SIRI

Sirius XM Holdings Inc. (SIRI)

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SIRIUS XM Radio (SIRI)

Q2 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

Les Palinksy - J.P. Morgan

David Bank - RBC Capital Markets

Brett Harriss - Gabelli & Company

Jim Goss - Barrington Research

Murray Arenson - Janco Partners

Presentation

Operator

Good day, everyone and welcome to today’s SIRIUS XM Radio second quarter 2009 earnings conference. Just as a reminder, today’s call is being recorded. (Operator Instructions) 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. Good morning, everyone and welcome to SIRIUS XM Radio's second quarter 2009 earnings conference call. Today Mel Karmazin, our CEO, will be joined by David Frear, our EVP and CFO, and they will review SIRIUS XM's 2009 second quarter financial results. At the conclusion of our prepared remarks, 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 and more information on the company is contained in 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 begin, I would like to caution our listeners today that some of the results may include discussions of both actual results and pro forma results. Listeners are cautioned to take special care to ensure accuracy in looking at today’s report.

I'll now hand the call over to Mel.

Mel Karmazin

Thanks, Paul. Good morning, everyone and thanks for joining us. Last week marked the one-year anniversary of Sirius and XM. What the company has accomplished in the last 12 months is extraordinary. We successfully integrated the two companies, captured a significant amount of synergies, offered consumers programming and price choices, now provide a significantly better listening experience for our subscribers, and very importantly addressed the legacy liquidity issues facing the company as a result of the debt maturities. This was all accomplished during the most difficult business environment in recent history.

Earlier this year we communicated to investors that as a result of our merger, we are able to rationalize our cost structure and as a result, SIRIUS XM is truly a cash flow growth story, and a great story it is. As you saw in our press release this morning, we increased for the third time since our merger our guidance for 2009 adjusted income from operations, which we also refer to as adjusted EBITDA.

We anticipate over $400 million this year compared with a loss of $136 million in 2008, which is a swing of over $536 million in one year. I believe you will all agree that will be astonishing performance.

Second quarter 2009 results marks our third consecutive quarter of significant growth in positive adjusted EBITDA, with $132 million in second quarter adjusted EBITDA, it is clear that the merger of Sirius and XM is paying off. Compared to one year ago, our adjusted EBITDA improved by approximately $193 million. More specifically, expenses that included in the adjusted EBITDA decreased $187 million, or approximately 28% compared with the second quarter of 2008. Year-to-date, we have produced $241 million in positive adjusted EBITDA. The company also generated positive free cash flow in the second quarter of $13 million as compared with negative pro forma free cash flow of $169 million in the second quarter of 2008. We grew revenue slightly, which is something very few consumer dependent companies were able to do in Q2. Revenue up 1% and expenses down 28% yields the outstanding financial results we achieved.

Other highlights of the quarter include a 3% increase in subscription revenue over last year, a 4% increase in self-pay subscribers, as compared with the second quarter of 2008, and I am pleased that the self-pay subscribers are virtually unchanged from the first quarter of this year. Total subscribers results included paid promotional subscribers were down 1% from second quarter of 2008, which is a decrease of 185,000 subscribers from the first quarter of 2009, mostly from the promotional bucket and a significant improvement compared to the first quarter decline we experienced.

I am also pleased to report that our monthly churn improved to 2% in the second quarter, down from the first quarter 2009 churn of 2.2%. Average revenue per subscriber, ARPU, also improved to $10.66 in the second quarter of 2009, up from $10.55 a year ago and also up from $10.43 in the first quarter of this year. Tiered selling, including best of, contributed to this increase.

We are also currently restructuring our advertising sales department and expect that advertising will be in the long-term an increased ARPU driver as well.

It also appears that the auto world is improving. Both General Motors and Chrysler emerged from the bankruptcy process relatively quickly. SAR declines appear to have bottomed out. Production schedules are resuming. Cash for clunker programs are working and we are cautiously optimistic that the second half of 2009 will show improvement. Our overall satellite radio penetration into vehicles manufactured in the second quarter was approximately 52%. We are also pleased with the progress we are seeing at Toyota, with a significant ramp of installs into its model year 2010 vehicles, and this should drive our overall penetration rate into the upper 50s in the second half of the year.

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