SIRIUS Satellite Radio (NASDAQ: SIRI) today announced that its second quarter 2006 revenue nearly tripled from the year-ago second quarter to more than $150 million. The company increased its 2006 guidance for total revenue to $615 million and for year-end subscribers to 6.3 million.
SIRIUS ended the second quarter with 4,678,207 subscribers, 158% higher than second quarter 2005 ending subscribers of 1,814,626. During the second quarter of 2006, SIRIUS added 600,460 net subscribers, a 64% increase over second quarter 2005 net subscriber additions of 365,931. For the third consecutive quarter, SIRIUS led the satellite radio industry in net subscriber additions, capturing a record 60% share of industry net additions in the second quarter.
“Continued strong demand for SIRIUS’ products and programming gives us confidence to increase our revenue and subscriber guidance,” said Mel Karmazin, CEO of SIRIUS. “We continue to be excited about the growth prospects for satellite radio and remain pleased with our solid execution as we approach positive free cash flow.”
Total revenue for the second quarter of 2006 increased to a record $150.1 million, nearly triple last year’s second quarter total revenue of $52.2 million. Average monthly revenue per subscriber (or “ARPU”) was $11.16 in the second quarter of 2006, up from $10.50 in the year-ago second quarter. ARPU for the second quarter of 2006 included a $0.62 contribution from net advertising revenue, compared with a $0.22 contribution from net advertising revenue in the second quarter of 2005. Average monthly churn was 1.8%, in line with the company’s annual churn guidance, reflecting total churn from both retail and OEM channels. SAC per gross subscriber addition was $131 for the second quarter of 2006, an 18% improvement over second quarter 2005 SAC per gross subscriber addition of $160.
During the second quarter of 2006, SIRIUS added 276,294 net subscribers from its retail channel, a 13% increase over 244,985 retail net additions during the second quarter of 2005. The company also added 324,574 net subscribers from its automotive OEM channel, 167% more than second quarter 2005 OEM net subscriber additions of 121,664. Strong contributions by SIRIUS’ exclusive automotive partners, DaimlerChrysler and Ford, fueled OEM growth during the quarter.
SIRIUS reported a net loss of ($237.8) million, or ($0.17) per share, for the second quarter of 2006. The net loss in the second quarter of 2006 included a ($0.01) per share impact associated with the write-off of certain long-lead time parts purchased in 1999 that will no longer be needed in light of the company’s new satellite contract.
Other Developments
In the second quarter of 2006, SIRIUS continued to augment “The Best Radio on Radio” by announcing a variety of new programming initiatives, including:
– The Catholic Channel, a 24×7 lifestyle channel in collaboration with The
Archdiocese of New York, that will feature contemporary talk and music
programming as well as live daily masses from St. Patrick’s Cathedral in
New York City.
– A radio news bureau with Variety, the “show business bible,” originating
from Variety’s Los Angeles offices. Variety will provide the latest in
entertainment news to SIRIUS’ national radio audience multiple times per
hour every day.
– A weekly two-hour series featuring dynamic and compelling interviews by
broadcasting icon Barbara Walters from her 30-year archive of interviews
with great entertainers and world leaders.
– A live, weekly three hour health and wellness call-in talk show on
Saturday mornings hosted by Deepak Chopra, the best-selling author and
leader in the field of mind and body medicine.
– An exclusive weekly talk show with Mark Cuban, the groundbreaking
entrepreneur and outspoken owner of the NBA’s Dallas Mavericks.
– New talk shows featuring leading sports personalities Jerry Rice, the
legendary NFL receiver; Tiki Barber, the New York Giants running back;
and Tony Stewart, the two-time and reigning NASCAR NEXTEL Cup Series
champion.
During the second quarter of 2006, SIRIUS and Kia announced that Kia will exclusively offer SIRIUS as factory standard equipment in all of its vehicles through 2014, with an optional three-year extension to 2017. SIRIUS will become a standard feature in all 2009 model year Kia vehicles, beginning in 2008.
SIRIUS’ Canadian affiliate, SIRIUS Canada, passed the 100,000 subscriber milestone in early May, less than six months after launching its Canadian service. SIRIUS Canada is Canada’s leading satellite radio service and the number one choice among Canadian satellite radio subscribers. Ford of Canada and SIRIUS Canada recently announced an exclusive long-term agreement to make SIRIUS receivers factory-installed equipment in virtually all Ford vehicles sold in Canada by 2008.
In June 2006, SIRIUS announced that it had entered into an agreement with Space Systems/Loral for the design and construction of a new satellite. Construction of the satellite is expected to be completed in the fourth quarter of 2008. The satellite will be launched on a Proton rocket acquired by SIRIUS under a previously announced launch contract. The aggregate cost of designing, building and launching the satellite and insuring its launch will be approximately $260 million.
SIRIUS has disclosed that the FCC is conducting a review of the company’s products as well as products of other companies containing FM transmitters. SIRIUS believes the company’s radios that are currently being produced comply with applicable FCC rules. SIRIUS and its manufacturers are cooperating with the FCC to obtain new equipment authorizations for the company’s remaining affected products.
Guidance
SIRIUS today provided the following guidance for full year 2006:
– 6.3 million subscribers at year-end, increased from previous guidance of
over 6.2 million
– Average monthly churn of approximately 1.8%, in line with previous
guidance
– SAC per gross subscriber addition approaching $110, in line with
previous guidance
– Total revenue of $615 million, up from previous guidance of over $600
million
– Adjusted loss from operations of approximately ($565) million, in line
with previous guidance
– Free cash flow loss of approximately ($500) million, reflecting the
impact of the satellite agreement announced in June 2006 and changes to
working capital assumptions, up from previous guidance of
($480) million (5)
– SIRIUS’ first quarter of positive free cash flow, after capital
expenditures, could be reached as early as the fourth quarter of 2006
Previously issued longer term guidance remains unchanged.
RESULTS OF OPERATIONS
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.
SECOND QUARTER 2006 VERSUS SECOND QUARTER 2005
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 For the Six Months
Ended June 30, 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 For the Six Months
Ended June 30, 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 For the Six Months
Ended June 30, 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)
Adjusted Net Loss and Adjusted Net Loss per Share:
For the Three Months For the Six Months
Ended June 30, 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 For the Six Months
Ended June 30, 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 For the Six Months Ended
June 30, 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, December 31,
2006 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 For the Six Months Ended
June 30, 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
Net cash provided
by (used in)
investing
activities 13,562 7,069 40,268 (1,263)
Cash flows from
financing
activities:
Proceeds from exercise
of stock options 1,517 5,111 2,976 6,104
Other – – – (8)
Net cash provided
by financing
activities 1,517 5,111 2,976 6,096
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
Cash and cash
equivalents at the
end of period $534,963 $576,919 $534,963 $576,919
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:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2006 2005 2006 2005
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: negative margin
from direct sale of
SIRIUS radios and
accessories 371 449 144 658
SAC $109,034 $69,142 $217,951 $136,444
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:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Subscriber revenue $137,636 $49,622 $252,817 $91,526
Net advertising
revenue 8,125 1,052 15,463 1,586
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.
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 at shop.sirius.com.
SIRIUS radios are offered in vehicles from Audi, BMW, Chrysler, Dodge, Ford, Infiniti, Jaguar, Jeep(R), 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.