DIRECTV CEO Discusses Q3 2010 Results – Earnings Call Transcript
DIRECTV (
)
Q3 2010 Earnings Call Transcript
November 4, 2010 11:00 am ET
Executives
Jonathan Rubin – SVP, Financial Planning and IR
Michael White – Chairman, President and CEO
Bruce Churchill – EVP and President, DIRECTV Latin America
Pat Doyle – EVP and CFO
Analysts
James Ratcliffe – Barclays Capital
Stefan Anninger – Credit Suisse
Benjamin Swinburne – Morgan Stanley
Doug Mitchelson – Deutsche Bank
John Hodulik – UBS
Jason Bazinet – Citi
Vijay Jayant – Citadel Securities
Craig Moffett – Sanford Bernstein
Paul Sweeney – Bloomberg Research
Bryan Kraft – Evercore Partners
Jason Armstrong – Goldman Sachs
Tim Schlock – Wells Fargo
Matthew Harrigan – Wunderlich Securities
Presentation
Operator
Compare to:
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DIRECTV Q2 2010 Earnings Call Transcript
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DIRECTV Q1 2010 Earnings Call Transcript
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The DIRECTV Group, Inc. Q4 2009 Earnings Call Transcript
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DirecTV Group Inc. Q3 2009 Earnings Conference Call
Good day, ladies and gentlemen. Welcome to today’s Third Quarter 2010 DIRECTV Earnings Conference Call. My name is Anne and I’ll be your conference operator for today. All lines have been placed on-mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer period.
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 thanks to everyone for joining us for our third quarter 2010 financial results and outlook conference call. With me today on the call are Mike White, our President and CEO; Larry Hunter, General Counsel; Pat Doyle, CFO; and Bruce Churchill, President of DIRECTV Latin America. 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 or implied by the relevant forward-looking statements. Factors that could cause actual results to differ materially are described in each of DIRECTV’s and DIRECTV U.S.’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.
Additionally, in accordance with the SEC’s Regulation-G that requires companies reporting non-GAAP financial measures to reconcile these measures to the directly comparable GAAP measures, we do provide reconciliation schedules for the non-GAAP measures, which are attached to our earnings release and posted on our Web site at directv.com.
So, with that I’m pleased to introduce Mike.
Mike White
Thanks, Jon and thanks to everyone for joining us this morning. I’d like to start with a few high level comments about our quarter and then, I’ll turn the call over to Pat and Bruce as is customary for more detailed review of our U.S. and Latin American businesses.
Overall though, I thought our third quarter results were certainly the best for the year, as we gained market share in both regions, North America and South America, while also maintaining very strong margins.
My main takeaways from the quarter are, first, DIRECTV and Sky Latin America’s strong brands and differentiated content continue to drive greater consumer demand for our services, both in the United States and across Latin America. In addition, to gaining share our customers also are purchasing more HD, DVR and premium services, which contributed to the fourth consecutive quarter of double-digit revenue growth for our company.
Second, we’re continuing to manage our costs effectively, capturing efficiencies and productivity improvements. Despite a 13% increase in consolidated gross additions and related increase in acquisition costs, we still achieved double-digit OPBDA growth and grew our earnings per share by 49% in the quarter.
Third, we made significant progress towards strengthening our balance sheet and returning the capital to shareholders by issuing $3 billion in debt and repurchasing $1.37 billion of stock, bringing our year-to-date buybacks to $3.6 billion.
Let’s first look at the DIRECTV U.S. business. I’m particularly pleased to see that as our year progressed, our subscriber momentum continues to build. In fact our third quarter was the first time in six quarters where both our gross adds and our churn, were better than prior year’s period, resulting in a 28% increase in net additions to $174,000.
Consumer demand for DIRECTV services remains extremely strong for a couple reasons. It’s clear that some of our new products are resonating well with our customers.
For instance, I mentioned at an investor conference a few weeks ago that our take rate for whole-home DVR services was running around 25% of gross adds, and recently we’ve seen that number reach as high as 40% of new subscribers.
We intend to keep that momentum going in the fourth quarter with continued focus on our multi-room viewing product as well as re-launching our enhanced DIRECTV Cinema service and more aggressively connecting our most valuable subscribers’ receivers to the Internet.
We continue to believe that a set-top box connected to the Internet provides our customers with significantly more features and services, which in turn will drive greater ARPU and lower churn.
Another reason behind the strong demand we saw in the quarter is the popularity of our offers, including free HD in the NFL SUNDAY TICKET promotion. Continuing the trends that we discussed in our last earnings call, the free HD offer seems to be particularly appealing to our target market, namely higher income households that have high-definition televisions.
In the quarter, we reached yet another record as over 75% of gross adds were activated with advanced services. However, our biggest jump came in customers signing up for both HD and DVR services, as that number grew to almost half of all new customers in the quarter compared to only 30% a year ago.
Now in addition to targeting and attaining higher quality new subscribers, I think we’re also doing a better job keeping our existing customers happy. We now approach churn management in a much more proactive and highly targeted manner. Our customer service agents have better information tools to more effectively respond to our customers’ needs and desires.
In addition, I believe that all parts of our operations under Mike Palkovic from the initial installation to equipment reliability to our loyalty program and overall customer service are all performing at improved levels and are contributing to our lower churn rates.
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