Comcast Q2 2022 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2022

There are 13 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to the Comcast Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. Please note that this conference call is being recorded. I would now like to turn the call Over to Executive Vice President of Investor Relations, Ms. Marci Ryvicker.

Operator

Please go ahead, Ms. Ryvicker.

Speaker 1

Thank you, operator, and welcome, everyone. Joining me on this morning's call are Brian Roberts, Mike Cavanagh, 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 and 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.

Speaker 1

Please see our 8 ks 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?

Speaker 2

Thanks, Marcy, and hello, everyone. Our financial results were very strong across the board once again this quarter. We grew 2nd quarter consolidated revenue by 5%, adjusted EBITDA by 10% and adjusted EPS by 20%. We accomplished this while continuing to invest in our businesses and return significant capital to shareholders. Specifically, we bought back $3,000,000,000 worth of our stock in the quarter, bringing our total to $6,000,000,000 year to date.

Speaker 2

And we continue to have a healthy dividend and one of the strongest balance sheets in the industry. Our prudent financial management And long term innovation based strategy are paying off in cable, which posted 5% growth in EBITDA and 70 basis points of year over year margin expansion. In fact, our EBITDA margin reached a record high of nearly 45% this quarter. While we've added nearly 800,000 broadband subscribers in the past 12 months, more recently that pace has slowed And we posted flat broadband subscriber additions in the 2nd quarter. I'd like to dig into what we are seeing in that area.

Speaker 2

Broadband additions of course are basically a function of churn and Connect activity. While churn remains well below 2019, Connect activity was also lower than what we generally see in the Q2. We believe this is primarily the result of 3 factors. The first category is move activity. As we've discussed for some time now, there has been a dramatic slowdown in moves across our footprint With the Q2 below 2019 by 12% and the lowest we've experienced since the pandemic began, Our win share of new customer acquisition opportunities remains high, but the slowdown in moves has resulted in fewer of these jump balls And this has had the largest impact on our gross connects.

Speaker 2

The second category is a reversal of some pandemic trends. During the pandemic, many customers particularly at lower income levels sought to optimize home based solutions by adding broadband. This presented us with significant opportunity to take more share in residential broadband. In fact, in the 1st year of the pandemic, We added nearly 50% or 600,000 more customers than our prior annual average growth. At this stage in the pandemic, those opportunities have waned as consumer behavior has begun to return to pre pandemic patterns.

Speaker 2

We've also seen some give back to a normalization of mobile substitution. In addition, during the pandemic, Seasonality patterns were very different than what we had seen historically. And this really began to also normalize in this Q2 causing more seasonal disconnects that did not occur at typical levels in the prior 2 years. The last bucket is increased competition. Fixed wireless is a new entrant in the marketplace While there are likely to be significant long term limitations, today's excess capacity in wireless networks is creating what we believe to be a But its early growth appears to be another contributor to our lower Connect activity.

Speaker 2

In addition, we continue to compete against fiber in an increasing percentage of our footprint. Notwithstanding these industry and mostly macro related factors, we remain extremely confident. We've spent decades investing and innovating to build a business that is well positioned to succeed in the environment we're seeing And we certainly expect a return to residential broadband subscriber additions. How do we plan to do that? Well, we're working hard to expand our footprint, taking advantage of growth in housing and businesses in our current markets, Accelerating edge outs into new areas and we are playing offense when it comes to government subsidies.

Speaker 2

Next, we will continue to aggressively compete for market share. We offer a superior product focused on innovation and differentiation And we continue to increase the value of broadband by bundling it with mobile and flex. And we are making great progress in our network transition to DOCSIS 4.0, which gives us a clear path to reaching multi gigabit symmetrical speeds at scale Faster and at a lower cost relative to our competitors, all within the CapEx intensity levels we have previously outlined. I'm also confident and frankly more excited in our ability to drive revenue and EBITDA growth even through our existing subscriber base alone. We've had a history of generating strong and steady ARPU growth as we continue to add tremendous value and improvement to the customer experience.

Speaker 2

Our margins are some of the highest in the industry, which highlights the stability and operating leverage of our business, the diversification of our revenue streams and the strength of our other important growth drivers at Cable. In particular, Business Services and Wireless have been 2 substantial contributors to Cable's financial strength and each still has lots of runway ahead. Business Services had another strong Quarter of revenue growth and in just over a decade we've grown this to nearly $10,000,000,000 in high margin Annual revenue including the addition of almost $1,000,000,000 in the last 12 months alone. In wireless, We added 317,000 customers this quarter and similarly have added over $700,000,000 in incremental revenue in the past 12 months. And we've barely scratched the surface of the opportunity here at only 8% penetration of our residential broadband customers.

