direc tv group third quarter 2008 financial results and outlook
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Chase CareyPresident & CEOThe DIRECTV Group
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The DIRECTV GroupCautionary Statement
This 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.
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Goal: Deliver The Best TV Experience
Through Leadership In:
Content
Technology
Service
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Financial Objectives
Solid Top Line Growth
Increasing Margins
Strong Cash Flow Growth
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Strong First Half Results
510
653
25.6%
2,063
8,043
1H 2007
917
1,335
27.0%
2,539
9,398
1H 2008
137 BpsOPBDA Margin
104%Cash Flow Before Interest & Taxes
80%Free Cash Flow
23%
17%
Change
Operating Profit Before D&A (OPBDA)
Revenue
$M except OPBDA Margin
The DIRECTV Group
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High Quality Subscriber Growth
900
318
439
(270)
10
404
First Half 2008
2,003
228
742
(520)
675
878
Full Year 2007
2,256
3
205
163
1,065
820
Full Year 2006
Verizon FiOS
Total Pay TV Market
AT&T U-Verse
Cable
Dish Network
DIRECTV U.S.
Net Subscriber Additions (K)
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Unique Marketing Strengths
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Direct Sales Expansion
2005 2006 2007 2008E
25%
34%42%
~50%
Direct Sales as a % of Total Gross Additions
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Target Opportunistically
Weak Cable
Market Disruptions
Unique Content Advantages• HD• Sports
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Build Key Niches
Commercial
MDU
Ethnic
Rural
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Manage Churn
Full Year2005
Full Year2006
Full Year2007
First Half2008
Voluntary
Involuntary
DIRECTV U.S. Average Monthly Churn
.99% .99%1.03%
1.70%1.60%
1.51%1.42%
1.02%
.71% .57% .52% .40%
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Tighter Credit Policies/Key Customer Terms
Upfront Fee Required for High Risk Subs
Dealer Compensation Realigned
Upfront Fee Increased for High Risk Subs
Raised Minimum Credit Score
Credit Cards Required
Minimum Commitment Period Increased to 18 months
Implemented 1 and 2 Year Commitments Increased
Focus on Collecting Social Security Numbers S
trict
er C
redi
t Pol
icie
s
2005 2008
Enhanced Fraud Protection System
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Customer Segmentation
TIER 515% Customers
34% Profit
TIER 423% Customers
29% Profit
DemographicsMen 35+
MarriedHomeowner
Income >$70KCollege/Grad
School
Index 120125121130145
38% of Customers Drive 63% of Profits
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Communication / Loyalty
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ARPU Growth
$80.79$79.05$73.74$69.61Total ARPU
7.8%7.2%5.9%4.0%Year-over-Year ARPU Growth
5.50
9.70
$58.50
Full Year 2006
5.00
8.90
$55.70
Full Year 2005
6.60
12.20
$60.30
Full Year 2007
7.50
13.60
$59.70
First Half 2008
Other / Ad Sales
Advanced Services / Equipment / Lease Fees
Packages / Premiums /Sports / PPV
DIRECTV U.S.
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Advanced Product Leadership
2.0M
4.6M
3.0M
6.6M
30%21%
13%
41%
2004 2005 2006 2007
Cumulative Advanced Subscribers
Total HD and/or DVR Subscribers
Penetration of Total Subscribers
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Focus on Quality Subscribers
Full Year2005
Full Year2006
Full Year2007
First Half2008
DIRECTV U.S. Gross Additions’ Mix
Higher Risk
Lower Risk
28%
72%
15%
85%
8%
92%
7%
93%
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DIRECTV on Demand
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Advertising Opportunities
Interactive
Telescoping
Local Advertising
DVR Insertion
Audience Measurement
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Content Leadership
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HD Advantage
DIRECTV DISH Comcast Time Warner
National HD Premiums Local
Los Angeles Denver Los AngelesPhiladelphia
130*
32
75*
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Based on August survey of websites*Excludes Games-only Regional Sports Networks and VOD
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Sports Leadership
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Original / Unique Programming
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Interactive / Enhanced Services
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User Interface
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Technology and Engineering
Improve Reliability
Upgradeable
Add Functionality
Next Gen/Whole Home Experience
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Ultimate Customer Experience
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Optimize Quality and Efficiencies
