tag:blogger.com,1999:blog-86108947198810711162024-03-25T09:37:30.548-07:00Value Seeker: Investment NotesInvestor who is looking to learn as much as possible to be the best investor I can be. Sharing investments to create open dialogue and discussion.Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.comBlogger29125tag:blogger.com,1999:blog-8610894719881071116.post-68880717188245408412017-12-04T09:08:00.001-08:002017-12-04T09:08:12.906-08:00December 2017 - Short Presentation from Dec 2017: My Process + CHTR & CMCSA overviewMy (short in length) presentation from this past weekend in Florida. Click here <a href="https://drive.google.com/file/d/1P1P1oxpUM2LglzZg9AEtjnOqzTYjiiKw/view?usp=sharing" target="_blank"><span style="color: blue;"><b>PRESENTATION LINK</b></span></a><br />
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Combination of:<br />
(a) my process<br />
(b) companies/ business models I like<br />
(c) using a+b to go over my preference for $CHTR and $CMCSA<br />
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com37tag:blogger.com,1999:blog-8610894719881071116.post-51352788869332613612017-06-02T13:22:00.002-07:002017-06-02T13:22:32.166-07:00Markel Corp (MKL) - Brief Overview - 38 slides [6/02/2017]Link to Slide Deck: <a href="https://drive.google.com/file/d/0BzG5iyelNfWfdVZ2WHJ0eEFFOUk/view?usp=sharing" target="_blank"><b><span style="color: blue;">Markel Corp (MKL) 6/2/2017</span></b></a> (click left)<br />
<br />
Quick overview of MKL, how I think about the underlying drivers of the business going forward, decomposing BVPS growth.<br />
<br />
Any feedback is welcome <i>findmevalue@gmail.com</i><br />
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<img height="360" src="https://ton.twitter.com/1.1/ton/data/dm/870736808836964355/870736800301568002/33Q2CXWq.jpg:large" width="640" />Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com12tag:blogger.com,1999:blog-8610894719881071116.post-56640657665941532222017-05-18T12:18:00.000-07:002017-05-30T15:17:40.224-07:00Payments Industry Overview - Analysis of Visa, MasterCard, American Express - 361 Slides [5-18-2017]Link to slide deck: <b><span style="color: blue;"><a href="https://drive.google.com/file/d/0BzG5iyelNfWfcTZ1bUFZTThWeTQ/view?usp=sharing" target="_blank">Payments Industry - V / MA/ AXP - May 2017</a></span><span id="goog_1651244840"></span><a href="https://www.blogger.com/"></a><span id="goog_1651244841"></span><span style="color: blue;"> </span></b>(click left)<br />
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There are no specific recommendations in this slide deck. Most of that is due to the current valuations of the companies mentioned, which I find none of which are "cheap". There is some optionality for each company, and due to the attractiveness of some of the business models, as well as the economics, one can make the case that these businesses could each be worth more in the next 3 years +.<br />
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I am hopeful this presentation is helpful to those that read through it. Please reach out with any comments, good or bad, about this presentation, the industry, or the companies discussed.<br />
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<i>Disclosure</i>: Long Visa/ MasterCard currently; Was Long PayPal, but sold recently. Have never owned AXP directly.<br />
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<img src="https://ton.twitter.com/1.1/ton/data/dm/865284008875237379/865284002403328000/-HqjlUKD.jpg:large" />Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com107tag:blogger.com,1999:blog-8610894719881071116.post-69712010507246693652016-09-02T15:19:00.000-07:002016-09-05T20:14:19.188-07:00LiLAC (LILA/B/K) - Liberty LatAm - 287 slides [09/02/2016]Link to slide deck: <span style="color: blue;"><span style="color: blue;"><a href="https://drive.google.com/file/d/0BzG5iyelNfWfT3RoTnhsNkVVc2c/view?usp=sharing" target="_blank">LiLAC - September 2016</a> </span>(Click left)</span><br />
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This
presentation is long on purpose, as not much is written about the specific
markets that LiLAC is in, but rather "broadband penetration is lower in
LatAm, Malone indirectly bought more of LiLAC through the C&W purchase,
LBTYA management keeps touting the fragmented market and large M&A
opportunity, etc.<o:p></o:p></div>
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<br />
<i><b>I did not organize this to be in a stock pitching contest, so don't expect it to be short and sweet and me to sell you on buying LiLAC immediately</b></i>. Some of it
may be long-winded, some repetitive, some unnecessary. Scroll through sections
or areas that me be or interest, feel free to reach out with any questions or
comments.<o:p></o:p></div>
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The stock is not quite dirt cheap, even despite the share decline. However, at
~$28.50/share, I think LILA represents an decently attractive opportunity, due
to:<o:p></o:p></div>
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<ul>
<li><span style="text-indent: 0in;">Newbuild opportunity and progress in Chile (VTR)</span></li>
<li><span style="text-indent: 0in;">Improving mobile networks across legacy Cable & Wireless footprint
to meet data growth</span></li>
<li><span style="text-indent: 0in;">Data growth will result in increased fixed broadband growth</span></li>
<li><span style="text-indent: 0in;">Fixed-mobile divergence in Cable & Wireless footprint will drive
penetration, ARPU, bundling, and lower cost to carry data traffic</span></li>
<li><span style="text-indent: 0in;">Submarine cable assets will be tremendous competitive advantage as Latin
America continues to experience strong mobile/fixed data traffic growth, as the
Cable & Wireless sub-sea assets are the most comprehensive in the region,
continue to be top ranked year-in, year-out</span></li>
<li><span style="text-indent: 0in;">Synergy targets - both on operating costs and through capital reductions
- will improve FCF</span></li>
<li><span style="text-indent: 0in;">Levered Equity returns: minimal 2016 free cash flow will lead to likely
zero shares being repurchases; however, 2017+ will introduce the levered-equity
returns many Malone followers know of</span></li>
</ul>
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There are
some risks, but overall, I think it is difficult to lose money at current
pricing over the next ~3+ years, and there are a number of levers LiLAC can
pull to bring strong returns on investment<o:p></o:p></div>
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com28tag:blogger.com,1999:blog-8610894719881071116.post-13461137813849765632016-08-01T08:29:00.000-07:002016-08-10T12:53:26.157-07:00Investment Blogs to Follow/ Consider Following<div class="MsoNormal">
<b><span style="font-size: 14.0pt;">Blogs to follow/ consider following for Investing-Related Material<o:p></o:p></span></b></div>
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<i>(Note: I do *<b>not* </b>endorse all of these; some gathered through recommendations, some higher
quality versus others. May have missed some good blogs, feel free to recommend in comment section.)<o:p></o:p></i></div>
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<i><br /></i></div>
<div class="MsoNormal">
<i>(In alphabetical order)</i></div>
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<b><u>AboveAverageOdds.com</u></b>:
infrequent posting, some discussion of individual companies.<o:p></o:p></div>
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<br /></div>
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<b><u>AlphaExposure
(wordpress):</u></b> past discussions on oil, some discussion on individual
stocks such as EROS, BPT; almost predominantly a short strategy blog. Strong
track record from shorting (see below)<o:p></o:p></div>
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<br /></div>
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<b><u>avondaleam.com</u></b>: (<span style="color: #0070c0;"> </span><span style="color: blue;">@Skrisiloff</span>)
Weekly posts on company call notes.<br />
<o:p></o:p></div>
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<br /></div>
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<b><u>AZValue (blogspot):</u></b> (<span style="color: #0070c0;"> @</span><span style="color: blue;">AZ_Value</span>):
Last post August 2015 on Valeant (VRX).<o:p></o:p></div>
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<br /></div>
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<b><u>barelkarsan.com</u></b>:
( <span style="color: #0070c0;">@</span><span style="color: blue;">SajKarsan</span>): Posts on investing, his fund
returns, company related, such as VTU. <o:p></o:p></div>
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<br /></div>
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<b><u>BaseHitInvesting.com</u></b>
( <span style="color: blue;">@baseHitInvestor</span>): investing topics such
as ROIC, incremental ROIC caluclations, compounders, and some companies such as
MKL, BRK, CACC, SUNE.<o:p></o:p><br />
<br />
<b><u>BronteCapital (blogspot)</u></b> ( <span style="color: #0070c0;">@</span><span style="color: blue;">John_Hempton</span>) Hedge Fund manager from Sydney, Australia. Known for his spot on calls on VRX and HLF.</div>
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<br /></div>
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<b><u>BrooklynInvestor
(blogspot):</u></b> Posts on valuation, and some company specific posts, such
as JPM, MKL, KHC, AME, OZM, SCHW, MDLZ and more. <o:p></o:p></div>
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<br /></div>
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<b><u>broyhillasset.com/how-we-think</u></b>:
Boutique investment firm, established as a family office. Includes investor
letters, presentations on wide moat investing, and occasional security analysis
on TWX, KW, FUN, COH, HSP. <o:p></o:p></div>
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<br /></div>
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<b><u>Calculatedriskblog.com:</u></b>
posts on economic and macro related topics (ISM, housing, construction spending….)
<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>Clark Street Value
(blogspot):</u></b> Individual investor and CFA, posting on specific companies
(mostly smaller companies) like LDOS, HE, NXRT, XRDC, HHC, PNK, LILA and more.
Frequent posts, fairly solid analysis.<o:p></o:p></div>
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<div class="MsoNormal">
<b><u>Creditbubblestocks.com</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">TheCreditBubble</span>): posts on company
issues, concerns, bankruptcies such as XCO, SPE, BCEI and more.<o:p></o:p></div>
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<br /></div>
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<b><u>Csen.tumblr.com</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">conorsen</span>): PM at New River Investments, posts
mostly on broader investing topics<o:p></o:p></div>
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<br /></div>
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<b><u>csinvesting.org</u></b>:
Investing related, case studies on companies, notes on books, upload of
investing videos.<o:p></o:p></div>
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<br /></div>
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<b><u>DislocatedValue
(blogspot)</u></b> (<span style="color: #0070c0;">@</span><span style="color: blue;">UnderwaterCap</span>):
infrequent posts but solid reviews on companies such as LKQ, BIDU, CWC, PCRX,
NPO, EXH and more.<o:p></o:p></div>
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<br /></div>
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<b><u>Fortunefinancialadvisors.com/blog</u></b>:
posts mostly on investing topics, less so individual companies.<o:p></o:p></div>
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<br /></div>
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<b><u>Fundooprofessor
(wordpress)</u>:</b> Sanjay Bakshi, posts on investing topics and behavior (less so
company related)<o:p></o:p></div>
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<br /></div>
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<b><u>GlennChan Random
Notes on Investing</u></b> ( <span style="color: #0070c0;"><span style="color: #0070c0;">@</span><span style="background-color: white; color: blue;">glennchanWordpr</span></span>)
Posts on specific companies, both on long and short side.<o:p></o:p><br />
<br />
<b><u>Hurricancapital.wordpress.com</u></b> ( <span style="color: blue;">@HurriCap</span>) Posts on investment related topics, less so on individual company-related.</div>
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<br /></div>
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<b><u>intrinsicinvesting.com</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">InstrinsicInv</span>) Ensemble Capital, posts on
interesting articles, occasional stock ideas such as LSTR<o:p></o:p></div>
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<br /></div>
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<b><u>kerrisdalecap.com/blog/</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">KerrisdaleCap</span>) Post specifically on investing ideas
implemented in their hedge fund, such as DISH,</div>
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<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>kirkomi
(wordpress):</u></b> Infrequent posts, on investing topics and specific
companies such as CFR, LON:RTN, AXP, Swatch, DLB, and more.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>MarketFolly</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">marketfolly</span>): Posts on interesting hedge
fund news and investing articles.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>Musings on Markets
(aswathdamodaran blogspot)</u>:</b> ( <span style="color: #0070c0;">@</span><span style="color: blue;">AswathDamodaran</span>)
NYU Professor, discusses specific companies and valuation tools topics.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>OraclefromOmaha
(wordpress)</u></b> ( <span style="color: #0070c0;">@</span><span style="color: blue;">ValueVenture101</span>)
Posts on specific companies, very thorough and detailed, companies such as JD,
CHTR, IBKR, AMZN, EBAY/PYPL, CSU. <o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>Paincapital.wordpress</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">PainCapital</span>): Posts on broader topics such
as the Australian housing market and oil. <o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>Punchcardresearch.com/punch-of-the-</u></b>week
( <span style="color: #0070c0;">@</span><span style="color: blue;">PunchCardBlog</span>): Posts on specific companies
such as CONN, WINA, TWX, CABO, LYV, LGF, SIRI and others.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>Quinzedix.blogspot.de:</u></b>
Posts on smaller companies such as Future Bright Holdings, Keck Seng, Paradise
Entertainment, TExhong, Flybe, LSB. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>Rationalwalk.com</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">rationalwalk</span>) : some topics around
investing and company specific such as MKL and BRK<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>ShillerFeeds</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">RobertJShiller</span>): Posts on macro topics,
basic investing thoughts.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>Sirf-Online.org</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">SIRF_Report</span>) Posts by Roddy Boyd, designed
to uncover issues and fraud with certain companies, such as Diamond Resorts,
VRX, and others.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>Stockviews.com</u></b>:
Posts on broad investing topics, not specific companies.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>TheSkeptic21.blogspot.com</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">TheSkeptic21</span>): Posts specifically on
Valeant (VRX)<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>valueandopportunity.com</u></b>:
Posts on investing articles found interesting throughout the week, and some
specific companies as well.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>ValueInvestingWorld</u></b>:
Weekly posts on interesting articles and links related to investing<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
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<b><u>Valueseekerinvestments.blogspot.com</u></b>
(mine) <span style="color: #0070c0;">@</span><span style="color: blue;">Find_Me_Value</span>): Posts every couple
of months on investing topics and individual companies such as BRK, LILA, MCO,
SPGI, DVA, HHC, CABO and others.<o:p></o:p></div>
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<br /></div>
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<b><u>Valuetrap13 (wordpress)</u> </b>( <span style="color: #0070c0;">@</span><span style="color: blue;">valuetrap13</span>): Hedge Fund manager posts on general
investing topics, valuation.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>ValueWalk.com</u></b>
( <span style="color: #0070c0;">@</span><span style="color: blue;">valuewalk</span>): Posts on interesting
investment articles and posts, as well as hedge fund news. <o:p></o:p></div>
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<br /></div>
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<b><u>Y0ungmoney
(blogspot)</u></b> ( <span style="color: #0070c0;">@</span><span style="color: blue;">Y0ungMoneyBlog</span>): Posts
on book reviews and investing topics.<o:p></o:p></div>
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<br /></div>
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<b><u>ycginvestments.com/thoughts</u></b>
(Yacktman son): Posts specifically on companies such as WFC, DISCA, SCHW, VZ,
ORCL, and others. <o:p></o:p></div>
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<o:p><br /></o:p></div>
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<b><span style="font-size: 14.0pt;">Professional Money Managers<o:p></o:p></span></b></div>
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<i>Stock Ideas; Please suggest more in comment section.<o:p></o:p></i></div>
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Broyhill (See above)<o:p></o:p></div>
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GWInvestors.com/research/public ( @GWInvestors)<o:p></o:p></div>
<img src="https://ton.twitter.com/1.1/ton/data/dm/760134249290661891/760134249320112128/DGIPZGww.jpg:large" /><br />
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<b>YCGinvestments.com</b>
(see above)<o:p></o:p></div>
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<b>Voss Capital (Travis Cocke)</b>
– Focuses mostly on smaller/mico cap names, strong investment track record
(see: hvst.com for his letters, doesn’t post as much on twitter)</div>
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<b>Artko Capital</b> –
focuses on smaller capitalization companies (see: hvst.com for firm letters and
ideas)<o:p></o:p></div>
Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com30tag:blogger.com,1999:blog-8610894719881071116.post-74822596921172831172016-05-03T11:31:00.002-07:002016-05-03T11:31:33.655-07:00Cable ONE, Inc. ("CABO") - 60 page Slide Deck [5/3/2016]<b>I welcome any feedback/criticism.</b><br />
<br />
Link to Slide Deck: <a href="https://drive.google.com/file/d/0BzG5iyelNfWfYlRPMi01TFl2ZDA/view?usp=sharing" target="_blank"><span style="color: blue;">Cable ONE, Inc. ("CABO") Slide Deck [5/3/2016]</span></a><br />
<br />
<b><u>Brief Summary:</u></b><br />
<br />
<ul>
<li>Cable ONE is the 10th largest cable company in the U.S. and is most known for their radical strategy change in 2012 whereby they de-emphasized video and telephone (the triple play bundle with broadband) and focused heavily on residential broadband and business services</li>
</ul>
<ul>
<li>They are often well thought of in the value investing community due to their jargon around "free cash flow" and "margins" and "we are where the puck is heading", as well as attracting a solid Board of Directors with notable investing names such as Tom Gayner (Markel Corp.) and Wally Weitz (Weitz Investments)</li>
</ul>
<ul>
<li>I would <b><u>only</u> </b>buy the company if it got cheap enough (low $400s/high $300s) primarily due the likelihood of being an acquisition candidate in the next 1-2 years as the cable industry consolidates; otherwise, there are better investment opportunities in the industry.</li>
</ul>
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com11tag:blogger.com,1999:blog-8610894719881071116.post-39207119078337143082016-03-24T09:21:00.000-07:002016-03-24T09:21:14.696-07:00Observations from 2015 The Howard Hughes Corp. (HHC) CEO Letter [3/24/2016]<span style="font-family: Arial, Helvetica, sans-serif;">Link here to 2015 Shareholder Letter (worth a read if interested in the company) <a href="https://drive.google.com/file/d/0BzG5iyelNfWfd29oc3NYdlRzbnM/view?usp=sharing" target="_blank"><span style="color: blue;"><b>LETTER</b></span><b style="color: blue;"> </b></a>or <a href="http://investor.howardhughes.com/phoenix.zhtml?c=241177&p=irol-newsArticle&ID=2150391" style="color: blue; font-weight: bold;" target="_blank"><span style="color: blue;">Here</span></a></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<b><span style="font-family: Arial, Helvetica, sans-serif;">Summary:</span></b><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">This letter is <i>always </i>a good read, as CEO David Weinreb goes into detail each Master Planned Community (<b>MPC</b>) and the primary locations of the Operating Assets. In a sense, each letter he does his best to share how to value The Howard Hughes Corp. (HHC). Even with him sharing how HHC should be valued, the stock still remains undervalued at ~$98/share and also represents a good investment over the 'long-term'.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">I prefer owning companies that are run by capable management, have attractive assets, is inexpensively priced, and has a clear runway for reinvestment at above-average rates of return. Some of the best companies in the world have issues with the last quality: reinvestment runway at high rates of return. These companies often use their cash flow to pay dividends, repurchase shares, and make an occasional acquisition. For HHC, their pathway for reinvestment is fairly clear for at least the next 5 years, and they don't need to make any acquisitions to grow at above-average rates of return. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<div class="MsoNormal" style="text-indent: 0in;">
<span style="font-family: Arial, sans-serif;"><b><span style="color: blue;">Observations from 2015 Howard Hughes CEO Letter
[released 3/23/2016]</span></b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="text-indent: 0in;">
<b><u><span style="font-family: Arial, sans-serif;">Ownership:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="text-indent: 0in;">
</div>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Pershing Square Capital Management</span></li>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">2014: owned 9.0% of outstanding
common stock, excluding shares issued upon warrant exercise</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">2015: owned 12% of common
stock and warrants and an additional 12% economic interest through total return
swaps (total 24%)</span><span style="font-family: Arial, sans-serif; text-indent: 0in;"> </span></li>
</ul>
</ul>
<br />
<div class="MsoNormal" style="text-indent: 0in;">
<b><u><span style="font-family: Arial, sans-serif;">Progress:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="text-indent: 0in;">
</div>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Increased Net Operating Income (NOI) from $43
million in 2010 to $120 million based on annualized Q4 2015</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">When stabilized, commercial properties under
construction or completed expected to achieve approx. $219m NOI by 2019 </span><i style="font-family: Arial, sans-serif; text-indent: 0in;">(excludes South Street Seaport/Pier 17
projects)</i></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Expect a 9.0% yield on approximately $2.0
billion costs (excludes legacy assets inherited via spin-off from General
Growth Properties </span><b style="font-family: Arial, sans-serif; text-indent: 0in;">GGP</b><span style="font-family: Arial, sans-serif; text-indent: 0in;">)</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Cap rates should be lower in NYC and Hawaii,
versus Las Vegas and The Woodlands</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Cash:</span></li>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">2014: $560 million unrestricted
cash</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">2015: $445 million
cash, add the $377 million from Seaport District Assemblage sold 3/16/2016 =
$822 million cash</span></li>
</ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">$781 million additional debt needed in next
2 years for development, $541 million is for short term debt for Waiea and
Anaha condos in Ward Village (repaid in full by end of 2017)</span></li>
</ul>
<br />
<div class="MsoNormal" style="text-indent: 0in;">
</div>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">South Street Seaport:</span></li>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Jean-Georges and David
Change announced restaurants in Pier 17 building</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Renovation of Historic
District completed by late 2016</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Not announced expected
cash flows yet due to complexity and plans</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Still working on
concept for “Project Two” (700,00 SF additional)</span><span style="font-family: Arial, sans-serif; text-indent: 0in;"> </span></li>
</ul>
</ul>
<br />
<div class="MsoNormal" style="text-indent: 0in;">
<b><u><span style="font-family: Arial, sans-serif;">New Projects</span></u></b><span style="font-family: Arial, sans-serif;"> (not mentioned in 2014
AR or 2015 Q3 10-Q)<o:p></o:p></span></div>
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</div>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">One Merriweather (199k office, 49% preleased to
Medstar) in downtown Columbia, MD</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">The Constellation (124 unit luxury apartments/
Joint Venture) in downtown Summerlin, Las Vegas</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Begun process of master planning remaining 184
acres in Summerlin, NV. Envision over 5 million square feet of density</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">One Constellation
(mentioned above) is first multifamily development in Summerlin</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Plan for Columbia, MD, approved in 2015 by
Howard County, for:</span></li>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">2,300 residential units</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">1.5 million square feet
office</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">314,000 million SF
retail</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">250 hotel rooms</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">4.9 million SF density
on 35 acres surrounding Merriweather Post Pavilion</span><span style="font-family: Arial, sans-serif; text-indent: 0in;"> </span></li>
</ul>
</ul>
<br />
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<b><u><span style="font-family: Arial, sans-serif;">New Comments:<o:p></o:p></span></u></b></div>
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</div>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Estimated MPC gross valuations (not yet done,
that I’ve seen) = $4.749 billion undiscounted</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Weinreb shares his belief that most land is
discounted at 15% - 20% for raw undiscounted law; should not be the case for
HHC land, as located in established MPCs</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">The Woodlands: sell-out date is certain and
soon, “single digit” discount rate should be used</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">HHC provided estimated pro-forma “average price
per acre” for The Woodlands Hills (~$253k per residential)</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">The Summit (JV with Discovery Land) is selling
lots from $2 mil - $8 mil, will hold 270 residences by end 2023. “Sales well
ahead of schedule”. Project has 39 lots under contract for $119 million, collected
$45 million in deposits from this already. This land was contributed at book
value of $13.4 million.</span></li>
</ul>
<br />
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<br /></div>
<div class="MsoNormal" style="text-indent: 0in;">
<b><u><span style="font-family: Arial, sans-serif;">The Woodlands:<o:p></o:p></span></u></b></div>
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</div>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Commercial land in The Woodlands – 785 acres –
should be valued at undiscounted amount of $737 million due to values
increasing from $10 per sq./ft. in 2010 to $22 per sq./ft. currently. (</span><b style="font-family: Arial, sans-serif; text-indent: 0in;">Note: I had $485.7 million undiscounted</b><span style="font-family: Arial, sans-serif; text-indent: 0in;">)</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">The Woodlands MPC cash margin = over 90% as
infrastructure built = $237m undiscounted (</span><b style="font-family: Arial, sans-serif; text-indent: 0in;">note:
I had $193.6 million undiscounted</b><span style="font-family: Arial, sans-serif; text-indent: 0in;">)</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">The Woodlands</span><span style="font-family: Arial, sans-serif; text-indent: 0in;">
</span><span style="font-family: Arial, sans-serif; text-indent: 0in;">= owner and developer of virtually all of the remaining commercial land
in The Woodlands, do not have competitive pressures to quickly lease or
monetize properties</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Slowdown in Houston helped HHC because
competitors have retreated and HHC continues to strengthen their dominant
position in the market</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">48% of occupied office space leased to investment
grade companies</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Retail portfolio has average remaining lease
term of 8.5 years</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Office portfolio has average remaining lease
term of 7.8 years</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">No tenants carrying significant balances more
than 30 days past due</span></li>
</ul>
<br />
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-family: Arial, sans-serif;"> </span><b style="font-family: Arial, sans-serif; text-indent: 0in;"><u>Taxes:</u></b></div>
<div class="MsoNormal" style="text-indent: 0in;">
</div>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Do not expect to pay taxes over next few years
due to $255 million of NOLs</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Higher NOI from commercial properties would
incur taxes, but they are burdened in short-term by mortgage debt,
depreciation, interest, and thus taxable income from these properties should be
“near zero” in next several years</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">HHC holds non-core assets that, if sold, could
provide more than $340 million of additional tax deductions</span><span style="font-family: Arial, sans-serif; text-indent: 0in;"> </span></li>
</ul>
<br />
<div class="MsoNormal" style="text-indent: 0in;">
<b><u><span style="font-family: Arial, sans-serif;">Valuation Notes:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="text-indent: 0in;">
</div>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">My MPC valuations had a $5.775 billion
undiscounted value (although I used 12% - 15% discount rates), yet HHC used
$4.749 billion undiscounted.</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Adjusting my MPC valuation based on:</span></li>
<ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">The Woodlands at 9.0%
discounted</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Lowering the price/acre
of Summerlin</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Using 13.0% discount
rates for all other MPCs</span></li>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;">Adjusting The Woodlands
Commercial Land to be somewhat closer (but still $50m + off undiscounted), using
13.0% discount rate</span></li>
</ul>
<li><span style="font-family: Arial, sans-serif; text-indent: 0in;"><span style="color: red;">All in, adjustments to MPC values lowered my
MPC “NAV” by ~$2.00/share, from ~ $30/share to $28.00/share</span></span></li>
</ul>
<br />
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<br />Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com26tag:blogger.com,1999:blog-8610894719881071116.post-2151429312169346192016-03-18T14:29:00.000-07:002016-03-22T21:02:59.658-07:00DaVita HealthCare Partners ("DVA") [3/18/2016] - Slide DeckLink to Slide Deck: <span style="color: blue;"><a href="https://drive.google.com/file/d/0BzG5iyelNfWfdXpBVTVmbFhhTzA/view?usp=sharing">DaVita HealthCare Partners (DVA) Slide Deck [3/18/2016]</a></span><br />
<br />
At ~ $70.00/share, I think DaVita ("DVA") is attractive as a core holding, due to:<br />
<br />
<ol>
<li>Underlying business drivers being non-cyclical, not seasonal, and steady</li>
<li>DVA having highly talented management </li>
<li>Long runway for international reinvestment (early start-up phase)</li>
<li>Competitive position is strong and growing, in oligopoly market</li>
</ol>
<br />
<br />
Feedback/Comments are appreciated.<br />
<br />
<img height="364" src="https://ton.twitter.com/1.1/ton/data/dm/710939763021193220/710939763050610688/suAqEUs8.jpg" width="640" />Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com2tag:blogger.com,1999:blog-8610894719881071116.post-76003588228526933192016-03-14T15:04:00.000-07:002016-03-14T15:04:11.617-07:00Moody's (MCO) vs. McGraw-Hill Financial (MHFI): A focus on the CRAs [3/14/2016] - 25 slide deckLink to Slide Deck <a href="https://drive.google.com/file/d/0BzG5iyelNfWfQlFRMXppakhKTG8/view?usp=sharing"><span style="color: blue;">MCO vs. MHFI - 25 Slides (3/2016)</span></a><br />
<br />
Brief Overview of S&P Ratings vs. MIS<br />
<br />
<img height="360" src="https://ton.twitter.com/1.1/ton/data/dm/709499813587345411/709499813612507137/90yS9f5_.jpg:large" width="640" />Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com1tag:blogger.com,1999:blog-8610894719881071116.post-69991225169237375212016-03-09T22:13:00.001-08:002016-03-13T20:39:30.618-07:00Moody's Corp. (MCO) - 110-page Slide Deck (3/9/2016)Link to slide deck: <span style="color: blue;"><a href="https://drive.google.com/file/d/0BzG5iyelNfWfNlVZV3o2NzltX2M/view?usp=sharing">Moody's Corp. (MCO) Slide Deck - 3/13/2016</a></span><br />
<br />
<img height="361" src="https://ton.twitter.com/1.1/ton/data/dm/707810633828458499/707810634105282560/JTXVCj6y.jpg:large" width="640" /><br />
<br />
<i>** Updated 3/13/2016, added 4 new slides, updated bond issuance expectations for 2016FY</i>Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com1tag:blogger.com,1999:blog-8610894719881071116.post-8651490389054281492016-02-25T11:22:00.003-08:002016-02-25T11:23:26.809-08:00The Howard Hughes Corp. (HHC) - 64-page Slide Deck (2/25/2016)Link to slide deck: <a href="https://drive.google.com/file/d/0BzG5iyelNfWfMURTeHdkM1F6T0U/view?ths=true"><span style="color: blue;">HHC Slide Deck - 2/25/2016</span></a><br />
<br />
<img src="https://pbs.twimg.com/media/CcFRt2xUMAA7Fgy.png" />Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com2tag:blogger.com,1999:blog-8610894719881071116.post-40118317431660821042016-01-20T14:08:00.001-08:002016-01-20T14:08:51.525-08:00Conference Call & Earnings Notes: SiriusXM (SIRI) -- (2014 to Citi Conf. 01-06-2016)<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<span style="font-family: inherit;"><i>15 conference calls & earnings call notes:</i></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<span style="font-family: inherit;"><b><u><br /></u></b></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<span style="font-family: inherit;"><b><u><br /></u></b></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<span style="font-family: inherit;"><b><u>My notes on SiriusXM (SIRI):</u></b></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;"> </span></span>Historically, SIRI built up subscribers through
new car channel (~75% penetration, >40% conversion) at 15-17.5m SAAR in U.S.</div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SIRI just getting tapped into used car market
(used car sales in US ~2.5x new car sales) (>30% conversion)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Used car segment is highly profitable; very
little SAC as no install costs, revenue share<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Used car prices increasing, representing
>standard models (where SiriusXM is enabled)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Enabled vehicles for SiriusXM technology is ~79m
(versus total ~245m total registered vehicles in U.S.), will increase by 11m +
per year (new car SAAR + 75% penetration)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->70% contribution margin on new subscriber
revenue <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Margin improvement inevitable (EBITDA at ~38%,
should get to at least 40%+)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->NOLs – no taxes through at least 2018 (per
management estimates)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Capital light, even in satellite building stages
($1.5b for 5 satellites over 12 years)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Scale on programming costs (programming is down
1/3 over last 8-9 years, essentially flat since)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Huge opportunity for multiple subscriptions in
households; ~80% of households have >1 car, yet only ~20% have more than one
subscription to SiriusXM<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SiriusXM partnering w/ non-traditional funnels
to get access to non-subscribing/enabled vehicles (Jiffy Lube initiative,
insurance company partnership, finance company partnership)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SiriusXM competitive advantage = content; less
threat from Pandora, Spotify, Apple as they focus on music (commodity)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SXM17 project = will bring enhanced user
experience to connected car (>90% cars will have built-in wireless modems by
~2020)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->About 3.3x leveraged, target of 4.0x (capacity
of about $1.2 billion) but won’t lever up anytime soon<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Agero connected car “white label” with auto OEM,
gives SIRI front row seat for auto technology development</div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Citi
Conference<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>January
6, 2016<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Speaker:
David Frear<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Posted high-single, low double digit revenue
every year since 2009, mostly from subscriber growth<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Tailwind = increasing penetration in new cars to
75% from 70%, conversion is low 40%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Toyota and Honda increasing penetration<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->As penetration increases, conversion should
decline<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We will probably run 18m trials in 2016<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->When gross adds = churn then subscribers have
plateaued, think it will be more than 10 years from now<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Ability to stream for about $4 extra<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->When we raise prices, we don’t do it all at
once, it drives additional call volume<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">Since we are not
cross-border, less room for us to optimize on taxes once we become a taxpayer<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Best guess is penetration in used cars is
mid-50%<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b>Merrill Lynch 2015 Leveraged Finance Brokers Conference<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b>Speaker: David Frear<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b>December 2, 2015<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">Working through NOLs,
have ~ couple years left<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Have 80m cars - > will move to 180m<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We don’t spend a lot of money on advertising, TV
commercials, use content as advertising<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Spent money on SIRI streaming app, has improved<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Hard to believe we are at >30% conversion on
used car sales<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Average first car ownership is 6 years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">Will be about 10-12
years before the used car trail business actually matures<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->With used cars, using the franchise dealers,
they are sophisticated and give us name and address within 48 hours of sale<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->The non-franchise dealers (62-64% of used car
sales) in used car sales is through independent dealers and private parties,
not structured sales reporting systems. Service Line Program helpful. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->The growth in cars on the road that are SIRI
enabled over next 10 years is like winning the lotto – what could change is
down economy and down car SAAR<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We will become better at marketing to people as
we can more involved in connected car<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We have opportunity to double the content in the
next decade with new chips and the spectrum we have<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">We have been buying back
about $2b a year in stock without increasing leverage ratio<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Don’t see the time value of money difference in
valuation if we do an accelerated buyback in the $3’s stock range<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">EBITDA margin growth due
to fixed cost leverage in programming, satellite and transmission, SG&A<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->FCF over last few years above norm as no
satellite newbuilds – in initial stages of RFP on satellite procurement for two
XM satellites, due to launch 2019 and 2020, takes about 3 years to build. Makes
sense to launch that close together, with about 6-9 months offsets. Between
those two, about $600m. After we will have launches in 2023, 2025, and 2028. It’s
about $300m per each, we will do 5 satellites. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->About 10% of subscribers use the streaming app,
has been that way for long time<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We have deals with all the auto OEMs, including
Tesla<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->AM/FM radios – not great equity stories, a lot
of listeners but too much debt, still have high 30% EBITDA margins<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l5 level1 lfo14;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We own 38% of the equity in Canada; Canada is a
commodity-based economy, been tough up there lately<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Q3
2015: Earnings Call<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>SiriusXM<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Penetration rate was 75% for the quarter, up
from 71% in Q3/2014<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->New car conversion was 41%; maintaining low 40%
is strong because of increased penetration<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Enabled vehicle penetration is at 79 million
vehicles, or about 33% of total vehicles in the US – see this growing by 2% per
year for the next decade (~52% of vehicles on the road by 2025?)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SXM fleet should be about 180m eventually<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->18,000 dealers now offer 3 month trials of
SiriusXM to all used car buyers who acquire an enabled vehicle<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Over 8,000 of these run Service Lane Program<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->During the quarter signed an agreement with a
major insurer to pursue co-marketing of SiriusXM subscriptions to previously
owned cars<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Cash operating expenses up just 3%, fixed
expenses up 1% despite subscribers up 8%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Renewed contracts with NHL and NFL<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Since 2008, programming costs have fallen by a
third, even as revenue has nearly doubled – shows synergies of merger between
Sirius and XM on programming costs, expect programming costs to rise in 2016<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SXM17 – will marry two way mobile connectivity
with our satellite broadcast platform<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Migrating OEMs to new chip, this technology
could allow us to add up to 400 new audio channels<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Feel that AM and FM radio is still top
competitor; streaming and internet radio grows but the growth is slowing and
profitability is a distant dream<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->New car trials up 15% on higher sales volume +
higher penetration<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Higher install volumes = higher SAC<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We tinker with price increases from time to
time, we have about 22,000 price combinations in our rating engine <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->TuneIn = <a href="http://tunein.com/premium/?source=footer.upsell">http://tunein.com/premium/?source=footer.upsell</a><o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->It doesn’t make me (Jim Meyer) happy NFL, MLB,
Barclays Soccer licensed to TuneIn<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SIRI different than TuneIn because depth of
content (news, traffic, talk) and ease of use<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->FCC changes on cell phone marketing = now,
instead of auto dial the number, have to manually dial the cell phone number<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SAC driven by new car installations<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->When trying to value company, look at growth
from 79m vehicles with SIRI enabled to >180m<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Streaming is a technology, not a competitor<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo13;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Auto OEMs decide the penetration level, not
SIRI. But to get to 100% penetration, SIRI wouldn’t pay for all subsidies or
boost the revenue share<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Goldman
Sachs Communacopia Conference<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>September
17, 2015<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Speaker:
Jim Meyer (CEO)<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Trials at record level<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Size of used car opportunity: there are about 240
million cars on the road, some pent up demand right now. If new car sales
around 17m, used car sales around 40m. Think we will drive more used car trials
than new car business in next 5-7 years. Used car buyer gets us different
demographic. Also, we don’t have any subsidy attached to it. Only pay subsidy
first time we put technology into the vehicle. Used car sales are 1/3 in each:
franchise, independent, and private. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Average American keeps new car about 70 months<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We run the business different than what the
analysts write about; they talk about conversion rates of new and used cars.
