Q3 2022 Sirius XM Holdings Inc Earnings Call
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Thank you and good morning, everyone welcome to Sirius XM third quarter 2022 earnings Conference call.
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Operator, Thank you and good morning, everyone welcome to Sirius XM third quarter 2022 earnings conference call. Today, we will have prepared remarks from Jennifer Witz, 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 terms 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 message 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 Sirius XM 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 would 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 today.
And the third quarter, we delivered solid results as we continue to drive growth and focus on a disciplined approach to cost management across our organization, while near term objectives remain top of mind. We are focused on the strategy and investments that will drive long term value for our stockholders, including continuous improvement and a differentiated listening experience.
That our customers love.
Self pay net adds were 187000 in the third quarter as we sustained our record low churn of one 5% and total revenue grew 4% versus the prior year period, while advertising revenue remained relatively flat as macroeconomic factors resulted in a deceleration in AD spending late in the quarter.
Our subscriber growth. Despite continued automotive supply chain constraint is a testament to the loyalty of our listeners the value of our content and our highly resilient subscription business model as such we are pleased to reaffirm our full year financial guidance, although headwinds any advertising environment will continue to add some degree of uncertainty.
Achieving 2022 guidance as we move into the fourth quarter, we remain focused on maintaining our momentum with steady work to expand relationships with Oems and deliver an incredible content slate new listener experience is an exciting product and technology enhancements.
Our products and content remain extremely attractive to vehicle buyers and automakers are new and used vehicle penetration rates continued to remain strong at 83% at 53%, respectively and our enabled fleet reached 150 million vehicles in September we completed several extensions of our agreements with automakers in the third quarter.
Including Subaru and for Lantus. In addition, our 360 L platform launched in our popular 2023, Nissan Altima and we should exit this year with 360 L installations up approximately 500 basis points as a percentage of new Sirius XM enabled vehicles compared to the end of 2021.
We are also pleased with the progress we have seen with EV startups in the coming months Sirius XM will be available for the first time and lucid full lineup of electric vehicles announced yesterday, all lucid customers will receive an over the air update in the coming months launching a free beta version of Sirius XM when the full series like that experience debuts later in 'twenty two.
Three customers will move into our standard trial subscription funnel.
Initial volumes will be relatively small the lucid data provides an exciting opportunity to test enhanced capabilities and new solutions to drive forward. The in vehicle audio entertainment experience.
Pat here are focused on opening new distribution channels has led to continuous broadening of our acquisition funnel, particularly on the streaming side of our business, which continues to see strong performance and is expected to be the majority of our subscriber growth this year.
While our streaming business is still at an early stage, we are investing in building out the experience and our capabilities in anticipation that it will become a much more significant part of our subscriber mix in the near future even as auto sales rebound over time.
Training also remains an important part of our value proposition for our in car subscribers we.
We are also expanding beyond our historical German graphic identifying growth segments that comprised an additional quarter of the U S. Population. These growth segments are younger more diverse and willing to pay for multiple streams of audio entertainment. We have found that many additional consumers find the premium music and non music content that only Sirius XM offers attractive.
And we are working to scale in these segments to help showcase our offering this past quarter, we launched the second installment of our National AD campaign, the home up Sirius XM, highlighting several content categories, such as comedy sports lifestyle podcasts and multiple music genres.
The new spot feature talent, including Conan O'brien to change and our last morissette showcasing the diversity of content on Sirius XM that appeals to a multi generational audience. The national AD campaign, coupled with the return of the NFL. This fall contributed to one of our biggest acquisition month to date on the streaming side.
We are working hard to improve the consumer experience in and out of the vehicle this past quarter, our product and technology team drove several vital improvements to our core consumer listening experiences most notably with advancements in our content personalization technology leveraged across both Pandora and Sirius XM.
Pandora's personalized music experience have long been driven by our proprietary algorithms that continually learn from past user behavior, enabling pandora to deliver music cater to each user's tastes and preferences recent.
