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Edited Transcript of SIRI earnings conference call or presentation 28-Apr-20 12:00pm GMT

Q1 2020 Sirius XM Holdings Inc Earnings Call

New York May 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Sirius XM Holdings Inc earnings conference call or presentation Tuesday, April 28, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David J. Frear

Sirius XM Holdings Inc. - Senior EVP & CFO

* Hooper Stevens

Sirius XM Holdings Inc. - VP of IR & Finance

* James E. Meyer

Sirius XM Holdings Inc. - CEO & Director

* Scott A. Greenstein

Sirius XM Radio Inc. - President and Chief Content Officer

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Conference Call Participants

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* Benjamin Daniel Swinburne

Morgan Stanley, Research Division - MD

* Bryan D. Kraft

Deutsche Bank AG, Research Division - Senior Analyst

* James Maxwell Ratcliffe

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Jason Boisvert Bazinet

Citigroup Inc. Exchange Research - Research Analyst

* Jessica Jean Reif Ehrlich

BofA Merrill Lynch, Research Division - MD in Equity Research

* Steven Lee Cahall

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Zachary Alan Silver

B. Riley FBR, Inc., Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, good morning, and welcome to the SiriusXM First Quarter 2020 Results Conference Call. Today's conference is being recorded. (Operator Instructions)

At this time, I'd like to turn the conference over to Hooper Stevens, Senior Vice President, Investor Relations and Finance. Mr. Stevens, please go ahead.

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Hooper Stevens, Sirius XM Holdings Inc. - VP of IR & Finance [2]

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Thank you, and good morning, everyone. Welcome to SiriusXM's First Quarter 2020 Conference Call. Today, Jim Meyer, our Chief Executive Officer, will be joined by David Frear, our Senior Executive Vice President and Chief Financial Officer. At the conclusion of our prepared remarks, management will be glad to take your questions. Scott Greenstein, our President and Chief Content Officer, will be available as well as Jennifer Witz, our President of Sales, Marketing and Operations. Those 2 will also be available for the Q&A portion of the call.

First, I'd like to remind everybody that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about those risks and uncertainties, please view SiriusXM's SEC filings. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them.

As we begin, I'd like to advise our listeners that today's results will include discussions about both actual results and pro forma adjusted results. All discussion of pro forma adjusted operating results assume the Pandora transaction closed on January 1, 2018, and exclude the effects of stock-based compensation and certain purchase price accounting adjustments.

With that, I'll hand the call to Jim Meyer.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [3]

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Thanks, Hooper, and good morning. We're going to keep it brief, give you a further look at trends in recent weeks and reserve plenty of time for your questions.

The world has changed very dramatically and very rapidly since the onset of COVID-19 health and economic crisis. Yet our first quarter was exactly the kind of strong performance you'd expect from us. We grew subscribers, had solid revenue growth, and grew adjusted EBITDA by 13% to a record first quarter level. We are fortunate to benefit from a powerful subscription business model. And while we are not providing guidance at this time, we expect to generate substantial positive cash flows this year and in years to come.

Our biggest priorities in the crisis will always be to ensure the well-being of our employees and to manage business continuity. Global stay at home orders swiftly and materially altered the way we work. All of our teams have responded with speed and creativity. We migrated 5,500 employees and contractors to work from home in mere days. This required a tremendous effort from our IT and HR teams.

We experienced a substantial disruption of our call center staffing. Staffing levels fell 50% to 60%, lengthening hold times, increasing abandon rates and reducing our ability to handle customer needs and support our sales campaigns. In response, our IP, marketing and call center operations teams took a variety of actions, including enabling more than 2,500 of our call center agents to work at home, significantly increasing online chat capability and enhancing self-care tools online and through our IVR systems. We have made significant improvement here but I don't expect us to get back to our normal levels until stay at home orders are lifted, perhaps in June or July. But we are playing offense as well as defense. To drive awareness of our streaming offering and make it very easy for Americans to access vital news and information, we launched a free online listening period.

With most of us staying home, we see an opportunity to get more Americans stream SiriusXM as well as a unique occasion to get our existing subscribers to stream more. Our programming group had been in overdrive. Our content right now not only sounds great, but it's super relevant, and the response has been remarkable. In times like these, more than ever, our service brings people together, gives people company and helps us share our changing national experience.

