Excerpts from transcript credit Seeking Alpha
The expansion of our CV platform gives us immediate credibility with OEMs, enhances relationships with key Asian and European OEMs, and improves opportunities at several others. We’ve acquired a smart team of technology engineers who are accelerating development of our overall connected car architecture, including the combination of satellite receivers with LTE hardware, a strategy that should also yield benefits to our existing audio business.
The CV business also gives us entrée to create a worldwide connected car platform, something of particular interest to our OEMs. We now have live connected vehicle service with eight OEM brands, with several others in the pipeline, making us the leading provider of these services to OEMs today. Much of the market is still uncommitted, and we believe our acquisition improves the odds of expanding our relationship with existing OEMs and winning new business at several key other OEMs.
We expect connected vehicle services to deliver close to $100 million of revenue this year, and we expect to grow this at strong double digit rates over the next many years. We are in the process of fully integrating the CV business into Sirius XM, and its financial results are embedded in our guidance today.
As an early stage growth business, we expect the connected vehicle services product line to contribute at or near breakeven on an EBITDA basis in 2014, but with high variable margins, a relatively low capex profile, and substantial scaling in the business as penetration expands, we see many similarities in the financial profile of connected vehicle services and satellite radio.
Just keep in mind the connected vehicle business is still in its very early days. Building this business is a key step in realizing our vision of a merged satellite and IP connected environment that will truly deliver amazing features to our subscribers and benefits to our business. The rate we are running is a marathon, not a sprint. It will take several years, just like satellite radio did, to fully deploy our connected vehicle services, but successful leadership now will create a significant source of growth in the years to come.
Jason Bazinet - Citi
Just had one question on your commentary regarding the worldwide connected car platform that you talked about on the call. If you go down that path, were you contemplating something that’s LTE based, that integrates Agero, or something that sort of mimics the architecture that you’ve had in the U.S. with satellites?
Jim Meyer - Chief Executive Officer, Director
I think a couple of comments on that, Jason. One, there’s virtually no auto company left today that’s not competing on a worldwide basis. And certainly all of the big ones are. And they are without question driving to global platforms that they then can localize to various geographies around the world.
Our vision, and what we’ve demoed to them and shown working hardware of, is a platform that combinations satellite and LTE in the North American markets and then it allows the satellite portion to be easily uncoupled everywhere else in the world, at virtually no cost premium to do that.
And so we’re providing them a very flexible platform that they could incorporate on a worldwide basis. What specific services strategies will evolve in those evolving regions is still work to be done.
Amy Yong - Macquarie
My question is on IP. You’ve helped us quantify some of the opportunities in telematics and the used car market. Can you do the same on the IP side? And on acquisitions, what other opportunities could you pursue?
Jim Meyer - Chief Executive Officer, Director
I think first and foremost, today we view IP as a way to enhance our service, not necessarily as a big channel for acquiring new subscribers. And so where our focus has been over the last few years is trying to get more and more of our base to both have a satellite and IP account, so that they can enjoy our programming in the car and enjoy our programming at home, seamlessly and easily or on the go seamlessly and easily.
And I don’t see any change in that, certainly in the next couple of years. That said, once this stuff becomes connected and this experience becomes blended, we’ll see. But I have to tell you, in our thinking over the long term, we are auto-centric and auto-focused, and that’s where we’re going to stay focused in both acquiring subscribers and keeping subscribers. But, we do believe that we have to make our service easy to use, robust, and available, frankly, over our terrestrial networks, over our satellite networks, and over our IP networks.
Amy Yong - Macquarie
And on acquisitions?
Jim Meyer - Chief Executive Officer, Director
I’m sorry. I don’t understand the acquisition question.
Amy Yong - Macquarie
What other opportunities could you look at? Telematics…
Jim Meyer - Chief Executive Officer, Director
I’m sorry, I thought you meant acquisition of the subscriber. Look, we’re always looking, and you know, I think you should assume that over the years, we will find some opportunities that match the strategy we’ve laid out for you pretty consistently over the last two or three years.
And again, we’ve got a lot we’ve looked at. We don’t have any we’re contemplating right now, I’ll be clear with you. But we are going to look hard, and if I had to guess, one is, and I think I hinted at it a little bit today, over time, we’d like to expand our footprint on an international basis. We want to do that slowly and carefully, and we want to do it along with the OEMs, not just charging out on our own, that scenario where, today, we don’t have what we need and we might look in that area.
And then I think we’re always looking in the connected world for a service opportunity or a partner that can accelerate our strategy in those areas. And I think that’s primary where we’re looking at in the acquisition funnel today. We continue to look at others, but we just haven’t seen anything that either excites David and I in a way that gets us even to a second step.
