Sirius XM Holdings Inc (SIRI) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to SIRIUS radio's fourth quarter 2009 earnings conference call. Today's call is being recorded. Following today's presentation, we will be conducting a question and answer session. (Operator Instructions)

At this time, I would like to turn the call over to Mr. William Prip, Senior Vice President, Treasurer, and Investor Relations. Mr. Prip, please go ahead.

Thank you, Lisa. Good morning, everyone, and welcome to SIRIUS Satellite Radio's earnings conference call. Today Mel Karmazin our CEO will be joined by David Frear our EVP and CFO. They will discuss SIRIUS XM's fourth quarter and full year 2009 financial results. At the conclusion of the prepared remarks management will be glad to take your questions. Jim Meyer, President, Operation and Sales, and Sales, and Scott Greenstein, President, Chief Content Officer will also be available for the Q&A portion of the call.

First, I would like to remind everyone that certain statements made during the call might be forward-looking statements that might -- as the 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 and could cause actual results to differ materially. For more information about those risks and uncertainties, please see SIRIUS XM's SEC filings. We caution listeners to, not to rely unduly on forward-looking statements and declaim any intent or obligation to update them. As we begin, I would like to caution our listeners that today's results may include discussions of both actual results and pro forma results. Listeners are cautioned to take special care to ensure accuracy in looking at today's report. I will now hand the call over to Mel Karmazin.

Thanks, Will, and welcome, everyone, to our earnings call. What a year, 2009 was. We began the year with a tremendous sense of uncertainty, the economy appeared to be in shambles, with the labor market experiencing severe contraction, and the auto industry and financial markets faring even worse. But by the end of the year, the economy was beginning to show signs of recovery. At SIRIUS XM, we, too, began the year with a great sense of uncertainty, stemming from the fact that we were facing near-term maturities with neither the cash on hand to satisfy those maturities, nor a functioning capital market to provide us the opportunity to extend them. We also felt that a sense of frustration because we knew that the Company would thrive and not just survive, if given a liquidity lifeline. We were anxious to validate our superior business model as a result of the recently consummated merger. Fortunately, Liberty Media saw our situation in the same way as we did and provided us the liquidity we needed to meet our financial obligations in February. This allowed management to focus on the Company's operations and the results were worthy of our hopes and expectations.

As we announced in our press release this morning, we had a banner year. Operational and financial metrics have improved year-over-year, or over the course of the year and collectively they demonstrate the strength of our differentiated business model, the paid subscriber business model works well in radio and SIRIUS XM's business model in particular is strong and resilient. David will provide more details and insights on our financial and operational metrics, but I also want to address a few of them.

First, the Company's revenue grew 4% in 2009, which was a year which many people might have expected our revenue did decline given the hostile macroeconomic environment we experienced, overlaid with the unique challenge facing the auto industry. But as a matter of fact, we had record revenue. Second, we grew pro forma adjusted income from operations, adjusted EBITDA by nearly $600 million in 2009, a $460 million -- $463 million from negative $136 million in 2008. This represents the first year that the Company has generated positive pro forma adjusted income from operations.

In March 2009, our original guidance for 2009 was just over $300 million in adjusted EBITDA, producing $300 million in adjusted EBITDA in '09 compared to the negative $136 million in 2008 would have been great performance delivering $463 million compared to the loss of $136 million was extraordinary performance. One more time, negative $136 million to positive $460 million in adjusted EBITDA in just one year. Third, we grew free cash flow by over $700 million in 2009 to $185 million from negative $550 million in 2008. This, too, represents a first for the Company, the first full year of positive free cash flow and as we have previously stated, free cash flow is a key metric for creating value for shareholders.

I also want to discuss a few operational metrics that highlight the strength of our business. We experienced better subscriber performance in the second half of the year, clawing back 359,000 subscribers in Q3 and Q4 of the 590,000 subscribers we lost in the first half of the year. While this improvement in our overall subscriber base over the course of 2009 was obviously welcome, I was extremely gratified that our self pay subscriber base turned around, even more quickly and ultimately resulted in us ending the year with more self pay subscribers than we had at the beginning, 154,000 more to be precise. In fact, our overall subscriber decline last year were driven solely by the loss of 385,000 promotional subscribers which was clearly a consequence of the dramatic decline in auto sales in 2009.

