Sirius XM Holdings Inc (SIRI) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the SIRIUS XM Radio fourth-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. Mr. Blalock, please go ahead, sir.

Thank you, Jennifer. Good morning, everyone, and welcome to SIRIUS XM Radio's earnings conference call. Today, Mel Karmazin, our CEO, will be joined by Jim Meyer, President Operations and Sales, along with David Frear, our EVP and CFO, and review SIRIUS XM's fourth-quarter and full-year 2008 financial results. Scott Greenstein is traveling today and will not be joining us.

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 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 necessarily depend upon assumptions, data, and 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 the results may include discussions of both actual results and pro forma results. Listeners are cautioned to take special accuracy in assuring that they are looking at the correct results.

I will now hand over the call to David Frear.

Thanks, Paul. SIRIUS XM's first full quarter as a combined company demonstrated the rapid progress we made toward integrating the businesses in obtaining the very significant synergies we outlined when we proposed the merger. Our strong Q4 performance under very difficult economic conditions underscores the strength of our business model and is at the core of the investment opportunity Liberty Media saw, enabling us to achieve a very positive refinancing result for all of our stakeholders in the midst of what has to be viewed as an incredibly unhealthy credit market.

The results I will discuss today will be based on pro forma combined company figures without any purchase price accounting adjustments as if the companies had been combined as of the beginning of 2007. We believe this represents the best way to observe the core trends underlying the business. Additionally, I am going to focus our remarks primarily on the fourth quarter since the prior quarter and full-year pro formas precede obviously the merger and therefore the synergy initiatives that we have begun.

As you will see in our fourth-quarter figures, these post merger efforts have rapidly and demonstrably transformed our financial performance. Total subs grew 10% or 1.7 million for the full year despite fourth-quarter growth additions falling approximately 27% due to an absolutely awful automotive and retail environment which both Jim and Mel will comment on later. SIRIUS XM added 83,000 net subscriptions in the quarter.

Our fourth-quarter self-pay churn rate of 1.8% remained consistent with our historical range of 1.6% to 1.8%. ARPU at $10.60 was up 2% from the fourth quarter of 2007 due to the introduction of our new Best of Programming packages and a lower impact from rebate activity in the marketplace.

Topline revenue growth rose approximately 16% or $87 million versus the same period a year ago, bringing revenues to $644 million for the quarter, primarily driven by 13% growth in average subscribers and the 2% growth in ARPU. For the first time, SIRIUS XM had positive adjusted EBITDA reaching $32 million compared to a negative $224 million in the fourth quarter of 2007. We are happy to have delivered such a strong number despite being so early on in the process of integrating the companies.

Adjusted EBITDA improved by $256 million not only as a result of the $87 million increase in revenue, but really driven by cash operating expense improvements of 22% versus the fourth quarter of last year. Our SAC per gross add improved by 16% to $70 driven primarily by efficiency gains in our OEM channel, where we saw improved economics arising from cheaper integrated head units as well as improved equipment margins in the aftermarket. We continued to see improvements in customer service and billing costs with a 9% improvement to $1.18 per subscriber per month.

Cost efficiencies are a big part of the operating story for this quarter. Total operating expenses before non-cash depreciation and stock comp were $612 million, down 22%. The fourth quarter of 2007 included a $52 million one-time catch-up in royalty cost. Excluding the effects of that, total cash OpEx was still down 16% in the quarter. Variable costs, again adjusting for that prior-year one-time royalty charge were down 3% despite the strong increase in revenues. Fixed costs, which includes everything but SAC and variable costs were down 19% in the fourth quarter versus the prior year.

Within fixed costs, sales and marketing costs was $82 million, down 34% from last year as we realized merger efficiencies and curtailed media spending in an economic environment where we did not make -- think it made sense to spend it. SAC as reported on the income statement was $133 million, down 27% year-over-year driven by lower per unit costs and the lower gross add figures discussed earlier.

Summing it up, revenue improved by $87 million. Contribution margin improved by $145 million as we reduced variable costs. Pre-SAC EBITDA improved by $208 million as we reduced fixed costs and adjusted EBITDA improved by $256 million, a multiple of 3 times the revenue increase. Consolidated net loss also improved 39% to $248 million compared to $405 million a year ago.

