Q4 2022 Sirius XM Holdings Inc Earnings Call
Greetings welcome to Sirius XM is fourth quarter, 2022 financial and operating results conference call.
At this time, all participants are in listen only mode.
Question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
At this time I'll now turn the conference over to Hooper Stevens Senior Vice President of Investor Relations and finance.
Stephens you may now begin.
Thank you and good morning, everyone. Welcome to Sirius XM is fourth quarter and full year 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 insurance to take your questions I would like to remind everyone that certain statements made during the call might be for.
Looking statements as the term is defined in the private Securities Litigation Reform Act of 1995.
These and 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 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'd like to remind our listeners 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. Thank you for joining us Sirius XM achieved strong 20 trying to subscriber and financial results, reaching record high EBITDA at more than $2.8 billion and revenue of $9 billion and delivering 348000 self pay net additions with a growing base of streaming subscribers.
The business has proven resilient and I'm pleased to report we met the financial guidance that for the year, we made significant progress on our strategic growth objectives, including maintaining our dominant position in car expanding streaming engagement and continuing our leadership position in digital AD supported audio I'm also proud of.
To share that we delivered record high ARPA and record low churn in 2022 a reflection of subscribers high satisfaction with the premium listening experience, we continue to evolve and enhance.
Today, we announced new financial guidance that reflects continued strong operating performance and significant cash generation, even as we faced a challenging economic environment and meaningfully step up investments in our technology infrastructure.
Once again, we have endeavored to SAP financial guidance that takes into account our current view of the business and broader industry trends, particularly in the advertising market, where we see substantial uncertainty as a result, we broadly anticipate a softer first half in terms of revenue EBITDA and subscriber growth as compared to the back half of the year.
We are not issuing subscriber guidance at this time, although we anticipate we'll see modestly negative self pay net adds for the year as economic and demand uncertainty persists auto sales remain soft and we moderate marketing spend for our streaming service early in the year ahead of planned product improvement late in 'twenty two 'twenty three.
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During the fourth quarter Sirius XM is new and used car trial starts were down 3% and 7% sequentially as auto industry sales remained soft in vehicle prices remain at near record highs used car prices are now falling but remain at elevated levels and affordability is further challenged by higher interest rates and the <unk>.
Through to payment noon.
New and used car sales drive our primary trial funnels and are an important part of how we subsequently add self pay subscribers in 2022 auto sales were the lowest they have been in 11 years and for this year analysts now expect new car sales to be up modestly by about 6%, but used car sales are expected to again.
Slightly.
We are closely monitoring consumer house, while we've seen signs of slowing inflation in the last month, we are watching personal savings rates consumer confidence auto loan defaults and the other key metric to monitor the strength of the American consumer and how that could impact our business in areas like non pay churn and general subscription demand.
And.
The advertising market continues to face headwinds with economic and business uncertainty is causing many major advertisers to be cautious in their marketing spend we began to see the shift in the back half of 2022 and are continuing to feel its impact early in 'twenty. Two 'twenty three podcast thing is not immune to these forces, but does remain a bright spot.
Not for the business, which I'll speak to in a few minutes.
These macro factors, we are focused on increasing productivity and effectiveness as we realign resources to invest in growth opportunities for the business. This means building a culture, that's more agile as we focus efforts. This year on developing an updated Sirius XM streaming experience, which we expect to launch in the fourth quarter as you heard me talk about on our.
Prior earnings call, we have implemented measures to control our discretionary spending and we will remain disciplined and look even more broadly for cost savings in every area of our business to give just one example, we began to reduce marketing spend last quarter and will continue to reduce spend for most of this year as we moderate our head of they expect.
The relaunch of our streaming experience in the fourth quarter.
This is the right decision for our business. We expect this more conservative approach to marketing spend in the first half to contribute to lower net subscriber additions near term.
We all know that consumers now have more options than ever when it comes to listening to content in the car and on the go today, we hold the largest share of ear in a car outside of combined terrestrial radio and as we look to attract new audiences to our platform, we are becoming more and more agnostic not just how they come.
In the front door, but also how they choose to interact with our service.
Our updated Sirius XM experiences on car play and Android auto that launched late last year reflect our commitment to make it easier and better for new audiences to use this way of listening in car should they choose and in the year ahead, we will continue to evolve our business by leaning into our in car advantage and modernized.
