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Earnings chi hair straightener Call Transcript

Q1 2008 Earnings chi hair straightener Call Transcript

At this time, I would like to turn the conference over to Paul Blalock, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon everyone, and thank you for your participation. This afternoon Mel Karmazin, our CEO, joined by Jim Meyer, President of Operations and Sales; and Scott Greenstein, President of Entertainment and Sports, will review our first quarter financial results and operational accomplishments. David Frear, our EVP and CFO, will then Replica Bags discuss our financial results as outlined in our press release this afternoon. At the conclusion of our prepared remarks, management will be glad to take your questions.

First, I would like to remind everyone that certain statements made during this call might be forward looking 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 beliefs and expectations and necessarily depend upon assumptions, data and 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’ SEC filings. We caution listeners not to rely unduly on forward looking statements and disclaim any intent or obligation to update them.

I will now hand the call over to Mel Karmazin for his opening remarks.

Thanks, Paul. Good afternoon and thank you all for joining us today. Once again, SIRIUS had another quarter of very good subscriber growth, strong revenue growth and solid cost control. That is the good news, however, the bad news is we are still awaiting regulatory approval for our pending merger with XM. I will have more to say about the merger at the end of the call, but I would like to now focus on the first quarter results.

SIRIUS continues to execute very well on our operating plan. In the first quarter of 2008, SIRIUS achieved our financial goals and continued to grow revenue dramatically with only modest expense growth. Highlights of the first quarter results include a 33% increase in revenue to $270 million. Results were driven by record gross subscriber additions during the first quarter of over 1 million.

First quarter 2008 growth of 322,000 net new subscribers drove a 31% increase in our ending subscriber base to more than 8.6 million subscribers, up from 6.6 million a year ago. We believe this growth of over 2 million net subscribers is very strong in light of the prolonged merger approval and its impact on retail ales, lower production from automakers and a challenging economy. The ability to add over 2 million subs from Q1 ’07 is a reflection of our strong content, consumer acceptance of our brand and exceptional execution by all of our partners.

First quarter 2008 results also demonstrated excellent cost control with cash operating expenses increasing only 8%. Again, 33% revenue growth with 8% growth in cost demonstrates the leverage in our business. Further, the adjusted loss from operations improved 55% as compared with first quarter of 2007.

Turning chi hair products now to the auto sector, only three years ago, in 2005, SIRIUS production penetration rate was approximately 10% of our exclusive OEMs total production. That figure is expected to grow to over 50% this year and is poised to rise even higher over the next few years. In particular, we are excited about the upcoming increase in production penetration at Ford, going from 40% to approximately 70% starting with the 2009 model year. We expect to see the beginning of the impact of this very significant increase in penetration in the third quarter of this year. As you know, we have long term agreements with our OEMs that will ensure substantial sub growth for many years to come.

In future years, just doing the simple math, SIRIUS’ partners share of total US auto production, which we will assume after this year, is $16 million; this year we are expecting it to be below $16 million, We are assuming going forward a $16 million, times our blended forecasted penetration rate, you get over 4 million gross OEM adds per year. We believe this to be a very realistic number and one that demonstrates the strong future prospects for SIRIUS.

On the retail front, SIRIUS continues to outperform albeit in a softer than expected environment. Contributing to this softness is the merger related confusion, which our aftermarket partners are telling us they are seeing. We also continue to invest in growth strategies in the aftermarket by working closely with the certified pre owned programs of our automakers and with large used car dealers.

Beginning in Q4 2005 and continuing for 10 consecutive quarters, SIRIUS has attracted the majority of the growth in total satellite radio subscribers. According to NPD Group, SIRIUS achieved a 63% share of satellite radio after market sales during the fourth quarter of 2008, up from 62% one year ago. SIRIUS is continuing to increase market share.

We also have a strong marketing program currently underway to stimulate our aftermarket sales. The campaign is focused on TV and newspapers and a design to enhance consumer awareness of The Best Radio on Radio and drive traffic into retail as well as to our own DTC store. We believe the best way for consumers to spend our government stimulus package rebate check is to buy SIRIUS.

