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SIRIUS Satellite Radio (NASDAQ:SIRI)

Q4 2007 Earnings Call

February 26, 2008 8:00 am ET

Executives

Paul Blalock - Senior Vice President, Investor Relations

Mel Karmazin - Chief Executive Officer

James E Meyer - President of Sales and Operations

Scott Greenstein – President of Entertainment and Sports

David J. Frear - Executive Vice President and Chief Financial Officer

Analysts

Ben Swinburne - Morgan Stanley

Robert Peck - Bear Stearns

Eileen Furukawa - Citigroup

David Bank - RBC Capital Markets

Kip Spring - Stifel Nicolaus

April Horace - Janco Partners

Operator

Welcome to the SIRIUS Satellite Radio fourth quarter 2007 financial and operating results conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to Paul Blalock, Senior Vice President of Investor Relations. Mr. Blalock, please go ahead.

Paul Blalock

Thank you, Peter. Good morning, everyone and thank you for your participation. This morning Mel Karmazin, our CEO, joined by Jim Meyer, President of Operations and Sales and Scott Greenstein, President of Entertainment and Sports, will review our fourth quarter and full year 2007 financial results and operational accomplishments. David Frear, our EVP and CFO, will then discuss our financial results as outlined in our press release this morning. At the conclusion of our prepared remarks, management will be glad to take your questions.

First, I would like to remind everyone that certain statements made during this call might be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management's current beliefs and expectations and necessarily depend on assumptions, data, or methods that may be incorrect or imprecise.

Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For information about those risks and uncertainties, more information is contained in SIRIUS' SEC filings. We caution listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them.

I will now hand the call over to Mel Karmazin for his opening remarks.

Mel Karmazin

Thanks, Paul. Good morning and thank you all for joining us today. I wish that I was here for the purpose of elaborating about our exciting plans for the soon to be merged SIRIUS-XM company but unfortunately we have not yet received our approval from the DOJ or the FCC. We are optimistic that we will hear favorable information from them in the near future. We are therefore not providing financial guidance for 2008 and beyond until there is regulatory clarity; hopefully that will be very shortly.

In spite of the great deal of focus from the SIRIUS management team on the merger, in 2007 we have executed almost flawlessly on our operating plan. In 2007, SIRIUS achieved our financial goals and solidified our position as one of the fastest-growing media companies in the world.

Excellent execution lead to a 45% increase in 2007 revenue to $922 million. These results were driven by 4.2 million gross subscriber additions; an annual record for satellite radio. 2007 subscriber growth of 2.3 million net new subscribers drove a 38% increase in our ending subscriber base to more than 8.3 million subscribers. SIRIUS also produced positive free cash flow for the second half of 2007 a first in history of our company. In the fourth quarter of 2007, SIRIUS produced $76 million in positive free cash flow, up 150% from the $30.4 million in positive free cash flow in the fourth quarter of 2006.

Last year during the 2006 investor conference call we provided financial and operating guidance. I am pleased to report that SIRIUS accomplished or exceeded all of the goals that we established. Our goal for subscribers was in excess of 8 million; we delivered over 8.3 million. We estimated revenues to approach $1 billion; we delivered $922 million, a 45% increase over the $637 million in 2006. We estimated churn to be in a range of 2.2% to 2.4%. We delivered 2.2%. We also forecasted SAC per gross add to approach $100, and we delivered $101 for the full year and $90 for the fourth quarter.

In the fourth quarter of 2007, SIRIUS garnered 68% of the total satellite radio after-market sales according to the NPD Group, our highest segment share ever Beginning in the fourth quarter of 2005 and continuing for nine consecutive quarters, SIRIUS has attracted the majority of the satellite radio subscriber growth. SIRIUS’ share of total satellite radio net subscriber additions is extraordinary. Just yesterday NPD issued their January report marking the 29th consecutive month where SIRIUS has attracted the majority of satellite radio subscriber growth.

SIRIUS’ focus on customer satisfaction drove continued positive results in customer retention. The monthly all-in churn rate was 2.2% for the year, which was at the low end of our guidance. Self-paid churn was 1.6% for the year, a very positive sign of continued customer satisfaction.

