Karmazin is Sirius-ly proud


CEO Mel Karmazin says Sirius XM achieved its long-sought goal of posting positive pro forma adjusted income from operations in Q4 – the first time ever for a satellite radio company. And that came as the company struck a deal with Liberty Media that pulled Sirius XM back from the brink of a Chapter 11 filing.

"In the fourth quarter 2008, the company’s first full quarter of combined operations, Sirius XM made remarkable financial progress. For the first time in company history, we reached positive pro forma adjusted income from operations of $32 million, as compared with a loss of $224 million one year ago. Fourth quarter 2008 revenue of $644 million grew 16% over the year ago quarter while total cash operating expenses declined by 22%, a clear demonstration of our focus on improving profitability. Despite challenges in the overall economy and in the auto sector, we look forward to continuing to deliver on the synergies of the merger. We are also very pleased to report that we have closed the second and final phase of the previously announced investment by Liberty Media Corporation. These transactions resolve the uncertainty surrounding the company’s and its subsidiaries’ debt maturing in 2009," Karmazin said in a press release. He’ll discuss the quarter in a conference call with Wall Street analysts this morning.

Based on the company’s 10-K filing with the SEC, RBR/TVBR reported that the Q4 loss from operations dropped to less than $46 million from $352 million a year earlier as revenues grew 16% to $644 million.

That’s all true. The pro forma adjusted income from operations that Karmazin cites adds back $49.5 million in depreciation and amortization, $24.9 million in stock-based compensation and $3 million in restructuring costs to arrive at the positive number of $31.8 million. That calculation produces a number much like broadcast cash flow, a metric that Karmazin knows well from his many years running AM and FM radio stations.

One caveat: depreciation and amortization is largely theoretical for earth-bound broadcasters and many other businesses. For satellite radio, the expensive satellites, unlike broadcast towers, do have a limited lifetime and have to be replaced on a regular basis.

Where has the company been saving money since Sirius and XM merged? Sales and marketing costs declined 34% to $81.7 million, with a big drop in advertising and cooperative marketing spending offset in part by an increase in spending for customer retention. General and administrative costs declined 20% to $51.6 million. Subscriber acquisition costs dropped 27% to $132.7 million, but that was not a good thing for Sirius XM. Rather, it was because gross additions dropped by 27%.

RBR/TVBR observation: We had our doubts that even the merger would get the satellite radio business into the equivalent of positive broadcast cash flow, but Mel’s math appears to be correct. Please pass the salt for our plate of crow.

What Mel has to worry about most now is the sharp decline in net subscriber additions. Deactivations nearly matched gross additions in Q4 for a net gain of only 82,945, compared to 1,114,552 a year earlier (Sirius and XM combined). No doubt he’ll get some questions about that today from analysts.