Q3 2019 Earnings Call
Good morning, and welcome to Sirius XM third quarter 2019 results Conference call. Today's conference is being recorded a question answer session will be conducted following the presentation. If you have a question at that time. Please press star one on your telephone keypad, if at any time you'd like to be removed from the Q. Please press star.
At this time I would like to kind of going over to Hooper Stevens Senior Vice President Investor Relations and finance Mr. Stevens. Please go ahead.
Thank you and good morning, everyone. Welcome to series six times earnings Conference call today, Jamire, Our Chief Executive Officer will be joined by David for your our senior Executive Vice President and Chief Financial Officer at the conclusion of our prepared remarks as usual basketball glad to take your questions Scott Greenstein, our president and Chief content Officer.
And Jennifer what's our president of sales marketing and operations will also be available for the Q and a portion of the call I.
I would like to remind everyone that certain statements made during the call maybe forward looking statements as the term is defined in the private Securities Litigation Reform Act would like to 95 isn't all forward looking statements are based on management's current beliefs and expectations and necessarily depend upon assumptions data or methods that may be incorrect or imprecise such forward looking statements are subject to risks and.
Certainty.
That could cause actual results to differ materially for more information about those risks and uncertainties. Please view Sirius XM sets you see filings, we advise listeners to not rely unduly on forward looking statements and disclaim any intent or obligation to update them as we begin I'd like to remind our listeners that today's results will include discussions about those actually.
Well results and pro forma adjusted results all discussions of pro forma adjusted operating results assumed the Pandora transaction closed on January 1st 2018, and exclude the effects of stock based compensation in certain purchase price accounting adjustments I'll hand over to Jim Moore.
Good morning.
Sirius XM delivered an excellent third quarter across the board with robust subscriber growth and solid expansion of EBITDA and free cash flow revenue was up 7% and exceeded $2 billion for the first time ever adjusted EBITDA also set a single quarter record like climbing 12.
Percent 657 million.
With these great results I'm pleased to increase our full year guidance for all of our financial metrics and strongly reiterate our guidance for self pay subscriber growth.
Our third quarter S. Sirius XM self pay net additions of 302000 quite a bit sequentially and year over year I'd like to emphasize how strong our churn performance was in the third quarter, though it rounded down to 1.7% I was extremely pleased we were able to get.
Some improvement over last year's phenomenal third quarter churn rate and with some acceleration in gross adds in the third quarter the growth and self pay net additions to both sequentially and year over year, which no small feat as we face headwinds from a much larger base needless to say I am quite.
Confident we will attain our full year guidance of approaching 1 million self pay net additions.
The Pandora acquisition has very quickly increased our scale to approximately 100 million users. We're already using this additional scale to speed up improvements to our digital products, both in car and out of car and to attract and promote new content.
As an example over the summer we started driving plays of Louis coupled these someone you loved to our hundred million listeners igniting the pick up of the saw on screening platforms and ultimately radio plays that brought it to number one on Billboard last week.
The Pandora acquisition has broadened our skill set to include or advance market, leading digital advertising business, which I'll talk more about later and has made us much bigger outside of the car. This nicely complements Sirius XM excellent in vehicle position.
SAR is humming along in the 16 hate to 16 million at 69.
Million range nearly flat with last year, while penetration was in the low seventys, we still expect to be at 80% overall next year and based upon our latest discussions with Oems, we may even go a bit higher than 80% over the next several years.
This will push aren't able fleet for all about 123 million today to more than 220 million over the next decade, and Threesixty L. deployments are accelerating as well with numerous G.M. models launching this year and even more OEM is beginning to deploy our hybrid satellite stay.
Training solution next year.
Just this week, we signed an extension with Nissan through the 2028 model year that also includes a significant deployment three six deal yet. Another example of the auto companies betting on Sirius XM for the long haul.
We haven't expected was unexpected 100 million net additional enabled vehicles in the coming decade, the Sirius XM core vehicle business has many years to grow.
Match that with record low sac per install record high ARPU, historically, low churn and consistently high contribution margins with great long term visibility the unit economics at the heart of CX serious accidents business are fantastic and should remain so.
But we must continue reinforcing our value proposition and finding additional out of car pathways to engage existing subscribers and drive new sources of growth.
Just yesterday, we announced a new distribution agreement with Google Sirius XM will now be available on Google Assistant and Google nest devices, Google will prominently offer new buyers of these devices a three month free trial of our service and will offer subscriptions at promotional rates that include.
