Comcast Corp - Class A (CMCSA) — Q4 2020 Earnings Call Transcript

Thank you, operator, and welcome everyone. Joining me on this morning's call are Brian Roberts, Mike Cavanagh, Dave Watson, Jeff Shell, and Jeremy Darroch. Brian and Mike will make formal remarks, and Dave, Jeff, and Jeremy will also be available for Q&A. Let me now refer you to slide 2, which contains our Safe Harbor Disclaimer, and remind you that this conference call may include forward-looking statements, subject to certain risks and uncertainties. In addition, during this call, we will refer to certain non-GAAP financial measures. Please see our 8-K and trending schedules for the reconciliations of these non-GAAP financial measures to GAAP. With that, let me turn the call over to Brian Roberts for his comments. Brian?

Thanks Marci, and good morning everyone. I'm really proud of our fourth quarter results and look forward to giving you a glimpse of what we’re focused on and excited about once we come out of this pandemic. Our most recent performance was highlighted by Cable, which grew EBITDA by over 12% and net cash flow by 26%. These are the best results of the year and that of any fourth quarter in over a decade. We also have good news to share on our Park segment, which reached breakeven excluding Beijing, even with Hollywood being closed. Our premium ad-supported streaming service Peacock now has 33 million sign-ups within just six months of its nationwide launch. And encouragingly, our customer and revenue base essentially returned to pre-COVID levels this past quarter. Clearly, our company is a strong testament to the tough decisions made by our leadership team and the excellent execution and coordination by our dedicated employees. Looking back over the whole year, 2020 was one of the most uncertain and challenging periods that any of us can remember. But we rose to the occasion, ensuring the safety and protection of our employees, providing customers with unparalleled service and innovative products that they relied on more than ever, strengthening our investment-grade balance sheet, and continuing to invest for long-term growth and success. This year's Cable results were nothing short of exceptional, hitting a number of company records. We generated 2 million net broadband additions for the year and 538,000 for the fourth quarter, reaching record low churn. High-speed internet drove our highest ever full-year net customer relationship additions of 1.6 million, bringing us to 33 million total customer relationships. Yet with just only 50% penetration of our footprint, there remains plenty of opportunity for future growth. We also delivered outstanding EBITDA growth of nearly 9% and cash flow growth of 16% for all of 2020. Broadband is the cornerstone of what we do, powered by our robust, flexible, and reliable network. Many years of investments we've made have been on full display. We've continued to enhance our market-leading competitive position while keeping people connected, protected, informed, and entertained by proactively managing our network, increasing broadband speeds, expanding our internet essentials program for low-income households, providing payment plans for customers struggling the most, and offering Peacock and Flex for free. This pandemic has forced us to rethink the way we operate and service our customers. Immediately, we moved all of our care reps to work remotely from home, which has gone so well that we're leaning towards embracing this model permanently. In addition, we promoted further adoption of our digital self-help tools such as Xfinity Assistant, which are available 24/7. We also expanded our self-installation eligibility. Now, over two-thirds of our customers are connecting to our services this way. We are working hard with our communications and marketing efforts to enhance awareness of all we have to offer, which enables us to take costs out of the business while delivering a better experience for our customers. In fact, in the past 12 months, we've reduced agent-handled calls by over 16 million and truck rolls by 1.6 million, all while adding more than 1.5 million net new customer relationships. Our efforts to reduce costs have been extremely successful. But what's even more exciting are the investments we're making to grow the overall business. A great example is Flex, which is offered to all of our broadband-only customers for free, so they can connect seamlessly to the streaming services they love. Within the first half of this year, Flex, along with X1, will be carrying all of the top streaming apps in the United States. We just added HBO Max, we'll be adding Disney Plus in the near future, and we have many more on the roadmap. Flex has been a major win for us, and we continue to have really high hopes. Xfinity Mobile just came off a strong fourth quarter with nice sequential improvement in customer additions, resulting from a number of significant changes as we fully integrate mobile into our core Cable operations and reprioritize our sales channels. We're really excited for 2021 as we've recently expanded parts of our MVNO agreement with Verizon that will enable us to improve the range of offerings and acquire more customers more profitably. As we said from the beginning, an MVNO led capital-light wireless model is the right one for us and has even more strategic opportunity in the years ahead. Business services came back faster than we expected. This quarter, we added 26,000 net new customers and generated revenue growth of 4.8%, the highest we've seen since the pandemic began. With less than 20% share of an approximately $50 billion total addressable commercial market in our footprint, we saw plenty of runway. All in all, Cable had a fantastic 2020, and we