Q4 2021 Sirius XM Holdings Inc Earnings Call
Good morning, and welcome to Sirius XM is fourth quarter 2021 financial and operating results Conference call. Today's conference is being recorded a question and answer session will be conducted following the presentation. If you have a question at that time. Please press star one.
Speaker 1: Good morning and welcome to SiriusXM's fourth quarter 2021 Financial and Operating Results Conference call. Good morning and welcome to SiriusXM's fourth quarter 2021 Financial and Operating Results
On your telephone keypad, if at any time you'd like to be removed from the queue. Please press star two at this time I would like turn the conference over to perceive and senior Vice President Investor Relations and Finance Mr. Stevens. Please go ahead.
Thank you and good morning, everyone welcome to Sirius <unk> fourth quarter and full year 2021 earnings conference call. Today, we will have prepared remarks from Jennifer Witz, Our Chief Executive Officer, and Sean Sullivan, Our Chief Financial Officer, Scott Greenstein.
Speaker 2: 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.
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 1095.
Speaker 2: 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.
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.
Each forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
Speaker 2: Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
Speaker 2: 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.
For more information about those risks and uncertainties. Please view Sirius <unk> 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.
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 result 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. Don will go into more details on the financials, but in 2021, we be all over.
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 25 per share an approximate $1 billion payout, we also announced new guide.
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 or new vehicle penetration reached an <unk>.
All time high of 82% and we exited 2021 with just over a quarter of these Sirius XM equipped vehicles incorporate in 360 L. Our latest platform that delivers an enhanced consumer experience, including personalization in 2021, we launched 360 and more than 30, new vehicle models across various oes.
Ending the year with nearly 4 million 360, all equipped vehicles on the road and 360 L volumes are set decline for many years to come.
Automakers likes the Lantus and BMW now offer drivers the ability to customize their own AD premium channels powered by <unk> personalization engine housed within 360 L and 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 AOS 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 lessen by including streaming in virtually every Sirius 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 Sirius XM self pay household stream, our service and when our subscribers stream they roughly doubled their consumption of siriusxm content.
And twice as many hours and twice as many devices, while we clearly have a long way to go the growth in Sirius XM 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 <unk> app and many more places people want to listen.
This should drive usage by both our satellite streamers and our Standalone digital subscribers.
The addition of streaming with enhanced features and content that comes with it is an important driver of value of the Sirius XM subscriptions, but we are always looking to make our plants even more attractive. For example, we have recently provided new and existing subscribers to Sirius XM platinum VIP plan, the power to unlock access to Apple music.
And discovery plus.
As our focus on streaming continues I'm, particularly delighted with Joe and the realized decision to join the Sirius XM team, leading all of our product development I T and broadcast satellite engineering I'm sure. Many of you know Jos extraordinary track record at Disney plus ESPN, plus Hulu and CTO and founder of Amtech.
First 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.
Well 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 through our perspective.
And existing customers this benefits, both our cost structure and our attractiveness to younger consumers.
Also a priority that we continue building upon our leading AD tech stack, which is central to our success at FX, Our media our unified sales organization yesterday, we announced the introduction of audio I D powered by ads with a first to market listener identity solution offering marketers, new avenues to reach target and connect with consumers at scale.
Audi.
Audio idea 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 2020 , one we delivered an impressive $1 $7 billion of dish.
Little advertising revenue up 29% driven by strong demand for our advertising solutions and meaningful growth in podcast revenue bolstered by our acquisition of investments and stitcher with further tailwind and 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 and verse, a new monthly series exclusively on Pandora and Siriusxm and the FX on 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 podcast thing, including exclusive global advertising deals with the top ranked true crime show crime junkie and its entire audio Chuck networks with AD rights to new podcast.
Coming shortly.
The favorite your Mom's house, and it's why I'm H Studios networks and last podcast on the left which will also launch a live weekly show on Sirius XM 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 podcast ranked in the 2021 best of less at the New York Times, New Yorker, Voucher Entertainment Weekly time magazine, the Atlantic and more.
Adweek podcast of the year awards acknowledge two of our shows people I, mostly admire for best interview podcast and Sirius XM original Black Diamonds, which highlights the history of the <expletive> Baseball League for Best Sports podcast.
Our experts and the curation and presentation of music, whether on our Sirius XM and Pandora platforms or at our live and virtual events.
Pandora honored the first ever hip hop history month, with a dedicated music stations plus for artist curated takeover modes with baby Einstein, we created a wide variety of kids music content.
