Live Blogging SIRI 3Q06 Earnings Call
Wednesday, November 8, 2006 at 7:53 AM
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I'm live blogging SIRIUS Satellite Radio's 3Q06 Earnings Call today.
Keep refreshing to view updates.
- Mel Karmazin is joined by Jim Meyer, Scott Greenstein with David Frear handling financials.
- Mel handling opening remarks
- Once again had a "great quarter"
- In last 12-months - nearly 3 million subscribers added
- 3Q05 SIRI was 37% share in net additions - SIRI has attracted the majority of net ads since then
- NPD: SIRI was 57% for Sept, 57% for 3Q and 58% Year to Date
- On track $615MM in revenue for 2006
- Only 2 terrestrial radio companies will have more revenue than SIRI in 06 - Clear Channel and CBS Radio
- Clear Channel has been around for 35 year - CBS Radio was 80 years ago - SIRIUS is the fastest growing radio company in existence
- Virtually doubled OEM subs in 9 months
- Advertising ARPU was 45% greater than "our competitor"
- SAC was $114 for 3Q - down 23% YoY
- On track to deliver the guidance previously given
- Global demand for SIR
- Will have "significantly more" OEM ads in 4Q than we have in 3Q
- Not enough credit for OEM channel - Sirius had 52% of OEM net ads in 3Q - 55% for the year
- FCF postiive for 07, and "could be" for 4Q06
- Retail does not have to exeed last year's numbers in order to meet subscriber guidance
- Expecting Holiday surge - happened for Father's Day and expect it to happen for Xmas season
- Expecting a big reaction from NASCAR fans
- Will do their best to use current subscriber base to give Sirius as Xmas presents
- Will not overspend in order to grow subscribers
- SIRIUS was 61% in net subscriber additions
- *All* products have been FCC approved, plus have a DYI solution
- Stiletto was recently introduced and is well received in marketplace. Producing and shipping quantities to meet Holiday demand
- New line of wearable give Sirius the "best product lineup in the industry"
- 4th Gen chipset has begun shipping
- 1Q07 will show these new 4G products
- OEM: Sirius will have 132 individual model factory programs
- OEM: 21 separate brands are partnered with Sirius
- Look for some major advertising from Chrysler that prominently promote Sirius
- Ford will include SIRI in 21 models in early 2007
- Momentum is building at Ford
- Audi/VW is beginning on-time launch
- Audi/VW is targeting an 80% installation rate in 2007 vehicle launch
- Mercedes is installing Sirius in over 2/3 of their model base
- Customer retention and customer relation management activities
- To date Sirius has posted "industry leading levels" of customer satisfaction
- Will use "appropriate resources" to retain customers
- David Frear has acknowledges the softness in retail
- "near term" softness in retail is a concern, but they are addressing with new devices
- Now addressing SIR and 2-day event
- SIR 2-day trail experienced success beyond internal expectations
- Traffic to HowardStern.com and Sirius.com spiked during those days
- Listing the celebrities who had a presence during those 2-days
- "never losing sight" of Sirius' overall goal of being cash flow positive
- Strengthening the core male audience, while still growing the female audience
- Listing recent programming deals: the Howard tapes, Chelsea Soccer, Jerry Rice, Met Opera, The Who, Andrew Wilkow, and Barbara Walters
- NASCAR coming in 2007. Expect it to succeed the same way that NFL has.
- Building NASCAR Radio much like NFL Radio - making it the "most emersive" radio experience that NASCAR fans have ever experienced
- In a few weeks, look for the new Tony Stewart show to give a taste of NASCAR programming
- In recent weeks - marketing to NASCAR fans
- New TV and print executions - continuin the "Best Radio on Radio" campaign
- Heavy Cable TV advertising. More aggressive print, TV and interactive campaigns kicking off
- Expect to see more marketing from OEM partners and Retailers
- Combined OEM + Sirius marketing will be "Largest marketing effort to date"
- Talking about Sirius' press exposure.
- Now talking about Advertising - 22.7M in revenue - approaching 30 million in ad revenue
- Blue-chip advertisers are most impressive.
