ubs 36th annual global media and -...
TRANSCRIPT
UBS 36th Annual Global Media and Communications Conference
Jon RubinSenior VP of Financial Planning and Investor Relations
December 8, 2008
Cautionary StatementThis 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 FinancialsThis 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
3
DIRECTV’s Goal
To offer the best TV experience through leadership in:
Content HD, Exclusive, Sports, Original, Interactivity
Technology User Interface, DVR/ Advanced Equipment, Internet, Whole Home
Service Call Centers, Installer Network, Self Care
4
Increasing Market Share…
550
672
(540)
0
560
Net Adds
YTD 9/30/08
44%
54%
(43)%
0%
45%
%
228
742
(520)
675
878
Net Adds
2007
11%
37%
(26)%
34%
44%
%
0%
9%
7%
47%
37%
%
3
205
163
1,065
820
Net Adds
2006
Verizon FiOS
AT&T U-Verse
Cable
Dish Network
DIRECTV U.S.
Subscribers (K)
100%1,242100%2,003100%2,256Total Pay TV Market
5
711692641642643SAC
YTD Thru 9/30/082007200620052004
25%
41%
1.70%
$69.61
29%
40%
1.60%
$73.74
27%
37%
1.51%
$79.05
33%23%After-Tax IRRs
42%39%Variable Margin
1.50%1.59%Churn
$81.73$66.95ARPU
And Increasing Subscriber Returns
6
Subscriber Growth Drivers
Superior Programming/ServicesMost comprehensive SD, HD and DVR servicesMost sports/interactivity
Stronger Sales and MarketingAdvertising / National OffersDirect SalesCommercial Business
Building the Brand“The 101” – Friday Night Lights, original shows and concertsNew Services – DVR Scheduler, DIRECTV2PC, 1080PVideo-on-Demand
7
HD Channel Comparison
DIRECTV Verizon DISH AT&T TimeWarner
Comcast
Local
Premiums
National HD
Los Angeles DenverLos
AngelesLos
AngelesFlorida Philadelphia
130*
35
102
50
75*
37
Based on October survey of websites*Excludes Games-only Regional Sports Networks and VOD
8
Rapid Growth in HD/DVR Subscribers
6.6M
4.6M
3.0M
30%
41%
21%
2005 2006 2007 2008E
Penetration of Total Subscribers
Cumulative HD/DVR Subscribers
2,000K1,400KLTM
450K300KQ3 08
400K150KQ2 08
550K450KQ1 08
600K500KQ4 07
DIRECTVComcast
Net HD/DVR Subscriber Adds
~50%~30%Penetration of Sub Base
~50%
9
Attracting More Valuable Subscribers
47%34%44%33%Variable Margin
YTD Thru 9/30/082007
59%
$760
$100
0.8%
Advanced Sub
20%
$575
$62
1.9%
BasicSub
66%18%IRR
$750$600SAC*
$106
1.1%
Advanced Sub
$62
1.9%
BasicSub
ARPU
Monthly Churn
* Includes credit for upfront fees
DIRECTV U.S. Subscriber Returns
10
A Large Opportunity~40M U.S. Households are Expected to Sign-up for HD
Service Over the Next 3 Years
83M76M
65M
39M
54M
23M
34M
46M
59M
72M
2007 2008 2009 2010 2011
TV HHs with HD Service
TV HHs with HDTVs
Source: Average of Analysts/Research Groups
11
Interactive ServicesNFL Sunday Ticket
News Mix
The Masters Golf Tournament
The Weather Channel
12
Advertising / National Offers
DemographicsMen 35+Married
HomeownerIncome >$70K
College+
Index 120125121130145
40% ofcustomers
Drive 60%of Profits
13
Direct Sales Growth
2006 2007 2008E
34%
43%
~49%
1.3M
1.6M
Targeted DIRECTV.COM 1-800 DIRECTV
Direct Sales as a % of Total Gross Adds
14
Commercial Business Growth
2006 2007 2008E
Hotels Business/Private Bars/Restaurants
DIRECTV Market ShareTarget Market = 6M+ Locations
Commercial Accounts Gross Additions(Equivalent Units) ~190K
140K130K
4%
15
“The 101”
Concert Blizzcon
16
DIRECTV on Demand
17
Enhanced Services
DIRECTV2PC
NFL Supercast
DVR Scheduler
18
Strong Financial ResultsDIRECTV U.S.
