Sirius XM Holdings Inc. (SIRI) Q3 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the SiriusXM Radio's Third Quarter 2012 Earnings Conference Call. Today's conference is being recorded [Operator Instructions] At this time, I'd like to turn the call over to Hooper Stevens, Vice President, Investor Relations and Finance. Mr. Stevens, please go ahead.

Thank you, Robin, and good morning, everyone. Welcome to SiriusXM's Earnings Conference Call. Today, Mel Karmazin, 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. Jim Meyer, President, Operations and Sales; and Scott Greenstein, President and Chief Content Officer, will be also 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 view SiriusXM's SEC filings. We advise listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I would like to advise our listeners that today's results will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation and certain purchase price accounting adjustments. With that, I will now hand the call over to Mel.

SiriusXM had a great third quarter. Let me tell you how great. We ended the quarter with a record number of subscribers. We had a record net adds for a third quarter since the merger, record adjusted EBITDA, record revenue, highest quarterly ARPU, best adjusted EBITDA margin for a third quarter. Also, the lowest quarter programming expenditures since 2005, while at the same time, offering more and better content than at any time in our history. Churn and conversion were within our normal ranges. Not only did we have a record third quarter free cash flow, but we have generated more free cash flow in the first 9 months than in the full year for every year in the history of satellite radio. On top of this, we also have less debt than at any time since the merger. For me, all that adds up to a great third quarter. The strong subscriber performance in the third quarter and continued outlook for growth also enabled us to raise our subscriber guidance for the third time this year. Our third quarter results further demonstrate that with the right product, the right business model and strong execution, our company can deliver exceptional results and growth for our shareholders. We grow subscribers, grow revenue and by holding a tight line on expenses, we produced robust growth in adjusted EBITDA and free cash flow, which we used to benefit shareholders. We are performing very well in a tepid economic climate and within an audio entertainment business that has more competitiveness today than it has ever been. We grew net subscribers by 446,000 in the third quarter, a 34% increase in subscriber growth from last year's third quarter. Year-to-date, we have added nearly 1.5 million net new subscribers, 27% more subscribers than we added in the first 9 months of 2011. We are very confident that we will meet or exceed our new subscriber guidance for 2012 of 1.8 million net additions. We believe that this is still conservative. The fourth quarter should be another good one for SiriusXM. The strong subscriber performance was certainly assisted by continued growth in auto sales. The September SAAR of approximately 14.9 million was up 14% year-over-year and was the highest monthly number since March of 2008. For the third quarter, SAAR, almost 14.5 million, was up 15% year-over-year and up 2% sequentially from Q2 and represented the highest quarterly SAAR figure since the first quarter of 2008 before the recession. For this year, our SAAR expectation remains at 14.3 million, about where it has been since the spring, which represents about 13% growth over 2011. Next year, analysts expect auto sales of 14.9 million, which represent growth of about 4% over the estimate for this year. We will further augment that growth with our initiatives in the used car market. All very good news for our company. We should end this year with satellite-enabled vehicles in operation of 49.2 million, up 22% from the 40.2 million vehicles in operation at the end of 2011. In 2013, based on current auto sales and penetration estimates, we should end the year with just under 59 million vehicles in operation or growth of about 19%. Follow these trends out a few more years, and the company should have nearly 100 million satellite radio-enabled vehicles in operation in 2017. These growing numbers of satellite radio-enabled vehicles on the road provide the foundation of which we will grow SiriusXM in both our new and used car businesses. As we told you earlier this year, we expect approximately 1 million gross additions from the used car channel in 2012. We believe this number will prove to be conservative. We are confident the number will grow meaningfully in 2013 as well. We continue to increase the number of franchised and independent car dealerships participating in our trial program, and this number now stands at over 7,000 dealerships at the end of the third quarter, up 151% from over 2,800 at the end of the third quarter of 2011. Today, 67% of the new cars sold come with a trial subscription to SiriusXM, which demonstrates we have a big upside in the used car market, which is even larger than the new car market in terms of total vehicle turnover. The long-term opportunity for SiriusXM, with second and even third owners of these enabled vehicles for the company is huge. Because of the 9% growth in our subscriber base over the past year to 23.4 million subscribers, and because of ARPU that was up 4% year-over-year, we were able to drive revenue higher by 14% to $867 million, the largest quarterly revenue number in the history of satellite radio. This is an acceleration from 11% revenue growth in the first quarter and 13% revenue growth in the second quarter. Subscriber growth remains the key focus of our efforts to grow the business, and the price increase we implemented on January 1 is also benefiting revenue growth. We remain very confident of meeting or exceeding our full year guidance of $3.4 billion in revenue. This price change should continue adding revenue to the company into next year. We are also moving ahead on other initiatives to drive ARPU, such as increasing sales of our premium package an All Access plan and promoting our Internet streaming add-on. On the expense side, cash operating expense growth was well below the growth of third quarter revenue, with fixed costs up just 3%. For the third quarter, 96% of the increases in cash operating expenses was directly related to our revenue and subscriber growth. Given the high contribution margins of our business and tight focus on controlling fixed costs by growing revenue faster than expenses, we were able to expand adjusted EBITDA margins to the highest level in the history of satellite radio. We think SiriusXM's margins can go much higher from here. In the third quarter, our adjusted EBITDA margin reached 28%, up 230 basis points year-over-year. On