Sirius XM at Deutsche Bank Conference

David Frear

Voluntary churn is 1.4%

“Well, I know — I’m pretty pleased by the results because what it says is that the voluntary churn, which not to say involuntary churn is declining. So, the overall — vehicle really in churn is rising. And so, I think it was — I don’t know, maybe a year or so ago, some of the calls we talked about that some of non-paying and voluntary churn is being sort of in the 1.4% to 1.45% range. It’s actually come below, 1.4% is — vehicle related churn has reason. But, the overall churn rate has stayed flat. So, I know we feel pretty good about it. We’ve got a big team of people that work hard to make that number happen. So, the stickiness to the service really seems to be playing out.”

Only in the Teslas with a sunroof

” I know we’re only in vehicles that have a sunroof because Tesla doesn’t want an exterior antenna. And so the antenna doesn’t pick up signal well when it’s underneath metal. So, what would you put it underneath glass and it’s got that clear view of the sky”

Connected car platform internally

“The other thing about connected vehicles that is a market that is largely unformed at this point is that the they are now building the communications, the entertainment, the electronic modules in the car in a way that they are actually connected internally. And this wasn’t the necessarily the case several years ago where they might have one board in there for satellite radio, and another board for an AM/FM radio, and a different board for a modem, and different board for the BUS that runs in the car. And those boards didn’t necessarily talk to one another. And so even though you might put a modem in the car that because you weren’t sending any information to the modem from the other boards that you couldn’t get any of the information on the car. All the automakers now realize that it makes sense to connect things up until that there is lot of resources they can share in terms of memory and power management, CPUs and things like that. And so, there is going to be a richer and richer set of data that you are going to be able to get out of cars over time. And then the question is who is going to use it, how do you manage the platform?”

There are a lot of pilots going on for data within car

“There are a lot of what I’d characterize as pilots going on in the automotive industry now as — and there is an awful lot of engineering resources going in where the OEMs realize the vast amount of data that they could provide, how do they want to collect it and how do they want to retain it and how they want to process it and who is a good user for that data. One of the things we have to remember is that the customer owns the car. And so the data coming off the car belongs — I think most people feel belongs to the customer. So, you also have to have permission along the way. But with — it’s an enormous amount of data. And I think part of this is that people have to actually see it work with it little bit come and [ph] decide what they think can really be done with that. ”

Sirius XM at Bank of America Conference

David Frear – Senior Executive Vice President and Chief Financial Officer

Used car business is growing for us

“the size of the business opportunity in used cars is going to continue to grow where as new cars is probably about as biggest its ever going to get right”

Auto industry continues to do well despite slow May

“And the auto industry continues to do well even after a slow may. I think that most people in the industry are thinking that the sales this year are going to be [1703, 1704] (ph) something in that range and we’re in 75% of them.”

New car business will slow unless you think SAAR going to 20m

“So unless you think either our 75% is going to 90% or unless you think the 17 million sales are going to 20 million, there is not much more growth that you can expect out of new cars sales”

Pandora has the best business model of the streaming companies

“Among the streaming companies, I think that Pandora has a better opportunity for a solid business models than the interactive streaming guys do. I think with the interactive streaming the fact that the music labels and then your content distribution network take over 80% of your gross, it’s really tough to ever make money in that. Pandora operating under the compulsory license of the DMCA compliant service is a the better opportunity to make money.

Although that I think there is a pretty clear that they are headed down the path at least part away. I don’t know it’s going to go all the way to a spottify based offering, but they are is certainly going to head down that path towards something that is more interactive now. Will it still be DMCA compliant, will they need a separate licensing. I mean we will see, if they are going to need Interactive music licenses from the music labels as I have already said, I think that’s a very tough business plan, but they certainly seem committed to it, so we will see how their execution goes.”

You don’t make your product available for free

“you don’t make your product available for free and if they don’t want to pay for it then they won’t be your customer. I think that’s okay. Automakers aren’t going to give away cars for free. So millennials are going to have to buy cars, I’m pretty sure shoe makers aren’t going to give away shoes for free. So millennials are going to have to buy shoes. And so you know the people who continue to give away their content to not just millennials, to anybody for free, well that s the choice they are making.”

Sirius XM at Deutsche Bank Conference Notes

James Meyer — CEO

We just don’t see a disruption from streaming services

“we just don’t see yet any disruption to our business from streaming services, we just don’t see it. And you know as you can imagine, we spend a significant amount of time talking to customers about why do they leave and the vast majority of that are going to terrestrial radio that – I think there is a reason why 230 million listening to terrestrial radio.”

