Sirius XM Holdings Inc (SIRI) 2016 Q2 法說會逐字稿

Good morning and welcome to SiriusXM's second quarter 2016 results conference call. Today's conference is being recorded. A question and answer session will be conducted following the presentation.

(Operator Instructions)

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

Thank you, and good morning everyone. Welcome to SiriusXM's second quarter 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'd 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 risks and uncertainties that could cause actual results to differ materially.

For more information about those 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 base compensation. I will now hand the call over to Jim Meyer.

Good morning. SiriusXM had an excellent second quarter that once again highlights broad demand for our easy to use well-priced content-rich service. We added 580,000 total net new subscribers. So far this year we have already increased our subscriber base by more than one million new subscribers.

Let me repeat that. We have added more than one million subscribers so far this year, are close to 6,000 per day. We ended the quarter with $30.6 million total subscribers, a figure that has never been higher. In fact I think you'll will find that we added more paid subscribers in the United States during the second quarter than any other public media company.

Our stable self-paid churn and new car conversion, coupled with a higher ARPU, are metrics of an extremely healthy business. The Company grew on all fronts during the second quarter and achieved record high revenues, adjusted EBITDA and free cash flow.

Consequently we are increasing our full-year guidance for all of these metrics and increasing guidance for net subscriber growth as well. While auto sales seem to have plateaued in the second quarter, they remain at very healthy levels with a 17.1 million SAR that was exactly in line with last year's second quarter.

Sales can't keep increasing forever, but honestly it's hard to complain about a $17 million SAR. While world news seems to get much more tumultuous every week, we generally see good economic conditions persisting for our business. SiriusXM is well-positioned to continue our success and achieve all of our increased 2016 operating and financial targets.

SiriusXM's relationships with OEMs as never been stronger. In fact earlier this month Fiat Chrysler named SiriusXM its supplier of the year among all electrical and interior suppliers, which is a very big category. We are very proud to receive this award.

Our penetration rate during the second quarter was about 73%, up from 72% in the second quarter of last year. We expect to be in about three quarters of all new cars sold in the US over the long run. But of course this can fluctuate with mix from one quarter to the next.

Our naval fleet continues to grow, hitting $88 million at the end of the second quarter. Over time our naval fleet should reach 180 million vehicles, which means more and more of those satellite equipped radios will be turning over in the used car market.

We believe about 29% of the used cars sold in the first half of this year were equipped with a factory installed satellite radio, up from 26% in the first half of last year. Used car penetration will increase each year as the fleet turns over, approaching our new car penetration rate over the long-term. We are targeting almost three million self-paid gross-add additions from used cars this year alone, and this will keep growing for years to come.

To address this opportunity, as you know we're building a robust infrastructure to offer more trials to used car buyers and convert those trialers into paying customers. More than 16,000 franchise dealers now offer trials on all used cars sold with satellite radio. We're also increasing our reach into independent dealers, where we now have more than 6,000 reporting relationships.

We continue to experiment in many other channels to discover the optimal way to reach all used car buyers, not just the ones buying through traditional dealerships. Behind the scenes at our Company, there is truly a frenzy of activity as we seek to capitalize on this huge and growing opportunity.

Our Service Lane program works and keeps getting bigger, now at almost 11,000 dealerships which perform about 50 million service transactions per year. We're also working to roll out similar programs to other aftermarket service and repair shops.

As I told you last quarter, we're collaborating with insurance companies and auto finance companies to offer trials to used car buyers as well. This is a particularly helpful way of reaching private car buyers who bypass dealerships. We are now live with two large insurance companies and are in talks with more, and we are working with banks and credit unions to make similar offers to used car buyers.

Adding trialers at all of these locations is more complex than just doing a handshake deal. There's a tremendous amount of IT work behind the scene to seamlessly absorb so much data. We're investing heavily in this and we're getting better at it all the time.

All of these efforts in the used car market help us constantly improve and refine our database of vehicle orders, which is truly unique asset that allows us to reach more and more car owners every year. While used cars will continue providing growth for years to come, we're also busy investing in our next-generation platform, SiriusXM 17, or as we move more toward launch, 360L, which is short for 360-degree listening.

