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Edited Transcript of SIRI earnings conference call or presentation 31-Oct-19 12:00pm GMT

Q3 2019 Sirius XM Holdings Inc Earnings Call

New York Nov 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Sirius XM Holdings Inc earnings conference call or presentation Thursday, October 31, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David J. Frear

Sirius XM Holdings Inc. - Senior EVP & CFO

* Hooper Stevens

Sirius XM Holdings Inc. - VP of IR & Finance

* James E. Meyer

Sirius XM Holdings Inc. - CEO & Director

* Scott A. Greenstein

Sirius XM Radio Inc. - President and Chief Content Officer

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Conference Call Participants

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* Benjamin Daniel Swinburne

Morgan Stanley, Research Division - MD

* Bryan D. Kraft

Deutsche Bank AG, Research Division - Senior Analyst

* James Maxwell Ratcliffe

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Jason B Bazinet

Citigroup Inc, Research Division - MD and U.S. Cable & Satellite Analyst

* Jessica Jean Reif Ehrlich

BofA Merrill Lynch, Research Division - MD in Equity Research

* Kannan Venkateshwar

Barclays Bank PLC, Research Division - Director & Senior Research Analyst

* Steven Lee Cahall

Wells Fargo Securities, LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning and welcome to SiriusXM's Third Quarter 2019 Results Conference Call. Today's conference is being recorded. (Operator Instructions) At this time, I would like to turn the call over to Hooper Stevens, Senior Vice President, Investor Relations and Finance. Mr. Stevens, please go ahead.

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Hooper Stevens, Sirius XM Holdings Inc. - VP of IR & Finance [2]

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Thank you and good morning, everyone. Welcome to SiriusXM's earnings conference call. Today, Jim Meyer, our Chief Executive Officer, will be joined by David Frear, our Senior Executive Vice President and Chief Financial Officer.

At the conclusion of our prepared remarks, as usual, management will be glad to take your questions. Scott Greenstein, our President and Chief Content Officer; and Jennifer Witz, our President of Sales, Marketing and Operations, will also be available for the Q&A portion of the call.

I would like to remind everyone that certain statements made during the call might be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise.

Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about those risks and uncertainties, please view SiriusXM's SEC filings. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them.

As we begin, I'd like to remind our listeners that today's results will include discussions about both actual results and pro forma adjusted results. All discussions of pro forma adjusted operating results assume the Pandora transaction closed on January 1, 2018, and exclude the effects of stock-based compensation and certain purchase price accounting adjustments.

I'll hand the call over to Jim Meyer.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [3]

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Thank you, Hooper. Good morning. SiriusXM delivered an excellent third quarter across the board with robust subscriber growth and solid expansion of EBITDA and free cash flow.

Revenue was up 7% and exceeded $2 billion for the first time ever. Adjusted EBITDA also set a single-quarter record by climbing 12% to $657 million. With these great results, I'm pleased to increase our full year guidance for all of our financial metrics and strongly reiterate our guidance for self-pay subscriber growth.

Our third quarter SiriusXM self-pay net additions of 302,000 climbed a bit sequentially and year-over-year. I'd like to emphasize how strong our churn performance was in the third quarter. Though it rounded down to 1.7%, I was extremely pleased we were able to get some improvement over last year's phenomenal third quarter churn rate.

And with some acceleration and gross adds in the third quarter, the growth in self-pay net additions, both sequentially and year-over-year, was no small feat as we faced headwinds from a much larger base. Needless to say, I am quite confident we will attain our full year guidance of approaching 1 million self-pay net additions.

The Pandora acquisition has very quickly increased our scale to approximately 100 million users. We're already using this additional scale to speed up improvements to our digital products, both in car and out of car and to attract and promote new content. As an example, over the summer, we started driving plays of Lewis Capaldi's Someone You Loved to our 100 million listeners, igniting the pickup of the song on streaming platforms and ultimately radio plays that brought it to #1 on Billboard last week.

The Pandora acquisition has broadened our skillset to include an advanced, market-leading digital advertising business, which I'll talk more about later, and has made us much bigger outside of the car. This nicely complements SiriusXM's excellent in-vehicle position.

SAAR is humming along on the 16.8 million to 16 million -- 16.9 million range, nearly flat with last year. While penetration was in the low 70s, we still expect to be at 80% overall next year. And based upon our latest discussions with OEMs, we may even go a bit higher than 80% over the next several years. This will push our enabled fleet from about 123 million today to more than 220 million over the next decade. And 360L deployments are accelerating as well with numerous GM models launching this year and even more OEMs beginning to deploy our hybrid satellite streaming solution next year.

Just this week, we signed an extension with Nissan through the 2028 model year that also includes a significant deployment of 360L. Yet another example of the auto company's betting on SiriusXM for the long haul.

