SiriusXM Profits, Net Adds Rise In Q1 - Twice

SiriusXM Profits, Net Adds Rise In Q1

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New York - SiriusXM posted first-quarter gains in operating and net income and its best first-quarter net subscriber gain since the first quarter of 2008.

The first-quarter's net income of $78.1 million exceeded full-year 2010 net income of $43.1 million and reversed a fourth-quarter $81.4 million net loss, which resulted from one-time charges and the cost of extinguishing debt and credit facilities.

Net subscriber additions rose 118 percent to 373,064 from the year-ago quarter, marking the seventh consecutive quarter of subscriber-base expansion. The subscriber base now stands at a record 20.56 million.

Net subscriber gains were driven by rising new-car sales and the rising penetration of satellite radios in new cars, the company said.

First-quarter performance was so strong that the company would have significantly raised its full-year subscriber and revenue forecasts if it weren't for automaker supply-chain uncertainty resulting from Japan's twin disasters, said CEO Mel Karamzin during an investor's conference call.

Although the company has seen no supply issues to date, it is being prudent in not raising 2011 guidance beyond the previously forecast 1.4 million net new subscribers and revenues of $3 billion, Karmazin said. The company is confident that satellite radios themselves will not face supply issues, he noted.

If the automaker's supply chains result in lower than expected car sales, "demand will be even stronger for us in 2012 than currently anticipated," Karmazin added.

The company did raise its free cash-flow estimate for the year to around $350 million from $300 million.

In other comments, the company:

-- didn't disclose any new details of its planned Sirius XM 2.0 service, still due by the end of the year through retail channels via plug-and-play radios.

--noted that its retail aftermarket subscriber base continued to shrink in the first quarter, falling by "a couple hundred thousand" as it has in recent quarters, to a little more than 6.7 million out of 20.56 million, one executive said.

--and called it "likely" that it would raise its $12.95/month basic subscription rate in the future after holding it steady since the launch of service 10 years ago.

Karmazin declined to when rate hikes would go into effect after the July 28 expiration of voluntary price caps that the company agreed to impose as one of many conditions required by the Federal Communications Commission (FCC) to approve the 2008 merger of Sirius and XM into a single company. Although the FCC has asked for public comments on whether the satellite-radio rate caps should be extended, Sirius XM has previously said the caps would likely expire July 28.

Any rate hikes will be greater than the inflation rate to "compensate the company for its content," which has expanded over the years, Karmazin said.

In releasing its latest financial figures, Sirius XM said it posted a 9 percent first-quarter gain in revenues to $723.8 million, driven largely by subscriber-base expansion; a 31.2 percent gain in operating income to $164.2 million; and an 87.7 percent gain in net income to $78.1 million.

The first-quarter performance follows full-year 2010 net income of $43.1 million compared to a 2009 net loss of $352 million.

Also in the first quarter, the company continued to reduce its debt load. The ratio of net debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) falling to 4.1 times from a year-ago 6.6 times. Long-term debt fell to $2.67 billion from a year-ago $2.7 billion.

First-quarter churn of 2 percent matched the year-ago churn rate.

On the downside, the company's rate of converting promotional subscribers into paid subscribers slipped in the quarter to 44.7 percent from a year-ago 45.2 percent. Sirius XM, however, said the decline was due primarily to a changing mix of new vehicles sold, presumably a change to lower priced vehicles whose purchasers are more price-conscious.

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