UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | | | | | | | |
☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023MARCH 31, 2024
OR
| | | | | | | | |
☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM __________ TO ________
COMMISSION FILE NUMBER 001-34295
SIRIUS XM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 38-3916511 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1221 Avenue of the Americas, 35th Floor, New York, NY
(Address of Principal Executive Offices)
10020
(Zip Code)
Registrant’s telephone number, including area code: (212) 584-5100
Former name, former address and former fiscal year, if changed since last report: Not Applicable
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of exchange on which registered |
Common stock, $0.001 par value | | SIRI | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☑ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ |
| | | | | | |
Smaller reporting company | ☐ | | Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| | | | | | | | | | | |
(Class) | | (Outstanding as of October 27, 2023)April 26, 2024) |
Common stock, $0.001 par value | | 3,838,939,8213,846,631,694 | shares |
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| | |
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
(in millions, except per share data) | (in millions, except per share data) | 2023 | | 2022 | | 2023 | | 2022 | |
(in millions, except per share data) | |
(in millions, except per share data) | |
Revenue: | |
Revenue: | |
Revenue: | Revenue: | | | | | | | | |
Subscriber revenue | Subscriber revenue | $ | 1,729 | | | $ | 1,734 | | | $ | 5,146 | | | $ | 5,166 | | |
Subscriber revenue | |
Subscriber revenue | |
Advertising revenue | |
Advertising revenue | |
Advertising revenue | Advertising revenue | 460 | | | 457 | | | 1,278 | | | 1,292 | | |
Equipment revenue | Equipment revenue | 49 | | | 50 | | | 142 | | | 148 | | |
Equipment revenue | |
Equipment revenue | |
Other revenue | |
Other revenue | |
Other revenue | Other revenue | 33 | | | 39 | | | 99 | | | 114 | | |
Total revenue | Total revenue | 2,271 | | | 2,280 | | | 6,665 | | | 6,720 | | |
Total revenue | |
Total revenue | |
Operating expenses: | |
Operating expenses: | |
Operating expenses: | Operating expenses: | | | | | |
Cost of services: | Cost of services: | | | | | |
Cost of services: | |
Cost of services: | |
Revenue share and royalties | |
Revenue share and royalties | |
Revenue share and royalties | Revenue share and royalties | 731 | | | 709 | | | 2,162 | | | 2,090 | | |
Programming and content | Programming and content | 153 | | | 155 | | | 456 | | | 448 | | |
Programming and content | |
Programming and content | |
Customer service and billing | |
Customer service and billing | |
Customer service and billing | Customer service and billing | 116 | | | 122 | | | 363 | | | 373 | | |
Transmission | Transmission | 54 | | | 51 | | | 153 | | | 157 | | |
Transmission | |
Transmission | |
Cost of equipment | |
Cost of equipment | |
Cost of equipment | Cost of equipment | 3 | | | 4 | | | 10 | | | 9 | | |
Subscriber acquisition costs | Subscriber acquisition costs | 87 | | | 86 | | | 270 | | | 267 | | |
Subscriber acquisition costs | |
Subscriber acquisition costs | |
Sales and marketing | |
Sales and marketing | |
Sales and marketing | Sales and marketing | 237 | | | 281 | | | 680 | | | 838 | | |
Engineering, design and development | Engineering, design and development | 72 | | | 70 | | | 234 | | | 208 | | |
Engineering, design and development | |
Engineering, design and development | |
General and administrative | |
General and administrative | |
General and administrative | General and administrative | 119 | | | 132 | | | 421 | | | 382 | | |
Depreciation and amortization | Depreciation and amortization | 130 | | | 134 | | | 405 | | | 404 | | |
Depreciation and amortization | |
Depreciation and amortization | |
Impairment, restructuring and acquisition costs | |
Impairment, restructuring and acquisition costs | |
Impairment, restructuring and acquisition costs | Impairment, restructuring and acquisition costs | 5 | | | 69 | | | 56 | | | 70 | | |
Total operating expenses | Total operating expenses | 1,707 | | | 1,813 | | | 5,210 | | | 5,246 | | |
Total operating expenses | |
Total operating expenses | |
Income from operations | |
Income from operations | |
Income from operations | Income from operations | 564 | | | 467 | | | 1,455 | | | 1,474 | | |
Other (expense) income: | Other (expense) income: | | | | | |
Other (expense) income: | |
Other (expense) income: | |
Interest expense | |
Interest expense | |
Interest expense | Interest expense | (106) | | | (107) | | | (319) | | | (314) | | |
| Other expense | (3) | | | (3) | | | — | | | (5) | | |
Other income | |
| Other income | |
| Other income | |
Total other expense | |
Total other expense | |
Total other expense | Total other expense | (109) | | | (110) | | | (319) | | | (319) | | |
Income before income taxes | Income before income taxes | 455 | | | 357 | | | 1,136 | | | 1,155 | | |
Income before income taxes | |
Income before income taxes | |
Income tax expense | |
Income tax expense | |
Income tax expense | Income tax expense | (92) | | | (110) | | | (230) | | | (307) | | |
Net income | Net income | $ | 363 | | | $ | 247 | | | $ | 906 | | | $ | 848 | | |
Net income | |
Net income | |
Foreign currency translation adjustment, net of tax | |
Foreign currency translation adjustment, net of tax | |
Foreign currency translation adjustment, net of tax | Foreign currency translation adjustment, net of tax | (6) | | | (21) | | | 1 | | | (23) | | |
Total comprehensive income | Total comprehensive income | $ | 357 | | | $ | 226 | | | $ | 907 | | | $ | 825 | | |
Total comprehensive income | |
Total comprehensive income | |
Net income per common share: | |
Net income per common share: | |
Net income per common share: | Net income per common share: | | | | | | | | |
Basic | Basic | $ | 0.09 | | | $ | 0.06 | | | $ | 0.23 | | | $ | 0.22 | | |
Basic | |
Basic | |
Diluted | |
Diluted | |
Diluted | Diluted | $ | 0.09 | | | $ | 0.06 | | | $ | 0.23 | | | $ | 0.21 | | |
Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | | | | | | |
Weighted average common shares outstanding: | |
Weighted average common shares outstanding: | |
Basic | |
Basic | |
Basic | Basic | 3,845 | | | 3,900 | | | 3,865 | | | 3,925 | | |
Diluted | Diluted | 3,865 | | | 3,968 | | | 3,884 | | | 4,001 | | |
Diluted | |
Diluted | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | (in millions, except per share data) | (in millions, except per share data) | September 30, 2023 | | December 31, 2022 |
(in millions, except per share data) | |
(in millions, except per share data) | | March 31, 2024 | | December 31, 2023 |
ASSETS | ASSETS | (unaudited) | | |
Current assets: | |
Current assets: | |
Current assets: | Current assets: | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 53 | | | $ | 57 | |
Receivables, net | Receivables, net | 659 | | | 655 | |
| Related party current assets | |
Related party current assets | |
Related party current assets | Related party current assets | 31 | | | 42 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 298 | | | 284 | |
Total current assets | Total current assets | 1,041 | | | 1,038 | |
Property and equipment, net | Property and equipment, net | 1,715 | | | 1,499 | |
Intangible assets, net | Intangible assets, net | 2,941 | | | 3,050 | |
Goodwill | Goodwill | 3,249 | | | 3,249 | |
Related party long-term assets | 493 | | | 488 | |
Equity method investments | |
Deferred tax assets | Deferred tax assets | 147 | | | 147 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 283 | | | 315 | |
Other long-term assets | Other long-term assets | 260 | | | 236 | |
Total assets | Total assets | $ | 10,129 | | | $ | 10,022 | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | $ | 1,267 | | | $ | 1,248 | |
Accrued interest | Accrued interest | 73 | | | 165 | |
Current portion of deferred revenue | Current portion of deferred revenue | 1,248 | | | 1,322 | |
Current maturities of debt | Current maturities of debt | 525 | | | 196 | |
Operating lease current liabilities | Operating lease current liabilities | 45 | | | 50 | |
| Related party current liabilities | |
Total current liabilities | Total current liabilities | 3,158 | | | 2,981 | |
Long-term deferred revenue | Long-term deferred revenue | 73 | | | 81 | |
Long-term debt | Long-term debt | 8,823 | | | 9,256 | |
| Deferred tax liabilities | Deferred tax liabilities | 479 | | | 565 | |
Deferred tax liabilities | |
Deferred tax liabilities | |
Operating lease liabilities | Operating lease liabilities | 292 | | | 320 | |
Other long-term liabilities | Other long-term liabilities | 197 | | | 170 | |
Total liabilities | Total liabilities | 13,022 | | | 13,373 | |
Commitments and contingencies (Note 15) | | | |
Commitments and contingencies (Note 14) | | Commitments and contingencies (Note 14) | | | |
Stockholders’ equity (deficit): | Stockholders’ equity (deficit): | | | | Stockholders’ equity (deficit): | | | |
Common stock, par value $0.001 per share; 9,000 shares authorized; 3,840 and 3,891 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 4 | | | 4 | |
Accumulated other comprehensive loss, net of tax | (3) | | | (4) | |
Common stock, par value $0.001 per share; 9,000 shares authorized; 3,847 and 3,843 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | |
Accumulated other comprehensive (loss) income, net of tax | |
| | Accumulated deficit | |
| Accumulated deficit | |
| Accumulated deficit | Accumulated deficit | (2,894) | | | (3,351) | |
Total stockholders’ equity (deficit) | Total stockholders’ equity (deficit) | (2,893) | | | (3,351) | |
Total liabilities and stockholders’ equity (deficit) | Total liabilities and stockholders’ equity (deficit) | $ | 10,129 | | | $ | 10,022 | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2023 |
| | Common Stock | | Accumulated Other Comprehensive (Loss) Income | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at December 31, 2022 | | 3,891 | | | $ | 4 | | | $ | (4) | | | $ | — | | | — | | | $ | — | | | $ | (3,351) | | | $ | (3,351) | |
| | | | | | | | | | | | | | | | |
Comprehensive income, net of tax | | — | | | — | | | 1 | | | — | | | — | | | — | | | 906 | | | 907 | |
Share-based payment expense | | — | | | — | | | — | | | 147 | | | — | | | — | | | — | | | 147 | |
Exercise of stock options and vesting of restricted stock units | | 18 | | | — | | | — | | | 4 | | | — | | | — | | | — | | | 4 | |
Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (50) | | | — | | | — | | | — | | | (50) | |
Capital contribution from Liberty Media related to Tax Sharing Agreement | | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 | |
Cash dividends paid on common stock, $0.0726 per share | | — | | | — | | | — | | | (101) | | | — | | | — | | | (180) | | | (281) | |
| | | | | | | | | | | | | | | | |
Common stock repurchased | | — | | | — | | | — | | | — | | | 69 | | | (274) | | | — | | | (274) | |
Common stock retired | | (69) | | | — | | | — | | | — | | | (69) | | | 274 | | | (274) | | | — | |
Balance at September 30, 2023 | | 3,840 | | | $ | 4 | | | $ | (3) | | | $ | — | | | — | | | $ | — | | | $ | (2,894) | | | $ | (2,893) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended March 31, 2024 |
| | Common Stock | | Accumulated Other Comprehensive (Loss) Income | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at December 31, 2023 | | 3,843 | | | $ | 4 | | | $ | 3 | | | $ | — | | | — | | | $ | — | | | $ | (2,572) | | | $ | (2,565) | |
Cumulative effect of change in accounting principles | | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Comprehensive (loss) income, net of tax | | — | | | — | | | (7) | | | — | | | — | | | — | | | 265 | | | 258 | |
Share-based payment expense | | — | | | — | | | — | | | 50 | | | — | | | — | | | — | | | 50 | |
Exercise of stock options and vesting of restricted stock units | | 4 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (14) | | | — | | | — | | | — | | | (14) | |
| | | | | | | | | | | | | | | | |
Cash dividends paid on common stock, $0.0266 per share | | — | | | — | | | — | | | (36) | | | — | | | — | | | (66) | | | (102) | |
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance at March 31, 2024 | | 3,847 | | | 4 | | | (4) | | | — | | | — | | | — | | | (2,370) | | | (2,370) | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| For the Three Months Ended September 30, 2023 | For the Three Months Ended March 31, 2023 | | For the Three Months Ended March 31, 2023 |
| | Common Stock | | | | Common Stock | | Accumulated Other Comprehensive Loss | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | |
Balance at December 31, 2022 | |
Balance at December 31, 2022 | |
Balance at December 31, 2022 | |
| | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | Shares | | Amount | |
Balance at June 30, 2023 | | 3,845 | | | $ | 4 | | | $ | 3 | | | $ | — | | | 1 | | | $ | (3) | | | $ | (3,115) | | | $ | (3,111) | |
| Comprehensive income, net of tax | |
Comprehensive income, net of tax | |
Comprehensive income, net of tax | Comprehensive income, net of tax | | — | | | — | | | (6) | | | — | | | — | | | — | | | 363 | | | 357 | |
Share-based payment expense | Share-based payment expense | | — | | | — | | | — | | | 53 | | | — | | | — | | | — | | | 53 | |
Exercise of stock options and vesting of restricted stock units | Exercise of stock options and vesting of restricted stock units | | 12 | | | — | | | — | | | 4 | | | — | | | — | | | — | | | 4 | |
Withholding taxes on net share settlement of stock-based compensation | Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (32) | | | — | | | — | | | — | | | (32) | |
Capital contribution from Liberty Media related to Tax Sharing Agreement | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Capital contribution to Liberty Media related to Tax Sharing Agreement | |
Cash dividends paid on common stock, $0.0242 per share | Cash dividends paid on common stock, $0.0242 per share | | — | | | — | | | — | | | (25) | | | — | | | — | | | (68) | | | (93) | |
| Common stock repurchased | Common stock repurchased | | — | | | — | | | — | | | — | | | 16 | | | (72) | | | — | | | (72) | |
Common stock repurchased | |
Common stock repurchased | |
Common stock retired | Common stock retired | | (17) | | | — | | | — | | | — | | | (17) | | | 75 | | | (75) | | | — | |
Balance at September 30, 2023 | | 3,840 | | | $ | 4 | | | $ | (3) | | | $ | — | | | — | | | $ | — | | | $ | (2,894) | | | $ | (2,893) | |
Balance at March 31, 2023 | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)CASH FLOWS
(UNAUDITED)
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For the Nine Months Ended September 30, 2022 |
| | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at December 31, 2021 | | 3,968 | | | $ | 4 | | | $ | 15 | | | $ | — | | | 1 | | | $ | (8) | | | $ | (2,636) | | | $ | (2,625) | |
Cumulative effect of change in accounting principles | | — | | | — | | | — | | | — | | | — | | | — | | | (14) | | | (14) | |
Comprehensive (loss) income, net of tax | | — | | | — | | | (23) | | | — | | | — | | | — | | | 848 | | | 825 | |
Share-based payment expense | | — | | | — | | | — | | | 157 | | | — | | | — | | | — | | | 157 | |
Exercise of stock options and vesting of restricted stock units | | 23 | | | — | | | — | | | 4 | | | — | | | — | | | — | | | 4 | |
Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (102) | | | — | | | — | | | — | | | (102) | |
Capital contribution to Liberty Media related to Tax Sharing Agreement | | — | | | — | | | — | | | — | | | — | | | — | | | (22) | | | (22) | |
Cash dividends paid on common stock, $0.315885 per share | | — | | | — | | | — | | | (59) | | | — | | | — | | | (1,186) | | | (1,245) | |
| | | | | | | | | | | | | | | | |
Common stock repurchased | | — | | | — | | | — | | | — | | | 95 | | | (594) | | | — | | | (594) | |
Common stock retired | | (95) | | | — | | | — | | | — | | | (95) | | | 599 | | | (599) | | | — | |
Balance at September 30, 2022 | | 3,896 | | | $ | 4 | | | $ | (8) | | | $ | — | | | 1 | | | $ | (3) | | | $ | (3,609) | | | $ | (3,616) | |
| | | | | | | | | | | | | |
| For the Three Months Ended March 31, |
(in millions) | 2024 | | 2023 | | |
Cash flows from operating activities: | | | | | |
Net income | $ | 265 | | | $ | 233 | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 140 | | | 136 | | | |
Non-cash impairment and restructuring costs | 1 | | | 8 | | | |
Non-cash interest expense, net of amortization of premium | 4 | | | 3 | | | |
| | | | | |
Provision for doubtful accounts | 13 | | | 14 | | | |
| | | | | |
| | | | | |
Loss on unconsolidated entity investments, net | 15 | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
Gain on other investments | (3) | | | (2) | | | |
Share-based payment expense | 45 | | | 45 | | | |
Deferred income tax benefit | (14) | | | (52) | | | |
Amortization of right-of-use assets | 11 | | | 10 | | | |
Changes in operating assets and liabilities: | | | | | |
Receivables | 82 | | | 53 | | | |
| | | | | |
Related party, net | 44 | | | 88 | | | |
Prepaid expenses and other current assets | (50) | | | (38) | | | |
Other long-term assets | 7 | | | 6 | | | |
Accounts payable and accrued expenses | (137) | | | (57) | | | |
Accrued interest | (93) | | | (93) | | | |
Deferred revenue | (36) | | | (17) | | | |
Operating lease liabilities | (11) | | | (10) | | | |
Other long-term liabilities | 25 | | | 23 | | | |
Net cash provided by operating activities | 308 | | | 350 | | | |
Cash flows from investing activities: | | | | | |
Additions to property and equipment | (174) | | | (205) | | | |
| | | | | |
Purchase of other investments | (2) | | | (1) | | | |
| | | | | |
| | | | | |
Investments in related parties and other equity investees | (187) | | | (29) | | | |
| | | | | |
Net cash used in investing activities | (363) | | | (235) | | | |
Cash flows from financing activities: | | | | | |
| | | | | |
Taxes paid from net share settlements for stock-based compensation | (14) | | | (14) | | | |
Revolving credit facility borrowings | 230 | | | 548 | | | |
Revolving credit facility repayments | (200) | | | (418) | | | |
| | | | | |
Principal payments of long-term borrowings | (3) | | | (77) | | | |
| | | | | |
| | | | | |
| | | | | |
Other financing activities | (1) | | | (2) | | | |
Common stock repurchased and retired | — | | | (62) | | | |
Dividends paid | (102) | | | (94) | | | |
Net cash used in financing activities | (90) | | | (119) | | | |
Net decrease in cash, cash equivalents and restricted cash | (145) | | | (4) | | | |
Cash, cash equivalents and restricted cash at beginning of period (1) | 224 | | | 65 | | | |
Cash, cash equivalents and restricted cash at end of period (1) | $ | 79 | | | $ | 61 | | | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended September 30, 2022 |
| | Common Stock | | Accumulated Other Comprehensive Income (Loss) | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in millions) | | Shares | | Amount | | | | Shares | | Amount | | |
Balance at June 30, 2022 | | 3,909 | | | $ | 4 | | | $ | 13 | | | $ | — | | | 1 | | | $ | (10) | | | $ | (3,586) | | | $ | (3,579) | |
| | | | | | | | | | | | | | | | |
Comprehensive (loss) income, net of tax | | — | | | — | | | (21) | | | — | | | — | | | — | | | 247 | | | 226 | |
Share-based payment expense | | — | | | — | | | — | | | 55 | | | — | | | — | | | — | | | 55 | |
Exercise of stock options and vesting of restricted stock units | | 16 | | | — | | | — | | | 4 | | | — | | | — | | | — | | | 4 | |
Withholding taxes on net share settlement of stock-based compensation | | — | | | — | | | — | | | (63) | | | — | | | — | | | — | | | (63) | |
Capital contribution to Liberty Media related to Tax Sharing Agreement | | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Cash dividends paid on common stock, $0.0219615 per share | | — | | | — | | | — | | | 4 | | | — | | | — | | | (90) | | | (86) | |
| | | | | | | | | | | | | | | | |
Common stock repurchased | | — | | | — | | | — | | | — | | | 29 | | | (176) | | | — | | | (176) | |
Common stock retired | | (29) | | | — | | | — | | | — | | | (29) | | | 183 | | | (183) | | | — | |
Balance at September 30, 2022 | | 3,896 | | | $ | 4 | | | $ | (8) | | | $ | — | | | 1 | | | $ | (3) | | | $ | (3,609) | | | $ | (3,616) | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | | | |
| For the Nine Months Ended September 30, |
(in millions) | 2023 | | 2022 | | |
Cash flows from operating activities: | | | | | |
Net income | $ | 906 | | | $ | 848 | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 405 | | | 404 | | | |
Non-cash impairment and restructuring costs | 22 | | | 68 | | | |
Non-cash interest expense, net of amortization of premium | 11 | | | 12 | | | |
| | | | | |
Provision for doubtful accounts | 45 | | | 43 | | | |
| | | | | |
| | | | | |
Loss on unconsolidated entity investments, net | 7 | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
(Gain) loss on other investments | (4) | | | 11 | | | |
Share-based payment expense | 135 | | | 143 | | | |
Deferred income tax (benefit) expense | (85) | | | 132 | | | |
Amortization of right-of-use assets | 35 | | | 37 | | | |
Changes in operating assets and liabilities: | | | | | |
Receivables | (50) | | | 22 | | | |
| | | | | |
Related party, net | 17 | | | (30) | | | |
Prepaid expenses and other current assets | (14) | | | (57) | | | |
Other long-term assets | — | | | (3) | | | |
Accounts payable and accrued expenses | 40 | | | (72) | | | |
Accrued interest | (92) | | | (101) | | | |
Deferred revenue | (82) | | | (87) | | | |
Operating lease liabilities | (43) | | | (48) | | | |
Other long-term liabilities | 26 | | | (22) | | | |
Net cash provided by operating activities | 1,279 | | | 1,300 | | | |
Cash flows from investing activities: | | | | | |
Additions to property and equipment | (520) | | | (279) | | | |
| | | | | |
(Purchase) sale of other investments | (1) | | | 1 | | | |
Acquisition of business, net of cash acquired | — | | | (136) | | | |
| | | | | |
Investments in related parties and other equity investees | (33) | | | (1) | | | |
| | | | | |
Net cash used in investing activities | (554) | | | (415) | | | |
Cash flows from financing activities: | | | | | |
Proceeds from exercise of stock options | 4 | | | 4 | | | |
Taxes paid from net share settlements for stock-based compensation | (50) | | | (102) | | | |
Revolving credit facility, net | 55 | | | 421 | | | |
Proceeds from long-term borrowings, net of costs | — | | | 499 | | | |
Principal payments of long-term borrowings | (180) | | | (3) | | | |
| | | | | |
Payment of contingent consideration for business acquisition | (3) | | | (3) | | | |
Distribution to parent related to Tax Sharing Agreement | — | | | (8) | | | |
Common stock repurchased and retired | (274) | | | (599) | | | |
Dividends paid | (281) | | | (1,245) | | | |
Net cash used in financing activities | (729) | | | (1,036) | | | |
Net decrease in cash, cash equivalents and restricted cash | (4) | | | (151) | | | |
Cash, cash equivalents and restricted cash at beginning of period (1) | 65 | | | 199 | | | |
Cash, cash equivalents and restricted cash at end of period (1) | $ | 61 | | | $ | 48 | | | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)
| | For the Three Months Ended March 31, | |
| For the Three Months Ended March 31, | |
| For the Three Months Ended March 31, | |
(in millions) | |
Supplemental Disclosure of Cash and Non-Cash Flow Information | |
Supplemental Disclosure of Cash and Non-Cash Flow Information | |
Supplemental Disclosure of Cash and Non-Cash Flow Information | |
Cash paid during the period for: | |
Cash paid during the period for: | |
Cash paid during the period for: | |
Interest, net of amounts capitalized | |
Interest, net of amounts capitalized | |
Interest, net of amounts capitalized | |
Income taxes paid | |
Income taxes paid | |
Income taxes paid | |
Non-cash investing and financing activities: | |
Non-cash investing and financing activities: | |
Non-cash investing and financing activities: | |
Finance lease obligations incurred to acquire assets | |
Finance lease obligations incurred to acquire assets | |
Finance lease obligations incurred to acquire assets | |
| | | For the Nine Months Ended September 30, |
(in millions) | 2023 | | 2022 | |
Supplemental Disclosure of Cash and Non-Cash Flow Information | | | | |
Cash paid during the period for: | | |
Interest, net of amounts capitalized | $ | 399 | | | $ | 400 | | |
Income taxes paid | $ | 251 | | | $ | 215 | | |
Non-cash investing and financing activities: | | |
Capital lease obligations incurred to acquire assets | $ | 7 | | | $ | 7 | | |
Accumulated other comprehensive loss, net of tax | |
| Accumulated other comprehensive income (loss), net of tax | $ | 1 | | | $ | (23) | | |
Capital contribution from (to) Liberty Media pursuant to Tax Sharing Agreement | $ | 5 | | | $ | (14) | | |
Accumulated other comprehensive loss, net of tax | |
| Accumulated other comprehensive loss, net of tax | |
Capital contribution from Liberty Media pursuant to Tax Sharing Agreement | |
Capital contribution from Liberty Media pursuant to Tax Sharing Agreement | |
Capital contribution from Liberty Media pursuant to Tax Sharing Agreement | |
Accrued tax equity investments | |
Accrued tax equity investments | |
Accrued tax equity investments | |
(1)The following table reconciles cash, cash equivalents and restricted cash per the statement of cash flows to the balance sheet. The restricted cash balances are primarily due to letters of credit which have been issued to the landlords of leased office space. The terms of the letters of credit primarily extend beyond one year.