We have an expected -- with an expected 100 million net additional enabled vehicles in the coming decade, the SiriusXM core vehicle business has many years to grow. Match that with record-low SAC per install, record-high ARPU, historically low churn and consistently high contribution margins with great long-term visibility, the unit economics at the heart of SiriusXM's business are fantastic and should remain so. But we must continue reinforcing our value proposition and finding additional out-of-car pathways to engage existing subscribers and drive new sources of growth.

Just yesterday, we announced a new distribution agreement with Google. SiriusXM will now be available on Google Assistant and Google Nest devices. Google will prominently offer new buyers of these devices a 3-month free trial of our service and will offer subscriptions at promotional rates that include a bundled Google Nest hub.

While the in-car experience will evolve gradually over time as the 360L vehicle population grows, the Google announcement is just one example of how we are quickly moving to improve engagement out of the car. We've made streaming available at no extra charge for the vast majority of our subscribers. We've greatly improved our apps with new features, a better interface, more channels and now a quickly expanding video offering. We are now easily available in the home and on the go on a growing number of connected CE devices.

We've even created new streaming-only plans for general consumers and students with targeted content lineups, price points and new marketing approaches to attract these users. The contributions to subscriber growth from these areas are small today but have plenty of room to grow next year and over time to become more meaningful.

At Pandora, we have moved very quickly. We have moved the business to profitability through cost efficiencies and we are continuing to make strides in monetization. David will spend more time on the numbers, but I'm pleased that advertising revenue at Pandora climbed 8% and gross profit expanded 19%. Ad-supported listening hours were still down 7.5%, but this was an improvement from declines of 9.6% in the second quarter and 11.2% in the first quarter. We have a lot of heavy lifting ahead of us, but let's not forget that this was our highest-ever quarterly ad revenue figure and we had solid off-platform growth as well.

I'm also happy to report that we've been accelerating our quick pace of innovation at Pandora, including an all-new mobile app experience in the third quarter with a dynamically updated personalized For You discovery feed designed to surface new, hyper-relevant content tailored to each user throughout the day. Early data shows that this is driving discovery, giving users greater access to on-demand music and leading people to experience more content than before.

We also launched Modes, which lets Pandora listeners to lean forward to fine-tune stations towards Discovery, Crowd Favorites, Deep Cuts and more. Among its many benefits, For You will also help grow Pandora's podcasting platform as well by exposing users to even more types of content. We've made it easier for podcasters to submit their shows and be added to our growing catalog with a new self-service hub for creators.

We've also added more exclusive from SiriusXM. In addition to great content, our biggest long-term advantage in podcasting will be in curation and discovery and eventually in monetization as well. Most podcast advertising is very rudimentary and not personalized. Frankly, this area is ripe to be disrupted and improved with better ad technology and better targeting. And here, unquestionably, we are strong.

I'm very excited about the ad tech platform at Pandora and the continued progress we are making there. Our programmatic offering and off-platform performance with SoundCloud are both driving excellent results. Premium access where a user watches a video ad to unlock on-demand listening is performing well, particularly with younger listeners. But the biggest and most exciting changes to come at Pandora are really around content.

On both platforms, we are completely reimagining what is possible with our newly scaled audience. We are reinforcing our content advantages by extending key deals at SiriusXM, and we are positioning both brands with new content tailored to their specific listener bases.

We want our content to be differentiated from and superior to other offerings in the audio market, and I think we're making great progress in that area. This will mean more curated, branded stations and playlists at Pandora. It means using more megastars and brands with built-in fan bases to drive demand and brand relevance. SiriusXM and Pandora will continue to be different. But some of the ways we have been successful at SiriusXM over the years will be an important part of the strategy to reinvigorate the Pandora business as well.

Just a few short weeks ago, we christened our new SiriusXM Hollywood studio complex in Los Angeles with a special series of broadcasts by Howard Stern. Howard is at the top of his game and was welcomed to L.A. by our -- by a vast array of stars and special live performances, all from our state-of-the-art, street-level performance space we call The Garage.

Howard's broadcast followed a month of special shows, interviews and performances in L.A. exclusively for us by Carrie Underwood, Julia Roberts and young phenom Billie Eilish, to just name a few. Being closer to compelling talent and media brands in the entertainment capital of the world bolsters our ability to create even more valuable programming for our subscribers.

Last week, we announced a collaboration with Marvel to create scripted and unscripted podcasts exclusively for the SiriusXM and Pandora platforms. This pivotal deal neatly illustrates our podcasting approach. We care about quality and we always love to associate with the best brands first and foremost. People don't just want more, they want what is compelling. Marvel creates fantastic character-driven storylines and their record of success is unrivaled. We are thrilled to partner with Marvel and to see this exciting content debut next year.

