Management s Discussion and Analysis of Financial Condition and Results of Operations

Transcription

1 Management s Discussion and Analysis of Financial Condition and Results of Operations Management s discussion and analysis ( MD&A ) discusses the significant factors affecting the results of operations and financial position of Canadian Satellite Radio Holdings Inc. ( CSRH, we, us, our or the Company ). Under International Financial Reporting Standards ( IFRS ), the June 21, 2011 business combination was accounted for as a reverse takeover whereby Sirius Canada Inc. ( Sirius Canada ) was deemed to be the acquirer of CSRH, using the purchase method of accounting. CSRH historically operated the XM Canada business. Therefore, these interim results for the period from September 1, 2011 to November 30, 2011 include both the results of Sirius Canada and XM Canada. The comparative results for the Company are only those of Sirius Canada for the three months ended February 28, In order to provide comparable information we have also presented Combined Information for the comparative period. The comparative information is a constructed period for the three months ending November 30, 2010 which does not conform to our interim financial reporting periods at the time and does not reflect adjustments for purchase accounting. We believe this information is more relevant as it provides analysis of comparable information to understand trends in our combined business. See section entitled Combined Information for further details. This MD&A which is current as of February 9, 2012, should be read in conjunction with the Company s Interim Unaudited Consolidated Financial Statements dated November 30, 2011 and Notes thereto, the Company s 2011 Annual MD&A and the Company s 2011 Annual Audited Consolidated Financial Statements and Notes thereto and other recent securities filings available on SEDAR at sedar.com. The financial information presented herein has been prepared on the basis of IFRS for interim financial statements and is expressed in Canadian dollars unless otherwise noted. Please refer to Note 5 of the Company s Interim Unaudited Financial Statements dated November 30, 2011 for a summary of the differences between the financial statements previously prepared under Canadian GAAP and to those under IFRS for the three months ended February 28, 2011 and for the period ended August 31, The unaudited IFRS amounts included in this MD&A have been prepared using the standards and interpretations currently effective and expected to be effective at the end of the Company s first annual IFRS reporting period, which will be August 31, Certain accounting policies expected to be adopted under IFRS may not be adopted and the application of such policies to certain transactions or circumstances may be modified and as a result, the November 30, 2011 and August 31, 2011 underlying values prepared on a basis consistent with IFRS are subject to change. Forward-Looking Disclaimer This discussion contains certain information that may constitute forward-looking statements within the meaning of securities laws. These statements relate to future events or future performance and reflect management s expectations and assumptions regarding the growth, results of operations, performance and business prospects and opportunities of the Company on a consolidated basis. In some cases, forward-looking statements can be identified by terminology such as may, would, could, will, should, expect, plan, intend, anticipate, believe, estimate, predict, potential, continue, seek or the negative of these terms or other similar expressions concerning matters that are not historical facts. In particular, statements regarding the Company s objectives, plans and goals, including future operating results, economic performance and subscriber recruitment efforts involve forward-looking Canadian Satellite Radio Holdings Inc. First Quarter 2012

2 P a g e 2 statements. A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. Although the forward-looking statements contained in this discussion are based on what management of the Company considers are reasonable assumptions based on information currently available to it, there can be no assurance that actual events, performance or results will be consistent with these forwardlooking statements, and management s assumptions may prove to be incorrect. Our financial projections are based on estimates regarding expected future costs and expected revenue, which are fully described in this MD&A. Among the significant factors that could cause our results to differ from those expressed in the forwardlooking statements are: Our competitive position versus other forms of audio and video entertainment A severe downturn in automobiles sales in Canada Our ability to manage customer attrition and average monthly subscription revenue per subscriber Other than as required by applicable Canadian securities law, the Company does not update or revise any forward-looking statements to reflect new information, future events or otherwise. These forwardlooking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from expectations. These include but are not limited to the risk factors included in this MD&A (including those listed under the heading Risk Factors ) in addition to the risks itemized in our Annual Information Form ( AIF ) for the fiscal year ended August 31, Readers are advised to review these risk factors for a detailed discussion of the risks and uncertainties affecting the Company s business. Readers should not place undue reliance on forward-looking statements. This MD&A contains the following sections: Forward-Looking Disclaimer... 1 Our Business and Strategy... 3 Financial Highlights... 4 Discussion of Combined Information Financial Results... 5 Results of Operations Combined Information Metrics... 7 Selected IFRS Financial Information Liquidity and Capital Resources Off-Balance Sheet Arrangements Arrangements, Relationships and Transactions with Related Parties Critical Accounting Policies and Estimates International Financial Reporting Standards ( IFRS ) Certain Risk Factors Outstanding Share Data and Other Information Definitions of Industry Terminology Non-GAAP Financial Measures... 37

