SIRI

Sirius XM Holdings Inc. (SIRI)

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Sirius XM Radio (SIRI)

Q1 2009 Earnings Call

May 7, 2009 8:00 am ET

Executives

Paul Blalock - Senior Vice President Investor Relations

David J. Frear - Executive Vice President, Chief Financial Officer

James E. Meyer - President, Operations and Sales

Scott A. Greenstein - President, Chief Content Officer

Mel Karmazin - Chief Executive Officer

Analysts

David Bank - RBC Capital Markets

Murray Arenson - Janco Partners

Jim Goss - Barrington Research

Presentation

Operator

Good day, everyone and welcome to today’s SIRIUS XM Radio first quarter 2009 Earnings Conference Call. Just as a reminder, today’s call is being recorded. At this time, I would like to turn the conference over to our host for today, Mr. Paul Blalock, Senior Vice President of Investor Relations. Please go ahead, sir.

Paul Blalock

Thank you, Sarah. Good morning, everyone and welcome to SIRIUS XM Radio's earnings conference call. Today Mel Karmazin, our CEO, will be joined by Jim Meyer, President, Operations and Sales; Scott Greenstein, President and Chief Content Officer; and David Frear, our EVP and CFO. They will review SIRIUS XM's first quarter 2009 financial results and at the conclusion of our prepared remark, management will be glad to take your questions.

First I would like to remind everyone that certain statements made during this call might be forward-looking as that term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For information about those risks and uncertainties, please see SIRIUS XM's SEC filings. We caution listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them.

As we began, I would also like to caution our listeners that today’s results may and will include discussions of both actual results and pro forma results. Listeners should take special care to ensure accuracy in looking at today’s report.

I'll now hand the call over to David Frear.

David J. Frear

Thanks, Paul. SIRIUS XM's second full quarter as a combined company demonstrates continued and substantial progress in improving our financial results, despite the myriad of macro challenges confronting every consumer-facing discretionary business. The satellite radio business model, low variable costs and high contribution margin, combined with improved fixed cost, has clearly proven itself and you will see in our results that our team is delivering on the merger synergies we’ve outlined.

Most of the results I will discuss today will be based on portfolio combined company figures without purchase price accounting adjustments, which we believe represents the best way to observe the core trends underlying the business. And as you will see from our financial results, the cost savings we have been able to achieve are quite strong.

Top line revenue rose approximately 5%, or $27 million, versus the same period a year ago to $605 million, primarily driven by a 6% growth in average subscribers. Ad revenue fell 30% to $12 million from $18 million in the first quarter of 2008, reflecting an awful ad spending environment.

The slight decline in ARPU, under 1%, was entirely due to lower advertising revenue per subscriber, but it was partially offset with revenue from our best of programming plans.

For the second time, SIRIUS XM delivered positive adjusted income from operations, which we refer to as adjusted EBITDA, reaching $109 million compared to a negative $70 million in the first quarter of 2008, and nearly 3.5 times the $32 million we reported just one quarter ago. The company’s adjusted EBITDA improved by nearly $180 million on a $27 million increase in revenue, driven by cash operating expense improvements of 23% versus the first quarter of 2008, resulting in lower cash operating expenses of approximately $152 million.

While some of this cash expense reduction is from lower subscriber acquisition costs associated with lower gross additions, we also improved SAC per gross addition by 26% and accelerated our cuts in fixed costs which were down 25% in the quarter.

With the exception of revenue share and royalties, every expense line item used in calculating adjusted EBITDA declined from the prior year. Satellite and transmission declined 23%, programming declined 10%, sales and marketing was down 35%, G&A down 32%, and engineering costs down 48%.

SAC, as reported on the income statement, was $84 million, down 48% year over year. Of the $78 million reduction versus the prior year, approximately $50 million was due to lower gross adds and approximately $20 million was due to greater unit efficiencies as SAC per gross add declined 26% to $61.

The improvement was driven primarily by efficiency gains in our OEM channel where we saw improved economics arising from cheaper integrated head units and improving supply chain inventories, as well as higher inventory reserves taken in the year-ago period in the retail sector.

We also continue to see improvements in customer service and billing, with a 7% improvement to $1.06 per subscriber per month.

Summing up the financials, revenue improved $27 million, contribution margin improved by $26 million, pre-SAC EBITDA improved by $94 million, as we reduced fixed costs, and adjusted EBITDA improved by $179 million, taking us from a negative 12% margin in Q108 to a positive 18% margin in the first quarter of ’09.

Consolidated net loss improved 73% to a $63 million loss compared to $233 million a year ago.

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