Greetings and welcome to SiriusXM's Third Quarter 2025 Earnings Call. This conference is being recorded. It is now my pleasure to introduce Hooper Stevens, Senior Vice President of Investor Relations and Finance. Thank you, Hooper. You may now begin.

Thank you, and good morning, everyone. Welcome to SiriusXM's Third Quarter 2025 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; and Wayne Thorsen, our Executive Vice President and Chief Operating Officer, will join Jennifer and Tom to take your questions during the Q&A portion of this call. 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 these risks and uncertainties, please view SiriusXM's SEC filings and today's earnings release. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I 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. Additionally, we have posted a supplementary presentation to our IR website for your convenience. With that, I'll hand the call over to Jennifer.

Thank you, Hooper, and thank you all for joining us this morning. As we enter the final months of the year, we remain committed to enhancing the subscriber experience, growing our ad-supported offerings and finding new opportunities to drive efficiencies and leverage our portfolio strengths. In the third quarter, we made good progress in each of these areas, delivering solid financial results and positive early indicators of our focused approach. With this backdrop, we are increasing our full year 2025 guidance by $25 million across revenue, EBITDA and free cash flow. We are confident improvements in our business will drive continued growth in free cash flow towards our target of $1.5 billion by 2027 and beyond. In addition, we are actively exploring ways to unlock the long-term strategic value of our spectrum assets. We're seeing solid momentum in our new SiriusXM acquisition initiatives with ongoing expansion of our 3-year automotive dealer subscription program and our Podcasts+ offering as well as continued strength in retention as we provide more value to our subscribers. Subscribers for Q3 were in line with our expectations, with self-pay net adds down versus last year, almost entirely due to our pullback on streaming marketing spend. Enhancing the subscriber experience begins with programming. We are consistently providing our core audience with new, relevant and engaging content and leveraging our unique platform and long-standing relationships to do even more with the voices driving culture today. Within music, the heart of our service, we hosted a variety of live events alongside channel launches. This included the return of Channel 13 to celebrate Taylor Swift's new album, a pop-up channel and small stage concert with Ed Sheeran and an exclusive Metallica event to launch their new full-time channel, Maximum Metallica. The latter was announced with a special appearance on Howard Stern, who consistently books A-List guests. Additionally, this quarter, we celebrated 10 years of Radio Andy and extended our agreement with Andy Cohen to keep the channel as our definitive home for pop culture. Howard and Andy are just two examples of the talent creating impact at SiriusXM. Stephen A. Smith is making a splash with his new political and sports programs as well as the launch of the digital destination, Get Serious with Stephen A., which gives fans a fresh way to interact with the host. Earlier this month, we also announced the renewal of our agreement with Megyn Kelly, which has expanded to include the soon-to-be launched Megyn Kelly Channel. With each of these personalities, we are able to utilize our platform to elevate their voices and deliver exclusive programming to our listeners. Our efforts to include more content across package tiers is providing even more value to our dedicated subscribers. We've seen more than a 50% increase in NFL and MLB play-by-play listeners, and almost tripled the usage of our artist-seated stations, reflecting the expanded access to our programming introduced late last year. Initiatives such as these encourage our subscribers to engage with a wide range of content across devices and even introduce new members of the household to our service, which not only results in higher satisfaction but also drives greater retention. Our programming is just one way we are delivering meaningful value to our subscribers. 360L penetration continues to expand, launching in Toyota's new RAV4 as we announced this month, and we are always rolling out new updates to enhance the in-car experience. Features such as Xtra Channels, for example, deliver listeners more 24/7 music both in car and in the app, with significant increases in both usage and time spent listening. Streaming engagement has remained high across the board, showcasing how our service accompanies many subscribers throughout their day. In particular, subscribers with 360L, who also stream listen almost daily, an average of 28 days a month. Beyond product enhancements, we remain focused on improving the overall customer experience. This quarter, we began rolling out our new identity framework, which shifts subscriptions from vehicle-based to customer-based. This change eliminates friction when customers add, replace or exchange vehicles. For example, subscribers no longer need to cancel and resubscribe at the end of a trial when replacing a vehicle. This framework also lays the foundation for future initiatives that will simplify the sign-up experience for new customers. Together, these improvements are expected to drive stronger customer acquisition, higher retention and sustained revenue growth. We've also made progress within our pricing and packaging. While we have been thoughtful in the rollout of Play, our low-cost, ad-supported subscription tier, we are seeing positive early indicators from the limited targeted marketing efforts we've rolled out in tandem with the launch. There is no evidence of cannibalization of our existing full-price population with the introduction of this new tier. In fact, within the test population, we are driving interest and subscriptions across all our packages, effectively widening the top of the funnel. This gives us an additional solution to leverage as we gradually move away from unpublished discount offers in both acquisition and retention. While initial impacts are small, Play is an important part of our broadened pricing and packaging structure, which we believe, alongside improvement in our content-led marketing efforts will help drive improvements in future subscription trends. Switching to the topic of advertising, we saw another positive milestone in the third quarter. SiriusXM Media now reaches more than 170 million listeners a month, and our podcast network is now the largest in the nation per Edison Research. Ad revenue grew 1% year-over-year and podcasting in particular continues to boom, once again up almost 50%, offsetting declines in music streaming. We are expanding our inventory to meet marketplace demand with a variety of new shows launched over the last few months from our partnership with SmartLess Media and a new agreement announced this week with MrBallen. The latter deal, in particular, with a video-first podcaster underscores our ability to support creators by growing podcast monetization across all platforms. We're seeing significant year-over-year and quarter-over-quarter expansion of our Creator Connect social and video offering, where we are growing both our inventory and CPMs. We're also expanding monetization opportunities with new partnerships such as our integration of the Amazon DSP this quarter, which provides further runway for programmatic advertising, which was once again up year-over-year. Additionally, we are leveraging our broader network to take the podcasting tailwinds and help brands find their audiences across Pandora and SiriusXM, bringing more ad dollars to both platforms. We see even more opportunity to own the digital in-car ad experience across Pandora and SiriusXM through 360L as well as CarPlay and Android Auto, usage of which is up for both services this quarter. And with our open ecosystem approach, we are utilizing our industry-leading strengths in selling and monetizing audio ads to expand our streaming and podcast networks. Across the company, we are exploring further options to do more with the valuable assets we have within the broader business, whether that is with spectrum or by leveraging our ad capabilities with additional third parties. As we continue to drive profitability, achieve our target leverage ratio and move towards our free cash flow target of $1.5 billion in 2027, we expect to have expanded opportunities for capital returns to drive long-term value creation for shareholders.

