Sirius XM Holdings Inc (SIRI) 2014 Q1 法說會逐字稿

Good morning, and welcome to Sirius XM's first-quarter 2014 results earnings conference call. Today's conference is being recorded.

(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, sir.

Thank you, Jennifer, and good morning, everyone. Welcome to Sirius XM'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. We will also be joined by Scott Greenstein our President and Chief Content Officer 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 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 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 now hand the call over to Jim Meyer.

Thank you Hooper. Good morning, and thank you for joining us today to discuss what we think was a very strong first quarter and one that positions us to succeed and achieve record financial performance in 2014. For the ninth consecutive quarter we've grown revenue at double digits to a number that was just shy of $1 billion, up 11% year over year.

Driven by this strong revenue growth and tight management of cash operating expenses, which were up just 4%, adjusted EBITDA climbed 28% to $335 million, the highest level the Company has ever achieved in a single quarter. And adjusted EBITDA margin of 33.5% was also a record, up over 400 basis points from 29.1% in last year's first quarter.

Free cash flow of $223 million was up 56% and represented a first-quarter record. And free cash flow per share was $0.036, up 64% from $0.022 in last year's first quarter as we reduced our share count through buybacks over the past year.

Net subscribers grew by 267,000 in the first quarter to an all-time high of 25.8 million. Self-pay subscribers grew by 173,000 in the first quarter, also to an all-time high of 21.3 million, up 7% year over year. This first-quarter subscriber growth was actually a bit above our internal forecast for the quarter and is consistent with our full-year guidance.

Let me reiterate -- we remain confident in achieving our full-year subscriber growth target of approximately 1.25 million. And, furthermore, we see nothing in the next few years that should prevent us from continuing to grow our paid subscriber base towards 30 million. Our solid subscriber growth, even faster revenue growth, and high contribution margins have produced dramatic growth in adjusted EBITDA and free cash flow -- exactly what you would expect from Sirius XM's highly scalable business model.

We are the world leader in monetizing audio entertainment, and the way this high monetization translates into cash flow is also unmatched. Our radios today are only in about 20% -- 26% of the cars on the road today, so we believe the opportunity for long-term growth remains significant. We do not believe that any other company -- in audio entertainment in particular and in media in general -- can match our business model or the excellent cash flow growth that comes along with it.

I'm pleased to say we have resumed our capital return program, which will enable us to drive even faster growth in free cash flow per diluted share as we reduce our outstanding share count. Tomorrow, we'll complete the final tranche of our repurchase agreement with Liberty. With a $4-billion share reauthorization a little more than halfway complete, an under-levered balance sheet, and growing free cash flow, we have plenty of firepower to deploy our capital at what we believe are attractive prices.

OEMs continue to embrace Sirius XM. Our penetration rate in the first quarter was about 70%, up from 67% in last year's first quarter. Auto sales were sharply below our expectations in January and February, primarily due to bad weather, but rebounded nicely in March to the highest level since February 2007. Based on our penetration [work] forecast and this year's expected auto sales of around 16.2 million, we project around 11 million trials in the new car market this year.

Total enabled vehicles on the road with a factory-installed satellite radio were approximately 62 million at the end of the first quarter. And we expect this to double, in the next five years, to approximately 120 million, giving us an opportunity to both grow our new-car base and drive our second-owner business as well. The second-owner market continues to yield significant and growing results for us.

We have over 12,000 dealers who report to us sales information. Over 3,000 of these dealers are also enrolled in our service-lane initiative, which gives us the opportunity to offer trials to dealers' customers who are getting their vehicles serviced at participating locations. From this growing dealer count and larger turnover of our enabled vehicles, we expect to run more than 4 million trials in the second-owner car market this year.

In addition to the formal trials we are running, a couple million vehicles will also transact in channels where we are unable to offer a trial, but we will still see significant direct-to-self-pay additions here as well. Where we are able to offer a trial in the used-car segment, we continue to see buyers converting in the low-30%s range. Over time -- and really over the next few years, more precisely -- turnover of enabled vehicles in the secondary market will actually come to exceed the new-vehicle universe. We are very excited about this opportunity and well positioned to capitalize on it.

We are on track to grow self-pay additions in this segment from approximately 1.5 million last year to close to 2 million this year. But you know, this is just the beginning. Based on the coming growth in turnover of vehicles with radios, we expect a substantial increase in used-car additions in the coming years. Honestly, we've really just barely begun to scratch the surface here.

