XM Satellite Radio Holdings Inc. Announces Second Quarter 2008 Results

XM Satellite Radio Holdings Inc. Announces Second Quarter 2008 Results

Net Loss Narrows on Increased Revenue and Lower Subscriber Acquisition Costs

Fifth Consecutive Quarter of Record Automotive Additions

Second Quarter Ending Subscribers Grow 17% Year over Year to Exceed 9.6 Million

WASHINGTON, July 22 /PRNewswire-FirstCall/ -- XM Satellite Radio Holdings Inc. (NASDAQ:XMSR) today announced earnings for the three-month period ended June 30, 2008. Revenue for the second quarter 2008 rose to $318 million, a nearly 15 percent increase over second quarter 2007 revenue of $277 million.

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XM ended second quarter 2008 with 9.65 million subscribers, a 17 percent increase, compared to 8.25 million subscribers at the end of second quarter 2007. This growth was driven, in part, by a 39 percent year-over-year increase in the number of gross additions through the automotive (OEM) channel. Second quarter 2008 OEM gross additions were 857 thousand, the company's fifth consecutive quarter of record OEM gross additions. This compared to 618 thousand OEM gross additions in second quarter 2007.

In second quarter 2008, XM reported total gross additions of 1.08 million, and 322 thousand net subscriber additions, compared to 942 thousand gross additions and 338 thousand net subscriber additions in second quarter 2007. Net OEM subscriber additions of 360 thousand in the second quarter more than offset a loss of 38 thousand net retail subscribers.

Second quarter 2008 adjusted operating loss narrowed to $37 million, compared to a loss of $47 million in second quarter 2007. XM's second quarter 2008 net loss improved to $120 million, compared to a second quarter 2007 net loss of $176 million. For a reconciliation of XM's net loss to adjusted operating loss, see the attached financial schedules.

In second quarter 2008, XM's subscriber acquisition costs (SAC), a component of cost per gross addition (CPGA), improved year over year to $65, compared to $75 in second quarter 2007. CPGA in the second quarter was $100 and compares to $121 in the second quarter 2007.

XM continued to maintain stability in the key operating metrics of conversion rate and churn, both of which improved year over year. Second quarter 2008 conversion was 53.4 percent, compared to second quarter 2007 conversion of 52.7 percent. Second quarter 2008 churn improved to 1.67 percent, compared to second quarter 2007 churn of 1.84 percent.

XM announced its preliminary results for second quarter 2008 yesterday in connection with an offering of senior notes associated with XM's pending merger with SIRIUS.

About XM

XM (NASDAQ:XMSR) is America's number one satellite radio company with more than 9.6 million subscribers. Broadcasting live daily from studios in Washington, DC, New York City, Chicago, Nashville, Toronto and Montreal, XM's 2008 lineup includes more than 170 digital channels of choice from coast to coast: commercial-free music, premier sports, news, talk radio, comedy, children's and entertainment programming; and the most advanced traffic and weather information.

XM, the leader in satellite-delivered entertainment and data services for the automobile market through partnerships with General Motors, Honda, Hyundai, Nissan, Porsche, Subaru, Suzuki and Toyota is available in 140 different vehicle models for 2008. XM's industry-leading products are available at consumer electronics retailers nationwide. XM programming is also available through XM Radio Online, as downloads of original XM shows via podcasts from XM's Web site or the Apple's iTunes Store, and as streams of commercial-free XM music channels to AT&T and Alltel wireless customers through XM Radio Mobile. For more information about XM hardware, programming and partnerships, please visit http://www.xmradio.com/.

Factors that could cause actual results to differ materially from those in the forward-looking statements in this press release include demand for XM Satellite Radio's service, our significant expenditures and losses, our dependence on technology and third party vendors, our potential need for additional financing, the health of our satellites, the impact of our proposed merger with SIRIUS, our substantial indebtedness as well as other risks described in XM Satellite Radio Holdings Inc.'s Form 8-K filed with the Securities and Exchange Commission on 7-21-08. Copies of the filing are available upon request from XM Radio's Investor Relations Department.

