Sirius XM Holdings Inc

NASDAQ:SIRI

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to SiriusXM's Fourth Quarter 2021 Financial and Operating Results Conference Call. Today's conference is being recorded. [Operator Instructions].

At this time, I would like to turn the conference over to Hooper Stevens, Senior Vice President, Investor Relations and Finance. Mr. Stevens, please go ahead.

[Hooper Stevens, VP, IR & Finance]

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 Witz, our Chief Executive Officer; and Sean Sullivan, our Chief Financial Officer. Scott Greenstein, our President and Chief Content Officer, will join Jennifer and Sean to take your questions.

I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based 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.

[Jennifer Witz, CEO & Director]

Thank you for joining today's call. SiriusXM turned in phenomenal 2021 financial results, added over 1 million SiriusXM self-pay subscribers for the tenth time in the past 11 years and made significant progress on all of our strategic objectives.

Sean 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 $0.25 per share, an 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 1/4 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 1 might listen. By including streaming in virtually every SiriusXM 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 doubled 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 and 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 SCTO and founder of BAMTech. Best of all, he is deeply passionate about our products and agreed 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 AdsWizz, a first-to-market listener identity solution offering market of new avenues to reach, target and connect with consumers at scale.

AudioID 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 muted 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, 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 Prime Junky and its entire AudioCuck network with ad rights to new podcasts coming shortly. Comedy favorite, Your Mom's House and its YMHStudios 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, Wolter, Entertainment Weekly, Time Magazine, The Atlantic and more.

The Ad Week podcast of the Year awards acknowledge 2 of our, shows people I mostly admire for best interview podcast and SiriusXM original Black Diamond, which highlights the history of the Negro league for best sports podcasts.

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 4 artist-curated takeover modes. With Baby Einstein, we created a wide variety of kid's music content. We brought back fighters radio on SiriusXM and launched a limited-run channel with Latin Superstar, Jay Balvin.

We debuted Abba Radio, 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 top culture, amplifying both emerging artists and music icons.

In December, we launched limited-run channels with Neliong 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, H.E.R., J. Cole and next week yet again with John Mayer in L.A.

Pandora launched a national multimedia brand campaign featuring long-time Pandora listener and enthusiast DJ Khalid, and we finished the year with 2 long-running annual artist Roundup, the Pandora 10 artists to watch for 2022 and the Pandora Top Thumb100, which Cardi B topped for the second year in a row.

SiriusXM also announced its future 5 artists for 2022, our predictions for which artists will break through across top RMB, country, hip-hop and rock genres. Year after year, our future 5 picks have proven to be well founded and spotlight artists that we were first to Champion. We also welcomed 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 mark key sports events as well as sports talk from trusted personalities found only on SiriusXM. We agreed to a multiyear extension with the PGA Tour and at a new show hosted by David 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 post season, 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 Kruszewski is hosting the 17th season of his show, basketball and beyond, as he coaches his final season. Coach is part of a sports programming lineup that our subs love and 1 that generates buzz every week with exclusive shows like the podcast hosted by Tom Brady, Larry Fitzgerald and Jim Gray, Brett Fares, 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 materials. Such content asset purchases, where they make sense, are 1 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 AdsWizz 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, 1 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 2 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.

[Sean Sullivan, EVP & CFO]

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 noncash 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 SMX 10. In 2021, this recovery drove conversion of approximately 2/3 of our adjusted EBITDA into free cash flow, a ratio that will drop modestly in 2022 as 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 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 segments. 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 picture, combined with our off-platform businesses such as AdsWizz, generated $348 million in ad revenue, an increase of 81% from 2020, benefited by organic growth in 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 2 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 increased and we normalize for 2021 onetime satellite insurance recovery.

We expect to add approximately 500,000 net new self-pay 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-pay subscriber growth will come in the second half of the year. Further, we believe price changes implemented in the fourth quarter, particularly to discount floor pricing, somewhat reduced 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 actions 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, in 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 3.1x net debt to EBITDA at year-end.

By that measure, pro forma for this dividend, we would have ended 2021 at 3.5x, 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.

