Sirius XM Loss Narrows

SIRIUS XM RADIO third-quarter 2008 pro forma revenue rose 16% to $613 million, with total subscriber count up 17% to 18.9 million and pro forma adjusted loss improving 64% to $37 million before purchase accounting and restructuring costs.

During the third quarter 2008, SIRIUS XM added 344,100 net subscribers. Pro forma average monthly revenue per subscriber (ARPU) was $10.47 and average monthly self-pay customer churn was 1.7%. SAC per gross subscriber addition improved 15% to $74.

Pro forma net loss narrowed from $265.5 million to $217 million (18 to 9 cents/share).   Overall net loss widened due to the $4.8 billion impairment charge, going from $119.6 million to $4.88 billion (8 cents to $1.93/share), but without the impairment charge and other items, the loss was at 9 cents/share.

"SIRIUS XM third-quarter results demonstrate strong revenue growth, solid cost control and most importantly a clear path to positive cash flow," said CEO MEL KARMAZIN in a press release. "Despite a continued tough economy and further weakening in auto sales, pro forma revenue grew 16% and ending subscribers grew 17% as compared with last year. In addition, self-pay monthly customer churn remained flat from last year at an impressive 1.7%.

"In the third quarter, total operating costs, less merger-related expenses, decreased as compared with last year, leading to a 64% improvement in the pro forma adjusted loss from operations of $37 million before restructuring costs. In the first 60 days following the merger, SIRIUS XM is operationally very close to breakeven. As we realize the substantial synergies associated with the merger, we expect to quickly bring the company to positive EBITDA and free cash flow. We have provided new long-term financial and operating projections based upon slower auto production and greater cost savings and we now anticipate positive free cash flow of $1 billion in 2012."

The company's actual third-quarter results included only two months of operations of XM from its JULY 28th, 2008 acquisition and also include a $4.8 billion impairment charge to goodwill, principally related to the decline in the company's share price since the date of the Merger Agreement in FEBRUARY 2007. The company also said it will delay filing its Quarterly Reports on Form 10-Q for up to five days in order to carefully review the required purchase accounting adjustments.

Karmazin Talks Refinancing But Won't Discuss If There's A 'Plan B'

On the company's conference call, KARMAZIN, noting that CLEAR CHANNEL's revenue for the quarter fell 7% while SIRIUS XM, the second largest radio company, rose 16% pro forma, said, "We are growing significantly, and companies larger than us and smaller than us are not. And this was in the most difficult quarter that most of us have ever seen. This performance bodes well on how SIRIUS XM should perform in the fourth quarter of '08, and '09, and beyond." He said that the company will be EBITDA positive "in 2009 when we will have over $300 million of EBITDA. And after all cash expenses, including satellite expenditures, we will not have net cash outflow for the full year '09. And this positive trend will continue in subsequent years."

On the company's attempts to refinance its huge debt, KARMAZIN said, "These lenders understand that the refinancing issues are macroeconomic in nature and not related to any operating failure on the part of SIRIUS XM. The banks we have been working with believe in our business plan and support the company."

On WEDNESDAY's merger of channels between the two services, KARMAZIN insisted that "As we rationalize our programming offering, not only will consumers benefit from the improved lineup on both platforms, but we will be producing significantly fewer channels and the elimination of duplicated programming will result in the company saving millions of dollars every year. Subscribers will continue to receive the same number of channels, only now there will be even more desirable channels and with no additional costs. As a result of the merger, our even better content offering should help SIRIUS XM to reduce churn, improve conversion rates, as well as attract new subscribers."

In the question-and-answer session, CFO DAVID FREAR said that the company has sufficient cash to get through the refinancing period. He said that "we remain very confident of refinancing" the debt maturing in FEBRUARY despite a difficult credit market. But KARMAZIN refused to discuss whether the company has a "Plan B" in case the refinancing doesn't happen, saying instead that "I told you that we have had discussions with lenders. We remain optimistic. I really do not want to get into any hypothetical. The company remains confident that we will in short order get the FEBRUARY '09 refinancing done."

Read the transcript of MONDAY's conference call at SEEKING ALPHA by clicking here.

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