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4 Answers From Sirius XM

Rick Aristotle Munarriz
February 5, 2013

Sirius XM Radio (NASDAQ: SIRI) came through with another quarter of solid growth.

Revenue climbed 14% to $892.4 million, fueled by its most successful year in net subscriber additions since 2007 and a core rate price hike that boosted average revenue per user. Given the scalable nature of the model, the satellite radio giant's profitability was even sweeter. Net income soared 120% to $156.2 million, though that figure gets whittled all the way down to $0.02 a share once you divide it by the 6.6 billion fully diluted shares outstanding.

I had four questions heading into this morning's quarterly report. Let's see if we got some answers.

1. How are the important metrics holding up?
Since Sirius XM had already divulged some of the report's good news when it revealed tacking on 2 million net additions in 2012 last month, investors probably figured that there weren't going to be any unwelcome surprises.

If the subscribers are coming, the scalable model will work itself out with even healthier earnings, EBITDA, and free cash flow generation.

I was interested in some of the more satisfaction- and performance-related metrics, and Sirius XM actually held up great in all but one.

Monthly churn has been floating around 1.9% to 2% lately, and it clocked in at an encouraging 1.8% for the period. Sirius XM's conversion rate -- essentially the percentage of new vehicle buyers that become paying accounts after their free trials run out -- held steady at 44%.

There's a price to be paid for that. Customer service and billing costs are outpacing revenue by growing 23% over the past year. However, the retention efforts are necessary given last year's rate hike and clearly working.

The one disappointment was in seeing average revenue per user of $12.12 a month. Yes, that's far better than the $11.61 it was clocking in with during the 2011 holiday quarter, but it's a surprising sequential dip from the third quarter's $12.14 figure.

2. Is Interim CEO James Meyer a permanent CEO?
Nothing was made official as it pertains to Meyer sticking around forever, but he certainly seemed like someone who's getting comfortable wearing the CEO hat.

"The first question I usually get from investors is what should we expect from you and what's going to change at Sirius XM under your leadership," he said at one point during the call.

He went on to describe how he plans to stick to the company's focus of growing its self-pay subscribers with careful attention to cost controls.

It's the kind of comment made by someone who knows that it's his job to lose, and Liberty Media (NASDAQ: LMCA) would be nuts to try to change that now. Yes, Liberty Media now has roughly 50.2% of the company and majority control,