SIRI - NASDAQ

Greetings. Welcome to the Sirius XM Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants will be in listen-only mode. A question and answer session will follow the formal presentation. A reminder, this conference is being recorded. My pleasure to introduce Maggie Mitchell, Senior Vice President, Corporate Communications. Thank you, Maggie. You may begin.

Thank you, and good morning, everyone. Welcome to Sirius XM Holdings Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. Today, we will have prepared remarks from Jennifer Witz, our Chief Executive Officer, and

Good morning, everyone. Thank you for joining us today. In 2025, we delivered on our commitments and finished the year with strong Q4 results, exceeding our guidance and growing free cash flow year over year. We achieved this by strengthening our subscription offering, growing our advertising business, and leveraging the power of our broader portfolio to drive meaningful efficiencies and harness new opportunities. Following the refocus strategy we laid out in December 2024, we have remained laser-focused on bolstering our core Sirius in-car audience and expanding the reach of our ad network. As a result, we've exceeded our revised guidance, achieving $8.56 billion in revenue, $2.67 billion in adjusted EBITDA, and $1.26 billion in free cash flow, with a clear path to our target of $1.5 billion in free cash flow in 2027. Now let's dive into our subscription business. Throughout the year, we continued to deliver unique programming that drives connection and passion with our subscribers. First, we signed a new three-year agreement with the king of all media, Howard Stern. Our long-standing relationship with Howard helped to define Sirius XM Holdings Inc. in its early days, and today he's more relevant than ever, achieving a 32% year-over-year increase in earned media with A-list interviews and must-hear moments. With this new agreement, we've cemented Howard's place in our lineup for years to come. Simultaneously, we've continued to grow and strengthen our bench of influential voices across music, sports, news, culture, and more. We super-serve passionate fan bases with dedicated league and artist channels, intimate live events, and the ability to interact directly with on-air hosts. Ranging from beloved personalities on daily formats such as the morning mashup to industry heavyweights, including John Mayer, Mad Dog, and many more. Our new Metallica channel is commanding a strong audience, outperforming our benchmarks. Additionally, we're seeing very positive engagement and passion from fans listening to our Unwell music channel with Alex Cooper, part of our broader deal with the Call Her Daddy host. We also closed out the year with our fan-favorite slate of holiday channels, with even more time spent listening to these channels than last year. Our unrivaled offering of sports audio content remains a key differentiator for us. With agreements with every major North American sports league and rights to more than 100 college teams, Sirius XM Holdings Inc. gives sports fans access to more live games and events than any other single media outlet or service. Sports listening is up year over year both in-car and on streaming, with audience gains in areas including NFL, NHL, and NBA play-by-play. In Q4, we extended our agreement with the NBA and launched new shows covering everything from the business of basketball to Italy's top soccer league. As we look ahead, we will continue to build programming around major events and milestones, including the Super Bowl and the World Cup. Sirius XM Holdings Inc. has always offered a broad set of perspectives across political lines. In Q4, we launched a full-time Megyn Kelly channel, and to help kick off 2026, Chris Cuomo has joined our lineup with an exclusive daily political show on the POTUS channel. From a product and service perspective, our focus has been on enhancing what we do best. In the fourth quarter, we launched our new automotive Pandora app with a select set of partners, including GM, which builds the music streaming platform more directly into the vehicle where we have a leading position. 360L penetration further expands each year, now in more than half of new Sirius XM Holdings Inc.-enabled vehicle sales and representing an increasing portion of our self-pay subscribers and the 180 million enabled fleet on the road today. This share will continue to grow with its next-generation platform now available in all new Volvos, standard on enabled Audis, and debuting in the 2026 Toyota RAV4. 