Highlights From CMCSA's Q3 Conference Call: Added 604K Video High-Speed Internet and Voice Customers This Qtr

November 4, 2009 2:12 PM EST

Comcast Corporation (Nasdaq: CMCSA) (Nasdaq: CMCSK) reports Q3 EPS of $0.33, 8 cents above the the consensus of $0.25. Revenues came in at $8.8 billion, versus the consensus of $8.85 billion. Shares are down 2% today

Highlights From CMCSA's Q3 Conference Call:

• (Chairman/CEO) Before to the results let me note the many media reports in the marketplace about a potential content investment by Comcast...While we cannot comment on rumors, I would like to reinforce that we will only look at opportunities in our core businesses that potentially can accelerate growth, make those businesses more profitable and differentiated and give them the benefits of scale.
  
• In Q3, we generated 1.1 billion of free cash flow a 20% increase.
  
• This quarter, we added 604,000 video high-speed Internet and voice customers,our best quarterly performance this year, as we really refocused our marketing efforts and had a strong back to school season.
  
• We've already rolled out Wideband capability to 65% of our footprint and we are active in more than half of our markets with our All-Digital initiative.
  
• We are also making steady progress with new innovative services like Comcast High-Speed 2go, our 4G wireless broadband product, just this week we are launching the service here in Philadelphia, our third market and we plan to launch more new markets by year end.
  
• (CFO) For Q3, consolidated revenue increased 3% to 8.8 billion and operating cash flow grew 2.7% to 3.3 billion, resulting in a consolidated operating cash flow margin of 37.8% versus 37.9% in Q3 of 2008.
  
• Year-to-date consolidated revenue increased 4.3% to 26.6 billion and operating cash flow has grown 5.6% to 10.3 billion equal to a margin of 38.8% compared to 38.3% during 2008.
  
• On a year-to-date basis, we have generated 3.6 billion of free cash flow, up 31% compared to 2008.
  
• In addition, free cash flow per share increased to 22% in the quarter to $0.39 per share and year-to-date free cash flow per share has increased 34% to a $26 per share compared to the same period in 2008.
  
• Cable advertising revenue declined 16% versus the prior year. However, if we exclude political cable advertising revenue was down 10% a notable improvement from the 20 to 25% declines in the past three quarters.
  
• Operating cash flow at the programming division was up 13% for the quarter and 12% on a year-to-date basis.
  
• In Q3, Cable revenue increased 3% to 8.4 billion reflecting continued growth in high-speed Internet, voice and Business Services partially offset by the decline in advertising revenue.
  
• Total revenue per Video customer remained healthy during the third quarter increasing 6% to $117. Total subscription revenue per customer, which excludes advertising grew 7% to $112 reflecting the following components.
  
• High-speed Internet revenue increased 6% during the quarter. ARPU remains stable at around $42 with very strong unit additions of 361,000 this quarter with our HSI penetration now approximately 31%.
  
• Voice revenue increased 20% for Q3 reflecting continued growth in our customer base and a modest decline in ARPU to approximately $38. We added 375,000 Voice customers this quarter and now have almost 7.4 million customers with a penetration for our Voice service now over 15%.
  
• At the end of Q3, 27% of our Video customers took all three services compared to 22% at the end of last year's Q3. Revenue from Business Services increased 49% in the quarter to 216 million.
  
• In Q3, total expenses in our Cable segment increased 3.3% including an 8.8% increase in program expense.
  
• As expected, marketing expenses were up 4% this quarter, as we expanded our direct sales work force and introduced new marketing campaigns which we expect to continue in Q4.
  
• Compared to Q3 of 2008, our direct costs for high-speed Internet declined 6% and our voice direct costs have decreased 14%.
  
• In Q3 of 2009 capital expenditures decreased 6.1% to 1.2 billion representing 13.9% of revenue. Year to-date our capital investment has decreased 13.1% to 3.5 billion equal to 13.2% of revenue.
  
