Comcast Corp - Class A (CMCSA) — Q4 2022 Earnings Call Transcript

Thank you, operator, and welcome, everyone. On this morning's call are Brian Roberts, Mike Cavanagh and Jason Armstrong, who are also joined by 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 good morning, everyone. I'm really proud of how our team executed throughout 2022. We achieved the highest levels of revenue, adjusted EBITDA and adjusted EPS in our company's history. And we returned a record $17.7 billion of capital to shareholders through both our recurring dividend, which we just increased for the 15th consecutive year, and robust share repurchase activity. We did all this while accelerating investment in key growth initiatives, which are showing great progress, particularly our broadband network as we transition to 10G, but also in Xfinity Mobile, Peacock and our theme parks. I attribute all this success to the incredible talent across our organization, who work collaboratively to ensure we are constantly evolving and innovating so that our customers have the absolute best experience with us at every point of interaction. What also sets us apart is our very strong balance sheet, which, when combined with the cost actions we have taken this past quarter, position us to perform well no matter what the macro environment might bring. I want to start with cable, where our financial performance both for the year and the fourth quarter confirm that we are striking the right balance between rate and volume in residential broadband, and we plan to continue to do so in 2023. At Xfinity Mobile and Comcast business remain strong growth drivers, and we have successfully identified the appropriate mix between cutting costs to drive efficiencies and investing for our future. We have always maintained an intense focus on providing the absolute best products and experiences, which comes down to having the highest capacity, most reliable and most efficient broadband network. Our evolution to 10G and the unique way we are pursuing this through DOCSIS 4.0 is a huge benefit for our customers across the entire footprint that they will all have access to an entire ecosystem built around multi-gigabit symmetrical speeds, some as early as this year. It's also great for the company investors, as our transition to a virtual software-based network infused with the marvelous AI capabilities will not only provide tangible benefits when it comes to operating and capital expenses, but it will enable us to innovate faster than ever before, solidifying our leadership position in broadband, which is extremely important given what is certain to be continued increases in demand for both speed and usage. In fact, we continue to see signs of this today. Our residential broadband-only customers are now consuming nearly 700 gigabytes of data every month, and customers on our Gigabit Plus products now comprise one-third of our broadband subscribers. In addition to creating more value from our current customer base and further penetrating the total homes and businesses that we pass today, another great opportunity is for us to extend our networks to homes and businesses in the U.S. that do not have the ability to receive our services. To that end, we increased our passings by 1.4% or 840,000 in 2022, and we expect to accelerate in 2023, where we are aiming to add around 1 million while still maintaining the same CapEx intensity level we achieved in 2022, reaching nearly 62.5 million by the end of the year. We are taking a disciplined approach, and we'll only pursue those areas that have a return profile similar to what we have been able to historically achieve. Wireless is playing an integral part of our overall strategy at cable, and it's an area where we continue to shine. This past quarter was another record in net line additions, bringing us to over 5 million total lines in just five years. Only 9% penetration of our current base of residential broadband customers, we have plenty of runway ahead, and we're just getting started in offering wireless to our commercial segment, which is another great example of how we are selling more products into our existing base of business customers. When you combine our broadband network, WiFi overlay and MVNO with Verizon, we are in the best position to win in convergence. We have a leg up on our competitors with a capital-light strategy that does not involve customer or network trade-offs. At NBCUniversal, we are seeing some great momentum in Peacock and parks. And across all of NBCUniversal, our intellectual property is really resonating. We had the number 2 studio in terms of worldwide box office in 2022, fueled by a strong slate, including Jurassic, Minions, Nope, Ticket to Paradise, Puss in Boots, Black Phone, Halloween, which have also had great carryover success to Peacock through our Pay-One window and select day and date releases. And our box office momentum continued into the first quarter with M3GAN, so all in all, a really strong film slate. Peacock ended the year with over 20 million paying subscribers, more than double where we started. And we added over 5 million paid subscribers in the fourth quarter alone. Our success was broad-based, fueled by some of the films I just mentioned but also sporting events like the World Cup, NFL, Premier League, several new originals and our exclusive next-day broadcast of NBC. Looking ahead, and based on our experience to date, we expect our subscriber cadence will follow our content launches, which will fall more in the second half of 23. And we continue to see positive trends in engagement, churn and ARPU. Mark Woodbury had a fabulous first year as our CEO of the Parks business, and we hit a number of new records this past quarter. It was the highest fourth quarter EBITDA for the entire segment, led by Orlando and Hollywood, and Japan had the best EBITDA performance since 2019. This was driven by attendance that for us surpassed pre-pandemic levels at all three parks. While attendance at our Park in Beijing was significantly impacted by COVID in 2022, we are seeing some exciting demand to start the year. Given the excellent returns we have generated to date, we continue to seek ways to expand our parks. I'm really excited about our two recently announced extensions. First universal park designed specifically for younger audiences near Dallas, and the first year-round horror entertainment experience in Las Vegas. These are new innovative ways to utilize our substantial IP, including from DreamWorks and Illumination, while also extending our brand, both of which had helped fuel growth in all of our parks. Our linear video business, we are managing subscriber declines by taking a disciplined approach to our cost base. We are continuing to invest in our global technology platform, and you will see a number of announcements from us in the weeks and months ahead. For example, in 2023, we will launch one global user interface for Sky Glass, Xfinity, X1, Flex, XUMO, at our U.S. and International partners. Every entertainment customer around the world will get the same Emmy award-winning voice controlled experience. This scale not only brings us operational efficiencies, but it also puts us in the enviable position when it comes to conversations with distributors, OEMs, programmers, app developers and talent. At Sky, we are managing through the macroeconomic challenges in Europe while staying intensely focused on retention and continuing to provide our customers with the best entertainment and connectivity experiences. We're seeing some encouraging results. In the UK, Sky Glass had the top selling UHD TV model. Sky mobile is the fastest growing mobile provider, surpassing three million lines. And we are narrowing the gap between us and the current number one broadband provider with Sky Broadband, now sitting at over 6.5 million subscribers. Wrapping up, our consistently strong financial performance, healthy balance sheet, record high return of capital to shareholders underscore how the scale capabilities and talent across our company enable us to successfully execute our long-term growth strategy. I'm convinced we are on the right path and that we have the right team to capture our many opportunities and overcome whatever challenges happen along the way. So before handing over the call, I want to congratulate Jason Armstrong, recently promoted to Chief Financial Officer, succeeding Mike Cavanagh. Couldn't be more confident in the leadership team's ability to continue to drive us forward and create more value for our shareholders.

