The satellite radio company’s bulls and bears can each find evidence to support their views in the latest earnings report. Net income of $74.5M was down 28.5% vs last year’s Q3, while revenues of $867.4M were +13.7%. The revenue figure was higher than analysts’ forecast of $865.6M. But earnings per share, at a penny, was shy of the consensus expectations for two cents. One reason for the miss: The company took a $107M charge from its repurchase of $868M in debt. Sirius XM had previously said that its subscriptions would come in at 23.4M, up 445,921. CEO Mel Karmazin confirmed today that the company will hit its target for the year to add 1.8M subs, with revenues of about $3.4B. The company attributes the sub growth to increased car sales; many come with a satellite radio and a free trial period. But Sirius XM also saw a 9% increase in deactivations as it increased the number of free trials. “The Company has produced more free cash flow in the first nine months of this year than in any full year in its history, and we’ve used this cash to reduce our debt to its lowest level since the merger of Sirius and XM,” says Karmazin — who has said that he’ll leave in February, after Liberty Media takes control.
Shares are up in pre-market trading even though the satellite radio company had indicated last month that it would have good news about its Q2 results. Helped by a $3B income tax benefit, the company reported net income of $3.1B, up from $173.3M in the period last year, on revenues of $837.5M, +12.5%. Analysts had expected revenues of $834.4M. But they may be more impressed by Sirius XM’s revised guidance for this year. It now projects revenues of about $3.4B, up from the $3.3B forecast it gave in May, with net subscriber growth of 1.6M, up from 1.5M. Sirius XM ended Q2 with 22.9M subscribers +9% vs last year. Out of this group, 18.7M were paying subs, +8.7%. That’s higher than some analysts had forecast. The company says that the strengthening auto sales contributed to its results. Most new customers come from the ranks of car buyers whose vehicles come with Sirius XM radios already installed. While investors will like the results, they’ll be just as interested in hearing the latest about the efforts of Liberty Media — the company’s biggest shareholder — to take control. There were no mention of that in the Q2 report. “We intend to provide more innovative ways for our subscribers to access our best-in-class content, and we believe this focus on satisfying subscribers will also satisfy our shareholders,” CEO Mel Karmazin says.
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UPDATE, 6:15 AM: CEO Mel Karmazin is known as a straight-shooter, but showed today that he can also be diplomatic about a sensitive subject that hits close to home: Analysts in a conference call wanted to know what’s up with the FCC petition by John Malone’s Liberty Media to take over the rights to the satellite radio company’s broadcast licenses. Liberty says it has “de facto control” of Sirius XM by virtue of its 40% of the company’s stock, and right to hold five of the 13 board seats. Karmazin says he’s confident that the FCC will reject the petition. Although Liberty has “significant influence,” Karmazin says that ”our board absolutely concluded that they do not have de facto control…40 is not the new 50.” He says that he isn’t sure why Malone’s company filed its FCC petition. “Liberty has not indicated anything that they want to do. When they get asked, why are you doing it, they say they want to keep all of their options open.” While Karmazin wouldn’t criticize his largest shareholder, he added that “if the time ever comes that Liberty’s interests are different than the 60% shareholders, then we will do whatever we can do to protect the interest of our 60% shareholders.” Karmazin says he’s now just waiting to hear from the FCC.
The satellite radio company was back in the black in Q4, due largely to its belt tightening. It generated net income of $71.3M, up from an $81.4M loss in the period last year, on revenues of $783.7M, up 6.5%. The revenue figure was slightly shy of the $785.5M that analysts expected. But earnings, at 1 cent a share, matched the consensus estimate. Sirius XM ended 2011 with 21.9M subscribers, an increase of nearly 543,000 over the three month period. The company says that the pick up was largely due to improving auto sales, the most important driver of satellite radio subscriptions. But it also offered lots of discounted trial subscriptions, which resulted in a 1.6% drop in average revenue per user — and a 10% rise in deactivations. Sirius says it believes it will generate $875M in cash flow (adjusted EBITDA) in 2012, up from its earlier prediction of $860M — and will end the year with 23.2M customers. ”We continue to invest in improving the subscriber experience, all with the goal of keeping our subscribers engaged and entertained,” CEO Mel Karmazin says. Nevertheless, he told analysts that the company spent $324M on programming last year — down from $447M in 2008. And in 2012 “we will spend less on programming than we did in 2011.” He also warned that the company’s recent 12% price increase, to $14.49 a month, could increase subscriber churn although “we are not seeing any …
UPDATE, 6:05 AM: CEO Mel Karmazin says he’s not worried that Sirius XM will lose subs beginning in January when the monthly price will rise to $14.49 from $12.95. “We thought about raising the prices more,” he says. The company monitors consumer comments on social networks, and “we’ve seen them say they understand … there hasn’t been much reaction.” Still, he says that “we’re going to work closely with our ‘save’ desk’ ” to retain subs. He assured investors that he’ll keep costs under control but would consider repurchasing company stock or acquiring another company. “All of the bankers visit us regularly,” Karmazin says. He adds that he’s upbeat about 2012 in part because forecasts show a 1M pickup in auto sales, the main source of new satellite radio subscriptions. “The best is yet to come,” Karmazin says. Investors are less certain: Sirius XM’s share price fell more than 5% in pre-market trading after the company’s conference call. Lazard Capital Markets’ Barton Crockett says he’d give the company a “B” grade for its 3Q performance. The market wants to see sub growth and the latest figure, he says, was “light.”
PREVIOUS, 4:25 AM: The satellite radio company is down about 1% in pre-market trading: It reported 3Q net income of $104.2M, up 54% vs the same quarter last year, on revenues of $762.6M, up 6.3%. While the revenue figure was lighter than the $764.2M the Street expected, earnings of 2 cents a share beat analysts’ estimate of zero. Still, the subscription figures might worry some investors: Sirius XM ended 3Q with 21.3M subs, up 364,004 in the quarter.