A bundled Google maps out.
While the in car experience will evolve gradually overtime as the 360 L. vehicle population grows the Google announcement is just one example of how we are quickly moving to improve engagement out of the car.
We've made streaming available at no extra charge for the vast majority of our subscribers. We greatly improved our apps with new features a better interface more channels and now a quickly expanding video awful offering we are now easily available in the home and on the go on it.
Growing number of connected CE devices, we've even created new streaming only plans for general concern for general consumers and students with targeted content lineups price points and new marketing approaches to attract these users the contribution assist subscriber growth from these areas are small today.
But have plenty of room to grow next year and overtime to become more meaningful.
At Pandora, we have moved very quickly we've moved the business to profitability through cost efficiencies and we're continuing to make strides and monetization.
David will spend more time on the numbers, but I'm pleased that advertising revenue at Pandora climbed 8% and gross profit expanded 19%.
AD supported listening hours were still down 7.5%, but this was an improvement from declines of 9.6% in the second quarter at 11.2% and the first quarter. We have a lot of heavy lifting ahead of us, but let's not forget that this was our highest ever quarterly AD revenue figure.
And we had solid off platform growth as well.
I'm also happy to report that we've been accelerating our quick pace of innovation innovation that Pandora, including an all new mobile app experience in the third quarter was that dynamically updated personalized for you discovery feed designed to surface new hyper relevant Khan.
Tailored to each user throughout the day.
Early data shows that this is driving discovery, giving users greater access to on demand music and leading people experience more content than before we also launched modes, which lets pandora listeners lean forward to fine tune stations towards discovery crowd favorites deep cuts and more.
Among its many benefits for you will also help grow Pandora's podcasting platform as well by exposing users to even more types of content.
We've made it easier for pod casters to submit their shows and be added to our growing catalog with a new self service hub for creators. We've also added more exclusive from Sirius XM. In addition to great content, our biggest long term advantage and podcasting will be in Curations and discovery.
And eventually in monetization as well most podcast advertising is very rudimentary and not personalized frankly. This area is right to be disruptive and improved with battery with better AD technology and better targeting and hear unquestionably we are strong.
I'm very excited about the AG AD Tech platform at Pandora and the continued progress we're making there our programmatic offering and off platform performance was Soundcloud are both driving excellent results premium access where a user watches of video AD to unlock old man listening is perfect.
Arming well, particularly with younger listeners, but the biggest and most exciting changes to commit panned or are really around content.
Both platforms, we're completely re imagine a what is possible with our newly scaled audience. We are reinforcing our content advantages by extending t. deals at Sirius XM and we are positioning both brands with new content tailored to their specific listener base, we want our content.
To be differentiated from and superior to other offerings in the audio market and I think we're making great progress in that area. This will mean more curated branded stations and platelets said Pandora it means using more mega stars and brands with built in fan basis to drive demand and brand.
Relevance Sirius XM and Pandora, we'll continue to be different but some of the ways. We've been successful at Sirius XM over the years will be an important part of the strategy to reinvigorate the Pandora business as well.
Just a few short weeks ago, we Christian to our new Sirius XM Hollywood studio complex in Los Angeles with a special series of broadcast by Howard Stern Howard is at the top of this game and those welcome to L.A. by our by a vast array of stars and special live performances all from our stated.
The yard street level performance space, we call the garage Howard's broadcast followed a month of special shows interviews and performances in L. like exclusively for us by Carrie Underwood.
Julia Roberts and young phenol, Billy Eyelash just to name a few.
Being closer to compelling talent and media brands in the entertainment capital of the World Bolsters, our ability to create even more valuable programming for our subscribers.
Last week, we announced the collaboration with Marvel to create scripted and unscripted podcast exclusively for the Sirius XM and Pandora platforms. This pivotal deal neatly illustrates our podcasting approach approach, we care about quality and we always look.
So associate with the best brands first and foremost.
People don't just want more.
They want what is compelling Marvel creates fantastic character, driven story lines and their record of success is unrivaled, we're thrilled to partner with Marvel and just see this exciting content Dubuque debut next year.
And sports we teamed up with uninterrupted the athlete empowered brand founded by all the Lebron James and Maverick Carter to create 17 weeks a new weekly football podcast series. This fall. We're also working with NFL films to co produced a 20 part podcast series that celebrates.
