Sirius XM Gets Into The Record Business

| About: Sirius XM (SIRI)

Sirius XM (NASDAQ:SIRI) is now in the record business. No, not the vinyl discs that played on a turntable via a record player, they are in the business of setting new company records. Sirius XM offered up its quarterly conference call this morning and in the process beat several records:

  • Record revenue of $940 million, beating the street.
  • Record Adjusted EBITDA of $283 million
  • Record EBITDA guidance of $1.14 billion
  • Record EBITDA margin of 30%
  • Record subscribers of over 25 million
  • Record Gross subscriber additions of over 2.655 million.
  • Record Net subscriber additions (post-merger) of 715,000
  • Record self-pay subscriber base of over 20 million
  • Record self pay churn at 1.7%
  • Record satellite radio installations at over 69% penetration
  • Record number of cars on the road that are satellite equipped at 54.5 million
  • Record ARPU at $12.28
  • Record SAC spending (post-merger) of $152 million. This is investing today for future growth. Average SAC was $52.

The simple takeaway from this call is that Sirius XM is on the right path to not only continued profitability, but also growing those profits. The company demonstrated that it is capable of fast adjustment. This was demonstrated in the ARPU line, which had shed a few cents for a few quarters in a row. Not only did management stop that slide, they also reversed it, setting up a new trend upward.

Another key metric of the quarter was the impressive churn number at 1.7%. It was a bit of an anomaly, and outside the guided range of 1.8% to 2.0%, but being at the low end of the churn scale is much more preferable than being at the high end. Typically the company has to rely on aggressive retention efforts to bring churn to acceptable levels. The usual efforts hurt ARPU. This quarter churn was down and ARPU up. That is a very positive development.

Sirius XM is now about $1.3 billion into a $2 billion share buyback program. The company has bought back 391 million shares since February. That represents about 78,000,000 shares per month on average, or 2.6 million shares per day. If you consider that average volume is at about 60,000,000, the Sirius XM impact is at about 4% to 5% of daily volume. This would support the management statement that the buybacks are not impacting the overall movement in daily stock prices. That being said, strategic buying at opportune times can be meaningful.

Sirius XM posted a 2 cent profit, meeting street expectations. Every other metric seemed to beat expectations across the board. The company did raise EBITDA guidance from $1.1 billion to $1.14 billion and reiterated all previous guidance. The Sirius XM story seems to be on track to stay in the record business for several quarters to come.

I would have expected a better run on the news coming out of this quarter. While it has yet to really develop today, I am anticipating several adjustments from the analyst community that will adjust ratings and price targets. In addition, we should begin to expect more news on the upgraded promotional subscriptions to the "All-Access" tier which includes Sirius XM Internet radio and access to customization capabilities such as MySXM and On-Demand. Lastly, it is apparent that the remaining $700 million dedicated to share buybacks will be spent by September. I would anticipate that an announcement relating to increasing the share buyback will be forthcoming in the next 60 days. Stay tuned.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.