Sirius XM Holdings Inc (SIRI) 2013 Q1 法說會逐字稿

Good morning. And welcome to SIRIUS XM Radio's first quarter 2013 earnings conference call. Today's conference is being recorded. A question-and-answer session will be conducted following the presentation.

(Operator Instructions)

At this time I would like to turn the call over to Hooper Stevens, Vice-President, Investor Relations and Finance. Mr. Stevens, please go ahead.

Thank you, Jennifer, and good morning, everyone. Welcome to SIRIUS XM Radio's first quarter earnings conference call. Today Jim Meyer, our Chief Executive Officer, will be joined by David Frear, our Executive Vice President and Chief Financial Officer. At the conclusion of our prepared remarks management will be glad to take your questions. 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 the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on Management current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or inprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about the risks and uncertainties, please view SIRIUS XM's SEC fillings. We advise listeners not to on rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I would like to advice our listeners that today's results will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of purchase price accounting and stock based compensation. I will now hand the call over to Jim Meyer.

Thanks, Hooper. Good morning. The first quarter was a fantastic quarter for SIRIUS XM and we are on track to meet all of the subscriber and financial targets we laid out to you in February. We grew our subscriber base by 453,000 to a new record high. Our revenue climbed by nearly 12% to a quarterly record of $897 million. Our adjusted EBITDA jumped by 26% to a new record of $262 million and our free cash flow climbed dramatically from $15 million in the first quarter of last year to $142 million in this year's first quarter. Our share buyback program also got started during the first quarter and I will give you more of an update on that in a moment. Self pay churn and new vehicle conversion rate were 2% and 44% which is relatively steady with last year's first quarter.

We are also raising our free cash flow guidance to approximately $915 million this year and confirming all of our other guidance. We are proud to have achieved the highest adjusted EBITDA margin in the history of the Company in the first quarter. We expect to achieve a 30% adjusted EBITDA margin this year, up from 27% last year. And we continue to target 40% plus margins over time. You will see us move over the next few years to become one of the highest margin businesses among major media companies in the United States. Our ability to convert the bulk of that EBITDA into free cash flow is also unmatched in the subscription media world.

When we spoke to you on our call in it February, I promised you would see more of the same. More of the same but with even more investment in growing our preowned auto business. More investment in our streaming services. And more investment in developing our next generation connective car platform and telematics. What you are seeing so far is exactly that. It's a real testament to the ingenuity and hard work of our team and the strengths of our business model that we are able to deliver on our cash flow growth targets while at the same time making these prudent long term investments.

SIRIUS XM continues to benefit from a tail wind in the new car market as it recovers with SAR up 8% in the first quarter to nearly $15.3 million. Consensus expectations for full year sales were almost $15.4 million. Up slightly from an expectation of $15.1 million when we spoke on our last call. This represents growth versus 2012 of about 6% as year-over-year comps become tougher in each quarter later this year. OEMs remain very committed to satellite radio with new car penetration rate at about 67% in the first quarter.

Among certain Asian auto makers there will be gains in penetration over the next few years. You will also see announcements this year from several major OEMs broadening the installation of our next generation 2.0 architecture which offers an expanded programming line up and improvement listening features. We hold the strong belief that having satellite connectivity and IT connectivity in vehicles will prove to be a durable advantage versus IT only connectivity as we move into a connected car world. We are already working closely with several OEMs on the development of in-car apps that will provide the initial integration of SIRIUS XM streaming services, so stay tuned for announcements in this area as well.

I should briefly note that much has been said about the potential threat to our business from in-car streaming. But no -- almost no one has recognized that broader and improved streaming also gives us a much better opportunity to better serve our customers in their homes, offices and on the go. SIRIUS XM ended the first quarter of 2013 with nearly 52 million satellite equipped vehicles in operation. Up from 42 million a year earlier. This means our satellite radios are installed in approximately 22% of all registered vehicles on the road. Since our new car penetration rate is about two-thirds, the trend of growing vehicles in operation will just keep going for many years to come.

By the end of 2017, we should have around 100 million satellite equipped vehicles on the road. And in 10 years time we should see about 150 million. Within a few years we expect more used cars to be sold with satellite radio than new cars. These stats highlight our easily addressable market opportunity and provide the cornerstone of our growth. Last year we exceeded our goal of more than 1 million self pay additions from the used car channel. And this year we plan to hit an ambitious target of more than 1.5 million self-pay additions from used cars, all major auto makers have now implemented certified preowned trial programs. And more than 9,000 dealers now offer their customers a trial subscription to SIRIUS XM when purchasing a non-certified preowned vehicle.

