Live blogging the XMSR 4Q07/FY07 earnings call

Thursday, February 28, 2008 at 9:50 AM
Tags: Earnings, XM, XMSR

XMSROrbitcast is live blogging XM Satellite Radio's fourth-quarter and full-year 2007 earnings conference call.

You should the know the drill by now, but if not: simply keep refreshing the page to see the updates (useful if you can't listen to the call live).

  • We're about to start...
  • Joe Titlebaum kicks it off with the "forward looking statements" disclosure
  • Now on to Nate Davis...
  • Nate: State of the business
  • Focus is on operations. First is to minimize the "distractions that normally occur" when two companies are trying to merge
  • Focus on the transition from retail centric to OEM centric
  • Focus on eliminating any outstanding litigations
  • Nate will talk about the company's standalone performance, while Gary will talk about the state of the merger
  • Davis: "I'm happy to report" the SEC/FTC was settled without any action. Class action suit settled with no payments either (though there were still legal fees).
  • CRB dispute was also settled
  • Talking on subs: 3.9 million gross ads - essentially the same as 2006 gross ads
  • Decline in 4q06 gross ads compared to 4q07 gross ads was due to the drop in retail
  • Transition to a OEM-driven business "is in full force"
  • Collectively, OEM penetration rate = 60-70% for 2010 model year
  • XM does not count promo subs, only when it is a self-paying sub
  • Analysts tend to ask for "parking lot subs" - so Nate is addressing this
  • If XM counted "parking lot subs" the subscriber base would be 10.3 million
  • OEM has a build up, but has substantial longterm benefits
  • OEM Conversion rate -- 52.7% for FY07
  • Some OEM are bundling 1-3 year trial subs
  • The dash "is becoming the center for infotainment"
  • Now talking about the Hyundai touchscreen system
  • Acura announced that the RL will have XM NavWeather
  • XM NavTraffic will be expanding to 50 models in 2008
  • Growing the business, the install rate, and at the same time maintaining the conversion rate
  • Now turning to retail subscribers
  • "Softness in retail reflects growing competition from a myriad of audio entertainment options"
  • XM is focusing much more on direct sales
  • Cross-selling promotions with OEMs is more effective and cheaper.
  • NPD data is less relevant today than it was years ago
  • We no longer use NPD as an indicator
  • NPD used to measure 70% years ago
  • In 2007, XM estimates NPD less than 40% of XM's total retail sales
  • Also focusing on streamlining the retail business (Starbucks, Kiosks, etc)
  • Listener Care - "I'm really proud of our Listener Care team"
  • We said we would improve on Listener Care last year, and we did
  • Customer satisfaction rose
  • Conversion and churn rates remains stable
  • Now talking about programming (3rd season of MLB, 5,000+ sporting events, new XMX channel, podcasts)
  • Two of XM's podcasts consistently rank in the iTunes Top 10
  • XM is a stronger company for the future, "whether that future is as a standalone or a merged company"
  • Now onto Joe, to talk about financials
  • 18% growth in subs from 2006
  • CPGA was impacted by a $4 charge from the elimination of the Starbucks deal
  • Now talking about SoundExchange charges which impact all of 2007
  • $37 million was expensed in the 4th quarter, but will be paid in 1H08
  • XM expenses the merger charges while Sirius capitalizes them
  • Settled SEC, FTC, CRB (alphabet soup!) charges
  • Earlier this week, drew down $185 million of their credit facility
  • As a result, the company now has full access to the GM credit facility 
  • XM-3 and XM-4 are already in orbit and have full service for 15 years
  • XM-5 is soon to be completed
  • "This provides an unparralled level of redundancy"
  • The lack of need to build sats "greatly" improves their expenses going forward
  • We're past legal distractions behind us
  • We will continue to focus on operational functions
  • Now onto Gary Parsons to talk about the merger
  • "We continue to provide the DOJ and FCC" with any additional materials they requested
  • We "expect and continue to look forward to" approval of the merger
  • In the meantime, XM continues to focus on the core business
  • As Mel said, you can assume that the two boards are well aware of the drop-dead termination date on March 1st and will report back to you
  • Even more so than a year ago when we announced the merger, 'the nature and the magnitude" of competition in audio entertainment
  • "The competitive reality" is readily apparent to analysts and a large number of groups
  • It's not just groups, but also programmers, automakers, etc - who all recognize these competitive factors
  • In the meantime, XM and Sirius can't review each other's operations behind what is publicly available 
  • Now on to Q&A...
  • Robert Peck - Bear Stearns
    Q: Mel said that they had basically gotten "radio silence" over the past couple weeks. When was the last time you communicated with regulators?

