Comcast Corporation 10-Q Summary
Reporting period: Three and nine months ended September 30, 2017. The combined filing covers Comcast Corporation and its wholly owned subsidiary NBCUniversal Media, LLC. Results are unaudited and presented under U.S. GAAP. Comcast operates Cable Communications and NBCUniversal businesses spanning cable networks, broadcast television, filmed entertainment and theme parks.
Financial Performance and Position
| Metric | Q3 2017 | Q3 2016 | Change |
|---|---|---|---|
| Revenue | $20.983 billion | $21.319 billion | (1.6%) |
| Operating income | $4.792 billion | $4.440 billion | 7.9% |
| Net income | $2.683 billion | $2.324 billion | 15.5% |
| Net income attributable to Comcast | $2.650 billion | $2.237 billion | 18.5% |
| Diluted EPS | $0.55 | $0.46 | 19.6% |
| Adjusted EBITDA | $7.180 billion | $6.835 billion | 5.0% |
For the nine months, revenue increased 5.4% to $62.611 billion, operating income increased 10.2% to $13.880 billion, net income attributable to Comcast increased 20.8% to $7.729 billion, and diluted EPS increased to $1.61 from $1.31. Q3 operating margin was approximately 22.8%, versus 20.8% in the prior-year quarter; net margin was approximately 12.7%, versus 10.9%.
- Cable Communications: Q3 revenue increased 5.1% to $13.203 billion and Adjusted EBITDA increased 5.2% to $5.246 billion. High-speed Internet revenue rose 8.9%, business-services revenue rose 12.6%, and video revenue rose 4.2%; voice and advertising revenue declined. The segment operating margin remained 39.7%.
- NBCUniversal: Q3 revenue declined 12.7% to $8.014 billion primarily because the prior-year period included the Rio Olympics. Adjusted EBITDA increased 6.0% to $2.274 billion. Nine-month revenue increased 4.6% and Adjusted EBITDA increased 16.6%.
- Filmed Entertainment and Theme Parks: Nine-month revenue increased 30.8% and 10.6%, respectively, while Adjusted EBITDA increased 81.9% and 11.2%, supported by the 2017 film slate, DreamWorks Animation and new theme-park attractions.
- Customer metrics: Comcast reported 29.1 million total customer relationships at September 30, 2017, including 23.5 million residential high-speed Internet customers and 21.3 million residential video customers.
Cash Flow, Debt and Liquidity
- Net cash provided by operating activities for the nine months was $15.961 billion, up from $13.989 billion.
- Capital expenditures were $6.839 billion, compared with $6.562 billion; cash paid for intangible assets was $1.240 billion.
- Net cash used in investing activities was $10.027 billion, including $429 million of acquisitions and $2.064 billion of investment purchases.
- Net cash used in financing activities was $5.121 billion, including $5.021 billion of debt repayments, $4.212 billion of common-stock repurchases, $2.147 billion of dividends and $2.299 billion to acquire the remaining Universal Studios Japan noncontrolling interests.
- Cash and cash equivalents were $4.114 billion at September 30, 2017, compared with $3.301 billion at December 31, 2016.
- Carrying-value long-term debt was approximately $65.0 billion, with estimated fair value of $71.7 billion. Available revolving-credit capacity, net of commercial paper and letters of credit, was $8.3 billion; no commercial paper was outstanding at quarter-end.
- Comcast increased its share-repurchase authorization to $12 billion and expected approximately $1.2 billion of additional repurchases during the remainder of 2017. The quarterly dividend was $0.1575 per share, following a 15% annualized dividend increase approved in January 2017.
Material Changes and Unusual Items
- Q3 revenue comparisons were affected by $1.5 billion of Rio Olympics revenue recorded in the 2016 period. Excluding that item, consolidated revenue increased 5.8% in Q3 and 8.2% for the nine months.
- NBCUniversal recognized a $337 million pretax gain from relinquishing overlapping broadcast spectrum rights and received $482 million of auction proceeds. It also acquired $1.7 billion of spectrum rights.
- Comcast recorded a $105 million pretax gain on the sale of a business to an Atairos-owned company.
- A $250 million charge was recorded for settlement of Sprint patent litigation. The settlement resolved the specified Sprint disputes and other outstanding patent litigation matters between the parties.
- Comcast acquired the remaining 49% interest in Universal Studios Japan for $2.3 billion.
- The company adopted new share-based compensation accounting guidance in 2017. The change reduced income-tax expense by $49 million in Q3 and $247 million for the nine months, and increased diluted EPS by $0.01 and $0.04, respectively.
- Management expects the 2017 annual effective tax rate to be 34% to 36%, absent further tax-law changes or significant changes in uncertain tax positions.
Outlook, Commentary and Risks
Management stated that operating cash flow, cash and investments, available credit facilities and future financing should provide sufficient liquidity for current and long-term requirements. The company expects continued spending on debt repayment, capital expenditures, investments and shareholder returns. No formal consolidated revenue or earnings guidance was provided.
- Programming expenses are expected to continue increasing and may pressure Cable Communications margins.
- Residential video and voice customers face continued competitive pressure from traditional providers and new technologies, while advertising revenue is affected by audience trends, political cycles and broader advertising-market conditions.
- Wireless phone service launched on a small scale in Q2 2017 and carries execution, working-capital and competitive risks.
- NBCUniversal depends on consumer acceptance of content, successful programming distribution agreements, film performance and theme-park attendance.
- Key risks include intense competition, changing consumer viewing behavior, technology and cybersecurity disruptions, regulation, intellectual-property claims, labor disputes, weak economic conditions and risks associated with acquisitions and strategic initiatives.
- Revenue-recognition guidance effective January 1, 2018 was not expected to materially affect results, but will change the timing and presentation of certain bundled-service, installation, commission and content-licensing revenue. Lease guidance effective January 1, 2019 may materially affect the balance sheet; the impact was still under review.
- Management reported effective disclosure controls and no significant changes in internal control over financial reporting. No significant changes were reported to previously disclosed risk factors.
Investor Verification Items
- Reconcile reported Q3 and nine-month growth after adjusting for the 2016 Rio Olympics and assess the sustainability of underlying NBCUniversal performance.
- Monitor residential video and voice customer losses against high-speed Internet, business-services and security growth.
- Evaluate programming-cost inflation, Cable Communications margin performance and the impact of hurricane-related service disruption.
- Review debt maturities, refinancing costs, guarantees and leverage following 2017 borrowings and the Universal Studios Japan transaction.
- Assess the effect of the $250 million Sprint settlement and the $442 million of aggregate operating gains on recurring earnings.
- Verify the expected $1.2 billion of additional 2017 repurchases, dividend approvals and ongoing capital-allocation priorities.
- Review the eventual effects of revenue-recognition, financial-instrument and lease accounting changes, including retrospective presentation requirements.