Sirius XM Holdings Inc (SIRI) 2013 Q4 法說會逐字稿

Welcome to the SiriusXM's full-year and fourth-quarter 2013 results earnings conference call. Today's conference is being recorded. A question-and-answer session will be conducted following the presentation.

(Operator Instructions)

Now, 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, Vicky. Good morning, everyone. Welcome to SiriusXM Radio's earnings conference call for the 2013 year and fourth quarter.

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, our 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's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about these risks and uncertainties, please view SiriusXM'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 about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation and certain purchase price accounting adjustments.

With that, I will hand the call over to Jim Meyer.

Thanks, Hooper. Good morning. Thank you for joining us today.

2013 was an exciting year for our Company, as we delivered on all our financial guidance for the year, and positioned the business for continued growth in the vehicles and devices of tomorrow. We increased revenue by 12% to $3.8 billion, beating our guidance. We grew our subscriber base by 1.66 million, to a level now over 25.5 million, one of the largest subscription media businesses in the world.

Self-pay churn and conversion rates were well-managed throughout the year. We also improved our revenue per subscriber by just over 2%. We held our expense growth well below revenue growth, despite investments across our business, particularly in IP technologies and Connected Vehicle services. This drove 27% growth in adjusted EBITDA to nearly $1.17 billion, also beating our guidance.

For the year, this delivered a record margin of 30.6%, an increase from 27% in 2012 and 24% in 2011. Fourth quarter adjusted EBITDA grew an astounding 41%, boosted by lower subsidy rates on vehicles. In short, our business is healthy and our model is working.

We are running the business to focus on free cash flow, while continuing to make investments in key growth initiatives. On that measure, we had a very good 2013. We improved free cash flow by 31% to a record $927 million, or nearly 80% of our adjusted EBITDA. On a per-share basis, free cash flow rose at an even faster 41% in 2013, as we reduced our share count by 520 million shares via stock repurchase.

Let me reiterate. We believe growing our free cash flow, and even more specifically, free cash flow per share, is the most important thing we can do to enhance value for our shareholders over time. New car sales are back to about 16 million per year.

We continue to see enthusiasm and increased commitments to our audio service from OEMs. Our penetration rate in the fourth quarter was 71%, the highest in the history of the Company. This year, it should be right around 70%. More satellite radios than ever are being installed in new cars.

Last year, we announced penetration increases at Toyota and Honda. We recently extended our agreement with Nissan through 2018. Nissan will now be significantly expanding satellite radio penetration across its entire model line, as well. SiriusXM's great content and easy to use service continues to be in high demand by OEMs and their customers.

New cars sold with a satellite radio should top 11 million this year, up from 10.7 million last year and 9.6 million in 2012. There are now approximately 60 million vehicles on the road today with a factory installed satellite radio. We expect that to nearly double in the next five years, as satellite enabled vehicles exceed 110 million.

Our initiatives in the used car market are really starting to take hold. We now have more than 11,000 dealers reporting previously owned vehicle sales to us. We expect the volume of those sales and the 90 day trials we offer to those buyers to more than double in the next five years.

In fact, within the next several years, sales of previously owned vehicles with satellite radio will actually exceed sales of new cars with our radios. Our Service Lane initiative has proved to be an early success. If there hasn't been an active subscription in a vehicle for a while, when owners service their cars are participating dealers, we can now offer those customers an abbreviated trial, exposing them once again to our ever-changing and improving product programming line up. Currently, this dealer count is about -- is at 2,500 and climbing, yet another way we are creatively approaching both the first and second owner market.

In 2013, new car buyers converted at about 44%. Used car buyers converted at about 34%. We ran about 13 million total trials in 2013. We expect this number to be over 15 million in 2014.

Incremental penetration into more mid and lower end cars may cause a softening of conversion metrics. But with declining SAC for new vehicle, we are more than willing to take this trade-off. With the continued recovery of new car sales, and growing availability of satellite radio in previously owned vehicles, SiriusXM's unparalleled entertainment offering is becoming available to more households than ever.

