Greetings. Welcome to Sirius XM’s fourth quarter and full year 2023 operating and financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star, one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star, two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad. Please note this conference is being recorded. At this time, I’ll turn the conference over to Hooper Stevens, Senior Vice President of Investor Relations and Finance. Mr. Stevens, you may begin.

Thank you and good morning everyone. Welcome to Sirius XM’s fourth quarter and full year 2023 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 Sirius XM’s SEC filings and today’s earnings release. We advise listeners to not rely unduly on forward-looking statements and disclaim any intention 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.

Thank you Hooper, and good morning. It’s an exciting time for Sirius XM as we continue the transformation across all aspects of our business, and we appreciate your time today. We’ll start by reviewing our strong 2023 results. I will highlight major strategic achievements and Tom will present the financial details. Today’s call will also focus on Sirius XM’s future emphasizing three main goals: enhancing our subscription value including building on our recently launched next-generation Sirius XM experience, driving growth in our ad business, and optimizing our organization’s focus and cost structure. All this comes alongside the announced Liberty Media transaction aimed at creating a streamlined and more attractive equity structure. In 2023, Sirius XM exceeded expectations with strong operating and financial performance, including surpassing our adjusted EBITDA and free cash flow targets. I’m also pleased to report our self-pay net adds returned to positive growth in both the fourth quarter and the second half overall. This growth resulted from improved streaming and in-car net additions and was bolstered by continued positive responses to a robust content slate led by new artist stations from high-profile talent, including John Mayer. More on that in a bit. We also maintained our incredibly low subscriber churn at 1.6% despite increases in vehicle-related turnover during the year. Our 2024 guidance anticipates improving year-over-year self-pay net add results but with slightly lower revenue and adjusted EBITDA and steady free cash flow. While early indications are showing signs of positive impact from our business investments, it will take time for these to fully reflect in our subscriber and financial metrics. The challenge to 2024 revenue comes from roughly level subscriber numbers and a modestly softer ARPU, partially from a more diverse subscriber base with more streaming-only subscriptions. This shift coupled with an ad market that remains uncertain influences our revenue outlook. Against this revenue backdrop, we’re focusing on cost efficiencies even as we invest in content, marketing and our technology platform. This approach enables us to maintain stable EBITDA margins and cash generation in 2024. I am confident the investments we continue to make in our business have us on a path to return to sustained long-term subscriber and revenue growth. Today, in-car subscribers remain the vast majority of our 34 million subscribers and continue to be essential to our business. This past year, we extended long-term agreements with Mercedes Benz, Volvo and Honda and launched new partnerships with EV manufacturers Rivian and Polestar to integrate Sirius XM into their vehicles this year. Our biggest priority this year with OEMs is to boost 360L adoption as we see positive trends in conversion, retention and ARPU among self-pay subscribers with 360L vehicles. Sirius XM’s software-forward user experience offers a broader set of IP delivered content, including more music channels, personalized artist stations, live sports features and more, making our in-vehicle recommendations critical to enhancing subscription value, and standardization of personalization and content discovery features across 360L vehicles will accelerate with growing adoption of the Android Automotive operating system. Most importantly, 2023 was a year of building and our strategy initiated over a year ago to launch a next-generation platform driving future growth remains firmly on course. Many of you joined our media event in November where we discussed the benefits of the new platform, and while we are still very much at the early stages of this journey, our new Sirius XM app which launched on December 14 is yielding promising signs of improved engagement. With most of our existing mobile users now transitioned to the new app, we are seeing the recommendation engine performing well and exposing listeners to a greater breadth of content, a key driver of improved discovery enabled by the new personalization features. We are also already seeing significantly better quality of service metrics, including a reduction in our time to live latency by nearly 90%, which is core to our unmatched sports play-by-play offering. We are actively listening