Sirius XM Holdings Inc. (NASDAQ:SIRI) Bank of America Media, Communications & Entertainment Conference September 14, 2023 10:30 AM ET

Company Participants

Jennifer Witz - CEO

Conference Call Participants

Jessica Reif Ehrlich - Bank of America

Jessica Reif Ehrlich

It's a pleasure to welcome Jennifer Witz back, CEO of Sirius. So welcome. Great to see you in person.

Jennifer Witz

Thanks, Jessica, always nice to be here.

Jessica Reif Ehrlich

Thank you. So Jennifer, you remain focused on driving three pillars of growth for Sirius; first, continuing Sirius's strong in-vehicle presence; second, increasing usage and subscriptions outside of the vehicle; and finally, driving growth through your extensive advertising platform. What do you consider the biggest growth driver over the next, let's say, three to five years?

Jennifer Witz

I really believe we have opportunities in all three of these areas. So like you said, our in-car subscription business, our streaming business, both in and out of the car, supporting subscriptions at both areas and through our ad platform. And increasingly once we build this new platform, I think we have more time to talk about that, that is going to enable us to allow each of these to reinforce one another in even more meaningful ways. So I believe there'll be growth across all three there. So there, just as an example, in terms of the platform we're building, we're going to be able to make it much easier for our in-car subscribers to carry their listening forward into streaming devices and vice versa in a very seamless way. And so ultimately I think it's not going to be about streaming subscribers or in-car subscribers, but really just about subscribers because we're pretty indifferent as to how they listen or where they listen. But what we're building is going to definitely improve our ability to drive growth in those areas. And then on the ad platform, similarly, what we're doing for Sirius XM, we’ll increase our digital MAUs, if you will both in the car through 360L and over streaming devices, that'll give us a lot more data on what customers are doing and listening to and provide us a lot more targeting capabilities, which will enhance our ad business as well.

So on top of I think what the growth opportunities are in the core business segments, we also have a tailwind in free cash flow beyond that. So incrementally in terms of improving working capital, improving cash taxes over time and also, as we've talked about our CapEx cycle, we're in kind of the height of that with the build out of these four satellites and we'll be through that in a few years and we'll have several years after that of zero satellite CapEx. So just great tailwinds on the free cash flow side on top of the opportunities in the core business that will drive better free cash flow generation in the years to come improve free cash flow conversion and better yield.

Jessica Reif Ehrlich

That's great. Let's just get this one out of the way, but how would you like to see the structure between Liberty Sirius and Sirius handles? And can you give us any sense of timing and when you expect Liberty to deal with this issue?

Jennifer Witz

I would be surprised if you didn't ask. I think the first couple of transactions have been completed in terms of the Braves and Live Nation, and that would certainly seem to mean that Liberty can focus more on what might make sense for LSXM and SIRI. I've said this before, I think a simple structure makes more sense, I would think they agree. Certainly, just we've seen these dynamics in terms of the technical impacts on our stock that are driven by the sort of complicated corporate structure that we have. But I have no particular insights on the timing. We have a great relationship, I think, as you know with Liberty on the board and just we have a very strong board overall and a very strong special committee who will be able to evaluate through whatever comes forward. And I just say, as I typically do that, we remain focused and vast majority of our time as a management team is on how do we profitably grow the business.

Jessica Reif Ehrlich

So I'm going to quote you, because you've said that you've been able to, this is a quote. You'll be able to attain continued improvement in subscriber performance and a positive back half of the year. What gives you the confidence that you'll achieve positive self-pay net adds in the second half of '23? And can you give us any update on third quarter self-pay and trial starts?