look forward to a very strong 2021 and beyond. While the global pandemic has had a more significant impact on NBCUniversal, we took advantage of this moment to make a number of changes in both management and operations which sets us up for success. The most notable example is the reorganization of our Cable Networks and Broadcast Television businesses, which are now combined along with Peacock in a structure meant to drive long-term cost efficiencies and revenue opportunities. We finished the year having renewed a number of carriage agreements with many of our valuable distribution partners, putting us in a position of strength as we enter 2021. Peacock has had an exceptional start, exceeding all of our internal targets. This premium hybrid AVOD service, which has a light ad load and is unlike any other, offers a breadth of content that appeals to just about every demographic at an unbeatable consumer value, much of it for free. Momentum has further accelerated with the addition of The Office, which we own and began streaming exclusively on Peacock as of January 1. Not only is The Office driving incremental users, but these viewers are naturally finding and watching other programs on this platform like Parks and Rec, Yellowstone, our latest original Saved by the Bell, mega-hit movies from Universal and other studios, and sporting events such as the Premier League, Golf, and even an NFL Wild Card game. Earlier this week, we announced that Modern Family will be coming to Peacock next month, followed by the WWE in March. In Film, our decision to release our titles direct-to-consumer via premium video on demand when theaters were forced to close has proven to be profitable and the right move for us. While we look forward to when we can enjoy the theatrical release of many franchise films such as Fast 9 and the next Minions and Jurassic World, we will lean into what has become a successful hybrid distribution model. COVID had the most direct impact on our theme parks, which were either closed or running at limited capacity for the bulk of 2020. But I'm pleased with how quickly we were able to reopen Orlando and Osaka while ensuring the safety of our staff and guests. We continue to provide an amazing entertainment experience. Our guests are responding, confirmed by our steadily increased attendance and our most recent financial results. What we saw this fourth quarter, especially in Orlando, gives us even more conviction in the momentum that our theme parks will experience when we reach a sustainable recovery. We may experience some near-term setbacks with the most recent pickup in COVID cases, but I'm optimistic as ever about the long-term trajectory of this very special business. Sky had a strong and encouraging fourth quarter. We added net new customers in every market, bringing our customer base essentially back to pre-COVID levels. The same can be said for revenue, which was essentially flat from what we generated in the fourth quarter of 2019. While we continue to make meaningful progress on our strategic initiatives, Sky Q, which integrates streaming, has surpassed 60% penetration in the UK and is poised to continue with recent additions of Disney Plus, Discovery Plus, and Amazon Prime Video. We're really pleased with the success of Sky Originals, which contributed to the 20% increase in viewership on our Sky Entertainment channels during the fourth quarter and all of 2020, reaffirming our commitment to creating Sky Studios and expanding original programming. While the recent wave of COVID infections and related lockdowns across Europe are once again creating disruption, we're implementing the same protocols and procedures that worked the first time around. We have confidence in a similar pattern as this latest lockdown recedes. We really look forward to the second half of this year when we will also start to see the benefits from the reset of major sports rights contracts and cost savings that should result from a new, leaner operating model. And we're still on plan to double 2020 EBITDA over the next several years, as Jeremy recently laid out. Speaking of Jeremy, I want to thank him for his exceptional leadership of Sky and for his partnership since the acquisition. He and the team have established a unique world-class brand and a strong, well-run business that's now fully integrated. I'm thrilled for Dana Strong, who has now taken over as CEO of Sky. Many of you on this call have met with Dana since she joined our Cable business as Head of Consumer Services back in 2018. She is an accomplished executive with a wonderful ability to transform, inspire, and drive positive change. On top of all that, she also has over 20 years of international experience, with nearly half of it spent in Europe. 2021 offers a lot of promise for Comcast and hopefully for the entire world. While the first half will be more challenged than the second due to the most recent strain of COVID, we’re really encouraged by the promise of the vaccine, which is the first step in putting the parts of our business that have been most impacted back on the path toward growth. This optimism is shared by our Board of Directors, which this morning announced an increase in our dividend for the 13th consecutive year. I'm also pleased it is now our expectation that we will return to repurchasing shares in the back half of this year. While 2020 was not what any of us had imagined a year ago at this time, our execution, cooperation, and fast decision-making enabled all parts of Comcast, NBCUniversal, and Sky to respond and manage through a difficult environment remarkably well. I'm truly proud of what we have accomplished, and our fourth quarter shows just how well this company is positioned to succeed. Mike, over to you.

