DirecTV reported Q4 increases in revenue of 8% to $8.05 billion, topping analysts’ estimates of $8.02 billion, according to Thomson Reuters I/B/E/S. In the US, it added 103,000 net subscribers. However, Latin America was the greatest driver of business, adding 658,000 net subscribers. Analysts were expecting net additions in Latin America of 601,000, according to StreetAccount.
U.S. churn, or the rate of subscriber cancellations, improved to 1.43%, down from 1.52% a year ago.
Profit before depreciation and amortization of 8% to $1.92 billion and operating profit of 7% to $1.30 billion compared to last year’s Q4. Q4 net income was up 31% to $942 million and earnings per share of 52.0% to $1.55 compared with the same period last year.
“Our solid fourth quarter consolidated results capped off another year of impressive revenue, earnings and cash flow growth,” said Mike White, DirecTV CEO. “Strong consumer demand for DIRECTV’s diversified portfolio of businesses across the Americas fueled the largest annual net subscriber gain in our history with nearly 3.8 million net customers added including Sky Mexico. As a result, we furthered our lead as the world’s largest and most popular provider of Pay TV video services with over 35 million subscribers and growing rapidly. This tremendous subscriber performance along with solid ARPU and margin performance fueled a 9% top-line increase bringing DirecTV to nearly $30 billion in revenues, a 32% increase in diluted EPS to $4.58 and a 13% increase in free cash flow to $2.3 billion in 2012.”
Revenue growth was mostly attributed to subscriber growth at both DirecTV Latin America (DTVLA) and DIRECTV US., as well as higher ARPU at DirecTV U.S. Operating profit before depreciation and amortization (OPBDA) increased 8% to $1.92 billion and operating profit increased 7% to $1.30 billion in the quarter compared with the same period last year. OPBDA and operating profit margin were relatively unchanged compared to the same period in 2011.
Net income attributable to DIRECTV increased 31% to $942 million and earnings per share improved 52.0% to $1.55 compared with Q4 of last year primarily due to the higher operating profit, a $111 million pre-tax gain related to the sale of an 18% ownership in the Game Show Network and a lower effective tax rate in 2012 related to the resolution of prior year income tax audits.
Full Year 2012
DirecTV’s full year 2012 revenues increased 9% to $29.74 billion over last year principally due to subscriber growth over the last year at DTVLA and DirecTV U.S., as well as higher ARPU at DirecTV U.S.
Net income attributable to DIRECTV increased 13% to $2.95 billion and diluted earnings per share improved 32% to $4.58 for the period primarily due to the higher operating profit and a $59 million increase in earnings from the sale of equity investments.
Added White: “We exit 2012 with good momentum as we continue to successfully execute on our long-term strategy to drive sustainable profitable growth across the Americas while also significantly advancing DirecTV ‘s service oriented culture by winning our customers’ loyalty for life. We believe that these strategies along with our share repurchase plan – highlighted by the approval of a new $4 billion buyback authorization – will continue to create significant shareholder value for years to come.”
In the quarter, DirecTV U.S. revenues increased 5% to $6.32 billion primarily due to strong ARPU growth and a larger subscriber base. Net subscriber growth in the quarter of 103,000 decreased from the prior year period principally due to lower gross subscriber additions partially offset by a lower average monthly churn rate. Gross additions declined mainly due to a greater focus on higher quality subscribers and stricter credit policies. The lower churn rate was mainly driven by a greater percentage of subscribers on commitments, auto-bill pay and with advanced equipment, as well as the stricter credit policies on new customers. ARPU increased 4% to $105.15 mostly due to price increases on programming packages, higher advanced service, commercial and ad sales, partially offset by increased promotional offers to new and existing customers. DirecTV U.S. ended the quarter with 20.08 million subscribers, an increase of 1% compared with 19.89 million subscribers reported for the year ended December 31, 2011.
Full Year – U.S.