In sports, we teamed up with UNINTERRUPTED, the athlete-empowered brand founded by LeBron James and Maverick Carter to create 17 Weeks, a new weekly football podcast series this fall. We are also working with NFL Films to coproduce a 20-part podcast series that celebrates the NFL's 100th season.

In comedy, we launched a special channel devoted to the archives of Johnny Carson playing full episodes of his Tonight Show. Kevin Hart expanded his relationship with us and his full-time comedy channel. Comedians Tom Papa and Fortune Feimster launched the first original daily show in our full-time Netflix comedy channel. And we are now broadcasting new and upcoming comics live directly from our L.A. studio.

We have renewed and extended high-profile SiriusXM content, arrangements with FOX News, Andy Cohen, Pitbull and others. We also signed Al Franken to do a new political talk show on our Progress Channel. Rita Wilson to host an exclusive new talk show channel -- show about music on SiriusXM Volume Channel and All-Star pitcher Trevor Bauer to host an exclusive show on our Major League Baseball channel.

Music superstars continue to acknowledge the power of our platform, and in the competitive audio world, that matters. Taylor Swift came to our Rock Center Studios to perform songs from her new album on the day it was released, performing before a live audience of delighted SiriusXM subscribers. And as I have mentioned before, we are thrilled to be working with Drake in a collaboration that will stretch across both Pandora and SiriusXM. Stay tuned for more on this.

So while we have the best content available in media, we are clearly not resting on our laurels. We are always moving forward to refine what users can expect from our 2 iconic audio brands.

As we head into next year, I am very pleased with our position. We'll have a rising new-car penetration rate at SiriusXM, not to mention expanded 360L deployments as well, a growing and longer-tailed used car business and we should see some early results of our efforts to grow distribution outside of the car, both with an expanded base of Internet-driven subscriptions and the benefit of more out-of-car engagement among existing subscribers.

We continue to have the best business model in audio entertainment at SiriusXM. Pandora expands our reach into ad-based audio with an improved content and consumer product set, leading ad technology and a best-in-class off-platform solution for other audio publishers.

Our model gives us tremendous flexibility, financial flexibility to aggressively invest in our business while continuing to deploy significant capital to our shareholders, over $2 billion so far this year alone. And I couldn't be more pleased with the deep bench of management talent we've nurtured and added to prepare us for future challenges.

With that, let me turn it over to you, David.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [4]

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Thanks, Jim. Good morning, everyone, and thanks for joining the call. SiriusXM's strong start to 2019 continued into the back half of the year. We added 302,000 self-pay net subscriber additions and had our best third quarter for total net additions since 2016.

Pro forma revenue grew 7% and adjusted EBITDA grew 12% year-on-year to an all-time high of $657 million. As I discuss the results for the quarter, I'll focus on the pro forma results, which combine the 2 companies for the full quarter in both years.

Third quarter auto sales were up slightly at 1% with SAAR unchanged coming in very strong at approximately 17 million. Our penetration rate exceeded 72% in the quarter, just slightly above our second quarter rate and we remain confident that our pen rate will reach 80% next year.

The installed base of vehicles grew 11% year-over-year to 123 million or approximately 47% of the total cars on the road in the U.S. The used car penetration rate was approximately 44% in the quarter, jumping 400 basis points year-on-year and helped lift self-pay gross additions from the used channel to 39% of the total, up from 36% in the prior year period.

Used car trial starts continued to grow solidly 9%. Used car pen rate will increase steadily over the next several years as it climbs to match the new car pen rate. At the end of the quarter, the total trial funnel stood at a record 9.9 million.

Self-pay net additions at SiriusXM in the quarter were approximately 200 -- 302,000 brought the self-pay base to more than 29.6 million subscribers. Conversion rates in our new and used car business remained strong at just below 40% and in the mid to upper 20% range, respectively.

Churn in the quarter rounded down to 1.7% per month, just a notch lower than last year's third quarter of 1.75% and still below the low end of our expected range as rising vehicle churn continues to be offset by improving voluntary and nonpay churn.

ARPU in the quarter was a record $13.90 growing approximately 3% over the third quarter of last year. Together with 3% growth in our subscriber base, SiriusXM's segment revenue for the third quarter grew 7% to nearly $1.57 billion.

Total cost of services, excluding stock-based comp, increased 6% to $596 million in the quarter, driven by higher revenue share and royalties in programming and content costs. Gross profit for SiriusXM totaled $970 million, increasing 7% over the prior year, producing a gross margin of 62%, approximately flat with the prior year.

At Pandora, advertising revenues grew 8% to $315 million, our biggest quarter ever. Higher in-quarter bookings, strong sell-through and pricing, growth from the AdsWizz platform and contributions from the SoundCloud relationship drove this strong performance. Ad RPMs continued to grow, reaching to $85.33 in the quarter, approximately 10% higher than the prior year.