Thanks Brian, and good morning everyone. Now I’ll review our fourth quarter 2020 results and make some comments on current conditions and where possible on the year ahead. Let’s begin on slides four and five with our consolidated results. Revenue declined 2.4% to $27.7 billion for the fourth quarter and 4.9% to $103.6 billion for the full year. Adjusted EBITDA declined 15% to $7.2 billion for the fourth quarter and 10% to $30.8 billion for the full year. COVID-related severance and restructuring charges were $590 million in the fourth quarter and $828 million for the full year as we took actions to position our businesses for success in a post-COVID world. The corporate and other segment includes these charges and also includes Peacock for its launch year. For 2020, Peacock generated revenue of over $100 million while EBITDA losses approached $700 million. We continue to expect that EBITDA losses for 2020 and 2021 combined for Peacock will total roughly $2 billion. Adjusted earnings per share declined 29% to $0.56 for the quarter and 17% to $2.61 for the year. Finally, free cash flow was $1.7 billion in the quarter and $13.3 billion for the full year, reflecting the decline in EBITDA and the benefit from the reduction in working capital and capital expenditures, in part due to the pandemic. Now to review our business segments, starting with Cable Communications on slide 6. For the fourth quarter, Cable Communications revenue increased 6.3%, while EBITDA increased 12%, and adjusted EBITDA led capital grew 26%. For the full year, we grew customer relationships by 1.6 million, a 41% increase year-over-year, with 455,000 net additions in the fourth quarter, driven by high-speed internet where we added 2 million net new residential and business customers this year and 538,000 in the fourth quarter. These record customer additions were the primary driver of our high-speed internet revenue growth of 13% for the quarter and 10% for the full year. Other revenue highlights include acceleration in both business services and wireless. Business services posted 4.8% revenue growth and 26,000 net new customer additions, primarily driven by improvement in small businesses. Wireless revenue grew 36% with 246,000 net new lines in the quarter, bringing us up to 2.8 million total lines at year-end. Wireless is a strategic priority for us and should accelerate on the back of several actions we have taken. First, we’ve expanded our Verizon MVNO agreement. Second, we fully integrated mobile into our core operations, and third, we’ve refined our marketing and activated all of our sales channels, and we’re seeing a nice lift in our retail stores, which are now fully opened. For Video, revenue declined 0.7%, with higher rates implemented in the beginning of 2020 more than offset by subscriber declines, including a 248,000 net loss in customers this quarter. Advertising revenue increased 34% year-over-year or 2.2% excluding political, which almost doubled what we generated in the last presidential election cycle in 2016. Turning to expenses, Cable Communications fourth quarter expenses increased 2.4%. Programming expenses were up 7.2%, primarily due to the number of contract renewals that started to cycle through in 2020 combined with annual escalators in existing agreements. Non-programming expenses declined slightly, reflecting lower technical and product support and customer service costs, which were partially offset by higher advertising, marketing, and promotion spend to drive top-line growth and higher expenses associated with the increased political advertising activity this quarter. Non-programming expenses per customer relationship decreased 5.1% despite our record customer growth. Cable Communications EBITDA grew by 12% in the quarter and 8.6% for the full year, with margins reaching 42.1%, and improvement of 170 basis points, excluding the RSN adjustments that impacted results earlier in the year. Cable capital expenditures decreased 1.1%, resulting in CapEx intensity of 13.5%. For the full year, capital expenditures declined 4.4%, resulting in CapEx intensity of 11%, our lowest full year on record and an improvement of 100 basis points year-over-year, exclusive of RSN adjustments, driven by lower spending on customer premise equipment and support capital, partially offset by higher spending on scalable infrastructure, which was driven by our ongoing investment to enhance the capacity of our network to support increased data usage. Turning to the current environment, high-speed internet customer additions remain healthy and we have all the pieces in place for 2021 to be a very strong year. We also have to remember that 2020 was exceptional on many accounts. And because of that, we view 2019, which was also very strong for us, as a more appropriate year against which to benchmark our performance. Turning to video, we expect the higher video rates we implemented at the beginning of this year, resulting from our current programming renewal cycle, to drive video subscriber losses back to the levels we’d experienced in the first half of 2020. Our video strategy is centered on profitability. We do not chase unprofitable video subscribers, as we can now offer Flex for free to those who prefer a streaming-only entertainment option. Looking to the full year, we expect Cable Communications revenue growth to exceed the 3.4% we just reported for 2020, as we remain focused on driving our connectivity businesses with better year-over-year comparisons in the first half. We expect programming expense growth to increase at high-single-digit levels similar to the fourth quarter, as programming carriage renewals roll through in 2021. The program expense growth is expected to moderate in 2022 and thereafter. Non-programming operating expense growth should normalize at a low-single-digit increase to 2019 levels, as we support the higher level of customer relationships and accelerate growth in our wireless business, which we expect to achieve standalone profitability in 2021. With our consistent discipline on expenses and capital investment, coupled with the trends at work as we remain focused on connectivity, we are confident in our ability to increase profitability, expand margins, and improve CapEx intensity, both in 2021 and thereafter. Now let's turn to Slide 7 for NBCUniversal. For the fourth quarter, NBCUniversal revenue decreased 18% to $7.5 billion, and EBITDA decreased 21% to $1.6 billion. Cable Networks revenue was down 6.4% in the fourth quarter, driven by a 38% decline in content licensing and other revenue, while distribution revenue was flat compared to a year ago, reflecting the absence of carriage renewals, combined with modest sequential improvement in subscriber losses. The delay to the start of the NBA and NHL seasons had a negative impact on our advertising revenue, which declined 4.2%, while the related shift of sports rights amortization out of the quarter was a benefit to the EBITDA, which grew 22% year-over-year. For the full year, Cable Networks EBITDA increased 4%, primarily driven by the sports-related impacts of COVID. Fewer sporting events in 2020 contributed to lower distribution and advertising revenue, as well as lower programming and production expenses of $655 million year-over-year. Seasons were shortened earlier in the year, and current seasons were delayed, pushing a number of events and the related rights amortization costs to 2021. So, looking to 2021, we expect healthy distribution revenue growth as a result of recent successful carriage renewals. We also currently expect significantly more sporting events compared to 2020, which would result in higher advertising revenue, but also a significant increase in sports-related programming and production costs, equating to a low double-digit decline in Cable Networks EBITDA this year. Turning to Broadcast, revenue decreased 12% in the