Sirius Xm Holdings Inc. Q3 FY2020 Earnings Call

Good morning and welcome to the SiriusXM's Third Quarter 2020 Results Conference Call. Today's conference is being recorded. A question-and-answer session will follow the presentation. At this time, I would like to turn the call over to Hooper Stevens, Senior Vice President of Investor Relations and Finance. Mr. Stevens, please proceed.

Thank you and good morning, everyone. Welcome to SiriusXM’s third quarter 2020 earnings conference call. Today, Jim Meyer, our Chief Executive Officer will be joined by Jennifer Witz, our President of Sales, Marketing, and Operations and our incoming Chief Executive Officer. At the conclusion of our prepared remarks, management will be glad to take your questions. Scott Greenstein, our President and Chief Content Officer will also be available for the Q&A portion of the call. First, 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. We advise listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I would like to advise our listeners that today’s results will include discussions about both actual results and pro forma adjusted results. All discussions of pro forma adjusted operating results assume that the Pandora transaction closed January 1, 2018, and exclude the effects of stock-based compensation and certain purchase price accounting adjustments. I’ll now hand the call to Jim Meyer.

Thanks, Hooper. Good morning. Thank you for joining our call today. My 32nd earnings call as CEO of SiriusXM. It is certainly bittersweet to know this will be my last call as SiriusXM’s CEO. It has been a true honor to lead the outstanding team here. And I’ve enjoyed the fun and sometimes challenging conversations with you on the street. They’ve made us a stronger company. I’m very confident that in Jennifer Witz, our Board has chosen the right leader for the next stage of SiriusXM’s growth. It is also important to acknowledge that Jennifer has a deep bench of talent behind her to help evolve and execute the Company’s strategy over the coming years. Although I’m looking forward to spending more time with my wife and family next year, I’m not quite out to pasture just yet. We have plenty of work to do this year to deliver on our subscriber and financial goals. And I will remain on SiriusXM’s Board as Vice Chairman, continuing to work with Jennifer and the Company wherever and whenever possible. I am deeply proud of our long-term results and will remain highly invested in the Company’s ongoing success. Not only did we resume our practice of providing guidance on our second quarter call, but happily during this third quarter, we’ve now been able to resume what I like even better, increasing that guidance. The positive self-pay additions of 169,000 in the third quarter far exceeded the expectations we formed early during the pandemic. And these results and momentum support our new increased 2020 self-pay subscriber guidance of approximately 800,000, a figure we had already increased earlier last month. Our core subscription business is humming along with low churn, a rising ARPU, and strengthening auto sales, and it’s producing the excellent revenue and cash flow you’ve come to expect. Today, you also see a 46% sequential increase in advertising revenue during the quarter. Put another way, the 34% decline in ad revenue in the second quarter bounced back to a decline of only 6% in the third quarter. In fact, in the month of September, advertising revenue actually increased year-over-year. The business overall has excellent momentum going into year-end. Our new higher guidance now anticipates 2020 revenue, adjusted EBITDA, and free cash flow of approximately $7.85 billion, $2.475 billion, and $1.6 billion, respectively. We are on track for an extraordinary year. And I am very confident in this guidance. The quality and relevance of our programming is at the core of our offering. Our unyielding focus on fantastic new content, new features, and digital product innovation continues to attract listeners at great scale, while also solidifying our relationship in the entertainment industry. First, let me say a few words about how it’s served. Howard tells me he’s never been happier. And our relationship with Howard is very strong. He is producing fantastic content, and his show has never been better. We had very productive conversations regarding a long-term renewal of this agreement. From my perspective, we are far along, but it’s never done until it’s done. I am very confident we will have an agreement soon to announce shortly. Recently, Kevin Hart resigned his exclusive audio deal with us as well, increasing his involvement by heavily investing in new programs for his channel, while also creating a new show and podcast just for SiriusXM, where he will interview top comedians. Our relationship with LeBron and Maverick’s UNINTERRUPTED enabled us to launch content on Pandora from within the NBA bubble. And we added the popular Pat McAfee show to Mad Dog Sports Radio channel. We successfully launched our full-time channel with the members of YouTube. SiriusXM and Pandora have resumed live concerts and events, of course, most of them virtual for now. We’ve resumed live broadcasts of major sports including college football, the NBA, and MLB playoffs, and every NFL game. We’ve also added programming that reflects the important issues in our country, launching Forward Progress, a new show focused on race, society, and sports. We’re covering the election on a wide number of channels, from every perspective, right, left, and center. On November 3rd, many of our own channels like POTUS, Urban View, Patriot, and others will go live with 24/7 coverage. We continue to work with major media brands who look to SiriusXM to extend their reach in audio. We expanded our CNN relationship with the launch of a full-time streaming channel, CNN Originals, which compiles some of the best documentary work of CNN and HLN. Pandora’s new innovative feature Modes continues to grow in popularity, with user adoption increasing 60% since last quarter. Modes provides a different way to curate your music as we advertised during the NBA playoffs with a Tip-Off Mode, where the music is geared to the anticipation of the game. We find that listeners who use Modes spend an average of 7% more time on Pandora than non-users. So, expect more focus around Modes, including a timely Halloween Party Mode. As you can tell, there is tremendous energy in our content creation and digital product development. SiriusXM really is a unique service. We truly believe that people, personnel, and curation matter, live matters, especially in sports and news. While we will give consumers more choices, more personalization, and more on-demand content, live podcasts, SiriusXM subscribers will always enjoy an experience that is part community—an experience that is happening right now everywhere that we all can share. With that, I’m pleased to turn the call over to our next Chief Executive Officer of SiriusXM, Jennifer Witz, for some more color on our operations.