MAU and ad hours trends continued, with MAUs down 8% to 63.1 million and ad hours down 8% to 3.32 billion. While Pandora's audience trends have been years in the making, we expect our investments in content, distribution, product and technology to ultimately improve audience performance at Pandora.

Pandora's self-pay subscribers grew 33,000 net additions in the quarter to a total of 6.3 million. In the third quarter, a 1-year paid promotional subscription trial with a wireless carrier ended, resulting in approximately 700,000 paid promotional trials being retired. The majority of these listeners continued as ad-supported listeners.

This brought total Pandora subscribers to 6.3 million at the end of the period, which included a paid promotional subscriber base of 45,000. The growing sub base produced subscription revenue of $132 million, up 5% over the prior year quarter. Total Pandora revenue in the quarter grew 7% to $447 million.

With total cost of services increasing only 1% over the prior year period to $278 million, Pandora's gross profit jumped 19% to $169 million in the third quarter. This represented a margin of 38%, approximately 400 basis points higher than the third quarter of '18, with the expansion driven primarily by lower revenue share in royalties and customer service and billing expenses as a percent of revenue.

For the combined company, pro forma revenue grew 7% or $126 million over Q3 '18 to just over $2 billion. $88 million of this increase or about 70% fell through to pro forma gross profit, driving it up 8% to over $1.1 billion, and approximately 82% of that fell through to adjusted EBITDA, driving it up 12% to $657 million.

Adjusted EBITDA margin was 32.6% in the third quarter, growing approximately 160 basis points from 31% a year ago. We converted approximately 71% of this adjusted EBITDA into free cash flow to only $465 million in the third quarter.

GAAP net income in the quarter of $246 million declined from $343 million in the prior year period primarily driven by refinancing expenses of $56 million associated with the July redemption of our 6% senior notes in addition to nonrecurring tax benefits of approximately $80 million in the prior year period.

The company's effective tax rate for the third quarter was 22.2% compared to 3.3% in the prior year period. We expect our full year effective tax rate will be approximately 24%.

Earnings per diluted share for the quarter, on a GAAP basis, was $0.05 with a fully diluted average share count of 4.56 billion shares. With 2 months left in the year, our new pro forma guidance for 2019 calls for revenue of approximately $7.85 billion, adjusted EBITDA approaching $2.4 billion and free cash flow of approximately $1.625 billion.

We are confidently reiterating our guidance for self-pay net sub adds of approaching 1 million. In the third quarter, we repurchased $464 million of common stock, bringing our year-to-date total capital returns to over $2.1 billion, our largest first 9 months for capital returns ever.

At quarter end, our debt to adjusted EBITDA was 3.25x. And with nearly $1.7 billion available under our revolving credit facility, this gives us ample liquidity to continue investing in our business while returning capital to shareholders.

With that, operator, let's open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Vijay Jayant from Evercore.

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James Maxwell Ratcliffe, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [2]

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It's James Ratcliffe for Vijay. Two, if I could, one on Pandora and one for SiriusXM. On Pandora, you've had -- ad revenue per listener looks to be up about 13% year-on-year, so clearly monetizing better. How much more room do you have to grow that? And what are the prospects for at least stabilizing advertising listeners on the Pandora side and how do you get there?

Secondly, on the Sirius side, any incremental color on 360L in particular? What conversion rate you're seeing versus vehicle -- comparable vehicles with standard radios, operating expense impact, et cetera?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [3]

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So let me try on 360L and then I'll turn it over to David on a couple of your Pandora questions. I know we've had 360L product for quite a bit out there. We're beginning to see the conversion of the very first generation of that. It's a very small quantity. So James, honestly, I don't -- I haven't reached any conclusion that's meaningful for you. We are seeing, significant now, buildup in 360L as we announced last quarter with GM beginning to deploy. And so I would expect to get more visibility and certainly a much bigger base kind of late spring, early summer next year, that we can probably see.

In terms of color on 360L, the color is the same as I've always said. And our announcement with Nissan today is just -- the beat goes on one more. 360L will continue to steadily roll out with every single one of our partners over the next 5 years to where it ultimately is every single one of our cars. And so we're really pleased with how it's going. Obviously, we constantly tinker with it to make it better, but I'm really pleased where that is.

Dave, do you want to take the Pandora question?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [4]

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Yes. So in terms of the ad revenue per listener, James, the Pandora product really delivers for advertisers from an ROI perspective and so the team is able to really get premium pricing out of that, there isn't a lot of audio capacity out there that delivers the way that Pandora does.

That being said, I think in terms of increasing effectively prices in that segment, we feel the same way about that, that we do about trying to increase subscription prices. You got to fight hard against a lot of competitors every day to sort of keep your book of business.

