Ocular Therapeutix Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 1, 2024

There are 12 speakers on the call.

Operator

Greetings. Welcome to SiriusXM's 4th Quarter and Full Year 2023 Operating and Financial Results Conference Call. At this time, all participants are in a listen only mode. Please note this conference is being recorded. At this time, I will turn the conference over to Hooper Stevens, Senior Vice President of Investor Relations and Finance.

Operator

Mr. Stephens, you may begin.

Speaker 1

Thank you, and good morning, everyone. Welcome to SiriusXM's 4th quarter and full year 2023 earnings conference call. Today, we will have prepared remarks from Jennifer Wits, our Chief Executive Officer and Tom Barry, our Chief Financial Officer. Scott Greenstein, our President and Chief Content Officer, We'll join Jennifer and Tom to take questions during the Q and A portion of this call. I would like to remind everyone that certain statements made during this call might be forward looking statements as the term is in the Private Securities Litigation Reform Act of 1995.

Speaker 1

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 these 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.

Speaker 1

All discussions of adjusted operating results exclude the effects of stock based compensation. With that, I'll hand the call over to Jennifer.

Speaker 2

Thank you, Hooper, and good morning. It's an exciting time for SiriusXM as we continue the transformation across all aspects of our business and we appreciate your time today. We'll start by reviewing our strong 2023 results. I'll highlight major strategic achievements and Tom will present the financial details. Today's call will also focus on SiriusXM's future, emphasizing 3 main goals: enhancing our subscription value, including building on our recently launched next generation SiriusXM experience, driving growth in our ad business and optimizing our organization's focus and cost structure.

Speaker 2

All this comes alongside the announced Liberty Media transaction aimed at creating a streamlined and more attractive equity structure. In 2023, SiriusXM exceeded expectations with strong operating and financial performance, including surpassing our adjusted EBITDA and free cash flow targets. I'm also pleased to report our self pay net adds returned to positive growth in both the 4th quarter and the second half overall. This growth resulted from improved streaming and in car net additions and was bolstered by continued positive responses to a robust content slate led by new artist stations from high profile talent, including John Mayer, more on that in a bit. We also maintained our incredibly driver churn at 1.6% despite increases in vehicle related turnover during the year.

Speaker 2

Our 20 24 guidance improving year over year self pay net add results, but with slightly lower revenue and adjusted EBITDA and steady free cash flow. While early indications are showing signs of positive impact from our business investments, it will take time for these to fully reflect in our subscriber and financial metrics. The challenge to 2024 revenue comes from roughly level subscriber numbers and a modestly softer ARPU, partially from a more diverse subscriber base with more streaming only subscriptions. This shift coupled with an ad market that remains uncertain influences our revenue outlook. Against this revenue backdrop, we're focusing on cost efficiencies even as we invest in content, marketing and our technology platform.

Speaker 2

This approach enables us to maintain stable EBITDA margins and cash generation in 2024. I am confident the investments we continue to make in our business majority of our 34,000,000 subscribers and continue to be essential to our business. This past year we extended long term agreements with Mercedes Benz, Volvo and Honda and launched new partnerships with EV manufacturers Rivian and Polestar to integrate SiriusXM into their vehicles this year. Our biggest priority this year with OEMs is to boost 360L adoption as we see positive trends in conversion, retention and ARPU Among self paced subscribers with 360L vehicles, SiriusXM's software forward user experience offers a broader set of IP delivered content, including more music channels, personalized artist stations, live sports features and more making our in vehicle recommendations critical to enhancing subscription value and standardization of personalization and content discovery features across 360L vehicles will accelerate with growing adoption of the Android Automotive operating system. Most importantly, 2023 was a year of building And our strategy initiated over a year ago to launch a next generation platform driving future growth remains firmly on course.

Speaker 2

Many of you joined our media event in November where we discussed the benefits of the new platform. And while we are still very much at the early stages of this journey, Our new SiriusXM app which launched on December 14th is yielding promising signs of improved engagement. With most of our existing mobile users now transitioned to the new app, we are seeing the recommendation engine performing well and exposing listeners to a greater breadth of content, a key driver of improved discovery enabled by the new personalization features. We are also already seeing significantly better quality of service metrics, including a reduction in our time to live latency by nearly 90%, which is core to our unmatched sports play by play offering. We are actively listening to customer feedback And with a new infrastructure in place, we've already released a series of app and web player updates and have plans for rapid and continuous improvements in the weeks months ahead.