360L combined with our streaming platform provides increased observability across listening, content, and product usage. With measurable insights allowing us to improve personalization and drive deeper engagement, leading to increased customer satisfaction. We've also made major strides in simplifying the overall customer experience and driving value. In Q4, we launched continuous service, a new capability that reduces the friction subscribers experience when changing vehicles as part of our efforts to remain consumer-centric. This functionality maintains the customer's listening history, account credentials, and other attributes, and also keeps their streaming service active, giving them the ability to continue enjoying the service while they move between vehicles. We expect this will have benefits in customer satisfaction and retention while also laying the groundwork for future enhancements that make the process even easier, solving a pain point for many of our dedicated listeners. This quarter, we also introduced companion subscriptions as we continually improve the value of our plans and packages and provide greater differentiation between tiers. Our version of the family plan, companion subscriptions allow our most loyal full-price customers to add a vehicle or streaming login at no additional cost. This is another step towards offering a suite of family plans that make it easier than ever for our loyal customers to share what they love across their household. We've also seen positive growth in our newer tailored package offerings. Our multi-year automotive dealer subscription program, which first launched in 2024, is now in more than 15 brands across North America. We've also continued the thoughtful rollout of play, which is now being expanded to a broader set of our new trialers. We are seeing positive indicators that it is driving conversion interest and subscriptions across all packages, widening the top of the funnel. Additionally, our podcast plus subscription has scaled. It now includes new shows and is available for purchase across Apple, Spotify, and more. Moving to the topic of advertising, 2025 was the year we secured our leadership position in digital audio advertising across a scaled audience of 170 million listeners. Throughout the year, we continued to deepen our podcast bench with disciplined investments in top shows and creators. We are now the number one podcast network in the nation and proudly had half of the nominees in the first-ever best podcast category at the Golden Globes last month. Our podcasting ad revenue grew 41% for the full year on top of double-digit growth in 2024, a testament to all the work we've done to extend our lead in this arena. Additionally, podcast programmatic demand has continued to grow, up more than 92% over Q4 2024 as digital buyers recognize the channel's reach. Beyond our digital audio ad sales business, our advertising technology capabilities are expanding, offering services to major audio players around the world. Additionally, our cross-platform sales strategy incorporates social and video components from top creators such as Mister Balan, continuing to scale, with video and social revenue up four times year over year. As audiences increasingly engage with podcasts through video and social platforms, we are able to effectively monetize this shift, with our omnichannel capabilities allowing us to tap into brand budgets beyond audio. As we look ahead to 2026, we are maintaining our sharpened focus and our commitment to strengthening our business and our leadership in audio. Our guidance anticipates mostly flat revenue on slightly lower subscribers alongside stable adjusted EBITDA for the first time in three years, with further growth in free cash flow. We are continuing to explore and capitalize on opportunities to leverage our assets moving forward, including our talent agreements, our ad sales expertise in ad tech, our 180 million vehicles in operation, and our 35 megahertz of contiguous spectrum. Overall, 2025 was a successful year where we were able to achieve both immediate impact and lay the groundwork for long-term results across the business. We delivered exceptional listener experiences and meaningful value to marketers, exceeded our cost savings target, maintained our dividend, strengthened our balance sheet, and drove disciplined execution that improved free cash flow and positions us for continued momentum. Enabling us to maintain our financial rigor and achieve our goals for 2026 is our new Chief Financial Officer,

