Sirius XM Canada Reports Q2 Financial Results

Sirius XM Canada Holdings Inc. parent of Sirius XM Canada Inc., today released unaudited financial results for its fiscal 2024 second quarter  and year-to-date period  ended February 29, 2024 prepared in accordance with International Financial Reporting Standards (IFRS). A summary of IFRS financial results for Q2 and YTD FY2016 is attached. All results are reported in Canadian dollars unless otherwise stated.

Q2 and YTD FY2016 Financial and Operating Metrics

The figures below include certain non-GAAP measures and industry metrics. These figures are subject to the qualification and assumptions set out in the Company’s notes to such results.

¹ All figures in the table above are in thousands except, ARPU and SAC.
² Adjusted EBITDA is a non-GAAP measure. A reconciliation of income (loss) before taxes to both EBITDA and Adjusted EBITDA is provided below.
³ Non-recurring adjustments in FY2016 include the tax reversal of withholding tax expense of $15.9 million. Non-recurring adjustments in FY2015 include a $16.0 million withholding tax expense and a $19.1 million non-cash income tax expense.
⁴ Self-Pay ARPU is derived from the total of earned subscription revenue from Self-Pay subscribers, music royalty fee, and activation fees divided by the monthly weighted average number of Self-Pay subscribers. Please see the Company’s MD&A for a more detailed description.
⁵ Percentage variances/changes are calculated based on the exact numbers, therefore, amounts may not sum as a result of rounding in certain instances.

“Our growth continued into Q2 fiscal 2024, with record Self-Pay subscribers, top-line improvements and healthy Self-Pay churn levels translating into our highest ever quarterly Adjusted EBITDA,” said Mark Redmond, President and CEO SiriusXM Canada. “In the quarter, we added approximately 14,000 net Self-Pay subscribers while also executing on key elements of our long-term strategy. We continued to expand our presence in the pre-owned vehicle market with an increased proportion of our gross additions coming from this channel and also executed an agreement with one of Atlantic Canada’s largest pre-owned dealership chains. We also participated in the pre-launch of Sirius XM 17 at the 2024 Consumer Electronics Show held this past January in Las Vegas, Nevada where we showcased our next-generation platform for audio services that combines satellite radio and two-way LTE connectivity.”

“Looking to the remainder of the fiscal year, we continue to face a challenging consumer spending environment in Alberta, but we remain confident in our ability to deliver moderate subscriber and revenue growth along with strong Adjusted EBITDA and cash flow. We have a Canada-wide footprint, an over 70% Original Equipment Manufacturer (“OEM”) penetration rate, a growing overall addressable market and an unmatched audio entertainment experience that keeps getting better.”

Canada Revenue Agency (“CRA”) Update

As at August 31, 2024, the Company had received a nil notice of reassessment for its August 31, 2024 tax return denying expenditures of $177.2 million and $68.0 million related to Sirius XM and OEM share issuances, respectively. As a result of the assessment, during fiscal 2024, the Company booked an income tax expense and a write-down of the deferred tax assets of $19.1 million. The Company was also assessed, in respect of the Sirius XM share issuances, for withholding taxes, interest and penalties of $15.9 million, which were due immediately. During the fiscal year ended August 31, 2024, the Company filed a notice of objection to the withholding tax assessment and recorded a withholding tax expense, and related accrual within trade and other payables of $15.9 million. As security, through its $50 million revolving credit facility due May 23, 2024, the Company provided a one year irrevocable $17.1 million letter of credit expiring June 29, 2024 (“Letter of Credit”) to cover assessed withholding taxes, interest and penalties along with additional interest that would become payable up to the time when the Letter of Credit expires.

During the current fiscal year, the Company filed a notice of appeal in respect of the withholding taxes, interest and penalties assessed and successfully defended its position. During the quarter, the Tax Court of Canada granted an order to vacate the assessment of withholding taxes, interest and penalties, and the Company accordingly reversed the $15.9 million previously accrued. Subsequent to the quarter end, the CRA released the Letter of Credit which is no longer outstanding.

In respect of CRA’s denial of expenditures related to Sirius XM and OEM share issuance costs claimed in the August 31, 2024 tax return, during the quarter, the Company requested a notice of loss determination from the CRA. Subsequent to the quarter, a notice of loss determination was received from the CRA stating that the losses in respect of the share issuances to OEMs and Sirius XM are nil.  The Company intends to file a notice of objection in response to the notice of loss determination.  The Company remains confident in its filings, and will continue to vigorously defend its position.

