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Press release from PR Newswire

SiriusXM Reports Second Quarter 2012 Results

Tuesday, August 07, 2012

SiriusXM Reports Second Quarter 2012 Results07:00 EDT Tuesday, August 07, 2012- Subscribers Grow by 622,000 to a Record 22.9 Million - Record Revenue of $838 Million, Up 13% - Net Income of $3.1 Billion Includes a $3.0 Billion Income Tax Benefit - Adjusted EBITDA Grows 28% to a Record $237 Million - Free Cash Flow Grows 39% to a Record $230 Million - Company Raises 2012 Adjusted EBITDA Guidance to Approximately $900 MillionNEW YORK, Aug. 7, 2012 /PRNewswire/ -- Sirius XM Radio (NASDAQ: SIRI) today announced second quarter 2012 financial and operating results, including revenue of $838 million, up 13% over second quarter 2011 revenue of $744 million. Net income for the second quarter 2012 and 2011 was $3.1 billion and $173 million, respectively. Adjusted EBITDA for the second quarter of 2012 was $237 million, up 28% from $185 million in the second quarter of 2011.(Logo: http://photos.prnewswire.com/prnh/20101014/NY82093LOGO )"SiriusXM continued its exceptional performance in the second quarter, adding over 600,000 subscribers, which represents a post-merger record, despite the mixed macroeconomic trends. We also attained a record-level free cash flow of $230 million - the highest single quarterly free cash flow figure in SiriusXM's history. We are very pleased with the strong operating results we have delivered since the merger, especially our performance in 2012, as we have grown revenue, tightly controlled expenses, and produced substantial growth in adjusted EBITDA and free cash flow," remarked Mel Karmazin, Chief Executive Officer, SiriusXM."We've also raised our subscriber, revenue, and adjusted EBITDA guidance as the Company exceeds its targets and as subscribers demonstrate how much they love our great content. We are excited to deliver our new SiriusXM On-Demand service to our subscribers via the internet and smartphones, and our program to launch a personalized music feature via these same channels by the end of the year is on track. We intend to provide more innovative ways for our subscribers to access our best-in-class content, and we believe this focus on satisfying subscribers will also satisfy our shareholders," said Karmazin.Additional highlights from the second quarter include:Record subscriber growth. Self-pay net subscriber additions improved by 28% year-over-year to 463,000, pushing the self-pay subscriber base to an all-time high of 18.7 million subscribers. The total paid subscriber base rose to a record high 22.9 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by approximately 400,000 from the first quarter to 6.1 million. Churn and conversion stable. Self-pay monthly churn was 1.9% in the second quarter of 2012, unchanged from the 1.9% reported in the second quarter of 2011. The new vehicle consumer conversion rate was 45% in the second quarter of 2012, also unchanged from the second quarter of 2011. Free cash flow grows to record level. Free cash flow was $230 million in the second quarter of 2012, an improvement of 39% from the $165 million recorded in the second quarter of 2011, and SiriusXM attained an all-time record for free cash flow generated in a single quarter in the history of satellite radio. Significant net income items. Included in the second quarter 2012 net income was an income tax benefit of approximately $3.0 billion related to a reversal of substantially all of the Company's deferred income tax valuation allowance. On a comparative basis, the second quarter 2011 net income included a gain of $84 million associated with the Canadian merger of Sirius and XM. "We ended the second quarter with $868 million of cash, after the repurchase of approximately $101 million in aggregate principal amount of our debt during the quarter. Our leverage at the end of the second quarter of 2012 improved to 3.6x our adjusted EBITDA," said David Frear, SiriusXM's Executive Vice President and Chief Financial Officer. "We called the remaining $186 million of our 9.75% Senior Secured Notes due 2015 for redemption on September 1, 2012. Following the repayment of these notes, our gross debt will stand at approximately $2.7 billion and our leverage, based upon our 2012 adjusted EBITDA guidance, will be at our 3.0x target, a significant improvement from 4.4x one year ago."2012 GUIDANCE"Our increase in adjusted EBITDA guidance to approximately $900 million indicates strong confidence in our ability to continue to execute in the back half of the year," said Karmazin. "We were also pleased to raise our subscriber guidance for the second time this year just last month."The Company's 2012 subscriber, revenue, adjusted EBITDA and free cash flow guidance are as follows:Net subscriber growth approaching 1.6 million, Revenue approaching $3.4 billion, Adjusted EBITDA of