Parsing Sirius XM's Positive Q3 Earnings

| About: Sirius XM (SIRI)

By Brian “Newman” Rayl

During a live conference call Thursday, Sirius XM Radio (NASDAQ: SIRI) reported numbers that beat analyst estimates in nearly every category and raised guidance for full-year 2010. The conference call [see transcript] had many highlights and there were a number of metrics that were all time records for the company.

  • Adjusted revenue was up 15% year-over-year to a record $722.5 million (up from 629.6 million in the same quarter in 2009).
  • Adjusted EBITDA (Earnings before interest, tax, depreciation, and amortization) was a record $170 million, up 60% year-over-year from 106 million.
  • Net subscriber additions were 334,727 (a number that was pre-announced back in October), up from 102,295 in 2009.
  • Free Cash Flow (FCF) of 62 million was recorded in this quarter of 2010, up 132% from 26.7 million in 2009.
  • Net income was 67.9 million or a penny per share in Q3 2010, compared to a loss of 151.5 million or a lost of 4 cents per share in 2009.

One of the biggest things that most listeners were anticipating was an announcement regarding the Howard Stern contract. Sirius XM CEO Mel Karmazin had announced during the Q2 conference call that they were hopeful that an announcement would be made before the conference call Thursday. It was reported that they are still in active negotiations with Stern, whose contract is up at the end of this year, but there is nothing to announce at this time. He did stress that after the recent bond offering and with current cash in hand, the company had over $500,000 to invest in bringing any content that they felt would improve the user experience to Satellite Radio.

Sirius XM recorded a loss on extinguishment of debt in the 3rd quarter of 2010 of $300,000, compared to a loss of $138.1 million in 2009. For the nine months ending September 30th, 2010, net income attributable to common stockholders was a profit of $124.5 million, or 2 cents per share, compared to a loss of ($550) million, or a loss of 15 cents per share, in the same period in 2009.

In October, the XM subsidiary completed an offering of $700 million of 7.625% Senior Unsecured Notes due 2018. XM used a portion of the proceeds of the offering to repurchase $489,065,000, or 93% aggregate principal amount of its outstanding 11.25% Senior Secured Notes due 2013.

The company expects full year 2010 EBITDA of approximately $600 million, which is an upgrade from their previous guidance of $575 million, and expects full-year revenue to exceed $2.8 billion, compared to its previous guidance of “approaching” $2.8 billion. The company also reiterated its previous increase in subscriber guidance and expects to end 2010 with 20.1 million subscribers.

Mel Karmazin also released some information on the upcoming Satellite Radio 2.0 launch, projected for the fourth quarter of 2011. He stated that the new Satellite Radio 2.0 technology is going to allow the company the ability to add an additional 25% bandwidth. This additional bandwidth would only be available on the new 2.0 radios, but stressed that this would not make any existing radios obsolete. Karmazin stated that the additional bandwidth would allow them to add targeted programming to different demographics and used the example of being able to add 10-12 Spanish language programming channels to serve the Hispanic community. Karmazin said that the Hispanic community has been severely underserved by broadcasters and represented a growing portion of the population across the United States. He also stated that Satellite Radio 2.0 would bring a level of simplicity and customization to Satellite Radio that would appeal to subscribers.

Following the conference call, Standard & Poor’s media analyst Tuna Amobi released an upgrade on the equity, reiterating his BUY rating and raising his price target to $2.00

Disclosure: Long SIRI