Q4 2020 Sirius XM Holdings Inc Earnings Call

Good morning, and walk on to the Sirius XM Fourthquarter Twenty-twenty financial and operating results Conference call. Today's conference is being recorded a question and answer session will be conducted following the presentation.

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I would like to turn the call over to Hooper Stevens Senior Vice President of Investor Relations and Finance Mr. Stevens. Please go ahead.

Thank you and good morning, everyone. Welcome to Sirius XM was fourth quarter of 2020 earnings Conference call.

We will have 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 of chance to take your questions kind.

I'd like to remind everyone that certain statements made during the call might be forward looking statements adds in terms of supplier of the private Securities Litigation Reform Act of merchandise.

These and all forward looking statements are based on management's current beliefs and expectations.

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 from more information about those risks and uncertainties. Please see the Sirius XM FCC balance, we advise listeners to not rely unduly on forward looking statements and disclaim any of it.

On center obligations off of it.

As we begin.

Like to remind our listeners of today's results what sort of discussions of golf with actual results and pro forma adjusted results all discussions of pro forma adjusted operating results sooner and aware of transaction close on January one 2019. It excludes the effects of stock based compensation of certain purchase price accounting adjustments with that I'll turn the call over to Jonathan.

Good morning, and thank you for joining today I'm 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 twenty-twenty 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 900 of 9000.

Actually exceeded our original of pre Covid guidance, we added of 400, yeah on its 400000 7000 net new self paid subscribers in the fourth quarter alone. Our self pay paid stands at an all time high of 39 million and churn improved for the fourth consecutive year revs.

New adjusted EBITDA and free cash flow all climbed in 'twenty 'twenty after working our way through the worst of the pandemic impact on auto sales and advertising in the second quarter or trajectory of our results improve 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 on 'twenty and 'twenty towards our long term goals of improving our Sirius XM service with greater 360, all distribution.

Bolstering, our leading content position and broadening our reach and digital advertising. We also closed on our acquisition of stitcher greatly expanding our footprint in podcasting and magnifying the reach of our platform to some 150 million consumers, we have assembled massive audio entertainment Audi.

And so that can be monetized by our world class digital AD sales team and technology suite.

John will provide more details about our guidance, but in 'twenty and 'twenty. One we expect to see strong subscriber growth growing subscription and advertising revenue and significant cash generation. The outperformance of 'twenty 'twenty driven primarily by a significant reduction in fact combined with exciting investments, we are making a profit growth.

Net and expanded OEM distribution programming and content and digital product development, well certainly make year over year adjusted EBITDA comparisons more difficult. Nevertheless, I'm very pleased with our outlook and we are committed to offering the best content lineup in audio entertainment investing on our customer experiences and of course.

To build a leading digital AD business, we reached our goal of 80% new car penetration in the fourth quarter and this figure is set to rise modestly in 2021 puts.

Put simply automakers are more committed than ever to include Sirius XM and new cars. The enabled fleet has reached nearly 135 million cars and should climb to more than $220 million over time.

Sirius XM technology was in almost 50% of volumes of cars sold in the U S. In 2020 off about four points over 2019. This will continue heading north as of late turns over continuing to grow our opportunity in used cars as we have said before the adoption of green.

<unk> is quickly growing roughly 25% of Sirius XM equipped new vehicles sold this year will be on our 360 out of platform in 'twenty 'twenty, one and this should rise to about 80% in 2025 customers love. The new features that ease of use and interface of our 360 L product well.

So very early we see encouraging conversion trends and 360 L vehicles and are continuously improving the personalized marketing efforts enabled by and tailored Q3 60, all in its unique features.

In vehicle connectivity will also enable future revenue opportunities such as of her persistently free version of Sirius XM with targeted digital ads and an improved presentation of Pandora and vehicle we plan to test various approaches to an AD supported version of Sirius XM, starting this year in order to determine the best way.

To run of scaled offering like that in the future. Although the free 60 L enabled fleet will take time to build out.

This is yet another exciting way, we are making significant long term investments to drive more share of your wallet and AD budgets across our platform.

In addition to the in vehicle benefits of connectivity, we are successfully growing digital engagement of Sirius XM out of car on smartphones and connected devices.

Number of households of streams, Sirius XM climbed more than 40% year over year two of new all time high.

