Good morning and welcome to the SiriusXM's First Quarter 2018 Results Conference Call. Today's conference is being recorded. A question-and-answer session will be conducted following the presentation. 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, and good morning, everyone. Welcome to SiriusXM's earnings conference call for the first quarter. Today, Jim Meyer, our Chief Executive Officer, will be joined by David Frear, our Executive Vice President and Chief Financial Officer. At the conclusion of our prepared remarks, management will be glad to take your questions. Scott Greenstein, our President and Chief Content Officer, will also be available for the Q&A portion of the call. First, I'd 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'd like to remind 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. With that, I'll hand the call over to Jim Meyer.

Thanks, Hooper, and good morning. Thank you for joining us. The entire team at SiriusXM, once again, delivered excellent results during the first quarter. We grew subscribers by more than 300,000 to a record 33 million, and we continue to grow revenue in line with EBITDA, despite a very significant increase in our music royalty costs. We're on track to achieve all of our full-year guidance for subscriber growth and financial performance. First quarter self-pay net subscriber additions of 206,000 were very solid, and conversion and churn performance was right on target. Although, of course, it's still early, I'm particularly pleased with our churn performance in light of the increased MRF we began to pass through in February. This is a strong testament to our excellent value proposition. With new car sales actually growing 2% in the first quarter and our used car penetration continuing to climb, trials in progress at the end of the first quarter increased nearly 300,000 from the end of 2017, which positions us well as we move through 2018. Incidentally, after good first quarter auto sales numbers, the consensus sales number for 2018 moved up slightly to $16.8 million from the $16.7 million we spoke about in late January. We continue to renew multi-year OEM deals on favorable terms and with growing support for 360L as they come up for expiration. So far this year, we've extended our relationships with Hyundai Genesis and Nissan Infiniti, and OEMs remain committed to SiriusXM as part of their long-term platform decisions. Our new car penetration rate remained at 76%, in line with the first quarter of 2017. Estimated used car penetration in the first quarter is in the neighborhood of 37%, continuing its steady march towards our new car penetration as the fleet cycles. Our used car manufacturing…

Thanks, Jim. Good morning, everyone, and thanks for joining the call. Our outstanding results in the first quarter show the strength and resiliency of our business model and the 330,000 total net adds was enough to drive our total subscriber base to over 33 million for the first time ever, a tremendous milestone. New car sales growth of 2% in the quarter with a production penetration rate of 76% pushed our installed base of vehicles up 11% year-over-year to 109 million, or approximately 42% of the total cars on the road in the U.S. This number while significant is poised to grow another 70%, eventually reaching approximately 185 million vehicles by the middle of the next decade. New vehicle trial starts increased 3% to 3.2 million, while used car trial starts grew over 10% to a record 2.3 million, resulting in total trial start growth of 6% to over 5.4 million. At the end of the quarter, the total trial funnel stood at over 9.1 million with paid trials expanding by 124,000 in the quarter. Self-pay net adds in the quarter were 206,000 for a total self-pay subscriber base of 27.7 million, benefiting from continued churn performance at just 1.8% per month. From a rate perspective, rising vehicle churn was more than offset by improving non-pay and voluntary churn. Solid new car conversion rates of 39% and used car rates in the high-20s also contributed to self-pay subscriber growth. Based on this performance, we feel confident about meeting our full-year guidance of approximately 1 million self-pay net sub additions. Effective January 1, the new revenue recognition standard create a $0.25 headwind to ARPU, resulting in a flat number year-over-year in otherwise masking the 2% growth in ARPU. The strength of our subscriber growth combined with an outstanding 17% growth in…

At this time, we'd like to open up the call for questions. We'll pause for just a moment to compile the Q&A roster. And your first question comes from Barton Crockett from B. Riley FBR.

Hey, Barton, you must be on mute.

Operator, let's come back to him and...

Can you hear me? I'm not on mute. Can you hear me?

Yeah.

Okay. Great. Great. Sorry about that. Hi there. So, yeah, thanks for taking the question, and I was really curious about the commentary and the interest around ad-supported radio. And really my question is this, across the Liberty and Sirius complex, you have a whole bunch of kind of minority/majority stakes in Sirius, Pandora, Live Nation with standstills and reporting out there and talk about maybe getting a minority stake in iHeart. How would you get any synergies out of a collection of kind of minority stakes or non-controlling or non-100% stakes? How does that stuff work together? And how does getting a minority stake potentially in iHeart in any way really meaningfully further your interest in ad-supported radio beyond just creating a debate upon what the valuation should be? How does that strategically and synergistically help you?

