Following the report by Sirius XM of its third straight quarter or subscriber growth, Wells Fargo Securities high-yield bond analysts Bishop Cheen and Davis Hebert are expecting strong financial performance when the satellite radio company reports its Q1 numbers next month.
Sirius XM announced that it had finished Q1 with the first quarter with 18.944 million subscribers, reflecting net adds of 171,441 subs.
“We don’t have details on the source of new subscribers, but estimate that the large majority probably was derived from strong sales of new autos,” the analysts said in a note to clients. In the press release from Sirius XM, they noted, the conversion rate from trial subscriptions improved to 45.2%, versus 44.6% for the prior year.
CEO Mel Karmazin said in the announcement that the company expects to report “solid” growth in revenue and EBITDA for the quarter. The Q1 comp for Sirius is $605.5 million in net revenue and $108.8 million in adjusted EBITDA, Cheen and Hebert noted.
“This announcement affirms the significant improvement in the Sirius XM credit profile post-merger and with the economic recovery (especially as auto sales gain traction). Free cash flow will likely be positive for the first time in company (either company) history in 2010. Although there has been no movement on the Howard Stern contract front, we remain positive on the overall credit, although yields have tightened considerably this year. The primary market has been kind to Sirius as well, with the company most recently placing $800 million of new senior notes (priced at par to yield 8.75%, now yielding 8.6%). Sirius’ maturities now appear manageable through 2013,” said the Wells Fargo analysts.