In both the new and used cars markets, we are seeing increased numbers of sub $75,000 income households coming through our trial funnels. We continue to be creative about improving, fine tuning and testing segmenting marketing -- segmented marketing efforts, in order to maximize yields from the growing base of installed vehicles. As we discussed on our last call, our new car subscribers are selling their cars more quickly than industry averages. Increasing vehicle turnover and income sensitivity in our subscriber base are contributing to churn.

The mix of our vehicle, owner and subscription base will continue to move toward the demographics of the average driver in this country. I don't think it will surprise any of you that over the years, we have seen higher income households convert at higher rates and churn at lower rates than lower income households. But lower income subscribers remain a very profitable segment for us because of our high contribution margin and low variable cost per acquisition.

Today, our radios are only in about 25% of the active cars on the road. So, as we grow, changing demographics will, of course, impact some of our metrics. But remember, 80% of car owning households in this country own two or more cars, 80%. Among all households that do subscribe, we have a great opportunity to expand our relationship by adding additional subscriptions within those households as the vehicle fleet grows.

Now, let me give you an update on our Connected Vehicle strategy. We know where the automakers are going in this area. We have a clear -- clearly defined strategy to execute and win in this business. In September 2012, we won a contract to provide Connected Vehicle services for Nissan. This past November, we significantly expanded our commitment to lead this market by acquiring the Connected Vehicle unit of Agero, which will be a core part of our long-term growth strategy in connected cars.

The expansion of our CV platform gives us immediate credibility with OEMs, enhances relationships with key Asian and European OEMs, and improves opportunities at several others. We've acquired a smart team of technology engineers who are accelerating development of our overall connected car architecture, including the combination of satellite receivers with LTE hardware, a strategy that should also yield benefits to our existing audio business.

The CV business also gives us entree to create a worldwide connected car platform, something of particular interest to our OEMs. We now have live Connected Vehicle service with eight OEM brands, with several others in the pipeline, making us the leading provider of these services to OEMs today. Much of the market is still uncommitted. We believe our acquisition improves the odds of expanding our relationship with existing OEMs and winning new business at several key other OEMs.

We expect Connected Vehicle services to deliver close to $100 million of revenue this year. We expect to grow this at strong double-digit rates over the next many years. We are in the process of fully integrating the CV business into SiriusXM. Its financial results are embedded in our guidance today. As an early-stage growth business, we expect the Connected Vehicle services product line to contribute at or near breakeven on an EBITDA basis in 2014.

But with high variable margins, a relatively low CapEx profile, and substantial scaling in the business as penetration expands, we see many similarities in the financial profile of Connected Vehicle services and satellite radio. Just keep in mind, the Connected Vehicle business is still in its very early days. Building this business is a key step in realizing our vision of a merged satellite and IP connected environment that will truly deliver amazing features to our subscribers and benefits to our business.

The race we are running is a marathon not a sprint. It will take several years, just like satellite radio did, to fully deploy our Connected Vehicle services, but successful leadership now will create a significant source of growth in the years to come. SiriusXM continues to deliver great programming across sports, talk and our commercial free lineup that simply can't be found elsewhere.

Take our coverage of the Super Bowl. 11 feeds of the game, wall-to-wall coverage on NFL Radio, the Halftime Show with Bruno Mars on SiriusXM Hits 1 and more. We recently launched NBA Radio. We relaunched our PGA Tour Radio channel with top pros like Ben Crenshaw. We've strengthened our position as a leader in music discovery. We've held private concerts for our subscribers by emerging artists, including several new artists who got their first airplay on SiriusXM.

We continued our acclaimed Town Hall Series with recent guests including Katy Perry, Eminem, Lady Gaga, Pearl Jam, Mike Tyson and the cast of Downton Abbey. Most exciting of all, last Friday night, we celebrated Howard Stern's birthday with an amazing bash at the Hammerstein Ballroom in New York.

