Cash Is King At DirecTV

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A tighter focus on higher margin customers drove big gains at DirecTV in the first quarter, with double digit increases in revenue, cash flow and free cash flow, taking investors minds off of sluggish subscriber additions.
Revenue at the U.S. operations rose 11% to $4.8 billion in the quarter, and operating profit before depreciation and amortization rose 32% to $1.3 billion. Free cash flow more than nearly doubled to $1.03 billion, even as net new subscriber additions, at 100,000 customers, came in at their lowest level ever. Churn also increased during the period to 1.48% from 1.33% a year ago.
On a conference call with analysts DirecTV CEO Mike White said the company was pleased with the results.
"I think we got off to a terrific start in 2010," White said. "...It's clear our businesses are generating tremendous operating strength."
The driver for the financial gains appears to be a focus on higher margin subscribers, evident in a 6.4% increase in average monthly revenue per unit to $85.47 from $80.35 in the year-ago period.
In a research note, Sanford Bernstein cable and satellite analyst Craig Moffett said that financial results were "exceptional," aided by a strong increase (450 basis points) in cash flow margins. While he was a bit concerned by falling gross subscriber additions and rising churn - he added that would probably lead to a net subscriber loss in the seasonally weak second quarter - it was more than offset by the higher margins.
"Overall, the results make a strong case for the triumph of value over growth," Moffett wrote.

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