3 P a g e 3 OVERVIEW On June 21, 2011 Canadian Satellite Radio Holdings Inc. and Sirius Canada completed the previously announced combination transaction and Sirius XM Canada was formed. By combining complementary strengths in the automotive and aftermarket businesses, we created a business currently in excess of 2.0 million subscribers, which ranks SiriusXM Canada as one of the largest subscriber based media and entertainment businesses in Canada. We believe that the newly created entity can grow subscribers and cash flow faster than either XM Canada or Sirius Canada could have on their own. The Company expects to achieve this objective by: Quickly integrating the businesses to generate revenue growth Realizing costs synergies in excess of $20 million on an annual basis Leveraging the scalable business model and improved liquidity to maximize shareholder return Implementing best practices to accelerate subscriber and EBITDA growth The business combination was accounted as a reverse takeover whereby Sirius Canada is deemed to be the acquirer of CSRH, using the purchase method of accounting. Sirius Canada, prior to the reverse takeover, had a November 30, 2010 year-end and therefore, the prior period IFRS comparative results for the Company are the results for Sirius Canada from December 1, 2010 to February 28, In addition, for informational purposes, we have also provided for the comparative period Combined Information results in this MD&A, which present the hypothetical performance of the business as if the businesses had been combined for the three months ended November 30, See the sections of this MD&A entitled Combined Information for more information. This MD&A has been prepared as of February 9, 2012 at which time 50,270,088 Class A Subordinate Voting shares and 218,498,526 Class B Voting shares are outstanding. Our Business and Strategy Our vision is to be the leading premium digital audio entertainment and information service provider in Canada. Our strategy is founded on the principles of acquiring subscribers in the most cost effective manner, retaining subscribers through enhancing the value proposition to our subscribers and improving business efficiencies. Satellite Radio offers channels, including commercial-free music as well as news, talk, sports and children s programming and over 12 Canadian channels designed and developed from studios in Toronto, Ontario, Montreal, Quebec and Vancouver, British Columbia. We continue to leverage our unique programming assets, such as our exclusive broadcasting agreement with the National Hockey League ( NHL ) and our NHL Home Ice channel, the Canadian Football League ( CFL ), and our agreement with the Canadian Broadcasting Corporation ( CBC ) in addition to exclusive agreements through Sirius XM Radio Inc. ( SXM ) for National Football League ( NFL ), Major League Baseball ( MLB ), National Basketball Association ( NBA ), Oprah, Martha Stewart, Howard Stern, Nascar, Professional Golfers Association of America ( PGA ) and more. Our target market in Canada includes more than 23 million registered vehicles on the road, and an estimated 1.59 million new vehicles forecasted to be sold in calendar year Currently all major automobile manufacturers in Canada have agreements with SiriusXM Canada for the installation of satellite radios. We are the leader in digital audio entertainment distribution and information delivered via satellite to new vehicles sold in Canada. The Satellite radio service is expected to be factory-installed in more than 53% of new vehicles to be sold in model year 2012.

4 P a g e 4 Sirius and XM satellite radio receivers are available at leading retailers across Canada such as Best Buy, Canadian Tire, Costco, Future Shop, The Source, Wal-Mart and other national, regional and independent retailers. Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, quarterly, or monthly basis. Discounts are offered for long-term, prepaid subscription plans, as well as discounts for multiple subscriptions on each platform. Other sources of revenue include music royalty fees, activation and other subscription-related fees, advertising revenues, the direct sale of satellite radios and accessories through our call centers and websites, and other ancillary services such data and weather services. In certain instances, automakers include a subscription to our radio services in the sale or lease of their vehicles. The length of these prepaid subscriptions varies from three to twelve months. In certain instances we also receive subscription payments from automakers in advance of our service being activated. We also reimburse various automakers for certain costs associated with the installment of satellite radios in their vehicles. The Company s goal is to accelerate EBITDA and cash flow growth by maximizing our revenues primarily through subscriptions, advertising and other ancillary opportunities as well as maintaining effective cost controls, managing subscriber acquisition costs and by creating a long-term customer base by offering quality service. We believe that a premium service will attract a premium customer. Financial Highlights Quarterly results compared to Combined Information for three months ended November 30, 2011 The following are highlights for the three months ended November 30, 2011 in comparison to results of the combined business for the three months ended November 30, Adjusted EBITDA 1 improved 152.0% to $12.9 million from $5.1 million (an improvement of $7.8 million); Self-Paying Subscribers increased 13.8% to 1,416,000 from 1,244,000; Total Subscribers increased 12.1% to 2,014,300 from 1,797,000; Revenue increased by 6.6% to $63.1 million from $59.2 million; SAC decreased 14.3% to $54 from $63. Fixed cash operating expense decreased by $3.7 million 2 or 19.5%. Quarterly results compared to Sirius Canada Inc. (pre-merger) for the three months ended November 30, 2011 The following are highlights for the three months ended November 30, 2011 in comparison to IFRS results of the three months ended February 28, 2011, which were the results of Sirius Canada only. For a 1 A reconciliation of Operating Income to Adjusted EBITDA (a non-gaap measure) is provided on page 6. 2 Table showing calculation of Fixed Cash Operating Expenses is provided on page 6.

