What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-01 compared with 2023-02-02 · 137 added, 133 removed, 373 unchanged (42% of the section changed)

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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.

We also derive revenue from advertising on select non-music channels, which is sold under the SXM Media brand, direct sales of our satellite radios and accessories, and other ancillary services.

We also derive revenue from advertising on select non-music channels, which is sold under the SiriusXM Media brand, direct sales of our satellite radios and accessories, and other ancillary services.

As of December 31, 2023, our Sirius XM business had approximately 33.9 million subscribers.

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These services are designed to enhance the safety, security and driving experience of consumers.

We also offer a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings, a traffic information service that includes information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems, and real-time weather services in vehicles, boats and planes.

We also offer a suite of data services that includes graphical weather and fuel prices, a traffic information service, and real-time weather services in boats and airplanes.

Sirius XM also holds a 70% equity interest and 33% voting interest in Sirius XM Canada.

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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.

Our Pandora and Off-platform 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, vehicle speakers or connected devices.

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

Pandora is available as (1) an ad-supported radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium).

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

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.

As of December 31, 2023, Pandora had approximately 46.0 million monthly active users and 6.0 million subscribers.

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

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

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Liberty Media

As of December 31, 2022, Liberty Media beneficially owned, directly and indirectly, approximately 82% of the outstanding shares of our common stock.

As of December 31, 2023, Liberty Media beneficially owned, directly and indirectly, 83.4% of the outstanding shares of our common stock.

As a result, we are a “controlled company” for the purposes of the NASDAQ corporate governance requirements.

On December 11, 2023, Holdings entered into definitive agreements whereby, subject to the terms thereof, Liberty Sirius XM Holdings Inc., a Delaware corporation and a wholly owned subsidiary of Liberty Media (“New Sirius”), would split-off from Liberty Media.

The transactions would be effectuated by means of a redemptive split-off of New Sirius (the “Split-Off”), which will own all of the assets and liabilities attributed to Liberty Media’s Series A Liberty SiriusXM common stock (“LSXMA”), Series B Liberty SiriusXM common stock (“LSXMB”) and Series C Liberty SiriusXM common stock (“LSXMK”, together with the LSXMB and LSXMA stock, the “Liberty SiriusXM Group”).

Following the Split-Off, New Sirius will combine with Holdings through the merger of Radio Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of New Sirius (“Merger Sub”), with Holdings, with Holdings becoming a wholly owned subsidiary of New Sirius (the “Merger” and, together with the Split-Off, the “Transactions”).

As part of the Merger, New Sirius will be renamed “Sirius XM Holdings Inc.”

To effect the Transactions, on December 11, 2023, Liberty Media entered into (i) a Reorganization Agreement (the “Reorganization Agreement”) with Holdings and New Sirius, and (ii) an Agreement and Plan of Merger (the “Merger Agreement”) with New Sirius, Holdings and Merger Sub.

In connection with the Merger Agreement and the Reorganization Agreement, on December 11, 2023, certain trusts related to Dr.

Malone (collectively, the “Malone Stockholders”) entered into a voting agreement (the “Voting Agreement”) with Liberty Media, Holdings and New Sirius, pursuant to which, among other things, the Malone Stockholders agreed, subject to the terms of the Voting Agreement, to vote their respective shares of Liberty Media’s LSXMA and LSXMB in favor of the Split-Off.

The Transactions have been unanimously approved by Liberty Media’s Board of Directors and a Special Committee of the Board of Directors of Holdings and by Holdings’ Board of Directors.

The Transactions are expected to be completed early in the third quarter of 2024, subject to approval by a majority of the aggregate voting power of the shares of Liberty SiriusXM common stock present, whether in-person or by proxy, at a stockholder meeting, the receipt by Liberty Media and New Sirius of tax opinions from their respective tax counsel, as well as the receipt of required regulatory approvals and the satisfaction of other customary closing conditions.

A subsidiary of Liberty Media owning a majority of the outstanding shares of Holdings has delivered a written consent approving the Transactions on behalf of a majority of Holdings’ stockholders.

Following the Transactions, Liberty Media and New Sirius will operate independently, and neither is expected to have any ownership interest in the other.

All of the executive officers of Holdings immediately prior to consummation of the Transactions will be the initial executive officers of New Sirius, and New Sirius will continue to operate under the SiriusXM name and brand.

