Sirius Xm Holdings Inc. Q1 FY2024 Earnings Call

Thank you, and good morning, everyone. Welcome to SiriusXM's First Quarter 2024 Earnings Conference Call. Today, we will have prepared remarks from Jennifer Witz, our Chief Executive Officer; and Tom Barry, our Chief Financial Officer. Scott Greenstein, our President and Chief Content Officer, will join Jennifer and Tom to take questions during the Q&A portion of this call. I would like to remind everyone that certain statements made during this call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about these risks and uncertainties, please view SiriusXM's SEC filings and today's earnings release. We advise listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I'd like to remind our listeners that today's call will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation. With that, I'll hand the call over to Jennifer.

Thanks, Hooper, and good morning, everyone. Thank you for joining us today. We are encouraged by our first quarter financial performance, and we are on course to meet all of our full year guidance. Our growing addressable advertising audience and a strengthening ad market powered a 7% increase in our ad revenue year-over-year to a record level of over $400 million, offsetting a 1% drop in subscription revenue. SiriusXM is an extremely profitable business, with adjusted EBITDA up 4% year-over-year and running at a margin of 30%, up 1 percentage point from last year. And we continue to forecast that 2024 will represent our peak year for capital expenditures. As these capital investments trend down over the next few years, we expect to convert even more of our EBITDA into free cash flow. We are continuing to evolve our strong business model and investing in future growth areas by striving to enhance our listening experience and consumer value proposition. At the end of last year, we launched the first step in a longer multiphase journey, deploying our new SiriusXM streaming app supported by a new digital infrastructure. We are confident this platform will enable us to innovate and deliver the best audio experiences, whether in car or on the go. And we are focused on growing our audience base with a new brand campaign in market now, along with investments in recent partnerships with channels and shows, such as Life with John Mayer, This Life of Mine with James Corden and our limited engagement exclusive channel with Taylor Swift. While it's extremely early, given our 3-month trial structures, there are some promising engagement indicators among new users. Our SiriusXM app improves recommendations and search, broadens content discovery and includes a modernized user interface. It was built from the ground up to enable instrumentation and experimentation and with advanced capabilities in mind, such as marketing technology. And in marketing technology, we've only touched the surface of what is possible, such as customized multichannel marketing journeys. As we continue to iterate this year, we plan to enable sharing and content sampling to broaden access to our content, as well as enhance the in-app podcast listening experience. This will become more important as we begin to offer podcast windowing and exclusive library access for SiriusXM subscribers, that podcast listeners won't find on other platforms. For some of our long-time users, the change that came with a completely revamped SiriusXM app was disruptive. Fortunately, the all-new platform enables us to iterate and innovate at a much more rapid pace, one that would have been unimaginable under the constraints of our prior platform. We've diligently addressed user feedback and biweekly updates and we've driven significant positive change already this year. Our early engagement metrics and other consumer signals we are following from the new SiriusXM app are improving. We are confident that our app platform relaunch and the product improvements coming in the car are putting us on the right path. Yesterday, we announced an expanded agreement with Hyundai and Genesis to integrate 360L, and we recently initiated the launch of our next-gen in-car platform with Mercedes-Benz and Subaru. The Subaru rollout is especially exciting as they also enabled a broader set of SiriusXM features in nearly half a million vehicles already on the road via an over-the-air update. Additionally, our SiriusXM 360L platform for the Android Automotive operating systems began rolling out in the popular Nissan Rogue and on the new Ford and Lincoln Digital experience, which debuted in the Lincoln Nautilus. Android Automotive Operating Systems allow us to more quickly deliver new features to vehicles, and we are working with several automakers to implement SiriusXM on this platform as adoption continues to grow. As our product and engineering team replatforms our automotive tech stack, 360L adoption will be key to unlocking the benefits of the platform for consumers across a variety of vehicles. Another key tenet in our overall transformation beginning to bear fruit is the use of AI technologies to improve not only automation, but also the customer experience and business outcomes. Last quarter, we introduced a cutting-edge platform Sierra, founded by former Salesforce Co-CEO and OpenAI Board Chairman, Bret Taylor; and former Google Labs Vice President, Clay Bavor. Sierra is a machine learning and generative AI platform that has been integrated into our customer service chat function. Sierra currently handles a portion of our chat-based support cases, and we plan to pilot the platform with voice later this year. With its highly developed conversational capabilities, we expect to see cost efficiencies and an improved customer experience. But a revamped tech stack is just one piece of a broader long-term transformation. To further our objective of reaching new audiences, we premiered our latest national brand campaign late in the first quarter, including a brand film, which ran during the Oscars and Taylor Swift's Eras concert on Disney+. Early indicators suggest our campaign, including its focused out-of-home advertising, is effectively enhancing our