DirecTV adds more subscribers than ever, will push live streaming, HD UI, and multiroom DVRs

DIRECTV Adds All-Time Record 1.14 Million Net New Subscribers in Latin America and the U.S. within the Quarter.

DIRECTV Latin America sets records with 957,000 gross and 574,000 net additions within the quarter while Sky Mexico adds 238,000 net new subscribers.
DIRECTV U.S. gross additions of one.28 million and lower churn of one.62% fuel the best third quarter net additions in 7 years to 327,000

Revenue Growth of 14% Accelerates to $6.84 Billion

Increase driven by DIRECTV Latin America’s record subscriber growth and 11% higher Average Revenue per Subscriber, in addition to 8% revenue growth at DIRECTV U.S.

DIRECTV Diluted Earnings per Share Increases 27% to $0.70

EPS growth driven by 37% increase in operating profit at DIRECTV Latin America in addition share repurchases of $5.9 billion over the past 12 months, including nearly $1.5 billion within the third quarter

EL SEGUNDO, Calif.–(BUSINESS WIRE)– DIRECTV (NASDAQ:DTV) today reported increases in third quarter 2011 revenues of nearly 14% to $6.84 billion, operating profit before depreciation and amortization1 (OPBDA) of seven% to $1.58 billion and operating profit of nineteen% to $1.03 billion in comparison to last year’s third quarter. DIRECTV also reported that third quarter net income increased 8% to $516 million while diluted earnings per share grew 27% to $0.70 compared with an analogous period last year.

“Third quarter net additions soared to an all-time record high of one.14 million-or 901 thousand excluding Sky Mexico-because the strength of DIRECTV’s brands and unparalleled video experience fueled the biggest net subscriber gain in DIRECTV’s history,” said Mike White, president and CEO of DIRECTV. “This tremendous growth came inside the Americas, as DIRECTV Latin America generated its best quarter ever with 574 thousand net additions while DIRECTV U.S. had its biggest third quarter in seven years with 327 thousand new subscribers. Combining this record performance with solid ARPU growth drove an acceleration of consolidated revenue growth to almost 14% exceeding both last year and primary half growth rates. Earnings per share within the quarter grew even faster to 27% fueled mostly by higher operating profit at DIRECTV Latin America and our share repurchase program, partially offset by higher programming costs and the fast term impact from the extra acquisition costs concerning the numerous increase in gross additions at DIRECTV U.S.”

White finished, “Looking forward, we plan to construct in this momentum by debuting several compelling new services including a greatly enhanced DIRECTV Anywhere offering so they can enable consumers to stream live-TV programming and on-demand movies to their mobile devices, in addition to a brand spanking new HD user interface and the much anticipated launch of our home media center. We even have exciting growth plans in Latin America as we think to continue to greatly expand our subscriber base by offering the correct video experience to a rapidly growing pay-TV market during the region.”

DIRECTV’S OPERATIONAL REVIEW

Third Quarter Review
DIRECTV Consolidated Three Months Nine Months
Dollars in Millions except Earnings Ended September 30, Ended September 30,
per Class a typical Share 2011 2010 2011 2010
Revenues $6,844 $6,025 $19,763 $17,481
Operating Profit Before Depreciation and Amortization(1) 1,584 1,484 5,196 4,694
OPBDA Margin(1) 23.1% 24.6% 26.3% 26.9%
Operating Profit 1,030 868 3,415 2,834
Operating Profit Margin 15.0% 14.4% 17.3% 16.2%
Net Income Caused by DIRECTV 516 479 1,891 1,580
Diluted Earnings Per Class a typical Share 0.70 0.55 2.47 1.57
Adjusted Diluted Earnings Per Share(2) 0.70 0.55 2.47 1.75
Capital Expenditures and Cash Flow
Cash Paid for DIRECTV U.S. Subscriber Leased Equipment – Acquisitions, Upgrade and Retention 313 271 782 669
Cash Paid for Property, Equipment and Satellites 659 395 1,534 1,077
Cash Flow Before Interest and Taxes(3) 788 968 2,685 2,952
Free Cash Flow(4) 235 665 1,295 2,079

DIRECTV’s third quarter revenues of $6.84 billion increased nearly 14% over the similar period last year principally because of strong subscriber and average revenue per subscriber (ARPU) growth at DIRECTV Latin America (DTVLA) and DIRECTV U.S. Operating profit before depreciation and amortization increased 7% to $1.58 billion while OPBDA margin declined to 23.1%. The margin decline was primarily as a result of higher programming costs at DIRECTV U.S. mostly relating to annual program supplier rate increases and the brand new NFL contract, in addition to higher subscriber acquisition costs driven by the record gross additions at both DIRECTV U.S. and DTVLA. Operating profit grew 19% to $1.03 billion and operating profit margin increased to fifteen.0% because the decline in OPBDA margin was greater than offset by lower depreciation expense at DIRECTV U.S. principally driven by a rise within the estimated depreciable lifetime of High-Definition set-top boxes from three years to four years leading to a decline in depreciation expense of roughly $76 million within the quarter.

