XM Satellite Radio Holdings Inc. Announces Second Quarter 2008 Results

Net Loss Narrows on Increased Revenue and Lower Subscriber Acquisition Costs




WASHINGTON, July 22  /PRNewswire-FirstCall/ -- XM Satellite Radio Holdings Inc. (NASDAQ:XMSR) today announced earnings for the three-month period ended June 30, 2008. Revenue for the second quarter 2008 rose to $318 million, a nearly 15 percent increase over second quarter 2007 revenue of $277 million.

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XM ended second quarter 2008 with 9.65 million subscribers, a 17 percent increase, compared to 8.25 million subscribers at the end of second quarter 2007. This growth was driven, in part, by a 39 percent year-over-year increase in the number of gross additions through the automotive (OEM) channel. Second quarter 2008 OEM gross additions were 857 thousand, the company's fifth consecutive quarter of record OEM gross additions.  This compared to 618 thousand OEM gross additions in second quarter 2007.

In second quarter 2008, XM reported total gross additions of 1.08 million, and 322 thousand net subscriber additions, compared to 942 thousand gross additions and 338 thousand net subscriber additions in second quarter 2007. Net OEM subscriber additions of 360 thousand in the second quarter more than offset a loss of 38 thousand net retail subscribers.

Second quarter 2008 adjusted operating loss narrowed to $37 million, compared to a loss of $47 million in second quarter 2007.  XM's second quarter 2008 net loss improved to $120 million, compared to a second quarter 2007 net loss of $176 million. For a reconciliation of XM's net loss to adjusted operating loss, see the attached financial schedules.

In second quarter 2008, XM's subscriber acquisition costs (SAC), a component of cost per gross addition (CPGA), improved year over year to $65, compared to $75 in second quarter 2007. CPGA in the second quarter was $100 and compares to $121 in the second quarter 2007.

XM continued to maintain stability in the key operating metrics of conversion rate and churn, both of which improved year over year.  Second quarter 2008 conversion was 53.4 percent, compared to second quarter 2007 conversion of 52.7 percent.  Second quarter 2008 churn improved to 1.67 percent, compared to second quarter 2007 churn of 1.84 percent.

XM announced its preliminary results for second quarter 2008 yesterday in connection with an offering of senior notes associated with XM's pending merger with SIRIUS.

About XM

XM (NASDAQ:XMSR) is America's number one satellite radio company with more than 9.6 million subscribers. Broadcasting live daily from studios in Washington, DC, New York City, Chicago, Nashville, Toronto and Montreal, XM's 2008 lineup includes more than 170 digital channels of choice from coast to coast: commercial-free music, premier sports, news, talk radio, comedy, children's and entertainment programming; and the most advanced traffic and weather information.

XM, the leader in satellite-delivered entertainment and data services for the automobile market through partnerships with General Motors, Honda, Hyundai, Nissan, Porsche, Subaru, Suzuki and Toyota is available in 140 different vehicle models for 2008. XM's industry-leading products are available at consumer electronics retailers nationwide. XM programming is also available through XM Radio Online, as downloads of original XM shows via podcasts from XM's Web site or the Apple's iTunes Store, and as streams of commercial-free XM music channels to AT&T and Alltel wireless customers through XM Radio Mobile. For more information about XM hardware, programming and partnerships, please visit http://www.xmradio.com/.

Factors that could cause actual results to differ materially from those in the forward-looking statements in this press release include demand for XM Satellite Radio's service, our significant expenditures and losses, our dependence on technology and third party vendors, our potential need for additional financing, the health of our satellites, the impact of our proposed merger with SIRIUS, our substantial indebtedness as well as other risks described in XM Satellite Radio Holdings Inc.'s Form 8-K filed with the Securities and Exchange Commission on 7-21-08. Copies of the filing are available upon request from XM Radio's Investor Relations Department.