We were 1 of the first media companies to create virtual events to replace canceled ones as we did for the Ultra Music Festival and more recently with Stagecoach. Bruce Springsteen, Taylor Smith -- Taylor Swift, Garth Brooks, and many more have participated in special DJ sets and home performances for our listeners. And Howard Stern has conducted phenomenal interviews from his home with Tom Brady, Governor Andrew Cuomo and Paul McCartney. I'm happy to report that Andy Cohen made a healthy return to his exclusive talk show. Kevin Hart is back doing new shows, and Greg Norman and Coach K did special shows for us. We all could use a laugh and we created She's So Funny, a full-time comedy channel based on the works of female comics. Last week, we announced and launched an exclusive weekly show by Gayle King, where she hears from and talks to Americans during this crisis.

Very early in March, even before the gravity of the crisis was fully understood, we enlisted NYU Langone Health, which has powered our Dr. Radio channel for more than a decade, to create a new full-time channel about the coronavirus. We've made this channel available free on both active and inactive satellite radios. Dr. Radio and our special coronavirus channel are providing daily reports from experts, astonishing stories from medical personnel on the front lines and fielding calls from listeners to answer questions on everyone's minds.

This programming, along with the daily podcast we've created and are making available widely, has become an essential source of the kind of fact-based medical information that is both in demand and so vital to our country's future. In short, we quickly took steps to ensure that our audio entertainment service would be uninterrupted. We provided the best possible customer service, and we continue to operate the business with a level of excellence you have come to expect from SiriusXM.

I could not be more proud of the efforts and the performance of our teams during this difficult period. But make no mistake. SiriusXM is also still focused on building strong long-term foundations for growth. Our new car penetration rate rose to 76% in the first quarter, on its way to the 80% that I've talked about obtaining later this year. We continue to extend OEM contracts, further 360L rollouts and increase the quality of our streaming offer.

Our investment in SoundCloud in February deepens our relationship with the company and builds upon our successful ad sales agreement. SoundCloud is 1 of the largest open audio platforms in the world and plays a critical role in the music ecosystem. It helps rising artists get discovered and gives them the tools to understand how their content is being consumed. When combined with the reach of SiriusXM and Pandora, we can now offer advertisers the opportunity to reach 140 million listeners in North America. This enormous reach and our growing innovative capabilities in digital advertising technology are a tremendous strategic asset that will benefit our shareholders over the long term.

It's difficult to predict what the next 3 to 6 months will bring. Our ad revenues will take a hit just like everyone else. But with a 80-20 subscription advertising mix, SiriusXM is better positioned than most companies to weather this storm with our talented employees, a unique, powerful business model and extremely strong financial position. And I can assure you, we will also be well positioned to capture upside when this crisis finally ends.

Of course, we are taking a fresh look at everything in the business. Like many other companies, we have paused nearly all hiring. And we are putting a tight squeeze on spending where possible, while still investing where we see opportunity.

Our response to all of our stakeholders will be guided by both empathy and smart economics. Our primary brands of SiriusXM and Pandora remain very attractive to consumers because we have fantastic content. And we keep the service easy to use, and we continue to present a good value proposition. I remain as optimistic about our company's future as ever before. Once we have a better view of the slope of the restart and recovery, we plan to resume providing guidance.

Now let me hand it off to David for more details on the quarter.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [4]

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Thanks, Jim. SiriusXM's first quarter was solid across the board as you have come to expect from us. We added 69,000 self-pay net adds and grew pro forma revenue 5% to $2 billion. Adjusted EBITDA climbed 13% to a new first quarter record of $639 million. ARPU was $13.95 in the first quarter, up 3.2% year-on-year. Our churn rate was flat year-over-year at a very good 1.8% per month, and new car conversion rates improved 1 point versus last year's first quarter to 39%. Used car conversion rates were similarly solid.

Our installed base of enabled vehicles grew 10% year-over-year to $128 million or approximately 46% of the cars on the road in the U.S. The used car penetration rate climbed about 400 basis points year-on-year to about 48%.

