0.19) (7) % billions) 2.68 Advertising revenue per thousand$ 89.77 $ 85.69 $ 4.08 5 % listener hours (RPM)Total Company Adjusted EBITDA$ 690 $ 682 $ 8 1 % Free cash flow$ 258 $ 211 $ 47 22 %
(1) ARPU for
Subscribers. AtMarch 31, 2022 ,Sirius XM had approximately 33,954 subscribers, a decrease of 545, from the approximately 34,499 subscribers as ofMarch 31, 2021 . The decrease was due to the decline in paid promotional subscribers generated by automakers driven by a shift to shorter paid trials and unpaid trials, partially offset by the growth in our self-pay subscriber base. For the three months endedMarch 31, 2022 and 2021, net subscriber additions were (79) and (215), respectively. The decrease in self-pay net additions was driven by lower vehicle conversion rates and lower new vehicle sales, partially 38
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offset by an increase in digital subscribers as well as lower vehicle related and voluntary churn. Paid promotional net additions increased due to a larger impact of the semiconductor supply shortage in the first quarter of 2021 as well as a shift to free trials at a certain automaker.
Sirius XM Canada Subscribers. At
Average Self-pay Monthly Churn is derived by dividing the monthly average of self-pay deactivations for the period by the average number of self-pay subscribers for the period. (See accompanying Glossary for more details.)
For each of the three months ended
ARPU is derived from total earnedSirius XM subscriber revenue (excluding revenue derived from our connected vehicle services) and net advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. (See the accompanying Glossary for more details.) For the three months endedMarch 31, 2022 and 2021, subscriber ARPU -Sirius XM was$15.53 and$14.30 , respectively. The increase was driven by increases in certain subscription rates and advertising revenue, partially offset by the impact of the mix of promotional plans. SAC, Per Installation, is derived from subscriber acquisition costs and margins from the sale of radios, components and accessories (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. (See the accompanying Glossary for more details.) For the three months endedMarch 31, 2022 and 2021, SAC, per installation, was$12.73 and$10.90 , respectively. The increase was driven by higher OEM hardware subsidy rates combined with a change in the mix of OEMs.
Pandora and Off-platform
Monthly Active Users. AtMarch 31, 2022 , Pandora had approximately 50,554 monthly active users, a decrease of 5,316 monthly active users, or 10%, from the 55,870 monthly active users as ofMarch 31, 2021 . The decrease in monthly active users was driven by churn and a decline in the number of new users. Subscribers. AtMarch 31, 2022 , Pandora had approximately 6,328 subscribers, a decrease of 128, or 2%, from the approximately 6,456 subscribers as ofMarch 31, 2021 . For the three months endedMarch 31, 2022 and 2021, net subscriber additions were (65) and 115, respectively. The decrease was driven by a decline in trial starts. Ad supported listener hours are a key indicator of our Pandora business and the engagement of our Pandora listeners. We include ad supported listener hours related to Pandora's non-music content offerings in the definition of listener hours. For the three months endedMarch 31, 2022 and 2021, ad supported listener hours were 2,685 and 2,866, respectively. The decrease in ad supported listener hours was primarily driven by the decline in monthly active users. RPM is a key indicator of our ability to monetize advertising inventory created by our listener hours on the Pandora services. Ad RPM is calculated by dividing advertising revenue by the number of thousands of listener hours of our Pandora advertising-based service.
For the three months ended
Adjusted EBITDA. Adjusted EBITDA is defined as net income before interest
expense, income tax expense and depreciation and amortization. Adjusted EBITDA
excludes the impact of other expense (income), loss on extinguishment of debt,
other non-cash charges such as share-based payment expense, legal settlements
and reserves, and impairment, restructuring and acquisition costs (if
applicable). (See the accompanying Glossary for a reconciliation to GAAP and for
more details.)
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For the three months endedMarch 31, 2022 and 2021, adjusted EBITDA was$690 and$682 , respectively, an increase of 1%, or$8 . The increase was driven by higher subscriber and advertising revenue, partially offset by higher sales and marketing, revenue share and royalties, and personnel-related costs.
Free Cash Flow includes cash provided by operations, net of additions to property and equipment, and restricted and other investment activity. (See the accompanying Glossary for a reconciliation to GAAP and for more details.)
