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DIRECTV (DTV)

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DIRECTV (DTV)

Q3 2013 Earnings Call

November 05, 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 Ventures

Patrick T. Doyle - Chief Financial Officer and Executive Vice President

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

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

Kannan Venkateshwar - Barclays Capital, Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Tuna N. Amobi - S&P Capital IQ Equity Research

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Jonathan Chaplin - New Street Research LLP

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Michael Senno - Crédit Suisse AG, Research Division

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

Todd T. Mitchell - Brean Capital LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to DIRECTV's Third 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 begin.

Jonathan M. Rubin

Thank you, operator, and thank you, everyone, for joining us for our third quarter 2013 financial results and outlook conference call. With me today on the call are Mike White, our President and CEO; Pat Doyle, our 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 may 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 statement. 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 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.

With that, I'm pleased to introduce Mike.

Michael D. White

Thanks, Jon. Good afternoon, and thanks, everyone, for joining us today.

Before I hit my prepared remarks though, I think I'd be remiss if I didn't take a second to recognize and thank Jon Rubin who'll be retiring at the end of this year, as this will probably be his last conference call after more than he would care to count. Jon, in my experience, is an incredibly professional Head of Investor Relations and Financial Planning. I've worked with a lot in my career, both as a CFO and as a CEO, and I have to say, I think, Jon does a terrific job of listening to our investors, communicating with our investors in a clear way and making sure that I'm always aware of what our investors are thinking. And I think, I'd be remiss, Jon, if I didn't say thank you for all you've done for DIRECTV. And for me, I think, you've been an outstanding representative of our company with our investors, and we will miss you. But we know that you've done a great job training Martin Sheehan, and he'll do a great job as he picks up the mantle after this call. So Jon, thanks for all you've done for us.

So let me turn to our quarter. In the third quarter, DIRECTV's portfolio of businesses across the Americas, I think, delivered another solid quarter of consolidated results, highlighted by both a strong top line coupled with continued operating discipline across the disparate geographies, varying macroeconomic conditions and competitive environments that we operate in.

Specifically, I would have several key takeaways from the quarter. First, we're generating solid top line growth, which I think speaks to the strength of our DIRECTV and Sky brands, and increasing value of our differentiated products and services in the marketplace. Second, our commitment to profitably grow our businesses while keeping a sharp eye on cost and capital spending and productivity improvement was clearly a highlight as our operating profit before depreciation and amortization margin expanded, driving double-digit OPBDA and cash flow growth in the quarter. And finally, we continue to execute on our strategy of aggressively returning capital to our shareholders. As you saw in the earnings release, we repurchased nearly $1.3 billion of DIRECTV's stock in the quarter, which helped fuel a 42% increase in earnings per share to $1.28.

Now before I turn the call over to Pat and Bruce for a more detailed review of our U.S. and Latin American businesses, let me just offer a couple of observations. Starting with DIRECTV U.S. I really thought our U.S. business had a strong quarter, and to a large degree, the results reflect our overarching goal of balancing top line sales and bottom line profitability in a sustainable way.

Our heightened focus on higher-quality subscribers this year continues to increase the long-term value of the subscriber base that we have and is yielding strong financial returns. These benefits are particularly evident when you look at our revenue growth of 7%, which was primarily driven by our ability to grow ARPU in a challenging U.S. operating environment.

We're also delivering our best-in-class video experience with an enhanced focus on preserving a sustainable cost structure through investments that deliver benefits and drive efficiency. And the benefits we're generating help neutralize the impact of higher programming expenses in the quarter as our U.S. operating profit before depreciation and amortization margin increased 90 basis points compared to last year.

So with these successes, DIRECTV U.S. posted over 11% operating profit before depreciation and amortization growth, marketing -- marking the best third quarter performance in 5 years. Now obviously, let me be clear, we certainly, and I certainly do not expect to generate double-digit OPBDA growth going forward, but it's nice to see in the quarter. But it's equally clear that our U.S. business continues to demonstrate operating strengths that position us nicely to not only meet or exceed our full year 2013 guidance, but also provides me with even more confidence that we can continue to deliver strong growth, both top and bottom line, over the long term.

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