Now I would like to take a moment and discuss the recent refinancing transactions in our balance sheet. On Friday, we closed phase two of our Liberty Media agreement and I want to give you some highlights of these transactions. Phase one, which closed on February 17, included a $250 million senior secured loan and a $30 million purchase on a loan facility both maturing in 2012. Proceeds were used to repay the remaining $172 million of our 2.5% convertible notes, with the balance available for working capital and general corporate purposes.

Phase two, which we concluded on Friday, saw us extend our $350 million of May 2009 bank maturities at XM with $100 million amortized in 2009, $175 million due in 2010, and $75 million due in 2011. Phase two also included a credit agreement for $150 million second lien loan that XM can use for repayment of the notes due in December. And finally upon closing of phase two, we delivered to Liberty 12.5 million shares of preferred stock convertible in the 40% of our common.

Sirius XM ended the fourth quarter with $380 million of cash and equivalents and another $141 million of restricted cash. The increased cash balance from the third quarter is primarily attributable to the $26 million of positive free cash flow the company saw in the fourth quarter.

Note that since year-end, restricted cash on our balance sheet for the benefit of Major League Baseball and NASCAR was released to those parties in satisfaction of obligations that would otherwise be paid from cash on hand. So in the case of baseball, this means we have prepaid all of our obligations through March of 2011.

Also yesterday, we implemented a $2 increase in our multi-subscriber price from $6.99 to $8.99. Many of our subscribers are taking the opportunity to lock in the old price by signing up for longer-term plans.

In the past six months, the world has changed dramatically and as we all know, the credit crisis has shaken economies around the world. On our third-quarter 2008 conference call, I told you that we believed the business was fully funded absent the 2009 maturities. Given that no company with our credit rating had issued debt since the bankruptcy of Lehman Brothers, completing the 2009 refinancings was anything but assured but we are now happy to say we have put our 2009 liquidity issues behind us. We can now focus on maximizing synergies, growth in the business, and improving our EBITDA and cash flows as we continue to integrate the businesses.

Given the extraordinary uncertainties surrounding the economy, many, many companies are no longer providing guidance for investors. We have no better insight than anyone else regarding what auto sales might be or when the consumer may resume spending. So we are no longer providing subscriber or revenue guidance. However, we can tell you that the operating efficiencies associated with the merger are truly extraordinary and that EBITDA for 2009 will exceed $300 million.

With that, I will turn it over to Jim.

Thanks, David. During the fourth quarter, we added 1.7 million gross subscriber additions. The OEM channel gained 218,000 net additions and the retail channel lost 131,000 for a total net add figure of 83,000. SIRIUS XM ended 2008 with over 19 million subscribers.

While there was a lot of distraction on the corporate side due to the refinancing, our operations team remained focused on integrating the business and turning in a successful fourth-quarter performance.

Since the merger closed, we accomplished a tremendous amount in a very short period of time. More specifically, we were actively involved in integration efforts, putting together our product development, OEM, aftermarket, and customer care organizations into single integrated teams. This has resulted in broad efficiencies across the organization and we continue to be pleased with opportunities for further cost savings.

In the aftermarket segment, we also aligned our product offering and moved to a new retail distributor, Audiovox, which will result in significant long-term cost savings. I am also pleased to announce that our first truly interoperable aftermarket radio called MiRGE is now available for sale.

Another major accomplishment in the fourth quarter was our introduction of Cared Services. We successfully introduced Best of packages and are gaining real traction on selling a tiered offering for the first time. At the end of 2008, we had nearly 0.5 million subscribers on our new packages and the vast majority of these were at higher price points than our standard offering.

Introducing tiered pricing is a new and exciting development for SIRIUS XM and took a great deal of effort to implement. It was successful in that we are now selling new and existing subscribers packages which are new meaningful contributors to our revenue streams.

We also have ramped up our efforts to secure new subscribers from second owners of cars equipped with factory installed radios. This is a large and growing population that provides a unique channel for new subscribers. Our primary efforts so far have been focused on certified preowned programs with most major OEMs. We are now expanding those efforts to other marketing partners to efficiently receive customer data to effectively offer trialing opportunities.

On another exciting front, we have been testing a number of initiatives to make the Sirius XM content and experience more ubiquitous. As noted during our shareholding meeting in December, SIRIUS XM has been working on an application that will allow subscribers to stream our Internet content to their iPhones and iPod touch devices. When released, this application will permit an estimated seven million US iPhone users and additional iTouch users to access SIRIUS and XM Internet content. This will allow existing subscribers with a paid streaming subscription to access our content. This will also allow new customers to subscribe to our service without having to buy a radio.

