Comcast Corporation

Good morning, ladies and gentlemen, and welcome to Comcast's second quarter 2021 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 Rivaker. Please go ahead, Ms. Rivaker.

Thank you, Operator, and welcome, everyone. Joining me on this morning's call are Brian Roberts, Mike Kavanaugh, Dave Watson, Jeff Schell, 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 two, which contains our Safe Harbor disclaimer. I 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, BCR 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 Robert for his comments. Brian?

Thanks, Marcie, and good morning, everyone. I'm really excited to report the 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. 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 standalone 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 eight active at any one time, and this increases every year. That drives in-home Wi-Fi usage to 15 times 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 startups 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's 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 studio 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 number one in all territories at launch. And with $600 million of worldwide box office to date, it remains the biggest U.S. film launched since the pandemic began. Following Fast, we successfully released Boss Baby 2 and the latest installment of Purge. And over the July 4th weekend, we had the top three 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 SYNC 2. 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 signups 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, Sunday 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 four-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 UK 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, SkyMobile 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. Our 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. Thanks, Brian, and good morning, everyone. I'll begin on slide four 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 84 cents 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 five. 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, table 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 rate. 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 half a percent, excluding the RSM 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 due to 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 advertisements. Turning to expenses, cable communications second quarter expenses increased 8.2%. Programming expenses increased 12% and were up 5% excluding the impact of RSM adjustments last year, primarily due to the number of contract renewals that started to cycle through in 2020, combined with annual escalators and 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. Non-programming expenses increased 5.7% or half a percent 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. Table 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. Losing the RSN adjustment impact, margins expanded 200 basis points year-over-year. Fabled 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. Now let's turn to slide six for NBCUniversal. Let's start with total NBCUniversal results. Revenue increased 39% to $8 billion, and EBITDA increased 13%, $1.6 billion. Media revenue increased 26% driven by higher advertising, distribution, and other revenue. Advertising revenue increased 33%, reflecting the timing of sports and overall market recovery compared to last year and the launch of Peacock. We had significantly more sporting events compared to last year when sports were paused, which benefited our advertising revenue. Excluding this benefit, advertising grew at mid-teens levels. Distribution revenue increased 19% for high single digits, excluding the RSN fee adjustments that impacted last year's results. This growth reflects higher rates post the successful completion of several carriage renewals at the end of 2020, partially offset by subscriber declines, which were sequentially flat. Immediate EBITDA declined 16%, $1.4 billion, including Peacock, which generated a revenue of $122 million and an EBITDA loss of $363 million. Excluding Peacock, media EBITDA was essentially flat, driven by higher sports costs associated with the increase in sporting events this quarter compared to both last year and 2019. As a reminder, our third quarter media results will be impacted by our broadcast of the Summer Olympics. Studio revenue increased 8.4%, driven by higher theatrical revenue, reflecting the success of Fast 9 in theaters, and compared to last year when theaters were mainly closed due to COVID-19. Studio EBITDA decreased 52% to $156 million as a result of higher expenses associated with our theatrical releases, compared to last year when releases were paused, the timing of content licensing sales, and the comparison to last year, which included transactions with Peacock related to our initial launch of the service. In the second half, EBITDA comparisons to last year will remain challenging as we continue to launch new theatrical releases and ramp our TV productions. Theme parks revenue increased by $958 million, $1.1 billion, and generated EBITDA of $221 million, which included about $150 million of Universal Beijing pre-opening costs. This is the first profitable quarter we've had since the pandemic began in the first quarter of 2020 and was driven by strong results at our Universal Orlando Resort. Orlando has had exceptionally strong demand with June attendance exceeding 2019 levels as well as strong per-cap growth, despite virtually no international guests during the quarter due to COVID-related travel constraints. We opened our Jurassic World-themed roller coaster, the Velocicoaster, on June 10th to some of the highest guest satisfaction scores we've had. Hollywood has been operating without capacity restrictions since mid-June and has experienced strong demand, aided by the opening of our Secret Life of Pets attraction in April. We're optimistic that our domestic parks are on a path to return to historic levels of profitability, but we need international visitation to resume, which remains dependent on COVID-related travel restrictions being lifted. At our Japan park, results continue to be challenging. After closing in late April, we reopened on June 1st with capacity restrictions that are likely to remain in place through the summer. Last, as we prepare to open our newest park, Universal Beijing, we expect overall results will be negatively impacted by up to $250 million in the third quarter. Now let's turn to slide seven for Sky, which I will speak to on a constant currency basis. For the second quarter, Sky revenue increased 15% to $5.2 billion, largely reflecting strong growth in our U.K. business. Direct-to-consumer revenue increased 7.7%, primarily reflecting higher average revenue per customer relationship. Results in the UK drove the bulk of the growth and benefited from the comparison to last year when sports subscriptions were paused, as well as a rate increase, higher mobile device sales, and improving hospitality revenue as pubs and clubs reopened. While customer relationships grew in the UK, Overall customer relationships declined 248,000, primarily driven by customer losses in Italy and Germany to the end of the football season. As we have previously said, we have reset our football rights in Germany and Italy. As a result, we anticipate lower programming and production expense, along with continued customer losses in the third and fourth quarters. We believe this disciplined approach to sports-related costs is the right long-term financial decision for the business. Advertising revenue increased 79%, with results in the U.K. driving the growth and reflecting the overall market recovery from COVID-19, as well as an increase in the number of sporting events compared to last year when sports were paused. Sky generated $560 million in EBITDA, a 32% decline compared to last year's second quarter, primarily reflecting higher sports rights amortization related to more events in the current quarter. These higher expenses were partially offset by lower entertainment costs due to production delays. I'll wrap up with free cash flow and capital allocation on slide eight. Free cash flow was $4.8 billion in the quarter, a decrease of 20% year over year, largely due to the timing of last year's federal tax payments, which were deferred to the third quarter. While net working capital was a positive contribution to free cash flow in the quarter, we continue to expect it will be a negative drag on our full year results and higher compared to 2019 levels due to an increase in content investments and our broadcast of the Olympics. Consolidated total capital, which includes capital expenditures as well as software and intangibles, increased 5.2% in the second quarter to $2.8 billion, reflecting an increase at cable, which was partially offset by decline at NBCU. For the full year, we now expect capital to be slightly above 2020 levels, reflecting our plan, as I previously mentioned, to accelerate enhancements to our network. In the second quarter, a return of capital to shareholders included dividend payments totaling $1.2 billion, up 9.5% year-over-year. We also resumed our share repurchase activity late in the second quarter, totaling $500 million as of June 30th. As previously communicated, we intend to stay at historical buyback levels until we reach our intended target leverage levels, which we currently expect to reach sometime in 2022. With our return to share or purchase in the quarter, we're happy to get back to our longstanding balanced approach to capital allocation, which consists of maintaining a strong balance sheet, investing organically for profitable growth, and returning capital to shareholders. Thanks for joining us on the call this morning. I'll turn it back to Marcy, who will lead the question and answer portion of the call.