Hooper Stevens - Sirius XM Holdings, Inc. James E.

Meyer - Sirius XM Holdings, Inc. David J.

Frear - Sirius XM Holdings, Inc.

Vijay Jayant - Evercore Group LLC Jason Boisvert Bazinet - Citigroup Global Markets, Inc. (Broker) Jessica Jean Reif Cohen - Bank of America Merrill Lynch Philip A.

Cusick - JPMorgan Securities LLC Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC Barton Crockett - FBR Capital Markets & Co.

Amy Yong - Macquarie Capital (USA), Inc. Bryan Kraft - Deutsche Bank Securities, Inc.

Matthew J. Harrigan - Wunderlich Securities, Inc.

Thank you, Kyle, and good morning, everyone. Welcome to SiriusXM's earnings conference call for the third quarter.

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.

Scott Greenstein, our President and Chief Content Officer, is 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 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 will hand the call over to Jim Meyer.

Thanks, Hooper and good morning. What an exciting quarter here at SiriusXM.

We turned in strong third quarter results including record revenue and adjusted EBITDA and we are increasing our full year guidance for both of these two metrics. We are on track to achieve the rest of our guidance which we increased across the board this summer, and for the first time ever, we are adding a regular quarterly dividend to enhance our best-in-class capital return program.

We also added another $2 billion to our share buyback authorization. Once again, SiriusXM is executing on our short-term goals even while making substantial progress on long-term objectives.

We are doing a great job of avoiding distractions and following through on our commitments. We delivered an all-time high adjusted EBITDA margin of 38.4% during the quarter continuing our march north in margins.

During the quarter, we added 385,000 self-pay net additions or 345,000 total net adds after accounting for changes in paid trials. I'm thrilled to announce that as of today, we have now exceeded 31 million total subscribers.

Quite frankly, the auto industry is right where we anticipated and we remain pleased as new auto sales bounce around in the high 16 million to low 17 million range. We are confident in our full-year estimate for approximately 1.6 million self-pay net additions and 1.7 million total net additions.

Those of you who have been following me at this company know how much I value our OEM distribution partners and how hard we work to keep that auto distribution channel strong. In the third quarter, we achieved several key accomplishments here and our OEM relationships have never been in better shape.

Our penetration rate of 76% in the third quarter was up one point year-over-year and it's never been higher and our enabled fleet has grown to 91 million cars on the road. We've also recently extended our satellite radio contracts with Fiat Chrysler until 2022, Toyota until 2022, and Ford until 2024.

All told, we now have well over 70% of the OEM market by volume covered with long-term contracts that run through until 2020 or beyond. This is a tremendous vote of confidence by OEMs that our service and our technology is a must-have for consumers and will remain a central part of infotainment in the car for years to come.

Our relationships with the OEMs has yielded benefits on both sides, not only do we generate a ton of cash flow but the strength of our model also rewards the OEMs with aggregate payments of approximately $1 billion per year. No other service in the car provides such a financial benefit to the OEMs.

Our used car efforts are yielding meaningful results with strong double-digit growth in self-pay gross additions. We believe our radios were penetrated in approximately 30% of all used cars sold in the third quarter, an increase of about three points year-over-year.

We still expect to add just under 3 million self-pay gross additions from this channel in 2016. Our team continues to focus on offering trials at more dealerships.

We are now at over 17,000 franchise dealers and over 7,000 independent dealers, where we've seen the largest amount of growth this year. We have 11,000 dealer locations participating in our Service Lane initiative, now touching 65 million service transactions per year, which lets us offer trials to car owners who might have missed getting one at the point of sale.

In the third quarter, we expanded Service Lane by joining with Sears Auto to make SiriusXM trials available to qualifying owners who have their SiriusXM-equipped vehicles serviced at Sears' 600-plus auto centers. Sears is the first aftermarket maintenance and repair center to fully participate in our Service Lane program and we are both excited to begin this exciting marketing relationship.

Our efforts also continue with both insurance and auto finance companies. Our success in signing up used car buyers for SiriusXM gives us confidence in our ability to continue growing for many years to come, as the fleet of enabled vehicles expands, and as I've said before, the SiriusXM enabled fleet is set to double over a long period to about 185 million cars as used car penetration catches up to where we are in new cars.

Many households own a mix of new and used cars and increasingly, the company's structure is oriented to focus on doing business across all auto sales and channels. It's clear from our data that a huge amount of people value SiriusXM across multiple demographic factors, from new car buyers to used car buyers, from young to old and from low to high income households.