approximately $900 million, and Free cash flow of approximately $700 million.SECOND QUARTER 2012 RESULTSSIRIUS XM RADIO INC. AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFor the Three Months Ended June 30,For the Six Months Ended June 30,(in thousands, except per share data)2012201120122011Revenue:Subscriber revenue$           730,285$           639,642$      1,430,526$       1,262,080Advertising revenue, net of agency fees20,78618,22739,45634,785Equipment revenue16,41717,02233,37032,889Other revenue70,05569,506138,912138,482Total revenue837,543744,3971,642,2641,468,236Operating expenses:Cost of services:Revenue share and royalties135,426116,741267,537223,670Programming and content65,16967,399135,265140,358Customer service and billing68,67962,592134,866128,429Satellite and transmission17,55118,99835,66137,558Cost of equipment7,1507,60112,95614,006Subscriber acquisition costs119,475105,162235,596210,432Sales and marketing57,42251,442115,78199,261Engineering, design and development6,27213,93918,96225,074General and administrative65,66460,479125,550116,831Depreciation and amortization66,79367,062132,910135,462Total operating expenses609,601571,4151,215,0841,131,081Income from operations227,942172,982427,180337,155Other income (expense):Interest expense, net of amounts capitalized(72,770)(76,196)(149,742)(154,414)Loss on extinguishment of debt and credit facilities, net(15,650)(1,212)(25,621)(7,206)Interest and investment (loss) income(1,728)80,182(2,871)78,298Other (loss) income(173)183(749)1,799Total other (expense) income(90,321)2,957(178,983)(81,523)Income before income taxes137,621175,939248,197255,632Income tax benefit (expense)2,996,549(2,620)2,993,747(4,192)Net income$        3,134,170$           173,319$      3,241,944$          251,440Realized loss on XM Canada investment foreign currency adjustment, net of tax-6,072-6,072Foreign currency translation adjustment, net of tax1810(38)77Comprehensive income$        3,134,188$           179,401$      3,241,906$          257,589Net income per common share:Basic$                 0.83$                 0.05$               0.86$                0.07Diluted$                 0.48$                 0.03$               0.50$                0.04Weighted average common shares outstanding:Basic3,765,5733,744,3753,766,5083,739,731Diluted6,506,1596,804,2976,521,6146,790,729  SIRIUS XM RADIO INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSJune 30, 2012December 31, 2011(in thousands, except share and per share data)(unaudited)ASSETSCurrent assets:Cash and cash equivalents$               868,330$               773,990Accounts receivable, net113,705101,705Receivables from distributors97,07684,817Inventory, net36,88436,711Prepaid expenses163,009125,967Related party current assets7,32614,702Deferred tax asset899,485132,727Other current assets8,6006,335Total current assets2,194,4151,276,954Property and equipment, net1,631,1101,673,919Long-term restricted investments3,9733,973Deferred financing fees, net35,55242,046Intangible assets, net2,546,0612,573,638Goodwill1,815,6731,834,856Related party long-term assets51,82754,953Long-term deferred tax asset1,237,393-Other long-term assets19,07735,657Total assets$           9,535,081$            7,495,996LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable and accrued expenses$              491,704$               543,193Accrued interest62,97170,405Current portion of deferred revenue1,440,9831,333,965Current portion of deferred credit on executory contracts278,401284,108Current maturities of long-term debt5,1581,623Related party current liabilities15,80314,302Total current liabilities2,295,0202,247,596Deferred revenue170,525198,135Deferred credit on executory contracts76,458218,199Long-term debt2,543,2492,683,563Long-term related party debt330,393328,788Deferred tax liability-1,011,084Related party long-term liabilities20,35421,741Other long-term liabilities85,49282,745Total liabilities5,521,4916,791,851Stockholders' equity:Preferred stock, par value $0.001; 50,000,000 authorized at June 30, 2012 and December 31, 2011:Series A convertible preferred stock; no shares issued and outstanding at June 30, 2012 and December 31, 2011--Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at June 30, 2012 and December 31, 2011); 12,500,000 shares issued and outstanding at June 30, 2012 and December 31, 20111313Common stock, par value $0.001; 9,000,000,000 shares authorized at June 30, 2012 and December 31, 2011; 3,824,178,762 and 3,753,201,929 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively3,8243,753Accumulated other comprehensive income, net of tax3371Additional paid-in capital10,551,86810,484,400Accumulated deficit(6,542,148)(9,784,092)Total stockholders' equity4,013,590704,145Total liabilities and stockholders' equity$            9,535,081$            7,495,996SIRIUS XM RADIO INC. AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the Six