This is a large and interesting opportunity that will maintain our subscription based economics while providing customers easier access to our content through means other than our traditional satellite-based platform. We are currently in rigorous applications testing and plan to launch in the second quarter.

We have also expanded the number of home devices that can receive our content through the Internet, including an easy to use tabletop radio that is now sold through our website and major retailers.

Before I turn it over to Mel, I want to make some comments about trends we saw in the fourth quarter. Industry auto sales experienced sharp declines beginning in late October and fourth-quarter automotive sales fell to a 10 million to 10.5 million annual sales rate. Unfortunately this trend has gotten worse. So far through the first two months of 2009, the sales rate has dropped to the 9 million to 9.5 million range, with no improvement in immediate sight.

It is important to note, however, that during the fourth quarter we did improve overall penetration rates of new car production to approximately 52%. We are pleased with this improvement and expect further improvements later this year when the Toyota increases its penetration rate. I believe this positions us well when the auto industry recovers.

The poor economy also hurt our aftermarket business. Lower-than-expected overall electronics holiday sales coupled with Circuit City's bankruptcy significantly dampened the seasonal balance we normally see in December. While the recession and macroeconomic climate did have some impact on our churn in the fourth quarter, it did not significantly impact our self-pay churn rate. However, the financial hardship deactivation reason code placed on accounts by our retention team did spike in December, so it is certainly something we are watching closely.

Overall, conversion rates for trial subscribers did show year-over-year reductions but primarily due to higher penetration rates and lower price models as well as lower-priced trim levels. When we compare like models or trim packages, we do not see any erosion in conversion rates year-over-year.

With that, I will turn it back over to Mel for additional comments.

Thanks, David. Thanks, Jim. I have three main points that I will cover on today's call. First I want to highlight how well we are executing on our plan, especially when you factor in the current economic environment that we are operating in. Our country is facing high unemployment, low consumer confidence, horrible auto sales, and very poor sales at electronics retailers. This would all lead to the expectation of SIRIUS XM having a terrible fourth quarter.

But not only did we not have a terrible quarter, we had a very good fourth quarter. Our revenue grew -- correct, grew 16%. Full year revenue of $2.44 billion was an increase of 18% and represents one of the strongest revenue growth rates in all of media.

The fourth quarter was the first full operating quarter since our merger was completed and we demonstrated one of the benefits of the merger for investors, and that is to reduce cost, which we did, reporting a 22% reduction in our cash operating expenses in Q4.

The combination of strong double-digit revenue growth with even stronger operating expense reduction resulted in positive EBITDA. The fourth quarter of 2008 was the first time that satellite radio was EBITDA positive. The turnaround is very dramatic. Sirius and XM had a loss from operations totaling $224 million in the fourth quarter of '07 as compared to the fourth quarter of '08 where the company had positive EBITDA of $32 million. We expect to see this turnaround continue through 2009 and beyond as we deliver not only the very obvious and immediate cost savings, but also act on some of the structural ways we can change the company to deliver on the benefits of the merger for our stakeholders.

The second point I would like to touch on is how the company managed to navigate and solve our 2009 liquidity issue. Beginning in the summer of 2008 around the same time we closed the merger, the financial markets deteriorated significantly. We obviously knew where the markets were before we close on the merger, but decided rather than walk away from the combination we should close and deal with the refinancing. The synergies and benefits were so substantial that even though there were significant financing costs as a result of putting the companies together, the alternative of not doing the merger would have been far worse for the enterprise.

On September 15 when Lehman Brothers filed for bankruptcy, the financial markets went from difficult to closed. SIRIUS XM needed to refinance approximately $1 billion of 2009 maturities with the first being February 15, then followed by May and December maturities. We immediately began work on this refinancing after the merger close.

We spoke with current lenders, new potential lenders, as well as numerous shareholders, private equity companies, and investment bankers about ways of financing our debt. We had the promise of the benefits from merging the companies, but not the actual operating results. There was a great deal of interest, but when it came time to write checks, the risks, the weak economy, the very challenging auto market, and the complicated SIRIUS XM balance sheet outweighed the returns that we were willing to give these investors and lenders.

