Comcast Corp - Class A (CMCSA) — Q3 2021 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 Dana Strong. Brian and Mike will make formal remarks while Dave, Jeff and Dana will also be available for Q&A. Let me now refer you to Slide 2, 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, 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. We had a wonderful third quarter across the entire Company, with 18% growth in adjusted EBITDA and 34% growth in adjusted EPS. We generated $3.2 billion of free cash flow. One of our goals for the past several years has been to return to a position of offensively investing in our existing businesses, paying a growing dividend, and also buying back meaningful amounts of stock. So, I'm pleased to report that we have now achieved all of that in this quarter and we're back to our desired leverage ratios. Our Cable division continues to be a standout, delivering over 7% revenue growth and the fifth consecutive quarter of double-digit EBITDA growth of 10% fueled by our broadband business, which generated 300,000 net additions and contributed to a very healthy 255,000 net new customer relationships. Business services has emerged from the pandemic and was also a key driver of our results. We believe this momentum will continue. Our success comes from our network advantage, innovative products, and world-class operational capabilities which enable us to provide an unparalleled experience. Just like in residential, we are proactively responding to the needs of our commercial customers and offering personalized solutions. While small business has led our growth for the last decade, we're still significantly under-penetrated in the mid-market and enterprise segments. We see a lot of potential to take share in our large addressable market, which just got even bigger post our recent acquisition of Mesa Global, which builds on our strong offering of technology solutions. Mesa Global has become a leading provider to companies worldwide and unlocks a customer segment that we don't have today, particularly U.S. based organizations with multi-site global operations. Xfinity Mobile exceeded its prior record, adding 285,000 lines, the most in any quarter since launch. We continue to evaluate ways we can accelerate this business even further as wireline and wireless connectivity services continue to converge. We're looking at new, exciting products and packaging that highlight how we're able to provide our customers with the best and most reliable broadband wherever they are or wherever they go, and help them save money at the same time. With only 6% penetration of our 32 million broadband customers, we have a long runway. Taking all of this together, we have an incredibly robust broadband business, adding over a million broadband customers each year for the past 20-plus years. We continue to deepen these relationships by offering a fantastic in-home experience with the fastest modem and gateway and the greatest Wi-Fi coverage. We plan to continue our relentless focus on aggressively developing and improving our suite of products around connectivity. The foundation of all of this is our network. We are currently in the process of deploying new technology, updating key infrastructure, and accelerating virtualization across our footprint so that we can deliver even further enhancements, fast and at scale to millions of customers. We will continue to evaluate every opportunity we have to expand our passing’s which will bring our amazing suite of products and services to many new homes and businesses. All of David Watson and his team's superb execution is around decades of investment that has led to constant new product innovation, including this month's launch of XClass TV, an extension of our leadership in video aggregation. XClass is an innovative smart television powered by our global technology platform that brings the best of our Company's entertainment operating system to consumers