Highlights From CMCSA's Q1 Conference Call: Achieved Healthy Financial and Operating Results; Outlook Cautiously Optimistic

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April 28, 2010 1:12 PM EDT

Comcast (Nasdaq: CMCSA) reports Q1 EPS of $0.31, 1 cent better than the analyst estimate of $0.30. Revenue for the quarter was $9.2 billion, which compares to the estimate of $9.15 billion. Shares are currently up 2%.

Highlights From CMCSA's Q1 Conference Call:

(Brian L. Roberts, Chief Executive Officer) We achieved healthy financial and operating results in Q1 driven by stronger customer growth, a rebound in advertising, continuing momentum in Business Services, and a steady focus on expense and capital management.
This quarter we added 590,000 video high-speed Internet and voice customers, a 7 1/2% increase over last year's Q1 and we added more than 1 million RGUs as we continue to deploy All-Digital and also more customers upgraded or added higher levels of digital service.
Q1 marked a real turnaround in advertising which helped our results in both cable and programming.
While it's not clear whether we're entirely out of the woods on the economy, we are cautious and optimistic and are clearly executing better in this environment and against the competition.
We attribute growth in revenues, operating revenue and strong free cash flow of $1.9 billion a growth of 38% even as we reinvest to build a better and stronger company.
We also continue to make significant progress deploying All-Digital and DOCSIS 3.0. We reached nearly 80% of our footprint.
Today we offer 50 mega bits speed service to 40 million homes where it's available and we'll soon begin to roll out 100 mega bit service.
We now offer 100 or more high-def channels and doubled the amount of foreign language programming available to between 50 and 75 channels in each of these Xfinity markets.
As the year progresses we will also significantly increase the amount of content available on demand to nearly 20,000 choices with 3,000 HD options available to our digital customers each month.
Let me spend just one moment on NBC Universal. We're four and a half months into an approximate nine to 12 month regulatory process. We are well under way in the planning and once the transaction closes, we believe we'll be ready to execute. We remain very excited about the prospects of this combination and the opportunity to deliver the best entertainment experiences to our consumers and to drive value creation to our shareholders.
(CFO) Q1 consolidated revenue increased 3.8% to 9.2 billion and operating cash flow grew 3.5% to 3.6 billion resulting in a consolidated operating cash flow margin of 38.7%.
This quarter's operating cash flow results include approximately 14 million of operating expenses related to the NBC Universal transaction.
We generated consolidated free cash flow of $1.9 billion, an increase of 38.1% versus the first quarter of 2009.
Reflecting growth in consolidated operating cash flow and declining capital intensity.
Cable division's Q1 results in more detail: Cable revenue increased 3 1/2% to 8.7 billion reflecting continued growth in high-speed Internet, voice and Business Services as well as a significant improvement in Cable advertising. Partially offset by a decline in video revenue. Total revenue per video customer increased 6.3% to $123 per month in the first quarter and reflects the increasing number of customers taking multiple products.
At the end of the first quarter, 29% of our video customers took all three services compared to 25% at the end of last year's first quarter.
In video we lost 82,000 customers similar to last year's first quarter losses even though the RBOCs added 5 million more homes to their footprint and last year's first quarter included a benefit from the broadcast digital transition.
In high-speed Internet, net additions increased 21% to 399,000 and in voice net additions were solid at 273,000 indexing at 92% of last year.
For the first quarter of 2010, total video revenue decreased 1.8% reflecting the impact of fewer rate increases in Q4 compared to the prior year.
High-speed Internet revenue increased 8 1/2% during the quarter reflecting strong unit additions in a slight increase in ARPU to almost $43 reflects the impact of rate adjustments. Our overall HSI penetration is now 32%.
Voice revenue increased 12.9% for the quarter reflecting continued growth in our customer base and a 3.6% decline in ARPU to $38 per month. We now have almost 7.9 million voice customers with penetration now over 16%.
Cable advertising experienced a notable improvement in Q1 of 2010, up 23 1/2% as compared to the 15% decline experienced for the full year of 2009.
First quarter Cable operating cash flow increased 4.1% to 3.5 billion.
Our Cable operating cash flow margin remained relatively stable at 40.8%, a 20 basis point improvement compared to last year's first quarter. Total expenses in our Cable segment increased 3.1% reflecting higher programming and marketing expenses.
First quarter Cable operating cash flow increased 4.1% to 3.5 billion. Our Cable operating cash flow margin remained relatively stable at 40.8%, a 20 basis point improvement compared to last year's Q1.
Marketing expenses increased 16% this quarter reflecting the upfront costs associated with the launch of our new Xfinity branding campaign and a continued investment in direct sales in the retail channel.
Compared to last year's Q1, our direct costs for voice declined 8.70% and our high-speed Internet costs were reduced by 1.2%. Customer service expense declined 5.2% and technical labor expense declined 4.3% in the first quarter as we benefited from lower activity levels, higher call automation and customer self-service as well as other efficiencies related to our Challenge 2010 initiative.
Given the economic backdrop, we've also been very focused on delinquencies and bad debt expense and are now seeing bad debt expense decline for three consecutive quarters.
In Q1 of 2010, capital expenditures decreased 20% to 925 million representing 10.1% of total revenue.
Over the past three months we deployed 3.2 million digital set tops and adaptors including almost 2.6 million digital adaptors in support of the All-Digital rollout. We have now deployed approximately 9 million digital adaptors since the inception of the All-Digital project.
We now have more than 9.5 million HD and/or DVR customers equal to 50.5% of our digital customer base and 41% of all video customers.
During Q1, we closed two small transactions, Simko and NGT, to accept support the expansion of Business Services. Both of these acquisitions will accelerate our efforts and provide us with operational and technical expertise. However, our primary focus is to continue to grow this business organically. In addition, in 2010, we expect most of our MNA energies to be spent on planning for the NBC Universal transaction.
(Chief Operating Officer; President, Comcast Cable Communications) Currently, over 20% of our customers subscribe to higher speed tiers at 16 meg and above. We're excited about this given the incremental revenue potential and the distinct competitive advantage we have at these higher speeds.
