Fox Corporation

Thank you, Janine, and good morning, everyone. Welcome to SiriusXM's third quarter earnings conference call.

Today, Jim Meyer, our Chief Executive Officer, will be joined by David Frear, our Executive Vice President and Chief Financial Officer.

At the conclusion of our prepared remarks, management will be glad to take your questions. Scott Greenstein, 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 determined, defined in the Private Securities and Litigation Reform Act of 1995. These and all forward-looking statements are based on management's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise.

Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about these risks and uncertainties, please view SiriusXM's SEC filings.

We advise listeners not to rely unduly upon 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.

I will now hand the call over to Jim Meyer.

Thank you for joining us today to discuss what we think was a very important quarter for our company, particularly around moves we had made in telematics and programming that will position SiriusXM very well for long-term growth.

Total third quarter revenue of $962 million climbed 11% from $867 million in the third quarter of 2012, once again setting a new record high. Driven by revenue growth of 11% and modest cash operating expense growth, adjusted EBITDA climbed by 21%, also to a new record high, of 260 -- $296 million in the third quarter, up from $245 million last year.

This represented an adjusted EBITDA margin of 30.7%, also a new record, and up just over 250 basis points from the prior year quarter. Free cash flow of $245 million climbed by 26% from last year's third quarter to set a new third quarter record.

Based on our strong growth year-to-date in revenue and our outlook for the fourth quarter, we have raised our 2013 revenue guidance to approximately $3.77 billion. We also just issued our initial outlook for 2014, showing continued revenue growth and sharp growth in adjusted EBITDA and margins.

In 2014, we anticipate total revenue of over $4 billion and adjusted EBITDA of approximately $1.38 billion, which works out to a 21% growth in adjusted EBITDA versus this year's guidance, and an expansion in our adjusted EBITDA margin to 34.5%.

We have also decided to increase the monthly price of our core service offering by $0.50 beginning January 1 to $14.99 per month. As always, you should note that many of our plans, such as our pay auto trials, our All Access plan, multi-radio subs and others, will not see any change in pricing.

While changing prices is a difficult decision, particularly the competitive audio entertainment market, we are confident that our subscribers see significant value on our service and that this modest change will not significantly impact retention next year.

Paid subscribers grew by 513,000 in the third quarter to nearly 25.6 million, which was the strongest third quarter performance since the merger of Sirius and XM in 2008. Even with an OEM contract change that will significantly reduce the number of paid trial subscribers in the fourth quarter, we believe we are on track to exceed our previous guidance for 1.5 million net adds.

Year-to-date, we have grown subscribers by nearly 1.7 million and, today, we're raising our overall net subscriber growth outlook to 1.6 million for the full year. Our self-pay subscriber base also set a post-merger record for the third quarter, growing by 373,000.

Year-to-date, we have grown our self-pay base by 1.1 million subscribers to a record high of 20.7 million. The 1.8% self-pay churn rate we saw in the third quarter was consistent with our expectations.

We have seen that our existing new car subscribers are turning over their vehicles sooner than what would have been predicted based on historical industry trends. As a result, our subscribers are migrating from 1 radio to another in a newer car.

This trend picked up in the third quarter and is ahead of our expectations. This trend of faster turnover is good for the business long term as it leads to increased opportunities for used car subscriptions, but we are now estimating self-pay net adds of approximately 1.5 million for 2013.

In the meantime, new car sales are up, trial starts are up and we continue to be bullish about continued growth in the business. U.S.

light vehicle sales remain strong and, consistent with our thinking, came in at a SAAR of 15.7 million in the third quarter. Consensus estimates still peg the full year at between 15.5 million and 15.6 million units.

Our new car penetration rate in the third quarter was a hair under 70%, up about 2 points from last year's third quarter and the highest quarterly penetration rate in the company's history. Year-to-date, our penetration rate is about 69% of new car sales.

