Analysts Weigh in on Sirius' First Quarter as a Merged Company

by: Tyler Savery November 12, 2008 | about stocks: SIRI    

Tyler Savery

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The conference call of Sirius XM Radio (SIRI) is behind us, and analysts are beginning to weigh in with their respective thoughts on the first quarter as a merged satellite radio entity. Among those issuing reports Tuesday were Merrill Lynch, Goldman Sachs, Miller Tabak, and JP Morgan.

MERRILL LYNCH

Merrill analyst Jessica Reif Cohen noted that subscriber numbers were light, but that the subscriber issue was mitigated by cost reductions. On the subscriber front, Sirius XM’s gross sub number came in 130,000 short of Merrill estimates. Cohen said that the weaker number was not really a surprise given that the company had already guided down, and that OEM sales have been weak.

The analyst noted that self-pay churn was in line with Merill estimates, as was ARPU which came in at $10.47. On the positive side, Cohen noted that the EBITDA loss of $37mn (includes $27.5mn one-time programming), was $49mn better than MLe $86mn loss. Cohen attributes this to a demonstration by Sirius XM Radio that synergy benefits are real. Cohen stated, “Mel Karmazin, CEO of SIRI, has a history of successful merger integrations, and 3Q08 SIRI results provided some tangible evidence of synergy realization at SIRI.”

Despite a slowdown in retail and OEM sales, SIRI saw cost savings on multiple items: 1) programming; 2) marketing; 3) work force; and 4) product development. Consequently, CY08 EBITDA loss guidance was lowered $50mn to $300mn.

Cohen is maintaining a rating of Underperform, but is encouraged by the “tangible evidence of cost rationalization at such an early juncture, however, we remain concerned over near term headwinds: 1) debt refinancing risk; 2) risk of further dilution if SIRI uses its equity to take out 2009 debt maturities; 3) potential risk to growth assumptions and guidance if the auto and retail channel outlook deteriorates more than anticipated.” The firm is maintaining their 25 cent price target.

GOLDMAN SACHS

Goldman analyst mark Wienkes issued a report Tuesday noting that, “subscriber metrics are missing and financials mixed vs. our estimates.” Wienkes' report states that the company came in at mixed levels versus the Goldman analysis. Specifically:

  • Gross subscribers came in at 1,847,000 versus Goldman’s 1,914,000
  • Net subscribers came in at 344,000 versus Goldman’s 430,000
  • All in churn came in at 2.7% versus Goldman’s 2.6%
  • ARPU came in at $10.47 versus Goldman’s $10.82
  • SAC came in at $74 versus Goldman’s $91
  • Revenue came in at $612.7 million versus Goldman’s $609.8 million
  • Loss Per Share came in at $(36.8mn), $(1.93) vs. Goldman’s $(105.1mn) and $(0.13).

Some initial questions Wienkes has are; (1) with just 200k net adds targeted in 4Q, how will the 2009 sub forecast be reached? (2)with 3.25bn shares at 3Q, an uncertain unissued allocation to other securities and + 262.9k recently issued shares in exchange for$90.7mn debt, set against an authorization cap of 4.5bn, what is plan B if shareholders vote “No”? (3)  with $360mn of cash at 9/30, current assets (A/R, inventory, distributor receivables and prepaids) of $250mn and current liabilities (A/P, accrued expenses & accrued interest) of $874mn, will the working capital payback be deferred beyond the pending debt maturities?(4 )what is the essence of the new $1.1bn “Deferred credit on executory contracts” and can it benefit the P&L in future periods? (5) do recently provided FCF targets imply satellite launch deferrals and what is the attendant risk? and (6) how will FCF/share estimates change following either more shares or higher interest costs owing to pending refinancings?

MILLER TABAK

Miller Tabak analyst David Joyce issued a report Tuesday regarding Sirius XM Radio’s Q3. Joyce notes, “Sirius XM Radio (SIRI) 3Q08 Revenue & Subs Beat, but 4Q08+ Subs Weaker than Expected. 5-Year Projections Miss on Subs, Revenue In-Line, OIBDA & FCF Above Estimates”

The analyst reiterated a Neutral on SIRI with a short term target of $2, and a long term target of $3.