Simplify and Standardize
Technology Advancements• Home Installation• Wireless Handheld• New Diagnostic Tools
Increased Self-Care• Web• IVR
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Owned and Operated NetworkBest Practices
Accurate Metrics
Flexibility and Speed
~35%TotalMississippi, Alabama, Georgia, Tennessee, Florida, Louisiana~5%Bruister
Oklahoma, Missouri, Nebraska, Iowa, N. Dakota, S. Dakota, Minnesota, Wisconsin~10%Premier
California, Oregon, Washington, Idaho, Montana, Wyoming, Colorado, Utah, Arkansas, New Jersey, Pennsylvania, Virginia~20%180 Connect
States Served% of Network Volume
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Subscriber Acquisition and Retention Costs
Upward Pressure• Demand for Advanced Products• New Technologies (e.g. Connecting the Home)• Targeting High Quality Subscribers• Equipment Upgrade Flexibility
Offsets:• Lower Box Costs• Use of Refurbished Boxes• Installation and Marketing Efficiencies
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Declining Capital Expenditures
2005 2006 2007 2008E
Sustaining
Satellites
HD Infrastructure
$0.8B$0.7B
$0.8B
$0.6B
Note: Excludes Set-Top Box CapEx
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DIRECTV U.S. 3 Year Outlook
Revenues of $20B in 2010• 1.5M – 2M New Subscribers Additions (cum)• ARPU Growth of 5%+
OPBDA Margin Approaches 30%
Cash Flow Before Interest and Taxes of ~$4B in 2010~40% CAGR from 2007
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DIRECTV Latin America
Sky Mexico1.7M Subscribers
59% Televisa41% DIRECTV
Sky Brazil1.7M Subscribers
74% DIRECTV26% Globo
PanAmericana2.1M Subscribers100% DIRECTV
4th Largest Pay-TV Provider Outside the U.S. with 5.5M Subscribers
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Latin America Market Overview
Large TV Market with Low Pay-TV Penetration• Brazil – 11%; Mexico – 28%; PanAmericana – 36%
Competitive Landscape:• Cable is Main Competitor• Digital Roll-Out Only in Major Urban Markets• Bundle Product Offers Increasing: Telmex,
Telefonica
Low Penetration of Advanced Products
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DIRECTV Latin American Strategy
Adapt DIRECTV U.S. roadmap to Latin AmericaContent and Technology LeadershipCustomer Service SuperiorityMulti-Box and DVR ExpansionIntroduce HD and Secure Leadership Position Expand Pre-Paid Offer into New Countries
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DIRECTV Latin America
28%23%24%OPBDA Margin
~4,000K3,279K2,711KCumulative Subscribers
~$250M$140M$0MCash Flow Before Interest & Taxes
~$625+M
~$2,200M+
2008E
$394M
$1,719M
2007
$244M
$1,013M
2006
Operating Profit Before Depreciation and Amortization (OPBDA)
Revenue
Note: Excludes Mexico
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Conclusions
DIRECTV U.S.• Meeting or Exceeding Operating Targets• Generating Substantial Cash Flow Growth
DIRECTV Latin America• Momentum Building• Tremendous Upside for Value Creation
Strong Balance Sheet• Remains Underleveraged • $6.5B in Buybacks Over Past 2.5 Years
• Half Remaining on Current $3B Program
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Non-GAAP Financial Reconciliations(Unaudited)
2008 2007
Operating Profit Before Depreciation and Amortization $2,539 $2,063
Subtract: Depreciation and amortization expense 1,081 760
Operating Profit $1,458 $1,303 Revenue $9,398 $8,043 OPBDA Margin 27.0% 25.6%
2008 2007
Cash Flow Before Interest and Taxes $1,335 $653 Adjustments: Cash paid for interest (124) (113) Interest income 37 71 Income taxes paid (331) (101)Subtotal - Free Cash Flow 917 510 Add Cash Paid For: Property and equipment 959 1,234 Satellites 77 112 Net Cash Provided by Operating Activities $1,953 $1,856
June 30,
S ix Months EndedJune 30,
The DIRECTV Group
(Dollars in Millions)
(Dollars in Millions)
The DIRECTV Group
Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit
Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities
Six Months Ended
2008 Outlook 2007 2006
Operating Profit Before Depreciation and Amortization ~625+ $394 $244 Subtract: Depreciation and amortization expense ~225+ 235 165Operating Profit ~$400 $159 $79 Revenue ~$2,200 $1,719 $1,013 OPBDA Margin ~28% 22.9% 24.1%
2008 Outlook 2007 2006
Cash Flow Before Interest and Taxes ~$250 $140 $0 Adjustments: Cash paid for interest (27) (12) Interest income 18 16 Income taxes paid * ~(100) (51) (14)Add Cash Paid For:
Property and equipment ~450 336 175 Net Cash Provided by Operating Activities ~$600 $416 $165
Twelve Months EndedDecember 31,
*Outlook data combines interest received, interest paid and income taxes paid under income taxes paid
Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit
Twelve Months EndedDecember 31,
(Dollars in Millions)
Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities
DIRECTV Latin America
(Dollars in Millions)