Almost any level of conversion in the used car business is going to be
immediately profitable. That’s what investors need to focus on, a long runways
for used cars. At end of Q2/2015, had about 75m cars in the field with our
technology, so 75m of the 240m. Safely within 10 years that number will be
180m. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We are winning the used car in the franchise
funnel <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SIRI mostly in higher end models, that often get
put back in the franchise used dealership, where SIRI has strong relationships.
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Challenge is how are we going to go after the
other 2/3 of used car sales. Not worried about conversion rates, the economics
are great. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We are working with insurance companies, finance
companies on the turnover of those vehicles<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Trying other methods; for example, worked with
Jiffy Lube (80 of them) and every vehicle brought in, if had satellite
installed but not a subscriber, offered them a free trial. We are comfortable
we will solve this. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Penetration of new cars = 75% over next 5-10 years, because Honda and
Toyota increasing penetration. We have 100% of luxury cars. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->People don’t have SIRI because they don’t want
to pay, that’s the top 5 reasons. Mid-90% are giving up SIRI and going back to
terrestrial. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Streaming is not competition, FM and AM Radio is
with over 230m people who listen to every day<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Confident in SXM17<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->This morning announced 5 year extension on
connected vehicle arrangement with Toyota; this gets us close to what Toyota is
doing over the next 5 years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->At the end of the decade high-80% to mid-90% of
cars will have an embedded LTE route or whatever the next LTE is, in the cars –
SXM17 will benefit tremendously<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Spotify and Apple Music – its music, it takes
the place of the CD or music streaming, but not content. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Churn should be 1.8% - 2.0% over time<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Aside from conversion rates between new and used
cars, once they become a subscriber, they seem to behave just like a new car
customers…we will have to work on tiered pricing because the demographic gets
wider (lower income, more elastic)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Average vehicle in US is owned 3.1 times<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Economics on used cars are compelling, don’t pay
a subsidy on second or third owner, only new car<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->There’s not any technology that will go on the
vehicle that SIRI wont also be able to use<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We won’t have commercials on our music channels,
never will<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Future of SIRI is based on subscriptions, not
advertisement<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo12;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We don’t want to get into video delivery, or
compete with Netflix (NFLX), we want an acquisition that will make subscriber
base stronger, lower the churn, grow ARPU, etc. We don’t see the streaming
business models right now as good businesses, not good economics <o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Merrill
Lynch TMT Conference<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>June
2, 2015<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Greatest opportunity for growth in next 5 years
= used car market<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->There will be 11.5m – 12m new car trials every
year<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Next 5 years – we will build out distribution
there<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->40% EBITDA margins is long-term goal, don’t
think we can get above that, we will find ways to spend the money<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->There is opportunity to optimize conversion
rates and churn by knowing whether or not people are listening<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SXM17 rollout will take 4-5 years, will have the
on-demand content through the app<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Telematics business – very high incremental
margin, one of the largest providers of traffic and data services in North
America<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->3-5 years ago was worried about streaming, but
not anymore, they are all focused on music<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Thus, terrestrial radio is biggest competitor –
focuses on music, news, weather, talk, traffic<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Buybacks in the $2 - $2.5b range is pretty sustainable<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Doing more live events – the perception of live
content by subscribers is important<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l13 level1 lfo11;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Pandora monetizing at about $11 a user, Clear
Channel at about $13, Spotify at about $30 and pays 2/3 of economics in
royalties, and we monetize at $150 per subscriber. <o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Q2 2015: Earnings Call<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>SiriusXM<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Fewer people called us to cancel<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->When you have subscriber base as big as SIRI, a
0.10% change in monthly self-pay churn =
difference between 70,000 subs in a quarter or 280,000 net subs in a year<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We don’t see 1.6% churn as the new normal<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->New vehicle penetration was 72%, up from 69%,
now see long term penetration near 75%, up from previous expectations of 70%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->More auto OEM like Toyota and Honda are
increasing penetration rates<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Now 17,000 dealerships, and the Service Lane
Program has over 7,000 dealers<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->80% FCF conversion of EBITDA<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->The $210m settlement we reached with major
record labels regarding pre-1972 recordings ensures we can keep playing
approximately 80% of the pre-1972 recordings we used through the end of 2022.
Remaining $102.3m will be amortized from now until end 2017. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->NissanConnect – Agero connected car by SIRI<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Looking to enhance audio service and provide new
non-audio services <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->People who aren’t subscribers simply don’t want
to pay<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SIRI installed on 32% of cars on the road, or 76
million<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Maintain long-term contribution margin of 70%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Churn – you have non-pay, vehicle turnover and
voluntary churn. Seeing fewer people choose the free option than expected. We
expect churn long-term to be 1.8%-2.2%. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Higher installation rate due to higher
penetration by auto OEMs<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l4 level1 lfo10;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Auto OEMs scared of the connected car getting
vulnerable to hacking<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Morgan
Stanley TMT Conference<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>March
2, 2015<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Speaker:
Hooper Stevens<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Driving the enabled fleet in U.S. from about 70m
vehicles today to 140m, 150m over time. With more incremental cars on the road,
SIRI has more opportunity<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We see significant participation in our business
from the sub-$75k income level- about 60% of new car buyers have HH income
under $75,000 and about 70% of used car buyers. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Sued car – about 30-33% conversion rate versus
in the 40% rate for new car<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Have about 15,000 dealerships – most are
franchise dealer, total there are 18,000 franchise dealerships, so nearly fully
distributed. Total about 30,000 independent dealerships. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We tried splitting the commission with the
dealers a few years ago, didn’t work out well, too much turnover at the
personnel level at dealerships<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Opportunity – households with multiple cars, 80%
of HH have more than one vehicle, yet only about 20% have multiple
subscriptions. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Should have a lot of unit growth in addition to
pricing growth over time <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->With 25 MHz spectrum, two-way connectivity from
integrated modems, our content, looking to build integrated satellite and IP
platform<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->One challenge for our customers is –
discoverability of content<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Other business models – Pandora, Spotify – tough
to make money<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Agero, the telematics business, is offered on a
“white-label basis” currently<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">We require 5 satellite
projects every 15 years – 2 active on the XM side, two on Sirius side and one
spare, they are about $300m a piece, so about $1.5b in total capex spend over a
cycle. We will start spending in late 2016, so that would be done over a 12
year period. It’s replacement for the entire fleet. Some of the capex is growth
capex because the satellites provide higher quality service than prior models. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Competition doesn’t focus on content, instead
they focus on music, which is commoditized<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l3 level1 lfo9;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We don’t see a big difference in churn between
new and used cars<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Q1
2015: Earnings Call<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>SiriusXM<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Seeing increased penetration in new vehicles –
like Toyota, Nissan, Honda<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Confident in maintaining 70% penetration rate in
new cars for many years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Continued strength in used car market – 16,000+
dealers, more than 7,000 in Service Lane program<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Offered 35% more trials in used car market than
we did a year ago<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Announced Nissan Connect Services powered by
SiriusXM will be launching imminently on 2016 vehicles, starting with Maximum <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Also announced new agreements with Jaguar Land Rover
and Subaru<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">Have new project – SXM17
– multi-year project<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Rolled out new apps for iOS and Android –
improves reliability and speeds in low bandwidth situations<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SiriusXM installed base in 73 million, only
about 30% of vehicles on the road, new car penetration above 70%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Used car conversion remains in the low-30%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->40% EBITDA margins Is still our goal<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Don’t anticipate any SAC impact associated with
SXM17<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->As the subscriber base grows, getting net
addition relative growth is tougher<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We try not to get too deep in the music
business, don’t have any intention on competing with Apple in the download
business or the physical distribution business<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->40% of the vehicles that rolled off the new car
lines in 2014 were connected vehicles, not finding it adversely impacting our
business in any way<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Think most vehicles by end of the decade will
have LTE built in modems, expect higher usage of Android Auto and CarPlay by
Apple – SXM17 should enhance that experience<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->The new chipsets will give us more capacity, but
that doesn’t help older SiriusXM radios<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We offer the most channels we cat the best bit
rate, but not all channels are the same bit rate<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l2 level1 lfo8;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Eventually mix of subscribers will be lower end
(used cars), might seem some change in conversion rates<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Q4
2014: Earnings Call<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Sirius
XM<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->While we don’t know what new car sales will be,
confident in new car penetration rate<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->New car penetration + natural turnover of
vehicles = enabled fleet will grow
rapidly<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Expect to go from shade over 70m at end of 2014
to over 100m, near 50% increase in 3 years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->15,000 independent dealers, total cars on the
road in US is about 230m<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We are trying out household pricing plans as an
alternative to per radio pricing<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Contribution margins of ~70%, objective is to
increase revenue and FCF from growing base on enabled cars<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Intend to be well-positioned to succeed in a
world of fully-connected cars<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Think nearly end of decade all cars basically
have some form of connectivity<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Main competition is free ad-supported
entertainment, which doesn’t change the connected vehicle<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Believe subscription driven satellite radio is
the brightest spot in the media landscape – have recurring revenue, strong
monetization per user, high margins, rapidly growing fleet of enabled vehicles,
rapidly expanding subsequent own opportunity as satellite-enabled vehicles
begin to turn over in the previously-owned car market<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">Think chance to monetize
25 megahertz spectrum not within next 5 years but is within 10 years<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Think it is becoming clear that satellite
broadcast and streaming will co-exist for a long time<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Streaming is an up-sell to current broadcast,
and we are not disappointed with the amount of people that use it<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">About 80% of households
in US have more than one vehicle, but low-20% have a matching subscription
count = large opportunity, would benefit revenue and subscriber count<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Not eager to get to 4.0x leverage, want to keep
some dry powder<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Think lower oil is great for the SIRI business
because it boosts auto sales<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Don’t think a music label would be a great
bolt-on acquisition for us<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Think we have long-term sustainable growth in
used car business<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="color: red;">Net Operating Losses =
think we will become a tax payer in 2019, and full benefit through 2018 on
taxes<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l10 level1 lfo7;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We don’t have ARPU targets, not how we manage
the business<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Merrill
Lynch 2014 Media Conference <o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>September
17, 2014<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>SiriusXM<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Have over 60 million cars with our enabled
technology in it, should see 100-110m in next 4-5 years, then 150m in 5-10
years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Installed base is the average car in this
country is owned 2.3 times, so the cars change hands, create new opportunities,
and the economics on the 2<sup>nd</sup> and 3<sup>rd</sup> owner very
attractive versus the first<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We pay a subsidy to the automakers for the first
time SIRI technology gets installed in the cars, take that off from subscriber
acquisition costs (SAC). By 2<sup>nd</sup> and 3<sup>rd</sup> time we reacquire
a new car owner, there is no subsidy. That means we also get embedded deeper
and deeper to demographics and incomes of less than $75,000 so we need to offer
packages and pricing to keep the growth. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Every new subscriber is very, very profitable<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Charge customers on XM side a premium is they
want Howard Stern or NFL, and premium on Sirius side for MLB<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->People ask if I’m afraid of connected car, and
absolutely not/ It will take a long time to roll out, and think it will offer
revenue opps for Sirius. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Us versus competition = music isn’t the only
thing we offer. Most content programming contracts are 4-5 years, some are
longer at about 7 years. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Nothing blocks us from doing more streaming<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Think we are under-leveraged compared to the
4.0x target, think our stock is very attractive today and represents a great
return on investment<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Agero – revenue about $100m in 2014 with
breakeven margin<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We are predominantly a North America company,
don’t have a lot of expertise internationally<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Two auto OEMs have asked us to partner with them
outside of North America with connected car<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Sirius and self-driving cars: SiriusXM network
gives the auto OEM 99.98% reliability everywhere in the country. But we think
driverless will take a very long time. Auto OEM will like that our network is
US-wide.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Video – had aa kid’s television package for
several years in minivans – Dodge and Chrysler. We didn’t have the scale to
acquire the content at a margin that was acceptable. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Begin to look at new satellites in
2016/2017/2018 timeframe. It’s not like it used to be where one was $300m.
Absorption cost much easier today than back then. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Our chip technology focuses on the upper band –
XM Constellation, will take them years to transition off of that. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->While I see maybe a way to rationalize spectrum,
don’t see it in next 5-8 years<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l12 level1 lfo6;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Margins: cost of electronics coming down, curve
starting to flatten out, and then as we add more subscribers, the funnel
requires no additional subsidy.<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Q3
2014: Earnings Call<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
SiriusXM<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->New car penetration 71.4%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Approx. 68 million factory-enabled vehicles in
operation, about 28% of total cars on the road<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->As fleet continues to run over, vehicles in
operation will eventually match new car penetration rate of 70%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Every major auto offers SIRI with certified
pre-owned vehicles sales at every franchise dealer location<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Have more than 14,000 auto dealers, up from
11,000 last year<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Pay about 30% of incremental revenue to variable
expenses, meaning each new subscriber contributes revenue at roughly 70% margin<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Convert about 80% of EBITDA to FCF because of
low taxes and capex<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Contribution margin of 70% long-term is good<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Churn elevated because many new car buyers in
the funnel are lower demographic and income level; as SAAR grows, more will be
subprime and lower income new buyers<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Biggest driver of self-pay churn in terms of
overall numbers is turnover of vehicles as buyers from first or second car that
had SiriusXm to a new purchase – satisfied with churn levels today<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Revenue share and royalties – declining as % of
subscriber revenue<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Q1 is highest churn quarter of the year<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Seeing GM roll out LTE in their vehicles at an
aggressive rate, think it’s an opportunity for SiriusXM. It is a benefit
because helps with new 2-way connectivity<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Would like to see more synergies with Live
Nation (LYV), whom Liberty has a stake in<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l11 level1 lfo5;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Sirius has 25 megahertz of spectrum – Siri uses
all of it today, expect to use it all for foreseeable future. Maybe long term
we could expand channel count, but not today as use it all up.<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Q2
2014: Earnings Call<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>SiriusXM<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Scalable business model with high variable
margins is unmatched in media<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SAAR is strong + auto OEM relationships are good
(penetration at 70%)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Over 13,000 used car dealers, about 4,000 have
service lane initiative to give us another distribution channel<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Cumulative installs passed 70m in June 2014;
after eliminating unsold vehicles and scrappage, enabled vehicle population
about 65m on the road right now, leaving SiriusXM with about 27% on the total
amount of cars on the road…over time this will climb towards our new car
penetration rate of 70%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Contribution margin was 70.9% on improved OEM
revenue share<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->All bonds have investment grade style covenant
packages<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->The last pre-merger agreement that hasn’t come
up for renewal yet is NHL hockey, comes up at end of next season. Combined was
about $400m in 2007 in programming costs to now about $300m level is amazing.
We are growing revenues while holding programming pretty firm. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->40% margin too conservative? We are still 3-4%
away from this, still have room to improve to get to 40%. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We work hard on retention strategies<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->About 2.8m new car trials in the quarter + 1.2m
used car trials = ~4m car trials in the
quarter. Looking to get about 30% or so of the 1.2m use car trials to
subscribers. Eventually used car starts will exceed new car starts as
penetration of total cars on road increases with ~70% penetration of new car
market right now. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Advertising is about 2-2.5% of revenue<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Think churn is overstated because shift to new
cars by existing subs and getting free trials again, but not more than ~10 bps<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Most of the trials in the new car funnel are
non-subscribers pre-existing versus subscribers buying new cars<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Average fleet is 3.8 years old<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l7 level1 lfo4;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Have over 100 engineers working on connected
car, Agero<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Q1
2014: Earnings Call<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>SiriusXM<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Our radios in about 26% of cars, strong LT
opportunity<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Underleveraged balance sheet, growing FCF<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->OEMs embracing SIRI, penetration was 70%, up
from 67% in Q1/2013<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->At 16.2m 2014 expected SAAR, would be around 11m
trials in 2014<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Total enabled vehicles on the road with factory
installed satellite radio is 62 million at end of Q1/2014, should double in
next 5 years to about 120m<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Expect to run 4m used car trials in 2014 – see
low 30% conversion in used cars; look to grow from about 1.5m to close to 2m
this year in used car self-pay subscribers<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Cost to install by OEM coming down<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Connected car is coming, and that’s a fact, see
our content as opportunity<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->11% drop in SAC, as growth in OEM installations
was offset by drop in unit cost<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Programming costs were rationalized with the
merger<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Still have some auto OEMs selling radios from 7
years ago, so should think about unit costs slowly declining over time<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Howard Stern came over in January 2006, a lot of
people came on because of him, thus first quarter churn # always highest
quarter/month<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Of the people using SiriusXM, 64% say they also
use Pandora (from SiriusXM survey)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Majority of churn is people going back to terrestrial
radio<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Believe auto OEMS will be deploying satellite
radio for many, many years; or people could use the streaming product (has no
SAC costs) and no revenue sharing<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Count churn as people swapping from paid to
unpaid trials by selling and buying a car, think we are running solidly below
the reported churn<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Used car # growing about 0.5m per year with
growing base<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l9 level1 lfo3;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->People subscribe because of the content,
commercial free music, breadth and depth<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Morgan
Stanley Leveraged Financed Conference <o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>SiriusXM
(SIRI)<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>June
12, 2014<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>CFO
David Frear<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
Notes:<o:p></o:p></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->What are we: subscription radio satellite
business, subscription provides strong and predictable free cash flow<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We can deliver 10 mb of data to cars, can be
used for video, radio, anything we choose<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Content = differentiator between us versus radio
and everyone else<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We have deep relationships with Auto OEM, built
penetration to 70%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Have invested $11-$12 billion in building the
business, had ~ $6 billion in NOLs which provides a nice shelter for FCF over
next several years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Subscriber growth about 40% since the depths of
the 2009 recession = translated that to about 10% revenue growth last 5 years,
have been expanding EBITDA at 25% as improvements in margins, and FCF even
faster at about 43% rate over last 5 years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Churn coming down was beneficial<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Subscriber growth + pricing + higher package
take rate = higher revenue %....add cost improvements to expand margins. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->First phase of distribution was retail – sold at
Best Buy, RadioShack, Silicon City, Wal-Mart, sold an after-market product that
was self-installed. Then began getting the OEMs ramped up in 2007, where SIRI
was in a 1/3 of new cars. Increased penetration through financial crisis.
Installed about same in 2007 as 2009 – 5.5m, despite auto sales declining 40%. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->60m satellite enabled vehicles on the road
today, at 11 million pace, will double it in next 5 years, will continue to
build out the fleet, from 60m to 120m in 5 years, to 120m in another five
years, to about 150m.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level1 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We will migrate to the previously owned vehicle
sales; past 5 years most part was new car sales<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->2003 to 2005: retail stores<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->2006 to 2014: predominantly new vehicle sales<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level2 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->60m cars sell each year – about 15-17m in new
cars, remainder in Used Cars<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level2 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->3:1 ratio of used cars to new cars, used car
trial opportunities should be triple what new cars (but used cars sell for less
than new cars)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level2 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Average first car ownership is about 6 years,
average second car ownership is about 4 years, third car about another 4 years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level2 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->New car conversion rate = 40%+, used car = low
30%<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level2 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->The 12,000 used car dealers will probably sell
about 1/3 of the used car sales each year (~ 15m)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->They send us customer file with customer name,
address, vehicle number, etc.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Another third of the used car market is private
transactions, the last third that is through independent dealers<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->If originally low 40% want the product, high 50%
don’t the first time around; we try to circle back around and market to these;
once they sell the car, it goes back into the funnel and gives SiriusXM a new
chance at a new customer<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->The differentiator between us and someone else
is content; music – nothing really unique about it, but the content – sports,
news, Stern, Oprah, Martha, CNBC, etc. – with 140 channels there’s a lot of
content. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Agero connected car – helps us integrate the app
for satellite broadcast product. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Streaming – not as concerned about it now, its
so competitive. Clear Channel’s iHeart radio with 40m subscribers, iTunes radio
with over 20m users. Pandora with 77m users. The only different between us and
everyone else is content, the depth and breadth of content.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Terrestrial radio monetizes about $12 a listener
per year, Pandora about $8 a listener, SiriusXM about $149 a subscriber.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We won’t pay taxes for another 5 years or so,
could knock down our FCF conversion to 58% of current levels, still among the
highest in the industry/media space. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->People could argue we aren’t building satellites
right now so FCF is inflated – so take another 3% off that, which to build
might add $150m a year, thus still around 55% FCF conversion rate.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Why 4x leverage? It is how Moody’s rates us,
expect to be a strong BB rating. Both S&P and Moody’s rates us. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Over the long-term, what will drive the
business? Enabled fleet. Once the radio is in the car, the car is on the road
for generally 12 years. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SIRI has a very high variable margin business,
so as long as management shows good discipline around costs, we should have
nice steady growth in margins and FCF. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level3 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b>Question</b>:
Operating leverage capabilities?<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b>Answer</b>:
we talk about contribution margins, which is about 70% contribution margins.
This number is revenue less the revenue share/royalties minus customer service
and billing costs, minus cost of equipment. So if revenue growth is 10%,
incremental costs on this growth is about 30%, remaining margin about 70%. We
believe we will stay at about 70% contribution margin. Subscriber acquisition
costs = related to new car installations. So, it auto sales have recovered and
there are 15.5m new cars sold, we will stay close to 70% penetration which
equals about 11m new installations in a year. The unit costs of those
installations is generally coming down each year, so the SAC in the P&L,
which is mid-to-high $400m should stay around that level even as revenue grows.
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->70% contribution margin<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Sales and marketing costs sensitive to: (1) size
of subscriber base. So if self-pay subscriber base is 20m versus 15m, that is
33% more people to communicate with. If have 11m new car installations, add
welcome kit, outbound telemarketing calls, campaign costs to convert those people.
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Expect about 4m used car trials in 2014, which
will grow over time, will have same growth in sales and marketing costs. Should
keep pace generally with subscriber and revenue growth. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Rest of costs = administrative, and we aren’t
planning any big expansions or anything. Have about 2,000 employees, not
planning to ramp to 3,000 or something. It’s not an employee-heavy business. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Fixed costs should grow at inflationary-type
rates.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level4 lfo2;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Question: trucks, boats, airplanes?<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l6 level2 lfo2; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Answer: Aviation and marine is about 75,000 –
80,000 subscribers right now. Small number overall. Trucks distribution model
similar to cars – started with after-market, then had OEM relationships. Used
company called Pana-Pacific for trucks. <o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>Bank
of America Merrill Lynch Telecom and Media Conference <o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>SiriusXM
(SIRI)<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>June
3, 2014<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: 0in;">
<b>CFO
David Frear<o:p></o:p></b></div>
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<br /></div>
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Notes:<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Paid versus self-pay subscribers: a bet on the
way paid trial inventories are going at the end of the year. Auto sales grow then paid trial
inventories grow. If flat paid trial then inventories shouldn’t change much. <o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Hard to estimate the used car funnel<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Fastest growing business is subsequent owner
business<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Used car business growing from about 2.0 million
gross additions from a little over 1.5 million in 2013, which is 30%-ish type
of growth. Expect this to grow for years.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SAAR in U.S. expected to be 16 million – at 70%
penetration rate for satellite radio = about 11 million new car trials in 2014.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->The subsequent market – not sure how fast it’ll
grow, aren’t many good resources for forecasting used car sales of satellite
enabled vehicles.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Currently -
60 million cars on the road today with satellite enabled, will be 150
million in 10 years, and 120 million in 5 years.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Total sales in U.S. = 16 million SAAR + 44-45m
used cars = 60 million<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Used car market turnover is roughly triple the
new car market (45m / 16 million SAAR)<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Don’t expect SAAR above 16m or much better than
that<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Used car opportunity should grow to be at least
twice the size of new car opportunity in next 10 years<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Used car market = no SAC. SAC is a function of
new car sales SAAR. If SAAR not growing much more then SAC should come down, as
long as SAAR doesn’t grow a lot more which means new car installations don’t
grow much.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SIRI has very high contribution margins<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Conversion rates – new car market in 42% - 44%,
used car market is low-30%<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->EBITDA margins shouldn’t get much higher than
40% if they do get to 40%, currently at about 34%<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->If low 30% conversion used cars, 2/3 used car
buyers don’t take SIRI service<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Competition for SIRI = largest is terrestrial
radio, then Pandora, Spotify<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->There is going to be growing competition, also
150 million smartphones in U.S. syncing phone to car<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Competition: Pandora has 70 million users in a
month, 150m smartphones, Spotify has 10 million paid users (global) and 3
million in U.S. Spotify got to 3m users in less than 3 years. When satellite
radio launched in 2002, 3m users in less than 3 years as well. Streaming tends
to have high churn rates. AM and FM radio have over 200 million users a week,
I-heart-Radio has 40 million regular users. Already a lot of people listening
to radio in the U.S. <o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Internationally – won’t see us launch a
satellite radio business, turned down multiple opportunities, such as Europe.
In Europe, would take 7 years before we would be cash flow positive and go
upside down about $4 billion to launch. <o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Still have about $1b in additional borrowing
capacity to get to 4x leverage<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Think the stock is cheap today (at $3.30 as of June
6, 2014) – if stock is cheap we buy it, if not then we don’t buy it. <o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Don’t see any advantage to consolidating with
Liberty, no reason for SIRI to pursue it. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SIRI is not missing some big piece in
programming; many of the streamers have challenging economics because the thing
that sells to them is “free” and streaming players offering service at very low
margins. SIRI monetizes better than them, have higher margins, powerful
business model. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Agero – the $530m telematics acquisition – being
marketed to auto OEM, they rebrand it to consumers; maybe eventually auto OEM
let SIRI take brand, do customer service instead of them<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Low-30% on used car conversion much higher than
I thought it would be. Originally thought about 20%. Now have 12,000 dealers of
used cars to help SIRI sell satellite radio. Total there are about 36,000 auto
dealers in U.S., SIRI has 12,000 of the 16-18,000 franchise dealers, and then
there are another 20,000 or so independent dealers. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We have 30% - 35% conversion on used cars; we
are working on ways to improve this. 90 day trail period, for example. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Once a car gets sold, the dealer shares the
information to SIRI, who then markets to them for 3 months. Also, when a car
comes into the dealership to get serviced, the service department can check to
see if the car is satellite enabled and whether there is an active subscription
or not. If not, try to get them a free trial. <o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->80% or more households have 2+ cars<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Over 20% of subscribers are multi-radio HH
despite 80% of HH have 2+ cars; but 20% have new cars, 80% have used cars<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->We think about ARPU a lot; if got more
penetration, ARPU would drop because would offer multi-radio discount, which
would be below current ARPU levels…would love to end up with more subscriptions
long-term, and lower ARPU<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->NHL is only contract from pre-merger times;
could add value/scale when it renews<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Hard to imagine video in the car; in due time
if/when self-driving cars come, then mobile video makes sense, and SiriusXM
platform could be used for mobile video.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->SIRI is designed to deliver 5-10 mb of data to a
movie vehicle – can be video, audio, whatever<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->US Music Royalty: music royalties set up for
another few years, got three years left on sound recording side and 2 years
left on publishing side. They dominate the royalty payments, over 90%<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Connected car business – currently have
relationships with 40% of North American auto manufacturers<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Question is: will competitors currently
operating the cellular networks, are they going to modify their products to
make it more competitive. If one would listen to a streaming service across 3G
in the same way you listen to radio or satellite radio today, would consume at
least $30 of data based on the best plans and prices you can get in the market.
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Satellite radio would work outside the U.S., but
it takes time, and costs about $4b to launch. Currently SIRI has 150 channels
competing against 3 channels, 12 channels, 30 channels. But in Europe there are
a lot of different cultures and we would need more spectrum bandwidth, more
channels, or do you just limit it to less channels in each market? (making it
less competitive). It is less compelling in Europe because of this. Add the
negative FCF of $4-$5 billion for about 7 years. <o:p></o:p></div>
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</div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0in; mso-add-space: auto; mso-list: l8 level1 lfo1;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->There is no clear way of knowing we aren’t
“over-earnings” or that the product is adequately priced. Believe we offer it
at a fair price right now. Most people spend more on Starbucks each month than
on SIRI. Higher income earners convert more, churn less, see a drop in points
every $25,000 in income. $0 - $50,000 in income comprise a significant portion
of new car sales in US and very significant used car sales. But, SIRI is
sensitive to them. Want to make sure SIRI is priced okay with average HH income
of about $51,000.<o:p></o:p></div>
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<br /></div>
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<br /></div>
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Disclosure: I own LMCA, which has a position in SIRI</div>
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<br /></div>
Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com11tag:blogger.com,1999:blog-8610894719881071116.post-43261320718459094012016-01-18T10:20:00.002-08:002016-01-19T07:31:57.227-08:00Overview: LiLAC Group (LILA/LILAB/LILAK) *(Pre-Cable&Wireless Acquisition)<div class="MsoNormal">
<div class="MsoNormal">
<span style="font-size: 10.0pt;">LiLAC Group
(LILA/LILAB/LILAK)<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;"><i>Betting on industry’s best
operators rolling up the highly fragmented Latin American cable assets</i><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">January 6, 2016<o:p></o:p></span><br />
<span style="font-size: 10.0pt;"><br /></span>
<span style="color: red; font-size: 10.0pt;"><b>***Cable & Wireless (CWC) + consolidated "NewCo" valuation in progress....will provide updates***</b></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;"><br /></span></div>
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<b><u><span style="font-size: 10.0pt;">About LiLAC:<o:p></o:p></span></u></b></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">LiLAC is a “tracking stock”
created June 24, 2015 to provide investors a more pure-play capability on the
Liberty Latin America and Caribbean cable assets, which were historically
consolidated under the Liberty Global company. As the Latin American and
Caribbean assets were such a small component of overall Liberty Global, as well
as investors were generally less familiar with these assets, they received
little focus and attention from investors. Management at Liberty believed the
creation of a tracking stock was appropriate to ‘show’ investors that these
assets were valuable as well as give investors a pure-play opportunity in the
expected consolidation of Latin American and Caribbean cable and telecom assets
in the next 5-10 years. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">LiLAC is not a separate
entity, and shareholders of LILA/LILAB/LILAK are ultimately shareholders of
Liberty Global Plc. <o:p></o:p></span></div>
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<br /></div>
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<span style="font-size: 10.0pt;">There is an additional “<i><span style="color: red;">forced selling</span></i>”
investment opportunity as the LiLAC tracking stock is given to current Liberty
Global shareholders at a ratio of 1 LiLAC share for every 20 Liberty Global
shares owned. For most investors, the LiLAC ownership would likely be too small
in relation to their portfolio, and thus these shares would be discarded
without much analysis or investment rationale. <o:p></o:p></span></div>
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<br /></div>
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<span style="font-size: 10.0pt;">As of current, LiLAC consists
of 100% ownership of VTR (Chile cable operator) and 60% of Liberty Cablevision
Puerto Rico (40% owned by Searchlight Capital). <o:p></o:p></span></div>
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<u><span style="font-size: 10.0pt;">What makes Latin America
attractive:<o:p></o:p></span></u></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Highly fragmented
in Latin America and Caribbean landscape, ripe for consolidation<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Liberty already
has presence – Puerto Rico & Chile – thus not new to the region,
understands the risks<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Low broadband and
Pay-TV penetration represents strong growth opportunity, almost similar to
where Europe was 10-15 years ago<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Improving
soci-economic backdrop leads to strong underlying demand and growth<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Foreign exchange
headwinds and market volatility creates opportunity for strategic acquirer
(similar to Liberty’s announcement of CWC)<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Across certain markets,
large market share by satellite companies (DISH and DirecTV), which provides
opportunity to take market share as Liberty can offer broadband and comparable
TV product (similar to cable companies in the United States in 2015 to current)<o:p></o:p></span></div>
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<b><span style="font-size: 10.0pt;">Mike Fries (Q3/2015):</span></b><span style="font-size: 10.0pt;"><i> “..As we rolled out our Lat Am tracker, we did
mention that in our opinion, this region is underpenetrated in broadband and
pay-TV and is likely to experience above-average growth, just look at our own
assets, and is ripe for consolidation, particularly by experienced and
well-capitalized operators…”</i><o:p></o:p></span></div>
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<b><u><span style="font-size: 10.0pt;">Mergers & Acquisition strategy:<o:p></o:p></span></u></b></div>
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<span style="font-size: 10.0pt;">Liberty has stated multiple
times they will not start from an asset-level viewpoint, but rather will look
at the markets in Latin America and where they could potentially be the #1 or
#2 cable operator. Otherwise, they will not enter the market, as they desire
scale advantages (customer service, advertising, size, programming, capital
expenditures).<o:p></o:p></span></div>
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<i><span style="font-size: 10.0pt;">In summarization:<o:p></o:p></span></i></div>
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<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">1.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Start at
country-by-country basis<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">2.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Can, through
M&A, Liberty become the #1 or #2 cable operator<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">3.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">If yes, look to
enter market and start evaluating the assets in the market<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">4.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Be an
advantageous acquirer<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">5.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Build scale
through combination of customer growth, more RGUs, increase penetration, etc. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">6.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Use
parent-company Liberty Global as a mature corporation to obtain funding for the
deals (can use LILA stock, LBTYA stock, add to LBTYA debt or company level
debt)<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">7.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Use Liberty’s
M&A experience to be opportunistic in entering markets and increasing scale<o:p></o:p></span></div>
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<b><span style="font-size: 10.0pt;">Mike Fries (Dec. 2015 UBS):</span></b><span style="font-size: 10.0pt;"> (paraphrased) “<i>We
like the region of Latin America which is why we created the tracking
stock - “LILA, LILAK”. 2 great assets down there, which are growing
high-single digit to low-double-digit EBITDA (VTR and Liberty Puerto Rico).