The Sirius XM technology platform, delivering an improved streaming experience with the relaunch of our ethics I'm app.
Our in car evolution should be viewed in parallel with how autos have evolved over the years going from push buttons and dials to massive touch screens and multiple entertainment zones car Entertainment systems look radically different than they did just a few years ago and we are committed to our own radical evolution with future focused consumer.
First in car experience is.
Fully utilizing lucid massive touch screen interface with our beta launched last quarter is a prime example of how we are working with automotive companies to evolve and enhance the Sirius XM experience. We look forward to the broader rollout with lucid later this year and are continuing to innovate with a variety of other automakers as well our state of the art 360.
Our platform is quickly becoming the new standard for Sirius XM and is now available in 20, OEM brands with the additions of Jaguar land Rover, Lamborghini and Nissan vehicles in 'twenty 'twenty. Two we finished the year with over 7 million 360 L enabled cars on the road and the percentage of new Sirius XM and.
David vehicles with 360 L increased to 27% in 2022 a number that should meaningfully rise this year as we expand into several additional automotive brands, our total new and used vehicle penetration rates were 83% and 53% respectively and our enabled fleet stands at over 150.
Million vehicles.
Last quarter I shared the progress we made personalizing the 360 L experience intellect vehicles, including the introduction of data driven music and talk recommendations on for you screen I'm happy to report our continued double digit lift in engagement.
Our goal is to seamlessly tie together the in car and out of car Sirius XM experience to better serve our listeners getting them content. They want to hear faster no matter, where they are listening.
We're also seeing improved conversion and 360 L tied directly to consumers using these enhanced features including the ability to create personalized Pandora station and access to more on demand programming and extra channels.
At Sirius XM, our premium lives curated programming sets us apart in audio entertainment and creates habitual listening well most listening remains live across all subscribe. Our audience is we are seeing interesting trends on the type of content or different subscriber cohorts engage with for example streaming only.
Fiber is who are generally younger and more diverse in our in car subscribers gravitate towards our original streaming content with high interest in our music shows available on demand and our extra channels. We are also seeing this group's stream non music content at a higher rate than in car subscribers, who stream and we see higher retention with.
Both groups when they engage with non music content as part of our efforts to go deeper here in 2022 we expanded our relationship with the NFL to make Sirius XM. The exclusive third party home to all NFL games and recently, we agreed to a multi year extension with the N. H L that we'll see Sirius XM continue to deliver to.
Fans access to every NHL games throughout the regular season and Stanley Cup playoffs. In fact sports programming hit a three year record high and listener reach in 2022 and this past November as part of our extension agreement with Andy Cohen, We expanded radio Andy into the official destination home for all.
All things pop culture by moving content like Texas shows over to the channel. The fourth quarter also saw launches of several new tent pole and pop up channels, including the launch of our latest 24 seven original comedy channel team Cocoa radio, which is executive produced by Conan O'brien and features exclusive audio content.
We also went live with the Selena Gomez radio channel and launched a streaming only full time channel with country music Superstar Eric Church, Although we will remain disciplined in our content spend this year, you'll see us continuing to pursue opportunities to create more original on demand content to complement our linear offering with more streaming.
First talk music and video content as we look to continue to attract and convert younger more diverse audiences.
As always we continue to use the power of our platform to spotlight important moments and this month, we celebrate black history month on Pandora and Sirius XM with specialty programming across music comedy talk and sports. This includes the launch of the Apollo Theater Channel a limited run channel that will spotlight Sirius XM.
Pollo shows as well as music and stories from many of the Amazing artists who have performed at the historic theater.
<unk> off of two incredible nights with Drake at the Apollo, which will air exclusively on his Sirius XM channel sound 42 in the near future. We are excited to bring our ongoing relationship with the Apollo to life in new ways for our listeners to enjoy.
In a challenging AD market podcasts continue to be a growth opportunity for us this past quarter, we expanded our podcast offerings, while doubling down on the shows that have proven most successful with five of the top 20 shows and Edison researches top 50 podcast ranking the most of any network with crime Junkie office.
Ladies Dateline N B C pod save America, and Conan O'brien needs a friend, we feel very good about our current podcasts late and we'll continue to be purposeful in how and when we invest in programming to best align with our business priorities Q.
Q4, and full year total advertising revenue were essentially flat year over year, with Q4 down 3% and full year up 2% respectively.
