The conference call of Sirius XM Radio 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 today 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 today 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 $(36.8)million, $(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 today 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 reiterate 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 today 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 believe 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 a 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.