Live Blogging XMSR 1Q07 Earnings Call
Thursday, April 26, 2007 at 10:01 AM
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Orbitcast is live blogging the XM Satellite Radio 1Q07 Earnings Call for those folks who can't tune in. Just keep refreshing this page to see updates as they occur..
- Listening to lovely hold music.
- Here we go... starting off with Joe Titlebaum introducing everything
- Handing off to Hugh Panero. Nate Davis, Gary Parsons and Joseph J. Euteneuer, are attending the call
- Talking about the 10 year OEM contract extensions with Honda and Toyota
- Churn "was stable" at slightly under 1.8%
- Retail has improved, but is still lower year-over-year
- MLB kicked off in April, and XM signed on SEC conference sports
- In February, completely the XM-4 sale/leaseback
- While "one solid quarter does not make a trend" it shows that efforts are showing increased results
- Handing off to Nate Davis....
- During the 3Q06 conf call, XM discussed key issues that needed to be improved - and Q1 results are showing that these initiative are gaining ground
- One area that didn't see improvement was in conversion rate
- Like out approach to churn and customer service - XM has taken on an internal goal to increase conversion rate
- Nate is now summarizing all the OEM announcement in the past months
- Retail "remains soft" year over year, but is showing a "noticeable improvement"
- XM saw over a 50% share in NPD reported marketshare in some weeks in March
- Marketing needs to highlight two things: why current subs need to stay with XM, and why people should subscribe to XM
- "We're not merely marketing our radios.. we're making our content."
- XM is linking the marketing programs of specific listeners to specific events. i.e., GRAMMYs and MLB Opening Day
- MLB campaign is XM's biggest and most complete marketing program to day.
- XM is marketing the "value our content brings.... not the device" (FINALLY!)
- This summer and fall, expect to see XM marketing programs center around College Sports similar to the current integrated marketing campaigns
- New "segmentation based marketing strategy" uses programming tied to marketing
- Black History Month promotions were run on BET and BET.com (which had a very high click-through rate). Nate gives some examples of Black History Month promotions
- "Micro channel" promotions:
- During the Holidays. XM had Xmas channels and Hanukkah channels. St Patty's day had an Irish Channel. MLB had a Baseball-only channel.
- These "micro channels" have seen a huge response from listeners...
- Oprah & Friends is high ranked by woman and is in the Top 10 of most listened to channels.
- Oprah & Friends is the highest paying advertising channel on XM's roster
- On-site staff now handles all calls to the call centers
- Moving all call centers to US-based call centers
- Proactive approach to the loss of NASCAR
- Engaging subscribers to help reduce churn due to loss of content
- Website redesign has shown positive signs: increase in engaging users on channel pages, and increased online activations
- "There's a lot more to be done, but we're very very please..."
- On to Joe...
- "We are pleased with our first quarter performance..."
- Total revenue in Q1 increased 27%
- Subscription revenue increase 26%
- Two key components in growth: subscribers and ARPU... ARPU is up $0.08
- Ways to improve customer satisfaction is by the on-shoring of customer service, though that will come at an increased cost
- $8 million in merger expenses
- $4 million for other regulatory expenses
- $4.4 for Oprah & Friends expenses
- Talking about OEM ramp ups... Nissan in the later half of 2007 and Toyota in 2008
- 18% improvement in net loss
- Believe that Q1 will be the "largest cash usage quarter for the year"
- Growth will be in the higher part of the year...
- Refined CPGA guidance is primarily due to OEM ramp up and improvements to retail distribution channel
- Onto Sirius-XM merger info
- HSR filed and Second Request was "expected"
- "Even without a merger, XM is well positioned to be a strong leader in the audio entertainment category"
- Q&A begins
Q: Robert Peck
Conversion rate: what's driving the dip in the conversion rate? And when do you see that stabalizing? How far can it dip down and still be fully funded?
A: We feel conv rate will stay in the slightly above 50% range. "We are not seeing a dramatic dip" though they are "not happy" about the dip. Think that promotions with OEM partners will make a difference over time. Not seeing a dramatic drop. Penetration levels will be able to kept stable. Hyundai is the most aggressive with penetration rate. - Q: Vijay is up now
User car remarketing programs... some color on that. Conversion rate for the user car program? And the Family Plan- any plans to close the gap between Family Plan and regular subs?
