Good morning, and welcome to the SiriusXM’s Fourth Quarter 2017 Earnings 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’d like to turn the call over to Hooper Stevens, Head of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to SiriusXM’s fourth quarter and 2017 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. And we’ll also be joined by Scott Greenstein, our President and Chief Content Officer, for the Q&A portion of the call. First I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon 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 to not 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. Our adjusted operating results exclude the effects of stock-based compensation. I’ll hand the call over to Jim Meyer.

Thanks, Hooper, and good morning. SiriusXM executed extremely well in 2017, and particularly in the fourth quarter, to achieve and exceed all of our subscriber and financial guidance. We have once again set record high watermarks for subscribers, revenue, adjusted EBITDA and free cash flow. Our business model remains unmatched in its ability to maintain high EBITDA margins and to convert that EBITDA into free cash flow that we can invest to grow our business, make external investments or deploy for the benefit of our stockholders. And as David will talk about more, recent tax reform will make our long-term cash flows even sweeter. We expect approximately 1 million self-pay net additions in 2018, approximately $5.7 billion of revenue, $2.15 billion of adjusted EBITDA and another $1.5 billion of free cash flow. In the fourth quarter, it was nearly 570,000 net additions. 527,000 of which were self-pay, we had our best quarter of self-pay additions in five years. And our 2017 self-pay gain of 1.56 million subscribers was a full 20% above our original guidance. The adjusted EBITDA margin reached 39% in 2017, up about 400 basis points in three short years. The CRB decision will postpone the 40% milestone, but has changed nothing about the general characteristics of our unbeatable business model. The march to higher margins will resume after absorbing the royalty charge this year. And remember our goal is not margin for margin sake but rather to maximize the amount of free cash flow available to our stockholders. We did very well in the fourth quarter, both marketing to new subscribers with self-pay growth adds up almost 5%, and also in retaining existing subscribers with churn down more than 10 basis points. SeriusXM has produced churn results in the 1.8% to 1.9% range for eight straight years,…

Thanks, Jim. Good morning, everyone, and thanks for joining today. SiriusXM finished the strong 2017 with an exceptional fourth quarter. For the third straight year, SAAR exceeded 17 million cars and SiriusXM’s new car penetration rate increased to 76.6% from 2016’s 75% on the strength of penetration growth that Honda, Nissan and Ford. 2017 saw the total number of SiriusXM-enabled vehicles on the road increased 14% to nearly 108 million as we continue along the natural arc of our installed base toward 185 million vehicles. Trial starts rose more than 7% for the year to an all-time high of approximately 21.4 million, another record new car trials starts is paired with 16% growth in used car trial starts totaling 8.5 million for the year. At the end of the year, the new and used car total trial funnel sit at approximately 8.85 million vehicles. New car conversion rates for the year up 40%, used car rates in the high 20s helped produce record new and used car conversion volumes, bringing self-pay growth adds above 9 million for the first time. Used car growth additions in ’17 represented approximately 35% of the total, a 230 basis point increase versus 2016. We expect this share to climb higher in the future as our 35% used car penetration rate more than doubles to eventually match the 75% plus penetration rate in the new car market. With over 18,000 franchise dealers, 12,000 independent dealers and 16,000 self-explain dealers participating in our trial programs, we are getting direct access to 60% of the used car transactions. Churn for the full year was 1.8%, down six basis points from 2016 as reductions in voluntary and non-pay churn rates continue to more than offset pressure from an increasing rate of vehicle related churn. Our fourth quarter self-pay…

Thank you, sir. [Operator Instructions]. And we’ll take a question from Vijay Jayant with Evercore-ISI.

Good morning. Jim on for Vijay. Two if I could. Any further comments on the timing of the flow through of the MRF increase? What would you like to see that? And secondly with the ARPU growth we’ve been seeing, how much of that’s been driven by the price increases versus change in mix of customers descriptions are taking?. Thank you.

