Sirius XM Holdings Inc (SIRI) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to the Sirius XM Radio third-quarter 2008 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Paul Blalock, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to Sirius XM radio's earnings conference call. Today Mel Karmazin, our CEO, joined by David Frear, our EVP and CFO, will review Sirius XM's third-quarter financial results and discuss some of the questions we have been receiving. At the conclusion of our prepared remarks, management will be glad to take your questions.

First, I would like to remind everyone that certain statements made during this call might be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management's current beliefs and expectations and not necessarily dependent upon assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

For information about those risks and uncertainties, more information is contained in Sirius XM's SEC filings. We caution listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them.

As we begin, I would like to caution our listeners today that today's results will include discussions of both actual results and pro forma results. The pro forma results we plan to discuss today will give effect to the merger with XM as if it had occurred on January 1, 2007. It will not give effect to the impairment charge we will be taking in connection with the merger, and it will not give effect to other purchase price adjustments associated with the merger. Listeners are cautioned to take special care to ensure accuracy in looking at today's report.

I will now hand the call over to David Frear.

Okay. Thanks, Paul. So lots to talk about this quarter. Now I'm not sure if the press release has yet come across the wire as we know it is somewhere there, so it should be getting to you shortly. We apologize for not getting it out to you before the call.

The SEC closes within the hour today, and as some of you might know, they are closed for Veterans Day tomorrow. So our Q, the full filing will show up by the opening on Wednesday. And we just wanted to make sure you are aware of that as a result of the SEC being closed tomorrow.

So in the quarter, we closed the merger. I think we all know that. But the accounting for it is pretty complicated, and as a result, the GAAP financials are going to be difficult for investors to review and make sense of the operating trends in the business.

So, as Paul mentioned, we have included pro forma operating results without the purchase accounting and the goodwill impairment effects that are consistent with our historical results, as well as with the recent guidance that we've provided to you.

I will spend a few minutes going through those pro forma results, focusing my comments principally on the third quarter, and then I will come back around to discuss the key elements of the GAAP financials, including the purchase accounting and goodwill impairment effects.

So in the pro forma, subscriptions grew 16.5% over a year ago, driving the revenue up by approximately 16% or $83 million to a total $613 million for the quarter. Our adjusted loss from operations, excluding merger-related costs, showed $94 million improvement to a loss of just $9 million in the quarter. And if you follow along through the pro forma operating statement when you get it, hopefully you have got it now, you will see how we got there.

So programming was up you will see year-over-year, but almost solely because of a onetime merger payment of [$27.5 million] to a programming partner.

Revenues share of royalties, as you might expect, was up $45 million, reflecting the $83 million in the revenue growth, as well as the effect of the royalty catch-up from last January's decision of the copyright royalty board, and as some of you might remember, that catch-up was reflected in the fourth quarter of last year. So in essence, in the third quarter, we have got sort of an over statement of the increase, and that will be self-correcting as fourth-quarter results come through.

The customer service and billing costs were up slightly less than the growth in our subscriber base. Sales and marketing costs were down 19% or $18 million. SAC was also down 19% or $30 million driven by cost efficiencies.

General and administrative costs were down 5% year on year, engineering was down 30% year on year, and satellite and transmission costs were flat, and that is what we were able to accomplish in the first 60 days of the merger.

So let me talk a little bit about the GAAP financials. There's three things that you should think about here.

First, they reflect the operations of the combined company from August 1 forward, meaning that prior year comparisons are tough to sort out because 2007 reflects the operations of Sirius only, no XM.

Second, they reflect the effects of purchase accounting, which affect the balance sheet through significant increases to things like intangibles, including goodwill, as well as liabilities and some other things. They also affect the operating statement as revenue and many expense line items are affected, and I will come back to that as well.

And thirdly, they reflect the impairment of goodwill we just recorded as a result of the decline in our stockprice.

And I think the first item is pretty clear. The merger was effected for accounting purposes on August 1, and the results of the outcome are reflected in the consolidated financials from that day forward.

So a few minutes ago when discussing the pro forma, I spoke of an $83 million increase in the revenues for the third quarter. And the GAAP financials revenues increased $246 million for the third quarter, largely as the result of the fact that two months of XM revenues are reflected in the current quarter, while no XM revenues were included in the prior year's quarter. This pattern is repeated in each of the income statement line items, and as you get to read through the 10-Q, you will see where we have isolated out the effect of acquiring XM in each of those line items.