Thank you, Jennifer, and good morning, everyone. Before I dive into the numbers, I wanted to start by saying how excited I am to be here speaking with you today on my first earnings call as Sirius XM Holdings Inc.'s CFO. I officially joined on January 1, and I've been incredibly impressed by the depth of the team, the durability of this business, and the passion behind our brands. I look forward to getting to know many of you in the analyst and investor community in the weeks and months ahead. I also want to extend a sincere thank you to Thomas D. Barry for his leadership partnership and for ensuring a thoughtful and seamless transition. Tom leaves this company in a position of strength, and I'm grateful for the foundation he and the rest of the finance team helped build. Turning to the business, we closed out 2025 with solid execution against our financial and strategic priorities. We sustained healthy margins, generated strong and growing free cash flow, continued to make disciplined investments in our platform and distribution, and delivered another year of meaningful cost efficiencies. At the same time, we sharpened our focus on subscriber profitability and higher return marketing and technology initiatives. For the full year, we delivered revenue of $8.56 billion, modestly ahead of our raised revenue guidance, which we'd increased on our third-quarter call. Total subscription revenue was $6.49 billion, down 2% year over year. Results reflected the benefit of our March rate increase offset by a slightly smaller average self-pay subscriber base. Advertising revenue was $1.77 billion, roughly flat year over year, driven primarily by strength in podcasting and improving programmatic demand late in the year, offsetting ongoing weakness in streaming music advertising. Full-year adjusted EBITDA was $2.67 billion, resulting in a margin of 31% and modestly ahead of our most recent guidance, which we also increased during the third-quarter call. Net income was $805 million, marking a significant increase from the prior year's negative $2.1 billion driven by the impairment charge associated with the Liberty Media transaction. Earnings per diluted share was $2.23, also significantly up from negative $6.14 in the prior year. In the fourth quarter, we delivered $2.19 billion in total revenue, largely flat year over year. Subscription revenue totaled $1.63 billion, down slightly year over year, while advertising revenue was $491 million, up 3% compared to 2024's fourth quarter, reflecting strong growth on top of elevated political spending last year. Overall, growth was driven by continued strength in podcasting and improving demand trends late in the quarter. Adjusted EBITDA for the quarter was $691 million, up slightly year over year from $688 million in 2024. As expected, free cash flow remained heavily back-weighted. Fourth-quarter free cash flow was $541 million, a Q4 record and up 5% year over year, bringing full-year free cash flow to $1.26 billion. This means we finished ahead of our original $1.15 billion guidance by over $100 million, reflecting continued operating discipline, lower cash taxes, and lower capital spend following the completion of our two most recent satellites. Our full-year free cash flow conversion was 47%, reflecting improved cash efficiency relative to the prior year, which included Liberty transaction-related impacts. Turning to the segments. In the Sirius XM Holdings Inc. segment, we generated $1.61 billion of revenue in Q4 and $6.42 billion for the full year, including $5.96 billion of subscriber revenue. Full-year revenue declined by 2% as the benefit of the March rate increase was more than offset by a slightly lower average self-pay subscriber base and planned mix changes within our base. Segment gross profit for the fourth quarter was $955 million and $3.82 billion for the full year, both representing a gross margin of 59%, close to last year's 60% for Q4 and full year. On subscriber metrics, fourth-quarter self-pay net adds were a positive 110,000. That reflects contributions from the continuous service initiative that Jennifer mentioned earlier, as well as the earlier than planned introduction of companion subscriptions, which contributed approximately 80,000 incremental self-pay net adds during the quarter. These benefits were more than offset by the expected reductions in streaming subscribers and lower conversion rates, resulting in net adds this quarter that were approximately 39,000 lower than last year's fourth quarter. Our core subscriber base remained