Recently, we've made algorithm improvements that include scaling up our model and adding more signals derived from listener interactions with songs and artists.
On the Sirius XM side, we made several in vehicle personalization improvements through our 360 L product, including the introduction of data driven music can talk recommendations on for you tabs, which has helped drive double digit increases and listen or click through rates. We also made enhancements to the 360 L. User interface that has significantly increased engagement and discovery of new Cott.
<unk>, including one touch access to Pandora artist stations from Sirius XM now playing screen. The update is live in select 'twenty 'twenty three at G. M vehicles, and we will launch with more Oems next year.
Last week, we rolled out an updated version of Sirius XM on Apple car play with redesigned navigation, new recommendation carousel and several new design enhancements.
And upgraded Sirius XM experience on Android auto should ship in the coming months.
Later this year, we also plan to update our core ethics that mobile app for iOS and Android with a design refresh that will enhance navigation and streamline content discovery the updated personalized care ourselves well ive listened earthquake access to a wide range of personalized recommendation and the update will include visual enhancements like new dark both game. These are justice.
Start of a series of improvements in the Sirius XM product that we will be making in the coming months.
In addition to the product enhancements, we continue to broaden our content and music comedy and sports to draw in streaming subscribers that are younger and more diverse. This audience segment tends to over index on fandom for music artists and other celebrity talent.
We see a real opportunity to highlight the intimate connections and unique artist experiences that we have built our brand on over the past two decades.
This past quarter saw launches of new artist shows channels and special events. For example, six time Grammy Award winning singer songwriter Brandi Carlile launched her new show somewhere over the radio on the spectrum, we're brandy engages and candid conversations with guests from the LGBTQ community and their allies.
The launch of the chicks channel a limited run channel celebrating the music of the 13 time Grammy winners with another Great example of our curated artist experiences and the channel provided a great promotional vehicle for the artists to connect with fans across the country. While they were on tour. This summer turning to our small stage series, we hosted two iconic bands at the Apollo.
Yet or in New York City, this quarter Pearl Jam and the Red Hot Chili Peppers, Halsey performed breath in Philadelphia, John Legend in Los Angeles and earlier. This month, we hosted live though in her hometown of Detroit.
These incredible experiences continue to prove a valuable and unique subscriber benefit with our enter to win campaigns, reaching record highs while promotions through dedicated pop up channel rebroadcast across our most popular station and other on demand content and the ethics I'm App contributed to a 22% year over year left and on demand listening.
The third quarter also saw strong performance in our sports category Sirius XM remains an essential unmatched subscription for sports fans offering more live games and events to listeners in North America on one platform with one subscription than anyone else in audio.
Recently extended our NFL agreement as the exclusive third party audio broadcaster of every NFL game and we continue to cover sports underserved by other outlets.
Sports have a proven appeal to new subscribers with trailers, who listen to sports channels converting to paid subscribers at a higher rate and one subscribed sticking around with higher retention rates. We know there is more opportunity to capture audio share on this front and we recently launched our first ever fully dedicated sports campaign to increase awareness.
Lastly, we remain incredibly bullish on the broader entertainment political in news talk audio ecosystem that we work continually cultivating as part of our election coverage Crooked Media's top ranked podcasts I've taken over the Sirius XM progress channels weekend lineup, leading up to this month's midterm elections.
Special programming includes recording that pod save America taped in front of live audiences at Sirius XM L. A garage studios there.
Sam subscribers also had exclusive early access to a pod save America interview with former President Barack Obama.
And we will soon be launching a fulltime original team cocoa comedy channel available only to Sirius XM subscribers tapping into the large scale fandom behind his popular podcast Conan O'brien needs a friend.
Our unique podcast strategy sets us apart in the marketplace as we can monetize efficiently through off platform distribution and give advertisers and creators the thing they want most tremendous audience reach across all platforms. While also offering creators unique access to the exclusive and live audience of Sirius XM.