Now the merger, as we all know, took a long time to get it approved, nearly 18 months, and a lot changed in the world's capital markets during that period. Pursuant to the accounting literature, the measurement date for valuation of the merger is the date that it was originally announced. That is February 19, 2007, a time when the stock was trading around $3.79. This produces a valuation for the consideration given in essence the stock that we gave to XM shareholders in the merger of $5.8 billion.

Now under purchase accounting rules, we have to estimate a fair value of the assets and liabilities acquired as of the merger closing. So we have hired a valuation firm to assist us in that effort, and that work is not yet final.

Yet nonetheless we are obliged to record the acquisition in the quarter, and so we have a preliminary purchase price allocation from our valuation expert on which we have based our accounting entries.

The preliminary valuation assigns fair values to the acquired assets like the satellites, the FCC license, trademarks, the subscriber base and other assets. It also evaluates the acquired contracts, distribution agreements, programming contracts, etc. assessing whether the contract terms represent fair values in the marketplace today.

To the extent a contract is determined to be more costly than the current market, a portion of that access is recorded as a liability in the opening balance sheet effectively reducing future expenses on the contract and possibly increasing goodwill.

So based on the preliminary purchase price allocation, $6.6 billion of goodwill was recorded. Again, this allocation is preliminary. Accounting rules allow for modification of purchase price allocations up to one year from the closing. We will be working with our valuation expert to finalize this allocation in the coming months.

So let's get to the third issue, the goodwill impairment charge. Now that we have used a share price nearly two years ago to value the acquisition to establish the amount of goodwill on the Company's books, we have to assess as of September 30 of this year whether there is an impairment of this goodwill.

To do that, you should think of it as a mark-to-market. By using the stock price of about $0.64 as of the end of September, in the number of outstanding shares at that time you find the market cap of the Company's equity of approximately $2 billion.

Under the accounting rules, goodwill can exist if the fair value of the assets, excluding the goodwill minus the liabilities, does not exceed the market cap of the equity. So, in essence, we write off $4.8 billion of what we just wrote up.

The rules are what they are, and we follow the rules. They can be a little confusing. We've got a two-year-old equity price, followed by a mark-to-market, in the worst capital market in 80 years. So we end up with the result that we have today. And so I think that the net of what you're seeing here is that you're seeing I think GAAP financials that are going to take some time and some effort to understand. We are happy to spend that time with you to work through them, but we have provided the pro forma operating results and expect to continue doing so in the future to help you in understanding consistency in the trends of the business that those pro forma figures are consistent with the historicals we've filed. They are consistent with the models that many of you have been running, and we will work to help you understand that as well.

With that, let me turn it over to Mel.

Thanks, David. I know it is difficult in the economic environment that we're in and where our stockprice is trading to be very pleased and proud of our operating performance but we must. It is very impressive that with severely declining auto sales, high unemployment and a generally weak economy that our revenue grew 16% on a pro forma basis in the quarter. Many other good companies are not growing as a result of the issues in the US economy, so we believe showing double-digit growth to be very impressive, especially if you compare Sirius XM results to other media and entertainment companies.

If you look at the top three radio companies, Clear Channel is the number one radio revenue company, and they reported today third-quarter revenue declining 7%. The second-largest radio revenue company in America today is Sirius XM whose revenue was up 16% as we said earlier. And the third largest radio revenue company is CBS that showed a 12% decline. We are growing significantly, and companies larger than us and smaller than us are not. And this was in the most difficult quarter that most of us have ever seen. This performance bodes well on how Sirius XM should perform in the fourth quarter of '08, in '09 and beyond.

The 18.9 million subs we reported as of the end of Q3 was a pro forma increase of 17% and is admirable performance considering the negative trends facing retail and auto production.

We are continuing to focus diligently on retention. In spite of all the pressure on the consumer, they continue to see the value of subscribing to Satellite Radio as our self-paid churn is within our range of 1.6% to 1.8%. For the first nine months of 2008, our self-pay churn was 1.7%, the exact same as in the first nine months of 2007.

Prior to the merger, both Sirius and XM were very focused, not just on growing revenue and subscribers but controlling costs as well. Excluding onetime merger-related expenses on 16% revenue growth, our total operating expenses decreased $10 million during the third quarter of '08 compared to the pro forma Q3 '07 operating expenses.

