News

Canadian Satellite Radio Holdings Inc. may run out of cash before it turns a profit, an analyst warned yesterday after the company reported a deep first-quarter loss this week.

With startup losses mounting, the one-year-old company may also be forced to suspend royalty payments to its U.S. partner in the coming year, TD Newcrest analyst Scott Cuthbertson said in a research note to clients.

Canadian Satellite Radio (CSR) launched in late 2005 and operates the XM service in Canada. It must pay 15 per cent of its revenue to the U.S. affiliate, XM Satellite Radio Holdings Inc., for use of that company's satellites and programming.

However, an agreement between the two companies allows CSR to suspend those payments if it faces a cash crunch.

“We think [CSR] will run out of cash before it turns profitable,” Mr. Cuthbertson said in the note. “As a result we think the company will begin to draw on its XM credit line by suspending the payment of [royalty] fees some time this fiscal year.”

CSR chief executive officer John Bitove responded yesterday that CSR expects to be able to meet its cash needs, even if it draws upon the XM arrangement.

“Provided that we meet our current business plan, including the XM Credit Facility, we expect to be fully funded,” Mr. Bitove said.

“However, we may look into additional capital to exceed our current plan with the car companies. In which case we would hit break-even faster.”

On Thursday, CSR announced a first-quarter loss of $23.9-million, on revenue of $3.9-million.

Mr. Bitove has said the company expects to incur substantial startup costs in its first few years before it begins making money.

The company is one of two satellite radio operators in Canada. Its rival, Sirius Canada, is privately held and doesn't disclose its financial performance; however, observers believe that company is also dealing with steep startup costs.

Satellite radio offers roughly 100 channels of programming for a subscription fee of about $15 a month. CSR has been pursuing deals with auto manufacturers to have its receivers installed in new cars, which it believes will drive most of its subscriber growth in the next few years. The company reported 147,000 subscribers as of the end of November.

CSR went public on the Toronto Stock Exchange at $16 in December, 2005, but has slumped amid the startup losses. The shares fell 49 cents yesterday to $7.41.