The Nfls 100 season in comedy we launched a special channel devoted to the archives of Johnny Carson playing full episodes of this Tonight show, Kevin Heart expanded its relationship with us and his full time comedy channel can meetings, Tom pop up and Fortune five Meister launched the first original.
Equally shell and our full time, Netflix comedy channel and we're now broadcasting new and upcoming Comex lives directly from our Elyse studio.
We have renewed and extended high profile Sirius XM content.
Arrangements with Fox News, Andy Cohen pit Bull and others. We also signed al Franken to do a new political talk show on our progress channel read a Wilson to host an exclusive new job show channel.
Show about music on Sirius XM volume channel and all Star picture Trevor Bauer to host an exclusive show on our major League Baseball channel.
Music Superstars continue to acknowledge the power of our platform and then the competitive audio world that matters Taylor Swift came to our Rock Center studios to perform songs from her new album on the day. It was released performing before a live audience of delighted Sirius XM subscribers.
And as I've mentioned before we are thrilled to be working with Drake and Kokinda collaboration that will stretch across both Pandora and Sirius XM stay tuned for more on this.
So while we have the best content available in media, we're clearly not resting on our Orals. We're always moving forward to refine what users can expect from our two iconic audio brands.
As we head into next year I'm very pleased with our position will have a rising new car penetration rate at Sirius XM not to mention expanded 360, l. deployments as well, a growing and long tail growing and longer tailed used car business and we should see some early results of our.
First to grow distribution outside of the car both with an expanded base of Internet driven subscriptions and the benefit of more out of car engagement among existing subscribers. We continue to have the best business model and audio entertainment at Sirius XM.
Pandora expands our reach and to add based audio was an improved content and consumer product set leading AD technology and a best in class Ofwat off platform solution for other audio publishers.
Our model gives us tremendous flexibility financial flexibility to aggressively invest in our business, while continuing to deploy significant capital to our shareholders over $2 billion. So far this year alone and I couldn't be more pleased with a deep bench of management talent Weve nurture.
And added to prepare us for future challenges with that let me turn it over to you David Thanks, Jim Good morning, everyone. Thanks for joining the call Sirius XM strong cart start to 2019 continued into the back half of the year. We added 302000 self pay net subscriber additions in the head our best third quarter for.
Total net additions since 2016.
Pro forma revenue grew 7% and adjusted EBITDA grew 12% year on year to an all time high of $657 million.
As I discussed the results for the quarter I'll focus on the pro forma results, which combined the two companies for the full quarter in both years.
Third quarter auto sales were up slightly at 1% with Saar unchanged coming in very strong at approximately $17 million, our penetration rate exceeded 72% in the quarter, just slightly above our second quarter rate and we remain confident that our pen rate will reach 80% next year.
The installed base of vehicles grew 11% year over year to 123 million or approximately 47% of the total cars on the road the U.S.
The used car penetration rate was approximately 44% in the quarter jumping 400 basis points year on year and helped lift self pay gross additions from the U.S channel to 39% of the total up from 36% in the prior year period.
Used car trial starts continue to grow solidly at 9% News Corp. Henry will increase steadily over the next several years as it climbs to match the new car pending right at the end of the quarter. The total trial formal stood at a record 9.9 million.
So pay net additions at Sirius XM in the quarter of approximately 200 302000 brought the self pay based to more than 29.6 million subscribers conversion rates at our new and used car business remains strong at just below 40% in in the mid to upper 20% range respectively.
Churn in the quarter rounded down to 1.7 per cent per month, just a notch lower than last year's third quarter of 1.75% is still below the low end of our expected range as rising vehicle churn continues to be offset by improving voluntary and non picture.
ARPU in the quarter was a record $13.90 growing approximately 3% over the third quarter last year together with 3% growth in our subscriber base Sirius XM segment revenue for the third quarter grew 7% nearly $1.57 billion.
Total cost of services, excluding stock based comp increased 6% to 596 million in the quarter driven by higher revenue sharing royalties and programming and content costs gross profit for the for Sirius XM totaled 970 million, increasing 7% over the prior year producing a gross.
Arjun of 62% approximately flat with the prior year.
At Pandora advertising revenues grew 8% to 315 million, our biggest quarter ever higher in quarter bookings strong sell through and pricing growth from the ads was platform and contributions from the sound cloud relationship drove this strong performance AD RPM has continued to grow reaching.
$85 in 33 cents in the quarter, approximately 10% higher than the prior year.
