SiriusXM Holdings Inc.

Good morning and welcome to Sirius XM's second quarter 2022 financial and operation results conference call. Today's conference is being recorded. A question and answer session will be conducted following the presentation. If you have a question at that time, please press star 1 on your telephone keypad. If at any time you'd like to be removed from the queue, please press star 2. At this time, I would like to turn the conference over to Hooper Stephens. Senior Vice President, Investor Relations and Finance. Mr. Stephens, please go ahead.

Thank you and good morning, everyone. Welcome to SiriusXM's second quarter 2022 earnings conference call. Today, we will have prepared remarks from Jennifer Witts, our Chief Executive Officer, and Sean Sullivan, our Chief Financial Officer. Scott Greenstein, our President and Chief Content Officer, will join Jennifer and Sean to take your questions. I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions, data, or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about those risks and uncertainties, please view SiriusXM's SEC filings and today's earnings release. We advise listeners to not rely on duly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I would like to remind our listeners that today's call will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation. With that, I'll hand the call over to Jennifer.

Thanks, Hooper, and good morning, everyone. Thank you for joining us today. We are pleased with our results in the second quarter of 2022. While we continue to navigate variability in customer and market demand, we delivered strong financial performance with record low churn. By leveraging our balance sheet and scaling key growth initiatives to deliver best-in-class content to our customers, we are setting SiriusXM up for future expansion and solid financial performance. Into the second half, we remain committed to building on that momentum, by making the strategic investments necessary for our long-term success while continuing to exercise financial discipline. SiriusXM added 23,000 net new self-paid subscribers and 54,000 paid promotional subscribers in the second quarter. Despite a slight sequential uptick in April, SAR saw further weakness in May and June and ended the quarter down 4% from Q1 and 20% year-over-year. While we are confident we can deliver positive self-pay subscriber growth, we no longer expect to attain our prior subscriber guidance due to challenges and uncertainty in new and used auto sales. However, with strong, predictable, subscriber-driven revenue, we are able to reiterate all of our financial guidance. There is growing uncertainty in the advertising market where we generate significant revenue with high variable margins, so we are prudently implementing a variety of cost-saving measures such as limiting our headcount growth to priority roles and taking a more measured approach on discretionary spending. While we manage through prolonged supply-related challenges in the auto industry, the strength of SiriusXM's brand and uniqueness of our product, which is evidenced by our large subscriber base and outstanding churn rate of 1.5%, remains extremely attractive to automakers, which continue to see us as the premium audio entertainment provider of choice in North America. Our new and used car penetration rates grew to 84% and 51% respectively, and our enabled fleet is now approximately 145 million cars. In the second quarter and looking ahead, we continue to build on these long-term relationships. We completed several extensions with automakers this quarter, including Mazda and Mitsubishi. We continue to make progress in deploying our 360L platform and saw an uptick of two points in our mix from Q1. While we aren't announcing anything specific today, we are also making progress with several EV startups and look forward to sharing more with you in the coming months. While our in-car subscription growth continues to see the impact of the macro auto environment, we are seeing solid uptake of our streaming-only subscriptions, and these offerings are a meaningful driver of subscriber growth this year. Recognizing this growing opportunity, we are evolving our business to focus on listening both in and outside the vehicle. SiriusXM holds a differentiated content position, and we are building on the strength of our in-car business, brand awareness, and robust business model to expand our streaming business and our total addressable market in an exciting and meaningful way. The initial consumer response to our streaming efforts has been encouraging, and we expect this to be a much more significant part of our business in the future. In the second quarter, we also continued enhancements to our commerce experience to enable and ease signups on key connected TV platforms, including Amazon Fire, Android TV, LG, and Roku. We also closed on a new agreement with Comcast, our first broadband TV provider, which includes launching a fully integrated SiriusXM audio experience to millions of Comcast customers on the Xfinity platform, which will also support video later this year. All of these initiatives create new ways to reach and engage consumers, both those who already have a satellite subscription in their cars and those who may be new to the service, enhancing the SiriusXM brand and its relevance as we work to build the future of curated audio entertainment. Consumers have multiple options to stream their favorite music and playlists. However, SiriusXM remains the premier provider of live, human-curated music and audio entertainment, and combined with interactive and on-demand capabilities, we create unparalleled listening experiences to meet the needs of our audience. Fans can interact live with their favorite hosts like Sway, Megyn Kelly, or Howard, or enjoy curated content experiences with major artists, including our exclusive special invitation-only events. In addition, this quarter we created pop-up channels for Black Music Appreciation Month to celebrate the music of Black artists such as Whitney Houston, Tupac, Biggie, and Prince. We also hosted a diverse roster of events, including a concert cruise in New York City with Yacht Rock stars Kenny Loggins and Christopher Cross, and small stage series concerts with the Grammy award-winning rapper 2 Chainz in Atlanta and Def Leppard in Los Angeles. While traditional content still drives the majority of in-app listening, unique content like this contributed to a 41% year-over-year increase in on-demand music listening in the SXM app. Tonight's Monoskin Small Stage Series event and Pearl Jam at the Apollo this fall in New York are just two examples of the exclusive experiences we continue to deliver to our subscribers this year. In addition to our exclusive and on-demand content, the SXM app is home to over 200 extra channels. These have the DNA of SiriusXM channels, but are more finely curated for mood and activity-based listening. These extra channels continue to drive the largest share of listening outside of live programming in our app. Looking holistically across both in-car and streaming listening, this quarter we saw strong performance in music, sports, and comedy. In music, Drake's SiriusXM channel, Sound 42, which launched last year, showcases boundary-pushing hip-hop and R&B and continues to bring in new audiences. Last month, he surprised fans with the premiere of his new SiriusXM radio show, Table for One. The first episode dropped in tandem with his surprise album, which broke multiple industry charts. Looking at our streaming metrics, total daily listeners and time spent listening to Sound 42 were up 50% on average following Drake's June 16th album drop. In sports, SiriusXM offers a differentiated value proposition in an increasingly complex and fragmented media space. With video, sports fans are required to have multiple subscriptions to watch it all, whereas SiriusXM offers one-stop shopping for all of a sports fan's audio needs. This quarter, we saw one of the strongest sports calendars post-pandemic, and SiriusXM subscribers had a front-row seat to all the action. We delivered coverage of the biggest events, including the Masters, the PGA Championship, and the U.S. Open, the Men's and Women's NCAA Final Four and National Championship Games, every MLB game starting with opening day and the Indianapolis 500. As a result, overall sports listening in the SXM app continues to increase, and we are investing in exclusive content rights to expand our offering. Most recently, our NFL renewal and expansion agreement makes SiriusXM the exclusive third-party home to all NFL games and gives us additional rights and opportunities to expand our coverage, plus original content produced by the teams that will be available only on the SXM app. Also, in May, we announced a multi-year extension with Formula One, ensuring our listeners continued access to every F1 race, a fan favorite. Lastly, comedy continues to be a key content vertical for SiriusXM, and our recent acquisition of Team Coco marks the latest addition to our ever-growing portfolio. The deal provides significant value on the podcast ad network side, and opportunities for us to grow paid subscribers with exclusive content. Team Coco staff, now part of the SiriusXM team, will continue to produce the network's slate of popular podcasts while collaborating on content exclusive to SiriusXM. Today, I'm excited to announce that we will be launching the inaugural Team Coco channel this fall, a full-time, original Team Coco comedy channel available only to SiriusXM subscribers. Conan and team are hard at work creating a unique experience for the channel, and we'll have more to share on this in the coming months. But you can expect to hear all new original and exclusive content, along with his most popular podcast, stand-up clips, and interviews from his long-running TBS show. Before I turn it over to Sean to review the financials, I also want to spend a few minutes on SXM Media, our combined advertising sales group. We continue to be a leader in digital audio advertising. and in podcasting specifically. Per Edison Research, we are the number one podcast advertising network in weekly U.S. listeners and represent four of the top 15 podcasts in the country, including Crime Junkie, Office Ladies, Dateline NBC, and Pod Save America. People are listening to more audio on more platforms than ever before. According to the Edison Research Share of Ear report for the second quarter, Americans are spending 20 more minutes per day listening to audio, a 9% increase compared to Q2 2021. We are well positioned to benefit from these trends, both in our listening platforms and in our ability to bring broad solutions to advertisers. While our advertising business is not immune to the macro trends felt industry-wide, we are seeing growth in our ad business, particularly on the podcast side, as we continue to build our off-platform relationships and capabilities. Our total audience reaches 150 million listeners, including SiriusXM, Pandora, SoundCloud, and our broader podcast and off-platform network. Additionally, we continue to deliver best-in-class technology solutions, advancing the podcast ecosystem. Earlier this month, we released new AI-powered podcast audience targeting capabilities as part of an expanded agreement with Comscore to help accelerate our opportunity to monetize impressions and transform the market as we did in music with Pandora. SiriusXM remains an industry leader in podcasting, producing continuous positive gross margins thanks to our disciplined approach, rich content, and constant efforts to bring value and entertainment to listeners, content creators, and advertisers. Looking ahead, we remain focused on increasing the underlying resiliency of our business to continue delivering one-of-a-kind content and value for our customers and strong and sustainable financial results for our shareholders. We remain committed to our long-term focus of shaping the future of audio and broadening our revenue base into non-automotive markets, and we are excited by the early strides our new team is making on the technology and product side. Later this year, we will deliver improved in-app personalization to drive content discovery and enhance CarPlay and Android Auto integration, and we will continue to expand and innovate our product offerings. Ultimately, this translates into solid revenue growth margin expansion, and strong cash flow generation, which can be reinvested in the business to create better products for our customers and more robust capital returns for our stockholders. With that, I'll turn the call over to Sean to go through the financial highlights in more detail.

