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Press release from PR Newswire

SiriusXM Reports Third Quarter 2012 Results

Thursday, November 01, 2012

SiriusXM Reports Third Quarter 2012 Results07:00 EDT Thursday, November 01, 2012- Subscribers Grow by 446,000 to a Record 23.4 Million - Record Revenue of $867 Million, Up 14% - Net Income of $75 Million, After Debt Extinguishment Charge of $107 Million - Adjusted EBITDA Grows 24% to a Record $245 Million - Free Cash Flow Grows 159% to $195 MillionNEW YORK, Nov. 1, 2012 /PRNewswire/ -- Sirius XM Radio (NASDAQ: SIRI) today announced third quarter 2012 financial and operating results, including revenue of $867 million, up 14% from third quarter 2011 revenue of $763 million.  Net income for the third quarter 2012 and 2011 was $75 million and $104 million, respectively, including a loss on extinguishment of debt of $107 million in the third quarter of 2012.  Adjusted EBITDA for the third quarter of 2012 was $245 million, up 24% from $197 million in the third quarter of 2011.(Logo:  http://photos.prnewswire.com/prnh/20101014/NY82093LOGO )"SiriusXM delivered a very strong third quarter for our shareholders, with 446,000 net subscriber additions, double-digit growth, and record levels of revenue, adjusted EBITDA, and free cash flow.  The Company has produced more free cash flow in the first nine months of this year than in any full year in its history, and we've used this cash to reduce our debt to its lowest level since the merger of Sirius and XM," noted Mel Karmazin, Chief Executive Officer, SiriusXM."We're excited about the increase in subscriber guidance to 1.8 million net additions that we reported earlier this month, as we believe growth in the fourth quarter will continue.  We continue to make investments across our business, particularly in R&D, customer care, infrastructure, and programming.  We are also investing in new businesses, such as the telematics service we announced in the third quarter with Nissan, and we believe these investments will reward our shareholders in the years to come," said Karmazin.Additional highlights from the third quarter include:Record subscriber growth.  Self-pay net subscriber additions improved by 2% year-over-year to 371,000, pushing the self-pay subscriber base to an all-time high of 19.0 million subscribers.  The total paid subscriber base rose to a record high 23.4 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by approximately 115,000 from the second quarter of 2012 to 6.2 million. Churn and conversion stable.  Self-pay monthly churn was 2.0% in the third quarter of 2012, compared to 1.9% reported in the third quarter of 2011.  New vehicle consumer conversion rate was 44% in the third quarter of 2012, unchanged from the third quarter of 2011. Free cash flow grows to record level.  Free cash flow was $195 million in the third quarter of 2012, an improvement of 159% from the $75 million recorded in the third quarter of 2011."Following the repurchase of approximately $868 million of our debt in the third quarter of 2012, SiriusXM ended the quarter with $556 million of cash.  The company's leverage has improved dramatically in the past year, ending the third quarter at just 2.8x our adjusted EBITDA, down from 4.3x at the end of the third quarter of 2011," remarked David Frear, SiriusXM's Executive Vice President and Chief Financial Officer.  "By eliminating our two most expensive debt instruments in the third quarter, we will reduce our interest costs significantly, and with no debt maturing in the next two years we now have more flexibility to pursue strategic initiatives," added Frear.2012 GUIDANCE"Our increased subscriber guidance of approximately 1.8 million net additions shows we remain confident about growth in the fourth quarter," said Karmazin.  "We were pleased to raise our subscriber guidance for the third time this year."The Company confirmed its 2012 subscriber, revenue, adjusted EBITDA and free cash flow guidance:Net subscriber growth approaching 1.8 million, Revenue approaching $3.4 billion, Adjusted EBITDA of approximately $900 million, and Free cash flow of approximately $700 million.THIRD QUARTER 2012 RESULTSSIRIUS XM RADIO INC. AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFor the Three Months Ended September 30,For the Nine Months Ended September 30,(in thousands, except per share data)2012201120122011Revenue:Subscriber revenue$    757,672$    660,837$   2,188,199$   1,922,917Advertising revenue, net of agency fees20,42618,81059,88153,595Equipment revenue17,81315,50451,18348,392Other revenue71,44967,399210,362205,882Total revenue867,360762,5502,509,6252,230,786Operating expenses:Cost of services:Revenue share and royalties141,834117,043409,371340,713Programming and content69,93870,509205,203210,867Customer service and billing77,76864,239212,635192,667Satellite