Thank you, Jim. It is a privilege to have spent much of my career with an outstanding leader who trusted team members to take big risks, own big decisions, and relentlessly focus on the growth of the Company. Jim has fostered an environment at SiriusXM where expectations are high, integrity is paramount, and everyone, from junior employees to senior executives, is expected to follow through 100% on their commitment. I intend to continue this culture of excellence at SiriusXM in the years to come. I joined SiriusXM nearly the same month the Company gained its first subscriber back in 2002. Leaving Viacom, I wanted to join an entrepreneurial growth company with a vision to create an entirely new industry and consumer experience. I’m a Brooklyn resident; I’ve always loved music, and nothing thrills me more than attending one of our exclusive subscriber events, such as a special set in the SiriusXM studios by someone like the incredibly talented Taylor Swift. I knew from day one at Sirius that our special blend of unique and curated content would be the heart of our value proposition. We will always nurture, invest in, and deliver the best possible content to our subscribers and listeners. Even today, when most of us are at home, it is a true pleasure to see the unmatched opportunities we create for our subscribers to connect with the artists and talents they love. Scott Greenstein and his team have done an excellent job in building our content offering. We have a deep root of talent across our organization to help support our mission of continued growth and consistent execution. We also value new insights and perspectives, and I’m very pleased to be welcoming Sean Sullivan next week as our new Chief Financial Officer. During the third quarter, we faced dramatically fewer conversion opportunities than we originally modeled earlier this year. Stay-at-home orders sharply reduced second quarter auto sales and the associated three-month trials. Despite this, the quick recovery in our conversion rates to near pre-COVID levels, steady churn of just 1.7%, and strong performance in channels like win-back produced 169,000 SiriusXM self-pay net adds. Our new subscriber guidance, now twice raised since we resumed guidance this summer, implies that we will finish the year with self-pay net additions close to 90% of what we originally projected in January 2020, an extraordinary performance in this year’s environment. This third quarter saw our best third quarter churn in more than a decade and put us on track to potentially have the fourth consecutive year of declining churn. We achieved this with solid ARPU gains of 2% in the quarter, and in fact, the subscription component of our ARPU grew closer to 3%. Rebounding auto sales, combined with rising penetration rates means trial starts are bouncing back too, which sets us up well for the fourth quarter and for next year. Combined new and used car trial starts in the third quarter were actually up slightly year-over-year, with the full quarter SAR at 15.3 million, down 10% from the third quarter of last year. SiriusXM outperformed these numbers, given the relative strength of consumer versus fleet sales, combined with our rising new car penetration rate, which reached approximately 78% in the quarter, up from 72% a year ago. Strengthening and extending our OEM relationships has been one of my key goals during my time as President of the Company. Since the start of the third quarter, we’ve completed new expanded agreements with GM and BMW. We continue to expect these and other OEM agreements to push our factory penetration to 80% in the next few months, and even a touch beyond that in the years to come. We have also made the incorporation of 360L, our upgradable next-generation platform, a focus of these agreements, in order to provide the best possible consumer experience in future vehicles. The combination