Sirius Satellite Radio (SIRI) reported narrower losses this morning, posting EPS of -$0.06 vs. the mean analyst estimate of -$0.07. The results are an improvement from the company's loss of $0.09 in the same period a year ago.
But can SIRI CEO Mel Karmazin allay investor fears over inflexible fixed costs, strong macroeconomic headwinds, and plunging U.S. auto sales? Tune into the 08:00 EDT conference call to find out. We'll be covering the call here live.
Conference Call Notes
07:55: Awaiting call...
08:00: Usual introductor remarks and disclaimers about forward looking statements...
08:02: Karmazin: "Pleased with response I've received"... 2nd largest pure play in radio, fastest growing. blah blah blah, value creation, blah blah blah. "Only group that shouldn't be pleased are shareholders." (boy is that the truth).
08:04: CFO talks about SIRI's stand-alone results. Lost $24 million in EBITDA. How close to positive EBITDA? $400 million in synergies in 2009... "if merger had been approved earlier, and we realized only half of synergies, we would have made profit."
08:06: Subscriber growth strong... clearly a product that people want. OEM subscriber base up 53% from last year. Operating costs as percent of revenue improved. Efficiency gains in OEM channel helped.
08:08: ARPU down... subscribers grew faster than advertising revenue. Consollidated net loss improved 38%. "Solid demonstrated demand." Stable ARPU, low churn, strong cost controls... clear path to positive cash flow.
08:10: Karmazin: Look forward to delivering on 2009 forecast... (So do we Mel).
08:12: Anticipate being largest radio company soon.
08:12: Combined operations now have over 18.5 million subscribers... second only to Comcast for subscription-based media companies. Faster subscriber growth than cellular or CD players in their first 5 years.
08:13: The fact that auto makers are embracing is good. Production penetration rate is good.
08:14: $400 million in cost synergies is 15% of combined costs... this is reasonable. Already realizing synergies. Expect synergies on every major line item.
08:15: Regarding debt: $442 million in cash. $350 in XM bank debt due in May. Banks have been helpful. Every reason to believe banks will extend maturity. $400 million due in December 2009. We'll be breaking even by then, which will help us refinance.
08:16: Karmazin: Raised $700 million in high-yield debt on night of merger despite tough market. Won't be dilutive. "We're pleased that we were succesful that we got our transaction financed." Had to raise money to get deal done, deal was taking too long. Took the best deal available to get the transaction closed. We are well aware that the stock price has suffered. I bought 2 million shares this week... bottom line is we accomplished financing and got transaction done. No plans for a reverse split. Hard to see how that would add value. Satellite radio will continue to be important to auto makers, since we are a source of revenue and help sell cars. Expect greater penetration. Even if auto sales decline to low-end of forecasts, 6 million cars will leave factory with radios. assuming 50% conversion, that's 3 million...assuming ARPU, thats $350 million in new revenue. That's good.
08:20: The tough part is always getting the deal done... The tough part is over... (We'll see Mel).
08:22: Q&A begins... Morgan Stanley analyst asks why OEM net adds were down year-over-year. Answer: Confusion at retail was a big problem for us. Like HD-DVD and Blu-ray, caused customers to freeze. Merger helps this issue. OEM didn't have much to do with confusion.
08:32: Merrill analyst asks about Q4 promotion and marketing plans. Answer: Marketing plans have note been finalized. DOJ prevents us from finalizing before merger closes. One thing we do know is that synergy on advertising will be big. Want to make sure that customers aren't confused anymore. Will talk to retailers first, then investors.
08:35: JP Morgan analyst asks about merger related charges we can expect in Q3 or Q4... Answer: As smart as we are, we don't have any additional details for you. As we get deeper into implementation, we'll get back to you.
08:40: Goldman analyst asks for range on EBITDA and Cash on hand as well as color on expectations for retail confusion going forward... Answer: Pro form for consolidated company is $442 miilion. We've made it very clear, we're providing an awful lot of information... EBITDA has been improving every year, even without synergies. "You can see a path." There will be lots of free cash flow.
08:45: Lehman analyst asks why Sirius' conversion rates were lower than XM's... Answer: Our penetration rate is higher. XM has been at it longer and may have learned more. "A whole number of moving pieces." Good thing about the merger is that now we can learn from each other and come up with Best Practices. Multi-purpose radio will be available faster than deadline dictates. May help ARPU. As for OEM, its up to car companies...
08:55: Analyst asks what biggest synergy is... Answer: Areas of programming, can eliminate redundant channels. Advertising will be big as well. Call ends...