Today, we touch over 150 million listeners, including Sirius XM, Pandora, Soundcloud, and our broader podcasts and off platform AD network.
The best content and talent and podcast and makes us the leader in digital audio advertising, we have more shows and edison's top twenty-five podcast ranking than any other network with prime jockey office Ladies' Dateline N B C pod save America, and Conan O'brien needs a friend continually making the chart.
The third quarter, we added add representation and distribution agreement with the school of greatness and the Mel Robbins podcast.
Capitalizing on the growth we are seeing in podcasting ethic that media recently deployed new AD products to give brands more automated and efficient ways to buy advertising at scale, our new podcast everywhere solution allows brands to reach their audience wherever they're listening and our podcast select product gives advertisers better control over audience Tar.
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Revenue from these two solutions plus podcast programmatic meaningfully increased compared to a year ago, and we saw more than 250 additional advertisers leveraging network solutions such as these versus Q3 last year.
We expect continued uncertainty around macro factors and recessionary trends impacting the broader economy in the coming months to dampen the digital audio AD market, but we are encouraged by the early response to these foundational drivers of our ethics, our media business.
We are closing the year with momentum in our vehicle distribution, new product and technology enhancements and an exciting pipeline of fresh content, including the launch of cheap Cocos channel and next week Special event with Grammy Award, winning hip hop artist Drake live at the Apollo.
The announcement of Drakes exclusive show for Sirius XM led to record breaking downloads of the ethics on App and the days that followed and we are incredibly excited to share Drakes performance next week with listeners.
To wrap up despite some uncertainty in the macro environment. We continue to pursue all avenues of opportunity to build long term and sustainable value for our business and remain equally committed to delivering consumers the best and most comprehensive choice in premium audio content I am confident we have taken appropriate actions to finish the year strong IMAX.
Cited and energized by the momentum of our business and organization and the culture of progress at Sirius XM and with that I'll turn it over to Sean.
Thank you Jennifer and good morning, everyone, starting with a recap of the third quarter financials revenue was up 4% in the quarter to 2.28 billion within that advertising revenue was up 1% to $457 million, while subscription revenue climbed 4% to $1 7 billion.
Adjusted EBITDA was flat at $720 million as we continued to make material investments in sales marketing content and product development.
During the quarter, we booked $69 million of one time charges, reflecting cost to exit real estate leases personnel severance and a write off of select software development initiatives that we no longer intend to pursue as we speed ahead on other enhancements to the listener experience net income for the quarter was $247 million representing dilute.
Earnings per common share of six or seven excluding the one time restructuring costs, we generated $329 million of free cash flow during the third quarter down year over year as the third quarter of 2021 benefited from $208 million of satellite insurance recoveries in <unk>.
<unk> free cash flow felt the material impact of a $56 million year over year increase in cash taxes as most of our federal net operating loss carryforwards became fully utilized last year, we expect cash taxes, which were $82 million in 2021 to grow to approximately $270 million this year.
This year's increase was partially mitigated by the use of R&D and other tax credits. These tax credits are likely to be available on a much smaller scale in 2023, including the adverse timing of certain R&D expenses that are now required to be capitalized under section 174, Therefore, we expect our cash taxes.
To continue growing meaningfully next year.
Also looking ahead, we expect capital expenditures to increase next year as production for the <unk> hundred 11, and 12 satellites currently being procured begins to ramp as we discussed at Investor conferences in September the combination of years of improving churn and successfully used car and win back programs means that we have more subscribers on her.
Low band spectrum today than we might have thought a few years ago.
So this constellation refresh signals, our commitment to maintaining premium services on our low band spectrum. It will also give us options to create new revenue streams on this portion of our spectrum over the long term.
Turning to our operating segments at Sirius XM total revenue in the third quarter increased 5% to $1 7 billion driven by a 6% increase in <unk> to a record $15 72.
