Comcast : REFINITIV STREETEVENTS REFINITIV STREETEVENTS EDITED TRANSCRIPT

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

CMCSA.OQ - Q2 2022 Comcast Corp Earnings Call

EVENT DATE/TIME: JULY 28, 2022 / 12:30PM GMT

OVERVIEW:

CMCSA reported 2Q22 revenue of $30b and adjusted EPS of $1.01.

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JULY 28, 2022 / 12:30PM, CMCSA.OQ - Q2 2022 Comcast Corp Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Brian L. RobertsComcast Corporation - Chairman, CEO & President

David N. WatsonComcast Corporation - President & CEO of Comcast Cable

Jeffrey S. ShellComcast Corporation - CEO of NBCUniversal

Marci RyvickerComcast Corporation - EVP of IR

Michael J. CavanaghComcast Corporation - Senior EVP & CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Benjamin Daniel SwinburneMorgan Stanley, Research Division - MD

Brett Joseph FeldmanGoldman Sachs Group, Inc., Research Division - Equity Analyst

Craig Eder MoffettMoffettNathanson LLC - Co-Founder, Founding Partner & Senior Research Analyst

Douglas David MitchelsonCrédit Suisse AG, Research Division - MD

Jessica Jean Reif Ehrlich CohenBofA Securities, Research Division - MD in Equity Research

JohnChristopherHodulikUBSInvestmentBank,ResearchDivision-MD,Sector Headofthe UnitedStatesCommunications GroupandTelco &Pay TVAnalyst Jonathan ChaplinNew Street Research LLP - US Team Head of Communications Services

Philip A. CusickJPMorgan Chase & Co, Research Division - MD and Senior Analyst

P R E S E N T A T I O N

Operator

Good morning, ladies and gentlemen, and welcome to the Comcast Second Quarter 2022 Earnings Conference Call. (Operator Instructions) Please note that this conference call is being recorded.

I would now like to turn the call over to Executive Vice President of Investor Relations, Ms. Marci Ryvicker. Please go ahead, Ms. Ryvicker.

Marci Ryvicker- Comcast Corporation - EVP of IR

Thank you, operator, and welcome, everyone. Joining me on this morning's call are Brian Roberts, Mike Cavanagh, Dave Watson, Jeff Shell and Dana Strong. Brian and Mike will make formal remarks, while Dave, Jeff and Dana will also be available for Q&A.

Let me now refer you to Slide 2, which contains our safe harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties. In addition, during this call, we will refer to certain non-GAAP financial measures. Please see our 8-K and trending schedules for the reconciliations of these non-GAAP financial measures to GAAP.

With that, let me turn the call over to Brian Roberts for his comments. Brian?

Brian L. Roberts- Comcast Corporation - Chairman, CEO & President

Thanks, Marci, and hello, everyone.

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JULY 28, 2022 / 12:30PM, CMCSA.OQ - Q2 2022 Comcast Corp Earnings Call

Our financial results were very strong across the board once again this quarter. We grew second quarter consolidated revenue by 5%, adjusted EBITDA by 10% and adjusted EPS by 20%. We accomplished this while continuing to invest in our businesses and return significant capital to shareholders.

Specifically, we bought back $3 billion worth of our stock in the quarter, bringing our total to $6 billion year-to-date. And we continue to have a healthy dividend and one of the strongest balance sheets in the industry.

Our prudent financial management and long-terminnovation-based strategy are paying off in Cable, which posted 5% growth in EBITDA and 70 basis points of year-over-year margin expansion. In fact, our EBITDA margin reached a record high of nearly 45% this quarter.

While we've added nearly 800,000 broadband subscribers in the past 12 months, more recently, that pace has slowed. And we posted flat broadband subscriber additions in the second quarter. I'd like to dig into what we are seeing in that area. Broadband additions, of course, are basically a function of churn and connect activity. While churn remains well below 2019, connect activity was also lower than what we generally see in the second quarter.

We believe this is primarily the result of 3 factors. The first category is move activity. As we've discussed for some time now, there's been a dramatic slowdown in moves across our footprint with the second quarter below 2019 by 12% and the lowest we've experienced since the pandemic began. Our win share of new customer acquisition opportunities remains high, but the slowdown in moves has resulted in fewer of these jump balls. And this has had the largest impact on our gross connects.

The second category is a reversal of some pandemic trends. During the pandemic, many customers, particularly at lower income levels, sought to optimize home-based solutions by adding broadband. This presented us with significant opportunity to take more share in residential broadband. In fact, in the first year of the pandemic, we added nearly 50% or 600,000 more customers than our prior annual average growth.

