Orbitcast will be live blogging the XM Satellite Radio 2Q07 Earnings Call. Just keep hitting that refresh button to see live updates as they come in. On with the show...
- In a holding pattern. Conference call to start at 10am ET...
- Ok! let's begin! Joe Titlebaum kicks it off... "certain information contain 'forward looking statements" blah blah blah
- Turning call over to Hugh Panero
- Update on pending merger with Sirius:
- Passed major milestones
- More than 5,000 comments sent to FCC. 4:1 support in favor of merger.
- Created a new milestone in audio entertainment industry by the offering of - for the first time - a la carte programming offerings, as well as family friendly offerings (with block and rebate offerings)
- Offerings prove that this is overwhelmingly in the public interest and refutes the "misinformation" put out by the NAB
- Remain confident they will be able to close merger by EOY 2007
- Equally as important, XM is focused on continued growth
- Conversion improved and churned remained steady
- Hugh is now addressing his stepping down as CEO
- When he started, it was merely a Powerpoint Presentation, and now its an industry
- As with the merger of any two companies - "there can be only one CEO" - and Mel Karmazin will be that man
- Thanks everyone for their support, and is handing off to Nate Davis
- Nate Davis is now talking about Hugh Panero's vision, passion and expertise. And is thanking Hugh for all his work.
- Reiterates confidence that merger will close at EOY
- Now going to review the progress made
- Business mix is "increasing OEM centric"
- Retail remains important, but OEM is the growth segment
- Further expanded Sports coverage for "displaced fans"
- Improved backoffice efficencies
- XM is in over 140 models, and cars they're installed in account for 60% of light vehicle sales in the US
- Nearly 1 million of OEM installs will roll out in Q4 alone
- OEM ramp is here now and "will only get stronger"
- GM has sold it's 5 millionth XM equipped vehicle
- Hyundai installations are on pace, Sonata in the top five
- In 2008, Nissan/Infinity go exclusive. Infinity will go standard equip
- Honda/Acura expects 2 million installs - 1.8 million already sold (?!)
- 52.7% OEM conversion rate
- Potential subscription base opportunity is "large and growing fast"
- 5 years in OEM relationships, and now know what it takes to convert a car buyer to a XM subscriber
- Infinity promotion integrates XM into their marketing message. XM, and NavTraffic included for 3- years. Further working on co-branded marketing programs
- Focusing on those who didn't turn into self-paying subs after trial period and focusing on used car purchasers who buy cars with XM pre-installed
- More than 70,000 pre-owned vehicles are enjoying XM free-trial subs right now
- Free-trial subs are NOT counted as subs until they're self-paying subs
- Now onto retail.
- Competition has caused retail to go down.
- NPD data (adjusted to include WalMar) show XM having about 40% marketshare
- Retail customers are important. Retail affects OEM because they recommend XM to OEM buyers. and vice versa as OEM owners who like XM are more likely to buy retail products
- This quarter was the 3rd season of MLB partnership
- MLB Home Plate is one of the Top 10 channels on XM
- Talking about college sports programming now
- Targeting the displaced hockey fan.
- Working on joint marketing effort with NHL and XM branding
- XM's Live Earth broadcast was heard by 3.5 million listeners
- Newly launched channels - XMX - Exclusive Music programming
- Public Service "first" - XM will offer the first radio channel dedicated to the presidential election - POTUS '08 - will air on every XM radio, whether they are a subscriber or not.
- POTUS was Hugh Panero's personal idea
- Talking about new radios - XpressR, XpressEZ
- Expect more radios with the same "sleek styling" for the Holiday season and beyond
- Getting rid of older radios in the market created increases in CPGA
- Customer Satisfaction index has improved
- Ensure that 100% of Activations are done ON-SHORE. Becase this is the first point of contact with the customer (YES!)
- Listener Care has been a good way to maintaining overall inventory levels
- Turning over to Joe Euteneuer (ugh, live blogging the financials is always a killer for me)
- Strong revenue growth driven by subscriber growth
- Total revenue growing by 49 mil to 277 mil fro 228 mil
- Investment in customer care is paying off in better conversion rates, reduced churn, and overall experience with XM
- XM will continue to see elevated legal, regulatory investment costs due to the merger throughout the year
- Fully loaded cost to add new sub - CPGA - was $121
- An increase in CPGA was due to increase in SAC, and not marketing
- SAC up to $75 due to inventory investoments - a result transitioning over to new radios
- OEM growth will have impact on SAC
- Year-end CPGA will be pushed to their higher end of their guidance
- GAP-net loss down to 176 mil
- Ended quarter in 275 mil in cash
- Key financial metrics continue to trend in the right direction
- Back to Hugh!
- Opening up to Q&A
- Q: Inventory is a one time charge?
