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XM Radio Predicts Quarterly Loss Even as Its Customer Base Grows

By Cecilia Kang
Washington Post Staff Writer
Tuesday, July 22, 2008

XM Satellite Radio Holdings said yesterday that it expects losses of as much as $38 million in the second quarter and would have to refinance debt as it waits for final regulatory approval of its merger with Sirius Satellite Radio.

The D.C. company also reported that it gained 322,000 subscribers in the quarter, most of whom joined through the sale of promotional radio subscriptions that come automatically with the purchase of some cars.

XM's total subscriber count is at 9.65 million, a 17 percent jump from the corresponding period last year.

The company announced preliminary quarterly results in connection with its sale of $400 million in debt -- a portion of the approximately $1.1 billion in debt that it plans to refinance as part of the merger.

The union of the country's only two paid satellite radio operators is pending final approval by the Federal Communications Commission, a process that has dragged on for more than 16 months.

So far, two of the five FCC commissioners have voted in favor of the merger, with conditions, including price caps and the allocation of digital spectrum for minority programming. The remaining three commissioners have yet to cast their votes, but Democratic Commissioner Jonathan S. Adelstein last week indicated that he would approve the merger if stronger conditions are attached.

XM said that it expects revenue of $283 million to $288 million from subscriptions in the quarter and that about 53 percent of subscribers who signed up through promotions will convert to regular contracts. This, analysts said, would be a key measure of the company's health and show steady growth.

Churn, or the rate of subscriber losses, decreased, to 1.67 percent from 1.84 percent in the second quarter of last year. Second quarter revenue in 2007 was $245.8 million.

Shares of XM rose after the news, closing 6.2 percent higher, at $9.07. Sirius shares were lifted 6.1 percent, to $2.42.

Yet XM's debt burdens and losses show that the company continues to suffer from high infrastructure costs, from operating its satellite technology to expensive programming. The company paid $55 million for its three-year contract with Oprah Winfrey, for example.

Sirius has argued that merging the two companies would save them $400 million by combining their sales, marketing and other operations.

"This shows us that both XM and Sirius need the merger to take place in order to give it a stronger financial position for the longer term," said Frederick Moran, an analyst at Stanford Group.

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