Comcast Corporation 10-Q Summary
Business Context and Reporting Period
Comcast Corporation reported results for the three and six months ended June 30, 2020. The company operates through Cable Communications, NBCUniversal and Sky, with businesses spanning broadband, video, wireless, media, filmed entertainment, theme parks and European pay television. Results were materially affected by the COVID-19 pandemic, including business closures, postponed sporting events, reduced advertising spending and weaker consumer demand.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $23.715 billion, down 11.7% | $50.324 billion, down 6.3% |
| Operating income | $4.647 billion, down 13.2% | $9.499 billion, down 9.9% |
| Net income attributable to Comcast | $2.988 billion, down 4.4% | $5.135 billion, down 23.1% |
| Diluted EPS | $0.65, versus $0.68 | $1.11, versus $1.45 |
| Adjusted EBITDA | $7.927 billion, down 9.1% | $16.057 billion, down 7.0% |
| Net cash provided by operating activities | Not separately provided | $14.467 billion, versus $14.271 billion |
Second-quarter operating margin was approximately 19.6%, compared with approximately 19.9% in the prior-year quarter. Net margin attributable to Comcast was approximately 12.6%, compared with approximately 11.6% in the prior-year quarter, reflecting lower revenue but favorable investment and other income in the period.
- Cable Communications: Second-quarter revenue was $14.428 billion, down 0.2%, while Adjusted EBITDA increased 5.5% to $6.176 billion. High-speed internet revenue increased 7.2%; video revenue declined 3.2%; voice revenue declined 10.7%; wireless revenue increased 33.9%; and advertising revenue declined 29.6%.
- NBCUniversal: Second-quarter revenue declined 25.4% to $6.124 billion and Adjusted EBITDA declined 29.5% to $1.638 billion. Theme Parks revenue fell 94.1% to $87 million and generated a $399 million Adjusted EBITDA loss.
- Sky: Second-quarter revenue declined 15.5% to $4.079 billion and Adjusted EBITDA declined 2.9% to $749 million. Sky ended the quarter with 23.7 million customer relationships, compared with 24.0 million a year earlier.
- Cash and liquidity: Cash, cash equivalents and restricted cash were $13.976 billion at June 30, 2020, versus $5.589 billion at December 31, 2019. Amounts available under revolving credit facilities, net of commercial paper, letters of credit and bank guarantees, were $9.2 billion.
- Debt: Total debt had a carrying value of $104.8 billion and estimated fair value of $124.7 billion. Long-term debt, including the current portion, totaled approximately $104.8 billion on the balance sheet, excluding the separate $5.2 billion collateralized obligation.
- Capital allocation: Capital expenditures were $3.957 billion in the first six months, down from $4.355 billion. Debt repayments totaled $10.712 billion, while borrowings totaled $13.612 billion. Share repurchases under the authorization remained paused. Dividends paid were $2.028 billion.
Material Changes Versus the Prior Comparable Period
- COVID-19 drove the temporary closure of theme parks, theater closures, production disruptions, postponement or cancellation of sporting events and substantial declines in advertising spending.
- Theme Parks was the most significant negative contributor, with second-quarter revenue decreasing by $1.377 billion and Adjusted EBITDA decreasing by $989 million versus the prior year.
- Cable Communications demonstrated relative resilience. Internet customers increased to 29.429 million, while video customers declined to 20.367 million and voice customers declined to 11.029 million.
- Consolidated revenue declines were partly offset by growth in Cable Communications high-speed internet and wireless services and higher Broadcast Television content licensing and distribution revenue.
- Investment and other income was $420 million in the second quarter, compared with a $55 million loss in the prior-year quarter. The six-month result was a $296 million loss, compared with $621 million of income in 2019, reflecting volatility in equity investments and results from Atairos and Hulu.
- Operating cash flow increased modestly despite lower earnings, supported in part by timing of film and television costs, payables and receivables, and lower income tax payments resulting from deferred federal estimated tax deadlines.
- The company adopted updated accounting guidance for film and television costs and expected credit losses. The credit-loss adoption reduced retained earnings by $124 million, net of tax; management stated that the overall impact was not material to consolidated results or financial position.
Guidance, Outlook, Risks and Unusual Items
Management stated that COVID-19 was expected to have a material adverse effect on consolidated results over the near to medium term, although the duration and magnitude remained uncertain. Management expected continued pressure on advertising, theme parks, filmed entertainment, Sky sports-related revenue and customer collections. Management also expected higher bad-debt expense and continued cost initiatives, including severance and restructuring actions.
- Orlando and Japan theme parks reopened with limited capacity in June, while Hollywood remained closed. Management could not predict the timing or durability of further reopenings or attendance levels.
- Universal Beijing Resort was expected to open in 2021, but certain construction projects, including Epic Universe in Orlando, were delayed.
- Sports-related contractual adjustments reduced programming expenses and revenue in certain periods. Future recognition will depend on the number and timing of sporting events that resume.
- The Tokyo Olympics were postponed from 2020 to 2021, delaying related revenue and costs.
- Management expected further reductions in capital spending but continued investment in Cable Communications network capacity.
- The company announced a $1.4 billion redemption at par of senior notes due 2046, scheduled for August 2020. It had no commercial paper outstanding and no borrowings under revolving credit facilities at June 30, 2020.
- Peacock was made available to Comcast customers in April 2020 and launched nationally in July 2020. Management expected significant additional content and marketing costs.
- Material risks include COVID-19, economic weakness, competition from online video platforms, declining video and cable-network subscribers, advertising weakness, sports-rights obligations, programming costs, regulatory requirements, cyber and technology disruptions, international operations, litigation and leverage.
- Routine legal proceedings and claims were not expected to materially affect results, cash flows or financial position based on the filing.
Investor Verification Checklist
- Verify the pace of recovery in theme parks, filmed entertainment, advertising and Sky sports-related revenue after June 30, 2020.
- Track broadband growth against continuing video and voice subscriber losses, including the effects of COVID-19-related payment accommodations and free Internet Essentials service.
- Assess debt reduction, refinancing needs, interest expense and the effect of the planned senior-note redemption on leverage and liquidity.
- Review subsequent-period cash flow, capital expenditures and the timing of resumed share repurchases.
- Evaluate whether sports-related credits, postponed events and contractual adjustments create material future revenue or programming-cost changes.
- Monitor bad-debt expense, receivables allowances and customer collections as economic conditions evolve.
- Separate recurring operating performance from unusual investment gains and losses, AirTouch redemption proceeds, restructuring costs and other COVID-19-related items.
- Confirm the timing, costs and subscriber economics of Peacock and the status of Universal Beijing Resort and delayed theme-park projects.