It is obviously reassuring to us that the self pay subscriber base grew last year, despite the recession and its impact on consumer spending. Now, with auto sales showing signs of recovery, we are well positioned to hopefully grow our promotional base in 2010 and beyond. We also know that our unpaid trials, which are not counted in our subscriber base, have also begun to grow and represent a significant source of future self pay subscribers. And finally, I just want to touch on churn. Churn kicked up a bit in 2009 versus 2008 and it's difficult to be certain as to the cause of that increase. Our subscribers, like all consumers last year, were pressured by a severe recession. At the same time, the Company had taken pricing actions on certain of our services last year that likely caused some of our subscribers to cancel their subscriptions, but we had expected throughout last year that the economy more than our pricing actions increased our churn and now given the lack of discernible impact on churn of the Company's passing through the music royalty fee, we are even more confident that the economy was the negative pressure on churn last year. As such, we are hopeful that churn will improve as the economy returns to health. These results are outstanding when put in the context of the environment that we operated in last year. The auto industry's decline coupled with consumers curtailing many areas of discretionary spending could have been disastrous for Sirius XM, but our business model allowed us to be successful.

Specifically, two aspects of our business model allowed us to thrive last year and will continue to fuel our future growth. First, we offered consumers a service that they appreciate and for which they are willing to pay, despite the innumerable free entertainment alternatives we've always competed against. Simply put, we offer our subscribers a great product at a great price. The second aspect of our business model that is allowing us to be successful and grow at the pace we demonstrated for the past two years is the operational leverage that is inherent in our business. As I've noted before, when businesses like ours reaches sufficient scale to cover our fixed costs and subscriber acquisition costs, which is a cost we're happy to pay because it represents future subscribers, it becomes a powerful cash flow generator because of the high contribution margin we enjoyed. Clearly the operational leverage of this business was enhanced by the merger in mid year 2008. The merger provided significant cost synergies in our fixed cost base, which consequently allowed us to reach scale more quickly than other guys. Our fixed cost base dropped nearly $350 million since 2007. This fact has allowed the combined company to increase pro forma adjusted income from operations in 2009 by nearly $600 million in over one year and by over $1 billion over two years.

So I mentioned earlier about our differentiated business model. As you know, we principally generate our revenue from subscribers, approximately 98% of our 2009 revenue of over $2.5 billion came from our subscribers. Having multiple revenue streams is superior to the model that principally relies on advertising. SIRIUS XM ended the year with over 18.7 million subscribers. That translated, according to Arbitron, to approximately 35 million listeners. We were able to generate over $70 in revenue annually from each listener to satellite radio. If you consider the major terrestrial radio companies and compare their total revenue with their total weekly listeners, they are only generating between $10 and $20 per listener per year. SIRIUS XM's business model enables us to monetize our listeners over 3.5 times that of terrestrial radio. Also, if you look at the largest internet radio company that has over -- over 40 million users and generates about $50 million of revenue, which is about $1.20 per user per year, our superior model is even dramatic. $70 per satellite radio, $10 to $20 per listener for terrestrial radio and $1.20 per year per listener to Internet radio.

In addition, our unique contracts with OEMs also are a significant contributor to our business model, and is a major driver of our future growth. So what does this mean for our future? Well, with respect to 2010, we are anticipating a very strong year. We expect to generate over $2.7 billion in total revenue for 2010. We also expect our pro forma adjusted income from operations to reach approximately $550 million this year, which is consistent with the 20% increase we guided to on our last call, despite the fact that we significantly overachieved our 2009 guidance. Finally, we expect to grow subscribers in 2010 and add over 500,000 net subscribers this year, which will exceed the Company's previous high of 19 million at the end of 2008.

Now with respect to our long-term performance, SIRIUS XM will undoubtedly continue to be a strong cash flow generator over the coming years. We will continue to be installed in a majority of new cars sold in the United States, an important fact given that new cars have become the source of the vast majority of our new subscribers and we are also extremely excited about our potential to grow subscribers through the used car market. Eventually there will be many more used cars with factory or dealer installed radios on the road than new cars, so the universe of potential subscribers who can easily sample our service will continue to grow and we're devoting a great deal of energy to create and refine processes to take advantage of this future fact. We have recently announced the management team to focus on capitalizing from the very large certified preowned and used car market.