nationwide, together with the option to use either Xfinity, Charter, or other entertainment apps. At NBCUniversal, we continue to see great progress in each of our businesses. I’d like to highlight our theme parks, especially Orlando, which just reported the most profitable quarter in its history despite having virtually no international guests due to COVID-related travel restrictions. In Hollywood, we continue to see recovery and we had a very successful and exciting opening of Universal Beijing Resort on September 20th. I also look forward to COVID-related restrictions easing in Osaka, which could happen soon. Our media business is also doing very well. We're benefiting from the many changes Jeff Shell and his team implemented starting in 2020. With new hires, different roles, fresh content, and a more efficient operating structure, we're seeing the financial success in both our linear networks and Peacock, which has maintained its momentum. We have a new breakout hit with La Brea, which has contributed to NBC's overall audience lead this primetime season, as well as the best-performing new show on Peacock. Sunday Night Football has returned with great momentum, which we're seeing across our platforms. We're thrilled with the performance of our second Halloween installment, which generated more revenue in its opening weekend at the domestic box office than any other film this year with a day-and-date streaming release and is the number one non-live event premiere in Peacock's history. We're also looking forward to extending our streaming platforms outside of the U.S., with Peacock launching on Sky next month and Sky Showtime in the works for mid-2022. At Sky, I want to re-emphasize how well we're performing in the UK, which continues on its growth trajectory with customer relationships led by record low churn. We're also seeing great momentum in our broadband and mobile businesses. Earlier this month, Dana Strong and her team introduced Sky Glass in London, a premium all-in-one streaming television and multi-channel subscription package that is so much more than just a stunning TV with amazing sound. It's an innovation platform that opens up a whole new world of entertainment for our customers and simplifies the experience so that they can stream every channel, every show, and every app in one easy-to-use interface. The customer response has greatly exceeded our initial expectations. We're also incredibly proud that Sky Glass is the first TV to be certified carbon-neutral. Sky has been leading all of Comcast with its sustainability goals and is the first media Company in the UK to commit to being net carbon zero by 2030. While Glass and XClass are distinct products with different monetization and distribution strategies, they extend our customer base beyond our previous capabilities, run off the same global technology platform, and allow us to quickly bring the best features to consumers across territories, segments, and brands, on Comcast hardware and through our syndication partners. I'm pleased to also announce today that Apple will bring Apple TV Plus and the Apple TV app to our Xfinity and Sky customers on X1, Flex, XClass, Sky Glass, and Sky Q devices. Comcast is bringing the Xfinity stream and apps to Apple TV devices. We're working together with our partners to deliver the best apps and experiences on our platforms. Our teams are sharing capabilities and collaborating across the Company, collectively drawing on our scale and leadership in broadband aggregation and streaming to innovate and profitably serve new and existing customers. Looking ahead, I am excited about the opportunities we have to both invest in our business and return capital through buybacks and dividends, all while maintaining leverage around current levels. I believe we are extremely well-positioned to continue our track record of building long-term shareholder value. I'm pleased to now hand it over to Mike for more detail on this strong quarter.