These 2 current assets are “sub scale”. <b>We
are trying to find ways to build a platform that has scale</b>. The CWC deal
brings that scale needed. They are the #1 fixed/broadband provider in 7 out of
18 countries. They have a massive sub-sea cable business that feeds those
markets as well as our markets. They are heavily invested in mobile. Together,
the CWC business with Liberty (LILA/K) gives us the scale and opportunity for
growth. Think it will be low double-digit EBITDA growth. We have audited
synergies of $125m on top of $145m of one-off capital expenditure synergies. By
the way, there are two levels of synergy we can’t talk about. We’d like to but,
but that’s how the U.K. works. Think the total synergy story is really
attractive.”</i><o:p></o:p></span></div>
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<b><span style="font-size: 10.0pt;">Mike Fries (2012 commenting on OneLink acquisition</span></b><span style="font-size: 10.0pt;">): “<i>Consistent
with our strategy of consolidating markets within our footprint, this
transaction will make us the leading provider of cable services in Puerto Rico,
passing approximately 70 percent of the cable homes on the island and adding <b>substantial scale</b> to our existing
operation</i>.”<o:p></o:p></span></div>
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</div>
<b><span style="font-size: 10.0pt;">Eric Zinterhofer (co-founder of Searchlight,
commenting on Choice acquisition in 2015):</span></b><span style="font-size: 10.0pt;"> “<i>Eric Zinterhofer, co-founder of
Searchlight, said, “We are excited about the opportunity to bring
next-generation video capability and enhanced broadband services to Choice’s
customers. Furthermore, through the creation of an island-wide cable operator,
there are significant opportunities to drive <b>scale benefits</b> and develop incremental residential and commercial
business opportunities in Puerto Rico</i>.”</span><br />
<b><u><span style="font-size: 10.0pt;"><br /></span></u></b>
<b><u><span style="font-size: 10.0pt;"><br /></span></u></b>
<a href="http://geoinnova.org/cursos/wp-content/uploads/2014/09/103072-dns-vtr-chile-dns-vtr-chile.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="http://geoinnova.org/cursos/wp-content/uploads/2014/09/103072-dns-vtr-chile-dns-vtr-chile.jpg" height="95" width="200" /></a><b><u><span style="font-size: 10.0pt;"><br /></span></u></b><br />
<b><u><span style="font-size: 10.0pt;"><br /></span></u></b>
<b><u><span style="font-size: 10.0pt;">Chile: "VTR"</span></u></b></div>
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<b><u><span style="font-size: 10.0pt;">Background:</span></u></b></div>
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<span style="font-size: 10.0pt;">Liberty Global owned 80% of
VTR until March 2014 when they acquired the remaining 20% from “Corp Group” for
approx. $422 million (using 10.1 million shares at $41.80 per share of LBTYK
stock). <o:p></o:p></span></div>
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<b><i><u><span style="font-size: 10.0pt;">Overview of the Market:</span></u></i></b></div>
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<span style="font-size: 10.0pt;">VTR is the largest cable
television provider based on subscribers with 1,026,200 video subscribers at
the end of Q3 2015. At the end of 2014, there were 2.8 million total video
subscribers in Chile. VTR had a 35.9% market share, Telefonica (Movistar) was
at 21.1% market share, and Claro Chile (subsidiary of America Movil) and
DirecTV were even at 16.4% market share.<o:p></o:p></span></div>
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<b><i><span style="font-size: 10.0pt;">Television:<o:p></o:p></span></i></b></div>
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<span style="font-size: 10.0pt;">The Pay-TV market in Chile
has expanded at a 11.5% CAGR from 2008 to 2014, going from 1.46m subscribers to
2.81m subscribers, as well as increasing the penetration in the country from
34.7% in 2009 to 48.6% in 2014. Despite the robust market growth of 11.5%, VTR
was essentially a non-participant, only growing 2.1% from 2008 to 2014. <o:p></o:p></span></div>
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<span style="font-size: 10.0pt;">VTR is only available to
about 60-65% of the Chilean television market, and in that footprint they have
a strong ~57% market share compared to the closest competitor, Movistar
(Telefonica) having about 19% market share. <o:p></o:p></span></div>
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<span style="font-size: 10.0pt;">In my conversations with
Liberty, the likely reason for the divergence in growth of the Pay-TV market
and VTR’s subscriber growth is that VTR caters to the higher end market and
does not offer a low-cost option similar to Claro and DirecTV. With the
exception of DirecTV, who owns some soccer programming rights in Latin America,
there is no differentiation in TV offerings across the providers. Additionally,
piracy was very high in Chile until about a couple of years, and it is logical
that the people that pirated television would mostly migrate to a low-cost
option where VTR does not have a viable product. <o:p></o:p></span></div>
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<b><i><span style="font-size: 10.0pt;">Broadband:<o:p></o:p></span></i></b></div>
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<span style="font-size: 10.0pt;">There are approx. 5 internet
providers in Chile – Movistar, VTR, Grupo Calro, Grupo GTD, and Grupo ENTEL.
However, the market is essentially a duopoly, with Movistar commanding a 39.0%
market share at the end of 2014 and VTR having a 37.2% share; combined, these
two companies control over ¾ of the internet subscribers in Chile. While they
seem comparable from a market share standpoint, their broadband products are
night and day. VTR offers 40 mbps for ~ $70/month versus Movistar offering only
15 mbps as a DSL provider.<o:p></o:p></span></div>
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<span style="font-size: 10.0pt;">The subscriber growth in
broadband was 11.4% CAGR from 2006 to 2014 to about 2.5 million subscribers.
VTR has attained a similar growth rate at 10.5% over that time period. <o:p></o:p></span><br />
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<u><span style="font-size: 10.0pt;">Opportunities:<o:p></o:p></span></u></div>
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<br />
<ul>
<li><b><span style="font-size: 10.0pt;">Newbuild</span></b><span style="font-size: 10pt;">:
Currently VTR is expands homes passed by about 50,000 – 60,000 due to just
market growth; however, VTR will likely expand homes passed at a pace faster
than traditional. A decent rule of thumb for thinking about the capital needed
to expand could be to start with Liberty in U.K. which costs about $600 - $620
per newbuild home. In Chile, it is much cheaper, maybe half of that. The HFC
costs are the same but the labor costs are much lower and the infrastructure in
Latin America is easier to access because it is above-ground (utility poles)
whereas Europe is mostly underground.</span></li>
<li><b><span style="font-size: 10.0pt;">Continued market growth</span></b>:<span style="font-size: 10pt;"> broadband penetration is estimated to be 51% in 2015,
up from 44% in 2014, and expected to be 59% in 2017. Pay-TV penetration is
expected to be 79% by 2017, up from an estimated 69% in 2015 and 54% in 2013.</span></li>
<li><b><span style="font-size: 10.0pt;">Mobile opportunity:</span></b> <span style="font-size: 10pt;">Currently VTR has only ~1% market share in Chile through their MVNO
relationship. The top mobile operators are Claro, Movistar and Entel PCS and
five that use the MVNO model.</span></li>
<li><b><span style="font-size: 10.0pt;">Next generation Set-</span></b><span style="font-size: 10pt;">top Box: Began rolling it out in late 2015, could get 10-15% bump in
ARPU once fully deployed.</span></li>
<li><b><span style="font-size: 10.0pt;">Churn:</span></b><span style="font-size: 10pt;">
offering a quad-play (TV + internet + telephony + mobile) should really lower
churn, accelerate growth. In the UK churn was about 14%, with the introduction
of the quad-play, churn is said to be about 5%. VTR has a MVNO relationship
with Telefonica to offer the mobile service.</span></li>
<li><b><span style="font-size: 10.0pt;">Margin improvement</span></b><span style="font-size: 10pt;">: lower churn, improved mobile growth (higher margin, low capex due to
MVNO relationship) and scale improvements</span></li>
</ul>
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<span style="font-size: 10.0pt;"><br /></span></div>
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<u><span style="font-size: 10.0pt;">Risks:<o:p></o:p></span></u></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l2 level1 lfo8; text-indent: -.25in;">
<br />
<ul>
<li><span style="font-size: 10pt;">Chilean Peso
(CLP) currency headwinds</span></li>
<li><span style="font-size: 10pt;">Chilean economy reliance
on exporting commodities – copper specifically</span></li>
<li><span style="font-size: 10pt;">Lower than
expected mobile growth</span></li>
<li><span style="font-size: 10pt;">Lower than
expected future penetration rates, thus growth slowing combined with no pricing
power</span></li>
<li><span style="font-size: 10pt;">lower multiple due to FX headwinds, some countries tied to commodities</span></li>
<li><span style="font-size: 10pt;">Declining population</span></li>
</ul>
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<br /></div>
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<i><u><span style="font-size: 10.0pt;">Other notes:<o:p></o:p></span></u></i></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l1 level1 lfo7; text-indent: -.25in;">
<br />
<ul>
<li><span style="font-family: "symbol"; font-size: 10.0pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><b><span style="font-size: 10.0pt;">Lack of pricing power</span></b><span style="font-size: 10pt;">: due to inflation of >4% in Chile, almost everyone
in the market raises prices by the CPI, but not above it. Twice a year that
take price increases, at CPI levels only.</span></li>
<li><b><span style="font-size: 10.0pt;">Programming costs mixed USD/CLP</span></b><span style="font-size: 10pt;">: About 45%-55% of VTR’s programming is US content and
in USD, which behaves similarly to the U.S. Pay-TV headwinds in programming
cost growth. The remaining 45-55% is local content and not very inflationary.</span></li>
<li><b><span style="font-size: 10.0pt;">VTR is thought as being the highest quality asset in
Latin America by Liberty</span></b>. <span style="font-size: 10pt;">There are
no capacity issues, its true HFC cables, could easily get 120 mbps speeds right
now. Once DOCSIS 3.1 gets introduced, VTR could get to over 1 gbps in speed for
very little additional capital expenditure, roughly an additional $20 per home
to upgrade from 3.0 to 3.1.</span></li>
<li><b><span style="font-size: 10.0pt;">Capital Expenditures</span></b><span style="font-size: 10pt;"> – est. 2015 to be between 17-19%</span></li>
<li><span style="font-size: 10pt;">Some <b><i>margin
improvement </i></b>in VTR from 2014 to 2015 was the reduction of more than 400
employees in November 2014 through January 2016</span></li>
</ul>
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<img src="https://www.libertypr.com/images/liberty-logo.png" /></div>
<br />
<br /></div>
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<b><u><span style="font-size: 10.0pt;">Puerto Rico: “Liberty Cablevision of Puerto Rico (LCPR)”<o:p></o:p></span></u></b><br />
<b><u><span style="font-size: 10.0pt;"><br /></span></u></b>
<br />
<div class="separator" style="clear: both; text-align: center;">
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<b><u><span style="font-size: 10.0pt;"><br /></span></u></b></div>
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<b><i><u><span style="font-size: 10.0pt;">Background:<o:p></o:p></span></u></i></b></div>
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<span style="font-size: 10.0pt;">LiLAC became the largest
cable operator in Puerto Rico mostly through mergers and acquisitions of the #1
and #3 operators (Liberty Cablevision “LCPR” was #2). What was originally
Liberty Cablevision of Puerto Rico LLC, a cable operator and subsidiary of the
Liberty Global company, they acquired “OneLink Communications” in 2012 with
Searchlight Capital Partners LP and “Choice Cable TV” in the summer of 2015. <o:p></o:p></span></div>
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<span style="font-size: 10.0pt;">With the acquisition of “OneLink”
in 2012, Liberty contributed their assets in Liberty Cablevision and
Searchlight Capital put up the cash, resulting in a cable company that would be
60% owned by Liberty and 40% by Searchlight. The newly formed entity would be
the largest cable operator in Puerto Rico with about 700,000 homes passed and
RGUs approaching 500,000 (one source had it at 480,000 RGUs). While terms were
not announced, Liberty Global had said the transaction values OneLink (before
transaction costs) at about $585 million.<o:p></o:p></span></div>
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<span style="font-size: 10.0pt;">In December of 2014 Liberty
announced the acquisition of “Choice Cable TV” in a deal valued at
approximately $272.5 million, an estimate of 6.1 times Choice’s projected 2015
operating cash flow, after adjusting for synergies and integration. The
acquisition was funded through incremental debt borrowings. <o:p></o:p></span></div>
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<b><i><span style="font-size: 10.0pt;">Overview of the financials:<o:p></o:p></span></i></b></div>
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<span style="font-size: 10.0pt;">Liberty Puerto Rico has
generated revenues of ~$350m over the last year, with a most recent OIBDA
margin of 44.4%, a large improvement from the pre-OneLink and pre-Choice days
of high-20%. Prior to the Choice acquisition, there were about 2.1 RGU’s per
customer relationship. Since Choice was mostly a broadband provider, the RGU
per customer relationship is now 1.93 at the end of Q3/2015. ARPU as of the
last quarter was $78.66, down from $85 in prior quarters, due to the
acquisition of Choice and most Choice subscribers were broadband-only subs.<o:p></o:p></span></div>
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<span style="font-size: 10.0pt;">Despite the decline
sequentially in ARPU, margins should improve due to scale and improved
efficiency of the infrastructure (more bundled packages across all assets –
Liberty, OneLink, and Choice)<o:p></o:p></span><br />
<span style="font-size: 10.0pt;"><br /></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
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<b><i><span style="font-size: 10.0pt;">Overview of the market:<o:p></o:p></span></i></b></div>
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<span style="font-size: 10.0pt;">Puerto Rico could be viewed
as a much simpler competitive environment versus Liberty’s other assets. In
Puerto Rico, there are only 2 cable operators on the island – Liberty and Claro
– and Liberty is viewed as far superior as Claro’s footprint is 85% DSL-based
infrastructure. Of the remaining 15% non-DSL, about half of that is actual
fiber based (thus faster speeds). Due to the fact there are only 2 internet
providers, Liberty has a strong market share of ~53% versus Claro’s ~47%. <o:p></o:p></span></div>
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<br /></div>
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<span style="font-size: 10.0pt;">Liberty’s primary competition
for video services are DISH Network and DirecTV.<o:p></o:p></span></div>
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<br /></div>
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<b><i><span style="font-size: 10.0pt;">Broadband:<o:p></o:p></span></i></b></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l5 level1 lfo2; text-indent: -.25in;">
<br />
<ul>
<li><span style="font-size: 10pt;">Only 2 providers:
Claro (~47% share) and Liberty (~53% share)</span></li>
<li><span style="font-size: 10pt;">Claro (Puerto Rico
telecom) has 85% of footprint as DSL-infrastructure, a far <i>inferior</i> product to Liberty’s fiber deep hybrid-fiber-coaxial
cables</span></li>
<li><span style="font-family: "symbol"; font-size: 10.0pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">Liberty’s base
package offers 20 mbps vs. 5 mbps (English package)/ 3 mbps (Spanish package)
for Claro</span></li>
</ul>
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<b><i><span style="font-size: 10.0pt;">Subscriber Statistics:<o:p></o:p></span></i></b></div>
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<span style="font-size: 10.0pt;">As of the end of Q3/2015,
Liberty provided a total of 769,300 RGUs across the cable footprint of
1,068,200 homes passed in Puerto Rico. The growth in RGU’s has largely come
from acquisition; for example, the Choice acquisition in 2015 added an
additional 355,300 homes passed (about 50% increase in footprint prior to deal)
and 155,900 RGUs (from about 580,000 prior to acquisition). <o:p></o:p></span></div>
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<b><i><span style="font-size: 10.0pt;">“Choice” acquisition - 2015<o:p></o:p></span></i></b></div>
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<span style="font-size: 10.0pt;">The “Choice” acquisition was
advantageous for Liberty as “Choice” had a sizable footprint in Puerto Rico but
was predominantly a broadband provider (91,400 subs) over being a Pay-TV
provider (48,600 subs). Since they were focused mostly on broadband, this
acquisition gives Liberty the ability to offer bundles to legacy-Choice
subscribers, which would increase ARPU, optimize the infrastructure, and
decrease churn for that subscriber base. Additionally, they now have an
island-wide footprint, which opens up B2B business opportunities. For example,
if a business – a retailer, bank, etc. – has operations across the island and
are looking at TV, internet, and telephone, Liberty can offer them that
opportunity, whereas prior to the Choice acquisition they were unable to have
this scale advantage. Lastly, as they are now island-wide, they can advertise
and market across the island, whereas they couldn’t prior to the Choice
acquisition.<o:p></o:p></span><br />
<span style="font-size: 10.0pt;"><br /></span>
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<u><span style="font-size: 10.0pt;">Opportunities:<o:p></o:p></span></u></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l7 level1 lfo3; text-indent: -.25in;">
<br />
<ul>
<li><b style="text-indent: -0.25in;"><span style="font-size: 10.0pt;">Newbuild</span></b><span style="font-size: 10pt; text-indent: -0.25in;"> –
but less so, as they already cover over 80% of the island. Given some demographics
and the economics surrounding those demographics, a portion of the homes in
Puerto Rico won’t be built to. Expect small scale newbuild over time.</span></li>
<li><b style="text-indent: -0.25in;"><span style="font-size: 10.0pt;">Bundle packages/Decrease Churn</span></b><span style="font-size: 10pt; text-indent: -0.25in;"> – with acquisition of Choice in 2015, should be able
to offer more comprehensive bundles to the legacy Choice subscribers</span></li>
<li><b style="text-indent: -0.25in;"><span style="font-size: 10.0pt;">B2B opportunities</span></b><span style="font-size: 10pt; text-indent: -0.25in;"> – Liberty has island-wide footprint, giving them the ability to offer
services to business that operate island-wide (Q3 2015 B2B business (including
SOHO) grew over 20% on rebased basis Y/Y)</span></li>
<li><b style="text-indent: -0.25in;"><span style="font-size: 10.0pt;">Pricing power</span></b><span style="font-size: 10pt; text-indent: -0.25in;">
– in Q2/2015 raised prices in broadband by 8% and TV by 3% (pricing power in
real terms different than Chile market/VTR)</span></li>
<li><b style="text-indent: -0.25in;"><span style="font-size: 10.0pt;">Increase market share & penetration</span></b><span style="font-size: 10pt; text-indent: -0.25in;"> – Liberty has one competitor in Puerto Rico (Claro)
which is a DSL product. Liberty has internet speeds 4-7x faster than Claro,
with the opportunity to go to 120 mbps.</span></li>
</ul>
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<u><span style="font-size: 10.0pt;">Risks:<o:p></o:p></span></u></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l4 level1 lfo5; text-indent: -.25in;">
<br />
<ul>
<li><span style="font-family: "symbol"; font-size: 10pt; text-indent: -0.25in;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt; text-indent: -0.25in;">English package
includes a lot of US programming, thus the cost is about 50% higher than the
Spanish speaking package, may be unaffordable to people, they would stick to
broadband only</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">Geographical –
hurricane or tropical storm damaging cable assets as most are above ground</span></li>
<li><span style="font-family: "symbol"; font-size: 10pt; text-indent: -0.25in;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt; text-indent: -0.25in;">Claro builds out
the non-DSL footprint and increase fiber infrastructure. Would compete better
versus Liberty as Claro already has monopoly on telephone, could be easier to
cross-sell</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">Country debt
problems could cripple the consumer as potential increases in taxes decreases disposable
income</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">population decline</span></li>
</ul>
</div>
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<i><u><span style="font-size: 10.0pt;">Searchlight Capital – the 40% owner of Puerto Rico
assets<o:p></o:p></span></u></i></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Searchlight is a private
investment firm founded in 2010 by senior partners formerly with industry
leading investment management firms. Searchlight Capital Partners currently
manages over $860 million, invests in a wide range of industries in North
America and Europe, and has offices in New York, London and Toronto. For more
information, please visit <a href="http://www.searchlightcap.com/">www.searchlightcap.com</a>.<o:p></o:p></span></div>
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<b><u><span style="font-size: 10.0pt;">Sources:<o:p></o:p></span></u></b></div>
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<a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://www.blogger.com/blogger.g?blogID=8610894719881071116" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span style="font-size: 10.0pt;">12/10/2014 – Liberty Global
buys “Choice Cable TV” <a href="http://www.bizjournals.com/denver/news/2014/12/10/liberty-global-buys-cable-tv-business-in-puerto.html">http://www.bizjournals.com/denver/news/2014/12/10/liberty-global-buys-cable-tv-business-in-puerto.html</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">11/9/2012 – Liberty Global
buys OneLink Communications <a href="http://www.bizjournals.com/denver/news/2012/11/09/liberty-global-partner-buy-puerto.html">http://www.bizjournals.com/denver/news/2012/11/09/liberty-global-partner-buy-puerto.html</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Press Release - OneLink
acquisition <a href="http://www.libertyglobal.com/pdf/press-release/11-09-press-release-final-puerto-rico.pdf">http://www.libertyglobal.com/pdf/press-release/11-09-press-release-final-puerto-rico.pdf</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Press Release – Choice <a href="https://www.libertyglobal.com/pdf/press-release/12-10-Acquisition-of-Choice-FINAL.pdf">https://www.libertyglobal.com/pdf/press-release/12-10-Acquisition-of-Choice-FINAL.pdf</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Liberty Puerto Rico – website
<a href="https://www.libertypr.com/offers.aspx">https://www.libertypr.com/offers.aspx</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Liberty LiLAC June 2015
presentation <a href="http://www.libertyglobal.com/pdf/presentations/LiLAC-Group-Presentation-June-2015-FINAL.pdf">http://www.libertyglobal.com/pdf/presentations/LiLAC-Group-Presentation-June-2015-FINAL.pdf</a><o:p></o:p></span></div>
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<div class="separator" style="clear: both; text-align: center;">
</div>
<span style="font-size: 10.0pt;">Reviews on Puerto Rico - <a href="http://newtopuertorico.com/internet-service-providers-in-puerto-rico/">http://newtopuertorico.com/internet-service-providers-in-puerto-rico/</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Liberty acquires 20% of VTR <a href="http://www.libertyglobal.com/pdf/press-release/03-14-VTR-FINAL.pdf">http://www.libertyglobal.com/pdf/press-release/03-14-VTR-FINAL.pdf</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">May 27, 2015 8-K <a href="http://www.sec.gov/Archives/edgar/data/1570585/000157058515000101/exhibit991-trackerxq42014r.htm">http://www.sec.gov/Archives/edgar/data/1570585/000157058515000101/exhibit991-trackerxq42014r.htm</a><o:p></o:p></span></div>
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<br /></div>
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<b><u><span style="font-size: 10.0pt;">Additional Notes:<o:p></o:p></span></u></b></div>
<div class="MsoNormal">
<br /></div>
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<span style="font-size: 10.0pt;">Programming costs for Chile =
~$80m annualized, with 48%- 53% denominated in US Dollars<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Corporate Expenses shared by
Liberty Global (LBTYA)<o:p></o:p></span></div>
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<span style="font-size: 10.0pt; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_6" o:spid="_x0000_i1025" type="#_x0000_t75" style='width:468pt;
height:127.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\CASzalay\AppData\Local\Temp\msohtmlclip1\01\clip_image019.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
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<br /></div>
<br />
<div class="MsoNormal">
<u><span style="font-size: 10.0pt;">Choice Acquisition:<o:p></o:p></span></u><br />
<u><span style="font-size: 10.0pt;"><br /></span></u>
<u><span style="font-size: 10.0pt;"><br /></span></u>
<u><span style="font-size: 10.0pt;">Disclosure:</span></u><br />
<span style="font-size: 10pt;">I own shares of LiLAC through "LILA" shares</span></div>
</div>
Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com0tag:blogger.com,1999:blog-8610894719881071116.post-21023353612604613192016-01-12T08:40:00.001-08:002016-01-12T09:46:41.229-08:00Cord-cutting: Myth or Reality? -- (Data through Q3/2015)Through Q3/2015, based on the filings of 9 pay-TV companies (a total of 86.1 million video subscribers), as well as some estimates of the number of Sling TV subscribers in DISH Networks video numbers*, Q3/2015 had the <b>largest</b> year-over-year loss in subscribers ever, and the <b>second worst </b>sequential quarter ever (Q2/2015 was the worst). <i>Is this a full on decline in all pay-TV provider video subscribers, or is this isolated to a few companies that are simply under-performing the industry?</i><br />
<br />
Based on the numbers from these 9 company filings, the year-over-year decline in Pay-TV subscribers is largely attributed to declines at DISH Network (estimate 6 straight quarters of declines in residential video subscribers) and U-Verse (AT&T). After a large decline in video subscribers at DirecTV in Q2/2015 of 133,000 from the prior quarter, they actually added an estimated 5,000 net subs in Q3/2015.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcz51NEcxW-WYFjO1IWrEeTddrv90V-EvFXKI6yP7DGwgQxK5pU_8L5fnzQUTnMQHo_MVCFfpufqvWGG5zHWCiMTw8TWhEW27nDwxnK5G4H_ysAwdjN729TUIXPu2uy8k8gWTZS87LnVg/s1600/Pay+TV+subscribers.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="388" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcz51NEcxW-WYFjO1IWrEeTddrv90V-EvFXKI6yP7DGwgQxK5pU_8L5fnzQUTnMQHo_MVCFfpufqvWGG5zHWCiMTw8TWhEW27nDwxnK5G4H_ysAwdjN729TUIXPu2uy8k8gWTZS87LnVg/s640/Pay+TV+subscribers.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">U.S. Pay-TV video subscriber growth with the third consecutive quarter of declines</td></tr>
</tbody></table>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpwH9uyQY4N8jmWFS21xY6QUXZ0HqduQfRamIMuBaD19rVtnswdDGOSZmAxEnKrHWXtYn4TZeLkfVAz2S4ZTAeb2s8S1Ecf6nVA3cORTbDmDeN9Bc7DBreKQPTQRvrFPGyZ2vOHt3TBAY/s1600/Pay+TV+net+sub+gains+losses.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="456" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpwH9uyQY4N8jmWFS21xY6QUXZ0HqduQfRamIMuBaD19rVtnswdDGOSZmAxEnKrHWXtYn4TZeLkfVAz2S4ZTAeb2s8S1Ecf6nVA3cORTbDmDeN9Bc7DBreKQPTQRvrFPGyZ2vOHt3TBAY/s640/Pay+TV+net+sub+gains+losses.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Q3/2015 - the worst quarterly decline every; Q2/2015 was the worst.</td></tr>
</tbody></table>
<br />
Cable companies actually had the best aggregate quarter since I began looking at data in 2007, with year-over-year <i>declines</i> of 0.9%. Satellite companies - DISH and DirecTV - had the worst quarter with year-over-year <i>losses</i> of 1.3%. The telco's - AT&T U-Verse and Verizon FiOS - saw the slowest growth in video subscribers ever with only 2.5% year-over-year growth, to a total of 11.661 million subs.<br />
<br />
Which companies did the <u><b>best</b></u> in Q3/2015:<br />
<br />
<ol>
<li>Verizon FiOS (VZ) +42,000</li>
<li>Charter Communications (CHTR) +12,000</li>
<li>DirecTV (T) +5,000</li>
</ol>
<div>
<br /></div>
<div>
Which companies did the <u><b>worst</b></u> in Q3/2015:</div>
<div>
<ol>
<li>DISH Networks (DISH) -178,000</li>
<li>AT&T U-Verse (T) -117,000</li>
<li>Comcast (CMCSA) -48,000</li>
</ol>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-KucgPP8jO3695w0s0sSdzjgq94ztw0LP4FrJm8PEeyXZYCU5VbxKrvwAwEyY2A4zeRsIYGRvGIQMsYVW7PROlbKZmlrdiqmf-uIn9Mz4Sd0YDnGAo6QgLC61v1ekfEw4pKdKYrqXReI/s1600/US+Cable+companies+sub+growth.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="288" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-KucgPP8jO3695w0s0sSdzjgq94ztw0LP4FrJm8PEeyXZYCU5VbxKrvwAwEyY2A4zeRsIYGRvGIQMsYVW7PROlbKZmlrdiqmf-uIn9Mz4Sd0YDnGAo6QgLC61v1ekfEw4pKdKYrqXReI/s640/US+Cable+companies+sub+growth.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Cable companies with the best quarter in many years</td></tr>
</tbody></table>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKf0l9P0EHyL12VBD83c7pV-9Kpw9XvTXl8xCWckCMl9XNSQgbVwC7QtKPy6ZeLSSWJHuU6pYZJwUa2ELM7OvAM9HNQ_cTvNQ-9TMeayFKg-kiZrneJhyH0K2GZLW7A8M5SOhlTQelpP0/s1600/US+satellite+company+sub+growth.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="326" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKf0l9P0EHyL12VBD83c7pV-9Kpw9XvTXl8xCWckCMl9XNSQgbVwC7QtKPy6ZeLSSWJHuU6pYZJwUa2ELM7OvAM9HNQ_cTvNQ-9TMeayFKg-kiZrneJhyH0K2GZLW7A8M5SOhlTQelpP0/s640/US+satellite+company+sub+growth.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Satellite companies with the worst Y/Y quarter ever</td></tr>
</tbody></table>
<div>
<br /></div>
<div>
<br /></div>
<div>
<b><u>Thoughts:</u></b></div>
<div>
I continue to believe that, while it is clear that the pay-TV industry in the U.S. is not a growth engine from a subscriber increase standpoint, it looks as if the infrastructure/structural advantages of the cable companies and telco's are taking video subscriber share from the satellite companies - DISH and DirecTV. More specifically, it looks as if the cable companies are continuing to rebound and will soon completely stabilize video subscriber numbers and possibly have net additions. </div>
<div>
<br /></div>
<div>
As DirecTV and DISH cannot provide some of the customer essentials - namely high speed internet -as well as cable companies investing heavily in both increasing their broadband speeds and video products (X1, Worldbox/Spectrum, TV Anywhere,Wi-Fi hotspots), cable is no longer in an inferior position to a majority of the U.S. population. Where satellite once had far superior video viewing -channels, HD,quality - the cable companies have finally caught up and will likely surpass them as they continue with improved customer service and video user interface. </div>
<div>
<br /></div>
<div>
Comparing the growth in Netflix (NFLX) to the Pay-TV industry as a whole, the growth in Netflix far exceeds the subscriber declines in video subscribers. Many in the Pay-TV industry view Netflix (NFLX) as both friend and foe. Foe due to Netflix being a much lower cost alternative video subscription to traditional TV, but a friend because Netflix consumes a lot of home bandwidth data (37% of all North American traffic) and the cable companies benefit as they offer the infrastructure Netflix needs to provide their product to customers. Considering the low price points, as well as the improvement in cable video subscribers, it looks as if Netflix is a complimentary service to the current cable bundle subscription.</div>
<div>
<br /></div>
</div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiA3uhU09dz7Dw6HngKVoz731UPbtoOWdogYZVH45FLDo0esDS29LgS19yxRAL6MalChnDtXgINd9eWxq910BY8PFi2FAWaEzBu7Bny1DvkuI75M81GaP4asCGHOjyn6wuvKg-f7RRbkhY/s1600/Charter+CHTR.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="380" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiA3uhU09dz7Dw6HngKVoz731UPbtoOWdogYZVH45FLDo0esDS29LgS19yxRAL6MalChnDtXgINd9eWxq910BY8PFi2FAWaEzBu7Bny1DvkuI75M81GaP4asCGHOjyn6wuvKg-f7RRbkhY/s640/Charter+CHTR.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">CHTR expects to have video net additions in 2015</td></tr>
</tbody></table>
<div>
<br /></div>
<div>
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgo971-vuOCo8pcOWZRGRlVpBdjEoPWaG5c6S2ljAX_N0-iI_fRGaS7b9NlN8u-eRAmuayFe08xND5xLYDaphtqvIdhejc5jV-FYYLWmyX4kuYW5wLzz498N_fXQ4OyS_npN2LOnKp0yEk/s1600/Netflix+NFLX.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="316" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgo971-vuOCo8pcOWZRGRlVpBdjEoPWaG5c6S2ljAX_N0-iI_fRGaS7b9NlN8u-eRAmuayFe08xND5xLYDaphtqvIdhejc5jV-FYYLWmyX4kuYW5wLzz498N_fXQ4OyS_npN2LOnKp0yEk/s640/Netflix+NFLX.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">While NFLX growth in US is slowing, it is still growing mid-teens year-over-year</td></tr>
</tbody></table>
<div>
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh66jxqOBCqraYF3peQ4VQV72OdxbvlJDL7o1cBXHvFZ5MlZhGaX44nf-Fkyb4jPIATF9Wl0AJEd8M-JBID8R_3e_TmLZzLxVH8ESkWrwcqhpKDKbG5xqaHEmOeNy2AbM_QPv0NiUIxY7g/s1600/NFLX+price+points.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="178" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh66jxqOBCqraYF3peQ4VQV72OdxbvlJDL7o1cBXHvFZ5MlZhGaX44nf-Fkyb4jPIATF9Wl0AJEd8M-JBID8R_3e_TmLZzLxVH8ESkWrwcqhpKDKbG5xqaHEmOeNy2AbM_QPv0NiUIxY7g/s640/NFLX+price+points.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Price points for Netflix (NFLX) - low enough to not fully cannibalize linear TV subscription,is more a complimentary subscription</td></tr>
</tbody></table>
<div>
<br /></div>
<div>
<br /></div>
<div>
<b><u>Companies included:</u></b><br />
Charter Communications (CHTR)<br />
Comcast (CMCSA)<br />
Cablevision (CVC)<br />
Time Warner Cable (TWC)<br />
DirecTV<br />
AT&T (T)<br />
Verizon (VZ)<br />
Mediacom<br />
DISH Networks (DISH)<br />
<br /></div>
<div>
<u><b>Links:</b></u></div>
<div>
<a href="http://recode.net/2015/11/09/sling-tvs-near-death-experience/">http://recode.net/2015/11/09/sling-tvs-near-death-experience/</a></div>
Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com1tag:blogger.com,1999:blog-8610894719881071116.post-13170410884152227962016-01-07T12:12:00.001-08:002016-01-11T23:03:58.550-08:00Liberty-company related notes: CEO Greg Maffei on SiriusXM (SIRI), Liberty Media (LMCA), Liberty Ventures (LVTNA) at Citi Conf. (01/06/2016)<div class="MsoNormal" style="margin-left: .25in;">
<span style="font-size: 10.0pt;">Liberty-company
related notes: SiriusXM (<b><i>SIRI</i></b>), Liberty
