Cowen analyst Tom Watts has issued a report regarding Sirius' Q3 report.
Sirius Satellite Radio Outperform (1) October 30, 2007 Q3 Results:
Subs Surprise Again! Solid Financials. FCF Breakeven in Sight. Analysts Tom Watts, CFA - Shaun Parvez
Conclusion: SIRI reported excellent Q3 subs and solid financial results. Subs beat XMSR for the 8th straight quarter, even in OEM as SIRI partners also ramped factory installs. Net adds of 525K beat us by 22% and consensus by 33%. Q3 sub results and cost controls support our view of SIRI as an outstanding executer. With FCF breakeven expected in Q4, and sustainable subscriber momentum due to OEM, we believe SIRI shares can outperform the market substantially over the next year, regardless of merger approval. Maintain Outperform.
- Subscriber Results Surprise Again. After beating consensus by 22% last qtr, SIRI's Q3 net adds of 525K, beat consensus of 393K by 33%, and beat our 429K by 22%. Q3 marked the 8th consecutive quarter of share gains vs. XMSR, and the 4rd consecutive quarter of gross add wins. While retail adds of 64K missed our 90K, OEM adds of 463K beat our 343K.
- Solid Financials. Revs of $241MM came in just shy of consensus of $245MM, and our of $244MM. Lower revs were driven primarily by slightly lower Ad and Other revs. ARPU of $10.32 vs. our $10.38 and consensus of $10.35 was in-line. EBITDA loss of ($57MM) vs our ($67MM)E, reflected SIRI's cost controls in R&D, Billing, Ops, and Marketing, offset by slightly higher SAC costs relating to higher gross adds of 999K vs our 885K. SAC of $103 vs our $101 and consensus of $102 was in-line. Churn of 2.1% beat our 2.3% and is below FY07 guidance of 2.2-2.4%. Remaining FY07 guidance was reaffirmed (Subs: 8+MM, Revs: $1B, SAC: $100).
- FCF Breakeven in Q4. Positive in FY08. Mgmt reaffirmed positive FCF guidance in Q4, marking the second time SIRI will be FCF positive (vs. Q4:06).We expect SIRI to be FCF positive for FY08 before satellite launch costs (FM-5). We believe that FCF potential and visibility from OEM installs can drive outperformance even without a merger.
Tyler Savery Position - Long Sirius, Long XM