Q1 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by.
Good morning, and welcome to the Comcast first quarter 2020 earnings Conference call.
This time all participants are in a listen only mode. Please note that this conference call is being recorded.
I'll now turn the conference over to senior Vice President Investor Relations Ms. Marci Ryvicker. Please go ahead.
Thank you operator, and welcome everyone to our first quarter 2020 earnings call.
Joining me on our Brian Roberts, Mike Cavanagh.
Dave Watson job shops, and Jeremy Darroch, given these extraordinary times, we have slightly changed the format this morning's call.
Right and Michael spend a bit more time than usual and their prepared remarks to provide as much color and visibility as possible on all our businesses as well update you on how we're managing our customers and employees through Cobot 19. So then use the time remaining to answer as many analysts questions as we can.
Before we begin I refer you to slide two which contains our safe Harbor disclaimer I remind you that this conference call may include forward looking statements subject to certain risks and uncertainties.
In addition, during this call will refer to certain non-GAAP financial measures.
<unk> he can trending schedules for the reconciliations of non-GAAP financial measures to GAAP with that I turn the color Brian Roberts Brian.
Thank you more seeing good morning, everyone.
These were truly extraordinary time.
I don't be helpful.
Okay.
You're welcome everyone, who has been impacted by this terrible disease.
I'd like to Echo alright, thanks to the thousand heroes on the front line.
Society today is being talent like never before in our lifetime.
And I couldn't be more proud of our company or employees in our leadership teams across Comcast cable nbcuniversal on sky for making a lot of course, there and I believe that's decisions for our customers at organization.
I truly believe it when we look back at this unprecedented time, we will be reminded of the strength of our employees the resilience of our business and the important role our services played in our customers' lives.
Oh, Good 19 has created a tremendous amount of uncertainty [laughter] financial screen for people in businesses around the globe.
Every company is different.
Fewer immune to this dynamic.
Comcast is no exception.
We have businesses like broadband, which had the best first quarter net add in 12 years.
Continued sales momentum in April.
Businesses like theme parks as well as television and film production, which will be under substantial to rough because we must shoulder in place.
On today's call, we will discuss our first quarter performance and provide as much information as we can't about the future.
But perhaps the most important thing we can do is give you a sense for the guiding principles. We are using to run our business. During this pandemic and share some of the important decisions, we've made to help move or company forward.
Oh, we supporting our most important asset or people.
We saw the virus in China, and then in Italy in Europe, I gave us a real sense of urgency as to how quickly decisions had to be made required us to change procedures almost instantaneously across the globe to get ahead of this crisis.
Is this school perspective that has helped us immensely as you will hear.
The first thing we needed to do wish to protect our employees, especially on the front line.
So for those working in news MEDIHONEY, our network, ensuring that our customers maintain vital connectivity, we've taken many safety precautions to keep them and our customers see.
At the same time, we've successfully moved tens of thousands of employees across Comcast cable Nbcuniversal and sky work from home environment.
Most impressive has been our ability to show thousands of call Center representative.
Comcast since guy working remotely in a matter of days and weeks.
Back over 95% of our U.S. called federal employees or now serving customers from their homes and I'm not sure that's ever been achieved before.
We've been doing this now for about 45 days since the second week of the crisis extraordinary feet.
Our digital tools have been instrumental during this time of need.
This is your <unk> ex <unk> digital lab is up 60% and we're seeing a 20 point increase and customer satisfaction, when they use or digital tools to activate their internet service.
Usibor AI powered expanded the system is also up 445%.
It's clear that are multiyear investment in digital a day ATI has prepared us for this crisis.
Could not be prouder of the work of our teams.
For our employees, who are not able to work because operations have been closed were severely impacted.
We have differentiated ourselves by committing $500 million into Rick support to help bridge this moment.
Our employees have shown us that they are among the most engaged in the country and we want to do what we can to support them. During this crisis.
Our second guiding principle is to serve our customers continue to innovate at a time when they needed most.
This starts with expanded the internet.
In the face of coupled with 19, we quickly agreed to continue service for customers facing economic hardship.
Moving to the Fccs keep Americans conducted pledge going further to ensure that all our customers stay informed.
I didn't touch.
We're not disconnecting internet or voice services for failure to pay we were also offering new Internet central's customers to free months of service, providing free extremity Wi Fi access by opening or public hot spots and given all customers unlimited data for no extra charge.
Permanently increasing the speed of our low cost Internet essential service.
Through all this.
Companies working overtime to ensure that our world class network and services have the capacity they need to keep Americans productive.
Formed and entertain during this difficult time.
At both NBC, Universal and Sky News, we seamlessly move to production in home working 24, seven to keep viewers informed.
Hi, guys riveting documentary Corona virus inside the Red zone tape from inside the hospitals in Italy is an example that incredible investigative look at what's happening in one of the hardest to regions in countries.
Prominently featured along with other virus related content, what our X, one and flex boxes, which you can pull up but you're saying Corona virus into your voice remote.
In the U.S., we responded quickly theater shutdown, bringing several of our movies, including tools World tour to customers' homes.
And we swiftly retained in the past nine in millions to next year to give us a strong theatrical slate in 21.
Well the certainly wasn't our plan there may not have been a better time to launch our free AD supported screening product peacock for extended in customers.
Now, it's only been three weeks, but what I can tell you is already pacing ahead of our internal forecast on monthly active users had in time spent viewing.
Still on track to launch Peacock nationally in July.
Moving to our third principal balance efforts to successfully navigate through the crisis, while simultaneously thinking about how to emerge with an even stronger future.
We don't know when we will be through the worst nor do we know the shape of the global economic recovery.
