Greetings. Welcome to SiriusXM's First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the conference over to Hooper Stevens, Senior Vice President of Investor Relations and Finance. Mr. Stevens, you may now begin your presentation.

Thank you, and good morning, everyone. Welcome to SiriusXM's First Quarter 2024 Earnings Conference Call. Today, we will have prepared remarks from Jennifer Witz, our Chief Executive Officer; and Tom Barry, our Chief Financial Officer. Scott Greenstein, our President and Chief Content Officer, will join Jennifer and Tom to take questions during the Q&A portion of this call. I would like to remind everyone that certain statements made during this call might be forward-looking statements as the term is 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 these risks and uncertainties, please view SiriusXM's SEC filings and today's earnings release. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I'd like to remind our listeners that today's call will include discussions about both actual results and adjusted results. 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. We are encouraged by our first quarter financial performance, and we are on course to meet all of our full year guidance. Our growing addressable advertising audience and a strengthening ad market powered a 7% increase in our ad revenue year-over-year to a record level of over $400 million, offsetting a 1% drop in subscription revenue. SiriusXM is an extremely profitable business, with adjusted EBITDA up 4% year-over-year and running at a margin of 30%, up 1 percentage point from last year. And we continue to forecast that 2024 will represent our peak year for capital expenditures. As these capital investments trend down over the next few years, we expect to convert even more of our EBITDA into free cash flow. We are continuing to evolve our strong business model and investing in future growth areas by striving to enhance our listening experience and consumer value proposition. At the end of last year, we launched the first step in a longer multiphase journey, deploying our new SiriusXM streaming app supported by a new digital infrastructure. We are confident this platform will enable us to innovate and deliver the best audio experiences, whether in car or on the go. And we are focused on growing our audience base with a new brand campaign in market now, along with investments in recent [ 10 pole ] channels and shows, such as Life with John Mayer, This Life of Mine with James Corden and our limited engagement exclusive channel with Taylor Swift. While it's extremely early, given our 3-month trial structures, there are some promising engagement indicators among new users. Our SiriusXM app improves recommendations and search, broadens content discovery and includes a modernized user interface. It was built from the…

Thank you, Jennifer, and good morning, everyone, and thanks for joining us for our first quarter 2024 earnings call. Following Jennifer's lead, I want to acknowledge our steady start to what is a transformational year for the company. We are pleased to reiterate our full year financial guidance despite headwinds we see from the challenging subscriber environment. We are committed to and are executing on our strategic plan to transform and modernize the SiriusXM experience in the car and on the go. We remain focused on investing in our customer experience, enhancing our value proposition, expanding our ad business and seeking greater efficiencies across the organization. With that, let's dive into the quarter. We recorded total revenue of $2.16 billion in Q1, up 1% year-over-year. The growth was driven by a 7% increase in advertising revenue to $402 million, with improving ad sales, particularly in podcast and via programmatic sales. In fact, podcasting revenue grew 16% compared to last year's first quarter. Subscription revenue dipped slightly, with a modestly lower average subscriber base offsetting a slightly higher ARPU. Delving a little deeper into the subscriber dynamics, an increase in vehicle sales this quarter contributed to slightly higher churn, as a greater number of new and used vehicle purchasers with existing subscriptions moved out of the self-pay base and into unpaid trials. We expect this to help grow trial conversions in the future quarters. We continue to expect our subscriber results to improve from 2023, and we should see similar seasonality in 2024 with better year-over-year subscriber performance beginning in the back half of the year. Adjusted EBITDA was $650 million, a 4% year-over-year increase. The increase was boosted by greater advertising revenue and resulting gross profit as well as our cost optimization initiatives across the business, which also benefited from…

[Operator Instructions] Our first question comes from the line of Sebastiano Petti with JPMorgan.