This year, approximately 55 million total vehicles will be sold in the United States and our technology will be in approximately 43% of those vehicles. This is up from approximately 34% in 2013.

Our long-term agreements with the OEMs, our outstanding new car penetration rate, and big investments in extending our marketing reach in used cars means our growth will benefit from this dual acquisition funnel of new and used cars for many years to come. It also gives us a natural hedge from volatility in the new car market.

We are investing in the future of our business in two other key and intersecting areas with 360L and our connected vehicle service business. Our strong relationships with OEMs have resulted in numerous programs to deploy our 360 platform, which completely embraces connectivity in all forms.

360L maintains a satellite link to vehicles while also taking advantage of embedded or tethered connectivity via wireless networks to improve the customer experience and provide valuable user data. This means consumers can access non-linear content, such as personalized music or our archive of on-demand shows.

It also gives us unlimited capacity for new channels, more control over the user experience, lets us update our platform even after the car ships and helps us understand our subscribers and even transact with them directly in the car. Let me be crystal clear, the long-term future of our business simply gets better with two-way connectivity.

But the car market doesn't simply change overnight. Our service in cars will continue to benefit from our private satellite network which gives us significant advantages, but we will also have the technical capability to offer a vast array of new services in car as 360 rolls out.

This revolution in our platform frees us to innovate and power the best, most content-rich and easy-to-use service, whether you are in the car or on the smartphone on the go. While the rollout of 360L will take quite some time due to the extended OEM product cycles, success here will future-proof our service from a technology standpoint.

We also continued to focus on improving our iOS and Android apps to make the service more accessible in-home and outside of the car. To this end, we will deploy our service on several major new platforms in the next few months, including Amazon's Echo and Fire TV, Apple TV, Chromecast, Sony's PlayStation 3 and 4 consoles.

We are also implementing significant feature upgrades on SONOS, Roku and Smart TVs from Samsung and Sony. Quite simply, we want our subscribers to get SiriusXM's fantastic content wherever they want it and in whatever way works best for them.

Increasingly, this will be over IP services outside the car and over mixed satellite and IP services in the car. In addition to all the exciting features planned for 360L and the valuable usage data it will generate, we are also deploying connected vehicle services across a range of OEMs.

Every week, I read analyst and consultant reports on the profound long-term impact of the connected vehicle and the immense market opportunities it will create. We have only begun to scratch the surface here.

And running and developing our connected vehicle business puts us in a great position to evaluate these opportunities. We have recently secured substantial arrangements in this space with OEMs such as FCA, Toyota, Lexus, Honda and Acura; these join Nissan and Infiniti among others.

We are racing to build platforms that are secure, resilient and exciting for OEMs and their car buyers, but we can only go as fast as the OEM product development cycle allows. And we remain focused on business models.

As an example, last year, we actually dropped one of our OEM deals in the CV space where we didn't see a path to profitability. The CV business is small relative to scale of our audio business.

But this business carries with it numerous strategic benefits to our relationships with the OEMs and as I mentioned, greater visibility into other areas of potential future growth and investment. Make no mistake.

We are keenly focused on building a successful and very profitable franchise here. We have accomplished much of the hard work, but we will remain diligent in growing our core CV business and actively pursuing additional opportunities and the massive greenfield opportunities surrounding the connected car.

Put simply, it is likely we will make further investments here in the coming years. Speaking of future-proofing our business, I've been very clear about our commitment to protecting, nurturing and growing our unmatched and easy-to-use content bundle.

We have many exciting things planned, and as I like to remind our content creators and curators, our checkbook should not be the limitation. In recent months, we've strengthened our offering in country music and comedy.

We've added new talent and channels and talk programming, held specialized music events for subscribers nationwide. After launching an exclusive channel with Kenny Chesney earlier this year, we doubled down on country music this summer to add a new channel from Garth Brooks.

It is the first time this music is available in one place via satellite and online. To mark the launch, Garth performed live for our subscribers at the Ryman theater in Nashville.

We also launched our secret location concert series during the third quarter with Coldplay, which took a break from its stadium tour to play exclusively for us in a small intimate venue. Many of you have even told me you wish you could have joined.

We also put on private concerts recently with Korn, Kings of Leon and Metallica performed live on the Howard Stern show. We know our listeners love to talk about music so we created VOLUME, the first full-time talk channel in radio devoted to music.