In this environment, when cash is king and liquidity issues are something to avoid, we were not in a great position. Rather than take the time here to review all the trials and tribulations of having to raise money in this environment, I will just say that we got it done and many, many companies did not get it done. We exchanged equity for some of our debt. We extended maturities on other debt into 2010 and 2011 and raised $530 million of new money. In the process, we brought in a very strong, strategic investor in Liberty Media.

We would have preferred a lower coupon on our debt but we paid current market rates. Remember GE and Goldman Sachs raised money at 10% coupon, so relative to them, 15% was required. Had we not accomplished this refinancing, I assure you that no one involved with our enterprise would have liked the alternative. We hate to give up some of the synergies of the merger, the higher interest expense, but it was in the best interest of our shareholders to do so.

Liberty Media received 40% of the equity in the company from making their significant investment and commitment of $530 million. That means our shareholders still own the majority of our company. This is also a far better outcome than most predicted as a result of SIRIUS XM needing to deal with its liquidity issue in 2009.

Accomplishing our financing is a reflection of the confidence that very smart lenders and investors have in our company. They see a strong future and long-term benefits to the enterprise as a result of the merger and executing of our business plan. So our operating results were impressive and we solved our 2009 liquidity issue.

Now my third and final point to discuss is our focus on growing the business. 2009 will be a terrible year for auto sales. We obviously anticipated that in our operating plan. We assume that churn will increase because consumers are facing challenging times. Our budget also reflects the difficulties that consumer electronics retailers are having bringing customers into their stores.

We have a plan that tackles all of these issues. The driver of our financial results in the short term will be extracting all of the benefits from the merger. As you saw in the fourth quarter of '08 results, financial discipline gets us through the short term and when auto production goes from 9 million to 10 million cars produced to 12 million to 13 million cars produced, we will see substantial benefits. We are not budgeting that car production will return to historic levels of 16 million to 17 million for years to come.

We are getting smarter about managing ARPU, conversion, and self-pay churn. Our strength is that consumers love our product. Our programming and product will get even better in the future and at the same time, we will continue lowering our operating costs.

We have a great product. It is priced right and our competition especially terrestrial radio is getting weaker and we will capitalize on this. We have initiatives with used cars. We will have an application available shortly for iPhones. We are expanding our direct-to-consumer efforts and all of this will help us navigate through these difficult times. Things will get better with OEMs. I cannot predict when, but the demographics of the population work to our advantage as more people will want automobiles. We have the very best audio content offering available. We make our content available in ways that consumers want, whether in the car, online, wearable, mobile devices, home audio systems, and all at a very low price. We unlike most companies, have a clear ability to cut costs dramatically in 2009 without harm to the long-term business as a result of our merger.

So 2009 will be the first year of our merger. It will be our best year in our history for EBITDA and free cash flow. Exactly how good will depend upon the overall economy, the number of cars sold, and how well we execute on our plan. Our past performance should provide you confidence that we will execute very well.

Thank you very much for joining us today and we will be happy to take a few of your questions.

(Operator Instructions) David Bank, RBC Capital Markets.

Thanks. I have a couple of questions I guess. First off, can you give some clarity as to the structure of the preferred shares that are going to Malone? First off, why was it structured as preferred -- preferred as opposed to common? What kind of exchange ratio do we use? Is it based on a price or just a fixed number of shares? Is it -- does it have some sort of anti-dilutive provisions? Is it always 40% of your shares?

The second question is and I apologize if I missed this, on your last call you said I think you had 400,000 subscribers that had signed up for the Best of package at $16.99. Can you give us greater clarity on how many subscribers are signed up today and how that is accelerating? And I guess I'll stop there.

Okay, so on the first question about the details of the Liberty transaction, it's in our 10-K and if in fact there's anything more specific that you would like to know, I would suggest that you sort of follow-up off-line. Basic deal is that it is 40% of the company and that it is getting a 15% coupon. And I can tell you that we are thrilled to have them as a partner and we believe based on everything we discovered in the market that it is a very good deal for Liberty. They obviously did a good deal for their company and a very, very good deal for our company considering where some of you had us going.

On the subject of the packages and the tiers, we continue to grow it. We are adding subscribers all the time. The majority of the subscribers that are choosing tiers are opting for the $16.99 package. About three-quarters of them right now are opting for Best of SIRIUS, so it is XM subscribers who are choosing to get the SIRIUS content.