stable, as reflected in full-year churn of 1.5%, one of the lowest levels in our history and an improvement from 1.6% last year, supported by a durable subscriber base with over half of our subscribers having been with Sirius XM Holdings Inc. for more than ten years. We view our strong churn performance as a key result of improving our value proposition and overall customer satisfaction, and looking forward, we expect it to remain in the 1.5% to 1.6% range. From an ARPU perspective, fourth-quarter ARPU was up $0.06 to $15.17 as rate increases rolled through the base, partially offset by an increase in subscribers on promotional plans. For the full year, ARPU was $15.11, down $0.10 from last year. Turning to the Pandora and off-platform segment, fourth-quarter revenue was $582 million and full-year revenue totaled $2.14 billion. Advertising revenue continued to show momentum during the year, growing 1% year over year, driven by strong podcasting and programmatic growth. As Jennifer mentioned, podcast revenue grew 41% in 2025. Segment gross profit in Q4 was $208 million, reflecting a gross margin of approximately 36% compared to last year's 34%. For the full year, gross profit was $670 million, a margin of around 31%, representing a slight decline from last year's 33%. For 2025, we also achieved $250 million of incremental gross cost savings, significantly exceeding our $200 million in-year cost savings target. Sales and marketing expenses declined 16% year over year, as we reduced streaming marketing and leaned further into an ROI-based subscriber acquisition strategy. We tightly controlled product and technology spending, which decreased 9% year over year, driven by lower hosting and labor costs. These savings not only establish a solid cost foundation heading into 2026 but also create additional capacity for reinvestment. In 2025 and continuing into 2026, we have continued to deploy capital selectively in key areas such as the in-car customer experience, platform technology, and ad monetization tools. As part of our ongoing efforts to simplify the business and sharpen our focus on higher return initiatives, we recorded $436 million of year-to-date impairment restructuring and other charges, including $272 million in the fourth quarter, driven largely by non-cash impairment charges related to certain content-related agreements and terminated software projects. We also continue to actively manage our balance sheet and return capital to shareholders. During 2025, we returned $501 million to shareholders, including $365 million in dividends and $136 million in share repurchases. We reduced total debt by $669 million during the year, including nearly $371 million in the fourth quarter. We ended 2025 with a net debt to adjusted EBITDA ratio of approximately 3.6 times, continuing our path towards our long-term target range of low to mid-3 times, which we expect to reach by late this year. Liquidity remains strong, with continued access to our $2 billion revolving credit facility, which remains largely undrawn. Looking ahead to 2026, based on current trends, we are introducing the following outlook. We expect revenue of approximately $8.5 billion and adjusted EBITDA of approximately $2.6 billion, both largely flat to last year. And we are expecting to grow our free cash flow to approximately $1.35 billion as we take another important step towards our target of $1.5 billion in 2027. We also expect to capture an additional $100 million of gross cost savings exiting 2026 for a cumulative run rate impact of $350 million, driven by continued platform efficiencies, customer service automation, and G&A rationalization. Separately, while we're not providing specific guidance on self-pay net adds, we do expect reported self-pay net adds to be modestly lower than 2025, primarily reflecting the timing impact of the earlier than planned introduction of companion subscriptions, which contributed approximately 80,000 incremental net adds in 2025. As always, we will remain disciplined in balancing shareholder returns, deleveraging, and investments that drive sustainable long-term cash flow. In closing, I'm incredibly excited about the opportunity ahead at Sirius XM Holdings Inc. This is a business with strong competitive positioning, durable cash flow, and a clear roadmap for continued efficiency and profitability. I look forward to working with this talented team and engaging with all of you as we execute on that strategy. With that, I'll turn it back to the operator for Q&A. Thank you to everyone for joining.

