Good morning and welcome to Sirius XM’s Fourth Quarter 2020 Financial and Operating Results Conference Call. Today’s conference is being recorded. [Operator instructions] At this time, I would like to turn the call over to Hooper Stevens, Senior Vice President, Investor Relations and Finance. Mr. Stevens, please go ahead.

Thank you and good morning everyone. Welcome to Sirius XM’s fourth quarter 2020 earnings conference call. Today, we hear our prepared remarks from Jennifer Witz, our Chief Executive Officer and Sean Sullivan, our Chief Financial Officer. Scott Greenstein, our President and Chief Content Officer will join Jennifer and Sean to take your questions. I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management’s current beliefs and expectations and necessarily depend upon assumptions, data or methods that maybe 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 Sirius XM’s SEC filings. We advise listeners to not rely unduly upon forward-looking statements and disclaim any intent or obligation to update them. As we begin, I would like to remind our listeners that today’s results will include discussions about both actual results and pro forma adjusted results. All discussions of pro forma adjusted operating results assume the Pandora transaction closed January 1, 2018 and exclude the effects of stock-based compensation and certain purchase price accounting adjustments. With that, I turn the call over to Jennifer.

Good morning and thank you for joining today. I am very pleased to welcome Sean Sullivan, our new Chief Financial Officer to his very first earnings call at Sirius XM. We turned in a truly phenomenal 2020 that highlighted the resiliency of our business and the teams that make it work. We were able to grow Sirius XM Self-Pay subscribers by 909,000, which actually exceeded our original pre-COVID guidance. We added 407,000 net new Self-Pay subscribers in the fourth quarter alone. Our Self-Pay base stands at an all-time high of $30.9 million and churn improved for the fourth consecutive year. Revenue, adjusted EBITDA and free cash flow all climbed in 2020. After working our way through the worst of the pandemic impact on auto sales and advertising in the second quarter, the trajectory of our results improved throughout the year. By the fourth quarter, we obtained record high quarterly revenue of $2.2 billion, including record advertising revenue of $474 million. Adjusted EBITDA climbed 12% in the fourth quarter to $660 million and free cash flow climbed to $448 million. Along with these outstanding results, we made significant progress in 2020 towards our long-term goals of improving our Sirius XM service with greater 360L distribution, bolstering our leading content position and growing our reach in digital advertising. We also closed out our acquisition of Stitcher greatly expanding our footprint in podcasting and magnifying the reach of our platforms to some 150 million consumers. We have assembled massive audio entertainment audiences that can be monetized by our world class digital ad sales team and technology suite. Sean will provide more details about our guidance, but in 2021, we expect to see strong subscriber growth, growing subscription and advertising revenue and significant cash generation. The outperformance in 2020 is driven primarily by a…

Thanks, Jennifer. It’s great to be here to reconnect with many of you on the call today and to meet more of you soon. I joined Sirius XM this past fall because of the company’s tremendous brands, reach, business model, its growth potential and most importantly, the chance to partner with the talented people here at Sirius XM. Looking back on 2020, our dual subscription and advertising revenue streams performed better than expected during a tumultuous year. Subscription revenue at Sirius XM delivered steady modest growth given our very loyal subscriber base. Advertising revenue was strong climbing 17% in the fourth quarter after a difficult market earlier in the year. For the full year, pro forma revenue increased 2% to $8.05 billion and adjusted EBITDA increased 6% to $2.58 billion. Free cash flow is relatively unchanged at $1.66 billion. As previously announced for 2021, we expect revenue of approximately $8.35 billion. Both ad revenue and subscription revenue will contribute to the growth albeit with a modest impacts of subscription revenue due to a lower paid trial sub base as we cycle in new, more efficient deals with certain OEMs. Unique year-over-year comparisons guide us to flat adjusted EBITDA of approximately $2.575 billion for 2021 as certain COVID-related expense benefits reversed each year as we make substantial reinvestments across our business that will benefit us for years to come. Particularly of note, the significant reduction in expense we saw from the lower trial starts in 2020 will now turn the other way in 2021 as trial starts are expected to rent materially this year driving both stack and marketing. As Jennifer highlighted, we also anticipate new content investments in increased product development to support our customer experiences, all of this being a smart investment in future growth. We have also taken…

Alright. Absolutely. The first question is going to be from Kutgun Maral with RBC Capital Markets.

