Sirius XM Holdings Inc. (NASDAQ:SIRI) Goldman Sachs Communacopia + Technology Conference September 12, 2022 7:30 PM ET
Company Participants
Sean Sullivan – Executive Vice President and Chief Financial Officer
Conference Call Participants
[Technical Difficulty]
Sean Sullivan
Thanks, Stephen. Good to be in person.
Unidentified Analyst
[Technical Difficulty]
Sean Sullivan
Sure. So the key – excuse me, you know, the key pillars that we’ve had, I guess, are pretty well articulated in the backdrop of the competitive marketplace. So we obviously have a very dominant position in the vehicle. We continue to look to drive streaming outside of the car, obviously, as both the benefit of augmenting the listenership of our satellite subscribers, but also opening up the addressable market to non-satellite subscribers.
And then advertising continues to be a bigger component you know, with Pandora with some of the off-platform and podcast investments, acquisitions we made, that’s really where we believe we’re best positioned. So from a competitive standpoint, you know, the others are doing many things, but I think that a focused product, a focused content and marketing and acquisition strategy has served us well.
We’re certainly – I’m sure we’ll get into it. We’re certainly watching the auto market very closely as it relates to our subscription business in car and what’s the sign of the recovery. The advertising market you know, the streaming landscape, all of those things underpin the investments we’re making and where we’re going.
But generally speaking, I think we’ve been fairly well – well narrative where our focus points are. That has not changed. We brought on people. We’re making investments. I know we’ll probably talk about some of these things today. So that’s really where we think we’re best positioned against the competitive landscape.
Unidentified Analyst
[Technical Difficulty]
Sean Sullivan
Yeah. Certainly, a lot of things going on. When we entered 2022, we had certain expectations over the course of the last eight months. It’s been more challenging than many had anticipated, much of that outside of our control. I don’t think the market or macro environment has changed our strategic approach, whether that’s to investment, whether that’s to product enhancement, whether that’s how we engage with our customers. So I think, again, as we talked about the strategy, I think, is solid. Again, it’s been a more challenging environment.
We – sorry, on technical difficulties. So we look at the order recovery. We look at SAAR, that certainly has impacted our ability to deliver what we had originally articulated in terms of self-pay net adds. At the same time, we remain committed to our financial guidance for 2022.
So again, subscription business, very strong, very good visibility, good predictability. The advertising marketplace, that again, we’ll talk about, certainly has less predictability than the subscription side of our business. But at the same time, the good and – the good part is there is great growth opportunity in the advertising today and it certainly represents only 20% of our total revenue.
So all in all, I think the strategy remains the same. The macro condition is certainly more challenging. I think we’re being more measured in terms of cost control in light of the economic environment, unlike many other companies today in terms of prioritising where the critical hires are and what we think about headcount, given the state of hybrid remote in office, return to office, what does that mean for your real estate footprint is certainly actions we’ve taken and can take on the real estate side.
So I think as we commit ourselves to the financial guidance for ’22, we’re just being very cost conscious. We certainly want to deliver in the near term, but make sure we’re making the investments that can deliver long-term growth.
Unidentified Analyst
You mentioned the impact of the auto market. I think trial starts were down 15% year-over-year in the second quarter, given some of the supply chain issues. Can you maybe talk about the pacing of trial starts through the third quarter what you’ve seen so far? And maybe any expectations you have for that trial funnel growing again, either in the later part of this year or into 2023?
Sean Sullivan
Yeah. I mean, it’s certainly true that year-over-year, we’re down. I think we saw sequential improvement in trial starts from Q1 to Q2 in 2022. As we get into the back half of 2022, we have a more favorable I guess, year-over-year comparison in terms of where things were last year.
We get on – you know, we talk probably late October, early November, we can talk more about where Q3 and where things are pacing because that will certainly be determinative of the positive self-pay net adds that we talked about for 2022.
