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SiriusXM CEO Jim Meyer: Audio is Thriving Like Never Before

In the earning call SiriusXM CEO Jim Meyer talked about adding 300,000 net new self-pay subs in the third quarter, Amazon partnership, Pandora Acquisition, Connected Vehicle initiatives paying off, an...
SiriusXM CEO Jim Meyer: Audio is Thriving Like Never Before
Written by Rich Ord
  • It’s been an eventful quarter for SiriusXM, attaining their highest ever quarter of revenue at $1.47 billion and their highest ever adjusted EBITDA at $589 million.

    In the earning call SiriusXM CEO Jim Meyer talked about adding 300,000 net new self-pay subs in the third quarter, Amazon partnership, Pandora Acquisition, Connected Vehicle initiatives paying off, and how it’s going with Automatic Labs, which they acquired last year.

    SiriusXM CEO Jim Meyer opening statement during 2018 Q3 Earnings Call:

    Thrilled With Third Quarter Results

    I can’t think of a more exciting time for all of us at SiriusXM and I’m thrilled with the results we were able to deliver in the third quarter.

    With this momentum, I’m once again pleased to increase our guidance for 2018 subscribers, revenue and EBITDA growth. We are driving more subscribers through a bigger enabled fleet and maintaining our strong content lineup as you would expect us, both of which position the company for tremendous future success.

    But we’re going even further with our proposed acquisition of Pandora Media, our investments in 360L, our next-generation in-vehicle platform and our vastly expanded push to drive engagement outside of the car with better streaming apps, including our new marketing agreement with Amazon.

    Added 300,000 Net New Self-Pay Subscribers

    SiriusXM added about 300,000 net new self-pay subs in the third quarter, similar to the level we attained in last year’s third quarter. We overcame the headwind inherent to a bigger base by achieving one of our lowest ever churn rates for any third quarter and our self-pay base now stands at 28.5 million subscribers with total paid subscribers reaching 33.7 million.

    I’m thrilled we attained our highest ever quarter of revenue at $1.47 billion, our highest ever adjusted EBITDA at $589 million and our highest ever EBITDA margin, reaching 40% for the first time. We attained this margin by coupling strong revenue growth with equally impressive expense management.

    Auto sales continued at a high level in the third quarter, with a SAAR of about 16.9 million and I’m hearing in my conversations with the OEMs, they expect solid numbers to finish out this year. Our OEM relationships remain strong. Since the start of the third quarter alone, we extended agreements with Audi, Jaguar, Land Rover, Mazda, Mercedes-Benz, and Volvo. As you might expect, with these OEMs and others, we are planning the future of our service in their vehicles well into the 2020s.

    We are receiving higher penetration commitments at some OEMs, more firm 360L deployment schedules and in some cases, improved financial terms. Car buyers love SiriusXM and OEMs have recognized this by agreeing to prominently place us in the dash for many years to come.

    Next year, we will make meaningful progress on additional 360L rollouts as we cycle into the 2020 model year. We prefer to let our OEM friends make their own announcements and I expect they will be doing that as we approach these higher deployments in the back half of 2020.

    Making Tangible Progress with Connected Vehicle Services

    A few years ago when SiriusXM began to invest in the connected vehicle services business, I told you it would be a marathon, not a sprint. And now, you can see us making tangible progress in ramping our CV services unit, which provides safety, security and convenience features to consumers at 12 different automotive brands. We are now achieving strong double-digit revenue growth here and seeing positive cash flow contributions from this business.

    Several OEMs, including Fiat Chrysler, Nissan, and Toyota, are ramping penetration of our CV services in their vehicles and we can’t be more thrilled at how this long-term investment is now paying off. This is yet another way that we also remain important to OEMs as they assess their entertainment and connectivity ecosystems.

    At Automatic Labs, which we acquired last year, we have an aftermarket solution to enable smart services in almost any car on the road. And here, we are also following a very deliberate strategy. Automatic recently launched a new Dealer Program to significantly grow our distribution and it’s already live at several pilot dealerships. This program enables dealers to offer car buyers three years of free crash alert and connected main services as well as free premium services like roadside assistance for six months.

    We expect dealers will recognize the opportunity to improve their long-term relationships with their customers and hopefully encourage repeat buyers. I’ve always been a student in the importance of a good distribution model. For years, the OEM market has served SiriusXM extremely well, first in the new channel, then in the used and significant growth opportunities still exist for us with the OEMs. But with the ubiquity of smartphones and the growing population of connected devices like smart speakers, enormous new opportunities to consume audio are being created.

    Audio is Thriving Like Never Before

    Audio is thriving like never before. This has created opportunities for many new businesses to flourish and for existing businesses like ours to evolve and grow in new directions. And let me reiterate, this is not a zero-sum game. The entire pie of audio consumption is actually growing. Clearly, we remain focused on extending our winning position in the vehicle, but we are also following through on our efforts to drive engagement and subscribers out of the car as well.

    When SiriusXM’s existing subscribers use our service elsewhere, it’s bound to increase the value proposition and make our relationship stickier. And by deploying our unmatched content lineup across improved apps and ever more connected devices, we now have an opportunity to grow with customers who may want a subscription that isn’t tied to a vehicle.