Okay, thanks for taking the questions. I don’t know if we passed that one on buybacks if I could. I was hoping that more color on the free cash flow outlook the value suggests that 2020-2021 will be back to maybe down a bit off a flattish expectation for EBITDA [indiscernible] free cash flow conversion was down a bit. I assume that looks like the healthy amount of conservatism, but separate for that, is there anything structural going on that should be [Technical Difficulty] capital items that you expect to have hedging 2021 as you comp against some puts and takes on COVID perhaps with [indiscernible] that you just called out? And relatedly how do you think about capital allocation in 2021 you were quite active in organizing your portfolio last year with Stitcher, Simplecast and SoundCloud. What does the M&A pipeline look like and how do we think about the buyback going forward? Thanks.

Okay. I will start off and then Sean maybe you can add in where appropriate. So just on the year-over-year comp from a free cash flow, much of it has to do with what we are expecting on EBITDA? The results we turned in for 2020 are incredible. And I am really proud of the team for delivering these results, especially in the face of so much adversity. The team combined with a really strong business model that you can’t expect from us that led us to the outperformance we saw in 2020. I mean, on the top line, I feel pretty good. Sean talked about some of the tailwinds on the revenue side where we are looking to grow Self-Pay net adds as we have said in our guidance by 800,000 and we are expecting to grow both subscription and advertising revenue. So, it really comes down to the year-over-year comparisons on costs and those kind of fall in three primary areas. The first is that Sean referred to this in his comments, but there is a pretty material shift year-over-year in our stack expense. So last year, with auto sales down significantly, particularly in the second quarter, we saw drawdown in that stack expense as it relates to sales and inventory build. And in addition, the marketing expense that comes around the conversions to trial and this is opposite thing that’s happening as we go into ‘21, where auto sales have been relatively strong certainly in December at $16 million and started things off well and we expect at least the third-parties are saying auto sales should be around $15.7 million this year, which is up about 9% from the $14.4 million last year. This comes with a commensurate inventory build typically and our stack expense and marketing…

Yes, thanks, Jennifer. Yes, just to add in terms of conversion for me without a free cash flow beyond cash interest cash taxes which are modest headwinds, change in working capital is relatively consistent in our estimation from ‘20 to ‘21 so nothing going on there. As it relates to capital allocation, I don’t think the philosophy of the company has changed. As you saw, we accelerated the buyback in Q4. You will see in the 10-K today that that pace continued through the month of January. So, we have tremendous confidence in the long-term business opportunity and returning capital to shareholders. So, the capital allocation philosophy really hasn’t changed, I think we are investing properly in the company. CapEx will I think remain consistent as we continue to build out the digital products in other aspects of the business to drive growth. You asked about M&A, clearly the company has and will continue to evaluate ways to accelerate the strategic opportunity like we did in 2020 with simple tasks, Stitcher and our investment in SoundCloud. So, I think all of that is to say that we will continue down that path, we will be guided by the EBITDA and free cash flow generation of that company, the leverage outlook we entered it at 3.3x. So I think those tenants really hold true as we look forward to 2021.

And just add on to Sean’s comments about M&A, I mean, I think we have the assets we need and are very focused on integrating them and continuing to execute on our plans for broadcasting and growing digital audio advertising, but of course with the capital we have available, we will be opportunistic of how the things emerge.

Thank you.

Thank you, operator. Next question.

Absolutely. The next question is going to be from Vijay Jayant with Evercore ISI.

Hi. Two if I could. First of all, the stack on a per unit basis was down quite a bit in the quarter with that mix and how do we think about that going forward in terms of contracts and the like? And secondly, on the Pandora front, modernization is really strong in the quarter that listenership and MAUs and the like were down. How much room do you still have to move in terms of pricing power monetization and what are the opportunities to sort of try to drive higher volume as well on that front? Thanks.

And so on the stack question, our stack for installers, I assume what you are referring to there and we would rollout of our new set of chipsets and we do have continued positive economics there. We are just starting to rollout our Gen8 chipset on the stack expense side, we have as we mentioned negotiated new agreements with a couple of OEMs is it the way we have always looked at these agreements is that we are focused on driving penetration and in a way that makes sense for both us and the OEMs and that ultimately drives growth for the business. And so there are a series of things we look at every time, we approach one of these new deals. We are constantly looking to optimize them in a way that works for both sides. So, you may see changes and subsidies, but also see changes in trial lengths or prepaids and revenue share as well. So, it’s really hard to look at one piece of the puzzle. That said, we would – we do expect that our stack expense per unit will decline over time. On your question about Pandora, and we are clearly focused on decline in listenership and we are continuing to find ways to work at that. We have been very focused on delivering new content features like modes, improving engagement across connected devices in the car and we will continue to work at it. It has been harder than we expected. But to your point, the monetization has been very strong at Pandora and John Trimble and his team, have just done a tremendous job continuing to innovate with new ad products, pushing sell-through and driving up CPMs. And I would expect us to continue to be able to do this. And in addition to just driving the monetization at Pandora, it is a combination of assets we have now brought together enables us to really focus on providing advertisers with much broader solutions so that they can buy across multiple audio formats. So with Stitcher and the ad-tech side grew ads with in SimpleCast we can provide a host of solutions to podcast creators to be able to distribute their podcasts and advertisers to be able to reach listeners there. And there is a lot of focus on podcasting. We expect that there will be continued growth here. It’s approaching a $1 billion in advertising revenue, which is still relatively small when you look at something like terrestrial, it’s over $15 billion, but it is growing at double-digits. And we expect to play a very active role in this market and the assets we have with Pandora brought ad sales and ad-tech will help us really drive this.

