Sirius XM Holdings Inc. (SIRI) Q3 2011 Earnings Report, Transcript and Summary

Please stand by. Good morning, and welcome to SiriusXM Radio's Third Quarter 2011 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Hooper Stevens, Senior Director, Investor Relations and Finance. Mr. Stevens, please go ahead.

Thank you, Casey, and good morning, everyone. Welcome to SiriusXM Radio'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 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 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 Karmazin.

Thank you all for joining us this morning. SiriusXM continues to execute well in a challenging macroeconomic climate. We were able to drive our company's operating results to a new record level of subscribers as well as a record quarterly revenue and record adjusted EBITDA. To put it simply, subscribers remain excited about the value and depth of our entertainment offering, and we have a great business model for our investors to be excited about as well. Reviewing our current results, you will see that we added 334,000 net subscribers in the third quarter, taking us to a new high of 21.35 million subscribers. We are growing in what we all know is a very weak economy and in a market that has seen plenty of new competition. And we're pleased that growth is accelerating this year. We've added 1.16 million new net subscribers so far this year compared to 1.09 million in the first 9 months of 2010, a 6% increase over last year. And our second quarter -- on our second quarter earnings call, we raised our subscriber guidance for the year to 1.6 million net adds, which we expect to meet. This means we anticipate adding about 440,000 net subscribers in the fourth quarter, up about 34% from subscriber growth in the fourth quarter of 2010. Self-pay subscriber performance in the third quarter was excellent. We grew our self-pay subscriber base by 364,000 subs to an all-time new third quarter record. These third quarter self-pay net adds were up 41% from third quarter of last year and represented the best single quarter since we completed the merger of SiriusXM in the summer of 2008. When you look at the total number of customers we have, this, too, is also at an all-time high. While many subscription media companies are losing customers, we have increased our number of customers by 10% over last year to over 15 million, also a record number. More individuals and households are subscribing to satellite radio, and this bodes very well for our future and long-term prospects. Gross additions were up 10% for the third quarter, driven by a third quarter SAR that was up 7% to 12.4 million on an annual basis, along with SiriusXM's higher penetration rate. This is the fourth consecutive quarter we exceeded 2 million gross additions. Self-pay monthly churn was 1.9% in the third quarter, in line with both the second quarter and with last year's third quarter. Our new car conversion rate was 44.4%, which is a solid number but at the lower end of our range. While the mix and increased penetration from OEM sales continue to affect this number, we are also working with our OEMs to improve the data feeds we receive from them, which will help conversion. We are not seeing any change in conversion that concerns us about how customers feel about our product. Conversion of the same vehicle models are basically the same. What changes every quarter is the mix of OEMs and the mix within OEMs, as all models convert at different levels. Although we're proud of our subscriber growth, our financial performance was even better. Revenue of $763 million was up 6% and represents a new record for a single quarter. Keep in mind that our pricing remains constrained at present. And as you know, we actually lowered the Music Royalty fee last December, which held back ARPU a bit. Despite the restraints on our pricing, we remain on track to grow our revenue by about 6% and hit our full year revenue guidance of approximately $3 billion. Importantly, the revenue constraint disappears in just 2 months. Cash operating costs were up by less than 3% versus the same quarter last year, a rate that was well under our revenue growth number. Our fixed costs were up about 1%, while our variable expenses, which rise closely with revenue, were up 5%. We have achieved a reduction of about 20% in our programming and content expense since the merger of Sirius and XM. And in the first 9 months of this year, we cut expenses in this area by 8%. This is just one example of the focus on costs that is driving our performance. Quite simply, we're creating more value in our programming with a lower investment. The tight expense control and our revenue growth produced adjusted EBITDA of $197 million, up 16% year-over-year for the quarter. The adjusted EBITDA margin of 26% was also a new record high. In 2012, we expect adjusted EBITDA will climb to approximately $860 million. Our adjusted EBITDA guidance next year implies a full year 26% margin, up from an estimated 24% for the full year of 2011. We continue to believe that we will