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Sirius Beats Estimates in Last Solo Quarter

The satellite radio operator, which last month closed its merger with XM Satellite Radio, narrowed its loss in its last quarter as a stand-alone company.

Updated from 10:04 a.m. EDT

Sirius XM Radio

(SIRI) - Get Sirius XM Holdings, Inc. Report

reported premerger second-quarter results for Sirius that came in better than Wall Street's expectations, but the company's shares pulled back after the company failed to provide a clear outlook.

Sirius, which closed its merger with rival XM Satellite Radio late last month, reported a loss of $83.9 million, or 6 cents a share, in the first quarter ended June 30. The loss narrowed from a year ago, when the company shed $134.1 million, or 9 cents a share.

Excluding one-time items related to stock-based compensation, the Sirius unit had a loss of 5 cents a share. Analysts were expecting a loss of 7 cents a share, according to Thomson Reuters.

Total revenue rose to $283 million, up 25% from the same quarter a year earlier and slightly better than Wall Street's forecast of $282.7 million.

Despite the earnings beat, Sirius shares were off by 5 cents, or 3.5%, to $1.40 a share. The stock is now lower by 52% for the year.

Cramer: Sirius Post-Merger Action Plan

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On the company's conference call, Karmazin took time to address the decline in the share price even in the wake of the merger completion.

"We are well aware that the stock price has suffered. I am not pleased with the market reaction," he said. "We know we have a great deal of work to do to have shareholders feel the same way as our other stakeholders feel and we take that responsibility very seriously."

Investors were more interested, though, in comments from Sirius CEO Mel Karmazin on his outlook following the long-awaited merger, which closed late last month following approval from the Federal Communications Commission.

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Karmazin said that with the merger completed and the most difficult tasks accomplished, Sirius XM can focus completely on achieving profitability. However, the company did not provide an estimate as to when it would see its first quarterly profit.

On the call, Karmazin also addressed questions over the company's decision to announce a common-stock offering on the same day as the merger with XM was completed. The company said 183.6 million shares would be offered at a fixed price of $1.50 each. The terms of the offering call for Sirius to lend the stock to affiliates of Morgan Stanley and UBS, and the shares will eventually be returned.

On the same day, XM announced plans to offer $550 million of senior notes, due in 2014, which will be exchangeable into shares of Sirius common stock

"While the financial markets have been very unattractive, Sirius and XM were very successful in raising $700 million in new high-yield debt," he said. "Not many high-yield companies have recently tapped the markets, and we are pleased that we were successful in getting our transaction financed."

Looking ahead, in a worst-case scenario that assumes only 12 million cars are sold in the U.S. in 2009, and that Sirius XM would have a 50% installation rate and 50% conversion, the company would see 3 million new subscribers with over $350 million in new annual revenue.

"Although any slowdown in auto production could impact us, the increase in the production penetration rate is very good for the long-term business model of satellite radio," Karmazin said.

Karmazin also said that Sirius XM will offer the first interoperable radios well before the FCC's deadline, which will pass in nine months. Karmazin added that having an interoperable radio at retail would help eliminate consumers' confusion over which receiver to purchase. However, as automakers decide what gets installed in their vehicles, it could take three years or more until interoperable radios are available in cars.

In its earnings release, Sirius said it ended the quarter with 8.92 million subscribers, compared to 7.14 million at the end of the same quarter a year ago. The company said that increase was driven by a 53% year-over-year increase in the number of gross additions through its automotive, or OEM, channel.

When combined with the 9.65 million subscribers XM said it had at the end of the second quarter, the newly formed Sirius XM Radio has more than 18.5 million subscribers.

Among key metrics watched closely by analysts, average revenue per subscriber, or ARPU, fell to $10.49 from $10.71 in the year-ago quarter. At the same time, average monthly churn, which measures the number of subscribers who quit the service, grew to 2.8% from 2.1% in the second quarter of 2007.

On the positive side, subscriber acquisition costs shrank 27% to $78 from $107 last year.

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