Alright. Thank you.

Alright. Our next question is from Jessica Reif Ehrlich with Bank of America Securities.

Thanks. Sorry, I was on mute. I have a couple of questions on podcasting. Can you talk about the level of investment in ‘21 versus ‘20 and when you think steady state will be? I don’t think you have ever said anything about the size of revenue, but if you could maybe address that and talk about where you are in terms of the advertiser, I guess level of interest and maybe more and more people are talking to advertisers or talking about it what – are there certain brands that are coming in, can you just talk about current demand and I guess is demand being satiated by increased competition from [indiscernible] Spotify, etcetera? Thanks. I will just stop with that.

Yes, I think, Jessica, on the level of investment side, I don’t expect us to materially increase our organic investment. We are as you know – we have bought Stitcher that will be fully integrated that with the ad sales team going to John Trimble, who manages all of their ad sales. And then of course, the content team going to Scott and Scott can talk more about that in a minute. But the key is to focus on increasing our owned and operated catalogue of podcast as well as those that we represent for ad sales and tech. And so we believe there is a lot of opportunity for us to grow that. It is much smaller than the advertising revenue we drive out of Pandora. But again, I think it’s very complementary as John’s team there clamoring to be able to sell across music and non-music formats. So to be able to have the set of assets together really provides us the opportunity to drive that advertising revenue. And also just having the set of ad tech solutions allows us to be kind of a full end-to-end solution for the creator side as well. And Scott, do you want to add color on content?

Sure. So, just two quick things. One is our own brands, as Jennifer mentioned, they are very vital in this and we are just getting to the point where we are seeing where that will go. So the Kevin Hart is an example, it’s a very important one, because the key I find with podcasting putting aside the fact that most big names and most big brands are actually not in podcast and yet – and I think that’s where the opportunity is. But when you look at Kevin, we used his radio show, the Pandora platform, Stitcher and the outside, all outside platforms, with Kevin both to monetize that and create it. And it’s done really well right out of the box, including really strong advertising numbers, whether it’s Andy Cohen and Jeff Lewis and others that are starting to show. We have a built in platform of content that’s ultimately going to convert in different ways into podcasting on that. The other thing is there is sophisticated producers out there like Ben Silverman and others that have deals with us now that are looking for entities that are full service 360 from curation and marketing and promotion and everything else and they don’t want to go into podcasting unless they feel not only it’s worth their time and economic potential, but it allows them the ability not to damage their brand or do anything along the way. So, we feel pretty good where we stand right now as far as being able to get it out there.

Do you expect to breakout podcasting as a separate line? And then just a different question for Scott, but it feels like the pace of channels of the content is accelerated. Maybe it’s the stuff that I love and I am paying more attention, but it does feel like it’s accelerating. Can you just talk a little bit about the ‘21 outlook and what else could come down the road?

So, in terms of those, Scott, you start on the reporting?

Yes.

I mean, from a segment standpoint, we will include it with Pandora and that’s just a natural fit given kind of the focus on advertising overall. And Scott, do you want to add on to that?

Yes. I mean, Jessica, as you know for years, we generally look at very interesting personalities and brands. And we are and there will be some announcements to come in that area in podcasting, but what I really am in interested in is people that and brands that can work organically not forced in all three platforms. Because as Jennifer mentioned, once you get into cross monetization, cross promotion, efficiency of production costs, it’s an entirely different model that’s out there. So, that’s really where I think we are going to end up going.

Thanks. One last question which is completely different, but you recently and you alluded to this earlier, we bought some of the OEM deals can you talk about those deals how we should think about the subscriber and financial impact in both the short and longer term?

