Sirius XM Holdings Inc (SIRI) 2010 Q2 法說會逐字稿

Good day everyone and welcome to the SIRIUS XM Radio's second quarter 2010 earnings conference call. Today's conference is being recorded. (Operator Instructions). At this time I would like to turn the call over to William Prip, Senior Vice President, Treasurer and Investor Relations. Mr. Prip, please go ahead.

Thank you, Lisa. Good morning everyone and welcome to SIRIUS XM Radios earnings conference call. Today Mel Karmazin, our CEO will be joined by David Frear our EVP and CFO. They will review SIRIUS XM's second quarter 2010 financial results. At the conclusion of our prepared remarks management will be glad to take your questions. Jim Meyer, President of Operations and Sales and Scott Greenstein, President and 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 this call might be forward-looking statements as determined by 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 on 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 more information about those risks and uncertainties, please see SIRIUS XM's SEC filings. We advise 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 advise our listeners that today's results will include discussions of both actual results and adjusted results. All discussions of adjusted results excluding the effects of stock based compensation and certain purchase accounting adjustments. Financial measures and metrics previously reported as pro forma have been renamed adjusted. We will now hand the call over to Mel

Thanks, Will. Good morning everyone. Today we announce financial results that compliment the very strong subscriber metrics we previously released for the second quarter. We are very pleased with our financial performance which is a continuation of the momentum of the past few quarters. Our operational and financial metrics demonstrate the strength of our business model. We are taking full advantage of the marginally improving economy and current growth being experienced by the auto sector. Our adjusted revenues were up 16% versus the same quarter last year. That is dramatic top line growth resulting in the second quarter adjusted revenue of over $700 million which is a record revenue quarter for the Company.

By continuing to focus on costs, we increased our adjusted EBITDA by 17%. Our total cash operating expenses would have been up only 2% if we exclude the subscriber acquisition costs related to adding almost 800,000 more subscribers than the second quarter of 2009, revenue share and royalty costs which grow as our revenue grows and our discretionary increase in co-op advertising. Most impressively our free cash flow jumped to $108 million in the quarter up from $13 million a year ago. These stunning financial results when married to the 580,000 net subscriber additions, our 47% conversion rate and 1.8% self paid churn rate clearly show we are growing our business. We are not just growing but we are delivering with profitable. Our current contact lineup is our strongest ever, and we are doing it with lower costs than a year ago.

That is a great accomplishment that was enabled by the merger two years ago. I want to briefly reflect on the last couple of years. In July 2008, we closed the merger. So the first half of the year, we were in regulatory limbo. Concurrent with the closing of the merger in July, we had a refinancing that needed to be done and there was an additional overhang for some additional debt coming due following the financial markets collapse in the fall of 2008. Operationally we integrated the two companies very effectively and capturing significant synergies, but because of the refinancing issues, 2008 was a mixed year for us. In 2009, the combination of the overall economy, General Motors and Chrysler bankruptcies and you will recall that Chrysler did not produce any vehicles while in bankruptcy, and our refinancing needs made the first half of 2009 very difficult to demonstrate the benefits of our merger for our shareholders. We began to show what we can do in the second half of 2009.

So 2010 will be our first full year where investors will get a real indication of how good our business can be. We offer up our second quarter performance as a preview of that. Our strong revenue performance is a reflection of our unique business model which is principally driven by subscription revenue. We are able to monetize our subscribers better than terrestrial radio and the numerous internet audio services are able to monetize their audience. In addition to the 98% of our revenue that comes from subscribers, we have a secondary revenue stream from advertising. As a result of adding more advertisers, we delivered 25% more advertising revenue in the second quarter as compared to the second quarter of 2009.

We have a stable contribution margin of approximately 70%. So as we scale subscribers and revenue, our adjusted EBITDA margin will improve significantly in the years ahead. At maturity, whenever that is, we anticipate an operating margin of over 35%, dramatically up from the approximately 20% margin today. We are also pleased to once again raise guidance for the full year of 2010. We now expect adjusted revenue and free cash flow to approach $2.8 billion and $150 million respectively.