Growing subscribers and household penetration continues to be our number one priority. And I expect this emphasis will be true for quite sometime to come. To drive growth over the long term we will continue offering plans that increase revenue per household and lifetime subscriber value such as multi-radio discounts, or so-called family plans, and discounted annual and multi-year subscriptions. Even when they are at the expense of ARPU. That's because we know these plans have a positive effect of driving up the ultimate amount of revenue we receive from these subscribers.

What continues to drive our success and is at the core of our business is our unique, exclusive content. We are preparing to launch two entirely new channels, Entertainment Weekly Radio and Comedy Central Radio next month. Two of the biggest brands in media and entertainment today. We have added new hosting talent such as Michael Smerconish, the nationally syndicated talk radio host. And our hosts sometimes are the news. For instance, when a new pope was being chosen our listeners heard exclusive daily reports from New York's Timothy Cardinal Dolan on our Catholic channel while at the same time he was being considered for the role himself.

Live events and private concerts continue to be a great way we can engage with our subscribers and for the great radio programming they help us create. Our town hall series attracts stars, legends, icons and leaders of all kinds, and in recent months have ranged from Mel Brooks to Alex Baldwin to Tony Bennett. Again, only on SIRIUS XM.

We also continue to roll out improvements and enhancements to our on-line offerings. Earlier this month as promised we debuted My Sirius XM which allows our subscribers to personalize many music and comedy channels they love and know. My SXM is unique. Users can create more than 100 variations of each of more than 50 channels. And it deepens and extends the experience our subscribers have with SIRIUS XM. We will also be adding additional channels to the My SXM line up very soon. We remain committed to delivering the best audio content and the best audio experience available on all of our transmission protocols.

I am also very pleased to announce that our share buyback program began in the first quarter and is off to a very strong start. As of Friday, our total share repurchase to date have reached approximately 209 million shares. Including the special dividend of $327 million we paid last year -- late last year, we are proud to note that we have returned nearly $1 billion in capital to our shareholders since the end of last year. We have over $1.3 billion of remaining capacity under our share buyback authorization. We have growing cash flow from operations. No near term debt maturities. Our balance sheet remains under leveraged and both capital expenditures and taxes will remain low for several years. We think over the long term our leverage should be around 3.5X. And so, should our Board decide it, we will have the capacity to continue returning capital to shareholders as our free cash flow grows and we move leverage to this target.

We also continue to look very selectively, I might add, at potential M&A opportunities and areas we could increase investment internally. We have always had a very high threshold for value creation with looking at acquisition opportunities and this is going to remain true going forward. We think investing in our current business and pursuing external opportunities, should they exist, can both be done while maintaining a very substantial capital return program to benefit our shareholders.

As a reminder, during the first quarter Liberty Media went into a majority and control position in our Company. Earlier this month, Greg Maffei became the Chairman of our Board, while Eddy Hartenstein will continue to serve on our Board as lead independent director. We have a very capable Board of Directors. And as a Management team, we have a close working relationship with our Board. Liberty has been a substantial shareholder in SIRIUS XM for over four years now. And we very much see eye to eye on strategy and how to best execute that strategy.

As we discussed, I told you, you would see more of the same at SIRIUS XM. We continue to focus on growing self-paid subscribers. Maintaining a tight grip on costs. Delivering superior execution and improving the subscriber experience, all while investing for the long term. At this point, I will turn the call over to David for additional comments before taking your questions.

Thanks, Jim. The Company is clearly hitting on all cylinders. In addition to delivering the best first quarter performance since the merger for both total net subscriber additions and self-pay net additions, we delivered our best first quarter ever for free cash flow and set all time quarter highs for revenue, adjusted EBITDA and adjusted EBITDA margin. As Jim mentioned, the faster than expected start to the year leaves us very confident of achieving our guidance for the year and we are raising free cash flow guidance.

We also got off to a fast start under our $2 billion stock buyback program, repurchasing $494 million of stock from our earnings call in early February through the end of the quarter. At a very conservative 2.5 times leverage, we have a lot of financial fire power to continue to buyback stock and review strategic opportunities for growth. Total net additions rose 12% to 453,000 and self-paid net additions rose to 304,000, the best first quarter since the merger for both measures. Growth additions were up in all channels. Aftermarket, original owner, and subsequent owner where year-over-year growth was consistent with our expectations that we will add more than 1.5 million new subscribers from the subsequent owner market this year.