Thanks, Brian. And good morning, everyone. First, I'd like to just say that it's been a pleasure serving as CFO of Comcast for the last seven plus years, and I couldn't be prouder to have Jason be my successor. Knowing that with Jason, the financial leadership of our company is in proven and expert hands. Since Jason didn't take over as CFO until early in the new year, I will handle the CFO portion of this call and hand it over to Jason for the first quarter call in April. So now I'll begin on Slides four and five to discuss our consolidated 2022 financial results. Revenue increased just under 1% to $30.6 billion for the fourth quarter and 4.3% to $121.4 billion for the full year. Adjusted EBITDA decreased 4.9% to $8 billion for the fourth quarter, and increased 5% to $36.5 billion for the full year. The quarterly results include severance expenses booked in each of our businesses, totaling $638 million, which is $541 million higher than the prior year period. Including this increase, adjusted EBITDA increased 1.5% in the fourth quarter, and 6.6% for the full year. Adjusted EPS increased 6.5% to $0.82 per share for the fourth quarter and 13% to $3.64 for the full year. And we generated $1.3 billion of free cash flow for the fourth quarter and $12.6 billion for the full year while absorbing increased investments in Peacock and theme parks as well as higher working capital as content creation normalizes post-COVID. Now let's turn to our business segment results starting with Cable Communications on Slide six. Cable revenue increased 1.4% to $16.6 billion, EBITDA increased 1.5% to $7.2 billion and cable EBITDA margins improved 10 basis points year-over-year to 43.5%. These results include $345 million of severance expense, which is $305 million higher compared to last year's fourth quarter; excluding severance, cable EBITDA increased 5.8% and cable EBITDA margin improved by 190 basis points to a record high of 45.3%. These strong results also included the impact of Hurricane Ian in Southwest Florida, which resulted in the loss or severe damage to many homes we serve in this market. Excluding the hurricane impacts, we would have added approximately 4,000 broadband customers versus the 26,000 loss we reported. And we estimate that we would have lost approximately 36,000 customer relationships versus the 71,000 we reported. Overall, our broadband customer results in the fourth quarter were fairly consistent with the prior two quarters, reflecting lower levels of new customer connections, offset by churn, which remained well below 2019 levels. Now let's discuss cable financials in more detail. Cable revenue growth of 1.4% was driven by higher broadband, wireless business services, and advertising revenue, partially offset by lower video and voice revenue. Broadband revenue increased 5.4% driven by growth in ARPU and in our customer base when compared to last year. Broadband ARPU increased 3.8% year-over-year, when adjusting for some COVID-related customer credits last year. This organic ARPU growth is similar to the growth we've generated over the last couple of quarters and is consistent with our strategy. We are focused on optimizing our customer relationships by consistently adding more capabilities, services and value, so as to provide the best broadband experience, which has and should continue to deliver broadband ARPU growth. The elements of growth this quarter include increased rate, attaching more customers to higher tiers, as well as other services. We expect ARPU growth will continue to be the primary driver of our residential broadband revenue growth in 2023. Wireless revenue increased 25%, mainly driven by service revenue, which was fueled by growth in customer lines. We added 1.3 million lines in 2022, including 365,000 lines in the fourth quarter, which is our highest number of net additions for any quarter on record. Business Services revenue increased 4.6%, which includes the results of Masergy in both this quarter and in the prior year period, as we lap the closing of this acquisition at the beginning of the quarter. Revenue growth was primarily driven by rate, including customers taking faster data speeds, higher attach rates of our advanced products, and rate increases on some of our services. Advertising revenue increased 9.1% driven by strong political revenue, partially offset by the absence of advertising revenue that is now part of XUMO, our joint venture with Charter. Adjusting for those items, cable advertising revenue decreased 1.6%, reflecting decline in our local core advertising business, partially offset by solid growth at our advanced advertising business. Video revenue declined 5.6% driven by year-over-year customer net losses, partially offset by ARPU growth of 5.8% due to a residential rate