DTV

DIRECTV (DTV)

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DIRECTV (DTV)

Q1 2013 Earnings Call

May 07, 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

Philip Cusick - JP Morgan Chase & Co, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

David Carl Joyce - ISI Group Inc., Research Division

Tuna N. Amobi - S&P Equity Research

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

John C. Hodulik - UBS Investment Bank, Research Division

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

Michael McCormack - Nomura Securities Co. Ltd., Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Presentation

Operator

Good day, ladies and gentlemen. My name is Brian, and I will be your conference operator today. At this time, I would like to welcome everyone to DIRECTV's First Quarter 2013 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to your host, Jonathan Rubin, Senior Vice President of Investor Relations and Financial Planning. Sir, you may go ahead.

Jonathan M. Rubin

Thank you, operator, and thank you, everyone, for joining us for our first quarter 2013 financial results and outlook conference call. And with me today are Mike White, President and CEO; Pat Doyle, CFO; Bruce Churchill, President of DIRECTV Latin America; and Larry Hunter, our General Counsel. So 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. And then additionally, in accordance with the SEC's Regulation G that requires companies 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, everyone, for joining us today. As I think you saw from our release earlier this morning, DIRECTV's off to a solid start in 2013 as both our U.S. and Latin American businesses delivered another strong quarter of operating and financial results entirely consistent with the long-term strategic imperatives we established of maintaining first quartile growth in our industry.

In particular, I'd like to highlight 3 areas. First, we're generating solid top line growth, driven by strong consumer demand for our best-in-class video service all across the Americas. DIRECTV's industry leading revenue growth of 8% continues to confirm the competitive advantages we have, I think, in the rapidly growing Latin American marketplace as well as our ability to profitably grow ARPU in a very competitive U.S. operating environment.

Second, our commitment to strike the right balance between growth and profitability is clearly represented by the margin increase in our adjusted operating profit before depreciation and amortization. Now as explained in our earnings release, the adjusted results exclude the impact of the $166 million pretax charge related to the devaluation of our monetary assets in Venezuela.

And third, we continued to execute on our strategy of aggressively returning capital to our shareholders, which helped fuel a 34% increase in adjusted diluted earnings per share in the quarter.

Now before I turn the call over to Bruce and Pat for a bit more detail on our Latin America, U.S. businesses, let me offer a few of my own observations on each, starting with Latin America. DIRECTV Latin America's first quarter results were right in line with our expectations and the full year guidance that we provided on our last earnings call. The strength of DIRECTV and Sky's premium brands, along with our differentiated suite of products and segmented service offerings, continue to drive tremendous consumer demand across the region.

Consistent with recent results, we're maintaining our momentum in the higher-end A and B households, and we also continued to see solid subscriber growth from the middle market segments. In fact, PanAmericana's net additions were up 50% in the quarter, driven by strong contributions from our prepaid offerings along with healthy postpaid additions in countries including Chile, Venezuela and Ecuador.

Sky Brazil also delivered a great quarter in terms of gross additions. But as Bruce will discuss a bit further in his remarks, higher churn from the middle market segment did have an impact on our net additions. Importantly, we're continuing to ensure our customers receive a best-in-class service experience as we upgrade our infrastructure with a new set of integrated IT systems, and work through some of the challenges we've discussed on prior calls by continuing monitoring our tiered service levels against clearly articulated performance metrics.

Driven by this strong subscriber growth, DIRECTV Latin America's revenues grew 16%, but perhaps more notable, organic revenue, excluding the unfavorable foreign exchange, grew 32% in the quarter. Our adjusted operating profit before depreciation and amortization margin was also strong at a tad over 30%. These achievements are not only consistent with our 5-year vision that we provided at our Investor Day last year, but I think provide further evidence that our Latin America business continues to offer us terrific long-term growth opportunities.

Turning now to DIRECTV U.S., I believe our first quarter results were also strong and reflect our overarching goal to rebalance the top and bottom line so that we can achieve long-term sustainable and profitable growth rates. It's clear that our enhanced focus on the quality, loyalty and profitability of subscribers is having an important positive effect on our financial results.

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