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CMCSA.OQ - Comcast Corp at Bank of America Media, Communications & Entertainment Conference (Virtual)

EVENT DATE/TIME: SEPTEMBER 14, 2021 / 1:25PM GMT

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SEPTEMBER 14, 2021 / 1:25PM, CMCSA.OQ - Comcast Corp at Bank of America Media, Communications & Entertainment Conference (Virtual)

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

Michael J. Cavanagh Comcast Corporation - 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

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

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

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

Good morning. Welcome to day 2 of our Media and Telecom Conference. I'm Jessica Reif Ehrlich, media, entertainment and cable analyst at BofA Securities, and I'm thrilled to welcome Mike Cavanagh, CFO of Comcast, to start our day. Mike, welcome.

Michael J. Cavanagh - Comcast Corporation - CFO

Jessica, thanks for having me. Great to be here. Hi, everybody. Good morning.

Q U E S T I O N S A N D A N S W E R S

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

It's so exciting to have you. So let's just start big picture and then we'll dive into each of the divisions. You've performed so well throughout the crisis. There was strong execution at Cable at NBCU. You had a management change at Sky, not to mention the restructuring of NBCUniversal. And it seems like the company has emerged in a much stronger position in a post-COVID world. Can you just give us your priorities for Comcast as you look out for the next, let's say, 3 to 5 years?

Michael J. Cavanagh - Comcast Corporation - CFO

Sure. I mean, I thank you for those comments. I mean, we feel really good. And I feel great about the hand we have. I wouldn't trade it for anybody else's. When you really zoom out, I think most importantly, I think we've got an unbelievable collection of people at all levels of this company. And when you combine that with the legacy of this place having a culture that's all about thinking about and investing in the long term and benefiting from the connections we have across our various businesses that I think allows us to attract that great talent and then grab insights across the place, and you combine all that with an operating excellence, I think, in each of our businesses, if you had to go pound for pound, we've got really good DNA in terms of taking the next hill. So I think that's a pretty unique collection of capabilities when you combine it.

And I know we'll talk about capital allocation in a minute. But I put all that together saying, we are a company that's in a really good place on that front, which I think is often overlooked how important ingredients like that are. When you then just put the businesses together, I think we really are blessed with a Cable business, residential broadband, both in the U.S. and the U.K. We've got commercial services business in the Cable side and we're starting in the U.K. We've got an unbelievable parks business, 1 of 2 great ones in the world. We've got one of the best studios, which is

• all our businesses that I think are ones that we are in strong existing positions in markets that are big, where we can invest in them for growth and drive good margins in those businesses. So I think that's an overwhelming part of our company is that collection of businesses.

And then you've got the Media side, where obviously there's a lot going on in the space around streaming. And we've talked about it repeatedly that we're going to play our own hand, do it our way. But I think the collection of assets we have in terms of IP and people, the ability to produce things like excellent sports and news, whether it be the Olympics or Sunday Night Football, best program in television, those are assets, when combined with our footprint in English language with Sky, the technology assets we have in Cable, I think give us a path of our own on the streaming

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SEPTEMBER 14, 2021 / 1:25PM, CMCSA.OQ - Comcast Corp at Bank of America Media, Communications & Entertainment Conference (Virtual)

side, which we're working our way through and we'll do it patiently and carefully. And I'm sure we'll get into all that, but we're excited about that as well.

And together in all that, we have our Hulu stake, which is growing in value as well. So I think that -- I think playing that hand out and doing as we have been doing through the crisis, and thanks for the compliments, of just one foot in front of the other, executing kind of good, clear-headed business decisions day in and day out with one eye on the road right ahead of us and one eye on the future, I think, is a formula that we'll keep executing against, and be happy to go deeper on all that.

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

Okay. Great. Before we go to the divisions, let's talk about capital spending, investment spending. Obviously, you have very healthy free cash flow, and we project that to probably get stronger. Your leverage ratio should reach a target of 2.5x sometime next year. Can you talk about how you prioritize investments between the three divisions, Cable, NBCU and Sky, and weigh investments for those assets against other potential uses of shareholder capital, whether it's returning capital to shareholders or potentially M&A?

Michael J. Cavanagh - Comcast Corporation - CFO

Sure, yes, sure. Maybe I'll start backwards on this one. So I think I've been pretty vocal that I think in terms of the collection of businesses we have and consistent with the answer to your opening question, the bar is really high for us to pursue sort of outright acquisitions of any material size. I think we've got a great hand to play with what we have. That doesn't mean we're not going to be -- we never say never. It's our job to kind of look at everything and evaluate what makes sense. But it's a moment in time where the bar is really high.

