Comcast Corp - Class A (CMCSA) — Q2 2022 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, 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 hello everyone. Our financial results were very strong across the board once again this quarter. We grew second quarter consolidated revenue by 5%, adjusted EBITDA by 10%, and adjusted EPS by 20%. We accomplished this while continuing to invest in our businesses and returned significant capital to shareholders. Specifically, we bought back $3 billion worth of our stock in the quarter, bringing our total to $6 billion year-to-date. And we continue to have a healthy dividend and one of the strongest balance sheets in the industry. Our prudent financial management and long-term innovation-based strategy are paying off in Cable which posted 5% growth in EBITDA and 70 basis points of year-over-year margin expansion. In fact, our EBITDA margin reached a record high of nearly 45% this quarter. While we’ve added nearly 800,000 broadband subscribers in the past 12 months, more recently that pace has slowed, and we posted flat broadband subscriber additions in the second quarter. I’d like to dig into what we are seeing in that area. Broadband additions, of course, are basically a function of churn and connect activity. While churn remains well below 2019, connect activity was also lower than what we generally see in the second quarter. We believe this is primarily the result of three factors. The first category is move activity. As we’ve discussed for some time now, there’s been a dramatic slowdown in moves across our footprint with the second quarter below 2019 by 12% and the lowest we’ve experienced since the pandemic began. Our win share of new customer acquisition opportunities remains high, but the slowdown in moves has resulted in fewer of these jump balls, and this had the largest impact on our gross connects. The second category is a reversal of some pandemic trends. During the pandemic, many customers, particularly at lower income levels, sought to optimize home-based solutions by adding broadband. This presented us with significant opportunity to take more share in residential broadband. In fact, in the first year of the pandemic, we added nearly 50% or 600,000 more customers than our prior annual average growth. At this stage in the pandemic, those opportunities have waned as consumer behavior has begun to return to pre-pandemic patterns. We’ve also seen some giveback to a normalization of mobile substitution. In addition, during the pandemic, seasonality patterns were very different than what we had seen historically, and this really began to also normalize in this second quarter, causing more seasonal disconnects that did not occur at typical levels in the prior two years. The last bucket is increased competition. Fixed wireless is a new entrant in the marketplace and while there are likely to be significant long-term limitations, today’s excess capacity in wireless networks is creating what we believe to be a temporary opportunity targeted at value-oriented customers. We are not seeing fixed wireless have any discernible impact on our churn, but its early growth appears to be another contributor to our lower connect activity. In addition, we continue to compete against fiber in an increasing percentage of our footprint. Notwithstanding these industry and mostly macro-related factors, we remain extremely confident. We have spent decades investing and innovating to build a business that is well-positioned to succeed in the environment we’re seeing, and we certainly expect a return to residential broadband subscriber additions. How do we plan to do that? Well, we’re working hard to expand our footprint, taking advantage of growth in housing and businesses in our current markets, accelerating edge-outs into new areas, and we are playing offense when it comes to government subsidies. I'm also confident, and frankly more excited, in our ability to drive revenue and EBITDA growth even through our existing subscriber base alone. We’ve had a history of generating strong and steady ARPU growth as we continue to add tremendous value and improvement to the customer experience. Our margins are some of the highest in the industry, which highlights the stability and operating leverage of our business, the diversification of our revenue streams, and the strength of our other important growth drivers in Cable. In particular, business services and wireless