So all in all, as we talked about SAAR is what in the 13 some-odd millions, many of the third-party analysts which we track very closely, still have a very large fourth quarter out there. I don’t know if that’s a lagging or leading indicator, it seems like a lot of the estimates continue to get pulled in. So we’ll certainly watch that closely over the course of the year. But that’s kind of where things are out on trial starts and what the impacts are to our business.
Unidentified Analyst
Great. The SiriusXM in the second quarter reported a record low churn of 1.5%, helped by improvements in vehicle-related churn, which is a product of the lower gross add environment we just talked about. Let me be setting that aside for a moment, how was underlying voluntary and non-big trended over the last several quarters? And are you seeing any signs of the macro environment impacting the subscriber base?
Sean Sullivan
Yeah, we haven’t. It has not and I think much to our surprise, I think much to many people surprised the strength that the consumer has been strong. We – the non-pay, we continue to run at historically low rates. I think we continue to all believe that it will revert and regress to something more normalized, but we are in unusual times.
So we’ve been very pleased, and that’s just not a function of the consumer. That’s a function of pricing and packaging, monthly versus annual, how people are invoiced. So I think that a credit to the team in terms of managing non-pay and some of the things we’ve done to make it more consumer-friendly and really managing non-pay and some of the things we’ve done to make it more consumer-friendly and really mitigate some of the factors that may contribute to non-pay.
But I think we’ve all been pleased and frankly, surprised by the strength of the consumer. We are a premium-priced product. Maybe it’s a function of the customer base that we serve. But you know, very pleased there.
On the voluntary side, again, you know, its – canceled demand has been low. I credit that to a number of things about the content investment. I think adding streaming to most of our packages a couple of years has certainly enhanced the value retention engagement of our consumers in the product.
So again, 1.5% is record low. I think we’ve been trending that way for the last 18 months, certainly as long as I’ve been here. I think there’s an expectation that it’s possible certainly in the non-pay to regress a bit, but we’re pleased where we’re at.
Unidentified Analyst
Is there any reason churn could instructionally go lower, below 1.5% over the long term given the investments you’re making?
Sean Sullivan
Yeah, I think it’s hard to think that non-pay could go lower. I think what non-paying voluntary is roughly a point of it, excluding the vehicle related churn. So we’re working on the product and trying to improve the cancel demand for sure. Of course, we set a goal to go lower, but I think we’re at historically low rates relative to where we’ve been historically. It’s hard to imagine it getting materially better.
Unidentified Analyst
Okay. Headline SXM ARPU grew 7.2% year-over-year in the second quarter, which is well above the Sirius [ph] long-term average of 2% to 3%. Could you unpack some of the key factors that are driving higher than usual ARPU growth this year and discuss your expectations for pricing growth heading into the back half and into 2023?
Sean Sullivan
Yeah. We – I think the company has been fairly – I don’t want to say predictable, but fairly consistent in terms of the pricing actions it’s taken with its consumer base across the packages. So as you know, we put through some pricing increases back in November of ’21. I think part of the ARPU benefit you’re seeing in 2022 is a function of those rate actions. Initially, you see some pushback, but generally, given the record low churn, we’ve got what we think is a premium product with a great value proposition.
So I don’t know that – I’m not going to sit here and predict or foreshadow what our future pricing actions are, but we do believe that to the extent we continue to improve the product to the extent we continue to invest in content and whether that’s music royalties or new stock sports, you name it, we’ll continue to look at it. I imagine in this similar cadence to what we’ve done as a company historically, but we need to be mindful of the consumer, we got to be mindful of the price point of the product. We got to be mindful of churn. But certainly, I think there is an opportunity in the future in terms of pricing.
Unidentified Analyst
How much of the mix shift with pay promo versus self-pay impact to that ARPU number this year? If we want to look at core underlying ARPU growth…
Sean Sullivan
I think a lot of that shift has occurred. I don’t know that’s material. I mean I think the one thing, Stephen, I didn’t really talk about is advertising, right? And there’s another one platinum VIP. So we continue to grow and do better and recover from pre-COVID level advertising on the satellite service from an advertising perspective. So certainly, advertising has contributed to that growth.