Just first quickly for Tom. Just in regards to self-pay guidance or commentary. You said you expect similar seasonality with improvements in the back half of the year on a year-over-year basis. Does that imply anything? Are you trying to say anything specific regarding the second quarter expectations? And then also on the vehicle-related churn side, obviously, this is favorable on a longer-term basis as you increase gross adds there. But any updates on what you're seeing now currently in voluntary and nonpay churn perhaps just as we're thinking about the balance of the year on the churn line?

Yes. Sebastiano, I'll take that. So as we mentioned earlier in the earlier comments, we do believe we will see improvements year-over-year in the second half. I do think that we will have similar seasonality to last year in terms of the quarters. Obviously, we don't provide specific quarterly guidance, but that should give you some sense as to the movement over the course of the year. And as it relates to vehicle-related churn. So in the first quarter, it was a single biggest driver of performance versus last year. We had 70,000 higher vehicle-related DX in Q1, mostly obviously on higher trial starts. And yes, to your point, that helps us grow the funnel and improve gross adds going forward. We did have higher conversions in the first quarter as well based on higher prior quarter trial starts and that was slightly offset by performance on the conversion side, which is still not where we want it to be. But churn overall, so outside of vehicle-related has still continued to be strong. So right about the 1% rate for nonpay and voluntary, which we've trended at for quite some time now. No indications of softness on the nonpay side, as a result of any change in sort of consumer behavior. So we feel really good about where we are on voluntary and nonpay. And yes, for the rest of the year, it's really going to be about, as always, the trend line on vehicle related as it relates to the strength in new and used car auto sales. Right now, we're certainly expecting that where the third-party analysts are to be at new car SAAR somewhere in the high 15s. And then one other factor that, of course, plays into sort of the sequential improvements this year and year-over-year improvements in the back half. It's really the timing of what we're rolling out with the new app and marketing associated with that. We should see greater improvements in streaming as we move through the course of the year, with improvement in conversion really starting to come late in the year.

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

I just have one big picture question for you all. I think everyone on this call knows you have a great business, a lot of cash flow, great margins predictable. But the multiple seems to reflect a belief that there isn't sort of another leg of growth, another sort of initiative that could reaccelerate your top line. And so my question is, do you guys feel like you've explored a lot of other potential things and come up sort of empty and the best sort of course of action is to launch the app, deep engagement and just sort of keep generating significant free cash? Or is there the potential for something that might be a bit different that could really sort of get the market animated about top line acceleration?

Good. So Jason, I appreciate the question. So two things, I guess. We're still clearly working through the Liberty transaction, have no change in terms of the assumed timing, but really looking forward to a simplified equity structure that gives us the opportunity to approach a broader investor base and tell our story. But on the business side, it's really about reinvigorating demand. And we have a number of reasons to believe that we can successfully execute on this. I would say it's probably taking longer than we'd hoped in terms of the rollout of the new platform and our ability to sort of capitalize on improvements in marketing, especially as we're just starting to get real end-to-end personalization into our streaming marketing flows. But perhaps we've been talking about the key opportunities to build demand with growth audiences are clear across price, discovery and control, and we do have this multipronged effort underway to address these across our products, content marketing and pricing and packaging. On the product side, we're going to have really fast improvements in the app now that we have a new platform in place. And also in car, but it's going to take longer, obviously, with the rollout of 360L and driving feature parity and awareness there. But we're also, as you've seen, continue to bolster our content offering, which helps clearly with retention and also with acquisition as we have more and more exclusive content. And a lot of that ties to having real exclusivity in terms of content with key podcast talent. And then we just launched a recent brand campaign. We're seeing some positive indicators there, that's really early. And then on pricing and packaging, we've talked about the need to create a broader set of packages and capture demand potentially at lower price points with less content. But our early testing there, and it is early, is showing some lift with younger cohorts. So we do have other future areas of exploration. It's still early, but there are opportunities, I think, to drive even more demand potentially with adding interactive capabilities, maybe to certain packages. And that, of course, could come with our Pandora product or otherwise. And then looking at low cost or even free offerings potentially on the SiriusXM side which would obviously be ad supported. So I think those are things to look out for in the future as we get through the major pieces of this transformation this year.

