DirecTV Q2: Strong LatAm subs growth

Satellite operator DirectTV has announced an increase in second quarter 2013 revenues of 7 per cent to $7.70 billion, operating profit before depreciation and amortisation (OPBDA) of 4 per cent to $2.08 billion, a decline in operating profit of 4 per cent to $1.35 billion, and higher earnings per share of 8 per cent 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 DirectTV, the world’s largest pay-TV company, grew its subscriber base to nearly 37 million customers,” said Mike White, president and CEO of DirectTV. “While macro-economic and operational challenges in Latin America impacted our results, particularly in Brazil, contributions from successfully executing on DirectTV US’s long term strategic imperatives combined with our share repurchase programme drove solid revenue, earnings per share and free cash flow in the quarter.”

DirectTV’s second quarter revenues of $7.70 billion increased 7 per cent principally as a result of higher ARPU at DirectTV US, as well as subscriber growth at DirectTV Latin America (DTVLA) and DirectTV US over the last twelve months. These increases were partially offset by lower ARPU at DTVLA primarily as a result of unfavourable exchange rates. Also in the quarter, OPBDA increased 4 per cent to $2.08 billion while operating profit fell to $1.35 billion. OPBDA and operating profit margin declined to 27.0 per cent and 17.5 per cent, respectively, primarily as a result of higher programming costs at both DirectTV US and DTVLA, as well as increased upgrade and retention spending at DirectTV US, partially offset by lower subscriber acquisition costs at DirectTV US Operating profit margin was also impacted by higher depreciation and amortisation at both DTVLA and DirectTV US resulting from higher leased equipment and infrastructure capital expenditures, as well as additional depreciation associated with capitalised installation costs and subscriber equipment related to the higher subscriber churn at Sky Brasil.

DirectTV’s revenues for the first six months of 2013 of $15.28 billion increased 7 per cent principally as a result of higher ARPU at DirectTV US ,as well as subscriber growth over the last year at DTVLA and DirectTV US. These increases were partially offset by lower ARPU at DTVLA primarily as a result of unfavorable exchange rates. Year to date adjusted OPBDA increased 7 per cent to $4.17 billion and adjusted operating profit increased 1 per cent 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 DirectTV US, combined with higher general and administrative expenses at DTVLA were mostly offset by lower subscriber acquisition costs at DirectTV US Adjusted operating profit margin was also negatively impacted by higher depreciation and amortization at both DTVLA and DirectTV US resulting from higher leased equipment and infrastructure capital expenditures. Reported OPBDA increased 2 per cent to $4.00 billion and reported operating profit declined to $2.59 billion in the first half of the year.

DirectTV Latin America owns approximately 93 per cent of Sky Brasil, 41 per cent of Sky Mexico and 100 per cent of PanAmericana, which covers most of the remaining countries in the region. Sky Brasil and PanAmericana ended the second quarter with 5.17 million and 5.91 million subscribers, respectively. Sky Mexico, whose results are accounted for as an equity method investment and therefore are not consolidated by DTVLA, had approximately 5.65 million subscribers as of June 30, 2013, bringing the total subscribers in the region to 16.72 million.

In the second quarter, DTVLA revenues increased 12 per cent to $1.69 billion compared to the same period last year principally as a result of strong subscriber growth over the last year partially offset by a 10.6 per cent decline in ARPU. Net additions of 165,000 were lower than the year ago period as the increase in gross additions was offset by higher churn. Gross additions increased 6 per cent to an all-time record of 1.19 million principally as a result of greater middle market demand, most notably in Argentina, Brazil and Colombia. Total average monthly churn increased to 3.10 per cent and average monthly post-paid churn increased to 2.86 per cent mainly as a result of higher churn in Brazil primarily related to subscribers that were terminated as a result of the improper crediting of certain customer accounts, including approximately 200,000 subscribers previously reported in the Sky Brasil subscriber base on March 31, 2013. Also impacting churn in Brazil were more challenging economic and competitive conditions, as well as the effect of a higher mix of middle market subscribers.

The decline in ARPU to $51.13 was mainly as a result of the devaluation in Venezuela and unfavourable foreign exchange comparisons in Brazil and Argentina. Excluding the impact of exchange rates, ARPU increased 0.8 per cent in the quarter principally as a result of price increases and more upgrades including advanced services, mostly offset by the higher penetration of lower ARPU middle market subscribers.

 

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