Comcast Corporation 2018 Q3 SEC Filing Summary
Business Context and Reporting Period
Comcast Corporation filed a combined unaudited Form 10-Q with NBCUniversal Media, LLC for the three and nine months ended September 30, 2018. Comcast operates through Cable Communications and NBCUniversal’s Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks segments.
Comcast reported 30.1 million total customer relationships at September 30, 2018, including 27.8 million residential and 2.3 million business relationships. The company adopted the new revenue-recognition standard retrospectively; management stated that the adoption did not materially affect consolidated results or financial position.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2018 | Year-over-Year Change | Nine Months Ended September 30, 2018 | Year-over-Year Change |
|---|---|---|---|---|
| Revenue | $22.135 billion | 5.0% | $66.661 billion | 5.9% |
| Operating income | $4.836 billion | 1.2% | $14.495 billion | 4.4% |
| Net income attributable to Comcast | $2.886 billion | 9.3% | $9.220 billion | 19.2% |
| Diluted EPS | $0.62 | Up from $0.55 | $1.98 | Up from $1.61 |
| Adjusted EBITDA | $7.313 billion | 2.5% | $21.974 billion | 3.6% |
Calculated consolidated operating margin was approximately 21.8% in the quarter and 21.7% for the nine-month period. Net margin was approximately 13.0% and 13.8%, respectively. Adjusted EBITDA margin was approximately 33.0% in both periods.
- Net cash provided by operating activities was $18.507 billion for the nine months, compared with $15.857 billion in the prior-year period.
- Capital expenditures were $6.607 billion, compared with $6.839 billion in the prior-year period. Cash paid for intangible assets was $1.375 billion.
- Net cash used in investing activities was $8.590 billion. Net cash provided by financing activities was $1.134 billion.
- Cash, cash equivalents and restricted cash totaled $14.622 billion at September 30, 2018, including $10.616 billion of cash and cash equivalents.
- Debt had a carrying value of $72.9 billion and estimated fair value of $74.5 billion. Long-term debt, including the current portion, totaled approximately $72.9 billion on the balance sheet.
- Amounts available under consolidated revolving credit facilities, net of commercial paper and letters of credit, totaled $3.8 billion. Comcast had $3.0 billion of commercial paper outstanding and NBCUniversal Enterprise had $794 million outstanding.
- Comcast repurchased $4.0 billion of stock during the first nine months and paid $2.487 billion of dividends. The quarterly dividend was $0.19 per share.
Segment Performance and Material Changes
| Segment | Q3 2018 Revenue | Q3 Revenue Change | Q3 Adjusted EBITDA | Q3 EBITDA Change |
|---|---|---|---|---|
| Cable Communications | $13.787 billion | 3.4% | $5.615 billion | 7.6% |
| Cable Networks | $2.884 billion | 10.8% | $968 million | 6.9% |
| Broadcast Television | $2.452 billion | 15.4% | $321 million | 1.8% |
| Filmed Entertainment | $1.819 billion | 3.8% | $214 million | (44.2%) |
| Theme Parks | $1.528 billion | (1.4%) | $725 million | (6.5%) |
- Cable Communications growth was led by high-speed Internet revenue, which increased 9.6% in the quarter, business services revenue, which increased 10.6%, and advertising revenue, which increased 15.2%, partly due to political advertising. Video revenue declined 2.9% and voice revenue declined 3.1%.
- Cable Communications added 288,000 customer relationships in the quarter. Residential video customers declined by 95,000, while high-speed Internet customers increased by 334,000.
- Cable Communications operating margin improved to 40.7% from 39.1%, partly because the prior-year period was affected by two hurricanes.
- NBCUniversal revenue increased 8.1% in the quarter and 9.6% for the nine months, but quarterly Adjusted EBITDA declined 8.5%. Cable Networks and Broadcast Television benefited from higher distribution and advertising revenue, while Filmed Entertainment and Theme Parks EBITDA declined.
- For the nine months, Broadcast Television revenue included approximately $1.1 billion related to the 2018 PyeongChang Olympics and Super Bowl. Cable Networks included approximately $378 million related to the Olympics.
- Filmed Entertainment’s nine-month revenue declined 11.7% and Adjusted EBITDA declined 46.7%, primarily reflecting stronger comparable 2017 film releases.
- Other operating gains were $141 million in the quarter and $341 million for the nine months, including gains from business sales. The prior-year periods included a $337 million spectrum-auction gain and a $105 million business-sale gain.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal consolidated earnings or revenue guidance. Management expects continued declines in video customers and video revenue, while focusing on higher-margin high-speed Internet and business services. Management also stated that residential voice customers and voice revenue are expected to continue declining.
- On October 9, 2018, after the reporting period, Comcast acquired a controlling interest in Sky at £17.28 per share. The transaction implied a fully diluted equity value of approximately £30.2 billion, or approximately $39.4 billion. Sky results will be consolidated beginning in the fourth quarter of 2018.
- Sky had approximately $11 billion of outstanding indebtedness expected to be consolidated. Comcast subsequently issued $27.0 billion of senior notes, borrowed approximately $4.8 billion under a sterling term loan and $3.0 billion under a dollar term loan, and planned to use proceeds to refinance acquisition-related borrowings and replenish cash.
- Comcast expects to repurchase an additional $1.0 billion of stock in the fourth quarter but plans to pause repurchases in 2019 to accelerate debt reduction associated with Sky.
- Major risks include competition from traditional and online video distributors, cord-cutting and audience fragmentation, advertising-market weakness, rising programming costs, dependence on successful content, technology and cybersecurity disruptions, regulation, international operations, labor disputes and integration risks related to Sky.
- Hulu generated Comcast’s share of losses of $132 million in the quarter and $370 million for the nine months. Comcast also recorded a $135 million quarterly and $180 million nine-month unrealized loss related to its Snap investment.
- The company identified ordinary-course patent and other litigation but does not expect the ultimate liabilities to materially affect results, cash flows or financial condition. The filing states that disclosure controls were effective and that there were no significant changes in risk factors from the 2017 Form 10-K.
- Comcast will adopt the new lease accounting standard in the first quarter of 2019; the filing states that the impact was still being evaluated.
Most Important Facts to Verify
- Post-quarter Sky acquisition accounting, including purchase-price allocation, pro forma results, consolidated debt and integration costs.
- Debt reduction progress and the effect of the planned 2019 pause in share repurchases on leverage and capital allocation.
- Sustained high-speed Internet and business-services growth versus continuing video and voice customer declines.
- Underlying NBCUniversal performance excluding the Olympics, Super Bowl, World Cup and other event-driven comparisons.
- Filmed Entertainment results, content amortization and the performance of future film releases.
- Exposure to rising programming costs, online distribution competition, advertising volatility and cybersecurity or network disruptions.
- Impact of lease accounting adoption and completion of provisional tax-reform accounting.