SIRIUS XM Earnings in Line, Revs Beat on Subscriber Gain

SIRIUS XM Holdings Inc. (SIRI) reported better-than-expected financial results for the second quarter of 2014. Also, the company generated record high adjusted EBITDA and strong revenues.

Quarterly GAAP net income came in at $120 million or 2 cents per share compared with $125.4 million or 2 cents per share in the prior-year quarter. Second-quarter net earnings per share of 2 cents were exactly in line with the Zacks Consensus Estimate. Quarterly total revenue of $1,035.3 million exhibits annualized growth of 9.2% and also outpaced the Zacks Consensus Estimate of $1,013 million.

Quarterly total operating expenses totaled $750.8 million compared with $672.4 million in the year-ago quarter. Operating income, in the reported quarter, was around $284.6 million as against $267.7 million in the prior-year quarter. SIRIUS XM posted record second-quarter adjusted EBITDA growth of 31%, bringing the figure to $370 million.

At the end of second-quarter 2014, SIRIUS XM had $592.1 million of cash from operations compared with $442 million in the similar quarter last year. Quarterly free cash flow was $533.7 million against $379 million in the year-ago quarter.

At quarter end of the reported quarter, SIRIUS XM had nearly $170 million of cash and cash equivalents and $4,115.4 million of outstanding debt compared with $134.8 million and $3,093.8 million, respectively, at the end of 2013. At the end of the second quarter, the debt-to-capitalization ratio stood at 0.73 against 0.53 at the end of 2013.

Segment Results

Quarterly Subscriber revenues were $878.2 million, up 7.8% year over year. Advertising revenues stood at $25.5 million, up 17% year over year. Equipment revenues were $27.6 million, up 50% year over year. Other revenues were $104.1 million, up 22.2% year over year.

Subscriber Statistics

During the second quarter of 2014, SIRIUS XM added 475,472 (down 33.6% year over year) net subscribers, which reached the company’s total subscriber base to 26,301,581 as of Jun 30, 2014, up 5% year over year. Payment category wise, Self-Pay subscribers totaled 21,635,008 (up 7% year over year) while Paid Promotional subscribers were 4,666,573 (down 2.2% year over year).

Important Operating Metrics

In the reported quarter, average revenue per user came in at $12.36 compared with $12.28 in the year-ago quarter. Average self-pay monthly churn rate was 1.8% against 1.7% in the prior-year quarter. New Vehicle Customer Conversion rate came in at 42% versus 45% in the year-earlier quarter. Subscriber acquisition cost stood at $33 compared with $47 in the year-ago quarter.

Financial Outlook

Management expects full-year 2014 revenues to reach a $4.1 billion mark while adjusted EBITDA is projected to be around $1.425 billion. Free cash flow will likely be $1.1 billion. Also, the company estimates an addition of 1.25 million net new subscribers in 2014.

Our Take

SIRIUS XM is poised for a strong revenue growth in the forthcoming quarters mainly attributable to a robust telematics market and strong auto sales in the U.S. Earlier, the company reached an agreement with Ford Motor Co. (F) to provide the latter’s customers with a five-year subscription to SiriusXM Traffic and SiriusXM Travel Link. These services will be available on all Ford vehicles, including the 2015 models equipped with navigation facilities.

The company also has strong telematics partnerships with almost all major car manufacturers, including Acura, BMW, Honda, Hyundai, Infiniti, Lexus, Nissan and Toyota.

Such partnership coupled with innovative product launches will safeguard its position against Apple Inc.’s (AAPL) iTunes and Pandora Media, Inc. (P).