I'm really excited so far about this channel and so far participation from subscribers and artists like Lady Gaga has been very high. We've begun acquiring exclusive archivable and recent special performance of top comedians to broadcast across our eight popular comedy channels.

We aired a new George Carlin album, weeks in advance of when the album went on sale. Our sports lineup is also an MVP.

We now have a weekly show with Hall of Famer, Brett Favre, whose analysis and comments are generating constant headlines. We re-signed our high profile sports host, radio icon, Chris "Mad Dog" Russo to a new multiyear deal, and we enhanced our college sports play-by-play offering with a new agreement with Learfield and IMG that greatly expands the number of college games that are available to our subscribers online.

As you can see from our third quarter results, we are executing on our plans to grow. We are investing to ensure that we have the best content and future proof technology in and out of the cars to deliver content to our subscribers in an easy-to-use fashion wherever they happen to be.

We will protect our OEM relationships and offer an evolving set of content and features to ensure our subscribers will continue to find value in the SiriusXM subscription. And because of our strong, scalable business model, we are throwing out (15:59) substantial and growing free cash flow.

We will continue to look at ways to invest more in our business and to look at acquisitions, but as always, we are taking a disciplined approach to both of these areas. I'm extremely pleased to continue and expand our capital return program.

Our board of directors has authorized another $2 billion of share repurchases, bringing our total authorization up to a massive $10 billion. We see our stock has an attractive value and we intend to move on the share buyback plan efficiently and effectively.

Our board also decided to enhance our capital return program with a recurring dividend, which we will start paying this quarter with $0.01 per share payment to our stockholders. We added the dividend to broaden the potential base of investors in our stock and we hope that investors will appreciate the unique combination of income, substantial share buybacks, and strong long-term growth in our underlying cash flows.

It's clear that our payout ratio leaves us plenty of flexibility to grow the dividend should our board decide, while also maintaining capacity for strategic investments and continuing our substantial share buyback program. With that, I will turn it over to David.

Thanks, Jim. Good morning, everyone.

Thanks for joining us today. Our third quarter results continued to build on the strong performance we turned in the first half of the year.

New car sales may have been down 1% in the quarter year-over-year but SAAR remains at a very healthy 17.4 million vehicle level and we will take that as long as it comes. Sales of SiriusXM-enabled vehicles actually grew 1% as our penetration rate rose to an all-time high of 76%.

Used vehicle trial starts grew 21% over the prior year, bringing the total trial funnel at the end of the quarter to just under 9 million cars, the highest ever from 8.4 million at this time last year. While conversion of new car buyers remains our largest acquisition channel, it accounted for only 48% of all self-pay gross additions this quarter, conversions of used car buyers continues to grow rapidly accounting for 25% of self-pay additions in the quarter and we expect this figure to grow for many years to come.

Including our win back and direct to self-pay marketing efforts, total used car additions were 34% of our self-pay adds in the quarter. We added 345,000 total net new subscribers in the quarter to bring our total subscriber count to just under 31 million.

On a self-pay basis, we added 385,000 net new subs to bring our self-pay count to just over 25.5 million. Our self-pay churn rate in the quarter was 1.9%, which is flat from the third quarter of 2015 and in line with what we view as our long-term range.

Based on these solid results, we feel good about achieving our total subscriber guidance of approximately 1.7 million net adds for the full year and self-pay net subscriber additions of approximately 1.6 million. Revenue in the quarter was a record high, up 9% to $1.28 billion on the strength of our growing subscriber base as well as the rise in ARPU.

ARPU in the quarter was its highest ever at $13.04 growing 3% from $12.67 in the third quarter of 2015. Based off this performance, we now expect our full year revenue to be approximately $5 billion.

Contribution margin in the quarter was 70.6%, down by 20 basis points versus the third quarter of last year. We made up for the rising music royalty rates with excellent execution in pursuing efficiency in our customer service and billing operations.

As a result, contribution margin remains in that 70% range we have told you to expect for many years. Adjusted EBITDA in the quarter reached a record $492 million, up 10% over the prior year.

And for those of you keeping track, we've now grown adjusted EBITDA by double digits or higher for 31 of the last 32 quarters since we first became EBITDA positive in the fourth quarter of 2008. Our adjusted EBITDA margin also reached a record high of 38.4% in the third quarter as we continue to grow revenue faster than expenses.