Total vehicles in operation with Satellite Radio climbed to about 57 million at the end of the third quarter or about 24% of all the vehicles on the road in the United States. We continue to expect this number to nearly double in 5 years' time as automakers remain very committed to Satellite Radio.

Along those lines, we recently extended our agreement with Honda to the year 2020, and we are particularly excited that Honda will be significantly increasing penetration of Satellite Radio across its model lines. As Honda rolls out our next-generation SXM 2.0 architecture, it will make SiriusXM standard equipment on its most popular trim level, boosting Honda brand penetration by about 20 points.

We think this very visible commitment to Satellite Radio is noteworthy given the growing interest surrounding connected cars. Satellite Radio is a highly sought-after feature among car buyers, and it's here to stay.

Our SXM 2.0 architecture is now the platform of choice for automakers. We have been working many years to secure adoption of this architecture, which gives us the ability to deliver more content and functionality in new vehicles.

This effort is largely done on our end, although automakers' implementation schedules are varied, the platform investments we have made are now bearing fruit as several automakers are making the shift this year, and you'll be seeing more of these announcements in future years as well.

With this now accomplished, we are hard at work on our next platform. Because we're in both the satellite business and rely on the auto business, by definition, everything we do in these worlds requires a very long planning horizon.

The capabilities we're introducing with XM 2.0 are strong and will be the core of our business for many years. At the same time, however, we are engaged with automakers as we define our next-generation platform, one that will be delivered as cars with embedded connectivity become the standard.

In that future, with an embedded environment as the norm, a truly merged satellite and IP platform will provide the best possible experience for our subscribers, providing the ubiquity and efficiency of our broadcast network, with a robust 2-way capability. SiriusXM is uniquely positioned to develop and deliver this new platform in the years to come.

Now let's take a moment and talk about our important second owner business. We have more than 10,500 dealers nationwide participating in our program to offer buyers of satellite-equipped, preowned vehicles with a 3-month trial which, in turn, helps us convert those buyers into self-paying customers.

Our Service Lane program, recently launched, gives us the ability to offer a 2-month trial to customers of participating dealers who come in for a service, and we continue to gain dealer participation with this very new program. We are still on track to deliver more than 1.5 million self-pay gross additions for preowned vehicles this year.

Many of you have asked in our previous calls about conversion rates in the second owner category, and I will provide you a brief snapshot of where we are today. In those instances where we're able to offer used-car buyers a formal trial period, we are seeing excellent results.

Used car conversion rates today are in the low 30s, a great leading indicator of the demand for SiriusXM Radio. On the content side of our business, Scott and his team were very busy in the third quarter and has positioned us well for the future.

We signed long-term renewals in the third quarter to extend our programming agreements with both Fox and Major League Baseball. Our new agreement with Fox runs 6 years through August 2019 and also includes a substantial expansion of programming rights, including the addition of Fox Business and Fox News Talk.

SiriusXM is also now the exclusive home for Internet audio of the very popular Fox News channel. Our new Major League Baseball agreement secures broadcast rights through the 2021 season, grants us additional Spanish-language programming, and we gained the ability to now broadcast Major League content across the Sirius network as well as the XM network.

Our Major League Baseball extension is a great win for our subscribers and our business as well. We are very excited that these 2 great pieces of content our subscribers love will be in the SiriusXM family for many years to come.

Early this fall, we announced the most recent innovation to our exclusive top programming lineup with Business Radio, powered by the Wharton School. The 24/7 channel, which is scheduled to launch early next year, will provide business and management advice direct from the professors and alumni of the school, similar to what we did with medical experts at NYU for our Dr.

Radio channel. Subscriber-only events continue to provide unduplicated experience for our listeners in person and on air.

We broadcast exclusive Town Halls with stars as varied as Robin Williams, Pearl Jam and Tina Fey, and live concerts ranging from a club show with John Meyer to Metallica, rocking at Harlem's Apollo Theater. These one-of-a-kind channels and events reinforce our programming and subscriber experience.