| (in millions) | (in millions) | September 30, 2023 | | December 31, 2022 | | September 30, 2022 | | December 31, 2021 | (in millions) | March 31, 2024 | | December 31, 2023 | | March 31, 2023 | | December 31, 2022 |
Cash and cash equivalents | Cash and cash equivalents | $ | 53 | | | $ | 57 | | | $ | 39 | | | $ | 191 | |
Restricted cash included in Other long-term assets | Restricted cash included in Other long-term assets | 8 | | | 8 | | | 9 | | | 8 | |
Total cash, cash equivalents and restricted cash at end of period | Total cash, cash equivalents and restricted cash at end of period | $ | 61 | | | $ | 65 | | | $ | 48 | | | $ | 199 | |
See accompanying notes to the unaudited consolidated financial statements.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
(1)Business & Basis of Presentation
This Quarterly Report on Form 10-Q presents information for Sirius XM Holdings Inc. and its subsidiaries (collectively “Holdings”). The terms “Holdings,” “we,” “us,” “our,” and “our company” as used herein, and unless otherwise stated or indicated by context, refer to Sirius XM Holdings Inc. and its subsidiaries. “Sirius XM” refers to our wholly owned subsidiary Sirius XM Radio Inc. and its subsidiaries. “Pandora” refers to Sirius XM's wholly owned subsidiary Pandora Media, LLC and its subsidiaries. Holdings has no operations independent of Sirius XM and Pandora.
Business
We operate two complementary audio entertainment businesses - one of which we refer to as “SiriusXM” and the second of which we refer to as “Pandora and Off-platform”.
SiriusXM
Our SiriusXM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels and other content, as well as podcasts and infotainment services, in the United States on a subscription fee basis. SiriusXM packages include live, curated and certain exclusive and on demand programming. The SiriusXM service is distributed through our two proprietary satellite radio systems and streamed via applications for mobile devices, home devices and other consumer electronic equipment. Satellite radios are primarily distributed through automakers, retailers and our website. Our Sirius XM service is also available through our in-car user interface, which we call “360L,” that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience.
The primary source of revenue from our SiriusXM business is subscription fees, with most of our customers subscribing to monthly, quarterly, semi-annual or annual plans. We also derive revenue from advertising on select non-music channels, which is sold under the SXMSiriusXM Media brand, direct sales of our satellite radios and accessories, and other ancillary services. As of September 30, 2023,March 31, 2024, our SiriusXM business had approximately 34.033.4 million subscribers.
In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers. These services are designed to enhance the safety, security and driving experience of consumers. We also offer a suite of data services that includes graphical weather and fuel prices, a traffic information service, and real-time weather services in boats and airplanes.
SiriusXM also holds a 70% equity interest and 33% voting interest in Sirius XM Canada Holdings Inc. (“Sirius XM Canada”). Sirius XM Canada's subscribers are not included in our subscriber count or subscriber-based operating metrics.
Pandora and Off-platform
Our Pandora and Off-platform business operates a music, comedy and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen, whether through computers, tablets, mobile devices, vehicle speakers or connected devices. Pandora enables listeners to create personalized stations and playlists, discover new content, hear artist- and expert-curated playlists, podcasts and select SiriusXM content as well as search and play songs and albums on-demand. Pandora is available as (1) an ad-supported radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium). As of September 30, 2023,March 31, 2024, Pandora had approximately 6.15.9 million subscribers.
The majority of revenue from Pandora is generated from advertising on our Pandora ad-supported radio service which is sold under the SXMSiriusXM Media brand. We also derive subscription revenue from our Pandora Plus and Pandora Premium subscribers.
We also sell advertising on other audio platforms and in widely distributed podcasts, which we consider to be off-platform services. We have an arrangement with SoundCloud Holdings, LLC (“SoundCloud”) to be its exclusive ad sales representative in the US and certain European countries and offer advertisers the ability to execute campaigns across the Pandora and SoundCloud platforms. We also have arrangements to serve as the ad sales representative for certain podcasts. In addition, through AdsWizz Inc., we provide a comprehensive digital audio and programmatic advertising technology platform,
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
addition, through AdsWizz Inc., we provide a comprehensive digital audio and programmatic advertising technology platform, which connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.
Liberty Media
As of September 30, 2023,March 31, 2024, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, 83.5%83.3% of the outstanding shares of our common stock. As a result, we are a “controlled company” for the purposes of the NASDAQ corporate governance requirements. Refer to Note 1110 for more information regarding related parties.
Basis of Presentation
The accompanying unaudited consolidated financial statements of Holdings have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All significant intercompany transactions have been eliminated in consolidation. Certain numbers in our prior period unaudited consolidated financial statements and footnotes have been reclassified or consolidated to conform to our current period presentation.
In the opinion of our management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of September 30, 2023March 31, 2024 and for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 have been made.
Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year ended December 31, 2022,2023, which was filed with the SEC on February 2, 2023.1, 2024.
Public companies are required to disclose certain information about their reportable operating segments. Operating segments are defined as significant components of an enterprise for which separate financial information is available and is evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources to an individual segment and in assessing performance of the segment. We have determined that we have two reportable segments as our chief operating decision maker, our Chief Executive Officer, assesses performance and allocates resources based on the financial results of these segments. Refer to Note 1716 for information related to our segments.
We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2023March 31, 2024 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements. For a discussion of subsequent events that do not require adjustment to our unaudited consolidated financial statements refer to Note 18.17.
As previously disclosed, we identified an error in our previously issued unaudited consolidated financial statements related to the presentation of cash flows associated with borrowings and repayments related to our Senior Secured Credit Facility. We have corrected this error in the accompanying unaudited consolidated statements of cash flows for the three months ended March 31, 2023 to present on a gross basis the borrowings from the revolving credit facility of $548 and repayments of the revolving credit facility of $418. The corrections had no impact to the total net cash used in financing activities in the period. We evaluated the materiality of this error both qualitatively and quantitatively and have concluded that this error is immaterial to the impacted period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include asset impairment, depreciable lives of our satellites, share-based payment expense and income taxes.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
(2)Summary of Significant Accounting Policies
Recent Accounting Pronouncements
Accounting Standard Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are evaluating the disclosure requirements related to the new standard.
Accounting Standard Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). In November 2023, the FASB issued ASU 2023-07, which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are evaluating the disclosure requirements related to the new standard.
Recently Adopted Accounting Policies
In March 2023, the FASB issued ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which expands the population of investments for which an investor may elect to apply the proportional amortization method. Under this ASU, an investor in a tax equity investment may elect the proportional amortization method for qualifying investments on a tax credit program-by-program basis. This ASU became effective in the first quarter of 2024. We adopted ASU 2023-02 as of January 1, 2024 using the modified retrospective approach.
Adoption of the new standard resulted in the recording of additional Equity method investments, Related party current liabilities, Other Long-term liabilities, Deferred tax liabilities and a cumulative effect adjustment to opening accumulated deficit. The effects of the changes made to our unaudited consolidated balance sheet as of January 1, 2024 for the adoption of ASU 2023-02 are included in the table below.
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2023 | | Adjustments Due to ASU 2023-02 | | Balance at January 1, 2024 |
Balance Sheet | | | | | |
| | | | | |
Equity method investments | $ | 526 | | | $ | 122 | | | $ | 648 | |
| | | | | |
Related party current liabilities | $ | 8 | | | $ | 15 | | | $ | 23 | |
Other long-term liabilities | $ | 134 | | | $ | 109 | | | $ | 243 | |
Deferred tax liabilities | $ | 509 | | | $ | (5) | | | $ | 504 | |
| | | | | |
Accumulated deficit | $ | (2,572) | | | $ | 3 | | | $ | (2,569) | |
Fair Value Measurements
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are based on unadjusted quoted prices in active markets for identical instruments. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the carrying amounts of cash and cash equivalents, receivables and accounts payable approximated fair value due to the short-term nature of these instruments.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
Our liabilities measured at fair value were as follows:
| | | September 30, 2023 | | December 31, 2022 | | March 31, 2024 | | December 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
Liabilities: | Liabilities: | | | | | | | | | | | | | | | | Liabilities: | | | |
Debt (a) | Debt (a) | — | | | $ | 8,064 | | | — | | | $ | 8,064 | | | — | | | $ | 8,362 | | | — | | | $ | 8,362 | |
(a)The fair value for non-publicly traded debt is based upon estimates from a market maker and brokerage firm. Refer to Note 1211 for information related to the carrying value of our debt as of September 30, 2023March 31, 2024 and December 31, 2022.2023.
(3)AcquisitionsRestructuring Costs
On May 20, 2022,During the three months ended March 31, 2024, we completed an acquisition for total cash considerationfurther realigned our business to focus on strategic priorities, reducing the size of $93. We recognized goodwillour workforce, and recorded a charge of $69, indefinite-lived intangible assets of $1$12 primarily related to severance and other assets of $23.related costs. The other assets represent acquired content which will be amortized over its estimated useful liferestructuring charges were recorded to ProgrammingImpairment, restructuring and contentacquisition costs in our unaudited consolidated statements of comprehensive income.
On January 12, 2022, we completed an acquisition for total cash consideration of $44. We recognized goodwill of $29, other definite-lived intangible assets of $19 and liabilities of $4.
There were no acquisition related costs recognized for the three and nine months ended September 30, 2023. Acquisition related costs for the three and nine months ended September 30, 2022 were $1 and $3, respectively.
(4)Restructuring Costs
During the three and nine months ended September 30, 2023, restructuring costs were $4 and $39, respectively. InMarch 31, 2023, we initiated measures to pursue greater efficiency and to realign our business and focus on strategic priorities. As part of these measures, we reduced the size of our workforce by approximately 475 roles, or 8%. We recorded a charge of $31$23 primarily related to severance and other relatedemployee costs. In addition, we vacated one of our leased locationslocations. We assessed the recoverability of the carrying value of the operating lease right of use asset related to this location and determined that the carrying value of the asset was not recoverable. As a result, we recorded an impairment of $5 to reduce the carrying value of the related right of use asset to its estimated fair value. Additionally, we accrued expenses of $2 for which we will not recognize any future economic benefits. The restructuringbenefits, and related impairment charges were recorded to Impairment, restructuring and acquisition costs in our unaudited consolidated statements of comprehensive income.
During the three and nine months ended September 30, 2022, we evaluated our office space needs, and, based on this, we vacated certain office spaces and recorded an impairment of $16 to reduce the carrying value of the related right of use assets to their estimated fair values. Additionally, we wrote off fixed assets of $4less than $1 in connection with furniture and equipment located at the impaired office spaces. Separately, we performed an analysis surrounding initiatives that we are no longer pursuing and recorded an impairment of $43 associated with terminated software projects and an impairment of $5 related to severance.space. The total restructuring and related impairment charge of $68$30 was recorded to Impairment, restructuring and acquisition costs in our unaudited consolidated statements of comprehensive income for the three and nine months ended September 30, 2022.March 31, 2023.
(5)(4)Earnings per Share
Basic net income per common share is calculated by dividing the income available to common stockholders by the weighted average common shares outstanding during each reporting period. Diluted net income per common share adjusts the weighted average number of common shares outstanding for the potential dilution that could occur if common stock equivalents (stock options, restricted stock units and convertible debt) were exercised or converted into common stock, calculated using the treasury stock method. We had no participating securities during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
Common stock equivalents of 157143 and 93162 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and 155 and 86 for the nine months ended September 30, 2023 and 2022, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.
| | |
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 | |
Numerator: | Numerator: | | | | | | | | |
Numerator: | |
Numerator: | |
Net Income available to common stockholders for basic net income per common share | |
Net Income available to common stockholders for basic net income per common share | |
Net Income available to common stockholders for basic net income per common share | Net Income available to common stockholders for basic net income per common share | $ | 363 | | | $ | 247 | | | $ | 906 | | | $ | 848 | | |
Effect of interest on assumed conversions of convertible notes, net of tax | Effect of interest on assumed conversions of convertible notes, net of tax | — | | | 1 | | | 1 | | | 3 | | |
Effect of interest on assumed conversions of convertible notes, net of tax | |
Effect of interest on assumed conversions of convertible notes, net of tax | |
Net Income available to common stockholders for dilutive net income per common share | |
Net Income available to common stockholders for dilutive net income per common share | |
Net Income available to common stockholders for dilutive net income per common share | Net Income available to common stockholders for dilutive net income per common share | $ | 363 | | | $ | 248 | | | $ | 907 | | | $ | 851 | | |
Denominator: | Denominator: | | | | | | | | |
Denominator: | |
Denominator: | |
Weighted average common shares outstanding for basic net income per common share | |
Weighted average common shares outstanding for basic net income per common share | |
Weighted average common shares outstanding for basic net income per common share | Weighted average common shares outstanding for basic net income per common share | 3,845 | | | 3,900 | | | 3,865 | | | 3,925 | | |
Weighted average impact of assumed convertible notes | Weighted average impact of assumed convertible notes | 3 | | | 31 | | | 3 | | | 31 | | |
Weighted average impact of assumed convertible notes | |
Weighted average impact of assumed convertible notes | |
Weighted average impact of dilutive equity instruments | |
Weighted average impact of dilutive equity instruments | |
Weighted average impact of dilutive equity instruments | Weighted average impact of dilutive equity instruments | 17 | | | 37 | | | 16 | | | 45 | | |
Weighted average shares for diluted net income per common share | Weighted average shares for diluted net income per common share | 3,865 | | | 3,968 | | | 3,884 | | | 4,001 | | |
Weighted average shares for diluted net income per common share | |
Weighted average shares for diluted net income per common share | |
Net income per common share: | |
Net income per common share: | |
Net income per common share: | Net income per common share: | | | | | | | | |
Basic | Basic | $ | 0.09 | | | $ | 0.06 | | | $ | 0.23 | | | $ | 0.22 | | |
Basic | |
Basic | |
Diluted | Diluted | $ | 0.09 | | | $ | 0.06 | | | $ | 0.23 | | | $ | 0.21 | | |
Diluted | |
Diluted | |
(6)(5)Receivables, net
Receivables, net, includes customer accounts receivable, receivables from distributors and other receivables. We do not have any customer receivables that individually represent more than ten percent of our receivables.
Customer accounts receivable, net, includes receivables from our subscribers and advertising customers, including advertising agencies and other customers, and is stated at amounts due, net of an allowance for doubtful accounts. Our allowance for doubtful accounts is based upon our assessment of various factors. We consider historical experience, the age of the receivable balances, current economic conditions, industry experience and other factors that may affect the counterparty’s ability to pay. Bad debt expense is included in Customer service and billing expense in our unaudited consolidated statements of comprehensive income.
Receivables from distributors primarily include billed and unbilled amounts due from automakers for services included in the sale or lease price of vehicles, as well as billed amounts due from wholesale distributors of our satellite radios. Other receivables primarily include amounts due from manufacturers of our radios, modules and chipsets where we are entitled to subsidies and royalties based on the number of units produced. We have not established an allowance for doubtful accounts for our receivables from distributors or other receivables as we have historically not experienced any significant collection issues with automakers or other third parties and do not expect issues in the foreseeable future.
Receivables, net, consists of the following:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Gross customer accounts receivable | $ | 553 | | | $ | 631 | |
Allowance for doubtful accounts | (14) | | | (15) | |
Customer accounts receivable, net | $ | 539 | | | $ | 616 | |
Receivables from distributors | 52 | | | 56 | |
Other receivables | 23 | | | 37 | |
Total receivables, net | $ | 614 | | | $ | 709 | |
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
Receivables, net, consists of the following:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Gross customer accounts receivable | $ | 593 | | | $ | 585 | |
Allowance for doubtful accounts | (14) | | | (11) | |
Customer accounts receivable, net | $ | 579 | | | $ | 574 | |
Receivables from distributors | 52 | | | 53 | |
Other receivables | 28 | | | 28 | |
Total receivables, net | $ | 659 | | | $ | 655 | |
(7)(6)Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment of our two reporting units is performed as of the fourth quarter of each year, and an assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASC 350, Intangibles - Goodwill and Other, states that an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Our Sirius XM reporting unit, which has an allocated goodwill balance of $2,290, had a negative carrying amount as of September 30, 2023.March 31, 2024.
As of September 30, 2023,March 31, 2024, there were no indicators of impairment, and no impairment losses were recorded for goodwill during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023. As of September 30, 2023,March 31, 2024, the cumulative balance of goodwill impairments recorded was $5,722, of which $4,766 was recognized during the year ended December 31, 2008 and is included in the carrying amount of the goodwill allocated to our Sirius XM reporting unit and $956 was recognized during the year ended December 31, 2020 and is included in the carrying amount of the goodwill allocated to our Pandora and Off-platform reporting unit.
As of each of September 30, 2023March 31, 2024 and December 31, 2022,2023, the carrying amount of goodwill for our Sirius XM and Pandora and Off-platform reporting units was $2,290 and $959, respectively.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
(8)(7)Intangible Assets
Our intangible assets include the following:
| | | | | September 30, 2023 | | December 31, 2022 | | | | March 31, 2024 | | December 31, 2023 |
| | Weighted Average Useful Lives | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Useful Lives | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Indefinite life intangible assets: | Indefinite life intangible assets: | | | | | | | | | | | | | | Indefinite life intangible assets: | | | |
FCC licenses | FCC licenses | Indefinite | | $ | 2,084 | | | $ | — | | | $ | 2,084 | | | $ | 2,084 | | | $ | — | | | $ | 2,084 | |
Trademarks | Trademarks | Indefinite | | 250 | | | — | | | 250 | | | 250 | | | — | | | 250 | |
Definite life intangible assets: | Definite life intangible assets: | | | | | | | | | | | | | | Definite life intangible assets: | | | |
OEM relationships | OEM relationships | 15 years | | 220 | | | (145) | | | 75 | | | 220 | | | (135) | | | 85 | |
Licensing agreements | Licensing agreements | 12 years | | 3 | | | (3) | | | — | | | 45 | | | (45) | | | — | |
Software and technology | Software and technology | 7 years | | 29 | | | (22) | | | 7 | | | 31 | | | (21) | | | 10 | |
Due to Acquisitions recorded to Pandora and Off-platform Reporting Unit: | Due to Acquisitions recorded to Pandora and Off-platform Reporting Unit: | |
Indefinite life intangible assets: | Indefinite life intangible assets: | |
Indefinite life intangible assets: | |
Indefinite life intangible assets: | |
Trademarks | |
Trademarks | |
Trademarks | Trademarks | Indefinite | | 312 | | | — | | | 312 | | | 312 | | | — | | | 312 | |
Definite life intangible assets: | Definite life intangible assets: | |
Customer relationships | Customer relationships | 8 years | | 442 | | | (266) | | | 176 | | | 442 | | | (225) | | | 217 | |
Customer relationships | |
Customer relationships | |
Software and technology | Software and technology | 5 years | | 391 | | | (354) | | | 37 | | | 391 | | | (299) | | | 92 | |
Total intangible assets | Total intangible assets | | | $ | 3,731 | | | $ | (790) | | | $ | 2,941 | | | $ | 3,775 | | | $ | (725) | | | $ | 3,050 | |
Indefinite Life Intangible Assets
We have identified our FCC licenses and XM and Pandora trademarks as indefinite life intangible assets after considering the expected use of the assets, the regulatory and economic environment within which they are used and the effects of obsolescence on their use.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. Each of the FCC licenses authorizes us to use radio spectrum, a reusable resource that does not deplete or exhaust over time.
Our annual impairment assessment of our identifiable indefinite lived intangible assets is performed as of the fourth quarter of each year. An assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. If the carrying value of the intangible assets exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. As of September 30, 2023,March 31, 2024, there were no indicators of impairment, and no impairment loss was recognized for intangible assets with indefinite lives during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
Definite Life Intangible Assets
Amortization expense for all definite life intangible assets was $36$24 and $39$37 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $109 and $117 for the nine months ended September 30, 2023 and 2022, respectively. There were retirements of definite lived intangible assets of $44 and we recognized a related impairment loss of $1 during nine months ended September 30, 2023. There were no retirements or impairments of definite lived intangible assets during the three and nine months ended September 30, 2022.March 31, 2024 and 2023.