have been two substantial contributors to Cable’s financial strength, and each still has lots of runway ahead. Business Services had another strong quarter of revenue growth, and in just over a decade, we’ve grown this to nearly $10 billion in high-margin annual revenue, including the addition of almost $1 billion in the last 12 months alone. In Wireless, we added 317,000 customers this quarter and similarly have added over $700 million in incremental revenue in the past 12 months, and we’ve barely scratched the surface of the opportunity here at only 8% penetration of our residential broadband customers. Wrapping up on Cable, we are in a unique environment with some headwinds, but move activity should return to some level of normalcy. Mobile substitution will eventually stabilize, and we believe fixed wireless has inherent performance and capacity limitations that sharply limit the number of people on a network using a given amount of spectrum, which should provide a natural cap on their overall industry penetration. Moreover, we believe that our path to deliver multi-gigabit speeds, together with the other features and functionality we offer, will make our broadband experience superior to any of our competitors over the long-term. In the meantime, we will maintain the discipline we’ve always had, and I am confident that we will strike the right balance between subscriber acquisition, our long-term profitability, and we all believe we have a very bright future in this business. Moving to NBCUniversal, we had a very strong quarter with EBITDA growth of 20% year-over-year. Our Parks segment continued its momentum, generating record EBITDA for the second quarter and this is without much contribution from Beijing, which was closed for nearly two months. Domestic park attendance and per caps continue to be above pre-pandemic levels, and we are moving full steam ahead in building Epic Universe. I cannot be more excited for how this park will bring new experiences to our visitors and additional runway for growth. NBCU Media remains a very healthy business. We just completed the highest-grossing upfront in our history, a testament to our content and a superb team, and the unique data and technology innovation we deliver through one platform. This year, we secured more than $7 billion in commitments, including $1 billion at Peacock, double what we did in the 2021, 2022 season, along with strong pricing. For Peacock, early access to premium universal films is a proven driver of subscriber acquisition and engagement. As we discussed during our last call, Peacock had a very strong first quarter, driven by a variety of extraordinary programming including the Super Bowl and Olympics. At Sky, we are operating well in an increasingly difficult macro environment, reporting our highest ever second quarter EBITDA. We grew revenue and EBITDA in the UK, which is our largest European market and the primary driver of our future growth. Calling out a couple of highlights, we are particularly pleased with the consumer response to Glass, which resulted in Sky being the third largest ultra-high definition television selling brand in the second quarter. And we also recorded our highest ever Premier League final day viewership, taking a 30% audience share. In addition, we're seeing the benefit of our disciplined approach to sports rights in both Italy and Germany, where EBITDA also improved year-over-year. In reflecting on the last 24 months, which has been wrought with uncertainty, we have performed extremely well and continued to make progress against key initiatives. Our Cable business has achieved some of the highest margins in the industry while also delivering healthy top line growth. At NBCUniversal and Sky, they've shown resilience and continued to recover despite unique challenges from the pandemic. Together, we've generated nearly $30 billion in free cash flow. We're returning a record amount of capital to shareholders, and our balance sheet is in a great place. We have also continued to invest in strategically important growth opportunities, including enhancing our world-class broadband network, scaling Xfinity mobile, increasing our capabilities at Business Services, launching Peacock, completing Universal Beijing, and starting construction at Epic, just to name a few. With substantial cash flow generation and a strong foundation for innovation, Comcast is in a wonderful position. Mike, over to you.