In 2012, DirecTV U.S. revenues increased 6% to $23.24 billion due to strong ARPU growth and a larger subscriber base. Net subscriber growth in the year of 199,000 decreased from the prior year principally due to lower gross subscriber additions mainly due to a greater focus on higher quality subscribers and stricter credit policies, as well as lower gross additions from the Telco sales channel. The lower churn rate of 1.53% was mainly driven by a greater percentage of subscribers on commitments, auto-bill pay and with advanced equipment, as well as the stricter credit policies on new customers. ARPU increased 4% to $96.98 mostly due to price increases on programming packages, more advanced service and lease fees, as well as higher commercial, premium movie channel, pay-per-view movie and ad sales, partially offset by increased promotional offers to new and existing customers.
In 2012 OPBDA increased 7% to $5.65 billion and operating profit increased 12% to $4.15 billion. OPBDA margin increased slightly to 24.3% during the year primarily driven by lower subscriber acquisition costs related to the reduction in gross additions and improved productivity in subscriber services driven in part by investments in customer care. These gains were mostly offset by higher programming costs principally related to programming supplier rate increases. Operating profit margin rose to 17.9% primarily due to an increase in the estimated depreciable life of HD set-top boxes from three years to four years implemented in July 2011, the completion of amortization for a subscriber-related intangible asset, as well as the improved OPBDA margin.
DirecTV Latin America
DirecTV Latin America owns approximately 93% of Sky Brasil, 41% of Sky Mexico and 100% of PanAmericana, which covers most of the remaining countries in the region. Sky Mexico, whose results are accounted for as an equity method investment and therefore are not consolidated by DTVLA, had approximately 5.15 million subscribers as of December 31, 2012, bringing the total subscribers in the region to 15.48 million.
In the fourth quarter, DTVLA revenues increased 22% to $1.67 billion compared to 2011 principally due to strong subscriber growth partially offset by an 8% decline in ARPU. Net additions increased to a record 658,000 driven by higher gross additions partially offset by higher average monthly churn on the larger subscriber base. Gross additions increased 23% to a record of 1.18 million principally due to greater middle market demand across the region, most notably in Brazil, Argentina, Colombia and Venezuela. Also in the quarter, average monthly post-paid churn increased to 1.48% and total average monthly churn increased to 1.75% primarily due to higher churn from middle market subscribers in Brazil. The decline in ARPU to $55.84 was mostly due to unfavorable exchange rates in Brazil and Argentina. Excluding the impact of exchange rates, ARPU increased 1.4% in the quarter principally due to price increases and more subscribers with advanced services, partially offset by the higher penetration of lower ARPU middle market subscribers. DTVLA ended the quarter with 10.33 million subscribers, an increase of 31% compared with 7.87 million subscribers reported for the year ended December 31, 2011.
DirecTV Latin America’s fourth quarter 2012 OPBDA increased 17% to $494 million and operating profit increased 19% to $261 million compared with the same period last year. OPBDA and operating profit margin declined in the quarter to 29.5% and 15.6%, respectively, primarily due to $18 million in charges related to certain litigation in Brazil and Argentina.
In 2012, DTVLA revenues increased 23% to $6.24 billion compared to the same period last year principally due to strong subscriber growth partially offset by an 8.6% decline in ARPU. Net additions increased to a record 2.44 million driven by more gross additions partially offset by higher average monthly churn on the larger subscriber base. Gross additions increased 26% to a full year record of 4.42 million principally due to greater middle market demand across the region, most notably in Brazil, Argentina, Colombia and Venezuela.
RBR-TVBR observation: While Latin America is the hottest sector for the company, DirecTV warned it would take a financial hit in 2013 because of Venezuela’s recent currency devaluation. It said the Venezuelan government’s move to devalue its currency will cause a one-time pre-tax charge of $160 million: The devaluation will have “an ongoing unfavorable financial impact to DirecTV’s Latin America’s revenues, earnings and cash flow growth related to the translation of the local currency financial statements to the new official exchange rate.”