What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-02 compared with 2022-02-01 · 153 added, 200 removed, 353 unchanged (50% of the section changed)

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Executive Summary

We operate two complementary audio entertainment businesses - our Sirius XM business and our Pandora business.

We operate two complementary audio entertainment businesses - one of which we refer to as “SiriusXM” and the second of which we refer to as “Pandora and Off-platform”.

Our Sirius XM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels and other content, as well as podcasts and infotainment services, in the United States on a subscription fee basis.

Sirius XM's premier content bundles include live, curated and certain exclusive and on demand programming.

Sirius XM's packages include live, curated and certain exclusive and on demand programming.

The Sirius XM service is distributed through our two proprietary satellite radio systems and streamed via applications for mobile devices, home devices and other consumer electronic equipment.

Satellite radios are primarily distributed through automakers, retailers and our website.

Our Sirius XM service is also available through our user interface, which we call “360L,” that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience.

Our Sirius XM service is also available through our in-car user interface, which we call “360L,” that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience.

The primary source of revenue from our Sirius XM business is subscription fees, with most of our customers subscribing to monthly, quarterly, semi-annual or annual plans.

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Sirius XM Canada's subscribers are not included in our subscriber count or subscriber-based operating metrics.

Our Pandora business operates a music, comedy and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen, whether through mobile devices, car speakers or connected devices.

Pandora and Off-platform

Pandora operates a music and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen, whether through computers, tablets, mobile devices, vehicle speakers or connected devices.

Pandora enables listeners to create personalized stations and playlists, discover new content, hear artist- and expert-curated playlists, podcasts and select Sirius XM content as well as search and play songs and albums on-demand.

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As of December 31, 2022, Pandora had approximately 6.2 million subscribers.

The majority of revenue from our Pandora business is generated from advertising on our Pandora ad-supported radio service.

The majority of revenue from Pandora is generated from advertising on our Pandora ad-supported radio service which is sold under the SXM Media brand.

We also derive subscription revenue from our Pandora Plus and Pandora Premium subscribers.

Our Pandora business also sells advertising on audio platforms and in podcasts unaffiliated with us.

Pandora is the exclusive US ad sales representative for SoundCloud.

Through this arrangement, Pandora offers advertisers the ability to

execute campaigns in the US across the Pandora and SoundCloud listening platforms.

We also sell advertising on other audio platforms and in widely distributed podcasts, which we consider to be off-platform services.

We have an arrangement with SoundCloud Holdings, LLC ("SoundCloud") to be its exclusive ad sales representative in the US and certain European countries and offer advertisers the ability to execute campaigns across the Pandora and SoundCloud platforms.

We also have arrangements to serve as the ad sales representative for certain podcasts.

In addition, through AdsWizz, Pandora provides a comprehensive digital audio advertising technology platform, which connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.

As of December 31, 2021, our Pandora business had approximately 52.3 million monthly active users.

In February 2020, Sirius XM completed a $75 investment in SoundCloud.

SoundCloud is a next-generation music entertainment company, powered by an ecosystem of artists, listeners, and curators on the pulse of what's new, now and next in music culture.

SoundCloud’s platform enables its users to upload, promote, share and create audio entertainment.

The minority investment complements the existing ad sales relationship between SoundCloud and Pandora.

In June 2020, Sirius XM acquired Simplecast for $28 in cash.

Simplecast is a podcast management and analytics platform.

Refer to Note 3 to our consolidated financial statements for more information on this acquisition.

In October 2020, Sirius XM acquired the assets of Stitcher from The E.W.

Scripps Company and certain of its subsidiaries (“Scripps”) for total consideration of $302, which included $266 in cash and $36 related to contingent consideration.

During the year ended December 31, 2021, Stitcher did not achieve certain financial metrics, as a result of which we do not expect to pay to Scripps the 2021 portion of the contingent consideration associated with the transaction.

During the year ended December 31, 2021, we recognized a $17 benefit related to the change in fair value of the 2021 portion of the contingent consideration.

The acquisition of Stitcher, in conjunction with Simplecast, creates a full-service platform for podcast creators, publishers and advertisers.

Refer to Note 3 to our consolidated financial statements for more information on this acquisition.

In addition, through AdsWizz Inc., we provide a comprehensive digital audio and programmatic advertising technology platform, which connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.

Liberty Media

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Total Sirius XM revenue 6,905 6,624 281 4 %

Pandora and Off-platform:

Subscriber revenue 522 530 (8) (2) %

Advertising revenue 1,576 1,542 34 2 %

Total Pandora revenue 2,072 1,698 374 22 %

Total Pandora and Off-platform revenue 2,098 2,072 26 1 %

Total consolidated revenue 9,003 8,696 307 4 %

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Total Sirius XM cost of services 2,684 2,635 49 2 %

Pandora and Off-platform:

Revenue share and royalties 1,250 1,140 110 10 %

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Transmission 56 59 (3) (5) %

Total Pandora cost of services 1,333 1,110 223 20 %

Total Pandora and Off-platform cost of services 1,446 1,333 113 8 %

Total consolidated cost of services 4,130 3,968 162 4 %

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Depreciation and amortization 536 533 3 1 %

Impairment, restructuring and acquisition costs 20 1,004 (984) (98) %

Impairment, restructuring and acquisition costs 64 20 44 nm

Total operating expenses 6,967 6,681 286 4 %

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Interest expense (422) (415) (7) (2) %

Loss on extinguishment of debt (83) (40) (43) (108) %

Other income 9 6 3 50 %

Total other (expense) income (489) (428) (61) (14) %

Loss on extinguishment of debt — (83) 83 nm

Other (expense) income (9) 9 (18) nm

Total other expense (431) (489) 58 12 %

Income before income taxes 1,605 1,526 79 5 %

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Net income $ 1,213 $ 1,314 $ (101) (8) %

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Sirius XM Revenue

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Music Royalty Fees, partially offset by lower revenue generated from automakers offering paid promotional subscriptions.

We expect subscriber revenues to increase based on the growth of our subscriber base, increases in the average price charged and the sale of additional services to subscribers.

We expect subscriber revenues to increase based on increases in the average price of our subscriptions.

Sirius XM Advertising Revenue includes the sale of advertising on Sirius XM’s non-music channels.

For the years ended December 31, 2022 and 2021, advertising revenue was $196 and $188, respectively, an increase of 4%, or $8.

The increase was due to higher advertising primarily on news and sports channels as we continue to recover to pre-COVID-19 levels.

We expect our Sirius XM advertising revenue to grow as we continue our recovery to pre-COVID-19 levels.

The increase was due to a greater number of spots sold and aired primarily on sports and news channels.