Got back through fighters radio on Sirius XM and launched a limited run channel with Latin Superstar Jay Baldwin, We debuted Abbott radio one of Pops biggest music groups of all time, which coincided with the release of their first new album in 40 years series.
Sirius XM 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 and legendary venues featuring premier artists spanning a variety of music genres, including Alicia keys.
Ed Sheeran to Gogo her J coal and next week, yet again with John Mayer in L. A.
Pandora launched a national multi media brand campaign, featuring longtime Pandora listener and enthusiast D. J College, and we finished the year with two long running annual artist Roundup. The Pandora 10 artists to watch for 2022, and the Pandora top some hundred which Cardi b top for the second year in a row.
Sirius XM also announced its future five artists for 2022 our predictions for which artists will breakthrough across pop RMB country hip hop and rock genres, you're after year, our future five packs have proven to be well founded and spotlight artists that we referred to champion. We also welcomed the class a.
2021 artist that we were first to commit airplay and platelets support too 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 Sirius XM, we agreed to a multiyear extension with the PGA tour and at.
A new show hosted by David Verity, our extensive schedule of lives play by play across so many professional and college sports makes US a must have for sports fans. For example throughout the college football post season, Sirius XM 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 might push FC is hosting the 17th season of a show basketball and beyond as he coaches. His final season coach K as part of a sports programming lineup that our subs love and one that generates buzz every week with exclusive show.
Like the let's go podcast hosted by Tom Brady, Larry Fitzgerald, and Jim Gray, Brett Farve, 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, we're even investing in and owning content assets are studios that produce best in class material such content asset purchases, where they make sense are one part of.
Of our overall M&A and investment strategy, we will continue to pursue other opportunities, which will further Sirius XM N vehicle leadership expand our digital subscriptions and strengthen our AD business today, we have a tremendous foundation by our acquisitions of Pandora and its ads with unit plus stitcher simple cast and 99% invisible.
As a leading for us in consumer subscriptions to premium audio services, we are increasingly positioned to meet the listeners wherever they are at home and vehicle at work or on the go. We recently acquired cloud cover music one of the fastest growing music for business sources. It will complement serious act that music for our business and.
Pandora for our business and our commercial music portfolio.
Part of Sirius XM 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 2020 one.
Even with our record revenue, we have many opportunities to capture greater share and also contribute to the growth of the 50 billion dollar audio industry.
Various Exxon 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 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.
Just as EBITDA grew 8% to $2 77 billion, a new annual record low.
Earnings per share were <unk> 32 cents versus recent in 2020, when we absorbed the impact of a noncash impairment charge, we generated 1.83.
Three $1 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 FX on seven partially offset by new accelerated spending on ethics and nine and that's it.
Sometime in 2021 this recovery drove conversion over approximately two third of our adjusted EBITDA into free cash flow a ratio that will drop modestly in 2022.
Cash taxes increased 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 plan to drive profitable growth.
Longer term as the Capex cycle of base and working capital Normalizes, we expect free cash flow conversion to improve.
Turning to our segments than the Sirius XM segment total revenue in 2021 increased four 4% roughly in line with ARPA growth.
Growth in the self pay subscriber base of over $1 million was offset by lower revenue from paid trial and by lower equipment revenue, resulting from reduced module delivery on account of limited auto production gross profit in the Siriusxm segment, one 3% to $4 billion.
Representing a margin of 61% and the Pandora segment advertising revenue of 1.54 billion increased 30% in 2021 with Pandora's AD revenue per thousand hours, reaching a record $103.
In 2021, our podcast business structure combined with our off platform businesses, such as pads with generated $348 million in AD revenue an increase of 81% from 2020 benefited by organic growth and the acquisition of Stitcher in October 2000.
We expect these businesses will continue to represent a growing portion of the Pandora segment revenue overtime.
Gross profit in the Pandora segment grew 30% to $743 million, representing a margin of 36% up to four basis points.
Announced in this morning's press release this year of 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 decreased and we normalize for 2021, one times satellite insurance recovery.
We expect to add approximately 500000 net new self pay subscribers. This year, while we do not provide quarterly guidance. It appears like given continuing semiconductor shortages and other factors limiting vehicle sale in late 2021 and into 2022, we expect that the substantial majority of our projected self pay subscribers.