be able to achieve long-term margins in excess of 40% by scaling subscribers and revenue and holding the line on expenses. We just turned EBITDA positive 3 years ago, and we are very pleased where we have been able to move our margin at this stage of our development. Growing EBITDA is really a precursor to driving free cash flow, which we believe is the primary driver of SiriusXM's value. We are focused on growing our free cash flow substantially in the future. Free cash flow will enable us to invest in our business, which will increase growth, reward shareholders via dividends or share repurchases and make accretive acquisitions to improve the value of our company. Free cash flow in the third quarter grew 22% to $75.4 million, helped by lower capital expenditures than in the same quarter last year. In the first 9 months of 2011, we've already produced more free cash flow than in all of 2010, $224 million compared to $210 million. In 2011, our free cash flow guidance is approaching $400 million. And remember, we normally have seasonally higher cash flows in the fourth quarter. Our $400 million free cash flow guidance represents a staggering 90% increase over 2010. Just a few short years ago, in 2008, the combined negative free cash flow of SiriusXM exceeded $550 million. To put it mildly, we've come a long way. And it gets better. Our 2011 guidance calls for our free cash flow to increase 75% next year versus 2011 to approximately $700 million, driven by improved operating results and lower capital expenditures. Let's put this in perspective. In 2012, we plan to grow our cash generation to nearly $2 million every day. That's including weekends and holidays. Truly an astounding statistic, which will obviously represent the best free cash flow in the history of the company. We continue to find success in the used-car channel, where we now have programs to reach consumers buying a variety of the used cars. Since we expense our SAC up front when a car is first produced or sold, adding gross additions in the used-car channel is an extremely cost-effective way for us to grow our subscriber base. We've rolled out trials to buyers of virtually all satellite radio-equipped certified preowned vehicles across most auto brands. These sales represent a small portion of used cars sold every year, but it was a great place to start. And the conversion rate from these certified preowned trials is solid, below the level of our new car conversion rate but still very, very acceptable. We expanded on our certified preowned program this June when we announced that we enrolled over 1,000 Chevy, Buick, GMC and Cadillac dealers nationwide in a new program that provides all purchases of used vehicles, not just certified preowned, with a complimentary 3-month trial of SiriusXM. Today, nearly 2,000 General Motors dealers are now enrolled in this program, and we are gathering data on the early conversion in this channel. We followed up with the launch of a similar program with Nissan and Infiniti dealers, which we announced a few weeks ago. Stay tuned for further announcements over the coming months as we expand this program to other OEMs. We add value to the used car sales process, and it's also a great way for people to experience satellite radio in newly acquired used cars. We continue to be very confident that the previously-owned market will be a significant growth opportunity for SiriusXM in the coming years. Consumers appreciate satellite radio first and foremost because of our tremendous and unmatched content, covering every single genre of music as well as talk and entertainment that can't be heard anywhere else and a sports lineup that can't be matched anywhere else on radio or the Internet. We continue to invest in creating and making available more premium content to our customers. In conjunction with the retail rollout of SiriusXM 2.0 this quarter, we launched more than 20 channels, including a suite of Latino channels. We're taking a great product and we're making it better. Later in this quarter, we will also roll out the next component of 2.0, a new plug-and-play radio called Lynx. The Lynx will be a first for SiriusXM. Android-based with a high-resolution color touchscreen, it can operate as a satellite radio in the car, capable of accessing the new expanded 2.0 content lineup, and it also can access SiriusXM Internet radio via WiFi and stream audio content through stereo systems via Bluetooth. In addition, Lynx will enable time shifting of content and storage of up to 200 hours of content, and we expect to add more functionality through software upgrades in the future. Our great content is a significant factor in driving increased distribution of SiriusXM. In the third quarter, we were included in approximately 2/3 of all the new cars sold in America, up from about 62% last year's third quarter. We continue to work with the major automakers to rollout 2.0 technology as quickly as possible, and we are seeing strong demand from them for this additional service. An all-time-high penetration rate and the anticipated