Podcasts continue to be a bright spot for the industry overall and us in particular, driving a 34% increase in 2022 and our off platform business, which includes podcast ing in particular, our audience base podcast products, including podcast everywhere and podcast select as well as programmatic part.
Costs are up 153% year over year. This part of our offering provides greater efficiency through automation, which is still nascent in podcasting, making it a fantastic opportunity for us as we continue to grow this area of our business.
As we enter 2023, we continue to face the same headwinds that began in the second half of 'twenty 'twenty. Two however, we remain confident in our ability to monetize our AD supported portfolio and offer brands effective and innovative ways to reach their target customers in audio in closing I'm pleased with our strong.
<unk> operating and financial performance in 2000 and tried to the business continues to prove resilient our high quality business model continues to produce some of the best margins in media and while we anticipate softness in the year ahead, we are redoubling, our efforts to invest in our products enhance the Sirius XM experience for our customers and ensure we are well positioned.
In an ever evolving audio entertainment landscape with that I will turn it over to Sean.
Thank you Jennifer and good morning, everyone. As Jennifer noted, we closed last year with strong financial and subscriber results meeting all of our guidance a real accomplishment in a tough year.
In 2022 total revenue increased 4% from $8 7 billion to 9 billion led by subscription revenue growth and modestly higher AD revenue. Although AD revenue did begin to soften later in the year.
Adjusted EBITDA grew 2% from 2.77 billion to 2.83 billion free.
Free cash flow came in at 1.55 billion as cash taxes climbed by $157 million in 2022, and recall 2021 had benefited from a onetime satellite insurance recovery during the fourth quarter revenue remained roughly flat at 2.28 billion with subscription revenue climbing while advertising.
Revenue declined 3% to $480 million.
Adjusted EBITDA during the quarter climbed 10% to $742 million as we began to see benefits from cost reductions net income for the quarter rose, 15% to 365 million or nine cents per diluted share and free cash flow reached $529 million up 10% from the same period last year looking at our operating segments.
At Sirius XM total revenue climbed 4.2% to $6 9 billion in 2022 boosted by 6% ARPA growth, partially offset by reduced revenue from a smaller base of paid promotional subscribers gross profit in the Sirius XM segment grew to nearly $4 3 billion up 6% and produced a margin of 62 per.
Sent up a point from 2021, we added 348000 self pay subscribers for the year and 162000 during the fourth quarter and the Pandora and off platform segment, we generated $2 1 billion of total revenue up 1% over 2021 with a 2% increase in the segment's advertising revenue.
And they use declined by 9% in 2022 to $47 6 million, while average hours per AD supported active user climbed 4% to 20.6 hours per month.
Profit in the Pandora and off platform segment was $655 million down 12%, representing a gross margin of 31%. This decline in gross profit was driven by our investments in podcasting a corner of your audio entertainment market that we expect will yield greater monetization opportunities over time as the business evolves.
At a high level, our non Pandora AD revenue across the business climbed 24% in 2022 to 672 million, representing 38% of our total AD business in 2022 compared to 31% of our odd business in 2021 with podcasts revenue driving most of this growth.
Turning to capital allocation in 2022, we returned approximately $2 billion to stockholders with approximately 1 billion via special dividend in February $350 million in recurring dividends up 31% from 2021 and $639 million in share repurchases, we slow share repurchases throughout the year.
In particular in late in 2022 to prudently maintain leverage within our target range in the low to mid threes ending the year at three three times net debt to EBITDA, we expect to continue a conservative stance on capital returns in 2023, given the macro backdrop, particularly in the first half of the year our balance sheet is extremely.
Well positioned to gives us tremendous flexibility. This morning, we issued 2023 guidance anticipates approximately 9 billion of revenue adjusted EBITDA of approximately $2 7 billion and free cash flow of approximately 1.15 billion.
As Jennifer mentioned, we are not providing subscriber guidance. Today. However, we do expect to deliver modestly negative self pay net subscriber adds for the year or.
Our more cautious approach to spending on subscriber growth will keep our business focused on profitable rational outcomes from prudent marketing and investment decisions, which we continuously reevaluate throughout the year, we were beginning to see the benefits from cost efforts started last year in reducing our real estate footprint and reduced hiring this year, we expect to implement broader cost.