360L is proceeding ahead and gaining traction with OEMs. I'm very pleased at the progress we are making building and deploying this platform. 360L breaks down the big barrier we live with today as a one-way broadcaster by integrating satellite radio with two-way cellular connectivity.

It lets us offer nonlinear content to our subscribers, such as customized music playlists, on-demand content and personalized recommendations based on the taste of our individual subscribers. But let me remind you, we will never make the SiriusXM interface difficult to use, even as we add additional features and functionality.

360 also vastly improves at a lower cost, our ability to manage customer relationship and billing and our ability to market to our subscribers and trialers in a personalized way. Much of this can even be conducted directly on the screen of the car. In short, 360L helps us offer more features to our subscribers, better understand their behavior and further remove friction in our relationship with them.

We now have several demonstration cars on the road nationwide with 360L technology and we are learning from real-world testing about what works and what doesn't work in this new environment. OEMs are rightfully private about their deployment plans here for competitive reasons, but I look forward to giving you more information about timing over the next year.

As the name implies 360L also means much tighter integration with our apps and other means of assessing our service outside of the car. Preferences will follow our subscribers seamlessly as they move between the car and other listening locations, like mobile and the home.

We are well along implementing a plan to use technology to improve every aspect of our business and all the processes we use to touch our subscribers and potential subscribers. We're also working hard on how the connected vehicle present us dramatically expanded sources of data, and we're building the analytical tools with which to best exploit this data.

The growth in vehicle connectivity presents an opportunity to grow our connected vehicle service business substantially. We are extremely hard at work here to help the OEMs to deliver new services. As I said in previous calls, we are going to continue expanding our footprint in CV services.

I'm pleased to announce today that in June SiriusXM executed a far-reaching agreement with Fiat Chrysler to develop end-to-end vehicle services for FCA's future vehicles. With FCA now joining Toyota, Lexus, Honda, Acura, Nissan Infiniti and other OEMs, our connected vehicle technology platform is poised to cover a substantial part of the audio industry.

This is not a business that ramps overnight, and the development cycle for cars is very long. This year we are building an unmatched platform and infrastructure, while becoming the system integrator of choice for OEMs.

Next year you will see many of these programs launch and a substantial increase in the number of vehicles available to consumers with our connected vehicle technology. Our next challenge in CV will be to innovate and drive the end-product and user experience with the OEMs to help grow this business long-term. At the risk of sounding like a broken record, all of this will be a march, not a sprint. But it's important to note this business, just like satellite radio, will scale very nicely.

Success with connected vehicle service not only promises new revenue and profit opportunities, but it importantly puts us in a great position to learn early as entertainment and infotainment technology transition in the vehicle over the next decade. You can see we are investing in the future.

But let's not forget why our subscribers pay us. We are easy to use and have great content. That is why we have more than 30 million subscribers, with a1,000 thousand more subscribing every day.

Our amazing variety of content is why people and families pay for radio, and we are always adding more content that we know our fans nationwide will appreciate, including Kenny Chesney's No Shoes Radio and the soon-to-be launched Garth Brooks Channel, which bring together all his music in one place on radio for the first time.

Both artists are deeply involved in their channels, curating the music and more. Kenny launched his channel with an intimate underground show at the Jersey shore. Garth just played Yankee Stadium, where his support for the channel could not be missed.

We also broadcast special events and moments that cannot be found on regular radio or offered by other streaming audio competitors. For instance we held a special town hall with the cast and creative team behind the award-winning musical Hamilton, hosted by Anderson Cooper from the stage of the Richard Rodgers Theater.

We produced a Prince tribute channel that we extended after hearing so much positive listener response. And we carry performances and interviews from Coachella, the popular music festival.

We are in the middle of our in-depth coverage of the political conventions. We had live coverage across half a dozen channels from the Republican convention in Cleveland last week, and our team of producers and hosts are now very busy in Philadelphia this week for the Democratic convention.

Live sports and sports talk are invaluable in attracting and maintaining subscribers. In just the recent three months we've carried the Masters, all of March Madness and the Final Four, Major League Baseball and NBA games for every team, including the NBA finals. The NFL draft, golf's US Open, the Kentucky Derby and several new shows in our PGA Tour radio channel. SiriusXM also launched a daily show about the growing world of E-Sports.