So, Barton, first of all, I'm not going to comment for what Liberty's strategy with other assets is. I'm more going to concentrate on what I believe our strategy, which I think I've been very consistent on which is – I think what we do really, really well is several things, but in particular, we really understand how to program radio. And obviously, we've gained a tremendous amount of strength in how to work with automakers to distribute services and we've gained a tremendous amount of subscription skills. As we look across the whole radio listening in the United States, again, I see just radio as a $25 billion business in the U.S. that today we're roughly getting a low-20% share of. And I see no reason why we shouldn't opportunistically look for good paths to strengthen that position. Your question is a relevant one. We continue to evaluate what we would do and I think as we pick a direction, we would purely want to pick a direction that would enable us to take advantage, obviously, of synergies. David, do you want to...?

Yeah. I mean, so affiliation can lead to cooperation, which can lead to some level of synergies, right? And then obviously, if you rationalize equity ownership structures, you can get to larger synergies, but the question of whether or not you want to rationalize equity is – it involves other things that, are the synergies big enough to drive a deal, for instance, in the merger of Sirius and XM, both in the U.S. and Canada, that was clearly the case where the synergies were so large between the two parties, it justified sort of driving the deal. In other circumstances, that may not be true. So, there is some level of synergies that you get in through affiliation and then if it makes sense to rationalize equity structures, you tend to get a little more. I think that's about all we have to say about it.

Okay. Thank you for that. If I could just ask one other question, really kind of bigger picture, I mean the big news story around your sector, I think, has been the Spotify IPO, with that they've given us tons of disclosure. Are there any learnings from what they've said about their business and their trajectory and how they're approaching the market that could be helpful for Sirius or for Pandora do you think?

So, I mean, number one, obviously their growth is extremely impressive. And we take great interest in the additional data that we've been able to garner. To be honest, I don't think we've seen anything there that's actually really surprised us in any way. And I think that's probably all I can say right there. Look, their growth has been impressive. Nothing about their financial model is different than what we thought it was. I'm not going to worry about their financials. I'm going to stick to ours.

Okay. Great. Thank you.

And we'll take our next question from Kannan Venkateshwar from Barclays.

Thank you. Morning everybody. Just one question, there appears to be some move in Congress to try and modify the Copyright Act more with a view on royalty rates which might impact Sirius longer term. So, I just wanted to get your take on what's going on in Congress right now. And based on our understanding right now, it's not an immediate impact, but it would be good to get your take on what's going on.

I'll let David address the question specifically, but if you want to get our take what's going on in Congress, you ought to listen to one of our six or seven news talk channels. We can give you a perspective on either side.

So, look, we'll see what turns out. Obviously, House, I guess was judiciary passed the Music Modernization Act. They're attaching the CLASSICS Act sort of to it that the – we'll see what happens as it moves on to the Senate. I presume that it will. And we watch with interest. We are talking to people in Washington about some of the imperfections associated with the legislation they're considering and then we'll just see where it comes out.

Okay. And if this was to pass, is it fair to say that this has no impact on you right now? The CRB process that you've just concluded, that's what will be your royalty rates for now?

Yeah. I think until they pass something, we know the final shape of exactly what that is. I mean, we just don't have a point of view about how it would impact us.

If they pass something?

Yeah, if they pass something.

Okay. All right. Thank you.

And we'll take our next question from Vijay Jayant from Evercore.

Hi. This is James Ratcliffe for Vijay. Two, if I could. First of all, can you give some color on the MRF increased pacing, what share of customers already have it in their bills at the end of the quarter and how long you expect it to flow through the base? And secondly, international outside – because outside of Canada hasn't historically made much sense given the fixed satellite costs growth scape (28:30) encountered, for example. Does that market become more viable to look outside of North America with a streaming-only product?

So, let me do international first. In order to go outside the U.S. with a streaming product that there are many important jurisdictions in the world that don't have a compulsory license in our requirement and so you end up having to negotiate direct licenses with the labels. The profits associated with sort of music distribution around the world are pretty scant. And so, look, if you can add that product on top of some other business that you have a chance of earning some incremental margin, but you wouldn't launch it on your own, it's just not a profitable business. Jim, if you want to comment on that?

