Auto recovery boosting results for Sirius XM


Sirius XM CEO Mel Karmazin is celebrating the company’s strongest Q1 growth since 2008. With auto sales accelerating, Q1 revenues for the satellite radio company were up 9% to $724 million and 373,000 net subscribers were added to hit a record 20.6 million.

Adjusted EBITDA also hit a record of $181 million, up 15% from a year ago. Karmazin told analysts in his quarterly conference call that the company is on track to get to a 40% EBITDA margin. He didn’t give a deadline for that to happen, but he was ecstatic over the 24.9% margin in Q1, which was a record for the company.

Look for that improved margin to come in part from a price hike. The subscription price freeze imposed by the terms of the FCC’s approval of the merger of Sirius and XM is due to expire in Q3 of this year. Karmazin told analysts that no decision has been made on a price hike, but he said it would be “appropriate” to raise the monthly base rate.

Based on the growth reported in Q1, Karmazin acknowledged that investors might be expecting Sirius XM to raise its subscriber growth target for 2011 from the guidance of 1.4 million net adds. However, he is being cautious because of the auto industry supply problems resulting from the Japanese earthquake and tsunami.

“Based on all the information we have today, many of you would expect us to increase our 2011 subscriber guidance significantly. The only reason we are not is the OEM supply chain uncertainty related to the tragedy in Japan. Year over year our business has not notably been adversely affected by unemployment, high gas prices, increasing competition or the economy, but we are watching the Japan tragedy closely to see if it results in any supply issues. We monitor this issue daily and we are confident that there will not be any supply issues specifically related to our satellite radios. However, it is not entirely clear what challenges our OEM partners may experience. If they encounter no serious issues in the [auto] industry, we may deliver more subscribers in 2011 than we are currently forecasting. If we encounter difficulties and auto sales are lower than we anticipate, we will deliver more adjusted EBITDA than we anticipate today as our SAC [subscriber acquisition cost] will likely be lower. If there is a supply impact in 2011, we anticipate that demand will be even stronger for us in 2012,” Karmazin told the analysts. He later added that through April the company had seen no indication of any OEM vehicle supply problems.

RBR-TVBR observation: AM and FM stations have a lot in common with satellite radio in wanting to see the auto industry do well. With the economy improving, the car makers and dealers are advertising on AM and FM stations to move more cars off the lots, while Sirius XM is paying to have satellite receivers put into those cars to access its commercial-free music channels. So everybody in radio of any sort is hoping that the tragedy in Japan won’t slow the recovery in auto sales.