On the timing of the MRF change, it will start going in the customer bills in the month of February and then it will take 18 months to work its way through. Relates to your ARPU question, to be honest, I actually don’t ever break it down that way, so I don’t think I can really answer the question. We do have an improving mix of business. We continue to sell higher price products. But then we’re always tinkering with price group. There is always something that’s going on with the price group. And so what we’re seeing in over the last 8.5 years or so as we see the self-pay ARPU including the MRF increased about 2.5% per year.

Great. Thank you.

We’ll take our next question from Ben Swinburne, Morgan Stanley.

Good morning. Jim, you’ve talked a lot about the streaming opportunity in the industry or in the market as well as sub-Sirius. You’ve often said business models matter. I think your shareholders certainly appreciate. But you sound very excited about attacking the streaming-only sub opportunity for Sirius and talked about out of home listening et cetera, and you talked about waiting not diving in. But just to may be play devil’s advocate, you guys have a content portfolio you’ve build over almost 20 years that’s quite differentiated. You have a significant level of scale, a brand people know, obviously, the tax benefits are nice boost to your margin. So what’s the argument against actually diving into video more aggressively in sort of attacking that business opportunity with a little more urgency and maybe a little more resources behind it quickly since it seems like there is a big tam out there for the business beyond just the car but to the Sirius thoughts? And whether your philosophy has changed because you’ve been busy as and we heard in your prepared remarks seems higher than we’ve had heard in the past?

So Ben, I’ll answer it maybe in three ways: One is we’ll do 21 to 22 million trials between new car and used cars in 2018. So that’s a tremendous funnel, okay? There is no reason why now. And if you look at our R&D expense, you’ll see that it’s checked up quite a bit from where it was three years ago. That’s a very conscious decision. We’ve been investing heavily in both 360L and significantly improving our investment in our streaming product from a critical standpoint. I’m now confident that we’re kind of there to where, and by the way what’s change my mind a little bit also Ben, I just -- you only see a few things every once in a while that you think are truly changing, these in-home speakers are truly changing when you look at the way people use them. And so when I watch my - for my own kids in their kitchens with the Echo Dot or Sono speaker and our service, they love the way it works that. And so we want, I think, that the time is right for us to start driving listening across multiple platforms. I don’t know how successful we’ll be in the streaming-only business. We’re going to try, we’re going to put focus on it and we will see. And like many things we do, we’re going to have to learn about it and see what the churn profiles all with it and see how it works. But I don’t see why we wouldn’t try to drive that channel as another way to acquire subscribers to essentially the same content, okay. Lastly on video, I actually don’t disagree with what you said, I mean, but we’ve got a lot - it turns out doing video is more complicated than it looks on the surface. I don’t like people in the room will look at me because we’ve been talking quite a bit about in the last couple days. I think getting the content and getting the offer actually won’t be the hard part for us. Once we get and assure that we have the app, the customer experience working the way we want and in fact our customers like it. Look I know our Howard customers, absolutely are going to want Howard video. I don’t even need to do the research. Howard customers want one thing, more Howard, okay. And we’re going to give more Howard. And when we see you in the second quarter, I think you’re going to be quite impressed. But I think our approach to video right now is around how do we improve our value preposition and as importantly, more importantly, how do we improves the customer experience to their attachment to our content.

That’s helpful.

I assure you Ben, we are not going in the Netflix business. They can rest easy, we’re not coming after them.

Right, okay, we’re still in the countdown. David, just quickly, you only give us the CapEx rough estimate for ’18, I think you said that in your prepared remarks, I missed it?

Ben, let me get back to you. I’ve got this handy.

Okay. Thank you both.

And we’ll go next to Jessica Reif with Bank of America.

Thank you. Just a follow-up on the video product, you’ve finally announced the timing which is great. Just wanted to -- is there anything you can say about the economics of the video product? Is there any potential revenue uplift overtime? And you alluded to -- Jim, you alluded to having more content. Can you just give us some color on that? And then separate question, programming cost growth was just 2% well below recent growth. What was the driver of that and kind of your outlook as we go forward on programming cost? And then finally last thing, advertising was so strong relative to everything else we expect in media did slow, so is there anything going on there that you can discuss?

