Benjamin Swinburne, Morgan Stanley's Media Analyst. Quick disclosure. Please note that important disclosures, including my personal holdings disclosures and Morgan Stanley disclosures, all appear at the handout available in the registration area and on the Morgan Stanley public website. Really happy to welcome to the Morgan Stanley TMT conference, Jennifer Witz, the CEO of SiriusXM. Jennifer. Thank you, Ben. Good to be here. Thank you for coming. Maybe to start out, you recently reported your fourth quarter results. You provided guidance for 2023. Maybe before we sort of dial into 2023, what do you see as the long-term growth prospects for the company? Where are you and the team focused in terms of investment priorities? Sure. Our single biggest opportunity, I continue to believe, is growing our SiriusXM subscribers. You've known us, you've followed us all these years. We have an incredible business in the car that we've built over the last 20 years, and there's 32 million self-pay subscribers. All of that is really generated off the automotive funnel, right? We are the predominant player in the car. We have the largest share of ear in the car outside of all of AM/FM combined, which is larger than any other service. That's despite the fact that all these other services, obviously, have made inroads in the car through CarPlay or Android Auto or otherwise, but we're still the dominant player there, and we are premium priced, and we're not even in every car. We still have lots of growth in the car. I'd say the way we started looking at our business over the last year is that we really have two sets of segments. We have our core audience segments, which, you know, where we've built our presence so far, largely off of our presence in the car. It's about a quarter of the overall market, and we have 32 million subscribers. That's probably of the adult population in the quarter is probably 50-55 million. We're already very penetrated there, and we still have opportunity for growth as we continue to improve our in-car product. We're also looking at another quarter of the market, which represents, again, about 50-55 million adults in the U.S. that are highly engaged in audio. They tend to be younger, more diverse audiences. They certainly have the wealth to be able to pay for audio services. Many of them are paying for one or more audio services, and they love the content, the breadth of the content that we offer. We do have gaps in what we provide in terms of what they're looking for. Most of those gaps revolve around providing a service that is fundamentally more personalized and more customized for their listening needs. I think we have lots of opportunity in addressing that market. I'm sure we'll talk more about the platform that we're building, but that is going to set us up for growth going forward. Really there are three areas. There's the for longer term growth, there's the recovery of the auto funnel, both on the new and used car side that sets us up for in-car growth. There are the investments that we're making across our product and tech infrastructure that will support demand and retention improvements both in and out of the car. Then maybe to a lesser extent, but still important to our business, is podcasting. I think we have a lot of opportunity there as we improve monetization over time. Great. That's a great intro. We'll talk about all three of those buckets as we go through this conversation. Let's talk about the near term, though, in 2023. I think you're guiding to relatively flattish revenues year-on-year. There are some headwinds, I think most people are aware of. Just talk a little bit about the sort of headwinds the business is facing today and kind of the timeline you see for revenue to re-accelerate. Yeah. There's certainly some unique headwinds we're facing this year. I'd start with ad sales. You know, going into the fourth quarter, fourth quarter ad sales were down year-over-year about 3%, that decline accelerated into December. I think this is pretty consistent with what you're hearing from other audio and video services that are in advertising. That decline continued into the early part of this year. You know, we don't really, obviously, provide quarterly guidance, but I expect ad sales definitely to be back half weighted. We've talked a lot about that, the early part of the year is going to be tough in terms of the year-over-year comps. I'd say the advertisers are booking later, which doesn't give us a lot of great visibility into, you know, how the second quarter is materializing, for instance. We do see a bright spot in podcasting. We talked, you know, a little bit about that in the last call about how last year there was certainly progress we've made across our audience products and pro-podcasting, and we can talk more about that today. Advertising is definitely a headwind. Yeah. That's a big piece of our 20% of our revenue, and it's something we're very focused on. The other two pieces I just addressed are ARPU and then subscriber volume. On the ARPU side, we're rolling through a rate increase, basically this month, and that'll. I got my letter. You got your letter? Okay. Thank