Q3 2023 Sirius XM Holdings Inc Earnings Call

Greetings welcome to Sirius XM third quarter, 2023 financial and operating results conference call.

At this time, all participants are in listen only mode.

A question answer session will follow the formal presentation.

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I'll now turn the conference over to Hooper Stevens Senior Vice President of Investor Relations and finance Mr.

Mr. Stephens you may begin.

Thank you and good morning, everyone welcome to Sirius XM third quarter 2023 earnings conference call. Today, we will have prepared remarks from Jennifer Witz, Our Chief Executive Officer, and Tom Berry, Our Chief Financial Officer, Scott Greenstein, Our President and Chief content Officer will join Jennifer and Tom to take your questions. During the Q&A portion of this call I would like to.

A mind, everyone that certain statements made during the call might be forward looking statements as the term is 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 methods that may be incorrect or imprecise such forward looking statements are subject to risks and uncertainties that could cause acts.

Results to differ materially.

For more information about those risks and uncertainties. Please view series six times, the 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 all discussions that.

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. We really appreciate everyone being here today.

We're pleased with the strong progress we made this quarter and remain on track to meet our goals for the full year, we closed the quarter with approximately 34 million total subscribers to our flagship Sirius XM service and continue to drive sequential improvement quarter to quarter and self pay net subscriber churn remains incredibly low at approximately one point.

6% despite increases in vehicle related turnover and although we did not issue formal subscriber guidance for 'twenty to 'twenty. Three we are still anticipating slightly positive self pay net subscriber additions for the back half of this year.

The overall AD market remains soft and we expect to close the year relatively flat versus last year.

The W. D E and Sag Africa strikes resulted in delayed campaigns within the entertainment space. This past quarter. We did begin to see some key verticals such as C. P. J start to bounce back podcasting also remains a tailwind both our programmatic and audience buying capabilities continue to set us apart, making Sirius XM and important marketing partner.

Given our flexibility and scale.

As we've shared with you over the last few quarters, we have been accelerating our transformation of the Sirius XM business to <unk>.

Capture consumer demand for a live human curated audio service that differentiates us and to position ourselves to capture positive subscriber growth in the years ahead.

Our resilient and extremely profitable business model underscored by our significant ongoing cash flow generation persists, even amid this investment phase of our business as we ready for the upcoming rollout of our next generation platform later this quarter.

The launch of the past quarter, we continued to focus efforts on improving returns in our streaming business, increasing efficiencies and bringing in new trailers and enhancing onboarding and retention of streaming only customers and while still very early we are beginning to see the first cohort of trailers moving off the six month streaming offer we announced with T mobile earlier.

This year, our first ever integrated billing provider and we are pleased with the results. We are confident that the launch later this year of our new streaming products brand platform and enhanced marketing capabilities will put us on a path for continued improvements in subscriber acquisition and retention as we move through next year. This launch is just the beginning of it.

Series of innovations in our products marketing and content that we expect will only accelerate in the coming years, we look forward to going into much more detail on our transformation with you at our press and industry preview event, a week from Tomorrow, where we will reveal what we've been up to this past year and provide a first look at our new streaming experience unveil a refreshed.

Brand and Moore will also be participating in Liberty Medias Investor Day next Thursday, and while Tom will briefly address the business combination proposal that Liberty media publicly announced I'll, just say that we have a strong and capable special committee of independent directors responsible for the negotiations and we'll share more when there's something to announce.

Well, Australia experience will be a cornerstone of our company's long term future growth. The in car experience continues to drive our business. Today. We are pleased with the progress made in the quarter driving the innovation of new technologies and adoption of our 360 L platform and extending long term agreements with automakers in fact I'm excited to announce today.

Beginning with model year 'twenty 'twenty four in addition to being available on the F 150 Lightning Ford will make Sirius XM a standard feature in traditional F. 150 is America's best selling vehicle for 41 years running.

We are also excited for the debut of our 360 L platform on the Android automotive operating system. Later this year. This will bring with it the introduction of what we call ignition on recommendation, our most sophisticated and card personalization yet that's all for choice paralysis and gets listeners to the content they want to hear the moment they turn on the car.

As we've said before these types of features have driven better conversion rates and better retention and over time, we expect that Android will grow to become the dominant OEM operating system, improving 360, L adoption and feature parity along the way. So this launch marks a significant milestone for us.

Looking back at the past quarter, we brought listeners closer to the artist personalities and content creators they love with a diverse programming slate that sets our premium curated radio service. Apart for example, with the 'twenty 'twenty four presidential season already underway, we're seeing growing interest in our political programming, which we can expect to rise further as we move closer.

Next year's general election. This includes a significant percentage growth in listeners to Megan Kelly show, which we recently announced we've extended with a new multiyear deal bagging continues to deliver in depth interviews with significant political and cultural figures, including last month when she had a headline making exclusive interview with former President Donald Trump.

Incredibly proud to be a platform that provides a wide range of viewpoints across our political channels from the regular appearances of leading Democrats on our progress channel to town halls with some of the top Republican Republican candidates in fact in the last quarter. We've had interviews with every major presidential candidates across our Patriot protest.

And triumph channels.

In addition to our own Sirius XM produce channels. We also provide simulcast of the biggest TV news outlets in the country, including C. N. B C. C. N N H L. N M. S N B C and today show radio and last week, we announced a multiyear extension of our agreement to carry Fox News Fox business and Fox News headlines 24 seven.

Overall sports listening was also up in the quarter and with the start of the NFL season, we are seeing positive trends in listeners to our Sirius XM NFL radio channel, which saw an uptick year over year and percentage of total listeners in time spent listening.

Our fans are discovering and connecting with the excellent NFL content and commentary we deliver that's not only live broadcasts of every game with your hometown announcers, but unique and exclusive top content beyond the games, we launched the third season of our exclusive show, let's go with Tom Brady, Larry Fitzgerald, and Jim Gray in September and this is.

And we added former pro Bowl quarterback Alex Smith to our roster of host with so much action across the NFL College football the NBA NHL and MLS. This fall alone, we delight consumers exceptional value as the one stop destination for so many sports.

<unk> for music fans, we had something for everyone. In this past quarter from our incredible specialty programming spotlighting Latin music and culture across Sirius XM and Pandora throughout Hispanic heritage month to a dedicated as Sharon pop up channel, where Sirius XM listeners could hear the Grammy Award winning artist exclusive show for Sirius XM listeners this summer in the half.

In celebration of the 50th anniversary of hip hop in August we hosted a day of events, including a one of a kind concert with Blue Tang clan and a very special community event with the boys and girls club in multiple cities. Yeah that was also part of our Sirius XM cares philanthropic initiative that aims to promote and further social equality with a holistic approach.

Giving and greater alignment with the communities in which we live and work.

Hip hop music artists have impacted our culture and such meaningful ways over the years and it was an honor to get back to the next generation of change makers.

Talk radio also continues to be a great success for us and delivering content that resonates with younger more diverse listeners. We've built out an incredible roster of Tictoc influencers that hosts the channel and this past quarter continued to deliver different formats and how we package them present viral music through these personalities for example in September we introduced a new.

Top 10 weekly Countdown show comprised of the most popular songs on the platform in the U S hosted by one of our resident pop culture tick Tock Influencers and just yesterday, we introduced dedicated shows for each of the tick tock personalities, where they share music can add commentary on their respective areas of influence on the viral platform moves.

Moving on to our advertising business podcast and continues to be a drought growth driver we have already booked more in 'twenty two 'twenty three than we delivered in full year 2022 sales, our third quarter podcast and growth of 28% is outpacing the broader marketplace and programmatic specifically was up 97% year over year.

We are focused on delivering innovative solutions within the space by continuing to develop our targeting capabilities, both at an audience and show level as well as through bigger picture work aimed at addressing industry pain points. This includes a new first of its kind third party brand safety and suitability verification solution for podcast advertising developed together.

With barometer and marketing automation platform Arts AI, we can now provide brands with reporting mid campaign. So they can optimize their buy in real time as well as receive the post campaign analysis that includes brand suitability and contextual insights to give them confidence in their investment by removing historical barriers to the pod.