Importantly, we also expect to grow ARPU over the coming years by offering additional services and pricing plans that make our services even more valuable to subscribers. And as we make our service offering better, we will not only increase ARPU, but we will also enhance the stickiness of our service to customers, which would have the additional benefit of positive impact on churn. We are very pleased that in a very short time since the merger, we now have over 1 million subscribers buying our best of packages.

Now let me turn to our balance sheet. As we continue to focus on growing cash flow, we will be more aggressive in attacking our balance sheet by repaying debt as it comes due and in some cases, selectively refinancing in opportunistic transactions. And because we have no debt maturing this year and manageable amounts maturity in the following two years, we will be building a strong cash balance that will allow us to address our debt that matures in 2013. By reducing indebtedness while accretive to equity, it not only is adding our strong cash flow generation, but it will greatly increase shareholder value, reducing overall leverage gives us greater flexibility generally, which consequently provides us with greater operational flexibility. As the Company improves its balance sheet, we will more be able to invest in strategic and commercial initiatives, as well as improve our internal business processes. And without financial flexibility, it is often impossible for companies to seize opportunities as they come along.

The bottom line, we are positioning SIRIUS XM to have the agility and flexibility we need to grow the top line. So as I pass this call on to David, I just want to address one final issue. Obviously with our stock price trading above the $1 mark for the past six days, it is possible we will requalify under the NASDAQ continued listing criteria with 10 consecutive days over a $1. If that were to happen, we would obviously not pursue a reverse stock split. Moreover, even if we were to slip below $1 again and received a de-listing notice from the exchange on March 15, we would appeal that notice and seek a six-month extension as permitted under the NASDAQ rules and we are optimistic that we will prevail. We hope and expect we will meet the continuing listing criteria either in the next few days or over the next several weeks to months. There is absolutely no concern about SIRIUS XM continuing to be listed and traded on NASDAQ and if successful in meeting NASDAQ's dollar bid requirement, we have no plans to execute a reverse split. We are very excited about our future. 2009 was a good year and we look forward to 2010 being great years. Now I'll turn the call over to David.

Thanks, Mel. Our performance in the fourth quarter and full year continues to demonstrate the strength of the satellite radio business model and the bright future for our Company through the worst economic environment in a generation our results are phenomenal. Subscription performance in the quarter was encouraging on virtually all fronts, gross additions in the quarter were at their highest levels since Q2 2008, as automotive sales continued their recovery and our penetration rate reached 55% for the full year, and 60% in the fourth quarter. Auto sales were 10.4 million for the year and SAR ran at a 10.8 million unit base in the fourth quarter. Conversion rate was up 2 percentage points from Q4 '08, and 46.4%. Self pay churn was under 2% to the second consecutive quarter, despite the introduction of the US music recovery fee in August. Net additions of 257,000 represented our best quarter since Q3 '08 and virtually all of these net additions were self pay subscribers. We are well positioned for a continuing recovery in the automotive sector, with self pay subs of 15.7 million and total trials paid and unpaid in the funnel of of 3.6 million as of the end of the year.

January auto sales remained level with Q4's 10.8 million seasonally adjusted rate and we are cautiously optimistic that can pace can be maintained. We expect our subscriber base will grow by over 500,000 subscribers in 2010 with most of that increase occurring in our self pay base, meaning that we expect to exceed our previous high of 19 million total subs by year end. Most of the financial results I will discuss today will be based order pro forma combined Company figures with out purchase price accounting adjustments which we believe represents the best way to observe the core trends underlying the business. Revenues for the quarter were $684 million, up 6%, as subscription and other revenues increased with higher ARPU and the implementation of the music recovery scene. ARPU improved $0.27, or 2.5% to $10.92, driven by higher sales of best sub packages and the rate increases on multiradio subscriptions and Internet streaming.

Advertising revenues were flat with 2008 representing the strongest quarter of the year, as with auto sales we are cautiously optimistic about the general advertising environment. Early bookings in 2010 are positive to year-ago levels. Our track record of great cost control continued in the fourth quarter, as virtually every element of our costs improved. Customer service and billing cost per sub improved 10% to $1.06 per month or on a margin basis from 10% of revenue to 9%. Revenue share and royalties improved slightly on a margin basis to 18% of revenue with the music recovery fee revenue in improved OEM revenue share terms offsetting a higher performance royalty rate in a higher percentage of OEM customers versus retail compared to last year. As a result, contribution margin improved 3.7 percentage points to 71.4%. SAC per gross add dropped 9% to $64 and SAC as a percentage of revenue also dropped to 19% from 21%.