We love having Howard as part of the SiriusXM family. We were thrilled to be able to celebrate with him with a late-night trio of Letterman, Kimmel and Fallon, plus other guests; Robert Downey Jr, Sarah Silverman, Bon Jovi, Steven Tyler, Adam Levine, John Mayer and, of course, hundreds of our subscribers who joined us live to watch the show. It was an epic night, so if you missed it, make sure to check it out on the replay online or with your SiriusXM app.

Let me now give you a quick update on Liberty Media. In response to Liberty's offer to swap its equity for the remaining public shares of SiriusXM, a special committee of our Board of Directors was established. This special committee has now hired its own advisers to evaluate Liberty's proposal and negotiate on behalf of the non-Liberty shareholders.

If the special committee can reach an agreement with Liberty on a favorable transaction, any deal with them have to be approved by the majority of the non-Liberty shareholders. That's the process. It's well underway.

During this process on the advice of legal counsel, capital returns are on hold. But, from the perspective of our Management team, it's business as usual at SiriusXM. We will not let the Liberty transaction turn our head in any way, away from the focus of running this business, the best possible way to grow subscribers and free cash flow.

This year, we expect to show you another year of solid execution and growth. We expect to grow our base by approximately 1.25 million net new subscribers. We are very confident in our ability to grow our revenue to exceed $4 billion, grow adjusted EBITDA to approximately $1.38 billion, and grow free cash flow to approach $1.1 billion.

I'm very excited about our prospects this year. We have the best content. We have a leading position in the car. We have proven our ability to monetize better than the competition. We will maintain the discipline to stay focused on rewarding our shareholders.

With that, let me turn it over to David.

Thanks, Jim.

SiriusXM topped off an incredible year with the best fourth quarter in our history. Our quarterly revenues cracked the $1 billion mark for the first time, and both quarterly adjusted EBITDA and free cash flow eclipsed $300 million, also for the first time. Q4 revenues were up 12% over the prior year, as total subscribers grew to 25.6 million and self-pay subscribers grew 21.1 million. 0.5 point increase in the contribution margin to 69.8% set the stage for explosive growth in EBITDA margin, as SAC per gross add fell 19% to $44.

Adjusted EBITDA in Q4 grew 41% to a record $325.6 million. EBITDA margin expanded by almost 7 full percentage points, as SAC fell by 4 points on a percentage of revenue basis. And fixed cash operating expenses grew just 3.5% against the 12% revenue growth. Maybe even more impressively, we converted 93% of this adjusted EBITDA to free cash flow in the quarter, driving free cash flow to a record $303.2 million in the quarter.

Our full-year results were just as impressive, taking into consideration the change in a major OEM contract in Q4, 2013 was our best year with net additions since the merger of Sirius and XM. Revenues grew nearly 12% to more than $3.8 billion. Contribution margin continued its strong and consistent history at 69.9%. Record new car installations were met with a record low for subscriber acquisition costs as a percentage of revenues just 14.7% or less than half of its pre-merger level.

Adjusted EBITDA margins grew to a record 30.6% from 27% in the prior year, driving 26.7% adjusted EBITDA growth and crushing the $1 billion mark as adjusted EBITDA finished at $1.166 billion. We converted nearly 80% of adjusted EBITDA to free cash flow for the full year, finishing at $927.5 million and returned a total of $1.8 billion to shareholders through stock buybacks in 2013. Free cash flow per share grew almost 41% over 2012 to $0.145 per share.

The Company is very conservatively capitalized today. From August 2012 through the end of 2013, we refinanced $2.5 billion of debt, pushing the average maturities out from 4.7 years to 6.7 years and reducing weighted average interest rate from 9.2% to 5.1%. Our $3.6 billion of total debt includes $500 million of deep-in-the-money converts that mature in December of this year.

Our total forward leverage is just 2.6 times based on our EBITDA guidance, and just 2.25 times if you exclude the convert. Interest coverage was 6 times in the fourth quarter.