of satellite broadcast and streaming enables us to deliver vastly more content that is more personalized, with a better interface, improving the efficiency and effectiveness of our marketing. I’m very pleased that 360L has become the plan of record with every major OEM. We expect 360L will quickly grow to more than half of our new enabled vehicle sales in the next few years. The long-tail opportunity in used cars rises because of our success in new cars and continues to represent a growing source of additions to the business. This year, used car penetration is up about 400 basis points to almost half of all used cars sold in America. The tail of growth in used cars has lengthened due to our still rising new car penetration rate. One of our central goals in recent years has been to improve the SiriusXM streaming offering, drive out-of-car engagement among existing subscribers, and acquire streaming-only subscribers who may not have a need for an in-car subscription. I can report steady progress and traction on all three of these fronts. By constantly improving our streaming app and making streaming a part of our base package for most subscribers last year, we were able to meet a greater need for streaming, while much of the country was locked down earlier this year. That was a silver lining of the pandemic. The stream free promotion we ran earlier this year also resonated with Gen X and younger generations. We’ve recently expanded our agreement with the NFL to include additional streaming rights this season, so that our customers with the streaming-only SiriusXM premier subscription get every NFL game as well as our exclusive SiriusXM NFL radio channel. This makes our streaming-only package that much more attractive. This is just one example of how we are working to ensure that our vast content resources are thoughtfully utilized across our various direct-to-consumer platforms. As we look to the benefits of our Stitcher acquisition, the closing of which we just announced on Monday, not only do we gain greater exposure to podcasting, the fastest growing segment of audio entertainment, but we hope to introduce Stitcher podcasts and their creators to a wider audience through our Pandora and SiriusXM platforms. Our platforms only become more attractive by highlighting this fantastic content and making it easier to access. Jim spoke about the quick rebound in our advertising revenue, and short-term considerations aside, we are assembling a powerful suite of audio advertising products across our platforms. The acquisitions of Stitcher and Simplecast complement our leading ad tech and digital audio sales capabilities, AdsWizz and Pandora. We now reach more than 150 million listeners across our combined properties with commercial relationships in every category of audio, representing music, sports, talk, and podcasts. We intend to use our technology and sales capabilities combined with this tremendous multiplatform reach to enable easy and efficient monetization opportunities for content creators and audience targeting opportunities for advertisers. We are the leader in North American digital audio advertising, and this position is only getting stronger. We continue pursuing all of these long-term goals and delivering on our increased guidance this year during an unprecedented environment for all of our employees. From working at home, dealing with unexpected childcare challenges, and in some cases, even worrying about one’s own health or the health of a relative, this year has been like no other. Yet day in and day out, we continue our excellent performance. For that, I would like to thank all of our dedicated employees. I also want to take this moment to thank Jim for everything he has done to build this Company and for his incredible leadership as our CEO over the past eight years. With that, I’ll turn it back to Jim for some final remarks.