At the end of the quarter, the total trial funnel stood at 9.1 million, down from 9.3 million at the end of 2019. All of that contraction in the trial funnel came in the back half of March as stay at home orders reduced auto sales. From a healthy new car SAAR of 16.8 million in February, SAAR came in at 11.4 million in March, with all of the decline seen after March 9. So far in April, new and used car trial starts, a close proxy for sales, are down roughly 55% to 60%, not quite as bad as we thought. And many states are now reevaluating whether auto dealer showrooms should remain closed. However, lower sales auto sales today flows through to fewer conversion opportunities 3 months from now. We will see the biggest effect of this lower top of the funnel activity in the third quarter. Lower auto sales does provide a benefit of reduced vehicle-related churn, which will partially offset an expected rise in nonpay and voluntary churn.

In March, we saw a 15 basis point increase in nonpay and other voluntary churn, which was completely offset by a reduction in vehicle-related churn. Conversion rates fall in late March but have already partially recovered. We did see a small number of advertising buys get canceled in late March and a much bigger impact starting this month. We have not yet seen much of a slowdown in payments related to ad sales. Bad debts associated with this or consumers should increase in a recessionary environment but once again, we have not seen much of this impact so far.

Given how much has changed in the economy, when Jim and I put all of this together, we can't help but see these recent trends as confirmation of the high-quality of the business model. We currently expect no more than $340 million of CapEx in 2020. The launch of SiriusXM 7 is currently expected to occur later this year. But we expect the launch of SiriusXM 8 to be pushed into early 2021. The health of the satellite fleet is good, and there is no customer impact to this push. We still expect to pay no federal cash taxes in 2020 and a very small amount in late '21.

As we mentioned in the press release, in late March, we temporarily suspended our stock buybacks. Even with that, we put $377 million to work in the first quarter through returns of capital to shareholders and the investment in SoundCloud. Following the buyback suspension, we used cash flow to quickly pay down a small balance in our revolver, which is now completely undrawn and available at $1.75 billion, and we are building cash. Our capital allocation strategy and leverage targets have not changed. However, global assets have clearly been repriced. And the stock repurchase grid, we said at the beginning of February, had simply become out of date by the time we hit the end of March. We expect to take a look at this in light of the outlook for the U.S. economy and resume the buyback accordingly. We will update you further on capital returns on our next call.

And with that, operator, let's open it up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first quarter question from Vijay Jayant from Evercore.

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James Maxwell Ratcliffe, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [2]

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It's James Ratcliffe for Vijay. Two, if I could. First of all, on the advertising front, you mentioned seeing significant impact. How do you adapt to that in terms of bringing down price versus bringing down quantity and balancing those two, particularly on the Pandora side?

And secondly, on the -- particularly on the satellite radio side, what are your expectations if there's a sustained change in the amount of time spent in car increasing work from home, how that translates through into subscriber impact and your ability to offset that with in-home part of the equation?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [3]

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So I'll take the first half of your question, and David will take -- I'll take the second half of your question, and David will take the first. So let me comment. I don't see, quite candidly at this time, why there'll be any material change in the demand for our product going forward. Obviously, the amount of listening in the car is significantly down over the last 6 to 8 weeks. Once the country is open again, I see a big chunk, if not all, of that listening returning. I think Americans have had a love story for their car for a long, long time. And I don't see why that's going to change.

With that said, I'm really glad that we have significantly strengthened our streaming offering on the SiriusXM side, the way we have over the last 3 years. I'm also glad now that virtually all of our subscribers receive that -- receive streaming with no extra cost. So I think we're well positioned either way. And so I'm not worried at all about the demand for -- or the listening hours for our product going forward. David, can you take the question on advertising, please?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [4]

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Yes. And James, if I heard it right, I think you were talking about what can you do to bring down price to stimulate the demand side. And for what we see generally in the advertising markets right now, that -- I mean, you can drop your prices, but you're not really going to bring a lot of dollars out that advertisers are cutting back for a whole host of reasons. One of the -- I'm a little bit hesitant to say this, but we see some encouraging signs. If we were literally to take the order book for what it says or what it is, that -- you'd have the point of view that advertisers think we're going to be back to normal in the third quarter. Now Jim and I look at that, and recognizing that people can pull their ads at any time. For the most part, we think that's probably a hopeful look and people have time to make decisions about how quickly they restore advertising because you can turn it up pretty fast.