5 P a g e 5 complete discussion of these interim IFRS financial results please refer to the sections entitled Selected IFRS Financial Information and Liquidity and Capital Resources. Revenue increased by 48.5% to $63.1 million from $42.5 million; Adjusted EBITDA improved 130.2% to $12.9 million from $5.6 million (an improvement of $7.3 million); Generated $10.0 million in cash from operations during the quarter; Self-Paying Subscribers increased 67.6% to 1,416,000 from 844,900; Total Subscribers increased 61.2% to 2,014,300 from 1,249,700; Discussion of Combined Information Financial Results Unaudited IFRS 3 Months Ended Nov Combined 3 Months Ended Nov REVENUE 63,111,245 59,224,665 OPERATING EXPENSES Cost of Revenue Revenue share and royalties 20,547,684 18,156,972 Customer care & billing operations 4,229,469 3,824,605 Cost of merchandise 684, ,796 Broadcast and operations 479, ,562 Programming and content 2,208,016 2,624,042 Total Cost of Revenue 28,149,319 25,963,977 General and administrative 2,583,397 3,586,740 Information Technology 2,823,767 3,017,708 Stock based compensation 393,921 39,711 Marketing support 1,742,505 2,337,016 Subsidies and distribution 9,880,322 12,311,127 Marketing 5,398,696 6,897,696 Total operating expenses 50,971,927 54,153,975 Severance and merger costs 918,023 2,475,992 Depreciation and amortization 10,940,085 6,975,759 Operating Income (loss) 281,210 (4,381,061) The comparative figures for the three months ended November 30, 2010 are prepared on a combined basis by adding the historical results of XM Canada for the three months ended November 30, 2010 and the internal results of Sirius Canada for the three months ended November 30, 2010 and this period is referred to as Q1 or first quarter in this section. They do not agree to the

6 P a g e 6 published results and are not consistent with our actual reported periods. Please see page 18 of this MD&A to see how the comparative results have been assembled. Revenue increased 6.6% compared to the combined first quarter of The year-over-year increase was driven by growth in our revenue generating subscribers partially offset by a reduction in ARPU. Activation fees, a component of revenue, decreased in the first quarter of 2012 compared to the comparative combined prior period due to a general reduction in the non-oem subscribers as a percentage of the total subscriber base. The Company expects the decline in after-market subscribers relative to the total subscriber base to continue as the business is becoming more OEM-centric going forward. The following is a reconciliation of Operating income (loss) to EBITDA and Adjusted EBITDA In ($000 s) 2011 (IFRS) First Quarter Ended November (Combined) Operating Income (Loss) 281 (4,381) Amortization 10,940 6,976 EBITDA 11,221 2,595 Stock-based compensation Severance and merger costs 918 2,476 Fair value adjustments* 347 Adjusted EBITDA 12,880 5,111 * Fair value adjustment relates to reduction in revenue due to valuation of deferred revenue as per purchase price accounting The following provides a summary of the change in Fixed Cash Operating Expenses for three months ended November 30, 2011 compared to same quarter prior year. First Quarter Ended November 30 In ($000 s) Change Fixed Cash Operating Expenses Broadcast and operations Programming and content 2,208 2,624 (416) General and administrative 2,583 3,587 (1,003) Information Technology 2,824 3,018 (194) Support 1,743 2,337 (595) Advertising and marketing 5,399 6,898 (1,499) Total 15,236 18,923 (3,687)

7 P a g e 7 Results of Operations Combined Information Metrics The following table is a summary of the key financial and operating metrics that the Company uses to help measure the success of operations. Please refer to the section Definitions of Industry Terminology at the end of this MD&A for an overview of the metrics noted below. Financial and Operating Metrics First Quarter Ended Nov 30, Nov 30, Beginning Subscribers 1,983,100 1,731,700 Net Additions 31,200 65,300 Ending Subscribers 2,014,300 1,797,000 Self-Paying 1,416,000 1,244,000 Paid Promotional 501, ,100 Non Paid Promotional 96,600 74,900 Ending Subscribers 2,014,300 1,797,000 Self Pay 23,200 29,200 Paid/Non Paid Net Additions 8,000 36,100 Total Net Additions 31,200 65,300 Average Self Pay Churn 2.05% 1.88% ARPU $11.59 $12.63 SAC $54 $63 CPGA $83 $97 Subscribers 1,797,000 2,014, , ,300 1,244,000 1,416,000 Q Q Self Paying Paying & Non Paying Promotional

8 P a g e 8 As at November 30, 2011, we had total subscribers of 2,014,300, representing 1,416,000 of Self Paying Subscribers and 598,300 Paid Promotional Subscribers and Non Paid Promotional Subscribers. Self- Paying Subscribers increased 13.8% versus the first quarter of 2011, driven largely by growth in OEM gross additions. OEM gross additions increased in the first quarter of 2012 compared to the first quarter of 2011 due to continued increase in vehicles equipped with satellite radio. Paid Promotional Subscribers and Non Paid Promotional Subscribers increased 8.2% compared to the corresponding period of Churn 1.88% 2.05% Q Q Self-pay monthly churn increased to 2.05% in the first quarter of 2012 from 1.88% in the corresponding period of The increase in churn is as a result of increased promotional activities and testing of acquisition and retention programs in the fourth quarter of 2011 and the first quarter of The Company expects Self pay churn to return to a level of less than 2.0%.