Turning now to the auto sector, only three years ago in 2005 SIRIUS’ production penetration rate was approximately 10% of our exclusive OEMs total production. That figure is expected to grow to over 50% in 2008 and is poised to rise even higher in the next few years.

SIRIUS also extended our exclusive relationship with Ford until 2016 and with Chrysler until 2017. Ford will install SIRIUS into 70% of their ’09 model year vehicles and Chrysler will install SIRIUS into 70% of their 2008 model year vehicles. As you can see, SIRIUS is executing extremely well.

Now I would turn it over to Jim Meyer. We will then hear from Scott and David and I will return to say a few additional words about our pending merger and then we will take questions. Jim?

James E Meyer

Thanks, Mel. Both the fourth quarter 2007 and the full year were very successful for SIRIUS. As you know, one of our goals for 2007 was to maintain our market leadership position and SIRIUS more than accomplished that goal. As Mel said, this marks the ninth consecutive quarter for net add leadership.

During 2007, SIRIUS added 4.2 million gross additions, an annual record for satellite radio. Total subscribers increased 38% to 8.3 million. During the year, retail subscribers increased 15% while OEM subs grew 87%. In the fourth quarter, 2007 net additions of 654,000 were comprised of 444,000 net additions from the OEM sector and 211,000 net additions in the aftermarket.

Another highlight of the year was all-in churn rate of 2.2% and our self-paid rate of 1.6%. We are thrilled with the results from our customer retention and very pleased with our stable self-paid churn performance.

Turning to the aftermarket channel, while the net additions for the fourth quarter and the full year are clearly down from 2006. SIRIUS retail MPD share of the satellite radio segment in the fourth quarter was at a record 68%. Overall, I am satisfied with our after-market share trends, particularly when you realize our average selling price is greater than any other sat radio products. We are very focused on this key channel of distribution and continue to work with our retailers to achieve our share objectives.

I would also like to note that inventory is in excellent shape this year, about half the level at this time last year, and new product introductions are progressing well. Both the new Stiletto 2 and the new Sportster 5 were widely available at retail and were strong sellers this past holiday season.

We continue to believe that the aftermarket channel will remain an important long-term contributor. However, our assumptions for the future are grounded in the reality of the recent after-market trends. It is abundantly clear that satellite radio competes with an increasingly broad spectrum of entertainment and consumer electronics options. Our long-term challenge is to continue to innovate our products so that we can leverage our outstanding content in today’s increasingly competitive audio entertainment environment.

Now let’s turn to the OEM world. We continue to be pleased with our progress with our OEM relationships. Earlier this month, we announced that Chrysler extended our relationship until 2017 and confirmed that Chrysler will continue to target SIRIUS to be included in at least 70% of their production.

In the fourth quarter, we also announced that the Ford Motor Company extended our relationship to 2016. In this agreement the Ford and Mercury brands agreed to target a 70% production penetration level beginning with the ‘09 model a year. Also remember that Lincoln will continue to offer SIRIUS as standard equipment.

In addition, we are very excited that beginning with the ‘09 model year Ford will be the first of our auto partners to introduce SIRIUS’ new suite of data services, Travel Link. The Travel Link service incorporates up-to-the-minute information to get you where you are going faster, safer and smarter. This new service includes real-time traffic both tabular and graphical weather, gas prices, movie listings and sports scores.

Ford is so enthusiastic about the Travel Link service that they have decided to incorporate it as standard equipment in every next generation NAV system that they sell. Travel Link will be offered on multiple Ford and Lincoln Mercury vehicles beginning in the ’08 calendar year.

Things are also going well with Mercedes-Benz which continues to target 90% penetration this year production and 90% plus for the ’09 model year. VW and Audi continue to target 80% penetration for SIRIUS in this year’s production. By the way, Audi recently announced a special one-year prepaid subscription promotion as part of their overall promotions for their successful A4 model.

Another exciting development later this year is the introduction by Kia of SIRIUS as standard equipment. SIRIUS will be offered by Kia in 100% of Kia’s auto production beginning with the ‘10 model year.

As the OEM numbers attest, during the fourth quarter SIRIUS in conjunction with our automakers continue to execute well on all fronts. Much of this success can be attributed to greater penetration rates, which exceeded our projections. I’m particularly pleased that the vast majority of our exclusive OEM relationships are targeting 70% plus production penetration.