Can I just ask one follow-up? In that proxy that you filed with Liberty that sort of laid out your financial forecast, just qualitatively, would you say a lot of the initiatives you just talked about are embedded in those numbers or not much?

Yes. As we put together the forecast, we really anticipated the things that we've been talking about. Obviously, we haven't provided specific guidance for '25 yet, but they're certainly baked into our guidance for this year.

Okay. Yes. I mean -- I would just say, Jason, that when you look at it, I think when -- when you look at the numbers for 2025, we did it as a model at that point. We had a lot of these initiatives in there, and we're obviously building and changing as we transform this year. So they're directionally the right way, but we obviously got a lot of moving parts this year.

One other thing to add, what I'm excited about. When you look at just 5 of the podcasts we have, it's an audience of over 70 million U.S. monthly downloads. So business models matter, as you've heard Jennifer and others always say. We continue to look at where that fulcrum balancing point is between taking content behind the paywall. And we saw years ago what meant taking a large audience from Howard and then making behind the paywall. So we're consistently analyzing where that balance is. But there is a large audience, a large younger audience out there in podcasting, and we have a leading position in that. And at any point, some of those large audiences could be behind the paywall. So it's just something we're monitoring and looking at down the road, but it is something to consider.

Next question is from the line of Bryan Kraft with Deutsche Bank.

I have two, if I could. I guess, first, you've obviously seen a nice rebound in advertising in Pandora and off platform. Can you talk a bit about more what you're seeing there in terms of industry category strength? And also in the press release, you mentioned Synthetic Voices and the value it brings to SMBs. Can you talk a bit more about your exposure to SMBs versus enterprise today in the business? And whether you see this and other potential AI tools as a way to expand in SMB in the future and whether that could be a meaningful opportunity for growth? And then my second question is for Tom. Tom, if investors wanted to look at your free cash flow, assuming a normalized CapEx level pulling out satellite CapEx and temporarily high non-satellite CapEx, what would that normalized CapEx level be as you see it today? And how much are we pulling out of the CapEx guidance for the year to get to that number?

Okay. So I'll start on the first one, just start touching on the advertising. So as we've said, the advertising for the quarter, we've always said over time that advertising is choppy. And first quarter, everything hit the cylinders, hit properly. We ended up, up 7% overall. When you look at it, a couple of things contributed to us. Obviously, the investment and strategy on the podcast side. We had higher network demand on the podcast side by about 16%. And the streaming demand is up 5%, but a lot of it is because of our ability to leverage programmatic, which increased the demand across streaming and podcasting by about 29%. This has been a great advantage to us for the quarter, and it's also drove up our RPMs for the quarter. So when you look at overall advertising, a lot of factors contributed positively. No new industries, I would say that changed significantly as far as who's advertising, but we continue to see positive signals out of the first quarter heading into the early part of the second quarter. So that's the advertising. Is there anything I missed on advertising?

Yes, I think the really interesting thing we've seen, Bryan, is just -- there's just been a fundamental shift in advertising, I think, over the last few years, just with more and more supply coming on with [ SVODs ] introducing ad-supported peers and more and more targeting available. And where we have played really well, as Tom mentioned, is in programmatic. And we're still at the earlier stages on the podcast side for programmatic, but we've had it in place on the music streaming side for quite some time. And these capabilities extend across the platform, and it really plays to what advertisers are looking to do in terms of buying later, later in the process, right? There's fewer sort of upfront commitments and more buying based on last minute sort of consumer expectations. And we really fulfill that need incredibly well, especially relative to our other competitors in audio. And so I think you'll see a lot of those trends continuing. And then as it relates to sort of SMB versus enterprise, we've always had sort of strong business on the SMB side. And I think now it's really about unlocking more solutions and get it kind of plays to what we've been able to do on programmatic, but offering more and more self-serve solutions that allow smaller advertisers to come into audio and scale and experiment and integrate on their campaigns without a lot of direct sales assistance. And so I think we do see opportunities to continue to grow in this area. And you want to touch on CapEx?