So, Jessica, our advertising growth was spectacular last year, especially against the backdrop of the things, maybe the rate of growth slowed from years to the days continues to get bigger it. And so we had a great year in advertising. We’re expecting another great year this year. The programming costs up 2%. We do expect programming to -- the big contracts are all out of the way for a few years, we’ve got nothing big coming up. And so we do have inflationary pressures in just for -- we get a lot of employees in there and hosts and things like that. And Scott’s team is continuously looking for ways to expand the content offer and bring new things in. So we do expect gently rising programming costs in near future. And I’ll turn it over to Jim.

Yeah. So just on one of the things I really like about what we’ve done over the last three years is we’ve really put a focus on trying to sell our subscribers of premium experience, got experienced global access, and we’re starting to really get it. We’re really getting at it. We really are making good strides there. You can see partly in our ARPU that’s something Dave and I watch closely. With that in mind, I can tell you our video offering in 2018 will be included as part of the all access package. And I’m hoping it helps to sell more real access program.

And just to add on the video thing, there is no audio company that I can think of that can start waiting into video with the amount of potential video content we have already under the roof in our audio programming group, so we feel good about that. As David mentioned, the programming costs are what they are. We feel are lie-up is complete right now. We’re always looking an opportunistic. And this certainly not a problem with the war chest to look at other items to go after, but right now we feel pretty good where we are.

And Scott, could you just give us color, I mean, or Jim, there was an illusion to rolling out more video with how much content and over what period of time?

So, Jessica, I will tell you, in the first half of ’18, it’s going to be Howard.

Exactly.

Okay, and we’re going to focus on getting it promoted right, getting it out there right. And we don’t have to do too much because he is a pretty effective promoter, okay. In the second half, I think in our next call we will be ready to say a little more.

Okay.

But we’re going to weigh it into it. Now look, Scott and I always debated and if we see a really good opportunity, we’ll take it, but for me the good thing is the technology part that will be done, it will be out of the way. Our challenge will be to create a part of it and what can we monetized either through better retention of our customers or ARPU opportunity.

And last thing is anyone who has been up to our studio on any given day, there is a lot of free great video content happening all the time on a daily basis plus there are major, major pieces of reported concerts and other things and interviews in our archives. So before we ever get to even a cost issue, we have, as Jim said, we’ll get it right and then we have our own internal stuff that I think is going to be pretty exciting plus, as Jim said, we’ll be opportunistic if something in our warehouse comes up.

Can I just ask one last question? Scott you record every all of the special programs that you -- when your people come in. Is all of that video recorded?

Some are, some aren’t, but we have a pretty extensive library over the last 12 years.

Amazing. Right. Thank you.

We’ll go next to Bryan Kraft with Deutsche Bank.

Hi, good morning. Jim, I wanted to ask you about the recent CRB decision. That decision is seems you have raised some concerns over starting to see a more significant shifts in the economics of the business for the music industry. Do you share that concern? And can you talk about why you think the CRB came to a different decision than in past proceedings? And what you think the decision means as it relates to the future decisions in the economic -- CRB decisions in the economics of your business? And then also just wanted to ask David on the free cash flow guidance for ’18, it implies a modest decline despite EBITDA growth for this year, I just wanted to understand what’s going the other way that’s offsetting that EBITDA growth? Is it CapEx or working capital interest or something else? Thanks.

So -- I’ll start on the CRB and then turn -- CRB and turn it over to David. I hate the decision clearly. I think it’s just wrong, okay. And quite candidly I think the basis for how was reached is just wrong and we’ll follow our paths to try to rectify that. And that said, I mean there is not a big thick book of success in appealing these days. The logic for -- David, why don’t you take what’s your interpretation of the logic for it?