The increase in satellite and transmission costs in the quarter is related to noncash charges associated with lease accounting and launch insurance allocations, sales and marketing costs were flat with last year, as cost sufficiencies were used to fund our Icon media campaign in the fourth quarter. Programming, customer service, G&A and engineering all experienced double-digit percentage declines over the year-ago period. In total, our fixed operating expenses fell 6 percentage points to 36% of revenue. Add it all up and adjusted income from operations more than tripled to $115 million, representing a 17% margin on sales compared to last year's 5% margin. We have now had five consecutive quarters of positive adjusted operating income from operations and in all four quarters of 2009, it exceeded $100 million.

For 2009, SIRIUS XM earned over $463 million of adjusted income from operations, an improvement of just under $600 million over 2008, and an improvement of more than $1 billion since 2007, when the recession started. One year ago, we gave you guidance of adjusted income from operations would be more than $300 million. We have delivered 54% more than that guidance. Similarly, we saw dramatic gains in our free cash flow. Free cash flow in the fourth quarter was up nearly six times to $150 million. In full year, free cash flow improved to positive $185 million from negative 552 in 2008, a swing of $737 million in a single year. With $383 million in cash, continuing positive free cash flow, and minimal debt maturities in 2010, we will opportunistically look to improve our balance sheet.

We expect revenue to exceed $2.7 billion in 2010, which would represent at least 7% growth, consistent with our prior guidance, mid to high single-digit revenue growth, with the continuing shift in our subscriber base toward factory installed radios and the increase in statutory royalty rates, we expect revenue share in royalties to grow at a faster rate than revenue in 2010. Similarly, with low auto inventories at year end, and a recovering automotive sector, subscriber acquisition costs will grow faster than revenues in 2010 as we invest in growth that will reap revenue and cash flow benefits in 2011.

We will continue seeking efficiencies throughout the Company. Many, though certainly not all of the merger cost synergies have been realized. Year on year cost comparisons in 2010 will not show the dramatic across-the-board improvements you have consistently seen us demonstrate over the last 18 months. Our 2009 adjusted income from operations, $463 million, was significantly higher than we had anticipated in our prior guidance, but we are maintaining our guidance of a roughly 20% improvement in adjusted operating income, effectively raising our 2010 adjusted EBITDA guidance to $550 million. Despite an increase in satellite capital expenditures in 2010, we continue to expect positive free cash flow generation this year.

With satellite CapEx declining by $100 million in each of the next two years, 2011 and 2012, that is, as we complete the replacement of the satellite fleet, we expect increasing amounts of our cash flow from operations to be available to fund debt maturities or other strategic or financial priorities. While we continue to delever in the near-term, our growing cash flow presents many interesting opportunities for the Company. With those comments, now I would like to open up the line for questions.

(Operator Instructions) Our first question comes from David Bank with RBC Capital.

Good morning. A couple of questions. First off, can you talk a little bit about what drove the reduction in revenue share on the automotive side? Were the nature of some agreements changed or what happened there? Can you also tell us what percentage of your subscribers during the fourth quarter were paying the revenue, the royalty pass-through? And, should we assume that it's kind of fully baked into subscriber, the subscriber base for the first quarter or will continue to roll out? Two more questions, the third question would be, kind of tough for you guys to talk about, I'm sure.

But could you give us any color on where you are with Howard Stern and, what scenarios you might be playing out there as the potential to re-sign Howard, but for maybe fewer days on the air, something like that, or is it all-in or nothing? And then last, Mel highlighted the operating leverage inherent in the model in his comments, but in some cases next year, in 2010, we are going to see expenses ramp faster than revenue growth. And David kind of hit on it briefly as the OEMs ramp, faster than the retail base, that's part of the driver. Why exactly are revenue share royalties growing faster than revenues? And why exactly is SAC growing faster than revenues? Thanks for taking all of those questions.

Why don't you start with the first nine and then I'll deal with the Howard Stern.