We are hopeful to work with Major League Baseball to be able to get the games. All of our content partners so far but for Major League Baseball have -- we have been able to work it out and we are having discussions with Major League Baseball about getting the games. And we think that will also drive more of the SIRIUS subscribers toward getting that content.

A number of people have opted for the $9.99 package but not a particularly large number of people on the mostly music and mostly talk and news. That $9.99 package is something that our call centers are going to be working with from a point of view of helping retention. So something that we are looking forward to those numbers continuing to grow.

Just a follow-up. I know that you stated that visibility particularly in the auto market is virtually impossible right now. But if you go back to what you were just talking about in terms of ARPU, could you venture a guess or some sort of range of what percent of subscribers you think by the end of the year would be taking the Best of package to give us a sense of where ARPU could head? Because that's really where -- I mean that is where so much I think of the upside came from in the fourth quarter and we just wonder like can you give us a little bit more clarity there?

I think it is a very fair question, but the answer is that we just really cannot give you any information. I can tell you -- I get a report every day on the numbers that we are adding, so we have the information. We just think that the environment today is so difficult to predict and Wall Street and investors -- and I'm not saying wrongly -- just kill companies for missing numbers. And it's foolish for us where we are today with the growth that we have coming from our financial performance to throw a number out there and be optimistic.

But it's a great offering. We have a number of our automobile partners who as part of the trial program are interested in taking the Best of because obviously it makes the experience even better. So if when you buy a new car and you are able to get the Best of, your conversion rate should be higher because you are getting better content and being a user of Best of should help you with our churn. You should like the service better. But to give you any indication of numbers, I just don't think that we want to make a forecast of it.

Okay, thanks for taking so many questions.

David Joyce, Miller Tabak & Co.

Thank you. Liberty has made some mention of how they think that perhaps your product could be bundled with DirecTV. What would your take be on that? Are you in a position to have some vision on that?

Yes, we think that there are a number of opportunities that exist for us to be working together. Remember these are two distinct separate publicly traded companies, DirecTV of which Liberty I think has a minority interest in and SIRIUS XM, which Liberty has a minority interest in. But we have an excellent working relationship with Chase Carey, the CEO of DirecTV. We have had discussions with Chase Carey over the last few days as we have with Greg Maffei of Liberty.

So we think that there are opportunities right now on an arm's length basis obviously because we have different shareholder bases. But we think that there are opportunities to work with lots of partners including DirecTV on ways of adding subscribers for both companies. And it wouldn't be hard to think about the fact that DirecTV might be able to have a special package for many of their subscribers to be able to get SIRIUS at an attractive price.

So these are all opportunities that exist for the future. In this environment it behooves us to consider every possible way that we can grow our profitable subscriber base and our revenue. David talked about the confidence that we have in the over $300 million of EBITDA and that alone in 2009 is an extraordinary turnaround in the most miserable year I have ever experienced in my life.

So we sort of have that bottom line under control. Now we are focused on growing our top line and if working with DirecTV or any other Liberty company is going to help us do that, we are open for it.

And could you go through some of the expense categories that still have the most room or most opportunity for cutting this year?

You know, I think it's really across the board, but that we only have a few months of integration behind us, certainly every single line item is going to enjoy the benefit of a more full-year impact of synergies in 2009. There are some areas that we won't get to in 2009 that will continue into 2010 so that things like migrating onto a single subscriber management platform and being able to conform the front ends of the system that display in the call centers for the agents, that transition really won't take place until next year. So there will be efficiencies associated with call center operations. Some will come in 2009 but more will come in 2010. The same is true with IT spending.

So we have programming contracts that you know roll off each year and come due, and so there will be an opportunity to revisit those. I think you should expect to see meaningful improvement in all of the line items in the P&L through 2009 into 2010.

This is Mel. Let me give you one example. If you take our total operating expenses -- that total cash operating expenses for 2008, full year of 2008, they were down 2%. If you take a look at our total cash operating expenses in the one quarter that reflects the merger, there were down 22%. So you could see what the impact had in the fourth quarter of our operating the combined company and we will have the next three quarters where we have not had the benefit of that synergy and we fully expect that the costs even in the fourth quarter when we have comparables will continue to go down for the reasons David said, is that we are continuing to find efficiencies to operate in.