It was sort of the surprising result. I think you indicated this to us as you read the decision that’s sort of defies any logic or understanding of our industry that in order to get to the rate that the judge has got to person who made some mathematical errors that for instance not dividing by the right ARPU to get the percentage, which inflated the rate by a couple of percentage points. So we’ll go back and ask them to reconsider that because it does look to be simply a mathematical error. We’ll see how they do it. The second thing that for more surprising is that, as many of you remember, we went through a pretty extensive review by the justice department when we merge Sirius and XM. And the justice department came to the conclusion that satellite radio participated in a broader audio entertainment marketplace that included terrestrial radio and all the streaming services that existed at that time, which was 10 years ago. And certainly, for sure the streaming services are way more robust today than they were back then. So the market has only become more competitive. Miraculously a completely different arm of the U.S. government that has to my know background in competitive market analysis, just come to the conclusion satellite radio is a separate marketplace in distinct from terrestrial radio. And that’s just sort of staggering. And then as part of their -- the fundamental underpinnings from the decision, they ran along this theory of an opportunity costs for the music industry. And so what would happen if satellite radio didn’t exist, where would that listening go? And then maybe assumptions that zero, none of it, absolutely none of satellite radio listening would go to AM and FM radio. I mean the basis for this is 03:45. But we said this before, but there was an unexpected result in the Brexit vote, there was an unexpected result of vote in the U.S. Presidential election, there was an unexpected result from the CRB judges and that just goes to show you that you can have as many expert opinions as you want, but at the end of the day the only opinions that matter the people who are voting.

So Bryan I would just make one more comment. For me, personally, I certainly was surprised by the ruling. Okay, we get paid the deal with stuff like that. And as I said in my comments it creates a little bit of speed bump for us in ’18, but I think what’s important here and important for investors when you look at our five year valuation and when me, David’s team went back and looked at where we are, we think we’re exactly in the same place. And so this is a company that is going to continue to generate strong, strong EBITDA and a strong, strong cash flow.

We’ve created the music recovery fee several years ago to provide transparency for our subscribers and what we view is an uncontrollable cost in our structure. And so we’re passing this through. We’re hopeful as we go through review and appeals on this, we’ll get the revised ruling, but and if it does we’ll change the MRF again to pass it through the consumers. To the question on good cash flow, we do have an increase in CapEx coming in the year. We expect it to move up to 330 to 350 range all and the increase is also associated with satellite CapEx spending.

Okay, thank you very much for the answers both. That’s really helpful.

We’ll move next to Sebastiano Petti with JP Morgan.

Hi guys, thanks for taking the question. Just too quickly on 360L, you guys announced the Dodge Ram 1500 at the auto show. But if how should we think about the ramp of 360L availability over the next three to five years? Will it ultimately reach that 75% to 77% penetration of new auto sales that series currently hitting? Or do you expect the OEMs to have a good better best type of strategy similar to how they currently offer the Siri product?

Phil, let me just take that one first, okay. So and on this one I’ve been absolutely clear. I told you guys from day one we were introduced it early in 2018. We’ve done that. By the way if you haven’t seen the Dodge Ram, you should go see it. It’s an impressive vehicle, okay. And by that I mean our experience within that vehicle, I just -- I can only say is really cool, okay, and I really like it. The answer to your question is, this is in March, it will ramp up as I said in my comments. Inevitably it should reach the same as our penetration, okay, but it will take many, many years to get there. So, no, I don’t see the automakers leaving this part as a good, better, best. Unfortunately I don’t control that at 100%, the automakers do. But I can tell you our bigger challenge is not a segmentation of good, better, best, it’s just simply working and fitting their development cycle and how do we match it, so that they do the least amount of work and take least amount of risk to bring this exciting new stuff in their cars. A real window for that when I go on record with this is I believe that certainly at least 80% of the news cars made in 2020 will have embedded modems in them and we’re certainly trying to grow 360L as fast as we can to match that.

