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SiriusXM Posts Gains, Points To LTE Potential

New York — SiriusXM posted its best-ever quarterly revenues in the third quarter and best third quarter for net new subscribers since the Sirius-XM merger five years ago, prompting the satellite-radio company to raise its full-year forecast for revenues and net subscriber adds.

SiriuxXM cited rising OEM penetration rates as a key reason for the gains as well as growth in reactivations in pre-owned cars.

 Separately, the company said during an investors’ conference call that it is already working with automakers to develop a next-generation platform that will merge one-way satellite service with vehicle-embedded two-way 4G LTE service. CEO Jim Meyer, however, said the current 2.0 platform will be the “core business for many years.”

David Frear, executive VP and chief financial officer, spoke on an “interactive request channel,” and Meyer said combining LTE’s two-way capabilities with SiriusXM’s ubiquitous private one-way network would put the company “in a strong position” to “optimize the entertainment experience.”

In the quarter, the number of net new subscribers rose 15.1 percent to 513,078, and net adds for the nine-month period grew 14.2 percent to 1.68 million. The subscriber base hit 25.58 million, up 9 percent from the year-ago period.

Third-quarter operating income grew at a double-digit rate, but net income fell at a double-digit rate because the company incurred an income-tax expense compared to a large year-ago one-time income-tax benefit.

In the quarter, total revenues grew by 10.9 percent to $961.5 million, and nine-month revenues grew 11.5 percent to $2.8 billion.

Income from operations grew 22.8 percent in the quarter to $284.5 million and for the nine months by 21.3 percent to $799.2 million.

Net income fell 15.6 percent to $62.9 million in the quarter and by 91 percent in the nine-month period to $312 million as a result of the year-ago one-time income-tax benefits, which came to $20 million in the year-ago quarter and $3 billion in the year-ago nine-month period.

Average revenue per user was up to $12.29/month from the year-ago quarter’s $12.14 and up for the nine-month period to $12.21 from $11.96.

For full-year 2013, the company raised its forecasts for revenue to $3.77 billion from a previous forecast of more than $3.7 billion and for net subscriber additions to 1.6 million from around 1.5 million. If the forecasts pan out, 2013 revenues will be up 10.9 percent over 2012’s $3.4 billion, but net adds will be down compared to 2012’s 2 million and 2011’s 1.7 million.

For 2014, the company forecasts revenues of more than $4 billion, in part because the company will raise basic monthly plans by 50 cents to $14.99 beginning Jan. 1 but not any of the company’s many other packages. Meyer said the raise “would not significantly affect [subscriber] retention.”

The margins for 2014 are expected to rise to 34.5 percent.

With new-car penetration rates of satellite radio having hit almost 70 percent in the quarter, up about 2 percentage points from the year-ago quarter, and reaching 69 percent for the year to date, Meyer said the company is focusing on reactivations in pre-owned cars and penetration of the Hispanic markets as the “two big” areas enabling the company to maintain subscriber growth in 2014. “We’re under-indexed with Hispanics,” Meyer said.

New subscriptions from pre-owned vehicles are growing by about 50 percent, thanks to a company program in which more than 10,500 car dealers offer a free three-month subscription to buyers of used cars, he noted. The percentage of the trials converting to paid subs is running in the low 30-percent range, Meyer said.

In 2014, the company sees a decline in self-pay net adds to 1.5 million from 2013’s forecast 1.6 million because a greater percentage of drivers with self-pay subscriptions are buying new cars and converting for a time to the new car’s free trial, which is paid for by automakers, Meyer said.

In another metric, the company said 57 million vehicles on the road, or 24 percent of all vehicles on the road, are equipped with satellite radio, and the company forecasts that number will almost double in five years.