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CMCSA.OQ - Q1 2023 Comcast Corp Earnings Call

EVENT DATE/TIME: APRIL 27, 2023 / 12:30PM GMT

OVERVIEW:

CMCSA reported 1Q23 revenue of $29.7b and adjusted EPS of $0.92.

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APRIL 27, 2023 / 12:30PM, CMCSA.OQ - Q1 2023 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

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

Jason S. Armstrong Comcast Corporation - CFO

Marci Ryvicker Comcast Corporation - EVP of IR

Michael J. Cavanagh Comcast Corporation - President

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

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

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

Douglas David Mitchelson Crédit Suisse AG, Research Division - MD

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 First Quarter Earnings Conference Call. (Operator Instructions) Please note that this conference call is being recorded. I will now turn the call over to Executive Vice President, Investor Relations, Ms. Marci Ryvicker. Please go ahead, Ms. Ryvicker.

Marci Ryvicker - Comcast Corporation - EVP of IR

Thank you, operator, and welcome to our first quarter 2023 earnings call. You'll first hear from Brian Roberts, Mike Cavanagh and Jason Armstrong. Then, Dave Watson will join us and be available for Q&A.

As a reminder, beginning this first quarter, we have changed our presentation of segment operating results around 2 primary businesses: Connectivity

• Platforms and Content & Experiences. For additional details, please refer to our 8-K issued on March 13, which can be found on our Investor Relations website at www.cmcsa.com.

I will now refer you to Slide 2 of the presentation accompanying this call, which can also be found on our Investor Relations website and which contains our safe harbor disclaimer. 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 schedule issued earlier this morning for the reconciliations of these non-GAAP financial measures to GAAP.

With that, I'll turn the call over to Brian.

Brian L. Roberts - Comcast Corporation - Chairman & CEO

Thanks, Marci, and good morning, everyone. Before we get in the quarter, let me just acknowledge the news that you all saw earlier this week.

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APRIL 27, 2023 / 12:30PM, CMCSA.OQ - Q1 2023 Comcast Corp Earnings Call

Obviously, a tough moment. But we are so fortunate to have a fabulous and tenured leadership team at NBCUniversal. You go down the list, you'll see many of them have been leading their divisions within the company for at least 10 years and are truly the best in the business.

We're also lucky to have Mike Cavanagh step in at the helm at NBCUniversal while also remaining President. Mike is a fantastic executive and operator - that many of you know well - and he'll work closely with each of the management team at NBCUniversal to continue our excellent momentum.

Mike, alongside with Jason Armstrong, will lead these earnings calls on a go-forward basis. Today, you'll hear from them about our strategic focus and drivers of growth -now and over the long-term. And Jason will go into much greater details on the first quarter results. Dave Watson and I are here for Q&A. You'll hear a lot more about the great momentum of our Connectivity & Platforms businesses later in the call. Dave, thanks for getting off to a great start this year.

So, before I hand it over to Mike, I just want to share my quick perspective on our recent performance. This really was a strong quarter and start to the year, especially within the context of what continues to be a choppy macro environment.

We grew adjusted EBITDA by 3% and adjusted EPS by 7%. In addition, we generated $3.8 billion of free cash flow and returned $3.2 billion of capital to shareholders all while continuing to invest, importantly, in a number of major initiatives, which is a real testament to our very healthy balance sheet.

Two things amongst many highlights in particular that stand out for me, and I'm really proud of. One is the animation business. By strengthening and combining our capabilities across DreamWorks and Illumination, led by Chris Meledandri, we've had tremendous success creating franchises that people know and love all over the world: Despicable Me, Shrek, Pets, Minions and more recently, Puss in Boots and now Super Mario Bros., which just broke a number of records, including the biggest worldwide opening of any animated film all time. These are the results of the strategic decision we made years ago to become a leader in animation and the conviction we've had to continue to invest in the business even during the depths of the pandemic, which are now clearly paying off.

The second is Connectivity & Platforms. The significant margin expansion that we achieved this quarter, coupled with the 4.5% ARPU growth in domestic residential broadband, demonstrates successful discipline and excellent management in a challenging competitive environment. We're focused on delivering a superior experience and profitably serving our customers, and it shows.