For years, we have told investors that we do not intend to be an investment-grade rated Company, and that, over time, investors should expect to see us take our leverage target up. We did just that in early January, announcing an increase in our target leverage from 3.5 times to 4.5 times. We now have over $2.4 billion of borrowing capacity under our target leverage ratio.

When combined with free cash flow that will approach $1.1 billion in 2014, we have total liquidity of $3.5 billion to pursue acquisitions and return capital to shareholders. That's roughly 16% of our current equity capitalization. We have an excellent business model in satellite radio. With our low-cost of acquisitions, see a tremendous opportunity for long-term growth in free cash flow through continued growth in our subscriber base.

In the fourth quarter, we added an important new accelerant to our future growth through the acquisition of the Connected Vehicle business from Agero, connecting cars at a very early stage of development. In the next five years, we expect Connected Vehicle production penetration rates to expand to more than 50% from less than 10% last year.

Today, we have relationships with more automakers than any other Connected Vehicle service provider and believe we are in an excellent position to add more OEMs to our roster of Connected Vehicle partners. In 2014, we expect Connected Vehicle services, excluding our existing traffic business, to approach $100 million in revenue. In the course of the next three years, we expect Connected Vehicle service revenue will double and will continue to grow at higher rates for many years to come.

For those of you who have been following satellite radio, you know that integration of a product into a car takes time, but once in, it has a visible long-term growth path. As Jim noted earlier, in 2014, we expect revenues to exceed $4 billion, adjusted EBITDA to grow more than 18% to approximately $1.38 billion and free cash flow will crack the $1 billion mark approaching $1.1 billion.

With that, operator, let's open it up for questions.

(Operator Instructions)

Jason Bazinet, Citi.

I just had one question on your commentary regarding the worldwide connected car platform that you talked about on the call. If you go down that path, were you contemplating something that's LTE-based that integrates Agero? Or something that mimics the architecture that you have in the US with the satellites? Thanks.

So, I think, a couple comments on that, Jason. One, there's virtually no auto company left today that's not competing on a worldwide basis. Certainly, all of the big ones are.

They are, without question, driving to global platforms that they then can localize to various geographies around the world.

Our vision and what we've demoed to them, and shown working hardware of, is a platform that combines satellite and LTE in the North American markets. It allows that -- then it allows the satellite portion to be easily [encoupled] everywhere else in the world at virtually -- at no cost premium to do that.

So we're providing them a very flexible platform that they could incorporate on a worldwide basis. What specific service strategies will evolve in those evolving regions is still work to be done.

I understand. Okay, thank you very much.

Barton Crockett, FBR Capital.

I wanted to ask a little bit more about the subscriber outlook for next year, 1.25 million subscribers.

First and kind of a factual point, did that include or exclude promotional subscribers?

Then a little bit kind of bigger picture, why the slow down? I mean, you were adding 1.5 million self-pay in 2013. Now, why would that slow down so much in 2014?

So, for now, we don't see much of a difference between the self-pay growth and the total, including the paid trials. We'll see where auto inventories come out.

Clearly, there isn't as much new car volume growth that people are looking for in 2014 relative to past years. Then with the OEM contract change that we went through, we've got one less partner in the pay trial bucket. So right now, we don't see a growth in the inventory of paid trial subscribers.

We do expect the total funnel to grow a little bit. But we won't see the same kind of growth that we've seen in past years.

In terms of the change from 1.5 million self-pay nets to 1.25 million, honestly, we got surprised last year with the amount of vehicle migrations that went on. So we've taken a pretty cautious view towards that this year.

As Jim mentioned, as we get to a more price-sensitive subscriber, it makes sense to us that you might see conversion rates coming down a little bit.

We are up at roughly 70% penetration now, as opposed to being at 60% a couple of years ago.