And maybe you an AD hours trends continued with that may use down 8% to 63.1 million in AD hours down 8% to 3.32 billion, while pandora's audience trends have been years and the making we expect our investments in content distribution product and technology to ultimately improve audience.
Its performance at Pandora.
Pandora self pay subscribers grew 33000 net additions in the quarter to a total of 6.3 million in the third quarter, a one year paid promotional subscription trial with a wireless carrier ended resulting in approximately 700000 paid promotional trials being retired the majority of these lists.
Listeners continued as AD supported listeners.
This brought total Pandora subscribers to 6.3 million at the end of the period, which included the paid promotional subscriber base of 45000.
The growing sub base produces subscription revenue of 132 million up 5% over the prior year quarter total Pandora revenue in the quarter grew 7% to 447 million.
With total cost of services, increasing only 1% over the prior year period to 278 million Pandora's gross profit jump, 19% to 169 million in the third quarter. This represented a margin of 38% approximately 400 basis points higher than the third quarter of 18.
With the expansion driven primarily by lower revenue sharing royalties and customer service and billing expenses as a percent of revenue.
For the combined company pro forma revenue grew 7% or a $126 million over Q3 18 to just over 2 billion.
88 million to this increase or about 70% fell through to pro forma gross profit driving it up 8% to over $1.1 billion at approximately 82% of that fell through to adjusted EBITDA driving it up 12% to 657 million.
Adjusted EBITDA margin was 32.6% third quarter growing approximately 160 basis points from 31% a year ago.
We converted approximately 71% of this adjusted EBITDA free cash flow totally 465 million in the third quarter.
GAAP net income in the quarter of 246 million declined from 343 million in the prior year period, primarily driven by refinancing expenses of $56 million associated with the July redemption of our 6% Senior notes. In addition to nonrecurring tax benefits of approximately 80 mill.
In dollars in the prior year period.
The company's effective tax rate for the third quarter was 22.2 per cent compared to 3.3% in the prior year period, we expect our full year effective tax rate will be approximately 24%.
Earnings per diluted share for the quarter on a GAAP basis was five cents with a fully diluted average share count of 4.56 billion shares with two months left in the year, our new pro forma guidance for 2019 calls for revenue of approximately $7.85 billion adjusted EBITDA approaching.
2.4 billion and free cash flow of approximately.
$1.625 billion, we're confident we reiterated our guidance for self pay that sub adds.
Approaching 1 million.
In the third quarter, we repurchased 464 million of common stock, bringing our year to date total capital returns.
Over 2.1 billion, our largest first nine months for capital returns ever at quarter end, our debt to achieve to adjusted EBITDA was 3.25 times and with nearly 1.7 billion available under our revolving credit facility. This gives us ample liquidity to continue investing in our business.
While returning capital to shareholders.
With that operator, let's open it up for questions.
Thank you at this time, we'd like to open the call for questions I would like to remind everyone in order to ask a question press star one on your telephone keypad and if at any time you like to be removed from the Q. Please press star to pause for just a moment compiled couponing roster.
We will now take our first question from DJ Jan from Evercore. Please go ahead.
Good morning, it's James Ratcliffe for VJ, two if I could one on Pandora and one on Sirius XM on Pandora, you've had AD revenue per listener looks to be up about 13% year on year. So clearly monetizing better how much more room, you have to grow that and what are the prospects for at least stabilizing advertising listeners on the panel.
Our side and how do you get there secondly on the theory side any incremental color on 360 hour in particular.
Conversion rate, you're seeing versus vehicles comparable vehicles with standard radios operating expense impact et cetera. Thanks. So let me try on 360, and then I'll turn it over to David on the.
Couple of the year Pandora questions.
You know I know we've had.
360 al product for quite a bit out there we are beginning to see the conversion of the very first generation of that it's a very small quantity. So James honestly I don't I haven't reached any conclusions.
Thats a meaningful for you we are seeing significant now buildup in 360 al as we announced last quarter with GM, they get into deploy and so I would expect to get more.
Visibility and certainly a much bigger base.
Kind of how late spring early summer of next year that we can probably see in terms of color on 360 al. The color is the same as I've always said and our announcement with Nissan today is just to be goes on one more threesixty al will continue to steadily rollout with every single one of our partners.
Over the next five years to where it ultimately is every single one of our cars and so.
We're really pleased with how its going obviously, we constantly.
Tinker with it to make it better, but I'm really pleased where that as David you want to take the Pandora question. Yeah. So you know in terms of the AD revenue per per listener James.