But especially sharp increases in listening on Google and Roku devices, when customer of youth Sirius XM outside of the car, we see tangible benefits and better conversion better churn and we believe an opportunity to drive pricing in the future growth.

Also growing digital only subscribers and in the fourth quarter, we saw our biggest ever contributions of self pay net adds from this channel.

But based on still small, but our investments in extra music channel digital sports rights. The launch of podcast and focused packaging and marketing are beginning to pay off with growth in digital only subs.

Sirius XM value proposition rests on having a bundle of expertly curated music.

Plus a variety of news talk of comedy sports and as I mentioned now select podcast as well.

We now have the opportunity to invest more in content than ever before because we have more ways for our subscribers to enjoy it and we have more ways for this content to be monetized across our platforms that reached 150 million users and indeed, even in the broader broadcasting distribution universe.

We're thrilled that Howard Stern extended his agreement to continue live show the Sirius XM for another five years.

And licenses archives on for another seven years beyond that Howard is at the top of his game with remarkable interviews comedy and commentary states.

Stay tuned but in the meantime, we are excited for a big expansion of Kevin Hart's contest and podcast thing, but she announced on Howard's show Wednesday morning on.

New and expanded deal with Kevin's laugh out loud comedy brand highlights our growing ability to package and distribute our unmatched content in new ways, given the scale and reach of our advertising and subscription business.

Our strength and pod casting accelerated in the fourth quarter with our acquisition of Stitcher. The launch of podcast, where then the Sirius XM streaming service and further expansion of the podcast library on Pandora.

This year is of premiere full service contacting platform that dovetails nicely with simple cash are hosting an analytics company, we purchased earlier last year.

Through its network of shows get your has the largest share of the U S podcast listening audience available to advertisers and the fourth quarter was the biggest ever in terms of AD dollars.

This year, we plan to leverage the capabilities of Stitcher and simple cash with our ongoing leadership in the audio advertising to rollout of new podcast advertising solution that integrates enhanced targeting transparent delivery and measurement, so creative and exclusive programming access this growing position in podcast, Inc. Nicer.

Free complements our leadership in free digital music streaming as advertisers increasingly look to strategically buy across multiple formats.

First ensure we now have some of the most popular podcasts available today, either owned and operated or through sales and distribution, including for economics hidden brain and my favorite murder and don't forget office Ladies', which was recently named podcast of the year and many popular Sirius XM hosts and stars have.

<unk> debuted new podcast with us, including Jeff Lewis Mad Dog Russo the original on T V. James Stormy Warren and health experts from NYU, Langone Health and Sirius XM Doctor Radio channel.

You will see us use a multi platform windowed approach to content in more ways. It gives us new potential to further invest in content always in a smart disciplined way and to attract new talent, but frankly might not have considered of deal with Sirius XM alone.

Kevin Hart's New agreement is a good example of the potential here clearly the same can be said for our arrangement with Marvel Entertainment.

While we love the additional engagement podcast and can drive on our platform. We continue to be business model oriented by driving monetization and advertising, we can grow our broadcasting business and helped deliver more value to content creators.

Music is also vital to our offering and we recently announced the launch of of food buyers channel, which includes an exclusive performance from our garage space at our L. A studio hub airing this Friday.

We also just launched four new limited run channel to celebrate Black history month, the channel to loop powerful pioneering artists, including a raise of Franklin Jimi Hendrix miles Davis and of channel recognizing artist from the legendary label Motown Records.

Our relationships with key media brands, and our growing advertising business benefits us in multiple ways in December we renewed and extended our rights for the today show of full time channel on Sirius XM with NBC Universal News group as well as the simulcast of MSNBC and CNBC.

But under the new agreement Sirius XM also became the exclusive advertising representative and end to end AD Tech platform for a broad slate of podcasts from NBC news MSNBC and CNBC.

We know live sports and sports talk our beloved by our subscribers. We just became the exclusive of audio broadcaster of the Masters and we're looking forward to producing an error in one of the biggest events in sports. This April we also continue to expand our streaming rights with major Pro Sports League recently with the NFL and NBA.

To deliver play by play to more of our digital subscribers and to make it easier to hear their favorite teams on our app.

We continue to see success from our load feature on Pandora, which puts control on our listeners hands to further personalize their experience.