We're not sitting still.
Companywide, we are using this moment to step back looking at our organizational structure and costs.
To that end I'm grateful to have as my partner and Chief Financial Officer, Mike Capital, who helped JP Morgan successfully into where the worst of the financial crisis had emerge stronger than ever.
Oh line as they are CFO.
Mike and I lead our global leadership calls, where we meet virtually with our teams frequently collectively sharing best practices, making real time decisions across the entire organization.
Strategy has not changed but our pace and tactics are being reprioritize. So that we can emerge quickly as industry leaders across each of our businesses.
We've also enhance our already strong balance sheet by accessing the debt market and we currently sit with over $15 billion with liquidity, putting us in an even better position.
At this point I want to touch on some of the specific issues important in many of you on this call.
First as broadband.
Network is operating incredibly well and we stress tested with 700000 diagnostic speed tests on most days.
As you know or cable business comprises roughly 70% of our consolidated EBITDA driven primarily by our connectivity businesses.
While we have limited access to People's homes, as we shoulder employees.
We continue to connect customers with our newly implemented dropping growth strategy.
We've had tremendous success with our self install kits, which are especially easy for broadband.
In fact, we had our best first quarter high speed data net additions in 12 years.
477000, excluding any free internet of Central's customers, and that's up 27% year over year.
Our engineers have done a wonderful job in creating and maintaining a network flexible enough to allow so many of us to learn at work at home.
We've seen an unprecedented shifted network Hughes with a 33% increase in lumps between traffic.
Yes, our network continues to perform exceedingly well.
You're interested you can go door corporate website to read more about our network performance at some amazing staff.
In fact, it is tough to thousand what would have happened at this fire restructure five years ago.
The investments we've been making it our broadband products and network every single year are paying off better than almost anywhere in the world and we will continue to innovate and invest in our network as we had always planned.
Second I want to touch on theme parks.
Today, our theme parks remain closed, resulting in substantial operating losses, which Mike will detail.
We have also delayed construction of the fourth Kate in Orlando at Super Nintendo World, Japan is likely to open a few months past our original expectation.
But there is no doubt that aren't theme parks will reopen and when they do.
We will benefit from the strong pent up demand.
We love these businesses they've been one of our fastest growing for the last 10 years.
They are extremely profitable historically resilient to enjoy high barriers to entry.
I wanted parks team is taking the right near term steps to control costs, while remaining laser focused on putting in place.
Protocols technology and infrastructure, so that when we do reopened our parks are shave and feel that way to consumers.
While we don't know when that will be in the us.
Heartened by what we're seeing in China.
Where we have been building a magnificent park in Beijing.
As we all know the first case of Cobiz occurred in China, right around the Chinese new year.
Going into that holiday, we had 12000 construction workers going full bore.
But it was the result of the virus that number soon went to zero.
As of today, we now have over 15000 construction workers back at our site.
Even more than before the virus started.
I was part of a group recently spoke with Mike Hi Tower, a 40 year Park veteran who is the head of construction living in Beijing.
Reports, we have a safe working environment with many protocols in place.
Im pleased to announce we expect to be open amazingly on time and on budget in 2021.
Beijing may be different but perhaps it shows the arc of this crisis.
Third topic is sports, which have been postponed across the globe, creating significant timing impacts on financial results and forecasts.
We absolutely believe that sports will come back and when they do there's bound to be so much excitement and enthusiasm, which may resonate even more than before regardless as to whether or not stadiums are filled with perhaps.
Bringing these stories to the world is what our sports teams to best.
Given how the sports programming business works in Europe.
Postponement of so many games has been a material event with many customers pausing.
Theres Board subscriptions.
Hi reason to be optimistic as many European teams are already back practicing and we hope that the resumed play as early as May.
Perhaps this will be the playbook the rest of the world uses at allows us to have conversations with our partners as we constructively working together to find solutions to bring sports back.
For this crisis has shined a bright light on just how much video consumption is evolving.
Well such changes disruptive to parts of the company remind us how well we are positioned overall, given our strength broadband or innovation and screening products such as Peacock flex.
Suffocation, a world class content across Nbcuniversal Ensco.
Great content is more valuable than ever even while technology disrupt.
You know in both good times and bad I think about my father, Ralph flu 57 years ago built this company to be fibrin relevant.
Attracting the best talent to work for us, while creating long term value for shareholders.
Ralph was truly the most optimistic man I've ever known.
Same time he lived through some of the worst events like the Great Depression and World War, II, which is still didn't have the need to be prepared for anything.
And Ralph views or deep in my DNA and throughout all of Comcast.
And that means having a very healthy balance sheet.
Strong portfolio of complementary best in class asset.
Hi, good sense to always take care of your people had a belief that scale really matters, particularly in difficult times.
Pulling all of this together.
Wires and entrepreneurial global leadership team able to pivot had a moment's notice.
We are working really hard to find a safe path back.
While we continue to operate at serve our customers every day.
I'll now take you through our first quarter financial results, which under these circumstances I feel were quite strong.
Mike.
Thanks, Brian and good morning, everyone.
I first want to Echo Brian sentiments on the terrible impact comes with 19 is having on society and I sincerely wish all of you well in the is very difficult times.
Now I'll review, our first quarter 2020 results.
Which the effects of cobot 19, only impacted us toward the end of the quarter.
As a result, I'll try where possible to offer some commentary on the current conditions in our businesses, but please understand that circumstances are changing rapidly in this environment.
Making it impossible to offer anything but highly caveated commentary.
That said I'll do my best to be as informative as possible and get it done many questions I know you have for us.
Beginning on slide five with our consolidated results.