That said, and you've seen us do the following things, two examples, we're wide open for tuck-in acquisitions, smaller acquisitions that are consistent with the priorities we have on our existing business. So I think we'll talk about business services a little later on, but we just announced an acquisition, a $1.2 billion acquisition of the company, Masergy, that's going to accelerate our road map in mid- and enterprise-sized business services, which we think is a very exciting place. And I think we did a very smart acquisition to accelerate our plans in that space. So that's one example of how we'll be using capital in sort of an inorganic way.

And then another one is our announcement of SkyShowtime with ViacomCBS, a 50-50 venture to pursue streaming, an SVOD service in 20 markets in Europe that are outside the Sky footprint today. So I think those are kind of two examples of we'll always be looking in trying to create value inorganically. It's what everybody should want us to do. And that happens at the business at the corporate level, but the bar for something big, that's outright acquisition is pretty high. And I don't see the need for it, given where we're positioned.

When it comes to capital allocation, return on capital, I think the methodology that we've talked about is pretty consistent. As you know, we want to have a strong balance sheet, and so we are getting to our -- in 2022, sometime, we'll be at our 2.5x or so leverage, which is about where we -- roughly where we need to be to meet the commitments we have to the rating agencies to get back to our single A -- the zone that our single A calls for. And with that in sight and really the holdback of being there sooner is simply the impact of COVID on some of our businesses that we now have seen the signs of those businesses coming back, whether it be parks or otherwise.

And rather than wait for the 12 months for trailing earnings to give us the leverage ratio we want, we, as you know, started this past quarter with

• started in June with buyback at the historical level of about $5 billion annualized. And we'll stay there until we get to -- that will be sort of the level we operate at on the buyback side until we get back to the 2.5 sometime next year. And then from there, we'll talk about it when we get there. But I think it's something like 13 years of increasing our dividend. And when you really look at the long arc of this company, it's been successfully able to return substantial amounts of our cash flows to shareholders.

But the most -- I'd hate to say the most important, but I think it's extremely important that we allocate capital into our businesses to allow them to thrive, compete, grow. And the way you asked the question, a former colleague of mine would talk about this concept of which would you rather -- business would you rather give capital to. And I think it's a false narrative. You shouldn't own businesses if you have to -- it's like children, you

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SEPTEMBER 14, 2021 / 1:25PM, CMCSA.OQ - Comcast Corp at Bank of America Media, Communications & Entertainment Conference (Virtual)

can't -- you'd have to feed all of them. You can't choose which ones you most want to feed, you shouldn't be in a collection of businesses. And so I think the good news is that for all the items I talked about earlier on in this call, we are in the natural flow of giving those businesses what they can put to use for high ROI growth initiatives and still get our balance sheet where we want it to be strength-wise and put ourselves on a path to ample shareholder return.

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

Great. So let's go into the businesses. And of course, let's start with the biggest one, Cable. Your business has been the story over the last year or so. And it's actually incredible that you've maintained this momentum into 2021, following with how amazing it was last year in COVID. So let's just talk about that. Like what's contributed to your success? How do you plan to navigate an environment that's just getting -- or it seems to be getting more competitive?

Michael J. Cavanagh - Comcast Corporation - CFO

Well, I think on the competition front, we'll get to that in a second. But I think we've been mindful that competition is coming in one of our best and favorite businesses frankly for quite some time. So I think the points I'll tick through are not going to be ones that are foreign or even new but just continuations of a strategy to stay ahead of competition, stay ahead of consumer expectations. But like you say, we are really proud of the performance of the broadband business and the Cable business broadly through the last 2 years through COVID and feel really well positioned as we look to the future.

But you're right, COVID has been a big disruption to the business. I mean, it's really disrupted the patterns of our customers in terms of move patterns, seasonal activity, back-to-school and the like. And especially with the Delta wave that we've been facing, especially in the last couple of months, we're not settled down post the kind of disruptions caused by COVID. So what we're seeing in the most recent past, like the tail end of August, is a little bit of a slowdown in the net adds in the Cable business.

So in the third quarter, I think we'll trend in line for third quarter net adds with historical averages for third quarter, but we'll be behind the third quarter 2019, which was a record third quarter. But when you put the second and third quarter together of this year, where we kind of saw the flip side of it in the second quarter, we expect to be about 10% better combined for over the trailing 6 months versus 2019. And we continue to see ourselves ahead of 2019 for the full year. And sooner or later, we're going to see COVID get behind us and see this quarterly volatility that we see as just COVID-driven fall away and which gets us to really what happens after COVID, which hopefully is 2022 and beyond. And I think that will be the case.

