The discussion of operating expenses below excludes the effects of equity granted to third parties and employees. The company believes this presentation improves the transparency of disclosure and is consistent with the way operating results are evaluated.
For the second quarter of 2006, SIRIUS recognized total revenue of $150.1 million compared with $52.2 million for the second quarter of 2005. This 188%, or $97.9 million, increase in revenue was primarily driven by an $88.0 million increase in subscriber revenue resulting from the net increase in subscribers of 2,863,581, or 158%, from June 30, 2005 to June 30, 2006, and a $7.1 million increase in net advertising revenue.
The company’s adjusted loss from operations increased ($17.7) million to ($126.5) million for the second quarter of 2006 from ($108.8) million for the second quarter of 2005 (refer to the reconciliation table of net loss to adjusted loss from operations). This increase was driven by a 58%, or $40.0 million, increase in subscriber acquisition costs reflecting higher shipments of SIRIUS radios and chip sets and increased commissions to support a 92% increase in gross subscriber additions from 432,687 for the second quarter of 2005 to 830,571 for the second quarter of 2006. The increase in subscriber acquisition costs was more than offset by the 177%, or $88.0 million, increase in subscriber revenue as a result of a 158% increase in the company’s subscriber base.
Satellite and transmission expenses increased $11.0 million to $17.7 million for the second quarter of 2006 from $6.7 million for the second quarter of 2005. The increase was primarily attributable to an impairment charge associated with certain satellite long-lead time parts that will no longer be needed in light of the company’s new satellite contract.
Programming and content expenses increased $37.2 million to $53.0 million for the second quarter of 2006 from $15.8 million for the second quarter of 2005. The increase was primarily attributable to license fees and consulting costs associated with new programming, and higher broadcast and webstreaming royalties as a result of the company’s larger subscriber base.
Customer service and billing expenses increased $6.0 million to $13.7 million for the second quarter of 2006 from $7.7 million for the second quarter of 2005. The increase was primarily attributable to call center operating costs necessary to accommodate the increase in the company’s subscriber base and transaction fees due to the addition of new subscribers. Customer service and billing expenses per average subscriber per month declined 34% to $1.05 for the second quarter of 2006 from $1.60 for the second quarter of 2005.
Sales and marketing expenses increased $22.4 million to $56.6 million for the second quarter of 2006 from $34.2 million for the second quarter of 2005. This 65% increase in sales and marketing expenses compared with a 92% increase in gross subscriber additions from 432,687 for the three months ended June 30, 2005 to 830,571 for the three months ended June 30, 2006. The increase was primarily attributable to less spending in second quarter 2005 in anticipation of the fourth quarter 2005 marketing
campaign associated with the launch of Howard Stern; advertising costs for the new marketing campaign; cooperative marketing spend with the company’s channel partners; and increased residuals and OEM revenue share as a result of a 158% increase in the company’s subscriber base.
General and administrative expenses increased $7.6 million to $21.7 million for the second quarter of 2006 from $14.1 million for the second quarter of 2005. The increase was primarily a result of legal fees, employment-related costs and bad debt expense to support the growth of the business.
SIRIUS reported a net loss of ($237.8) million, or ($0.17) per share, for the second quarter of 2006, including a ($0.01) per share impact from the impairment loss and ($0.05) per share impact from equity charges, compared with a net loss of ($177.5) million, or ($0.13) per share, in the year-ago quarter, including a ($0.03) per share impact from equity charges. The adjusted net loss per share, or net loss per share excluding the impairment loss and equity charges, was ($0.11) for the second quarter of 2006 compared with an adjusted net loss per share of ($0.10) for the second quarter of 2005 (refer to the reconciliation table of net loss per share to adjusted net loss per share).
SIX MONTHS ENDED JUNE 30, 2006 VERSUS SIX MONTHS ENDED JUNE 30, 2005
For the six months ended June 30, 2006, SIRIUS recognized total revenue of $276.7 million compared with $95.4 million for the six months ended June 30, 2005. This 190%, or $181.3 million, increase in revenue was primarily driven by a $161.3 million increase in subscriber revenue resulting from the net increase in subscribers of 2,863,581, or 158%, from June 30, 2005 to June 30, 2006, and a $13.9 million increase in net advertising revenue.