And so we'll just have to wait and see. But for the situation, as we walk into this early part of the second quarter, then you can drop your prices. But the fact is that you've got to -- you're in a demand-side problem here, and you're not really going to stimulate it with -- by dropping prices.

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Operator [5]

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Our next question comes from Ben Swinburne from Morgan Stanley.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [6]

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I wanted to ask about your programming during this pandemic and stay at home situation. In a couple of ways you guys typically don't share engagement statistics, and I know it's tricky with the satellite business, but I was just curious if you had a sense for how the programming was resonating with listeners who are, as you just were talking about, not driving, not commuting, but in the home? And also if you expect the programming moves you've made to impact your programming cost structure, 1 way or the other. I think you even mentioned in the release that you're continuing to pay for sports, even though there are no sports. So it's really a question around the moves you've made in content, which seem to be really resonating at least anecdotally. I'm thinking about some of the stuff that Howard has been doing, it's been pretty incredible. And how that is impacting or not engagement on the platform broadly? And then also how much it may be impacting the cost structure 1 way or the other? It's kind of a bigger question, but wanted to get your thoughts.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [7]

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So Ben, it's Jim, and I'll start. I'll ask Scott to say a couple of quick words, and then David, to wrap up on costs. So first and foremost, and I don't want this to sound like a paid political ad, but I couldn't be more proud of the content we have on the air right now. Our team has transitioned so quickly to be able to provide the content that our listeners expect from us, from an environment where we worked at virtually probably, I think, 8 or 9 national studios around the country to where all of our content today is being produced outside of our studios without losing the beat.

Furthermore, we just had tremendous support from the talent that is a big part of the SiriusXM story. I can tell you that on the SiriusXM side, we do have our own barometers to understand what the response is to our programming and how it's being received. Examples being, for instance, on the talk side. How many calls we'll receive from listeners on various subjects. I'll just give you a small one. Fred Couples did a show on the golf channel a couple of weeks ago. The call in queue was longer, I think, than we've ever seen for any content we've had on that channel. And so there's a good...

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [8]

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Jim, it was Greg Norman.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [9]

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Greg Norman, I'm sorry, people listening. And so we know it's resonating and we couldn't be more pleased with that.

On the Pandora side, we have definitely seen a downturn in our listening. It has come back recently, but still not quite where we would have expected it to be. And so we're spending a lot of time on understanding that. Most of that were shows related to the impact of the virus right now. And obviously, the flip between stay at home and commuting/working out/in the car. I also expect that will change and return to normal once Americans begin to get back to what we all know we're going to do every day, which is get back to going back to work. So Scott, anything quickly you want to add?

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Scott A. Greenstein, Sirius XM Radio Inc. - President and Chief Content Officer [10]

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Yes. Just quick. So just a couple of things there. One, I think you actually kicked off with Howard and people could note both in the audience community and just the normal community of the amount of social media and everything generated far more than even any of the normal shows and it continues that way today. That led to people at least realizing we could go live, we could take calls, which I don't want to downplay that compared to anybody else out there, just the fact that we have live radio shows taking calls, mostly billions every day, around the clock. And then that led to, obviously, a lot of stars and others that work with us really digging in and using their channels from Bruce, and just guest DJ guest sessions to Eminem (inaudible) to do stuff, to Beastie Boys to (inaudible) and LL Cool J. And that led to people like Jimmy Fallon saying I'll host Hits 1, Taylor Swift hosts Hits 1. It just continues each day, and there'll be more coming shortly of talent that really wants to get engaged because the service is functioning in a unique way during a unique time. So as Jim said, I couldn't be more proud, but we're just getting started, and we've learned a lot from this, and some of this will continue as we come back to them.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [11]

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David, do you want to comment on...

