SiriusXM Q3 up 14%; 446K net subscribers added


Sirius XMWhile SiriusXM Radio reported a lower net profit as it recorded a charge to repay some debt, revenue jumped on strong subscriber growth. The loss was attributable to repayment of debt of $107 million. Revenue was $867 million, up 14% from Q3 2011 revenue of $763 million.  Net income for the Q3 2012 and 2011 was $75 million and $104 million, respectively.  Adjusted EBITDA for the quarter of 2012 was $245 million, up 24% from $197 million in the Q3 2011.

CEO Mel Karmazin said last week that he’ll step down in February after John Malone’s Liberty Media gets full control of Sirius. Liberty, Sirius’s largest shareholder with a stake of just under 50%, says the company should be more aggressive about pursuing better technology and expanding internationally. It had filed a petition with the FCC for de jure control in August. Liberty asked the FCC for approval to take outright control of Sirius, noting it plans to raise its ownership stake above 50%.

The company, which gets the majority of its subscribers through new U.S. car sales, said average revenue per subscriber rose to $12.14, in Q3, from $11.97 in the prior quarter.

“SiriusXM delivered a very strong third quarter for our shareholders, with 446,000 net subscriber additions, double-digit growth, and record levels of revenue, adjusted EBITDA, and free cash flow.  The Company has produced more free cash flow in the first nine months of this year than in any full year in its history, and we’ve used this cash to reduce our debt to its lowest level since the merger of Sirius and XM,” noted Karmazin. “We’re excited about the increase in subscriber guidance to 1.8 million net additions that we reported earlier this month, as we believe growth in the fourth quarter will continue.  We continue to make investments across our business, particularly in R&D, customer care, infrastructure, and programming.  We are also investing in new businesses, such as the telematics service we announced in the third quarter with Nissan, and we believe these investments will reward our shareholders in the years to come.”

The total paid subscriber base rose to a record high of 23.4 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by approximately 115,000 from the second quarter of 2012 to 6.2 million.

Self-pay monthly churn was 2.0% in Q3, compared to 1.9% reported in the third quarter of 2011.  New vehicle consumer conversion rate was 44% in Q3, unchanged from the third quarter of 2011.

Free cash flow was $195 million in the third quarter of 2012, an improvement of 159% from the $75 million recorded in the third quarter of 2011.

“Following the repurchase of approximately $868 million of our debt in the third quarter of 2012, SiriusXM ended the quarter with $556 million of cash.  The company’s leverage has improved dramatically in the past year, ending the third quarter at just 2.8x our adjusted EBITDA, down from 4.3x at the end of the third quarter of 2011,” said David Frear, SiriusXM’s Executive Vice President and Chief Financial Officer.  “By eliminating our two most expensive debt instruments in the third quarter, we will reduce our interest costs significantly, and with no debt maturing in the next two years we now have more flexibility to pursue strategic initiatives,” added Frear.

2012 Guidance

The company confirmed its 2012 subscriber, revenue, adjusted EBITDA and free cash flow guidance:

Net subscriber growth approaching 1.8 million,

Revenue approaching $3.4 billion,

Adjusted EBITDA of approximately $900 million, and

Free cash flow of approximately $700 million.

ARPU (average revenue per user) increased primarily due to the increase in certain subscription rates beginning in January 2012, an increase in sales of premium services, including Premier packages, data services and streaming, and an increase in other revenue due to additional subscribers subject to the U.S. Music Royalty Fee.  The rise in ARPU was partially offset by an increase in subscriber retention programs and in the number of subscribers on promotional plans and a decrease in the revenue from the U.S. Music Royalty Fee due to a reduction in the rate in December 2010.

SAC, Per Gross Subscriber Addition, improved to $51 for the three months ended September 30, 2012 from $55 for the same period in 2011.  The decrease was driven by improved OEM subsidy rates per vehicle and a 13% increase in gross subscribers compared to the three months ended September 30, 2011, partially offset by higher subsidies related to increased OEM installations occurring in advance of acquiring a subscriber.