XM Satellite Radio Holdings Inc. Announces Third Quarter 2002 Results
WASHINGTON, Nov. 14, 2002; XM Satellite Radio Holdings Inc. reported financial and operating results for the third quarter ended September 30, 2002. XM ended the quarter reporting 201,544 subscribers and continued to show significant quarter-to-quarter subscriber momentum, adding 64,836 subscribers, representing a 47% increase in subscribers during the third quarter. XM also introduced its first next- generation retail aftermarket radio and GM expanded its launch of XM Radio into 25 different 2003 vehicle lines including such segment leaders as the Chevy Avalanche, GMC Yukon, Pontiac Grand Am and Cadillac CTS.Third Quarter Financial and Operating Results
For the three months ended September 30, 2002, XM reported consolidated revenue of $5.6 million, consolidated EBITDA loss of ($67.1) million, and a consolidated net loss available to common shareholders of ($114.7) million, or ($1.26) per share. In comparison, for the three months ended September 30, 2001, XM reported consolidated revenue of $1,000, consolidated EBITDA loss of ($49.8) million, and a consolidated net loss available to common shareholders of ($70.8) million, or ($1.14) per share.
XM Liquidity and Funding Status
As an update to XM's fundraising and cost control efforts, XM continues to seek substantial additional funding to close the gap through cash flow breakeven. To facilitate the overall financing package, we have been in discussions with General Motors regarding non-binding term sheets for the deferral of up to $200 million in payment obligations (with approximately half relating to 2003-2004) and exchanging these payments for certain debt and convertible securities, as well as the introduction of an arrangement that would permit certain payments to be made in either stock or cash. XM's ability to execute any arrangement regarding deferral of payments to GM is contingent upon certain modifications to XM's capital structure and the Company securing at least $200 million in additional financing. XM has not finalized any terms or reached final agreement with GM but management believes that agreement could be reached broadly on the terms currently under discussion or similar terms, should XM be successful in raising the required additional funding. To obtain at least $200 million in other financing, XM and its investment bankers are in discussions with potential outside investors as well as current major shareholders; any resulting transactions will be evaluated by an Independent Committee of the XM Board of Directors. XM is also taking steps to reduce expenditures and extend its current cash through the first quarter 2003, by minimizing discretionary spending, negotiating deferrals or reductions of existing obligations, reducing our workforce and capital expenditures, and other efforts.
XM Accelerates Cash Flow Breakeven
Continued improvement in operational performance is a significant economic key to turning the market acceptance of the XM product into financial success for the XM business. XM has learned a tremendous amount during its first year of commercial service, a year highlighted by exceptional subscription ramp-up in a challenging consumer electronics market and the development of next- generation radios. Based on that learning, XM has refined its Business Plan -- focusing more on the OEM vehicle market to take full advantage of XM's relationship with automobile manufacturers, introducing new lower-priced and more user friendly radio technology in the retail aftermarket and concentrating on the most productive distribution channels -- thus improving revenue/expense ratios and accelerating cash flow. As a result of this positive progress and repositioning -- as well as the potential impact of refinancing proposals currently being discussed, XM expects to reach cash flow breakeven by mid-to-late 2004 and to do so with a much lower number of subscribers than previously forecast.
XM Adds Next Generation Satellite Radio Product to Lineup
As promised in its last conference call, the XM-developed SKYFi by Delphi -- an attractive, compact plug-and-play unit that offers the most advanced features of any satellite radio on the market today and can be freely moved among the car, home, office, or virtually anywhere a subscriber wants to enjoy XM Radio -- was delivered to retailers nationwide just last month, on schedule to allow for a full impact on the important holiday shopping season. SKYFi includes a larger screen, enhanced real-time artist/program information, 20 channel presets and more flexible channel navigating. Later this year, Delphi and XM will make available to retailers a portable audio unit (boombox) that integrates with the SKYFi radio, the Delphi XM SKYFi Audio System(TM).
The "Second Launch of XM" in New GM Cars and Trucks
On schedule, and following announcements made earlier this year, General Motors has begun its major rollout of model year 2003 vehicles equipped with XM Satellite. These vehicles cover six GM divisions, 25 vehicle lines, all product categories and price points. GM expects to equip 350,000 to 400,000 vehicles with XM radios during the 2003 model year.
Supporting its product rollout, GM has initiated a number of marketing programs designed to build XM Radio brand recognition among new car buyers and assure its sales force in all dealerships is well informed on the product and its features. GM is sponsoring national and local print and TV advertising either featuring or including the XM logo and message. Vehicles featured in these advertisements include such category leaders as GMC Sierra, Chevy Cavalier and Pontiac Grand Am.