No the Pandora product really delivers for advertisers from an ROI perspective, and so the team is able to really get premium pricing. Other that there. There is a lot audio capacity out there that that delivers the way the Pandora does.
That being said you know I think you know in terms of increasing.
Effectively prices than that in that second we feel the same way about that that we do about trying to increase subscription prices.
You got to fight hard against a lot of competitors everyday too.
Sort of.
Keep your book of business and so we're not we're not looking too.
The sort of Jack the prices, we we do think that.
It's a premium products with great ROI it already monetizes at premium for audio and.
So we just in tend to have the sales team keep a banging away at the inherent benefits of.
Advertise on those.
Pandora platform, but all that being said, there's a lot of room for off platform growth in in the business and and so we think the ability to continue sort of driving monetization not just with our inventory, but with others is is a huge opportunity for the company in terms of stabilizing the audience.
I had been hearing us talk about this for for a few calls now.
And it takes a while we we've got to invest in.
Content, we've got a.
Yes in distribution partnerships different.
You know sort of management disciplines.
To look to stabilize this audience, it's been a long time in the making its a five year.
Path to a 20% decline in audience and we fundamentally believe that's that's because while there's a tremendous amount of great content on their you can put better more interesting more engaging content out there and we fully intend to do that we think you can engage the customer in different ways and so.
Just stay tuned and well keep you posted yes, I think thats, well said, David Nailing I would add as David said it there is a lot of competition a lot of good competition out there, which we respect.
But we think we have a game plan James to deal with Us and we'll keep we'll keep at it.
Great. Thank you.
We'll now take our next question from Steven Cahall from Wells Fargo. Please go ahead.
Yes. Thank you maybe just first on subscription.
Hi, net adds I know Youre, probably guide in January but maybe I was wondering if you could give us a bit of a preview as to what you're thinking, especially in light of your expected higher penetration rate for next year and what you're seeing in terms of SAR and then on the Sirius XM ARPU I think it was up around 19% on the subscription side excluding connected.
Vehicles this quarter I think theres still some MRF rolling through there. So can you just talk about how we should think about subscription ARPU for the medium term visit river kind of backend inflationary rates or do you still like the pricing power here and just related to weigh on the AD side. It seems like back grows to mid to high single digit all the time. So is the Sirius XM add.
Also a continued growth driver. Thank you very much.
I'll take the first one since Dave is taught me. This one which is we'll give our guidance.
Early next year.
David can you turn to rest of them.
So on.
On the subscription ARPU I mean, we've been saying this for a long time that.
Rather than look at any particular quarter in sort of Howard how it looks like the better thing is to come to take a step back and looked at what we've done over the course of the last eight nine years.
You what you see while there's a couple of spikes and that it averages out to about 2.5% of.
Inflation, the underlying prices per year, and we think thats probably a.
Good places SEC.
And I'll just make a comment on the Sirius XM advertising sales were quite pleased.
Were you know there we are seeing high single digits to low low double digit growth low double digit yeah, and you know we're pretty pleased we drive that team hard.
We're expecting a really strong fourth quarter out of them, then and good growth next year as well so it's a really bright spot for us.
Thank you.
We will now take our next question from Jessica Rice analysts from Bank of America Merrill Lynch. Please go ahead.
Thank you couple of questions. The first one on podcasting on seems like a really big focus to you and number of different entities different companies investing in this area can you talk about your level of investment over the next couple of years.
How you would define success for your four Syria.
In this area on the content rounds for yeah.
Second question is.
Yes.
Great efforts to expand outside the vehicle and as you said you just made it dealt with Google home for home you have to deal with Alexa can you talk about how much has the in home usage increased given the proliferation of smart speakers and I guess, the third and final one is.
Sorry, I noticed just curious for business stick sort of restaurant.
They talk about that very much but as you're focusing more attention outside the vehicle how big of an opportunity does the commercial area represents.
So just goods Jim I'll take a couple of and then I'll turn it over to.
Scott and David can weigh and the.
Ill take the last one first we do have a sirius XM for business.
Business.
It's relatively small.
It's one that frankly, we're right in the middle of our business planning process now.
And we continue to re look at how we might be able to.
Amplify it there's not an obvious path to do that we're we're kind of happy with where it is right now and I would expect it will just kind of.
And as kind of gross it's low growth.
It is a good product we continue to look for opportunities there.