a 9-month basis, the adjusted EBITDA margin this year stands at 27%, which is up from 25% in the first 9 months of 2011. We continue to target 40% long-term adjusted EBITDA margins as the company matures. The improved margin produced adjusted EBITDA in the third quarter of $245 million. This is the largest amount of adjusted EBITDA ever recorded in a single quarter in the history of SiriusXM, before or after the merger, and it represents growth of 24% from the prior year's third quarter. We remain very confident about achieving our full year target of $900 million in adjusted EBITDA. Free cash flow grew 159% year-over-year to $195 million in the third quarter, up from $75 million in the same period last year. Since there can often be swings in this metric in a given quarter, it is useful to look at it over a longer period of time. Year-to-date, the company has produced $440 million of free cash flow, and that is up 96% from the $224 million produced during the first 9 months of 2011. This year-to-date figure of $440 million is bigger than any single full year in the history of satellite radio, and we are confident that we will have a strong fourth quarter of free cash flow to add to this number. We are also confident in achieving our full year guidance of $700 million in free cash flow. We have been using this free cash flow and our growing cash balance through the third quarter to reduce some of the highest cost debt on our balance sheet. In the third quarter, we called and redeemed over $868 million, of our 13% senior notes due in 2013 and our 9.75% secured notes due in 2015, replacing that debt with $400 million of unsecured 10-year paper at an unbelievably low rate for us of 5.25%. This was a very smart move and is very much in our shareholders' best interest. SiriusXM has no debt maturing until December of 2014, and this is a convertible note that is now very solidly in the money. With no need to spend money on maturing debt in the next couple of years, no big investments needed in satellites for years to come and with growing free cash flow, SiriusXM is in a fantastic position to continue to make long-term investments in our business, look at selected opportunities -- acquisition opportunities and return capital to shareholders. Though we regularly look at potential acquisitions, we do not believe there are any missing pieces to our puzzle. So acquisitions appear to be unlikely for us. We will be very under-leveraged in 2013, that the most likely scenario for us is to return capital to our shareholders. This will be discussed with our Board of Directors at our next meeting. At SiriusXM, we always seek more efficiency in our business to reduce costs, and at the same time, invest money when it's used to improve our operation. Our R&D budget has increased meaningfully as we drive additional growth in our IP streaming services and other long-term initiatives. We have increased spending in IT to be prepared for our growth. We increased our commitment to customer care, especially self-help, in the third quarter to improve the experience that our customers and potential customers have with us, as nothing is more important to us than our subscribers. At just 9% of our revenues, we think our programming budget has plenty of room to grow if we can find the right additional new content at the right value. We are always on the lookout for new ideas to entertain our subscribers. By the way, we got great reaction to our pop-up Halloween channel, which ran until yesterday, Scream Radio. We are also doing a great job covering Hurricane Sandy. Also in the past month alone, as part of our exclusive town hall series, we have given subscribers the chance to participate in intimate in-studio conversations with Taylor Swift; NFL Commissioner Roger Goodell; country superstar, Jason Aldean; Crosby, Stills and Nash and Kiss. And tomorrow, we'll welcome Aerosmith to our town hall event. We are also continuing to invest and build a winning and long-term business in the telematics infotainment space. Nissan will be our first partner in telematics, and we are excited by the opportunity here. For our subscribers' benefit, we are upgrading and expanding our content. We are upgrading and improving our customer service, including self-service tools on the web. We continue to improve performance of our mobile apps. We launched On Demand, and we will be launching our version of personalized music by the end of this year. By focusing on the subscriber, all of this is the right thing for our business, both short and long, which makes it also very beneficial for our shareholders. We have the right mix of content, including sports, exclusive talk and entertainment that provides our subscribers with the best radio on radio. We have a powerful, scalable subscription business model that enables us to provide the best curated music offering and to provide it commercial-free, the way most consumers want it, as well as exclusive live events. Our competitors in terrestrial radio can't match our content offering and load their airwaves with long stretches of commercials. Our Internet-based competitors are in a race to the bottom in terms of business models. In other words, those companies, which can grow users and provide a good customer experience usually have the worst business models. For them to fix this, they need to run a whole lot more commercials, and that means harming the customers experience. We at SiriusXM are thankful to not be in that difficult position. We have said continuously that business models matter. In addition, and very importantly, even with more and more companies fragmenting the radio market, SiriusXM is growing our market share in this desirable audio entertainment space. To summarize, we are focused on execution, and we are delivering results that have been -- and have been for many years -- and have been for many years. We are growing cash flow by increasing revenue faster than expenses, improving the balance sheet and as a result of our historical NOLs, we will not be required to make any federal cash tax payments for many years ahead. We are also positioning the company for long-term success that includes Internet protocol. We are even further strengthening our position in the car by deploying SiriusXM 2.0 with its expanded channel lineup and features. Ultimately, we look to combine IP and satellite for delivery of our great content, and SiriusXM will have an additional competitive advantage over the IP-only companies. The future of SiriusXM will be bright for many years. We are committed to continuing our solid execution, prudent operating decisions that are always subscriber-focused and making sure our shareholders are rewarded. We remain very confident in our long-term sustainable business. With that, I will turn it over to David for additional remarks.