We are very bullish about our Company's performance, but are operating in an environment where the outlook for SAAR is unclear as to how much it will improve and what the overall economy in the US will look like. So we are being prudently cautious. Subscribers will grow by 1.1 million and we will end 2010 with a record number of subscribers. This is most impressive when you consider all of the other choices a consumer has for audio entertainment. Our top line will grow over 10% to a record level.

Our adjusted EBITDA for the year will grow approximately 25% and will also end at a record level. Our adjusted EBITDA will be over $700 million better than it was just two years ago. As you can tell, I feel really good about our future prospects. We are confident that our 60% plus penetration into new cars will continue for the years to come. We believe SAAR will increase in the years ahead and we are making progress in previously owned vehicles. We have subscribers in approximately 15% of the households in the US. Free radio is in 100%. Cable and satellite television is in 90%. We know we can penetrate significantly more households than we have today.

We are very excited about the large upside we have for growing our business in the next few years. SIRIUS XM is very committed to continue to innovate. Satellite radio was a great example of that innovation. And satellite radio 2.0 will, we believe, take it to a new level. While we have been reducing costs, and making the organization more efficient, we continue to invest in R&D. Our next generation of satellite radios are expected to offer significantly more choices for the consumer, and contain functionality that does not exist today in our radios.

There will not be any significant increase in our costs, to bring these radios to consumers, and we expect to have the first satellite radio 2.0 product in retail stores by the holiday season in the fourth quarter of 2011. We will obviously be rolling this out to OEMs, as soon as they're able to incorporate it into their production schedule. We are very excited about this new opportunity. So stay tuned. Focusing on the Company's capital structure, we have taken significant steps in the past year to improve our maturity profile.

Our liquidity position is the best it has ever been. We have no debt coming due this year, a modest $230 million due next October, and then nothing due in 2012. In the meantime, we will be building cash from our operations. I am confident that the Company does not face any material near to medium term refinancing risks. Our strong operating performance has resulted in lower borrowing costs. In February of 2009, we were borrowing money at 15% secured plus giving the lender significant warrants in the Company. In June of '09, the cost was over 11%, secured debt. In August of '09, our debt cost about 10% secured, and in our most recent borrowing, March of this year, it came down to 8.75% unsecured. What a difference a year makes.

Moreover our growth trajectory combined with the expectation of paying down debt over time through cash generation will dramatically improve our leverage ratio in the next handful of years. This should improve our credit ratings and lower our borrowing costs. In the long run our higher adjusted EBITDA plus lower interest expense and lower capital expenditures as we enter a long period of not spending for satellites after 2011 will result in very significant free cash flow growth.

As I step back from the details of the quarterly results and I think generally about the next several years, I can't help but be very optimistic about our future. We offer subscribers a great product at a great price which has translated into a fantastic value proposition to consumers. So we look forward. We are confident that the combination of great content, a strong business model, and increasing financial flexibility driven by free cash flow growth will collectively drive long-term shareholder value. And now let me turn the call over to David to go through some more information for you.

Thanks, Mel. We enjoyed a nice boost from the 17% improvement in SAAR to 11.2 million vehicles from 2009's first half of 9.5 million vehicles. But more than half of the increase in SAAR was related to fleet volumes, the increase in consumer sales is still healthy but a more modest 9% the first half. This helped drive total subscriber additions to 1.1 million bringing totals up to over 19.5 million We finished the quarter with more than 4.2 million paid and nonpaid trials in our funnel and just under 16.1 million self-pay subscribers. This growth in self-pay subscribers more than 650,000 is great.

