Thank you, and good morning, everyone. Welcome to SiriusXM's 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 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 actual results to differ materially. For more information about those risks and uncertainties, please view SiriusXM's SEC filings and today's earnings release. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I 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. In 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 improvements in the differentiated listening experiences that our customers love. Self-pay net adds were 187,000 in the third quarter as we sustained a record low churn of 1.5%, 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 constraints, 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 in the advertising environment will continue to add some degree of uncertainty in achieving 2022 guidance. As we move into the fourth quarter, we remain focused on maintaining our momentum with steady work to expand relationships with OEM and deliver an incredible content slate, new listener experiences and exciting product and technology enhancements. Our products and content remain extremely attractive to vehicle buyers and automakers. Our new and used vehicle penetration rates continue to remain strong at 83% and 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 Stellantis. In addition, our 360L platform launched in the popular 2023 Nissan Ultimate, and we should exit this year with 360L installations, up approximately 500 basis points as…

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 continue to make material investments in sales, marketing, content and product development. During the quarter, we booked $69 million of onetime 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 diluted earnings per common share of $0.06 or $0.07 excluding the onetime 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 addition, 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 SXM 11 and 12 satellites currently being procured begins to ramp. As we discussed…

[Operator Instructions]. We now take our first question from Ben Swinburne at Morgan Stanley.

Maybe two questions. One, maybe for Jennifer, on digital subscribers, which seems like they continue to build, can 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? 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 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?

Okay. Thanks, Ben. First, on the satellite versus streaming subs, the unit economics that we talked about in the past are pretty different in terms of the upfront cost to acquire a subscriber. As you know from your years focusing on our business, on the satellite side, we have upfront SAC 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 are seeing happening in the markets. Obviously, we're really focused on cost per trial as it relates to LTV of these subscribers. And so the dynamics of that may shift in a given quarter, whereas the funnel is obviously clearly a function of what automotive trials are in a given period. So the levels of subscribers will be dynamic based on how we're investing in the market. The marketing investments that we make towards streaming trials continues to get more efficient. Part of that, obviously, near term has just been the trends 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 I don't -- they're not material enough today to really impact overall gross margin. But as we said in the past, our prices on streaming are lower than on satellite, but the actual margin percentages are relatively consistent.

Yes. And Ben, 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 that's both OpEx and CapEx. I think it's just as important to highlight for everyone as we look into 2023, and we'll have more to say certainly in February on the year-end call, 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 expire to the end of '22. I thought it was worth highlighting that for everyone since it was public a number of years ago. So we'll remain focused. We've talked about facility rationalization. You saw some of the charges we took in Q3. We continue to prioritize headcount against key roles and key strategic initiatives, and we'll continue to do that and look for efficiencies across the organization to continue to fund the growth initiatives that we have on the plan.

We'll now take our next question from Jessica Reif Ehrlich at Bank of America.

Your 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 turn at this level, at this low level, does it imply that pricing power, can you just kind of talk to how you're thinking about that? And secondly, can you give us color on Podcast Everywhere? How different is this offer from prior sales efforts? I mean you'd kind of call out and mentioned on the call more targeting. And then just last, just a clarification, but what are your subs from streaming only?

Okay. I could take a couple of those. So starting with churn, I continue to be amazed at how low our churn rate has been. We have not seen any real negative impacts on non-pay or canceled demand on the voluntary side that would indicate that there is a different health of the consumer to be concerned about. So our nonpaying voluntary continue to trend in that sort of 1% to 1.1% range. It's been very strong. And again, 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 -- or the auto funnel continues to slowly recover. So that will have an impact on churn, but we're very pleased on where we are in non-pay and voluntary. And I do think that gives us some opportunity on pricing. We obviously 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've 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%. There are some tailwinds, I think, with other audio and video services raising prices. 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 increased content, better features and capabilities in our products and certainly access to listen in…

Yes. And then, Jessica, I think your last question was about the number of streaming subs. We have not yet disclosed that. And as that grows and becomes more material, we can revisit that in the future.

We'll now move on to our next question from Bryan Kraft at Deutsche Bank.

I wanted to ask two, if I could. I guess, First, can you just talk about what you're seeing in advertising so far in the fourth quarter? Has it slowed from the third quarter? 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 anything on their broader listening behavior? Do they subscribe 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? I mean anything you could share there would be great.

Yes. So Bryan, 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 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 monetize in Q4, which hasn't always been the case at Pandora in Q4. So we feel good about the opportunity. We just need the market to stabilize and 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 seen growth. We saw growth in Q3 versus the last year, not surprisingly. And hopefully, the expectation is we'll see a slight uptick in Q4 from the political cycle in the midterm elections. So we'll do that. As it relates to the streaming-only subs, as I said, I think the good thing in Q3 is we saw positive net adds in both streaming and satellite in Q3. I don't know if Jennifer, you want to jump in on listening behavior and anything else in the streaming side.