Thanks, Mel. The third quarter was another extraordinary performance by the company, SiriusXM chalked up its best third quarter for subscriber growth in the 4 years since the merger, adding 446,000 subscribers, bringing total subscriptions to 23.4 million and self-pay subscribers to more than 19 million. The 1.47 million net additions for the 9 months, a 27% increase over 2011's 9 months have prompted us to raise guidance for the third time this year to 1.8 million net additions. We have raised guidance by 500,000 subs or nearly 40% since the start of the year. While there was little improvement in either the U.S. or European economies, the seasonally adjusted auto sales in September were the best in over 4 years, coming in at 14.9 million, up 14% over 2011. Asian automakers continue to gain share versus the prior year period, and market share continues to shift towards small to midsize cars, both of which tend to put downward pressure on conversion rates. New vehicle conversion rates rounded down to 44%, but remained within our 44% to 46% expectations. Self-pay churn rounded up to 2%, but remained within our 1.8% to 2% expectations. We entered the year with nearly 5.5 million trials in the conversion funnel. Growth in new and used car sales has led to consistent growth in the inventory of trial subscriptions, which now exceeds 6.2 million. As of today, over 7,000 franchise and independent auto dealers have signed on to our used car program. The price increase has been rolled out to approximately 60% of the self-pay subscriber base. We continue to be pleased by subscriber reactions to the price increase and the success in selling our All Access plan, which offer subscribers our premier channels and smartphone access for a 16% savings. ARPU was up 4% over the prior year, reaching a record $12.14 in the quarter. Combined with a 9% growth in subscribers, subscriber revenue grew 15% to $758 million. Advertising revenue increased 9% over the prior year, continuing to grow faster than the national radio advertising market. Equipment and other revenue combined increased 8% from the prior year bringing total revenues to a record $867 million for the quarter, up 14% over the prior year. Cash operating expenses increased by 10% or $57 million in the quarter to $625 million. $44 million of the increase was related to increases in variable costs. $6 million increase was related to increased subscriber acquisition costs. And fixed costs increased $7 million, just 3% over the prior year. Adjusted EBITDA was a record $245 million, up 24% over the prior year. The 28.1% margin was up 2.3 percentage points on revenue over the prior year quarter. Adjusted EBITDA for the 9 months has reached $690 million, just shy of last year's full year adjusted EBITDA of $731 million and on track to achieve the $900 million guidance provided in the second quarter call. Our long track record of cost-effective growth continued in the quarter. Contribution margin was 69.8% consistent with our often repeated 70% target. Subscriber acquisition cost increased 5% as installs and gross additions each increased by 13%, while SAC per gross add declined from $55 in the prior year period to $51 in the current quarter. Fixed costs increased 3% in the quarter. We continued to show improvements in programming costs, satellite and transmission costs, engineering, design and development costs, while continuing to invest in sales and marketing costs to drive subscriber growth. General administrative cost also increased in the quarter as a result of increased personnel costs, including share-based payment expense. As you might recall that in the second quarter, we reversed nearly $3 billion of the deferred tax valuation allowance. In the third quarter, we reversed an additional $48 million of deferred tax valuation allowance and expect to reverse another $64 million in the fourth quarter. During the quarter, we also incurred $107 million loss on redemption of debt as a result of the retirement of the remaining $868 million of principal outstanding on our 13% and 9.75% notes. Free cash flow increased 159% over the prior year to $195 million in the quarter from $75 million in the prior year. The $440 million of free cash flow we have rolled up in the first 9 months already exceeds the $416 million we generated for the full year 2011. We are on pace to meet our guidance of $700 million in free cash flow for the year. We currently expect to launch FM-6, that's a Sirius 6 satellite in the second quarter of 2013. We ended the quarter with $556 million in cash and $2.4 billion in debt. Gross debt to 2012 EBITDA guidance of 2.8x is now inside our 3x target leverage. With the retirement of the 13% note, our next scheduled debt maturity, the 7% exchangeable, which is solidly in the money, is 2 years out. With continuing favorability in the debt markets, the company will continue to evaluate the opportunity for new bond or bank financing to enhance our strategic flexibility. Operator, let's open it up for questions.

