DTV

DIRECTV (DTV)

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DIRECTV (DTV)

Q4 2011 Earnings Call

February 16, 2012 1:00 pm ET

Executives

Jonathan Rubin -

Michael White - Chairman, Chief Executive Officer and President

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 T. Doyle - Chief Financial Officer and Executive Vice President

Analysts

Philip Cusick - JP Morgan Chase & Co, Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Stefan Anninger - Crédit Suisse AG, Research Division

Nicholas Del Deo

James M. Ratcliffe - Barclays Capital, Research Division

Tuna N. Amobi - S&P Equity Research

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

Thomas W. Eagan - Collins Stewart LLC, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

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

Amy Yong - Macquarie Research

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

Benjamin Swinburne - Morgan Stanley, Research Division

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

Presentation

Operator

Good day, ladies and gentlemen. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to DIRECTV's Fourth 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 fourth quarter 2011 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, 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 and 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 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 thanks, everybody, for joining us today. On today's call, we're going to talk briefly about our fourth quarter and full year 2011 results, so we can spend more time discussing both our longer-term strategies and our 2012 outlook.

Now, looking first at our 2011 results, I have to say I think DIRECTV had another year of industry-leading growth, further extending our position as the world's largest provider of pay-TV video services, now with over 32 million subscribers across the Americas. Clearly, one of the highlights of 2011 was the tremendous consumer demand for DIRECTV and Sky's premium brands, which drove record subscriber growth and market share gains across the Americas. Propelled by strong fourth quarter results in both the U.S. and Latin America, our full year gross additions soared to all-time highs, up over 20% from 2010 levels, culminating in the largest annual net subscriber gain in DIRECTV's history. In fact, including Sky Mexico, we added a record 3.7 million net new subscribers in 2011. In addition to these subscriber achievements, we generated industry-leading top and bottom line growth, while also returning cash to our shareholders through stock repurchases at an industry-leading clip.

Turning to DIRECTV U.S. DIRECTV U.S. had a solid year and in spite of a lackluster economy, competitive intensity and heightened programming costs, which challenged us throughout the year, DIRECTV's brand leadership, differentiated products and popular NFL Sunday Ticket offer, strongly resonated with consumers and strengthened our competitiveness in the marketplace. Consumer demand for our service exceeded our own internal expectations, as solid fourth quarter gross adds capped off a record year, in which we added over 4.3 million gross additions, while also achieving nearly 700,000 net additions in the United States. In terms of our top line, full year 2011 revenue growth of 8% met the higher end of our guidance that we provided at Investor Day, which was driven by both solid subscriber and solid ARPU growth. In terms of margins and the bottom line, our overall U.S. results, excluding the impact from the incremental record gross additions, were pretty much right in line with our full year guidance.

Turning to Latin America, we saw a tremendous operating and financial success across 2011. Strong consumer demand for our products and services across the continent, along with favorable macroeconomic trends, drove accelerating subscriber growth throughout the year. Bruce Churchill's team set new records every quarter, culminating with a 70% increase in full year net additions over 2010, as we exceeded the 2 million mark for the first time ever, bringing our base at the end of 2011 to nearly 8 million customers. And in fact, adding in Sky Mexico, we now have more than 12 million customers throughout the region. From my perspective, equally impressive was that this exceptional subscriber growth was accompanied by equally outstanding growth in both revenue and profit. Full year revenue accelerated 42% to over $5 billion, while OPBDA full year grew 43%, in spite of the higher acquisition costs associated with those record gross additions. Overall, it's clear that DIRECTV Latin America's performance in 2011 exceeded all of our expectations across the board.

So in summary, our strong results from both our U.S. and Latin America businesses provide us with solid momentum as we head into 2012.

Now, before discussing our long-term outlook, I thought it might be helpful to first review the key financial objectives we outlined for our consolidated business at Investor Day in December 2010. As I'm sure you'll recall, we set targets for the end of 2013 of 30 million consolidated subscribers, $30 billion in consolidated revenues and earnings per share of at least $5. I'm confident we're poised to meet or exceed all of those targets. Now, it is clear also that our current outlook for free cash flow is about perhaps a year behind our target due to both additional satellites in the U.S. and Latin America, as well as the higher DIRECTV U.S. costs, including increased investment for advanced equipment in the home. With that said, I continue to believe our 3-year strategy as we presented it in December of 2010, remains largely on track, albeit as you'd expect, we've had to modify certain initiatives and update our priorities to reflect the ever-changing operating and macroeconomic environment that we face.

Let me turn to the DIRECTV U.S. outlook. As we've said before, the key challenges facing DIRECTV U.S. continue to pressure our core business and in some cases, are even more pronounced today than they were at Investor Day. Macroeconomic weakness continues to pressure the U.S. consumer, driving them to be decidedly more cautious and focused on getting good value for every dollar they spend, even as the economy has marginally improved. The pace of advancement in the world of technology is providing consumers with more choices and options, both in and out of the home, to get content, while continuing to raise expectations around the quality of service. And in the maturing pay-TV marketplace, the competitive environment continues to intensify. Finally, and perhaps most critically, our programming providers seek even higher rates for their content. Frankly, even higher than the higher rates we anticipated at Investor Day, I might say, as well as our compensation for digital rights.

Read the rest of this transcript for free on seekingalpha.com