increase we implemented at the beginning of 2022. And last, voice revenue declined 13%, primarily reflecting year-over-year customer losses. Turning to expenses, Cable Communications fourth quarter expenses increased 1.4%, reflecting higher non-programming expenses, which included the $305 million in higher severance costs, partially offset by lower programming expenses. Programming expenses decreased 5.9%, reflecting the year-over-year decline in video customers partially offset by higher contractual rates. Non-programming expenses, which again include $305 million in higher severance costs, increased 5.6%. Excluding severance, these expenses were flat compared to last year, reflecting an increase in bad debt as we return to more normalized pre-pandemic levels an increased technical and product support expenses driven by growth in our wireless business. These were offset by a decline in marketing and promotion and customer service expenses due to lower activity levels, efficiencies in running the business, and improvements we continue to make in our customer experience. Our focus on growing our high-margin connectivity businesses, coupled with our focus on increasing operating efficiency and cost controls, drove strong EBITDA growth and margin expansion in 2022; excluding the higher severance expense, we grew full year EBITDA by 5.7% and increased EBITDA margins by 110 basis points to 44.8%. We believe that our disciplined approach to running the business, including the benefits from our cost reduction efforts this quarter, positioned us to drive higher profitability and further expand margins, both in 2023 and thereafter. Now, let's turn to Slide seven for NBCUniversal. Starting with total NBCUniversal results, fourth quarter revenue increased 5.9% to $9.9 billion, and EBITDA decreased 36% to $817 million, including $182 million of severance expense in the quarter; excluding severance, EBITDA decreased 22%. Media revenue increased 2.6% to $6 billion, mainly driven by Peacock, which nearly doubled its revenue to $660 million and Telemundo's broadcast of the World Cup. Advertising revenue increased 4%, reflecting an incremental $263 million from the World Cup, as well as strong growth at Peacock and a healthy contribution of political advertising, partially offset by a decline in linear advertising. If we exclude the World Cup, advertising revenue declined 5.6%, reflecting softening in the overall advertising market, distribution revenue increased 3.8%, reflecting growth at Peacock driven by increases in paid subscribers, which more than doubled compared to last year, as well as higher contractual rates at our networks, partially offset by linear subscriber declines. Media EBITDA was $132 million in the fourth quarter, including a $978 million EBITDA loss at Peacock, reflecting the cost of new content, such as our exclusive next-day broadcast and Bravo content, our robust lineup of Pay-One titles, and day and date releases like Halloween, NFL Premier League and the World Cup. Peacock's full year EBITDA loss of $2.5 billion was in line with the outlook we provided a year ago. And for 2023, we expect Peacock losses to be up modestly to around $3 billion. As we've said previously, we believe 2023 will be peak losses for Peacock and, from there, steadily improve. Excluding Peacock, Media EBITDA in the fourth quarter decreased 13%, reflecting the lower revenue and fairly flat expenses despite the higher costs associated with broadcasting the World Cup. Looking to the first quarter. While we remain focused on managing costs, we expect underlying Media EBITDA, excluding Peacock, to continue to be impacted by the top-line pressures at our linear networks. Moving to Studios. Revenue increased 13% to $2.7 billion, driven by growth in content licensing and theatrical revenue. Content licensing was up 16% driven by the benefit of our carryover titles and the acceleration in film windows as well as healthy growth in television licensing. Theatrical revenue increased 47% due to the success of recent releases, including Ticket to Paradise, Puss in Boots, Violent Night, and Halloween Ends. EBITDA increased $109 million to $160 million for the quarter, reflecting the higher revenue, partially offset by an increase in marketing and promotion expense, reflecting the size and timing of this quarter's theatrical slate, as well as the corresponding higher programming and production costs. At Theme Parks, revenue increased 12% to $2.1 billion, while EBITDA increased 16% to $782 million, our highest level of EBITDA on record for our fourth quarter. These results were driven by growth at our parks in the U.S. and Japan, partially offset by our park in Beijing, which was negatively impacted by COVID-related restrictions. At our U.S. parks, we continue