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [12]

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Go ahead. Sorry, Jim. Yes, I got it. One more thing on the -- Jim mentioned the Pandora listening, Ben. And we can track the listening changes directly to commute times and we -- if you look at the markets with stronger stay at home orders, and we've looked at the markets that don't have them, there's a lot of data at Pandora, and you can track the change in listening trend directly to commute. We have picked up quite a bit on CE devices with the whole growth in smart speakers. So we did actually see people sort of effectively transitioning to a different location, but the pickup in CE doesn't make up for the loss of commute.

On the cost side, we have some -- there are a few contracts where we have lower expenses given what's happened. And some of them are related to the reduced demand for the -- on the advertising side. But for the most part, our programming costs remain the same.

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Operator [13]

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We will now take our next question from Steven Cahall from Wells Fargo.

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Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division - Senior Analyst [14]

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You talked a little bit about the churn dynamics and lower vehicle churn versus the involuntary churn. Could you maybe talk a little bit about how churn trended in 2008 to '09? And do you think that you can have it sort of be net neutral in terms of the way those 2 forces are acting in this cycle? And then you said the trial starts were down about 55% to 60%, and that was a little better than you thought. Do you think that's the peak of the decline? Or is it too soon to tell? And as the funnel shrinks, should we start to expect -- I assume there's a pretty big offset to the SAC expense. Maybe you can just help us think about how much SAC comes down when the funnel starts to make that sort of shift.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [15]

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So David will respond to some of those individually. Just 1 point I wanted to make just before. Remember, in 2008 and 2009, we did not have a used car funnel that was near as powerful as we do today, and we weren't penetrated in the fleet anywhere near where we are today. So I believe we can take a lot of lessons from how nonpay and voluntary behaved during that time frame, but I don't really believe there's anything from that period that's going to help us predict whether 1 is going to offset the other. With that said, David, let me turn it over to you.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [16]

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Sure. Yes. In 2008, '09, we were sort of late into the recession and early out of the recession because the demographic and the customer base is above-average income. We're kind of more representative of the general driving population now with what Jim said about the growth of the second owner business. And so we would expect to be -- we don't know. We're going to find out. So I'm going to tell you right now, I don't know what the answer is. But I would expect that we won't be quite as late in and quite as early out as last time, but we still have a customer base on average, where the demographics say that we have better-than-average income. So they should be -- the customer base should be more recession-resistant. I do expect because of the vehicle-related churn, that being a much bigger component to have less of a spike in churn than we had the last time around. How much less of a spike? Sort of anybody's guess. But we're hard-pressed to believe that churn wouldn't rise a little from this 1.8% level that we've been at for quite a while, but we don't expect the same kind of a spike.

On the SAC, trial starts in SAC, the combination between those. It is sort of a 1 for 1. As you take new car sales down, that you're going to end up, ultimately with less production unless you expect on the other end, the spike to recover. That in other words, that if you go from 16 million car sales down to 11 million. And you think you're going to make all those up on the back end, your SAC would just come a little bit later. So a lot of what you have to forecast out of the fact is what your expectations for the recovery is. In the meantime, we know that automakers have shut the plants down. So they're not making the cars now. And that's absolutely going to result in a volume reduction in SAC.

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Operator [17]

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We'll take our next question from Jessica Reif Ehrlich from Bank of America.

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Jessica Jean Reif Ehrlich, BofA Merrill Lynch, Research Division - MD in Equity Research [18]

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My first question, just for Scott or Jim and then for David. So the first side, just to go back to the content, the release says, and as you said, you're still paying the sports leagues. And I'm just wondering what flexibility or what you get in return to do the same contracts. Do you -- like what happens with these contracts? And then, I guess, there was an announcement. Howard Stern must have said something on his show this morning that he's open to ideas on this contract. Can you give us any color on what's going on there?

And then for David, it seems like an opportunity possibly to maybe change the long-term business operations. If there's something that you feel could be more efficient? Or are there any longer-term impacts from what's going on now?

And then finally, could you talk about the confidence in resuming the buyback? That's -- it just seems amazingly confident when you -- it sounds like you're leaning towards that. Maybe you can give us color, but it does sound like a big vote of confidence from the company.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [19]

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Okay. So Jessica, yes, I think it was a 5 -- 4- or 5-part question, so I'll try to keep -- I'll try to be an effective ring leader. I'll take the question on Howard. I'll comment quickly on the sports savings. Scott can add in if he wants. And David will take the rest.