As we have mentioned a few times this year, it's important to note that most of our key content arrangements have now been extended on fixed economic terms through the end of the decade. We have built an unmatched content lineup and you can be sure we will invest to maintain that leadership.

So with all these investments in our business and new technology and platforms and new and renewed content, what's left? Well we ask ourselves every day what can we do better? What do we need to invest in or what could we buy? We will keep looking. But clearly we can also afford a continue returning capital to our shareholders.

The remarkable business model of SiriusXM provides for the growth I've talked about on today's call and the current generation of cash flow. It's really the best of both worlds. Investors love growth, and so do I. But we're also generating massive cash flows today, and this gives us a unique opportunity to steer our Company for the long road by investing in our business while still allowing us to reward our shareholders with a sizable buyback program.

In the first half of the year, we put about $1 billion in the hands of our shareholders by repurchasing approximately 261 million shares from the public markets. Our Board determines the appropriate course of action here, but I can tell you that we expect to have plenty of capacity to continue returning capital at similar levels for years to come.

We go into the back half of 2016 with great momentum. First-half results that we are proud of and increased financial and subscriber guidance for the full year.

We've got a great team focused on execution that once again delivered strong after-operating results and a Company that couldn't be more excited to be building such a valuable, unique and useful platform for consumers and OEMs alike. With that, let me turn it over to David.

Thanks, Jim. Good morning everyone, and thanks for participating today. Our second quarter results continue along the strong trajectory started in the first quarter of the year.

Revenue is up 10% year-over-year to $1.24 billion, and adjusted EBITDA is up 13% to $468 million, each record highs. Free cash flow is up 6% to $395 million. As Jim noted, we're off to a great start and are raising guidance across the board. I'm particularly pleased we're able to raise guidance without a tailwind from growing new car sales.

New car sales were flat in the quarter year-over-year, and with our penetration rate rising to 73% from 72% the prior year, the total number of SiriusXM enabled vehicles on the road rose 16% to more than 88 million vehicles. As a result of large fleet sales, new car trial starts fell 3% in the quarter, but 18% growth in used car trial starts more than offset that and fuelled a rise in total trial starts of 4%.

With the expansion of our dealer program to over 20,000 auto dealers, nearly 60% of SiriusXM enabled used vehicle sales have been reported to us and received a trial this year. When you add third-party list purchases, we are able to market to approximately 80% of previously owned SiriusXM enable vehicle sales.

The new and used car trial funnel at the end of the quarter was $8.9 million, the highest ever, and up from a $8.2 million at this time last year. Once again conversions of new car buyers remains our largest acquisition channel, but in the second quarter these represented slightly less than half of all self-paid gross additions this quarter at 48%.

Conversions of used car buyers has been growing rapidly and is expected to grow for many years to come. It accounted for 23% of self pay additions in the quarter. Including our win back and direct to self pay activities, total used car additions were 32% of our self-pay adds this quarter.

In the second quarter of the year we added 587,000 total net new subscribers to bring our total subscriber count to 30.6 million. On a self pay basis, we added 507,000 net new subscribers to bring our self pay count to 25.1 million. Our self pay churn rate in the quarter was 1.8%, up from 1.6% in the second quarter of 2015, which we called out as historically low at the time. The actual difference in churn for the quarter was 13 basis points.

Year-to-date, our churn rate is at the low end of our 1.8% to 2% range, review is our long-term range. Based on these strengths and what should be a good second half of the year, we are increasing our total subscriber guidance to approximately 1.7 million net adds for the full year and raising our guidance for self paid net subscriber additions to approximately 1.6 million.

Moving on to the financials, revenue in the quarter was up 10% to nearly $1.24 billion on the strength of our subscriber additions as well as growth in ARPU. ARPU in the quarter was $12.78, growing nearly 3% from $12.42 in the second quarter of 2015. Subscriber revenue overall increased 10%, while advertising turned in its 11th straight quarter of double-digit growth at 16%. Based off this performance, we now expect our full-year revenue to approach $5 billion in 2016.

