‘Key Elements’ Being Assembled for XM’s Canadian Commercial Launch
“Significant progress” is being made “assembling the key elements” needed for an XM commercial launch in Canada, CEO Hugh Panero told analysts in the company’s 3rd-quarter conference call Thurs. XM Canada has begun hiring senior management and is mapping plans for studios in Montreal and Toronto and a nationwide terrestrial repeater network, Panero said. XM Canada also is working on “key distribution arrangements” with prominent retail partners in Canada, including Best Buy’s Future Shop and the Source by Circuit City, the former Intertan chain. Panero gave no timetable for a Canadian launch.
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Superlatives flowed freely from XM senior executives, who described a 3rd quarter in which they said new subscriber records were broken even in comparison with other subscription-based businesses. XM said it ended the quarter with 5,034,642 subscribers -- double the 2,516,023 it reported for the same quarter a year earlier. Net loss for the quarter was $131.9 million vs. a $118 million loss in the 2004 quarter. Revenue climbed 134% to $153 million. Panero said XM continued to practice “smart” subscriber growth vs. a strategy of “growth at any cost.” As evidence, he said, cost per gross addition in the quarter remained $89 -- unchanged from the same quarter a year earlier.
XM had net subscriber additions of 617,152 in the quarter, slightly fewer than the number added in this year’s 2nd quarter. XM conceded there was a slight downturn in the conversion rate of new subscribers under its activation program with General Motors, resulting from XM’s decision recently to raise its basic monthly subscription fee to $12.95 from $9.95. But senior executives said they expect conversions to rebound to rates that preceded the fee increase.
XM’s retail and OEM channels each contributed about of the net subscriber additions in the quarter, Panero said. He said in the OEM sector, where XM enjoys a clear competitive advantage, the company’s 2 biggest partners, GM and Honda, plan to ship a combined 2 million vehicles next year with XM capability. Panero was somewhat less sweeping in his claims that XM “outperformed” Sirius in retail sales during the quarter, saying “all indications” were that it had. Retail sales data for the quarter should be available shortly, but XM captured 63% of net subscriber additions in the quarter, virtually unchanged from recent quarters, Panero said.
Other Panero disclosures: (1) Any delay in shipments to first quarter next year of Samsung’s MP3 players with XM functionality won’t materially affect XM’s 2005 results. Panero said XM always had assumed quantity shipments of Samsung’s devices wouldn’t begin until first quarter 2006, although it was hoping some would reach retail shelves in time for this Christmas. (2) XM has been told by Delphi there will be “no disruption” in 4th quarter supply of XM receivers due to Delphi’s recent Chapter 11 filing. (3) Vouchers for a free Roady XT receiver were handed out to about 40,000 fans attending Game One of the World Series in Chicago. Panero said XM also had taken a billboard ad in the left field area of Comiskey Park and expressed delight that members of the Chicago White Sox had used the billboard as “a bulls eye.”