9 P a g e 9 ARPU $12.63 $11.59 Q Q ARPU was $11.59 and $12.63 for the first quarters of 2012 and 2011, respectively. ARPU decreased by 8.2% in the first quarter of 2012 compared to the first quarter of The decrease in ARPU is due primarily to the following reasons: (i) (ii) (iii) (iv) contractual changes with our OEM partners on paid trial subscriptions; an increase in automotive Self-Paying Subscribers which have a lower ARPU due to higher price discounts being offered to these subscribers; and revenue from customers on lifetime plans being fully amortized. increase in promotional activity. ARPU is below the basic service price due to promotions offered to new OEM Self-Paying Subscribers, Paid Promotional Subscriptions by automakers, family plan subscribers, discounts offered to renewing self-paying subscribers across all channels and discounted multi-year plans that provide the Company with a significant working capital benefit. As the Company continues to grow the business it is currently anticipated that ARPU may fluctuate due to multi-year plans and promotional discounts offered to attract and retain its Self-Paying Subscriber base. The Company currently expects downward pressure on ARPU in the short term as the business optimizes conversion in the automotive segment. The Company has implemented tactics to mitigate the impact and grow ARPU. The Company plans to implement additional revenue generating initiatives in the future, such as the offering of the Best of programming which we believe will positively impact ARPU. Revenue Revenue includes subscription revenue, activation fees, the sale of merchandise through direct fulfillment channels, advertising revenue from Canadian-produced channels and certain other revenue.

10 P a g e 10 Revenue ($ millions) $59.2 $63.1 Q Q First quarter: Revenue increased by $3.9 million, or 6.6%, to $63.1 million from $59.2 million for the first quarters of 2012 and 2011, respectively. The increase was attributable to the Company s growing subscriber base offset by a decrease in ARPU to $11.59 from $12.63 over the comparable period. Cost of Revenue Cost of revenue increased by $2.2 million or 8.4% to $28.2 million in the first quarter of 2012 from $26.0 million in the first quarter of The reasons for the increase in cost of revenue are discussed below. Cost of revenue is comprised of the following: Revenue share & royalties This category includes revenue share payments to the partners, Canadian Radio-television Telecommunications Commission ( CRTC ) fees, Canadian content development ( CCD ), tariff obligations to composers, artists, and copyright owners for public performances and reproduction of their works broadcast on the Company s satellite radio service and fees paid to SXM, including a monthly royalty based on a percentage of all subscriber revenue. First quarter: Revenue share & royalties increased by $2.3 million or 13.2%, to $20.5 million from $18.2 million for the first quarters of 2012 and 2011, respectively. Revenue share & royalties increased in the first quarter of 2012 compared to the first quarter of 2011 due to (a) higher revenue in the current quarter (b) higher effective revenue share paid to various automakers as the Company achieved certain thresholds which resulted in higher effective rates during the current period as compared to the corresponding period prior year. Customer care & billing operations This category consists primarily of personnel and related costs associated with the ongoing operations of call centres. Credit card payment processing fees are also included in these costs. The Company operates onshore and offshore customer support centers through third party vendors and the objective is to continue to find the optimum blend of

11 P a g e 11 onshore and offshore volume allocation in order to maximize cost efficiencies. The Company has reduced costs in this area based on a cost per subscriber basis and will continue to seek further cost reduction opportunities as we realize synergies for the legacy businesses (XM Canada and Sirius Canada) across the entire customer care platform. A larger subscriber base presents additional opportunities to reduce billing costs. First quarter: Customer care & billing operations costs increased by $0.4 million or 10.6% to $4.2 million from $3.8 million for the first quarters of 2012 and 2011, respectively. Customer care & billing operations costs are primarily driven by the volume derived from the Company s growing subscriber base. While self-paying subscribers increased by 13.8%, these costs increased by 10.6% as a portion is fixed and does not increase with volume. Monthly Customer Care and Billing Costs per Self-Paying Subscriber First quarter: As shown below, customer care & billing costs per Self-Paying Subscriber decreased to $1.00 in the three months ended November 30, 2011 from $1.07 in the three months ended November 30, 2010 as higher operating costs were more than offset by a higher subscriber base, increased efficiencies and an increase in off-shore allocation of call volume. $1.07 $1.00 Q Q Cost of merchandise The Company sells merchandise under normal business terms directly to new and existing subscribers who purchase additional radios, and to commercial accounts through our direct fulfillment channel including through our online store. Cost of merchandise consists primarily of the cost of radios and accessories and related fulfillment costs associated with the direct sale of this merchandise. First quarter: Cost of merchandise decreased to $0.7 million from $0.9 million for the first quarters of 2012 and 2011, respectively. These costs are primarily driven by the volume and levels of discounts on radio sales, which are mostly affected by promotional programs and commercial accounts. Although sales volume increased by approximately 10% during the current period compared to the same period in the prior year, costs decreased due to a change in product mix to lower priced products in the current period compared to the first quarter of 2011.