[Operator]

[Operator Instructions]. We can now take our first question from James Ratcliffe of Evercore ISI.

[James Ratcliffe, Evercore ISI]

Two, if I could. First of all, you mentioned 3 million vehicles out there with 360L. Can you give us an idea of what your learning about usage of the SiriusXM service from those vehicles and how that's driving into engagement or monetization? And secondly, on the capital return, should we be thinking about this as sort of a catch-up to get sort of your targeted leverage or more of an advance on what you expect capital returns to be in 2022?

[Sean Sullivan, EVP & CFO]

Great. 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 3.5x as of the end of the year. We continue to have a flexible program. We continue to buy shares in the marketplace. You'll 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 -- we come into a new year, a new planning cycle, really strong confidence in the business, free cash flow generation. So at 3.5x, 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.

[Jennifer Witz, CEO & Director]

And James, just on your first question on 360L. So we actually ended with just about 4 million vehicles on the road and -- over 25% of our trial starts for 360L capable in the fourth quarter. So what we're seeing so far is we have so much more data than we've ever had in the past. And so 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 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.

[Operator]

And we can now take our next question from Bryan Kraft with Deutsche Bank.

[Bryan Kraft, Deutsche Bank]

I just wanted to ask you about the net add guidance. Given the number of trials in the funnel today, adding 500,000 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 you're seeing on the OEM side and how you expect to add the 500,000 this year?

[Jennifer Witz, CEO & Director]

Yes. It's -- look, we've been watching the third-party estimates for auto sales really closely. There have been revisions down over the last month. A lot of that, I think, is attributed to the relatively soft auto sales in December under 13 million. And we fully expect that 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 issue start to alleviate a bit in the second half. So our guidance is tied into the third-party estimates. And of course, we're being cautious. I mean the way the trial funnel works, as you know, is if we get 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 going into 2023.

On the used car side, we see some of the same phenomenon where there are inventory constraints, 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 500,000 net adds. Of course, we're watching non-pay churn really closely in an inflationary environment and how that tracks to consumer spending, which is very much a factor in nonpaid churn we would expect and you saw our churn rate in the fourth quarter at 1.7%. We would expect something like that or more consistent in the 1.7%, 1.8% range, which is similar to what we saw pre pandemic.

[Operator]

We can now take our next question from Ben Swinburne of Morgan Stanley.

[Benjamin Swinburne, Morgan Stanley]

Maybe just a little bit more detail on the expectations built into guidance. I don't think you gave it Jennifer or Sean, but what do you expect in terms of install rate for auto sales in '22? And 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, including at the Investor Day, the Liberty Day last year. Anything you can share with us Jennifer on sort of KPIs or attributes of that group? And help us think about how you are expanding the TAM and what the opportunity is ahead as you guys really lean in there?

[Jennifer Witz, CEO & Director]

Yes. I'll start with installs and conversion rates. So we talked a little bit about auto sales and our expectations there. In terms of pen rate, we ended the year at 2%. I would expect that to stay relatively consistent or tick up a bit this year. I think we're really well positioned on the penetration rate there. On 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, things have been pretty consistent. We're in about the mid-30s on the new car side and of the low to mid-20s on the used car side. It's a function, obviously, of where we are on pen rates and continue increases in penetration into lower trim models, which typically tied to younger generations and lower income levels. So that's very consistent with what we've seen in the past, and we -- as we talked about a little bit earlier, we are focused on using 360L 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 rates. So it's really about improving the awareness and usage of the features.

On the used car side, 1 of the biggest thing we're focused on is making sure the radio is active when customers get into the car because -- and they can experience our product, very seamlessly, very consistent with our ease of use in the car. And so we have many programs focused on driving that on the used car side.

So digital subs, today, it's not a meaningful part of our overall subscriber base. But I would expect going into this year, certainly in quarters where satellite net adds are lower that you may see a higher proportion of our subs coming from the digital side and the metrics are. Look, we have 32 million self-pay subscribers, right? We are already B2C. 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, the great features and functionality through our apps in Car Play or Android Auto or anywhere else for that matter. And the improvements that we make there on the digital side will eventually come into 360L as well.