to customer feedback and with a new infrastructure in place, we’ve already released a series of app and web player updates and have plans for rapid and continuous improvement in the weeks and months ahead. We also introduced our new Sirius XM brand last quarter, reflecting a more modern look and feel. The all-new logo embraces our roots as home to the stars and brought back our beloved dog mascot, Stella, who shows up as an icon for content discovery in the new app. Again, it’s early days, but we’re already seeing a positive lift in brand perception among the growth audience segments we are looking to attract. Our new brand marketing strategy leans into fandom to showcase our differentiated offering across music, sports, talk and podcasts that bring fans closer to what they love. In the fourth quarter, we expanded our unique content portfolio with the launch of exclusive new artist channels with John Mayer and Kelly Clarkson, who love the direct connection they get to their fans, along with fresh new genre channels tailored to capture the interests of younger audiences. The channels are all performing well and showing strong listening, especially with streaming trialers. In Life with John Mayer, the talented guitarist and songwriter experiments with new programming formats defining his channel not by genre but by the time of day, as well as the day of the week. The channel has quickly become a hit and one of our most listened to artist-branded channels. We also introduced another podcast from the legendary Levar Burton, his new children’s show, Sound Detectives. The podcast, which recently wrapped, is distributed broadly as part of our Sirius XM podcast network and quickly soared to the top of the charts, ranking number one in kids and family on Apple Podcasts. As we continue to build out our portfolio of content on air and through podcasts from leading hosts, we’re also very excited about today’s launch of our new show with James Corden, This Life of Mine. This brings the iconic host into audio for the first time with his new interview series airing exclusively on Sirius XM. New episodes will be released weekly with a guest line-up including Martin Scorsese, Kim Kardashian, David Beckham and more. Earlier this week, we announced a new multi-year agreement with SmartLess Media and its founders, Will Arnett, Jason Bateman and Sean Hayes, that brings their hugely successful podcast, SmartLess to Sirius XM. It’s a comprehensive deal that strengthens our industry-leading position in podcasting by giving us the most top ranked podcast of any player in the space. It also enhances our Sirius XM subscription business with a wide array of benefits only available to our subscribers, from windowing new episodes to events to making portions of the library exclusive, and it strengthens our advertising business given the scale of SmartLess, which will be exclusively represented by our advertising sales group, Sirius XM Media. Speaking of our advertising business, total ad revenue remained relatively flat with fourth quarter and full year down less than a percent. Podcasting and programmatic continued to be strong growth drivers throughout the year. These positive results, despite challenges faced by the ad industry throughout the year, highlight the value we offer with our flexible network approach, which ensures brands connect with their target audiences regardless of the platform. This year, we will focus on expanding advertising services and investing in capabilities with many powered by generative AI to enhance monetization and efficiency for marketers. In short, we are confident that our strategy in the advertising business is the right one. As we progress on this transformative journey, we will utilize cutting edge technologies to ensure listeners benefit from an increasingly seamless and personalized connection to our unique content however, whenever and wherever they want, and as we expand efforts to reach new listeners, drive trials and improve our already strong retention by enhancing our value proposition, we look forward to the upcoming roll-out of our content sharing collaboration with Audible later this quarter. This collaboration will bring select Audible content into Sirius XM and highlight Sirius XM programming on the audio storytelling platform. In a largely commoditized streaming music market where consumers are confined to algorithmically driven or self-selected playlists, we are deliberately investing in human curated and live audio experiences featuring high profile and up and coming talent. Our strategy aims to attract and retain listeners seeking community and connection by providing them with unique opportunities to get closer to the artists, hosts and content they love. In closing, I am pleased with our durable financial performance in 2023 and we are confident we will deliver improved year-over-year subscriber results in 2024 and maintain strong cost discipline during this transformative phase as we work to drive long-term growth and stockholder value. With that, I’ll turn it over to Tom.