you. Thank you for being a subscriber. Sure. That pretty much covers all of our full price subscribers, and we'll start to see that roll through the numbers in the first quarter. It won't be material, obviously, until we work our way through the year. The comps on ARPU, again, last year was pretty strong. Yeah. We had a rate increase that we did late in 2021 rolling through. The comps on ARPU will be tough in the early part of the year, but then we should start to show some progress. On subs, as you know, we haven't provided specific subscriber guidance. We would expect subs to be modestly negative, and the first quarter is gonna be tough. We'll definitely be negative in the first quarter. The dynamics and what our expectation is that each quarter thereafter will improve, and we'll be making progress over the course of the year. The auto sales just, we haven't seen the recovery materialize. Yeah. The expectation is that it's coming maybe in the fourth quarter, which really doesn't help us in terms of in-year subs. All those dynamics come together and that, you know, gets us to where we are in terms of our revenue guide, which is relatively flat to last year. Okay. That price increase, the letter I received is in the guidance? Yes, it is. Okay. Got it. You guys talked on the call a lot about your streaming product offering and making some, you know, I guess it was described as a bit of a foundational rebuild. I don't know, I don't wanna put words in your mouth, but tell us what you were working on specifically and what are the goals that you're hoping to achieve over time from the investments you're making? Substantively, there's really two parts to this. One is just the foundational, you used the word, but foundational improvements we're making across the platform. Our product, again, was designed for in-car consumption, and we've used all of these years it's primarily been broadcast. We can talk more about 360L. But we've used a lot of off-platform marketing, for instance. We haven't really had the full D2C set of capabilities that other companies have had on the streaming side. We brought in Joe Inzerillo, who came from BAMTech and then Disney, and he and his team have built D2C streaming services from the ground up. We are working together on building out a set of foundational capabilities that are going to give us a lot more, not only in the streaming service, but also to help the in-car service as well, because clearly with 360L, it's delivered through satellite and IP. These foundational capabilities include things like commerce, identity, MarTech, and better data. On commerce alone, we'll be much more flexible in our ability to implement pricing and packaging changes. I think there's a lot of opportunity for us to be more flexible in how we're designing those packages to capture more demand. We'll have, you know, less friction in our purchase flows. There'll be more payment mechanisms, all of those things. On the identity side, our systems are really designed to recognize individuals as radio IDs. Yeah. We need to fundamentally change that so that we recognize listeners for who they are and where they're listening, and be able to use that data across all the devices on which they're listening. In MarTech, again, we've used a lot of offline channels in the past, email, direct mail, even calling, and we need much more targeted marketing capabilities to support what we're doing in-car and out-of-car. Those capabilities will get built out this year. All of the data pipeline, because really with 360L and all the streaming consumption we have, we have real data for the first time, and we need to have better capabilities to use that to personalize not only the product but also the marketing that we're doing. All of those things, I would say, fall into this foundational bucket of improvements. Mm-hmm. -we're making this year. On the other side, we'll relaunch our consumer app. That is a much more consumer-facing aspect of what we're building this year. We'll have more to share on what exactly that looks like as we go throughout the year. Fundamentally, You know, the apps were designed as a companion to what we have in car, and they really just provide a more enhanced experience for linear listening. What we wanna do is provide much more customization, much more personalization, better discovery, so that when we bring in these younger, growth audiences that we've talked about, they'll have something where they can find the content they love in a much more easy way. How long will this all-- this-- these-- you just described a lot, both in terms of how you run the company and operate, but also the consumer-facing product. What's the timeline to getting all this done? Is this something we probably should look to next year for sort of the benefits around? The launch is coming in the fourth quarter. The consumer launch. Yes. Yeah. But also a lot of these foundational capabilities. Okay. Which will, you know, help us both in the streaming product and outside of that. Really what I think is important that you're highlighting is that that just sets us up to iterate much more quickly going