fourth quarter, due to a 39% decline in content licensing and a 9.6% decline in advertising revenue, partially offset by another quarter of double-digit increases in retransmission consent fees. The content licensing revenue declines at both Broadcast and Cable Networks were timing-related, as sales to streaming platforms, including Peacock, were more heavily concentrated in the first nine months of the year. We also had a difficult comparison to a significant library deal in last year's fourth quarter. The decline in advertising revenue was driven by lower ratings, partly due to the delayed launch of our fall season. This was somewhat offset by record levels of political advertising at our local stations. The lower revenues were partially offset by a decline in operating costs, reflecting lower content licensing, and the delay in production due to COVID-19 resulting in a decline of 24% to $356 million in Broadcast EBITDA. Filmed Entertainment revenue declined 8.3%, and EBITDA increased 65% to $151 million for the fourth quarter. Theatrical revenue declined 70% due to theaters being either closed or operating at limited capacity. While content licensing increased 23%, driven by PVOD. Expenses were significantly lower due to fewer releases as a result of COVID-19. In 2021, we hope to debut a number of our franchise films in theaters, such as Fast 9 and Minions 2, but the situation remains fluid and we're still adjusting our 2021 plans to maximize value, as evidenced by our recent decision to push back the release of Boss Baby 2 from March to September. Theme Parks revenue was $579 million in the quarter, with an EBITDA loss of $15 million. These results reflect Universal Orlando Resort and Universal Studios Japan operating at limited capacity, while Hollywood remains closed. Results also include $45 million of Universal Beijing pre-opening costs. For 2021, keep in mind that the first quarter tends to be seasonally light in terms of attendance, and we also expect an increased COVID impact given new restrictions in Japan, which have also caused us to delay the opening of Super Nintendo World. We are pleased that Universal Beijing remains set to open this summer, with pre-opening costs ramping to $300 million in the first half of this year. One last item I'd like to highlight, we will be changing the way we report for NBCUniversal starting in the first quarter of 2021, with the largest impact being to our television businesses, as we combine Cable Networks and Broadcast into one segment along with Peacock. Now let's turn to slide 8 for Sky, which I'll speak to on a constant currency basis. Sky revenue for the fourth quarter declined 0.9% to $5.2 billion, reflecting a 2.8% decline in direct-to-consumer revenue, driven mostly by our hospitality or pubs and clubs segment, which was challenged by additional COVID-related lockdowns during the quarter. Excluding hospitality, direct-to-consumer revenue was essentially flat year-over-year with solid low-single-digit growth in the UK. Somewhat offsetting the decline in direct-to-consumer revenue was a 10% increase in content revenue as we monetize our original programming. While advertising revenue grew 3.9% as Sky outperformed a challenged advertising market helped by a strong performance in the UK. Sky added 244,000 net new customers in the quarter, bringing us essentially back to pre-COVID levels of total customer relationships, with additions in all markets, driven by a very healthy streaming business. We've also seen strong uptake in our broadband and mobile products in the UK. Sky EBITDA was $139 million, as the fourth quarter was impacted by a number of expense items, such as incremental sports rights amortization related to the shift of sporting events that have been delayed as a result of COVID-19, higher investments in entertainment programming, costs related to the launch of our new Sky channels last May, as well as higher marketing spend to promote strategic initiatives such as Sky Q, growth in our mobile product in the UK, and broadband in Italy. Looking ahead, we would characterize 2021 as a tale of two halves. The first half is under pressure due to the recent increase in COVID-related restrictions to the extreme levels we experienced at the beginning of the pandemic. With the government mandating the closure of pubs and clubs, as well as many retail outlets, we are experiencing weakness in hospitality and advertising, and we now expect Sky’s first quarter revenue to decline slightly year-over-year. We also expect first half expenses to be elevated when compared to 2020 as higher sports rights amortization, resulting from sporting events being postponed from 2020 to 2021, will be with us through the second quarter. In non-sports related costs, we’ll see an increase as we grow broadband and mobile in the UK, broadband in Italy, and launch the SMB business in the UK later this quarter. In the second half of 2021, we expect a quick recovery in hospitality and advertising revenue once these latest restrictions are lifted and an acceleration in EBITDA growth from the tailwinds related to our major sports rights resets and more efficient operating structure. I'll wrap up with free cash flow and capital allocation on slide 9. We generated $13.3 billion in free cash flow and paid $4.1 billion in dividends to our shareholders in 2020. Consolidated total capital, which includes CapEx as well as software and intangibles, decreased 6.4% for the year to $11.6 billion, while working capital improved by $2.2 billion to a decline of $178 million for the full year, both reflecting an impact from COVID. Looking to 2021, we anticipate total capital will remain relatively flat to 2020 levels, while the working capital drag will increase relative to the levels we saw in 2019, which is the more appropriate comparison, due to an increase in content investment, our broadcast of the Olympics, and the reversal of COVID-related one-time tax deferrals. Turning to capital allocation, our strategy has always been a balance of several important priorities, maintaining a strong balance sheet, investing in profitable organic growth, and returning capital to shareholders. First, on our balance sheet, we've made great progress reducing net debt from $108 billion post the Sky acquisition at the end of 2018 to $90 billion at the end of 2020. Second, we remain focused on organic investment in our businesses to grow the long-term earnings power of the company, including our CapEx investment in Broadband and Parks and continued investment behind other growth initiatives where we see a strong return on investment such as Xfinity Mobile, Peacock, Flex, Sky Q, and Broadband in Italy. Third, we are committed to returning capital to shareholders through dividends and buybacks, and we have a proven track record. We have increased our dividend for 13 years in a row at a 17% CAGR, significantly in excess of the S&P over that same time period. In addition, we have a demonstrated history of buying back stock, having reduced our share count by nearly 20% between the NBCUniversal and Sky acquisitions. In 2021, we believe we will be able to return to our historical practice of returning ample capital to our shareholders. We are again raising the dividend by $0.08 a share to $1 per share, and we are planning to return to buying back our stock. As Brian mentioned, our hope is to start in the back half of this year, gradually ramping up to historical levels while we continue to pace towards hitting our intended target leverage levels, which we currently expect to reach by year-end 2022. The specific timing and magnitude of our buyback activity will be subject to improvement in our businesses most impacted by the pandemic and the implications related to potential changes in tax policy. So, thanks for joining us on the call this morning. And I'll now hand it back to Marci to handle Q&A.