“We are pleased with our success as it relates to the CRA reassessment,” said Jason Redman, CFO SiriusXM Canada. “As previously stated, we were confident in our tax filing position. We believe the ruling in our favour supports the position we took. More importantly, during this time we continued to execute on our strategy, deliver strong financial results and maintain our dividend.”

Q2 and YTD FY2016 Financial Results Review

For Q2 FY2016, revenue was $84.4 million, up $4.3 million, or 5.4%, from $80.1 million in Q2 FY2015. The year-over-year improvement reflects growth in the Company’s Self-Pay subscriber base combined with an increase in Self-Pay ARPU. For YTD FY2016, revenue was $167.9 million, up $8.8 million, or 5.6%, from $159.1 million for the same period in FY2015. YTD Self-Pay ARPU was $12.53 and $12.43 for FY2016 and FY2015, respectively. This represents a year-over-year increase of $0.10, or 0.8%, which was driven primarily by the cumulative impact of the increased music royalty fee on renewing subscribers, partly offset by increased subscription discounts to acquire and retain subscribers.

Adjusted EBITDA for Q2 FY2016 increased $1.5 million, or 6.3%, to $24.8 million from $23.3 million in Q2 FY2015. The improvement was primarily due to revenue growth, which was partly offset by an increase in revenue share and royalty costs related to higher revenue and royalty rates, in addition to increased information technology and general and administration costs.  Adjusted EBITDA margin increased to 29.4% in Q2 FY2016 from 29.1% in Q2 FY2015.  For YTD FY2016, Adjusted EBITDA was $48.3 million, up $2.1 million, or 4.5%, from $46.2 million for the same period in FY2015.

The Company recorded net income of $28.2 million in Q2 FY2016, up $53.4 million, or 212.4%, compared to a net loss of $25.1 million in Q2 FY2015. The year-over-year increase was mainly due to the $15.9 million withholding tax recovery in Q2 FY2016, the $16.0 million withholding tax expense in Q2 FY2015, and the $19.1 million write-down of deferred tax assets in FY2015. Excluding the impact of the non-recurring adjustments, net income for Q2 FY2016 and FY2015 was $12.4 million and $10.0 million respectively, an increase of $2.4 million, or 24.1%. For YTD FY2016, net income was $38.3 million, up $55.4 million, or 323.9%, compared to a net loss of $17.1 million for the same period in FY2015. Excluding the impact of the non-recurring adjustments, net income was $22.4 million and $18.0 million for YTD FY2016 and YTD FY2015 respectively.

SAC for Q2 FY2016 was $39, up from $35 in Q2 FY2015 as a result of higher vehicle volume, unfavorable foreign exchange, and mix of products purchased in the Aftermarket segment. YTD FY2016 SAC was $40, up from $37 for the same period in FY2015.

In Q2 FY2016, the Company generated $17.3 million in cash from operating activities which is consistent with Q2 FY2015. $34.5 million in cash from operating activities for YTD FY2016 was also in line year-over-year. The Company generated free cash flow of $13.7 million in Q2 FY2016. This represents a $2.4 million, or 21.1%, increase from $11.3 million in Q2 FY2015 as a result of a $2.4 million decrease in capital expenditures, mainly due to the completion of the Company’s subscriber management system in Q3 FY2015, which was partially offset by increased cash outflow related to pre-paid trial programs. For YTD FY2016, the Company generated free cash flow of $23.9 million, down $1.1 million, or 4.3%, from $25.0 million for the same period in FY2015.

As at February 29, 2024, the Company had total cash and cash equivalents of $23.1 million compared to $36.4 million as at November 30, 2024. The decrease is primarily due to cash flow from financing activities as the company issued two dividend payments in the quarter totaling $27.0 million, as well as capital expenditures of $3.6 million, which were partly offset by cash from operating activities of $17.3 million in Q2 FY2016.

Reconciliations

The following is a reconciliation of EBITDA and Adjusted EBITDA to Net Income (loss) and comprehensive income (loss) before income tax.

⁶ Fair value adjustment relates to a reduction in revenue due to the valuation of deferred revenue as per purchase price accounting.