Sirius XM Holdings Inc. (SIRI) Earnings Call Transcript
September 22, 2021
Earnings Call Speaker Segments
Okay. Thanks, everyone, for taking the time to join us today. My name is Stephen Laszczyk, and I'm the lead analyst for the music, sports and live events sector here at Goldman Sachs. We are excited to welcome to Communacopia this year, Sean Sullivan, Chief Financial Officer of Sirius XM. Sean, thanks for being with us today.
Thanks, Stephen. Great to be here.
Great. So I was hoping we could start off by talking about some of the key drivers of your satellite business. Sirius is off to a solid start this year. Subscriber net adds have totaled nearly 500,000. Churn is at a record low. And last quarter, you increased your full year guidance across the board. With that as a backdrop, I was hoping you could talk more about the momentum you're seeing in your business as we head into the back half of the year and into the early part of 2022.
Yes. Sure. No, as you highlighted, the first half of the year, we've seen obviously very strong results. We're anticipating a strong second half across the board, both in terms of subscription and advertising. The record trials that we saw in the second quarter, Stephen, as you know, really set us up well for the third quarter. So we expect to have a strong third quarter in terms of conversions and subscribers, and we continue to have low churn. On the advertising side of the business, again, very strong performance in the first half, strong momentum into Q3. As you know, the comparisons will get tougher in Q4. But again, we feel very good about where the advertising business is. And again, we are very confident in our ability to hit our financial and subscriber metrics across the board as we guided the last quarter.
What about on the downside? What are the downside risks in your business at the moment? Is there anything on the macro front or maybe from a competitive perspective that concerns you at this point?
I don't know what concerns me. I think the biggest thing -- the new news was probably the SAAR in August at 13 million, 13 million just north of [ 13.01 million ]. So as we think about conversions that will -- if that persists, we'll likely have some impacting opportunities in Q4. If these trends continue, maybe it leads into 2022. I assume we'll talk about it, but obviously, the chipset supply issue and the OEMs, given some of the activities around the world certainly make that situation very fluid in terms of how that will impact new car sales. But some of the OEMs comments say that some of these things may persist into 2022. I continue to be amazed by the resilience of the consumer. And I guess the question is whether it's a new or used car, I think some of the pricing and activities in the market, I guess, will those persist, will consumers intend to purchase be affected by the supply/demand imbalance, we'll see. I mean I think regardless, very confident in terms of the back half of the year in 2021. But those are probably some of the key things that we're keeping an eye on in terms of how that could affect over a longer term.
Sure. And you mentioned the chip shortage and SAAR, which is largely out of your control heading into the back half of the year, and you mentioned potentially into 2022. How could you operate the business differently in that scenario or under the dynamic that SAAR remains lower, chip shortages remain a persistent pressure on SAAR. Is there anything you could do to operate differently in that environment?
I don't know that we will operate. Some of that stuff is out of our control. My hope is that they return to normal production sooner than later. We'll talk about it. Again, we've got a big push in terms of digital streaming, right, through the SXM app out of the car. So even with the large 31 million subscriber base we have in car, we'll talk about it. I guess I don't know that we operate differently. I think it's business as usual in terms of really pursuing stand-alone streaming, right? So that is a bit of a balance, I would think, to any supply issues that we may have that may impact trials.
I mean we can certainly get into the streaming-only story of your business. But first, I wanted to focus on your first growth pillar, which is to build on the strong presence you have inside the vehicle. Could you maybe spend some time talking about how you intend to do this especially against what seems to be an increasingly competitive landscape for premium audio services in the dashboard?
