SIRIUS Reports Fourth Quarter and Full Year 2007 Results
This is a Long Read but worth it if you are an investor in Sirius Stock!
2007 Revenue Increases 45% to $922 Million
Highest Annual Gross Subscriber Additions in Satellite Radio History
Full-Year Self-Pay Monthly Churn of 1.6%
Achieves Positive Free Cash Flow for Fourth Quarter and Second Half 2007
SIRIUS Satellite Radio today announced full year and
fourth quarter 2007 financial results driven by the highest annual
gross subscriber additions in satellite radio history. The company also
reported positive free cash flow for the fourth quarter and for the
second half of 2007.
“In 2007, SIRIUS achieved our financial goals and solidified our
position as one of the fastest growing media companies in the world,”
said Mel Karmazin, CEO of SIRIUS. “Revenue grew 45% to $922.1 million
driven by 4.2 million gross subscriber additions - an annual record for
satellite radio. More importantly, SIRIUS demonstrated positive
operating leverage in the business through solid cost control by
limiting growth in total expenses, excluding non-cash items, to under
9% for the year. SIRIUS achieved positive free cash flow for the second
half of the year and $75.9 million in positive free cash flow for the
fourth quarter 2007.”
“The pending merger with XM will offer unprecedented choice for
consumers and create tremendous value for stockholders. We have made a
very strong case for the merger to the government, received broad
support from leading organizations and prominent individuals, and we
look forward to a fast positive ruling from the government.”
SIRIUS ended 2007 with 8,321,785 subscribers, up 38% from 6,024,555
subscribers at the end of 2006. Retail subscribers increased 15% in
2007 to 4,640,709 from 4,041,826 at the end of 2006. OEM subscribers
increased 87% in 2007 to 3,665,632 from 1,959,009 at the end of 2006.
During the fourth quarter 2007, SIRIUS added 654,309 net subscribers
and, according to the NPD Group, SIRIUS achieved a 68% share of
aftermarket satellite radio sales, its highest ever share.
Total revenue for 2007 increased to $922.1 million, up 45% from 2006
total revenue of $637.2 million. Fourth quarter 2007 total revenue
increased 29% to $249.8 million from fourth quarter 2006 revenue of
$193.4 million. Average monthly revenue per subscriber (or “ARPU”) was
$10.46 in 2007 and $10.05 for the fourth quarter 2007. Average self-pay
monthly churn was 1.6% in 2007 and all-in average monthly churn for
2007 was 2.2%. For the fourth quarter 2007 average self-pay monthly
churn was 1.7% and all-in churn was 2.3%. SAC per gross subscriber
addition was $101 for 2007 improving 11% over 2006’s SAC per gross
subscriber addition of $114. In the fourth quarter 2007, SAC per gross
subscriber addition was $90.
SIRIUS reported a net loss of ($565.3) million, or ($0.39) per share,
for 2007, an improvement of 49% over the 2006 net loss of ($1.1)
billion, or ($0.79) per share. For the fourth quarter 2007 the net loss
was ($166.2) million, or ($0.11) per share, as compared with the fourth
quarter 2006 net loss of ($245.6) million, or ($0.17) per share.
The adjusted loss from operations for 2007 improved to ($327.4)
million, as compared to the adjusted loss from operations of ($513.1)
million in 2006. For the fourth quarter 2007, the adjusted loss from
operations was ($107.2) million, an improvement of 36% as compared with
the ($166.8) million adjusted loss from operations in the fourth
quarter 2006.
SIRIUS reported a full-year 2007 free cash flow loss of ($218.6), a 56%
improvement over the 2006 free cash flow loss of ($500.7) million. The
company posted positive free cash flow in the fourth quarter of 2007 of
$75.9 million, up 150% from the $30.4 million in positive free cash
flow reported in the fourth quarter of 2006. For the first time in the
company’s history, SIRIUS also posted positive free cash flow of $8.1
million for the second half of the year.
2008 OUTLOOK
Following approval of the pending merger by the government, SIRIUS will provide guidance for 2008.
2007 HIGHLIGHTS
SIRIUS extended its exclusive relationship with Ford until 2016. The
agreement covers all Ford brands. In addition, the Ford and Mercury
brands are targeting approximately 70% factory penetration of SIRIUS
radios beginning with the 2009 model year vehicles.
