Sirius XM Holdings Inc (SIRI)

[wagsten]

SIRIUS Satellite Radio Announces Fourth Quarter and Year-End 2004 Financial and Operating Results

Wednesday January 26, 7:01 AM EST

NEW YORK, Jan 26, 2005 /PRNewswire-FirstCall via COMTEX/ -- SIRIUS Satellite Radio (SIRI) today announced strong fourth quarter and year-end 2004 financial and operating results, driven by better-than-expected subscriber growth.

On December 31, 2004, SIRIUS had 1,143,258 subscribers, beating its year-end target of 1 million, and had over 1.24 million subscribers as of January 24, 2005. The company attributed much of the better-than-expected year-end number to robust holiday sales and an increase in its automotive channel business, driving revenue to $66.9 million, a 419% increase over the previous year.

As a result of a strong start to 2005, the company is raising its 2005 year-end subscriber estimate to over 2.5 million.

The fourth quarter subscriber figure reflects net additions of 480,969 subscribers, a 332% increase from net additions in the fourth quarter of 2003. SIRIUS had 521,479 gross subscriber additions in the fourth quarter of 2004, and reported average monthly churn of 1.6% for the full year 2004, the company's best-reported churn rate to date and below previous guidance. The company reported subscriber acquisition costs (SAC) per gross subscriber addition of $177 for the full year 2004, a significant improvement over $293 for 2003 and well inside 2004 guidance of below $200.

In the fourth quarter of 2004, SIRIUS continued to experience significant gains in the retail market, fueled by strong holiday sales of its products, broader distribution -- including over 25,000 sales outlets -- and growing consumer awareness of its brand, plus an increased preference for its superior programming. According to The NPD Group, SIRIUS' retail market share reached 51% in November 2004, SIRIUS' highest level on record.

During the fourth quarter of 2004, SIRIUS added 348,711 subscribers from its retail channel, a 302% increase from retail additions in the year ago quarter. The company also added 130,881 net subscribers from its automotive, trucking and boating relationships, a 444% increase in net additions from those channels in the year ago quarter.

SIRIUS' exclusive automotive partners, DaimlerChrysler and BMW, continue to roll out factory installation programs for SIRIUS Satellite Radio.

Ford recently announced that it plans to include SIRIUS as a factory option in up to 21 models, and expects to generate up to one million SIRIUS subscribers over the next two model years -- 2006 and 2007.

In December 2004, DaimlerChrysler announced that its factory installations of SIRIUS were on track to produce an estimated 550,000 subscribers over the 2005 and 2006 model years.

"2004 was a turning point for SIRIUS, and a strong indicator of what we believe the future holds for a new entertainment category still in its early days," said Mel Karmazin, CEO of SIRIUS. "Not only did we greatly exceed our estimated subscriber target for the year, but we also beat estimates in subscriber acquisition costs and monthly churn. The fourth quarter produced blow-out sales, heavily fueled by the holidays, and solid numbers in our automotive channel, which we believe will be a major contributor to our subscriber growth in 2005. Our strong start this year, along with an expanding slate of compelling programming, the introduction of third generation products later this year, and the anticipated arrival of Howard Stern next January, all contribute to our enthusiasm for the growth prospects of SIRIUS."

Guidance for 2005:

In view of a strong start to 2005, SIRIUS is raising guidance for 2005 net subscriber additions to 1.4 million, implying a year-end 2005 subscriber target of over 2.5 million, up from approximately 2.3 million year-end 2005 subscribers suggested by previous guidance. Estimated average monthly churn is expected to be in the range of 1.6% to 1.7% during 2005. SAC per gross subscriber addition should also drop to below $145 for the year, with further declines expected in 2006.

SIRIUS expects to generate approximately $210 million of total revenue in 2005. The company expects to generate an adjusted loss from operations of approximately $(480) million in 2005. Total operating cash uses, capital expenditures and purchases of restricted investments, are expected to be approximately $(350) million in 2005, as compared to approximately $(452) million in 2004.