connection with potential listeners and subscribers and even contributing to improved time spent listening in cars for trialers. The foundation of that connection, however, will always be our content, and this is where we are beginning to see our improved data-driven tech platform driving greater discovery and engagement. The strong initial reach of our guest DJ campaign in January is one such example. We launched exclusive sets from more than 175 of the world's top artists, including Dua Lipa, Cardi B and Ed Sheeran, and drove strong reach among our audience. Utilizing our app's new layout, we can now feature timely sports collections like one for March Madness, and our personalization engine further tailors content, offering leagues, games and expert analysis based on each user's behavior. We found that trial subscribers who engage with sports content are more likely to convert at higher rates, and existing subscribers who do so tend to stay longer. But our content decisions will always involve an element of human connection, brought to our listeners by our deep entertainment industry relationships and supported by 2 decades of experience in audio entertainment. In January, we launched our new exclusive series, This Life of Mine with James Corden, which has quickly become one of our top 3 on-demand talk shows. James's interviews with A-list celebrities such as Kim Kardashian, Dr. Dre and David Beckham have kept the show at the forefront of cultural relevance, generating substantial media attention and underscoring the significance of our exclusive content as a distinguishing factor where we can excel. To this end, just last Friday, Howard Stern demonstrated how he earned his reputation as an unparalleled interviewer at the center of culture, when President Biden joined him live from our New York studios for an extensive interview as the election season heats up. Moments like this really drive home the unique value SiriusXM brings to our listeners. Our biggest incremental content investments are now in podcasting and in service of both growing our advertising-based audience reach and in delivering more value to SiriusXM subscribers. We now sell advertising that reaches about half of the American population every month, and this audience is growing. The SiriusXM Media portfolio highlights our broad network approach to advertising, and it's anchored by Pandora, SoundCloud, growing SiriusXM digital reach, and the growth in our podcasting business. We believe we can effectively monetize and deliver broad reach to benefit podcast creators, while also carving out unique content experiences to drive interest and engagement to SiriusXM subscriptions in a true win-win. For example, just last week, we launched Crime Junkie Radio, a true crime-focused channel led by Ashley Flowers, Founder of audiochuck and host of one of America's most popular podcast Crime Junkie. With this new channel, we are leveraging top-ranked podcasts, including Crime Junkie, The Deck and Counter Clock, to bring their audiences to SiriusXM by offering subscribers early access to an exclusive show from Ashley airing on the channel. Combined with our recent deal with another chart-topping podcast, SmartLess, we are well positioned to bring that engaged fan base and growing podcast listenership into our ecosystem. Throughout the year, we expect to continue to innovate on our podcast product features, including content preview functionality coming later this year, rolling out first with podcast. Moving on to advertising. We are seeing increasing success by taking a network-first approach, allowing for greater flexibility and audience targeting for our advertisers. Overall, our podcast revenue is up 16% year-over-year. Buying across the SiriusXM podcast network allows marketers to target their audiences at scale and to reach dedicated fandom, and we're working to make this even easier. This quarter, for example, we entered a new agreement with Locked On, a leading sports podcast publisher. And in the coming months, we will officially launch sports curated collections. This offering, enabled by our ad technology position, combines sports inventory from across our podcast portfolio and empowers advertisers to tap into audiences with similar interest and engagement through programmatic approaches. This approach is anticipated to continue to bolster our programmatic podcast offering, which is up 90% versus the same quarter last year. Additionally, we continue to invest in ad technology solutions that open up new opportunities for us. This quarter, we launched Synthetic Voices, the first tool in AdsWizz's AI advertising tools, a set of ad technology solutions powered by artificial intelligence. Synthetic Voices give small and midsized business owners an opportunity to continuously evolve their messaging and quickly record new content with a variety of different artificial voices categorized by tone. This industry-leading innovative suite of offerings is designed to deliver cost-effective and efficient solutions to advertisers, with an initial focus on lowering the barrier for entry into audio advertising for small businesses. In short, I remain very optimistic that we will see benefits in the business and in the consumer experience from our long-term investments. We are eager to be further along in this journey and to deliver improved subscriber results for our stockholders, and I believe we are on the right path to do so. I'm proud of the financial results we achieved this quarter and grateful to the incredible team we have here at SiriusXM as we continue to progress in our transformation. Before I pass the call over to Tom, I did want to share that yesterday, we announced that Joe Verbrugge will be stepping down from his position as Chief Commercial Officer this summer, retiring after 20 years at SiriusXM. We are in active conversations to fill this role and have a deep bench of talent internally across the commercial organization. We'd like to thank Joe for his long and impactful service to the company. And now to walk you through more detailed financials, I'll turn the call over to Tom.

