The Sirius conference call is scheduled for Tuesday morning at 8:00 AM before the market opens. Since Mel Karmazin arrived at the company, the policy has been to conduct conference calls at this time slot, so there is nothing new here. What is new is that this is the first time that Sirius will report prior to XM under Mel.
I almost hate to say this, but the metrics and the performance of the company are not what everyone is waiting on. It is the merger. Plain and simple. This can also be observed in the analyst community, where pre-call reports were more scarce than normal, and not many are getting into the nitty gritty of the company performance.
I look for Sirius to maintain a positive outlook on the merger, and state strongly that the companies are committed to this. Because neither the DOJ nor the FCC have announced anything, I would not expect much in the way of revelations regarding the merger subject. While this may disappoint some, it is the way things have to be done. We may not even see as much for 2008 guidance as we would like, and that may leave the sector with just as many question marks after the call as before it.
The interesting metrics that people will want to pay attention to is the OEM channel, cash burn, satellite build and launch status, and the costs to acquire subscribers. Sirius has already announced the subscriber number, and has already disclosed that Churn came in at the low end of the 2.2% to 2.4% range that was previously given as guidance. Sirius also stated that the Free Cash Flow situation was substantially better than last Q4 (the company banked $36 million in Q4 last year).
The company will take a bit of a hit on the royalty rate. the issue was resolved in arbitration, and the settled rates were slightly higher than what Sirius had previously been setting aside.
The street is estimating a loss of 13 cents. The high for the loss is 17 cents, while the low is 11 cents.
Investors should expect some quarter over quarter comparisons to be a bit down. In particular, investors should look at metrics that tie to the OEM channel. ARPU will likely be held down due to cars that have deferred revenue attached, but the car is not yet sold. The retail channel was weaker in 2007, and the holiday sales were not as brisk as years past. The mix between retail and OEM on the gross subscriber pool has shifted, and will become the new standard by which these metrics should be considered.
The street is expecting revenues of about $267 Million. Some analysts have a number as high as $289 Million, and as low as $249 Million. I would expect the number to fall in the $267 to $271 Million range.
I look for marketing costs to be tempered as compared to last year. Neither company seemed to have been as aggressive with advertising as they had been in years past. They maintained exposure, but did not go overboard.
One change from 2006 to 2007 will be the cost that was attributable to a bonus for Howard Stern. Stern received a bonus for 2006 in January of 2007. Costs for the bonus were anticipated throughout 2006 and set aside. Thus there was little impact in 2007. Sirius stated in January of 2007 that Stern would have substantial targets in order to get a bonus for 2007. Those targets, as I anticipated, were not met, and no bonus was paid.
In my opinion we will see an average call highlighted by little if anything new on the merger front. The lack of merger news will disappoint the street, but at this point there is little that can be done. The merger is in the hands of regulators. Guidance will be very conservative in my opinion, with perhaps some metrics left off the table altogether. Again this is something that will be disappointing to the street.
Thus, not only will investors have to wait on merger news, they will also have to wait on meaningful guidance.
Position - Long Sirius, Long XM