Across every element of our business with an eye on making all of our work processes more efficient currently we expect the results in the second half of 2023 will outpace results in the first half of the year given the soft AD market entering 2023, and our plans to increase marketing spending later in the year on streaming we expect year over year trends in <unk>.
Subscriber growth and EBITDA to be more favorable in the back half of 2023 than in the first half with declines in self pay subscribers and EBITDA sharpest in the first quarter and then moderating to reversing later in the year.
I'm really because of the normal seasonality of our business in terms of receipts versus expenditures combined with the timing of capital expenditures, we would expect a meaningful portion of 2023 free cash flow to come late in the year.
Our 2023 guidance also incorporates nearly $100 million of increase music royalties as a result of the expiration of agreements relating to pre 1972 music rights and the 9% CPI inflator that the copyright royalty board announced for Webcasting performance rights. This year, we expect satellite Capex.
Next to rise by just over 200 million as production for the recently announced S. X M 11, and 12 satellites begin to ramp the production of these satellites will run concurrent with the multiyear builds of ethics at nine and 10 already in the development pipeline.
Some 11 and 12 represent our commitment to maintaining premium services, improving our service area in quality and providing options to create new revenue streams in the Sirius XM low band over the long term non <unk> Capex will also modestly increase with other strategic long term investments in product engineering and I T. As we re platform our COO.
<unk> and identity systems to reduce consumer friction and using and subscribing to our products and as we push forward advances in our consumer facing in car and streaming services. Finally also incorporated into our free cash flow guidance, a further roughly $170 million increase to our cash taxes. This year.
As we look from 2022 to 2023, we're seeing a step up to essentially full cash taxes and on the Capex side. It's important to remember that 2023 essentially begins an investment bubble with several satellites under construction at once combined with a re architected of some of our foundational commerce identity and technique.
Allergy stacks. So you won't see these negative deltas in future years on cash taxes, and Capex and in fact satellite Capex will begin to moderate late in 2024 before exiting 'twenty twenty-seven near zero and staying there for many years with these investments will be ensuring more robust consumer facing products delivered with lower friction and continued.
Long term service continuity and Optionality with our broadcast network in the years to come are proud of the strong finish in 2022, and our team's hard work to set us up for success in 2023 and beyond with that I'll turn it over to the operator for Q&A.
Yeah.
Thank you well now be conducting a question and answer session.
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One moment, please while we poll for questions. Thank you.
Our first question will be coming from the line of could come tomorrow with RBC capital markets. Please proceed with your questions.
Good morning, and thanks for taking the questions.
I wanted to ask about Sirius XM self pay net adds the results were pretty solid in the quarter and I think the expectations for modest declines in 'twenty three are perhaps not too surprising.
Visibility remains low and this might be a bit unfair to ask in this environment, but you know how do you think about the path to getting closer to more historical levels of annual net adds or at least getting back to positive net adds I think we're all aware of the headwinds, but you have a lot of positives going on to in terms of the content slate. The in vehicle experience is only.
Getting better you can choose somebody on streaming I think youre being a little bit more targeted with certain consumer segments as well. So you know I I know you're not going to guide for net adds for next year today, but maybe you could talk a little bit about your confidence level in <unk>.
You know getting closer to a step function improvement in 2024, and and Sean if I could ask on free cash flow.
Bridging.
You know the path from 'twenty to 2023 but as.
As we think about 2024, you know a lot of the items that you called out.
In terms of cash taxes and Capex.
You know I know Capex, we're kind of in a bubble right now, but it doesn't seem like that's going to go away next year necessarily so is this a more appropriate level of free cash flow on an annualized basis for the next few years. Thank you.
Thank you and for the further questions. So I'll start on subs and Sean can take free cash flow.
In 'twenty two you know clearly the dynamics were somewhat similar to what we think yeah, we're going to see going into 'twenty three so auto sales in 'twenty two on new and used were at both really at about 10 year lows with us coming down 10% off of.
Our record high end 2021 so yeah that really impacted our automotive final going into end and throughout 2022 on the streaming side you know we saw it really nice results in driving our trials and getting people into our streaming experience and yeah. We are.
Being more cautious as we continue to approach us in 'twenty three because of the churn profile of our streaming side, it's very different than our in car subs and then we've talked a little bit before earlier on the call about the investments are going to make in our technology infrastructure to improve our capabilities and that will help us focus on retention.