Speaker 2

We also introduced our new SiriusXM brand last quarter, reflecting a more modern look and feel. The all new logo embraces our roots that's home to the stars and brought back our beloved dog mascot Stella, who shows up as an icon for content discovery in the new app. Again, it's early days, but we're already seeing a positive lift in brand perception among the growth audience segments we are looking to attract. Our new brand marketing strategy leans into fandom to showcase our differentiated offering across music, sports, talk and podcasts that brings fans closer to what they love. In the Q4, we expanded our unique content portfolio with the launch of new artist channels with John Mayer and Kelly Clarkson who love the direct connection they get to their fans along with fresh new genre channels tailored to capture the interest of younger audiences.

Speaker 2

The channels are all performing well and showing strong listening, especially with streaming trialers. In Life of John Mayer, the talented guitarist and songwriter experiments with new programming formats defining his channel not by genre, But by the time of day as well as the day of the week, the channel has quickly become a hit and one of our most listened to artist branded channels. We also introduced another podcast from the legendary LeVar Burton, his new children's show Sound Detectives. The podcast, which recently wrapped, is distributed broadly as part of our SiriusXM podcast network and quickly soared to the top of the chart ranking number 1 in kids and family on Apple Podcasts. As we continue to build out our portfolio of content on air and through podcasts from leading hosts, we're also very excited about today's launch of our new show with James Gordon, This Life of Mine.

Speaker 2

This brings the iconic host into audio for the first time with his new interview series airing New episodes will be released weekly with a guest lineup including Martin Scorsese, Kim Kardashian, David Beckham and more. Earlier this week, we announced a new multi year agreement with Smartless Media and its founders Will Arnett, Jason Bateman and Sean Hayes that brings their hugely successful podcast Smartless to SiriusXM. It's a comprehensive deal that strengthens our industry leading position in podcasting by giving us the most top ranked podcasts of any player in the space. It also enhances our SiriusXM subscription business with a wide array of benefits Only available to our subscribers from windowing new episodes to events to making portions of the library exclusive. And it strengthens our advertising business given the scale of Smartlist, which will be exclusively represented by our advertising sales group SiriusXM Media.

Speaker 2

Speaking of our advertising business, total ad revenue remained relatively flat with 4th quarter and full year down less than 1%. Podcasting and programmatic continued to be strong growth drivers throughout the year. These positive results despite challenges faced by the ad industry throughout the year Highlight the value we offer with our flexible network approach, which ensures brands connect with their target audiences regardless of the platform. This year we will focus on expanding advertising services and investing in capabilities with many powered by generative AI to enhance monetization and efficiency for marketers. In short, we are confident that our strategy in the advertising business is the right one.

Speaker 2

As we progress on this transformative journey, we will utilize cutting edge technologies to ensure listeners benefit from an increasingly seamless and personalized connection to our unique content, however, whenever and wherever they want. And as we expand efforts to reach new listeners, drive trials and improve our already strong retention by enhancing our value proposition, we look forward to the upcoming rollout of our content sharing collaboration with Audible later this quarter. This collaboration will bring select Audible content into SiriusXM and highlight SiriusXM programming on the audio storytelling platform. In a largely commoditized streaming music market Where consumers are confined to algorithmically driven or self selected playlists, we are deliberately investing in human curated and live audio experiences featuring high profile and up and coming talent. Our strategy aims to attract and retain listeners seeking community and connection by providing them with unique opportunities to get closer to the artists, hosts and content they love.

Speaker 2

In closing, I'm pleased with our durable financial performance in 2023 and we are confident we will deliver improved year over year subscriber results in 2024 and maintain strong cost discipline during this transformative phase as we work to drive long term growth and stockholder value. With that, I'll turn it over to Tom.

Speaker 3

Thank you, Jennifer, and good morning, everyone. As Jennifer highlighted, we closed the year on a positive trajectory, achieving robust financial and subscriber results that either met or exceeded our goals. Importantly, 2023, we strengthened our path to future growth with the successful launch of our new app, began the process to streamline our equity structure through the proposed Liberty transaction and executed on meaningful strategic cost initiatives. In 2023, revenue was steady at $8,950,000,000 consistent with our guidance of approximately $9,000,000,000 Total subscription revenue and advertising revenue remained nearly flat for the full year at $6,900,000,000 $1,800,000,000 respectively. Full year 2023 adjusted EBITDA and free cash flow of $2,790,000,000 $1,200,000,000 respectively.