And with that, let me now hand the call over to Mike.

Michael J. Cavanagh - Comcast Corporation - President

Thanks, Brian. We had a great start to 2023 and have set ourselves up for another strong year. We have amazing talent at all levels of our company and DNA that fosters creativity and collaboration, resulting in operational excellence that is second to none. Couple that with our position as a scaled leader in very large and profitable markets with tens of millions of customers paying us over $100 per month, as well as hundreds of millions of TV and streaming viewers. And we have an extremely healthy balance sheet, enabling us to invest in all of our strategic opportunities and for great returns while also returning a healthy amount of capital to shareholders.

As pleased as we are with our results in the first quarter, any company's performance in a quarter is just a milestone of progress against a longer-term strategy and plan. And so, before we dive deeper into the details of the last few months, I'd like to spend a few minutes talking about the drivers of our growth over the longer-term and where we're focusing most of our time and resources.

I put these in 4 buckets: residential connectivity, business services connectivity, our theme parks and experiences and our premium content creation. I'll start with residential connectivity, which is comprised of domestic broadband, domestic wireless and international connectivity.

Broadband is a fantastic business. It's a great product for the consumer, and demand continues to rise. People are connecting more and more devices to our network, and they're consuming a tremendous amount of data.

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APRIL 27, 2023 / 12:30PM, CMCSA.OQ - Q1 2023 Comcast Corp Earnings Call

Right now, the average monthly data usage for a broadband customer that doesn't take video from us is nearly 700 gigabytes. And there is a related increase in the importance of reliability and speed with roughly one-third of our customers at 1 gigabit or higher and nearly three quarters at or above 400 megabits.

For us, the consumers' already high and increasing level of expectation for their broadband experience is an important trend. And while the marketplace is competitive such that adding subs in the near term is likely to be a challenge, I fully expect we will eventually return to subscriber growth. We have the best hand out there to win against all the competing technologies, whether it's fiber or fixed wireless.

We view fiber as our long-term competitor. We have been successfully competing against fiber for about 20 years, yet still built a base of 32 million broadband customers over this time period. Our strategy is to have the most robust network, which we're making even better as we transition to DOCSIS 4.0 and surrounding our industry-leading broadband experience with multiple services that provide additional value.

And now, we have the ability to offer the consumer a converged connectivity package that includes a great wireless product, based on a capital-light model with favorable economics combined with excellent Wi-Fi. A more recent competitor is fixed wireless, which we view as a substandard and temporary solution for a certain segment based on their needs at this moment in time. Our approach is to compete rationally.

We know how to segment the market. We have packages that cater to customers who want the very fastest speeds and premium features and others that are more targeted to those looking for value-oriented solutions.

We trialed a couple of offers targeted to this lower end during the quarter. We were pleased with the results, and we'll continue to remain nimble and respond competitively in each segment. In the meantime, as the residential connectivity market and macroeconomic environment continue to evolve, our focus will be on serving our existing base, growing broadband ARPU, increasing our penetration in wireless and making proactive investments to expand our footprint at the fastest pace in our history. You saw us do this all of last year and in the first quarter, and I expect this trend to continue.

Our second major growth opportunity- business services, which is approaching $10 billion in annual revenue, is growing at mid-single digits with newly reported margins just shy of 60% and delivering adjusted EBITDA growth in the high single-digit range. Here too, our advanced and adaptable network infrastructure is much better suited to serving commercial and government locations compared to the legacy wireline and wireless providers.

We move fast and are more capable of reliably and cost effectively meeting our customers' needs. We already have over 2.5 million domestic business customers, more than any other competitor and are targeting a $50 billion market opportunity within our footprint and a $70 to $100 billion total market opportunity that we can now go after by leveraging our technology and partners outside of our footprint.

Our third major growth opportunity is in creating experiences from our own intellectual property as well as special IP that we license from others and bring to life at our theme parks like Harry Potter or Nintendo's characters like Mario. Our parks are resonating with our customers, and this segment is clearly on a roll. Japan has come roaring back, and Beijing returned to profitability following last year when both were operating under COVID-related restrictions.