Speaker 2

Wrapping up on cable, we are in a unique environment with some headwinds, but move activity should return to some level of normalcy, Mobile substitution will eventually stabilize and we believe fixed wireless has inherent performance and capacity limitations that sharply limit Moreover, we believe that our path to deliver multi gigabit speeds together with the other features and functionality we offer We'll make our broadband experience superior to any of our competitors over the long term. In the meantime, we will maintain the discipline we've always had I am confident that we will strike the right balance between subscriber acquisition and long term profitability and we all believe we have a very bright future in this business. Moving to NBCUniversal, we had a very strong quarter with EBITDA growth of 20% year over year. Our Park segment continued its momentum generating record EBITDA for a second quarter and this is without much contribution from Beijing, which was closed for nearly 2 months. Domestic park attendance and per caps continue to be above pre pandemic levels We are moving full steam ahead in building Epic Universe.

Speaker 2

I cannot be more excited for how this park will bring new experiences to our visitors and additional runway for growth. NBCU Media remains a very healthy business. We just completed the highest grossing upfront in our history, a testament to our content And a superb team and the unique data and technology innovation we delivered through one platform. This year we secured more than $7,000,000,000 in commitments, including $1,000,000,000 at Peacock, double what we did in the 2021 2022 season, along with strong pricing. In studios, our success with Jurassic World, Minions and Black Phone Demonstrates that great content attracts massive audiences.

Speaker 2

In addition, we are very pleased with our new film windowing, Including P VOD and an accelerated pay one availability on Peacock, which have expanded the audience for our films and made our studio business Even more valuable, for Peacock early access to premium universal films is a proven driver of subscriber acquisition and engagement. As we discussed during our last call, Peacock had a very strong Q1 driven by a variety of extraordinary programming, including the Super Bowl and Olympics. Given the normal ebbs and flows of our content slate, we were pleased to have stayed relatively flat for the 2nd quarter 27,000,000 MAAs and 13,000,000 paid subscribers in the U. S. In line with our expectations And we look forward to a very strong fall when next day broadcast becomes exclusively ours from Hulu And we'll be able to take full advantage of our pay one window with a number of big movies like Jurassic and Minions.

Speaker 2

We'll also have Sunday Night Football, Premier League, the World Cup and more originals. At Sky, We are operating well in an increasingly difficult macro environment reporting our highest ever second quarter EBITDA. We grew revenue and EBITDA in the UK, which is our largest European market and the primary driver of our future growth. Calling out a couple of highlights. We are particularly pleased with the consumer response to Glass, which resulted in Sky being the 3rd largest ultra high definition television selling brand in the 2nd quarter.

Speaker 2

And we also recorded our highest ever Premier League final day viewership, taking 30% audience share. In addition, We're seeing the benefit of our disciplined approach to sports rights in both Italy and Germany, where EBITDA also improved year over year. Reflecting on the last 24 months, which has been wrought with uncertainty, we have performed extremely well continue to make progress against key initiatives. Our cable business has achieved some of the highest margins in the industry, While also delivering healthy top line growth. At NBCUniversal and Sky, they've shown resilience and continue to recover despite unique challenges from the pandemic.

Speaker 2

Together, we've generated nearly $30,000,000,000 in free cash flow. We're returning a record amount of capital to shareholders And our balance sheet is in a great place. We've also continued to invest in strategically important growth opportunities, Including enhancing our world class broadband network, scaling Xfinity Mobile, increasing our capabilities of business services, Launching Peacock, completing Universal Beijing and starting construction at EPIC, just to name a few. With substantial cash flow generation and a strong foundation for innovation, Comcast is in a wonderful position. Mike, over to you.

Speaker 3

Thanks, Brian, and good morning, everyone. I'll begin on Slide 4 with our Q2 consolidated 2022 financial results. Revenue increased 5.1 percent to $30,000,000,000 adjusted EBITDA increased 10% to $9,800,000,000 adjusted EPS increased 20% to $1.01 per share And finally, we generated $3,200,000,000 of free cash flow. Now let's turn to our business segment results Starting with Cable Communications on Slide 5. Cable revenue increased 3.7 percent to $16,600,000,000 EBITDA increased 5.3 percent to $7,400,000,000 Cable EBITDA margins improved 70 basis points year over year reaching a record high margin of 44.9 percent and net cash flow grew 4.4 percent to $5,300,000,000 Customer relationships are up 591,000 compared to last year And down 28,000 sequentially in the 2nd quarter, reflecting lower levels of new customer connections given the current operating environment, Partially offset by low levels of churn, which remains well below 2019 levels.

Speaker 3

We are focused on delivering an excellent customer experience and monetizing our customer relationships over their lifetime. And in that regard, EBITDA per customer relationship grew by 3% in the quarter. Now let's discuss cable financials in more detail. Cable revenue growth of 3.7% was driven by broadband, Business services, wireless and advertising revenue, partially offset by lower video and voice revenue. Broadband revenue increased 6.8%, reflecting an increase of 3.6% in ARPU and growth in our residential customer base compared to last year.

