Sirius XM Holdings Inc (SIRI) 2015 Q4 法說會逐字稿

Good morning and welcome to the SiriusXM full-year and fourth-quarter 2015 results conference call. Today's conference is being recorded.

(Operator Instructions)

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

Thank you Chris, and good morning everyone. Welcome to SiriusXM's earnings conference call. Today Jim Meyer, our Chief Executive Officer, will be joined by David Frear, our Senior 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 those risks and uncertainties, please use 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 both -- 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. I will now hand the call over to Jim Meyer.

Thanks, Hooper. Good morning. 2015 was an incredible year for SiriusXM. We exceeded all of our original operational and financial goals, and we are predicting continued growth in subscribers and all of our financial metrics this year.

Last January we told you to expect $1.2 million net new subscribers. We actually delivered 2.3 million, taking our paying subscriber base to an all-time high of approximately 29.6 million. Lower than expected churn and higher auto sales were the primary drivers. And both new and used car conversions set new records for the fourth quarter and the full year.

We told you that we would do approximately $4.4 billion of revenue in 2015, and we actually reached nearly $4.6 billion. We told you we would attain $1.6 billion of adjusted EBITDA, and our final result was $1.66 billion. And we told you we would deliver $1.25 billion of free cash flow, and we exceeded that too, with $1.3 billion. Quite frankly, 2015 was a remarkable year. And we did what we said we would do, and more.

And this year, you should expect more of the same. We expect continued growth, even as we make substantial investments across many areas of our business. We expect to end 2016 with about 31 million subscribers and about $4.9 billion of revenue. We expect to produce about $1.78 billion of adjusted EBITDA and to convert the vast majority of that, or about $1.4 billion, to free cash flow. Continued share repurchases will mean that free cash flow per share should grow even faster.

While margin expansion in 2016 is certainly tougher because of the increased investments I will talk about in a moment, our business model remains very predictable and highly leverageable. We continue to produce industry-leading contribution margins. And we expect to resume margin growth in 2017. We are also extremely confident that we will produce 40%-plus margins over the long-term.

The key indicator of the importance of satellite radio to automakers and consumers is our penetration rate, the rate at which our product is incorporated into new cars. In 2015 this was up more than 7 points to 74.5% for the year.

In the fourth quarter we recorded our highest ever penetration rate of nearly 78%. Clearly, automakers find having satellite radio in new cars to be an extremely useful and valuable feature. You should assume a mid-70% penetration rate for many years to come.

We ended 2015 with 82 million enabled vehicles on the road, meaning that one-third of the car fleet in America has a factory-installed satellite radio. As the fleet of satellite radio-enabled cars will only continue to grow, our used car business becomes a more and more important channel for growth.

In 2015 we estimate that our radios were in 28% of the used cars that were sold, up from about 24% in 2014. Over time, as the fleet turns over, that 28% will continue growing to approach the new car penetration rate. This channel alone will yield a predictable arc of subscriber growth for many years to come.

To address this opportunity we are focused on lead generation and our ability to offer trials and convert trialers into paid subs in the used car business. We now offer used car trials at approximately 19,000 dealers.

We are also attacking the private sale arena with all kinds of new and innovative approaches, including affinity marking and working with disruptive startups. And our early work in the insurance segment has yielded some encouraging results. I'm very excited about our prospects for growing used car additions over the years to come.

The story of SiriusXM over the past few years has been simple: extreme focus and execution in our core business. We have avoided the common traps that businesses fall into when they become very successful and generate lots of excess cash. We have been very selective in our M&A strategy and very disciplined when it comes to spending our cash on new investments. This focus will remain a hallmark of our Company.

But that isn't to say we haven't been investing in our business. The investments we're making are substantial and designed to position our business for long-term success. We are investing to enhance our marketing capabilities through improved methods of identifying subscribers, differentiating their marketing treatment, driving more transactions online, and improving efficiency within our marketing and call center operations. We are committed to continuously improve our best-in-class direct marketing capability.

We are also investing in our connected vehicle business as we roll out new OEM programs, and in SXM17 to give us an unmatched technology program in future cars. We are developing a wide-band chip set that will create long-term value as we continue to optimize the use of our spectrum. And we are procuring new satellites over the coming years. And last, and certainly not least, we continue to invest to ensure our content lineup remains unmatched, not just now but well into the next decade.