Contribution margin in the quarter was 70.3%, flat compared to Q1 2016, but down 70 basis points versus the second quarter of last year due to higher music royalty rates, but still right in that 70% long-term range we have told you to expect. Adjusted EBITDA in the quarter totaled $468 million, up 13% over the prior year period, as we grew revenue faster than expenses, resulting in an adjusted EBITDA margin of 37.8% in the second quarter.

This was a 90 basis point expansion over the second quarter of 2015 despite higher music royalties and the step up in programming costs. In the second quarter we converted 84% of our adjusted EBITDA into free cash flow, which $395 million in the quarter, up 6%. We are increasing our guidance for full-year 2016 adjusted EBITDA to approximately $1.8 billion and now expect free cash flow to approach $1.5 billion.

In the second quarter we spent $403 million to repurchase 102 million shares, and over the past 12 months we repurchased 498 million shares for just over $1.9 billion. Our fully diluted share count in the second quarter declined 9.4% to just under 5 billion shares, from 5.5 billion shares in last year's second quarter.

Total debt now stands at $6.1 billion with no maturities until May 2020, leverage of 3.5-times trailing adjusted EBITDA. In May we raised $1 billion in tenure senior notes at 5 3/8. As a result we ended the quarter with $476 million in cash on hand, which we expect to normalize with our capital return program going forward, in addition to $1.7 billion available under our revolver.

This is plenty of liquidity to invest in the business, pursue strategic investments and continue strong returns of capital to shareholders. With that, let's open it up for questions.

Operator can we open it up for questions?

(Operator Instructions)

Benjamin Swinburne, Morgan Stanley.

Jim, you spent a lot of time in your prepared remarks talking about the initiatives you're putting in place to go after the used car market, and the numbers sort of speak for themselves that the strategy is certainly working. I'm wondering if you could talk about how your customer base is shifting, if at all, in terms of its programming appetite.

If you're doing things differently in terms of how you program the service as the customer base shifts towards more of a used car market, or does that customer base look a lot like your legacy customer base? For example I noticed you guys added a bunch more country music recently. So that's just a guess. But anything you're doing to sort of better serve that customer base as you learn more about them and it becomes a bigger piece of the overall pie. And then I have a follow-up for David.

So Ben, I think it's a great question. And right now our surveys don't show a huge difference in the listening behavior of Gen X as compared to the Baby Boomers. Okay? And really, you know, while everything I read, everyone's talking about millennials, that's not really what's impacting the shift as we've seen it now.

We really see a gradual shift over to Gen X. That said there's certainly content that Gen X wants that Baby Boomers aren't interested in and vice versa, and its a delicate balance for us, because I can tell you we dropped the 40s channel several months ago, and you would've thought no one would've cared and you can't believe how many cards and letters I got about that.

So we're very careful in that mix. You will certainly see more content added over time that we believe goes at the sweet spot of what's called the Generation X population, but we're certainly alienating the boomers that are out there. And I'm really comfortable we have a good vision here for what we want to do.

Ben, let me just add to that. I think that the shift from new cars to used cars is probably less a factor than just the general aging of the population, that used cars are in 80% of car owning households and new cars are in 60% of car owning households. So they're both penetrated so deeply I don't think there's going to be a big appetite change for content associated with distribution. I think it's more likely aging.

And one other point I want to make then so that nobody misquotes me, I'm not saying that we ignore millennials at all. We have plenty of content for millennials as well. It's just to your specific question about what's happening to the age of these buyers, it's much more today a Gen X, Baby Boomer kind of shift.

Makes sense. And then unrelated, David or Jim, I'm just wondering if you look at the market this year, dividend -- high-divided paying stocks have been big outperformers, which makes sense given where interest rates are.

Historically anyone associated with Liberty has not paid a dividend for tax efficiency issues or inefficiency issues. Any thoughts you might share on how you guys think about this, given your cash flow profile and given sort of the appetite in the market for yield? Anything new you'd want to share there?

I think number one, Ben, you've summed it up well. We're generating a tremendous amount of cash, which is a great quote, unquote problem to have. And we have aimed a great deal of that cash at buyback.

I think it's fair to say we look at everything. I think it's fair to say that we present to our Board many different options and many different things for them to consider. As you know this'll be a Board decision, and I think that's probably all I can add on right now on that. David, is there anything you want to add?