- Sirius is the "innovator" in the online SIR service area
- Handed over to David Frear now - covering Financials
- Doubled subscribers since last year
- As a result nearly $700 million in revenue
- Cost per subscriber has dropped "absorbing" the cost of Howard Stern
- There is "no missing piece" to their programming, but they continue to look for new programming - with the focus of total costs along the way
- Self-pay Churn has remained at 1.6% to 1.7% range
- Products are FCC approved and back in full production
- Reinterating all previous guidance today. Holiday season will be a strong and an aggressive season
- Reiterated Free Cash Flow
- Back to Mel. Now for Q&A
- Q: On SAC could you remind us for full year 06? How do you feel about the "directional antenna" as a FCC impact?
A: Guidance for SAC - approach $110 per gross add. No guidance for SAC for next year. Will continue to make improvements and will keep everyone updated. FM Modulator issue - very comfortable about the solution - they have a "FM Find" feature on Sirius.com that recommends FM stations to tune into for the user.
- Q: Is there any trend line for capex? Differed revenue?
A: Capex is driven by the satellite program and the launch vehicle. Increase in differed revenue is going to compound. - Q: In conversation with OEM - any sense on going standard? Regarding NASCAR, is there anything that have a significant impact in ARPU?
A: Constantly having discussions with OEMs regarding standard-installs or "smart standard" - convinced that being standard doesn't necessarily increase conversion. For high-end vehicles like Audi it's better to go standard. On NASCAR: it's 5-year relationship. They feel they're underserved when it comes to data and stats - so Sirius will continue to look at opportunies (Internet? SIR?) to provide this. ARPU for NASCAR: Ad revenue will get a big boost from 24/7 channel.
Follow Up Q: 30 Million for ad revenue - how much inventory is available?
A: Mel - plenty of invetory - "we will not let inventory stand in our way" - Q: What about SIRIUS+XM Merger - seen a lot of press on it - can we get a comment on it? Royalty situation?
A: Not much to say about the "hypothetical" merger talks - I have nothing that I can say about it - dont take it that it's possible, or not possible. Assume that Sirius is looking to "kick their ass" (!) in the fourth quarter. We feel comfortable in a stand-alone mode. On the RIAA: We have worked closely with our "friends at XM" in terms of music royalties. Taken a look at current rate, and a rate that would not be disruptive - we truly believe our proposal was a fair one. We think their proposal "is bizarre" - and we think its because the music industry to facing trouble and we dont think we need to fix their problems. We are confident we will come to a mutal agreement. - Q: In terms of Free Cash Flow for 4Q - what do you need to make that happen? What about Churn? Was churn similar for OEM and Retail subs?
A: Self-pay Churn was consistent at 1.6 to 1.7 range. OEM self-pay churn is a little better than Retail self-pay churn - this tends to make sense (less malfuntion possibilities in the in-dash solutions). No guidance for next year's Churn. As OEM base gets bigger, it will give pressure on overall OEM. Regarding Free Cash Flow: Holiday subscribers is not a problem. Marketing costs and plans are in place. In large, what is really gong to drive 4Q FCF is going to occur after Thanksgiving. It really comes down to volume. - Q: XM wont release subs numbers ahead of time - wll you do the same?
A: No decision has been made, but we plan of doing what we currently do.
Q: XM seems to have seen some traction with the syndication of Opie and Anthony - do you plan on doing the same?
A: We dont see any signs of traction in terms of that deal, and dont see a need to release exclusivity aspect.
Q: Regarding SIR and premium SIR? ANy break out of numbers
A: Markets to users who choose not to buy a radio, but rather listen over internet. Has a different cash profile because there's no hardware subsidies. You should look at SIR as something that isn't generating any losses - but something that generates cash. Since it's been only a few weeks, there's no numbers to break out. - Q: More color on Ford - going from 16% to 21% penetration - how should we think about that? What about on the Family Plan - have you thought about a way to give people more radios without having to pay for them?