Thanks, Brian. And good morning, everyone. I'll begin on Slide four with our third quarter consolidated 2021 results. Revenue increased 19% to $30.3 billion. Adjusted EBITDA increased 18% to $9 billion. Adjusted EPS increased 34% to $0.87 per share. Finally, we generated $3.2 billion of free cash flow. Now let's turn to our business segment results, starting with Cable Communication on Slide 5. Cable revenue increased 7.4% to $16.1 billion. EBITDA increased 10% to $7.1 billion, and net cash flow grew 16% to $5 billion. As a reminder, comparisons to last year were impacted by adjustments accrued for customer RSN fees. Excluding these adjustments, cable communications revenue increased 6.3% with no corresponding impact on EBITDA. We added 255,000 net new customer relationships in the quarter, once again driven by broadband, where we added 300,000 net new residential and business customers. We continue to benefit from high levels of customer retention with broadband churn improving to the lowest rate for any third quarter on record. The strong level of net customer additions over the past year, including this third quarter, coupled with higher average revenue per customer, drove broadband revenue growth of 12%. This growth was about a point lower, excluding the RSN fee adjustments in last year's results. Wireless and business services also drove our strong cable revenue growth. Wireless revenue grew 51% driven by growth in customer lines and higher device sales. Overall, we added 285,000 lines in the quarter, the best results since launching this business in 2017, bringing total mobile lines to 3.7 million. Business Services revenue increased 8.7%, reflecting an increase in rates and customers primarily driven by the continued improvement in small businesses. We added 18,000 net new customers in the quarter and 72,000 over the past year. We recently closed on our acquisition of Masergy, which enabled us to offer a broader range of products and solutions to mid-market and enterprise customers and expand our market opportunity to customers with a global presence. Moving to Video, revenue increased 1.4% and was flat excluding the RSN fee adjustments in last year's third quarter, driven by a residential rate increase at the beginning of the year, mostly offset by net video subscriber losses totaling 408,000 this quarter. Last, advertising revenue increased 4.6%, reflecting a strong overall market recovery compared to last year's third quarter, which was impacted by COVID, partially offset by lower political advertising. As a reminder, the Q4 year-over-year comparison will be impacted by record levels of political advertising last year. Turning to expenses, cable communications' third-quarter expenses increased 5.3%. Programming expenses increased 7.6%, mainly reflecting the comparison to last year, which benefited from RSN adjustments. Excluding these, programming expenses were up 2.8% as we begin to lap the large number of contract renewals that started to cycle through in 2020. Non-programming expenses increased 3.9% and decreased 0.8% on a per relationship basis, reflecting our investment to drive growth in our core businesses, broadband, wireless, and business services. This resulted in higher technical and product support in advertising, marketing, and promotion expenses, which were partially offset by lower bad debt and customer service expenses. Cable Communications' EBITDA increased 10% to $7.1 billion, including a contribution of $51 million from our wireless business. Cable EBITDA margin reached 43.9%, reflecting 120 basis points of year-over-year improvement. While the RSN fee adjustments had no impact on EBITDA, they did impact margins last year. Excluding the RSN adjustment impact, our margin expanded 160 basis points year-over-year. Cable capital expenditures decreased 5.4%, resulting in capex intensity of 10.4%, as there is typically some choppiness in Cable CAPEX from quarter to quarter, mainly due to timing. Now let's turn to Slide 6 for NBCUniversal. Starting with total NBCUniversal results, revenue increased 58% to $10 billion and EBITDA increased 48% to $1.35 billion. Media revenue increased 48% to $6.8 billion, including $1.8 billion associated with the Tokyo Olympics. Excluding the Olympics, revenue increased 9.2%, driven by higher distribution and advertising revenue. Distribution revenue increased over 12%, reflecting higher rates post the successful completion of several carriage renewals at the end of 2020. Growing contributions from Peacock were partially offset by subscriber declines, which have been stable for the past few quarters. Advertising revenue increased 7.2%, reflecting an overall market recovery compared to last year, very strong demand and pricing for our ad inventory, and a higher contribution from Peacock, along with a solid start to the new fall season, including strong NFL ratings, which were partially offset by the timing of sporting events compared to last year when several events shifted from the second quarter to the third quarter. Media EBITDA increased 1.2% to $997 million, including results from the Tokyo Olympics. The favorable comparison on the timing of other sporting events and Peacock losses that were impacted by higher costs associated with the day-and-date release of the Boss Baby: Family Business. As a reminder, our fourth-quarter results will face a difficult comparison to last year due to higher costs associated with the timing of more sporting events at our regional sports network, an increase in our original entertainment as we continue to launch our fall season, and the inclusion of our latest studio release, Halloween Kills, on