Our adjusted EBITDA, excluding onetime merger costs, was a negative $9 million as compared to pro forma Q3 '07 of $104 million EBITDA loss -- 9 million loss this year, $104 million EBITDA loss pro forma last year. The adjusted EBITDA, excluding the merger costs, improved over 90% from last year. Obviously the extraordinary synergies that we have identified puts us on a clear path for Sirius XM delivering positive EBITDA in 2009.

As a result of continued financial discipline and third-quarter performance, we are on track to have a smaller than previously forecasted EBITDA loss of $300 million versus $350 million for the full year of '08.

We have been asked, when will we be EBITDA positive and not be a user of cash? Well, the answer is now very clear. It is in 2009 when we will have over $300 million of EBITDA and after all cash expenses, including satellite expenditures, we will not have net cash outflow for the full-year '09. And this positive trend will continue in subsequent years.

Operationally we are performing well in a very difficult environment. Revenue up 16%, operating expenses down, and over 90% improvement in adjusted EBITDA on a pro forma basis, excluding merger-related costs for third quarter of '08 versus the third quarter of '07.

Moving onto our debt maturities, the Company is actively in discussions with both the holders of our existing debt, as well as a significant number of additional lenders who are considering putting new money into Sirius XM. Diligence is underway by these institutions.

These lenders understand that their refinancing issues are macroeconomic in nature and not related to any operating failure on the part of Sirius XM. The banks we have been working with believe in our business plan and support the Company.

We are especially focused on what was the $300 million Sirius February '09 maturity. That $300 million has now been reduced to $210 million using 3(a)(9), and we are hopeful and confident of shortly announcing refinancing of that tranche.

There is also May '09 and 12 '09 XM debt that must be refinanced, and part of our discussions focus on these maturities as well. We will continue to keep you informed on our progress and would like to get this issue behind us as soon as possible.

The catalyst that is driving our remarkable transition from negative EBITDA to positive EBITDA and from a user of cash to a generator of free cash flow is the synergies created by the merger. We are very pleased with how quickly we are achieving these costs savings.

To date the elimination of duplicate jobs at Sirius and XM will result in a reduction of approximately 22% of the combined workforce that existed prior to the merger.

We have already captured '09 merger-specific efficiencies in programming, marketing, product development, broadcast operations, streaming, customer care, ad sales, the retail channel, the OEM channel, and at the corporate center. IT, terrestrial network and satellites will be captured with short-term cost improvements soon and very significant cost savings longer-term.

The benefit of the merger is also resulting in an improved Satellite Radio consumer experience. Thousands of subscribers have been adding "best of" to their subscriptions every day since the offer became available. I'm sure it's not surprising to many of you that tiered pricing works.

This Wednesday we will be improving our programming lineup by providing XM subscribers with some of the great content that Sirius has and vice versa. As we rationalize our programming offering, not only will consumers benefit from the improved lineup on both platforms, but we will be producing significantly fewer channels, and the elimination of duplicated programming will result in the Company saving millions of dollars every year. Subscribers will continue to receive the same number of channels, only now they will be even more desirable channels and with no additional costs.

As a result of the merger, our even better content offering should help Sirius XM to reduce churn, improve conversion rates, as well as attract new subscribers.

In summary, we are focused on continuing to grow our revenue, taking full advantage of the merger and efficiency created to control costs, which will result in significant growth in EBITDA and free cash flow. The merger has made us a stronger Company. We are confident that we will work our way through the debt refinancing that needs to be done. I believe this economic environment helps to demonstrate the real value of our unique radio subscription business model.

We would like to now take your questions. Jim Meyer and Scott Greenstein will join us, and we will be happy to take your questions. Operator, if you can start the process.

(Operator Instructions). James Ratcliffe, Barclays Capital.

I am wondering if we can talk about the auto OEM segment for a little bit and particularly with all that is happening with auto sales. What have you been seeing in terms of install rates for the OEMs? Has the mixed changed either positively or negatively in terms of their concentration on Satellite Radio?

And secondly, how much control do you have over the number of vehicles, the percentage of vehicles they choose to install with Satellite Radios? If you're not seeing the returns in terms of conversions, do you have the opportunity to bring those numbers down?

Sure. So let me comment first. In the third quarter, we actually saw the first -- I mean a pretty good uptick in penetration rates, particularly at Ford and General Motors as both of them took their penetration rates up significantly.

I think you'll find now that with Chrysler, Ford and General Motors with our performance in the third quarter, all three of those are at penetration rates that approach 70%.