Growth will come in the second half of the year further we believe price changes implemented in the fourth quarter, particularly to discount for pricing somewhat reduced subscriber growth in late 2021, and we will continue to impact early 2022, we have a long track record of successfully balancing rate and volume to create.
The optimal long term outcome for the business.
Both advertising and subscription revenue will contribute to growth in 2022.
Advertising momentum continues and subscription revenue benefits from rate actions and subscriber growth in 2021 our.
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 $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 result expectations of meaningful cash generation in 2022, and a rock solid balance sheet, which was levered at just three one times net debt to EBITDA at year end.
By that measure pro forma for this dividend we would've ended 2021.
Three five 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 .
On top of the $1 5 billion.
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 for Q&A.
Thank you if you wish to ask a question at this time. Please press star one on your telephone keypad she'd like to remove yourself from the queue. Please press star two.
Ensure the mute function on your telephone is switched off to allow your signal to reach our equipment again is just shy of one to ask a question and we can now take our first question from James Ratcliffe of Evercore ISI. Please go ahead.
Thanks for taking the question two if I could first of all you mentioned 3 million vehicles out there with 360 L. Can you give us some idea of what you're learning about our usage of these Sirius XM service from those vehicles and how that's driving into an engagement and monetization.
And secondly on the capital return should we be thinking about this as sort of a catch up to get sort of to your targeted leverage or more of an advance on what you expect capital returns to be in 2022.
Thanks.
Great Hi, James This is Sean why don't I start with the capital returns.
Again, as we've highlighted and articulated over the last several quarters I think we've been fairly prescriptive about our capital allocation priorities and.
What we expect to operate in terms of target leverage so again pro forma for this it takes us to three five times as of the end of the year, we continue to have a flexible.
Program, we continue to.
Buy shares in the marketplace Youll see when we file the 10-K today I believe we have purchased almost $116 million worth of shares through the end of last Friday.
So again, it's a we come into a new year, a new planning cycle.
Really strong confidence in the business free cash flow generation.
So a three and a half times again in line with what I think I said back in October .
You'll see that likely the buybacks will.
Abate a bit over the next several quarters in the context of our philosophy, but we will continue to be an active participant in the market. We still think it's a good value. We continue to have substantial liquidity in our stock so.
You should expect us to continue to be a participant but it will be scaled back from historical levels.
James just on your first question on 360 L. So we actually ended with just about 4 million vehicles on the road and 20 over 25% of our trial starts were 360 L capable in the fourth quarter right. So what we're seeing so far is we have so much more data than we've ever had in the past and that we can do things like if.
People haven't started listening we can market to them to encourage them to listen during the trial clearly listening impacts ultimate conversion rates. We also know that when.
When customers use the features like Pandora stations on demand or the extra channels that they tend to convert at higher rates. So we're very focused on driving that activity in our marketing materials as well as on platform through recommendations.
Great. Thank you.
And we can now take our next question from Bryan Kraft with Deutsche Bank. Please go ahead.
Hi, good morning.
Just wanted to ask you about the net add guidance given the number of trials in the funnel today, adding 500000 self pay customers. It seems like an aggressive target unless that funnel is going to start growing again fairly soon.
I guess first do you agree and any color on what Youre seeing on the OEM side and how you expect to add the 500000. This year thanks very much.
Yeah. It's look we've been watching the third party estimate for auto sales really closely there have been revisions down over the last month a lot of that I think is attributed to the.
The relatively soft auto sales in December under $13 million.
And we fully expect that you know the auto sales on the new car side will remain relatively low for the first half, we're hoping and I think this is consistent with public comments in general that the supply chain issues start to alleviate a bit in the second half and so our guidance is tight.
Into the third party estimates and of course, you know, we're being cautious I mean, the the way the trial funnel works as you know is if we get you know the the ramp in trials in the second half of the year. It really doesn't materialize in a lot of subs in year that that will set us up really well.
Into 2023.
On the used car side, we see some of the same.
[noise] phenomenon, where their inventory constraints at prices that are an all time high.
So we're watching that really closely too, but the but our expectations are that the trial funnel will support 500000 net adds and of course, we're watching non pay churn really closely in an inflationary environment I and how that tracks to consumer spending which is very much a factor in non pay.
We would expect and you saw it in our churn rate in the fourth quarter at one 7%. We would expect something like that are more consistent in the 1718 range, which is similar to what we saw pre pandemic.
Okay. Thanks for the color Jennifer I appreciate it.
We can now take our next question from Ben Swinburne of Morgan Stanley . Please go ahead.