We continue to deploy our next generation technology, 2.0 satellite radios, in more new vehicles, which adds functionality and also allows our OEMs to cost down their cost to implement our radios and reduce our subsidies. We continue to create more ways to super serve our OEM customers, such as the deployment of our Connected Vehicle business.

The integration of the Sirius XM of the Connected Vehicle business we purchased from Agero is in full swing and we now have a fully aligned management structure. Our OEM sales team is completely integrated and talking with one voice now to the OEMs about a full range of services offered by Sirius XM, including both audio entertainment and Connected Vehicle services.

We have also made significant progress on executing on our Nissan Connected Vehicle agreement, and the integration of the Agero resources and technology certainly helps that effort. We remain on track to do approximately $100 million of revenue in our Connected Vehicle business this year. And we expect this to double, over a three-year timeframe, with strong double-digit annual growth in revenue.

The newly enlarged Connected Vehicle business at Sirius XM also has strengthened our push to win more business, as several large OEMs remain uncommitted to a Connected Vehicle provider. The connected car is coming, and that is a fact. We are moving our entire organization to capitalize on this opportunity, from our investments in the CV business to the improvements we are planning in our core audio service.

We see tremendous value in delivering a service that combines the best features of satellite broadcast and IP connectivity. Our Connected Vehicle business is still in very early stages. But our development work here is a critical part of building out both offensive and defensive capabilities, all with the goal of improving what we offer to our OEM customers and ultimately to our self-pay customers.

You know, what really sets us apart from all of our competitors is our great content. In programming, I've never been more excited about what we're doing here at Sirius XM across sports, talk, and music. Creating and broadcasting unrivaled content is the core of our business and vital to attracting new subscribers and keeping existing ones.

Over the past year, we have secured long-term renewals of many of our key assets such as Fox News, Major League Baseball, and the NBA, which will ensure their place in our lineup for many years to come. We continue to look at additional long-term renewals and ways to make sure our content assets remain exclusive in-vehicle and bolster our position as the leader in audio entertainment in the car.

In studios across the country, our programming team continues to create new channels, new shows, new formats, and new ideas for expanding our roster of hosts and content. Earlier this week, we announced with NBC News the launch of our Today Show radio channel, delivering the iconic and respected daily programming from Today, with feeds for both coasts and its summer concert series.

We've also added business radio, powered by the Wharton School -- a new full-time channel dedicated to giving business owners, executives, or anyone with an interest in starting a business, insight and advice from the stars of the business and finance world. Our exclusive Town Hall series continues to draw the biggest names for in-depth sit-downs with our listeners, including George Clooney, George Lopez, Seth MacFarlane, 50 Cent, and Pele.

And our music channels are drawing critical acclaim as places that listeners -- and the industry -- go to discover trend-setting new music and artists, such as in country music, with the Highway Channel, and electric music with our -- electronic music, with our format-leading dance station, BPM. Artists and industry insiders now know airplay by Sirius XM leads to selling more music and more concert tickets, as well as establishing new careers. Later this year, we look forward to introducing a number of new commercial-free music channels that we think will be perfect for our increasingly diverse audience.

Then there's Howard Stern. I think he's having one of the best years of his career. And he will host his first Town Hall series event on Monday with music legend Billy Joel, who will also perform, along with a host of top performers. Stay tuned -- this one should be fun.

We continue to make strides to provide the best content for target segments, including Hispanic and women's content. Last year, we increased the number of channels in our Latino category, offered to every radio, led by the addition of Piolin Radio. We have also added significant Spanish-language sports play-by-play.

We continue to challenge our programming team to find new opportunities in big niche areas, as we have done in the business and rural segments. Our new moves we are now considering will come with some truly iconic cultural figures. Stay tuned.

We expect 2014 to be another great year for our Company. We've reiterated our guidance for approximately 1.25 million new subscribers this year and revenue of over $4 billion. We're targeting double-digit growth in adjusted EBITDA to about $1.38 billion and free cash flow approaching $1.1 billion. And now that capital returns have resumed, we expect an even sharper growth in free cash flow per share.

We are constantly investing to evolve and improve our leading content position, working diligently on tomorrow's connected car and striving, most importantly, to continue our excellent track record of execution. We are pleased to be in a position to once again reward our shareholders with significant capital returns.

Now let me turn it over to Dave.

Thanks, Jim. Despite an unrelenting winter that restrained auto sales, Sirius XM turned in its best operating quarter ever and has restructured its balance sheet to continue delivering strong growth in free cash flow per share. Net additions of 267,000 were stronger than our expectations, and we remain confident of achieving approximately 1.25 million net additions for 2014.

