Comcast Corporation

Good morning, ladies and gentlemen, and welcome to Comcast's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Please note that this conference call is being recorded. I will now turn the call over to Senior Vice President Investor Relations, Ms. Marci Reibacher. Please go ahead, Ms. Reibacher.

Thank you, Operator, and welcome, everyone. Joining me on this morning's call are Brian Roberts, Mike Cavanaugh, Dave Watson, Jeff Schell, and Jeremy Derrick. Brian and Mike will make formal remarks, and Dave, Jeff, and Jeremy will also be available for Q&A. Let me now refer you to slide two, 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 8K 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. Ryan.

Thanks Marcy and good morning everyone. We're nearly eight months into this pandemic and despite many harsh realities, I could not be more pleased and proud of how our team has worked together across the company to find safe and creative solutions to successfully operate in this environment. We are executing at the highest level and perhaps most importantly, accelerating innovation to drive long-term future growth. We remain intensely focused on our top three strategic priorities of expanding and leading with broadband, aggregation, and streaming, all of which are underpinned by strong content creation, distribution, and technology. Each business is increasingly complementing, reinforcing, and driving value for the others while enabling us to offer seamless and bundled experiences to all our customers. For example, this quarter we added a record number of new customer relationships and high-speed internet subscribers, and signups for Peacock have grown to nearly 22 million as of today. It is clear that Peacock's results are enhanced by the placement and distribution it gets through our broadband service. and adding Peacock to broadband is resulting in significant improvement in both churn and gross to ads, as Peacock is continuously cited as a differentiating factor at the point of sale for Xfinity broadband products. None of this could have been achieved without the technology stack that we have through Sky. Focusing now on our top strategic priority, broadband, the success we've experienced to date has been driven by years of investment combined with our leading scale. We engage with 56 million high-value households and businesses globally. These subscribers give us a stronger starting point in direct-to-consumer relationships, particularly with broadband. Our connections at the point of sale provide us with a distinct advantage as this is the moment when customers really contemplate their aggregation and streaming options. We have the best broadband network in the U.S., perhaps in the world, buoyed by a completely integrated consumer experience with the widest array of products that go beyond just speed. We offer coverage, control, and an unprecedented level of flexibility. With our broadband service, you get your choice of entertainment over your preferred distribution method, whether it's the industry-leading video bundle with X1, or the highest quality streaming product with Flex, both powered by the same platform and technology, the same award-winning voice remote, and the same cloud-based software. With Xfinity Internet, you can opt for Xfinity Mobile, a great value wireless service hosted by Verizon, now inclusive of nationwide 5G, and augmented by our own Wi-Fi network, the largest in the U.S., And we have the ability to evolve this offering over time should we choose to include our own wireless network or cellular infrastructure to generate even greater profitability in the most highly trafficked mobile areas. It is this unique combination of broadband products and services that led to this quarter's 556,000 net new customer relationships and 633,000 net new high-speed Internet subscribers both the best quarterly record in our company's history. In the UK, customer relationships now stand at over 13 million, a figure that's been steadily growing, driven by our exclusive content and experience that cements our video relationship with customers, a differentiated broadband service as the number two provider, and increasing wireless penetration. It's a winning formula for other markets that we will look to replicate. Moving to our second strategic priority, aggregation. Whether it's a pay TV video bundle or a streaming solution for the home, entertainment remains an important consideration for new and existing broadband customers. X1 and SkyQ are the world's leading platforms for aggregating broadcast, sports, and streaming services. Flex provides that same experience to those customers who prefer streaming-only video included for free with Xfinity Internet. We've developed the best operating system for your entertainment experience, controlled by one global voice remote, enabling 15 billion commands in five languages annually. Our expertise, our technology, and the tremendous amount of R&D continue to push us forward with opportunities to generate new revenue streams and areas of monetization, which sets us on an even stronger path towards long-term growth. The goal of our common tech stack is to build once and deploy as many times in as many markets and in as many ways as possible on our network or through wholesale distribution. We've already experienced great success with our current X1 syndication model. White labeling our software and technology gives us a significant revenue stream that boasts healthy margins and even more important, more scale for our platform. We look forward to expanding this expertise to other distributors and believe that an even larger nationwide and potentially international syndication model will create new opportunities in this rapidly changing ecosystem that will create value for our company and our shareholders. Our third strategic priority is streaming, which not only provides us with another increasingly important way to reach our viewers and monetize our content, but it also drives demand for higher speeds and more reliable broadband and differentiates and improves the economics of