Orbitcast is live blogging XM Satellite Radio's earnings call. Just keep refreshing and this post will be updated in real-time.
- Joe Titlebaum kicks it off.
- Now to Hugh Panero...
- As of you know ("or should know") XM and Sirius announced the merger
- Under the merger they would become the premiere provider of audio entertainment
- It would be a combo with the long-term financial capability to compete
- XM and Sirius continue to operate as SEPARATE business
- XM is being run as if there is NO MERGER
- NO CONSUMER will have an obsolete radio
- OEM is strong and growing. New contracts signed.
- XM-4 launched and now XM is setup to deliver interrupted service for the next 15 years
- Now to Nate Davis..
- While we're all excited about the merger, our focus remains on running the business
- In 2006, over 1M gross ads in Q4
- We did not reach our year-end sub numbers, but we focused on more financially responsible growth
- Revenue is up - grew 45%
- EBIDTA loss is signficantly down
- Meet our exceed our targets because we exercise discipline.
- Fixed expenses grew only 20%
- Even with the new marketing campaign, marketing expenses decline
- SAC and CPGA both declined
- While solid financials - but OEM is also very strong
- XM partners represent 60% of OEM market and are the fastest growing auto manufacturers
- OEM radios will continue to work even post-merger
- Let's make this clear - ANY radio in the XM Radio Network will continue to work "period"
- OEM conversion rate increased - a clear indication that XM has broad appeal
- OEM expectations for 2007:
GM - 1.8M
Honda - 650k
Hyundai - Factory-equip by EOY 07
Nissan - 500k
Toyota - Annual factory production of 1M by 2010 - XM targets the OEM purchases most likely to convert
- Independent survey shows that customer satisfaction has improved by 15%
- NavTraffic will be standard on AcuraLink vehicles, Lexus' and every Cadallac CTS with nav-equipped
- OEM impact will be felt mostly in 2008 and beyond
- Pre-merger environment: how to keep customers interested in retail?
- All retail radios will support the merged service
- Marketing launching a retail program to reassure consumers that merger won't affect new radios being purchased
- Marketing is focused on selling subscriptions - and selling subs with long-term commitments
- Marketing an EMOTIONAL connection and the connection to music
- MLB marketing push is being kicked off soon
- There's a need to keep churn in check
- in Q3, they stabilized churn, and in Q4 churn went down
- Expect that the loss of NASCAR will possibily affect churn in this quarter
- Glad to provide clarity around Toyota's committment - they've renewed to 2017
- We haven't forgotten about RETAIL and we will make sure it grows
- Adjusted EBITDA fell 60%
- Total revenue increased by 67%
- Sub revenue increased 54%
- Please note that XM will no longer subscriber info prior to earnings call
- Subscription ARPU - up 6% from 2005
- Family Plan subs have grown to 22.9%
- Family Plan does represents a reduction of ARPU
- In 2007 - XM will increase their custoimer service which will affect subscription margin
- Aside from Oprah, fixed costs were flat in 2006
- Flat costs are not a realistic objective for the future however
- Premarketing EBIDTA - increased "an impressive" 311%
- SAC was unchanged in 2006 compared to 2005
- SAC was $116 in 2002 - shows our responsible growth
- CPGA was $128 vs $141
- 21% reduction in marketing costs
- improved 59% in adjusted EBIDTA loss
- (holy crap I can't keep up with all these numbers)
- XM-4 sale-leaseback: $288M in proceed, $44M was used for real estate
- XM's Total liquidity $862M
- Avg prepayment period for subs = 9-months
- 2007 Guidance:
EOY 2007 with 9M-9.2M Subscribers
CPGA will not improve in 2007
Full-year Positive Cash Flow will likely move into 2008 - No way of saying what the merger will do, but they'll do all they can to lessen the impact as much as possible
- OEM is moving into a higher growth phase
- Balance sheet and liquidity were strongly increased in 2006
- Will manage the business indepentdently during the merger process, and should it fall through, still capable of running
- Now for Q&A
- Q: Robert Peck @ Bear Stearns:
2010 Guidance? Is it still in the "high-teens" for 2010?
A: Hugh
Well, the high-teens still stands.
Q followup: What about the XM repeaters and the possible fines?
A: We're in conversations, and we don't want to give numbers until we know. This is a voluntary process, but since were in talks we cant talk
Q follow again: How many subs in "rural" area or underserved areas?
A: We're not exactly sure, but it's not really the issue. Our sub base is pretty well spread with the population - Q: Jonathan Jacoby
OEM conversion rate? Can you give some color?
Also, what's "Plan B" since you're baking in a lot of expenses due to the merger?
A: On Plan B, we're working to close this deal. And we wouldn't be here talking about Plan B if we didn't think it wouldn't go through. Whether or not the merger happens, we have a team focused on keeping the operational results growing.
OEM conversion rate: went down to from 52% to 51.5% to 52%. It will probably fluctuate .5%.
Q Follow up: what happened in retail? Was it bad distro?
A: We can debate a long time about this, it probably wasn't distro. We hadnt introduced new products. New products are coming out now, and so we didn't stimulate the market in that sense. We also didn't deeply discount and subsidize the radios. Want to keep the economic return in check. Markerting is focus for the long term. Build subs in an economic way. - Q: David Bank @ RBC
What was gross retail share in Q4?
