SIRIUS XM Radio Inc. (SIRI) declared its financial results for the fourth quarter of 2010. Quarterly GAAP net loss was $81.5 million or 2 cents per share compared with a net income of $11.8 million or break-even in the prior-year quarter. However, fourth quarter adjusted (excluding special items) EPS of 2 cents was ahead of the Zacks Consensus Estimate of break-even.
Quarterly total revenue of $735.9 million was an improvement of 8.8% year over year, but was below the Zacks Consensus Estimate of $744 million. The year-over-year revenue growth was primarily attributable to an increase in subscriber base, higher sale of “Best of” programming, and rate increases to the company’s multi-subscription and Internet packages.
Quarterly total operating expenses were $664.3 million compared with $592.5 million in the year-ago quarter. Operating income, in the fourth quarter of 2010, was $71.6 million compared with an operating income of $83.7 million in the year-ago quarter. Quarterly adjusted EBITDA was $144.5 million compared with $115.3 million in the prior-year quarter.
During fiscal 2010, SIRIUS XM generated $512.9 million of cash from operations compared with $433.8 million in fiscal 2009. Free cash flow (cash flow from operations less capital expenditures) in fiscal 2010 was $210.5 million compared with $185.3 million in fiscal 2009.
At the end of fiscal 2010, SIRIUS XM had $586.7 million cash and cash equivalents and $2,891.7 million of outstanding debt compared with $383.5 million cash and cash equivalents and $2,813.6 million of outstanding debt at the end of fiscal 2009. At the end of fiscal 2010, debt-to-capitalization ratio was 0.93 compared with 0.97 at the end of fiscal 2009.
Segment Wise Results
Quarterly Subscriber revenue was $620.9 million, up 5.6% year over year. Advertising revenue was around $18.2 million, up 26% year over year. Equipment revenue was $20.7 million, up 9.1% year over year. Other revenue was $76 million, up 39.2% year over year.
Subscriber Statistics
During the fourth quarter of 2010, SIRIUS XM added 328,789 net subscribers, which raised the company’s total subscriber base to 20,190,964 at the end of December 31, 2010. Of the total, OEM subscriber was 13,104,972; Retail subscriber was 6,947,830; and Rental subscriber was 138,162. Payment category wise, Self-Pay subscriber was 16,686,799 and Paid Promotional subscriber was 3,504,165.
Important Operating Metrics
In the fourth quarter of 2010, ARPU came in at $11.80 compared with $11.58 in the year-ago quarter. Average self-pay monthly churn rate was 1.9% compared with 2% in the year-ago quarter. Subscriber acquisition cost was $58 compared with $64 in the prior-year quarter. Customer services & billing expenses per subscriber was $1.11 compared with $1.06 in the year-ago quarter.
Future Financial Outlook
Management projected that full-year 2011 revenue of SIRIUS XM will be approximately $3 billion. Free cash flow in 2011 will approach $300 million. The company estimated that it will add 1.4 million net new subscribers in 2011. Adjusted EBITDA, in fiscal 2011, is likely to reach $715 million.
Recommendation
We maintain our long-term Neutral recommendation for SIRIUS XM. Currently, it holds a short-term Zacks #2 Rank (Buy) on the stock. We believe this is primarily based on the excellent full-year 2010 results that positioned SIRIUS XM as the largest broadcast radio service provider in the U.S. and the second largest entertainment subscription service provider after Comcast Corp. (CMCSA).
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