Yes. I mean I've only been here a year. But as you know, this great product, this premium product has been in the car for, what, 20 years now. So they've -- and we have persisted with the competition over that period of time. It certainly feels like it's intensifying. But it has evolved. We've got great relationships with our OEM partners. We have great visibility in terms of their intentions in terms of the technology and software solutions. So we're working very close with them. We're really focused, obviously, on a premium audio experience, providing great content, providing great features and capability. Historically, as you know, this has been a one-way path in terms of satellite. I couldn't be more excited about the introduction and distribution of 360L and bringing that 2-way interactivity, I really think that, that connectivity and 2-way feedback loop really will help us continue to enhance and provide a great personalized premium audio experience in the car. So those are really, really the focus in terms of the in-car vehicle and our relationships and partnerships with the OEMs.
On 360L, maybe could you talk a little bit about the differences in conversion and engagement trends you're seeing in the 360L product versus the legacy radios that you've installed in cars in the past. How significant of a difference are you seeing in some of these trends?
Yes. We're seeing meaningful, again, the sample size is small, but growing. But when we isolate the variables of 360L versus non-360L, we see stronger conversion. Certainly, stronger conversion against those trialers that are using the features in terms of the on-demand. We've got Pandora and other extra channels that are only available to 360L subscribers. So we definitely believe that it will help in retention. It will help in upsell opportunities. But for us, the real challenge and focus is awareness, right? The installation of 360L is a great product. But I think that for many awareness of what features exist focusing our communication with the consumer on how to use them, what's available can be overwhelming at times. But I really think that we've got to really drive awareness and get consumers to use the incredible features of 360L offer. So obviously, we feel very confident that this is going to really help us in terms of retention and upsell with our consumer base.
You mentioned retention. Last quarter, Sirius XM reported record low churn of 1.5%. Can you just talk about what's been driving the outperformance we're seeing in the churn metric? Are you doing anything different from a customer retention standpoint coming out of the pandemic year?
Yes. I don't know if we're doing anything different. Obviously, we want to put the right plan in front of the right consumer and what's right for them, right, and whether that's a higher level or a lower level. But if you deconstruct our churn, the voluntary cancel demand has been low. I mean we attribute that obviously to the value that the consumer believes exists in the product that they're paying for, which is very interesting since we aren't even having returned to, I guess, pre-COVID driving levels, and we still have very low voluntary cancel demand. So we've got to continue to improve the offering in terms of content, usability, et cetera, to maintain that voluntary demand and flow level. I mentioned the constraints of the consumer earlier. So on the nonpay side, default rates have been very low, cure rates have been very good. So we continue to be amazed by the strength of consumer. And on the vehicle-related side, again, that's somewhat impacted by the volume of sales and trial starts. I mean presumably that will normalize at some point when sales go forward. But again, the churn has really, really been impressive.
Is there any reason churn couldn't go lower from here? I know 1.5 at one point was sort of...
I guess, Stephen, it's been -- yes, sorry to interrupt you, I guess, it's been down what, 5 years in a row, if I have it. Again, structurally, I guess there's no reason why we can't, but I guess I would temper any expectations of it going lower.
Okay. Switching to ARPU. SIRI has historically had a healthy degree of pricing power. For example, over the last 6 years, I think your subscriber ARPU has grown at an annualized rate of about 2%. And this year, you're actually trending a good bit above that. Can you maybe talk about what opportunities you have to push pricing higher from here, especially given some of the record low churn we're seeing?
Yes. So we've seen, obviously, a favorable mix off of the self-pay base. So that has really allowed us to see and realize a benefit to ARPU. The advertising growth we've seen, certainly gives us some upside. And therefore, we see overall uplift, and we had a lower trial paid base too. So we get a little help from there. So again, we're looking to optimize revenue. As I said earlier, some consumers were looking to go higher, some may want to take less content at a lower price. So I don't want to say, I guess, ARPU is probably more of an output than an input, so to speak, Stephen. But we're testing the floors on discounts. We're looking at upsell opportunities. At the end of the day, we've got to drive engagement. We've got to drive better and more engaged consumers with great content, and I really think that at the end of the day, that will allow ARPU to take care of itself.
