COMCAST CORP quarterly report, Q2 FY2018

Comcast Corporation 2018 Q2 Form 10-Q Summary

Business context and reporting period

Combined quarterly filing for Comcast Corporation and wholly owned NBCUniversal Media, LLC, covering the three and six months ended June 30, 2018. Comcast operates Cable Communications and NBCUniversal businesses spanning cable networks, broadcast television, filmed entertainment and theme parks. Results include the 2018 PyeongChang Olympics, Super Bowl and FIFA World Cup impacts. Financial statements are unaudited.

Key financial metrics

Metric	Three months ended June 30, 2018	Change vs. 2017	Six months ended June 30, 2018	Change vs. 2017
Revenue	$21.735 billion	2.1%	$44.526 billion	6.3%
Operating income	$5.014 billion	9.8%	$9.659 billion	6.0%
Net income attributable to Comcast	$3.216 billion	27.6%	$6.334 billion	24.3%
Diluted EPS	$0.69	Up from $0.52	$1.36	Up from $1.06
Adjusted EBITDA	$7.417 billion	4.8%	$14.661 billion	4.1%
Net cash provided by operating activities	Not provided for the quarter	Not applicable	$12.537 billion	Up from $10.749 billion

Six-month operating margin was approximately 21.7%, compared with approximately 21.8% in the prior-year period. Six-month net margin was approximately 14.2%, compared with approximately 12.4% in 2017. Adjusted EBITDA margin was approximately 32.9%, compared with approximately 33.6% in 2017.

Cable Communications revenue increased 3.5% to $27.228 billion for the six months; Adjusted EBITDA increased 5.6% to $11.053 billion. Segment margin improved to 40.6% from 39.8%.
High-speed Internet revenue increased 8.8% for the six months, while business services revenue increased 11.5%. Video revenue declined 1.4% and voice revenue declined 3.3%.
At June 30, Comcast had 29.8 million total customer relationships, including 26.5 million high-speed Internet customers and 22.1 million video customers. Residential video customers declined by 229,000 during the first six months.
NBCUniversal revenue increased 10.3% to $17.843 billion and Adjusted EBITDA increased 8.6% to $4.445 billion for the six months.
Six-month NBCUniversal results included approximately $1.2 billion of Broadcast Television revenue associated with the Olympics and Super Bowl and $378 million of Cable Networks revenue associated with the Olympics.
Filmed Entertainment was weaker: six-month revenue declined 18.3% to $3.357 billion and Adjusted EBITDA declined 48.2% to $341 million, primarily due to film-release timing and stronger prior-year releases.

Cash flow, debt and liquidity

Six-month operating cash flow was $12.537 billion. Investing cash outflow was $5.306 billion, including $4.223 billion of capital expenditures and $930 million of intangible-asset purchases.
Financing cash outflow was $4.960 billion, including $4.347 billion of debt repayments, $2.998 billion of share repurchases and $1.616 billion of dividends paid.
Cash, cash equivalents and restricted cash increased to $5.842 billion at June 30 from $3.571 billion at December 31, 2017; cash and cash equivalents were $5.726 billion.
Total debt carrying value was approximately $64.6 billion, including $2.634 billion of current debt and $61.946 billion of long-term debt. Estimated fair value was $66.0 billion.
Available consolidated revolving-credit capacity, net of commercial paper and letters of credit, was $7.5 billion. NBCUniversal Enterprise had $927 million of commercial paper outstanding; Comcast had no commercial paper outstanding.
Comcast repurchased 77 million Class A shares for $2.75 billion during the first six months and expected to repurchase at least $2.25 billion more during the remainder of 2018, subject to market conditions.
The quarterly dividend was $0.19 per share. The annualized dividend had been increased 21% to $0.76 per share.

Material changes versus the prior comparable period

Revenue and profitability benefited from Internet, business services, Cable Networks, Broadcast Television and Theme Parks growth, while video, voice and Filmed Entertainment declined.
Net income growth substantially exceeded revenue growth, primarily reflecting the lower U.S. corporate tax rate under the 2017 Tax Act and a $128 million tax benefit from 2018 federal legislation. Six-month income-tax payments fell to $623 million from $2.209 billion.
Operating cash flow improved by $1.788 billion, partly because of lower tax payments and working-capital timing.
Interest expense increased 4.6% for the six months, primarily due to higher debt outstanding.
The company recorded a $200 million pretax gain from selling a controlling interest in arena management-related businesses to Atairos.
Hulu losses increased to $238 million for the six months from $106 million, while Atairos contributed $186 million of equity-method income versus $99 million.
Comcast adopted new revenue-recognition guidance retrospectively. Management stated that the adoption did not materially affect consolidated results, although it changed the presentation and timing of certain Cable Communications and content-licensing items.

Guidance, outlook, commentary and risks

Management expects continued declines in residential video customers and video revenue, reflecting competition from traditional providers and online distribution platforms. Voice customers and revenue are also expected to continue declining.
Management expects to focus on higher-margin residential high-speed Internet and business services, network capacity, X1, cloud DVR, wireless gateways, security and automation, and cost management.
Management stated that available operating cash flow, cash and investments, credit facilities and future financing should support liquidity needs, debt repayment, capital expenditures, investment opportunities and shareholder returns.
On July 11, 2018, after quarter-end, Comcast increased its cash offer for Sky plc to £14.75 per share, implying approximately £26 billion, or $34 billion, of value at the announcement exchange rate. Completion was expected before the end of October 2018 if conditions were satisfied. Financing included bridge and term-loan commitments of up to approximately $22 billion and $10 billion, respectively.
On July 19, 2018, Comcast announced withdrawal of its proposed offer for Twenty-First Century Fox.
Universal Beijing Resort is being developed with Comcast owning 30%. The resort borrowed $235 million in June 2018; consolidated assets and liabilities related to the resort were approximately $1.2 billion and $587 million. Comcast stated its maximum loss exposure was its 30% interest because there were no liquidity arrangements, guarantees or other financial commitments.
Key risks include intense competition, cord-cutting and changing consumer behavior, declining advertising audiences, rising programming costs, content acceptance and release timing, loss or unfavorable renewal of distribution agreements, cybersecurity and technology disruptions, regulation, labor disputes, acquisitions, international operations and dependence on key talent.
Several patent and other ordinary-course legal proceedings were disclosed. Management does not expect them to materially affect results, cash flows or financial condition, but litigation could be costly, time-consuming and reputationally harmful.

Important facts for investors to verify

Whether the Sky acquisition closed as planned and the resulting debt, financing costs, regulatory conditions and integration risks.
The sustainability of high-speed Internet and business-services growth as video and voice customers decline.
Whether Olympics, Super Bowl, World Cup and political advertising benefits create difficult year-over-year comparisons.
Film-release performance, content costs and the recovery of Filmed Entertainment profitability.
Debt leverage, refinancing requirements, interest-rate exposure and remaining credit availability after any Sky financing.
The effect of tax-law provisional amounts, new lease accounting effective January 1, 2019, and other accounting changes.
Hulu losses, Atairos investment commitments and the valuation volatility of Comcast’s equity investments, including Snap.
Execution, funding and construction risks associated with Universal Beijing Resort and other capital projects.