The expected amortization expense for each of the fiscal years 2024 through 2028 and for periods thereafter is as follows:
| | | | | | | | |
Years ending December 31, | | Amount |
2024 | | $ | 54 | |
2025 | | 71 | |
2026 | | 71 | |
2027 | | 25 | |
2028 | | 15 | |
Thereafter | | — | |
Total definite life intangible assets, net | | $ | 236 | |
(8)Property and Equipment
Property and equipment, net, consists of the following:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Satellite system | $ | 1,598 | | | $ | 1,598 | |
Terrestrial repeater network | 117 | | | 117 | |
Leasehold improvements | 112 | | | 106 | |
Broadcast studio equipment | 152 | | | 146 | |
Capitalized software and hardware | 2,174 | | | 2,178 | |
Satellite telemetry, tracking and control facilities | 85 | | | 84 | |
Furniture, fixtures, equipment and other | 109 | | | 110 | |
Land | 32 | | | 32 | |
Building | 74 | | | 74 | |
Construction in progress | 706 | | | 538 | |
Total property and equipment | 5,159 | | | 4,983 | |
Accumulated depreciation | (3,339) | | | (3,229) | |
Property and equipment, net | $ | 1,820 | | | $ | 1,754 | |
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
The expected amortization expense for each of the fiscal years 2023 through 2027 and for periods thereafter is as follows:
| | | | | | | | |
Years ending December 31, | | Amount |
2023 (remaining) | | $ | 36 | |
2024 | | 77 | |
2025 | | 71 | |
2026 | | 71 | |
2027 | | 25 | |
Thereafter | | 15 | |
Total definite life intangible assets, net | | $ | 295 | |
(9)Property and Equipment
Property and equipment, net, consists of the following:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Satellite system | $ | 1,598 | | | $ | 1,841 | |
Terrestrial repeater network | 119 | | | 118 | |
Leasehold improvements | 107 | | | 100 | |
Broadcast studio equipment | 141 | | | 133 | |
Capitalized software and hardware | 1,850 | | | 1,821 | |
Satellite telemetry, tracking and control facilities | 82 | | | 76 | |
Furniture, fixtures, equipment and other | 109 | | | 89 | |
Land | 32 | | | 32 | |
Building | 73 | | | 70 | |
Construction in progress | 738 | | | 313 | |
Total property and equipment | 4,849 | | | 4,593 | |
Accumulated depreciation | (3,134) | | | (3,094) | |
Property and equipment, net | $ | 1,715 | | | $ | 1,499 | |
Construction in progress consists of the following:
| | | September 30, 2023 | | December 31, 2022 | | March 31, 2024 | | December 31, 2023 |
Satellite system | Satellite system | $ | 449 | | | $ | 212 | |
Terrestrial repeater network | Terrestrial repeater network | 17 | | | 10 | |
Capitalized software and hardware | Capitalized software and hardware | 249 | | | 56 | |
Other | Other | 23 | | | 35 | |
Construction in progress | Construction in progress | $ | 738 | | | $ | 313 | |
Depreciation and amortization expense on property and equipment was $94$116 and $95$99 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $296 and $287 for the nine months ended September 30, 2023 and 2022, respectively. During the three and nine months ended September 30,March 31, 2024 and 2023, we retired property and equipment of $2 and $271, respectively, and recorded related impairment charges of $1 and $14,$2, respectively, primarily related to terminated software projects. During the three and nine months ended September 30, 2022, we wrote off furniture and equipment in connection with impaired office space leases and we disposed of assets associated with software development initiatives that we are no longer pursuing. Refer to Note 4 for more information. During the three and nine months ended September 30, 2022, we retired property and equipment of $59 and $81, respectively.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
We capitalize a portion of the interest on funds borrowed to finance the construction and launch of our satellites. Capitalized interest is recorded as part of the asset’s cost and depreciated over the satellite’s useful life. Capitalized interest costs were $4$6 and $1$3 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $10 and $3 for the nine months ended September 30, 2023 and 2022, respectively, which related to the construction of our SXM-9, SXM-10, SXM-11 and SXM-12 satellites. We also capitalize a portion of share-based compensation related to employee time for capitalized software projects. Capitalized share-based compensation costs were $5 and $4 for each of the three months ended September 30, 2023March 31, 2024 and 2022, respectively, and $13 for each of the nine months ended September 30, 2023 and 2022.2023.
Satellites
As of September 30, 2023,March 31, 2024, we operated a fleet of five satellites. Each satellite requires an FCC license, and prior to the expiration of each license, we are required to apply for a renewal of the FCC satellite license. The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred. The chart below provides certain information on our satellites as of September 30, 2023:March 31, 2024:
| | | | | | | | | | | | | | | | | | | | |
Satellite Description | | Year Delivered | | Estimated End of Depreciable Life | | FCC License Expiration Year |
| | | | | | |
SIRIUS FM-5 | | 2009 | | 2024 | | 2025 |
SIRIUS FM-6 | | 2013 | | 2028 | | 2030 |
XM-3 | | 2005 | | 2020 | | 2026 |
| | | | | | |
XM-5 | | 2010 | | 2025 | | 2026 |
SXM-8 | | 2021 | | 2036 | | 2029 |
During the three months ended March 31, 2023, we removed our XM-4 satellite from service and we are in the process of de-orbiting the satellite, which we expect to be completed by the end of 2023. Our XM-3 satellite remains available as an in-orbit spare.
(10)(9)Leases
We have operating and finance leases for offices, terrestrial repeaters, data centers and certain equipment. Our leases have remaining lease terms of less than 1 year to 2019 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year. We elected the practical expedient to account for the lease and non-lease components as a single component. Additionally, we elected the practical expedient to not recognize right-of-use assets or lease liabilities for short-term leases, which are those leases with a term of twelve months or less at the lease commencement date.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
The components of lease expense were as follows:
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| For the Three Months Ended March 31, | |
| For the Three Months Ended March 31, | |
| For the Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
Operating lease cost | |
Operating lease cost | |
Operating lease cost | Operating lease cost | $ | 15 | | | $ | 16 | | | $ | 46 | | | $ | 46 | |
Finance lease cost | Finance lease cost | 2 | | | — | | | 3 | | | — | |
Finance lease cost | |
Finance lease cost | |
Sublease income | |
Sublease income | |
Sublease income | Sublease income | (1) | | | (1) | | | (2) | | | (2) | |
Total lease cost | Total lease cost | $ | 16 | | | $ | 15 | | | $ | 47 | | | $ | 44 | |
Total lease cost | |
Total lease cost | |
During the ninethree months ended September 30,March 31, 2023, we ceased using one of our leased locations and recorded an impairment charge of $5 to write down the carrying value of the right-of-use asset to its estimated fair value. Refer to Note 43 for additional information.
(11)(10)Related Party Transactions
In the normal course of business, we enter into transactions with related parties such as Sirius XM Canada, SoundCloud and SoundCloud.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
our tax equity investments.
Liberty Media
As of September 30, 2023,March 31, 2024, Liberty Media beneficially owned, directly and indirectly, 83.5%83.3% of the outstanding shares of our common stock. Liberty Media has three of its executives and one of its directors on our board of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.
On February 1, 2021, Holdings entered into a tax sharing agreement with Liberty Media governing the allocation of consolidated U.S. income tax liabilities and setting forth agreements with respect to other tax matters. The tax sharing agreement was negotiated and approved by a special committee of Holdings’ board of directors, all of whom are independent of Liberty Media. Refer to Note 1615 for more information regarding the tax sharing agreement.
On September 22,December 11, 2023, Holdings entered into definitive agreements whereby, subject to the special committeeterms thereof, Liberty Sirius XM Holdings Inc., a Delaware corporation and a wholly owned subsidiary of independent directors of the board of Holdings (the “Special Committee”Liberty Media (“New Sirius”) received a non-binding proposal, would split-off from Liberty Media regardingMedia. The transactions would be effectuated by means of a potential transaction involving Holdings. The potential transaction would consistredemptive split-off of the separationNew Sirius (the “Split-Off”), which will own all of the assets and liabilities attributed to theLiberty Media’s Series A Liberty SiriusXM trackingcommon stock group from(“LSXMA”), Series B Liberty SiriusXM common stock (“LSXMB”) and Series C Liberty SiriusXM common stock (“LSXMK”, together with the LSXMB and LSXMA stock, the “Liberty SiriusXM Group”). Following the Split-Off, New Sirius will combine with Holdings through the merger of Radio Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of New Sirius (“Merger Sub”), with Holdings, with Holdings becoming a wholly owned subsidiary of New Sirius (the “Merger” and, together with the Split-Off, the “Transactions”). As part of the Merger, New Sirius will be renamed “Sirius XM Holdings Inc.”
To effect the Transactions, on December 11, 2023, Liberty Media throughentered into (i) a Reorganization Agreement (the “Reorganization Agreement”) with Holdings and New Sirius, and (ii) an Agreement and Plan of Merger (the “Merger Agreement”) with New Sirius, Holdings and Merger Sub.
In connection with the split-off of a newly formed company (“Newco”)Merger Agreement and the subsequent combination of NewcoReorganization Agreement, on December 11, 2023, certain trusts related to Dr. John C. Malone (collectively, the “Malone Stockholders”) entered into a voting agreement (the “Voting Agreement”) with Liberty Media, Holdings and Holdings. As a resultNew Sirius, pursuant to which, among other things, the Malone Stockholders agreed, subject to the terms of the potential transaction,Voting Agreement, to vote their respective shares of Liberty Media’s LSXMA and LSXMB in favor of the holdersSplit-Off.
The Transactions have been unanimously approved by Liberty Media’s Board of Directors and a Special Committee of the Board of Directors of Holdings and by Holdings’ Board of Directors. The Transactions are expected to be completed early in the third quarter of 2024, subject to approval by a majority of the aggregate voting power of the shares of Liberty SiriusXM tracking stock and Holdings common stock would all hold one classpresent, whether in-person or by proxy, at a stockholder meeting, the receipt by Liberty Media and New Sirius of common stocktax opinions from their respective tax counsel, as well as the receipt of required regulatory approvals and the satisfaction of
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
other customary closing conditions. A subsidiary of Liberty Media owning a majority of the combined company (the “Proposal”). The Special Committeeoutstanding shares of Holdings has delivered a written consent approving the Transactions on behalf of a majority of Holdings’ stockholders. Following the Transactions, Liberty Media and New Sirius will operate independently, and neither is evaluatingexpected to have any ownership interest in the Proposal. There can be no assurance thatother. All of the Proposal, or any other transaction,executive officers of Holdings immediately prior to consummation of the Transactions will be completed orthe initial executive officers of New Sirius, and New Sirius will continue to operate under the termsSiriusXM name and conditionsbrand.
During the three months ended March 31, 2024, we recognized costs associated with the Transactions of any such transaction.$15 which were recorded to Impairment, restructuring and acquisition costs in our unaudited consolidated statements of comprehensive income.
Sirius XM Canada
Sirius XM holds a 70% equity interest and 33% voting interest in Sirius XM Canada, a privately held corporation. We own 591 shares of preferred stock of Sirius XM Canada, which has a liquidation preference of one Canadian dollar per share.
Sirius XM Canada is accounted for as an equity method investment, and its results are not consolidated in our unaudited consolidated financial statements. Sirius XM Canada does not meet the requirements for consolidation as we do not have the ability to direct the most significant activities that impact Sirius XM Canada's economic performance.
On March 15, 2022, Sirius XM and Sirius XM Canada entered into an amended and restated services and distribution agreement. Pursuant to the amended and restated services and distribution agreement, the fee payable by Sirius XM Canada to Sirius XM was modified from a fixed percentage of revenue to a variable fee, based on a target operating profit for Sirius XM Canada. Such variable fee is expected to be evaluated annually based on comparable companies. In accordance with the amended and restated services and distribution agreement, the fee is payable on a monthly basis, in arrears, beginning January 1, 2022.
Our related party long-term assetsEquity method investments as of September 30, 2023March 31, 2024 and December 31, 20222023 included the carrying value of our investment balance in Sirius XM Canada of $419$418 and $412,$423, respectively, and, as of each of September 30, 2023March 31, 2024 and December 31, 2022,2023, also included $8, for the long-term value of the outstanding loan to Sirius XM Canada.
Sirius XM Canada paid gross dividends to us of less than $1 during each of the three months ended September 30, 2023,March 31, 2024 and $1 and less than $1 during the nine months ended September 30, 2023 and 2022, respectively. No dividends were paid during the three months ended September 30, 2022.2023. Dividends are first recorded as a reduction to our investment balance in Sirius XM Canada to the extent a balance exists and then as Other (expense) income for any remaining portion.
We recorded revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income of $27$24 and $29$26 during the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $78 and $84 during the nine months ended September 30, 2023 and 2022, respectively.
SoundCloud
We have an investment in SoundCloud which is accounted for as an equity method investment and recorded in Related party long-term assetsEquity method investments in our unaudited consolidated balance sheets. Sirius XM has appointed two individuals to serve on SoundCloud's ten-member board of managers. Sirius XM's share of SoundCloud's net incomeearnings (loss) was less than $1 and $(1) for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $(2) and $(4) for the nine months ended
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
September 30, 2023 and 2022, respectively, which was recorded in Other (expense) income in our unaudited consolidated statements of comprehensive income.
In addition to our investment in SoundCloud, Pandora has an agreement with SoundCloud to be its exclusive ad sales representative in the US and certain European countries. Through this arrangement, Pandora offers advertisers the ability to execute campaigns across the Pandora and SoundCloud platforms. We recorded revenue share expense related to this agreement of $14$15 and $13$12 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $39 and $40 for the nine months ended September 30, 2023 and 2022, respectively. We also had related party liabilities of $19$20 as of each of September 30, 2023March 31, 2024 and December 31, 20222023, related to this agreement.
Tax equity investments
Sirius XM has entered into certain tax-effective clean energy technology investments. During the three months ended March 31, 2024 and 2023, we invested $187 and $29 in these investments, respectively. As of January 1, 2024, we adopted ASU 2023-02 using the modified retrospective approach and have accounted for these investments using the proportional amortization method. The unamortized investment balance as of March 31, 2024 was $972 and was recorded to Equity method investments in our unaudited consolidated balance sheets. Under the proportional amortization method the investment balance
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
will be amortized over the term of the investments based on the current period income tax benefits as a proportion to the total expected income tax benefits. We also recorded liabilities of $783 related to future contractual payments and contingent payments which we determined to be probable, of which $85 is recorded in Related party current liabilities and the balance is recorded in Other long-term liabilities in our unaudited consolidated balance sheets.
(12)(11)Debt
Our debt as of September 30, 2023March 31, 2024 and December 31, 20222023 consisted of the following:
| | | | | | | | | | | | Principal Amount at | | Carrying value(a) at | | | | | Principal Amount at | | Carrying value(a) at |
Issuer / Borrower | Issuer / Borrower | | Issued | | Debt | | Maturity Date | | Interest Payable | | September 30, 2023 | | September 30, 2023 | | December 31, 2022 | Issuer / Borrower | | Issued | | Debt | | Maturity Date | | Interest Payable | | March 31, 2024 | | December 31, 2023 |
| Pandora (c) (d) | | June 2018
| | 1.75% Convertible Senior Notes | | December 1, 2023 | | semi-annually on June 1 and December 1 | | $ | 20 | | | $ | 20 | | | $ | 193 | |
| Sirius XM (b) (f) | | April 2022 | | Incremental Term Loan | | April 11, 2024 | | variable fee paid monthly | | 500 | | | 500 | | | 500 | |
Sirius XM (b) (d) (e) | |
| Sirius XM (b) (d) (e) | |
| Sirius XM (b) (d) (e) | |
Sirius XM (b) | Sirius XM (b) | | August 2021 | | 3.125% Senior Notes | | September 1, 2026 | | semi-annually on March 1 and September 1 | | 1,000 | | | 993 | | | 992 | |
Sirius XM (b) | Sirius XM (b) | | July 2017 | | 5.00% Senior Notes | | August 1, 2027 | | semi-annually on February 1 and August 1 | | 1,500 | | | 1,494 | | | 1,492 | |
Sirius XM (b) | Sirius XM (b) | | June 2021 | | 4.00% Senior Notes | | July 15, 2028 | | semi-annually on January 15 and July 15 | | 2,000 | | | 1,984 | | | 1,982 | |
Sirius XM (b) | Sirius XM (b) | | June 2019 | | 5.500% Senior Notes | | July 1, 2029 | | semi-annually on January 1 and July 1 | | 1,250 | | | 1,241 | | | 1,240 | |
Sirius XM (b) | Sirius XM (b) | | June 2020 | | 4.125% Senior Notes | | July 1, 2030 | | semi-annually on January 1 and July 1 | | 1,500 | | | 1,488 | | | 1,487 | |
Sirius XM (b) | Sirius XM (b) | | August 2021 | | 3.875% Senior Notes | | September 1, 2031 | | semi-annually on March 1 and September 1 | | 1,500 | | | 1,486 | | | 1,485 | |
Sirius XM (e) | | December 2012 | | Senior Secured Revolving Credit Facility (the "Credit Facility") | | August 31, 2026 | | variable fee paid quarterly | | 135 | | | 135 | | | 80 | |
Sirius XM (c) | |
Sirius XM | Sirius XM | | Various | | Finance leases | | Various | | n/a | | n/a | | 17 | | | 12 | |
Total Debt | Total Debt | | 9,358 | | | 9,463 | |
Less: total current maturities | Less: total current maturities | | 525 | | | 196 | |
Less: total deferred financing costs | Less: total deferred financing costs | | 10 | | | 11 | |
Total long-term debt | Total long-term debt | | $ | 8,823 | | | $ | 9,256 | |
(a)The carrying value of the obligations is net of any remaining unamortized original issue discount.
(b)All material domestic subsidiaries, including Pandora and its subsidiaries, that guarantee the Credit Facility have guaranteed the Incremental Term Loan and these notes.
(c)Holdings has unconditionally guaranteed all of the payment obligations of Pandora under these notes.
(d)We acquired $193 in principal amount of the 1.75% Convertible Senior Notes due 2023 as part of the acquisition of Pandora Media, Inc. in 2019. During the nine months ended September 30, 2023, certain investors exercised their right to require a Special Repurchase, as defined in the indenture governing such notes, and Pandora repurchased $173 in outstanding principal amount of the 1.75% Convertible Senior Notes due 2023 with cash for an aggregate purchase price equal to 100% of the principal amount of the notes repurchased plus accrued and unpaid interest to the date of repurchase. On or after July 1, 2023 and prior to the close of business on November 29, 2023, the 1.75% Convertible
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
Senior Notes due 2023 are convertible into Holdings’ common stock at the holders’ option at the applicable conversion rate in effect on the relevant conversion date.
(e)In August 2021, Sirius XM entered into an amendment to extend the maturity of the $1,750 Credit Facility to August 31, 2026. Sirius XM's obligations under the Credit Facility are guaranteed by certain of its material domestic subsidiaries, including Pandora and its subsidiaries, and are secured by a lien on substantially all of Sirius XM's assets and the assets of its material domestic subsidiaries. From and after July 1, 2023, Sirius XMXM's borrowings are based on the Secured Overnight Financing Rate (“SOFR”) plus an applicable rate based on its debt to operating cash flow ratio. Sirius XM is also required to pay a variable fee on the average daily unused portion of the Credit Facility which is payable on a quarterly basis. The variable rate for the unused portion of the Credit Facility was 0.25% per annum as of September 30, 2023.March 31, 2024. All of Sirius XM's outstanding borrowings under the Credit Facility are classified as Long-term debt within our unaudited consolidated balance sheets due to the long-term maturity of this debt.
(f)(d)In April 2022, Sirius XM entered into an amendment to the Credit Facility to incorporate an Incremental Term Loan borrowing of $500 which matures on April 11, 2024. Interest on the Incremental Term Loan borrowing is based on SOFR plus an applicable rate. On April 11, 2024, the Incremental Term Loan borrowing of $500 matured and was retired with cash for 100% of the principal amount plus accrued and unpaid interest to the date of maturity.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
(e)On January 26, 2024, Sirius XM entered into an amendment to the Credit Facility to, among other things, incorporate a $1,100 delayed draw incremental term loan. Subject to the conditions described in the amendment, the delayed draw incremental term loan shall be available to be drawn by Sirius XM in up to three separate drawings until December 31, 2024.If drawn, interest on the delayed draw incremental term loan is based on SOFR plus an applicable rate.
Covenants and Restrictions
Under the Credit Facility, Sirius XM, our wholly owned subsidiary, must comply with a debt maintenance covenant that it cannot exceed a total leverage ratio, calculated as consolidated total debt to consolidated operating cash flow, of 5.0 to 1.0. The Credit Facility generally requires compliance with certain covenants that restrict Sirius XM's ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of Sirius XM's assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions.
The indentures governing Sirius XM's notes restrict Sirius XM's non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiary guaranteeing each such series of notes on a pari passu basis. The indentures governing the notes also contain covenants that, among other things, limit Sirius XM's ability and the ability of its subsidiaries to create certain liens; enter into sale/leaseback transactions; and merge or consolidate.
Under Sirius XM's debt agreements, the following generally constitute an event of default: (i) a default in the payment of interest; (ii) a default in the payment of principal; (iii) failure to comply with covenants; (iv) failure to pay other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount; (v) certain events of bankruptcy; (vi) a judgment for payment of money exceeding a specified aggregate amount; and (vii) voidance of subsidiary guarantees, subject to grace periods where applicable. If an event of default occurs and is continuing, our debt could become immediately due and payable.
The indenture governing the Pandora 2023 Notes (as defined below) contains covenants that limit Pandora’s ability to merge or consolidate and provides for customary events of default, which include nonpayment of principal or interest, breach of covenants, payment defaults or acceleration of other indebtedness and certain events of bankruptcy.
At September 30, 2023March 31, 2024 and December 31, 2022,2023, we were in compliance with our debt covenants.
Pandora Convertible Notes
Pandora's 1.75% Convertible Senior Notes due 2023 (the “Pandora 2023 Notes”) are unsecured, senior obligations of Pandora. Holdings has guaranteed the payment and performance obligations of Pandora under the Pandora 2023 Notes and the indenture governing the Pandora 2023 Notes.
The Pandora 2023 Notes will mature on December 1, 2023, unless earlier repurchased or redeemed by Pandora or converted in accordance with their terms. As of September 30, 2023, the conversion rate applicable to the Pandora 2023 Notes was 165.4277 shares of Holdings' common stock per one thousand principal amount of the Pandora 2023 Notes.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
(13)(12)Stockholders’ Equity
Common Stock, par value $0.001 per share
We are authorized to issue up to 9,000 shares of common stock. There were 3,8403,847 and 3,8913,843 shares of common stock issued and outstanding on September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
As of September 30, 2023,March 31, 2024, there were 220223 shares of common stock reserved for issuance in connection with outstanding stock-based awards to members of our board of directors, employees and third parties.