aggregation. Peacock, our premium ad-supported video-on-demand service, is the right streaming strategy at the right time. After launching nationwide just this past July, we are excited to already have nearly 22 million Peacock sign-ups to date and have exceeded all of our internal engagement metrics, even without having the benefit of the 2020 Olympics. Going out with free allowed us to grow quickly with a very low cost per acquisition and significantly less marketing spend than other new streaming services. We've also been able to effectively leverage our expansive high-quality library and over $20 billion of annual content spend that supports our existing media businesses for Peacock and enhance it with targeted incremental investment in additional streaming IP. Xfinity has been a significant contributor to Peacock's success, driving awareness and usage through bundling with X1 and Flex. In fact, Peacock was the number one app on Flex and the number three app on X1 for the month of September when measured by reach. We're also leaning into Flex, which increases the lifetime value of our broadband customers as we see churn improve by 15% to 20%. for new customers that engage with the platform. Since adding Flex as a video option, we've seen our entertainment relationships increase. In fact, the growth in the Flex monthly active user base, which now sits at over 1 million, more than offset the decline in the number of our traditional pay TV video subscribers for the past two quarters. Reaching these three strategic objectives takes focus and discipline, and we have both. We are realigning our cost structure across our company and making the appropriate level investment in the right initiatives, so as to fuel long-term growth and enable us to effectively compete in an evolving global marketplace. Turning from our long-term strategy, I'd like to highlight our third quarter results, which I am quite proud of in light of the challenges we have faced with COVID. In cable, our revenue growth accelerated and we generated an impressive 10.5% increase in EBITDA. We have been incredibly successful in identifying long-term cost efficiencies. In fact, with our self-install offerings and digital tools, customers can do virtually everything they want or need to without picking up the phone or requiring a truck roll. But we're also investing for growth with the goal of increasing awareness of our ever-improving Xfinity brand, promoting and advancing our leading broadband position, and accelerating our mobile and business segments. At NBCUniversal, the team has done a really creative and impressive job of navigating through an incredible amount of uncertainty. I'm pleased to report that some businesses are steadily recovering. given the resumption of both sports and content production. Where we continue to see the most pressure from COVID is in our theme parks, which were the single biggest drag in the quarter. In fact, excluding this segment, NBC Universal EBITDA would have grown by 9% year over year. While it will take some time for the parks to return to historical levels, we have made substantial progress. Universal Orlando and Osaka are operating at limited but growing attendance. While we don't know when Hollywood might reopen, we remain very bullish on the park's long term. I am very excited for next year's launch of our frankly incredible new theme park in Beijing. Early in the third quarter, we announced a completely new structure for our television businesses. enabling us to realign how we invest in the creation, production, and distribution of world-class content. In essence, we've done away with the concept of creating a piece of work for a specific network. Our priority is to invest in and create the absolute best content and ensure that we maximize monetization by choosing the most effective method of distribution, whether it's broadcast, cable networks, Peacock, sales to a third party, or some combination of all four. Last, we're closing in on two years since we bought Sky, so I thought I would spend a moment providing some context on the progress we see to date. The UK, which is by far the largest component of Sky EBITDA, has proven to be a strong business that has generated high single-digit EBITDA growth over the two-year span when adjusting for the momentary impacts of COVID. anchored by growth in both our customer base and revenue per customer relationship. Our UK customers continue to do more with us, as evidenced by our higher penetration in broadband, in wireless, and in the queue box, all of which solidify us as the home of aggregation and streaming, and which sets us up nicely for continued growth. What we see in the UK guides our thinking on the prospects for what Germany and Italy could each become. In both markets, we have a leading brand name and customer proposition in video supported by significant scale. While it may take time, we are on a path to replicate the UK playbook and took an important step toward this in Italy with our recent launch of broadband. We also have fairly immediate opportunities to improve our cost structure as we move to centralize our organizational efforts across our markets And as we've begun to reset many of our largest sports rights in continental Europe, which should provide hundreds of millions of dollars in annual savings. As Jeremy highlighted recently, we are confident in our ability to double EBITDA at Sky over the next several years. And importantly, Sky fits right in with our broader company priorities, playing a big role in strengthening our tech stack for aggregation and in content solutions across all of NBCU and cable. When you put it all together and look at the first nine months of the year, certainly not the year we all would have expected. We've executed extremely well. We've taken advantage of the favorable interest rate environment to enhance our balance sheet and liquidity, and we remain committed to getting leverage where it needs to be so that we can return to buying back stock. All in all, this was a really strong quarter, and Mike will now take you through our results in greater detail.