Sirius XM(SIRI) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - SiriusXM achieved record high EBITDA of over $2.8 billion and revenue of$ 9 billion in 2022, with 348,000 Self-Pay net additions [5] - Adjusted EBITDA grew 2% from $2.77 billion in 2021 to$ 2.83 billion in 2022, while free cash flow was $1.55 billion, up from$ 1.39 billion in 2021 [22] - Q4 2022 revenue remained flat at $2.28 billion, with subscription revenue increasing while advertising revenue declined 3% to$ 480 million [22] - Net income for Q4 2022 rose 15% to $365 million, or$ 0.09 per diluted share, and free cash flow reached $529 million, up 10% YoY [23] Business Line Performance - SiriusXM segment revenue grew 4.2% to$ 6.9 billion in 2022, driven by 6% ARPU growth, while gross profit increased 6% to nearly $4.3 billion, with a margin of 62% [23] - Pandora and Off-Platform segment revenue increased 1% to$ 2.1 billion in 2022, with advertising revenue up 2%, but MAUs declined 9% to 47.6 million [24] - Non-Pandora ad revenue across the business climbed 24% in 2022 to $672 million, representing 38% of total ad business, driven by podcasting revenue [24] Market Performance - New and used car trial starts were down 3% and 7% sequentially in Q4 2022 due to soft auto industry sales and high vehicle prices [8] - Total new and used vehicle penetration rates were 83% and 53%, respectively, with over 150 million enabled vehicles on the road [13] - The 360L platform is now available in 20 OEM brands, with over 7 million 360L-enabled cars on the road, representing 27% of new SiriusXM-enabled vehicles in 2022 [13] Strategy and Industry Competition - SiriusXM is focusing on modernizing its technology platform and improving the streaming experience, with a relaunch of the SXM app expected in Q4 2023 [12] - The company is investing in content to attract younger, more diverse audiences, including original on-demand content and streaming-first talk, music, and video content [17] - Podcasting remains a growth opportunity, with five of the top 20 shows in Edison Research's top 50 podcast rankings, driving a 34% increase in Off-Platform business revenue in 2022 [19] Management Commentary on Operating Environment and Outlook - SiriusXM expects a softer first half of 2023 in terms of revenue, EBITDA, and subscriber growth due to economic uncertainty and reduced marketing spend [7] - The company anticipates modestly negative Self-Pay net adds for 2023, with a focus on cost reductions and efficiency improvements across the business [26] - Management remains confident in the company's ability to monetize its ad-supported portfolio and attract new audiences through improved product experiences [21] Other Important Information - SiriusXM returned approximately$ 2 billion to stockholders in 2022, including $1 billion in special dividends,$ 350 million in recurring dividends, and $639 million in share repurchases [25] - The company expects satellite CapEx to rise by over$ 200 million in 2023 due to the production of SXM 11 and 12 satellites, with non-satellite CapEx also increasing for strategic investments in product, engineering, and IT [28] Q&A Summary Question: Path to Positive Self-Pay Net Adds and Free Cash Flow Outlook - SiriusXM expects flat trial starts for the first nine months of 2023, with conversion rates for new and used cars expected to be in the low 30s and low 20s, respectively [34][37] - Free cash flow is expected to be a low point in 2023 due to increased CapEx and cash taxes, but the company anticipates improvements in future years as satellite CapEx moderates [38] Question: Economic Sensitivity and Podcast Advertising Opportunity - SiriusXM's subscriber base is largely more affluent, but the company has expanded into used cars, attracting younger and less affluent buyers [42] - Podcasting advertising is seen as a growth opportunity, with unique assets and cross-platform selling capabilities, though the market is still nascent and requires further investment [44][46] Question: Conversion Rates and Streaming Launch Details - Conversion rates have declined due to lower-end vehicle trends and younger buyers seeking more personalized listening experiences, which SiriusXM is addressing through 360L and app improvements [49][50] - The streaming relaunch in Q4 2023 will focus on improving the SiriusXM app with enhanced search, recommendations, and a new consumer-facing experience [52] Question: Advertising Market and Live Events Impact - The advertising market remains choppy, with podcasting being a bright spot, though competition from digital streaming audio companies is increasing [58][60] - Live events are a strategic part of SiriusXM's content experience, generating awareness and enhancing subscriber engagement, with no major renewals expected in 2023 [63][65] Question: Metrics to Watch Post-Streaming Relaunch - SiriusXM will focus on improving retention of streaming trialers through better engagement metrics, such as early engagement, content breadth, and personalized recommendations [69]