We expect our Sirius XM advertising revenue to grow as we improve monetization opportunities through SXM Media, our advertising sales group.

Sirius XM Equipment Revenue includes revenue and royalties from the sale of satellite radios, components and accessories.

For the years ended December 31, 2021 and 2020, equipment revenue was $201 and $173, respectively, an increase of 16%, or $28.

The increase was driven by higher royalty revenue from new vehicle production as automakers pushed to get back to pre-COVID-19 manufacturing levels during the first half of 2021 and due to our transition to a new generation of chipsets, partially offset by semiconductor supply shortages in the second half of 2021.

We expect equipment revenue to decrease as a result of the semiconductor supply shortages.

For the years ended December 31, 2022 and 2021, equipment revenue was $189 and $201, respectively, a decrease of 6%, or $12.

The decrease was driven by lower royalties due to supplier cost increases related to the semiconductor supply shortages as well as lower radio sales;

partially offset by higher chipset production driven by an increase in OEM demand.

We expect equipment revenue to decrease due to the semiconductor supply shortages driving higher chipset costs.

Sirius XM Other Revenue includes service and advisory revenue from Sirius XM Canada, revenue from our connected vehicle services, and ancillary revenues.

For the years ended December 31, 2022 and 2021, other revenue was $150 and $151, respectively, a decrease of 1%, or $1.

The decrease was primarily driven by lower revenue generated by rental car arrangements.

We expect other revenue to decrease as revenue generated from our connected vehicle services declines, partially offset by an anticipated growth in royalties from Sirius XM Canada.

Pandora Revenue

Pandora Subscriber Revenue includes fees charged for Pandora Plus, Pandora Premium, Stitcher and Simplecast subscriptions.

For the years ended December 31, 2021 and 2020, Pandora subscriber revenue was $530 and $515, respectively, an increase of 3%, or $15.

The increase was primarily driven by the inclusion of Stitcher during the full year 2021 as well as an increase of 3% in average subscribers from 2020.

We expect Pandora subscriber revenues to decrease as our Pandora subscriber base declines.

Pandora Advertising Revenue is generated primarily from audio, display and video advertising from on-platform and off-platform advertising.

For the years ended December 31, 2021 and 2020, Pandora advertising revenue was $1,542 and $1,183, respectively, an increase of 30%, or $359.

The increase was primarily driven by strong monetization of on platform programming to $102.74 per thousand hours, and higher off-platform revenue as well as a full year of Stitcher revenue.

We expect Pandora advertising revenue to increase due to our off-platform advertising opportunities and the growth of Stitcher.

The decrease was primarily driven by lower revenue generated from our connected vehicle services, partially offset by higher revenue generated by Sirius XM Canada.

We expect other revenue to decline as revenue generated by Sirius XM Canada and from our connected vehicle services decrease.

Pandora and Off-platform Revenue

Pandora and Off-platform Subscriber Revenue includes fees charged for Pandora Plus, Pandora Premium, Stitcher and Simplecast subscriptions.

For the years ended December 31, 2022 and 2021, Pandora and Off-platform subscriber revenue was $522 and $530, respectively, a decrease of 2%, or $8.

The decrease was primarily driven by the decline in Pandora's subscriber base.

We expect Pandora and Off-platform subscriber revenues to decline slightly.

Pandora and Off-platform Advertising Revenue is generated primarily from audio, display and video advertising from on-platform and off-platform advertising.

For the years ended December 31, 2022 and 2021, Pandora and Off-platform advertising revenue was $1,576 and $1,542, respectively, an increase of 2%, or $34.

The increase was primarily driven by additional revenue generated by our Off-platform and podcast businesses, partially offset by a decline in on-platform revenue.

We expect Pandora and Off-platform advertising revenue to remain relatively flat given macroeconomic trends as growth in our Off-platform and podcast businesses is offset by a decline in on-platform revenue.

Total Consolidated Revenue

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For the years ended December 31, 2022 and 2021, revenue share and royalties were $1,552 and $1,532, respectively, an increase of 1%, or $20, but decreased as a percentage of total Sirius XM revenue.

The increase was driven by overall greater revenues subject to music royalties and revenue share.

The increase was driven by overall greater revenues subject to revenue share.

We expect our Sirius XM revenue share and royalty costs to increase as our revenues grow.

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Sirius XM Customer Service and Billing includes costs associated with the operation and management of internal and third party customer service centers, and our subscriber management systems as well as billing and collection costs, bad debt expense, and transaction fees.

For the years ended December 31, 2021 and 2020, customer service and billing expenses were $415 and $394, respectively, an increase of 5%, or $21, and increased as a percentage of total Sirius XM revenue.

The increase was driven by higher transaction costs, consulting, and personnel-related cost;

partially offset by lower bad debt expense and lower call center expense.

We expect our Sirius XM customer service and billing expenses to increase as our subscriber base grows.

For both the years ended December 31, 2022 and 2021, customer service and billing expenses were $415 and decreased as a percentage of total Sirius XM revenue.

Higher transaction costs and bad debt expense resulting from a higher self-pay subscriber base were offset by lower call center costs.

We expect our Sirius XM customer service and billing expenses to remain relatively flat.

Sirius XM Transmission consists of costs associated with the operation and maintenance of our terrestrial repeater networks;

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and delivery of our Internet and 360L streaming and connected vehicle services.

For the years ended December 31, 2021 and 2020, transmission expenses were $159 and $123, respectively, an increase of 29%, or $36, and increased as a percentage of total Sirius XM revenue.

The increase was primarily driven by higher costs associated with cloud hosting, wireless connectivity for our 360L platform, streaming content and our connected vehicle services.

We expect our Sirius XM transmission expenses to increase as costs associated with our 360L platform rise and investments in internet streaming grow.

For the years ended December 31, 2022 and 2021, transmission expenses were $158 and $159, respectively, a decrease of 1%, or $1, and decreased as a percentage of total Sirius XM revenue.

The decrease was primarily driven by lower wireless costs, partially offset by costs associated with consumers using our 360L platform.

We expect our Sirius XM transmission expenses to increase as costs associated with consumers using our 360L platform rise and investments in streaming grow.

Sirius XM Cost of Equipment includes costs from the sale of satellite radios, components and accessories and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels.

For the years ended December 31, 2022 and 2021, cost of equipment was $13 and $18, respectively, a decrease of 28%, or $5, and decreased as a percentage of equipment revenue.

The decrease was primarily due to lower direct sales to customers.

We expect our Sirius XM cost of equipment to fluctuate with the sales of our satellite radios.

Pandora Cost of Services

Pandora Cost of Services includes revenue share and royalties, programming and content, customer service and billing, and transmission expenses.