Thank you, Jennifer. A few quick highlights on the quarter. Revenue increased by 4% in the second quarter, with advertising revenue up 5% to $452 million and subscription revenue also growing by 5%. to $1.7 billion. JustDiva DAO was 3% lower at $679 million as we made substantial investments in sales, marketing, content, and product development. Diluted earnings per share were $0.07 versus $0.10 in last year's second quarter when we booked approximately $140 million of satellite insurance recoveries. We generated $435 million of free cash flow during the second quarter, down 21% from the prior year as cash taxes rose by $97 million year over year, and last year's second quarter benefited from $17 million of satellite insurance receipts. Turning to our operating segments, for SiriusXM, total revenue in the second quarter increased 5% to $1.7 billion, driven by the larger self-pay subscriber base and 7% growth in ARPU, offset by a lower base of paid trial subscribers. Jennifer highlighted SiriusXM subscriber growth but to give some more clarity into the back half, looking at trial starts can be useful. During the second quarter, SiriusXM new and used car trial starts were down 20% and 8% respectively. Total trial starts were down 15% year over year in the second quarter, somewhat worse than the first quarter figure of down 10%. Gross profit in the SiriusXM segment climbed 6% to $1.05 billion, representing a margin of 61%. In the Pandora and off-platform segment, advertising revenue of $403 million increased 5% in the second quarter, with Pandora's ad revenue per thousand hours stable at approximately $100. In the second quarter, our podcasting and off-platform businesses generated $119 million in revenue, an increase of 50% year-over-year. We expect these businesses to represent a growing portion of this segment's advertising revenue over time. Travel, restaurants, gambling, and retail have all been strong ad categories for us, but in healthcare, automotive, telecoms, and beverages, we are seeing weakness. Gross profit in the Pandora and off-platform segment declined 13% to $167 million, representing a 31% gross margin, lower than last year, given meaningful investments in new podcast content that are still in the early stages of monetization. Today, we reiterate our existing financial guidance for 2022. revenue of approximately $9 billion, adjusted EBITDA of roughly $2.8 billion, and free cash flow of approximately $1.55 billion. As we scale in podcasting, advertising revenue will continue to contribute to growth in 2022, and subscription revenue will increase with the benefit of prior rate action. Our adjusted EBITDA guidance this year continues to reflect investments in product, content, and marketing to drive growth in streaming. But with modestly lower subscriber revenue than we originally forecast and a more cautious advertising outlook for the back half, we are tightening expense management across the organization. On the capital allocation front, we started the year by returning nearly $1.3 billion to our stockholders in the first quarter via dividends and share repurchases. We added another $303 million to this total in the second quarter, bringing year-to-date capital returns to roughly $1.58 billion. We ended the second quarter at 3.6 times net debt to EBITDA within the range we previously articulated. Our balance sheet remains exceptionally well positioned, with $1.24 billion available under our revolver and limited near-term maturities. We have significant capacity to continue investing in the business, pursue acquisition opportunities, and continue returning capital to our stockholders via dividends and share repurchases. With that, operator, let's open it up to Q&A.

Thank you. At this time, we'd like to open up the call for questions. I would like to remind everyone, in order to ask a question, please press star 1 on your telephone keypad. If at any time you'd like to be removed from the queue, please press star 2. We will pause for just a moment to comply the Q&A roster. We will take the first question from Jessica Reif-Ehrlich from B of A Securities.

Please go ahead. Hi, Jessica. Can you go ahead?

Hi operator, why don't we go to the next one and come back to Jessica.

Thank you. We will now take the next question from James Ratcliffe from Evercore ISI. Please go ahead.

Hi, two questions if I could. On the SiriusXM side, SAC was up per installation about 7% or so year on year. Can you just talk about the trends at that level, quite apart from the issue of actual volumes of SAR? And secondly, at Pandora, you mentioned investment in new content, pressuring gross margins there. Can you help us size that sort of investment and get a sense of what the run rate, gross margin profile of the business is and how that evolves as presumably off-platform revenue becomes a larger share of the ad revenue there? Thanks.

Sure, James. I'll take the first one on SAC for install, and then I'll let Sean talk a little bit about the margins on the ad side. So, look, our SAC per install has come down significantly, as you've seen over the years, and it's going to fluctuate, you know, I would expect by a couple dollars here and there by quarter, just depending upon, you know, the mix of our automakers installing modules into the vehicles, and then the ramp of different technologies within our modules. So, we have, you know, different economic structures with the producers of the modules. So, Overall SAC per install, obviously, is a reflection of the equipment margin, you know, the revenue that's coming through on the top line, the costs, and then the subsidies. So there will just be some variability around there, but I don't think it's necessarily indicative of a higher trend. And, Sean, you want to start on the second one?

Yeah. Yeah, sure, James. So, you know, as it relates to Pandora and the ramp, obviously we – have announced a number of new deals. We have an incredible amount of inventory coming online. I think, as I said in my comments, we're still in the early stages of monetization of some of these podcast ramps. So in the early days, you're seeing the pressure on the gross margin on the Pandora and off-platform margin for the segment. But overall, long-term, we think it's a great place to be. I think it's early to... to really articulate what our margin goals are. Every deal that we do obviously builds a great audience scale, you know, allows us to maintain our position in the podcast audience space. And, you know, but all in all, we're pleased with the deals we're doing. We're all hopeful that we can continue to improve the margin profile, but I think it's still premature to talk about it, given that the market is still growing, it's still early days, and we want to make sure we capture share, but certainly do it in a financially disciplined way so that we can really have an additive halo effect to the overall SXM media and advertising reach. So I don't know if Jennifer or Scott, do you want to add anything to that?

Yeah, I'd just build on that a little bit, Sean, that I think exactly what you said. We're in the early days, I would expect monetization in podcasting to grow faster than the audience listening is growing, just because we're still working with largely a manual process. There's a lot of host-read ads. There's a lot of working closely with the talent. Programmatic is in its early stages. So there's a lot of technology and capabilities that is going to come to the space just generally and certainly with our solutions. that I believe is going to continue to enable us to grow going forward. We did stipulate that our growth in the off-platform side of our ad business was up 50% in the second quarter, and it was up 43% in the first quarter. So we're seeing nice growth trends in this part of our business.

Great. Thank you.

The next question comes from Jessica Reif-Ehrlich from Bank of America.

Hopefully you can hear me this time. Can you? Yes. Okay, good. So your content costs were up double digits, but there's obviously a ton of new content both in the car and in-app. And I was just wondering if you could talk about the outlook for both costs and content across music, sports, and podcasting for the foreseeable future. And then on advertising, I mean, you're, I guess, appropriately cautious, but How does that, you know, how do you factor in political and then, you know, as kind of we get through supply chain issues, do you expect to pick up in like auto or other areas?