A: Getting a lot of support from OEMs to do the remarketing efforts. The satisfaction of consumers buying used cars is the highest importance. As for Family Plan, XM is very pleased with it and if they can keep it there, they'll be happy. Sideline on Family Plan: everytime you get an OEM radio that cannot be moved outside of the car - and you have a happy subscriber - that can result in a Family Plan subscriber.
Very early in the conversion rate for the remarketing program - Q: David Bank (RBC)
Two "buckets" for OEMs were mentioned in previous conf calls, and that they would be disclosed somewhere. David is looking for a follow up on that. Toyota and Hyundai are assumed to be in the second bucket? Also, any increase in the contract pricing because of the merger?
A: We don't break down the conversion numbers for separate OEMs because of a competitive information for each. OEMs would ask that they keep the information confidential. The only promo subscribers that ever appear in their numbers are when they're paid... not from OEMs that don't pay like the Nissans and Toyotas. (there's a bit of back and forth between David and the XM crew about the clarification of self-paid subs)
As for programming. There's no automatic triggers for contracts, so they need to enter into a dialog with each programmer for carrying the content to Sirius (or vice versa). There's benefits for the programmers: more lsiteners and a healthy satellite radio provider. - Q: Jonathan Jacoby
Rollout of new retail products has clearly slowed down. Is the slow down merger related? Or is most FM-mod related? or is a retail strategy?
A: No, not merger related. In 2005-2006 period, there was significant development in the portable. The reason why there hasn't been any new products out is because they've modified the dev cycle. XM hasn't wanted to put more money into retail because thye're not "chasing" retail, but instead want to put the concentration into OEM. - Q: Eileen Furukawa
(I completely missed her question.. sorry folks... something about Toyota and data points?)
A: On the Toyota front, they tend to do things on a high-quality stand, but once they dedicate themselves to do it they tend go very strongly. They set a 3-year window for execution. We're seeing Lexus now, and soon will be going to scale. Will take a 3-year cycle where other companies will do in a 2-year cycle. Some manufacturers like to trial and then move out, while other liks to go all out. Toyota has a different philosophy. - Q: WCS have been making noises about the repeater network. Any effects on the footprint?
A: WCS has been making noises for over a decade. XM is working closely with the WCS carriers to do the necessary changes. The network we had built is significantly smaller and less powerful than originally granted by the FCC. We will only come to a consesus with something that would benefit our customers.
Follow-up Q: Family Plan... how would you handle tiered pricing for Family Plan subs?
Follow-up A: We looking at everything. But not something we're going to discuss publically - Q: Craig Moffett
Sub guidance: you brought it down way down over the past years... what can you do - other than cuts in marketring - to trim the cost structure due to the drop in subscriber trajectory?
A: Nate stated that he "wants to be very careful" about how he describes this, but basically it would be a shift of expenses "from retail to OEM." That doesn't mean that XM will abandone retail, but that the most cost effective method of acquiring subs is by concentrating on OEM. Also, there won't be any more signficant programming expenses going forward. - Q: Lucas Bender
In an effort to go through inventory, can we expect to see some Father's Day promotions?
A: Yes, you will see promotions in that area. There's two other groups that they work with - retail stores and the distributors. And everyone
Follow-up Q: How would you help increase the conversion rate?
Follow-up A: Brand new dealer incentive program with partners who have signed up for the first time. There's been some restrictions in calling/contacting customers which have been relaxed recently, giving XM the ability to more aggresively contact customers (80 day window?). GM also has implemented a new OnStar program that allows for a better conversion rate process. - End of call.
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Comments
Nice Job Ryan ... thanks for the info
Posted by: Mike | April 27, 2007 7:53 AM
# Moving all call centers to US-based call centers.. and hiring locals who can't speak english?? or don't understand anything about XM Radio at all.. but then again why should they be any different from any other company?? I don't have any complaints about the call center except for not being able to understand them (him/her) you must have to have a trained ear... RANT.. stop it...
Posted by: steve | April 29, 2007 8:35 PM