Thank you, Jennifer, and good morning, everyone. In the third quarter, we executed with strong discipline, sustaining healthy margins, delivering operating efficiencies and allocating capital to initiatives with clear returns. At the same time, we leaned into new content and distribution initiatives that reinforce our long-term competitive position. Looking at the financial results for the quarter. Total revenue for the third quarter was $2.16 billion, essentially flat year-over-year, down less than 1%. Subscriber revenue declined by $16 million to $1.63 billion, while advertising revenue grew by $5 million to $455 million. Total cash operating expenses were $1.48 billion, also flat compared to the prior year. Adjusted EBITDA was $676 million, down 2% year-over-year with a 31% margin. Net income for the quarter was $297 million and free cash flow was $257 million, up from $93 million in the third quarter of 2024. The year-over-year improvement in free cash flow was primarily driven by the absence of Liberty Media transaction-related costs recorded in the prior year period as well as lower cash taxes paid and reduced capital expenditures. Turning to the segments. SiriusXM total revenue finished the quarter at $1.61 billion, down 1% year-over-year, primarily driven by lower subscriber revenue due to a modest decline in the average subscriber base. Advertising revenue remained steady, down $2 million to $39 million for the quarter. Average revenue per user rose slightly to $15.19 from $15.16 in the prior year period, benefiting from the March rate increase. Segment gross profit was $958 million, down 1% year-over-year with a gross margin of 59%, a 1 point decline from the prior year. Churn remained healthy in the third quarter at 1.6%, improving slightly year-over-year, driven by declines in vehicle-related, nonpay and voluntary churn. Self-pay net adds were negative 40,000, driven by consistently low churn, higher trial volumes and continued progress in new acquisition initiatives. These were partially offset by lower conversion rates and softer streaming net additions. We continue to anticipate some headwinds in the fourth quarter from reduced streaming marketing and acquisition channels. Turning to the Pandora and Off-platform segment. Total revenue was $548 million, up $4 million or 1% year-over-year. Subscriber revenue declined 2% to $132 million on a smaller sub base, while advertising revenue grew 2% to $416 million. We saw encouraging signs of increased spending late in the quarter with momentum building through September. Programmatic revenue continued to strengthen and podcast demand remained robust, driving nearly 50% year-over-year growth in podcast revenue. During the quarter, we continue to see growth in advertisers buying across two or more of our platforms, reflecting the growing success of our multi-platform reach. As we roll out our unified buying capabilities next year, we expect this trend to strengthen further. Segment gross profit in the quarter decreased 9% to $170 million, reflecting a gross margin of 31%. Third quarter operating expenses reflect the ongoing benefits of our cost savings initiatives. Sales and marketing expense declined 15% to $176 million, driven by reductions in brand and streaming marketing. Product and technology costs fell 5% to $54 million due to ongoing optimization efforts. G&A expenses increased 2% to $115 million, primarily due to higher software and telecom costs. Overall, for 2025, our cost savings program continues to outperform expectations, achieving our $200 million target in year while we continue to reinvest selectively in areas that drive clear payback in engagement, ad monetization and OEM distribution. Subscriber acquisition costs totaled $107 million for the quarter, up from $90 million in the same period last year. This increase was driven by the expansion of our OEM programs, including broader adoption of 360L and ongoing migration to the wideband chipset. These investments are expected to yield favorable economics and improved listener conversion over the life of the agreement. During the quarter, we increased and extended our revolving credit facility to $2 billion with just $30 million drawn as of September 30, preserving significant liquidity and financial flexibility. We ended the quarter with a net debt to adjusted EBITDA ratio of 3.8x, slightly above our long-term target in the low to mid-3s. Our strong and consistent cash generation continues to support our ability to delever and enhance capital returns over time. During the quarter, we reduced total debt by $120 million and returned $111 million to shareholders, including $91 million in dividends and $20 million in share repurchases. As we work towards our leverage target by late next year, we remain committed to prudent investments and maintaining our dividend policy. We expect to have increased flexibility to enhance shareholder returns and pursue strategic opportunities. Finally, we are increasing our guidance on revenue, adjusted EBITDA and free cash flow by $25 million to approximately $8.525 billion in total revenue, $2.625 billion in adjusted EBITDA, and $1.225 billion in free cash flow. This is in addition to the $50 million free cash flow guidance increase we announced in September. These increases reflect the continued strength of our operations and our disciplined execution, and we remain confident in our ability to close this year strong.