We are also offering a significantly expanded package of Spanish-language contracts -- content to our subscribers, anchored by the talented Piolin, who brought his hugely popular morning program to SiriusXM this month. The package includes a variety of Spanish-language music, talk and sports in addition to select English language channels and is available for only $5.99 per month.

We are just kicking off our marketing efforts here, but they will include a 90-day free trial offer to fans on the Internet and across our smartphone app lineup as well. This Hispanic initiative is going to be a long-term effort to appeal to an important and rapidly growing segment of radio listeners.

Our highly leverageable cost structure means that we can aggressively and profitably pursue this market. You'll see more of this in the future.

Now a brief word about capital returns. During the third quarter, we repurchased 124 million shares of our common stock for $459 million, which brought our full year total repurchases to 477 million shares for $1.6 billion.

As you might have seen, our Board of Directors recently doubled our share repurchase authorization to $4 billion, $4 billion, giving us about $2.4 billion of total capacity as of the end of the third quarter. We also announced that we will use part of this increased authorization to repurchase $500 million of our stock directly from Liberty Media in 3 tranches, beginning next month.

We have obtained board approval to implement a new holding company structure and required notices have already been sent to warrant holders and NASDAQ. By having this structure in place, hopefully, by the end of next month, it will add another element of flexibility in the financial structure of the balance sheet.

Allowing for completion of announced debt redemption, our leverage as of the third quarter, was about 3x, and we anticipate this will be closer to 3.5x as we repurchase shares in the fourth quarter as well as close on the Agero transaction.

And speaking of Agero, let me give you a quick update on where we stand. The review of Agero by the Department of Justice had been in a holding pattern as we, like the rest of America, sat through the government shutdown.

Now with the government back to work, we still anticipate approval in time to allow for a fourth quarter close. We will give you more color on the telematics business over the next year.

And we remain very excited about the strategic benefits of the Agero acquisition and the broader opportunity long term in telematics.

In summary, the third quarter was exactly what we said it would be in terms of scalability and attractiveness of our model. SiriusXM continues to focus on our core strengths by delivering superior content that users are willing to pay for.

And by improving our leading position with the OEMs with new technology and services, we are able to monetize better than the competition, maintain our outstanding and leverageable cost structure and grow profitably over time. With growing free cash flow and tremendous discipline around using this cash to reward our shareholders, we think investors will love seeing improving free cash flow per share.

Now let me hand it over to David from some additional comments.

Thanks, Jim. I'll be brief, and we'll open it up for questions.

SiriusXM had its best quarter ever for the revenue, adjusted EBITDA and adjusted EBITDA margin. And with the help of an 83% free cash flow to adjusted EBITDA conversion ratio, we had our second best quarter ever for free cash flow.

Our results were are driven by the best third quarter for both total net additions and self-pay net additions since the merger of the 2 companies 5 years ago. Revenue in the quarter rose nearly 11% over the prior year to $962 million on 9.5% subscriber growth and 1.2% growth in ARPU.

We continue to see stable trends in new car conversion and self-pay churn. We have been pleasantly surprised by used car conversion rates this year, used car trials from dealer reports, and self-identified used-car buyers have seen conversion rates in the low 30% and gross additions from subsequent owners are on track to exceed 1.5 million for the year.

As Jim mentioned, with the strength of new car sales, we are raising guidance for total net subscriber addition, for the second time this year, from 1.5 million to 1.6 million while, at the same time, trimming self-pay net additions from 1.6 million to 1.5 million. With the continuing improvements in the economy and robust auto sales, we are seeing a larger number of subscribers selling their car and rotating back into the trial funnel.

We are also increasing revenue guidance for 2013 to approximately $3.77 billion. Contribution margin rose 70.4 -- arose to 70.4% in the quarter, up 3 basis points sequentially and 6 basis points over the prior year.

