Orbitcast is once again live blogging the Sirius Satellite Radio 2Q07 earnings conference call for those who can't tune in or who just want to read. Just keep hitting that 'refresh' button as I'll be updating this post frequently.
So let's begin:
- Listening to hold music (drinking coffee)
- OK! Should be starting shortly
- We're starting now... Scott Greenstein is traveling and will not be on the call
- On to Mel Karmazin for opening remarks:
- Second Quarter was once again "very solid" and "continued to demonstrate strong customer demand"
- 53% increase in ending sub base from last year
- 7.14 million subscribers
- 1H07 added 1.1 million subs
- "Well on our way" for more than 8 million subs by EOY
- Sirius owned 62% of sat radio segment
- 7 consecutive quarter where Sirius has owned net ads
- 3 consecutive quarter where Sirius has owned GROSS ads
- Talking about the Chrysler deal now
- On retail front - continues to capture majority share (75% of net retail subs!)
- Notes that retail is "softer than expected"
- "No matter how you look at it, Sirius has the majority of additions of satellite radio"
- talking about programming... Foxxhole, etc
- the Grateful Dead channel - for "all you deadheads"
- "We will acheive a billion dollar in revenue faster than any other company in radio"
- Net loss decreased 44%
- Very pleased with consumer satisfaction
- Now expect full year SAC to approach $100 due to OEM
- Demand for Sirius continues to be strong
- Now on to Jim Meyer....
- Added just over 1 million gross ads in Q2
- With over 1.1 million net subs in 1H, this "obviously" puts Sirius well underway of meeting guidance
- Total churn of 2.1% is a decrease from 2.3% for last quarter and just below guidance
- Hitting low end of churn range - a "very positive sign" for consumer satisfaction
- 130,000 retail ads are "clearly below" last year's retail ads - though still at 75% of satellite radio marketshare
- Stiletto 2 coming out!
- Sportster SP5 coming out!
- OEM world - 2q07 added a record 435k OEM net subsctriber ads - that's 61% of total OEM net ads
- Sirius has emerged as a "key marketing differentiator" as an OEM brand
- Auto makers are increasing with multi-year and lifetime packages
- In 2Q, Mercury ran a two-month ad campaign (this is 2nd year that Mercury has used Sirius in a nationwide campaign)
- Both Sirius and Mercury very happy with the marketing campaign
- Lincoln to install Sirius as standard in 2008 model year (that's right around the corner)
- Backseat TV - now preparing for the launch of AFTERMARKET Sirius Backseat TV products
- More than just a product - it's a whole new service reaching a new market
- There are "reasons to temper expectations" - Q3 typically has lower ads
- Q3 usually sees car makers slow down or stop production in preparation for the new models
- Q3 also has a lull in retail
- On to David Frear...
- "All of our key financial metrics are improving"
- SAC per gross ad continues to improve - now expect to reach $100 for FY
- Total Operating expenses were up only 6% compared to the 51% increase in revenue
- Stock comp expenses fell
- "We promised you cost effective growth, and we've delivered on that promise"
- Continue to invest in programming to drive demand
- Increased gross ads by 20% while lowered SAC
- Ended 2Q $425M in cash
- Filed rebuttal case last week with CRB with the SoundExchange dispute - expect resolution by EOY
- Talking about satellite updates - Sirius-5 etc
- "Continued to enhance the best radio on radio"
- Reiterating the guidance for 2007 - additionally expect SAC to approach $100
- Back to Mel Karmazin and updates on the merger with XM...
- "It is clear from the reply comments" that widespread "competition will be preserved" after our merger
- Talking about the A La Carte offering and how that contributes to the public interest
- Complying the Second Request - will be compliant by End of Summer
- Merger is "good for consumers, and good for shareholders"
- Efficiencies exist on every line item of the P&L - allowing for more choices and better prices
- Independent 3rd party says there's BILLIONS in efficencies and that translates to millions of dollars saved annually
- On to Q&A
- Q: On the A La Carte decision and the pricing scheme - what is the consumer appetite for tiering and variable pricing? On the deferred revenue line on the cash flow statement, some color on the pre-paid trends?
