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Thread: A Small Warning

  1. #1
    TSavery is offline
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    A Small Warning

    As we all know, Sirius XM has guided to $350 in positive adjusted EBITDA in 2009. This news was well received by all.

    the warning is that these figures are based on annualized sales of 9 million cars in the OEM channel. Right now the annualized pace in the OEM channel is 10 million.

    Yes, the more cars that sell, the bigger the sub number will be, but these installations have a COST side as well.

    if annualized sales recover, and appraoch 11 million, Sirius XM will be laying out cash to pay for installations. This needs to be considered. the OEM channel costs money to participate in, and investors need to bear in mind those costs.

    This is not to say that more car sales is a bad thing. It it to get people to better understand the dynamics of the OEM channel, and how cash and other metrics are impacted.

    i am not saying that the $350 million guidance will fall by the wayside. What I am saying is that if it does, one main factor will be a bigger ramp in the OEM channel because car sales are recovering.

    In the same way that slow car sales are good for SIRI in the short term, but bad in the long term, Quickly improving car sales can be bad short term but good long term. Investors simply need to be prepared and pay attention to the OEM channel.
    Tyler Savery
    Satellite Standard Founder

  2. #2
    trippingthespeculatingpos is offline
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    yeah tyler, i see what u are saying, but i also hope mel kept this in mind cause even i knew sales would get back in the 10 millions. they are on track for well over 400 million if they can keep on track with 1qtr performance. that gives me hope that if the increase starts to effect their bottomline short term it wont be bad enough to cause them to fall as far as to come under 350mm

  3. #3
    Sirius Roadkill is offline
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    Quote Originally Posted by TSavery View Post
    As we all know, Sirius XM has guided to $350 in positive adjusted EBITDA in 2009. This news was well received by all.
    the warning is that these figures are based on annualized sales of 9 million cars in the OEM channel. Right now the annualized pace in the OEM channel is 10 million..
    Excellent discussion point! (I am actually thinking that annualized sales will be closer to 11mm)

    Here is the question, however (I think raised by john the other day):

    What are the terms of the new GM deal (surely more favorable as to subsidy) and when does the new deal take effect? Did the new deal supersede the existing deal at the time of signing?

    Shedding the weight of the bad GM deal should temper the expected higher front-end costs on an improved OEM channel . . one would think.

  4. #4
    JohnnyIrishXM is offline
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    Quote Originally Posted by TSavery View Post
    As we all know, Sirius XM has guided to $350 in positive adjusted EBITDA in 2009. This news was well received by all.

    the warning is that these figures are based on annualized sales of 9 million cars in the OEM channel. Right now the annualized pace in the OEM channel is 10 million.

    Yes, the more cars that sell, the bigger the sub number will be, but these installations have a COST side as well.

    if annualized sales recover, and appraoch 11 million, Sirius XM will be laying out cash to pay for installations. This needs to be considered. the OEM channel costs money to participate in, and investors need to bear in mind those costs.

    This is not to say that more car sales is a bad thing. It it to get people to better understand the dynamics of the OEM channel, and how cash and other metrics are impacted.

    i am not saying that the $350 million guidance will fall by the wayside. What I am saying is that if it does, one main factor will be a bigger ramp in the OEM channel because car sales are recovering.

    In the same way that slow car sales are good for SIRI in the short term, but bad in the long term, Quickly improving car sales can be bad short term but good long term. Investors simply need to be prepared and pay attention to the OEM channel.
    Tyler good point to remember and discuss,but i Believe it won't affect the guidance at all,even 11 mil annualized...your forgetting the new rev stream of roughly 36 mil this year friom present 700k best of at $4 a pop,plus on-line fee 0f$2.99 for unknown subs at this point,but sure to skyrocket to $50 mil min when I-Phone app is in play..and the supposed used car market no SAC cost additions other than legacy cost to OEM for radio's..also supposed royalty hike fee to self pay month to monther's only....Have you heard about this?

  5. #5
    LIBOR/TED SPREAD is offline
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    "if annualized sales recover, and appraoch 11 million, Sirius XM will be laying out cash to pay for installations."

    What if these installations are ALREADY paid for? Supply,Supply,Supply. Tons of cars are sitting on lots with SIRIXM already installed, just cause car sales pick up does not mean more cars are being produced. The car business is in the process of "right sizeing"

    Now there is a difference between CASH FLOW and EBITDA and this is where I am lost.

