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Sirius Satellite Radio Inc. (SIRI)
Q3 2008 Earnings Call
November 11, 2008 4:30 pm ET
Paul Blalock - Senior VP, IR
Mel Karmazin - CEO
David Frear - EVP and CFO
James Ratcliffe - Barclays Capital
Bart Crockett - JPMorgan
David Bank - RBC Capital Markets
Kit Spring - Stifel Nicolaus
Tuna Anobi - Standard & Poor's
Joe Stauff - CRT Capital
Todd Lumpkin - Canyon Capital
Good day everyone and welcome to the SIRIUS XM Radio third quarter 2008 earnings call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Mr. Paul Blalock, Senior Vice President of Investor Relations. Please go ahead sir.
Previous Statements by SIRI
» SIRIUS XM Radio Q2 2009 Earnings Call Transcript
» Sirius XM Radio Q1 2009 Earnings Call Transcript
» SIRIUS XM Radio Q4 2008 Earnings Call Transcript
First, I would like to remind everyone that certain statements made during this call, might be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.
These and all forward-looking statements are based on management's current belief and expectations and not necessarily depend upon assumptions, data or methods that may be incorrect or imprecise.
Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For information about those risks and uncertainties more information is contained in SIRIUS XM's SEC filings. We caution listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them.
As we began, I would like to caution our listeners today, that today's results will include discussions of both actual results and pro forma results. The pro forma results we plan to discuss today, will give effect to the merger with XM, as if it had occurred on January 1, 2007.
It will not give effect to the impairment charge, we will be taking in connection with the merger, and it will not give effect to other purchase price adjustments associated with the merger.
Listeners are cautioned to take special care to ensure accuracy in looking at today's report.
I'll now hand the call over to David Frear.
Okay. Thanks, Paul. There is a lot to talk about this quarter. Now I'm not sure that the press release has yet come across the wires. We know it's somewhere out there, so it should be getting to you shortly. We apologize for not getting it out to you before the call.
The SEC closes within the hour today and some of you might know they are closed for Veterans Day tomorrow. So, our Q the whole filing will show up by the opening on Wednesday, and we just wanted to make sure you are aware of that as a result of the SEC being closed tomorrow.
So in the quarter we closed the merger I think we all know that. But the accounting for it is pretty complicated. And as a result, the GAAP financials are going to be difficult for investors to review and make sense of the operating trends in the business.
So as Paul mentioned, we've included pro forma operating results without the purchase accounting and the goodwill impairment effect that are consistent with our historical results as well as with the recent guidance that we've provided to you.
I will spend a few minutes going through those pro forma results, focusing my comments principally on the third quarter. Then I will come back around to discuss the key elements of the GAAP financials, including the purchase accounting and goodwill impairment effects.
Pro forma subscriptions grew 16.5% over a year ago driving the revenue up by approximately 16% or $83 million to total of $613 million for the quarter.
Our adjusted loss from operations excluding merger-related cost, showed a $94 million improvement to a loss of just $9 million in the quarter. If you follow along through the pro forma operating statement, when you get it (hopefully you've all gotten it now), you will see how we got there.
Programming was up year-over-year, but almost fully becomes absorbed in a one-time merger payment of $27.5 million to our programming partner.
Revenue share of royalties, as you might expect, was up $45 million, reflecting the $83 million in revenue growth, as well as the effect of the royalty catch-up from last January's decision of the Copyright Royalty Board, and some of you might remember that that catch-up was reflected in the fourth quarter of last year.
Since in the third quarter we have an overstatement regarding the increase, that will be self-correcting as fourth quarter results come through.
Customer service and billing costs were up, slightly less than the growth in our subscriber base. Sales and marketing costs were down 19% or $18 million. SAC was also down 19% or $30 million, driven by cost efficiencies.
General and administrative cost were down 5% year-on-year, engineering was down 30% year-on-year, and satellite and transmission costs were flat, and that's what we were able to accomplish in the first 60 days of the merger.
So let me talk a little bit about the GAAP financials. There are three things that you should think about here; first, they reflect the operations of the combined company from August 1st forward, meaning that prior year comparisons are tough to sort out because 2007 reflects the operations of SIRIUS only, not of XM.