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CMCSA.OQ - Comcast Corp at JPMorgan Global Technology, Media & Communications Conference

EVENT DATE/TIME: MAY 24, 2022 / 2:50PM GMT

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MAY 24, 2022 / 2:50PM, CMCSA.OQ - Comcast Corp at JPMorgan Global Technology, Media & Communications Conference

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

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

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

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

Hi. My name is Phil Cusick. I follow the comm services infrastructure and media space here at JPMorgan. Thanks for joining us. We're joined today by Mike Cavanagh, CFO of Comcast. Thanks again. We appreciate you coming.

Michael J. Cavanagh - Comcast Corporation - CFO

Glad to be here. It's good to be live again after a couple of years.

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

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

Exactly. There's been a lot of upheaval in the media and cable outlooks this year. Can you just remind us -- talk about Comcast as a whole and how those pieces work together to make sense?

Michael J. Cavanagh - Comcast Corporation - CFO

Sure. Well, I mean, I think you start out at -- upheaval is the right word, but I think 3 things that I think about when we think about how we're positioned and how it all comes together is: first, how we're doing in the here and now. I mean we're a company that had 13% EBITDA growth last year, 24% EPS growth, a record year in organic free cash flow and very much the first quarter. And as we're sitting in the -- was very similar to that in terms of producing very strong financial results.

And I think that's the nature of the way we operate the place. We've got 3 very strong business units and 3 very strong leaders in those businesses. They run their operations really well, Dave Watson, Jeff Shell, Dana Strong. Rarely do we get into the weeds of what makes them tick on a "day in and day out" basis. But I think one of the things that distinguishes our company is the legacy of having really strong operators that then know their businesses well. Our company as a platform has attracted excellent talent, and in part, it's because of what the whole represents. I don't think that entire team would be there if we were not one big group. And I think those executives and the teams around them know how to take advantage of being under one roof together, and we'll get into that a little bit.

So sort of first is just the here and now ability to drive really strong financial results. I mean, I think second is just the -- we are putting a tremendous amount of resources into investing for growth and resiliency in our businesses. So you think about, in the cable side, investments in the network, investments in wireless, investments in business services.

If you think about the kind of video side and we've got X1 leading to Flex, the two of them together leading to XClass TV. We've got Glass in the U.K. and now we've got our partnership with Charter on the back of all that type of investments. Obviously, our studios are very strong. So we've got tremendous investment going into the content side, which then obviously supports -- in part, we're not exclusively taking all of that content

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MAY 24, 2022 / 2:50PM, CMCSA.OQ - Comcast Corp at JPMorgan Global Technology, Media & Communications Conference

and putting it into our own platforms. Much of it goes to our platforms. But as you know, we're investing heavily behind D2C with Peacock, NOW TV and SkyShowtime.

And then parks. We've got -- we'll talk a little bit more about that later on, but tremendous investment in the parks businesses. Each of the major parks has new attractions that are driving real interest in 2022, opened over the course of pandemic, so there is -- as though they're new. We just opened the Beijing park, which is now closed with COVID, but -- and then we have Epic underway as we speak. So second leg of the sort of positioning stool is just what we're doing to invest for the future.

And then the third and final piece is just the strength of our balance sheet and the position that puts us in on capital return. So remember, we've gotten ourselves back to 2.4-or-so times leverage. We got a debt stack that has extended out to 18 years of average life, recent activities to do that at a 3.7% blended cost of debt. So I feel great about the positioning and strength of the balance sheet. And that's gotten us back middle of last year to the place where we've historically been, which is the ability to drive substantial capital return, so increased the dividend for the 14th year in a row. And that, together with $3 billion of buybacks in the first quarter just ended, is sort of a record quarter for the company, both in terms of aggregate capital return and buybacks alone.

So I think when you put all that together, I think it's a compelling story. I don't think there are many -- any companies in our peer set that are firing in all those 3 cylinders. And so then when you bring it back around to upheaval, I think what you see -- what I would say is the upheaval is less about what it does to our business plans because, going back to the first point, we're operating really well, and we've got great plans and great growth plans in each of our businesses, none of the upheaval out there is causing anybody inside our company to run around with their hair on fire wondering should we change plans. We bury our heads and go do what we know we need to do to deliver great results organically over the next bunch of years.

But I do think that the upheaval is going to -- the wind's blown our way in the sense that -- to the extent that you were fueling heavy investment in expense, whether it be the content side or talent acquisition amongst our competitor set, I think you're going to see some of that lighten up. And obviously, that's going to be beneficial to us.

Likewise, I think some of the -- with financing locked in, as I described, I think there are going to be other companies out there that look around and say, "What's our next source of capital," if it's not actual producing cash, which not all of the strategies that are out there are going to be amenable to changing the direction of the ship to get in line with that. So I think that's the way we think about Comcast and how it all comes together and we actually feel very good about the hand that we've got. Wouldn't trade it with anybody else's.

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

So I want to follow up on a few things you said. But first, there were reports over the weekend about potential partners for NBC away from Comcast. How does that make sense in the context of the sort of whole working together?

Michael J. Cavanagh - Comcast Corporation - CFO

Sure. Well, I mean, I think we're not going to comment on speculation or M&A rumor. But as I've said before, Brian said before, I'll say again, we very much like the company we have. We like the businesses we're in. We think they operate really well together. And I think we have excellent strategies and plans and operators in place to go generate great value in each of those businesses as we're currently set up.

Obviously, it's our job to consider whether there's inorganic ways to create value, and we do that. But as I've said before, the bar is really high, coming back to the point that I was making in the prior answer, which is that we think we're going to do quite well with the businesses we have and the strategies we have, and it's going to drive that balance of ability to outperform in each of the businesses, continue to fuel investments for future growth across all the businesses and return substantial capital. And so that's why I said the bar is really high to do something other than execute on the organic plans that we have.

