Sirius XM Holdings Inc. (SIRI)

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Sirius XM Radio Inc. (SIRI)

Q2 2010 Earnings Call Transcript

August 4, 2010 8:00 am ET


William Prip – SVP, Treasurer, Investor Relations

Mel Karmazin – CEO

David Frear – EVP and CFO

Jim Meyer – President, Operations and Sales


Barton Crockett – Lazard Capital Markets

Leah Pilla – Knight Capital

Lev Polinsky – JPMorgan

David Bieber – Morgan Stanley

Murray Arenson – BGB Securities

Martin Pyykkonen – Janco

Jim Goss – Barrington

Matthew Harrigan – Wunderlich Securities


Good day everyone. And welcome to SIRIUS XM Radio second quarter 2010 earnings conference call. Today's conference is being recorded. (Operator Instructions)

And now, at this time, I would like to turn the conference over to Mr. William Prip, Senior Vice President, Treasurer, Investor Relations. Mr. Prip, please go ahead.

William Prip

Thank you, Lisa. Good morning, everyone. And welcome to SIRIUS XM Radio's earnings conference call. Today Mel Karmazin, our CEO will be joined by David Frear, our EVP and CFO, they will review SIRIUS XM's second quarter 2010 financial results. At the conclusion of our prepared remarks, management will be glad to take your questions. Jim Meyer, President, Operations and Sales; and Scott Greenstein, President and Chief Content Officer, will also be available for the Q&A portion of the call.

First, I would like to remind everyone that certain statements made during this call might be forward-looking statements as the 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 the assumptions, data and 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 more information about these 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 begin, I would like caution our listeners that today's results may include discussions of both actual results and adjusted results. And all discussions of adjusted results excluding the fact that stock-based compensation concerning of timing adjustments. Financial measures and metrics previously reported pro forma have been renamed adjusted.

I’ll now hand the call over to Mel Karmazin.

Mel Karmazin

Thanks, Will. Good morning, everyone. Today we announced financial results that compliment the very strong subscriber metrics we previously released for the second. We are very pleased with our financial performance, which is a continuation of the momentum of the past few quarters.

Our operational and financial metrics demonstrate the strength of our business model. We are taking full advantage of the marginally improving economy and current growth being experienced by the auto sector.

Our adjusted revenues were up 16% versus the same quarter last year. That is dramatic top line growth resulting in the second quarter adjusted revenue of over $700 million, which is a record revenue quarter for the company.

By continuing to focus on costs, we increased our adjusted EBITDA by 17%. Our total cash operating expenses would have been up only 2% if we exclude the subscriber acquisition costs related to adding almost 800,000 more subscribers than the second quarter of 2009, revenue share and royalty costs, which grow as our revenue grows and our discretionary increase in core advertising.

Most impressively our free cash flow jumped to $108 billion in the quarter, up from $13 million a year ago. These stunning financial results when married to the 580,000 net subscriber additions, our 47% conversion rate and 1.8% self-paid churn rate clearly show we are growing our business. We are not just growing but we are delivering a profitable (Technical Difficulty).

Our current contact line up is our strongest ever and we are doing it with lower costs than a year ago. That is a great accomplishment that was enabled by the merger two years ago.

I want to briefly reflect on the last couple of years. In July 2008, we closed the merger. So the first half of the year, we were in regulatory limbo. Concurrent with the closing of the merger in July, we had a refinancing that needed today be done and there was an additional overhang for some additional debt coming due following the financial markets collapse in the fall of 2008.

Operationally, we integrated the two companies very effectively and capturing significant synergies, but the cost of the refinancing issues, 2008 was a mixed year for us. In 2009, the combination of the overall economy, General Motors and Chrysler bankruptcies and you will recall that Chrysler did not produce any vehicles while in bankruptcy and our refinancing needs made the first half of 2009 very difficult to demonstrate the benefits of our merger for our shareholders.

We began to show what we can do in the second half of 2009. So 2010 will be our first full year where investors will get a real indication of how good our business can be. We offer up our second quarter performance as a preview of that.

Our strong revenue performance is a reflection of our unique business model, which is principally driven by subscription revenue. We are able to monetize our subscribers better than terrestrial radio and numerous internet audio services are able to monetize their audience.

In addition, to the 98% of our revenue that comes from subscribers, we have a secondary revenue stream from advertising. As a result of adding more advertisers we delivered 25% more advertising revenue in the second quarter, as compared today the second quarter of 2009.

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