SiriusXM (SIRI) reported Q1 earnings yesterday and the results were somewhat of a mixed bag. The company reported a profit of 2 cents per share but missed analysts estimates of a 3 cent profit. While the news of a miss may not be positive, there were many aspects of the quarter that were quite positive in nature.
- The company reported revenue of $1.08 billion, an increase of 8%.
- The company reported Net Income of $106 million, a 12% increase
- The company reported a 19% spike in adjusted EBITDA to $399 million
- Free Cash Flow was up 24% to $276 million
In addition the company, on the heels of adding 431,000 subscribers, raised its subscriber guidance for 2015 to 1.4 million. More impressively, the revenue guidance was also raised and now is estimated to be $4.47 billion. SiriusXM expects adjusted EBITDA for the year to be $1.6 billion and Free Cash Flow to be $1.25 billion.
Subscriber metrics were pretty stable with self-pay churn at about 1.8%. There is some concern in the continued drops in conversion rate, which was 40% last quarter. The conversion rate reflects the ability of the company to covert trial subscriptions to self-paying. This past quarter reported the lowest conversion rate to date. The metric could be an indication that more connected and capable cars are giving consumers other options in audio entertainment. A drop in this metric could be an indication that the price of the service is not as elastic (the ability to raise rates) as one might like to see. That being said, the Average Revenue per User saw a slight increase to $12.26 per month. This combined with lower Subscriber Acquisition Costs, which were down to $33 could help offset any concerns about the conversion rate. Another positive metric was that 71% of new vehicles are being equipped with satellite radios. This could also be an impact on the conversion rate for various reasons. Like it or not, not every car is a good partner for satellite radio.
SiriusXM is not resting on the technology and offering front. The company is beginning a new initiative called SXM 17 which will utilize satellite as well as LTE coverage to increase offerings and remain competitive. SXM 17 is the next generation in the SiriusXM offering.
SiriusXM also has continued with its share buyback program. In Q1 of 2015 the company bought back 144 million of its own shares for $534 million. This type of action helps to keep the price of the equity stable. At some point share buybacks acan also lead to share appreciation. In the first few weeks of April the company bought another 36 million shares bringing the year to date total to about 180 million. All told, the company has removed about 20% of the shares from the market since the inception of the share buyback program.
As you can see, the EPS miss is not the big news here. The company is executing on all fronts, controlling costs, and returning equity to shareholders. SiriusXM may not be as sexy as it once was, but is is definately established and is on course to be vary stable in the years ahead. SXM 17 is an initiative that seems to be pretty interesting. Stay Tuned for more detail on that.