to see strong demand with attendance and guest spending up year-over-year and with Orlando and Hollywood both delivering record high EBITDA for the fourth quarter. Universal Japan continued to rebound since capacity restrictions were lifted at the end of March and delivered strong year-over-year EBITDA growth in the quarter. Now let's turn to Slide 8 for Sky. Reported results were meaningfully impacted by currency translation due to the strengthening dollar, but I will speak to Sky's results on a constant currency basis. For the fourth quarter, Sky revenue was relatively consistent compared to last year at $4.4 billion. Direct-to-consumer revenue was also consistent compared to last year, reflecting growth in the U.K. driven by wireless and broadband revenue offset by declines in Germany and Italy. On a customer basis, we added 129,000 customer relationships in the quarter with positive additions across all three territories, the U.K., Italy, and Germany. These net additions were driven by streaming, broadband, and wireless customer additions and reflect our team's strong execution in a challenging macroeconomic environment across Europe. Rounding out the rest of Sky revenue, content revenue increased 6.5% driven by licensing our entertainment content, and advertising revenue decreased 9.6% primarily driven by lower revenue in the U.K., reflecting the timing of the World Cup and the macro environment. Turning to EBITDA, Sky's EBITDA decreased 15% to $340 million, including $89 million of severance expense, which is $53 million higher compared to last year's fourth quarter. Excluding severance, EBITDA declined 2% compared to last year, reflecting an increase in direct network costs driven by growth in our residential mobile and broadband businesses and higher other expenses, which were mostly offset by lower programming costs due to the timing of sports programming as four weeks of EPL games were paused during the fourth quarter to accommodate the World Cup. However, we will incur higher sports costs in the first half of 2023, reflecting the higher number of games as the season is extended and the remainder of the games which were paused are now played. Now I'll wrap up with free cash flow and capital allocation on Slide 9. As I mentioned previously, in 2022, we generated around $12.6 billion in free cash flow while absorbing increased investments in Peacock and Theme Parks as well as higher working capital as content creation normalizes post-COVID. Full year consolidated total capital investment increased 14.2% or $1.7 billion to $13.8 billion due to increased spending at NBCUniversal and Cable, partially offset by a decrease at Sky. At Cable, total capital spending increased 8.3% or $695 million, with CapEx intensity coming in at 11.4%, primarily driven by investments to further strengthen and extend our network. In 2023, we expect CapEx intensity to stay at around 11%, similar to 2022 levels as we aim to accelerate our homes passed growth to about 1 million and continue to transition our entire broadband network to DOCSIS 4.0 over the next few years. NBCUniversal's total capital spending increased $1.4 billion, driven by park CapEx increasing $1.1 billion, of which Epic was around $800 million and reflects our continued investment in new attractions like Super Nintendo World at Hollywood and Donkey Kong at Japan. In 2023, we expect parks CapEx to increase by around $1.2 billion over last year as we continue to build Epic, which we plan to open in 2025 and begin work on our recently announced park extensions mentioned earlier. The required investment to develop these extensions is nowhere near the scale of Epic or Universal Beijing but rather enables us to leverage our already large market opportunity and can serve as a model that contributes to even higher growth at Theme Parks in the future. Working capital was $3 billion for the year, a $1.5 billion increase over last year's level, reflecting a post-COVID ramp of investment in content creation. Turning to capital allocation. We ended the year with net leverage at 2.4 times and returned a total of $17.7 billion to shareholders, including $4.7 billion in dividend payments and $13 billion in share repurchases. For 2023, we expect to continue to maintain leverage at around current levels, which I expect will support continued strong capital returns. As we announced this morning, we are raising the dividend by $0.08 a share to $1.16 per share, our 15th consecutive annual increase. This reflects our long-standing balanced capital allocation policy. We're committed to investing organically in the businesses while maintaining a strong balance sheet and also returning a very healthy amount of capital to shareholders. 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.