Pandora Revenue Share and Royalties includes licensing fees paid for streaming music or other content to our subscribers and listeners as well as revenue share paid to third party ad servers.

The decrease was driven by lower component and accessories sales.

We expect our Sirius XM cost of equipment to remain relatively flat.

Pandora and Off-platform Cost of Services

Pandora and Off-platform Cost of Services includes revenue share and royalties, programming and content, customer service and billing, and transmission expenses.

Pandora and Off-platform Revenue Share and Royalties includes licensing fees paid for streaming music or other content to our subscribers and listeners as well as revenue share paid to third party ad servers.

We make payments to third party ad servers for the period the advertising impressions are delivered or click-through actions occur, and accordingly, we record this as a cost of service in the related period.

For the years ended December 31, 2021 and 2020, revenue share and royalties were $1,140 and $937, respectively, an increase of 22%, or $203, but remained flat as a percentage of total Pandora revenue.

The increase was primarily due to higher royalty rates associated with owned and operated revenue as well as higher AdsWizz revenue, the inclusion of Stitcher and the growth in other off-platform revenue.

We expect our Pandora revenue share to increase as off-platform revenue increases and our royalty costs to increase due to higher music royalty rates.

Pandora Programming and Content includes costs to produce live listener events and promote content.

For the years ended December 31, 2022 and 2021, revenue share and royalties were $1,250 and $1,140, respectively, an increase of 10%, or $110, and increased as a percentage of total Pandora revenue.

The increase was primarily due to costs related to the acquisition of rights to sell advertising in certain podcasts.

We expect our Pandora and Off-platform revenue share and royalties to increase based on a variety of music-related factors, including higher royalty rates under the statutory webcasting license, and additional costs associated with our podcast distribution agreements.

Pandora and Off-platform Programming and Content includes costs to produce live listener events and promote content.

For the years ended December 31, 2022 and 2021, programming and content expenses were $58 and $48, respectively, an increase of 21%, or $10, and increased as a percentage of total Pandora revenue.

The increase was primarily attributable to additional live events in 2021, higher license costs, and personnel-related costs driven by the inclusion of Stitcher.

We expect our Pandora programming and content costs to increase as we offer additional programming and produce live listener events and promotions.

Pandora Customer Service and Billing includes transaction fees on subscription purchases through mobile app stores and bad debt expense.

The increase was primarily attributable to higher personnel-related costs.

We expect our Pandora and Off-platform programming and content costs to increase as we offer additional programming and produce live listener events and promotions.

Pandora and Off-platform Customer Service and Billing includes transaction fees on subscription purchases through mobile app stores and bad debt expense.

For the years ended December 31, 2022 and 2021, customer service and billing expenses were $82 and $86, respectively, a decrease of 5%, or $4, and decreased as a percentage of total Pandora revenue.

The decrease was primarily driven by lower bad debt expense, partially offset by higher transaction fees.

We expect our Pandora customer service and billing costs to decrease as our Pandora subscriber base declines and mobile app commissions fall.

Pandora Transmission includes costs associated with content streaming, maintaining our streaming radio and on-demand subscription services and creating and serving advertisements through third-party ad servers.

For the years ended December 31, 2021 and 2020, transmission expenses were $59 and $54, respectively, an increase of 9%, or $5, but decreased as a percentage of total Pandora revenue.

The increase was primarily driven by higher streaming costs.

We expect our Pandora transmission costs to fluctuate primarily as a result of changes in listener hours.

The decrease was primarily driven by lower transaction fees.

We expect our Pandora and Off-platform customer service and billing costs to decrease with declines in our subscriber base.

Pandora and Off-platform Transmission includes costs associated with content streaming, maintaining our streaming radio and on-demand subscription services and creating and serving advertisements through third-party ad servers.

For the years ended December 31, 2022 and 2021, transmission expenses were $56 and $59, respectively, a decrease of 5%, or $3, and decreased as a percentage of total Pandora revenue.

The decrease was primarily driven by lower personnel-related costs.

We expect our Pandora and Off-platform transmission costs to decrease as a result of lower listener hours.

Operating Costs

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Subscriber acquisition costs do not include advertising costs, marketing, loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios.

For the years ended December 31, 2021 and 2020, subscriber acquisition costs were $325 and $362, respectively, a decrease of 10%, or $37, and decreased as a percentage of total revenue.

The decrease was driven by lower subsidies from contract improvements with certain automakers as well as lower costs resulting from the semiconductor supply shortages during 2021, partially offset by slightly higher OEM installations.

For the years ended December 31, 2022 and 2021, subscriber acquisition costs were $352 and $325, respectively, an increase of 8%, or $27, and increased as a percentage of total revenue.

The increase was driven by OEM installations which grew 10%, compared to the prior year.

We expect subscriber acquisition costs to fluctuate with OEM installations.

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and personnel related costs including salaries, commissions, and sales support.

Marketing costs include expenses related to direct mail, outbound telemarketing, email communications, social media, television and digital performance media.

For the years ended December 31, 2021 and 2020, sales and marketing expenses were $1,056 and $957, respectively, an increase of 10%, or $99, and increased as a percentage of total revenue.

The increase was primarily due to higher brand media, streaming and trial-related direct marketing costs as well as higher personnel-related costs.

We anticipate that sales and marketing expenses will increase with growth in our trial subscriber base, as we expand programs to retain our existing subscribers, win back former subscribers, attract new subscribers and listeners, and as we grow advertising revenue.

Marketing costs include expenses related to direct mail, outbound telemarketing, email communications, social media, television and performance media.

For the years ended December 31, 2022 and 2021, sales and marketing expenses were $1,075 and $1,056, respectively, an increase of 2%, or $19, but decreased as a percentage of total revenue.

The increase was primarily due to additional investments in advertising and marketing to support our brands and streaming marketing expenditures.

We anticipate that sales and marketing expenses will decline slightly based on current levels of direct marketing, performance media, and brand marketing spend associated with acquiring and retaining listeners and subscribers.

Engineering, Design and Development consists primarily of compensation and related costs to develop chipsets and new products and services, including streaming and connected vehicle services, research and development for broadcast information systems and the design and development costs to incorporate Sirius XM radios into new vehicles manufactured by automakers.

For the years ended December 31, 2021 and 2020, engineering, design and development expenses were $265 and $263, respectively, an increase of 1%, or $2, and decreased as a percentage of total revenue.

The increase was driven primarily by higher personnel-related costs, and partially offset by lower research and development costs.

For the years ended December 31, 2022 and 2021, engineering, design and development expenses were $285 and $265, respectively, an increase of 8%, or $20, and increased as a percentage of total revenue.