Okay. So the reduction in revenue share, we did renegotiate one of our OEM agreements entering 2009 and were able to -- we extended that agreement, were able to secure a reduction in revenue share as a result. We also have mix issues going on in the OEM side, where we have got an increasing mix of subscribers from OEMs with lower rates. So overall, that's what brought that down. In terms of the music recovery fee, we estimate at this point that about two-thirds of the self pay base have the recovery fee assessed that I think that the way you should think about it is that the, some of the remaining third will never get it, so we've got subs that are on very long-term plans that may not roll off, the lifetime subscribers that predated the imposition of the fee, that they will never be assessed it. But I think that substantially all of the subs who are going to experience the fee will get it within the next couple of months.

In terms of the faster growth of some expenses, one of the things that you know about the model is that when we have rapid growth, we incur all of the SAC expense on the day that we recognize the subscriber, but the revenue follows over some period of time after the subscription's initiated. So if the automotive industry recovers and that -- if you look at most of the estimates for the automotive industry this year, that it's sort of even with the fourth quarter and then it seems to be rising as you go out through the year. If that forecast comes true, you end up with a decent ramp in OEM additions in the second half of the year, so you'll be recognizing all of that SAC expense, but the revenue associated with those adds won't really come in 2011. That sort of covers the SAC thing. If you look back at the Company's growth in the sort of 2004, '05 and '06 period, you would see a similar behavior with SAC.

With revenue share that, again, that's nothing more than the math. There's nothing actually changing with respect to the underlying rates in the business that, in 2009 we got the benefit of this one-time benefit of a reduction in rate from one of our automotive partners, as well as the ramp-up in mix from some of the lower rated partners with, at 60% penetration, and with a mix that isn't changing all that much in the course of this year, that is just the OEM subs become a larger proportion of total subs, there's going to be a natural bias up in revenue share expenses, a percentage of total revenues. But when you add it all up, we're showing you what I think is very strong contribution margins, very strong incremental margins in the business, that you've got $463 million of EBITDA going to $550 million, so that's, what is it, $97 million, $87 million improvement, and we've given you guidance of revenues going up by at least $150 million so that you're looking at incremental margin that we're providing guidance that puts you somewhere in the zip code of a 50% plus incremental EBITDA margin business. That's still a very, very strong economic model.

The only other thing I would add to what David said is you should assume our revenue is growing faster than our operating expenses are, and we will have EBITDA improvement as a percentage as well. So I think that's a statement.

On the subject of Howard Stern, I wasn't here at the time the decision was made to bring Howard to SIRIUS. Scott and the team made absolutely great decision and something that has worked out terrifically well. So bringing Howard to SIRIUS was a great call. I along with everybody else; I believe that in the last four years, Howard has done his best work. His shows are better than they have ever been before. They are helped by the fact that he has a national platform and probably more importantly, by the fact that for the first time, Howard is operating in a very minimal commercial advertising mode. So in terrestrial radio, listeners were hearing up to 22 minutes an hour of commercials where at SIRIUS XM, the most we're running are six. So when you think about the fact that Howard does about 4 hours a show, 4 hours a day and listeners are hearing 15 minutes an hour more of Howard in essence, you know, an extra hour each show of Howard, it has worked out terrifically well.

He has been a great partner. We would like to continue doing business together. There is nothing in his contract that deals with a timeframe as to when we need to negotiate and do a deal. Some contracts provide a period where that negotiation needs to take place in Howard's contract. That's not the case. So we have nothing to announce today. My suggestion for those that are interested. I'm sure many of you are, is that tune to Howard 100 because we will be providing you with regular update. Howard talks about his life regularly and I'm sure as he talked about it this morning, he will continue to talk about it. And when we have something to announce, we'll announce it.

Okay. Thanks, guys.

Our next question comes from Barton Crockett with Lazard Capital Markets, please go ahead, sir.

Okay, great. Thank you for taking the question. I wanted to ask a little bit about your outlook for subscriber growth in 2010, the 500,000 growth. Is it safe to assume that that's all on the auto side and that retail subs are down again? That would be the first question.

This is Jim. I think that's safe to assume.

Okay, all right.