Thank you Jennifer and good morning everyone. As Jennifer highlighted, we closed the year on a positive trajectory, achieving robust financial and subscriber results that either met or exceeded our goals. Importantly, in 2023 we strengthened our path to future growth with the successful launch of our new app, began the process to streamline our equity structure through the proposed Liberty transaction, and executed on meaningful strategic cost initiatives. In 2023, revenue was steady at $8.95 billion, consistent with our guidance of approximately $9 billion. Total subscription revenue and advertising revenue remained nearly flat for the full year at $6.9 billion and $1.8 billion respectively. Full year 2023 adjusted EBITDA and free cash flow were $2.79 billion and $1.2 billion respectively - this means we outperformed our original guidance for adjusted EBITDA by nearly $100 million and outperformed our original guidance for free cash flow by about $150 million. In fourth quarter, revenue was largely unchanged at $2.29 billion with subscription and advertising revenue at $1.7 billion and $479 million respectively. Adjusted EBITDA saw a 4% decline to $715 million. The decrease can be attributed to a rise in revenue share and royalty expenses, sales and marketing, and engineering design and development expenses offset by lower customer service and billing, G&A, and transmission costs. Net income for the quarter was $352 million or $0.09 per diluted share. Free cash flow continued to be back-weighted during the year, coming in at $445 million in the quarter. Turning to the segments, in the Sirius XM segment we delivered $1.7 billion in revenue, down less than 1% year-over-year. Sirius XM’s advertising revenue remained challenged, which we believe is a product of the tough broadcast advertising market. ARPU during the fourth quarter and full year 2023 was $15.63 and $15.56 respectively. It benefited from the March 2023 price increase of select full price plans, but this was offset by the effect of promotional self-pay subscription plans, the lower advertising revenue mentioned, and lower paid promotional rates from certain OEMs. Gross profit in the Sirius XM segment for the fourth quarter decreased 2% to $1.04 billion compared to the $1.06 billion recorded in last year’s fourth quarter, representing a margin of 61%, down only one point as we absorbed roughly $20 million in higher music royalties. For the full year, gross profit was $4.15 billion, also at a 61% margin. In the Pandora off-platform segment, total revenue was $571 million and $2.1 billion for the fourth quarter and full year respectively, an increase of 2% and 1%. Advertising revenue in the segment of $436 million increased 4% sequentially and 1% year-over-year, driven by continued strong growth in our podcasting and programmatic ad sales. Podcasting revenue saw a 22% year-over-year lift in the quarter while programmatic podcast revenue increased 12% sequentially and 97% year-over-year. Gross profit in the Pandora off-platform segment of $193 million for the fourth quarter represented a margin of 34%, up from 32% in prior year fourth quarter. Full year gross profit in this segment was $638 million and margin of 30%. We returned approximately $102 million to stockholders in the fourth quarter through our regular quarterly dividend, which has increased by 10%. Full year capital returns totaled $657 million, including dividends and share repurchases. We ended the year with net debt to adjusted EBITDA of 3.2 times. We had $216 million of cash and equivalents and our entire $1.75 billion revolver was undrawn and available at year-end. Last week, we closed our new $1.1 billion term loan A delayed draw facility that will replace the 364-day bridge loan commitment. We intend to draw that facility as part of the closing of the Liberty transaction. Additionally, as an update on the Liberty transaction, Liberty Media filed their Form S-4 on Monday, and we still expect the transaction to close early in the third quarter. At the end of the third quarter, per SEC rules, we suspended our share repurchase plan in response to Liberty’s proposed offer. While the transaction is pending, we anticipate remaining out of the market. As we look forward beyond the Liberty transaction, we will continue to target leverage in the low to mid three times range, and we anticipate being back in this zone during the second half of 2025. While we will primarily focus on deleveraging, we will continue our dividend policy and have the flexibility to be opportunistic on share repurchases. In addition, we continued to focus on further strategic cost-saving efforts this year. In 2023, we attained approximately $140 million of cost savings through the org structure optimization, continued consolidation of our real estate footprint, and broad operational efficiencies. In 2024, we are targeting nearly $200 million of additional costs savings with more efficient allocation of resources in marketing and programming, along with a more efficient approach to customer service. This year, we are stepping up on socially responsible tax equity investments in cleaner energy technologies, including industrial carbon capture and storage. These investments will produce tax credits and related tax losses. Over the next seven years, we currently expect to generate more than $250 million in net after-tax cash benefit with the bulk of these benefits coming in the latter portion of the contract. The payment of these equity investments will be classified as investing activities from a cash flow perspective, while the tax credit and losses will benefit our federal cash taxes and operating activities, increasing our free cash flow available to reinvest in our business and return capital to the stockholders. These agreements contain customary termination provisions should tax laws change or the projects not perform as expected, and as previously discussed, we will see continued free cash flow tailwind as both satellite and non-satellite capital expenditures decline significantly in the years ahead. Finally, earlier today we released our 2024 guidance projecting revenue of approximately $8.75 billion, adjusted EBITDA of approximately $2.7 billion, and free cash flow of approximately $1.2 billion, excluding the cost and incremental interest expenses arising from our pending transaction with Liberty Media. We anticipate providing an update to our free cash flow guidance upon closing. As Jennifer mentioned in regards to self-pay net adds, we expect to see an improvement in our performance versus 2023.