Thanks, Mike. Regina, let's open the call for questions please.

Thank you. Good morning. One for, I guess, Brian and Dave on Cable, and then one for Jeff on NBC. So obviously, really strong customer metrics in 2020, particularly on the broadband side. And I was curious, when you look at what transpired last year in terms of the increased demand for the product and also how you guys operate in the business. What are the things that you think are COVID-specific versus durable? I mean, I know you talked about 2019 as the benchmark year. But as we think about the longer term, how do you look at last year's performance and some of the specific drivers in terms of their durability beyond the pandemic? And then for Jeff, you guys laid out, I realized this is prior to your elevation as CEO, I think 30 million to 35 million active accounts on Peacock by ’24. I know signups and inactive accounts are different metrics. But it seems like you're nicely ahead of that trajectory. Can you just sort of reframe the opportunity with Peacock for us today versus kind of the initial outlook and when might revenues become kind of material to NBC for that business? Thanks, everyone.

Well, Ben, this is Dave. I'll kick off on the Cable side. I think it starts with the main point that we've had great momentum in Broadband for many quarters now well before COVID. There's been real strength in the category for us, and I think if we point towards the fundamentals of Broadband, and the fundamentals have been very consistent for us. And it starts with the market; the market is growing, we're taking share. The sources are geographic all over the country where we serve and across the board competitively, with DSL sources, telco wired, wireless, and other competitors. So, I think while 2020 was truly an exceptional year from performance, and as Brian said, I think the right way of looking at 2020 is to look at the full year results. And when you do that, the 2 million net customer additions, it really is extraordinary. The fundamentals that we see going forward are low churn. We compete well on the front end because we've consistently invested in the best network in the marketplace. And I think that is ubiquitous. We deliver the best overall service, redefine the category in speed, coverage, control, and now streaming. And so, you add up all those things, I think it points towards strong organic growth. But as you look to next year, as Mike said, we do have a healthy start to the year. We're really encouraged by what we're seeing right out of the gates. But I do think 2020, as everybody went home, there was just a lot more in a short period of time, folks that were working from home, schooling from home. I think that's a unique moment. But I think the fundamentals continue. We have penetration upside. There are growth opportunities that we believe strongly. I think 2019 was a very strong year too, by the way. I think that is the right one to look at as the best benchmark on a go-forward basis.

Hey Ben. So, Peacock obviously is primarily an AVOD service. And we have a number of metrics, the one that we talked about today is signups; we reached 33 million this week. People sign up, then they use it actively, and then the usage per user drives the amount of hours we saw on advertising. And we are up significantly over all of our metrics versus what we anticipated going into the business. We launched this on Comcast just over nine months ago and nationally just over six months ago, so we’re at the very beginning of this business. But we are very confident based on the small amount of time that the business model has adapted to the right business model; people are signing up, they are using what we expected, and advertisers are very interested in buying it. So, this steady growth is very promising for us, and we don’t have anything to reframe at this point, but I think that the performance that is much better than we expected gives us a lot of optionality going forward. We are just going to continue to drive this business model now and focus on the advertising revenue.

Thank you.

Thanks, Ben. Regina, next question, please.

Thank you. I also have two questions. First, on NBCU. Can you talk about the timeframe and where you'll see the benefits of the restructuring? And within that, what is the long-term view of Cable Networks; will it eventually be at all in Peacock? And on the Cable side, several of you mentioned, I think Brian and all of you mentioned the benefits of the new Verizon MVNO deal. Where will that show up; will it be in revenue, additional services? What's the timeframe for that as well? Thank you.

Jeff, you want to start?

Yes, thanks, Brian. Hi, Jessica. So we view obviously our television business as a whole. As Mike says, we're going to redo how we report starting next quarter. And we view the whole television business as a whole. And while our restructuring definitely took a lot of cost out of the business, which you're starting to see in the numbers, the real purpose of it was to allow us to grow in the future and really run it as one business. So, Cable Networks obviously are a big part of the business; they're still the biggest EBITDA driver, and I don't expect that to change anytime in the near future. But we're looking at the two revenue streams of the business, its subscription and advertising, as one business: Broadcast, Cable, and Peacock. We're programming it as such; we're selling it to advertisers as one platform as such. And so, I think over time, it'll be harder and harder to distinguish between the profitability of Cable Networks and the rest of our television business, because we're looking at it as one business. But the restructuring allows us to run it like that, and we think that's going to allow us to really grow the business over time. Dave, you want to take on wireless?