Speaker 3

Net residential and business customers increased by 775,000 over continued into the early parts of the 3rd quarter with connects remaining soft, while churn is still near all time lows. This has resulted in a quarter to date loss of roughly 30,000 customers. July is typically the weakest month of the quarter The vast majority of quarterly Connect activity is weighted towards August September, which is helped by back to school activity. While we're optimistic that we will have a healthy back to school season, short term visibility remains low. And more importantly, beyond this temporary period, we are To protect and grow our 32,000,000 broadband customer base over time.

Speaker 3

Business services revenue increased 10% We're approximately 6% excluding the acquisition of Masergy, which closed at the beginning of last year's Q4. This healthy organic growth was driven by increases in average rates per customer and in our customer base, which grew by $54,000 compared to last year with 10,000 additions in the 2nd quarter. Moving to wireless. Revenue increased 30%, mainly driven by service revenue, which was fueled by growth in customer lines. Overall, we added 1,200,000 lines compared to last year, including 317,000 lines in the quarter, which was our highest net additions for any 2nd quarter on record.

Speaker 3

Advertising revenue increased 10%, Mainly fueled by political revenue as well as strong growth at both our advanced advertising business FreeWheel and at our streaming business Xumo, which was partially offset by a decline in our local core advertising business. As a reminder, Xumo, which contributed about net losses totaling $1,800,000 compared to last year, including $521,000 net losses in the quarter, partially offset by 7% ARPU growth due to a residential rate increase at the beginning of this year. Last, voice revenue declined 12%, primarily reflecting customer losses totaling $902,000 compared to last year, including 286,000 net losses in the quarter and reflects our shift in focus to bundling broadband with wireless. Turning to expenses. Cable Communications 2nd quarter expenses increased 2.5%.

Speaker 3

Programming expenses decreased 1.6%, reflecting the year over year decline in video customers, partially offset by higher contractual rates. Non programming expenses increased 5.2% Driven by growth in our wireless business, expenses related to our recent acquisition of Masergy and an increase in bad debt As we return to more normalized levels and compare to lower levels last year, these higher costs were partially offset by a decline in customer service reflecting lower activity levels in the business as well as improvement in customer experience initiatives. Wrapping up on Cable, we are very pleased with the 5.3% increase in EBITDA and record EBITDA margins. Even as we prioritize increasing investment in our network with CapEx intensity at nearly 11%, we generated a significant level of net cash flow And we believe our ability to continue to generate strong and growing net cash flow out of the cable business is sustainable. Now let's turn to Slide 6 for NBCUniversal.

Speaker 3

Starting with total NBCUniversal results, Revenue increased 19 percent to $9,400,000,000 and EBITDA increased 19.5 percent to $1,900,000,000 Media revenue increased 3.6 percent to $5,300,000,000 driven by Peacock, with revenue of $444,000,000 which is more than 3.5 times higher compared to last year. Distribution revenue increased 8.4%, reflecting growth at Peacock driven by increases in paid subscribers compared to last year and growth at our networks as higher contractual rates were only partially offset by linear subscriber declines. Advertising revenue decreased 1.3% due to linear rating declines and a difficult comparison to last year When we had a higher number of sporting events and NHL, which we no longer have rights to, partially offset by a growing contribution from Peacock and higher pricing. Excluding the impact of sports timing in NHL, advertising would have grown low single digits. Immediate EBITDA decreased 2.9 percent to $1,300,000,000 in the 2nd quarter, including a $467,000,000 EBITDA loss at Peacock.

Speaker 3

Excluding Peacock, Media EBITDA increased nearly 4%, driven by a decrease in sports cost associated with a lower number of events compared to last year and the absence of the NHL. We continue to expect Peacock's EBITDA loss will be roughly $2,500,000,000 for the year. However, taking into consideration the timing of content launches, we expect losses to be higher in the second half, especially in the 4th quarter. Moving next to Studios. Revenue increased 33% to $3,000,000,000 Driven by higher theatrical and content licensing revenue.

Speaker 3

Theatrical revenue nearly tripled compared to last year's results, Driven by an increase in a number of releases as well as the success of these films, including the outstanding results of Jurassic World Dominion. Content licensing revenue was up 19%, mainly driven by growth in TV licensing as production has returned to pre pandemic levels. EBITDA decreased $155,000,000 to breakeven for the quarter, driven by an increase in programming costs associated with the higher content licensing and theatrical revenue in the current quarter as well as an increase in marketing costs Ahead of several film releases in late June July, including the very successful release of The Rise of Gru, Black Phone and Nope. Last, at theme parks, revenue increased to 65 percent to $1,800,000,000 And we generated EBITDA of $632,000,000 which was a record level for any second quarter, Even though Universal Beijing was closed for most of the quarter due to COVID related restrictions. These results Show strong improvement compared to last year when Hollywood was operating at limited capacity and Japan was closed for part of the quarter.

Speaker 3

We continue to see strong demand and EBITDA growth at our U. S. Parks, where attendance and guest spending has been above 2019 levels, With Orlando delivering its highest level of EBITDA for any quarter and Hollywood experiencing its best second quarter EBITDA on record. Universal Japan has shown a nice rebound since capacity restrictions were lifted at the end of March, with attendance having its strongest improvement since the pandemic, We expect momentum will build over the long term. Universal Beijing was closed for about 2 months and reopened at the end of June, resulting in an EBITDA loss at that part this quarter.