In the face of continuing economic uncertainty, seeing self-pay churn rates drop and conversion rates improve is testimony to the attractive value proposition of our service and great working relationships with our automotive partners. SIRIUS XM had record revenues in the quarter and our best ad revenue performance since late 2008. ARPU increased by $1.15 to $11.81,as the full effect of the various price actions taken in 2009 have worked their way through subscriber base and as we have improved our take of the national advertising market. Nearly every operating expense line in the P&L is down as a percentage of revenue from 2009. Our contribution margin expanded nearly two points over the prior year from 69.8% to 71.7%.

As a result, pre-SAC adjusted EBITDA came in at a record 38.9% of revenue, the highest ever, and an improvement of more than four points over 2009. The $64 million growth in pre-SAC adjusted EBITDA over 2009 represented an improvement of $0.65 for each dollar of revenue growth. For the seventh straight quarter, programming and content expense declined from the prior year as we continued to renew, replace, and expand our unparalleled content offering on a cost effective basis.

For the sixth straight quarter, customer service and billing expenses declined from the prior year as we continue to seek efficiencies in serving our growing base of customers. Engineering design development cost also declined from the prior year. G&A declined to 7.2% of revenue from 7.5% in the prior year, as increased litigation costs have offset other cost reduction initiatives. Sales and marketing costs increased slightly to 8.1% of revenue in part due to increased cooperative marketing spending with our OEM partners. Subscriber acquisition costs are higher than 2009 as a result of the significant increase in automotive sales. Gross adds are up 46% over 2009 and SAC per gross add increased slightly from $57 to $59.

In the depth of 2009's automotive crisis, SAC for gross add in the prior year benefited from a drawdown of automotive inventories as OEMs severely curtailed or stopped production for a period of time. While current automotive sales remain well below pre-recession levels, they're up substantially from 2009 and SAC per gross add is effectively burdened with the rebuild of auto inventory. All in all adjusted EBITDA came in at 21.9% of revenue despite absorbing a more than five percentage point increase in SAC.

Free cash flow as a percentage of revenue. Free cash flow expanded to $108 million from $13 million in the second quarter of 2009, the sharp increase of adjusted EBITDA combined with an increase in deferred revenue from increased subscribers with increased ARPU, increases in trade payables with the growth of the automotive sales more than offset a $14 million increase in capital expenditures primarily associated with our satellite programs. The launch of the XM5 satellite is expected to take place this October while the launch of Sirius 6 is expected in the fourth quarter of 2011.

As a reminder, following the launch of Sirius 6, we do not anticipate commencing a new satellite build for several years. In the quarter we recently completed the early call of $114 million of XM 10% Senior PIK Notes and have just called $5 million of -- it's a small issue outstanding of XM 9.75% note. Our leverage ratio is now approximately 4.6 times June 30th, with our expected growth in EBITDA and declining capital expenditures, we will continue to look for opportunistic ways to improve our balance sheet. Thanks for your time, and operator let's open it up for questions.

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). Our first question comes from Barton Crockett with Lazard Capital Markets. Please go ahead.

Thank you for taking the question. A couple of questions if I could. First, I was wondering if you can talk a little bit about what's happening in the retail market. You guys had fewer net less -- the lower net loss of retail subs in this quarter than you've had really in any quarter since 2008.

And I was wondering if you can talk about what has driven the deceleration and the declines there, if it's perhaps tied to some of your internet subscription offerings. And then also I wanted to clarify, you are talking about a new kind of generation radio coming out. I just want to clarify -- you're saying that comes out at retail this Christmas and later in cars? If there's any way to elaborate on thematically what's going to be important in this next generation of product.

So, the aftermarket radio will be n retail stores hopefully for the fourth quarter of 2011. And as I mentioned, it is going to provide for us to have more capacity, which would mean more channels, more offering as well as more functionality as well. Beyond that, we are currently in the process of talking to our OEM partners and retail partners about the product, so I really don't want to go into any more detail prior to us discussing it with them. Regarding the aftermarket, we continue to believe it is an important part of our business.