But it's one that that we'd even looked at acquisition opportunities. It's just not obvious that I've seen anything thats impressed me, but it is it's below business for us going back to podcasts, I'll say first and foremost.
The word I've used with our team is disciplined first and foremost we're taking a very very disciplined approach to this I think there are two sides to success is actually three sides to success and podcasting in my mind first and foremost is building a very robust structure and by that I mean technical.
Structure that Ken that can support that business in the way, we think it needs to be supported including with the AD technology that we think is necessary to tailor the ads and.
Got it a lot of those things our teams are working right now on what we believe is a solid roadmap to do that that roadmap may and small may involve.
That's doing some small things and some outside partners I don't know yet or we may do it all ourselves, but I you know I would expect to have more visibility to that here I'm certainly in the first half of next year, but I will tell you that's not a.
Earth shattering kind of investment it is work and we just got to we've got to keep the right and get it right, but we we know what we want there and we're moving towards it on the content side I think I couldn't have said it more clear on what in my comments, Scott wrote them I know Scott agrees with that part which is owed to us.
It is not about quantifying that doesn't mean that we don't want to have a vast library of stuff available to us. The podcasting game. We believe is all about.
The value of the quality of the content and we all believe that many of the big brands that really wait and yet the big Entertainment brands, which is why we think the Marvel announcement is really saw extraordinary of where we're going here again here, though I will.
Reassure you that we will go down this path in the contact area with physical discipline, Okay, Scott and I will finally, just as you get it all together then there is the two other little simple things, we've got to make sure subscribers, though how to find it when they want it and we got to know how to promote it to them correctly and so are we don't I don't want to just run.
Out, there and say, hey, where where instead PACA I want to deliver the whole thing and then go drive it sorry, Scott just two quick things one.
On the I, obviously agree with what what Jim said, our strategy it at Pandora and serious on podcasting is no different than any of our other content strategies, we want to find the best content that will truly make a difference and also act as a fuse to have our listeners find other khan.
Then.
So that that will continue.
The fact that a lot of big names, many beijing's, both individual and brands aren't in the business is the opportunity that we're most excited about given that most podcast to put out for free on an Rss feeds Pandora quietly as accumulated approaching 7000 very good podcasts already so that.
On on virtually no or limited economics.
Tonnage will be there are like everybody else, the marbles and others will make a difference the other point is.
One Pandora is it's not a question of if it's when once Pandoras algorithm is able to align your music pace with your podcasts and you can surface podcasts the way they surface music, it's an entire different game.
As the music industry learn soon enough the issue is weather.
You can cure rate, well and surface well when there's a tremendous amount out there and we think we'll be in that game as well as the quality game and obviously as David in others touched on the AD monetization potential podcast on and off platform. We think we are well suited for some of the level of investment Jessica we don't expect the investments in.
Caster really alter the.
The way, we invest per dollar of revenue and we will monetize the podcast. So theres enhance monetization has talked about definition of success audience engagement. You know is something that we're we're going to be looking at and so I don't think you should think of the investments and podcasts is fundamentally change.
During the economic trends for the business and your last thing about.
Expanded listening outside the vehicle, we got a lot of.
That caught on the it's funny, it's a little hard for us too.
To say how much of its going because we don't know how much people listen on the satellite right. So we know how much the stream and streaming is definitely up and up significantly and we're thrilled with the audience engagement and.
But in terms of assure the overall.
Since we don't have visibility on the satellite sites kind of hard to measure.
Can I have one last question when is the big Drake reveal.
Well I think we'll have more to say about that and.
Around the consumer electronics around early in early January correct right. Thank you.
We're working hard.
Yes. Thank you.
Operator next question.
From Bryan Kraft from Deutsche Bank. Please go ahead.
Hi, Good morning wanted to ask your question about content costs, you've increased the Sirius XM segment programming content budget by more than you have historically this year can you just help us to break down the primary areas that are driving increased investment and can you give us any sense of what the content cost outlook looks like.
Beyond this year, particularly as we think about the new initiatives, you've announced with Marvel Drake video et cetera.
And how should we think about the returns on this investment going forward. Thank you.
So.
I don't think theres anything going on and content costs that is.
Different from the history, what you've always seen is that as you know content comes up for renewal we tend to have.
Since we do multiyear deals most often that we have a step up in in costs and then revenue growth over absorbs that content over the next few years and I think you should think about this year the podcast investments in in the same way.