The popularity of modes of non Pandora users has continued to accelerate with listeners using that feature nearly doubling in the second half of 2020.

Pandora also launched wake up a series of hosted play less featuring black artists and the thought leaders sharing the music that reflects their day to day experiences and the songs that moves them to action and our Pandora are popular Pandora live virtual concert series has recently featured Carrie Underwood Dolly Parton.

<unk> and Brandy with summer Walker.

As I close my comments I want to remind all of our stakeholders that we are continuously reinforcing our efforts at diversity equity and inclusion we are taking even more focused actions to broaden our talent pipeline through collaboration with diverse professional organizations for both recruitment and development opportunities.

I firmly believe that of diverse and inclusive work force is both the right thing to do and simply good for business.

As we look ahead, our priorities remain building on our leadership position in North American audio with premium content, an unmatched distribution driving penetration of Sirius XM and 360 L to improve our in vehicle Service Inc.

Celebrating digital subscriptions and engagement and bolstering our leading position in digital audio advertising.

By executing on these priorities, we intend to continue our long term history of delivering significant EBITDA and free cash flow for our stockholders with that I will turn the call over to Sean.

Thank you Jennifer it's great to be here to reconnect with many of you on the call today and to meet more of you soon.

Joining Sirius XM this past fall because of the Companys tremendous brands reach business model its growth potential and most importantly, he changed important was of talented people here on Sirius XM.

Looking back on 2020, our dual subscription and advertising revenue streams performed better than expected during a tumultuous year.

Subscription revenue of Sirius XM, it's on <unk>.

Average steady modest growth given our very loyal subscriber base.

Advertising revenue and a strong climbing 17% on the fourth quarter operating difficult market earlier in the year.

For the full year of pro forma revenue increased 2% to eight zero of 5 billion and adjusted EBITDA increased 6%.

2.58 billion free cash flow was relatively unchanged at $1 six 6 billion.

As previously announced for 2021, we expect revenue of approximately $8 35 billion.

Both on revenue and subscription revenue will contribute to the growth of these.

Albeit with a modest impact of subscription revenue due to a lower paid trials, so basically cycle of new more efficient deals on certain Oems.

Year over year comparisons Dallas of flat adjusted EBITDA of approximately $2 575 billion from 2021 of certain of Covid related expense benefits reverse each year as you make substantial reinvestment across our business that will benefit us we used to call.

Particularly of note the.

The significant reduction of expense we saw from lower trial starts in 2020, we'll now turn the other way in 2021 as trial starts are expected to ramp materially this year driving both stocking working.

As James highlighted we also anticipate new content investments and increased product development to support our customers' journey.

All of this being a small investment in future growth.

We are also taking a pragmatic view of streaming royalty costs, so part of it.

Out of the web part of decisions on Depopulate royalty Board, which is expected no later than April 15th.

If necessary, we will calibrate our full year adjusted EBITDA expectations following that decision.

With modest growth in cash taxes, and interest expense, we expect free cash flow of approximately $1 6 billion in 2021.

A couple of quick comments on Siriusxm subscribers growth.

909000, net self pay subs in 2020, where all of the more remarkable given that she didn't drop of new car sales.

We ended the fourth quarter was of trial funnel of $8 4 million down 5% from of third quarter as we begin to see the reduced trial range of two automakers.

The active trial funnel should continue to fall for a few quarters as these new agreements St. James but more importantly, with costs third party sort of estimates on trial startup should climb in 2021 of their fastest reported since 2015.

Well as you auto sales, new and used car penetration introduced subscription provides subscribers tailwind, whereas a digital subscriber base in 2021 and modest headwinds on vehicle related and non pay churn and drive growth and deactivation.

Accordingly, we feel very good about our guidance of approximately 800000, Sirius XM self pay net additions in 2021.

Now moving on to Pandora.

Quarterly non food and $76 million noncash impairment charge as a result of overall expected operating performance of the Pandora reporting.

Engagement has been challenged place and put it on environment and as discussed we have taken a pragmatic view of royalty costs in our assumptions.

Let me remind you that the advertising monetization of Pandora remains incredibly strong.

Benefit from added scale of digital product development, Inc.

Pandora is sizable ad business.

Contributor in our strategy to grow on platform advertising and to innovate in podcasting.

A couple of other matters of highlights one relating to our efforts on <unk> satellite on the other related to a tax sharing agreement.

