Greetings. Welcome to the Liberty Media and SiriusXM Joint Investor Conference Call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If anyone today should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I'll now turn the conference over to Hooper Stevens, Senior Vice President of Investor Relations and Finance. Mr. Stevens, you may begin.
Good morning. Shane, and I would like to thank you for joining us. Welcome today to today's webcast, where we will be discussing the transaction between Liberty Media and SiriusXM to combine the Liberty SiriusXM Tracking Stock Group with SiriusXM to create a new public company. I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions, data, or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about those risks and uncertainties, please view SiriusXM's SEC filings.
We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As you listen to today's call, we will also invite you to follow along with the corresponding investor presentation, which can be found in the presentation sections of both Liberty Media's and SiriusXM's investor relations websites. On today's call, you'll hear from Greg Maffei, President and Chief Executive Officer of Liberty Media and Chairman of the SiriusXM Board of Directors, and Jennifer Witz, Chief Executive Officer of SiriusXM. We have additional management representatives from Liberty and SiriusXM if needed. I'll now turn the call over to Greg.
Good morning, and thank you. Sorry. Some background noise there. Turning to slide five. Super excited to be announcing this deal today. An exciting transaction between Liberty and Sirius. Liberty first invested in Sirius in 2009 and has worked alongside management across multiple generations in the business strategy. When we first invested, Liberty, Sirius had 19 million subscribers, and new vehicle penetration was 46%. Today... Hold on one second. I apologize. Oh, sorry. Continuing. My dog seemed to be quieted. New vehicle penetration was 46%. Today, Sirius, the leading subscription business, has 34 million subs. Penetration is in the low 80s, and it continues to deliver unique and growing content in and out of the car and into our next-generation platforms. This has been an incredible investment for Liberty.
Our initial preferred stock of $12,500, which had about a 40, well just over 40% interest in the company, is now worth nearly $13 billion. We have made some subsequent investments, but with repurchases and dividends, Liberty has more than fully recouped our invested capital and still holds $16 billion of equity going to our shareholders. It's been a great investment for all shareholders. The total return on SiriusXM since Liberty invested has been over 5,000%, and the business is extremely well positioned for future growth. Let me turn you, if I could, to slide five. In today's transaction, we'll rationalize the dual corporate structure between LSX and SiriusXM and create a cleaner, simplified entity.
We believe the company will be better positioned going forward with a future focus on the IR story based on the business, rather than Liberty's ownership and what will happen to it. We think there'll be benefit, many benefits for creating for shareholders on this slide outlined, including enhanced trading liquidity and float, a reduced short interest, a broader investor base with greater liquidity, and an asset, in an asset-backed stock. We will eliminate the multi-class structure. There will only be one Sirius investment class, one Sirius stock class. It's going to provide greater strategic flexibility and independence. We think there's an expanded chance of inclusion in any of the indices, and it addresses the discount to net asset value, which has consumed many of our discussions. Let me turn you to slide seven, if I could, for a quick review of the transaction.
Outlined in more detail in the appendix, but here I want to point first out this is a redemptive split of LSXM from Liberty to form new SplitCo, new Sirius. SplitCo will acquire SiriusXM and all stock transaction to form this new Sirius. In the Split-Off, LSXM shareholders receive one share of new SiriusXM for every share of SiriusXM previously held, adjusted for the net liabilities we have at LSXM. This will result in exchange ratio estimated to be 8.4 shares of new SiriusXM per share of LSXM, subject to some minor adjustments that will happen to close based on outstanding cash balances and debt balances, et cetera. The estimate is based on the assumed debt, assumed net debt, as I said, as of Q2 2024 at LSXM and note minus some various fees and expenses.
The Sirius minority shareholders will receive one share of new Sirius for each share of Sirius they hold today in the merger transaction. So new SiriusXM, as I said, will have one single class of shares with one vote. This will be a tax-free transaction. It is subject to some required approvals, including the majority vote of LSX shareholders and tax opinions from our respective counsels. And as we had noted, we expect to close this transaction sometime in early in the third quarter of 2024. So let me turn you, if I could, to slide eight. This outlines the simplified ownership structure at new SiriusXM. We believe this should eliminate a market overhang and ambiguity regarding the long-term shareholder relationship, and we the former LSX shareholders will own 81% of the combined company going forward, and the former Sirius Public shareholders will own 19%.
