COMCAST CORP quarterly report, Q2 FY2017

Comcast Corporation 2017 Q2 Form 10-Q Summary

Business context and reporting period

Comcast Corporation filed a combined quarterly report with NBCUniversal Media, LLC for the three and six months ended June 30, 2017. Comcast operates through Cable Communications and NBCUniversal, whose principal businesses include cable networks, broadcast television, filmed entertainment and theme parks. Results are unaudited and are not necessarily indicative of full-year performance.

Key financial metrics

Metric	Three months ended June 30, 2017	Year-over-year change	Six months ended June 30, 2017	Year-over-year change
Revenue	$21.165 billion	9.8%	$41.628 billion	9.4%
Operating income	$4.558 billion	12.1%	$9.088 billion	11.4%
Net income attributable to Comcast	$2.513 billion	23.9%	$5.079 billion	22.0%
Diluted EPS	$0.52	From $0.41	$1.05	From $0.85
Adjusted EBITDA	$7.099 billion	10.0%	$14.131 billion	10.2%
Net cash from operating activities	Not separately provided for the quarter	—	$10.814 billion	10.4%

Consolidated operating margin was approximately 21.5% in the second quarter and 21.8% for the first six months, compared with approximately 21.1% and 21.4% in the comparable 2016 periods. Adjusted EBITDA margin was approximately 33.5% in the second quarter and 33.9% for the first six months.

Cable Communications revenue increased 5.5% in the quarter and 5.6% year to date; Adjusted EBITDA increased 5.4% and 5.8%, respectively. High-speed Internet and business services were the principal growth drivers, while voice and advertising revenue declined.
NBCUniversal revenue increased 17.3% in the quarter and 16.0% year to date; Adjusted EBITDA increased 22.6% and 23.5%, respectively.
Filmed Entertainment revenue rose 59.6% in the quarter and 51.3% year to date, primarily reflecting strong film releases and the inclusion of DreamWorks Animation.
Theme Parks revenue increased 15.6% in the quarter and 12.5% year to date, benefiting from attendance, guest spending and new attractions.
At June 30, Comcast had cash and cash equivalents of $2.693 billion, total debt carrying value of approximately $63.6 billion and total assets of $183.031 billion.
Available borrowing capacity under consolidated revolving credit facilities, net of commercial paper and letters of credit, was $7.2 billion, including $1.5 billion under the NBCUniversal Enterprise facility. Comcast had $1.1 billion of commercial paper outstanding.
Capital expenditures were $4.405 billion and cash paid for intangible assets was $836 million during the first six months. Free cash flow is not reported as a GAAP measure in the filing.
Comcast repurchased $2.476 billion of common stock and paid $1.404 billion of dividends during the first six months. The board increased the annualized dividend 15% to $0.63 per share and authorized $12 billion of repurchases; management expected approximately $2.9 billion of additional repurchases during the remainder of 2017, subject to market conditions.

Material changes versus the prior comparable period

Revenue and profitability increased across all reportable business segments. Cable Communications growth was led by high-speed Internet, business services, rate adjustments and additional services.
Cable Communications had 28.989 million customer relationships at June 30, 2017, including 23.364 million residential high-speed Internet customers. Total customer relationships increased from 28.101 million a year earlier.
Cable Communications video customers declined modestly, and voice customers also declined, reflecting competitive pressure and customer mix changes. Programming costs increased 12.0% in the quarter and 11.8% year to date.
NBCUniversal benefited from stronger filmed entertainment results, higher cable-network distribution revenue, retransmission-consent revenue and theme-park performance. Advertising revenue declined in both the Cable Networks and Broadcast Television segments, principally due to audience-rating pressures.
Net cash from operating activities increased to $10.814 billion from $9.794 billion. Investing cash use increased to $7.487 billion from $5.828 billion, and financing cash use increased to $3.935 billion from $1.596 billion.
Cash uses included the $2.3 billion purchase of the remaining Universal Studios Japan noncontrolling interests, $994 million of contributions to Atairos, a $500 million investment in Snap Inc. and $2.3 billion of spectrum-related net spending. NBCUniversal also acquired $1.7 billion of spectrum rights and expected $482 million of proceeds from relinquished spectrum rights in July 2017.
Debt increased from a December 31, 2016 carrying value of approximately $61.0 billion to $63.6 billion at June 30, 2017. New borrowings included senior notes, NBCUniversal Enterprise floating-rate notes and a $3.9 billion Universal Studios Japan term loan, partly offset by maturities and repayments.

Guidance, outlook, commentary, risks and unusual items

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.
Management expected the 2017 annual effective tax rate to be 35% to 37%, absent changes in tax laws or significant changes in uncertain tax positions.
Management expects programming expenses to continue increasing, potentially pressuring Cable Communications margins. The reported Cable Communications Adjusted EBITDA margin was 40.5% in the quarter and 40.4% year to date.
Comcast launched wireless phone service on a small scale during the second quarter using Verizon’s network and Comcast Wi-Fi hotspots. The initiative increased corporate and other expenses and requires working capital for handsets and equipment.
Key disclosed risks include intense competition, cord-cutting and changing consumer viewing behavior, advertising-market weakness, technology and cybersecurity disruptions, regulation, rising programming costs, content acceptance and licensing risks, labor disputes, international operations and risks from acquisitions and strategic initiatives.
The Sprint patent litigation remained pending. Sprint sought approximately $950 million in damages plus interest and later sought to add willful-infringement claims that could potentially increase damages. Trial on four remaining patents was scheduled for late October 2017. Comcast could not estimate a possible loss range, although it did not expect the matter to materially affect consolidated financial position.
Comcast adopted new share-based compensation accounting in 2017, reducing income tax expense by $59 million in the quarter and $198 million year to date. The filing states that this increased diluted EPS by $0.01 and $0.03, respectively.
The company expects to adopt new revenue-recognition guidance in 2018 using the full retrospective method and does not currently expect a material overall impact, although timing and presentation changes are expected. Lease accounting guidance is expected to apply in 2019; its impact had not yet been determined.
Disclosure controls and procedures were judged effective for both Comcast and NBCUniversal, with no material changes in internal control over financial reporting.

Important facts investors should verify

Whether high-speed Internet and business-services growth can offset video and voice customer declines and rising programming costs.
The sustainability of NBCUniversal’s filmed entertainment and theme-park growth, which is subject to release timing, attendance, content performance and seasonality.
Debt reduction plans, refinancing requirements, interest expense and liquidity after acquisitions, capital expenditures, dividends and share repurchases.
The financial impact of the wireless launch, spectrum transactions, Universal Studios Japan ownership increase and other strategic investments.
The outcome and potential exposure from the Sprint patent litigation and other legal proceedings.
The effects of future revenue-recognition, financial-assets and lease-accounting changes, including retrospective adjustments and reported earnings volatility.