Speaker 3

This means we outperformed our original guidance for adjusted EBITDA by nearly $100,000,000 and outperformed our original guidance for free cash flow by about $150,000,000 In 4th quarter, revenue was largely unchanged at $2,290,000,000 with subscription and advertising revenue at $2,179,000,000 respectively. Adjusted EBITDA saw a 4% decline to $715,000,000 The decrease can be attributed to a rise in revenue share and royalty expenses, sales and marketing and engineering design and development expenses, offset by lower customer service and billing, G and A and transmission costs. Net income for the quarter was 352,000,000 or $0.09 per diluted share. Free cash flow continues to be back weighted during the year coming in at $445,000,000 in the quarter. Turning to the segments.

Speaker 3

In the SiriusXM segment, we delivered $1,700,000,000 in revenue, down less than 1% year over year. SiriusXM's advertising revenue remain challenged, which we believe is a product of the tough broadcast advertising market. ARPU during the Q4 and full year 2023 was $15.63 $15.56 respectively. It benefited from the March 2023 price increase on select full price plans, but this is offset by the effect of promotional self pay subscription plans, the lower advertising revenue mentioned and the lower paid promotional rates from certain OEMs. Gross profit in the SiriusXM segment for the 4th quarter decreased 2% to $1,040,000,000 compared to the $1,060,000,000 recorded in last year's 4th quarter, Representing a margin of 61%, down only one point as we absorbed roughly $20,000,000 in higher music royalties.

Speaker 3

For the full year, gross profit was $4,150,000,000 also at a 61% margin. In the Pandora and Off Platform segment, total revenue is $571,000,000 $2,100,000,000 for the Q4 and full year respectively, an increase of 2% and 1%. Advertising revenue in the segment of $436,000,000 increased 4% sequentially and 1% year over year, driven by continued strong growth in our podcasting and programmatic ad sales. Podcasting revenue saw 22% year over year lift in the quarter, while programmatic podcast revenue increased 12% sequentially in 97% year over year. Gross profit in the Pandora and Off Plant Platform segment $193,000,000 for the 4th quarter represented a margin of 34%, up from 32% in prior year 4th quarter.

Speaker 3

Full year gross profit in this segment was $638,000,000 a margin of 30%. We returned approximately $102,000,000 to stockholders in the 4th quarter through our regular quarterly dividend, which has increased by 10%. Full year capital returns totaled 657,000,000 including dividends and share repurchases. We ended the year with net debt to adjusted EBITDA of 3.2 times. We had $216,000,000 of cash and equivalents and our entire $1,750,000,000 revolver was undrawn and available at year end.

Speaker 3

And last week, we closed our new $1,100,000,000 Term Loan A delayed draw facility that will replace the 3 64 day bridge loan commitment. We intend to draw that facility as part of the closing of the Liberty transaction. Additionally, as an update on the Liberty transaction, Liberty Media filed their Form S-four on Monday, and we still expect the transaction to close early in Q3. At the end of the Q3, per SEC rules, we suspended our share repurchase plan in response to Liberty's proposed offer. While the transaction is pending, we anticipate remaining out of the market.

Speaker 3

As we look forward beyond the Liberty transaction, we will continue to target leverage in the low to mid three times range and we anticipate being back in this zone during the second half of twenty twenty five. While we will primarily focus on deleveraging, we will continue our dividend policy and have the flexibility to be opportunistic on share repurchases. In addition, we continue to focus on further strategic cost saving efforts this year. In 2023, we attained approximately 140,000,000 of cost savings through the org structure optimization, continued consolidation of our real estate footprint and broad operational efficiencies. In 2024, we are targeting nearly $200,000,000 of additional cost savings with more efficient allocation of resources in marketing and programming, along with more efficient approach to customer service.

Speaker 3

This year, we are stepping up on socially responsible tax equity investments in the clean energy technologies, including industrial carbon capture and storage. These investments will produce tax credits and related tax losses. Over the next 7 years, we currently expect to generate more than $250,000,000 in net after tax cash benefit with the bulk of these benefits coming in the latter portion of the contract. The payment of these equity investments will be classified as investing activities from a cash flow perspective, While the tax credit and losses will benefit our federal cash taxes and operating activities, increasing our free cash flow available to reinvest in our business and return capital to the stockholders. These agreements contain customary termination provisions should tax laws change or the projects not perform as expected.

Speaker 3

And as previously discussed, We will see continued free cash flow tailwind as both satellite and non satellite capital expenditures decline significantly in the years ahead. Finally, earlier today, we released our 2024 guidance projecting revenue of approximately 8,750,000,000 adjusted EBITDA of approximately $2,700,000,000 and free cash flow approximately $1,200,000,000 Excluding the cost and incremental interest expense arising from our pending transaction with Liberty Media. We anticipate providing an update to our free cash flow guidance upon closing. As Jennifer mentioned in regards to self pay net adds, we expect to see an improvement in our performance versus 2023. With that, I'll turn it over to the operator for Q and A.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Our first question this morning is from the line of Cameron Massan Perrone with Morgan Stanley. Please proceed with your questions.