Thank you. We will now start the question and answer session. Our first question this morning is from Cameron Mansson-Perrone with Morgan Stanley. Please go ahead with your questions.

Thanks, good morning everyone. My first question is for Tom. You noted the $140 million in cost optimization achieved this year and the $200 million target for 2024. Could you elaborate on that $200 million figure? You mentioned marketing, programming, and customer service in the release, but within those areas, where do you see the greatest potential to control expense growth this year and realize those savings? Additionally, I have another question for either Scott or Jennifer regarding the major new agreement signed for SmartLess. Jennifer, you highlighted some advantages from that deal in terms of enhancing that business and using content to bolster subscription strength. Overall, what does this significant agreement indicate about the performance of your podcasting business, and how do you intend to leverage that content beyond what you’ve already mentioned? Also, how do you view the overall podcast opportunity? That would be very helpful. Thank you.

Thank you, Cameron, for your question. Regarding the $200 million in 2024, there are many factors at play. As I mentioned, it involves programming, marketing, and customer service. However, I want to highlight a few additional points. In terms of marketing, it has increased slightly year-over-year, but we are significantly investing in the streaming aspect. We have optimized our marketing expenses, and the savings from the $200 million are being reinvested to enhance our targeted and performance-driven marketing for streaming, so much of that savings is being redirected towards that goal. Additionally, as we work on expanding our technology infrastructure in 2024, there will be effects on various business segments, including customer service and programming. Therefore, the savings will be distributed throughout the business. There is indeed overall net savings involved, but when considering the figures, much of the savings will counterbalance the various costs we are facing as we transition our platform towards a more streaming-oriented approach in 2024.

Yes, and I’ll start on SmartLess and then hand it to Scott, just to add in. We’re really thrilled to be working with Will Arnett, Jason Bateman and Sean Hayes on this - I mean, they’ve put together a phenomenal podcast network, including their really significant podcast, and it really just benefits all parts of our business. I think we were able to come to a great place with them where we’re broadening their exposure, bringing some content to Sirius XM subscribers specifically, but also just adding to our overall podcast network and positioning us really strongly in terms of representing from an ad standpoint a lot of major podcast content in the industry.