Marketplace, such as brand suitability, we're able to welcome new advertisers to the space and expand the broader pool of AD dollars available to us.

We remain focused on further scaling our advertising offering and we expect the relaunch of the Sirius XM platform to drive increases in our Sirius XM digital monthly active users over time opening up new opportunities within our growing advertising business again, I am extremely pleased with our results and progress in the third quarter. Looking ahead, we are.

Expect Sirius XM is robust cash generation to grow in the coming years, and we like our position as a leading premium human curated audio service in North America I look forward to sharing many more details on our transformation underway next week at our event in New York I'll now turn it over to Tom who will go through the financials in more detail. Thank you.

Jennifer and good morning, everyone.

Jennifer noted third quarter results are in line with our overall expectations now, let's dive in to the third quarter financials.

Revenue for the quarter came in at $2.27 billion within that advertising revenue of 460 million grew just under 1% while subscription revenue was unchanged at one point something billion dollars adjusted EBITDA increased by 6% on a sequential basis, approximately 4% year over year to 704.

$47 million.

This improvement can be attributed to our cost optimization initiatives and reduced sales and marketing expenses, which were partially offset by an uptick in revenue share and royalties our cost savings initiatives produced nearly $40 million of ongoing net savings during the third quarter and we continue to look for new efficiencies operating expenses for the.

The third quarter decreased by 6% overall.

Turning to net income we recorded a 47% year over year increase in the quarter to 363 million translating to diluted earnings per common share of mindsets.

Free cash flow was $291 million in the third quarter, 12% lower than last year's third quarter, as we ramped up satellite and non satellite capital expenditures as well as saw a slight increase in cash taxes due to reduced R&D and other tax credits.

Greetings.

Operator: Welcome to Sirius XM's third quarter, 2023 Financial and Operating Results Conference Call. At this time, all participants are in list and only mode. A question and answer session will follow the formal presentation. If you'd like to ask a question, please press star one from your telephone keypad and a confirmation tone to indicate your lines in the question queue. You may press star two if you'd like to remove your question from the queue.

As many of you probably know we remain in a period of heightened satellite Capex will continue to see this tapering to zero in the coming years.

As a refresh we are expecting approximately $300 million in satellite Capex for the full year 2023, as we ramp FX M 11, and 12 on top of the ongoing preparation for Sx nine and 10 using ballpark numbers, we will see satellite capex remains in the $280 million to $300 million range in 2020.

Operator: For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded.

Hooper Stevens: I'll now turn the conference over to Hooper Stevens, Senior Vice President of Investor Relations and Finance. Mr. Stevens, you may begin. Thank you and good morning everyone. Welcome to Sirius XM's third quarter, 2023 Earnings Conference Call. Today we will have prepared to remarks from Jennifer Witz, our Chief Executive Officer and Tom Barry, our Chief Financial Officer.

Four before declining to approximately $175 million in 2025 $95 million in 2026 and $45 million in 2027 heading into 2028, we should be at or near zero. Additionally.

Additionally, non satellite Capex capital expenditures rose by roughly $25 million, primarily related to the Nextgen Sirius XM launch that we plan to showcase next week.

Hooper Stevens: Scott Greenstein, our President and Chief Content Officer will join Jennifer and Tom to take your questions during the Q&A portion of this call.

<unk> capex will be in the $3 $50 million to $400 million range. This year as previously mentioned, we anticipate delivery of meaningful portion of our free full year free cash flow in the fourth quarter driven by seasonal trends in our business the timing of royalty satellite and interest payments.

Hooper Stevens: I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Privacy 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 methods that may be incorrect or imprecise. Such forward-looking statements are subject to risk and uncertainty. We advise listeners to not rely on duly on forward-looking statements and disclaim any intent or obligation to update them.

Now turning to the segments.

The Sirius XM segment, we delivered $1 $7 billion in revenue down 1% year over year and flat sequentially.

<unk> advertising revenue was the toughest corner of the business down 16% year over year as we continue to navigate an extremely tough broadcast advertising market OEM paid promotional subscriber and connected vehicle revenue declines were partially offset by growth in self pay subscription revenue.

Hooper Stevens: As we begin, I'd 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.

Jennifer Witz: With that, I'll hand the call over to Jennifer. Thanks, Hooper, and good morning everyone. We really appreciate everyone being here today.

Total <unk> during the third quarter was $15.69.

We benefited from a March price increase on select full price plans and saw headwinds to reported our pool from promotional self pay subscription plans the lowering advertising revenues I mentioned, a lower paid promotional play of rates from certain Oems as well as higher balances all paid trial subs.

Jennifer Witz: We are pleased with the strong progress we made this quarter and remain on track to meet our goals for the full year. We closed the quarter with approximately 34 million total subscribers to our flagship Series XM service and continued to drive sequential improvements quarter to quarter in self-pay net subs. Subscriber turn remains incredibly low at approximately 1.6%, despite increases in vehicle-related turnover. And although we did not issue formal subscriber guidance for 2023, we are still anticipating slightly positive self-pay net subscriber additions for the back half of this year.

And unsold vehicle inventory.

Gross profit in the Sirius XM segment decreased 3% to 1.047 billion compared to last year's third quarter, representing a margin of 61%.

Down only about one point as we absorbed roughly $20 million and higher music royalties slightly offset by improved OEM Rev share.

Jennifer Witz: The overall ad market remains soft and we expect to close the year relatively flat versus last year. While the WGA and SAG after strikes resulted in delayed campaigns within the entertainment space this past quarter, we did begin to see some key verticals such as CPG start to bounce back. Podcasting also remains a tailwind. Both our programmatic and audience buying capabilities continue to set us apart, making Series XM an important marketing partner given our flexibility and scale.

And the Pandora in off platform segment total revenue of $550 million increased 4% compared to the prior quarter and 2% on a year over year basis advertising revenue in this segment of $418 million increased 3% year over year at approximately 5% sequentially driven by steady.

Jennifer Witz: As we've shared with you over the last few quarters, we have been accelerating our transformation of the Series XM business to better capture consumer demand for our live human curated audio service that differentiates us and to position ourselves to capture positive subscriber growth in the years ahead. Our resilient and extremely profitable business model underscored by our significant ongoing cash flow generation persists even amid this investment phase of our business as we ready for the upcoming rollout of our next generation platform later this quarter.

Growth in podcasting and programmatic ad sales.

Gross profit in the Pandora in off platform segment of $180 million increased 4% year over year and up.

Approximately 18% sequentially as a result of improving podcasts margins partially.

Partially offset by higher year over year, a music royalties, representing a total margin of 33%.

On the capital allocation front, we returned approximately $165 million to shareholders in the third quarter composed of $93 million in dividends and $72 million of stock repurchase.

Jennifer Witz: Ahead of the launch, the past quarter, we continued to focus efforts on improving returns in our streaming business, increasing efficiencies and bringing in new trailers and enhancing onboarding and retention of streaming only customers. And while still very early, we are beginning to see the first cohort of trailers moving off the six month streaming offer we announced with T-Mobile earlier this year our first ever integrated billing provider and we are pleased with the results.

And we recently announced another 10% hike to our recurring dividend the seventh annual increase since its original inception in 2016, we ended the quarter with net debt to adjusted EBITDA of three three times.

At the end of the third quarter, we went through our share repurchase plan given Liberty's proposed offer this was a requirement from an FCC regulatory perspective.

Jennifer Witz: We are confident that the launch later this year of our new streaming products brand platform and enhanced marketing capabilities will put us on a path for continued improvements and subscriber acquisition and retention as we move through next year. This launch is just the beginning of a series of innovations in our products, marketing and content that we expect will only accelerate in the coming years.

At this time, we expect to remain out of the market. While the transaction is pending regardless of transaction hypotheticals will always value a strong balance sheet to provide some flexibility to navigate changing market environments. So looking ahead, we plan to continue to be capital efficient and maintain our existing long term leverage target of low to.

Jennifer Witz: We look forward to going into much more detail on our transformation with you at our press and industry preview event a week from tomorrow, where we will reveal what we've been up to this past year and provide a first look at our new streaming experience unveil or refreshed brand and more. We'll also be participating in Liberty Media's investor day next Thursday and while Tom will briefly address the business combination proposal that Liberty Media publicly announced.