Something about EBIDTA... (I cant type this fast David!!)
Were there any immaterial promo OEM subs in Q4?
A: Retail marketshare is right-now based on NPD, so we have to wait for all the numbers to be out from Sirius before we can comment on that. On the OEM side, there were minimal for Q4. - Q: Mark Winkas
Adjusted EBIDTA excluding merger costs
Programming costs due to NASCAR going away, what is the affect?
A: NASCAR: it wasn't that much of an expense, so it doesn't really affect programming costs. Programming costs will remain in the 5-10M and will remain flat for the year. - Q: Ben Swinburn @ Morgan Stanley
Advertising spending in Q4, and the budget in 2007? Looking at the balance between ad spend and retail performance, is there a relation?
A: Would we have liked to get more retail subs? Of course. But we will probably spend less ad dollars on the retail side. We will continue ad spending around Father's Day, and Holiday Season (Black Friday) but will spend more on the OEM side to get conversion rate up. Will use co-op ad spending. Ad spending will be relatively flat for the year. - Q: Lucas Binder @ UBS
Efforts to stem churn: give us update on the new customer service facility, and how you will make churn decline?
A:
Number of things were focused on for custoemr service. This is soemthign we should have done long ago. But we're now keeping an expert inhouse at the call centers to train people and to assist. We're also moving cust serve away from off-shore because with - not only because of the language barrier - it helps with NavTraffic. Cust Serv realy helps with churn and we're making sure that our care centers are better capable to help our customers.
Q follow-up:
OEM - have you moved forward for offering longer trial period.
A: Actually, slightly the opposite. We're actually keeping the trial period short, but to get the consumer to opt for a longterm commitemnet. Some of this is to get the auto manufacturer to help pay for it. So it's not a promo program, its a paid sub. There's a GM promo in North-Central US that includes a 1-year sub that is a good example for this. - Q: Eileen Furtawa
FCC/XM repeaters: if you had to turn off the repeaters - would you compensate subs for this?
RIAA opinion on the merger?
A: I wouldn't go into any speculation on the FCC/XM Repeater issue. No regulator wants to harm the consumer, so we shouldn't look at that. The actual repeater network is actually not causing any harm. The net power of the repeaters is actually a lot smaller than that spec'd with the FCC
On the RIAA - we hope they would be supportive on the merger. A strong satrad provider would be a benefit for them. We continue to have active conversations with them on this.
Q follow-up: How would you want to do the a la carte service?
A: We want to allow the consumer to "sample" the service. The more ways we can attract the 95% of people who aren't subs, and the more ways we can get people to sample the service, the more we can attract consumers. - Q: Bart @ JP Morgan
Merger question, can you give a sense of the feedback you've gotten from regulators. Anything you've heard privately or publically
Content approach on the merger. What would be the contractual restrictions? Could XM subs gets NFL, Sirius get MLB, without having to spend a lot on the contracts?
A: For content, the goal is to create a best-in-class programming lineup, we will evaluate all the steps but conceptually that's the idea. The merger is 7-days old, so we'll be evaluating many things.
In terms of the regulatory approval process. There's a process in place and you'll hear the opinions of many people. To an extent, "the devil is in the details" - there's an anti-trust focus as well as a public-interest issue. Would in fact a combined company be a stronger, better competitor? At this point in time it's a "wait and see" and we're confident that we can put a case forward that it is in the public's interest.
Q follow-up: For the contracts, would you have to pay more to simulcast to Sirius?
A: We're in discussions, and they're open to oppportunities, but when we know more we wil get back to you.
OEM radios will continue to work even post-merger
Let's make this clear - ANY radio in the XM Radio Network will continue to work "period
Finally a more "definate" answer.. However still not confirming recieve both XM/Sirius channels...
Coward -- I believe there is an assumption that post merger, and post merging of the channel lineup, the "final" merged lineup will be broadcast from both sats to both XM and Sirius chipsets (at least, I hope so!).
Well done and thanks, Ryan.
"Coward -- I believe there is an assumption that post merger, and post merging of the channel lineup, the "final" merged lineup will be broadcast from both sats to both XM and Sirius chipsets (at least, I hope so!)."
Unfortunately, what this probably means is that we won't get the advantages of having double the bandwidth for years. I guess there are tradeoffs either way.
Mel Karmazin said on howard stern today that all sirius and most likely XM radio's will not be obsolete and said loading xm channels on sirius satellite (vice versa) would be the approriate solution for the future.
Waterwagen -- That is true about the additional bandwidth. I'm sure that both sides have thought through this obvious dilemma! The additional bandwidth would be great -- let's hope giving some back to the FCC in exchange for an approval is not in the works . . .
can the sats be retrofit from the group to work both sets of frequencies?
if they stuff eachothers content on their services they are going to either have to cut alot of current crap out or compress the quality even more...
PNess: From what I have read about the new XM satellites that were launched, they MAY be able to broadcast on Sirius' frequencies as well as be retrofitted for hierachial modulation.
IMHO, utilizing both bandwidths is one of the major things that this merger must save. Sound quality will go to crap if they don't. It all depends on the FCC. Let's hope they don't take half of the spectrum back as a condition of the merger. These guys are dead if they do.