Yes. So Bryan, on CapEx, as you look at first quarter, CapEx was lower principally because of timing of payments, lower on -- principally on the satellite CapEx side. So we were slightly lower on CapEx in Q1. We still expect to have our highest level of CapEx for 2024, and to look at the more broadly at the outer years of 2026, 2027, we believe that CapEx will be somewhere around $300 million.

Probably more. Yes, it could be as high. I think -- look, the thing that we want to make sure that we do is maximize our opportunity to invest in the business on the non-satellite CapEx side. Obviously, we've got the cycle of satellite CapEx rolling through in the next few years as we get through those launches. But we do have other, I guess, for lack of a better phrase, end-of-life replacements we need to make on the terrestrial and broadcast side that will roll through in the non-satellite CapEx. And then we are continuing to transform the business and making sure that we're migrating off legacy systems, and that's going to roll into next year. And so while we do expect, as Tom said, this to be kind of a high in terms of overall CapEx, we'll continue to see some higher levels in non-tech CapEx as we go into next year.

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

I guess can we go back to advertisers. I have two questions. One on advertising and one on programming. Obviously, your programmatic efforts have really kicked in. Just wondering how you compare to other audio marketers in terms of share -- in terms of podcasting and also maybe digital more broadly? And how different is your set of tools? And then on programming, it's [indiscernible] have this question in a long time. But how you -- have you had initial conversations with Howard Stern returning at the end of his contract, which I think is next year? And if he doesn't come back, how are you thinking about replacement programming? And how would it impact your programming budget and plans?

Jessica, I'm going to let Scott cover your second question first.

Okay. So on Howard. First of all, Howard, as you know, is synonymous with the brand and as relevant as he's ever been as witnessed by not only the President Biden interview, but recently, whether it's Kelly Musgrave or Emily Blunt, actually his audience is getting younger and he's getting more younger talent to want to do it. So you never want to be a company without Howard. And if he decides to retire or do whatever he does, that's his choice, we would like him to be here. But as far as replacing. We've seen that there's certain singular talent that whether it's Johnny Carson retiring and somebody else comes in and all that, you don't replace someone. You come up with a strategy of what is your current demo and your target audience and you look at what would be best suited for that at any given time. And we love our bench. I mean, whether it's James Corden, Conan, Andy Cone and many others. They're not Howard replacements. They have their own distinct audience, style and demo that they go after. And so we feel pretty good where we stand on that front as we continue to evolve our content and go forward.

Yes. And just back on advertising, we do have an industry-leading set of solutions in programmatic. And I believe, certainly from our perspective, others have not emphasized these solutions quite as much as we have. Our AdsWizz platform has continued to release new technology and solutions to serve this. We remain pretty open in terms of the partnerships that we'll work with, whether it's measurement or targeting on the vendor side, and you really want to make sure that we continue to take that approach going forward as others look at maybe capitalizing on their walled garden. So I think we continue to push for improvements to standards and industry certifications and that provides, I think, the industry overall with better measurement and targeting and certainly what advertisers are looking for. You've heard us talk about clearly Synthetic Voices, we'll have more AI tools there coming this year. We've brought more brand suitability and safety solutions as well. And so I just -- I think we are really well positioned here, Jessica. And it certainly contributed to podcast being up in the first quarter, as Tom mentioned. We also have a lot of other sales solutions in place, like we just launched a relationship with Locked On, and we're building out a sports network offering. Because of the great sports content, we not only have on the podcasting side but on SiriusXM as well in terms of all the play-by-play and commentary we have across the leagues, because we're really the only audio service to bring all those leagues together in one place.