Car sales through February were flat year over year. But, with better weather in March, sales were up 7% over 2013 to bring the quarter SAR in at $15.66 million, up 3% over 2013, and the best quarter since the merger nearly 6 years ago. Vehicle penetration was up 3%, to 70% of car sales in the first quarter. We had our strongest first quarter ever for new-car trial starts, at more than 2.4 million, and used-car trial starts set an all-time quarterly record, exceeding 1 million for the first time.

Total conversions increased year over year -- our best first quarter ever for conversion volume. Very strong growth in the subsequent owner conversions and stable new-car conversions offset a slight decline in the aftermarket business. Churn improved to 1.9% from 2% in the first quarter. Improvements in non-pay and other voluntary churn more than offset continuing growth in vehicle turnover among our subscribers. We finished with a record self-pay subscriber base of 21.3 million and total subscribers of more than 25.8 million.

Revenue increased 11% in the quarter, driven by subscriber growth, ARPU growth, and revenue from Connected Vehicles. Adjusted EBITDA grew nearly 28% to a record $335 million, and adjusted EBITDA margin jumped from 29.1% to 33.5%. The biggest single factor was the 11% drop in subscriber acquisition costs as the growth in OEM installations was more than offset by a drop in unit cost.

We picked up 3.1 points of margin on the improvement in SAC. Contribution margin improved slightly, to 70.6%. And all other line items improved as a percentage of revenue over the prior year, except for G&A, which reflects the costs associated with Connected Vehicle services, increased legal fees, and the cost of the Liberty proposal.

Free cash flow grew 56% over the prior year, to $223 million -- the first time we have exceeded $200 million of free cash flow in a first quarter. Historically, the first quarter has been our lowest cash flow quarter of the year. In fact, just three years ago, free cash flow was negative in the first quarter.

As I said at the opening, we are focused on driving free cash flow per share. In the last 12 months we have completely overhauled the Company's capital structure: reducing borrowing costs, pushing out maturities, and increasing our flexibility to return capital to shareholders. All of our bonds now have investment-grade style covenant packages.

Two weeks ago our 5 1/4% bonds were granted security and received investment-grade ratings from both S&P and Moody's. With these investment-grade ratings the bond covenants fall away, essentially freeing the Company from the restricted payment limitations in the 5 1/4%s.

This week, consistent with our recently raised target leverage of 4 times, we also raised the restricted payments limitation in our revolving credit facility to allow unlimited restricted payments as long as leverage is under 4.5 times. These changes allow us to continue cost effectively funding stock buybacks out of the operating company while retaining the flexibility of [hold] co-financing for strategic expansion.

Our stock buyback program will reach $2.3 billion tomorrow with the closing of the final tranche of the Liberty purchase. High yield market conditions remain very favorable. Our leverage at the end of the quarter stands at 2.8 times, including nearly half a turn related to our deep-in-the-money 7% exchangeable notes. We are likely to tap periods of opportunity in the bond market to issue new debt and to replace the 7% notes that will convert into equity in December of this year. As Jim mentioned, we are confident of achieving our guidance for the year.

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

(Operator Instructions)

Bryan Kraft, Evercore.

Just a couple questions. One, on self-payment adds. I think earlier in the year you had said that self-pay in total net adds as would be relatively similar this year. I just wanted see if you could update that now, with the quarter behind us, if you still saw the year playing out that way?

One last question on cost. With the OEM shifting to 2.0 chipsets, will the SAC declines continue or are those chipsets more expensive so do we go through a period at some point in the next couple of years where SAC maybe flattens or goes back up before coming down again?

And then also on programming, you know Jim, you talked a lot about the incremental programming enhancements that you're making, which I think is great for the product. But can you continue to do that and also maintain that flattish programming cost outlook? Those are my two questions. Thank you

I'll take the first one and the third one and David will take the middle one on SAC.

First of all I thought we were clear. I just want to be clear. Our guidance for self-pay net additions this year's 1.25 million. Our first quarter performance quite candidly was a little better than we had expected when we drew that plan, but I want to continue to see how the months unfold but I'm confident in the 1.25 million.

And we don't see a difference between the two self-pay and the total nets. It's just an inventory difference. We still think they book look like 1.25 million.

And on the last point, there's no question that through the merger and through the rationalization of our agreements and programming we've been able to take a significant chunk out of our programming costs. I think programming for us is -- it's hard to say which one of your children do you love more but it's a very key asset.

