Sirius Xm Holdings Inc. Q3 FY2022 Earnings Call

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 a percentage of new SiriusXM-enabled vehicles compared to the end of 2021. We are also pleased with the progress we have seen with EV start-ups. In the coming months, SiriusXM will be available for the first time in Lucid's full lineup of electric vehicles. Announced yesterday, all Lucid customers will receive an over-the-air update in the coming months, launching a free beta version of SiriusXM. When the full SiriusXM experience debuted later in 2023, customers will move into our standard trial subscription funnel. While initial volumes will be relatively small, the Lucid beta provides an exciting opportunity to test enhanced capabilities and new solutions to drive forward the in-vehicle audio entertainment experience. This past year, our focus on opening new distribution channels has led to continuous broadening of our acquisition funnel, particularly on the streaming side of our business, which continues to see strong performance and is expected to be the majority of our subscriber growth this year. While our streaming business is still at an early stage, we are investing in building out the experience and our capabilities in anticipation that it will become a much more significant part of our subscriber mix in the near future, even as auto sales rebound over time. Streaming also remains an important part of our value proposition for our in-car subscribers. We are also expanding beyond our historical demographics, identifying growth segments that comprise an additional quarter of the U.S. population. These growth segments are younger, more diverse and willing to pay for multiple streams of audio entertainment. We have found that many additional consumers find the premium music and non-music content that only SiriusXM offers attractive and we are working to scale in these segments. To help showcase our offering, this past quarter, we launched the second installment of our national ad campaign, the Home of SiriusXM, highlighting several content categories such as comedy, sports, lifestyle podcasts and multiple music genres. The new spots feature talent, including Conan O'Brien, 2 Chainz and Alacare, showcasing the diversity of content on SiriusXM that appeals to a multigenerational audience. The national ad campaign, coupled with the return of the NFL this fall, contributed to one of our biggest acquisition months to date on the streaming side. We are working hard to improve the consumer experience in and out of the vehicle. This past quarter, our product and technology team drove several vital improvements to our core consumer listening experiences, most notably with advancements in our content personalization technology leveraged across both Pandora and SiriusXM. Pandora's personalized music experience has long been driven by our proprietary algorithms that continually learn from past user behavior, enabling Pandora to deliver music catered to each user's taste and preferences. Recently, we've made algorithm improvements that include scaling up our model and adding more signals derived from listener interactions with songs and artists. On the SiriusXM side, we made several in-vehicle personalization improvements to our 360L product, including the introduction of data-driven music and talk recommendations on 4U TAB, which has helped drive double-digit increases in listener click-through rates. We also made enhancements to the 360L user interface that has significantly increased engagement and discovery of new content, including One Touch access to Pandora artist stations from SiriusXM's Now Playing screen. The update is live in select 2023 GM vehicles and will launch with more OEMs next year. Last week, we rolled out an updated version of SiriusXM on Apple's CarPlay with redesigned navigation, new recommendation carousels and several new design enhancements. An upgraded SiriusXM experience on Android Auto should ship in the coming months. Later this year, we also plan to update our core SXM mobile app for iOS and Android with a design refresh that will enhance navigation and streamline content discovery. The updated personalized carousels will ease listeners' quick access to a wide range of personalized recommendations, and the update will include visual enhancements like the new dark mode theme. These are just the start of a series of improvements in the SiriusXM products that we will be making in the coming months. In addition to the product enhancements, we continue to broaden our content in music, comedy and sports to draw in streaming subscribers that are younger and more diverse. This audience segment tends to over-index on fandom for music artists and other celebrity talent. We see a real opportunity to highlight the intimate connections and unique artist experiences that we have built our brand on over the past two decades. This past quarter saw launches of new artist shows, channels and special events. For example, 6-time Grammy Award-winning singer-songwriter Brandi Carlile, launched her new show, Somewhere Over The Radio on the Spectrum, where Brandi engages in candid conversations with guests from the LGBTQ community and their allies. The launch of The Chicks Channel, a limited-run