direc tv group Deutsche Bank Media & Telecom Conference

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direc tv group Deutsche Bank Media & Telecom Conference

  1. 1. Deutsche Bank 2006 Media and Telecommunications Conference June 13, 2006 Mike Palkovic CFO, DIRECTV
  2. 2. Cautionary Statement This presentation may include or incorporate by reference certain statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning of various provisions of the Securities Act of 1933 and of the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such as “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “foresee,” “project” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from those expressed or implied by the relevant forward-looking statement. Such risks and uncertainties include, but are not limited to: economic conditions; product demand and market acceptance; ability to simplify aspects of our business model; improve customer service; create new and desirable programming content and interactive features; achieve anticipated economies of scale; government action; local political or economic developments in or affecting countries where we have operations, including political, economic and social uncertainties in many Latin American countries in which DTVLA operates; foreign currency exchange rates; competition; the outcome of legal proceedings; ability to achieve cost reductions; ability to renew programming contracts under favorable terms; technological risk; limitations on access to distribution channels; the success and timeliness of satellite launches; in-orbit performance of satellites, including technical anomalies; loss of uninsured satellites; theft of satellite programming signals; and our ability to access capital to maintain our financial flexibility; and we may face other risks described from time to time in periodic reports filed by us with the SEC.
  3. 3. Non-GAAP Financials This presentation includes financial measures that are not determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, such as Operating Profit before Depreciation and Amortization, Free Cash Flow, Pre-SAC margin and Cash Flow before Interest and Taxes. These financial measures should be used in conjunction with other GAAP financial measures and are not presented as an alternative measure of operating results, as determined in accordance with GAAP. DIRECTV management uses these measures to evaluate the profitability of DIRECTV U.S.’ subscriber base for the purpose of allocating resources to discretionary activities such as adding new subscribers, upgrading and retaining existing subscribers and for capital expenditures. A reconciliation of these measures to the nearest GAAP measure is posted on our website.
  4. 4. Solid 1st Quarter Results 1Q 2006 1Q 2005 Change DIRECTV U.S. Revenue $3.19B $2.80B +14% Operating Profit Before $545M $216M +152% Depreciation & Amortization Cash Flow Before Interest $211M $63M +235% and Taxes ARPU $69.75 $65.78 +6% SAC $668 $656 +2% Monthly Churn 1.45% 1.49% (4 basis pts.)
  5. 5. Improving Subscriber Quality (Residential Subscribers) 14% High Risk 39% 30% 24% 18% 61% 70% 76% 82% 86% Low Risk Q1 Q2 Q3 Q4 Q1 2006 2005 # of High Risk 430K 275K 255K 170K 125K Gross Adds # of Low Risk 660K 640K 785K 740K 745K Gross Adds
  6. 6. Higher Quality Subscribers = Lower Churn A Decline in 1st Year Churn A Decline in Involuntary Churn and … Involuntary Churn as a % of Total Churn Monthly Churn for First Year Customers 3.2% 46% 45% 2.7% 2.7% 42% 34% 30% 2.0.% 2.0% Q1 Q2 Q3 Q4 Q2 Q3 Q4 Q1 Q1 Q1 2005 2006 2005 2006 Is Driving Total Churn Lower Total Monthly Churn 1.89% 1.70% 1.69% 1.49% 1.45% Q2 Q1 Q3 Q4 Q1 2005 2006
  7. 7. Higher Quality Subscribers are also Driving HD and DVR Penetration Rates Penetration of Total Subscriber Base 25% DVR Subs HD Subs 23% 20% 18% 17% 14% 12% 10% 8% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2004 2005 2006