I have stated many times that we will ensure we maintain our content leadership. In 2015 we continue to bring new, vibrant voices to radio and expanded our lineup of exclusive music and talk programming. We also brought our subscribers special moments that can be heard only on SiriusXM. And I don't need to tell you we renewed several big programming agreements that are at the core of our offering.

In December we signed a new far-reaching deal with Howard Stern that expands our relationship with him. Howard had a world of competitive choices to consider, but in the end he chose SiriusXM as the best creative home for his vast talents. Howard is at the top of his game and I am very pleased he will be with us exclusively for many years to come. He will continue to host his radio show for at least the next five years.

In addition we've secured the exclusive rights to all of his archives in audio and video for the next 12 years. The new agreement also provides for SiriusXM to offer Howard Stern video. We are working closely with Howard and his team in this area, and we will announce firm plans later this year.

We also extended our agreement with the NFL through the Super Bowl in 2022. SiriusXM subscribers will continue to get access to every NFL game plus our popular NFL radio channel. NFL content is now also available on demand, giving this content to our subscribers where and when they want it.

With the renewal of Howard and the NFL coupled with recent long-term renewals of Major League Baseball, the NBA, and Fox News, we have secured much of our content at a fixed rate for many years to come. We've hosted town halls with several presidential candidates. And interviews with candidates on SiriusXM themselves have become major news making events.

Last night we were on the ground with multiple channels and shows to cover Hillary Clinton's, I think, and Ted Cruz' close victory in the Iowa caucuses. Next week we will be in New Hampshire to give listeners every side of election 2016.

We also continue to launch special exclusive music programming with major stars, and continue to be a leading destination to discover new music. In November we announced the launch of Tom Petty Radio. Tom is using his own channel to debut entirely new songs he has written and recorded just for SiriusXM. And we recently launched a limited run 24/7 channel with Billy Joel featuring shows hosted by Billy himself.

SiriusXM continues its leadership in music discovery. When Adele launched her new album, her first interview in America took place at SiriusXM Studios where our subscribers asked her face-to-face as part of our -- or asked her questions face-to-face as part of our acclaimed Town Hall Series.

On the technology front we're making steady progress in the development of our SiriusXM 17 platform, And it continues to gain traction with automakers. Some of you may have seen our demonstration in Las Vegas at CES, which was very positively reviewed by analysts that saw it, I might add.

For those of you who don't know, SiriusXM 17 is our next-generation platform for audio services that combines the benefit of satellite radio with two-way LTE connectivity in future cars. It enables the seamless mixing and matching of satellite and IP-delivered content, allows us to obtain usage data from the radio in the car and lets users have a more personalized experience, including search and recommendations. All of this will make our world-class content more discoverable and accessible in the car while maintaining ease-of-use.

Today we were doing significant infield user testing and working with the engineering teams at various OEMs to implement SiriusXM 17. Believe me, we know better than anyone that changes in the OEM world take a long, long time. And to build up meaningful numbers in the fleet of enabled vehicles for SiriusXM 17 will take many years. But we are extremely pleased with the progress of SXM17 and excited to better understand our customers by having a return path from future cars.

We are also growing the footprint of our connected vehicle service business, which has become a leading provider of safety, security and convenience features across numerous automakers. Later today I am pleased to announce a new long-term agreement with Honda that will see SiriusXM-powered services going into more and more next-generation Honda and Acura branded cars. We are also in discussion with several additional large automakers about providing them connected vehicle services as well.

We expect the CV business to eventually be a significant additional revenue driver, but it will grow slowly near term as we develop new technology and build scale in this area. This business is extremely important because it allows us to get involved much earlier in the OEM product development cycle. The connected business also makes us more important to the automakers and will give us further insight into how consumers use their vehicles.

Change in the auto business, as I said earlier, can take a long time. An example. Seven or eight years ago the biggest discussion in the auto industry was about electric and hybrid vehicles. Yet even now electric and hybrid are less than 5% of all the vehicles built. Similarly, today there is much debate on the timing of autonomous vehicles, which are still years away. But the connected vehicle transition is already well underway. And that transition is clear.

I am confident that most vehicles built at the end of this decade will include embedded LTE modems. This capability will allow many new services, including collecting an unprecedented amount of data. Steering a clear path and strategy through this technology transition is a key initiative of ours.

Of course, it helps in delivering our excellent results that the economy, and particular auto sales, were humming along nicely in 2015. New auto sales were up 5% to $17.3 million in 2015. Current analyst expectations are that this will continue in 2016 with a slight increase in auto sales.