In December our assets of.

Seven satellite was successfully launched from Cape Canaveral flow Spacex Falcon nine rocket on.

Unfortunately as noted on the 8-K last week satellite suffered damage during in orbit testing that resulted from the failure of certain payload needs.

The valuation of assets from southern is underway and the full extent of the damage to the side of life is not yet known.

We do not expect the service to be impacted by these adverse events are actually.

On three of its from four satellites continue to operate and we're expected to support our service for several years.

In addition, our exit of five satellite remains available of in orbit standard.

Construction of our FY 2008 satellite is well underway and we expect it to be launched later this year.

We have purchased insurance policies of library of coverage of 225 million for us up from seven launching of first year of being all of the operation.

Have notified the underwriters of the potential claims we expect from.

All of them.

With respect of attack should limit Sirius.

Sure Sam recently entered an agreement with Liberty media that was negotiated and approved by the special Committee of our independent directors.

This is Randy comes into play when Liberty owns 80% of Siriusxm, which.

At which point of two companies would become members of the same consolidated tax group.

You touched on is really contains customary provisions and a copy will be filed those on each other to our team day.

The agreement of the inclusion of Liberty's consolidated tax group will not have any adverse effect on us.

We again delivered significant capital returns to stockholders in 2020 totaling $1 8 billion with share repurchases of $1 6 billion and dividend payments of $237 million.

Initially agreed accelerated share repurchases to $680 million of the fourth quarter and closed on a $265 million purchase of schedules.

Ending the year with a free three times debt to adjusted EBITDA ratio of one 1 billion of available capacity under our revolving credit facility.

In closing of spending on incredibly busy challenging on few months getting to know this business. It is truly one of a time.

I know, we're all looking forward to the day when more of of this collaboration inside of the company will all of them and with all of you from Washington jumped on in person.

With that operator, let's dive into Q&A.

Alright, absolutely. The first question is going to be from cooking morale with RBC capital markets.

Great. Thanks for taking our questions.

One of free cash flow on buybacks right.

We get more color on the growth free cash flow outlook. The guidance suggests that 2022.

On will be Fox may be down a bit of a flattish expectations for EBITDA.

Adjusted free cash flow conversion on today.

I assume that reflects a healthy amount of conservative then separate to that.

You can structure of button on that should be for mark.

Longer term cash.

That's just the kitchen business digital type of assets.

Or are there more on working capital items.

That you expect to of pleasure 'twenty, one as you comp against some puts and takes from Covid perhaps.

Some of the ramp in small cells.

Hold on and Relatedly, how do you think about capital allocation in 2021.

You were quite active in optimizing our portfolio of last year with stitcher of simple captain span class Xiaomi.

What does the M&A pipeline look like and.

How do we think about the buyback pace going forward.

Okay, all right I'll start off and on Sean maybe you can add in.

Appropriate, but you know just on the year over year of comps from a free cash flow of much of it has to do with what we're expecting on EBITDA.

You know the results we turned in for 2020 are are incredible.

Really proud of the team for delivering adds.

These results, especially in the face of so much adversity of the team combined with our really strong business model of use contracts that from us that led us to the outperformance we saw in 2020 I mean on the.

On the top line I feel pretty good you know Sean talked about some of the tailwind on the revenue side, we're looking to grow self pay net adds as we sat on our guidance by 800000.

And we're expecting to grab of 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 back.

Sean referred to this in his comments, but yeah, theres, a pretty material shift year over year, and our Sac expense, so last year with <unk>.

Auto sales down significantly, particularly in the second quarter, we saw a drawdown on that back expense as it relates to sales and inventory build.

And in addition, the marketing expense that comes around the conversions to trial.

This is the opposite thing is happening as we go into 'twenty, one where auto sales have been relatively strong and certainly in December at 16 million.

Part of things up well and we expect at least of 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. You know this times of day commensurate inventory build are typically and you know hours back.

Expense and marketing expense is around you know the rebuild of that trial funnel will increase so it's just the opposite of what happened last year and again. This is all good for business, it's just timing on it.

On a natural part of our business model, where we see the expenses kind of before receipt of self pay revenue.

So in addition to sack and I as we've said, we're being pragmatic about web size.

And you know, we'll have more to say about that on our next call.