And our first question comes from Stephen Laszczyk with Goldman Sachs.

First, Jennifer, subscriber net adds continue to improve here in the third quarter. I know we've had some one-time impacts coming in and out of focus this year. You've had to cancel some streaming-only churn. I think Tom called out some factors in the fourth quarter to consider. But maybe I was curious if you could just spend some time talking about where we stand on each of these factors, just moving parts as we close out the year and as we begin to look into 2026 on the net add front and as some of the underlying momentum in the business might start to come through?

Thank you, Stephen. As we started this year, we indicated that we anticipated improvements in self-pay net additions compared to last year, although there were specific factors influencing this. Primarily, this was due to the reduction in streaming as a consequence of decreased marketing spending. The performance we have observed so far this year and our expectations for the fourth quarter align with our initial outlook. In our previous call, we mentioned anticipating a net reduction of about 300,000 due to the streaming adjustments, with the first and fourth quarters being the most impacted in terms of year-over-year effects. However, we still project our in-car business will perform better than last year, thanks to various new acquisition programs we have been discussing, including three-year automotive dealer subscriptions, enhanced used car data, and electric vehicle implementations, all of which show positive trends. Looking ahead to next year, we will provide clearer insights during the fourth quarter call, but we remain optimistic about contributions from these new initiatives. We expect to have mostly moved past the major streaming net add reductions this year and believe we will continue to make progress thanks to improved pricing and packaging strategies, enhanced personalized marketing, and the use of third-party data to connect with our customers effectively. Additionally, our continuous service offerings should alleviate any friction for current subscribers when transferring vehicles, and we foresee future opportunities in bundles and partnerships. One area we are monitoring closely for next year is auto sales due to the changing tariff landscape and its potential impact on consumer demand. Overall, we are confident in the current trends.

Great. That's helpful. And then on the ARPU side, I was curious if you could talk a little bit more about the receptivity you're seeing across the base to the rate increases earlier this year and then also to the pricing and packaging changes you made on the SXM side earlier in the year as well. I think we've seen ARPU trends improve throughout the year. Just curious how much more opportunity you see for them to continue to improve as you look into 4Q, maybe into 2026 as well as we think about the balance of rate increases versus maybe some SiriusXM Play subs coming into the base in a more meaningful way over the next couple of quarters?

Yes. Again, we're on track on ARPU in terms of better year-over-year comparisons, as we said, as we go throughout this year. And yes, we've talked about introducing lower-priced packages like our $9.99 music only and add ads on top of that and our low cost of ads or Play subscription. We think what we're seeing in both of those cases is that they are great headline prices, but that customers are typically taking higher-priced packages even with those used for promotion. So we do feel good about the mix on acquisition. And I think we continue to have opportunities to add value to support future rate increases. And so I would expect that we have the opportunity to continue to improve ARPU over time. But of course, it really is about revenue maximization and balancing rate and volume.

