Sirius XM Holdings Inc. (SIRI) Earnings Call Transcript

Well, I think our -- so number one, I stand beside exactly what I said a couple of weeks ago, and I actually went through these numbers, again, in a fair amount of detail yesterday. We go through them, as you can imagine, every week anyways. But I went through them to make sure I answer your question accurately today. So to be clear, we have seen an increase in voluntary churn. It was not as big as we had projected back of what we saw early on, okay? And I think it stays there kind of for the rest of the year because I think to pretend there is no impact to the economy I don't think is correct here, okay? But I don't think it's as severe as we expected. Obviously, in the near term, and it's a weirdest dynamic in all because while it's good for our churn metric, it's, in my opinion, not good for our business, being vehicle turnover has slowed significantly. And so the amount of customers who called us and said, "I sold my car and I've moved on to a different car," that's also dropped. Those 2 have, in fact, checked each other out and are stable. The one that's been really interesting is what we call nonpay or you referred to as involuntary churn. And as you can guess, the 2 biggest drivers are -- and basically, they're all driven by, is there a balance left on their debit or credit card to pay our bill when our cadence automatically goes to make that charge. We've seen 2 improvements. One, the amount of cards that have gone into can't pay has dropped, okay? And number two, the amount that we've been able to rectify on, initially, we couldn't get it take the charge and then a second time has improved, okay? So nonpay right now has improved. It was interesting. I was actually looking at my own debit and credit card statements on Monday night, and I mean, probably the same as you, I was kind of surprised, frankly, how much my spending had dropped in the month of May compared to kind of what I was used to. So I think there's some of that going on right now, which means there's still big balances on the credit cards, okay? Big still between the credit limit and the balance, which is a good thing, okay? And I don't know any more about what the bank's credit policies are or have they eased up anymore than probably what you do or what we read. But right now, that's really a good indicator. That's probably for me, the biggest variable as to how will that behave in September through December as things get back towards normal, but I have to tell you we're encouraged. And so we see our churn remaining relatively stable now throughout the rest of the year.

All right. That's positive. In terms of customer engagement, many of your customers today are driving fewer miles. There's arguably less content available given the lack of sports, and there's no sort of touring and concert promoting and music-related events. What can you share with us about like the engagement trends? And what content would you say is most keeping customers engaged right now?

So let's start with, first, as you know, we're also in the connected vehicle business. And so there, for instance, we manage the entire -- for many of the manufacturers: Toyota, Honda, Nissan, Chrysler, Ram, Jeep, we see many of those vehicles are connected to our connected vehicle platform for safety and security services. So -- but one of the benefits we get to see in that is how often are those cars being driven and what kind of miles is going on. That certainly dropped dramatically, obviously, beginning in the third week of March. We've seen that slowly, steadily coming back, and by that meaning people driving more miles. Are they back to where they were? No. Okay? But in many parts of the country, it's beginning -- that gap also is narrowing a lot. And so at some point, I happen to believe, with the exception of maybe some huge metro areas like New York City, where I still think it's very unclear when the -- particularly Manhattan, when the offices open in Manhattan and who's going to drive versus mass commute and how is all that going to work? I think it's a million dollar question right now. But elsewhere in the country, we're seeing miles driven beginning to come back pretty steadily, right? Within the car, clearly, vehicle listening within the car dropped. The -- I'm not concerned that, that won't come back to where it was before. That doesn't worry me at all. And in areas where we can measure that trend, we are seeing improvements. And the content they listened to hadn't really changed, okay? I would say because of what's going on in the country right now, whether it was COVID-19 or certainly, the heart-sickening results we've -- the very difficult times we've had over the last 2 or 3 weeks with social injustice and the disruption, the violence we've had, clearly, there are more people listen to spoken word content at this particular time. Will that stay? Maybe through the elections. Will it stay after the elections? I don't know. We find that the vast majority of our listening is around music, and I think that's probably where it will settle over time again.