We've been really pleased with our relationship with Verizon and the great partnership we've built. An important aspect is the improved MVNO, and the capital-light approach we are using is working for us and we believe it will continue to do so in the future. This will enable us to enhance our current efforts and create competitive offers. We're capturing more market share in mobile. Overall, we are optimistic about our mobile business and its impact. Our mobile service has been performing well for broadband retention, and we are committed to accelerating growth in this area. While the MVNO enhancement is a positive step, we are also focusing on every sales channel, including reopening retail with new safety protocols. Our focus is on mobile, and we are investing in 5G. We will prominently feature mobile in packages with broadband, particularly when launching new products like those from Apple or Samsung. We feel optimistic about our growth prospects. We have access to what we believe is the best network in the country with Verizon, and we continue to leverage Wi-Fi to enhance user experience, both at home and in public spaces. Looking forward, we have plans to potentially add our own targeted wireless infrastructure to complement the Verizon network in high-density areas with the spectrum we've acquired. All these factors present a unique opportunity for us.

Thank you.

Thank you, Jessica. Regina, next question, please.

Thanks so much. If I can just follow up on wireless, when you said that you can improve the range of offerings to more customers as part of the new MVNO, can you address business customers now with your wireless service? And perhaps you could before but any clarification on that? And what are the new offerings and where the new customers that you can address as a result of the changes to the MVNO? And then, Brian, not to put you on the spot, but any thoughts on the Olympics and its likelihood and potential benefit to Peacock or the rest of the operations? Thank you.

I believe regarding the wireless question, since we are at the beginning of the year, we will have more updates as the year progresses. We plan to build on what Dave mentioned, including some offerings for businesses. It's still early in the year, so please stay tuned. What we aim to communicate today is that the components are in place, we have momentum, and this is a strategic aspect of our bundle, as Dave pointed out, in reducing churn and guiding us toward breakeven and profitability. These were crucial elements to get right. So, I would say expect more information soon. As for the question about the Olympics, could you clarify what you mean by whether it will happen?

Yes, sorry, Brian. I guess there's some concern out there as to whether or not the Olympics will happen. And I know it's sort of important for driving your businesses and it was something you were excited about in terms of marketing Peacock last year. And as you've taken a step forward in Peacock and had some initial success, how do you think about using the Olympics as a vehicle to drive usage and awareness of Peacock?

Yeah. Understood. Well, first of all, I want to echo what Jeff said, really pleased with how fast Peacock has exceeded expectations this year, even without the Olympics that we had hoped for and that was going to be the big launch moment. So, I think the team is doing an outstanding job and giving us the best start that everyone would want to have, even better than that, perhaps. So that gives us just great expectations for the future. So, sitting here today, I believe there will be the Olympics. I hope there will be the Olympics, and I think that's our best intelligence at this time. And we're excited about that. I think it can be done in a variety of ways, as we've seen sporting events all over the world take place from the Premier League to the NFL, and many others with limited spectators, no spectators or wherever the world may be in Japan in July. That will be up to the host country and host committee. If in the event it doesn't happen, we have another Olympics coming in Beijing seven months later or so. So, I don't know, Jeff, do you want to add anything to that, but we're very hopeful and believe that they'll find a way to safely and successfully have the Olympics, which for us is a television event and would be an amazing moment for the world to come back together post what we've all globally been through, which is so unprecedented. So, we're super hopeful and optimistic.

Thank you.

Yeah, I guess...

Yeah, go ahead, Jeff.

Go ahead.

No, I was just going to add to what Brian said. I think advertisers also are optimistic that the Olympics are coming and continue to pace. I think last earnings call I said we were up over where we were a year ago when we thought the Olympics would be a year ago; that gap has grown even further as advertisers kind of jumped in to buy. So, anything can happen in this COVID world. We don't know what's going to happen, but we're pretty confident that the Olympics are going to happen, and advertisers are kind of jumping in and agreeing with Brian’s sentiments.

Thank you.

Regina, we're now ready for the next question. Thanks.

Hi, guys. Thank you. Thanks for the buyback commentary. Should we still look at 2.5 times trailing 12 months EBITDA for a test for buybacks? And can you remind us what the year-end '22 target is? And then Mike, to confirm your comments on margins and capital intensity, I think you're guiding to Cable margins, capital intensity improvements versus 2020 but not giving a level. I assume that's against reported numbers, despite all the moving pieces. Can you give us any sort of direction on that level, and why not guide this year versus previous years? Thanks.

Sure Phil, it's Mike. I'll do the second one first. I think Dave gave plenty of color, as well as I think the earlier comments about the activities of the Cable division in terms of focus on expenses, locking in programming renewals, and just driving the business towards connectivity and wireless towards profitability. And all those factors come together, and when you look at the long-term aspects of a business, including our comments, we are confident in our ability to increase profitability, expand margins, and improve capital intensity, not just in 2021, and that is versus reported 2020 numbers to your question. But really thereafter, I think the business is set up for that, for the long-term horizon beyond just the year ahead. So, calling out specific numbers, I think is of less utility frankly than giving you the broad backdrop that gives you the long-term lens through which you can judge all those pieces. But we're quite confident that all those things coming together, expenses, plan, and efficiency on the capital side, combined with innovation and focus on connectivity, allows us to give that outlook of improving margins and capital intensity looking out ahead.

Yes, I think the focus of us really going after margin capital intensity improvements, that's not going to stop, starts with connectivity and building customer relationships in a profitable way, managing this video transition like we're doing. And extreme focus around expenses that Mike talked about, Brian's talked about, just taking a lot of transactions out. Our digital focus and self-install kits, these are things that I think are very durable and that'll go beyond what we're dealing with in this environment. I think we learned a ton, and we'll continue to operate the business in a unique way. So, I think you look towards those kinds of activities; the amount of SIK today, two-thirds of the transactions connect or are through that way, and then three-quarters of our digital capable transactions are being completed through our digital tools. We're going to continue to focus on all those things that just drive non-programming costs. And so, we'll stay focused on all of that.