[Operator]

We can now take our next question from Jessica Reif Ehrlich of Bank of America Securities.

[Jessica Reif Ehrlich, BofA]

I have a couple of questions. First on digital advertising -- digital audio advertising, could you give us some more color on audio ID and what that give you some color on what that gives it that you didn't have before?

[Jennifer Witz, CEO & Director]

Sure. So we just announced the launch of Audio ID, and there's certainly a need in the market, given the constraints around data on customers. And 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 not only ourselves, but also other publishers where we're selling their inventory. So it's just -- instead of matching just an e-mail or a mobile device ID, on those IDs alone that we're building this broader inferred understanding based on all the data we have across our platforms.

[Jessica Reif Ehrlich, BofA]

And since this is such an important part of growth, I mean, you highlighted both of you, you and Sean highlighted the momentum you have in advertising, do you have all the necessary components for this area? Or do you think you need more in digital audio advertising?

[Jennifer Witz, CEO & Director]

I think our ad tech stack is very strong with AdsWizz and the Simplecast capabilities we added as well on the podcast side. Our ad sales force is very strong, and we have a number of other value-added capabilities, whether it's studio resonate to help advertisers, create compelling, creative in the audio advertising side and research and now enhance targeting through audio ID.

We have a lot of the capabilities we need. Certainly, I'm 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.

[Jessica Reif Ehrlich, BofA]

And then just 1 more on podcasting, like how will the content change in terms of like however you measure it, like the number of episodes or the types of content going into -- because it's been such a big driver and such a big focus. So from '21 going into '22, can you just talk about positioning and how we should think about the growth there?

[Jennifer Witz, CEO & Director]

Scott, you want to start with that?

[Scott Greenstein, President and Chief Content Officer]

Sure. So we're really pleased with Stitcher where we're at right now. The organization is really together now, and as Jennifer mentioned, with prime junky and a new show coming from which is going to be an exciting podcast. We feel we have a couple of things going into '22. We sort of know what we are and we know what we want. So there's an ad sales bucket. There's 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. There's categories that are emerging. Some are new like True Crime for podcasting they've been around, but they're going to be audio performers, I think, on the satellite side as well.

The other thing I'm excited about, we've isolated where comedy and sports and some other things are very big in podcasting, and we're going to continue to drive that. But what we like most about that is it complements, both from a content and a marketing and an advertising point of view, our existing assets that are quite strong, and obviously, in sports and in comedy. 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 to podcast producers because they're going to realize the marketing down that will come with signing with Stitcher 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 base is pretty set in that way, and we're fortunate to have some of those. But that means everything else is wide open. So as you know, there's a huge number of big names, emerging talent, brands that have not entered the podcast space and would be the equivalent of the billboard top 10, not moving much over time. It's just going to move, and we think we're perfectly positioned with our 3-pronged approach in being able to grow the podcasting. But we'll be disciplined as always, and we're going to try to look where we can to have that discipline apply to areas that complement our other 2 platforms.

[Operator]

And we can now take our next question from Kutgun Maral, RBC Capital Markets.

[Kutgun Maral, RBC Capital Markets]

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 on than you've seen for a while now, whether it's the ramp spend on SXM 9 and 10, cash taxes or working capital. I guess, thinking longer term, is it fair to assume 2022 is a trough for free cash flow and that we can start to perhaps see more meaningful growth in 2023 onwards? Or is it too early to tell at this point? I know you're not going to provide multiyear guidance right now, but maybe if 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 second, you ended the year at 3.5x net leverage. With the Board's 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?

[Sean Sullivan, EVP & CFO]

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. You'll see in the K that our NOL and tax credit position will be fully utilized in 2022. So the biggest headwind for us in '22 from a 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 non-sat CapEx shouldn't be materially different from what we experienced in '21 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 can 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 the cash taxes.