Speaker 4

Thanks. Good morning, guys. First one is for Tom. You mentioned The $140,000,000 of cost optimization that you were able to achieve this year, and then the $200,000,000 you're targeting In 24. So I guess I was just wondering if you could unpack that 200 mil number a bit.

Speaker 4

You call out I think marketing, programming and customer service in the release, but just kind of across those buckets, where do you see the most opportunity to limit growth this year and realize those savings. And then one more if I can for either Scott or Jennifer, but big new agreement signed for Smartless. Jennifer, you mentioned some of the benefits from that deal in terms of strengthening that business and then supporting using that some of the content to support subscription strength. But Just generally, what is a big deal like this kind of indicate in terms of how the podcasting business is performing for you? And then How do you plan to leverage that content outside of what you mentioned, if any, other areas?

Speaker 4

And how do you think about the podcast opportunity just overall would be really helpful.

Speaker 5

Thanks guys.

Speaker 3

Okay, great. Thanks Cameron for the question. So unpacking the $200,000,000 in 2024, There's a lot of moving pieces as you can imagine, but as I summarized, it's programming, it's marketing and There's customer service, but I would say a couple of extra things. When you look at marketing, for example, marketing is up slightly year over year, but I would say We're investing a lot more in the streaming side and so we've optimized our marketing costs. So the savings of the 200,000,000 is being reinvested as we approach more targeted and more performance oriented marketing on the streaming side.

Speaker 3

So A lot of it is add back from that standpoint. And I would say the second point on it is, as we work on building out our tech stack in 2024, There will be impact on various parts of the business, whether it's customer service or whether it's programming. So we have a lot of moving parts They're going into it. So the savings are actually spread throughout the business, but it's also there is overall net savings as part of it. But when you look at the number, a lot of it's going to be offsetting various costs that we're incurring as we transition our platform and move to more of a streaming approach in 2024.

Speaker 3

Yes.

Speaker 2

And I'll start on Smartlist and then hand it to Scott Just to add in, but we're really thrilled to be working with Will Arnett, Jason Bateman and Sean Hayes on this. I mean they've put together a phenomenal Podcast Network, including their really significant podcasts and it really just benefits all parts of our business. And I think we were able to come to a great place with them where we're broadening their exposure, bringing some content to SiriusXM subscribers specifically, but also just adding to our overall podcast network and positioning us really strongly in terms of representing from an ad standpoint, a lot of major podcast content in the industry. Scott, you want to comment more specifically?

Speaker 6

Sure. Thanks, Jennifer. So a couple of things. One is, The podcast thing and industry is really still in the 2nd or 3rd inning, so it's evolving. But it's starting to shake out in a reminiscent way of terrestrial radio and some other things.

Speaker 6

The top 10 in podcasting largely has stayed the same for a while. And by all the charts, we have 3 of the top 10, some 4 of the top 10. We're averaging about 175,000,000 monthly downloads in that network. So the goal always was 2 things to create the ultimate sort of suite of assets that we could fine tune and calibrate between what would be best for a curated subscriber pay model and to continue to build the most robust podcast network of an audience that filtered and funneled our ad sales model. And I think we're getting close to that point.

Speaker 6

So that's one thing. Secondly, as everybody knows, our content different than most other certainly audio services generates enormous, enormous amounts of earned media and we're starting to see podcasts now do that as well. So when you combine what we're doing on the Sirius side and the podcast side, we're now feeding The costs are the costs, but they're feeding a huge amount of free earned media. So we like that. In addition, The new talent that is going to distinguish itself in audio is going to come out of podcasting.

Speaker 6

And generally, when you're the leader, Young podcasters want to be at that network. It's no different than anything else. And we feel really good that we're going to be an attractive platform for that. And as you can tell with Smartless, we announced about doing our Crime Junkie and AudioChuck channels on Sirius. We're going to start to use assets, as I said, to calibrate what might make sense on both sides of the paywall And adding Smartless along with Conan O'Brien, Prime Junkie, Crooked, Dateline and others, We just feel really good about the position we're in with this.

Speaker 6

So we look forward to more, but we feel we're perfectly positioned right now.

Speaker 4

Great. Thanks guys.