Sure, thanks Jennifer. The podcast industry is still in its early stages and is evolving, showing similarities to terrestrial radio. The top rankings in podcasting have remained fairly consistent, and we have three or four of the top 10, averaging around 175 million monthly downloads in our network. Our aim has always been to create a comprehensive suite of assets that we can refine for a curated subscriber pay model while also building a strong podcast network to support our advertising sales. I believe we're close to achieving this. Additionally, our content is unique compared to other audio services, generating significant amounts of our own media, and we're beginning to see our podcasts do the same. This synergy between our Sirius content and podcasting is resulting in substantial free earned media, which we appreciate. Furthermore, new talent emerging in audio is likely to come from podcasting, and as a leading network, we believe young podcasters will be inclined to join us. We're excited about our position in the industry, especially with recent announcements regarding channels like Crime Junkie and Audiochuck on Sirius. Our strategy includes utilizing our assets to determine what makes sense for both sides of the paywall, and with podcasts like SmartLess, Conan O'Brien, Crime Junkie, Crooked, Dateline, and others, we feel confident about where we stand. We're looking forward to further developments and believe we are well-positioned at this moment.

Great, thanks guys.

Our next question is coming from the line of Vijay Jayant with Evercore ISI. Please proceed with your questions.

Thank you. I have two questions. When considering the pricing for the satellite product next year, typically there is a dollar monthly increase every other year. Given the current transition, should we anticipate a rate increase this year? In your guidance, I'm assuming the streaming product will see growth, which seems to suggest that the satellite paid subscriber base may decline in 2024. If that's the case, how will it affect ARPU, particularly since the streaming product is priced lower than the average ARPU? Will there be any adjustments in pricing to offset this? Thank you.

I’ll let Tom comment on ARPU in a second, but regarding pricing and a rate increase, our last two rate increases were relatively close together, occurring in late 2021 and early 2023. Historically, we've implemented rate increases approximately every other year, and we anticipate another one next year. As such, this will be a year without a rate increase on our full price packages, which factors into our revenue guidance. We are very excited about the $9.99 price point for our streaming-only plan, believing it allows us to reach a wider market. We've discussed our approach to growth audiences and our intention to complement music streaming services given our unique and differentiated content. It's still early days since the launch; we're only about seven weeks in, but we feel optimistic about how the streaming product aligns with the market and supports overall revenue growth. We have limited concerns about cannibalization between our in-car base and streaming growth because they serve different needs. While there may be some impact on ARPU from the rise in streaming subscriptions, we believe we are well positioned to continue enhancing our in-car offerings, carry out rate increases, and drive growth in both in-car and streaming services moving forward.

Yes, I would just add, Vijay, that I think we look at it as in a growth approach to our subscriber base, we felt a more affordable and competitive streaming plan at $9.99 will be attractive to the younger, more urban audience, and so by expanding the demand and expanding our TAM, we believe it really won’t cannibalize, but we look at it as additive to our overall subscriber base.

Okay, great. Thank you for taking the question. I guess a couple, really kind of thinking about the sub trends and the ARPU dynamics here, drilling into that a bit. You have an expectation that you’ll be growing your self-pay ads over the course of the year, but I also noted in your earnings release, you’re talking about a decline in the free trial base at the end of the year in 2023, so I’m just wondering if there’s any kind of quarterly cadence we should think about, maybe if there’s some pressure on self-pay near term reflecting the free trial that maybe turns around as we go through the course of the year, that you can talk to. Then in terms of ARPU, one of the things that I thought you guys were thinking about with your approach to grow the growth demos, was not just the $9.99 streaming offer but also maybe some pricing changes on the satellite radio packaging and maybe some lower price opportunity there. I was wondering if you could talk to that, if that’s still part of the plan or any update on how you’re thinking.

