DIRECTV Announces Second Quarter 2013 Results

DIRECTV Announces Second Quarter 2013 Results

DIRECTV Revenues Grow 7% to $7.7 Billion.

  • Revenue driven by DIRECTV U.S. ARPU growth of 4.6% along with strong DIRECTV Latin America subscriber growth over the last year.

DIRECTV OPBDA Increases 4% to $2.1 Billion Driven by Strong DIRECTV U.S. Results.


DIRECTV's Diluted EPS Improves 8% to $1.18.

DIRECTV Repurchases $2.0 Billion of Stock in the First Half of 2013.

EL SEGUNDO, Calif.--(BUSINESS WIRE)-- DIRECTV (NAS: DTV) today announced an increase in second quarter 2013 revenues of 7% to $7.70 billion, operating profit before depreciation and amortization1 (OPBDA) of 4% to $2.08 billion, a decline in operating profit of 4% to $1.35 billion, and higher earnings per share of 8% to $1.18 compared to last year's second quarter.

"Our second quarter consolidated results highlight the benefits of our diversified portfolio of businesses as DIRECTV, the world's largest pay-TV company, grew its subscriber base to nearly 37 million customers," said Mike White, president and CEO of DIRECTV. "While macro-economic and operational challenges in Latin America impacted our results, particularly in Brazil, contributions from successfully executing on DIRECTV U.S.' long term strategic imperatives combined with our share repurchase program drove solid revenue, earnings per share and free cash flow in the quarter."

DIRECTV'S Operational Review

DIRECTV Consolidated         Three Months Ended
June 30,
    Six Months Ended
June 30,
Dollars in Millions except Earnings per Common Share         2013       2012     2013       2012
Revenues         $ 7,700         $ 7,224       $ 15,280         $ 14,270  
Reported Operating Profit Before Depreciation and Amortization(1) 2,081       2,009 4,001       3,912
Reported OPBDA Margin (1)         27.0 %       27.8 %     26.2 %       27.4 %
Reported Operating Profit 1,350 1,411 2,592 2,719
Reported Operating Profit Margin         17.5 %       19.5 %     17.0 %       19.1 %
Reported Net Income Attributable to DIRECTV         660         711       1,350         1,442  
Reported Diluted Earnings Per Common Share         1.18         1.09       2.37         2.16  
Capital Expenditures and Cash Flow                                
Cash paid for property and equipment         193         215       345         368  
Cash paid for subscriber leased equipment - subscriber acquisitions         403         290       772         702  
Cash paid for subscriber leased equipment - upgrade and retention         236         159       463         347  
Cash paid for satellites         116         126       194         184  
Cash Flow Before Interest and Taxes(2)         1,179         1,028       2,286         2,336  
Free Cash Flow(3)         526         471       1,236         1,423  
Adjusted Financial Results                                
Adjusted Operating Profit Before Depreciation and Amortization(1)

 

 

4,167 3,912
Adjusted OPBDA Margin (1)        

 

 

     

 

 

    27.3 %       27.4 %
Adjusted Operating Profit

 

 

2,758 2,719
Adjusted Operating Profit Margin        

 

 

     

 

 

    18.0 %       19.1 %
Adjusted Net Income Attributable to DIRECTV        

 

       

 

      1,486         1,442  
Adjusted Diluted Earnings Per Common Share        

 

       

 

      2.61         2.16  
 

"Adjusted" financial results in the table above and year-to-date discussion below 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 2013.

Second Quarter Review

DIRECTV's second quarter revenues of $7.70 billion increased 7% principally due to higher ARPU at DIRECTV U.S., as well as subscriber growth at DIRECTV Latin America (DTVLA) and DIRECTV U.S. over the last twelve months. These increases were partially offset by lower ARPU at DTVLA primarily due to unfavorable exchange rates. Also in the quarter, OPBDA increased 4% to $2.08 billion while operating profit fell to $1.35 billion. OPBDA and operating profit margin declined to 27.0% and 17.5%, respectively, primarily due to higher programming costs at both DIRECTV U.S. and DTVLA, as well as increased upgrade and retention spending at DIRECTV U.S., partially offset by lower subscriber acquisition costs at DIRECTV U.S. 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, as well as additional depreciation associated with capitalized installation costs and subscriber equipment related to the higher subscriber churn at Sky Brasil(5).

Net income attributable to DIRECTV declined to $660 million mainly due to the lower operating profit. Also impacting the comparison was a $59 million non-cash pre-tax charge in 2013 due to the deconsolidation of DIRECTV Sports Network (DSN) Northwest resulting from the renegotiation with the Seattle Mariners regarding DIRECTV's ownership in the venture, as well as a $64 million charge in 2012 for the loss on the early retirement of debt. Both of these charges were recorded on the "Other, net" line of the Consolidated Statements of Operations. Diluted earnings per share grew 8% to $1.18 in the quarter as the lower net income was offset by share repurchases made over the last twelve months.