This includes a 6% advertising growth rate on the Siriusxm platform combined with a larger self pay subscriber base compared to the prior year period, partially offset by lower paid trial subscribers is.
As Jennifer mentioned Sirius XM net self pay subscriber growth in the quarter was an outstanding 187000 boosted by trial funnel growth in the second quarter, leading to increased conversion opportunities combined with growth in our streaming only subscriber base.
During the third quarter Sirius XM is new and used car trial starts with bolt down 4% sequentially as auto industry sales continue to remain soft in vehicle prices remain near record highs and analysts largely expect this to continue since may the consensus 2023, SAR estimate as fallen from $16.
6 million to $14 8 million.
We anticipate that continued softness will continue to impact the trial funnel and self pay net adds into Q4 and into next year.
Gross profit in the Siriusxm segment climbed 6% to $1 8 billion, representing a gross margin of 62% a point higher than last year's third quarter.
Pandora and off platform segment third quarter advertising revenue of $407 million was a slight increase versus last year and Pandora's AD revenue per 1000 hours of $103 declined slightly from $109 in the third quarter of 2021.
During the quarter, our podcasts and off platform businesses generated $123 million in total revenue an increase of 37% year over year non Pandora AD revenue was about 38% of the company's total AD revenue during the quarter and we expect this to continue growing over time this past quarter, we saw growth in political advertising.
In restaurants travel and <unk> have all been strong categories for Us Pharma Entertainment Telecom and financial services have shown more weakness in recent months.
Gross profit in the Pandora and off platform segment declined 12% to 173 million, representing a 32% gross margin.
The margin decrease in the third quarter of 2021 is mostly due to investments we are making a new podcast and content and we expect the margin profile of these new advertising representation deals to improve overtime.
Hey, we reiterate our existing financial guidance for 2022 revenue of approximately $9 billion adjusted EBITDA of roughly $2 8 billion and free cash flow of about 155 billion.
Given the macro outlook and headwinds in the advertising market, we remain focused on cost discipline across the organization and we expect that to continue in 2023 that.
That discipline will be important given the CPI adjustments to some of our streaming royalties and the expiration of our discounted 2015 rates or pre 1972 content will produce an increase in music royalty cost next year on the capital allocation front, we returned $262 million to stockholders.
In the third quarter with $176 million of share repurchases and $86 million in dividends, bringing year to date capital returns to roughly 184 billion.
We are very pleased to announce a further 10% increase in our recurring dividend on top of last year's 50% increase this marks the sixth year in a row of double digit increases to our dividend.
We ended the third quarter at three five times net debt to EBITDA within the low to mid threes range. We've previously articulated our balance sheet remains exceptionally well positioned with limited near term maturities and roughly $1 $4 billion of liquidity available at the end of September via cash and Undrawn revolver capacity.
We have significant capacity to continue investing in the business evaluating strategic opportunities and to continue returning capital to our stockholders with that operator, let's open it up to Q&A.
Thank you, ladies and gentlemen, as a reminder.
If you would like to ask a question on todays call. Please press star one on your telephone keypad.
Once again, please press star one on your telephone keypad, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Okay.
We will take our first question from Ben Swinburne at Morgan Stanley . Your line is open please call the height.
Thank you good morning.
Maybe two questions one.
Maybe for Jennifer on digital.
Subscribers, which seems like they continue to build.
Could you just remind us of sort of the unit economics.
For that business relative to the core satellite business.
And whether or not it's becoming large enough to sort of start to impact gross margins. Okay.
I think you've got pretty attractive economics on the digital front and then maybe Sean as you think about expense growth into next year, you mentioned cost discipline.
And some of the pressures on the list on the licensing front, how does that all shake out at this point in terms of kind of where you guys are leaning in and where you see opportunities to pull back.
When you think about the overall opex space for the company looking into next year. Thank you.