                        XM SATELLITE RADIO HOLDINGS INC.                 UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS     (in thousands, except       Three months ended        Six months ended     share and per share              June 30,                 June 30,     data)                       2008         2007         2008        2007     Revenue:      Subscription            $284,136     $245,778     $559,862    $482,264      Activation                 5,044        4,766       10,188       9,419      Merchandise                7,491        5,658       11,812      10,955      Net ad sales              10,432       10,153       19,550      17,631      Other                     10,932       10,921       25,078      21,118    Total revenue              318,035      277,276      626,490     541,387    Operating expenses:      Cost of revenue       (excludes       depreciation &       amortization, shown       below):        Revenue share &         royalties              73,586       49,723      142,408      97,149        Customer care &         billing operations (1) 36,388       30,749       70,698      58,677        Cost of merchandise      9,055       12,694       17,606      30,970        Ad sales (1)             4,879        5,480        9,583       8,866        Satellite &         terrestrial (1)        13,472       13,472       26,653      27,354        Broadcast & operations:          Broadcast (1)          6,308        6,885       13,269      13,429          Operations (1)        11,026        9,683       21,516      19,399        Total broadcast &         operations             17,334       16,568       34,785      32,828        Programming &         content (1)            49,604       41,827      101,166      85,779      Total cost of revenue    204,318      170,513      402,899     341,623      Research & development       (excludes depreciation       & amortization,       shown below) (1)          9,414        8,159       20,435      15,469      General & administrative       (excludes depreciation       & amortization, shown       below) (1)               30,989       35,869       61,719      70,053      Marketing (excludes       depreciation &       amortization, shown       below):          Retention &           support (1)          11,032       10,618       22,829      20,374          Subsidies &           distribution         69,193       63,855      140,717     107,457          Advertising &           marketing            36,865       43,244       63,367      76,053        Marketing              117,090      117,717      226,913     203,884        Amortization of GM         liability               6,504        6,504       13,007      13,008      Total marketing          123,594      124,221      239,920     216,892      Depreciation &       amortization             32,438       46,506       77,921      93,387    Total operating     expenses (1)              400,753      385,268      802,894     737,424    Operating loss             (82,718)    (107,992)    (176,404)   (196,037)    Other income     (expense):      Interest income              743        4,238        2,419       7,781      Interest expense         (30,480)     (32,423)     (59,807)    (60,032)      Loss from de-leveraging       transactions                  -            -            -      (2,965)      Loss from impairment       of investments                -      (35,824)           -     (35,824)      Equity in net loss       of affiliate             (4,373)      (2,752)      (8,550)     (8,177)      Minority interest         (3,153)      (3,266)      (6,390)     (4,962)      Other income               1,082          413          895         856    Net loss before income     taxes                    (118,899)    (177,606)    (247,837)   (299,360)      (Provision for)       benefit from       deferred income       taxes                      (673)       1,859       (1,004)      1,175    Net loss                 $(119,572)   $(175,747)   $(248,841)  $(298,185)    Net loss per common     share - basic and     diluted                     (0.38)       (0.57)       (0.80)      (0.97)    Weighted average     shares used in     computing net loss     per common share -     basic and diluted     310,886,180  306,425,375  310,283,700 306,154,565     Reconciliation of Net     loss to Adjusted     operating loss:      Net loss as reported   $(119,572)   $(175,747)   $(248,841)  $(298,185)    Add back Net loss     items excluded from     Adjusted operating     loss:      Interest income             (743)      (4,238)      (2,419)     (7,781)      Interest expense          30,480       32,423       59,807      60,032      Provision for (benefit       from) deferred       income taxes                673       (1,859)       1,004      (1,175)      Loss from       de-leveraging       transactions                  -            -            -       2,965      Equity in net loss       of affiliate              4,373        2,752        8,550       8,177      Minority interest          3,153        3,266        6,390       4,962      Other income              (1,082)        (413)        (895)       (856)        Operating loss         (82,718)    (107,992)    (176,404)   (196,037)      Depreciation &       amortization             32,438       46,506       77,921      93,387      Share-based payment       expense                  12,947       14,080       30,451      28,211    Adjusted operating     loss (3)                 $(37,333)    $(47,406)    $(68,032)   $(74,439)      Footnotes:     (1) These captions        include non-cash        share-based payment      Three months ended       Six months ended        expense as follows:           June 30,                 June 30,        (in thousands)           