In fairness, AGT did have lower rating this year when compared to last, but there were still an estimated 10 million viewers and this year the talent competition was up against the hit show Dancing With The Stars.  An audience of 10 million is not something to ignore, especially when the central figure on that show is the biggest personality on the satellite radio airwaves.

While Sirius XM does garner the bulk of their subscribers from the auto channel, we must consider that there are 10′s of millions of cars on the roadways with satellite radios that are not active.  Why not let those consumers know that they can get Howard as well as just about anything else with a subscription to satellite radio?  Yes, an ad campaign would cost money, but Sirius XM is booking profits now and a concentrated campaign on a show like America’s Got Talent may be a catalyst that could help the company boost their metrics even further.

Sirius XM has been quite adept at keeping their subscribers once they get them with money spent in retention programs.  Kudos for this performance.  However, it is time to take things up a notch and to let the masses know you exist.  Spotify is cutting deals with Coke to expand their brand.  Facebook with their impressive Facebook Music service is propelling competitors to new heights while Sirius XM seems to squander such exposure.

It is not too late.  America’s Got talent has a long season ahead of it.  Howard Stern has been brilliant in exposing AGT to Sirius XM fans, it is time for Sirius XM to be brilliant and expose satellite radio to America’s Got Talent fans.  Sometimes investing getting exposure to a new audience is a good thing.  Sirius XM has done great in the auto channel.  Now they have a real reason to get into advertising on television.  Let’s hope that we see the Sirius XM brand on America’s Got Talent sooner rather than later.

While this move does not deliver de jure control of Sirius XM to Liberty Media it does get them much closer than they were, and at a price point less expensive than many anticipated.  If you were looking for a premium in the stock on this transaction, it has not materialized yet, and likely will not be as significant as many hoped for.

Sirius XM has been trading down ever since their Q1 earnings release.  The news of a Liberty purchase today may be what helped propel the equity up slightly as the market closed yesterday, but now that the price is known, watch out for the action today.   The very fact that Liberty is making a move is significant.

I have long carried the mantra that Sirius XM needed to develop their Internet radio business into something compelling.  It has always been my opinion that the potential on the Internet side of their business did not have some of the restrictions that the satellite based side of Sirius XM has had.  If you think about it there is only a certain amount of content that can be delivered within the bandwidth of spectrum Sirius XM has, while the options on the I.P. side are without limits.

Today Sirius XM, the Official Internet Radio Partner of MLB.com,  announced that it will launch on a new expanded suite of 30 play-by-play channels dedicated to streaming the official radio broadcasts of every MLB team on the Sirius XM Internet Radio App and online.

This is perhaps the fastest I have seen this company move relative to a major piece of content.  On Opening Day 2012, Sirius XM began streaming live radio broadcasts of every MLB game on smartphones, mobile devices and online for Sirius XM subscribers.  Fans nationwide are able to tune in to catch all of the action of their favorite team.  This suite of dedicated channels takes some of the frustration out of trying to find the correct channel for your game and is a welcomed addition to Sirius XM Internet Radio.  Hopefully the company can do similar things with the NFL, NBA, NHL, Soccer, and college sports.

The 30 new channels, each of which will be branded with the respective MLB team logo, will showcase that team’s radio announcers throughout the season, enhancing the number of play-by-play broadcasts Sirius XM can deliver to subscribers.  For the first time, Sirius XM subscribers on the SiriusXM Internet Radio App and online will have access to both the home and visiting team broadcasts for every MLB game, allowing them to hear their favorite team’s announcers all season long.

“Baseball fans have a special connection with their team’s radio voices,” said Steve Cohen, SiriusXM’s SVP of Sports Programming.  “Whether it’s Yankees vs. Red Sox, Cardinals vs. Cubs, Giants vs. Dodgers, or any other game, fans want to hear their team’s radio call when they tune in.  Our new channels on the Sirius XM App and online create an enhanced listening experience for our subscribers, giving them access to any MLB team’s radio broadcast, whether they are playing at home or on the road, on the same dedicated channel all season long.  And they get it all in digital quality audio.”

This is one of those days when consumers and investors in satellite radio can cheer and know that this company is indeed doing something special.

Mark one down for Mel Karmazin and the SiriusXM shareholders on this one. Although, at is hard to call billionaire SiriusXM savior John Malone a loser.

The FCC, rejected the March 20th application citing “Liberty Media was unable to obtain the passwords, signatures, and other necessary information from Sirius to properly file an electronic transfer of control application.”