No.

Thank you, guys.

James Ratcliffe, Buckingham Research Group.

Morning. Thanks for taking the question. Two, if I could. First of all, any early commentary about the impact you've seen from the price increase you put through at the start of April? What sort of customer acceptance you've seen, the impact on churn and maybe how that compares to the last time you took up prices?

And secondly, if I'm reading it right the guidance sort of implies adjusted EBITDA is a percent of free cash flow and was up pretty significantly in the second half versus first half. Am I reading that right? If so what's driving that? Is there going to be a step down in CapEx, or it's just working Cap? Et cetera, thanks.

I'll take the first one and David will take the second one. Price increases are always -- you need -- what I've learned in this business, you need many, many, many months before you can truly understand their impact. So I would say it's much too early to comment on our most recent price increase. That said, that said, I was very pleased with our churn performance in the second quarter.

James, could you ask your second question again?

It looked to me like, if you read through guidance it implies that free cash flow conversion from EBITDA rises in the back half of the year versus the front half, and I'm wondering if there's anything to be read into that.

Nothing in particular. I think it's just sort of tweaking things. I think one of the factors is that by doing the bond issue we change timing of interest payments, because we had assumed that we'd be drawing under the revolver, right?

So there's a little bit of that in there, that subscriber receipts are sort of -- are up a little bit. So we've, you know, maybe we started, we were a little more conservative on the guidance for free cash flow at the beginning of the year. Things are just tightening up as we come into the end.

Great, thank you.

Kannan Venkateshwar, Barclays.

Thank you. Just a couple of questions. The first on, you know, there's obviously been the speculation around Pandora and Liberty's interest in Pandora. If you could just update us on how you view streaming platforms like Pandora and whether that thought process has evolved over the last year or so.

And the second is, you highlighted the connected cloud opportunity potentially going live next year. If you could quantify the scale of that in terms of economics and ARPUs, or any metrics that we could probably look at, that would be very useful. Thanks.

I think will take the Pandora subject all-in-one. Want to go up a little bit bigger than even the question you ask, and David can add anything he wants. Number one, in terms of what Liberty may or may not have said about Pandora, you need to ask Liberty. Okay?

And Greg Maffei certainly can answer directly any question you'd like to direct to him. I've been very, very I think clear about where I see us going in general, and that's number one, I've told you many times on every call, we look at everything. And we look at everything hard. We work our way through that.

You should assume we know an awful lot about Pandora, just like we know an awful lot about a lot of the other streaming companies that are out there. It is fair to say today there is zero impact on our business from streaming. Okay? We just don't see it.

I can tell you by and large again today when customers leave us, the vast majority of them are going back to terrestrial, in particular FM radio. That said also, and I think David has said it a couple times publicly, and it's happened to be something he and I both believe, of all the streaming models out there and companies out there, it's our guess that Pandora probably has the best chance of becoming profitable and probably has the most reasonable business model in that class. Okay?

Now that said, I really don't have any more comments on Pandora. Up until last night, everything I ever read about Pandora, including from the CEO and any other statements that I had seen said they were going to go it alone and execute their strategy on their own. I see last night that they publicly disclosed that they brought in another advisor. I have no idea what that means, and there's really just nothing else to say on this subject right now.

And then I guess, you know, connected car in terms of going live next year, in your second question, Kannan, that as we come into 2017 guidance, we will give some thought as to what more we can give you guys.

All right. Thank you.

Jessica Reif Cohen, BofA Merrill Lynch.

It's Jessica.

It's okay, we know who you are.

Jessica, we know you.

(Laughter).

Good. Thank you. One follow-up on the guidance, and then a couple of other things. It looks like the guidance implies lower margins in the second half -- EBITDA margins. Just wondering if there's anything, any kind of step up in programming or anything else that would dampen second half 2016?

I think second half does tend to be a little lower margin period for us generally. For a variety of reasons. There's generally more marketing that goes on in the Fall call volumes, pick up and you tend to have -- it's unusual for us to find OEM builds getting a little bit heavier, the programming costs go up a little bit as the NFL swings into its season.