Thanks Brian and good morning, everyone. I'll begin on Slide 4 with our second quarter consolidated 2022 financial results. Revenue increased 5.1% to $30 billion. Adjusted EBITDA increased to 10% to $9.8 billion. Adjusted EPS increased 20% to $1.01 per share. And finally, we generated $3.2 billion of free cash flow. Now let's turn to our business segment results starting with Cable Communications on Slide 5. Cable revenue increased 3.7% to $16.6 billion. EBITDA increased 5.3% to $7.4 billion. Cable EBITDA margins improved 70 basis points year-over-year reaching a record high margin of 44.9%, and net cash flow grew 4.4% to $5.3 billion. Customer relationships are up 591,000 compared to last year and down 28,000 sequentially in the second quarter, reflecting lower levels of new customer connections given the current operating environment, partially offset by low levels of churn, which remains well below 2019 levels. We are focused on delivering an excellent customer experience and monetizing our customer relationships over their lifetime, and in that regard, EBITDA per customer relationship grew by 3% in the quarter. Now let's discuss Cable financials in more detail. Cable revenue growth of 3.7% was driven by broadband business services, wireless, and advertising revenue, partially offset by lower video and voice revenue. Broadband revenue increased 6.8% reflecting an increase of 3.6% in ARPU and growth in our residential customer base compared to last year. Net residential and business customers increased by 775,000 over the past 12 months with flat results in the second quarter. The trends that we saw through the second quarter have largely continued into the early parts of the third quarter with connects remaining soft while churn is still near all-time lows. This has resulted in a quarter-to-date loss of roughly 30,000 customers. July is typically the weakest month of the quarter and the vast majority of quarterly connect activity is weighted towards August and September, which is helped by back-to-school activity. While we're optimistic that we will have a healthy back-to-school season, short-term visibility remains low, and more importantly, beyond this temporary period, we are confident that our broadband speeds, reliability, coverage, and control features continue to position us as the best-in-class product for our customers, allowing us to protect and grow our 32 million broadband customer base over time. Business Services revenue increased 10% or approximately 6% excluding the acquisition of Masergy, which closed at the beginning of last year's fourth quarter. This healthy organic growth was driven by increases in average rates per customer and in our customer base, which grew by 54,000 compared to last year with 10,000 additions in the second quarter. Moving to Wireless, revenue increased 30% mainly driven by service revenue, which was fueled by growth in customer lines. Overall, we added 1.2 million lines compared to last year, including 317,000 lines in the quarter, which was our highest net additions for any second quarter on record. Advertising revenue increased 10%, mainly fueled by political revenue as well as strong growth at both our advanced advertising business and at our streaming business Zumo, which was partially offset by a decline in our local core advertising business. As a reminder, Zumo, which contributed about 20% of our advertising growth this quarter, is now part of our Charter JV, and beginning of the third quarter will no longer be reported in our Cable results. For Video revenue, it declined 2.4%, driven by customer net losses totaling $1.8 million compared to last year, including $521,000 net losses in the quarter, partially offset by 7% ARPU growth due to a residential rate increase at the beginning of this year. Lastly, Voice revenue declined 12%, primarily reflecting customer losses totaling $902,000 compared to last year, including $286,000 net losses in the quarter, and reflects our shift in focus to bundling broadband with wireless. Turning to expenses, Cable Communications second quarter expenses increased 2.5%. Programming expenses decreased 1.6% reflecting the year-over-year decline in Video customers, partially offset by higher contractual rates. Non-programming expenses increased 5.2%, driven by growth in our Wireless business, expenses related to our recent acquisition of Masergy, and an increase in bad debt as we returned to more normalized levels and compared to lower levels last year. These higher costs were partially offset by a decline in customer service expenses, reflecting lower activity levels in the business, as well as improvement in customer experience initiatives. Wrapping up on Cable, we are very pleased with the 5.3% increase in EBITDA and record EBITDA margins. Even as we prioritize increasing investment in our network with CapEx intensity at nearly 11%, we generated a significant level of net cash flow, and we believe our ability to continue to generate strong and growing net cash flow out of the Cable business is sustainable. Now let's turn to Slide 6 for NBCUniversal. Starting with total NBCUniversal results, revenue increased 19% to $9.4 billion and EBITDA increased 19.5% to $1.9 billion. Media revenue increased 3.6% to $5.3 billion, driven by Peacock with revenue up $444 million, which is more than three and a half times higher compared to last year. Distribution revenue increased 8.4%, reflecting growth at Peacock, driven by increases in paid subscribers compared to last year and growth at our networks as higher contractual rates were only partially offset by linear subscriber declines. Advertising revenue decreased 1.3% due to linear rating declines and a difficult comparison to last year, when we had a higher number of sporting events and NHL, which we no longer have rights to, partially offset by a growing contribution from Peacock and higher pricing. Excluding the impact of sports timing and NHL, advertising would have grown low single digits. Media EBITDA decreased 2.9% to $1.3 billion in the second quarter, including a $467 million EBITDA loss at Peacock. Excluding Peacock, Media EBITDA increased nearly 4% driven by a decrease in sports costs associated with a lower number of events compared to last year and the absence of the NHL. We continue to expect Peacock's EBITDA loss will be roughly $2.5 billion for the year; however, taking