forward. Yeah. We did some improvements to the app late last year, and that was only the first time we've launched something new in several years. You know, the idea is to build something that can then be improved at a regular cadence going forward. Yes, I would expect that in terms of how we're watching and what improvements we're gonna see in the business, that those will start to materialize in next year. Okay. You know, I was gonna ask this question around the importance strategically for this, for you to grow a streaming-only customer base. It sounds like a lot of these investments really are broader than that, though. Is that the right way to think about it? Yes. We absolutely believe that there's opportunity in streaming only. Still a relatively smart, small percentage of our overall subscriber base, but really we just wanna be agnostic as to how consumers actually listen to our service, whether it's the embedded radio in-car, or they wanna listen on a mobile device or a connected device, or use their mobile device in the car. We just wanna be much more agnostic across the board. Anything we design on the streaming platform is gonna support not only streaming subscribers, standalone streaming subscribers, but our in-car business in two ways. Through 360L, which is both satellite and IP delivered, all of those capabilities will help customize the experience in the car for those listeners in car. Also our in-car subscribers are increasingly listening to us outside of the car, so it'll improve that experience as well. Yeah. Is there a scenario where you sort of focus on your, you know, sort of in-car plus streaming customer base where you have so many advantages structurally rather than go after the streaming-only customer base, or do you view that as a strategic imperative long term? It's both. Okay. It's absolutely both. And that's because we wanna be flexible. We, we launched a, an implementation with Lucid, which is streaming only in the car. Right. Again, all of it, this platform is gonna support any delivery mechanism, whether it's in or outside of the car. There's clear benefits to getting our in-car subscribers to listen to us outside of the car. Mm-hmm. We've talked about that a lot in terms of retention, discovery of new content that they then bring, you know, behaviors back into the car. I do believe there's opportunity to grow on streaming only as well. Okay, great. The other big focus on the earnings call, and I think obviously since then, has been around cost. SiriusXM filed an Form 8-K, I think that was yesterday, you know, announcing some news around headcount reduction. I want to give you an opportunity to talk about that and how you thought about the cost opportunity at the company, and also what this sort of means for the business going forward. Yeah, it was a hard day yesterday. Yeah. There's no hiding that. You know, it's the first time in my career that I've been through something like this. We, you know, reduced our workforce by about 8%. Lots of other companies are going through this. We started the effort of looking at the cost structure in a more disciplined way through the middle of last year as the headwinds really picked up on advertising and, you know, the recovery in auto sales was continuing to get delayed. It started with looking at new hiring, and we pulled back on how fast we were hiring and made sure that we were concentrating in the areas that made most sense for our future investments, including product and tech. We really looked at everything. We pulled back on discretionary marketing. We have made fewer new content investments. Mm-hmm. We're relying on building around the ones that we have. We've also, you know, relooked at T&E. We've reduced our real estate footprint. Really looked at every aspect of the cost structure with the intent of minimizing the impact on our employee base. We also started a couple months ago the effort to just look at the organization overall, with the intent to improve efficiency and how we're working. Mm-hmm. We've bought a number of companies, mostly smaller companies since the Pandora acquisition in 2019. There were still opportunities to bring some of those teams together in a more efficient way and just make the organization more agile. Those are the efforts we focused on. Pretty much every team was affected in some way. Mm-hmm. Of course, it's really tough to see, you know, the number of talented employees leaving the company. It was the right thing to do for the business. We absolutely want to make sure that we're being disciplined. We've always been relatively disciplined. We aren't one of those companies that doubled headcount during, you know, the pandemic or anything like that. There were opportunities and I think we will operate much more efficiently going forward, and that's gonna give us even more flexibility to invest where we need to build out this platform and generate future growth. Just on the marketing front, is that someplace you guys are also looking? I think you and Sean talked a bit about maybe dialing back marketing a bit this year as you navigate some of these headwinds we talked about. Yeah. Well, we