12 P a g e 12 Broadcast & operations Includes costs associated with operating our terrestrial repeater network, the management and maintenance of systems and facilities as well as information technology expense related to the Company s studios. Specifically, broadcast expenses include costs associated with the management and maintenance of the systems, software, hardware, production and performance studios used in the creation and distribution of Canadian-produced channels. Operations expenses include operating costs of facilities and terrestrial repeater network and information technology expenses related to the broadcast facilities. First quarter: Broadcast & operations expenses remained flat at $0.5 million for the first quarters of 2012 and 2011, respectively. Broadcast and operations expenses may fluctuate from quarter to quarter depending on the timing of maintenance and repairs on the Company s broadcast repeaters. Programming & content Includes the creative, production and licensing costs for live NHL programming associated with the Company s Canadian-produced channels, which includes third party content acquisition that are driven by programming initiatives. Programming & content also includes licensing costs paid to the CBC. The Company views programming & content as a cost of attracting and retaining subscribers. The NHL License cost is amortized over the NHL season, which runs for a nine month period beginning in October of each year. First quarter: Programming & content expenses decreased by $0.4 million or 16.0%, to $2.2 million in first quarter of 2012 from $2.6 million in corresponding quarter of The decrease is due to lower costs associated with third party acquired programming in the current period compared to the same period last year. In the current quarter the Company produced certain programming in-house that had previously been outsourced resulting in lower programming costs compared to the same period prior year. Marketing support Marketing support includes staffing directly associated with selling radio receivers through third party distribution channels, converting OEM trial customers into Self-Paying Subscribers, retaining our customer base, costs related to winning back churned subscribers and marketing the Sirius and XM brands. First quarter: Marketing support costs decreased by $0.6 million to $1.7 million in the first quarter of 2012 from $2.3 million in first quarter of Inflationary increases were offset by lower headcount for the comparable periods. Subsidies & distribution These direct costs include the subsidization of radios, commissions paid with respect to the sale and activation of radios, chipset costs, warranty costs and certain promotional costs. First quarter: Subsidies & distribution costs decreased by $2.4 million or 19.7%, to $9.9 million from $12.3 million for the first quarters of 2012 and 2011, respectively. Subsidies & distribution expenses decreased primarily due to lower costs in the automotive channel as a result of lower unit pricing for satellite receivers and for a particular automotive partner a lower number of vehicles equipped with satellite receivers shipped in the current quarter compared to the same quarter prior year. Subsidies & distribution expenses also decreased due to lower costs in the Aftermarket channel as a result of lower volume of radios sold resulting in lower subsidy and commission payments as well as lower warranty costs.

13 P a g e 13 SAC $63 $54 Q Q Per Subscriber Acquisition Costs SAC was $54 and $63 for the first quarters of 2012 and 2011, respectively. The decrease in SAC is mainly attributable to lower subsidies and distribution costs in the automotive channel. SAC also decreased due to a mix shift between radios in the aftermarket channel as a higher percentage of radios sold had a lower unit SAC costs compared to radios sold in the corresponding period last year. Marketing Include costs related to communications associated with converting trial subscribers to self-paying subscribers, retail advertising through various media, co-operative advertising with distribution partners, sponsorships, and ongoing market research. These costs fluctuate based on the timing of these activities. First quarter: Marketing decreased by $1.5 million or 21.7% to $5.4 million in the first quarter of 2012 from $6.9 million in the comparable quarter in 2011 primarily due to lower variable costs associated with communicating with OEM trial subscribers as well as a reduction in general advertising and brand marketing costs. Costs of communication with OEM trial subscribers were lower compared to the same period last year due to lower production costs from external agencies.

14 P a g e 14 CPGA $97 $83 Q Q Cost Per Gross Addition CPGA was $83 and $97 for the first quarters of 2012 and 2011, respectively. CPGA declined period-over-period due primarily to lower SAC and marketing costs. The Company currently expects CPGA on a full-year basis to continue to be favorable year over year as it seeks efficiencies in marketing costs and continues to generate annual growth in subscribers by increasing its penetration of vehicles equipped with satellite receivers, improving its conversion rate and capitalizing on the pre-owned vehicle channel. CPGA is generally lower for subscribers gained through the pre-owned market as compared to subscribers gained through the new vehicle channel. General & Administrative Expenses General & administrative expenses primarily include compensation, as well as other expenses which include public company costs, office occupancy expenses and other corporate expenses. First quarter: General & administrative expenses decreased by $1.0 million or 28% to $2.6 million in 2012 from $3.6 million in The main components of general & administrative expenses are the following: o o Compensation expenses: These costs decreased by $1.0 million for the first quarters of 2012 and The decrease is due primarily to lower headcount and reclassification of expenses to other functional areas. Other expenses: These costs, which include public company costs, professional fees and other general corporate expenses, remained relatively flat at $1.6 million for the first quarters of 2012 and 2011, respectively. Information Technology Information Technology expenses primarily include costs related to our subscriber management systems, data processing, communications cost, broadcast infrastructure cost and people costs.

15 P a g e 15 First quarter: Information technology expenses decreased by $0.2 million or 6.4% to $2.8 million in the first quarter of 2012 from $3.0 million in the first quarter of These costs decreased due to lower costs associated with data processing efficiencies. The Company will seek to realize savings in this area by streamlining communications and data processing costs and consolidating operating systems across a single platform. Severance and merger costs The Company incurred $0.9 million of merger and restructuring costs primarily related to severance costs in the current quarter compared to $2.5 million in the comparable quarter of last year. The Company expects to incur additional restructuring costs in the remainder of fiscal 2012 although any further costs are not expected to be significant as compared to the costs incurred in the current quarter. Stock-based Compensation Stock-based compensation expenses are related to the issuance of stock options. First quarter: Stock-based compensation expenses increased to $0.4 million in first quarter of 2012 from less than $0.1 million in The increase in stock-based compensation is a result of expenses associated with options granted in the fourth quarter of fiscal 2011 and the recognition of stock compensation of unvested options assumed on the merger, which were revalued under purchase accounting. EBITDA $11.2 $2.6 Q Q1 2012

