The DIRECTV Group Announces Third Quarter 2007 Results

Business Wire, Nov 7, 2007

EL SEGUNDO, Calif. -- The DIRECTV Group, Inc. (NYSE:DTV):

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The DIRECTV Group, Inc. (NYSE:DTV) today reported that third quarter revenues increased 18% to $4.33 billion and operating profit before depreciation and amortization1 increased 12% to $1.00 billion compared to last year's third quarter. The DIRECTV Group reported that third quarter 2007 operating profit of $566 million and net income of $319 million declined 10% and 14%, respectively, compared with last year's third quarter. Earnings per share were $0.27 compared with $0.30 in the same period last year.

"The headline for the third quarter is that significantly greater sales of high definition (HD) and digital video recorder (DVR) services to higher quality subscribers are having an extremely positive impact on the key operating metrics that drive DIRECTV's value," said Chase Carey, president and CEO of The DIRECTV Group, Inc. "Starting with subscriber demand in the U.S., net subscriber additions were up 45% to 240,000 due to strong gross additions and churn performance. The increase in gross additions to 1,032,000 was fueled by dramatic growth in the demand for advanced services -- over 50% of new subscribers in the quarter signed up for HD and/or DVR services compared to only 28% a year ago. The increased demand for advanced services was also a critical factor behind the large reduction in DIRECTV's monthly churn rate to 1.61% compared to 1.80% last year, representing one of the largest improvements in our history."

Carey continued, "DIRECTV U.S. also had strong financial performance as revenues in the quarter were up 14% to $3.89 billion and operating profit before depreciation and amortization increased 11% to $916 million. The revenue growth was due to an 8.3% increase in ARPU to $78.79 and strong subscriber growth. This ARPU increase represents DIRECTV's best growth rate in several years and was propelled by the higher service and equipment fees from new HD and DVR customers. Of DIRECTV's total subscriber base, just under 40% now have advanced services compared to less than 30% a year ago. The increase in customers adding advanced services, as well as converting to our newer MPEG-4 HD equipment, resulted in higher upgrade and acquisition costs in the quarter compared to the prior year. As we've highlighted in the past, customers with advanced services generate significantly greater cash flows and superior financial returns."

Carey added, "Our DIRECTV Latin American businesses also had strong third quarter results. Significantly better gross additions and churn drove a nearly fourfold increase in net subscriber additions to 161,000 in the quarter. In addition, revenues were up 67% to $442 million and operating profit before depreciation and amortization -- excluding a $61 million one-time non-cash gain booked in 2006 -- was over three times greater than last year's results primarily due to the merger with Sky Brazil which was completed in August 2006, as well as strong subscriber growth."

Carey concluded, "Similar to our third quarter results, we're expecting continued strong operating performance in the coming quarters as we continue to enhance the nation's already-best HD service. We currently offer 74 national HD channels - more than any cable TV provider in the U.S. - and we remain on schedule to offer up to 100 channels around the end of the year. Consumers are passionate about HD and DIRECTV is now the clear choice for any consumer looking for the ultimate HD experience."

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Third Quarter Review

In the third quarter of 2007, The DIRECTV Group's revenues of $4.33 billion increased 18% over the same period last year principally due to strong ARPU and subscriber growth at DIRECTV U.S. and DIRECTV Latin America, as well as the consolidation of Sky Brazil's financial results subsequent to the merger with DIRECTV Brazil in August 2006.

The 12% increase in operating profit before depreciation and amortization to $1.00 billion was primarily due to the gross profit associated with the higher revenues discussed above, partially offset by higher acquisition and upgrade costs at DIRECTV U.S. mostly due to the increased number of new and existing customers adding HD and DVR services. Operating profit declined 10% to $566 million and net income fell 14% to $319 million compared with the third quarter of last year as the higher operating profit before depreciation and amortization was more than offset by higher depreciation and amortization principally due to increased capitalization of customer equipment under the DIRECTV U.S. lease program implemented in March 2006 and the consolidation of Sky Brazil. Also impacting the comparison was a non-cash pre-tax gain of $61 million associated with the DIRECTV Brazil and Sky Brazil merger in the third quarter of 2006.

Cash flow before interest and taxes2 and free cash flow3 declined to $315 million and $82 million, respectively, primarily due to an increase in capital expenditures. The higher capital expenditures were primarily at DIRECTV U.S. related to an increase in the number of new and existing customers leasing HD and DVR equipment, as well as greater infrastructure costs associated with the rollout of additional HD channels. In addition, free cash flow was impacted by higher tax payments made in the third quarter of 2007. The quarter also included share repurchases of $849 million.