want to build out some of these capabilities that are gonna make the marketing much more efficient. That's where MarTech comes into play. We've had a pretty successful run on our SiriusXM House campaign. We've done two seasons of that. It's really helped broaden the awareness and consideration for the product in terms of, you know, generating more awareness around the breadth of the content we have, especially outside of music and all the great talent we have and everything else. Also just making sure people understand that we're not just about the car and that there are a lot of other listening occasions. That's something we could dial back up when we get through the launch, and we want to get the word out more about the opportunity. Okay, great. Maybe we'll go back and you laid out sort of those two big buckets of opportunity around, you know, driving the in-car business faster or building that subscriber base more and then going after, you know, sort of a newer TAM. You know, you guys have ramped up your in-vehicle radio penetration up into the 80s over the last few years. I know you've worked with the OEMs for a long time at SiriusXM. Mm-hmm. Can you just talk about where that goes from here? Do you see opportunities to drive that higher and sort of what are your relationships with the OEMs today relative to what we've seen in the past? Yeah. I think we're really well-positioned where we are- Yeah. -at 82%, 83% on the new car side. There will always be opportunities, and we continue to have conversations with the OEMs on a regular basis as to where we might want to increase, the breadth of the presentation of, you know, SiriusXM in their cars across their vehicle lines and models. We'll continue to look at those, especially where it makes sense economically, to be more standard. Mm-hmm. With certain OEMs. I like where we are today. It certainly helped, as auto sales have been constrained, to have higher penetration rates overall. Our cost to install the product in the car has gone down materially over the years. I think the economics definitely support the penetration rates. It obviously helps as we roll through to used cars because, you know, we're still at about, I'd say, the low fifties on the used car side, and organically that will continue to grow over time. That's becoming an increasingly important funnel. Mm-hmm. to our business as well. I was gonna ask you about that next. Are there operational opportunities with the used car channels to do a better job of driving trial starts and conversion? Definitely. I mean, there have been quarters over the last few years where our used car trial starts are actually in excess of our. Hmm. new car trial starts. That's just a function of the dynamics between the relative levels of auto sales. On the used car side, it's just more difficult to capture the consumer at the point of sale because it's much more fragmented. We have done a considerable amount of work over the years to build out these programs with dealerships so that consumers, when they come in, they recognize that there'll be a trial. You know, there's at least a third of used car sales that are done through private channels. Yeah. It's much more difficult to capture those transactions at point of sale. We know that when consumers know that they have a free trial and the radio's actually on in the car when they get in, that conversion rates are much higher. It's not surprising, right? It's very easy to come in and explore the product and experience it, and that increases conversion over time. There are more opportunities, I think, to get consumers on trials at point of sale. There are more opportunities to make sure the radio is on when they actually get into the car, and that will help us with the volume of trial starts as well as the conversion rates. Yeah. What is happening with conversion? I mean, it sounds like there's been some, maybe some downward pressure on conversion rates, both in new and used. Can you talk a little about what's happening there and what is in your control to try to improve those trends? Yeah. That's been, in some ways, and we've talked about this over the years, it's been, a natural occurrence just because of the higher pen rate. Yeah. As we've increased penetration rates across new cars, we end up in lower trim models, and the purchasers of those vehicles tend to be more price sensitive and may or may not convert at the same levels as our core audiences. As we evaluate these deals, we're always looking at yields, so our pen rate relative to our conversion rate and how much we yield out of that funnel, and that's all in context of the economics of the arrangements that we have with the OEMs. Over time, it's made sense to push penetration where it is, even though we're seeing conversion rates come down. I would also say on both the new and used car side, that our pricing, we've been really effective on pricing. I'm sure we'll talk a little bit more about that, in driving up ARPU. We've been very effective in managing retention of our customer base, despite those rate increases. I do think it's hampered demand to some extent. Mm. Our headline package is now, after the rate increase, $18.99. A new consumer, especially the more price-sensitive consumers coming into a new car, especially a lower trim car where they're price sensitive, they're not gonna be as interested at that price point. Yeah. Which is why we're designing some of the commerce systems we're designing to be much more flexible in our pricing and packaging going forward because I do believe there's ways for us to capture that demand, in, you know, lower segments of the population, maybe some of our growth segments. 