In other words, the FCC is saying SiriusXM didn’t give you the licenses and… no, you can’t just have them.

Keep in mind that this does not mean that Mr. Malone still cannot gain control of SiriusXM, it just means that it’s not going to be that easy (or cheap). Liberty Media will now need to grow their 40% stake to at least 50% and then force shareholders to vote on the matter.

This means an increased cost to purchase shares and a sizable bill from the taxman if the transaction is in fact an acquisition.

What will happen to SiriusXM and it’s share price is anyone’s guess so, go ahead and guess in the comments below!

Subscribers can tune into the Horse Racing Radio Network broadcast of the Kentucky Derby on May 5, the Preakness Stakes on May 19, and the Belmont Stakes on  June 9.  All three race broadcasts air starting at 5pm ET on Sirius (ch.93) and XM (ch.209).

Additionally, listeners can tune into racing talk shows Down The Stretch, hosted by renowned track announcer Dave Johnson and journalist Bill Finley, Saturdays, 10am – 1 pm ET and At The Races with Steve Byk weekdays, 9am – 12pm ET. Both programs air on Sirius (ch.93) and XM (ch.209).

“The Triple Crown goes beyond the world of horse racing as one of the biggest events on the sporting calendar each year,” said HRRN President Mike Penna. “We look forward to bringing the majesty of this truly unique event to fans around the country on SiriusXM.”

Check out the special live edition of Down The Stretch on May 5th prior to the Derby from 10am – 5pm to hear pre-race analysis and interviews of the jockeys, trainers and owners.

This deal with Sonic Automotive puts SiriusXM in front of potential customers in over 100 dealerships across 15 states and 26 major metropolitan markets.

After the recent similar partnerships with AutoNation and Asbury, SiriusXM now has their three month deal in over 500 new dealerships since the beginning of 2012. With the company seeing 30-35% of those exposed to this program converting to full fledged subscribers, this is more good news for SiriusXM investors.

Sonic Automotive, is a Fortune 500 company and among the largest automotive retailers in the United States.

“Sonic dealers are devoted to giving their customers an attractive selection of pre-owned vehicles,” said Harold McLarty, Vice President of Pre-Owned Vehicles, Sonic Automotive.  “SiriusXM is installed in many of the pre-owned vehicles we sell.  So, delivering 3 months of SiriusXM’s expansive programming is a value-added feature we are excited to provide our customers.”

The good news is that the number is well over 1 million and should supply enough satellite radio equipped cars for SiriusXM to demonstrate continued subscriber growth.  The bad news is that at just a 2.3% gain, the sales this April were more modest than we would want to see.

In Q1 of this year Sirius benefited by being able to deliver a churn rate at 1.9% vs. 2.0% the year prior.  Had the company announced churn at 2.0% the subscriber number would have declined from the year prior.  Essentially the company is now more reliant on keeping churn at 1.9% than they ever have been.  Last year Q2 churn was 1.9% and the company delivered 452,000 subscribers.   While they may be able to match that churn rate, delivering 452,000 subscribers could be a challenge unless the company is able to boost the gross additions number well above the 2,179,000 reported in Q2 last year.  This could be a challenge in that Q2 auto sales should come in behind Q1, which helped produce 2,161,000, less than what was added in Q2 of last year.

Essentially the sales mix will play a major role in the current quarter.  More detail will be available in a Seeking Alpha article scheduled to publish later today.

Sales breakdown below:

Adjusted EBITDA for the first quarter of 2012 was $208 million, up 15% from $181 million in the first quarter of 2011.

“SiriusXM is starting the year with tremendous operational momentum.  We grew subscribers faster than any first quarter since our 2008 merger of Sirius and XM, and we improved our self-pay monthly churn rate to 1.9% despite implementing a price increase at the beginning of the year.  Rising auto sales and our strong execution should enable us to exceed our prior 2012 subscriber growth guidance of 1.3 million, which today we are raising to 1.5 million,” noted Mel Karmazin, Chief Executive Officer, SiriusXM.

“In 2012, we continue to expect record revenue, adjusted EBITDA, and free cash flow, and our subscriber base will also finish this year at another all-time record high,” said Karmazin.  ”Our number one focus is on delivering the best possible content to our subscribers – we are rolling out more satellite channels via factory-installed 2.0 radios, and we are improving our online offering by delivering even more live sports coverage, updated apps with enhanced features, and later this year, on-demand content and personalized radio.  There has never been a better time to be a SiriusXM subscriber, and we think our unparalleled audio product will produce strong operating and financial performance for our company in the years to come, which should result in great value to our stockholders.”

