Sirius XM hits a Q1 profit


Sirius XM Radio posted a Q1 profit from a year-ago loss, as it added subscribers and trimmed costs. The company, which had considered with bankruptcy early in 2009 due to overwhelming debt, added 171,441 net subscribers in the period, citing a recovery in the auto industry. CEO Mel Karmazin in the call said he expects to add more than 500,000 subscribers this year.

The company reported $670.6 million in pro forma revenue, up 11% over Q1 2009 pro forma revenue of $605.5 million; and $157.8 million in Q1 2010 pro forma adjusted income from operations, an increase of 45% over Q1 2009 pro forma adjusted income from operations of $108.8 million.

Q1 net income was $41.6 million, or 1 cent a share, compared with a year-earlier loss of $238.8 million, or 7 cents. Sirius’s outstanding shares in the quarter were 6.3 billion, up from 3.5 billion a year earlier. Analysts had expected the company to break even, according to Thomson Reuters I/B/E/S. Sales rose 11% to $670.6 million.

Karmazin was proud of recent accomplishments, in the call: “Last week, we regained NASDAQ compliance…organically. We told you in the past that the company would continue to be listed. We had a hearing scheduled the day after we actually regained compliance. We believe firmly at that hearing they would have granted us another six months [waiver]. Even if we didn’t get that waiver, we certainly had the ability to do a reverse stock split to continue to be listed.”

He also listed a number of items that were encouraging for investors and subscribers alike:
• A couple of weeks ago was added to the NASDAQ Q50 (most valuable companies)
• Based on today’s current market cap, Sirius XM is more valuable than 92% of all the companies listed in NASDAQ.
• The company is valuable, not withstanding the 3.885 billion shares outstanding. (Comparisons were made to other successful companies with high levels of outstanding shares)
• Sirius XM is one of the most liquid securities on NASDAQ
• The company was the most heavily traded stock on NSADAQ in Q1
• The company has gone through the worst recession that most of us have seen, and Sirius XM has weathered it. “Consumers love our product and have stuck with us through 10% unemployment.”
• The number of subscribers last week exceeded the peak December 2008 level of 19,003,000.
• Adjusted EBITDA was up 45% in the quarter
• Churn improved from 2.2 to 2.0.
• Conversion rate improved from 44.6% to 45.2%
• Ad revenues were up 18% in Q1 and is pacing fro Q2 to be up in the mid-20 range.

SIRIUS XM ended the quarter with 18,944,199 subscribers, up 344,765 from 18,599,434 subscribers at the end Q1 2009. Net subscriber additions of 171,441 in the first quarter of 2010 improved significantly from a loss of 404,422 subscribers in Q1 2009.

2010 Outlook:
The company continues to expect to record over $2.7 billion of pro forma revenue in 2010 and to achieve pro forma adjusted income from operations of approximately $550 million. Free cash flow is expected to remain positive for the year.

Pro forma results, based upon comparisons as if the merger of SIRIUS and XM occurred on January 1, 2007:
Revenue share and royalties increased 2%, or $2.3 million, due to an increase in the company’s revenues and an increase in the statutory royalty rate for the performance of sound recordings. The amounts were partially offset by a decrease in a royalty rate with an automaker.

Programming and content costs decreased 6%, or $6.2 million, in the three months ended March 31, 2010 compared to the three months ended March 31, 2009 due mainly to savings on certain content agreements and production costs, partially offset by increases in personnel costs and general operating expenses.

Customer service and billing costs decreased 7%, or $4.1 million, primarily due to lower call center expenses as a result of savings realized from relocating certain ops.

Satellite and transmission costs decreased 2%, or $0.4 million, due to reductions in personnel costs and repeater maintenance costs, partially offset by increased satellite insurance expense.

Subscriber acquisition costs increased 28%, or $23.3 million in the quarter. The increase was driven by the 29% increase in gross additions and higher OEM installations, partially offset by lower per unit OEM subsidies, improved chip set costs and lower aftermarket acquisition costs.

RBR-TVBR observation: As Mel noted, much of the reason for improvement was auto sales were up more than expected. The SAR (subscriber acquisition rate) number for April was 11.19 million, up 22% YOY. Progress is also being made in used car sales-subscriptions. So many vehicles now—used or new—have the factory stereo ready to be activated. Just about everybody can try out that free intro subscription, and many stay with it, given the right deal/offering. HD Radio is hoping for exactly the same effect—having the factory units in most every car whether they are new or used. Problem is the programming choices still do not match Sirius XM (running AM sister stations and copycat formats of the HD-1 signal will just not do). When a big market can add up all of its HD-2, 3, and now 4 channels and those formats in a list resemble the XM Sirius variety (especially music geared toward young car buyers) as close as humanly possible, HD Radio will have a good shot at competing (at least until all cars have internet streaming in the dash!).