SIRI

Sirius XM Holdings Inc. (SIRI)

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SIRIUS XM Radio (SIRI)

Q4 2011 Earnings Call

February 09, 2012 8:00 am ET

Executives

Hooper Stevens -

Mel Karmazin - Chief Executive Officer and Director

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

James E. Meyer - President of Sales and Operations

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

Bryan D. Kraft - Evercore Partners Inc., Research Division

James M. Ratcliffe - Barclays Capital, Research Division

Amy Yong - Macquarie Research

Presentation

Operator

Good day, everyone and welcome to the SiriusXM Radio's Full Year and Fourth Quarter 2011 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] And now your host for today's call, Mr. Hooper Stevens, Senior Director of Investor Relations and Finance. Mr. Stevens, please go ahead, sir.

Hooper Stevens

Thank you, Rufus, 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. 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 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 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 more information about these 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.

I will now hand the call over to Mel Karmazin.

Mel Karmazin

Thank you, all, once again for joining us on SiriusXM's earnings call to discuss our fourth quarter and full year 2011 results, and more importantly, our expectations for the future. We are very pleased to report our 2011 results met or exceeded the guidance we gave you at the beginning of the year, and I'm even more excited about our prospects for accelerating revenue and adjusted EBITDA growth in 2012. We expect to deliver a very good year across the board in 2012.

In 2011, we delivered the best year of subscriber growth since the merger of Sirius and XM by adding 1.7 million net new subscribers. Revenue reached a record of over $3 billion. Adjusted EBITDA climbed 17% to a record $731 million, beating our guidance of $715 million. Free cash flow essentially doubled to a record $416 million, beating our forecast of $400 million. These statistics paint a picture of remarkable growth and record achievements in 2011, and had we not been constrained on the revenue side by our agreement with the FCC and other litigation, our numbers would have been even stronger. Those handcuffs are now off for 2012 and beyond.

For 2012, we are very optimistic about our ability to grow subscribers and at this time, we expect 1.3 million net additions this year, which should put our subscriber base at another all-time record high of 23.2 million by the end of the year. The consensus for auto sales in 2012 is approximately $13.7 million, which represents the highest number since 2007, which was before the merger of Sirius and XM.

The fact that U.S. light vehicle sales should be up by 8% provides a solid foundation for subscriber growth this year. In addition to new car sales we expect this year, we will see a bigger contribution from the reactivation of radios in used cars. Our net subscriber addition guidance is tempered by our sense of conservatism around the price increase we implemented January 1, 2012. Since the time of the Sirius and XM merger, we have been conservative in all of our subscriber growth forecast. I believe this is a prudent cost and we will continue that practice. We will update our guidance, if appropriate, as the year progresses.

On January 1, the price restrictions came off and we raised the base price of our service by just under 12% to $14.49 per month. This was the first increase in the core price in the history of Sirius service, and only the second time ever on the XM platform. I'm pleased to report that initial indications about consumer reaction to the price increase are meeting our expectations. While no one likes to pay higher prices and we certainly don't like to charge more as we're competing against free services like AM, FM radio and IP radio, we are not seeing any major problems yet from the increase. It is still early, so we need to be conservative in our outlook. We will also continue to provide the best customer service possible. So when there are complaints, we are able to minimize churn.

Because of the price increase and our conservative outlook, we expect churn to be up modestly this year, probably in the 2.1% range. Without the price increase, we would be providing self-pay churn guidance consistent with past years of 1.9%. And we continue to expect a conversion rate in the 44% to 46% range, depending upon mix. The price increase will benefit our revenue performance in 2012 and 2013 as it rolls out and flows through the subscriber base. We are projecting that revenue will grow by almost 10% to a record $3.3 billion this year, and we expect further revenue growth in 2013 from more subscribers and a full year's effect on our price increase.

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