Revenue decreased 2.9% to $26.6 billion.
Adjusted EBITDA decreased 4.9% to $8.1 billion.
Free cash flow generated in the quarter was $3.3 billion and adjusted earnings per share decreased 6.6% to 71 cents.
First quarter financials generally reflected strong results in cable, which were more than offset by NBC universal and sky.
Now I'll unpack the consolidated results at the business segment level and let's begin with cable communications on slide six.
For the first quarter cable revenue increased 4.5% to $14.9 billion.
EBITDA increased 6.1% to $6.1 billion and EBITDA less capital increased 10% to $4.5 billion.
We generated 371000 customer relationship net additions in the quarter.
24% increase year over year, and the best first quarter on record with strength driven by our high margin connectivity businesses.
Together residential high speed Internet and business services generated 477000 broadband customer net additions, excluding customers getting free Internet essentials and high risk customers, who continue to receive services following nonpayment.
The 477000 net additions reflect a 27% year over year increase in March the best quarterly net ads, we've had in 12 years and the lowest quarterly churn on record.
Hi, speed Internet revenue increased 9.3% to $5 billion, driven by the strong customer additions and ARPU growth of 3.6%.
Business services revenue grew 8% to $2 billion and revenue per business customer relationship increased 4.1%.
Turning to video revenue was flat in the quarter at $5.6 billion with very healthy ARPU growth of 4.1% offset by video subscriber losses, which totaled 409000.
We believe our residential rate adjustment at the beginning of the year was a significant contributor to both the ARPU increase and the video subscriber loss in the quarter.
Wireless revenue increased 52% to $343 million driven by 216000 additional lines, bringing us to 2.3 million total lines.
Advertising revenue in the quarter was flat at $557 million.
Excluding political core advertising was down 4.6%.
Turning to expenses.
Communications first quarter expenses increased 3.4% driven primarily by non programming expenses, which increased 4.5% in part due to cope with 19 customer facing employee pay increases and bad debt expense, which increased about 40 per se.
Sense to $156 million in the quarter, including an increase in the reserve due to cobot 19.
For the quarter cable communications EBITDA grew by 6.1% and margins reached 40.7%, reflecting 60 basis points of year over year improvement.
Cable capital expenditures decreased 6.9%, resulting a capex intensity of 8.5% down 100 basis points year over year.
Declines in the quarter or cross CP line extensions and support capital, partly offset by an 8.3% increase and scalable infrastructure.
So now I'll touch on what we are currently experiencing and cable communications in the second quarter with a reminder of the earlier caveat on the rapidly changing environment.
Residential high speed data net adds are off to a solid start in April.
Residential high speed data revenue growth rate is expected to ease off modestly due to our proactive response to cope with 19, specifically, our keep Americans connected pledge, which we recently extended to June thirtyth.
We expect to see business services revenue growth moderate to low single digit year over year levels for the second quarter, resulting from the net effect of cobot 19, economic pressures affecting our business customer base.
With some customers, having paused service during lockdowns, while others are requesting higher tiered Internet service as they remain open often in a remote fashion, which makes their high speed data service all the more important to them.
On the video side I mentioned earlier that our first quarter net losses were 409000.
For 288000 higher than our net losses during the same period last year.
We don't see video trends changing as we begin the second quarter and so we could see a similar year over year increase in a number of video customers net losses in the second quarter.
Likely still a reflection of our beginning of year rate increase as well as changing consumer preferences and economic stress.
Cobot 19 began to impact cable advertising at the end of the first quarter and we expect advertising to be down significantly in the second quarter.
Turning to our outlook for expenses in margins.
For programming costs, we continue to expect to increases in the second half of Twentytwenty as a result of anticipated programming renewals.
We continue to approach programming renewals with a high level of discipline, and we expect sports and other programming to eventually return driving viewership and overall engagement.
For non programming costs, we expect to continue to fair for a period of time, both cobot related operating expenses, specifically wage increases for our frontline employees and elevated levels of bad debt expense.
Such expenses are expected to be more than offset by expense declines related to slowdown in activity in some aspects of our business and ongoing cost discipline.
Taking all this together we expect to meet our original full year cable EBITDA margin outlook of up to 50 basis points of year over year margin expansion.
We also expect to meet our full year capex intensity outlook for approximately 50 basis points of year over year improvement driven by an increase in network investments offset by declines in CPG line extensions and support capital.
Now I'll turn to Nbcuniversal is results on slide seven.
Revenue declined 7% to $7.7 billion, and EBITDA was down 25.3% to $1.7 billion, reflecting a challenging film comparison, which was expected as well as the impact of theme Park and theater closures directly resulting from covert 19.
Cable networks revenue was flat at $2.9 billion, and EBITDA was down 1.2% to $1.2 billion, while content licensing and other revenue was strong up 13% due to the timing of certain as five deliverables. In addition to a healthy contribution from our digital businesses distribution.
Revenue declined by 1.5%, resulting from the expected lack of programming renewals combined with accelerated subscriber losses.
Advertising revenue declined 2.2%.
Turning to broadcast revenue was up 8.8% in the first quarter $2.7 billion as result of strong content licensing in Retrans.
While EBITDA was up 30% to $501 million driven by this strong revenue growth as well as a benefit of an industry accounting change related to how constant is amortized.
Advertising revenue was flat.
Taking the television businesses together.
Advertising results at both cable networks and broadcast were impacted at the end of the first quarter due to the postponement of sports, resulting from Cobot 19.
Looking ahead, we anticipate advertising revenue will materially we in from the first quarter due to the continued postponement of sports as well as the shape of the economic recovery as it reopens from Cobot 19 shutdowns.