Thank you, Jennifer, and good morning, everyone, and thanks for joining us for our first quarter 2024 earnings call. Following Jennifer's lead, I want to acknowledge our steady start to what is a transformational year for the company. We are pleased to reiterate our full year financial guidance despite headwinds we see from the challenging subscriber environment. We are committed to and are executing on our strategic plan to transform and modernize the SiriusXM experience in the car and on the go. We remain focused on investing in our customer experience, enhancing our value proposition, expanding our ad business and seeking greater efficiencies across the organization. With that, let's dive into the quarter. We recorded total revenue of $2.16 billion in Q1, up 1% year-over-year. The growth was driven by a 7% increase in advertising revenue to $402 million, with improving ad sales, particularly in podcast and via programmatic sales. In fact, podcasting revenue grew 16% compared to last year's first quarter. Subscription revenue dipped slightly, with a modestly lower average subscriber base offsetting a slightly higher average revenue per user. Delving a little deeper into the subscriber dynamics, an increase in vehicle sales this quarter contributed to slightly higher churn, as a greater number of new and used vehicle purchasers with existing subscriptions moved out of the self-pay base and into unpaid trials. We expect this to help grow trial conversions in future quarters. We continue to expect our subscriber results to improve from 2023, and we should see similar seasonality in 2024 with better year-over-year subscriber performance beginning in the back half of the year. Adjusted EBITDA was $650 million, a 4% year-over-year increase. The increase was boosted by greater advertising revenue and resulting gross profit, as well as our cost optimization initiatives across the business, which also benefited from lower legal expenses. In the first quarter of 2024, the company saved approximately $45 million through our cost optimization efforts and consolidations across this business. These gains were slightly tempered by the strategic investments in design and development, which support enhancements to our products and platforms. Our total cash operating expenses saw a very slight decrease year-over-year, reflecting our focus on enhancing efficiency even as we increase important investments in the business. Turning to the segments. The SiriusXM segment delivered approximately $1.7 billion in revenue, down 1% year-over-year. SiriusXM's average revenue per user for the quarter was $15.36, up from $15.29 in last year's first quarter. The increase was driven by price increases in early 2023 to full price plans, partially offset by an increase in subscribers on our streaming-only and self-pay promotional plans. Average revenue per user was also impacted by reduced rates associated with paid trials from select automakers. SiriusXM reported $993 million gross profit during the quarter, representing a gross margin of about 60%. Turning to the Pandora and off-platform segment, reported total revenue of $495 million, an increase of 7%. Advertising revenue in the segment of $362 million increased 8% year-over-year, driven by a 5% growth in our streaming revenue and a 16% growth in our podcasting revenue. As Jennifer mentioned, programmatic sales have continued to thrive, up 29% across streaming and podcasting combined, as advertisers gravitate to the efficient way of buying. Segment gross profit reached $143 million for the first quarter, representing a margin of 29%, up from 24% in the prior year's first quarter. Pandora ad hours were $2.49 billion, declining 4% year-over-year, and average hours per ad active user increased slightly, to about 21 hours per month. Advertising RPM saw a nice 7% lift to $91. During the quarter, our free cash flow was $132 million, an 8% decrease from the $144 million realized in Q1 of 2023. The decrease can be attributed to new content spend and a timing of higher vendor payments during the quarter, partially offset by $31 million of lower capital expenditures for the quarter. In addition, during the quarter, we invested $187 million in our previously disclosed clean energy technology investments. We plan to fund approximately $50 million more in 2024. As with any equity investments, these investments are outside of free cash flow. We have modeled that these investments will reduce our cash taxes by roughly $130 million this year. As we mentioned previously, the bulk of our roughly $250 million in net after-tax cash benefits will come in the later years of the investment cycle. And lastly, a short update on our balance sheet and capital returns. During the first quarter, SiriusXM paid $102 million to stockholders through our dividend and ended the quarter with net debt to adjusted EBITDA of 3.3 times. As we approach the closure of the Liberty Media transaction in the next couple of months, we remain committed to maintaining a strong and flexible balance sheet, with a leverage target in the low to mid-3s range. We will prioritize our substantial ongoing investments in the business and continue our dividend, with excess discretionary cash flow primarily used to reduce our leverage to the targeted range by the back half of 2025. Additionally, we will look at share repurchases in an opportunistic manner following the close of the transaction.

