Q2 2022 Sirius XM Holdings Inc Earnings Call
Good morning, and welcome to Sirius ex items second quarter, 2022 financial and operating results conference call.
This conference is being recorded a question and 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 queue. Please press star two.
This time I would like to turn the conference over to Hooper Stevens Senior Vice President Investor Relations and Finance Mr. Stevens. Please go ahead.
Thank you and good morning, everyone welcome to Sirius XM second quarter 2022 earnings conference call. Today, we will have prepared remarks from Jennifer Witz, Our Chief Executive Officer, and Sean Sullivan, Our Chief Financial Officer, Scott Greenstein, Our President and Chief content Officer will join Jennifer and Sean to take your questions.
I would like to remind everyone that certain statements made during the call might be forward looking statements as the term is defined in the private Securities Litigation Reform Act of 1995.
All forward looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions data or methods that maybe incorrect or imprecise such.
Such forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially for more information about those risks and uncertainties. Please view Sirius XM SEC filings and today's earnings release, we advise listeners to not rely unduly on forward looking statements and disclaim any intent or obligation to update them as we begin I would like to remind our list.
Or is that today's call will include discussions about both actual results and adjusted results all discussions of adjusted operating results exclude the effects of stock based compensation with that I'll hand, the call over to Jennifer.
Thanks, Hooper and good morning, everyone and thank you for joining US today, we are pleased with our results in the second quarter of 2022, while we continue to navigate variability in customer and market demand, we delivered strong financial performance with record low churn.
<unk>, our balance sheet and scaling key growth initiatives to deliver best in class content to our customers. We are setting Sirius XM up for future expansion and solid financial performance.
The second half we remain committed to building on that momentum by making the strategic investments necessary for our long term success, while continuing to exercise financial discipline.
Sirius XM added 23000, net new self pay subscribers and 54000 paid promotional subscribers in the second quarter. Despite a slight sequential uptick in April SAR saw further weakness in May and June and ended the quarter down 4% from Q1 and 20% year over year.
Well, we are confident we can deliver positive self pay subscriber growth, we no longer expect to attain our prior subscriber guidance due to challenges and uncertainty of new and used auto sales.
Ever with strong predictable subscriber driven revenue, we are able to reiterate all of our financial guidance. There is growing uncertainty in the advertising market, where we generate significant revenue with high variable margins. So we are prudently implementing a variety of cost saving measures such as limiting our head count growth to priority roles and taking a more measure.
<unk> approach on discretionary spending.
While we manage through prolonged supply related challenges in the auto industry, the strength of Sirius XM brand and uniqueness of our product, which is evidenced by our large subscriber base and outstanding churn rate of one 5% remains extremely attractive to automakers, which continue to see us as the premium audio entertainment provider of choice.
In North America.
Our new and used car penetration rates grew to 84% and 51% respectively and our enabled fleet is now approximately 145 million cars.
In the second quarter and looking ahead, we continue to build on these long term relationships. We completed several extensions with automakers this quarter, including Mazda and Mitsubishi We continue to make progress in deploying our 360 L platform and saw an uptick of two points in our mix from Q1, while we arent announcing anything specific today.
We are also making progress with several EV startups and look forward to sharing more with you in the coming months.
While our in car subscription growth continues to see the impact of the macro auto environment. We are seeing solid uptake of our streaming only subscription and these offerings are a meaningful driver of subscriber growth this year.
Recognizing this growing opportunity we are evolving our business to focus on listening both in and outside the vehicle Sirius XM holds a differentiated content position and we are building on the strength of our in car business brand awareness and robust business model to expand our streaming business and our total addressable market and an exciting and meaningful way.
Yes.
The initial consumer response to our streaming efforts has been encouraging and we expect this to be a much more significant part of our business in the future.
In the second quarter. We also continued enhancements to our commerce experience to enable and E sign ups on key connected TV platforms, including Amazon fire, Android TV LG and Roku.
We also closed on a new agreement with Comcast, our first broadband TV provider, which includes launching a fully integrated Sirius XM audio experience to millions of Comcast customers on the Xfinity platform, which will also support video later this year.