Final question if you could give some more color about the retail on that decline during the fourth quarter. Could you tell if there was more of a concern over confusion from the merged entity and the different products out there, or was it -- or how much of it -- the decline would have come from the general economic pull back by the consumer?

Let me have Jim answer that question, but I will give you bluntly what I think the issue was is that there was so much being written about our company going bankrupt and all of those doom and gloom stories that I believe -- and I can't quantify it for you -- that I believe that had a tremendous impact on the consumer and their interest in buying the product. But Jim?

I fully agree with Mel. I think that it was a combination of three things. One, certainly the doom and gloom associated with the financial condition and the amount of how public that was dampened consumer confidence. While I note, though, our churn, it did not dampen our churn, which I think is a great sign of consumers who have our service, how much they like it.

Second, the Circuit City bankruptcy really did hurt us. Circuit City was a very, very strong supporter of satellite radio and where those shoppers went particularly if they went to more mass merchant kind of distribution has been less of a supporter in satellite radio. That is something we are going to address in the second half of this year.

And then finally, overall store traffic in the fourth quarter was poor. There's no question about it and frankly has not improved in the short term.

All right, thank you.

Tuna Amobi, Standard & Poor's.

Thank you very much for taking the question. So I guess the first question for Mel and I guess first of all, I want to [say] some congratulations for getting the financing behind you. One of the questions that I have encountered is the idea that you had an alternative offer on the table from EchoStar and Dish and one of those questions is what was the consideration in your determination that the Liberty offer actually is better for shareholders? If you can put some color on that, that would be helpful.

We had a lot of companies that had expressed an interest in doing a transaction with us that our Board reviewed what options were available to us. They were concerned about the entire enterprise when they were making their decision at that point. So it was obviously our shareholders, but it was obviously also the entire enterprise. And after many conversations, an awful lot of deliberations, our advisors and our Board unanimously believed that doing the transaction with Liberty was in the enterprise's best interests and we are very pleased that we got it done.

Is there any specifics you can put around that, those considerations that would help us to understand that decision a little better?

No, I don't think that there is anything that you to understand better because I am not sure you understand unless you have some specifics about proposals that I am aware of. So if you are asking me why I took A over B, if I understand what you think A was versus B is, I am happy to consider it. But we had only one interest and that interest is in doing what was in the enterprise's best interest and Liberty clearly had a proposal that was in that best interest and we were able to close it.

Okay, great. Let these switch gears then. Perhaps a housekeeping question for David Frear. So when you said that you are discontinuing your guidance, which is understandable, and yet you reconfirm your adjusted EBITDA guidance for 2009, so the question here is are you implicitly withdrawing the former long-term guidance for subscriber growth that you have provided which I think now implies for 2009 that you are going to add 1.6 million subscribers, which is looking optimistic? Or were you merely stating that those numbers are still current, but that you were disclaiming any responsibility for updating them? Which is it?

We are withdrawing guidance for everything other than the EBITDA [segment].

Okay, so which was -- which I guess the EBITDA remained the same, but are you still expecting 1.6 million subscribers, which I thought was what that was predicated on?

Let me say it again just to be clear. We are no longer providing any guidance with respect to revenues and subscribers for 2009 and for any future year. And the only guidance we are providing to investors is that we will exceed $300 million in EBITDA for 2009.

By the way, that is not the same as it was. We originally said we would do approximately $300 million and now what we believe we will do is over $300 million in EBITDA.

Okay, great. I missed the over part, then. Thank you.

Joe Stauff, CRT Capital.

Good morning. The restricted cash of $141 million, $100 million of that obviously is at least as of the end of the year was escrow from Major League Baseball. Can you help me understand that a little bit more? You were able to pay that out and therefore satisfy the Major League Baseball payments for 2009 and 2010?

Yes, so $120 million of the restricted cash was for the benefit of Major League Baseball, and about $20 million for the benefit of NASCAR. Those funds have been released to those organizations in satisfaction of 2009 and in the case of baseball, 2010 obligations under the contracts.

So you are not required then to I guess refund escrow for Major League Baseball in particular?

No, we are not.

Nice. Okay. Second question is about CapEx this year. Obviously it's kind of -- it's obvious it's kind of a moving target with respect to how aggressive -- nonaggressive you want to be especially in this environment. Any sort of guidance you can help us with with respect to again sort of your CapEx possibly this year and next year?