The increase was driven primarily by higher cloud hosting costs as well as higher personnel-related costs.

We expect engineering, design and development expenses to increase in future periods as we continue to develop our infrastructure, products and services.

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For the years ended December 31, 2022 and 2021, general and administrative expenses were $525 and $514, respectively, an increase of 2%, or $11, and decreased as a percentage of total revenue.

The increase was primarily driven by higher personnel-related, consulting and technology related costs, partially offset by lower contributions as a result of a $25 donor advised fund created in 2020.

The increase was primarily driven by higher legal, data center, and consulting costs, partially offset by lower personnel-related costs.

We expect our general and administrative expenses to remain relatively flat.

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For the years ended December 31, 2022 and 2021, depreciation and amortization expense was $536 and $533, respectively, an increase of 1%, or $3, and decreased as a percentage of total revenue.

The increase was driven by the addition of software that was developed.

The increase was driven by the addition of software that was developed and placed in service.

Impairment, Restructuring and Acquisition Costs represents impairment charges, net of insurance recoveries, associated with the carrying amount of an asset exceeding the asset's fair value, restructuring expenses associated with the abandonment of certain leased office spaces and acquisition costs.

For the years ended December 31, 2022 and 2021, impairment, restructuring, and acquisition costs were $64 and $20, respectively.

During 2022, we recorded an impairment of $43 associated with terminated software projects, $16 related to certain vacated office spaces, $5 in connection with furniture and equipment located at the impaired office spaces, and $6 related to personnel severance as well as acquisition related costs of $2;

partially offset by $8 from the gain on sale of real estate.

During 2021, we recorded restructuring costs of $25 resulting from the termination of leased office space and $12 related to acquisition costs, partially offset by the reversal of a liability related to the Stitcher acquisition.

During 2020, we recorded a goodwill impairment charge of $956 to reflect the carrying amount of the Pandora goodwill, an impairment charge of $20 to write down the carrying value of our Pandora trademark, costs of $24 associated with the termination of the Automatic service and costs associated with the acquisition of Simplecast.

Other Income (Expense)

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For the years ended December 31, 2022 and 2021, loss on extinguishment of debt was $0 and $83, respectively.

The loss on extinguishment of debt recorded in 2021 was due to the redemption of $1,000 principal amount of Sirius XM's 3.875% Senior Notes due 2022, $1,500 principal amount of Sirius XM's 4.625% Senior Notes due 2024, and $1,000 principal amount of Sirius XM's 5.375% Senior Notes due 2026.

The loss on extinguishment of debt recorded in 2020 was due to the redemption of $500 principal amount of Sirius XM's 4.625% Senior Notes due 2023 and $1,000 principal amount of Sirius XM's 5.375% Senior Notes due 2025.

Other Income (Expense) primarily includes realized and unrealized gains and losses from our Deferred Compensation Plan and other investments, interest and dividend income, our share of the income or loss from equity investments in Sirius XM Canada and SoundCloud, and transaction costs related to non-operating investments.

For the years ended December 31, 2021 and 2020, other income was $9 and $6, respectively.

The loss on extinguishment of debt recorded in 2021 was due to the redemption of $1,000 principal amount of Sirius XM's

3.875% Senior Notes due 2022, $1,500 principal amount of Sirius XM's 4.625% Senior Notes due 2024, and $1,000 principal amount of Sirius XM's 5.375% Senior Notes due 2026.

Other (Expense) Income primarily includes realized and unrealized gains and losses from our Deferred Compensation Plan and other investments, interest and dividend income, our share of the income or loss from equity investments in Sirius XM Canada and SoundCloud, and transaction costs related to non-operating investments.

For the years ended December 31, 2022 and 2021, other (expense) income was $(9) and $9, respectively.

Other expense for the year ended December 31, 2022, was primarily driven by trading losses associated with the investments held for our Deferred Compensation Plan.

Other income for the year ended December 31, 2021, was primarily driven by interest earned on our loan to Sirius XM Canada.

Other income for the year ended December 31, 2020 was driven by a one-time lawsuit settlement of $7.

Income Tax Expense includes the change in our deferred tax assets, current federal and state tax expenses, and foreign withholding taxes.

For the years ended December 31, 2022 and 2021, income tax expense was $392 and $212, respectively, and our effective tax rate was 24.4% and 13.9%, respectively.

Our effective tax rate of 13.9% for the year ended December 31, 2021 was primarily impacted by settlements with various states as well as a benefit related to research and development and certain other credits, partially offset by federal and state income tax expense.

Our effective tax rate of 69.5% for the year ended December 31, 2020 was primarily impacted by the nondeductible Pandora goodwill impairment charge, partially offset by the recognition of excess tax benefits related to share-based compensation, a benefit related to state and federal research and development and certain other credits and a worthless stock deduction associated with the termination of the Automatic service.

Our effective tax rate of 24.4% for the year ended December 31, 2022 was primarily impacted by federal and state income tax expense as well as changes in state valuation allowance, partially offset by a benefit related to research and development and certain other credits.

Our effective tax rate of 13.9% for the year ended December 31, 2021 was primarily impacted by federal and state income tax expense, partially offset by settlements with various states as well as a benefit related to research and development and certain other credits.

Key Financial and Operating Performance Metrics

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We also present certain operating performance measures.

Our adjusted EBITDA excludes the impact of share-based payment expense and certain purchase price accounting adjustments related to the merger of Sirius and XM ("XM Merger") and our February 2019 acquisition of Pandora ("the Pandora Acquisition").

Our adjusted EBITDA excludes the impact of share-based payment expense.

Additionally, when applicable, our adjusted EBITDA metric excludes the effect of significant items that do not relate to the on-going performance of our business.

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Set forth below are our subscriber balances as of December 31, 2022 compared to December 31, 2021.

Refer to our Form 10-K for the year ended December 31, 2020 filed with the SEC on February 2, 2021 for our subscriber balances as of December 31, 2020 compared to December 31, 2019.