into consideration the timing of content launches, we expect losses to be higher in the second half, especially in the fourth quarter. Moving next to Studios, revenue increased 33% to $3 billion driven by higher theatrical and content licensing revenue. Theatrical revenue nearly tripled compared to last year's results, driven by an increase in the number of releases, as well as the success of these films, including the outstanding results of Jurassic World: Dominion. Content licensing revenue was up 19%, mainly driven by growth in TV licensing as production has returned to pre-pandemic levels. EBITDA decreased $155 million to break even for the quarter, driven by an increase in programming and production costs associated with the higher content licensing and theatrical revenue in the current quarter, as well as an increase in marketing costs ahead of several film releases in late June and in July, including the very successful release of Minions: The Rise of Gru, Black Phone, and Nope. Lastly at Theme Parks, revenue increased 65% to $1.8 billion and we generated EBITDA of $632 million, which was a record level for any second quarter, even though Universal Beijing was closed for most of the quarter due to COVID-related restrictions. These results show strong improvement compared to last year, when Hollywood was operating at limited capacity and Japan was closed for part of the quarter. We continue to see strong demand and EBITDA growth at our US parks, where attendance and guest spending has been above 2019 levels, with Orlando delivering its highest level of EBITDA for any quarter and Hollywood experiencing its best second quarter EBITDA on record. Universal Japan has shown a nice rebound since capacity restrictions were lifted at the end of March, with attendance having its strongest improvement since the pandemic, and we expect momentum will build over the long-term. Universal Beijing was closed for about two months and reopened at the end of June, resulting in an EBITDA loss at that part of this quarter. However, this was still a financial improvement compared to the level of pre-opening costs we incurred in the same period last year. Since reopening the parks, the trends have been positive, despite capacity restrictions and testing requirements. While COVID remains a risk we must manage, particularly in Asia, we remain bullish on the Parks business, both in the near and long-term. Now let's turn to Slide 7 for Sky, which I will speak to on a constant currency basis. For the second quarter, Sky revenue decreased 3.5% to $4.5 billion as low single-digit growth in the UK was more than offset by our results in Italy and Germany, where we continued to transition through resets in our sports rights. Direct-to-consumer revenue decreased to 2.4%, reflecting consistent average revenue per customer relationship and a decline in customer relationships compared to last year, including customer losses in the quarter of $255,000, which partially reflects normal customer churn associated with the end of the football season, as well as an increasingly challenging macroeconomic environment for consumers across Europe. Direct-to-consumer revenue in the UK increased low single digits in the quarter due to an increase in video revenue, primarily driven by higher revenue from pubs and clubs as they recover from the pandemic, as well as increases in wireless and broadband revenue. This growth in the UK was more than offset primarily by a decrease in revenue in Italy, due to the reset in our Syria broadcast rights. Rounding out the rest of revenue at Sky, content revenue declined 16% driven by the reset in sports licensing agreements in Italy and Germany, and advertising revenue decreased 3.1%, with growth in the UK and Germany, despite a difficult macro environment, more than offset by declines in Italy. Turning to EBITDA, Sky’s EBITDA increased 71% to $863 million reflecting our strong growth in the UK and improved results in Germany and Italy, mainly driven by lower sports programming and production costs due to resets in our sports rights. As a reminder, the upcoming World Cup will take place in the fourth quarter, which is the first time this event has taken place during National League’s regular season schedules. To accommodate these national soccer leagues, including the EPL, we’ll start the new season one to two weeks earlier in the third quarter, and then take a pause for a period of four game weeks in the fourth quarter while the World Cup is played. As a result, compared to last year, we will incur higher sports programming amortization in the third quarter with lower levels in the fourth quarter and higher again in the first half of next year. Now I'll wrap up with free cash flow and capital allocation. We generated $3.2 billion of free cash flow this quarter. Cash taxes of $2.75 billion included some items that drove us above the normal run rate by roughly $600 million. Consolidated total capital increased 12% reflecting significant progress in building Epic Universe in Orlando, higher capital spending at Cable driven by investments in line extensions and scalable infrastructure, partially offset by a decrease at Sky. For the year, we continue to expect Cable CapEx intensity to stay around 11% as we work towards enhancing and transitioning our broadband network to DOCSIS 4.0 in the next several years, and NBCUniversal CapEx to be up around $1 billion year-over-year, driven by the construction of Epic. Based on what we reported in the first six months of the year, that means total capital should be about $2.5 billion higher in the second half of the year compared to the first half. Working capital was $1.7 billion for the first half of 2022 and is likely to be slightly below this amount in the second half of the year, reflecting the continued ramp in content creation and the timing of annual sports rights payments. Turning to capital allocation, we repurchased $3 billion worth of our shares in the quarter. In addition, dividend payments totaled $1.2 billion for a total return of capital in the second quarter of $4.2 billion. We ended the quarter with net leverage at 2.3 times in line with our expectations for leverage to remain around 2.4 times going forward. So with that, thanks for joining us on the call this morning. I'll turn it back to Marci who will lead the question-and-answer portion of the call.