Months Ended June 30,(in thousands)20122011Cash flows from operating activities:Net income$           3,241,944$              251,440Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization132,910135,462Non-cash interest expense, net of amortization of premium21,03119,234Provision for doubtful accounts14,87917,744Amortization of deferred income related to equity method investment(1,388)(1,388)Loss on extinguishment of debt and credit facilities, net25,6217,206Gain on merger of unconsolidated entities-(83,718)Loss on unconsolidated entity investments, net3,4696,045Loss on disposal of assets488269Share-based payment expense28,86923,591Deferred income taxes(2,995,542)2,223Other non-cash purchase price adjustments(147,328)(134,862)Distribution from investment in unconsolidated entity-4,849Changes in operating assets and liabilities:Accounts receivable(26,879)3,080Receivables from distributors(12,259)(13,438)Inventory(173)(10,399)Related party assets6,81331,076Prepaid expenses and other current assets(39,308)(20,871)Other long-term assets16,57915,974Accounts payable and accrued expenses(51,596)(101,552)Accrued interest(7,434)(1,888)Deferred revenue79,28863,649Related party liabilities1,501(42)Other long-term liabilities2,238(194)Net cash provided by operating activities293,723213,490Cash flows from investing activities:Additions to property and equipment(48,944)(75,298)Release of restricted investments-250Return of capital from investment in unconsolidated entity-10,117Net cash used in investing activities(48,944)(64,931)Cash flows from financing activities:Proceeds from exercise of stock options38,6716,921Payment of premiums on redemption of debt(19,211)(5,020)Repayment of long-term borrowings(169,899)(208,824)Net cash used in financing activities(150,439)(206,923)Net increase (decrease) in cash and cash equivalents94,340(58,364)Cash and cash equivalents at beginning of period773,990586,691Cash and cash equivalents at end of period$              868,330$              528,327Subscriber Data and Operating Metrics The following table contains actual subscriber data and key operating metrics for the three and six months ended June 30, 2012 and 2011, respectively: UnauditedFor the Three Months Ended June 30,For the Six Months Ended June 30,2012201120122011Beginning subscribers22,297,42020,564,02821,892,82420,190,964Gross subscriber additions2,481,0042,179,3484,642,6974,231,715Deactivated subscribers(1,858,962)(1,727,201)(3,616,059)(3,406,504)Net additions622,042452,1471,026,638825,211Ending subscribers22,919,46221,016,17522,919,46221,016,175 Self-pay18,670,96617,170,30618,670,96617,170,306 Paid promotional4,248,4963,845,8694,248,4963,845,869Ending subscribers22,919,46221,016,17522,919,46221,016,175 Self-pay462,876362,663762,224483,507 Paid promotional159,16689,484264,414341,704Net additions622,042452,1471,026,638825,211Daily weighted average number of subscribers22,553,70220,715,63022,272,28220,475,720Average self-pay monthly churn1.9%1.9%1.9%1.9%New vehicle consumer conversion rate45%45%45%45%ARPU$           11.97$           11.53$           11.87$          11.53SAC, per gross subscriber addition$                54$                54$                57$               56Subscribers. The improvement was due to the 14% increase in gross subscriber additions, primarily resulting from new vehicle shipments and light vehicle sales, as well as an increase in conversions from unpaid promotional trials and returning subscriber activations including consumers in previously owned cars. This increase in gross additions was partially offset by an increase in deactivations. The increase in deactivations was primarily due to paid promotional trial deactivations stemming from the growth of paid trials, along with growth in our subscriber base. Self-pay net additions increased 28% as trial conversions increased and the self-pay churn rate declined. Average Self-pay Monthly Churn for the three months ended June 30, 2012 and 2011 was 1.9%.New Vehicle Consumer Conversion Rate for the three months ended June 30, 2012 and 2011 was 45%.ARPU increased primarily due to the increase in certain subscription rates beginning in January 2012 and an increase in sales of premium services, including Premier packages, data services and streaming. These factors were partially offset by an increase in subscriber retention programs, the number of subscribers on promotional plans and a decrease in the contribution from the U.S. Music Royalty Fee due to the December 2010 reduction in the rate from 15.3% to 10.8%.SAC, Per Gross Subscriber Addition, remained flat at $54 for the three months ended June 30, 2012 and 2011. Higher subsidies related to increased OEM installations occurring in advance of acquiring the subscriber were offset by improved OEM subsidy rates per vehicle and a 14% increase in gross subscribers compared to the three months ended June 30, 2011.GlossaryAdjusted EBITDA - EBITDA is defined as net income before interest and investment loss; interest expense, net of amounts capitalized; income tax expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable): (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) goodwill impairment, (iii) restructuring, impairments, and related costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. 