Peacock. Studios revenue increased 27%, driven fairly equally by growth in theatrical and content licensing revenue. The increase in theatrical revenue reflected the continued success of F9, as well as several new releases including the Boss Baby family business, which was in theaters and on Peacock. In addition, content licensing revenue growth benefited from the delivery of content to our networks, Peacock, and third parties. Studio EBITDA declined 47% to $179 million, driven by higher amortization of television and film production costs as we return to pre-COVID levels of production and investment in marketing and promotion to launch our new films. Looking to the fourth quarter, EBITDA comparisons to last year will remain challenging in the short term as we launch new theatrical releases and ramp our TV productions, which had been impacted by the pandemic. Moving to theme parks, revenue increased by $1.1 billion to $1.4 billion, and we generated EBITDA of $434 million, which included about $130 million of Universal Beijing pre-opening costs. This was our most profitable quarter since the pandemic began in Q1 of 2020, driven by improved operating results at our U.S. parks, including strong domestic attendance and per caps that were above pre-pandemic levels. In fact, as Brian noted, Universal Orlando delivered its highest EBITDA for any quarter in its history. At Universal Studios Japan, results were challenging as we continue to operate under government capacity restrictions, keeping attendance below 2019 levels. Lastly, we opened Universal Beijing on September 20th, where initial demand has been positive. While our parks offer a great experience year-round, we expect some seasonality given Beijing's weather conditions, with lower attendance in the fall and winter and more in spring and summer. Overall on Parks, we are encouraged by the continued recovery, but getting back to and then exceeding pre-pandemic levels of EBITDA will likely require an improvement in international visitation. Now let's turn to Slide 7 for Sky, which I will speak to on a constant currency basis. For the third quarter, Sky revenue was $5 billion and relatively consistent compared to last year. Direct-to-consumer revenue was also consistent with last year's results, primarily reflecting strong growth in the UK driven by continued growth in customer relationships and higher ARPU due to the positive impact of a rate increase earlier this year. Higher mobile device sales and the continued turnaround in hospitality revenue as pubs and clubs came back were offset by a decrease in customer relationships and ARPU in Italy, mainly due to a negative impact from the reduction in broadcast rights to Serie A. Sky's overall customer relationships declined by 233,000, entirely driven by customer losses in Italy. Advertising revenue increased 16%, with the UK driving the bulk of the growth and reflecting the overall market recovery from COVID-19. This increase was offset by a 26% decline in content revenue, driven by the change in sports licensing agreements in Italy and Germany, as well as the timing of sports events compared to last year when several events had shifted from the second quarter to the third quarter due to COVID-19. Turning to our EBITDA results during the quarter, there was a change in the way we advertised sports rights. This cost is now aligned more directly to when games are played, including when seasons begin and end. This resulted in a $130 million benefit in the third quarter, which will reverse in the fourth quarter. Going forward, this change will continue to impact the quarterly pattern of recognizing sports rights amortization costs, with expenses higher in the first and fourth quarters and lower in the second and third quarters, but it should not impact our full-year results. Overall, Sky's EBITDA increased 76%, reflecting this benefit, as well as lower sports programming costs due to resets in our sports rights and the favorable comparison on the timing of sporting events. Before I comment on capital returns and the balance sheet, let me make a comment on our corporate and other segment. As we've done in the past with other start-up activities, launch costs related to Sky Glass and XClass were reported in our corporate segment, which could become more meaningful beginning with this fourth quarter. I will wrap up with free cash flow and capital allocation on Slide 8. We generated $3.2 billion of free cash flow this quarter, including a $670 million benefit related to the tax impact of the bond exchange we completed in August. Consolidated total capital was $2.9 billion for the quarter. As expected, networking capital increased, reflecting our broadcast of the Olympics, as well as the continued post-COVID ramp of investment in studio content. Return of capital totaled $2.7 billion, including $1.2 billion of dividend payments and $1.5 billion of share repurchase activity. Our net leverage at quarter-end was 2.4 times, which means we are now back at a level that is consistent with our existing ratings and reflects substantial progress in both debt reduction and a strong rebound in our businesses post-pandemic. From here, my expectation is that we keep our leverage ratio around where we currently are and continue to execute on our capital allocation priorities, which consist of maintaining a strong balance sheet, investing organically for profitable growth, and returning capital to shareholders. Looking ahead, our buyback will be a function of that balance and excess free cash flow available for capital returns. With that, I will turn it back to Marci, who will lead the question-and-answer portion of the call.