Fixed costs increased by 3.7%, but declined as a percentage of revenue from 26.2% to 24.5%. The increase in fixed cost was driven entirely by marketing cars associated with increased trial volumes and our increased subscriber base.

Other than a small increase in satellite and transmission cost, all other fixed costs actually declined from the prior year.

Subscriber acquisition costs increased 8.7% over the prior year, consistent with the general increase in auto sales, but declined from 15.4% of revenues to 15.1%. When you add it up, SiriusXM adjusted EBITDA margin rose to 30.7%, and we posted record adjusted EBITDA of $295.7 million in the quarter, up 21% over the prior year.

Free cash flow grew nearly 26% to $245 million for the quarter and 42% to $624 million for the 9 months. With the stock buyback now over $1.6 billion and some 477 million shares, free cash flow per share grew 31% to $0.039 in the quarter and 51% to $0.097 for the 9 months.

11% revenue growth, 21% EBITDA growth, 26% free cash flow growth and 31% free cash flow per share growth. It's a growth story that will continue in the fourth quarter.

We'll post our first $300 million adjusted EBITDA quarter in Q4 on the way to achieving our guidance of $1.14 billion in adjusted EBITDA, and we'll generate nearly that much in free cash flow on our way to hitting our $915 million guidance.

It was another great quarter from a balance sheet perspective. We tapped the market at opportune times in August and September, raising $1.2 billion in 7- and 8-year notes to retire our 8 3/4% notes and 7 5/8% notes.

In the last 15 months, we have effectively refinanced the entire balance sheet, pushing out maturities, easing or eliminating covenant restrictions and lowering the average cost of our debt from 9.2% to just 5.5%. Net of the retirement of the 7 5/8% notes, which will occur tomorrow, we have $3.2 billion in total debt, $500 million of which is a deep-in-the-money convert that comes out at the end of next year.

Net of this convert, our leverage is only 2.3x our 2013 EBITDA guidance. We are underlevered relative to our 3.5x target and have plenty of liquidity to pursue acquisitions and continue our stock buyback program.

As we announced 2 weeks ago and as Jim mentioned earlier, our board has approved a $2 billion increase to the stock buyback program. Through the first 9 months of this year, we have maintained the pace of roughly $500 million per quarter, finishing with cumulative repurchases of $1.6 billion, representing 477 million shares.

The outlook for our business continues to be strong. As Jim mentioned, we expect 2014 revenues to rise to over $4 billion, EBITDA to rise 21% to $1.38 billion and, with growing free cash flow and a shrinking share count, we continue to expect robust growth in free cash flow per share.

Operator, let's open it up for questions.

So just a couple of questions. The first was on the self-pay sub, could you help us understand the numbers a little bit in terms of the penetration rates and so on, and what drove the slight decline in terms of the guidance numbers there?

And also, in terms of the numbers going forward, how much of the guidance next year is driven by self-pay versus used -- versus OEM?

Okay. So on penetration rate, we're just a wee bit below 70% in terms of the incorporation rate, new car production.

I think as we mentioned a couple of times on the call, the change in self-pay subs is the result of migrations of existing subscribers as they turn over their cars, probably not a big surprise that since our subscribers over-index higher income that they turn their cars over faster than general industry trends. And so as it's turning out, it looks like they're moving them.

We anticipated that, but it looks like they're turning over cars at least, at this point in time, a little faster than what our expectations were. So effectively, it's like somebody upgrading to a new phone, right?

They're moving from 1 car to another, but remaining as subscribers. So we just have the sort of migration effect out of self-pay and into trials.

So that was the driver of the decline. Most of our self-pay subscribers come from auto sales, right?

So really, to your final question, I don't think there's much distinction there. In terms of our guidance, the guidance we, for 2014, were providing this time is the over $4 billion in revenue and the $1.38 billion in adjusted EBITDA.

Subscriber guidance will probably follow at the close of the year, as we traditionally tune up for the finish of the year, we look at the most recent forecast for auto sales and then finalize our marketing and retention plans for the year.