SIRIUS ended 2004 with approximately $759 million in cash, cash equivalents and marketable securities, which it believes is sufficient to reach cash flow breakeven under its current business plan.

Conference Call Information:

SIRIUS will hold a conference call today at 8am ET to discuss operating and financial results. The public, members of the investment community and the press will have live access to the conference call via the company's website http://www.sirius.com and on the SIRIUS service by tuning to SIRIUS Channel [131]. A replay of the call will also be available on the SIRIUS website.

FOURTH QUARTER 2004 VERSUS FOURTH QUARTER 2003

For the fourth quarter of 2004, SIRIUS recognized total revenue of $25.2 million, compared with $5.0 million for the fourth quarter of 2003, a 409% year-over-year increase. This increase in revenue was driven by a net increase in the company's subscriber base of 882,197 subscribers, or 338%, from December 31, 2003 to December 31, 2004.

The company's adjusted loss from operations increased by $63.6 million, to $(155.2) million in 2004 (refer to the reconciliation table of loss from operations to adjusted loss from operations). This increase was driven in part by $37.1 million of increased subscriber acquisition costs, as SIRIUS' gross subscriber additions exceeded last year's fourth quarter gross subscriber additions by nearly 396,000 subscribers.

In addition, programming and content expenses increased by $17.5 million, to $26.0 million for the fourth quarter of 2004, from $8.5 million for the fourth quarter of 2003. The increase in programming and content expenses was primarily attributable to an increase in costs to create, produce and acquire content, specifically costs associated with sports related programming initiatives, such as the NFL.

Sales and marketing expenses also increased by $15.7 million, to $50.7 million for the fourth quarter of 2004, from $35.0 million for the fourth quarter of 2003. The increase in sales and marketing expenses was primarily a result of media advertising during the holiday selling season and personnel-related costs to support the continued growth of the company.

Finally, the company incurred increases in customer service and billing expenses, and general and administrative expenses. Customer service and billing expenses increased by $5.7 million, to $8.6 million for the fourth quarter of 2004, from $2.9 million for the fourth quarter of 2003. This increase was a direct result of the growth of our subscriber base. General and administrative expenses increased by $5.5 million to $13.0 million for the fourth quarter of 2004, from $7.5 million for the fourth quarter of 2003, primarily as a result of overhead expansion to support the continued growth of the business.

SIRIUS reported a net loss applicable to common stockholders of $(261.9) million, or $(0.21) per share, for the fourth quarter of 2004, compared with a net loss applicable to common stockholders of $(147.8) million, or $(0.14) per share, for the fourth quarter of 2003.

YEAR ENDED DECEMBER 31, 2004 VERSUS YEAR ENDED DECEMBER 31, 2003

For 2004, SIRIUS recognized total revenue of $66.9 million, compared with $12.9 million for 2003, a 419% year-over-year increase. This $54.0 million increase in revenue was driven by a net increase in the company's subscriber base of 882,197 subscribers, or 338%, from December 31, 2003 to December 31, 2004.

The company's adjusted loss from operations increased by $126.1 million, to $(456.2) million for 2004 (refer to the reconciliation table of loss from operations to adjusted loss from operations). This increase was driven in part by $98.8 million of increased subscriber acquisition costs, as SIRIUS' gross subscriber additions exceeded last year's additions by over 730,000 subscribers.

In addition, programming and content expenses increased by $33.7 million, to $63.9 million for 2004, from $30.2 million for 2003. The increase in programming and content expenses was primarily attributable to an increase in costs to create, produce and acquire content, specifically costs associated with sports related programming initiatives, such as the NFL.

Sales and marketing expenses also increased by $33.1 million, to $153.9 million for 2004, from $120.8 million for 2003. The increase in sales and marketing expenses was primarily a result of increased media advertising to market the SIRIUS service and the NFL season coverage, costs associated with the expansion of the company's retail distribution channel, including the company's national rollout in RadioShack stores, and personnel-related costs to support the continued growth of the company.