A: Average pre-pays continue to be in the "pretty consistent range" - we expect them to stay in that range - they've been working their way down as Ford gets factored in (Ford does 6-month prepay). It's a "mathematical thing" - but from a input perspective, nothing's going to change.
For the A La Carte thing, the "low prices thing is a no-brainer" - "you have to remember we're competeting with free" - this merger is in the public interest because of more choices, and better prices. In this early stage of satellite radio - having a lower price point allows us to pick up "substantially more subscribers" - really considered the pricing of this merger. There will be people who want to pay more than our ARPU, and people who want to pay less. We'll make it up substantially. - Q: Churn was lower at Q2, should we expect this to extend this throughout the year? When do we think Sirius will be Starndard in Chrysler and Mercedes?
A: We have to be careful with the OEM thing, because there will always be OEMs that we'll never get standard. With 70% at Chrysler, we're "approaching standard" and with Mercedes at 90% that's pretty much standard.
As for Churn, the churn rate should stick with that range.
Follow up Q: Customer Care came down, while XM is spending to keep churn down - what do you think is going on there?
Follow up A: Can't speak for XM, but we've invested in customer care for years and we're spending very prudently. Mel adds that branding and content impacts consumer satisfaction. - Q: Revisiting the lower A La Carte pricing. IS there anything in the internal models that can give more info on that?
A: For antitrust reasons, can't really look into XM's financials. Hired a 3rd party who looked at both Sirius' and XM's financials and looked into it and offered up the most efficient pricing plan based on the synergies. Mel reinterates that he wants "everyone" to be a satellite radio provider, and the lower pricing point allows. At this point, cant give any more info.
Follow-up Q: What % of OEM gross ads are still on the lot?
Follow-up A: It really hasn't changed much over the course of the last year or so. The percentage hasn't changed much - bouncing around between 9-10%. - Q: Assuming merger is approved, what is the timeline for an intergrated chipset?
A: Packages will be offered within 6-months of the merger being approved. So if merger is approved by EOY, then Dads & Grads would get the other packages. And the A La Carte would be offered by Xmas of next year. David Frear states that "we need to be careful here" because Mel is not saying that you need a new chipset for the new packages. The integrated chipset is between 1 year and 2.5 years out. (This is all premised on the fact that the merger is approved by EOY)
Follow-up Q: If 1 to 2.5 years for integrated chipset, how long to get into OEMs?
Follow-up A: Can't predict OEMs (we're at their "mercy") so as soon as we can, but cant give an estimate. We think thye'll be responsive pretty quickly. - Q: On the OEM segment, what % is still under the sub that came with the car? Whats the avg length of the OEM bundle?
A: Length doesn't have a solid year. For the "most part" figure its between 6months and year. As for the first question, this isnt something we release to the public but we track them internally. We're pleased where they're trending. - Q: SAC, saw a slight lift from 1Q, how much is attributed to OEM vs XM's $10 increase attributed to OEM? And for the 70% decision - is this Chyslers decision or yours?
A: 70% decision with Chrysler was Chrysler's decision. We would like more. We're very pleased with the 70%, its a number that came from Chrysler and we got there quicker than we expected. Think there's room to go higher.
As for the impact on SAC. As we look at underlying costs for SAC, we're at or better than we expected to be. So change in guidance is a change we expect to see. - Q: In the merger filings, there's more penetration in rural markets. Does that show the level competition? And what's the reason for the softness in retail?
A: Walk into a Best Buy and you'll see why the softness in retail. Disappointed with the closing of the gap during the Father's Day period. There's quite a bit of confusion in buying satellite radio, and we're working hard to improve that. How do you get it? How do you install it? Merger will be great improvement for the retail sector because of new packages, and less confusion. Things would pick up certainly as a result of the merger/
Regarding reply comments, they were extensive. Our opposition was filing comments - many of which were not true. We cleared the air pointing out that this is NOT a DISH/DirecTV scenario. Disputed comments that we would not have the technical capability to do the efficencies. A very extensive filing that addressed very potential issue. It's very hard to believe that you can look at the RADIO market and say there's not a lot of competition. Hard to see that two companies that have 3.4% of total listenership combining would be anti-competitive. More choices and better prices seves the public interest. - Q: Merger questions. First, FCC filing process has been a pretty public one - can you give us some insight with what you're communicating to the DOJ? Is there anything different from the FCC filings? Second, you didnt address the joint ownership thing in the SDARS license, anything on that? What about the timing on the merger?