Okay. Thanks, Ben.
First on the satellite versus streaming subs.
Economics, as we talked about in the past are pretty different in terms of the upfront cost to acquire subscriber as you know from your years focusing on our business on the satellite side, the rehab upfront back that doesn't necessarily tie to producing a subscriber.
On the streaming side of the business our upfront costs are much more marketing based whether they be with partners or direct marketing performance media.
And that will fluctuate based on.
What we're seeing happening in the markets. Obviously, we're really focused on cost per trial as it relates to L. T V of the subscribers and so the dynamics of that may shift in a given quarter.
Whereas you know that.
Funnel is obviously clearly a function of what automotive trials or in a given period. So.
So the the levels of subscribers will be dynamic based on how we're investing in the market are the marketing investments that we make towards streaming trials I continues to get more efficient part of that obviously near term has just been the trend in advertising in general and we're able to buy at lower rates.
But also as we learn which channels are more effective for our business. We continue to optimize there. So I mean, the economics from a margin standpoint.
As we said in the past are pretty consistent and they're not material enough today to really impact overall gross margin.
But as you said in the past year, our prices on streaming are lower than on satellite, but the actual margin percentages are relatively consistent.
Got it.
Yeah, and then on the on the expense growth again, it's important to reiterate that.
We're obviously investing for long term growth. So we're doing a number of things around product platform features functionality and.
And that's both Opex and Capex.
I think it's just what's important to highlight for everyone. As we look into 2023, and we'll have more to say certainly in February on our year end call. Some.
Some of the things that are impacting the business and the fact that we're focused on it. So for example, the expiry of the pre 72, that's a 2015 event that expires at the end of 'twenty two I thought it was worth highlighting that for everyone. Since it was public a number of years ago. So.
We will remain focused we've talked about facility rationalization you saw some of the charges. We took in Q3, we continue to.
Prioritize head count against key roles in <unk>.
Key strategic initiatives and we will continue to do that.
And look for efficiencies across the organization to continue to fund the growth the growth initiatives that we have.
On the plant.
Thank you both.
Operator next question please.
We'll now take our next question from Jessica Reif elevation of Bank of America. Your line is open. Please go ahead.
Thank you good morning, everyone.
Yet churn is astounding, it's so low and I'm just wondering are you.
Seeing any increases in bad debt, we're hearing cable operators, starting to say that and just the churn at this level at this low level does it imply that pricing power can you can you can just kind of talk to how you're thinking about that.
And secondly, could you give us color on podcast everywhere how different.
Is this offer from prior sales effort I mean, do you kind of call out and mentioned on the call more targeting and then just left just a clarification, but.
What are your subs from streaming only.
Okay I can take a couple of those.
Starting with churn.
I continue to be amazed at how low our churn rate has been we have not seen any real negative impact on non pay or canceled demand on the voluntary side.
That would indicate that.
I know there is a different health of the consumer to be concerned about so you are non pay and voluntary continue to trend in that sort of one to one 1% range. Its been very strong and I tie that to the improvements that we have made in our streaming products.
We have many more satellite subscribers listening outside of the car and that continues to drive engagement across those subscribers and so we would expect vehicle related going forward to increase hopefully as the auto trial are the auto funnel continues to slowly.
Hover.
So that'll have an impact on churn, but we're very pleased on where we are non pay and voluntary and I do think that gives us some opportunity on pricing.
Obviously, you have the rate increase we did last fall rolling through this year.
But as we look forward to next year, we will look again at our rates. We have consistently raised prices I think as you know we launched these services 20 years ago at a $10 price point and we're now our primary package is priced at $18. So should we have an annual average.
Increase of about 3%.
You know there are there are some tailwind I think with other audio and video services are raising prices and obviously in an inflationary environment that certainly could help support that but the reality is we need to continue to deliver value for our subscribers and that will come through and you know increased content.
And better features and capabilities in our products and.