Quarterly Dividends
During the ninethree months ended September 30, 2023,March 31, 2024, our board of directors declared and paid the following dividend:
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Declaration Date | | Dividend Per Share | | Record Date | | Total Amount | | Payment Date |
January 25, 2023 | | $ | 0.0242 | | | February 9, 2023 | | $ | 94 | | | February 24, 2023 |
April 19, 2023 | | $ | 0.0242 | | | May 5, 2023 | | $ | 94 | | | May 24, 2023 |
July 26, 2023 | | $ | 0.0242 | | | August 8, 2023 | | $ | 93 | | | August 30, 2023 |
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Declaration Date | | Dividend Per Share | | Record Date | | Total Amount | | Payment Date |
January 24, 2024 | | $ | 0.0266 | | | February 9, 2024 | | $ | 102 | | | February 23, 2024 |
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Stock Repurchase Program
As of September 30, 2023,March 31, 2024, our board of directors had approved for repurchase an aggregate of $18,000 of our common stock. Our board of directors did not establish an end date for this stock repurchase program. Shares of common stock may be purchased from time to time on the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions, including transactions with Liberty Media and its affiliates, or otherwise. As of September 30, 2023,March 31, 2024, our cumulative repurchases since December 2012 under our stock repurchase program totaled 3,731 shares for $16,834, and $1,166 remained available for future share repurchases under our stock repurchase program. During the three months ended March 31, 2024, we did not repurchase any shares of our common stock.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
The following table summarizes our total share repurchase activity for the ninethree months ended: | | |
| | | | September 30, 2023 | | September 30, 2022 | |
Share Repurchase Type | Share Repurchase Type | | Shares | | Amount | | Shares | | Amount | |
Share Repurchase Type | |
Share Repurchase Type | |
Open Market Repurchases | Open Market Repurchases | | 69 | | | $ | 274 | | | 95 | | | $ | 594 | | |
Open Market Repurchases | |
Open Market Repurchases | |
Preferred Stock, par value $0.001 per share
We are authorized to issue up to 50 shares of undesignated preferred stock with a liquidation preference of $0.001 per share. There were no shares of preferred stock issued or outstanding as of September 30, 2023March 31, 2024 and December 31, 2022.2023.
(14)(13)Benefit Plans
We recognized share-based payment expense of $48 and $50$45 for each of the three months ended September 30, 2023March 31, 2024 and 2022, respectively, and $135 and $143 for the nine months ended September 30, 2023 and 2022, respectively.2023.
2015 Long-Term Stock Incentive Plan
In May 2015, our stockholders approved the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (the “2015 Plan”). Employees, consultants and members of our board of directors are eligible to receive awards under the 2015 Plan. The 2015 Plan provides for the grant of stock options, restricted stock awards, restricted stock units and other stock-based awards that the Compensation Committee of our Board of Directors deems appropriate. Stock-based awards granted under the 2015 Plan are generally subject to a graded vesting requirement, which is generally three to four years from the grant date. Stock options generally expire ten years from the date of grant. Restricted stock units include performance-based restricted stock units (“PRSUs”), the vesting of which are subject to the achievement of performance goals and the employee's continued employment and generally cliff vest on the third anniversary of the grant date. Each restricted stock unit entitles the holder to
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
receive one share of common stock upon vesting. As of September 30, 2023, 100March 31, 2024, 89 shares of common stock were available for future grants under the 2015 Plan.
The Compensation Committee intends to award equity-based compensation to our senior management in the form of: stock options, restricted stock units, PRSUs, which will cliff vest after a performance period target established by the Compensation Committee is achieved, and PRSUs, which will cliff vest after a performance period based on the performance of our common stock relative to the companies included in the S&P 500 Index, which we refer to as a relative “TSR” or “total stockholder return” metric. TSRs based on the relative total stockholder return metric will only vest if our performance achieves at least the 25th percentile, with a target payout requiring performance at the 50th percentile. The settlement of PRSUs earned in respect of the applicable performance period will be generally subject to the executive’s continued employment with us through the date the total stockholder return performance is certified by the Compensation Committee.
Other Plans
We maintain six share-based benefit plans in addition to the 2015 Plan — the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan, the Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan, the 2014 Stock Incentive Plan of AdsWizz Inc., the Pandora Media, Inc. 2011 Equity Incentive Plan, the Pandora Media, Inc. 2004 Stock Plan and the TheSavageBeast.com, Inc. 2000 Stock Incentive Plan. Excluding dividend equivalent units granted as a result of a declared dividend, no further awards may be made under these plans.
The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees, members of our board of directors and non-employees:
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| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 | | |
Risk-free interest rate | 4.3% | | 2.9% | | 4.0% | | 1.6% | | |
Expected life of options — years | 3.76 | | 2.71 | | 3.80 | | 3.52 | | |
Expected stock price volatility | 42% | | 34% | | 32% | | 32% | | |
Expected dividend yield | 2.0% | | 1.3% | | 2.0% | | 1.3% | | |
The following table summarizes stock option activity under our share-based plans for the nine months ended September 30, 2023:
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| Options | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
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Outstanding as of December 31, 2022 | 134 | | | $ | 5.55 | | | | | |
Granted | 9 | | | $ | 4.92 | | | | | |
Exercised | (9) | | | $ | 4.59 | | | | | |
Forfeited, cancelled or expired | (7) | | | $ | 5.86 | | | | | |
Outstanding as of September 30, 2023 | 127 | | | $ | 5.55 | | | 5.02 | | $ | 20 | |
Exercisable as of September 30, 2023 | 84 | | | $ | 5.42 | | | 4.35 | | $ | 19 | |
The weighted average grant date fair value per stock option granted during the nine months ended September 30, 2023 was $1.23. The total intrinsic value of stock options exercised during the nine months ended September 30, 2023 and 2022 was $9 and $70, respectively. During the nine months ended September 30, 2023, the number of net settled shares issued as a result of stock option exercises was 1.
We recognized share-based payment expense associated with stock options of $8 for each of the three months ended September 30, 2023 and 2022, and $23 and $27 for the nine months ended September 30, 2023 and 2022, respectively. | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| | | | | 2024 | | 2023 | | |
Risk-free interest rate | | | | | 4.2% | | 4.0% | | |
Expected life of options — years | | | | | 3.76 | | 3.80 | | |
Expected stock price volatility | | | | | 39% | | 31% | | |
Expected dividend yield | | | | | 2.1% | | 1.9% | | |
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
The following table summarizes stock option activity under our share-based plans for the three months ended March 31, 2024:
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| Options | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
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Outstanding as of December 31, 2023 | 122 | | | $ | 5.60 | | | | | |
Granted | 17 | | | $ | 5.13 | | | | | |
Exercised | (1) | | | $ | 3.81 | | | | | |
Forfeited, cancelled or expired | (1) | | | $ | 5.82 | | | | | |
Outstanding as of March 31, 2024 | 137 | | | $ | 5.55 | | | 5.16 | | $ | 5 | |
Exercisable as of March 31, 2024 | 95 | | | $ | 5.56 | | | 4.19 | | $ | 5 | |
The weighted average grant date fair value per stock option granted during the three months ended March 31, 2024 was $1.54. The total intrinsic value of stock options exercised during each of the three months ended March 31, 2024 and 2023 was $1. During the three months ended March 31, 2024, the number of net settled shares issued as a result of stock option exercises was less than 1.
We recognized share-based payment expense associated with stock options of $8 for each of the three months ended March 31, 2024 and 2023.
The following table summarizes the restricted stock unit, including PRSU, activity under our share-based plans for the ninethree months ended September 30, 2023:March 31, 2024:
| | | Shares | | Grant Date Fair Value Per Share | | Shares | | Grant Date Fair Value Per Share |
| Nonvested as of December 31, 2022 | 85 | | | $ | 6.38 | |
Nonvested as of December 31, 2023 | |
| Nonvested as of December 31, 2023 | |
| Nonvested as of December 31, 2023 | |
Granted | Granted | 45 | | | $ | 4.72 | |
Vested | Vested | (26) | | | $ | 6.39 | |
Forfeited | Forfeited | (11) | | | $ | 6.18 | |
Nonvested as of September 30, 2023 | 93 | | | $ | 5.64 | |
Nonvested as of March 31, 2024 | |
The total intrinsic value of restricted stock units, including PRSUs, vesting during the ninethree months ended September 30,March 31, 2024 and 2023 was $34 and 2022 was $123 and $185,$32, respectively. During the ninethree months ended September 30, 2023,March 31, 2024, the number of net settled shares issued as a result of restricted stock units vesting totaled 17.4. During the ninethree months ended September 30, 2023,March 31, 2024, we granted 46 PRSUs to certain employees. We believe it is probable that the performance target applicable to these PRSUs will be achieved.
In connection with the cash dividends paid during the ninethree months ended September 30, 2023,March 31, 2024, we granted less than 1 restricted stock units, including PRSUs, in accordance with the terms of existing award agreements. These grants did not result in any additional incremental share-based payment expense being recognized during the ninethree months ended September 30, 2023.March 31, 2024.
We recognized share-based payment expense associated with restricted stock units, including PRSUs, of $40 and $42$37 for each of the three months ended September 30, 2023March 31, 2024 and 2022, respectively, and $112 and $116 for the nine months ended September 30, 2023 and 2022, respectively.2023.
Total unrecognized compensation costs related to unvested share-based payment awards for stock options and restricted stock units, including PRSUs, granted to employees, members of our board of directors and third parties at September 30, 2023March 31, 2024 and December 31, 20222023 was $479$425 and $472,$423, respectively. The total unrecognized compensation costs at September 30, 2023March 31, 2024 are expected to be recognized over a weighted-average period of 2.72.5 years.
401(k) Savings Plans
Sirius XM sponsors the Sirius XM Radio Inc. 401(k) Savings Plan (the “Sirius XM Plan”) for eligible employees. The Sirius XM Plan allows eligible employees to voluntarily contribute from 1% to 50% of their pre-tax eligible earnings, subject to certain defined limits. We match 50% of an employee’s voluntary contributions per pay period on the first 6% of an employee’s pre-tax salary up to a maximum of 3% of eligible compensation. We may also make additional discretionary matching, true-up matching and non-elective contributions to the Sirius XM Plan. Employer matching contributions under the Sirius XM Plan
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
vest at a rate of 33.33% for each year of employment and are fully vested after three years of employment for all current and future contributions. Our cash employer matching contributions are not used to purchase shares of our common stock on the open market, unless the employee elects our common stock as their investment option for this contribution.
We recognized expenses of $5$6 for each of the three months ended September 30,March 31, 2024 and 2023 and 2022, and $16 and $15 for the nine months ended September 30, 2023 and 2022, respectively, in connection with the Sirius XM Plan.
Sirius XM Holdings Inc. Deferred Compensation Plan
The Sirius XM Holdings Inc. Deferred Compensation Plan (the “DCP”) allows members of our board of directors and certain eligible employees to defer all or a portion of their base salary, cash incentive compensation and/or board of directors’ cash compensation, as applicable. Pursuant to the terms of the DCP, we may elect to make additional contributions beyond amounts deferred by participants, but we are under no obligation to do so. We have established a grantor (or “rabbi”) trust to facilitate the payment of our obligations under the DCP.
Contributions to the DCP, net of withdrawals, were less than $(1)$2 and $1 for each of the three months ended September 30,March 31, 2024 and 2023, and 2022, and $1 and $(1) for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the fair value of the investments held in the trust were $52$58 and $47,$53, respectively, which is included in Other long-term assets in our unaudited consolidated balance sheets and classified as trading securities. Trading gains and
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
losses associated with these investments are recorded in Other (expense) income within our unaudited consolidated statements of comprehensive income. The associated liability is recorded within Other long-term liabilities in our unaudited consolidated balance sheets, and any increase or decrease in the liability is recorded in General and administrative expense within our unaudited consolidated statements of comprehensive income. We recorded (losses) gains on investments held in the trust of $(1)$3 and $(2)$2 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $4 and $(11) for the nine months ended September 30, 2023 and 2022, respectively.
(15)(14)Commitments and Contingencies
The following table summarizes our expected contractual cash commitments as of September 30, 2023:March 31, 2024:
| | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total |
Debt obligations | Debt obligations | $ | 22 | | | $ | 505 | | | $ | 5 | | | $ | 1,140 | | | $ | 1,500 | | | $ | 6,250 | | | $ | 9,422 | |
Cash interest payments | Cash interest payments | 14 | | | 399 | | | 389 | | | 385 | | | 344 | | | 636 | | | 2,167 | |
Satellite and transmission | Satellite and transmission | 27 | | | 290 | | | 197 | | | 92 | | | 40 | | | 2 | | | 648 | |
Programming and content | Programming and content | 130 | | | 344 | | | 263 | | | 134 | | | 63 | | | 107 | | | 1,041 | |
Sales and marketing | Sales and marketing | 30 | | | 99 | | | 31 | | | 20 | | | 6 | | | — | | | 186 | |
Satellite incentive payments | Satellite incentive payments | 2 | | | 8 | | | 8 | | | 3 | | | 3 | | | 15 | | | 39 | |
Operating lease obligations | Operating lease obligations | 16 | | | 56 | | | 51 | | | 47 | | | 39 | | | 79 | | | 288 | |
Royalties, minimum guarantees and other | Royalties, minimum guarantees and other | 105 | | | 393 | | | 167 | | | 79 | | | 26 | | | 12 | | | 782 | |
Total (1) | Total (1) | $ | 346 | | | $ | 2,094 | | | $ | 1,111 | | | $ | 1,900 | | | $ | 2,021 | | | $ | 7,101 | | | $ | 14,573 | |
(1)The table does not include our reserve for uncertain tax positions, which at September 30, 2023March 31, 2024 totaled $110.$64.
Debt obligations. Debt obligations include principal payments on outstanding debt and finance lease obligations.
Cash interest payments. Cash interest payments include interest due on outstanding debt and capital lease payments through maturity.
Satellite and transmission. We have entered into agreements for the design, construction and launch of four additional satellites, SXM-9, SXM-10, SXM-11 and SXM-12. We also have entered into agreements with third parties to operate and maintain satellite telemetry, tracking and control facilities and certain components of our terrestrial repeater networks.
Programming and content. We have entered into various programming and content agreements. Under the terms of these agreements, our obligations include fixed payments, advertising commitments and revenue sharing arrangements. In
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
certain of these agreements, the future revenue sharing costs are dependent upon many factors and are difficult to estimate; therefore, they are not included in our minimum contractual cash commitments.
Sales and marketing. We have entered into various marketing, sponsorship and distribution agreements to promote our brands and are obligated to make payments to sponsors, retailers, automakers, radio manufacturers and other third parties under these agreements. Certain programming and content agreements also require us to purchase advertising on properties owned or controlled by the licensors.
Satellite incentive payments. Maxar Technologies (formerly Space Systems/Loral), the manufacturer of certain of our in-orbit satellites, may be entitled to future in-orbit performance payments upon XM-5, SIRIUS FM-5, SIRIUS FM-6, and SXM-8 meeting their fifteen-year design life, which we expect to occur.
Operating lease obligations. We have entered into both cancelable and non-cancelable operating leases for office space, terrestrial repeaters, data centers and equipment. These leases provide for minimum lease payments, additional operating expense charges, leasehold improvements and rent escalations that have initial terms ranging from one to fifteen years, and certain leases have options to renew.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
Royalties, Minimum Guarantees and Other. We have entered into music royalty arrangements that include fixed payments. In addition, certain of our podcast agreements also contain minimum guarantees. As of September 30, 2023,March 31, 2024, we had future fixed commitments related to music royalty and podcast agreements of $500,$1,049, of which $64$188 will be paid in 20232024 and the remainder will be paid thereafter. On a quarterly basis, we record the greater of the cumulative actual content costs incurred or the cumulative minimum guarantee based on forecasts for the minimum guarantee period. The minimum guarantee period is the period of time that the minimum guarantee relates to, as specified in each agreement, which may be annual or a longer period. The cumulative minimum guarantee, based on forecasts, considers factors such as listening hours, downloads, revenue, subscribers and other terms of each agreement that impact our expected attainment or recoupment of the minimum guarantees based on the relative attribution method.
We have entered into certain tax equity investments in which we expect to make future contributions. These future contributions are expected to be made over the remaining respective terms of the investments and totaled $783 as of March 31, 2024, of which $47 is expected to be paid in 2024 and the remainder thereafter.
Several of our content agreements also include provisions related to the royalty payments and structures of those agreements relative to other content licensing arrangements, which, if triggered, cause our payments under those agreements to escalate. In addition, record labels, publishers and performing rights organizations with whom we have entered into direct license agreements have the right to audit our content payments, and such audits often result in disputes over whether we have paid the proper content costs.
We have also entered into various agreements with third parties for general operating purposes.
In addition to the minimum contractual cash commitments described above, we have entered into other variable cost arrangements. These future costs are dependent upon many factors and are difficult to anticipate; however, these costs may be substantial. We may enter into additional programming, distribution, marketing and other agreements that contain similar variable cost provisions. We do not have any other significant off-balance sheet financing arrangements that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Legal Proceedings
In the ordinary course of business, we are a defendant or party to various claims and lawsuits, including those discussed below.
We record a liability when we believe that it is both probable that a liability will be incurred, and the amount of loss can be reasonably estimated. We evaluate developments in legal matters that could affect the amount of liability that has been previously accrued and make adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount of a loss or potential loss. We may be unable to reasonably estimate the reasonably possible loss or range
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
of loss for a particular legal contingency for various reasons, including, among others, because: (i) the damages sought are indeterminate; (ii) the proceedings are in the relative early stages; (iii) there is uncertainty as to the outcome of pending proceedings (including motions and appeals); (iv) there is uncertainty as to the likelihood of settlement and the outcome of any negotiations with respect thereto; (v) there remain significant factual issues to be determined or resolved; (vi) the relevant law is unsettled; or (vii) the proceedings involve novel or untested legal theories. In such instances, there may be considerable uncertainty regarding the ultimate resolution of such matters, including the likelihood or magnitude of a possible eventual loss, if any.
New York State v. Sirius XM Radio Inc. On December 20, 2023, the People of the State of New York, by Letitia James, Attorney General of the State of New York (the “NY AG”), filed a Petition in the Supreme Court of the State of New York, New York County, against us. The Petition alleges various violations of New York law and the federal Restore Online Shoppers’ Confidence Act (“ROSCA”) arising out of our subscription cancellation practices. The Petition is the product of a subpoena that the NY AG issued in December 2021 seeking documents relating to our subscription cancellation practices and the related investigation. In general, the Petition alleges that we require consumers to devote an excessive amount of time to cancel subscriptions and have not implemented cancellation processes that are simple and efficient.
The Petition claims to be brought under certain provisions of New York law that authorize the NY AG to initiate special proceedings seeking injunctive and other equitable relief in cases of persistent business fraud or illegality. The Petition seeks: a permanent injunction from us violating provisions of New York law and ROSCA arising out of the alleged fraudulent, deceptive and illegal practices associated with our subscription cancellation procedures; an accounting of each consumer who cancelled, or sought to cancel, a satellite radio subscription, including the duration of the cancel interaction and the funds collected from such consumers after that interaction; monetary restitution and damages to aggrieved consumers; disgorgement of all profits resulting from the alleged illegal, deceptive and fraudulent acts; civil penalties; and the NY AG’s costs.
In March 2024, Sirius XM filed its Answer to the Petition which was supported by various factual declarations and asserts affirmative defenses to the allegations contained in the Petition. In connection with the Answer, Sirius XM cross moved for summary judgment with respect to various claims asserted in the Petition. In April 2024, the NY AG filed its responsive pleadings in support of the Petition and in opposition to Sirius XM’s cross motion for summary judgment.
Sirius XM intends to defend this action vigorously.
U.S. Music Royalty Fee Actions and Mass Arbitrations. A number of class actions and mass arbitrations have been commenced against usSirius XM relating to ourits pricing, billing and subscription marketing practices. Although each class action and mass arbitration contains unique allegations; in general, the actions and arbitrations allege that weSirius XM falsely advertised ourits music subscription plans at lower prices than weit actually charge,charges, that weit allegedly did not disclose ourits “U.S. Music Royalty Fee”, and that we haveSirius XM has taken other actions to prevent customers from discovering the existence, amount and nature of the U.S. Music Royalty Fee in violation of various state consumer protection laws.
The plaintiffs and claimants seek to enjoin usSirius XM from advertising ourits music subscription plans without includingspecifically disclosing the existence and amount of the U.S. Music Royalty Fee. The plaintiffs and claimants also seek disgorgement, restitution and/or damages in the aggregate amount of U.S Music Royalty Fees paid by customers, as well as statutory and punitive damages where available.
To date, the actions and arbitrations filed against usSirius XM include:
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
•On April 14, 2023, Ayana Stevenson and David Ambrose, individually, as private attorneys general, and on behalf of all other California persons similarly situated, filed a class action complaint against usSirius XM in the Superior Court of the State of California, County of Contra Costa. The case has since beenwas removed to the United States District Court for the Northern District of California.California, which issued an Order on November 9, 2023 granting Sirius XM’s Motion to Compel Arbitration and dismissed the complaint. Plaintiffs appealed the Court’s granting of the Motion, and Sirius XM cross-appealed the Court’s dismissal in lieu of the issuance of a stay pending arbitration. The appeal and cross-appeal are currently stayed in the Ninth Circuit pending resolution of a related issue by the United States Supreme Court.
•On May 17, 2023, Robyn Posternock, Muriel Salters and Philip Munning, individually, as private attorneys general, and on behalf of all other New Jersey persons similarly situated, filed a class action complaint against usSirius XM in the
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
United States District Court for the District of New Jersey. Sirius XM filed a Motion to Compel Arbitration on August 18, 2023, which remains pending.
•On June 5, 2023, Christopher Carovillano and Steven Brandt, individually, as private attorneys general, and on behalf of all other United StatesU.S. persons similarly situated (excluding persons in the states of California, New Jersey and Washington), filed a class action complaint against usSirius XM in the United States District Court for the Southern District of New York. On February 6, 2024, the Court issued an Order denying Sirius XM’s Motion to Dismiss and Sirius XM filed an Answer to the complaint on February 20, 2024.
•Commencing onin June 5, 2023, thevarious law firm of Hattis & Lukacs filed a series offirms began filing mass arbitration claims against usSirius XM before the American Arbitration Association (the AAA). Collectively, the law firms purport to act on behalf of approximately 13,50053,000 claimants.
In addition, we have been served with notices Several of claims bythe law firms claiming to represent approximately 11,000 claimants. The notices purport to state a variety of claims, including that: we do not adequately disclose to customers the total cost of our subscriptions; do not describe the type or amount of the fees imposed on customers; we enroll customers in automatic bill payments without having knowledge of the U.S. Music Royalty Fee; we fail to provide consumers with an easy way to cancel their subscriptions; in the case of trial subscriptions, we require customers to preauthorize automatic deductions from their accounts, while hiding the fact that customers agree to automatically pay recurring charges at higher rates when the promotional period ends; and we engage in other deceptive consumer practices. The notices assert potentialhave asserted additional causes of action under the Electronic Funds Transfer Act, various state consumer protection and false advertising laws, and other unspecified state and federal laws. We expect the claimants may also pursue individual arbitrations before the American Arbitration Association pursuant to the terms and conditions of our Customer Agreement.Act.