In February 2008, SIRIUS also extended its exclusive agreement with
Chrysler LLC until 2017. This agreement covers all Chrysler LLC brands.
Chrysler included SIRIUS radios as a factory- installed feature in more
than 70% of its 2008 model year vehicles.
The company also recently launched the critically acclaimed, SIRIUS
Travel Link service, at the LA and Detroit auto shows. SIRIUS Travel
Link is expected to be offered in 2008 on select Ford, Lincoln and
Mercury brand vehicles. SIRIUS Travel Link offers real-time traffic
data with speed/flow and incident information, national weather
information, fuel prices, sports scores and movie listings.
SIRIUS also launched SIRIUS Backseat TV in select 2008 model year
Chrysler and Dodge vehicles. It is the first ever live in-vehicle rear
seat entertainment featuring three channels of children’s programming.
In 2007, SIRIUS also introduced the Stiletto 2, the company’s second
satellite radio to provide live reception in portable mode. The
Stiletto 2 allows users to capture, store and replay live SIRIUS
content and MP3/WMA files.
SPORTS, MUSIC, TALK AND ENTERTAINMENT LEADER
2007 was an unprecedented year for new and exclusive programming from
SIRIUS including: the first full year of NASCAR coverage, the launch of
the Grateful Dead channel, Siriusly Sinatra, E Street Radio with Bruce
Springsteen, African-American political commentator Mark Thompson,
Barbara Walters new exclusive radio show (her first call-in show ever),
and The Foxxhole presented by Jamie Foxx. SIRIUS also announced the
upcoming launch of “Doctor Radio” Powered by NYU Medical Center, an
exclusive, pioneering, 24/7 radio channel featuring easily accessible
information on health, wellness, and medical issues, brought to you by
world-class doctors.
SIRIUS reaffirmed its position as the leading provider of sports radio
programming, broadcasting play-by-play action from more than 350
professional and college teams. SIRIUS is the only company to air every
NFL game, every NASCAR race and every NBA game. For Super Bowl XLII,
SIRIUS offered expanded coverage carrying twelve live broadcasts of the
game in eight different languages. SIRIUS also airs European soccer,
college sports, the Wimbledon Championships, every game of the NCAA? Division I Men’s Basketball Championship, Arena Football League, World Cup skiing, National Lacrosse League and horse racing.
In 2007, SIRIUS became the Official Satellite Radio Partner of NASCAR
and introduced unprecedented coverage of the sport that includes live
broadcasts of every NASCAR race, additional Driver2Crew Chatter? channels that carry
in-car audio of NASCAR’s top drivers, and SIRIUS NASCAR Radio, channel
128, the only 24-hour radio channel dedicated entirely to NASCAR.
SIRIUS launched a new all-sports channel, SIRIUS Sports Central,
channel 123, which features exclusive talk programs as well as Sporting
News Radio programming. SIRIUS also collaborated with ESPN on a new,
enhanced ESPN- dedicated channel showcasing an exclusive ESPN The
Magazine talk show, and for the first time on national radio, exclusive
simulcasts of some of ESPN’s television shows, including SportsCenter.
RESULTS OF OPERATIONS
The discussion of operating expenses below excludes the effects of
stock- based compensation. SIRIUS believes this presentation improves
the transparency of disclosure and is consistent with the way operating
results are evaluated by management.
FOURTH QUARTER 2007 VERSUS FOURTH QUARTER 2006
For the fourth quarter of 2007, SIRIUS recognized total revenue of
$249.8 million compared to $193.4 million for the fourth quarter of
2006. This 29.2%, or $56.4 million, increase in revenue was driven by a
$60.4 million increase in subscriber revenue resulting from the net
increase in subscribers of 2,297,230 from the fourth quarter of 2006.
The company’s adjusted loss from operations decreased $59.6 million to
($107.2) million for the fourth quarter of 2007 from ($166.8) million
for the fourth quarter of 2006 (refer to the reconciliation table of
net loss to adjusted loss from operations). This decrease was driven by
the increase in total revenue of $56.4 million and a $3.2 million
decrease in expenses.
Satellite and transmission expenses decreased $2.4 million to $4.8
million for the fourth quarter of 2007 compared to $7.2 million for the
fourth quarter of 2006 as a result of sales of certain satellite parts
and lower maintenance and utility expenses in the fourth of quarter
2007.