We certainly have not by any means given up on that channel of distribution. As we add more OEM subscribers, we believe there's an opportunity for us to continue to grow that business as well. People want to have their radio in different positions. So I don't think there's anything fundamental. We continue to add online subscribers as well from our various offerings with both REM and Apple as well as Android. So, we think that it is fair, we would like to see it grow. We think that 2.0 will be an opportunity for us to demonstrate more of that growth. Jim, do you have anything to add on that?

The only comment I would make is also we were very encouraged in the quarter that for the first time in a lot of quarters in the aftermarket we did see an improvement over the prior period. So, I am cautiously optimistic that things are turning but I fully agree with Mel that the biggest driver I believe of return growth of any kind of magnitude is going to be SIRIUS XM 2.0, and a redefine of the features that makes it unique.

Okay, great. And if I could ask one other question. You guys have raised your revenue guidance but you have not raised your EBITDA guidance. I was wondering if you can talk a little bit about the thinking behind that.

Mark, it's very sensitive to what you are assuming for the shape of the auto recovery. So when you listen to the OEMs as they talk about results, that allow these comments in the (inaudible) call, you really had a wide range of possible outcomes for SAAR in the second half and certainly going into 2011. The second half of SAC is going be significantly impacted by what the auto companies build for in 2011 as opposed to really the sales level in the second half. In there, we have got a provision that assumes that the sort of relatively weak consumer growth that underpins automotive sales today is going to be picking up in 2011 and we have got to make sure that there are provisions for the subscriber acquisition costs to go along with that.

Okay. Great. That helps. Thank you.

Our next question comes from [Leah Appeo with Knight Capital]

Good morning. I guess my first question was kind of similar to the previous question in terms of why the EBITDA guidance was left unchanged, given the margins that you were able to achieve in the first half and the fact that you are guiding for subscriber growth in the second half of the year that is less than the first half.

That should kind of help you on SAC costs but I guess you sort of explained it a little bit by the fact that it doesn't necessarily depend on sales but also builds. But if you can provide a little more color around that. And my second question is, it seems like revenue share and royalties as a percentage of revenues if you exclude other revenues is up a little bit this quarter and I was wondering if you can provide a little more color around that.

Okay. So again on the EBITDA, to get to the net growth that is in the guidance, the gross adds are going to have to actually be pretty healthy, right? Because with -- we have got 450,000 more paid promotional trials at the end of Q2 this year than we had in the prior year. What that means is that you are going to have more promotional (inaudible) in the second half of the year.

So the gross adds are going have to be higher which is going to drive more SACs. That also helps explain it. On revenue share and royalties, you know that the royalty rate for music increases year to year so that is going have a sort of constant upward pressure. The mix of business continues to tilt toward our automotive partners. So on the retail side of our revenues, we don't have a revenue share to pay. So between rising music royalties year to year and an increase in mixed OEM revenues you should expect to see that percentage ticking up over time.

Yes, and it is nothing in any way, shape or form defensive about our EBITDA guidance, okay. If you take a look at it, it looks to be a little bit over 25% this year, and that's in spite of having very significant SAC growth for the year and for the rest of the year.

As I said in my opening comments we think that it would be prudent for our Company to continue to be cautiously -- to look at these things, and not be running ahead of ourselves. We would be very happy and you can be unhappy. But we would be happy if we were able to exceed our guidance when we deliver our third and fourth quarters.

Thank you very much.

(Operator Instructions) We will take your next question from Lev Polinsky with JPMorgan. Please go ahead.

Yes. Hi. Thank you for taking my question. One question, I was wondering if you could give any updates on your initiatives to take advantage of sort of the fairly large installed base of radios out there that are not currently your customers? I think this quarter, you gave some people a free listen. So maybe, between that and the used car stream, any sort of updates? And are you able to put any kind of numbers on it, maybe give us some indication of those kinds of activations are up some range compared to the year ago quarter just so we have an idea of how that is progressing. Thank you very much.