We believe we haveSirius XM believes it has substantial defenses to the claims asserted in these actions and arbitrations, and we intendit intends to defend these actions vigorously.
Other Matters. In the ordinary course of business, we are a defendant in various other lawsuits and arbitration proceedings, including derivative actions; actions filed by subscribers, both on behalf of themselves and on a class action basis; former employees; parties to contracts or leases; and owners of patents, trademarks, copyrights or other intellectual property. None of these other matters, in our opinion, is likely to have a material adverse effect on our business, financial condition or results of operations.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
(16)(15)Income Taxes
We have historically filed a consolidated federal income tax return for all of our wholly owned subsidiaries, including Sirius XM and Pandora. On February 1, 2021, we entered into a tax sharing agreement with Liberty Media governing the allocation of consolidated U.S. income tax liabilities and setting forth agreements with respect to other tax matters. The tax sharing agreement contains provisions that we believe are customary for tax sharing agreements between members of a consolidated group. On November 3, 2021, Liberty Media informed us that it beneficially owned over 80% of the outstanding shares of our common stock; as a result of this, we were included in the consolidated tax return of Liberty Media beginning November 4, 2021. The tax sharing agreement and our inclusion in Liberty Media’s consolidated tax group is not expected to have any material adverse effect on us.
We have calculated the provision for income taxes by using a separate return method. Any difference between the tax expense (or benefit) allocated to us under the separate return method and payments to be made for (or received from) Liberty Media for tax expense are treated as either dividends or capital contributions. Income tax expense was $92$80 and $110$75 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $230 and $307 for the nine months ended September 30, 2023 and 2022, respectively. In addition, we recorded $5 as a capital contribution from Liberty Media during the nine months ended September 30, 2023 related to the tax sharing agreement.
Our effective tax rate for the three months ended September 30,March 31, 2024 and 2023 was 23.2% and 2022 was 20.2% and 30.8%, respectively. Our effective tax rate for the nine months ended September 30, 2023 and 2022 was 20.2% and 26.6%24.4%, respectively. The effective tax rate for each of the three months ended September 30,March 31, 2024 and March 31, 2023 was primarily impacted by benefits related to certain tax credits partially offset by shortfalls related to share-based compensation. The effective tax rate for the nine months ended September 30, 2023 was primarily impacted by the release of valuation reserves against state net operating losses we now expect to utilize and benefits related to certain tax credits partially offset by shortfalls related to share-based compensation. The effective tax rate for the three and nine months ended September 30, 2022 was negatively impacted as a result of the expected expiration of certain state and local net operating losses, partially offset by the recognition of excess tax benefitsshortfalls related to share-based compensation. We estimate our effective tax rate for the year ending December 31, 20232024 will be approximately 21%22%.
During the three months ended March 31, 2024, we recognized net tax benefits of $4 in Income tax expense in our unaudited consolidated statement of comprehensive income which includes tax credits and other income tax benefits of $25 partially offset by amortization expense of $21 associated with our tax equity investments. Refer to Note 10 for more information on our tax equity investments.
As of September 30, 2023each of March 31, 2024 and December 31, 2022,2023, we had a valuation allowance related to deferred tax assets of $86 and $113, respectively,$88 that were not likely to be realized due to the timing of certain federal and state net operating loss limitations.
On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA imposes a 15% corporate alternative minimum tax for tax years beginning after December 31, 2022, levies a 1% excise tax on net stock repurchases after December 31, 2022, and provides tax incentives to promote clean energy. Based on our historical
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
net stock repurchase activity, the excise tax and the other provisions of the IRA did not have a material impact on our results of operations or financial position.
During the nine months ended September 30, 2023, we invested $33 in certain tax-effective clean energy technologies investments.
(17)(16)Segments and Geographic Information
In accordance with FASB ASC Topic 280, Segment Reporting, we disaggregate our operations into two reportable segments: Sirius XM and Pandora and Off-platform. The financial results of these segments are utilized by the chief operating decision maker, who is our Chief Executive Officer, for evaluating segment performance and allocating resources. We report our segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments. For additional information on our segments refer to Note 1.
Segment results include the revenues and cost of services which are directly attributable to each segment. There are no indirect revenues or costs incurred that are allocated to the segments. There are planned intersegment advertising campaigns which will be eliminated. We had intersegment advertising revenue of $1$2 and $2$1 during the three and nine months ended March 31, 2024 and 2023, respectively.
Segment revenue and gross profit were as follows during the period presented:
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2024 |
| Sirius XM | | Pandora and Off-platform | | | | Total |
Revenue | | | | | | | |
Subscriber revenue | $ | 1,547 | | | $ | 133 | | | | | $ | 1,680 | |
Advertising revenue | 40 | | | 362 | | | | | 402 | |
Equipment revenue | 50 | | | — | | | | | 50 | |
Other revenue | 30 | | | — | | | | | 30 | |
Total revenue | 1,667 | | | 495 | | | | | 2,162 | |
Cost of services (a) | (674) | | | (352) | | | | | (1,026) | |
Segment gross profit | $ | 993 | | | $ | 143 | | | | | $ | 1,136 | |
The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows:
| | | | | |
| For the Three Months Ended March 31, 2024 |
Segment Gross Profit | $ | 1,136 | |
Subscriber acquisition costs | (90) | |
Sales and marketing (a) | (217) | |
Engineering, design and development (a) | (74) | |
General and administrative (a) | (105) | |
Depreciation and amortization | (140) | |
Share-based payment expense | (45) | |
Impairment, restructuring and acquisition costs | (28) | |
Total other expense | (92) | |
Consolidated income before income taxes | $ | 345 | |
(a) Share-based payment expense of $11 related to cost of services, $12 related to sales and marketing, $12 related to engineering, design and development and $10 related to general and administrative has been excluded.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
September 30, 2023, respectively, and less than $1 and $1 during the three and nine months ended September 30, 2022, respectively.
Segment revenue and gross profit were as follows during the period presented:
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2023 |
| Sirius XM | | Pandora and Off-platform | | | | Total |
Revenue | | | | | | | |
Subscriber revenue | $ | 1,597 | | | $ | 132 | | | | | $ | 1,729 | |
Advertising revenue | 42 | | | 418 | | | | | 460 | |
Equipment revenue | 49 | | | — | | | | | 49 | |
Other revenue | 33 | | | — | | | | | 33 | |
Total revenue | 1,721 | | | 550 | | | | | 2,271 | |
Cost of services (a) | (674) | | | (370) | | | | | (1,044) | |
Segment gross profit | $ | 1,047 | | | $ | 180 | | | | | $ | 1,227 | |
The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows:
| | | | | |
| For the Three Months Ended September 30, 2023 |
Segment Gross Profit | $ | 1,227 | |
Subscriber acquisition costs | (87) | |
Sales and marketing (a)
| (224) | |
Engineering, design and development (a)
| (61) | |
General and administrative (a)
| (108) | |
Depreciation and amortization | (130) | |
Share-based payment expense | (48) | |
Impairment, restructuring and acquisition costs | (5) | |
Total other expense | (109) | |
Consolidated income before income taxes | $ | 455 | |
(a) Share-based payment expense of $13 related to cost of services, $13 related to sales and marketing, $11 related to engineering, design and development and $11 related to general and administrative has been excluded.
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2022 |
| Sirius XM | | Pandora and Off-platform | | | | Total |
Revenue | | | | | | | |
Subscriber revenue | $ | 1,603 | | | $ | 131 | | | | | $ | 1,734 | |
Advertising revenue | 50 | | | 407 | | | | | 457 | |
Equipment revenue | 50 | | | — | | | | | 50 | |
Other revenue | 39 | | | — | | | | | 39 | |
Total revenue | 1,742 | | | 538 | | | | | 2,280 | |
Cost of services (b) | (665) | | | (365) | | | | | (1,030) | |
Segment gross profit | $ | 1,077 | | | $ | 173 | | | | | $ | 1,250 | |
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2023 |
| Sirius XM | | Pandora and Off-platform | | | | Total |
Revenue | | | | | | | |
Subscriber revenue | $ | 1,563 | | | $ | 128 | | | | | $ | 1,691 | |
Advertising revenue | 41 | | | 334 | | | | | 375 | |
Equipment revenue | 46 | | | — | | | | | 46 | |
Other revenue | 32 | | | — | | | | | 32 | |
Total revenue | 1,682 | | | 462 | | | | | 2,144 | |
Cost of services (b) | (664) | | | (351) | | | | | (1,015) | |
Segment gross profit | $ | 1,018 | | | $ | 111 | | | | | $ | 1,129 | |
The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows: | | | | | |
| For the Three Months Ended September 30, 2022March 31, 2023 |
Segment Gross Profit | $ | 1,2501,129 | |
Subscriber acquisition costs | (86)(90) | |
Sales and marketing (b) | (268)(214) | |
Engineering, design and development (b) | (59)(68) | |
General and administrative (b) | (117)(132) | |
Depreciation and amortization | (134)(136) | |
Share-based payment expense | (50)(45) | |
Impairment, restructuring and acquisition costs | (69)(32) | |
Total other expense | (110)(104) | |
Consolidated income before income taxes | $ | 357308 | |
(b) Share-based payment expense of $11$9 related to cost of services, $13$10 related to sales and marketing, $11 related to engineering, design and development and $15 related to general and administrative has been excluded.
| | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, 2023 |
| Sirius XM | | Pandora and Off-platform | | | | Total |
Revenue | | | | | | | |
Subscriber revenue | $ | 4,757 | | | $ | 389 | | | | | $ | 5,146 | |
Advertising revenue | 126 | | | 1,152 | | | | | 1,278 | |
Equipment revenue | 142 | | | — | | | | | 142 | |
Other revenue | 99 | | | — | | | | | 99 | |
Total revenue | 5,124 | | | 1,541 | | | | | 6,665 | |
Cost of services (c) | (2,014) | | | (1,097) | | | | | (3,111) | |
Segment gross profit | $ | 3,110 | | | $ | 444 | | | | | $ | 3,554 | |
The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows:
| | | | | |
| For the Nine Months Ended September 30, 2023 |
Segment Gross Profit | $ | 3,554 | |
Subscriber acquisition costs | (270) | |
Sales and marketing (c)
| (647) | |
Engineering, design and development (c)
| (201) | |
General and administrative (c)
| (385) | |
Depreciation and amortization | (405) | |
Share-based payment expense | (135) | |
Impairment, restructuring and acquisition costs | (56) | |
| |
Total other expense | (319) | |
Consolidated income before income taxes | $ | 1,136 | |
(c) Share-based payment expense of $33 related to cost of services, $33 related to sales and marketing, $33 related to engineering, design and development and $36 related to general and administrative has been excluded.
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, 2022 |
| Sirius XM | | Pandora and Off-platform | | | | Total |
Revenue | | | | | | | |
Subscriber revenue | $ | 4,773 | | | $ | 393 | | | | | $ | 5,166 | |
Advertising revenue | 146 | | | 1,146 | | | | | 1,292 | |
Equipment revenue | 148 | | | — | | | | | 148 | |
Other revenue | 114 | | | — | | | | | 114 | |
Total revenue | 5,181 | | | 1,539 | | | | | 6,720 | |
Cost of services (d) | (1,980) | | | (1,063) | | | | | (3,043) | |
Segment gross profit | $ | 3,201 | | | $ | 476 | | | | | $ | 3,677 | |
The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows:
| | | | | |
| For the Nine Months Ended September 30, 2022 |
Segment Gross Profit | $ | 3,677 | |
Subscriber acquisition costs | (267) | |
Sales and marketing (d)
| (799) | |
Engineering, design and development (d)
| (181) | |
General and administrative (d)
| (339) | |
Depreciation and amortization | (404) | |
Share-based payment expense | (143) | |
Impairment, restructuring and acquisition costs | (70) | |
| |
Total other expense | (319) | |
Consolidated income before income taxes | $ | 1,155 | |
(d) Share-based payment expense of $34 related to cost of services, $39 related to sales and marketing, $27 related to engineering, design and development and $43 related to general and administrative has been excluded.
A measure of segment assets is not currently provided to the Chief Executive Officer and has therefore not been provided.
As of September 30, 2023,March 31, 2024, long-lived assets were predominantly located in the United States. No individual foreign country represented a material portion of our consolidated revenue during the three and nine months ended September 30, 2023March 31, 2024 and 2022.
2023.
(18)(17)Subsequent Events
Capital Return Program
On October 25, 2023,April 24, 2024, our board of directors declared a quarterly dividend on our common stock in the amount of $0.0266 per share of common stock payable on NovemberMay 29, 20232024 to stockholders of record as of the close of business on November 7, 2023.May 10, 2024.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All amounts referenced in this Item 2 are in millions, except subscriber amounts are in thousands and per subscriber and per installation amounts are in ones, unless otherwise stated.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
This Quarterly Report on Form 10-Q presents information for Sirius XM Holdings Inc. (“Holdings”). The terms “Holdings,” “we,” “us,” “our,” and “our company” as used herein, and unless otherwise stated or indicated by context, refer to Sirius XM Holdings Inc. and its subsidiaries. "Sirius XM" refers to our wholly owned subsidiary Sirius XM Radio Inc. and its subsidiaries. "Pandora" refers to Sirius XM's wholly owned subsidiary Pandora Media, LLC and its subsidiaries. Holdings has no operations independent of Sirius XM and Pandora.
Special Note Regarding Forward-Looking Statements
The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in forward-looking statements made in this Quarterly Report on Form 10-Q and in other reports and documents published by us from time to time. Any statements about our beliefs, plans, objectives, expectations, assumptions, future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “intend,” “plan,” “projection” and “outlook.” Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Quarterly Report on Form 10-Q and in other reports and documents published by us from time to time, including the risk factors described under “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2022,2023, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
Among the significant factors that could cause our actual results to differ materially from those expressed in the forward-looking statements are:
•
There is significant uncertainty regarding the terms, timing and market reaction
Risks Relating to our potential combination with NewCoBusiness and Operations:
•We have been, and may continue to be, adversely affected by supply chain issues
•We may be adversely affected by the war in Ukraine
•Wewe face substantial competition and that competition is likely to increase over timetime;
•Ifif our efforts to attract and retain subscribers and listeners, or convert listeners into subscribers, are not successful, our business will be adversely affectedaffected;
•Wewe engage in extensive marketing efforts and the continued effectiveness of those efforts is an important part of our businessbusiness;
•Wewe rely on third parties for the operation of our business, and the failure of third parties to perform could adversely affect our businessbusiness;
•Failurewe are migrating our billing system and payment processing function to a new service provider;
•failure to successfully monetize and generate revenues from podcasts and other non-music content could adversely affect our business, operating results, and financial conditioncondition;
•Wewe may not realize the benefits of acquisitions or other strategic investments and initiativesinitiatives;
•Thethe impact of economic conditions may adversely affect our business, operating results, and financial conditioncondition; and
•Awe may be adversely affected by the war in Ukraine.
Risks Relating to our Sirius XM Business:
•a substantial number of our Sirius XM service subscribers periodically cancel their subscriptions and we cannot predict how successful we will be at retaining customerscustomers;
•Ourour ability to profitably attract and retain subscribers to our Sirius XM service is uncertainuncertain;
•Ourour business depends in part upon the auto industryindustry;
•Failurefailure of our satellites would significantly damage our businessbusiness; and
•Ourour Sirius XM service may experience harmful interference from wireless operationsoperations.
Risks Relating to our Pandora and Off-platform Business:
•Ourour Pandora ad-supported business has suffered a substantial and consistent loss of monthly active users, which may adversely affect our Pandora businessand Off-platform business;
•Ourour Pandora and Off-platform business generates a significant portion of its revenues from advertising, and reduced spending by advertisers could harm our businessbusiness;
•Ourour failure to convince advertisers of the benefits of our Pandora ad-supported service could harm our businessbusiness;
•Ifif we are unable to maintain revenue growth from our advertising products our results of operations will be adversely affectedaffected;
•We are a “controlled company” within the meaning of the NASDAQ listing rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements
•Our principal stockholder has significant influence, including over actions requiring stockholder approval, and its interests may differ from the interests of other holders of our common stock
•Changeschanges to mobile operating systems and browsers may hinder our ability to sell advertising and market our servicesservices; and
•Ifif we fail to accurately predict and play music, comedy or other content that our Pandora listeners enjoy, we may fail to retain existing and attract new listenerslisteners.
Risks Relating to Laws and Governmental Regulations:
•Privacyprivacy and data security laws and regulations may hinder our ability to market our services, sell advertising and impose legal liabilitiesliabilities;
•Consumerconsumer protection laws and our failure to comply with them could damage our businessbusiness;
•Failurefailure to comply with FCC requirements could damage our businessbusiness;
•Ifenvironmental, social and governance expectations and related reporting obligations may expose us to potential liabilities, increased costs, reputational harm, and other adverse effects; and
•we may face lawsuits, incur liability or suffer reputational harm as a result of content published or made available through our services.
Risks Associated with Data and Cybersecurity and the Protection of Consumer Information:
•if we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement actions and private litigation and our reputation could suffersuffer;
•Interruptionwe use artificial intelligence in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability and adversely affect our results of operations; and
•interruption or failure of our information technology and communications systems could impair the delivery of our service and harm our businessbusiness.
Risks Associated with Certain Intellectual Property Rights:
•Thethe market for music rights is changing and is subject to significant uncertaintiesuncertainties;
•Ourour Pandora services depend upon maintaining complex licenses with copyright owners, and these licenses contain onerous termsterms;
•The rates we must pay for “mechanical rights” to use musical works on our Pandora service have increased substantially and these rates may adversely affect our business
•Failurefailure to protect our intellectual property or actions by third parties to enforce their intellectual property rights could substantially harm our business and operating resultsresults;
•Somesome of our services and technologies may use “open source” software, which may restrict how we use or distribute our services or require that we release the source code subject to those licenseslicenses; and
•Rapidrapid technological and industry changes and new entrants could adversely impact our servicesservices.
Risks Related to our Capital and Ownership Structure:
•Wewe have a significant amount of indebtedness, and our debt contains certain covenants that restrict our operationsoperations;
•Whilewe are a “controlled company” within the meaning of the NASDAQ listing rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements;
•our principal stockholder has significant influence, including over actions requiring stockholder approval, and its interests may differ from the interests of other holders of our common stock;
•the Transactions may adversely affect our business and financial condition; and
•while we currently pay a quarterly cash dividend to holders of our common stock, we may change our dividend policy at any timetime.
Other Operational Risks:
•Ifif we are unable to attract and retain qualified personnel, our business could be harmedharmed;
•Ourour facilities could be damaged by natural catastrophes or terrorist activitiesactivities;
•Thethe unfavorable outcome of pending or future litigation could have an adverse impact on our operations and financial conditioncondition;
•Wewe may be exposed to liabilities that other entertainment service providers would not customarily be subject toto; and
•Ourour business and prospects depend on the strength of our brands.
Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any of these forward-looking statements. In addition, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrence of unanticipated events or otherwise, except as required by law. New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Executive Summary
We operate two complementary audio entertainment businesses - one of which we refer to as “SiriusXM” and the second of which we refer to as “Pandora and Off-platform”.
Sirius XM
Our Sirius XM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels and other content, as well as podcasts and infotainment services, in the United States on a subscription fee basis. Sirius XM's packages include live, curated and certain exclusive and on demand programming. The Sirius XM service is distributed through our two proprietary satellite radio systems and streamed via applications for mobile devices, home devices and other consumer electronic equipment. Satellite radios are primarily distributed through automakers, retailers and our website. Our Sirius XM service is also available through our in-car user interface, which we call “360L,” that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience.
The primary source of revenue from our Sirius XM business is subscription fees, with most of our customers subscribing to monthly, quarterly, semi-annual or annual plans. We also derive revenue from advertising on select non-music channels, which is sold under the SXMSiriusXM Media brand, direct sales of our satellite radios and accessories, and other ancillary services. As of September 30, 2023,March 31, 2024, our Sirius XM business had approximately 34.033.4 million subscribers.
In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers. These services are designed to enhance the safety, security and driving experience of consumers. We also offer a suite of data services that includes graphical weather and fuel prices, a traffic information service, and real-time weather services in boats and airplanes.
Sirius XM also holds a 70% equity interest and 33% voting interest in Sirius XM Canada. Sirius XM Canada's subscribers are not included in our subscriber count or subscriber-based operating metrics.
Pandora and Off-platform
Our Pandora and Off-platform business operates a music, comedy and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen, whether through computers, tablets, mobile devices, vehicle speakers or connected devices. Pandora enables listeners to create personalized stations and playlists, discover new content, hear artist- and expert-curated playlists, podcasts and select Sirius XM content as well as search and play songs and albums on-demand. Pandora is available as (1) an ad-supported radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium). As of September 30, 2023,March 31, 2024, Pandora had approximately 46.545.0 million monthly active users and 6.15.9 million subscribers.
The majority of revenue from Pandora is generated from advertising on our Pandora ad-supported radio service which is sold under the SXMSiriusXM Media brand. We also derive subscription revenue from our Pandora Plus and Pandora Premium subscribers.
We also sell advertising on other audio platforms and in widely distributed podcasts, which we consider to be off-platform services. We have an arrangement with SoundCloud Holdings, LLC ("SoundCloud") to be its exclusive ad sales representative in the US and certain European countries and offer advertisers the ability to execute campaigns across the Pandora and SoundCloud platforms. We also have arrangements to serve as the ad sales representative for certain podcasts. In addition, through AdsWizz Inc., we provide a comprehensive digital audio and programmatic advertising technology platform,
which connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.
Liberty Media
As of September 30, 2023,March 31, 2024, Liberty Media beneficially owned, directly and indirectly, 83.5%83.3% of the outstanding shares of our common stock. As a result, we are a “controlled company” for the purposes of the NASDAQ corporate governance requirements.
On September 22,December 11, 2023, Holdings entered into definitive agreements whereby, subject to the special committeeterms thereof, Liberty Sirius XM Holdings Inc., a Delaware corporation and a wholly owned subsidiary of independent directors of the board of Holdings (the “Special Committee”Liberty Media (“New Sirius”) received a non-binding proposal, would split-off from Liberty Media regardingMedia. The transactions would be effectuated by means of a potential transaction involving Holdings. The potential transaction would consistredemptive split-off of the separationNew Sirius (the “Split-Off”), which will own all of the assets and liabilities attributed to theLiberty Media’s Series A Liberty SiriusXM trackingcommon stock group from(“LSXMA”), Series B Liberty SiriusXM common stock (“LSXMB”) and Series C Liberty SiriusXM common stock (“LSXMK”, together with the LSXMB and LSXMA stock, the “Liberty SiriusXM Group”). Following the Split-Off, New Sirius will combine with Holdings through the merger of Radio Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of New Sirius (“Merger Sub”), with Holdings, with Holdings becoming a wholly owned subsidiary of New Sirius (the “Merger” and, together with the Split-Off, the “Transactions”). As part of the Merger, New Sirius will be renamed “Sirius XM Holdings Inc.”
