SIRIUS XM Radio Inc. (SIRI) declared robust financial results for the second quarter of 2012 with record high revenue, EBITDA (earnings before income, tax, depreciation, and amortization), free cash flow, and net subscriber addition. The impressive performance was primarily attributable to strong management execution on the back of rising auto industry sales. As per management, its growth momentum will further expand in the rest of 2012 and has raised financial outlook for the second half of 2012.
Quarterly GAAP net income was $3,134.2 million or 48 cents per share compared with a net income of $179.4 million or 3 cent per share in the prior-year quarter. However, second-quarter 2012 adjusted (excluding an income tax benefit of approximately $3 billion) earnings per share of 2 cents were exactly in line with the Zacks Consensus Estimate. Quarterly total revenue of $837.5 million, showed an improvement of 12.5% year over year, beating the Zacks Consensus Estimate of $833 million.
Quarterly total operating expenses were $609.6 million compared with $571.4 million in the year-ago quarter. Operating income, in the reported quarter, was around $228 million compared with $173 million in the year-ago quarter. Again, quarterly adjusted EBITDA was $237.1 million compared with $185.1 million in the prior-year quarter.
During the second quarter of 2012, SIRIUS XM generated $253.8 million of cash from operations compared with $195.4 million in the prior-year quarter. Free cash flow in the reported quarter was a little over $230 million compared with $165.4 million in the year-ago quarter.
At the end of the second quarter of 2012, SIRIUS XM had $868.3 million of cash and cash equivalents and $2,548.4 million of outstanding debt compared with $774 million of cash and cash equivalents and $2,685.2 million of outstanding debt at the end of 2011. At the end of the previous quarter, debt-to-capitalization ratio was 0.39 compared with 0.79 at the end of 2011.
Segment Wise Results
Quarterly Subscriber revenue was $730.3 million, up 14.2% year over year. Advertising revenue was $20.8 million, up 14% year over year. Equipment revenue was slightly above $16.4 million, down 3.6% year over year. Other revenue was $70.1 million, up 0.8% year over year.
Subscriber Statistics
During the second quarter of 2012, SIRIUS XM added 622,042 (up 37.6% year over year) net subscribers, which raised the company’s total subscriber base to 22,919,462 at the end of June 30, 2012, up 9.1% year over year. Payment category wise, Self-Pay subscriber was 18,670,966 (up 8.7% year over year) while Paid Promotional subscriber was 4,248,496 (up 10.5% year over year).
Important Operating Metrics
In the second quarter of 2012, ARPU came in at $11.97 compared with $11.53 in the year-ago quarter. Average self-pay monthly churn rate was 1.9%, remaining same year over year. Customer Conversion rate of 45% also same year over year. Likewise, subscriber acquisition cost stood at $54, at par with the year-ago quarter figure.
Future Financial Outlook
Management projects full-year 2012 revenue of SIRIUS XM to be approximately $3.4 billion. Free cash flow for fiscal 2012 will be $700 million. The company estimated that it will add 1.6 million net new subscribers in 2012. Adjusted EBITDA, in fiscal 2012, is likely to reach $900 million.
Recommendation
SIRIUS XM is the largest broadcast radio service provider in the U.S. The company competes with free Internet radio service provider Pandora Media Inc. (P). We maintain our long-term Outperform recommendation on SIRIUS XM. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock. This was mainly due to its current valuation, which soared more than 73% in the last year.
PANDORA MEDIA (P): Free Stock Analysis Report
SIRIUS XM RADIO (SIRI): Free Stock Analysis Report
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