16 P a g e 16 The Company intends to use EBITDA and its variants such as Adjusted EBITDA, as included in the Non GAAP Financial Measures section, to gauge the performance of the business going forward. First quarter: EBITDA improved by $8.6 million or 332.5% to $11.2 million from $2.6 million in the first quarters of 2012 and 2011, respectively. EBITDA improved compared to the same period in the prior year primarily due to a $3.9 million revenue improvement (including fair value adjustments of $0.3 million as a result of purchase price accounting), a $1.0 million decrease in general and administrative costs, lower marketing costs of $4.5 million and lower severance and merger costs of $1.6 million offset by higher cost of revenue of $2.2 million. As a percentage of revenue EBITDA improved to 17.8% in the first quarter of 2012 from 4.4% in the first quarter of The improvement in EBITDA is a function of both operational leverage and the realization of synergies in areas such as programming, general and administrative expenses as well as marketing. Adjusted EBITDA $12.9 $5.1 Q Q Adjusted EBITDA First quarter: Adjusted EBITDA improved by $7.8 million or 152.0% to $12.9 million from $5.1 million in the first quarters of 2012 and 2011, respectively. Adjusted EBITDA improved compared to the same period in the prior year primarily due to a $3.9 million revenue improvement (including fair value adjustments of $0.3 million as a result of purchase price accounting), a $1.0 million decrease in general and administrative costs, lower marketing costs of $4.5 million offset by higher cost of revenue of $2.2 million. As a percentage of revenue Adjusted EBITDA improved to 20.4% in the first quarter of 2012 from 8.6% in the first quarter of The improvement in Adjusted EBITDA is a function of both operational leverage and the realization of synergies in areas such as programming, general and administrative expenses as well as marketing.

17 P a g e 17 Selected IFRS Financial Information The following selected financial information has been derived from our unaudited consolidated financial statements for the period ended November 30, The previous annual financial year end of Sirius Canada Inc. was November 30, 2010; however, in conjunction with the acquisition the year-end was changed to August 31. The interim results for the Company therefore include the results for the prior period of Sirius Canada from December 1, 2010 to February 28, 2011 and for the current period, the results for CSRH (which includes both Sirius and XM Canada businesses) from September 1, 2011, to November 30, This information should be read in conjunction with our audited consolidated financial statements and related notes thereto. The results of the first quarter of fiscal 2012 are not directly comparable to the first quarter of 2011 due to the inclusion of financial results in the prior period for Sirius Canada only compared to financial results of the combined entity for the current period. Hence, the two reporting periods cannot be compared in a meaningful way. For a qualitative assessment of reasons or factors that caused variances in results from period to period, management directs the reader to the Combined Financial Information discussion provided earlier, which is substantially applicable to the reported results.

18 P a g e 18 Unaudited Quarter Ended Nov 30, 2011 Quarter Ended Feb 28, Q Q REVENUE 63,111,245 42,499,096 OPERATING EXPENSES Cost of Revenue Revenue share and royalties 20,547,684 13,012,838 Customer care & billing operations 4,229,469 2,815,030 Cost of merchandise 684, ,390 Broadcast and operations 479, ,087 Programming and content 2,208,016 1,135,487 Total Cost of Revenue 28,149,319 17,849,832 General and administrative 2,583,397 1,727,132 Information Technology 2,823,767 1,411,994 Stock based compensation 393,921 - Marketing support 1,742,505 1,313,264 Subsidies and distribution 9,880,322 9,360,171 Marketing 5,398,696 5,241,277 Total operating expenses 50,971,927 36,903,670 Severance and merger costs 918,023 1,030,802 Depreciation and amortization 10,940, ,475 Operating income 281,210 3,612,149 Interest income (43,648) (117,015) Interest expense 4,343,312 - Revaluation of derivative 28,507 - Foreign exchange loss 502, ,580 Net Income (Loss) before income taxes (4,549,010) 3,576,584 Income tax expense (recovery) (1,137,253) - Net Income (Loss) for the period (3,411,757) 3,576,584 Note: Employee wages and benefits have been allocated to the functions to which they relate in the amounts above. 3 Represents results for Sirius Canada Inc. pre-merger

19 P a g e 19 The following is a reconciliation of Operating income (loss) to EBITDA and Adjusted EBITDA. IFRS Financial Results In ($000 s) 2011 (IFRS) First Quarter Ended November (IFRS) Operating Income (Loss) 281 3,612 Amortization 10, EBITDA 11,221 4,595 Stock-based compensation 394 Severance and merger costs 918 1,031 Fair value adjustments* 347 Adjusted EBITDA 12,880 5,595 The following is a summary of quarterly information for fiscal years 2011 and IFRS Financial Results Fiscal Year 2011 (Dec Aug 2011) In ($000 s) except EPS Q1 Q2 Q3 FY 2011 Revenues 42,500 42,953 55, ,919 Net Income 3,576 6,123 8,154 17,853 Earnings per share (EPS) $0.04 $0.08 $0.07 $0.19 GAAP Financial Results Fiscal Year 2010 ( Jan Nov 2010) In ($000 s) except EPS Q1 Q2 Q3 Q4* FY 2010 Revenues 35,058 36,772 40,451 29, ,279 Net Income 4,835 1,597 7,038 2,266 15,736 Earnings per share (EPS) $0.06 $0.01 $0.09 $0.02 $0.18 * Q comprised of only 2 months due to the change in year end of Sirius Canada to November Revenue Revenue includes Subscription Revenue (including Music Royalty Fees), activation fees, sale of merchandise through direct fulfillment channels, advertising revenue from Canadian-produced channels and other revenue from partnership subscribers.