The Reorganization Agreement, the Merger Agreement and the Voting Agreement are filed as exhibits to this Annual Report on Form 10-K.

Results of Operations

Set forth below are our results of operations for the year ended December 31, 2023 compared with the year ended December 31, 2022.

Refer to our Form 10-K for the year ended December 31, 2021 filed with the SEC on February 1, 2022 for our results of operations for the year ended December 31, 2021 compared with the year ended December 31, 2020.

Refer to our Form 10-K for the year ended December 31, 2022 filed with the SEC on February 2, 2023 for our results of operation for the year ended December 31, 2022 compared with the year ended December 31, 2021.

The results of operations are presented for each of our reporting segments for revenue and cost of services and on a consolidated basis for all other items.

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Depreciation and amortization 554 536 18 3 %

Impairment, restructuring and acquisition costs 64 20 44 nm

Impairment, restructuring and acquisition costs 82 64 18 28 %

Total operating expenses 7,007 6,967 40 1 %

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Interest expense (423) (422) 1 — %

Loss on extinguishment of debt — (83) 83 nm

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

Other (expense) income (5) (9) (4) (44) %

Total other expense (428) (431) (3) (1) %

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Net income $ 1,258 $ 1,213 $ 45 4 %

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Sirius XM Revenue

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Music Royalty Fees and other ancillary fees.

For the years ended December 31, 2022 and 2021, subscriber revenue was $6,370 and $6,084, respectively, an increase of 5%, or $286.

The increase was primarily driven by growth in our ARPU of 6% and in our self-pay subscriber base of 1% driving higher self-pay revenue and U.S.

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

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

For the years ended December 31, 2023 and 2022, subscriber revenue was $6,342 and $6,370, respectively, a decrease of less than 1%, or $28.

The decrease was primarily driven by a reduction in paid promotional revenue resulting from lower overall rates from automakers offering paid promotional subscriptions and lower revenue generated from our connected vehicle services, partially offset by an increase in self-pay revenue.

We expect subscriber revenues to decrease based on the mix of our subscriber base and a decline 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 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.

For the years ended December 31, 2023 and 2022, advertising revenue was $169 and $196, respectively, a decrease of 14%, or $27.

The decrease was due to a decline in the number of spots sold and aired, primarily on news and entertainment channels.

We expect our Sirius XM advertising revenue to grow as we improve monetization opportunities through SiriusXM 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, 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.

For the years ended December 31, 2023 and 2022, equipment revenue was $193 and $189, respectively, an increase of 2%, or $4.

The increase was driven by higher chipset production driven by an increase in OEM demand, partially offset by lower royalty rates.

We expect equipment revenue to decrease due to the transition to our next generation chipset at higher 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, 2023 and 2022, other revenue was $136 and $150, respectively, a decrease of 9%, or $14.

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

The decrease was primarily driven by lower royalty revenue generated by Sirius XM Canada and our connected vehicle services.

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 Subscriber Revenue includes fees charged for Pandora Plus and Pandora Premium.

For the years ended December 31, 2023 and 2022, Pandora and Off-platform subscriber revenue was $524 and $522, respectively, an increase of less than 1%, or $2.

The increase was primarily driven by a rate increase on Pandora Plus, partially offset by a decline in the subscriber base.

We expect Pandora and Off-platform subscriber revenues to remain flat.

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, 2023 and 2022, Pandora and Off-platform advertising revenue was $1,589 and $1,576, respectively, an increase of 1%, or $13.

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.

The increase was primarily driven by higher podcasting revenue, partially offset by lower sell-through on the Pandora ad-supported service.

We expect Pandora and Off-platform advertising revenue to increase driven by growth in our Off-platform and podcast businesses.

Total Consolidated Revenue

Total Consolidated Revenue for the years ended December 31, 2022 and 2021, was $9,003 and $8,696, respectively, an increase of 4%, or $307.

Total Consolidated Revenue for the years ended December 31, 2023 and 2022, was $8,953 and $9,003, respectively, a decrease of 1%, or $50.

Sirius XM Cost of Services

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Sirius XM Revenue Share and Royalties include royalties for transmitting content, including streaming royalties, as well as automaker, content provider and advertising revenue share.

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 revenue share.

