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direc tv group  Third Quarter 2008 Financial Results and Outlook
 

direc tv group Third Quarter 2008 Financial Results and Outlook

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  • Caveat Emptor. AT&T/DirecTV are masters at the 'Trojan Horse' and 'Bait and Switch' scams. My experience with them and their 'bundle' of services has been the worst business experience in my life. The Feds really need to look into this.
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    direc tv group  Third Quarter 2008 Financial Results and Outlook direc tv group Third Quarter 2008 Financial Results and Outlook Presentation Transcript

    • Chase Carey President & CEO The DIRECTV Group
    • The DIRECTV Group Cautionary Statement This presentation includes certain statements that may be considered to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These forward-looking statements generally can be identified by words 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 improve customer service or create new and desirable programming content and interactive features; government action; 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 reliance on satellites as a significant part of our infrastructure and we may face other risks described from time to time in periodic reports filed by us with the SEC. Non-GAAP Financials This presentation includes financial measures that are not determined in accordance with GAAP, such as Operating Profit before Depreciation and Amortization, Free Cash Flow 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 and is included at the end of this presentation package. 2
    • Goal: Deliver The Best TV Experience Through Leadership In: Content Technology Service 3
    • Financial Objectives Solid Top Line Growth Increasing Margins Strong Cash Flow Growth 4
    • Strong First Half Results The DIRECTV Group 1H 2007 1H 2008 Change $M except OPBDA Margin Revenue 8,043 9,398 17% Operating Profit Before D&A (OPBDA) 2,063 2,539 23% OPBDA Margin 25.6% 27.0% 137 Bps Cash Flow Before Interest & Taxes 653 1,335 104% Free Cash Flow 510 917 80% 5
    • High Quality Subscriber Growth Full Year Full Year First Half Net Subscriber Additions (K) 2006 2007 2008 DIRECTV U.S. 820 878 404 Dish Network 1,065 675 10 Cable 163 (520) (270) Verizon FiOS 205 742 439 AT&T U-Verse 3 228 318 Total Pay TV Market 2,256 2,003 900 6
    • Unique Marketing Strengths 7
    • Direct Sales Expansion Direct Sales as a % of Total Gross Additions ~50% 42% 34% 25% 2005 2006 2007 2008E 8
    • Target Opportunistically Weak Cable Market Disruptions Unique Content Advantages • HD • Sports 9
    • Build Key Niches Commercial MDU Ethnic Rural 10
    • Manage Churn DIRECTV U.S. Average Monthly Churn 1.70% 1.60% 1.51% 1.42% .71% .57% .52% .40% Involuntary .99% 1.03% .99% 1.02% Voluntary Full Year Full Year Full Year First Half 2005 2006 2007 2008 11
    • Tighter Credit Policies/Key Customer Terms Stricter Credit Policies Minimum Commitment Period Upfront Fee Increased to Increased for 18 months High Risk Subs Dealer Compensation Credit Cards Realigned Required Enhanced Implemented Fraud 1 and 2 Year Raised Increased Protection Commitments Minimum Focus on System Credit Score Collecting Upfront Fee Social Security Required for Numbers High Risk Subs 2005 2008 12
    • Customer Segmentation 38% of Customers Drive 63% of Profits Index Demographics TIER 5 15% Customers 120 Men 35+ 34% Profit 125 Married 121 Homeowner TIER 4 130 Income >$70K 23% Customers 145 29% Profit College/Grad School 13
    • Communication / Loyalty 14
    • ARPU Growth Full Year Full Year Full Year First Half DIRECTV U.S. 2005 2006 2007 2008 Packages / Premiums / $55.70 $58.50 $60.30 $59.70 Sports / PPV Advanced Services / Equipment / 8.90 9.70 12.20 13.60 Lease Fees Other / Ad Sales 5.00 5.50 6.60 7.50 Total ARPU $69.61 $73.74 $79.05 $80.79 Year-over-Year 4.0% 5.9% 7.2% 7.8% ARPU Growth 15
    • Advanced Product Leadership Total HD and/or DVR Subscribers Penetration of 41% Total 30% Subscribers 21% 13% 6.6M Cumulative 4.6M Advanced Subscribers 3.0M 2.0M 2004 2005 2006 2007 16
    • Focus on Quality Subscribers DIRECTV U.S. Gross Additions’ Mix 7% 8% 28% Higher Risk 15% 93% 72% 85% 92% Lower Risk Full Year Full Year Full Year First Half 2005 2006 2007 2008 17
    • DIRECTV on Demand 18
    • Advertising Opportunities Interactive Telescoping Local Advertising DVR Insertion Audience Measurement 19
    • Content Leadership 20
    • HD Advantage Based on August survey of websites *Excludes Games-only Regional Sports Networks and VOD National HD Premiums Local 130* 75* 32 24 DIRECTV DISH Comcast Time Warner Los Angeles Denver Philadelphia Los Angeles 21
    • Sports Leadership 22
    • Original / Unique Programming 23