Good morning. And thank you. Brian and Mike as well giving your promotion to President, congratulations on that, by the way. And Jason, congratulations on the CFO role. Brian, Mike, since we're turning to a new calendar year, I wanted to ask for an updated vision for the company and how you see the company evolving over time. As part of that, investors are certainly interested in how the company best addresses cable broadband competition and connectivity convergence and media streaming challenges, and whether you see notable growth opportunities for the company that would shift allocation of capital as well. So how do you address the challenges and opportunities? And how has the company evolved over the next three to five years? Thanks.

Thank you, Doug. This is Mike. I’ll start, and then Brian can add if he wishes. Looking ahead, it's important to reflect on where we are right now. In 2022, we achieved outstanding operating results, achieving record revenues and adjusted EBITDA, thanks to the dedication of our teams. This illustrates strong management, operational, and financial discipline. We are also in a position to return significant capital in our industry at a leverage of 2.4 times, which gives us a balanced approach regarding future opportunities and challenges. Regarding our investments, we have numerous organic initiatives in place to tackle the current opportunities and challenges, adjusting our strategy as new ones arise. For example, we’re on a path to 10G with DOCSIS 4.0, allowing us to establish a capital-efficient network with symmetrical upstream and downstream capabilities in just a few years. We plan to start rolling that out at the end of this year, as we aim to create the best network possible and surround it with a range of services, including WiFi and Flex. You've also heard about plans for a single global tech platform that consolidates our different technologies, such as what we do in the U.K. with glass build, X1 in the U.S., and Peacock, creating capabilities that extend beyond our traditional boundaries, including our partnership with Charter for XUMO. On the Cable side, we’ve made notable progress in wireless over the past five years, now covering 5 million lines. This approach is designed to be capital-light, forming a solid strategy for growing the cable business moving forward. We plan to maintain this trajectory. In terms of Media, we believe Peacock is the right strategy. Jeff has emphasized that we won’t be reliant on others, as we have a strong business in NBC and our cable networks. We are investing significantly in content migration toward streaming, witnessing remarkable growth in paid subscriptions, increasing to 20 million from under 10 million a year ago. We predict this year will involve peak investment in that sector. Additionally, regarding parks, we have exciting projects lined up like the Nintendo opening in Hollywood in February and the Epic Universe theme park in Orlando, set to open in 2025, which will require increased spending this year. We are also exploring innovative additions, such as a kids-based theme park in Dallas and Hollywood Hard Nights in Las Vegas. We are prepared to pursue an organic investment agenda and drive growth across our businesses in the coming years. While we will explore inorganic options as they arise, our focus remains on executing well against organic opportunities, which I believe we are doing effectively. Brian, do you have anything to add?