Throughout the history of satellite radio, you've seen, as production penetration rises conversion rates fall a little bit. But generally that's been good news, right? You'd rather have 44% of 70% than have 46% of 60%. So, all we've taken -- a cautious outlook towards next year, and that's what we see.

Just one other comment. We also have a price increase. We have to wait and see how that works its way through. So, I think David summed it up well.

Okay. Great, I'll leave it there. Thank you.

Ben Swinburne, Morgan Stanley

I have two.

David, can you just remind us the GM impact, at least, to what buckets that hit in the fourth quarter? I was a little surprised that the rev share ratio didn't move. I thought that was going to tick down -- maybe it was all in SAC?

And then I have a follow-up.

So, there was a large OEM that I don't think anybody's ever said it was GM.

But in with the -- they are changing the contract which we negotiated several years ago. It affects a lot of lines.

It affects revenue. It affects revenue share. It affects marketing -- a couple different layers of marketing expenses. And it affects subscriber acquisition costs. So it is pretty widely spread through the P&L.

Okay.

Then just coming back to this transition -- not transition, but push into the lower income, less premium part of the market.

You have one of the incremental return businesses out there. I think you've got like a six-month payback on the marginal sub or something. Do you think that the returns of the business will go down as you penetrate deeper into the base -- still attractive but go down?

Or do you see cost levers as you add a more price-sensitive customer base that you can pull to sort of maintain the kind of return profile and maybe margin outlook that you've always talked about in the past?

When you think about the subscriber acquisition costs at $44 for new car installations and that the average customer pays us more than that when they convert from their trial. So I think that there isn't anything I see that's going to damage the return profile. If anything, the overall return continues to improve as we penetrate used car sales.

All right? So, Jim?

Yes. I completely agree. But, Ben, I think there are kind of three things to keep in mind that at least I'm thinking about, and that is -- that are changing our business. I think all of us need to remember that when the SAR has improved from, call it, $10 million to $16 million, so has the spread of income for buyers who can buy those cars. Right?

So the returns, even from $13 million to $16 million -- I'm telling you, has been driven by more confidence of people who are sub $75,000 having the confidence to buy a new car.

It's not being driven by households over $125,000. They came back quicker. So, we are definitely seeing a mix in income there that we watch.

Second, because of our low SAC profile now, we are driving for penetration everywhere we can because you are right. That makes good economic sense for us.

It does however though -- that penetration, as you can imagine, we got the higher trim levels in years past, is lower trim levels in lower priced vehicles.

That puts a little bit of strain on our incoming subscriber base. Then finally, in general, the used car buyer is less affluent than the new car buyer.

So when you combine all those, I think the real challenge is not the call side. I think David is 100% right -- what he said.

Our real challenge is what is our proper marketing mix as those segments emerge and our proper segment strategy to maximize revenue/cash flow as opposed to subscriber growth. I think it's going to take us time just to work our way through it.

Very helpful. Thank you.

Jessica Reif Cohen, Bank of America Merrill Lynch.

I have two questions.

Jim, in your opening remarks, you talked about free cash flow per share being a big driver. But you're obviously hindered by lack of buybacks in this interim period. Do you expect to catch-up following some sort of a deal announcement?

What is the timeframe, once you announce -- assuming you can agree, from announcement to close -- when you get through the shareholder vote, et cetera?

Well, I think, David -- we have two point -- why don't you answer that?

Jessica, I think if, in fact, the special committee and Liberty come to agreement on auto transaction that then proceeds to a vote, that -- I think that puts the capital allocation decision sort of back in the hands of Liberty. I don't know how they would respond to continuing to buyback while the deal is pending. So we'll have to see where the negotiations go.

In the event that there isn't an agreement reached, I think you should expect us to resume normal buying back in the marketplace. We've obviously, we've been out of the market for a little bit.

I don't know that the timing of it within a quarter or two makes a heck of a lot of difference to valuation. But certainly, if there isn't a deal, that you can expect us to resume buying at a pretty healthy pace.