But we do expect this to be a headwind, particularly with Pandora, where there's more streaming usage relative to Sirius XM.

And then the last piece is you know our investments in content and product development.

Which support value for our subscription packages and.

More features that will help our user experiences both in and out of the car.

And interest in component on the content side is that you know we did have some content launches delay from 'twenty to 'twenty, one and you know so the programming expenses related to that and the marketing associated with it is also delayed into 'twenty one.

We also have a full season of major League baseball and you know the MTA double the emptied out like tournament coming back this year and clearly we're hoping.

To host more of live events later this year or two.

I think as Sean mentioned, we have you know on that.

Purely cash flow side.

We also have modestly higher interest expense and so on some cash taxes to a growing towards the end of this year, but you know other than that really no change I think John can speak a little bit to Capex and I you know I'll, let you pick up on the capital returns as well.

Yeah. Thanks, Joe Yeah, just to add in terms of the conversion from EBITDA to free cash flow beyond cash interest cash taxes, which of modest headwinds no change in working capital was relatively consistent in our estimation from 'twenty to 'twenty, one so nothing going on there.

As it relates to capital allocation I don't think of the philosophy of the company has changed.

As you saw.

We accelerated the buyback in Q4, you'll see on the 10-K today that that pace.

Continued through the month of January so we have tremendous.

Confidence from a long term.

This on this opportunity and returning capital to shareholders, so well the capital on pace.

<unk> philosophy really hasn't changed I think we're investing properly in the in the company.

Capex was it remained consistent.

We continue to build out of the digital products and other aspects of the business to drive growth.

You asked about M&A.

The company has and will continue to evaluate.

Ways to accelerate the strategic opportunity like we did in 2020 with simple task stickier and our investment in Soundcloud. So I think all of that is to say that we'll we'll continue down that path will be guided by the EBITDA and free cash flow.

Generation of the company of the leverage.

Our outlook, we exited at three three times.

So I think those tenants really holds true as we look forward to 2021.

And when it does that force Don's.

John's comments.

So I just had undershot sean's comments of M&A I think we have the assets, we need and are very focused on integrating them on continuing to execute execute on our plans for broadcasting and growing digital audio advertising, but you know of course.

On the capital we have available and we'll be opportunistic of other things emerge.

Thank you.

Thank you operator next question.

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

Hi, James off of which I have two if I could first of all of the songs.

So on a per unit basis was down quite a bit on.

The quarter of about mix.

And so how do we think about that going forward in terms of both of the mix of contracts and alike.

Separately on the Pandora upfront monetization of really strong in the quarter, Bob but with no shafts and other used to like we're down on.

How much room do you still have to move in terms of pricing power of monetization.

What are the opportunities to sort of tried to drive higher volume as well on that path.

So on the exact question on our Sac per install is on.

It seemed like you were referring to there and yeah.

We with the rollout of our new set of chipsets and we do have continued positive economics there.

We're just starting to roll out of our journey checked that on either the staff expense side, we have as we mentioned on negotiated new agreements with a couple of OEM.

The way we've always looked at these agreements is that we're focused on driving penetration and you know in a way that makes sense for both us and the Ariane and that ultimately drives growth for the business and yeah. So there are a series of things we look at every time.

Approach one of these new deals we're constantly looking to optimize them in a way that works for both sides. So you may see changes and subsidies, but also a few changes.

Trial lengths of Prepays 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 back of expense per unit.

<unk> will decline over time.

On the on your question about Pandora, Yeah look where we're clearly focused on declining listenership and you know we're.

Age of sideways.

To work at that I, we have been very focused on delivering new content features like modes are improving engagement across connected devices and in the car.

And we'll continue to work on it it has been harder than we expected, but yes to your point the monetization of has been very strong at Pandora and you know John Miller and his team have just done a tremendous job continuing to innovate with new AD products, you know pushing sell through and driving up C. P.

And you know I would expect us to continue to be able to do this and you know in addition to just drive any of the monetization at Pandora I. It was a combination of assets. We've now brought together enables us to really.

Focus on providing advertisers with much broader solution. So that they can buy across multiple of audio format. So with Fisher and the AD tech side through adds with and simple cash that we can provide a whole host of solutions to podcast creators to be able to distribute their podcast and advertisers to be able to reach listeners.