Growth and growth additions were strong enough to more than offset the increased churn coming from our larger subscriber base. Self-paid churn rounded up to 2% in the quarter and the new car consumer conversion rate was 44%, both consistent with our expectations. Auto sales continue to slowly build back toward prerecession levels. Analysts have generally been increasing their estimates and the average of the outlooks for auto sales is now almost 15.4 million vehicles. Total subscribers now stand at 24.4 million. Self-pay subscribers are up 9.2% from first quarter '12 and our trial funnel now stands at 6.2 million.

Revenue was up 12% in the quarter to a record $897 million pace by 9.2% subscriber growth and 2.4% growth in ARPU to $12.05. Before you all ask me about ARPU, remember this year's first quarter had one less day. I know it doesn't sound like much, but one less day means one less day's revenue, that's about 1.1% or $9 million of revenue and $0.13 of ARPU. Cash operating expenses increased by just 6.5%, the lowest growth in more than a year. Subscriber acquisition costs actually declined 1.5% on higher gross editions and a 15% decline in SAC per growth add to $51.

Fixed expenses grew just 1.9% in the quarter as declines in programming and general and administrative expenses offset a 13% increase in sales and marketing costs. You have been seeing this for quite awhile now. Most of our increased cash operating expenses come from increases in variable cost. This quarter 94% of the increase in cash OpEx was related to increases in variable costs. While contribution margin improved slightly over fourth quarter, it was down 1% from the prior year to 69.4% due to the statutory increase in music royalty rates and continuing investments in customer service.

Adjusted EBITDA grew 25.8%, more than double the growth rate in revenues to a record $261.9 million and adjusted EBITDA margin expanded by 3.3 percentage points to 29.1%, another all-time high for the Company. SIRIUS XM's growing free cash flow and improving credit quality has allowed us to dramatically improve leverage and reduce our borrowing costs. As a result, interest expense showed a 40% improvement over 2012's first quarter, dropping to $46.2 million from $77 million. Free cash flow increased nearly 10 times in the quarter to $142.5 million, up from $14.8 million in the prior year.

And as promised we have used our excess cash to repurchase stock in the marketplace. As Jim mentioned we began our stock repurchases after the 2012 earnings call in early February, repurchasing approximately 209 million shares through the end of last week. Between the stock purchases and the dividend we paid in late December we have returned nearly $1 billion, that's 5% of our equity capitalization, to our shareholders. We ended the quarter with $207 million in cash and $2.4 billion in debt. For the last couple of years we have been talking about target leverage in the range of 3 to 4 times EBITDA and in the last year have narrowed that target to 3.5 times EBITDA. At the end of the first quarter, gross debt to EBITDA is at a very conservative 2.5 times, debt market conditions are very favorable and you should expect to see us periodically and opportunistically raise new debt financing to extend maturities, ease covenant restrictions and maintain our leverage ratio. The combination of our strong free cash flow and 3.5 times leverage target will provide ample liquidity to maintain a very robust return of capital program and continue to strategically invest in the business.

Additionally, in the next several weeks we will also form a new holding company to enhance our financial flexibility. The year is off to a great start and we are confident of hitting our guidance, 1.6 million net self-pay subscriber additions. 1.4 million total net subscriber editions. Revenue will exceed $3.7 billion, nearly 10% growth over 2012. And adjusts EBITDA will grow more than 20% exceeding $1.1 billion. With the fast start to the year we have raised our free cash flow guidance from approaching $900 million to approximately $915 million, bringing our guidance for free cash flow growth to nearly 30% above 2012. Operator, let's open it up for questions.

(Operator Instructions)

Matthew Niknam, Goldman Sachs.

Hey guys, congrats on the quarter and thanks for taking the question. Question on leverage. You alluded to the 2.5 turns of leverage ending the quarter, it's about a turn below the traditional target. Are there any updates you can provide in terms of how quickly you are seeking to get there, to the target? And in conjunction with that does the formation of a hold co imply you might be open to accelerating the buyback pacing potentially this year? Thanks.

The formation of the hold co is one of those things that simply gives us optionality. I don't think you should read anything into timing on it. There is a lot of administration associated with getting it set up. It's just one of those options that you want to set up as soon as you can. Getting to the leverage target, I think as many know that we are somewhat restricted, or will be somewhat restricted, later in the year with -- by two of our debt issues in, making restricted payments that we will probably work our way to that 3.5 times sort of over the next several months, perhaps into some time early next year.