As of December 31, 2022 vs 2021 Change

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Ending subscribers 34,305 34,033 272 1 %

Traffic users 8,568 9,301 (733) (8) %

Sirius XM Canada subscribers 2,567 2,517 50 2 %

Pandora and Off-platform

Monthly active users - all services 47,638 52,275 (4,637) (9) %

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SAC, per installation $ 14.32 $ 12.58 $ 1.74 14 %

Pandora and Off-platform

Self-pay subscribers (109) 45 (154) (342) %

Paid promotional subscribers 7 13 (6) (46) %

Paid promotional subscribers (69) 7 (76) nm

Net additions (178) 52 (230) (442) %

Weighted average number of subscribers 6,308 6,487 (179) (3) %

ARPU $ 6.69 $ 6.76 $ (0.07) (1) %

Ad supported listener hours (in billions) 10.88 11.55 (0.67) (6) %

Advertising revenue per thousand listener hours (RPM) $ 101.19 $ 102.74 $ (1.55) (2) %

Licensing costs per thousand listener hours (LPM) $ 48.63 $ 40.14 $ 8.49 21 %

Licensing costs per paid subscriber (LPU) $ 4.23 $ 4.14 $ 0.09 2 %

Total Company

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Free cash flow $ 1,551 $ 1,831 $ (280) (15) %

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(1) ARPU for Sirius XM excludes subscriber revenue from our connected vehicle services of $182 and $190 for the years ended December 31, 2022 and 2021, respectively.

At December 31, 2021, we had approximately 34,033 subscribers, a decrease of approximately 681 subscribers, or 2%, from the approximately 34,714 subscribers as of December 31, 2020.

The decrease in total subscribers was due to the decline in paid promotional subscribers, partially offset by growth in our self-pay subscriber base.

For the years ended December 31, 2021 and 2020, net subscriber additions were (681) and (195), respectively, a decline of 249%, or 486.

Paid promotional subscribers decreased due to a shift to shorter paid or free trials at certain automakers.

Self-pay net additions increased driven by higher new vehicle conversion resulting from vehicle sales growth during the first half of 2021, lower non-pay and voluntary churn, and a shift by automakers to shorter trial periods.

Traffic Users.

We offer services that provide graphic information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems.

At December 31, 2022, we had approximately 34,305 subscribers, an increase of approximately 272 subscribers, or 1%, from the approximately 34,033 subscribers as of December 31, 2021.

The increase was due to growth in our self-pay subscriber base, partially offset by the decline in paid promotional subscribers generated by automakers driven by a shift to shorter paid trials and unpaid trials.

For the years ended December 31, 2022 and 2021, net subscriber additions were 272 and (681), respectively, an increase of 140%, or 953.

The increase was driven by paid promotional net additions, which remained negative, but increased compared to the prior year due to certain developments experienced during the first half of 2021, including the impact of the semiconductor supply shortage as well as a shift to free trials at certain automakers.

Self-pay net additions decreased driven by a lower trial funnel and lower vehicle conversion rates, partially offset by lower voluntary churn as well as growth in streaming net additions.

Sirius XM Canada Subscribers.

At December 31, 2022, Sirius XM Canada had approximately 2,567 subscribers, an increase of 50, or 2%, from the approximately 2,517 Sirius XM Canada subscribers as of December 31, 2021.

Average Self-pay Monthly Churn is derived by dividing the monthly average of self-pay deactivations for the period by the average number of self-pay subscribers for the period.

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For the years ended December 31, 2022 and 2021, our average self-pay monthly churn rate was 1.5% and 1.6%, respectively.

The decrease was driven by lower non-pay churn and voluntary churn.

The decrease was driven by lower voluntary and vehicle related churn.

ARPU is derived from total earned subscriber revenue (excluding revenue derived from our connected vehicle services) and net advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period.

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For the years ended December 31, 2022 and 2021, ARPU was $15.63 and $14.76, respectively.

The increase was driven by an increase in certain subscription rates and the U.S.

Music Royalty Fee as well as higher advertising revenue.

The increase was driven by increases in certain subscription rates, partially offset by the impact of the mix of promotional plans.

SAC, Per Installation, is derived from subscriber acquisition costs less margins from the sale of radios, components and accessories (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period.

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For the years ended December 31, 2022 and 2021, SAC, per installation, was $14.32 and $12.58, respectively.

The decrease was driven by reductions to hardware subsidy rates for certain automakers.

The increase was driven by higher OEM hardware subsidy rates combined with a change in the mix of OEMs and higher chipset costs due to the semiconductor supply shortages.

Pandora and Off-platform

Monthly Active Users.

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The decrease in monthly active users was driven by an increase in ad-supported listener churn and a decrease in the number of new users.

At December 31, 2021, Pandora had approximately 6,393 subscribers, an increase of 52, or 1%, from the approximately 6,341 subscribers as of December 31, 2020.

At December 31, 2022, Pandora had approximately 6,215 subscribers, a decrease of 178, or 3%, from the approximately 6,393 subscribers as of December 31, 2021.

For the years ended December 31, 2022 and 2021, net subscriber additions were (178) and 52, respectively, a decrease of 442%, or 230.

Net additions decreased as a result of a decline in trial starts, partially offset by lower churn.

ARPU is defined as average monthly revenue per paid subscriber on our Pandora subscription services.

(See the accompanying Glossary for more details.)

For the years ended December 31, 2021 and 2020, ARPU was $6.69 and $6.76, respectively.

The decrease in subscriber ARPU was primarily due to a change in the mix of Pandora's premium plans.

Net additions decreased as a result of a decline in trial starts.

Ad supported listener hours are a key indicator of our Pandora business and the engagement of our Pandora listeners.

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RPM is a key indicator of our ability to monetize advertising inventory created by our listener hours on the Pandora services.

Ad RPM is calculated by dividing advertising revenue by the number of thousands of listener hours of our Pandora advertising-based service.

Ad RPM is calculated by dividing advertising revenue by the number of thousands of listener hours to our Pandora advertising-based service.

For the years ended December 31, 2022 and 2021, RPM was $101.19 and $102.74, respectively.

The increase was a result of higher sell-through and pricing increases in advertising implemented by Pandora.

LPM is tracked for our non-subscription, ad-supported service across all Pandora delivery platforms.

The content acquisition costs included in our ad LPM calculations are based on the rates set by our license agreements with record labels, performing rights organizations and music publishers or the applicable rates set by the Copyright Royalty Board if we have not entered into a license agreement with the copyright owner of a particular sound recording.

For the years ended December 31, 2021 and 2020, LPM was $48.63 and $40.14, respectively.

The increase was primarily driven by higher eligible advertising revenue.

LPU is defined as average monthly licensing costs per paid subscriber on our Pandora subscription services.

LPU is a key measure of our ability to manage costs for our subscription services.

For the years ended December 31, 2021 and 2020, LPU was $4.23 and $4.14, respectively.

The increase was due to higher publisher and CRB rates in 2021.

The decrease was a result of a decline in sell-through.

Total Company

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EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization.

Adjusted EBITDA excludes the impact of other expense (income), loss on extinguishment of debt, other non-cash charges, such as certain purchase price accounting adjustments, share-based payment expense, legal settlements and reserves, and impairment, restructuring and acquisition costs (if applicable).