Used car sales are 43-45m per year

“there is 240 million cars in this country, there is let’s say there is going to be 17.5 or 18 million new one sold this year, that tells you how long it takes these fleet to turnover, it’s a long, long time, okay. The average person keeps a new car in this country about 71 month today. So it takes a long time. But think about it, if there is 17.5-17.7 million new cars sold, I think the amount of used car sold is by closer to 43-45 million.”

I don’t see any clouds on the horizon for new car sales

“And so I hope the new car business in this country stay strong for a long, long time. By the way I have to tell you I just don’t see the clouds on horizon right now for the new car business. I mean I probably spend more time with the automakers than anybody and I think they share you know. I mean if you look at gas prices, if you look at new home starts which drive truck sales, you know if you look at interest rates and you look at the age of the fleet, it all says the business ought to be robust and it certainly feels pretty good right now.”

Going to see some relationships in the financing area

“I think you’ll see us shortly announce some relationships in the financing area. And in 2016 what I am far more concerned about is learning and getting some of those things right as opposed that how many can we sign up right away, okay, because I want to make sure, our teams understand what are we getting and what’s the quality of it for what we are doing. So in ‘16 you’ll see us kind of rather than seeing how many and we can announce much more a few but really learning and get him going.”

More and more cars have an embedded modem

“But – and that will start going across a lot of new vehicles. At the same time, you are seeing a lot more new vehicles made with embedded modems. And I’ve said publically and you should assume, I actually know this, okay, is that by the end of this decade, the vast majority of new cars built meaning in 2020 if there is 18 million new cars built, I would guess 90% of them will have an embedded modem in. Why? It has nothing to do with entertainment, noting, okay. Those embedded, they want to be closer to their customers.”

Miscellaneous Notes Week of 9.17

Stronger than expected turnout at Credit Suisse Basic Materials conference

John McNulty – Credit Suisse Analyst (From Dow Presentation Transcript)

“Okay. If you all take your seats we’ll get on with the presentation for today. Yesterday was a big day for us actually for what it’s worth, those keeping track, I mean, the rooms are certainly more full than we’ve seen them actually. We are – attendance was up about 45% for our first day, yesterday. So apologize if there are logistical issues, because it’s a bigger crowd than even we had expected, but it’s a nice problem to have.” –Credit Suisse (Investment Bank)

Sirius’ CEO was bullish on car sales

Jim Meyer – CEO Sirius XM

“I spend a lot of time with the senior executives in the automotive industry and all of them along with me are pretty confident that what the next six or 12 months looks like in auto sales. And we see them continuing strong.” –Sirius XM (Satellite Radio)

40% of millenials do not have a TV and 20% say they are considering cutting it

Lowell McAdam – Chairman and Chief Executive Officer

“40% of millennials do not and have never had a TV in their home and another 20% have said they have got it, but they don’t use it that much and they are considering cutting it.” –Verizon (Telecom)

Verizon doesn’t think Apple’s installment plan is a threat to them

Lowell McAdam – Chairman and Chief Executive Officer

“They love to have people stay on iPhones forever. And if I look at it from our perspective, from a cash flow perspective, it is – it’s a relatively positive, marginally positive I guess. So, it’s not a threat. It’s similar. I think about it the way I think about bring-your-own-device, which we have been doing for quite a while. Apple today is a very small piece of our distribution. So, it’s not going to shift the way we do business in anyway. And right now, it doesn’t look like a threat to us.” –Verizon (Telecom)

Fifth Third echoed that credit remains benign

Tayfun Tuzun – Chief Financial Officer

“We are operating at very low levels of charge-offs in historical terms and ongoing quarterly improvement every year in charge-offs will be difficult to achieve, but nevertheless credit should generally remained benign.” –Fifth Third (Bank)

You have to optimize your business to perform well over the course of a whole cycle

“If there is one lesson that we as managers have learned during the crisis it’s the importance of relentless focus on through the cycle performance. Business models created for the present part of the business cycle that are not grounded in long-term fundamental value creation will outperform for a period of time, but will not increase the value for shareholders who have longer time horizons, as they are now sustainable.” –Fifth Third (Bank)

Sustainability is the key focus

“I wish I could tell you that it is possible to tailor our strategy in a very timely manner to every turn of the business cycle, but it is not. Therefore sustainability has to be the key focus. Our top goal is to perform well throughout the full cycle.” –Fifth Third (Bank)

Necessity has been the mother of invention in driving more efficiency in the oil industry