and transmission18,31919,68153,98057,238Cost of equipment6,3455,88819,30119,894Subscriber acquisition costs112,418107,279348,014317,711Sales and marketing60,67655,210176,457154,471Engineering, design and development13,50714,17532,46839,249General and administrative68,23558,635193,786175,469Depreciation and amortization66,57165,403199,481200,865Total operating expenses635,611578,0621,850,6961,709,144Income from operations231,749184,488658,929521,642Other income (expense):Interest expense, net of amounts capitalized(70,035)(75,316)(219,777)(229,730)Loss on extinguishment of debt and credit facilities, net(107,105)-(132,726)(7,206)Interest and investment (loss) income(321)292(3,192)78,590Other income (loss) 113435(637)2,235Total other expense(177,348)(74,589)(356,332)(156,111)Income before income taxes54,401109,899302,597365,531Income tax benefit (expense)20,113(5,714)3,013,860(9,907)Net income$     74,514$   104,185$   3,316,457$      355,624Realized loss on XM Canada investment foreign currency adjustment, net of tax---6,072Foreign currency translation adjustment, net of tax-110(38)187Comprehensive income$     74,514$   104,295$   3,316,419$     361,883Net income per common share:Basic$         0.01$         0.02$           0.52$          0.06Diluted$         0.01$         0.02$           0.49$          0.05Weighted average common shares outstanding:Basic4,034,1223,747,3813,870,0313,742,309Diluted6,577,6546,507,3706,848,2306,500,819  SIRIUS XM RADIO INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSSeptember 30, 2012December 31, 2011(in thousands, except share and per share data)(unaudited)ASSETSCurrent assets:Cash and cash equivalents$                       556,270$                       773,990Accounts receivable, net102,963101,705Receivables from distributors87,77384,817Inventory, net35,82336,711Prepaid expenses150,397125,967Related party current assets8,22114,702Deferred tax asset913,010132,727Other current assets8,2716,335Total current assets1,862,7281,276,954Property and equipment, net1,601,3631,673,919Long-term restricted investments3,9733,973Deferred financing fees, net32,54642,046Intangible assets, net2,532,4552,573,638Goodwill1,815,6731,834,856Related party long-term assets50,10454,953Long-term deferred tax asset1,244,996-Other long-term assets11,20435,657Total assets$                    9,155,042$                    7,495,996LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable and accrued expenses$                       514,479$                       543,193Accrued interest64,46370,405Current portion of deferred revenue1,426,8151,333,965Current portion of deferred credit on executory contracts275,567284,108Current maturities of long-term debt4,3261,623Related party current liabilities12,98814,302Total current liabilities2,298,6382,247,596Deferred revenue158,223198,135Deferred credit on executory contracts6,243218,199Long-term debt2,221,6852,683,563Long-term related party debt208,742328,788Deferred tax liability-1,011,084Related party long-term liabilities19,66021,741Other long-term liabilities85,67682,745Total liabilities4,998,8676,791,851Stockholders' equity:Preferred stock, par value $0.001; 50,000,000 authorized at September 30, 2012 and December 31, 2011:Series A convertible preferred stock; no shares issued and outstanding at September 30, 2012 and December 31, 2011--Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at September 30, 2012 and December 31, 2011); 6,250,100 and 12,500,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively613Common stock, par value $0.001; 9,000,000,000 shares authorized at September 30, 2012 and December 31, 2011; 5,192,364,730 and 3,753,201,929 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively5,1923,753Accumulated other comprehensive income, net of tax3371Additional paid-in capital10,618,57910,484,400Accumulated deficit(6,467,635)(9,784,092)Total stockholders' equity4,156,175704,145Total liabilities and stockholders' equity$                    9,155,042$                    7,495,996  SIRIUS XM RADIO INC. AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the Nine Months Ended September 30,(in thousands)20122011Cash flows from operating activities:Net income$             3,316,457$               355,624Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization199,481200,865Non-cash interest expense, net of amortization of premium30,78629,211Provision for doubtful accounts24,95326,209Amortization of deferred income related to equity method investment(2,082)(2,082)Loss on extinguishment of debt and credit facilities, net132,7267,206Gain on merger of unconsolidated entities-(84,855)Loss on unconsolidated entity investments, net4,01410,259Loss on disposal of assets567269Share-based payment expense46,36137,574Deferred income taxes(3,017,021)7,214Other non-cash purchase price