Mid threes.

Today, we also reiterated our existing financial guidance for 2023 with revenue of approximately $9 billion adjusted EBITDA of roughly $2 $75 billion in free cash flow of about $1.15 billion.

And last but certainly not least as Youre aware the special committee of independent Directors of our board received a nonbinding proposal from Liberty media regarding the a potential transaction involving the company. This potential transaction would consist of the separation of the assets and liabilities attributed to the Liberty Sirius XM.

Jennifer Witz: I'll just say that we have a strong and capable special committee of independent directors responsible for the negotiations and will share more when there's something to announce. While our streaming experience will be a cornerstone of our company's long term future growth. The NCAR experience continues to drive our business today. We are pleased with the progress made in the quarter driving the innovation of new technologies and adoption of our 360L platform and extending long term agreements with automakers.

Racking stock group from Liberty media through a split off of a newly formed company and the subsequent combination of Newco and Sirius XM.

As a result of these potential transactions the holders of Liberty Sirius XM tracking stock in our stock.

Jennifer Witz: In fact, I'm excited to announce today that beginning with model year 2024, in addition to being available on the S150 lightning, Ford will make Serif XM a standard feature in traditional F150 America's best selling vehicle for 41 years running. We are also excited for the debut of our 360L platform on the Android automotive operating system later this year. This will bring with it the introduction of what we call ignition on recommendation.

All hold one class of common stock of the combined company.

The Special Committee has engaged advisers and is evaluating the proposal in this transaction. We that is the company and our management team are really playing a supporting role in general Jennifer and I are providing information to the special committee and its advisors on our business and our long term plans as they evaluate the proposal.

Jennifer Witz: Our most sophisticated NCAR personalization yet that solves for choice paralysis and gets listeners to the content they want to hear the moment they turn on the car. As we've said before, these types of features have driven better conversion rates and better retention and over time we expect that Android will grow to become the dominant OEM operating system improving 360L adoption and feature parity along the way. So this launch marks a significant milestone for us.

We do not know if the proposal or any other transaction will be completed or the terms and conditions of such transaction. Further we do not expect any news until the special committee of the company's board of directors approves a transaction or the special Committee otherwise concludes that further disclosure is appropriate except as required by law or other.

Our regulatory requirements.

While this proposal works its way through the process, we will maintain our unwavering focus on our customers.

Jennifer Witz: Looking back at the past quarter, we brought listeners closer to the artist's personalities and content creators they love, with a diverse programming slate that sets our premium curated radio service apart. For example, with the 2024 presidential season already underway, we're seeing growing interest in our political programming, which we can expect to rise further as we move closer to next year's general election. This includes a significant percentage growth in listeners to Megan Kelly's show, which we recently announced we've extended with a new multi year deal.

Our long term positioning of the company as we always have with that I'll turn it over to the operator for Q&A.

Thank you.

At this time well be conducting a question and answer session.

You'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press star two if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Jennifer Witz: Megan continues to deliver in-depth interviews with significant political and cultural figures, including last month, when she had a headline making exclusive interview with former president Donald Trump. We're incredibly proud to be a platform that provides a wide range of viewpoints across our political channels, from the regular appearances of leading Democrats on our progress channel to town halls with some of the top Republican candidates. In fact, in the last quarter, we've had interviews with every major presidential candidate, across our Patriot, POTUS, Progress, and Triumph channels.

One moment, please while we poll for questions. Thank you.

Our first question today is from the line of Bryan Kraft with Deutsche Bank. Please proceed with your questions.

Hi, good morning.

I wanted to ask you I guess it seems as though auto sales are now providing the tailwind that the business needed to return to self pay net adds but at least this quarter. It appears that conversion to self pay it wasn't enough to offset the natural increase in vehicle related churn.

Jennifer Witz: In addition to our own Sirius XM produced channels, we also provide simulcasts of the biggest television news outlets in the country, including CNBC, CNN, HLN, MSNBC, and today's show radio. And last week, we announced a multi year extension of our agreement to carry Fox News, Fox Business, and Fox News headlines 24-7. Overall, sports listening was also up in the quarter, and with the start of the NFL season, we are seeing positive trends and listeners to our Sirius XM NFL radio channel, which saw an uptick year over year in percentage of total listeners and time spent listening.

So what's your confidence level in that dynamic reversing going forward. So that conversions yourself pay will translate into positive self pay net adds on a sustained basis next year and maybe related to that if you could talk about what you're seeing currently in conversion rate and how that's trended versus recent quarter.

Thank you.

Sure Good morning, Brian our conversion rates have been relatively stable. This year and we continue to see improvements and 360 L vehicles, but as we've talked about in the past and what we're trying to solve for with the launch of this new platform, which of course comes with streaming first and then we'll move through our income.

Jennifer Witz: More fans are discovering and connecting with the excellent NFL content and commentary we deliver. That's not only live broadcasts of every game with your hometown announcers, but unique and exclusive talk content beyond the games. We launched the third season of our exclusive show. Let's go with Tom Brady, Larry Fitzgerald, and Jim Gray in September. In this season, we added former Pro Bowl quarterback Alex Smith to our roster of hosts with so much action across the NFL, college football, the NBA, the NHL and MLS this fall alone, we deliver consumers exceptional value as the one stop destination for so many sports.

Our platform next year, but we're trying to solve for these core pain points that we've discussed around discovery control in pricing and that's really going to enable us to make a broader impact on conversion rates going forward.

Building improvements in both marketing and on the product side and streaming and in car that will roll out.

Over the course of you know starting late this year and into next year, but we expect the product to do a lot more work here going forward, we've been heavily reliant on direct marketing for our in car conversion process, but you point out the auto sales seem to be providing a bit more of a tailwind.

Jennifer Witz: Likewise for music fans, we had something for everyone this past quarter. From our incredible specialty programming, spotlighting Latin music and culture across Sirius XM and Pandora throughout Hispanic Heritage Month to a dedicated Ed Sheeran pop-up channel where Sirius XM listeners could hear the Grammy Award-winning artist's exclusive show for Sirius XM listeners this summer in the Hampton. In celebration of the 50th anniversary of hip hop in August, we hosted a day of events, including a one-of-a-kind concert with Wu Tang Clan and a very special community event with the Boys and Girls Club in multiple cities.

We have seen that with new and used car trials, taking up a bit but a lot of the new car side has been propelled by fleet and rental and not on the consumer side, there's still been growth in consumer but.

Jennifer Witz: The event was also part of our Sirius XM Care's philanthropic initiative that aims to promote and further social equality with a holistic approach to giving and greater alignment with the communities in which we live and work. Hip-hop music and artists have impacted our culture in such meaningful ways over the years and it was an honor to get back to the next generation of change makers. TikTok Radio also continues to be a great success for us in delivering content that resonates with younger, more diverse listeners.

Much faster growth on the fleet and round, where we don't participate as much.

But we do we have seen some improved trends in trials now with a resolution it seems on a the strikes that should provide more momentum going forward, we really hadn't seen an impact to our trial starts from the three domestic because they had a basically enough inventory on.

Hand to manage through it but you know the biggest impact for this year again, we really hope for a growing auto found out on both the new and used car side going into next year, but of course, a very strong auto sales in the fourth quarter would result in higher than expected vehicle related churn potentially so that's the.

Jennifer Witz: We've built out an incredible roster of TikTok influencers that host the channel and this past quarter continued to deliver different formats in how we package and present viral music through these personalities. For example, in September we introduced a new Top 10 Weekly Countdown Show comprised of the most popular songs on the platform in the US hosted by one of our resident pop culture TikTok influencers. And just yesterday we introduced dedicated shows for each of the TikTok personalities where they share music and add commentary on their respective areas of influence on the viral platform.

Only downside, obviously I'm thinking of building the funnel.

Okay. Thanks, Jennifer.

Thank you.

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

Jennifer Witz: Moving on to our advertising business, podcasting continues to be a growth driver. We have already booked more in 2023 than we delivered in full year 2022 sales. Our third quarter podcasting growth of 28% is outpacing the broader marketplace and programmatic specifically was up 97% year over year. We are focused on delivering innovative solutions within this space by continuing to develop our targeting capabilities both at an audience and show level as well as through bigger picture work aimed at addressing industry pain points.