Media (<i><b>LMCA</b></i>), Liberty Ventures (<b><i>LVTNA</i></b>), Charter Communications (<i><b>CHTR</b></i>)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: .25in;">
<span style="font-size: 10.0pt;">Citi
Global Internet, Media and Telecommunication Conference<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: .25in;">
<span style="font-size: 10.0pt;"><i>January
6, 2016</i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in;">
<span style="font-size: 10.0pt;">Liberty
Media (<i><b>LMCA</b></i>)<o:p></o:p></span><br />
<span style="font-size: 10.0pt;"><i>Speaker: Greg Maffei (CEO)</i></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in;">
<b><u><span style="font-size: 10.0pt;">Goals for 2016:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-left: .25in;">
</div>
<ul>
<li><span style="font-size: 10pt;">Close
CHTR merger with TWC/BHN</span></li>
<li><span style="font-size: 10pt;">Complete
the transactions announced at Investor Day</span></li>
<li><span style="font-size: 10pt;">Narrow
the discount at Liberty Media (LMCA)</span></li>
</ul>
<br />
<div class="MsoNormal">
<span style="font-size: 10.0pt;"> </span><b><u><span style="font-size: 10.0pt;">Businesses tied to economy?</span></u></b></div>
<div class="MsoNormal" style="margin-left: .25in;">
</div>
<ul>
<li><span style="font-size: 10pt;">Most
seemingly less tied to pure GDP growth</span></li>
<li><span style="font-size: 10pt;">High-yield
markets impact somewhat because of financing</span></li>
<li><span style="font-size: 10pt;">Debt
markets can create opportunities, look at CHTR low financings</span></li>
<li><span style="font-size: 10pt;">Most
of big assets we have are U.S. – focused</span></li>
<li><span style="font-size: 10pt;">TripAdvisor,
QVC has some big foreign currency risk elements</span></li>
<li><span style="font-size: 10pt;">Zulily
and CHTR – currency less a factor</span></li>
<li><span style="font-size: 10pt;">Liberty
businesses are mostly dominated by the microeconomic environment</span></li>
<li><span style="font-size: 10pt;">We
spend a lot of time thinking about the impact of digital and mobile</span></li>
</ul>
<br />
<div class="MsoNormal">
<span style="font-size: 10.0pt;"> </span><b><u><span style="font-size: 10.0pt;">Charter (CHTR):</span></u></b></div>
<div class="MsoNormal" style="margin-left: .25in;">
</div>
<ul>
<li><span style="font-size: 10pt;">When
we originally invested we thought it was not as fully valued as we thought</span></li>
<li><span style="font-size: 10pt;">Thought
cable was well-positioned, CHTR in particular</span></li>
<li><span style="font-size: 10pt;">Today,
</span><span style="color: red; font-size: 10pt;">think radio has probably been discounted</span></li>
<li><span style="font-size: 10pt;">Problem
is they all have screwed up capital structures and there’s no way to invest in
some</span></li>
</ul>
<br />
<div class="MsoNormal">
<span style="font-size: 10.0pt;"> </span><i><u><span style="font-size: 10.0pt;">Linear video marketplace – market is
bearish – is this rational?</span></u></i></div>
<div class="MsoNormal" style="margin-left: .25in;">
</div>
<ul>
<li><span style="font-size: 10pt;">Most
of the time these cash flows last longer than people think – been our
experience, see DirecTV (DTV)</span></li>
<li><span style="font-size: 10pt;">Is
there great growth prospects – less clear on this.</span></li>
</ul>
<br />
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<span style="font-size: 10.0pt;"> </span><b style="font-size: 10pt;"><u>Liberty
Media (LMCA)</u></b></div>
<div class="MsoNormal" style="margin-left: .25in;">
</div>
<ul>
<li><span style="font-size: 10pt;">3
trackers – SiriusXM + Braves (and real estate) + remaining assets inside LMCA</span></li>
<li><span style="font-size: 10pt;">Trackers
will trade probably in second quarter, early second Qtr</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><b><u><span style="font-size: 10.0pt;">Atlanta Braves:</span></u></b></div>
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<ul>
<li><span style="font-size: 10pt;">Thought
the presence of the stadium create unique opportunity for real estate to
generate attractive RoR</span></li>
<li><span style="font-size: 10pt;">Tenants
have signed up, hotel, major office complex, number of retailers</span></li>
<li><span style="font-size: 10pt;">New
field will cost $650 - $670m, we are paying about $220m</span></li>
<li><span style="font-size: 10pt;">Mixed-use
facility - $550m in cost and paying 80% preleverage</span></li>
<li><span style="font-size: 10pt;">Hope
to see revenues and CF for Braves</span></li>
<li><span style="font-size: 10pt;">Think
investors will value the Braves in two ways – Braves team value + mixed-use
real estate</span></li>
<li><span style="font-size: 10pt;">S-4
– team generates about $250m revenues and very little net income</span></li>
<li><span style="font-size: 10pt;">Revenues
from Braves come from rights fees (TV is majority, less so radio), ticket sales
and sponsorships</span></li>
<li><span style="font-size: 10pt;">Redid
the TV deal 14-15 months ago, has a series of escalating rate, real kicker is
in 2027</span></li>
<li><span style="font-size: 10pt;">In
2027 rates will likely be well below market, we inherited this contract when
purchased Braves from Time Warner; in addition, we will own more of the parking
and ancillary revenue streams, the SunTrust, etc.</span></li>
<li><span style="font-size: 10pt;">Been
many transactions lately where teams sold at valuations as multiples of
revenues – look at the CF for the Braves, add it big bump in 2027</span></li>
<li><span style="font-size: 10pt;">Teams
have expanded dramatically in price -</span><span style="font-size: 10pt;">
</span><span style="font-size: 10pt;">look at the Dodgers (</span><i style="font-size: 10pt;"><u>note</u></i><span style="font-size: 10pt;">:
sold for $2.15 billion in 2012-- </span><a href="http://www.wsj.com/articles/SB10001424052702303404704577308483250633906" style="font-size: 10pt;">Link</a><span style="font-size: 10pt;">)</span></li>
<li><span style="font-size: 10pt;">If
someone wanted to buy the Braves, for tax reasons, unlikely to sell for cash</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><b><u><span style="font-size: 10.0pt;">Liberty Media (LMCA) – tracker</span></u></b></div>
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</div>
<ul>
<li><span style="font-size: 10pt;">34%
stake in Live Nation (LYV) + 20% Braves asset + venture portfolio assets like
Tastemade, etc.</span></li>
<li><span style="font-size: 10pt;">Put
the 20% Braves assets to have a potential source of funding, to raise capital,
can sell that stock on a tax-free basis</span></li>
<li><span style="font-size: 10pt;">We
like writing big checks, and having more capital is good (look at CHTR)</span></li>
<li><span style="font-size: 10pt;">Not
that many people that can write a $3b</span><span style="font-size: 10pt;"> </span><span style="font-size: 10pt;">-
$5b check into a non-control situation. Warren Buffett can do it, but he doesn’t
play much in TMT.</span></li>
<li><span style="font-size: 10pt;">Would
want to inject a lot of capital if there’s another downturn, that’s the kind of
deal we like to do</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><b><u><span style="font-size: 10.0pt;">Live Nation (LYV)</span></u></b></div>
<div class="MsoNormal" style="margin-left: .25in;">
</div>
<ul>
<li><span style="font-size: 10pt;">34.4%
stake in LYV</span></li>
<li><span style="font-size: 10pt;">Very
strong management team, built a true leadership position in the promotion
business</span></li>
<li><span style="font-size: 10pt;">Opportunities
to, on the biggest global tours, to fill their portfolio where we may own the
global tour, but we still need to outsource portions of it</span></li>
<li><span style="font-size: 10pt;">Continue
to</span><span style="font-size: 10pt;"> </span><span style="font-size: 10pt;">buy either new promoters or buy new
companies – concert co’s to help us in different markets</span></li>
<li><span style="font-size: 10pt;">Bought
a bunch of festivals last few years</span></li>
<li><span style="font-size: 10pt;">Opportunities
to use that scale and grow over time and increase stake in secondary market</span></li>
<li><span style="font-size: 10pt;">Bunch
of ancillary benefits that come from e-commerce and sponsorship</span></li>
<li><span style="font-size: 10pt;">Goals:
consolidate global concerts and festivals, consolidate global ticketing,
organic growth in secondary ticketing and sponsorship, emerging content offers
like Vice, Yahoo</span></li>
<li><span style="font-size: 10pt;">Strength
in global concert promotion is what enables us to have strength in ticketing</span></li>
<li><span style="font-size: 10pt;">Key
to other components is that LYV has strength in concerts</span></li>
<li><span style="font-size: 10pt;">Don’t
think the 2016 concert slate will be a disaster, but we have a long-term view</span></li>
<li><span style="font-size: 10pt;">Added
to LYV at price we thought was attractive at the time</span></li>
<li><span style="font-size: 10pt;">Relationship
with Vivendi is complicated; keep in mind we have a $1.1 billion judgment
against them</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><b><u><span style="font-size: 10.0pt;">Other Notes:</span></u></b></div>
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</div>
<ul>
<li><span style="font-size: 10pt;">Continue
to look to aim towards tax-efficiency I non-core assets like Viacom</span></li>
<li><span style="font-size: 10pt;">We
don’t like to pay taxes</span></li>
<li><span style="font-size: 10pt;">If
we saw an opportunity to utilize some cash in a better fashion, we might choke
and generate cash and just pay the taxes</span></li>
<li><span style="font-size: 10pt;">Think
there are synergies between LYV and SIRI, but the rate probably won’t make me
happy</span></li>
<li><span style="font-size: 10pt;">Disruption
of Expedia by Airbnb? Question is has Airbnb generated incremental demand – probably.
But it’s some sort of substitution. Probably have some demand shifted to
Airbnb, no doubt.</span></li>
<li><span style="font-size: 10pt;">Hearing
on Vivendi litigation – March 2016</span></li>
<li><span style="font-size: 10pt;">We
want to build some liquidity to write big checks</span></li>
<li><span style="font-size: 10pt;">Businesses
that we like, probably won’t change: subscription, free cash flow oriented
businesses, try to stay away from ad-based businesses due to comfort</span></li>
<li><span style="font-size: 10pt;">LYV
is not a subscription business but there were other reasons we liked it</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><b><u><span style="font-size: 10.0pt;">SiriusXM:</span></u></b></div>
<div class="MsoNormal" style="margin-left: .25in;">
</div>
<ul>
<li><span style="font-size: 10pt;">Tried
to combine tracker and a company before and didn’t work, maybe will in the
future</span></li>
<li><span style="font-size: 10pt;">Ultimately,
</span><span style="color: red; font-size: 10pt;">longer-term perspective is that it’s likely Sirius ends
up being 100% controlled by Liberty</span><span style="font-size: 10pt;">; we are at 61% or so now</span></li>
<li><span style="font-size: 10pt;">The
connected car is actually a positive for SiriusXM, not a negative like the
market thinks</span></li>
<li><span style="font-size: 10pt;">Advantage
could be the use of satellite, but could get reduced when cars get connected</span></li>
<li><span style="font-size: 10pt;">Other
advantages: content, exclusivity, differentiation, etc.</span></li>
<li><span style="font-size: 10pt;">Also
could be a hedge where is cars are connected and we don’t need the spectrum,
could monetize it – so it’s a hedge on value</span></li>
<li><span style="font-size: 10pt;">SIRI
bought back about $2b in stock last year; had FCF for only about 60% of that,
had to borrow remaining 40%</span></li>
<li><span style="font-size: 10pt;">Leverage
at <4.0x, looking to move it up slowly</span></li>
</ul>
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com0tag:blogger.com,1999:blog-8610894719881071116.post-7331138304037959622015-12-29T14:10:00.001-08:002016-01-18T10:25:43.648-08:00Analysis: DaVita HealthCare Partners ("DVA") - (December 28, 2015)<div class="separator" style="clear: both; text-align: center;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoY3tQHU-4ZTTnjEDS-9lmjL7I38b-3cKtJtjNN2L3GrLdKEVe_aXH7-kQyoMZob_iuJRi2xx7FE9BM-bYqOThzgYGYSCUfMFQmxh-gMnLeUu_uf-9qUOWhQx4qnt0JhVM4lEl2vvxb2Y/s1600/Davita+logo.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="73" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoY3tQHU-4ZTTnjEDS-9lmjL7I38b-3cKtJtjNN2L3GrLdKEVe_aXH7-kQyoMZob_iuJRi2xx7FE9BM-bYqOThzgYGYSCUfMFQmxh-gMnLeUu_uf-9qUOWhQx4qnt0JhVM4lEl2vvxb2Y/s200/Davita+logo.png" width="200" /></a></div>
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<span style="font-size: 10.0pt;">DaVita Healthcare Partners
(<b><i>DVA</i></b>)<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;"><b><i>Solid “core”
holding with 10-15% long-term returns</i></b></span><o:p></o:p></div>
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<span style="font-size: 10.0pt;">December 28, 2015<o:p></o:p></span></div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdQAhvWrDLbTn_-k-1HE-cHpJkMzThv7HPti-Jb5sCXzvhyphenhyphenyh0HAK7W7wkxjmn_9x6ZLqwR9xQvCYcxiXRLo1mqbEhQS120GQSb-H_clFH3PLCgoYGlwk90FaTZ5_xFoEHmwfD5GrcAQk/s1600/DVA+Financials+-+12.28.15.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="366" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdQAhvWrDLbTn_-k-1HE-cHpJkMzThv7HPti-Jb5sCXzvhyphenhyphenyh0HAK7W7wkxjmn_9x6ZLqwR9xQvCYcxiXRLo1mqbEhQS120GQSb-H_clFH3PLCgoYGlwk90FaTZ5_xFoEHmwfD5GrcAQk/s400/DVA+Financials+-+12.28.15.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Financial Information through Q3/2015</td></tr>
</tbody></table>
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<span style="font-size: 10pt; text-indent: 0in;">Many are familiar with <b>DaVita </b>as a dialysis provider,
as they have likely seen one of their ~2,200 clinics across the United States
used to treat individuals with End Stage Renal Disease (ESRD) and Chronic
Kidney Disease (CKD) who need dialysis to remove the waste and excess water
from the blood due to kidney failure. This is what dialysis is and does. DaVita
is the #2 dialysis provider in the U.S. with about a 35% market share, close to
Fresenius’ 36% market share. They have about 177,000 patients in the U.S. and
10,000 internationally.</span></div>
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<span style="font-size: 10.0pt;">Less people are familiar with <b>HealthCare Partners,</b> the
doctor network that was acquired by DaVita for <b>$4.42 billion</b> in 2012. “HCP” is
a very capital-light people-heavy business, where they contract mostly with
primary care doctor groups, specialists, and hospitals to have access to their
patient network (capitated lives) whereby they can manage patients in a more
responsive, proactive, and affordable manner. They have 808,000 total capitated
members and oversee $1.26 billion “care dollars under management”. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Despite the businesses – legacy DaVita (dialysis) and
HealthCare Partners (capitated lives and PCP-focused) – have little overlap,
they are part of what DaVita’s management views as the future of the healthcare
system: <i><b>population health management.</b></i> <o:p></o:p></span></div>
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<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<i><span style="font-size: 10.0pt;"><span style="color: red;">(I will go over the basics of the
business, the products, the alternatives. For more discussion on the
financials, skip ahead)</span><o:p></o:p></span></i></div>
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<b><u><span style="font-size: 10.0pt;">What is dialysis?<o:p></o:p></span></u></b></div>
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<span style="font-size: 10.0pt;">Dialysis is the process for removing waste and excess water
from the blood and is used primarily as an artificial replacement for a lost
kidney function in people with kidney failure (Wikipedia.com) Typically, people
who need dialysis have kidney failure that results from two most frequent
causes: diabetes (Type 2, or adult onset diabetes) and high blood pressure. For
many people with kidney failure, dialysis and a kidney transplant enables them
to live life with the disease. Without dialysis or a kidney transplant, once a
person reaches stage 5 (ESRD), an individual could die without a few weeks due
to the toxins building up. Therefore, the options are: transplant, dialysis, or
death. <o:p></o:p></span></div>
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<span style="font-size: 10.0pt;">An individual with CKD or ESRD sees a nephrologist
(kidney doctor) who then refers the patient to a dialysis facility in which
most/all of his/her patients go to so that the nephrologist can monitor
progress. In the case of DaVita, if they have strong relationships with a
nephrologist (or the facility is partially owned by the nephrologist at
start-up) then the patient stickiness is essentially 100%, unless the patient
moves somewhere else, where they would likely move to a location in the US near
another DaVita center. At a DaVita dialysis center, which generates about $4
million in revenue and $800,000 in operating income, there are 75 patients
(this has been stable), of which 90% are government and 10% are
private/commercial. The center has a total of 17 teammates on-site, including 5
nurses, 8 techs, and 4 other/admin. At any given moment, all 18 machines could
be in use if at maximum utilization. <o:p></o:p></span></div>
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<b><u><span style="font-size: 10.0pt;">Kidney Failure options: Transplant or
Dialysis (or death)<o:p></o:p></span></u></b></div>
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<span style="font-size: 10.0pt;">Once the kidney damage is done and there is enough
decreased function to create chronic kidney disease (CKD), an individual has
two main options: kidney transplant or dialysis. These only options create the
dilemma for a vast majority of people, as more than 10% of American adults have
chronic kidney disease and greater than 690,000 has ESRD (as of Q4/2014), but
despite the 100,000 on the kidney transplant waiting list only about 16,000
transplants are done each year. Unfortunately, ESRD is irreversible and
permanent kidney failure, so unless an individual gets a kidney transplant,
they must be on dialysis until they die. <o:p></o:p></span></div>
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<b><u><span style="font-size: 10.0pt;">Who typically is on dialysis?<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">The average age of a new dialysis patient in the
United States is <b><i>64 years</i></b> and the average life expectancy for those on dialysis
ranges from 5-10 years. Unfortunately, the older the dialysis patient, the less
amount of years they can expect to live while on dialysis. The importance, from
an investors point of view, of the average age of dialysis patient is due to
the common type of insurance that patient has determines the level and adequacy
of reimbursement to the dialysis provider. At 64 years of age, the majority of
dialysis patients are government paying, and currently the government
reimburses dialysis providers an inadequate amount. This puts pressure on the
commercial paying patients, whose rates are multiples of the Medicare PPS rate,
and provide 110-115% of the profitability.<o:p></o:p></span></div>
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<b><u><span style="font-size: 10.0pt;">Secular Tailwind: American
Demographic Shift<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">A long-term secular tailwind for DaVita is the
prevalence of ESRD for the ethnic populations that will become a larger
component of the American population over time. For example, the prevalence in
the Hispanic community is 1.5 times greater than the non-Hispanic community.
Given current immigration trends, the future composition of the American
population will include a much higher percentage of Hispanics (see chart from
Pew Research Center). <o:p></o:p></span></div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsgrb-v-ZIIzObCg0Fvr3X5JxtnbWuQztxR8dXPbvq-teiUqL2Ak_WFiwWzlX7CYVvOhOIrHRtgyOECYFoCS0fr_kKqzSigEaToCGqymTo2egCFI4k8NVh9xjD7-eAO2C43818TUaMpwU/s1600/Prevalence+ESRD.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="259" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsgrb-v-ZIIzObCg0Fvr3X5JxtnbWuQztxR8dXPbvq-teiUqL2Ak_WFiwWzlX7CYVvOhOIrHRtgyOECYFoCS0fr_kKqzSigEaToCGqymTo2egCFI4k8NVh9xjD7-eAO2C43818TUaMpwU/s320/Prevalence+ESRD.png" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Hispanic prevalence is 1.5x higher than non-Hispanic prevalence of ESRD</td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTCOM4Ao_j0hQud2VTFVltmyLfF-ilNqQy4-inOmVOM2KEjIKjzTGosLIB_hyphenhyphenwtzsCeQ3WyqoLJQBkHbyP0GEDWq8h9cCiweLRKqk6M0kPtvnV0kv-G-7eYoEo81aVfIeIzXofesD1CZA/s1600/Population+in+2060.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTCOM4Ao_j0hQud2VTFVltmyLfF-ilNqQy4-inOmVOM2KEjIKjzTGosLIB_hyphenhyphenwtzsCeQ3WyqoLJQBkHbyP0GEDWq8h9cCiweLRKqk6M0kPtvnV0kv-G-7eYoEo81aVfIeIzXofesD1CZA/s640/Population+in+2060.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Population expectations for America includes much higher minority percentage</td></tr>
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<b style="text-indent: 0in;"><u><span style="font-size: 10.0pt;">How is dialysis paid for?</span></u></b></div>
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<span style="font-size: 10.0pt;">Government dialysis-related payment rates in the US
are determined by federal Medicare and state Medicaid policy. For Medicare, all
ESRD payments for dialysis treatments are made under a single bundled payment rate
(2015 rate = $239.43 per treatment).
Originally, pre-2011, the payment was separated based on the actual treatment
and a separate payment for the drugs and labs (the changes from un-bundled to a
bundled PPS and the errors in calculating an appropriate “bundled rate” led to
a reported overpayment to dialysis providers of $4.9 billion because of
overestimates of usage of anti-anemia drugs; see: </span><a href="http://www.modernhealthcare.com/article/20130701/NEWS/307019947"><span style="font-size: 10.0pt;">http://www.modernhealthcare.com/article/20130701/NEWS/307019947</span></a><span style="font-size: 10.0pt;">) For patients only paying with Medicare, they are
responsible for a 20% coinsurance on out-patient care, including dialysis
treatments (average in 2010 out of pocket was $6,918 for patients with
ESRD). Patients using commercial
insurance are the only means for any dialysis provider to earn any profit, as
those rates are typically multiples of the Medicare reimbursement rate. While
it might seem that dialysis providers gauge commercial insurance companies,
they are able to “get away with” contracting for much higher rates than the
$240 Medicare bundled rate because: (a) the typical ESRD patient population is
small relative to the overall size of patient network in each geography, (b)
the services some dialysis providers provide improves the wellness of the
patient by limiting excessive readmissions to hospitals, and (c) the commercial
insurance company is only on the hook for the first 33 months, in which the
patient moves off of commercial insurance to Medicare as the primary payer. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><u><span style="font-size: 10.0pt;">Dialysis “business mix”:<o:p></o:p></span></u></b></div>
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<span style="font-size: 10.0pt;">A dialysis patient is not the same as another dialysis
patient, at least in terms of profitability. Some basic costs, at least for
DaVita, are “patient care costs” and “general and administrative”. These two,
on a per treatment basis, are $220.92 and $25.78, respectively, for a total of
$246.70. However, for FY2015 the Center for Medicare & Medicaid Services
(“CMS”) finalized an ESRD prospective payment rate (bundled rate for one dialysis
treatment) of $239.43. This amount was increased 0.0% based on the wage
index-budget neutrality adjustment factor, but most importantly, it is woefully
inadequate of the actual cost of service and provides a negative return on
investment for each patient that has Medicare or Medicaid as the primary payer.
<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">If the patient using Medicare or Medicaid as a primary
payer provides for a negative rate of return per treatment, then <i>how does DaVita make any profitability</i>?
The payment rates from contracted commercial payers are significantly higher
than Medicare, Medicaid, and other government payment rates. Unfortunately, the
rate of increase in patients using government reimbursement has slightly
outpaced the growth of commercial patients, which is a trend that DaVita has
experienced for the past few years or so. The reason is likely twofold: (1)
lower mortality rates for DaVita patients means they are on dialysis longer,
thus more treatments, and (2) a sluggish economy for employment, especially for
older individuals who are more costly for employers due to health issues,
compensation, and other benefits. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">In order for DaVita, or any dialysis provider, to earn
a rate of return on providing dialysis, is to have the rate from commercial
paying patients be substantially higher than the Medicare bundled payment rate.
For reasons I’ve mentioned earlier, this is still acceptable for commercial
insurance companies, and is one of the reasons (in my opinion) DaVita and
Fresenius are pushing into ancillary services (more holistic care) to control
the patient cost beyond dialysis, as they become more of-value to commercial
insurance companies if they can control unnecessary hospitalizations and
illnesses and doctor’s visits. <o:p></o:p></span></div>
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<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9vw4eCEtjD-PLnWzaX9RtUwSVxZxQzyEFOagGJlMsBaJRxWAeqNMqzXSfDizda-psj5tFlETRQoeh5I8wmk6BtSWihl0gbpzza05BcrGb9PBFcBzzpRnD2N6MckCcbhZ9nqLFEj-Ug20/s1600/CMS+ESRS+PPS+2015+amount.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="78" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9vw4eCEtjD-PLnWzaX9RtUwSVxZxQzyEFOagGJlMsBaJRxWAeqNMqzXSfDizda-psj5tFlETRQoeh5I8wmk6BtSWihl0gbpzza05BcrGb9PBFcBzzpRnD2N6MckCcbhZ9nqLFEj-Ug20/s400/CMS+ESRS+PPS+2015+amount.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">FY 2015 CMS ruling for the bundled PPS rate of $239.43 for dialysis treatments</td></tr>
</tbody></table>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjypDwMQ6W1dF4vT8PvOoCjBLe4BNNaCjmDdR1T26LBh7aMERKKwVMtqfTHkhNCFimOgKiXg8bs7Sc-xKQbvteZwbF2qZZvAdyyY66XX8OXIdnsIWcb9nizHZWvUTqYElsgNOmPBUvUraU/s1600/Revenues+by+source+dialysis+2014.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="209" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjypDwMQ6W1dF4vT8PvOoCjBLe4BNNaCjmDdR1T26LBh7aMERKKwVMtqfTHkhNCFimOgKiXg8bs7Sc-xKQbvteZwbF2qZZvAdyyY66XX8OXIdnsIWcb9nizHZWvUTqYElsgNOmPBUvUraU/s640/Revenues+by+source+dialysis+2014.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">2/3 of dialysis revenues come from government-based programs, the remaining from commercial insurance</td></tr>
</tbody></table>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><u><span style="font-size: 10.0pt;">Investment highlights of DaVita
Dialysis:<o:p></o:p></span></u></b></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">This slide from the 2015 Capital Markets presentation
says it all (see slide). What I personally appreciate about the business is the
consistent growth in ESRD prevalence, the duopoly industry structure (helps
with scale over smaller providers with contract negotiations, supplies
procurement, future reinvestment, access to capital), the decent (but not
stellar) returns on invested capital at ~ 11%, and the long runway both
domestically and internationally.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Currently, Fresenius is the top provider in the US
with about 36% market share, and DaVita has a 35% market share. Combined, the
top two providers have about 71% of the US dialysis market. <o:p></o:p></span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFt1cupzHQhSTbhaG4MUE0QhUetpBJP0gh3Jh4ZLfYQdiQ_edOD4fCgbFyzMJEseBw_qI_KcXfGGk6PL-lVcKir0td0CgR3HlTmlNhKrWLoJc9M28wA1JG1o0Xcnbx_OWPtwDEvIZsEY4/s1600/dialysis+investment+highlights.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="223" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFt1cupzHQhSTbhaG4MUE0QhUetpBJP0gh3Jh4ZLfYQdiQ_edOD4fCgbFyzMJEseBw_qI_KcXfGGk6PL-lVcKir0td0CgR3HlTmlNhKrWLoJc9M28wA1JG1o0Xcnbx_OWPtwDEvIZsEY4/s400/dialysis+investment+highlights.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Investment highlights of DaVita the dialysis company</td></tr>
</tbody></table>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5eVoF6liD_6-YfSM5tHla2ZaXmb_RBIbu1AmHjvUj87-WqBMQpj481VUd3BFEiet3k49qbXwDkGxb0L_dXlruyBN2DOgLzl1mtE9I9-9lmZVI-NCBUioz107PyOeJwnAFLSKyoLjLEr0/s1600/Kidney+care+revenues.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="234" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5eVoF6liD_6-YfSM5tHla2ZaXmb_RBIbu1AmHjvUj87-WqBMQpj481VUd3BFEiet3k49qbXwDkGxb0L_dXlruyBN2DOgLzl1mtE9I9-9lmZVI-NCBUioz107PyOeJwnAFLSKyoLjLEr0/s640/Kidney+care+revenues.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Kidney Care: consistent growth, shows stability and non-cyclicality of business model</td></tr>
</tbody></table>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwpOMYLfBecsriadOwOfUx_w4gM9cqHbPovASh_sgvurRnoB4aDvWAucpdiuW7AV47Ialz4YtKZqok3yiT0qR0P9BRgQI5zlDV8GtWJp3NVOUay-9woEI6nWzgWE9EB3AkIgGFVUcAEls/s1600/Per+TX+economics.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="308" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwpOMYLfBecsriadOwOfUx_w4gM9cqHbPovASh_sgvurRnoB4aDvWAucpdiuW7AV47Ialz4YtKZqok3yiT0qR0P9BRgQI5zlDV8GtWJp3NVOUay-9woEI6nWzgWE9EB3AkIgGFVUcAEls/s640/Per+TX+economics.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Per treatment economics (my estimates, DVA filings and presentations)</td></tr>
</tbody></table>
</span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">As the need for dialysis is not cyclical or seasonal,
there are limited alternatives (transplant or death) and the stickiness of the
patients is exceptionally strong, the business is able to capitalize on the
secular trends and reinvest and earn fairly consistent returns on capital
employed. <o:p></o:p></span></div>
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<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgw1LFkZN16e-ZMUfMYMTbQWX92-4mHfqKT5zMll1iGpd6VQMTkr3BReSdadDpOkjm0ZEN5MOcUAtgRdkMqkzfeVCBefEJlo3-iBFk2yyipQFbA6m1WoZHrgsnDkP7P_iy96EtiNMVOL58/s1600/US+dialysis+patient+growth+2000+-+2012+3.9%2525.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgw1LFkZN16e-ZMUfMYMTbQWX92-4mHfqKT5zMll1iGpd6VQMTkr3BReSdadDpOkjm0ZEN5MOcUAtgRdkMqkzfeVCBefEJlo3-iBFk2yyipQFbA6m1WoZHrgsnDkP7P_iy96EtiNMVOL58/s400/US+dialysis+patient+growth+2000+-+2012+3.9%2525.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">2000 - 2012 CAGR for US dialysis patients: 3.9%</td></tr>
</tbody></table>
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<span style="font-size: 10.0pt;"> <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpN0JH65NBnBxFxL08WgZyVUki0wnGjqRp_SKO5OHIzMUQN23131xUKtST_o1htdtI4Mxza3CgRmz-n5l6u0DbxnkpDb-LiwHBi2QqQSA9kH9BqHdi0vOzfQ4Ax5hVIbCB3zo-LM7IX_Y/s1600/incidence+and+prevalence+counts+-+ESRD.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="292" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpN0JH65NBnBxFxL08WgZyVUki0wnGjqRp_SKO5OHIzMUQN23131xUKtST_o1htdtI4Mxza3CgRmz-n5l6u0DbxnkpDb-LiwHBi2QqQSA9kH9BqHdi0vOzfQ4Ax5hVIbCB3zo-LM7IX_Y/s400/incidence+and+prevalence+counts+-+ESRD.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ESRD Prevalence per USRDS government data<br />
<br /></td></tr>
</tbody></table>
</span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><u><span style="font-size: 10.0pt;">Reasons to like DaVita:<o:p></o:p></span></u></b></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">The healthcare sector has been under some pressure
recently, specifically hospitals (CYH, HCA, THC) and the health insurance plans
(all being down >10% in the last 6 months: AET, ANTM, CI, CNC). Regardless
of ones thoughts politically speaking on the effectiveness thus far of the
Affordable Care Act (ACA), I think portfolio manager Ted Weschler has the right
approach when thinking of healthcare companies. In May of 2014, right after the
Berkshire Hathaway annual meeting, CNBC interviewed Warren Buffett along with
his two newer portfolio managers – Todd Combs and Ted Weschler. Weschler, who
used to manage outside capital at Peninsula Capital Advisors LLC, has owned
DaVita (<b>DVA</b>) since the early 2000s and bought it for the Berkshire Hathaway
(<b>BRK-A/B</b>) portfolio a number of times since his hiring in 2011. (link to
interview: <a href="http://www.cnbc.com/2014/03/03/a-stock-pick-from-warren-buffetts-stock-picker.html"><span style="color: blue;">http://www.cnbc.com/2014/03/03/a-stock-pick-from-warren-buffetts-stock-picker.html</span></a>)
In the interview, Weschler, who says he has studied the dialysis industry for
30 years, provides a 3 part framework for healthcare companies:<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
</div>
<ol>
<li><span style="font-size: 10pt; text-indent: 0in;"><i>Does the company
provide better quality of care than they could receive somewhere else?</i></span></li>
<li><span style="font-size: 10pt;"><i>Does it deliver a
net savings to the healthcare system, or is the total bill for healthcare
improved because of this company?</i></span></li>
<li><span style="font-size: 10pt;"><i>Are there high
returns on capital and predictable growth and shareholder-friendly management?</i></span></li>
</ol>
<br />
<div class="MsoNormal">
<span style="font-size: 10pt; text-indent: 0in;">In breaking down these questions, I think the
framework provided makes sense from an investor standpoint because (1) the
healthcare system is fragile, almost ripe for disruption, due to the waste in
the system and high cost of care and trends on the growth rates, (2) due to the
high costs (17.1% of US GDP </span><span style="color: blue; font-size: 10pt; text-indent: 0in;"><a href="http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS">http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS</a>,</span><span style="font-size: 10pt; text-indent: 0in;">
which is the highest of any country globally except Tuvala), and (3) due to
regulation and likely increased regulation over time as the government looks to
reign in some of the healthcare spending, the company must be able to reinvest
at adequate returns on capital, otherwise private capital would invest
elsewhere.</span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><i><span style="font-size: 10.0pt;">Does
DaVita provide a higher quality care than other dialysis providers, including
Fresenius?<o:p></o:p></span></i></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">From the Capital Markets presentation, using multiple
reference points, as well as data from Medicare’s new five-star ranking system,
it is clear than DaVita provides the highest quality care of any dialysis
provider, including Fresenius. With 5 stars being the best a dialysis provider
could be ranked and 1 being the lowest, DaVita has 18% ranked in 5 stars
(versus 6% for the industry less DVA), 33% in 4-star rankings (versus 14% for
the industry) and 39% in 3 star (versus 41% of the industry). Only 10% of the
clinics that are run by DaVita fall in to a 1 or 2 star ranking, compared to
38% for the industry. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Comparing to Fresenius (<b><i>FMS</i></b>) (#1 in US market
share at ~36% versus DaVita’s 35%), DaVita is remarkably better than Fresenius.
