$SIRI Sirius XM Q4 2024 Earnings Conference Call

Thank you, Hooper, and good morning everyone. SiriusXM had a strong fourth quarter to cap off 2024, entering 2025 with a focused strategy, clear goals, and a defined path to addressing both the challenges and opportunities ahead. For 2024, SiriusXM delivered on our public guidance with $8.7 billion in total revenue, $2.73 billion in adjusted EBITDA, and just over a billion dollars in free cash flow. Additionally, we achieved significant subscriber improvements year-over-year, driven by a strong back half with better-than-expected metrics across both acquisition and retention. Our offering remains unmatched in the market, and our dedicated subscriber base continues to choose our service to soundtrack their day. As we announced in December, we have sharpened our strategic focus on SiriusXM's strengths and differentiators, with an emphasis on robust margins, free cash flow generation, and capital returns. While we are still in early stages, we have already made progress across each of our key areas as we look to continue to enhance our subscription offering, leverage the strength of our ad business, and accelerate efficiencies and optimization across the organization and our cost structure. Let's begin with our subscription business, where we are doubling down on our core automotive segment. We added approximately 150,000 self-pay subscribers in the fourth quarter and ended the year down less than 300,000, a significant improvement over 2023. Our three-year OEM subscription program is gaining momentum, with tens of thousands of equipped vehicles sold in 2024 with a three-year plan, and the launch of our service in Tesla and Rivian models in December. Leveraging our newest 360L technology and a streaming-only implementation allowed us to quickly scale to over 2 million vehicles already on the road. In 2025, we'll be making adjustments that will both allow for a more seamless customer experience and improve the overall health for our business in the long term. These include improvements in online customer engagement such as click to cancel, a reduction in marketing to higher-cost, higher-churn audiences, as well as shortened introductory offers immediately following automotive trials and new lower-price package options. While we expect some of these changes will have one-time impacts on our subscriber results, particularly in the first half of this year, we believe these actions will allow us to improve customer satisfaction, maintain our strong cash generation, and support the continued long-term health of the business. Apart from these shifts, we would expect our subscriber results in 2025 to be slightly better than what we saw in 2024. Streaming remains critical to our future as we look to expand reach and engagement for our core subscribers who increasingly consume SiriusXM content both in and outside the car. Between 360L, which will account for roughly half of our new car trials this year, and the recent Tesla and Rivian launches which are IP implementations, streaming plays an increasing role for our business in the vehicle. As an extension of this, we are developing features and technology for our digital products, such as the in-app panel guide, to function as a companion to our in-car offering and better serve the 90% of customers who use our embedded service. Following the launch of our new app, we saw streaming listening steadily increase throughout the year, reaching a high in December. We're seeing strong engagement with the added features that streaming both in select 360L vehicles as well as an app allows our subscribers to enjoy. This includes our extra channels, where we continue to see lift in weekly in-app listenership of 36% in Q4 year-over-year, as well as audio on demand including podcasts, which achieved significant double-digit growth across both platforms and with an average of just under two listeners per subscription. The app not only offers a way to extend listening outside of the car, it allows multiple members of a household to enjoy our service at the same time, delivering even more value to our core subscriber base. But of course, premium, exclusive, curated content remains the heart of our business, and we are focusing our investments in this area on talent and collaborations that resonate with passionate audio consumers. Sports, for example, remains a major differentiator for us, and we were pleased to continue to welcome new expert commentators across golf, tennis, football, and more in the past few months in support of our live play-by-play rights. We also recently added more live event coverage by signing an agreement to broadcast matches from TGL, the new prime-time golf league led by Tiger Woods and Rory McIlroy. Within music, we're continuing to deliver the unique curated experiences our subscribers love. This quarter we added to our subscriber-favorite seasonal holiday lineup with an all-new channel led by Jimmy Fallon, and we launched How's Life, a new interview series from John Mayer. John's channel, curated not by genre but by mood, time of day, and the artist's own ever-evolving interest in musical taste, is a great example of the way our service allows fans to connect with musicians they love in an entirely new way at the intersection of music, talk, and podcasting. Earlier this week we announced two new channels as part of our agreement with Alex Cooper and the Unwell Network, featuring live shows and curated music. These channels are a great example of how we can leverage the massive reach of a podcast such as Call Her Daddy to drive interest to SiriusXM with programming exclusive to our service. Podcasting is also key to how we leverage the strength of our advertising business. In addition to the launch of our agreement with Unwell and continued momentum around SmartLess, in Q4 we extended and expanded our relationship with Mel Robbins and kicked off with Rotten Mango creator Stephanie Soo. Earlier this month we announced a new podcast from sports commentator Katie Nolan, as well as an advertising and distribution agreement with Fantasy Footballers, allowing us to increase our share of the ad dollars flowing into sports media today. The expansion of our podcast network in 2024, combined with our strong streaming footprint, solidifies our position as the number one digital ad-supported audio player in North America and enables us to tap into the demand we're seeing from the market in 2025. With more and more advertisers both entering the space and increasing their investment, throughout 2024 we onboarded a variety of new advertisers into podcasting and now have more than 80% of our top clients investing in podcasting, leading to 24% year-over-year growth in podcasting overall in Q4 2024, meaningfully contributing to the total 2024 ad sales revenue of $1.8 billion. Our open ecosystem approach supports both creators and advertisers who want to reach fans across all platforms, with more of our deals also beginning to incorporate social and video. Within ad tech, where our AdsWizz platform revenue was up 18% year-over-year in 2024, we are not only welcoming more publishers into our marketplace, we are also seeing key measurement and technology leaders put an emphasis on audio in 2025 as an area of opportunity, addressing the gap between time spent and media investment. Turning now to another key element of our strategy: increasing efficiency across the entire business. In addition to the focus on our core audience with regards to both our marketing and content spend, we are rightsizing our product and technology costs following a period of high investment, optimizing our organizational structure, and working diligently to achieve the additional target of $200 million in annualized savings as we exit 2025. Tom will speak to these initiatives in greater detail in a moment. As we noted in December, our 2025 guidance reflects the underlying strength of our platform, our increased strategic focus on our differentiators, and the actions we are taking to maximize efficiencies, all of which will drive improved free cash flow. It also accounts for the short-term impact of the changes we are making to the subscriber business, as well as the broader work we are doing to improve the long-term health of the business. Helping us achieve our goals is Wayne Thorson, our new Chief Operating Officer, who is now overseeing both our product and technology group as well as key commercial functions. Most recently Chief Business Officer of ADT, Wayne has incredible experience leading thoughtful and swift change. By unifying these areas of our business, we are ensuring a more rigorous ROI-based approach to all current and new initiatives and will more quickly execute upon updates to our business that will drive subscriber results. You should expect to hear from Wayne on our next earnings call. We remain steadfast in our belief that our offering, from our exclusive content to our leading in-car position, holds a unique and valuable place in the broader entertainment ecosystem. By sharpening our focus, we are bolstering the overall strength of our business in the long term while continuing to deliver for both our listeners and stockholders. I will now turn it over to Tom.