And so I think it's actually a little bit of a rise in costs relative to sales, and a little bit of a decline in margins is common for us.

And then on I guess on 360L, not SXM 17, 360L. How will that expand the advertising opportunities via, will you shift from national to more local or targeted?

I think it's a great question, Jessica. I can tell you, it's funny, it's one we were debating yesterday. In terms of -- and so I don't think we're quite ready to answer you, but I think it'd be fair to ask us in another three to six months. To give you that, to give -- to answer that question.

It's definitely something were thinking about. Certainly we've been very focused on what you said in terms of, how do we improve the customer listening experience? And how do we improve the customer's -- the way the customer interacts with us from a service standpoint? And managing the subscriber lifecycle.

And so I don't see it as a big leap to go answer the question you asked, but we don't have a firm answer yet, to be clear.

And then just maybe a follow up on what you just said, Jim. Just maybe to you or Scott.

But you know a lot about what your customers like and you added a lot of programming, especially a lot of special events, the Prince pop-up channel, the election coverage, but you've also gone like deeper dive into genres, like country or whatever -- but many of the genres. What is the biggest driver do you think of customer usage?

Scott, do you want to answer that?

The biggest driver of customer usage.

Customer satisfaction, driving new [cars] or just keeping churn lower.

Well from a programming point of view, it's really a more diverse answer than just any one thing. As we all know, Howard has his large base of fans that continue to be even more vocal and more active, but if you look at with the election cycle, our news channels, which you'd expect, and the political channels are driving it and have literally lit up phone calls probably 12 to 18 hours a day on that.

And yet, to go back to something Jim mentioned earlier about different generations, when we broadcast live from Coachella or the Ultra Music Festival, we can have a channel like BPM or whatever channel will be playing the Coachella event, go right of the chart as one of the more popular channels based on the content. So it really varies both by what our broadcasting is and to be honest with the demo and individual subscriber is a fan of.

And Jessica also in general if you look, you can -- in the music area in particular -- you can get a good look at what we think because clearly we're adding more country. Okay? And today quite candidly, I don't think there's any hotter than that out there right now.

And you know, Jim touched on it to emphasize, I mean the Garth Brooks catalog, not only is it one if not the preeminent country catalog, it's probably the only catalog that is completely and 100% controlled and owned by the artist. So we're excited about the creativity that can come out of the channel.

Great. Thank you.

Amy Yong, Macquarie Securities.

Thanks. Good morning. You mentioned new satellite infrastructure in SXM 17, can you just remind us what the CapEx spend is for the next few years? Is 2016 a peak CapEx year? And then secondly, I know it's small but can you update us on SiriusXM Canada and what that might do to cash flow for next year? Thank you.

Sure. CapEx that we -- you know, we're close to wrapping up the procurement for the build of the next two satellites to replace XM 3 and 4, and they'll go up in 2019 and 2020. The build should get started this fall. What we've said is that over sort of that three to four year time frame, you'll spread about $300 million per satellite or $600 million in total, sort of over the, you know, call it like a 3 1/2 year build period.

This year won't be a peak for CapEx. I think that as the -- there will be a little bit of payments on the satellite program this year. And then I think as you go into the next couple of years you'll probably reach peak. I haven't looked at the schedule yet, but I think it'll probably be an 2018 would be the peak.

On Canada the process is moving along there. The Company has still not heard back from the Canadian regulatory organization, it's called the CRTC, that needs to review the application and ask questions. We do anticipate we'll hear from them soon. That the Company has filed its application with the courts up in Canada for what they call the interim order.

Then it's a step towards getting approval for the -- I think it's called a plan of amalgamation. We expect a shareholder vote on August 30. And hopefully all goes well there, and then when we come out to -- once we have a view of the transaction as we formulate guidance for 2017, we'll incorporate Canada into it.

Perfect. Thank you.

Barton Crockett, FBR Capital Markets.

Okay. Thanks for taking the question. I had a question that kind of involves the relationship between you and your controlling shareholder, Liberty. This is in the context of Liberty talking relatively consistently about a possibility in the future of them seeking to streamline their structure by combining Liberty Sirius and Sirius.