Our efforts to achieve significant penetrations rates with each of our OEM partners for the most part has now been solidified. In 2008, we will focus our resources on improving the dealer sell-through experience which we know will lead to a good conversion experience at the end of the factory trial period.

We are also very focused on the used car channel which accounts for over 40 million vehicles sales per year. In 2008 we will target to launch a certified pre-owned program with each of our OEM partners. In fact, we launched Ford this month. Over the next three to five years this segment represents a very significant opportunity to offer factory installed SIRIUS Radio to second and third owners at very attractive economics.

In conclusion, SIRIUS continues to execute well in both the OEM and after market channels and we will continue to focus on reducing our per unit cost and economically growing our business.

Now I’d like to turn it over to Scott.

Scott Greenstein

Thanks Jim. In 2007 SIRIUS was the premier choice in audio entertainment. Our dynamic array of content from music to talk to sports keeps getting even better, culminating in a reinvented audio experience that is unavailable anywhere else. As we communicated in our innovative fourth quarter marketing campaign, everything else falls short.

As the ultimate destination for music lovers and the only radio home of 100% commercial-free music, SIRIUS proudly offers music channels dedicated to the most celebrated entities in music history with a powerful line-up that now includes Elvis radio, Eminem’s cutting edge music and lifestyle channel shade 45; Metropolitan Opera radio, and Jimmy Buffet’s radio Margaritaville, just to name a few of our unique exclusive music channels.

In addition, SIRIUS recently launched the Grateful Dead channel, SIRIUSly Sinatra and the return of E Street radio. In the fourth quarter alone we premiered limited run pop up channels in partnership with JD, Garth Brooks, kid sensation Miley Cyrus and Duran Duran.

SIRIUS continues to build its strength in comedy and entertainment by complementing our popular comedy channels Raw Dog and Blue Collar Comedy with the Foxxhole. The Jamie Foxx executive produced channel featuring both new and legendary comedic and music talent as well as a weekly show hosted by Foxx from wherever he is in the world is now part of the SIRIUS comedy line up.

Howard Stern, the cornerstone of our unique content offerings, continues the radio revolution on SIRIUS as he recently began his third year of groundbreaking, uncensored content on January 9th of this year, marking still only 730 days since he first went on our air. SIRIUS offers Stern fans additional exclusive programming with the debut of Act 1 to be followed later this year by Act 2 of the history of Howard Stern, a five-part critically acclaimed radio documentary featuring never before heard audio and interviews celebrating the legendary rising career of the king of all media.

On the entertainment business side we added Variety Radio News, which was launched featuring up to the minute box office reports and breaking news and reviews on movies and TV and more from veteran Variety reporters and editors. We are gearing up for surely what will be another important breakthrough in talk radio, the launch of Doctor Radio. The first of its kind and completely exclusive to SIRIUS, Doctor Radio is the 24/7 health and wellness channel in partnership with NYU Medical Center, giving the listeners easy direct and unprecedented personal access to first-class doctors who will speak candidly to address real life medical matters and scenarios.

In sports, SIRIUS continues to have the most sports properties on radio as the sports leader and official satellite radio of the NFL, NASCAR, NBA and many other properties. SIRIUS delivers every important game, race and event with live play-by-play coverage, exclusive shows hosted by the biggest names in sports. We complement that with innovations in audio entertainment experience like NASCAR radio in-car audio Driver2Crew Chatter channels. Our extensive presence at this year’s Super Bowl featured a blend of sports, entertainment and music that shows the breadth of SIRIUS’ programming on any give day. Leading up to the Super Bowl, our NFL radio channel presented up-to-the-minute news and analysis with the biggest names in the NFL while Martha Stewart Living Radio broadcasted Inside the Taste of the NFL event benefiting hunger charities; Radio Margaritaville featured live broadcasts from Phoenix and Maxim Radio and Playboy radio were live on the red carpet at the hottest Super Bowl parties the night before.

On the actual game day, SIRIUS offered 12 individual broadcasts of the game in eight different languages. Nowhere else are football fans able to enjoy such a diverse and comprehensive Super Bowl experience.

