SiriusXM Holdings Inc.

Greetings. Welcome to SiriusXM's fourth quarter 2022 financial and operating results conference call. This time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll now turn the conference over to Hooper Stephens, Senior Vice President of Investor Relations and Finance. Mr. Stephens, you may now begin.

Thank you and good morning, everyone. Welcome to SiriusXM's fourth quarter and full year 2022 earnings conference call. Today, we will have prepared remarks from Jennifer Witts, our chief executive officer, and Sean Sullivan, our chief financial officer. Scott Greenstein, our president and chief content officer, will join Jennifer and Sean to take your questions. I would like to remind everyone that certain statements made during the call might be forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs, and expectations and necessarily depend upon assumptions, data, or methods that 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 and today's earnings release. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I'd like to remind our listeners that today's call will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation. With that, I'll hand the call over to Jennifer.

Thanks, Hooper, and good morning, everyone. Thank you for joining us. SiriusXM achieved strong 2022 subscriber and financial results, reaching record-high EBITDA at more than $2.8 billion and revenue of $9 billion and delivering 348,000 self-pay net additions with a growing base of streaming subscribers. The business has proven resilient, and I'm pleased to report we met financial guidance set for the year. We made significant progress on our strategic growth objectives, including maintaining our dominant position in car, expanding streaming engagement, and continuing our leadership position in digital ad-supported audio. I'm also proud to share that we delivered record-high ARPU and record-low churn in 2022. a reflection of subscribers' high satisfaction with the premium listening experience we continue to evolve and enhance. Today, we announce new financial guidance that reflects continued strong operating performance and significant cash generation, even as we face a challenging economic environment and meaningfully step up investments in our technology infrastructure. Once again, we have endeavored to set financial guidance that takes into account our current view of the business and broader industry trends, particularly in the advertising market where we see substantial uncertainty. As a result, we broadly anticipate a softer first half in terms of revenue, EBITDA, and subscriber growth as compared to the back half of the year. We are not issuing subscriber guidance at this time, although we anticipate we'll see modestly negative self-pay net ads for the year as economic and demand uncertainty persists, Auto sales remain soft and we moderate marketing spend for our streaming service early in the year ahead of planned product improvements late in 2023. During the fourth quarter, SiriusXM's new and used car trial starts were down 3% and 7% sequentially as auto industry sales remain soft and vehicle prices remain at near record highs. Used car prices are now falling but remain at elevated levels, and affordability is further challenged by higher interest rates and the flow-through to payments. New and used car sales drive our primary trial funnels and are an important part of how we subsequently add self-paced subscribers. In 2022, auto sales were the lowest they have been in 11 years, and for this year, analysts now expect new car sales to be up modestly by about 6%, but used car sales are expected to again fall slightly. We are closely monitoring consumer health, While we've seen signs of flowing inflation in the last month, we are watching personal savings rates, consumer confidence, auto loan defaults, and the other key metrics to monitor the strength of the American consumer and how that could impact our business in areas like non-pay churn and general subscription demand. The advertising market continues to face headwinds, with economic and business uncertainties causing many major advertisers to be cautious in their marketing spend. We began to see this shift in the back half of 2022 and are continuing to feel its impact early in 2023. Podcasting is not immune to these forces, but does remain a bright spot for the business, which I'll speak to in a few minutes. Given these macro factors, we are focused on increasing productivity and effectiveness as we realign resources to invest in growth opportunities for the business. This means building a culture that's more agile and as we focus efforts this year on developing an updated SiriusXM streaming experience, which we expect to launch in the fourth quarter. As you heard me talk about on our prior earnings call, we have implemented measures to control our discretionary spending, and we will remain disciplined and look even more broadly for cost savings in every area of our business. To give just one example, we began to reduce marketing spend last quarter and will continue to reduce spend for most of this year as we moderate ahead of the expected relaunch of our streaming experience in the fourth quarter. While this is the right decision for our business, we expect this more conservative approach to marketing spend in the first half to contribute to lower net subscriber additions near term. We all know that consumers now have more options than ever when it comes to listening to content in the car and on the go. Today, we hold the largest share of ear in the car outside of combined terrestrial radio. And as we look to attract new audiences to our platform, we are becoming more and more agnostic, not just how they come in the front door, but also how they choose to interact with our service. Our updated SiriusXM experiences on CarPlay and Android Auto that launched late last year reflect our commitment to make it easier and better for new audiences to use this way of listening in-car should they choose. And in the year ahead, we will continue to evolve our business by leaning into our in-car advantage and modernizing the SiriusXM technology platform, delivering an improved streaming experience with the relaunch of our SXM app. Our in-car evolution should be viewed in parallel with how autos have evolved over the years, going from push buttons and dials to massive touchscreens and multiple entertainment zones. Car entertainment systems look radically different than they did just a few years ago, and