Oh, sorry, good morning, I have a couple of questions.

Sorry.

One of the major drivers of future growth seems to be the ability to attract younger users. So just can you talk a little bit about the launch of the new streaming Apple move you towards that goal and what your plans are to adjust the content offering with the launch of the Apple or not.

Excuse me along those lines.

Maybe slightly different but we.

We see Spotify pushing into auto audio books is that something that you would consider as well and then completely different question sorry for so much but just completely different.

Jennifer Witz: This includes a new first of its kind third party brand safety and suitability verification solution for podcast advertising developed together with barometer and marketing automation platform art AI. We can now provide brands with reporting mid campaign so they can optimize their buy in real time as well as receive a post campaign analysis that includes brand suitability and contextual insights to give them confidence in their investment. By removing historical barriers to the podcast marketplace such as brand suitability we are able to welcome new advertisers to the space and expand the broader pool of add dollars available to us.

Costs were down a lot this quarter sales and marketing down, 16% and G&A down a lot.

Obviously your margins were great, but as this deferred spending or is it more of a permanent cards.

So I'll start and then maybe Scott you can jump in on new content and Tom you can talk about the cost structure I see yes, Jessica the launch later this year of new streaming apps will certainly help us address demand with younger audiences. So yeah. The objective is to because we can move faster in the streaming apps to start there.

Jennifer Witz: We remain focused on further scaling our advertising offering and we expect the relaunch of the Sirius XM platform to drive increases in our Sirius XM digital monthly active users over time, opening up new opportunities within our growing advertising business.

There to make sure that we have a very effective product market fit for our growth segments, which we've identified to be about a quarter of the overall adult audio listening market and they are looking for premium audio experiences and beyond what you know and on demand music service might be.

Jennifer Witz: Again, I am extremely pleased with our results and progress in the third quarter. Looking ahead, we expect Sirius XM's robust cash generation to grow in the coming years and we like our position as a leading premium human curated audio service in North America.

Provides so we have the content largely we believe we need to have to address these audiences. It's just difficult for them today to discover and navigate and to some extent control the content in the product and so we we actually have a very robust funnel and younger.

Jennifer Witz: I look forward to sharing many more details on our transformation underway next week at our event in New York.

Tom Barry: I'll now turn it over to Tom, who will go through the financials in more detail. Thank you, Jennifer, and good morning, everyone. As Jennifer noted, third quarter results are aligned with our overall expectations.

Generations represents a reasonably you know significant size of our in car funnel as well as our streaming fun also we're bringing the younger consumers into our products. We now just need to better satisfy their needs once they get there and Scott you want to talk for sure. So a couple of things Jessica one when it comes to younger.

Tom Barry: Now let's dive in to the third quarter financials. Revenue for the quarter came in at $2.27 billion within that advertising revenue of $460 million grew just under 1% while subscription revenue was unchanged at $1.7 billion. Adjusted EBITDA increased by 6% on a sequential basis and approximately 4% year over year to $747 million. This improvement can be attributed to our cost optimization initiatives and reduce sales and marketing expenses, which were partially offset by an uptick in revenue share and royalties.

What often gets overlooked which I don't think it should as sports. So you know that has always attracted a younger audience are in particular and you know right now you'd need six streaming video services to have all the games. We broadcast so that that piece is pretty solid on the music.

Side, there isn't an artist that doesn't either come in or do a guest D J or one of our artist pop ups and as Jennifer mentioned.

Tom Barry: Our cost savings initiatives produced nearly $40 million of ongoing net savings during the third quarter and we continue to look for new efficiencies, operating expenses for the third quarter decreased by 6% overall. Turning to net income, we recorded a 47% year over year increase in the quarter to $363 million, translating to diluted earnings for common share of 9 cents. Free cash flow was $291 million in the third quarter, 12% lower than last year's third quarter, as we ramped up satellite and non-satellite capital expenditures as well as saw a slight increase in cash taxes due to reduced R&D and other tax credits.

We can do that almost on an unlimited basis. It's a question of can it get out there and be found within our App and other ways and I think you know with the new product that'll come through on that you know when you mentioned.

Audio books, and other things I think the product and other things will well let that evolve.

As it goes but whether it's comedy music politics, there's nothing that doesn't have a younger component to it in particular of podcasts. We have many of those and can surface. Those it's just a question of you know our core audience that is well served and now a younger audience that will be served as well.

Tom Barry: As many of you probably know, we remain in that period of heightened satellite capex but continue to see this tapering to zero in the coming years. As a refresh, we are expecting approximately 300 million in satellite capex for the full year 2023 as we ramped FXM 11 and 12 on top of the ongoing preparation for FXM 9 and 10. Using ballpark numbers, we will see satellite capex remain in the $280 to $300 million range in 2024 before decline to approximately 175 million in 2025, 95 million in 2026.

It's just got to be found in a way they're used to finding their content.

And then just go to the last part of your question on.

Cost savings. So you know the company, obviously next week, because we would be launching the nexgen.

Product and at the same time, we're going through internally and organizational refresh and optimization.

As we look at a lot of the processes and leverage technology, we're starting to see savings in a wide variety of areas. Some of them have shown up already some of them are dependent on future technology, but we continue internally to focus on innovative ways to.

Tom Barry: Heading into 2028, we should be at or near zero. Additionally, non-satellite capital expenditures rose by roughly $25 million, primarily related to the next gen Sirius XM launch that we plan to showcase next week. Non-sat capex will be in the $350 to $400 million range this year. As previously mentioned, we anticipate delivering a meaningful portion of our free, full year free cash flow in the fourth quarter driven by seasonal trends in our business at the timing of royalty, satellite and interest payments.

Enhance our processes and I think we will see more savings as we go forward as I noted in the discussion we recognized about $40 million worth of where the savings from optimization. This quarter. Obviously and then there is some level as you said in sales and marketing Theres. Some level, that's just for to the fourth quarter, but there is $40 million worth of them.

Net optimization savings in the quarter, we will have more to come in the next quarter and in the year ahead. So that's the update on kind of I would say, while we're not managing clearly to individual quarters. It's nice to hit a record high EBITDA of $747 million in third quarter. So yeah, we feel good about.

Tom Barry: Now turning to the segments. In the Sirius XM segment, we delivered $1.7 billion in revenue down 1% year over year and flat sequentially. Sirius XM advertising revenue was the toughest corner of the business down 16% year over year as we continue to navigate an extremely tough broadcast advertising market. OEM paid promotional subscriber and connected vehicle revenue declines were partially offset by growth and self-paced subscription revenue. Total R Poo during the third quarter was $15.69.

Our ability to continue to generate strong EBITDA margins and cash flow going forward.

Thank you.

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

Thank you. Good morning first just wanted to understand next week next generation product launch Mitch I think what you've talked about for the 360 L conversion for Android auto. So are there to kind of app based updates or improvements coming I think that the current Android auto.

Tom Barry: We've benefited from a March price increase on select full price plans and saw headwinds to report at R Poo from promotional self-paced subscription plans. The lowering advertising revenues I mentioned and lower paid promotional plan rates from certain OEMs as well as higher balances of paid trial subs and unsolved vehicles. So inventory. Gross profit in the Sirius XM segment decreased 3% to 1.047 billion compared to last year's third quarter represent a margin of 61% down only about 1 point as we absorb roughly $20 million in higher music royalties slightly offset by improved OEM revshare in the Pandora in off platform segment total revenue of 550 million increase 4% compared to the prior quarter and 2% on a year over year basis advertising revenue the segment of 418 million increase 3% year over year in approximately 5% sequentially driven by steady growth and podcasting and programmatic ad sales.

It's had a lot of not so positive consumer feedback so our current customers getting that update cluster and you'll have a nextgen update more targeted at streaming only thought so just trying to understand that dynamic and then for years. Your Sirius XM subscription Arps, who usually grew at an inflationary rate we've seen a lot of direct to consumer.