The company’s adjusted loss from operations increased ($27.4) million to ($263.2) million for the six months ended June 30, 2006 from ($235.8) million for the six months ended June 30, 2005 (refer to the reconciliation table of net loss to adjusted loss from operations). This increase was driven by a 60%, or $82.0 million, increase in subscriber acquisition costs reflecting higher shipments of SIRIUS radios and chip sets and increased commissions to support a 127% increase in gross subscriber additions from 787,395 for the six months ended June 30, 2005 to 1,791,181 for the six months ended June 30, 2006. The increase in subscriber acquisition costs was more than offset by the 176%, or $161.3 million, increase in subscriber revenue as a result of a 158% increase in the company’s subscriber base.
Satellite and transmission expenses increased $11.5 million to $25.0 million for the six months ended June 30, 2006 from $13.5 million for the six months ended June 30, 2005. The increase was primarily attributable to an impairment charge associated with certain satellite long-lead time parts that will no longer be needed in light of the company’s new satellite contract.
Programming and content expenses increased $69.5 million to $109.5 million for the six months ended June 30, 2006 from $40.0 million for the six months ended June 30, 2005. The increase was primarily attributable to license fees and consulting costs associated with new programming, and higher broadcast and webstreaming royalties as a result of the company’s larger subscriber base.
Customer service and billing expenses increased $12.3 million to $29.5 million for the six months ended June 30, 2006 from $17.2 million for the six months ended June 30, 2005. The increase was primarily attributable to call center operating costs necessary to accommodate the increase in the company’s subscriber base and transaction fees due to the addition of new subscribers. Customer service and billing expenses per average subscriber per month declined 38% to $1.21 for the six months ended June 30, 2006 from $1.96 for the six months ended June 30, 2005.
Sales and marketing expenses increased $26.5 million to $95.9 million for the six months ended June 30, 2006 from $69.4 million for the six months ended June 30, 2005. This 38% increase in sales and marketing expenses compared with a 127% increase in gross subscriber additions from 787,395 for the six months ended June 30, 2005 to 1,791,181 for the six months ended June 30, 2006. The increase was primarily attributable to increased residuals and OEM revenue share as a result of a 158% increase in the company’s subscriber base, as well as increased cooperative marketing spend with the company’s channel partners, advertising costs for the new marketing campaign and compensation related costs.
General and administrative expenses increased $11.8 million to $40.8 million for the six months ended June 30, 2006 from $29.0 million for the six months ended June 30, 2005. The increase was primarily a result of legal fees, employment-related costs and bad debt expense to support the growth of the business.
For the six months ended June 30, 2006, the company recorded ($4.4) million for its share of SIRIUS Canada, Inc.’s net loss.
SIRIUS reported a net loss of ($696.4) million, or ($0.50) per share, for the six months ended June 30, 2006, including a ($0.01) per share impact from the impairment loss and ($0.25) per share impact from equity charges, compared with a net loss of ($371.2) million, or ($0.28) per share, for the six months ended June 30, 2005, including a ($0.06) per share impact from equity charges. The adjusted net loss per share, or net loss per share excluding the impairment loss and equity charges, was ($0.24) for the six months ended June 30, 2006 compared with an adjusted net loss per share of ($0.22) for the six months ended June 30, 2005 (refer to the reconciliation table of net loss per share to adjusted net loss per share).
