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EDITED TRANSCRIPT

CMCSA.OQ - Q1 2022 Comcast Corp Earnings Call

EVENT DATE/TIME: APRIL 28, 2022 / 12:30PM GMT

OVERVIEW:

CMCSA reported 1Q22 revenue of $31m and adjusted EPS of $0.86.

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CORPORATE PARTICIPANTS

Brian L. Roberts Comcast Corporation - Chairman, CEO & President

David N. Watson Comcast Corporation - President & CEO of Comcast Cable Jeffrey S. Shell Comcast Corporation - CEO of NBCUniversal

Marci Ryvicker Comcast Corporation - EVP of IR

Michael J. Cavanagh Comcast Corporation - CFO

CONFERENCE CALL PARTICIPANTS

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

John Christopher Hodulik UBS Investment Bank, Research Division - MD, Sector Head of the United States Communications Group and Telco & Pay TV Analyst Philip A. Cusick JPMorgan Chase & Co, Research Division - MD and Senior Analyst

PRESENTATION

Operator

Good morning, ladies and gentlemen, and welcome to Comcast First Quarter 2022 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, 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. 2022 is off to a great start. Each of our businesses posted healthy growth in adjusted EBITDA, contributing to a double-digit increase in adjusted EPS as well as significant free cash flow generation in the quarter. And we achieved all of this while continuing to invest in our businesses for the long term, while also increasing our return of capital to shareholders.

Our company has been at the forefront of innovation in connectivity and also in content. We have built a leading global technology platform, which today delivers 5 billion entertainment streams a week and 40 million voice commands a day across Comcast, Sky and our current syndication partners.

Yesterday's announcement highlights the value of what we've created. As you probably are aware, we formed a joint venture with Charter to offer our award-winning, voice-controlled streaming platform across the United States, starting with Flex and XClass TV, and to further develop this technology. Not only will we bring these products to millions of more customers, but we'll open the door to brand-new revenue opportunities. And when you combine Charter's footprint with our current syndication partners in both the U.S. and Canada, our retail distribution through Walmart and Sky, which essentially runs off the same technology, we now have a truly global platform.

This joint venture is a win-win. Consumers will get our proven world-class user and search experiences, simple content navigation and more choice in the streaming marketplace. App developers, retailers and hardware manufacturers will have access to 1 platform and 1 set of standards to quickly deploy their offerings across the U.S. And we'll be able to share in the investment and innovate alongside a partner we know well.

Comcast and Charter have a track record of coming together to bring new products and technologies to consumers. Most notably, our mobile operating partnership from 2018 enabled both companies to bring greater value and a better experience that people love. The result is a more competitive wireless marketplace, and the service that we provide has been rated #1 in customer satisfaction against all other mobile providers.

Peacock also benefits from this joint venture as it will be deeply integrated into the platform the way it is on X1 and Flex today, which will help expand Peacock's customer base more quickly and drive higher engagement resulting in greater monetization for NBCUniversal. And we are doing all of this in the context of the investments we have already made in our technology and within the guidelines we've provided on our last earnings call, with respect to our plans for programming investment.

So let's come back to our achievements in the first quarter. Starting with broadband. We measured our success based on customer and financial metrics. And while we continue to compete aggressively in the current environment, we are striking what I believe to be the right balance between customer acquisition and long-term profitable growth. You can see with our first quarter results, where we added 194,000 customer relationships and 262,000 broadband subscribers. While on the financial side, Cable generated 5% revenue and 6.5% adjusted EBITDA growth, with 44% adjusted EBITDA margins.

Our distinct competitive advantage stems from our network, which has a level of flexibility that enables fast innovation and will be further enhanced through virtualization, an important stepping stone in our ultimate evolution to DOCSIS 4.0. Our path to ubiquitous, multi-gig, symmetrical speed is well underway. And in the next several years, when you collectively include Charter and Cox, the cable industry will be positioned to offer multi-gig, symmetrical speeds to over 100 million homes throughout the United States over essentially the same DOCSIS 4.0 infrastructure. None of our competitors can say the same thing.

For years, we focused on not only having a modern high-capacity network, but importantly, we've also focused on providing our customers with cutting-edge technology in their homes to ensure that they have the best experience, which is a combination of fast speeds, whole home coverage, cybersecurity and control, together with fantastic streaming capabilities.