Operator

Our next question comes from the line of Vijay Jayant with Evercore ISI. Please

Speaker 5

Your pricing for the satellite product in 2024, typically you have a dollar a month rate increase Every all set year, given all this transition, is this a year we should expect sort of a rate increase there? And In your implicit guide, obviously, I'm assuming the streaming product is going to grow. So it sort of implies that does it imply that the satellite Paid subscriber base is going to decline in 2024. And if that's the case, The impact on ARPU given the shipment product is priced lower than your average ARPU, is there some sort of offset to that in pricing? Thank you.

Speaker 2

Yes, I'll let Tom comment on ARPU in a second. But just as it relates to pricing and a rate increase, We've done, Vijay, our last two rate increases were pretty close together. We did one in late 2021 and another one in early 2023. So we have had a history of approximately every other year And we're anticipating another rate increase next year. So this would be a year without a rate increase on our full price packages and that plays into our revenue guide.

Speaker 2

We are really excited about the $9.99 price point on our streaming only plan and believe that enables us to really address a broader Market, we've talked a lot about the growth audiences and positioning ourselves as complementary to a music streaming service because of the nature of our content and how differentiated it is. And it's really early days, obviously, since the launch, we're only about 7 weeks in, but we're very excited about What the streaming product and the product market fit it provides to these growth audiences can provide from a tailwind standpoint to overall revenue growth. And we believe that there is limited risk of cannibalization for instance between the in car base and our streaming growth because they're very different products. And yes, you talked a little bit about the impact of growth in streaming and ARPU overall, But we believe we're well positioned as we continue to add more value to our in car packages to execute on running rate increases going forward, But also drive volume across both in car and streaming bases in the future. You're going to comment on

Speaker 3

Yes. Other than I would just add, Vijay, that I think we look at it as in approaching a growth approach to our subscriber base, We felt a more affordable and competitive streaming plan at $9.99 will be attractive to the younger, more urban audience. And so by expanding the demand and expanding our TAM, we believe it really won't cannibalize, but We look at it as additive to our overall subscriber base.

Speaker 5

Great. Thanks so much.

Speaker 3

Thanks, Vijay.

Operator

Our next questions come from the line of Barton Crockett with Rosenblatt. Please proceed with your questions.

Speaker 7

Okay, great. Thank you for taking the question. I guess a couple, really kind of thinking about the sub trends and the ARPU kind of dynamics here drilling into that a bit. You have an expectation that you'll be growing your self pay ads over the course of the year. But I also noted in your earnings you're talking about a decline in the free trial base at the end of the year in 2023.

Speaker 7

So I'm just wondering if there's any kind of quarterly cadence we should think about maybe if there's some pressure on self pay near term reflecting the free trial that maybe turns around as we go through the course of the year that you can talk to? And then in terms of ARPU, one of the things So I thought you guys were thinking about what your approach to grow the growth demos was not just the $9.99 streaming offer, but also maybe some pricing changes on the satellite radio packaging and maybe some lower price opportunity there. I was wondering if you could talk to that if that's still part of the plan or Any update on how you're thinking?

Speaker 2

Yes. So thanks for the questions, Barton. On the sales pay net adds for 2024, We haven't provided a specific number and guidance as you know, but our plan is to improve net adds year over year. We certainly hope that puts us in a position to have positive net adds, but it's really too early in the year to provide any more specificity about that. But as you highlighted, obviously, one of the big factors in driving self pay net adds is the trial funnel.

Speaker 2

We had this dynamic last year as well where 4th quarter trial starts were a little lower than Q3 and that will put some pressure on first quarter conversions. I think as you look at seasonality for self pay net adds this year, it will look pretty similar to last year, where we would expect probably some declines in early part of the year, but positive adds in the latter part of the year. So similar seasonality, similar trajectory. Last year, we delivered on our goal and commitment to have better self pay net adds sequentially each quarter over the course of the year and we would look to do that this year as well. We did address that in the Q4.

Speaker 2

We saw the 130,000 self pay net adds. We're very pleased with that result and that We have contributing factors of improvements in both streaming and in car net adds and we'd expect that to also be the case for 2024. So on your question about satellite or in car pricing and packaging, We are in the market testing some different packages and you're right, we are looking at expanding The price points and packages we offer on the in car side of our business, we do believe there is room to capture more demand there as well. Among the growth audiences, It may be that many of those potential listeners want a streaming only package, but are going to have more technology in place to be able to move customers more seamlessly between the embedded in car experience and Our streaming experience today, most of our streaming only subscribers are listening outside of the car predominantly. And so there's again an opportunity I think to lean into that to build growth, but also make it easier for customers to move.

