Washington, D.C.-based XM Satellite Radio’s [Nasdaq: XMSR] first-quarter results were well received by Wall Street.

XM Chairman Gary Parsons boasted during a May 8 conference call that his company’s streak of meeting or exceeding its guidance since it began commercial service reminded him of Jerry Reed’s country music song, “When You’re Hot, You’re Hot.”

Indeed, XM reduced costs, hit operational milestones, retired $137 million in debt and raised $50 million in additional equity during the quarter.

Bob Peck, a satellite analyst with Bear Stearns, reacted to XM’s results by issuing a favorable research note that explained the company beat his estimates on virtually “all measures.”

One of the keys was XM’s effort in trimming cost per gross addition (CPGA) in the quarter. CPGA in the quarter was $156, compared to a whopping $875 for the first quarter of 2002 and $240 for the fourth quarter of 2002. Subscriber acquisition cost (SAC), another metric of how much XM spends to obtain a customer, dipped to $74 in the first quarter, compared to an average SAC of $127 for the first quarter of 2002 and $96 in the fourth quarter, company officials said.

Average revenue per user (ARPU) from subscriptions hit $9.34 during the first quarter, compared with $9.27 for the same quarter last year, company officials said.

Jimmy Schaeffler, a satellite broadcasting analyst who heads The Carmel Group, said XM’s SAC and ARPU numbers appear solid. However, the “ultimate measure” of this industry through year-end 2003 is subscriber growth. He added, “This is the make or break year for that and every other benchmark within the entire industry.”

On that front, XM is keeping pace with its guidance and anticipates topping the 1-million subscriber mark by year’s end. XM previously reported that its subscriber total had surpassed 500,000 in early April, after hitting 483,075 at the end of March to mark a 39-percent gain of 135,916 net new subscribers during the first quarter of 2003, compared to the fourth quarter of 2002, company officials said. XM partner General Motors [NYSE: GM] helped give XM a lift by signing up more than 100,000 subscribers to the satellite radio service by the end of first quarter 2003.

Revenues Climb

For the first quarter, XM recognized revenue of $13.1 million, up $11.3 million from $1.8 million generated in the first quarter of 2002. At the same time, XM posted an EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $63.3 million for the quarter, but this still marked a $12.1 million improvement compared with an EBITDA loss of $75.4 million for the first quarter of 2002.

The company reported a net loss for the quarter of $124 million, or $1.26 per share, on weighted average shares of 98.7 million. This compares with a net loss of $117.7 million, or $1.56 per share, on weighted average shares of 75.2 million a year ago.

XM’s $475 million first quarter financing package brought XM $225 million in new funds from strategic and financial investors and $250 million in payment deferrals and related facilities from General Motors.

As a result, XM had cash on hand at the end of March of roughly $194 million, excluding restricted cash, company officials said. With approximately $122 million remaining to use from credit and equity funding facilities provided by GM, XM’s aggregate liquidity totaled $316 million at the end of the quarter, company officials said.

The net effect of XM’s recapitalization is the elimination of $137 million in debt and preferred stock and the raising of an additional $50 million in equity. As part of that effort, XM completed several privately negotiated de-leveraging transactions that not only cut the $137 million in debt, but also trimmed the equivalent of $108 million in liabilities to strengthen its balance sheet. These debt and preferred-stock transactions cut approximately $212 million in total future principal, interest, dividends and liquidation preference amounts due over the life of the securities, XM officials said. In addition, warrants to purchase 3.7 million shares of XM stock at $3.18 per share were eliminated in similar transactions, they added.

XM also revealed last week that it raised approximately $50 million in cash proceeds under its direct stock purchase plan during the first four months of 2003. The company used $17 million from those funds as part of its debt reduction initiatives and is keeping the remaining $33 million as cash to provide an additional financing “cushion,” said Chance Patterson, XM’s vice president of corporate affairs.

As a result of the various financing moves, XM’s investors saw their holdings in the company roughly halved during the first quarter through the issuance of 120 million shares of new common stock.

–Paul Dykewicz

(Bob Peck, Bear Stearns, 212/272-6665; Jimmy Schaeffler, The Carmel Group, 831/643-2222; Gary Parsons, Chance Patterson, XM Satellite Radio, 202/380-4318)