Thanks Mike. Operator, let's open the call for Q&A please.

Thank you, good morning. I have a strategic question for Brian, followed by a question for Jeff. Brian, your balance sheet and cash flow generation are significant assets in challenging markets and create opportunities for the company. Given the current context of slowing broadband growth, concerns about the future of streaming, and reports regarding Comcast exploring different strategic options, could you discuss the portfolio and your confidence in identifying growth opportunities and creating value? Are you considering ways to utilize that balance sheet to adapt or seize opportunities in the market that may not have been available in recent years? Jeff, regarding the Parks business, with the GDP report indicating a recession, it seems that the Theme Park business is not experiencing the same challenges. Could you share your insights on the visibility for the second half of the year and into next year, both in the U.S. and internationally, and whether you believe you can maintain delivering record results at the Theme Park business despite what appears to be a weakening macroeconomic environment? Thank you.

Thanks, Ben. I wanted to emphasize that we're in an excellent position with unprecedented cash flow and scale as a single entity. Our collaboration is strong, and I believe we have the right competitive set. In the second quarter, we saw broad and diversified growth drivers, such as record-level Wireless net additions and Business Service growth returning to high single digits. We also set new attendance records at our Theme Parks and achieved significant growth in broadband, reaching nearly 3 million customers and 13 million paid subscribers at Peacock in just a couple of years, along with being the highest-rated broadcast network. Every part of the company is performing well during these interesting times. Additionally, our treasury department took advantage of low interest rates to reprice our balance sheet for an average maturity of about 18 years at record low rates, enabling us to return capital to shareholders effectively. Our expectations remain high as we analyze our cash flow and scale strategically. We feel very strong, with many diversified businesses each having their own strategies, and I'm pleased that the company achieved 10% EBITDA growth.

Thanks, Brian. Ben, I'll quickly address the Parks segment. Historically, the Parks business has been influenced by macro trends, and we expect that to continue in the future. Currently, our numbers and performance do not reflect those trends. Despite the fact that our international visitation is around half of what it typically has been, we anticipate an increase over time. We have a range of attractions and continued to develop new ones during the pandemic. Brian mentioned Epic earlier, and we have those attractions ongoing. Internationally, Japan's performance has been improving steadily, although it's not yet back to pre-pandemic levels, the trend is positive. Beijing was closed for two of the three months this quarter, but after reopening, it has performed much better than expected despite ongoing COVID-related capacity restrictions. However, the strong dollar is a headwind we face in international performance. Overall, we feel optimistic about the Parks and believe there is significant growth potential ahead, even considering the potential macro challenges that may arise, which we have not yet experienced. Thank you, Ben.

Thanks, Ben. Operator, next question please?

Hi guys, thank you. I wonder if we can dig into the level of your promotion and competition in the Cable business. We've anecdotally seen some pretty aggressive promotions. It's hard to tell whether those are sort of limited or widespread. Are you pushing harder on average than you were a year ago? And when you compete with wireless, since you expect fixed wireless to have a cap on penetration, does it make sense to push back with that on price or do you sort of just let it come in and take those customers? How do you address that? Thank you.