Joyce noted that Sirius XM Radio pro forma 3Q08 revenue of $613 mm(+16%) was just ahead of their $606 mm and the consensus $608 million. In addition, the Pro forma Adj. Loss from Operations (OIBDA) of $(37) mm was better than their $(74) mm estimate. The pro forma Net Loss of $(217) million matched the Miller Tabak estimate. EPS of $(0.09) matched consensus but was worse than their $(0.07)/sh on a share count average. Negative Free Cash Flow Of $(97.6) million beat their $(161) million estimate.

SIRI ended 3Q08 with 18.920 mm subs, having added a net +344k subs, above our +302k estimate that estimated an 18.87 million total. 1.847 million gross adds were greater than their 1.531 million estimate, but deactivated subs of (1.503) million were also greater than our (1.229) million estimate. Retail net adds were (149)k, worse than their +25k estimate, ending with 9.036 million subs (vs. their 9.144 million estimate). OEM net adds of +492k were far above the Miller Tabak estimate of +279k, finishing with 9.778 million (above their 9.560 million estimate). Rental net adds of 1.3k were below their +4k estimate. Churn of 1.7% was below their 2.2% estimate, ARPU was better than expected at $10.47 vs. their $10.09, and SAC was also better than expected at $74 vs. their $79 mm estimate.

The company provided late last week, for financing presentation and reporting requirements, and again in the earnings press release, long-range projections that should be viewed positively, and could be a reason to consider SIRI a Speculative Buy, but we are reiterating our Neutral recommendation for now as >$900 mm of refinancings, which could cause further dilution, are on the horizon.

JP MORGAN

JP Morgan Barton Crocket issued a report Tuesday relating to the Sirius XM Radio Q3 conference call. The analyst rates Sirius XM Radio as Neutral. Crocket noted that Sirius XM reported an “exceptionally noisy, merger transitional 3Q08 that featured some core metrics that held up OK in the face of a tough macro environment.”

The analyst notes that while the quarter was encouraging, he believes the stock will continue to be driven more by progress toward refinancing $1b of debt due in 2009 than by fundamentals. Currently challenged credit markets provide reason for caution.

Among the concerns listed by Crocket was the OEM conversion rate of 47.0% pro forma, which is 3.7 points below where the company has been. His concern arises because stable OEM conversion rates have been a strong argument for the long-term market opportunity.

Crocket also noted that Sirius XM exited the quarter with $360m of cash and equivalents, and expects to generate positive free cash flow in 4Q08. Importantly, the company anticipates no liquidity issues before the maturity of the Feb 09 converts. The JP Morgan estimates are under review.

Position: Long SIRI

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This article has 94 comments:

  •  
    Nov 12 06:24 AM
    In this tough environment companies (including Blue Chips) are fighting for their survival. Goverment is trying their best to bring in the lost confidence.

    Just opposite GS is comaring versus GS targets and setting SP to .25
    Are they traitors??

    GS could have very well put it positively saying that company is still growing in this tough environment and support refinancing by banks or whatever other reasonable means.


    Reply | Link to Comment
  •  
    Nov 12 07:46 AM
    i wonder how Si is going to finance or refinance its debt, so far the cash flow doesnt look enough, any thoughts?
    Reply | Link to Comment
  •  
    Nov 12 08:21 AM
    WHO CARES WHAT GS SAYS, THEIR OWN SP WENT FROM $122 - $70 THIS Q. BUFFETT COULD NOT EVEN HELP THEM. DIDN'T THEY HAVE CRUDE AT $200 A BARREL? THIS IS A GREAT PRODUCT, IT SPEAKS FOR ITSELF. IT DOESN'T MATTER WHAT ALL OF KNOW IT ALLS THINK, I HAVE 3 SUBS AND AM LONG ON THIS STOCK, IN 2 YEARS GS WILL CHANGE THEIR TUNE. WHATEVER HAPPENED IN BELIEVING IN A PRODUCT? THEY ALL LOVE THE DOT COMS AND THE MORTGAGE BACKED SECURITIES TOO, SEE WHERE IT GOT THEM. THE BIG 3 ARE GOING TO GET A BAIL OUT, SIRI WILL BEAT THE STREETS NEXT YEAR. IMHO

    P.S THE 4.8B GOODWILL IS A TANGIBLE ASSET, JUST FOR TAX PURPOSES.