Okay. And then just one follow up on self-pay churn, I just want to figure out whether the uptick that we saw, is that pure seasonality? And then more broadly, with the investments you are making in content and customer service, do you sense additional opportunity to grind down that self-pay churn over time going forward?

The first part of it, the self-paid churn is normally the first quarter is our highest quarter for churn, so there is a seasonal uptick that comes through. I can tell you that it was almost right on top of our internal expectations so certainly fully expected and with respect to investments, and programming, and customer service I will let Jim talk to that.

So I think first in customer service which is a metric we continue to always to look at closely. I think David and I have both decided that investment in this area ultimately is going to prove to help our churn in the long term basis. It's really difficult to equate those two in the short term. So we have made a decision to invest here and we are going to stay at it for, let's call it, the foreseeable future. And we are already seeing an improvement in our service metrics versus a year ago. Obviously our content is the heart of our service and you should expect we will invest in every and any opportunity that we see that gives us an advantage for something our subscribers want, both in the short term, mid-term and long term.

Thank you.

Barton Crockett, Lazard Capital Markets.

Okay great. Thank you for taking the question. I guess one thing I was wondering about was the -- when we look at one of your key partners, General Motors, they've announced a plan for internet bundled into their cars starting with the model year 2014. I was wondering if you could talk about whether you have had any particular discussions with GM about using that bundled internet feature? What your thoughts are about how that is going to affect SIRI XM, and also SIRI XM's prominence in the dashboard, whether you might lose or gain some prominence relative to other things that might use that internet, like Pandora?

Number one, as you know we aren't going to comment specifically about any auto maker until that auto maker wants us to comment. What I will tell you is that I believe GM is on a leadership strategy in terms of where I believe the auto industry will go in general. And that is, I believe over a mid and long period of time, you can define how many years that is, you will see auto makers move to what I will call imbedded connectivity, that will be LTE based, that will give them lots of options for what they want to do for their customers and their vehicles. I think it's very important that SIRIUS XM participate in that rollout of technology as it occurs in the next three to seven years, and that's exactly what we are all about when we refer to our connective car strategy. This is something that, as I mentioned in our last call and I'll re-iterate again today, that we are moving and reprioritizing a lot of our technical resources and frankly, now, our commercial programming resources towards making that goal happen as we go out over time. So, I think that's all I want to say about it at this point. Believe me, we fully understand what's going on right now.

Great. Then if I could ask a question about one of the metrics, SAC per gross addition, which came down nicely. Could you give us a sense whether this looks like a sustainable level going forward or whether there was anything unusual here?

Nothing unusual, Barton. SAC per gross add should ultimately reflect the underlying cost of making the module to go into the cars. And it's just a consumer electronics product that our engineers work hard with the Tier I suppliers at the OEMs to continue to cost those units down and so you should expect a steady and persistent decline. I can tell you that the pace of the decline will be significantly affected by the choice the OEMs make in bringing new generation radios into the car, that as many people know we have some auto makers that are still deploying radios where the technology was developed seven or eight years ago and we are five, six generations down the line. I think it's one of these things that as you look out over the course of the next four or five years you should see a steady persistent decline in SAC per gross add.

Okay, that's great. Thank you.

Jessica Reif Cohen, Bank of America Merrill Lynch.

Thanks. Can you talk a little about the secondary market which will be of increasing importance. Can you give us any color, you did increase the dealers but can you give us any color on what you are doing in terms of marketing?

Sure. So the way I see our business is you might want to call it how we acquire customers, let's call it three kinds of funnels. The funnel -- the first and foremost funnel that we concentrate on for ten years, obviously the new car business. We're I think operating extremely well in this funnel right now. I think we clearly understand the top of the funnel which is how do we get our technology into the vehicles and how do we create the best experience on the dealer lot as those dealer -- as those cars are bought. And then obviously we've spent a lot of time on the cadence and the offer strategy for converting those customers and seeing that conversion kind of settle in at that 44% range. On the far right obviously is a funnel which is kind of winning back or reacquiring existing subscribers who have left us over a period of time, and we have proven there that we understand that acquisition model and how those customers behave when they come back.