And so as we go forward if we see opportunities where we can get meaningful program that we believe gives us a competitive edge we will take it. Okay. I think is the only way I can comment. Scott do you want to add?

Yes, one thing, Brian the other thing that, as the company has grown, the advantages that we offer our content partners in all walks of life from, as Jim mentioned music sales, ticket sales, everything else just becomes exponential as the Company continues to grow. So while costs are always going to be an issue, unlike in earlier years, our benefits are very clear right now to a lot of our partners so it's helping obviously with the cost of maintenance.

And on the chipset question there isn't anything about the rollout of the 2.0 chips that's going to drive unit cost up.

Does it sort of halt the decline though, maybe flatline for a while at some point? Is that the right way to think about it?

There are so many different generations of radios that go into cars that we have some OEMs are still selling radios from seven years ago. So I think you should think about unit cost as slowly declining over time.

Barton Crockett, FBR Capital Markets

I wanted to drill down a little bit more on the self-pay number. You know the net additions there were down 43% I think, year over year. They'd be about 14% of your full-year guidance, which is for -- not a 43% decline.

So I was wondering if you could explain why they were down so much this quarter and why you see the trend looking so much different over the next few quarters?

So I think there is heavy seasonality to the flow of our business that our first-quarter self-pay churn has always been a high point. And we still have a lot of that Christmas effect from the early days and it's migrated from people who had aftermarket radios who went into OEM vehicles. If you remember, Howard started in January 2006, a lot of people came on then and so their cycle dates haven't changed much over the years.

First quarter has always been a high churn quarter, as Jim said that it was ahead of our expectations, so we're off to a faster start for the year. Probably despite the fact it was above our expectations, it probably took a little bit of a hit from the slow in auto sales in the quarter turnover of all kinds of vehicles slow down not just new vehicles, but used vehicle sales were slower. So just a whole bunch of things. But as we look at it we think it's a great start to the year and we remain very confident on the guidance.

If I could ask another question here. We've done some survey work that would say that a lot of Sirius subscribers in our survey 64% are using Pandora. Pandora's reporting that they're seeing a big increase in people using the service in the car as the integration with the car improves.

What do you see about the Sirius subscribers using Pandora now. Are they more likely to cancel is there any churn impact or not?

You know I have to tell you, I look at this one -- this is maybe a question I only worry about every week or every day, right? We go through a pretty thorough analysis at least twice a month on reason codes for churn and exactly what's going on there, and, Barton, I have to tell you, by and large for us it hasn't changed.

The majority of the churn we see, and I said it publicly and I'm going to say it again, are going back to FM radio, going back to terrestrial radio. Obviously when you look at the Pandora listening numbers, they are clearly increasing, and that listenership has to be coming from somewhere. I think it's coming from terrestrial radio.

Were not seeing a meaningful impact that I can see on our business today from streaming. That doesn't mean we won't in the future, but today we just don't see it

I think the other thing Barton is that there's plenty of information out there from the music industry, from radio industry that would suggest that the pie of listening is actually expanding. And so, there was a day when people used to walk around with transistor radios and they went away for a long time and they're effectively back with smart phones.

So you've got more listening to the aggregate of satellite radio, AM/FM radio, Pandora-like services, Spotify-like services than you've seen before and we can't, at this point in time, find the effect in our results.

Than if I could just squeeze in one other question. On the share repurchase potential and your leverage, if you guys were to move to your leverage target of 4X by the end of this year, you could free up between free cash flow and borrowing capacity over $3 billion to do share repurchase or other capital returns to shareholders.

Could you talk about your appetite to do something at that level of magnitude, which could require looking at your repurchase authorization and adjusting that?

We have the program that we have. I don't disagree with your math, but if we chose to use all of the leverage and all of the cash flow in that way that it is certainly mathematically possible that we would do $3 billion.

We have $1.7 billion remaining on our existing authorization. We care about how we use the shareholder's money. We think we'll be smart with how we do that, and once we get through that authorization we'll have a discussion with the board and consider what we might want to do in the future.

James Marsh, Piper Jaffray

Just a quick question on Agero here. Hoping to give us a little more granularity here.

Obviously the rate of growth looks pretty impressive, but I was hoping you talk a little bit about how you guys see the ultimate market size being there and just who do you expect to pay for the services? Is it OEM or is it consumers and do you expect that to shift over time? And do you think it's in the business to approach to size of your satellite business over time?

Just trying to get a big picture views on the market

So, this is Jim. First of all, I think we've given all the guidance that we're going to give right now for what we see in the next three years, which I think is pretty far out, okay?