adjustments(220,336)(203,630)Distribution from investment in unconsolidated entity-4,849   Changes in operating assets and liabilities:Accounts receivable(26,211)(1,456)Receivables from distributors(2,956)(12,358)Inventory888(14,278)Related party assets6,90530,300Prepaid expenses and other current assets(26,367)(11,028)Other long-term assets24,45423,969Accounts payable and accrued expenses(27,384)(100,502)Accrued interest(5,940)6,472Deferred revenue52,77719,653Related party liabilities(1,314)696Other long-term liabilities2,774(1,547)Net cash provided by operating activities513,532328,634Cash flows from investing activities:Additions to property and equipment(73,546)(115,065)Release of restricted investments-250Return of capital from investment in unconsolidated entity-10,117Net cash used in investing activities(73,546)(104,698)Cash flows from financing activities:Proceeds from exercise of stock options89,2509,045Long-term borrowings, net of costs393,687-Payment of premiums on redemption of debt(100,615)(5,020)Repayment of long-term borrowings(914,028)(210,060)Repayment of related party long-term borrowings(126,000)-Net cash used in financing activities(657,706)(206,035)Net (decrease) increase in cash and cash equivalents(217,720)17,901Cash and cash equivalents at beginning of period773,990586,691Cash and cash equivalents at end of period$                556,270$                604,592  Subscriber Data and Operating Metrics               The following table contains actual subscriber data and key operating metrics for the three and nine months ended September 30, 2012 and 2011, respectively: UnauditedFor the Three Months Ended September 30,For the Nine Months Ended September 30,2012201120122011Beginning subscribers22,919,46221,016,17521,892,82420,190,964Gross subscriber additions2,421,5862,138,1317,064,2826,369,846Deactivated subscribers(1,975,665)(1,804,448)(5,591,723)(5,210,952)Net additions445,921333,6831,472,5591,158,894Ending subscribers23,365,38321,349,85823,365,38321,349,858  Self-pay19,041,51917,534,31019,041,51917,534,310  Paid promotional4,323,8643,815,5484,323,8643,815,548Ending subscribers23,365,38321,349,85823,365,38321,349,858  Self-pay370,553364,0041,132,777847,511  Paid promotional75,368(30,321)339,782311,383Net additions445,921333,6831,472,5591,158,894Daily weighted average number of subscribers23,008,69321,107,54022,519,54420,688,641Average self-pay monthly churn2.0%1.9%1.9%1.9%New vehicle consumer conversion rate44%44%45%45%ARPU$         12.14$          11.66$           11.96$       11.57SAC, per gross subscriber addition$              51$               55$                55$            55Subscribers. The improvement was due to the 13% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle shipments and returning subscriber activations, including previously owned car activations. This increase in gross additions was partially offset by the 9% increase in deactivations.  The increase in deactivations was primarily due to an increase in paid promotional trial deactivations stemming from the increase in volume of paid trials, along with growth in our subscriber base. Net additions increased 34% driven by an increase of 106,000 paid promotional subscribers. Average Self-pay Monthly Churn for the three months ended September 30, 2012 and 2011 was 2.0% and 1.9%, respectively. New Vehicle Consumer Conversion Rate for the three months ended September 30, 2012 and 2011 was 44%. ARPU increased primarily due to the increase in certain subscription rates beginning in January 2012, an increase in sales of premium services, including Premier packages, data services and streaming, and an increase in other revenue due to additional subscribers subject to the U.S. Music Royalty Fee.  The rise in ARPU was partially offset by an increase in subscriber retention programs and in the number of subscribers on promotional plans and a decrease in the revenue from the U.S. Music Royalty Fee due to a reduction in the rate in December 2010.SAC, Per Gross Subscriber Addition, improved to $51 for the three months ended September 30, 2012 from $55 for the same period in 2011.  The decrease was driven by improved OEM subsidy rates per vehicle and a 13% increase in gross subscribers compared to the three months ended September 30, 2011, partially offset by higher subsidies related to increased OEM installations occurring in advance of acquiring a subscriber.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 of Sirius and XM, (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 of Sirius and XM. 