Clearly your question, the new funnel that's emerging in a huge way is the second, third and fourth owner business as those cars that had technology built into them six, seven, and eight years ago now begin to change hands. I can tell you what we clearly understand, number one, is how those cars should come back into the marketplace over the next three to five years and kind of what channels they will emerge in. We have both added and reprioritized or moved lots of resources within the Company now to focus on this new and important funnel. I will tell you that ultimately this is a different customer than the first funnel. The customers in this new, used car funnel are going to be, in general, are going to be in my opinion, potentially more price sensitive and are certainly going to be of a different economic make up and age make up than the first funnel. These are issues that we are going to evolve into, not revolve into. We have a lot of time to thoughtfully and logically test different strategies in this area and we will do that.

I will remind you, and it's something that we need to begin to talk about more and more, is that in our business for the last 10 years when asked a question of how many cars are sold in the US, we all almost answer with what the SAR is. 15 million, 15.4 million. It's now time to recognize that there is really over 50 million cars sold in the United States every year. And I believe the power of our long-term growth is our ability as we move from kind of call it 22% penetration of the over 200 million cars that are out there today to much higher penetration, and that fleet begins to replenish itself by over 50 million sales a year to give us a tremendous opportunity at second and third bites at the apple.

That's great. By the way, congratulations on your permanent title. I just have one other question for Scott. A couple of times he's mentioned already on the call that content is such key driver. Can you give us some color on how you are thinking of adding new or differentiated content, or is the focus more -- you mentioned two channels earlier. Is the focus more on personalization or is it on still developing content? If it is, is it more nichey content or do you still think there's opportunity for general?

Okay, so two things. One, we are going to continue to develop content opportunistically. As most of you know, I'm a fan of brands and personalities. I think they resonate, they come with built-in marketing, Entertainment Weekly, the idea of people driving in their cars and using our product mobilely, having a general entertainment channel, I thought was a natural hit on something we frankly had a gap in our line up. Comedy Central is another area where we are strong and we will continue to look. Jim mentioned a number of new hosts and all of that. We are going to continue to look at content traditionally in that sense. I don't think that there is any reason not to. We think our line up is now stronger but we will continue to look at things. As far as personalization and other things, we will always look to see how they apply to what we consider to be the best content. We are not going to go the route of lots of people where the algorithm or the technology will drive what the audio or content experience should be. We are going to stick to the other way where it's always going to be the content first, and then how do you apply technology to that.

I'd like to add to that, Jessica, what I think is also a very important point. That is that we are committed here to a broad suite of content. I think the music only business going forward is going to be a tough business. Okay, and that's not what we are all about. Obviously we offer what we believe our customers want and need in the area of music. But what we think makes us different is our continued commitment to invest in every aspect of what we believe audio entertainment is all about. Obviously music, but news, sports, comedy and all of the other, call it, niche stuff that comes within that. And that's what you are going to continue to see us do, is offer a broad array of content, not music only to our subscriber base.

James Marsh, Piper Jaffray.

Great, I just wanted to follow up on this preowned funnel. It's helpful discussion that you just had there but I was hoping that you might be able to compare and contrast some of the key metrics here, maybe how churn might look over time, what the conversion rates look like, differences in subsidies. So we can kind of get to the economics of that preowned funnel versus the new car funnel.

James, there are no subsidies associated with the subsequent owner market, that we make the investments to put the radio and the car once during new car production so there is no further subsidy. So the costs tend to be the direct marketing costs associated with sending a welcome kit to subscribers, sending a conversion communication and I think you should think of those as very small numbers and something that you probably don't have to specifically model.

In terms of kind of running through churn numbers for the separate channels and conversion rates [for such] channels, my guess is that we are still looking at the numbers, but it's probably not something that we are going to provide guidance on and for the main reasons that there really won't be anything to apply it to. Unlike the new car market where we have this very nice tidy little story where all of these analysts tell us how many new car sales they expect. We know what the penetration rate and production is for the auto makers and then we have this sort of very consistent result marketing that's produced this sort of 44% to 46% range. We will actually never know in the subsequent owner market the top line. How many cars are actually selling in any given year. We are just never going to know how many satellite radios we are actually selling. We'll know how many get reported to us as sold. I think it is going to be very difficult to sort of build the tidy model for units in the subsequent owner business. What we will do is continue to provide guidance on revenue, EBITDA, and free cash flow which is ultimately what is going to drive value.

Okay, and just a follow-up on that. Jim mentioned the potential price sensitivity of some of the customers in that channel, would you guys experiment there with different price points relative to what do you charge for the new car service?