OEM rollout of SiriusXM 2.0 demonstrate automakers' commitment to offer satellite radio to their car buyers. Our OEMs continue to believe that we make the driving experience more desirable, and they prominently feature us in their advertising. Most recently, GMC began an extensive TV campaign featuring the NFL on SiriusXM and offering a one-year prepaid service. Mercedes is also featuring SiriusXM in one of their TV spots currently on the air. Auto sales are picking up, and despite the negative economic headlines, forecasters still expect auto sales to grow by about 1 million units next year. In fact, most forecasters believe auto sales will continue to grow for several years as Americans begin to more quickly replace the country's aging fleet of vehicles. SiriusXM is currently installed in approximately 2/3 of these new cars. As these aging vehicles are replaced, our growing penetration rates mean that we will have the opportunity to both introduce the benefits of satellite radio to more and more potential subscribers and gain more and more subscribers from the used-car market in addition to the new car market. Again, we believe we have many, many years of subscriber growth ahead of us. Delivering great customer service is a major focus for SiriusXM, and we will continue to work to improve our satisfaction metrics in a cost-effective way going forward through better uses of technology and improved agent training. Growing subscribers is our primary means of growing revenue. But changes to our pricing and more effective bundling of higher-tiered packages will also boost revenue over the next few years. Since the 3-year FCC handcuff on our pricing expired this summer, we carefully considered what price level is most appropriate for our service. Never before in the company's first decade of operations had Sirius changed its core price of $12.95 per month, despite adding a tremendous amount of premium content that didn't exist when the company launched service. So in September, after thoughtful deliberation, we announced our intention to increase the price of our SiriusXM's Select packages beginning January 1, 2012, from $12.95 to $14.49 per month, approximately $0.05 per day additional, an 11.9% increase. This will help us accelerate our revenue growth next year. And you could see the early effects in our guidance for 2012, revenue growth of approximately 10% to $3.3 billion. The price increase next year will also continue to benefit revenue in 2013. We will also be driving higher ARPU through the sale of our premium tier All Access plan and our Internet Listening add-on. Revenue growth is fantastic for investors, but it's best when combined with high incremental margins and tight expense controls. Our low incremental costs and focus on our fixed expenses will result in expanding EBITDA margins. And with our low requirement for capital expenditures and multi-billion-dollar tax shield, we plan to dramatically increase free cash flow over the coming years. Remember that over the next few years, we will have the opportunity to refinance some of our expensive legacy debt at lower rates. We will have many years without the need for substantial satellite capital expenditures, and with roughly $8 billion of NOLs, we have a substantial tax holiday. All of these things will help us grow free cash flow for many years to come. We intend to be good stewards of this cash flow. With over $600 million of cash and equivalents on hand as of the third quarter, our net leverage has declined to just 3.4x, well on the way to our stated leverage target of about 3x. Combining this with our free cash flow guidance this year and next implies we will have nearly $1.5 billion of liquidity at our disposal by the end of 2012. We will have the flexibility to use this liquidity to grow our business, ensure a low cost of debt, make acquisitions and return capital to shareholders. The market and rating agencies have clearly understood our balance sheet, and creditworthiness has strengthened considerably. Just last week, Standard & Poor's upgraded our corporate credit rating to BB from BB-, which puts us just 2 notches away from investment-grade status. Since early 2009, our credit ratings have been upgraded 6 notches by S&P. We are extremely pleased with the market view of our credit quality and access to credit, so we don't believe we need to attain an investment-grade rating. Given the predictable nature of our business, we would prefer to take advantage of a prudent level of leverage, which should mean higher returns for our equity holders over time. Without a doubt, there is more competition from all corners of analog and Internet radio, but SiriusXM is not slowing down, and we intend to accelerate our growth next year. Our company is performing extremely well. We have a unique product that consumers demand, and we have a business model that continues to demonstrate positive economic leverage. The best is yet to come. Thank you for participating in today's call. And I'll now turn the call over to David Frear for additional remarks.