And certainly access to listen and in more locations and we're very focused on building value in the product. So that we can continue.
In this disease.
Okay.
Just checking to see if you all can hear me still.
Now.
Yes.
Now sorry about that.
Okay great.
The two products will allow us to offer brands more solutions and podcast advertising.
We're trying to increase automated capabilities.
That brands can continuing to connect to their audiences at scale across our network, where that includes new our AD targeting capabilities that are very privacy minded and we talked last quarter about what we're doing with comscore on predictive audience is there.
And these solutions will also enable content filtering, which is increasingly important for brands to have brand safety and suitability guidelines for their advertising so.
This is I've adjusted indication of how we continue to innovate using our adjuvant technology and and the fact that the market I think we'll continue to move toward a more automated and programmatic solutions.
The audio market is clearly behind where we are on video in general So look the podcast solutions that we're developing are clear.
Clearly important to drive growth in broadcast revenue.
You've seen some of our numbers on podcast advertising and off platform in general relative to our overall advertising that continues to grow and we represent.
Some of the biggest networks in the world, whether it's NBC Universal audio Chuck or cooking media. So we're going to continue to invest here and there was one other yeah and then Jessica I think your last question was about the number of streaming subs, we have not yet disclosed that.
As that grows and becomes more material, we can revisit that in the future.
Great. Thank you.
Operator, we will now move on.
We'll now move onto our next question from Bryan Kraft Deutsche.
Built to bank. Your line is open. Please go ahead.
Thank you and good morning.
To ask two if I could I guess first can you just talk about what youre seeing in advertising so far in the fourth quarter as it slowed from the third quarter or is it holding up okay.
And is that being impacted by political if you could just remind us to what degree do you participate in the political cycle and then secondly, just wanted to see if you could provide any additional color on your streaming only subscribers in terms of.
I know, Sean you don't disclose subs, yet, but I don't know if you can give us some rough contribution to net adds in the quarter and then also anything on the behavior of that customer as far as engagement churn demographics and maybe what.
On their broader listening behavior do they subscribed to music on demand services like Apple music or Spotify.
What's their behavior as far as home car and other out of home usage and anything you could share there would be great. Thank you.
Yes, so Brian let me start so on the.
Advertising market as I think I mentioned in my comments, we did see a bit of a deceleration in the end of the third quarter.
In terms of demand I think we're seeing that broadly across.
The landscape in terms of advertising. So we are watching it closely it is the the one thing that we don't really have complete control over as we think about delivering our 2022 financial guidance, but the good news is we have the capacity we have the ability to to monetize in Q4, which has.
<unk> always been the case.
Pandora in Q4, so we.
We feel good about the opportunity.
Need the market to stabilize not deteriorate any further as it relates to political we do participate.
In the political cycle. It is not a material portion, but we have we have seen growth we saw growth in Q3 versus.
The last year not surprisingly.
Hopefully the expectation is we'll see a slight uptick in Q4 from the political cycle in the midterm elections. So.
We will do that as it relates to the streaming only subs as I said I think the good thing in Q3 as we saw positive net adds in both streaming and slot satellite in Q3.
I don't know if Jennifer you want to jump in on listening behavior or anything else Mr. Levine.
It's still a relatively small portion of our overall base.
No problem.
Terms of what they look like in general.
Our streaming subscribers tend to be younger more diverse.
On a more urban.
And we do believe that there is a larger opportunity to go after segments that are different than the core segment we have.
Relatively high penetration rate and today, obviously, you've been clearly focused on in car listening. So as we pursue streaming only subscription there is still listening in the car whether through car player Android Auto and you saw that we recently released an update for car play that.
Isaac will offer better navigation and discovery through that application and we expect to improve the Android auto Apple as well our capability as well. This is really the first time we've done.
Major update.
In several.
Several years and there is definitely more to come here, but these subscribers also listen more outside of the car.