For example, DaVita has 805 clinics (of the ~2,200 in the U.S.) that are ranked
4 or 5 stars, but Fresenius only has 238 clinic. Alternatively, of the lowest
ranked clinics being 1 or 2 stars, DaVita only had 180 clinics compared to
Fresenius’ 787 clinics. Of the 5 star rankings, only 324 clinics receive top
honors, with DaVita making up 57% of the clinics. Of the 1 star ranking, DaVita
had 40, or 2% of the clinics ranked. (link: <a href="http://www.modernhealthcare.com/article/20150126/NEWS/301269852"><span style="color: blue;">http://www.modernhealthcare.com/article/20150126/NEWS/301269852</span></a>)<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">The dialysis industry gets hit with a “QIP” penalty
based on some performance metrics. Only 1.5% of DaVita clinics were hit with a
penalty, versus 6% for Fresenius and 7.4% for the industry-minus-DaVita. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Looking at mortality rates, DaVita’s has improved
gross mortality from 19.0% in 2001 to 13.5% in 2014 (expect 2015 to be flat
versus 2014). Using DaVita and Fresenius (combined they are called “LDOs” or
large dialysis organizations) versus the remainder of the dialysis industry, the
LDO’s have far superior standardized mortality rate of 0.972 versus 1.055 for
the remainder of the industry. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Considering that 90% of the dialysis patients are “government-based”
and that DaVita loses 10-15% on each of those patients, I would argue the
combination of the quality of care and their ability to offset loses with
commercial paying patients helps keep total healthcare system costs “in-check”,
despite dialysis being an expensive treatment (patient needs treatment 3-4
times a week for about 5 years on average, at about $270 per treatment cost).
Additionally, almost 10% of DaVita’s clinics (200) are operating at a loss but
do so “in good faith” to prove value to the US Government and CMS about the
delicacy of reimbursing dialysis providers an adequate rate, as DVA is a low
cost provider and loses money on 10% of the clinics, a continued inadequate reimbursement
rate would have larger effects on the other dialysis providers. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><i><span style="font-size: 10.0pt;">Does
DaVita deliver predictable growth and high returns on invested capital?<o:p></o:p></span></i></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">I would argue that DaVita does deliver fairly
predictable growth, starting with the almost linear growth in US dialysis
patients of 3.9% CAGR since 2000. As dialysis is non-cyclical, not seasonal,
the only alternative is a kidney transplant and there are only about 16,000
transplants per year, a patient on dialysis has 3-4 treatments a week without
fail, and the stickiness of the dialysis center is exceptionally high
(convenient, medical data, nephrologist connection, insurance). For these
reasons, the growth for the dialysis industry has almost been like clockwork.
For DaVita, they have accelerated growth through opening more facilities than
industry growth (“de novos”) as well as have acquired smaller dialysis
organizations over the last 15 years. The result is that since 2003 operating
income growth for the dialysis segment has grown 13.7% CAGR, and this includes
negative contribution of $50m in 2015 from international facilities. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Based on most recent numbers, DaVita is financed
through a combination of shareholder’s equity ($5.2 billion), Debt ($9.2
billion), deferred taxes and payables to suppliers. <b>Total invested capital is about $15.3 billion</b> as of Q3/2015, of
which only $4.0 billion is “tangible”. The difference of about $11.3 billion
alludes to the acquisitions of dialysis companies over the years (as well as
the goodwill and intangible assets from HCP). Based on actual capital
expenditures of about $800m, DaVita earns a <b>modest 13-14% on total shareholder’s equity</b> (recall tangible equity
is negative) and about <b>11% on total
invested capital, post-tax</b>. While these returns on investment aren’t
stellar, they are consistent and are almost “regulated” to be adequate-enough
to entice private investor capital. Considering the continued growth in ESRD
and dialysis patients in the U.S., there will be a continued need for more
facilities, in which one would expect a continued low double-digit return on <u>INCREMENTALLY</u>
invested capital, which bodes well for building long-term earnings power. <o:p></o:p></span><br />
<span style="font-size: 10.0pt;"><br /></span>
<span style="font-size: 10.0pt;">If you take into consideration a considerable amount of invested capital is non-tangible, and future reinvestment (unless DVA could acquire other smaller dialysis operators) is in M&A in the dialysis space, most of the future investment in the business will be in tangible assets (working capital, supplies, machines, building out of the dialysis center), in which the <b>return on tangible capital is >40%</b>. If DaVita is able to continue opening new clinics (as they have been to meet demand + accelerate growth above demand) then most of the future reinvestments should earn >40% and much less of operating cash flow is needed in order to grow the business 5-10%, which bodes well for the future cash flow generation of DaVita.</span></div>
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<span style="font-size: 10.0pt;"><br clear="all" />
<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;"> <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQbwLJGXH46CYmRTDrQJwGRhzaormIXAZC1sPCxuqeT7eh5ce9zYx8kkvaU-p3-3VOCxsZq2wLr_aAmaeJZqfWQYU1gSJ40t-RMzkqRONrWJ6UuqcH09RGQMTj4QkuH6nnwUyxlGScjC4/s1600/Track+record+of+operating+DVA.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="356" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQbwLJGXH46CYmRTDrQJwGRhzaormIXAZC1sPCxuqeT7eh5ce9zYx8kkvaU-p3-3VOCxsZq2wLr_aAmaeJZqfWQYU1gSJ40t-RMzkqRONrWJ6UuqcH09RGQMTj4QkuH6nnwUyxlGScjC4/s640/Track+record+of+operating+DVA.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Management has proven track record of creating shareholder-value</td></tr>
</tbody></table>
</span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b style="text-indent: 0in;"><u><span style="font-size: 10.0pt;">Estimating forward rates of returns:</span></u></b></div>
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<span style="font-size: 10.0pt;"> </span><span style="font-size: 10pt; text-indent: 0in;"> </span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><i><span style="font-size: 10.0pt;">Treatment
growth:<o:p></o:p></span></i></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">DaVita provides a helpful framework for breaking down
the “value drivers” of revenue and expenses. Starting with volume (number of
treatments), DaVita’s management expects volume to be in 4.5% - 6.0% range.
This is essentially a combination of the secular growth of US dialysis patients
(~4%) adding in a factor for DaVita to open more facilities than the dialysis
patient growth rate (0.5% - 2.0%). Looking over the last 7 years, the
normalized “non-acquired growth” in treatments ranges from 4.1% to 5.1%, and on
a quarterly basis only more recent quarters has it been below 4% twice (Q2/2015
at 3.7% and Q3/2015 at 3.5%). Thus, the 4.5% - 6.0% range is probable. The
reasoning management has given as to why growth has slowed the last two
quarters is due to a large number of facilities in California taking a little
longer to get approved than normal, but once they are approved growth should
accelerate back to the “normal” range. <o:p></o:p></span></div>
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<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdIEO_0VfSYXLhzZASAYIGxtd9-5xNGNCJnCPHcSX1xXCxjFDG9y_9VAR90C33pSfqMpNOIwFpbPJjh1x50-XuLgSDEUzOztXzWVbRWcurS0rLCHUPp8PW86e9UMAWbr4Evg4wEr8aZww/s1600/Treatment+growth+DVA.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="220" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdIEO_0VfSYXLhzZASAYIGxtd9-5xNGNCJnCPHcSX1xXCxjFDG9y_9VAR90C33pSfqMpNOIwFpbPJjh1x50-XuLgSDEUzOztXzWVbRWcurS0rLCHUPp8PW86e9UMAWbr4Evg4wEr8aZww/s640/Treatment+growth+DVA.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">DVA treatment growth - stable, consistent, within 4-6% target range </td></tr>
</tbody></table>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><i><span style="font-size: 10.0pt;">Revenue
per treatment: <o:p></o:p></span></i></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">The rate at which DaVita is reimbursed in dependent on
a number of factors: patient mix of government-based versus commercial paying,
mortality levels and the impact at which commercial paying patients provide
higher rates for the first 30 months prior to moving to Medicare as the primary
payer, inflation on labor and drug costs, among other factors. Of the ~25.8
million treatments in the last year by DaVita, 90% of those are on government
based patients and 10% on commercial/private. However, DaVita loses 10-15% on
the government-based patients, and thus the 10% commercial paying patients
provide 110-115% of DaVita’s profits. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">DaVita expects the reimbursement rate to be in the
0.0% - 1.5% range. The lower end reflects the headwinds from CMS on the rate,
the higher end reflects some upside based on commercial contracting. Recent
trends are at the upper end of this range, more so around 1.5% to 2.0%. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><i><span style="font-size: 10.0pt;">Costs
per treatment:<o:p></o:p></span></i></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">The largest costs for a dialysis provider are the
employee costs and pharmaceutical and supplies. Together, these make up about
60-70% of the total cost per treatment. The remaining costs, such as
center-level costs and G&A, are more variable in nature, and will move
in-line with treatment growth.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7zDAA9_fDGekjwblLgw7qduMSuc3RcLmGT6DRIxneeftZpas03KaiK6mvkMO7X1JQAsyRjZIaLSYWJsxAmv-xd4DipeixtN5nynjZSRpoM7fQ1lMcLR9X0qANjSNKrmiEUadZ5BpMWWE/s1600/DVA+magic+formula+for+returns.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7zDAA9_fDGekjwblLgw7qduMSuc3RcLmGT6DRIxneeftZpas03KaiK6mvkMO7X1JQAsyRjZIaLSYWJsxAmv-xd4DipeixtN5nynjZSRpoM7fQ1lMcLR9X0qANjSNKrmiEUadZ5BpMWWE/s640/DVA+magic+formula+for+returns.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">DVA provides a formula to show the drivers of the financial performance (2015 Capital Markets)</td></tr>
</tbody></table>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><i><span style="font-size: 10.0pt;">Operating
Income growth:<o:p></o:p></span></i></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Through looking at the treatment growth, revenue per
treatment, and the expense drivers, DaVita estimates that the dialysis business
will grow at <i>3% - 8% in terms of
operating income</i>. Based on historical financials, actual growth, and
managements history of being conservative, I would expect operating income
growth to <b>be in the 5-10% range</b>
conservatively over time. From a cash flow standpoint, a lot of future growth
will also come from international operations, which should lower the tax rate
and further boost net income/FCF. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><u><span style="font-size: 10.0pt;">International Runway for Large
Reinvestment<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">As of Q3/2015, DaVita had 10,000 patients and 104 international
clinics. As of the end of 2014, according to Fresenius, there were 2.665
million dialysis patients globally, with North America only having 596,000.
With DVA’s small international presence, there is a long and ample runway for
international reinvestment and growth.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Furthermore, the international businesses provide an “upside
call” option on the current financials as the 104 clinics have required a alot
of start up costs and compliance and will be a $50m headwind in 2015, according
to DVA. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;"><br /></span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUqkUx5ABRhBEAoOlBnwac4VQuoEKdPvJN6UcwacXAuHI60HOmllR7Fv_XaX33_MtisusZFQkhmDTiTnFbEmSVFQ7Ts9AmDId8mtTTWc6F5tae_0JrXV2wAMYja7kpfAQQxfqQNkmnzM0/s1600/Global+footprint+dialysis.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="358" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUqkUx5ABRhBEAoOlBnwac4VQuoEKdPvJN6UcwacXAuHI60HOmllR7Fv_XaX33_MtisusZFQkhmDTiTnFbEmSVFQ7Ts9AmDId8mtTTWc6F5tae_0JrXV2wAMYja7kpfAQQxfqQNkmnzM0/s640/Global+footprint+dialysis.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">End of Q3/2015 has 104 clinics and 10,000 patients....ample runway for long-term reinvestment</td></tr>
</tbody></table>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJJHVZZu8JCMgksE47AXV28hmXVekcZJUlxZ27ffHgAWLKnAKDa64g2KaX6A4gWRgrLImtZhCRg6PKNBc7KQZh9yd6ABhR72VkK7_k8bzJk1Zp-8PTkYixxulx_6AeEzaRjZmOM28CojE/s1600/international+growth+DVA.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="223" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJJHVZZu8JCMgksE47AXV28hmXVekcZJUlxZ27ffHgAWLKnAKDa64g2KaX6A4gWRgrLImtZhCRg6PKNBc7KQZh9yd6ABhR72VkK7_k8bzJk1Zp-8PTkYixxulx_6AeEzaRjZmOM28CojE/s400/international+growth+DVA.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">International expansion still in "start up" phase for DaVita, expecting a $50m loss in 2015 due to start-up costs</td></tr>
</tbody></table>
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<span style="font-size: 10.0pt;"><br /></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><u><span style="font-size: 10.0pt;">Risks:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">HealthCare Reform
(ACA) creates narrowing of networks, more dialysis providers become out of
network (and more expensive)</span></li>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">HealthCare Reform
(ACA) premium costs or health care costs are too high, causing the patient to </span><span style="font-size: 10pt;">“skip out” on some of the out-of-pocket expense to the dialysis provider
(increases provision for doubtful accounts, a contra to the gross revenue line)</span></li>
<li><span style="font-size: 10pt;">Commercial
insurance as a primary payer shortens to less than the current 33 months before
switching to Medicare as the primary payer and commercial as the secondary</span></li>
<li><span style="font-size: 10pt;">Consolidation of
commercial health care insurers providers for more negotiating power over DaVita
and their “high” reimbursement rate</span></li>
<li><span style="font-size: 10pt;">People get
healthier, the prevalence for chronic kidney diseases (CKD) and End-Stage Renal
Disease (ESRD) declines, which has been a decent secular growth driver for the
industry</span></li>
<li><span style="font-size: 10pt;">Advancements in
dialysis whereby people need treatment less than 3-4 times per week
(hemodialysis), which would impact profitability</span></li>
<li><span style="font-size: 10pt;">Vast improvements
in mortality rates negatively impacts DaVita because more patients move off of
commercial insurance to the inadequate-rate-paying government plans.</span></li>
</ul>
<!--[if !supportLists]--><br />
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<br /></div>
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<br /></div>
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<b><u><span style="font-size: 10.0pt;">HealthCare Partners (HCP)<o:p></o:p></span></u></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">HCP was acquired in 2012 for $4.4 billion. The premise
of this deal was that the future of healthcare is less-so “fee for service”
arrangement and will become more of what HCP does under a capitated model.
Under the capitated model, the large group of doctors and the network of nurses
and specialists receive a so-called flat fee per member per month to provide
nearly all of the patient’s care. If the doctor group does an inadequate job of
providing care, such that the member/patient goes to the hospital
unnecessarily, or has illnesses that could have been prevented, and the cost of
care exceeds the flat rate then the doctor group “eats the portion above the
flat fee” as a loss of profit. In order for a group to become profitable under
the capitated model, they must provide a high quality of care and be efficient
with their costs in order to have total costs be less than the flat fee per
member per month. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">In other words, HCP’s model is based on survival of
the best as the payment is not based on providing the actual service but based
on a strong performance and high quality level of service in a cost-efficient
manner. One would think this type of business model is very intriguing as
insurance companies look to mitigate risks, manage costs, as well as the
government looking to control healthcare spending for Medicare and MA. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmU0o6GEJgPnv1sGDwFqiR9ake0b0PdIM3EeKEaymvpaV8v7WWFKHQcD3dgADHKVygF6cD0kMvu7SRMU7dXfPIikBiKvG2XFDLeK9i_0QnQ6WHqGiHTxPqdpHivRAYt2wCqykKYFi6BGk/s1600/HCP+geography.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="355" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmU0o6GEJgPnv1sGDwFqiR9ake0b0PdIM3EeKEaymvpaV8v7WWFKHQcD3dgADHKVygF6cD0kMvu7SRMU7dXfPIikBiKvG2XFDLeK9i_0QnQ6WHqGiHTxPqdpHivRAYt2wCqykKYFi6BGk/s640/HCP+geography.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Geographical presence of HCP; core markets are Los Angeles, Florida, Las Vegas</td></tr>
</tbody></table>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<b><u><span style="font-size: 10.0pt;">Since the 2012 acquisition:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">The acquisition of 2012 has been nothing less than
disappointing. From Medicare Advantage rate cuts to the newly expanded markets
underperforming in quality of care (thus losing money) to the expected future
M&A in the space to build scale has not yet come to fruition, despite about
3 years since the deal consummated. While total capitated members has increased
from 724,000 in Q4/2012 to 808,300 as of Q3/2015 (was 826,500 at end of
Q2/2015), and revenues have increased from about $2.4 billion to $3.8 billion,
the level of profitability has declined to where the rolling 12-month EBITDA
has gone from $547 million in Q4/2013 to a current level of $420 million. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Still, despite all of the disappointments, it seems as
if things are showing signs of improvement. The team that has done the deals in
the newer HCP markets (which are unsuccessful currently) have been fired, they
have doubled down in the legacy markets (where they are strongest) and have
added newer partnerships that bode well for the type of business model of HCP. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">Regardless, as of the 2015 Capital Markets
presentation, despite the headwinds, there was a tax step-up that is amortized
at about $100m in cash benefit, implying a 7.6% cash-on-cash return in 2015. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY35venL5DVdsCc4kFMgAuHcpyMoJ2u-pHhSQE2f7-f7zR2ExlK3G6VrVplxKIYpq3ler3uG2WpEuKYev6pm1MVR5k_xr6M72zPc0LZXtID37GQyYRgZ64lMeGSEvkKAfI74egrfu1stI/s1600/HCP+cash+on+cash+return+7.6%2525.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY35venL5DVdsCc4kFMgAuHcpyMoJ2u-pHhSQE2f7-f7zR2ExlK3G6VrVplxKIYpq3ler3uG2WpEuKYev6pm1MVR5k_xr6M72zPc0LZXtID37GQyYRgZ64lMeGSEvkKAfI74egrfu1stI/s640/HCP+cash+on+cash+return+7.6%2525.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Despite the headwinds and MA rate cuts, still a 7.6% cash-on-cash return for HCP acquisition</td></tr>
</tbody></table>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;"><b><u>Examples of Quality:</u></b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;"><i><span style="color: red;">Feel free to skip ahead of this section, if you prefer
more financial analysis, less business related discussion</span></i>. As the business
prides itself on performance-based reimbursement, the best measurements of
performance are how HCP compares to its biggest competition: the Medicare
Fee-For-Service model. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<br /></div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLEiiXAo-UrEZ2FI_64oQdwxRLBS-OApeXplg6CWErEPJasRLaQ-HnG9YY535DqyWNe7K0ACiHOcbJGjimhbTZXhVYSuDgiBzDpDTzQvbOWA9_VmRPvE11CltBmJmv7Qj7lQMBmihzTZk/s1600/HCP+utilization+factors.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="220" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLEiiXAo-UrEZ2FI_64oQdwxRLBS-OApeXplg6CWErEPJasRLaQ-HnG9YY535DqyWNe7K0ACiHOcbJGjimhbTZXhVYSuDgiBzDpDTzQvbOWA9_VmRPvE11CltBmJmv7Qj7lQMBmihzTZk/s400/HCP+utilization+factors.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">HCP value proposition: lowers total healthcare costs by having lower hospitalizations and readmissions that Medicare Fee-For-Service</td></tr>
</tbody></table>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvKcwxjxV6ONtOs_Wyp1scM3XQfddUjRqVGKmynVe5sYPyLK59DnJ1ktQkYuJsXuGVP7LQLcgErTV_1YAMpH0WrrKTA2QGjpBzJ0rvyvzkYO5pIWHYgqu5EP4UIWxfG_-4fKhEUr_z4I8/s1600/HCP+acute+admissions.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="221" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvKcwxjxV6ONtOs_Wyp1scM3XQfddUjRqVGKmynVe5sYPyLK59DnJ1ktQkYuJsXuGVP7LQLcgErTV_1YAMpH0WrrKTA2QGjpBzJ0rvyvzkYO5pIWHYgqu5EP4UIWxfG_-4fKhEUr_z4I8/s400/HCP+acute+admissions.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">HCP acute admits per 1000 continuing to improve Y/Y in legacy markets</td></tr>
</tbody></table>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdh_gE6toOTZuCXgIPQNsbvTpcy9ptTFZZyN82RNRa3MpU2g0MBh4I5RIXVbLmiAchZ0SOOKiB5S01w_fJ7o_jZcuitJU_6D5DJ5Z1UZULte32vELHnd8zWEXHosH-Amkr_yRHSi3mjGA/s1600/HCP+markets.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="221" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdh_gE6toOTZuCXgIPQNsbvTpcy9ptTFZZyN82RNRa3MpU2g0MBh4I5RIXVbLmiAchZ0SOOKiB5S01w_fJ7o_jZcuitJU_6D5DJ5Z1UZULte32vELHnd8zWEXHosH-Amkr_yRHSi3mjGA/s400/HCP+markets.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">HCP legacy markets vs. "new markets"</td></tr>
</tbody></table>
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<b><u><span style="font-size: 10.0pt;">Secular driver: Large and Growing
Medicare Advantage (MA) membership<o:p></o:p></span></u></b></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">The Medicare Advantage (MA) membership is a secular
tailwind for HCP’s business, as the reimbursement method is capitated, versus
traditional Medicare as FFS. <o:p></o:p></span></div>
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<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_jm50k5npJGuX-z4zPrchFvKO5UHsq63-h3UFucHBYVdKoK_yoQ7rYA8oNpXhfYORDPEdLXWs_sZdnCvi_hZWZ_2RbxxAbdIbEw-bqpSJgnTvlXEXx2v1EwNR_8cNX6cRhb9zzrgerV0/s1600/HCP+Med+Adv+growth.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="356" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_jm50k5npJGuX-z4zPrchFvKO5UHsq63-h3UFucHBYVdKoK_yoQ7rYA8oNpXhfYORDPEdLXWs_sZdnCvi_hZWZ_2RbxxAbdIbEw-bqpSJgnTvlXEXx2v1EwNR_8cNX6cRhb9zzrgerV0/s640/HCP+Med+Adv+growth.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Medicare Advantage plan growth a tailwind for membership for HCP businesses</td></tr>
</tbody></table>
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<br /></div>
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<span style="font-size: 10.0pt;">As this business model thrives on those who can
provide a high quality service in a cost-effective manner, CMS is reimbursing
physician groups based on a “Star Rating”, whereby those who have higher
performance get a financial bonus, those who are average or underperform get
nothing. In 2015 plans that had 4 stars or greater (where the primary care
physician was a HCP related PCP) received a 5% bonus, and plans less than 4
stars got a 0% bonus. For 2015, 84% of HCP’s Medicare Advantage patients were
in 4+ star plans. This could be a nice tailwind, as they outperform and receive
bonuses, and thus the insurance companies and government prefer them even more,
and they get more capitated lives (faster growth) and maintain the level of
quality and cost-effectiveness (continue to get bonuses), and so on.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 0in; text-indent: 0in;">
<span style="font-size: 10.0pt;">An obvious risk is where a certain insurance company
decides to contract with another physician group, not because that physician
group is superior, but because that group will accept a very low level of
profitability, one that provides for a very small margin of error if costs
escalate. In this case, HCP could lose membership (this is what happened in the
most recent quarter – Q3/2015, where HCP and a hospital/plan did not agree to
the capitated rate). <o:p></o:p></span></div>
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<br /></div>
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<b><u><span style="font-size: 10.0pt;">How does HCP grow?<o:p></o:p></span></u></b></div>
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<span style="font-size: 10.0pt;">HCP is a non-capital intensive business; instead, it
is all about obtaining the right level of PCPs, specialists, and nurses who are
in agreement with this level of providing service to patients (capitated model)
and thus HCP acquires or obtains more PCPs and their network of members.
Another way is through partnerships with the insurance companies or certain
health systems, who looks to HCP to manage their costs as they may not have
been able to do an adequate job, in which HCP would take over the capitated
lives in exchange for a percentage of profitability, in the case there is. <o:p></o:p></span></div>
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<br /></div>
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<span style="font-size: 10.0pt;">Based on the 2015 Capital Markets, there is the
expectation for 0-3% baseline growth +/- legacy market competitive performance
+/- new & future market growth. Since Kent Thiry fired the team involved in
the deals that have been unsuccessful and he has been more focused on the deals
himself, the level of profitability of the business has improved. Due to the
success of the legacy markets, I expect most of them to receive the 5% bonus.<o:p></o:p></span></div>
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<br /></div>
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<b><u><span style="font-size: 10.0pt;">Capital Requirements – Maintenance
& Growth<o:p></o:p></span></u></b></div>
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<span style="font-size: 10.0pt;">HCP requires no working capital, and the capital
expenditures are largely in IT to build the software and capabilities to
monitor the ~800,000 members and cross-reference illnesses, symptoms, causes,
etc. in order to be more pro-active in providing care. <b>The actual level of capital expenditures for
HCP is about 0.5% - 1.0% of HCP
revenues. </b><o:p></o:p></span></div>
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<span style="font-size: 10.0pt;"><b><br /></b></span></div>
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<span style="font-size: 10.0pt;"><b><br /></b></span></div>
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<b><u><span style="font-size: 10.0pt;">Valuation:<o:p></o:p></span></u></b></div>
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<span style="font-size: 10pt; text-indent: 0in;">At ~ $70 per share, the current market capitalization
is $15.2 billion and the Enterprise Value (excl. operating leases) is $23.3
billion. Trailing 12 months EBITDA (adj. for one-time legal expense) is about
$2.34 billion (EV/EBITDA</span><span style="font-size: 10pt; text-indent: 0in;"> </span><span style="font-size: 10pt; text-indent: 0in;">= <10x), expected
2015 operating cash flow should be ~ $1.7 billion (EV/OCF = 13.7x), Free Cash
Flow post-tax (FCFE + Interest expense) using actual all-in capital
expenditures (growth & maintenance capex) is $1.13 billion (20.6x or 4.8%
FCFF yield) and $723m FCFE using actual full capex (4.8% yield on market cap).</span></div>
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<br /></div>
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<span style="font-size: 10.0pt;">Since I accounted for both maintenance and growth
capital expenditures, these expenditures are necessary to maintain the business
competitive position and to grow the business. In order for DaVita to grow,
they must add new clinics (add patients, increase treatments), as there is very
little room to increase pricing to earn an adequate RoR. Accounting for actual
capital expenditures provides a truer measure of “Free Cash Flow” while
adjusting for the fact that the capital expenditures will earn a decent 11-13%
return on incremental capital and grow cash flow in the mid-to-high single digits.
Assuming $800m in capital expenditures and 11% ROIIC gives us a 4.8% cash flow
yield plus FCF growth over the next year of 7.8%, a total return of 12.7% for a
business that is non-cyclical, non-seasonal, and very sticky. <o:p></o:p></span></div>
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<br /></div>
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</div>
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<span style="font-size: 10.0pt;">DaVita estimates <b>EPS growth over time to be in the
5-12%</b> ball park. Knowing this growth comes from spending the necessary capital
to obtain the returns, you could also estimate f<span style="color: red;"><b>orward rates of return as 4.8%
FCFE yield + 5-12% EPS growth, for a total return of 9.8% - 16.8% over time</b></span>.