And so we're not looking to just sort of jack the prices. We do think that it's a premium product with great ROI. It already monetizes a premium for audio and so we just intend to have the sales team keep banging away at the inherent benefits of advertising on the Pandora platform.

But all that being said, there's a lot of room for off-platform growth in the business. And so we think the ability to continue sort of driving monetization, not just with our inventory, but with others, is a huge opportunity for the company.

In terms of stabilizing the audience, I mean you've been hearing us talk about this for a few calls now, and it takes a while. We got to invest in content, we've got to invest in distribution partnerships, different sort of management disciplines to look to stabilize this audience. It's been a long time in the making. It's a 5-year path to a 20% decline in audience.

And we fundamentally believe that's because while there's a tremendous amount of great content on there you can put, better, more interesting, more engaging content out there, and we fully intend to do that. We think you can engage the customer in different ways. And so just stay tuned and we'll keep you posted.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [5]

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Yes. I think that's well said, Dave. And the only thing I would add is, David said -- there is a lot of competition -- a lot of good competition out there, which we respect. But we think we have a game plan, James, to deal with this and we'll keep at it.

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Operator [6]

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We will now take our next question from Steven Cahall from Wells Fargo.

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Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division - Research Analyst [7]

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Yes. Maybe just first on subscription. Self-pay net adds, I know you'll probably guide in January. But maybe I was wondering if you could give us a bit of preview as to what you're thinking, especially in light of your expected higher penetration rate for next year and what you're seeing in terms of SAAR?

And then on the SiriusXM ARPU, I think it was up around 19% on the subscription side, excluding connected vehicle this quarter. I think there's still some MRF rolling through there. So can you just talk about how we should think about subscription ARPU for the medium term?

Does it revert kind of back to inflationary rates? Or do you still like the pricing power here? And just relatedly on the ad side, it seems like that grows to mid- to high single digit all the time. So is the SiriusXM ad ARPU also a continued growth driver?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [8]

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So I'll take the first one since David has taught me this one, which is we'll give our guidance in early next year. David, can you take the rest of them?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [9]

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Yes. So on the subscription ARPU, I mean we've been saying this for a long time, that rather than look at any particular quarter and sort of how it looks, I think the better thing is to kind of take a step back and look at what we've done over the course of the last 8, 9 years. And what you see, while there's a couple of spikes in it, it averages out to about 2.5% of inflation in the underlying prices per year. And we think that's probably a good place to stay.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [10]

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And I'll just make a comment. On the SiriusXM advertising sales, we're quite pleased. We're -- there, we are seeing high single digits to low double-digit growth.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [11]

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Yes, low double digit.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [12]

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Yes. And we're pretty pleased. We drive that team hard. We're expecting a really strong fourth quarter out of them and good growth next year as well. So it's a really bright spot for us.

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Operator [13]

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We will now take our next question from Jessica Reif Ehrlich from Bank of America Merrill Lynch.

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Jessica Jean Reif Ehrlich, BofA Merrill Lynch, Research Division - MD in Equity Research [14]

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Couple of questions. The first one on podcasting. It seems like a really big focus for you, and there are a number of different entities, different companies investing in this area. Can you just talk about your level of investment over the next couple of years? And how would you define success for Sirius in this area, in the content realm, for you?

Second question is, you've made such great efforts to expand outside the vehicle. And as you said, you just made a deal with Google Home for in-home, you have the deal with Alexa. Can you talk about how much has the in-home usage increased given the proliferation of smart speakers?

And I guess the third and final one is, we sort of noticed that Sirius for Business [particularly] for the restaurant. And you don't really talk about that very much. But as you're focusing more attention outside the vehicle, how big of an opportunity does this commercial area represent?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [15]

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So Jessica, it's Jim. I'll take a couple of them, then I'll turn it over to -- Scott and David can weigh in. The -- I'll take the last one first. We do have a SiriusXM for Business, business. It's relatively small. It's one that -- frankly, we're right in the middle of our business planning process now, and we continue to really look at how we might be able to amplify it.

There's not an obvious path to do that. We're kind of happy with where it is right now, and I would expect it'll just kind of grows. It's low growth. It is a good product. We continue to look for opportunities there. But it's one that -- we've even looked at acquisition opportunities. It's just not obvious that I've seen anything that's impressed me. But it is a good little business for us.

Going back to podcasting, I would say first and foremost, the word I've used with our team is discipline, first and foremost. We're taking a very, very disciplined approach to this. I think there are 2 sides to success -- there's actually 3 sides of success in podcasting in my mind.

First and foremost is building a very robust structure. And by that, I mean technical structure that can support that business in the way we think it needs to be supported, including with the ad technology that we think is necessary to tailor the ads and a lot of those things.