We see behaviors are a little different in terms of the type of content they listen to you because they're younger and more diverse others more hip hop and pop.
As more hard rock and country, maybe with our subscribers.
And I think there's still a lot of opportunity here really are just getting started on the product front enrolling out improvements we have work to do on making sure that we are surrounding these listeners with content. They love they may come in and listen to something specific but we have more.
Personalization coming into the App. When you can we just launched based on your listening.
<unk> and the apps and we hope to have.
And design refresh later this year and that is going to enable these subscribers to listen to even more on demand content.
Pandora artist nation, and our extra channels, which are just enabling more control in an environment, where clearly consumers expect more of that.
Got it thank you very much.
Thank you, we'll now move onto our next question is from Steven Koh Hall at Wells Fargo. Your line is open. Please go ahead.
Thank you so I thought the lucid announcement was interesting and I was wondering if you are able to track at all what your penetration is of electric vehicles and if <unk> got any difference in penetration of electric vehicles may be versus combustion vehicles, just because thats such a big secular trend and we've got some new Oems as well as growing.
Model that at existing Oems. So so that's the first one.
And then just a couple of quick follow ups after that.
Yes, Thank you Steven.
On the loose are really pleased with the lucid announcement I part because they're just one of the leaders in the luxury EV space and we're thrilled to be aligned with them.
I think one of the great things is that we continue to hear from our customers.
That if we're not in a vehicle, whether it's combustion or electric.
That they want to make sure that they have access to an embedded satellite radio subscription or embedded Sirius XM experience and so you have certainly come up and we keep hearing it from our consumers.
It's logical given that many of the initial easy launches have been targeting.
Higher affluent customer base, and that's where we obviously do really well our pen rate on the sort of more startup EV companies are pretty low right I.
I mean, we are just getting started and doing some of these agreements with.
Those EV automakers and we expect to have more to say on that in the coming months that the electric vehicle.
Vehicles cars that are being produced by the Oems.
Oems that we have had relationships for years.
Are the pen rates are very similar to what we've seen.
On the combustion engine side, so there's really not a difference in pen rate for all of the other Oems that we've been working with overall these years and again the automakers on that side of the business are very committed to Sirius XM you saw that we announced the extension with Atlanta and with Subaru.
Continue to renew and extend those agreements theres just a lot of support obviously for having the very seamless and easy to use.
With that we provide in the park.
Thanks, Jennifer and then just a couple of kind of housekeeping modeling ones, maybe first how should we think about capex going forward I think satellites 11, and 12, we're going to be ramping pretty soon.
And whenever inventories do pick up which I know no one has a crystal ball on in our self pay net adds start to pick up should we expect churn to tick up a little bit as well due to vehicle churn.
Yeah, Steven on the on the Capex as.
As we said 11 and 12 I think the majority of that spend will be absorbed in 'twenty three and 'twenty four.
So those will be the bubble years, and then moderating in 'twenty five and beyond.
I'm Sharon.
You're absolutely right I mean, as auto sales pick up new and used by the way.
We would expect to see.
Left on the vehicle related site.
Thank you.
Thank you we'll move on to our next question from Stephen <unk> at Goldman Sachs. Your line is open. Please go ahead.
Hey, great. Thank you good morning, maybe just to expand on the ERP point from earlier your Apple raise their price by about 10%. The other week could you maybe just talk a little bit more about how you think about your pricing strategy to some of the other music services and if we did see broader based price increases from the stream or is that something that you think could give you headroom above and beyond.
The typical 2% to 3% pricing growth that we've seen in the service over time over the next year or two here.
Can I have a follow up.
Yes.
It certainly doesn't hurt.
We really do you see that many of our subscribers who choose to deactivate, though end up using aim at them. So while we are competing with other audio services Amazon is still dominant in the car.
This year over year standpoint, so we're very cognizant of that level of competition.
Obviously, we have been premium priced relative to Amazon for.
For a long time, but.