                       XM SATELLITE RADIO HOLDINGS INC.
                UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS

   (in thousands, except       Three months ended        Six months ended
    share and per share              June 30,                 June 30,
    data)                       2008         2007         2008        2007

   Revenue:
     Subscription            $284,136     $245,778     $559,862    $482,264
     Activation                 5,044        4,766       10,188       9,419
     Merchandise                7,491        5,658       11,812      10,955
     Net ad sales              10,432       10,153       19,550      17,631
     Other                     10,932       10,921       25,078      21,118
   Total revenue              318,035      277,276      626,490     541,387
   Operating expenses:
     Cost of revenue
      (excludes
      depreciation &
      amortization, shown
      below):
       Revenue share &
        royalties              73,586       49,723      142,408      97,149
       Customer care &
        billing operations (1) 36,388       30,749       70,698      58,677
       Cost of merchandise      9,055       12,694       17,606      30,970
       Ad sales (1)             4,879        5,480        9,583       8,866
       Satellite &
        terrestrial (1)        13,472       13,472       26,653      27,354
       Broadcast & operations:
         Broadcast (1)          6,308        6,885       13,269      13,429
         Operations (1)        11,026        9,683       21,516      19,399
       Total broadcast &
        operations             17,334       16,568       34,785      32,828
       Programming &
        content (1)            49,604       41,827      101,166      85,779
     Total cost of revenue    204,318      170,513      402,899     341,623
     Research & development
      (excludes depreciation
      & amortization,
      shown below) (1)          9,414        8,159       20,435      15,469
     General & administrative
      (excludes depreciation
      & amortization, shown
      below) (1)               30,989       35,869       61,719      70,053
     Marketing (excludes
      depreciation &
      amortization, shown
      below):
         Retention &
          support (1)          11,032       10,618       22,829      20,374
         Subsidies &
          distribution         69,193       63,855      140,717     107,457
         Advertising &
          marketing            36,865       43,244       63,367      76,053
       Marketing              117,090      117,717      226,913     203,884
       Amortization of GM
        liability               6,504        6,504       13,007      13,008
     Total marketing          123,594      124,221      239,920     216,892
     Depreciation &
      amortization             32,438       46,506       77,921      93,387
   Total operating
    expenses (1)              400,753      385,268      802,894     737,424
   Operating loss             (82,718)    (107,992)    (176,404)   (196,037)
   Other income
    (expense):
     Interest income              743        4,238        2,419       7,781
     Interest expense         (30,480)     (32,423)     (59,807)    (60,032)
     Loss from de-leveraging
      transactions                  -            -            -      (2,965)
     Loss from impairment
      of investments                -      (35,824)           -     (35,824)
     Equity in net loss
      of affiliate             (4,373)      (2,752)      (8,550)     (8,177)
     Minority interest         (3,153)      (3,266)      (6,390)     (4,962)
     Other income               1,082          413          895         856
   Net loss before income
    taxes                    (118,899)    (177,606)    (247,837)   (299,360)
     (Provision for)
      benefit from
      deferred income
      taxes                      (673)       1,859       (1,004)      1,175
   Net loss                 $(119,572)   $(175,747)   $(248,841)  $(298,185)
   Net loss per common
    share - basic and
    diluted                     (0.38)       (0.57)       (0.80)      (0.97)
   Weighted average
    shares used in
    computing net loss
    per common share -
    basic and diluted     310,886,180  306,425,375  310,283,700 306,154,565

   Reconciliation of Net
    loss to Adjusted
    operating loss:
     Net loss as reported   $(119,572)   $(175,747)   $(248,841)  $(298,185)
   Add back Net loss
    items excluded from
    Adjusted operating
    loss:
     Interest income             (743)      (4,238)      (2,419)     (7,781)
     Interest expense          30,480       32,423       59,807      60,032
     Provision for (benefit
      from) deferred
      income taxes                673       (1,859)       1,004      (1,175)
     Loss from
      de-leveraging
      transactions                  -            -            -       2,965
     Equity in net loss
      of affiliate              4,373        2,752        8,550       8,177
     Minority interest          3,153        3,266        6,390       4,962
     Other income              (1,082)        (413)        (895)       (856)
       Operating loss         (82,718)    (107,992)    (176,404)   (196,037)
     Depreciation &
      amortization             32,438       46,506       77,921      93,387
     Share-based payment
      expense                  12,947       14,080       30,451      28,211
   Adjusted operating
    loss (3)                 $(37,333)    $(47,406)    $(68,032)   $(74,439)


   Footnotes:

   (1) These captions
       include non-cash
       share-based payment      Three months ended       Six months ended
       expense as follows:           June 30,                 June 30,
       (in thousands)           2008         2007         2008        2007