Sure, thanks Cameron. I guess I'd start on net ads just with a quick review of where we landed in 2024. We were really pleased with the trial volume, and that in part helped offset the pressure we've seen on conversion rates. We just had much better retention across both voluntary and non-pay, and then we saw additional positive impacts from podcast plus our OEM three-year subscriptions and, in general, improved used car ownership visibility. In Q4 specifically, we really saw better-than-expected performance across virtually every line in acquisition and retention. So that's a good backdrop for 2025. We do have some one-time impacts that we highlighted earlier from click to cancel rolling in, shorter-term post-trial promotions, and of course our pullback in streaming marketing. Most of these will be rolling through in the first half of the year, and we'd expect the impacts of those to be about a couple hundred thousand subscribers. So outside of these, I still expect to be slightly better year-over-year in terms of self-pay net ads. Just broadly speaking, I'd say some similar seasonality as we've seen in the last couple of years among the quarters. Tom, you want to address EBITDA?

Sure. Last year I think SAAR finished at about 15.8, but of course the fourth quarter was really strong on new car sales. I think everyone's waiting a little bit for what might happen on tariffs. My personal feeling is that the automakers are going to do everything they can, to the extent those go in place, to meet US consumer demand for vehicles. But used cars has been an increasing part of our trial starts, and we're at about 50% with the ones that we capture at point of sale through dealerships. We've increasingly added partnerships where we get information on used car ownership changes and been able to put trial offers and programs in place there as well to increase our yield through the funnel. So I feel good about the auto market in general. Of course, we'll keep a close eye on tariffs overall, but a strong auto business is good for our business.

Barton, it's similar to what we've seen in past years, with the pressure coming from newer trialers and younger consumers that are entering the automotive funnel and some of the competition we see from other services coming through projection technology into the car. But we're very focused on stabilizing conversion rates and excited about some of the broad changes we're rolling through this year across product in terms of the content and features coming in expanded 360L rollouts, pricing and packaging with a lower entry price, and at least in our testing, better ultimate retention post-trial and post-initial promotion. Better marketing capabilities with all the data coming back on 360L. I think we continue to see better conversion rates especially on first-time trialers with 360L versus non-360L. More features are rolling out. Of course, we've expanded our reach with Tesla and Rivian, which is also going to help improve the overall funnel. Some of the metrics we look at are going to be different because with our pricing and packaging strategy, it's really an effort to improve post-trial retention after the initial offer, and that'll show up again in better churn as opposed to necessarily better conversion rates, but ultimately better yields for the business.

And I'd just add that the guidance we've provided on satellite capex is outside of those cost savings, so that's incremental improvement to free cash flow over the next few years.

Okay, thanks Kaku. So a little bit more clarity on the comments I made on net ads. We would expect net ads to be negative this year, and but for these one-time impacts, we would be slightly better than last year's negative results. So these one-time impacts of things like the correction in streaming marketing and click to cancel will roll through primarily in the beginning of the year through the first half. That means we would expect to have a similar trajectory to last year where the first half was definitely negative, and the second half we'll wait to give more clarity on that. But overall, the net ads would be worse than last year because of these one-time impacts, but again without them we still feel good about the trajectory of the underlying business and improving year-over-year. On the ads side, Tom?