Yes, thanks for the questions, Barton. On the self-pay net adds for 2024, we haven’t provided a specific number in guidance, as you know, but our plan is to improve net adds year-over-year. We certainly hope that puts us in a position to have positive net adds, but it’s really too early in the year to provide any more specificity about that. But as you highlighted, obviously one of the big factors in driving self-pay net adds is the trial funnel. We had this dynamic last year as well, where fourth quarter trial starts were a little lower than third quarter, and that will put some pressure on first quarter conversions. I think as you look at seasonality for self-pay net adds this year, it will look pretty similar to last year, where we would expect probably some declines in early part of the year but positive adds in the latter part of the year, so similar seasonality, similar trajectory. Last year, we delivered on our goal and commitment to have better self-pay net adds sequentially over the course of the year, and we would look to do that this year as well. We did address that in the fourth quarter, we saw the 130,000 self-pay net adds - we were very pleased with that result and with contributing factors of improvements in both streaming and in-car net adds, and we’d expect that to also be the case for 2024. On your question about satellite or in-car pricing and packaging, we are in the market testing some different packages, and you’re right - we are looking at expanding the price points and packages we offer on the in-car side of our business. We do believe there is room to capture more demand there as well among the growth audiences. It may be that many of those potential listeners want a streaming-only package, but we are going to have more technology in place to be able to move customers more seamlessly between the embedded in-car experience and our streaming experience. Today, most of our streaming-only subscribers are listening outside of the car predominantly, and so there is again an opportunity, I think, to lean into that, to build growth but also make it easier for customers to move. Obviously, they can listen on the app in the car as well, but there are enhanced benefits to the embedded experience in the car. We’ll have more to say on pricing and packaging for the in-car base over the course of the year. A lot of that comes with the migration to the new tech stack for in-car, which will start later in the second quarter and will proceed through the different elements of that tech stack throughout the year, but I’m really excited about the flexibility it will give us in pricing and packaging, some of the things Tom mentioned about how we’ll support customers and customer service, better identity and better tech overall.

Thank you.

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

Thanks. Jennifer, I think a lot of the investments you made in 2023 were about trying to improve future conversion rates, especially with younger car buyers. Could you help us on maybe what you started to see, either late in 2023 or what you’re expecting in 2024, in terms of those proof points around conversion with the updated app experience? Then to follow on Vijay’s question just around mix shift as you’re ramping up on streaming-only, it seems like this should be positive for volumes but it is a heavily discounted product versus in-car, and I would guess that a lot of drivers today just don’t have the connectivity issues with their phones that they might have had once upon a time, so how do we think about ARPU longer term as you start to shift the mix towards in-car and streaming-only? Thank you.

Thank you, Steven. Regarding the conversion rate, we expect most of the benefits to materialize in the later part of this year. The new tech platform we launched in December primarily supports our new streaming app, so we anticipate seeing progress in streaming first. The platform currently helps our in-car trialers and subscribers mainly where we have 360L implemented. This provides a much better search algorithm and backend support for recommendations. Improvements in conversion rates will especially benefit younger audiences where we can enhance 360L, as we know it drives higher conversion rates compared to non-360L. We will also improve marketing for our trialers overall. With 360L, we can leverage data for better personalized marketing, and even for non-enabled vehicles, we'll enhance marketing capabilities based on other data points, though this will take time to develop. Our marketing technology stack is set to improve with Salesforce later in the second quarter and into the third quarter, and it ties into the overall migration of our in-car platform. We expect to provide updates on our streaming progress earlier this year. As for the mix shifts, we believe there are two key components to the demand and subscriber base. We have a loyal subscriber base in our core segment, allowing us the opportunity to raise prices as we continue to enhance value through product improvements and content additions. We also see potential to attract more demand from younger generations through new streaming packages and price points in the second half of the year. While we need to monitor for any cannibalization, we don’t currently view it as a concern. However, if the $9.99 streaming package becomes too attractive and risks cannibalizing our in-car base, we can adjust the pricing. It's important to note that our in-car product offers more than just streaming; users can listen to streaming anywhere while using the in-car product simultaneously.

Jennifer, one other thing to add on the younger demo point is, as has been well documented and you mentioned, the content was built for our core demo, and they’re still as passionate as ever. This year alone, when you think about John Mayer, James Corden, Kelly Clarkson, Carrie Underwood, Will.i.am, Shaggy and some of these others that are being really launched and will bloom throughout ’24 and beyond, this is a content play on a younger demo, and generally our track record as a company, when we put out premium content and it’s marketed and they’re aware, it sometimes takes a little time but they generally are attracted to that content. This is really the first time we’re going to have significant content for a younger demo - we’ve always had it, but now it’s got the mega brands and people that we’ve had for our core for years, so I’m looking forward to seeing how that will go.