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 September 30,For the Nine Months Ended September 30,2012201120122011Net income (GAAP):$          74,514$        104,185$    3,316,457$      355,624Add back items excluded from Adjusted EBITDA:Purchase price accounting adjustments:Revenues1,8542,2925,5998,951Operating expenses(73,049)(68,878)(220,497)(205,472)Share-based payment expense, net of purchase price accounting adjustments17,49213,98346,36137,755Depreciation and amortization (GAAP)66,57165,403199,481200,865Interest expense, net of amounts capitalized (GAAP)70,03575,316219,777229,730Loss on extinguishment of debt and credit facilities, net (GAAP)107,105-132,7267,206Interest and investment loss (income) (GAAP)321(292)3,192(78,590)Other loss (income) (GAAP)(113)(435)637(2,235)Income tax (benefit) expense (GAAP)(20,113)5,714(3,013,860)9,907Adjusted EBITDA$        244,617$        197,288$       689,873$      563,741Adjusted 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 nine months ended September 30, 2012 and 2011:Unaudited For the Three Months Ended September 30, 2012(in thousands)As ReportedPurchase Price Accounting AdjustmentsAllocation ofShare-based Payment ExpenseAdjustedRevenue:Subscriber revenue$      757,672$                41$                   -$          757,713Advertising revenue, net of agency fees20,426--20,426Equipment revenue17,813--17,813Other revenue71,4491,813-73,262Total revenue$      867,360$           1,854$                   -$         869,214Operating expensesCost of services:Revenue share and royalties141,83437,199-179,033Programming and content69,93810,431(1,736)78,633Customer service and billing77,768-(512)77,256Satellite and transmission18,319-(938)17,381Cost of equipment6,345--6,345Subscriber acquisition costs112,41821,712-134,130Sales and marketing60,6763,707(2,931)61,452Engineering, design and development13,507-(1,753)11,754General and administrative68,235-(9,622)58,613Depreciation and amortization (a)66,571--66,571Share-based payment expense--17,49217,492Total operating expenses$      635,611$         73,049$                  -$       708,660(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 of Sirius and XM. The increased depreciation and amortization for the three months ended September 30, 2012 was $13,000.  Unaudited For the Three Months Ended September 30, 2011(in thousands)As ReportedPurchase Price Accounting AdjustmentsAllocation ofShare-basedPayment ExpenseAdjustedRevenue:Subscriber revenue$       660,837$             479$                 -$        661,316Advertising revenue, net of agency fees18,810--18,810Equipment revenue15,504--15,504Other revenue67,3991,813-69,212Total revenue$       762,550$           2,292$                 -$       764,842Operating expensesCost of services:Revenue share and royalties117,04332,293-149,336Programming and content70,50912,034(1,275)81,268Customer service and billing64,239-(402)63,837Satellite and transmission19,681-(735)18,946Cost of equipment5,888--5,888Subscriber acquisition costs107,27920,620-127,899Sales and marketing55,2103,931(2,165)56,976Engineering, design and development14,175-(1,291)12,884General and administrative58,635-(8,115)50,520Depreciation and amortization (a)65,403--65,403Share-based payment expense (b)--13,98313,983Total operating expenses$       578,062$         68,878$                 -$      646,940(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 of Sirius and XM. The increased depreciation and amortization for the three months ended September 30, 2011 was $15,000.(b) Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content$          1,275$                    -$                  -$          1,275Customer service and billing402--402Satellite and transmission735--735Sales and marketing2,165--2,165Engineering, design and development1,291--1,291General and administrative8,115--8,115Total share-based payment expense$        13,983$                   -$                  -$        13,983  Unaudited For the Nine Months Ended September 30, 2012(in thousands)As ReportedPurchase Price Accounting AdjustmentsAllocation ofShare-basedPayment ExpenseAdjustedRevenue:Subscriber revenue$      2,188,199$               161$                 -$       2,188,360Advertising revenue, net of agency fees59,881--59,881Equipment revenue51,183--51,183Other revenue210,3625,438-215,800Total revenue$      2,509,625$           5,599$                 -$      2,515,224Operating expensesCost of services:Revenue share and royalties409,371108,069-517,440Programming and content205,20332,565(4,342)233,426Customer service and billing212,635-(1,327)211,308Satellite and transmission53,980-(2,411)51,569Cost of equipment19,301--19,301Subscriber acquisition costs348,01469,328-417,342Sales and marketing176,45710,535(7,343)179,649Engineering, design and development32,468-(4,467)28,001General and administrative193,786-(26,471)167,315Depreciation and amortization (a)199,481--199,481Share-based payment expense--46,36146,361Total operating expenses$     1,850,696$       220,497$                  -$      2,071,193(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 of Sirius and XM. The increased depreciation and amortization for the nine months ended September 30, 2012 was $41,000.  