Comcast Corporation 2019 Q1 Form 10-Q Summary
Business context and reporting period
Combined quarterly report for Comcast Corporation and NBCUniversal Media, LLC covering the three months ended March 31, 2019. Comcast operates through Cable Communications, NBCUniversal and Sky. Comcast owned 100% of Sky following the fourth-quarter 2018 acquisition for approximately $39.4 billion in cash, making year-over-year comparisons less comparable.
Financial performance and key metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $26.859 billion | $22.791 billion | 17.9% |
| Operating income | $5.182 billion | $4.645 billion | 11.5% |
| Net income | $3.632 billion | $3.176 billion | 14.4% |
| Net income attributable to Comcast | $3.553 billion | $3.118 billion | 14.0% |
| Diluted EPS | $0.77 | $0.66 | 16.7% |
| Adjusted EBITDA | $8.553 billion | $7.244 billion | 18.1% |
| Operating margin | 19.3% | 20.4% | Down approximately 110 bps |
| Net margin | 13.5% | 13.9% | Down approximately 40 bps |
Revenue growth primarily reflected the inclusion of Sky, higher Cable Communications revenue and Filmed Entertainment growth. Operating income increased despite higher amortization, depreciation and operating expenses. Interest expense rose 48.0% to $1.150 billion, primarily because of debt used to finance and debt assumed in the Sky acquisition. Investment and other income increased to $676 million from $126 million, including stronger Atairos results, gains on equity securities and a $159 million previously deferred Hulu-related gain.
- Cable Communications: Revenue increased 4.2% to $14.280 billion and Adjusted EBITDA increased 9.8% to $5.728 billion. Adjusted EBITDA margin improved to 40.1% from 38.1%. High-speed internet revenue rose 10.1%, business services revenue rose 9.5% and wireless revenue rose 21.4%; video and voice revenue declined modestly.
- NBCUniversal: Revenue declined 12.5% to $8.313 billion, largely because the prior-year period included the PyeongChang Olympics and Super Bowl. Adjusted EBITDA increased 2.9% to $2.337 billion. Filmed Entertainment Adjusted EBITDA rose 78.7%, while Broadcast Television Adjusted EBITDA declined 23.7%.
- Sky: Revenue was $4.797 billion and Adjusted EBITDA was $663 million. On a pro forma basis, revenue declined 5.0% and Adjusted EBITDA declined 17.0%; constant-currency revenue increased 1.9%, while constant-currency Adjusted EBITDA declined 11.3%.
Cash flow, debt and liquidity
- Net cash provided by operating activities was $7.231 billion, up from $5.474 billion.
- Capital expenditures were $2.092 billion, compared with $1.973 billion, and cash paid for intangible assets was $547 million.
- Net cash used in investing activities was $3.226 billion. Financing activities used $4.325 billion, including $2.084 billion of debt repayments and $869 million of dividends.
- Cash, cash equivalents and restricted cash ended at $3.597 billion, down from $3.909 billion at December 31, 2018.
- Total debt had a carrying value of $109.1 billion and estimated fair value of $115.8 billion at March 31, 2019. Debt consisted of $4.629 billion current and $104.464 billion long-term debt on the balance sheet.
- No amounts were outstanding under revolving credit facilities or commercial paper programs. Available revolving credit capacity, net of specified commitments, was $9.2 billion.
- Comcast paused its $12 billion share repurchase authorization for 2019 to accelerate debt reduction following the Sky acquisition. The quarterly dividend was increased 10% to $0.21 per share, or $0.84 annualized.
Material changes, outlook and unusual items
- The Sky acquisition materially changed the consolidated comparison, adding $4.797 billion of reported revenue and $663 million of Adjusted EBITDA in the quarter. Sky also contributed substantial depreciation and amortization and increased leverage and interest expense.
- Comcast recorded approximately $1.2 billion of additional valuation allowance against Sky deferred tax assets. Purchase-price allocation updates increased goodwill by approximately $1.4 billion and increased current-period depreciation and amortization by $53 million related to the fourth quarter of 2018.
- The prior-year NBCUniversal results benefited from the Olympics and Super Bowl; their absence reduced reported Cable Networks and Broadcast Television revenue in 2019. Excluding those events, the filing states that underlying revenue comparisons were stronger.
- Management expects continued declines in residential video customers and voice revenue because of competition from online video and other providers. High-speed internet and business services remain key growth priorities.
- Management states that operating cash flows, existing cash and investments, available credit facilities and access to external financing are expected to meet current and long-term liquidity needs. No specific earnings or revenue guidance is provided in the filing.
- Key risks include intense competition, online content substitution, advertising-market weakness, rising programming costs, content acceptance, regulation, technology and cybersecurity disruptions, international and foreign-currency exposure, litigation, labor disputes and the integration and financial performance of Sky.
- Legal proceedings include patent and other ordinary-course claims; management does not expect their ultimate resolution to materially affect results, cash flows or financial position, although litigation could be costly and reputationally damaging.
- Comcast adopted the new lease standard prospectively on January 1, 2019, recording approximately $4.2 billion of operating lease assets and $4.8 billion of operating lease liabilities. The filing states that the adoption did not materially affect earnings or cash flows.
Most important facts for investors to verify
- Assess Sky’s pro forma revenue, EBITDA, customer trends, foreign-currency exposure and integration costs separately from Comcast’s legacy operations.
- Monitor leverage, debt maturities, interest expense and the pace of debt reduction after the Sky acquisition.
- Verify whether high-speed internet and business-services growth continues to offset declines in video and voice customers.
- Separate recurring operating performance from unusual items, including Olympic and Super Bowl comparisons, investment gains, the Hulu-related gain and Sky purchase-accounting adjustments.
- Review cash conversion, capital expenditures, programming and sports-rights costs, and the sustainability of dividends while share repurchases are paused.
- Evaluate exposure to advertising weakness, audience declines, streaming competition, regulatory actions, cybersecurity incidents and content performance.