Thanks very much, Jennifer. Since Sean is starting on Monday, I’ll just make a few brief remarks on capital returns and the balance sheet. After suspending our share repurchases in March and buying back about $165 million of our shares in the second quarter, we increased the pace of our share repurchases in the third quarter to $486 million. Through September, year-to-date capital returns including dividends totaled nearly $1.1 billion, and we committed $428 million of additional capital to fund our acquisitions of Stitcher, Simplecast, and our investment in SoundCloud. We still expect to pay no federal cash taxes this year, and a relatively small amount in 2021. We estimate CapEx this year in the range of $330 million, with the launch of SiriusXM 7 still expected later this year, and the launch of SiriusXM 8 in the first half of 2021. At the end of the third quarter, our net debt to trailing 12-month adjusted EBITDA ratio was 3.1 times. Our $1.75 billion revolving credit facility was completely undrawn and fully available. Our capital allocation and leverage targets remain unchanged, and we expect to continue our share repurchases in the final months of this year. Jennifer and I feel excellent about the increased subscriber and financial guidance we’ve given you. With that, Operator, let’s open it up for Q&A.

Thank you. We can take our first question from Sebastiano Petti of JP Morgan. Please go ahead.

Thanks for taking the question. Congratulations Jennifer on the new role, and Jim good luck to you as you move on to the next stage of your career. I just have a question thinking through some of the extensions that you talked about in the quarter, whether it be BMW, GM, but also 360L. There’s a penetration rate of 80% next quarter and above that longer term. You touched on your revised 2020 self-pay net add guide, which is not too far off the 90% of where you started at the beginning of the year. With the penetration rate rising, perhaps some pickup in vehicle-related churn continues depending upon the economic activity. But putting it all together, as penetration goes higher, perhaps the economy doesn’t go into a double dip here. How should we think about 2021 self-pay net adds? What are the different pieces that probably add up to where 2021 can shake out relative to where 2020 and 2019 levels did?

First, thank you very much for your kind words. Obviously, we’re not going to give you our 2021 self-pay guidance yet, but I would expect we will give it to you early next year. But, I think things are shaping up certainly better than we would have expected six months ago. I’ll let Jennifer comment in a moment on particularly our new OEM agreements. For investors who are in our stock for the mid-term and the long-term, these OEM agreements that have just been completed, are a really strong foundation in our growth story. You’re right, auto sales will cycle up and down. We don’t really have anything to do with that. But when you think about those kinds of penetration rates, lay them out over the next five years, and then take the residual used cars that come behind it with the same kinds of penetration, it really is an outstanding funnel for trials. I think it bodes very well for growth going forward. Jennifer, would you like to comment on the OEM agreements?

Yes. We have announced a number of extensions over the past several months and more recently strong agreements with GM and BMW that continue to bolster that penetration rate. Like we said, we are confident in hitting the 80% in the next few months. It’s always subject to new model year releases. But we have line of sight to even seeing that 80% pickup into next year. Of course, an increasing number of those vehicles will be equipped with 360L. We are on track to hit the 1.4 million enabled vehicles with 360L by the end of this year. We’ve said we expect that to triple going into next year. Today, I mentioned that in terms of the percentage of our enabled new car sales, we expect to see 50% of them be 360L capable in the next few years. That will just continue to expand. The relationship we have with the OEMs has never been stronger. The new technologies we’re putting into these cars with the OEM give us incredible flexibility in terms of the nature of the content that we can distribute, with unlimited bandwidth, as well as more personalized capabilities and more interactive features. I think we’re really well positioned. Yes, that will continue to be a tailwind for us going into next year.

Certainly, Jennifer, you’ve spent some time on the digital audio assets, which Sirius has compiled, whether it be with Pandora and AdsWizz, as well as Stitcher and Simplecast acquisitions. At recent conferences, you talked about getting that business up to about $2 billion over the next several years or even 20% of the larger overall business. What are the biggest pieces to get to that level? What makes you kind of go right, or what do you see as the maybe low-hanging fruit over the next several years? Thank you so much.

So, we’re off to what I would consider some good momentum. There are three or four key pieces, and I’ll comment on them. I’ll start with the negative, which is we still continue to battle the declining listener base in our Pandora listener base. With that said, it is still by far the largest listener base in the U.S. market. We’re working really hard on that problem. But offsetting that is that we have seen increased engagement by listeners within the Pandora funnel, which helps our listening hours. I think we’re also looking at investments in content and ways to bring certain types of innovative things we’ve done in SiriusXM over to the Pandora platform to help with the earnings decline. Another point that I think is a good tailwind for us is that our monetization per unit of ad is increasing. Without getting into the specifics of the different types of ads, when you average all those out, we’re seeing increased monetization per unit. Our relationship with SoundCloud has worked out great for us, in terms of bolstering our advertising revenue by being their agent for all their advertising sales in the U.S. We’re working on more of these types of arrangements. You’ll see shortly that Jennifer announced her new organization that will be in place at the beginning of the year, and within that, she has combined all our advertising sales under one organization. I believe 1 plus 1 is going to end up giving us more than 2. This is an area both of us are quite focused on and I believe is fertile for growth. The ad technology area is one we’re spending quite a bit of time on right now, making sure we understand what the right play is there. But there’s no doubt in my mind that there is a play there. I certainly don’t believe that growing this to $2 billion is unrealistic at all.