You just said -- you mentioned a focus on driving engagement. You've done a lot over the last year or 2 on really driving engagement and adding value to the service. You've added streaming at no cost for most of your subscribers. You've got a video content, there's access to exclusive live events for some of your premium subscribers. How do you think about the return that you get out of these value enhancements, particularly ones like streaming? And then to what extent do you think you need to keep adding these types of value enhancers going forward to maintain the current momentum in your business, whether that's on the churn or whether you are presided?
Yes. A lot in there. I guess at the end of the day, we believe the engagement with our product is a huge value driver, right, to state the obvious. It helps with retention. It helps with pricing. We've seen great usage, not only in the car, but those that -- when we gave the streaming to most of the packages, we've seen incredible usage, almost doubling of people's hours. So again, we'll look at the value proposition. We'll look at the -- we're always looking to enhance that for the consumer. But we do, at the end of the day, we think engagement, both in and out of the car, is really going to be the key for us.
Recently, Sirius XM launched a premium tier that includes access for multiple vehicles and then also streaming. I think it's priced at $40 a month. How do you think about the addressable market for a service like this? And maybe more broadly, how does this packaging fit into your strategy to maybe expand the service offering both towards the high end, but also I think you mentioned, too, to towards the lower end?
Yes. So in terms of Platinum VIP, specifically, we had seen great demand for All Access, which is now Platinum, right? And there seems to be a willingness of the consumer to pay more for more premium experience premium content. So initially, we're going to target households that have 1 active subscription and 1 enabled vehicle that's not active. So in terms of the addressable market, we think that at least initially, we have got great hopes for it. As you highlighted, it comes with 2 streaming, 2 satellite and additional VIP benefits, and we'll continue to look to see how we can potentially enhance that. But we think it's early days for Platinum VIP, but we're excited about it.
Great. Let's pivot over and talk about your second pillar of growth, which is increasing usage and subscriptions outside the vehicle. You mentioned it a little bit earlier. Sirius is recently taking steps to roll streaming service, which is the SXM app out to a much wider audience. So 2 questions here to start off. First, what is your go-to-market strategy with the new service? The streaming audio market is already highly competitive today. How are you positioning the SXM app differently into this market? And then second, how big of an opportunity do you believe streaming only could be for Sirius XM over the next, say, 3 to 5, say, to maybe even 10 years?
Yes. So I'm getting some feedback, Stephen, and I apologize. Streaming -- stand-alone streaming today is relatively small. It's obviously becoming a bigger and bigger part -- a growing part, I should say, of our 31 million subscribers. We have a big -- I assume you've seen the marketing with Kevin Hart and Dave Grohl and others. So a big marketing push around beyond the car in using digital streaming. So we think that it's a great opportunity, it's a big addressable market. We think we have a premium differentiated offering. I think that we're encouraged when people talk about the outside the car, what share of their audio listening is Sirius XM. I think for us, it's grown materially over the last year, which is a real positive. I think I said earlier, those that use the satellite in the car and stream separately have very high usage, nearly double. So in terms of engagement and consumption is great. So we think it's -- obviously, it's enhanced the value to those that have a satellite subscription. We think the stand-alone is huge. I'm sure we'll talk about the content strategy and how we go-to market, but it's really awareness, a big marketing push to get people to see the fact that we've got live, we've got news, we've got talk, we've got sports, obviously, along with the music. So it's a big key pillar as you said. And it's early days, and you're starting to see some of the investments in marketing push we're putting behind the initiative.
Could you give us a sense for maybe how many streaming-only subscribers do you expect to have by the end of this year or maybe even next year?
Yes. I don't know that I'm in a position yet, Stephen, to disclose it. I think we want to continue to be in the market. I think stay tuned. I think at some point, we do need to talk about that. It's early days. We've just started the marketing push. So if you'll allow me, we'll defer that to a future conversation.