A: Yes
(crap, I can't keep up with this Q&A)
Q: Something about impact on retail?
A: Nate is saying that the impact on retail is due to impact from competition - like MP3 players, etc. - Q: Bob Peck says "farewell" Hugh Panero. Asks about the timing of the announcement.
A: Hugh said that a year ago he recruited Nate Davis as the COO to handle operations and his role was more strategy. But with the merger progressing "to a significant level" - understanding that there was going to be one CEO in a merged company - he thought it was a good time to do. Also wants to spend more time with family. :)
Q: Something about the merger filing? (crap! I missed it)
A: Gary is saying that the FCC reply comments really dives deep into the audio entertainment marketplace and gives a very strong case. Timeframe is still a fourth-quarter timeframe. Says he's confident. But particularly pleased with the FCC comments submitted. 4:1 in favor and very impressed by that, as well as the groups. Also talking about the A La Carte pricing - "a bold and pioneering move" - overall feel pretty good.
Q: Guidance for 2010 in the "high teens" - how should we think about 2010 numbers?
A: we're not making any guidance statements about 2010. we're seeing growth in OEM. On the otherhand we are still seeing softer aftermarket. Pretty said that it'll be hard to hit those 2010 numbers. - Q: Jacoby says to Hugh "goodbye, you'll be missed" - what will it take to get OEMs up to 70% like with Chrysler? What about the tiered pricing - how will affect ARPU? Very nice improvement on conversion rate, what happened?
A: Chrysler going to 70% is pretty indicative of the manufacturers going. I can tell you that "they're committed" to high penetration rates.
Also don't want to give much trending on the conversion rate because it will always fluctuate. These numbers are showing that even with increased penetration, there's still great conversion rate.
A La Carte will make the modeling more difficult. Overall its a positive thing. The synergies associated with this merger is what gives us the opportunity to offer these discounted rates. Just to be clear - if no merger - these packages cannot be offered. - Q: CRB where are? and the RIAA on the Inno? where are we?
A: There's really not much update. They're in the middle of arbitration and in the middle of litigation. So there's nothign they can say. No trial date on RIAA. Arbitration should be resolved by EOY. - Q: David Bank - "We wish you the best Hugh in whatever you do next. We're seeing better stickyness on OEMs as opposed to Retail - churn in aftermarket vs OEM?
A: Yes, aftermarket churn has always been higher than retail churn. Its an easier process in the OEM experience - installation process is harder in aftermarket. We think that will continue.
Q: Is there any uptick/downtick on the retail churn vs OEM churn?
A: No.
Q: Have we hit a threshold in the penetration ramp? Is there an increased cost or increased rev share as you increase penetration?
A: No. Flat to down-over-time. - Q: If merger doesn't go through, do you hvae a contingency plan in place? If so, what? $10 increase in SAC - would that continue into 2008 and what can we expect?
A: We won't get into speculation about rate increases. We would look at the cost structure of the business. We want to find a way to flat, or marginally down, on programming expenses. In the long-term, once we're better with vendors, we want to bring the costs down. In general, we dont even entertain questions about whether the merger doesnt go through.
As for $10 elevation in the SAC. That's largerly a 07 issue. Once you pass into 1q08, you get a positive of net additions, that offset those that are paid for in prior quarters. - Q: What goes into your strategy into the longer term incentive programs like Infinity (like what Sirius appears to be doing) and how does that affect churn?
A: CHurn is better with longer term plans. Better economics that way. Conversion rate is easier to deal with. Reduces internal costs due to reduced calls into customer care. Its not a change in philosophy. The key is being able to implement that in a cost effective matter. It's not a change in the trial period - its that they've elected to pay for the longer terms. Conversion rate is still great with the 3-month.
Q: Strategy with the portables (Inno vs Helix)?
A: Helix is discontinuing so is priced lower. Inno "will be around for a while" and we'll continue because it's popular. - Q: Hyundai has been existance for a while now, whats the success rate for Hyundai?
A: It's "still a little early" but looking positive. We still have another couple quarters before we can give more details on that.
Q: Liquidity?
A: From a liquidity standpoint, we're doing great. - Q: "Hugh... you will be sorely lost."
A La Carte radios - any plans for putting those into OEM vehicles?
A: As we become more and more OEM centric, you cna guarantee we will be looking after our OEM partners.
Q: Do you think A La Carte will confuse the consumer even more at the retail level?
A: Some customers will want to go onto the internet and customize their package, while others will just choose the packages. Some people who love the flexibity, while others who want packages. - Final notes - this is the first quarter that the gross adds have been UP YoY, so this is a great sign. Now Gary is giving a "farewell" speech for Hugh Panero. You've built a heck of a service, a heck of company. "You've created something great... good luck going forward."
heh...you're keeping up very well, Ryan.
if this whole blogging thing doesn't work out, you're making a strong case to be a court stenographer.