Sirius Satellite Radio Inc. and Subsidiaries
Subscriber Data, Metrics and Other Non-GAAP Financial Measures
(Dollars in thousands, unless otherwise stated)
(Unaudited)
Subscribers:
| | | | | | | | | | | | | |
| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
Beginning subscribers | | | 4,077,747 | | | 1,448,695 | | | 3,316,560 | | | 1,143,258 | |
Net additions | | | 600,460 | | | 365,931 | | | 1,361,647 | | | 671,368 | |
| |
|
| |
|
| |
|
| |
|
| |
Ending subscribers | | | 4,678,207 | | | 1,814,626 | | | 4,678,207 | | | 1,814,626 | |
Retail | | | 3,276,615 | | | 1,354,798 | | | 3,276,615 | | | 1,354,798 | |
OEM | | | 1,373,610 | | | 432,988 | | | 1,373,610 | | | 432,988 | |
Hertz | | | 27,982 | | | 26,840 | | | 27,982 | | | 26,840 | |
Metrics:
| | | | | | | | | | | | | |
| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
|
Gross subscriber additions | | | 830,571 | | | 432,687 | | | 1,791,181 | | | 787,395 | |
Deactivated subscribers | | | 230,111 | | | 66,756 | | | 429,534 | | | 116,027 | |
Average monthly churn(1)(6) | | | 1.8 | % | | 1.4 | % | | 1.8 | % | | 1.3 | % |
SAC per gross subscriber addition(2)(6) | | $ | 131 | | $ | 160 | | $ | 122 | | $ | 173 | |
Customer service and billing expenses per average subscriber (3)(6) | | $ | 1.05 | | $ | 1.60 | | $ | 1.21 | | $ | 1.96 | |
Monthly ARPU: | | | | | | | | | | | | | |
Average monthly subscriber revenue per subscriber before effects of Hertz subscribers and mail-in rebates | | $ | 10.64 | | $ | 10.60 | | $ | 10.66 | | $ | 10.61 | |
Effects of Hertz subscribers | | | 0.05 | | | 0.05 | | | 0.04 | | | 0.03 | |
Effects of mail-in rebates | | | (0.15 | ) | | (0.37 | ) | | (0.35 | ) | | (0.23 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Average monthly subscriber revenue per subscriber | | | 10.54 | | | 10.28 | | | 10.35 | | | 10.41 | |
Average monthly net advertising revenue per subscriber | | | 0.62 | | | 0.22 | | | 0.63 | | | 0.18 | |
| |
|
| |
|
| |
|
| |
|
| |
ARPU(4)(6) | | $ | 11.16 | | $ | 10.50 | | $ | 10.98 | | $ | 10.59 | |
Adjusted Loss from Operations:
| | | | | | | | | | | | | |
| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
Net loss | | $ | (237,828 | ) | $ | (177,546 | ) | $ | (696,372 | ) | $ | (371,158 | ) |
Impairment loss | | | 10,917 | | | — | | | 10,917 | | | — | |
Depreciation | | | 25,738 | | | 24,580 | | | 50,671 | | | 49,081 | |
Equity granted to third parties and employees | | | 67,289 | | | 41,230 | | | 351,875 | | | 79,936 | |
Other income (expense) | | | 6,778 | | | 2,404 | | | 18,400 | | | 5,197 | |
Income tax expense | | | 578 | | | 560 | | | 1,331 | | | 1,120 | |
| |
|
| |
|
| |
|
| |
|
| |
Adjusted loss from operations (7) | | $ | (126,528 | ) | $ | (108,772 | ) | $ | (263,178 | ) | $ | (235,824 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Sirius Satellite Radio Inc. and Subsidiaries
Subscriber Data, Metrics and Other Non-GAAP Financial Measures - Continued
(Dollars in thousands, unless otherwise stated)
(Unaudited)
Adjusted Net Loss and Adjusted Net Loss per Share:
| | | | | | | | | | | | | |
| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
Net loss | | $ | (237,828 | ) | $ | (177,546 | ) | $ | (696,372 | ) | $ | (371,158 | ) |
Impairment loss | | | 10,917 | | | — | | | 10,917 | | | — | |
Equity granted to third parties and employees | | | 67,289 | | | 41,230 | | | 351,875 | | | 79,936 | |
| |
|
| |
|
| |
|
| |
|
| |
Adjusted net loss(8) | | $ | (159,622 | ) | $ | (136,316 | ) | $ | (333,580 | ) | $ | (291,222 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Net loss per share (basic and diluted) | | $ | (0.17 | ) | $ | (0.13 | ) | $ | (0.50 | ) | $ | (0.28 | ) |
Impairment loss | | | 0.01 | | | — | | | 0.01 | | | — | |
