XM Satellite Loss Widens, Stock Falls 21 Pct
Thu Aug 7, 8:41 PM ET
By Sinead Carew
NEW YORK (Reuters) - XM Satellite Radio Holdings Inc. on Thursday posted a wider second-quarter loss as one-time charges overshadowed strong subscriber growth, sparking a 21 percent drop in its stock.
While the results met expectations, investors were concerned about a dispute with XM's insurers and confused about the timing of satellite launches, said Janco Partners analyst April Horace.
"My take on it is it's very early in the process with respect to negotiating," Horace said, referring to the insurance dispute.
XM, in the nascent market for mostly commercial-free radio to drivers and in portable devices, said insurers have denied claims worth about $400 million related to a technical problem with solar power equipment on two satellites.
While Horace said she expected the 2004 launch, at least two analysts were unsure about the launch date. XM spokesman Chance Patterson said XM announced the launch date in public filings as recently as June.
The company reported a net loss of $164.3 million applicable to common shareholders, or $1.38 a share, versus a loss of $122.4 million, or $1.38 per share, last year. Outstanding shares rose to 119 million from 89 million a year ago.
Analysts, on average, expected a loss of $1.26 a share, according to Reuters Research, a unit of Reuters Group Plc.
Revenue rose to $18.3 million from $3.8 million.
XM said subscribers totaled 692,253, a jump of 43 percent from the first quarter and from 136,718 a year ago.
On a conference call with analysts, XM renewed its projection of 1.2 million subscribers by year's end. It also reaffirmed its full-year revenue target of $85 million and a forecast of a loss of $295 million before interest, taxes, depreciation and amortization.
The Washington-based company still expects to reach cash flow break-even in late 2004.
XM said it had contracted to launch a spare satellite, XM-3, in the fourth quarter of 2004. It also contracted with aerospace company Boeing Co. to construct a new spare satellite, XM-4, to be completed in the fourth quarter of 2005.
The cash outlay for XM-3 will not hit until the fourth quarter of next year, and spending for the XM-4 will not occur until the first quarter of 2005. XM said it signed a contract with Sea Launch to send off the later craft.
It said in the call it would need to spend about $190 million on the first satellite, including a loan agreement with Boeing and about $130 million on the second.
It said it would have settlement discussions, arbitration or litigation, if needed, to recover the losses.
XM shares tumbled $2.75 to close at $10.52 in afternoon trade Thursday on the Nasdaq. Shares of Sirius Satellite Radio Inc., a rival, were also weak, slipping 17 cents, or 10 percent, to $1.53.
The latest quarter included $25 million in charges for debt retirement and conversion and stock-based compensation as well as another charge for depreciation related to satellite life.