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

For the years ended December 31, 2023 and 2022, revenue share and royalties were $1,603 and $1,552, respectively, an increase of 3%, or $51, and increased as a percentage of total Sirius XM revenue.

The increase was driven by higher web streaming royalty rates as well as the expiration of certain licenses covering pre-1972 sound recordings.

We expect our Sirius XM revenue share and royalty costs to remain relatively flat as higher royalty rates under the statutory webcasting license resulting from increases in the Consumer Price Index are anticipated to be offset by lower eligible subscription revenue.

Sirius XM Programming and Content includes costs to acquire, create, promote and produce content.

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The increase was driven by higher content licensing costs.

We expect our Sirius XM programming and content expenses to increase as we offer additional programming and renew or replace expiring agreements.

We expect our Sirius XM programming and content expenses to remain flat as additional programming offerings are offset by expiring agreements.

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 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.

For the years ended December 31, 2023 and 2022, customer service and billing expenses were $393 and $415, respectively, a decrease of 5%, or $22, and decreased as a percentage of total Sirius XM revenue.

The decrease was primarily driven by lower call center and personnel-related costs, partially offset by higher transaction costs.

We expect our Sirius XM customer service and billing expenses to decrease driven by lower call center costs as a result of efficiencies from our investment in our digital platform.

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, 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.

For the years ended December 31, 2023 and 2022, transmission expenses were $171 and $158, respectively, an increase of 8%, or $13, and increased as a percentage of total Sirius XM revenue.

The increase was primarily driven by higher costs associated with our 360L platform and streaming.

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 driven by lower component and accessories sales.

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

For the years ended December 31, 2023 and 2022, cost of equipment was $14 and $13, respectively, an increase of 8%, or $1, and increased as a percentage of equipment revenue.

The increase was driven by higher inventory write downs.

We expect our Sirius XM cost of equipment to decrease as aftermarket sales decline.

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.

Pandora and Off-platform Revenue Share and Royalties includes licensing fees paid for streaming music or other content related to podcasts 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, 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.

For the years ended December 31, 2023 and 2022, revenue share and royalties were $1,292 and $1,250, respectively, an increase of 3%, or $42, and increased as a percentage of total Pandora and Off-platform revenue.

The increase was primarily due to higher podcast revenue share driven by growth in podcast advertising revenue as well as higher royalty expense due to costs related to an increase in certain web streaming royalty rates.

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.

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

For the years ended December 31, 2023 and 2022, programming and content expenses were $69 and $58, respectively, an increase of 19%, or $11, and increased as a percentage of total Pandora revenue.

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.

The increase was primarily attributable to higher podcast license fees and live event costs, partially offset by lower personnel-related costs.

We expect our Pandora and Off-platform programming and content costs to remain flat as lower personnel-related costs are offset by additional programming and 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 transaction fees.

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

For the years ended December 31, 2023 and 2022, customer service and billing expenses were $83 and $82, respectively, an increase of 1%, or $1, and increased as a percentage of total Pandora revenue.

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

We expect our Pandora and Off-platform customer service and billing costs to decrease with declines in the Pandora 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, 2023 and 2022, transmission expenses were $35 and $56, respectively, a decrease of 38%, or $21, 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.

The decrease was primarily driven by lower colocation and personnel-related costs as well as lower streaming costs resulting from a decline in listener hours.

We expect our Pandora and Off-platform transmission costs to increase as a result of an increase in Off-platform advertising driving higher data costs.

Operating Costs

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For the years ended December 31, 2023 and 2022, subscriber acquisition costs were $359 and $352, respectively, an increase of 2%, or $7, and increased as a percentage of total revenue.

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

The increase was driven by higher hardware

subsidies driven by installations, which grew due to increased production by automakers, partially offset by lower commission and hardware subsidy rates.

We expect subscriber acquisition costs to fluctuate with OEM installations.

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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.

For the years ended December 31, 2023 and 2022, sales and marketing expenses were $931 and $1,075, respectively, a decrease of 13%, or $144, and decreased as a percentage of total revenue.

The decrease was primarily due to a decrease in streaming marketing and marketing to support our brands as well as lower personnel-related costs.

We anticipate that sales and marketing expenses will remain flat 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, 2023 and 2022, engineering, design and development expenses were $322 and $285, respectively, an increase of 13%, or $37, 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.