Equity granted to third parties and employees | | | 0.05 | | | 0.03 | | | 0.25 | | | 0.06 | |
| |
|
| |
|
| |
|
| |
|
| |
Adjusted net loss per share (basic and diluted) (8) | | $ | (0.11 | ) | $ | (0.10 | ) | $ | (0.24 | ) | $ | (0.22 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Weighted average common shares outstanding (basic and diluted) | | | 1,404,022 | | | 1,324,270 | | | 1,395,549 | | | 1,319,318 | |
| |
|
| |
|
| |
|
| |
|
| |
Condensed Consolidated Statements of Operations:
| | | | | | | | | | | | | |
| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
Total revenue | | $ | 150,078 | | $ | 52,194 | | $ | 276,742 | | $ | 95,410 | |
Operating expenses: | | | | | | | | | | | | | |
Satellite and transmission | | | 17,686 | | | 6,668 | | | 24,987 | | | 13,481 | |
Programming and content | | | 53,011 | | | 15,769 | | | 109,455 | | | 40,047 | |
Customer service and billing | | | 13,659 | | | 7,738 | | | 29,500 | | | 17,230 | |
Cost of equipment | | | 3,467 | | | 1,952 | | | 6,932 | | | 2,928 | |
Sales and marketing | | | 56,609 | | | 34,240 | | | 95,905 | | | 69,362 | |
Subscriber acquisition costs | | | 108,663 | | | 68,693 | | | 217,807 | | | 135,786 | |
General and administrative | | | 21,653 | | | 14,120 | | | 40,797 | | | 28,952 | |
Engineering, design and development | | | 12,775 | | | 11,786 | | | 25,454 | | | 23,448 | |
Depreciation | | | 25,738 | | | 24,580 | | | 50,671 | | | 49,081 | |
Equity granted to third parties and employees | | | 67,289 | | | 41,230 | | | 351,875 | | | 79,936 | |
| |
|
| |
|
| |
|
| |
|
| |
Total operating expenses | | | 380,550 | | | 226,776 | | | 953,383 | | | 460,251 | |
| |
|
| |
|
| |
|
| |
|
| |
Loss from operations | | | (230,472 | ) | | (174,582 | ) | | (676,641 | ) | | (364,841 | ) |
Other income (expense) | | | (6,778 | ) | | (2,404 | ) | | (18,400 | ) | | (5,197 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Loss before income taxes | | | (237,250 | ) | | (176,986 | ) | | (695,041 | ) | | (370,038 | ) |
Income tax expense | | | (578 | ) | | (560 | ) | | (1,331 | ) | | (1,120 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Net loss | | $ | (237,828 | ) | $ | (177,546 | ) | $ | (696,372 | ) | $ | (371,158 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Sirius Satellite Radio Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | |
| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
Revenue: | | | | | | | | | | | | | |
|
Subscriber revenue, including effects of mail-in rebates | | $ | 137,636 | | $ | 49,622 | | $ | 252,817 | | $ | 91,526 | |
Advertising revenue, net of agency fees | | | 8,125 | | | 1,052 | | | 15,463 | | | 1,586 | |
Equipment revenue | | | 3,096 | | | 1,503 | | | 6,788 | | | 2,270 | |
Other revenue | | | 1,221 | | | 17 | | | 1,674 | | | 28 | |
| |
|
| |
|
| |
|
| |
|
| |
Total revenue | | | 150,078 | | | 52,194 | | | 276,742 | | | 95,410 | |
Operating expenses(1): | | | | | | | | | | | | | |
Cost of services (excludes depreciation shown separately below): | | | | | | | | | | | | | |
Satellite and transmission | | | 18,496 | | | 7,097 | | | 26,699 | | | 14,469 | |
Programming and content | | | 76,735 | | | 20,819 | | | 382,979 | | | 49,985 | |
Customer service and billing | | | 13,863 | | | 7,864 | | | 29,948 | | | 17,495 | |
Cost of equipment | | | 3,467 | | | 1,952 | | | 6,932 | | | 2,928 | |
Sales and marketing | | | 61,676 | | | 41,516 | | | 103,174 | | | 90,068 | |
Subscriber acquisition costs | | | 130,563 | | | 81,226 | | | 249,606 | | | 154,547 | |
General and administrative | | | 34,558 | | | 22,452 | | | 68,208 | | | 44,561 | |
Engineering, design and development | | | 15,454 | | | 19,270 | | | 35,166 | | | 37,117 | |
