DIRECTV Announces First Quarter 2013 Results

DIRECTV Announces First Quarter 2013 Results

DIRECTV Adds 604,000Net Subscriber Additions in the First Quarter.

• DIRECTV Latin America adds 583,000 in the quarter surpassing 16 million total subscribers - including Sky Mexico - extending its lead as the largest Pay-TV provider in Latin America.

DIRECTV Revenues Grow 8% to $7.6 Billion.

• Revenue driven by DIRECTV U.S. ARPU growth of 4.4% along with strong DIRECTV Latin America subscriber growth.

DIRECTV Adjusted OPBDA Increases 10% to $2.1 Billion; Reported OPBDA Increases 1% to $1.9 Billion.

• Adjusted OPBDA results driven by 17% increase in adjusted OPBDA at DIRECTV Latin America and 8% OPBDA growth at DIRECTV U.S.

DIRECTV's Adjusted Diluted EPS Improves 34% to $1.43; Reported Diluted EPS Increases 12% to $1.20.

• EPS fueled by adjusted net income growth of 13% and stock repurchases of $1.38 billion in the first quarter.

EL SEGUNDO, Calif.--(BUSINESS WIRE)-- DIRECTV (NAS: DTV) today announced an increase in first quarter 2013 revenues of 8% to $7.58 billion, adjusted operating profit before depreciation and amortization¹ (OPBDA) of 10% to $2.09 billion, adjusted operating profit of 8% to $1.4 billion, and adjusted earnings per share of 34% to $1.43 compared to last year's first quarter. Adjusted financial results exclude a $166 million pre-tax charge ($136 million after-tax) associated with the revaluation of the net monetary assets of the company's subsidiary in Venezuela at the time of the Bolivar's devaluation in February. Reported OPBDA increased 1% to $1.92 billion, reported operating profit decreased 5% to $1.24 billion, and reported diluted earnings per share increased 12% to $1.20 compared with the same period last year.

"Building on the momentum of one of the largest transitional years in our history, DIRECTV delivered another strong quarter of operating and financial results," said Mike White, president and CEO of DIRECTV. "Our industry leading revenue growth of 8% continues to be driven by the strength of our premier brands and popularity of our differentiated product and service offerings across the Americas, as well as our ability to profitably grow ARPU in a challenging U.S. operating environment." White added, "At the same time, our adjusted OPBDA margin grew as we remain focused on achieving operational excellence through disciplined expense management and productivity initiatives, while we continue to return cash to shareholders through stock repurchases at an industry leading clip."

DIRECTV's Operational Review

First Quarter Review

DIRECTV's first quarter revenues of $7.58 billion increased 8% principally due to subscriber growth at DIRECTV Latin America (DTVLA) and DIRECTV U.S., as well as higher ARPU at DIRECTV U.S. In the quarter, DTVLA recorded a $166 million pre-tax charge ($136 million after-tax) associated with the revaluation of the net monetary assets of the company's subsidiary in Venezuela at the time of the Bolivar's devaluation in February. Adjusted OPBDA increased 10% and adjusted operating profit increased 8% in the quarter while adjusted OPBDA margin increased to 27.5% and adjusted operating profit margin was unchanged at 18.6%. Adjusted OPBDA margin improved primarily due to lower subscriber acquisition costs at DIRECTV U.S. and Sky Brasil, as well as the absence of an NFL Sunday Ticket game in the first quarter of 2013. Adjusted operating profit margin was also impacted by higher depreciation and amortization at both DTVLA and DIRECTV U.S. resulting from higher leased equipment and infrastructure capital expenditures. Reported OPBDA increased 1% to $1.9 billion and reported operating profit declined 5% to $1.2 billion in the quarter.

Adjusted net income attributable to DIRECTV increased 13% to $826 million and adjusted diluted earnings per share grew 34% to $1.43 primarily due to the higher adjusted operating profit. Adjusted diluted earnings per share were also impacted by share repurchases made over the last twelve months. Reported net income attributable to DIRECTV declined 6% to $690 million while reported diluted earnings per share grew 12% to $1.20 compared with the first quarter of last year.

Cash flow before interest and taxes² decreased to $1.11 billion and free cash flow³ decreased to $710 million compared to the first quarter of 2012 primarily due to lower cash generated from working capital mostly due to the timing of receivables and higher capital expenditures at DIRECTV U.S. Free cash flow was also impacted by higher net interest payments primarily due to an increase in average net debt balances. Also during the quarter but not included in free cash flow was cash paid for share repurchases of $1.38 billion, as well as a January 2013 issuance by DIRECTV U.S. of $750 million principal amount of 1.75% senior notes due 2018 and a $121 million net increase in commercial paper, resulting in $480 million outstanding as of March 31, 2013. In addition, Sky Brasil entered into a financing facility with BNDES, a government owned Brazilian bank, from which Sky Brasil may borrow funds for the purchase of set-top receivers. Our Board of Directors has approved borrowings of up to 500 million Brazilian Reals (approximately $250 million at the then current exchange rate) under this facility. As of March 31, 2013, there was approximately $49 million outstanding on the BNDES facility bearing interest at an annual rate of 2.5%.

SEGMENT FINANCIAL REVIEW

DIRECTV U.S. Segment

First Quarter Review

In the quarter, DIRECTV U.S. revenues increased 5% to $5.79 billion compared with the first quarter of 2012 primarily due to strong ARPU growth along with a larger subscriber base. DIRECTV U.S. added 21,000 net new subscribers in the quarter, a decrease from the prior year period principally due to lower gross subscriber additions. Gross additions declined mainly due to a greater focus on higher quality subscribers, stricter credit policies and the competitive environment. The average monthly churn rate in the quarter was relatively unchanged at 1.45%. ARPU increased 4.4% to $96.05 mostly due to higher advanced service fees, price increases on programming packages, and increased movie and event buys, partially offset by the absence of one NFL Sunday Ticket game in the quarter and increased promotional offers to new and existing customers. DIRECTV U.S. ended the quarter with 20.11 million subscribers compared with 19.97 million subscribers reported for the quarter ended March 31, 2012.

First quarter OPBDA increased 8% to $1.52 billion and OPBDA margin improved to 26.3% principally due to lower subscriber acquisition costs related to the reduction in gross additions, relatively unchanged subscriber services costs, and the absence of NFL Sunday Ticket costs in the quarter. These improvements were partially offset by higher programming costs mostly related to programming supplier rate increases. Operating profit increased 7% to $1.12 billion and operating profit margin increased to 19.3% in the first quarter mainly due to the OPBDA and OPBDA margin improvements, partially offset by higher depreciation and amortization resulting from increased leased equipment and infrastructure capital expenditures.

DIRECTV Latin America

DIRECTV Latin America owns approximately 93% of Sky Brasil, 41% of Sky Mexico and 100% of PanAmericana, which covers most of the remaining countries in the region. Sky Mexico, whose results are accounted for as an equity method investment and therefore are not consolidated by DTVLA, had approximately 5.41 million subscribers as of March 31, 2013, bringing the total subscribers in the region to 16.32 million.