The next question is from the line of Cameron Mansson-Perrone with Morgan Stanley.

First on a follow-up on pricing. I was just wondering if we should still think about you deploying kind of an every other year philosophy? And then relatedly, how might pricing activity from peers influence those decisions around pricing near term?

Thank you, Cameron. We're considering the possibility of adjusting the frequency of our rate increases. We executed a strong rate increase earlier this year and have established a solid model for enhancing subscriber value prior to these increases. We aim to maintain this approach by focusing on product features, new content, and improving service continuity, which simplifies vehicle transfers. Therefore, we might increase rates more frequently, perhaps every 18 months instead of every two years. We're closely monitoring the overall market. As you've pointed out with other audio and video services, consistent rate increases are evident, indicating both an opportunity for us due to our competitive pricing and a need to watch for potential subscription fatigue, which we haven't encountered yet. These considerations will influence our future decisions.

That's helpful. And then on advertising, some good sequential improvement in ad trends this quarter. You highlighted the strength of podcasting. I was wondering if you could help provide any help in terms of thinking how podcasting has increased as a share of the overall ad business. And as part of that, just helping us frame the opportunity maybe for that outperformance to come through in total ad growth over the next few years.

Our podcasting performance has been very strong. Again, another quarter where ad revenue in podcasting was up about 50%. We're really pleased with the investments we've made here and the innovations that we've launched, including things like Creator Connect to sell across audio, video and social. So it is representing a larger portion of our overall ad revenue, and we would expect that to continue. But we do have opportunities to improve on the streaming side and on the satellite side. As we bring things like Tom mentioned in the prepared remarks, being able to sell better across our platforms, and we're just launching now a unified buying process for salespeople and marketers so that it's much easier to buy across all three platforms. So we'd expect to see some tailwinds there. And also, as we launch ad replacement in the car, we've been talking about this for quite a while, but we are going to start that evolution early next year, and that will continue to progress to allow us really as the only provider of the ability to execute against addressable inventory in the car. So there are opportunities for us to continue to expand across the other aspects of our portfolio, but we're really pleased with where we are in podcasting and expect to see continued tailwinds there.

The next question is from the line of Kutgun Maral with Evercore ISI.

I wanted to ask about spectrum and see if there's any more you could share on how you're viewing the portfolio and scope for monetization. If you just take a look at recent market transactions, it certainly seems like this could be quite a significant opportunity for the company even if you take a big haircut to recent comps. And relatedly, it might be premature to ask, but how should we think about how you could look to allocate any potential proceeds, particularly since you're not too far off from your target leverage?

Thanks, Kutgun. Just to level set, our spectrum holdings total about 35 megahertz right now of contiguous spectrum with 25 megahertz being used for our core broadcast operations and 10 megahertz of the recently acquired spectrum that are positioned either side of the 25 megahertz, and those are the WCS licenses. So you're right, that does give us a lot of flexibility to create value in multiple ways whether that's expanding or enhancing our service or building on core strengths, in particular, in the car. It also includes opportunities for new partnerships or services built potentially in conjunction with partners. So we are evaluating multiple approaches to creating value right now, and we'll share more as our thinking and the opportunities evolve.

Yes. I'd just say, Kutgun, on the last part of your question about proceeds. Obviously, it's way too early to be thinking about that. But we have the usual approach in terms of capital returns, right? We want to make sure that, first and foremost, we're executing against opportunities we have to invest in the business organically with high ROI. We've been very disciplined about that. There's, of course, an ongoing evaluation of M&A opportunities. We don't believe there's anything near term that we need for the portfolio, but we continue to be open to that. And clearly, the focus right now is on delevering. As we've said, we're consistently measuring against our long-term leverage target of low to mid-3x EBITDA and expect to get there late next year. And beyond that, of course, there's opportunities for other capital returns to shareholders, whether that's dividends or share repurchases.

Our next question comes from the line of Barton Crockett with Rosenblatt Securities.

I wanted to follow up on the spectrum topic and delve a bit deeper. Part of the question relates to the potential for selling spectrum and the associated value based on comparable transactions. Could you share your thoughts on whether selling spectrum is a possibility? If it is, I’d appreciate some insights on how you might consider licensing, given that your spectrum is currently designated for a specific satellite radio application. There seems to be considerable interest in alternative applications, such as satellite connectivity for cell phones, which has been a factor in some recent transactions. Is this particular use of your spectrum something that could work, and are there any licensing actions that might be advantageous in the current FCC environment?