Our next question is from the line of David Joyce with Seaport Research Partners.

And thinking about 360L and the advertising opportunity there, what would you say that what inning are you in, in terms of monetizing via advertisements there? Is this a year where you're more focused on driving up engagement because you've been rolling out the new functionality and then you would seek to monetize it later? Or do you have a view of like what the right ad load is there? Just if you could provide any color on what your marketing strategy there is in terms of pricing versus competitors that sort of thing.

Sure. It's really -- David, it's really early for targeted advertising and 360L. It's really still in its infancy. Of course, we have about little over 3 million self-pay customers on 360L and somewhere around 12 million vehicles on the road so far. And we haven't opened up anything in terms of a free offering or a true ad-supported offering in 360L to a broader audience. But it's certainly something we're looking at. We would want to build ideally more volume, but we are doing some testing this year on a reduced content offering, very limited in terms of the volumes. But that could give us some insights in terms of having fewer channels, but more ad-supported across music and talk. But right now, it's just -- it's really early stages. I mean, I think we do have an opportunity here as the volumes grow to develop and implement more targeted advertising in the 360L platform. But today, it's mostly just broadcast ad. So the real opportunity with 360L continues to be improving the customer experience in the car, providing more personalization opportunities, more control and discovery, just like we're doing in the app. And I'd say the 360L strategy overall is really three prongs, right? It's rolling out in more OEMs, and we continue to have more announcements there. Hopefully, as you've seen, as you've seen with Mercedes, Subaru, we have AAOS in market, which helps with the second piece, which is building feature parity, so that the implementations in market have a full set of features, including in-vehicle messaging, ignition on recommendations, which are really just starting to get in market and low volume. So we're really encouraged about what we can deliver there. And we've launched with AAOS in Ford, Volvo and Nissan and more to come. And then the third part is really about expanding awareness, right? And because we know that the 360L conversion rates are higher than non-360L, but where people actually really understand what the features are and start to use them, they're significantly higher. And of course, the awareness is still pretty low. And that's why building out better personalized marketing capabilities in car which will start to come really in the second half of this year is going to be key to improving that awareness on a personalized basis and then more generally across our marketing campaigns to our in-car customers.

Our next question is from the line of Steven Cahall with Wells Fargo.

Jennifer, I'd love to dig into conversion a little bit. So there's a lot going on in the trial funnels picking up, vehicle churns picking up a little bit. And then it sounds like you maybe have some early improving signs of conversion. I guess my big question is, I think conversion is what you've been trying to solve for with the digital relaunch. What kind of conversion levels do you need on new car and used car to get back to self-pay net add growth over time? And can you give us an update on kind of where you're starting to track towards those target conversion levels? And within that, maybe what you're starting to see with younger first-time car buying cohorts? And then just secondly, on ARPU, are you comfortable raising price at this point for SiriusXM? And is there a meaningful headwind to ARPU from streaming-only subs? Or is that something we need to take too much into consideration for a bit?

Thanks, Steven. So on the first, there are really two pieces. There's conversion rates for our in-car trialers and then there's what I call conversion or post-trial retention for our streaming trialers. And so far this year, we've prioritized the launch of the new platform, which came obviously in December. And since then, we have made significant improvements to the experience, both on the side of current in-car subscribers who are streaming, which is, again, the largest part of our streaming MAUs. And we have had to make some adjustments there to solve for some gaps we had when we first launched, and we've done a series of releases over the last few months to solve many of those concerns on the part of customers and we're back to where we were before generally in terms of listening rates. But the second cohort there obviously is new streaming trialers. And it's a little too early to look at post-trial retention for those early streaming trialers that started in December and January. It's very similar to what we look for on the in-car side of the business where there's a 3-month trial and then there's kind of a maturing phase of a couple of months after to get to a more stable level of retention. And on the streaming side, I'd say we're a couple of months behind. We're probably 2 to 3 months behind in terms of rolling out our fully personalized marketing efforts there. It's taken longer than we expected to sort of build out the full data flows and in that we have a lot of great leading indicators where we've been able to move engagement for low listening cohorts to higher listening levels. We've been able to work within the For You tab in the app to…