At this stage in the pandemic, those opportunities have waned as consumer behavior has begun to return to pre-pandemic patterns. And we have also seen some give back to a normalization of mobile substitution.

In addition, during the pandemic, seasonality patterns were very different than what we had seen historically. And this really began to also normalize in this second quarter, causing more seasonal disconnects that did not occur at typical levels in the prior 2 years.

The last bucket is increased competition. Fixed wireless is a new entrant in the marketplace. And while there are likely to be significant long-term limitations, today's excess capacity in wireless networks is creating what we believe to be a temporary opportunity targeted at value-oriented customers. We are not seeing fixed wireless have any discernible impact on our churn but its early growth appears to be another contributor to our lower connect activity. In addition, we continue to compete against fiber in an increasing percentage of our footprint.

Notwithstanding these industry and mostly macro-related factors, we remain extremely confident. We have spent decades investing and innovating to build a business that is well positioned to succeed in the environment we're seeing. And we certainly expect a return to residential broadband subscriber additions.

How do we plan to do that? Well, we are working hard to expand our footprint, taking advantage of growth in housing and businesses in our current markets, accelerating edge outs into new areas. And we are playing offense when it comes to government subsidies.

Next, we will continue to aggressively compete for market share. We offer a superior product focused on innovation and differentiation. And we continue to increase the value of broadband by bundling it with Mobile and Flex. And we are making great progress in our network transition to DOCSIS 4.0, which gives us a clear path to reaching multi-gigabit symmetrical speeds at scale faster and at a lower cost relative to our competitors, all within the CapEx intensity levels we have previously outlined.

I'm also confident and frankly, more excited in our ability to drive revenue and EBITDA growth even through our existing subscriber base alone. We've had a history of generating strong and steady ARPU growth as we continue to add tremendous value and improvement to the customer

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JULY 28, 2022 / 12:30PM, CMCSA.OQ - Q2 2022 Comcast Corp Earnings Call

experience. Our margins are some of the highest in the industry, which highlights the stability and operating leverage of our business, the diversification of our revenue streams and the strength of our other important growth drivers at Cable.

In particular, business services and wireless have been 2 substantial contributors to Cable's financial strength, and each still has lots of runway ahead.

Business services had another strong quarter of revenue growth. And in just over a decade, we've grown this to nearly $10 billion in high-margin annual revenue, including the addition of almost $1 billion in the last 12 months alone.

In wireless, we added 317,000 customers this quarter and similarly, have added over $700 million in incremental revenue in the past 12 months. And we've barely scratched the surface of the opportunity here at only 8% penetration of our residential broadband customers.

Wrapping up on Cable, we are in a unique environment with some headwinds, but move activity should return to some level of normalcy, mobile substitution will eventually stabilize. And we believe fixed wireless has inherent performance and capacity limitations that sharply limit the number of people on a network using a given amount of spectrum, which should provide a natural cap on their overall industry penetration.

Moreover, we believe that our path to deliver multi-gigabit speeds together with the other features and functionality we offer will make our broadband experience superior to any of our competitors over the long term. In the meantime, we will maintain the discipline we've always had. And I am confident that we will strike the right balance between subscriber acquisition and long-term profitability. And we all believe we have a very bright future in this business.

Moving to NBCUniversal. We had a very strong quarter with EBITDA growth of 20% year-over-year. Our parks segment continued its momentum, generating record EBITDA for a second quarter. And this is without much contribution from Beijing, which was closed for nearly 2 months. Domestic park attendance and per caps continue to be above pre-pandemic levels. And we are moving full steam ahead in building Epic Universe. I could not be more excited for how this park will bring new experiences to our visitors and additional runway for growth.

NBCU Media remains a very healthy business. We just completed the highest grossing upfront in our history, a testament to our content and a superb team, and the unique data and technology innovation we deliver through One Platform. This year, we secured more than $7 billion in commitments, including $1 billion at Peacock, double what we did in the 2021/ 2022 season, along with strong pricing.

In Studios, our success with Jurassic World, Minions and Black Phone demonstrates that great content attracts massive audiences. In addition, we are very pleased with our new film windowing, including PVOD and an accelerated Pay 1 availability on Peacock, which have expanded the audience for our films and made our studio business even more valuable.