Hi, good morning.
Maybe just a little bit more detail on the expectation built into guidance.
I don't think you gave us Jennifer call, but what do you expect in terms of install rate for auto sales in 'twenty two.
And any any sort of update on how you think conversion trends in both new and used just to help us think about that guidance a little bit more and then.
You guys have talked a little bit and I'd say increasingly over time about your streaming only customer base.
At the Investor Day, the Liberty day last year anything you can share with us Jennifer on sort of kpis or attributes of that of that group and help us think about how you are expanding the Tam and what the opportunity is ahead of you guys really lean in there.
Yeah, I'll start with installs in conversion rate. So I, you know, we talked a little bit about auto sales and our expectations. There in terms of pen rate. We ended the year at 82% I would expect that to stay relatively consistent or tick up a bit. This year. You know I think we're really well positioned on the penetrate.
Right there.
Yeah. The used car side that organically continues to increase and I would expect that to go up to help support trial starts this year as well on conversion rates I think they've been pretty consistent we're in about the mid thirty's on the new car side and you know because of the low to mid twenties on the used car side, yeah. It's a fair.
<unk>, obviously of our where we are on pen rates and continued increases in penetration into lower trim models, which typically tied to a younger generation and lower income levels are so that's very consistent with what we've seen in the past.
And we you know as we talked about a little bit earlier, you know we were.
Our focus on using 360 L. As a mechanism in the new car side to improve conversion because when we see people using these features.
We do see improvements in conversion rate. So it's really about improving the awareness and usage of the features on the used car side. What are the biggest thing. We're focused on is making sure. The radio is active when customers get into the car. Because then they can experience our product very seamless very very consistent.
With you know our ease of use in the car and so we have many programs focused on.
Driving that on the used car side, our digital subs.
Today, it's not a meaningful part of our overall subscriber base, but I would expect you know going into this year, certainly and in quarters, where satellite net adds are lower that you know you may see a higher proportion of our subs coming from the digital side and the metrics are look we have 32.
2 million self pay subscribers right. We are already D to C. This is incremental opportunity for those listeners who don't necessarily want or need the radio in the car. So we are very well positioned to offer the broad set of content that we have you know the the great features and functionality through our apps.
<unk> car player Android auto or anywhere else for that matter and the improvements that we make there on the digital side will eventually come into 360 L. A as well.
Thanks, Jennifer.
We can now take our next question from Jessica Reif articles Banc of America Securities. Please go ahead.
Thanks have a couple of questions first on digital advertising digital audio advertising could you give us some more color on audio I D.
What that gives you.
Some color on what that gives you that you didn't have before.
Yeah.
Sure. So we just announced the launch of audio idea and there's certainly a need in the market given the constraints around data on customers and you know this is just another competitive advantage, we bring to advertisers and it just enhances the accuracy and understanding of any individual user.
Which improves obviously targeting frequency attribution.
And it helps you know not only ourselves, but also other publishers where were selling their inventory. So it's just you know instead of matching just in an email or a mobile device I D and <unk>.
Those ideas alone that we're building this broader inferred understanding based on all the data we have across our platforms.
And since this is such an important part of growth I mean your pilot both of you trying to.
Highlighting the momentum you have in advertising do you have all the necessary components.
For this you know for the area or do you think you need more in digital audio advertising.
I think our our AD Tech stack is very strong with address and you know the simple Cas capabilities reaction as well on the podcast side.
Our AD sales force is very strong and we have a number of other value added capabilities, whether its studio resonate to help advertisers you know create compelling creative in the audio advertising side and research and now enhanced targeting through audio.
I, we have a lot of the capabilities, we need I certainly am open if there are opportunities to add capabilities either through M&A or investment to continue to improve our tech stack, there, but I believe we're really well positioned.
And then just one more on podcasting.
How does that how will the content change in terms of like however, you measure it like the number of episodes of the types of content going into <unk>.
Because it's been such a big driver in such a big focus so from 'twenty, one going into 'twenty two.
Can you just talk about positioning and how we should think about the growth there.
Scott you want to start that sure so.
We're really pleased with where we're at right now the organization is really together now.
As Jennifer mentioned with car T and other.
A new show calling for.
Audio itself.
Which is going to be an exciting.
Podcasts.
We feel we have a couple of things going into 'twenty, two we sort of know what we are and we know what we want so there's an air pocket.
A series of podcasts, we'd like to own and or create and then there are others that are somewhere in between where they start.