       Customer care &
        billing operations       $752         $497       $1,641        $937
       Ad sales                   436          460        1,044         816
       Satellite &
        terrestrial               447          491        1,089       1,010
       Broadcast                  558          606        1,351       1,206
       Operations                 359          351          829         729
       Programming &
        content                 1,820        2,061        4,363       4,227
       Research &
        development             1,702        1,716        4,164       3,442
       General &
        administrative          4,686        5,829       10,737      11,878
       Retention & support      2,187        2,069        5,233       3,966
         Total share-based
          payment expense     $12,947      $14,080      $30,451     $28,211


   (2) Adjusted operating loss is net loss before interest income, interest
       expense, income taxes, depreciation and amortization, loss from
       de-leveraging transactions, loss from impairment of investments,
       equity in net loss of affiliate, minority interest, other income
       (expense) and share-based payment expense. This non-GAAP measure
       should be used in addition to, but not as a substitute for, the
       analysis provided in the statement of operations. We believe Adjusted
       operating loss is a useful measure of our operating performance and
       improves comparability between periods. Adjusted operating loss is a
       significant basis used by management to measure our success in
       acquiring, retaining and servicing subscribers because we believe
       this measure provides insight into our ability to grow revenues in a
       cost-effective manner. We believe Adjusted operating loss is a
       calculation used as a basis for investors, analysts and credit rating
       agencies to evaluate and compare the periodic and future operating
       performances and value of our company and similar companies in our
       industry.

       Because we have funded the build-out of our system through the
       raising and expenditure of large amounts of capital, our results of
       operations reflect significant charges for depreciation, amortization
       and interest expense. We believe Adjusted operating loss provides
       helpful information about the operating performance of our business
       apart from the expenses associated with our physical plant or capital
       structure. We believe it is appropriate to exclude depreciation,
       amortization and interest expense due to the variability of the
       timing of capital expenditures, estimated useful lives and
       fluctuation in interest rates. We exclude income taxes due to our tax
       losses and timing differences, so that certain periods will reflect a
       tax benefit, while others an expense, neither of which is reflective
       of our operating results. Because of the variety of equity awards
       used by companies, the varying methodologies for determining
       share-based payment expense and the subjective assumptions involved
       in those determinations, we believe excluding share-based payment
       expense enhances the ability of management and investors to compare
       our core operating results with those of similar companies in our
       industry.

       Equity in net loss of affiliate represents our share of losses in a
       non-US affiliate in a similar business and over which we exercise
       significant influence, but do not control. Management believes it is
       appropriate to exclude this loss when evaluating the performance of
       our own operations. Additionally, we exclude loss from de-leveraging
       transactions, loss from impairment of investments, minority interest
       and other income (expense) because these items represent activity
       outside of our core business operations and can distort period to
       period comparisons of operating performance.

       There are limitations associated with the use of Adjusted operating
       loss in evaluating our company compared with net loss, which reflects
       overall financial performance. Adjusted operating loss does not
       reflect the impact on our financial results of (i) interest income,
       (ii) interest expense, (iii) income taxes, (iv) depreciation and
       amortization, (v) loss from de-leveraging transactions, (vi) loss
       from impairment of investments, (vii) equity in net loss of
       affiliate, (viii) minority interest, (ix) other income (expense) and
       (x) share-based payment expense, which are included in the
       computation of net loss. Users that wish to compare and evaluate our
       company based on our net loss should refer to our Consolidated
       Statements of Operations. Adjusted operating loss does not purport to
       represent operating loss or cash flow from operating activities, as
       those terms are defined under United States generally accepted
       accounting principles, and should not be considered as an alternative
       to those measurements as an indicator of our performance. In
       addition, our measure of Adjusted operating loss may not be
       comparable to similarly titled measures of other companies.