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 physical plant, capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our results and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use current and projected adjusted EBITDA to estimate our current and prospective enterprise value and to make investment decisions. Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation expense. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair value as determined using the Black-Scholes-Merton model which varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates. Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the Merger. 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 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 (in thousands):UnauditedFor the Three Months Ended June 30,For the Six Months Ended June 30,2012201120122011Net income (GAAP):$     3,134,170$        173,319$    3,241,944$      251,440Add back items excluded from Adjusted EBITDA:Purchase price accounting adjustments:Revenues1,8672,9383,7476,660Operating expenses(73,423)(68,623)(147,449)(136,595)Share-based payment expense, net of purchase price accounting adjustments13,91710,73528,86923,772Depreciation and amortization (GAAP)66,79367,062132,910135,462Interest expense, net of amounts capitalized (GAAP)72,77076,196149,742154,414Loss on extinguishment of debt and credit facilities, net (GAAP)15,6501,21225,6217,206Interest and investment loss (income) (GAAP)1,728(80,182)2,871(78,298)Other loss (income) (GAAP)173(183)749(1,799)Income tax (benefit) expense (GAAP)(2,996,549)2,620(2,993,747)4,192Adjusted EBITDA$        237,096$        185,094$       445,257$      366,454Adjusted Revenues and Operating Expenses - We define this Non-GAAP financial measure as our actual revenues and operating expenses adjusted to exclude the impact of certain purchase price accounting adjustments and share-based payment expense. We use this Non-GAAP financial measure to manage our business, set operational goals and as a basis for determining performance-based compensation for our employees. The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the three and six months ended June 30, 2012 and 2011:Unaudited For the Three Months Ended June 30, 2012(in thousands)As ReportedPurchase Price Accounting AdjustmentsAllocation ofShare-basedPaymentExpenseAdjustedRevenue:Subscriber revenue$         730,285$                  54$                   -$         730,339Advertising revenue, net of agency fees20,786--20,786Equipment revenue16,417--16,417Other revenue70,0551,813-71,868Total revenue$         837,543$             1,867$                   -$         839,410Operating expensesCost of services:Revenue share and royalties135,42636,024-171,450Programming and content65,16910,431(1,231)74,369Customer service and billing68,679-(388)68,291Satellite and transmission17,551-(688)16,863Cost of equipment7,150--7,150Subscriber acquisition costs119,47523,530-143,005Sales and marketing57,4223,438(2,053)58,807Engineering, design and development6,272-(1,282)4,990General and administrative65,664-(8,275)57,389Depreciation and amortization (a)66,793--66,793Share-based payment expense--13,91713,917Total operating expenses$         609,601$           73,423$                   -$         683,024(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the three months ended June 30, 2012 was $14,000.  Unaudited For the Three Months Ended June 30, 2011(in thousands)As ReportedPurchase Price Accounting AdjustmentsAllocation ofShare-basedPaymentExpenseAdjustedRevenue:Subscriber revenue$       639,642$           1,125$                 -$       640,767Advertising revenue, net of agency fees18,227--18,227Equipment revenue17,022--17,022Other revenue69,5061,813-71,319Total revenue$       744,397$           2,938$                 -$       747,335Operating expensesCost of services:Revenue share and royalties116,74131,134-147,875Programming and content67,39911,787(960)78,226Customer service and billing62,592-(308)62,284Satellite and transmission18,99874(565)18,507Cost of equipment7,601--7,601Subscriber acquisition costs105,16221,810-126,972Sales and marketing51,4423,818(1,614)53,646Engineering, design and development13,939-(974)12,965General and administrative60,479-(6,314)54,165Depreciation and amortization (a)67,062--67,062Share-based payment expense (b)--10,73510,735Total operating expenses$       571,415$         68,623$                 -$       640,038(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the three months ended June 30, 2011 was $15,000.