And we’ve introduced some premium plans. So platinum VIP is at $35, I believe, for 2 radios and 2 stream log-ins. So that’s contributed to it as well. But probably to a lesser extent, the shift on the promo side.
Unidentified Analyst
Got it. All right. Let’s shift a little bit and talk about your streaming-only service SiriusXM began expanding the target market for the streaming only service a little over a year ago now. How is the uptake of the service been to date? And what are some of the key learnings you’ve had over the last year after ramping the target market?
Sean Sullivan
Yeah, it’s – again, its still early days. The market on the streaming side is competitive. There’s a lot of consumer research out there about how many services people subscribe to, how many of them are paid. So we do think that there is a large addressable market for the stand-alone streaming product.
It’s early days, and we’ve just hired – we keep talking about our new Chief Product and Technology Officer, but he’s been on board from the beginning of 2022. He’s very focused on certain foundational aspects of our business from a technology and product, but also very focused on the content side.
So I think we’re doing a better job getting people into the app. I think that for those who have used it, there’s certainly a lot more to do. I think we’ve got rich content that needs to be unlocked in on-demand and certainly some of those things will need probably more right to do.
But yeah, we – some of those things will need probably more right to do. But yeah, we’ve been pleased. I mean those – the people that have a satellite subscription seem to double their usage. We’ve said this before, war ph streamers, stand-alone streamer again. It’s a different product. It’s a different market where it’s younger, it’s more diverse. I think we need to really continue to invest and refine our content strategy to serve a different market of consumers.
But we’re pleased. Again, it’s early days. It’s a small percentage of our self-pay subscriber base, certainly hope in the future will be a larger contributor. So we’re there. We’ve got a lot of work to do, but I think we’ve got the people and the product road map in place to accomplish it.
Unidentified Analyst
As you mentioned that the market and the target market that self-paid service or the streaming only services is going after. SiriusXM in the satellite side has built an incredible business model around the new and used car market and using that as the target addressable market to go after subscribers. I was curious, at this point, do you have an idea of what that equivalent market could be on the streaming only side of the business to market and give trials into the paid and streaming only subs?
Sean Sullivan
Yes. I mean, again, I’d say in the United States, there’s obviously a large addressable market. We’ve done customer segmentation analysis in terms of the satellite. I think there are younger and diverse audiences that are probably equal to the size of the addressable market of our satellite business. I think Jennifer talked a little bit about this in the last couple of weeks.
So we think there’s a great opportunity. But again, it’s a long road, churn profile is probably very different. The price point is very different from the traditional satellite. So – but we do think it’s certainly a worthy investment to continue to grow, drive growth in the business. And also, we’ve got what we think is a unique content offering that is differentiated. And therefore, we think there is a market on a stand-alone basis for people to subscribe to it relative to what else is in the marketplace.
Unidentified Analyst
In the past, I think you mentioned that the margin profile of streaming only is similar to the satellite service. I was curious as you think about your business plan over the long term for streaming only, is the business plan designed around that margin profile remaining similar to what it is today? Or are you willing perhaps maybe to sacrifice margin to expand the TAM that the streaming-only service can sell into a marketing – addressable marketing is a big component of the cost structure?
Sean Sullivan
Yeah. No. We’ve talked a lot about the margin profile. We’ve talked about the fact on the streaming side, We don’t have to pay SAC. We don’t have the rev share with the OEM partners. We’re dealing with, obviously, the traditional distribution platforms where you would distribute a streaming product.
So I think we’re looking at the LTVs, how we spend against those in terms of making sure they’re economically viable. But we want to grow the subscription revenue. We think that the margin profile its not too similar to the satellite side, and we think we can do that.
Again, there are investments that are required to get there. So possibly in the near term, you’ll see some investment in margin pressure. But over the long term, I think our objective is to have a – not a materially similar margin profile on the digital platform.