Hey Phil, this is Dave. Let me go into both of that, the competitive landscape and the promotional intensity. So let me start with the drivers very quickly, because I think that sets it up. And Brian mentioned, since March of 2020, we've added 3 million broadband customers to this point. And so, you look at things like the move activity, June being the lowest level, you know, this all happened, and mobile substitution really drove that 3 million with the surge and in seasonality places like Florida, that in 2021, we actually gained customers, which we normally don't, and this quarter we were negative in Florida. So you put all that together. We have to, I think, put that in perspective and that determines a lot of the competitive planning, but we've always approached competition with a tremendous sense of urgency. We have local competition. We have large national scaled competition, and most certainly fixed wireless is the newest one. And you go through a launch phase that typically adds pressure, and we are seeing that on the front end. As Brian said, it's impacting the Connects. We do not see it in churn. So our approach is to segment the marketplace, go after each segment, provide great value, really lean into the network benefits that we have and compete fiercely for each segment. We've always done that and we'll continue to do that. Mobile is an area where we really can continue to be aggressive. We have been doing that. I think we were very strong in the second quarter in terms of mobile. I think there's more that we can do as we integrate mobile into every single sales channel. So look for us to continue to be aggressive in regards to how we package each segment and leverage mobile. What we won't do is chase pricing down to the bottom. So we're going to have a good balanced approach towards competing fiercely for each segment, but we have a great network. We have great innovation. We have the best WiFi gateway device that's out there. We're going to leverage our strengths in every part of what we do. And so, with all of those things, you manage the promotional intensity for the long run, but we continue to evolve our competitive playbook all the time. But you won't see us go down and chase discounting. Mobile is a great addition, adding value, and look for us to continue to do that. And I think, you know, one of the unusual moments part of this is with the mobile surge with wireless only coming back, look for us to continue to leverage the best broadband network with the best mobile. And by the way, for those that are paying attention to the Ookla stuff, we have the data from Ookla in terms of mobile service and Xfinity mobile is the fastest overall mobile service provider, so look for us to leverage that. We'll combine the best network with best mobile service and we'll continue to do that, but there won't be a dramatic shift in promotional intensity.

Thanks, Dave.

Thanks, Phil. Operator, next question please?

Yes, hi. I wonder if you could let's stay with the topic of broadband for a minute, if you could dive into the patterns that you're seeing geographically. You talked about fixed wireless, the companies that are selling it primarily T-Mobile and Verizon are skewing rural. Where are you seeing the competition from fixed wireless most strongly and where are you seeing the competition from fiber more strongly and what does that fiber competition look like?

Well, actually let me start with fiber, Craig. And there we've been at it for a long period of time. You know, we've gone from zero to over a 15-year period from 0% to 40% overbuild. And so that is we have good visibility to where fiber is and that's all over the place, at this point between multiple fiber providers. And important to note whether it's fiber or any other form of competition, we’re growing in every single geographic area. With fixed wireless, you're right in that there appears to be two things. One, they are adding some small business, new, maybe even expanding the marketplace a bit with small business, watching that closely. They're a little bit more rural, which we have been watching, but it's kind of across the board. When you have again, this launch phase of somebody doing it at scale like this, you see it a little bit all over. But again, the difference here is our churn versus fiber back in the day where we saw churn go up. We’re not seeing that here. We are seeing a little bit of pressure on connects, and it's kind of all over, which points towards more of the main drivers being what I mentioned earlier. It's the move activity plus the mobile search. So that is really the key thing, but we watch it. One of our great strengths is local competition. We stay on it in a very granular basis. We watch this very closely. So your point is a good one.

Thanks, Craig. Operator, next question please?

Thank you very much. I would like to know if anyone on the team has additional insights into the macro trends they are observing, such as advertising, days outstanding, bad debt, or trends across all the businesses. Also, Dave, looking ahead in Cable, if you anticipate a prolonged period of slower broadband growth due to the factors you've mentioned, it could lead to a slower revenue growth. As you plan for this business moving forward, are you aiming for a specific margin goal, which would result in lower investment OpEx as revenue declines? How are you approaching the management of the business in light of a potential revenue slowdown due to the softer broadband growth? Thank you.

So Mike, it's Doug. I'll step in. Overall, we aren't experiencing a slowdown. Dave can provide insights on consumer payments, and I'll let Jeff discuss advertising. Compared to some of the conversations you've been hearing, we are managing the effects of macroeconomic challenges on consumers and our expenditure. Brian already mentioned the interest rates, with 85% fixed at the levels he referred to. Regarding our expenses, only a small portion is related to energy from fuel for our trucks. We also face pressures in areas like labor, similar to others in the industry. However, we understand how to navigate these challenges. Therefore, as we look toward the second half of the year, I wouldn't consider macro issues to be a significant problem. I'll let Jeff take over.

Yes, thanks, Mike. I would add that the advertising market is uneven. We mentioned this before, and it remains inconsistent, with a year-on-year decline in the scatter market. However, the performance varies by segment; some are performing well while others are not. We recently completed the upfront, which, as Brian noted, exceeded our expectations. So while there is some inconsistency, it isn’t significantly concerning.