A: DOJ process is less transparent. They sent Second Request which asked for SUBSTANTIAL amounts of information. "I can't tell you how much gigabytes we've sent them" - says that they spent just over $1 million "just in photocopying". The big area that DOJ is the definition of the market. Also important from the DOJ standpoint is the efficiencies - if there are efficiencies, then those get passed on to the consumer. And that's good. So filings are on the market and efficencies. As for the FCC SDARS "rule" - our position is that there was a "public policy statement" - there's some disagreement whether there is a rule or isnt. FCC has opened a comment period specifically for that. So they will respond to that issue in those comments. As for timing, they'll be compliant for the Second Request by the end of the summer and the clock will be ticking at the DOJ. We think its in the public interest and will be approved.
Of course their OEM numbers are up. They added new partnerships and counted every car they are installing in as a paying sub. You wont see the churn for those kick in until 1.5+ years from now.
Following this method, XM could count all the new cars they put units in last quarter and those on free trials as well and "own" Sirius in OEM as Karmazin put it.
Why do I get the feeling that every time XM reports, for the two or so days until the Sirius report, they are running around the office coming up with ways to look better however they can.
For a company that wants to merge they sure are trying to make it look like they are blowing away the competition and thus not struggling as much as they claim.
75%of the retail market is blowing away the competition.
It's easy to get 75% of a small pie you idiot.
They added new partnerships and counted every car they are installing in as a paying sub. You wont see the churn for those kick in until 1.5+ years from now.
Comes down to how they are paid for the sub. If they are paid when the car hits the lot when would you like for them to count it? If XM isn't paid until the car is sold when would you like them to count that? I am car shopping now. Sirius radios in Chrysler cars are already activated. XM radios in GM cars are not. I would lay odds it has something to do with when they get paid.
Why do I get the feeling that every time XM reports, for the two or so days until the Sirius report, they are running around the office coming up with ways to look better however they can.
Because you have utterly no clue what you are talking about. The one thing that they cannot lie about is the money. People now go to jail for that. Forget about the shit that means nothing like total subscribers and OEM adds vs. retail. Look at the money. That is the one line item that could cost people their freedom.
MarkS: "Why do I get the feeling that every time XM reports, for the two or so days until the Sirius report, they are running around the office coming up with ways to look better however they can."
because that is, indeed, what they do...although, in this case it might be a little more obvious than other things, such as the R&D of their product line. why is Sirius always lagging behind? hrrmmmm
its a shame, really...i'm all for the merger, but my only reservation is that the superior technological innovation of XM will be quashed by the followers over at Sirius.
I'm for the merger as long as it doesnt screw everything up in regards to keeping my XM lineup.
I just feel that Sirius is trying too hard to say "XM sucks and we are kicking ass in the industry, but we need them to survive" which doesnt make sense to people looking in on the merger.
perhaps now would not be the time to attack the other company but rather point out a few reasons the merger is necessary. or maybe its so late in the process it doesnt matter what is said.
if the sub numbers are true then it is very impressive. I just always feel like mel is holding something back from us.
If you roughly assume both XM and Sirius are now losing $150M a quarter, that's $600M a year, or $1.2B combined, which, just off the top of my head, was the same amount the valued "synnergy savings" at when they first pitched the merger. Seems convenient.
MarkS: Sirius counts "dealer lot" cars because they are paid for in advance. However, it is far more complicated than that. The subscriptions are almost a "loan" to the auto dealerships which have to pay them back. Looks good on paper, but many investors (former investor here) think it's a little shady. I never liked the practice. A paying sub should be a listener, and self paying, not cars sitting on lots.
"If you roughly assume both XM and Sirius are now losing $150M a quarter, that's $600M a year, or $1.2B combined, which, just off the top of my head, was the same amount the valued "synnergy savings" at when they first pitched the merger. Seems convenient."
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Almost too convenient. What you don't see here is that the total losses will rise again next year. It's going to get worse before it gets better.
A Stiletto 2 and Sportster 5... interesting.
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