Unidentified Analyst
Understood. I want to switch in and talk about Pandora for a few minutes. On your second quarter call, I think Jennifer mentioned that the advertising business, your advertising business, was immune to the macro trends that are being felt industry-wide. Could you update us on some of the trends that you’re seeing in the advertising market through the third quarter?
Sean Sullivan
Yes. The – we’ve seen growth rates from third-party estimates and certainly have been pull back. I think everybody still continues to feel that there is growth in ’22, maybe less so than where we started the year. We have been pleased with how SXM Media has performed. There is certainly certain categories that are under pressure, not surprisingly, in terms of auto, in terms of some consumer packaged goods companies, et cetera.
But all in all, we’re confident of where it’s at. We’ve got a great sales team. We’ve got, I think, a unique platform opportunity to sell. I think we’re taking share. There’s a lot of demand. So overall, I think we’re pleased. I mean, we’re certainly watching the market. Third quarter and fourth quarter is traditionally obviously a big advertising quarter, hopeful that we’ll have some tailwind with political. But all in all, I think that’s – as I said earlier, subscription is certainly more predictable than the advertising as we think about Q3 and into the back half of the year, finishing out the year.
Unidentified Analyst
And then maybe just to drill down on this a little bit more. Where do you think we are in the process of seeing perhaps more of cyclical end there a little bit more? Where do you think we are in the process of seeing perhaps more of the cyclical end markets in terms of them pulling back on advertising spend? Are we through sort of the later innings of that? Or is there still – is there still spend to come to be caught in this – that margin…
Sean Sullivan
It’s hard to say. I think there’s just so many factors around the environment in terms of recession with – are we in recession, are we entering a recession, what have you, I think most of the pullback has probably occurred, certainly people are more cautious probably making decisions closer to the end in terms of either cancellations or pushing things or deferring things.
At the same time, I think SiriusXM sits in a unique position, right, because we have added a fair amount of inventory in terms of our podcast and off platform investments. The team has done a very astute job in terms of managing the on-platform monetization in terms of RPM.
So I don’t know that I would define ourselves as the market. I think the podcast and we can talk about it more, is still in kind of the infancy stage. So I think there’s still a lot of opportunity to transition spend from other avenues and whether that’s video or other – or terrestrial radio. I think there is still opportunities to grab share as people get more educated as technology ad tech improves.
So in terms of the market comment, we feel okay where we’re at. And I think the market – I don’t want to say it’s stabilized, but certainly, there is some uncertainty going into the fourth quarter. But we reiterate where we’re at for the year in terms of financial guidance.
Unidentified Analyst
Got it. You mentioned some of the off-platform and podcasting opportunities ahead of you – first through the lens of SXM Media. But as SXM Media has emerged as a leader in digital audio advertising. I think your network has 150 million listeners across SiriusXM, Pandora, SoundCloud, your podcasting business, all platforms, all of which you host on the advertising side. What’s the overarching strategy for growing your third-party sales rep business, both from the supply side and the demand side?
Sean Sullivan
Yeah, I think simply put, it’s scale and it’s diversification. So the beauty of pulling together a combined ad sales force in having a portfolio to sell on platform Pandora to sell podcast, to sell a satellite service, I think, gives us an opportunity to sell, I think, what is a differentiated platform to advertisers, to agencies, et cetera. So that’s the strategy.
I think there’s a tremendous amount of growth in the podcast. I think it’s still kind of in its infancy, nascent stage, I think there’s more to do on the ad tech side in terms of programmatic advertising and automation. I think there are a lot of brand advertisers that still haven’t necessarily dove into the podcast side.
So I think the strategy to put the team together to bring a unified product with the scale of 150 million listeners has been a very positive market approach. And even with some of the listener trends on Pandora, I think we’ve been able to continue to grow advertising and we do that because I think we offer a differentiated product to an advertiser and to the agencies.