For the three months endedMarch 31, 2022 and 2021, free cash flow was$258 and$211 , respectively, an increase of$47 , or 22%. The increase was primarily driven by higher receipts from customers, partially offset by higher satellite capitalized expenditures.
Liquidity and Capital Resources
The following table presents a summary of our cash flow activity for the three months endedMarch 31, 2022 compared with the three months endedMarch 31, 2021 . For the Three Months Ended March 31, 2022 2021 2022 vs 2021
Net cash provided by operating activities $ 355 $
292 $ 63
Net cash used in investing activities (142) (78) (64)
Net cash used in financing activities (328) (230) (98)
Net decrease in cash, cash equivalents and (115) (16) (99)
restricted cash
Cash, cash equivalents and restricted cash at 199 83 116
beginning of period
Cash, cash equivalents and restricted cash at end $ 84 $ 67 $ 17
of period
Cash Flows Provided by Operating Activities
Cash flows provided by operating activities increased by$63 to$355 for the three months endedMarch 31, 2022 from$292 for the three months endedMarch 31, 2021 . Our largest source of cash provided by operating activities is cash generated by subscription and subscription-related revenues. We also generate cash from the sale of advertising through our Pandora business, advertising on certain non-music channels onSirius XM and the sale of satellite radios, components and accessories. Our primary uses of cash from operating activities include revenue share and royalty payments to distributors, programming and content providers, and payments to radio manufacturers, distributors and automakers. In addition, uses of cash from operating activities include payments to vendors to service, maintain and acquire listeners and subscribers, general corporate expenditures, and compensation and related costs.
Cash Flows Used in Investing Activities
Cash flows used in investing activities in the three months endedMarch 31, 2022 were primarily due to spending for capitalized software and hardware, to construct a replacement satellite, and an acquisition for total cash consideration of$44 . Cash flows used in investing activities in the three months endedMarch 31, 2021 were primarily due to spending for capitalized software and hardware and to construct a replacement satellite. We spent$65 and$61 on capitalized software and hardware as well as$24 and$5 to construct replacement satellites during the three months endedMarch 31, 2022 and 2021, respectively.
Cash Flows Used in Financing Activities
Cash flows used in financing activities consists of the issuance and repayment of long-term debt, the purchase of common stock under our share repurchase program, the payment of cash dividends and taxes paid in lieu of shares issued for stock-based compensation. Proceeds from long-term debt have been used to fund our operations, construct and launch new satellites, fund acquisitions, invest in other infrastructure improvements and purchase shares of our common stock. Cash flows used in financing activities in the three months endedMarch 31, 2022 were primarily due to the payment of cash dividends of$1,073 , the purchase and retirement of shares of our common stock under our repurchase program for$206 , and payment of$29 for taxes in lieu of shares issued for share-based compensation, partially offset by net borrowings under our Credit Facility of$981 . Cash flows used in financing activities in the three months endedMarch 31, 2021 were primarily due to the purchase and retirement of shares of our common stock under our repurchase program for$522 , the payment of cash 40
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dividends of
Future Liquidity and Capital Resource Requirements
Based upon our current business plans, we expect to fund operating expenses, capital expenditures, including the construction of replacement satellites, working capital requirements, interest payments, taxes and scheduled maturities of our debt with existing cash, cash flow from operations and borrowings under our Credit Facility. As ofMarch 31, 2022 ,$981 was outstanding under our Credit Facility and$769 was available for future borrowing under our Credit Facility. 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 to construct, launch and insure replacement satellites, as well as fund future stock repurchases, future dividend payments and to pursue strategic opportunities.
Our ability to meet our debt and other obligations depends on our future operating performance and on economic, financial, competitive and other factors.
We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and significantly change our cash requirements. These changes in our business plans or strategy may include: the acquisition of unique or compelling programming; the development and introduction of new features or services; significant new or enhanced distribution arrangements; investments in infrastructure, such as satellites, equipment or radio spectrum; and acquisitions and investments, including acquisitions and investments that are not directly related to our existing business.