Got you. Okay. So let's talk about sticking with engagement. Maybe we can talk about engagement out of the car, right? You had a campaign called Bring Us Home, which was about a focus to increase listening in the home through smart speakers and other initiatives. Can you give us an update on this? It seems like COVID is sort of a unique situation where things that you've done in the past would better position you for this? Anything you can update us on there?

Well, yes. And also as big a change is in almost all of our packages now, streaming is included at no charge. And so we are now -- I will tell you, we have our -- we are very focused, I think is the right word on telling our large customer base, not only can they enjoy our product, SiriusXM -- now remember Pandora is different, but SiriusXM in the home that they can also enjoy that product very, very easily. And the -- I mean, in the car, now they can enjoy it very, very easily in the home. And we're pushing really, really hard on make sure you download the app onto one of your connected devices, whether that be a smart speaker or through some of the TV services or through your Apple or Samsung or whatever phone, right, through either iOS or Google. So we're definitely seeing upturns in that. I will tell you, I'd like to see it go even faster. But I have to remind my -- I've watched a lot of trends in my 17 years here, and I have to remind myself that our subscriber base, they don't react quickly one way or the other. They tend to be very deliberate, which is a good thing when it comes to churn and those kind of things. But changing their habits and changing their behavior is taking time, but I'm encouraged by where we are. I will tell you, we also ran a pretty cool program for anybody in the country could download our app and stream our service for free at the height of the pandemic. It just expired a couple of weeks ago, and we're running now some -- a variety of different acquisition campaigns against that base. And it's too early to tell what we're going to get, but I was really pleased with the amount of people that downloaded our app who had never downloaded it before and what their usage pattern was. So we'll see what that brings. But I can tell you one thing, Brian, this is going to be a slow, steady, deliberate march for us. We're not going to get off of this. And I'm confident if I'm sitting here a year from now with you, if you ask me this question a year from now, we'll have made slow but steady and really good progress there.

Makes sense. Okay. Everything we've discussed so far has really been related to sort of the self-pay subscribers. And so I also wanted to ask you about the paid promotional subscribers. How should investors be thinking about the trends for those type of subs?

Well, I mean, you can do the math, okay? If you go and look at what -- you pick your number, 6 weeks to 8 weeks of auto production looks like, that many installs came out right away. And as you know, the impact of those installs, we won't see until the third quarter in terms of trials and early into the fourth quarter. And so without doubt, the impact on our promotional business, short term, will be more significant than on our self-pay business. And we're seeing it now although, again, not as bad as we expected, okay? The million dollar question for us there is how fast does the production come up? And then once it gets the rate, does the sell-through support keeping it at that rate, okay? And we don't know the answer to that. And so it's difficult -- as I think it's difficult -- more difficult than, I would say, over the last 8 years to tell you -- really 8 to 10 years to tell you what's going to happen to self-pay because of the things we talked about earlier, I think even more difficult to predict what's going to happen to the promotional funnel. What gives me -- what should give investors confidence is the penetration rate. That's not going to change. And in fact, as I indicated, it's going to slowly inch up a little bit. And so -- and will the auto industry come back? It will. There's no doubt in my mind, okay? I mean, Americans have always shown resiliency when it comes to automobiles. I don't happen to be one of those proponents that thinks the size, the fleet in the U.S., you call it, whether it's 250 million cars, is going to drop dramatically over the next 10 years. And so it will come back. The question is just what is the timing, and we're just going to have to see and wait and see.

Got you. Okay. All right. Let's turn to revenue, specifically the SiriusXM ARPU. What's the right way to think about how the current environment might affect your ARPU, both this year and then also for next year?

