direc tv group Deutsche Bank Media & Telecom Conference
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Transcript of direc tv group Deutsche Bank Media & Telecom Conference
Deutsche Bank 2006 Media and Telecommunications Conference
June 13, 2006
Mike PalkovicCFO, DIRECTV
Cautionary StatementThis 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.
Non-GAAP FinancialsThis 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.
Solid 1st Quarter Results
+235%$63M$211MCash Flow Before Interestand Taxes
(4 basis pts.)1.49%1.45%Monthly Churn
+2%$656$668SAC
+6%
+152%
+14%
Change
$65.78$69.75ARPU
$216M$545MOperating Profit BeforeDepreciation & Amortization
$2.80B$3.19BRevenue
1Q 20051Q 2006DIRECTV U.S.
Improving Subscriber Quality(Residential Subscribers)
Q1 Q2 Q3 Q4 Q1
High Risk
Low Risk
2005
39%
61%
30%
70%
24%
76%
18%
82%
14%
86%
# of High Risk Gross Adds
430K 275K 255K 170K 125K
# of Low Risk Gross Adds
660K 640K 785K 740K 745K
2006
Higher Quality Subscribers = Lower Churn
Is Driving Total Churn Lower
1.49%
A Decline in 1st Year ChurnA Decline in Involuntary Churn and …
Q1
34% 30%
Q1
Monthly Churn for First Year Customers
Q1
2.0.%
Q2 Q3 Q4
2.7%
3.2%
2.7%
Q1
2.0%
2005 2006
Involuntary Churn as a % of Total Churn
Q2 Q3 Q4
42%
46% 45%
2005 2006
1.45%
Q1 Q1
1.69%
1.89%
1.70%
Total Monthly Churn
Q2 Q3 Q42005 2006
Higher Quality Subscribers are also Driving HD and DVR Penetration Rates
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
DVR Subs HD SubsPenetration of Total Subscriber Base
2004 2005 2006
8%10%
12%14%
17%18%
20%23%
25%
HD Local Market RolloutQ4 2005
AtlantaBostonChicagoDallas-Ft Worth DetroitHoustonLos AngelesNew York PhiladelphiaSan Francisco Tampa Washington, D.C
May 2006
MilwaukeePhoenixSalt Lake CitySt. LouisIndianapolisSeattle
June 2006
BaltimoreCharlotteClevelandDenver Fresno HartfordMiami OrlandoRaleighW Palm Beach
April 2006
Birmingham Columbus Kansas City Minneapolis Nashville Pittsburgh Sacramento San Diego
Markets 12 20 26 36 50TV HHs 36M 45M 52M 63M 72M% of TV HHs 33% 41% 47% 58% 66%
2H 2006
Albuquerque AustinCincinnatiGrand RapidsGreen BayGreensboroLas Vegas MadisonMemphisPortland, MnPortland, OrProvidence RenoSan Antonio
Subscriber Acquisition Costs (SAC)(Excludes Benefits From the Lease Program)
Commission/Direct Sales
Installation
DVR/HD
Basic Box/Dish
Advertising/Marketing
$0
$700
2005 2006E 2007E 2008E
Advanced Products Drive Greater ValueNew Customer Returns (Excludes Benefits From the Lease Program)
HD-DVRHD
57%66%
$660$730
1.0%0.5%
45%46%
$89$115
$710$820
$680$710
$515$595
SAC*Current (2005)
45%65%
1.0%0.5%
41%46%
$86$109
46%63%
31%23%
After-tax IRRCurrent (2005)
1.0%0.6%
1.8%1.9%
Monthly Churn %Current (2005)
44%47%
38%38%
Variable MarginCurrent (2005)
$78$93
$64$64
ARPUCurrent (2005)
DVRBasic Box
Bold type reflects a 2-3 year outlook
*Includes equipment revenues collected from customers
Upgrade and Retention Costs(Excludes Benefits From the Lease Program and cost of HD swaps)
$0
$1.2B
Number of Transactions
5.0M 4.8M 5.1M 5.3M
Cost of Transaction
$220 $240 $235 $230
Movers
DVR/HD
Basic Box/Local Upgrades (SD)
2005 2006E 2007E 2008E
Advanced Products Drive Greater ValueExisting Customer Upgrades(Excludes Benefits From the Lease Program)
HD-DVRHD
77%88%
$250$410
1.0%0.5%
45%46%
$89$115
$290$400
$160$290
$90$170
Cost to Upgrade*Current (2005)
50%83%
1.0%0.5%
41%46%
$86$109
84%86%
50%19%
After-tax IRRCurrent (2005)
1.0%0.6%
1.7%1.8%
Monthly Churn %Current (2005)
44%47%
43%43%
Variable MarginCurrent (2005)
$78$93
$70$70
ARPUCurrent (2005)
DVRBasic Box
Bold type reflects a 2-3 year outlook
*Includes equipment revenues collected from customer
DIRECTV U.S. Capital Expenditures*
2004 2005 2006E 2007E 2008E
HD GroundMaintenanceSatellites$672M
$782M
$300-400M
*Excludes lease program
Strong Balance Sheet• $.9B net debt position as of 1Q 2006:
Cash and Short Term Inv. $2.5BTotal Debt 3.4BNet 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
Summary
• 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
DIRECTV is poised for profitable growth and increasing cash flow
Non-GAAP Financial Reconciliation Schedules
2006 2005
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
2006 2005
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
(Dollars in Millions)
Reconciliation of Cash Flow before Interest and Taxes and Free Cash Flow to DIRECTV Holdings LLC
DIRECTV Holdings LLCReconciliation of Operating Profit before Depreciation and Amortization to Operating Profit
Three Months EndedMarch 31,
March 31,
Net Cash Provided by Operating Activities
(Dollars in Millions)
Three Months Ended