Our teams are working right now on what we believe is a solid road map to do that. That road map may involve us doing some small things with some outside partners. I don't know yet or we may do it all ourselves. But I would expect to have more visibility to that here, certainly in the first half of next year. But I will tell you, that's not an earth-shattering kind of investment. It is work and we just got to keep it right and get it right. But we know what we want there and we're moving towards it.

On the content side, I think -- I couldn't have said it more clear on what -- in my comments, since Scott wrote them, I know Scott agrees with that part, which is to us, it is not about quantity. That doesn't mean that we don't want to have a vast library of stuff available. To us, the podcasting game, we believe, is all about the value of the quality of the content and we don't believe that many of the big brands have really weighed in yet, the big entertainment brands, which is why we think the Marvel announcement is really so extraordinary of where we're going here.

Again here though, I will reassure you that we will go down this path on the content area with physical discipline, okay? Scott, anything -- oh, and finally, Jessica, as we get it all together, then there's the 2 other little simple things. We got to make sure subscribers know how to find it when they want it and we got to know how to promote it to them correctly. And so our -- we don't -- I don't want to just run out there and say, "Hey, we're in podcast -- I want to deliver the whole thing and then go drive it. Sorry, Scott?

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Scott A. Greenstein, Sirius XM Radio Inc. - President and Chief Content Officer [16]

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Just 2 quick things. One on the -- I obviously agree with what Jim said. Our strategy at Pandora and Sirius on podcasting is no different than any of our other content strategies. We want to find the best content that will truly make a difference and also act as a fuse to have our listeners find other content. So that will continue.

The fact that a lot of big names, many big names, both individual and brands, are in the business, is the opportunity that we're most excited about. Given that most podcasts are put out for free on an RSS feed, Pandora quietly has accumulated -- approaching 7,000 very good podcasts already. So that, on virtually or no or limited economics, the tonnage will be there like everybody else. The Marvels and others will make a difference.

The other point is once Pandora -- and it's not a question of if, it's when. Once Pandora's algorithm is able to align your music tastes with your podcast and you can surface podcasts the way they surface music, it's an entire different game because as the music industry learns soon enough, the issue is whether you can curate well and surface well when there's a tremendous amount out there. And we think we'll be in that game as well as the quality game. And obviously, as David and orders touched on, the ad monetization, potential podcast on and off-platform, we think we're well suited for it.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [17]

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So in the level of investment, Jessica, we don't expect the investments in podcast to really alter the way we invest per dollar revenue. And -- though we will monetize the podcast, so there's enhanced monetization. You talked about definition of success. Audience engagement is something that we're going to be looking at. And so yes, I don't think you should think of the investments in podcast as fundamentally changing the economic trends for the business.

And your last thing about expanding listening outside the vehicle, we got a lot of that going on in the -- it's funny -- it's a little hard for us to say how much of it is going because we don't know how much people listen on the satellite, right? So we know how much they stream, and streaming is definitely up and up significantly and we're thrilled with the audience engagement. And -- but in terms of share of the overall, since we don't have visibility on the satellite side, it's kind of hard to measure.

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Jessica Jean Reif Ehrlich, BofA Merrill Lynch, Research Division - MD in Equity Research [18]

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And I guess one last question. When is the big Drake reveal?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [19]

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Well, I think we'll have more say about that in -- around the consumer electronics -- around early -- in early January.

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Scott A. Greenstein, Sirius XM Radio Inc. - President and Chief Content Officer [20]

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That's correct.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [21]

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Well, we're working hard.

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Operator [22]

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And we'll now take the next question from Bryan Kraft from Deutsche Bank.

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Bryan D. Kraft, Deutsche Bank AG, Research Division - Senior Analyst [23]

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Wanted to ask you a question about content cost. You've increased the SiriusXM segment programming content budget by more than you have historically this year. Can you just help us to break down the primary areas that are driving the increased investment? And can you give us any sense of what the content cost outlook looks like beyond this year, particularly as we think about the new initiatives you've announced with Marvel, Drake, video, et cetera? And how should we think about the returns on this investment going forward?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [24]

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So I don't think there's anything that's going on in content cost that is different from the history. What you've always seen is that as content comes up for renewal, we tend to have -- and since we do multiyear deals most often that -- we have a step-up in cost, and then revenue growth overabsorbs that content over the next few years. And I think you should think about this year in the podcast investments in the same way.

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Bryan D. Kraft, Deutsche Bank AG, Research Division - Senior Analyst [25]

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Okay. So more of a kind of a normalized growth rate beyond this year, it sounds like, is what you'd expect?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [26]

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Yes. That's exactly right.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [27]

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Bryan, the only thing I'd point out to, one thing I kind of blobbled up a little with my comments is -- I just want to reiterate, we're really pleased to have FOX News re-signed to a multiyear renewal with us. We were able to do that deal with economics that certainly makes sense to us.