Programming and content expenses increased $4.2 million to $60.0
million for the fourth quarter of 2007 from $55.8 million for the
fourth quarter of 2006. The increase was primarily attributable to
license fees associated with new programming agreements including
NASCAR and compensation-related costs.
Revenue share and royalties increased $35.7 million, or 169.2%, to
$56.8 million for the fourth quarter of 2007 from $21.1 million for the
fourth quarter of 2006. This increase was primarily attributable to the
determination of the royalty rate in December 2007 under the statutory
license covering the performance of sound recordings. The 2007 royalty
rate of 6% of gross revenue resulted in royalty expense of
approximately $48.1 million, of which approximately $25.9 million was
recorded in the fourth quarter. The growth in the company’s revenues
and increase in the company’s OEM subscriber base also contributed to
the increase in revenue share and royalties.
Customer service and billing expenses increased $3.4 million to $29.1
million for the fourth quarter of 2007 from $25.7 million for the
fourth quarter of 2006. The increase was primarily attributable to
higher call center operating costs necessary to accommodate the
increase in the company’s subscriber base. Customer service and billing
expenses per average subscriber per month declined 23.1% to $1.23 for
the fourth quarter of 2007 from $1.60 for the fourth quarter of 2006.
Sales and marketing expenses decreased $20.0 million to $53.1 million
for the fourth quarter of 2007 from $73.1 million for the fourth
quarter of 2006. This decrease was primarily attributable to lower
consumer marketing and advertising and reduced cooperative marketing
spend with the company’s distributors compared to the year-ago fourth
quarter.
Subscriber acquisition costs (SAC) decreased $21.1 million, or 17.4%,
to $99.9 million for the fourth quarter of 2007 from $121.0 million for
the fourth quarter of 2006. This decrease was primarily attributable to
lower chipset subsidies and commissions and a higher mix of OEM gross
additions.
SAC per gross subscriber addition decreased 12.6% to $90 for the fourth
quarter of 2007 from $103 for the fourth quarter of 2006 driven by
lower product costs, offset by a higher mix of OEM gross additions.
General and administrative expenses increased $5.6 million to $27.0
million for the fourth quarter of 2007 from $21.4 million for the
fourth
quarter of 2006. The increase was primarily the result of higher legal fees and compensation-related costs.
Engineering, design and development expenses decreased $5.5 million to
$7.3 million for the fourth quarter of 2007 from $12.8 million for the
fourth quarter of 2006. This decrease was primarily attributable to
reduced OEM tooling and manufacturing upgrades associated with the
factory installation of SIRIUS radios in additional vehicle models.
SIRIUS reported a net loss of ($166.2) million, or ($0.11) per share,
for the fourth quarter of 2007 compared to a net loss of ($245.6)
million, or ($0.17) per share, for the fourth quarter of 2006. The
adjusted net loss per share, or net loss per share excluding
stock-based compensation, was ($0.10) per share for the fourth quarter
of 2007 as compared to an adjusted net loss per share of ($0.14) per
share for the fourth quarter of 2006 (refer to the reconciliation table
of net loss per share to adjusted net loss per share).
YEAR ENDED DECEMBER 31, 2007 VERSUS YEAR ENDED DECEMBER 31, 2006
For the year ended December 31, 2007, SIRIUS recognized total revenue
of $922.1 million compared with $637.2 million for the year ended
December 31, 2006. This 44.7%, or $284.9 million, increase in revenue
was primarily driven by a $279.5 million increase in subscriber revenue
resulting from the net increase in subscribers of 2,297,230 during
2007.
The company’s adjusted loss from operations decreased ($185.7) million
to ($327.4) million for the year ended December 31, 2007 from ($513.1)
million for the year ended December 31, 2006 (refer to the
reconciliation table of net loss to adjusted loss from operations).
This decrease was driven by a 44.7%, or $284.9 million, increase in
total revenue which more than offset the 8.6%, or $99.1 million,
increase in expenses.
Satellite and transmission expenses decreased $13.5 million to $25.7
million for the year ended December 31, 2007 from $39.2 million for the
year ended December 31, 2006 as a result of sales of certain satellite
parts and lower maintenance and utility expense in the fourth quarter
2007. In addition, the 2006 expenses include a $10.9 million
non-recurring impairment charge associated with certain satellite
long-lead time parts that were no longer needed.