Given the characteristics of the business, as well as higher valuations at the
moment, I think DVA as a core holding to earn adequate rates of return over
time is an attractive investment. <o:p></o:p></span></div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuOjrWJdIOwxLUm1DRr2cdkhEDn2eyPZo0YLH7WlPY1RUYnpPiq-H6qRA1MmyEGaVay2Q4fIq2kv2gcItXrOAz8ri5dRs5Ejy_uiaOoxltmxOCLtjNh4ObbBohSAZXE0WB4OZZ72rNfRg/s1600/DVA+EPS+growth.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="157" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuOjrWJdIOwxLUm1DRr2cdkhEDn2eyPZo0YLH7WlPY1RUYnpPiq-H6qRA1MmyEGaVay2Q4fIq2kv2gcItXrOAz8ri5dRs5Ejy_uiaOoxltmxOCLtjNh4ObbBohSAZXE0WB4OZZ72rNfRg/s400/DVA+EPS+growth.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">DaVita's expected EPS growth over time (2015 Capital Markets)<br />
<br />
<br />
<div style="text-align: left;">
<br /></div>
</td></tr>
</tbody></table>
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<b><span style="font-size: 10pt;">DaVita dialysis links:</span></b></div>
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<br /></div>
<div class="MsoListParagraphCxSpFirst">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="http://www.usrds.org/qtr/default.aspx"><span style="font-size: 10.0pt;">http://www.usrds.org/qtr/default.aspx</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="https://www.cms.gov/Medicare/Provider-Enrollment-and-certification/guidanceforlawsandregulations/dialysis.html"><span style="font-size: 10.0pt;">https://www.cms.gov/Medicare/Provider-Enrollment-and-certification/guidanceforlawsandregulations/dialysis.html</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="https://www.cms.gov/Center/Special-Topic/End-Stage-Renal-Disease-ESRD-Center.html"><span style="font-size: 10.0pt;">https://www.cms.gov/Center/Special-Topic/End-Stage-Renal-Disease-ESRD-Center.html</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="https://en.wikipedia.org/wiki/Dialysis"><span style="font-size: 10.0pt;">https://en.wikipedia.org/wiki/Dialysis</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="http://www.davita.com/kidney-disease/dialysis/treatment/what-happens-if-someone-stops-dialysis?/e/1521"><span style="font-size: 10.0pt;">http://www.davita.com/kidney-disease/dialysis/treatment/what-happens-if-someone-stops-dialysis?/e/1521</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="http://newoldage.blogs.nytimes.com/2013/12/04/dialysis-raises-hard-questions-for-older-patients/?_r=0"><span style="font-size: 10.0pt;">http://newoldage.blogs.nytimes.com/2013/12/04/dialysis-raises-hard-questions-for-older-patients/?_r=0</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3862087/"><span style="font-size: 10.0pt;">http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3862087/</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="http://www.nephrologynews.com/cms-retains-12-cut-in-drug-payments-for-esrd-care-approves-new-qip-measures/"><span style="font-size: 10.0pt;">http://www.nephrologynews.com/cms-retains-12-cut-in-drug-payments-for-esrd-care-approves-new-qip-measures/</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/End-Stage_Renal_Disease_Prospective_Payment_System_ICN905143.pdf"><span style="font-size: 10.0pt;">https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/End-Stage_Renal_Disease_Prospective_Payment_System_ICN905143.pdf</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><a href="https://www.cms.gov/Outreach-and-Education/Training/CMSNationalTrainingProgram/Downloads/2013-Medicare-for-People-with-End-Stage-Renal-Disease-Workbook.pdf"><span style="font-size: 10.0pt;">https://www.cms.gov/Outreach-and-Education/Training/CMSNationalTrainingProgram/Downloads/2013-Medicare-for-People-with-End-Stage-Renal-Disease-Workbook.pdf</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Renal &
Urology News – November 2010 – Dialysis Providers Prepare for Bundled Payments
: </span><a href="http://www.renalandurologynews.com/feature/dialysis-providers-prepare-for-bundled-payments/article/190929/"><span style="font-size: 10.0pt;">http://www.renalandurologynews.com/feature/dialysis-providers-prepare-for-bundled-payments/article/190929/</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">CMS proposes 9.4%
cut for dialysis providers – July 2013: </span><a href="http://www.modernhealthcare.com/article/20130701/NEWS/307019947"><span style="font-size: 10.0pt;">http://www.modernhealthcare.com/article/20130701/NEWS/307019947</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Medicare
beneficiaries with Kidney Failure have highest Out of Pocket Spending – July
2014 - </span><a href="https://www.kidney.org/blog/advocacy-action/medicare-beneficiaries-kidney-failure-have-highest-out-pocket-spending"><span style="font-size: 10.0pt;">https://www.kidney.org/blog/advocacy-action/medicare-beneficiaries-kidney-failure-have-highest-out-pocket-spending</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Ethicare
Advisors: “why dialysis is so expensive” </span><a href="http://ethicareadvisors.com/understanding-why-dialysis-treatments-are-so-expensive/"><span style="font-size: 10.0pt;">http://ethicareadvisors.com/understanding-why-dialysis-treatments-are-so-expensive/</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">USRDS statistics
on prevalence by ethnicity - </span><a href="http://www.usrds.org/2012/view/v2_01.aspx"><span style="font-size: 10.0pt;">http://www.usrds.org/2012/view/v2_01.aspx</span></a><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<!--[if !supportLists]--><span class="MsoHyperlink"><span style="font-family: "symbol"; font-size: 10pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span></span><!--[endif]--><span style="font-size: 10.0pt;">Future
composition of American population – Pew Research - </span><a href="http://www.pewresearch.org/fact-tank/2013/05/10/politics-and-race-looking-ahead-to-2060/"><span style="font-size: 10.0pt;">http://www.pewresearch.org/fact-tank/2013/05/10/politics-and-race-looking-ahead-to-2060/</span></a><span class="MsoHyperlink"><span style="color: windowtext; font-size: 10pt;"><o:p></o:p></span></span></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">US healthcare %
of GDP <a href="http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS">http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS</a><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">DaVita has top
honors in 5 star ranking, Fresenius the lowest <a href="http://www.modernhealthcare.com/article/20150126/NEWS/301269852">http://www.modernhealthcare.com/article/20150126/NEWS/301269852</a><o:p></o:p></span></div>
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<span style="font-size: 10.0pt;"><b>HealthCare Partners (HCP) links:</b><o:p></o:p></span></div>
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<!--[if !supportLists]--><span class="MsoHyperlink"><span style="font-family: "symbol"; font-size: 10pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span></span><!--[endif]--><span style="font-size: 10.0pt;">WSJ:
Dialysis Firm Bets on Branching Out – May 2012 </span><span style="font-size: 10.0pt;"><a href="http://www.wsj.com/articles/SB10001424052702304019404577418083585806556">http://www.wsj.com/articles/SB10001424052702304019404577418083585806556</a></span><span class="MsoHyperlink"><span style="color: windowtext; font-size: 10pt;"><o:p></o:p></span></span><br />
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<b>Disclosure:</b><br />
I own shares of DVA.<span style="font-size: x-small;"> </span></div>
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com6tag:blogger.com,1999:blog-8610894719881071116.post-61081636870621394312015-12-22T23:53:00.002-08:002015-12-22T23:53:31.870-08:00Liberty Media (LMCA/QVCA/LBRDA) comments (CEO Greg Maffei) from 43rd UBS Conf. (12/08/2015) <div class="MsoNormal">
<span style="font-size: 10.0pt;">43<sup>rd</sup> Annual Global
Media and Communications Conference<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Liberty Media Corp. (LMCA)<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Speaker: CEO & President
Greg Maffei<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Tuesday: 12/08/2015<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u><span style="font-size: 10.0pt;">Notes:<o:p></o:p></span></u></div>
<span style="text-indent: -0.25in;"><ul>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Consumption trends, a lot of change taking place,
from high level what are greatest opportunities to take advantage of
consumer behavior</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"><b>? </b>Doesn’t
stay in a vacuum. Most things not that inexpensive. Netflix gaining a lot
of scale in OTT world but that doesn’t mean we should go buy Netflix stock,
have to weigh what you are already in and what you are seeing and relative
value. Very excited about a bunch of things, very excited about Charter
(CHTR), excited about TripAdvisor, both of those have good growth
prospects. Sirius has good success, having hell of a year, raising net
adds.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Look at Netflix (NFLX), but other opportunities
to compete with Netflix?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;">
Other things in video space? What I look at is short form video is
exploding. YouTube, Snapchat, a lot of that is millennials, not only short
form, not sure which device consumes their focus – small screen or the big
screen. Millennials want to create stories and the like, it is a huge
trend. Like this area a lot.</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">Reality is that this trend is participatory over
time</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Traditional video assets you have, does this view
about millennials and short form, does it make you concerned about the
value of traditional video assets?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> You know, these things tend to take a lot longer
than people think. The models go a long time. But have to be aware of this
trend.</span></li>
</ul>
</span><div class="MsoNormal">
<u><span style="font-size: 10.0pt;"><br /></span></u></div>
<div class="MsoNormal">
<u><span style="font-size: 10.0pt;">Liberty Interactive (QVCA)<o:p></o:p></span></u></div>
<span style="text-indent: -0.25in;"><ul>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Transformation in e-commerce business last 12-18
months. QVC has been acquisition, CommerceHub, etc. What are you seeing in
marketplace?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> If you look
at moves we made, originally got in these businesses because they were
niche, had some moats. Have done well on a number of them. If you look at
bodybuilding.com, our entry price versus current value, we have made a
lot. Scale is attractive. ProFlowers merging with FTD. We have been moving
and shifting trying to get scale.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Small mid-cap internet name like Zulily, is that
reverse, is that saying QVC already has scale</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"><b>? </b>I think it does a lot of positive. Scale
advantages that QVC has to bring to Zulily, such as: shipping and
handling, many elements of the supply chain, around some procurement, also
some things on the revenue side – cross selling, bringing the youthful
audience of Zulily up to the QVC universe. Actually tested last night –
Zulily was on QVC plus, already done a lot of things, where promote things
on Zulily. Entering new markets, having Zulily’s experience, being asset
light to enter market where they aren’t as strong.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">CommerceHub – where is this as an asset inside
Liberty to stand on its own?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Very low tax basis, came up inside QVC, moved it out and became
bigger company. Smaller than we would like to be a public company, but there
are advantages it has being a public company in being an acquirer or to be
acquired. Much more flexibility being a public company.</span></li>
</ul>
</span><div class="MsoNormal">
<u><span style="font-size: 10.0pt;"><br /></span></u></div>
<div class="MsoNormal">
<u><span style="font-size: 10.0pt;">SiriusXM (SIRI):<o:p></o:p></span></u></div>
<span style="text-indent: -0.25in;"><ul>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">SiriusXM (SIRI/LMCA) – from here, to create value
going forward, do you need to own connected car? </span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;">There are a bunch of value drivers inside
SiriusXM. We continue to have a good SAAR, which is a positive. Net sub
adds are up enormously this year, both in the back of growth in new cars
and improved penetration but also in used cars. Probably not a lot of
further growth potential in the SAAR from here, not like we will see 25
million, or we aren’t counting on it getting to 25 million SAAR.
Enormously long tail of growth in used car market that won’t peak for
10-15 years. Long train of growth in that. Way underpenetrated, continue
to add new cars in because of the SAAR, at a much higher rate than the old
cars are dropping off because they’ve aged out of this population. So that’s
an opportunity (used car market). Another is the connected vehicle.
Another opportunity is in the “zombies”, which are cars that are
approaching 100 million within 3 years on the road that are not
subscribers, will never be subscribers, that Sirius has radios in them
that we can light up and provide a free service. If terrestrial radio is
good but SiriusXM is “best” then this service we would offer would be
in-between, more content that is ad-based. Another opportunity is we have
a lot of spectrum capacity with S-XM 17 we can free up over time, either
to create new services inside of SiriusXM or to find alternative uses for
it outside of Sirius. Think there are a lot of ways that value grows over
time for SiriusXM.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">We’ve been hearing about the used car opportunity
for a number of years, you’re starting to make some progress on that, are
you gaining traction?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> We
have 32% penetration in this market this year, maybe it’s the low hanging
fruit, but it has been huge for us, over 2mm growth.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Content side, do you get involved with
negotiations with Howard Stern?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Yes, I do, and I’m confident we will have a deal with Howard
Stern.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">How do you think about the ownership stake of
LMCA with SIRIUS?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> We are
not splitting, instead creating 3 trackers, goal to reduce discount to
NAV. Hasn’t reduced the discount to NAV yet, maybe moved a point or two,
but we haven’t created the trackers yet. If there is a discount to NAV,
would think they all would have an equal discount, but possible they don’t.
If one tracker has a larger discount to NAV than the others, we can attack
that one through a repurchase or something else. Other opportunities have
opened up as well, been some speculation in the past, such as SiriusXM
buying LMCA stock due to the discount in NAV and we are a significant
portion of the value, to the point we have a pure SIRI tracker, where they
can buy the LMCA-SIRI tracker stock.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Don’t see the need to close the gap in the near
term unless there was some activity going to happen, such as merge them together…</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;">Why the timing now? We were just annoyed at the
discount and wanted to do something about it. We conjure up stuff. This creates
more flexibility for us. If we want to spin-off the Braves, we can. Just
creates more flexibility for us, but no rush for this otherwise. Everyday
SIRI buys back stock and LMCA doesn’t sell, we increase our ownership
stake. Inevitably it points in that direction.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">SIRI is a big one where a lot capital can be
accessed. </span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;">Not wrong or a
bad thought. We think that the SIRI use of cash flow to repurchase stock
is a good thing. Good thing for shareholders and for LMCA because our %
increases ownership. If you look at options today, don’t think there are
better options than that repurchase. Now, down the road, alternative
market environment, maybe a strategic acquisition in SIRI, is there
another market SIRI where we can buy and take it to the next level, maybe
at some point in the future.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Spectrum?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Spectrum valuation, hard thing to know. Some
restrictions on its use, maybe that changes over time. It doesn’t get
freed up until mid-next decade, but when it does it can create new opportunities
for SIRI or for someone else. We are not trying to get rid of it but there
are prices for spectrum that may be good.</span></li>
</ul>
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</ul>
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<u><span style="font-size: 10.0pt;">Expedia (EXPE) and
TripAdvisor (TRIP)<o:p></o:p></span></u></div>
<span style="text-indent: -0.25in;"><ul>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Expedia stake?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Spinning off <20% stake in Expedia in new
Holdco., with bodybuilding.com, creates more flexibility. Ultimately what
happens over time it combines with Expedia but no certainty with that.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Proxy vote –</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Mr. Diller & Mr. Malone? TripAdvisor has no
proxy, 22% of economic, and 56% is vote is Liberty-Trip. No proxy in that
deal.</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">TripAdvisor (TRIP) , a lot of changes last 36
months. 7 of top 10 hotels, and largest OTA. Sits at top of funnel,
especially for leisure travelers, for people who are investigation where
to say, what to do, while on a trip. It is the largest travel site in the
world by visit, has 375 million unique monthly visitors. Challenge is to move from place where
there was vertical search to where you can make transactions. Have gone through 2 transitions for that.
(1) One was to move from multiple screens to metasearch, which was
required to improve the customer experience but was necessary to operate
in a mobile world. (2) Other is where you move from cost per lead or per
referral by the OTAs to where you can book with hotel, take credit cards.
Enormous two transitions. All while business is still growing at very fast
rate. Some trade-offs, such as where you are fully paid-out for the lead
by the OTA, who monetizes better than we do in short term, for commission
we get paid by the hotel. Challenge is working new way into business
model, is attractive, may have some headwinds next 12-18 months. Also
allowing closer relationship with customers. Long term opportunity is to
have the lowest cost per customer acquisition, where we have hundreds of
million reviews, which are free to us, are an enormous moat, to convert
those to new customers or a higher percentage.</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">Travelers come to us, we want to improve their
experience. How? One is to improve the number of properties, add depth of information on those
properties. Booking.com has helped. Another is confidence in the booking
process.</span></li>
</ul>
</span><ul style="margin-top: 0in;" type="disc">
</ul>
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<u><span style="font-size: 10.0pt;">Liberty Broadband
(LBRDA/K) and Charter Communications (CHTR)<o:p></o:p></span></u></div>
<span style="text-indent: -0.25in;"><ul>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Liberty Broadband, a lot of changes taking place
in Pay-TV ecosystem. Thesis still holding?…</span></u></i></b><b style="font-weight: bold; text-indent: -0.25in;"><span style="font-size: 10.0pt;"> </span></b><span style="font-size: 10pt; text-indent: -0.25in;">We are very excited about initial purchase that
created our interest in Charter, it is about half of current price. Remain
very interested. We have stepped up and put $3b of our capital and raised $2b
of new capital from 3<sup>rd</sup> parties to buy more Charter stock upon
the close of the 2 transactions at a price of about 6-7% less than the
current price, maybe $11 per share less <i>(note: $176.95 per share)</i>. Very bullish it will prove to be an
attractive entry point to put
incremental capital in Charter, upon the close of that deal. How do we
realize value? 2 ways…(1) someone could buy Liberty Broadband. (2) Other
is Charter could merge with Liberty Broadband (LBRDA/K). Why would they
want to do that? We have a bunch of governance rights, pre-emptive rights,
have some things about governance that makes it attractive for them to
eliminate. They could offer us a premium to market, which more closely reflects
NAV.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">What kind of premium?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Those things get negotiated.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Tax issues for merging LBRDA with CHTR?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> LBRDA has been freely traded company for >1
yr, so anything tax-wise has likely already passed.</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">We have governance things that are beneficial for
us with LBRDA and Charter.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Any leverage shifting back from content creators
to distributors?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Distributors
have gained some relative hands than 6-12 months ago, are scaling faster
than the content guys. Talk about sports costs, skinny bundles, helping
distributors. Recognize third models (NFLX) that need to compete with.</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">First Charter Communications (CHTR) needs to complete
the merger. Then execute on the plan that has been executed very well at
Charter (CHTR) and do this at BHN and Time Warner Cable (TWC). Completing
digital upgrade, simplifying pricing and packaging, approve minimal speeds
for internet, improving TV experience, streamlining customer service,
improving systems.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Part of thesis for Malone was that “TV Everywhere”
was sub-par and that it really could change everything, and if he got that
right it would be accelerated in timing?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Think that’s right, but don’t think that’s the
only way this works (deal being successful). The deal could work well even
if “TV Everywhere” doesn’t take off. That’s just one option.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">How big can the CHTR-TWC-BHN company be?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Pretty big. $115-$120 billion in EV right out of
the block.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">How close are you following Yahoo situation with
IRS?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Guidelines are
already in place by IRS. Everything we’ve announced at Investor Day is
consistent with IRS guidelines.</span></li>
<li><span style="font-size: 10pt; text-indent: -0.25in;">QVCA – 38% of HSN, Zulily, 100% of QVC. Some
where customers compete, some overlap.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Vivendi SA litigation proceeds, interested in
swapping assets?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Sure,
depends on the price. Things we can help with Universal Music, such as
things with SiriusXM and Live Nation. We have $1.1 billion judgment
against them up on appeal. Goes to trial in March 2016. They’ve already
lost once, so we will see. We are trying to get this under New York “contract
law” and that the interest paid to us shouldn’t be treasury rates but
instead 9% simple interest, that would be another $700 million for us. Think
we have a good cause.</span></li>
</ul>
</span><ul style="margin-top: 0in;" type="disc">
</ul>
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<div class="MsoNormal">
<u><span style="font-size: 10.0pt;">On Live Nation (“LYV”):<o:p></o:p></span></u></div>
<span style="text-indent: -0.25in;"><ul>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Live Nation Entertainment (LYV):</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> up 37% for the year, massive amount of growth,
More room to grow in secondary market. Largest purveyor of big tours. In
other markets, like Latin America, we don’t own the tours and have to
outsource in those markets. We’ve grown festivals as well, have 4 of the
top 5. A lot to be done organically in M&A.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">What to do with Live Nation (LYV)?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> We are used to this kind of stake from a percentage
of total company ownership. We are up to 34.4% (some limitations with
this).</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Liquidity access, how to size this if something
big came along?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> We would
need more money. Believe bigger is better. The $5b for CHTR is unique. We
brought in $3 billion, asked $2 billion from outside investors. Not a lot
of investors play in our space, good to see Warren Buffett not involved
much in TMT. This helps with less competition, so we build relationships
with these investors. In future can have LBRDA add capital and have
outside capital.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Why sell Viacom in Q1 2015?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Sold at average price of $69, so that looks
good.</span></li>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Content model vs. distribution</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"><b>? </b>Think the content model more challenged right
now, am seeing ESPN have more pain. Distribution stream is around a void,
high speed data, those needs. Would rather be in latter right now.</span></li>
</ul>
</span><ul style="margin-top: 0in;" type="disc">
</ul>
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<u><span style="font-size: 10.0pt;">Atlanta Braves:<o:p></o:p></span></u></div>
<span style="text-indent: -0.25in;"><ul>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Atlanta Braves - $1.15 billion?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Point is fair that assets are at increasing
multiples, hope to add value with mixed real estate for valuation. The
Forbes valuation was conservative in our view.</span></li>
</ul>
</span><span style="font-size: 10pt;"> </span><br /><ul>
<li><b style="text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Sports Rights peaked in value?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Don’t think so, depends on what team, look at
EPL in France in which continues to get bid up. How this all plays out,
think the RSNs (Dodgers, for example) are asking too much for what they
are trying to achieve. Is it sustainable, probably not, but not to overall
sports yet.</span></li>
<li><b style="text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">Liberty Ventures – top priorities?</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;"> Complete spin of Expedia stake, spin of CommerceHub,
close on $2.4b investments in LBRDA, new investments, potentially liquidate
non-strategic investments.</span></li>
</ul>
<ul style="margin-top: 0in;" type="disc">
</ul>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u><span style="font-size: 10.0pt;">John Malone:<o:p></o:p></span></u></div>
<span style="text-indent: -0.25in;"><ul>
<li><b style="font-weight: bold; text-indent: -0.25in;"><i><u><span style="font-size: 10.0pt;">John Malone said at Investor Day as what
surprised him in 2014: –</span></u></i></b><span style="font-size: 10pt; text-indent: -0.25in;">
how much the market has overreacted to cord-cutting has been surprising.
Some things are challenged, but cord-cutting won’t happen super quick.
Advertising revenues won’t collapse in short time frame.</span></li>
</ul>
</span><ul style="margin-top: 0in;" type="disc">
</ul>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u><span style="font-size: 10.0pt;">Consolidation in “Media”
space:<o:p></o:p></span></u></div>
<span style="font-size: 10pt; text-indent: -0.25in;"><ul>
<li><span style="font-size: 10pt; text-indent: -0.25in;">Think there will be more consolidation in media
space next 1-2 years….</span></li>
</ul>
</span><ul style="margin-top: 0in;" type="disc">
</ul>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-size: 10.0pt;"><u>Other notes:</u><o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Liberty Media investor day <a href="http://files.shareholder.com/downloads/ABEA-4CW8ZW/1148019238x0x861474/78C0F42B-18BD-4D9B-B35E-854E84830685/2015_-_liberty_media_corp_investor_day.pdf">http://files.shareholder.com/downloads/ABEA-4CW8ZW/1148019238x0x861474/78C0F42B-18BD-4D9B-B35E-854E84830685/2015_-_liberty_media_corp_investor_day.pdf</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Liberty Broadband (LBRDA) to
add $5b to CHTR deal<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;"> <a href="https://www.blogger.com/%C2%A0%20http://finance.yahoo.com/news/liberty-broadband-announces-agreement-charter-100800622.html"> http://finance.yahoo.com/news/liberty-broadband-announces-agreement-charter-100800622.html</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Vivendi SA & Liberty
Media articles from lawsuit <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;"> <a href="https://www.blogger.com/%C2%A0%20http://www.bloomberg.com/news/articles/2013-01-09/liberty-media-wins-765-million-euro-vivendi-judgment"> http://www.bloomberg.com/news/articles/2013-01-09/liberty-media-wins-765-million-euro-vivendi-judgment</a><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Liberty Media interested in
Vivendi SA’s “Universal Music Group” <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;"> <a href="https://www.blogger.com/%C2%A0%C2%A0%C2%A0%C2%A0%C2%A0%20http://nypost.com/2015/03/08/malone-approaches-bollore-with-universal-in-mind/"> http://nypost.com/2015/03/08/malone-approaches-bollore-with-universal-in-mind/</a><o:p></o:p></span></div>
<br />
<div class="MsoNormal">
<br /></div>
Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com1tag:blogger.com,1999:blog-8610894719881071116.post-10022719398179335902015-12-17T22:02:00.001-08:002015-12-17T22:02:46.569-08:00Berkshire Hathaway (BRK-A/B) Resource Page<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6J60ejGxcWkzF75p_du_s8NoxWqziRkfFhPlsncDIpzKp1CX2__i9kAOUTevgzs0vXipvNVw45IWkVoXsqhgDpwzOwDiYaztf7xxfSWUGVKySj33NhaeuEEMjt4GGx-mvJvnJHo0zPvo/s1600/BRK+logo.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="41" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6J60ejGxcWkzF75p_du_s8NoxWqziRkfFhPlsncDIpzKp1CX2__i9kAOUTevgzs0vXipvNVw45IWkVoXsqhgDpwzOwDiYaztf7xxfSWUGVKySj33NhaeuEEMjt4GGx-mvJvnJHo0zPvo/s320/BRK+logo.png" width="320" /></a></div>
<br />
<b>Berkshire Hathaway (BRK-A/B)</b><br />
Resource page for investors<br />
<br />
<br />
<u><br /></u>
<u><b><span style="color: red;">ANNUAL MEETING NOTES (2000 - 2015)</span></b></u><br />
<u><br /></u>
<u>2014: Notes from Annual Meeting (2015)</u><br />
<b>Value Walk</b>: <a href="http://www.valuewalk.com/2015/05/berkshire-hathaway-2015-notes/?all=1">http://www.valuewalk.com/2015/05/berkshire-hathaway-2015-notes/?all=1</a><br />
<b>WSJ:</b> <a href="http://blogs.wsj.com/moneybeat/2015/05/02/live-analysis-the-2015-berkshire-hathaway-annual-meeting/">http://blogs.wsj.com/moneybeat/2015/05/02/live-analysis-the-2015-berkshire-hathaway-annual-meeting/</a><br />
<br />
<u>2013: Notes from Annual Meeting (2014)</u><br />
<b>Fool.com</b> <a href="http://www.fool.com/investing/general/2014/05/21/2014-berkshire-hathaway-annual-qa-with-warren-buff.aspx">http://www.fool.com/investing/general/2014/05/21/2014-berkshire-hathaway-annual-qa-with-warren-buff.aspx</a><br />
<b>WSJ:</b> <a href="http://blogs.wsj.com/moneybeat/2013/05/04/live-blog-berkshire-hathaways-annual-meeting/">http://blogs.wsj.com/moneybeat/2013/05/04/live-blog-berkshire-hathaways-annual-meeting/</a><br />
<br />
<u>2012: Notes from Annual Meeting (2013)</u><br />
<b>RBCPA</b>: <a href="http://www.rbcpa.com/Berkshire_Hathaway_Annual_Meeting_Notes_2013.pdf">http://www.rbcpa.com/Berkshire_Hathaway_Annual_Meeting_Notes_2013.pdf</a><br />
<br />
<u>2011: Notes from Annual Meeting (2012)</u><br />
<b>Cove Street Capital</b>: <a href="http://covestreetcapital.com/wp-content/uploads/2012/05/Notes-from-the-2012-Berkshire-Hathaway-Annual-Meeting.pdf">http://covestreetcapital.com/wp-content/uploads/2012/05/Notes-from-the-2012-Berkshire-Hathaway-Annual-Meeting.pdf</a><br />
<br />
<u>2010: Notes from Annual Meeting (2011)</u><br />
<b>Ben Claremon:</b> <a href="http://www.rbcpa.com/2011_Berkshire_Annual_Meeting_Notes-Ben_Claremon_Author.pdf">http://www.rbcpa.com/2011_Berkshire_Annual_Meeting_Notes-Ben_Claremon_Author.pdf</a><br />
<br />
<u>2009: Notes from Annual Meeting (2010)</u><br />
<b>RBCPA:</b> <a href="http://www.rbcpa.com/BRK_2010_Boodell.pdf">http://www.rbcpa.com/BRK_2010_Boodell.pdf</a><br />
<br />
<u>2008: Notes from Annual Meeting (2009)</u><br />
<b>RBCPA:</b> <a href="http://www.rbcpa.com/berkshire_2009annualmeeting_jv_bruni.pdf">http://www.rbcpa.com/berkshire_2009annualmeeting_jv_bruni.pdf</a><br />
<b>Hendershot Investments </b><i>(categorized)</i>: <a href="http://hendershotinvestments.com/new/hendershotinvestments/Berkshire%202009%20Meeting.pdf?advisorid=331723">http://hendershotinvestments.com/new/hendershotinvestments/Berkshire%202009%20Meeting.pdf?advisorid=331723</a><br />
<br />
<u>2007: Notes from Annual Meeting (2008)</u><br />
<b>Tilson Funds</b>: <a href="http://www.tilsonfunds.com/BRKnotes08.pdf">http://www.tilsonfunds.com/BRKnotes08.pdf</a><br />
<br />
<u>2006: Notes from Annual Meeting (2007)</u><br />
<b>Tilson Funds: </b><a href="http://www.tilsonfunds.com/Berkshire_Hathaway_07_annual%20meeting_notes.pdf">http://www.tilsonfunds.com/Berkshire_Hathaway_07_annual%20meeting_notes.pdf</a><br />
<br />
<u>2005: Notes from Annual Meeting (2006)</u><br />
<b>Whitney Tilson:</b> <a href="http://www.designs.valueinvestorinsight.com/bonus/bonuscontent/docs/Tilson_2006_BRK_Meeting_Notes.pdf">http://www.designs.valueinvestorinsight.com/bonus/bonuscontent/docs/Tilson_2006_BRK_Meeting_Notes.pdf</a><br />
<br />
<u>2004: Notes from Annual Meeting (2005)</u><br />
<b>Tilson Funds</b>: <a href="http://www.tilsonfunds.com/brkmtg05notes.pdf">http://www.tilsonfunds.com/brkmtg05notes.pdf</a><br />
<br />
<u>2003: Notes from Annual Meeting (2004) </u><br />
<b>Whitney Tilson</b>: <a href="http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Warren%20Buffett/Berkshire%20Hathaway%20Annual%20Meeting%20Notes%202004.pdf">http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Warren%20Buffett/Berkshire%20Hathaway%20Annual%20Meeting%20Notes%202004.pdf</a><br />
<br />
<u>2002: Notes from Annual Meeting (2003)</u><br />
<b>Tilson Funds:</b> <a href="http://www.tilsonfunds.com/motley_berkshire_brkmtg03notes.php">http://www.tilsonfunds.com/motley_berkshire_brkmtg03notes.php</a><br />
<br />
<u>2001: Notes from Annual Meeting (2002)</u><br />
<b>Tilson Funds</b>: <a href="http://www.tilsonfunds.com/motley_berkshire_brkmtg02notes.php">http://www.tilsonfunds.com/motley_berkshire_brkmtg02notes.php</a><br />
<br />
<u>2000: Notes from Annual Meeting (2001)</u><br />
<b>Tilson Funds</b>: <a href="http://www.tilsonfunds.com/motley_berkshire_brkmtg01notes.php">http://www.tilsonfunds.com/motley_berkshire_brkmtg01notes.php</a><br />
<br />
<u>1999: Notes from Annual Meeting (2000)</u><br />
<b>Fool.com/ Whitney Tilson</b>: <a href="http://www.fool.com/boringport/2000/boringport000501.htm">http://www.fool.com/boringport/2000/boringport000501.htm</a><br />
<br />
<br />
<b><u><span style="color: red;">ANALYSIS OF BERKSHIRE HATHAWAY</span></u></b><br />
<br />
<u>Sequoia (Ruane, Cuniff, Goldfarb) </u><br />
Link to Investor Day transcripts (2005 - 2015) <a href="http://www.sequoiafund.com/fund-reports.htm">http://www.sequoiafund.com/fund-reports.htm</a><br />
<br />
<u>Allan Mecham (Arlington Value)</u><br />
2013 Investor Letter (brief on BRK): <a href="http://www.scribd.com/doc/230981097/Arlington-Value-s-2013-Letter#scribd">http://www.scribd.com/doc/230981097/Arlington-Value-s-2013-Letter#scribd</a><br />
2014 commentary on BRK (brief): <a href="http://www.valuewalk.com/2015/02/allan-mecham-investments/">http://www.valuewalk.com/2015/02/allan-mecham-investments/</a><br />
<br />
<u>Tom Gayner (Markel Corp MKL) on valuing BRK:</u><br />
2011: <a href="http://gregspeicher.com/?p=2891">http://gregspeicher.com/?p=2891</a><br />
<br />
<u>Whitney Tilson (Tilson Funds)</u><br />
Nov. 9, 2015 (valuation of BRK) <a href="http://www.tilsonfunds.com/BRK.pdf">http://www.tilsonfunds.com/BRK.pdf</a><br />
<br />
<br />
<u><b><span style="color: red;">OTHER LINKS</span></b></u><br />
<br />
<a href="http://buffettfaq.com/">http://buffettfaq.com/</a>Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com0tag:blogger.com,1999:blog-8610894719881071116.post-34009497592512862542015-12-16T13:14:00.000-08:002015-12-16T13:14:24.263-08:00Berkshire Hathaway (BRK-A/B): Investor Relations Links for Non-Equity Securities<b><u><i><a href="http://www.berkshirehathaway.com/"><span style="color: blue;">http://www.berkshirehathaway.com/</span></a></i></u></b><br />
<b><u><i><br /></i></u></b>
<b><u><i>Utilities, Energy, and Railroad:</i></u></b><br />
<b>AltaLink, LP </b>-- bought for <i>$2.73 billion</i> in Q4/2014 -- <a href="http://www.altalink.ca/about/investor-relations/quarterly-reports.cfm"><span style="color: blue;">http://www.altalink.ca/about/investor-relations/quarterly-reports.cfm</span></a><br />