How do I see it? It's a combination of both, James. I mean number one, and it's brand-new, and so we're still following what each and every OEM wants to do.

I think it will be a combination of what I call wholesale and retail, meaning that there will be certain features that some automakers build into their cars and want in their cars for as long as that car is on the road and will pay for it upfront. There will be other automakers who want to offer certain services but want them provided on a retail basis, as we do today with our audio service. So it's going to be a mix and a blend and frankly most of the players are still figuring out what they want to do and how they want to do it.

I have been very careful in my comments and I will again. This is a march not a sprint. Okay?

There is no, I'll be clear again, there is absolutely no doubt in my mind where the automakers are going. Everyone of them is evolving to a connected car, and every one of them will offer Connected Vehicle services of some type. And frankly, they all will have to remain competitive. Okay?

But the speed is unpredictable, and for those of you that followed our company for a long time, you know how long it takes to get technology seeded in a new car, and how long it takes to run through the several revolutions as they move through model year. So I'm really confident we're well-positioned. I'm confident in the guidance we've given you for the Connected Vehicle business this year and its growth potential over the next couple of years, and we're just going to keep our head down to keep working and we'll give you an update when appropriate

James Ratcliffe, Buckingham Research

Two, if I could. First of all, with a long-term question, but how do you think about making the service available in vehicles that might connected cars in terms of having a terrestrial wireless connection but might actually not have satellite radio installed? So, effectively, moving toward being an app without the associated SAC cost of the satellite hardware.

And secondly, can you give any granularity on how self-pay beat your expectations? Was it the churn turned out to be lower or you had better conversion rates or better install mix?

David, you can take the second one first.

So self-pay definitely better with a surprise on churn. We expected more non-pay and other voluntary churn than we saw in the quarter. And it was really excited about the improvements of those, especially given the higher car turnover we saw. So actually -- but for the improvements in non-pay in voluntary churn that car turnover might have pushed churn up.

It was a very strong performance for churn and it was nice to see the strong performance coming out of the conversion opportunities as well, so both new car conversions and subsequent owner conversions were at very strong levels in the quarter. So it's sort of a multiple front on our internal expectations.

And on your first question, I mean first, I think we get all hung up on the transport for the delivery of service and I think what's really important is the service. Okay? And so first and foremost I think it's content that's going to matter more than anything else has. As it has been for the last, at least 10 years I've been here.

That said, number one, I personally -- we're committed that customers can have our content anyway they want it. And if they want to just get it through an app, that's fine with us. The vast majority of our customers prefer to get it today through built-in satellite in the vehicle and I can tell you it's -- one of the reasons is because it's really easy to use and very convenient for them. As time rolls out, we'll see which way they get it and which way it goes.

I do think, James, you raise an important point that I think some of your colleagues don't see as clearly, and that is, I don't really expect a major shift. I believe automakers will be deploying built-in satellite broadcast technology in for many years to come. But those that choose not to, if they ever did, or vehicles in certain categories that chose not to, absolutely we will offer our product to those customers through streaming and, by the way, in those cases, there will be no SAC or no revenue share associated with that.

Ben Swinburne, Morgan Stanley

This is Brian on for Ben. I have a couple questions if I may.

Just a follow-up on the churn question earlier. You mentioned normally it's a seasonally high quarter and you put in a price increase, but churn was down year over year, so it sounds like that beat your expectations. Was there any change to your retention practices or how you went about retaining subs to generate that result?

No, there wasn't. We continue to do the same things we've been doing for a long time

And then it seems that self-pay gross adds, which isn't a metric you report, but it seems to imply they would have been down year over year, and I know in fourth quarter you mentioned there was a trend of customers trading in their cars earlier than you expected, which drove some re-classifications. Was that a factor in the quarter and could you help us at all quantify that trend?

When we look at this, the vehicle migrations sort of out of self-pay and into back into trials, whether they are paid or unpaid was at a pretty high level, and so we were very pleased with the kind of net result for the quarter. And you know, honestly, it's not a bad thing. I think about it relative to the wireless industry where people go in and swap out their phones.

For the most part on wireless that's a same day or same hour transaction where they swap one for another. And in our distribution, it's over an extended period of time, because they swap into something with a 3-month to 12-month trial depending on what brand they're in before they're back into that self-pay universe. So for the ones that are swapping into unpaid trials, which is most of the car manufacturers at this point, we count that as churn in the reported churn rate. But I think if you were to look at the effective rate through the migrations, that we're actually running solidly beneath the reported churn.