Sure and you know, there's there's a lot of focus on podcast and we expect that there will be continued growth here.

It's approaching $1 billion in advertising revenue.

It's still relatively small when you look at something like terrestrial that'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 across AD sales and add cash will help us really drive this.

Of course, thank you.

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

Thanks, Sorry, I was on mute on.

A couple of questions on podcasting on.

Can you talk about the level of investment in 'twenty, one versus 'twenty.

What do you think steady state will be.

Yeah, I don't think you've ever said anything about the size of revenue, but if you if you could maybe address that and talk about.

You know where you are in terms of the advertiser.

I guess the level of interest in being more and more people are talking to advertisers are talking about it what you know of.

Are there certain brands that are coming on can you just spoke of the currency demand and I guess.

It is domestic associated by increased competition from my heart, Spotify et cetera. Thanks.

Thanks, I'll just start with that.

But yeah, I think Jessica on day on the level of investment side I, Yeah, I don't expect us to materially increase our organic investment. We are as you know we bought fixtures that will we fully integrated that are you know with the AD sales.

Team I am going to John Trimble, who manages all of our AD sales and then of course, the content of team going to Scott and Scott can talk more about that in a minute, but I you know the key is to focus on increasing.

Our owned and operated catalog of broadcast as well as those that we represent and for AD sales in fact, I 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 of the you know if you ask John's team there are clamoring to be able to sell across music and non music formats. So to be able to have this set of assets together really provides a free opportunities too.

To drive that advertising revenue and also just having the set of AD Tech solutions allows us to be you know kind of a full a full end to end solution for the creative side as well and Scott you on a kind of on content slots of sure. So just two quick things one is.

Our own brands as Jennifer mentioned are very vital on this and we're just getting to the point, where we're seeing where that'll go sort of Kevin Hart as an example, it's a very important one because the key I find we're taught Justin put.

Besides the fact of most big names and most of the brands are actually not in podcast from yet I think that's where the opportunity is but when you look at Kevin.

We use radio show, the Pandora platform stitcher and be outside of outside platforms with Jefferies, 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 other sort of starting to show we have a built in platform of content, that's ultimately going to convert in different ways each of podcasts on that on the other.

They're sophisticated.

Producers out there like Ben Silbermann, another set of deals with US now that are looking for.

Of these that are full service $3 60 from Curation, Inc.

Marketing and promotion of everything else and they don't want to go into podcasting unless they feel not only it's worth your time of economic potential, but it allows them the ability not to damage the brand or do any changes 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 break out sort of catching as a separate line and then just a different question from Scott, but it feels like the pace of channels of their content is accelerating maybe it's because of its stuff that I love of entertaining more attention, but it does feel like it's accelerating can you just talk a little bit about the 'twenty one outlook on them.

What else could come down the road.

Okay in terms of other Scott let me just start on the reporting I mean from a segment standpoint, we'll include it with Pandora.

And that's just a natural fit given kind of the focus on advertising overall.

Scott to join out on that yeah.

Yeah, I mean, Jessica as you know for years, we generally looked at very interesting personalities and brands.

We are and there'll be some announcements to come in that area in podcasting, but what I really I'm interested in is.

People, who and brands that can work on.

Organically not forced in all three platforms because of as Jennifer mentioned once you get into gross monetization cross promotion efficiency of production costs, which are entirely different model. That's out there. So that that's really where I think we're going to end up going.

But can I ask one last question, which is completely different but you originally and you alluded to this earlier.

Some of the OEM deals can you talk about those.

It does just how we should think about the subscribers financial impact on 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 you know 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 on the OEM. So over the long term I all of the deals are positive contribution.

Contributions to EBITDA and free cash flow I and there may be some differences of as I mentioned earlier in terms of the impacts of different metrics on the short term and but you know those essentially wash out of net positive over time. So you know, we're very eager to continue to roll through and see improved penetration rates.

And of a little bit.

This year, because you know obviously more radio selling cars.

Longer tail, we have on the used car side as well and you know as part of these agreements and we continue to focus on 360 L and you're aware of it we're really excited to see the ramp in our 360 L numbers, we should be at 25% of our trial starts with 360 L. A this year.

Here, we continue to see encouraging trends there.

It's actually been great because some of the initial implementations have come in vehicles that have either of these massive screens. So consumers of reacted really positively to other new features and content. That's included there.