All of these initiatives create new ways to reach and engage consumers both those who already have a satellite subscription in their cars and those who may be new to the service enhancing the Sirius XM brand and its relevance as we work to build the future of curated audio entertainment.
Consumers have multiple options to stream their favorite music playlists. However, Sirius XM remains the premier provider of live human curated music and audio entertainment and combined with interactive and on demand capabilities, we create unparalleled listening experiences to meet the needs of our audience.
<unk> can interact live with their favorite hosts like sway, Megan Kelly or Howard or enjoy curated content experiences with major artists, including our exclusive special invitation only event. In addition, this quarter, we created pop up channels for Black music appreciation month to celebrate the music of black artists such as <unk>.
And the Houston, two pack Peggy and prints we.
We also hosted a diverse roster of events, including a concert crews in New York City with Yacht Rock stars, Kenny Loggins, and Christopher Cross and small stage series concerts with the Grammy Award winning rapper to changed in Atlanta and depth leopard in Los Angeles.
Well traditional content still drives the majority of Inapt listening unique content like this contributed to a 41% year over year increase in on demand music listening in the ethics I'm App.
A nice modest scanned small stage series event and Pearl Jam, but the Apollo. This fall in New York are just two examples of the exclusive experiences we continue to deliver to our subscribers this year.
In addition to our exclusive and on demand content. The ethics I'm App is home to over 200 extra channels. These have the DNA of Sirius XM channels, but are more finely curated for mood and activity based listening.
These extra channels continue to drive the largest share of listening outside of live programming in our App.
Holistically across both in car and streaming lessening this quarter, we saw strong performance in music sports and comedy.
In music draped Sirius XM channel found 42, which launched last year showcases boundary pushing hip hop and RMB and continues to bring in new audiences last month. He surprised fans with the premiere of his new Sirius XM Radio show table for one the first episode dropped in tandem with his surprise album.
Which broke multiple industry charts looking at our streaming metrics total daily listeners and time spent listening to found 42 were up 50% on average following drapes June 16th album drop.
And sports Sirius XM offers a differentiated value proposition in an increasingly complex and fragmented media space with video sports fans are required to have multiple subscriptions to watch at all whereas Sirius XM offers one stop shopping for all of our sports fans audio needs. This quarter, we saw one of the strong.
Good sports calendars post pandemic and Sirius XM subscribers had a front row seat to all the action, we deliver coverage of the biggest events, including the masters that P. J a championship and the U S. Open the men's and women's NCWA final four and National Championship game every MLB games, starting with opening day.
And the Indianapolis 500, as a result overall sports listening and the ethics I'm App continues to increase and we are investing in exclusive content rights to expand our offering most recently, our NFL renewal and expansion agreement makes Sirius XM. The exclusive third party home to all NFL game and gives us additional right.
And opportunities to expand our coverage plus original content produced by the teams that will be available only on the ethics I'm App also.
Also in May we announced a multiyear extension with Formula one ensuring our listeners continued access to every F. One race a fan favorite.
Lastly comedy continues to be a key content vertical for Sirius XM and our recent acquisition of team cocoa marks the latest edition to our ever growing portfolio. The deal provides significant value on the podcast AD network side and opportunities for us to grow paid subscribers with exclusive content came.
<unk> Coco staff now part of the Sirius XM team will continue to produce the network's slate of popular podcast, while collaborating on content exclusive to Sirius XM today I'm.
Cited to announce that we will be launching the inaugural team Coco channel. This fall a fulltime original team cocoa comedy channel available only to Sirius XM subscribers.
Conan and team are hard at work, creating a unique experience for the channel and we'll have more to share on on this in the coming months.
You can expect to hear all new original and exclusive content along with his most popular podcast standup clips and interviews from his long running T. B S show.
Before I turn it over to Sean to review the financials I also want to spend a few minutes on ethics and media are combined advertising sales group, we continue to be a leader in digital audio advertising and in podcast thing specifically per Edison research. We are the number one podcast advertising network and weekly U S listeners and.
At four of the top 15 podcast in the country, including crime Jockey office Ladies' Dateline N B C and pod save America people are listening to more audio on more platforms than ever before according to the Edison research share of ear report for the second quarter Americans are spending 20 more minutes per day listening.