Yeah, just on content costs in general, you know, let Sean or Scott jump in too, but we will continue to make selective investments to support the service, you know, both in the car and in streaming. You saw our announcement about the NFL. Scott can talk more about that. We are big believers in sports and certainly the live aspects of sports and play-by-play and really excited about what we're doing with the NFL there. And I don't think I'll talk specifically about the different categories in terms of cost, but you heard me earlier highlight some of the areas where we believe we're definitely making strides. And, of course, there's going to be investments alongside that in music and in sports and in comedy. So, Scott, do you want to talk a little bit more about NFL and maybe COVID?

Yeah, exactly. So, Jessica, on sports, the one thing we've seen, which is interesting – And I think the TV networks have seen it as well. It cuts across all demos, number one. And number two, live still matters. So we've always been big believers in live sports and in all live sports and having one-stop shopping. If you look how video sports rights are now, they're fragmented in many places. you just can't say I want all the basketball, football, baseball, hockey, car racing, or anything else in one spot the way we have that. So I feel really good about that, and it will translate more into digital as we do microchannels based on teams and other things down the road on that. Just quickly on podcasting, early stages, one of the first goals with Stitcher was, to figure out which podcasts would really matter and make it number one. And according to Triton, Stitcher's number one by a large margin. So that's now leading to a lot of other talent and opportunities coming through here, as well as some of that talent working its way, like Coco and Crooked and others, onto SiriusXM. So I feel pretty good about that. The digital area is interesting because that's where the younger demo growth will come. We know our core demo on Sirius is solid, and right now you're seeing with the extra channels, but over time you'll start to see branded channels and others, some of which are there, to grow in that space as well. So I feel pretty good where we are right now.

Just on advertising then, Sean addressed some of this earlier in his comments, but We are facing some of the same challenges you see in the industry more generally. We're watching cancellations closely. We obviously feel very comfortable with our full-year revenue guidance. But, yeah, there are some categories where there's softness. I think as automotive starts to rebound, we would expect to benefit from that. There have been other areas of opportunity with travel and restaurants, etc., D2C tends to be more vulnerable than brand, and we do have both sides of advertisers represented across our platforms. But again, we saw some nice growth in our off-platform business in the second quarter. We continue to cross-sell across our platforms and make strides there. And we have a lot of other unique solutions, such as just what we're doing with Amex on small stages and branding that around their Shop Small initiative. that we're continuing to see opportunities around those.

Can I just ask one follow-up for Scott? Scott, you've grown a lot in podcasting. Are there any specific genres that you think that you need to kind of focus on or beef up? And on the music side, which you didn't really talk about, is it important to have specific artist relationships? I mean, you've just introduced so many different kinds of genres. over the last, I'd say, two or three years. It's incredible in-app and in the car.

Okay, so the one category we wanted, just to set the ability to answer the second part, was true crime, because that seems to be the first unique audio category that's come along in years, and it's the biggest thing in podcasting. So with Crime Junkie and a few of the others, we have that locked up. So I'd like to see empowerment and self-help and a lot of other things like in that area grow. You know, Dr. Radio and some of the things we did on Sirius are a little more narrow. Podcasting and podcasting networks and some brands and others in that area I'd like to see grow. On the music side, you know, it's always a balance. We feel we have a good balance between the categories that matter in rock, pop, and hip-hop. in both our curated channels and our artist channels on it. It's just a question of will it move the needle to have an artist or a brand over a channel in music, similar to the way you could have a hip-hop channel or you could have Drake do a hip-hop channel. That one's pretty obvious. So we just need to look what makes sense, both economically and culturally, and see where that goes.

Great. Thank you.

The next question comes from Ben Swinburne from Morgan Stanley.

Hi, this is Cameron on for Ben. Thanks for taking the question. Just to follow up on content, on the NFL deal, do the expanded rights allow you to stream games or any other affiliated content on Pandora? And then second, how does the bidding environment for your sports deals these days? Have those become more competitive at all, or do you get a first look window when going up for sports renewals, just any color there? And then second, on the satellite business, self-pay churn has continued to come in persistently low. Is the path to that normalizing kind of wholly connected to vehicle-related churn coming back, or are you seeing other benefits helping there as well? Thank you.

Scott, why don't you start on the content side?

Right. So on the sports rights, yeah, there's always, as I said, I think there'll always be bidding on live sports. We saw it on the NFL and all our sports rights. There aren't that many out there between pro and even the major colleges that matter. So that's always going to be true. And there's just no burn in sight on live sports. So I like our position, and I particularly like our one-stop shopping position on all the sports under one roof, which I don't think anyone can come close to saying that. So I feel pretty good on that. No, the NFL rights don't extend to Pandora, but, you know, Pandora is largely going to be looked at in terms of music and podcasting, not live sports. We want to direct people to Sirius. It's a premium service to have all that live sports under one roof.

Yeah, and on the churn side, we're really pleased with our second quarter performance. The second quarter is typically strong for us from a seasonal standpoint, but we are actually down a few basis points year over year. Obviously, vehicle-related has played a role in that. Sean highlighted the lower trial starts year over year on both the new and used car side. Non-pay, I'd say, has been pretty steady. We do see some seasonal uptick in credit card entry rates in the spring. That happens every year, and we're seeing some of that now. We don't really see any concern from an economic standpoint in the entry rates. We're really pleased with that. Similarly, we're focused on the voluntary side and watching carefully just any impact to cancel demand just in terms of the strength of the customer or the consumer in general. and we've been performing very solidly there as well. So we'll continue to watch those trends, but I would expect we'll see some uptick in the second half just from a natural seasonal standpoint, and then hopefully as we continue to see improvements in trial starts and auto sales overall.

Great. Thank you both.

The next question comes from Kutgun Maral from RBC Capital Markets. Please go ahead.

Good morning, and thanks for taking the questions. Maybe just to follow up on the advertising discussion, seems like there continues to be a solid opportunity there with off-platform and podcasting, though, as you called out, there's clearly a lot of uncertainty in the market. I appreciate that you may not want to comment too much on Q3 at this point, but is there any more color you could provide on maybe RPMs at Pandora or just the sustainability of the robust off-platform trends? And then just on guidance, you reiterated the $9 billion in revenue for the year, which is great. Is it right to assume that your expectations for advertising may have come down compared to the initial budget? And if so, I'd be very curious to see where you're seeing positive offsets. Thanks.

John, you want to start?

Yeah, sure. Kuka, thanks for the question. I guess on the advertising discussions, we continue to see – you know, very positive demand. You know, as you said, we're in this early stage of monetization. So we have the benefit of really having increased supplies. So we have the expectation that we'll continue to ramp, we'll continue to improve monetization, which will hopefully continue to deliver growth on the off platform. You know, as it relates to Pandora on platform, you saw the stats, you saw RPM is holding pretty steady despite the decline in hours. So, we're seeing the active listeners continue to increase their usage. So, again, there's some caution in the marketplace. I think we do have the benefit of increasing supply, just to reiterate it. So, we're comfortable and confident we'll continue to drive growth over the remainder of the year. In terms of the guidance, you know, again, we reiterated it, certainly the marketplace, given the macroeconomic environment, we keep a cautious outlook, but we're comfortable with where we're at. So I don't know, Jennifer, Scott, or anybody wants to add anything on the advertising market or as it relates to the full year guide and offsets, you know, that's how I see it today.

Yeah, I believe we've provided a fair amount of color on this. I wouldn't comment specifically on Q3, obviously, but our guidance is reflective of kind of what we're seeing in the markets today. And as we've discussed, there have been some cancellations and deferrals. And so we expect some continuation of that, and we've incorporated all that in the numbers.

Understood. Thank you both so much.

The next question comes from Barton Crockett from Rosenblatt Securities.

Great. Thank you for taking the question. And I was just interested in just drilling down a little bit more into the commentary about EBITDA outlook for the year. You know, with you guys pacing down a little bit year over year here in the quarter, but, you know, speaking to a number for the full year that would be, you know, flat to maybe slightly up year over year. suggest that there's some change in the trend in the back half of the year on revenues and expenses versus what we just went through. And I just want to make sure I understand, what is it that changes to kind of give you that comfort to reiterate the EBITDA guidance?

John, I'll let you start, and then I'll jump in.