Programming and content expenses increased $27.7 million to $226.4
million for the year ended December 31, 2007 from $198.7 million for
the year ended December 31, 2006. The increase was primarily
attributable to license fees associated with new programming
agreements, including NASCAR, and compensation-related costs.
Revenue share and royalties increased $76.8 million, or 109.9%, to
$146.7 million for the year ended December 31, 2007 from $69.9 million
for the year ended December 31, 2006. This increase was primarily
attributable to the determination of the royalty rate under the
statutory license covering the performance of sound recordings. The
2007 royalty rate of 6% of gross revenue resulted in royalty expense of
approximately $48.1 million, of which approximately $25.9 million was
recorded in the fourth quarter. The growth in the company’s revenues
and increase in the company’s OEM subscriber base also contributed to
the increase.
Customer service and billing expenses increased $17.4 million to $93.1
million for the year ended December 31, 2007 from $75.7 million for the
year ended December 31, 2006. The increase was primarily attributable
to higher call center operating costs and higher credit card fees
necessary to accommodate the increase in the company’s subscriber base.
Customer service and billing expenses per average subscriber per month
declined 19.7% to $1.10 for the year ended December 31, 2007 from $1.37
for the year ended December 31, 2006.
Sales and marketing expenses decreased $26.1 million to $158.0 million
for the year ended December 31, 2007 from $184.1 million for the year
ended December 31, 2006. This decrease was primarily attributable to
lower consumer marketing and advertising and reduced cooperative
marketing spend with the company’s distributors offset by higher
compensation-related costs.
Subscriber acquisition costs decreased $14.9 million to $404.8 million
for the year ended December 31, 2007 from $419.7 million for the year
ended December 31, 2006. This decrease was primarily attributable to
lower chipset
subsidies and commission costs offset by higher OEM hardware subsidies and a higher mix of OEM gross additions.
SAC per gross subscriber addition decreased 11.4% to $101 for the year
ended December 31, 2007 from $114 for the year ended December 31, 2006.
The improvement was driven by lower product costs offset by a higher
mix of OEM gross additions.
General and administrative expenses increased $31.5 million to $111.5
million for the year ended December 31, 2007 from $80.0 million for the
year ended December 31, 2006. The increase was primarily a result of
higher legal fees and compensation-related costs.
Engineering, design and development expenses decreased $20.9 million to
$37.8 million for the year ended December 31, 2007 from $58.7 million
for the year ended December 31, 2006. This decrease was primarily
attributable to reduced OEM tooling and manufacturing upgrades
associated with the factory installation of SIRIUS radios in additional
vehicle models offset by higher compensation-related costs.
SIRIUS reported a net loss of ($565.3) million, or ($0.39) per share,
for the year ended December 31, 2007, including a ($0.05) per share
impact from stock-based compensation, compared with a net loss of
($1.1) billion, or ($0.79) per share, for the year ended December 31,
2006, including a ($0.01) per share impact from the impairment loss and
($0.31) per share impact from stock-based compensation. The adjusted
net loss per share, or net loss per share excluding stock-based
compensation, was ($0.34) for the year ended December 31, 2007 compared
with an adjusted net loss per share excluding the impairment loss and
stock based compensation of ($0.47) for the year ended December 31,