With the -- this is Mel. I think one of the things that you ought to think about longer term, and starting -- when I say longer term, not talking long-term away, but including in 2010, that the aftermarket as you knew it before OEMs ramped up is going to sort of migrate toward the used car market, because that market is really the potential for us to add significant amounts of additional subscribers, so there will always be an after market, our DTC and retail stores will continue to sell it, but as people are principally using the car as the opportunity to access radio, I mean that's the main spot, our initiatives in new cars and used cars will be the predominant driver. And that's a good business model for us.

Okay, and to that end, I was going to ask about used cars. Can you give us any sense of how much contribution used cars were to the subscriber total in 2009 and any color on how that might change in 2010?

We generally -- it's certainly going to be increasing in terms of number of adds each year, Barton, but we haven't broken out those physician for you yet. I don't think we're going to do so today, but it is one of these things that as we look at the 25 million or so factory installed radios that are in the field and the roughly maybe 11 million or so that are active, there's obviously a growing pool of those that are opportunities for us to get turned back on. Now, most of those are still in the hands of the original owner because the ramp-up in OEM is, has been fairly recent. But in the course of the next couple of years, a second owner market's going to kick in and we're going to start seeing a -- really significant numbers of them begin to turn over and of course at 60% penetration levels, the total pool is growing pretty rapidly. I think as we see the volume grow, right, and I think you'll hear us talk more about it, probably give more details about it in the future.

I think in the future as our IT systems evolve to be able to get us the kind of precise information we want that, that will become a reporting item as well. We will be reporting -- the after-market will be reporting at some point the used car secondary market, as well as the OEMs.

Okay, and then on the topic of cars, can you talk about the Toyota issue, what impact that has had on you in the quarter and what, if any, impact it's having in the first quarter and might have for the balance of the year?

With Toyota, number one, the Toyota program that we have is a nonpay trial and so the impact to the first quarter in terms of subscribers is zero. In terms of production, as you know, they were down for a fair amount of days. They are now back up and running. They have made up a lot of their production. What we can't predict is what's going to happen to their market share. And so I really don't think it's going to be terribly disruptive to our numbers in the first half of 2010.

We had a meeting yesterday of all of our senior executives and we talked about another advantage of the merger, for the companies, is that the combined Company has deals with every single OEM. So if in fact, one of our OEMs is going to lose some market share, then another of our OEMs is going to pick up that market share and we for the most part are not adversely effected at all.

Okay, and then a final question here, thank you for taking so many, I wanted to switch gears and ask about the relationship with Liberty, and in particular, in about a year they have an opportunity to adjust their holding structure. One thing they have done in recent history was their holdings with DIRECTV, they weren't given full credit with that, they spun it off and merged it in with DIRECTV, which is a good thing for their shareholders. Is there any scenario where it might make sense for SIRIUS to think about doing something like that with Liberty? I was wondering if you could talk a little bit about that?

Obviously about a year ago when we first got together with Liberty, it turned out to be a very, very good deal for SIRIUS. They stepped up and provided us the liquidity we needed. We paid them back. We refinanced it. It was an extraordinary investment for Liberty and at this point what hypotheticals and possibilities could exist in the future, I really don't want to comment on, and I himself think that any questions about what Liberty might do is best directed to Greg Mathay and John Malone. From our point of view, there is a standstill. One of the reasons that we were attracted to the Liberty deal and not to other deals that we had the opportunity to do was that we didn't want to provide control of this Company to somebody without a significant control premium. So the liberty investment is at 40% and this period of time where they have to stay at that. So what Liberty does with its shares of SIRIUS is really something that should be directed to Liberty.

Okay, fair enough. Thank you so much.

Our next question comes from Mike Pace with JPMorgan. Please go ahead, sir.

Thank you, and up front, I'll apologize if I missed any of this earlier. I would like to debate some of your guidance, but first of all -- what SAR rate are you assuming in your subscriber guidance for 2010?

We do a bottoms-up approach in arriving at our guidance and subscriber numbers. We talk to each of our team that represents the various automotives. We look at each of the contracts. So we're not -- know, we have the range of SARS, what everybody has given. We're not in the SAR-predicting business. But we tend to be more conservative than what is out there generally.

Okay, and then I guess, and I acknowledge there's a greater than sign next to your revenue guidance, but if I think about you're growing subs, you still have more royalty rate pass-throughs to hit the financials in 2010. I guess if I just look at annualizing fourth quarter revenue numbers, that would assume really no more growth, we're already above the 2.7 number, I'm just wondering if we're missing anything. Do you expect the underlying ARPU to be more promotional or same techniques as you're thinking about that?