Thank you. We will now be conducting a question and answer session. And our first question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Please proceed with your question.

Good morning and thanks for taking the questions. Jennifer, encouraging to see the positive sub growth in the period. Taking a step back, just wondering if you could elaborate on where you think Sirius XM Holdings Inc. sits competitively today and where we are really in the evolution to provide your customers with more pricing and packaging flexibility?

Sure. Thanks, Cam. We were really pleased with the fourth quarter results, just to start off. We added 110,000 in net adds, and so this is a reflection of not only continued low churn but contribution from our new acquisition programs and the benefit of continuous service and companion plans that we launched in the fourth quarter. So going forward, our competitive positioning, I think, is incredibly strong as complementary to the music streaming services, especially because we have a unique position in the car. And remember, the vast majority of listening in the car is still to AM/FM. And we are opening up new packages, including music only at $9.99 and low cost of ads at $7 that goes squarely off against that AM/FM listening. We think we have more opportunities to take share there. So we're really well competitively positioned against the DSPs to be complementary against AM/FM in the car, which is our primary point of leverage.

Thanks. And if I could follow-up on churn just for a second. I think

Yeah. We did have a one-time benefit from continuous service in Q4, which reduced our vehicle-related churn. And this program allows our subscribers to continue their service while they're moving between vehicles. It removes a lot of friction in the process. This has been one of the points of leakage in terms of managing those vehicle changes, and we have more functionality coming, likely later this year, to make that even easier. So I do think we could continue to see some tailwinds in churn related to that functionality and expanding it. But, otherwise, we've seen strong non-pay results. Our voluntary churn was flat year over year, even though we did a rate increase last year. So, you know, we're just being cautiously optimistic. We think there's a lot more we can do with the data and the capabilities we're building on the marketing side to put the right content in front of the right customers, not only to build demand but also to enhance retention as well.

That's all helpful. Thanks, Jennifer.

Thank you. The next question is from the line of Steven Cahall with Wells Fargo. Please proceed with your questions.

Thank you. Good morning, Jennifer. I was just wondering if you could, and

Sure. Thanks, Steven. In terms of self-pay net adds for 2026, we have guided modestly lower companion subscriptions launched a bit earlier than we expected in December, which has been very successful. And I would expect to continue to drive solid performance there going into and through this year. That is adding value for our most loyal subscribers and positions us well for a rate increase this year. So we've seen nice results there and better than we would expect. But because we pulled it forward, it actually delivered better than expected performance on self-pay net adds in the fourth quarter and for 2025. So I think that, look, we understand the importance of subscribers. We're very focused on improving the trends. We believe we have a number of initiatives that will enable us to do so. But I would say that even if we don't, we have incredibly strong and growing free cash flow generation for years to come. And we're being very disciplined about the interaction between subs and free cash flow. But just, you know, turning back to more specifically on 2026, we also are guiding for relatively stable revenue, which, you know, in the face of slightly lower subs, obviously indicates that we believe we have more room in ARPU and pricing. So, again, we have a number of initiatives in flight. Hopefully, we'll talk more about those this morning. Some of them we highlighted on the prepared remarks. But we are continuing to expand demand through our broader price and packaging and personalization in marketing. And we are launching with more and more OEMs, our dealer three-year subscription program, as you mentioned, and we expect to see more demand there where dealers are ordering Sirius XM Holdings Inc. and customers get the benefit of that three-year subscription in their vehicles at the point of purchase. And we are already in 15 brands, and we expect to continue to expand in new end use this year.

Thank you.

Next question is from the line of Kutgun Maral with Evercore ISI. Please proceed with your question.

Good morning and thanks for taking the questions. First, Jennifer, you just touched on ARPU and pricing in response to Steve's question. So can you help unpack your ARPU expectations for 2026 in a bit more detail? And then on spectrum, I appreciate that it's difficult to get too granular on any process, but is there anything you can share on whether you're still actively engaged in evaluating the portfolio and how you see the opportunity set ahead for at least parts of the 35 megahertz? Thanks.

Great. Thanks, Kutgun. Maybe I'll take the first one on ARPU. ARPU is a great story for us. In the fourth quarter, we were up $0.06 to $15.17, driven by the flow-through of the pricing we had taken earlier in the year. And importantly, I think beyond just the fourth quarter, if you pull back a little bit, it's our third straight quarter of sequential improvement when comparing to last year and our second straight quarter higher than 2024. As you look forward to 2026, that momentum we do see is carrying forward into the year and expect to see strong ARPU performance in 2026 as well.

Do I take a second? Yes. Thanks, Kutgun. And just as a reminder, the total 35 megahertz of contiguous spectrum with the 25 megahertz is currently used for our core broadcast operations. And then we have five on either side for 10 megahertz of the recently acquired spectrum, which is the WCS licenses. And so, you know, as a reminder, we noted last quarter that we are evaluating multiple approaches to creating value with these assets, including new products or enhancements to our services, either ourselves or with partners. And building on core strengths, in particular in the car, this has been a key focus for us overall and with a bit more attention being paid to the CMD licenses within WCS. That's where the most near-term opportunities are. And we're looking forward to talking more as our thinking and the opportunities evolve.