So we are clearly making progress as we mentioned in the opening remarks. We are not, prepared to give any numbers on it. It's something that we certainly are working on breaking out so that in the future, we will be able to distribute more and more information. But I'm going to let Jim talk to you a little bit more about the progress we are seeing.

So first off all on the used car side, we think of completed signed deals and certified pre-owned with virtually every car maker. There are a few that we're in the process of completing now and we will have that channel of distribution I think locked up solidly as we move into 2011.

We have also made progress now on the noncertified areas with at least two of our key OEM partners and we are finding that data to be very fertile in terms of identifying accurately second owners and being able to speak to them. We need to speak to them more timely than we are today, but we are working on that. And then finally, we are working with a variety of partners including insurance companies to acquire -- this is all about getting an accurate name and address to go with a VIN so that we know it is a second owner. As we do that, I think we are making progress.

We certainly have a lot of work to do and I don't think we are ready to disclose any numbers there. In terms of the free trial, very pleased with the second quarter. I think this time in the second quarter we implemented probably as well as we have since we have merged the Companies. We opened up the free trial but along with that, I think we had a very effective communication strategy between e-mail and mail to a variety of customers and we were real pleased with how many customers we were able to add in the second quarter with that initiative.

Thank you very much.

I'm sorry. Clearly we are adding more customers there than we were a year ago.

Thank you.

Our next question comes from David Gilbert with Morgan Stanley. Please go ahead.

Morning, guys. Thank you for taking the question. I had one on churn. We have talked a lot about the strong subscriber additions and clearly the OEM channel is doing very well. And on the gross add side we are seeing some shrink from improved SAAR but I was just curious if you can give us any color around the improvement in churn. It seemed like despite the fact you guys you had more than a million more subs in the quarter, deactivations were actually down pretty substantially. Anything change there in term of retention efforts or other ways of reducing churn that you guys can highlight for us?

Yes, one of the benefits we talked about the merger was that we would implement best practices and certainly in working with both the XM call centers and the SIRIUS call centers, we implemented it. It is a lot of blocking and tackling. We've gotten a whole lot better in it. Jim is responsible for that area as well, so, let me turn it over to Jim to give you some more color on it.

I couldn't agree more with Mel. The one thing we have learned is that there's no one big answer that gives you a big boost. We are working really, really hard on just the basics and I think by being able to integrate the cultures and take the best of what both companies is doing has certainly given us a boost. I think David may want to comment.

You also need to be careful on kind of what the timing of the promotional churn is as David mentioned earlier, in his comments which we benefited from in the second quarter that obviously in the second half of the year will catch up with us.

If you look at the promotional deactivations year on year, they were down in the first quarter by about 140,000 and down in the second quarter by about 70,000, which is largely related to just the lag effect of the fall off in auto sales.

We absolutely had improvements in the underlying conversion rate and that was part of the change, but just having -- coming off a lower period of auto sales benefited promotional deacs. You look at the self pay side and you have substantial improvement, and those are real changes in how the consumer is feeling that things got pretty bleak coming out of the '08 and into the first part of '09, while everyone is cautious about the consumer, they're clearly feeling better and we are seeing that in our results.

Not to take away anything from what was said, I think what drives the churn also has been the job that Scott and the programming people have done to just continuously upgrade our content offering. And by offering new channels and by doing a better job of communicating to people and letting them know about all of the great things there are on the service we think has also moved the needle on churn as well.

Great. Thank you very much.

(Operator Instructions). Our next question is from Murray Arenson with BGB Securities.

Thank you, and good morning. I do have two questions. One is David you mentioned the impact or you mentioned fleet volumes as a component of overall SAAR.

I wondered if you could talk about what that means to you as you are looking at the trends there; and secondly, I wondered if you wpi;d say a few words about long term pricing strategy, and I have a couple of things in mind there. One is additional features that you have alluded to and second is additional flexibility that you have on pricing as you head into next year.