  8. 8. HD Local Market Rollout Q4 2005 April 2006 May 2006 June 2006 2H 2006 Atlanta Birmingham Milwaukee Baltimore Albuquerque Boston Columbus Phoenix Charlotte Austin Chicago Kansas City Salt Lake City Cleveland Cincinnati Dallas-Ft Worth Minneapolis St. Louis Denver Grand Rapids Detroit Nashville Indianapolis Fresno Green Bay Houston Pittsburgh Seattle Hartford Greensboro Los Angeles Sacramento Miami Las Vegas New York San Diego Orlando Madison Philadelphia Raleigh Memphis San Francisco W Palm Beach Portland, Mn Tampa Portland, Or Washington, D.C Providence Reno San Antonio 12 20 26 36 50 Markets 36M 45M 52M 63M 72M TV HHs 33% 41% 47% 58% 66% % of TV HHs
  9. 9. Subscriber Acquisition Costs (SAC) (Excludes Benefits From the Lease Program) $700 DVR/HD Advertising/Marketing Commission/Direct Sales Installation Basic Box/Dish $0 2005 2006E 2007E 2008E
  10. 10. Advanced Products Drive Greater Value New Customer Returns (Excludes Benefits From the Lease Program) Basic Bold type reflects a DVR HD HD-DVR 2-3 year outlook Box ARPU $64 $78 $86 $89 Current (2005) $64 $93 $109 $115 Variable Margin 38% 44% 41% 45% Current (2005) 38% 47% 46% 46% Monthly Churn % 1.8% 1.0% 1.0% 1.0% Current (2005) 1.9% 0.6% 0.5% 0.5% SAC* $515 $680 $710 $660 Current (2005) $595 $710 $820 $730 31% 46% 45% 57% After-tax IRR Current (2005) 23% 63% 65% 66% *Includes equipment revenues collected from customers
  11. 11. Upgrade and Retention Costs (Excludes Benefits From the Lease Program and cost of HD swaps) $1.2B DVR/HD Movers Basic Box/Local Upgrades (SD) $0 2005 2006E 2007E 2008E Number of 5.0M 4.8M 5.1M 5.3M Transactions Cost of $220 $240 $235 $230 Transaction
  12. 12. Advanced Products Drive Greater Value Existing Customer Upgrades (Excludes Benefits From the Lease Program) Basic Bold type reflects a DVR HD HD-DVR 2-3 year outlook Box ARPU $70 $78 $86 $89 Current (2005) $70 $93 $109 $115 Variable Margin 43% 44% 41% 45% Current (2005) 43% 47% 46% 46% Monthly Churn % 1.7% 1.0% 1.0% 1.0% Current (2005) 1.8% 0.6% 0.5% 0.5% Cost to Upgrade* $90 $160 $290 $250 Current (2005) $170 $290 $400 $410 50% 84% 50% 77% After-tax IRR Current (2005) 19% 86% 83% 88% *Includes equipment revenues collected from customer
  13. 13. DIRECTV U.S. Capital Expenditures* HD Ground Maintenance $782M Satellites $672M $300-400M 2004 2005 2006E 2007E 2008E *Excludes lease program
  14. 14. Strong Balance Sheet • $.9B net debt position as of 1Q 2006: Cash and Short Term Inv. $2.5B Total Debt 3.4B Net Debt $.9B • Repurchased approximately 160.1M shares for $2.56B – Stock buyback program authorized for $3B • Expect significant cash flow growth • Current credit rating provides significant borrowing capacity
  15. 15. Summary DIRECTV is poised for profitable growth and increasing cash flow • Leading digital multichannel TV service provider – 100% digital platform – Unique and exclusive programming – New products/services expected to further differentiate • Strong revenue, OPBD&A and subscriber growth – Increasing margins due to cost controls and operating leverage • Strong balance sheet with substantial liquidity
  16. 16. Non-GAAP Financial Reconciliation Schedules DIRECTV Holdings LLC Reconciliation of Operating Profit before Depreciation and Amortization to Operating Profit Three Months Ended March 31, 2006 2005 (Dollars in Millions) Operating Profit before Depreciation and Amortization $ 544.6 $ 215.6 Subtract: Depreciation and amortization expense 182.2 177.2 Operating Profit (loss) $ 362.4 $ 38.4 DIRECTV Holdings LLC Reconciliation of Cash Flow before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities Three Months Ended March 31, 2006 2005 (Dollars in Millions) Cash Flow before Interest and Taxes $ 211.1 $ 63.1 Subtract: Net interest paid 43.6 82.9 Income taxes paid (refunded) 119.4 (44.1) Subtotal - Free Cash Flow 48.1 24.3 Add Cash Paid For: Property and equipment 97.8 45.8 Satellites 56.6 100.4 Subscriber leased equipment - subscriber acquisitions 46.4 - Subscriber leased equipment - upgrade and retention 40.4 - Net Cash Provided by Operating Activities $ 289.3 $ 170.5

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