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MAY 24, 2022 / 2:50PM, CMCSA.OQ - Comcast Corp at JPMorgan Global Technology, Media & Communications Conference

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

Okay. Okay. Let's talk about cable. And you just said something that I want to follow up on. You said something about -- something to the effect of competitors with cheap capital have been maybe coming at you and you think that's going to make it tougher. Is your sort of strategy to just ride through this and assume -- expect that they're going to back off at some point?

Michael J. Cavanagh - Comcast Corporation - CFO

So just taking cable, I mean, our strategy is definitely to -- when you look back 5 years and sort of the overall -- the financial performance has been and will continue to be quite strong. I think we've got 34 million customer relationships, 32 million broadband customers. It's just a strong, strong business. And yes, we face competition, but whether it's so-called smaller players that are pulling fiber, fueled by infrastructure funds, I do think the changing marketplace and other alternatives in capital markets where people to put money, might together with us making sure we punch back on some of the overbuild operations, I think is -- I think -- yes, I think this market is one that, on that side of things, I see things coming our way a little bit.

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

As you said, the last 5 years have been a great story for margin and for cash flow expansion.

Michael J. Cavanagh - Comcast Corporation - CFO

Yes.

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

As the market shifts, whether it's because broadband is more saturated or competition is a little different, are you changing the way you drive growth in EBITDA, growth in margin? How do you change the business there?

Michael J. Cavanagh - Comcast Corporation - CFO

So I actually don't think it's -- would be any change from what we've talked about before. Again, when you think about the aggregate business, driving returns and driving cash flow from the business and growing it over time is really not a function of the last -- what you added in the last quarter, right? It's making sure that you drive revenue growth and you have great operating leverage.

So when I think about what we've been doing to -- on the former, so on the revenue side, I think look at -- so the investment in wireless, I think we'll get into it, I'm sure, more later. But I think wireless is an excellent addition on the connectivity side, which goes right alongside broadband, where very low penetration of our customer base at this stage, 2 million customer relationships of 32 broadband. So we think that -- you're going to see that be a continued big emphasis for Dave Watson and the cable team. And that's a way to drive overall relationship revenue growth at a customer level with great long-term positive client lifetime value benefits from that.

It's kind of the flip side to the question you would have asked me 5, 6 years ago about what the implications were of video and losing the churn reduction benefits of video and didn't we have to chase video down a rat hole, which we have not. Seen last year, 1.7 million or so disconnects on the video side, a decent amount of offset with Flex and with wireless. And as a result, EBITDA went up 11.5%. So I think when you look at wireless, it has a big potential to be -- it's stand-alone profitable at this stage, but there's a lot of ways to win there. So that's one.

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MAY 24, 2022 / 2:50PM, CMCSA.OQ - Comcast Corp at JPMorgan Global Technology, Media & Communications Conference

I think broadband itself -- as we've continued to invest in the network, continue to invest in differentiating our broadband product with xFi and gateways in the home, more access to Wi-Fi and the like, making it easy for customers, I think there's pricing power in broadband over the long term as is where is, without -- forget about adding subs. And obviously, business services is yet one more.

So I think when you think about the aggregate picture of the cable business, we have got our eye on a lot of ways in which we're going to drive the revenue side of the business. And on the expense side, you've heard Dave talk about it repeatedly, just the continued driving of efficiency in the operations of the business, I think agent involved contact calls last year, down 19%; truck rolls, down 17%. So that's taking real expense out of the operations.

We've invested heavily in sort of ability for customers to interface with us, acquire and manage service through our digital tools. And that actually

• the pandemic has helped to get people who otherwise weren't used to using those kind of tools with us to adopt. A lot going on in the network. Virtualization takes a lot of operating cost out of the network.

So you bring that all together, and I think that's the kind of -- that's the algorithm that I think is -- rinse, lather, repeat for what the story is for Dave and team driving ongoing strong results in cable.

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

Okay. Maybe just continue on broadband for a second. 2015 through '19 was a really steady growth in the industry. 2020 had this massive expansion in broadband penetration. '21 sort of midyear growth really dried up. So what -- how do you explain that sort of midyear drying up? And then you've talked about seasonality coming back. Are we moving back to a more normal market today or not quite there?

Michael J. Cavanagh - Comcast Corporation - CFO

Sure. I mean, Dave said this on the last earnings call and said no change in his comments last week, and I'll say the same. The near -- the recent dynamics since middle of last year and continued in the first quarter is low levels of move activity alongside record low churn. So we feel confident in our product. We're not seeing our customers turning over in any appreciable way to -- but that said, we do now expect seasonal patterning to begin to normalize. First quarter, second quarter is usually a seasonal weakening. And we acknowledge that there's more competition out there.

For the most part, as you get into the competitive dynamics, we feel very good about our capabilities, our product and our ability to compete, and I'm sure we'll go deeper on all those things. But that's the near-term dynamics that are very similar to what we've been talking about for the last couple of quarters.

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

Do you think that there's a -- you've talked in the past about you're not seeing competition from wireless. Are you starting to sort of recognize that in the business? Or is it still the case that you're not seeing a lot of difference there?

Michael J. Cavanagh - Comcast Corporation - CFO

No. As Dave said, the competition is out there. We talked about competition being there in the first quarter call. But I think the kind of point of it really is with really continued record low churn. We know it's out there, so we're sharpening up our own messages. We're bringing a 3-for-1 product offering where you put Flex and HSD and mobile together. So I think competition always makes you better, and there's plenty of competition out there.

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