Additional highlights from the first quarter include:

• Subscriber growth accelerates.  Self-pay net subscriber additions improved by 148% to 299,348 and the subscriber base rose to an all-time high of 22.3 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by more than 200,000 from year end to 5.7 million.
• Churn improves.  Self-pay monthly churn was 1.9% in the first quarter of 2012, an improvement from 2.0% in the first quarter of 2011.  New vehicle consumer conversion rate was 45% in the first quarter of 2012, in-line with the first quarter of 2011.
• Free cash flow grows.  Free cash flow was $15 million in the first quarter of 2012, an improvement from the ($17) million recorded in the first quarter of 2011, and represented the first time SiriusXM has shown positive free cash flow in the first quarter of a year.

“We ended the first quarter with $747 million of cash, after the repurchase of approximately $57 million in aggregate principal amount of our debt during the first quarter.  Our leverage at the end of the first quarter improved to 3.9 times our adjusted EBITDA on a gross basis and 2.9 times our adjusted EBITDA on a net basis,” said David Frear, SiriusXM’s Executive Vice President and Chief Financial Officer.  “Our growing cash flow is reducing our leverage substantially, and this improving credit profile should benefit stockholders as we refinance or pay down more than $1 billion of high coupon debt over the next 15 months.”

2012 GUIDANCE

“With auto sales in the first quarter exceeding expectations and better than expected churn, we now expect to grow our net new subscribers by 1.5 million in 2012,” said Karmazin.  The Company reiterates its existing 2012 revenue, adjusted EBITDA and free cash flow guidance:

• Revenue of approximately $3.3 billion,
• Adjusted EBITDA of approximately $875 million, and
• Free cash flow of approximately $700 million.

FIRST QUARTER 2012 RESULTS

Subscriber Data and Operating Metrics 

The following table contains subscriber data and key operating metrics for the three months ended March 31, 2012 and 2011, respectively:

Subscribers. The improvement was due to the 5% increase in gross subscriber additions, primarily resulting from higher new vehicle shipments and light vehicle sales, as well as an increase in conversions from unpaid promotional trials and returning subscriber activations inclusive of previously owned vehicles. This increase in gross additions was partially offset by the 5% increase in deactivations.  The increase in deactivations was primarily due to an increase in paid promotional trial deactivations stemming from the increase in volume of paid trials, along with growth in our subscriber base, partially offset by a decline in the self-pay churn rate.

Average Self-pay Monthly Churn for the three months ended March 31, 2012 and 2011 was 1.9% and 2.0%, respectively. The decrease in the churn rate was driven by a reduction in the non-pay cancellation rate, as well as a favorable shift in the subscriber mix towards automotive vehicles, which churn at lower rates in comparison to aftermarket products.

New Vehicle Consumer Conversion Rate for the three months ended March 31, 2012 and 2011 was 45%.

ARPU increased primarily due to the increase in certain of our subscription rates beginning in January 2012, an increase in sales of premium services, including Premier packages, data services and streaming, partially offset by an increase in subscriber retention programs and in the number of subscribers on promotional plans and a decrease in the revenue from the U.S. Music Royalty Fee due to the December 2010 reduction in the rate from 15.3% to 10.8%.

SAC, Per Gross Subscriber Addition, increased in the three months ended March 31, 2012 primarily due to higher subsidies related to increased OEM installations occurring in advance of acquiring the subscriber, partially offset by improved OEM subsidy rates per vehicle compared to the three months ended March 31, 2011.

Glossary

Adjusted EBITDA – EBITDA is defined as net income before interest and investment loss; interest expense, net of amounts capitalized; income tax expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable):  (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) goodwill impairment, (iii) restructuring, impairments, and related costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and certain programming providers. We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our physical plant, capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our results and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use current and projected adjusted EBITDA to estimate our current and prospective enterprise value and to make investment decisions. Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation expense. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair value as determined using the Black-Scholes-Merton model which varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates.