we are committed to our own radical evolution with future-focused, consumer-first in-car experiences. Fully utilizing Lucid's massive touchscreen interface with our beta launch last quarter is a prime example of how we are working with automotive companies to evolve and enhance the SiriusXM experience. We look forward to the broader rollout with Lucid later this year and are continuing to innovate with a variety of other automakers as well. Our state-of-the-art 360L platform is quickly becoming the new standard for SiriusXM and and is now available in 20 OEM brands with the additions of Jaguar, Land Rover, Lamborghini, and Nissan vehicles in 2022. We finished the year with over 7 million 360L-enabled cars on the road, and the percentage of new Series XM-enabled vehicles with 360L increased to 27% in 2022, a number that should meaningfully rise this year as we expand into several additional automotive brands. Our total new and used vehicle penetration rates were 83% and 53%, respectively, and our enabled fleet stands at over 150 million vehicles. Last quarter, I shared the progress we made personalizing the 360L experience in select vehicles, including the introduction of data-driven music and talk recommendations on 4U screens. I'm happy to report a continued double-digit lift in engagement. Our goal is to seamlessly tie together the in-car and out-of-car SiriusXM experience to better serve our listeners, getting them content they want to hear faster, no matter where they are listening. We are also seeing improved conversion in 360L tied directly to consumers using these enhanced features, including the ability to create personalized Pandora stations and access to more on-demand programming and extra channels. At SiriusXM, our premium live curated programming sets us apart in audio entertainment and creates habitual listening. While most listening remains live across all subscriber audiences, we are seeing interesting trends on the type of content our different subscriber cohorts engage with. For example... Streaming-only subscribers who are generally younger and more diverse than our in-car subscribers gravitate towards our original streaming content with high interest in our music shows available on demand and our extra channels. We are also seeing this group stream non-music content at a higher rate than in-car subscribers who stream, and we see higher retention with both groups when they engage with non-music content. As part of our efforts to go deeper here, In 2022, we expanded our relationship with the NFL to make SiriusXM the exclusive third-party home to all NFL games. And recently, we agreed to a multi-year extension with the NHL that will see SiriusXM continue to deliver to fans access to every NHL game throughout the regular season and Stanley Cup playoffs. In fact, sports programming hit a three-year record high in listener reach in 2022. And this past November, as part of our extension agreement with Andy Cohen, we expanded Radio Andy into the official destination home for all things pop culture by moving content like Tinks' shows over to the channel. The fourth quarter also saw launches of several new tentpole and pop-up channels, including the launch of our latest 24-7 original comedy channel, Team Coco Radio, which is executive produced by Conan O'Brien and features exclusive audio content. We also went live with the Selena Gomez radio channel and launched a streaming-only full-time channel with country music superstar Eric Church. Although we will remain disciplined in our content spend this year, you will see us continuing to pursue opportunities to create more original, on-demand content to complement our linear offering with more streaming-first talk, music, and video content as we look to continue to attract and convert younger, more diverse audiences. As always, we continue to use the power of our platform to spotlight important moments, and this month we celebrate Black History Month on Pandora and SiriusXM with specialty programming across music, comedy, talk, and sports. This includes the launch of the Apollo Theater Channel, a limited run and channel that will spotlight SiriusXM's Apollo shows, as well as music and stories from many of the amazing artists who've performed at the historic theater. Coming off of two incredible nights with Drake at the Apollo, which will air exclusively on his SiriusXM channel, Sound 42, in the near future, we are excited to bring our ongoing relationship with the Apollo to life in new ways for our listeners to enjoy. In a challenging ad market, podcasts continue to be a growth opportunity for us. This past quarter, we expanded our podcast offerings while doubling down on the shows that have proven most successful. With five of the top 20 shows in Edison Research's top 50 podcast rankings, the most of any network, with Crime Junkie, Office Ladies, Dateline NBC, Pod Save America, and Conan O'Brien Needs a Friend, we feel very good about our current podcast slate and will continue to be purposeful in how and when we invest in programming to best align with our business priorities. Q4 and full year total advertising revenue were essentially flat year over year, with Q4 down 3% and full year up 2%, respectively. Yet podcasts continue to be a bright spot for the industry overall, and us in particular, driving a 34% increase in 2022 in our off-platform business, which includes podcasting. In particular, our audience-based podcast products, including Podcast Everywhere and Podcast Select, as well as programmatic podcasts are up 153% year over year. This part of our offering provides greater efficiency through automation, which is still nascent in podcasting, making it a fantastic opportunity for us as we continue to grow this area of our business. As we enter 2023, we continue to face the same headwinds that began in the second half of 2022. However, we remain confident in our ability to monetize our ad-supported portfolio and offer brands effective and innovative ways to reach their target customers in audio. In closing, I'm pleased with our strong operating and financial performance in 2022. The business continues to prove resilient. Our high-quality business model continues to produce some of the best margins in media. And while we anticipate softness in the year ahead, we are redoubling our efforts to invest in our products enhance the SiriusXM experience for our customers, and ensure we are well-positioned in an ever-evolving audio entertainment landscape. With that, I will turn it over to Sean.