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

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

General and Administrative primarily consists of compensation and related costs for personnel and facilities, and include costs related to our finance, legal, human resources and information technologies departments.

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 legal, data center, and consulting costs, partially offset by lower personnel-related costs.

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

For the years ended December 31, 2023 and 2022, general and administrative expenses were $550 and $525, respectively, an increase of 5%, or $25, and increased as a percentage of total revenue.

The increase was primarily driven by increased legal costs, including amounts associated with the settlement of certain litigation matters of $24 during the three months ended June 30, 2023, as well as higher personnel-related benefits attributed to our Deferred Compensation Plan.

We expect our general and administrative expenses to decrease driven by a decline in personnel-related and legal costs.

Depreciation and Amortization represents the recognition in earnings of the cost of assets used in operations, including our satellite constellations, property, equipment and intangible assets, over their estimated service lives.

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 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, 2023 and 2022, depreciation and amortization expense was $554 and $536, respectively, an increase of 3%, or $18, and increased as a percentage of total revenue.

The increase was driven by the accelerated end of life of certain software as well as increases in capitalized software and hardware, partially offset by lower amortization expense related to our intangible assets.

Impairment, Restructuring and Acquisition Costs represents impairment charges, 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, acquisition costs and costs associated with the Transactions.

For the years ended December 31, 2023 and 2022, impairment, restructuring, and acquisition costs were $82 and $64, respectively.

During 2023, we recorded a charge of $34 primarily related to severance and other related costs, costs associated with the Transactions of $16, impairments primarily related to terminated software projects of $15, vacated office space impairments of $12, accrued expenses of $3 for which we will not recognize any future economic benefit, and a cost-method investment impairment of $2.

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.

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

Other Income (Expense)

Interest Expense includes interest on outstanding debt.

For the years ended December 31, 2022 and 2021, interest expense was $422 and $415, respectively, an increase of 2%, or $7.

The increase was primarily driven by a higher average outstanding debt balance as well as lower capitalized interest, partially offset by lower interest rates.

Loss on Extinguishment of Debt includes losses incurred as a result of the redemption of certain debt.

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.

For the years ended December 31, 2023 and 2022, interest expense was $423 and $422, respectively, an increase of less than 1%, or $1.

The increase was primarily driven by higher rates driven by the Credit Facility and Incremental Term Loan, partially offset by a lower average outstanding debt balance.

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, 2023 and 2022, other (expense) income was $(5) 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 expense for the year ended December 31, 2023, was primarily driven by losses associated with certain investments, partially offset by trading gains associated with the investments held for our Deferred Compensation Plan.

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

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, 2023 and 2022, income tax expense was $260 and $392, respectively, and our effective tax rate was 17.1% and 24.4%, respectively.

Our effective tax rate of 17.1% for the year ended December 31, 2023 was primarily driven by federal and state income tax expense, partially offset by the benefits related to research and development and certain other credits, as well as a release in state valuation allowance.

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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Subscribers and subscription related revenues and expenses associated with our connected vehicle services and Sirius XM Canada are not included in Sirius XM's subscriber count or subscriber-based operating metrics.

Subscribers to Cloud Cover are not included in Pandora's subscriber count.

Set forth below are our subscriber balances as of December 31, 2023 compared to December 31, 2022.

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Self-pay subscribers 6,008 6,215 (207) (3) %

Paid promotional subscribers — 69 (69) (100) %

Paid promotional subscribers — — — nm

Ending subscribers 6,008 6,215 (207) (3) %

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The following table contains our Non-GAAP financial and operating performance measures which are based on our adjusted results of operations for the years ended December 31, 2023 and 2022.

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(subscribers in thousands) 2023 2022 Amount %

Self-pay subscribers 348 1,152 (804) (70) %

Paid promotional subscribers (76) (1,833) 1,757 96 %

Net additions 272 (681) 953 140 %

Self-pay subscribers (445) 348 (793) nm

Paid promotional subscribers 15 (76) 91 nm

Net additions (430) 272 (702) nm

Weighted average number of subscribers 33,993 34,039 (46) — %

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(1) ARPU for Sirius XM excludes subscriber revenue from our connected vehicle services of $161 and $182 for the years ended December 31, 2023 and 2022, respectively.

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.

At December 31, 2023, we had approximately 33,875 subscribers, a decrease of approximately 430 subscribers, or 1%, from the approximately 34,305 subscribers as of December 31, 2022.