Okay. So some more of a kind of normalized growth rate beyond this year. It sounds like is what you'd expect yes, that's exactly right. Okay. Great. Thank you, Dan Hey, Brian the only thing I'd point out.
One thing I I kind of blob of up a little of my comments is I just want to reiterate we're really pleased to have Fox news resigned to a multi year.
Renewal with US we were able to do that deal with economics that certainly makes sense to us.
Having that one Fox news is a really important part of our of what the Sirius XM listener base really demands.
I would have an add back in place for several years now ahead of us at a cost that that it as David said, we tend to redo. These things and then there is a step and then it stays flat, we're really pleased with and just one other point on that as the.
Content comes in our AD sales monetization skills that Jim and David referred to at both series and Pandora are making a huge different compared two years ago in monetizing the new content and the old content.
Got it great. Thank you.
Hi.
Our next question Ben Swinburne Morgan Stanley . Please go ahead.
Thanks, Good morning, Jim.
On a couple of conferences. This fall you talked about churn as an opportunity ahead of the company and you guys have been.
Highly successful keeping churn low for a long time.
You brought it up twice so I thought I'd ask you about it on the call because I think given the size of the days that you can move that number simple math it really helps the growth of the business. So.
Any more color on sort of the opportunity and how you get it between sort of pay voluntary and non pay and help us think about that and I. Just wanted to come back some are because I'm sure. There was tons of competition for this IP.
So from maybe from Scott's perspective, anything you can share with up and how you use the relationship with marble the brand.
To drive the business and it would seem like.
Just given the impact that.
That studio has had on the entertainment business and the consumer is a pretty big partnership for the company I'm, just wondering how you're thinking about leveraging that to its fullest extent thanks guys.
So Ben your 100% ride on churn I mean it is.
You know.
The dirty secret of very large subscriber businesses churn than the management of churn. Obviously I believe is as key indicators of anything and how the business our large subscription businesses running.
We're really pleased with where we are.
Frankly.
Almost everything we're doing in terms of adding value.
And like things like making streaming available to virtually all while most of our subscribers at no charge.
Our aimed at the initiative of improving chart, we know the more people listen the less likely they archer. So we're putting all those things together I have.
No.
I would certainly is my premise that can't help but but help churn there is a force going the other way, which is vehicle turnover continue as a fleet gets bigger the percent of our churn that becomes vehicle turnover gets higher and and so really what do you need to look for that offset as more and the used car growth as of.
So in the churn number so we're really focused on this I think we're probably comfortable what we've said we are kind of what we said on churn I'm not ready to lower that than certainly as to what ranges. We think about but you know it is in my opinion.
The single biggest area that we can influence I think that could that could help us steady and.
And drive our growth.
In terms of Marvel skies or they want your.
So Ben couple of quick things one yeah. It would obviously competition why wouldn't it be every field they've ever end.
Media, they've made a difference and audio in sort of the last field I think that they're not in in a significant way and now they are so that was good and the factor with Marvel and the NFL, which I don't want to get lost sight. On this is there's lot of digital audio players that are largely algorithmically driven Marvel singer.
The biggest factor and they referred to it would Sirius XM as long history of audio production in the quality of that it was the same factor with the NFL coming here. So we're excited about that and obviously since the Marvel announcement.
It has led to other high quality brands being interested and we're looking at those judiciously, but it's nice to have the opportunity to have them come into look at.
Thanks, guys.
Our next question from cannot content from Barclays. Please go ahead.
Thank you.
So couple of I guess, firstly, if you think about your subscriber guidance for the full year compared to the normal seasonality as well as I think you're trying to funnel growth. This quarter was really strong compared to.
Growth.
Typically that you've seen.
So why forgotten stood at 1 million why not higher because it seems pretty conservative relative to would you guys have done it before three quarters.
And then secondly, when you think about.
Some of these newer deals that you're doing with automakers Legg Mason for example.
I'll just structure of these deals any different because Nissan also signed a deal with Google.
Recently, so how would be approaching 60 show and all the other deals or they are doing is it any different from the bus deals you guys have done thanks.
Okay. So let me take though the latter one in terms of the auto deals.
I guess I'll start with I think.
Without sounding arrogant I don't want the center I think we we understand as well or better than anybody what the entertainment you know and infotainment landscape looks like in the vehicle for many many years to come and so we're well aware of the deals you referenced with Google and others by the way I would rather the deal.
Ill with Google in that particular pace is for is for let googles, calling gaskell audio you know Android.
Systems and.
