This Thursday, February 9th, Sirius XM (NASDAQ:SIRI) will be reporting their Q4 and full year 2011 results. Before getting into what to expect, it is prudent to review the company guidance. This is the measuring stick the street will be using to gauge last years progress and anticipate what will happen in 2012. Company guidance for 2011 was:
- Expecting revenue of about $3 billion
- Adjusted EBITDA of about $715 million
- Free cash flow “approaching” $400 million.
- Net Subscriber Additions of 1.6 million
Revenue of $3 billion is a very attainable figure. The company finished Q3 at $2,231,000,000 in revenue implying that they only need $769 million to deliver the goods. In Q3 they came in within my expectations between $750 million and $762 million, but shy of the street $764,000. Either way, with the addition of a few hundred thousand subscribers, the company should have little trouble in garnering the additional $7 million needed. In fact, of the 9 analysts covering the equity, only one is calling for a slight revenue miss (by $1 million). The average expectation is $785 million. I am expecting revenue to come in between $784 and $791 million.
The company has guided to Adjusted EBITDA of about $715 million. In Q3 the company posted an impressive $197 million in this category. This brought their 2011 total to $563 million after three quarters, implying a need of just $152 million in Q4 to meet guidance. The company should have little trouble reporting that number. While there are some variables at play that typically happen in Q4, we should anticipate an Adjusted EBITDA number between $180 and $190 million. As you can see, the company will have little trouble delivering on this metric.
FREE CASH FLOW
Of all of the guidance, this one is the metric that is asking the most in order to meet guidance. Through the first three quarters of 2011 the company had put up $224 million. This implies that they need to bring in an impressive $176 million to reach the top end of their guidance of “approaching $400 million”. The key word in this guidance is “approaching”. I would consider $385 million as sufficient to qualify as “approaching”. This would lower the tally needed to $161 million. Through the first three quarters, the average in this category was about $75 million. This implies that Q4 has to be over twice the average that the company has seen for the year. Can they make it happen? They certainly can, but it will not be an easy task. CEO Mel Karmazin had raised this guidance a couple of times in 2011, so there is a distinct potential that the company could report FCF of anything over $350 million for the year (previous guidance) and claim victory. Look for FCF of between $360 million and $375 million.
The news in this category already happened. The company announced a year end total of near 1.7 million, and beat guidance by about 100,000. I had stated prior to the end of the year that reaching guidance would be a challenge. Many seemed to feel that I was calling for a miss. Those that really read my pieces understood where my concerns were, and the methods I outlined that would allow the company to beat the number. One of those requirements was December auto sales of above 1.1 million. December delivered 1.25 million. That presents a check mark in that category. Another was aggressive retention efforts. The company was very active here as well. In the end they hit the number. In my opinion it was driven more from retention and used car sales than from new car sales or production. Sales were above the pace needed, but production was lower than the Q2 which had produced the types of numbers the company needed to repeat.
This report will give us the clues needed for the reasons the company beat guidance. My critics believe that production and new car sales delivered the goods. I maintain it was the used car segment and retention efforts. We will know the answers soon. Look for a lower churn rate (indicative of bigger retention efforts), and a higher than normal addition to the self pay subscriber category (an indication of additions from trailing promotional subscriptions). In addition, Karmazin may well give flavor on the used car channel, as the numbers are now getting meaningful.
- Churn 1.8%
- ARPU $11.73
- Conversion Rate 45.2%
- SAC $54
The biggest issue during this call will not be the earnings report, but rather the outlook for 2012. The company has already issued some guidance for 2012 which includes:
- Revenue up 10% to about $3.3 billion,
- 20% growth in adjusted EBITDA to $860 million
- Free cash flow growth of 75% to $700 million.
These numbers were impressive when they were issued last year. Analysts will be looking for subscriber numbers, and may want to already see revenue raised a bit, as the 10% increase seems conservative. Mel Karmazin is a salesman, and is capable of putting on a good call with the type of spin (not a slam, but a compliment) that can generate excitement and belief. If investors are looking for flavor on Liberty Media, they will be disappointed. One thing I want to see is commitment from the company to step into the game on the Internet side of the business, and announce some consumer positives such as updated apps.