The key economic indicators we track continue to point to strong auto sales. But clearly due to recent events particularly in China, there's heightened uncertainty in the financial markets. We feel very good about our business climate. But as always, we will take a prudent and conservative approach.

In 2015, we continued capital returns as we purchase $2 billion of our stock from the public. That enabled us to take in about 524 million shares, or nearly 10% of the Company's outstanding shares. Since we started the share repurchase program three years ago, total repurchases have reached an astounding 1.8 billion shares for $6.5 billion. We clearly believe SiriusXM stock remains a great value. Yet we retain ample flexibility to continue large capital returns or the ability to make strategic acquisitions, even as we invest growing sums internally with some of the new initiatives I discussed earlier.

Our leverage remains modest. Our access to the capital markets remains strong. And we certainly have the capacity to increase that leverage should the right opportunities present themselves. I am looking forward to another year of great performance and growth at SiriusXM. And with that, I'll turn it over to David.

Thanks, Jim. Good morning everyone, and thanks for participating today. SiriusXM finished a very strong 2015 with excellent results.

Our subscriber performance was record-setting. In 2015 we added 2.3 million net new subscribers, 30% more than 2014, and the highest growth in net new subs since the two companies merged. Our subscriber base now sits at 29.6 million. Self-paid net subscriber adds for the year were nearly 1.8 million, another record high, and 23% growth over 2014, taking us to 24.3 million self-paying subscribers.

A 15-year high in auto sales combined with nearly 75% production penetration drove a record year for conversions of new car trials in 2015. Used car conversions grew by more than 20% in 2015, as sales of previously owned SiriusXM enabled vehicles grew and our network of participating dealers expanded to 19,000. Combined with continued growth in our win-back channel and solid performance from after-market sales, self-pay additions expanded more than 10% to more than 8.1 million.

Churn, on the other hand, grew just 7% over 2014. For the first time, vehicle turnover was the largest single component of churn. Vehicle turnover is the satellite radio equivalent of moves in the multi-channel video business.

And while we expect vehicle-related churn to continue rising as our subscriber base grows and as our vehicle fleet ages, existing subscribers are overwhelmingly likely to convert as they move through the trial period in their next car. Voluntary churn actually declined slightly in real numbers from 2014, while non-paid churn rates rose slightly as recoveries of failed credit cards were impaired by the regulatory changes imposed on us as the FCC's outbound telemarketing ruling back in the summer.

Over the last four years the rate of non-pay and voluntary churn combined together has remained fairly steady in the range of approximately 1.4% to 1.45%. Total churn was 1.8% for the full year, down 5 basis points from 2014, and coming in at the low end of the 1.8% to 2% range we see as our long-term trend. Churn in the fourth quarter was 1.88%, nearly equivalent with the churn rate of 1.85% in the fourth quarter of 2014.

Our full-year revenue of $4.6 billion, up 9% year over year, and adjusted EBITDA of $1.66 billion were at all-time highs. We set new fourth-quarter records with revenue of $1.2 billion and adjusted EBITDA of $396 million. Our record high full-year adjusted EBITDA margin totaled 36.2%, 120 basis points of expansion over 2014. This margin expansion came despite drags from increased music royalties, fourth-quarter litigation reserves and impairments of our outbound telemarketing efforts as a result of last summer's FCC decision on automated dialing systems.

Advertising revenue totaled $33 million in the fourth quarter, up nearly 20% year over year to a quarterly record due to higher per-spot pricing and a higher sell-through of available inventory. This brings our full-year advertising revenue growth to just over 21%, an acceleration of growth from 13% in 2014.

Advertisers are drawn to new talk channels like Fox Headline News 24/7 and celebrity hosts like Howard, Jenny McCarthy and Stephen K. Bannon. We have reached a scale that can't be ignored in the ad community, and our paid subscribers tend to be more highly engaged than typical free listeners. We could not be more pleased with the efforts of our ad sales team.

ARPU in the fourth quarter hit a record high of $12.75, up 2.1% over the fourth quarter of 2014, as a result of certain price increases, increases in the music recovery fee rate and growth in our advertising revenues. This took our full-year ARPU figure to $12.53, up 1.2%. We converted about 79% of our full-year EBITDA into free cash flow, reaching a record high of nearly $1.32 billion, up 14% over 2014. Free cash flow per diluted share climbed 23% to an all-time high of $0.242, up from $0.197 in the prior year.