The rise in some of these other music streaming.
Prices is certainly a tailwind and I would say gives us more confidence that we probably have some room.
You continue to raise rates and are in it.
A productive way relative to how we're adding value to the subscription.
Great. Thanks for that and then just a follow up on Steve's. Prior question on the EV penetration I think both of your deals with Tesla and lucid or 100% over the air software enabled do you expect this to be the status quo for Evs EV manufacturers going forward and then I was just curious if there was any significant differences in the economics of the deals with <unk>.
<unk> versus traditional automakers that we should be aware off.
So with Tesla.
We actually do.
We have hardware in the vehicles and.
Going forward it may look different depending upon the EV automaker and.
In certain cases, we will have modules in certain cases it may be.
Leveraging the modem in the car I think.
The preferred solution for US is 360 L. Because we get the benefit of <unk>.
Broad based availability with satellite distribution and efficient economics, certainly in the near to medium term and then on the streaming side, we have all the benefits of our interactive capabilities personalization and back channel on data.
So that is our preferred solution, but we will be flexible just as we've shown and frankly in terms of margin improved car play and telecom Android auto experiences because we do want to make sure that we are wherever our customers want to listen to us and however, they want to listen to us.
Yes, I think there is room certainly on.
The EV side going forward to make sure that we can continue to increase penetration rates and we'll be flexible with the technology, we use there.
And the economics are similar or different in some aspects here.
How should we think about that.
I think the economics.
The pieces of the economics, where the you know the trial length than payments or no payments revenue share subsidies things like that obviously will depend on the specific automaker.
I'm not going to talk about the deal economics for saying that.
But to the extent that there is not hardware in the car we wouldn't have subsidies.
But we're looking to continue to provide incentives for the automakers to work with Us Joe Hi.
Offer the best solution for subscribers or trailers, so that they will subscribe and to work with us.
To make.
Make it easy for them to convert.
And become self pay subscribers. So we believe in revenue share as a way to to incentivize that.
Great. Thank you.
Thank you, we'll now take our next and final question from James Ratcliffe at Evercore ISI. Your line is open. Please go ahead.
Hi, Thanks for taking the question I was just looking at the on the Pandora side, you know RPM was flat year on year can you help us break that down.
This was pricing or any changes in ad loads and related to that.
Looks like listening hours are are down.
Where are these going.
Are people just listening to us digital audio or you know where where are they spending their hours. Thanks.
Yes from a from an RPM perspective, James I think for the quarter were slightly was slightly down from the prior year I think the AD load has been largely consistent.
Over the last few quarters.
Listening hours are down I would reiterate hours per active listener has continued to increase so we continue to have.
More and more listening from.
Our most.
A loyal customers. So in terms of the ability to capture new registered users that's where the challenge has been so.
RPM is.
<unk> to be slightly under pressure from macro trends, we we talked about the.
Advertising marketplace. So.
I don't know I don't know John if you want to comment on where they are going specifically.
Okay.
The most.
Most of the Pandora listeners are already listening to other audio services as well.
Most actually.
<unk> in the U S. Our next most variety of services, but I do I.
I do we do see dynamics, where we're recapturing prior users coming back to the service for a specific stations that they set up previously, but it's the same dynamic in terms of the.
The user base is increasingly going to other services with more interactive capabilities and generally they have those capabilities in the free tiers that they offer.
But it is.
That it has.
Weighted a bit we have seen some recent.
Stemming the losses, but the dynamic overall hasn't changed materially.
Back to what John said about.
Add load and things like that I do we do have a lot of great science on how to appropriately.
Put advertisers in front of different listener cohorts and I also believe that over time many of our competitors are going to be increasing AD load and that obviously benefits us from the standpoint of what we can do.
<unk> and our products as well.
Great. Thank you.
James Thank you for participating in our call and thanks, everybody for joining today will speak to you soon.
Goodbye.
Goodbye.