• During Q3 we deployed 2.6 million digital set-top boxes and adapters, bringing our total deployed to over 33 million.
  
• We generated free cash flow of 1.1 billion in Q3 and 3.6 billion year-to-date.
  
• Comcast Cable President) We've been growing revenue very consistently between 40 and 50% versus prior year over the last 18 months and our Business Services operation now has over $850 million in annual revenue on a run-rate basis.
  
• In summary, we had a solid quarter with some good unit growth. As usual we will be fine tuning the unit APRU mix in future quarters. We are also continuing to invest in projects that will deliver growth in the future and we look to the fourth quarter and 2010 with a lot of optimism.
  
• (Q&A) Question on expenses and the margins, SG&A has been running pretty flattish in total in 2010, I know, there have been differences in growth rates and there was mix, but overall it's been pretty flat. So Mike, I was wondering, if keeping this line item relatively flat in 2010 is sustainable? And then voice margins have also shown nice improvement on a gross margin basis, can you give us a rough sense of where you can take this to and over what timeframe? Thank you. (A) Overall margin, our operating margin in the Cable business have been relatively flat for quite some time. We actually feel that's a pretty good performance. As I mentioned in the prepared remarks that we are going through a cost management exercise and I did say that we anticipate a charge in the fourth quarter. To size that charge, it will be probably a bit more than we did in the fourth quarter of last year. So we think the benefits of those will flow into 2010 and we do expect to have, what I would say, lower SG&A or pretty well-managed SG&A with regard to next year and even in 2011. With regard to voice margins, the team has done a terrific job of growing those. And I think that we're continuing to execute and get more margin. I think there is some left there particularly also as we ramp our Business Services.
  
• I have two questions, probably Steve and Brian. First is on interactive advertising. Can you just talk about some of the efforts there, and well, everything go through Canoe on the national level, I mean assuming on the national level, but you saw Cablevision numbers yesterday were strong for interactive advertising locally. So can you just talk about that? And then the second question is video-on-demand, Steve you just mentioned that you have 20,000 titles. But it's still not a really vibrant service, that is, it's still such a big opportunity loss. So I am wondering if you could just address what the challenges in developing a really strong and robust video on demand and electronic sell-through service offered by you with all the studios? (A)On interactive advertising, a lot of it will go through Canoe. Interactive advertising encompasses a lot of different things. You have addressable advertising, you have 2-way, EBIF type applications, targeted advertising, etcetera. I think for the quarter we had about $15 million worth of advertising that we call interactive. But the big numbers, I think, will be generated when the
  industry gets together and allows national advertisers the ability to advertise across the country. We are very excited about this technology called EBIF. We will have many, many - already have, but we'll have many, many of our homes maybe half of our homes EBIF enabled in a very short period of time. The industry as a whole will have a lot of EBIF enabled homes and interactive applications that will be rolling out and that's I think when the real money starts to show up. Regarding video-on-demand, we're consistently making video-on-demand better. I think a key thing for us is getting movies day-and-date with their DVD release. We just sent out a press release that we are making real progress there, 8 of the top 10 films that are on our pay-per-view service we believe will be day-and-date over the next few months and we're sort of chipping away at it. And I think the studios as they see the DVD business change and decline are looking to video-on-demand in the electronic sell-through and other non-physical ways to distribute movies with a completely different mindset. So I think getting more content is part of it and then over time getting better guidance and making it easier to use. And then finally, just making people aware of what we have. One of the things we found is that when people are aware of what we have with VOD, they use it a lot, 25 times a month with thereabouts and in fact the matter is
  there are a lot of people who remember what our VOD assortment was five years ago or maybe I have never tried it. So it's a combination of getting more titles and availability, better guidance, and then finally making sure people know what's there. And we're chipping away at it and getting lots and lots
  of views, but I agree with you, there is still a lot more potential to sort of change people's mindset about how great what we have is.

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