2006 (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 Data: For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Beginning subscribers 7,667,476 5,119,308 6,024,555 3,316,560 Net additions 654,309 905,247 2,297,230 2,707,995 Ending subscribers 8,321,785 6,024,555 8,321,785 6,024,555 Retail 4,640,709 4,041,826 4,640,709 4,041,826 OEM 3,665,632 1,959,009 3,665,632 1,959,009 Hertz 15,444 23,720 15,444 23,720 Ending subscribers 8,321,785 6,024,555 8,321,785 6,024,555 Additions Retail 211,962 559,312 598,883 1,576,463 OEM 444,244 348,935 1,706,623 1,135,316 Hertz (1,897) (3,000) (8,276) (3,784) Net additions 654,309 905,247 2,297,230 2,707,995 Metrics: For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Gross subscriber additions 1,194,014 1,234,576 4,183,901 3,758,163 Deactivated subscribers 539,705 329,329 1,886,671 1,050,168 Average monthly churn (1)(6) 2.3% 2.0% 2.2% 1.9% SAC per gross subscriber addition (3)(6) $90 $103 $101 $114 Customer service and billing expenses per average subscriber (3)(6) $1.23 $1.60 $1.10 $1.37 Total revenue $249,816 $193,380 $922,066 $637,235 Free cash flow (4)(6) $75,921 $30,409 $(218,624) $(500,715) Monthly ARPU: Average monthly subscriber revenue per subscriber before the effects of Hertz subscribers and rebates $10.19 $10.48 $10.24 $10.63 Effects of Hertz subscribers 0.04 0.05 0.05 0.05 Effects of rebates (0.59) (0.14) (0.23) (0.23) Average monthly subscriber revenue per subscriber 9.64 10.39 10.06 10.45 Average monthly net advertising revenue per subscriber 0.41 0.53 0.40 0.56 ARPU $10.05 $10.92 $10.46 $11.01 SIRIUS SATELLITE RADIO INC. AND SUBSIDIARIES SUBSCRIBER DATA, METRICS AND OTHER NON-GAAP FINANCIAL MEASURES - CONTINUED (Dollars in thousands, unless otherwise stated) (Unaudited) Adjusted Loss from Operations: For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Net loss $(166,223) $(245,597) $(565,252) $(1,104,867) Impairment loss - - - 10,917 Depreciation 27,638 27,495 106,780 105,749 Stock-based compensation 14,896 42,625 78,900 437,918 Other income and expense 15,699 8,512 49,727 35,078 Income tax expense 770 156 2,435 2,065 Adjusted loss from operations (7) $(107,220) $(166,809) $(327,410) $(513,140) Adjusted Net Loss and Adjusted Net Loss per Share: For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Net loss $(166,223) $(245,597) $(565,252) $(1,104,867) Impairment loss - - - 10,917 Stock-based compensation 14,896 42,625 78,900 437,918 Adjusted net loss $(151,327) $(202,972) $(486,352) $(656,032) Net loss per share (basic and diluted) $(0.11) $(0.17) $(0.39) $(0.79) Impairment loss - - - 0.01 Stock-based compensation 0.01 0.03 0.05 0.31 Adjusted net loss per share (basic and diluted) (8) $(0.10) $(0.14) $(0.34) $(0.47) Weighted average common shares outstanding (basic and diluted) 1,468,210 1,413,866 1,462,967 1,402,619 SIRIUS SATELLITE RADIO INC. AND SUBSIDIARIES SUBSCRIBER DATA, METRICS AND OTHER NON-GAAP FINANCIAL MEASURES - CONTINUED (Dollars in thousands, unless otherwise stated) Condensed Consolidated Statements of Operations: For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Total revenue $249,816 $193,380 $922,066 $637,235 Operating expenses (excludes depreciation and stock-based compensation shown separately below): Satellite and transmission 4,811 7,152 25,709 39,229 Programming and content 59,949 55,779 226,416 198,650 Revenue share and royalties 56,762 21,062 146,715 69,918 Customer service and billing 29,123 25,745 93,109 75,650 Cost of equipment 19,070 22,105 45,458 35,233 Sales and marketing 53,143 73,115 157,965 184,139 Subscriber acquisition costs 99,906 121,046 404,799 419,716 General and administrative 26,951 21,398 111,546 80,025 Engineering, design and development 7,321 12,787 37,759 58,732 Depreciation 27,638 27,495 106,780 105,749 Stock-based compensation 14,896 42,625 78,900 437,918 Total operating expenses 399,570 430,309 1,435,156 1,704,959 Loss from operations (149,754) (236,929) (513,090) (1,067,724) Other expense (15,699) (8,512) (49,727) (35,078) Loss before income taxes (165,453) (245,441) (562,817) (1,102,802) Income tax expense (770) (156) (2,435) (2,065) Net loss $(166,223) $(245,597) $(565,252) $(1,104,867) SIRIUS SATELLITE RADIO INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited) For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Revenue: Subscriber revenue, including effects of rebates $227,658 $167,210 $854,933 $575,404 Advertising revenue, net of agency fees 9,770 8,451 34,192 31,044 Equipment revenue, net of discounts and rebates 12,065 16,431 29,281 26,798 Other revenue 323 1,288 3,660 3,989 Total revenue 249,816 193,380 922,066 637,235 Operating expenses (excludes depreciation shown separately below) (1): Cost of services: Satellite and transmission 5,175 7,518 27,907 41,797 Programming and content 62,735 80,414 236,059 520,424 Revenue share and royalties 56,762 21,062 146,715 69,918 Customer service and billing 29,288 25,912 93,817 76,462 Cost of equipment 19,070 22,105 45,458 35,233 Sales and marketing 53,682 77,780 173,572 203,682 Subscriber acquisition costs 100,062 122,196 407,642 