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DIRECTV (DTV)

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DIRECTV (DTV)

Q2 2011 Earnings Call

August 04, 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

Jeffrey Wlodarczak - Pivotal Research Group LLC

John Hodulik - UBS Investment Bank

Benjamin Swinburne - Morgan Stanley

Richard Greenfield - BTIG, LLC

James Ratcliffe - Barclays Capital

Stefan Anninger - Crédit Suisse AG

Jason Bazinet - Citigroup Inc

Marci Ryvicker - Wells Fargo Securities, LLC

Douglas Mitchelson - Deutsche Bank AG

Tuna Amobi - S&P Equity Research

Thomas Eagan - Collins Stewart LLC

Presentation

Operator

Good day, ladies and gentlemen. My name is Leah, and I will be your conference operator today. At this time, I would like to welcome everyone to the DIRECTV's Second Quarter 2011 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to your host, Mr. 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 second quarter 2011 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 of Latin America; and Larry Hunter, 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 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 and 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 be materially different and 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 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 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, Jon, and thank you, everyone, for joining us today. From my perspective, DIRECTV's diversified portfolio of businesses across all of the Americas delivered another strong quarter of industry-leading growth. And parenthetically, I might add that our momentum continues as we just recently achieved another impressive milestone, which we'll be announcing later on today after the call, reaching 30 million customers, including Sky Mexico across the DTV platform. And for those of you who don't have the numbers right in front of you, by the way, that works out to about 300,000 net adds for the month for DIRECTV across all of the Americas.

We continued to extend our position as the world's largest pay television service by leveraging the strength of our brand, as well as our best-in-class video experience with continued operating discipline across all of our disparate geographies, demographics, and I might add, macroeconomic conditions.

As you saw in our release, the consolidated revenue and operating profit before depreciation and amortization both grew double digits at 13%, representing an even faster growth rate from last quarter's performance. This accelerating growth was driven by another quarter of exceptional performance of DIRECTV Latin America, as well as by solid financial returns from DIRECTV U.S. that were entirely consistent with our expectations. Consolidated net income increased 29% in the second quarter and we repurchased over $1.5 billion of DIRECTV stock, fueling a 52% lift in earnings per share to $0.91.

Now before I turn the call over to Bruce and Pat for a more detailed review of our Latin American financials, I'd like to offer just a few observations.

Let me begin with DIRECTV U.S., where industry-leading revenue growth of 7% and an OPBDA improvement of 4% are right in line with our guidance for the quarter and the full year. Now the top line, we're continuing to see solid growth from Advanced Services in premium channels, as well as double-digit growth in our commercial sales, although pay-per-view revenues were a little soft in the quarter, mostly due to the timing of events. In terms of our net additions, the lackluster economy and a tough competitive landscape drove our churn slightly higher than we initially forecast. The pickup in competitive intensity that we saw coming out of the first quarter is yet to abate, I would say, when I look at the marketplace in general. Triple play offers, without contractual commitments, and higher cashback incentives by both the cable operators and telco providers, along with the consumers who are increasingly under stress from an ongoing weak economy have resulted in more price-conscious consumers shopping for better deals.

In response, we've significantly stepped up our efforts to closely manage churn in a more targeted fashion. For instance, we further refined our segmentation analysis to identify those customers that are most likely to churn as they get close to the end of their 2-year contract, and matched them up with our best agents and best offers.

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