Yes. Jessica, just to reiterate, our Board has approved, as you know, $4 billion in buyback. We've used $1.8 billion.

So we have -- these are approximate -- $2.2 billion still open. Obviously, we're on hold right now.

But if the transaction that Liberty has proposed doesn't go forward, then I would expect we would be back, buying back stock and certainly, meeting or exceeding or moving towards what we've been authorized.

Okay. Thank you.

The second question is on EBITDA margin expansion. Obviously, you had a great quarter.

Just wondering, you set 40% is the goal. Is this still a reasonable long-term goal? Or can you go higher? Maybe you can hone a little bit in on a lot of things like content costs. Will they go lower?

Maybe Scott could talk about what he is doing here. One of the offers you announced last year was this Spanish language offer.

Maybr you can give us more color? And on SAC, I know you touched on it, but where can it go? How low can it go on a blended basis?

So, let me take the first one, which is the 40%. I can tell you, yes, we absolutely believe that we can get to a 40% EBITDA margin.

What's more important is, as you heard in my comments, we have made 1 to 2 basis points of an improvement each and every year starting with 2011. When you look at our guidance and you look at our revenue, you can do the math quickly and see that we expect to continue to improve our EBITDA margin, you pick it, in the 34% to 35% range in 2014.

Our model is all about now the scalability. We understand our costs very well.

I'll let Scott comment in a moment on content and then David on SAC.

We have a lot of initiatives that are underway. They are going to take time, as we look at how they grow.

The Hispanic segment is one that I personally have had a bugaboo about why we can't do better. Over time I think we can, and that opens up a different opportunity to us at maybe a lower ARPU, but certainly a profitable profile for us. Scott? You want to comment at all?

So, Jessica, most of our, if not all, frankly, I think our agreements have now gone through a post-merger negotiation. So we're passed that round where I think the dramatic cost cutting exists.

We only have a couple of major agreements up in the near future. Short of that, I think, we've done a good job at the Company looking at our programming and our bandwidth and deciding what should stay and what should go and redeploying that bandwidth and that capital into new programming.

I'm certainly not concerned about anything going up on the line item. On the other hand, I think very dramatic drops that have gone on over the last few years, I don't think that should be expected either.

From a margin perspective, Jessica, I think two things.

One, I fully agree with what Scott says about programming costs. So what that suggests is that programming costs should be pretty stable going forward.

I think, you can see the same thing in SAC -- the auto recovery seems to be sort of complete. I don't know how much higher new car sales can really go from here.

We are not anticipating significant changes in our production penetration rate. So new car installations, which is what really drives SAC, should stay around this 11 million level, low 11 millions.

We think there still a little bit of improvement that we can get out of SAC per gross add. So that would suggest that you've got two numbers at least in programming and subscriber acquisition costs that are going to look sort of flattish.

Maybe they've got slightly rising numbers in them. But I think flattish is a good way to think about it.

Revenues will continue to grow. So we still have the opportunity for margin expansion.

Thank you.

Vijay Jayant, ISI Group.

This is David Joyce for Vijay.

You had some impressive used car conversion rates. What can you talk about in terms of expectations of the growth of that market this year?

Then, I know you touched a bit on the -- kind of the lease swap trends. Are you getting any greater comfort about those trends and how those might look seasonally?

So I think on used cars, in January at the Consumer Electronic Show, I made some public comments regarding that business. There, I said that we believe that additions from that business will approach $2 million in 2014, and I absolutely stick by that.

It's growing nicely. We're off to a strong start. I think it bodes very well for growth in, particularly once the recovery then starts going through in kind of the future years for really big growth -- I do eventually believe that we will end up with more trials and more new subscribers from that segment than the new car business.

David, can you take the second question?

Yes. So on the vehicle turnover, we continue to watch it. Certainly, vehicle-related churn is now the biggest component of our churn.

I'd say that we haven't seen any change in those trends at this point. So we expect it to continue. It's one of the reasons why we're relatively conservative about the guidance for this year.