The categories that are emerging.
Someone who likes to call them for podcasting.
Getting around what they're gonna be audio.
<unk> prices on the satellite side as well the other thing I'm excited about we've isolated where comedy and sports and some other things we're very big in podcasting and we're going to continue to drive that.
But what we like most about it.
Complementary both from a content and the marketing and advertising point of view our existing.
Assets that are quite strong and obviously.
Sports betting as harmony, so we're going to have the ability to go back and forth between content marketing and AD sales between those platforms. So I think it's going to be more attractive.
<unk> podcast producers, because they're going to realize the marketing a throwaway comment.
With someone with sensor and the whole company on that front.
And lastly, when you look at the top 10 podcasts. They don't change a lot the fan basis pretty set in that in that way and we're fortunate to have some of those but that means everything else is wide open.
As you know is a huge number of big names.
Emerging talent.
Brands that have not.
Texas.
You know what would be the equivalent of a Billboard top 10, not moving much overtime.
It's just going to move and we think we're perfectly positioned with our three pronged approach.
It would've grown podcasting, but we'll be disciplined as always and we're going to try to work, where we can to have that discipline applies to areas that complements our other two platforms.
Thank you.
And we can now take our next question from.
Well so far.
RBC capital markets. Please go ahead.
Good morning, Thanks for taking the questions one on free cash flow and one on leverage if I could first on free cash flow. It seems like 2022 might have more headwinds than <unk> seen for a while now whether it's the ramp spend on six of nine and 10 cash taxes and working capital I guess thinking longer term is it fair to assume 2000.
Two the trough for free cash flow and that we can start to perhaps see more meaningful growth in 2023 onward or is it too early to tell at this point I know youre not going to provide multiyear guidance right now, but maybe you could just touch on your confidence in the continued strength of the company's ability to drive and grow free cash flow that would be helpful and just a second.
You ended the year at three five times net leverage with the boards confidence in raising the regular dividend by 50% last October and now announcing the 1 billion special dividend extend to maybe comfort and perhaps operating at a higher leverage going forward as well and if so what's the potential ceiling investors can expect.
Yes.
Sure.
So in terms of free cash flow just to reiterate what I said in my prepared remarks around 2022.
The biggest driver again is the cash taxes youll see in the K that our NOL and tax credit position will be fully utilized in 2022.
So you know the biggest headwind for us in 'twenty two from free cash flow perspective, again normalizing for what happened in 2021 with the insurance recovery is cash taxes, I think I've indicated that capex, both satellite and not the <unk>.
<unk> capex shouldn't be materially different from what we experienced in 'twenty one for the 2022 year and we do believe those are elevated levels as we go through this spending cycle. So I do expect those to abate we could continue to.
Cycle through the deferred revenue as it relates to people transitioning to shorter monthly plans. So all in all the 22 conversation is mostly around.
Cash taxes.
Absolutely feel this business continue to generate generate and grow free cash flow, you're right I'm not going to give you a multiyear guide on it but I do think that.
You know 22 should be a trough, but again keep in mind.
You continue to invest for growth in this business, we're making the proper investments in technology and product and content.
The board so.
Again, I always hesitate to go beyond 2022, but again lots of confidence in our ability to to.
Two to grow free cash flow as some of these items normalize.
As it relates to leverage again, we've talked about low to mid threes. The special dividend puts us at a pro forma three and a half times.
Obviously, the board Oh, it was approve that AR and has incredible the degree of confidence in the business the team.
But again I'm not I'm not going to sit here without raising our indications I think I said, we intend to operate in the mid three so I guess, that's where we're at today, we'll certainly be opportunistic as we always have been whether it's an organic investment whether it's an inorganic opportunity.
But those are those are our intentions today and I'm sure. There are many to think this business can support a higher leverage target. Today. This is the this is what we are comfortable operating at given the demands on our free cash flow and capital allocation.
Fair enough. Thank you.
And we can now take our next question from especially on a penny of J P. Morgan. Please go ahead.
Alright, Thanks for taking the question I just wanted to follow up on the Capex comments, Shaun I think in the past, we kind of talked about.
The baseline being about 300 to the underlying business and then some accelerated capex spend related to the satellite above and beyond that and so it looks as though I mean is it based upon your comments is it fair to say that between the launch in early 'twenty, one and maybe some late year spend that the satellite related portion of that kind of thing.
The equivalent year on year when shall we expect satellite spend like I said lumpy and should accelerate from 2022 levels.
