Sunday, March 26, 2006

Q1 Loss - Sirius

Q1 2006 LOSS

There is a lot of discussion about the Q1 2006 loss, and how big it is going to be. Let me first be very clear that ALL aspects of the loss need to be considered. It is very important to understand the components of a loss. This is especially true with the first quarter loss for Sirius.

First I will address the analysts expectations. Analysts are expecting a loss of .34 cents per share in Q1. This represents a loss in the neighborhood of $473,000,000 for Sirius in the first quarter. This loss represents a big jump from both year over year, and quarter over quarter comparisons.

One of the main reasons for the loss is that Sirius is taking the full value of the shares issued to Howard Stern in January in the first quarter. As part of the base contract between Sirius and Howard Stern, a bit over 34,000,000 shares were issued to Stern and his agent. The value of the shares at time of issue was about $220,000,000.

The loss attributable to the Stern shares has a few components that need to be considered by those who follow this equity:

1. The loss attributable to the Stern shares in a ONE TIME EVENT. This means that this is not a regular expense to Sirius. Prudent investors should consider the full loss, but also look at the metrics of the company setting the loss aside.

2. The loss attributable to the Stern shares is a NON-CASH loss. This is another important item to note. Because Stern was issued shares, Sirius cash reserves are not impacted. This helps Sirius maintain a strong cash position as it moves towards cash flow break even.

3. The Stern shares represent 20% of the overall Stern deal. This represents another important factor for the balance sheet. At the end of 2006, Stern will have received about 38% of his overall compensation on the base deal. This means that the remaining 4 years will make up the balance of the deal. The costs in future quarters as well as years will not be as heavily impacted as Q1 and full year 2006.

4. The path that Sirius is taking is clearly illustrated in the projected loss for Q2, and for the full year of 2006. The Q2 loss is expected to be about $180,000,000. That is a sharp decline from the expected Q1 loss, and the reasons for that are outlined above, but are also attributable to the business plan moving in the right direction. The loss for the year is projected at about 1 billion. Thus, the largest component of the 2006 loss will be Q1. Revenues for the year are currently projected to be $600,000,000.

I have used the following example to illustrate my sentiments on how to look at the loss.

If in Q2 of this year, Sirius were to sell their stake in Sirius Canada to the partners in Canada for $220,000,000 the bottom line in Q2 would be impacted by a revenue gain of $220,000,000. The expected loss in Q2 is about $180,000,000. Such a gain would wipe out that loss, and Sirius could actually show and report a profit for the quarter. Like the Stern situation above, this gain would be a ONE TIME event. A prudent person would consider that revenue, but would also know to set it aside when trying to determine the outlook for the company.

The key here is to get beyond the “headline” of the loss, and understand the components of it. I am not saying to pretend that the one time loss does not exist. I am simply saying that you need to look deeper into the loss and understand it more fully.

The link to this write up is - http://satellitestandard.blogspot.com/2006/03/q1-loss-sirius.html

This write up contains opinions on issues as well as factual data. Readers of this are fully encouraged to conduct their own research into this issue. The opinions contained in this document are the sole opinions of the writer, and do not reflect the sentiments of any companies an/or industries discussed.

3/26/2006 10:52:00 PM

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