Depreciation | | | 25,738 | | | 24,580 | | | 50,671 | | | 49,081 | |
| |
|
| |
|
| |
|
| |
|
| |
Total operating expenses | | | 380,550 | | | 226,776 | | | 953,383 | | | 460,251 | |
| |
|
| |
|
| |
|
| |
|
| |
Loss from operations | | | (230,472 | ) | | (174,582 | ) | | (676,641 | ) | | (364,841 | ) |
Other income (expense): | | | | | | | | | | | | | |
Interest and investment income | | | 8,873 | | | 4,790 | | | 18,810 | | | 9,277 | |
Interest expense | | | (15,660 | ) | | (7,201 | ) | | (32,784 | ) | | (14,526 | ) |
Equity in net loss of affiliate | | | — | | | — | | | (4,445 | ) | | — | |
Other income | | | 9 | | | 7 | | | 19 | | | 52 | |
| |
|
| |
|
| |
|
| |
|
| |
Total other income (expense) | | | (6,778 | ) | | (2,404 | ) | | (18,400 | ) | | (5,197 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Loss before income taxes | | | (237,250 | ) | | (176,986 | ) | | (695,041 | ) | | (370,038 | ) |
Income tax expense | | | (578 | ) | | (560 | ) | | (1,331 | ) | | (1,120 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Net loss | | $ | (237,828 | ) | $ | (177,546 | ) | $ | (696,372 | ) | $ | (371,158 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Net loss per share (basic and diluted) | | $ | (0.17 | ) | $ | (0.13 | ) | $ | (0.50 | ) | $ | (0.28 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Weighted average common shares outstanding (basic and diluted) | | | 1,404,022 | | | 1,324,270 | | | 1,395,549 | | | 1,319,318 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
(1) | Amounts related to equity granted to third parties and employees included in other operating expenses were as follows: |
| | | | | | | | | | | | | |
Satellite and transmission | | $ | 810 | | $ | 429 | | $ | 1,712 | | $ | 988 | |
Programming and content | | | 23,724 | | | 5,050 | | | 273,524 | | | 9,938 | |
Customer service and billing | | | 204 | | | 126 | | | 448 | | | 265 | |
Sales and marketing | | | 5,067 | | | 7,276 | | | 7,269 | | | 20,706 | |
Subscriber acquisition costs | | | 21,900 | | | 12,533 | | | 31,799 | | | 18,761 | |
General and administrative | | | 12,905 | | | 8,332 | | | 27,411 | | | 15,609 | |
Engineering, design and development | | | 2,679 | | | 7,484 | | | 9,712 | | | 13,669 | |
| |
|
| |
|
| |
|
| |
|
| |
Total equity granted to third parties and employees | | $ | 67,289 | | $ | 41,230 | | $ | 351,875 | | $ | 79,936 | |
| |
|
| |
|
| |
|
| |
|
| |
Sirius Satellite Radio Inc. and Subsidiaries
Balance Sheet Data
(In thousands)
(Unaudited)
| | | | | | | |
| | As of | |
| |
| |
| | June 30, 2006 | | December 31, 2005 | |
| |
| |
| |
Cash, cash equivalents and marketable securities | | $ | 583,588 | | $ | 879,257 | |
Restricted investments | | | 108,315 | | | 107,615 | |
Working capital | | | 67,646 | | | 404,481 | |
Total assets | | | 1,811,396 | | | 2,085,362 | |
Long-term debt | | | 1,083,929 | | | 1,084,437 | |
Total liabilities | | | 1,868,519 | | | 1,760,394 | |
Accumulated deficit | | | (3,425,225 | ) | | (2,728,853 | ) |
Stockholders’ equity | | | (57,123 | ) | | 324,968 | |
Sirius Satellite Radio Inc. and Subsidiaries
Statements of Cash Flows
(In thousands)
(Unaudited)
| | | | | | | | | | | | | |
| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
Cash flows from operating activities: | | | | | | | | | | | | | |
Net loss | | $ | (237,828 | ) | $ | (177,546 | ) | $ | (696,372 | ) | $ | (371,158 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | |
Depreciation | | | 25,738 | | | 24,580 | | | 50,671 | | | 49,081 | |
Non-cash interest expense | | | 786 | | | 761 | | | 1,547 | | | 1,523 | |
Provision for doubtful accounts | | | 2,003 | | | 882 | | | 3,780 | | | 2,282 | |
Non-cash equity in net loss of affiliate | | | — | | | — | | | 2,276 | | | — | |