This was a 27 basis-point expansion over the third quarter of 2015 as subscriber acquisition cost dropped 200 basis points on declining unit cost offsetting higher music royalties, a step-up in programming cost, and a tough prior year comp where G&A in 2015 benefited from $11 million of insurance recoveries. Based on the strong performance, we are raising our full-year adjusted EBITDA guidance to approximately $1.85 billion.

In the third quarter we converted 72% of our adjusted EBITDA into free cash flow, which totaled $357 million in the quarter, down 3% year-over-year, due primarily to a $22 million payment net of insurance recoveries made for our Telephone Consumer Protection Act settlements announced earlier this year in addition to a $19 million down-payment to Loral for new satellites that we're building over the course of the next three years. We continue to expect our full-year free cash flow to approach $1.5 billion.

Since the start of the third quarter, we spent roughly $300 million to repurchase 72 million shares. We have expected the Canadian recapitalization to close in the quarter.

The recap involves the repurchase for cash of about CAD175 million of equity and the refinancing of CAD200 million of debt. The only remaining hurdle to closing the Canadian recap is CRTC approval; that's their equivalent of the FCC, which we are optimistic will be forthcoming shortly.

As Jim mentioned, we are also pleased to announce the company will start paying a regular cash dividend of $0.01 per share this quarter, as part of our substantial capital return program. The dividend marks a yield of about 1% consistent with yield levels for dividend initiations as well as companies with similar growth characteristics, and we have the capacity to grow this dividend over time.

In addition, our board has also approved an additional $2 billion of share repurchases bringing our total repurchase authorization to $10 billion. We continue to feel very good about the company's ability to return $2 billion a year to our shareholders for many years to come through the period when we begin to pay cash taxes in the satellite CapEx cycle, all while maintaining leverage in the 3.5 times to 4 times adjusted EBITDA range.

Total debt at the end of the quarter stood at $6.1 billion with no maturities until May 2020. Leverage as of quarter end, was 3.4 times trailing EBITDA.

We ended the quarter with approximately $572 million in cash on hand, a higher than normal cash balance in anticipation of the October 1 redemption of $650 million of our 5.875% notes due 2020 and the CAD175 million roughly of cash in anticipation of the closing of the recap. We have plenty of liquidity to continue returning capital to shareholders via buybacks and dividends, while making strategic investments in technology, content, and new satellite infrastructure.

So operator, with that, let's open it up for questions.

Thank you. Good morning.

So question's on the dividend, it's about $200 million a year and if you sort of look at your buyback through 3Q and so far in 4Q, it started running below the $500 million level that you've done in the past. So just want to understand that how is the dividend adding on or is going to be part of the $2 billion that you're still committed to, like a $2 billion buyback.

I think you mentioned that; I just want to confirm that. And then just on the business, can you just talk about how you think you're going to price the 360L product?

Will all the chipsets have both the IP and the satellite functions embedded in it and you only activate the IP version if that person chooses the premium service, and any talk on what that pricing premium could be? Thank you.

I'll take the question on 360L first. Let me clear, at the heart of 360L is really software as opposed to a chipset that drives it, okay, because it's designed to take advantage both of an embedded modem should that exist in the car or a tethered modem from someone's device that they carry into the car.

We haven't gotten anywhere near where we're ready yet to talk about how we might price or what options it might give us. It's a really interesting question.

It's one that my staff and I quite honestly are going to discuss in a couple weeks at an off-site, but I'd say we're fairly far away from getting any detail from that level in terms of what it might do to our tiering and our pricing structure. In terms of the dividend, number one.

I want to be clear, I'm really excited to be able to offer that our board obviously felt strongly about offering this and clearly with management's recommendation to do this. I don't really see tying the two together.

The capital return authorization we've been very clear on. The board's increased it from $8 billion to $10 billion.

I think David and I have both been clear that as you're thinking about our business, you ought to plan on that being about $2 billion a year. Some quarters will be a little less, some quarters will be a little more, but that's pretty clear where we're trying to go and what we're trying to do.

And the launch of the dividend, you are exactly right, it's about $200 million, and we want to get it out there and see how it does.

Great. Thank you so much.

I know historically you guys have always downplayed the international opportunity, but at least when I've done the simple back-of-the envelope math, it suggested your sub base in North America may run out of gas at around the 40 million customer mark. So I just wanted to check-in and see has anything changed in terms of your thinking regarding international expansion or is it still the same, it's still very much noticeable?