We may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Capital Return Program As ofMarch 31, 2022 , our board of directors had authorized for repurchase an aggregate of$18,000 of our common stock. As ofMarch 31, 2022 , our cumulative repurchases sinceDecember 2012 under our stock repurchase program totaled 3,591 shares for$16,119 , and$1,881 remained available for additional repurchases under our existing stock repurchase program authorization. Shares of common stock may be purchased from time to time on the open market and in privately negotiated transactions, including in accelerated stock repurchase transactions and transactions with Liberty Media and its affiliates. We intend to fund the additional repurchases through a combination of cash on hand, cash generated by operations and future borrowings. The size and timing of any purchases will be based on a number of factors, including price and business and market conditions. OnApril 19, 2022 , our board of directors declared a quarterly dividend in the amount of$0.0219615 per share of common stock payable onMay 25, 2022 to stockholders of record as of the close of business onMay 6, 2022 . Our board of directors expects to declare regular quarterly dividends, in an aggregate annual amount of$0.087846 per share of common stock.
Debt Covenants
The indentures governingSirius XM's senior notes and Pandora's convertible notes and the agreement governing the Sirius XM Credit Facility include restrictive covenants. As ofMarch 31, 2022 , we were in compliance with such covenants. For a discussion of our "Debt Covenants," refer to Note 12 to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We do not have any significant off-balance sheet arrangements other than those
disclosed in Note 15 to our unaudited consolidated financial statements in this
Quarterly Report on Form 10-Q that are reasonably likely to have a material
effect on our financial condition, results of operations, liquidity, capital
expenditures or capital resources.
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Contractual Cash Commitments
For a discussion of our "Contractual Cash Commitments," refer to Note 15 to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q. Related Party Transactions
For a discussion of "Related Party Transactions," refer to Note 11 to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
For a discussion of our "Critical Accounting Policies and Estimates," refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no material changes to our critical accounting policies and estimates sinceDecember 31, 2021 .
Glossary
Monthly active users - the number of distinct registered users on the Pandora services, including subscribers, which have consumed content within the trailing 30 days to the end of the final calendar month of the period. The number of monthly active users on the Pandora services may overstate the number of unique individuals who actively use our Pandora service, as one individual may use multiple accounts. To become a registered user on the Pandora services, a person must sign-up using an email address or access our service using a device with a unique identifier, which we use to create an account for our service.
Average self-pay monthly churn - for satellite-enabled subscriptions, the
Adjusted EBITDA - EBITDA is defined as net income before interest expense,
income tax expense and depreciation and amortization. Adjusted EBITDA is a
Non-GAAP financial measure that excludes or adjusts for the impact of other
expense (income), loss on extinguishment of debt, other non-cash charges such as
share-based payment expense, legal settlements and reserves, and impairment
restructuring and acquisition costs (if applicable). We believe adjusted EBITDA
is a useful measure of the underlying trend of our operating performance, which
provides useful information about our business apart from the costs associated
with our capital structure and purchase price accounting. We believe investors
find this Non-GAAP financial measure useful when analyzing our past operating
performance with our current performance and comparing our operating performance
to the performance of other communications, entertainment and media companies.
We believe investors use adjusted EBITDA to estimate our current enterprise
value and to make investment decisions. As a result of large capital investments
in our satellite radio system, our results of operations reflect significant
charges for depreciation expense. We believe the exclusion of share-based
payment expense is useful as it is not directly related to the operational
conditions of our business. We also believe the exclusion of the legal
settlements and reserves, impairment, restructuring and acquisition related
costs, and loss on extinguishment of debt, to the extent they occur during the
period, is useful as they are significant expenses not incurred as part of our
normal operations for the period.