The audio a 9% increase compared to Q2 2021 we are well positioned to benefit from these trends both in our listening platforms and in our ability to bring broad solutions to advertisers.
Our advertising business is not immune to the macro trends felt industry wide. We are seeing growth in our AD business, particularly on the podcast side as we continue to build our off platform relationships and capabilities. Our total audience reaches 150 million listeners, including Sirius XM Pandora Soundcloud in our broader podcast.
Off platform networks.
Additionally, we continued to deliver best in class technology solutions advancing the podcast ecosystem earlier. This month, we released new AI powered podcast audience targeting capabilities as part of an expanded agreement with Comscore to help accelerate our opportunity to monetize impressions and transform the market as we do.
Did in music with Pandora and Sirius XM remains an industry leader in podcasting producing continuous positive gross margin. Thanks to our disciplined approach rich content and constant efforts to bring value and entertainment to listeners content creators and advertisers.
Looking ahead, we remain focused on increasing the underlying resiliency of our business to continue delivering one of a kind content and value for our customers and strong and sustainable financial results for our shareholders. We remain committed to our long term focus of shaping the future of audio and broadening our revenue base into non.
Emotive markets and we are excited by the early strides our new team is making on the technology and product side. Later this year, we will deliver improved in App personalization to drive content discovery and enhanced car play and Android auto integration and we will continue to expand and innovate our product offerings. Ultimately this translates.
And just solid revenue growth margin expansion and strong cash flow generation, which can be reinvested in the business to create better products for our customers and more robust capital returns for our stockholders with that I'll turn the call over to Sean to go through the financial highlights in more detail.
Thank you Jennifer.
Quick highlights on the quarter.
Revenue increased by 4% in the second quarter with advertising revenue up 5% to $452 million and subscription revenue also growing by 5% to $1 7 billion. Adjusted EBITDA was 3% lower at $679 million as we made substantial investments in sales marketing and product development.
Diluted earnings per share were seven cents versus tends to last year's second quarter, we booked approximately $140 million of satellite insurance recoveries.
We generated $435 million of free cash flow during the second quarter down 21% from the prior year as cash taxes rose by $97 million year over year in last year's second quarter benefited from $17 million of satellite insurance Richie.
Turning to our operating segments for Sirius XM total revenue in the second quarter increased 5% to $1 7 billion driven by the larger self pay subscriber base and 7% growth in <unk> offset by a lower base of paid subscribers.
Jennifer highlighted Sirius XM subscriber growth, but to give some more clarity into the back half looking at trial starts can be useful during.
During the second quarter, Sirius XM, new and used car trial starts were down 20% and 8% respectively.
Total trial starts were down 15% year over year in the second quarter somewhat worse in the first quarter figure of down 10%.
Gross profit in the Siriusxm segment, plus 6% to 1.15 billion, representing a margin of 61%.
And the Pandora and off platform segment advertising revenue of $403 million increased 5% in the second quarter with Pandora's AD revenue per thousand hours stable at approximately $100.
In the second quarter, our podcasting and off platform businesses generated $119 million in revenue an increase of 50% year over year.
We expect these businesses to represent a growing portion of this segment advertising revenue overtime.
Bravo restaurants gambling at retail have all been strong category for us, but in health care automotive telecoms and beverages, we are seeing weakness.
Gross profit in the Pandora and off platform segments declined 13% to 167 billion, representing a 31% gross margin lower than last year, given the meaningful investments in new podcast content that are still in the early stages of monetization.
Today, we reiterate our existing financial guidance for 2020 revenue of approximately 9 billion adjusted EBITDA of roughly $2 8 billion and free cash flow of approximately 1.55 billion.
As we scale and pod testing advertising revenue will continue to contribute to growth in 2022.
And subscription revenue will increase with the benefit of prior redaction.
Our adjusted EBITDA guidance. This year continues to reflect investments in product content and marketing to drive growth and screening, but with modestly lower subscriber revenue than we originally forecast and a more cautious advertising outlook for the back half we are tightening our expense management across the organization.
On the capital allocation front, we started the year by returning nearly $1 $3 billion to our stockholders in the first quarter via dividends and share repurchases.
We added another $303 million to this total in the second quarter, bringing year to date capital return to roughly $1.58 billion.