To effect the Transactions, on December 11, 2023, Liberty Media throughentered into (i) a Reorganization Agreement (the “Reorganization Agreement”) with Holdings and New Sirius, and (ii) an Agreement and Plan of Merger (the “Merger Agreement”) with New Sirius, Holdings and Merger Sub.
In connection with the split-off of a newly formed company (“Newco”)Merger Agreement and the subsequent combination of NewcoReorganization Agreement, on December 11, 2023, certain trusts related to Dr. John C. Malone (collectively, the “Malone Stockholders”) entered into a voting agreement (the “Voting Agreement”) with Liberty Media, Holdings and Holdings. As a resultNew Sirius, pursuant to which, among other things, the Malone Stockholders agreed, subject to the terms of the potential transaction,Voting Agreement, to vote their respective shares of Liberty Media’s LSXMA and LSXMB in favor of the holdersSplit-Off.
The Transactions have been unanimously approved by Liberty Media’s Board of Directors and a Special Committee of the Board of Directors of Holdings and by Holdings’ Board of Directors. The Transactions are expected to be completed early in the third quarter of 2024, subject to approval by a majority of the aggregate voting power of the shares of Liberty SiriusXM tracking stock and Holdings common stock would all hold one classpresent, whether in-person or by proxy, at a stockholder meeting, the receipt by Liberty Media and New Sirius of common stocktax opinions from their respective tax counsel, as well as the receipt of required regulatory approvals and the satisfaction of other customary closing conditions. A subsidiary of Liberty Media owning a majority of the combined company (the “Proposal”). The Special Committeeoutstanding shares of Holdings has delivered a written consent approving the Transactions on behalf of a majority of Holdings’ stockholders. Following the Transactions, Liberty Media and New Sirius will operate independently, and neither is evaluatingexpected to have any ownership interest in the Proposal. There can be no assurance thatother. All of the Proposal, or any other transaction,executive officers of Holdings immediately prior to consummation of the Transactions will be completed orthe initial executive officers of New Sirius, and New Sirius will continue to operate under the termsSiriusXM name and conditions of any such transaction.
brand.
Results of Operations
Set forth below are our results of operations for the three and nine months ended September 30, 2023March 31, 2024 compared with the three and nine months ended September 30, 2022.March 31, 2023. The results of operations are presented for each of our reporting segments for revenue and cost of services and on a consolidated basis for all other items.
| | | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2023 vs 2022 Change | |
| | | | | 2024 | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | Three Months | | Nine Months | |
| | | | | 2024 | |
| | 2023 | | 2022 | | 2023 | | 2022 | | | Amount | | % | | Amount | | % | |
| | | | | 2024 | |
Revenue | |
Revenue | |
Revenue | Revenue | | | | | | | | | | | | | | | | | |
Sirius XM: | Sirius XM: | | | | |
Sirius XM: | |
Sirius XM: | |
Subscriber revenue | |
Subscriber revenue | |
Subscriber revenue | Subscriber revenue | $ | 1,597 | | | $ | 1,603 | | | $ | 4,757 | | | $ | 4,773 | | | | $ | (6) | | | — | % | | $ | (16) | | | — | % | |
Advertising revenue | Advertising revenue | 42 | | | 50 | | | 126 | | | 146 | | | | (8) | | | (16) | % | | (20) | | | (14) | % | |
Advertising revenue | |
Advertising revenue | |
Equipment revenue | |
Equipment revenue | |
Equipment revenue | Equipment revenue | 49 | | | 50 | | | 142 | | | 148 | | | | (1) | | | (2) | % | | (6) | | | (4) | % | |
Other revenue | Other revenue | 33 | | | 39 | | | 99 | | | 114 | | | | (6) | | | (15) | % | | (15) | | | (13) | % | |
Other revenue | |
Other revenue | |
Total Sirius XM revenue | |
Total Sirius XM revenue | |
Total Sirius XM revenue | Total Sirius XM revenue | 1,721 | | | 1,742 | | | 5,124 | | | 5,181 | | | | (21) | | | (1) | % | | (57) | | | (1) | % | |
Pandora and Off-platform: | Pandora and Off-platform: | | | | |
Pandora and Off-platform: | |
Pandora and Off-platform: | |
Subscriber revenue | |
Subscriber revenue | |
Subscriber revenue | Subscriber revenue | 132 | | | 131 | | | 389 | | | 393 | | | | 1 | | | 1 | % | | (4) | | | (1) | % | |
Advertising revenue | Advertising revenue | 418 | | | 407 | | | 1,152 | | | 1,146 | | | | 11 | | | 3 | % | | 6 | | | 1 | % | |
Advertising revenue | |
Advertising revenue | |
Total Pandora and Off-platform revenue | |
Total Pandora and Off-platform revenue | |
Total Pandora and Off-platform revenue | Total Pandora and Off-platform revenue | 550 | | | 538 | | | 1,541 | | | 1,539 | | | | 12 | | | 2 | % | | 2 | | | — | % | |
Total consolidated revenue | Total consolidated revenue | 2,271 | | | 2,280 | | | 6,665 | | | 6,720 | | | | (9) | | | — | % | | (55) | | | (1) | % | |
Total consolidated revenue | |
Total consolidated revenue | |
Cost of services | |
Cost of services | |
Cost of services | Cost of services | | | | |
Sirius XM: | Sirius XM: | | | | |
Sirius XM: | |
Sirius XM: | |
Revenue share and royalties | |
Revenue share and royalties | |
Revenue share and royalties | Revenue share and royalties | 406 | | | 391 | | | 1,201 | | | 1,169 | | | | 15 | | | 4 | % | | 32 | | | 3 | % | |
Programming and content | Programming and content | 136 | | | 139 | | | 407 | | | 407 | | | | (3) | | | (2) | % | | — | | | — | % | |
Programming and content | |
Programming and content | |
Customer service and billing | |
Customer service and billing | |
Customer service and billing | Customer service and billing | 96 | | | 103 | | | 300 | | | 310 | | | | (7) | | | (7) | % | | (10) | | | (3) | % | |
Transmission | Transmission | 44 | | | 38 | | | 126 | | | 116 | | | | 6 | | | 16 | % | | 10 | | | 9 | % | |
Transmission | |
Transmission | |
Cost of equipment | |
Cost of equipment | |
Cost of equipment | Cost of equipment | 3 | | | 4 | | | 10 | | | 9 | | | | (1) | | | (25) | % | | 1 | | | 11 | % | |
Total Sirius XM cost of services | Total Sirius XM cost of services | 685 | | | 675 | | | 2,044 | | | 2,011 | | | | 10 | | | 1 | % | | 33 | | | 2 | % | |
Total Sirius XM cost of services | |
Total Sirius XM cost of services | |
Pandora and Off-platform: | |
Pandora and Off-platform: | |
Pandora and Off-platform: | Pandora and Off-platform: | | | | |
Revenue share and royalties | Revenue share and royalties | 325 | | | 318 | | | 961 | | | 921 | | | | 7 | | | 2 | % | | 40 | | | 4 | % | |
Revenue share and royalties | |
Revenue share and royalties | |
Programming and content | |
Programming and content | |
Programming and content | Programming and content | 17 | | | 16 | | | 49 | | | 41 | | | | 1 | | | 6 | % | | 8 | | | 20 | % | |
Customer service and billing | Customer service and billing | 20 | | | 19 | | | 63 | | | 63 | | | | 1 | | | 5 | % | | — | | | — | % | |
Customer service and billing | |
Customer service and billing | |
Transmission | |
Transmission | |
Transmission | Transmission | 10 | | | 13 | | | 27 | | | 41 | | | | (3) | | | (23) | % | | (14) | | | (34) | % | |
Total Pandora and Off-platform cost of services | Total Pandora and Off-platform cost of services | 372 | | | 366 | | | 1,100 | | | 1,066 | | | | 6 | | | 2 | % | | 34 | | | 3 | % | |
Total Pandora and Off-platform cost of services | |
Total Pandora and Off-platform cost of services | |
Total consolidated cost of services | |
Total consolidated cost of services | |
Total consolidated cost of services | Total consolidated cost of services | 1,057 | | | 1,041 | | | 3,144 | | | 3,077 | | | | 16 | | | 2 | % | | 67 | | | 2 | % | |
Subscriber acquisition costs | Subscriber acquisition costs | 87 | | | 86 | | | 270 | | | 267 | | | | 1 | | | 1 | % | | 3 | | | 1 | % | |
Subscriber acquisition costs | |
Subscriber acquisition costs | |
Sales and marketing | |
Sales and marketing | |
Sales and marketing | Sales and marketing | 237 | | | 281 | | | 680 | | | 838 | | | | (44) | | | (16) | % | | (158) | | | (19) | % | |
Engineering, design and development | Engineering, design and development | 72 | | | 70 | | | 234 | | | 208 | | | | 2 | | | 3 | % | | 26 | | | 13 | % | |
Engineering, design and development | |
Engineering, design and development | |
General and administrative | |
General and administrative | |
General and administrative | General and administrative | 119 | | | 132 | | | 421 | | | 382 | | | | (13) | | | (10) | % | | 39 | | | 10 | % | |
Depreciation and amortization | Depreciation and amortization | 130 | | | 134 | | | 405 | | | 404 | | | | (4) | | | (3) | % | | 1 | | | — | % | |
Depreciation and amortization | |
Depreciation and amortization | |
Impairment, restructuring and acquisition costs | |
Impairment, restructuring and acquisition costs | |
Impairment, restructuring and acquisition costs | Impairment, restructuring and acquisition costs | 5 | | | 69 | | | 56 | | | 70 | | | | (64) | | | nm | | (14) | | | nm | |
| Total operating expenses | Total operating expenses | 1,707 | | | 1,813 | | | 5,210 | | | 5,246 | | | | (106) | | | (6) | % | | (36) | | | (1) | % | |
| Total operating expenses | |
| Total operating expenses | |
Income from operations | |
Income from operations | |
Income from operations | Income from operations | 564 | | | 467 | | | 1,455 | | | 1,474 | | | | 97 | | | 21 | % | | (19) | | | (1) | % | |
Other (expense) income: | Other (expense) income: | | | | |
Other (expense) income: | |
Other (expense) income: | |
Interest expense | |
Interest expense | |
Interest expense | Interest expense | (106) | | | (107) | | | (319) | | | (314) | | | | (1) | | | (1) | % | | 5 | | | 2 | % | |
| Other expense | (3) | | | (3) | | | — | | | (5) | | | | — | | | nm | | (5) | | | nm | |
Other income | |
| Other income | |
| Other income | |
Total other expense | |
Total other expense | |
Total other expense | Total other expense | (109) | | | (110) | | | (319) | | | (319) | | | | (1) | | | (1) | % | | — | | | — | % | |
Income before income taxes | Income before income taxes | 455 | | | 357 | | | 1,136 | | | 1,155 | | | | 98 | | | 27 | % | | (19) | | | (2) | % | |
Income before income taxes | |
Income before income taxes | |
Income tax expense | |
Income tax expense | |
Income tax expense | Income tax expense | (92) | | | (110) | | | (230) | | | (307) | | | | (18) | | | (16) | % | | (77) | | | (25) | % | |
Net income | Net income | $ | 363 | | | $ | 247 | | | $ | 906 | | | $ | 848 | | | | $ | 116 | | | 47 | % | | $ | 58 | | | 7 | % | |
Net income | |
Net income | |
nm - not meaningful
Sirius XM Revenue
Sirius XM Subscriber Revenue includes fees charged for self-pay and paid promotional subscriptions, U.S. Music Royalty Fees and other ancillary fees.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, subscriber revenue was $1,597$1,547 and $1,603,$1,563, respectively, a decrease of less than 1%, or $6. For the nine months ended September 30, 2023 and 2022, subscriber revenue was $4,757 and $4,773, respectively, a decrease of less than 1%, or $16. The decreases weredecrease was primarily driven by a reduction in self-pay revenue resulting from a decline in average subscribers and a reduction in paid promotional revenue resulting from lower overall rates from automakers offering paid promotional subscriptions and lower revenue generated from our connected vehicle services,subscriptions; partially offset by an increase in self-pay revenue.ARPU.
We expect subscriber revenues to remain relatively flat.decrease due to a decrease in average subscribers as well as a decline in the average price of our subscriptions
Sirius XM Advertising Revenue includes the sale of advertising on Sirius XM’s non-music channels.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, advertising revenue was $42$40 and $50,$41, respectively, a decrease of 16%2%, or $8. For the nine months ended September 30, 2023 and 2022, advertising$1. Lower revenue earned on entertainment channels was $126 and $146, respectively, a decrease of 14%, or $20. The decreases were due to a decline in the number of spots sold and aired, primarilypartially offset by higher revenue earned on news and entertainmentsports channels.
We expect our Sirius XM advertising revenue to increase dueas we continue to growing successpromote our brand and as a result of brand co-sell initiatives.co-selling initiatives among our brands and platforms.
Sirius XM Equipment Revenue includes revenue and royalties from the sale of satellite radios, components and accessories.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, equipment revenue was $49$50 and $50,$46, respectively, a decreasean increase of 2%9%, or $1. For the nine months ended September 30, 2023 and 2022, equipment revenue$4. The increase was $142 and $148, respectively, a decrease of 4%, or $6. The decreases were driven by lower royalty rates, partially offset by increased chipset production.
We expect equipment revenue to decrease drivenas we transition to our next generation chipset at higher costs partially offset by higher chipset costs for new technology.increased production.
Sirius XM Other Revenue includes service and advisory revenue from Sirius XM Canada, revenue from our connected vehicle services, and ancillary revenues.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, other revenue was $33$30 and $39,$32, respectively, a decrease of 15%6%, or $6. For the nine months ended September 30, 2023 and 2022, other revenue$2. The decrease was $99 and $114, respectively, a decrease of 13%, or $15. The decreases were primarily driven by lower royalty revenue generated byfrom Sirius XM Canada and lower revenue generated by our connected vehicle services.Canada.
We expect other revenue to continue to decrease primarily due to lower revenue from Sirius XM Canada and our connected vehicle services.
Pandora and Off-platform Revenue
Pandora and Off-platform Subscriber Revenue includes fees charged for Pandora Plus and Pandora Premium.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, Pandora and Off-platform subscriber revenue was $132$133 and $131,$128, respectively, an increase of 1%4%, or $1. For the nine months ended September 30, 2023 and 2022, Pandora and Off-platform subscriber revenue was $389 and $393, respectively, a decrease of 1%, or $4.$5. The increase for the three month period was driven by a rate increase on Pandora Plus, partially offset by a decline in the subscriber base. The decrease for the nine month period was primarily driven by a decline in the Pandora Plus subscriber base.
We expect Pandora and Off-platform subscriber revenues to remain relatively flat as higher ARPU is anticipated to be offset by a lower subscriber base.
Pandora and Off-platform Advertising Revenue is generated primarily from audio, display and video advertising from on-platform and off-platform advertising.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, Pandora and Off-platform advertising revenue was $418$362 and $407,$334, respectively, an increase of 3%8%, or $11. For the nine months ended September 30, 2023 and 2022, Pandora and Off-platform advertising revenue$28. The increase was $1,152 and $1,146, respectively, an increase of 1%, or $6. The increases were primarily driven by higher podcasting revenue partially offset by loweras well as higher sell-through on the Pandora ad-supported service.
We expect Pandora and Off-platform advertising revenue to increase due to growth in podcast and programmatic revenue.
Total Consolidated Revenue
Total Consolidated Revenue for the three months ended September 30,March 31, 2024 and 2023 was $2,162 and 2022 was $2,271 and $2,280,$2,144, respectively, a decrease of less than 1%, or $9. Total Consolidated Revenuefor the nine months ended September 30, 2023 and 2022 was $6,665 and $6,720, respectively, a decreasean increase of 1%, or $55.$18.
Sirius XM Cost of Services
Sirius XM Cost of Services includes revenue share and royalties, programming and content, customer service and billing, and transmission expenses.
Sirius XM Revenue Share and Royalties include royalties for transmitting content, including streaming royalties, as well as automaker, content provider and advertising revenue share.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, revenue share and royalties were $406$395 and $391,$390, respectively, an increase of 4%1%, or $15, and increased as a percentage of total Sirius XM revenue. For the nine months ended September 30, 2023 and 2022, revenue share and royalties were $1,201 and $1,169, respectively, an increase of 3%, or $32,$5, and increased as a percentage of total Sirius XM revenue. The increases wereincrease was driven by higher web streaming royalty rates.
We expect our Sirius XM revenue share and royalty costs to remain relatively flat as higher royalty rates under the statutory webcasting license resulting from increases in the Consumer Price Index are anticipated to be offset by lower eligible subscription revenue.
Sirius XM Programming and Content includes costs to acquire, create, promote and produce content. We have entered into various agreements with third parties for music and non-music programming that require us to pay license fees and other amounts.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, programming and content expenses were $136$140 and $139,$135, respectively, a decreasean increase of 2%4%, or $3, and decreased as a percentage of total Sirius XM revenue. For each of the nine months ended September 30, 2023 and 2022, programming and content expenses were $407$5, and increased as a percentage of total Sirius XM revenue. The decrease for the three month periodincrease was primarily driven by lower live performancehigher license fees and personnel-related costs.
We expect our Sirius XM programming and content expenses to remain relatively flat.
Sirius XM Customer Service and Billing includes costs associated with the operation and management of internal and third-party customer service centers, and our subscriber management systems as well as billing and collection costs, bad debt expense, and transaction fees.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, customer service and billing expenses were $96$97 and $103, respectively, a decrease of 7%6%, or $7, and decreased as a percentage of total Sirius XM revenue. For the nine months ended September 30, 2023 and 2022, customer service and billing expenses were $300 and $310, respectively, a decrease of 3% or $10,$6, and decreased as a percentage of total Sirius XM revenue. The decreases weredecrease was primarily driven by lower call center and personnel-related costs, partially offset by higher transaction costs.
We expect our Sirius XM customer service and billing expenses to decline due to lower call center and personnel-related costs.
Sirius XM Transmission consists of costs associated with the operation and maintenance of our terrestrial repeater networks; satellites; satellite telemetry, tracking and control systems; satellite uplink facilities; studios; and delivery of our Internet and 360L streaming and connected vehicle services.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, transmission expenses were $44$50 and $38,$41, respectively, an increase of 16%22%, or $6, and increased as a percentage of total Sirius XM revenue. For the nine months ended September 30, 2023 and 2022, transmission expenses were $126 and $116, respectively, an increase of 9%, or $10,$9, and increased as a percentage of total Sirius XM revenue. The increases wereincrease was primarily driven by higher hosting costs associated with our 360L platform and streaming.streaming platform.
We expect our Sirius XM transmission expenses to increase as costs associated with consumers using our 360L platformnew platforms rise and investments in internet streaming grow.
Sirius XM Cost of Equipment includes costs from the sale of satellite radios, components and accessories and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, cost of equipment was $3$2 and $4,$3, respectively, a decrease of 25%33%, or $1, and decreased as a percentage of total Sirius XM revenue. For the nine months ended September 30, 2023 and 2022, cost of equipment was $10 and $9, respectively, an increase of 11%, or $1, and increased as a percentage of total Sirius XM revenue. The decrease for the three month period was driven by fewer sales and lower shipping costs. The increase for the nine month period was driven by higher inventory write downs.
We expect our Sirius XM cost of equipment to fluctuate with thedecrease as sales of our satellite radios.
radios decline.
Pandora and Off-platform Cost of Services
Pandora and Off-platform Cost of Services includes revenue share and royalties, programming and content, customer service and billing, and transmission expenses.
Pandora and Off-platform Revenue Share and Royalties includes licensing fees paid for streaming music or other content costs related to podcasts as well as revenue share paid to third party ad servers. We make payments to third party ad servers for the period the advertising impressions are delivered or click-through actions occur, and accordingly, we record this as a cost of service in the related period.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, revenue share and royalties were $325$308 and $318,$310, respectively, an increasea decrease of 2%1%, or $7, but$2, and decreased as a percentage of total Pandora and Off-platform revenue. For the nine months ended September 30, 2023 and 2022, revenue share and royalties were $961 and $921, respectively, an increase of 4%, or $40, and increased as a percentage of total Pandora and Off-platform revenue. The increases weredecrease was primarily due to higher podcast revenue share driven by growth in podcast advertising revenue as well as higherlower royalty expense due to costs related to an increasea decline in certain weblistener hours and streaming royalty rates.plays.
We expect our Pandora and Off-platform revenue share and royalties to increase related towith the growth in our podcast revenue.revenue and higher royalty rates from increases in the Consumer Price Index.
Pandora and Off-platform Programming and Content includes costs to produce live listener events and promote content.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, programming and content expenses were $17 and $16,$15, respectively, an increase of 6%13%, or $1, and increased as a percentage of total Pandora and Off-platform revenue. For the nine months ended September 30, 2023 and 2022, programming and content expenses were $49 and $41, respectively, an increase of 20%, or $8,$2, and increased as a percentage of total Pandora and Off-platform revenue. The increases wereincrease was primarily attributable to higher podcast license fees and higher live event costs, partially offset by lower personnel-related costs.
We expect our Pandora and Off-platform programming and content costs to increase as we offer additional programming and produce live events and listener promotions.
decrease due to lower personnel-related costs.Pandora and Off-platform Customer Service and Billing includes transaction fees on subscription purchases through mobile app stores and bad debt expense.
For each of the three months ended September 30,March 31, 2024 and 2023, and 2022, customer service and billing expenses were $20 and $19, respectively, an increase of 5%, or $1, and increased as a percentage of total Pandora and Off-platform revenue. For each of the nine months ended September 30, 2023 and 2022, customer service and billing expenses were $63 andbut decreased as a percentage of total Pandora and Off-platform revenue. The increase for the three month period was driven by higherTransaction fees, personnel-related costs, and bad debt expense. The results for the nine month period were driven by lower transaction fees offset by higher bad debt expense.expense remained flat.
We expect our Pandora and Off-platform customer service and billing costs to decrease driven by lower expected bad debt expense.
Pandora and Off-platform Transmission includes costs associated with content streaming, maintaining our streaming radio and on-demand subscription services and creating and serving advertisements through third-party ad servers.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, transmission expenses were $10$9 and $13,$8, respectively, a decreasean increase of 23%13%, or $3,$1, and decreased as a percentage of total Pandora and Off-platform revenue. For the nine months ended September 30, 2023 and 2022, transmission expenses were $27 and $41, respectively, a decrease of 34%, or $14, and decreasedincreased as a percentage of total Pandora and Off-platform revenue. The decreases wereincrease was driven by lower colocation and personnel-related costs as well as lower streaming costs resulting from a decline in listener hours.slightly higher bandwidth costs.
We expect our Pandora and Off-platform transmission costs to increase due to higher hosting costs, partially offset by lower personnel-related costs.