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

Thank you. Good morning. Brian, I wanted to start with you. The development of Sky Glass and the shift towards smart TVs seems like an intriguing advancement for your product lineup, expanding your reach into multiple markets. Could you share your long-term vision for what this could mean for the Company? It appears to be a significant opportunity, especially given the geographical limitations you've faced in the past. Additionally, Mike, I want to address your previous comment regarding leverage. It looks like you're running at about $5 billion in buybacks per year, looking at the second half, along with around $4 billion in dividends. You've been generating substantial free cash flow beyond these two figures. To maintain your leverage at 2.5 times, given the strong free cash flow dynamics of the business, how do you plan to manage the excess cash flow? I would appreciate any insights you can provide. Thank you.

Thank you, Ben. Let me start by saying that today, we operate a global technology platform handling about 5 billion entertainment streams weekly across 75 million devices, which demonstrates our considerable global scale. One of the exciting initiatives we've been collaborating on with Dana and Dave is the development of this global technology platform and joint product innovation. Specifically, regarding connected TV and streaming TV, which is central to Sky Glass and X Class, I see this as a natural evolution and a logical extension of our offerings. I attended the launch of Sky Glass in London, and we've been working on it since we acquired Sky, which has taken about three years to realize. This product is designed to simplify the consumer experience, and Dana will elaborate on that shortly. While it may not completely transform how consumers purchase or pay for services, it exemplifies our strengths in aggregation. We aim to provide consumers with quicker access to what they want, personalized experiences, and enjoyment throughout the process. This platform represents a new avenue for innovation as we envision the future of television, including areas like gaming, fitness, healthcare, and education. Establishing this connection with our Company is a novel approach for conducting research and development in the U.S. and opens the door for expansion across Europe. We're starting in the UK but are eager to grow quickly into other countries. This initiative is beneficial for streamers and streaming services, and we expect our role in the streaming ecosystem to increase, as evidenced by today's announcement with Apple. In the U.S., we are closely aligned with our Sky team on the X Class, and Dave can provide more details about that. As we analyze the markets, we recognize various opportunities and realities, especially through our partnerships with Hisense and Walmart, which is where many Americans purchase their televisions. We're excited to embark on this journey, and it highlights the effectiveness of our collaboration.

Thanks so much. I appreciate it. Sky Glass is our latest innovation for a new streaming TV. As touched on, this eliminates the need for a dish and a set-top box. This is really, really important in the go-forward and we believe it's the smartest TV in the market. Based on our experience with product launches, the consumer reaction here has been fantastic. This really starts with the product itself, which is quite innovative. We've changed the commercial model of the product to follow the approach of mobile handset sales. We’ve converted a large upfront payment to an affordable monthly payment withownership, of course. This establishes a long-term relationship with the customer as a result and improves our acquisition economics because it allows for self-installation and no more need for a dish or a set-top box. Another big part of the product innovation has been reducing the complexity of the purchase decision itself. Everything is inside, all of the highest specs, and the customer really only needs to choose the size, inclusive of the audio, which is truly fantastic, all built in. The breakthrough in the experience is where Sky really shines as in the fully integrated product. The interplay between linear, on-demand, and app content can really enhance people's time spent viewing, no longer needing to come in and out of apps, but with content lifted up, enabled to tag or crop content more easily. This makes the products such a standout. Sky Glass gives us some interesting headroom. It opens up customers we haven’t been able to reach before as they've been prohibited from having satellite dishes or didn't want them, opens up customers who are more interested in streaming content. It opens up syndication opportunities for us, and importantly, as Brian touched on it opens a lot of opportunity for both stickiness and potentially new revenue areas when we think about watch together or fitness and health long, long term. We think this is just the beginning, and I think the compelling part about this is that all of the guts of this are exactly the same as all of the Comcast technology. This is all built through the collaboration and enablement of Comcast, and the synergies between this and some of the smart TV developments in the U.S. are huge, where the hardware, software, and cloud services are almost entirely the same.

Hello, this is Dave. I believe Dana and Brian made key points. The smart TV is crucial for us. We're excited about XClass. Although it's early, we have a strong foundation due to our focus on innovation and our collaboration with the Sky team and the cable group. This allows us to leverage our software stack effectively, targeting segments that prefer minimal friction and simply want the smart TV to function seamlessly. We're providing a top-notch user interface with excellent voice recognition and data integration. We can integrate features like the Charter app and our app as well. Our business model is flexible, enabling us to partner with TV manufacturers and retailers in a unique way since we're entering the market a little later. It’s an excellent product, and we’re eager about its potential in our market, positioning Peacock as a vital component of the overall offering. Overall, we’re very enthusiastic about this initial focus.