Loss on disposal of assets | | | 320 | | | 125 | | | 541 | | | 252 | |
Impairment loss | | | 10,917 | | | — | | | 10,917 | | | — | |
Equity granted to third parties and employees | | | 67,289 | | | 41,230 | | | 351,875 | | | 79,936 | |
Deferred income taxes | | | 578 | | | 560 | | | 1,331 | | | 1,120 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | |
Marketable securities | | | — | | | — | | | — | | | 16 | |
Accounts receivable | | | (966 | ) | | (5,716 | ) | | 8,986 | | | (6,056 | ) |
Inventory | | | (9,656 | ) | | (4,449 | ) | | (10,854 | ) | | (4,433 | ) |
Prepaid expenses and other current assets | | | (13,724 | ) | | (4,373 | ) | | (35,482 | ) | | (7,554 | ) |
Other long-term assets | | | (25,667 | ) | | 1,635 | | | (25,088 | ) | | 478 | |
Accounts payable and accrued expenses | | | 27,202 | | | 31,754 | | | (18,018 | ) | | 26,153 | |
Accrued interest | | | 11,620 | | | (2,862 | ) | | 1,160 | | | (126 | ) |
Deferred revenue | | | 29,389 | | | 30,800 | | | 73,847 | | | 50,223 | |
Other long-term liabilities | | | 1,052 | | | (2,018 | ) | | 8,595 | | | (3,542 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Net cash used in operating activities | | | (110,947 | ) | | (64,637 | ) | | (270,288 | ) | | (181,805 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Cash flows from investing activities: | | | | | | | | | | | | | |
Additions to property and equipment | | | (22,284 | ) | | (3,975 | ) | | (27,780 | ) | | (10,863 | ) |
Sales of property and equipment | | | 71 | | | 47 | | | 123 | | | 59 | |
Purchases of restricted investments | | | — | | | — | | | (700 | ) | | (6,291 | ) |
Release of restricted investments | | | — | | | 10,997 | | | — | | | 10,997 | |
Purchases of available-for-sale securities | | | (36,900 | ) | | — | | | (108,500 | ) | | — | |
Sales of available-for-sale securities | | | 72,675 | | | — | | | 177,125 | | | 4,835 | |
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Net cash provided by (used in) investing activities | | | 13,562 | | | 7,069 | | | 40,268 | | | (1,263 | ) |
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Cash flows from financing activities: | | | | | | | | | | | | | |
Proceeds from exercise of stock options | | | 1,517 | | | 5,111 | | | 2,976 | | | 6,104 | |
Other | | | — | | | — | | | — | | | (8 | ) |
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Net cash provided by financing activities | | | 1,517 | | | 5,111 | | | 2,976 | | | 6,096 | |
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Net decrease in cash and cash equivalents | | | (95,868 | ) | | (52,457 | ) | | (227,044 | ) | | (176,972 | ) |
Cash and cash equivalents at the beginning of period | | | 630,831 | | | 629,376 | | | 762,007 | | | 753,891 | |
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Cash and cash equivalents at the end of period | | $ | 534,963 | | $ | 576,919 | | $ | 534,963 | | $ | 576,919 | |
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FOOTNOTES TO PRESS RELEASE AND TABLES FOR NON-GAAP FINANCIAL MEASURES
This press release, including the selected financial information above, includes the following non-GAAP financial measures: average monthly churn; SAC per gross subscriber addition; customer service and billing expenses per average subscriber; average monthly revenue per subscriber, or ARPU; adjusted loss from operations; adjusted net loss; adjusted net loss per share; and free cash flow. The definitions and usefulness of such non-GAAP financial measures are as follows (dollars in thousands, unless otherwise stated):
(1) SIRIUS defines average monthly churn as the number of deactivated subscribers divided by average quarterly subscribers.