Somewhat offsetting the advertising declines in the second quarter will be lower sports rights amortization, given we amortize those rights during the period in which games there.
As already announced the summer Olympic games have been moved to 2021 and.
And we remind you that we expect no financial loss in 2020 for this delay.
As a result of this change in Olympics timing. In addition to accelerated subscriber losses, we now expect distribution revenue and the cable networks segment declined low single digit percentages for the full year.
On revenue in the first quarter declined by 22.5% to $1.4 billion and EBITDA declined by 71% to $106 million.
Partly due to challenging comparisons to how to train your dragon and the Grinch further aggravated by exhibitor closings.
In response to these shutdowns, we immediately and proactively moved our three act trickle films to a premium video on demand service.
While we're very pleased with the fee Vod success. The particular circumstances of each film are unique and we will determine our future distribution approach on a title by title basis.
Looking forward, we anticipate film revenue and EBITDA to declined substantially.
Particularly in the second and third quarters as a result of moving our two most highly anticipated feature films. The next installment of fast and furious as well as minions to 2021.
Theme parks revenue in the first quarter decline, 32% to $869 million and EBITDA declined 85% to $76 million due in part to lingering softness in Japan prior to covert 19, which was subsequently aggravated by the closures of Universal Studios Japan.
On February 29.
Universal Studios Hollywood on March 14th.
And Universal Orlando resort on March 16th.
Paul a direct result of Cobot 19.
At this point all of our theme parks are closed and we do not know when they will reopen.
To help you understand the impact of park closures were the parks to remain closed the entirety of the second quarter.
You would expect to incur an EBITDA loss of parks of roughly $500 million in the quarter.
The parks team is balancing near term financial discipline with maximizing the long term value of this business and this is a dynamic effort on their part as the situation continues to develop.
We remain very confident that the parts business will generate healthy returns over the long term.
Nonetheless, we have decided to pause construction of Orlando's fourth gate or universe at this early stage, while we focus on the immediate challenges that cobot 19 presents while the final stages and work continue in full force for Super Nintendo Oral Japan, which is expected to open later this year and Universal Beijing.
King, which remains on schedule to open in 2021.
Now, let's move on to Sky results on slide eight.
As a reminder, I will be referring to skies growth rates on a constant currency basis, consistent with what's reflected in our earnings release.
For the first quarter 2020, Sky revenue decreased 3.7% to four and a half billion dollars and EBITDA declined 15% to $551 million.
Cobot 19 has resulted in the postponement of many sporting events throughout our sky markets, which started to impact our results in the second half for the quarter.
This postponement was the primary driver of the 1.9% decline in direct to consumer revenue and tenant half percent decline in content revenue.
Advertising revenue also decreased by 11.6% due to overall market weakness, which was exacerbated by cobot 19, as well as continuation of the unfavorable impact from a change in legislation related to gambling advertisements in the UK, Italy, which we expect to lap in the third quarter.
Given the significant revenue associated with Sky sports and the fact that sports packages are sold separately. The complete shutdown of sports presents a unique risk of customer attrition if unaddressed.
In light of that challenge our approach has been to allow our customers to pause there sports related subscription payments during this time.
Which mitigates the risk of customer disconnects and keeps us in control of turning this revenue stream back on when sports return.
As we look to the rest of the year, we do anticipate based on reports coming out of each country that most major sports will return to complete their current seasons, although at different times for different sports across the Sky markets.
In terms of financial impact due to the significant pause in sports revenue impacting our residential commercial and wholesale revenue.
Deferral of sports rights cost amortization into the quarter's won't games are played as well as the headwinds we faced with advertising revenue due to the economic pressures of the current environment, We expect Sky high EBITDA for the second and third quarters combined declined roughly 60% year over year between the second and third.
Quarters. The split the result is difficult to predict since it is very sensitive to the proportion of the remainder of season play between the two quarters in each market, hence the commentary on the second and third quarters combined.
While the impact on Sky due to the shutdown of sports is significant and unfortunate.
Approach to customer retention gives us confidence that went sports return for their new seasons later in the year that the Sky sports business will snap back as well.
In terms of skies, 2020 investment agenda, which includes sky Q acceleration and the launch of broadband in Italy.
At 19 will cause some delays and execution, but we still expect to complete them in due course, given their very healthy returns.
Fortunately the impact of covert 19 on global sports and therefore on sky feels to us to be finite.
Sky is a strong business with 24 million customers paying us over $50 per month, and we firmly believe the return to a normalized sports schedule and to shelter in place should enable sky to capitalize on its leading products. Some brands so as to return to a trajectory of long term growth.
Wrapping up on slide nine with free cash flow and capital allocation.
Free cash flow was $3.3 billion in the quarter, and we paid $977 million in dividends.
Consolidated total capital, which includes capex as well as software and intangibles decreased 5.3% in the first quarter to $2.5 billion driven by declines across all of our businesses and we now anticipate a modest year over year decline for the full year.
We anticipate working capital to be roughly inline with last year with declines at NBC UN sky, resulting from delays in content production and sports programming offset by an increase of cable.
We expect the significant disruption from covert 19, EBITDA NBC, you and Sky.
Sure our leverage ratio until the affected portions of those businesses have returned and ramped back up.
As a result, we no longer expect to resume share repurchases in 2021.
Finally, we remain committed to our longstanding balanced capital allocation approach of maintaining a strong balance sheet investing organically for growth and returning capital to shareholders through a strong commitment to our recurring dividend and an eventual return to share repurchases.
So with that I'll turn it back to Marcy, who I welcome to the Comcast TV.