Thank you.

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

Okay.

Thank you.

A question of all along of the 360 year old ones. There would be that's where we were this week for free.

Google Android platforms.

All of it does seem to be of what's opened how does that impact.

Your line.

Usage.

Or is that coming along with these OEM deals already protections you have for free 60 already exclusive of what are going to be.

So one of the challenge but.

Yeah.

Sure I mean, we.

We've always had a clear competitive advantage on the cars you know, especially given that we're in 80% of new cars sold now and you know we continue strengthening our OEM relationships.

We've always faced competition in the car in various forms including with car play on Android auto now for years, and we still maintained its strong position and strong conversion rates and despite that so yeah, we're deeply integrated with the OEM.

All aware of the Android auto operating system, and Google automotive services and those products.

And you know of the Oem's Rollouts of these new operating systems I work will continue to work with them to ensure that we have premium placement on the car yeah. Our interests are aligned with the Oems do they share on our revenue and you know we both want to make sure that we're offering the best experience for our Sirius XM filers and subscribers.

Yeah, you know, we're working closely with both Google I on the Oems to ensure we can leverage this new operating system on the most efficient way possible to deliver our content into the car.

Got it.

I'll ask can actually make it even easier for us of add functionality and update our experiences over time and you know again kind of activity in the vehicle is is good for US right weekend rollout of new features more quickly we can add more personalization to our products and you know, we we know the space really well.

Well, we know what works we have and it's very it's been very focused especially on designing three six Seattle that you know, we understand and exactly how to minimize driver distraction and to design you know really the most compelling consumer audio experiences in the car. So so I think net net of it'll be a cause of trust.

Thank you very much.

Operator next question sorry about that of the next question is from Ben Swinburne with Morgan Stanley.

Good morning.

I guess two questions one around digital only subscriptions and also one on sort of margins and their related maybe for.

Jennifer and Scott did.

You guys seem to be having some success of accelerating success on streaming only I don't know if you'd be willing to tell us what percentage of the fourth quarter. Net adds came true digital only you mentioned it was the largest ever but but I'd take a shot.

What are you guys doing to to accelerate that in 'twenty, one and beyond.

How do you size of that opportunity.

Do you think you could have fee of 20% of your subscription as long term being digital only and can you do all of that while avoiding sort of of content was I think of lot of investors are concerned about when they see some of these big headlines on either M&A or talent deals and then on the margin side kind of related maybe for Sean Sean.

We've been really spoiled following this company with consistent margin expansion year after year after year 'twenty. One I think for reasons. We all get is of it was an anomaly, but if we look beyond 'twenty one yes.

Should we expect to see kind of on the operating leverage in the business over time that we have.

Come to us to.

Get used to what do you think things of that structurally change it if I could sneak sneak one more in for sure on since you've got fresh eyes on the business.

You would call out about the company that you think the street of theirs missing or under appreciate it would be interesting too.

Yeah.

Okay. So I think I got four questions, we'll try to pick them off and I'll start on a digital subscribers. So.

Our streaming standalone or digital subscribers are still small and yes. It was a nice contribution on the fourth quarter and you know, we're continuing to look to drive that but what it is you know it is growing but it's still a small component of the 31 million self pay subscriber base. So we're not ready to report on the <unk>.

Numbers yet.

I you know I I'd also say that when you we have continued to drive streaming them on our satellite subscribers and it's very key to engagement retention and four of those subscribers. So these efforts go hand in hand.

I either.

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 I'll, let Scott talk a little bit about the content, but you know where we're looking on.

Across you know packaging marketing I think we've done a really good job on the on the digital subscription side on performance marketing will continue to expand that we're looking at some creative distribution deals and should continue to grow this adds but yeah. We are looking at best at growing this out into a new fund.

It's just so early days, yet and and look our I know you'll come back we'll come back around and talk about margin of a bit more of it but the economics on our streaming business our digital only subs, there's really strong compared to what you would see certainly in the interactive space. So we feel really good.

About that as well are kind.

I'm going to talk a little bit of a content for for digital only and cheering on shore. So.

We're really excited about the potential of this cause.

As part of todays to believe.

Some ways where bandwidth constrained.

With the music community in particular, so this gives us the ability to take a look at two different ways. One of our homegrown channel should take coffee house of the decade, where we can combine.