As always, our program continues to generate strong press on a daily basis as well as serving as a substitute for marketing dollars. More than 16,000 printed stories appeared throughout 2007 with audience impressions of more than 7 billion. SIRIUS again was featured in broadcast segments on numerous network and cable programs including The Today Show and The Late Show with David Letterman.

In 2008 and beyond, SIRIUS remains the premier destination for audio entertainment, with the best in class music, talk, comedy and sports programming. Whether device or content, everything else falls short.

Now I would like to turn it over to David Frear.

David J. Frear

Thanks, Scott. SIRIUS delivered a solid fourth quarter and a great year leading or beating guidance and achieving the company’s biggest ever quarter of positive free cash flow. The SIRIUS business model continues to scale in a highly cost effective manner with revenue growth in the fourth quarter of 29% compared to a 1% decrease in cash operating expenses for the quarter and revenue growth for the year of 45% compared to cash operating expense growth of only 9%. In fact, other than revenue shared royalty expense, every operating expense line item declined as a percent of revenue from the prior year.

Customer service and billing expenses per average sub per month declined 20% to a $1.10 for the year and 23% to $1.23 for the fourth quarter. Contribution margins remained high at 69% for the full year. As Mel mentioned, SAC per gross add for the year improved 11% to $101; in the fourth quarter SAC per gross add declined 13% to $90 from $103 in the same period last year.

These metrics, combined with our relentless focus on responsibly managing fixed costs led to across the board improvements in 2007 in our free cash flow adjusted EBITDA pre-SAC EBITDA and pre-marketing EBITDA. The improvement in our operating performance is measurable and substantial. In 2006 pre-marketing EBITDA became positive for the first time at $99 million; in 2007 pre-marketing EBITDA improved to $251 million and pre-SAC EBITDA became positive for the first time at $94 million.

Also in 2007, adjusted EBITDA improved $186 million or $0.65 for each dollar of additional revenue. All of this was achieved despite absorbing the cost of the Copyright Royalty Board ruling. We are clearly demonstrating a path to profitability.

On a cash basis, we built upon our first ever positive free cash flow quarter in the fourth quarter of 2006 of $30 million and expanded this to $76 million in the fourth quarter of 2007. For the first time ever we achieved positive free cash flow for the second half of the year recording positive $8 million compared to a cash flow loss of $201 million in the second half of 2006. Further evidence of the company’s consistent improvement in operating performance.

We also experienced improvements on the non-cash side of the business with stock comp expense falling 82% in 2007 to $79 million. When combined with the operational improvements highlighted earlier, this drove a 49% reduction in our net loss for the full year.

With that, let me turn it back to Mel

Mel Karmazin

Thanks David. Now I would like to take a few minutes to update you on our pending merger with XM. During the fourth quarter, the shareholders of both XM and SIRIUS approved the merger. As you know, approval from the DOJ and the FCC are pending. We believe that we have made the case that the merger will strengthen satellite radio’s position within the audio marketplace while maintaining robust competition for consumers.

Following approval of the merger, we will offer consumers more choice and lower prices and that is why the merger serves the public interest. We will offer a la carte pricing, programming packages and family friendly options including credit for those who don’t wish to receive adult content.

The bottom line is this: the merger of SIRIUS and XM is great for both consumers and shareholders. The efficiencies created by this merger will be extraordinary; they will allow us to offer more choices and lower prices which we believe will attract more subscribers. The merger has also received broad support from leading organizations and prominent individuals, consumers, Members of Congress, former FCC Chairman, public interest groups, diversity organizations, retail and auto companies, religious leaders and more have all voiced support for this merger. We look forward to a fast, positive ruling from the government.

Let me end by saying that SIRIUS is executing very, very well. We continue to scale our business, attract new subscribers and meet our financial objectives. SIRIUS is well positioned whether we combine with XM or continue as a standalone company. You saw our significant increase in free cash flow in the fourth quarter that enabled us to be free cash flow positive for the second half of ‘07. You see the leverage of our way of running the company. Revenue up 45% while total operating expenses rose only 9%.

We are very focused on continuing to produce strong revenue and subscriber growth while we control all of our costs. The high fixed cost nature of our business is a disadvantage in the early years but really pays off for us once we are beyond breakeven and continuing to grow.

