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CMCSA.OQ - Q4 2021 Comcast Corp Earnings Call

EVENT DATE/TIME: JANUARY 27, 2022 / 1:30PM GMT

OVERVIEW:

Co. reported 4Q21 reported revenue of $30.3b and adjusted EPS of $0.77.

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JANUARY 27, 2022 / 1:30PM, CMCSA.OQ - Q4 2021 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. Roberts Comcast Corporation - Chairman, CEO & President

Dana Strong Comcast Corporation - Group CEO of Sky

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

Jeffrey S. Shell Comcast Corporation - CEO of NBCUniversal

Marci Ryvicker Comcast Corporation - SVP of IR

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

Benjamin Daniel Swinburne Morgan Stanley, Research Division - MD

Douglas David Mitchelson Crédit Suisse AG, Research Division - MD

Jay Li MoffettNathanson LLC

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

Philip A. Cusick JPMorgan 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 Comcast's Fourth Quarter and Full Year 2021 Earnings Conference Call. (Operator Instructions) Please note that this conference call is being recorded.

I will now turn the call over to Senior Vice President, Investor Relations, Ms. Marci Ryvicker. Please go ahead, Ms. Ryvicker.

Marci Ryvicker - Comcast Corporation - SVP 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 good morning, everyone. We just reported a strong fourth quarter to end a year that hit a number of important financial milestones. In 2021, we generated record high revenue, EBITDA, adjusted EPS and free cash flow, with contributions coming from across the company. These results reflect our resilience, strategic decision-making and disciplined approach to capital allocation, which is driven by a relentless focus on growth and creating long-term value.

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JANUARY 27, 2022 / 1:30PM, CMCSA.OQ - Q4 2021 Comcast Corp Earnings Call

I am incredibly proud of how we've navigated through the past 2 years amid the unique and ongoing challenges posed by the global pandemic. We've been able to quickly pivot, when necessary, in order to continue offering world-class connectivity, entertainment and experiences while simultaneously prioritizing the health and well-being of our customers, guests and employees.

So now turning to the specifics. Our broadband-centric businesses, residential, business services and wireless, helped drive 11% adjusted EBITDA growth and 190 basis points of organic margin expansion in Cable. And while the quarterly cadence may have come in differently than we expected, we added 1.1 million customer relationships and 1.3 million net broadband subscribers, bringing total customer relationships to 34.2 million and total broadband subscribers to 31.9 million as of year-end.

In wireless, our unique and recently enhanced relationship with Verizon enabled us to bring a more competitive offering for our wireless customers. That also improved the economics for us, resulting in our largest annual growth in wireless lines yet, while reaching profitability on a stand-alone basis for the first time since launch.

The recovery to our Theme Parks is truly remarkable. We just reported the most profitable fourth quarter on record with demand especially high in Orlando, which had the best quarter in the company's history for any quarter. I'm even more excited for our newest theme park, Epic Universe, which is in construction as we speak. Hollywood and Osaka are also on a great trajectory. And we just opened Universal Beijing, which will provide a more meaningful contribution in the years to come.

We also accomplished a lot on the content side. We are back to normalized levels of programming and production at both NBCU and Sky. We successfully renewed a number of sports rights agreements, including the NFL, Bundesliga, PGA Tour, Premier League and others, which provides us great visibility for the next several years. And we're monetizing IP through creative new windows. I'll share more detail on Peacock in a bit, but 2021 was a fantastic year for our fast-growing streaming service, which has outperformed our high expectations.

At Sky, our U.K. businesses maintained wonderful momentum with very strong trends across all metrics, including customer relationships, ARPU and churn, and fueling Sky's full year EBITDA growth of 10%. Germany is showing signs of a successful recovery. And in Italy, we're managing the impact of the transition in our sports rights even better than we had expected.

Finally, on 2021, I'd like to highlight the strength of our balance sheet and the increase in the amount of capital we returned to shareholders. We hit our leverage goals a bit earlier than we had anticipated during the pandemic, which enabled us to repurchase $4 billion of stock, the majority completed in the back half of the year. And including our dividend, we returned a total of $8.5 billion, more than double that of 2020.