They are still a relatively small portion of our overall base. But from -- in terms of what they look like, in general, our streaming subscribers tend to be younger, more diverse, a little 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 rates in today that has obviously been clearly focused on in-car listing. . So as we pursue streaming-only subscriptions, there is still listening in the car, whether through CarPlay or Android Auto. And you saw that we recently released an update for CarPlay that I think we'll offer better navigation and discovery through that application, and we expect to improve the Android Auto app as well or capability as well. This is really the first time we've done a major update in 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. So there's more hip-hop and pop versus more hard rock and country maybe with our in-car subscribers. And I think there's still a lot of opportunity here, and we really are just getting started on the product front and rolling 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 with -- we just launched based on your listening carousels in the apps, and we hope to have a design refresh later this year. And that is going to enable these subscribers to listen to even more on-demand content, Pandora artist stations and our extra channels, which are just enabling more control in an environment where clearly consumers expect more of that.

We will now move on to our next question from Steven Cahall at Wells Fargo.

So I thought the Lucid announcement was interesting, and I was wondering if you're able to track at all what your penetration is of electric vehicles. And if you've got any difference in penetration of electric vehicles maybe versus combustion vehicles just because that's such a big secular trend and we've got some new OEMs as well as growing models at existing OEMs. So that's the first one. And then just a couple of quick follow-ups after that.

Yes. Thank you, Steven. On the Lucid, really pleased with the Lucid announcement, in 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 SiriusXM experience. And so that's certainly come up, and we keep hearing it from our consumers. It's logical given that many of the initial EV launches have been targeting higher affluent customer base, and that's where we obviously do really well. Our pen rates on the sort of more start-up EV companies are pretty low. I mean we are just getting started in doing some of these agreements with those EV automakers, and we expect to have more to say on that in the coming months. The electric vehicle cars that are being produced by the OEMs that we have had relationships for years, our -- the pen rates are very similar to what we see on the combustion engine side. So there's really not a difference in pen rates for all the other OEMs that we've been working with over all these years. And again, the automakers on that side of the business are very committed to SiriusXM. You saw that we announced the extension with Stellantis and with Subaru. So we continue to renew and extend those agreements. There's just a lot of support, obviously, for having the very seamless and easy-to-use service that we provide in the car.

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 are going to be ramping pretty soon. And whenever inventories do pick up, which I know no one has a crystal ball on and 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?

Yes, Steven, on the CapEx, as we said, 11 and 12, I think the majority of that spend will be absorbed in '23 and '24. So those will be the bubble years and then moderating in '25 and beyond.

Yes. And on churn, you're absolutely right, as auto sales pick up, new end use, by the way, we would expect to see some lift on the vehicle later site.

We'll move on to our next question from Stephen Laszczyk at Goldman Sachs.

Maybe just to expand on the ARPU point from earlier, your Apple rates are priced by about 10% at the other week. Can 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 base price increases from the streamers, 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? Then I have a follow-up.

It certainly doesn't hurt. We really do see that many of our subscribers who choose to be active end up using AM/FM. So while we are competing with other audio services, AM/FM is still dominant in the car, from a share year standpoint. So we're very cognizant of that level of competition. Obviously, we have been premium priced relative to AM/FM 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 to continue to raise rates in a productive way relative to how we're adding value to the subscription.

Great. 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 are 100% over there, software-enabled. Do you expect this to be the status quo for EV manufacturers going forward? And then I was just curious if there's any significant differences in the economics of the deals with EVs versus traditional automakers that we should be aware of.

So with Tesla in the act, we actually -- we do have hardware in the vehicles. And going forward, it may look different depending upon the EV automaker. In certain cases, we'll have modules. In certain cases, it may be leveraging the modem in the car. I think the preferred solution for us is 360L because we get the benefit of 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 interactive capabilities, personalization and back channel on data. So that is our preferred solution, but we will be flexible just as we've shown, frankly, in terms of launching improved car plate and to come Android Auto experiences because we do want to make sure that we are wherever customers want to listen to us and however they want to listen to us. So yes, I think that 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, different in some aspects? Or how should we think about that?

I think the economics -- the pieces of the economics, whether it's the trial lanes and payments or no payments revenue share, subsidies, things like that, obviously, will depend on the specific automaker. So I don't -- I'm not going to talk about the deal economics for sales. 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 to offer the best solution for subscribers or trialers so that they will subscribe and to work with us to make it easy for them to convert and become self-pay subscribers. So we believe in revenue share as a way to incentivize that. .

We will now take our next and final question from James Ratcliffe at Evercore ISI.

Just looking at the -- on the Pandora side, RPM was flat year-on-year. Can you help us break that down in pricing or any changes in ad loads? And related to that, it looks like listening hours are down. Where are these going? Are people just listening to less digital audio? Or where are they spending their hours?

Yes. From an RPA perspective, James, I think for the quarter, we were 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 loyal customers. So in terms of the ability to capture new registered users, that's where the challenge has been. So RPM continues to be slightly under pressure from macro trends. We talked about the advertising marketplace. So I don't know if, Jennifer, you want to comment where they're going specifically.

The -- most of the Pandora listeners are already listening to other audio services as well. Most actually consumers in the U.S. are listening to multiple audio services. But I do -- we do see dynamics where we're recapturing prior users coming back to the service for specific stations that they've set up previously. But it's the same dynamic in terms of 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 a trend that has fluctuated a bit. We have seen some recent stemming of the losses, but the dynamic overall haven't changed materially. And just back to what Sean said about ad load and things like that, I do -- we can -- 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 in our products as well.

James, thank you for participating in our call. And thanks, everybody, for joining today. We'll speak to you soon. Goodbye. End of Q&A:

Goodbye.