Adjusted EBITDA excludes or adjusts for the impact of other expense (income), loss on extinguishment of debt, impairment, restructuring and acquisition costs, other non-cash charges such as share-based payment expense, and legal settlements and reserves (if applicable).

(See the accompanying Glossary for a reconciliation to GAAP and for more details.)

For the years ended December 31, 2022 and 2021, adjusted EBITDA was $2,833 and $2,770, respectively, an increase of 2%, or $63.

The increase was due to higher advertising and subscriber revenue as well as lower subscriber acquisition costs, partially offset by higher revenue share and royalties, sales and marketing, programming, and personnel-related costs.

The increase was due to higher subscriber and advertising revenue, partially offset by higher revenue share and royalties, programming, and subscriber acquisition costs.

Free Cash Flow includes cash provided by operations plus insurance recoveries on our satellites, net of additions to property and equipment, and restricted and other investment activity.

(See the accompanying Glossary for a reconciliation to GAAP and for more details.)

For the years ended December 31, 2021 and 2020, free cash flow was $1,831 and $1,660, respectively, an increase of $171, or 10%.

The increase was driven by satellite insurance recoveries and growth in cash generated by operations, partially offset by higher spending on property and equipment and a decrease in deferred revenue driven by a shift to shorter term self-pay and trial subscriptions as well as a shift to free trials at certain automakers.

For the years ended December 31, 2022 and 2021, free cash flow was $1,551 and $1,831, respectively, a decrease of $280, or 15%.

The decrease was driven by satellite insurance recoveries in 2021 and higher income tax payments;

partially offset by cash received from customers.

Liquidity and Capital Resources

The following table presents a summary of our cash flow activity for the year ended December 31, 2022 compared with the year ended December 31, 2021.

Refer to our Form 10-K for the year ended December 31, 2020 filed with the SEC on February 2, 2021 for our cash flows for the year ended December 31, 2020 compared with the year ended December 31, 2019.

Refer to our Form 10-K for the year ended December 31, 2021 filed with the SEC on

February 1, 2022 for our cash flows for the year ended December 31, 2021 compared with the year ended December 31, 2020.

For the Years Ended December 31,

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Net cash used in financing activities (1,562) (1,682) 120

Net increase (decrease) in cash, cash equivalents and restricted cash 116 (37) 153

Net (decrease) increase in cash, cash equivalents and restricted cash (134) 116 (250)

Cash, cash equivalents and restricted cash at beginning of period 199 83 116

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Cash Flows Used in Investing Activities

Cash flows used in investing activities in the year ended December 31, 2021 were primarily due to spending for capitalized software and hardware, and to construct a replacement satellite, partially offset by proceeds collected from satellite insurance policies associated with SXM-7.

Cash flows used in investing activities in the year ended December 31, 2020 were primarily due to the acquisition of Stitcher of $272, our $75 investment in SoundCloud, the acquisition of Simplecast for $28, spending for capitalized software and hardware, and to construct replacement satellites.

We spent $238 and $242 on capitalized software and hardware as well as $93 and $57 to construct replacement satellites during the years ended December 31, 2021 and 2020, respectively.

Cash flows used in investing activities in the year ended December 31, 2022 were primarily due to spending for capitalized software and hardware, to construct satellites, and acquisitions for total cash consideration of $136.

Cash flows used in investing activities in the year ended December 31, 2021 were primarily due to spending primarily for capitalized software and hardware, and to construct a replacement satellite, partially offset by proceeds collected from satellite insurance policies associated with SXM-7.

We spent $247 and $238 on capitalized software and hardware as well as $122 and $93 to construct satellites during the years ended December 31, 2022 and 2021, respectively.

Cash Flows Used in Financing Activities

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Proceeds from long-term debt have been used to fund our operations, construct and launch new satellites, fund acquisitions, invest in other infrastructure improvements and purchase shares of our common stock.

Cash flows used in financing activities in the year ended December 31, 2022 were primarily due to the payment of cash dividends of $1,339, the purchase and retirement of shares of our common stock under our repurchase program for $647, and payment of $114 for taxes in lieu of shares issued for share-based compensation, partially offset by net borrowings under our Credit Facility of $80 and an amendment to our Credit Facility to incorporate an Incremental Term Loan borrowing of $500 ($499 net of costs) which matures on April 11, 2024.

Cash flows used in financing activities in the year ended December 31, 2021 were primarily due to the redemptions of Sirius XM's 3.875% Senior Notes due 2022 for $1,019, 4.625% Senior Notes due 2024 for $1,541 and 5.375% Senior Notes due 2026 for $1,034, the purchase and retirement of shares of our common stock under our repurchase program for $1,523, the payment of cash dividends of $268, payment of $103 for taxes in lieu of shares issued for share-based compensation, and the repayment of borrowings under our Credit Facility of $653;

partially offset by the issuance of $2,000 in aggregate principal amount of Sirius XM's 4.00% Senior Notes due 2028, $1,000 in aggregate principal amount of Sirius XM's 3.125% Senior Notes due 2026, and $1,500 in aggregate principal amount of Sirius XM's 3.875% Senior Notes due 2031.

Cash flows used in financing activities in the year ended December 31, 2020 were primarily due to the redemption of Sirius XM's 4.625% Senior Notes due 2023 in the aggregate amount of $505 and Sirius XM's 5.375% Senior Notes due 2025 in the aggregate amount of $1,033, the purchase and retirement of shares of our common stock under our repurchase program for $1,555, the payment of cash dividends of $237 and payment of $114 for taxes in lieu of shares issued for share-based compensation;

partially offset by the issuance of $1,481 in aggregate principal amount of Sirius XM's 4.125% Senior Notes due 2030, net of costs, and net borrowings of $649 from the Credit Facility.

Future Liquidity and Capital Resource Requirements

Based upon our current business plans, we expect to fund operating expenses, capital expenditures, including the construction of replacement satellites, working capital requirements, interest payments, taxes and scheduled maturities of our debt with existing cash, cash flow from operations and borrowings under our Credit Facility.

As of December 31, 2021, no amounts were outstanding under our Credit Facility.

As the amount available for future borrowing is reduced by $1 related to letters of credit issued for the benefit of Pandora, $1,749 was available for future borrowing under our Credit Facility.

As of December 31, 2022, $80 was outstanding under our Credit Facility and $1,670 was available for future borrowing under our Credit Facility.

We believe that we have sufficient cash and cash equivalents, as well as debt capacity, to cover our estimated short-term and long-term funding needs, including amounts to construct, launch and insure replacement satellites, as well as fund future stock repurchases, future dividend payments and to pursue strategic opportunities.