451,614 General and administrative 37,212 32,379 155,863 129,953 Engineering, design and development 7,946 13,448 41,343 70,127 Depreciation 27,638 27,495 106,780 105,749 Total operating expenses 399,570 430,309 1,435,156 1,704,959 Loss from operations (149,754) (236,929) (513,090) (1,067,724) Other income (expense): Interest and investment income 4,171 6,760 20,570 33,320 Interest expense, net of amounts capitalized (19,887) (15,327) (70,328) (64,032) Loss from redemption of debt - - - - Equity in net loss of affiliate - - - (4,445) Other income 17 55 31 79 Total other income (expense) (15,699) (8,512) (49,727) (35,078) Loss before income taxes (165,453) (245,441) (562,817) (1,102,802) Income tax expense (770) (156) (2,435) (2,065) Net loss $(166,223) $(245,597) $(565,252) $(1,104,867) Net loss per share (basic and diluted) $(0.11) $(0.17) $(0.39) $(0.79) Weighted average common shares outstanding (basic and diluted) 1,468,210 1,413,866 1,462,967 1,402,619 (1) Amounts related to stock-based compensation included in other operating expenses were as follows: Satellite and transmission $364 $366 $2,198 $2,568 Programming and content 2,786 24,635 9,643 321,774 Customer service and billing 165 167 708 812 Sales and marketing 539 4,665 15,607 19,543 Subscriber acquisition costs 156 1,150 2,843 31,898 General and administrative 10,261 10,981 44,317 49,928 Engineering, design and development 625 661 3,584 11,395 Total equity granted to third parties and employees $14,896 $42,625 $78,900 $437,918 SIRIUS SATELLITE RADIO INC. AND SUBSIDIARIES BALANCE SHEET DATA (Dollars in thousands) As of December 31, December 31, 2007 2006 Cash, cash equivalents and marketable securities $439,289 $408,921 Restricted investments 53,000 77,850 Working capital (394,989) (257,799) Total assets 1,694,149 1,658,528 Long-term debt 1,278,617 1,068,249 Total liabilities 2,486,886 2,047,599 Accumulated deficit (4,398,972) (3,833,720) Stockholders' deficit (792,737) (389,071) SIRIUS SATELLITE RADIO INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Cash flows from operating activities: Net loss $(166,223) (245,597) $(565,252) $(1,104,867) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 27,638 27,495 106,780 105,749 Non-cash interest expense 1,817 775 4,269 3,107 Provision for doubtful accounts 2,339 1,826 9,002 9,370 Non-cash equity in net loss of affiliate - - - 4,445 Gain/(Loss) on disposal of assets (520) 772 (428) 1,661 Impairment loss - - - 10,917 Stock-based compensation 14,896 42,625 78,900 437,918 Deferred income taxes 770 156 2,435 2,065 Changes in operating assets and liabilities: Accounts receivable (22,254) (8,724) (28,881) (1,871) Inventory 7,498 10,477 4,965 (20,246) Receivables from distributors (4,147) (28,146) (13,179) (20,312) Prepaid expenses and other current assets (3,112) 31 11,459 (42,367) Other long-term assets (205) 2,343 12,109 (19,331) Accounts payable and accrued expenses 129,257 102,299 66,169 26,366 Accrued interest 7,820 11,699 (8,920) 1,239 Deferred revenue 93,102 105,334 169,905 181,003 Other long-term liabilities 1,142 11,503 1,901 3,452 Net cash (used in) provided by operating activities 89,818 34,868 (148,766) (421,702) Cash flows from investing activities: Additions to property and equipment (7,377) (5,459) (65,264) (92,674) Sales of property and equipment 525 4 641 127 Merger related costs (6,680) - (29,444) - Purchases of restricted and other investments - - (310) (12,339) Release of restricted investments 160 1,000 25,160 26,000 Purchases of available- for-sale securities - (5,000) - (123,500) Sales of available-for- sale securities 4,189 28,375 15,031 229,715 Net cash (used in) provided by investing activities (9,183) 18,920 (54,186) 27,329 Cash flows from financing activities: Long term borrowings, net of related costs (320) - 244,879 - Repayment of long term borrowings (625) - (625) - Proceeds from exercise of stock options 1,420 21,757 4,097 25,787 Net cash provided by financing activities 475 21,757 248,351 25,787 Net increase (decrease) in cash and cash equivalents 81,110 75,545 45,399 (368,586) Cash and cash equivalents at the beginning of period 357,710 317,876 393,421 762,007 Cash and cash equivalents at the end of period $438,820 $393,421 $438,820 $393,421 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; free cash flow; average monthly revenue per subscriber, or ARPU; adjusted loss from operations; adjusted net loss; and adjusted net loss per share. 