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CMCSA.OQ - Q2 2021 Comcast Corp Earnings Call

EVENT DATE/TIME: JULY 29, 2021 / 12:30PM GMT

OVERVIEW:

Co. reported 2Q21 revenue of $28.5b and 2Q21 adjusted EPS of $0.84.

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JULY 29, 2021 / 12:30PM, CMCSA.OQ - Q2 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

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

Jeff Shell Comcast Corporation - CEO, 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

Craig Eder Moffett MoffettNathanson LLC - Co-Founder, Founding Partner

Douglas David Mitchelson Crédit Suisse AG, Research Division - MD

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

Peter Lawler Supino Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

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 Second Quarter 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

Thanks, Marci, and good morning, everyone. I'm really excited to report these strong second quarter results, which were highlighted by exceptional performance at Cable, delivering 11% revenue growth and a nearly 15% increase in adjusted EBITDA. This was fueled by our fantastic success in broadband.

We added 354,000 broadband customers, an increase compared to both the same period last year and to 2019. And that drove 294,000 total customer relationship additions. These were the best broadband and customer relationship results we've had for any second quarter on record.

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JULY 29, 2021 / 12:30PM, CMCSA.OQ - Q2 2021 Comcast Corp Earnings Call

Our broadband connect activity is healthy, and churn improved for the 14th quarter in a row. In fact, we hit the lowest second quarter churn rate in our company's history. Based on our first half results, combined with the strength we're seeing in current trends, we now expect total broadband net additions for 2021 to increase mid-teens relative to 2019.

We also added 280,000 wireless subscriber lines, the highest of any quarter since launch. And Xfinity Mobile is now a stand-alone, profitable business. We got here on time, if not a bit earlier than expected. And we are experiencing the fastest sales momentum we've ever had, a testament to the changes we implemented in the back half of last year when we reprioritized wireless across our sales channels and integrated this business more fully into our core operations. And this past April, we introduced a fabulous Unlimited family plan, which we just started offering to our small business customers as well.

So I couldn't be more pleased with Dave Watson and the team he has assembled as they have a relentless focus on connectivity, which has never been more important. They truly put the customer first, offering innovative and differentiated products and services. And pretty unique to the market, we now offer 1.2 gigs of downstream to essentially all 60 million homes and businesses in our footprint.

The foundation of our success is our network, which we constantly evolve so that we can easily handle capacity growth, increase in subscribers and the changing usage patterns of our customers who continue to take faster speeds. Currently, there are typically 25 connected devices in the home, with 8 active at any one time, and this increases every year. That drives in-homeWi-Fi usage to 15x that of wireless. Delivering huge amount of data at consistent speeds and reducing latency is what's powering our growth. And we're doing this in a cost-efficient way.

Virtualizing our network, combined with our suite of digital tools, also allows us to continue to improve the customer experience while identifying additional cost savings. And the progress we've made is evident in our results. During the second quarter, total agent calls decreased by 10%, and total interactions were down by 7%. We also saw a 22% reduction in truck rolls, despite an over 5% increase in our customer base.

So as I look ahead, I think about our philosophy since the early days of broadband, which has been to bet on a never-ending cycle of new technologies, devices and applications that come from Silicon Valley and new start-ups everywhere that need to take advantage of greater speeds and capacity over time. We see this transformation happening every day and continue to believe that this is ongoing for the foreseeable future.

So what does that mean for our network? Well, since October of 2020, we've been trialing gig and multi-gig symmetrical speeds over our DOCSIS infrastructure to great success. With upstream comprising today less than 10% of total broadband usage, even during a peak, we don't really have a consumer use case for this technology capability yet. But the strategy for our network is to plan ahead. We're investing in architecture that lets us go beyond where consumers are, and we can do all of this in a way that won't affect the capital intensity ratios we currently enjoy. Dave can provide more detail about the technological decisions we're making during the Q&A.

With Cable comprising roughly 70% of our consolidated EBITDA, broadband is a top strategic priority. And I could not be more pleased with the strength of this quarter and the first half of 2021.

Looking at other parts of our business. For the first time since the pandemic, our Theme Parks returned nicely to profitability. This was led by Orlando, where we've seen strong domestic demand in both per cap spending and in attendance, which returned to 2019 levels, somewhat faster than I thought might happen, despite virtually no international visitation.