But having that one, FOX News is a really important part of our -- of what the SiriusXM listener base really demands. And having that back in place for several years now ahead of us at a cost that -- as David said, we tend to redo these things and then there's a step and then it stays flat, we're really pleased with.

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Scott A. Greenstein, Sirius XM Radio Inc. - President and Chief Content Officer [28]

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And just one other point on that. As the content comes in, our ad sales monetization skills, as Jim and David referred to, with both Sirius and Pandora, are making a huge difference compared to years ago in monetizing the new content and the old content.

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Operator [29]

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We will now take our next question from Ben Swinburne from Morgan Stanley.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [30]

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Jim, at a couple of conferences this fall, you talked about churn as an opportunity ahead of the company, and you guys have been highly successful at keeping churn low for a long time. But you brought it up twice. So I thought I'd ask you about it on the call, because I think given the size of the base, if you can move that number with simple math, it really helps the growth of the business. So any more color on sort of the opportunity and how you get it between sort of pay or voluntary and nonpay and help us think about that?

And I just wanted to come back to Marvel because I'm sure there was tons of competition for this IP. So from -- maybe from Scott's perspective, anything you can share with us on how you use the relationship with Marvel or the brand to drive the business? And it would seem like just given the impact that, that studio has had on the entertainment business and the consumer, it's a pretty big partnership for the company. I'm just wondering how you're thinking about leveraging that to its fullest extent?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [31]

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So Ben, you're 100% right on churn. I mean it is -- the dirty secret of a very large subscriber business is churn. And the management of churn obviously I believe, is -- as key indicator of anything in how the business -- how a large subscription business is running.

We're really pleased with where we are. Frankly, almost everything we're doing in terms of adding value and -- like things like making streaming available to virtually all -- most of our subscribers at no charge are aimed at the initiative of improving churn. We know the more people listen, the less likely they are to churn. So we're putting all those things together.

I have -- it certainly is my premise that, that can't help, but it -- but help churn. There is a force going the other way, which is vehicle turnover continue -- as the fleet gets bigger, the percent of our churn that becomes vehicle turnover gets higher. And so really, what you need to look for that offset is more in the used car growth as opposed to in the churn number.

So we're really focused on this. I think we're probably comfortable with what we've said. We are comfortable with what we've said on churn. I'm not ready to lower that and certainly as to what ranges we think about. But it is, in my opinion, the single biggest area that we can influence, I think, that could help us steady and drive our growth. In terms of Marvel, Scott, is there anything you want to...

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Scott A. Greenstein, Sirius XM Radio Inc. - President and Chief Content Officer [32]

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Sure. So Ben, a couple of quick things. One, yes, it was obviously competition. Why wouldn't it be? Every field they've ever entered of media, they've made a difference. And audio is sort of the last field, I think, that they're not in, in a significant way and now they are. So that was good.

And the factor with Marvel and the NFL, which I don't want to get lost sight on this is there's a lot of digital audio players that are largely algorithmically driven. Marvel's single biggest factor, and they referred to it, was SiriusXM's long history of audio production and the quality of that. It was the same factor with the NFL coming here. So we're excited about that.

And obviously, since the Marvel announcement, it has led to other high-quality brands being interested and we're looking at those judiciously, but it's nice to have the opportunity to have them come in to look at.

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Operator [33]

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We will now take our next question from Kannan Venkateshwar from Barclays.

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Kannan Venkateshwar, Barclays Bank PLC, Research Division - Director & Senior Research Analyst [34]

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So a couple, I guess. Firstly, if you think about your subscriber guidance for the full year compared with the normal seasonality as well as -- I think your trial funnel growth this quarter was really strong compared to growth typically that we have seen. So why is the guidance still at $1 million, why not higher? Because it seems very conservative relative to what you guys have done in the first 3 quarters.

And then secondly, when you think about some of these newer deals that you're doing with car automakers like Nissan, for example, are the structure of these deals any different? Because Nissan also signed a deal with Google recently. So how are they approaching 360L and all the other deals that they are doing? Is it any different from the past deals you guys have done?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [35]

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Okay. So let me take the latter one. In terms of the auto deals, I guess I'll start with -- I think, without sounding arrogant, I don't want this to sound -- I think we understand as well or better than anybody what the entertainment and infotainment landscape looks like in the vehicle for many, many years to come. And so we're well aware of the deals you referenced with Google and others.

By the way, our -- the deal with Google in that particular pace is for what Google is calling GAS, Google audio -- Android systems (sic) [Google Automotive Services]. And I think Google has decided on a strategy. That strategy, quite candidly, at least in my opinion, doesn't conflict in any way with our strategy. And so -- and by the way, it's quite nice for the automakers. It helps them both innovate faster and offload, frankly, a lot of their NRE costs that they've been spending for years to get their tier 2s to move with them along their development. So I get why they're doing that.