Certainly. One last question on this topic. In the past, you've given some commentary around margins for your streaming-only service. How do the economics compare for streaming only versus the legacy satellite service? And how could we expect these economics to trend as the service scales?
Yes. We've talked about it briefly, I think on the last earnings call, where the marginal economics on streaming only are really fantastic and on par with satellite. So very different than kind of the interactive music space. So we're excited about the incremental margin benefit. And I think as this thing scales, I think the contribution scales. So not much more to say than that.
Could you maybe just go back to that first point? I think when people consider streaming services, they think of them as being lower margin or having higher costs than something like a broadcast distribution radio. Why exactly is the streaming service the same, if not maybe marginally better than the satellite service on margins?
It's a streaming service. It's a stand-alone pricing. We're usage based in terms of how we're paying some of the licenses. So on a contribution basis, it delivers a margin profile or percentage as equally as tracking the satellite.
Okay. I'm going to turn to your third strategic pillar, which is driving growth in your advertising platforms. So let's talk about Pandora and the digital ad strategy for a moment. Pandora is the largest free digital audio service in the U.S., but listening trends have continued to decline. Can you talk about some of the efforts you're making to stabilize the base? And is there a point where we could expect listener declines to level out at some point in the future?
Yes. Now on Pandora, we've got a lot of focus and effort around it. As you rightly stated, it's the largest free audio platform in the U.S. We continue to have a significant number of MAUs. The share of ear on the ad supported, I think, continues to be the largest in the U.S. You've seen the RPMs in terms of what we've been able to generate. So monetization has been really fantastic. We've got roughly 6 million plus in premium subscribers. So as we focus on Pandora, how do we make better content decisions, better recommendations, how do we improve the product and ease of use with the consumer? We've got an incredible number of loyal and core listeners that really stream at a significantly higher rate than a lot of them. So that's very positive. And I guess the last thing I would say is think about some of the content initiatives we've been able to launch and identify so TikTok is one. We've got the T-Mobile ad-free weekend partnership that we've done. So we're really focused on partnerships and content to really enhance and hopefully really reverse the trend but yes, they're tough and a bit challenged.
Got it. You mentioned ad monetization. Pandora's ad revenue per 1,000 listener hours crossed $100 this past quarter,, in the second quarter, up from about $80 in 2019 and 2020. Could you talk about some of the main drivers of ad monetization this year? Is it more some of the industry tailwinds you're seeing, the shift into digital audio or more of an execution story on your side?
Yes. It's a little of all of those things. I think there's no question the market has been strong. Demand has been strong. Demand has been strong for audio. As you rightly point out, RPMs got over $100 in the second quarter. We saw, what, 20-some-odd percent growth even over 2019. And I think what we've done is we've leveraged the sales team. We've leveraged the technology. We have, obviously, the on-platform, we have off-platform. We've got our Sirius XM digital, and we've got podcast. So I think that it's the factors of the market, it's a factor of the execution of the team and really a function of the supply and the inventory that we have in terms of the -- on the platform.
I think you mentioned it briefly at the start of this conversation. But have you seen ad trends continue into the third quarter, into the back half of the year, just to put a finer point on that?
Yes. As you know, we don't give a lot of intra-quarter guidance. But I did say we continue to see broad demand, and I continue to be confident about the full year guide.
Got it. And then maybe looking further ahead on the ad monetization front, are there any comps or metrics that we could point to, to maybe think about where ad monetization is going to go over the long term? It's at $100 today, how high could it go?
Yes. I don't know if I know the answer to that. I guess what I would say is that let's think about the pockets of opportunity, right? The digital audio space, I think next year is going to be in excess of $6 billion. I think podcasts are approaching $1.3 billion or thereabouts. We've got terrestrial radio of roughly $20 billion or thereabouts. We generated about $1.6 billion in advertising revenue over the last 12 months. So we continue to think we've got a great portfolio of inventory and supply. I think that's very attractive to advertisers. And we think that there's continued opportunity and growth for that and for us to participate and take share, not only in that growth, but maybe take share from other pockets of the marketplace.