Thanks, Mel. If we look at it from a macro perspective, the third quarter was pretty tough. Unemployment didn't budge. Household incomes were down, consumer confidence sank, car sales continue to fall off the pace set early in the year. There was virtually no good news in the housing market, political gridlock in Washington and growing concerns about Southern Europe triggered selloffs in the bond and equity markets. And with all that as a backdrop, SiriusXM posts a record quarter. In fact, we just completed our fourth consecutive quarter of growth additions in excess of 2 million. The incorporation of satellite radio into nearly 2/3 of North American auto production helped overcome lower-than-expected auto sales, allowing us to deliver record levels of total subscribers, at over 21.3 million, and self-pay subscribers, now more than 17.5 million. With a falloff in car sales in the third quarter, the inventory of both paid and unpaid trials fell slightly, less than 100,000. And we continue to have over 5.1 million trials awaiting conversion. For the 3 and 9 months, growth in self-pay subscriptions was clearly the driving force in our subscriber growth. With subscribers up 7.5%, revenues grew 6.3% to $763 million for the quarter. The reduction in ARPU over the prior year is entirely related to a reduction of the Music Recovery fee on primary subscriptions that was implemented last December, down to $1.40 from $1.98. Contribution margins were stronger than expected at 71.4%, up from the prior year. We continue to encourage investors to plan for 78% margins in the near term as royalty costs are due to go up by 0.5% in January and the portion of our subscribers that generate OEM revenue share payments continues to grow. SAC per gross add continues its steady downward trend. At $55, it improved 6.8% over the prior year, largely offsetting the 9.5% growth in gross additions, contributing about half of the pickup in our EBITDA margin in the quarter. We continue to manage fixed expenses, that's sales and marketing, satellite and transmission, research and development and G&A and programming, to be relatively flat despite significant growth in subscribers and revenues. Programming costs continue to decline as premerger contracts come up for their post-merger renewals. In the 9 months ended September 2008, just after the close of the merger, fixed expenses ran $936 million for the combined company. In 2009, we cut them to $658 million. We held them at that level in 2010 and reduced them further in 2011 to $649 million. That's an aggregate reduction of 31% while revenues have increased 25% over the same period. High revenue growth and good cost controls result in expanding the EBITDA and the EBITDA margins. The $197.3 million of the EBITDA generated in the quarter was a record for the company and is up 16% from the prior year. Our record 25.8% EBITDA margin for the quarter is up from 23.5% a year ago, 16.9% in 2009 and minus 6% in 2008, a fantastic record of growth. We look forward to expanding EBITDA margins even further in 2012. Free cash flow for the quarter came in at $75 million, bringing the 9 months to $224 million, exceeding the free cash flow generated in all of 2010. Cash exceeded $600 million at the end of the quarter, and with the fourth quarter coming, traditionally very strong for free cash flow, year-end cash will rise to roughly $750 million. In October, we repaid the remaining $23 million of the 3 1/4% converts. Gross debt to EBITDA stood at 4.3x at the end of the quarter, while net debt to EBITDA was at 3.4x. EBITDA to interest coverage was 2.6x for the quarter. With rising free cash flow, it's clear that leverage can come down very quickly. The improvement in our credit outlook was recognized by S&P last week in an upgrade to BB with a stable outlook as well as by the bond market, where our 7 5/8% notes due 2018 traded to yield at about 6%. While the macro picture for Q3 was difficult, there are some bright spots in the gloom. September SAR show the best months since the first quarter tragedy in Japan, and October looks like it will continue. Consumer purchases of cars was up 7% year-on-year but was up 11% in the month of September. September economic data was also more encouraging. While it's too early to declare victory, we're optimistic that we will see growth in 2012 above the 12.7 million car sales pace anticipated for 2011. Our guidance in September anticipated the improvement in car sales. We initiated 2012 guidance in the midst of truly awful macroeconomic factors and an increasingly competitive landscape to demonstrate the confidence we have in delivering consistent profitable growth to investors. Our price increase will go into effect January 1, driving revenues in 2012 to $3.3 billion. Continued cost-effective growth will drive EBITDA up 20%, double the 10% revenue growth rate, to $860 million and continuing the improvement of our EBITDA margin. And free cash flow will expand 75% to $700 million as our satellite replacement program comes to an end with the launch of Sirius 6. SiriusXM is well positioned for long-term growth in subscribers, revenue, EBITDA and free cash flow. So operator, let's open it up for questions.