Thanks, guys. Ben, it's Mike. On capital allocation and leverage, just to recap things, we ended at 2.4 times leverage. Like I said earlier, we intend to stay around this level from here, plus or minus a tick or so. We're not trying to stick the landing each and every quarter on a specific number by any stretch. We've said all along that our businesses are healthy, as you're going to hear from all the operating executives here. They're all going to grow free cash flow over the long term, and that does create a big long-term picture for us that will put us in a great position to continue to maintain the strong balance sheet we have, continue to invest organically in the businesses, and then return ample capital back to shareholders. The prompts of the business and the patterning of those investments are what'll dictate the outcome, but we feel very good about being back at this place where that’s the picture.

Thank you, everyone.

Thanks, Ben. Operator, next question, please.

Thanks so much. I guess that leaves broadband for me. I think Dave, in particular, Brian, I'm not sure if you have thoughts as well. There's just a lot of concerns in the marketplace by investors on fiber build-out and fixed wireless and then of course 3Q came in below 3Q 19. A couple of questions. One is, what's the right baseline for growth in broadband net additions that investors should think about? I think during the pandemic, a lot of us look at 2019 as a normal year, pre-pandemic. It was a good year for you and the industry for broadband growth. So, one, when you look forward, what's the right baseline for growth that you measure your businesses on? Then secondarily, any thoughts on how momentum looks in 4Q and how you feel about competitive threats would be helpful. Thank you.

You got it, Doug. So first off, as you said, we're still clearly in a fluid environment. To be clear though, the fundamentals of the business are very strong. There is a really long runway of growth in broadband. We haven't changed our feeling on that at all. We have a terrific network scale; it's ubiquitous and it continues to perform exceptionally well. We're in a good position for the future. We haven't changed our view on the long-term trajectory of the Connectivity business. I'm just as confident and optimistic in the prospects for this business as I've ever been. So, when you look at the whole year, I think it underscores the strength of broadband. Year-to-date we've added over 1.1 million net additions, and we've been adding over 1 million broadband subscribers each year for the past 20 years. While the pace in Q3 was slower than we saw earlier in the year during the height of the pandemic, our broadband net adds are still very healthy and our churn remains at record lows for Q3. It's important to look at the current environment. Just a couple of drivers to call out. One, with the slowdown, there have been a decrease in connects across our footprint and we look very closely at the move activity. There's been more activity earlier in the year around moves, and now, certainly with the last couple of months, it's below 2019 levels in terms of moves. A little bit less college student activity, not alarmingly so, but there's also a little less switching activity overall. I think you look at other operators, everyone's churn is down which means fewer jump balls where we do well. Also, we see less growth from the lower-income segment. We're still adding customers in this segment but not at the same rate as earlier. There are new government programs like EBB. We're seeing traditional wireless, not fixed wireless but traditional wireless participates and be very active in this program. On the last point regarding competition, we take it seriously; we've been in a very competitive situation for some time. Our focus has not wavered; we innovate and deliver the best product for each segment. We break the market down in terms of segments and we're focused on a local level. We have our granular view literally at the block level geographically. Adding it all up, our churn remains at record lows, whether it's fiber or not. Our expectation for full-year results, we believe full-year net adds will be around 2019 levels. This year and 2019, if you recall, was a terrific year. For us to be at that level with the consistency we've had speaks to the fundamentals there. The last point is Business Services is a very important part of the connectivity story, and in there, I love their momentum as well. So overall, you add it up, and I like where we're at with connectivity.

Thanks very much.

Thanks, Doug. Operator, next question, please.

Thanks. Dave, I'm wondering if I can follow up on that last question. If the full-year is around 2019 levels, which suggests that 4Q is a bit below where you were in 2019. Is it your sense that we pulled growth from the fourth quarter earlier into the year, or do you think the slowdown that we're seeing in 4Q might continue into 2022? I recognize that it's difficult to have visibility given all of the sort of the puts and takes coming out of the pandemic, but any color around the progression of the trend would be really helpful to investors.