On podcasting, yesterday, you announced a new Marvel channel on Apple Podcast that will cost $4 a month. Can you talk a little bit more about the opportunity you see here and maybe in podcasting more broadly? Are these micro subscriptions a trend that you're trying to go after?
Yes. I don't know that it's a trend. I think it's the first one we've done. We've done it with -- in partnership with obviously one of the iconic brands in the market with Marvel. There is -- I don't want to call it an experiment, but it's a great partnership that we have. We think the distribution through Apple provides a great opportunity for fans as well that content can get advanced [indiscernible] and maybe some additional bonus features, et cetera. So I don't know that it's a trend, Stephen, but certainly Marvel is one of a kind in many cases. So we thought it was a great platform adjacency to use the Apple platform to allow the consumers to better engage with this content.
What about podcasting more broadly -- podcasting strategy more broadly? Are there more opportunities out there to maybe leverage the content that you already own to do something like this or go out into the marketplace and try to develop it?
Yes. It's a mix. There's no question there's a boom right now in terms of podcast content, right? And I think what we're trying to approach it is not only thinking about publishers and creators, but also the development of it. So you've seen us do deals like 99% with Roman Mars where we have the opportunity to bring that in-house; Stitcher, significant podcast investments we made as a company. And you're seeing us take talent that we have and relationships we have with people like Kevin Hart or Megyn Kelly, where we have the ability to use our Sirius XM satellite broadcast and also bring that content to the podcasting. So I think you're going to see us do a multiple-pronged approach to it. It will be some internally developed. We'll -- again, we'll use the relationships we have to expand organically. We'll participate in a focused and disciplined fashion for sure because I think some of the prices in the marketplace are pretty heavy at this point. And we'll look to see if our ad tech and our solution and bring more off-platform opportunities and other publishers and creators into our network to enhance the monetization for their great content.
So I'm going to turn to the SXM Media business. Earlier this year, you created SXM Media to better leverage the capabilities of your various advertising platforms. And maybe for those who are a little bit less familiar, could you touch on the vision behind the SXM Media business that you created?
Yes. So that's bringing together a unified sales force and pitch to the marketplace, right? So we had a sales force with Stitcher. We have the Pandora sales force. We have the broadcast sales force. So what SXM Media allows us to do is really bring together the combined resources of those sales forces and really bring a one face to the marketplace, whether it be an advertiser or publisher, creator or an agency and allow them to really take the benefit of this portfolio that we have and the ability to monetize across multiple. So it's really just kind of 1 voice to the marketplace, it's unified, tremendous leverage in doing that. So it really just bringing together the silos organized in one place.
So in order to grow this business, you're going to need to bring on more third-party ad inventory from what I understand. You recently announced several client wins on this front and you have SoundCloud, NBC News and you brought on a variety of third-party guests onto the SXM platform recently. Who do you compete with this type of business? Who else is in the market? And why would someone choose SXM Media over that competition?
Yes. There's some -- yes, I think the competitors are well known and obvious. I think there is -- what we offer is something unique in terms of our ability and our platform. I think we've got great ad technology with AdsWizz that we acquired as part of Pandora. The Simplecast acquisition really allowed us to round out what we were doing on the podcast front. So we think we've got a best-in-class ad tech solution, distribution and monetization solution. And therefore, we think we can bring more people like NBC to the network and the portfolio to really help them grow the off-platform opportunity and the podcast opportunity.
I was going to ask on that. What's the white space in terms of the type of clientele you're trying to go after here? Is it more these news and multimedia companies that may not be as big in digital audio? Is it the smaller start-up podcasts? Is it -- or other digital audio platforms?
Yes. I mean it's all of the above. It's people that in all of those cases, people, like I said, people in the talk and the news side that aren't from the video world that may look like NBC, there's certainly smaller audio, digital audio companies that are seeing tremendous growth and really across the board, people that can really benefit from being part of our network and our portfolio and our ad technology.