Unidentified Analyst
What do you think it will take to bring in some of these other ad verticals into segments like podcast, do you think it’s just time and recognition or building scale or them getting comfortable with the ad medium?
Sean Sullivan
Yeah. I think it’s all of the above. I think they got to get comfortable with the targeting capabilities. They’ve got to get comfortable with the brand safety and ensuring brand safety within certain podcast. I think we’re getting there. I think there’s third-party research and validation of impressions and downloads and listenership. But I think we’re getting there. It’s just – I think it’s just time, but it is all of the above.
Unidentified Analyst
What about on the third party ad rep side of the business and growing the supply and then the number of partners you have in that business? What verticals are still out there to capture and go after and bring on supply onto the platform?
Sean Sullivan
Good question. I think we – historically, on the podcast side, we have the relationship with SoundCloud. We really ship with NBC. On the podcast side, we went down a path of really being deep in the true crime area. We’ve gone deep into comedy with Team Coco and some of the other comedy brands we represent.
So I think that from a genre perspective, from a vertical perspective, I think we feel pleased with where we’re at. I don’t know that there are any obvious verticals that we want to add. We’ve done some things in sports. I think it’s all just supplemented augments what we’ve already done. Maybe there are verticals that we could tuck in within it.
But I don’t know that there are unmet verticals that we aren’t addressing currently, but we certainly are trying to be focused – unmet verticals that we aren’t addressing currently, but we certainly are trying to be focused and bring substance and substantial inventory to those target verticals that we’ve been talking about.
Unidentified Analyst
Who are you competing with on the third-party ad rep side of the business?
Sean Sullivan
We compete with everybody. I mean its – you see the deals that get announced, it’s Amazon, you know, at times its Apple, is iHeart. It’s across the board. I guess, what I would say about our podcast strategy that might be a little slightly differentiated in some of the ad rep deals that we do is – you know, are we keeping it – we want to monetize broadly, right? So from an ad rep business, we’re doing that for them, not only on a ad rep deal or SoundCloud or somebody, but for a podcast, right?
Others are taking it exclusive for themselves. They’re taking it potentially behind a paywall. But we’re here to serve creators. We’re here to help them broadly monetize to build their brands. It is curious that whether it’s video or audio, everybody is now moving into an ad-supported version of their product. With Pandora, we’ve been doing this for years. I think it’s the tech we have, the ability to maximize advertising monetization for a lot of these third-party people is a differentiator for us. And whether that’s AdsWizz or whether that’s Simplecast, I think this company has been in the place to do that well for third parties.
And certainly, we are competing with others. Sometimes there are strategic differences, sometimes it’s price, but all in all, pleased with how we’ve been able to grow the off-platform and the Android [ph] business.
Unidentified Analyst
And last question on this. Where do you think the margin profile for the off platform and podcasting businesses can go over the medium to long term?
Sean Sullivan
Yeah. I think in the mid tern you’re going to see some pressure as we onboard these things over time. And again, my goal and hope is that it’s dissimilar to where the segment is today. It is a competitive marketplace. There is a pretty – you know, at times frothy competition in terms of people’s appetite for some of these brands and some of these products. So we talked about early days of monetization, foot pressure [ph] long-term expectation that we’re obviously making money and delivering a commensurate margin.
Unidentified Analyst
A little bit more about your content strategy. Historically, you’ve been a clear leader in premium audio content expand a number of different genres. And the market is getting more competitive. So maybe at this point in time, could you describe your content strategy and some of the initiatives you’re taking to make sure you maintain that competitive advantage and what parts of the market and if there are any that you want to dig deeper into and expand more into?
Sean Sullivan
Yes. And maybe we’ll focus – I’ll focus my comments on the SiriusXM. I know we talked a lot about podcast platform and we’ve done some things on Pandora to a lesser degree. But from a SiriusXM, we’re trying to find the right balance of exclusive and non-exclusive content that spans you know, not only music, but sports, news, talk and general entertainment, right?