Net income due to DIRECTV increased 8% to $516 million compared with the third quarter of last year primarily as a result of higher operating profit. This improvement was partially offset by higher interest expense principally due to a rise in long-term debt in addition to $72 million in pre-tax non-cash losses related to the revaluation of U.S. dollar denominated net-liabilities in Brazil compared with an $18 million gain for a similar period in 2010. Diluted earnings per share increased 27% to $0.70 within the quarter due to higher net income and a lower average share count due to stock repurchases revamped the last 12 months.

Cash flow before interest and taxes3 declined 19% to $788 million when compared with the third quarter of 2010 because the higher OPBDA was greater than offset by increased capital expenditures mostly driven by the record gross additions and larger demand for advanced equipment at both DIRECTV U.S. and DTVLA, in addition to higher payments for satellites at DTVLA. Free cash flow declined 65% to $235 million because of the lower cash flow before interest and taxes along side greater cash interest payments linked to higher average debt levels and increased cash tax payments primarily as a result of higher pre-tax income. Also in the course of the quarter but not included in free cash flow, was cash paid for share repurchases of $1.45 billion.

Year-to-Date Review

DIRECTV’s revenues for the primary nine months of 2011 increased 13% to $19.76 billion over a similar period last year principally thanks to strong subscriber and ARPU growth at both DIRECTV Latin America and DIRECTV U.S. Operating profit before depreciation and amortization increased 11% to $5.20 billion while OPBDA margin declined to 26.3% in the course of the period. The margin decline was primarily because of higher programming cost at DIRECTV U.S. mostly related to annual program supplier rate increases and the recent NFL contract, in addition to higher subscriber acquisition costs driven by the record gross additions at both DIRECTV U.S. and DTVLA. Year thus far operating profit increased 21% to $3.42 billion and operating profit margin increased to 17.3% because the lower OPBDA margin was greater than offset by the decline in depreciation and amortization expenses at DIRECTV U.S.

Within the first nine months of 2011, net income on account of DIRECTV increased 20% to $1.89 billion driven by the better operating profit in addition to a $29 million increase in other income, including a $60 million increase in pre-tax gains caused by the sale of investments recorded in “Other, net” at the Consolidated Statements of Operations. These increases were partially offset by higher interest expense principally attributable to a rise in long-term debt in addition to greater income tax expense on account of the better pre-tax income. Also impacting the comparison was a $67 million gain from the general settlement of the equity collars assumed within the Liberty transaction within the first quarter of 2010 in addition to $45 million in pre-tax non-cash losses also recorded in “Other, net” linked to the revaluation of U.S. dollar denominated net-liabilities in Brazil throughout the first nine months of 2011 compared with a $7 million gain for a similar period in 2010. Diluted earnings per share improved to $2.47, a 57% increase excluding the impact of the Malone transaction2 from the outcomes in the course of the first nine months of 2010, primarily with the aid of higher net income in addition to a lower average share count because of stock repurchases revamped the last 12 months.

Cash flow before interest and taxes declined 9% to $2.69 billion compared with the 1st nine months of 2010 mainly as a consequence of higher capital expenditures primarily related to increased gross additions and insist for advanced set-top boxes at both DIRECTV U.S. and DTVLA, in addition to higher expenditures on satellites at DTVLA. These increased expenditures were partially offset by the better OPBDA and a $39 million increase in dividends received, primarily from Sky Mexico and Game Show Network. Year thus far free cash flow declined 38% to $1.30 billion because of the lower cash flow before interest and taxes, higher cash interest payments involving a rise in long-term debt and bigger cash tax payments primarily linked to higher pre-tax income. In the course of the first nine months of 2011 but not included in free cash flow, were cash paid for share repurchases of $4.37 billion and proceeds from the sale of investments of $116 million. Moreover, DIRECTV U.S. completed a $4.0 billion debt financing in March 2011 and DIRECTV redeemed $1.0 billion of 6.375% Senior Notes due 2015 in the course of the first nine months of 2011.