There, but just you know turn into 'twenty three in subs in general I'd say, you know are our expectations for the automotive funnel look pretty similar to last year I would think that our trial starts for the first nine months of the year, which are obviously the important ones to drive self pay net adds are okay.
Ross, New and used will actually be pretty flat in the first nine months of this year relative to the first nine months of last year, you know as we look at the third party estimates for SAR for this year you know it's a it's a similar dynamic as to what we thought was going to happen last year, where it's very back half weighted in fact, you know most of the estimates would have us return.
To something like 16 million in the fourth quarter. So we're really not seeing you know the ramp up too much prior to that and I on streaming again, I think we're gonna be cautious on where we spend there.
Until we get you know more product improvements in the market I on churn Yeah look I I am very pleased with where we are on track earned at our performance I mean, if you just look at fourth quarter, we were down I think 20 basis points year over year and that was across all areas of churn so non pay voluntary and.
Vehicle related of course as auto sales increase we would expect to see some.
Churn increase there from vehicle related and you know, we we still are cautious about the dynamics in the economic environment, and how that might play out and non pay and voluntary churn as it relates to cancel demand.
And then just on and we've made a couple of comments related to demand in the call or in the comments earlier and I'd say that really is related to two areas. We have you know conversion rates on our first time trailers, who tend to be younger and less affluent and our win back efforts are much more impacted.
By you know these price sensitive segments of our of our funnel.
And we're just being cautious as we see how those dynamics play out this year. Yeah. This year I would expect our conversion rates on the new car side to be and that's sort of the low thirties and on the used car side in the low twenty's. So those are some of the dynamics that set us up for this year and we're certainly hopeful as we get through this year, we get a new <unk>.
And market, we have the benefits that you know you actually highlighted them in terms of content in our product experience and we start to see a recovery in auto sales that yeah. The things look a little different as we go into 'twenty 'twenty four so Shannon I forgot on the on the free cash flow a point again in my script I tried to bridge you know I think.
Our capex to start there.
A high point here in 2023.
Again, we're a huge cycle with the satellites are as I said roughly $200 million increase we talked about the investments we're making are in some of the core platforms around identity and commerce. So that is creating.
Creating some incremental spend in 'twenty three as well you know taxes I guess, we're getting to a you know with the full.
Full utilization in some of the sunsetting of R&D for example, we're getting to a more effective cash tax given the utilization of most of our tax attributes.
At this point so again as you look through in the future I'm not going to guide to the 24 or five and beyond but but clearly our expectation is this free cash flow is a low point and as we get through this bubble.
We will start to see real positive benefits.
Relative to where we're gonna be in 'twenty, three and where we guided but I'll leave it at that.
Okay. That's great. Thank you both for all the color.
Thank you.
Our next question comes from the line of Ben Swinburne with Morgan Stanley . Please proceed with your question.
Thanks, Good morning.
Just one clarification does yourself pay churn number include churn related to your screening only subscribers.
And then I was curious if I'm, Jennifer if you could talk a little bit about kind of the economic sensitivity in the business and your subscriber base today relative to prior cycles I tend to think of your customer base is skewing a bit more higher income, which may be wrong, [laughter], especially with all the success you've had in used cars over the years and honestly this into.
Rate environment is just different than we've had in really a long time. So it would be helpful to hear how you're thinking about those puts and takes heading into 'twenty three and then I think scotts on the call I believe and I was just wondering having now spent some time you know.
Selling into the podcast selling podcasts advertising for a few years in scaling that business up.
Can you talk a little bit about the opportunity in podcast advertising. When you think about the budgets you may be going after or is this a radio broadcast radio opportunity is it a digital opportunity direct direct response Grand just help to help us think about where this could go in a three to five year view.
So much.
Okay. So thanks, Ben I. Your first question about our self pay churn.
What we report is in car or satellite only yeah. The the streaming subs still aren't a material a part of our subscriber base and we tend to look at those on a net add basis and but the churn profile as I mentioned earlier is higher on our streaming subs relative to our satellite subs.
I in terms of economic sensitivity, yeah, I'd say the last cycle was just so different for us as we were building penetration rates and we were so much earlier than our maturity. So it is tough to provide you a comparison to that I do believe our subscriber base is.
Largely more affluent at you know our headline price is 17 99 for our most popular package and so we attract you know a a more affluent consumer base for sure but.