Now let me discuss our priorities for 2022. First is broadband, which is a healthy, scaled business with a structurally advantageous financial profile defined by high operating leverage and margin accretion. We believe that the broadband market conditions in 2022 will continue to be impacted by COVID. And within this environment, we will strike the right balance between subscriber acquisition against a large and expanding addressable market as well as long-term profitable growth.

On that front, we will evaluate every opportunity to increase our serviceable passings even more so than we have in the past. We will take advantage of the natural progression of new household and business formation as well as the potential subsidies from the federal, state and local governments to expand into unserved areas.

We also aggressively compete for market share through our strategy of bundling products around broadband so that every customer in every segment has plenty of choice at the right price. Convergence with Xfinity Mobile will play a big role in terms of marketing, how our sales force operates, packaging and the overall interface we have with our customers. Scaling this business is a key focus for us in '22 and beyond.

And we will do everything we can to continue to improve the experience for our customers and maintain the high levels of retention that started well before the pandemic. Our AI technologies and digital service tools enable us to resolve issues without a call or visit. In fact, this past quarter, total calls handled by our agents decreased 18% year-over-year, and truck rolls declined by 16%, while we continue to grow our customer base and increase our NPS scores.

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JANUARY 27, 2022 / 1:30PM, CMCSA.OQ - Q4 2021 Comcast Corp Earnings Call

Broadband connectivity has never been as important as it is now to all of us, and people increasingly expect more than just speed. They also want innovative products that are easy to use and consistent and reliable service throughout their home. That's what we deliver.

We have an incredible network, but what differentiates us even more is the ecosystem we've built around this network. We've spent the last several years developing the right processes, finding the right technology and hiring the right people so that we can execute at great scale.

I'll share a couple of tangible examples that illustrate this. We are moving aggressively on a path to 10G while maintaining our level of CapEx intensity. It's still early, but we already are out in the marketplace with our new technology and higher upload speeds in some of the markets. And we will continue to expand this in 2022 and beyond.

We also just launched the first WiFi 6E gateway, truly the first DOCSIS 4.0 device with the capability of delivering multi-gigabit speed. Our goal is to continue to innovate on top of this and further widen the gap between the in-home experience that we offer versus any of the competition.

Priority #2 is Peacock. Premium video consumption continues to increase across the industry, currently approaching 600 billion hours per year in the U.S., up from 350 billion hours annually in the broadcast-led era of the early 1990s. We've also seen that the average household spend on video continues to grow by over 10% since 2014 alone, which is constantly expanding the addressable market.

NBCUniversal has played a significant part in this ecosystem, ranking as the #1 TV portfolio audience and #2 film business in box office with incredible engagement. Today, NBCU reaches over 100 million U.S. households, which is nearly 80% of the population, every quarter. Of that 100 million, Nielsen reports that nearly 60 million households watch at least 10 hours of our content every single month. That's more households than our competitors in both linear TV and streaming.

When we introduced Peacock to you back in early 2020, our vision was to launch a streaming service that offers premium content and is supported primarily by advertising. What we've learned so far is that we started with the right business model. With over 300 million hours of content consumed on Peacock per month, the engagement with our platform has proven extremely valuable to advertisers. We also realized the importance of diversity when it comes to genres, and so we added sports. We introduced early-access movies, and we started ramping up some originals.

Behind these investments, we found ourselves well on our way to exceeding the MAA and revenue targets we initially discussed. In fact, at the end of 2021, we had 24.5 million monthly active accounts in the U.S. or about 75% of the guidance we have provided for 2024. Within these 24.5 million MAAs are over 9 million paid subscribers approaching $10 in paid ARPU, which includes the advertising.

And that is without much focus on paid subscriber growth. We have another 7 million highly engaged bundled subscribers from Xfinity and other top distributors, who use Peacock every single month and currently receive Peacock Premium at no extra cost. We expect strong conversion of this group to paid subscribers over time.

We've accomplished all of this despite our movies and NBC content still premiering on other streaming services through the end of 2021, including HBO and Hulu, and with the majority of our best content still to come. We just started, including the NFL, our Pay-One movie deal kicks in this year, and we have a growing number of originals in the pipeline.

Our research indicates that 80% of consumers prefer an ad-supported service over a higher-cost,ad-free SVOD offering. We see this in our customer mix, with the vast majority of our paid subscribers choosing the $5 paid AVOD tier over the $10 tier without ads. You combine this with the fact that our paid subscribers have much lower churn and significantly higher engagement.