(b) Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content$              960$                 -$                 -$              960Customer service and billing308--308Satellite and transmission565--565Sales and marketing1,614--1,614Engineering, design and development974--974General and administrative6,314--6,314Total share-based payment expense$         10,735$                 -$                 -$         10,735Unaudited For the Six Months Ended June 30, 2012(in thousands)As ReportedPurchase Price Accounting AdjustmentsAllocation ofShare-basedPaymentExpenseAdjustedRevenue:Subscriber revenue$       1,430,526$                121$                   -$        1,430,647Advertising revenue, net of agency fees39,456--39,456Equipment revenue33,370--33,370Other revenue138,9123,626-142,538Total revenue$       1,642,264$             3,747$                   -$        1,646,011Operating expensesCost of services:Revenue share and royalties267,53770,870-338,407Programming and content135,26522,134(2,606)154,793Customer service and billing134,866-(815)134,051Satellite and transmission35,661-(1,473)34,188Cost of equipment12,956--12,956Subscriber acquisition costs235,59647,616-283,212Sales and marketing115,7816,829(4,413)118,197Engineering, design and development18,962-(2,714)16,248General and administrative125,550-(16,848)108,702Depreciation and amortization (a)132,910--132,910Share-based payment expense--28,86928,869Total operating expenses$       1,215,084$         147,449$                   -$        1,362,533(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the six months ended June 30, 2012 was $28,000. Unaudited For the Six Months Ended June 30, 2011(in thousands)As ReportedPurchase Price Accounting AdjustmentsAllocation ofShare-basedPaymentExpenseAdjustedRevenue:Subscriber revenue$       1,262,080$           3,034$                 -$    1,265,114Advertising revenue, net of agency fees34,785--34,785Equipment revenue32,889--32,889Other revenue138,4823,626-142,108Total revenue$       1,468,236$           6,660$                 -$    1,474,896Operating expensesCost of services:Revenue share and royalties223,67061,067-284,737Programming and content140,35824,611(3,470)161,499Customer service and billing128,42918(675)127,772Satellite and transmission37,558313(1,132)36,739Cost of equipment14,006--14,006Subscriber acquisition costs210,43243,466-253,898Sales and marketing99,2617,030(3,489)102,802Engineering, design and development25,07431(2,117)22,988General and administrative116,83159(12,889)104,001Depreciation and amortization (a)135,462--135,462Share-based payment expense (b)--23,77223,772Total operating expenses$       1,131,081$       136,595$                 -$    1,267,676(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the six months ended June 30, 2011 was $30,000.(b) Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content$              3,443$                27$                 -$           3,470Customer service and billing65718-675Satellite and transmission1,11319-1,132Sales and marketing3,46227-3,489Engineering, design and development2,08631-2,117General and administrative12,83059-12,889Total share-based payment expense$            23,591$              181$                 -$         23,772ARPU - is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting associated with the Merger. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):UnauditedFor the Three Months Ended June 30,For the Six Months Ended June 30,2012201120122011Subscriber revenue (GAAP)$       730,285$       639,642$      1,430,526$     1,262,080Add: net advertising revenue (GAAP)20,78618,22739,45634,785Add: other subscription-related revenue (GAAP)58,75357,642116,474116,173Add: purchase price accounting adjustments541,1251213,034$       809,878$       716,636$      1,586,577$     1,416,072Daily weighted average number of subscribers22,553,70220,715,63022,272,28220,475,720ARPU$           11.97$           11.53$             11.87$            11.53Average self-pay monthly churn - is defined as the monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period. Customer service and billing expenses, per average subscriber - is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments associated with the Merger, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber, is useful given the significant variation in expense that can result from changes in the fair market value of our common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit associated with incremental share-based payment arrangements recognized at the Merger date. Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):UnauditedFor the Three Months Ended June 30,For the Six Months Ended June 30,2012201120122011Customer service and billing expenses (GAAP)$          68,679$          62,592$        134,866$        128,429Less: share-based payment expense, net of purchase price accounting adjustments(388)(308)(815)(675)Add: purchase price accounting adjustments---1868,29162,284134,051127,772Daily weighted average number of subscribers22,553,70220,715,63022,272,28220,475,720Customer service and billing expenses, per average subscriber$              1.01$              1.00$              1.00$              1.04Free cash flow - is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity. Free cash flow is calculated as follows (in thousands):UnauditedFor the Three Months Ended June 30,For the Six Months Ended June 30,2012201120122011Cash Flow informationNet cash provided by operating activities$      253,775$      195,381$      293,723$      213,490Net cash used in investing activities(23,757)(29,948)(48,944)(64,931)Net cash used in financing activities(108,264)(70,801)(150,439)(206,923)Free Cash FlowNet cash provided by operating activities$      253,775$      195,381$      293,723$      213,490Additions to property and equipment(23,757)(40,315)(48,944)(75,298)Restricted and other investment activity-10,367-10,367Free cash flow$      230,018$      165,433$      244,779$      148,559New vehicle consumer conversion rate - is defined as the percentage of owners and lessees of new vehicles that receive our service and convert to become self-paying subscribers after the initial promotion period. At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive trial subscriptions ranging from three to twelve months. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. We measure conversion rate three months after the period in which the trial service ends. The metric excludes rental and fleet vehicles.Subscriber acquisition cost, per gross subscriber addition - or SAC, per gross subscriber addition, is derived from subscriber acquisition costs and margins from the sale of radios and accessories, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of gross subscriber additions for the period. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit of amortization of deferred credits on executory contracts recognized at the Merger date attributable to an OEM. SAC, per gross subscriber addition, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):UnauditedFor the Three Months Ended June 30,For the Six Months Ended June 30,2012201120122011Subscriber acquisition costs (GAAP)$     119,475$     105,162$   235,596$   210,432Less: margin from direct sales of radios and accessories (GAAP)(9,267)(9,421)(20,414)(18,883)Add: purchase price accounting adjustments23,53021,81047,61643,466$     133,738$     117,551$   262,798$   235,015Gross subscriber additions2,481,0042,179,3484,642,6974,231,715SAC, per gross subscriber addition$             54$              54$            57$           56About Sirius XM RadioSirius XM Radio Inc. is the world's largest radio broadcaster measured by revenue and has nearly 23 million subscribers. SiriusXM creates and broadcasts commercial-free music; premier sports talk and live events; comedy; news; exclusive talk and entertainment; and the most comprehensive Latin music, sports and talk programming in radio. SiriusXM is available in vehicles from every major car company in the U.S., from retailers nationwide, and online at siriusxm.com. SiriusXM programming is also available through the SiriusXM Internet Radio App for Android, Apple, and BlackBerry smartphones and other connected devices. SiriusXM also holds a minority interest in SiriusXM Canada which has more than 2 million subscribers.This communication contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "believe," "intend," "plan," "projection," "outlook" or words of similar meaning. Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. Actual results may differ materially from the results anticipated in these forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: our competitive position versus other forms of audio entertainment; our dependence upon automakers; general economic conditions; failure of our satellites, which, in most cases, are not insured; our ability to attract and retain subscribers at a profitable level; royalties we pay for music rights; the unfavorable outcome of pending or future litigation; failure of third parties to perform; and our substantial indebtedness. Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our Annual Report on Form 10-K for the year ended December 31, 2011, which is filed with the Securities and Exchange Commission (the "SEC") and available at the SEC's Internet site (http://www.sec.gov). The information set forth herein speaks only as of the date hereof, and we disclaim any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this communication.Follow SiriusXM on Twitter or like the SiriusXM page on Facebook E-SIRIContact Information for Investors and Financial Media:Investors:Hooper Stevens212 901 6718hooper.stevens@siriusxm.com Media:Patrick Reilly212 901 6646 patrick.reilly@siriusxm.comSOURCE Sirius XM Radio