SIRIUS XM Q2 revenue up 16%; Karmazin bullish


SIRIUS XM Radio’s Q2 results showed $705.6 million of adjusted (pro forma) revenue, up 16% over Q2 2009 adjusted revenue of $607.8 million; and $154.3 million in Q2 2010 adjusted EBITDA, an increase of 17% over Q2 2009 adjusted EBITDA of $132.2 million. Net income for the quarter showed a small profit for the quarter of $15.3 million, vs. a loss of ($159.6) million in Q2 2009. That’s $0.00 per share in the quarter vs. ($0.04) per diluted share in Q2 2009. That’s on on revenue of $699.8 million and $590.8 million, respectively. The numbers beat analysts’ average estimate of $691.4 million, according to Thomson Reuters I/B/E/S.

SIRIUS XM ended the quarter with a record-high 19,527,448 subscribers, an increase of more than 1.1 million compared to Q2 2009. Net subscriber additions of 583,249 in the quarter improved significantly from a net loss of 185,999 subscribers in Q2 2009.  In the quarter, average revenue per subscriber (ARPU) was $11.81, an increase of 11% from ARPU of $10.66 in Q2 2009.  The company’s self-pay monthly customer churn rate was 1.8% in quarter, as compared with self-pay monthly customer churn of 2.0% in Q2 2009.

Said Mel Karmazin, SIRIUS XM CEO: “Today we announced financial results that compliment the very strong subscriber metrics we previously released for Q2. We are very pleased with our financial performance, which is a continuation of the momentum of the past few quarters…We are taking full advantage of the marginally improving economy and current growth being experienced by the auto sector.”

They continued to keep costs down during the quarter: Sirius XM’s total cash operating expenses would have been up only 2% if they excluded the subscriber acquisition costs related to adding almost 800,000 more subscribers than Q2 2009, Karmazin noted.

Compared to the year ago quarter, gross additions increased by 46%, deactivations declined by 8%, and customers paid on average 11% more each month.  Free cash flow in the quarter was $108.3 million compared to $12.7 million in Q2 2009.  The improvement in net additions for the quarter was due to the 46% increase in gross subscriber additions, primarily resulting from an improvement in U.S. auto sales, and the 8% decline in deactivations resulting from improvements in the conversion rate in paid promotional trials and the average self-pay monthly churn.

“Our current content lineup is the strongest ever, and we’re doing it with lower costs than a year ago. That is a great accomplishment that was enabled by the merger two years ago,” said Karmazin. “I want to briefly reflect on the last couple of years – in July 2008, we closed the merger. So the first half of that year we were in regulatory limbo. We had a refinancing that needed to be done and there was an additional overhang for some additional debt coming due, following the financial markets collapse in the fall of 2008. Operationally, we integrated the companies very effectively and captured significant synergies. But because of the refinancing issues, 2008 was a missed year for us. In 2009, the combination of the overall economy, GM and Chrysler bankruptcies (Chrysler did not produce any vehicles during the bankruptcy) and our refinancing needs made the first half of the year very difficult to demonstrate the benefits of our merger for our shareholders. We began to show what we can do in the second half of 2009 and 2010 will be our first full year where investors will get a real indication of how good our business can be.”

Karmazin also went on to tout that ad revenues were up 25% in the quarter, simply by adding more advertisers.

Product and service upgrades are coming as well, dubbed with the moniker “Satellite Radio 2.0.” Karmazin, without going into detail, said these new products will be available by the Holiday shopping season in Q4 2011. “Satellite Radio 2.0 will take [innovation] to a new level…Our next generation of satellite radios are expected to offer significantly more choices for the consumer and contain functionality that does not exist today in our radios. There will not be any significant increase in our costs to bring these radios to consumers. We will obviously be rolling this out to OEMs as soon as they are able to incorporate it into their production schedule.”

The company is increasing guidance for FY 2010, projecting adjusted revenue will approach $2.8 billion and free cash flow will approach $150 million.  SIRIUS XM continues to target $575 million of adjusted EBITDA in 2010. As previously announced, SIRIUS XM increased its guidance for net subscriber additions to approximately 1.1 million for the full year.