Unaudited For the Nine Months Ended September 30, 2011(in thousands)As ReportedPurchase PriceAccounting AdjustmentsAllocation ofShare-basedPayment ExpenseAdjustedRevenue:Subscriber revenue$     1,922,917$          3,513$               -$       1,926,430Advertising revenue, net of agency fees53,595--53,595Equipment revenue48,392--48,392Other revenue205,8825,438-211,320Total revenue$     2,230,786$          8,951$               -$      2,239,737Operating expensesCost of services:Revenue share and royalties340,71393,359-434,072Programming and content210,86736,645(4,745)242,767Customer service and billing192,66718(1,077)191,608Satellite and transmission57,238313(1,867)55,684Cost of equipment19,894--19,894Subscriber acquisition costs317,71164,086-381,797Sales and marketing154,47110,961(5,654)159,778Engineering, design and development39,24931(3,407)35,873General and administrative175,46959(21,005)154,523Depreciation and amortization (a)200,865--200,865Share-based payment expense (b)--37,75537,755Total operating expenses$    1,709,144$       205,472$               -$     1,914,616(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 of Sirius and XM. The increased depreciation and amortization for the nine months ended September 30, 2011 was $45,000.(b) Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content$           4,718$                27$               -$           4,745Customer service and billing1,05918-1,077Satellite and transmission1,84819-1,867Sales and marketing5,62727-5,654Engineering, design and development3,37631-3,407General and administrative20,94659-21,005Total share-based payment expense$        37,574$              181$              -$        37,755ARPU - 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 of Sirius and XM. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):UnauditedFor the Three Months Ended September 30,For the Nine Months Ended September 30,2012201120122011Subscriber revenue (GAAP)$      757,672$        660,837$       2,188,199$     1,922,917Add: net advertising revenue (GAAP)20,42618,81059,88153,595Add: other subscription-related revenue (GAAP)60,09558,168176,569174,341Add: purchase price accounting adjustments414791613,513$      838,234$        738,294$       2,424,810$     2,154,366Daily weighted average number of subscribers23,008,69321,107,54022,519,54420,688,641ARPU$           12.14$            11.66$              11.96$            11.57Average 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 of Sirius and XM, 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 of Sirius and XM 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 September 30,For the Nine Months Ended September 30,2012201120122011Customer service and billing expenses (GAAP)$      77,768$      64,239$    212,635$    192,667Less: share-based payment expense, net of purchase price accounting adjustments(512)(402)(1,327)(1,077)Add: purchase price accounting adjustments---1877,25663,837211,308191,608Daily weighted average number of subscribers23,008,69321,107,54022,519,54420,688,641Customer service and billing expenses, per average subscriber$          1.12$          1.01$          1.04$           1.03Free 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 September 30,For the Nine Months Ended September 30,2012201120122011Cash Flow informationNet cash provided by operating activities$    219,809$      115,144$    513,532$    328,634Net cash used in investing activities(24,602)(39,767)(73,546)(104,698)Net cash used in financing activities(507,267)888(657,706)(206,035)Free Cash FlowNet cash provided by operating activities$    219,809$      115,144$    513,532$    328,634Additions to property and equipment(24,602)(39,767)(73,546)(115,065)Restricted and other investment activity---10,367Free cash flow$    195,207$        75,377$    439,986$    223,936New 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 of Sirius and XM 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 September 30,For the Nine Months Ended September 30,2012201120122011Subscriber acquisition costs (GAAP)$    112,418$     107,279$    348,014$    317,711Less: margin from direct sales of radios and accessories (GAAP)(11,468)(9,616)(31,882)(28,498)Add: purchase price accounting adjustments21,71220,62069,32864,086$    122,662$     118,283$    385,460$    353,299Gross subscriber additions2,421,5862,138,1317,064,2826,369,846SAC, per gross subscriber addition$             51$              55$             55$             55Sirius XM Radio Inc. is the world's largest radio broadcaster measured by revenue and has 23.4 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 Stevens 212 901 6718 hooper.stevens@siriusxm.comMedia:Patrick Reilly 212 901 6646 patrick.reilly@siriusxm.comSOURCE Sirius XM Radio