Jennifer Witz

I mean, I'm not going to provide any specific guidance on the quarters, but I continue to believe that we will show progress on our self-pay net adds each quarter, meaning that the third quarter would be better than the second and the fourth quarter would be better than the third. And then I also believe that we'll be slightly positive in the second half, and there's still a fair amount of variability. Obviously, as we get through September, the trials are pretty much locked. So the fourth quarter, I would say, the sort of biggest uncertainty is vehicle related churn and that's just a function of how strong is the market for auto sales, which ultimately is good for the setup going into next year and the growing of the funnel. But it has the near term impact on churn in the fourth quarter, and so that's the thing that we can't really navigate. But again, continued progression throughout the year, I still feel very confident about that.

Jessica Reif Ehrlich

And what do you see as the greatest risk to Sirius generating sustained subscriber growth on a long term basis?

Jennifer Witz

Look, I think ultimately, we have to keep delivering value to our subscribers, right? We're a premium price product, we provide an exceptional bundle of content across many different genres and our focus on how do we continue -- is how do we continue to drive value there. Future subscriber growth is going to be certainly tied to like we talked about the auto funnel and how does that build over time. But then on the other side of the business and really supporting all parts of the subscription business is the launch of this new platform, which is really the next generation of SiriusXM and will enhance our capabilities to provide better value to subscribers, because they will be able to find the great content we have in much easier ways. And hopefully we'll have a chance to talk more about that.

Jessica Reif Ehrlich

You've raised your financial guidance a couple of times this year. What gives you that confidence? I mean, it's really kind of turbulent times but you seem pretty confident. What gives you the confidence that you will attain this financial guidance?

Jennifer Witz

We've held our revenue guidance in part because of the volatility in the ad market. I think going into the year we felt pretty strongly that the second half would start to materialize in better year over year trends. There was a general feeling across the industry now we're seeing that probably materialize more in 2024. So for this year, I would expect ad revenue to largely be flat year-over-year, which really means that, you know, the guidance is approximately 9 billion but that sort of outcome on ad revenue probably really drives whether or not we're slightly below or we're at the 9 billion in total revenue. And then on EBITDA, we increased our guidance once and I think that, so we're at 2.75 billion, that has a lot to do with the cost transformation work that we've put in place. And we're just having better visibility into how that's materializing in the P&L, the various expense line items this year. And then on cash flow, we've increased it twice, we're now at 1.15 billion. And you know, I spoke about this a little bit before, but improving working capital, obviously EBITDA rolling through, but improving working capital and lower expected cash taxes helps give us a lot more confidence in the cash flow guidance we have.

Jessica Reif Ehrlich

So let's talk about advertising a little bit since you're not expecting it to really improve until next year. What's going on in the current ad market, can you give us any color on like what you're seeing in terms of cancellations or categories?

Jennifer Witz

Yes, there haven't been that many cancellations, but I think advertisers are slow to book. So we have seen this trend, which is, you know, one of the things that creates a bit more uncertainty in terms of how the year is going to shape up is that brands are coming in, they have budgets, they're willing to spend, but they're tending to wait until later to see what's materializing on the consumer front especially. And so we see strong from momentum on the travel and tourism side on restaurants, QSR and on CPG. And then there's traditionally but just over the last year we've seen kind of some downward pressure from financial services, healthcare. Of course, political year over year is down with no election. We'd expect that to pick up next year. And then a bit of uncertainty obviously around entertainment spend just with the strikes in place and then what could happen on the auto side. But I really like our position here. We've grown our programmatic tools. We can take a lot of close in buys. And we've got a great set of assets across the board with the different platforms we have.

Jessica Reif Ehrlich

So I mean, everyone says, the churn, it comes up all the time on your calls, but it's just incredible how you've managed churn and how low it is. Second quarter was roughly 1.5%. What has been the most significant driver of your like really incredible churn results over the last few quarters?