No, I think you've read the guidance correctly. I think that our guidance of greater than 2.7 covers it.

Okay, and finally, just on cost saves, what are the key line items that you still have some more to do, and I'm thinking particularly more customer service and billing and programming of course, if you could give more specifics, that would be great.

We've said this many times, that as each contract comes up, that we take -- regardless of where it is, programming, automotive, retail, printing, legal services, that we take the opportunity to negotiate hard with the bigger buying power that we now have. So on the programming side, there are a number of high profile contracts that come up year by year. I think everybody knows that Howard's deal is up at the end of this year, that we are entering our last season under the current NFL agreement in the Fall, so 2011 in essence both of those are up in 2012. NASCAR is up, and then there are others that follow year after year. I think in terms of line items, that we will be integrating the subscriber management system platforms in the sort of third quarter of this year. That could give us opportunities on the IT side of things in 2011, really not so much in 2010, that IT expenditures get split between G&A and customer service and billing. So they will be in there. We still think there are opportunities for other improvements on the G&A side. And then just generally, it's part of the NA of this Company that we go through and we beat the expenses up every month. So I think as we said before, you shouldn't expect to see the dramatic improvements in every single line item that we show in the last 18 months, but you should expect to continue to see expanding EBITDA as a percentage of revenues.

Great, thank you.

Our next question comes from Jim Goss with Barrington Research.

Thank you. First, Mel, I would be interested in your thoughts and some insights into your thought process with regard to pricing philosophy. I realize we're still more than a year away before you can really adjust the basic prices, but you do have several significant contracts coming due. I imagine as you look at those, you can think of the two systems you might spread certain of the programming over and there could be a development of premium service versus, tier versus just straight pricing. Could you provide any thoughts on that matter?

Yes, I think obviously we have a lot of competition? We compete with freight and we believe right now we're offering extraordinary value to our subscribers. We talked about how we've seen the churn improvement in the fourth quarter, even passing along the MRF and as the economy gets better. We would like to be able to continue to offer our subscribers value, that we're sort of mandated under the FCC order until July, or I guess until August of 2011, and without making any current subscriber pay more for what they were currently getting before, and as we go through that process, we'll start looking at ways that we can add more value for our subscribers and that might include subscribers paying a little bit more for some of the value that we're going to add. But we really have not announced anything and really have no comment today on anything that we may be doing sometime in the future.

Okay. One for David. With regard to the 2013 maturities, despite the fact that you have no maturities this year manageable in 2011 and 2012, the looming 2013 still steams pop up periodically with investors. I'm wondering if there is any thought aside from building cash to try to -- are there things you can do to try to address that issue ahead of time?

Sure. You should expect us to be smart and opportunistic with respect to the 2013 maturities. They are obviously a long way out and the Company's credit profile is very clearly improving rapidly and dramatically. And so, as we -- we keep a pretty close eye on the markets. If there's an opportunity to go into the markets and, get attractively priced long-term paper to term out some of those maturities, that's something that you should expect us to do. To the extent that the paper trades weekly from time to time, that is, we build the cash over the course of the next couple of years, that we could decide to buy paper in early. So I think we'll -- it's obviously an important thing for the Company to focus on and we put a lot of effort into it. And as the opportunities arise, you can expect us to move quickly to take advantage of them.

I think it just adds -- I would agree with what David said. You should assume that extending that 2013 maturities is something that we would like to do.

Okay. Last couple of things, the share of autos with the built-in radio at year end, I think earlier in the year you thought the year end target would be something like 58%. Is that about where you wound up?

It was 60% in the fourth quarter.

60% in the fourth quarter. And the upside is not much more than that, 65% or so?

I think you should plan on penetration staying at least in '10 around 62.

Okay, and finally, are there any--?

Just one point, one of the things we're going through now, and I think it's a great sign of the maturity of the Company, there are certain cars that are built that just don't yield an acceptable subscriber profile for us. An example is one of our large OEMs, there's a group of commercial trucks that we learned don't convert anywhere near to give us an acceptable equation, financial equation, and despite the short-term impact on subscribers, we're eliminating those from including satellite radio going forward.

And thank you for dialing in. That concludes our conference call.

Thank you.