    VOTE NO TO THE RS!!!!!!!!!!!!!!
    Reply | Link to Comment
  •  
    Nov 12 08:33 AM
    Jobocop has a point there, GS has been wrong on there oil and stock predictions all year and needs to focus on their own economics. Mark Wienkes should be sweating a bit over there and should be more careful what he writes as GS just let go some of their top industry analysts as well as 3,300 employees. Siri proved the streat that they can compete in a down market, and they will align a strategy to deal with the debt coming due in time. Stay long, and vote no for the reverse stock split.
    Reply | Link to Comment
  •  
    Nov 12 08:41 AM
    Vote yes. on both proposals. I'd rather NOT see bankruptcy. Thanks.
    Reply | Link to Comment
  •  
    Nov 12 08:46 AM
    DOOBZ26,
    IF YOU VOTE YES THE SHORTS WILL FEED ON THIS STOCK TIL THERE IS NOTHING LEFT.
    Reply | Link to Comment
  •  
    Nov 12 08:52 AM
    I think Sirius should be investigated by the sec,it is very clear they are going to claim bankruptcy,that has been their plan for nthe past year or longer. tomtom
    Reply | Link to Comment
  •  
    Nov 12 09:01 AM
    Robocop,
    Maybe so. Didn't they do that already? Can't they continue to do that if they want anyway? So vote no, pis off management, possibly tie their hands, force their hand to bankruptcy? No thanks. We all got burned on a spec. stock. Sucks to be us. I don't believe there is a conspiracy of any sorts. If you think management and shorts are out to get you then sell.
    Reply | Link to Comment
  •  
    Nov 12 09:18 AM
    JobCop....

    What makes you think that the shorts will feed on this with a RS??
    Reply | Link to Comment
  •  
    Nov 12 09:22 AM
    tomtom

    Your 4 comments in the past and your current comment predicting the BK of SIRI is highly valued on this board... We appreciate all of your facts you have given to concur with your "opinion" even though many of us have given thousands of reasons why SIRI has the best chance or no chance to file BK....

    So just tell me again SIRI will file BK and ill believe you, I haven't believed any of the other idiots that come on here and point blank said " SIRI WILL FILE FOR BK IT WAS THEIR PLAN, I TOLD YOU SO" ,, but you my friend, I will believe!!!!!! : D : D : D
    Reply | Link to Comment
  •  
    Nov 12 09:24 AM
    You guys are awsome just coming on here and posting these general statements with no facts or value to back them up.... If SIRI announced the refinance tomorrow are you still going to come on here and tell us they are going to file for BK?
    Reply | Link to Comment
  •  
    Nov 12 09:25 AM
    Or the shorts will feed on this stock...
    Reply | Link to Comment
  •  
    Nov 12 09:28 AM
    When you think about it, it is a wonder Sirius even exists at all. They were nothing but a cash incinerator from the beginning. The mistakes that were most devestating were the ones that could have had them operating in the black right now. Whomever their deal negotiator is can be targeted as the one responsible for this current mess and should be crucified appropriately. Sirius has wasted ungodly amounts of money on negotiations that seem not to have been driven by company self interest but some other slanted agenda. I find it difficult to fathom that only poor judgment and stupidity were at play. Why $500,000,000 for Howard Stern? What skewed logic is responsible that figure? I am sure he would have settled for considerably less. Or maybe dump a few million into developing new tallent. Someone made the coment on a previous post that HBO didn't pay Tony Soprano $500 mil. Well, he was a result of new development and not an existing entity and started out at SAG scale + 15% along with the rest of the cast. And the merger with that crappy financing deal that is looming overhead. More slop. It's like having a value of xyz stock trading at $1 a share and putting in a blind buy order of a zillion shares at
    $100 a share to be sure you complete the trade. My point is that there seems to have been a suspicious deficit of foresight. I can't believe Sirius had consciously negotiated so many idiotic deals that favored everyone but Sirius. It would be fascinating to know the truth.
    Reply | Link to Comment
  •  
    Nov 12 09:44 AM
    MY POINT WAS IF THEY DID A RS 1:10 TODAY, THE STOCK WOULD GO TO $2.50, THE THE SHORTS WOULD HAVE MORE ROOM. I SAY WE SHOULD WAIT, GET THE RE-FI AND SEE WHAT HAPPENS. GOING PINK IS NOT THE WORST THING IN THE WORLD, THE RS IS JUST TO KEEP US ON THE NASDAQ, WE HAVE TIME TO RE COOP, DON'T JUST RUN IN AND VOTE FOR THE RS. AND IF IT DID HAPPEN, THERE ARE NO GUARANTEES THE RS WILL STOP A BK. LOOK BACK AT MARCK 3, 2003 THE STOCK WAS AT .41, IT REBOUNDED WITHOUT A RS. IT COULD HAPPEN AGAIN, IMHO
    Reply | Link to Comment
  •  
    Nov 12 10:07 AM
    Mel already stated that it is just an emergency life raft.... If his statement is true (And I believe it is) then we would technically have until around next September before we would need to enact a RS......
    Reply | Link to Comment
  •  
    Nov 12 10:09 AM
    Job cop,