<b>Burlington Northern Santa Fe ("BNSF")</b> -- bought November 2009 for <i>$34 billion </i>-- <a href="http://www.bnsf.com/about-bnsf/financial-information/"><span style="color: blue;">http://www.bnsf.com/about-bnsf/financial-information/</span></a><br />
<b>MidAmerican</b> -- bought October 2009 for <i>$9 billion</i> -- <span style="color: blue;"> <a href="https://www.berkshirehathawayenergyco.com/investors/financial-filings"><span style="color: blue;">https://www.berkshirehathawayenergyco.com/investors/financial-filings</span></a></span><br />
<b>Northern Natural Gas Co. </b>-- bought in 2002 for <i>$1.9 billion</i> -<b>-</b> <a href="https://www.berkshirehathawayenergyco.com/investors/financial-filings"><span style="color: blue;">https://www.berkshirehathawayenergyco.com/investors/financial-filings</span></a><br />
<b>NV Energy</b> -- bought May 2013 for <i>$10 billion</i> -- <a href="https://www.nvenergy.com/company/financial/"><span style="color: blue;">https://www.nvenergy.com/company/financial/</span></a><br />
<b>PacifiCorp</b> -- <a href="http://www.pacificorp.com/about/fi.html"><span style="color: blue;">http://www.pacificorp.com/about/fi.html</span></a><br />
<br />
<b><u><i>Manufacturing, Service, and Retailing:</i></u></b><br />
<b>Lubrizol</b> -- bought March 2011 for <i>$9 billion</i> -- <a href="http://investor.lubrizol.com/Mobile.View?c=91008"><span style="color: blue;">http://investor.lubrizol.com/Mobile.View?c=91008</span></a><br />
<b>McLane Company</b> -- bought in 2003 for $1.45 billion -- <i><span style="color: red;">N/A</span></i><br />
<br />
<b><u><i>Insurance</i></u></b><br />
<b>General Re</b> -- bought in June 1998 for $22 billion -- <a href="http://www.genre.com/aboutus/financial-info/"><span style="color: blue;">http://www.genre.com/aboutus/financial-info/</span></a><br />
<br />
<b><u><i>Other:</i></u></b><br />
<b>Kraft Heinz</b> -- BRK owns 26.8% + $8 billion pref. -- <a href="http://ir.kraftheinzcompany.com/"><span style="color: blue;">http://ir.kraftheinzcompany.com/</span></a><br />
<b>Heinz </b>-- bought in 2013 for $23 billion (BRK $4b cash + $8 billion in Preferreds) -- <a href="http://www.heinz.com/our-company/investor-relations.aspx"><span style="color: blue;">http://www.heinz.com/our-company/investor-relations.aspx</span></a><br />
<br />
<u>Articles:</u><br />
Buffett buys MidAmerican (1999 WSJ) <a href="http://www.wsj.com/articles/SB940805892134236925">Link</a><br />
Buffett buying Burlington Northern (2009 WSJ) <a href="http://www.wsj.com/articles/SB10001424052748703740004574513191915147218">Link</a><br />
Berkshire buying NV Energy (2013 WSJ) <a href="http://www.wsj.com/articles/SB10001424127887324412604578513620791720386">Link</a><br />
Acquisition of AltaLink LP (2014 Reuters) <a href="http://www.reuters.com/article/ia-berkshire-hathaway-idUSnBw016935a+100+BSW20140501">Link</a><br />
MidAmerican to buy Northern Natural Gas from Dynegy (2002 PRNewswire) <a href="http://www.prnewswire.com/news-releases/midamerican-energy-holdings-company-to-acquire-northern-natural-gas-from-dynegy-76436457.html">Link</a><br />
McLane Company acquisition (2002 NY Times) <a href="http://www.nytimes.com/2003/05/03/business/03SHOP.html?pagewanted=all&_r=0">Link</a><br />
Lubrizol acquisition (2011 WSJ) <a href="http://www.wsj.com/articles/SB10001424052748704893604576200054174572520">Link</a><br />Iscar - buys remaining 20% (2013 Reuters) <a href="http://www.reuters.com/article/us-berkshirehathaway-imc-idUSBRE9400HS20130501">Link</a><br />
Marmon Group (2007 Bloomberg) <a href="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5.9cZCdopPw&refer=home">Link</a><br />
General Re (1998 LA Times) <a href="http://articles.latimes.com/1998/jun/20/business/fi-61658">Link</a><br />
Heinz & 3G (2013 WSJ) <a href="http://www.wsj.com/articles/SB10001424127887323478004578303733925078030">Link</a>Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com0tag:blogger.com,1999:blog-8610894719881071116.post-12149333637010412542015-12-16T11:45:00.001-08:002015-12-16T22:41:39.471-08:00Berkshire Hathaway (BRK-A/B): Update post-Q3/2015 results (released 11/06/2015)<div class="MsoNormal">
<span style="font-size: 10.0pt;">Berkshire Hathaway (BRK-A/B)<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Notes following Q3/2015
Earnings<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">11/06/2015<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;"><u>Restatement of acquisition
strategy:</u><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l4 level1 lfo1;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">1.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Sensible price<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l4 level1 lfo1;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">2.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Consistent earnings
power<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l4 level1 lfo1;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">3.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Good returns-on-equity
(ROE)<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l4 level1 lfo1;">
<!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">4.<span style="font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt;">Honest management<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;"><b><span style="color: red;"><u>Acquisitions (recent)</u></span></b><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u><span style="font-size: 10.0pt;"><b>Van Tuyl Group </b>(“Berkshire
Hathaway Automotive”) – Q1/2015<o:p></o:p></span></u></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">81 dealerships in
10 states</span></li>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">Includes 2
related insurance businesses + 2 auto auctions + one manufacturer of auto. fluid
maintenance</span></li>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">$6.6 billion in
assets / $2.5 billion in liabilities = $4.112 billion net assets ($2.39 billion
net tangible assets)</span></li>
<li><span style="font-size: 10pt;">Goodwill of
$1.719 billion expected to be amortizable for tax purposes</span></li>
</ul>
<br />
<div class="MsoNormal">
<b><u><span style="font-size: 10.0pt;"><i>My Notes on "Van Tuyl":</i></span></u></b></div>
<div class="MsoNormal">
<b><u><span style="font-size: 10.0pt;"><br /></span></u></b></div>
<div class="MsoNormal">
<span style="font-size: 10pt;"><u><i>Rationale</i></u>: US SAAR remains strong and the average life of a vehicle on the road is 11.5 years <span style="color: red;">(<a href="http://www.usatoday.com/story/money/2015/07/29/new-car-sales-soaring-but-cars-getting-older-too/30821191/">Link</a>)</span>, there are economies of scale in owning dealerships, the "Van Tuyl" Group is a collection of independently owned dealerships (thus is decentralized, similar to BRK), and....the capital base of Berkshire Hathaway can accelerate growth and consolidation in the auto dealership space. Common returns on equity in auto dealerships are >20%. </span></div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="font-size: 10pt;">Locations (<i>see map</i>)</span></li>
<li><span style="font-size: 10pt;">Dealerships do
<u>not</u> have “Van Tuyl” or “Berkshire Hathaway” name, rather a collection of
dealerships across U.S.</span></li>
<li><span style="font-size: 10pt;">Over $9 billion
in revenue (had $5.3 billion in revenue in 2008)</span></li>
<li><span style="font-size: 10pt;">All dealerships
are independently operated (model is built on general managers having minority
equity ownership in dealership or working to get equity stake)</span></li>
<li><span style="font-size: 10pt;">Two insurance
underwriters: Old United Casualty Co. & Old United Life</span></li>
<li><span style="font-size: 10pt;">CEO is </span><b style="font-size: 10pt;">Jeff Rachor</b><span style="font-size: 10pt;">, a former Sonic Automotive
Inc. president. Launched a venture in 2008 with Michael Dell’s investment firm
which allowed Rachor the ability to purchase upto $500m of “premier” auto
dealerships (</span><a href="http://www.autonews.com/article/20100118/RETAIL07/100119835/rachor-to-join-retailer-van-tuyl-steer-expansion" style="font-size: 10pt;">http://www.autonews.com/article/20100118/RETAIL07/100119835/rachor-to-join-retailer-van-tuyl-steer-expansion</a><span style="font-size: 10pt;">)</span></li>
<li><span style="font-size: 10pt;">My belief is
Berkshire/ Warren Buffett looks only for businesses where if the business had “unlimited
capital” it could grow faster (ample reinvestment runway) and scale (improved
operations, margins). The Berkshire Hathaway capital base and cash flow
provides WEB opportunity to inject more capital than the business could obtain
prior to the acquisition</span></li>
<li><span style="font-size: 10pt;">The top 5 public
auto dealerships: CarMax (<i><b>KMX</b></i>), AutoNation (<i><b>AN</b></i>), Copart (<i><b>CPRT</b></i>), Penske
Automotive (<i><b>PAG</b></i>), and Lithia Motors (<i><b>LAD</b></i>) all have ROE >20%, low net profit
margins of ~2-4% (except <i><b>CPRT</b></i>), similar gross margins of 14-15%.</span></li>
<li><span style="font-size: 10pt;">Article on
dealership economy of scale: </span><a href="http://mibiz.com/item/21965-deals-for-wheels-auto-dealers-leverage-economies-of-scale-to-expand-footprints-through-acquisitions" style="font-size: 10pt;">http://mibiz.com/item/21965-deals-for-wheels-auto-dealers-leverage-economies-of-scale-to-expand-footprints-through-acquisitions</a></li>
</ul>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAgNmGw9CZ9gG_OtAwnjbTsNxiLk_Jj7fAlkL3G54eEuLx2xGZqjWeBaN1Q6s3Bvx7bk3SK_SwJoKK627IdTGjMJHLc7CeaoUjkAm-PH9lIVN2c7KjRhqSA0Hdr3YmxOQdS74cuYVOhUc/s1600/Locations+of+dealerships+-+12.+2015+Van+Tuyl.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="241" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAgNmGw9CZ9gG_OtAwnjbTsNxiLk_Jj7fAlkL3G54eEuLx2xGZqjWeBaN1Q6s3Bvx7bk3SK_SwJoKK627IdTGjMJHLc7CeaoUjkAm-PH9lIVN2c7KjRhqSA0Hdr3YmxOQdS74cuYVOhUc/s400/Locations+of+dealerships+-+12.+2015+Van+Tuyl.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Berkshire Hathaway Automotive auto dealership locations - 81 in U.S. (12/2015)</td></tr>
</tbody></table>
<img border="0" src="file:///C:\Users\CASzalay\AppData\Local\Temp\msohtmlclip1\01\clip_image001.png" style="font-size: 10pt;" v:shapes="Picture_x0020_1" /><br />
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<u><span style="font-size: 10.0pt;"><b>AltaLink, L.P. </b>(will merge
into Utilities & Energy segment) – 12/1/2014<o:p></o:p></span></u></div>
<div class="MsoListParagraphCxSpFirst">
<br />
<ul>
<li><span style="font-size: 10.0pt;">Alberta’s largest
regulated electricity transmission company, owns and operates ~60% of
transmission system in Alberta</span></li>
<li><span style="font-size: 10.0pt;">Supplies 85% of
Alberta with electricity</span></li>
<li><span style="font-size: 10.0pt;">Purchased for
C$3.1 billion ($2.73 billion USD)</span></li>
</ul>
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<span style="font-size: 10.0pt;"><u><i><b>My notes on AltaLink LP:</b></i></u><o:p></o:p></span></div>
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<span style="font-size: 10.0pt;"><br /></span></div>
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<span style="font-size: 10.0pt;"><i><u>Rationale</u></i>: Company provides a necessary product (electricity), will earn decent returns on investment as guaranteed by regulatory body in Canada (~8.30% ROE), limited competition (supplies Alberta with 85% of electricity), and Berkshire Hathaway capital base can reinvest large sums of money and earn a "known" solid ROE. </span></div>
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</div>
<ul>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">Quick facts on
AltaLink: <a href="http://www.altalink.ca/news/quick-facts.cfm">http://www.altalink.ca/news/quick-facts.cfm</a></span></li>
<li><span style="font-size: 10pt;">~$200m annual
run-rate of net income + ~$240m run-rate Depreciation & Amortization</span></li>
<li><span style="font-size: 10pt;">Capital
expenditures far exceed cash flow</span></li>
<li><span style="font-size: 10pt;">Annualized
EBITDA = $560m on ~$800m revenue for
2015</span></li>
<li><span style="font-size: 10pt;">Capital
Expenditures mostly funded through increased debt (LT + commercial paper), less
so capital injection and Cash Flow</span></li>
<li><span style="font-size: 10pt;">Estimate of $7.4
billion total invested capital ($6.9 billion tangible), earnings ~ 5-6% ROIC
using current year run rate D&A as actual maintenance capital expenditures</span></li>
<li><span style="font-size: 10pt;">Similar to “Van
Tuyl”, Berkshire Hathaway likely invested in AltaLink LP as they could utilize
the Berkshire Hathaway capital base for large amount of reinvestments that
would not have been capable under stand-alone AltaLink (<i>almost no cash on
balance sheet, ~$600m EBITDA and 7.2x net debt-to-EBITDA</i>)</span></li>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">Due to regulatory
environment, AltaLink applies to have certain “return on equity” qualities
based on their estimated operating expenses, and thus attempt to get certain
pricing characteristics from customers in order to obtain their stated ROE.</span></li>
</ul>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiurdmv1THFozniy1N9T5TEAInOvEMMeJ47zeshSLBwRpOtsS1V_tYt2JLAYuZDePqukHJc-Z0BuOJbfK02bwcJcF8Pklhyv8VweFHQ1VTJQLnmRM8rR5YGVwChTxSyE9l2gnHgmDiYwh0/s1600/Approved+ROE+for+AltaLink+-+2015.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="232" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiurdmv1THFozniy1N9T5TEAInOvEMMeJ47zeshSLBwRpOtsS1V_tYt2JLAYuZDePqukHJc-Z0BuOJbfK02bwcJcF8Pklhyv8VweFHQ1VTJQLnmRM8rR5YGVwChTxSyE9l2gnHgmDiYwh0/s640/Approved+ROE+for+AltaLink+-+2015.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">"Approved" Returns on Equity for AltaLink, LP = 8.30%</td></tr>
</tbody></table>
<br />
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<span style="font-size: 10.0pt;">Notes from Credit Rating
Agency DBRS: “regulations approved ROE is lowest for investor-owned utilities
in Canada over the past 10 years.”<o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpxDx4eYbFUH322HAKIYILVPyJXS-S0IuWOoZ433cyjC8x5zwPxbaOi6W-JiGM3AUffJzw_zIUADZ-zH342HeNEKcIF1o139vMrDw4N0azD04PITPuzZJ2ljgu-sUl5IkZWKXOnasIWJ0/s1600/DBRS+comments+on+regulations+and+ROE+-+2015.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="88" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpxDx4eYbFUH322HAKIYILVPyJXS-S0IuWOoZ433cyjC8x5zwPxbaOi6W-JiGM3AUffJzw_zIUADZ-zH342HeNEKcIF1o139vMrDw4N0azD04PITPuzZJ2ljgu-sUl5IkZWKXOnasIWJ0/s640/DBRS+comments+on+regulations+and+ROE+-+2015.png" width="640" /></a></div>
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<span style="font-size: 10.0pt;"><b><u>Other investments:</u></b><o:p></o:p></span></div>
<br />
<div class="MsoListParagraph">
</div>
<ul>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">Purchased General
Electrics (GE) tank cars from their leasing unit for $1.0 billion on September
30, 2015</span></li>
</ul>
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<br /></div>
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<b><u><span style="color: red;">Balance Sheet notes:</span></u></b></div>
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<br /></div>
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<span style="font-size: 10.0pt;"><b><u>Fixed Maturity Investments:</u></b><o:p></o:p></span></div>
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</div>
<ul>
<li><span style="font-size: 10pt;">Little movement
YTD</span></li>
<li><span style="font-size: 10pt;">44% are invested
in foreign governments</span></li>
<li><span style="font-size: 10pt;">Of that, 75% are
in Germany, Australia, Canada, The Netherlands</span></li>
</ul>
<b style="font-size: 10pt;"><u>Investments (Securities)</u></b><br />
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">Cost basis
increased YTD from $58.4 billion to $63.0 billion</span></li>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">Fair value
decline YTD from $117.5 billion to $110.3 billion</span></li>
<li><span style="font-family: "symbol"; font-size: 10pt;">5</span><span style="font-size: 10pt;">8% of the
investments are in 4 companies: American Express (<i><b>AXP</b></i>), International Business
Machines (<i><b>IBM</b></i>), Wells-Fargo (<i><b>WFC</b></i>), and Coca-Cola (<i><b>KO</b></i>)</span></li>
<li><span style="font-size: 10pt;">Unrealized gains
on securities has declined from $60.1 billion to $50.2 billion, largely from
~$5.7 billion decline in “The big 4”</span></li>
<li><span style="font-size: 10pt;">Of the $110.3
billion fair value of investments, 96% are allocated to the “insurance” balance
sheets</span></li>
<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">International
Business Machine (<i><b>IBM</b></i>) is down $2 billion (15% of cost)</span></li>
</ul>
<i style="font-size: 10pt;"><u>Investment Activity (other)</u></i><br />
<div>
<div class="MsoListParagraphCxSpFirst">
<br />
<ul>
<li><span style="font-size: 10.0pt;">Exchanged Philips
66 (PSX) shares for Philips Specialty Products (now Lubrizol Specialty
Products) for $2.1 billion – (2/25/2014)</span></li>
<li><span style="font-size: 10.0pt;">Exchanged Graham
Holdings (GHC) for WPLG – (6/30/2014)</span></li>
<li><span style="font-size: 10.0pt;">Took a $678m
impairment on Tesco PLC</span></li>
</ul>
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<span style="font-size: 10.0pt;"><b><u><span style="color: red;">Insurance Operations:</span></u></b><o:p></o:p></span></div>
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<br /></div>
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<span style="font-size: 10.0pt;"><b><i><u>GEICO:</u></i></b><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst">
<br />
<ul>
<li><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10.0pt;">Continue to
implement premium rate increases where necessary</span></li>
<li><span style="font-size: 10.0pt;">Strong premium
written (11.4%) and premiums earned (11.2%)</span></li>
<li><span style="font-size: 10.0pt;">Increases in
premiums reflect growth in in voluntary auto policies-in-force (6.1%) and
higher premiums per policy</span></li>
<li><span style="font-size: 10.0pt;">YTD =
policies-in-force grew by 662,000 policies</span></li>
</ul>
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<span style="font-size: 10.0pt;"><br /></span></div>
<div class="MsoListParagraphCxSpLast">
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<b><u><span style="font-size: 10.0pt;">Berkshire Hathaway Reinsurance Group<o:p></o:p></span></u></b></div>
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<span style="font-size: 10.0pt;"><b><i>P&C:</i></b><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">Premium increases
due to new 10-year, 20% quota-share contract with Insurance Australia Group Ltd
(IAG), effective July 1, 2015</span></li>
<li><span style="font-size: 10pt;">Offset by premium
decline in property catastrophe, quota-share, London businesses</span></li>
<li><span style="font-size: 10pt;"><i><span style="color: red;">Premium volume
constrained because the rates currently are generally inadequate</span></i></span></li>
<li><span style="font-size: 10pt;">As dollar strengthens,
it adds FX gains because estimate liabilities get revalued lower in
dollar-terms</span></li>
</ul>
<div>
<span style="font-size: 13.3333px;"><i><b>Retroactive Reinsurance:</b></i></span></div>
<ul>
<li><span style="font-size: 10pt;">Contract with
Liberty Mutual in 2014 for $3 billion did not repeat in 2015</span></li>
</ul>
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<span style="font-size: 10.0pt;"><br /></span></div>
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<span style="font-size: 10.0pt;"><b><u><span style="color: red;">Railroad, Utilities & Energy:</span></u></b></span></div>
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<br /></div>
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<b><u><span style="font-size: 10.0pt;">BNSF:<o:p></o:p></span></u></b></div>
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<span style="font-size: 10.0pt;"><i><u>Capital investments in:</u></i><o:p></o:p></span></div>
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</div>
<ul>
<li><span style="font-size: 10pt;">Line expansion</span></li>
<li><span style="font-size: 10pt;">System
improvements projects</span></li>
<li><span style="font-size: 10pt;">Additional
equipment</span></li>
</ul>
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<div class="MsoListParagraphCxSpLast">
<u style="font-size: 10pt;"><i>Other items</i>:</u></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">New employee
hires</span></li>
<li><span style="font-size: 10pt;">Favorable winter
weather conditions</span></li>
</ul>
<!--[if !supportLists]--><br />
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<span style="font-size: 10.0pt;"> </span><u style="font-size: 10pt;"><i>Revenue:</i></u></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">Down 3% ytd</span></li>
<li><span style="font-size: 10pt;">5% decline in
average revenue per car/unit</span></li>
<li><span style="font-size: 10pt;">Partially offset
by a 1% increase in volumes</span></li>
<li><span style="font-size: 10pt;">Decrease in
average revenue per car/unit in 2015 due to 50% decline in fuel surcharges
($1.1 billion) due to lower fuel prices, offset partially by increases in
average rates</span></li>
<li><span style="font-size: 10pt;">Impact of lower
fuel surcharge revenues affected revenues of all product lines</span></li>
<li><span style="font-size: 10pt;">Freight revenues (<i><b>industrial</b></i>)
<span style="color: red;"><u>down </u></span>13% in Q3/15 to $1.4 billion – lower volumes due to lower crude prices on
petroleum products and frac sands, lower steel volume, lower revenue per
car/unit</span></li>
<li><span style="font-size: 10pt;">Freight revenues
(<i><b>agricultural</b></i>) <span style="color: #38761d;"><b><u>up </u></b></span>4% to $1.0 billion – higher domestic grain shipments, driving
volume up 11%, offset by lower revenue per car/unit</span></li>
<li><span style="font-size: 10pt;">Freight revenues
(<i><b>Coal</b></i>) <span style="color: red;"><u>down</u> </span>6% to $1.2 billion, mostly due to lower revenue per car/unit. Coal
volumes increased 5% y/y</span></li>
<li><span style="font-size: 10pt;">Freight revenues
(<i><b>consumer</b></i>) <span style="color: red;"><u>down </u></span>3% to $1.7 billion, mostly due to lower revenue per car/unit,
offset by volume increases of 5%</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><i style="font-size: 10pt;"><u>Expenses:</u></i></div>
<div class="MsoListParagraph">
</div>
<ul>
<li><span style="font-size: 10pt;">Compensation &
benefits: down, due to reduced overtime, lower training costs, offset by higher
employment levels and wage rates</span></li>
</ul>
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<br /></div>
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<b><u><span style="font-size: 10.0pt;">Utilities and Energy (Berkshire Hathaway Energy Group)<o:p></o:p></span></u></b></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">89.9% owned</span></li>
<li><span style="font-size: 10pt;">Domestic regulated
utility interests – PacifiCorp, MidAmerican, NV Energy</span></li>
<li><span style="font-size: 10pt;">Great Britain two
regulated electricity distribution businesses – Northern Powergrid</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><i style="font-size: 10pt;"><u>PacifiCorp:</u></i></div>
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</div>
<ul>
<li><span style="font-size: 10pt;">Electric utility
in Utah, Oregon, and Wyoming</span></li>
<li><span style="font-size: 10pt;">Revenue down 1%
y/y due to lower renewable energy credit revenue and lower rates and volumes</span></li>
<li><span style="font-size: 10pt;">Energy costs
decline more than revenues, thus margin improved</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><u style="font-size: 10pt;"><i>MidAmerican Energy Company: ("MEC")</i></u></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">Electric and
natural gas utility in Iowa and Illinois</span></li>
<li><span style="font-size: 10pt;">Revenue impacted
by lower average per unit cost of gas sold, offset by lower cost of sales</span></li>
<li><span style="font-size: 10pt;">Higher rates in
Iowa</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><u style="font-size: 10pt;"><i>NV Energy:</i></u></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">Electric and gas
utility in Nevada</span></li>
<li><span style="font-size: 10pt;">Higher average
regulated rates</span></li>
</ul>
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<br /></div>
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<span style="font-size: 10pt;"><u><b><span style="color: red;">Manufacturing, Service and Retailing:</span></b></u><b><o:p></o:p></b></span></div>
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<br /></div>
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<span style="font-size: 10.0pt;"><u><b>McLane:</b></u><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">Wholesale distribution
business that provides grocery and non-food products to retailers, convenience
stores, and restaurants</span></li>
<li><span style="font-size: 10pt;">Distilled
spirits, wine and beer</span></li>
<li><span style="font-size: 10pt;">Marked by high
sales volume and very low profit margins</span></li>
<li><span style="font-size: 10pt;">Several significant
customers – Wal-Mart (<i><b>WMT</b></i>), 7-Eleven, and Yum!Brands (<i><b>YUM</b></i>)</span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><i style="font-size: 10pt;"><u>Manufacturing:</u></i></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">Industrial and
end-user products group includes: <i>Lubrizol, ISCAR, Forest River, CTB</i></span></li>
<li><span style="font-size: 10pt;">Building products:
<i>Acme, Benjamin Moore, Johns Manville, Shaw, MiTek</i></span></li>
<li><span style="font-size: 10pt;">Apparel: <i>Fruit of
the Loom, Russell, Vanity Fair</i></span></li>
</ul>
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<span style="font-size: 10.0pt;"> </span><i style="font-size: 10pt;"><u>Industrial:</u></i></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><span style="font-size: 10pt;">Revenue declines
due to strong dollar, which impacted by $210m of the $324m decline</span></li>
<li><span style="font-size: 10pt;">Commodity cost
deflation in petroleum and metals used in certain products resulted in lower
selling prices, especially Lubrizol, ISCAR, and certain sectors in Marmon</span></li>
<li><span style="font-size: 10pt;">Lower oil prices
and competitive pressures, experienced lower selling prices</span></li>
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<li><span style="font-family: "symbol"; font-size: 10pt;"><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-size: 10pt;">Lower average raw
material and energy costs helped, offset somewhat by FX translation and
increased restructuring charges</span></li>
<li><span style="font-size: 10pt;">Shaw (flooring)
and insulation and roofing (Johns Manville) helped increase earnings the most</span></li>
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<li><span style="font-size: 10pt;">Debt issued by
BNSF or Berkshire Hathaway Energy – not guaranteed by Berkshire Hathaway, and
not committed to provide capital to support BHE or BNSF or any subsidiaries</span></li>
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com1tag:blogger.com,1999:blog-8610894719881071116.post-75544071837604458392015-12-15T08:25:00.000-08:002015-12-15T08:25:17.326-08:00CBS Corp. (CBS) comments [CEO Leslie Moonves] from 43rd UBS Conference (12/07/2015)<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">43<sup>rd</sup>
Annual Global Media and Communications Conference<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">CBS Corp.
(CBS)<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Speaker: CEO
– Leslie Moonves<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Tuesday:
12/07/2015<o:p></o:p></span></div>
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<u><span style="font-size: 10.0pt; mso-no-proof: yes;">Notes:</span></u><o:p></o:p></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><b><u><span style="font-size: 10pt;">Goals
and targets?</span></u></b><span style="font-size: 10pt;"> Have a lot of </span><span style="font-size: 13.3333px;">initiatives</span><span style="font-size: 10pt;">. Last couple
of years been more disruptive than any part of my career. This year –
established ShowTime OTT and CBS All Access. Success for us is (1) Content,
because even if you can distribute it well, if you have bad content people won’t
watch. CBS is poised to be successful no matter how people get there content.
Skinny bundle, they wont succeed without CBS. We would get paid more on skinny
bundle. On A-la-carte, with CBS All Access, we will get paid even more. People
can’t live without CBS – football fans, Stephen Colbert fans, etc.</span></li>
<li><u><span style="font-size: 10pt;">Preference for distribution 3-5 years</span></u><span style="font-size: 10pt;">?
Know its shifting, not sure how fast it is shifting. Every economic way you get
CBS works for CBS. If the world stays where it is today, with retransmission
fees and reverse compensation fees, our numbers are going up. $1 billion for
2016, $2b by 2020 in retrans and reverse comp. It will shift, though. Skinny
Bundles will become more important, especially to millennials. We offer
something for everybody, we will be there. All Access, maybe turn to no
advertising for $9.99 per month. We feel well positioned for the future.</span></li>
<li><b><u><span style="font-size: 10pt;">2015
finish to year</span></u></b><span style="font-size: 10pt;">? Terrific. </span><span style="font-size: 13.3333px;">Distribution</span><span style="font-size: 10pt;"> systems paying
us more and more. Advertising is good. Q3 scatter was good, Q4 is better. 2016,
we have extra AFC playoff game, Super Bowl, plus political advertising. The
more the Republicans bicker, the better for us.</span></li>
<li><b><u><span style="font-size: 10pt;">Drivers
for 2016 besides what you’ve talked about</span></u></b><span style="font-size: 10pt;">? Showtime, CW, CBS
content all has done well. All new shows have picked up. Homeland, Affair,
other shows doing well. We will be #1 broadcast network for 13 our of 14 years.
With </span><span style="font-size: 13.3333px;">advertising</span><span style="font-size: 10pt;"> scatter this strong, you know in May it will be this strong.
We took in less in volume by 4-5%, the ad scatter – advertising </span><span style="font-size: 13.3333px;">could've</span><span style="font-size: 10pt;"> paid
20% less at one point, but…Our CRO is bullish on advertising.</span></li>
<li><b><u><span style="font-size: 10pt;">Super
Bowl sold out</span></u></b><span style="font-size: 10pt;">? Loaded question. No. Demand is high.
Sold most spots for very high prices. As you get closer to game, some
advertiser just HAS to be in Super Bowl. Or some movie producer will spend on
advertising.</span></li>
<li><u><span style="font-size: 10pt;">Any update on local TV or radio?</span></u><span style="font-size: 10pt;">
Local TV and radio is up low single digits, very pleased about it.</span></li>
<li><u><span style="font-size: 10pt;">How is new TV season been?</span></u><span style="font-size: 10pt;">
Been a tipping point. We’ve had no home runs out of the box, which is unusual.
Lots of singles and doubles. Any “Survivor” or “CSI”, no, but many that can
sell in the future. Ratings have been slightly down, but after-market has been
up considerably. We need better measurement of ratings as viewing shifts.</span></li>
<li><u><span style="font-size: 10pt;">Shifts of programming strategy</span></u><span style="font-size: 10pt;">?
Not really. Hasn’t been in 20 years. We’ve had great success with procedural
crime, but we try other genres, Super Girl, Code Black, Limitless. Very pleased
with how we are doing.</span></li>
<li><b><u><span style="font-size: 10pt;">Competitor
shows or scheduling that was surprising?</span></u></b><span style="font-size: 10pt;"> Not really, no.
Everyone has certain amount of </span><span style="font-size: 13.3333px;">successes</span><span style="font-size: 10pt;">. Empire has slipped some but still
going great. NBC has some good stuff. Network TV is still strong.</span></li>
<li><span style="font-size: 10pt;">Start with marketing, hope to build
audience. NFL is potentially shopping Thursday night football. CBS has Sunday
night for NFL for 9 more years. NFL is looking at a lot of ways to distribute.
Looked at digital, for example with London game. Remains to be seen. Hope CBS
continues with Thursday, we will pay a good price, but not something stupid.</span></li>
<li><b><u><span style="font-size: 10pt;">Primetime
– still about 50% of adv. Revenue</span></u></b><span style="font-size: 10pt;">? Last few years, CBS has </span><span style="font-size: 13.3333px;">transformed</span><span style="font-size: 10pt;"> </span><span style="font-size: 13.3333px;">our-self</span><span style="font-size: 10pt;">. Day time now makes >$100m. CBS This Morning, growing
tremendously. Late Night, changed both hosts, Colbert is a lot more profitable than Letterman. Look
across whole schedule, feel very good, no noticeable weaknesses.</span></li>
<li><span style="font-size: 10pt;">Look at post-Super Bowl shows, a lot of
bad shows right afterwards. We’ve put on Undercover Boss, Survivor. This year
will be Colbert, as we have made an investment in the show.</span></li>
<li><b><u><span style="font-size: 10pt;">Audience
– how much measurement is missing in ratings</span></u></b><span style="font-size: 10pt;">?
Good news for us, is something is missing. Not getting fully counted. There is
real upside to this. Network is very profitable. Viewers are shifting all over
the place, CBS not getting paid for every viewer. As </span><span style="font-size: 13.3333px;">measurement</span><span style="font-size: 10pt;"> gets more
precise, and it will, we will get paid more. Overnight ratings mean very little
now. C3, C7, C30 should also come into the equation. If you watch an episode a
month from now, will it be less effective then? Probably not, shows ads should
count. Also, </span><span style="font-size: 13.3333px;">dynamic</span><span style="font-size: 10pt;"> ad insertion will be strong. This is getting bigger and
bigger and </span><span style="font-size: 13.3333px;">viewership</span><span style="font-size: 10pt;"> moves beyond “live”.</span></li>
<li><b><span style="font-size: 10pt;">Opportunities
holding back on</span></b><span style="font-size: 10pt;">? CBS is thinking about
the future, how it will be 1,2, many years from now. Still, we run a
public company. Need earnings, have to show earnings. We are cautious about
what we invest in. Streaming investments have been good. Disney bought Maker
Studios for $500m - $1 billion, they are bigger than us. They have Star Wars,
we don’t. Have to handle the game a bit differently.</span></li>
<li><span style="font-size: 10pt;">Retransmission - $1 billion in 2016.
Affiliate renewal cycle? Had a few big ones in 2015, each year they go up. Not
lumpy. No major retrans deals in 2016. Some of previous deals the price
increases kick in in 2016.</span></li>
<li><span style="font-size: 10pt;">CBS All Access, ShowTime OTT –
investments had been made 3-4 years. Relationships with distributors are
generally good, some good days, some not so good.</span></li>
<li><span style="font-size: 10pt;">CBS All Access – at 85% for
distribution, one distributor not in, but will be in shortly.</span></li>
<li><span style="font-size: 10pt;">Showtime – doing more stuff like Hulu.
People ask for predictions where it will be 3 years from now, not sure.</span></li>
<li><span style="font-size: 10pt;">Star Trek – do you sell to Hulu,
Netflix, Amazon? There are millions of Star Trek fans who will sign up for CBS
All Access just for this show.</span></li>
<li><span style="font-size: 10pt;">Going to war with Time Warner Cable
(TWC) wasn’t fun, but we like the outcome. Noticed they went up for sale not
long after. Got calls from Congress and FCC about why we didn’t get along, wasn’t
fun. Made future conversations easier, though.</span></li>
<li><span style="font-size: 10pt;">Verizon has put out Skinny Bundle, Sony
is experimenting in it. Makes sense to get a handful of major cable networks,
charge much less. It is inevitable, not sure when. Apple started this process
and then slowed down. Higher sub fees will be the result. Sling TV doesn’t have
any major networks. We would consider something if paid appropriately.</span></li>
<li><b><u><span style="font-size: 10pt;">CBS.com
– free to air?</span></u></b><span style="font-size: 10pt;"> Yes, but less content than All Access.
Has less shows. Will inevitably be molded into All Access.</span></li>
<li><span style="font-size: 10pt;">We have no great desire to join Hulu. We
want to have more control of our content.</span></li>
<li><b><u><span style="font-size: 10pt;">Spectrum
incentive auction – range on outcomes?</span></u></b><span style="font-size: 10pt;"> Can’t be specific,
have 28 TV stations, 13 are CBS, </span><span style="font-size: 13.3333px;">won't touch</span><span style="font-size: 10pt;"> these, The independents, the CWs,
would consider. The numbers we have seen are rather high, but it’ll be an
auction. They put a number in Long Island TV Broadcast that we bought a few
years ago for $55m and the first numbers they said were its worth $490m. We
said “we’ll take it”. Now, that won’t be the final price for the NY spectrum.