"Free-trial subs are NOT counted as subs until they're self-paying subs"
This is interesting. I was under the impression that XM counted a customer the minute a car was sold, not when the trial ended.
Makes Sirius' method of counting free subs and subs of unsold cars look like an even bigger stretch to look like more of a increase numbers.
There may be 1,000,000 active XM subs that are not counted at the moment and 1,000,000 sirius subs which are not being paid for by customers that ARE counted.
This could mean that XM is actually 2M more subs ahead of Sirius than we are led to believe. hmm...
i absolutely love that last question by the analyst from Janco regarding cross-compatability of OEM units. i think thats going to be a costly point to address if this merger does go through.
It frustrates me that the leaders of XM don't seem to even have a theory as to why OEM subs are going up and retail subs are going down. It's like they are just accepting it even though logically, it doesn't make sense.
IMO opinion it is because of the reseption. Factory installed radios have much better reception than after market radios. And everyone I have talked says there is nothing that can be done about it. With all of the money invested in these companies, I can't believe that there is nothing that can be done.
Anybody have a better understanding of this than me, I would love to hear from you.
Jon
It frustrates me that the leaders of XM don't seem to even have a theory as to why OEM subs are going up and retail subs are going down. It's like they are just accepting it even though logically, it doesn't make sense.
IMO opinion it is because of the reseption. Factory installed radios have much better reception than after market radios. And everyone I have talked says there is nothing that can be done about it. With all of the money invested in these companies, I can't believe that there is nothing that can be done.
Anybody have a better understanding of this than me, I would love to hear from you.
Jon
Makes me wonder how the merged company will count its subscribers...I've always had the impression that Sirius counts the trial subs...But if XM doesn't, which strategy will the merged company employ?
Jon,
Dave Bank asked that question, and it was pretty well answered:
"Yes, aftermarket churn has always been higher than retail churn. Its an easier process in the OEM experience - installation process is harder in aftermarket. We think that will continue. "
i agree with your point about reception/sound quality...the reception/sound quality can only be as good as the poorest quality medium through which the signal flows...there's a huge difference between the medium in an OEM install and a retail install, as most retail installs patch through the antenna cable or broadcast over FM mod. as we all know, FM sucks for audio quality (compared to the alternatives, ie: old-school cassette adapter, or today's aux-in plugs)...but there isn't much else SatRadders can do. my old SkyFi2's FM mod sound quality sucked compared to my Inno's SureConnect sound quality...but thats like comparing a regular turd against one with a ribbon tied around it. unless OEM's get on board to offer a truely Hi-Fi digital input on their radios, OEM installs will always be superior in terms of sound quality, and thus i think that more people will be inclined to prefer OEM over Retail
if you're talking about actual sat signal reception...i don't have a clue what you're talking about. my self-installed car kit on my GTO has far superior sat reception as compared to my Envoy's OEM antenna. there isn't anywhere i *dont* get a signal...under bridges, in parking garages, tunnels...no matter.
@dumpus: I'd rather not. Live blogging is ridiculously annoying to do. :)
Jon : All i know is my friends OEM installed radio in his Tahoe cuts out all over the place. My (self installed) Inno in my Volvo cuts out A LOT LESS. Like the Palisades Interstate Parkway. The last time i was in his truck it cut out about 5 times going to Manhattan. My Inno, which i drive on the parkway daily, never cuts out.
""there can be only one CEO" - and Mel Karmazin will be that man" - Ugh
Jon wrote: "It frustrates me that the leaders of XM don't seem to even have a theory as to why OEM subs are going up and retail subs are going down. It's like they are just accepting it even though logically, it doesn't make sense."
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Makes sense to me. The vast majority of SDARS listening is done in the vehicle. Coupled with the fact that aftermarket generally looks worse than OEM, and has to use crappy FM modulation most of the time. (not counting aftermarket radios with the ability to direct-connect SDARS units---they can be better than OEM if done right).
OEM not only looks better, but usually sounds better, and there's no FM modulation or crappy wires hanging around.
Retail has limits in appeal, and many people will even listen to the service online for home use rather than buy a retail unit.
Thank you, Ryan, for the synopsis.
Please don't get Carpal Tunnel.... :)
the leaders of XM don't seem to even have a theory as to why OEM subs are going up and retail subs are going down
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What? its not obvious to you? A retail sub would be anyone who does not have Sat rad in their new car or old clunker... what happens when they get a new car? or a used one with a sat rad receiver? .....
PSSSST its called Churn.
I am on my fifth radio. Is my cancellation and re-subscription, with the new radio, included in the churn.
I am suprised to hear from some that they get better reception with their after market radio than their factory installed radio. And thanks for the feedback. I guess its not as obvious as I thought.
Jon
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