I think the key Jessica is again driving penetration. So every time we approach one of these deals and our objective is always to extend them and make sure that in those extensions, we find ways to continue to increase penetration so that it makes sense for both sides of the equation, right both us and the OEMs. So over the long-term, all the deals are positive, contributions to EBITDA and free cash flow and there maybe some differences, as I mentioned earlier, in terms of the impact of different metrics in the short-term, but those essentially watch out a net positive over time. So we are very eager to continue to roll through and see improved penetration rate even up a little bit this year, because obviously more radio still in cars the longer tail we have on the cars side as well. And as part of these agreements, we continue to focus on 360L. And we are really excited to see the route in our 360L numbers. We should be at 25% of our trial starts with 360L. This year, we continue to see encouraging trends there. It’s actually been breaking in some of the initial implementations have come in vehicles that have massive screens. So, consumers have reacted really positively to all the new features and content that’s included there.

Thank you.

Alright. The next question is from David Joyce with Barclays.

Thank you. The question along the 360L lines, there is the announcement earlier this week with Ford and Google Android platforms. While it does seem to be somewhat open, how does that impact your usage you think in the car? Is that coming along with these new OEM deals? Are there any protections that you have for 360L? Are there any exclusions that are going to be somewhat of a challenge? Thanks.

Sure. I mean, we have always had a clear competitive advantage in the car as you know, especially given that we are in 80% of new cars sold now and we continue strengthening our OEM relationship. We have always faced competition in the car in various forms, including with CarPlay and Android Auto now for years and we still maintained a strong position and strong conversion rates despite that. So, we are deeply integrated with the OEMs. We are well aware of the Android Auto operating system and Google Automotive Services and those products. As the OEMs roll out these new operating systems, we will continue to work with them to ensure that we have premium placement in the car. Our interests are aligned with the OEM, they share in our revenue and we both want to make sure that we are offering the best experience for Sirius XM trailers and subscribers. We are working closely with both Google and the OEMs to ensure we can leverage this new operating system in the most efficient way possible to deliver our content into the car and if ALS can actually make it even easier for us to add functionality and update our experiences over time. Again, connectivity in the VFO is good for us, right. We can rollout new features more quickly. We can add more personalization to our products. And we know this space really well. We know we are more pleased on – been very focused especially in designing 360L that we understand exactly how to minimize driver distraction and to design really the most compelling consumer audio experiences in the car. So, I think net-net, it will be a positive for us.

Okay. Thank you very much.

Operator, next question?

Sorry about that. The next question is from Ben Swinburne with Morgan Stanley.

Good morning. I have I guess two questions, one around digital-only subscriptions and also one on sort of margins and they are related. Maybe for Jennifer and Scott, you guys seem to be having some success – accelerating success on streaming only? I don’t think you would be willing to tell us what percentage of the fourth quarter net adds came through digital-only. You mentioned it was the largest ever, but I take a shot. What are you guys doing to accelerate that in ‘21 and beyond? How do you size that opportunity? Do you think you could have 20% of your subscriptions long-term being digital-only and can you do all that while avoiding sort of the content wars that I think a lot of investors are concerned about when they see some of these big headlines either an M&A or talent deals? And then on the margin side kind of related maybe for Sean, Sean, we have been really spoiled following this company with consistent margin expansion year after year after year ‘21, I think for reasons we all get is an anomaly. But when we look beyond ‘21, should we expect to see kind of the operating leverage in the business over time that we have come to get used to or do you think things have structurally changed and if I could sneak one more in for Sean, since you have got fresh eyes on the business, anything you would call out about the company that you think the Street is missing or under appreciating would be interesting too? Thanks.

Okay. So I think I got four questions. We will try to pick them up and I will start on digital subscribers. So, our streaming standalone on digital subscribers are still small and yes, it was a nice contribution in the fourth quarter and we are continuing to look to drive that, but it is – it’s growing, but it’s still a small component of the $31 million Self-Pay subscriber base. So we are not ready to report on the numbers yet. I’d also say that we have continued to drive streaming among our satellite subscribers. It’s very key to engagement, retention for those subscribers. So these efforts go hand in hand. They are definitely seeing younger generation streaming, which is not surprising both on the digital-only side and our satellite subscribers. And the use of our products outside the car clearly helps with content discovery, which is more challenging in the car. I will let Scott talk a little bit about the content, but we are looking across packaging, marketing, I think we have done a really good job on the digital subscription side on performance marketing. We will continue to expand that. We are looking at some creative distribution deals to continue to grow the subs. But we are looking at this growing this into a new funnel, it’s just so early days yet and look – and then we will come back around and talk about margin a little bit more, but the economics on our streaming business, our digital-only subs is really strong compared to what you see certainly in the interactive space. So, we feel really good about that as well. Scott, do you want to talk a little bit about content for digital-only experience?