[Operator Instructions] Your first question comes from Bryan Kraft from Evercore Partners.

I just want ask you 2 quick questions. First on churn, I know it's within the range that you've given of 1.8 to 2.0 at the upper end though. I was wondering if you did anything differently in the quarter in terms of retention that may have led to stronger ARPU and a little bit weaker churn? And also, what was going on underneath of that, with non-pay and your expectations going forward? And then, also, I just had a quick one for David on FM-6, how much CapEx is remaining to spend on that and what's the timing on that?

] Okay. On the churn question, really nothing different in the quarter. Nothing different in our practices that as the economy continues to improve a little bit each quarter that non-pay continues to go a little bit better. The change in the rate of churn is, sort of, within the rounding. So there's really no meaningful differences in the trend in churn. We continue to invest in the call center sort of tools and to retain every subscriber that we can.

Yes. And before David gets to the second point, the churn actually -- I thought somebody might raise that question, okay? Was actually 1.954, okay? But for a little bit, it would have rounded down to 1.9. And the other thing that's relevant is that in the month of September, which is the most recent month of the 3, the churn was 1.82.

Good. FM-6 should go off in the second quarter of next year. We're still working with ILS who is finalizing their manifest, but the window that they have offered us is the second quarter, and we're just looking for the launch date within the quarter. I expect it to be probably in the May time frame. And the spending, Brian, we'll come back to you later I think it's going to be roughly $45 million and should all be in next year.

We'll take our next question from Jessica Reese Cohen from Bank of America Merrill Lynch.

I have 2 questions also. The SAC per gross add decreases pretty meaningful, how should we think about this going forward? Will you be able to maintain this lower rate? And then, can you talk at all about any impact from the hurricane on -- I mean, obviously, SAAR had to be impacted. How should we think about that for Q4?

Okay. So let me get the second part, Jessica that so far, we really have not heard anything. We know that the SAAR for the month is going to be reduced probably released later today. So we really don't have any sense of what the impact is. We do, in fact, assume that in the northeast, car sales will have been affected. Regarding any of our business, we were running along where we are. Because of the storm, we haven't gotten as updated reports as we like, but we're not seeing anything meaningful. So the idea of where we will finish the fourth quarter as far as our business is concerned, we're confident that we're going to do the number in the guidance that we've given you. But we would expect that car sales should be affected, it just seems intuitive that it would be.

And then on the SAC per gross add, Jessica, I thought you asked about the increase, it did decrease.

Decrease. Yes, it's a meaningful decrease.

Yes, and it is sustainable. But we generally do expect SAC per gross add to continue to trend down as we get -- as we roll out the newer module designs that have lower cost associated with them to -- more and more automakers that the we probably have 4 or 5 different generations of chipsets going into cars still now with the old one sort of working their way out, and the newest ones working their way in. It just takes years to get through it. But we do expect long-term declines in fact for gross add.

We'll take our next question from James Ratcliffe from Barclays.

First of all on ARPUs are a little bit -- just first of all, on ARPU, we saw a little bit of acceleration. Can you -- what portion of the subscriber base is rolled into the new pricing plans by now? And secondly, to follow-up on the used vehicle commentary, how are we doing in terms of what share do you think of used buyers are actually getting the trials they're eligible for? And when you think, sort of, along a pareto curve you've gone from 2,800 dealers to about 7,000, does there come a point where it just stops being worthwhile to pursue the long-tail small dealers?