Operating Costs
Subscriber Acquisition Costs are costs associated with our satellite radio service and include hardware subsidies paid to radio manufacturers, distributors and automakers; subsidies paid for chipsets and certain other components used in manufacturing radios; device royalties for certain radios and chipsets; product warranty obligations; and freight. The majority of subscriber acquisition costs are incurred and expensed in advance of acquiring a subscriber. Subscriber acquisition costs do not include advertising costs, marketing, loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios.
For each of the three months ended September 30,March 31, 2024 and 2023, and 2022, subscriber acquisition costs were $87 and $86, respectively, an increase of 1%, or $1, and increased$90, but decreased as a percentage of total revenue. For the nine months ended September 30, 2023Lower commission and 2022, subscriber acquisition costshardware subsidy rates were $270 and $267, respectively, an increase of 1%, or $3, and increased as a percentage of total revenue. Higheroffset by higher hardware subsidies driven by installations, which grew due to increased production by automakers, were offset by lower commission and hardware subsidy rates.automakers.
We expect subscriber acquisition costs to fluctuate with automaker installations. We intend to continue to offer subsidies and other incentives to induce automakers to include our technology in their vehicles.
Sales and Marketing includes costs for marketing, advertising, media and production, including promotional events and sponsorships; cooperative and artist marketing; and personnel related costs including salaries, commissions, and sales support. Marketing costs include expenses related to direct mail, outbound telemarketing, email communications, social media, television and streaming performance media, and third party promotional offers.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, sales and marketing expenses were $237$229 and $281,$224, respectively, a decreasean increase of 16%2%, or $44,$5, and decreased as a percentage of total revenue. For the nine months ended September 30, 2023 and 2022, sales and marketing expenses were $680 and $838, respectively, a decrease of 19%, or $158, and decreasedincreased as a percentage of total revenue. The decreases wereincrease was primarily due to a decreasean increase in streaming marketingbrand and marketing to support our brands as well as lower personnel-related costs.content marketing.
We anticipate that sales and marketing expenses will remain relatively flat.
to decline primarily due to lower personnel-related costs driven by cost optimization efforts implemented in 2023 and 2024.Engineering, Design and Development consists primarily of compensation and related costs to develop chipsets and new products and services, including streaming and connected vehicle services, research and development for broadcast information systems and the design and development costs to incorporate Sirius XM radios into new vehicles manufactured by automakers.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, engineering, design and development expenses were $72$86 and $70,$79, respectively, an increase of 3%9%, or $2, and increased as a percentage of total revenue. For the nine months ended September 30, 2023 and 2022, engineering, design and development expenses were $234 and $208, respectively, an increase of 13%, or $26,$7, and increased as a percentage of total revenue. The increase for the three month period was driven by cloud hosting costs, partially offset by lower personnel-related costs. The increase for the nine month period was driven by higher personnel-related and cloud hosting and personnel-related costs.
We expectanticipate engineering, design and development expenses to increase as we continue to develop our infrastructure, products and services.remain relatively flat.
General and Administrative primarily consists of compensation and related costs for personnel and facilities, and includes costs related to our finance, legal, human resources and information technologies departments.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, general and administrative expenses were $119$115 and $132,$147, respectively, a decrease of 10%22%, or $13,$32, and decreased as a percentage of total revenue. For the nine months ended September 30, 2023 and 2022, general and administrative expenses were $421 and $382, respectively, an increase of 10%, or $39, and increased as a percentage of total revenue. The decrease for the three month period was primarily driven by lower personnel-related costs attributed to our share-based compensation plan and lower consulting costs. The increase for the nine month period was primarily driven by increased legal costs, including amounts associated with the settlement of certain litigation matters of $24 during the three months ended June 30, 2023, as well as higher personnel-related benefits attributed to our Deferred Compensation Plan.lower legal costs resulting from litigation insurance recoveries and reduced legal reserves.
We expect our general and administrative expenses to decrease due to lower legal costs in addition to insurance recoveries associated with litigation as well as lower personnel-related costs driven by lower personnel-related costs.cost optimization efforts implemented in 2023 and 2024.
Depreciation and Amortization represents the recognition in earnings of the cost of assets used in operations, including our satellite constellations, property, equipment and intangible assets, over their estimated service lives.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, depreciation and amortization expense was $130$140 and $134, respectively. For the nine months ended September 30, 2023 and 2022, depreciation and amortization expense was $405 and $404,$136, respectively. The decrease for the three month periodincrease was driven by lower amortization related to our intangible assets, partially offset by increases in capitalized software and hardware. The increase for the nine month period was driven by increases inassociated with capitalized software and hardware.
Impairment, Restructuring and Acquisition Costs represents impairment charges, net of insurance recoveries, associated with the carrying amount of an asset exceeding the asset's fair value, restructuring expenses associated with the abandonment of certain leased office spaces as well as employee severance charges associated with organizational changes, and acquisition costs.
For the three months ended September 30, 2023 and 2022, impairment, restructuring and acquisition costs were $5 and $69, respectively. For the nine months ended September 30, 2023 and 2022, impairment, restructuring and acquisition costs were $56 and $70, respectively. During the three months ended September 30, 2023, we recorded restructuring related costs and impairments of $5. During the nine months ended September 30, 2023, we recorded a charge of $31 primarily related to severance and other related costs, impairments primarily related to terminated software projects of $15, vacated office space impairments of $5, accrued expenses of $2 for which we will not recognize any future benefits, and a cost-method investment impairment of $2. During the three and nine months ended September 30, 2022, we recorded an impairment of $43 associated with terminated software projects, $16 related to certain vacated office spaces, $4 in connection with furniture and equipment located at the impaired office spaces, and $5 related to personnel severance. Acquisition related costs were $1 and $2 during the three and nine months ended September 30, 2022, respectively.
For the three months ended March 31, 2024 and 2023, impairment, restructuring and acquisition costs were $28 and $32, respectively. During the three months ended March 31, 2024, we recorded costs associated with the Transactions of $15, a charge of $12 associated with severance and other employee costs, and impairments, primarily related to terminated software projects of $1. During the three months ended March 31, 2023, we recorded a charge of $23 associated with severance and other employee costs and $9 primarily related to a vacated office space.
Other (Expense) Income
Interest Expense includes interest on outstanding debt.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, interest expense was $106$104 and $107, respectively. For the nine months ended September 30, 2023 and 2022, interest expense was $319 and $314, respectively. The decrease for the three month period was driven by higher capitalized interest and a lower average outstanding debt balance, partially offset by higher interest rates driven byunder our the Credit Facility and Incremental Term Loan. The increase for the nine month period was driven by higher rates driven by the Credit Facility and Incremental Term Loan, partially offset by a lower average outstanding debt balance.
Other ExpenseIncome primarily includes realized and unrealized gains and losses from our Deferred Compensation Plan and other investments, interest and dividend income, our share of the income or loss from equity investments in Sirius XM Canada and SoundCloud, and transaction costs related to non-operating investments.
For each of the three months ended September 30,March 31, 2024 and 2023, other income was $12 and 2022, other expense was $3. For the nine months ended September 30, 2023 and 2022, other expense was $0 and $5,$3, respectively. For the three and nine months ended September 30,March 31, 2024, we recorded our share of Sirius XM Canada's net income as well as trading gains associated with the investments held for our Deferred Compensation Plan. For the three months ended March 31, 2023, we recorded trading gains associated with the investments held for our Deferred Compensation Plan as well as our share of Sirius XM Canada's net income, partially offset by our share of SoundCloud's net losses. For the three months ended September 30, 2022, we recorded trading losses associated with the investments held for our Deferred Compensation Plan as well as our share of Sirius XM Canada's and SoundCloud's net losses. For the nine months ended September 30, 2022, we recorded trading losses associated with the investments held for our Deferred Compensation Plan, partially offset by our share of Sirius XM Canada's net income and interest earned on our loan to Sirius XM Canada.
Income Taxes
Income Tax Expense includes the change in our deferred tax assets, current federal and state tax expenses, and foreign withholding taxes.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, income tax expense was $92$80 and $110, respectively. For the nine months ended September 30, 2023 and 2022, income tax expense was $230 and $307,$75, respectively.
Our effective tax rate for the three months ended September 30,March 31, 2024 and 2023 was 23.2% and 2022 was 20.2% and 30.8%, respectively. Our effective tax rate for the nine months ended September 30, 2023 and 2022 was 20.2% and 26.6%24.4%, respectively. The effective tax rate for each of the three months ended September 30,March 31, 2024 and March 31, 2023 was primarily impacted by benefits related to certain tax credits partially offset by shortfalls related to share-based compensation. The effective tax rate for the nine months ended September 30, 2023 was primarily impacted by the release of valuation reserves against state net operating losses we now expect to utilize and benefits related to certain tax credits partially offset by shortfalls related to share-based compensation. The effective tax rate for the three and nine months ended September 30, 2022 was negatively impacted as a result of the expected expiration of certain state and local net operating losses, partially offset by the recognition of excess tax benefitsshortfalls related to share-based compensation. We estimate our effective tax rate for the year ending December 31, 20232024 will be approximately 21%22%.
Key Financial and Operating Performance Metrics
In this section, we present certain financial performance measures, some of which are presented as Non-GAAP items, which include free cash flow and adjusted EBITDA. We also present certain operating performance measures. Our adjusted EBITDA excludes the impact of share-based payment expense. Additionally, when applicable, our adjusted EBITDA metric excludes the effect of significant items that do not relate to the on-going performance of our business. We use these Non-GAAP financial and operating performance measures to manage our business, to set operational goals and as a basis for determining performance-based compensation for our employees. See the accompanying Glossary for more details and for the reconciliation to the most directly comparable GAAP measure (where applicable).
We believe these Non-GAAP financial and operating performance measures provide useful information to investors regarding our financial condition and results of operations. We believe these Non-GAAP financial and operating performance measures may be useful to investors in evaluating our core trends because they provide a more direct view of our underlying costs. We believe investors may use our adjusted EBITDA to estimate our current enterprise value and to make investment decisions. We believe free cash flow provides useful supplemental information to investors regarding our cash available for future subscriber acquisitions and capital expenditures, to repurchase or retire debt, to acquire other companies and our ability to return capital to stockholders. By providing these Non-GAAP financial and operating performance measures, together with the reconciliations to the most directly comparable GAAP measure (where applicable), we believe we are enhancing investors' understanding of our business and our results of operations.
Our Non-GAAP financial measures should be viewed in addition to, and not as an alternative for or superior to, our reported results prepared in accordance with GAAP. In addition, our Non-GAAP financial measures may not be comparable to similarly-titled measures by other companies. Please refer to the Glossary for a further discussion of such Non-GAAP financial and operating performance measures and reconciliations to the most directly comparable GAAP measure (where applicable). Subscribers and subscription related revenues and expenses associated with our connected vehicle services and Sirius XM Canada are not included in Sirius XM's subscriber count or subscriber-based operating metrics. Subscribers to Cloud Cover are not included in Pandora's subscriber count.
Set forth below are our subscriber balances as of September 30, 2023March 31, 2024 compared to September 30, 2022.March 31, 2023.
| | As of September 30, | | 2023 vs 2022 Change | |
| As of March 31, | |
| As of March 31, | |
| As of March 31, | |
(subscribers in thousands) | |
(subscribers in thousands) | |
(subscribers in thousands) | (subscribers in thousands) | 2023 | | 2022 | | | Amount | | % | |
Sirius XM | Sirius XM | | | | | | | | | |
Sirius XM | |
Sirius XM | |
Self-pay subscribers | |
Self-pay subscribers | |
Self-pay subscribers | Self-pay subscribers | 31,811 | | | 32,224 | | | | (413) | | | (1) | % | |
Paid promotional subscribers | Paid promotional subscribers | 2,158 | | | 1,946 | | | | 212 | | | 11 | % | |
Paid promotional subscribers | |
Paid promotional subscribers | |
Ending subscribers | |
Ending subscribers | |
Ending subscribers | Ending subscribers | 33,969 | | | 34,170 | | | | (201) | | | (1) | % | |
| Sirius XM Canada subscribers | Sirius XM Canada subscribers | 2,661 | | | 2,563 | | | | 98 | | | 4 | % | |
| Sirius XM Canada subscribers | |
| Sirius XM Canada subscribers | |
| Pandora and Off-platform | |
| Pandora and Off-platform | |
| Pandora and Off-platform | Pandora and Off-platform | | | | |
Monthly active users - all services | Monthly active users - all services | 46,500 | | | 48,769 | | | | (2,269) | | | (5) | % | |
Monthly active users - all services | |
Monthly active users - all services | |
Self-pay subscribers | Self-pay subscribers | 6,117 | | | 6,267 | | | | (150) | | | (2) | % | |
Paid promotional subscribers | — | | | — | | | | — | | | nm | |
Ending subscribers | 6,117 | | | 6,267 | | | | (150) | | | (2) | % | |
Self-pay subscribers | |
Self-pay subscribers | |
|
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The following table contains our Non-GAAP financial and operating performance measures which are based on our adjusted results of operations for the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
| | | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | 2023 vs 2022 Change | |
(subscribers in thousands) | |
| (subscribers in thousands) | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | Three Months | | Nine Months | |
(subscribers in thousands) | (subscribers in thousands) | | | Amount | | % | | Amount | | % | |
Sirius XM | Sirius XM | | | | | | | | | | | | | | | | | |
Sirius XM | |
Sirius XM | |
Self-pay subscribers | |
Self-pay subscribers | |
Self-pay subscribers | Self-pay subscribers | (96) | | | 187 | | | (575) | | | 186 | | | | (283) | | | (151) | % | | (761) | | | nm | |
Paid promotional subscribers | Paid promotional subscribers | 2 | | | (49) | | | 239 | | | (48) | | | | 51 | | | 104 | % | | 287 | | | nm | |
Paid promotional subscribers | |
Paid promotional subscribers | |
Net additions | |
Net additions | |
Net additions | Net additions | (94) | | | 138 | | | (336) | | | 138 | | | | (232) | | | (168) | % | | (474) | | | nm | |
Weighted average number of subscribers | Weighted average number of subscribers | 34,000 | | | 34,076 | | | 34,044 | | | 33,977 | | | | (76) | | | — | % | | 67 | | | — | % | |
Weighted average number of subscribers | |
Weighted average number of subscribers | |
Average self-pay monthly churn | |
Average self-pay monthly churn | |
Average self-pay monthly churn | Average self-pay monthly churn | 1.6 | % | | 1.5 | % | | 1.6 | % | | 1.6 | % | | | 0.1 | % | | 7 | % | | — | % | | — | % | |
ARPU (1) | ARPU (1) | $ | 15.69 | | | $ | 15.72 | | | $ | 15.54 | | | $ | 15.63 | | | | $ | (0.03) | | | — | % | | $ | (0.09) | | | (1) | % | |
ARPU (1) | |
ARPU (1) | |
SAC, per installation | |
SAC, per installation | |
SAC, per installation | SAC, per installation | $ | 12.46 | | | $ | 12.73 | | | $ | 13.53 | | | $ | 13.87 | | | | $ | (0.27) | | | (2) | % | | $ | (0.34) | | | (2) | % | |
| Pandora and Off-platform | Pandora and Off-platform | | | | |
| Pandora and Off-platform | |
| Pandora and Off-platform | |
Self-pay subscribers | Self-pay subscribers | (112) | | | (52) | | | (98) | | | (57) | | | | (60) | | | (115) | % | | (41) | | | (72) | % | |
Paid promotional subscribers | — | | | — | | | — | | | (69) | | | | — | | | nm | | 69 | | | nm | |
Self-pay subscribers | |
Self-pay subscribers | |
| Net additions | Net additions | (112) | | | (52) | | | (98) | | | (126) | | | | (60) | | | (115) | % | | 28 | | | 22 | % | |
| Net additions | |
| Net additions | |
Weighted average number of subscribers | |
Weighted average number of subscribers | |
Weighted average number of subscribers | Weighted average number of subscribers | 6,188 | | | 6,292 | | | 6,195 | | | 6,320 | | | | (104) | | | (2) | % | | (125) | | | (2) | % | |
| Ad supported listener hours (in billions) | Ad supported listener hours (in billions) | 2.64 | | | 2.75 | | | 7.95 | | | 8.28 | | | | (0.11) | | | (4) | % | | (0.33) | | | (4) | % | |
| Ad supported listener hours (in billions) | |
| Ad supported listener hours (in billions) | |
Advertising revenue per thousand listener hours (RPM) | |
Advertising revenue per thousand listener hours (RPM) | |
Advertising revenue per thousand listener hours (RPM) | Advertising revenue per thousand listener hours (RPM) | $ | 104.33 | | | $ | 103.32 | | | $ | 95.61 | | | $ | 97.70 | | | | $ | 1.01 | | | 1 | % | | $ | (2.09) | | | (2) | % | |
| Total Company | Total Company | | | | |
| Total Company | |
| Total Company | |
Adjusted EBITDA | |
Adjusted EBITDA | |
Adjusted EBITDA | Adjusted EBITDA | $ | 747 | | | $ | 720 | | | $ | 2,075 | | | $ | 2,091 | | | | $ | 27 | | | 4 | % | | $ | (16) | | | (1) | % | |
Free cash flow | Free cash flow | $ | 291 | | | $ | 329 | | | $ | 758 | | | $ | 1,022 | | | | $ | (38) | | | (12) | % | | $ | (264) | | | (26) | % | |
Free cash flow | |
Free cash flow | |
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(1) ARPU for Sirius XM excludes subscriber revenue from our connected vehicle services of $39$41 and $46$39 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $121 and $141 for the nine months ended September 30, 2023 and 2022, respectively.
Sirius XM
Subscribers. At September 30, 2023,March 31, 2024, Sirius XM had approximately 33,96933,430 subscribers, a decrease of 201,594, from the approximately 34,17034,024 subscribers as of September 30, 2022. The decrease was due to a decrease in ourMarch 31, 2023. Our self-pay subscriber base resulting fromdeclined as a result of lower vehicle conversion rates and higher vehicle related churn, partially offset by an increaseand we saw a decrease in paid promotional subscribers generated by vehicle sales.as certain automakers transitioned from paid promotional subscriptions to unpaid.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, net subscriber additions were (94)(445) and 138, respectively. For the nine months ended September 30, 2023 and 2022,(281), respectively, a decrease of 164. Paid promotional net subscriber additions were (336) and 138, respectively.decreased 152 as certain automakers transitioned from paid promotional subscriptions to unpaid. Self-pay net additions decreased as a result of12 primarily due to higher vehicle-related churn, and lower conversion rates, partially offset by higher new and used vehicletrial conversion rates, unfavorable vehicle related churn and lower streaming net additions, partially offset by lower non-pay churn. Paid promotional net additions increased generated by higher vehicle sales.opportunities.
Sirius XM Canada Subscribers. At September 30, 2023,March 31, 2024, Sirius XM Canada had approximately 2,6612,600 subscribers, an increase of 98,13, or 4%1%, from the approximately 2,5632,587 Sirius XM Canada subscribers as of September 30, 2022.March 31, 2023.
Average Self-pay Monthly Churn is derived by dividing the monthly average of self-pay deactivations for the period by the average number of self-pay subscribers for the period. (See accompanying Glossary for more details.)
For the three months ended September 30,March 31, 2024 and 2023, and 2022, our average self-pay monthly churn rate was 1.6%1.7% and 1.5%1.6%, respectively. The increase was primarily driven by higher vehicle related churn, partially offset by lower non-pay churn. For each of the nine months ended September 30, 2023 and 2022, our average self-pay monthly churn rate was 1.6%. Higher vehicle related churn was offset by lower non-pay churn.
ARPU is derived from total earned Sirius XM subscriber revenue (excluding revenue derived from our connected vehicle services) and net advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. (See the accompanying Glossary for more details.)
For the three months ended September 30,March 31, 2024 and 2023, ARPU was $15.36 and 2022, subscriber ARPU - Sirius XM was $15.69 and $15.72, respectively. For the nine months ended September 30, 2023 and 2022, subscriber ARPU - Sirius XM was $15.54 and $15.63,$15.29, respectively. The decreases wereincrease was driven by increases in certain subscription rates, partially offset by an increase in subscribers on promotional and streaming-only self-pay subscription plans and a reduction in rates associated with paid promotional plans from automakers as well as lower advertising revenue; partially offset by increases in certain subscription rates.automakers.
SAC, Per Installation, is derived from subscriber acquisition costs and margins from the sale of radios, components and accessories (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. (See the accompanying Glossary for more details.)
For the three months ended September 30,March 31, 2024 and 2023, and 2022, SAC, per installation, was $12.46$12.50 and $12.73, respectively. For the nine months ended September 30, 2023 and 2022, SAC, per installation, was $13.53 and $13.87,$14.39, respectively. The decreases weredecrease was driven by a decrease in chipset costs and change in the mix of OEMs.automakers including satellite radios in their vehicles.
Pandora and Off-platform
Monthly Active Users. At September 30, 2023,March 31, 2024, Pandora had approximately 46,50045,023 monthly active users, a decrease of 2,2691,640 monthly active users, or 5%4%, from the 48,76946,663 monthly active users as of September 30, 2022.March 31, 2023. The decrease in monthly active users was driven by churn and a decline in the number of new users.
Subscribers. At September 30, 2023,March 31, 2024, Pandora had approximately 6,1175,944 subscribers, a decrease of 150,278, or 2%4%, from the approximately 6,2676,222 subscribers as of September 30, 2022.March 31, 2023.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, net subscriber additions were (112)(64) and (52), respectively. For the nine months ended September 30, 2023 and 2022, net subscriber additions were (98) and (126),7, respectively. The decreasesdecrease in ending subscribers werewas driven by decreases in trial starts and lower retention due to certain price increases.
Ad supported listener hours are a key indicator of our Pandora business and the engagement of our Pandora listeners. We include ad supported listener hours related to Pandora's non-music content offerings in the definition of listener hours.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, ad supported listener hours were 2,6372,485 and 2,750,2,586, respectively, a decrease of 4%, or 113. For the nine months ended September 30, 2023 and 2022, ad supported listener
hours were 7,952 and 8,280, respectively, a101. The decrease of 4%, or 328. The decreases in ad supported listener hours werewas primarily driven by the decline in monthly active users, partially offset by increased hours per active user.
RPM is a key indicator of our ability to monetize advertising inventory created by our listener hours on the Pandora services. Ad RPM is calculated by dividing advertising revenue by the number of thousands of listener hours of our Pandora advertising-based service.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, RPM was $104.33$90.88 and $103.32, respectively. For the nine months ended September 30, 2023 and 2022, RPM was $95.61 and $97.70,$85.09, respectively. The increase for the three month period was driven by an increasegrowth in advertisements sold per hour. The decrease for the nine month period was primarily driven by a decline in higher priced advertisements sold, partially offset by a slight increase in advertisements sold per hour.programmatic demand.