Yeah, I mean, we have an outlook for the year. Again, $2.8 billion is the guide. You know, we... feel confident with where we are from having positive subscribers for the year and the impact that has on subscriber revenue. We've talked a lot this morning about the advertising outlook. I think we have a good handle on what our investments are from a content and programming and podcasting perspective. We have spent a fair amount, as you saw in our results year to date, on sales and marketing and both performance media and brand. So, you know, as we look out at the back half of the year, you know, we have confidence in our ability to meet the guide. You know, we did comment a couple of times, both Jennifer and I, about, you know, tightening some controls. So it's certainly, we're looking at headcount, we're looking at our real estate footprint, we're looking at all discretionary spending. So we're trying to manage both the short term and the long term. Of course, we want to make sure We're investing for long-term growth. At the same time, you know, we want to, you know, meet our guide and, you know, what we have set, the expectation we've set for our investors for the year. So, Jennifer, you want to take it there?

I agree, Sean, with obviously everything you've said. I guess I would just add, you know, to acknowledge, Barton, yes, it's going to be back half-weighted. And there is some variability to our sales and marketing expenditures based on how we're handling and looking at the digital part of our business. And we'll expect to see some fluctuations there. We've done a lot of great experimentation, and there is more to come by using different marketing channels, the app stores, different distribution partners. And I think we're still learning and optimizing where we're spending and the types of subs we are able to acquire through those different channels. And we're going to be opportunistic in our investments and continuing to drive what's been encouraging trends in that part of our business.

Yeah, and lastly, just to punctuate it, sorry, Barton, just to punctuate it, the big uptick that you've seen in sales and marketing in the first half will likely not continue for the second half is probably an important point.

Okay, that's helpful. Just one other quick thing. You mentioned you're expecting to make some announcements with EV companies. As we're all aware, there's one EV company that really matters, Tesla, which seems to have a founder that has very particular opinions about what goes into the cabin there of the cars. How would you describe your relationship with Tesla and how we should be thinking about opportunities there over some period of time?

Look, we are in some of the Tesla models and we clearly would like to be in more of the Tesla models and we're working very closely with them to be able to execute on that. But I would speak more broadly just for a minute on EVs. What we certainly know to be true is that consumers want SiriusXM when they buy a new car, and especially the affluent buyers of many of these EV companies, including the startups that are just starting to produce vehicles this year. So we hear it all the time from the EV makers as well as our longstanding auto partners and You know, we are going to be flexible on distribution, but what we are absolutely focused on is ensuring the ease of use and the customer experience, particularly with the onboarding. It's been a huge advantage in our business that new car buyers and to a large extent now used car buyers can get into their car and have our service working and in a very frictionless environment. So we're very focused on how we're developing those solutions for the EV partners as well.

Okay, thank you.

We will take our next question from David Joyce from Barclays.

Thank you. Just a further question on the expense side of the equation. You called out the extra spending on sales and marketing and product developments. Content spending was also up this quarter. But how should we think about seasonality? I know you just said that sales and marketing will probably be lighter in the second half. But on the content side, since you're spending more on both the satellite platform and the streaming and podcasting platforms, was there some seasonal strength? Was it sports-related maybe in the second quarter? Or is this just overall a more elevated level of content spending overall?

We've flown through the income statement that we should be thinking about through the rest of the year.

Thanks Yeah, David, yeah, I think that You should think about it as just you know a slight elevation over the course of the year again It's in percentage terms, you know least on the Sirius XM segment you know you saw an elevated in the second quarter and You know, we've announced a number of deals as those things ramp over the course of the year. That's kind of a new normalized level. And I think that's what you should expect over the course of the year. You know, you know, as Scott and I will tell you, we are a content company. We've got to provide obviously the best mix of news, talk, sports and music. So we think this is prudent investment. Even, you know, again, it's not a lot, large amount of money. You know, I think it was twenty five million dollars. year-to-date on the programming and content side in 11%. So I think it's just an increased level of investment.

Thanks. And if I could, just the second one on capital returns. I was just wondering how you're thinking about the timing of the stock buybacks. Are you kind of matching that with you know, the working capital flows or the cash flow from operations as opposed to more like straight lining buybacks through the year. How should we be thinking about your, your strategy there?

Sure. You know, just to reiterate what we've said, I think consistently over the last couple of quarters, we're guided by obviously free cash flow generation. We're guided by what our leverage is in the mid to, to, three, three and a half. We exited the quarter at 3.6 times. You saw the aggressive return of capital in the first half of the year that we've done, inclusive of the special dividend. So I think we're going to be guided by the free cash flow. We're going to be guided by our leverage. And I think hopefully what we've articulated is fairly predictable. So it's not necessarily a straight line. It's more how we see the outlook of the business, how we view you know, what the grid is, what we view valuation to be, and we'll execute it accordingly.

Great. Thank you very much.

We will take our next and final question from Stephen Cahill from Wells Fargo. Please go ahead.

Thank you. Good morning. So, Jennifer, you know, you've talked a lot about expanding the streaming business. I guess, how do you think about SiriusXM streaming as a kind of standalone product? Would you consider on demand or a playlist functionality to make it more like the peers. I know that really changes the business model of the streaming business. So just curious how you kind of think about drafting off of the satellite product versus something more independent and also tying that into things like Pandora and podcasting. And then secondly, on SiriusXM ARPU, I mean, it grew at like an inflationary rate forever. And I know now you've looked at increasing ARPU. It was up nicely in the quarter. It's been that for, I think, a few quarters now. Maybe you could unpack that ARPU growth a little bit. Is it price? Is it more multi-car tiers? And should we think about ARPU as just being a stronger component going forward than it has been historically? Thanks.

Yeah, thanks, Stephen. I'll let Sean address ARPU in a minute. On the digital side, we are constantly looking at new product features and talked a little bit about the growth in on-demand listening and listening to our extra channels earlier. In the call, outside of live, which is still the predominant amount of our listening in our apps, we do see strong listening to both of those areas, which is not surprising, right? I mean, it's very similar to what's happened in the video business where customers expect to be able to time shift their listening or their watching, and that's a function of what we're seeing in on-demand. The personalized stations, the extra channels, in particular, are just giving our users more control over their listening experience. In many cases, they leverage the brands we've already established with our listeners. So those are some examples of where we're providing more control. We haven't obviously gone down the path of full interactive on-demand capabilities, but we'll look at that. We have a great product team in place under Joe Inzerillo. He's continuing to build out that team. We'll look at that. Obviously, we've been very disciplined in how we've approached our licenses on the music side. If we were to entertain something like that, there would obviously have to be a step function assumption about how we're attracting and retaining music. But just on the digital side in general, we're pleased with where we are. It will represent a large portion of our ads this year. Of course, that's because of the trajectory and the auto funnel. There's still generally a smaller proportion of our trial starts overall in our growth ads. But obviously, given the dynamics, it'll be a bigger part of our net ads this year. So we're really pleased with what we're seeing so far. Sean, you want to tackle the ARPU?

Yeah, sorry about that.

Yeah, so Stephen, on the ARPU side, you know, the biggest driver here is obviously the rate increase that we put in in November. You know, I think we see continued sequential increase probably in the third quarter. Obviously, the comps probably get more challenging as we roll over that price action that we took last year. So, you know, there's some benefiting from the higher ad revenue. and some other minor picks and takes, puts and takes, excuse me, from some of our OEM relationships. But overall, the majority is rate.

Yeah, I mean, the one thing I would just add to that is that, sorry, Stephen, just that as you heard us say in the past, we are trying to be very opportunistic in capturing demand across the pricing curve. So some of our digital plans are $8 a month. We have a PVIP plan at $35 a month. And there is likely... demand below $8 and above $35. So, you know, just the dynamics on ARPU alone, while I know, you know, we want to, you know, we want to make sure that we're watching the metric, it's not the only metric. Like, we're really just driving overall revenue and maximizing customer demand.

Yeah. And should we think about that price increase last November as kind of one time in nature, or is that something we could see a little more consistently in the future?

We've had a history of executing rate increases, certainly on the full price side. And we're very sensitive to the fact that, again, our largest competition in the car continues to be free. So we are very disciplined in how we look at these rate increases. But I would expect us to continue to consider them going forward.

Thank you. Thanks, Stephen. Thanks, everybody, for joining today. We'll speak to you soon.