Okay. You've been fairly active on the M&A front as you mentioned to bring together some of the pieces of SXM Media in terms of your ad tech stack. Are there any other assets or capabilities you feel you need at this point? And how active should investors expect you to be on the M&A front to put this together?
Yes. I think that they should expect us to be focused, expect us to be disciplined. I think we feel very good about the ad tech stack, as I said, with AdsWizz and Simplecast. I think we believe we have an end-to-end solution. There are certainly always going to be new features and capabilities that will evolve and emerge that we'll have to evaluate whether we build those or buy those. But no, for the most part, we feel great about what we have on that side. We don't really see any white spaces or big holes in our offering. It's really today, it's about continuing to feed the inventory, feed the supply and execute.
Got it. Let's talk about margin to shift gears a little bit. Historically, your business has had a tremendous amount of operating leverage. However, this year, you're guiding the flat adjusted EBITDA margins at around 31%. What are the key puts and takes on the margin story this year? And what will it take for you to see margin expansion into 2022?
Yes. I think when we talked about this year's guide, we talked a bit about some of the headwinds as a result of COVID, right, in terms of incremental rights on the sports side of things, given seasons didn't go full last year. We had the [indiscernible] outcome on the music licensing front. And we're going to continue to invest a bit more in content and look to do that, right? I think that content is central towards value proposition. So we feel good about the margin. I'm not going to guide in terms of 2022, but we think there's tremendous operating leverage in this business. I think that the 2020 and '21 had some unfavorable costs. So I guess, Stephen, let's talk more about that as we round out 2021.
Understood. And you mentioned content costs there. Historically, the last 2 years or so, they've ticked up as a percentage of revenue. And I'm sure everyone on this call is well aware of the competitive backdrop in the audio content space right now. Should investors expect content spend to continue to increase as a percentage of revenue going forward?
I don't know that they should expect it to increase in percentage. I think we continue to -- just to talk again about our content strategy. We think we need to find the right mix of exclusive and nonexclusive content. We want a broad range of talk, news, sports, entertainment and music. I think what we offer is obviously a differentiated product and very unique. And we'll continue to look for opportunities to do that. So -- and again, what we do well, I think, in this -- and the content is the curation of it, right? So it's a very, very highly curated. I think that's the differentiation that we provide. If you look at Drake with Sound 42, if you look at the TikTok channel, some of the curation we do with U2 and Bruce Springsteen and others, I think we'll continue to do those things and look for high profile. And again, we've got to find a balance in terms of the right mix between exclusive, nonexclusive, and across genres for the service. So I don't know that we -- I wouldn't guide you to say that it's going to increase as a percentage of sales, but content continues to be at the center of everything we do, and we've got to make sure we have the opportunity to fund it.
What about the longer-term margin opportunity for the business? I remember a few years ago, I think SIRI -- the core SIRI business reached 40% margins. You've rolled Pandora in since then, but is there a scenario where maybe margins could expand into the mid- to upper 30s over the medium to long term?
Well, I think there's always that opportunity. I think that we've got to get more efficient. We've got to be -- create operating leverage in the business. So for anybody in my chair that's what we're trying to do. But in the intervening period of time as we talked about today, we've got big initiatives around 360L. We've got big initiatives around digital streaming and the SXM app outside the car. We want to continue to grow the advertising and make sure we have the content to do it. So I think we're still in that place, and I'm not going to give you necessarily a multiyear view, but we do think there's incredible scale and leverage in this business, but we need to make necessary investments to really support those strategic pillars.
Moving over to the leverage and capital allocation. SIRI has historically run leverage at around 3x net debt to adjusted EBITDA for about the last 6 years or so now, which is a full turn below your stated goal of 4x. After having an opportunity to come in with fresh eyes as a CFO here the last year, do you think that 4 turns target leverage is still the optimal level of leverage for SIRI? Or does it exist? Or is that maybe closer to where you're running it now at around 3 turns?