In terms of the penetration by model, by vehicle line and in particular by trend level, that is an equation that we're just beginning to really get our arms around and manage now that we're getting good data from our partners who are penetrating in the above 50% range.

Yes, we absolutely have the ability to work with them, and they are also motivated to try to work within the trend levels to maximize the conversion. It is not an easy process, but it is a process that we have our arms around, and we're working on a lot.

(Operator Instructions). Bart Crockett, JPMorgan.

I was wondering if you could update us on your liquidity situation in terms of whether we should look for cash generation or cash burn in the fourth quarter and relative to where you exited the third quarter? And the press release just hit, so recently I have not actually seen where you exited.

In terms of just this environment with automakers citing cash constraints, Circuit City filing for bankruptcy, where do you sit in terms of vendors tightening terms with you or maybe being slow to pay you, and what should we look for in terms of working capital impact here in the fourth quarter?

Okay. So from a liquidity perspective, generally the fourth quarter is a positive cash flow quarter for us. I expect that to be the case this quarter as well that we say in the -Q I think you have heard Mel say that we're making the turn to positive cash flow now with realizing the synergies, and that is what we expect going forward.

For the most part, things like the automakers and the retailers is that we actually are net debtors to them And so as opposed to the other way around. So, as they go through challenges in their business, it does not really affect us from a working capital perspective.

So unlike a consumer products company that might carry receivables from Best Buy and Circuit City and RadioShack and Wal-Mart, we don't have those kinds of assets on our balance sheet. So we don't have the same working capital effect.

Most of our working capital is driven actually by subscriber growth and the fact that subscribers on average are paying us about eight months upfront. And so we again on generally on growth additions find that the amount we're receiving from subscribers exceeds the cost of acquiring them.

I think the liquidity issue is the refinancing of the debt that comes due in 2000 line, not anything operationally.

Okay. So you expect that you have got sufficient cash through the refinancing at a minimum?

Yes, we do.

Okay. And then the other question I had is, in terms of your long-term, particularly the free cash flow guidance, can you give us any sense of what is included in there in terms of assumptions about spending on the satellite fleet, launches, construction and also interest expense?

I think what we might do is, why don't we work through that in your modelings, and we have provided the guidance we have provided on free cash flow. And so we don't have any more detailed guidance to provide in this call.

Okay. Alright. We can take that off-line.

David Bank, RBC Capital Markets.

Two questions. The first is, the ARPU was actually a little higher than I might have expected. I was wondering if there are any particular drivers that are on the ARPU side during the quarter and I guess your ARPU outlook for the next quarter?

And the second question is, on the approximately $90 million of refinancings on the convert that you have done to date, just some color on why it is you refinance those and why you did it with equity? Why only $90 million I guess is the question.

Okay. So I think that we recognize the world for what it is. Right? So the kind of traditional capital markets are not really functioning all that smoothly would be the nice way to say it these days. And so if you -- you don't see many companies going to market with convert deals or equity deals or high-yield bond yields or syndicated loans that it seems like all of that is sort of dried up.

So, as we look at the February maturities and one of the things we have been saying to investors for several weeks now is that we remain very confident of refinancing that. But it is one of these things that you want to whittle away at from several different perspectives.

And so one of the ways to whittle away at it is there is the provision in the Securities Law called 3(a)(9) that allows us to do exchanges of debt for equity with the holders and effectively retire that debt, which is due in a few months time early.

We obviously are going to have to do some kind of a financing to retire the debt, and making that problem a little bit smaller is helpful now.

We also have been talking about how we have under our debt covenants a $250 million secured debt basket. And so one of our objectives in looking at the $300 million outstanding was to do enough of the 3(a)(9)s to drive the outstanding amount below $250 million, and therefore, when we go out and complete some of these discussions that Mel referred to earlier and effectively filled that basket that the basket itself is sufficient to meet the remaining outstanding bonds. So that is why we have been doing the 3(a)(9)s.

In terms of the ARPU trend, I obviously cannot speak to your expectations. I can tell you that our mix of subscribers has remained very consistent across sort of the multiple different plans which have different price points that we have generally been finding subscribers beginning now to go for the best of programming over kind of, as Mel again said, significantly more so than they are going for the lower-priced packages. We do have growth in our multi-subscription accounts. And so you mix it all up, you get the result you have got. But I think the net way to look at it is that ARPU for the Company has actually been very stable, and so that as you look at stable ARPU, stable churn, your growth in subscribers translates pretty directly to growth in revenue.