Thank you both. Our next question is from the line of Jessica Reif Ehrlich with Bank of America Securities. Please proceed with your questions.

Good morning. I have two topics, I guess. First, on the podcasting advertising growth, it has been phenomenal. It's driving really strong. And

Sure. I'll take that, Jessica. So we did see really strong growth in podcasting in Q4 and last year in total. And Q4 in particular was incredibly strong based on improvement in metrics across the board. So higher podcast audio RPM driven by really record sell-through, higher CPMs, and a significant uptick in programmatic, as well as growth in our Creator Connect product, which allows us to sell video and social also. So we think there's continued tailwinds here in the industry, not only because of, you know, listening trends and our particular portfolio, but our ability to continue to improve monetization. We have incredibly high RPMs here, well above what we see on the music streaming side. And I think there's, you know, continues to be room for growth. We have great relationships with talent. We had, you know, half of the Golden Globe nominees, you know, the first time they've had a best podcast category, and Scott and his team continue to actively discuss, you know, relationships with new talent there. So we feel really well positioned in the podcast business, and just to touch on profitability, so this is a good business for us. It stands on its own. The margin has increased over time, and we think that the industry dynamics are in our favor here. And we also get added value from what we do on Sirius XM Holdings Inc., you know, not only with things like the Unwell Music Channel or, you know, Conan O'Brien's channel, but working with the creators, we've been able to define exclusive content for our Sirius XM Holdings Inc. subscribers as well.

Thanks. Any commentary on advertising? And then I'll go to the next question.

Sure, yes. So we're cautiously optimistic for 2026. And the year has started out solid. You know, I think it has a lot to do with our trends in podcasting, but there's a few areas where we see sort of unique opportunity. Our events business, you know, we are building great packages around things like the Super Bowl with our Noah Kahan event tonight, or the World Cup. And we also have a broader set of programmatic DSPs. We launched Amazon, and we're seeing a nice uptick there. And just in terms of the categories, I mean, it's recent, but, you know, what we're seeing is tech is up the most, financial services and pharma have been strong, as well as CPG. And then where we're seeing some pressure is on retail, QSR, and education.

Great. I'm not sure if you said Scott is on the call or not, so I don't know if this is Scott or Jennifer for you. Yeah. But, you did just resign Howard Stern for an additional three years. How should we think about the 2026-2027 content renewal calendar and the puts and takes on the content expense growth? Like where do you feel you have negotiating leverage? Where do you think you should invest more to protect your franchise?

So that's a moving target. As our lineup shifts due to many factors, you know, people could go on to other parts of careers, the economic and business models may not make sense. It's really a shifting target. So we look at it. We feel really good where the lineup is right now, both on Sirius and for sure in podcasting. But, you know, we're opportunistic where we need to be, but we're also conservative if the podcast market or anything else gets too frothy, and we're not gonna, you know, get into that, especially with the lineup we have right now. The place that I'm most pleased where we stand right now is in sports live sports rights because we're the only place where all the league rights and college and many other sports are under one roof. So, you know, down the road, sure, there could be pressure on that. We're in a pretty good spot right now where our deals stand on that.

And I just say, Jessica, we have so much more data than we've ever had before. So we can make better decisions about what's in the portfolio based on that data in terms of engagement, but also how we're increasingly using it in marketing for acquisition and retention because the real objective is to get the right content in front of the right customers. And that kind of data and analytics will be supported clearly by perceived value as well.

Great. Thank you.

The next question is from the line of Barton Crockett with Rosenblatt Securities. Please proceed with your questions.