Thank you. Our next question comes from the line of Jim Goss with Barrington Research. Please proceed with your questions.

Thanks. This builds on what Scott was just discussing. It appears that you're moving towards more original content at this stage, and I'm curious about how that relates to the conservative programming costs you anticipated. Additionally, I'm interested in the impact on royalty obligations due to the change in programming nature, as well as how streaming royalties may differ since you can identify exactly what's being played, which contrasts with the satellite perspective on streaming revenues and royalties.

Scott, could you discuss the content and value proposition? Thank you, Jim.

The value proposition is now a blended demo approach, and we have always aimed to engage a younger audience based on research. I feel confident that we will have extensive discussions on the content. For example, live sports appeals to all demographics, whether through visual or audio formats, as well as comedy and other genres, which are not included in the royalty pool. Listening is still primarily via satellite, though it is growing on digital platforms. Regarding originals, we consistently aim to produce original and unique content, like SmartLess, and we will continue to do so. Additionally, curation has always been essential, as we can meet people's needs under one roof, unlike the multiple apps required for video and other services. As previously mentioned, we possess all live sports rights under one roof, and when we combine that with the new programming we are launching, I have never been more excited about our ability to keep our core audience engaged, passionate, and paying, while also introducing a line-up that will attract a younger demographic and feel unique to Sirius XM.

I believe that was an excellent summary, Scott. We have a very flexible model for monetizing content. Scott and his team, along with John Trimble who oversees ad sales, closely evaluate the opportunities to offer content behind the paywall for Sirius XM subscribers that enhances value. For example, we have exclusive content like James Corden, whose first show is airing today, and a broader offering like SmartLess, which will combine ad sales with exclusive Sirius XM content. We continue to refine this model and are in a favorable position as it helps us manage content costs and monetize in various ways. Historically, we have been disciplined regarding programming, and we will maintain that approach moving forward. We expect to gain more insights from data on consumer listening habits both in and out of the car, which will inform our content decisions this year through 360L and streaming. Our music licenses are a significant element of our cost structure, accounting for over 30% of our operating costs, with about $2 billion paid to rights holders. A large portion of this is associated with our CRB arrangement for the satellite side, which won’t be revisited until the end of 2027, giving us predictability with those costs on the in-car side. We have a slightly lower percentage in streaming regarding music licensing costs for our streaming-only packages, and we enjoy healthy margins for both our streaming and in-car subscribers because our licensing structure differs from that of music streaming companies with direct licenses. We have direct licenses for the Pandora side of our business, which was necessary for fully interactive subscriptions. The dynamics there are more similar to those of other music streaming companies, whereas on the Sirius XM side, our satellite license through Sound Exchange is around 15%, and I don't expect significant changes in that based on listening trends.

Okay, thank you very much.

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

Thank you. Maybe switching gears a little bit, Jennifer, I think you mentioned one of the three pillars for growth for the future is advertising. Could you give us some color on your long-term advertising plans, what are the drivers, what are your goals, what do you think the TAM is? Secondly, given expectations of a lower ’24, what gives you confidence, aside from free cash flow which will obviously benefit from lower capex, that you can reverse the trends? Is it the rate increase or cost cutting, or something else? Then sorry, but I just wanted to ask on something Scott just said - are you considering, or have you considered bundling your service with others, or is your content already all-encompassing, so that you don’t need to do that?