We ended the second quarter at three six times net debt to EBITDA within the range. We've previously articulated.
Our balance sheet remains exceptionally well positioned with 1.24 billion available under our revolver and limited near term maturities.
We have significant capacity to continue investing in the business pursue acquisition opportunities and continue returning capital to our stockholders via dividends and share repurchases.
With that operator, let's open it up to Q&A.
Thank you at this time, we'd like to open up the call for questions.
I'd like to remind everyone in order to ask a question. Please press star one on your telephone keypad.
But any time you'd like to be removed from the queue. Please press star two.
We will post purchased a moment to comply the Q&A roster.
Yeah.
We will take the first question from Jessica Reif Ehrlich from <unk> Securities. Please go ahead.
Jessica can you go ahead.
Yeah.
Hi, operator, why don't we go to the next one and come back to Jessica.
Thank you we will now take the next question from James Ratcliffe from Evercore ISI. Please go ahead.
Hi, two questions if I could on the Siriusxm side of Sac was up a per installation about 7% or so year on year can you just talk about the trends on at that level quite apart from the issue of you know of of actual volumes of Saar and.
And secondly at Pandora.
And our investment in new content pricing pressure in gross margins. There can you help us size that sort of investment and get a sense of what the run rate gross margin profile of the business is and how that evolves.
Presumably you know off platform revenue becomes a larger share of the AD revenue there.
<unk>.
Sure James I I'll take the first one on Sac per install and then I'll I'll, let Sean talk a little bit about the margins on the AD side I. So look our sac per install has come down significantly as you've seen over the years and it's going to fluctuate yeah, I would expect by a couple of dollars here and there by quarter.
Depending upon the mix of our automakers installing modules into the vehicles and then the ramp of different technologies within our modules. So we have you know different economic structures with the producers of the module. So overall sac per install obviously is a reflection of the equipment.
Margin you know the revenue that's coming through on the top line the cost and then the subsidy. So there'll just be some variability around there, but I don't think it's necessarily indicative of a higher trend.
And John you want to start on the second one yeah, Yeah sure James So as it relates to Pandora.
Obviously, we have announced a number of our new deals we have an incredible amount of inventory coming online.
Sit in my car.
Comments, who are still in the early stages of monetization of some of these podcast ramp so.
In the early days Youre seeing the pressure on the gross margin on the Pandora platform.
Margin for the segment, but but overall long term, we think it's a great place to be I think it's early to to really articulate what our margin goals are every deal that we do obviously builds a great audience scale allows us to maintain our position in the podcast.
The audience space and but all in all we're pleased with the deals we're doing we're all and hopeful that we can continue to improve the margin profile, but I think it's still premature to talk about it given that the market is still growing it's still early days and we want to make sure we capture share.
But certainly do it in a financially disciplined way. So that we can we can really have an additive halo effect to the overall FX, our media and advertising.
So I don't know if John Jennifer Scott do you want to add anything to that yeah, I just build on that a little bit John that I think exactly what you said we're in the early days I would expect monetization in podcast them to grow faster than the audience listening is growing just because we're still working with largely.
Manual process right, there's a lot of host Red ads, there's a lot of working closely with the talent and programmatic is in its early stages. So there's a lot of technology and capabilities that is going to come to the space just generally and certainly with our solutions that I believe is going to continue to enable.
To grow going forward I mean, you saw the yeah. We did stipulate that our growth in are the off platform side of our AD business was up 50% in the second quarter.
It was up 43% in the first quarter. So we're seeing nice growth trends in this part of our business.
Great. Thank you.
The next question comes from Jessica Reif Ehrlich from Bank of America.
Hopefully you can hear me this time.
Yeah Okay.
So.
Costs were up double digits, but there's obviously a ton of new content, both in the car and in App and I'm. Just wondering if you could talk about the outlook for both costs and content across music sports and podcasting.
For the foreseeable future.
And on advertising I mean.
I guess appropriately cautious, but how does that you know.
How do you factor in political and then as we get through it.
Supply chain issues do you expect to pick up in like auto or other areas.
