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DIRECTV (DTV)

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DIRECTV (DTV)

Q1 2011 Earnings Call

May 05, 2011 2:00 pm ET

Executives

Michael White - Chairman, Chief Executive Officer and President

Jonathan Rubin - Investor Relations

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

Patrick Doyle - Chief Financial Officer and Executive Vice President

Analysts

John Hodulik - UBS Investment Bank

Michael McCormack - Nomura Securities Co. Ltd.

Craig Moffett - Sanford C. Bernstein & Co., Inc.

Benjamin Swinburne - Morgan Stanley

James Ratcliffe - Barclays Capital

Stefan Anninger - Crédit Suisse AG

Marci Ryvicker - Wells Fargo Securities, LLC

Douglas Mitchelson - Deutsche Bank AG

Thomas Eagan - Collins Stewart LLC

Tuna Amobi - S&P Equity Research

Jason Armstrong - Goldman Sachs Group Inc.

Presentation

Operator

Good day, ladies and gentlemen. My name is James, and I will be your conference operator today. At this time, I would like to welcome everyone to the DIRECTV's First Quarter 2011 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 Rubin

Thank you, operator, and thank you everyone for joining us for our First Quarter 2011 Financial Results and Outlook Conference Call. With me today are Mike White, President and CEO; Pat Doyle, our CFO; Bruce Churchill, President of DIRECTV of Latin America; and Larry Hunter, General Counsel. In a moment, I'll hand the call over to Bruce, Mike and Pat for some introductory remarks. But first, I'll read to you the following: On this call, we'll 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 and DIRECTV U.S.' annual reports on Form 10-K, quarterly reports on Form 10-Q and 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 2011 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. So with that, I'm pleased to introduce Mike.

Michael White

Thanks, John, and thank you, everyone, for joining us on this Cinco de Mayo. DIRECTV is off to a very solid start, I think, in 2011 as we delivered another strong quarter of operating and financial results, extending our position as the world's largest video service, while also increasing market share and profitability in both our U.S. and Latin American businesses. I suppose from my perspective there were 3 main takeaways from the quarter.

First, the strength of the DIRECTV brand, along with our state-of-the-art suite of products and services, continues to drive strong consumer demand all across the Americas. Record-setting subscriber growth in Latin America this quarter exceeded our expectations, surpassing the previous high set during the run-up for the World Cup last year. This considerable achievement, along with solid customer gains in the U.S., culminated in a nearly doubling of consolidated net additions to 611,000 or 879,000 if you'll include Sky Mexico for the quarter. Strong subscriber and ARPU growth drove industry-leading top line revenue growth of 13%.

Second, our disciplined approach to improving the efficiency and productivity of our operations continues to generate strong overall margins. Despite a 28% increase in consolidated gross additions and related increases in acquisition costs, we managed our expenses effectively, capturing double-digit growth in operating profit before depreciation and amortization of 12%.

And third, the strength and continuing stability of our earnings and cash flow continued to create significant value for our shareholders. We improved our net income by 21% and we repurchased $1.4 billion of the $6 billion our board authorized in February earlier this year, fueling a lift in earnings per share of 44% to $0.85 in the quarter.

Now before I turn the call over to both Pat and Bruce for a more detailed review of our U.S. and Latin American businesses, let me offer just a few other observations about both the U.S. and Latin America.

Let me start with the DIRECTV U.S. Consumer demand for DIRECTV remains solid as net additions exceeded expectations by increasing 84% from the prior year to 184,000. The value of new subscribers remains high as nearly 80% of gross additions signed up for HD and/or DVR services in the quarter. Revenues from both advanced services and market share gains were key contributors to our 8% revenue growth in the quarter.

Also contributing were 2 of the key initiatives that we identified as new growth opportunities as you'll recall at our Investor Day in December. We saw a nearly 20% growth in commercial sales in the quarter, and DIRECTV CINEMA movie buys were at an all-time high. I'm also pleased with the way we managed our costs during the quarter. We generated the highest Pre-SAC margin ever for first quarter at 38.4%. Our OPBDA growth of 4% reflects the increase in gross additions and advanced products, and is consistent with our full year guidance. So overall, I think a very solid quarter for DIRECTV U.S. to start the new year.

Now before I turn to Latin America, though, let me just point out that as we exited the first quarter, we did see an uptick in the competitive landscape, as new customer promotions offered by both cable and telcos were more aggressive. To the extent these trends continue, we will see a modest impact on churn and net adds for the year.

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