    We have to vote Yes to a RS in December because in January when the NASDAQ listing requirments are in effect again Mel has to prove that he has a plan to get the stock back above a $1 right then and there in order for NASDAQ to allow the extension.....

    So all in all we have to vote Yes so Mel can state this to NASDAQ or we don't get the extension
    Reply | Link to Comment
  •  
    Nov 12 10:10 AM
    Stern and others got big contracts because Sirius was competing with both terrestrial radio and XM radio for them. Without the content Sirius has now they'd have been belly up a long time ago.
    Reply | Link to Comment
  •  
    Nov 12 10:10 AM
    JOBOCOP

    A RS split will not happen unless the company needs to put it in its extension plan to the NASDAQ for an additional 180 days in Sept 09. They will then have until Dec. 31, 2009 to execute the spit. That is the purpose of the RS.

    The additional shares are necessary for the company to be able to perform a RS and still have shares available to finance debt if need be. These are tools for management to run the company during very difficult economic times. No one likes these options, but what is the real choice here?

    I know that no one believes that this plan and agenda laid out by management is true. That is the problem here. Going off of NASDAQ makes shares difficult to trade and Forces most Institutions, MM, to close their position because the delisting will trip their criteria for investing money in this company. Combine those two scenarios and where do you think the SP will go, and company, when these folks are racing to get rid of their positions.

    Delisting is not an option here. IMHO. I will be voting Yes to items 2 and 3 on the Proxy with my shares, unless something drastically changes between now and the voting deadline. I have not decided yet on board members and I will vote yes on the accounting firm. I choose to put faith in Management's ability to run this company before I put it on the shareholders opposing management at this time. I have not heard one plan from lawsuit supporters to date that would give me any more confidence in their being able to do a better job than the present management team.
    Reply | Link to Comment
  •  
    Nov 12 10:11 AM
    I do this all the time..... Freud lives.... its a split.... not spit
    Reply | Link to Comment
  •  
    Nov 12 10:18 AM
    .25 is being held by several lots equaling over 2 M shares at the open and now it is being held by over a 1 M shares. There isn't any interest in taking it below this level IMHO. In the interest of full disclosure, I am officially back in as a LONG today and no longer in the trading mode for this stock.
    Reply | Link to Comment
  •  
    Nov 12 10:54 AM
    COS 1000 GLAD TO HEAR YOU ARE LONG. GOOD MOVE.
    Reply | Link to Comment
  •  
    Nov 12 11:25 AM
    Thanks for the recap Tyler...

    More bottom building today so far...

    In reading all analyst POV's there is a common thread...whenever the company pulls that refi trigger..the stock will run in a big way. And make no mistake. That is now not only a financial issue but more importantly a cred issue. You read on some that they feel Mel has backed up his words with Q3 numbers. He has one last step to go to really having sentiment change for the foreseeable future...

    11/12/08 LIBOR 2.133.

    As far as Weinkes. Forget him. Though he was right on this price target, he is also an insider with a company agenda IMO...plus, those concentrating on the ugly deal structure rather than just metrics and "debt due", knew the stock would wind up here. And that's him, so no duh. And you know this by the fact that not one analyst (including him) (or media writers for that matter) EVER ONCE publically cited the hedge short as an issue--it was the elephant and dirty little secret rolled into one. But Weinkes, aside from all his other negativity, IMO was very much focusing on the hedge aspect all along--hence his ALWAYS VERY EARLY calls of 1.00, .50, and .25.

    Beyond that, with any average (and esp from here on in, looking up from the bottom), you have to always throw out the lowest and the highest. He's the lowest (in many ways lol)...