Bob Gwin – Executive Vice President-Finance and Chief Financial Officer

“necessity being the mother of invention that, I think, is largely true across industry. Very proud of our folks driving efficiencies, working very hard to drive down costs, increase in our oil production everything operationally has gotten better. Now that obviously for a macro perspective, continues to put pressure on commodity prices as we see the resiliency of U.S. production. But our view is that we’re going to see that – we’re starting to see it roll over a bit and that – in this era of prices with this double dip and without a real strong outlook on the underlying commodity, we see that the need to continue to focus on cost and the need to continue to focus on driving returns” –Anadarko (E&P)

The focus is on returns, not growth

“The focus right now is not on growth, it’s on returns. We don’t look at growth as being a deliverable that’s going to be valued by the market or by our shareholders, rather growth will be – the growth rate will come out of the capital allocation work that we do” –Anadarko (E&P)

HCA thinks of itself as the preferred healthcare provider in the markets they operate

Bill Rutherford – Chief Financial Officer

“we want to be the preferred healthcare provider in the markets that we operate and we create what we think is a high value integrated delivery system. It’s anchored by our hospital network, supported by outpatient centers, ambulatory surgery centers, we have 120 surgery centers, outpatient imaging, physician clinics, we employ close to 4,000 physicians in our marketplace, freestanding EDs and urgent cares. So, we deploy access points in the marketplace. So, there are multiple ways patients can access the HCA network in multiple service dynamics. And then we develop deep service line capability generally organized around patient conditions in cardiology, in women’s services things or orthopedics, oncology, neurosciences, emergency room and we developed deep service line capability.” –HCA (Hospitals)

We may get more medicaid expansion post 2016 when it’s not so politically charged

“I don’t see much movement until post-2016 election, once we have someone else as President and the office maybe Medicaid expansion becomes something that’s more state-driven rather than considered Obama Care.” –HCA (Hospitals)

An exchange enrollee is worth much more than medicaid

“the one thing you do have to remember as Bill pointed out, our significant benefits have come through the insurance exchange. I mean if you just look at the pricing differential on what you get on an exchange enrollee versus a Medicaid enrollee it’s three times on an exchange. So remember if we get one exchange to three Medicaid, we benefit substantially more.” –HCA (Hospitals)

Union Pacific is optimistic that ex-energy volumes look not too bad

Rob Knight – CFO

“And as we look at the macro, it actually sort of — I think it speaks to what we’re seeing at the macro level, clearly the energy related activities are a drag on our volumes right now. But the rest of our business volumes are ever so slightly and we’re very cautious, we’re not getting exuberant here, but are on the positive side of the volume trends. We’re watching very carefully, things like our intermodal business. Our intermodal is roughly half international, half domestic. If you look at our third quarter numbers, our international is down about 7%, our domestics flattish, and what we’re seeing in our international space and our intermodal world is a cautiousness, as people are cautious not to build inventories too high.”

“We think the peak season that we would normally experience is a couple of weeks still in front of us, so we would hope to see some improvement in that space, if that holds. While we don’t think it’s going to be a rocket ship kind of peak. We do expect it’s going to build, but there is clearly some cautiousness in the space with people not wanting to overbuild inventories and I guess [indiscernible] away we would feel about the macro economy cautious, steady as she goes, things are positive when you separate all the energy challenges we have.” –Union Pacific (Railroad)

Twitter is full steam ahead under Jack Dorsey

Anthony Noto – Chief Financial Officer

” we’re focused on what we control which is executing on the business, we haven’t missed a step since the transition to Jack, we’ve been full steam ahead.” –Twitter (Social Media)

Sirius XM at Morgan Stanley Conference

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

We could stream lots of data into cars, but we think audio is best

“we deliver effectively 10 megabits of data in the cars, we have chosen to use that data to provide audio entertainment, it could be used for anything but audio is what we think monetizes best.”

In 70% of cars produced

“Having deep relationships with every automaker in North America is incredible strength for the company, we have built the production penetration rate up to 70%”

One of the benefits of losing a bunch of money of front is that you shelter your cash flow when you do make it back

“I guess one of the benefits of having spent so much money, we invested $11 billion to 12 billion in building the business. And then we saw in 6 billion of NOLs which will provide a nice shelter for cash flow over the course of the next several years.”

Good paragraph on the evolution of the business

“n the first few years I joined the company in 2003, we had a 120,000 subscribers of first phase of roll out, it was actually retail distribution. We sold thus by RadioShack, Silicon City, Wal-Mart and so forth. And we sold an aftermarket product that was self installed. And then began getting the OEMs ramped up as you can see from this chart in 2007, just before the financial crisis set in, the automotive industry was selling 60 million cars and we were in a third of them. And then as auto sales dropped in the recession, we were continuing to take our penetration rate up, so if you sort of do the math on this chart you see that through the recession we installed about the same number of new cars with a satellite radio in 2009 as we did in 2007, right it is about 5.5 million in 2007, and it was still about 5.5 million in 2009 despite the fact that auto sales had dropped 40%.”

