XM Q3 Call Wrap Up

November 6, 2006

It was a great call. Plain and simple.

XM came through on a number of fronts, and we here at SSG were happy to see Nate Davis run the call. We felt that it was important that Nate run the call to dispel any talk about who is running the show at XM Satellite Radio. After today, there can be little doubt that Nate Davis is the man in charge.

Going into the call I was nervous that XM needed to face issue head on, and was expecting that this would be a challenge given what I was anticipating to be an average quarter. The fact that the financial metrics came in so well made facing the other issues much easier and in a more frank manner. Simply stated, I was THRILLED when I saw the quarterly results of XM Satellite Radio.

It appears that XM and Sirius have stepped down the “one-upsmanship” a notch and recognize that the sector needs to see improved metrics. XM listing “over 15 million listeners” did not fall on deaf ears. The strategy of listing listeners vs. subscribers is important given the vigor with which the N.A.B. is attacking satellite radio as a whole. It would seem that a “common enemy” will do this sector at least some good.

XM spoke of the appeal of Oprah and Friends in the advertising world. Again, a very positive development for XM. As XM grows, more and more companies will see the benefits of advertising on XM’s stations.

The Nate Davis 90 Day Plan was a very good idea for the call. This plan establishes where the company is focusing, and gives investors a better perspective from which to see the company. Nate see OEM being the driver of growth with retail following suit. Some analysts may debate this, but at least the business model going forward has an established strategy.

Davis stated that GROSS subscribers are the best indication of growth. While I would agree that this statement is indicative of growth, I would add GROSS subscribers that are obtained by a cost effective means are a good indication of growth. There is a difference in subscribers out there, and the most sticky ones are the best to obtain.

I did like the way Davis spoke about shifting money to the programs and campaigns that will deliver success. This type of action will not be lost on the street, and this type of action delivers far better numbers at the end of the quarter. Kudos to Davis for this strategy.

Davis spoke of the new “ON” marketing campaign and the strategy behind it. The ads deliver a good message, and as Davis states, carry both a retail and OEM appeal.

Davis spoke of some on OEM initiatives, and this, being a strong suit for XM helped to reinforce XM’s look into the future.

XM spoke a bit about churn, and stressed the importance of keeping subscribers on board. I would have liked to see some flavor on overall deactivations so as to avoid the issue in future calls, but overall, the statements were clear, concise and well received.

XM did a fantastic job on SAC and CPGA. I fully expected Davis to cut costs, but did not imagine that he would have done such a dramatic job at it so quickly. Investors can feel confident that Davis will watch the purse strings very closely at XM.

As expected by SSG XM narrowed subscriber guidance to a range rather than a specific target. We felt this would be a prudent move, and that the range would be acceptable to the street. Even though the 8,000,000 number was not in the 7.7 to 7.9 guidance, it does give XM some room to beat the number. Even if the number is not beat, XM stated quite clearly that the financial metrics are more important than the subscriber metrics. Again, a very good and strong statement that will get investors focused on what matters…..the $$$$

XM’s guidance of Cash Flow Break Even for Q4 was stated strongly, and given the Q3 performance, is VERY BELIEVABLE. This was great to hear, and this is what will set the tone and mindset of investors.

XM also made another interesting announcement regarding subscribers. They will no longer pre-announce sub numbers at the end of a quarter. Kudos!!!! This will put sub numbers in the context of an overall call, and will help get the focus onto the financial metrics. GREAT MOVE NATE!!!!

In the question and answer session XM was asked about retail parity. The answer went into an exclusion of Radio Shack, and we felt that this statement could have been avoided. The response that XM will not overspend to match retail with Sirius was a far better answer in our opinion.

Toyota was also brought up, and Davis reinforced the XM/Toyota relationship. No indication as to rate of installs was given.

Overall the call was very positive for XM and very positive for the sector. Those that feel that XM had lost some shine over the past year should do themselves a favor and listen to the call. The XM vision is alive, and the fog that surrounded the company over the past year seems to have lifted.

Great job XM. Congratulations!!!!

11/06/2006 01:31:00 PM

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