SIRI

Sirius XM Holdings Inc. (SIRI)

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SIRIUS XM Radio (SIRI)

Q2 2011 Earnings Call

August 02, 2011 8:00 am ET

Executives

Scott Greenstein - President and Chief Content Officer

Mel Karmazin - Chief Executive Officer and Director

James Meyer - President of Sales and Operations

David Frear - Chief Financial Officer and Executive Vice President

Hooper Stevens -

Analysts

Michael Pace - JP Morgan Chase & Co

Benjamin Swinburne - Morgan Stanley

Bryan Kraft - Evercore Partners Inc.

Barton Crockett - Lazard Capital Markets LLC

Leah Pilla - UBS

Presentation

Operator

Good morning, and welcome to SiriusXM Radio's Second Quarter 2011 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the call over to Hooper Stevens, Senior Director, Investor Relations and Finance. Mr. Stevens, please go ahead.

Hooper Stevens

Thank you, Kasey, and good morning, everyone. Welcome to SiriusXM Radio's earnings conference call. Today, Mel Karmazin, our Chief Executive Officer, will be joined by David Frear, our Executive Vice President and Chief Financial Officer; Jim Meyer, President of Operations and Sales; and Scott Greenstein, President and Chief Content Officer. 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 the 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 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 those risks and uncertainties, please view SiriusXM's SEC filings. We advise 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 advise our listeners that today's results will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation and certain purchase price accounting adjustments.

With that, I will now hand the call over to Mel Karmazin.

Mel Karmazin

Thanks, Hooper, and thank you, all, for joining us this morning. On our last earnings call, I reported that we were very optimistic about the results that the company will report in 2011. We said that were it not for the uncertainty of the impact that the tragedy in Japan would have on our OEM partners' supply chain and the sluggishness of the overall economy, we would be raising our subscriber growth guidance. Well, the economy remain sluggish, but we are confident that SiriusXM will have a very strong year. So today, we raised our guidance to add 1.6 million subscribers this year. That will be up 13% from the number of subscribers we added last year. We also raised our free cash flow guidance, and I'll talk more about that in a moment.

I know that there is a great deal of conversation about all the competition we face, but SiriusXM is so well positioned in this market we continue to grow, and as a matter of fact, our growth in subscribers is accelerating year-over-year. This growth is a verification of our unique and very desirable service. We are growing in what is a very competitive market and a weak economy. Our second quarter results reflect the continued strong demand we're seeing for our service, as well as the inherent power of our business model. We grew subscribers by 452,000. Sirius has over 21 million paying subscribers, an all-time record high.

Gross adds were up 8% year-over-year to nearly 2.2 million, outpacing a 7% rise in U.S. light vehicle sales. And gross adds were up 6% sequentially despite a 7% contraction in the auto SAR number from first quarter to second quarter. This is a result of OEMs continuing to increase satellite radio penetration into their vehicles, over 65% in the second quarter. Our penetration rate has never been higher, and I think it highlights how satisfied auto makers are with our service and the broad demand shown by consumers. Just to repeat, over 65% of all new vehicles manufactured for sale in the U.S. had a factory-installed Sirius or XM Radio in the dash. In the second quarter, we had the highest number of gross adds in any quarter since our merger and had the second highest number of quarterly net adds since the merger.

Our growth was also helped this quarter by a contribution from second owners of vehicles. With General Motors' support in April, we began enrolling Chevy, Buick, GMC and Cadillac dealers nationwide in a new program where, for the first time, we are providing all purchases of used vehicles, not just certified preowned, with a complementary 3-month trial of SiriusXM. We have received a very positive response from dealers who have enthusiastically embraced this program as a way of increasing value of their inventory and improving the used car sales process.

As announced in June, over 1,000 General Motors dealers are now able to activate our service in vehicles on their lots and that service seamlessly transitions to a customer trial after sale. SiriusXM is working with other OEMs to sponsor similar programs for their dealers, and you should expect additional announcements later this year. I'll repeat: the previously owned market will be a very significant catalyst for our growth in the years ahead.

Our self-pay monthly churn rate was 1.9%, very similar to last year's second quarter of 1.8%. Our new car conversion rate was 45.2%, the best in 3 quarters, though we still believe there is room for improvement. Several automakers that recently increased their installations of satellite radio have gained share as a percentage of our installations. We are working with those OEMs on implementing best practices, which should result in conversion improvements over time.

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