We are acutely aware of what these things are that are happening in the transition of technology. I think what you should assume, what's really important to us and where the deals, I think, have changed from the ones that we did 10 years ago and 5 years ago is we're not just asking for penetration commitments, we're also very aware that where you're placed on the screen and how the customer finds your service in the vehicle is crucial.

And so that's why the 360L part is so important. It's not just about 360L, yes, yes, yes. It's -- we want that to be the primary screen where the consumer gets our service so the experience is the best and very early on. Because I can tell you, these screens are going to get quite complicated. And so yes, the deals have changed to where it's not just penetration, it's prominence and placement as well. And I think we've been -- we're acutely and pretty successful with that.

You want to take the question on the guidance? I want to say our guidance is our guidance.

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [36]

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Yes, yes. And that's pretty much true. The -- it's one of -- we're giving guidance on net adds, right? And we have a huge funnel for the growth side. And as Jim mentioned before, we got a large subscriber base business. And a few basis points difference in churn produces a big impact, too.

So it's one of these things where we are very cautious about the net add guidance we give because it only takes -- if each of those things go just a tiny bit the wrong way, it has an outsize impact on net adds. And if they go the right way, it also has an outsized impact in net adds, it's just that, that one's more fun than the former. So look, it's nothing more than -- we're looking at the rest of the year. We are confident of making the 1 million. And we'll see what happens in the next 60 days.

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [37]

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Yes. And I just -- I'll add just one more color that goes exactly to David's point of -- one that quite honestly, I don't know what it's going to mean in the next 60 days. I know what it means -- it doesn't mean anything midterm.

But GM announced 2 days ago that they missed production on 300,000 vehicles while they were on strike. Those 300,000 vehicles got to work their way through trial funnels and be rebuilt. We don't know what the timing of that is. We don't know whether there was a miss at retail while those -- while that strike went on. We'll get far more visibility on that certainly over the next 4 to 6 weeks. We factor that into our thinking and -- but that's just one element of why I think our guidance is far more sophisticated than you might think.

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Operator [38]

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We will take our next and final question from Jason Bazinet from Citi.

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Jason B Bazinet, Citigroup Inc, Research Division - MD and U.S. Cable & Satellite Analyst [39]

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I just had 2 questions. Can you remind us when the last car that's tuned to the Sirius satellite will sort of die and sort of free up those 2 satellites to pursue something new?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [40]

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They never die.

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Jason B Bazinet, Citigroup Inc, Research Division - MD and U.S. Cable & Satellite Analyst [41]

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My second question is, you guys have been pretty consistent over 10 years or so about not believing there is an international opportunity for your business. And I just wonder, as things -- as you focus more on out of car as the mix of your consumption moves more towards IP and away from satellite, are you still as convicted as you have been in the past that there isn't a bigger international opportunity?

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James E. Meyer, Sirius XM Holdings Inc. - CEO & Director [42]

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I'll take the second one and David will take the first. So I'm still pretty convinced that, that's not a focus area for us. We still look at it. We still look at opportunities. Quite candidly, with megastars, a lot of mega -- they want to talk about worldwide distribution instead of regional distribution.

The great news is the North American market is so large that -- and so affluent that it offsets that. I can tell you, I haven't seen anything yet on international opportunities that certainly -- we're certainly not afraid of it and we certainly have the money to do it. We just haven't seen anyone yet that really works. But that said, I'm not going to rule it out. We'll keep looking, but I doubt it. David, do you want to take the first one?

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David J. Frear, Sirius XM Holdings Inc. - Senior EVP & CFO [43]

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Yes. Sure. So yes, so we're really hopeful that the last car on the Sirius platform doesn't die for a really long time. But maybe I can answer it in 2 different ways.

The Sirius fleet, the low-band fleet is already at its peak in the field, right, that there are -- most of the current production is actually on the XM chipset and so the Sirius fleet has sort of reached its peak and will begin to work its way down. There are a lot of active revenue-generating subscribers on the Sirius platform. And we expect that to remain the case for probably another solid 6, 7 years.

I think the last of the OEMs to leave the Sirius platform from a new production perspective is just maybe 1 year to 2 years away, and there is a real big drop in production on the Sirius platform in the course of that sort of the next year. And I just can't remember if we have a straggler in '21 production or '22 production. There's a little bit in there.

But the way you can think about it is in terms of when would we enter the window of considering changing the content and giving people with Sirius radios effectively an XM Radio and change the content on that satellite, that's again probably a good 6, 7 years away.

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Hooper Stevens, Sirius XM Holdings Inc. - VP of IR & Finance [44]

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Thank you, everybody, for participating in today's call, and we'll speak to you soon.