    A: "I would never contradict Mel (laughs)" - it's been a material amount of time since we've heard anything.

    Q: Could you go over your fully funded status, do you see XM being fully funded as a stand alone company?

    A: First off, yes we are fully funded. We'll get back to at a later date when it comes to 2008 information.
  • About the slowing economy, Gary is adding that despite the current status of the economy - churn rate hasn't changed. And growth continues to happen for new subs. Satrad's alue proposition continues to be strong in a "wobbly" economy.
  • David Back - RBC
    Q: Wants to talk about Starbucks and expenses?  Haven't talked about iPod in the last couple calls, are there any plans to partner with Apple? Also talk about converstion ratio? (Holy questions David!)

    A: Nate: on the Starbucks relationship - it had 2 parts - (1) generate subs, (2) branding relationship. XM didn't get what they wanted out of subs, but saw a benefit to the branding. So they elimninated one part and retained the branding. Will not disclose the specifics for the Starbucks termination (roughly $20M based on shares sold). For iPod, we've talked with Apple - we don't have a strategic relationship, but we do have a marketing relationship (iTunes). But no, nothing to talk about with Apple just yet. We've found that "focus" is what helps us with improving conversion rate.
  • Vijay - Lehman Bros
    Q: Regarding 2009 conversion rate, how to plan to finance that.

    A: As you know, we don't disclose the OEM rev share. Each has a different way to engage. What we're focused on, with the expectation of the merger going through - we have an more immediate concern of transition - so blahblahblah.
  • Goldman Sachs
    Q: Where is the churn rate skewed in retail?

    A: Churn by segment varies by the time of the year. At the end of the year, annual subs - when they reach the end of the annual period we see a bump up in churn. But during the mid-year, less churn because there's less going on. Those that are on invoices tend to have higher churn, while credit payments have less churn. Family-plan = less churn, because they're more dedicated.

    Q: Operational distractions for the merger - what's different now vs last year? Why no guidance?

    A: The reason why we did it last year was because the approval was a year away. This year - "I'm fairly optimistic here (laughs)" - it should moments away.
  • Eileen Furukawa - Citigroup
    Q: Can you give us a little more color on SAC/CPGA? Was promotional different this year than years ago? What about instant rebates vs regular rebates - is that a cause as it was for Siri? Asking about cost-cutting on merger - will you cut programming?

    A: Cars that have been manufacturers but not counted as a sub are already paid as SAC charges. So if we count those as subs, it would have gone down this year. The increase in SAC is due to us accelerating out OEM installs. The Starbucks settlement is also in the CPGA category.

    We was to stay consistent with the 2008 guidance (or lack thereof). If the merger is not approved, XM will go back to the investors with guidance. Programming costs will remain flat, but we will always look at ways to trim expenditures.
  • Lucas Binder - UBS
    Q: Conversion rate... can you tell us what's been happening with the "standard programs" (e.g., Hyundai). Can you talk about that - in general - for standards? You took Kiosks out... does that mean you're giving up on retail?

    A: On the Kiosk issue - as we looked Kiosks, Starbucks, etc. We looked at the number of subs coming in with each program. We don't want to spend the same amount of money on those programs when the subs are coming in on different programs. We anticipate conversion rate to stay in the "low 50% range" - it might tick up, tick down, but it's going to stay in that area. Steve Cook: on standard programs, we're seeeing the same basic programs. SUVs, and more premium models, convert at a higher rate - while lower-end models convert at a lower rate.
  • Kit SPring - Stifel
    Q: OEM conversion/gross rate uptick, does Hyundai and other have any effect on that?

    A: The increase is just an increase. Conversion uptick was a result in focus. There was no difference in how we count them.

    Q: Satellite launch programs?

    A: Satellites has been a very big cap expenditure over the past years, and we're happy to be past that. We also have "hot standbys" in orbit, which any sat company would like to have. We had a little bit of forsight in that we proactively designed the latest satellite to cover both Sirius and XM's spectrum. So if we do merge, we have that built into place.

  • No more questions. Gary hopes to have another call when there's a merger to announce.
  • Thanks very much. and we're done!