So number one, I've been really clear. I want Howard Stern to be on SiriusXM for as long as Howard wants to work. And I don't -- I think Howard -- I know Howard and I have a tremendous relationship and it's never been better. And as importantly, maybe more importantly, rather, the quality of the show that he's bringing to our listeners every day couldn't be better, and I couldn't be more proud of it. I could place a cadence to begin, discussions I've had. Howard and I chat quite often, but we put in place cadence to begin more formalization or discussions as Howard's contract does expire at the end of the year. I actually set some time aside to begin to -- begin working this through with Don Buchwald, who's Howard's agent. Obviously, with the coronavirus, we haven't been able to have those discussions. I actually spoke with Don even a couple of days ago. And I think those discussions are better held in person. I'm not concerned that we won't find a way together to try to find a path forward. And I'll have -- I hope to have more to say when we do our third quarter call. But again, I think I've said enough there.

On the sports programming side, I can tell you, there's going to be a gigantic argument or no argument down the road. First and foremost, our #1 concern is for the leagues to get started and get the content back on the air that we know our subscribers love. There'll be all kinds of discussions here. But I think David summed it up pretty well a couple of minutes ago, which is certainly in 2020, we don't expect any change in the cost of our sports prime times. David, you want to take it from here?

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Scott A. Greenstein, Sirius XM Radio Inc. - President and Chief Content Officer [20]

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Jim, can I add just 2 things. So just the 1 thing on Howard. Obviously, this whole situation unexpected, has given Howard an entire another level of enthusiasm and appreciation for the company and all that. Even this morning, in fact, he was talking about how proud of it he is. And more importantly, how many of his former fans, who didn't even know how the show really had evolved, have now found the show through the free listening period.

In addition, this gives Howard an additional tool besides the studio, this Zoom thing, when talent doesn't have to be in New York or LA to promote a movie or a record or whatever. That they -- he can get major guests from their home is an entire new tool and it's awesome. And then I expect him to continue. So we feel really good about that.

And then just on the sports leagues, Jim said it well. But you also have to remember, at this time, and there's nothing else on, we have the largest library of classic sports being broadcast. I mean there's many, many games going over time. So we're filling that gap as best we can and the leagues value us as a partner, and we do them. But David will deal with the financials as we get better further down there.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [21]

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Jessica, your question on how this might change longer-term business operations, it's a really good one. We've been talking a lot about this over the course of the last 6 weeks. So when you -- as you know, we've been a high-touch customer service organization. We have, I think, between inbound and outbound call center staffing, we have like 10,000 to 12,000 agents around the world. And with half of them not coming to work as of about 5, 6 weeks ago, that -- it really drove us into figuring out, well, how do we change, do things. And now that we're 5, 6 weeks into it, 1 of the questions we're asking ourselves is, well, as we optimize in this new configuration, what does it mean to long-term performance? And is there an opportunity in here? So you see us moving into improved efficiency and digital experience for customers that we're figuring out how to turn up and make more effective chat agents as opposed to the live agents. And we tend to work our way through an awful lot of the business and wonder about that. Do we need as much office space? Do we actually need to put people in the air as often than we do? I don't know what all of you are finding, but we're finding that this world of working across Zoom to be highly effective. And so there is a real consideration of do we need the same kind of G&A infrastructure that we used to have.

When -- even though we have incredibly strong liquidity and a lot of cash flow, we can clearly afford to pursue new initiatives in the same way that we had in the past, where we've asked all of our guys to look hard at the initiatives that they had on the calendar for this year and start prioritizing between them. And part of that gets forced by the hiring pause that Jim mentioned. But we're going to -- you know what they say, never let a good recession go to waste. And we're looking hard at this. Out of car engagement is going to be -- is turning out to be a really interesting thing for us. That with -- what's hard to get people's attention for Sirius when they were busy driving in their car. And we're finding the free streaming alternatives as well as just our organic efforts to get people streaming more have really picked up stay-in since the commencement of this crisis. So stay tuned for how these changes play out.