I'm looking forward to remaining invested personally and in my continued involvement as chairman of the board of the new Sirius. This simplified structure better positions Sirius for the future for management and shareholders. We appreciate the work of management and the special committee in getting this deal done. I look forward to a continued partnership with Jennifer, and I'm going to turn it over to her to let you have a few more details about how well-positioned Sirius is for the future and how well the business will do.
Thank you, Greg, and good morning, everyone. We're now on page nine. We are very pleased to have reached this agreement and are excited about how it positions SiriusXM for the future. I want to spend a moment just discussing how we got here and why we find this transaction compelling. After careful consideration, the special committee, working with its independent advisors, determined that this transaction with Liberty Media is in the best interest of SiriusXM and its stockholders, and made a recommendation to the full SiriusXM board of directors, which unanimously approved the transaction. In short, for SiriusXM, as Greg mentioned, this transaction provides greater strategic flexibility, a broader potential investor base, additional trading liquidity and float, and an opportunity for more index inclusion, all of which we believe will help increase stockholder value.
This is an important time for SiriusXM and one that will set the stage for the next phase in our value creation story, and I want to touch on some of the key elements of our strategy to transform the company for long-term growth. SiriusXM is the leader in audio entertainment in North America. We offer a differentiated service centered on our human-curated, live, and exclusive content, which has enabled us to build this leading position in and out of the car. Our unique content portfolio is underpinned by our exclusive channels, partnerships, and personalities across music, news, talk, sports, entertainment, and comedy. In music, we have exclusive artists and brand channels that super serve our passionate listeners, including The Beatles Channel, Life with John Mayer, and TikTok Radio, complemented by our homegrown music channels like Hits 1, Hip-Hop Nation, and Octane, just to name a few.
Beyond music, we continue to build out our portfolio of content on SiriusXM and through broader podcast distribution, with leading hosts like Howard Stern, Conan O'Brien, Kevin Hart, Megyn Kelly, and our recently announced agreement with James Corden. And lastly, we deliver consumers exceptional value as a one-stop destination for sports fans. No other audio provider offers as much live sports content as SiriusXM. You would need six subscriptions to streaming video services to get access to all the games SiriusXM offers. Beyond curating the best content in audio, SiriusXM benefits from a large subscriber base with 34 million paid subscribers in the U.S. and very low churn. We have 155 million enabled vehicles on the road.
We've made meaningful progress in the continued rollout of our 360L platform, and we have an expanding EV footprint, including a new deal we announced with Rivian last week. Building on our differentiated content, we are debuting our next generation streaming platform this week with the launch of our new app. We are confident that this next generation platform will meet consumers' demands for a more personalized, easy-to-use listening experience, both in and out of the car. We're building a set of solutions geared towards providing improved personalization and discovery in our products and in our marketing efforts. This new platform will serve as a foundation for further product enhancements and integrations going forward that will drive customer acquisition, engagement and ultimately retention, which all translate into future subscriber growth.
At SiriusXM, we are fortunate to have a loyal and engaged core audience who are Gen X and older. They represent about 25% of the market and are a large and very affluent consumer group. While we are well penetrated today in this segment, there is still room for growth here. We are incredibly focused on delivering a better user experience to appeal to our target growth audience as well. A younger, more diverse demographic comprising an additional 25% of the market, and we see a significant opportunity to improve penetration in this segment. We've conducted a large amount of research around what this audience is looking for and what has held them back from subscribing to SiriusXM in the past.
We know that a compelling price point is critical, and we're launching a new $9.99 streaming-only package to help capture demand across more listeners in more demographics. We also know that they are looking for the type of differentiated content that SiriusXM has to offer, and our next generation platform and new streaming product were designed with this group's needs for personalization and discovery in mind. In addition to our robust subscription offering, SiriusXM today has a nearly $2 billion advertising business that reaches 150 million listeners across SiriusXM, Pandora, and our broader podcast and off-platform ad network. We have invested significantly in advertising capabilities, creating a unique value proposition for advertisers to reach our scaled and diverse listener base.