I'd just add to that what Tom said about podcasting. We've seen great demand for the new podcasts we added in the back half of last year with the Unwell Network, Call Her Daddy, and SmartLess. We've just announced Fantasy Footballers and Stephanie Soo with Rotten Mango, and there are more deals to be done there with improving margins. But there's also a way to capture more demand from advertisers by selling through the reach these creators have in video and social. So that's a big effort for us this year. We've been improving our data and identity platforms, working more closely with third-party measurement providers to be included in things like MMM models and other methods to better allow advertisers and clients to assess ROI. We're just going to make it easier and more efficient for smaller advertisers to self-serve on our platform and buy across our networks. We launched synthetic voices, and a lot of smaller advertisers are taking advantage of that. We'll continue to leverage AI to provide integrated buying features and even help advertisers automate their media planning to build out full media plans. So I think we'll see modest growth in ad revenue this year, and we've got a lot of nice tailwinds in the portfolio overall.

Sure. I'll let Scott take the podcast question in a minute. On pricing and packaging, we have three goals: enhanced value to support price increases across the base, capture more demand, and reduce the use of our promotional plans in acquisition and retention. We started in the fall with making content more widely available across our subscriber base, pushing down the availability of talk, Howard, and live sports to our lower-price packages, and also allowing all subscribers to access artist stations in the app and in certain 360L implementations. We're providing streaming concurrency to platinum subs and we've added things like Walmart Plus and ESPN Plus to really just drive more value among our full-price and promotional plan subscribers. We're looking to do that obviously ahead of rate increases. We rolled that out in the fall, we've been very pleased with the engagement of those subscribers with this newly available content, and we're positioning for a rate increase in March. So I would expect at least in terms of the ARPU trajectory this year that you'd see improving trends after the first quarter. The second piece of this is about opening up more demand. We've talked a bit about the $10 entry price for in-car, and again it's an entry price, there are add-ons on top of that. We're seeing a nice take-up in those add-ons. This is trialers rolling off their first post-trial promotion who've already selected their full-price package, and that's just starting to happen. We rolled out that new pricing and packaging strategy in the fourth quarter on a significant number of trials, and we're starting to see them roll off trial and onto their promotional plan. After that, they'll roll to these new prices and packages, and we do believe that's going to drive improved retention overall and also on full-price packages. The third piece is again how do we find ways to reduce our reliance on promotional plans. This new pricing and packaging strategy, given that it does improve retention on full-price plans, will be a significant part of that. Over time, we'll look to use these packages also in retention at the save desk as well. So that's a key part of our pricing and packaging strategy. Of course, continuing to drive more engagement across the base with broader content, with more access across devices, and more household listening obviously supports the value proposition. Scott, you want to talk about the podcast side?

Sure. I think the churn question is logical based on the commentary we provided. The idea that we have this one-time impact from click to cancel and that might create some pressure on churn in the first half, I think that's an appropriate takeaway. And yes, we would look to see improvements on that in the second half of the year. In terms of the EVs, they're streaming-based but they're embedded, which is a little different than an app through projection like CarPlay or Android Auto. From a customer standpoint, there isn't really a difference from our 360L implementations because we still deliver the breadth of content and the feature set that we would through 360L. The go-to-market is slightly different. With Tesla in particular, these are opt-in trials, and we're seeing very strong engagement when customers opt into the trial. But that go-to-market will create ultimately a slightly different profile in terms of conversion to pay. One of the areas I'm most excited about is that a lot of our households have Teslas in their garage, and we're seeing nice take-up in terms of trial take rates among our current households and looking to add subscriptions in Tesla with that embedded service. We've seen nice progression in Rivian as well, and the conversion rates, it's early to say because we just rolled them out, but based on how customers are adding follow-on plans and trial, I think that will ultimately look like some of our other premium OEM models. Really excited to have these in place not only because of the expanded reach but also because of their receptivity, the EVs in general, to over-the-air updates and being able to add new features and present different offerings to customers over time. So yeah, it's an ongoing part of our subscriber acquisition strategy and really excited about having that presence among those two EVs.

Yeah, I'll let Tom take the second one. In terms of our opportunity for SiriusXM ads offerings, I think there's two pieces to that. We've got a free preview and market on select vehicles, and that will expand nicely this year among a couple of other OEMs. Again, that's a reduced channel set of 40 channels, starts with broadcast ads. We'll be able to add the targeted ad capabilities over time there and leverage 360L delivery. I also believe the main priority there is keeping that service open and active so that we have opportunities to upsell into the subscription service over time. The other opportunity that I think will be increasingly important to us is a low-cost subscription with ads. As we continue to find opportunities to take price on the overall subscriber base, we're looking to find methods to create lower price points for customers that may be more cost-conscious and are willing to hear ads in their experience. You see this very successfully done among the video streamers, and so we believe we have an opportunity to start to test into that this year and ultimately provide a pretty broad access to subscribers in process to an ad-supported subscription, and that will come with targeted ads as well, especially in 360L.

Thanks, David. Thanks everybody for participating today. We will speak to you in the near future. Take care.