SEGMENT FINANCIAL REVIEW

DIRECTV U.S. Segment

Third Quarter Review

Within the quarter, DIRECTV U.S. revenues increased nearly 8% to $5.42 billion as a result larger subscriber base and ARPU growth of three.6%. Net additions nearly doubled to 327,000 within the third quarter because of record gross additions driven partially by the NFL SUNDAY TICKETTM promotion, in addition to a lower average monthly churn rate of one.62%. The ARPU increase to $92.21 was mostly because of price increases on programming packages and leased set-top boxes, in addition to higher advanced service fees partially offset by more promotional offers to new and existing customers. DIRECTV U.S. ended the quarter with 19.76 million subscribers, a rise of four% over the 18.93 million subscribers reported for the quarter ended September 30, 2010.
Three Months Nine Months
DIRECTV U.S. Ended September 30, Ended September 30,
Dollars in Millions except ARPU 2011 2010 2011 2010
Revenue $5,421 $5,031 $15,843 $14,737
Average Monthly Revenue per Subscriber (ARPU) ($) 92.21 88.98 90.48 87.43
Operating Profit Before Depreciation and Amortization(1) 1,153 1,192 3,962 3,892
OPBDA Margin(1) 21.3% 23.7% 25.0% 26.4%
Operating Profit 800 720 2,737 2,427
Operating Profit Margin 14.8% 14.3% 17.3% 16.5%
Cash Flow Before Interest and Taxes(3) 744 806 2,357 2,663
Free Cash Flow(4) 267 450 1,155 1,702

Subscriber Data (in 000′s except Churn)

Gross Subscriber Additions 1,280 1,137 3,286 3,008
Average Monthly Subscriber Churn 1.62% 1.70% 1.57% 1.56%
Net Subscriber Additions 327 174 537 374
Cumulative Subscribers 19,760 18,934 19,760 18,934

Third quarter OPBDA declined 3% to $1.15 billion and OPBDA margin fell to 21.3% primarily because of higher programming costs mostly associated with annual program supplier rate increases and the recent NFL contract, in addition to higher subscriber acquisition costs because of the significant increase in gross additions. Also within the quarter, operating profit grew 11% to $800 million and operating profit margin increased to fourteen.8% because the decline in OPBDA was greater than offset by lower depreciation and amortization expense with regards to a rise within the estimated depreciable lifetime of High-Definition set-top boxes from three years to four years, the completion of amortization for a subscriber-related intangible asset and lower depreciation expense related to a discount in set-top box capital expenditures during the last several years.

DIRECTV Latin America Segment

DIRECTV Latin America owns approximately 93% of Sky Brazil, 41% of Sky Mexico and 100% of PanAmericana, which covers many of the remaining countries within the region. Sky Mexico, whose results are accounted for as an equity method investment and therefore is just not consolidated by DTVLA, had approximately 3.82 million subscribers as of September 30, 2011 bringing the complete subscribers within the region to 11.10 million on the end of the third quarter of 2011.

Third Quarter Review

Within the third quarter, DTVLA revenues increased 46% to $1.36 billion principally thanks to strong subscriber growth and an 11.0% increase in ARPU. Net additions greater than doubled to 574,000 driven by an 82% increase in gross additions to an all-time record of 957,000 and a decline in monthly post paid churn within the quarter to one.39%. Gross additions were higher principally on account of greater demand in Brazil particularly from the center market segment, in addition to from increased new activations in Argentina, while the reduction in post-paid churn was mainly driven by lower churn in Venezuela and Brazil. The rise in ARPU to $64.63 was mostly as a result of price increases and bigger penetration of advanced services, in addition to favorable exchange rates in Brazil. Excluding the impact of exchange rates, DTVLA ARPU increased 7.7% within the third quarter.
Three Months Nine Months
DIRECTV Latin America Ended September 30, Ended September 30,
Dollars in Millions except ARPU 2011 2010 2011 2010
Revenue $1,356 $930 $3,724 $2,566
Average Monthly Revenue per Subscriber (ARPU) ($) 64.63 58.20 63.58 56.88
Operating Profit Before Depreciation and Amortization(1) 434 313 1,241 822
OPBDA Margin(1) 32.0% 33.7% 33.3% 32.0%
Operating Profit 236 172 696 438
Operating Profit Margin 17.4% 18.5% 18.7% 17.1%
Cash Flow Before Interest and Taxes(3) 32 151 329 286
Free Cash Flow(4) (23) 111 124 159

Subscriber Data(5) (in 000′s except Churn)

Gross Subscriber Additions 957 525 2,545 1,679
Average Monthly Total Subscriber Churn 1.83% 2.00% 1.83% 1.86%
Average Monthly Post-paid Subscriber Churn 1.39% 1.54% 1.42% 1.52%
Net Subscriber Additions 574 206 1,473 842
Cumulative Subscribers 7,281 5,430 7,281 5,430

DIRECTV Latin America’s third quarter 2011 OPBDA increased 39% to $434 million and operating profit rose 37% to $236 million. Also inside the quarter, OPBDA margin declined to 32.0% and operating profit margin fell to 17.4% primarily as a result of higher subscriber acquisition costs related to the record gross additions, in addition to increased upgrade and retention spending mostly because of higher demand for advanced equipment.