2008         2007         2008        2007         Customer care &         billing operations       $752         $497       $1,641        $937        Ad sales                   436          460        1,044         816        Satellite &         terrestrial               447          491        1,089       1,010        Broadcast                  558          606        1,351       1,206        Operations                 359          351          829         729        Programming &         content                 1,820        2,061        4,363       4,227        Research &         development             1,702        1,716        4,164       3,442        General &         administrative          4,686        5,829       10,737      11,878        Retention & support      2,187        2,069        5,233       3,966          Total share-based           payment expense     $12,947      $14,080      $30,451     $28,211      (2) Adjusted operating loss is net loss before interest income, interest        expense, income taxes, depreciation and amortization, loss from        de-leveraging transactions, loss from impairment of investments,        equity in net loss of affiliate, minority interest, other income        (expense) and share-based payment expense. This non-GAAP measure        should be used in addition to, but not as a substitute for, the        analysis provided in the statement of operations. We believe Adjusted        operating loss is a useful measure of our operating performance and        improves comparability between periods. Adjusted operating loss is a        significant basis used by management to measure our success in        acquiring, retaining and servicing subscribers because we believe        this measure provides insight into our ability to grow revenues in a        cost-effective manner. We believe Adjusted operating loss is a        calculation used as a basis for investors, analysts and credit rating        agencies to evaluate and compare the periodic and future operating        performances and value of our company and similar companies in our        industry.         Because we have funded the build-out of our system through the        raising and expenditure of large amounts of capital, our results of        operations reflect significant charges for depreciation, amortization        and interest expense. We believe Adjusted operating loss provides        helpful information about the operating performance of our business        apart from the expenses associated with our physical plant or capital        structure. We believe it is appropriate to exclude depreciation,        amortization and interest expense due to the variability of the        timing of capital expenditures, estimated useful lives and        fluctuation in interest rates. We exclude income taxes due to our tax        losses and timing differences, so that certain periods will reflect a        tax benefit, while others an expense, neither of which is reflective        of our operating results. Because of the variety of equity awards        used by companies, the varying methodologies for determining        share-based payment expense and the subjective assumptions involved        in those determinations, we believe excluding share-based payment        expense enhances the ability of management and investors to compare        our core operating results with those of similar companies in our        industry.         Equity in net loss of affiliate represents our share of losses in a        non-US affiliate in a similar business and over which we exercise        significant influence, but do not control. Management believes it is        appropriate to exclude this loss when evaluating the performance of        our own operations. Additionally, we exclude loss from de-leveraging        transactions, loss from impairment of investments, minority interest        and other income (expense) because these items represent activity        outside of our core business operations and can distort period to        period comparisons of operating performance.         There are limitations associated with the use of Adjusted operating        loss in evaluating our company compared with net loss, which reflects        overall financial performance. Adjusted operating loss does not        reflect the impact on our financial results of (i) interest income,        (ii) interest expense, (iii) income taxes, (iv) depreciation and        amortization, (v) loss from de-leveraging transactions, (vi) loss        from impairment of investments, (vii) equity in net loss of        affiliate, (viii) minority interest, (ix) other income (expense) and        (x) share-based payment expense, which are included in the        computation of net loss. Users that wish to compare and evaluate our        company based on our net loss should refer to our Consolidated        Statements of Operations. Adjusted operating loss does not purport to        represent operating loss or cash flow from operating activities, as        those terms are defined under United States generally accepted        accounting principles, and should not be considered as an alternative        to those measurements as an indicator of our performance. In        addition, our measure of Adjusted operating loss may not be        comparable to similarly titled measures of other companies.                           XM SATELLITE RADIO HOLDINGS INC.                    