channel celebrating the music of the 13-time Grammy winners was another great example of our curated artist experiences. And the channel provided a great promotional vehicle for the artists to connect with fans across the country while they were on tour this summer. Turning to our small-stage series, we hosted two iconic bands at the Apollo Theater in New York City this quarter, Pearl Jam and the Red Hot Chili Peppers. Ology performed for us in Philadelphia, John Legend in Los Angeles, and earlier this month, we hosted Lizzo in her hometown of Detroit. These incredible experiences continue to prove a valuable and unique subscriber benefit with our Enter to Win campaigns reaching record highs, while promotions through dedicated pop-up channels rebroadcast across our most popular stations and other on-demand content in the SXM app contributed to a 22% year-over-year lift in on-demand listening. The third quarter also saw a strong performance in our sports category. SiriusXM remains an essential unmatched subscription for sports fans, offering more live games and events to listeners in North America on one platform with one subscription than anyone else in audio. We recently extended our NFL agreement as the exclusive third-party audio broadcaster of every NFL game, and we continue to cover sports underserved by other outlets. Sports have a proven appeal to new subscribers with trialists who listen to sports channels converting to paid subscribers at a higher rate and one subscribed sticking around with higher retention rates. We know there is more opportunity to capture audio share on this front, and we recently launched our first-ever, fully dedicated sports campaign to increase awareness. Lastly, we remain incredibly bullish on the broader entertainment, political and news talk audio ecosystem that we are continually cultivating. As part of our election coverage, Crooked Media's top-ranked podcasts have taken over the SiriusXM Progress channel's weekend lineup leading up to this month's midterm elections. This special programming includes recordings of Pod Save America taped in front of live audiences at SiriusXM's L.A. garage studios. SiriusXM subscribers also had exclusive early access to a Pod Save America interview with former President Barack Obama. And we will soon be launching a full-time original Team Coco comedy channel available only to SiriusXM subscribers, tapping into the large-scale fandom behind his popular podcast, Conan O'Brien Needs a Friend. Our unique broadcast strategy sets us apart in the marketplace as we can monetize efficiently through Off-Platform distribution and give advertisers and creators something they want most, tremendous audience reach across all platforms while also offering creators unique access to the exclusive and live audience of SiriusXM. Today, we touch over 150 million listeners, including SiriusXM, Pandora, SoundCloud and our broader podcast and off-platform ad network. Having the best content and talent in podcasting makes us the leader in digital audio advertising. We have more shows in Edison's Top 25 Podcast rankings than any other network, with Prime Junky, Office Ladies, Dateline NBC, Pod Save America and Conan O'Brien Needs a Friend continually making the chart. In the third quarter, we added ad representation and distribution agreements with the School of Greatness and the Mel Robbins podcast. Capitalizing on the growth we are seeing in podcasting, SXM Media recently deployed new ad products to give brands more automated and efficient ways to buy advertising at scale. Our new Podcast Everywhere Solution allows brands to reach their audience wherever they're listening, and our Podcast Select product gives advertisers better control over audience targeting. Revenue from these two solutions, plus Podcast Programmatic, meaningfully increased compared to a year ago, and we saw more than 250 additional advertisers leveraging network solutions such as these versus Q3 last year. We expect continued uncertainty around macro factors and recessionary trends impacting the broader economy in the coming months to dampen the digital audio ad market, but we are encouraged by the early response to these foundational drivers of our SXM Media business. We are closing the year with momentum in our vehicle distribution, new product and technology enhancements and an exciting pipeline of fresh content, including the launch of Team Coco's channel and next week's special event with Grammy award-winning hip-hop artist Drake live at the Apollo. The announcement of an exclusive show for SiriusXM led to record-breaking downloads of the SXM app in the days that followed, and we are incredibly excited to share Drake's performance next week with listeners. To wrap up, despite some uncertainty in the macro environment, we continue to pursue all avenues of opportunity to build long-term and sustainable value for our business and remain equally committed to delivering consumers the best and most comprehensive choice in premium audio content. I am confident we have taken appropriate actions to finish the year strong. I'm excited and energized by the momentum of our business and organization and the culture of progress at SiriusXM. And with that, I'll turn it over to Sean.

