SiriusXM Holdings Inc.

Thank you and good morning, everyone. Welcome to SiriusXM's fourth quarter and full year 2021 earnings conference call. Today, we will have prepared remarks from Jennifer Witts, 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 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 and today's earnings release. We advise listeners to not rely unduly on 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 call will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation and certain purchase price accounting adjustments. With that, I'll hand the call over to Jennifer.

Thank you for joining today's call. SiriusXM turned in phenomenal 2021 financial results. added over 1 million SiriusXM self-pay subscribers for the 10th time in the past 11 years, and made significant progress on all of our strategic objectives. Dawn will go into more details on the financials, but in 2021, we beat all of our original guidance targets, and all of these financial metrics and our self-pay subscriber base ended at record high levels. With these great results and our solid balance sheet, we are very pleased to be in a position to announce a special payment to our stockholders this month of 25 cents per share and approximate $1 billion payout. We also announced new guidance today for continued growth in SiriusXM self-pay subscribers, revenue, and adjusted EBITDA. In 2021, we forged ahead on our vision to shape the future of audio while advancing our key strategic growth objectives. We continue to earn the privilege of capturing the highest share of our listeners' audio time by bringing our premium experience to listeners wherever they are starting with our stronghold in the car. Our new vehicle penetration reached an all-time high of 82%, and we exited 2021 with just over a quarter of these SiriusXM equipped vehicles incorporating 360L, our latest platform that delivers an enhanced consumer experience, including personalization. In 2021, we launched 360L in more than 30 new vehicle models across various OEMs, ending the year with nearly 4 million 360L equipped vehicles on the road, and 360L volumes are set to climb for many years to come. Automakers like Stellantis and BMW now offer drivers the ability to customize their own ad-free music channels, powered by Pandora's personalization engine housed within 360L in select vehicles. Our pace of innovation in vehicle is only set to accelerate as the operating systems of the car evolve, such as with the introduction of AAOS at various automakers, which will speed our time to market with new features and capabilities. Of course, we also seek to super serve listeners throughout their day, not just in-car, and we continue to focus on providing an excellent digital experience with curated premium content anywhere one might listen. By including streaming in virtually every Series XM plan, we made it easier for our existing subscribers to listen everywhere. We also made it easier for potential new subscribers to try our digital service by enabling free previews and in-app purchases through both Apple and Google. Today, millions of our SiriusXM self-pay households stream our service. And when our subscribers stream, they roughly double their consumption of SiriusXM content. They listen twice as many hours and on twice as many devices. While we clearly have a long way to go, the growth in SiriusXM streaming has provided an important value add and meaningfully contributed to our strong churn performance in recent years. In the months ahead, We plan to make it easier to use the SXM app in many more places people want to listen, and this should drive usage by both our satellite streamers and our standalone digital subscribers. The addition of streaming with the enhanced features and content that comes with it is an important driver of value to SiriusXM subscriptions, but we are always looking to make our plans even more attractive. For example, we have recently provided new and existing subscribers to SiriusXM's Platinum VIP plan the power to unlock access to Apple Music and Discovery+. As our focus on streaming continues, I'm particularly delighted with Joe Inzarillo's decision to join the SiriusXM team, leading all of our product development, IT, and broadcast and satellite engineering. I'm sure many of you know Joe's extraordinary track record at Disney+, ESPN+, Hulu, and as CTO and founder of BAMTECH. Best of all, he is deeply passionate about our products and agrees that we have a unique opportunity to continue to shape the future of audio. While you can expect more on our specific product and architecture plans in the coming quarters, our focus remains on improving and investing in our digital products and the customer experience. We intend to dramatically increase the speed at which we improve and bring new features to market. We are also investing in offering intuitive digital first interactions to our prospective and existing customers. This benefits both our cost structure and our attractiveness to younger consumers. It's also a priority that we continue building upon our leading ad tech stack, which is central to our success at SXM Media, our unified sales organization. Yesterday, we announced the introduction of Audio ID powered by AdsWiz, a first-to-market listener identity solution offering marketers new avenues to reach, target, and connect with consumers at scale. Audio ID puts content and audiences first, providing an improved customer experience across multiple platforms and a better way for brands to buy audio advertising. And growing our digital ad business is a key part of our strategy in the coming years. In 2021, we delivered an impressive $1.7 billion of digital advertising revenue, up 29%, driven by strong demand for our advertising solutions and meaningful growth in podcast revenue, bolstered by our acquisition of and investments in Stitcher. With further tailwinds in monetization, podcasting, and off-platform distribution, we expect this number to grow meaningfully in 2022. Whether ad-supported or subscription-based, we will continue to connect listeners to the best, most compelling, and timely content across music genres, areas of talk entertainment, and in sports and comedy. We partnered with