During the quarter, we performed a number of successful tests on 10G equipment, and we launched our newest and most powerful xFi gateway, which increases bandwidth in the home by 3x and is the only modem that can support multi-gig symmetrical speeds to date.

We're also enhancing the value of Xfinity broadband by bundling with mobile, offering our customers the convenience of one relationship for all their connectivity at a tremendous value. This contributed to even further improvement in broadband retention and our best quarter ever for Xfinity Mobile in terms of line net additions.

We have a great wireless business, an MVNO partner in Verizon and have opportunities to further improve our economics at Xfinity Mobile longer term. For example, our testing of deploying spectrum to potentially offload wireless traffic is progressing nicely. During the quarter, we turned up our first 5G radios, and we'll be launching an employee field test in June. Stepping back, the underlying theme in all of this and the core of ourstrategy is that we put the customer first, which drives our strong financial results. The investments we have made and continue to make are expressly meant to enhance the experience of every person that is connected to our products and services. To that end, we just had the highest level of customer satisfaction we have ever seen for our first quarter. And we maintained our positive trend in reducing both agent handle interactions and truck rolls, which declined 19% and 17%, respectively.

So let's switch to NBCUniversal. We had a lot of exciting things happened during the first quarter. For the first time in our history, we aired both the Super Bowl and the Olympics in the same week, affirming our expertise in production. During that period, I went to our facility in Stanford, Connecticut. I have to say, I was so impressed by the hard work and the entire team working 24/7 around the clock, working with Beijing, while being in Connecticut, providing a seamless broadcast for the Olympics. We sent some of our equipment to China when we thought our broadcast operations would be there. And on the fly, we had to figure out new ways to air this special event and not have a consumer know that was happening. Amazing how well the team managed the complexity, delivered an unbelievably high-quality product to hundreds of millions of viewers. And I think this will help innovate sports productions for years to come.

We learned a lot about streaming from the last Olympics. And so when it came to Beijing, we provided a much improved experience on Peacock, which shared every single event for the first time, driving significant engagement. Really was an exceptional quarter overall for Peacock, with other big sporting events and content launches, including the Super Bowl, the debut of Bel-Air, our most successful original to date, and the day-and-date release of Marry Me. Importantly, retention on our service after airing all of this special content in such a concentrated period of time was well above our expectation. We added 4 million paid subscribers to end the first quarter with over 13 million paid subscribers and 28 million monthly active accounts in the U.S. And we've seen a 25% increase in hours of engagement year-over-year. Given the natural ebbs and flows of our content slate, we do not anticipate seeing this type of growth every quarter. We just expanded our total paid subscribers by over 40%. So we expect more modest subscriber gains until we get to the back half of this year.

Our fourth quarter should be fantastic for sporting events such as Sunday Night Football, Premier League and the World Cup; a pay one availability of top universal titles like 'Minions: Rise of Gru and Jurassic World: Dominion; original series such as Vampire Academy; and for the first time, starting this fall, Peacock will be the exclusive home of the next-day NBC broadcast. Our streaming strategy is differentiated, unique, because Peacock is a natural extension of our existing video businesses with 2 revenue streams and full integration across every aspect, whether it's programming, cross-promotion or advertising. Peacock builds audiences, extends our reach and creates new consumer experiences within our ecosystem, which should enable video to be a major long-term growth driver for NBCUniversal.

Finally, the business we haven't talked enough about is Theme Parks, where the recovery continues to be fantastic. I'm particularly excited about the new attractions that we opened during the pandemic, that many of our guests are now able to experience for the first time, like Super Nintendo World in Japan, the amazing VelociCoaster in Orlando; Pets in Hollywood, and of course, Universal Beijing. Our investments are significantly expanding the potential of our Theme Parks business, which will remain an important and exciting growth engine for years to come.

So Comcast is truly in a unique position of growing EBITDA, generating a robust level of free cash flow while making important organic investments in long-term growth initiatives, and also increasing our return of capital to shareholders, which totaled $4.2 billion this quarter through a combination of $3 billion in buybacks and $1.2 billion in dividends, the largest return of capital for any quarter in our history.

So off to a great start in the first quarter, and I'd like to now hand it over to Mike.

Michael J. Cavanagh - Comcast Corporation - CFO

Thanks, Brian, and good morning, everyone. I'll begin on Slide 4 with our first quarter consolidated 2022 financial results. Revenue increased 14% to $31 billion, adjusted EBITDA increased 9% to $9.2 billion, adjusted EPS increased 13% to $0.86 per share, and finally, we generated $4.8 billion of free cash flow.

