By David “Newman” Phillips

With the Q2 Conference Call right around the corner for Sirius XM (SIRI), speculation has flared about the earnings roller coaster that will be released at 8 AM EST on August 6th, 2009. Some have been trying to estimate subscriber numbers, while at the same time pointing out that they don’t matter because the key measuring stick should be revenue growth. I am completely in agreement here. (I will mention though that I see the company surprising the street with fewer sub losses than predicted. I see them with a loss of 175-225k subscribers)

For those who have read my articles, you know that I like to dig into what Mel Karmazin says at conference calls and pull out hidden meanings, much like I did with the subscription rate hike, which was confirmed by the company only weeks after my story. I have been mulling over a few comments for a while that seem to have gone unnoticed, even by the sharpest of minds over on the Satwaves Message Boards.

Many people will point out the fact that Sirius XM has projected a positive $350 million EBITDA before Capex. I am here to tell you today, folks, that you are mistaken. At NO TIME has Sirius ever projected $350 positive EBITDA before Capex. The projection that you are thinking of was actually $300 million EBITDA before Capex. That projection was made at the 2008 Merrill Lynch Media Fall Preview Conference on September 9th, 2008. Unfortunately, the audio for this conference is no longer available to hear the actual verbiage, but the Sirius press release is still on file (they do NOT mention Capex in the press release though).  However, in the 2008 Q3 conference call, Mel actually changed that projection, though no one really picked up on it. In the transcript on Seeking Alpha, page 4 has Mel stating:

We have been asked when will we be EBITDA positive and not be a user of cash. Well, the answer is now very clear. It is in 2009 when we will have over $300 million of EBITDA. And after all cash expenses, including satellite expenditures, we will not have net cash outflow for the full year ’09. And this positive trend will continue in subsequent years.

So there you have it, straight from the horse’s mouth. As early as Q3 CC, which was held on November 11th 2008, the company knew that 2009 would be a profitable, or at least break even, year including Capex. What does this mean for shareholders? Well, the Q4 Conference Call is where Mel increased guidance, and raised the projected EBITDA to $350 million, and then again in Q1 where it was stated that EBITDA would be “OVER $350 million”. To avoid confusion, I will summarize a timeline:

• September 9th 2008: Merrill Lynch conference – Mel states $300 EBITDA BEFORE Capex.
• Q3 2008 CC: Mel makes the statement above about $300 EBITDA and net cash outflow even WITH Capex.
• Q4 2008 CC: Mel raises guidance to $350 EBITDA. No mention of Capex here.
• Q1 2009 CC: Mel again raises guidance to “above” $350 EBITDA. Again, no mention of Capex.

With revenue increases coming from rate hikes, best of both, internet surcharges, and the Apple (APPL) iPhone app subscribers, would it be prudent to expect Cashflow to increase by (about) the same $50+ million?

I believe it is.

David “Newman” Phillips – LONG SIRI

Contact the author by email at newman@satwaves.com

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