Total Company
Adjusted EBITDA. Adjusted EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization. Adjusted EBITDA excludes the impact of other expense (income), loss on extinguishment of debt, impairment, restructuring and acquisition costs, other non-cash charges such as share-based payment expense, and legal settlements and reserves (if applicable). (See the accompanying Glossary for a reconciliation to GAAP and for more details.)
For the three months ended September 30,March 31, 2024 and 2023, and 2022, adjusted EBITDA was $747$650 and $720,$625, respectively, an increase of 4%, or $27. For the nine months ended September 30, 2023 and 2022, adjusted EBITDA was $2,075 and $2,091, respectively, a decrease of 1%, or $16.$25. The increase for the three month period was primarily driven by higher advertising revenue and lower salesgeneral and marketing costs, partially offset by higher revenue share and royalties. The decrease for the nine month period was driven by lower revenue combined with higher revenue share and royalties due to podcast minimum guarantees and streaming rates,administrative expenses, partially offset by lower sales and marketing costs.subscriber revenue.
Free Cash Flow includes cash provided by operations, net of additions to property and equipment, and restricted and other investment activity. (See the accompanying Glossary for a reconciliation to GAAP and for more details.)
For the three months ended September 30,March 31, 2024 and 2023, and 2022, free cash flow was $291$132 and $329,$144, respectively, a decrease of 12%8%, or $38. For the nine months ended September 30, 2023 and 2022, free cash flow was $758 and $1,022, respectively, a decrease of 26%, or $264.$12. The decrease for the three month period was primarily driven by an increase in satellite capital expenditures. The decrease for the nine month period was primarily driven by higher content and other vendor payments, partially offset by lower capital expenditures and higher cash taxes paid and increases in satellite capital expenditures.receipts.
Liquidity and Capital Resources
The following table presents a summary of our cash flow activity for the ninethree months ended September 30, 2023March 31, 2024 compared with the ninethree months ended September 30, 2022.March 31, 2023.
| | For the Nine Months Ended September 30, | | |
| 2023 | | 2022 | | | 2023 vs 2022 | |
| For the Three Months Ended March 31, | |
| For the Three Months Ended March 31, | |
| For the Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
Net cash provided by operating activities | |
Net cash provided by operating activities | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 1,279 | | | $ | 1,300 | | | | $ | (21) | | |
Net cash used in investing activities | Net cash used in investing activities | (554) | | | (415) | | | | (139) | | |
Net cash used in investing activities | |
Net cash used in investing activities | |
Net cash used in financing activities | |
Net cash used in financing activities | |
Net cash used in financing activities | Net cash used in financing activities | (729) | | | (1,036) | | | | 307 | | |
Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | (4) | | | (151) | | | | 147 | | |
Net decrease in cash, cash equivalents and restricted cash | |
Net decrease in cash, cash equivalents and restricted cash | |
Cash, cash equivalents and restricted cash at beginning of period | |
Cash, cash equivalents and restricted cash at beginning of period | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 65 | | | 199 | | | | (134) | | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 61 | | | $ | 48 | | | | $ | 13 | | |
Cash, cash equivalents and restricted cash at end of period | |
Cash, cash equivalents and restricted cash at end of period | |
Cash Flows Provided by Operating Activities
Cash flows provided by operating activities decreased by $21$42 to $1,279$308 for the ninethree months ended September 30, 2023March 31, 2024 from $1,300$350 for the ninethree months ended September 30, 2022.March 31, 2023.
Our largest source of cash provided by operating activities is cash generated by subscription and subscription-related revenues. We also generate cash from the sale of advertising through our Pandora and Off-platform business, advertising on certain non-music channels on Sirius XM and the sale of satellite radios, components and accessories. Our primary uses of cash from operating activities include revenue share and royalty payments to distributors, programming and content providers, and payments to radio manufacturers, distributors and automakers. In addition, uses of cash from operating activities include payments to
vendors to service, maintain and acquire listeners and subscribers, general corporate expenditures, and compensation and related costs.
Cash Flows Used in Investing Activities
Cash flows used in investing activities in the ninethree months ended September 30, 2023March 31, 2024 were primarily due to spending for capitalized software and hardware, the construction of satellites and acquisitions of tax-effective investments for total cash consideration of $33.$187. Cash flows used in investing activities in the ninethree months ended September 30, 2022March 31, 2023 were primarily due to spending for capitalized software and hardware, the construction of satellites and an acquisitionacquisitions of tax-effective equity investments for total cash consideration of $136.$29. We spent $212$89 and $187$62 on capitalized software and hardware as well as $261$76 and $64$127 to construct satellites during the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
Cash Flows Used in Financing Activities
Cash flows used in financing activities consists of the issuance and repayment of long-term debt, the purchase of common stock under our share repurchase program, the payment of cash dividends and taxes paid in lieu of shares issued for stock-based compensation. Proceeds from long-term debt have been used to fund our operations, construct and launch new satellites, fund acquisitions, invest in other infrastructure improvements and purchase shares of our common stock.
Cash flows used in financing activities in the ninethree months ended September 30, 2023March 31, 2024 were primarily due to repayments under our Credit Facility of $200, the payment of cash dividends of $281,$102, and payment of $14 for taxes in lieu of shares issued for share-based compensation, partially offset by borrowings under our Credit Facility of $230. Cash flows used in financing activities in the three months ended March 31, 2023 were primarily due to repayments under our Credit Facility of $418, the payment of cash dividends of $94, the repurchase of $173$75 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2023, the purchase and retirement of shares of our common stock under our repurchase program for $274,$62, and payment of $50$14 for taxes in lieu of shares issued for share-based compensation, partially offset by net borrowings under our Credit Facility of $55. Cash flows used in financing activities in the nine months ended September 30, 2022 were primarily due to the payment of cash dividends of $1,245, the purchase and retirement of shares of our common stock under our repurchase program for $599, and payment of $102 for taxes in lieu of shares issued for share-based compensation, partially offset by net borrowings under our Credit Facility of $421 and an amendment to our Credit Facility to incorporate an Incremental Term Loan borrowing of $500 ($499 net of costs) which matures on April 11, 2024.$548.
Future Liquidity and Capital Resource Requirements
Based upon our current business plans, we expect to fund operating expenses, capital expenditures, including the construction of replacement satellites, working capital requirements, interest payments, taxes and scheduled maturities of our debt with existing cash, cash flow from operations and borrowings under our Credit Facility. As of September 30, 2023, $135 wasMarch 31, 2024, $30 of borrowings were outstanding under our Credit Facility and $1,615$1,720 was available for future borrowing under our Credit Facility. We believe that we have sufficient cash and cash equivalents, as well as debt capacity, to cover our estimated short-termshort- and long-term funding needs, including amounts to construct, launch and insure replacement satellites, as well as fund future stock repurchases, future dividend payments and to pursue strategic opportunities.
Our ability to meet our debt and other obligations depends on our future operating performance and on economic, financial, competitive and other factors.
We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and significantly change our cash requirements. These changes in our business plans or strategy may include: the acquisition of unique or compelling programming; the development and introduction of new features or services; significant new or enhanced distribution arrangements; investments in infrastructure, such as satellites, equipment or radio spectrum; and acquisitions and investments, including acquisitions and investments that are not directly related to our existing business.
We may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
We have made, and expect to continue to make, certain tax-efficient investments in clean energy technologies, including industrial carbon capture and storage. These investments will produce tax credits and related tax losses. Over the next seven years, we currently expect to generate more than $250 million in net-after tax cash benefit. The payments on these equity investments will be classified as investing activities from a cash flow perspective, while the tax credits and losses will benefit our federal cash taxes in operating activities.
Capital Return Program
As of September 30, 2023,March 31, 2024, our board of directors had authorized for repurchase an aggregate of $18,000 of our common stock. As of September 30, 2023,March 31, 2024, our cumulative repurchases since December 2012 under our stock repurchase program totaled 3,731 shares for $16,834, and $1,166 remained available for additional repurchases under our existing stock repurchase program authorization.
Shares of common stock may be purchased from time to time on the open market and in privately negotiated transactions, including in accelerated stock repurchase transactions and transactions with Liberty Media and its affiliates. We intend to fund the additional repurchases through a combination of cash on hand, cash generated by operations and future borrowings. The size and timing of any purchases will be based on a number of factors, including price and business and market conditions.
On October 25, 2023,April 24, 2024, our board of directors declared a quarterly dividend on our common stock in the amount of $0.0266 per share of common stock payable on NovemberMay 29, 20232024 to stockholders of record as of the close of business on November 7, 2023.May 10, 2024.
Debt Covenants
The indentures governing Sirius XM's senior notes and Pandora's convertible notes and the agreement governing the Sirius XM Credit Facility include restrictive covenants. As of September 30, 2023,March 31, 2024, we were in compliance with such covenants. For a discussion of our “Debt Covenants,” refer to Note 1211 to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We do not have any significant off-balance sheet arrangements other than those disclosed in Note 1514 to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Contractual Cash Commitments
For a discussion of our “Contractual Cash Commitments,” refer to Note 1514 to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q.
Related Party Transactions
For a discussion of “Related Party Transactions,” refer to Note 1110 to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
For a discussion of our “Critical Accounting Policies and Estimates,” refer to “Management's Discussion and Analysis of
Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
2023. There have been no material changes to our critical accounting policies and estimates since December 31, 2022.2023.
Glossary
Monthly active users - the number of distinct registered users on the Pandora services, including subscribers, which have consumed content within the trailing 30 days to the end of the final calendar month of the period. The number of monthly active users on the Pandora services may overstate the number of unique individuals who actively use our Pandora service, as one individual may use multiple accounts. To become a registered user on the Pandora services, a person must sign-up using an email address or access our service using a device with a unique identifier, which we use to create an account for our service.
Average self-pay monthly churn - for satellite-enabled subscriptions, the Sirius XM monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period.
Adjusted EBITDA - EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization. Adjusted EBITDA is a Non-GAAP financial measure that excludes or adjusts for the impact of other expense (income), loss on extinguishment of debt, impairment, restructuring and acquisition costs, costs associated with the Transactions, other non-cash charges such as share-based payment expense, and legal settlements and reserves (if applicable). We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our past operating performance with our current
performance and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use adjusted EBITDA to estimate our current enterprise value and to make investment decisions. As a result of large capital investments in our satellite radio system, our results of operations reflect significant charges for depreciation expense. We believe the exclusion of share-based payment expense is useful as it is not directly related to the operational conditions of our business. We also believe the exclusion of the legal settlements and reserves, impairment, restructuring and acquisition related costs, to the extent they occur during the period, is useful as they are significant expenses not incurred as part of our normal operations for the period.
Adjusted EBITDA has certain limitations in that it does not take into account the impact to our consolidated statements of comprehensive income of certain expenses, including share-based payment expense. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure. Investors that wish to compare and evaluate our operating results after giving effect for these costs should refer to net income as disclosed in our unaudited consolidated statements of comprehensive income. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income to the adjusted EBITDA is calculated as follows:
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | | | 2024 | |
Net income: | |
Net income: | |
Net income: | Net income: | $ | 363 | | | $ | 247 | | | $ | 906 | | | $ | 848 | | |
Add back items excluded from Adjusted EBITDA: | Add back items excluded from Adjusted EBITDA: | | |
Legal settlements and reserves | — | | | — | | | 24 | | | — | | |
Add back items excluded from Adjusted EBITDA: | |
Add back items excluded from Adjusted EBITDA: | |
| Impairment, restructuring and acquisition costs | |
| Impairment, restructuring and acquisition costs | |
| Impairment, restructuring and acquisition costs | Impairment, restructuring and acquisition costs | 5 | | | 69 | | | 56 | | | 70 | | |
Share-based payment expense (1) | Share-based payment expense (1) | 48 | | | 50 | | | 135 | | | 143 | | |
Share-based payment expense (1) | |
Share-based payment expense (1) | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | 130 | | | 134 | | | 405 | | | 404 | | |
| Interest expense | Interest expense | 106 | | | 107 | | | 319 | | | 314 | | |
| Other expense | 3 | | | 3 | | | — | | | 5 | | |
Interest expense | |
| Interest expense | |
| Other income | |
| Other income | |
| Other income | |
Income tax expense | |
Income tax expense | |
Income tax expense | Income tax expense | 92 | | | 110 | | | 230 | | | 307 | | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 747 | | | $ | 720 | | | $ | 2,075 | | | $ | 2,091 | | |
| Adjusted EBITDA | |
| Adjusted EBITDA | |
(1)Allocation of share-based payment expense:
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | | | 2024 | |
Programming and content | |
Programming and content | |
Programming and content | Programming and content | $ | 10 | | | $ | 9 | | | $ | 25 | | | $ | 26 | | |
Customer service and billing | Customer service and billing | 1 | | | 1 | | | 4 | | | 4 | | |
Customer service and billing | |
Customer service and billing | |
Transmission | |
Transmission | |
Transmission | Transmission | 2 | | | 1 | | | 4 | | | 4 | | |
Sales and marketing | Sales and marketing | 13 | | | 13 | | | 33 | | | 39 | | |
Sales and marketing | |
Sales and marketing | |
Engineering, design and development | |
Engineering, design and development | |
Engineering, design and development | Engineering, design and development | 11 | | | 11 | | | 33 | | | 27 | | |
General and administrative | General and administrative | 11 | | | 15 | | | 36 | | | 43 | | |
General and administrative | |
General and administrative | |
Total share-based payment expense | Total share-based payment expense | $ | 48 | | | $ | 50 | | | $ | 135 | | | $ | 143 | | |
Total share-based payment expense | |
Total share-based payment expense | |
Free cash flow - is derived from cash flow provided by operating activities, plus insurance recoveries on our satellites, net of additions to property and equipment and purchases of other investments. Free cash flow is a metric that our management and board of directors use to evaluate the cash generated by our operations, net of capital expenditures and other investment activity. In a capital intensive business, with significant investments in satellites, we look at our operating cash flow, net of these investing cash outflows, to determine cash available for future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders. We exclude from free cash flow certain items that do not relate to the on-going performance of our business, such as cash flows related to acquisitions, strategic and short-term investments, andincluding tax efficient investments in clean energy as well as net loan activity with related parties and other equity investees. We believe free cash flow is an indicator of the long-term financial stability of our business. Free cash flow, which is reconciled to “Net cash provided by operating activities,” is a Non-GAAP financial measure. This measure can be calculated by deducting amounts under the captions “Additions to property and equipment” and deducting or adding Restricted and other investment activity from “Net cash provided by operating activities” from the unaudited consolidated statements of cash flows. Free cash flow should be used in conjunction with other GAAP financial performance measures and may not be comparable to free cash flow measures presented by other companies. Free cash flow should be viewed as a supplemental measure rather than an alternative measure of cash flows from operating activities, as determined in accordance with GAAP. Free cash flow is limited and does not represent remaining cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt maturities. We believe free cash flow provides useful supplemental information to investors regarding our current cash flow, along with other GAAP measures (such as cash flows from operating and investing activities), to determine our financial condition, and to compare our operating performance to other communications, entertainment and media companies. Free cash flow is calculated as follows:
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | | | 2024 | |
Cash Flow information | |
Cash Flow information | |
Cash Flow information | Cash Flow information | | | | | | | | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 478 | | | $ | 412 | | | $ | 1,279 | | | $ | 1,300 | | |
Net cash provided by operating activities | |
Net cash provided by operating activities | |
Net cash used in investing activities | |
Net cash used in investing activities | |
Net cash used in investing activities | Net cash used in investing activities | (189) | | | (82) | | | (554) | | | (415) | | |
Net cash used in financing activities | Net cash used in financing activities | (287) | | | (416) | | | (729) | | | (1,036) | | |
Net cash used in financing activities | |
Net cash used in financing activities | |
Free Cash Flow | |
Free Cash Flow | |
Free Cash Flow | Free Cash Flow | | |
Net cash provided by operating activities | Net cash provided by operating activities | 478 | | | 412 | | | 1,279 | | | 1,300 | | |
Net cash provided by operating activities | |
Net cash provided by operating activities | |
Additions to property and equipment | Additions to property and equipment | (187) | | | (83) | | | (520) | | | (279) | | |
Additions to property and equipment | |
Additions to property and equipment | |
Purchases of other investments | |
Purchases of other investments | |
Purchases of other investments | Purchases of other investments | — | | | — | | | (1) | | | 1 | | |
| Free cash flow | Free cash flow | $ | 291 | | | $ | 329 | | | $ | 758 | | | $ | 1,022 | | |
| Free cash flow | |
| Free cash flow | |
ARPU - Sirius XM ARPU is derived from total earned subscriber revenue (excluding revenue associated with our connected vehicle services) and advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period.
Subscriber acquisition cost, per installation - or SAC, per installation, is derived from subscriber acquisition costs less margins from the sale of radios and accessories (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. SAC, per installation, is calculated as follows:
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | |
| 2023 | | 2022 | | 2023 | | 2022 | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | For the Three Months Ended March 31, | |
| | | | | 2024 | |
| | | | | 2024 | |
| | | | | 2024 | |
Subscriber acquisition costs, excluding connected vehicle services | |
Subscriber acquisition costs, excluding connected vehicle services | |
Subscriber acquisition costs, excluding connected vehicle services | Subscriber acquisition costs, excluding connected vehicle services | $ | 87 | | | $ | 86 | | | $ | 270 | | | $ | 267 | | |
Less: margin from sales of radios and accessories, excluding connected vehicle services | Less: margin from sales of radios and accessories, excluding connected vehicle services | (46) | | | (46) | | | (132) | | | (139) | | |
| $ | 41 | | | $ | 40 | | | $ | 138 | | | $ | 128 | | |
Less: margin from sales of radios and accessories, excluding connected vehicle services | |
Less: margin from sales of radios and accessories, excluding connected vehicle services | |
| | | | | $ | |
| | | | | $ | |
| | | | | $ | |
Installations (in thousands) | |
Installations (in thousands) | |
Installations (in thousands) | Installations (in thousands) | 3,313 | | | 3,162 | | | 10,214 | | | 9,260 | | |
SAC, per installation (a) | SAC, per installation (a) | $ | 12.46 | | | $ | 12.73 | | | $ | 13.53 | | | $ | 13.87 | | |
SAC, per installation (a) | |
SAC, per installation (a) | |
(a)Amounts may not recalculate due to rounding.
Ad supported listener hours - is based on the total bytes served over our Pandora advertising supported platforms for each track that is requested and served from our Pandora servers, as measured by our internal analytics systems, whether or not a listener listens to the entire track. For non-music content such as podcasts, episodes are divided into approximately track-length parts, which are treated as tracks. To the extent that third-party measurements of advertising hours are not calculated using a similar server-based approach, the third-party measurements may differ from our measurements.
RPM - is calculated by dividing advertising revenue, excluding AdsWizz and other off-platform revenue, by the number of thousands of listener hours on our Pandora advertising-based service.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
As of September 30, 2023,March 31, 2024, we did not hold or issue any free-standing derivatives. We hold investments in money market funds and certificates of deposit. These securities are consistent with the objectives contained within our investment policy. The basic objectives of our investment policy are the preservation of capital, maintaining sufficient liquidity to meet operating requirements and maximizing yield.
Our debt includes fixed rate instruments and the fair market value of our debt is sensitive to changes in interest rates. Sirius XM’s borrowings under the Credit Facility carry a variable interest rate. Sirius XM’s borrowings under the Credit Facility carry a variable interest rate. From and after July 1, 2023, Sirius XMXM's borrowings are based on the Secured Overnight Financing Rate plus an applicable rate based on its debt to operating cash flow ratio. We may, in the future, hedge against interest rate fluctuations by using hedging instruments such as swaps, caps, options, forwards, futures or other similar products. These instruments may be used to selectively manage risks, but there can be no assurance that we will be fully protected against material interest rate fluctuations.
ITEM 4. CONTROLS AND PROCEDURES
Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
As of September 30, 2023,March 31, 2024, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2023.March 31, 2024.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as that term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended September 30, 2023March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of our “Legal Proceedings,” refer to Note 1514 to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in response to Part I, “Item 1A. Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 20222023 which was filed with the Securities and Exchange Commission on February 2, 2023.2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of September 30, 2023,March 31, 2024, our board of directors had approved for repurchase an aggregate of $18.0 billion of our common stock. Our board of directors did not establish an end date for this stock repurchase program. Shares of common stock may be purchased from time to time on the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions, including transactions with Liberty Media and its affiliates, or otherwise. As of September 30, 2023,March 31, 2024, our cumulative repurchases since December 2012 under our stock repurchase program totaled 3.7 billion shares for $16.8 billion, and $1.2 billion remained available under our existing $18.0 billion stock repurchase program. The size and timing of these purchases will be based on a number of factors, including price and business and market conditions.
The following table provides information about ourThere were no purchases of equity securities registered pursuant to Section 12 of the Exchange Act as amended, during the quarter ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid Per Share (a) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a) |
July 1, 2023 - July 31, 2023 | | 2,422,502 | | | $ | 4.65 | | | 2,422,502 | | | $ | 1,227,407,408 | |
August 1, 2023 - August 31, 2023 | | 6,127,426 | | | $ | 4.44 | | | 6,127,426 | | | $ | 1,200,202,114 | |
September 1, 2023 - September 30, 2023 | | 8,110,782 | | | $ | 4.16 | | | 8,110,782 | | | $ | 1,166,487,722 | |
Total | | 16,660,710 | | | $ | 4.33 | | | 16,660,710 | | | |
(a)These amounts include fees and commissions associated with the shares repurchased.March 31, 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
See Exhibit Index attached hereto, which is incorporated herein by reference.
EXHIBIT INDEX
| | | | | | | | | | | | | | |
Exhibit | | Description |
| | |
10.1 | | | Amendment No. 9, dated as of January 26, 2024, to the Credit Agreement, dated as of December 5, 2012, among Sirius XM Radio Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the other agents and lenders parties thereto (incorporated by reference to Exhibit 10.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on January 29, 2024 (File No. 001-34295)). |
| | |
31.1 | | | |
| | |
31.2 | | | |
| | |
32.1 | | | |
| | |
32.2 | | | |
| | |
101.1 | | | The following financial information from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023March 31, 2024 formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2023March 31, 2024 and 2022;2023; (ii) Consolidated Balance Sheets as of September 30, 2023March 31, 2024 (Unaudited) and December 31, 2022;2023; (iii) Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (Unaudited); (iv) Consolidated Statements of Cash Flows (Unaudited) for the ninethree months ended September 30, 2023March 31, 2024 and 2022;2023; and (v) Notes to Consolidated Financial Statements (Unaudited). |
| | | | |
104 | | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023,March 31, 2024, formatted in Inline XBRL. |
____________________
| | | | | |
* | This document has been identified as a management contract or compensatory plan or arrangement. |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document as of the date they were made and may not describe the actual state of affairs for any other purpose or at any other time.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 31st30th day of October 2023.April 2024.
| | | | | | | | |
SIRIUS XM HOLDINGS INC. |
| | |
By: | | /s/ Thomas D. Barry |
| | Thomas D. Barry |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial Officer and Authorized Officer) |