So let me do the second one. This is Mel, okay. So we really have no comment on any pricing changes. We obviously are growing our business, we are growing our ARPU. We expect to continue to add subscribers and we continue to also grow ARPU.

As you know, we are currently constrained by the SEC order where we agree to not increase the basic pricing for a period of three years. That goes through until about August of 2011. We believe that when the SEC looks at all of the choices that are available in audio entertainment, that they would see no reason to further restrain us, but we will have to wait to see what happens there. And then we will take a look at what our decision will be on any changes that we want to make going forward in offering different pricing alternatives.

So, Murray, you are right, we are going to continue to try to sell new services to customers. So our telematics and infotainment initiatives will continue to do that. We want to like everybody in the subscription management business, we want to drive better yield per customer out of that and so we have got all of these different services that Jim's guys are focused on selling in and we believe we will be able, as Mel said, to drive ARPU up by driving up additional services.

For fleet volumes, fleets for the most part aren't -- don't have a great conversion rate. For us, what does fleet volume mean to us, certainly, it is nice to have cars growing. It puts more cars out there in the field and more trials of our service, but there isn't, a -- we don't convert those at the same rate we do the conversions on the consumer cars, so for the most part, we focus on how consumer sales are doing. They were up 9% in the first half.

We are coming into a second half where the comparisons are going to be very tough to the prior year. The Cash for Clunkers a year ago was largely a consumer not a fleet offering. And so I think that from our perspective, July was an encouraging sign. It was nice to see SAR up 3% in the month over the prior year, but as we go through the rest of the quarter. It is going be very tough comparisons.

Great. Thank you.

Our next question comes from Martin Pyykkonen with Janco. Please go ahead.

Free cash flow, two things interrelated, with regard to Q3 that we're in Q4, anything unusual timing-wise that we should factor in modeling either positive or negative in terms of influence. And then, even a broad brush considering the CapEx outlook you have beyond 2011 regarding the satellite situation which is obviously positive and general EBITDA, trends which has a broad brush and free cash flow conversion for next year and even towards 2012, just kind of directionally where that might go?

Well, we expect also first of all, for the second half of the year, off the top of my head, the only thing I can think of that you should remember is that launch in October. The insurance premium associated with launches will be paid in the days coming into the launch and actually it kind of depends on the exact date of the launch whether the premium is going hit the third quarter or the fourth quarter. I don't know sitting here today. It will be pretty close to around October 1. I think that's the only thing we've got in CapEx that's going to be large and lumpy that you should think about.

In terms of free cash flow growth going forward, setting aside the growth that comes from declining capital expenditures, as I think everybody knows at this point, as our business grows that we don't have to invest working capital, that on average our subscribers pay us in advance seven or eight months. So you should expect in the modeling a continuation of cash flow being driven from expansion of deferred revenue as the business continues to grow. In addition to the cash flow that is generated in the P&L, we generally are generating cash flow from working capital as well. And we expect that to continue.

Okay. Thanks.

Our next question comes from Jim Goss with Barrington.

Thank you. I will focus on the conversion rate a little bit. I think the positive ticking up in that conversion rate has been very impressive and I am wondering if you are still thinking in terms of 65% or 70% as the maximum availability in terms of name plates and what is it right now? How does -- you just talked about maybe the timing of promotional churn being good in the second quarter and might catch up with you a little bit in the second half. Is that a seasonal issue or just the auto sales flow issue?

Let me take a shot at the first one. It's Mel. Obviously it varies by car company and model vehicle. I mean there are some vehicles that we want to be standard in, and be in every single one of them. There are other vehicles that our experience indicates they don't convert as well and are not as profitable for us to do.

