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It's time to start taking Sirius XM Radio (Nasdaq: SIRI ) seriously.
The country's only provider of satellite radio delivered its fourth consecutive quarter of good news this morning, once again validating its premium-radio business model.
Revenue climbed 16% to $705.6 million, ahead of Wall Street's top-line expectations of $689.4 million. Healthy revenue growth is essential as Sirius XM tries to set itself apart from satellite television giants DirecTV (NYSE: DTV ) and DISH Network (Nasdaq: DISH ) , which trade at more attractive valuation multiples. Analysts had pegged all three companies to grow at similar top-line rates in 2011. This kind of quarter will send Wall Street reaching higher.
Sirius XM broke even on the bottom line, reversing a year-ago deficit. However, net income creeps up to $0.01 a share once you back out one-time charges related to the extinguishment of debt.
Some of the good news was already out of the bag. Sirius XM told investors that it had tacked on 583,249 net new subscribers during the period when it raised its guidance last month.
Free cash flow clocked in at an impressive $108.3 million, silencing critics who fear that the company's chunky debt balance will be its undoing. On that front, Sirius XM closed out the period with its leverage ratio at a historic low.
Keeping up with the welcome trend of previous reports, average revenue per user is climbing, churn for paying customers is dropping, and the conversion rate on free trial expirations is improving.
The company is revising its guidance slightly higher, expecting $2.8 billion in adjusted revenue and $150 million in free cash flow. The move implies that free cash flow will decelerate a bit over the next two quarters, but it's still an inspiring sight for a broadcasting giant that was pondering bankruptcy protection a year ago. Besides, the way that Sirius XM has been ratcheting up its targets in recent months, the trend clearly favors positive revisions with every passing quarter.
Once again, we have 6.4 billion diluted shares outstanding, reflecting Liberty Capital's (Nasdaq: LCAPA ) 40% preferred stake. Now that Sirius XM is profitable, those shares are working their way into the company's income statement. There are only a handful of stateside companies with a larger number of shares outstanding.
The near-term future is bright for Sirius XM. Sure, Ford (NYSE: F ) and its peers will see year-over-year sales growth trail off, now that the automotive industry is pitted against last summer's recovery. But an improving economy should translate into even healthier conversion and churn rates for Sirius XM.
If you didn't take the satellite radio star seriously before, it's never too late to start.