The decrease was due to a decrease in our self-pay subscriber base resulting from lower vehicle conversion rates and higher vehicle related churn.

For the years ended December 31, 2023 and 2022, net subscriber additions were (430) and 272, respectively, a decrease of 702.

Self-pay net additions decreased as a result of lower new and used vehicle conversion rates, unfavorable vehicle related churn and lower streaming net additions, partially offset by lower non-pay churn and higher OEM volumes.

Paid promotional net additions increased as a result of higher vehicle sales.

Sirius XM Canada Subscribers.

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For the years ended December 31, 2023 and 2022, our average self-pay monthly churn rate was 1.6% and 1.5%, respectively.

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

The increase was driven by higher vehicle related churn, partially offset by lower non-pay 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, 2023 and 2022, ARPU was $15.56 and $15.63, respectively.

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

The decrease was driven by an increase in subscribers on promotional and streaming-only self-pay subscription plans, a reduction in rates associated with paid promotional plans from automakers as well as lower advertising revenue;

partially offset by increases in certain subscription rates.

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, 2023 and 2022, SAC, per installation, was $13.18 and $14.32, respectively.

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.

The decrease was driven by a change in the mix of OEMs.

Pandora and Off-platform

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At December 31, 2023, Pandora had approximately 46,026 monthly active users, a decrease of 1,612 monthly active users, or 3%, from the 47,638 monthly active users as of December 31, 2022.

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.

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

At December 31, 2023, Pandora had approximately 6,008 subscribers, a decrease of 207, or 3%, from the approximately 6,215 subscribers as of December 31, 2022.

For the years ended December 31, 2023 and 2022, net subscriber additions were (207) and (178), respectively, a decrease of 16%, or 29.

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

Net additions decreased as a result of decreases in trial starts and lower retention due to certain price increases.

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

We include ad supported listener hours related to Pandora's non-radio content offerings in the definition of listener hours.

For the years ended December 31, 2022 and 2021, ad supported listener hours was 10.88 billion and 11.55 billion, respectively.

For the years ended December 31, 2023 and 2022, ad supported listener hours were 10.48 billion and 10.88 billion, respectively.

The decrease in ad supported listener hours was primarily driven by the decline in monthly active users, partially offset by higher hours per active user.

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 to our Pandora advertising-based service.

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, 2023 and 2022, RPM was $99.39 and $101.19, respectively.

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

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

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 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).

Adjusted EBITDA excludes or adjusts for the impact of other expense (income), loss on extinguishment of debt, impairment, restructuring and acquisition costs, costs associated with the Transactions, 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 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.

For the years ended December 31, 2023 and 2022, adjusted EBITDA was $2,790 and $2,833, respectively, a decrease of 2%, or $43.

The decrease was due to higher web royalty and podcast revenue share costs as well as lower overall revenue, partially offset by lower sales and marketing costs.

Free Cash Flow includes cash provided by operations, 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, 2023 and 2022, free cash flow was $1,203 and $1,551, respectively, a decrease of $348, or 22%.

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

partially offset by cash received from customers.

The decrease was driven by higher capital expenditures driven by satellite construction and investments in our products and technology platform as well as higher cash taxes paid.

Liquidity and Capital Resources

The following table presents a summary of our cash flow activity for the year ended December 31, 2023 compared with the year ended December 31, 2022.

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.

Refer to our Form 10-K for the year ended December 31, 2022 filed with the SEC on February 2, 2023 for our cash flows for the year ended December 31, 2022 compared with the year ended December 31, 2021.

For the Years Ended December 31,

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Net cash used in financing activities (1,005) (1,562) 557

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

Net increase (decrease) in cash, cash equivalents and restricted cash 159 (134) 293

Cash, cash equivalents and restricted cash at beginning of period 65 199 (134)

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Our largest source of cash provided by operating activities is cash generated by subscription and subscription-related revenues.

We also generate cash from the sale of advertising through our Pandora business, advertising on certain non-music channels on Sirius XM and the sale of satellite radios, components and accessories.

We also generate cash from the sale of advertising through our Pandora and Off-platform business, advertising on certain non-music channels on Sirius XM and the sale of satellite radios, components and accessories.

Our primary uses of cash from operating activities include revenue share and royalty payments to distributors, programming and content providers, and payments to radio manufacturers, distributors and automakers.