Our first question comes from Sebastiano Petti with JPMorgan.

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

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

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

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

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

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

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

I would just say, Jason, that when you look at the numbers for 2025, we had a model in place at that time. We included many of these initiatives, and we are continuously adapting and evolving as we undergo transformation this year. So while the direction seems promising, we are dealing with a number of moving parts this year.

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

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

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

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

Yes, I think the interesting development we've observed is a fundamental shift in advertising over the last few years, with an increase in supply from various services launching ad-supported tiers and enhanced targeting options. We have performed well in programmatic advertising, and while we are still early in implementing programmatic for podcasts, we have established it on the music streaming side for some time. These capabilities apply across our platform and align with what advertisers seek in terms of purchasing later in the process, which means fewer upfront commitments and more last-minute buying based on consumer expectations. We meet this demand effectively, especially compared to our competitors in audio. I believe these trends will continue. Regarding SMB versus enterprise, we have consistently strong business in the SMB sector. Our focus now is on unlocking more solutions, particularly through programmatic, by providing self-serve options that enable smaller advertisers to enter audio, scale their efforts, experiment, and integrate into their campaigns without requiring extensive direct sales support. There are opportunities to keep growing in this area. Would you like to discuss CapEx?

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

We anticipate potentially even more. Yes, it might reach those levels. What we really want to focus on is maximizing our investment opportunities, particularly in non-satellite capital expenditures. We have satellite capital expenditures to manage in the coming years as we complete those launches. Additionally, we have necessary replacements to address on the terrestrial and broadcast fronts that will take place next year. We're also committed to transforming the business by moving away from outdated systems, which will continue into next year. While we expect this period to represent a peak in overall capital expenditures, we will observe elevated levels in non-technical capital expenditures as we proceed into the next year.

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

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

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

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

Yes. Regarding advertising, we offer a leading range of programmatic solutions. From our standpoint, others have not highlighted these solutions as prominently as we have. Our AdsWizz platform has consistently introduced new technologies and solutions to support this. We are open to various partnerships for measurement or targeting with vendors, and we aim to maintain this approach as others look to leverage their closed systems. We will continue to advocate for enhancements to standards and industry certifications to provide improved measurement and targeting, which are essential for advertisers. As we have mentioned, we are looking forward to more AI tools, including developments in Synthetic Voices, coming this year. We have also expanded our brand safety and suitability solutions. We believe we are well positioned in this area, as evidenced by the growth in podcasting in the first quarter, as Tom noted. Additionally, we have introduced other sales solutions, such as our new relationship with Locked On, and we are developing a sports network offering. Our extensive sports content, available through both podcasting and SiriusXM, brings together all the leagues in one audio service.

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

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

It's quite early for targeted advertising and the 360L platform is still in its initial stages. Currently, we have just over 3 million self-pay customers using 360L and about 12 million vehicles on the road. We haven't introduced any free or ad-supported options for a wider audience yet, but it's something we're considering. Ideally, we want to increase our volume, and this year we're conducting some tests on a limited content offering to gain insights. Although it's in early development, we see potential to implement more targeted advertising as volumes grow, even though currently it's mainly broadcast ads. The real focus with 360L is enhancing the customer experience in vehicles, providing personalization, control, and discovery, much like we do in the app. Our strategy involves three main areas: expanding to more original equipment manufacturers, achieving feature parity in the market, such as in-vehicle messaging and ignition recommendations, and increasing awareness of the 360L features. While we know that conversion rates for 360L are higher, awareness remains low. Thus, enhancing personalized marketing capabilities in vehicles later this year is crucial for improving awareness both personally and across our broader marketing campaigns aimed at in-car customers.