Cash flow before interest and taxes2 increased 15% to $1.18 billion and free cash flow3 increased 12% to $526 million compared to the second quarter of 2012 primarily due to the higher OPBDA and higher cash generated from working capital mostly due to the timing of receivables and a reduction in inventory levels at DIRECTV U.S. These increases were partially offset by higher capital expenditures at both DIRECTV U.S. and DTVLA, mostly related to increased cash paid for leased equipment at DIRECTV U.S. associated with higher penetration of advanced boxes to both new and existing customers. Free cash flow was also impacted by lower net interest payments due to timing as well as an increase in income tax payments related to the reversal of prior bonus depreciation deductions and timing of tax payments.

Also during the quarter but not included in free cash flow was cash paid for share repurchases of $590 million, as well as a May 2013 issuance by DIRECTV U.S. of €500 million (or about $650 million) aggregate principal amount of 2.750% Senior Notes due in 2023. In addition, there was $275 million of commercial paper outstanding along with $52 million on Sky Brasil's BNDES facility as of June 30, 2013.

Year to Date Review

DIRECTV's revenues for the first six months of 2013 of $15.28 billion increased 7% principally due to higher ARPU at DIRECTV U.S. as well as subscriber growth over the last year at DTVLA and DIRECTV U.S. These increases were partially offset by lower ARPU at DTVLA primarily due to unfavorable exchange rates. Year to date adjusted OPBDA increased 7% to $4.17 billion and adjusted operating profit increased 1% to $2.76 billion compared with the same period of 2012. Adjusted OPBDA margin was relatively unchanged in the period as increased programming and upgrade and retention costs at DIRECTV U.S., combined with higher general and administrative expenses at DTVLA were mostly offset by lower subscriber acquisition costs at DIRECTV U.S. Adjusted operating profit margin was also negatively 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 2% to $4.00 billion and reported operating profit declined to $2.59 billion in the first half of the year.

Adjusted net income attributable to DIRECTV increased 3% to $1.49 billion compared with the first six months of 2012 primarily due to the higher adjusted operating profit. Also impacting the comparison was the $59 million non-cash pre-tax charge in 2013 due to the deconsolidation of DSN Northwest, as well as the $64 million charge in 2012 for the loss on the early retirement of debt. In addition, adjusted diluted earnings per share improved 21% to $2.61 due to the higher adjusted net income, as well as share repurchases made over the last twelve months. Reported net income attributable to DIRECTV declined to $1.35 billion while reported diluted earnings per share improved 10% to $2.37.

Cash flow before interest and taxes declined slightly to $2.29 billion and free cash flow declined to $1.24 billion compared to the first six months of 2012 as the higher OPBDA was more than offset by greater capital expenditures primarily at DIRECTV U.S. driven by increased cash paid for leased equipment related to higher penetration of advanced boxes to both new and existing customers. In addition, free cash flow was impacted by higher tax payments mostly related to the reversal of prior bonus depreciation deductions and timing of tax payments.

Also during the first half of 2013 but not included in free cash flow was $140 million received for the sale of investments primarily for the partial sale of the Game Show Network equity investment, cash paid for share repurchases of $1.97 billion, as well as two debt issuances by DIRECTV U.S. -- the first in January 2013 of $750 million principal amount of 1.750% senior notes due in 2018, and the second in May 2013 of €500 million (or about $650 million) aggregate principal amount of 2.750% Senior Notes due in 2023.

SEGMENT FINANCIAL REVIEW
 
DIRECTV U.S. Segment

 

           
 
DIRECTV U.S. Three Months Ended
June 30,
Six Months Ended
June 30,
Dollars in Millions except ARPU         2013       2012     2013       2012
Revenues         $ 5,943         $ 5,647       $ 11,733         $ 11,146  
Average Monthly Revenue per Subscriber (ARPU) ($)         98.73         94.40       97.43         93.25  
Operating Profit Before Depreciation and Amortization(1) 1,651       1,585 3,172       2,995
OPBDA Margin (1)         27.8 %       28.1 %     27.0 %       26.9 %
Operating Profit 1,241 1,216 2,356 2,254
Operating Profit Margin         20.9 %       21.5 %     20.1 %       20.2 %
Capital Expenditures and Cash Flow                                
Cash paid for property and equipment         154         131       265         240  
Cash paid for subscriber leased equipment - subscriber acquisitions         151         118       325         278  
Cash paid for subscriber leased equipment - upgrade and retention         119         45       230         130  
Cash paid for satellites         55         82       108         116  
Cash Flow Before Interest and Taxes(2)         1,127         946       2,119         2,157  
Free Cash Flow(3)         576         527       1,258         1,498  
Subscriber Data (in 000's except Churn)                                
Gross Subscriber Additions         839         863       1,732         1,804  
Average Monthly Subscriber Churn         1.53 %       1.53 %     1.49 %       1.48 %
Net Subscriber Additions (Disconnections)         (84

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