<unk> and streaming services take up price over the last 12 months, you're our Peru has flattened out I know there is some mix in there as well so.

So how do we think about Siriusxm subscription arps, who are over the longer term, especially as you move to a bigger digital component within that thank you.

Sure we will have a lot more to say Steven about what's launching in one next week and so hopefully you'll tune in for that but there. There are a couple of parts to your question. So late this year, we'll be launching our new streaming apps and that'll be across.

Tom Barry: Gross profit in the Pandora in off platform segment of 180 million dollars increased 4% year over year in approximately 18% sequentially as a result of improving podcasting margins partially offset by higher year over year music royalties representing a total margin of 33% on the capital allocation front we return to approximately $165 million to shareholders in the third quarter composed of 93 million in dividends and 72 million of stock repurchase and we recently announced another 10% hike to our recurring dividend the seventh annual increase since its original inception in 2016 we ended the quarter with net debt to adjusted EBITDA of 3.3 times at the end of the third quarter we went through our sharey purchase plan given liberties proposed offer this was a requirement from an SEC regulatory perspective at this time we expect to remain out of the market while transaction is pending regardless of transaction hypotheticals we will always value a strong balance you to provide some flexibility to navigate changing market environments so looking ahead we plan to continue to be capital efficient and maintain our existing long term leverage target of low to mid threes.

IOS and Android and you know those as well.

Serve both our existing in car subscribers, who are streaming as well as new streaming subscribers and they'll roll out over the course of a few weeks and then we'll also be updating so those will also have updated our car play and Android auto instances. So they can be used obviously in the car outside of the car.

We did announce an earlier in my comments that yeah. We are launching our first instance of Android automotive operating system with Sirius XM.

This year, that's 360 L based and its an integrated solution and car.

And that's different I'm gonna be rolling out over time and of course, it will take the form of a typical automotive rollout. We do believe E. O S will ultimately be the vast majority of the OEM implementations, but clearly the automakers are taking different paths, there and we want to make sure that we are.

As part of whatever technology architecture, the OEM chooses to use so on an integrated basis, clearly 360 L. As the best consumer product in car in terms of taking advantage of satellite and IP and a L. S will allow us to do a lot more going forward.

Tom Barry: Today we also reiterated our existing financial guidance for 2023 with revenue approximately $9 billion adjusted EBITDA of roughly $2.75 billion in free cash flow of about $1.15 billion in last but certainly not least as you're aware the special committee of independent directors of our board received a non binding proposal from Liberty Media regarding the potential transaction involving the company this potential transaction would consist of the separation of the assets and liabilities attributed to the Liberty Series XM tracking stock group from Liberty Media through a split off of a newly formed company in the subsequent combination of new code and Series XM. As a result of these potential transactions the holders of Liberty Series XM tracking stock in our stock would all hold one class of common stock of the combined company.

By updating the experience more frequently we said earlier that we're going to have our first instance of ignition on recommendations recommendations, whether it's in 360 L or in our apps is one of the core features to enhancing subscription value and retention and so.

That will start to come in 360 L with AOS and in other instances of 360 L. As we move into next year. So hopefully that gives you a better sense as to how we're rolling this out starts to streaming apps first and then we will have regular updates to those apps of course going forward and then there'll be improvements.

Moving to our in car technology over time, consistent with how we've rolled those out in the past and Tom you want to talk a little bit of our.

So just looking at on the Pandora side, we actually did on Pandora plus do a price increase in September and we will be doing a price increase on premium coming next coming next year.

Tom Barry: The Special Committee has engaged advisors and is evaluating the proposal. In this transaction, we, that is, the company and our management team, are really planning supporting role. In general, Jennifer and I are providing information to the Special Committee and its advisors on our business and our long term plans as they evaluate the proposal. We do not know if the proposal or any other transaction will be completed or the terms and conditions of such transaction.

But as far as overall ARPA.

What we have as you know.

The increase in self pay promotional plans has obviously been a drag on the overall our pool, but the price increase from the March price increase has driven up the <unk>, but it's been offset by the promotional plans and some level of rate as it relates to the OEM. So we're balancing.

Tom Barry: Further, we do not expect any news until the Special Committee and the company's Board of Directors approves a transaction or the Special Committee otherwise concludes that further disclosure is appropriate, except as required by law or other regulatory requirements. While this proposal works its way through the process, we will maintain our unwavering focus on our customers in the long term positioning of the company, as we always have.

You know the price increase as we continue to look and as we look at the launch next week and our pricing model. We're looking at balancing obviously the pricing model and then the the economics of the plans that are you know the trial plans that we're continuing to address yeah, I'd say that I think we on the Sirius XM side, there's no difference in how we're using.

Operator: With that, I'll turn it over to the operator for Q and I. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad and the confirmation tone to indicate your line is in the question Q. You may press star two if you'd like to remove your question from the Q. From distance using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we pull for questions. Thank you.

Our promotional plans to attract and retain customers as we have in the past I think the rate increase that Tom reference and was a bit narrower in scope than ones. We've done in the past we haven't addressed the promotional plans there and you know he he also referenced the lower OEM paid trial revenue, which.

It's just a function of our continued negotiation of an extension of our deals with automakers and doesn't necessarily reflect a specific path on the economics overall, we still believe that we are driving improved economics, especially as you include.

Brian Kraft: Our first question today is from the line of Brian Kraft with Deutsche Bank. Please excuse your questions.

Jennifer Witz: Hi, good morning. I wanted to ask you, I guess it seems as though auto sales are now providing the tail end that the business needed to return to self-paying at ads, but at least this quarter it appears that conversion to self pay wasn't enough to offset the natural increase in vehicle related turn. So what's your confidence level in that dynamic reversing going forward to the conversions to self pay will translate into positive self payment ads on a sustained basis next year. And maybe related to that if you could talk about what you're seeing currently in conversion rate and how that's trended versus recent quarters. Thank you.

Increased pen rates through those deals and I think as you said in the past, it's not about <unk>, specifically I, we obviously follow the metric, but its an output are we believe very much that there is an opportunity to grow subscribers by getting them into the content, they want and perhaps at lower price points and that could be.

For less content or just streaming packages, but we also see an opportunity to enhance the value of our subscriptions for our core segments and subscribers to support ongoing rate increases in the future. So I don't know how that nets out necessarily in terms of our pud, but I definitely feel good about our opportunity to improve.

Jennifer Witz: Sure, good morning, Brian. I converted rates have been relatively stable this year and we continue to see improvements in 360L vehicles, but as we talked about in the past, what we're trying to solve for with the launch of this new platform, which of course comes with streaming first and then we'll move through our in car platform next year. But we're trying to solve for these core pain points that we've discussed around discovery control and pricing and that's really going to enable us to make a broader impact on conversion rates going forward.

Revenue overall.

Thank you.

Our next questions come from the line of Cameron Marathon Perone with Morgan Stanley. Please proceed with your question.

Thanks, and thanks for taking my questions.

Two if I can first on Pandora gross margin.

Good improvement for the first time in a couple of years. There I was wondering if you could.

Help us understand what's driving that I know you highlighted improving podcasts economics, but was wondering you know are we at a point now where the off net business is accretive to overall gross margins at Pandora and then one on the reiterated guidance.

Jennifer Witz: We're building improvements at both marketing and on the product side in streaming and in car that will roll out over the course of starting late this year and into next year. But we expect the product to do a lot more work here going forward. We've been heavily reliant on direct marketing for in car conversion process. But we need to point out the auto sales seem to be providing a bit more of a tailwind.

EBITA came in.

Obviously at record levels. This year I think the implied for Q EBITDA margin is.

The downtick from the last couple of quarters in light of cost.

Cost savings success that you guys have had I was wondering if you could provide some color just on what is implied by the debt.

Jennifer Witz: We have seen that with new and used car trials taking up a bit, but a lot of the new car side has been propelled by fleet and rental and not on the consumer side. There's still been growth in consumer, but much faster growth on the fleet and rental where we don't participate as much. But we do. We have seen some improved trends in trials. Now with the resolution, it seems on the strikes is that should provide more momentum going forward.

Full year guidance in terms of <unk>. Thanks.