360L will also fundamentally help with conversion rates, certainly rolling out on the new car side and eventually coming through on the used car side as well. We have the capability to just simply use the data to better customize the product and the marketing to provide more personalized recommendations as to, you know, content and features. You know, we've just started trying things there. Mm-hmm. We know when consumers use the functions, the features and the capabilities of 360L, they convert at higher levels. I wanna get to 360L. Before I wanna make sure I hit churn because that's been, you know, something that has just been a success story now for a number of years. I think Jim used to say 2% is normal. You admitted 1.8%. I wonder if he remembered that. Yeah. Yeah. Business models matter. Yeah. If he's listening, which I'm sure he's not. 1.8%-2% was our guide for a long time. We haven't been in that range for several years. It's really been impressive. Clearly, some of the variability there is associated with vehicles, you know, auto sales and vehicle-related churn. Clearly, when auto sales go up, our vehicle-related churn will go up. You know, on the voluntary and non-pay side, we've been very consistent over the last several quarters and, you know, surprising to even me that we've been able to maintain it at the 1.5-1.6 level. There's just a lot of dynamics that have gone into supporting it at that level, particularly on the voluntary side and to some extent, the non-pay side, just with better credit card processing. We put a lot of things in place in 2019 that have continued to help, you know, mitigate that. On the voluntary side, it has a lot to do with, you know, we're starting to see better retention on 360L. It certainly helps that we have more of our in-car subscribers listening to us outside of the car, more points of engagement. You know, there's more value out of the service, and that helps with retention. Then just the content bundle. Just to give, like, one example, our sports package, especially with the splintering of rights you see across video, we have the single best sports package out there. We offer pretty much everything on a play-by-play basis, plus all the talk around it. We've seen listening, for instance, to our sports content, increase pretty dramatically over the past few years and hit an all-time high last year. Those kinds of things are incredibly important in terms of retention. If we know if consumers listen to our non-music content in-car, that they convert at higher rates, and then they ultimately retain at higher rates too. Got it. You've got, I think, 7 million 360L cars on the road now. That's a real number. Yeah. Obviously growing. You've mentioned it a few times, but can you tell us a little bit, you know, give us some of the sense of some of the learnings that you've gotten out of that customer base that is informing your strategy going forward? We have 7 million enabled vehicles. About 2 million of those are actually self-pay now. Some are in trial, some are inactive. We have a lot of learnings. It's, you know, it's not quite critical math in terms of our ability to understand what impact it'll have ultimately on the business, but there's lots of great insights into where it will go. One of those is just, you know, we did some AB testing late last year in vehicles that have 360L with trialers, and the incidents, we put better recommendations, more personalized recommendations into the for you screens in those vehicles that had 360L, and there were much higher click-through rates when consumers saw those recommendations. Mm. We know there is something there, not only from something like that with AB testing, but also just general surveys that we do with our consumers, that recommendations is possibly the single most important thing that we can better execute on. It's everything. It's the, you know, just having a more customized experience in the car, being able to listen to all of our extra channels. If you like The Highway, you may want to listen to The Highway without the host on it. We have a lot of our extra channels, which are our big brands on the music side, but without the host, for instance. There's lots of other, you know, features as well, including the Pandora Artist Station. Being able to control more of that experience in the car ultimately will provide better metrics around conversion and retention, and we're seeing that today. Coming back to ARPU, which you mentioned earlier, you've just implemented another price increase. ARPU has been, on a CAGR basis, incredibly steady over a long period of time. Should we