Understood. As I mentioned, around the visibility. I wouldn’t comment yet on '22 other than to say what I’ve already said around '19 being very strong, and point back towards the fundamentals in terms of the trending around churn activity. But with consistent momentum, I’ll be pointing back to over a million broadband net adds in over a 20-year period which speaks to the strength of the category. Overall views, long runway for growth, where we're at with penetration. We haven’t changed our longer-term view of that.

And just following on from that, if churn for the industry has to recover for growth in broadband to recover, would that create an offset to growth in EBITDA as we look ahead?

Churn is already at a very good place. Our overall churn is at record lows. We have a balanced approach towards ARPU growth and a balanced approach towards customer share growth. Those fundamentals are consistent.

I want to add one point. Dana gave a very comprehensive answer and I totally agree with the two questions that were asked. The last point I just want to underscore is that the record low churn suggests a very stable business. That's what's so great about the 32 million broadband customers we have. We have a recurring business. The question for us going forward is how do we continue to grow the value of that broadband and therefore grow the value to our shareholders.

Great, thanks guys. I really appreciate it.

Thanks, Jonathan. Operator, next question, please.

Thank you. I guess a bigger picture question and that’s something really short. You look out towards next year. NBC Universal, we both clearly have a record year, but the Olympics, Super Bowl, record upfront, political looks like there's a lot of money being raised. Hopefully, we'll see a return of international theme park visitors and everything seems to be stabilizing. Sky obviously, you've got this rollout of Sky Glass and Peacock, and hopefully benefit from some of the past investments. Cable, as you guys have just discussed, going out of footprint with XClass TV, which I loved your comments on, but it seems like it would benefit broadband, Peacock, and advertising mobile more aggressively. So, with that long-winded introduction, could you talk about your priorities for 2022 and beyond? How different will the business look over the next 3 to 5 years? Then a quick short question, it's just on Peacock. You didn't mention anything about usage or monthly active accounts. So, if you could give some color there.

Let me start, but thanks for your sense of optimism. We feel fortunate as a Company. During the pandemic, we've talked in the past about how well I think we transitioned to work from home, customer care, and continued productions. Coming hopefully out of this in the U.S. and globally, where are we driving our Company? We will ultimately go where the consumer wants to be. We have products and different prices that allow customers to come to us. We're getting close to nearly 60 million customer relationships, I think $57 million or $58 million globally. We want to be the best leader. That’s why we’re continuing innovation and adding in theme parks and advertising, a big part of that. We feel we’re back in balance in terms of our priorities, and this positions us to be disciplined moving forward. This will produce free cash that will be returned to shareholders. Jeff, why don’t you talk specifically about Peacock and other NBC?

Yeah, thanks, Brian and thanks, Jessica. Everything on Peacock is heading in the right direction, and there's nothing from a trajectory perspective that's any different than it was last quarter or the quarter before. All metrics are pointed up. Our usage continues to be great. Our mix of users continues to be great. We added a few million more subscriptions, more monthly active accounts. Advertising, in this quarter, we began selling advertising beyond sponsorship, and that is going spectacularly well. We're really pleased with Peacock. It's way ahead of where we expected to be at this point. As for next year, we're very excited about everything we've got coming across NBCUniversal from the Olympics, the Super Bowl, to a spectacular movie slate, and a very strong advertising business, with ratings for our linear networks improving. Peacock is also doing really well without most of its programming strength. Reflecting on the future, we're behind on our original production due to the pandemic, but we’re ramping up originals on Peacock, which is necessary to continue to grow and have successful programming. We've decided to buy our first window of our movies, and the first movie in our rights comes in Q1, with steady supply continuing. Movies move the dial on Peacock as we saw with Boss Baby and Halloween Kills, which was huge on both platforms. We're excited overall about where we're dating.

Thank you. Thank you.

Thanks, Jessica. Operator, next question, please.

Hi, thanks. Having discussed broadband and the growth initiatives across the Company, let's turn to wireless as a significant growth area. We've noticed some data indicating that your Wi-Fi is handling a lot more traffic than we expected based on the contracts. This suggests that the gross margins for that business could be significantly higher than we previously thought. I'm curious about the strategic goal for that business. Is it primarily to become the largest, most profitable operation possible, or is it mainly aimed at reducing churn on broadband and serving as a defensive product to protect your existing business? Additionally, could you provide an update on your thoughts regarding Hulu, which won't be relevant until 2024? Is there a chance you might engage with Hulu sooner?

