Earnings: Sirius Q2 Loss Narrows; Subs Up 25 Percent; A Long Wait On Full Unification

imageFor its last quarter as a standalone entity, satellite radio operator Sirius (NSDQ: SIRI) grew revenue 25 percent to $283 million, with subs increasing to 8.9 million, 25 percent more than a year ago. Adjusted net losses narrowed to $23.8 million from $79.3 million. SAC per gross fell 27 percent to $78. ARPU ticked down slightly in the quarter to $10.49 to $10.71. The bottom line: Like XM (NSDQ: XMSR), Sirius had a decent quarter. But there’s a ton of work left to be done to make the marriage a profitable and sustainable one. Meanwhile, in a signal that he has some skin in the game, so to speak, CEO Mel Karmazin recently picked up 2 million shares at the bargain basement price of $1.37. We’ll catch the webcast for commentary about the freshly consummated deal. Lots more after the jump

Release | Webcast (8:00 AM ET)

Conference call: Everybody is happy with the merger so far (subscribers, talent, etc.), says CEO Mel Karmazin, except: “The only group that should not be pleased so far is our shareholders.” With shares at $1.45, that’s clear. Quickly taking over, CFO David J. Frear sought to explain how close the combined company is to going positive cash flow: “If the merger had been approved a little bit earlier, and we had delivered only half of the synergies we had committed to deliver, (this) quarter would have had positive EBITDA.” The company has said it will deliver $400 million in merger-related synergies in 2009. On competition fears, Frear said its already here: “Despite facing all those challenges in the last couple of quarters, Sirius delivered record quarter gross ads”

Back to Karmazin who rattles off more stats. Impressive five-year growth rates (faster than cell phones). Sirius XM is the second biggest radio company after ClearChannel (NYSE: CCU). And on upside he noted: “90 percent of homes are paying for television service. Today, only 20 percent of homes pay for radio.”

Addressing the difficulties the company faced, Karmazin discussed the company’s latest debt financing, secured at the same time the merger was approved. While there was some concern over the terms of the debt, Karmazin felt that it was worth it to just get the financing closed, rather than let things play out: “Regulatory approval took too long… (we had) reason to believe that some who opposed the merger would run to court.” As for his own share purchase, he noted that he’s been enjoined from buying shares for the last two years, since discussions with XM began. As for product plans, look for something in the fourth quarter that combines the “best of both packages.”

Automakers: Lots of concern on the call about the health of the US automakers. Karmazin insists that however bad things get, the automakers are still dependent on satellite radio for the “cool factor” and for the recurring revenue streams. Even if only 12 million cars were produced, and satellite was pre-installed in only 50 percent of models, you’ll still add $350 million in extra revenue each year, per Karmazin’s math.

Marketing: Marketing plans haven’t been finalized, but reducing customer confusion is a big priority. Retailers have been reporting customer confusion, a la next-gen HD video.

Interoperability: There’s a strong business case for interoperable systems, so expect to see some type of interoperable package soon. On the other hand, it will probably take three years or so for the automakers to build these new devices into the dashboard. And it will be a long time before there are synergies on the technical side. The $400 million in first year synergies don’t assume any satellite or IT integration. Two sets of satellites will need to remain in operation for quite some time to come. The real point here: it will be a long time before the two fully become one.