Yes, I just want to add one thing on top of that, I think David used the right word in his comments. Yes, we have tweaked basically our subscriber guidance for the year.

And we have tweaked it for 1 phenomena, which is it appears our subscribers are transitioning faster to newer cars, either because the economy's improving or because they're more affluent. I don't know which one.

And so we're really just seeing a shift in those subscribers when they go from their first relationship with us to their next new car, they're now moving from self-pay into our trial funnels, and you'll see our trial funnels look very strong.

Okay. And just one question on -- the comment on embedded cars in the IP platform, I mean is that, at some point in the future, the core part of your business model and the way your content gets delivered?

And what kind of economics does that represent?

Well, I think I was pretty clear on what I said which is, number one, there's no question in my mind the architecture of the future, long term, the vehicle will incorporate an embedded transporter, or call it, embedded modem. Which way, ultimately, customers get which part of their services, way too early to define.

But what I will clearly tell you is, again, I was strong in my comments there and I'll be strong again, the value of having our own private, ubiquitous, one-way, nationwide network and being able to combine it with a public 2-way LTE network, we think, gives us a very strong option or strong position going forward to optimize the entertainment experience.

For a long time, data traffic has shown severely asymmetric patterns, and we don't think that's going to change going forward. So having an interactive -- effectively, an interactive request channel through embedded modems combined with an ample downlink channel is, we think, a very valuable asset to have in the automotive fleet.

Two for me, if I could. One, on ARPU, can you talk about some of the factors giving you increased confidence in the ability to raise prices next year and whether the greater investments and a differentiated content provide greater ability for increases beyond '14?

And then secondly, on margins, so there's a good deal of margin expansion we've seen in recent years, the reset with your large OEM partner in 4Q gives additional tailwind. Given that and the announced rate hike, can you talk about where you might see opportunity to maybe reinvest some of the margin tailwinds into '14?

So I'll deal with the price increase and then David will take the rest. But I mean, price increases are never a happy thing or never easy to decide.

We have kind of gauged where we are. We've looked with our churn profile, where we are.

We look at the great value story that we believe we're bringing our customers. And we wouldn't have announced a price increase if we weren't confident that we could achieve that without turning over the applecart per se.

And then I remain confident in that. As far as where our price goes in the future, we will cross those bridges as we get there and we'll continue to make the same kind of assessment to try to judge the elasticity of our subscribers, clearly, what's going on in the economy at that time and what our value proposition is and optimize all 3.

But I feel comfortable with the price increase. By the way, our subscribers will be hearing about it in the next week.

And I think that's all I can say on that. David, can you take the rest?

Yes, sure. On the content differentiation, and as Jim has said, that we think long and hard about this, the content differentiation is pretty much the only reason why people are paying us at all because, as you know, all of the competitive services are free to the consumer.

So the content differentiation is important, and Scott's team continues to do an unbelievable job creating a unique and compelling experience for our subscribers. In terms of what are we going to do with the expanding margin, well, I think you should expect us to continue to invest the way that we have been all the way along that in our results so far, you've seen us make major investments in the development and deployment of IP services, of telematics, sort of continuous generational change in the SDARS technology and in sort of better intelligence to help us manage what is outside of the cellular carriers, one of the largest paid subscriber bases in the world, so -- and we'll continue to do that, and we believe we can continue to make those important investments in the future within the margin expansion and are very confident that we're investing at a strong level to drive future services and still be able to hit the 40% EBITDA margins that we've given you for long-term guidance.

I have a couple of questions. On capital returns, the $2.4 billion remaining, I was wondering if you could talk about the time frame and why wouldn't you accelerate next year, particularly now that you've announced a HoldCo structure?

Well, HoldCo is not quite there yet. But -- and as you know, we haven't had a history of talking specifically to time frame.