And you know one of the arguments they make is that their stock of Liberty Sirius trades at a discount because Sirius does share repurchase and Liberty Sirius doesn't, so kind of a mechanical differential.

Given the fact that you guys might be asked to consider some type of combination at some point in the future with them, and you'll have to have a view on the value of Liberty Sirius, which essentially is controlling you guys. I was wondering if you had any thoughts about that argument that share repurchase differential is one explanation for the discount to the sum of the parts at Liberty Sirius.

So let me take it, and then David you can answer anything you want. First and foremost, as I said many times and I'll -- there is just zero -- the Liberty Sirius relationship today works just great. And by that I mean there just is no drama in it. Okay?

And as you know, Liberty is approaching 2/3 ownership of the Company. They've been on our Board I think for over eight years now. And I can't think of one operating decision that we've had frankly any conflict over during that time. Me, as a CEO of the Company, has zero issue working with Liberty and working for Greg Maffei as Chairman of the Company.

That said, number two -- maybe this is a little controversy. But I don't really care much about what the price of Liberty SiriusXM stock is. I track the value of SiriusXM stock and that's what I'm working on. Why the discount exists and all that? I read everything you read. I frankly don't know. Okay?

And honestly, I'm not particularly worried about it. Lastly, our Board will deal at any time in absolutely the proper way with any formal proposal that Liberty would like to make on how they would want to move forward. It just doesn't exist today. And so all of this conversation is pure speculation, and frankly I just don't find it useful right now.

So, just my two cents. I've had this debate, Barton, with a couple of the guys over at Liberty about whether or not our stock buyback program, the absence of a buyback program at Liberty either in its Media form or in it's tracker form didn't create some kind of a difference.

It's certainly possible, but I guess I don't really buy it as a difference, other than the obvious, which is that you have the opportunity to invest in one stock, which is a direct participation in sort of a known strategy and a well-defined capital return program, or you have the opportunity to invest indirectly in that play through another company, and there's always going to be a difference.

In terms of -- you know our buyback program, for as large as it is, because the stock is so liquid, that I think over the three years we've been doing this that we've bought back over $7 billion worth of stock and represented only something like 6% or 7% of the average daily trading volume. I don't think our repurchase mechanics, the buyback mechanics, are actually driving the stock price. I do believe the fact that we have the ability to return $2 billion a year to shareholders is something that's a material factor in the stock price.

And the fact is, that Liberty in its tracker form or in the Liberty Media form should enjoy the benefit of that through accreting ownership. So on the discount side, I'll leave that for you and other guys. But I don't think our buyback program is driving the discount.

The only thing I want to say, Barton, is there is just a ton of conversation around this. And I'll admit it, it can be interesting kinds of speculation. But in my opinion, the ball is in Liberty's court, and we will see what Liberty wants to.

Okay. That's great. I'll leave it there. Thank you, guys.

Brian Kraft, Deutsche Bank.

Hi, good morning. I wanted to ask two questions. First I had a follow-up on the streaming space and some of Jim's comments.

And Jim, do you think that SiriusXM's strategic position would actually be enhanced by owning a pure play streaming platform? In other words, would it be additive to the core business or does it make more sense for you to continue to build that integrated streaming capability in-house?

And then my other question was just on the satellite and transmission expenses. They were unusually high in the quarter. I was just curious if that was driven by one-time cost maybe related to RFP or if this is something that we should expect a remain elevated. Thank you.

Brian, the last first. We did have long lead parts coming out of our last round of satellite construction. You tend to get some of those things in place in case you have a failure.

And then in the new procurement process, we determined that we're unlikely to use those parts in the new construction, and so we've written them off and that's what -- it's a little less than $13 million. That's what's driving the bump in S&P. We have adjusted that -- we've had this happen before. I think it was five or six years ago. We had a write off of a spare satellite, we might have written off some spare parts at one point in the past. We tend to do -- fix that in the adjusted EBITDA.

And Brian going back to your question on streaming, I'll try to be as specific as I can be. I will start with, we're a very different Company today than we were three or four years ago. And by that, I mean we have significant resources and skill base now dedicated to streaming, particularly from a technology standpoint.