The goal for SIRIUS is positive free cash flow, EBITDA and earnings whether we merge or not. We have come a long way and are looking forward to delivering the financial performance that our shareholders deserve.

Thank you for listening and now we are ready to take your questions.

Question-and-Answer Session

Operator

We will take our first question from Ben Swinburne - Morgan Stanley.

Ben Swinburne - Morgan Stanley

Thanks and good morning, guys. Mel, would you be willing to give us a two to three yea outlook on the retail channel? Obviously you are doing very well relative to XM, but certainly overall the category has slowed more than probably even yourself expected this year. How much of that do you think has to do with both companies maybe not marketing or putting out as many new products as they would given the pending merger and how much of that has to do with the ramp on the OEM side where customers are really getting their new radios in new cars pre-installed?

Should investors think about retail as potentially declining over time, the sub base, or do you expect a reemergence or reinvigoration of that channel down the road?

Mel Karmazin

First of all, we think that the merger has certainly contributed toward confusion in the marketplace. We know our own secret shoppers that have gone in have gotten misinformation from an awful lot of the salespeople at retail; not malicious, just that they are just not aware of exactly what’s going on.

We also believe that as OEM continues to increase and as we get more subscribers who are experiencing SIRIUS for the first time in their car, that it seems natural that they are going to want to have a radio available to them either in a portable mode or in their other car or in their home. So fundamentally we see no reason why the aftermarket should not continue to play a very, very important part in our business model.

The one other thing that you ought to start thinking about in regard to the aftermarket are all of the used cars that are out there today. So we will be rolling out and making more announcements shortly about all of the initiatives that we have both in the area of certified pre-owned as well as in the area of just used car sales. In addition to OEM ramping up and somewhere between 15.5 million and 16.5 million new cars sold, a good chunk of them having satellite radio in them, that there is going to be this after-market where people are going to continue to want to acquire it and will continue particularly with the merger to be able to innovate and come up with more and more exciting products to demonstrate our competitiveness with these other devices that are out there today.

Operator

Your next question comes from Robert Peck - Bear Stearns.

Robert Peck - Bear Stearns

Mel, are you going to comment at all on any recent news with the DOJ and what the hold up is? Can you comment to whether you've met with them recently, have you met with Barnett?

Along those lines, the analysts have put out synergies somewhere around $5 billion or so. Can you quantify what you think the synergies could be from SIRIUS’ point of view?

Mel Karmazin

No, we have nothing else to comment on the DOJ other than what they have said is that they will let us know when they have concluded and made their decision. We wait by our telephone, but we really have not heard anything from them. It has been more radio silence then anything else.

Regarding the synergies, as you know, in addition to you guys looking at what you estimated synergies, a third party looked at the synergies, an independent company that had access to both SIRIUS and XM and they made also a determination of how substantial they are.

Because of the anti-trust laws, we have not been able to still look at XM’s contracts to be able to ascertain what we think the synergies are going to be. As the market cap of the companies have dropped, based on I assume uncertainty about the merger, the synergies become a bigger and bigger percentage of the market caps of the combined company and I have some experience in integrating companies and believe that once we get the approval that we’ll be able to capture very, very substantial synergies for our shareholders and do it in a rather quick manner.

Robert Peck - Bear Stearns

Mel, on that point, there is a termination date coming up on the merger. Should we just assume that gets extended indefinitely or how should we think about that?

Mel Karmazin

I think the way you ought to think about it is that you should assume that both companies would be having a board meeting prior to the March 1st drop dead date and after the boards have met that you will hear the result of that.

Robert Peck - Bear Stearns

Can you give us your thoughts on how 3Q and 4Q maybe have been impacted by a potential global consumer recession? The impact you are seeing, particularly in the fourth quarter.

Should the merger not go through, could you walk us through the liquidity scenario of a standalone SIRIUS if the recession continues?

David Frear

When we go out and we file our 10-Ks which we will do in the course of the next couple of days that it will make statements about liquidity and capital resources that are based upon our standalone business. Since we don't have merger news we obviously won't be contemplating the merger impact in those statements.