Our ability to meet our debt and other obligations depends on our future operating performance and on economic, financial, competitive and other factors.

We continually review our operations for opportunities to adjust the timing of expenditures to ensure that sufficient resources are maintained.

We regularly evaluate our business plans and strategy.

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The size and timing of any purchases will be based on a number of factors, including price and business and market conditions.

On January 26, 2022, our board of directors declared a quarterly dividend in the amount of $0.0219615 per share of common stock payable on February 25, 2022 to stockholders of record as of the close of business on February 11, 2022.

Our board of directors expects to declare regular quarterly dividends, in an aggregate annual amount of $0.087846 per share of common stock.

On January 31, 2022, our board of directors declared a special cash dividend on our common stock in the amount of $0.25 per share of common stock payable on February 25, 2022 to stockholders of record as of the close of business on February 11, 2022.

On January 25, 2023, our board of directors declared a quarterly dividend on our common stock in the amount of $0.0242 per share of common stock payable on February 24, 2023 to stockholders of record as of the close of business on February 9, 2023.

Debt Covenants

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We have identified all significant accounting policies in Note 2 to our consolidated financial statements in Part II, Item 8, of this Annual Report on Form 10-K.

Intangible Assets and Purchase Accounting.

We perform purchase price accounting upon an acquisition.

We allocate the purchase consideration to the identifiable assets acquired and liabilities assumed based on their fair values at the acquisition date.

The excess of the purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

The determination of the acquisition date fair value of the assets acquired and liabilities assumed required us to make significant estimates and assumptions regarding projected revenues and related growth rates, royalty rates, customer attrition rates, discount rates and the remaining useful lives of intangible and other long-term assets.

Our intangible assets include goodwill, other indefinite-lived assets (our FCC licenses and trademarks) and definite-lived assets.

Our annual impairment assessment of our goodwill and our indefinite-lived assets is performed as of the fourth quarter of each year.

We also review our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable.

If an impairment exists, the impairment is measured as the amount by which the carrying amount of an intangible asset exceeds its estimated fair value.

ASC 350, Intangibles - Goodwill and Other , states that an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

Under the updated guidance per Accounting Standards Update ("ASU") 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment , the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment is eliminated.

In accordance with updated guidance, we recognize goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill.

Based on our annual impairment test for goodwill as of October 1, 2021, there were no indicators of impairment, and no impairment losses were recorded for goodwill during the year ended December 31, 2021.

Based on our annual impairment test for goodwill as of October 1, 2020, we recognized an impairment charge of $956 to reduce the carrying amount of our Pandora reporting unit to its fair value.

The impairment was primarily due to a reduction in the long-term forecast to reflect an increase in expected royalties for streaming, increased uncertainty surrounding the projected demand for advertising and a decrease of listening hours.

Fair value was determined using a combination of an income approach, using a discounted cash flow model ("DCF"), and a market approach.

The DCF model included significant assumptions about revenue growth rates, long-term growth rates and enterprise specific discount rates.

Additionally, assumptions related to guideline company financial multiples used in the market approach decreased based on current market observations.

• Indefinite-lived Assets:

ASC 350-30-35, Intangibles - General Intangibles Other than Goodwill , provides for an option to first perform a qualitative assessment to determine whether it is more likely than not that an asset is impaired.

If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying value, a company is not required to perform a quantitative impairment test.

If the qualitative assessment does not support that the fair value of the asset exceeds its carrying value, then a quantitative assessment is performed.

We recognize impairment as the difference between the carrying amount of an asset and its estimated fair value.

Based on our annual impairment test for indefinite-lived assets as of October 1, 2021, there were no indicators of impairment, and no impairment losses were recorded for indefinite-lived assets during the year ended December 31, 2021.

Based on our annual impairment test for indefinite-lived assets as of October 1, 2020, we recognized an impairment charge of $20 to reduce the carrying amount of our Pandora trademark to its fair value.

Fair value was determined using a DCF model.

The DCF model included significant assumptions about revenue growth rates, long-term growth rates and enterprise specific discount rates.

• Definite-lived Assets:

We carry our definite-lived assets at cost less accumulated amortization.

We assess definite-lived assets for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

If an event or circumstance is identified indicating the carrying value may not be recoverable, the sum of

future undiscounted cash flows is compared to the carrying value.

If carrying value exceeds the future undiscounted cash flows, the carrying value of the asset is reduced to its fair value.

The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows, adjusted as necessary for market factors.

Non-Financial Instrument Valuations.

Our non-financial instrument valuations are primarily comprised of our determination of the estimated fair value allocation of net tangible and identifiable intangible assets acquired in business combinations, our annual assessment of the recoverability of our goodwill and other nonamortizable intangibles, such as trademarks, and our evaluation of the recoverability of our other long-lived assets upon certain triggering events.

If the carrying value of our long-lived assets exceeds their estimated fair value, we are required to write the carrying value down to fair value.

Any such writedown is included in Impairment, restructuring and acquisition costs in our consolidated statement of operations.

Judgment is required to estimate the fair value of our long-lived assets.

We may use quoted market prices, prices for similar assets, present value techniques and other valuation techniques to prepare these estimates.

We may need to make estimates of future cash flows and discount rates as well as other assumptions in order to implement these valuation techniques.

Due to the degree of judgment involved in our estimation techniques, any value ultimately derived from our long-lived assets may differ from our estimate of fair value.

As each of our operating segments has long-lived assets, this critical accounting policy affects the financial position and results of operations of each segment.

As of December 31, 2022, the intangible assets not subject to amortization for each of our consolidated reportable segments were as follows (amounts in millions):

Goodwill FCC Licenses Trademarks Total

Sirius XM $ 2,290 $ 2,084 $ 250 $ 4,624

Pandora and Off-platform 959 — 312 1,271

Consolidated $ 3,249 $ 2,084 $ 562 $ 5,895

We perform our annual assessment of the recoverability of our goodwill and other nonamortizable intangible assets in the fourth quarter each year, or more frequently if events and circumstances indicate impairment may have occurred.

The accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test.

The accounting guidance also allows entities the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test.

The entity may resume performing the qualitative assessment in any subsequent period.

In evaluating goodwill on a qualitative basis, the Company reviews the business performance of each reporting unit and evaluates other relevant factors as identified in the relevant accounting guidance to determine whether it is more likely than not that an indicated impairment exists for any of our reporting units.

The Company considers whether there are any negative macroeconomic conditions, industry specific conditions, market changes, increased competition, increased costs in doing business, management challenges, the legal environments and how these factors might impact company specific performance in future periods.