Speaker 2

Obviously, they can listen on the app in the car as well, but there's enhanced benefits to the embedded experience in the car. So we'll have more to say on pricing and packaging for the in car base Over the course of the year, a lot of that comes with the migration to the new tech stack for in car, which will start later in the Q2 and we'll proceed through the different elements of that tech stack throughout the year. But I'm really excited about the flexibility it will give us in pricing and packaging. Some of the things Tom mentioned about how we'll support customers and customer service better identity and better MarTech overall.

Speaker 7

Thank you.

Operator

Our next question is from the line of Steven Cahill with Wells Fargo. Please proceed with your question.

Speaker 8

Thanks. So, Jennifer, I think a lot of the investments you made in 2023 were about trying to improve future conversion rates and especially with younger car buyers. Could you help us on maybe what you started to see, either late in 2023 or what expecting in 2024 in terms of those proof points around conversion with the updated app experience? And then to follow on Vijay's question, just around mix shift as You're ramping up on streaming only. It seems like this should be positive for volumes, but it is a heavily discounted product versus in car.

Speaker 8

And I would guess that a lot of drivers today just don't have the connectivity issues with their phone that they might have had once upon a time. So how do we just think about ARPU longer term as you start to shift the mix towards in car and streaming only? Thank you.

Speaker 2

Sure. Thanks, Stephen. So on conversion rate, much of the benefits that we would expect to have roll through on the in car conversion rates are really going to come towards the latter part of this year. So what we launched in December, as you know, is our new overall tech platform, but primarily supporting our new streaming app. So we would expect to see progress in streaming first And where the new tech platform currently benefits our in car trialers and subscribers is where we have 360L in place.

Speaker 2

We have a much better search algorithm in the back end that will support recommendations in 360L. And with So where we're going to see improvements this year on conversion rates will be especially with younger audiences will be where we can improve in 360L we know that 360L, we see higher conversion rates than non 360L. And also across really our trialer, our base of trialers as we improve marketing and that is when we have 360L we can leverage the data obviously to provide better personalized marketing. But even if we don't have 360L, so across the non enabled vehicles in new and used, we'll have better marketing capabilities to personalize based on other data points. But that's going to take time to build out.

Speaker 2

We do have improvements in our overall marketing technology stack using Salesforce that will be in place starting later in the second quarter and rolling through into the third quarter. It's very much tied to the overall migration of Our in car platform. So earlier in the year, we should certainly have more to talk about on the progress we're making in streaming as a leading indicator there. And then just on your question about mix shifts, we really believe that There is really 2 components here to demand and our subscriber base. We have a very loyal and passionate subscriber base in our core segments who we believe we have the opportunity to continue to raise price going forward as long as we continue to enhance value through product improvements and content additions, which we've had a history of doing.

Speaker 2

And we also believe we have an opportunity to open up more demand with younger generations, whether it's streaming or in some of the new packages and price points that we'll be launching towards the second half of the year. So It is a factor that we need to look and watch for cannibalization, but we really don't believe it's a concern today. And of course, we have the opportunity going forward to the extent that the streaming package at $9.99 is so compelling, it creates some risk to cannibalization the in car base, we can adjust pricing accordingly. And of course, our in car product includes a lot more than just streaming, right? You can use streaming anywhere you want to listen simultaneously with using the in car product.

Speaker 6

Great. Jennifer, one other thing to add on the younger demo point is, as has been well documented and you mentioned, The content was built for our core demo and they're still as passionate as ever. This year alone, when you think about John Mayer, James Corden, Kelly Clarkson, Carrie Underwood, Will. I. Am, Shaggy and some of these others that are being really launched and will bloom throughout 'twenty four and beyond.

Speaker 6

This is a content play on a younger demo. And generally, our track record as a company when we put out premium content and it's marketed and they're aware, it sometimes takes a little time, but they generally are attracted to that content. So this is really the first time we're going to have significant content for a younger demo. We've always had it, But now it's got the mega brands and people that we've had for our core for years. So I'm looking forward to seeing how that will go.

Operator

Thank you. Our next question comes from the line of Jim Goss with Barrington Research. Please proceed with your questions.

Speaker 9

Thanks. Actually, this follows a little on to what Scott was just talking about. In the programming costs, It seems like you're going to more originals at this stage. And I'm wondering if how that ties into the Maybe more conservative programming costs you envision, but also the impact on royalty obligations from the shift in the nature of the programming and maybe also the royalty impact from streaming as you get to identify exactly what's being played and it gets to be a little different from the satellite look at streaming revenues?