With -- on the buyback, we are confident. Clearly, we don't have a liquidity or a leverage problem to deal with. And what we are looking at is a price dislocation. That's not just the dislocation for our asset, the Sirius stock. It's a dislocation for other people that were in the market. So there's -- for a company with an awful lot of financial resources, that we're in a good position as it relates to opportunities for external acquisition.

And with respect to the buyback itself, we'll take a hard look at what we think the shape of the recovery could look like, what we think that means for the value of our stock. And just like we have in the past, when we believe it's on failed, we won't hesitate to step on the gas.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [22]

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One point I'd like to just -- I'd like to add, David, is -- Jessica, we've been in -- as you would expect, we've been -- we've had multiple conversations with our Board on this subject. And -- including, obviously, just a few days ago. And I think David summed it up well as to both where the Board is and the direction the Board has given David and I, which obviously winds up exactly with where -- with what our recommendation was.

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Operator [23]

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Our next question comes from Zack Silver from B. Riley FBR.

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Zachary Alan Silver, B. Riley FBR, Inc., Research Division - Associate [24]

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Okay, great. The first, just can you talk about what sort of levers are you contemplating using to win back any customers that may decide to pause or cancel their tier subscriptions in light of the economic downturn? Maybe if there's any kind of puts and takes on how that should impact the ARPU trajectory this year, whether it's material or not.

And then the second 1 is just on some of the voluntary churn, ex the nonpay, that you have experienced. Do you any sense of whether -- so far there's been subscribers who are canceling because you're spending less time on the road and seen less value of the service right now? Or are those cancelations more from households just tightening up their discretionary expenses?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [25]

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David, why don't you take that one?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [26]

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Yes. So nothing's really changed with our offer strategy, right? We've done some things to streamline the offers in some respects. When you used to get an agent on the phone, they take you through a more complicated offer cadence than now, you can do it in the IVR or you can do it online. You can do it through a chat agent. And in those less interactive channels, we've tried to streamline and simplify the way that pitch is made. Will it have a big effect on ARPU? No, although you have to feel like in a recession environment, that whatever increase in ARPU you thought might be coming in the business, it's got to be less, right? You're in a more recession-sensitive environment.

On the nonpay side of things, I don't have any more data on that than what I gave you in the prepared comments. So we tried to give you the data point of, okay, in March, we saw a 15 basis point increase in the total of nonpay and other voluntary churn. We've always felt that at -- under $14 on average per subscriber, that -- our service has never really been about you can't afford it. It's more that you choose not to pay for it. And so we do look at the 2 together. You've heard us talking about those 2 together in sort of the 120 basis point range over the last couple of years. And so we saw a 15 basis point increase in that in March, but fully offset by the vehicle-related churn. How sustained will that be going forward? It's sort of anybody's guess, we'll keep you posted.

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Operator [27]

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We'll now take our next question from Jason Bazinet from Citi.

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Jason Boisvert Bazinet, Citigroup Inc. Exchange Research - Research Analyst [28]

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I just had a very simple 2-part question. On gross additions, as we wait for sort of auto plans to come back online, do you mind just giving us an update on the share of gross adds on the new car side versus used?

And then on churn, David, you mentioned you don't expect churn to be as bad as the financial crisis of '09. I assume that was a comment on sort of full year churn numbers, not the sort of trough to peak that we saw quarterly 10 years ago or so?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [29]

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I think it's -- on the second question, Jason, I think it's both, right? And again, I don't know, we're going to see. I hope I'm right. But I don't think we'll see the kind of full year spike. I don't think we'll see the quarter spike quite as big and I'm trying to remember now, but I think we might have seen 2.2% peak.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [30]

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1 -- correct.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [31]

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Yes, in 2008, 2009. And could it go there? Sure. I have to admit, with the dampening effect of vehicle-related churn, I'd be a little surprised but we're all going to see.

Now on gross adds, with new car sales dropping, right? So if you come through the first quarter of the year, the share of gross adds for new car versus -- and Jason, I'm talking about new car conversion, conversion from trials as opposed to winning back an original owner 2 years after they bought a new car, right? And that's consistent with what you've heard in the past. It probably -- because of the way that sales fell off at the end of the first quarter, maybe it dropped down a couple of ticks. But it's largely consistent with what you've been seeing. Certainly going forward, that as we go through the second and third quarter, new cars is probably going to drop a little faster than the subsequent owner plus the original owners who we're winning back, right? So -- but again, we'll have to see. But I don't really see anything in that materially changing from the trends you've been seeing.

