Sirius XM (SIRI) reported Q3 operating results today and the immediate reaction was tepid. The company reported an EPS of 1 cent, missing analyst estimates. Personally I had the company at 2 cents achieved by rounding up from 1.6 cents. The company used $107 million in debt extinguishment, which would have allowed for a 3 cent quarter instead of the 1 cent we got.
The quarter for Sirius XM was very good with many records set, but the lack of any 2013 guidance and the insinuation that share buybacks will not happen in 2012 seems to have held back the street in its excitement for the company.
- Revenue of $867 million, up 14% from third quarter 2011 revenue of $763 million.
- Net income for the third quarter 2012 and 2011 was $75 million and $104 million, respectively, including a loss on extinguishment of debt of $107 million in the third quarter of 2012.
- Adjusted EBITDA for the third quarter of 2012 was $245 million, up 24% from $197 million in the third quarter of 2011.
- Sirius XM ended the quarter with $556 million of cash.
- Company leverage has improved dramatically in the past year, ending the third quarter at just 2.8x our adjusted EBITDA, down from 4.3x at the end of the third quarter of 2011
- Record subscriber growth. Self-pay net subscriber additions improved by 2% year-over-year to 371,000, pushing the self-pay subscriber base to an all-time high of 19.0 million subscribers. The total paid subscriber base rose to a record high 23.4 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by approximately 115,000 from the second quarter of 2012 to 6.2 million.
- Churn and conversion stable. Self-pay monthly churn was 2.0% in the third quarter of 2012, compared to 1.9% reported in the third quarter of 2011. New vehicle consumer conversion rate was 44% in the third quarter of 2012, unchanged from the third quarter of 2011.
- Free cash flow grows to record level. Free cash flow was $195 million in the third quarter of 2012, an improvement of 159% from the$75 million recorded in the third quarter of 2011.
The company reiterated its current 2012 Guidance
- Net subscriber growth approaching 1.8 million,
- Revenue approaching $3.4 billion,
- Adjusted EBITDA of approximately $900 million, and
- Free cash flow of approximately $700 million.
The outlook for Sirius XM is strong for the remainder of 2012 and into the next couple of years. The company highlighted the fact that by the end of 2012 nearly 50 million satellite radio equipped cars will be on the road. Sirius XM's used car initiative now has over 7,000 dealers participating. The company anticipates that 1 million gross additions will be added from the used car program this year and anticipates that number growing in 2013.
One item of note is that the NOL line carried $20 million of the anticipated $112 million that was left. I was anticipating that $56 million would be used. This would indicate that $92 million will be used in Q4. That already represents about 1.4 cents in Q4, meaning that the company should easily obtain the 3 cents that analysts are currently expecting.
Given the lack of guidance and information relating to a share buyback, or any discussion on Liberty Media (LMCA), the market reaction will be modest. If you were looking for $3.00 on the call you will likely be disappointed that the company did not offer up any such details.