Well, Jason, number one, I, for one, would be really happy at 40 million subscribers, and sure we're working hard to get there. Obviously, we're acquiring the Canadian entity because we see real value in improving how we can run the company together from a variety of best practices frankly on both sides of what our Canadian company is doing and what we're doing.

We continue to look at Mexico. We have not come up with a viable plan there yet, Dave and I look at them all the time, but they're a long way from a plan we're ready to endorse, or one that we think is a good path for us.

And with those exceptions I have to be quite honest with you, we're just simply not focused on any other international expansion. We look at it.

People come to us all the time with various opportunities that are satellite-based. We've had some people talk to us about partnering with them on their Internet-based services.

We have some visitors, for instance, coming in a couple weeks from a country that's the leading provider in that country of radio services that wants to talk about doing something together, but I would tell you it's all really nothing more than talk right now.

Okay. Thank you very much.

Thank you. First of all, congratulations on the dividend.

Just couple of questions. Can you give us any update on when you will roll out the video product starting with Howard Stern and anything to come after that?

Yes, I think David made some comments at a conference a couple weeks ago that I think is exactly where we are. Number one, we don't have that date lined up yet.

We are deep into it and I think I mentioned, Jessica, at your conference that we've signed a strategic agreement with a company called Whalerock that's working with us to both architect and help us plot out not just what we want to launch short-term but where we might want to be mid-term and long-term using video to enhance our service. We're also getting that in a position where we can begin to have more conversations with Howard himself and clearly we will launch our video service with Howard.

There is no question there. I hope I have more to say about this in the next couple months, but you should assume it's sometime next year.

2017, okay. And then SAC was down a lot in the quarter.

Is this all due to the used car channel or was there a change in your underlying cost?

Sorry, I missed part of your...

The decline in SAC, is that due to the growth in the used car channel or was there a change in the cost structure?

So the used car channel doesn't affect SAC because it's only – a fraction is just new car installations, right, so.

Right. Okay.

Yeah, so it's not a channel mix thing. It is just improvement in contractual rates.

We do hammer away at and driving costs down and there are times when we get step function changes in what this looks at, where we have a particular contract that rolls over and changes rates. But we're like any technology company where we know exactly what those costs are going to be, because we know what the building materials for the product is.

But then it's implemented through a bunch of OEMs who are all operating on different timeframes in terms of when they move from an older higher cost platform to a lower new cost platform. So every now and then we get a bump like this.

Wow. Then one last question, Jim, you mentioned that you will invest more in connected vehicles.

Do you mean investment or acquisitions?

So I mean both. And I said that more to kind of point you guys and point investors where I think there may be opportunities.

I will tell you, and I used the words carefully in my comments today, this is the greenfield kind of thing, right. I know you all, your firms participate in writing them.

I know investors that are on the phone participate in subscribing to them. The opportunities that you see I cannot remember which big bank came out with a report in the last two weeks, a very credible report that sizes the opportunity in the connected vehicle at $500 billion to $800 billion globally.

This is a gigantic thing, okay. And I've been very clear with you guys that we know where North is.

The connected vehicle is going to come. We know where we're going to play in that in terms of safety and security and things like that in the near-term.

But bigger opportunities in that area we're studying hard now to see are there areas there where not only can we play, but quite candidly areas there that our strengths match very well with. I don't have any answers for you, but what I want to assure you is we're putting a lot of effort there and my gut tells me this is an area in the future we will certainly invest more in.

Thank you.

Hi, guys. Thanks.

I wondered if you can talk about used, if the pace of new car sales come off, I wonder how you think about the correlation of the velocity of used car turnover and sales there as well? How correlated should we think of those two streams?

Or is there is so much opportunity in used that you wouldn't expect any pullback? And also you've pointed out that a lot of homes in the U.S.

have both new and used cars. Have you seen any difference in churn across similar cohorts of new and used?

Thanks.

On the churn question, we really don't see a difference. When somebody chooses to become a self-pay subscriber, then they pretty much behave all the rest.

In terms of your question on volatility, we think the growth that we have – just the organic growth we have in the used car channel is likely to offset any impact from new cars is certainly mitigated. In terms of the historical volatility in used cars, to be honest, I don't think there's a lot of really good long-term data on used cars where there is new cars.

But with the data set that we have, some of our guys think that there's about – the used car market has about half of the volatility of the new car market. But I think for us – if you're thinking about like the next, let's call it five years, I think, overwhelmingly the organic growth in used car distribution for us is going to offset any cyclicality.

