Sirius XM Holdings Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in millions of dollars unless otherwise noted. The company operates SiriusXM and Pandora/Off-platform audio businesses. Liberty Media owned approximately 82% of its shares.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2,253 (+4%) | $2,159 | $4,440 (+5%) | $4,217 |
| Operating income | $496 (-25%) | $658 | $1,006 (+10%) | $912 |
| Net income | $292 (-33%) | $433 | $601 (-8%) | $652 |
| Diluted EPS | $0.07 | $0.10 | $0.15 | $0.16 |
| Adjusted EBITDA | $679 (-3%) | $700 | $1,369 (-1%) | $1,381 |
| Free cash flow | $435 (-21%) | $550 | $693 (-9%) | $761 |
Q2 GAAP operating margin was approximately 22.0%, versus 30.5% a year earlier; net margin was approximately 13.0%, versus 20.1%. The comparison is affected by 2021’s $136 net credit in impairment, restructuring and acquisition costs, including $140 of SXM-7 insurance recoveries. Q2 2022 recorded $1 of such costs.
Revenue growth reflected higher Sirius XM subscriber and advertising revenue, plus Pandora/Off-platform advertising growth. Q2 Sirius XM subscriber revenue rose 5% to $1,588; Pandora/Off-platform advertising revenue rose 5% to $403. Equipment revenue fell 12% to $45, while Pandora/Off-platform subscriber revenue declined 2% to $131.
Cash flow, debt and liquidity
- Six-month operating cash flow was $888, compared with $928 in 2021; capital expenditures were $196. Investing cash outflow was $333, including $137 for acquisitions.
- Cash, cash equivalents and restricted cash totaled $134 at June 30, 2022, including $126 of balance-sheet cash. Long-term debt carrying value was $9,866, up from $8,832 at year-end 2021.
- The company drew $510 on its revolving facility and borrowed $500 under an incremental term loan due in 2024. Of the $1,750 revolving facility, $1,240 remained available. The company reported compliance with debt covenants.
- Financing cash outflow was $620, principally reflecting $1,159 of dividends and $415 of share repurchases, partly offset by borrowings. Dividends included a $987 special dividend. The company reported a $3,579 stockholders’ deficit.
Operating trends, outlook and risks
- Sirius XM ended the quarter with 34.0 million subscribers, down 1% year over year: self-pay subscribers grew 2%, but paid promotional subscribers declined 36%. Pandora had 6.3 million subscribers, down 4%, and 50.5 million monthly active users, down 8%.
- Management cited higher Sirius XM ARPU, advertising, and self-pay subscriber growth as revenue drivers, while flagging higher marketing, content, royalties, and technology costs. Semiconductor shortages and weaker vehicle sales weighed on equipment and promotional subscriber trends. Management expects Sirius XM advertising and Pandora/Off-platform advertising revenue to grow; several other revenue categories were expected to remain relatively flat.
- The filing estimates a 2022 effective tax rate of approximately 25%. It does not provide a clear full-year revenue or adjusted EBITDA forecast. Management said expected funding needs would be met with cash, operating cash flow and facility borrowings, and expressed confidence in short- and long-term liquidity.
- Key risks include competition, subscriber and listener retention, dependence on auto sales and third parties, semiconductor supply issues, satellite failure, content licensing costs, advertising monetization, privacy and cybersecurity, and substantial debt. Variable-rate facility borrowings expose the company to interest-rate and LIBOR-transition uncertainty.
- A pending Pandora lawsuit over pre-1972 sound recordings remains active; the company says it has substantial defenses and intends to defend vigorously. Management reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether self-pay subscriber growth can offset declines in paid promotional subscribers and Pandora listeners.
- Whether revenue growth can absorb higher marketing, programming, royalty and financing costs, and how cash generation develops after the special dividend and buybacks.
- Debt maturities, borrowing costs, revolving-facility capacity and continued covenant compliance.
- Exposure and potential outcome of the pre-1972 recordings litigation, and ongoing content-licensing commitments.
- Capital-return plans: the company had $1,663 remaining under its repurchase authorization at June 30, 2022 and expected regular quarterly dividends, while noting that its dividend policy may change.