SELECTED FINANCIAL AND OPERATING METRICS                                                          As of   (in thousands)                           June 30, 2008   December 31, 2007   SELECTED BALANCE SHEET DATA                (Unaudited)      Cash and cash equivalents                    $183,853          $156,686     System under construction                     166,786           151,142     Property and equipment, net                   660,274           710,370     DARS license                                  141,412           141,412     Investments                                    37,192            36,981     Total assets                                1,723,886         1,609,230     Total subscriber deferred revenue             547,377           514,926     Total deferred income                         132,992           134,803     Long-term debt, net of current portion      1,480,226         1,480,639     Total liabilities                           2,868,158         2,533,787     Stockholders' deficit                      (1,204,472)         (984,303)                                                   Three months ended June 30,   SELECTED OPERATING METRICS                         2008           2007(15)      Subscriber Data (in thousands,      except percentages):       OEM Gross Subscriber Additions (1)              857               618       Retail Gross Subscriber Additions (2) (12)      224               323         Total Gross Subscriber Additions (12)       1,081               942        OEM Net Subscriber Additions (3)                360               295       Retail Net Subscriber Additions (4)             (38)               43         Total Net Subscriber Additions                322               338        Conversion Rate (5)                           53.4%             52.7%       Monthly Churn Rate (6) (12)                   1.67%             1.84%        OEM Subscribers                               4,178             3,047       Retail Subscribers (13)                       4,433             4,459       Subscribers in OEM Promotional Periods          876               649       XM Activated Vehicles with Rental Car        Companies                                       90                40       Data Services Subscribers                        58                40       Outsourced Commercial Subscribers (13)           18                17         Total Ending Subscribers (7)                9,653             8,252         Percentage of Ending Subscribers on Annual        and Multi-Year Plans (12)                    44.7%             43.6%       Percentage of Ending Subscribers on Family        Plans (12)                                   22.7%             23.5%      Revenue Data (monthly average):       Subscription Revenue per Retail, OEM &        Other Subscriber (8) (14)                   $10.31            $10.37       Subscription Revenue per Subscriber in        OEM Promotional Periods                      $5.68             $6.18       Subscription Revenue per XM Activated        Vehicle with Rental Car Companies            $6.02             $7.07       Subscription Revenue per Subscriber of        Data Services                               $33.40            $33.96        Average Monthly Subscription Revenue        per Subscriber ("ARPU") (9) (14)             $9.98            $10.15       Net Ad Sales Revenue per Subscriber           $0.37             $0.42       Activation, Merchandise and Other Revenue        per Subscriber (14)                          $0.81             $0.88         Total Revenue per Subscriber               $11.16            $11.45      Expense Data:       Subscriber Acquisition Costs ("SAC")        (10) (12)                                      $65               $75       Cost Per Gross Addition ("CPGA") (11) (12)     $100              $121                                            (Certain totals may not add due to                                                  the effects of rounding)   Footnotes:   (1) OEM gross subscriber additions are paying subscribers newly activated       in the reporting period and include Subscribers in OEM promotional       periods as well as XM activated vehicles with rental car companies.    (2) Retail gross subscriber additions are paying subscribers newly       activated in the reporting period and include Data services       subscribers and commercial subscribers for 2007 only.    (3) OEM net subscriber additions (OEM gross subscriber additions less       disconnects) represent the total net incremental paying subscribers       added during the period.    (4) Retail net subscriber additions (Retail gross subscriber additions       less disconnects) represent the total net incremental paying       subscribers added during the period, including net Outsourced       commercial subscribers for 2008.    (5) We measure the success of these promotional programs included in our       OEM promotional subscriber count based on the percentage of new       promotional subscribers that receive the XM service and convert to       self-paying subscribers after the initial promotion period. We refer       to this as the "conversion rate." At the time of sale, vehicle owners       generally receive a three month prepaid trial subscription.       Promotional periods generally include the period of trial service plus       30 days to handle the receipt and processing of payments. In       situations where audio service of 12 months or longer is bundled with       the sale of the vehicle, XM counts those subscribers for the first 3       months of service as OEM promotional subscribers and for the remainder       of the bundled service period as OEM subscribers. We measure       conversion rate three months after the period in which the trial       service ends. Based on our experience it may take up to 90 days after       the trial service ends for subscribers to respond to our marketing       communications and become self-paying subscribers. Vehicles that have       bundled service for 12 months or greater are counted in our conversion       rate calculation as being converted six months after the start of the       bundled service. These same vehicles are included as part of our       overall churn calculation after the date conversion is measured.       