Understood. Thanks.

Thank you. I just want to understand the theme of used cars for a second because it's obviously a big driver, no pun intended, of the success you've had the last couple of years.

Jim, when you look at how many used cars sell a year in the U.S., how many of those sales are you communicating with the buyer around a trial today and what's a realistic goal for your organization. I would imagine 100% of the used car market is probably not realistic.

But where do you think you can get the company through the various relationships you have with dealers and insurance companies and other things you've got planned over the next few years. And then I had a quick follow-up for David.

Ben, I'll let David take your first question too; I mean go ahead, David.

So Ben, I think of the cars satellite enabled vehicles that are turning over in the used car market today, we think our sort of direct dealer reporting system is getting us that sort of timely customer name and address for the sale of the car, maybe just under 60% of the vehicles being sold. And then we get to another 25% or so from buying basically list sets, all right, and so we think we're getting to 80% with sort of the 55%, 56% range being something that we get within a few days of the sale.

Got it. So then naturally that number continues to grow – the absolute grows as the number of vehicles enabled grows over time.

Exactly.

I think the challenge Ben, and again, I don't have an answer for you here. What David said is absolutely correct, is we're much more heavily penetrated today in the third of the used car business that are certified dealers, which we're getting direct reports from.

So to answer your question longer-term, it's harder because we don't know, but more of those sales are going to start coming either from independent dealers or private transactions, which is why we're working so hard to try to find better ways to get that data. So we don't really – I've got to be honest, I don't really know where we're going to end up.

Okay.

Right. And just quickly David, can you just help us think about CapEx next couple of years as we go through this build cycle, kind of rough bracketing of where we should expect total capital spending to be over the next kind of two, three years?

I'll tell you what – I will do that as part of guidance for 2017 that you know we do have the capital spending program going on the satellites obviously with launches in 2019 and 2020, but when we come out with guidance for 2017, I'll give you a little more detail on the spend.

Okay. Thank you.

... for taking the questions.

We see one kind of bigger picture and then another a little bit more detail on the numbers. You're getting this great kind of penetration of some of the great new technology for the home with Sonos and you talked about PlayStation, huge improvement over the start of Sirius when you had to stick these clunky satellite antennas out the window, which in personal experience didn't often work.

Now it works beautifully through Sonos. Are you getting better engagement from your subscribers as you build into these new technologies and get into the home?

Is that part of what's helping you put up these excellent kind of self-paid churn rates right now?

So I think that's certainly our intention. Okay, I mean, there's no question why we're doing it.

We're not driving hard today. I wouldn't say in the future we might not experiment.

We're not driving hard for, let's call it, a standalone in-home subscriber, okay. Most of our effort for doing all of these things is exactly, as you said, it's to enhance the listening experience outside of the car, and it's our theory and I believe it's going to prove to be absolutely true that that will have a good strong anchoring result in helping our churn performance stay steady.

So that's certainly our intention. It's a little early to say we can prove the thesis, but that's what we're trying to do.

Okay, great. And then on one of the numbers your self-paid subscriber guidance, I mean, that would imply only a couple hundred thousand net additions in the fourth quarter, so a lot less than last year.

I struggle to come up with the fourth quarter where you've added that few self-paid subs. I mean, is there anything specific going on in the fourth quarter or is there just an element of conservatism in the guidance here?

Well, I would say sort of neither. I mean, we actually do tend to tell you exactly what we think things are going to be and the fact is that the subscriber base is a lot bigger, and so the churn numbers are just bigger while the rate is flat, that means we got a lot more people turning over.

So there's sort of a title effect from that you battle against. And we've challenged our team members to kind of really drive the top end of the funnel this quarter just like we do every quarter, we come out, we give you guidance numbers, and then we go back and we work our tails off to beat them.

I think it's just a realistic outlook.

Okay, great. Thank you.

Thanks and good morning. David, I think last quarter you talked about how you're watching churn really carefully opposed to price increase, but with churn steady at these levels, I guess what gives you confidence that perhaps there is wiggle room for an additional price increase, and is the video products with Howard Stern and products like telematics, does that boost ARPU over time?

Thank you.

So, we always worry about the price adjustments that we make and we worry about all of them a lot. I think we've had enough time with the spring increase to sort of be confident that – we're not seeing a material amount of churn, all that being said, there's no doubt in my mind or in Jim's mind that there is churn going on.