Thanks Jessica. I’ll let Scott jump in, but regarding bundling, we’ve seen many video streamers utilize it alongside telcos and others. We have established relationships with T-Mobile, Wal-Mart, and others, which primarily focus on distribution, and those have been effective. As we launch the new commerce platform more broadly, I think we’ll have more opportunities to facilitate such arrangements. However, when it comes to a true bundle with content, a notable opportunity will arise once we launch Audible. We are exploring ways to integrate content across platforms and also offer trial options. This year, we will experiment with various offers and bundles, and I believe we are attractive to several potential partners due to our very low churn, which presents a significant opportunity. Scott, do you have anything else to add?

Yes, just one point, Jessica - obviously as Jennifer mentioned, we’re attractive because we have a lot of exclusive content, that we like to be exclusive in all of that. But where we’re starting to see traction is, as I mentioned, in the earned media. So much heat comes off our content, meaning from the radio and the podcasting, people are now tracking back and checking out the service and trying it. If there was a way that it increased the right amount of free sampling of what comes out on a daily basis in any version of our news, talk, sports, comedy, music, I would love to look at that; but what I’m not interested in is increasing someone else’s bundle at our expense, so it will have to be the right thing, and as Jennifer mentioned, there’s plenty asking to do it, so we’ll see where it goes.

Yes, I'll let Tom discuss free cash flow in a moment, but regarding advertising, Jessica, it's one of our three main focuses. Last year, we generated about $1.8 billion in advertising revenue, and we have a very solid position in audio. Our assets, particularly with broadcast and Pandora, remain key contributors. Approximately 60% of our ad revenue comes from Pandora. Even with some listener declines last year—MAUs decreased by about 3%, and ad hours declined similarly—Pandora still holds significant value. This is largely due to our ability to offer advertisers various impactful ad formats, whether display audio or video. The team has effectively improved monetization on Pandora, and our collection of assets has been crucial in capturing market opportunities. Podcasting continues to provide growth, and programmatic advertising across both streaming and podcasting is also a significant advantage, with more solutions on the way to enhance our growth in that area. Our strategy with Pandora will be to continue leveraging our assets, and we anticipate better targeting options as we look to re-platform. For the Sirius XM business, we will explore ways to strengthen our presence in free platforms, including Pandora and Sirius XM or a combination of both, likely as we approach 2025. We see potential for increased ad opportunities both on our platforms and off, particularly in podcasting, the tech fees business, and overall marketplace revenue.

When considering free cash flow, it's important to note that it is primarily influenced by two key factors. Satellite capital expenditures are expected to decrease over the coming years, with 2024 likely reaching its peak. As we look ahead to 2025 and beyond, satellite capex should naturally lessen as satellite launches occur. Meanwhile, non-satellite capex will also begin to decline after the middle of 2025 when we successfully refresh the Pandora app. This trajectory seems quite natural. Additionally, EBITDA and other factors play a role, but the significant change in numbers will primarily come from navigating this cycle of satellite capex.

Yes, I think at 1.2 for our guidance this year on free cash flow, being relatively flat to last year of course excluding some of the potential of transaction impacts, is a real strong signal, and we should be at a low point in free cash flow with opportunities in the years to come.

Thank you. Our next and final question will be from the line of Jason Bazinet with Citi. Please proceed with your questions.

I just have a deal-related question. You guys have been very consistent about a 3Q close. My sense is that the risk arb community or event-driven community is a little bit confused about that timing - they think it’s conservative and it could happen sooner. I think there’s an FCC license transfer and then there’s a shareholder vote on the Liberty side. Can you just sort of unpack what your assumptions are that under-girds the 3Q close?

Jason, when we first established a timeline with Liberty, we are on track according to our current schedule. Liberty submitted the S-4 on Monday, which aligns with our expected timeline. The FCC license has been applied for, and as we've mentioned, the main challenge will be the FCC process with several reviews and follow-ups needed. At this moment, we don’t have any new indicators to suggest it could occur sooner, but we are very focused on completing it as quickly as possible.

Super helpful, thank you.

Thank you Jason, and thank you everybody for participating today. Talk to you soon.

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.