This is a continuation of the Series Looking at the Bear Stearns upgrade of Sirius by Robert Peck. In post 1 of the series I covered the Washington Attitude, post 2 Liquidity, post 3 Aftermarket Subscribers, and in post 4 OEM Subscribers. This post will cover Cash Burn.
This subject is something that many people have taken an interest in. At the end of the first quarter Sirius had about $260,000,000 in cash remaining and a cash buurn of a bit over $133,000,000. The cash burn in q1 is typically heavier than in other quarters. Some people mistakenly assign the figure for Q1 cash burn to future quarters, and begin to feel that Sirius will need cash far sooner than a more realistic approach takes.
In his report Robert Peck outlines his estimated cash burn for Sirius using a conservative model. To be clear, Peck anticipates that Sirius will raise additional dollars, but his numbers clearly do not indicate a crisis.
Peck conservatively anticipates that Q2 2007 will see a cash burn of about ($50,000,000). This would leave Sirius with a cash balance of about $210,000,000.
Peck anticipates that cash burn in Q3 of 2007 will b about ($79,000,000). This would leave roughly $131,000,000 in cash.
In Q4 2007 Peck anticipates that Sirius will bring in cash of about $50,000,000. This would leave Sirius’ cash position at roughly $181,000,000.
What investors need to be aware of is that cash burn is typically higher in q1 and Q3 for Sirius. This trend is likely to continue this year, and in future years as well. The seasonality of retail combined with the required ramp-up in anticipation of the holidays basically dictates a trend in cash flow.
With all of that said, is it a definite that Sirius will tap the capital markets? A tough question to answer, but I would tend to lean with peck in being conservative and assuming that they will. If they come in with better numbers and do not need to tap the markets, then the equity could benefit. Sometimes to err on the side of being more cautious is a prudent move to make.
Watch Sirius Buzz for more analysis of the Bear Stearns upgrade.
Position – Long Sirius, Long XM