Sirius (SIRI) has about $352 million in cash and $1.1 billion in debt. Over the first nine months of 2006, the company had an operating loss of $831 million on revenue of $448 million.
The company has said it will be cash-flow breakeven for Q4 06, but holiday season sales drive much of that, and the company could easily be using cash again in 2007. And, as Morningstar points out: "Warrant grants to strategic partners, content providers, and Sirius’ convertible debt have created substantially more potential dilution for shareholders". In other words, shares outstanding could rise sharply.
According to the company 10-Q, the Sirius net flow cash from operating activities actually increased in the first three quarters of 2006 to $859 million up from $552 million in 2005. And, much of the company’s debt is due in 2008 and 2009. The company’s cash interest payments in 2007 are almost $66 million. fixed content and programming costs are over $120 million and marketing programs $52 million.
And, Sirius has some further risks. One is that the music companies will ask for higher royalties as the Sirius subscriber base increases. Another is that its satellites have experienced circuit failures. Another is that the cost to acquire a gross subscriber has fluctuated over the last several quarters. In the latest period, the number was $114. In the June quarter, the number was $131. In March, the number was $113.
Gross subscriber additions dropped each quarter from December 05 to September 06. The numbers: 12/05 at 1,267,000, 3/06 at 961,000, 6/06 at 830,000, and 9/06 at 732,000.
The net of all this is that Sirius could run through its remaining cash sometime this year. A refinancing of the company could drive up debt and/or significantly dilute shareholders again.
Since 2000, the price of Sirius shares has dropped from $69 to the current $3.57. And, with high debt and a large cash burn, the race to $0 is on.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
Want to Retire Early? Start Here (Sponsor)
Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?
Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.
Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