Share buybacks, as Jim mentioned, totaled just over $2 billion in 2015 as we repurchased 524 million shares. In the fourth quarter we cut back share repurchases as the stock surged over $4 in late October. The dollar volume of stock repurchases in the fourth quarter fell one-third from Q3. Over the last couple of years we have seen price resistance in the stock above $4. Following our Q3 earnings call, the stock clearly broke through that resistance, trading above $4 and remaining there for the balance of the year.

As the new year opened, world stock markets went into retreat and our stock shed 10% of its market value. We think this is a bargain and we have jumped on it, buying about $200 million of stock in January. This brings the total capital return to shareholders through the end of January to about $6.7 billion, returning about 1.9 billion shares.

As Jim mentioned, leverage is still conservative at 3.3 times at year end, up from 3.1 at the end of 2014 and we continue to have plenty of liquidity. Our cash on hand totaled $112 million. And the undrawn capacity of our revolver totaled $1.4 billion.

For 2016 we've issued guidance for continued growth in subs, revenue, adjusted EBITDA and free cash flow. We are projecting net subscriber additions of approximately 1.4 million, revenue of approximately $4.9 billion, adjusted EBITDA of approximately $1.78 billion and free cash flow of approximately $1.4 billion.

The investments we're making in 2016 in content, marketing, and engineering design and development will be largely offset by efficiencies in SAC, satellite and transmission, and G&A resulting in stable EBITDA margins. We will exit 2016 with the bulk of these investments behind us and our major programming agreements in place through the end of the decade and beyond. Our EBITDA margin expansion will pick up again in 2017.

Also included in our 2016 investments is early spending associated with the beginning of our satellite replacement cycle. As you may know, we've spent the last two years expanding our Sirius ground repeater network. With this investment nearing completion, in the second quarter we will transition from our Gen-One Sirius satellites to the two new geo-Sirius satellites. In this summer we expect to complete the evaluation of RFPs for the two new replacements of our XM satellites. We expect to begin construction on these satellites later this year, with launch dates in late 2019 and 2020.

Total CapEx spending for 2016 should approach $200 million when factoring in the satellite spending as well as normal course investments in IT, chip sets, and the integration of our satellite and IP architectures to create SiriusXM 17, as well as the initial down payments on the XM 7 and 8 satellites.

We feel very good about the momentum of our business and are excited for the year ahead. Operator, let's open it up for questions.

(Operator Instructions)

Barton Crockett of FBR Capital Markets.

Great. Thanks for taking the question.

I wanted to ask about one of the expense lines, G&A, which was like $96 million in this quarter versus $60 million last year, much higher than we've seen really in any quarter for a while. What drove that? Is that a new level to model from, or was that just a one-time jump?

The litigation charge that I mentioned is reflected in that, Barton. When you look underneath, when you look beyond that there is really no change in G&A outside of the normal trends.

Just remind me, what was the litigation charge? How large was that?

The litigation charge combined with changes in insurance recoveries, depending on what period you are comparing to, is an effect of a little over $20 million.

Okay, all right. And the other thing is, your pretrial conversion rate was 39%, which was a little lower than the 40% we've seen in a couple of recent quarters. I know your penetration went up, but I was wondering if you could talk about what drove that decline and whether that looks like the new base to model from, from here?

I think there are two elements to it. Number one, I can tell you what it's not. What we do not see is an impact -- a competitive impact right now. That's certainly not what we are seeing.

But there are two things driving it. One, as we have driven our penetration, and think about it, we're almost 80% in the fourth quarter, We have gone deeper and deeper into lower and lower trim levels. That certainly has an impact on the number.

And then also quite candidly, the changes that were made in the outbound telemarketing laws this summer, as we reviewed those and absorbed those we made a lot of changes in our cadence, in the way we go about those things. And we haven't gotten back to where we were before those changes. We are deeply focused on that.

I would like to think we are going to get back to 40%. I think we'll probably going to be in the 38% to 40% range here for the foreseeable future.

Okay, great. And then one final question, stepping back a little bit.

Now that we have a decision out of the Copyright Royalty Board on the rates for essentially free streaming services like Pandora, do you guys think differently now about that as an area of possible focus for acquisitions? I know in the past you've been skeptical about the cost, but now that we know the cost structure does that change your thinking in any way?