So right now, I don't think we're really seeing -- we're not -- we're certainly not -- we're not seeing a negative mix in ARPU right now. And so I mean, I'll be clear with you, Brian. We don't run the business on ARPU. We run the business on total revenue, and we really run the business on cash flow, okay, total cash flow. So we will make decisions where we think, in the end, it drives those funnels at the expense of ARPU. But we keep our eye very closely, with that said, on that metric. And right now, it's not a concern to me. And until we see kind of how does that nonpay number behave over a pretty long period of time, the next 6, 8 months, I think that question is difficult to answer. I will also tell you, though, I don't think our reaction will be just to cut the price to try to drive subscribers at any cost. We've never been that way. I don't expect that to change. And so I'm not -- I guess I'll be careful here. But at this point, I'm not that concerned about the subscription part of our ARPU, by the way. The advertising business has clearly been -- clearly been hit hard in the short term, okay? And as you know, that's also included in our total ARPU, okay?

Right. And so I did want to ask about advertising, but I was going to approach it from more of the Pandora angle, and that's a more significant size. And so I know that there's been some recent increases for Pandora on the advertising orders. But sort of at this point, what are your expectations for the rest of the year on Pandora advertising?

So I don't feel like the dumbest kid in the class because all of my other friends in media, when I speak to them and I don't want to single any of the companies out because I think some of them are on your panel and they can give their own -- I don't speak for them. But I've been assured -- I feel -- I don't think we're losing share, okay? Because what I've seen is to -- and it doesn't matter. I've got some really close friends -- got a really close friend whose family owns a pretty large amount of terrestrial radio stations. At the local level, it's been really, really tough, okay? And tougher than what we've seen because we also obviously drive quite a bit of advertising at the national level, right? But when you go to the opposite side, I think everybody's ad revenue saw a whipsaw very quick reaction. We're seeing that begin to come out. We're kind of hoping that reaction gives us a third quarter that is not -- doesn't have a steep decline as the second quarter. And then kind of our pacing tells us the fourth quarter should improve even a little more versus the rate of decline versus last year, right? That said, this is the first time we've owned a big advertising business with -- meaning Pandora. And I kind of forgot how quick people can cancel these ads, okay? And so my fingers are a little burned as to projecting out because we're beginning to see a little calmer seas and a little more fresh air out in the, call it, late August, September, October time frame. But I don't know what the stickiness yet is of that. And so right now, we're just kind of -- we're working hard, we're holding on. A good week for us right now is -- or a good day is when we have more positives than negatives. But I am positive we're not losing share. I am positive that, inevitably, the ad business will come back. And we're certainly well positioned to take advantage of that, and we have a really strong digital ad sales force. We've been investing, and we'll continue to invest in ad technology tools. It's a key driver for me. And so when it recovers, we'll be there. I just -- I'm not sure when that recovery will be.

Got you. Okay. Interest of time, I'm going to skip around a little bit more. I want to ask a question on operations. One here, which is the subscribers continue to come in better than you expect this year? How might your plans to invest in the business changed?

Well, I think that a couple of immediate things that occurred when the pandemic hit is we did pause hiring, except for what I kind of determined was my key operators were crucial positions, okay? And so I want to be clear, Brian, we didn't stop completely hiring, but we cut our rate of hiring down by high, high digits, okay? I'm not ready to change that yet. And so until I can see what happens to that nonpay rate, so I can see what happens to auto sell-through, I think we're a little better off remaining cautious there. Our spending, in general, dropped. Let's -- since we're not in that business, a good thing for us. But I mean, our T&E spending dropped like a rod. I got to ask -- I'm asking myself now like when things get better, exactly why do we need to go to the Oracle conference and exactly why do we need to go to the [ Tech MG ] conference, I mean, those kind of things. So asking myself exactly why do I need to move around as much as I was moving around because the business is running quite well the way we're running it right now. Our biggest issue will be once talent wants to start coming back into studios live, we want to be ready to get that talent to come back to make sure our product is on the air is absolutely as good as it can be. But right now, our product is on the air. I'm really proud of it. It's really good. And it's really top-notch for everything from Howard doing his show from the basement of his home all the way through to, I don't know, how many different shows we're doing remotely, but it's hundreds, okay, every day, and it's working well. So in terms of investment, it hasn't really changed our mind. We actually announced a small acquisition this morning called Simplecast, which is a key player, we think, in the podcast space in an area. It's not very glamorous, but it's really, really necessary if you want to be able to take podcast and monetize them through advertising, okay? And I think you can continue -- we're going to continue to look in that area as to how can we scale, particularly our position in advertising technology, but also in monetization of advertising in general. And I said it before, I'm going to say it again: A good price is in the eye who bought it. I personally believe some of the stuff that's going on in the podcast space today is not rational economics. That's my opinion. Whoever spent that money must have clearly believe they were rational because they're not -- they're smart people, right? We've been there. We've overpaid for content. You know that very well. If you go back -- I'm not going back there, okay? And so -- but I think you will see us investing more in the podcast area but rationally and what I'll call at least intelligent, disciplined, I guess, is better.