I think Google as decided on a strategy that strategy quite candidly at least in my opinion doesn't conflict in any way was our strategy and.
And so you know and by the way, it's quite nice for the automakers that helps them.
Both innovate faster and offload frankly, a lot of their entry cost that they've been spending for years to get their tier twos to move with them along their development. So I get why they're doing that we are acutely aware of what these things are happening and the.
And the transition of technology I think what you should assume what's really important to us and where the deals I think has changed from the ones that we did 10 years ago in five years ago is we're not just asking for penetration commitments were also very aware that where your play.
Based on the screen and how the customer finds your service in the vehicle is crucial and so that's why the 360 L. part is so important it's not just about you know 360 L. yeah. Yeah. It's we want that to be the primary screen, where the consumer gets our services experiences the best and very early.
On because I can tell you. These screens are going to get quite complicated and so yeah. The deals have change to where it's not just penetration it's prominence in placement as well.
And I think we then we're acutely in for a successful of that.
You want to take the question the Guy Yeah, I want to say our guidance is our guidance you know that's pretty much true the.
It's why is it was given guidance on that Thats right as we have a huge funnel for for the gross.
And as Jim mentioned before we got a large subscriber base business in a few basis points difference in churn.
Reduces the big impact too so.
It's one of these things, where we are very cautious about than that add guidance, we give because it only takes.
No.
You know if each of those things go just a tiny bit the wrong way it has an outside.
Impact on.
Net ads and if they go the right way. It also has an outside.
Outsized impact in that adds it's just that that one's more funding. The former so so look it's nothing more than you know we.
We're looking to add the rest of the year, we are confident making the the million and and we'll we'll see what happens in the next 60 days and I'll just I'll add one more color as it goes exactly today. This point of one that quite quite honestly I don't know what it's going to made in the next 60 I know.
It means it doesn't mean anything mid term, but you know GM announced two days ago that they've missed production on 300000 vehicles, while they're on strike. The 300000 vehicles got a work their way through trial settles and be rebuild we don't know what the timing of that is we don't know whether there was a miss at retail.
Ill, while those while that strike, let on we'll we'll we'll get far more visibility on that certainly over the next four to six weeks, we factor that into our do it all into our our thinking and but that's just one element of why I think.
I think our guidance is far more sophisticated than you might think.
Thank you.
We will take our next and final questions from Jason does any.
Please go ahead.
Hi, Thanks, so much I just had two questions can you remind us when the last car that's tuned to the series satellite.
Well sort of die and sort of free up those satellites to pursue something new and but I never Jive.
My second question is.
You guys have been pretty consistent over its 10 years or so about not believing there is an international opportunity for your business.
And I, just wonder as things as you focus more on out of car as the mix of your consumption moves more towards IP and away from satellite or are you still was convicted that you had been in the past that there isn't a bigger international opportunity. Thanks.
I'll take the second line, David will take the first so.
I am still pretty pretty convinced that thats not a focus area for us.
We still look at it we still look at opportunities.
Quite candidly with Mega stars you know a lot of Mega you know they want to talk about.
Worldwide distribution instead of regional distribution.
Great News is the North American market is so large that and sell affluent at it.
It offsets that I can tell you I haven't seen anything.
Yet on on international opportunities that that's certainly we're certainly not afraid of it and we certainly have the money to do it. We just haven't seen anyone yet that that really worth but that said I'm not going to roll. It out work at what we'll keep looking but I doubt it David you want take the first yeah sure. So.
Yes. So we're we're early hopeful that the last car in the service platform to die for really on top.
But.
Maybe I can answer it in two different ways. The the serious fleet. The low band fleet is already at its peak in the field right that there are.
You know most of the current production is actually on the XM chipset and.
And so the serious fleet is sort of reached its peak and we'll begin to work its way down there are a lot of.
Active revenue generating subscribers on the on the serious platform and we expect to have to remain the case for probably another solid six seven years I think the last of the Oems to leave the serious platform from a new production perspective.
As is just.
Maybe a year to two years away and there is a real big drop in production on the serious platform in the course of that.
You know sort of the next year I just cant remember if we have a straggler you know in 21 production or 22 production theres a little bit in there but.
The way you can think of that is in terms of when would we entered window of considering changing the content.
Giving people a serious radios.
Effectively and XM radio and the content on that satellite.
That's again, probably a good six seven years away.
Okay. Thank you very much I.
Yes.
Thank you everybody for participating in today's call will speak.