Yes. I've taken a fresh look. We spent a lot of time looking at this. Obviously, the balance sheet, Stephen, as you know, with all the refinancing was done is in really spectacular shape in terms of maturity and cost of capital. But no, I think that the company is very comfortable operating in the low to mid-3s. I know that historically, we've talked about 4x target leverage at the high end. But again, we're here to invest for growth. That obviously is the highest shareholder value opportunity for us. So I'm very comfortable in the low to mid-3s. And so I don't have a different perspective being in the chair for a year.
You're guiding a significant cash flow this year. And as you mentioned, you're comfortable sort of about this target rate of leverage. What do you tend to do with the liquidity in your business? What are your capital allocation priorities looking ahead?
Well, again, capital allocation is organic investments to drive growth, first and foremost. We'll look at M&A in a really a focused and disciplined fashion and look at that, and then we'll strike the right balance between a regular dividend and share repurchase activity. So very much of our return of capital will be guided by the leverage conversation we just had, what other demands there are in terms of organic and M&A. And I think we'll continue to be a healthy return of capital through a dividend and a share repurchase program. So those are really the key priorities.
All right. So on your outlook for -- your outlook for capital spending this year has changed a bit since you lost the SXM 7 satellite during launch earlier this year. Could you maybe just update us on how you're thinking about the cadence of CapEx? I know there's a lot of moving parts. But how should we think about it on a gross basis then also too on a net basis after the insurance recoveries?
Yes. So we are certainly happy to report that we're going to -- we'll likely receive all $225 million of insurance proceeds by the end of 2021. So we're confident that, that will flow through 2021. As you know, we have announced the procurement of SXM 9 and 10. We did that order almost simultaneously, really for the efficiency of the buying. So you'll start to see some of that sat CapEx come through this year as well as over the next 2 to 3 years. I think the SXM 9 is slated to launch in 3 years' time or thereabouts. So you'll start to see a bit of a shift, and we'll get a real benefit this year from the $225 million. I know on the second quarter call, we had talked about -- I believe we had identified $140 million at that point in time, so we'll get the rest. So some of that will flow through over the next 3 years in terms of that satellite capital in terms of nonsat CapEx. It's historically been about $300 million, and I would expect it to stay there for a period of time.
Got it. And then we just have a few minutes left here, and I can't end without fitting in the 1 question on everyone's mind right now or seemingly on everyone's mind right now, which is what happens when Liberty crosses the 80% threshold. Could you touch on the significance of the 80% ownership threshold and what that means for investors? And then what are your views on the pros and cons of having a more balanced capital return policy between dividends and share repurchases?
Yes. I mean everybody wants to talk about the 80%. I guess as a management team, Jennifer and I aren't particularly focused on that. We're really focused on obviously driving the business for growth and free cash flow generation. That being said, we have a tax sharing agreement. I think it's well known to what happens after 80% in terms of what -- whether they participate in a share buyback, whether they get dividends that's certainly different from a tax leakage perspective. But our focus -- we have a lot of conversations internally. We'll talk with the Board, ultimately, they'll make the decision. But I think the things that are on the table, Stephen, are to continue with the dividend. I guess you could evaluate whether you enhance that to be more in line with the S&P 500. You could look to do a special dividend to the extent you had excess cash flow over some period of time that you would want to return to shareholders. I would expect us to continue to have a healthy share repurchase program. So I think we're looking at all of those things. I think our capital allocation as we reviewed today is pretty straightforward. I don't know that crossing 80% will necessarily change our point of view on that. But again, those decisions are -- reside with the board and the controlling shareholder.
Great. We'll have to leave it there. We're just about out of time. Sean, thank you so much for taking the time today. We really appreciate it.
All right, Stephen. Thank you so much.
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