I'm live blogging XM Satellite Radio's 3Q06 Earnings Call today.
Keep refreshing to view updates.
- Conference call introduced by Joe Titlebaum
- Handed over to Hugh Panero - introduces XM service and history
- In only 5 years: over 7 million subscribers. 15 million listeners.
- Top20on20 and Highway 16 are among the nation's most listened to stations
- Oprah & Friends have brought over big-name advertisers
- More than 5.5 Million vehicles on the road with factory-installed XM
- Now it's time fully exploit the model
- It's getting more complex to build the business towards profitability - bigger company, more moving parts, and more competitive threats
- To address these added complexities - Nate Davis was brought on board. Davis gives his 90-day plan now
- Davis: OEM to drive growth. Retail will follow, but not like 2005. Putting FCC issues "behind us" will help the industry grow. Need to remind people why to buy satellite radio.
- In the last 90 days: brought in new executive talent. hired new ad agency. new brand strategy. launched new brand campaign. shifted marketing money, so no extra money spent. OEM and retail specific executives have been brought on board. updated FM mods and received FCC certification. XM-4 launch. Completed the first of a 3-phase website re-launch.
- Davis: Gross subscribers are the best indication of growth
- Davis: Moving money from equipment subsidies and failed marketing efforts to proven marketing methods that will drive growth
- Vernon Irwin brought on board as CMO
- New "ON" campaign is a fully integrated marketing platform initiaitive: TV, Online, Retail marketing, OEM displays and more
- "ON" campaign is meant to drive both OEM and "re-energize" Retail growth
- Retail sector has been "softer" in the past few months than anticipated
- Lists the more "robust" OEM initiatives: GM cheaper, standard in Acura, XM in new Lexus, first Hyundai rolls off the line, Acura certified pre-ownedwith XM initative
- 1.82% churn - focused on the goal keeping deactivation rate down
- Easier to keep a customer than it is to bring in new customers
- Renewed and "keen focus" on the operations of XM
- Improve product-marketing. New products coming.
- First - the Delphi SkyFi3
- the Pink Inno
- "Stay tuned" for more products to be released during CES 2007
- Financials now. You can see the highlights listed on this here.
- 21.2% Family Plan.
- SAC - $60 (vs $53 3q05) included ~$4 per unit assocaited with "FCC remediation"
- CPGA - $93 (vs $89 in 3q05) - lower than 2q06 due to marketing spending. Purposely held back marketing expenditures for big marketing push this quarter
- XM posted "solid financial results" for the third-quarter.
- EOY Guidance: 7.7-7.9 million subscribers (within range). Revenue: $810-$815MM (EBIDTA $205-$215)
- Cash Flow Positive by end of quarter
- While Q3 didn't have significant mail-in rebate costs. Subsciption ARPU may "seasonally" drop for Q4
- Full quarter impact of Oprah
- Under $110 full-year CPGA for Q4
- Saving 23MM in future interest payments with the 10% conversion deal
- Beginning 2007 Quarter Reports XM will no longer release subscriber prior to earnings
- Back to Hugh. Gives recap.
- Q&A.
- (Crap can't type fast enough.)
- Q: CPGA came in lower than expected for Q3 - is there alot of room to spend the same and keep it low?
A: Yes, pretty much. 4Q05 CPGA was $141 - will be "alot less" for 4Q06 - Q: Retail. Do you see retail accelerating? Do you see yourself at parity w/ Sirius? Why the continued focus on Retail? What about Toyota rollout?
A: Retail will remain important. Customers want to experience XM in homes, in portables, "even online" - so we don't want to abandon them. Will it accelerate? Not like last year, but will continue to grow. OEM will see alot of growth. Signficant growth in OEM. Parity between XM vs SIRIUS? NPD (not including RadioShack), they are currently at parity - 49%-50%. RadioShack swings retail to Sirius favor. XM wont overspend to compensate. Toyota - very engaged and focused on "very high quality" which means they're more methodical. Look at the Lexus LS, its "very very integrated" - Toyota is very focused and committed to the roll out. Toyota is very "engineering" driven. - Q: 2010 Subscriber growth - will it really be 20 mil? or the high-teens?
A: No need to change that. Some analysts are saying the high-teens, but XM still sticks with the 20 million.
- Q: What about the XM+SIRIUS merger?
A: We haven't commented on it before, and we won't comment on it now. It's just rumors. - Q: Price increase - any thoughts? What about regulatory issues?