Thank you. Thank you. Music playing Thank you. Thank you. Thank you. you

Good morning and welcome to SiriusXM's second quarter 2022 financial and operation results conference call. Today's conference is being recorded. A question and answer session will be conducted following the presentation. If you have a question at that time, please press star 1 on your telephone keypad. If at any time you'd like to be removed from the queue, please press star 2. At this time, I would like to turn the conference over to Hooper Stephens. Senior Vice President, Investor Relations and Finance. Mr. Stephens, please go ahead.

Thank you and good morning, everyone. Welcome to SiriusXM's second quarter 2022 earnings conference call. Today, we will have prepared remarks from Jennifer Witts, our Chief Executive Officer, and Sean Sullivan, our Chief Financial Officer. Scott Greenstein, our President and Chief Content Officer, will join Jennifer and Sean to take your questions. I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions, data, or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about those risks and uncertainties, please view SiriusXM's SEC filings and today's earnings release. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I would like to remind our listeners that today's call will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation. With that, I'll hand the call over to Jennifer.

Thanks, Hooper, and good morning, everyone. Thank you for joining us today. We are pleased with our results in the second quarter of 2022. While we continue to navigate variability in customer and market demand, we delivered strong financial performance with record low churn. By leveraging our balance sheet and scaling key growth initiatives to deliver best-in-class content to our customers, we are setting SiriusXM up for future expansion and solid financial performance. Into the second half, we remain committed to building on that momentum by making the strategic investments necessary for our long-term success while continuing to exercise financial discipline. SiriusXM added 23,000 net new self-paid subscribers and 54,000 paid promotional subscribers in the second quarter. Despite a slight sequential uptick in April, SAR saw further weakness in May and June and ended the quarter down 4% from Q1 and 20% year-over-year. While we are confident we can deliver positive self-pay subscriber growth, we no longer expect to attain our prior subscriber guidance due to challenges and uncertainty in new and used auto sales. However, with strong, predictable, subscriber-driven revenue, we are able to reiterate all of our financial guidance. There is growing uncertainty in the advertising market where we generate significant revenue with high variable margins, so we are prudently implementing a variety of cost-saving measures such as limiting our headcount growth to priority roles and taking a more measured approach on discretionary spending. While we manage through prolonged supply-related challenges in the auto industry, the strength of SiriusXM's brand and uniqueness of our product, which is evidenced by our large subscriber base and outstanding churn rate of 1.5%, remains extremely attractive to automakers, which continue to see us as the premium audio entertainment provider of choice in North America. Our new and used car penetration rates grew to 84% and 51% respectively, and our enabled fleet is now approximately 145 million cars. In the second quarter and looking ahead, we continue to build on these long-term relationships. We completed several extensions with automakers this quarter, including Mazda and Mitsubishi. We continue to make progress in deploying our 360L platform and saw an uptick of two points in our mix from Q1. While we aren't announcing anything specific today, we are also making progress with several EV startups and look forward to sharing more with you in the coming months. While our in-car subscription growth continues to see the impact of the macro auto environment, we are seeing solid uptake of our streaming-only subscriptions, and these offerings are a meaningful driver of subscriber growth this year. Recognizing this growing opportunity, we are evolving our business to focus on listening both in and outside the vehicle. SiriusXM holds a differentiated content position, and we are building on the strength of our in-car business, brand awareness, and robust business model to expand our streaming business and our total addressable market in an exciting and meaningful way. The initial consumer response to our streaming efforts has been encouraging, and we expect this to be a much more significant part of our business in the future. In the second quarter, we also continued enhancements to our commerce experience to enable and ease signups on key connected TV platforms, including Amazon Fire, Android TV, LG, and Roku. We also closed on a new agreement with Comcast, our first broadband TV provider, which includes launching a fully integrated SiriusXM audio experience to millions of Comcast customers on the Xfinity platform, which will also support video later this year. All of these initiatives create new ways to reach and engage consumers, both those who already have a satellite subscription in their cars and those who may be new to the service, enhancing the SiriusXM brand and its relevance as we work to build the future of curated audio entertainment. Consumers have multiple options to stream their favorite music and playlists. However, SiriusXM remains the premier provider of live, human-curated music and audio entertainment, and combined with interactive and on-demand capabilities, we create unparalleled listening experiences to meet the needs of our audience. Fans can interact live with their favorite hosts like Sway, Megyn Kelly, or Howard, or enjoy curated content experiences with major artists, including our exclusive special invitation-only events. In addition, this quarter we created pop-up channels for Black Music Appreciation Month to celebrate the music of Black artists such as Whitney Houston, Tupac, Biggie, and Prince. We also hosted a diverse roster of events, including a concert cruise in New York City with Yacht Rock stars Kenny Loggins and Christopher Cross, and small stage series concerts with the Grammy award-winning rapper 2 Chainz in Atlanta and Def Leppard in Los Angeles. While traditional content still drives the majority of in-app listening, unique content like this contributed to a 41% year-over-year increase in on-demand music listening in the SXM app. Tonight's Monoskin Small Stage Series event and Pearl Jam at the Apollo this fall in New York are just two examples of the exclusive experiences we continue to deliver to our subscribers this year. In addition to our exclusive and on-demand content, the SXM app is home to over 200 extra channels. These have the DNA of SiriusXM channels, but are more finely curated for mood and activity-based listening. These extra channels continue to drive the largest share of listening outside of live programming in our app. Looking holistically across both in-car and streaming listening, this quarter we saw strong performance in music, sports, and comedy. In music, Drake's SiriusXM channel, Sound 42, which launched last year, showcases boundary-pushing hip-hop and R&B and continues to bring in new audiences. Last month, he surprised fans with the premiere of his new SiriusXM radio show, Table for One. The first episode dropped in tandem with his surprise album, which broke multiple industry charts. Looking at our streaming metrics, total daily listeners and time spent listening to Sound 42 were up 50% on average following Drake's June 16th album drop. In sports, SiriusXM offers a differentiated value proposition in an increasingly complex and fragmented media space. With video, sports fans are required to have multiple subscriptions to watch it all, whereas SiriusXM offers one-stop shopping for all of a sports fan's audio needs. This quarter, we saw one of the strongest sports calendars post-pandemic, and SiriusXM subscribers had a front-row seat to all the action. We delivered coverage of the biggest events, including the Masters, the PGA Championship, and the U.S. Open, the Men's and Women's NCAA Final Four and National Championship Games, every MLB game starting with opening day, and the Indianapolis 500. As a result, overall sports listening in the SXM app continues to increase, and we are investing in exclusive content rights to expand our offering. Most recently, our NFL renewal and expansion agreement makes SiriusXM the exclusive third-party home to all NFL games and gives us additional rights and opportunities to expand our coverage, plus original content produced by the teams that will be available only on the SXM app. Also, in May, we announced a multi-year extension with Formula One, ensuring our listeners continued access to every F1 race, a fan favorite. Lastly, comedy continues to be a key content vertical for SiriusXM, and our recent acquisition of Team Coco marks the latest addition to our ever-growing portfolio. The deal provides significant value on the podcast ad network side, and opportunities for us to grow paid subscribers with exclusive content. Team Coco staff, now part of the SiriusXM team, will continue to produce the network's slate of popular podcasts while collaborating on content exclusive to SiriusXM. Today, I'm excited to announce that we will be launching the inaugural Team Coco channel this fall, a full-time, original Team Coco comedy channel available only to SiriusXM subscribers. Conan and team are hard at work creating a unique experience for the channel, and we'll have more to share on this in the coming months. But you can expect to hear all new original and exclusive content, along with his most popular podcast, stand-up clips, and interviews from his long-running TBS show. Before I turn it over to Sean to review the financials, I also want to spend a few minutes on SXM Media, our combined advertising sales group. We continue to be a leader in digital audio advertising. and in podcasting specifically. Per Edison Research, we are the number one podcast advertising network in weekly U.S. listeners and represent four of the top 15 podcasts in the country, including Crime Junkie, Office Ladies, Dateline NBC, and Pod Save America. People are listening to more audio on more platforms than ever before. According to the Edison Research Share of Ear report for the second quarter, Americans are spending 20 more minutes per day listening to audio, a 9% increase compared to Q2 2021. We are well positioned to benefit from these trends, both in our listening platforms and in our ability to bring broad solutions to advertisers. While our advertising business is not immune to the macro trends felt industry-wide, we are seeing growth in our ad business, particularly on the podcast side, as we continue to build our off-platform relationships and capabilities. Our total audience reaches 150 million listeners, including SiriusXM, Pandora, SoundCloud, and our broader podcast and off-platform network. Additionally, we continue to deliver best-in-class technology solutions, advancing the podcast ecosystem. Earlier this month, we released new AI-powered podcast audience targeting capabilities as part of an expanded agreement with Comscore to help accelerate our opportunity to monetize impressions and transform the market as we did in music with Pandora. SiriusXM remains an industry leader in podcasting, producing continuous positive gross margins thanks to our disciplined approach, rich content, and constant efforts to bring value and entertainment to listeners, content creators, and advertisers. Looking ahead, we remain focused on increasing the underlying resiliency of our business to continue delivering one-of-a-kind content and value for our customers and strong and sustainable financial results for our shareholders. We remain committed to our long-term focus of shaping the future of audio and broadening our revenue base into non-automotive markets, and we are excited by the early strides our new team is making on the technology and product side. Later this year, we will deliver improved in-app personalization to drive content discovery and enhance CarPlay and Android Auto integration, and we will continue to expand and innovate our product offerings. Ultimately, this translates into solid revenue growth margin expansion, and strong cash flow generation, which can be reinvested in the business to create better products for our customers and more robust capital returns for our stockholders. With that, I'll turn the call over to Sean to go through the financial highlights in more detail.