Speaker 2

Scott, why don't you talk about the

Speaker 10

content value prop? Correct.

Speaker 2

Sure. Thank you, Jim.

Speaker 6

Sure. So, the value proposition as I as you alluded to is now sort of a blended demo proposition. And we've always had an audience that looks and tries to be younger from the research. So I feel really good that we're going to have a lot of back and forth on the content. For instance, live sports plays every demo and that's been proven whether it's visual or audio and all that are comedy and other things.

Speaker 6

And obviously, those are not in the royalty pool on that. The listening is still primarily on the satellite. It's growing obviously on the digital. And when you say originals, we're always looking to create original unique content or pieces of it like Smartlist and other things with that. So, we're going to continue to do that, but also Curation has always been a major part that under one roof, we're able to service people their needs without Now going to 5 or 6 apps like they have to do on video or other things.

Speaker 6

So we still as mentioned before, we have the All the live sports rights all under one roof. And when you combine that with the new programming we're launching and everything else, I've never been more excited about the ability to have exactly what we need to keep our core excited, passionate and paying And at the same time, really putting out a lineup now that a younger demo can be attracted to and feel it's unique to SiriusXM?

Speaker 2

Yes. I would say I think that's a great summary, Scott. And I would say we have a very flexible model in terms of how we monetize content. And Scott and his team, along with John Trimble, who runs ad sales, look really carefully at the opportunities we have to bring content behind the paywall for SiriusXM subscribers that will enhance value. So for instance, like James Corden, that's exclusive to SiriusXM And we're really excited its first show will be on air today or something more broad like Smartlist where there'll be a combination of monetized through ad sales, but also some amount of content that's exclusive for SiriusXM.

Speaker 2

So that's a model we continue to work and perfect and I think we're in a good place, helps us manage our content costs and monetize in different ways. And then I would say, we have had a history of being pretty disciplined on the programming side and we will continue to do that going forward more insights with data as to what consumers are listening to in and out of the car will certainly help with content decisions going forward. And we expect to get a lot more of that through 360L and streaming this year. On licensing, so yes, our music licenses are significant portion of our cost structure represent probably about a little over 30% of our operating costs. We probably pay about $2,000,000,000 to the rights holders.

Speaker 2

And the largest portion of that is our CRB arrangement for the satellite side of our business, which comes doesn't come up again until the end of 'twenty seven. So we have a lot of predictability around those costs on the in car side of our business. In streaming, we have a slightly lower percentage, when you look at the costs of the music licensing. So for our streaming only packages, it's a lower percentage and we have healthy margins in both sides that have direct licenses. We have direct licenses on the Pandora side of our business, of course, and where we have fully interactive subscriptions that was a necessity and those are pretty separate, right.

Speaker 2

So the dynamics there More of another music streaming company, but on the SiriusXM side, I think it's approximately 15% or so for Our satellite license through SoundExchange and I don't anticipate a lot of shifts in that in the interim based on how people are listening.

Speaker 9

Okay. Thank you very much.

Operator

Our next question is from the line of Jessica Reif Ehrlich with Bank of America. Please proceed with your question.

Speaker 11

Thank you. Maybe switching gears a little bit. Jennifer, I think you mentioned one of the three pillars for growth for the future is advertising. Could you give us some color on your long term advertising plans? What are the drivers?

Speaker 11

What are your goals? What do you think the TAM is? And then Secondly, given expectations of a lower 24%, what gives you confidence aside from free cash flow, which will obviously benefit from lower CapEx But you can reverse the trends, is it the rate increase or cost cutting or something else? And then I sorry, but I just wanted to ask on something Scott just said that Are you considering or have you considered bundling your service with others? Or do you view your content already as like all encompassing so that you don't need to do that?

Speaker 2

Well, thanks, Jessica. I'll let Scott jump in. But unbundling, It has clearly been an opportunity that we've seen many of the video streamers use in conjunction with whether it's or others. And we do have relationships in place with T Mobile and Walmart and others where We it's primarily what I would call distribution and those have been effective. I think we'll have more opportunities as we launch the new Commerce platform more broadly, it just makes it easier to do those types of things.

Speaker 2

But in terms of the true sort of hard bundle With content, I think an interesting opportunity obviously is going to come through when we launch audible and trying to find ways to really make it integrated in terms of having content on one another's platforms and also a trial offer. So we'll be able to experiment with different types of offers this year and bundles. And I do think it's We're very attractive to a number of potential partners given our very low churn. So that's certainly an opportunity. I don't know, Scott, if you had anything else to add on that.