[Operator Instructions] We'll take our first question from Barton Crockett with Lazard Capital Markets.

I wanted to get a little bit better sense about your fourth quarter subscriber outlook, which is very healthy. And the one thing that was surprising this quarter was, for us at least, was the decline in promotional subscribers. And as we look to the fourth quarter, can you give us a little bit of color about what you see there, whether there continues to be a decline or whether this was kind of a one-quarter aberration. And then following up on that, as you look out to next year, I know you aren't guiding for subscriber growth yet, you're just talking about revenues, but can you at least, in loose terms, give us some sense about how you see that subscriber growth trajectory that underlies your revenue guidance for next year?

I'll let that David answer the question. But first let me just say that we gave subscriber guidance for the year. And in the last quarter, we, a matter of fact, raised our subscriber guidance to 1.6 million net adds. And that's exactly the number that we are still forecasting for today for this year, and that results in what the fourth quarter would be. And David can answer your specific other points.

So Barton, on the decline in promotional subs, it's very sensitive in the short term to 2 things: one is the level of automotive sales, and two is in the mix between paid and unpaid trial partners. But we tend to track the total trials in conversion, in the conversion funnel, as opposed to just one or the other. And car was soft over the summer. Right? The -- with the constraints on production for -- principally, for Toyota and Nissan and Honda, coming out of the problems in Japan in the first quarter that auto sales as everybody saw it sort of compressed over the summer. With that, we held the conversion trials relatively flat. It's as the sales, auto sales, picked back up, the total trials and the conversion funnel will pick up as well.

Okay. But in terms of for next year with your revenue guidance, any color on subscriber outlook there in terms of -- I know you're not going to guide specifically, but even just loose color? Do you expect a better sub growth year or similar?

So, I think I mentioned in my opening comments that all of the forecasts that are out there for 2012 SAR are anticipating an increase of about 1 million additional cars sold. So we historically give our subscriber guidance on our fourth quarter earnings, and this year will be no different, unless we decide to do a little bit earlier, but it will certainly be done by that time. And we're very encouraged. And for our planning purposes, we see SAR increasing. And if SAR increases, that's great news for SiriusXM.

We'll move on to Benjamin Swinburne with Morgan Stanley.

I have 2 questions for either Mel or David or both if you're willing to answer them. I wanted to ask about the price increase for next year, Mel. I know no one knows what the churn impacts may be at this point, because you really haven't put anything through like this before. I guess the MRF is the best data point we have. But maybe you could just spend a minute on any reaction you've had from either OEM partners or from customers on the announcement that might give us some sense for what you expect next year on the churn front as a result of the price increase. And then, second, for either of you or both, strong free cash flow again this quarter, the outlook for free cash flow was very strong, so leverage keeps coming down. You talked about returning capital to shareholders. I think the assumption in the market is that share repurchase is at least on your -- on the table. How are you thinking about the Liberty relationship and buying back stock in a situation that would drive their ownership up? I think Mel, you commented on that briefly at a couple of conferences earlier in the quarter. But any updated thoughts there would also be very helpful.

Okay, so we'll give you a double shot. I'll give you my comments, and then David can give you his. On the price increase, obviously, we compete with free. All of the competition that's out there, whether or not it'd be in terrestrial analog radio or Internet radio, tends to be a free service. So the fact is that we're very cautious when we are raising our price. We believe that we are being prudent. Again, we think that $1.50 a month or, as I said earlier, $0.05 a day is something that would not really materially change any DX for us. You really don't know. We're going to work very closely with our "save desk" and make sure that we're monitoring carefully. So far, based on the noise that's in the market, or I should say the lack of noise that's in the market, we monitor social networking and basically go through the feedback that we've gotten from our subscribers. And we've seen them say they understand. I mean, the price increase is not in any way, shape or form egregious. It's not something that we're doing regularly, and we don't think that it should impact our growth next year. As a matter of fact, we think that the financial metrics will be very attractive for us as we start rolling them out to subscribers. So we thought about raising the prices more, again, was concerned about the competition of freight, and decided on this number. And we feel still very good about it after announcing it in September. It's now 2 months, and there really hasn't been much of a reaction to it. On anything about returning capital to shareholders, it's something that our board will discuss. We think that it will be a 2012 discussion. We introduced the subject already as we talked about these financial metrics accelerating. And I don't think that there is any more specifics that I want to talk about what our plans are until our board finalizes and decides what we want to do with that -- in that regard.