As part of the analysis, the Company also considers fair value determinations for certain reporting units that have been made at various points throughout the current and prior year for other purposes.

If based on the qualitative analysis it is more likely than not that an impairment exists, the Company performs the quantitative impairment test.

Useful Life of Broadcast/Transmission System.

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We currently operate four in-orbit XM satellites, XM-3, XM-4, XM-5 and SXM-8.

Our XM-3 satellite launched in 2005 reached the end of its depreciable life in 2020 and our XM-4 satellite launched in 2006 reached the end of its depreciable life in 2021.

Our XM-5 satellite was launched in 2010, is used as an in-orbit spare for the Sirius and XM systems and is expected to reach the end of its depreciable life in 2025.

Our XM-3 satellite launched in 2005 and our XM-4 satellite launched in 2006 are used as in-orbit spares and reached the end of their depreciable lives in 2020 and 2021, respectively.

Our XM-5 satellite was launched in 2010 and is expected to reach the end of its depreciable life in 2025.

SXM-7 was launched into a geostationary orbit in December 2020 and in-orbit testing of SXM-7 began on January 4, 2021.

During in-orbit testing of SXM-7 events occurred which caused failures of certain SXM-7 payload units.

The evaluation of SXM-7 concluded that the satellite will not function as intended and the asset was fully impaired in 2021.

The evaluation of SXM-7 concluded that the satellite would not function as intended and the asset was fully impaired in 2021.

Our SXM-8 satellite was successfully launched into a geostationary orbit on June 6, 2021 and was placed into service on September 8, 2021 following the completion of in-orbit testing.

The SXM-8 satellite replaced our XM-3 satellite, which remains available as an in-orbit spare along with XM-5.

We have entered into agreements for the design, construction and launch of two satellites, SXM-9 and SXM-10.

Our SXM-8 satellite replaced our XM-3 satellite.

We have entered into agreements for the design and construction of four additional satellites, SXM-9, SXM-10, SXM-11 and SXM-12.

We have also entered into agreements to launch two of these satellites.

Our satellites have been designed to last fifteen-years.

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A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.

If the tax position is not more likely than not to be sustained, the gross amount of the unrecognized tax position will not be recorded in the financial statements but will be shown in tabular format within the uncertain income tax positions.

If the tax position is not more likely than not to be sustained, the gross amount of the unrecognized tax

position will not be recorded in the financial statements but will be shown in tabular format within the uncertain income tax positions.

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs due to the following conditions:

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The number of monthly active users on the Pandora services may overstate the number of unique individuals who actively use our Pandora service, as one individual may use multiple accounts.

To become a registered user on the Pandora services, a person must sign-up using an email address or phone number, or access our service using a device with a unique identifier, which we use to create an account for our service.

To become a registered user on the Pandora services, a person must sign-up using an email address or access our service using a device with a unique identifier, which we use to create an account for our service.

Average self-pay monthly churn - for satellite-enabled subscriptions, the Sirius XM monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period.

Adjusted EBITDA - EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization.

We adjust EBITDA to exclude the impact of other expense (income) as well as certain other charges discussed below.

Adjusted EBITDA is a Non-GAAP financial measure that excludes or adjusts for (if applicable):

(i) certain adjustments as a result of the purchase price accounting for the XM Merger and the Pandora Acquisition, (ii) share-based payment expense, (iii) impairment, restructuring and acquisition costs, (iv) legal settlements/reserves and (v) other significant operating expense (income) that do not relate to the on-going performance of our business.

Adjusted EBITDA is a Non-GAAP financial measure that excludes or adjusts for the impact of other expense (income), loss on extinguishment of debt, impairment, restructuring and acquisition costs, other non-cash charges such as share-based payment expense, and legal settlements and reserves (if applicable).

We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our capital structure and purchase price accounting.

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We also believe the exclusion of the legal settlements and reserves, impairment, restructuring and acquisition related costs, and loss on extinguishment of debt, to the extent they occur during the period, is useful as they are significant expenses not incurred as part of our normal operations for the period.

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our consolidated statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the XM Merger and the Pandora Acquisition.

We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure.

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Add back items excluded from Adjusted EBITDA:

Legal settlements and reserves — (16)

Impairment, restructuring and acquisition costs 64 20

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Loss on extinguishment of debt — 83

Other income (9) (6)

Other expense (income) 9 (9)

Income tax expense 392 212

Purchase price accounting adjustments:

Operating expenses — (6)

Adjusted EBITDA $ 2,833 $ 2,770

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For the Years Ended December 31,

(in millions) 2021 2020

Programming and content $ 34 $ 33

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In a capital intensive business, with significant investments in satellites, we look at our operating cash flow, net of these investing cash outflows, to determine cash available for future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders.

We exclude from free cash flow certain items that do not relate to the on-going performance of our business, such as cash flows related to acquisitions, strategic and short-term investments, and net loan activity with related parties and other equity investees.

We exclude from free cash flow certain items that do not relate to the on-going performance of our business, such as cash flows related to acquisitions, strategic and short-term investments, net loan activity with related parties and other equity investees, and proceeds from the sale of real estate.

We believe free cash flow is an indicator of the long-term financial stability of our business.

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Additions to property and equipment (426) (388)

Purchases of other investments (4) (8)

Sale (purchases) of other investments 1 (4)

Satellite insurance recoveries — 225

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ARPU - Sirius XM ARPU is derived from total earned subscriber revenue (excluding revenue associated with our connected vehicle services) and advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period.

Pandora ARPU is defined as average monthly subscriber revenue per paid subscriber on our Pandora subscription services.

Subscriber acquisition cost, per installation - or SAC, per installation, is derived from subscriber acquisition costs less margins from the sale of radios and accessories (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period.

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margin from sales of radios and accessories, excluding connected vehicle services (176) (183)

Installations 11,174 11,091

Installations (in thousands) 12,270 11,174

SAC, per installation (a)

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(a) Amounts may not recalculate due to rounding.

Ad supported listener hours - is based on the total bytes served over our Pandora advertising supported platforms for each track that is requested and served from our Pandora servers, as measured by our internal analytics systems, whether or not a listener listens to the entire track.

or not a listener listens to the entire track.

For non-music content such as podcasts, episodes are divided into approximately track-length parts, which are treated as tracks.

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RPM - is calculated by dividing advertising revenue, excluding AdsWizz and other off-platform revenue, by the number of thousands of listener hours on our Pandora advertising-based service.

LPM - is calculated by dividing advertising licensing costs by the number of thousands of listener hours on our Pandora advertising-based service.

LPU - is calculated by dividing subscriber licensing costs by the number of paid subscribers on our Pandora subscription services.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis