SiriusXM Reports ( SIRI ) First Quarter 2011 Results , Top 2011 buy ?

SiriusXM Reports First Quarter 2011 Results




Tuesday , May 03, 2011 07:00ET
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NEW YORK, May 3, 2011 /PRNewswire/ -- Sirius XM Radio (NASDAQ: SIRI) today announced first quarter 2011 results, including revenue of $724 million, up 9% over first quarter 2010 revenue of $664 million, and adjusted EBITDA of $181 million, up 15% from $158 million in the first quarter of 2010.









"SiriusXM's first quarter results have put us on track to attain our full year goals for subscriber, revenue, and adjusted EBITDA growth. Significantly, we are now in a position to raise our free cash flow estimate for the year," said Mel Karmazin, Chief Executive Officer, SiriusXM. "Consumers are buying cars again and demand for our product is strong. Were it not for the OEM supply chain uncertainty resulting from the tragedy in Japan, we would be in a position to raise our subscriber guidance today."





Other highlights from the quarter include:





-- Subscriber growth accelerates. Strong auto sales drove net subscriber

additions in the first quarter of 2011 to 373,064, up 118% from 171,441

in the first quarter of 2010. Ending subscribers as of March 31, 2011

were 20,564,028, up 9% from the 18,944,199 subscribers reported as of

March 31, 2010.

-- SAC improves. Subscriber acquisition cost (SAC) per gross subscriber

addition was $57 in the first quarter of 2011, a 3% improvement from the

$59 reported in the first quarter of 2010.

-- Churn stable. Average self-pay monthly customer churn was 2.0% in the

first quarter 2011, in-line with the first quarter 2010 monthly average

of 2.0%.





"We operate in a highly competitive audio entertainment marketplace, where there are more choices than ever before, yet consumers continue to choose SiriusXM. We continue to invest in content, expand distribution and improve our technology to deliver the most compelling value proposition possible to consumers across the country," Karmazin added.





Free cash flow in the first quarter of 2011 was ($17) million, a $110 million improvement from the ($127) million recorded in the first quarter 2010. These improvements were driven by declines in satellite capital expenditures and improved adjusted EBITDA. Net income in the first quarters of 2011 and 2010 was $78 million and $42 million, respectively, or $0.01 per diluted share in each period.





"We ended the first quarter with $434 million of cash and cash equivalents after deploying approximately $135 million to repurchase debt. In April, we repurchased approximately $74 million of our 3.25% Convertible Notes due 2011 via a cash tender offer," said David Frear, SiriusXM's Executive Vice President and Chief Financial Officer. "We continue to make progress toward reaching our leverage target. Our net debt to adjusted EBITDA declined to 4.1x at the end of the first quarter of 2011 from 6.6x at the end of the first quarter of 2010."





The discussion of adjusted EBITDA excludes the effects of stock-based compensation and certain purchase price accounting adjustments. A reconciliation of non-GAAP items to their nearest GAAP equivalent is contained in the financial supplements included with this release.





2011 GUIDANCE





In 2011, we continue to expect full-year revenue of approximately $3 billion. Our adjusted EBITDA projection remains at approximately $715 million. Full year self-pay churn and conversion rates for 2011 should be broadly similar to those seen in 2010, and we continue to expect to grow our net new subscribers by 1.4 million in 2011. Free cash flow in 2011 should approach $350 million as compared to previous guidance for free cash flow approaching $300 million.





FIRST QUARTER 2011 RESULTS





Subscriber Data.





The following table contains actual subscriber data for the three months ended March 31, 2011 and 2010, respectively:







Unaudited --------- For the Three Months Ended March 31, ------------------------------------ 2011 2010 ---- ---- Beginning subscribers 20,190,964 18,772,758 Gross subscriber additions 2,052,367 1,720,848 Deactivated subscribers (1,679,303) (1,549,407) Net additions 373,064 171,441 ------- ------- Ending subscribers 20,564,028 18,944,199 ========== ========== Self-pay 16,807,643 15,773,671 Paid promotional 3,756,385 3,170,528 Ending subscribers 20,564,028 18,944,199 ========== ========== Self-pay 120,844 69,739 Paid promotional 252,220 101,702 Net additions 373,064 171,441 ======= ======= Daily weighted average number of subscribers 20,233,144 18,783,263 ========== ========== Average self-pay monthly churn (1) 2.0% 2.0% === === Conversion rate (2) 44.7% 45.2% ==== ====

____________



See accompanying footnotes.





Subscribers. The improvement was due to the 19% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle penetration and returning activations.





Average Self-pay Monthly Churn. While churn remained flat, changes in vehicle ownership were offset by reductions in non-pay cancellation rates.





Conversion Rate. The decrease was primarily due to changing mix of sales among auto manufacturers.





Metrics.





The following table contains our key operating metrics based on our unaudited adjusted results of operations for the three months ended March 31, 2011 and 2010, respectively:







Unaudited Adjusted ------------------ For the Three Months Ended March 31, ------------------------------------ (in thousands, except for per subscriber amounts) 2011 2010 ---- ---- ARPU (3) $11.52 $11.48 SAC, per gross subscriber addition (4) $57 $59 Customer service and billing expenses, per average subscriber (5) $1.08 $0.99 Free cash flow (6) $(16,874) $(127,203) Adjusted total revenue (8) $727,561 $670,563 Adjusted EBITDA (7) $181,359 $157,757

____________



See accompanying footnotes.





ARPU increased by $0.04, primarily driven by an increase in sales of premium services, including "Best of" programming, data services and streaming and an increase in other revenue due to additional subscribers subject to the U.S. Music Royalty Fee, partially offset by an increase in subscriber retention programs and in the number of subscribers on promotional plans.





SAC, Per Gross Subscriber Addition, decreased primarily due to a 19% increase in gross subscribers, lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from radio manufacturers, partially offset by an increase in OEM production with factory-installed satellite radios compared to the three months ended March 31, 2010.





Customer Service and Billing Expenses, Per Average Subscriber, increased primarily due to higher call volume and handle time per call, an increase to bad debt expense driven by an alignment of policies and personnel costs, partially offset by lower general operating costs.





Free Cash Flow increased principally as a result of improvements in net cash provided by operating activities and decreases in capital expenditures. Net cash provided by operating activities increased $56 million to $18 million for the three months ended March 31, 2011, compared to the ($38 million) used in operations for the three months ended March 31, 2010. Capital expenditures for property and equipment for the three months ended March 31, 2011 decreased $64 million to $35 million, compared to $99 million for the three months ended March 31, 2010. The increase in net cash provided by operating activities was primarily the result of higher collections of amounts due from subscribers, the timing of interest payments on our debt, and the early repayment in the first quarter of 2010 of liabilities deferred in 2009 that were scheduled to be repaid, at 15% interest, in monthly installments from April 2010 through March 2011. The decrease in capital expenditures for the three months ended March 31, 2011 was primarily the result of decreased satellite construction and launch expenditures due to the launch in the fourth quarter of 2010 of our XM-5 satellite.





Adjusted Total Revenue. Set forth below are our adjusted total revenue for the three months ended March 31, 2011 and 2010, respectively. Our adjusted total revenue includes the recognition of deferred subscriber revenues acquired in the merger between SIRIUS and XM (the "Merger") that are not recognized in our results under purchase price accounting and the elimination of the benefit in earnings from deferred revenue associated with our investment in XM Canada acquired in the Merger.







Unaudited --------- For the Three Months Ended March 31, ------------------------------------ (in thousands) 2011 2010 ---- ---- Revenue: Subscriber revenue, including effects of rebates (GAAP) $622,437 $579,509 Advertising revenue, net of agency fees (GAAP) 16,558 14,527 Equipment revenue (GAAP) 15,867 14,283 Other revenue (GAAP) 68,977 55,465 Total revenue (GAAP) 723,839 663,784 Purchase price accounting adjustments: Subscriber revenue 1,909 4,966 Other revenue 1,813 1,813 Adjusted total revenue $727,561 $670,563======== ========







For the three months ended March 31, 2011, the increase in subscriber revenue was primarily attributable to a 8% increase in daily weighted average subscribers, an increase in sales of premium services, including "Best of" programming, data services and streaming. The increase in other revenue was driven by additional subscribers subject to the U.S. Music Royalty Fee and increased royalty revenue from Sirius Canada.





Adjusted EBITDA. EBITDA is defined as net income (loss) before interest and investment income (loss); interest expense, net of amounts capitalized; income tax expense and depreciation and amortization. Adjusted EBITDA removes the impact of other income and expense, losses on extinguishment of debt as well as certain other charges, such as, goodwill impairment; certain purchase price accounting adjustments and share-based payment expense.







Unaudited Adjusted ------------------ For the Three Months Ended March 31, ------------------------------------ (in thousands) 2011 2010 ---- ---- Total revenue $727,561 $670,563 Operating expenses: Revenue share and royalties 136,862 123,539 Programming and content 83,273 90,471 Customer service and billing 65,487 55,577 Satellite and transmission 18,232 19,389 Cost of equipment 6,405 7,919 Subscriber acquisition costs 126,926 107,045 Sales and marketing 49,156 49,942 Engineering, design and development 10,024 9,826 General and administrative 49,837 49,098 Total operating expenses 546,202 512,806 ------- ------- Adjusted EBITDA $181,359 $157,757 ======== ========

For the three months ended March 31, 2011, the increase in adjusted EBITDA was primarily due to an increase of 9%, or $57 million, in adjusted revenues, partially offset by an increase of 7%, or $33 million, in expenses included in adjusted EBITDA. The increase in revenue was primarily due to the increase in our subscriber base and by additional subscribers subject to the U.S. Music Royalty Fee. The increase in expenses was primarily driven by higher subscriber acquisition costs related to the 19% increase in gross additions, higher revenue share and royalties expenses associated with growth in revenues subject to revenue sharing and royalty arrangements, and increased customer service and billing expenses associated with subscriber growth, partially offset by lower programming and content costs.