Speaker 6

Yes, just one point, Jessica. Obviously, as Jennifer mentioned, we're attractive because we have a lot of exclusive content that we like to be exclusive in all of that. But where we're starting to see traction is, as I mentioned in the earned media, so much Heat comes off our content, meaning from the radio and the podcasting, people are now tracking back and checking out the service and trying it. So if there was a way that it increased the right amount of free sampling of what comes out on a daily basis In any version of our news, talk, sports, comedy, music, I would love to look at that. But what I'm not interested in is increasing someone else's bundle at our expense.

Speaker 6

So it will have to be the right thing. And as Jennifer mentioned there's plenty asking to do it. So we'll see where it goes.

Speaker 2

Yes. And on I'll let Tom cover free cash flow in a minute. But on advertising, Jessica, it is one of our 3 pillars. We'll do we did about $1,800,000,000 in advertising last year and it's We have a really strong position in audio. I like our assets here with broadcast and Pandora, which is really still a Key driver, we do about 60% of our ad revenue through Pandora and really despite the Listener declines, which had mitigated some to some extent last year, MAUs were down about 3%, and it's about the same for ad hours as well.

Speaker 2

It still remains a core value proposition and that has a lot to do with The fact that there's a lot of great opportunities to serve advertisers and important ad units whether it's display, audio or video in Pandora. So we've been able to really and the team done a great job continuing to improve monetization in Pandora. But the collection of assets we have has been key to taking advantage of opportunities in the space. So Obviously, there have been a lot of tailwinds around podcasting and we continue to see growth and opportunities there going forward. And then programmatic Cross both streaming and podcasting is a huge tailwind and there will be more solutions that we'll provide there that will enhance our ability to grow in that area as well.

Speaker 2

So it's really the collection of assets we have and continuing to lean into those. I think Pandora gets better when we move to looking to re platform that SiriusXM Digital will provide another opportunity for more targeted ad units as well on the SiriusXM business. We will look at opportunities to enhance our position in free, whether that's Pandora, SiriusXM or some combination of those, probably as we get into 2025. So there will be more ad opportunities on platform, but we also think there's growth off platform as it relates to podcasting, the tax fees business that we're in and just general marketplace revenue And then free cash flow?

Speaker 3

And then free cash flow, Jessica, when you look at the free cash flow, obviously, it's heavily dependent on 2 things, which we've talked about the SAT CapEx is going to continue to decline over the next few years. I think overall CapEx 2024 is going to be our high watermark. And I think as you look outward in 2025 and onward, our sat CapEx naturally come down as the satellites are launched And our non sat CapEx will start tailing off after I think we get through the middle of 2025 as we get the Pandora app up and refreshed. But from there, our non SAC CapEx should start trending down also. So it's a natural trajectory.

Speaker 3

Obviously, there's the EBITDA that impacts it and the rest of the factors, but the major play that's moving the number up is getting back to into the cycle of sat CapEx.

Speaker 2

Yes, I think at 1.2 for our guidance this year on free cash flow being relatively flat Last year, of course, excluding some of the potential Liberty transaction impacts is a real strong signal. And We should be at a low point in free cash flow with opportunities in the years to come.

Speaker 11

Thank you.

Operator

Thank you. Our next and final question will be from the line of Jason Bazinet with Citi. Please proceed with your question.

Speaker 10

I just have a deal related question. You guys have been very consistent about a 3Q close. My sense is that the risk guard community or event driven community is a little bit confused about that timing. They think it's conservative and could happen sooner. So I think there's a FCC license transfer and then there's a shareholder vote on the Liberty side.

Speaker 10

Can you just sort of unpack what your assumptions are that undergirds the 3Q close?

Speaker 3

So Jason, if you look at it when we initially worked on a timeline with Liberty, We are on target as far as what our current schedule is. We sent we filed or Liberty filed the S-four on Monday. And so that was on the timeline that we envisioned. The FCC license has been applied. And as we said, I think the long pole in the tent is going to be the SEC process, the number of reviews and corresponding follow-up that we need to do.

Speaker 3

So, right now, we have no indicators that are new based upon what we've seen that it would be any earlier. But we are very focused on trying to get it done as fast as we can.

Speaker 10

Super helpful. Thank you.

Speaker 1

Thank you, Jason, and thank you everybody for participating today. Talk to you soon.

Operator

This concludes today's teleconference. Disconnect your lines at this time and thank you for your participation.

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Earnings Conference Call
Ocular Therapeutix Q4 2023
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