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 stock-based compensation, 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 For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Subscriber acquisition costs $100,062 $122,196 $407,642 $451,614 Less: stock-based compensation (156) (1,150) (2,843) (31,898) Add: margin from direct sales of SIRIUS radios and accessories 7,005 5,674 16,177 8,435 SAC $106,911 $126,720 $420,976 $428,151 Gross subscriber additions 1,194,014 1,234,576 4,183,901 3,758,163 SAC per gross subscriber addition $90 $103 $101 $114 (3) SIRIUS defines customer service and billing expenses per average subscriber as total customer service and billing expenses, excluding stock-based compensation, divided by the daily weighted average number of subscribers for the period. Customer service and billing expenses per average subscriber is calculated as follows: For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Customer service and billing expenses $29,288 $25,912 $93,817 $76,462 Less: stock-based compensation (165) (167) (708) (812) Customer service and billing expenses, as adjusted $29,123 $25,745 $93,109 $75,650 Daily weighted average number of subscribers 7,878,574 5,361,322 7,082,927 4,591,693 Customer service and billing expenses, as adjusted, per average subscriber $1.23 $1.60 $1.10 $1.37 (4) SIRIUS defines free cash flow as cash flow from operating activities, capital expenditures, merger related costs and restricted and other investment activity. Free cash flow is calculated as follows: For the Three Months For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Net cash used in operating activities $89,818 $34,868 $(148,766) $(421,702) Additions to property and equipment (7,377) (5,459) (65,264) (92,674) Merger related costs (6,680) - (29,444) - Restricted and other investment activity 160 1,000 24,850 13,661 Free cash flow $75,921 $30,409 $(218,624) $(500,715) (5) 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 For the Years Ended December 31, Ended December 31, 2007 2006 2007 2006 Subscriber revenue $227,658 $167,210 $854,933 $575,404 Net advertising revenue 9,770 8,451 34,192 31,044 Total subscriber and net advertising revenue $237,428 $175,661 $889,125 $606,448 Daily weighted average number of subscribers 7,878,574 5,361,322 7,082,927 4,591,693 ARPU $10.05 $10.92 $10.46 $11.01
(6) SIRIUS believes average monthly churn; SAC per gross subscriber
addition; customer service and billing expenses per average subscriber;
free cash flow; and ARPU provide meaningful information regarding
operating performance and liquidity and are used for internal
management purposes; when publicly providing the business outlook; as a
means to evaluate period-to-period comparisons; and to compare the
company’s performance to that of its competitors. SIRIUS also believes
that investors use current and projected metrics to monitor performance
of the business and make investment decisions.
SIRIUS believes the exclusion of stock-based compensation expense in
the calculations of SAC per gross subscriber addition and customer
service and billing expenses per average subscriber is useful given the
significant variation in expense that can result from changes in the
fair market value of SIRIUS common stock, the effect of which is
unrelated to the operational conditions that give rise to variations in
the components of subscriber acquisition costs and customer service and
billing expenses. Specifically, the exclusion of stock-based
compensation expense in the calculation of SAC per gross subscriber
addition is critical in being able to understand the economic impact of
the direct costs incurred to acquire a subscriber and the effect over
time as economies of scale are reached.
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 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, equity in
net loss of affiliate; depreciation; impairment charges; and stock-
based compensation 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 competitors. 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
and depreciation expense. 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 stock-based compensation
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 stock-based
compensation 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
stock-based compensation 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 in accordance with GAAP.
