The subscription-based, digital-quality radio service, which recently opened a review for its advertising account, on Tuesday posted widening losses for its second quarter and indicated uncertainty about raising additional funds.
Analysts at Salomon Smith Barney, Ladenburg Thalmann and Merill Lynch downgraded Sirius' stock today.
Sirius' quarterly filing with the Securities and Exchange Commission warned, "If we fail to timely raise additional funds, we will be forced to seek protection under the U.S. bankruptcy code, materially reduce our operations, significantly alter our business plan and/or seek the sale of our company."
Must raise $300 million
Sirius had $327 million
Yet Sirius executives remained optimistic, saying the company is currently in discussions with existing financial backers and other stakeholders for additional funding and has hired UBS Warburg to assist it in pursuing various financial options.
"In times such as these, you conserve cash and you raise cash to fund your core business," Sirius President-CEO Joe Clayton said in the conference call.
The company plans to initiate other cost-cutting steps including consolidating its New York offices on two floors instead of three, maintaining its current head count and focusing subscriptions on multiyear, prepaid offers.
Sirius reported a net loss applicable to common shareholders of $124.6 million for the quarter, up from a $72 million loss in the same period last year. It reported revenues of $70,000 for the quarter -- with $50,000 coming from subscriber revenue and the rest from advertising fees -- up from zero in the year-earlier period.
Sirius' financial woes follow a series of false starts for its service. Although Sirius' July 1 national rollout was one quarter ahead of its third-quarter launch window, it still followed two previous launch delays that put Sirius months behind rival XM Satellite Radio Holdings. Sirius had pushed back its original launch date of late spring/early summer 2001 to the fourth quarter of last year due to manufacturing problems that forced it to postpone radio shipments to its automaker partners BMW of North America, DaimlerChrysler and Ford Motor Co. Sirius then delayed its fourth-quarter 2001 launch in order to expand in-vehicle testing to six additional markets to continue evaluating radios, transmission, distribution, installation, sales support and customer service.
Sirius broadcasts 100 channels for $12.95 per month, including 60 commercial-free music channels and 40 news, entertainment and sports channels. Rival XM Satellite Radio Holdings, which launched nationally last fall, charges $9.99 per month for 100 channels. XM's programming includes 71 music channels, 30 of which are commercial free.
XM has deals with General Motors Corp. -- one of XM's financial backers -- and GM-backed American Isuzu Motors. Sirius and XM have joint distribution agreements with Volkswagen of America and its Audi of America unit, as well as Porsche Cars North America.
Sirius, XM and industry watchers think that ultimately deals with carmakers involving factory-installed satellite radios will represent the bulk of the subscription business over the long haul. But since most of those car deals don't start until later this year, the focus has been on sales at retail stores such as Best Buy and Curcuit City.
Similar warning from XM
XM included a similar warning in its quarterly report, filed with the SEC today. XM had as of June 30 total cash, cash equivalents and short-term investments of $163.8 million, which are sufficient to cover the company's financial needs into the first quarter of 2003, according to the filing.
"If we fail to obtain any necessary financing on a timely basis, a number of adverse effects could occur. We could default on our commitments to creditors or others and may have to discontinue operations or seek a purchaser for our business or assets," the filing said.