20 P a g e 20 Cost of Revenue First quarter: For the three months ended November 30, 2011, revenue was $63.1 million compared to revenue of $42.5 million for the three months ended February 28, Revenue increased in the current period due to inclusion of results for XM Canada in the current period as well as higher revenues as a result of a higher subscriber base offset by a decline in ARPU. First quarter: For the three months ended November 30, 2011, cost of revenue was $28.1 million or 44.6% of revenue compared to cost of revenue of $17.8 million or 42.0% of revenue for the three months ended February 28, The increase in cost of revenue is partially due to the inclusion of results for XM Canada for the current period while the prior period included results for Sirius Canada only. Cost of revenue increased by three percentage points in the current period compared to the prior period due to an increase in SXM royalty rates from 5% to 10% in July 2011 for Sirius Canada only in addition to higher revenue share rates paid to certain automakers in the current period as the Company reached certain subscriber thresholds in the intervening period. General & Administrative Expenses General & administrative expenses primarily include compensation, as well as other expenses which include public company costs, office occupancy expenses and other corporate expenses. First quarter: For the three months ended November 30, 2011, general and administrative expenses were $2.6 million compared to $1.7 million for the three months ended February 28, The increase in the general and administrative expenses is due to the inclusion of costs for XM Canada in the current period compared to prior period offset by costs savings due to the realization of synergies post-merger. Information Technology Expenses Information Technology expenses primarily include costs related to our subscriber management systems, data processing, communications cost, broadcast infrastructure cost and people costs. First quarter: For the three months ended November 30, 2011, information technology expenses were $2.8 million compared to $1.4 million for the three months ended February 28, The increase in the information technology expenses is due to the addition of costs related to XM Canada for the three months in the current period partially offset by realization of synergies. Severance and merger costs First quarter: For the three months ended November 30, 2011 merger and restructuring costs were $0.9 million compared to $1.0 million in the three months ended February 28, Merger costs in the prior period include accounting, legal and transaction fees incurred by Sirius Canada. Restructuring costs of $0.7 million relating to severance for employees of the merged company were expensed during the period ended November 30, 2011 and included in the total amount of $0.9 million.

21 P a g e 21 Stock-based Compensation First quarter: For the three months ended November 30, 2011 stock-based compensation was $0.4 million compared to nil for the three months ended February 28, Sirius Canada did not have a stock option plan in place. Stock options previously issued to employees of CSRH remained in place at the time of the acquisition and were not modified and therefore vest based on their original terms. During the fourth quarter of 2011, the Company issued stock options to the Board of Directors and to the senior management team. The options issued to the Board of Directors vest immediately while those issued to senior management vest over the next five years. The $0.4 million in stock-based compensation expense is primarily as a result of this most recent grant and the expense related to previous grants. Marketing support Marketing support includes staffing directly associated with supporting the sale of radio receivers through third party distribution channels, the sale of radios through direct channels, installation of receivers, converting OEM trial customers into Self-Paying Subscribers, retaining the customer base, costs related to winning back churned subscribers and marketing the Sirius and XM brands. First quarter: For the three months ended November 30, 2011, marketing support costs were $1.7 million compared to $1.3 million for the three months ended February 28, The increase of $0.4 million is due primarily to including marketing support costs from XM Canada in the current period offset by the synergies realized post-merger. Subsidies & distribution These direct costs include the subsidization of radios, commissions paid with respect to the sale and activation of radios, and certain promotional costs. First quarter: For the three months ended November 30, 2011, subsidies & distribution costs were $9.9 million compared to $9.4 million for the three months ended February 28, The increase of $0.5 million is due primarily to the inclusion of the results for XM Canada for the current period somewhat mitigated by costs associated with a reduction in per unit SAC costs for certain OEM partners. Marketing Include costs related to communications associated with converting trial subscribers to self-paying subscribers, retail advertising through various media, co-operative advertising with distribution partners, sponsorships, and ongoing market research. These costs fluctuate based on the timing of these activities. First quarter: For the three months ended November 30, 2011 marketing costs were $5.4 million compared to $5.2 million for the three months ended February 28, The increase of $0.2 million is due primarily to the inclusion of results for the XM Canada business offset by synergies realized through lower spending on brand marketing. EBITDA First quarter: For the three months ended November 30, 2011 EBITDA was $11.2 million compared to $4.6 million for the three months ended February 28, EBITDA increased in the current period compared to the prior period due to higher revenue of $20.6 million, offset by higher cost of revenue of $10.3 million, higher marketing and support costs (general and administrative and information technology) of $3.4 million and higher stock based compensation of $0.4 million. The inclusion of results for the XM Canada business in the current period contributed to higher revenue, cost of revenue and support costs. As a percentage of revenue EBITDA in the three months of the current period, was 17.8%