Thank you, Jennifer, and good morning, everyone. Starting with a recap of the third quarter financials, revenue was up 4% in the quarter to $2.28 billion. Within that, advertising revenue was up 1% to $457 million, while subscription revenue climbed 4% to $1.7 billion. Adjusted EBITDA was flat at $720 million as we continue to make material investments in sales, marketing, content and product development. During the quarter, we booked $69 million of one-time charges, reflecting costs 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 one-time restructuring costs. We generated $329 million of free cash flow during the third quarter, down year-over-year, as the third quarter of 2021 benefited from $208 million of satellite insurance recoveries. In 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 at investor conferences in September, a combination of years of improving churn and successful used car and win-back programs means that we have more subscribers on our low-band spectrum today than we might have thought a few years ago. So this constellation refresh signals our commitment to maintaining premium services on our low-band spectrum and will also give us options to create new revenue streams on this portion of our spectrum over the long term. Turning to our operating segments. At SiriusXM, total revenue in the third quarter increased 5% to $1.7 billion, driven by a 6% increase in ARPU to a record $15.72, which includes a 6% advertising growth rate on the SiriusXM platform, combined with a larger self-pay subscriber base compared to the prior year period, partially offset by lower paid trial subscribers. As Jennifer mentioned, SiriusXM's net self-pay subscriber growth in the quarter was an outstanding 187,000, boosted by trial funnel growth in the second quarter, leading to increased conversion opportunities combined with growth in our streaming-only subscriber base. During the third quarter, SiriusXM's new and used car trial starts were both down 4% sequentially as auto industry sales continue to remain soft and vehicle prices remain near record highs. Analysts largely expect this to continue. Since May, the consensus 2023 SAAR estimate has fallen from 16.6 million to 14.8 million. We anticipate that continued softness will impact the trial funnel and self-pay net adds into Q4 and into next year. Gross profit in the SiriusXM segment climbed 6% to $1.08 billion, representing a gross margin of 62%, a point higher than last year's third quarter. In our Pandora and Off-Platform segment, third quarter advertising revenue of $407 million was a slight increase versus last year, and Pandora's ad revenue per 1,000 hours of $103 declined slightly from $109 in the third quarter of 2021. During the quarter, our Podcasting and Off-Platform generated $123 million in total revenue, an increase of 37% year-over-year. Non-Pandora ad revenue was about 38% of the company's total ad revenue during the quarter, and we expect this to continue growing over time. This past quarter, we saw growth in political advertising in restaurants, travel and tech have all been strong categories for us. Pharma, entertainment, telecoms and financial services have shown more weakness in recent months. Gross profit in the Pandora and Off-Platform segment declined 12% to $173 million, representing a 32% gross margin. The margin decrease in the third quarter of 2021 is mostly due to investments we are making in new podcasting content, and we expect the margin profile of these new advertising representation deals to improve over time. Today, we reiterate our existing financial guidance for 2022, revenue of approximately $9 billion, adjusted EBITDA of roughly $2.8 billion and free cash flow of about $1.55 billion. Given the macro outlook and headwinds in the advertising market, we remain focused on cost discipline across the organization, and we expect that to continue in 2023. That discipline will be important given the CPI adjustments to some of our streaming royalties and the expiration of our discounted 2015 rates or pre-1972 content will produce an increase in music royalty costs next year. On the capital allocation front, we returned $262 million to stockholders in the third quarter with $176 million of share repurchases and $86 million in dividends, bringing year-to-date capital returns to roughly $1.84 billion. We are very pleased to announce a further 10% increase in our recurring dividend on top of last year's 50% increase. This marks the sixth year in a row of double-digit increases to our dividend. We ended the third quarter at 3.5x net debt-to-EBITDA within the low to mid-3s range we previously articulated. Our balance sheet remains exceptionally well positioned with limited near-term maturities and roughly $1.4 billion of liquidity available at the end of September via cash and undrawn revolver capacity. We have significant capacity to continue investing in the business, evaluating strategic opportunities and to continue returning capital to our stockholders. With that, operator, let's open it up to Q&A.