We brought an executive in who reports directly to me. We bought him in, I think he's been here now almost 3 years, 2 1/2 or three years, named Jim Cady. Jim runs all of our technology, all of our connected vehicle initiatives from a technology standpoint and obviously oversees our streaming initiatives. Prior to being here, Jim was a CEO [slacker]. So we feel like we have a really good base there. The first question you ask is, we don't need to acquire anybody to further our streaming vision as it relates to delivering streaming, as either I've described it in the 360L concept or as an adjunct or complement to our Sirius XM subscription.

What we kind of play around with, and what David and I and our Board looks at, is that radio in the United States is a $25 billion business and we're $5 billion of that, and the other $20 billion, for the vast majority of it, is a free service. And so we continue to look at opportunities as to how do we get -- should we think about getting a bigger piece of the pie? And is that really where we belong?

I want to be clear to you, in terms of changing or upgrading our product or our offer to consumers, I don't believe we need to make any kind of major acquisition of a streaming company to do that.

Okay, thank you. That's very helpful.

Eric Pan, JPMorgan.

Hello guys, thanks for squeezing me in. Couple of things. Stereo and theater cost has always been one of the main impediments in music streaming in the car from becoming more prevalent.

Now with AT&T's recent decision to sell unlimited cellular data subscriptions in the car for $40 a month, does that make internet music streaming a more real threat and perhaps forces you to move more aggressive into that space?

I would say no as a short answer. And then the slightly longer answer is, look, we understand technology and I think that cost per bit are likely to continue to decline for the rest of my lifetime and probably beyond. But I'm equally confident that the wireless carriers are driven by increasing average revenue per account.

And so, they've got this opportunity entering the vehicle, since they've sort of saturated the population, sort of body population with devices, that they've got this great new market in vehicle to get modems in. And as you continue drive down the cost of LTE modems that, giving those away as opposed to selling them is -- becomes a more viable strategy for them, then they're going to try and monetize. But at the end of the day, they'll do a lot of things to get it started.

Average revenue per account, the goal has got to be to drive it up, because otherwise the profitability of the wireless carrier is going to go the other way. So does it sort of reduce an impediment from a cost perspective that you know? Sure.

I'm not sure how much audio streaming really drives people's decision and sort of the consumption of bandwidth. I think video drives it a lot more. People --there are lots of -- generally today I think people don't use the data plans they buy but they still manage it pretty tightly. And I don't think that tension is going to go away anytime soon.

I just want to jump in here, because I just seem to think sometimes I'm not answering this clear enough. I want to try to be very clear here.

I can't say it any more clear. In the end, I don't care how customers listen to SiriusXM. I only care that they listen. And so if they want to listen on their phone, they want to listen through their Sonos device, they want to listen on their car radio, through satellite delivered, they want to listen through their car radio, through plugging their phone in or using Bluetooth with their phone, does not matter to me.

What matters to me is that they listen and that they pay. Okay? So to me, streaming is a transport. It is not a competition. And I think what's so unique about our business model, and I'm sorry to be so passionate about this; is it is not going to be either or. And it's not going to be either or, in my opinion, forever. Okay?

And the example I'll use to add you as evidence, look at all the new technology that is come to the vehicle in the last 20 years. Look at it all. It's billions of dollars, and yet 200 million people still listen to FM to terrestrial radio everyday. This stuff will coexist together.

What's so unique about our proposition, and why 360L is my opinion is so important, is that we're going to combine the best of both worlds. We're going to combine the power of a truly powerful one-way, very low cost, okay? One-to-many broadcast infrastructure with the power of two-way connectivity, and none of our competitors can do that. None.

And so I'm really excited. Frankly, everybody keeps asking me about how afraid of you of the connected vehicle and where is going. I'm not afraid of it all. In fact, I think it's going to be great for our business. Thank you.

Eric, any last question?

Yes, actually that's a great segue to the connected vehicle. Their segment revenue appears to have declined sequentially. What attributed to the decline and has your view on the segment changed much from since when you bought Agero?

Sorry, what declined?

The connected vehicle revenue segment.

I'm confused by that.

I don't know where you get that from.

Why don't we take that one on off-line?

Any other questions, Eric?

That is it. Thank you.

All right. Thank you for participating in today's call, and we will speak to you soon.