Our next question is from Steven Cahall with Wells Fargo.

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

Thank you, Steven. There are two main aspects to address. First, we have the conversion rates for our in-car trialers and second, the post-trial retention for our streaming trialers. This year, we focused on launching the new platform in December. Since then, we have made significant enhancements to the overall experience for current in-car subscribers who are streaming, which represents the majority of our streaming monthly active users. We identified and addressed several gaps that were present at the initial launch, implementing multiple releases over the past few months to resolve customer concerns, bringing us back to our previous listening rates. The second group, of course, is the new streaming trialers. It’s still early to evaluate post-trial retention for those who began their trials in December and January. The situation is somewhat comparable to the in-car business, where there is a three-month trial period followed by a maturation phase lasting a few months to reach stable retention levels. Currently, we are about two to three months behind on the streaming side regarding the rollout of our fully personalized marketing strategies. Building the complete data flows has taken longer than anticipated, though we have observed positive leading indicators, such as increasing engagement from lower listening cohorts. We've been working on enhancing content engagement within the For You tab of the app and are beginning to implement full personalization in our marketing strategies based on content listening and feature utilization. This personalization is crucial. It will require time to test, refine, and expand the solutions even in the coming weeks. However, early signs suggest we are headed in the right direction. As we establish these personalized marketing initiatives, we anticipate seeing improvements in early trial engagement, which is a strong predictor of post-trial retention. In recent months, even without these completed capabilities, we have noticed a gradual, steady improvement in early engagement metrics, with current levels exceeding those from late last year. There is much more to achieve in this area, which is vital for expanding our streaming-only offering. I'll let Tom discuss ARPU shortly concerning its impact on pricing, packaging, and overall ARPU. Regarding the in-car side, as I mentioned earlier, conversion rates are not meeting our expectations. We are experiencing some pressure, particularly from younger generations. There is a chance that younger trialers may prefer a streaming product instead of our in-car offerings. However, we do not observe any significant cannibalization at this time. Instead, we find that customers sometimes enter our streaming options and are unclear why those do not include in-car access. There is considerable opportunity for optimization here, and I foresee two distinct segments emerging: one seeking a premium experience integrated into their vehicle, including streaming, and another, likely younger audience, more interested in a streaming-only product. Returning to the in-car conversion rates, both used and new car conversion rates are crucial for our growth. The personalized marketing strategies I previously mentioned will not be implemented in the in-car segment until later in the year, as we still need to develop those flows. We are gaining valuable insights from the streaming side, so we should be ready to hit the ground running once in-car marketing is established. We are prioritizing marketing efforts over other aspects of migrating our in-car proprietary systems, as we believe this will most significantly influence business metrics. Therefore, we do not anticipate meaningful improvements in conversion rates until much later in the year. Now, Tom, regarding ARPU?

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

Yes, that was included in our guidance, and we discussed it earlier this year. We've also mentioned that this is not a year for raising prices in car pricing and packages, but we expect to explore that as an opportunity for next year. We continue to conduct extensive testing on pricing and packaging for our in-car packages and believe there is potential to increase demand across a wider range of prices in our packaging structure.

The next question is from Stephen Laszczyk with Goldman Sachs.

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

Yes, Stephen, we achieved around $45 million in savings in Q1, as mentioned in our script. This savings came from various areas, primarily focused on maintaining our EBITDA margin. We are reinvesting some of these savings back into the business. In Q1, we optimized headcount and improved our programming and podcast margins. Our goal remains a $200 million savings for the year, and we are pleased with our 30% margin for Q1. We will continue exploring cost-saving initiatives throughout the year while managing the optimization and transformation processes. Regarding the Liberty transaction, it is still expected to close in early Q3, and we haven't received any updates from Denver about changes to that timeline. We are working to complete the transaction as quickly as possible.

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

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

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

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

Yes. I am not quite ready to discuss margins specifically in relation to the unit economics for both on and off platform. However, when it comes to our monetization on the advertising side, we have a very strong RPM on Pandora, which we reported at $91, and we continue to see healthy rates there. The podcasting segment is performing even better due to significant growth dynamics, and we are actively seeking opportunities to enhance our sell-through and programmatic solutions.

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

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