Just one more thing on the used car side. Remember that new car installations were sort of flat from 2007 to 2009, that we did about $5.5 million to slightly more than that a year in each of those years.

Then in the last two years, we're doing something that looks like $10.5 million and $11 million. So we think as we go into the next couple of years, that we actually have -- we're walking into what should be a very significant upswing in used car volumes.

We don't necessarily think that upswing is this year because of how flat the installs were in 2007 through 2009. But from 2009 to 2013, the installs basically doubled; and that volume has got to come through the used car market in the next couple of years.

Great. Thank you very much.

Amy Yong, Macquarie.

My question is on IP.

You've helped us quantify some of the opportunities in telematics and the used car market. Can you do the same on the IP side?

And on acquisitions, what other opportunities could you pursue? Thanks.

So I think, first and foremost, today, we view IP as a way to enhance our service, not necessarily as a big channel for acquiring new subscribers.

So where our focus has been over the last three years is trying to get more and more of our base to both have a satellite and IP account, right? So that they can enjoy our programming in the car and enjoy our programming at home seamlessly and easily, or on the go seamlessly and easily. I don't see any change in that, certainly, in the next couple years.

With that said, once this stuff becomes connected and this experience becomes blended, we'll see.

But I have to tell you, in our thinking over the long term, we still expect -- we are auto-centric and auto-focused. That's where we're going to stay focused in both acquiring subscribers and keeping subscribers.

But, we do believe that we have to make our service easy to use, robust and available, frankly, over our terrestrial networks, over our satellite networks, and over our IP networks.

Thanks. Then on acquisitions?

I'm sorry, I don't understand the acquisition question.

I'm sorry. What other opportunities could you look at telematics?

I'm sorry, Amy. I missed it. I thought you meant acquisition on the subscriber. (laughter)

Look, we're always looking. I think you should assume that over the years, we will find some opportunities that match the strategy we've laid out for you pretty consistently, I think, over the last two or three years.

If I had to guess -- again, we've got a lot we've looked at. We don't have any we're contemplating right now; I'll be clear with you.

But we are going to look hard. If I had to guess, one is -- I think, I hinted at it a little bit today, over time would like to expand our footprint on an international basis.

We want to do that slowly and carefully. We want to do it along with the OEMs, not just charging out on our own.

That's an area where today we don't have what we need. We might look in that area.

Then, I think -- we're also looking in the connected world for a service opportunity or a partner that can accelerate our strategy in those areas. I think that's primarily where we're looking at in the acquisition funnel today.

We continue to look at others, but we just haven't seen anything that either excites David and I in a way that gets us even to a second step.

Thank you.

Matt Nicknam, Goldman Sachs.

Two, if I could.

One, on the OEM reset in the fourth quarter, just wondering were the full benefits from that reset reflected in 4Q results? Or should we expect any incremental improvements in 1Q going forward?

Then secondly, on the Agero contribution, can you outline what the contribution was in the quarter and how the EBITDA contribution from that ramps beyond 2014? Thanks.

On the Agero side, it didn't have a meaningful impact on the EBITDA in 2013. I think you should think of it as not having a meaningful impact in 2014 either.

But it is a business that, like satellite radio, has high contribution margins. So as you grow the revenues, you get a very meaningful contribution relevant to the size of the revenues from the business.

On the OEM reset, I -- the full effects weren't felt in the fourth quarter. But an awful lot of it was.

So certainly, quarter-to-quarter comparisons throughout the year are going to benefit -- year-over-year comparisons will obviously benefit from the overall improved economics. We've got business with a bigger scale. Costs are lower in many areas and certainly lower as a percentage of revenue.

But along with the contract change, you'll get nice year-on-year improvements for each of the quarters. Then the fourth quarter year on year will probably have a little bit of benefit from the change. But for the most part, be just related to the scale.

Thanks.

Okay. Thanks, everybody. Appreciate your time this morning.