Finally, the company incurred increases in general and administrative expenses, and engineering, design and development expenses. General and administrative expenses increased by $7.8 million, to $44.0 million for 2004, from $36.2 million for 2003, primarily as a result of overhead expansion to support the continued growth of the business, offset in part by a legal settlement in 2003 associated with the termination of a contract with the company's prior subscriber management provider. Engineering, design and development expenses increased $6.0 million, to $30.5 million for 2004, from $24.5 million for 2003. This increase was primarily attributable to additional personnel-related costs to support research and development efforts, and costs associated with tooling and manufacturing upgrades at DaimlerChrysler and Ford in preparation for SIRIUS factory installations, offset in part by reduced chipset development costs.

SIRIUS reported a net loss applicable to common stockholders of $(712.2) million, or $(0.57) per share, for 2004, compared with a net loss applicable to common stockholders of $(314.4) million, or $(0.38) per share, for 2003.

SIRIUS maintains a strong cash position, ending 2004 with $759.2 million in cash, cash equivalents and marketable securities compared to $550.0 million on December 31, 2003. The increase in cash, cash equivalents and marketable securities was primarily a result of offerings of the company's common stock and convertible notes for net proceeds of $614.4 million and the addition of 986,556 gross new subscribers from whom approximately nine months of prepaid revenue was received upon activation. Such increases were offset by cash outflows to fund the company's adjusted loss from operations, capital expenditures and purchases of restricted investments in 2004.

(Selected financial information follows).

SIRIUS defines adjusted loss from operations as loss from operations before depreciation expense and equity granted to third parties and employees. SIRIUS believes adjusted loss from operations is useful to investors because it represents operating expenses of the company excluding the effects of non-cash items.

SIRIUS defines average monthly revenue per subscriber, or ARPU, as the total earned subscription revenue and activation revenue during the period, over the daily weighted average number of subscribers for the period.

SIRIUS defines subscriber acquisition costs, or SAC, as costs of incentives for the purchase, installation, and activation of SIRIUS radios, as well as subsidies paid to radio and chip set manufacturers, automakers and retailers and the negative margin on equipment sales.

Adjusted loss from operations, ARPU and SAC are not measures of financial performance under U.S. generally accepted accounting principles. As a result, these metrics 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 or as a substitute for measures of performance prepared in accordance with U.S. generally accepted accounting principles.

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, 2003 filed with the Securities and Exchange Commission. Among the key factors that have a direct bearing on the company's results of operations are: the company's dependence upon third parties to manufacture, distribute, market and sell SIRIUS radios and components for those radios; the unproven market for SIRIUS service; SIRIUS' competitive position; changes to our business plan or strategy and any events which affect the useful life of the company's satellites.

Sirius Satellite Radio Inc.
Quarterly Data
(Unaudited)

As of
12/31/04 9/30/04 6/30/04 3/31/04 12/31/03
Subscribers:
Beginning subscribers 662,289 480,341 351,663 261,061 149,612
Net additions 480,969 181,948 128,678 90,602 111,449
Ending subscribers 1,143,258 662,289 480,341 351,663 261,061
Retail 797,039 448,328 344,349 263,164 197,650
OEM and special markets 317,685 186,804 111,145 63,493 39,400
Hertz 28,534 27,157 24,847 25,006 24,011


For the Three Months Ended
12/31/04 9/30/04 6/30/04 3/31/04 12/31/03
Gross subscriber
additions 521,479 207,181 149,164 108,732 125,898
Deactivated subscribers 40,510 25,233 20,486 18,130 14,449
Average monthly churn (1) 1.5% 1.5% 1.6% 2.0% 2.3%
Subscriber acquisition
costs per gross activation $124 $229 $234 $248 $222
Monthly ARPU:
Average monthly revenue
per subscriber $10.57 $10.92 $11.19 $11.68 $11.99
Effects of Hertz
subscribers (0.05) (0.18) (0.29) (0.62) (1.19)
ARPU before effects of
mail-in rebates $10.52 $10.74 $10.09 $11.06 $10.80
Effects of mail-in
rebates (1.16) (0.05) (0.36) (1.14) (2.21)
Reported ARPU $9.36 $10.69 $10.54 $9.92 $8.59
Average monthly revenue
per Hertz subscriber $9.28 $7.19 $6.50 $5.17 $2.65