And in Hollywood, since restrictions have been lifted, attendance is growing week after week. We continue to see firsthand, the pent-up demand for high-quality entertainment and family fun outside of the home. And we remain incredibly bullish on our Theme Parks.

Our Studios business is also coming back. We've returned to pre-pandemic television production levels, and we're really optimistic about our upcoming films, especially after the success of Fast 9, which debuted at #1 in all territories at launch, and with $600 million of worldwide box office to date, remains the biggest U.S. film launch since the pandemic began. Following Fast, we successfully released Boss Baby 2 and the latest installment of Purge. And over the July 4 weekend, we had the top 3 films at the domestic box office, the first time that's happened for any studio since 1995. We have a great slate ahead with Dear Evan Hansen in September, followed by a new Halloween in October. And we end the year with Sing 2.

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JULY 29, 2021 / 12:30PM, CMCSA.OQ - Q2 2021 Comcast Corp Earnings Call

Next, let's talk about our media and production strategy, which across the entire company, is aligned around one purpose: create premium programming which we can then scale and monetize for the very best global distribution outlets. Peacock adds to what we already offer. It's a great complement to our linear brands, which are successful in their own right. And together, these platforms provide a continuous loop of content and promotion that seamlessly drive viewership across our ecosystem, offering a different access point to attract new audiences while giving existing viewers more of what they love.

We are clearly capitalizing on the strength of our media brands, having just completed the strongest advertising upfront in our history, securing double-digit increases in both volume and price across our entire portfolio. And I'm pleased to report that as of this week, Peacock has 54 million sign-ups and over 20 million monthly active accounts. This is 50% higher than our last report, driven by a number of factors: the Day and Date release of Boss Baby 2; debut of Dr. Death, our most successful original to date; and the airing of the 2020 Tokyo Olympics.

The third quarter, thus far, has been a particularly strong period, and we will work hard to manage retention and grow from here, recognizing we are unlikely to replicate such tremendous performance. But we remain optimistic with a lot of programming strength ahead of us, such as more premium originals; Monday Night Football; the Beijing Olympics; and our reimagined dynamic Pay-One window, which starting in 2022, shifts our film titles to Peacock exclusively for the first and last 4-month segments in the Pay window, with Amazon Prime and Netflix sharing rights for the 10 months in between.

By showcasing content across multiple platforms, Universal films will constantly refresh across the streaming ecosystem. Audiences will have multiple access points with which to consume our content, and we will generate more third-party revenue while retaining the most valuable window for Peacock. So as you can see, we've successfully been able to pivot, coming up with creative ways to keep up with consumer demand and in many cases, making even more money than we did before.

At Sky, we are pleased revenue is back to pre-COVID levels, despite the lingering impact that COVID continues to have on our pubs and clubs segment. Sky's results were led by the U.K. with revenue and EBITDA ahead of 2019, and we're seeing momentum across a number of areas. Premium TV churn is at record low levels. In streaming, we posted ARPU growth of over 20% for the fourth consecutive quarter. And in broadband, where we just introduced our 500-meg offering, we experienced improved churn relative to both 2020 and 2019 despite a 6% price increase in the quarter. In addition, Sky Mobile had the strongest second quarter activations on record with churn averaging 40% better than industry average.

And today, we're announcing the debut of our international streaming strategy for Peacock. Later this year, we will leverage Sky's significant scale and powerful brand to include Peacock at no additional cost for its 20 million customers across Europe. The benefits of this launch are tremendous. We will unlock incremental advertising revenue, introduce the Peacock brand and content catalog via Sky's established platforms in key European markets and directly monetize our programming investments.

The decision to make Peacock the anchor tenant on Xfinity's X1 and Flex platforms for its domestic launch has been a key driver of brand awareness, scale, consumption and promotion, and we see a similar opportunity with Sky. We're utilizing all the wonderful assets of our company to create value for audiences everywhere, and we look forward to finalizing agreements with other programming and distribution partners outside of our Sky markets.

So summing up, this was a fabulous quarter and a great first half of the year. I'm so pleased we are now in a position to buy back stock, which we will report on in Mike's section. This is a truly very special company, and I'm excited for the road ahead.

Mike, over to you.

Michael J. Cavanagh - Comcast Corporation - CFO

Thanks, Brian, and good morning, everyone. I'll begin on Slide 4 with our second quarter consolidated 2021 results. Revenue increased 20% to $28.5 billion. Adjusted EBITDA increased 13% to $8.9 billion. Adjusted EPS increased 22% to $0.84 per share. And finally, we generated $4.8 billion of free cash flow.