Although we have said many times that we have a 3.5x leverage target that if we look to that target, and look at everybody's model out there, so it gets you to the conclusion that we'll probably raise an additional $1 billion a year in net debt. But our free cash flow is clearly headed to $1 billion a year.

And so when you look at what amounts to $2 billion of potential funding, where is the company -- what's the company going to do with it? If we don't have something to buy well, from time to time, we could, I guess, let cash levels build.

I think it's likely that we'll choose to return that money to shareholders.

Great. And then just a couple more.

Just on the guidance, for the initial guidance of $1.3 billion for EBITDA for next year, I mean, initially, it just seems low given all of the trends that are in place and then combine that with the price increase. So I was just wondering if you could give us some color on just kind of the -- your thoughts on that.

Well, let's really talk about the price increase. You got to remember that if the price increase on the basic package and the -- and there are a lot of packages that aren't affected by the increase, so it's -- I think that what we've said is that, over time, you should expect to see gently rising sort of ARPU as we maybe tinker with price here and there and continue our efforts to upsell.

But at the same time, we continue to look at the introduction of lower-priced packages that may appeal to a more price-sensitive consumer. And at the end of the day, what we're really driving towards is optimizing the free cash flow of the business, so we're looking to drive the subscriber growth and -- which we believe will drive margins.

Which leads to my last question, perfect segue. On the Hispanic market, which is lower-priced, I was just wondering could you give us a sense of what you think that market opportunity is?

I mean, it just seems like a really interesting add-on. And I guess, part B to that question is, on some of the content renewals, you mentioned Fox and Major League Baseball.

Can you give a sense of what happens to those costs, the underlying costs?

David, do you want to do the content renewals first?

Yes. We've had a long-term trend statement where, on programming costs, we said that we expect the trend to be down, right, and reducing the programming costs.

And that, in fact, is exactly what Scott has delivered. He's taken a whole bunch of channels and content arrangements that were driving the $400 million a year in spending when we put the 2 companies together, and his team has driven that to now under $300 million.

We only have 1 premerger contract left, which is the NHL agreement, still isn't up until after the Stanley Cup in 2015. So I think that the process of continuously declining the programming cost is certainly going to abate in the next couple of years.

And then, like every other business that we're subject to inflationary increases from time to time, I don't think you will see us have the kind of pressure in content costs that you've seen on the video side.

Yes. I think I'll add 1 point to that.

We consciously, and I repeat, consciously, work with our programming partners for a longer-term agreement that, I think, is great for our company which gives us certainty on what our programming costs are going to be for these 2 major pieces of content over the next 6 and 7 years. I can tell you, I'm very happy with where we came out.

In terms of the Hispanic, Jessica, I only know a couple of things. Number one, it's a rising and growing percent of the population.

Number two, our data clearly shows us we're under-indexed. When we look at our conversion data, we look at our self-pay data, we're clearly under-indexed.

And that can only be from, first, from one conclusion, which is we don't have -- we didn't have the content necessary to successfully compete in this important segment. And so we very carefully -- and someone asked the question earlier about it, are you going to invest?

We're investing pretty heavily in the Hispanic community and the Hispanic tier in content. Piolin being a great example.

This a major morning star on -- that was on Hispanic terrestrial radio that's now exclusively on SiriusXM. And then, as you've seen in baseball, for instance, we now have -- we have the Spanish rights to the games.

And more and more and more, we continue to take an expansion of our content, call it, Hispanitizing it, meaning making it available in the Spanish-language as well as combining with unique and exclusive content to build, what I think, is a strong package. I want to caution you -- and I made my comment very deliberately so you can hold me accountable to it, this is a march, not a sprint, okay?

We are going to -- we haven't even gotten our marketing rolled out yet to know what we're even going to get through this in the next 6 months, so -- but what I can tell you is, we're going to stay at it and we're going to continue to learn and figure out, just like we've done in other important segments, and I'm not going to rest until we get our fair share of that business. That's what we deserve.

