Satellite Radio Firms Issue Warning Thu Aug 15, 4:03 PM ET
By SIMON AVERY, AP Business Writer
The nation’s two satellite radio companies are racing to line up new financing before they run out of cash next year â€” just a short time after launching nationwide services offering scores of digital channels to motorists.
Shares of Sirius Satellite Radio plummeted nearly 44 percent Wednesday, to 76 cents, after the New York-based firm said it was not signing up subscribers as fast as predicted.
Shares of Washington-based rival XM Satellite Radio Holdings fell more than 4 percent to $2.89.
Both companies warned investors about low cash positions in filings with the Securities and Exchange Commission ( news – web sites) this week.
On Wednesday, XM Satellite said it would run out of cash in the first quarter of next year and would have to discontinue operations if it did not raise additional funds.
Chance Patterson, XM Satellite’s vice president of corporate affairs, declined to say how much the company needed to raise by early next year, but said the company expected to break even by late 2004 or early 2005.
Unlike Sirius, XM Satellite has exceeded early subscription forecasts. Since launching nationally in November, the company said it had signed up 136,000 customers at the end of June â€” compared to an anticipated 130,000.
XM Satellite remains on track to report 200,000 subscribers at the end of the current quarter and 350,000 subscribers by the end of the year, Patterson said.
On Tuesday, Sirius reported that it needed to raise another $300 million by mid-2003 and warned it might have to file for bankruptcy protection without the cash injection.
“The issue is can we get the money,” said Sirius spokesman Jim Collins. “The concern is that the environment is so negative that analysts have concerns that the industry cannot raise that money.”
But Collins insisted that Sirius’ business plans are on track, even though subscriber growth failed to meet expectations in the last quarter.
This week Sirius cut its year-end target to 75,000 customers, down from an earlier forecast of between 100,000 and 150,000.
Making matters worse, some analysts said Sirius is burning through its remaining $300 million faster than expected.
“Cash burn is running somewhat higher than we have been expecting,” John Stone, an analyst with Ladenburg Thalmann wrote in a report. “This higher cash burn highlights the importance of securing funding for the company.”
Among the financing options Sirius is considering is a debt-for-equity swap, or an additional equity investment by Blackstone Group and Apollo Management or other major equity holders.
In a report entitled “Listen Up â€” Get Out While You Can,” Merrill Lynch analyst Marc Nabi said all paths will “lead to significant dilution to current equity holders should funding ultimately become available.”
Collins said Sirius’ growth has been hampered by supply constraints that occurred after the company pushed its nationwide launch ahead one month to July 1. Consumers will find the satellite radio kits easier to buy as Panasonic and Audiovox introduce receivers later this year, on top of three existing independent brands, he said.
“We feel it’s a product awareness issue,” Collins said.
Sirius spent $1.9 billion on its network of three satellites and 92 land bases that transmit some 60 channels of commercial-free music and some 40 channels of talk and children’s programming.
The company charges $13 a month for its service, which requires an upfront consumer investment of at least $250 for a receiver, antenna and radio. On Tuesday, Sirius reported a second quarter loss of $124.6 million, or $1.62 per share, on revenue of $70,000.
XM satellite spent about $1 billion on its satellite and ground station network. The company charges a monthly fee of $10 for access to more than 100 channels, although the service is not commercial-free.