She couldn't have joined at a more interesting time and it's clear that we're very lucky to have are on board.
Thanks, Mike Carmen, Let's open up the conference you any please.
Thank you we will now begin the question and answer session. You have a question. Please press star and the number one on your Touchtone phone.
You wish to be removed from the Q. Please press the pound.
If you are using a speaker phone you may need to pick up the handset first before Kristina numbers.
Once again, please press star one on your Touchtone phone, if there aren't any questions.
Your first question will come from a line of Benjamin Swinburne Morgan Stanley. Please go ahead with your question.
Thanks, Good morning.
Two questions and thank you for all the color.
This morning.
Realizing these are unprecedented times I'm curious if you could talk about some of the maybe longer term structural changes you expect to come out of this across your businesses.
Obviously, there will either stuff is temporary but as you step back from the day to day managing the company.
What are you seeing in terms of opportunities or changes you make to how you invest in the business and sort of your priorities for the company.
Yeah.
Be interested in your thoughts there and then second.
Along the lines of sort of structural changes and opportunities to test new models.
Without getting into the controversy around trolls World Tour I'd love to hear how you're thinking about.
The film business in a post coded world because the the number is that one film seem pretty interesting curious your conclusions on sort of what you take from that experiments so to speak in how you addressed the theatrical business longer term. Thanks.
Thanks, a lot.
Okay, well this is Brian.
Let me begin and pass off to some of my colleagues to help with those questions.
I think.
The long term priorities for the company.
Or are we looking at this whole.
Pandemic conservative thesis for spaces, how do you stay operating and give customers greater service protect your employees. Some other things I said in my opening remarks, I think the second phase is we're all hoping that we're getting into right now.
Maybe a bit ahead of us.
Is.
Getting back into.
Form of going into the office some form of normalcy and then the third is probably where your question is headed.
On the other side quote unquote and a lot.
And so on.
How that second phase really pans out.
What I think for me.
Hi already has have.
Sharpened our focus on taking advantage of disruptions and where can we.
Re examine.
Whether its cost structures revenue opportunities.
And in each of our businesses.
With broadband.
Before we start with gave.
You take a crack at that answer and then Jeff.
Talk about the film business.
Thanks, Brian So there I think there a handful of things certainly broadband related when you think about structural opportunities going forward.
But even before that I'd start with the.
The amazing work that the team did and taking 90% of our call center agents and getting them to work from home, so whether or not that stays at that level don't know.
We will figure out the right balance going forward, but there has to be a structural benefit.
And being able to figure that out very quickly and effectively.
I think from broadband standpoint.
The process, we had already been investing strong product roadmap around self install capability.
But we've enhanced it with the drop and go.
Capability, we leave to.
Could provide telephonic and chat support and those are going to be benefits that I think we'll have going forward and most certainly as Brian talked about that our digital tools being very strong roadmap there between tax five my account in the obscenity assistant that.
Capability. These things are game changers.
And provided I think a nice uptick during this period, but I think a lot of that will be sustainable.
For Jeff you, you pump and I want to welcome you to this call.
Obviously under tremendous.
[music].
Unique circumstances, but with us forever listen it a lot of these calls but.
How about it with both your baby broader view of life and specifically the film question.
Yes, so thank you, Brian Hello, everybody and I will just echo Brian What you said had been of the company for a long time and been a lot of our businesses and it's I'm honored to run this and I think longer term as we come out of this we couldn't be better business positions on happy happy to beer and happy to be part of this team. So so ben on the.
The Peabody question.
And a big chunk of last decade in the film business and there's no question that theatrical is someday again going to be the central element to our business on the phone business. It's how people make their movies and how they expect the movies to be seen with the flip side is the majority of movies, whether we like it or not or being consumed at home and that's not realistic to assume that we're not going to choose.
Range that this this part of the business isn't going to change like all parts of the business within the change. So as you mentioned, we're in the current unprecedented environment.
We had a number of films, including tools that were ready to go that we had worked very hard on invest a lot of money and and we really had a choice do we do.
We delay those movies to a time when we think the theaters are going be back home and again, we did that with with fast and minions.
We sell them or move them to streaming some some of our other competitors have have done that.
Or do we try something new to preserve kind of the premium nature of of movies and that's how we came up with a few bought offering and.
Couldn't be first of all I would say could be more pleased with Donna Langley and her team how they executed as the numbers. As you mentioned are are really interesting.
Providing consumers with with the product that they paid desperately needed at home, particularly if you have such a seven year old and five year olds running around.
And it was good for our employees, who have kept them kept them working on something and give us an ability to make some money on something that we were proud of.
The question is when we come out of this what is going to be the model and I would expect that consumers are going return to the feeders and we will be a part of that and I also would expect that people, it's going to be part of that.
Offering in some way, it's not me replacement, but it's going to be a complimentary element and we're just going to have to see how long that takes them.
Where that takes us.
Thanks, Ben Carmen next question please.
Your next question is from the line of Joseph Jessica Reif with Bank of America Securities. Please go ahead.
I'm sorry.
I'm not sure what happened with the Q, she just disappeared from the Q.
Would you like to go to the next question.
Yes. Thanks.
Your next question will be from Doug Mitchelson with credit Suisse.
Oh, thanks, so much.
Just first question would be on.
Sports investors have a lot of questions on sports in particular, whether you have to pay the leagues and whether you have to pay the sports networks. When they do not have sports on there and I think regional networks sports networks are well understood. So the investor focus is on National Sports networks. I know these are sensitive sort of subject area, but.
Any commentary around that obviously the Olympics are also already understood.
And then I think.