 

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Comments

What is up with the crappy hold music prior to the call?

Aren't we depressed enough about being stockholders without this music?

Posted by: Brian R. | February 28, 2008 9:58 AM

Perhaps they could pipe in some XM online music in the future? Maybe some of the analysts will like it, subscribe, and then give better ratings =)

Posted by: Brian R. | February 28, 2008 10:05 AM

If you knew anything about conference calling you would understand the telephone conference center controls the pre music not the company that is having the call

Posted by: Anonymous Coward | February 28, 2008 10:11 AM

Yeah, unfortunately I know that... I was being sarcastic. Thank you though.

Posted by: Brian R. | February 28, 2008 10:15 AM

Gotta love Nate. Always throws in the competition factor against terrestrial and ipods, etc.

Posted by: Brian R. | February 28, 2008 10:18 AM

Hey we finally know the parking lot subs. Looks like XM has a 2 million sub lead after all...

Posted by: xzi | February 28, 2008 10:32 AM

"XM is a stronger company for the future, "whether that future is as a standalone or a merged company""

It is? Great. Now cancel this merger!

And go ahead and count parking lot subs. Who cares.

Posted by: scott | February 28, 2008 10:33 AM

No mention of 0.0 in the conference call? Why am I not surprised. They are a nonfactor, while Howard is Sirius.

Posted by: Anonymous Coward | February 28, 2008 10:33 AM

This is about O&A: "Two of XM's podcasts consistently rank in the iTunes Top 10"

Also, the fact that "Howard is Sirius" is exactly why it....

... oh forget it. Ron & Fez, Noon to 3.

Posted by: xzi | February 28, 2008 10:35 AM

"XM expenses the merger charges while Sirius capitalizes them"

Figures

Posted by: scott | February 28, 2008 10:40 AM

^They were too embarassed to admit who it was though, weren't they??? Because XM HATES 0.0 and backs them NONE. Admit it, nobody in XM upper management will care if they are gone. They have no allegiance to 0.0 and are so embarrased by their employment that even though the pest "army" claims that they are the #1 channel on XM, you can't even get the damn board to speak their name in conference calls.

Posted by: Anonymous Coward | February 28, 2008 10:42 AM

Howard wears a wig. HAHA!!!

Posted by: FOTW | February 28, 2008 10:45 AM

>>> If XM counted "parking lot subs" the subscriber base would be 10.3 million

The truth about which company is growing faster comes out.

Posted by: Stack Pointer | February 28, 2008 10:48 AM

And dentures. And fucks a horse. ugh

Posted by: scott | February 28, 2008 10:50 AM

XM-5 covers the WHOLE spectrum, including Sirius's spectrum.

Posted by: Brian R. | February 28, 2008 11:01 AM

How many net new subs for the 4th Q did they sign up? Didint see that anywhere

Posted by: Gary | February 28, 2008 11:34 AM

766,000 gross OEM subscribers in the fourth quarter, resulting in 361,000 net OEM subscribers.

For the fourth-quarter, XM added 364,000 gross retail subscribers which resulted in an 99,000 net retail subscriber additions.

http://www.orbitcast.com/archives/xms-fourth-quarterfull-year-2007-results.html

Posted by: scott | February 28, 2008 11:39 AM

What did I read in the last bit there under the question of "satellite launch program"?? in the answer it said "IF we merge..." wow somebody dropped the ball there.. I haven't heard somebody us the "I" word before.."if" makes it sound like somebody isn't towing the company line of "when" we merge... confidence is low here... and PUNT...

Posted by: Anonymous Coward | February 28, 2008 11:43 AM

That xm-5 was proactively designed to cover the whole spectrum is huge. I am surprised there are not more comments about tha

Posted by: msandmann | February 28, 2008 12:20 PM

they have stated that XM can do both before..

Posted by: bapamex | February 28, 2008 12:38 PM

When will these racist comments cease!!!!!!!!!!

Posted by: NorCalMurph | February 28, 2008 2:57 PM

Hey 0.0, the only mention of Hoo Hoo on Sirius's call was the fact that "we need to get Howard to re-sign for less money. Knowing Howard, he will not do that". That's sounds great. Right from Mel's mouth to gods ears.

Posted by: pfreak | February 28, 2008 3:09 PM

And we are excited about the HOHS Act II

Posted by: Father Mott | February 28, 2008 5:41 PM





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