Core to this strategy is our streaming network that aggregates listeners across our owned and operated properties, SiriusXM and Pandora, as well as a number of partner properties. We also have one of the largest podcast networks, with more shows in the top 50 than any other company. All of this supports our ability to deliver durable results, including our industry-leading EBITDA margins, and we hope this transaction enhances the visibility of this trajectory to analysts and investors. Turning to page 10, we are pleased to be entering into this transaction from a position of financial strength. Underlying our strong financials is our solid balance sheet, which enables SiriusXM to pursue our growth initiatives while rapidly deleveraging and returning capital to stockholders at the same time.
In terms of our capital allocation priorities, we expect to continue investing to drive long-term growth, including in our next generation platform, with our first launch coming this week, as well as our next fleet of satellites. Although the transaction will result in elevated net debt levels for SiriusXM, following the transaction, the company will be well positioned to rapidly delever, using free cash flow above and beyond our recurring dividend to reduce debt. We expect to return to our target low- to mid-3x leverage range sometime between the middle and end of 2025. We do not expect any change to our existing dividend policy, and we anticipate de-emphasizing share repurchases, although we will look to be opportunistic on this front as we focus on achieving our deleveraging goals.
Turning to page 11, just before we open the call to Q&A, I want to emphasize a few key points. We see this as a highly beneficial transaction for all shareholders. There is meaningful opportunity ahead for SiriusXM as the leader in audio entertainment in North America, as we leverage our next generation technology platform. We are delivering strong financial results while simultaneously investing in our future as we enter this next phase of value creation. And finally, our strong free cash flow generation abilities have been a cornerstone of our value proposition, and we are well positioned to rapidly delever and deliver returns to our stockholders.
I'm thankful for our strong partnership with Liberty all these years, and I look forward to continuing to work closely with Greg in his role of chair of the board, and I appreciate the work the special committee has done in getting us to this transaction. I'll now turn the call back over to the operator so we can begin the Q&A portion of today's call.
Thank you. If you'd like to ask a question at this time, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions to as many participants as possible, we ask you please limit yourself to one question. If you have additional questions, you may requeue, and time permitting, those questions will be addressed. Thank you, and our first question today is from the line of Vijay Jayant with Evercore ISI. Please proceed with your question.
Thank you. This is Ashton on the line for Vijay. I guess historically, Sirius run its leverage at the lower end of the low- to mid-3x target range. Should we expect you guys to get back to this range before you start buying back stock?
I'd say-
Well, I think... Go ahead, Jennifer.
So Ashton, I'd say that, you know, we are very focused on the low- to mid-3x leverage ratio, and we're sticking to that. And some, you know, the reason for the range of mid- to late 25 is that we do want to be opportunistic on share repurchases. But other than that, we are very focused on the long-term leverage ratio that we've stated for the company.
Yeah. If I could just add to Jennifer. SiriusXM has the free cash flow capabilities to handle this leverage. We have a target to get down to 3.5-low 3s, and we can get there in a meaningfully quick timeframe, and still achieve, I think, some share repurchases if we see opportunities, just as she said, because it's the free cash flow capabilities are still strong here.
Thank you.
Our next question comes from the line of Steven Cahall with Wells Fargo. Please proceed with your questions.
Thank you. A few for me. Maybe first, just Jennifer, you talked about the investments in next gen as well as satellites. I was wondering if you have any discretion over the cash flow profile of the CapEx for the satellite build as you manage through this period of debt reduction with a little bit of opportunistic share repurchase. And then additionally, I think the initial proposal might have included a cash dividend payment to Sirius shareholders. Just curious if there's any context on why the board ultimately decided for, I think, a bigger equity stake rather than the cash portion. And then finally, apologize, there's a lot of complexity in here. I just see that the share count is going to come down by a little bit through this transaction.
Can you just help us understand, where kind of those diluted shares go in that? Thank you.
Jennifer, you want to handle one, and I'll handle the back half?
Sure. Yeah. So I would say, Stephen, we don't have a lot of discretion around the satellite CapEx. Those are our forecasts, which, you know, we've provided some external guidance on the CapEx that we would expect over the next several years on that front, and that's really guided based on milestones and contractual payments. But we do have, you know, a material reduction and expect to be at or near zero in satellite CapEx in 2028, and probably run at that level for several years after that.
... So as far as the changing of the transaction, I'll let Jennifer add as well. I think there was a consensus that a transaction which brought less debt, that had a share repurchase as a factor of prices for SiriusXM, and was able to execute more quickly as this transaction will, compared to the cash dividend transaction, was more attractive. And the fact that there will be this share repurchase, effectively, retirement of those shares to offset the debt at SiriusXM, means that results in the lower share count at SiriusXM.
