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DIRECTV (DTV)

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DIRECTV (DTV)

Q4 2012 Earnings Call

February 14, 2013 2:00 pm ET

Executives

Jonathan M. Rubin - Senior Vice President of Investor Relations and Financial Planning

Michael D. White - Chairman, Chief Executive Officer and President

Bruce B. Churchill - Executive Vice President, Chief Executive Officer of Directv Latin America Llc, President of Directv Latin America Llc and President of New Enterprises

Patrick T. Doyle - Chief Financial Officer, Executive Vice President and Member of Proxy Committee

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

Vijay A. Jayant - ISI Group Inc., Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Bryan D. Kraft - Evercore Partners Inc., Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

John C. Hodulik - UBS Investment Bank, Research Division

Tuna N. Amobi - S&P Equity Research

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

Amy Yong - Macquarie Research

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Presentation

Operator

Good day, ladies and gentlemen. My name is Sarah, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the DIRECTV's Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to your host, Jonathan Rubin, Senior Vice President of Investor Relations and Financial Planning. Please go ahead, sir.

Jonathan M. Rubin

Thank you, operator, and thank you, everyone, for joining us for our fourth quarter 2012 financial results and outlook conference call. With me today on the call are Mike White, our President and CEO; Pat Doyle, CFO; Bruce Churchill, President of DIRECTV Latin America; and Larry Hunter, our General Counsel.

In a moment, I'll hand the call over to Mike, Bruce and Pat for some introductory remarks, but first, I'll read to you the following. On this call, we make statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause actual results to be materially different from those expressed or implied by the relevant forward-looking statements. Factors that could cause actual results to differ materially are described in the Risk Factors section and elsewhere in each of DIRECTV's annual reports on Form 10-K, quarterly reports on Form 10-Q and our other filings with the SEC, which are available at www.sec.gov.

Examples of forward-looking statements include, but are not limited to, statements we make related to our business strategy and regarding our outlook for financial results, liquidity and capital resources. Additionally, in accordance with the SEC's Regulation G that requires company reporting non-GAAP financial measures to reconcile these measures to the most directly comparable GAAP measure, we provide reconciliation schedules for the non-GAAP measures, which are attached to our earnings release and posted on our website at directv.com.

So with that, I'm pleased to introduce Mike.

Michael D. White

Thanks, Jon, and thanks, everybody, for joining us today. I'm pleased to report that DIRECTV had a great fourth quarter, capping off another very strong year. I believe our results are entirely consistent with the long-term strategies we shared with you early last year designed to create significant shareholder value by generating industry-leading growth while continuing to return cash to our shareholders. In particular, I'd focused on 3 areas that I'd highlight from our consolidated results.

First, the strength of DIRECTV and SKY's premium brands, along with our differentiated suite of entertainment products and services, continues to drive tremendous consumer demand, market share gains and top line growth across all of the Americas. Propelled by strong fourth quarter results in Latin America and the U.S., full year gross additions soared to all-time highs, up over 5% from the prior record set in 2011. This considerable achievement culminated in the largest annual net subscriber gain in DIRECTV's history of nearly 3.8 million net new subscribers, including Mexico, furthering our position as the world's largest provider of pay-TV video services. And we exited 2012 with more than 35 million households throughout the Americas and are now a $30 billion company and growing.

Second, strong full year OPBDA and double-digit cash flow growth demonstrates our commitment to profitably grow our businesses while keeping a sharp eye on both cost containment and productivity.

And third, we're continuing to generate significant -- to return significant capital to our shareholders. As you saw in the earnings release, we repurchased more than $5.1 billion of DIRECTV stock this past year, helping to fuel a 32% lift in earnings per share to $4.58. And I'm pleased to announce that earlier this week, our Board of Directors authorized another $4 billion share repurchase program.

Now before I turn the call over to Bruce and Pat for a more detailed discussion of our fourth quarter results, along with our long-term strategies and outlook, let me offer just a few observations.

First, starting with Latin America. On balance, I thought DIRECTV Latin America's quarter and full year results were extremely strong and reflect the key financial and strategic priorities we shared with you at our Investor Day last March. Our competitive advantages and operating strengths continue to drive subscriber growth to all-time highs as we expanded our share of the growing pay-TV household market throughout the region. For the first time ever, full year gross additions not only exceeded those posted by DIRECTV U.S. but also shattered the record set by our U.S. business in 2011, adding over 4.4 million gross additions while attaining more than 2.4 million net additions, which was also our best net ever. Consistent with recent trends, this record performance was driven by strong growth from our middle market segments, as well as continued advanced product penetration gains. With this strong subscriber growth, full year 2012 revenues accelerated 23%, exceeding the guidance we provided in spite of some currency headwinds, particularly in Brazil. In terms of margins and bottom line, Bruce will discuss it a bit further, but importantly, Latin America delivered on its OPBDA margin target of around 30% in 2012. And this was particularly notable because it was achieved in spite of record gross additions, as well as the increased expenses related to digesting nearly an 80% or 4.5 million subscriber increase in our base over just the last 2 years.

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