Speaker 3

However, this was still a financial improvement compared to the level of preopening costs We incurred in the same period last year. Since reopening the park, the trends have been positive despite capacity restrictions and testing requirements. While COVID remains a risk we must manage, particularly in Asia, we remain bullish on the parks business both in the near and long term. Now let's turn to Slide 7 for Sky, which we'll speak to on a constant currency basis. For the 2nd quarter, Sky revenue decreased 3.5 percent to $4,500,000,000

Speaker 2

as low single digit growth

Speaker 3

in the UK was more than offset Consumer revenue decreased to 2.4%, reflecting consistent average revenue per customer relationship The decline in customer relationships compared to last year, including customer losses in the quarter of $255,000 which partially reflects normal customer churn associated with the end of the football season as well as an increasingly challenging macroeconomic environment for consumers across Europe. Direct to consumer revenue in the UK increased low single digits in the quarter Due to an increase in video revenue, primarily driven by higher revenue from pubs and clubs as they recover from the pandemic, as well as increases in wireless and broadband revenue. This growth in the UK was more than offset primarily by a decrease in revenue in Italy due to the reset in our SYRIA broadcast rights. Rounding out the rest of revenue at Sky, Content revenue declined 16%, driven by the reset in sports licensing agreements in Italy and Germany, And advertising revenue decreased 3.1 percent with growth in the UK and Germany despite the difficult macro environment More than offset by a decline in Italy. Turning to EBITDA.

Speaker 3

Sky's EBITDA increased 71 percent to $863,000,000 reflecting our strong growth in the UK and improved results in Germany and Italy, mainly driven by lower sports programming and production costs due to resets in our sports rights. As a reminder, The upcoming World Cup will take place in the 4th quarter, which is the first time this event has taken place during National Leagues' regular season schedules. To accommodate this, National Soccer Leagues, including the EPL, will start the new season 1 to 2 weeks earlier in Q3 And then take a pause for a period of 4 game weeks in the 4th quarter while the World Cup is played. As a result, compared to last year, We will incur higher sports programming amortization in the 3rd quarter with lower levels in the 4th quarter and higher again in the first half of next year. Now I'll wrap up with free cash flow and capital allocation on Slide 8.

Speaker 3

We generated $3,200,000,000 of free cash flow this quarter. Cash taxes of $2,750,000,000 included some items that drove us above the normal run rate by roughly $600,000,000 Consolidated total capital increased 12%, reflecting significant progress in building Epic Universe in Orlando, Higher capital spending at cable driven by investments in line extensions and scalable infrastructure, partially offset by a decrease at Sky. For the year, we continue to expect cable CapEx intensity to stay around 11% as we work towards enhancing and transitioning our broadband network to DOCSIS in the next several years and NBCUniversal CapEx to be up around $1,000,000,000 year over year driven by the construction of EPIC. Based on what we reported in the 1st 6 months of the year, that means total capital should be about $2,500,000,000 higher

Speaker 2

in the second half of

Speaker 3

the year compared to the first half. Working capital was $1,700,000,000 for the first half of twenty twenty two and is likely to be slightly below this amount in the second half Turning to capital allocation. We repurchased $3,000,000,000 worth of our shares in the quarter. In addition, dividend payments totaled $1,200,000,000 for a total return of capital in the second quarter of $4,200,000,000 We ended the quarter with net leverage of 2.3 times, in line with our expectations for leverage to remain around 2.4 times going forward. So with that, and thanks for joining us on the call this morning.

Speaker 3

I'll turn it back to Marci, who will lead the question and answer portion of the call.

Speaker 1

Thanks, Mike. Operator, let's open the call for Q and A, please.

Operator

Thank you. We will now begin the question and answer Our first question comes from Ben Swinburne from Morgan Stanley.

Speaker 4

Thank you. Good morning. This is a strategic question for Brian and then I wanted to ask a follow-up to Jeff. Brian, your balance sheet and cash flow generation is a real asset in markets that are tough and creates opportunity for the company. And obviously in the backdrop of broadband slowing and concerns around the future of streaming Also some press reports about Comcast considering different strategic structures.

Speaker 4

Just wondering if you could talk about the portfolio and How your level of confidence that you've got growth opportunities and the opportunity to create value and if you're thinking about ways to deploy that balance sheet and capacity To change things or take advantage of opportunities in the market that may be there for you now that weren't there maybe over the last few years. And then Jeff, just on the parks business, I guess with the GDP result this morning, we're officially in a recession, but it doesn't sound like that's the case at the theme park business. So can you talk a little bit about your visibility into the second half of the year and into next year, Both in the U. S. And overseas and whether you have confidence you can continue to kind of deliver these record results at the Theme Park business despite what seems to be Weakening macro.

Speaker 5

Thank you, guys.