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Adjusted EBITDA has certain limitations in that it does not take into account
the impact to our consolidated statements of comprehensive income of certain
expenses, including share-based payment expense. We endeavor to compensate for
the limitations of the Non-GAAP measure presented by also providing the
comparable GAAP measure with equal or greater prominence and descriptions of the
reconciling items, including quantifying such items, to derive the Non-GAAP
measure. Investors that wish to compare and evaluate our operating results after
giving effect for these costs, should refer to net income as disclosed in our
unaudited consolidated statements of comprehensive income. Since adjusted EBITDA
is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA
may be susceptible to varying calculations; may not be comparable to other
similarly titled measures of other companies; and should not be considered in
isolation, as a substitute for, or superior to measures of financial performance
prepared in accordance with GAAP. The reconciliation of net income to the
adjusted EBITDA is calculated as follows:
For the Three Months
Ended March 31,
2022 2021
Net income: $ 309 $ 219
Add back items excluded from Adjusted EBITDA:
Impairment, restructuring and acquisition costs - 245
Share-based payment expense (1) 45 51
Depreciation and amortization 135 132
Interest expense 103 100
Other income (2) (3)
Income tax expense (benefit) 100 (62)
Adjusted EBITDA $ 690 $ 682 (1)Allocation of share-based payment expense:
For the Three Months Ended March 31,
2022 2021
Programming and content $ 8 $ 8
Customer service and billing 1 2
Transmission 1 1
Sales and marketing 13 15
Engineering, design and development 8 10
General and administrative 14 15
Total share-based payment expense $ 45 $ 51
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Free cash flow - is derived from cash flow provided by operating activities plus
insurance recoveries on our satellites, net of additions to property and
equipment and purchases of other investments. Free cash flow is a metric that
our management and board of directors use to evaluate the cash generated by our
operations, net of capital expenditures and other investment activity. In a
capital intensive business, with significant investments in satellites, we look
at our operating cash flow, net of these investing cash outflows, to determine
cash available for future subscriber acquisition and capital expenditures, to
repurchase or retire debt, to acquire other companies and to evaluate our
ability to return capital to stockholders. We exclude from free cash flow
certain items that do not relate to the on-going performance of our business,
such as cash flows related to acquisitions, strategic and short-term
investments, and net loan activity with related parties and other equity
investees. We believe free cash flow is an indicator of the long-term financial
stability of our business. Free cash flow, which is reconciled to "Net cash
provided by operating activities," is a Non-GAAP financial measure. This measure
can be calculated by deducting amounts under the captions "Additions to property
and equipment" and deducting or adding Restricted and other investment activity
from "Net cash provided by operating activities" from the unaudited consolidated
statements of cash flows. Free cash flow should be used in conjunction with
other GAAP financial performance measures and may not be comparable to free cash
flow measures presented by other companies. Free cash flow should be viewed as a
supplemental measure rather than an alternative measure of cash flows from
operating activities, as determined in accordance with GAAP. Free cash flow is
limited and does not represent remaining cash flows available for discretionary
expenditures due to the fact that the measure does not deduct the payments
required for debt maturities. We believe free cash flow provides useful
supplemental information to investors regarding our current cash flow, along
with other GAAP measures (such as cash flows from operating and investing
activities), to determine our financial condition, and to compare our operating
performance to other communications, entertainment and media companies. Free
cash flow is calculated as follows:
For the Three Months
Ended March 31,
2022 2021
Cash Flow information
Net cash provided by operating activities $ 355 $ 292
Net cash used in investing activities (142) (78)
Net cash used in financing activities (328) (230)
Free Cash Flow
Net cash provided by operating activities 355 292
Additions to property and equipment (97) (78)
Purchases of other investments - (3)
Free cash flow $ 258 $ 211
ARPU - Sirius XM ARPU is derived from total earned subscriber revenue (excluding
revenue associated with our connected vehicle services) and advertising revenue,
divided by the number of months in the period, divided by the daily weighted
average number of subscribers for the period.
Subscriber acquisition cost, per installation - or SAC, per installation, is
derived from subscriber acquisition costs less margins from the sale of radios
and accessories (excluding connected vehicle services), divided by the number of
satellite radio installations in new vehicles and shipments of aftermarket
radios for the period. SAC, per installation, is calculated as follows:
For the Three Months
Ended March 31,
2022 2021
Subscriber acquisition costs, excluding connected vehicle $ 90 $ 86
services
Less: margin from sales of radios and accessories, excluding (50) (53)
connected vehicle services
$ 40 $ 33
Installations 3,125 3,068
SAC, per installation (a) (a)Amounts may not recalculate due to rounding.
Ad supported listener hours - is based on the total bytes served over our
Pandora advertising supported platforms for each track that is requested and
served from our Pandora servers, as measured by our internal analytics systems,
whether or not a listener listens to the entire track. For non-music content
such as podcasts, episodes are divided into
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approximately track-length parts, which are treated as tracks. To the extent that third-party measurements of advertising hours are not calculated using a similar server-based approach, the third-party measurements may differ from our measurements.
RPM - is calculated by dividing advertising revenue, excluding
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