Sirius: Q2 Growth Before Merger

Sirius Satellite Radio managed to narrow its second quarter loss to $83.9 million, or 6 cents a share during the second quarter compared to a $134.1 million, or 9-cent per share loss reported during the same period in 2007. Thomson Financial analysts called for a 7-cent per share loss.

The company reported its second quarter financial results Thursday morning (Aug. 7) as a stand-alone operation before it merged with XM on July 28, 2008, and became Sirius XM Radio.

Sirius reported a 25 percent revenue increase to $283 million, total subscribers in excess of 8.9 million and a 70 percent decrease in the adjusted loss from operations.

“Second quarter stand-alone Sirius results once again demonstrated that we achieved strong revenue growth and solid cost control,” said Sirius CEO Mel Karmazin. “Despite a tough economy and weak auto sales, gross additions set a new second quarter record. In the second quarter both revenue and subscribers grew 25 percent as compared with last year, while cash costs remained essentially flat leading to a 70 percent reduction in our second quarter EBITDA loss.”

Sirius subscribers from new vehicle sales increased by 53 percent during the second quarter to 4.2 million from about 2.8 million at the end of Q2 in 2007. During the second quarter 2008, Sirius added 279,820 net subscribers. The second quarter 2008 average monthly self-pay customer churn rate was 1.6 percent, and its conversion rate was about 48 percent.
The cost of getting a subscriber fell 27 percent to $78 from $107.

During a 57-minute morning teleconference with Wall Street analysts and investors, Karmazin stressed that the combined Sirius XM came together with $2.4 billion in annual revenue with 18.5 million subscribers, making it second in the U.S. to Comcast in the subscriber business. Karmazin forecast a combined annual growth rate of about 97 percent, basing that assumption on the fact that the satellite radio industry reaches only 20 percent of U.S. households after only six years.

Karmazin also said he expects the satellite company to continue to penetrate the new vehicle market despite the slowdown in new vehicle sales, generating $350 million in revenue from new car sales in the worst case scenario. XM’s exclusive relationship with General Motors expires in a few years, but Karmazin has already reached out to the auto manufacturer to begin discussions to keep that deal afloat.

While the new a la carte pricing program will be available on new satellite receivers in just a few months, it could take three years or longer for automakers to add interoperable receivers to new vehicles if they choose to do so at all.

Karmazin, who guided the $2.6 billion, all stock merger proposal through the lengthy regulatory process in Washington, D.C., noted that immediately after winning the FCC’s approval to merge on July 25, the combined company was able to obtain $700 million in new high yield debt and another $550 million in a new exchangeable note. He added that the