I absolutely feel this business continue to 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 '22 should be a trough. But again, keep in mind that we continue to invest for growth in this business, we're making the proper investments in technology and product and content across the board. So again, I'll hesitate to go beyond 2022. But again, lots of confidence in our ability to grow free cash flow as some of these items normalize.

As it relates to leverage, again, we've talked about low to mid-3s. The special dividend puts us at a pro forma 3.5x. Obviously, the Board was approved that and has an incredible degree of confidence in the business, the team. But, again, I'm not going to sit here. We're not raising our indications. I think I said we intend to operate in the mid-3s. So I guess that's where we're at today. We'll certainly be opportunistic as we always have been, whether it's organic investment, whether it's an inorganic opportunity, but 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 what we are comfortable operating at given the demands on our free cash flow and capital allocation.

[Operator]

We can now take our next question from Sebastiano Petti of JPMorgan.

[Sebastiano Petti, JPMorgan Chase & Co.]

I just wanted to follow up on the CapEx comments, Sean. I think in the past, we kind of talked about the baseline being about 300 for 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, it based upon your comments, is it fair to say that between the launch and early '21 and maybe some late year spend at those -- the satellite-related portion of that kind of is equivalent year-on-year. I mean should we expect satellite spend? Like is it 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? And the decline in ad-supported MAU seems to be accelerating. What's going on there? And do you expect on-platform revenue to grow in 2022 and beyond?

[Sean Sullivan, EVP & CFO]

Yes, 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, consistent level of spending. We are in the build phase of SXM 9 and 10. I think the first launch for 9 is 2024. So I think I'll let the guide stand for itself for 2022, and we can certainly revisit at a later date what to expect for '23 and '24.

[Jennifer Witz, CEO & Director]

Yes. And on the Pandora Side, Sebastian, we have seen continued declines in MAUs. Hours are not declining as quickly, which is more a function and a driver of the ad revenue. The mix is shifting to more loyal customers, which have longer listening hours. And I certainly hope you'll see us make some meaningful changes to the apps this year. That's our expectation. But advertising growth 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, I think we were up 4% year-over-year. If the fourth quarter is -- 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 helps us continue to grow on the app platform side and podcasting and even in the SiriusXM broadcast side of the business, where selling under SXM Media enables us to provide advertisers with these very complete solutions across all forms of audio. So I feel good about the continued growth in our ad revenue.

[Operator]

We will now take our next and final question from Steven Cahall of Wells Fargo.

[Steven Cahall, Wells Fargo Securities]

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. There's 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 or 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 360L product that was powered by Pandora with the custom channels, just wondering if you could just expand on that a little bit. Is that a Pandora subscriber in a new car? Or is that just a 360L functionality of a SiriusXM 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 SiriusXM. So I'm just wondering how you're thinking about that evolution over time?

[Jennifer Witz, CEO & Director]

Sure. So on used cars, it's a function of clearly the sales levels and the funnel is, and our penetration rate there, which is just governed by how quickly the base turns over and then our ability to find those transactions ideally at point of sale. And you mentioned some of the used car programs. We have most of the franchise dealers signed up so that we get information when a customer buys a car -- a 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 mentioned 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 in online dealerships or car sales and hope to have more programs launched there as well. So it's, again, the sales, the pen rate, our ability to get the new buyers of used cars on the trials and then converting them through that drives the overall funnel.

The funnel is still pretty evenly split between new car and used car trial starts, and 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 360L and powered by Pandora. So we have this capability today on the apps where if you are a customer of our platinum plan at SiriusXM, you get ad-free Pandora stations in our app. And we introduced this actually probably at least a year ago, maybe more in And it is a really powerful feature for those in the car because it's a really easy way, again, in the interface in the car to be able to set up an artist-based station with the Pandora functionality.

We -- going forward, could this become an opportunity to get Pandora subscriptions? This is not a Pandora subscription. It is included within the SiriusXM subscription. But going forward, we certainly could look at those opportunities, and we will work with our auto partners to see what might make sense there.

[Hooper Stevens, VP, IR & Finance]

Thanks, Steve. Thanks, everybody, for participating today. We'll speak to you soon.