I'll just jump in one more time, and Dave can follow up. When we look across all the businesses and the budget exercise, our focus is really on optimizing for the long term. The last thing you'll see us doing is cutting essential capabilities. We're committed to trimming unnecessary expenses during tougher times, but we maintain a long-term perspective on our investment priorities, which are crucial for driving future growth. Fortunately, we're in a position where we don't have to sacrifice that. While there may be some tactical adjustments and cost-saving measures, I'll hand it over to Dave.

Thanks, Mike. Hey, Doug. Looking ahead, I think we're aligning with our game plan. In broadband, we achieved solid ARPU growth of 3.6%, with half of that driven by rate increases and the other half by how we manage our tier mix. We have a strong overall relationship with our 32 million broadband customers, and by focusing on our network and product strengths, we'll continue to drive success. We have various strategies we'll implement, including adjusting our promotional efforts and effectively segmenting our market. We see growth opportunities in areas like Business Services, Mobile, and Video. We will remain competitive in our broadband relationships while concentrating on our network and product advantages, which will help us maintain our pricing strategy in the market.

Thank you.

Thanks, Doug. Operator next question please?

Thank you. I just wanted to drill down, if possible, on advertising. Jeff, I'm not sure what choppy means. Could you give us any color on kind of magnitude up or down in scatter, outlook for political? And then on Cable, if anyone can comment what's going on in advertising there? But more importantly, Peacock came out of the gate with a differentiated strategy on AVOD, and now you're seeing a slew of other companies following. Obviously, inventory will go up, but is that positive or negative? Meaning will more advertisers come in? And if they do, are you taking share from digital or is it a share shift from linear? Just any color you can give us on AVOD would be great.

Yes, thank you, Jessica. When I say choppy, I mean that we are not experiencing a broad decline or increase. Looking at our business for the quarter, as Mike mentioned earlier, if we exclude last year's NHL playoff impact, we actually saw an increase, which is better than some other companies that have reported thus far. A year-on-year increase is a positive sign. In the scatter market and what we observed during the upfronts, certain segments like automotive are down due to a lack of availability of cars, as highlighted by GM's earnings yesterday, leading to reduced advertising. Conversely, the pharmaceutical sector saw notable growth during the upfronts due to a backlog of FDA approvals expected this year. By choppy, I mean that different segments are experiencing various trends, some up and some down, without an overarching trend. Regarding Peacock, we had the advantage of analyzing the market before our entry and adopted a strategy that extends our existing business model rather than creating a new one, relying on both subscription and advertising revenue. The movement towards this approach by others reinforces the validity of our business model. In terms of advertising, we are one of the largest players with over $10 billion in advertising revenue, so we don't anticipate a significant impact from new entrants at current levels. Our scale provides us with a competitive edge. As for political advertising, while we don't want to count on outcomes prematurely, we anticipate a robust political season ahead. Our overall company, including our local TV stations, Cable, and Peacock, is well-positioned to capture advertising opportunities from candidates. We expect strong results from Peacock this fall, in addition to the advertising across our entire company.

No, I totally agree with that.

Thanks, Jessica. Operator next question please?

Thanks. I'm going to follow up on one of the questions that was asked earlier. You always kind of get these questions around capital allocation and M&A, and it seems like those discussions always seem to focus on what you may or may not want to do in the media space. But you still generate the large majority of your earnings and cash flow out of your Cable Communications segment, and a harder backdrop may make asset values in that sector come down. We've already seen that. What is your appetite for maybe increasing your discretionary capital into telecom? Meaning would you be interested in buying more cable assets if they were available, or fiber assets if they were available, or things that would support your mobile business from an infrastructure standpoint? I just feel like it's been a while since we've taken your temperature on whether that could be something you'd be interested in doing opportunistically. And then just a question on the Parks. Obviously, the strength in per caps was an important part of what contributed to the outstanding financial performance in the quarter. But beginning of 2Q and the end of 2Q, I think, were a very different economic environments. I'm just curious whether you've seen any notable shifts in spending patterns at the parks in the more recent weeks? Thanks.