I was curious about if you could talk a little bit about how you think about what seems to be a little bit of a new development in the podcasting sector, and that is the idea of, you know, doing deals with another party like a Netflix to give kind of an expanded kind of presence for your podcast, you know, Spotify's got a deal there and iHeart. That's new. Wondering if you could talk a little bit, Jennifer, about how you guys think about that in terms of the opportunity to do something like that and how important that could be specifically in this, you know, and then maybe segue into the idea of bundling. I mean, it would seem that, you know, one of the things that's been very prominent in, like, video streaming is guys coming up with bundle deals with other services like Disney Plus, HBO Max. And that working. We don't see so much of that audio and certainly, you know, maybe less prominently with you guys. So could talk about partnerships, bundling podcasts, that'd be interesting.

Thanks. I'll take the first part on that. So, you know, our podcast network reaches one in two podcast listeners in the US. And we're number one on Edison, and it's been well documented about how dominant we are in that position. So it's been written about. It's no secret that, you know, any company looking to have our podcast, you know, we're open for business. It's just we like our position where we are. Able to maximize a lot of money for curators and us going wide with what we're doing. If they become another platform that we can monetize on, we're always open to that. If it becomes narrower or more exclusive, the economics have to dictate that for both us and the creator. So it's a work in progress, but it's something we pay attention to regularly.

Thanks. And this is Wayne. And on the partnership side, I think the key work that we've been doing to do things such as fixing our identity stack were key in order to do more effective distribution partnerships such as hard bundles. Because, you know, when we when the main identity ends up being the vehicle versus the customer, it gets very clunky to put together a partnership where you have a hard bundle and the two services are joined. The other piece that we really needed, of course, was to have a lower overall persistent price point so that we weren't swamping our partners when we're putting together these joined-up offerings. And so now that these are in place, there's a lot of discussions that are, of course, being evaluated and underway. So more to talk through in the coming months.

Okay. That's great. Thank you.

The next question is from the line of Stephen Laszczyk with Goldman Sachs. Please proceed with your question.

Hey, great. Thanks for taking the questions. Two, if I could. Maybe first for a combination of Jennifer and Wayne, you'll be seen some nice execution on the cost savings program this past year. Curious if you could talk a little bit more about the opportunity you see to take cost out of the business here over the next year or so. And then within that, some of the high ROI investments you're making with reallocating resources within the business you see the most opportunity on that front. And then second for

Okay. So just on high ROI investments, I think Wayne's team has been doing a fantastic job rationalizing our product and tech spend and focusing on where we have the most opportunity. So on our in-car subscription business and our ads business. So I'll let Wayne talk a little bit about that, and then

Yeah. There's three main areas we're focused on. It's, you know, as you can see, this is where some of the identity work comes in, things like companion, it's really improving the overall go-to-market. The second is, of course, improving the experience in the car, and this, you know, all of these are all tied to the sharpened focus from December 2024. And then I'd say the third big area that we're continuing to make a lot of investments is improving the way we merchandise the breadth of our content. So that's search, that's recommendation, and other ways we're gonna push out recommendations and let people know all the wonderful things we have, which we have a huge opportunity to improve on. And, of course, that helps with churn and conversion through trial.

Yes. And Stephen, maybe I'll sort of reorder the question just a little bit to dovetail with what Wayne had to say. I think we're really clear on our capital return strategy. As Wayne had said, we're first focused on investing in those initiatives that drive our strategy. We've got plenty of opportunities for that. That's we'll feed that first. I think the good news is then with the OpEx efficiency work we're doing, which I'll talk about in a moment, we're able to create the capacity to both invest and improve free cash flow. That's well underway. So on the deleveraging piece, you know, we made significant progress in 2025, going down to 3.6 times, and we do expect to get into our guided range of low to mid-3s by later this year. And so then if you sort of walk all the way down from there, the third return is to shareholders today, been more heavily weighted toward dividends, that will remain important to us. And so as we achieve our target leverage later this year, that'll open up additional opportunities for us. But then just to talk a little bit about cost reductions, and I think, first and foremost, obviously, it helps us to create that capacity to invest in the things that Wayne had talked about. And we're really focused on reducing more agile. So we'll call it getting lighter. There's always opportunities to do that. The most obvious piece we see is in satellite CapEx we've talked about, but even inside of OpEx, one example is the significant work in modernizing the tech stack that Wayne and the team are leading. And here, we expect to both be able to reduce OpEx and deliver more for our customers. I think we see that as a win-win.