    There’s More to Come Between SiriusXM and Amazon

    In June 2017, we first launched the SiriusXM Alexa skill set to enable our service on Amazon’s Echo devices. It’s clear to me that audio on these smart speakers just clicks. It works beautifully. We immediately found traction with hundreds of thousands of our subscribers rushing to use the service on Amazon’s devices via the easy-to-use Alexa’s voice interface.

    As we began to contemplate a further push out of the car, part of our Bring Us Home campaign, we knew that collaborating with a skilled distributor like Amazon could drive a significant lift to our service outside of the car. And Amazon knows that diverse audio program is probably the biggest value driver today in the smart speaker universe.

    Last week, we announced a new promotion that allows existing Echo owners to easily obtain a free trial of SiriusXM. We are also bundling a free third-generation Echo Dot with six months or greater service commitments to our streaming-only or All Access plans. We are thrilled to be working with a dynamic company like Amazon. And importantly, we’re not just present on their platform, but actively cooperating with them to cross-promote and market to their base.

    I’ve always said I just want people to listen to our service wherever they want, however they want and it has to be easy. There’s more to come between SiriusXM and Amazon as we think of additional ways to extend this relationship. So, stay tuned.

    Creating the Best Audio Programming Available

    All of these efforts in technology and distribution would be for naught without our creative team, all of whom who work tirelessly for our subscribers, casting a wide net to capture and create the best audio programming available. We continue to launch specially created music channels from major artists that have proven to be a hit with our listeners such as Dave Matthews Band Radio. We presented fiery live performances just for subscribers like The Killers in the Hamptons, curated a special channel all summer long from The Beach Boys and then topped it off by reuniting them for the first time in years for a Town Hall in Hollywood.

    We’ve added provocative talent in talk and sports with a daily show from CNN’s Chris Cuomo, where callers can reach him directly, a new show from Hall of Famer Reggie Jackson, the return of Brett Favre’s very popular show on our NFL channel and we’ve added a new program highlighting women in sports.

    And while we know that sports fans love us, we work harder than ever to get them closer to the teams they follow. For that, we have just launched two exclusive sports channels, SiriusXM Big Ten Radio, and SiriusXM Big 12 Radio, that will deliver fans and alumni across the country in-depth access to Big Ten and Big 12 focus sports, talk and news plus extensive live game coverage.

    These channels join SiriusXM’s unparalleled lineup of college sports programming, which now features the all-college sports channel, ESPNU Radio, plus 24/7 channels focused on each of the Power Five athletic conferences, ACC, Big Ten, Big 12, Pac-12 and SEC. Quite honestly, with the result – with the recent addition of these conference channels, we dominate college sports coverage.

    A Business That is Humming Along and Throws Off Cash

    SiriusXM clearly has a great collection of content to match its excellence business model. The company’s high monetization and high variable margins let us make more and more cash flow as we grow bigger. This is a business that is humming along and it throws off cash in a highly predictable way that investors love and we continue to give that cash back to stockholders, $334 million of share repurchases in the third quarter plus nearly $50 million of dividends because after all, it’s your money.

    Let me be crystal clear about this. Nothing is changing in our capacity or our commitment to continue making significant capital returns to our stockholders for years to come, but we’re also investing in future platforms, hiring talented data scientists and software developers and constantly seeking out new content our subscribers will love. All this we do and we’ll keep doing.

    Goal is to Link Non-Converting Customers Back to Pandora

    This quarter, I’m pleased we were able to make a much bigger step towards setting the future path of our company with our proposed acquisition of Pandora Media. Over the years, Pandora has built a huge user base of approximately 70 million Americans and scaled $1-billion-plus advertising business.

    Over the past year, Roger Lynch and his team have taken important steps, so that Pandora’s business will thrive in the future. By sitting on the board for the past year, we’ve learned a tremendous amount about Pandora’s business and we have concluded we can do many things better together versus apart. Number one is the ability to cross-promote across the two platforms that could come from sharing of listening data and contact data.

    In addition, at SiriusXM, we are running about 23 million trials in new and used cars this year. And the truth is the flip side of our conversion statistics will tell you that most people don’t want to pay for radio at the end of the day. I feel there is a strong opportunity if we can link non-converters back to a Pandora or maybe a Pandora with a bit more content in a way that makes our combined business bigger, better and more profitable. There are many ways we believe that one plus one will exceed two very quickly and we plan to give you additional color on that over the next few months.

    Last Thursday, we filed for Hart-Scott approval of the Pandora acquisition. This morning, the go-shop period of our deal with Pandora expired uneventfully. We’re planning to get together and sharpen our pencils on our integration plan very soon. We and Pandora expect to file our S-4, which includes the proxy statement and prospectus with the SEC in the next few days as Pandora moves towards a stockholder vote later this year. We continue to expect to close in the first quarter.

    Last week, while I was out in Oakland for a Pandora board meeting, I had the privilege of speaking with a large group of Pandora’s talented employees. It was fantastic to talk about our shared future, what we can do with all of our financial resources, vast troves of data, unmatched content, enormous user bases and some of the most talented people in radio and technology. I am confident that together, these two companies will be even stronger.

    In the meantime, it’s full speed ahead at SiriusXM with a laser focus on reaching or exceeding our new higher 2018 guidance, exactly as you would hope and expect.

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