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Hooper Stevens, Sirius XM Holdings Inc. - VP of IR & Finance [32]

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Operator, can we take our next and last question please?

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Operator [33]

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

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Bryan D. Kraft, Deutsche Bank AG, Research Division - Senior Analyst [34]

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I wanted to ask about a little bit more on the Pandora ad revenue. Can you give us any sense for the actual pace of the advertising revenue declines that you're seeing at Pandora quarter-to-date? Just to help us frame sort of the worst-case scenario. And also, how should we think about the margins on the ad revenue that is declining at Pandora?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [35]

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Want me to take it, Jim?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [36]

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Yes. Please, David. Go ahead.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [37]

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So we're hesitant to provide any information about what's really happening with the book on the advertising side. It's still a new business to us, and it is only 20% of the revenue. And so in the -- the part of -- the hesitation is that it's the velocity of the change in orders, right. I don't think Jim and I have a feel yet for how fast the people can change their minds in -- on the advertising side. So that's really where the reluctance comes in. I'm reading a lot of things from published statistics from various sources on what's happening with advertising sales out there broadly. It seems that digital properties are doing a little bit better than broadcast properties. Digital audio is a much smaller market than search and display. And so it's a scarcer commodity for people who want to reach that way. So that -- on the advertising side, that's about as much as I can say. Sorry, what was the other question?

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Bryan D. Kraft, Deutsche Bank AG, Research Division - Senior Analyst [38]

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The margin on it.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [39]

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Yes, so on the Pandora side, you don't have a completely variable cost associated with that, right? The formulations of these licenses are greater of sort of listening time or percent of monetization. And so if your listening doesn't decline proportionately with the demand, you can flip, right, into the unit cost instead of the share of revenue. And generally, we expect that to be occurring. But there's going to be fewer royalties than there otherwise were, certainly for the fact that listening is down a little bit through the crisis. And there'll be fewer royalties because of the drop on the demand side. But I do think the drop on demand from advertisers is going to be in excess of the drop in listening and so we're not going to get a one-to-one benefit there.

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Bryan D. Kraft, Deutsche Bank AG, Research Division - Senior Analyst [40]

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Maybe just 1 follow-up on the usage side, too, then. The advertising, listening hours were down, I think, a little bit less than we expected. So it seemed like the underlying trend there was a little bit better, but there was probably also a pretty big fall off in the second half of March. I was wondering if how much better that number might have looked, if not for the COVID-19 prices stepping in late in the quarter?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [41]

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Well, hard to know, right? But we were -- we're feeling pretty good about the plan that we had until we got to March 9, on all aspects of the business. That the satellite radio additions, listening time, ad orders were all very strong. And then when you hit the 10th of March, it was like business activity around the world fell off a cliff. So we are in a new normal. We do feel -- we had a call yesterday, Jim and I did with -- Scott was on, Jennifer was on, a lot of other people, and talking about listening trends at Pandora. And they are confident that they can track the change in listening to the reduction in commute time.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [42]

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Yes, Bryan, just 1 comment from us, from Jim, is your observation is exactly right. We were -- David is, exactly. We were sitting on March 10. And first of all, I want to reiterate what I said in my comments. I think we had an outstanding first quarter. It would have been even better without COVID-19. There's just no question. And the only reason I'd say that is not to say, oh gee, let's cry over spilled -- over lost -- over spilled milk. That's not the point. The point is the strength of our business model was never better ever than it's been than in the first quarter. That demand, when it sells, hits us both in revenue, in ad revenue and in subscriptions. There's no question about it. And I believe both of those metrics will come roaring back once we get back to normal.

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Hooper Stevens, Sirius XM Holdings Inc. - VP of IR & Finance [43]

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Thanks, Bryan. Thanks, everyone, for participating in today's call. Stay healthy, and we will speak to you soon. Goodbye.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [44]

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Thank you. Bye-bye.