974
1,784
25.5%
2,847
11,150
YTD Thru 9/30/07
1,819
1,240
26.5%
3,335
12,569
YTD Thru 9/30/08
100 BpsOPBDA Margin
87%Cash Flow Before Interest & Taxes
(30)%
17%
13%
Change
Capital Expenditures
Operating Profit Before D&A (OPBDA)
Revenue
$M except Margin
19
Up over last year986Q4
1,002
894
964
2008
Q3
Q2
Q1
(000)’s
(3)%1,032
(1)%900
4%929
Change2007 FavorableAT&T partnershipStronger brandCommercial / MDU / International growth
UnfavorableWeaker economyFiOS / U-Verse expansionLess upfront offer discounting
Strong Gross Additions
Up over last year3,847Full Year
Key Trends
20
Down slightly from last year
Up slightly from last year
1.64%
1.49%
1.36%
2008
1.51%FullYear
Q4
Q3
Q2
Q1
3 bps1.61%
1.42%
(9) bps1.58%
(8) bps1.44%
Change2007 FavorableHigher HD/DVR penetrationAT&T partnershipFurther credit tightening
UnfavorableFiOS/U-Verse expansionWeaker economyMore disciplined upgrade/ retention offers
Managing Churn
Key Trends
21
6 - 6.5%
~4%
6.1%
7.0%
8.6%
2008
7.2%Full Year
Q4
Q3
Q2
Q1
(220) bps8.3%
8.3%
20 bps6.8%
340 bps5.2%
Change2007 FavorablePrice increasesHD/DVR monthly fees
UnfavorableNational offers/discountsLease fees per homeFree/lower equipment fees“Law of large numbers”
ARPU Growth
Key Trends
22
7%7570National Advertising
3%170165Installation
711
225
240
Total SAC
Commissions/ Direct Marketing
Hardware
$/Subscriber
4%684
18%190
(8)%260
ChangeYTD Thru
9/30/07 9/30/08
Subscriber Acquisition Costs
FavorableLower box costsMore refurbished boxesOwned & Operated installers
UnfavorableRicher mix of HD-DVRsNew products/services
Broadband connectionWhole Home solution
Note: Includes expensed and capitalized costs
Key Trends
23
FavorableDecline in box costsLower “pent-up” demandMore refurbished boxes
UnfavorableSlower economy/greater competition Richer mix of HD-DVRsLoyalty program
Upgrade and Retention
1,097
100
520
480
(14)%1,270Total Upgrade & Retention
(23)%130Swaps
13%
(29)%
Change
460
680
YTD Thru9/30/07 9/30/08
Retention
Upgrades
$M
Note: Includes expensed and capitalized costs
Key Trends
24
0.3%12.7%12.4%Subscriber Acquisition Costs
(1.0)%73.5%74.5%Subtotal
0.2%6.8%6.6%G&A/Broadcast Operations
(0.4)%
(0.9)%
(0.2)%
Change
5.8%
6.7%
41.5%
6.2%
7.6%
41.7%
YTD Thru9/30/07 9/30/08
Upgrade & Retention Expenses
Subscriber Services
Programming/ Other COS
% of Revenues
Greater cost controls & operating efficiencies
Subscriber ServicesG&A
Stabilize key costsProgrammingSACUpgrade & Retention
Increasing Margins
1.0%26.5%25.5%Operating Profit Before D&A Margin
Key Trends
25
FavorableLower box costsMore refurbished boxesCompletion of satellite expansion plan
UnfavorableRicher mix of HD-DVRsNew projects/new local market launchesOwned and Operated installers
Declining Capital Expenditures
(28)%343476Basic/Other
(31)%8051,159Set-Top Boxes
(30)%
(38)%
Change
1,784
149
YTD Thru 9/30/07 9/30/08
92Satellites
1,240Total CapEx
$M
Key Trends
26
DIRECTV Latin America Overview
Sky Mexico1.73M Subscribers
59% Televisa41% DIRECTV
Sky Brazil1.61M Subscribers
74% DIRECTV26% Globo
PanAmericana2.09M Subscribers
100% DIRECTV
~5.5M Subscribers in the Region
27
DIRECTV Latin America Rapid Subscriber Growth
40%1,052K753KGross Subscriber Additions
45 bps19 bps
1.85%1.59%
1.40%1.40%
Monthly Churn RateExcluding Brazil Adjustments
19%463K390KNet Subscriber Additions
15%
21%
Change
$400
$56.88
YTD Thru 9/30/08
$347
$46.98
YTD Thru 9/30/07
Subscriber Acquisition Cost (SAC)
ARPU
Subscriber Metrics
28
DIRECTV Latin America Strong Financial Results
53%11374Free Cash Flow
500 bps28.0%23.0%OPBDA Margin
108%218105Cash Flow Before Interest & Taxes
36%
81%
48%
Change
322
507
1,811
YTD Thru 9/30/08
237
280
1,220
YTD Thru 9/30/07
Capital Expenditures
Operating Profit Before D&A
Revenue
$M
29
DIRECTV Latin America Strategy
Drive Strong Subscriber GrowthOffer the best content, technology and service throughout the region
Establish HD leadership positionAlready launched: Argentina, Colombia, Venezuela, Chile and Puerto Rico
Brazil launch: 2Q 2009
Aggressively market superior set-top boxes and DVR service
Expand pre-paid service
Leverage DIRECTV U.S. CapabilitiesSpeed-to-market
Advanced set-top boxes at a lower cost
Access to exclusive programming
Mitigate Currency Exposure~80% of costs in local currency
30
The DIRECTV Group (Consolidated) Generating Substantial Cash Flow
592
968
2,052
$0.91
24.8%
3,067
12,370
YTD Thru 9/30/07
1,249
1,954
1,572
$1.05
26.4%
3,791
14,379
YTD Thru 9/30/08
160 bpsOPBDA Margin
102%Cash Flow Before Interest & Taxes
111%Free Cash Flow
15%EPS
(23)%
24%
16%
Change
Capital Expenditures
Operating Profit Before D&A (OPBDA)
Revenue
$M except EPS and OPBDA Margin
31
The DIRECTV Group (Consolidated) Strong Balance Sheet
5,8503,395Total Debt
2,312
3,347
48
1,083
12/07
Net Debt
2,862
5,755
95
2,988
9/08
Long Term Debt
Net Debt
Short Term Debt
Cash
$M
Share Repurchases
6,840
1,838
339
69
YTD Thru 9/30/08
5,0022,977Cum Cost ($M)
2,0252,977Total Cost ($M)
270184Cum Shares (M)
86184Shares (M)
20072006
33