I want to expand on the earlier comments regarding buybacks. We've been discussing our aim to return to our historical approach to capital allocation. To clarify, we believe our balance sheet is strong, which allows us to invest in organic growth across our businesses. From today’s call, it should be clear that we are committed to pursuing investments where we see the potential for returns and growth opportunities. Additionally, we want to ensure that we maintain a balanced approach to capital return. This marks the 13th consecutive year of increasing our dividend, but we have paused buybacks and are looking to reintroduce that aspect of our return strategy. We are encouraged by the current state of our balance sheet, having reduced our net debt from $108 billion to $90 billion following the Sky acquisition. Evidence from our Parks division in the fourth quarter demonstrates our resilience, even amidst challenges like the Beijing pre-opening costs, Hollywood's closure, and capacity limitations. This gives us confidence that as travel resumes post-vaccination and the virus is controlled, our COVID-impacted EBITDA businesses will recover to historical levels. It may take about 12 months to fully realize this recovery, which is why we anticipate seeing the beginnings of it in the second half of this year. Rather than waiting the full year, we plan to initiate our buyback program at that time. We aim to align the buyback with historical levels, potentially ramping up to around $5 billion and maintaining that until we reach a 12-month trailing metric indicative of approximately 2.5 times, which we expect to achieve by the end of 2022.

Thank you, Phil. Regina, next question, please.

Yes, hi, two questions, if I could. First, Brian, you talked a little bit about how pleased you are with Flex. We certainly get more questions about it from our clients now than had been the case with a lot of enthusiasm for what Flex could become. So, I wonder if you could just expand on Flex a little bit and talk about what your hopes and expectations are for Flex? And could you grow that into a national product that is widely distributed or even a global product that's widely distributed as an aggregator platform? And then with respect to wireless, I wonder if you could just update us on your thinking about the CBRS spectrum now that we're out of the CBRS quiet period and what you might do now with the amount of small cells for traffic offload, whether you're testing that in any markets or how much traffic you expect you might be able to offload from the MVNO agreement?

Dave, why don't you take the second one first about wireless, and if you want to feel free to talk about that?

Well, Craig, we have...

And if you want to start on Flex, that's fine and I can follow you, so we can do both.

Okay, yes, well, let me touch on the first one then and go into CBRS. But going Flex, starting Craig with our current strategy, just a little bit, that we package it with broadband, another great way of surrounding broadband with products that drive better retention outcomes. And that it's working; it's working very well. So, we target it to the streaming segment and give the customer great experience with excellent voice and all the apps, so tons of apps, we'll have just about everything. Pleased with the Peacock performance for sure. All the other apps that we've launched, including HBO Max and soon to be later on this quarter, Disney. I think today is more targeted. But as you mentioned, I really do think the next phase that we're working on and developing for and turning our innovation focus is that this is a long-term platform opportunity for us. And aspect of the company that we have called XUMO, that I think you all know is one piece of being able to drive, help drive advertising. We can participate and revenue in the app splits that we get. And so, we think of this with scale. And as you build a common software stack that includes Sky, we can do it together, which we're already working on, and then you have opportunities like we've talked about going into smart TVs, but really leveraging unique scale internationally that we can have, whether it's a device or whether it's a software solution. But I think these are the things that we'll look at. Right now, it's working great within footprint, but we're building our plans beyond that.

Hang on for a second, let me just add to that then; the whole articulation of the company's strategy with broadband and aggregation and streaming, I think is embodied inside Flex. So, Peacock's success very much partially due to the early success of what Flex can do for broadband customers. And we're seeing other programmers are approaching us with their content and seeing what both the X1 platform and the Peacock platform and this Flex platform can do for them. So, that's led us to looking at what Dave was just talking about, what other opportunities that can be taken advantage of this scale and this platform and the ability to bundle things that way? And I think we'll have more to talk about throughout the year. The same sort of answer on the wireless question. I think what we're set up for is future opportunities with some of the investments we've made and some of our early success. So, I share your clients’ enthusiasm; I think the product is going to continue to improve. We'll have some more updates on that as we go along. But I'm very encouraged as well, and I think the team that created Flex has done a great service for the company. Keep going, Dave.

I think the only other point on wireless and Brian and Craig would be, we are looking at and working on development plans around the targeted use of the CBRS spectrum in dense high-usage areas and how we could offload traffic, and how the experience be terrific in doing so? So, nothing more really to comment at this point. This is a multiyear effort, but a lot of focus is on it right now.

Thank you both.

Thank you, Craig. Regina, next question, please.

Thanks. And if you don't mind, I'm actually just going to follow up on Phil's question. So Mike, when you were responding to his question on the buybacks, you talked about ramping back up towards the historical level of $5 billion a year until you get back to sort of that long-term leverage target of about 2.5 turns. But if I think longer term, if you were to sort of remain at your historical buyback pace, you would probably continue to de-lever, and I think actually quite rapidly. Historically, you've tended to redeploy that excess liquidity into your strategic M&A program. And so, the question is how do you think about the medium to long-term importance of preserving dry powder of that type of flexibility versus whether your current asset portfolio is sufficiently well-suited to meet your long-term operating targets? Thank you.