That's great. Thank you very much.

Our next question comes from the line of David Joyce with Seaport Research. Please proceed with your questions.

Could you please update us on the earlier learnings from your Amazon DSP relationship? Anything that contributed in the quarter, which what do you think that can do for you in 2026? Thanks.

Sure. So we're really pleased, by the way, with our programmatic partnerships. We've had a long-standing relationship with the Trade Desk, but we also have a significant business with GB360, Yahoo! Verizon, and growing with Amazon. So, you know, the diversification is really important. Certain brands work with certain platforms for various reasons. So we are seeing an expansion of marketers as we work with Amazon, and we've seen really nice growth there in the fourth quarter and continuing into the first quarter. So I think it'll be a nice contribution to the overall programmatic business. And again, we have a lot of runway here because, as you know, with CTV or video, programmatic represents a healthy share of overall ad revenue. And for us, you know, on the streaming side of our business, it's been a long-standing, but we're just starting to build on the podcasting side. So I think there's a lot of room to continue to invest in and see returns there.

All right. Thank you.

Our last and final question will be from the line of Brian Kraft with Deutsche Bank. Please proceed with your questions.

I was wondering if you could comment on where conversion rates have been running for both new and used vehicles. And as well, if you could talk about how they compare between 360L and non-360L. You know, is 360L helping there? And then separately, I was wondering if you could just talk about the trends you're seeing in used car trials. Are those still growing? Are there macro pressures? Would they be growing but for macro pressures? Any color you could provide there would be really helpful. Thank you.

Sure. So I'll start with the first one. Obviously, a healthy trial funnel is great for the business, and we saw that throughout last year. There is some pull forward perhaps because of tariffs and just general consumer demand. In '26, there does look to be perhaps the first year of reductions in consumer purchases of new vehicles, at least from the third-party estimates, the first time since 2022. So we may be facing a bit of a headwind there. But, you know, again, expansion of penetration rates and expansion of 360L are helping offset that to some extent, and I'll come back around to that. On the used car side, organically, obviously, penetration rates continue to grow there. We're at about 60%. And we have really strong relationships across our dealer network to be able to make sure that when a customer gets into their new used car, the radio is working for them. So continue to invest in those programs to ensure that they can have the best consumer experience on the used car side. Say, overall, we're not quite at fifty-fifty in terms of trial starts across new and used, but it's getting closer as used grows. So on conversion rates, we're seeing, you know, some similar trends that we've seen in the past. We have really strong programs and initiatives in place to, as Wayne even addressed, to address demand through the trial funnel. And, you know, those include things like the pricing and packaging that we put in place, whether it's low cost of ads or music only at $9.99. We're seeing healthy take rates on when we put those price points in front of customers on our full-price packages. So, it's opening the top of the funnel and getting people on the best package for them. But what's even more important is the right content in front of the right customer. So we have an incredible portfolio, but it's extensive. And we need to make sure customers can find the content they love. When we've tested this in smaller ways, we see meaningful lift and conversion. So it's really about the capabilities that Wayne's team has been building. This is taking our, it's taken longer than I would like, admittedly. We've been on this path for two or three years, but a lot of things are coming over the finish line this year that I believe will help us to really drive personalization in marketing. And we do see because with 360L, we get that data back on listening even if you are listening or aren't listening and how much you're listening and what you're listening to. And we can design our marketing and even in some cases, product recommendations to address that. So that's really core. We see, you know, 360L conversion rates better than non-360L. We even see it pretty early, but we launched 360L on AAOS, which is a platform that we can more easily update and comes, you know, at launch fully featured. So we even see better conversion rates there. So we know there's something here to unlock. It's just about getting some of these capabilities across the finish line this year to support.

Thank you.