I think that we are hopefully, in my view, the destination for live sports programming. So I think we – with the deals we’ve done in the audio side with the NFL of the most recent announcement, I think, positions us well in the sports category. We continue to look for differentiated exclusive content across the news, the talk and the entertainment.
So the content strategy is where it is. I mean, it’s how do we continue to super serve the loyal customers we have on SiriusXM at the same time, how do we start to shift to address these markets, not only in the streaming but on the satellite, in car how do we find diverse content that really resonates with younger consumers, right, to address some of the generational shifts that you see in the business.
So TikTok was a good example of that. The stats have been very strong, engagement, listenership, et cetera. I think we need to do more and more of that to actually bring. So I think the content strategy isn’t changing. It’s more how can we continue to find things that really resonate with younger, more diverse viewers. And I think Scott and the team continue to do that.
Unidentified Analyst
Do you have any sense of how the listenership breaks down maybe between sports, music, comedy, live news, et cetera?
Sean Sullivan
Yeah. I mean, we have it from the perspective of the streaming side. We have 360L and we get the IP when we’re looking at making content investments or renewal decisions. We’re certainly looking at passion studies. We’re looking at the ranking of how many viewers, the amount of viewership will they cancel, et cetera.
So I don’t have the specific stats for you in terms of all with x percent of the, et cetera. So I don’t have the specific stats for you in terms of all with percent x percent of this, x percent of that. But we obviously have a significant amount of music content. At the same time, we’re trying to diversify and make sure that we’ve got a lot of great live news talk, and we look at that when we renew, we look at that when we acquire and invest.
And again, we bring a unique proposition, right? Take Conan O’Brien, Team Coco. We can now bring a channel to the satellite side. So there’s amazing benefits in terms of this multi-platform approach from a contact strategy. I think when it works well for us is when we can actually work with a content creator and have it be dispersed across all of our platforms, not just via podcast deal, not just be a linear channel deal.
Unidentified Analyst
Got it. Programming content expenses have trended higher as a percentage of revenue over the last few years. I was curious you’ve given all these investments and the focus you’re making on content. Is that something investors should expect to continue in the next several years? Or is there a point at which you think that that plateaus or stabilizes or reps gain operating leverage on content cost?
Sean Sullivan
Yeah. If you’re talking about content costs, exclusive of rev share and royalties that we pay for music and podcasts. I think that, that is a less material number in terms of the overall. I think its growth has gone up on a percentage basis may seem high, but I think in terms of a dollar basis, not that material.
So I think that we are a content company. I think our ability to maintain the premium price and the value proposition requires us to continue invest in content. So we need to find ways to free up dollars to invest more. So I don’t expect or don’t plan to depress margins as a result of content investment. Certainly, we define ways to continue to enhance the content offering, not only to support the value proposition, the pricing today and maintain low churn, but at the same time, how do we attract new subscribers and continue to drive growth.
Unidentified Analyst
You mentioned your new head of content – or excuse me, of product and technology earlier. Could you talk a little bit more about the development pipeline for new products and capabilities that you’re looking to roll out over the next few years?
Sean Sullivan
Yeah. I know about years, but I guess what I would say is that very focused on, as I said earlier, foundational items. So when you think about agility and flexibility in pricing and packaging, I think identity in terms of how you interact with the consumer, I think in terms of how you bill and change prices and packaging. I think we need to be more agile, more flexible to be able to do that.
So I think we’re focused on some foundational things that I think will pay dividends in the long term. I think we’re very focused on the streaming side, and there’s a very clear road map on that. And we’re hopeful that improvements to the streaming product will start to roll out towards the end of this year.
360L in the car in terms of personalization features and functionality, again, area for improvement for sure. So those are really the key focus areas. We’ve got a head of SiriusXM. We’ve got a head of Pandora under his team. So I think there’s a lot of opportunity just to shore up some of the things that need to be attended to.