And I think there, it's the three big things that we've been talking about, strengthening our network just because no particular trigger other than this is such an important business with such great ROIs in it that we want to stay ahead. So we'll do that. In terms of network, I'll talk about the bias to innovate around broadband and then improve the product and the bundling. And then finally, to expand the footprint, those are the three areas that we're focused on.

And in terms of sort of the network itself, as you know, we're at 1.2 speeds, up and down speeds everywhere in the footprint are available, having gone to DOCSIS 3.1. And we are continuing at the capital intensity that we recorded in 2020, which was a record of around 11%. We're going to step on the gas a little bit, as Dave talked about in the last call, and continue to invest in the network on the path to DOCSIS 4.0, which will give us multi-gig speeds up and down. Again, no trigger other than that's the path we want to get our business on. And with the success of trialing 4.0 technologies in the last bunch of months, we really see that, that's a -- it's for real, and we want to get ourselves on the path to doing that.

In terms of product and differentiation and innovation, you know what we're doing with xFi in terms of grade control in the home around WiFi, hotspots out of the home, so sort of best WiFi and continuing to invest in the routers and equipment around that and the software around controlling that. I think the -- giving Flex, totally new product, which is now in the hands of something like 3-plus million customers that are broadband-only customers in the cord-cutting world, those customers are experiencing active users there, 10% to 15% lower churn than the alternative. So I think that's just another product example we're leaning in and innovating around and benefiting from the X1 investment we made makes complete

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SEPTEMBER 14, 2021 / 1:25PM, CMCSA.OQ - Comcast Corp at Bank of America Media, Communications & Entertainment Conference (Virtual)

sense. And then finally, on the product side in broadband, it's stabling Xfinity Mobile, which had its best quarter last quarter, and we'll talk about it a little more later. All those things together, I think, make our product competitively very, very strong.

And then finally, getting to the buildout, we're not going to miss an opportunity to do new builds in our footprint. So over the last several years, we added something like 2.5 million new passings, just making sure as residential and business footprint in our areas expanded that we were there with new plans. And likewise, our investment in business services, we talked about earlier, where we do hyperbuilds, is another great investment that extends our footprint and obviously doing a little bit more around all the edges geographically and a little more rural, are all part of those -- that expansion of footprint. So those three areas, the strong network, innovation and bundling together with expanding are the sort of path -- why we have such confidence in the long-term trajectory of growth and profitability in the broadband business.

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

Wow, you covered a lot of ground. So I mean, let's try and back up on some of this. So on this investing in the network, and then just maybe some of it's clarifying what you just said, but on DOCSIS 4.0, are you moving the whole network to DOCSIS 4.0?

Michael J. Cavanagh - Comcast Corporation - CFO

In due course. I mean, I think in the near term, what's kind of great about our network is its flexibility. I mean, already, as I said, we're giving capabilities that are way beyond customers' existing expectations. So where we sit is we want to -- we're going to deploy more node splits, more fiber in the network, deeper in the network and a variety. But our base case is to do what's called sort of mid-splits, which is least disruptive to our customers, leaves the equipment in their home unimpacted but starts to improve our ability to -- it's basically spending on a path to DOCSIS 4.0, which eventually is across the whole system.

But along the way, we pick up the benefit of a better customer experience, ability to give people more upstream and downstream speeds in the near term and spend our capital in a way that's nonredundant. It's same capital what we have to spend in the future when we want to get to 4.0. But for a business as important as this, I hope everybody listening would agree that putting our business on a path to staying ahead of all the competition that people can say we ought to be worried about, I mean, we keep our eye on it all. We're very confident in what we have, but we're not going to rest on our laurels.

It's continue investing in a great network has given us the business we have, and we continue to think that, that's the right path. And I think it's just so efficient, what we have. So the idea that roughly -- there's always going to be some choppiness in Cable capital spend quarter-to-quarter,year-to-year. But generally, the level that we've achieved of around 11%, which was the record low of 2020, I think we'll stay around that level for a couple of years as we do all this. And once we get to 4.0, on the other side of that, you start to see then future of continued return to capital intensity declines.

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

Right. And then moving on to wireless, which has been a steady business and you reached profitability, is the aim of the business to run it profitably? Or is it more important to gain market share and make the broadband customers stickier, lower broadband churn? Like how do you weigh those two strategies?

Michael J. Cavanagh - Comcast Corporation - CFO

All of the above. I mean, I think it is, in our case, and I think we believed this at the beginning, and I believe it even more today, it is -- it turned profitable last quarter and -- but it's growing, right? So the thing I'd point out and I look at internally is what if we had a stable number of customers, how much money would the business be making versus what we report. Because what we report as the segment is burdened by acquisition costs

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