Kannan Venkateshwar, Barclays

One question I had is on the used car side. You guys have been guiding us with the numbers for the last two or three years, but it looks like that number is going at about $0.5 million a year, even though the base was growing. So from your perspective what gets that rate to actuate from where it is given the kind of opportunity that it is?

Well we've talked about this at various conferences over the last couple of years. When you look at car turnover profiles that (inaudible), and then you look at new car installations, you sort of have to look at average ownership and what the history of new cars has been.

We actually are in a little bit of a lull, if you will, back to what were the new car installations five and six years ago. They were sort of flattish going through the recession, even though our penetration rate was growing dramatically, right? So when they entered the recession and there were 16 million cars being sold in the country and then we sort of exited it and started to recover at 10 million cars that, our new car installations were about the same through that slide in auto sales and then really began to ramp up with the recovery.

So that same number of installations from sort of the 2008, 2009, 2010 period is what's rolling over now, and the fact that we're able to manifest the sharp increases that we are is really testimony to the great job that our team has done in building out the distribution infrastructure in the used car business. And so you know, as the volumes start to ramp up, which we expect in the next couple of years, that we'll stand to benefit from that in much the same way that the business benefited from the recovery in new car sales after 2010.

Is there a possibility that, over the next couple of years, because of this particular trend, your overall net add plan will actually start to accelerate again?

You know, we'll see.

Mike Pace, JPMorgan

Just a couple questions on capital structure. You recently provided security to the 5 1/4% notes, so is that security in collateral generally the same as your revolver and can you remind us what that collateral includes or does it exclude anything? And then if the rating agencies were to lower those ratings back down to double B for what ever reason, do those covenants come back or are they gone forever? And I have one follow-up.

No the covenants are gone forever and the collateral package is the same between the two. It's the general assets of the Company and it doesn't exclude anything in particular.

Then, Dave, you mentioned you still have a four times total leverage target. You also mentioned considering the high yield market at some point in the future. When you think about those funding needs, would you consider issuing new secured bonds perry with the 5 1/4%s? And, if so, how should we think about where you want secured leverage within that four times total leverage target?

Tapping secured debt capacity isn't high on our list of things to do. It's kind of like a rainy day fund. You like it when things are good in the market like they are now that our interest in tapping the capacity is not all that great.

Obviously we tapped it for the sake of getting rid of the restricted payment limitations in the 5 1/4%s and so that was in our mind a good trade for equity holders. Right now, we always consider the cost of different types of debt when we go to issue but I wouldn't place additional secured debt high on my list of things to do this year.

Jason Bazinet, Citi

As you guys know, there is a lot of concern about what the connected or what sort of the Pandora threat means and players like it. I was wondering if you guys have ever done any work on your existing customer base in this segment why they subscribe to Sirius?

In other words, is it for the proprietary content? Is easier to use? Is it because there are fewer ads? Is it because they're on a limited wireless data plan? Any sort of segmentation that maybe give us some color on why people subscribe?

Jason, this is Jim. Number one, obviously we do that quite a bit, okay. And by the way, the answer to your question from the point you listed is, yes.

I'm not inclined to share that data because I don't know what why that would be advantageous. What I will tell you is that breadth of content matters a lot. Okay? And that's why we spend what we spend, okay? And that's why we put the focus on it that we do.

To answer the very first question, do we look at it? Yes. We survey it a lot.

David, do you want to add anything?

You know we've had the same product for a long time. I think that over the history that the themes have been the same.

When people are going to pay to listen to the radio, they want something different and better than what they get in the free versions, and so one of those things is commercial free music. It's been a core tenant of the Company since the day, since before Scott, Jim and I got here and the diversity in the content we always thought was important. We thought it was important to be more than just music out there and then to have specialized content that connects with people.

We made investments in major brands with the awareness and attracted subscribers in the satellite radio. It's clear the investment in that branded content has paid off over the years and has left us with a really unique product offering that a lot of people are willing to pay for, and yet we continue to watch how tastes change and I think we've done a great job of keeping the content fresh and interesting to the listening public.

Just one other thing to add to that. If you look at, well not apples to oranges, but we complement in the video area when you look at lots of free video content all over the Internet everywhere I mean HBO or Netflix or anything else doesn't have premium content that people are paying for. So people can try lots of things for free, as long as our content remains premium at the level it is, lots of things will go on but our model [itself].

Very good. Thank you.

Thanks, everybody.