Yeah, just on on content costs in general Yeah, let John or Scott jump in too, but I, we will continue to make selective investments to support the service you know both in the car and in streaming and you saw our announcement about the NFL Scott can talk more about that we are big.
Believers in sports and certainly the live aspects of sports and play by play and are really excited about what we're doing with the NFL there and I don't think I'll talk specifically about the different categories, but in terms of cost, but you heard me earlier highlight you know some of the areas, where we believe we're definitely.
Making strides and of course, you know there's going to be investments alongside that in music and in sports and in comedy and so Scott you want to talk a little bit more about NFL and maybe yeah exactly so Jessica on sports the one thing we've seen.
Which is interesting and I think the TV networks have seen it as well it cuts across all demos number one and number two.
Our lives still matters. So we've always been big believers in live sports and.
In all live sports and having one stop shopping if you look how video sports rights are now they're fragmented in many places.
You just can't say I want all the basketball football baseball hockey car racing or anything else.
In one spot the way we have that so I feel really good about that and it'll translate more into digital as we do micro channels based on teams and other things down the road on that.
Just quickly on podcasting early stages, one of the first schools with Stitcher was to figure out, which podcasts would really matter and make it number one and according to try it on you know skechers number one by a large margin. So that's now leading to a lot of other talent and opportunities coming through here as well.
It was some of that talent working its way like cocoa and crooked and others.
Onto Sirius XM, so I feel pretty good about that the digital area is interesting because that's where the younger demo growth will come.
We know our core demo on Sirius is solid and right now you're seeing with the extra channels, but over time, you'll start to see branded channels and others.
All of which are there to grow in that space as well so feel pretty good where we are right now yeah. Just on advertising then I tried to address some of those earlier in his comments, but I. You know we are facing some of the same challenges you see in the industry more generally you know we're watching cancellations closely.
We obviously feel very comfortable with our full year revenue guidance, but yeah. There are some categories, where there is softness I think as automotive starts to rebound we would expect to benefit from that either have been other areas of opportunity with travel and restaurants et cetera, Yeah D to C tends to be more vulnerable than.
Brand and we do have both sides of your advertisers represented across our platforms I, but you know again, we saw some nice growth in our off platform business in the second quarter, we continue to cross sell across our platforms and make strides there and we have a lot of other unique solutions such as <unk>.
What we're doing with amex on small stages and branding that around their shop small initiatives are that we're continuing to see opportunities around those.
Okay.
One follow up for Scott Scott.
You've grown a lot in podcasting, but are there any specific genres that you think that you need to kind of focus on our beef up.
On the music side, which you didn't really talk about where you're going is it important to have specific artist relationships. I mean, you've just introduced so many different kinds of.
Content over the last I'd say, two or three years is incredible in app and in the car.
Okay. So.
You know the one category. We wanted just to set the ability to answer the second part was true crime because that seems to be the first unique audio category Thats come along in years and it's the biggest thing in podcasting, so with crime junkie and a few of the others. We have that locked up so I'd like to see.
The empowerment and self help and a lot of other things like in that area grow.
Doctor Radio and some of the things we did on serious or a little more narrow podcasting in podcasting networks, and some brands and others in that area I would like to to see grow on the music side, you know, it's always a balance.
We feel we have a good balance between the categories that matter and rock pop and hip hop in both our curated channels and our artist channels on it. It's just a question of will it move the needle to have an artist or a brand over a channel in music.
Similar to the way you could have.
Yeah, Bob Channel, where you could have Drake doing hip hop channel that one is pretty obvious. So we just need to look what what makes sense, both economically and culturally and see where that goes.
Great. Thank you.
The next question comes from Ben Swinburne from Morgan Stanley .
Okay.
Hi, This is Cameron on for Ben Thanks for taking the question just to follow up on content on the NFL deal expanded rights allow you to stream games or any other affiliated content on Pandora and then second half.
The bidding environment for your sports deals. These days it does become more competitive at all or do you get a first look window when when going up for sports renewals just any color there.
And then second on the satellite business self pay churn has continued to come in persistently low as is the path to that normalizing kind of wholly connected to vehicle related churn coming back or are you seeing other benefits, helping there as well. Thank you.
Scott why don't you start on the content side right. So on the sports rights.