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of comprehensive income of certain expenses, as discussed above. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure.  Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income as disclosed in our consolidated statements of comprehensive income. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income to the adjusted EBITDA is calculated as follows (in thousands):

Adjusted Operating Expenses – We define this Non-GAAP financial measure as our actual operating expenses adjusted to exclude the impact of certain purchase price accounting adjustments and share-based payment expense. We use this Non-GAAP financial measure to manage our business, set operational goals and as a basis for determining performance-based compensation for our employees.  The following tables reconcile our actual operating expenses to our adjusted operating expenses for the three months ended March 31, 2012 and 2011:

ARPU – is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting associated with the Merger. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

Free cash flow – is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity.  Free cash flow is calculated as follows (in thousands):

Subscriber acquisition cost, per gross subscriber addition – or SAC, per gross subscriber addition, is derived from subscriber acquisition costs and margins from the sale of radios and accessories, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of gross subscriber additions for the period. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit of amortization of deferred credits on executory contracts recognized at the Merger date attributable to an OEM. SAC, per gross subscriber addition, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

• Start Now – Allows users to go back in time by up to 5 hours to hear previously aired programming on many channels
• TuneStart – Hear songs from the beginning when tuning into a music channel
• Pause – Allows listeners to pause and resume live programming
• Fast Forward & Rewind – Allows users to skip forward and back on most channels
• Show Alerts – Gives users reminders when their favorite shows begin
• Improved reliability and sound – A key issue that was the source of many complaints
• Album Art – A small yet under-appreciated feature that adds to the user experience
• Artist information – Provides information on the artist that users can read.

I have spent the morning exploring the app and can report that as of now the company seems to have addressed all major concerns related to function.  Great news!  The apps seems to function as users would expect.  A virtually seamless experience that now rivals, in functionality and presentation, the offerings of companies like Pandora, slacker, and MOG.

Navigation around the app is intuitive and easy.  Channels are accessible via a categories button, a channels button, or a favorites button.  The favorites button allows easy access to the channels you listen to most.  Simply hold your finger (or thumb) on a channel to add it to your favorites.  Users can go a step further and mark favorite shows.  Users can customize the app via a settings menu.

The app does still have some room for improvements.  Thankfully it appears that  improvements at this point would be more cosmetic than anything relating to function.  For example:

• There is no real way to know that artist information is available by simply swiping your finger across or tapping the album art.  Once users are aware of the function they will certainly use it, but not all customers will be aware.  A small detail, but a valid improvement that could be made.
• Channel numbers – Each Sirius XM channel has a name and a number.  The names of all channels appear, but not the number.  Another small detail that would help if the company were to add a direct input function.
• No Direct Input Function – This may seem small, but if you like listening to Sirius Hits 1 as well as Howard Stern, the ability to simply input channel 100 would be helpful, especially while driving.
• Channel Up / Channel Down – Another feature that would be helpful to drivers using the app.  Sometimes we all just like to hit an up button or down button to explore channels on the fly while catching audio snippets.

Overall the new Android app is a success.  Subscribers no longer have to suffer through function issues, and have a way to navigate and use Sirius XM’s service to its highest level.  Congratulations Sirius XM!

This latest move by the satellite radio provider will help build brand awareness as well as allow the company to offer benefits to OEM partners for services that consumers want.  Sirius XM traffic is an add on service that costs just $3.99 per month.

In addition to the 4 years of Sirius XM Traffic, Volkswagen customers purchasing 2013 Volkswagen models with RNS 510 navigation system, will also receive a 3-month subscription to Sirius XM Travel Link, a premium nav/traffic service that provides drivers with data services and information, including fuel prices, weather forecasts, sports updates and movie listings.  Sirius XM Travel Link in conjunction with Sirius XM Traffic costs just $5.99 per month.

“We are excited that Volkswagen sees the value of SiriusXM and is offering satellite radio and premium data services to their customers,” said Larry Pesce, Group Vice President and General Manager, Infotainment and Advanced Audio Services, SiriusXM.  “Our unparalleled audio entertainment lineup as well as fuel prices, traffic data and weather will give Volkswagen drivers the ability to choose the perfect soundtrack for every road trip and plan how to get to their destinations safely and quickly.”

“Volkswagen is pleased to offer our customers popular features such as SiriusXM satellite radio, SiriusXM Traffic and premium data services such as SiriusXM Travel Link,” said Rainer Michel, Vice President of Product Marketing and Strategy, Volkswagen of America. “Additionally, we are pleased that customers of our Traffic-capable Navigation systems will be able to benefit from getting 4 years of SiriusXM Traffic. We believe that this is an innovative feature which customers will find useful in their everyday driving situations.”

Volkswagen of America will continue to give customers purchasing new VW vehicles equipped with satellite radio a 3-month subscription to Sirius XM’s commercial-free music, plus premier sports, news, talk and comedy.