I have a question on wireless actually which is what the bone spring getting approved and closing another viable NVNO partner, obviously very different from what Youre spread and you know could have offered the extent you were trying to improve on your Verizon and you know terms.
Starting early efforts to build out Crs in seabed auctions are coming up it feels like the company has some important decisions to make on wireless strategy. This year I'm wondering if this crisis has impacted those decisions at all whether there is increased bar for cost of capital and turn it internally are based on how you see customers using wireless during this crisis and Thats.
Relative importance to the Comcast Thank you.
Well, let me start Doug.
On sports.
Depending on which.
Part of the ecosystem, you're in as you said regional national U.S. or.
International.
Theres Theres.
Not a connection necessarily to all the contracts will sink in one way or the same they're all very.
Vigil and based on the.
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The nature of the Seaton versus a play offs.
If you can get obviously gets even more.
Complicated so.
However, our focus at the moment is trying to work with each of or.
The various leaks, we are I think ultimately the answers to some of these questions reside.
The leaks.
I have to decide where theyre going to be playing what happens to the.
Sure.
We're just starting a seasoned over the current.
One they've got disrupted and as I said I think we're seeing encouraging.
Movement.
In all over the world, including the use and so I think.
It's very much top of mind, we if we.
Hello.
Good.
Clarification that we can get to our customers works differently in Europe than it does in the U.S.. So I don't know that we have anymore to add.
Formation, we gave at the end the remarks, but our main focus at the hope.
Awful lot of effort being.
To get back quickly and safely.
Hopefully thats going to happen.
But Dave why don't you talk about anything else on sports, but particularly maybe on wireless.
I think you covered it well and sports on on wireless Doug we continue to like.
Our current approach.
Even in this moment.
We see the all the major areas that we've been focused on round broadband churn, yes, there'll be a little bit of.
Impact on retail.
Through this period, but between bring your own device new device launches.
We continue to be real pleased with the trajectory of the wireless business as to opportunities.
Dr on hand or.
The relationship we like our relationship.
Current one that we have.
We'll always going to be staring at ways of.
Making improvements to it overtime.
But the fundamentals are very good and as in regards to spectrum nothing new to report will be opportunistic.
Make sense for our business.
Overall, the third objective is to be profitable at scale, and we feel very comfortable with where we're going.
Okay.
Thanks, Seth comment next question please.
We have Jessica Reif with Bank of America Securities. Please go ahead Jessica.
Hi, sorry, I think the operator disconnect in the some projects. If this question was asked but.
And on I know it came back on something that sports, but sky and NBC, we're still paying for sports.
And obviously, there's nothing on so I'm, just wondering how youre thinking about.
Contracts as they come up what will you get and return how does this position you for the next round.
On peak.
You said it was great starts at the first three weeks can you give us color on what you're seeing and why not change rollout plans oily elements seem to be in place for direct to consumer service.
In this environment everyone's home.
And.
Given the targeted advertising it just seems like the perfect opportunity.
And finally.
I'm not sure if needed we missed this but have you said.
I haven't seen much on costs going forward do you feel like your businesses are rightsized for the current environment and what's going on effects. So many of NBC you businesses theme parks film TV et cetera.
Thank you.
So let me Jessica will come back to the call we detailed on sports a little bit so but.
Let me.
Let me ask Jeremy.
Since Sky sports.
As a separate subscription for those that aren't familiar with it to different.
Business approach and.
People have caused the subscription which is I think very intelligent approach.
We're seeing those for me as Jeremy to talk about that and then why do we take your two questions on Peacock costs General, which I think or.
Jeff to pick on what Jeremy finished.
Okay.
So we.
You said.
The schools customers as Brian said in the pools.
Many of us tools customers subscriptions, we knew boots.
So we thought was a very sensible way to manage.
We're essentially the school season going to like full.
The pro tools, we are good.
The level comes later in 2000 tool is minimal so we think about positions as well to bring customers back.
Full season.
In terms of negotiations with sports rights holders, we all can be pretty much where we believe that loan.
With the range of things.
The how do we get back which I think everybody's.
So looking.
With rights holders.
Good.
We continue to create a significant bottom goods for screening cold box solutions will.
So the combined over the summer as Mike Mike.
Lending so the feature in speed.
Should we shouldn't that new contracts.
Principal.
I appreciate when you change because we still view and the volume we see we believe begins downhill unit disciplined way you wouldn't be advantages I think.
The way schools, we sold in Europe.
Typically on short cycles.
We will be through the pumps for 2000 tons, given the opportunity, where we think new some deliveries.
Thats required that we see different we take a different view in terms of volume to get another way and obviously, we'll we'll thinking.
Time, but particularly at the moment.
In June.
Exemption when it comes to concoct.
Yes, let me jump in Hi, Jessica let me take Peacock in them and then.
The cost so.
Peacock, it's very early Jessica were three weeks and or so not even three weeks and so I'm reticent to make any conclusions but.
Our goals on launching first with Comcast were twofold, one one get the product right technically and to learn some things about how people are using it. So when we rolled out nationally we can go out with the best product.
The early results as I said, it's a couple weeks in but they are very very encouraging.
Particularly the amount of time that each person spending on the platform. We have our product is very very deep.
Offering we obviously have been launch with a lot of our splashy originals because of Kogut, but we have so much on there that people are getting on there and they're spending a lot more time than we had originally anticipated which is great news.
[music].
So why not pull it up and launch it earlier, we're in a marathon now the sprint will not we haven't that support service, we don't we don't see the value.
Can you subscribers and we want to make sure the product is right before we launch in July. So so this is kind of a measured strategy and important I think it's the right strategy for Peacock and we're encouraged and even more optimistic on it.