Yes, Theres always as I said I think there will always be bidding on live sports we.
We saw it on the NFL and or sports rights, there arent that many out there between pro and even the major colleges that matter.
So that's always going to be true and there's just no burn insight on live sports so I like our position.
And I, particularly like our one stop shopping position on all the sports under one roof, which I don't think anyone can come close to saying that so I feel pretty good on that.
NFL rights.
Don't extend to Pandora, but.
Pandora is largely going to be looked at in terms of music and podcasting not live sports we want to direct people to serious it's a premium service to have all of that live sports under under one roof.
And on the churn side I you were really pleased with our second quarter performance. The second quarter is typically strong for US you know from a seasonal standpoint, but.
But we are actually down a few basis points year over year. Obviously vehicle related has played a role in that you know Sean highlighted the lower trial starts year over year on both the new and used car side Nonpaying I'd say, it's been pretty steady and we do see some seasonal uptick and I credit card entry rates in.
The spring that's you know happens every year and we're seeing some of that now we don't really see any.
Concern from an economic standpoint.
And the entry rates I you know so we're really pleased with that you know similarly, we're focused on the voluntary side and watching carefully just any.
In terms of the strength of the customer or the consumer in general and you know we've been very performing very solidly there as well. So you know we'll continue to watch those trends, but I I would expect we'll see some uptick in the second half just from a natural seasonal standpoint, and then hopefully as we continue to see improvement.
And trial starts in auto sales overall.
Okay.
Great. Thank you both.
The next question comes from could go Tomorrow from RBC capital markets. Please go ahead.
Good morning, and thanks for taking the questions maybe just a follow up on the advertising discussion. It seems like there continues to be a solid opportunity there with off platform and podcast and go as you called out there is clearly a lot of uncertainty in the market I. Appreciate that you may not want to comment too much on Q3 at this point, but is there any more color you can.
Provide on maybe rpms at Pandora or just the sustainability of the robust off platform trends and then just on guidance you reiterated the 9 billion in revenue for the year, which is great.
Is it right to assume that your expectations for advertising may have come down compared to the initial budget and if so I'd be very curious to see where youre seeing positive offsets. Thanks.
John you want to start yeah, yeah sure. Thanks for the questions I guess on the advertising the discussions we continue to see.
A very positive demand.
As you said we're in this early stage of monetization. So we have the benefit of really having increased supplies. So we have the expectation that.
We will continue to ramp will continue to improve monetization, which will hopefully continue to deliver growth.
On the off platform.
It relates to Pandora on platform you saw the stats you saw RPM is holding.
Pretty steady despite the decline in hours so we're seeing.
The active listeners continued to increase their usage.
So again, there's some.
Some caution in the marketplace I think we do have the benefit of increasing supply just to reiterate so we're comfortable and confident we will continue to drive growth.
Over the remainder of the year in terms of the guidance.
Again, we reiterated it certainly the marketplace.
Given the macroeconomic environment.
We keep a cautious outlook, but we're.
We're comfortable with where we're at so I don't know, Jennifer Scott or anybody wants to add anything on the advertising market or.
As it relates to the full year guide it offsets.
That's how I see it.
I believe we've provided a fair amount of color on this I I wouldn't comment specifically on Q3, obviously, but our guidance is reflective of kind of what we're seeing in the markets today and as we've discussed there have been some cancellations and deferrals and so we expect some continuation of that in.
We've incorporated all of that in the in the numbers.
Understood. Thank you both so much.
Yeah.
The next question comes from Barton Crockett from Rosenblatt Securities.
Okay great. Thank.
Thank you for taking the question and.
I was just interested in and just drilling down a little bit more into the commentary about EBITDA outlook for the year with.
You guys are pacing down a little bit year over year here in the quarter, but.
But you know speaking to a number for the full year that would be flat to maybe slightly up year over year.
Just that Theres some change in the trend in the back half of the year on revenues and expenses versus what we just went through.
I just want to make sure I understand.
What is it that changes to kind of give you that comfort to reiterate the EBITDA guidance.
John I'll, let you start and then I'll jump in.
Yeah. I mean, we are we have an outlook for the year again 2.8 billion is the guide.
We feel confident with where we are from a.
Positive.