Barton, I don't think there's anything about the webcaster decision that changes our thinking, relative merits of different business plans. The webcaster decision cost went down for us, they went up for our free competitors.

I'm still mystified as to why, as a subscription service, we should pay more for spinning the same song that one of the free services that doesn't monetize as well pays. But look, the decision is what it is. On the margin it's a plus for us, it's a negative for the free webcasters.

Barton, as I told you, and I said in my comments again, we look at everything. And we continue to look at everything. I completely agree with David, the CRB decision and the late, late last year doesn't really have any impact on those things. But you should assume we continue to look at everything.

Okay, great. Thanks for the time.

James Ratcliffe of Buckingham Research Group.

Good morning. Two, if I could.

First of all on churn, Dave you mentioned the FTC decision and the like. Is this the new normal in terms of your ability to engage in recovery or are there ways to get to those customers that just take some time?

Secondly, regarding leverage. You're about 3.3 turns, you talked before 4 in the past. Really, you decelerate the buyback a little, given the prices in 4Q.

How do we think about shareholder returns going forward, and if leverage is really the right way to think about this, or is it more in dollar terms? Thanks.

On the recovery, so it's -- we use a lot of outbound telemarketing. Jim just talked about it from the impact on conversion perspective. We use outbound telemarketing in collection efforts, on credit cards that don't clear when they first go through.

And the FCC put out a very expansive definition of what constitutes an automated dialing system last summer. They put it out with no notice. And it literally was effective the day it was released.

And so it has taken months for us to readjust our call center vendors, because they actually have to manually dial every single number now, it's like literally pushing buttons. And what you've got is, is that it's a different way for people working. And so it doesn't sound like a big deal. But the way their workday goes is radically different now.

And it is taking a while for the change in practices on the desktop to show up in the same kind of statistical results across hundreds of thousands of calls on both the conversion side as well as the collection side. And it's one of these gritty operational issues that you just have to slog through day after day after day after day.

We think we will get there. We think things will improve. I would say that we have filed a suit to overturn, or at least get re-reviewed the FCC's definition here. I think everybody in the industry looking at it thinks that it is overreaching, and we will see how it goes.

In terms of the leverage side of things. The 4 we've had out there as a target that we don't -- we've always indicated no rush to get there. And we are always looking for opportunities to acquire things. And one of the things we look to acquire when it's a bargain is our own stock. But there other things out there as well.

So I'm not inclined to drive our leverage to 4 times just on the back of a stock buyback, because I think it then limits our flexibility for dislocation in asset prices that we might be interested in acquiring. For a long time we talked about roughly a $2 billion a year capital return program. Maybe we'd be up a little bit from that, maybe we'll be down a little bit. I think that's what you can expect, absent us finding something cheaper to buy in the market.

Thank you.

I just want to make one point on the outbound telemarketing. And that is there are many, many elements that go into our marketing strategies. And we perform pretty damn good for most of those in the fourth quarter.

There is a reason why many direct marketers use telemarketing, and that's because it works. But I understand your question.

And I have tasked our marketing organization for the midterm and the long term, what other tools can we develop to supplement, and maybe one day take away some of the efforts that we put into that area with other types of marketing? And you should assume we are going to invest and keep working there.

Thank you.

Eric Pan from JPMorgan.

Hey, guys. Thanks for taking the question. A couple of questions on programming cost and margin.

How should we think about the step-up in programming cost this year from the Howard Stern and NFL renewal? And then you said margin expansion would be tough this year. How much can we expect margins compress, or could it remain stable? Thank you.

Eric we've given our guidance for EBITDA and revenues. So I think you've got the margin.

And as it relates, the effect of the NFL and the Howard contracts, you know we have a long-standing policy of not talking about major contracts. So we don't talk about the terms of programming context nor do we talk about the terms of our OEM contracts. So we will continue that. But certainly it is incorporated in our guidance, as well as our remarks for a return to margin expansion in 2017.

Okay. Perhaps I can have one more, then.

Within the used car market you guys had over 6 million used car trials last year. What should we expect in terms of the number of trials this year?

Let's see. I think that 20% expansion that I talked about is -- it's always hard for us to know this because it's a market where we don't -- there is not great visibility of vehicle turnover. So I know that Hooper hates it when I say we don't have a great grip on this, but it's really true.

The -- over time we think that the statistical behavior of turnover of the vehicle fleet will sort of make itself clear. But we are in way early days of that.