But we have expanded that as you know with our increased penetration in used cars and that was really nascent I'm you know years ago. When we face just last you know sort of cycle and and yeah. I guess I would also say our churn dynamics again continue to remain impressive over you know the last.
18 months to two years and you know the fourth quarter was the lowest fourth quarter. We've ever had with just just above one 5%. So I think that sets us up really well going into the cycle no matter how.
It actually evolves and Scott do you want to start on podcasting and I can add on.
Sure So first.
Podcasts Ing has some similarities to the early growth of.
Sirius XM, we had to get to a place when we acquired Stitcher and then built it would.
Would you forget Luckily could number one network and we have five of the top 20. However, you know no different than those early Sirius and XM bidding wars, the economics on podcast and got a little out of hand to say, but we use and as you can see the pullback is going on right now and yet.
It's a robust source in some ways uniquely for us and to get to the point on the advertising you know we look at it as whether you look at team cocoa, a crooked or a few others, where it's gonna be a combined audio so ultimately radio.
That's serious podcasting through stitcher.
And also podcasting has a nascent but growing events business merchandise business and all of that so it's gonna have defined.
Its sea legs in general, but with US we feel pretty good we're gonna be selective obviously and you know we're going to be very very disciplined.
Specially given where we are right now.
On the economic model, but I'm confident.
Advertising jobs of demos and uniqueness in what podcasts cover will certainly allow advertisers windows in that don't exist anywhere else and in some cases don't exist. It's serious depth of podcasts in market services that so I feel pretty good that way.
Advertising kicks up and it gets a little more micro focus there's going to be unique asset certainly what will have and then the combination of overlaying our whole service.
All three brands with Pandora also.
So I feel pretty good where it'll go once it goes back hopefully to normal.
Yeah, I'd just add that I do believe we have a great network of podcasts as Scott highlighted yeah, we represent them major networks and across the top three categories, So news and comedy and true crime and this yeah. The cross selling that Scott highlighted how it is.
In a really unique opportunity that we can provide across yeah live broadcast music streaming on and off platform and podcast as well as marketplace and taxes. So we're really well positioned here. There are a number of podcast products that we launched last year podcasts everywhere pockets of lack answer.
Programmatic capabilities you got that.
Podcast everywhere and select are you guys still are direct sales enabled but allow a lot more targeting an audience on an audience basis, but also with content filtering and leveraging our predictive audience as tools to provide better insights as to where are they the listeners.
In terms of life stage or purchase purchase consideration and others and you'll see us do more and more here going forward. This is just a you know as Scott said, it's nascent there are a lot of investments needed I think across the industry to provide better tax solutions for advertisers and we're just getting started I would expect the monetization to continue to improve.
Thank you very much.
Yeah.
Our next question is from the line of Steven Cahall with Wells Fargo. Please proceed with your questions.
Thanks. Good morning, So maybe just first Jennifer I think you said conversion expectations for the year is low thirties on new and low twenties on used if my memory serves me correctly, that's a little below where you've been historically. So I was wondering if you could just talk about is that some expected you know just consumer weakness in the economy.
Me is that the new mix that you have due to some of the higher penetration you have in inventory. So would just love to get your latest thoughts on our conversion rates and then on the streaming launch that you talk about can you provide any more detail about what sort of new functionality our.
Our features are going to be in this and will this be a combined product between Pandora and Sirius XM or is this really a revamp of the Sirius XM one in and then I got a quick follow up for Sean.
Okay. Thanks, Stephen I on the conversion rate side.
I guess I'd start by saying that over the long term, we've really focused on optimizing our yields which is really the net of both penetration rates and conversion rates across both new and used and yeah well. We've done. This we've also materially reduced our AR.
Investment per new car per new enabled vehicle you know with our Sac per install you know down something like 70% over the last 10 years or so and so but of course, if you look at these metrics separately as pen rates have risen overall conversion rates have declined as we have entered lower and Trey.
<unk> and models are purchased by younger and less affluent buyers.
And that's you know where we are today in terms of the rates that we're expecting for this year and we've seen you know the lower conversion rates materialize among younger audience as be in part because they're looking for more personalization and more control over their listening experience is and this is why we've been big.