So what I will tell you is that obviously we have been working on a new car funnel for ten years. Okay? And we feel like we understand it extremely well. What I will say to you is, this new funnel which to me is almost like an annuity for us in terms of what will come into the top of the funnel. Because it's obviously based on what was incorporated, whether it was five years ago or seven years ago, whatever the ultimate age will be as those vehicles change hands is fairly well understood. What's not fairly well understood is exactly how will those customers behave. So what I would say is again, I will repeat, we are going to thoughtfully and logically test our way into what is the right way to maximize this funnel without obviously cannibalizing the new car funnel. So there is no easy answer to your question. And that means there is a lot of things that you are going to see us test and you are going to see us kind of evolve to over the next two or three years.

Okay. Great. That's helpful. Thank you, guys.

Amy Yong, Macquarie.

Thanks. Can you just talk a little bit about the competitive landscape, and I guess as you branch out and evolve into IP and telematics who do you think is your competitor at this point and your appetite. And then I guess if you could talk about your appetite to do an acquisition. Thanks.

Look, I think we have a lot of competition from lots of places. Let's remind ourselves our biggest competitor continues to be Terrestrial Radio who, when you look at it is still a multiple bigger than us and all of the streaming kind of radio services in the US today added up. Okay. I don't see, today, one single emerging competitor in the connected car space. I think that today the connected car platform is more of the strategy. I think what is so crucial about it is that I think everybody is looking for a chair at the table right now and I think it's really important that SIRIUS XM occupy one of those chairs. So, that's where the majority of our effort is going. Obviously in this area one of the key strengths we bring is years, and I mean years, of hard work, and most importantly, credibility of bringing new technology and technical platforms to the OEMs entertainment and infotainment platform, and that's exactly what you are going continue to see us do.

Okay, thank you. Can you just quickly talk about the pace of the buyback? It looks like the stock is trading below the average price that you purchased the stock in the quarter. Would you want to increase it?

Stocks go up and down. So, I'm not -- don't really have any particular comment on the recent trend in the stock. We are on pace with the program. My guess is that we are out of the box here far faster than, both the buy and the sell side thought we would go. I think that's just testimony to our confidence in our ability to return capital to share holders.

Okay. Thank you.

Jason Bazinet, Citi.

I have a question on the connected car market. As you look at most of the OEMs today they seem to have partners that are already in place and I was just wondering if you could comment on how you see this evolving over time. Is it -- ?

I'm sorry, can you give me a specific reference what you mean by a partner?

Oh, just someone is that providing the telematics hardware today. I'm thinking firms like Wireless Car, Hughes Telematics as an example.

Sure.

Do you see yourself potentially dislodging one of those? Do you see two providers providing hardware? Do you see the sort of the people that are providing non-imbedded solutions today moving to imbedded and that's sort of the opportunity? I know you've won the Nissan contract, but I just wonder if you give any color on how you think it will evolve over the next few years.

Yes, I think that it's really unclear who is going to get what. Remember, one of the things that both excites you and frustrates you about the world we play in -- we are in conversation with auto makers about the 2017 and 2018 model year right now. That is how far out these choices are. I can tell you the technology in many cases these auto companies are going to choose is still wide open. That is why we very carefully, and I can tell you we are proud of what we have undertaken to deploy at Nissan, which is a strategy where the technology is 100% based on our technology and our kind of -- our innovation as it rolls out.

Who exactly will provide what specific services on that platform is something that Nissan will ultimately decide. Obviously, we are hoping by being a co-developer, or the developer of that technology, it gives us an advantage in some of those key services as they roll out. I think this world is still wide open. We, believe me, I'm familiar with all of the names you are familiar with. We spend a lot of time with all of those names. And I will tell you I like our chances going forward as being one of key providers of that technology as you get out in time, particularly when auto makers deploy what I will call imbedded technology using new state of the art telecom technology.

Is it fair to say you think there is, are there two OEMs today that don't use imbedded? Is that a fair characterization?

I think today there are a lot of different strategies. I want to be clear with you, this isn't going to happen overnight that you are going to go, oh wow, the market changed from kind of what I call tethered to imbedded overnight. And I will tell you both of these technologies will co-exist for a long, long time, and ultimately the car company/consumer will decide which one works best for them. As I look at many of the applications down the road, it seems to us that an imbedded architecture works best and I would be surprised if most, if not all, auto makers eventually don't do both.

Very helpful. Thank you.

Okay, thanks, everybody.