In summary, SIRIUS continues to execute extremely well. We are growing subs, growing revenue, controlling costs and continuing to pick up market share. We think that is a real good story.

I would like to turn it over to Jim now, and I would return to say a few additional words before we take your questions.

Thanks, Mel. We are pleased with SIRIUS first quarter results and we are well positioned for the remainder of the year. As Mel discussed, we reported 322,500 net additions in the first quarter, bringing our total subscribers to over 8.6 million, a 31% increase from the same point last year. Net additions were driven by OEM growth, and we are pleased with our gross addition performance, which saw an increase to just over 1 million in the quarter.

On the aftermarket side, we met share goals for the quarter, which according to the NPD Group was 63%. However, the overall satellite radio market continues to be soft. Overall, SIRIUS subscribers increased 10% in the aftermarket to 4.6 million chi hair straighteners as compared with last year’s 4.2 million.

We see some evidence in the market place that the prolong merger approval is not feeding consumers purchase decisions. While we maintain realistic models for the aftermarket Cheap Replica Handbags channel, we continue to believe a significant opportunity to innovate and growth in the long run exists in the aftermarket business.

We recently launched our second quarter 2008 retail promotion, which includes the Father Day’s period. With the purchase of a $50 subscription card, consumers can obtain a discount on their radio purchase. They are also eligible for an additional discount on professional installation. This basic structure will serve as the model for our future promotions, requiring the purchase of a prepaid subscription to obtain the benefits of hardware and installation discount. We believe this strategy will enable a more profitable and stable subscriber.

In the OEM channel, SIRIUS performed well in a very difficult and challenging auto production environment, with ending OEM subscribers up 72% over the last year. As you know, we recently extended several of our OEM relationships and are excited by the production penetration targets of 70% above Chrysler and Ford.

Chrysler’s actual 2008 model year production has been running above 70%, beginning with the 2008 model year, which began in the third quarter of 2007. Ford should reach a similar level with its model year 2009 vehicles in this year’s third quarter.

While we are excited about these higher penetration rates and those of our partners such as Mercedes at 90% and Audi and VW at 80%, this is not to say Wholesale Replica Handbags the first quarter was without challenges. Chrysler in particular lost market share and significantly reduced its production to more efficient levels. Both of these factors negatively impacted us in the quarter. Ford and other automakers largely performed in line with our cautious expectations.

In addition to new car production, we are also excited about the opportunity that certified pre owned or second owner vehicles will offer to our business.

Having just launched the Ford certified pre owned program, we look forward to rolling out a CPO program with most of our key partners throughout the year. At this point, the number of gross ads that we generate through these programs is limited; however, the opportunity to capture at very attractive economic significant numbers of subscribers in this category will grow over the near term as many vehicles are now entering the second owner population.

I believe there is also some good news in overall inventory positions, which are in good shape in both the aftermarket and OEM channels. The automakers are generally not carrying excessive inventories and we, along with our retail partners, are running very cleanly in the aftermarket channel. All else equal, I believe this is good for both net subscriber addition and SAC per gross add trends going forward.

Our churn performance in the first quarter was 2.7%. The increase in rate was largely attributable to a significant increase in renewal opportunities, driven by our rapid OEM growth over the last year. While overall OEM conversion rates were relatively unchanged, churn from conversion increased significantly due to volume.

Self pay churn was also impacted by the high number of annual renewal opportunities in the first quarter, particularly in January. We are very focused on churn. Let me say that we are investing in several churn reducing strategies and expect to continue to see improved self pay churn benefiting from these programs later this year.

Another important metric in the business is overall SAC, which despite the significant mix shift towards OEM growth still improved 10% over the last year to $91. Both aftermarket and OEM SAC continue to improve due to lower costs and improved inventory management. Thus, we expect further improvement in SAC in the future.

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