No. The only guidance we are providing is to exceed $300 million in EBITDA for this year.

Okay, fair enough. The Loral credit, undrawn credit revolver, I guess it's about $80 million at this point. You are only allowed to obviously draw down on that to the extent you need -- or to the extent you are going to take these proceeds and invest it obviously in your CapEx. Is that accurate?

There are a variety of drawing conditions and use of proceeds to the Loral credit agreement and so it tends to be for the purposes of satellite payments, [i.e., construction] payments.

Okay, final question. David, you had said something in your introductory remarks about the $6.99 plan -- I'm sorry -- the $8.99 plan or $6.99 plan in terms of subscriber's ability to lock that in. Is that -- I guess could you reiterate that or clarify my understanding? Obviously that would -- by locking in X number of subscribers, that would help your working capital. Is that accurate?

Sure, so we have a multi-subscriber price, right, for your second, third, fourth subscription that you can pay $6.99 a month for it. In late January, we started informing the subscriber base that we intended on March 11 to increase the price of that by $2 a month to $8.99 and we gave them the opportunity to sign up for longer-term contracts I believe at any time prior to March 30 to lock in the old price. And we have had a very good response rate from the subscribers. Quite a number of them are coming in and signing up for longer-term plans at the old price. So that -- because they prepay that in advance, it does give us a working capital benefit.

Just to be clear, you are unable to raise rate on the $6.95, $12.95, and $16.95 plans, but this one I guess is the family plan?

Yes, so on the multi-subscriber plans, we can raise prices there that if we wanted to -- we haven't chosen to -- but as you know, we give discounts for our long-term plans, one-year, two-year, three-year lifetime. We could increase prices on those if we wanted to at this point in time. What we have -- going forward with is an increase in the multi-subscriber price.

Yes, what we have committed to the FCC was that for three years we would not raise our a la carte price of $6.99, nor would we raise the $12.95 price for that period of three years.

Got it. Thanks, guys.

Ned Zachar, KLS.

Thanks very much for taking the question. Somebody mentioned a penetration figure of 52% versus the 44% figure that is in the press release. Can someone just clarify what the difference is between those two figures?

Sure, the 44% is the average for the year. My comment of 52% is what the going rate was as we exited 2008, which I think is a more relevant number for predicting 2009.

And that was for all three months, David?

It is Jim. I don't have the exact number on hand. I just know that December was 52%.

Got it, thank you very much.

Barton Crockett, Lazard Capital.

Thanks for taking the question. I was wondering if you could talk a little bit about specifically what happened, kind of an overview what happened to your business trends with conversion rates and with churn as we went through the past four months, whether there was any particular changes? Because we obviously know the consumer was really affected by the news flow and just the trauma of everything that was happening. I am just wondering how sensitive your business was in December and November to these events and then what's happened since then in January and February.

This is Jim. It is a tough question to answer because we've never seen an economy like this at least in the history of our business, satellite radio, and certainly for 30 years or longer. But there is no doubt in my mind, I have been in consumer businesses for a long time that there was definitely a taint and we are -- we have worked hard.

One of the things I am so excited about of getting the refinancing done is that we can now assure consumers of our future and being on steady financial ground. And I think that bodes well for us in the second quarter and moving forward there certainly was headwind associated with both the confusion of putting the two companies together and the overall just unbelievable amount of news and press that we have seen really in the fourth quarter and continuing in January and February on the financial condition and refinancing of our balance sheet.

It's particularly sensitive for us because people prepay their subscriptions in large part. So the idea of all of the noise in the market certainly when you are asking somebody to prepay and buy a year in advance or something like that, obviously has an impact.

So just wrapping it up, all I would like to tell you all is that this was a very difficult period for all of us. You know, we are thrilled with the outcome. As I said in my remarks, I wish the coupon was lower and I wish that the stock price was better obviously speaking as a large shareholder myself. But now that we have gotten that part of it behind us, we are laser like focused for growing our business, and it's a good cushion because there are not many companies that are going to be able to show going from a negative EBITDA in 2008 full year to over $300 million of positive EBITDA in 2009. So we are excited about this year even though there is a lot of issues that we have around us.

So I appreciate you all joining us and look forward to staying in touch with you.

Think you, sir. That does conclude today's teleconference. We thank you all for your participation. Have a great day.