4-5 markets we will get into it in a serious way. Will look carefully at. Maybe
a couple hundred million dollars coming our way, when all said and done.</span></li>
<li><b><u><span style="font-size: 10pt;">SVOD
revenue – growth?</span></u></b><span style="font-size: 10pt;"> We have good </span><span style="font-size: 13.3333px;">relationships</span><span style="font-size: 10pt;"> with SVOD
players. Netflix (NFLX) is not the anti-Christ, we enjoy the relationship. They
buy our content, but also a competitor as they develop content, too. We do a
lot of business with Amazon, Hulu, and growing internationally as well. A lot
of local international SVOD players. Now 6-7 players for our product
internationally, and the numbers will go up. Took Star Trek and kept ourselves
instead of selling to Netflix.</span></li>
<li><span style="font-size: 10pt;">Netlfix isn’t the only game in town with
Hulu and Amazon there as well.</span></li>
<li><b><u><span style="font-size: 10pt;">TV
production - too much TV</span></u></b><span style="font-size: 10pt;">?
Don’t believe so. Maybe too much crap television. There is some difficulty in
the talent pool but the best rise to the top.</span></li>
<li><span style="font-size: 10pt;">CBS
- don’t own a lot of international licensing; domestically, sell to
cable. Any other buyers? A lot more competition with SVOD players. By and
large, the off-net stuff is performing well. Sometimes will see same time a
SVOD or cable deal.</span></li>
<li><span style="font-size: 10pt;">Showtime in 24 million homes, about 80
million left. $10.99 you get Showtime. Showtime OTT – won’t say the amount of
subs. We will disclose the number when Netflix reveals how many people watch
House of Cards.</span></li>
<li><b><u><span style="font-size: 10pt;">Balance
sheet, right level of buybacks?</span></u></b><span style="font-size: 10pt;"> We are not heavy in debt,
have buyback for another 1.5 years in similar level we have done. We have
reinvested back in business, in premium content.</span></li>
</ul>
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com0tag:blogger.com,1999:blog-8610894719881071116.post-73303308344135809842015-12-14T23:02:00.000-08:002015-12-14T23:02:47.068-08:00Comcast Corp. (CMCSA) comments [CFO Mike Cavanagh) from 43rd UBS Conference (12/07/2015)<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">43<sup>rd</sup>
Annual Global Media and Communications Conference<o:p></o:p></span></div>
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<span style="font-size: 10.0pt; mso-no-proof: yes;">Comcast
Corp. (CMCSA)<o:p></o:p></span></div>
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<span style="font-size: 10.0pt; mso-no-proof: yes;">Speaker: CFO
Mike Cavanagh<o:p></o:p></span></div>
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<span style="font-size: 10.0pt; mso-no-proof: yes;">Tuesday:
12/07/2015<o:p></o:p></span></div>
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<ul>
<li><b><u>Goals for 2016</u></b>? Execution. Excited about cable first and delivering on customer
experience. Working on getting things right the first time. Ultimately shifting
to net promoter side and the improvement in churn. Want to drive market share
in cable – on track for double digit growth in broadband revenues, nearly 20%
on business services in cable. Goal is to grow video subs on a y/y basis,
encouraged thus far. Want to grow share on eneterprise, and growing things in
wireless space with Wi-Fi. Lastly – X1 platform and driving more high speed
data.</li>
<li><b><u>Networks goal for 2016</u></b>: more retransmission and affiliate fees, which we
think are still under-monetized. Olympics in 2016.</li>
<li><b><u>Parks</u></b>: Harry
Potter in Hollywood. That franchise had typically driven 2-3 million uplift in
annual visitors to those parks, expect same for Cali.</li>
<li><b><u>Film</u></b>:
About to finish with best year in Universal Studios history with 3 movies
breaking $1 billion at box office globally. 2016 wont be as big as 2015.</li>
<li><b><u>How to get <i>net</i>
video sub growth in 2016?</u></b> The X1
product and technology. For strong user of video, X1 is best out there. “internet
Plus” is a skinny bundle, been available for couple of years, now has
stabilized base. After promotional periods, about 30% upgrade to higher level
of service over time.</li>
<li>College campus
with 26 universities now.</li>
<li><u>X1 deployment</u> – UBS estimated 30% penetration end of 2015. Ended Q3
at 25% of video base. Crossed 10 million deployed, running 40,000 X1 a day. 30%
estimate isn’t that bad. Will push the pace a little faster in 2016. Looking at
steep decrease in churn versus rest of population, much bigger penetration of
DVRs and multiple devices, higher use of VOD, all driving higher ARPU.</li>
<li><u>Financial
benefits of licensing the X1?</u> Less
the financials, more speaks of power of cable and our technology. Shouldn’t
bake X1 licensing into modelling, <i>its not
a big financial mover for us</i>.</li>
<li><b><u>Stream TV</u></b> – cable service over IP for high-speed data customers. A thinner video
package for $15 a month. Will only roll it out in the existing CMCSA footprint,
relies on the Comcast rights for content as a cable service.</li>
<li><b><u>Worried about it cannibalizing the expanded basic
sub-base?</u></b> Not who we are going
after, which is the <i><span style="color: red;">non-video customer (broadband only).</span></i> We are
watching closely.</li>
<li><u>Competition in
cable, versus U-Verse</u>? Early days but
it is competitive.</li>
<li><b><u>Programming costs</u></b>, saw a drop in second half of 2015, expect for 2016?
No, second half of 2015 lower than normal trends. Will revert to higher
programming trends in 2016. Part of that is retransmission costs across all
networks, higher sports costs.</li>
<li><b><u>Broadband</u></b> – can you monetize it effectively with usage based pricing? We are
growing high-speed data revenues, has been growth in market share for a while.
Still think it is underpenetrated relative to opportunity in aggregate units.
We are investing heavily in capacity, speed, in-home Wi-FI, out of home Wi-FI,
hotspots, to make broadband highly valuable to customers. Use usage-based to
make sure over time we get compensated for the investments made and the
marketplace requires us to make. <i><span style="color: red;">Key data point on usage-based pricing: 10% of client base
uses 50% of capacity</span></i>. So we are experimenting…</li>
<li>No plans to roll
the pricing model out throughout entire footprint at this point.</li>
<li><b><u>Wireless w VZ</u></b>: no news on this. Worth at this point triggering the MVNOs so we can
experiment. We are continuing to invest in Wi-Fi as an extention of the value
of broadband pipe, which is the still the best and cheapest way to transmit
data.</li>
<li>Comcast to be a
seller of spectrum where there is overlapping stations in a market. On NBC side,
we will participate in the auction. On cable side, have not decided to look at
spectrum auction, yet.</li>
<li><b><u>Enterprise</u></b>: running just shy of $5 billion annualized run rate revenue for small and
medium-size businesses. We are about 10% penetrated in medium-sized market.
With a great Ethernet product and dedictaed sales force should be >10%.
Higher than 10% in small business.</li>
<li><b><u>Capex</u></b> –
went from 14.5% of sales to about 15% o guidance. How to think about cable
capital intensity in 2016? Been invested in X1, broadband, Wi-Fi gateways,
business services, network capcity. <i><span style="color: red;">15% is a good place to start</span></i>.</li>
<li><u>NBC core
drivers for 2016</u>: retransmission fees
for NBC. 5 years ago it was $4 million. It will be $400- $500 million in 2015,
probably $800m next year. Affiliate fees are under-monetized relative to power
of selling together the NBC channles togethe. Sold as a package.</li>
<li>Bought 51% of
Japan park, will increase total leverage from 1.9x to 2.1x because
consolidation and Japan is higher leveraged</li>
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com0tag:blogger.com,1999:blog-8610894719881071116.post-78461922502813489662015-12-14T22:14:00.000-08:002015-12-14T23:09:58.163-08:00Verizon Communications (VZ) comments [CFO Fran Shammo] from 43rd UBS Conference (12/07/2015)<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">43<sup>rd</sup>
Annual Global Media and Communications Conference<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Verizon
Communications (VZ)<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Speaker: CFO
Fran Shammo<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Tuesday:
12/07/2015<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u><span style="font-size: 10.0pt; mso-no-proof: yes;">Notes:<o:p></o:p></span></u></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-size: 10pt;">Goals for
now?</span></b><span style="font-size: 10pt;"> Priorities for 2015
were: (1) invest in networks and platforms. 2014 priority was to gain control
over Verizon Wireless from Feb. 2014. Will invest $17.5 billion - $18 billion in networks in 2015, mostly
wireless and fiber networks. Want to be mobile first fiber company. With
acquisition of AOL (AOL) launched go90 platform – mobile first platform for
video. (2) buy spectrum. Spent $10.4 billion in auction to buy AWS 3 spectrum,
gives us capacity for go90 product and 4G usage and the increase demand on this
network. </span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
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</span></span><!--[endif]--><span style="color: red; font-size: 10pt;">Believe people want to be on the best network, are
willing to pay a slight premium to be on best network, especially critical in
the video world.</span><span style="font-size: 10pt;"> </span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-size: 10pt;">On properties sold recently</span></b><span style="font-size: 10pt;">: Sold 3 properties in south to Frontier, not
fitting in our strategy. Fiber in footprints were well penetrated, >50%
penetration, so felt it was time to monetize and return capital. Will close in
March 2016.</span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10pt;">Highest
price for towers, $15 billion in gross proceeds, took $5 billion and did
accelerated stock repurchase (ASR). YTD returned ~ $11 billion to shareholders.</span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10pt;">Last
priority for 2015 was balance sheet. Went into <u><span style="color: red;">“installment receivable
entity</span></u>”, started to build a lot of consumer receivables on balance sheet.
Been using securitization to generate cash from these receivables. Generated
> $6 billion this year, mostly international banks because US banks can’t
handle a lot of securitization right now. </span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10pt;">2016 –
same priorities, expect flat capex from 2015. Will participate in 600 spectrum.
Want to get back to A-rating on balance sheet. Looking at ABS marketplace,
having conversations w/ rating agencies. </span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10pt;">Have
monetized about $9 billion in serviced receivables this year, still only have
22% of customers on installment plan. Once you get to 50%, it kind of levels
out, have 28% more to go. Securitization will more than double in 2016. </span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10pt;">ABS
market is extremely efficient for VZ because rate these receivables based on
their classification, generally AAA or AA.</span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-size: 10pt;">Biggest concern is competition in wireless
market</span></b><span style="font-size: 10pt;">. Everyone will run promotions
in Q4. Last year was more dynamic, on top of that you have new iPhone
configuration, new format. Seeing less volume this year than a year ago. This
is not a surprise to us. </span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10pt;">Traditionally lower volumes leads to higher
margins?</span></u></b><span style="font-size: 10pt;"> Yes, but
not necessarily true with installment environment, because already getting
benefit when you do installment sale. Margin perspective doesn’t move based on
volume anymore like it did under subsidy model. </span><u><span style="font-size: 10.0pt; mso-no-proof: yes;"><o:p></o:p></span></u></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> <span style="color: red;">
</span></span></span><!--[endif]--><i><span style="color: red; font-size: 10.0pt; mso-no-proof: yes;">Main strength of VZ is “network
quality</span></i><span style="font-size: 10.0pt; mso-no-proof: yes;"><span style="color: red;">” </span> - will level of spend and stable spectrum keep
VZ in lead? Believe the network is key ingredient to very strong brand. 4g
requires a lot more densification in your network. Verizon is far ahead in
small cell deployment, have to do this to stay ahead or will get congestion in
larger markets. Majority of wireless spend is small cell in-building and
diversified antenna systems. <b>In 2015 –
seeing 50%-75% increases in data usage on our network. </b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt; mso-no-proof: yes;">Becoming
more cost effective to deploy small cells, cost to serve is going down as time
goes on. Revenue equation on “service revenue” declining because of installment
sale, the cost to serve is declining and that’s why our margin hasn’t changed.
If take out effect of installment, still around 50% margin which is critical
for VZ. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Spectrum:</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;"> <span style="color: red;">only use 40% of spectrum for LTE and
it is carrying 87%+ of data traffic. </span><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt; mso-no-proof: yes;">60%
of spectrum being utilized on CDMA EVDO technology. Nomenclature that VZ is
spectrum-short is just false. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt; mso-no-proof: yes;">Spent
$10.4 billion and got 48 of top 50 markets with AWS-3, walked away from New
York and Chicago because of the price. Instead, building it through
densification at almost 20% less cost than would have in spectrum. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Cable moving into wireless, specifically
Comcast?</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;">
Millennials only care about broadband and video over mobile; care less about
linear TV. Even we are trying to disrupt the FiOS product. Cable will enter the
wireless world first using Wi-FI as a first, LTE as a backup. Think there will
be quality of services issues with that. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Go90 launch</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;"> – launched October 1, 2015. Will
give investors numbers in 2016 some time. Have exclusive content with
DreamWorks and AwesomenessTV. Working through early start-up issues. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">How to monetize go90:</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;"> (1) consume data and pay for it
through data consumption. Giving away 2 gbs for free for 3 months if you
download the app and watch something. (2) sponsored data if you are a VZ
customer, will get data fro free and monetize via advertising. If not a VZ
customer and watch on Wi-Fi, will monetize through advertising. (3) Or premium
will be an access charge – fall under sponsored data model. (4) PPV type
moneization, really made for multi-case technology. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt; mso-no-proof: yes;">Content
producers don’t view go90 as disruption to linear TV. It is built on mobile and
digital advertising. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt; mso-no-proof: yes;">NBA
deal for go90 was huge. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Hum car product</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;">: 150 million vehicles on road that
are not smart cars. Can plug into bottom of computer terminal and trn car into
a smart technology like mBenz or GM with OnStar. But it does more than that.
Launched – Black Friday 2015. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Margins</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;">: would not focus on service margin
because now is irrelevant with installment sales. Been looking at EBITDA
margin, want everyone to focus on that. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Change to installment:</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;"> Will only allow customers to take
installment sale. Current customer could keep subsidy model if they want. Think
take rate in Q4 will be around 70% on installment sale and looking at
increasing that into 2016 as we go to 100% installments. It will never get to
100% because enterprise will not do business on an installment basis.
<span style="color: red;">Installment has helped our retention rate, VZ is more competitive with other
providers, reduced churn</span>. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt; mso-no-proof: yes;">Wireline
sale – ready to close end of March 2016. Been almost a year of cost-cutting in
that segment. Union contract is not closed, still in negotiation. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Broadband/FiOS</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;">: spent a lot of money investing in
broadband infrastructure and have one of the “plum” markets in US which is East
Coast from D.C. to Boston. This is “the market to be” because of population. VZ
is one of few companies still continuing to grow TV product, can do more with
current penetration levels. If someone offered 10x EBITDA, would be interested though!
But, unfunded liabilities would make it difficult. We have $30 billion of
unfunded OPEB and pension, makes for difficult transaction. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Roll out more FiOS within remaining
territory?</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;"> VZ
has gone beyond LFA requirement, continue to build down streets where there are
lots of small businesses.<span style="color: red;"> Working mostly on NYC and Philadelphia to compete in
those markets</span>. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Custom TV:</span></u></b><span style="font-size: 10.0pt; mso-no-proof: yes;"> we are seeing people picking more
nonsports than sports in custom TV. The people who go to custom TV are
generally people who do not watch a lot of sports. But this does not have a
long runway for growth because other contractual agreements with content
providers. Will be some changes in 2016 around custom TV because have t
rebundle it. Content costs are lower but it has lower revenue, but better from FCF
perspective. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt; mso-no-proof: yes;">Flat
capex of around $17.5 billion: majority around wireless, <span style="color: red;">FiOS newbuild is starting
to taper off.</span><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 27.0pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt;">
<span style="font-family: "symbol"; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol; mso-no-proof: yes;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-size: 10.0pt; mso-no-proof: yes;">Trying
to get to A rating by 2018 to 2019. <o:p></o:p></span></div>
Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com1tag:blogger.com,1999:blog-8610894719881071116.post-90357945846385572162015-12-11T20:21:00.000-08:002015-12-14T23:12:42.440-08:00Netflix (NFLX) comments [CCO Ted Sarandos] from 43rd UBS Conference (12/07/2015) <div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">43<sup>rd</sup>
Annual Global Media and Communications Conference<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Netflix
(NFLX)<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Speaker: Chief
Content Office – Ted Sarandos<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Tuesday:
12/07/2015<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
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<ul>
<li><b style="text-indent: 0in;">Goals and targets moving forward?</b><span style="text-indent: 0in;"> Aspiring to take Netflix global,
keep chewing away at this effort. Available and relevant in every part of the
world.</span></li>
<li><span style="text-indent: 0in;">International growth
– launching territory by territory, started out as country by country then
region by region. In 2015 launched Italy, Spain, Portugal, Japan, Australia.
Pretty ambitious year, all has gone well. <span style="color: red;">(New country launch) Pretty minimal disruption</span>. Used to be
disruptive for the company, now not so much.</span></li>
<li><span style="text-indent: 0in;"><span style="color: red;">Now we are a global
buyer of shows and rights from TV instead of regional.</span> Some resistance but only
really from regional content sellers. It’s a structural change. The studio
partners are wrestling with it. We are kind of alone in this space of buying
global rights.</span></li>
<li><span style="text-indent: 0in;">How to measure since
we can’t do overnight ratings? <span style="color: red;">We look at the net subscriber growth</span>, which
means people are attracted because of the great content. People stick with it
because easy interface, easy to use, like the programming, like the product. Our
high quality, original content is growing. Internally we look at the hours of
programming per user, externally would look at net subscriber growth which
measures the health of the business.</span></li>
<li><b style="text-indent: 0in;">Challenges and opportunities for the budget?</b><span style="text-indent: 0in;"> About 16 original
series growing to 31 next year. Have 10 feature films in process or production,
over 12 documentary series in 2015, some kid shoes. Last year had 10 Golden
Globe nominations, etc. its high quality.</span></li>
<li><span style="text-indent: 0in;">$5b programming and
amortization and $6b of cash spend for 2016? Yes, still those plans.</span></li>
<li><b style="text-indent: 0in;">ROI of spending knowledge?</b><span style="text-indent: 0in;"> Most of the territories have different
economics, you learn with each launch.</span></li>
<li><b style="text-indent: 0in;">2015 launches?</b><span style="text-indent: 0in;"> Jessica Jones, Daredevil, etc. In DVD days, had over
100,000 DVDs in library. We have to have a breadth of programming to appeal to
everyone. Jessica Jones or Daredevil? In viewing fight, they are neck and neck.</span></li>
<li><b style="text-indent: 0in;">Nielsen – picked a week, probably cherry picked, likely in Spring, the
#1 show was “Game of Thrones”. #2 show of all TV – broadcast cable, etc., was a
Netflix show…”</b><span style="text-indent: 0in;"> We were probably #1, the data doesn’t measure all of the
devices. If the 4 networks and all on TV, sure. If Netflix is watched on 700
SKUs across the world, the mix between laptop, iPad, TV is different, thus the
viewership is probably not captured. We have some of the most watched shows on
TV.</span></li>
<li><span style="text-indent: 0in;">Netflix is streaming
in 4k, better than TV. It is higher technical and artistic quality.</span></li>
<li><b style="text-indent: 0in;">Investors are very interested in next new original shows, you say 31
shows next year. What’s exciting?….</b><span style="text-indent: 0in;">The Crown (Queen Elizabeth story in UK).
The Get Down (birth of hip-hop in NYC in 1970s). The Ranch ( Warner Bros in
LA), and the revival of Full House. Stranger Things.</span></li>
<li><b style="text-indent: 0in;">Kids performing?</b><span style="text-indent: 0in;"> Some data shows Netflix on top. Having real
success with legacy kids brands. About half of households globally are engaging
in kids content regularly. Possible shift from Nickelodeon to probably Netflix.</span></li>
<li><span style="text-indent: 0in;">Netflix definitely </span><u style="text-indent: 0in;">not</u><span style="text-indent: 0in;">
getting into nightly news. Vice is getting into nightly show with HBO, but we
aren’t. Not getting into news gathering space, news gathering is probably fairly
commoditized, not in line with on demand strategy. <span style="color: red;">People watch news and sports
because it is live. People go to Netflix for the control of the On Demand part.</span></span></li>
<li><b style="text-indent: 0in;">Long term interest in sports?</b><span style="text-indent: 0in;"> People think of Netflix as a
substitution for cable, they get frustrated at their cable bill each month, but
they keep cable for sports. For me, never saying we wouldn’t do sports, but the
<span style="color: red;">Netflix On Demand strategy doesn’t enhance sports viewing experience</span>. People
want to know who wins the game at the same time as everyone else. Problem I
have is the leagues have all the pricing power for forever. If model where we
could create our own sports league like ESPN with the X-Games then that’s what
would get me interested.</span></li>
<li><b style="text-indent: 0in;">Cable networks maybe sold too much to Netflix</b><span style="text-indent: 0in;">? What you’re seeing
is a fundamental change in consumer behavior. People are watching On Demand. It
is SVOD. Studios and Networks used to make a lot of money where people used to
watch it. Now it is Netflix is where the viewer is. If you want to make money,
need to sell it to Netflix, it is just a change in who the buyer is. Vertically
integrated companies are not built to optimize. If you create content you
should sell it to the highest bidder, even if it is not your parent company. That’s
the rub for vertically integrated media companies.</span><span style="text-indent: 0in;"> </span><span style="text-indent: 0in;">FOX has the top show on ABC – Modern Family.
They sold it to someone else. This is not something unusual – selling it to a
competitor. The billions of dollars from NFLX being the buyer helped media
companies, otherwise there wouldn’t be a buyer.</span></li>
<li><span style="text-indent: 0in;">Hard to know what is
the next big thing in terms of shows. Success ratio of any given network is not
that great. We would rather pay for the hits and avoid the misses, which is the
second window we can buy it. AMC – have a great relationship. Walking Dead was
great. Breaking Bad from Sony. Mad Men.</span></li>
<li><span style="text-indent: 0in;">Investors have been
concerned that Netflix has too good of a job</span><span style="text-indent: 0in;">
</span><span style="text-indent: 0in;">because maybe NFLX bought rights in second window at too good of a
price, media companies didn’t know how big NFLX would be, and the viewership is
high. If marked-to market all deals versus if have to today, would it be
different. Netflix built a great business from a lot of content, not just some
of it. <span style="color: red;">People pay for discovery. Premium is associated with a brand, but you
also have to deliver the viewing as well. Discovery will make it harder to
replace content, more distinguishable.</span></span></li>
<li><b style="text-indent: 0in;">Hulu, are they driving price up for everyone</b><span style="text-indent: 0in;">? Ownership structure
is confounding. The amount of money spent on stuff outside their ownership of
the three – Comcast/Fox/Disney, it is surprising. Probably driving up pricing
on themselves and Amazon. We are disciplined to let some stuff go. If you track
third party data, today came out that Amazon and Hulu are still about flat, and
<span style="color: red;">Netflix is up 60 bps to 37% of all North American traffic</span>. Hulu is 22.6% and
Amazon 3.1%, basically flat to slightly up.</span></li>
<li><b style="text-indent: 0in;">International </b><span style="text-indent: 0in;">–how has global launch impacted strategy on
programming? Ramping up non-English local programming. More than 1mm US subs
that watch French content. Want to do more local language.</span></li>
<li><b style="text-indent: 0in;">Programming as % of revenue leveling off? Trying to figure out margin,
how much market share NFLX can win and how much you can invest in programming.</b><span style="text-indent: 0in;">
Internally, trying to figure out programming and where the curve ends. Looking
for hours per users (median and average) helps us check programming spend,
which is good indicator on retention, They spend time on platform and stay on
longer. Market like Japan, first big Asian market for us. Mostly Japanese stuff
– 95% TV is Japanese and 90% is Japanese film. At least 30% offering is
non-Japanese.</span></li>
<li><b style="text-indent: 0in;">Germany and France?</b><span style="text-indent: 0in;"> 2mm subs in that region, Reed just announced.
Programming strategy – they are really attracted to original programming from
us. 8 out of top 10 are original. Adding local flavor helps and we will
accelerate the pace.</span></li>
<li><b style="text-indent: 0in;">Southern Europe – how much already acquired vs. how much left to go</b><span style="text-indent: 0in;">?
(NFLX purchases some in advance to entry of country). Try to keep a lot of dry
powder to add stuff once we enter the market if we need some additional genre
once we enter the market. Original shows act as a brand ambassador around the
world for NFLX. Focus has been on enthusiasm on original programming.</span></li>
<li><b style="text-indent: 0in;">Movies?</b><span style="text-indent: 0in;"> In golden age of TV, still 1/3 of watching on Netflix are
movies. Our movies are old. For first release, some of our movies are 10 months
old, some are 9 years old. Very resilient 30%. Want to improve movie mix but
adding originals. Improving output means adding more 10 month old movies.
Instead of spending another $1 billion on 10 month old movies, we should create
our own content. We are still entering an output deal with Disney, which is a
whole new deal. They are solely differentiated among the brands. Avengers,
Disney animated features, or Star Wars. People don’t care about Paramount
studios brand. Releasing another Adam Sandler move in next few weeks. He is
pretty bankable. Even Pixels - $80m movie than has done > $250m at box
office. He is a global superstar. </span></li>
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Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com0tag:blogger.com,1999:blog-8610894719881071116.post-28808654037815844912015-12-11T10:22:00.000-08:002015-12-11T10:27:59.559-08:00Time Warner Inc. (TWX) comments [CEO Jeff Bewkes] from UBS Conference (12/08/2015)<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">43<sup>rd</sup>
Annual Global Media and Communications Conference<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Time Warner Inc.
(TWX)<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Speaker: CEO
Jeff Bewkes<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt; mso-no-proof: yes;">Tuesday: 12/08/2015<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<u><span style="font-size: 10.0pt; mso-no-proof: yes;">Notes:<o:p></o:p></span></u></div>
<div class="MsoListParagraphCxSpFirst">
</div>
<ul>
<li><b><span style="font-size: 10.0pt; mso-no-proof: yes;">Goals for now?</span></b><span style="font-size: 10pt;"> Focus on long-term. Been a
combination of operational and prudent capital allocation. Having right mix of
assets, networks, production, is really important given whats going on in the
world and industry. Focus going forward: (1) invest in best content, (2)
appropriate use of technology, what is in-house, whats outside, (3)
internationally, (4) operational efficiencies and capital allocation
efficiencies. All see a huge demand in the world for “on-demand” viewing. That results
in tremendous advantages for companies that have right businesses and right
global brands. We focus on quality, right brands – Turner, HBO, Warner Bros.
Opportunities that exist for big brands are for current ecosystem, such as
reinvigorating the ecosystem, but also outside it. Time Warner & HBO are in
good position. There is tremendous turmoil in industry, will lead to success
and misfortunes for some.</span></li>
<li><span style="font-size: 10pt;">Need,
from a consumer point of view, want to watch content on any device, shouldn’t need
advanced degrees to do this. We should pick up devices and be simple. Shouldn’t
be that you have to know whats on TNT. Look at VOD, cable channels, linear, in
a seamless interface.</span></li>
<li><span style="font-size: 10pt;">TV
multi-channel: reached extraordinary penetration for many years, it has a loyalty,
its habit. Programming investments are getting better. To authenticate across
all devices is difficult. We want to help Apple, distributors. We want to
compliment Verizon and Comcast for their user interface, but they need more.</span></li>
<li><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">TV Solutions - Hulu?</span></u></b><span style="font-size: 10pt;"> Won’t comment on it as strategic investment. Hulu is
a good service. We are one of the entities that could help with the interface
product. If interfaces across all would be more vigorous, would help.</span></li>
<li><span style="font-size: 10pt;">We
are making some investments in digital, but biggest issue was foreign exchange
number. We want to highlight that we focus on growth for the long term. Have
been investing in content for HBO Now – John Stewart, etc. Not major
infrastructure. The new world – strong network presence inside the ecosystem and
outside – means there will be more company capabilities that needs to be
developed. We want to increase revenue growth line and earnings as well.</span></li>
<li><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Most content companies </span></u></b><b><u><span style="font-size: 10.0pt;">believe the bundle is the best for now…?</span></u></b><span style="font-size: 10pt;"> We haven't seen any tipping point
disruption yet, saw some subscriber weakness and ratings decline but nothing
big enough. Our focus has been on HBO Now, which is global. Warner Bros. has
partnered with SVOD services in China and SE Asia. CNN Go product has been well
received and viewed. Apple/CNN product that is going on. We bought i-Stream-Planet
which helps us put any network on a broadband delivered basis. We don’t call it
disruption, we call it opportunity.</span></li>
<li><b><span style="font-size: 10.0pt; mso-no-proof: yes;">Finish to 2015, ad market</span></b><span style="font-size: 10pt;">? Coming in at strong double digit
EPS rate, which if we absorb $0.45- $0.50 FX headwind, we would’ve grown 20%. On
the ad side – scatter is up double digits, which bodes well for 2016. Theatrical
wasn’t as strong in 2015, though.</span></li>
<li><b><span style="color: red; font-size: 10.0pt; mso-no-proof: yes;">HBO</span></b><span style="color: red; font-size: 10pt;">:</span><span style="font-size: 10pt;"> will be huge 2016. Some new shows –
Vinal (1 hour show by Mick Jagger/ Martin Scorsese), Divorce (Sarah Jessica
Parker), and other shows. John Stewart, Bill Simmons, Sesame Street, etc. Also
have distribution coming into play with Xbox and PlayStation, means we have all
distribution in place to be more aggressive with marketing because we can
fulfill the demand. Smaller bundles helps HBO, helps them get through better.</span></li>
<li><b><span style="font-size: 10.0pt; mso-no-proof: yes;">HBO has higher retail price versus
some others, but smaller content, how is position?</span></b><span style="font-size: 10pt;"> Quibble with “modest” content
comment, we have thousands of hours of content. HBO has biggest, best, widest
new movies of any company in the world. Then go to 30 min shows, 1 hour shows,
comedies, sports shows – huge genre selection – HBO has adequate budget for $1
billion for original programming to get this high quality. Helps to have Turner
and Warner Bros. as well.</span></li>
<li><span style="font-size: 10pt;">Overseas
– too early for OTT? Sometimes the development of infrastructure plant as the
reason if too early. Licensing show that is branded HBO – Canada, UK, France,
Italy, Germany. Attractive risk/return deal. Far better method of distribution.</span></li>
<li><b><span style="color: red; font-size: 10.0pt; mso-no-proof: yes;">Warner Bros positioning?</span></b><span style="font-size: 10pt;"> 2015 strong year. 2016 shifting more
to numerous big franchise. Will lead the industry in TV. Batman vs. Superman,
Suicide Squad, Fantastic Beasts (Harry Potter), Stirrups (animated), Nights of
the Round Table (King Arthur). Top 2 new shows + #1 comedy (Big Bang Theory).
DC Comics doing well. Lego, JK Rollings, etc.</span></li>
<li><span style="font-size: 10pt;">Acquired
programming: become less predictably valuable over long stretch as move to VOD
and SVOD. Real place for acquired shows, to get picked up by TNT, should be a
hit show.</span></li>
<li><span style="font-size: 10pt;">Original
programming: more activity for Warner TV to produce first run, but to add cable
production for other networks – Showtime, FX. </span></li>
<li><span style="font-size: 10pt;">Health
of syndication market worldwide – has been a very strong secular support level
and is growing.</span></li>
<li><span style="font-size: 10pt;">Gotham
– 1<sup>st</sup> season was good, went on SVOD, 2<sup>nd</sup> season not as
strong</span></li>
<li><b><u><span style="font-size: 10.0pt; mso-no-proof: yes;">Is having a show on SVOD going to
hurt the ratings of shows?</span></u></b><span style="font-size: 10pt;"> Don’t think so, think it’s the opposite. Think the data will
support this as well. Gotham – 2<sup>nd</sup> year, is on-line with second half
of first year. Interest to track a season from the beginning will increase.</span></li>
<li><span style="font-size: 10pt;">On-Demand
is like a volume control, it’s a feature.</span></li>
<li><span style="font-size: 10pt;">DC,
Lego, Harry Potter world. Wonder Woman – script is good, could bring
underrepresented female audience to the genre. Also has 2 LEGO movies coming
out.</span></li>
<li><b><span style="color: red; font-size: 10.0pt; mso-no-proof: yes;">Turner – how positioned for
growth</span></b><span style="color: red; font-size: 10pt;">?</span><span style="font-size: 10pt;"> 2015 Turner had substantial earnings
growth, more from cost actions. 2016 more from revenue. Ad market starting well
with scatter pricing in double digits. Affiliate fee is low-double digits,
on-track, been saying that last 2 years. Specifically – low-teens % on affiliate
fees. Double digits is too low, has to be in the teens (laughs). Have to
translate back to dollars but strong organic growth.</span></li>
<li><span style="font-size: 10pt;">Should have strong shows coming in 2016 –
TBS, TNT. It is a big budget. Tremendous conversation between Warner Bros.,
Turner, and HBO to collaborate.</span></li>
<li><b><u><span style="font-size: 10pt;">NFL</span></u></b><span style="font-size: 10pt;">? We
like it but don’t have to have it. It would have to come at economic secretive
way. Thursday package is the issue. Reason is good position – if you take mix
of Turner channels, from affiliate and ad – have NBA out to 2025, NCAA March
Madness to 2024, baseball to 2021. Have strong sports offering. Interested in
NFL, but don’t have to have it.</span></li>
<li><b><u><span style="font-size: 10pt;">Balance
sheet or capital deployment changes?</span></u></b><span style="font-size: 10pt;"> None.</span></li>
<li><u><span style="font-size: 10pt;">Message to audience?</span></u><span style="font-size: 10pt;">
Watch more TV. If you think about whats going on in media, it is very exciting
time. Everyone is aware of challenges, concerned about if companies will
evolve fast enough and strong enough. Media has to make the right decisions. We
think it is very important to have the best content and best network. It has to
be On Demand, will do whatever it takes to make it available to current ecosystem
and future ecosystem. TWX has the scale on a global basis. </span></li>
</ul>
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<!--[if !supportLists]--><br />Value Seekerhttp://www.blogger.com/profile/15109928780244476972noreply@blogger.com0