Yes. Jim, if I could, I think it’s really three pieces. We’ve added Simplecast hosting and analytics tools, primarily for podcasters, into our AdsWizz platform, which already is a leading ad insertion order-to-buy platform. Combined with that, our massive sales force, which we’ve had for over 10 years under John Trimble, gives us a scaled platform to continue positioning ourselves as a leading digital audio ad sales platform for any media brand. That combination of technology and sales capabilities really positions us well in the space.

Next question is from Jessica Reif Ehrlich of Bank of America Securities. Please go ahead.

Thank you. I’ve got a couple of questions. First, given how strong churn has been for a number of years, how do you balance continued subscriber growth, extremely low churn, and surprisingly low numbers versus raising ARPU and raising prices?

Jennifer, do you want to take that one, or do you want to make a comment first? Why don’t you start and I’ll jump in.

Sure. Jess, we have a long history, as you know, of balancing overall revenue growth between subscriber growth and ARPU growth. That is how we look at it in terms of overall revenue growth. We have a lot of opportunity to continue relooking at our packaging structure. We have expanding consumer demand, both at the high end and the low end to capture. We continue to look at that and modify it. But, to your point, churn has really never been lower, and it’s been a real bright spot over the last several months. We see every component of churn in terms of its positive contribution. On the voluntary side, we continue to execute across the board, and the team is doing a great job, even especially earlier this year when we struggled with call center operations and staffing. On the non-pay side, it’s surprising how low our non-paid churn is, especially on credit card and debit card part entry rates. We believe, as we’ve said before, that this is really tied to lower consumer spending and higher savings levels. We’ll see what happens as that turns around. On the vehicle sales side, churn related to that and vehicle-related, as we see trials grow and rebound, we’ve started to see an increase. It’s still down year-over-year. All three components of churn have been exceptional, and we don’t see a material change in that. We expect to be around this 1.7%, balancing that obviously with the pricing structure we have in place and expect to continue to do that.

It’s a great question because it’s one that we debate quite often, as you can imagine—not debate, but discuss quite often. My conclusion is that based on the churn rates we’re seeing and all that’s going on right now that Jennifer referenced, for instance, in packaging work as you project out over the next three to five years, there’s no doubt in my mind that we can continue to grow self-pay subscribers and continue to grow ARPU at the same time.

I have two other topics. One is content, and one is advertising. On content, you brought up Howard Stern, so hopefully, it’s fair game. Can you give us some color on what you’re looking for in the next contract, in terms of length of contracts and maybe the kind of the terms? The last one included the library, I think, 12 years. Does that get extended for another 12, or do you move out that contract? Can you give us an update on the Drake relationship? How will that evolve? What should we expect?

Yes. Any question you ask is fair, number one. I’m only going to answer part of it right now. I’ll take Howard, and then I’ll ask Scott to comment on Drake. On Howard discussions, I’d rather wait for some specifics until the deal is done. But, I can tell you that where we are in the discussions today, we have a set of economics that Howard’s team is happy with, and I’m happy with. We’ve got to get the deal completed. It would certainly be a long-term arrangement we contemplate. Stay tuned, there will be more to say soon. Scott, can you comment on Drake, please?

Sure. A couple of things. Like most artists, Drake wants to time the release of the channel and some of the things we’re going to do with Sirius and Pandora with the release of his album. You look at the landscape, the climate, everything else, and we want to pick the shot that we feel will best reach your audience when he drops his music. He’s been working with us on a few singles. We’re in regular contact with him and his management team. We have most of our assets already built. We’re in discussions on some marketing ideas, and we’re really confident that as soon as he announces the release date of his album, which I anticipate to be soon, we’ll be ready to go with it. We’re going to have some really interesting content, including a unique channel that will carry his imprint, as well as things on Pandora in the playlist category that I think will surprise people.