So there's probably 18,000 total car dealers in the United States, including cars -- dealers that might sell 1 or 2 a week that -- we are -- we've made great strides to where we are today. We believe that there still is an opportunity, we still continue to look for used car dealer groups. Our team is working on continuing to add ones where we believe it would be meaningful. We know we have no plans of getting to all of them. But again, this is a longer-term process because if you take a look at how our OEMs had rolled out with satellite radio, in the next couple of years, vehicles will find their way to the used car lots that have high amounts of penetration of satellite radio. So we're watching that balance. We have a team of people who are working on expanding our efforts in used cars. And so far, they're doing a good job, and we expect that, that will continue. But you're right, we're probably going to, at some point, get to a point -- we haven't identified -- we haven't said that we're at 7, and we think the right number is 10, and we're going to stop there. We're going to continue to add those dealers where we think putting a trial run would be very profitable for our shareholders.

And then, on the price increases, it's been rolled out to about 60% of the self-pay subscriber base.

We'll take our next question from Benjamin Swinburne from Morgan Stanley.

You mentioned investing in customer service, I was wondering if that's what drove the increase sequentially in customer service costs, David? If that's sort of a reasonable run rate for that line item as we move into the next quarter and next year?

Yes, it is most of what drove the increase. When you think about the business we're running that we are sort of a fairly aggressive and large-scale direct marketer, right? We get all these names from auto dealers and from auto companies about who's bought new and used cars, and then we market to them with a variety of campaigns that are all oriented towards driving people to contact us, whether they come onto our online account center and serve themselves across the web or whether they call into the call center or are part of our outbound telemarketing campaigns that we have, as you should expect the customer service and billing costs to continue to rise as we continue to sort of grow the funnel of opportunities that we're after and grow the customer base that we are serving.

Great. And if I could ask just a couple of follow-ups on the SAC per ad, it was obviously lowest, I think, in the company's history. Any impact you could size for us on the used car piece? I would imagine, and this could be incorrect, that the SAC would be quite a bit lower on those gross adds instead of becoming a meaningful piece of the mix. Is that part of why we saw that sequential decline, or am I thinking it's too -- it's more than it really is?

Well, it's certainly, it's part of it, Ben, but I think if you think about new car installations that the -- as it turns out, that the SAC per gross add is not a lot different than what the average subsidy is per the new car installation. So it's pretty reasonable facsimile for that. And we expect there to be improvement from the $51 over the course of the next couple of years.

But certainly, as more and more used cars become -- into our subscriber base, as meaningful, that will have a factor as well.

Great. And then just one last one. Just on 2.0, can you just update us on where you are on the OEM side? I think you have some vehicle models where that's rolling out? I think it's mainly more stations today, but what's sort of the product roadmap for the next kind of 6, 12 months on 2.0?

Jim, why don't you do that?

Sure. So we're -- number one, the rollout of the -- the heart of the 2.0 technology continues to go long as we planned. Obviously, with the OEM base, it takes longer than anybody would like. We've rolled out -- I think we made an announcement with Chrysler, and that's moving along now through production. You will see, I think, at least 3 more OEMs in 2013 calendar year rollout. And then, obviously, if you -- at the end of Mel's comments, he talked quite a bit about the power of combining IP and satellite together for an enhanced listener experience. And I think on that one, we really can't give our OEM plans until they're ready to give them, but that's an area where we're spending a lot of time and putting a lot of focus in.

We'll take our next question from James Marsh from Piper Jaffray.

Two quick question here. First, as the connected car starts to increase competition, it seems like this telematics offering could be very interesting for you guys. Could you discuss the strategy here I mean, clearly, you have a billing relationship in place with OEMs and consumers but do you truly have the spectrum necessary to do what you need to do, or do you need to team up with other satellite telecom businesses to kind of a bolster that service? And then just, kind of, related to that, may be can use the on-store model as a reference point and explain to us how you, might, compare and contrast to that? And then I've got a follow up.