First of all, I understand why you're suited for this role. Your response was excellent and addressed many aspects of the company's vision. Rather than being repetitive, I’ll take a step back and focus on two key themes from your discussion regarding the company's vision. One theme is the ongoing changes in broadband, both in terms of competition and the evolving demands of consumers. We are assessing where to invest in relation to this vision. The second theme is the shift towards streaming and our current progress in this area. Considering the 10G initiative that Mike mentioned, our goal is to enhance our lead and clearly demonstrate to consumers the value we offer to both residential customers and businesses. Our broadband service is increasingly essential, and our investments aim to provide widespread access. For instance, during Thursday night’s NFL games on Amazon, we saw significant broadband usage. This raises questions about future consumption trends in America over the next 5 to 10 years. We strive to be uniquely positioned to take advantage of these macro trends. The same holds true for streaming. Kudos to the entire team at NBCUniversal, Comcast, and Sky for achieving over 20 million paying Peacock subscribers in just one year, which speaks to the value we provide. For only $5 a month, consumers can access a wide array of content, and that value is being recognized. I share Mike's perspective; our company is extremely well positioned, and we expect to continue organic growth while maintaining a strong balance sheet and returning capital to shareholders. We successfully balanced these priorities in 2022, and we aim to repeat that success.

Thanks, Doug. Operator, we’ll take the next question.

Good morning. Thank you. I want to ask Jeff about the NBC outlook, focusing on both the key trends for 2023 and the long-term view. The business generated over $8.5 billion in EBITDA back in 2019, but I anticipate that EBITDA will likely decline from 2022, primarily due to Peacock losses and challenges in the Media sector. Can you discuss the long-term prospects for NBCUniversal? Do you believe it's possible to reach those EBITDA levels again within a reasonable timeframe for investment? Additionally, how do you feel about advertising and parks in light of current macroeconomic concerns? I also have a question for Mike regarding cash flow. You mentioned a $3 billion net working capital drag in 2022. Can you provide any insights on that for 2023, if you have any visibility? Thank you both.

Ben, this is Jeff. I'll begin and then pass it to Mike. We are very optimistic about NBC's growth prospects moving forward. If we break it down, our content businesses have had an excellent quarter and are currently performing better than ever, particularly in the movie studio sector. We have a strong slate for this year and our TV businesses and studios are excelling. Overall, our content business is thriving and is positioned for growth over time. Regarding the parks business, as Brian and Mike have mentioned, it has never performed better for us. We had a record year last year. While we expect a slight slowdown in the U.S. due to our past successes, we have gained traction in Japan during the fourth quarter. This growth is supported by the Nintendo attraction in Beijing, which reached profitability in the third quarter and faced challenges from COVID in the fourth. However, the initial weeks of this year are showing positive results despite adverse weather conditions. I believe there is significant growth potential in our parks business, and as Mike and Brian indicated, we are investing in it. In terms of the Media segment, as Brian detailed, we've decided to invest in Peacock. It's evident that we've chosen the right business model at this point, considering our current standing. The strength of our content, which has kept our linear networks at the top for decades, is also benefiting Peacock. We are committed to growing our investment and have been transparent from the beginning about our expectation for a return on that investment. We feel increasingly confident about achieving growth in the Media segment over time, more so than we did a year or two ago. The timing of this growth will depend on external factors such as the advertising market recovery and ongoing declines in linear. Additionally, we are focused on reducing costs in the linear segment to uphold our margins. Overall, I am quite confident in the growth prospects for NBCUniversal, especially after the progress we've made this year in the Media segment. We are committed to investing in Peacock because we believe it will return the segment to growth over time.