And we think the most valuable end state for Peacock is to have 2 revenue streams. And so while we will continue to leverage the more than $20 billion of programming spend we already have across NBCU and Sky, we are committed to reallocating and increasing investment on top of this to drive further growth in paid subscribers, which we believe is the right path to creating long-term value.

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JANUARY 27, 2022 / 1:30PM, CMCSA.OQ - Q4 2021 Comcast Corp Earnings Call

I couldn't be more excited about the momentum we are seeing with Peacock in the U.S. as well as the international opportunities ahead. In late 2021, we introduced Peacock on Sky in the U.K. and Ireland. Then earlier this week, we announced the rollout of Germany and Austria. And plans are in place for our own SkyShowtime joint venture to launch later this year.

Next, our company's third priority for 2022 is to monetize and expand the reach of our proprietary global technology platform and our addressable customer base. In October, we launched Sky Glass in the U.K. and XClass in the U.S., both built upon our investments in X1, Flex and Sky Q. This year, we'll continue to evolve this strategy to incorporate more markets, additional partners and new distribution outlets. I look forward to updating you on our progress.

Our fourth priority is to continue to have a positive impact on society and the communities we serve. A big part of that work is our commitment to DE&I and digital equity. A decade ago, we created Internet Essentials, which has become the nation's largest low-income broadband adoption program. And we have recently expanded our efforts with the launch of Lift Zones, where we brought free WiFi to more than 1,000 community centers around the country. These are just 2 examples of how our teams have come together to help connect more people to the tools and resources they need to succeed in a digital world.

So I am really proud of our many accomplishments in 2021 and extremely optimistic about the opportunities that lie ahead for our company. I firmly believe that our integrated strategy with the assets, capabilities and talent we have today will continue to drive growth across our businesses and create long-term shareholder value.

Mike?

Michael J. Cavanagh - Comcast Corporation - CFO

Thanks, Brian, and good morning, everyone. I'll begin on Slides 4 and 5 with our consolidated 2021 financial results. Revenue increased 9.5% to $30.3 billion for the fourth quarter and 12% to $116.4 billion for the full year. Adjusted EBITDA increased 17% to $8.4 billion for the fourth quarter and 13% to $34.7 billion for the full year. Adjusted EPS increased 38% to $0.77 per share for the fourth quarter and 24% to $3.23 for the full year.

And we generated $3.8 billion of free cash flow for the fourth quarter and $17.1 billion for the year on a reported basis, which includes a $1.3 billion benefit related to the tax impact of the bond exchange we completed in August, $620 million of which fell in the fourth quarter as well as roughly $1 billion from returns on investing activities, most of which occurred in the fourth quarter. Excluding these items, free cash flow was $14.8 billion for the year.

Now let's turn to our business segment results, starting with Cable Communications on Slide 6. For the fourth quarter, Cable revenue increased 4.5% to $16.4 billion, EBITDA increased 7.8% to $7.1 billion and net cash flow grew 9.2% to $4.5 billion.

For the full year, we grew customer relationships by 1.1 million, with 169,000 net additions in the fourth quarter. Overall, customer growth continues to be driven by broadband, where we added 1.3 million net new residential and business customers for the year and 212,000 in the fourth quarter. Our net adds this quarter reflect the continuation of lower overall marketplace activity, particularly move activity, compared to historical trends.

While this resulted in lower connect volumes, it also contributed to high levels of customer retention, with broadband churn improving to the lowest rate for any fourth quarter on record. Broadband was also the largest contributor to our Cable revenue growth, with broadband revenue increasing 8.5% in the quarter, driven by the strong net additions over the past year as well as healthy growth in average revenue per customer.

Moving to wireless. Revenue increased 40%, driven by growth in customer lines and higher device sales. Overall, we added 1.2 million lines for the year and 312,000 lines in the quarter, the best results since launching this business in 2017, bringing total mobile lines to 4 million.

As Brian noted, over the past year, we have made tremendous strides fully integrating wireless into our core Cable operations, achieving stand-alone profitability of $157 million this year. Now that we've crossed strongly into profitability and the business is deeply integrated into our core Cable operations, we won't be disclosing stand-alone wireless EBITDA going forward.

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