A Seriously Strong Q2 Report For Sirius XM

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It wasn’t that long ago when some radio industry C-Suiters were positing that Sirius XM Satellite Radio could never become profitable.


Guess what? It’s doing just fine, and its Q2 2019 results beat Wall Street estimates — setting ‘SIRI’ up for a big Tuesday trading day.

SIRI managed a two-cent gain, to $6.18.

For the three months ended June 30, Sirius XM Satellite Radio saw subscriber revenue jump to $1.54 billion, from $1.3 billion.

This was fueled, in part, by a big jump in advertising revenue.

Yes. Thanks to Pandora, Sirius XM is earning dollars from paid advertising, and in Q2 took in $358 million in ad revenue, soaring from $47 million.

This put total Q2 revenue at $1.98 billion, rising from $1.43 billion.

Here’s the rub: The gains are barely negating a continued rise in total operating expenses, with revenue share and royalty payments to artists and publishers rights organizations the biggest issue Sirius XM may face — just like Spotify and Pandora, which it now owns.

In fact, this likely explains why revenue share and royalty expenses jumped to $600 million in Q2, from $404 million in the prior year.

At the same time, sales and marketing expenses increased to $232 million, from $119 million.

The result: total operating expenses came in at $1.54 billion, jumping from $1.07 billion.

When expenses were factored in against the revenue, Sirius XM suffered a slight net income decline, to $263 million (6 cents per diluted share), from $293 million (6 cents).

However, this is primarily tied to a one-time $86 million benefit to other income last year driven by unrealized gains from the company’s investment in Pandora. Sirius XM’s effective tax rate for Q2 was 22.4%, compared to 19.4% in the year-ago quarter. The change is driven primarily by lower recognition of excess tax benefits related to share-based compensation.

Adjusted EBITDA increased to $618 million, from $507 million.

While revenue growth is a big reason, a perhaps even bigger reason for the jump are cost efficiencies in subscriber acquisition costs … and, believe it or not, revenue share and royalties.

The quick integration of Pandora explains this. And, it’s poised to make Sirius XM stock a potential star in the second half of 2019.

“Revenues and adjusted EBITDA each reached records in the period,” said Sirius XM CEO Jim Meyer. “We’re thrilled with the results in the first half of the year, and we are raising 2019 guidance for revenue and adjusted EBITDA and reiterating our guidance for net subscriber additions and free cash flow.”

That proclamation, combined with the Q2 results, could fuel a big jump for SIRI on Wall Street in Tuesday trading. In pre-market activity, Sirius XM was up 2.4% to $6.31. This puts Sirius back toward its year-to-date high of $6.35 seen in the first week of 2019.

With Simply Wall St. saying Sirius XM can stay on top of its debt, other Wall Street watchdogs were cheering the company’s Q2 results.

Benzinga expected revenue of around $1.94 billion and earnings of 5 cents per share. Both were bested by Sirius XM.

Zacks Equity Research also forecast earnings of 5 cents per share.

“This quarterly report represents an earnings surprise of 20%,” it said.

Furthermore, Sirius XM has cash on hand, allowing it to make strategic investments if and when necessary.

Sirius XM CFO David Frear noted, “At quarter-end, our debt to adjusted EBITDA was 3.3 times and we had cash on hand of $215 million with our entire $1.75 billion revolver available. We will continue to use our strong financial position and ample liquidity to invest in our business, make strategic investments and return capital to stockholders.”

MORE SUBSCRIBERS, MORE MONEY

With cord-cutting plaguing MVPDs, Sirius XM is growing subscribers.

In Q2, some 174,000 net subscriber additions were logged, resulting in more than 34.3 million total SiriusXM subscribers at the end of the quarter.

Importantly, self-pay monthly churn for the quarter was 1.7%, compared to 1.6% in the second quarter of 2018.

Meanwhile, total revenue for Pandora grew 15% to $441 million in Q2, aided in part by an 18% increase in subscriber revenue, to $135 million.


2019 GUIDANCE

Sirius XM is reiterating its existing full-year 2019 guidance for self-pay net subscriber additions and free cash flow, and increasing guidance for pro forma revenue and adjusted EBITDA.

The company’s increased full-year guidance for the combined company, including Pandora, is as follows:

  • SiriusXM self-pay net subscriber additions approaching 1 million
  • Pro forma revenue of approaching $7.8 billion
  • Adjusted EBITDA of approaching $2.35 billion
  • Free cash flow of approximately $1.6 billion