Sirius XM Posts Profit on Subscriber Growth

Mel Karmazin, the chief executive of Sirius XM Radio, sounded as though he couldn't wait to jump on the line at the company's quarterly earnings conference call on Thursday morning.

“Sirius XM had a great third quarter,” he said, practically interrupting the call's introductory boilerplate. “Let me tell you how great.”

As Mr. Karmazin explained, Sirius's steady subscriber growth has continued, with 23.4 million customers by the end of September, an increase of 446,000 for the quarter; it expects net subscriber growth of at least 1.8 million for the year. The company had $867 million in revenue, up 14 percent from the same period a year ago.

After repurchasing $868 million in debt, Sirius had $74.5 million in net income for the quarter, or 1 cent a share, down from $104 million a year ago and off a penny from analyst's estimates. But its adjusted earnings - which exclude share-based compensation and other expenses - were up 24 percent to $245 mill ion, and the company ended the quarter with $556 million in cash.

“For me that all adds up to a great third quarter,” Mr. Karmazin said with evident pride.

The message between the lines, however, was that it also added up to a great legacy for Mr. Karmazin, 69, who will step down on Feb. 1 after eight years on the job. In the coming months Sirius is all but certain to be taken over by Liberty Media, its biggest investor.

Mr. Karmazin took over Sirius in late 2004, shortly after he resigned as president of Viacom. Sirius was then struggling along with XM, its only competitor in satellite radio, and the companies merged in 2008, just as the economy - and car sales, critical to their growth - crashed.

Liberty, controlled by John C. Malone, made a $530 million loan in early 2009 to save the merged Sirius XM from bankruptcy, and since then the company's fortunes have turned around.

Its stock has risen 61 percen t over the last year, and in morning trading on Thursday it was up 5 percent.

But Mr. Karmazin, who during his time at Viacom clashed with its chairman, Sumner Redstone, has also exchanged barbed words with Mr. Malone over the last year. Last week, Mr. Karmazin announced his resignation from the company, and no replacement has been announced.

Before ending his comments on Thursday, Mr. Karmazin also took some swings at his advertising-dependent competitors at terrestrial and Internet radio.

In a thinly veiled attack on Pandora Media, which went public last year but has yet to become profitable, he said: “Those companies which can grow users and provide a good customer experience usually have the worst business models. For them to fix this they need to run a whole lot more commercials, and that means harming the customer's experience. We at Sirius XM are thankful not to be in that difficult position.”

Sirius and Pandora do have at least one busines s risk in common: both face potential increases in their music royalty rates, which are set by a panel of federal judges. Sirius, whose rates were last set when the company was stuck in the doldrums, expects a new ruling by those judges by mid-December.

Pandora, which has another three years left with its current rates, has begun an effort to change the way those rates are set. Those efforts have been met with angry opposition by music industry groups.