    Nowhere to go from here but back up into a more normal price scenario.

    p.s. I watched that Fox video with M.H. At the end, all I could think of is where is the case? Any accusation defined in that piece is refutable in writing by the company in the 7/30 Supplements. IMHO...
    Reply | Link to Comment
  •  
    Nov 12 11:43 AM
    1:10? My guess is 1:50. Sirius will need to get the price high enough to sell more equity, which will further dilute.


    On Nov 12 09:44 AM JOBOCOP wrote:

    > MY POINT WAS IF THEY DID A RS 1:10 TODAY, THE STOCK WOULD GO TO $2.50,
    > THE THE SHORTS WOULD HAVE MORE ROOM. I SAY WE SHOULD WAIT, GET THE
    > RE-FI AND SEE WHAT HAPPENS. GOING PINK IS NOT THE WORST THING IN
    > THE WORLD, THE RS IS JUST TO KEEP US ON THE NASDAQ, WE HAVE TIME
    > TO RE COOP, DON'T JUST RUN IN AND VOTE FOR THE RS. AND IF IT DID
    > HAPPEN, THERE ARE NO GUARANTEES THE RS WILL STOP A BK. LOOK BACK
    > AT MARCK 3, 2003 THE STOCK WAS AT .41, IT REBOUNDED WITHOUT A RS.
    > IT COULD HAPPEN AGAIN, IMHO
    Reply | Link to Comment
  •  
    Nov 12 11:53 AM
    RS- 50,000 shares to 1000 shares, what shareholder does that
    help. 3 bil outstanding becomes 60 mil, then they issue 50-100 mil
    more shares, more dilution. The PS becomes worthless.
    After PS value plummets private equity comes to buy out, we
    will all lose evrything. Nasdaq rule changed. No delisting until
    8 mos. after Jan. 16. Mel lied, if there is no RS then delisting.
    Fear to get RS for the private takeover. With current revenue
    let Sirius ride it out to get $1. If it can't get $1 now, why would
    it go higher after RS. Nasdaq reports Sirius highest on market
    for short interest. It will get shorted to oblivion. RS, would you trade
    a $50 dollar bill for a $1 dollar bill. Vote NO! NO! NO!. They are
    liars, really bad people.
    Reply | Link to Comment
  •  
    Nov 12 12:00 PM
    Wow, the comment here are rougher than the analysts. SIRI is showing that they can control expenses, and service the debt. Now if they can only get the debt holders to extend or convert (2/09) then they can survive and thrive in 2009. I guess the analysts are generally in agreement. Fix the debt issue, the company survives. If they do that an RS is not needed.
    Reply | Link to Comment
  •  
    Nov 12 12:00 PM
    A lot of you obviously have NO faith in management, and think they are liars that are out to get you. So why are you still holding this stock????
    Reply | Link to Comment
  •  
    Nov 12 12:03 PM
    Btw...

    A talking head on Squawk this morning said the Fed Auto Industry Loan should be done by later next week...
    Reply | Link to Comment
  •  
    Nov 12 12:20 PM
    Did you guys notice that as soon as the 3rd Quarter report came out how posotive everyone was about SIRI again (except for those few who are too ignorant to let go of their previous thoughts... )
    Reply | Link to Comment
  •  
    Nov 12 12:26 PM
    Well................ ..I had to raise my all in buy to .25 from .23. Just too many positives coming at this stock to gamble any longer. Now let's see if I can get that today by closing. Just rubbed the Dog's head for luck. I swear he grinned at me.................... ..killer.
    Reply | Link to Comment
  •  
    Nov 12 12:37 PM
    STOP TALKING AND GO OUT AND BUY AN EXTRA RADIO, GIVE TO A FAMILY MEMBER AND OR FRIEND. I HAVE A FEW RADIOS UNDER MY NAME. LETS DO A CAMPAIN TO HELP SIRIUS GET THE SUB NUMBERS UP NEXT QUATER. IT IS THE ONE WAY THAT WE ALL CAN HELP.
    Reply | Link to Comment
  •  
    Nov 12 12:43 PM
    Well.... If all 6 of us bought 2 radios.... we would be at 18,920,923 subscribers.....

    We can contribute more if we just buy shares in SIRI
    Reply | Link to Comment
  •  
    Nov 12 12:44 PM
    You know that all the NaySayers are not going to buy a radio because they hate SIRI enough to follow a paranoid maniac into sueing the company...

    But yet they still have shares....

    Boggles My Mind
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