XM Continues to Make Inroads with Other Automakers
In addition to its rollout in GM vehicles, XM is now or soon will be available in a variety of cars and trucks from other leading automakers. During the quarter, Honda announced it would make XM available, initially as a dealer-installed option, in the Honda Accord, Honda Pilot and Acura MDX. Also during the quarter, XM-equipped Nissan Pathfinder SUVs began arriving at dealerships, to be followed in early 2003 by the XM-equipped Nissan Murano, Infiniti I35 luxury sedans, M45 sedans, Q45 performance luxury sedans, G35 sedans and coupes.
XM's Service Continues to Evolve
During the quarter, XM made several significant changes to its channel lineup. In August, XM introduced several new formats to its already compelling lineup, including an audio books and radio drama channel, a Radio Classics channel, as well as channels dedicated to Electronica, Folk, Easy Listening, Neo Soul and Urban Hip Hop. Continuing the evolution of the service, we will be adding CNN to the channel line-up as well as new alternative rock and live music channels.
About XM Satellite Radio
XM is the fastest-selling audio product in the last 20 years. XM radios are available at major electronics retailers nationwide. Leading manufacturers such as Sony, Alpine, Pioneer, Audiovox and Delphi offer a broad array of XM radios that easily enable any existing car stereo system.
XM is transforming radio, an industry that has seen little technological change since FM, almost 40 years ago. XM's programming lineup features 101 coast-to-coast digital channels: 70 music channels, many of them commercial- free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of sports, talk, children's and entertainment. XM was named 2001 "Product of the Year" by Fortune, an "Invention of the Year" by Time, won Popular Science's 2001 "Best of What's New" Grand Award in the electronics category, and just this week was named "Company in Communications" on the Scientific American 50. XM won several awards at the 2001 Consumer Electronics Show (CES), including "Best of CES" in the automotive category, and received a coveted "A" rating from Entertainment Weekly. XM's strategic investors include America's leading car, radio and satellite TV companies -- General Motors, American Honda Motor Co. Inc., Clear Channel Communications and DIRECTV.
XM SATELLITE RADIO HOLDINGS INC.
FINANCIAL HIGHLIGHTS
(in thousands, except subscriber and share amounts)
(unaudited)
Consolidated Statements of Operations Data
Three Months ended Nine Months ended
September 30, September 30,
2002 2001 2002 2001
Subscriber revenue 4,919 1 9,258 1
Ad sales revenue 676 - 1,925 -
Less: National agency
commissions (73) - (234) -
Other revenue 30 - 226 -
Total revenue $5,552 $1 $11,175 $1
Operating expenses:
Broadcasting
operations:
Content/programming
costs (9,516) (7,362) (27,997) (19,058)
System operating
costs (12,646) (11,810) (35,671) (27,534)
Customer care and
billing operations (4,257) (1,028) (10,686) (3,610)
Sales and marketing (35,708) (20,887) (129,748) (46,235)
General and
administrative (7,068) (5,269) (20,150) (18,440)
Research and
development (3,654) (3,646) (9,853) (11,208)
Depreciation and
amortization (28,376) (12,390) (74,974) (20,248)
Total operating
expenses $(101,225) $(62,392) $(309,079) $(146,333)
Operating loss (95,673) (62,391) (297,904) (146,332)
Interest income 1,271 3,309 4,555 13,194
Interest expense (15,797) (6,158) (47,428) (7,251)
Other income (expense),
net 553 258 1,676 (19)
Net loss $(109,646) $(64,982) $(339,101) $(140,408)
Series B preferred stock
dividend requirement (941) (941) (2,824) (2,824)
Series C preferred stock
dividend requirement (4,125) (4,847) (12,948) (14,541)
Net loss applicable to
common stockholders $(114,712) $(70,770) $(354,873) $(157,773)
Net loss per share:
- basic and diluted $(1.26) $(1.14) $(4.17) $(2.65)
Weighted average shares
used in computing
net loss per share
- basic and diluted 91,244,246 61,837,755 85,114,390 59,472,304
Other data
EBITDA $(67,073) $(49,816) $(222,293) $(125,617)
XM subscriptions
(end of period) 201,544 504 201,544 504
Consolidated Balance September 30, December 31,
Sheets Data 2002 2001
Cash and cash equivalents 31,741 182,497
Short-term investments 52,577 28,355
Restricted investments 29,370 72,759
System under construction 55,016 55,056
Property and equipment in
service, net 1,030,178 1,066,191
Total assets 1,245,896 1,456,203
Total long-term debt, net
of current portion 412,918 411,520
Total liabilities 499,071 529,552
Stockholders' equity 746,825 926,651