I can tell you that we will reaffirm a fully funded plan and that incorporates the current view for the economy. As it relates to consumer recession and impact on sales, there must have been an impact on sales but the aftermarket business has been impacted by quite a number of things; the general economy certainly has impacted it, competition from other products out in retail has impacted it; certainly there is plenty of competition in audio entertainment and there is substantial competition at retail from devices of different types; navigation devices were incredibly hot throughout 2007. So we compete with them for share of wallet as well.

Operator

Your next question comes from David Bank - RBC Capital Markets.

David Bank - RBC Capital Markets

I think Mel said at the beginning of the call when you talked about penetration for Chrysler and Ford, I think both had 70% in model year 2008 cars. Did the 70% pertain to the option being available in 70% of manufactured labels or brands of cars? Or was that actually 70% of each automobile manufactured having a radio installed and activated?

James E Meyer

The 70%, to clarify what Mel said for Ford, was beginning in’09 model year, which as we know begins in the second half of this year. Remember that Chrysler is already at a 70% penetration level beginning with the ‘08 model year which we’re seeing; we saw that growth in the later half of last year and we’ll continue to be level this year, obviously depending on overall production.

Ford is going to ramp up towards the 70% now and will achieve – is targeting the 70% in the second half in ’09. Also remember, VW, Audi and some of our other OEMs are just in the ramp up as well and that’s why Mel indicated an overall penetration level of approximately 50% in ‘08.

Mel Karmazin

And those percentages are of their production -- not an option -- they are physically put into the vehicle, when they leave the assembly line.

Operator

Your next question comes from Eileen Furukawa - Citigroup.

Eileen Furukawa - Citigroup

In the unlikely event that the merger doesn’t take place, would you expect that as a standalone company you are going to take new fresh look at your programming costs and you might choose to trim content offerings given your outlook as a standalone company?

Also we saw a little in the fourth quarter it looked like ARPU declined a bit. Can you give us a little bit more color on this? Where did it come from? Was it mostly retail or the OEM side? It also looked like a bump up in your mail-in rebate. What was your thought process in increasing that in the fourth quarter?

Mel Karmazin

In the unlikely scenario of the merger not being approved, we believe as David said that we are fully funded that we believe that we are going to become a profitable company on a standalone basis. We think that what is driving our success has been our content. Scott and his team have done a terrific job of putting together a great line-up to make people want to subscribe to satellite radio.

I think that you should look at our costs as being something that will probably go up; think in terms of single-digits from a point of view of cost and programming is not something that we feel -- though if Howard is on the call and listening, if he would like to extend his deal at less money we would be interested in that -- but from my history with him I don’t think that is apt to happen.

I think that the idea is that we want to have the best content; great content costs money. We are going to continue to invest in content but we believe that our portfolio is complete. There is no missing piece. There is nothing out there that we need to spend a lot of money for and we will get the profitability by controlling our costs and growing our revenue and taking advantage of that fixed cost nature of our business.

David, do you want to handle the ARPU?

David Frear

In the fourth quarter, our promotional activity at retail was pretty consistent with what we’ve been doing for years now in terms of magnitude of rebate. The differences that we’re seeing in the marketplace now is the consumer backlash to mail-in rebates just from all of the retailers and so in the course of last year there has been a shift to the implementation of instant rebate at retail.

So what you wouldn’t seen in prior years where we’ve had breakage on the mail-in rebates, a substantial number of people simply don’t claim them, that on the instant rebates you are considered to have paid it at point of sale that you have got 100% fulfillment.

So not really a difference in the promotional strategy; just a difference in terms of what the retailers are now willing to support in their stores.

Eileen Furukawa - Citigroup

Was that the biggest impact to the ARPU?

David Frear

There is a table in the press release and as you run your way through it what you will find is that the rebates had an adverse affect in the fourth quarter over the prior year of an additional $0.45. That was you most of the change if you are just looking at the quarter. It is the other change in ARPU before rebate is related to growth in the cars that have yet to sell through; somebody will probably ask the question somewhere or another along the line so I will give you the answer now that the cars that have yet to sell through are about 11% of the base at the year end. It is up slightly from the third quarter and up from the prior year end where I think it was about 9%.

