SIRIUS XM Radio Inc. (SIRI) declared its financial results for the first quarter of 2011 that barely met the Zacks Consensus Estimates. Quarterly GAAP net income was $78.1 million or 1 cent per share compared with a net income of $41.6 million or 1 cent per share in the prior-year quarter. First quarter EPS of 1 cent was exactly in line with the Zacks Consensus Estimate.
Quarterly total revenue of $723.8 million was an improvement of 9% year over year, and slightly below the Zacks Consensus Estimate of $726 million. The year-over-year revenue growth was primarily attributable to an increase in the subscriber base, higher sale of “Best of” programming, and rate increases to the company's multi-subscription and Internet packages.
Quarterly total operating expenses were $559.7 million compared with $538.6 million in the year-ago quarter. Operating income, in the first quarter of 2011, was $164.2 million compared with an operating income of $125.1 million in the year-ago quarter. Quarterly adjusted EBITDA was $181.4 million compared with $157.8 million in the prior-year quarter.
During the first quarter of 2011, SIRIUS XM generated $18.1 million of cash from operations compared with a cash consumption of $37.7 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was a negative $16.8 million compared with a negative $127.2 million in the year-ago quarter.
At the end of the first quarter of 2011, SIRIUS XM had $433.7 million cash and cash equivalents and $2,766.8 million of outstanding debt compared with $586.7 million cash and cash equivalents and $2,891.7 million of outstanding debt at the end of fiscal 2010. At the end of the reported quarter, debt-to-capitalization ratio was 0.90 compared with 0.93 at the end of fiscal 2010.
Segment Wise Results
Quarterly Subscriber revenue was $622.4 million, up 7.4% year over year. Advertising revenue was around $16.6 million, up 14% year over year. Equipment revenue was $15.9 million, up 11.1% year over year. Other revenue was $69 million, up 24.4% year over year.
Subscriber Statistics
During the first quarter of 2011, SIRIUS XM added 373,064 net subscribers, which raised the company’s total subscriber base to 20,564,028 at the end of March 31, 2011. Payment category wise, Self-Pay subscriber was 16,807,643 and Paid Promotional subscriber was 3,756,385.
Important Operating Metrics
In the first quarter of 2011, ARPU came in at $11.52 compared with $11.48 in the year-ago quarter. Average self-pay monthly churn rate was flat at 2% compared to the year-ago quarter. Subscriber acquisition cost was $57 compared with $59 in the prior-year quarter.
Customer services & billing expenses per subscriber were $1.08 compared with 99 cents in the year-ago quarter. Conversion rate was 44.7% compared with 45.2% in the prior-year quarter.
Future Financial Outlook
Management projected that full-year 2011 revenue of SIRIUS XM will be approximately $3 billion. Free cash flow in 2011 will approach $350 million. The company estimated that it will add 1.4 million net new subscribers in 2011. Adjusted EBITDA, in fiscal 2011, is likely to reach $715 million.
Recommendation
SIRIUS XM is the largest broadcast radio services provider in the U.S. and the second largest entertainment subscription services provider after Comcast Corp. (CMCSA). We maintain our long-term Neutral recommendation for SIRIUS XM. Currently, it holds a short-term Zacks #4 Rank (Sell). This is primarily due to the growing competitive threat from Pandora Internet radio.
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