And then on working capital, we said a year ago that it was going to be spiked to a higher than typical run rate level just on the back of the disruptions caused by COVID in getting content creation in the phase we're in up to normalized levels. So expect to just ease back off of the levels we saw in 2022. It's a hard number to predict, but I think we are past peak there.

Thanks, Ben. Operator we’ll take the next question.

Thank you. And congratulations to both of you, Mike and Jason. The question I have is on margins. As I think about the Cable segment, I think most people at this point are aware of the puts and takes where growing broadband, it raises margins, losing video raises margins. As you think about wireless now sort of accounting for a larger and larger piece of the pie, how do those pieces fit together as sort of a longer-term outlook for margins? Is it possible for the growth rate of wireless at whatever margin it sort of contributes to keep margins growing in the cable business?

I believe the positive aspect is that we have a strong portfolio of opportunities and business lines. We have solid relationships in broadband that enable us to generate revenue effectively. I expect residential broadband to continue contributing not only to revenue but also to our profit margins. Business services represent a significant long-term opportunity that has been persistent and will remain so. When considering the impact on our top-line margins, especially with mobile growth and a slowdown in video, I see a positive contribution to margins. Additionally, we are mindful of our expenses and lower activity levels, focusing on two main areas: transactional activities and experience improvements, such as self-installation and apps that empower customers to resolve issues independently. We are also concentrating on managing fixed costs. Overall, these elements indicate that the improvements we are seeing are not incidental but the result of sustained efforts over time to enhance margins. I believe we still have good growth potential ahead.

Thanks, Craig. Operator, we’re ready for the next question.

Thank you. Going back to NBCU of kind of two topics on theme parks, you've got three parks planned for the U.S. Can you talk about global plans? And as peak spend in '24, I think that's what Mike just said. And then on Peacock, it sounds like this year will be peak losses. When do you expect breakeven? And can you talk about long-term profit potential like what margins would you look for? And then finally, kind of all around, can you just talk about your appetite for acquisitions? Mike said organic and non-organic. I'm just wondering WWE is obviously for sale. There's IP. Is this the year we finally see some more media consolidation? Thank you.

Operator?

Jessica, sorry about that. We're back.

Did you hear my question? I thought it was me. Thank you. So I just wanted to go back to NBCU. You've got three parks planned for the U.S. I'm just wondering if you have any global plans. And it sounds like from what Mike said that peak spend will be in '24, I just wanted to clarify that. And on Peacock, it sounds like this year will be peak losses. Can you talk about like when you expect breakeven and what you think about the long-term profit potential or margins there? And then finally, Mike again said organic and inorganic growth. So I'm just wondering what your appetite is for acquisitions, whether it's something like WWE or IP. Like is this the year we finally see media consolidation?