Yes. Mike, you may want to jump in on this or Dave. This is Brian. I absolutely like the communications business that we're in; that’s certainly my roots in life. The most recent acquisition we made, which we consider a tuck-in acquisition, is Masergy. It's part of the Business Services Group, and it's off to a really good start, providing us with more capabilities as you mentioned. Our focus is on identifying new revenue sources and growth avenues, particularly looking for individuals who've started or built companies that we can scale quickly, and that's been a successful approach. Dave's team continuously evaluates these opportunities, as does the business development team. Would you like to add anything to that? I think it's pretty noteworthy.

Nothing. It's all in balance, but I think as Brian said, the bar is always high. But I think we look at smaller stuff and like Masergy and even smaller, and there's a steady diet of trying to add capability, innovation and scale it up across the whole footprint of Cable. And a lot of it is inclusive of, remember, the road map for tech, video aggregation, broadband and the like is shared with Sky. And so when we look at that question, we're really looking across both of those businesses together.

I think two things. One, just following on Masergy, it is a great example. It's an opportunity to grow. It's one of our most important areas, mid-market and enterprise, just an example of making the right kind of bet on that and it's off to a really good start. The teams are working really well together. Masergy, our business services teams, and doing exactly what we'd hoped for in the early days of integration. Second point is APCO in a joint venture with Charter, another great example of an opportunity to grow. And having a scaled platform like that, investing in that future, I think, is the right kind of bet to make. We'll continue to look for those opportunities.

Yes. But just following up on the last thing you said, the per cap. So I think one of the surprises coming out of the pandemic for us has been the strength of per cap spending. Normally, people who come in from international spend more on Harry Potter wands and so forth than people domestically. And we've seen domestic per cap speed just tremendous coming out of the pandemic. And we've seen no weakness in that coming out of the quarter into the next quarter.

Thanks, Brett. Operator, next question please?

Thanks for taking the questions. So you've been willing to run leverage higher than 2.4 times in the past. It feels like at this point the market isn't giving you full credit for the strength that you see longer term in the Cable business and in this combination of assets, and I'm wondering if now is a great time to sort of take advantage of that. Was the reason for not pushing leverage higher and buying back more of your stock just be the macro environment? Is that what's sort of holding you back on leverage is macro uncertainty?

Yes, Jonathan, this is Mike. We consider the long-term cycles affecting our business and the economy. We believe that maintaining a strong balance sheet, defined by the leverage and ratings we aim for, is the right approach. As Brian and others have noted, our ability to invest significantly in our businesses while also returning capital to shareholders allows us to drive future growth. In uncertain market conditions, many companies would appreciate having these strengths. We have been active in returning capital, with $6 billion in buybacks this year and our 14th consecutive year of increasing dividends, supported by solid financial performance in the first half. We feel confident about our EBITDA strength as we head into the second half of the year. However, we are not looking to change our leverage and balance sheet strategy, which is designed to navigate various cycles effectively.

Thanks, Jonathan. Operator we’ll take our last question please.

Great, thank you. I wanted to follow up on the discussion about high-speed data competition, particularly for Dave. Can you share the current status of fiber overlap and how it has evolved over the past year? Regarding ARPU, I appreciated the comments on rate and tier mix. Do you still believe you have the same pricing power in light of the competitive changes, even though you mentioned not wanting to chase rates to boost subscription growth? Additionally, in terms of tier mix, have you noticed any trends related to consumers potentially downgrading their broadband plans to save money, especially given the current pressures? Thanks.

Yes, this is Dave. Regarding our overall approach to the marketplace and pricing, we have consistently segmented the marketplace over a long period, so there hasn't been a drastic change in the current environment. There are certainly impacts from mobile substitution, particularly affecting the lower end, but we've always had successful programs like Internet Essentials, so we don't see a significant shift. Our strategy has involved varying our offers and having different responses to competition. Currently, we're at 40% in terms of fiber, which represents a steady growth. In the early stages, there was a surge, and we're accustomed to competing vigorously against all fiber providers without noticing a change in that landscape. The results from the telco segment are indicative of our competitive standing. Our approach has been consistent, focusing on our segmented strategy, best network, and best products, which will continue to guide our competitive strategy.

Thanks, John. That will end our call and thank you everyone for joining us.

Thanks, everybody.