Thank you, Jennifer. A few quick highlights on the quarter. Revenue increased by 4% in the second quarter, with advertising revenue up 5% to $452 million and subscription revenue also growing by 5%. to $1.7 billion. Just Diva DA was 3% lower at $679 million as we made substantial investments in sales, marketing, content, and product development. Diluted earnings per share were $0.07 versus $0.10 in last year's second quarter when we booked approximately $140 million of satellite insurance recoveries. We generated $435 million of free cash flow during the second quarter, down 21% from the prior year as cash taxes rose by $97 million year over year, and last year's second quarter benefited from $17 million of satellite insurance receipts. Turning to our operating segments, for SiriusXM, total revenue in the second quarter increased 5% to $1.7 billion, driven by the larger self-pay subscriber base and 7% growth in ARPU, offset by a lower base of paid trial subscribers. Jennifer highlighted SiriusXM subscriber growth but to give some more clarity into the back half, looking at trial starts can be useful. During the second quarter, SiriusXM new and used car trial starts were down 20% and 8% respectively. Total trial starts were down 15% year over year in the second quarter, somewhat worse than the first quarter figure of down 10%. Gross profit in the SiriusXM segment climbed 6% to $1.05 billion, representing a margin of 61%. In the Pandora and off-platform segment, advertising revenue of $403 million increased 5% in the second quarter, with Pandora's ad revenue per 1,000 hours stable at approximately $100. In the second quarter, our podcasting and off-platform businesses generated $119 million in revenue, an increase of 50% year over year. We expect these businesses to represent a growing portion of this segment's advertising revenue over time. Travel, restaurants, gambling, and retail have all been strong ad categories for us, but in healthcare, automotive, telecoms, and beverages, we are seeing weakness. Gross profit in the Pandora and off-platform segment declined 13% to $167 million, representing a 31% gross margin, lower than last year, given meaningful investments in new podcast content that are still in the early stages of monetization. Today, we reiterate our existing financial guidance for 2022. revenue of approximately $9 billion, adjusted EBITDA of roughly $2.8 billion, and free cash flow of approximately $1.55 billion. As we scale in podcasting, advertising revenue will continue to contribute to growth in 2022, and subscription revenue will increase with the benefit of prior rate action. Our adjusted EBITDA guidance this year continues to reflect investments in product, content, and marketing to drive growth in streaming. But with modestly lower subscriber revenue than we originally forecast and a more cautious advertising outlook for the back half, we are tightening expense management across the organization. On the capital allocation front, we started the year by returning nearly $1.3 billion to our stockholders in the first quarter via dividends and share repurchases. We added another $303 million to this total in the second quarter, bringing year-to-date capital returns to roughly $1.58 billion. We ended the second quarter at 3.6 times net debt to EBITDA within the range we previously articulated. Our balance sheet remains exceptionally well positioned, with $1.24 billion available under our revolver and limited near-term maturities. We have significant capacity to continue investing in the business, pursue acquisition opportunities, and continue returning capital to our stockholders via dividends and share repurchases. With that, operator, let's open it up to Q&A.

Thank you. At this time, we'd like to open up the call for questions. I would like to remind everyone, in order to ask a question, please press star 1 on your telephone keypad. If at any time you'd like to be removed from the queue, please press star 2. We will pause for just a moment to comply the Q&A roster.

We will take the first question from Jessica Reef-Ehrlich from B of A Securities. Please go ahead.

Hi, Jessica. Can you go ahead?

Hi operator, why don't we go to the next one and come back to Jessica.

Thank you. We will now take the next question from James Ratcliffe from Evercore ISI. Please go ahead.

Hi, two questions if I could. On the SiriusXM side, SAC was up per installation about 7% or so year on year. Can you just talk about the trends at that level, quite apart from the issue of actual volumes of SAR? And secondly, at Pandora, you mentioned investment in new content, pressuring gross margins there. Can you help us size that sort of investment and get a sense of what the run rate gross margin profile of the business is and how that evolves as presumably, you know, off-platform revenue becomes a larger share of the ad revenue there? Thanks.

Sure, James. I'll take the first one on SAC for install, and then I'll let Sean talk a little bit about the margins on the ad side. So, look, our SAC per install has come down significantly, as you've seen over the years, and it's going to fluctuate, you know, I would expect by a couple dollars here and there by quarter, just depending upon, you know, the mix of our automakers installing modules into the vehicles, and then the ramp of different technologies within our modules. So, we have, you know, different economic structures with the producers of the modules. So, Overall SAC per install, obviously, is a reflection of the equipment margin, you know, the revenue that's coming through on the top line, the costs, and then the subsidies. So there will just be some variability around there, but I don't think it's necessarily indicative of a higher trend. And, Sean, you want to start on the second one? Yeah.

Yeah, sure, James. So, you know, as it relates to Pandora and the ramp, obviously we – have announced a number of new deals. We have an incredible amount of inventory coming online. I think, as I said in my comments, we're still in the early stages of monetization of some of these podcast ramps. So in the early days, you're seeing the pressure on the gross margin on the Pandora and off-platform margin for the segment. But overall, long-term, we think it's a great place to be. I think it's early to – to really articulate what our margin goals are. Every deal that we do obviously builds a great audience scale, you know, allows us to maintain our position in the podcast audience space. And, you know, but all in all, we're pleased with the deals we're doing. We're all hopeful that we can continue to improve the margin profile, but I think it's still premature to talk about it, given that the market is still growing, it's still early days, and we want to make sure we capture share, but certainly do it in a financially disciplined way so that we can really have an additive halo effect to the overall SXM media and advertising reach. So I don't know if Jennifer or Scott, do you want to add anything to that?

Yeah, I'd just build on that a little bit, Sean, that I think exactly what you said. We're in the early days, I would expect monetization in podcasting to grow faster then the audience listening is growing just because we're still working with largely a manual process, right? There's a lot of host-read ads. There's a lot of working closely with the talent. Programmatic is in its early stages. So there's a lot of technology and capabilities that is going to come to the space just generally and certainly with our solutions that I believe is going to continue to enable us to grow going forward. I mean, you saw the We did stipulate that our growth in the off-platform side of our ad business was up 50% in the second quarter, and it was up 43% in the first quarter. So we're seeing nice growth trends in this part of our business.

Great. Thank you.

The next question comes from Jessica Reef-Ehrlich from Bank of America.

Hopefully you can hear me this time. Can you? Yes. Okay, good. So your content costs were up double digits, but there's obviously a ton of new content both in the car and in-app. And I'm just wondering if you could talk about the outlook for both cost and content across music, sports, and podcasting for the foreseeable future. And then on advertising, I mean, you're, I guess, appropriately cautious, but how do you factor in political –

And then, you know, as kind of we get through supply chain issues, do you expect to pick up in like auto or other areas?

