Comcast Corporation 2018 Q1 Form 10-Q Summary
Business Context and Reporting Period
Comcast Corporation filed a combined quarterly report with NBCUniversal Media, LLC for the three months ended March 31, 2018. Comcast operates through Cable Communications and NBCUniversal’s Cable Networks, Broadcast Television, Filmed Entertainment, and Theme Parks segments.
Cable Communications represented 59% of consolidated revenue and 75% of consolidated Adjusted EBITDA. At March 31, 2018, the cable business had 29.6 million customer relationships and passed more than 57 million homes and businesses.
Key Financial Metrics
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Revenue | $22.791 billion | $20.587 billion | +10.7% |
| Operating income | $4.645 billion | $4.542 billion | +2.3% |
| Net income | $3.176 billion | $2.655 billion | +19.6% |
| Net income attributable to Comcast | $3.118 billion | $2.573 billion | +21.2% |
| Diluted EPS | $0.66 | $0.53 | +24.5% |
| Adjusted EBITDA | $7.244 billion | $7.010 billion | +3.3% |
| Cash flow from operations | $5.474 billion | $5.625 billion | -2.7% |
Consolidated operating margin was approximately 20.4%, compared with 22.1% in the prior-year quarter. Net margin attributable to Comcast was approximately 13.7%, compared with 12.5% previously. Adjusted EBITDA margin was approximately 31.8%, compared with 34.0%.
- Cable Communications: Revenue increased 3.6% to $13.518 billion and Adjusted EBITDA increased 4.7% to $5.415 billion; margin improved to 40.1% from 39.6%.
- NBCUniversal: Revenue increased 21.3% to $9.530 billion and Adjusted EBITDA increased 13.1% to $2.285 billion. Broadcast Television revenue increased 58.3%, Cable Networks increased 21.0%, Theme Parks increased 14.5%, and Filmed Entertainment declined 16.3%.
- Customer trends: Total customer relationships increased to 29.620 million from 28.875 million. High-speed Internet customers increased to 26.249 million, while video customers declined to 22.261 million and voice customers declined to 11.498 million.
- Cash investment: Capital expenditures were $1.973 billion, cash paid for intangible assets was $419 million, and investing cash outflow was $2.292 billion.
- Shareholder returns: Comcast repurchased $1.5 billion of shares under its authorization and paid $738 million of dividends. The quarterly dividend was $0.19 per share, reflecting a 21% increase in the annualized dividend approved in January 2018.
Liquidity, Debt, and Balance Sheet
- Cash and cash equivalents were $6.030 billion at March 31, 2018; cash, cash equivalents, and restricted cash totaled $6.177 billion.
- Total debt had a carrying value of $66.7 billion and an estimated fair value of $70.7 billion. Long-term debt, including the current portion, was approximately $66.7 billion.
- Debt borrowings during the quarter totaled $4.043 billion, while debt repayments totaled $1.265 billion. No commercial paper was outstanding.
- Available capacity under consolidated revolving credit facilities, net of commercial paper and letters of credit, was $8.3 billion, including $1.5 billion available under NBCUniversal Enterprise’s facility.
- Management stated that operating cash flow, existing cash and investments, available credit facilities, and future financing capacity should support current and long-term liquidity needs.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven significantly by NBCUniversal’s broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl. The company reported approximately $378 million of Olympic-related Cable Networks revenue and approximately $1.2 billion of Olympic and Super Bowl-related Broadcast Television revenue.
- Excluding Olympic-related revenue, Cable Networks revenue increased 6.6%; excluding Olympic and Super Bowl revenue, Broadcast Television revenue increased 4.3%.
- High-speed Internet and business services continued to grow, while residential video and voice declined because of competitive pressure and changing consumer behavior.
- Filmed Entertainment performance weakened because the prior-year quarter had a stronger theatrical release slate, although current-year releases included Fifty Shades Freed, Pacific Rim Uprising, Darkest Hour, and Pitch Perfect 3.
- Programming and production costs increased 22.6% on a consolidated basis, principally reflecting sports and event programming costs.
- Income tax expense declined to $818 million from $1.262 billion, primarily reflecting the 2017 Tax Act’s lower federal corporate tax rate and a $128 million benefit from additional 2018 tax legislation.
- Comcast adopted the new revenue recognition standard retrospectively and updated financial asset and restricted cash guidance. Management stated that the revenue recognition adoption did not materially affect consolidated results or financial position.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- Management expects continued growth in residential high-speed Internet and business services, but expects residential video customers and video revenue to continue declining. Voice customers and voice revenue are also expected to decline.
- Management expected at least $3.5 billion of additional share repurchases during the remainder of 2018, subject to market and other conditions.
- The company expects to continue quarterly dividend payments, subject to Board approval.
- On April 25, 2018, after the quarter-end, Comcast announced a pre-conditional cash offer for Sky plc at £12.50 per share, implying approximately £22 billion, or $31 billion, of value at the then-current exchange rate. Comcast arranged up to £16 billion of bridge financing and £7 billion of term financing. Completion was subject to regulatory approvals and other conditions.
- Comcast owns 30% of Universal Beijing Resort and consolidates the project. At March 31, 2018, the consolidated balance sheet included approximately $1.2 billion of project assets and $523 million of project liabilities. Comcast stated that its maximum risk of financial loss was its 30% interest.
- Hulu generated a $131 million equity-method loss for Comcast, compared with a $54 million loss in the prior-year quarter. Comcast also recorded a $64 million pretax gain from selling its investment in The Weather Channel.
- Key risks include intense competition, migration of consumers to online content platforms, advertising-market weakness, increasing programming costs, content acceptance risk, regulatory requirements, cybersecurity and technology disruptions, labor disputes, international operations, and risks associated with acquisitions and strategic initiatives.
- The filing identifies patent litigation and ordinary-course legal proceedings but states that expected ultimate liabilities are not expected to materially affect results, cash flows, or financial position.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No significant changes to previously disclosed risk factors were reported.
Important Facts for Investors to Verify
- Whether revenue and Adjusted EBITDA growth can be sustained after the Olympic and Super Bowl comparison benefit fades.
- The pace of residential video and voice customer declines and the profitability of high-speed Internet, business services, wireless, and security offerings.
- Programming-cost inflation, especially retransmission, sports, and other content fees, relative to pricing and subscriber trends.
- The financing, regulatory approvals, leverage impact, and integration risks associated with the proposed Sky transaction.
- Debt maturities, refinancing requirements, interest-rate exposure, and remaining revolving-credit capacity.
- The sustainability of share repurchases and dividend increases alongside capital expenditures, theme-park investment, Universal Beijing Resort funding, and potential acquisition financing.
- The effect of tax-law changes and the finalization of provisional tax accounting estimates.