Non-GAAP Financial ReconciliationsNon-GAAP Financial Measure Reconciliation Schedules(Unaudited)
2008 2007
Operating Profit Before Depreciation and Amortization $3,791 $3,067
Subtract: Depreciation and amortization expense 1,675 1,198
Operating Profit $2,116 $1,869
2008 2007
Cash Flow Before Interest and Taxes $1,954 $968 Adjustments: Cash paid for interest (201) (176) Interest income 64 96 Income taxes paid (568) (296)Subtotal - Free Cash Flow 1,249 592 Add Cash Paid For: Property and equipment 1,480 1,903 Satellites 92 149 Net Cash Provided by Operating Activities $2,821 $2,644
Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities
Nine Months Ended
The DIRECTV Group
Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit*
Nine Months EndedSeptember 30,
The DIRECTV Group
*For a reconciliation of this non-GAAP financial measure for each of our segments, please see the Notes to the Consolidated Financial Statements which will be included in The DIRECTV Group’s Quarterly Report on Form 10-Q for the quarter ended Sept 30, 2008, filed with the SEC in November 2008.
(Dollars in Millions)
(Dollars in Millions)
September 30,
2008 2007
Cash Flow Before Interest and Taxes $218 $105 Adjustments: Cash paid for interest (29) (21) Interest income 18 14 Income taxes paid (94) (24)Subtotal - Free Cash Flow 113 74 Add Cash Paid For:
Property and equipment 322 237 Net Cash Provided by Operating Activities $435 $311
(Dollars in Millions)
September 30,
Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities
DIRECTV Latin America
Nine Months Ended
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
Non-GAAP Financial Measure Reconciliation(Unaudited)
2008 2007
Cash Flow Before Interest and Taxes $1,819 $974 Adjustments: Cash paid for interest (175) (162) Interest income 31 60 Income taxes paid (585) (624)Subtotal - Free Cash Flow 1,090 248 Add Cash Paid For:
Property and equipment 343 476 Subscriber leased equipment - subscriber acquisitions 432 580 Subscriber leased equipment - upgrade and retention 373 579 Satellites 92 149
Net Cash Provided by Operating Activities $2,330 $2,032
Free cash f low , w hich is a f inancial measure that is not determined in accordance w ith GAAP, is calculated by deducting amounts under the captions “Cash paid for property and equipment”, “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 Cash Flow s. This f inancial measure should be used in conjunction w ith other GAAP financial measures and is not presented as an alternative measure of cash flow s from operating activities, as determined in accordance w ith GAAP. The DIRECTV Group and DIRECTV U.S. management use free cash flow to evaluate the cash generated by our current subscriber base, net of capital expenditures, for the purpose of allocating resources to activities such as adding new subscribers, retaining and upgrading existing subscribers, for additional capital expenditures and as a measure of performance for incentive compensation purposes. The DIRECTV Group and DIRECTV U.S. believe this measure is useful to investors, along w ith other GAAP measures (such as c
our operating performance to other communications, entertainment and media companies. We believe that investors also use current and projected free cash flow to determine the ability of our current and projected subscriber base to fund required and discretionary spending and to help determine the f inancial value of the company.
Cash f low before interest and taxes, w hich is a financial measure that is not determined in accordance w ith GAAP, is calculated by deducting amounts under the captions “Cash paid for property and equipment”, “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 Cash Flow s and adding back net interest paid and “Cash paid for income taxes”. This f inancial measure should be used in conjunction w ith other GAAP f inancial measures and is not presented as an alternative measure of cash flow s from operating activities, as determined in accordance w ith GAAP. The DIRECTV Group and DIRECTV U.S. management use cash flow before interest and taxes to evaluate the cash generated by our current subscriber base, net of capital expenditures, and excluding the impact of interest and taxes, for the purpose of allocating resources to activities such as adding new subscribers, retaining and upgrading existing subscribers, for additional capital expenditures and as a measure of performance for incenti
The DIRECTV Group and DIRECTV U.S. believe this measure is useful to investors, along with other GAAP measures (such as cash flows from operating and investing activities), to compare 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 determine the ability of our current and projected subscriber base to fund required and discretionary spending and to help determine the financial value of the company.
(Dollars in Millions)
Nine Months EndedSeptember 30,
Reconciliation of Cash Flow Before Interest and Taxes2 and Free Cash Flow3 to Net Cash Provided by Operating Activities