XM reduces loss, focuses on OEM


Departing XM Satellite Radio CEO Hugh Panero said comments at the FCC are running 4-1 in favor of the company's pending merger with Sirius and he reported a lower quarterly loss in his final conference call with Wall Street analysts. Q2 revenues were up 22% to 277 million. That gave XM an operating loss of 108 million, up only modestly from 101.7 million a year earlier.

Turning to the subscriber numbers, Panero noted that XM now has three million OEM installs who have become self-paying subscribers. "Overall, conversion improved and churn remained stable," he said of the most recent quarter.

Having already announced that he will leave next month, Panero looked back with pride on his tenure. "When I first came to XM it was only a PowerPoint presentation, with many skeptical that anyone would ever pay for radio. Today, with over 8.2 million XM subscribers, and over 14 million for the industry as a whole, satellite radio is here to stay," he said. Panero said the merger with Sirius is the right move for XM and noted that "there can only be one CEO," calling Sirius CEO Mel Karmazin "extremely capable."

Picking up the baton, President and soon-to-be-interim CEO Nate Davis said XM is increasingly becoming OEM-centric. He expressed confidence that the merger with Sirius will win regulatory approvals in late 2007 or early 2008, but in the meantime he will continue working to build the subscriber base and improve XM's financials.

SmartMedia observation: Wall Street was generally satisfied with the Q2 results. Bank of America analyst Jonathan Jacoby noted that the retail channel remains weak, but that OEM sales were slightly better than expected as conversion improved. He also noted, though, that churn was a bit worse than his estimate. Jacoby said the stock price seems to suggest that the chance of the merger winning regulatory approval is 45-50%, but he said that is more optimistic than what he's hearing from his DC contacts. At Goldman Sachs, Mark Wienkes pronounced XM's results in line with expectations. He said his contacts see a 30% chance of merger approval. Morgan Stanley analyst Benjamin Swinburne said XM's Q2 results "fell broadly in line with our expectations. He noted that XM has burned through 220 million of cash in the first half of 2007, but he expects that cash burn to slow in the second half.