Sirius XM (SIRI) took a $4.75 billion impairment charge in Q3 after the company’s value dropped from $3.79 in February, when they announced a merger with XM Satellite Radio, to $0.27 Monday. The company says it is doing better than rivals, but it’s all relative in this market.
Auto sales directly impact Sirius' sales as subscribers sign up for the technology when they buy new cars. As such, satellite radio vendors have little control in this aspect and are facing a decidedly bleak outlook from car manufacturers. From Sirius Satellite Radio Inc.’s Q308 conference call:
Besting rivals:
Clear Channel (CCU) is the number one radio revenue company, and they reported to-date third quarter revenue declining 7%. The second largest... is SIRIUS XM, whose revenue was up 16%. The third largest radio revenue company, CDS, showed a 12% decline.
People still willing to pay a premium for personal entertainment:
The $16.99 package where XM subscribers are opting for best of SIRIUS is the most sought-after… [A] relatively modest number of people are opting for lower-priced packages.
Fortunes aligned with automakers as satellite radios are sold in new cars:
We actually saw a good uptick in penetration rates, particularly at Ford and General Motors… With Chrysler, Ford and General Motors, our performance in the third quarter at all three of those are at penetration rates that approach 70%.
We do not have a whole lot of control over what cars are getting sold… So we are at the mercy of what happens. In providing the guidance, we are obviously cognizant of it.
Q: If GM or Ford went bankrupt or GM merged with Chrysler, would that change any of your contracts or make them available for renegotiation?
A: If they merge, a deal is a deal, and if something different happens, they would go into court… Remember that one of the things that is attractive to them in there is the revenue share.
Cash flow/debt outlook:
In 2009 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…
Q: You are optimistic about the refinancing. [But] what is the Plan B here?
A: We had $300 million of maturities due. We are now at approximately $210 million of maturities due. I told you that we have had discussions with lenders… The company remains confident that we will in short order get the February '09 refinancing done.
Like many large companies, their stock is below $1:
We have asked shareholders to authorize a reverse stock split, should the Board of Directors decide to do one. Our interest in a reverse split is motivated by requirements of NASDAQ for us to remain a listed company.