During Q2 2008 if we calculated conversion rate by excluding 12 months       or greater bundled service subscribers from the calculation, our       conversion rate would have been 52.7% for the three months ended       June 30, 2008.    (6) Monthly churn rate for the quarter represents the weighted average       Churn rate for each month in the quarter. Churn rate represents the       average percentage of self-paying Retail, OEM & other subscribers that       discontinued service during the month divided by the average of these       beginning and ending subscribers for the month. Churn rate does not       include OEM promotional period deactivations and deactivations       resulting from the change-out of XM activated vehicles with rental car       companies.    (7) Subscribers -- Subscribers are those who are receiving and have agreed       to pay for our service, including those who are currently in       promotional periods paid in part by vehicle manufacturers, XM       activated radios in vehicles for which we have a contractual right to       receive payment for the use of our service and commercial       establishments that receive our service through our relationship with       a third party vendor. We count radios individually as subscribers.       Retail subscribers consist primarily of subscribers who purchased       their radio at retail outlets, distributors, or through XM's direct       sales efforts. OEM subscribers are self-paying subscribers whose XM       radio was installed by an OEM and are not currently in OEM promotional       programs. OEM promotional subscribers are subscribers who receive a       fixed period of XM service where XM receives revenue from the OEM for       the trial period following the initial purchase or lease of the       vehicle. In situations where XM receives no revenue from the OEM       during the trial period, the subscriber is not included in XM's       subscriber count. At the time of sale, some vehicle owners receive a       three month prepaid trial subscription. Promotional periods generally       include the period of trial service plus 30 days to handle the receipt       and processing of payments. The automated activation program provides       activated XM radios on dealer lots for test drives but XM does not       include these vehicles in its subscriber count. XM's OEM partners       generally indicate the inclusion of three months of XM service on the       window sticker of XM-enabled vehicles. XM, historically and including       the 2006 model year, receives a negotiated rate for providing audio       service to rental car companies. Beginning with the 2007 model year,       XM entered into marketing arrangements which govern the rate which XM       receives for providing audio service on certain rental fleet vehicles.       Data services subscribers are those subscribers that are receiving       services that include stand-alone XM WX Satellite Weather service,       stand-alone XM Radio Online service and stand-alone NavTraffic       service. Stand-alone XM WX Satellite Weather service packages range in       price from $29.99 to $99.99 per month. XM charges up to $7.99 per       month for stand-alone XM Radio Online service. Stand-alone NavTraffic       service is $9.95 per month. XM generally charges a range of       $9.99-$11.87 per month for its audio service for annual and multi-year       plans and $6.99 per month for a family plan.    (8) Other subscribers include weather and other stand-alone service       subscribers.    (9) Subscription revenue includes monthly subscription revenues for our       satellite audio service and data services, net of any promotions or       discounts.    (10) Subscriber Acquisition Costs -- Subscriber acquisition costs include        Subsidies & distribution and the negative gross profit on merchandise        revenue. Subscriber acquisition costs are divided by gross additions        to calculate what we refer to as "SAC."    (11) Cost Per Gross Addition ("CPGA") -- CPGA costs include the amounts in        SAC, as well as Advertising & marketing. These costs are divided by        the gross additions for the period to calculate CPGA. CPGA costs do        not include marketing staff (included in Retention & support) or the        amortization of the GM guaranteed payments (included in Amortization        of GM liability).    (12) Outsourced commercial subscribers are excluded for 2008.    (13) Approximately 17 thousand subscribers, previously reported as Retail        subscribers, are presented as Outsourced commercial subscribers for        2007 for comparability.    (14) Beginning in 2008, revenue from Outsourced commercial subscribers,        previously reported as Subscription revenue, is reported as Other        revenue.    (15) No previously reported metrics have been adjusted to reflect the        exclusion of Outsourced commercial subscribers except for as stated        in footnote 13.  

First Call Analyst:
FCMN Contact: david.butler@xmradio.com

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Source: XM Satellite Radio Holdings Inc.

CONTACT: Media Relations, Nathaniel Brown, +1-212-708-6170,
Nathaniel.Brown@xmradio.com, or Chance Patterson, +1-202-380-4318,
Chance.Patterson@xmradio.com; Investor Relations, Joe Wilkinson,
+1-202-380-4008, Joe.Wilkinson@xmradio.com, or Richard Sloane,
+1-202-380-1439, Richard.Sloane@xmradio.com, all of XM

Web site: http://www.xmradio.com/

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