Yeah.
Thank you.
I'd agree on that, that we're pleased that the leverage is lower than it might have been and that the share count is lower.
Thank you. Our next question is from the line of Steven Shieh with Goldman Sachs. Please proceed with your questions.
Hey, great. Thank you. Maybe two questions. First, for Greg, could you remind us what regulatory approvals, if any, are needed to complete this deal, and how we should expect to see those play out from our end over the next couple of quarters? And then maybe just a follow-up on share repurchases. Jennifer, once you hit your leverage target of low- to mid-3s, towards the tail end of 2025, how do you think about ramping capital returns post that? You know, share repurchases have been a big part of the SiriusXM story in the past. I'm curious if that would be your preferred way, or if you think the dividend could play a larger component of that over the long term. Thank you.
Well, Steven, thanks. I'll touch on the approvals. I think we'll need HSR, which we think is relatively pro forma. We'll need FCC approval for the transfer of the licenses, also relatively pro forma. And then there will be no vote of the SiriusXM shareholders, but there will be a vote of the LSXMA shareholders, so we'll need a proxy to get through the FCC, and that's probably the longest item to get done.
Okay. And just in terms of future state share repurchases, we want to be opportunistic. I don't know that we can say specifically what we're going to do after the end of 25, but we've always had a mix of dividends and share repurchases, and so I would expect us to have that going forward. And just the nature of that mix, you know, will depend on a lot of factors going into 26. You know, market conditions, and where we are in our overall capital structure. We don't have any maturities until 2026, so we are really well positioned in terms of our overall capital structure. But again, we'll be opportunistic on overall capital returns, and as Greg has highlighted, we have very strong free cash flow to enable that and continue that going forward.
Great. Thank you.
Our next question is from the line of Sebastiano Petti with JP Morgan. Please proceed with your questions.
Hi, thanks for taking the question. Just sticking with the free cash flow for a moment, I think, Jennifer, there is some just overall questions about the bridge for, on a fundamental basis, 2024 into 2020, 2023 into 2024, as it pertains to the satellite CapEx as well as other overall investments within the business. So maybe if you could perhaps provide us with a color on how, you know, how investors should be thinking about the bridge there, on a fundamental basis, you know, pre-deal. Thank you.
Yeah. So Sebastiano, it's, we haven't provided guidance yet for 2024, so we'll have a lot more detail on that as we go into our year-end call. But in general, we expect going into next year to continue our investments in our next-generation platform. We're launching new streaming apps this week, as we've discussed, but we do continue to roll through our other aspects of our platform next year with the in-car, upgrading the in-car subscriber base migrating over to the new platform in the middle of next year. And we would expect to, or at least targeting at this stage, to migrate Pandora over to the new platform towards the end of next year. So there'll be some continued investments on in non-satellite CapEx there to support those efforts.
And that, again, positions us really well to continue to iterate and innovate on our product set throughout next year and going into 2025. And also, it helps us drive more efficiencies out of the business as all our products are on one platform. And then, of course, as we've discussed on the satellite CapEx side, we have these elevated levels of satellite CapEx this year and next year. And then that starts to significantly reduce as we go into 2025. So again, we'll provide more detail on that, including the various other metrics that we typically provide guidance for in our year-end call.
One quick follow-up. On the committed financing of $1.1 billion, can you comment on what does that look like, and will that ultimately be secured or unsecured? Thank you.
Yeah, I don't think we're sharing any real details on that yet, but we feel very comfortable about the committed financing and also the alternatives that we're going to have between now and close, which of course, you know, will depend on market conditions that exist at the time. But we do have the committed financing in place, and again, we feel like there are going to be other opportunities as well if we need them.
Great. Thank you. Congrats.
Our next question is from the line of Jason Bazinet with Citi. Please just proceed with your questions.
I just had a simple question as it relates to the terms of this agreement. Should investors think of those terms as fixed?
... even if Sirius stock price or LSXMA moves around a lot, are there provisions in the agreement to change those terms if there are changes to the underlying share prices?
Yeah, Jason, the terms are fixed. The really only variables will be what are the closing net debt for SiriusXM as the transaction closes, and that debt-
Thank you.
Our next question comes from the line of Cameron Mansson with Morgan Stanley. Please proceed with your question.