                       XM SATELLITE RADIO HOLDINGS INC.
                   SELECTED FINANCIAL AND OPERATING METRICS

                                                        As of
  (in thousands)                           June 30, 2008   December 31, 2007
  SELECTED BALANCE SHEET DATA                (Unaudited)

    Cash and cash equivalents                    $183,853          $156,686
    System under construction                     166,786           151,142
    Property and equipment, net                   660,274           710,370
    DARS license                                  141,412           141,412
    Investments                                    37,192            36,981
    Total assets                                1,723,886         1,609,230
    Total subscriber deferred revenue             547,377           514,926
    Total deferred income                         132,992           134,803
    Long-term debt, net of current portion      1,480,226         1,480,639
    Total liabilities                           2,868,158         2,533,787
    Stockholders' deficit                      (1,204,472)         (984,303)

                                                 Three months ended June 30,
  SELECTED OPERATING METRICS                         2008           2007(15)

    Subscriber Data (in thousands,
     except percentages):
      OEM Gross Subscriber Additions (1)              857               618
      Retail Gross Subscriber Additions (2) (12)      224               323
        Total Gross Subscriber Additions (12)       1,081               942

      OEM Net Subscriber Additions (3)                360               295
      Retail Net Subscriber Additions (4)             (38)               43
        Total Net Subscriber Additions                322               338

      Conversion Rate (5)                           53.4%             52.7%
      Monthly Churn Rate (6) (12)                   1.67%             1.84%

      OEM Subscribers                               4,178             3,047
      Retail Subscribers (13)                       4,433             4,459
      Subscribers in OEM Promotional Periods          876               649
      XM Activated Vehicles with Rental Car
       Companies                                       90                40
      Data Services Subscribers                        58                40
      Outsourced Commercial Subscribers (13)           18                17
        Total Ending Subscribers (7)                9,653             8,252


      Percentage of Ending Subscribers on Annual
       and Multi-Year Plans (12)                    44.7%             43.6%
      Percentage of Ending Subscribers on Family
       Plans (12)                                   22.7%             23.5%

    Revenue Data (monthly average):
      Subscription Revenue per Retail, OEM &
       Other Subscriber (8) (14)                   $10.31            $10.37
      Subscription Revenue per Subscriber in
       OEM Promotional Periods                      $5.68             $6.18
      Subscription Revenue per XM Activated
       Vehicle with Rental Car Companies            $6.02             $7.07
      Subscription Revenue per Subscriber of
       Data Services                               $33.40            $33.96

      Average Monthly Subscription Revenue
       per Subscriber ("ARPU") (9) (14)             $9.98            $10.15
      Net Ad Sales Revenue per Subscriber           $0.37             $0.42
      Activation, Merchandise and Other Revenue
       per Subscriber (14)                          $0.81             $0.88
        Total Revenue per Subscriber               $11.16            $11.45

    Expense Data:
      Subscriber Acquisition Costs ("SAC")
       (10) (12)                                      $65               $75
      Cost Per Gross Addition ("CPGA") (11) (12)     $100              $121

                                          (Certain totals may not add due to
                                                 the effects of rounding)
  Footnotes:
  (1) OEM gross subscriber additions are paying subscribers newly activated
      in the reporting period and include Subscribers in OEM promotional
      periods as well as XM activated vehicles with rental car companies.

  (2) Retail gross subscriber additions are paying subscribers newly
      activated in the reporting period and include Data services
      subscribers and commercial subscribers for 2007 only.

  (3) OEM net subscriber additions (OEM gross subscriber additions less
      disconnects) represent the total net incremental paying subscribers
      added during the period.

  (4) Retail net subscriber additions (Retail gross subscriber additions
      less disconnects) represent the total net incremental paying
      subscribers added during the period, including net Outsourced
      commercial subscribers for 2008.

  (5) We measure the success of these promotional programs included in our
      OEM promotional subscriber count based on the percentage of new
      promotional subscribers that receive the XM service and convert to
      self-paying subscribers after the initial promotion period. We refer
      to this as the "conversion rate." At the time of sale, vehicle owners
      generally receive a three month prepaid trial subscription.
      Promotional periods generally include the period of trial service plus
      30 days to handle the receipt and processing of payments. In
      situations where audio service of 12 months or longer is bundled with
      the sale of the vehicle, XM counts those subscribers for the first 3
      months of service as OEM promotional subscribers and for the remainder
      of the bundled service period as OEM subscribers. We measure
      conversion rate three months after the period in which the trial
      service ends. Based on our experience it may take up to 90 days after
      the trial service ends for subscribers to respond to our marketing
      communications and become self-paying subscribers. Vehicles that have
      bundled service for 12 months or greater are counted in our conversion
      rate calculation as being converted six months after the start of the
      bundled service. These same vehicles are included as part of our
      overall churn calculation after the date conversion is measured.
      During Q2 2008 if we calculated conversion rate by excluding 12 months
      or greater bundled service subscribers from the calculation, our
      conversion rate would have been 52.7% for the three months ended
      June 30, 2008.