Jennifer Witz

It really comes back to value, right, and we think we have a really unique value proposition with the set of content that we have. And we keep reinforcing that with new content, whether it's new channels, new formats, new talent or hosts on the platform. And we do continue to see -- it's a slow march, but we do continue to see improvements in our in-car subscribers streaming outside of the car. We definitely see better retention as a result of that. So that's reinforced, improved churn and the dynamics are really -- we have not seen a lot of concerns. We don't have a lot of concerns around involuntary and entry rates there. We watch that really closely in terms of a sign of the consumer health, voluntary, we talked about in terms of value and then vehicle related is sort of the big unknown in terms of how that shapes up with the growing auto funnel.

Jessica Reif Ehrlich

Right. What are you hearing from your OEM partners or in auto production and car sales moving forward, there's the risk of a strike, I guess, tonight…

Jennifer Witz

Yes, tonight…

Jessica Reif Ehrlich

So could you talk about how that would -- how you think that will impact you and anything you…

Jennifer Witz

Yes, it's hard to say how it's going to materialize. It sounds like it's going to be all three domestics, but probably targeted to specific plants and maybe it rolls out to something bigger. They seem to be closing the gap a bit on the negotiations. We've been through this before. Obviously with GM, it won't have a material impact on our business unless it's really prolonged. But we could see lower SAC this year, possibly lower promotional revenue. But next year is really when we'd see the impact, if anything, onto self-pay net adds. But in general, absent a strike, I think it's been progress on the automotive side. Clearly, this year the estimates for SAR without a striker and the low-15s and last year it was 13.8, so it has been growing and there's been sort of progress in terms of availability of inventories. Prices seem to be holding, there's a bit more on the incentive side coming out on new car. And then there's been growth on the used car side, which we really haven't seen as prices have dropped there. We've seen more used car sales, which helps with our funnel, because we're happy to have either. So it'll be interesting obviously to see how it shapes up over the next few months. But obviously we are very focused on, we'd love a healthy auto funnel and would love to get up to the 16 million, 16.5 million, 17 million to give us a tailwind going into next year.

Jessica Reif Ehrlich

So you kind of touched on a few times the new digital launch later on this year. Can you give us a better sense of timing of what the product will look like, what you're thinking in terms of pricing and obviously, how it would help subscriber growth? Because you said, you're indifferent or you -- it sounds like you expect subscribers to be on, like both in the car and out of the car?

Jennifer Witz

Yes. First, I'd say we have a really strong foundation on which to grow and to build this platform. And again, it's really about how do we continue to enhance the value of our subscriptions. And we've got this tremendously valuable set of content that really speaks to every audio genre, music, news, talk, sports, entertainment, comedy, we have live on demand, we have exclusive, non-exclusive. And it's just been -- I think the biggest gap we've found is being able to get consumers into the content they love. Obviously in the car it's been very much about turn the dial or hear the on-air promotion or get the email and then go find the content. But now we're in the process of building the next generation SiriusXM platform and that's going to give us a tremendous amount of capabilities to personalise these journeys across marketing and in the product. So in terms of the content marketing to bring consumers into the funnel to sign up for trials or in terms of our direct marketing email push, all those other channels, or even just in the product itself, in the car or outside of the car, we'll have a lot more data driven personalization capabilities. So we can get consumers and listeners directly into the content they love using all of these capabilities we also have. So in later this year, we're planning for the first step in this launch and it'll be a new streaming experience. I will say it's a bit of a march and not a sprint. So this is a first of many steps.

We'll have more releases following that new set of consumer apps later this year, new releases following that, at least every quarter throughout next year and beyond. And then ultimately bringing these new capabilities in terms of better MarTech, commerce and identity through to the in-car business as well. So it starts with new streaming subscribers and having the benefit of this new platform, new consumer apps, which will drive improved experience for our listeners, both existing streaming subscribers, whether they're subscribers or they're listening in-car subscribers listening outside of the car where we have millions of customers already doing that or new subs that we're bringing into the funnel. And again, kind of continues through next year in updating our existing base of subscribers. And in terms of pricing, let me just say as we've looked at the opportunity to grow among our core and grow segments, there is clear opportunity to provide different packages at different price points and just be more flexible. And so the commerce platform we're building will allow us to do that and we think that's going to be key to attracting more of the growth segments, which we've talked about as being younger, more diverse, clearly looking at SiriusXM as a complimentary product to an on-demand music service that they already have. And because of the broad set of content that we have and it was particularly all the live content and non-music that we're a very attractive option for these growth segments, but we need a more flexible set of pricing and packages to appeal to them.