22 P a g e 22 compared to 10.7% in the comparative period. The improvement in EBITDA is due primarily to an increase in average monthly revenue over the prior period and due to the fact that prior period results are those of Sirius Canada only, offset by an increase in average monthly revenue share due to a higher effective royalty rate in the current period compared to the prior period. The expansion of the EBITDA margin was aided by the decline of marketing costs as a percentage of revenue due to the realization of synergies in this area. Adjusted EBITDA First quarter: For the three months ended November 30, 2011 Adjusted EBITDA was $12.9 million compared to $5.6 million for the three months ended February 28, Adjusted EBITDA increased in the current period compared to the prior period due to higher revenue of $20.6 million, offset by higher cost of revenue of $10.3 million and higher marketing and support costs (general and administrative and information technology) of $3.4 million. The inclusion of results for the XM Canada business in the current period contributed to higher revenue, cost of revenue and support costs. As a percentage of revenue Adjusted EBITDA in the three months of the current period, was 20.4% compared to 13.2% in the comparative period. The improvement in Adjusted EBITDA is due primarily to an increase in average monthly revenue over the prior period offset by an increase in average monthly revenue share due to a higher effective royalty rate in the current period compared to the prior period. The expansion of the Adjusted EBITDA margin was aided by the decline of marketing costs as a percentage of revenue due to the realization of synergies in this area. Financing and Other Income Interest Expense Interest expense includes costs associated with the Company s 9.75% Senior notes due June 21, 2018 ( Senior notes ), $20 million 8% unsecured subordinated convertible notes due September 12, 2014 ( Convertible notes ), US$0.9 million of the Company s 12.75% US$ Senior notes due 2014 ( US$ Senior notes ) and interest and non-cash interest accretion associated with other long term obligations. First quarter: Interest expense for the three months ended November 30, 2011 was $4.3 million and $nil for the three months ended February 28, The increase in interest expense is due to interest on liabilities assumed from XM Canada on the closing of the merger, interest on the new Senior notes, the US Senior notes and Convertible notes. Previously Sirius Canada did not have any debt outstanding and consequently did not incur any interest expense prior to June 21, Interest Income Interest income includes income from our cash and cash equivalent balances. First quarter: Interest income for the three months ended November 30, 2011 was less than $0.1 million and slightly over $0.1 million for the three months ended February 28, The decrease in interest income is due to the lower monthly average cash balances in the current period compared to the quarter ended February 28, Monthly average cash balances declined in the quarter ended November 30, 2011 compared to the quarter ended February 28, 2011 primarily due to distributions in the amount of $44.7 million were paid to the shareholders of Sirius Canada prior to the closing of the merger.

23 P a g e 23 Liquidity and Capital Resources As at November 30, 2011, the Company had total cash and cash equivalents of $35.2 million. Cash and cash equivalents increased by $9.2 million during the quarter ended November 30, This increase is due primarily to $10.0 million in operating cash flow generated during the quarter. At November 30, 2011, the Company had financial assets of $47.1 million comprised of cash, cash equivalents and accounts receivables. As at November 30, 2011, the Company s current financial liabilities to be settled in unrestricted cash or financial assets are $45.3 million plus an additional $19.5 million current payable to related parties. Included in the amount payable to related parties are notes payable of $11.2 million. These notes are payable on the earliest of i) June 21, 2012, ii) the first day CSRH is free cash flow positive for a consecutive period of six months in the aggregate and iii) such date as determined by the board of directors of the Company. The notes do not bear interest. Accounts receivable of $11.9 million is composed primarily of receivables from customers or subscriber receivables and receivables from our OEM partners or nonsubscriber receivables. During the normal course of business, the Company continually reviews its subscriber receivables to ensure that appropriate allowances have been taken. Throughout the year, accounts payable and accrued liabilities may fluctuate as the Company effectively manages its working capital. Trade and other payables and current portion of provisions increased by $4.1 million to $39.1 million as at November 30, 2011 from $35.0 million as at August 31, The increase is primarily due to amounts owing to automotive partners. It is currently expected that the cash generated by the Company will provide sufficient cash flow to meet our obligations. Cash flow generated from operations for the three months period ended November 30, 2011 of $10.0 million is comprised of: $10.8 million from operations before changes in non-cash working capital Offset by $0.8 million from net reductions in other non-cash working capital mainly due to a decrease in deferred revenue of $6.4 million and an increase in account receivable of $1.1 million offset by an increase in account payable and due to related parties of $5.9 million. Cash flow generated from operations for the three months period ended February 28, 2011 of $2.0 million comprised of: $4.5 million from operations before changes in non-cash working capital, and Offset by $2.5 million from net reductions in other non-cash working capital, mainly accounts receivable and payable The Company believes that its financial position and cash flows are sufficient to satisfy its financial obligations in the normal course of business. The Company currently believes that positive cash flow will continue to be generated on a consistent basis. Positive cash flow is defined revenues and working capital sources funding operating expenses, working capital requirements, interest and principal payments and capital expenditures. The Company makes the assessment based on the following: The Company s capital expenditure requirements in the next two years are not significant; The Company s substantial current debt maturities are in 2014 and 2018, which obviates the need to roll over or refinance existing debt in the near term; Growth in revenue and EBITDA as the number of Revenue Generating Subscribers increase; Sale of multi-year plans.