A: Price: no plan to increase - but they're always looking at it. Possibly in Family Plan - not an announcement, just that they've been looking at it. Re Lobbying: they're working on educating people (working jointly with Sirius) on issues in Capital Hill. - Q: Process issue that made the lower conversion rate in Q3 has been resolved? What about self-paid churn?
A: Yes. It's behind us. Softly increasing coversion rate. Not a sharp increase. "You won't see a jump in one quarter." Re Self-Paid Churn: we're going to see some improvement in self-paid churn. NASCAR may affect, but working to counterbalance. - Q: Churn - how is churn rate is "voluntary versus involuntary" churn and versus used cars being sold w/ XM installed? How's the Inno/Helix doing? What about iPod integration?
A: We don't disclose voluntary vs involuntary churn - but trend is down in involuntary churn. Working on involuntary to improve credit cards- slightly trended downward. Inno/Helix are "doing well" - flat rate of growth over the past 3 quarters - expect to see a slight increase (because of the Holidays). There's going to be a specific promotion on it. As for iPod - obviously it's smart to look into it. The issues that come about are - what would the costs be (on XM's side) to make this happen? They've been in talks, and so has Sirius. But it's something that's always on the radar, but basic economics need to be considered. Apple isn't the only MP3 player out there, so there's potential outside of Apple. - Q: Are you more focused on CPGA guidance or Subscriber guidance? What about the RIAA?
A: Full Year CPGA will be under $110. Slightly over $110 in Q4 - make sure that's clear. Obviously they're focused on "both" - but CPGA is more important, because being cost effective is the priority. Growing subs is the future of the business though. Re RIAA: There's two issues: the device issues and the royalities. Device lawsuits are being worked on. SoundExchange negociation won't be resolved until late next year. The rates being asked for are crazy. - (last question) Q: In Retail- checks indicate that more retailers are pushing for professional installation. Retail sub growth?
A: We believe that professional install is the better way to go, however SureConnect gives a quality install approach. We would like to see more pro install - retailers make more money. We haven't actually seen any specifics saying that pro installs are up, but will see by EOY. Retail subgrowth: retail will be up in Q4. We will see a signficant growth by EOY. Rather than give guidance - we're just giving overall guidance. - End of call. (phew!)
Interesting, there is still more coming for the website.
Maybe a content update, putting the rest of the pdf's back and adding a page for the BBC world service,
Thanks for blooging this Ryan. Sirius fanboys: start typing...
That was some amazing bloging. I can't listen at work so this was really really really useful. THANKS RYAN!
Great job Ryan. It's nice to see some positive in the industry.
Hope you are doing the same for the Sirius CC.
If both companies are looking up, I may actually jump back into the fray of both stocks again.
Here's hoping for positive OCF real soon!
Thanks everyone. I'm absolutely doing the same for Sirius' conference call (Wednesday @ 8am ET).
Nothing about Worldspace. I am surprised. Would be an idea to work with Miltary and foreign Governments on service deals.
Great job Ryan... just for reference, though, it's
'parity', not 'parody' that they're referring to. And is that really -$110 CPGA for Q4 or is the hyphen a misguided bullet point? Good to see they're still planning on going cash flow positive... even with the softer retail and higher churn that I'd been expecting.
Thanks, I actually went back and corrected the "parody" thing. Hard to spell correctly when you're typing at that speed. :)
As for the "-$110 CPGA for Q4" - I also updated that to reflect that number to be full-year and not for Q4 alone.
Great quarter for XM.
But I AM confused ...
Lowest quarter subs since 2005 and yet the numbers look good. I guess the secret is to keep those subs low.
I know ... Trimming costs must be the answer.
Anyone else like to comment on exactly how they did this?
"Great quarter for XM.
But I AM confused ...
Lowest quarter subs since 2005 and yet the numbers look good. I guess the secret is to keep those subs low.
I know ... Trimming costs must be the answer.
Anyone else like to comment on exactly how they did this?"
----------------
I'll try. First, understand that although XM is not growing as fast as last year, it is still growing. Second, MOST of the fixed costs are now done and over, so now they can concentrate on a slow but steady increase in subs and ad revenue.
They can now produce money with less and less new subs, as long as churn stays in check.
XM is now on the verge of turning into a profitable company. And as long as they can continue to grow and expand services (getting OEM installs as standard equipment would be the best start...these have a remarkable take rate), they will have no trouble making money.
XM's poor selection for portables and non-OEM car models is a real weakness. They need to ramp it up here and not neglect it vs. OEM installs.