    • Interactive / Enhanced Services 24
    • User Interface 25
    • Technology and Engineering Improve Reliability Upgradeable Add Functionality Next Gen/Whole Home Experience 26
    • Ultimate Customer Experience 27
    • Optimize Quality and Efficiencies Simplify and Standardize Technology Advancements • Home Installation • Wireless Handheld • New Diagnostic Tools Increased Self-Care • Web • IVR 28
    • Owned and Operated Network Best Practices Accurate Metrics Flexibility and Speed % of Network States Served Volume California, Oregon, Washington, Idaho, Montana, Wyoming, 180 Connect ~20% Colorado, Utah, Arkansas, New Jersey, Pennsylvania, Virginia Oklahoma, Missouri, Nebraska, Iowa, N. Dakota, S. Dakota, Premier ~10% Minnesota, Wisconsin Bruister ~5% Mississippi, Alabama, Georgia, Tennessee, Florida, Louisiana Total ~35% 29
    • Subscriber Acquisition and Retention Costs Upward Pressure • Demand for Advanced Products • New Technologies (e.g. Connecting the Home) • Targeting High Quality Subscribers • Equipment Upgrade Flexibility Offsets: • Lower Box Costs • Use of Refurbished Boxes • Installation and Marketing Efficiencies 30
    • Declining Capital Expenditures $0.8B $0.8B $0.7B $0.6B Sustaining HD Infrastructure Satellites 2005 2006 2007 2008E Note: Excludes Set-Top Box CapEx 31
    • DIRECTV U.S. 3 Year Outlook Revenues of $20B in 2010 • 1.5M – 2M New Subscribers Additions (cum) • ARPU Growth of 5%+ OPBDA Margin Approaches 30% Cash Flow Before Interest and Taxes of ~$4B in 2010 ~40% CAGR from 2007 32
    • DIRECTV Latin America 4th Largest Pay-TV Provider Outside the U.S. with 5.5M Subscribers Sky Mexico 1.7M Subscribers Sky Brazil 59% Televisa 1.7M Subscribers 41% DIRECTV 74% DIRECTV 26% Globo PanAmericana 2.1M Subscribers 100% DIRECTV 33
    • Latin America Market Overview Large TV Market with Low Pay-TV Penetration • Brazil – 11%; Mexico – 28%; PanAmericana – 36% Competitive Landscape: • Cable is Main Competitor • Digital Roll-Out Only in Major Urban Markets • Bundle Product Offers Increasing: Telmex, Telefonica Low Penetration of Advanced Products 34
    • DIRECTV Latin American Strategy Adapt DIRECTV U.S. roadmap to Latin America Content and Technology Leadership Customer Service Superiority Multi-Box and DVR Expansion Introduce HD and Secure Leadership Position Expand Pre-Paid Offer into New Countries 35
    • DIRECTV Latin America 2006 2007 2008E 2,711K 3,279K ~4,000K Cumulative Subscribers $1,013M $1,719M ~$2,200M+ Revenue Operating Profit Before Depreciation $244M $394M ~$625+M and Amortization (OPBDA) 24% 23% 28% OPBDA Margin $0M $140M ~$250M Cash Flow Before Interest & Taxes Note: Excludes Mexico 36
    • Conclusions DIRECTV U.S. • Meeting or Exceeding Operating Targets • Generating Substantial Cash Flow Growth DIRECTV Latin America • Momentum Building • Tremendous Upside for Value Creation Strong Balance Sheet • Remains Underleveraged • $6.5B in Buybacks Over Past 2.5 Years • Half Remaining on Current $3B Program 37
    • 38
    • Non-GAAP Financial Reconciliations (Unaudited) The DIRECTV Group Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Reconciliation of Operating Profit Before Depreciation and Amortization to Profit Operating Profit Twelve Months Ended S ix Months Ended December 31, June 30, 2008 Outlook 2007 2006 2008 2007 (Dollars in Millions) (Dollars in Millions) Operating Profit Before Depreciation and Amortization $2,539 $2,063 Operating Profit Before Depreciation and Amortization ~625+ $394 $244 Subtract: Depreciation and amortization expense ~225+ 235 165 Subtract: Depreciation and amortization expense 1,081 760 Operating Profit ~$400 $159 $79 Operating Profit $1,458 $1,303 Revenue ~$2,200 $1,719 $1,013 Revenue $9,398 $8,043 OPBDA M argin ~28% 22.9% 24.1% OPBDA M argin 27.0% 25.6% DIRECTV Latin America Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash The DIRECTV Group Provided by Operating Activities Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Twelve Months Ended Net Cash Provided by Operating Activities December 31, S ix Months Ended 2008 Outlook 2007 2006 June 30, 2008 2007 (Dollars in Millions) (Dollars in Millions) Cash Flow Before Interest and Taxes ~$250 $140 $0 Cash Flow Before Interest and Taxes $1,335 $653 Adjustments: Adjustments: Cash paid for interest (27) (12) Cash paid for interest (124) (113) Interest income 18 16 Interest income 37 71 Income taxes paid * ~(100) (51) (14) Income taxes paid (331) (101) Add Cash Paid For: Subtotal - Free Cash Flow 917 510 Property and equipment ~450 336 175 Add Cash Paid For: Net Cash Provided by Operating Activities ~$600 $416 $165 Property and equipment 959 1,234 *Outlook data combines interest received, interest paid and income taxes paid under income taxes paid Satellites 77 112 Net Cash Provided by Operating Activities $1,953 $1,856 39