(8) SIRIUS refers to adjusted net loss and adjusted net loss per share
as net loss per share excluding impairment charges and stock-based
compensation 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 from period to period and can vary widely
across different industries or among companies within the same
industry. The company also believes the exclusion of stock-based
compensation 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
stock-based compensation 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 financial 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, “The Best Radio on Radio,” delivers more than 130 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 69 music channels. SIRIUS also delivers 65 channels of sports,
news, talk, entertainment, traffic, weather and data. SIRIUS is the
Official Satellite Radio Partner of the NFL, NASCAR, NBA, and
broadcasts live play-by-play games of the NFL, NBA, as well as live
NASCAR races. All SIRIUS programming is available for a monthly
subscription fee of only $12.95.
SIRIUS Internet Radio (SIR) is an Internet-only version of the SIRIUS
radio service, without the use of a radio, for the monthly subscription
fee of $12.95. SIR delivers more than 80 channels of talk,
entertainment, sports, and 100% commercial free music.
SIRIUS Backseat TV ? is the
first ever live in-vehicle rear seat entertainment featuring three
channels of children’s programming, including Nickelodeon, Disney
Channel and Cartoon Network, for the subscription fee of $6.99 plus
applicable audio subscription fee.
SIRIUS products for the car, truck, home, RV and boat are available at
shop.sirius.com and in more than 20,000 retail locations, including
Best Buy, Circuit City, Crutchfield, Target, Wal-Mart, Sam’s Club and
RadioShack.
As of December 31, 2007, SIRIUS radios were available as a factory and
dealer-installed option in 116 vehicle models and as a dealer
only-installed option in 37 vehicle models.
SIRIUS has agreements with Aston Martin, Audi, Bentley, BMW, Chrysler,
Dodge, Ford, Jaguar, Jeep, Kia, Land Rover, Lincoln, Maybach, Mazda,
Mercedes- Benz, Mercury, MINI, Mitsubishi, Rolls-Royce, Volvo, and
Volkswagen to offer SIRIUS radios as factory or dealer-installed
equipment in their vehicles. SIRIUS has relationships with Toyota and
Scion to offer SIRIUS radios as dealer-installed equipment, and a
relationship with Subaru to offer SIRIUS radios as factory or
dealer-installed equipment. SIRIUS radios are also offered to renters
of Hertz vehicles at airport locations nationwide.
Click on www.sirius.com to listen to SIRIUS live, or to purchase a SIRIUS radio and subscription.
This communication contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
statements include, but are not limited to, statements about the
benefits of the business combination transaction involving Sirius
Satellite Radio Inc. and XM Satellite Radio Holdings Inc., including
potential synergies and cost savings and the timing thereof, future
financial and operating results, the combined company’s plans,
objectives, expectations and intentions with respect to future
operations, products and services; and other statements identified by
words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,”
“intend,” “will,” “should,” “may,” or words of similar meaning. Such
forward- looking statements are based upon the current beliefs and
expectations of SIRIUS’ and XM’s management and are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are difficult to predict and generally
beyond the control of SIRIUS and XM. Actual results may differ
materially from the results anticipated in these forward-looking
statements.
The following factors, among others, could cause actual results to
differ materially from the anticipated results or other expectations
expressed in the forward-looking statement: general business and
economic conditions; the performance of financial markets and interest
rates; the ability to obtain governmental approvals of the transaction
on a timely basis; the failure to realize synergies and cost-savings
from the transaction or delay in realization thereof; the businesses of
SIRIUS and XM may not be combined successfully, or such combination may
take longer, be more difficult, time- consuming or costly to accomplish
than expected; and operating costs and business disruption following
the merger, including adverse effects on employee retention and on our
business relationships with third parties, including manufacturers of
radios, retailers, automakers and programming providers. Additional
factors that could cause SIRIUS’ and XM’s results to differ materially
from those described in the forward-looking statements can be found in
SIRIUS’ and XM’s Annual Reports on Form 10-K for the year ended
December 31, 2006, and Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2007, June 30, 2007, and September 30, 2007, which are
filed with the Securities and Exchange Commission (the “SEC”) and
available at the SEC’s Internet site (http://www.sec.gov). The
information set forth herein speaks only as of the date hereof, and
SIRIUS disclaims any intention or obligation to update any forward
looking statements as a result of developments occurring after the date
of this communication.
CONTACT INFORMATION FOR INVESTORS AND FINANCIAL MEDIA:
Paul Blalock SIRIUS 212.584.5174 pblalock@siriusradio.com
Hooper Stevens SIRIUS 212.901.6718 hstevens@siriusradio.com
SOURCE SIRIUS Satellite Radio
http://www.sirius.com/
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