Just, Ben, on the precedents. We looked at the Music Recovery fee, we implemented that. We looked several years ago to when XM changed their prices and how their subscribers reacted to that back in, I believe it was 2006. We looked at the change in the second sub pricing that we did post-merger and sort of took it all into account. One of the things to bear in mind with the price increase is that the -- for the net cost to consumers, we should probably look through the change we made in the Music Recovery fee last December. If you go to what were prices a year ago now to what they will be in January, the effective increase is about $1 overall, it's just that we've got it into 2 steps, $0.58 down on the MRF and then about $0.50 up 12 months later on the primary. So -- and maybe that sort of being around $1 is helping sort of mute the reaction that we've seen so far, because we certainly haven't seen much.

We will take our next question from David Bank with RBC Capital Markets.

Two questions. The first one is I was wondering if you could give us color on the reactivation side. If not, maybe sub adds coming from reactivations but you kind of trends in reactivations as a percent of net adds in this quarter versus prior quarters. And second question is, Mel had mentioned one of the potential uses for free cash flow being acquisitions. And I was just wondering if you can give a little more color in terms of what would be the ideal kind of acquisition for you guys when you have the financial flexibility out towards 2012.

Okay. So let me give you the second, and then David will comment on your first one. In order for us to make an acquisition, it has to have a very -- pass a very high threshold. So first of all, it would have to be in our core competency. It would have to be a business that is growing. It would have to be a business that is going to be accretive to us on a free-cash-flow basis. So if -- you sort of look at those things and you say, "What won't it be?" It's pretty obvious, right? I mean, it's not going to be any of these other radio competitors, as an example, because of the fact that's not -- they're not going to be growing rapidly or they're not going to be free cash flow positive. So it's very difficult for a potential acquisition to be there. We look at lots of things, all of the bankers visit us regularly to show us everything that's on the market or conceivably to be on the market. We'd like to make an acquisition if, in fact, it meets those criteria. And when we find one, we'll let you know.

So on -- David, on the reactivation front, that -- you should think of it -- I think that in the short term, it's just sort of a fairly steady and consistent effect in the underlying numbers. Reactivations is actually an incredibly broad category of things. I think when most people talk about it that they tend to think of it as subsequent owners of a radio, primarily a vehicle, and developing confidence in those statistics is going to take a little time. We know for sure whenever a radio turns off and turns back on. What is a little more difficult to tease out of the information is who owns it? Is it an existing subscriber who's reactivating a few days after a trial ends or after -- maybe they get disconnected for non-pay, or is it a subsequent owner of a vehicle? That we frequently find with the timing of information sent to us by some of the automotive partners is that you can often have a radio that's still on for a car that's been sold. The new car buyer -- the used car buyer gets it. And they're actually calling us to "activate" their radio before we've been informed that the car has actually changed hands. So again, I think the short story is that over time, that as we can get confidence in the measurement of the numbers, we'll probably talk more to you about subsequent owners. But reactivations at this point is just sort of a pretty steady consistent contributor to all the underlying metrics you're looking at.

We will take our next and final question from David Joyce with Miller Tabak and Company. David Carl Joyce - Miller Tabak + Co., LLC, Research Division: I was just wondering if you could update us on what might be happening on the retail channel with your new Lynx -- or with the Lynx products. And then if you had any color on the conversion rates on the used car channels.

Sure, this is Jim. We expect to have our product available -- the Lynx product available before the end of the year. I doubt it'll have a significant impact on the holiday season, although we're pretty optimistic about the acceptance of the product in the market. Overall, we're in the shape we usually are at this time of year. We have several promotions planned with our key retail partners for both Black Friday and the Christmas holiday as well as what we think is a strong lineup of promotions at our online store at siriusxm.com. And I'm pretty optimistic that the Christmas season will be good. Regarding used car conversion, as Mel mentioned, we're pleased with the conversion so far that we've seen on certified preowned vehicles. It's not as high as new cars. It's, in fact, it tracks in the mid- to high 30s right now. I think it's too early to say what the long-term trend of conversion is going to be in used cars, because like many -- if you remember, in a new car conversion, it takes a while to figure the cadence, the proper cadence, and the proper offer strategy and a proper follow-up to optimize that number. And used cars, that we're still relatively new at it. I don't believe at all it'll ever be as good as new cars, but I do believe that it will be very, very strong and a good contributor for our growth for many years.

All right, everyone, thanks for dialing in.