And on the domestic side, Orlando continues to do well; and Hollywood just opened Super Nintendo World with great success. This outstanding performance provides us with even more confidence that the investments we are making in new lands and attractions will also generate strong returns.

And I'm excited for what's to come: Donkey Kong, another Nintendo land to open in Japan in 2024, Epic Universe in Orlando in 2025, as well as the

smaller park concepts that we recently announced: a horror-themed experience in Las Vegas and a new park in Texas that's specifically designed for younger guests and their families.

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APRIL 27, 2023 / 12:30PM, CMCSA.OQ - Q1 2023 Comcast Corp Earnings Call

Our fourth growth area is content and especially on the streaming side. We have a decades-deep library of iconic films in television. And we spend over $20 billion each year to produce and provide programming that spans every genre: sports, news, entertainment, dramas and film, which has resulted in the broadest reach of any media company. Over 100 million people engage with our content every month.

In film, we were #2 in the worldwide box office last year with Jurassic, Minions and Halloween. And based on the current course, we are trending to do even better in 2023. We've started the year off with home runs and terrific momentum, carryover from Puss in Boots, the success from M3GAN and now Super Mario Bros., which in just 3 weekends has already crossed $875 million at the global box office.

We're really proud of our animation business. We've been in the movie business for 100 years, and it's exciting how we've been able to create and monetize our entire movie slate in animation and beyond and in so many ways, including the innovative changes we've made in movie windowing.

We made the strategic decision to put our Pay-One window on Peacock, which really kicked in at the end of last year. We now have one of the most robust movie offerings on streaming. The hits we have at the box office roll on to Peacock, and this is proving to be both a successful acquisition and retention tool.

Add to that the strength of content from our TV studio, which powers the content on NBC and helped make us #1 for many years from all the Dick Wolf procedurals and SNL coupled with highly popular content on Bravo, this all goes to Peacock the next day. Add to this our originals, where we were just getting started, shows like Poker Face, which launched and immediately landed near the top of Nielsen's U.S. streaming original list. And we have lots more coming.

On top of all of this, we have an incredible lineup of sports, Sunday Night Football, Premier League, and soon Big 10. We believe we have the right strategy for Peacock and one that's suited to our strengths: premium content with a dual revenue stream, both advertising and subscription fees. And we're encouraged by our results so far, growing paid subscribers and engagement levels to roughly 20 hours per subscriber per month, fueling strong growth in advertising revenues. We're investing, but the results we are seeing give us confidence that we are on the right path for Peacock to breakeven and grow from there.

Looking across our entire organization, I couldn't think of a more advantageous position to be in to monetize the increasing expectations demand as well as the changing habits of the global consumer. We're the best broadband company with the best content that can be accessed over the best distribution and aggregation platforms.

I'm excited about all of our areas of growth. Together, they represent the majority of our revenue and our businesses with high incremental margins. As a result, these growth areas should become the dominant driver of our financial results for years to come.

With that, I'll hand it over to Jason to talk about the quarter.

Jason S. Armstrong - Comcast Corporation - CFO

Thanks, Mike, and good morning everyone. In late February, we announced that, starting this quarter, we will be reporting our results in 2 reportable business units: Connectivity & Platforms and Content & Experiences. More closely align our like-minded businesses reflect how we run our company and highlight our opportunities for growth as a globally integrated content distribution company. We're also providing more disclosure around areas that have become increasingly important to our overall results, namely business services and Peacock.

Let's start with our consolidated first quarter results on Slide 4. Total company revenue of $29.7 billion declined 4% due to the tough comparison to last year's Winter Olympics and Super Bowl as well as the negative impact of foreign currency, while our total company adjusted EBITDA grew 3% thanks to continued strong operating leverage at our high-margin Connectivity & Platforms business.

Excluding the impacts of the Winter Olympics and Super Bowl and adjusting for constant currency, total company revenue increased 1.5%. We grew adjusted earnings per share by 7% to $0.92 and generated $3.8 billion of free cash flow while returning $3.2 billion of capital to shareholders in the first quarter.

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