Thursday, April 26, 2007

SSG's Sirius Q1 Preview

April 26, 2007

Sirius will be having their Q1 conference call prior to the market opening on Tuesday. This means that investors have two trading days left before Sirius’ news hits the streets. All things considered, Sirius has had the ability for several quarters to compile some good numbers for the earnings call, and this quarter should be no different. There are a few key items to consider going into the call:


Last year in Q1 Sirius took a big expense for the Howard Stern shares. That expense accounted for $220,000,000 of the loss last year. That means that the narrower loss that Sirius reports this year will be very good in comparison. The street is expecting a loss of 11 cents. Last years loss was 33 cents. It does not take much imagination to see headlines proclaiming the substantially narrower loss.


Sirius is getting deeper penetration from DCX who is reported to be at 40%. With DCX selling nearly 540,000 cars in Q1, and manufacturing still happening, the DCX contribution could well approach 220,000 GROSS additions alone. Ford is also ramping up, and other partners have made strong commitments as well. Although Sirius has not provided flavor on the subscriber split between retail and OEM, I would estimate that Sirius will come in with roughly in the neighborhood of 550,000 additions.


Last year until very late in the year, Sirius was anticipating 6,300,000 subscribers. They came in with a bit over 6,000,000. Sirius likely had a substantial stockpile of radios that had the SAC expenses already paid in 2006 left over. These radios, virtually free of 2007 expense, would have been the crop that sold in 2007. Simply stated, this means that Sirius likely had to build far fewer radios this Q1 than they did last year. The expenses associated with radios can have a noticeable difference this year. Additionally, in Q4 2005, some expenses pushed forward into Q1 2006. We anticipate that that kind of activity will be a lot less this year.

Now, with all of that being said, here is our outlook for Q1 2007:


We anticipate GROSS subscribers to arrive in at 1,030,000. We anticipate the NET number to be at somewhere between 545,000 and 565,000. If I had to throw an exat number I would place it at 557,000.


Sirius reports a fully loaded churn number. They guided to full year churn of 2.2% to 2.3%, and I think they will come in just above that range for Q1. I am anticipating fully loaded churn of 2.4%.


I am anticipating revenue of $229,000,000


The street is looking for a loss of 11 cents per share. I am anticipating that Sirius will beat that estimate and come in at a loss of 10 cents per share. Some big factors in arriving at this number relate to savings discussed above.
The unknown in this situation is CAPEX spending for their satellite. As pointed out by a reader, this would not impact EPS. CAPEX is a balance sheet and cash flow metric. The big factor here relates to cash burn. if Sirius is building out the satellite faster than anticipated, there will be an impact to cash. However, the satellite buildout has been budgeted already by Sirius in their cash flow projections.


This subject always draws some interesting comparisons to XM. What investors need to remember is that SAC and CPGA are not dictated by Generally Accepted Accounting Principals (GAAP). This means that the company can dictate what goes into these numbers, and how things are accounted for. There is nothing wrong with the way Sirius or XM count SAC and CPGA, investors just need to understand the differences. The structure of deals such as OEM deals play an important role in these metrics. That being said, I anticipate SAC to come in at $103 and CPGA (though Sirius does not report this metric) to be at $136. As Sirius rolls out newer chipsets in the OEM channel, these metrics will improve further.


Look for the call to be pretty straight forward without a lot of bells and whistles. Sirius will likely give some mention to the video initiative, as well as some flavor on the merger. Look for the Gross subscriber number to be highlighted, and perhaps even some flavor for the first time on Gross retail additions, although I think this is unlikely. Market share may be briefly discussed, as Sirius will have passed the 45% mark on overall market share, representing over 25 basis points of improvement since Stern was announced in the fall of 2004.


I encourage investors to watch the volume closely. With XM reporting a decent quarter, and the spike in PPS, there will be many considering their moves Friday and Monday.

4/26/2007 10:16:00 PM

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  • >>> The unknown in this situation is CAPEX spending for their satellite. If they are building this out faster than anticipated, then Sirius could see the 11 cent loss the street is expecting.

    Not sure if anyone mentioned this but CAPEX for a new satellite has nothing whatsoever to do with whether the loss is 10 cents or 11 cents and in fact, has no effect at all on the size of the loss until AFTER the satellite is actually placed in service.

    By Anonymous Anonymous, at April 26, 2007 11:55 PM  

  • Youy are 100% correct. CAPEX is a balance sheet item, thus not part of the EPS. My apologies. I was reviewing so many numbers and metrics that I got lost in the process. Thank You. A correction has been made.

    By Blogger SSG, at April 27, 2007 9:10 AM  

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