Yeah, just on content costs in general, you know, let Sean or Scott jump in too, but we will continue to make selective investments to support the service, you know, both in the car and in streaming. You saw our announcement about the NFL. Scott can talk more about that. We are big believers in sports and certainly the live aspects of sports and play-by-play and really excited about what we're doing with the NFL there. And I don't think I'll talk specifically about the different categories in terms of cost, but you heard me earlier highlight some of the areas where we believe we're definitely making strides. And, of course, there's going to be investments alongside that in music and in sports and in comedy. So, Scott, do you want to talk a little bit more about NFL and maybe COVID?

Yeah, exactly. So, Jessica, on sports, the one thing we've seen, which is interesting, is And I think the TV networks have seen it as well. It cuts across all demos, number one. And number two, live still matters. So we've always been big believers in live sports and in all live sports and having one-stop shopping. If you look how video sports rights are now, they're fragmented in many places. You just can't say I want all the basketball, football, baseball, hockey, car racing or anything else in one spot the way we have that. So I feel really good about that and it'll translate more into digital as we do micro channels based on teams and other things down the road on that. Just quickly on podcasting, early stages, one of the first goals with Stitcher was to figure out which podcasts would really matter and make it number one. And according to Triton, Stitcher's number one by a large margin. So that's now leading to a lot of other talent and opportunities coming through here, as well as some of that talent working its way, like Coco and Crooked and others, onto SiriusXM. So I feel pretty good about that. The digital area is interesting because that's where the younger demo growth will come. We know our core demo on Sirius is solid, and right now you're seeing with the extra channels, but over time you'll start to see branded channels and others some of which are there to grow in that space as well. So I feel pretty good where we are right now.

Just on advertising then, Sean addressed some of this earlier in his comments, but we are facing some of the same challenges you see in the industry more generally. We're watching cancellations closely. We obviously feel very comfortable with our full-year revenue guidance. But, yeah, there are some categories where there's softness. I think as automotive companies, starts to rebound, we would expect to benefit from that. There have been other areas of opportunity with travel and restaurants, et cetera. D2C tends to be more vulnerable than brand, and we do have both sides of advertisers represented across our platforms. But again, we saw some nice growth in our off-platform business in the second quarter. We continue to cross-sell across our platforms and make strides there. And we have a lot of other unique solutions, such as just what we're doing with Amex on small stages and branding that around their Shop Small initiative, that we're continuing to see opportunities around those.

Can I just ask one follow-up for Scott? Scott, you've grown a lot in podcasting. Are there any specific genres that you think that you need to kind of focus on or beef up? And on the music side, which you didn't really talk about, is it important to have specific artist relationships? I mean, you've just introduced so many different kinds of content over the last, I'd say, two or three years. It's incredible in-app and in the car.

Okay, so... You know, the one category we wanted, just to set the ability to answer the second part, was true crime because that seems to be the first unique audio category that's come along in years, and it's the biggest thing in podcasting. So with Crime Junkie and a few of the others, we have that locked up. So I'd like to see empowerment and self-help and a lot of other things like in that area grow as You know, Dr. Radio and some of the things we did on Sirius are a little more narrow. Podcasting and podcasting networks and some brands and others in that area I'd like to see grow. On the music side, you know, it's always a balance. We feel we have a good balance between the categories that matter in rock, pop, and hip-hop in both our curated channels and our artist channels on it. It's just a question of will it move the needle? to have an artist or a brand over a channel in music, similar to the way you could have a hip-hop channel or you could have Drake do a hip-hop channel. That one's pretty obvious. So we just need to look what makes sense, both economically and culturally, and see where that goes.

Great. Thank you.

The next question comes from Ben Swinburne from Morgan Stanley.

Hi, this is Cameron on for Ben. Thanks for taking the question. Just to follow up on content, on the NFL deal, do the expanded rights allow you to stream games or any other affiliated content on Pandora? And then second, how's the bidding environment for your sports deals these days? Have those become more competitive at all, or do you get a first look window when going up for sports renewals, just any color there? And then second, on the satellite business, you know, self-paid churn is continuing to come in persistently low. Is the path to that normalizing kind of wholly connected to vehicle-related churn coming back, or are you seeing other benefits helping there as well? Thank you.

Scott, why don't you start on the content side?

Right. So on the sports rights, yeah, there's always, as I said, I think there will always be bidding on live sports. We saw it on the NFL and all our sports rights. There aren't that many out there between pro and even the major colleges that matter. So that's always going to be true, and there's just no burn in sight on live sports. So I like our position, and I particularly like our one-stop shopping position on all the sports under one roof, which I don't think anyone can come close to saying that. So I feel pretty good on that. No, the NFL rights. don't extend to Pandora, but, you know, Pandora is largely going to be looked at in terms of music and podcasting, not live sports. We want to direct people to Sirius. It's a premium service to have all that live sports under one roof.

Yeah, and on the churn side, you're really pleased with our second quarter performance. The second quarter is typically strong for us, you know, from a seasonal standpoint, but we are actually down a few basis points year over year. Obviously, vehicle-related has played a role in that. Sean highlighted the lower trial starts year over year on both the new and used car side. Non-pay, I'd say, has been pretty steady. We do see some seasonal uptick in credit card entry rates in the spring. That happens every year, and we're seeing some of that now. We don't really see any concern from an economic standpoint. In the entry rates, you know, we're really pleased with that. You know, similarly, we're focused on the voluntary side and watching carefully just any impact to cancel demand just in terms of the strength of the customer or the consumer in general. And, you know, we've been, you know, performing very solidly there as well. So, you know, we'll continue to watch those trends. But I would expect we'll see some uptick in the second half just from a natural seasonal standpoint and then hopefully as we continue to see improvements in trial starts and auto sales overall.

Great. Thank you both.

The next question comes from Kutgun Maral from RBC Capital Markets. Please go ahead.

Good morning and thanks for taking the questions. Maybe just to follow up on the advertising discussion, seems like there continues to be a solid opportunity there with off-platform and podcasting, though as you called out, there's clearly a lot of uncertainty in the markets. I appreciate that you may not want to comment too much on Q3 at this point, but is there any more color you could provide on maybe RPMs at Pandora or just the sustainability of the robust off-platform trends? And then just on guidance, you reiterated the $9 billion in revenue for the year, which is great. Is it right to assume that your expectations for advertising may have come down compared to the initial budget? And if so, I'd be very curious to see where you're seeing positive offsets. Thanks.

John, you want to start?

Yeah, sure. Kuka, thanks for the question. I guess on the advertising discussions, we continue to see very positive demand. As you said, we're in this early stage of monetization, so we have the benefit of really having increased supply, so we have the expectation that we'll continue to ramp, we'll continue to improve monetization, which will hopefully continue to deliver growth on the off platform. As it relates to Pandora on platform, you saw the stats, you saw RPM is holding pretty steady despite the decline in hours. So we're seeing the active listeners continue to increase their usage. So again, there's some Some caution in the marketplace. I think we do have the benefit of increasing supply, just to reiterate it. So we're comfortable and confident we'll continue to drive growth over the remainder of the year. In terms of the guidance, again, we reiterated it. Certainly the marketplace, given the macroeconomic environment, we keep a cautious outlook, but we're comfortable with where we're at. So I don't know, Jennifer or Scott or anybody wants to add anything on the advertising market or as it relates to the full-year guide and offsets. That's how I see it.

Yeah, I believe we've provided a fair amount of color on this. I wouldn't comment specifically on Q3, obviously, but our guidance is reflective of kind of what we're seeing in the markets today. And as we've discussed, there have been some cancellations and deferrals. And so we expect some continuation of that, and we've incorporated all that in the numbers.

Understood. Thank you both so much.

The next question comes from Barton Crockett from Rosenblatt Securities.

Great. Thank you for taking the question. And I was just interested in just drilling down a little bit more into the commentary about EBITDA outlook for the year. You know, with you guys pacing down a little bit year over year here in the quarter, but, you know, speaking to a number for the full year that would be you know, flat to maybe slightly up year over year, suggests that there's some change in the trend in the back half of the year on revenues and expenses versus what we just went through. And I just want to make sure I understand what is it that changes to kind of give you that comfort to reiterate the EBITDA guidance.

John, I'll let you start and then I'll jump in.