be thinking about ARPU growth differently over the next five years because of the strategy and the way it's evolving towards more segmentation? Well, in some ways we're trying to disrupt ourselves on pricing. Yeah. -streaming-only subscriptions because, you know, we're undercutting our in-car subscriptions pretty materially. Our lowest price package is $5 a month on the streaming side. That presents, again, a different opportunity for us to open up to some of these other younger and growth audiences where we may be more of a complementary product to another streaming service. I get a little nervous about focusing on ARPU on its own because we really wanna balance. I think we've got a really long history of this. We wanna balance rate and volume to maximize revenue overall. Like I referenced earlier, I think there's more opportunity for us to capture demand in our automotive funnel with lower-priced packages. We have to, you know, figure out exactly how to do that so we don't cannibalize, you know, people paying at the higher end. I also think there's lots of opportunity at the higher-end pricing. We have a Platinum VIP package that's $35 a month, and that continues to grow because. Wow. We have a lot of very affluent consumers who just want more. They want our service in more cars, but they want a really easy way to subscribe across multiple vehicles, multiple logins. They want VIP experiences. I think there are opportunities at the higher end, as well. You get SiriusXM on your yacht for $35 a month. We have that. I'm sure you do. One more on SiriusXM segment before I wanna make sure we save time for the Pandora segment. You guys called out some increase in royalty costs this year. Gross margins at SiriusXM segment have been really consistent for a long time. Do you think this is enough to sort of put real pressure on that line, or what's the outlook for margins at SiriusXM? We've been pretty consistently in the low 60s. Yeah. I would expect it to stay, relatively at that level. Okay. going forward. On the Pandora segment, obviously most people are familiar with Pandora, the product, but you've bolted on a lot of assets or in and around that business. Maybe just spend a minute talking about the portfolio of Pandora and the off-platform business and sort of what the long-term strategy is to try to grow that business. I know the segment, so at least on the advertising side, Pandora represents about... At least our owned and operated Pandora business represents about 62% of our advertising, based on last year's results. The other 38% is SiriusXM advertising. We have a fairly sizable off-platform business as well, and that includes representation deals like SoundCloud, where we're managing their ad sales, as well as our podcast business. I referenced this a little bit earlier, but we've seen some really strong growth in some of our podcast products, where we're selling audience-based products as opposed to podcasting has traditionally been sold by show. It's just bringing the dynamic that we've brought. You know, historically we built the digital audio advertising business at Pandora, and bringing some of those dynamics to our off-platform business, I think opens up a lot of opportunities. We're able to cross-sell across all these platforms. We have great brand relationships at Pandora. We have great D2C, you know, DR relationships in podcasting and in SiriusXM, and we can cross-sell across all of these platforms. You know, offer a lot of different types of advertising experiences, whether it's live events or custom integrations on the podcasting side. I would expect our off-platform business to continue to grow at healthy rates. On the Pandora side, we've certainly been constrained in terms of the user declines, but we've had very healthy monetization there, and I think there's still opportunities there as well. Great. We're almost out of time. I wanna make sure we at least ask one question around capital returns, which has been a big part of the SiriusXM story for a very long time. Sean Sullivan talked about a more conservative stance this year on the earnings call. Could you just talk a little bit about, you know, the cadence for buybacks to come back and the timeline that you see ahead for getting back to a more normalized approach? I think just given the macro environment, it makes sense to be a little cautious here. Also our free cash flow profile will be pretty back-half weighted. Yeah. That affects our decisions as well. I mean, we're always opportunistic. I mean, given where the stock might be at any particular point in time, we might be more active in the market or not. We've certainly shown a long history of increasing our recurring dividend. Mm-hmm. Last year we were very opportunistic in issuing the special dividend in February. We have a lot of tools. We have a really healthy balance sheet. We don't have any real maturities till 2026, so we have a lot of flexibility to relook at this, and I'm sure we'll talk more about it in our future calls. Any last comments before we wrap up? It's great to be here. I thank you for the time. Absolutely. Okay, thanks everybody. Thank you, Jennifer.