A: OEM - we dont have approval to discuss penetration with Ford. Ford lags behind DCX by a couple years because it started later. Ford is very focued on penetration rate - working on premium audio lines. Re Family Plan and multi radios: focus from the company is free-cash-flow positive, and Family Plans churn less - and SIR is an available solution as well. But the key is "what makes sense for the business." Points out that for each sub there's an associated free SIR service, and plenty of possibilities to listen. - Final question
- Q: Is there any sports-associated seasonality with Retail? This Holiday Season - any plans to do promotions that affect ARPU instead of SAC? SAC numbers gap between OEM and Retail?
A: There isnt going to be anything different in promo strategy for this Holiday Season. Mail-in Rebate strategy will continue. SAC number: there will continue to be a gap as 4G chipsets go into retail, while OEM are still on 1G-2G chips. Real focus for OEMs is to get away from "black box" units from the trunks to integrated headunits. Programming answer: Howard was a clear decision. NFL was a clear decision - games are in 4th Quarter - so increased visibility thanks to NFL demand and gift-giving. We know what programming works and what gives revenue oportunies. NFL + Howard + NASCAR will do well in this. - END OF CALL
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Comments
your the best Ryan! Keep the Q&A blog part going--Anyone ask about inventory shortages?
Posted by: gary | November 8, 2006 8:46 AM
Good news for SIRI. I hope the stock reflects this today.
Mel always seems very cagey when talking about a merger. Just want's to keep his options open and foster speculation, I would guess...
Posted by: MikeHunt ? | November 8, 2006 10:05 AM
Thanks for blogging. Both companies reported in a positive light. I hope they both do well this quarter -- it will be good for the industry.
Remember ... FM is the enemy.
Posted by: iband | November 8, 2006 10:28 AM
Thanks a lot! That took a lot of time and we appreciate it.
Keep up the good work!
Posted by: matt ? | November 8, 2006 11:35 AM
"3Q05 SIRI was 37% share in net additions - SIRI has attracted the majority of net ads since then"
Do you mean 3Q06? Isn't the third quarter always going to be high because of how Sirius counts auto subs and when Q3 is when auto manufacturers are dumping inventory?
Am I the only one wondering how they'll add 1.2M subscribers next quarter?
Posted by: cfg ? | November 8, 2006 12:41 PM
Thanks everyone. Live blogging is really rough on the carpal tunnel.
If you want to read the transcript (best way to double check any data points I wrote above), it's up on SeekingAlpha here:
http://media.seekingalpha.com/article/20156
Posted by: Ryan Saghir ? | November 8, 2006 2:03 PM
cfg,
in the 3q of 2005, sirius accounted for 37% of new satellite radios subscribers. since then Sirius has been adding more subscribers than XM.
for example, 58% of new subs this year are signing up with Sirius at retail.
Posted by: Philmore | November 8, 2006 5:32 PM
Ah, it was 3Q05.
"In the last 12 months, Sirius has added nearly 3 million new subscribers. Third quarter '06 was our fourth consecutive quarter where Sirius led the industry in terms of growth. Just to put this into perspective, last year in the third quarter of '05 we attracted 37% share of net additions and each quarter since then, Sirius has attracted the majority of net additions, with third quarter '06 reaching 61% total share of satellite radio net adds."
I find it interesting that they've added 3M subs in the past year - which they admit has been their best - and expect to add almost 50% of that amount in the fourth quarter alone. Mel gave himself an out though,
"So while we are targeting a strong fourth quarter, our full year subscriber and financial projections are just that; our best projections."
Posted by: cfg ? | November 8, 2006 5:44 PM
I see today the initial steps being taken behind closed doors with the FCC and other monopoly regulation organizations for the two companies Sirius and XM to merge. This is brilliant from a marketing, sales, and profit standpoint. Regulators will be certain to keep the price of the product in line. However will this let complacency slip in to such a new industry. Competition has kept these two on the edge of product development both in programing and technology. It will be great for stock holders of Sirius, but does it hurt in the long run? Is it too soon? I guess it does not matter if it is a done deal. So just a note to management. You know my opinion! Thanks
Posted by: P. R. | November 16, 2006 10:47 AM