Yeah I'll take the first one on Pandora gross margin. So it is as we highlighted in earlier comments just about improving podcast economics, primarily and this is really a function of driving improved advertising revenue on the podcast side. So yeah. I believe you said were up 28%.

In the third quarter, we continue to grow.

Jennifer Witz: We really hadn't seen an impact to our trial starts from the three domestic because they had basically enough inventory on hand to manage through it. But you know, the biggest impact for this year. Again, we really hope for a growing auto funnel on both the new and used car side going into next year. But of course, very strong auto sales in the fourth quarter would result in higher than expected vehicle related churn potentially. So that's the only downside, obviously, of building the funnel.

Grow faster than the overall market on the podcast advertising revenue and given the structure of the deals a lot of that falls through to gross margin and we just continue to expect improving monetization on the podcast in front, we have brought a lot of brands into the space.

unknown: Thank you, Jennifer.

unknown: Thank you.

Based on our relationships at Pandora, and we're bringing more and more solutions that brands are looking for whether it's better targeting and identification of users, which is very challenging when they're listening is happening over multiple platforms and or its brand suitability and safety.

Solutions as well so that's the primary driver there.

Jessica Rice Ellers: Our next question is from the line of Jessica Rice Ellers with Bank of America. Please just hear with your question. Sorry, good morning. I have a couple of questions. One of the major drivers of future growth seems to be the ability to attract younger users. So just could you talk a little bit about the launch of the new streaming app will move you towards that goal and what your plans are to adjust the content offering with the launch of the app or not.

Yeah sure. Thanks Cameron for the question good morning, as far as our guidance. When you look at EBITDA for the full year guidance of $2 75 billion. The reality is you know we focus on it being approximately and so with each of the metrics. There is some level of variability around.

The metric and the guidance, we gave but you know we look at we look at the quarters and then when you look at the fourth quarter on EBITDA, obviously as you've seen this year, there's higher royalties and we have talked about the marketing that's being pushed to the fourth quarter and cost optimization, but overall with each of them I would focus on the up approximately.

Jessica Rice Ellers: Excuse me, along those lines, maybe slightly different, but we see Spotify pushing into audio books. Is that something that you would consider as well? And then completely different questions. Sorry for so much, but just completely different. Your costs were down a lot, this quarter, sales marketing down 16%, G&A down a lot. So obviously your margins were great, but is this deferred spending or is it more of a permanent cut? So all started and then maybe Scott, you can jump in on new content and Tommy can talk about the cost structure.

Side of it and I would just say that each of them have a variability above and below the target yeah, and just because there is so much uncertainty in advertising right now and I think about where we were sitting this time last year and we were expecting a recovery as we move through this year and we really we've seen some slow progress.

But it hasn't materialized at the level that we certainly expected it would and now it looks like it's going to be a 24 really before we start to see any improvement. So we're given that uncertainty fourth quarter is the biggest quarter for revenue or for AD revenue for us in revenue overall I. So I would just say you know were there.

Jessica Rice Ellers: Yes, Jessica, the launch later this year of new streaming apps will certainly help us address demand with younger audiences. So the objective is to, because we can move faster in the streaming apps to start there, to make sure that we have a very effective product market fit for our growth segments, which we've identified to be about a quarter of the overall adult audio listening market. They are looking for premium audio experiences and beyond what an on demand music service might provide.

Are they very clearly like Tom said looking at $9 billion is approximate and likely a ceiling on revenue.

That's helpful. Thanks, guys.

Our next question is from the line of Jason Bazinet with Citi. Please proceed with your question.

Jessica Rice Ellers: So we have the content largely we believe we need to have to address these audiences. It's just difficult for them today to discover and navigate and to some extent control the content in the product. So we actually have a very robust funnel and younger generations represent a reasonably significant size of our in-car funnel as well as our streaming funnel. So we're bringing the younger consumers into our products. We now just need to better satisfy their needs once they get there.

Just in response to an earlier question you mentioned St Pinpoints discovery controlling pricing that exists on the platform today.

Do you mind, just unpack them, a little bit either research or anecdotes that give you.

You know what gives you confidence that those are pinpoint city that you canceled with the Nextgen rollout.

Sure Yeah, we've done a lot chase it on this Friday in terms of our research and even just testing to better understand where the constraints are eye in terms of bringing people into our subscriptions and on the discovery and control side. It's.

Jessica Rice Ellers: Sure, so a couple of things Jessica, one, when it comes to younger, what often gets overlooked, which I don't think it should is sports. So, you know, that is always attracted a younger audience in particular. And, you know, right now you'd need six streaming video services to have all the games we broadcast. So that that piece is pretty solid on the music side. There is an an artist that doesn't either come in or, you know, do a guest DJ or one of our artists pop-ups.

You know discovery, we've talked a lot about and we have an incredible set of content. Our subscribers are very passionate about whatever it is right their favorite music channel, whether it's tech talk or beetles or even the Billy Joel pop up or the sports that Scott highlighted we have such passion around the car.

Jessica Rice Ellers: And as Jennifer mentioned, we can do that almost on an unlimited basis. It's a question of can it get out there and be found within our app and other ways. And I think, you know, with the new product that will come through on that. You know, when you mention audio books and other things, I think the product and other things will let that evolve as it goes. But whether it's comedy music, politics, there's nothing that doesn't have a younger component to it.

We have but people can't find it and I've talked about this before that the model that we've always had as you get into the car and you turn the dial right and we need to build and engagement platform and a and a set of products that facilitate discovery without having to do all of that work just like other streaming products and.

So a lot of that is keyed on our improvements in recommendations I, which is coming through in 360 L. I slowly, but surely and we'll definitely have improvements across recommendations that are streaming apps and that whole engine will go to support.

Jessica Rice Ellers: In particular, our podcast, we have many of those and can surface those. It's just a question of, you know, a core audience that is well served. And now a younger audience that will be served as well, it's just got to be found in a way they're used to finding their content. And then just good to the last part of your question on cost savings. So, you know, the company obviously next week is going to be launching the next gen product and at the same time, we're going through internally and organizational refresh and optimization.

The the suite of our products overall, so discoveries key because you get people into the content. They love and then surround them with recommendations as to other content. They will also like I and Scott touched a lot on that control is not about a fully interactive music service, but also providing customers with.

Better idea as to how you can.

Control the content that we have we do have channels, where you can skip songs for instance, and and also we'll have new features which again will.

Jessica Rice Ellers: As we look at a lot of the processes and leverage technology, we're starting to see savings in a wide variety areas. Some of them have shown up already. Some were dependent on future technology. But we can take tenure internally to focus on innovative ways to enhance our processes. And I think we'll see more savings as we go forward. If they noted in the discussion, we recognize about $40 million worth of with us savings from optimization is quarter.

Previous thought if this next week new features that allow customers who may have we believe may have gotten to a point and listening to a certain channel where they want something new and we will be able to put them into something else, that's very similar and easier way. So there is improved discovery and control.

And the products and pricing. This is really about making sure that we have a broad set of products at different price points, our packages at different price points and some of those will have reduced content to be able to attract younger consumers who may in fact look at us as a complementary product to.

Jessica Rice Ellers: Obviously, and then there is some levels you said in sales and marketing. There's some level that's referred to the fourth quarter. But there is $40 million worth of net optimization savings in the quarter. We'll have more to come in the next quarter and in the year ahead. So, that's the up to you. I would say, well, we're not managing clearly to individual quarters.

Music on demand service, we've always been complementary in some ways to consumers music collections and now you know often times consumers are using on demand music to solve for that need, but our human curated set of content, whether it's music or the bra.

Scott Greenstein: It's nice to hit a record high EBITDA of $747 million in third quarter. So we feel good about our ability to continue to generate strong EBITDA margins and cash flow going forward. Thank you.

Set of non music content, we have is really critical to at many of our subscribers and prospects who are looking for something else and audio to complement what they have on on the music side.

Tom Barry: Our next question is coming from the line of Stephen Kael with Wells Fargo. This is your question. Thank you.

That's helpful. Thank you.

