SIRI

Sirius XM Holdings Inc. (SIRI)

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SIRIUS XM Radio (SIRI)

Q3 2012 Earnings Call

November 01, 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

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

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

James M. Ratcliffe - Barclays Capital, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

James M. Marsh - Piper Jaffray Companies, Research Division

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

Presentation

Operator

Good morning, and welcome to the SiriusXM Radio's Third Quarter 2012 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, Vice President, Investor Relations and Finance. Mr. Stevens, please go ahead.

Hooper Stevens

Thank you, Robin, and good morning, everyone. Welcome to SiriusXM'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 be also 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 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.

Mel Karmazin

SiriusXM had a great third quarter. Let me tell you how great. We ended the quarter with a record number of subscribers. We had a record net adds for a third quarter since the merger, record adjusted EBITDA, record revenue, highest quarterly ARPU, best adjusted EBITDA margin for a third quarter. Also, the lowest quarter programming expenditures since 2005, while at the same time, offering more and better content than at any time in our history. Churn and conversion were within our normal ranges. Not only did we have a record third quarter free cash flow, but we have generated more free cash flow in the first 9 months than in the full year for every year in the history of satellite radio. On top of this, we also have less debt than at any time since the merger. For me, all that adds up to a great third quarter.

The strong subscriber performance in the third quarter and continued outlook for growth also enabled us to raise our subscriber guidance for the third time this year. Our third quarter results further demonstrate that with the right product, the right business model and strong execution, our company can deliver exceptional results and growth for our shareholders. We grow subscribers, grow revenue and by holding a tight line on expenses, we produced robust growth in adjusted EBITDA and free cash flow, which we used to benefit shareholders. We are performing very well in a tepid economic climate and within an audio entertainment business that has more competitiveness today than it has ever been.

We grew net subscribers by 446,000 in the third quarter, a 34% increase in subscriber growth from last year's third quarter. Year-to-date, we have added nearly 1.5 million net new subscribers, 27% more subscribers than we added in the first 9 months of 2011. We are very confident that we will meet or exceed our new subscriber guidance for 2012 of 1.8 million net additions. We believe that this is still conservative. The fourth quarter should be another good one for SiriusXM.

The strong subscriber performance was certainly assisted by continued growth in auto sales. The September SAAR of approximately 14.9 million was up 14% year-over-year and was the highest monthly number since March of 2008. For the third quarter, SAAR, almost 14.5 million, was up 15% year-over-year and up 2% sequentially from Q2 and represented the highest quarterly SAAR figure since the first quarter of 2008 before the recession. For this year, our SAAR expectation remains at 14.3 million, about where it has been since the spring, which represents about 13% growth over 2011. Next year, analysts expect auto sales of 14.9 million, which represent growth of about 4% over the estimate for this year. We will further augment that growth with our initiatives in the used car market. All very good news for our company.

We should end this year with satellite-enabled vehicles in operation of 49.2 million, up 22% from the 40.2 million vehicles in operation at the end of 2011. In 2013, based on current auto sales and penetration estimates, we should end the year with just under 59 million vehicles in operation or growth of about 19%. Follow these trends out a few more years, and the company should have nearly 100 million satellite radio-enabled vehicles in operation in 2017. These growing numbers of satellite radio-enabled vehicles on the road provide the foundation of which we will grow SiriusXM in both our new and used car businesses.

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