And even as we complete DOCSIS 3.0 we're continuing to deliver more value added products and services for our customers in the future. We've now launched wireless to go in five markets -- Chicago, Portland, Seattle, Philadelphia and Atlanta -- and we'll be adding two more major markets during the second quarter in Boston and Houston.
Turning our attention to video, our all-digital effort is now 43% complete and we're currently active in about 70% of our footprint. Our rollout pace is right on plan and as we said before, we expect 80% of our systems to have made the conversion to All-Digital by the end of this year.
Moving on to Business Services, we continue to have strong momentum in this business. We're now generating over $1 billion in annual run rate revenue and we continue to drive strong growth rates in the 40-50% range.
Lastly, moving to advertising, you may recall from the last call that we mentioned some early signs of strength in our advertising business as we ended 2009. The good news is that advertising has continued to strengthen into 2010. The 23% growth in ad revenue for the first quarter that we achieved was our first quarterly growth since the first quarter of 2008.
(Q&A) I have a couple of questions, I'll just throw them all out. You guys have mentioned the medium-sized business several times on the call and I was wondering if -- and you haven't really changed your revenue forecast for 12 from the 2 1/2 to 3 billion-dollar range. Can you provide any updated targets given the size of this market? Second, on NBC Universal, can you give us any update in terms of expectations for timing of the close? And as you go through the integration process, could you talk about any new business opportunities that you found? And then finally, my final question is: Can you give us any update of progress at Canoe, thanks.
(A)That's probably four questions. Let me see if I can answer a couple of them. Canoe it actually progressing quite well. We're really concentrating on any activity that will drive off the EBIF platform that the industry's rolling out and actually, I think in June, we're going to have about a 7 million subscriber footprint throughout the industry and that ramps up to 20 or 30 million pretty quickly. So we're pleased and really focused with that in terms of Canoe. On the medium-sized business front, the medium-sized business overall size is about the same as the small business overall size. So it's a very substantial opportunity. And we've spent a lot of money on staffing up which is embedded in the numbers. Starting to spend real money in terms of capital to sort of equip ourselves for that business. We haven't yet said this is exactly the size of that opportunity which was your direct question but it's substantial and you could argue the overall market is the same size as the small business market that it's an equal attractive opportunity.
(A)I think on NBC, there's not much we can say, Jessica, except that yesterday was another good milestone in the progress which was a, we're able to access the capital markets in a very successful offering of about four, I think $4 billion of the financing, long-term financing that we need at the NBC U level. I think over subscribed and a very successful offering. We -- on the timing, you know, we're -- we're still hopeful later this year. We've put in our public interest filing at the FCC. We've completed or had four congressional hearings. We've had the beginning of the documentation phase with the department of justice and, you know, things are on track there. I think, as business opportunities go, you know, the only real comment I think we could make specifically about NBC is that it appears the advertising market has really turned around. It's not just one segment. Clearly automotive is very robust. The overall health of advertising appears to be very pentup demand and I think bodes well for the timing of the transaction for Comcast in terms of when we chose to make the investment. I also think, you know, without getting into it in great specificity, we've all read and seen a lot of transactions involving retransmission consent in the last six months. And there's real, I think, understanding that there is cash being paid and value being created and we hope to play a constructive role in finding a way that that can happen over the industry, over at least our share of Comcast and not be super disruptive. So, again, I think nothing but good developments and, you know, we're in the middle of the process.
(Q)It looks like the strength in the broadband numbers were one of the highlights in the quarters and you appear to be taking market share and driving ARPU. In your guys' opinion, has broadband reached a tipping point where you're seeing less competition or just the strength of the product is so far overshadowing DSL that you can expect to do both of those things for the foreseeable future. If you could just comment on that, that would be great.
(A)Well, I think one of the real striking stories to me is after over a decade in the high-speed data business that our growth is accelerating and businesses normally don't do that. They reach a maturity level and your net adds slow down and that's what was happening with the high-speed data business until about a year ago and then we and other Cable companies, frankly, have started to reaccelerate our net adds, and I think in each of the last two quarters our net adds for Comcast alone were as much as the entire big RBOC footprint combined. We ask ourselves what's going on there. I think there's a bunch of different things. The most important one for me is the need for very, very large broadband capacity which is probably related to video consumption on the Internet but also related to gaming and other things seems to continue to grow steadily and we made our investment in DOCSIS 3.0 and really making sure that in the majority of the country something like 75% of the country our speed is just so significantly superior to DSL that that really shifts the competitive balance and I think we're -- there are a bunch of different factors that measure into our 399,000-subscriber high-speed data add for the quarter but I think there's something going on because we've noticed in previous quarters that the other Cable companies are seeing similar results and I think once these trends start to happen they tend to continue for a while and hopefully they will in this case.
(A) One other point that I'd make is you're seeing new devices all the time. We've said for a while we think video over the net is more friend than anything else, and if you just take an iPad for those that are early adoptors, only with wi-fi, it's fantastic because that wi-fi goes to your broadband, and you're now able to consume more, enjoy more, use many more applications of yet again another device but it all starts with who's got the best broadband. And I think the investment strategy has been and continues to be to both the technical level, at the consumer branding level to put Comcast in a position we have a superior broadband and that's the strategy that we've laid out for several years.