Sure. Brian can obviously chime in. But I think we feel very good about the collection of businesses that we have, how they fit together, how Sky is enabled together with Cable and NBC, things that are advances in the three pillars that Brian described: broadband, streaming, and aggregation. So I won't repeat too many of those proof points of what we are as a company. But we'll always look at M&A. But I don't think there's any doubt that we are very pleased and don't see any strategic gaps in the portfolio that we have. So, we'll talk about it when we get to the 2.5 times. But I wouldn't suggest that beyond that stage, we would just de-lever. I mean, we get inside that number and from there, we'll have options, and we'll discuss it with folks as we get there. But that's where we stand today. Brian, anything else you want to add?

I would like to mention two additional points. This is a significant moment for us as we recognize that the businesses are in a healthy state. We believe, and hope, that progress with vaccinations and a clear path for impaired businesses will lead to full recovery and beyond. Restoring balance, as Mike mentioned earlier, is crucial, and it’s something I have aimed for. Additionally, we have expressed a desire to diversify our business mix. Having about 70% of the company focused on broadband has proven to be an effective strategy. We have enjoyed ten years of growth with NBCUniversal, with last year being the only exception. We anticipate strong growth across all our businesses, with the understanding that a balanced mix is beneficial. The broadband-centric approach has been very successful for us, and we are satisfied with our current standing. We possess significant scale and momentum, and our main focus today was to announce our expectations and follow the positive trajectory we are on, aiming for effective execution later this year. Today marks an important step forward.

Thank you.

Thank you, Brett. Regina, we have time for one last question.

Great, thanks. Two quick ones, I think. Maybe first as follow-up for Jeff on Peacock. Can you give us a sense of what content is resonating and any color you have on engagement or ARPU or pay subs? And should we expect more spending on sports rights for the platform following up on the WWE deal? And then maybe for Brian, just thoughts upon how the regulatory backdrop will evolve? And is there any concern that net neutrality will emerge as a new policy goal? Thanks.

Jeff, you want to go first?

Thanks, Brian and John. Let me start with The Office. We've had it since January 1st, and we're very pleased with its performance. Our customer engagement with The Office is actually higher than what we observed with Netflix users. More importantly, those watching The Office on Peacock are also engaging with a variety of other comedies, which is boosting viewership for shows like Parks and Rec and Brooklyn 99. This creates an ecosystem. In previous quarters, we've mentioned how well the EPL has performed for us, with viewers also transitioning to other popular content like Yellowstone and comedies. We believe this ecosystem mirrors the broader broadcast world, where we can effectively promote different content to our viewers, and The Office has been a significant part of that success. WWE also fits perfectly into our strategy, allowing us to offer thousands of hours of previously paywalled programming on our free Peacock service, which enhances WWE's brand while generating ad revenue. The events that used to be pay-per-view can help promote our $4.99 Premium Peacock subscription. Additionally, we have a substantial investment in WWE on our linear networks, making this a cohesive part of our business model that emphasizes cross-promotion and offering a unified solution to our advertising clients. Our overall approach to leveraging our existing linear operations and driving advertising is proving effective, and comedy and sports have been key contributors to our success so far.

Okay. And I know, we'll be having this conversation about the new administration and government. So, let me just quickly say, I don't think there's anything new. We've managed successfully to work with different administrations with different regulatory perspectives around the broadband business. But our view is obviously strongly felt that the long-standing light-touch regulation has worked since President Clinton created that classification and reduces regulatory risk for investors and allowed the company to invest more and have paid dividends unbelievably well during COVID. We were never asked to downsize any services. Content providers and consumers really benefited, and that wasn't universally the case around the globe with different broadband regimes. But we do believe in net neutrality and how we're not going to discriminate, block, or throttle, and some of the other principles that we've committed to. And so, if there's a way to find a way to codify that and perhaps with this issue in a permanent more consistent place, that's certainly a possibility. I would like to just end the call by introducing Dana Strong just for a moment, who's taken over Sky just in the last couple of weeks. Starting next call, Dana will be available to talk about Sky in great detail, but Dana didn't want this moment to pass without congratulating you and introducing you to the group here to say just a few words.

Thanks so much, Brian. It's great to have the opportunity to say a quick hello to everyone. Looking forward to talk again in future quarters, as Brian mentioned. Maybe for now, let me just briefly say that having spent the past few weeks in the UK, I'm extremely confident about the exciting opportunities ahead for Sky. When Brian called me, I knew this was an opportunity I couldn't pass up because I've always had great admiration for Sky, having worked in Europe as long as I have, sometimes competing and partnering with Sky across those many years, I think I’m in the position to truly appreciate the unique market position that Sky holds in its iconic brands. And I just have to say that Jeremy has built an incredible organization, an amazing breadth of assets, and a fantastic team. I couldn't be more excited about leading Sky in this next chapter. So Brian, I look forward to talking more about it in future calls and back to you.

Thank you and Jeremy, thank you as well. And I know you'll be guiding us here through the rest of this year as well. But both of you are going to be a great team. That wraps it up for me, Marci. Do you have anything else?

I just like to thank everyone for joining us on our fourth quarter and full year 2020 earnings call. We hope you stay healthy and safe.

Thanks everybody.