For the Year Ended
12/31/04 12/31/03
Gross subscriber additions 986,556 255,798
Deactivated subscribers 104,359 24,684
Average monthly churn (1) 1.6% 1.5%
Subscriber acquisition costs per gross
activation $177 $293
Monthly ARPU:
Average monthly revenue per
subscriber $10.91 $12.02
Effects of Hertz subscribers (0.19) (1.38)
ARPU before effects of mail-in
rebates $10.72 $10.64
Effects of mail-in rebates (0.70) (1.25)
Reported ARPU $10.02 $9.39
Average monthly revenue per Hertz
subscriber $7.10 $3.13


(1) Average monthly churn is the number of deactivated subscribers divided by average quarterly subscribers.

Sirius Satellite Radio Inc.
Financial Highlights
(In thousands, except per share data)
(Unaudited)

For the Three Months For the Year
Ended December 31, Ended December 31,
2004 2003 2004 2003
Revenue:
Subscriber revenue, including
effects of mail-in rebates $22,704 $4,835 $62,881 $12,615
Advertising revenue,
net of agency fees 507 33 906 116
Equipment revenue 1,885 61 2,898 61
Other revenue 121 21 169 80
Total revenue 25,217 4,950 66,854 12,872


Operating expenses:
Cost of services (excludes
depreciation expense shown
separately below):
Satellite and transmission 6,942 9,063 31,157 32,604
Programming and content 25,977 8,503 63,949 30,214
Customer service and billing 8,623 2,899 22,341 23,657
Cost of equipment 1,852 115 3,467 115
Sales and marketing 50,651 35,009 153,899 120,771
Subscriber acquisition costs 64,944 27,835 173,702 74,860
General and administrative 13,019 7,497 44,028 36,211
Engineering, design and
development 8,430 5,666 30,520 24,534
Depreciation expense 24,288 24,124 95,370 95,353
Equity granted to third parties
and employees (1) 79,065 9,356 126,725 12,083
Total operating expenses 283,791 130,067 745,158 450,402
Loss from operations (258,574) (125,117) (678,304) (437,530)
Other (expense) income:
Debt restructuring -- -- -- 256,538
Interest and investment income 3,807 1,276 9,713 5,287
Interest expense (7,151) (23,937) (41,386) (50,510)
Other income 605 -- 2,016 --
Total other (expense) income (2,739) (22,661) (29,657) 211,315
Loss before income taxes (261,313) (147,778) (707,961) (226,215)
Income tax expense (560) -- (4,201) --
Net loss (261,873) (147,778) (712,162) (226,215)
Preferred stock dividends -- -- -- (8,574)
Preferred stock deemed dividends -- -- -- (79,634)
Net loss applicable to common
stockholders $(261,873) $(147,778) $(712,162) $(314,423)
Net loss per share applicable
to common stockholders
(basic and diluted) $(0.21) $(0.14) $(0.57) $(0.38)
Weighted average common shares
outstanding
(basic and diluted) 1,263,710 1,041,365 1,238,585 827,186

(1) Allocation of equity granted to third parties and employees to other
operating expenses:
Satellite and transmission $1,244 $233 $2,041 $508
Programming and content 15,533 814 23,930 1,216
Customer service and billing 254 94 439 136
Sales and marketing 19,931 4,184 48,322 4,844
Subscriber acquisition costs 32,815 -- 33,149 --
General and administrative 6,462 3,083 13,877 4,210
Engineering, design and
development 2,826 948 4,967 1,169
Total equity granted to third
parties and employees $79,065 $9,356 $126,725 $12,083