And I'm really excited about it because I think it's totally added to our business and not in any way predatory to our existing subscriber base. I also want to point out that I don't think Hispanic is the only place that this concept can work.

And so I think you're going to see us look at other niche, none -- that are single-digit, low double-digit parts of kind of the demographics out there where we can offer unique programming and mass market to that unique segment. And I'm pretty excited about that.

Scott, do you want to add anything?

Yes. One other thing, Jessica, I wanted to add, when David accurately mentioned about our programming costs and all that, I want to be really clear because sometimes there's questions about that.

It isn't either a charitable situation or anything else why our cost structure is what it is. The partners do exhaustive research, and they get great, great feedback for a variety of different reasons and often -- overlapping reasons from brand extensions in the car for a TV network to national calls, on what was a local show and other things.

And we actually have a couple of situations now where there are partners paying us, in some cases, significant money for content we want and they want the bandwidth to be on our platform. So we are in a unique position in the assets we offer versus a lot of other media companies to partners that come on our platform.

All right. Can I just follow up on what you just said?

So you -- can you just give us a sense of the magnitude of how much partners pay you in total?

No, I don't think we want to give any of that detail. I think that's just one way we're balancing our programming costs, though, just to Scott's point.

A couple of questions. One, I was wondering if you could provide any kind of rough quantification of the percentage of units that are entering trials that are existing subscribers, sort of quantifying these trial subs that are existing subs and are buying new cars?

And also, can you talk about what percentage of the trial base at this point represents used cars? And finally, can you just talk about how you're tracking according to your initial plan this year for used car unit growth?

So I'll take the easiest one first and that is, I'm real confident in our used car guidance for this year. We're moving on quite nicely.

David, I think you can comment on the other 2.

Yes. In terms of the proportion of our trials -- trial volume that represents sort of existing subscribers migrating through, I don't think that's a delineation we're going to provide at the time, and same thing with the trial inventory on used cars that -- probably best to just stay focused on the fact that we're seeing roughly 50% growth year-over-year in additions from the used car volumes.

David, maybe in that vein, on the first question, can you talk about maybe year-over-year, what kind of increase you've seen in the existing subs turning over as a percentage?

I don't have that number, honestly, off the top of my head. As we mentioned in the call, it's a little -- this is all sort of new, developing information, right?

We don't have any real history on it. And so, we're going through the learning curve for the first time.

My guess is, is that the behavior of this is going to change with economic cycles, right, and it's going to change as the complexion of the subscriber base changes. So what we're seeing now in our activity is most likely the behavior of people who were buying cars as we were moving into the recession and out of the early recovery of the recession now, presumably, those are higher-income people.

So this is just one of these things we're going to have to watch over time like a lot of the numbers you've seen from us over the years that we end up showing great statistical stability at the end of the day. And my guess is, just like the first couple of years when we weren't talking about used car conversion rates because we're seeing a lot of volatility month-to-month in what those rates were, and for the first time today, hear us coming out in saying, "Hey, we see those rates in the low 30%," and that's because we -- the numbers have sort of stabilized.

So we'll keep an eye on some of these other things. And as we feel that we have a better grip on the numbers, we see the statistical behavior stabilize a little bit, maybe we'll open the cupboard a little bit.

Yes, I think David is absolutely right. The key word he used there was this is a new phenomena for us that we've seen some acceleration on.

And I think the used car conversion rate compares [ph] is exactly right. I don't think we want to comment until we can -- until we're sure we know that what we're going to tell you is what we believe is right.

And I don't think we know. I agree with David, I don't know what that number is today.

Could I just ask one other, just a clarification to -- when someone is an existing subscriber, and they get a new car and that's a free-trial car, not a paid trial, are they counted as self-pay churn?

Yes. So I think the way -- look, I think the 1.8% continues to be a pretty good number because your next logical question would tend -- I know what you're going to ask is that, "Well, do you keep 100% of those guys when they migrate back to the trial?"