Yeah. James, before David answers your question on MRF, I'll be even more specific. We're very focused on North America. We think there is still a lot of opportunity for us to grow in North America. I couldn't agree more with how David has summarized international, and so I think it's fair to say we're just not focused there right now.

And the MRF pacing, it will take about 18 months for it to roll through. I think that right now we're somewhere in the range of 20% to 25%.

Got it. Thank you.

And we'll take our next question from Jessica Reif from Merrill Lynch.

I have a couple of questions. The first one, your guidance was maintained for the year, which is essentially flattish kind of EBITDA. First quarter was up 6% and the royalty, as David said, was in effect for the full quarter and the revenue is just starting to come through. What is it about the second half that will lead to slower growth? Is there something that you expect that's not clear?

You mean slower growth in the EBITDA?

Right.

I mean...

Because you guys are (30:45) flattish.

Yeah, I mean, we have plans for a fairly aggressive investment in the business going forward. We have a lot of going on in streaming. We still have a lot going on in 360L. We have a lot going on with video launch. And so, we do expect heavy investment in the course of the balance of the year. We had some surprises in the first quarter. We don't know how sustainable they are, so contract rates from customers were significantly below what we would have expected and that led to some savings. We wonder how sustainable that is. So, I mean, look, we remain confident in our guidance for the year.

Right. And then just on the last point that you made on the costs, I mean your margins were actually amazing considering the royalty roll-through. Is there anything else? Is there any more to cut? Did you say it's – the margins were great.

Well, Jessica, this is Jim. The only thing I would say is, again I completely agree with what David said. Obviously, we're very pleased with where the first quarter came out. We're watching closely to see if some of those trends are sustainable for the year. But our marketing spend will be higher as we go forward than it was in the first quarter for exactly the things that David mentioned. And so, I just think it's too early to kind of draw a conclusion yet of – ask us the same question after the next earnings call and let's see where we are.

There are nine months to go, Jessica...

Yeah.

...not six.

Maybe, maybe.

All right. Right. And then I guess just the last thing, on video which you're finally launching after all this time is great. Can you just talk about – just what color in terms of expectations, it's great that you're doing the free promotion. And what are the plans post Howard Stern's launch?

Okay. So, it's Scott. On the video front, we're going to launch with a sampling of Howard's diversity, whether it's music performance, interview, skits, whatever, just to have a tease out there. And then as we roll it out over the summer, there'll be more and more from the library and classic Howard and everything else with that. As far as beyond Howard, there's lots of opportunities and surprisingly a number of people, some of our partners and some outside our partners pitching on ideas to do it. We still see video as complementary to our audio and it will stay that way, but there are obviously assets that come to mind that would be valuable in short form video with very little expense to put them out in the same fashion as Howard. So, we're going to just get Howard right and then look at what's next.

Hey, Jessica, what I'm most excited is we now have the technical capability to do what we want in video. We can now turn our really creative of which we've just added a couple of new people, one in particular that we think is going to really add to our team that's working on video. But we're not going to be doing television shows and those kind of things. Scott said it very, very succinctly and clearly. Our video strategy needs to dovetail very nicely with our audio offering and it's meant to make our customer experience in that area much better.

Great. Thank you.

And we'll take our next question from Jim Goss from Barrington Research.

Hi. Couple of questions about the 360L product, I wonder if you can elaborate on how you will promote the value of the 360L product and the means of accessing those benefits. And could you also talk about the expected pace of uptake in the economic value and how that might pace in?

Well, Jim, this is Jim.

Yes.

I can't tell you how excited I am to finally have it in the marketplace. For those of you that haven't seen it in the Dodge Ram 1500, you really should. I'm really proud of what we've been able to do with the Fiat Chrysler team and how it enhances our entire listening experience as well as all the things it does to make life a lot easier for the customer and how they interface and deal with it. It's just way – these are the kind of things, I just know they're the right thing to do. It's way too early to quantify what all those benefits will be. I'll bet you some of the ones that we thought would really be big, may not be as big as we thought and there'll be one or two we didn't anticipate that will end up being much bigger than we thought. So, I don't really have any way to quantify and answer your question yet. I think honestly, it's going to be many, many – it's going to be several quarters before we're going to be able to know on a meaningful number what that does to our business. What I can tell you is I've been here since 2004, I know this will make a big change to our business. And so, our heads are down and we're going to keep marching towards delivering this over the next several years.