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Cash Flows Used in Investing Activities

Cash flows used in investing activities in the year ended December 31, 2023 were primarily due to spending for capitalized software and hardware, the construction of satellites and acquisitions of tax-effective investments for total cash consideration of $39.

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 $297 and $247 on capitalized software and hardware as well as $285 and $122 to construct satellites during the years ended December 31, 2023 and 2022, respectively.

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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, 2023 were primarily due to repayments under our Credit Facility of $1,750, the payment of cash dividends of $383, the repurchase of $193 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2023, the purchase and retirement of shares of our common stock under our repurchase program for $274 and payment of $63 for taxes in lieu of shares issued for share-based compensation, partially offset by borrowings under our Credit Facility of $1,670.

Cash flows used in financing activities in the year ended December 31, 2022 were primarily due to repayments under our Credit Facility of $2,220, 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 borrowings under our Credit Facility of $2,300 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.

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

As of December 31, 2023, no amount was outstanding under our Credit Facility and $1,750 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.

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The amounts involved may be material.

As part of our ESG strategies, w e have made, and expect to make, certain tax-efficient investments in clean energy technologies, including industrial carbon capture and storage.

These investments will produce tax credits and related tax losses.

Over the next seven years, we currently expect to generate more than $250 million in net-after tax cash benefit.

The payments on these equity investments will be classified as investing activities from a cash flow perspective, while the tax credits and losses will benefit our federal cash taxes in operating activities.

Capital Return Program

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Shares of common stock may be purchased from time to time on the open market and in privately negotiated transactions, including in accelerated stock repurchase transactions and transactions with Liberty Media and its affiliates.

We intend to fund the additional repurchases through a combination of cash on hand, cash generated by operations and future borrowings.

We intend to fund the additional repurchases through a combination of cash on hand, cash generated by operations and future

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

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Debt Covenants

The indentures governing Sirius XM's senior notes and Pandora's convertible notes and the agreement governing the Sirius XM Credit Facility include restrictive covenants.

The indentures governing Sirius XM's senior notes and the agreement governing the Sirius XM Credit Facility include restrictive covenants.

As of December 31, 2023, we were in compliance with such covenants.

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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.

In evaluating goodwill on a qualitative basis, we review the business performance of each reporting unit and evaluate 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.

We consider 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, we also consider fair value determinations for our 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, we perform the quantitative impairment test.

Useful Life of Broadcast/Transmission System.

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We operate two in-orbit Sirius satellites, FM-5 and FM-6, which launched in 2009 and 2013, respectively, and estimate they will operate effectively through the end of their depreciable lives in 2024 and 2028, respectively.

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

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.

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

Our XM-3 satellite was launched in 2005 and is used as an in-orbit spare and reached the end of its depreciable life in 2020.

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 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.

Our SXM-8 satellite was launched in 2021 and is expected to reach the end of its depreciable life in 2036.

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.

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

Our satellites have been designed to last fifteen-years.

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

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).

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, costs associated with the Transactions, 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 believe the exclusion of share-based payment expense is useful as it is not directly related to the operational conditions of our business.

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.

We also believe the exclusion of the legal settlements and reserves, impairment, restructuring and acquisition related costs, 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.

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Add back items excluded from Adjusted EBITDA:

Legal settlements and reserves 24 —

Impairment, restructuring and acquisition costs 82 64

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Interest expense 423 422

Loss on extinguishment of debt — 83

Other expense (income) 9 (9)

Other expense

Income tax expense 260 392

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Total share-based payment expense $ 184 $ 197

Free cash flow - is derived from cash flow provided by operating activities plus insurance recoveries on our satellites, net of additions to property and equipment and purchases of other investments.

Free cash flow - is derived from cash flow provided by operating activities, net of additions to property and equipment and purchases of other investments.

Free cash flow is a metric that our management and board of directors use to evaluate the cash generated by our operations, net of capital expenditures and other investment activity.

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, net loan activity with related parties and other equity investees, and proceeds from the sale of real estate.

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, including tax efficient investments in clean energy as well as net loan activity with related parties and other equity investees.

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 (650) (426)

Sale (purchases) of other investments 1 (4)

Satellite insurance recoveries — 225

Sales of other investments

Free cash flow $ 1,203 $ 1,551

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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.

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

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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