Yes. Sure. Thanks, Barton. So Wayne mentioned how we're really approaching the process. And I think there's a number of different use cases. I'm not sure that really is going to involve selling spectrum. We do believe the FCC has been more open to different types of uses and transactions. But really, it's like what Wayne said, let's find the best opportunity for our business given the strengths that we provide, particularly in automotive and perhaps there’s a partnership that would let us better execute there. But that's really the main focus.

Okay. That's helpful. And then if I could just switch to another topic on auto relationships. There's been some disclosures, I think, from automakers like GM of a desire to move to their own kind of interface versus kind of CarPlay and Android Auto. I'm just wondering in this environment where GM might be doing that and others perhaps over time. If that potentially advantages those who are economic partners of the automakers who will have greater control over the interface if they do this versus those who don't. So you guys are an economic partner, you pay them a split. Others like Spotify don't. Does that advantage you potentially in the interface?

Thank you, Barton. It's Wayne, and I'll address that. As you may know, throughout the year, we've improved our capabilities in CarPlay, which has contributed to the rise in usage. A significant number of our users prefer to access our service through this platform, so we aim to be present wherever they are. We also work closely with the OEMs to integrate as deeply as possible into their in-vehicle interfaces, ensuring we provide the best experience for consumers. We believe we are well-positioned in both arenas. We have formed strong relationships with consumers, platforms, and OEMs. Moving forward, we will continue to advance in both areas and are excited about the opportunities for ourselves and our users.

The next question is from the line of Matthew Harrigan with Benchmark Company.

I can't express an OEM question any better than Barton, so I will skip that one. However, the video space, especially regarding micro content on YouTube and similar platforms, is intriguing. It appears to me that music video content has not been fully monetized. Additionally, there's prominent content like podcasts that cater to the entire political spectrum. How significant is this opportunity? Furthermore, how does your potential advertising technology for video compare to what you're doing in audio? You're clearly a leader in audio, and there's considerable media coverage on various video initiatives these days. It seems like there's a substantial opportunity for monetization in the video space that could complement your audio leadership in vehicles.

Great. It's Scott. Thank you. So a couple of things. So as you pointed out, we're the #1 podcast network now in terms of reach in audio in the U.S. So that lane is vibrant and growing, and we continue to be the leader there. In video, our YouTube partners that we have on there, whether it's Unwell and Alex Cooper or SmartLess or anything else, we're seeing enormous growth there. As many of you read, you saw the Spotify announcement with Netflix and other things. With our lineup of content, there's no shortage of opportunity where we'll go in video. Right now, we like the way we're monetizing. We're flexible. We can have video behind the paywall. We can have video with YouTube or any distribution partner. And with 11 of the top 25 podcasts, it feels like we're in a good position to see what's out there, field some offers and decide what's best for the company.

I would like to emphasize that most of our engagement happens in the car, and we believe there are still plenty of opportunities for audio in that space. Video serves as a great complement, and as Scott mentioned, collaborating with other partners, particularly where we have found success with YouTube, opens up significant opportunities for us to generate complementary engagement outside the car and promote SiriusXM audio content back within the vehicle.

At this time, our next and final question is from the line of Steve Cahall with Wells Fargo.

This is Omar on for Steve. One quick one for me. Cost cuts have been a major opportunity for SiriusXM over the last couple of years. And recently, you've talked to an improving outlook for non-satellite CapEx. And obviously, you guys have hit your targets for the year. Just curious, what inning are you in for cost reductions? And where have you been able to find the most efficiency in the operating model?

Omar, it's Tom. In reviewing our financials for this year, we've made significant strides in sales and marketing optimization while also reducing some of our streaming marketing and other direct marketing efforts. This year, we focused on optimizing our marketing approach. Although there has been an impact on our product and technology, we are continuously evaluating all our initiatives across the company. We have achieved success so far and have made considerable progress in reducing capital expenditures, as noted previously. We have met our target for the year of exceeding $200 million and are aiming to go beyond that. Many of these changes are structural, but we also have ongoing projects that we are continuing to refine in our overall cost structure.

Yes. I'd just add on. We've made great progress on the cost side. But really, it's about we're doing what we set out to do when we focused our strategy last December, and we're really pleased with our progress across the board. So we've been enhancing the in-car experience, super serving our core audiences. We are driving our ad business, particularly within podcasting, but even more broader, and we're driving profitability. So ultimately, we're focused on increasing free cash flow and driving future value creation for our shareholders, and I'm confident we're on the right path.

Thank you, everybody, for participating today, and we look forward to speaking to you offline in next quarter. Thank you.