For Peacock, early access to premium Universal films is a proven driver of subscriber acquisition and engagement. As we discussed during our last call, Peacock had a very strong first quarter driven by a variety of extraordinary programming, including the Super Bowl and Olympics. Given the normal ebbs and flows of our content slate, we were pleased to have stayed relatively flat for the second quarter at 27 million MAAs and 13 million paid subscribers in the U.S., in line with our expectations. And we look forward to a very strong fall when next-day broadcast becomes exclusively ours from Hulu, and we'll be able to take full advantage of our Pay 1 window with a number of big movies like Jurassic and Minions. We'll also have Sunday Night Football, Premier League, the World Cup and more originals.

At Sky, we are operating well in an increasingly difficult macro environment, reporting our highest ever second quarter EBITDA. We grew revenue and EBITDA in the U.K., which is our largest European market and the primary driver of our future growth.

Calling out a couple of highlights, we are particularly pleased with the consumer response to Glass, which resulted in Sky being the third largest Ultra High-Definition television selling brand in the second quarter. And we also recorded our highest ever Premier League final day viewership, taking 30% audience share. In addition, we're seeing the benefit of our disciplined approach to sports rights in both Italy and Germany, where EBITDA also improved year-over-year.

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JULY 28, 2022 / 12:30PM, CMCSA.OQ - Q2 2022 Comcast Corp Earnings Call

In reflecting on the last 24 months, which has been wrought with uncertainty, we have performed extremely well and continue to make progress against key initiatives. Our Cable business has achieved some of the highest margins in the industry while also delivering healthy top line growth. At NBCUniversal and Sky, they have shown resilience and continue to recover despite unique challenges from the pandemic.

Together, we've generated nearly $30 billion in free cash flow. We're returning a record amount of capital to shareholders, and our balance sheet is in a great place. We have also continued to invest in strategically important growth opportunities, including enhancing our world-class broadband network, scaling Xfinity Mobile, increasing our capabilities at business services, launching Peacock, completing Universal Beijing and starting construction at Epic, just to name a few.

With substantial cash flow generation and a strong foundation for innovation, Comcast is in a wonderful position. Mike, over to you.

Michael J. Cavanagh- Comcast Corporation - Senior EVP & CFO

Thanks, Brian, and good morning, everyone.

I'll begin on Slide 4 with our second quarter consolidated 2022 financial results. Revenue increased 5.1% to $30 billion. Adjusted EBITDA increased 10% to $9.8 billion. Adjusted EPS increased 20% to $1.01 per share. And finally, we generated $3.2 billion of free cash flow.

Now let's turn to our business segment results, starting with Cable Communications on Slide 5. Cable revenue increased 3.7% to $16.6 billion. EBITDA increased 5.3% to $7.4 billion. Cable EBITDA margins improved 70 basis points year-over-year, reaching a record high margin of 44.9%, and net cash flow grew 4.4% to $5.3 billion.

Customer relationships are up 591,000 compared to last year and down 28,000 sequentially in the second quarter, reflecting lower levels of new customer connections given the current operating environment, partially offset by low levels of churn, which remains well below 2019 levels. We are focused on delivering an excellent customer experience and monetizing our customer relationships over their lifetime. And in that regard, EBITDA per customer relationship grew by 3% in the quarter.

Now let's discuss Cable financials in more detail. Cable revenue growth of 3.7% was driven by broadband, business services, wireless and advertising revenue, partially offset by lower video and voice revenue. Broadband revenue increased 6.8%, reflecting an increase of 3.6% in ARPU and growth in our residential customer base compared to last year. Net residential and business customers increased by 775,000 over the past 12 months with flat results in the second quarter.

The trends that we saw through the second quarter have largely continued into the early parts of the third quarter with connects remaining soft, while churn is still near all-time lows. This has resulted in a quarter-to-date loss of roughly 30,000 customers.

July is typically the weakest month of the quarter. And the vast majority of quarterly connect activity is weighted towards August and September, which is helped by back-to-school activity. While we're optimistic that we will have a healthy back-to-school season, short-term visibility remains low. And more importantly, beyond this temporary period, we are confident that our broadband speeds, reliability, coverage and control features continue to position us as the best-in-class product for our customers, allowing us to protect and grow our 32 million broadband customer base over time.

Business services revenue increased 10% or approximately 6%, excluding the acquisition of Masergy, which closed at the beginning of last year's fourth quarter. This healthy organic growth was driven by increases in average rates per customer and in our customer base, which grew by 54,000 compared to last year with 10,000 additions in the second quarter.

Moving to wireless. Revenue increased 30% mainly driven by service revenue, which was fueled by growth in customer lines. Overall, we added 1.2 million lines compared to last year, including 317,000 lines in the quarter, which was our highest net additions for any second quarter on record.

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