Subscribers for the year and the impact that has a subscriber revenue we've talked a lot. This morning about the advertising outlook.
We have a good handle on what our investments are from our content and programming in podcasting perspective.
We have spent a fair amount as you saw in our results year to date on sales and marketing in both performance media and brand.
So as we look out at the back half of the year.
We have confidence in our ability to meet the guide.
You did comment a couple of times with Jennifer and I about.
Tightening some control so it's certainly Oh, we're looking at hotel, we're looking at our real estate footprint, we were looking at all discretionary spending.
So we're trying to manage both the short term in the long term of course, we want to make sure. We're investing for long term growth at the same time.
We want to meet our guidance.
What we have set the expectations we set for.
For our investors for the year so.
That was a pretty what I take it there.
I agree Sean with them, obviously, everything you said I I guess I would just add you know to acknowledge Barton, yes, it's going to be back half weighted I, you know and there's there is some variability to our sales and marketing expenditures based on how we're handling and looking at the you know digital.
A part of our business and we will expect to see some fluctuations there we've done a lot of great experimentation and there's more to come by using different marketing channels. You know the app stores are just different distribution partners and yeah, I think we're still learning and optimizing I wear where spend.
<unk> and the types of subs were trying we are able to acquire through those different channels and we're gonna be opportunistic in our investment and continuing to drive what's been encouraging trends in that part of our business.
And lastly, just to punctuate it sorry Barton.
The punctuated with the big uptick.
No the big uptick that you've seen in sales and marketing in the first half will likely continue for the second half is probably.
An important point.
Okay. That's helpful. Just one other quick thing you mentioned Europe .
You're expecting to make some announcements with EV companies.
As we're all aware I mean, just wanted to be a company that really matters Tesla, which seems to have.
You know a foundry that has very particular opinions about what goes into the cabin there of the cars Wow.
Would you describe kind of your relationship with Tesla.
And you know how we should be thinking about you know opportunities or over some period of time.
I look I, we are in some of the Tesla models, and we clearly would like to be in more of the Tesla models and we're working very closely with them to be able to execute on that but I I would speak more broadly just for a minute on evs.
We certainly know to be true is that consumers want Sirius XM when they buy a new car and especially I you know the affluent buyers of many of these you know EV companies, including the startups that are just starting to produce vehicles. This year. So we hear it all the time from the EV makers as well as our long standing.
Our auto partners and you know we are going to be flexible on distribution, but what we are absolutely focused on is ensuring the ease of use and the customer experience, particularly the onboarding. It's I. It's been a huge advantage in our business that are new car buyers and and to a large extent now used car buyers.
And get into their their car and have our service working and are in a very frictionless environment. So we're very focused on how we're developing those solutions for the EV partners as well.
Okay. Thank you.
Yeah.
We will take our next question from David Joyce from Barclays.
Thank you.
Further question on the expense side of the equation.
You called out the extra spending on sales and marketing and product development.
<unk> spending was also up this quarter, but how should we think about seasonality I know you just said that sales of work, giving youll probably be later in the second half, but on the content side since you're spending more on both.
The satellite pro forma in the streaming and podcasting platforms.
Was there some seasonal strength was it sports related maybe in the second quarter or is this just a overall a more elevated level of content spending.
We are flowing through the income statement that we should be thinking about that through the rest of the year.
Yes, David Yeah, I think that you should think about it is just a you know a slight elevation over the course of the year again, it's a in percentage terms at least on the Siriusxm segment are you saw an elevated in the second quarter, we've announced that.
Number of deals is those things ramp over the course of the year, that's kind of a new normalized level.
And I think that's what you should expect over the course of the year.
As Scott and I will tell you we are a content company, we got to provide a obviously the best mix of news talk sports and.
And music. So we think this is prudent.
Investment even you know again, it's not a lot larger amount of money I think it was $25 million a year to date on the programming.
And content side, and you know, 11%. So I think it's just a you know an increase.
The level of investment.
Thanks, and if I could just the second one on capital returns I was just wondering how you're thinking about that.
The timing of your stock buybacks or are you kind of matching that with you.
Working capital flows or cash flow from operations.
As opposed to like straight lining buybacks through the year, how should we be thinking about Europe .