<unk> out our 360 L capabilities and investing in our apps, where we can provide a significantly better and customize listener experience and of course I would love the 360 L. Rollouts to move faster we are subject to the typical automotive product cycles, but we continue to see increases every quarter and our 360, our pen rate.
And we know through our research surveys and and data coming back that you know one of the most impactful features a 360 L is actually just the recommendations and these help guide listeners into our non linear content and we absolutely see higher conversion rates when listeners engage.
With this content, especially those who are newer to our service and may find it more challenging to navigate in terms of our in car integrations and but it is we are also expecting to really address some of this with our streaming product enhancements, which will come later this year.
We have we will have more to say about that in the coming calls but.
There are sort of two aspects, we are fundamentally changing the underlying technology architecture to enable them better commerce, better identity and better Martech capabilities and then we will also layer on top a brand new consumer facing experience with.
Enhanced search recommendations and other feature so.
I think that what we want to do here is be agnostic as to how our listeners may want to experience our service whether it is in the car to car play and indirect auto.
Applications, whether it's outside of the car or using our integrated experiences in everything we do on the streaming experience will ultimately benefit $3 60, 360 L. As well and then I've got just a bit of your your streaming watch question today at Sirius XM only that is the focus for.
The fourth quarter, and improving that product experience and Shaun I guess, you've got Stephen you had a follow up.
Yeah, and then so for Sean you talked about a more conservative stance on capital returns I think the buyback in Q4 was certainly more conservative I'm. Just wondering if you would intend to run leverage a little lower in 2023, given some of the cash items affecting free cash flow that you talked about.
As you can surmise I'm, just trying to kind of back into what kind of buyback we might expect for 'twenty, three and exactly within that kind of conservative stance statement. So thanks a lot.
Yeah no problem. So again exited at three three times I think we will continue to operate and are in that range I think in my comments, Stephen we've talked about the first half of the year and that that's not only a comment about the macro environment, we're operating in and the uncertainty that exists in.
Not only in the overall economic environment, but with consumers and the advertising market specifically.
So I think a cautious approach in the first half of the year and then I think as we always do every quarter, we will reevaluate our SaaS AR as we get into the year and see how how business performance is how the macro environment is so again as you know we've got a number of levers that we've utilized in the past we've.
Got a great balance sheet and you know we will be opportunistic in terms of how we are how we utilize our our capital return opportunity. So.
Not much more to say.
Thanks.
Thank you. The next question comes from the line of Jessica Reif Ehrlich with Bank of America. Please proceed with your question.
Okay. Thank you I have and advertising question and then some constant questions on advertising in first quarter, you sound very cautious could you give any less.
That's a facility can't get that word out of what you're seeing and what you're actually seeing in the first quarter and how much visibility do you have beyond the first quarter can you give us any color on your demographics and until you compete with and advertising is it just the audio and then I'll give my content questions. After.
Yes, Jessica sure I'll start I think that are you know we are seeing a choppy market place are not dissimilar to how we exited Q4 are in the month of January .
The competitive landscape over the last week or so has reinforced that is as others have reported in and provided their outlook I do think that you know podcasts are as we just talked about continues to be a bright spot I think we've got a fair amount of inventory and we have people that are interested in putting dollars there. So.
You know in the context of a difficult market I think that continues to provide some some benefit to us.
You know I think there are certain categories that are strong.
You know in terms of consumer goods and.
Autos and some food service companies so.
We're pleased I mean, you've got obviously, a unified sales force thats selling multi platform a good mix of brand and direct to consumer advertising.
The visibility is probably.
Less than it used to be historically I think people are putting their dollars to work closer to.
The time that the ads are run so that does create some challenge in terms of predictability.
Predictability.
I think Sean largely dropped us, but we are we're facing competition growing competition from other streaming digital streaming audio companies that are.
Coming into the market more aggressive and of course, you know the dominant player being M. F M and yeah, I think theres been some pricing pressure as a result, we built the digital audio market on the music side with Pandora and we have a lot of great.
Nation chips, as Sean said across brands, there and on the satellite side, while the number is smaller we have a lot of great relationships on the Dr side and in podcasting as a mix of that I also think we bring some really unique selling propositions relative to the competition in terms of the cross platform selling.
You talked about them you know the broad relationships with advertisers. The fact that the podcast. We represent are distributed broadly across all listening platforms. I. You know we've done a number of really unique custom integrations, which advertisers love you know, it's a high touch sales.