And of course, the answer is no. But when you're all done tracking it through, whether it rotates through as a paid trial or an unpaid trial and you look at the net retention, we think 1.8% is a fair representation of the -- of what happens after the migration effect of people moving from 1 car to another.

And so it continues to be, I think, a good, long-term planning number for you to use.

Just a couple of structural questions. You mentioned a few items that are still pending to complete the HoldCo structure.

I guess, is there anything else that has to get done? And if so, what?

And then as far as the Agero acquisition goes, can you just talk about how you'll fund that, where that would sit in the capital structure if HoldCo has put in place prior to that? And then just a follow-up or 2.

So with HoldCo, it is just paperwork at this point, paperwork and time. We have to provide notices to people and we have to wait for periods of time.

So I think you should see HoldCo in place in the next few weeks. We obviously don't have a clearance yet from the government to close if we close the HoldCo or close Agero prior to HoldCo's formation.

Obviously, we'd be funding it out of the operating company. If we closed it after HoldCo is formed, it's possible that we could acquire it or finance it up there.

But if I had to pick the odds today, the odds today is that we'll draw down on our $1.25 billion bank facility in order to initially fund the acquisition. And we'll look opportunistically at the markets and maybe turn that money out.

And then I think you said pro forma for Agero -- and I thought you said -- and stock buybacks in the fourth quarter, your leverage ratio will be around 3.5x. How does that work?

And when you first close Agero, will you be under the 3.5x? And obviously, this is just in the context of 3.5x covenant in one of your bonds.

So I think that we have a couple of things, right? So in the 5 inter quarters, right, that have the 3.5x research and they also had a builder, and then we also have HoldCo.

So between the builder and HoldCo, we have plenty of flexibility that, if we choose to continue buying back at $5.5 million a quarter, that I don't see any particular problem with doing that.

Great. And then just one more.

As far as the stock buybacks that you've agreed to do with Liberty, I think the timing and the amounts are pretty clear. But can you remind us who has what options to accelerate that?

And how should we think about that from your end?

I'm going to reference you back to kind of the 8-K on the description of the options. But I think, for the most part, you should think of it as we'll do purchases.

And this point, you should anticipate purchases in November, January and April. And Mike, just to finish on the 3.5x, I think the way everybody ought to be looking at our leverage at this point is not as a convert.

And certainly it would be my intention to manage to a net of the convert leverage that with it so deep in the money, the odds are overwhelmingly likely that it turns into equity in December of '14. And like everybody talks about, we're seeing historically low rates in the high-yield market.

And knowing that we're going to maintain a 3.5x ratio for the long term, we -- over the next couple of quarters, we may very well look to effectively prefund the replenishment of the deleveraging that's going to occur. So if you see us bump above -- up above 3.5x, assuming nothing more than just sort of managing the fact that we know we have a big slug that we're going to be raising -- need to replace next December.

To the questions. First, is there more upside in terms of penetration similar to the Honda revised agreement you described earlier?

And to the extent that you have had the wind at your back with auto sales reaching a cyclical peak or at least a more normalized peak, are there other opportunities that are sufficient to sustain this area of growth? Is it the used car market, the Spanish language, IP or what are the strategic priorities you feel are most important in that regard?

Well, I think -- this is Jim. I think, a couple of things, Jim.

Thanks for answering the question on Honda because I do think the Honda announcement was a pretty important announcement that we made yesterday in terms of penetration, more towards the confidence in automakers with Satellite Radio. Is there some more?

There's some tweaking, okay, around the penetration rate. But I think 70% continues to be a very strong and good benchmark.

In terms of growth, I think we've been very clear, we continue to put major emphasis on the second owner business and drive that hard. Obviously then, we are looking at other initiatives like Hispanic to supplement around that with additional growth.

And I think you got it. I think those are the 2 big ones that we're concentrating on right now for 2014.

Thank you.

Thank you, everybody.