We now take our first question from Ben Swinburne at Morgan Stanley.

Maybe two questions. One, maybe for Jennifer, on digital subscribers, which seem to 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?

Thank you, Ben. First, regarding satellite versus streaming subscribers, the unit economics we previously discussed differ significantly in terms of the initial cost to acquire a subscriber. As you're aware from your experience with our business, the satellite model involves upfront subscriber acquisition costs that do not necessarily correlate with actual subscriber creation. Conversely, the streaming side relies heavily on marketing expenses, whether through partnerships or direct marketing performance media, which can vary based on market conditions. We are keenly focused on the cost per trial in relation to the lifetime value of these subscribers. Consequently, the dynamics may change from quarter to quarter, depending on the volume of automotive trials during that period. The number of subscribers we gain will be influenced by our market investment strategies. Our marketing expenditures for streaming trials are becoming more efficient. Recently, we've benefitted from general advertising trends, allowing us to obtain better rates. Additionally, we're continuously learning which marketing channels perform best for us and optimizing our efforts accordingly. The economic margins, as we've noted previously, remain fairly steady. While they are not significantly impacting our overall gross margin at this moment, we’ve previously indicated that our streaming prices are lower compared to satellite, yet the actual margin percentages are relatively similar.

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 expires at 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 churn at this level, at this low level, does it imply that there's 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 mention on the call more targeting. And then just last, just a clarification, but what are your subs from streaming only?

Okay. I could address a couple of those points. Starting with churn, I continue to be impressed by how low our churn rate has been. We haven't observed any significant negative effects on non-paying or canceled demand on the voluntary side that would suggest any concerns about consumer health. Our non-paying voluntary churn continues to hover around the 1% to 1.1% range, which is very strong. I attribute this to the improvements we've made in our streaming products. More satellite subscribers are listening outside of their cars, which continues to enhance engagement among those subscribers. We expect vehicle-related engagement to rise as the auto trial or funnel gradually recovers, potentially affecting churn positively. We are very satisfied with our position regarding non-pay and voluntary churn, and I believe this presents us with opportunities for pricing adjustments. We have already implemented a rate increase last fall that will take effect this year, and as we look ahead to next year, we will reassess our rates. We've consistently increased prices over time; for example, we launched these services two decades ago at a $10 price point, and our primary package is now priced at $18. An average annual increase of around 3% seems reasonable. There are favorable market conditions as other audio and video services also raise their prices, and in an inflationary environment, that could support our pricing strategy. However, we must continue to deliver value to our subscribers through enhanced content, improved features and capabilities in our products, and increased access for listening in various locations. We are focused on enhancing the value of our products, and I’m checking to see if you can still hear me. Sorry about that, I’m back now. The two products will enable us to provide brands with more solutions for podcast advertising. We aim to enhance automated capabilities so brands can connect with their audiences at scale across our network. This includes new ad targeting capabilities that are very privacy-focused, and we discussed last quarter our work with ComScore on predictive audiences. These solutions will also facilitate content filtering, which is increasingly vital for brands seeking safety and suitability guidelines for their advertisements. This demonstrates our ongoing innovation in ad technology. The market appears to be moving toward more automated and programmatic solutions, and the audio sector is lagging behind video in this respect. The podcast solutions we are developing are crucial for driving growth in podcast revenue. Our podcast advertising numbers and Off-Platform performance in relation to our overall advertising continue to show growth. We represent some of the largest networks globally, including NBCUniversal, Audio Chuck, and Crooked Media. Therefore, we will continue to invest in this area. There was one other point.