All right, that's great. And just one small follow-up. The video delivery, I'm wondering what platforms you're using. Will it just be through the Internet site or are there other means you expect to access it?

I mean, it'll only be available through our app...

Okay.

...and our web player.

All right. Okay. Thanks very much.

And we'll take our next question from Amy Yong from Macquarie. Amy Yong - Macquarie Capital (USA), Inc.: Good morning. I was wondering if you could elaborate on your streaming only (37:23) sub initiatives. How do you plan on attacking that market? It's obviously very competitive. Maybe if you could talk through your go-to-market strategy and maybe some of the economics and margins around that particular service. Thanks.

So, Amy, this is Jim. I think obviously when we started our business, we were solely focused on new car distribution. Obviously, it became very apparent to us, the opportunity and really changing that focus to – instead of new cars to really look at the 240 million-plus vehicles in this country and really focus on how do we play in the turnover of all of those vehicles eventually and we're a long way along. Then we've done a really strong, great job of having a very robust program to go back to trialers or subscribers who have rejected our service and trying to win them back in our business and I'm really pleased with those. Obviously, other competitors out there have had a lot of success in growing both listeners and subscribers to their product with a streaming-only offering. We haven't really been able to do exactly what I wanted to do technically until recently. And as I've said in several earnings calls, we've been on – we've really invested a lot of money and time here to put ourselves in this position. I believe that with this app we're going to launch in the next several weeks, we're now there in a meaningful way. Both David and I have committed to additional resources now in this area on both the distribution and marketing side of looking at this. It's an area quite candidly that we haven't really spent a lot of time on and one of the reasons we just – we didn't really have the right product and by that I mean the right technical solution to it. Those things are now behind us and we're going to focus here. We're going to be able to add more subscribers here first and foremost by just focusing and putting our marketing muscle behind it. Midterm, I think what you're really asking is which distribution partners might we align to, to try to drive this in a more meaningful way. We're not ready to answer that question yet. You should assume we're working on that question. It takes obviously two to tango in that area, but I'm optimistic we're going to find a path here that allows us to establish what you might call a fourth channel for subscriber growth. I will tell you, in my comments I meant exactly what I said, this will never be for us anywhere near as big or approaching the 20-plus million funnel we're getting through the car business today. But, success here can have a meaningful impact on our five-year subscriber outlook.

Also on the programming side, the digital capacity allows us other programming, particularly niche programming, expanding our conference channel initiative with colleges and other things. So, it will have some programming components to it that the satellite capacity doesn't allow. So, we're hopeful some of that will lead to some growth.

Operator, next question, please. Next and final question.

We'll take our next and final question from Bryan Kraft from Deutsche Bank.

Hi. Good morning. I had two questions. First, David, the revenue share on royalties expense didn't increase sequentially the way at least we had modeled it based on the royalty increase. Putting aside the fact that this expense will obviously increase with revenue, was the first quarter a good run rate or was there something that was one-time in nature that pulled it down in the quarter? Or was there something maybe that where the impact was delayed on the new royalty or something?

We have that accounting...

Yeah. Go ahead.

Let me just do that one first. We have that accounting change that's affecting it as well, right? We got to reclass out of revenue against revenue share and so you pull that out, the contribution margin declined a little further.

Yeah. I guess and we tried to factor that in as well, not to get too into modeling, but I guess it sounds like it was a clean number though. So, if we were trending off for the first quarter, it's a reasonable basis, is that fair?

I think that's right. We'll be happy to follow up with you afterwards.

Okay. And then, my other question is, on a higher level, wondering if you or Jim could comment on the interest level you're seeing in the aftermarket connected vehicle product that you announced about a month ago utilizing Automatic Labs, and also maybe talk about how big of an opportunity you think that could be.

So, I mean, I'm thrilled that we finally – that we're getting a product to market. Bryan, I think it's way too early to say, we just don't have a lot to say there. I will tell you, I remain intrigued by the opportunity of this product and I'm hoping certainly by the fall, we have more to say there to give you more specifics around what I believe we can do here.

Okay. All right. Thank you.

Thank you.