Process, but yeah. It really gives advertisers a connection with listeners like you know what cone ended with us cause us Gamer.
Sponsorship with Samsung and promotion promoting their gaming hub and then the live events. We do that you know Scott touched on earlier and we've got a lot of great. Examples of that and I would expect those to be important for our business. This year and so I know you had something else for Scott.
Yeah. So actually one of the questions is on live events can you talk about the impact on your overall business I'm doing this you had some humongous stars in 'twenty. Two so could you talk about plans for 'twenty three and then you noted in the press release and actually in the comments that you renewed NFL and NHL can you talk about the cost of the renewals I don't.
No that you're really bidding against anyone for those and what's coming up in the year ahead.
Got you on Japan.
Thanks, Jessica so on the live events you know, we've always used them in two ways strategically to enhance the content experience because life has always been a big.
Audio experience you know in any way you get it in addition, our subscribers.
Unlike a lot of other audio services, we have regular or live events all over the country. Some big some small and they are very popular as part of what are the subscribers like about the service. So it's always been that in addition, as I know you're well aware.
Are they generated a great deal of awareness both for the individual channels or content, we're highlighting but also the corporate brand as a whole and you know the Apollo shows or obviously, the sort of the pinnacle of that but we cover all 50 states and regularly do things. In addition to a lot of her alive.
Sports coverage there.
Ancillary side events to that and all of that so it's always going to be part of it but again, there judiciously done often with no or little cost you know other than the bigger ones, obviously, but you would expect that but we're gonna be always having that as part of it it's just gonna be strategic as far.
Or is the NFL.
And the NHL and all of that the NFL as you know from our announcement, we added additional rights and a.
A number of things.
And the N H L.
So very straightforward extension. So you know I feel really comfortable on the on the economics on that but what that did secure which I think can't go unnoticed is as in particular in video.
Sports rights are all over the place or in multiple entities in multiple places and you have to bounce around a little to get everything you want what we have under one roof. You know from the NFL NBA NHL and MLB Formula One NASCAR.
Every World Cup game, you know Theres nothing in sports, we don't have and our subscribers as Jennifer mentioned, our are increasing their sports listening and so we feel really comfortable that for the near future. We have all of this under one roof. So those renewals where were important to us.
Is there anything coming up this year.
No I don't believe certainly nothing in the first half of the year.
I'll have to get back to you on the I don't know a lot of work.
Thank you.
Thanks.
Thank you.
Our next and final question will be coming from the line of Jason Bazinet with Citi. Please proceed with your question.
I just had one follow up question on the.
The relaunch of the streaming experience in the fourth quarter of this year you mentioned a lot that's going to be in that Martech I D better user interface recommendation engine.
Yes. My question is if this goes well what metric.
You disclose do you expect the most improvement in 'twenty four 'twenty five is it more of a higher conversion rates in our pud above I'd just be curious.
Yeah. So great question, Jason I. The first thing we're going to be looking at is how do we I you know retain more of our streaming.
Trailers right and you know these are Cape that fundamental capabilities that will enable us to get better insights as to what the listeners during trial are listening to so that we can serve better recommendations either in the product or through marketing I to improve engagement.
Time, so we watch a lot of metrics and yeah that would be brought in Joe Inzerillo and a number of members of his team our new that are really well versed in this area from the video side and other parts of the streaming industry and you know the the metrics we're watching on streaming our early engagement.
And trial, you know number of days a length of time breadth of content you know all the things that you would expect I. Those are your early indicators, obviously as who will rollover and ultimately stay with us and and I would expect improvements over the course of this year as we make I you know enhancements to our in market apps.
But you know we're largely focused on rebuilding this this architecture we have.
Not been well positioned here frankly, right. We have a you know an infrastructure that was built to serve our in car subscribers and.
You know by rebuilding the tech stack for streaming it's going to support streaming subscriptions, but you know as you mentioned it will also help with conversion of our in car strike our in car trailers, both because we have a better out of car experience and because we can bring these capabilities to bear any IP delivery of our.
Service through 360 L. So we'll be watching a lot of those metrics I'm after the launch.
That's great. Thank you.
Thanks, Jason and thanks, everybody for participating today, we'll look forward to speaking to you soon take care.
This will conclude today's conference. Thank you for your participation you may now disconnect. Your lines at this time and have a wonderful day.