Speaker 2

Thanks, Ben. I think what I was trying to say at the end My remarks was getting right at your point. I think we are in a fabulous place. We have kind of unprecedented cash flow and scale by our what we've got as one company. We're working really well together.

Speaker 2

We always think about whether this is the competitive right set for the company and I feel it is. If you look at All the broad diversified growth drivers that came out here again in the second quarter, whether it's wireless net adds at a record near record levels The business service growth back to high single digits, the new attendance records to your question about theme parks domestically. The last couple of years in broadband, obviously, we'll talk some short some more here about that. But adding almost 3,000,000 customers, Going from 0 to 13,000,000 paid subs in a couple of years at Peacock is a great achievement And the highest rated broadcast network, I think all parts of the company are really doing a great job in some interesting times. By the way, our treasury department went out while interest rates were low and we've basically repriced the whole balance sheet for Something on the order of 18 years average maturity at record low rates.

Speaker 2

So I feel we are able to return capital to shareholders. Think that's been the real focus, and I think we did it again this quarter. Our bar is therefore very high As we look at things through that strategic lens of our cash flow and scale. So I think we feel really strong. I think we have so many diversified businesses That are each has its own game plan and we'll talk I'm sure a little bit about some of them today, but the biggest ones are really Well run.

Speaker 2

We've got some new leadership in a number of cases and I'm really pleased with the company Okay. Post 10% EBITDA growth.

Speaker 6

Thanks, Brian. Ben, I'll just take the parks Really quickly. So obviously, the parks business historically has been subject to macro trends and there's no reason to think that that won't be the case In the future, when we look at our business, we're just not seeing it yet in our numbers on our performance. And if you kind of look at the we're putting up these numbers despite The fact that our international visitation domestically is about half of what it has historically been, so we expect that to increase over time back to Where it should be, we have a lot of attractions. We continued building attractions during the pandemic.

Speaker 6

Brian talked about Epic in the opening. We have those attractions Internationally, Japan has been steadily improving quarter to quarter to quarter, still not back to where it was pre pandemic, but the trend line is really good. And Beijing, which was closed 2 of the 3 months of this quarter, opened in the 3rd month And is doing really well, much better than we expected despite COVID constraints still on capacity. So and all that international Performance is subject obviously to the strong dollar and that is a headwind for us. So I think we feel really good about the parks And feel like there's a lot of growth ahead of us despite what could be macro challenges that we could or might face.

Speaker 6

We're just not seeing it yet.

Speaker 1

Thank you, operator. Next question please.

Operator

Our next question will come from Phil Cusick from JPMorgan. Please go ahead.

Speaker 5

Hi, guys. Thank you. I wonder if we can dig into the level of your promotion and competition in the cable business. We've anecdotally seen some pretty aggressive promotions. It's Hard to tell whether those are sort of limited or widespread.

Speaker 5

Are you pushing harder on average than you were a year ago? And when you compete with wireless since you expect fixed wireless to have a cap on penetration, does it make sense to push Back with that on price, or do you sort of just let it come in and take those customers? How do you address that? Thank you.

Speaker 2

Hey, Phil, this is Dave. Let me go into both of that, the competitive landscape and the promotional intensity. So Yes. Let me start with the drivers very quickly because I think that sets it up. And Brian mentioned since March of 'twenty, we've added the 3,000,000 Broadband customers to this point.

Speaker 2

And so you look at things like the move activity, June being the lowest level This all happened. Mobile substitution really driving that $3,000,000 with the surge. And in seasonality, places like Florida that in 2021, we actually gained customers, which we normally don't. And This quarter, we went negative in Florida. So you put all that together, we have to, I think, put that in perspective And that determines a lot of the competitive planning, but we've always approached competition with a tremendous sense of urgency.

Speaker 2

We have local competition. We have large national scaled competition. And most certainly, fixed wireless is the newest one. And you go through a launch phase that typically Adds pressure and we are seeing that on the front end. As Brian said, it's impacting Connects.

Speaker 2

We do not see it in churn. So our approach is to segment the marketplace, go after each segment, provide great value, really lean into the network And compete fiercely for each segment. We've always done that and we'll continue to do that. Mobile It's an area where we really can continue to be aggressive. We've been doing that.

Speaker 2

I think the results were very strong in the Q2 in terms of mobile. I think Each segment and leverage mobile. What we won't do is chase pricing down to the bottom. So we're going to have a good balanced approach towards competing fiercely for each segment, but we have a great network. We have great innovation.

Speaker 2

We have the best Wi Fi gateway device It's out there. We're going to leverage our strengths in every part of what we do. And so with all of those things, You manage the promotional intensity for the long run, but we continue to evolve our competitive playbook All the time, but you won't see us go down and chase discounting. Mobile is a great addition adding value And look for us to continue to do that. And I think one of the unusual moments part of this is with the mobile surge With wireless only coming back, look for us to continue to leverage the best broadband network with the best mobile.