Okay. So since you brought it up, I definitely want to ask about Howard Stern. I think it's no secret as contract is up at the end of this year. What can you tell us about the process so far? And when should investors likely expect to know when the decision has been made there?

So I mean -- so I'll start with the relationship between Howard and myself has been great, and it's great right now. And at its heart, I think, is a simple thing. I trust Howard. Howard trusts me, okay? And I'm really pleased with the quality -- by the way, the toughest guy on judging how good Howard shows are Howard. I don't have to tell me. He's a harder judge than anybody. And so that's what drives him. That's sort of what make him, I think, so talented. Howard and I have begun talking about renewals late last year. I've begun engaging with Howard's agent in those discussions, which is the way Howard, which is the way most big talents does it and then the crisis hit. I'll be clear Howard's agent and I communicate every week back and forth. And we had hoped -- I had hoped to be able to sit with -- do this process in person and get going. I think it's probably going to take too long to wait for a good window for that. So I don't see any reason why we won't pick up the pace on those discussions. But I want to be clear. I want Howard Stern to work at SiriusXM for as long as Howard Stern wants to work, okay? I can't be any clearer with that. And now it's a free country. Howard Stern is going to go work wherever Howard Stern wants to work. But I know one thing. A big chunk that's important to Howard is Howard wants to work somewhere where he's happy, and he wants to work somewhere where he's valued and he wants to work somewhere where he trusts the system and the people he's around. He has that at Sirius. And I think it works great for him. I think the issue in the renewal with Howard will be: What does Howard want to do going forward now that he's seeing what's going on in podcasting. He's a radio guy though. He's told me that he's a morning guy. He's told me many times he loves being a morning guy. So we'll work our way all through that. And hopefully, we'll have good news when we get through that. But I want to be clear, I want Howard with us as long as he wants to be here, and I'm going to work hard at it.

Understood. All right. Last question because I think we're running right up against the time here. There's a bunch more I would have liked to ask, but we got through things quickly. What are your thoughts on exclusive spoken word content for the free ad-supported Pandora service?

Well, so great question. And I think you'll see more spoken word content. I think we will try -- we'll try some windows of exclusivity on that content on the Pandora platform. So you'll see more, but you're going to see more of it in the Sirius platform as well. And so I think what we're going to do, to be quite candid with you, too, Brian, is we're going to take some of it. And we're going to test it for a while behind the paywall, and then we're going to test it in front of the paywall. And what I care about, again, is maximizing the cash flow at the very, very end from that revenue. In the end, whether it comes from subscription or advertising or gas, doesn't matter to me. It's just that we maximize that equation.

Got you. All right. Well, hey, you've been very generous with your time. We were a little bit over. So I'd want to thank you for being with us. Look forward to another update when you report your second quarter.

Great. Look forward to seeing you in person pretty soon too, Brian. Thanks.

Yes. Fingers crossed. Thanks a lot, Jim. take care.

Bye-bye.