Sirius Satellite Radio In
Financial Highlights
(In thousands)
(Unaudited)

Selected Balance Sheet Data as of:
December 31, 2004 December 31, 2003
Cash, cash equivalents and marketable
securities $759,168 $549,883
Restricted investments 97,321 8,747
Working capital 541,526 497,661
Total assets 1,957,613 1,617,317
Long-term debt 656,274 194,803
Total liabilities 956,980 292,123
Accumulated deficit (1,865,856) (1,153,694)
Stockholders' equity 1,000,633 1,325,194

The following table reconciles GAAP loss from operations to adjusted loss
from operations:

For the Three Months Ended For the Year Ended
December 31, December 31,
2004 2003 2004 2003
GAAP loss from operations,
as reported $(258,574) $(125,117) $(678,304) $(437,530)
Depreciation expense 24,288 24,124 95,370 95,353
Equity granted to third
parties and employees 79,065 9,356 126,725 12,083
Adjusted loss from operations $(155,221) $(91,637) $(456,209) $(330,094)


Sirius Satellite Radio Inc.
Financial Highlights
(In thousands)
(Unaudited)

For the Three Months Ended For the Year Ended
December 31, December 31,
2004 2003 2004 2003
Cash flows from operating
activities:
Net loss $(261,873) $(147,778) $(712,162) $(226,215)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation expense 24,288 24,124 95,370 95,353
Non-cash interest expense 744 19,973 21,912 22,708
Loss on disposal of assets 51 1,028 70 15,493
Non-cash gain associated with
debt restructuring -- -- -- (261,275)
Costs associated with debt
restructuring -- -- -- 4,737
Expense for equity granted to
third parties and employees 79,065 9,356 126,725 12,083
Other -- 2 -- --
Changes in operating assets and
liabilities:
Marketable securities (200) 1 (292) (1,184)
Prepaid expenses and other
current assets (5,653) (1,549) (13,522) (1,877)
Other long-term assets (41,157) (80) (44,563) (79)
Accrued interest 841 (4,100) 4,689 12,821
Accounts payable and accrued
expenses 64,276 12,864 108,997 21,996
Deferred revenue 44,749 11,360 78,055 16,709
Other long-term liabilities (4,074) 1,049 258 4,243
Net cash used in operating
activities (98,943) (73,750) (334,463) (284,487)
Cash flows from investing
activities:
Additions to property and
equipment (6,273) (5,739) (28,589) (20,118)
Sale of property and equipment 206 -- 443 --
Sales (purchases) of restricted
investments 398 -- (89,706) --
Purchases of available-for-sale
securities -- -- -- (24,826)
Maturities of available-for-sale
securities -- -- 25,000 150,000
Net cash (used in) provided by
investing activities (5,669) (5,739) (92,852) 105,056
Cash flows from financing
activities:
Proceeds from issuance of
common stock, net 96,025 150,000 96,025 492,659
Proceeds from issuance of
long-term debt, net 224,813 -- 518,413 194,224
Proceeds from exercise of
stock options 20,047 -- 26,051 --
Proceeds from exercise of
warrants -- -- 19,850 --
Costs associated with debt
restructuring -- -- -- (4,737)
Other (13) (40) (112) (111)
Net cash provided by
financing activities 340,872 149,960 660,227 682,035
Net increase in cash and cash
equivalents 236,260 70,471 232,912 502,604
Cash and cash equivalents
at the beginning of period 517,631 450,508 520,979 18,375
Cash and cash equivalents
at the end of period $753,891 $520,979 $753,891 $520,979


SOURCE SIRIUS Satellite Radio

CONTACT: Media: Jim Collins, [phone], or [e-mail], Analysts: Michelle
McKinnon, [phone], or [e-mail], Investors: Jaymie
VanValkenburgh, [phone], or [e-mail], all of SIRIUS
Satellite Radio