What a Dividend and Stock Buyback Boost Means for Sirius XM Holders

Sirius XM Holdings Inc. (NASDAQ: SIRI) has been an endless growth engine for satellite radio in the United States. Despite lots of competition and many aspects of radio being free, the satellite radio monopoly has massive stickiness for customers. In short, once people subscribe to satellite radio in the car they just don’t quit.

Wall Street has a mentality of “What have you done for me lately?” That actually gets followed by “What are going to do for me tomorrow and next year?” Now Sirius XM may be signaling that it is migrating more toward an established company, after its earnings report. While it boosted certain guidance metrics, the company declared its first common stock dividend and it increased its existing stock buyback plan.

Sirius XM reported that its third-quarter revenue rose 9% to $1.3 billion, a new quarterly record. Its net income in the quarter was up 16% to $194 million, and adjusted EBITDA rose 10% to $492 million. Net income per diluted common share was $0.04 in the third quarter of 2016, compared to $0.03 in the third quarter of 2015. Sirius XM also increased its 2016 revenue and adjusted EBITDA guidance.

The company’s total subscribers rose by 345,000 net new subscribers to be almost 31 million. More importantly, the Sirius XM self-pay net additions, the customers who submit annual or monthly payments, rose by 385,000 in the third quarter to a total of 25.5 million. All in all, its growth was driven a 7% increase in subscribers and a 3% increase in average revenue per user (to $13.04).

Sirius XM’s 2016 guidance for continued growth in total subscribers, self-pay subscribers and free cash flow remained unchanged. Other 2016 guidance was increased in some metrics, as follows:

  • Revenues to be approximately $5 billion
  • Adjusted EBITDA to be approximately $1.85 billion
  • Net self-pay subscriber additions of approximately 1.6 million
  • Total net subscriber additions of approximately 1.7 million
  • Free cash flow approaching $1.5 billion

The satellite radio provider now will pay dividends as well. Its initial payout will be $0.01 per share per quarter, or $0.04 per year. With shares at $4.15, that is nearly a 1% initial yield, and the $0.04 per share annually represents roughly 28% of this year’s earnings estimate and represents approximately 22% of next year’s earnings estimate.

Sirius XM approved an additional $2 billion for common share repurchases, which takes the total buyback tally to $10 billion. The company said in its earnings release that it has already repurchased $7.6 billion of common stock in total under its stock repurchase program. Its current market cap is $20.7 billion. Also, in the third quarter alone it spent roughly $300 million to repurchase 72 million shares.

Sirius XM shares were indicated higher by 1% or so at $4.29 in the early hours of premarket trading Thursday. Unfortunately, investors are perhaps reflecting on what may be slower growth and a more steady company ahead. Its stock price was down 2% at $4.15 after about 20 minutes of trading, and it had already seen 22 million shares trade hands in that time.

Sirius XM has a $20 billion market cap and a 52-week trading range of $3.29 to $4.44. Its pre-news consensus analyst price target was $4.90, a price that has not actually been seen for more than 10 years. 24/7 Wall St. has included some of the company’s commentary from management about the quarter below.

Jim Meyer, chief executive officer of Sirius XM, said of the quarterly results:

SiriusXM’s performance in the third quarter was exemplary. We grew self-pay subscribers by 385,000 and turned in record quarterly high levels of revenue and adjusted EBITDA. Additionally, we attained our highest-ever ARPU and adjusted EBITDA margin and lowest-ever SAC per installation and customer service cost per subscriber. In short, our business is operating more efficiently than ever before, and we are pleased to increase our revenue and adjusted EBITDA guidance for the second time this year.

We remain dedicated to bringing the best audio entertainment in an easy to use bundle of programming to a nation of listeners. In recent months, we’ve strengthened areas where we are leaders, such as country music, added new talent in talk programming, and held special, one-of-a kind live music events for subscribers and listeners nationwide, all content you can only find at SiriusXM.

David Frear, chief financial officer of Sirius XM, said:

Since the start of the third quarter, we spent roughly $300 million to repurchase 72 million shares of our common stock. SiriusXM’s average share count declined by 8% in the third quarter 2016 from a year earlier as a result of our share repurchases. We are also pleased to announce a regular dividend as an element of our capital return program, beginning at $0.01 per share per quarter. Our debt to adjusted EBITDA remained just 3.4 times, and we ended the third quarter 2016 with a cash balance of $572 million in anticipation of the October 1 redemption of our 5.875% Senior Notes due 2020. We expect to continue strong capital returns to stockholders while making strategic investments in technology, content, and new satellite infrastructure.