Jessica Reif Ehrlich

Can you provide any color on what the commerce part of it will be?

Jennifer Witz

Yes, there's -- so we're going to use a new -- I don't think we've talked about the vendor, but you know, we're using sales force for MarTech that's going to leverage the new commerce engine that we're building. And it's just going to -- today, it takes us in an inordinate long time to just get a rate increase in market. So things like that will be much simpler but it also allow us to test different pricing packages much more easily in market to get a better idea as to what the impact is on both growing the funnel and retaining subscribers and also< really just protecting from any downgrades in the base.

Jessica Reif Ehrlich

And so on the sub growth, like how much of the runway do you think will come from digital versus in vehicle as you go out?

Jennifer Witz

It's really going to be tough to delineate, I think, over time. But again, the platform is going to support both sides. So I would expect our in-car subscribers to increasingly stream, that brings more value to the subscription, improves retention. It also helps to the extent we can make it really easy as a new trialer gets into the car with their new, their new experience embedded in the car to just the click of something on the screen to download the app. So the sooner we get people streaming and experiencing all of our content in other places the better our conversion rates will be for in-car. And then we absolutely have a trajectory of growth ahead of us on the streaming only side as well with the launch later this year and supporting that throughout next year with new features and functionality. There's not -- I would say there's not like one hero feature but there's just all of these capabilities that we've built and in market to support, again, the sort of easier discovery, access, navigation and control of the service, which consumers are looking for.

Jessica Reif Ehrlich

And so can you walk us through the difference in economics from an in-vehicle sub versus a digital or if they're the same? Like, how is each sub different?

Jennifer Witz

They're a little different but overall, we have very strong margins on both sides. And yes, I guess the differences are our streaming product is priced a little lower. The ARPU there is lower than on the in-car side. The in-car side obviously includes both the integrated experience of the car and streaming. So we price that at a premium. And margins, percentage margins on the streaming side are a little higher given the licensing structure there, and we don't have OEM revenue share. So on the in-car side, obviously we have those things, which means a slightly lower percentage margin. But ultimately, margins are healthy across both. And the way we bring those subscribers in is very different. So our cost to acquire, for instance, we've a long history on the in-car side of driving down our SAC per install and our marketing cost per trial. On the streaming side, it's much more a function of performance media and content marketing. And that is really very -- we're very flexible in terms of how we put that marketing in place and our spend levels based on the relative difference between the lifetime value of a streaming subscriber and the cost to acquire. So we've been able to drive down our cost to acquire on the streaming side 20% year-over-year, and I would expect that to continue to get more efficient as we put these new capabilities in place.

Jessica Reif Ehrlich

And how did the listening habits differ from subscribers inside the car versus outside the car?

Jennifer Witz

It's interesting. We see -- and I think it depends on whether or not we have an in-car subscriber who's listening outside of the car, they'll carry forward a lot of the same listening habits and maybe somebody else in the household, in which case it would look a little different. On the streaming only subscription side, which is a smaller percentage of our streaming MAUs, we do see, because that audience tends to be a bit younger, we see them listening to more of the more popular music genres today, pop, hip hop, even country obviously is exploded this year and Latin as well and also more nonmusic listening outside of the car, which continues to help with the overall value proposition.

Jessica Reif Ehrlich

Interesting. And then I guess one more question on this, but where these digital subs coming from? Are they new to the audio ecosystem, are they listeners to radio…

Jennifer Witz

It's our streaming-only subscribers, it's not that they're really leaving other services to come to us. I can't reinforce enough that we are a very strong complement the on-demand music services. Consumers have always had music, it's just taken different forms of distribution over time. And today, the easiest way, obviously, to get all music is through another music streaming service. And so we view the set of content we have as very differentiated from a streaming service. So usually, we're a complement in that case and not actually bringing people over from an on-demand music service.

