Sirius Actually Beat the Street

Analysts were expecting a loss of two cents per share. The company reported a loss of 7 cents per share. Was the miss this big? By accounting standards it was, but what many fail to see is that 6 cents of that 7 cent loss was attributable to a one time accounting impact of the Liberty (LCAPA) preferred shares.

All things considered, if you were to remove the Liberty deal's impact from the quarter, Sirius XM (SIRI) would have beat the street with a loss of only 1 cent ($50 million). This is not to say that investors should pretend that the Liberty deal does not exist. Liberty’s shares represent 40% of the company, and ignoring that fact would be a big mistake. However, if you want to gauge the performance of the quarter on a stand-alone and operational basis, you need to consider their performance without the Liberty deal impact.

Thus, it can be argued that Sirius XM’s cost cutting and performance beat the street. Going forward, there will not be another Liberty deal next quarter, or the quarter after that. It was a one time cost, and now it has been fully absorbed in the form of an additional 6 cent loss in Q1.

From an operational standpoint, Sirius XM is demonstrating substantial cost savings across the board, and those savings look like they will continue. It is metrics associated with the costs of the business that investors need to keep an eye on, and the company seems to have the cost side well under control.

Because the merger is only two quarters into the books, and auto sales are in such a slump, it is harder than usual to construct a model for how the company will perform. Sirius XM’s Mel Karmazin gave some clarity in stating that they are basing their projections on an annualized sale rate of 9 million vehicles. Understanding that the company demonstrated significant savings in the current quarter despite a poor economy, and understanding the adjusted EBITDA guidance upward to $350 million despite these conditions, shows that perhaps the company not only beat the street in Q1, but could continue to do so.

Position - Long Sirius XM Radio

Comments

[Isaac A.:]

Interesting article. I had not heard anyone talk about the losses that way. Makes me feel a lot more confident in their progress even though I already believed the numbers were positive from a progression standpoint.

Keep up the great work Tyler!

May 08 02:08 AM

[holmesnmanny:]

That was the first thing that stood out for me when I saw the earnings report. I'm surprised it took this long for someone to report on it.

======================...
For the Three Months Ended March 31,
(in thousands, except per share data) 2009 2008

Net loss attributable to comn stockholders $(236,599) $(104,118)

Less: Preferred stock beneficial conversion
feature (186,188) - 0

Net loss before preferred stock beneficial
conversion feature $(50,411) $(104,118)
Net loss before preferred stock beneficial
conversion feature per common share (basic and
diluted) $(0.01) $(0.07)

Weighted average common shares outstanding
(basic and diluted) 3,523,888 1,475,496

======================...

The fact of the matter is that Sirius still hasn't made a profit and I'm really surprised it's taking this long. Mel should be doing everything in his power to make sure that damn iphone app gets out because he's not gonna be able to count on the automotive market for the near future. I really think it's time for a change at the top. This company should have been profitable by now. This is, plainy put, unacceptable at this point now, even with them almost being profitable.

May 08 05:21 AM

[Jebeatsfish:]

Repeat after me Long Sirius XM folks: "Howard must resign, Howard, must resign, Howard must resign..." If he does not, bye-bye subscriber base. This seems to be overlooked when discussing this company.

May 08 07:34 AM

[wcorowitz:]

I agree, Iphone should have been released on thurs. to offset some of the bad news. They could have at least talked about it in detail. Also they should have talked about how reworking the GM deal will save the company money. Also they should never sign another big name contract for globs of money. Even if someone brings in millions of listeners, it only translates to x number of dollars. People pay for superior music content with no commercials. This is the lifeblood of their business.

May 08 08:29 AM

[Neal Barkett:]

Tyler, Thanks for pointing that out! That expense is behind the company know and staved off BK. I see a positive future for Sirius Xm from this point on. With the new app. comming out and considering where the economy is I feel they have shown us that the bottom line is they are here to stay. I of course am waiting for more innovative signals from the company and have to believe they are coming. The sub loss you prepared us for with your due d. Thanks.

May 08 09:00 AM

[Randall Pin...:]

I didn't even have to read this article to know that it's pure hogwash.

SELL NOW BEFORE IT'S TOO LATE!!!

Siri to .25 next week :)

May 08 09:12 AM

[holmesnmanny:]

So agreed. They need to go where the revenue is. The automobile market clearly is not working right now.


On May 08 08:29 AM wcorowitz wrote:

> I agree, Iphone should have been released on thurs. to offset some
> of the bad news. They could have at least talked about it in detail.
> Also they should have talked about how reworking the GM deal will
> save the company money. Also they should never sign another big name
> contract for globs of money. Even if someone brings in millions of
> listeners, it only translates to x number of dollars. People pay
> for superior music content with no commercials. This is the lifeblood
> of their business.

May 08 09:39 AM

[JimT:]

The cost controls are all good, but the subscriber loss is worrisome. We should not overlook the effects of post-merger programming changes. In particular, the "decades" channels, which are the most popular, are running with tiny playlists. On most decades channels, only 600 tracks are in rotation, and half of those are on a lighter schedule, played about every other day. As an old radio hand, I know that this sounds great the first time you hear it, but those 300 songs in heavy play quickly burn out and wear out their welcome. You hear the same things every time you get in the car. It doesn't take long before you start losing listeners.

By comparison, the old XM had 2600 songs on comparable channels.

There have been many complaints about this, but it's hard to say how big a factor this is in the decision of some subscribers not to renew. It would not be hard to fix, by mixing in a few more varied items. It bears watching.

May 08 10:52 AM

[an american:]

yea seriously. i love sirius xm and listen it on planes all the time, but i almost never leave the jazz and classical stations. the absolute last thing i'd want to listen to is howard stern.


On May 08 08:29 AM wcorowitz wrote:

> I agree, Iphone should have been released on thurs. to offset some
> of the bad news. They could have at least talked about it in detail.
> Also they should have talked about how reworking the GM deal will
> save the company money. Also they should never sign another big
> name contract for globs of money. Even if someone brings in millions
> of listeners, it only translates to x number of dollars. People
> pay for superior music content with no commercials. This is the
> lifeblood of their business.

May 08 12:04 PM

[PDinATL:]

You are to be congratulated Tyler, for coming very close in your prediction of the number of subscribers SIRI lost in Q1. Keep up the good work and the keen analysis as it is a great help to all of us investors. Thanks from Atlanta.

May 08 03:04 PM

[PDinATL:]

I'm an amateur at financial statement analysis, but a couple other things I noticed in the Q1 numbers:

ARPU would have been more respectable if only the advertising revenue would have kept up with 2008 levels.

The cash burn rate went down dramatically from where it was on a pro forma basis in the year-ago first quarter. Net decrease in cash for Q1 2009: ($4,960,000) versus net decrease for Q1 2008: ($186,312,000). With lower cash burn and $375M in cash on hand at the end of Q1 2009, the company is thus giving itself more room to breath and execute on its business plans.

May 08 03:20 PM

[bottomsout:]

In their business model, why wouldn't retention be down, the economy is down so people will cut costs. There was nothing unexpected here. All I know is I go into any elevator, mall, Medical/Dental office, or pizza place and IT IS ON.

May 10 08:03 AM