Audible to create Chapter & Verse, a new monthly series exclusively on Pandora, SiriusXM, and the SXM app. The series features several of the brand's most popular authors, such as Nicholas Sparks, discussing how music inspires the writing process. We remain focused but disciplined in our approach to podcasting and signing more deals with top and influential creators. In the fourth quarter, we struck deals with leaders in podcasting, including exclusive global advertising deals with the top-ranked true crime show Crime Junkie and its entire AudioChuck network, with ad rights to new podcasts coming shortly. comedy favorite Your Mom's House and its YMH Studios Network, and Last Podcast on the Left, which will also launch a live weekly show on SiriusXM's Faction Talk this month. We are proud to work with many creators who have built substantial and loyal audiences over the years to help them grow this reach and to favorably monetize it. Several of our podcasts ranked in the 2021 Best Of list at the New York Times, New Yorker, Vulture, Entertainment Weekly, Time Magazine, The Atlantic, and more. The Adweek Podcast of the Year Awards acknowledge two of our shows, People I Mostly Admire for Best Interview Podcast, and SiriusXM Original, Black Diamonds, which highlights the history of the Negro Baseball League for Best Sports Podcast. We are experts in the curation and presentation of music, whether on our SiriusXM and Pandora platforms or at our live and virtual events. Pandora honored the first-ever Hip Hop History Month with a dedicated music station plus four artist-curated takeover modes. With Baby Einstein, we created a wide variety of kids' music content. We brought back Foo Fighters Radio on SiriusXM and launched a limited-run channel with Latin superstar J Balvin. We debuted ABBA Radio, one of pop's biggest music groups of all time, which coincided with the release of their first new album in 40 years. SiriusXM remains at the forefront of pop culture, amplifying both emerging artists and music icons. In December, we launched limited run channels with Neil Young and Alicia Keys, coinciding with their new album releases and featuring career-spanning music and new exclusive content. These partnerships are a testament to the trust and deep artist relationships that are foundational to our success. We continued the successful small stage series which showed we could work with top artists to regain that great connection with fans that comes from live, intimate performances. We recently held shows in L.A. and New York in legendary venues, featuring premier artists spanning a variety of music genres, including Alicia Keys, Ed Sheeran, The Go-Go's, Her, J. Cole, and Next Week, yet again, with John Mayer in L.A. Pandora launched a national multimedia brand campaign featuring longtime Pandora listener and enthusiast DJ Khaled, and we finished the year with two long-running annual artist roundups, the Pandora 10 Artists to Watch for 2022 and the Pandora Top Thumb 100, which Cardi B topped for the second year in a row. SiriusXM also announced its future five artists for 2022. Our predictions for which artists will break through across pop, R&B, country, hip-hop, and rock genres. Year after year, our future five picks have proven to be well-founded and spotlight artists that we were first to champion. We also welcome the Class of 2021, artists that we were first to commit airplay and playlist support to and subsequently went on to have a major breakthrough year. Our listeners love the live access to marquee sports events as well as sports talk from trusted personalities found only on SiriusXM. We agreed to a multi-year extension with the PGA Tour and added a new show hosted by David Faraday. Our extensive schedule of live play-by-play across so many professional and college sports makes us a must-have for sports fans. For example, Throughout the college football postseason, SiriusXM covered every bowl game live all the way through the national championship. Original sports programming is the perfect companion to our live coverage. Duke legend Mike Krzyzewski is hosting the 17th season of his show, Basketball and Beyond, as he coaches his final season. Coach K is part of a sports programming lineup that our subs love. and one that generates buzz every week with exclusive shows like the Let's Go podcast hosted by Tom Brady, Larry Fitzgerald, and Jim Gray, Brett Favre's SiriusXM NFL radio show, and many others. The examples I highlighted confirm our commitment to be the leader in audio content, whether that means licensing premium audio, directly employing talented creators, or even investing in and owning content assets or studios that produce best-in-class material. Such content asset purchases, where they make sense, are one part of our overall M&A and investment strategy. We will continue to pursue other opportunities which will further SiriusXM's in-vehicle leadership, expand our digital subscriptions, and strengthen our ad business. Today, we have a tremendous foundation by our acquisitions of Pandora and its AdsWiz unit, plus Stitcher, Simplecast, and 99% Invisible. As a leading force in consumer subscriptions to premium audio services, We are increasingly positioned to meet the listeners wherever they are, at home, in vehicle, at work, or on the go. We recently acquired Cloud Cover Music, one of the fastest growing music for business services. It will complement SiriusXM Music for Business and Pandora for Business in our commercial music portfolio. As part of SiriusXM, Cloud Cover will have new resources and capabilities to better serve businesses looking for the perfect soundtrack and atmosphere for their customers. Before I hand it over to Sean, I want to reiterate how pleased I am with our strong operating and financial performance in 2021. Even with our record revenue, we have many opportunities to capture greater share and also contribute to the growth of the $50 billion audio industry. SiriusXM has continued to aggressively develop and deliver one-of-a-kind audio experiences for our customers for two decades, and it is our vision to connect listeners to the content they love anytime and anywhere. With that, I will turn it over to Sean for additional remarks.