And this is a market -- the 6 million is probably going to -- certainly going to at least double in the course of the next few years. And will probably triple over the course of the next 10 years. And when you are talking about those kind of growth rates, it is tough to put a pin in a number in one year.

Got it. Thank you very much.

Jessica Reif Cohen of Bank of America Merrill Lynch.

Good morning. This is Peter Henderson, actually, for Jessica. Just a couple of questions.

As part of the new Howard Stern deal, you announced a plan for a new video offering. Can you provide any incremental thoughts around that product, perhaps an update on the potential for ancillary content, possible pricing, distribution? And also will it include an international component?

And quickly related to that, post the new chip set, Sirius' going to have an abundance of spectrum relative to the current 150-channel audio offering. Can you talk about the potential to offer video through that spectrum, and how you think about potentially selling the spectrum versus utilizing it yourself?

I'll answer both. I will start with Howard.

I was pretty deliberate in my remarks not to give you a lot of detail because we are still working on the detail. When we are ready, you will be the first to know. I'm pretty excited about it.

And for sure, it will include allowing our subscribers to access the video feed live of the Howard Stern show. We know from talking to a lot of our subscribers that is something they would like. And furthermore, many of them would like access to the library that goes back many, many, many years.

Obviously the creative experience for how this will be presented to customers will be curated and controlled by Howard. And we are in the process of working with him to make sure his vision is exactly what we want. But you will hear from us this year, that is for sure, on this one.

And again, I want to tell you I am really excited about this. This was kind of when we did the Howard Stern agreement, I couldn't be more pleased with where we are. And when Howard and his agent approached me this summer about -- I actually approached them first. And then when they came back and engaged on video, I'm really excited about that part. And we will have more to say later.

In terms of the spectrum, I think what should be really clear is, number one, we are not a seller of spectrum. That's not what we are in the business to do. We are in the business to use that spectrum.

Number two, we are investing today, today, in chip sets that won't even go in vehicles until towards the end of this decade. And the reason we are doing that, which we are calling wide-band radio, is so that in the next decade we have really what I would call almost complete flexibility to use that spectrum for whatever we choose, obviously within our license allows.

What does that mean? Very clearly we could use it for video. Very clearly we could use it to have 300 channels or more of audio. Very clearly we could use it to be a major part of the autonomous vehicle rolls-out over the next 10 or 15 years.

And I think the answer to your question is, number one, that spectrum is very important. Number two, we have taken the steps to make sure that that spectrum can be monetized by us in a very meaningful way, both from how we are working with our automakers and what we are investing in chip set technology now.

And the use for it? Not clear yet, but our goal is to put ourselves in a position to use it for whatever we think is best for our shareholders and our customers.

Thank you.

Ben Swinburne of Morgan Stanley.

Hi, good morning. It's Ryan Fitzgerald on for Ben.

First a quick one on new car penetration. Then I'd like to ask on the used channel as well.

On penetration, I think if I heard correctly you said that the new vehicle penetration was up to 80% in the quarter but we should model mid-70%s going forward? So I just (multiple speakers)

I think to be correct it was 78% or 78.2% or something like that. I'm sorry.

But it sounds like you expect that that was the peak and it should go back to the mid-70%s. Just curious what was going on there.

It's a mix issue. You have some automakers that are higher than that and some that are lower and sales mix affects the pen rate. Mid-70%s is what looks to us as the right number to be using at this point.

Okay, thanks. On the used channel, I don't know if I missed it but did you say what the used conversion rate was this quarter and has it maintained in the low 30%s? And any trends there?

And similarly on used, Jim, I think you mentioned that 28% of used transactions have factory installed radios. I was curious what percentage of those transactions do you think you have visibility into, or the ability to market to now, and how do you see that trending over the next couple of years? Thank you.

Used conversion rate is -- nothing changed about it. Still in the low 30%s. On the (technical difficulties) rate, it's a great question. It is one that goes back to what David answered James' question earlier on what are the trends.

Obviously the first issue for us is identifying how many of the cars we actually think have our technology in them. And then most importantly, finding those cars on a timely basis so that we can immediately start customers' trialers. And I can tell you, customers do a lot better when they are given a trial much earlier in their acquisition process than later. Put it that way, our conversion is better.

So I don't think I can give you the most accurate answer to that right now. But I can tell you we're working on making sure we can answer that more clearly.

Okay. And then do you think there could be a step function change in there?

By the way, I'll just -- even to show you how straightforward I am. If you call Hooper later and he has that clear answer, I would love to give it to you.

