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Edited Transcript of XSR.TO earnings conference call or presentation 13-Apr-17 12:30pm GMT

Thomson Reuters StreetEvents

Q2 2017 Sirius XM Canada Holdings Inc Earnings Call

TORONTO Jun 5, 2017 (Thomson StreetEvents) -- Edited Transcript of Sirius XM Canada Holdings Inc earnings conference call or presentation Thursday, April 13, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jason Redman

Sirius XM Canada Holdings Inc. - CFO

* Mark Laurence Redmond

Sirius XM Canada Holdings Inc. - CEO and President

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Conference Call Participants

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* Tim Casey

BMO Capital Markets Equity Research - Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to SiriusXM Canada's Fiscal 2017 Second Quarter Conference Call. (Operator Instructions)

Before beginning its formal remarks, SiriusXM Canada would like to remind listeners that certain portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. For more information on the company's risks and uncertainties relating to these forward-looking statements, please refer to the Forward-Looking Disclaimer section of its second quarter MD&A.

(Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Thursday, April 13, 2017, at 8:30 a.m. Eastern time.

I would now like to turn the call over to Mr. Mark Redmond, President and Chief Executive Officer. Please go ahead, sir.

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Mark Laurence Redmond, Sirius XM Canada Holdings Inc. - CEO and President [2]

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Thank you, operator. Good morning, everyone. Thank you for joining us on our fiscal 2017 second quarter conference call. With me on the line today is Jason Redman, our Chief Financial Officer.

We released our fiscal 2017 second quarter results after the close of market yesterday. You can find our news release, MD&A and financial statements on our website at siriusxm.ca and at sedar.com.

On today's call, we'll run through a review of our operational and financial performance, after which we'll provide an update on our proposed go-private recapitalization transaction. We will then open up the call for questions.

During the second quarter of 2017, we continued to further enhance our programming lineup and continued to see our unmatched listening experience drive growth in our subscriber base. Additionally, we delivered year-over-year increases in both revenue and subscribers.

We continue to move closer to completing our go-private recapitalization transaction with the completion of the CRTC public consultation process on January 12, 2017. While we await the decision, we have remained intensely focused on driving our operational results and further developing the service offering for our subscribers.

We ended the second quarter with approximately 2.8 million total subscribers and more than 2 million Self-Pay subscribers. Our subscriber retention remained strong, with Self-Pay churn at 1.8% compared to 1.9% in Q2 2016.

On the new car front, our OEM penetration rate held steady at approximately 70%. In the preowned market, we had just over 2,900 dealers enrolled in our program at quarter end. We saw a 5% increase year-over-year in the number of Q2 gross additions from the preowned market. Total subscriber gross additions from the preowned vehicle market grew from 15.4% in Q2 2016 to 16.6% in Q2 2017.

During Q2, we provided extensive sports coverage. This included the 2017 World Junior Hockey Championships, the NHL All-Star Game, Major League Soccer's Championship Game and Super Bowl LI. We also launched Faith: The George Michael Tribute Channel, provided live coverage of the U.S. inauguration and hundreds of hours of holiday programming.

Overall, we continue to deliver on our commitment to provide our subscribers with access to unrivaled content.

On that note, I'll pass the line to Jason to discuss our financial results in greater detail. Jason?

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Jason Redman, Sirius XM Canada Holdings Inc. - CFO [3]

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Thank you, Mark, and good morning, everyone. Second quarter revenue improved 3% to $86.9 million from $84.4 million in Q2 2016. Revenue results for the quarter primarily benefited from growth in our Self-Pay subscriber base.

Self-Pay ARPU was relatively flat year-over-year at $12.47 in the second quarter of 2017 compared to $12.49 in Q2 2016. Total operating expenses for the quarter, excluding stock-based compensation, were $63.2 million, up from $60.2 million in Q2 2016 mainly due to increases in the following areas: first, investments made in IT to further enhance our infrastructure; second, increased call center costs resulting from investments made to improve the call center experience; third, variable costs with the higher revenue share and royalty rates; and lastly, the costs as a result of timing of Canadian Content Development initiatives.

Looking at expenses on a per subscriber basis. Our SAC for the second quarter was down $2 or 5.1% to $37 from $39 in Q2 last year, mainly due to OEM partner mix, lower OEM subsidy costs and increased gross additions from both new and preowned vehicle sales.

Adjusted EBITDA for the quarter was $23.9 million, a 3.5% decrease from $24.8 million in Q2 last year. The moderate decrease was a result of higher costs for revenue share and royalty costs and increased IT expenditures, which are partially offset by higher revenues and lower administrative expenses.

Adjusted EBITDA margin was 27.5% compared with 29.4% in Q2 last year.

Now quickly turning to cash and liquidity. During the second quarter, cash flow from operations was $14.5 million, down from $17.3 million in Q2 2016. The decrease is primarily due to lower net income, partially offset by higher operating working capital.

Free cash flow for the quarter was $11.8 million, a $1.9 million decrease from $13.7 million in Q2 2016, primarily due to a decrease in cash flow generated by operating activities, partially offset by lower capital expenditures.

In regards to dividends for the second quarter of fiscal 2017, the board has not yet made a decision.

Overall, looking at our performance for the quarter, our financial results were in line with our expectations as we continue to balance top line growth with investments in the business.

With that, I'll pass the call back to Mark.

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Mark Laurence Redmond, Sirius XM Canada Holdings Inc. - CEO and President [4]

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Thank you, Jason. Subsequent to quarter end, we were once again named one of Canada's best-managed companies. We are proud to announce that this is our eighth consecutive year receiving this honor and our second year of qualifying as a Platinum Club Member. Platinum Club is for organizations that have retained best-managed status for 7 consecutive years or more.

With regards to our go-private recapitalization transaction, it's our understanding that the transaction was on the CRTC agenda for the -- during the month of March. We cannot say when the commission will issue a decision, but we will notify shareholders when it has, along with any other material developments. Transaction-related information can be found on SEDAR and on our dedicated transaction website, www.siriusxmcanadatransaction.ca.

With that, I'll now open up the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Tim Casey from BMO.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [2]

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Any chance you could just talk about why there is no decision on the dividend? I mean, it's hard to think of what piece of information the board is waiting for other than the CRTC decision with respect to paying a dividend this quarter.

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Mark Laurence Redmond, Sirius XM Canada Holdings Inc. - CEO and President [3]

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Tim, as we highlighted in our release and discussion here, the board just hasn't made a decision on it yet. And as soon as they do, we'll let you know.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [4]

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I mean, but you've -- it seems likely that there's not going to be any more dividends paid until there's a decision. Is that a fair comment?

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Mark Laurence Redmond, Sirius XM Canada Holdings Inc. - CEO and President [5]

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Yes, I don't know. I wouldn't speculate or read anything into it. I mean, at this point, the board has not made a decision, and when they do, we will let you know.

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Operator [6]

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(Operator Instructions) We do not have any questions over the phone at this time. I will turn the call over to the presenters.

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Mark Laurence Redmond, Sirius XM Canada Holdings Inc. - CEO and President [7]

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Thank you, operator, and thank you, everyone, for joining us on our call today.

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Operator [8]

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This concludes today's conference call. You may now disconnect.