Mel Karmazin

The other thing is that our subscribers are growing faster than in 2007; our advertising grew. If you think about what’s going on in the traditional radio industry, most of the companies that you are following are reporting down 2%, down 4%, down 6% revenue. In the fourth quarter our advertising revenue grew 15% but our subscriber growth was greater and that caused a slight impact in ARPU as well. I would dare to there are none, no radio companies that you are following that managed in the fourth quarter of 2007 to show a 15% growth in advertising revenue.

Eileen Furukawa - Citigroup

That’s true. Well thank you very much.

Operator

Your next question comes from Kip Spring - Stifel Nicolaus.

Kip Spring - Stifel Nicolaus

Could you talk about where you stand with your satellite launches as a standalone company?

David Frear

Sure. When we file our K again later this week, we will show a deferral of the Sirius 5 launch from the fourth quarter of 2008 to the second quarter of 2009. There is nothing particularly notable about the delay; we don’t really need the satellite from an operational perspective until mid-2010 so just based on the pacing of the program we have elected to defer the launch by a few months.

Operator

Your next question comes from April Horace - Janco Partners.

April Horace - Janco Partners

Good morning. Congratulations on a good quarter despite the economy. A question for you with respect to advertising. How should we view advertising on a long-term basis as a standalone company, as a percent of revenue?

Mel Karmazin

April, it’s been a source of frustration for me because I believe that we are to be generating significantly more advertising revenue than we have done so far. We’re doing about $35 million and it’s up dramatically and I can give you the spin story that says how well we’ve done but when you take a look at having Howard Stern for the first time in his career having a pure national platform and being as strong as he is, we ought to be doing a better job in selling Howard. We ought to be doing a better job than we are doing now.

We've been growing our subscriber base so when you start the year, the advertisers are looking at having 6 million subscribers last year going into the year on a national basis; and when you compare it to other national media, that's not a very strong audience base.

Now we are growing our subscriber base. One of the exciting aspects of the merger is that together I have no idea what XM's subscriber number for 2007 is, but if you take their guidance and take our reported numbers you are dealing with over 17 million. That should really jump-start advertising because we will have this significant critical mass.

I had said on a call two years ago that I would like to see advertising represent 10% of our revenue. That is something that we've not achieved. There is no reason that I can think of as to why we shouldn’t one day be able to achieve it and that's doing it without ever putting a commercial on our commercial free music stations. We ought to be doing a far better job of convincing advertisers that satellite radio, this new industry, deserves to get more of their advertising dollars.

April Horace - Janco Partners

My second question really relates more to the OEM. There has been wild fluctuations in OEM production for 2008 anywhere from as low as 15.1 million units to 15.7 million. I was wondering if you could give us, with those kind of wild fluctuations, what kind of effect would it have to you guys as well as if you could give us any color as it relates to the Chrysler restructuring of their retail stores?

Mel Karmazin

Let me have Jim do it, but you know one of the things that we have as a benefit going into this year is that we are ramping up penetration. So at a time when some of the OEMs may be cutting back on production we are getting a benefit because we are picking up penetration so it’s not hitting us as much. I think Jim can give you more color.

James E Meyer

I think that obviously the single biggest variable April is what are the overall sales going to be and frankly your guess is as good as ours right now. We are staying very closely, I can tell you that there has been a fundamental change in Detroit in the last 12 months and that is these guys adjust their production schedules now much quicker than they used to in the past which creates a lot more volatility for us in the short-term. Clearly, I think all of us are watching February closely and February today is a little scarier based on what some of these guys have reported for sales.

The number though, if you look back over a long period of time has settled in still historically in the range we expected to be, somewhere between the ranges you gave and we’ll see where it goes.

April Horace - Janco Partners

And on the Chrysler restructuring?

James E Meyer

So the Chrysler restructuring obviously we’re watching as closely as anyone else. We are very pleased with our penetration of their production. We will follow closely where Chrysler’s settles out with their market share and I don’t have an opinion on where that will be right now.

April Horace - Janco Partners

I hope to hear from you guys soon as in, like, an approval.

Mel Karmazin

Leave me your home number April.

Operator

This does conclude today's question-and-answer session. At this time, I would like to turn the call back over to management for any additional or closing remarks.

Paul Blalock

Thank you very much for listening. That concludes our call.

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Source: SIRIUS Satellite Radio Q4 2007 Earnings Call Transcript
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