Long term.
Costs. The the question about whether we're right size on costs, given where the environment is that it is the answer is probably no on and we're addressing that pretty aggressively trying to be thoughtful within our business, though and Theres. Obviously, a couple different kinds of businesses. One one businesses there are businesses, what the theme park business.
Sure.
The revenue is to shut off and we have to address for costs, but we're going to come back at some point there we have a significant amount of our costs and can flex even further down at this goes longer and deeper than we see right now and then elsewhere in our business, where we're seeing.
Both short term and structural declines I think what we're trying to do is address or cost base going away.
Out of this.
Different way that we looked like a different company and we can.
Shipped our business as we adjust our cost base, but we're we're spending a lot of time on our cost base and certainly over the next weeks and months, we'll make pretty significant adjustments there across our business.
Good Thanks, Jessica having will take the next question.
Next question is from the line of Craig Moffett Moffat Nathanson. Please go ahead.
Thank you.
Two questions if I might.
One on the cable side of the business.
What are you seeing with respect to small medium business in your business services segment and.
How should we think about the exposure of that segment in particular.
To the crisis.
We have share shifts continued and.
Is that perhaps enough to offset the pressure that those businesses are likely to be feeling.
And then.
In the Sky business.
If you.
Part of the strategy I think for that business has always been to try to grow the OTI TV platform in Europe, given the strength that that brand.
Is there are way that you can accelerate that transition now.
Just given that there they're experiencing a lot of the same lockdowns that we are here.
To try to sort of build the lifeboat, if you will for where the traditional distribution business.
Actually if I can squeeze and just one simpler and more technical question on theme parks. Just can you give us an idea of what the breakeven occupancy or attendance rate would have to be when you reopen in order to be profitable.
Okay.
That is touched on all parts of the company so what we start with.
You, Dave on SMB business services and will go over to Germany, and then maybe Mike you take the parks question, if you want Jeff.
Hi, Brian Hey, Craig so.
Well, we're experiencing right now.
Is primarily.
As you noted in SMB issue.
The number of businesses, where Mike mentioned earlier, where weve pause there accounts Theres no question Theres been an uptick and increase but the rate that increase is declining.
And so you take that it's not a huge number but it's we're working with our clients stay very focused on that.
And we'll be some impact for sure as we go into Q2.
But overall to counter as you referenced in SMB, we're still the challenger.
We are doing around 40% or so penetration. So there the fundamentals of SMB are still very good and theres penetration upside we're going to go after it and we still are getting a fair amount of connect business even during.
This period, so our teams on it we've had to redeploy full people that were out.
Working in communities are now.
Doing driving demand in other ways and it's been and we're getting some effective responses. So we'll stay on that.
Last point right turn it over is over the.
Last decade plus.
Since launching where we started off with SMB still the you know the primary part of our business, but we have most definitely materially diversified.
To mid sized and enterprise business now. So these segments are really important for US right now will be in the future swear most of the penetration upside is so.
Really proud of our fill stemper the business services team great local operations that have moved on a dime to handle a lot of this at this moment.
But we certainly are planning for multiple scenarios will work with our small business clients, we want to be a partner with them getting them through it.
And so I'm optimistic coming out of it and we'll be there for them when that happens.
Thanks, Jim.
Yes, Craig it will Puma.
Big.
One of our mix.
The string 12, both uli.
But we will do going kopelman too.
Two main services as well, so acute which should be the priority for us as you know going into that show them. So frustrating thing is going really very well it was lower be slightly.
Slightly.
Are you step back.
Because of the crisis book It reminds me a district move up.
Concentrated on HCT overall streaming services, we're already providing sky Q directly over fiber literally who will be providing us with good alternatives in different ways to get the customers.
This environment.
And lastly, it's Mike on your parks question, Craig It's something.
Well short of typical seasonally through the year, we're operating at typical seasonal levels, which are for the most part of the year well below.
Full capacity anyway, and so then versus typical I would I would guess that were breaking even.
If certainly when we get to sort of 50% of typical which will be well well below capacity on average and I think another point would just be versus the number I gave for 500 million in second quarter loss if the.
If there if the parks are closed for the full quarter as Jeff said, if they're close longer theres ability to flex and do more and change that long term rate. If we're staying closed but on the other side of that if we open and have lower attendance at both at the lower end because our priority is going to be to make the park safe and so.
We're not going to push for attendance, but a pretty low levels of return attendance.
Things ramp up will be in better shape than.
For the parks to be closed.
Thanks, Craig carbon next question please.
Your next question is from the line of Philip Cusick with JP Morgan. Please go ahead.
Hey, guys. Thanks.
Number one can you say through the puts and takes to cash flow. This year versus last I know, there's a lot of differences between the timing of cash going out the door and some of the amortization, especially at NBC and then second top guys just taking pride in keeping leverage low.
Take advantage of disruption opportunities I understand not buying stock next year, but would you consider buying assets if things come to market. It stress levels or is de levering from here still your top priority. Thanks.
So I'll take that it's Mike Phil So in terms of puts and takes on on cash.
That said for total capital spend.
Got it.
Were down 5%, 5.2% in the first quarter.
Declines across all businesses and I think the natural.
That will naturally be where we expect to full year to be which would be sort of modest modestly down in.
2020 versus 2019 cross all of our businesses for the host to reasons that new some things just getting slowed down some things getting caused.
Eric Universe, so in any event total capital down modestly for the year and then on working capital. It's the toughest one to predict lots lots of volatility and unpredictability in it but that said my commentary there was that we expect to be roughly flat.
For the full company best I can tell as we're sitting here now.