Stephen Kael: Good morning. First, just wanted to understand next week's next generation product launch. I think what you talked about for the 360L conversion for Android Auto. So are there two kind of app based updates or improvements coming? I think that the current Android Auto app has had a lot of not so positive consumer feedback. So our current customer is getting that update plus then you'll have a next gen update more targeted at streaming only sub.

Thank you.

Our next question is from the line of Barton Crockett with Rosenblatt. Please proceed with your question.

Okay, great. Thanks for taking the question.

I was.

Interested if.

You could give us a little bit more kind of detail around your penetration rates.

I know you talked about getting into the F 150 trucks, what what is your penetration now of new car production.

Stephen Kael: So just trying to understand that dynamic. And then for years here serious XM subscription RPU usually grew in an inflationary rate. We've seen a lot of direct consumer and streaming services take up price over the last 12 months. Your RPU has flattened out. I know there is some mix in there as well. So how do we think about serious XM subscription RPU over the longer term, especially as you move to a bigger digital component within that. Thank you.

And also where are we on the 360 L kind of penetration. So that's one question and then you outlined kind of your Capex essentially trending long term towards zero.

You know in that environment, what are you contemplating in terms of the consolidation of the satellite constellations at this point long term and what is kind of the maintenance level of Capex that will remains I know you have ground repeater networks and they like it.

If you could elaborate on that would be helpful. Thank you.

Jennifer Witz: Sure, we'll have a lot more to say Stephen about what's launching and when next week. So hopefully you'll tune in for that. But there are a couple of parts to your question. So late this year we'll be launching our new streaming apps and that will be across iOS and Android. And those will serve both our existing in car subscribers who are streaming as well as new streaming subscribers and they'll roll out over the course of a few weeks.

Sure. So first on pen rates overall were still in the low eighties on pen rates and they've come down a little bit. This year are related to growing our standalone EV penetration rates and then some minor disruptions from a supply standpoint still on.

On an individual models, but yes, we like the position we have going forward with the F. 154. It has always been a very strong partner and that is one of our highest converting vehicles. So it'll be nice to be standard there as well and we have work to do on the stand alone.

Jennifer Witz: And then we'll also be updating. So those will also have updated car play and Android Auto instances so they can be used obviously in the car outside of the car. We did announce and earlier in my comments that we are launching our first instance of Android automotive operating system with serious XM this year. That's 360L based and it's an integrated solution in car. And that's different. I'm going to be rolling out over time and of course it will take the form of a typical automotive rollout.

Vs and I'm still hopeful we'll have something to talk about eye in the future with the single biggest one out there.

But no nothing nothing else, that's driving any real change and penetration rates going forward on the on the $3 60 allo penetration rate. We're at about 35% of current vehicle sales. They have 360 L and that will continue to obviously increase over time as we run.

Cloud, what's also really key there is making sure that there is fully featured as possible and so we're watching very closely and the penetration rate of those 360 L vehicles in terms of their broad set of capabilities and that's only going to improve with the launch of AOS and Tom on Capex.

Jennifer Witz: We do believe iOS will ultimately be the vast majority of the OEM implementations but clearly the automakers are taking different paths there. And we want to make sure that we are part of whatever technology architecture the OEM chooses to use. So on an integrated basis clearly 360L is the best consumer product in car in terms of taking advantage of satellite and IP and AOS will allow us to do a lot more going forward by updating the experience more frequently.

So on Capex, obviously, we gave you the schedule out on the satellite the non Sac Capex, we said.

You know obviously this year, we're doing heavily investment next year will be doing have you on the investment, but I believe it's you know somewhere in the 350 to 400 million range. This year.

Jennifer Witz: We said earlier that we're going to have our first instance of ignition on recommendations recommendations whether it's in 360L or in our app is one of the core features to enhancing subscription value and retention. And so that will start to come in 360L with AOS and in other instances of 360L as we move into next year. So over that gives you a bit of sense as to how we're rolling this out.

He will continue as we refresh our repeater network, we will continue to obviously put capital into the non stop capex going forward.

Yeah, I think the free cash flow profile is very strong going forward and that has a lot to do with it what Tom highlighted on the satellite side.

I N S. Eventually getting to zero by 2028, and we could be at that level for several years, following but also improving taxes and working capital also contribute to our ongoing growth in free cash flow.

Jennifer Witz: Start to streaming apps first and that we will have regular updates to those apps of course going forward. And then there will be improvements to our in-car technology over time consistent with how we've rolled those out in the past.

Thank you.

Our next and final question comes from Steven Leigh Sick with Goldman Sachs. Please proceed with your question.

Tom Barry: So just looking at on the Pandora side we actually did on Pandora plus do a price increase in September and we will be doing a price increase on premium coming next coming next year. But as far as overall RPU you know what we have is you know the increase in self paid promotional plans is obviously been a drag on the overall RPU. But the price increase from the March price increases driven up the RPU but has been offset by the promotional plans and some level of rate as it relates to the OEM.

Hey, great. Thank you our first maybe for Jennifer and Theres been a lot of focus on the health of the consumer heading into the end of the year I would just be curious if you could update us on what you're seeing in some of the real time indicators that you track on the consumer front, whether that's voluntary and non pay churn.

The uptake of certain packages and what you think that that speaks to in terms of the health of the consumer heading into year end and then just quickly on the audio on the auto strike just with it being over any impacts that we should be mindful of in terms of the trajectory of trials or equipment cost heading into the fourth quarter or next year would be helpful. Thank you.

Tom Barry: So we're balancing you know the price increase as we continue to look in as we look at the launch next week in our pricing model. We're looking at balancing obviously the pricing model and then the economics of the plans that you know the trial plans that we're continuing to address. Yeah I say that I think we on the series at some side there's a difference in how we're using promotional plans to attract and retain customers as we have in the past.

Sure Stephen So on the auto strike really no nothing material to say on that in terms of trials are or other metrics. So I think we should be fine on that front going forward on the health of the consumer we have seen really strong just overall consumer confidence.

In retail spending as you know despite the fact that savings have fallen quite a bit I you know the auto default rates have been up year over year, but they're certainly not where they were pre COVID-19, but for us there's really not been any discernible increase and our non PE credit card entry rates, which is sort of our best leading indicator.

Tom Barry: I think the rate increase at Tom reference was a bit narrower and scope than ones we've done in the past. We haven't addressed the promotional plans there and you know he also referenced the lower OEM paid trial revenue which is just a function of our continued. Negotiation extension of our deals with auto makers and doesn't necessarily reflect a specific path on the economics overall we still believe that we are driving improved economics especially as you include increased pen rates through those deals.

Satisfaction continues to be above last year's level and overall, our voluntary and non pay so taking vehicle related out for a second voluntary and non pay offs have been very consistently at about 1% churn for several quarters now give or take a few basis points in either direction.

Tom Barry: And I think as you said in the past it's not about RPU specifically we obviously follow the metric but it's an output. We believe very much that there is an opportunity to grow subscribers by getting them into the content they want and perhaps at lower price points and that could be for less content or just streaming packages. But we also see an opportunity to enhance the value of our subscriptions for our course segments and subscribers to support ongoing rate increases in the future. So I don't know how that nets out necessarily in terms of RPU but I definitely feel good about our opportunity to improve revenue overall.

But you know obviously, there's a lot of uncertainty heading into next year about reset possible recession are you know when is the recovery happening for advertising I and then just the general health of the consumer So it's something we're watching closely clearly as we close out there.

unknown: Thank you.

Great. Thank you.

Thanks, everybody for participating today will speak to you soon.

Cameron Maslow: Our next questions come from the line of Cameron Maslow and Perone with Morgan Stanley. Appreciate your questions. Thanks, and thanks for taking the questions.

Tom Barry: Two, if I can. First on Candora Gross margins, you know, good improvement for the first time in a couple of years there. I was wondering if you could help us understand what's driving that. I know you highlighted improving podcast economics, but was wondering, you know, are we at the point now where the off-net business is accretive to overall gross margins at Candora?

Tom Barry: And then one on the reiterated guidance, you know, that EBITDA came in. Obviously at record levels this year, I think he implied four QEBIT down margin is a decent down tick from the last couple quarters in light of the cost saving success that you guys have had. I was wondering if you could provide some color just done what is implied by the, you know, that that's for your guidance in terms of force you.