Speaker 2

And by the way, For those that were paying attention to the Ookla stuff, we have the data from Ookla in terms of mobile service And Xfinity Mobile is the fastest overall mobile service provider. So look for us to leverage that. We'll combine the best network with best mobile service and we'll continue to do that. But There won't

Speaker 7

be a dramatic shift in promotional intensity. Thanks, Jason. If I could follow-up. Thanks, Jason. If I could follow-up.

Speaker 7

Operator,

Speaker 1

please.

Operator

And our next question will come from Craig Moffett with MoffettNathanson. Please go ahead.

Speaker 8

Yes. Hi. I wonder if you could let's stay with the topic of broadband for a minute. If you could dive To the patterns that you're seeing geographically, you talked about fixed wireless. The companies That are selling it primarily T Mobile and Verizon are skewing rural.

Speaker 8

Where are you seeing the competition From fixed wireless most strongly, and where are you seeing the competition from fiber most strongly? And what does that fiber competition look like?

Speaker 2

Well, actually let me start with fiber, Craig. And there We've been at it for a long period of time. We've gone from 0 to over a 15 year period from 0% to 40% overbuild. And so that is we have good visibility to where fiber is and that's all over the place at this point between Multiple fiber providers. And important to note, whether it's fiber or any other form of competition, Yes, we're growing in every single geographic area.

Speaker 2

With fixed wireless, you're right in that there It appears to be 2 things. 1, they are adding some small business, new, maybe even expanding the marketplace a bit With small business watching that closely, they're a little bit more rural, which we have been watching, But it's kind of across the board. When you have again this launch phase of somebody doing it at scale like this, you see it a little bit all over. But again, The difference here is our churn versus fiber back in the day where we saw churn go up. We're not seeing that here.

Speaker 2

We are seeing a little bit of pressure on Connect and it's kind of all over, which points towards more of the main drivers being What I mentioned earlier, it's the move activity plus the mobile search. So that is really the key thing. But we watch it. One of our great strengths is local competition. We stay on it in a very granular basis.

Speaker 2

We watch this very closely. So Your point is a good one.

Speaker 1

Thanks, Craig. Operator, next question please.

Operator

Our next question comes from Doug Mitchelson from Credit Suisse. Please go ahead.

Speaker 9

Thanks so much. I'm just curious if anyone in the team has any other thoughts on What they're seeing in terms of macro trends, whether it's advertising or days outstanding or bad debt or sort of across all the businesses. But also Dave for you as we look Forward and cable, if you're going through a sustained period of slower broadband growth through the factors you've outlined, that potentially means a little bit slower revenue growth. Are you as Budget this business on a go forward basis, are you budgeted to hit a particular margin goal, so investment OpEx levels would come down as revenue comes down? Or how do you think about managing the business a go forward basis, if there's a little bit of a revenue slowdown given the slower broadband growth?

Speaker 9

Thank you.

Speaker 3

So it's Mike, Doug. I'll jump in. I think across the board, we're generally we're not seeing slowdown, Dave can comment Add on payments in the consumer side, and I'll let Jeff comment on advertising. But versus some of the commentary you've seen, I think We're able to deal with some of the macro stuff impact on consumer and impact on cost in our expense base. Brian already mentioned the interest rate side of it and 85% fixed at the great levels we mentioned.

Speaker 3

And then on our Spence space, very small part of it is energy related through fuel or rolling trucks. Other areas, labor and the like, we have pressures like all others, but I think we know how to manage our way through these kind of challenges. So I wouldn't call out as we look to the second half of the year that macro is a particularly big issue. Jeff jump in.

Speaker 6

Yes. Thanks Mike. I would just add, Doug, in the advertising market, the advertising market is choppy. I mean, I think we said that last time. It continues to be choppy down year on year in the scatter market.

Speaker 6

It's really segment by segment based though. Some segments are doing better. Some segments are doing worse. And we just finished the upfront, As Brian said in his opening in the upfront was way better than we expected. So definitely some, as I said, choppiness, but nothing really that dramatic.

Speaker 3

And I'll just jump in one more time and Dave can follow-up. But I mean, when we across all the businesses, You know budgets, budget exercises and the like, I mean our job and the way we think about it is to really think about optimizing for the long term. Last thing you're going to see us doing is and it goes back to the strength of balance sheet, strength of cash flow. We won't be cutting We're very focused on in tougher times trimming some fat, but we'll be very long term minded in how we That doesn't mean there won't be tactical adjustments and belt tightening, but I'll throw it over to Dave.

Speaker 2

Thanks, Mike. Hey, Doug. So looking forward, most certainly where we're at right now, I think points towards The game plan, yes, we had in broadband alone, we had really healthy ARPU growth, 3.6%, Half being rate driven, the other half just how we manage tier mix. So I think there is you look at the overall strength The total relationships, 32,000,000 broadband relationships that we have and the ability to manage through that and focusing on The strengths of the network, the strengths of the product, we'll continue to do that. We have a lot of levers that we'll focus on.