And Thats really on the back of increases that we'll see in the cable business. This year, we got an extra payroll period will do political ads in the fourth quarter that don't get paid into two until we're in the first quarter 21.
Ceteris, So and then just a little bit of expected slowdown in consumer payments is wide working capital will be up year over year in cable and that offsets.
Clients at NBC, you and Sky, which is caused by slowdown in production typically.
In the in the in the TV in film businesses, and a little bit of impact on sports, but I'd caveat that one as we continue conversations with especially with sports related partners like the Olympics et cetera, those numbers could change for the over the course of the year, but those are the those the various puts and takes.
And then on leverage ratio.
Important to us that we get back to the leverage ratio commitments. We gave to the rating agencies that continues to be a top priority I think obviously, we're going to be delayed and getting there because of the pressure on EBITDA that comes from.
Cove, it particularly related to parks, so take time those to ramp backup.
I think our focus as Brian said, we've got lots of opportunity in our existing businesses and that'll be prior to number two and.
I would I would never say we wouldn't be.
Taking a look at things that are sort of inorganic opportunities, but the bar be pretty hot.
I just would only added definitely that last part or focuses the business as we've got we feel we're in.
Wonderful position again as I think about the timetable.
No parks are going to reopen and we know sports is going to get back. So these are temporary hit and I think.
Being in a home and watching sports I think has a pretty safe bet that that's going to return.
Pretty quickly to a great business and then I look at.
Majority of the company being broadband in People's homes, and people, who are spending more time to their homes, so thats kind of going to change.
Quickly and that's a great.
For Trinity to develop new products and relationships and keeping those relationships. So.
As we've looked at as we talked as a team I don't think we would treat solutions with anybody we like our company, we like our hand, and we're going to be focused on.
Improving premiere.
Thanks, Phil Carmen, we have time for one last question.
Your last question will come from a line of John.
Yes.
Okay, great following up on those latest comments on high speed data, obviously, great numbers, even without the connect America and the free subs.
Can you talk a little about the strength there in terms of is it share gains given the ease of self installation or are you guys seem penetration gain and sort of.
Wiring up well were previously wireless only customers given the need for the work from home environment and then.
I think you know you guys gave some sub guidance on the video side and some revenue guidance or the high speed data side, but.
Can you talk about how you expected the sub trends to sort of play out through the course of the year and whether you think the trends you're seeing now under its sort of.
More related to the to the outbreak or or could you see some secular trends in some of that some follow through given the demand for connectivity. Thanks.
Well I'll start Dave I think you can help on that I think the.
I think we have a superior product and we've been investing in our network we've.
The.
Focus we've seen a shift calming customers behaviors, we saw this.
Really put our emphasis on innovating and broadband whether its speed coverage control of various things that next five stands for brand itself.
And I think a lot of this.
Who is happening before the risk over at the.
Momentum that has been terrific and Dave and his team I think are or.
Really really all over it and we're very pleased both from.
I think side service side from marketing and consumer perception.
So.
Why.
The Spi continued.
At some level. If you then have to put that in the face of huge economic shifts in the country.
Temper.
Regardless to what we don't know.
The economic outlook looks in the slow recovery.
But in terms of focus I don't think who is a better.
Focus that we can be how big that Dave in the team so Dave when you talk a little more about that.
Thanks, Brian and John So you know as Brian said this has been our top priority.
Good news to be our top priority going forward.
And our mission has been to redefine what great broadband is and Brian hit its we're investing and we have a really great.
Product roadmap that really hits on all of it speed coverage control and now streaming.
With the addition of flex and all the content and comes with it so in this moment.
Robust reliable network can consistently handle this uptick and data consumption as well as all the devices with the Wi Fi coverage in the home we've invested in built the network that can stand up to this moment and it's going to be important going forward. So.
We're not standing still we're going to continue to improve the value of broadband I mentioned introducing flex.
Comes with are included in our broadband service and this is focused for the broadband only segment.
And Jeff mentioned Peacock already.
This comes with.
Peacock comes with flex high levels of engagement with content to great.
Video addition to the broadband service so.
But to your main point, John even in this environment.
Lower move activity.
Suppressing out some of the activity, but there are many sources of new broadband share opportunity and we continue to compete per share from the primary competitors Thats a big source business, even right now that we take share from from folks, we just have a better product and.
That's proven out people need it right now and we'll continue to there's still a lot of DSL, there's some nevers never broadbands out there.
You had mentioned mobile only people are art.
I know you need broadband and I think once the experience.
Hi is.
We're optimistic about them staying with it so.
Along with historic record churn I think we're proving right now that we can attract new business for broadband as we go forward. So you look at the 477.
Q1.
We feel we took out there is no internet essentials in that number.
Theres, a mock appropriate reserve that we took out for.
Bad debt projections.
Not material things in Q1, but we took it and we think that going forward April as Mike mentioned is a very good start.
It's impossible to say, how things are going to play out through the quarter, but the fundamentals and the momentum that we have I think we've proven that we can drive connex and that we have will maintain solid churn. So I'm optimistic about our momentum as we go into the rest of the year.
Great. Thanks, guys. Thank John for that concludes our first quarter 2020 earnings call.
You all for joining us this morning, I'm pretty stable.
Thanks, everybody.
Thank you.
There will be a replay available on today's call starting at 12, P.M. Eastern standard time and will run through Thursday may just seven at midnight Eastern standard time.
Alan number is eight bye bye.
By nine can you 056.
The conference I'd number is 93348 or nine.
According to the conference call will also be available on the company's website, beginning at 12 30 PM Eastern standard time today.
This concludes today's teleconference. Thank you for participating you may now disconnect.
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