All right. I will let you know. Do think there could be a step function as you do some of these deals and get data from other companies, like insurance companies, et cetera? Could that number, whatever it is, move relatively quickly do you think?

Yes. One of the things that David and I have driven in our heads and changed, I think is a change in our culture in the Company. I know this sounds a little blasphemous, but we are less concerned about the conversion rate than we are the yield, how many actually total do we get out of the funnel, okay? And we are much more worried right now about how good can we drive the top of the funnel and how timely are we driving the top of the funnel.

Because our acquisition cost here is so low, there is almost -- if you think about it, if you go all the way down even in the single digits, we would still go after that business in terms of converging. Do you see what I'm saying? Because our acquisition cost is so low. We are looking at every way possible to drive the top of that funnel, irregardless of what it might do to the actual percent of conversion. And we are much more thinking about how do we get more subscribers out of it.

Sure, that makes more sense. Thank you.

Matthew Harrigan of Wunderlich Securities.

Thank you. SXM17, it looks like is also complemented by a lot of the progress you've made on the apps. I know you can do some really fun things at some point. If you're in an Uber, logging into your profile and all that.

But can you talk about your ambitions outside the car as well, or at least as a complementary, more fully consistent approach? Thank you.

Sure. Matthew, number one, thank you for pointing that out. I should've put that in my remarks.

And that is, for those of you that don't know, we are now consistently in the low to mid-four stars, 4.2, 4.5, on our app in both Google App in the Google environment and the -- or the Android environment and the Apple environment. I'm really pleased with that. Our team has done a really good job.

I can tell you I've driven them really hard, and it hasn't been free to get there. But I'm really pleased where we are.

I remain committed to one premise, and that is subscribers to our service should get our service however they want it. If they want to listen on the satellite, that's how they can get it. If they want to listen to it streamed on their phone, that's how they could get it. If they want to stream through their (sonas) or their pay TV -- I mean, or some other way in their home, all of those things are fine with me. And certainly we are spending a lot more -- investing a lot more money to make sure that our subscribers can get our service in a variety of ways in any way they want it.

So, yes. I would expect over time more and more of our subscribers to blend how they listen to SiriusXM. And by that I mean listening to it in the car and listening to it at home through, in many cases, a streamed experience. And if you go to the heart of SiriusXM 17 what it really says, we don't care how they listen to it, we only care that they listen.

Thanks, Jim.

Jason Bazinet of Citibank.

I just had one question regarding buybacks. Can you remind us at what point Liberty's ownership becomes a consideration in terms of the magnitude of buybacks that you will pursue?

There is no hard and fast number there, right? It's like, how much more hard control can you have. They went through 50% -- they're through 50%. I know we are not worried about 80% in tax consolidation because before we can get there we will have used up the NOLs. So there's not like an economic transfer from Sirius public shareholders to Liberty shareholders.

I think securities lawyers would probably tell you that as you approach 90% that you're going to want to -- just like you wouldn't want to buy somebody from 49% to 51% and give them hard control. I think securities lawyers might tell us you don't want to take somebody from 89% to 91% and let them do a squeeze-out merger. And that certainly is a long way away.

I think the bigger thing for us as we look out is what is the liquidity in the stock? Is there an active liquid public float? Are the daily trading values large enough so that investors can get in and out of the stock efficiently?

As long as we don't see some sort of liquidity discount working its way into the stock, I just don't know that there is a real reason to pay too much attention to the percentage.

Okay, thank you. And one follow-up. Is not being a full taxpayer a strategic priority for Sirius? Or as the NOLs run out, that is fine. You don't mind paying full freight on the taxes?

So look, as somebody said to me once a long time ago, there are worse things than paying taxes like not having the opportunity to pay taxes. And so the fact is, we have a very profitable business. The fact also is that we spent $12 billion in peak funding before we got to that very profitable business.

And now we are rapidly absorbing the NOLs. We certainly do all the things that you would expect a company do to optimize its tax position.

We've got fewer cards to play right now than others because we are quite clearly a US-based business. All our subscribers are here. We've got satellites that rain down signals here. And it's pretty clear where the revenues are generated from.

If we were to develop an international component to the business, that there then is the opportunity to begin to maybe to provide cross-border service arrangements and things like that to optimize your tax position. But as a US service, you've got to work within the US code.

Understood. Thank you very much.

Thank you for participating today.