Speaker 2

And again, we talked about promotional intensity, but we're going to put customers in the right segment. We always segment the marketplace. We'll continue to do that. And so you also look at multiple growth areas that we have in cable Where business services, Brian talked about that, is a growth opportunity. Mobile is a growth opportunity.

Speaker 2

The platform, even for video, I feel it's a growth opportunity. So we will consistently manage and be competitive With the broadband relationships, but I think we'll continue to focus on our network and the product advantages that we have And that will help us focus on the pricing approach that we have in the marketplace.

Speaker 10

Thank you.

Speaker 1

Thanks, Doug. Operator, next question please.

Operator

Our next question comes from Jessica Reif Ehrlich from BofA Securities. Please go ahead.

Speaker 11

Thank you. I just wanted to drill down if possible on advertising. Jeff, I'm not sure what chubby means. Could you give us any color on kind of magnitude up or down and scatter, outlook for political? And then on cable, if anyone can comment what's going on in But more importantly, Peacock came out of the gate with a differentiated strategy on AVOD and now you're seeing a slew of other Following, obviously inventory will go up, but is that positive or negative?

Speaker 11

Meaning, will more And if they do, are you taking share from digital or is it a share share from linear? Just any color you can give us on AVOD would be great.

Speaker 6

Yes. Hi, Jessica. Thanks. So what I mean by choppy is that there is it's not a broad decline or increase. So if you look at our business, first of all, in the quarter, as Mike I said in the opening, if you take out the NHL playoffs from last year, we were actually up in the quarter, which I think It's better than some of the other companies that have reported so far.

Speaker 6

So up year on year is a pretty good thing. And if you look at kind of what we're seeing in the scatter market, what we saw in the upfront, You have things like auto, which is down, but that's related to the fact that there you saw GM's earnings yesterday, you just don't a lot of cars on lots, therefore they're not advertising. So that's why their advertising is down there. And then pharma and the upfront was up significantly as you have a backlog Drugs that weren't approved in the last couple of years by the FDA are expected to be approved. So what I mean by choppy is just segment by segment different things are going on both up and down There's no kind of macro overall ups and downs.

Speaker 6

On Peacock, look, We had the benefit of studying the market before we came in and we think we picked the right business strategy, which is kind of an extension of our existing business, not a new business based on dual revenue stream of subscription and advertising. And I think everybody kind of moving in that direction as a validation of that business model. And as far as advertising in general, our business, Linear and Peacock, We're one of the largest advertisers out there, over $10,000,000,000 of advertising. So people coming in at the levels that are coming in, we don't expect it to have any material mentioned political. In the next quarter, we do we don't want to count our chickens before they hatch.

Speaker 6

We expect a pretty strong political Kind of season coming up and I think our company speaking now broadly the entire company not just our linear businesses but our local TV stations and Dave's business in cable, we're kind of uniquely positioned in that with Peacock to take advantage of whatever a candidate wants to advertise and wear. So we expect some Pretty strong results from Peacock in the coming fall in addition of the advertising across our whole company. Dave, if you want to add anything?

Speaker 2

No, I totally agree with that.

Speaker 1

Thank Thanks, Jessica. Operator, next question please.

Operator

Our next question comes from Brett Feldman from Goldman Sachs. Please go ahead.

Speaker 5

Thanks. I'm going to follow-up on one of the questions I was asked earlier. You always kind of get these questions around capital allocation and M and A. And it seems like Those discussions always seem to focus on what you may or may not want to do in the media space, but you still generate the large majority of your earnings and cash flow out of your cable communications segment And a harder backdrop may make asset values in that sector come down. We've already seen that.

Speaker 5

What is your appetite for maybe Increasing your discretionary capital into telecom, meaning would you be interested in buying more cable assets if they were available or fiber assets if they were available or things that would support your mobile business from the infrastructure standpoint. I just feel like it's been a while since we've taken your temperature on whether that could something you'd be interested in doing opportunistically. And then just a question on the parks. Obviously, the strength in per caps was an important part of what contributed to the outstanding financial performance in the quarter, but beginning of 2Q and the end of 2Q, I think, were very different I'm just curious whether you've seen any notable shifts in spending patterns at the parks in the more recent weeks. Thanks.

Speaker 3

Yes. Mike, you may want to jump

Speaker 2

in on this or Dave. This is Brian. Absolutely like the Communications business that we're in, that's certainly my roots in life. And the most recent Acquisition we made, we call these kind of tuck in acquisitions, would be Masergy. And that's in the business services group and it's off to a really good start and allows us just like you said more capabilities.

Speaker 2

I think that's probably more what our focus is. How do we Look for new revenue sources and new growth avenues and do people who've either started a company or build a company Have something that we can then scale faster and that's been a good pattern. So Dave's team looks at that all the time, Mike and the business development team. So, Bob, do you guys want to add to that? I think it's pretty That's correct.

Speaker 3

It's not nothing it's all inbounds. But I think as Brian said, the bar is always high. But I think we look at Smaller stuff and like Masergy and even smaller. And there's a steady diet of trying to add capability, Innovation and scale it up across the whole footprint of cable. And a lot of it is inclusive of remember the roadmap for Tech, video aggregation, broadband and alike is shared with Sky.