(2) SIRIUS defines SAC per gross subscriber addition as subscriber acquisition costs, excluding equity granted to third parties and employees, and margins from the direct sale of SIRIUS radios and accessories divided by the number of gross subscriber additions for the period. SAC per gross subscriber addition is calculated as follows:
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| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
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| | 2006 | | 2005 | | 2006 | | 2005 | |
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Subscriber acquisition costs | | $ | 130,563 | | $ | 81,226 | | $ | 249,606 | | $ | 154,547 | |
Less: equity granted to third parties and employees | | | (21,900 | ) | | (12,533 | ) | | (31,799 | ) | | (18,761 | ) |
Add: margin from direct sale of SIRIUS radios and accessories | | | 371 | | | 449 | | | 144 | | | 658 | |
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SAC | | $ | 109,034 | | $ | 69,142 | | $ | 217,951 | | $ | 136,444 | |
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Gross subscriber additions | | | 830,571 | | | 432,687 | | | 1,791,181 | | | 787,395 | |
SAC per gross subscriber addition | | $ | 131 | | $ | 160 | | $ | 122 | | $ | 173 | |
(3) SIRIUS defines customer service and billing expenses per average subscriber as total customer service and billing expenses, excluding equity granted to third parties and employees, divided by the daily weighted average number of subscribers for the period.
(4) SIRIUS defines ARPU as the total earned subscriber revenue and net advertising revenue divided by the daily weighted average number of subscribers for the period. ARPU is calculated as follows:
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| | For the Three Months
Ended June 30, | | For the Six Months
Ended June 30, | |
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| | 2006 | | 2005 | | 2006 | | 2005 | |
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Subscriber revenue | | $ | 137,636 | | $ | 49,622 | | $ | 252,817 | | $ | 91,526 | |
Net advertising revenue | | | 8,125 | | | 1,052 | | | 15,463 | | | 1,586 | |
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Total subscriber and net advertising revenue | | $ | 145,761 | | $ | 50,674 | | $ | 268,280 | | $ | 93,112 | |
Daily weighted average number of subscribers | | | 4,354,447 | | | 1,609,521 | | | 4,070,075 | | | 1,465,106 | |
ARPU | | $ | 11.16 | | $ | 10.50 | | $ | 10.98 | | $ | 10.59 | |
(5) SIRIUS defines free cash flow as cash flow from operating activities, capital expenditures and restricted investment activity.
(6) SIRIUS believes average monthly churn, SAC per gross subscriber addition, customer service and billing expenses per average subscriber, ARPU and free cash flow provide meaningful supplemental information regarding operating performance and liquidity and are used for internal management purposes, when publicly providing the business outlook, and as a means to evaluate period-to-period comparisons. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial measures may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.
(7) SIRIUS refers to net loss before taxes; other income (expense) - including interest and investment income, interest expense and equity in net loss of affiliate; depreciation; impairment charges; and equity granted to third parties and employees expense as adjusted loss from operations. Adjusted loss from operations is not a measure of financial performance under GAAP. The company believes adjusted loss from operations is a useful measure of its operating performance. The company uses adjusted loss from operations for budgetary and planning purposes; to assess the relative profitability and on-going performance of consolidated operations; to compare performance from period to
period; and to compare performance to that of its primary competitor. The company also believes adjusted loss from operations is useful to investors to compare operating performance to the performance of other communications, entertainment and media companies. The company believes that investors use current and projected adjusted loss from operations to estimate the current or prospective enterprise value and make investment decisions.
Because the company funds and builds-out its satellite radio system through the periodic raising and expenditure of large amounts of capital, results of operations reflect significant charges for interest expense and depreciation, and charges for impairment of property and equipment when deemed necessary. The company believes adjusted loss from operations provides useful information about the operating performance of the business apart from the costs associated with the capital structure and physical plant. The exclusion of interest expense and depreciation is useful given fluctuations in interest rates and significant variation in depreciation expense that can result from the amount and timing of capital expenditures and potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. The company believes the exclusion of taxes is appropriate for comparability purposes as the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. The company also believes the exclusion of equity granted to third parties and employees expense is useful given the significant variation in expense that can result from changes in the fair market value of the company’s common stock. Finally, the company believes that the exclusion of equity in net loss of affiliate (SIRIUS Canada Inc.) is useful to assess the performance of its core consolidated operations in the continental United States. To compensate for the exclusion of taxes, other income (expense), depreciation, impairment charges and equity granted to third parties and employees expense, the company separately measures and budgets for these items.