And then another question just kind of thinking about.
Shifting to the Pandora AD supported business.
If you can give us any color on how to think about the near term long term expectations there.
Climbed in AD supported may use seems to be accelerating what's going on there and do you expect on platform revenue to grow in 2022 and beyond thank you.
The Capex first it yeah I'll take the Capex again, I'm not sure I'm going to say much more but again as I said I think 22 versus 21.
That level of spending.
We are in the build phase of FX of nine and 10 I think the first launch for nine is 2024.
So I think I'll, let the guys stand for itself for 2022.
And we can certainly revisit.
At a later date what to expect for 'twenty three 'twenty four.
Yeah on the Pandora side, so that's kind of the way we have seen continued declines and M. A use ours are not declining as quickly.
Which is more a function and a driver of the AD revenue I. The mix is shifting to more loyal customers, which have you no longer listening hours and I certainly hope you'll see us makes it meaningful changes to the App. This year, that's our expectation but advertising growth.
Ada will clearly become more challenged we've been able to offset the declines in listener hours with significant improvements in monetization.
And we've done really well here even in the fourth quarter. If we were up 4% year over year I. It's the fourth quarter is you know has a really exceptionally high sell out and that becomes increasingly challenging to drive above that level, but we do expect growth overall.
This year in our advertising revenue Pandora is a key asset there and you know it helps us continue to grow on the platform side in podcasting and even in the Sirius XM broadcast side of the business, we're selling under ethics and media enables us to provide advertisers with these very.
<unk> solutions across all forms of audio so I feel good about the continued.
Growth in our AD revenue.
Thanks again for taking the questions.
We will now take our next and final question from Steven Cahill.
Fargo. Please go ahead.
Hey, Thanks, So maybe just first Jennifer on the used car market I mean, new car inventories as you talked about those are obviously down and under some pressure. There is a lot of activity going on in the used car market. Once upon a time you all used to talk about some of the connectivity you had into those used car channels and theres new companies like.
Carvana that are driving this a lot. So I'm just wondering what used cars are doing in terms of the gross adds of the trial funnel at the moment and what you might be targeting for 2022 in order to drive that side of the business.
And then you talked about the 3636 excuse me 360 L product that was powered by Pandora with the custom channels. I was wondering if you could just expand on that a little bit is that a pandora subscriber and a new car or is that just the 360 L functionality of our Sirius XM subscriber and where I'm kind of going with this is.
With the connected car. It seems like you could start to offer Pandora into the same trial funnel that you've historically done with with Sirius XM. So I'm just wondering how you're thinking about that evolution over time. Thank you.
Sure. So on used cars I, it's a function of clearly the sales levels and the funnel is and our penetration rate there, which is just you know governed by how quickly the base turns over and then our ability to find those transactions ideally at par.
A sale and you mentioned some of the used car programs. Yeah. We have you know most of the franchise dealers signed up so that we get information when a customer buys a car I used car in those dealerships, we've signed up a significant number of independent dealerships as well. So there's still growth there to continue to drive those programs I meant.
<unk> through the same dealerships, we're working to make sure that the radios are on at the time of purchase we also do that at auction houses and in other places as well, we're very focused on the growth and I, you know online dealerships or car sales and I hope to have more programs launched.
There as well so it's a it's against the sales of the pen rate our ability to get but the new buyers of used cars on the trials and then converting them through a that drives the overall funnel you know the the the funnel is still pretty evenly split between new car and used car trial starts in.
I would expect over time clearly, it's a function of what happens on the new car side, but I would expect over time that you could see used outpacing new car trial starts.
Okay and then the second question on 360 L and powered by Pandora, we have this capability.
Okay.
We have this capability today.
Alright.
Yeah.
We have the ability today and on the apps, where if you are a customer of our platinum plan at Sirius XM, you get AD free Pandora stations in our apps and we introduced this actually probably at least a year ago, maybe more in Atlantis.
And it is you know.
Really powerful feature for those in the car because it's a really easy way again in the in the interface and the car to be able to set up you know an artist base station with the Pandora functionality.
Going forward could this become an opportunity to get Pandora subscription. This is not a pandora subscription. It is included within the Siriusxm subscription.
But going forward, we certainly could look at those opportunities and you know and we will work with our auto partners to see what might make sense there.
Great. Thank you.
Thanks, Steve Thanks, everybody for participating today will speak to you soon.
Yeah.
Hum.
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