Thank you. Two, if I can. One quick one, just, on the expected time to deal close, what's the confidence interval there? Or is there a range in terms of how quickly it sounded like the SiriusXM shareholder vote will be the, kind of constraining factor, but any kind of range of outcomes, or is the 3Q, pretty set in stone, in terms of next year? And then, Greg, just on the, just from a high level, it's been a kind of a long and winding road. Why was this transaction or the form of this transaction, why was this the, the best course of action for, for Liberty ultimately? Thanks, guys.
I think the Q3 is a very realistic timeframe. We have high confidence in achieving the LSXM vote because the majority of the board and the votes are supporting this. The long timeframe is really just how fast we can get to the SEC, who is quite busy right these days. Why is it the best result? I think enormous success to cap off a great deal and bring our shareholders directly into Sirius at a one-for-one. I think it's a great result for our shareholders, and it's a great result for Sirius. I think it shows that our tracking stock structure ultimately does work, and well, has been a long and winding road, as you note. It's one that ultimately gave a very excellent outcome, both for LSXM shareholders and Sirius shareholders in our mind.
Got it. Thanks, guys.
Thank you. Our next question comes from the line of David Joyce with Seaport Research Partners. Please proceed with your questions.
Thank you. On the OpEx front, given you still have some of the technology re-platforming ahead, is that risk still going to remain kind of elevated for the next couple quarters? How does the, you know, volume of marketing play into that? Are there any other areas where you're cutting back on costs? I know you want to be marketing the new, you know, new streaming service, but how should we think about that, trajectory, over the next few quarters on the cost side? Thanks.
Sure. So on the technology side, we would expect that our continuing investment in our platform would impact both OpEx and CapEx. And as you note, on the marketing side, we will be ramping up marketing efforts in support of the launch going into next year. And we've been able to offset a lot of those investments with ongoing cost efficiencies in the business. We talked about $40 million in net cost reduction being kind of the quarterly amount in Q3, and we would expect that to be a run rate number going forward. And we continue to look for more efficiencies in the business. You know, clearly the easier ones are faster to get done, and now it requires a bit more investment up front to have more automation throughout the business.
But, you know, there are areas within marketing, certainly, within our call center operations and other aspects of the business, where we continue to look for and find efficiencies, and we would expect to be very diligent in that as we move into and through next year.
All right. Thank you.
Thank you. Our next and final question comes from the line of Barton Crockett with Rosenblatt Securities. Please proceed with your questions.
Okay, great. Thanks for getting me in. I wanted to, Greg, ask you about what got Liberty to the place of believing that this transaction, which appears to not really have value for other control premium, you're not really getting a control premium, it appears to me, correct me if I'm wrong. What got you to the place of believing that that was appropriate for Liberty in this circumstance? And how do you think about that as a precedent for other circumstances where, you know, you've got a stock with a meaningful equity position, you know, such as Charter? I mean, is this a precedent, and how do we get comfortable that no control premium seems to be the right answer here?
Well, I think, Barton, this was a heavily negotiated transaction.
There was a working precedent, but there's also probably. I can't speak for all the considerations that the special committee had and with whom we negotiated lengthily and with vigor, but I suspect they were looking and arguing, you know, at the discount and arguing that the premium wasn't worth it. You know, I can't put myself in all of their considerations, but I assume that was part of their calculus, and this is where we got to. One of the things that's notable, Barton, is when you own 83.5% of the company, which is what we did and what we do until this transaction closes, it has so little impact on the ratio, because if you get a premium, you lose 83.5% of it.
If you expect a discount, you gain 83.5% of it. So everything naturally gravitated in this transaction towards one-to-one. Just the math, because everything, you know, a $100 million premium ends up only being a $17 million premium. All of it just comes back. So I think that's part of also what led to the one-to-one. As far as the precedent, I think each of these transactions, you know, there are a lot of precedents out there about what how these things get done, but each of these transactions does stand alone in the facts and circumstances, and you'll have an independent committee on the other side.
I suspect if we ever try and negotiate another one of these, as we have in the past, well, we'll look at their facts and circumstances and argue their case as effectively as possible as we will. I'm very happy with the results, and I hope our shareholders are too.
Okay. Thank you.
Thanks, everybody, for joining us today. We look forward to continuing the conversation in the coming days and weeks. Take care.