There are material limitations associated with the use of adjusted loss from operations in evaluating the company compared with net loss, which reflects overall financial performance, including the effects of taxes, other income (expense), depreciation, impairment charges and equity granted to third parties and employees expense. The company uses adjusted loss from operations to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Investors that wish to compare and evaluate the operating results after giving effect for these costs, should refer to net loss as disclosed in the unaudited consolidated statements of operations. Since adjusted loss from operations is a non-GAAP financial measure, the calculation of adjusted loss from operations may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.
(8) SIRIUS refers to adjusted net loss and adjusted net loss per share as net loss and net loss per share excluding impairment charges and equity granted to third parties and employees expense. Adjusted net loss and adjusted net loss per share are not measures of financial performance under GAAP. The company believes adjusted net loss and adjusted net loss per share are useful to investors to compare its operating performance to the performance of other communications, entertainment and media companies. The company believes the exclusion of impairment charges is appropriate for comparability purposes as the existence, amount and timing of impairment charges can vary period to period and can vary widely across different industries or among companies within the same industry. The company also believes the exclusion of equity granted to third parties and employees expense is useful given the significant variation in expense that can result from changes in the fair market value of the company’s common stock.
There are material limitations associated with the use of adjusted net loss and adjusted net loss per share in evaluating the company compared with net loss and net loss per share, which reflects overall financial performance, including the effects of impairment charges and equity granted to third parties and employees expense. The company uses adjusted net loss and adjusted net loss per share to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Investors that wish to compare and evaluate the operating results after giving effect for these costs, should refer to net loss and net loss per share as disclosed in the unaudited consolidated statements of operations. Since adjusted net loss and adjusted net loss per share are non-GAAP financial measures, the calculation of adjusted net loss and adjusted net loss per share may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.
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About SIRIUS
SIRIUS delivers more than 125 channels of the best programming in all of radio. SIRIUS is the original and only home of 100% commercial free music channels in satellite radio, offering 67 music channels available nationwide. SIRIUS also delivers 61 channels of sports, news, talk, entertainment, traffic, weather and data. SIRIUS is the Official Satellite Radio Partner of the NFL, NBA and NHL and broadcasts live play-by-play games of the NFL, NBA and NHL. All SIRIUS programming is available for a monthly subscription fee of only $12.95.
SIRIUS products for the car, truck, home, RV and boat are available in more than 25,000 retail locations, including Best Buy, Circuit City, Crutchfield, Costco, Target, Wal-Mart, Sam’s Club, RadioShack and atshop.sirius.com.
SIRIUS radios are offered in vehicles from Audi, BMW, Chrysler, Dodge, Ford, Infiniti, Jaguar, Jeep®, Land Rover, Lexus, Lincoln-Mercury, Mazda, Mercedes-Benz, MINI, Nissan, Rolls Royce, Scion, Toyota, Porsche, Volkswagen and Volvo. Hertz also offers SIRIUS in its rental cars at major locations around the country.
Click on www.sirius.com to listen to SIRIUS live, or to purchase a SIRIUS radio and subscription.
Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, future events or performance with respect to SIRIUS Satellite Radio Inc. are not historical facts and may be forward-looking and, accordingly, such statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in any forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to the factors discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission. Among the key factors that have a direct bearing on the company’s operational results are: its dependence upon third parties, including manufacturers of SIRIUS radios, retailers, automakers and programming partners, its competitive position and any events which affect the useful life of its satellites.
E-SIRI
Contacts:
| | |
Media | | Analysts |
Patrick Reilly | | Paul Blalock |
SIRIUS | | SIRIUS |
212-901-6646 | | 212-584-5174 |
preilly@siriusradio.com | | pblalock@siriusradio.com |
| | |
| | Michelle McKinnon |
| | SIRIUS |
| | 212-584-5285 |
| | mmckinnon@siriusradio.com |