  (6) Monthly churn rate for the quarter represents the weighted average
      Churn rate for each month in the quarter. Churn rate represents the
      average percentage of self-paying Retail, OEM & other subscribers that
      discontinued service during the month divided by the average of these
      beginning and ending subscribers for the month. Churn rate does not
      include OEM promotional period deactivations and deactivations
      resulting from the change-out of XM activated vehicles with rental car
      companies.

  (7) Subscribers -- Subscribers are those who are receiving and have agreed
      to pay for our service, including those who are currently in
      promotional periods paid in part by vehicle manufacturers, XM
      activated radios in vehicles for which we have a contractual right to
      receive payment for the use of our service and commercial
      establishments that receive our service through our relationship with
      a third party vendor. We count radios individually as subscribers.
      Retail subscribers consist primarily of subscribers who purchased
      their radio at retail outlets, distributors, or through XM's direct
      sales efforts. OEM subscribers are self-paying subscribers whose XM
      radio was installed by an OEM and are not currently in OEM promotional
      programs. OEM promotional subscribers are subscribers who receive a
      fixed period of XM service where XM receives revenue from the OEM for
      the trial period following the initial purchase or lease of the
      vehicle. In situations where XM receives no revenue from the OEM
      during the trial period, the subscriber is not included in XM's
      subscriber count. At the time of sale, some vehicle owners receive a
      three month prepaid trial subscription. Promotional periods generally
      include the period of trial service plus 30 days to handle the receipt
      and processing of payments. The automated activation program provides
      activated XM radios on dealer lots for test drives but XM does not
      include these vehicles in its subscriber count. XM's OEM partners
      generally indicate the inclusion of three months of XM service on the
      window sticker of XM-enabled vehicles. XM, historically and including
      the 2006 model year, receives a negotiated rate for providing audio
      service to rental car companies. Beginning with the 2007 model year,
      XM entered into marketing arrangements which govern the rate which XM
      receives for providing audio service on certain rental fleet vehicles.
      Data services subscribers are those subscribers that are receiving
      services that include stand-alone XM WX Satellite Weather service,
      stand-alone XM Radio Online service and stand-alone NavTraffic
      service. Stand-alone XM WX Satellite Weather service packages range in
      price from $29.99 to $99.99 per month. XM charges up to $7.99 per
      month for stand-alone XM Radio Online service. Stand-alone NavTraffic
      service is $9.95 per month. XM generally charges a range of
      $9.99-$11.87 per month for its audio service for annual and multi-year
      plans and $6.99 per month for a family plan.

  (8) Other subscribers include weather and other stand-alone service
      subscribers.

  (9) Subscription revenue includes monthly subscription revenues for our
      satellite audio service and data services, net of any promotions or
      discounts.

  (10) Subscriber Acquisition Costs -- Subscriber acquisition costs include
       Subsidies & distribution and the negative gross profit on merchandise
       revenue. Subscriber acquisition costs are divided by gross additions
       to calculate what we refer to as "SAC."

  (11) Cost Per Gross Addition ("CPGA") -- CPGA costs include the amounts in
       SAC, as well as Advertising & marketing. These costs are divided by
       the gross additions for the period to calculate CPGA. CPGA costs do
       not include marketing staff (included in Retention & support) or the
       amortization of the GM guaranteed payments (included in Amortization
       of GM liability).

  (12) Outsourced commercial subscribers are excluded for 2008.

  (13) Approximately 17 thousand subscribers, previously reported as Retail
       subscribers, are presented as Outsourced commercial subscribers for
       2007 for comparability.

  (14) Beginning in 2008, revenue from Outsourced commercial subscribers,
       previously reported as Subscription revenue, is reported as Other
       revenue.

  (15) No previously reported metrics have been adjusted to reflect the
       exclusion of Outsourced commercial subscribers except for as stated
       in footnote 13.


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DATASOURCE: XM Satellite Radio Holdings Inc.



CONTACT:  Media Relations, Nathaniel Brown, [phone],

, or Chance Patterson, [phone],

; Investor Relations, Joe Wilkinson,

[phone], , or Richard Sloane,

[phone], , all of XM



Web site:  http://www.xmradio.com/ 

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