Okay, great. And then just a quick follow-up related to the 360L and just the delivery of the Siri product long-term. And if you look out of the next five years both terrestrial and satellite capacity in the U.S. is probably expected to ramp, but that’s wireless providers densifying to moving to 5G or existing satellite operators like EchoStar and Biosat launching additional capacity. So over that timing, how do you think about the ultimate delivery of your offering? Obviously, great product, but does it has to be delivered via satellite? Obviously, 360L is one step towards moving away from that. And then do the original world …

I want to correct you that there is no step of moving away, let’s be clear here, okay. I think we’ve invested billions of dollars on our own private network. And that private network, we’ve been able to do really, really with and provide a really, really good experience. That’s said, we can’t ignore the rollout of the huge wireless broadband networks. And the thinking for me is never one replaces the other, the thinking for me is we does tell them together and it gives us a competitive advantage. I’ve been saying this for three years, and I can’t seem to get anybody understanding. And that is - we won’t be an only streaming company. We always use the private network that we have to our own advantage, but why wouldn’t we combine it with these great big wireless networks because they build out to have the best of both worlds. So I think you should think about it that way. We’re going to roll these things out to where we can take advantage of both.

Okay, great. Thank you.

We’ll take our next question from Jason Bazinet with Citi.

Thanks. Maybe a question for Mr. Frear. Going back to the CRB decision, I think you guys did a good job explaining sort of the quantum of the step up. But there is one other fact that I want to just touch on. In the past, the CRB has sort of gradually stepped you up 50 to 100 basis points per year for the applicable revenue. And this one is a bit different and that it’s a bigger step up, but it’s also flat over a five year period. Is it reading too much intuit to sort of say we’re hitting some sort of have some toe where the increases are coming to an end whereas everyone of the CRB decision sort of independent from whatever happened historically, and we could see rise after 2022? Thanks.

It’s to be honest, Jason, I can’t read the minds of who the future judges will be? It might be the same guys, it might be different people. We have our rates for the next five years. And when we get to five years from now, we’ll see what case gets put in all.

Okay, alright. Thank you.

And our final question will come from Barton Crockett with B’Riley FBR.

Okay. Thanks for squeezing me in here. I guess a couple of things I was interested in. One, just a little bit of a follow-up on the CRB, MRF pass-through. I mean that’s going to be about, and if that is 4% or so increment to what the consumer pays for your service over the next 18 months, so a little bit of acceleration in the effective pricing to the consumer. What’s your sense right now of the sensitivity of your subscriber to pricing? I mean relatively inelastic what type of impact do you think that might have on subscriber growth?

They - we don’t believe they’re inelastic. And we do think that as you raise prices that you suppress demand and as you decrease prices, you stimulate demand. But that being said we’ve had mechanisms that review to increase prices and save customers with lower price offers. And that’s why I keep coming back to the long-term compound average growth rate of our self-pay ARPU including the MRF that in the sort of eight to nine years that we’ve been raising, tinkering with the price grid that we’ve ended up at an effective increase of about 2.5% per year. And you know we’re challenged a lot like a normal inflationary increase and it’s produced the subscriber result that’s produced. And so I can tell you that as we put the MRF change through, we expect that it’s going to stimulate some churn, we expect it will stimulate increased use of discount plans through our save desk, but all of that is incorporated into the guidance that we’ve given here.

Okay. And then if I could switch gears on one other question, this gets to the employment contracts I guess with Jim and I think also with you Dave, as I understand this year you know the end of the year or May both might be coming up, I was just wondering if you guys can expect what you expect the transition to be, I mean are you interested in continuing? And if not is there can you talk about the transition planning for future sales?

Sure. I’ll start with May and that is -- and I’ll start with a simple statement, there is no other CEO job I’d rather do, I love working at SiriusXM. I can tell you I’m extremely proud to be able to come to work every day with a wonderful men and women and make up this organization and committed to it. That’s said, for me, I’m going to be 64 years old this fall and the conversations I have with Greg and our board is we could just shorten the window a little bit and have more conversations about what I might want to do and frankly what they might want to do with me. And but where investors should not be the least that concerned about this is whatever happens, I guarantee you our Board will do it in an orderly and efficient, well done manner. And I’m committed to whenever that day comes to be in a key part of how that transition will work. And so I just don’t think there is really any story here.