If we were just looking to drive subscribers, if that were the only metric, then we would sit there and just continue to increase the penetration, but since we are focused on profitable growth, we really want to hit that sweet spot at being in the right vehicles. Currently our thinking is that number will be in the low 60s. Again, reflecting some car companies that will have substantially higher than that. We continue to review and we continue to work with our auto partners about that, and they have expressed great flexibility on that subject as well. Both in increasing penetration where it is appropriate and working with us in winding down some of the models where we just don't feel we want to be in. So low 60s I think is where you ought to be thinking about it for the next few years, okay.

So on the promotional churn, if you ran back through our quarters and kind of looked at what we had previously reported as paid promotional trials and then also the promotional deactivations, the pattern that you will see is that roughly around the second quarter of '08, right which is when the auto sales started to fall apart we reached a peak and paid promotional trials.

About six months after that the fourth quarter of 2008 we reached a peak in terms of promotional deactivations, so you have this sort of couple of quarter lag that goes on. If you kind of follow the promotional subscriptions across, they actually hit their low right about the middle. They fell from 3.7 million to just under 3 million by the middle of '09.

So what you will also notice is that the promotional deactivations are declining along the way. With the recovery in automotive sales and we are now back up to a little bit more than 3.4 million paid trials, again as you follow that curve with the six month or so lag that you are going to find an increasing number of promotional deactivations going forward. So if you just follow the quarterly numbers I know that you've all got, you will pick up that pattern with about a six month lag.

Thanks very much.

The next question comes from Matthew Harrigan with Wunderlich Securities. Please go ahead.

Thank you. Do you see very much flux in the conversion rate for the individual OEMs as a result of efficacy in the marketing or possibly different demographics among car owners responding to the economy differently or do you think at that the price value proposition is so good or compelling that you just get a lot of momentum across the board and everything just moves as a pack?

We see more of the latter, but certainly there are nuances. You could get a vehicle that's a very low priced vehicle that somebody spends an awful lot of time on the road and in their car, and finds radio as important a necessity as maybe the steering wheels are. So even though that vehicle was a low priced vehicle, that customer is sort of locked into us because satellite radio is really important to them. So we get great amounts of data, when you absolutely look at it. We are constantly doing research on it and sitting there and making sure that we are again allocating our resources where we should, and we are inclined to think that more people as time goes on and as we continue to improve our content offering, want satellite radio as you can see from our subscriber growth.

A whole lot more choices out there than have ever been for the consumer yet we are going to be very close to 20 million subscribers, come year end, and it's all coming from people wanting to have the service. It is not just the early adopters, it is people who are buying less expensive vehicles as well.

Thank you.

We will take our final question, a follow up from Leah Appeo of Knight Capital.

Thank you for taking another question. I just wanted to see if you had an update on potentially collapsing the capital structure? And then secondly I know you have pretty manageable debt maturity profile over the next two and a half years, but wondering about your strategy to address your 2013 maturities? Or at least refinance at least a portion of those given the current attractive rates out there?

So, last question first, we do feel like the Company's got a pretty robust cash flow profile going forward, that we will look to retire debt as early as we feel is prudent and we want to be opportunistic about doing it. I think that given the cash flow profile of the Company, and seeing what the rates are out there in the marketplace, I don't think that there's any fundamental need for the Company to raise capital.

So if we could raise capital at attractive rates and deploy that capital in a way that makes sense for our shareholders, we will certainly look to do that. In terms of collapsing the capital structure, we are clearly inside of all the tests and we are able to do that when we want. But I think as we mentioned before, that we want to make sure that we eventually will do it. We want to make sure there are no adverse contractual outcomes from doing so. So we are just working our way through what are an awful lot of different contracts in the Company to make sure that there aren't any unattended efforts consequence.

There's one more question from inside the room, Scott Greenstein asked what about Howard Stern -- so I thought I would take the opportunity to answer that one. We hope that prior to the third quarter earnings call, we will be able to have an announcement as to what is going on with Howard. So with that, I think it wraps up all of the questions.

Thanks, everyone.

That concludes today's teleconference. Thank you for dialing in.