So let me start, and Jim, feel free to jump in. So we have a relationship with all of the car companies. And we have a very long and deep relationship with all of the car companies. And we've delivered on everything we have said to our OEM partners for well over 10 years now. So we think, without exception, they have a great deal of confidence in our ability. We're delivering bits and data to the car. It seems like a natural extension for us to be into the telematics business. Not only is there a billing relationship that we have, that would be synergistic towards the customer because they'll just get one bill, but there's also other things. There's this module that would maybe combine telematics and a satellite radio and also offer more efficiency. One of the other things about the crash and safety features that we offer is that we're going to have it delivered predominantly, obviously, IP-related. So from that point of view, we really don't need any new spectrum. But the more and more connected cars there are presents more of an opportunity for our company to be able to have two-way communication to where satellite radio is principally, today, a one-way, right? It's just one to many, but as time goes on and the car is connected and we are doing more telematics, we have the opportunity for customers who are subscribers to communicate directly back to us. So just think about the idea that you're driving in your car, it's a connected your car, your trial period is over, you push a button in that car that converts you to a self-paying customer. Or if you're a self paying customer, it could -- it extends your agreement, so that you don't have to go to the call centers. So there's really a terrific opportunity for us in the connected car, not just in telematics, but in our core business. And again, that's the area where we are competing with IP. And again, we believe that satellite, combined with IP, that one and one is -- will work a whole lot more than just the one. And again, we'll repeat it, we have not seen a business model that works in this IP radio space that we're interested in. Our interest is in providing it to our subscribers who want that service. So it's not like we think it's a better service, we think satellite radio is the better service, but some subscribers may want personalization. And if they want personalization, we're going to give it to them not because we think that that's a great business, but because we want our subscribers to be satisfied. And if our subscribers are satisfied, our churn will go down, and our free cash flow will go up.

Okay. Excellent. And then, just related to this Internet Radio Fairness Act, obviously, we've got some odd bedfellows here with the NAB and the Internet players both supporting it. What's your view on the legislation? How do you think it might change the market for music licensing fees? And do you have any outlook on the likelihood of passing and the timing of it?

On the last part, it certainly won't be addressed until sometime next year, and we'll see on the likelihood of passing, I'm a little skeptical. But in terms of how do we view it, look, I think that all of the providers of music listening services ought to be subject to a performance royalty, but I think the Internet Radio Fairness Act probably ought to be broadened to include terrestrial radio as well. There's no reason in the world why terrestrial radio shouldn't be paying a sound recording performance royalty. That's probably, if you kind of look at the laws, far and away the biggest subsidy is right there. The Internet Radio Fairness Act has simply stated that they want to introduce these things called the 801(b) factors into the rate determination for webcasters. There's -- I see no harm in that, but I don't know how the judges in that proceeding would determine what a rate would ultimately be. But there's no reason why the judges in setting webcaster rates shouldn't consider all the factors laid out in 801(b).

And we'll take our final question from Barton Crockett from Lazard.

I was wondering if you can update us on where we are now on the music right fees proceedings, when do you expect a ruling. Is everything basically mentioned [ph] That's question number one.

Okay. So the judges are due to rule by December 14. The proceedings are now completed. The record evidence closed back in August. Final arguments were made in court in mid-October. The judges are reviewing the record, and we expect an answer sometime between now and December 14.

Okay. Great. And then, if I could follow up, you've spoken a bit about the used car opportunity. I was wondering if you could talk a little bit about what kind of conversion rates you're seeing now in used cars and then, to what degree at all is this thing impacted by some of the cars that have like the Pandora integration into the dashboard type features, are you see a meaningful amount of that? Is that having any impact?

So at this point, we are not prepared yet to give you a conversion number in the used car sector, mainly because we think it's too early and that we don't have enough information. The early adopters on the used cars were the certified preowned. And we believe that those certified preowned might have a higher conversion rate than what will happen in x number of years when we start to see more and more satellite radio-equipped used cars coming into the market. So we don't want to give you what the number is today and then have it be, then, changed because the universe is expanding and it's just a subset. But we're pleased with where it is. It provides a very good business model. It's a very exciting opportunity. And just finally, the only thing that we are prepared to say about the information we have on those vehicles that are out there with the connected car is that, we told at the time of the merger, that there was a lot of competition and we believe that in addition to AM/FM radio and HD radio and Internet radio and all this other stuff, that there's a lot of competition, and we're prepared to compete. We've done a fair amount of research on the vehicles that have been made that -- mostly Ford SYNC and some other vehicles where there is a connectivity in the car and where they have IP content available to that customer. And interestingly, there has not been any negative impact at all. But about that, I sort of caution you because again, those are again maybe early adopters and people who like every single electronic device and therefore, they're going to keep their satellite radio while they also are experimenting with other things. But to date, there has been no adverse impact in our conversion rate on people who have a connected car that has an IP music service attached to it.