It's just that it's not as apparent. You're right, we do watch the churn very closely that we're looking for literally a few basis points difference in trend rates and one of the things about this business we've talked about it over time is sort of these laws of large numbers that you've got 25 million self-paid subscribers, and we're running 20 million trials a year to get new people to join the service.

Those are just enormous figures. It's a lot of individual consumers making individual decisions.

And so statistically we don't expect to see much variability in it at this point in time, which is why we watch it so closely. In terms of ARPU opportunities that – telematics doesn't figure into our ARPU calculations, so I'd say as it relates to that statistic then, we're not looking for connected vehicle services to drive ARPU.

But we actually are very optimistic about this business as we talked many times before, it is a long cycle sort of implementation because you get the contracts done and the OEMs got to work it into production, that tends to take years, and it's going to begin to ramp up. But there's a very bright long-term future for connected vehicle.

Great, thank you.

Hi, good morning. Two questions.

First I wanted to ask you about royalties. Over the past several months I think we've seen several online music industry players signing royalty agreements directly with the labels.

I mean I was wondering with your proceeding (43:56), do you think this time there could be an opportunity for commercial deals instead of the statutory process. And then my other question is on Canada, can you just talk about how integrated those operations will be given the ownership structure and also how that accounting is going to work while you consolidate it, that'd be great.

Thank you.

Okay. So on the royalties, I think that a direct deal in place of a statutory license for us is, I don't think that's a possibility that even if you've got the three majors, which I think is highly unlikely that you would still need the statutory license in order to cover all the people that you didn't have deals with.

So our business is not the interactive music business where you actually can't play somebody's music out if you don't have a direct deal with them. So I don't really see that as something that's a likely possibility.

On the Canadian integration, I think the most important thing to remember with Canada is that it's a different market, and the consumers are different. The economy is different up there that they own their cars much longer.

It's an economy that's based more on extractive industries, and it just has a fundamentally different cycle and in many respects it is culturally different and some of the content that they enjoy is different than the U.S. And one of the things that we're not interested in doing is failing to continue to recognize that in fact it is different, it needs to have its own identity and needs to be managed as a separate business.

We do think that there are integration opportunities in an awful lot of functions, especially in the area of IT systems and how you procure IT technologies, there's probably some efficiencies from a G&A perspective, it wouldn't be a public company any longer for. But this recapitalization, unlike the U.S.

merger and unlike the Canadian merger which were all about the synergies of taking two companies doing the same thing in the same markets and putting them together, this is two companies offering the same product in totally different markets. And so it's not really about synergies so much.

From an accounting perspective we have worked through that now with KPMG and with their national office, that as you know that we will own 70% of the equity in their company, but because Canada is a closed market from a media ownership perspective, Canadians will own two-thirds of the voting equity and will have a majority of the board of directors, and as a result under the existing accounting rules we are not deemed to control Canada and so we will not be consolidating it. But when we've got a better view on timing of closing, which I hope to have certainly before we issue 2017 guidance, we'll help you get an understanding of how it's going to affect the various line items in the financial statements, but for now what you know is that we use equity accounting for Canada today and we'll be continuing to use equity accounting for Canada in the future, we'll just have a bigger share.

Great. Thanks very much, David.

Hey, Bryan one other comment I just want to make, you should assume it's a different model, but what David said is absolutely driving us on Canada. Anything that's customer facing, we want to remain the way it should be.

But you should also assume – we learned a lot in the acquisition of Agero. And we learned a lot about what we can and can't quickly combine and frankly forget the cost aspects of it, we just learned – it just helps those businesses run better when we can use the best tools across everything and so I think you should have a lot of confidence we know what we're doing there.

Okay. Great.

Thanks, Jim.

Thank you. In your very good 360L demo at CES, you highlighted that you could login and logout in the radios car to car, which has a lot of applicability for Uber or Lyft, can you talk about that and specifically how you can see the increasing prevalence of Uber and Lyft affecting your business?

Thank you.

I don't have a really good answer for you right now. I mean, we continue to try to work with Uber and Lyft to figure out a way for our customers to be able to conveniently enjoy our service.

As you can guess as more and more of our customers use our service on the app, it really becomes much easier for them to do that. I just don't have a whole lot more that I can add there right now.

Thanks, Jim.

Thank you for participating in today's call, and we'll look forward to speaking with you next quarter.