WorldSpace (WRSPQ)

TOP CONTRIBUTORS

Tyler Savery

Worldspace, Inc. (Nasdaq:WRSP) is a US-based satellite radio company focused on markets in India and Italy. The company was the first to establish an operational satellite-based digital radio system, commonly known as Digital Audio Radio Service (DARS), ahead of better-known companies such as Sirius Satellite Radio (SIRI) and XM Satellite Radio Holdings (XMSR). Today, the company is the only licensed DARS provider outside of North America, South Korea and Japan. While the company says its service is accessible in more than 130 countries, 80% of its ~200,000 subscribers in 2006 were in India.^[1], and the company's marketing focus has been on markets in India and Italy, with plans to expand to China.

WorldSpace has recently hit a rough patch. Its sattelite system in India requires terrestrial repeaters to delier high quality of service, particularly in urban areas. Without them, the company's system only works with line-of-site between the customer's reciever and the sattelite, and the company has been waiting on government approval for these repeaters for years. Subscribers dropped 12% in 2007, ending the 4th quarter 2007 with 174,166 subscribers worldwide, a loss of 3,478 from the close of the prior quarter.

The company has very little cash to burn, and has ceased marketing activities in both of its key markets (India and Italy), waiting in the former for regulatory approval for its system of repeaters, and in the latter, for the rollout of an agreement with Italian car manufacturers to begin installing WRSP's product in new cars starting in 2009.

Following the close of the fourth quarter 2007, WorldSpace secured a financing facility for up to $40 million of subordinated financing, from Yenura Pte. Ltd., a company controlled by Mr. Noah Samara, chairman and CEO of WORLDSPACE.

Subscriber Growth

Gross subscriber adds of 18,226 in India were down from 20,132 in the third quarter of 2007. Net subscriber losses in India of 1,827 continued the downward trend from net losses of 8,713 in the third quarter of 2007, as the Company continued to minimize its marketing efforts this year. Subscriber declines outside of India primarily reflected the cessation of marketing outreach in Europe, as WorldSpace prepares for its planned mobile offering in that region starting with Italy in early 2009.

On April 9, 2008 WorldSpace announced that they have received approval for a repeater network in Germany which will enable the service to be offered across the country. The German launch is anticipated to follow Italy in 2009. Germany is perhaps the largest European market in Europe.

Revenue

For the fourth quarter of 2007, WorldSpace reported revenues of approximately $3.8 million, compared to revenues of approximately $5.0 million for the fourth quarter of 2006. Subscription revenue was approximately $2.0 million for the fourth quarter of 2007, flat with the approximately $2.0 million in the fourth quarter of 2006. On a sequential basis, subscription revenues in the fourth quarter of 2007 were slightly higher than the approximately $1.9 million recorded in the third quarter of 2007 as well.

Net Loss and EBITDA Loss

WorldSpace recorded a net loss for the fourth quarter of 2007 of $46.0 million, or $1.10 per share, compared with a net loss of $33.8 million, or $0.89 per share for the fourth quarter of 2006. WorldSpace had an EBITDA (earnings before interest income, interest expense, income taxes, depreciation and amortization) loss of $22.5 million for the fourth quarter of 2007, compared with an EBITDA loss of $39.0 million for the fourth quarter of 2006.

SAC and CPGA

Subscriber Acquisition Costs (SAC) were $16 in the fourth quarter of 2007 on a blended basis (India and the rest of the world) and $18 in India, compared with $10 on a blended basis and $12 in India for the third quarter of 2007. These costs were down from $34 in 2006, which reflects the cessation of marketing activities.

Cost Per Gross Addition (CPGA) decreased in the quarter to $79 on a blended basis, down from the $80 CPGA in the prior quarter, reflecting the lower marketing activity in India, where the CPGA decreased to $68 for the fourth quarter of 2007 from $75 in the third quarter of 2007. WorldSpace's CPGA is the fully-loaded cost to acquire each new subscriber, including SAC, as well as advertising and marketing expenses. SAC also represents a subsidy on equipment sales.

Full Year Results

For 2007, WorldSpace recorded net revenues of approximately $13.8 million, compared with net revenues of approximately $15.6 million in 2006. The net loss for 2007 was $169.5 million, or $4.22 per share, compared with a net loss of $128.6 million, or $3.44 per share, in 2006. EBITDA in 2007 was a loss of $92.5 million; in 2006, EBITDA was a loss of $128.2 million.

References

1. ↑ WRSP 2006 10K | Page 50, "Summary Operating Metrics"