Jessica Reif Ehrlich

All right. So let's just talk a little bit about 360L. It's still relatively small. Can you give us any of the statistics on conversion rates relative to traditional equipment? Let's start with that.

Jennifer Witz

Yes, I feel really good about what we're seeing here with 360L conversion rates and how they are materializing relative to non-360L, and that has a lot to do with the features and functionality. And we really are, like you said, we're just getting started. We're growing the volumes over time in terms of the enabled vehicles out there, but the platform we’re building is going to enable us to even better serve recommendations. So recommendations is the single biggest feature, if you will. And I don't know that customers really see that as a feature, but it just enables us to help the consumer in the car, especially navigate all of this content because linear audio listening is still the vast majority of listening in the car and it's just because it's easy. So this is sort of the next generation of what's easy. What was easy in the past was turning the dial. And now what's easy is serving up these great recommendations. So we do see higher conversion rates with 360L, I think that will continue to improve as we roll out the base, but also we roll out these capabilities and we have more standardized features across 360L that we just launched with our first OEM AAOS, which gives us with Android Auto Operating System to be able to actually provide a more common set of features across the various OEM instances as we roll that out.

Jessica Reif Ehrlich

And at what point, how much scale do you need with 360L to -- before it begins to impact some of your decision making, whether it's content or marketing or anything else?

Jennifer Witz

I think we're already there because we have millions of streaming data points today. We have millions of subscriber streaming, whether they're doing that as an accompaniment to their in-car subscription or just their streaming subscription. And so we're using that data today to inform decisions about marketing, about content and that's only going to get better over time, obviously, as we grow 360L penetration and streaming engagement in general through the devices outside of the car, whether it's mobile or connected devices. So we're already seeing the benefits of some of that data today.

Jessica Reif Ehrlich

And then earlier when you were just talking about free cash flow and CapEx winding down on the satellites, what are your plans, will you consolidate Sirius and XM platforms?

Jennifer Witz

Look, this question about spectrum and how do we use it and satellites, I think we have a lot of optionality, bottom line, but we're really right now, heads-down focused on rolling out this new platform. And I think we'll learn a lot more that will inform whether or not we need to use the low band for more audio or we could repurpose it for something else entirely or we can just leverage the satellites that we're building. So the second two that we're building and will launch in '26 and '27 are to support the low band because we still have several million subscribers there. But ultimately, we could use those, repurpose those to extend the life of high band satellite fleet and just not use the low band. So I think the idea is that we have lots of options there. We're not prepared to make a decision yet, but we're going to have a lot more insights as we roll out this platform and gather more listening data and better understand what's the relative amount of IP delivery into the car versus satellite going forward?

Jessica Reif Ehrlich

Sirius has always been innovative in terms of content offerings. I mean you started with -- I mean, currently -- every time you come up with something new, I'm always surprised that there's room, but you've come up with amazing content, new genres, new channels, live events, et cetera. So what are some of the things that you guys are most excited about in the coming year or so?

Jennifer Witz

I really love some of the things we've done already this year. So we launched Carrie's Country with Carrie Underwood, and she was just in yesterday, bringing new content to the channel. And she's just a fantastic talent to have on the platform and great timing in the sense that country really just the -- listening country has risen massively again this year. So we're thrilled to have her and just done a lot of crossover work with heavy metal, too, which is always interesting. And then what we've done on the Latin side has really been helpful to attracting younger audiences and more listening to Latin music which is also exploding on the platform. We have a new state-of-the-art facility in Miami, bringing a lot of local talent in there. Many of the hip hop artists and Latin artists and the community are coming in, they see our studio as really a great way to get more exposure to different audiences. And so thrilled we have Hits Uno that just launched, which crosses many genres in Latin otherwise. And then just really across the board, TikTok has been a great success for us.