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 questions, if I could. First, can you discuss what you're seeing in advertising so far in the fourth quarter? Has it slowed down compared to the third quarter? Is it holding up well? Is there any impact from political factors? Additionally, could you remind us how much you participate in the political cycle? Secondly, I would like to see if you could provide any more details on your streaming-only subscribers. I know you don't disclose subscriber numbers yet, but could you give us an estimate of their contribution to net adds this quarter? Also, anything regarding their engagement, churn, demographics, and broader listening behavior would be helpful. Do they subscribe to on-demand music services like Apple Music or Spotify? What's their usage like in homes, cars, and other out-of-home settings? Any information you can share would be appreciated.

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. In terms of what they look like, our streaming subscribers tend to be younger, more diverse, and a little more urban. We believe there is a larger opportunity to target different segments beyond our core audience. We currently have high penetration rates, particularly in in-car listening. As we pursue streaming-only subscriptions, there remains car listening through features like CarPlay and Android Auto. We recently updated CarPlay, which we expect will enhance navigation and content discovery, and we aim to improve the Android Auto app as well. This is our first major update in several years, and more enhancements are planned. These subscribers also tend to listen more outside the car, and their listening habits differ in terms of content types. They are drawn to more hip-hop and pop compared to the hard rock and country genres preferred by our in-car subscribers. There is significant opportunity here, and we are just beginning to advance our product offerings and implement improvements. We need to ensure we surround these listeners with content they enjoy. While they may come in for specific content, we are introducing more personalization into the app, such as recently launched listening carousels. We also anticipate a design refresh later this year, which will allow subscribers to access more on-demand content, including Pandora artist stations and additional channels, providing them with greater control in an environment where consumers expect more.

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, I'm 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 a higher affluent customer base, and that's where we obviously do really well. Our penetration 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 vehicles produced by the OEMs that we have had relationships with for years, our penetration rates are very similar to what we see on the combustion engine side. So there's really not a difference in penetration 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 resale side.

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% 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 engaged, we have hardware installed in the vehicles. Moving forward, the setup may differ depending on the electric vehicle manufacturer. In some instances, we will use modules, while in others, we may utilize the modem in the car. Our preferred approach is 360L, as it offers wide availability through satellite distribution and favorable economics, especially in the near to medium term. Additionally, on the streaming front, we gain all the advantages of interactive features, personalization, and back channel data. This is our favored solution, but we remain adaptable, as demonstrated by our enhancements to the car plate and forthcoming Android Auto experiences. We aim to be available wherever customers wish to listen and in whatever manner they prefer. Therefore, I believe there is certainly potential on the electric vehicle front going forward to boost penetration rates, and we will adapt the technology we employ accordingly. And the economics are similar, different in some aspects? Or how should we think about that? The economics will vary depending on the specific automaker, including aspects like trial lanes, payment structures, revenue share, and subsidies. I won't delve into the specific deal economics for sales. However, if there's no hardware in the car, we wouldn't offer subsidies. Nonetheless, we aim to create incentives for automakers to partner with us to provide the best solutions for subscribers and trial users, encouraging them to subscribe and simplifying the process for them to transition to self-pay subscribers. We see revenue sharing as a key method to encourage this.

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

Just looking at 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 that hours per active listener have 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.

Most Pandora listeners are also using other audio services. In fact, a significant number of consumers in the U.S. engage with multiple audio platforms. However, we are noticing a trend of previous users returning to our service for specific stations they had created before. At the same time, the user base is increasingly shifting to platforms with more interactive features, many of which are available in free tiers. Although trends have fluctuated, we have observed some recent stabilization in our losses, but the overall dynamics remain largely unchanged. Regarding ad load, we have developed effective strategies for presenting advertisers to various listener groups. I believe that over time, many of our competitors will likely increase their ad load, which would ultimately benefit our products.

James, thank you for participating in our call. And thanks, everybody, for joining today. We'll speak to you soon. Goodbye.

Goodbye.