Yeah, I mean, we have an outlook for the year. Again, $2.8 billion is the guide. We feel confident with where we are from having positive subscribers for the year and the impact that has on subscriber revenue. We've talked a lot this morning about the advertising outlook. I think we have a good handle on what our investments are. uh, from a content and programming and podcasting perspective. Uh, you know, we have spent a fair amount as you saw in our results year to date on sales and marketing and both performance media and brand. Uh, so, you know, as we look out at the back half of the year, um, you know, we have confidence in our ability to meet the guide. Uh, you know, we did comment a couple of times with Jennifer and I about, you know, tightening some controls. So it's certainly, uh, We're looking at headcount. We're looking at our real estate footprint. We're looking at all discretionary spending. So we're trying to manage both the short-term and the long-term. Of course, we want to make sure we're investing for long-term growth. At the same time, we want to meet our guide and what we have set, the expectation we've set for our investors for the year. So Jennifer, you want to take it there?

I agree, Sean, with obviously everything you've said. I guess I would just add, you know, to acknowledge, Barton, yes, it's going to be back half-weighted, you know, and there is some variability to, you know, our sales and marketing expenditures based on how we're handling and looking at the, you know, digital part of our business. And, you know, we'll expect to see some fluctuations there. We've done a lot of great experimentation and there is more to come by using different marketing channels, you know, the app stores, different distribution partners. And, you know, I think we're still learning and optimizing where we're spending and the types of subs we are able to acquire through those different channels. And we're going to be opportunistic in our investments and, you know, continuing to drive what's been encouraging trends in that part of our business.

Yeah, and lastly, just to punctuate it, sorry, Barton, just to punctuate it, the big uptick that you've seen in sales and marketing in the first half will likely not continue for the second half is probably an important point.

Okay, that's helpful. Just one other quick thing. You mentioned you're expecting to make some announcements with EV companies. As we're all aware, there's one EV company that really matters, Tesla, which seems to have a founder that has very particular opinions about what goes into the cabin there of the cars. How would you describe your relationship with Tesla and how we should be thinking about opportunities there over some period of time?

Look, we are in some of the Tesla models and we clearly would like to be in more of the Tesla models and we're working very closely with them to be able to execute on that. But I would speak more broadly just for a minute on EVs. What we certainly know to be true is that consumers want SiriusXM when they buy a new car, and especially the affluent buyers of many of these EV companies, including the startups that are just starting to produce vehicles this year. So we hear it all the time from the EV makers, as well as our longstanding auto partners and You know, we are going to be flexible on distribution, but what we are absolutely focused on is ensuring the ease of use and the customer experience, particularly with the onboarding. It's been a huge advantage in our business that new car buyers and to a large extent now used car buyers can get into their car and have our service working and in a very frictionless environment. So we're very focused on how we're developing those solutions for the EV partners as well.

Okay, thank you.

We will take our next question from David Joyce from Barclays.

Thank you. Just a further question on the expense side of the equation. You called out the extra spending on sales and marketing and product developments. Content spending was also up this quarter. But how should we think about seasonality? I know you just said that sales and marketing will probably be lighter in the second half. But on the content side, since you're spending more on both the satellite platform and the streaming and podcasting platforms, was there some seasonal strength? Was it sports-related maybe in the second quarter? Or is this just overall a more elevated level of content spending overall?

We've flown through the income statement that we should be thinking about through the rest of the year.

Thanks Yeah, David, yeah, I think that You should think about it as just you know a slight elevation over the course of the year again It's in percentage terms, you know least on the Sirius XM segment you know you saw an elevated in the second quarter and You know, we've announced a number of deals as those things ramp over the course of the year. That's kind of a new normalized level. And I think that's what you should expect over the course of the year. You know, you know, as Scott and I will tell you, we are a content company. We've got to provide obviously the best mix of news, talk, sports and music. So we think this is prudent investment. Even, you know, again, it's not a lot, large amount of money. You know, I think it was twenty five million dollars. year-to-date on the programming and content side in 11%. So I think it's just an increased level of investment.

Thanks. And if I could, just the second one on capital returns. I was just wondering how you're thinking about the timing of stock buybacks. Are you kind of matching that with you know, the working capital flows or the cash flow from operations as opposed to more like straight lining buybacks through the year. How should we be thinking about your, your strategy there?

Sure. You know, just to reiterate what we've said, I think consistently over the last couple of quarters, we're guided by obviously free cash flow generation. We're guided by what our leverage is in the mid to, to, uh three three and a half you know we exited the quarter 3.6 times you saw uh the aggressive return of capital in the first half of the year that we've done inclusive of the special dividend so i think we're going to be guided by the free cash flow we're going to be guided by uh our leverage uh and i think hopefully what we've articulated is pretty fairly predictable um so it's not necessarily a straight line it's more you know how we see the outlook of the business uh how we view you know, what the grid is, what we view valuation to be, and we'll execute it accordingly.

Great. Thank you very much.

We will take our next and final question from Stephen Cahill from Wells Fargo. Please go ahead.

Thank you. Good morning. So, Jennifer, you know, you've talked a lot about expanding the streaming business. I guess, how do you think about SiriusXM streaming as a kind of standalone product? Would you consider on demand or a playlist functionality to make it more like the peers. I know that really changes the business model of the streaming business. So just curious how you kind of think about drafting off of the satellite product versus something more independent and also tying that into things like Pandora and podcasting. And then secondly, on SiriusXM ARPU, I mean, it grew at like an inflationary rate forever. And I know now you've looked at increasing ARPU. It was up nicely in the quarter. It's been that for, I think, a few quarters now. Maybe you could unpack that ARPU growth a little bit. Is it price? Is it more multi-car tiers? And should we think about ARPU as just being a stronger component going forward than it has been historically? Thanks. Thanks.

Yeah, thanks, Stephen. I'll let Sean address ARPU in a minute. On the digital side, we are constantly looking at new product features and talked a little bit about the growth in on-demand listening and listening to our extra channels earlier. In the call, outside of live, which is still the predominant amount of our listening in our apps, we do see strong listening to both of those areas, which is not surprising, right? I mean, it's very similar to what's happened in the video business where customers expect to be able to time shift their listening or their watching, and that's a function of what we're seeing in on-demand. The personalized stations, the extra channels, in particular, are just giving our users more control over their listening experience. In many cases, they leverage the brands we've already established with our listeners. So those are some examples of where we're providing more control. We haven't obviously gone down the path of full interactive on-demand capabilities, but we'll look at that. We have a great product team in place under Joe Inzerillo. He's continuing to build out that team. We'll look at that. Obviously, we've been very disciplined in how we've approached our licenses on the music side. If we were to entertain something like that, there would obviously have to be a step function assumption about how we're attracting and retaining music. subscribers. But just on the digital side in general, we're pleased with where we are. It will represent a large portion of our ads this year. Of course, that's because of the trajectory and the auto funnel. There's still generally a smaller proportion of our trial starts overall in our growth ads. But obviously, given the dynamics, it'll be a bigger part of our net ads this year. So we're really pleased with what we're seeing so far. Sean, you want to tackle the ARPU?

Yeah, sorry about that.

Yeah, so Steven, on the ARPU side, you know, the biggest driver here is obviously the rate increase that we put in in November. You know, I think we see continued sequential increase probably in the third quarter. Obviously the comps probably get more challenging as we roll over that price action that we took last year. So, you know, there's some benefiting from the higher ad revenue. and some other minor picks and takes, puts and takes, excuse me, from some of our OEM relationships. But overall, the majority is rate.

Yeah, I mean, the one thing I would just add to that is that, sorry, Stephen, just that as you heard us say in the past, we are trying to be very opportunistic in capturing demand across the pricing curve. So some of our digital plans are $8 a month. We have a PVIP plan at $35 a month. And, you know, there is likely, demand below $8 and above $35. So, you know, just the dynamics on ARPU alone, while I know, you know, we want to, you know, we want to make sure that we're watching the metric, it's not the only metric. Like, we're really just driving overall revenue and maximizing customer demand.

Yeah. And should we think about that price increase last November as kind of one time in nature, or is that something we could see a little more consistently in the future?

We've had a history of executing rate increases, certainly on the full price side. And we're very sensitive to the fact that, again, our largest competition in the car continues to be free. So we are very disciplined in how we look at these rate increases. But I would expect us to continue to consider them going forward.

Thank you. Thanks, Stephen. Thanks, everybody, for joining today. We'll speak to you soon.