This article about always pushing back the date they expect to be profitable sounds a little too familiar. ( DJ ) 09/16 07:31AM =DJ IN THE MONEY:XM, Sirius Keep Pushing Back Break-Even View By Michael Rapoport A Dow Jones Newswires Column (This article was originally published Thursday) NEW YORK (Dow Jones)--Both major satellite-radio companies have grown by leaps and bounds, but a key goal they are aiming for seems ever out of reach. XM Satellite Radio Holdings Inc. (XMSR) has 4.4 million subscribers at last report, more than double a year ago. Sirius Satellite Radio Inc. (SIRI) has 1.8 million, up close to fourfold over a year ago. Yet the companies seem no closer to their holy grail of generating cash instead of burning it. Once upon a time, XM and Sirius had both expected to have positive cash flow by around now - crucial for demonstrating their long-term viability. At different times, some as recently as early last year, each company said publicly that it expected to break even on a cash-flow basis before the fall of 2005, and with about the number of subscribers it has now, or even fewer. It hasn't happened: XM's operations burned through $85.3 million in the first half of this year; Sirius's burned $181.8 million. Instead, both companies keep moving the goalposts, pushing back the dates at which they expect their operations will start generating cash. It seems this elusive goal is always at least a year away; XM currently foresees break-even by the end of 2006, Sirius for 2007 and maybe in the fourth quarter of '06. In part, there's a logical reason for the delays: Both companies have been spending lots of money on big-ticket, high-profile programming to lure new subscribers and get a leg up on each other. But it's fair for investors to question how much longer it will actually take for the companies to start generating cash. And judging from the slump in both companies' stocks this year, it's possible some investors are getting a bit antsy. To be sure, both companies say they have enough money to last them until their operations start producing cash. Besides, neither has had much trouble tapping the markets for money: Since the start of 2003, XM has raised nearly $1.7 billion by selling stock and debt; Sirius has raised $1.8 billion. Both companies remain upbeat. Chance Patterson, an XM spokesman, said XM feels "more emboldened than ever" and has "made some smart investments in content while being able to control our costs." Sirius spokesman Jim Collins said Sirius's subscriber growth has been "explosive"; the previous break-even forecasts which Sirius had to push back are "old news," he said, and Sirius has been consistent in its forecasts since its current chief executive, Mel Karmazin, arrived at the company late last year. Maybe, but the record of both companies' public statements is what it is. Back in 2002, for instance, XM projected break-even by late 2004, with far fewer than four million subscribers. In February 2004, it pushed this break-even date back to the first half of 2005. By August 2004, XM had dropped the "first half" part and was saying, simply, 2005. In November, this goal became 2006, because of what it said were the cash-flow requirements of its deal to carry major league baseball games. This past July brought the current forecast of "operational" cash-flow break-even by the end of 2006. (XM actually had positive operating cash flow in the second quarter of 2005, but acknowledges that is an anomaly tied to a change in its pricing; it is expected to return to negative cash flow later this year.) Sirius said in fall 2002 that it foresaw break-even in early 2005. In January 2004, it called for break-even "late next year" - that is, 2005. As late as May 2004, the company was "confident" of break-even by the end of 2005 with two million subscribers - a level it has likely surpassed by now. Then came the high-profile but costly signing of shock jock Howard Stern, in fall 2004. Sirius didn't push back its break-even projection when it announced the Stern deal, but several months later, this past March, it quietly revised its break-even projection to 2007. In August, the company added the provision that fourth-quarter 2006 break-even was possible. (Sirius's break-even standard is based on free cash flow, or operating cash flow minus capital expenses and restricted investments; on that basis, it actually burned even more than its $181.8 million operating cash burn in the first half. XM's standard appears based on operating cash flow.) Of course, circumstances change over time, and can affect such long-range projections. In its Securities and Exchange Commission filings, Sirius says it often executes changes in its plans and strategy, "some of which may be material and significantly change our cash requirements or cause us to achieve cash flow break-even at a later date." Specifically, as these accounts suggest, the delays in the break-even dates has more than a little to do with the programming arms race between XM and Sirius, and the resulting dramatic increases in spending. To take the two most prominent examples, the signing of Stern is costing Sirius $500 million over five years; XM's 11-year deal for major league baseball rights costs $650 million. For the first six months of 2005, XM's programming and content costs nearly tripled compared with a year ago, and Sirius's more than doubled. Both companies have taken on major financial commitments to programming for years to come; for the years 2006-2009, XM averages $137 million a year in programming commitments, while Sirius's average is $107 million a year. Bruce Leichtman, president and principal analyst of Leichtman Research Group, a Durham, N.H., research and consulting firm specializing in broadband, media and entertainment, said that, while most of the major satellite-radio program deals have now been done, "if they're going to keep playing this content-escalation game, it's going to keep moving back" break-even dates. Even though the companies are flush with the cash they need to see them through to these revised dates, the repeated delays in their projections could bring investors some pause - and may have already. Despite the companies' phenomenal growth, XM stock is off about 5% this year and Sirius is off 4%, underperforming the broader market. And investor sentiment is especially important for companies whose stock prices have got so far ahead of events, as these two have. XM trades at about 20 times its book value and 21 times its last 12 months' sales; Sirius is at 13 times book value and 69 times sales. No other large-cap companies trade at ratios that lofty without posting a profit, which XM and Sirius have yet to do. Without profits or positive cash flow, the increases in the stocks is "all speculation," Leichtman said. Patterson, the XM spokesman, said the investment community has been "very positive" about XM's efforts. Sirius's Collins said the reaction of investors and analysts to Sirius's moves "has been positive judging from the stock price and the upgrades to the sector." Without the black ink XM and Sirius haven't yet delivered, though, it is only investor optimism and expectations that is keeping their stock prices up. So far, their growth has kept that optimism high. But if anything should happen to dent that goodwill and rosy outlook for either company, it's liable to be a long way down. -By Michael Rapoport, Dow Jones Newswires; 201-938-5976; michael.rapoport@dowjones.com (END) Dow Jones Newswires 09-16-05 0731ET Copyright (c) 2005 Dow Jones & Company, Inc.