There's a number of factors that enter into the ARPU, including second subscribers, as well as any special programs. But as it applies to the packages that we are offering, clearly the $16.99 package where XM subscribers are opting for Best of Sirius is the most sought-after, and that the packages with a price point below $12.95 are relatively modest in the number of people out of the thousands that are doing it everyday. A relatively modest number of people are opting for lower-priced packages.

I'm sorry. That actually leads to my follow-up question. When did you actually begin offering the "Best of" package?

In early October.

And can you give us some kind of indication of like penetration, or what percent were you able to upsell the "Best of" through?

You know, it is probably premature to do that David. Let's get a little more experience under our belts, and we'll talk about it in future calls.

And that is our position, but it has been very encouraging. I mean that people have reacted very positively to these packages.

Kit Spring, Stifel Nicolaus.

Did you guys give out the OEM conversion rate?

Yes, so the OEM conversion rate for the third quarter was 47% for the nine months. It is a little over 49%. And the prior year period that both numbers -- and this is all on a pro forma basis -- were a little over 50%.

It's a pretty stable -- not much of a change on the nine months. On the quarter it is really I think more of a function if anything else of the increasing penetration rate as Jim mentioned, pretty significant increases in penetration and a number of automakers. This calculation is a little more complex now with the number of different plans we have. So GM and Honda, for instance, on three month paid trials. The Chrysler on 12 month paid trials and Ford on six months. So you have got a whole bunch of different sales periods that all come together there.

But I think the way you end up looking at it is that when you roll back to all those plans, you find significant increases in penetrations underpinning each one of them and sort of bleeding into the result we see in the third quarter.

And then on -- if GM or Ford went bankrupt or GM merged with Chrysler, would that change any of your contracts or make them available for renegotiation? Do you think it could either positively or negatively impact you?

Well, a contract is a contract, right. And so if they merge, a deal is a deal, and if something different happens, they would go into court. We would have to see what -- how they react to those contracts.

Remember that one of the things that is attractive to them in there is the revenue share, and if an automaker were to end up in court restructuring and rejected the contract, it throws all things up in the air. And so I think there is actually a pretty good chance that that would like to keep the contracts they have.

Yes, and I think from an asset point of view, our contract with the OEMs is a very, very strong asset because unlike most of the other vendors, we provide revenue share. So we think that nothing would be apt to change. I mean I predict what a court could do, but you know, in the case of an acquisition of one of our partners, all of our contracts flow through to whoever is the acquirer. There's a successor that assigns clause that requires the new owner to fulfill their obligations under the existing contract.

(Operator Instructions). Tuna Anobi, Standard & Poor's.

So thanks for that long-term guidance. I think it definitely provides some more visibility. But, as you kind of parse the numbers, I'm just kind of curious what that assumes in terms of the OEM versus the retail component of those subscriber numbers. And I think also on that guidance, I think you had actually previously if I'm not mistaken talked about $1 billion of free cash I believed by 2010. So given that, it seemed like your number came down a little bit. Is that to do with perhaps your satellite CapEx spending, or what else is causing that, particularly given that the EBITDA line seemed like kind of stayed the same?

I think the number you are referring to was some guidance that we had provided two years ago, which we recall specifically very well, but it was Sirius on a stand-alone company, not on the combined consolidated company that continues to obviously have operating costs that are greater than one company. So it has really nothing to do with anything other than the fact that it is -- the guidance shows you how strong a business model the Company is, and I will let David talk a little bit more to your question. But it has on one hand you're looking at a Sirius stand-alone company and the other you're looking at the Sirius XM combination.

Yes, I guess I should have mentioned that you're absolutely correct. That was for the old Sirius, but I was actually trying to bake in the synergies that you had provided for the new company. So my thinking was that given those synergies, that actually leaves you in a better position, not in a worse position. But that is probably a moot point now.

So let me get onto the next question then. On the impairment, at least kind of the $5 billion number, it sounds from the prepared remarks that that was entirely due to goodwill. I'm just kind of wondering if any of your FCC licenses were also affected by that writedown?

No, I think you'll find that when the purchase accounting comes through, that, of course, purchase accounting applies only to the acquired entity. So there's no change in the carrying values of assets on the balance sheet of Sirius. But the FCC license of XM is one of the assets that has been written up as part of the purchase price allocation, and as we go through and the Q comes out, you'll have all the details of that.