Tom Barry: Thanks. Yeah, I'll take the first one on Pandora Gross margin. So it is as we highlighted in earlier comments just about improving podcast economics primarily. And this is really a function of driving improved advertising revenue on the podcasting side. So, we continue to grow faster than the overall market on the podcast advertising revenue. And given the structure of the deals, a lot of that falls through to gross margin. And we just continue to expect improving monetization on the podcasting front.

Tom Barry: We have brought a lot of brands into the space based on our relationships at Pandora. And we're bringing more and more solutions that brands are looking for, whether it's better targeting and identification of, you know, users, which is very challenging when the listening is happening over multiple platforms or it's brand suitability and safety solutions as well. So that's the primary driver there.

Tom Barry: Yeah, sure. Thanks, Cameron, for the question. Good morning. As far as our guidance, you know, when you look at EBITDA for the full year, we have guidance 2.75 billion. The reality is, you know, we focus on, you know, it being approximately. And so with each of the metrics, there is some level of variability around the metric and the guidance we gave. But, you know, we look at, we look at the quarters and when you look at the fourth quarter on EBITDA, obviously as you've seen this year, there's higher royalties and we have talked about the marketing that's being pushed to the fourth quarter and cost optimization.

Tom Barry: But overall, with each of them, I would focus on the approximately side of it. And I would just say that each of them have a variability above and below the target. Yeah, and just because there is so much uncertainty in advertising right now. And I think about where we were sitting this time last year and we were expecting a recovery as we moved through this year and we really, we've seen some slow progress, but it hasn't materialized at the level that we certainly expected it would.

Tom Barry: And now it looks like it's going to be 24, really, before we start to see any improvement. So we've given that uncertainty. Fourth quarter is the biggest quarter for revenue or for ad revenue for us and revenue overall. So I would just say we're very, very clearly like Tom said looking at 9 billion as approximate and likely as ceiling on revenue.

unknown: That's helpful. Thanks, good.

Jason Bazinet: Our next question is from the line of Jason Bazinet with City. Please just hear a third question. In response to an earlier question, you mentioned three pain points, discovery, control, and pricing that exist on the platform today.

Jennifer Witz: Do you mind just unpacking a little bit, either research or anecdotes that give you confidence that those are pain points today that you can solve with an extreme rollout? Sure. Yeah, we've done a lot, Jason, on this front, in terms of research and even just testing to better understand where the constraints are in terms of bringing people into our subscriptions. And on the discovery and control side, it's, you know, discovery we've talked a lot about.

Jennifer Witz: We have an incredible set of content, our subscribers are very passionate about whatever it is, right? Their favorite music channel, whether it's TikTok or Beatles or even the Billy Joel pop-up or the sports that Scott highlighted, we have such passion around the content we have, but people can't find it. And we've talked about this before, the model that we've always had is you get into the car and you turn the dial, right?

Jennifer Witz: And we need to build an engagement platform and a set of products that facilitate discovery without having to do all of that work, just like other streaming products. And so a lot of that is keyed on our improvements and recommendations, which is coming through in 360L slowly, but surely. And we'll definitely have improvements across recommendations and our streaming apps, and that whole engine will go to support the suite of our products overall.

Jennifer Witz: So discovery's key because you get people into the content they love and then surround them with recommendations as to other content they will also like. And Scott touched a lot on that. Control is not about a fully interactive music service, but also providing customers with better ideas to how you can control the content that we have. We do have channels where you can skip songs, for instance. And also we'll have new features, which again, we'll preview some of this next week.

Jennifer Witz: New features that allow customers who may have, we believe may have gotten to a point and listen to a certain channel where they want something new and we'll be able to put them into something else that's very similar in an easier way.

Jennifer Witz: So there's improved discovery and control in the products and pricing. This is really about making sure that we have a broad set of products at different price points or packages at different price points. And some of those will have reduced content to be able to attract younger consumers who may in fact look at us as a complimentary product to a music on demand service. We've always been complimentary in some ways to consumers' music collections.

Jennifer Witz: And now, you know, oftentimes consumers are using on demand music to solve for that need. But our human curated set of content, whether it's music or the broad set of non-music content we have, is really critical to many of our subscribers and prospects who are looking for something else in audio to complement what they have on the music side. Thank you.

Barton Crockett: Our next question is from the line of Barton Crockett with Rosenblatt. Please receive your question. Okay, great. Thanks for taking the question. I was interested if you could give us a little bit more kind of detail around your penetration rates. I know you talked about getting into the F-150 trucks. What is your penetration now of new car production? And also, where are we on the 360L kind of penetration? So that's one question.

Jennifer Witz: And then you're outlined kind of your CAPEX essentially trending long term towards zero. In that environment, what do you encounter in terms of the consolidation of the satellite constellations at this point, long term? And what is kind of the maintenance level of CAPEX that will remain? I know you have ground repeater networks and they like. If you could elaborate on that, it'd be helpful. Thank you.

Jennifer Witz: Sure. So for some pen rates, overall, we're still in the low 80s on pen rates and we've come down a little bit this year related to growing standalone EV penetration rates and then some minor disruptions from a supply standpoint still on individual models. But position we have going forward with the F-150 Ford has always been a very strong partner and that is one of our highest converting vehicles. So it'll be nice to be standard there as well.

Jennifer Witz: And we have work to do on the standalone EVs and I'm still hopeful we'll have something to talk about in the future with the single biggest one out there. But nothing else that's driving any wheel change in penetration rates going forward. On the 360L penetration rate, we're at about 35 percent of current vehicle sales. I have 360L and that will continue to obviously increase over time as we roll out. What's also really key there is making sure that they are as fully featured as possible. And so we're watching very closely the penetration rate of those 360L vehicles in terms of their broad set of capabilities and that's only going to improve with the launch of AOS and on CAPEX.

Tom Barry: So on CAPEX obviously we gave you the schedule out on the satellite, the non-SAT CAPEX. We said obviously this year we're doing heavily investment and next year we'll be doing heavy on the investment. But I believe it's somewhere in the 350 to 400 million range this year. And we will continue as we refresh our repeater network. We'll continue to obviously put capital into the non-SAT CAPEX going forward. Yeah, I think the free cash flow profile is very strong going forward and that has a lot to do with what Tom highlighted on the satellite side and us eventually getting to zero by 2028. And we could be at that level for several years following. But also improving taxes and working capital also contribute to ongoing growth and free Thank you.

Steven Laszczyk: Our next and final question comes from Steven Laszczyk with Goldman Sachs. Pleasure to see you with your question. Hey, great. Thank you.

Jennifer Witz: First maybe for Jennifer. There's been a lot of focus on the health of the consumer heading into the end of the year. I would just be curious if you could update us on what you're seeing in some of the real-time indicators that you track on the consumer front, whether that's voluntary or non-pay turn, or the uptake of certain packages and what you think that that you speak to in terms of the health of the consumer heading into your end.

Jennifer Witz: And then just quickly on the audio on the auto strike, just with it being over any impacts that we should be mindful of in terms of the trajectory of trials or equipment cost heading into the fourth quarter or next year would be helpful. Thank you. Sure, Steven. So on the auto strike really know nothing material to say on that in terms of trials or other metrics. So I think we should be fine on that front going forward on the health of the consumer.

Jennifer Witz: We have seen really strong just overall consumer confidence and retail spending as you know, despite the fact that savings have fallen quite a bit. I, you know, auto default rates have been up year-to-year, but there's certainly not where they were pre-COVID. But for us, there's really not been any discernible increase in our non-pay credit card entry rates, which is sort of our best leading indicator satisfaction continues to be above last year's level.

Jennifer Witz: And overall our voluntary and non-pay, so taking vehicle related out for a second, voluntary and non-pay has been very consistently at about 1% turn for several quarters now. Give or take, you know, a few basis points in either direction, but, you know, obviously there's a lot of uncertainty heading into next year about possible recession. Again, you know, when is the recovery happening for advertising and then just the general health of the consumer? So it's something we're watching closely clearly as we close out the year.

unknown: Great. Thank you. Thanks everybody for participating today.

unknown: We'll speak to you soon.