Comcast Corporation 10-Q Summary
Business context and reporting period
Comcast Corporation filed a combined Form 10-Q with NBCUniversal Media, LLC for the three and six months ended June 30, 2019. Comcast operates through Cable Communications, NBCUniversal and Sky. Sky was acquired in the fourth quarter of 2018 for approximately $39.4 billion, making year-over-year comparisons less comparable because Sky was not included in the first half of 2018.
Cable Communications had 30.9 million customer relationships and approximately 58 million homes and businesses passed at June 30, 2019. Sky reported 24.0 million retail customer relationships.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Change |
|---|---|---|---|
| Revenue | $26.858 billion | $21.735 billion | 23.6% |
| Operating income | $5.356 billion | $5.014 billion | 6.8% |
| Net income attributable to Comcast | $3.125 billion | $3.216 billion | (2.8%) |
| Diluted EPS | $0.68 | $0.69 | (1.4%) |
| Adjusted EBITDA | $8.716 billion | $7.417 billion | 17.5% |
Q2 operating margin was approximately 19.9%, net income attributable to Comcast margin was approximately 11.6%, and Adjusted EBITDA margin was approximately 32.4%. Interest expense increased 41.0% to $1.137 billion, primarily due to debt used to finance and debt assumed in the Sky acquisition.
| Metric | Six months 2019 | Six months 2018 | Change |
|---|---|---|---|
| Revenue | $53.717 billion | $44.526 billion | 20.6% |
| Operating income | $10.538 billion | $9.659 billion | 9.1% |
| Net income attributable to Comcast | $6.678 billion | $6.334 billion | 5.4% |
| Diluted EPS | $1.45 | $1.36 | 6.6% |
| Adjusted EBITDA | $17.269 billion | $14.661 billion | 17.8% |
| Cash provided by operating activities | $14.271 billion | $12.537 billion | 13.8% |
Cash flow, debt and liquidity
- Six-month operating cash flow was $14.271 billion. Capital expenditures were $4.355 billion, cash paid for intangible assets was $1.078 billion, and construction spending for Universal Beijing Resort was $450 million.
- Investing activities used $7.414 billion, including $1.605 billion of investment purchases. Financing activities used $6.732 billion, including $4.156 billion of debt repayments, $1.823 billion of dividends and $350 million of share-related payments.
- Cash, cash equivalents and restricted cash totaled $4.019 billion at June 30, 2019, compared with $3.909 billion at December 31, 2018.
- Total debt carrying value was approximately $107.6 billion, with estimated fair value of $118.5 billion. Current and long-term debt reported on the balance sheet totaled $107.613 billion.
- No amounts were outstanding under revolving credit facilities. Available capacity, net of commercial paper, letters of credit and bank guarantees, was $8.7 billion. Comcast had $488 million of commercial paper outstanding.
- Share repurchases under the authorization were paused in 2019 to accelerate debt reduction following the Sky acquisition. The quarterly dividend was $0.21 per share, following a 10% increase in the annualized dividend to $0.84.
Material changes versus the prior comparable period
- Sky contributed $4.828 billion of Q2 revenue and $772 million of Adjusted EBITDA. On a pro forma basis, Sky revenue declined 3.3% in reported dollars but increased 2.4% on a constant-currency basis; Adjusted EBITDA increased 13.4% in reported dollars and 19.9% on a constant-currency basis.
- Cable Communications revenue increased 3.9% in Q2 and 4.0% for the six-month period. High-speed internet revenue increased 9.4% in Q2, while business services revenue increased 9.8%. Video and voice revenue declined modestly, and advertising revenue decreased due primarily to lower political advertising.
- Cable Communications Adjusted EBITDA increased 7.4% in Q2 and 8.6% year to date; its margin improved to 40.5% in Q2 from 39.2%.
- NBCUniversal Q2 revenue declined 0.8%, while Adjusted EBITDA increased 8.1%. Six-month revenue declined 7.0%, largely because the 2018 period benefited from the PyeongChang Olympics and Super Bowl.
- Broadcast Television and Cable Networks comparisons were affected by the absence of 2018 Olympics and Super Bowl revenue. Filmed Entertainment revenue declined 14.8% in Q2 due principally to stronger prior-year theatrical releases, but Adjusted EBITDA increased 33.0%.
- Theme Parks revenue increased 7.5% in Q2 and Adjusted EBITDA increased 3.8%, primarily due to higher attendance and guest spending.
- Amortization increased 85.3% in Q2, primarily from acquisition-related intangible assets associated with Sky. Sky transaction-related costs were $84 million in Q2 and $135 million for the first six months.
Outlook, commentary, risks and unusual items
- Management stated that cash flows, existing cash and investments, available credit facilities and future financing capacity are expected to support current and long-term liquidity needs. The filing does not provide formal consolidated revenue, EBITDA or EPS guidance.
- Management expects continued declines in residential video and voice customers because of competition and changing video-consumption patterns. Programming costs, including sports and retransmission fees, are expected to continue increasing and may grow faster as contracts renew.
- Key risks include competition from online video platforms, advertising-market weakness, audience fragmentation, technology changes, regulation, rising programming costs, content acceptance, cyber or network disruption, litigation, labor disputes, foreign currency exposure and risks associated with integrating and realizing expected benefits from Sky.
- Comcast increased its Hulu ownership to approximately 33% after acquiring AT&T’s interest for approximately $477 million. Comcast recognized a $159 million deferred Hulu gain in the first quarter and recorded Hulu equity-method losses of $109 million in Q2 and $250 million year to date.
- Comcast recorded a $56 million pretax loss from impairment of an equity-method investment in Q2. It also recognized Snap unrealized gains of $96 million in Q2 and $258 million year to date.
- Comcast consolidates Universal Beijing Resort despite owning 30% because it controls the activities most affecting the entity’s economic performance. The resort had $936 million of term loans outstanding, and Comcast’s stated maximum risk of financial loss is its 30% interest.
- Operating lease adoption added $4.2 billion of lease assets and $4.8 billion of lease liabilities at adoption; management said the accounting change had no material effect on results or cash flows.
- The filing states that ordinary-course legal proceedings are not expected to materially affect results, cash flows or financial position, although litigation could be costly and affect reputation. No significant changes were reported to previously disclosed risk factors.
Important facts for investors to verify
- Reconcile reported growth with pro forma and constant-currency Sky results, given the acquisition-related comparability effects.
- Monitor debt reduction, interest expense and the pace of deleveraging after the Sky acquisition.
- Assess sustainability of Cable Communications growth as high-speed internet and business services offset video, voice and advertising declines.
- Review programming-rights renewals, sports costs and their effect on Cable Communications and Sky margins.
- Evaluate NBCUniversal results excluding the prior-year Olympics, Super Bowl and other major-event impacts.
- Track Hulu funding requirements, ownership dilution provisions and the 2024 put/call provisions, including the stated minimum proceeds of approximately $5.8 billion.
- Review Universal Beijing Resort construction commitments, debt, covenants and the limits of Comcast’s stated 30% economic exposure.