XM Satellite Radio Holdings Inc., which last week announced plans to combine with rival Sirius, said Monday a 45% jump in revenue and a tighter leash on marketing costs helped narrow its fourth-quarter loss.
The Washington-based company, which has never reported a profit, said it lost $263.1 million, or 90 cents per share, after paying preferred dividends in the final three months of 2006. That beat a loss of $270.4 million, or $1.22 per share, a year ago.
The fourth-quarter loss includes a one-time charge of $57.6 million to reflect the declining value of XM's 23% stake in Canadian Satellite Radio. Excluding that one-time charge, XM lost 70 cents per share, a penny better than the consensus estimate of Wall Street analysts surveyed by Thomson Financial.
XM shares rose 10 cents, or 0.7%, to $15.20 in midday trading on the Nasdaq Stock Market.
Quarterly revenue increased to $257 million from $177 million a year ago.
XM finished the year with 7.6 million subscribers, a 29% increase from a year ago, when it had 5.9 million. But XM had predicted at the beginning of 2006 that it would have 9 million subscribers at this point.
Subscriptions slowed as smaller competitor Sirius, which added Howard Stern to its programming lineup, took an increasing share of the market, particularly on radios sold through retail outlets as opposed to those installed in automobiles at the assembly plant.
For the year, XM lost $732 million, or $2.70 per share, compared to a loss of $675 million, or $3.07 a share, in 2005. But annual revenue increased 65% to $933 million from $558 million in 2005.
A week ago, XM Satellite and New York-based Sirius Satellite Radio Inc. announced a deal to combine their operations. The companies bill the deal as a merger of equals, but to make it happen Sirius will be giving $4.57 billion of its stock to XM shareholders.
First, though, the companies must gain approval from the Federal Communications Commission and other regulatory agencies.
The companies have said a merger will help keep costs down. In the last few years, both XM and Sirius have spent millions to lure top talent and programming to their respective lineups, including lucrative deals for Oprah Winfrey and Major League Baseball on XM, with Stern and the NFL on Sirius.
In a conference call with analysts, XM executives took pains to assure consumers they will not be stranded with obsolete receivers if the deal goes through, though they did not offer details. Currently XM and Sirius receivers are incompatible. Sirius chief executive Mel Karmazin offered a similar assurance Monday in an interview on Stern's radio show.
But XM executives declined to answer an analyst's question about whether its marquee programming, including its Oprah channel and baseball package, require renegotiated contracts if the deal is approved.
Two analysts who follow XM gave different opinions on the deal's prospects with the FCC. Sanford C. Bernstein analyst Craig Moffett gave the deal a 50% chance at approval, while Bank of America analyst Jonathan Jacoby estimated the chances at less than 50%.
Karmazin, in his interview on Stern's show, said he believes the chances are better than 50%. He argued that consumers will benefit from an expanded programming lineup and rejected the argument that a merger will result in higher prices, arguing that competition from free radio, iPods and the like will keep a sole satellite provider honest.
"We're competing with (something that is) free," Karmazin said. "If the argument against the merger is higher prices, I'm convinced I can make the argument that won't happen."
Stern, who was on vacation when the proposal was announced last week, endorsed the deal on his show.
"I'm psyched that I'll have a bigger audience," Stern said.
Last year marked the first year that XM added more subscribers through the automobile market than the aftermarket retail segment. XM chief executive Hugh Panero said XM believes the market will become increasingly reliant on factory-installed models.
"Our financial metrics are heading in the right direction as marketing costs have declined and our revenues have increased," Panero said.
XM COO Nate Davis said during the conference call that XM tamed its marketing costs by offering consumers below-cost radio receivers only when they committed to subscribing to XM. Previously, consumers could get the cheap radios without any long-term subscription commitment.
Sirius reports its earnings on Tuesday.