Hey, Craig, Dave here. We really haven't changed our strategic imperative behind Mobile; things have accelerated. We're very focused on how we leverage Mobile to support broadband. Once we successfully worked on the Verizon relationship and improved the MVNO relationship, we’re able to go-to-market with and launch the new unlimited plans, combining that with By the Gig, putting us in a unique position. Our goal is still to go faster and leverage mobile and everything we do surrounding broadband with a terrific product. It’s profitable and will continue to be, we feel confident about that. The main focus is to drive broadband. Several key things: 1. It's also a large contributor toward supporting broadband churn. Again, emphasizing record low churn. Mobile is just one part of that, but it also drives consideration on the front end. When activity begins to tick back up, retail will play a huge role. We want to leverage product integration with Wi-Fi; we do a great job of that. Every mobile device contributes a ton of broadband traffic, and that’s part of our network. We aim to integrate experiences and do more. So, we’ll be opportunistic outside the home, accelerating mobile through every single sales channel, and continue to package it with broadband in unique ways.

Hey, Craig, it's Mike. Regarding Hulu, there’s tremendous increase in value there. Obviously, it’s a great business that’s participating in a hot area of value increased streaming. We’re glad to be along for the ride while we set up our own thing with Peacock. In terms of the deal, it’s a couple of years out, but I’m certainly glad we didn’t exit at the time. Like the deal we have, and I expect we will be fine standing to the end, as I expect value to keep increasing.

Thank you.

Thanks, Craig. Operator, we have time for one last question.

Hi, guys, thanks for squeezing me in. I want to ask a couple of follow-ups. First, on the broadband trends. The last few quarters, and in September, you've been pretty specific on how you thought the year would come in. Is there just less visibility today compared to where we were in September? It sounds like this isn't a competition issue, just more of an underlying demand. How does that make you think about price increases this year for broadband and video with the pandemic still going on in new FCC? Also, thoughts on the buyback. In the last cycle, you weren't really willing to borrow money to buy back stock, preferring to use cash and let leverage drift lower. It sounds like it’s different this time. Is that driven by the stock price being really attractive, or you want to just keep that leverage in the mid-2s range? Thank you.

Let me start with broadband. There is some limited visibility on what we've seen, an acceleration of activity earlier in the year, more like ‘20 and the first part of ‘21, but primarily really on the connect side. I think I walked through some of the drivers behind that. Pointing towards the whole year gives perspective on Q4 compared to 2019 levels. The key is the overall churn levels just being where they are at. As I said, we talked about value improvement. Our goal is constant innovation and positioning the greatest network for today and tomorrow. We’re always adding speeds and coverage, great devices like gateways and pods, with control improvements we’ve had streaming with Flex, now XClass, and mobile. Overall, I think the fundamentals support the long-term runway of broadband, with performance consistency.

Okay. I think it's a perfect way to end the call. Phil, with your question, let me again state that I think it was a great quarter. A highlight of the quarter was returning after several years to our target leverage ratio, which Mike talked about. We separate borrowing from buybacks. They are not linked the way you described; they may appear that way. I want to give a compliment to our treasury team, Jason Armstrong and the team. Our balance sheets have never been stronger in the last 18 months. We’ve done some long-term rollovers and extensions at historically low rates. Combine that with this operating performance and it gets us back to where we wanted to be which allows us to more aggressively take advantage of what a number of us believe is a great Company. Therefore, you can put your own value on it as shareholders, but we are excited to buy back stock, and I believe Mike described the logic well in the ratios. Overall, a really great quarter. So, thank you, team, and thanks for your support on the call to the shareholders. Marci, over to you.

Thanks, Phil. Thank you, everyone for joining us on our third quarter call. Have a great day.

Thanks, everybody.