Comcast Corporation 2020 Q3 Form 10-Q Summary
Business Context and Reporting Period
Comcast is a global media and technology company operating through Cable Communications, NBCUniversal and Sky. The filing covers the three and nine months ended September 30, 2020, compared primarily with the same periods in 2019. Results were materially affected by the COVID-19 pandemic, including theme-park closures, disrupted film production and theatrical distribution, postponed sporting events, weaker advertising markets and increased credit-collection risk.
As of September 30, 2020, Cable Communications had 32.7 million customer relationships and passed more than 59 million homes and businesses. Sky had 23.7 million retail customer relationships. Peacock became available to Comcast customers in April 2020 and launched nationally in July 2020.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | Change |
|---|---|---|---|
| Revenue | $25.532 billion | $26.827 billion | Down 4.8% |
| Operating income | $4.076 billion | $5.340 billion | Down 23.7% |
| Net income attributable to Comcast | $2.019 billion | $3.217 billion | Down 37.2% |
| Diluted EPS | $0.44 | $0.70 | Down 37.1% |
| Adjusted EBITDA | $7.583 billion | $8.553 billion | Down 11.3% |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | — |
| Metric | Nine Months 2020 | Nine Months 2019 | Change |
|---|---|---|---|
| Revenue | $75.856 billion | $80.544 billion | Down 5.8% |
| Operating income | $13.575 billion | $15.878 billion | Down 14.5% |
| Net income attributable to Comcast | $7.154 billion | $9.895 billion | Down 27.7% |
| Diluted EPS | $1.55 | $2.15 | Down 27.9% |
| Adjusted EBITDA | $23.640 billion | $25.822 billion | Down 8.5% |
| Net cash provided by operating activities | $19.695 billion | $19.462 billion | Up 1.2% |
Q3 Adjusted EBITDA margin was approximately 29.7%, compared with approximately 31.9% in Q3 2019. Nine-month Adjusted EBITDA margin was approximately 31.2%, compared with approximately 32.1% in the prior-year period.
- Q3 programming and production expense increased 3.0% to $8.565 billion, while advertising, marketing and promotion expense decreased 20.5% to $1.512 billion.
- Nine-month capital expenditures were $6.344 billion, down from $6.866 billion, and cash paid for intangible assets was $1.771 billion.
- Cash, cash equivalents and restricted cash totaled $13.737 billion at September 30, 2020, compared with $5.589 billion at December 31, 2019.
- Total debt had a carrying value of $104.4 billion and an estimated fair value of $124.2 billion. Including the collateralized obligation, balance-sheet debt obligations were approximately $109.6 billion.
- Available revolving-credit capacity, net of commercial paper, letters of credit and bank guarantees, was $9.2 billion. No commercial paper or revolving-credit borrowings were outstanding at quarter-end.
Material Changes Versus the Prior Comparable Period
| Business | Q3 2020 Results | Primary Drivers |
|---|---|---|
| Cable Communications | Revenue $15.000 billion, up 2.9%; Adjusted EBITDA $6.411 billion, up 10.5% | Higher high-speed internet, wireless, business-services and political advertising revenue; cost controls and sports-related programming adjustments. Video and voice customers continued to decline. |
| NBCUniversal | Revenue $6.724 billion, down 18.9%; Adjusted EBITDA $1.281 billion, down 38.7% | Theme Parks revenue fell 80.9% and produced a $203 million Adjusted EBITDA loss. Filmed Entertainment revenue declined 25.0%. Broadcast Television results improved from higher content licensing and distribution revenue. |
| Sky | Revenue $4.793 billion, up 5.2%; Adjusted EBITDA $515 million, down 42.8% | Resumed sporting events supported revenue but resulted in higher programming costs. Customer relationships declined by 21,000 during the quarter and by 299,000 over nine months. |
- Cable Communications ended Q3 with 30.1 million high-speed internet customers, up 1.4 million year over year, while video customers declined by 1.2 million and voice customers declined by 253,000.
- Consolidated investment and other loss was $86 million in Q3 and $382 million for nine months, compared with a $511 million gain in the first nine months of 2019. Results reflected equity-method investment losses and market-value volatility.
- Interest expense included a $220 million Q3 charge and $360 million for the first nine months related to early redemption of senior notes.
- The company issued approximately $17.5 billion of senior notes during the first nine months and repaid $16.8 billion of debt, including early redemption or purchase of $14.9 billion of senior notes.
- Share repurchases remained paused. The annualized dividend was increased to $0.92 per share, and the third-quarter dividend was $0.23 per share.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal numerical revenue, earnings or cash-flow guidance. Management expects operating cash flows, existing cash and investments, available credit facilities and access to external financing to be sufficient for current and long-term liquidity needs. Management expects the timing of debt reduction, share-repurchase resumption and certain capital projects to be affected by COVID-19.
- Management expects COVID-19 to continue having a material adverse effect on consolidated results over the near to medium term. Theme-park attendance, film releases, advertising demand, sports schedules, customer collections and consumer demand remain uncertain.
- Orlando and Japan theme parks reopened with limited capacity; Hollywood remained closed. Management expected Universal Beijing Resort to open in 2021 but delayed certain construction projects, including Epic Universe in Orlando.
- Sports-related contractual credits reduced Cable Communications and NBCUniversal distribution revenue. The resumption of sporting events increased programming costs and may affect the timing and amount of future revenue and expense recognition.
- Peacock generated additional content, marketing and operating costs; management expects significant further investment.
- Corporate and Other included a $177 million adjustment for a potential legal settlement and COVID-19-related severance and restructuring costs. The filing states that ordinary-course litigation is not expected to materially affect results, cash flows or financial position, but litigation could be costly and damage Comcast’s reputation.
- Annual impairment testing as of July 1, 2020 required no impairment charge. Future changes in market conditions, expected cash flows, competitive factors or discount rates could result in impairment charges.
- Other significant risks include intense competition and cord-cutting, rising programming costs, advertising weakness, cyberattacks and network disruptions, regulation, international operations, intellectual-property claims, labor disputes and the continued influence of the Class B shareholder.
Important Facts for Investors to Verify
- Whether COVID-19 effects on theme parks, filmed entertainment, sports programming, advertising and Sky customer trends persist or worsen.
- The sustainability of Cable Communications’ internet-led growth and the continuing decline in video and voice customers.
- Future cash flow allocation among debt reduction, dividends, capital expenditures, Peacock investment and any resumption of share repurchases.
- Debt maturities, refinancing requirements, interest costs and the effect of early-redemption activity on future earnings.
- The potential legal settlement, COVID-19-related restructuring costs and any subsequent impairment charges.
- The timing and cost of Universal Beijing Resort, Epic Universe and other delayed capital projects.
- The comparability of Adjusted EBITDA, which is a non-GAAP measure and excludes depreciation, amortization, interest, taxes, investment results and selected unusual items.