Sirius Satellite Radio (NASDAQ:SIRI) announced preliminary Q2 2008 results Monday prior to the market opening. The operating results come on the heels of FCC approval of the proposed merger with XM Satellite Radio (XMSR), and along with an offering.
A new item to note is the addition of a conversion rate for the OEM channel. Sirius announced a conversion rate of 48% as compared to the 53% conversion rate reported by XM. Sirius also noted that the conversion rate for Q1 was 47%.
– Revenue of $283 Million, Up 25% Year Over Year
– Total Subscribers of More Than 8.9 Million, Up 25% Year Over Year
– Adjusted Loss from Operations Improves 70% Year Over Year
The results include a 25% increase in revenue to $283 million, total subscribers in excess of 8.9 million and a 70% decrease in its adjusted loss from operations.
As of June 30, 2008, SIRIUS had 8.924 million subscribers, an increase of 25% from June 30, 2007 subscribers of 7.143 million. Retail subscribers increased 7% in the second quarter 2008 to 4.677 million from 4.365 million in the second quarter 2007. OEM subscribers increased 53% in the second quarter 2008 to 4.247 million from 2.778 million in the second quarter 2007. Total gross subscriber additions for the quarter ended June 30, 2008 were 1.029 million, compared to 1.002 million for the quarter ended June 30, 2007 and 1.003 million for the quarter ended March 31, 2008. During the second quarter 2008, SIRIUS added 279,820 new net subscribers, consisting of 246,221 from the OEM channel and 33,599 from the retail channel.
Second quarter 2008 average monthly self-pay customer churn rate was 1.6%, down from 2.1% in first quarter 2008. The second quarter 2008 conversion rate is estimated to be approximately 48%, up from the first quarter 2008 conversion rate of approximately 47%.
Total revenue for the second quarter 2008 is expected to be approximately $283 million, an increase of 25% from the second quarter 2007 total revenue of $226 million. Operating expenses, excluding depreciation and stock based compensation, are expected to remain approximately flat in the second quarter 2008 as compared to the second quarter 2007. Second quarter 2008 adjusted loss from operations is expected to be approximately $24 million, an improvement of 70% from the adjusted loss from operations of $79 million in the second quarter 2007.
EQUITY OFFERING: SIRIUS Satellite Radio Announces Equity Offerings and Related Share Borrow Facility
The company noted that the shares are to facilitate hedging for XM Exchangeable Note Offering. The company also stated that the shares will not be considered “outstanding” for accounting purposes.
The announcement Monday commences an offering of shares of Sirius common stock. The common stock being offered represent shares of SIRIUS common stock that SIRIUS will be lending to affiliates of Morgan Stanley & Co. Incorporated (NYSE:MS) and UBS Investment Bank (NYSE:UBS), the share borrowers, pursuant to share lending agreements between SIRIUS and each of the share borrowers. It is estimated that, based on current market values, approximately $375,000,000 of SIRIUS common stock will be sold in a fixed-price public offering described below, and up to approximately $65,000,000 of SIRIUS common stock will be sold as described below from time to time at prevailing market or negotiated prices. The exact number of shares of SIRIUS common stock to be offered will depend on the terms of the concurrent offering of exchangeable senior subordinated notes described below and the hedging to be conducted by investors in such notes. While the borrowed shares will be considered issued and outstanding for corporate law purposes, SIRIUS believes that under U.S. generally accepted accounting principles currently in effect, the borrowed shares will not be considered outstanding for the purpose of computing and reporting earnings (loss) per share because the borrowed shares are required to be returned to SIRIUS.
The common stock offering is being conducted concurrently with a private offering by XM Satellite Radio Inc. of $550 million aggregate principal amount of Exchangeable Senior Subordinated Notes due 2014 (”Notes”) which will be exchangeable into shares of SIRIUS common stock. The terms of the Notes, including the interest rate and exchange ratio, will be determined at the time that such offering is priced. The Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States or to U.S. person absent registration or an applicable exemption from the registration requirements of applicable securities laws.
In connection with the common stock offering, SIRIUS will enter into a share lending agreement with each of the share borrowers, pursuant to which SIRIUS will lend shares to the share borrowers. The share borrowers will sell a portion of the borrowed shares in a fixed-price public offering expected to close concurrently with the Notes offering. After the closing of the fixed- price offering, the share borrowers will offer and sell the remaining borrowed shares in one or more registered public offerings at prevailing market or negotiated prices. Over the same period that the share borrowers sell the remaining borrowed shares, the share borrowers or their affiliates expect to purchase at least an equal number of shares of SIRIUS common stock on the open market and/or enter into derivative transactions providing it with a synthetic long position equal to such number of shares. SIRIUS will not receive any proceeds from the sale of its common stock by the share borrowers other than a nominal loan fee equal to $0.001 per share issued to the share borrowers. The share borrowers will be required to return the borrowed shares pursuant to the share lending agreements following the maturity date of the Notes or their earlier retirement.
Tyler Savery Position - Long Sirius, XM, Unrelated business with Morgan Stanley