Sure. So we are really excited about the potential of this as hard as it is to believe in some ways we are bandwidth constrained with the music community in particular. So, this gives us the ability to take a look in two different ways, one our homegrown channels would take coffee house of the decades, where we can combine 80s and 90s and all of that into one channel digitally and things that people have been asking for, for a long time. In addition, our artists now are looking at how they can expand and we have wanted this for a long time, we just haven’t had the ability to have the bandwidth. So for instance, we are looking – we recently launched the Bob Marley channel will be derivatives of that LL COOL J and his Rock the Bells channel is going to do a lot with that of the Grateful Dead, likely we will do more channels under this digital umbrella. That’s sort of where we are going. Just for one second on where we have been on the digital side, when the first corona came and people are really locked down, we get a series of artists channels from Led Zeppelin to Prince to many things, The Rolling Stones that were a functionable satellite and digital and it gave us a lot of flexibility to put it up for a week and then save the remaining 30 days or whatever will be digitally. So we are going to continue not to view digital as afterthought, but really as an extension of everything we are doing on the satellite with the content, the brands, the artists and all that. So, that I hope will continue to have it grow.

Great. Sean, you want to pick up the margin?

And Ben, just on your two questions related to margins, I think there is absolutely operating leverage in the business. Obviously, as we talked about today on the call, there is some unique impacts in 2021 that are occurring, but as I look long-term as we get to a more normalized state in terms of car sales, in terms of penetration rates, hopefully the royalty situation is settled in I think there is absolutely opportunity for operating leverage and margin expansion. But again, it’s – I don’t think anything structurally has changed. We just have some unique impacts as we start to rebuild things here in 2021. So, as it relates to the fresh eyes 90 plus days in, I guess I continue to have tremendous confidence. I think we have talked a lot about content today. It’s obviously something I am very familiar with my background. So, I think there is a great opportunity with the content investments we may have made as a company. I am thrilled with the multitude of platforms and monetization opportunities that exists as Jennifer said we have got a tremendous position in the car, I think the ability to drive adoption out of the car digitally in terms of streaming only customers is fabulous, leader in digital audio sales, all that to say Ben is I think there are tremendous opportunities for growth at Sirius XM. So, I think there is again always opportunities for operating leverage and efficiencies, I think the company has done a wonderful job integrating the assets that they have acquired, but there is always opportunity for more to drive leverage on the top line. So again that’s – those are some of my early perspectives.

Thanks a lot everybody.

Alright. And we will take our next and final question from Brian Russo with Credit Suisse.

Hi. Thanks for squeezing me. A question for Jennifer and question for Sean. So first, for Jennifer, I have recently read that you are trying to acquire adjacent spectrum from AT&T in the WCS band, would you be able to confirm that – and if that’s the case maybe you can discuss kind of why you would be interested in that spectrum benefit suggests that some of the strategic options for the spectrum that you see kind of discuss it in the past or maybe off the table now? And then for Sean just real quick on the tax sharing agreement with Liberty Media, I have generally been thinking that with the NOL turning out that your cash taxes will be sort of increasing and you will know not too far in the distant future be a full cash taxpayer. Maybe you could help us understand what the implications of the Liberty Media tax sharing agreement would be on your cash taxes? That would be helpful. Thank you.

Yes. I will start with the AT&T discussion. I mean, the FCC has granted our application to acquire the licenses as a spectrum, which is adjacent to our SRS spectrum. This is yes, the WCS C and D block we have worked closely with AT&T over several years to support them on their efforts here to use it, but because it is adjacent to our spectrum we had every other coordination agreement with them, but it was very difficult to manage the interference. So yes, look, we have recognized together with the AT&T the potential to use that some satellite capacity we have and to adapt our receiver technology in the spectrum to really use this for public service applications. And we have done things in the past like supporting FEMA during times of natural disasters and this is really not profit maximization effort, but more of a public service effort. And the spectrum is small and the deal we did is relatively small, but it does protect us given that it’s adjacent.

And Brian, on your tax question. I don’t see any real implications from the tax sharing agreement. Again, we are looking out into the future, but we have already talked today about some modest increase in cash taxes for ‘21. You will see in the K, where our tax credit situations are. So, we feel good about it, I don’t think the tax returns frankly doesn’t have any real impact on our go forward outlook in terms of our tax attributes.

Very helpful. Appreciate it. Thank you both.

Thank you, Brian. Thank you everybody for participating today and we will speak to you soon. Goodbye.

Goodbye.