And so on ARPU. So basically in Q1, we had $15.36. We had year-over-year increase which is principally driven by last year. We're lapping a period where there was a price increase on the full price plans last March. So we're up a little bit year-over-year. But looking at the full year, we'll continue, obviously, through our pricing and packaging as well as a lot of the other initiatives we have going on. But we overall see ARPU to be slightly down for the year, but it will obviously depend on the streaming mix, the promotional mix and other factors contributing to the calculation.

Yes, that was all incorporated in our guidance, and we talked about that earlier this year. And we've also talked about the fact that this isn't a year where we're raising price and in car pricing and packages, sorry, and would expect to look at that as we go into next year as an opportunity. But we continue to do a lot of testing on the pricing and packaging front for our in-car packages and believe -- continue to believe that there's opportunity to open up more demand at a broader set of prices in our packaging structure.

The next question is from Stephen Laszczyk with Goldman Sachs.

Maybe one for Tom. You executed against $45 million in cost efficiencies in the quarter. Could you perhaps just update us on where you've been able to make the most progress so far? And then as you think about pacing the remaining cost savings coming into the next few quarters, how should we think about that? And then secondly, just a housekeeping one. Is there anything more you can say about the progress or timing of the Liberty transaction closing? Any detail would be great.

Yes. So Stephen, a couple of things. So on the -- yes, Q1, we had about $45 million of savings that we outlined in the script. It's principally been across a variety of areas. Really, what we've been focused on is trying to maintain our EBITDA margin. So we are investing some of the savings back in the business. But in Q1, we did have some optimization around head count and around some of our programming and podcast margins. So the initiatives are continuing on our trend, as we said, $200 million worth of savings this year. We are continuing to reinvest. But net-net, we were happy with our margin being the 30% for Q1, and we're going to continue to look at the cost saving initiatives throughout the year. And as we've said, there's a lot of things going on between the optimization and the transformation we're going through. So that's broadly the $200 million. And then I would just say on the Liberty transaction, the Liberty transaction, I think, is still currently planned for early Q3. We have no update from Denver as far as any change in that. Obviously, there's a lot of moving pieces, but we are trying to get to close as soon as we can.

Yes, I'd just say we're going to update for first quarter financials. So that's part of the process, obviously and factors into the timing. But as Tom said, still expect early Q3.

Our next and final question is from the line of Cameron Mansson-Perrone with Morgan Stanley.

Yes, I wanted to ask on the margin trends at Pandora. Obviously, the strong ad growth helps there. But really, positive gross margin improvement year-over-year. Could you just touch on what's driving those trends, if anything beyond that performance and whether we should expect kind of that magnitude of year-over-year improvement to continue? And then maybe more broadly, just how should we think about the unit economics between the music and off-net businesses today and what the opportunity for each of those is over time?

So Cameron, from the margin, not a lot has changed due to the improvement is us monetizing and leveraging different products out there and putting the ad demand against the corresponding products that would create the best benefit to SiriusXM. But overall, the optimization out there and the cost side is really what's providing the higher margin right now.

Yes. And I don't know that I'm prepared to really talk about margins for -- necessarily in terms of unit economics for on and off platform. But overall, in terms of how we monetize on the ad side of the business, we have very strong RPM on Pandora, which we reported at $91, Tom mentioned earlier, and continue to see really healthy rates there. And I'd say even stronger on the podcasting side of the business as there's a lot of great growth dynamics there, and we continue to look for opportunities to improve sell-through, obviously, and programmatic solutions.

Thanks, everybody, for participating today. We'll speak to you in the coming weeks, of course. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.