Each of 90 days and all of that into one channel digitally and things of people who've been asking for for a long time.

In addition, our artist snow or looking at how they can expand.

And we've wanted this for a long time with just seven out of the ability to have the bandwidth. So for instance, we're looking.

We launched the ball Morley channel will be derivatives of that Hello, cool J F. As roster of bells channel is growing.

Moving to do a walk with that of the grateful dead likely will do more channels on the this digital umbrella that's sort of where we're going just for one second on where we've been on the digital side when we first Corona thing.

And people were really locked down we did a series of artist channels.

From led Zeppelin to Prince too many things the rolling stones that were a function of both 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 of whatever it would be digitally so we're going to continue not to view.

Digital as a afterthought, but really is it sort of extension of everything we're doing on the satellite would be the contrast of brands the artist at all of that so that's.

That I hope will continue to have a growth.

Great John you're on a pickup from ours.

Then just on your two questions on Lloyd's Tomorrow. So I think there is absolutely operating leverage in the business, obviously as we've talked about.

Day on the call there are some unique impacts in 2021 other.

Other recurring but as I look a long time as we get to a more normalized state in terms of car sales in terms of penetration rates.

Hopefully the royalty situations is settled in I think there's absolutely.

<unk> from operating leverage on margin expansion.

But again, it's I don't think of anything structurally has changed.

Just how should the impacts as we start to rebuild things here in 2021.

So as it relates to other fresh eyes 90, plus days in I guess I continue to have tremendous confidence I think we've talked a lot about content.

Today, it's obviously something I'm very familiar with my background. So.

I think theres, a great opportunity with the content of investments we've made have made as a company.

I'm thrilled with the multitude of platforms of monetization opportunities that exist.

Jennifer said you know we've got a tremendous position in the car I think the ability to drive.

Adoption out of the car digitally in terms of spending only customers Fabulous.

On a leader in digital audio of sales.

All of US saved on is I think there are tremendous opportunities for growth at Sirius.

So I.

I think there's a again always opportunities from operating leverage of inefficiencies.

Company has done a wonderful job of integrating the assets, obviously required but there's always opportunity.

For more a key driver of leverage on the top line. So.

You know again.

Those of somebody early perspectives.

Thanks, a lot of everybody.

All right and we'll take our next and final question from Brian Russo with Credit Suisse.

Alright, Thanks for squeezing me in a question for Jennifer and a question for Sean So first.

Jennifer.

I recently read that you're trying to acquire adjacent spectrum from AT&T in the WCS band.

Would you be able to confirm that.

Of that and if that's the case, maybe you can discuss kind of why you'd be interested in that spectrum and if it 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 generally been thinking that you know with the NOL, it's running out of that your cash taxes will be sort of increasing and youll not too far on additional future beautiful cash taxpayer, maybe you could help us understand what the implications of the law.

Immediate tax sharing agreement would be on your cash taxes that'd be helpful. Thank you.

Yeah, So I'll start with AT&T.

Discussion I mean D.

Yeah. The FTC has granted our application to acquire other licensees of the spectrum, which is adjacent to our S. R of spectrum that says you know the WCS C and D blocks.

We have worked closely with AT&T over several years to support them on their efforts here to use it on but yeah. Because it is adjacent to our spectrum, we had in Riyadh of coordination agreement with them, but it was very difficult to manage the interference.

Yeah look we've recognized together with AT&T the potential to use. This you know some spare for satellite capacity, we have and to adapt our receiver technology on the spectrum to.

To really use this for public service applications and you know we've done things in the past like supporting FEMA during times of natural disasters and this is really not.

Net profit maximization efforts, but more of a public service effort and because of spectrum of smile on this.

The deal we did you know it is relatively small but on but it does protect us given that Jason.

Yeah.

And Brian on your cash.

Your line is in your question I don't see any.

Real implications from detection of agreement and again, we're looking out into the future.

But you know we've already talked today about some modest increase in cash taxes from.

'twenty, one you'll see in the day, where all of NOL position in tax credit situations of ours. So we feel good about it I don't think of the type of attachment points of it doesn't have any real impact on our full force.

Look in terms of adoption.

Very helpful. I appreciate it thank you both.

Thank you, Brian and thank you everybody for participating today and we'll speak to you soon goodbye.

Goodbye.