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JULY 29, 2021 / 12:30PM, CMCSA.OQ - Q2 2021 Comcast Corp Earnings Call

Now let's turn to our business segment results, starting with Cable Communications on Slide 5. Cable revenue increased 11% to $16 billion, EBITDA increased nearly 15% to $7.1 billion and net cash flow grew close to 15% to $5 billion. As a reminder, last year's second quarter was most significantly impacted by COVID-19, including adjustments accrued for customer RSN fees. Excluding the impact of these RSN adjustments, Cable Communications revenue increased 9.3% with no corresponding impact to EBITDA.

We added 294,000 net new customer relationships, up 35% over last year's second quarter and up 93% over the second quarter of 2019. This was the best second quarter on record and was driven by broadband, where we added 354,000 net new residential and business customers, up 10% over last year's second quarter and 69% above the second quarter of 2019. These strong results were driven by improved churn and healthy connects relative to both 2020 and 2019. And this was the lowest second quarter broadband churn on record. Looking ahead, as Brian mentioned earlier, based on our strong results through the first half of the year as well as current trends, we now expect total broadband net additions for 2021 to be up mid-teens from the 1.4 million net adds in 2019.

Broadband revenue increased 14% and grew 13%, excluding the RSN fee adjustments in last year's second quarter. These results were driven by strong growth in volume and rates. Wireless revenue grew 70% due to an increase in both customer lines and higher device sales. We added 280,000 net new lines in the quarter, the best result since launching this business in 2017, bringing us to 3.4 million total lines as of quarter end. We are encouraged by the initial results on our new Unlimited plan, which is driving a notable increase in Unlimited connects as well as a lift in overall volume.

Turning to video. Revenue increased 2.6% or 0.5%, excluding the RSN fee adjustments in last year's second quarter, reflecting healthy growth in rates, mostly offset by net video subscriber losses totaling 399,000. While our residential rate adjustment at the beginning of the year was the primary driver of the increase in rates, we believe it was also a contributor to the video subscriber loss in the quarter.

Business services revenue increased 10%, primarily driven by higher rates though the comparison to last year when business services was significantly impacted by COVID-19. Over the past year, we have bounced back, rates have recovered and customer growth is strong as we added 17,000 net new customers in the quarter and 70,000 over the past year, primarily driven by continued improvement in small business.

Last, advertising revenue increased 59%, reflecting an overall market recovery compared to last year when we experienced reduced spending from advertisers due to COVID-19. As we move to the second half of the year, we will have difficult comparisons to last year when we benefited from strong political advertising.

Turning to expenses. Cable Communications second quarter expenses increased 8.2%. Programming expenses increased 12% and were up 5%, excluding the impact of RSN adjustments last year, primarily due to the number of contract renewals that started to cycle through in 2020, combined with annual escalators in existing agreements. Looking to the third quarter, we expect programming expense growth to increase at high single-digit levels due to the continued impact of contract renewals as well as the comparison to last year's third quarter, which was also favorably impacted by RSN fee adjustments. For the full year, we continue to expect programming expense to increase at high single-digit levels.

Nonprogramming expenses increased 5.7% or 0.5% on a per relationship basis due to higher technical and product support and advertising, marketing and promotion spend to drive growth in our core broadband and wireless businesses. These higher expenses were partially offset by lower bad debt expense. These trends should continue in the third quarter.

Cable Communications EBITDA grew nearly 15% to $7.1 billion, including a contribution of $68 million from our wireless business, the best results since launch. Cable EBITDA margins reached 44.2%, reflecting 140 basis points of year-over-year improvement. While the RSN fee adjustments had no impact on EBITDA, they did impact margins last year. Excluding the RSN adjustment impact, margins expanded 200 basis points year-over-year. Cable capital expenditures increased 17%, resulting in CapEx intensity of 10.6%, up 50 basis points compared to last year. These results were driven by an increase in scalable infrastructure as we continue to enhance the capacity of our network as well as increases in broadband-related CPE and line extensions.

As Brian mentioned, we have decided to move a bit faster to the next phase of DOCSIS using very cost-effective technology, allowing us to maintain the CapEx intensity level we achieved in 2020, which was the lowest in our history. And we expect to be at this level for the next few years.

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