Great. And lastly, Mel, a question for you. I just kind of -- you know one of the things I keep hearing, and I know that you have made it very clear that you're optimistic about the refinancing. But the question keeps coming back, what is the Plan B here because obviously you're not able to provide 100% assurance. So I guess that kind of begs the question, what if this, particularly the near-term maturity of the 210 that you talked about of the other 300 coming up, if things do not pan as you planned, are you going to perhaps significantly at, I don't know how much equity dilution that you can tolerate given all of these scenarios, or what other plans do you have on the back burner?

I think you saw that we had $300 million of maturities due. We are now at approximately $210 million of maturities due. I told you that we've had discussions with lenders. We remain optimistic. I really do not want to get into any hypothetical. The Company remains confident that we will in short order get the February '09 refinancing done.

Okay. Fair enough. Thank you and good luck.

Joe Stauff, CRT Capital.

A couple of questions, please. David, the $1.8 billion I guess you had mentioned grossed $6.6 billion of goodwill that was recorded in the subsequent write-off, the $1.8 billion remaining, that is just to clarify, that is the current appraised value of the combined company? Is that right?

Well, the $1.8 billion is what you might call the residual. Right? And so you have got the consideration paid. You have got the purchase price allocation, and then you have got this calculation of the market cap of the equity, which is then compared back to all those other things to produce a result, and goodwill is sort of what is left over. Right? It is you value everything else, and then what is left over has an impact in goodwill.

And then just to follow-up, given your guidance that you guys have provided, is there any sense of ARPU growth assumptions, churn, to be understood by that that you guys are sharing?

Well, we have not provided any guidance on either of those measures, but you have seen us say for a long time that we think our self-pay churn rate will be in the range of 1.6% to 1.8%. Sitting here today you can look at our results and see that it remains sort of consistently in that range.

I think you have also seen very, historically very stable performance of ARPU over time. It also has remained relatively stable. So but for pricing actions that might be allowed at some point in the future or it might be taken at some point in the future, that you should expect pretty stable results.

Fair enough. Thanks for taking the question.

Todd Lumpkin, Canyon Capital.

I just wanted to ask about the environment. I think it was Mel commented that we're in the worst auto environment anyone has ever seen. Obviously the retail environment is probably not much better going into the holiday season here. How confident do you guys feel? I means it seems hard to imagine that your business would not see a lot of pressure into the end of the year here in just how you think about your guidance in light of that? I'm not (multiple speakers) to give guidance, but maybe just comment on what you're seeing in the business environment and how you cope with that?

So, we think the environment sucks, you know? I mean I think that's a defined term. That obviously the automobile companies are very transparent and releasing every month their forecast. So it is not like we have a lot of information out there that you don't have. You know what they sell each month and what is likely to change.

The forecast that we have done short-term is -- and that is why we took down our year-end number of subscribers. We went from down to 19.1, and it's not because we are not executing. It is not like we're doing something wrong. It is that unfortunately we do not have a whole lot of control over what cars are getting sold. We do our best. We help our car partners any way we can, but we are not the ones that are selling cars.

So we're at the mercy of what happens. But in providing the guidance, we are obviously cognizant of it.

We also obviously are aware of the consumer and the difficulty that the consumer is having. So, therefore, again we reflected our guidance. We wish that they had more money to buy Satellite Radio, but within everything that we can possibly do, we're doing it. We have a very aggressive, prudent expenditure advertising campaign that started this past weekend. You may have seen it. But we're hoping to rejuvenate and add some excitement at the retail market for satellite radio.

But I think anybody that is not cautious in providing guidance to investors in this environment is foolish, and we obviously based on the facts that we get everyday, we continue to run our business in a very prudent way.

You know, one last thing that I would like to say, and that is that our shareholders have begun to receive proxies for our annual meeting on December 18. We have asked shareholders to authorize a reverse stock split should the Board of Directors decide to do one. Our interest in a reverse split is motivated by requirements of NASDAQ for us to remain a listed company.

We also ask shareholders to provide the Company with the authorization for additional shares. The merger with XM and the low stockprice eliminated the cushion we had in authorized shares. We expect that our shareholders will approve these management and Board of Directors supported proposals.

So on behalf of Jim, Scott, David, Paul and myself, I want to thank you all for your interest in our Company. Our Investor Relations department is available to answer any additional questions you may have, and have a good evening.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. Have a great rest of your day.