We're bringing a lot more discovery to younger audiences with that channel, a lot of great host there, count down, things like that, different format and new audiences for them. We just signed Megyn Kelly for an extension, multi years she did an interview with Trump yesterday, which I haven't even heard. I'm really excited that will be on the platform in just a couple of hours, I think. Sports has been -- just continues to be an exciting value prop for us. We really are the only place that you can get all these sports. And we love that we just kicked off the NFL season. We've got a lot of great content, shoulder content, of course, the games. And it's really great because you might be somewhere watching the game and you jump in your car and you just know you can get it on SiriusXM. So that's been great for our value props. Of course, Howard was back in the studio this week, interviewing Demi Lovato. So it's really every week, there is something new.

Jessica Reif Ehrlich

Yes, it's an incredible range of content. Okay. Let's move on to Pandora. How do you plan to grow or at least stabilize Pandora as active users and listening hours?

Jennifer Witz

We've seen a bit of a stem in the decline, not quite where we want to be, but over the last several months. And I'd say that has a lot to do with the efforts that we put in place in bringing more genre branded channels to the Pandora platform to improving the marketing around directly addressing whether it's performance media for recaptured listeners or CRM, better e-mail campaigns and otherwise, to bring customers back in. And we just had this really strong base of loyal listeners on Pandora. And considering our main focus has clearly been on SiriusXM, but once we roll through the iterations of launching this platform over the next year or so, we really can turn our attention to platform -- to Pandora and deciding if we're going to replatform it. That will give us a lot more optionality for Pandora today, but I really like where we are. I mean it's a profitable business for us, it's a key part of our advertising strategy, and we really like the progress that we've made so far, but more to come.

Jessica Reif Ehrlich

So can you continue to drive monetization improvement and advertising growth if you're unable to at least stabilize the listening base?

Jennifer Witz

We did have I'd say several years of improving monetization despite the listener declines before we sort of went into this downturn in the ad market. So I am hopeful that we'll be able to get back to that trend line with Pandora. But the real objective is to have -- so Pandora today represents -- the owned and operated platform represents probably about 60% of our ad revenue, and we continue to grow off-platform, SiriusXM, tech fees, marketplace revenues with podcast being really just a great tailwind there. So we see Pandora as a strategic asset, obviously, in our advertising offering. But there's been great progress. We took a strong position early on in podcasting. And I really think we have a great set of assets there to grow our ad business over time.

Jessica Reif Ehrlich

So on podcasting, what is your overall strategy related to podcasting?

Jennifer Witz

Look, we've been -- from the start, we focused on podcasting as a medium where the creators really want broad distribution, do you see some of the other parties kind of coming that way now. And we've just -- we've really delivered on offering a great set of podcast content and opportunities for advertisers. We have five of the top 20 podcasts relationships with all the networks behind them. So really a great podcast offering in virtually every top genre in podcasting. So our strategy, first and foremost, is to make sure that we have a broad set of offerings for our advertisers, great relationships with brands and PR advertisers. So podcasting is sort of key to that in digital audio. But also it plays a really important role in eventually and over time, improving the value proposition of SiriusXM kind of in two ways. I mean, we will have a stronger podcast experience within SiriusXM when we launched the new consumer apps and then over time that will continue to build, because we believe that a curated set of podcasts is really important to the listening experience in SiriusXM, but also how we're working with the creators of podcast is to find more unique ways to distribute their content on the SiriusXM platform. So that could be exclusive content like the Corner O'Brien channel that helps support the podcast and vice versa or it's just different formats like with Freakonomics, bringing those podcasts to a more linear format in a channel. We've also worked with Crooked to have pop-ups during the elections. And there's a lot more examples of, I think, how we could do that going forward.