Thank you, Jennifer, and good morning. To give you just a few financial highlights for 2021, total revenue increased 8% to $8.7 billion, led by 29% growth in consolidated ad revenue. Adjusted EBITDA grew 8% to $2.77 billion, a new annual record. Diluted earnings per share were $0.32 versus $0.03 in 2020 when we absorbed the impact of a non-cash impairment charge. We generated $1.831 billion of free cash flow during 2021. Note that free cash flow in 2021 was boosted by a full recovery of $225 million against our insurance policies on SXM 7, partially offset by new accelerated spending on SXM 9 and SXM 10. In 2021, this recovery drove conversion of approximately two-thirds of our adjusted EBITDA into free cash flow, a ratio that will drop modestly in 2022 as cash taxes increase materially, CapEx remains elevated and in line with 2021, and working capital remains a modest drag as we continue the transition of subscribers to shorter-term plans to drive profitable growth. Longer term, as the CapEx cycle abates and working capital normalizes, we expect free cash flow conversion to improve. Turning to our segment, in the SiriusXM segment, total revenue in 2021 increased 4.4%, roughly in line with ARPU growth, as growth in the self-pay subscriber base of over $1 million was offset by lower revenue from paid trials and by lower equipment revenue resulting from reduced module delivery on account of limited auto production. Gross profit in the SiriusXM segment climbed 3% to $4 billion, representing a margin of 61%. In the Pandora segment, advertising revenue of $1.54 billion increased 30% in 2021, with Pandora's ad revenue per 1,000 hours reaching a record $103. In 2021, our podcasting business, Stitcher, combined with our off-platform businesses, such as AdsWiz, generated $348 million in ad revenue, an increase of 81% from 2020, benefited by organic growth and the acquisition of Stitcher in October 2020. We expect these businesses will continue to represent a growing portion of the Pandora segment revenue over time. Gross profit in the Pandora segment grew 30% to $743 million, representing a margin of 36% up to full basis points. As announced in this morning's press release, this year's new guidance calls for revenue of approximately $9 billion, adjusted EBITDA of approximately $2.8 billion, and free cash flow of approximately $1.55 billion as cash taxes increase and we normalize for 2021 one-time satellite insurance recovery. And we expect to add approximately 500,000 net new self-paced subscribers this year. While we do not provide quarterly guidance, it appears that given continuing semiconductor shortages and other factors limiting vehicle sales in late 2021 and into 2022, We expect that the substantial majority of our projected self-paced subscriber growth will come in the second half of the year. Further, we believe price change is implemented in the fourth quarter, particularly to discount floor pricing, somewhat reduce subscriber growth in late 2021, and will continue to impact early 2022. We have a long track record of successfully balancing rate and volume to create optimal long-term outcomes for the business. Both advertising and subscription revenue will contribute to growth in 2022 as advertising momentum continues and subscription revenue benefits from rate action and subscriber growth in 2021. Our adjusted EBITDA guidance this year reflects investments in product, content, and marketing to drive growth in digital. Turning to capital allocation, we are very pleased with today's announcement of a $1 billion special dividend to our stockholders. We and our board believe now is the opportune time to put cash into the hands of our stockholders, given our strong 2021 results, expectations of meaningful cash generation in 2022, and our rock solid balance sheet, which was levered at just 3.1 times net debt to EBITDA at year end. By that measure, pro forma for this dividend, we would have ended 2021 at 3.5 times, still within the target range we've articulated. This special dividend comes on top of the 50% increase to our recurring dividend announced in October and on top of the $1.5 billion of our shares we repurchased in the open market last year. We continue to maintain tremendous flexibility to continue investments in the business, pursuing inorganic growth opportunities, and to continue returning capital to our stockholders via dividends and share repurchases. With that, operator, let's open the call to Q&A.