Looks like a different category. Lastly, for Jennifer, it’s maybe your part on advertising. Who do you view as your biggest competition in digital audio? What was the driver of advertising in September, where it was finally positive? Is that continuing into the fourth quarter?

Let me take this one. First and foremost, we have multiple competitors, and it’s not just about audio dollars. I’ve had the pleasure of going on a couple of sales calls with our digital audio sales force, including Procter & Gamble, and I’ve learned that the way they manage their media is quite sophisticated and across several channels, which they let compete with each other as they allocate their budgets. Within our space, particularly, we see quite a bit from iHeart and Spotify. I’m happy to say we’re doing quite well in both of those areas. The reason I included the comment about September in my remarks is because I believe that in the fourth quarter, we should continue to see that kind of momentum. It’s early still. We’ve got nine weeks left in the quarter. October and a few days of November have political advertising, which will drop off rapidly afterward. However, outside of political ads, our ad market is quite robust right now, and I’ll be disappointed if we’re unable to keep it flat or slightly up versus last year in the fourth quarter.

We can now take our next question from Ben Swinburne of Morgan Stanley. Please go ahead.

Thank you. Jim, congrats on retirement, and I’m sure you’ll be missed more than you’ll miss us. Please do stay in touch and stop by Liberty Investor Day whenever you can. Both of you have been at the Company for a long time and have seen various investment cycles. I was wondering if you could help us think about the next 3 to 5 years on that front. The thing that’s attractive about the business is the locked-in music costs, maintaining around 60% gross margins from the satellite business for the past eight years. However, the market is concerned, particularly around Spotify, Apple, and others pouring money into the space, about rising content costs beyond music. From your perspectives, how do you see capital investment and the cost of content changing moving forward? I'd love to hear from Jennifer and Scott as well regarding managing relationships with the artist and talk communities, and whether you think the business will enter a period of heavier investment than we’ve seen in the past?

I don’t think the competition is any more intense today than it’s been for the last 10 years. I see a whole lot more of what we’ve seen in the past. I don’t sense, and I’ll let Scott comment in a moment, that it has ramped up as much as I read in many reports. There’s always been high demand for extraordinary content. We’re committed to offer extraordinary content on our platforms. I’ll bet on our track record every day, as we have a proven record of managing extraordinary content within acceptable cost parameters. I believe both Scott and I, and Jennifer knows exactly what it means to overpay for content—we’ve bought and paid for those lessons. I think the issue remains the same, which is there’s so much extraordinary content. The real challenge is how to filter through it and decide which content to invest in, and getting that content in front of users to experience it. We’re working hard on that particular iteration to improve our processes. I’m not as worried as some of the comments indicate. I would like to add that I think the streaming issue is somewhat overblown. Streaming has huge potential, but if you look back at the last few years, the download business has declined, offsetting the growth of streaming. The net result is probably not as big as assumed. Free radio continues to capture a significant share of the audio market, indicating there’s still room to grow. We will take market share by providing a better product. So, the risk for me is with terrestrial radio.

When you consider the two pillars of our content structure, curation and talent, Jim mentioned how crucial curation is in the content wars. Talent and brands matter to the audience. At some point, as we are now, there are so many factors in content selection, curation is key. The tools we have for music, podcasts, and other formats give us the ability to serve unique, tailored content based on user preferences. As for costs and trends, bidding wars have existed; there has always been competition on price. We do not generally lose when we find a medium based on price. The track record of artists and brands that work with us supports our content production, and we do our best to ensure that our investments are made wisely.

Could I just ask one follow-up? That’s very helpful. You’ve made some intriguing investments in the podcasting side. When you look at Simplecast plus Stitcher, do you now have more to offer the content creator community on the podcasting side? To this conversation on content wars, does that add something to your offering, or am I thinking about it too much?