Unidentified Analyst
Your guidance for 2022 adjusted EBITDA implies margins will be approximately 31% this year, which is modestly below where the company has trended over the last couple of years. I’m curious if you could maybe break out the puts and takes of margins this year. And I guess the question is, what will it take to see margin expansion again in 2023 if that’s something that’s within the scope?
Sean Sullivan
Yeah. I think the biggest factor in 2022 has been our podcast strategy. So we’ve made significant investments in some of these podcast relationships that as we onboard, it takes time to fully monetize and fully get the margin to a commensurate return. I think we’re making progress there, but that’s probably the biggest lever that’s impacting this year. So as we make improvements and as we enhance the attributes there, I think we’ll be back on track.
Unidentified Analyst
And you mentioned earlier, I think it was the first or second question, the cost saving measures. I think you outlined this as well on your second quarter call. How should investors think about the magnitude of potential cost adjustments or cost efficiencies that you can take out of the business again for macro?
Sean Sullivan
Yeah. I think that in 2022, in the near term, it’s really prioritization, right? It’s prioritization of how we onboard. You know, labor market continues to be still very challenging. So we’re prioritizing roles. We’ve brought on a new head of people and culture. We’ve been ahead of new product and technology. So there is a number of things happening there.
So certainly prioritizing headcount I talked about the facility. And then just addressing discretionary prioritizing headcount, I talked about the facility and then just addressing discretionary spend generally and just being mindful of marketplace, the potential volatility and uncertainty in the back half of the year.
So I wouldn’t view it as – I’m not announcing a huge cost-saving measure. I think we’re just being very mindful of the macro environment. We’re being very cognizant of our financial performance. And I think we’re just really trying to be extra cautious about how we spend and invest.
Unidentified Analyst
Got it. CapEx is on pace to remain a little elevated this year, driven primarily by the satellite replacement program. How should we think about the cadence of satellite CapEx over the next few years? I think as you finished a replacement for SXM-7 and I think the cycles for 9 and 10 start up pretty shortly as well?
Sean Sullivan
Yeah. So 9 and 10 is already underway, actually. I think the SXM-9 is scheduled sometime in late ’24, if I’m not mistaken. So 9 and 10 are well underway. We need to evaluate the low band and what investment looks like beyond 10. I think the benefit of very low churn you know, has us having significantly more subscribers on the low band and probably had been forecasted a number of years ago. So we need to evaluate how to service those customers and the economic portion of it. So that’s – so 9 and 10 spoken for nothing more to say today about post 10.
Unidentified Analyst
So it sounds like, if there was a point in the future where satellite CapEx could go to zero would still be determined if that’s correct decision for after 10 or at some point in 5 years, 10 years from now?
Sean Sullivan
I don’t know it’s 5 or 10 years from now, but we’ve got millions of subscribers in the low band still. We need to evaluate the economic portrait, I guess, with launch costs being lower. Obviously, it’s not an indicative [ph] amount of money to build and launch a satellite, but there is an economic benefit. We’ve got to service those customers.
So have more to say, we’ll say it. But today, I think most people know that 9 and 10 in ’23 and ’24, you’re going to start to see the investment for those satellites come through on the CapEx side.
Unidentified Analyst
How about the non- satellite CapEx in the business? What do you think the need is over the next number of years? You mentioned the products, the investments in product development earlier, does that change the profile…
Sean Sullivan
I think the long-range scenario is still being updated. I think we’ve historically run – in the last you know, it was what, just shy of 300 million on the non-satellite CapEx. So we’ve got to evaluate that. I think there are ways to identify efficiencies. You know, now that we’ve got a combined product and IT organization, I think there should be efficiencies, but I think it’s too early to talk about the outer years.
Unidentified Analyst
Got it. Maybe we have a few minutes left, I want to discuss leveraging capital allocation. Over the last year, SiriusXM has refined its net leverage target, I think from three to four times net debt to adjusted EBITDA in the low to mid-3s. Can you talk a little bit about the decision to lower the target leverage range and why you feel low to mid-3s is more appropriate going forward?