Going to double the penetration in next five years

“n the first few years I joined the company in 2003, we had a 120,000 subscribers of first phase of roll out, it was actually retail distribution. We sold thus by RadioShack, Silicon City, Wal-Mart and so forth. And we sold an aftermarket product that was self installed. And then began getting the OEMs ramped up as you can see from this chart in 2007, just before the financial crisis set in, the automotive industry was selling 60 million cars and we were in a third of them. And then as auto sales dropped in the recession, we were continuing to take our penetration rate up, so if you sort of do the math on this chart you see that through the recession we installed about the same number of new cars with a satellite radio in 2009 as we did in 2007, right it is about 5.5 million in 2007, and it was still about 5.5 million in 2009 despite the fact that auto sales had dropped 40%.”

3x as many used cars sell per year as new cars

“60 million cars sell every year, 60 million, only about 15 in the new car market and 45 in the used car market to add so you sort of this 3:1 ratio.”

It takes a long time to get there in the automotive world

“it’s like everything else in the automotive world it takes a long time to get there.”

Unique programming is heart of product

“The heart of demand for the product is the uniqueness of the programming. Content at the end of the day really matters and we have put together in array of content that really you can’t get any place else so there is a lot of focus that goes in on music content but”

Can’t really create a unique music channel. Commercial free is unique though

“there is really nothing unique about music you can create a unique channel you can put a unique host on that some programmers are better than others at picking songs that’s great. But you can’t really sell it as a unique product. So, what we sell on the music side is commercial free music, right. We sell the lean back experience that it’s radio you don’t have to be actively involved if you don’t want to be.”

Deep relationships with automakers is key, also specific knowhow

“We have deep engineering relationships with the automakers. We get how to provide a trial service to a new car buyer and we get how to convert that into recurring subscription retain those people and things like that. And so the connected vehicle acquisition is really right up our ally of services we do.”

Very excited about connected vehicle opportunity

“we’re very excited about the connected vehicle opportunity.’

We used to worry a lot about streaming and still do, but now worry a little less, because it’s already out there

“streaming it’s an incredibly busy space. It’s no longer a new space. So this is something that we worried a lot about five years ago and we still worry about it because we do operate in a very competitive universe but we worry little bit less about it than we used to. It’s — there are so for those in the Web cast I’m holding up my smartphone there are a 150 million of these already on the street in the United States that was not true five years ago. And so if streaming really represents a sort of a disruptive force in audio entertainment the effect of the disruption is already in our marketplace. The smartphones are incredibly easy to hook up in a car today. So you got Bluetooth, right, okay, does it all automatically, if you don’t, you just plug it into the headphone jack. And whether it’s an iTrip or USB port that you can easily connect up in vehicle and you can listen to any of these services today.”

We’ve never thought that free is a good business model

“The one thing that really seems to be working in the streaming world is free, okay. Now we’ve never thought free was a great business plan. And business plans, so it matter to — matter to us. But free definitely works, free music you choose is part of life”

Youtube is by far the biggest source of music listening globally

“YouTube is far and away the bigger source of music listening globally.”

And don’t forget terrestrial radio

“And when you’re looking at the onstage, you have to consider the — even though it’s necessarily streaming, but the 800 pound gorilla, which is terrestrial radio.”

We dominate among people who are paying for music

“look at who’s actually paying to listen that the — we totally dominate the performance metrics here, right at 25.8 million listeners, we have subscriber in the U.S. compare to 3.5 million paying subscribers for Pandora and estimated 3 million for Spotify, 1.7 million for Rhapsody.”

What makes us different is the depth

” all these companies have been in, and they say how do you do it? How do you get to 25 million? The only difference really between us and all the other guys is that we’re more than just music, but if you go back to the 800 pound gorilla, right that terrestrial radio. Let’s terrestrial radio, it’s not over 200 million listeners, what was their business plan. Music, talk, news, sports, weather, traffic, a lot of content, people like a lot of content that they love music it’s great lot of people listen to it. But I think what makes the content sort of compelling is the breadth, the diversity that we can bring, the depth that we can bring in different owners and it’s doing something more than just in undifferentiated music product.”

Killing the competition in monetization too

“So we’re monetizing here, $149 per subscriber a year you can think of that is something like a $100 per listener per year, terrestrial radio we estimate monetizes, I mean a huge business, right. It’s $50 billion a year. But they are monetizing it about $12 to listener and again Pandora who has build massive scale in the internet radio space is monetizing about $8 to our listener.”