satellite1-300x2131As most investors know SiriusXM (NASDAQ:SIRI) announced the Q4 2012 results yesterday and this was the first quarterly call with Interim CEO James Meyer at the helm.  Because SiriusXM had previously announced that it had met or exceeded all guidance for 2012 there was not going to be much in the way of surprises on the financials.  Overall the call went very well and prospects for SiriusXM look good for 2013.

There were a few items of note that deserve some attention:

  • Subscribers Grow to a Record 23.9 Million
  • Record Revenue of $3.4 Billion, Up 13%
  • Net Income of $3.5 Billion Includes an Income Tax Benefit of $3.0 Billion
  • Adjusted EBITDA Reaches a Record $920 Million, Up 26%
  • Free Cash Flow Grows 71% to a Record $709 Million
  • churn down to 1.8% for Q4

As you can see things look quite positive and the company is setting some impressive records.  There is a reason to remain bullish on this equity.  There were however some points that need to be considered by investors that want to understand risk and exposure (even if it is minimal):

  • Year over year subscriber growth for Q4 was actually down.  The company went from 543,000 in 2011 on 1.9% churn to 535,000 on 1.8% churn.  This happened despite better new car sales and despite a more ramped up used car initiative.
  • ARPU was down from Q3 by 3 cents.  This went from $12.14 to $12.12.  This is the first time in several quarters that this metric dipped.  It would seem to indicate that the bump in ARPU on the $1.50 price increase is now fully accounted for (or almost there) at $0.51.  It is also an indication that retention efforts and discounts are being used to retain subscribers.
  • The company offered no time-frame on a share buyback.  In addition the company indicated that Liberty may or may not participate on a pro-rata basis on share buybacks.  I have been talking a bit about this for a couple of weeks now.  Essentially Liberty wants to maintain 50% ownership and the 7% notes, stock options (when exercised), etc. would dilute them below that level.  By not selling into a buyback Liberty will maintain above 50%
  • SAC was up a bit.  I do not consider this a major concern because it is an investment into new subscribers that will be positive to the bottom line.  This was more a function of manufacturing cycles than anything else.

Overall things are positive.  There will be an impact (an $80 to $90 million one time charge) in Q1 relating to some 320 million shares that will be issued surrounding the tender offer for the 7% notes.  We also have a satellite to launch at some point this year which will have cost impacts.  Q1 will likely not be as pretty as some may hope because of one time charges.  A savvy investor can take advantage of this. The SiriusXM press release on the quarter is available for your review.