CONFERENCE CALL INFORMATION

A live webcast of DIRECTV’s third quarter 2011 earnings call would be available at the company’s website at www.directv.com/investor. The webcast will begin at 1:00 p.m. ET, today November 3, 2011. Access to the earnings call is likewise available within the U . s . by dialing (888) 778-9064 and internationally by dialing (913) 312-1517. The conference ID number is 2150014. A replay of the decision can also be accessed by dialing 888-203-1112 inside the U.S. and 719-457-0820 internationally. The replay pass code is 2150014. The replay can be available from 5:30 p.m. ET Thursday, November 3 through 2:59 a.m. ET Friday, November 11 and also will be archived on our website at www.directv.com/investor.

FOOTNOTES

(1) Operating profit before depreciation and amortization, that is a financial measure that’s not determined according to accounting principles generally accepted within the Usa, or GAAP, ought to be utilized in conjunction with other GAAP financial measures and isn’t presented instead measure of operating results, as determined based on GAAP. Please see each of DIRECTV and DIRECTV Holdings LLC’s Annual Reports on Form 10-K for the year ended December 31, 2010 for further discussion of operating profit before depreciation and amortization. Operating profit before depreciation and amortization margin is calculated by dividing operating profit before depreciation and amortization by total revenues.

(2) Within the second quarter of 2010, DIRECTV resolved an FCC issue regarding our Puerto Rico operations by consummating a transaction with Dr. John C. Malone and members of his family. Under the terms of the agreement, the Malones exchanged 21.8 million shares of DIRECTV Class B common stock, which was the entire outstanding Class B shares, for 26.5 million shares of DIRECTV Class a typical stock. The extra 4.7 million shares, worth approximately $160 million reduced the diluted earnings per share as a result of Class A shareholders to $1.57 for the nine months ended September 2010. See reconciliation of adjusted diluted earnings per share to diluted earnings per share on the end of this release.

(3) Cash flow before interest and taxes, that’s a financial measure that’s not determined in keeping with GAAP, is calculated by deducting amounts under the captions “Cash paid for property and gear”, “Cash paid for satellites”, “Cash paid for subscriber leased equipment – subscriber acquisitions” and “Cash paid for subscriber leased equipment – upgrade and retention” from “Net cash provided by operating activities” from the Consolidated Statements of money Flows and adding back net interest paid and “Cash paid for income taxes”. This financial measure ought to be utilized in conjunction with other GAAP financial measures and isn’t presented instead measure of money flows from operating activities, as determined based on GAAP. DIRECTV and DIRECTV U.S. management use cash flow before interest and taxes to guage the money generated by our current subscriber base, net of capital expenditures, and excluding the impact of interest and taxes, for the aim of allocating resources to activities similar to adding new subscribers, retaining and upgrading existing subscribers, for added capital expenditures and as a measure of performance for incentive compensation purposes. DIRECTV and DIRECTV U.S. believe this measure turns out to be useful to investors, such as other GAAP measures (reminiscent of cash flows from operating and investing activities), to match our operating performance to other communications, entertainment and media companies. We believe that investors also use current and projected cash flow before interest and taxes to establish the facility of our current and projected subscriber base to fund required and discretionary spending and to aid determine the financial value of the corporate.

(4) Free cash flow, that’s a financial measure that isn’t determined in response to GAAP, is calculated by deducting amounts under the captions “Cash paid for property and gear”, “Cash paid for satellites”, “Cash paid for subscriber leased equipment – subscriber acquisitions”, and “Cash paid for subscriber leased equipment – upgrade and retention” from “Net cash provided by operating activities” from the Consolidated Statements of money Flows. This financial measure need to be utilized in conjunction with other GAAP financial measures and isn’t presented as a substitute measure of money flows from operating activities, as determined in keeping with GAAP. DIRECTV and DIRECTV U.S. management use free cash flow to judge the money generated by our current subscriber base, net of capital expenditures, for the aim of allocating resources to activities equivalent to adding new subscribers, retaining and upgrading existing subscribers, for extra capital expenditures and as a measure of performance for incentive compensation purposes. DIRECTV and DIRECTV U.S. believe this measure turns out to be useful to investors, together with other GAAP measures (corresponding to cash flows from operating and investing activities), to check our operating performance to other communications, entertainment and media companies. We believe that investors also use current and projected free cash flow to see the power of our current and projected subscriber base to fund required and discretionary spending and to assist determine the financial value of the corporate.

(5) DIRECTV Latin America subscriber data exclude subscribers of the Sky Mexico service.