Speaker 3

And so when we look at that question, we're really looking across both of those businesses together.

Speaker 2

I think two things. 1, just following on Masergy, it is a great example. It's an opportunity to grow. It's one of our most important areas, mid market and enterprise, just an example, of making The right kind of bet on that and it's off to a really good start. The teams are working really well together, MesaGR Business Services teams And doing exactly what we'd hoped for in the early days of integration.

Speaker 2

2nd point is APCO and the joint venture with Charter, another great example of An opportunity to grow and having a scaled platform like that investing in that future, I think is the right kind of bet to make. We'll continue to look for those opportunities.

Speaker 6

Yes. But just following up on the Brett, the last thing you said, the per caps. I think one of the surprises coming out of Pandemic for us has been the strength of per cap spending. Normally people who come from international spend more on Harry Potter wands and so forth than people domestically and we've seen Domestic per caps beaches tremendous coming out of the pandemic, and we've seen no weakness in that coming out of the quarter into the next quarter.

Speaker 1

Thanks, Brett. Operator, next question please.

Operator

Our next question comes from Jonathan Chaplin from New Street.

Speaker 10

Please go ahead.

Speaker 5

Thanks for taking

Speaker 10

the questions. So you've been willing to run leverage higher than 2 point 4 times in the past. It feels like at this point, the market isn't giving you full credit for the strength that you see longer term in the cable business And in this combination of assets. And I'm wondering if now isn't a great time to sort of take advantage of that. With the reason for not pushing leverage higher and buying back more of your stock just be the macro environment, is that what's Holding you back on leverage, it's macro uncertainty.

Speaker 3

More or less, yes, Jonathan, it's Mike. I mean, I think we think about the long term cycles that are around our businesses and the economy. And I mean, it's in our view that having a strong balance sheet defined by the leverage or the ratings we've chosen to seek It's the right way to run the balance sheet. I think Brian talked about and others have observed that together with The ability to invest heavily in our businesses, maintain a strong balance sheet, return lots of capital to shareholders And keep driving future growth by investing back in the businesses is a formula that in times like these with uncertain markets, So I think there's a lot of companies out there that wish they had those characteristics. So it's not lost on us.

Speaker 3

But nonetheless, We've been active in capital return, dollars 6,000,000,000 of buybacks in the year to date, 14th year in a row of raising the dividend. That's on the back of really strong financials in the first half of the year. And I think hopefully the takeaway from this call is Our feeling comes through that we feel very good about the EBITDA strength coming in the second half of the year. So But that's how we think about it. We wouldn't I wouldn't be reacting to change our leverage and Balance sheet design, because it's really designed to take us through many different kinds of cycles.

Speaker 1

Thanks, Jonathan. Operator, we'll take our last question please.

Operator

And that last question will come from John Hodulik from UBS. Please go ahead.

Speaker 12

Great. Thank you. Ma'am, just following up on some of the commentary on high speed data competition, maybe for Dave. Can you give us a sense on what the fiber overlap is these days and maybe how that's changed over the last 12 months? And then on the ARPU, I thought there was good commentary about rate and tier mix.

Speaker 12

Are you seeing any I mean, I know Dave you said you wouldn't chase rate to Reaccelerate growth on the sub side, but do you still think you have the same pricing power that you've had given the changes in competition? That's A. And then B, On the tier mix, have you seen any especially given the pressure that the consumer is seeing, have you seen any change in trends in terms of up tiering and potential Signs that consumers may look to save money on broadband and down tier. Thanks.

Speaker 2

Yes. So, hey there, John. The overall approach towards the marketplace and pricing, really We've always segmented the marketplace. So we've done that over a long period of time. So there's not a dramatic shift in the current environment.

Speaker 2

There certainly is with mobile substitution. I think that skews more lower end. And so But we've always participated and had great programs like Internet Essentials. And so we Don't see a real shift. We've always gone in and out in terms of our approaches towards offers and Have different competitive answers.

Speaker 2

And when you look at the fiber, We've gone we're at 40%. That's where we are at right now. It's been the steady build, a surge early on. We're quite used to And compete very aggressively against all of the fiber group and don't really see a change. You look at the telco results And not it speaks for themselves.

Speaker 2

So we're in that competitive area, we've had a consistent approach And won't change our aggressiveness, which has always been segment based, best network, best products And let that be the main driver of our competitive playbook.

Speaker 3

Got it.

Speaker 1

Thanks, Sean. That will end our call, and thank you, everyone, for joining

Speaker 3

Thanks everybody.

Operator

And we have no further questions at this time. There will be a replay available of today's call starting at 11:30 am Eastern Time. Will run through Thursday, August 4 at 11 am Eastern Time. The dial in number is 71945 7,0820 and the conference ID number is 1,292,809. A recording of the conference call will also be available on That concludes today's teleconference.

Operator

Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Comcast Q2 2022
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