Your strategy there.
Sure.
To reiterate what we've said I think consistently over the last couple of quarters, we're guided by a obviously free cash flow generation, we're guided by.
What our leverage is in the mid to.
Three three and a half you know we exited the quarter at three six times you'd saw the aggressive return of capital in the first half of the year that we've done inclusive of the special dividend. So I think we're going to be guided by the free cash flow, we're gonna be guided by.
Our leverage.
I think hopefully what we've articulated is fairly predictable.
So it's not necessarily a straight line, it's more how we see the outlook of the business how we view.
You know what the grid is what we view valuation to be well executed accordingly.
Great. Thank you very much.
We will take our next and final question from Steven Cahall from Wells Fargo. Please go ahead.
Thank you and good morning, so Jennifer you've talked a lot about expanding the streaming business I guess, how do you think about siriusxm streaming as a kind of standalone products, which you consider on demand or a play list functionality to make it more like the peers I know that really changes the business model of the streaming business.
So just curious how you kind of think about.
Drafting off of the satellite product versus something more independent and also tying that into things like Pandora in podcasting and then secondly on Sirius XM <unk> I mean, it grew at like an inflationary rate forever and I know now you've looked at increasing ARPA was up nicely in the quarter. It's been that for I think a few quarters now.
Maybe you could unpack that ARPA growth a little bit is it price is it more a multi car tears and should we think about <unk> as just being a stronger component going forward than it has been historically thanks.
Yeah, Thanks, Steven I'll, let Sean address our Pune a minute I on the digital side. So we are constantly looking at new product features and you talked a little bit about the growth in on demand listening and I listening to our extra channels earlier in the call.
Paul you know outside of live which is still the predominant amount of our listening and our apps I, we do see strong listening to both of those areas, which is not surprising right. I mean, it's very similar to what's happened in the video business, where our customers expect to be able to time shift there listening we're there.
Watching and you know that's a function of you know what we're seeing in on demand the personalized stations I the extra channels as in particular are just giving our users more control over their listening experience in many cases, they leverage the brands you've already established with our listeners. So those are.
Some examples of where we're providing more control and we haven't obviously gone down the path of full interactive on demand capabilities, but you know we'll look at that I know, we have a great product team in place under Joe Inzerillo, He's continuing to build out that team and so we'll we'll look at that obviously, we've been very.
And how we've approached our licenses on the music side and you know we would if we were to entertain something like that there would obviously have to be a step function assumption about how we're attracting and retaining subscribers, but just on the digital side in general we're pleased.
With where we are it will represent a large portion of our our ads. This year of course, that's because of the the trajectory and the auto final they're still generally a smaller proportion of our trial starts overall in our gross adds but obviously given the dynamics it'll be a bigger part of our net adds this year. So we're really.
Pleased with what we're seeing so far Sean you want to tackle the RVO.
Yes, sorry about that yeah, so on Steven on the <unk> side.
The biggest driver here is obviously the the rate increase that we.
Put in in November .
You know I think we see a continued sequential increase probably in the third quarter, obviously, the comps probably get more challenging as we rollover that that price action that we took last year. So you know theres some benefiting from the higher AD revenue.
Some other minor picks and takes puts and takes excuse me from some of our OEM relationships, but overall the majority of it is rate.
Yeah, I mean, the one thing I would just add to that is that.
Sorry, Stephen just say that as you've heard us say in the past we are trying to be very opportunistic in capturing demand across the pricing curve. So our some of our digital plans are $8. A month, we have a P V. I P plan at $35, a month and yeah, there is likely demand below $8 and above.
$35. So you know just the dynamics on ARPA alone, while I know you know we want to.
And you know, we we want to make sure that we're watching the metric it's not the only metric like really just driving overall revenue and maximizing customer demand.
And should we think about that price increase last November as kind of onetime in nature or is that something we could see a little more consistently in the future.
And we've had a history of executing rate increases certainly on the on the full price side and you know we're very sensitive to the fact that again our largest competition in the car continues to be free I said, we are very disciplined in how we look at these rate increases, but I would expect us to continue to consider them going forward.
Thank you.
Thanks, Steven and thanks, everybody for joining today will speak to you soon.
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