Sean Sullivan
Sure. Yeah. I guess being here just under 2 years, I think that we were very – I was very prescriptive about 3 to 3.5 times, right? I think that the 4 was probably a legacy discussion that really isn’t relevant. I think it was more if you were to invest, would you take it to 4. So I think 3 to 3.5 times is appropriate for this business in light of our visibility and predictability of cash flows.
I think that we have articulated over and over again. I think, hopefully, we’ve got a very flexible capital allocation. I think the leverage is very appropriate. I think our capital structure is great in terms of maturities and where the cost of debt is. So I’m very pleased with that. So again, it’s 3 to 3.5 times.
Unidentified Analyst
So I think you’re just at the high end of that range right now. But at the same time, you expect to generate approximately $1.55 billion in free cash flow this year. How do you think about your capital allocation priorities for that excess cash and then ultimately, the excess liquidity, so the business will generate over the next few year?
Sean Sullivan
I mean no differently than I have historically. We need to make the appropriate investments in the business to drive long-term growth. We will be measured and disciplined in terms of M&A and finding things that will augment and advance our strategic imperatives. But I think those are smaller things, not bigger things.
And then we’ll look at dividends. We obviously made big moves in ’21 on the dividend side to bring it more in line with the S&P 500, did the special dividend. And then we have a grid and we have a view on value – did the special dividend. And then we have a grid and we have a view on value that indicates and predicates how we – how active we’ll be in the share repurchase program. So we have incredible flexibility. We have incredible optionality. I think we’ll pull those levers as our strategy or as the market and opportunities present themselves.
Unidentified Analyst
Do you expect share repurchases or dividends to be a larger part of that capital return strategy going forward? Or to your point, is it just dependent on where the share price is…
Sean Sullivan
Yes. I think it’s dependent on where, what our view on value is and what are the organic investments that are required in the business. So I don’t know that there’s a need to read too much into it. I think it is exactly as we talked about it. Hopefully, actions speak louder than words, but you know, that’s how we viewed it, that’s how we’ve adjudicated it. And going forward, I think you should expect a similar behavior.
Unidentified Analyst
Last one on this. What are you thoughts on implementing [ph] a formal variable dividend or share repurchase policy?
Sean Sullivan
I don’t have a view. I think it’s special when you say variable dividend, special dividend, I think special dividends are by their nature special. So I think that’s a – that would be a good problem to have, if we were at a point where we continue to drive significant EBITDA and significant free cash flow where our leverage continue to go down, we could evaluate special dividends.
But again, special dividends is special, it was onetime in nature. Let’s see how – I think we’ve got a lot of investment to make. We’ve got a competitive landscape to where we started for that – today’s conversation. I think there’s a lot of things to improve and really drive growth in the business, drive shareholder value. So I’ll leave it at that.
Unidentified Analyst
Makes sense. I’ll sneak one last one in on Liberty. So Liberty crossed the 80% ownership threshold late last year. What does that mean practically for SiriusXM shareholders? And what are the range of considerations that the board is focused on for if and when Liberty crosses 90% ownership?
Sean Sullivan
Yeah. I don’t think other than a tax sharing agreement, I don’t know that it practically means anything to us as a management team. We continue to execute. Liberty continues to be very supportive of our strategy, very supportive of the investments we’re making. So I don’t think that our allocation decisions are impacted at all, frankly, I know they’re not.
We’re running the business. They’re very supportive, as it relates to 90% you know that the special committee has that – the need to authorize anything that happens. So if and when we get to that point, the special committee revisited. I know Liberty and Greg has made some comments in recent conferences, but again, it’s really not my place to comment on it, what they plan to do or will do. I’ll leave my capital allocation priorities as the plan of record.
Unidentified Analyst
Sean, thanks very much for taking the time today.
Sean Sullivan
All right. Thank you.
Question-and-Answer Session
End of Q&A
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