Sirius XM Radio Earnings Call Nuggets: Leverage Outlook and Bundled Internet Feature

Sirius XM Radio  (NASDAQ:SIRI) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Leverage Outlook

Matthew Niknam – Goldman Sachs: Congrats on a quarter. My question is on leverage. So you alluded to the 2.5 turns of leverage ending the quarter, it’s about a turn below the traditional target. Are there any updates you can provide in terms of how quickly you’re seeking to get there to the target and in conjunction with that, does the formation of a holdco imply you might be able to accelerating the buyback pacing potentially this year?

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David J. Frear – EVP and CFO: The formation of holdco is one of those things that simply gives us optionality. I don’t think you should read anything into timing on it. There is a lot of administration associated with getting it set up, so just one of those options that you want to set up as soon as you can. Getting to the leverage (indiscernible), I think as many know that we are somewhat restricted or will be somewhat restricted later in the year with – by two of our debt issues in making restricted payments that we will probably work our way to that 3.5 times, you know sort of the over the next several months perhaps into sometime early next year.

Matthew Niknam – Goldman Sachs: Then just one follow-up self-pay churn, I just want to figure out whether the uptick that we saw. Is that pure seasonality and then more broadly with the investments you are making in content and customer service. Do you sense additional opportunity to sort of grind down that self-pay churn over time going forward?

David J. Frear – EVP and CFO: On the first part of the self-pay churn is normally the first quarter is our highest quarter for churn. So there is a seasonal uptick that that comes through. I can tell you it was you know almost right on top of our internal expectation. So certainly fully expected and with respect to investments and programing to customer service, I will let Jim talk to that.

James E. Meyer – CEO: So, I think first in customer service, which is a metric, we continue to always to look at closely. I think David and I have both decided that investment in this area ultimately is going to prove to help our churn in the long-term basis. It’s really difficult to equate those two in the short-term. So, we’ve made the decision to invest here and we’re going to stay at it for let’s call it the foreseeable future and we’re already seeing an improvement in our service metrics versus a year ago. Obviously, our content is the heart of our service and you should expect, we will invest in every and any opportunity that we see that gives us an advantage for something our subscribers want, both in the short-term, mid-term and long-term.

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Bundled Internet Feature

Barton Crockett – Lazard Capital Markets: I guess, one thing I was wondering about was when we look at one of your key partners, General Motors, they’re announcing a plan for Internet bundled into their car starting with, I think, the model year 2014. I was wondering if you could talk about whether you’ve had any particular discussions with GM about using that bundled Internet feature. What your thoughts are about how it’s going to affect Sirius XM. Also Sirius XM’s prominence in the dashboard, whether you might lose or gain some prominence relative to other things that might use that Internet like Pandora?

James E. Meyer – CEO: So, number one, as you know, we are not going to comment specifically about any automaker until that automaker wants us to comment, but what I will tell you is that I believe GM is on a leadership strategy in terms of where I believe the auto industry will go in general and that is I believe over a mid and long period of time, you can define how many years that is, you’ll see automakers move to what I will call embedded connectivity that will be LTE-based, that will give them lots of options for what they want to do for their customers and their vehicles. I think it’s very important that Sirius XM participate in that rollout of technology as it occurs over the next three to seven years and that’s exactly what we’re all about when we referred to our (connected) car strategy. This is something that, as I mentioned in our last call, I’ll reiterate again today that we are moving and reprioritizing a lot of our technical resources, and frankly, now our commercial programming resources towards making that goal happen as we go out over time. So I think that’s all I want to say about at this point, but believe me, we fully understand what’s going on right now.

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Barton Crockett – Lazard Capital Markets: Then, if I could ask a question about one of the metrics SAC per gross addition, which came down nicely. Could you give us a sense of whether this looks like a sustainable level going forward or whether there was anything unusual here?

David J. Frear – EVP and CFO: Nothing unusual, Barton. That SAC per gross add should ultimately reflect the underlying cost of making the module to go into the cars. It’s just a consumer electronics product that our engineers work hard with the Tier 1 suppliers with the OEMs to continue to cost those units down. So you should expect a steady and persistent decline in it. I can tell you that the pace of the decline will be significantly affected by the choice the OEMs make in bringing new generation radios into the car that, as many people know, we have some automakers that are still deploying radios, where the technology was developed seven or eight years ago and we’re five, six generations down the line. So I think it’s one of these things that as you look out over the course of the next four, five years, you should see a steady persistent decline in fact for gross add.

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