    Example...
    Car produced in Q408 CASH is spent on installations hurts Q4 CF and hurts ARPU until car sells. Car sells in Q209, now helps ARPU how does it effect CF & EBITDA?
    Last edited by LIBOR/TED SPREAD; 06-06-2009 at 09:43 AM.

  6. #6
    relmor2003 is offline
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    GM counts the promo sub at sale(radio is already in it). Chrysler isnt asking for new radios. Due to the backlog in these makers, I dont expect their bottom line to be affected much, if at all. Increase will come from already installed cars, IMO. (cars that must be sold on lots going out of business. This may actually be the cheapest cost surge vs. promo sub count ratio wise in a very long time for this company. Time to get those radios already installed or sitting out in the market for exposure now. This might hurt them more in Q3 or Q4.

  7. #7
    relmor2003 is offline
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    Quote Originally Posted by LIBOR/TED SPREAD View Post
    "if annualized sales recover, and appraoch 11 million, Sirius XM will be laying out cash to pay for installations."

    What if these installations are ALREADY paid for? Supply,Supply,Supply. Tons of cars are sitting on lots with SIRIXM already installed, just cause car sales pick up does not mean more cars are being produced. The car business is in the process of "right sizeing"

    Now there is a difference between CASH FLOW and EBITDA and this is where I am lost.

    Example...
    Car produced in Q408 CASH is spent on installations hurts Q4 CF and hurts ARPU until car sells. Car sells in Q209, now helps ARPU how does it effect CF & EBITDA?
    I didnt read your post when I already wrote mine. I assume the costs are added upon delivery, not upon activation. Am I assuming wrong? Tyler, when do the costs of this radio become a liability on their sheet? Basically, those radios in GM cars and Chrysler and Ford right now.

  8. #8
    imromo24 is offline
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    thanks for discussing this tyler, I actually brought this up >here <link to post) and in the news article posts.


    To me it would seem to be a good thing that they have a new deal that is better, obviously take away something negative you would end up with something positive.

    I was trying to stop everyone from debating the GM BK with the old deal, because its not going to be the same.

    Questions might be:

    1. When does it go into effect.
    2. When will we know the details.
    3. How does increasing car sales affect already given ebitda and FCF numbers etc.

    Thanks for Posting this as a warning to the shareholders also, because if we miss EBITDA numbers that is going to shock our price whether it should or not thats the nature of MSM and SXM.

    I have to believe that Mel knows all this already, and saying $350MM ebitda not only include GM BK like he said, but also the new deal they worked out. Does anyone know the timing of Mel saying $350MM, the new SXM GM deal and GM announcing BK. I think it was in the order i wrote it.

    I will now go re-read the above analysis'.

  9. #9
    homer985 is offline
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    Quote Originally Posted by relmor2003 View Post
    I didnt read your post when I already wrote mine. I assume the costs are added upon delivery, not upon activation. Am I assuming wrong? Tyler, when do the costs of this radio become a liability on their sheet? Basically, those radios in GM cars and Chrysler and Ford right now.
    XM doesn't provide the radios to GM... GM buys them from XM suppliers.

    In return, GM gets a guarantee payment from XM (which XM has already paid for the term of the contract... but they are amortizing it monthly through the life of the contract).

    GM also gets several payments for the installation... first, they get an installation commission -- for every installed vehicle, once it is sold. Second, after the trial period is over, for those that "takeup" the service, GM gets a subscriber bounty that is paid 50% if they takeup the service and the other 50% if they continue the service past the first 30 days.

    Plus, XM has some royalties that are paid to the chipset and other manufacturers at the time the vehicle is sold as well..

    Altogether, it is believed that GM gets approximately $100 or so, for every installed car that is sold. The charge is AFTER it is sold, not when it is manufactured.

    GM also takes 50% of all revenue generated by "their" subs.

    So if GM sales go up, so do costs to XM



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  10. #10
    homer985 is offline
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    Tyler, keep in mind that if Sirius does decide to do the "pass through" expense of the SoundExchange royalty starting in August... then I estimate that it will cut approximately $150-160MM of royalties out of the NET Loss for the year... as well as improve EBITDA by the same amount.

    For 2010, the costs would be cut by $370MM or so.



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