I’d say you’re spot on. I’ve had conversations with major stars recently, and what attracts them is the flexibility. If something is topical, they can do a radio show, or if their schedules are busy, they can switch to Stitcher and podcast, or utilize Pandora for music. We’re approaching content creators with a spectrum that fits their lifestyles. More importantly, we have dual monetization opportunities—something monetized on Sirius could also be represented on Stitcher as a podcast and on Pandora as a playlist. While costs may go up, we now have superior monetization tools that we didn’t have five years ago. I’m excited for the journey ahead with Stitcher together.

We can now take our next question from Kannan Venkateshwar of Barclays. Please go ahead.

For Jennifer, Sirius is in a structurally different market than it was before. It’s more saturated and connected to devices in the car. Do you think you need to do anything differently from here? What’s the biggest growth opportunity from here? What’s the biggest threat that you need to address?

Go ahead, Jennifer.

I didn’t catch your name. Just in terms of the changing landscape, we are doing something differently. We have an incredible position in the car with distribution. 360L just opens up many new opportunities for us. It broadens the volume of content we can deliver and personalizes it for the customer. Curation is key, as Scott and Jim discussed; we can take data from our listener base to enhance recommendations. This helps convert our trials and retain our customers. I think we’re doing different things already, and they will continue to expand. As for opportunities, we still have growth in our core product set on SiriusXM, inside and outside of cars. Additionally, we continue to invest in our streaming offering as we previously discussed. Growth potential exists there, but we have not built our out-of-car streaming standalone business yet to levels needed for growth. You’ll see us improving our apps and adding more content there on the SiriusXM side. We’ve talked about our ad sales platform, and there’s more to come, although we haven’t quantified that yet. I see that as a second growth opportunity.

I want to add that I’m not concerned at all about our acquisition engines. If you ask what keeps you awake at night or what worries me, it’s retention. That’s why we spend so much time and effort on those aspects. If you see a competitive threat, that’s where it comes from. However, we understand the streaming business better post-Pandora. We understand the free and premium markets, consumer behavior, and what technology investments are needed to deliver competitive products. Now that we’ve absorbed these insights, expect more effort in distribution and streaming from us moving forward.

We will take our next and final question from Steve Cahall of Wells Fargo. Please go ahead.

First, on penetration and conversion. I think BMW and Toyota are the biggest drivers of the increase in penetration. If that’s right, my guess is Toyota is probably a drag on conversion, but BMW might be a tailwind. Could you help us think through conversion as we get this increase in penetration over the next couple of years? Secondly, Jennifer, I wanted to ask you a strategic question. It makes sense how all the digital platforms work for content creators and the advertising community. I’m curious how you think about the consumer proposition because now you’ve got Stitcher, SoundCloud, and Pandora. That’s a lot of different things. Are we going to be able to use all that in one integrated service going forward, or will you keep separate pieces for consumers?

Hey Jennifer, I think both of those questions belong to you.

On the penetration and conversion, we did announce that Toyota will be ramping to 100%, which is ongoing now. You’re correct that you’ll see that driving up the penetration towards 80% and beyond. I’m not sure where BMW is currently, but there are offsets between the different brands. Overall, we expect our conversion rates to stay in the high 30s, as they have. There are balances because a higher penetration rate often puts pressure on conversion rates, but the overall result is that we’re bringing more subscribers into the platform, which is good for the business. There are tailwinds in conversion rates that help offset that. We’ll see how those dynamics play out next year, but I feel comfortable with conversion rates in the high 30s. As for the strategic question, we’re still working through how to bring Pandora into the car. There are instances where Pandora stations fit into our 360L implementation. We plan to continue to do that to provide more value to our in-car subscribers; the Pandora brand means a lot there. Our customer base understands the capabilities that it brings. We’re exploring ways to integrate SiriusXM and Pandora, but we’re not looking to do anything in the near-term. We’ll test some ideas, but our main focus for Pandora right now is in mobile because there is growing usage in-car through CarPlay, Android Auto, and other streaming services. There are opportunities, and we’re not ready to discuss them publicly now, but investments will be made to consider ways to bring SiriusXM and Pandora closer together.

Thanks, everybody. Thank you, Steve. Thank you, everyone, for participating. We’ll speak to you early next year. Thank you. Bye, bye.

Thank you.