Jessica Reif Ehrlich

And I mean, do you think you have all the right pieces, not content, but all the right pieces to move forward with your podcasting strategy, or are there areas where you need a bigger presence or better technological capabilities?

Jennifer Witz

We're always open to looking for opportunities in the M&A space or otherwise to add to our tech stack. I think that's where podcasting probably is lagging a bit. We've been in the digital audio advertising business in Pandora for close to 20 years. So we really did start that and we've grown it over time, we've got great relationships there. But extending kind of the tech support for podcasting has been a key focus for us. And one of the ways that we've really delivered better capabilities to advertisers is through partnerships. So whether it's -- two of the primary issues, I think, for brands and advertising coming to the podcasting space is better identity and tracking and then better brand suitability and safety tools. And on the predictive audiences tool that we have with Comscore, we are giving brands a better way to target even if there's not a lot of first party data because distribution is across many platforms. And on the brand suitability and safety, we did a partnership with Barometer and with ArtsAI to provide mid-campaign and third party verification of brand suitability. So advertisers can come in and assess how well they're doing on these campaigns, are they getting the right kind of traction and content that they want to be in and then evaluate the campaigns midstream.

Jessica Reif Ehrlich

Are you considering that Spotify scale as a competitor with global reach as opposed to obviously domestic, will that enable them to outbid Sirius for key exclusive content?

Jennifer Witz

I guess I'd say two things there. One is Spotify has been at scale for many years and we still have a very unique value proposition. And I think by focusing on North America, that gives us a leg up. We have a great live platform. A lot of other streaming services have live capabilities, but Spotify hasn't really tapped into the breadth of content that we have. And we also just have a really strong business model. I mean, obviously, they're facing even more competition from the major tech companies in music streaming and in podcasting. So they have a lot more margin pressure than I would say we have whereas we have the flexibility, if we decided we really needed something to add to the value proposition, we can do that within the margin structure we have today.

Jessica Reif Ehrlich

And I guess just one more competitive question. Do you expect them to expand their appetite -- content appetite for beyond music to other things, like podcasting is one thing, but like live stuff like sports. I mean you have all sports, but as we just said and nobody host us. Is that a concern?

Jennifer Witz

We keep a close eye on what the competition is doing, the tech companies, obviously, have taken a stab at live sports. We love our position there as we've talked about. And we're going to continue to watch it. But again, I think we have the resources and the team in place to be able to act quickly if we needed to, to make broader content decisions to deliver value our subscribers.

Jessica Reif Ehrlich

And are audio books, any part of your strategy?

Jennifer Witz

I really like audio books. I don't think they're necessarily critical. But given kind of the new platform we're going to put in place, we'll have the opportunity to look at a lot of different audio formats. And that could be one way to continue to enhance the value of our subscription, whether it's integrated or there's a partnership. But again, I don't necessarily think it's critical. There's a lot of probably overlap in the audience in terms of we have a very affluent audience in-car listening, college educated. So it could make a lot of sense in the future.

Jessica Reif Ehrlich

And last question. Can you just talk a little bit about your capital allocation strategy? How do you think about capital returns you are generating significant free cash flow, which will increase further? How do you think about buybacks versus dividends?

Jennifer Witz

We've clearly focused and allocated more capital returns toward dividends over the past several years. And since inception, we've raised the dividend by 10% every year, except for through to '21 where we raised it 15%. So it's about $375 million in terms of a recurring annual dividend today, which is approximately a third of our cash flow. And so we have more room there, I'd say, to focus on dividends going forward. Capital returns in the form of share repurchases have always been part of our returns program. And so I think we'll just try to stay flexible and opportunistic. One of the things I think is really important in this environment in terms of financing cost is that we look to maintain our leverage ratio in the sort of mid-3s and that will frame up obviously, capital returns going forward, too.

Jessica Reif Ehrlich

Great. Thank you so much for coming.

Jennifer Witz

Thank you.

Question-and-Answer Session

End of Q&A