Now let's turn to our business segment results, starting with Cable Communications on Slide 5. Cable revenue increased 4.7% to $16.5 billion, adjusted EBITDA increased 6.5% to $7.3 billion and net cash flow grew 8.3% to $5.6 billion. We grew customer relationships by 913,000 over the past 12 months with 194,000 net additions in the first quarter. Overall, customer growth was driven by broadband, where we added 1.1 millionnet new residential and business customers over the past 12 months and 262,000 in the first quarter. This quarter's results reflect continued low move-related activity compared to historical levels as well as an uptick in the level of competitive activity resulting in lower connect volumes. At the same time, we continue to experience very high levels of customer retention, with this quarter's results yielding the lowest churn rate for any quarter on record. In fact, we had fewer customers disconnect this quarter than the first quarter of 2019 despite a customer base that is almost 17% larger.

Throughout the pandemic, we have offered a variety of programs to help our customers stay connected. Some of our customers that participated received our services for free and, therefore, were not included in our subscriber totals. At year-end, we ended these COVID-related programs, triggering a benefit in the first quarter. We estimate this change accounted for about 1/3 of our first quarter net additions with such benefit contained to the first quarter.

Moving to the financials. Cable's revenue growth of 4.7% was driven by broadband, business services, wireless and advertising revenue, partially offset by lower video and voice revenue. Broadband revenue increased 8%, driven by strong customer additions over the past 12 months and nearly 4% growth in average revenue per customer in the quarter.

Business Services revenue increased 10.6% or approximately 6%, excluding the acquisition of Masergy, which closed at the beginning of last year's fourth quarter. This healthy organic growth was driven by increases in both average rates per customer and in our customer base, which grew by 61,000 over the past 12 months with 9,000 additions in the first quarter.

Moving to Wireless. Revenue increased 32%, mainly driven by service revenue, which was fueled by growth in customer lines. Overall, we added 1.2 million lines over the past 12 months, including 318,000 lines in the quarter, which, for the fifth consecutive quarter, was our best result since launching this business in 2017.

Advertising revenue increased 8.6%, reflecting higher political and double-digit growth in Zumo and advanced advertising. For video, revenue declined 1.5%, driven by customer net losses totaling $1.7 million over the past 12 months, including $512,000 in the quarter, partially offset by higher average revenue per customer due to a residential rate increase at the beginning of this year.

Last, voice revenue declined 9.8%, primarily reflecting customer losses totaling 725,000 over the past 12 months, including 282,000 net losses in the quarter and reflects our shift to more converged broadband mobile offers.

Turning to expenses. Cable Communications' first quarter expenses increased 3.3%. Programming expenses decreased 1.1%, reflecting a decline in video customers, partially offset by higher rates. Nonprogramming expenses increased 6.3%, reflecting investments in our growth businesses, including Broadband, Wireless and Business Services; expenses related to our recent acquisition of Masergy; as well as an increase in other expenses, primarily due to bad debt returning to more normalized levels. These higher costs were partially offset by a decline in customer service expenses, reflecting lower activity levels in the business as well as improvement in customer experience initiatives.

Cable Communications' EBITDA increased 6.5% to $7.3 billion for the quarter and Cable EBITDA margin reached 44%, reflecting 80 basis points of year-over-year improvement. We believe we are striking the right balance by continuing to invest in our growth businesses, which are driving the top line and proving to be a great return for us, while at the same time, continuing to increase our operating efficiency and remove unnecessary costs.

Now let's turn to Slide 6 for NBCUniversal. Starting with total NBCUniversal results. Revenue increased 47% to $10.3 billion and EBITDA increased 7.4% to $1.6 billion. Media revenue increased 36% to $6.9 billion, including Peacock revenue, which grew more than 5x year-over-year to $472 million in the quarter. As Brian noted earlier, we aired both the Olympics and Super Bowl, which together contributed an incremental $1.5 billion to Media revenue. Excluding these events, Media revenue increased 6.9%, driven by both higher distribution and advertising revenue.

Distribution revenue, excluding the contribution from the Olympics, increased 8.5%, reflecting growth at Peacock driven by increases in paid subscribers as well as our networks, reflecting higher contractual rates, partially offset by linear subscriber declines. Advertising revenue, excluding

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Comcast Corporation published this content on 28 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 April 2022 21:02:09 UTC.