Thanks, this is Jeff. I appreciate your patience. Let me start with our parks. We are continuously looking to invest in them due to our strong performance. During the pandemic, we gained market share and have experienced solid growth. It's a business where we want to allocate more capital. As Brian mentioned, we're very excited about Epic, which is under construction and looking fantastic. The timing for this project is excellent. We also aim to invest in opportunities both in the U.S. and internationally. The new concept we're developing in Dallas is designed for a younger audience and requires less investment. If it succeeds, which we believe it will, it can be replicated in various locations worldwide that can't accommodate a large theme park like those in Orlando or Beijing. We're enthusiastic about this idea. Additionally, the Halloween horror nights experience in Vegas, which I find very exciting, has potential for expansion internationally as well. We're definitely looking at expanding into various global markets, not just focusing on the U.S. Some of these markets may not be suitable for a large theme park, so we are considering different concepts tailored for those areas. Regarding peak spending, we anticipate that Epic will represent our highest expenditure this year, although 2023 and 2024 will be on par as we scale down and prepare for the opening in early 2025. Moving on to Peacock, we couldn't be more optimistic about its growth trajectory. We're aligned with our investment expectations and have surpassed our projections for paid subscribers, signaling that this will be profitable. As Mike or Brian mentioned earlier, we expect peak spending this year, followed by steady improvement. We believe our investment in Peacock will deliver a return over time, and I'm increasingly confident that we’ll achieve this good return based on our business model and investment in the overall Media segment. Mike, would you like to discuss acquisitions?

Yes. Regarding media consolidation, we'll have to wait and see how it unfolds. Reflecting on our earlier conversation, we have solid plans to invest in our own businesses. Any potential opportunities we consider will involve thorough discussions, with a preference for investing in our own operations where we have control, understanding, and positive momentum. As I mentioned, for any inorganic opportunities, we will rigorously evaluate whether they are worth pursuing compared to our existing options for investing in our business, as Jeff just outlined.

And I would just add that we're always looking for bolt-on acquisitions that bolster our business. And I'll give two examples. We bought DreamWorks. We talked about that in the past, and it's been paying off steadily since our acquisition and just now, with Puss in Boots, which is a big hit at the box office, really our entry back into the Shrek Universe, continues to make that acquisition look really favorable. And we've invested in our Blumhouse investment over time. We're a partner with Jason Blum, and we have a big hit, M3GAN, this month, which is coming out of that investment. So we're always looking at bolt-on acquisitions. Don't necessarily involve big industry consolidation questions.

Thanks, Jessica. Operator we’ll take the next question.

Yes, thanks for taking the question. So later last year, one of the points you had made was just sort of based on market conditions. It was unlikely that you were going to see your broadband subscriber base really change in size, so basically stayed pretty flat for at least some period of time, and we saw effectively that trend in your fourth quarter results. I was hoping you can give us an update. How would you frame market conditions right now? Are you seeing any tailwinds begin to emerge? And do you need a meaningful improvement in market conditions to get back to more sustainably positive broadband net adds? Or do you think some of the steps you've been taking position you to accomplish that at some point this year regardless of the backdrop? Thank you.

Brett, this is Dave. To address your first point about the overall environment and its effect on our broadband results, in Q4, excluding the hurricane's impact, we recorded a net gain of 4,000 broadband subscribers. This trend has been consistent over the past few quarters, reflecting lower move activity and increased competition. However, the near-record low churn is a significant factor. The current macro environment still shows depressed move activity and strong competition, along with some normalization in non-pay activity and churn, making it challenging to add subscribers at this time. Nevertheless, our record high revenue, adjusted EBITDA, and margins in 2022 demonstrate that we have a successful model focused on driving revenue, EBITDA, and cash flow rather than merely chasing unit growth. Our broadband ARPU growth stands at 3.8%, and we are committed to adding value and investing in our network within our established parameters. As Brian mentioned, one-third of our broadband customers are now using our Gigabit Plus products, a significant increase from just 5% three years ago. With the rising demand for better broadband, especially with more sporting events moving to streaming, our competitive position remains strong. We will continue to invest in our robust network and strategically address each competitor in the marketplace. It’s a similar environment, but we are focused on achieving results while balancing pricing and volume.

Thanks, Brett. Operator, we’re ready for the next question.

Thanks, good morning. And congrats to Mike and Jason on your new roles. Just two topics, if I could. First, on the XUMO platform, if you can give us an update on how that's progressing and maybe some of the milestones to watch as you look out over the next one to two years. And then on the cost-cutting and efficiency actions that you took exiting 2022, how should we think about the annual cost savings opportunity? Thanks.

Let me start. This is Dave. I'll begin with XUMO. It's really early, and I'm excited about the opportunity. The initial discussions are positive, and there are a variety of partners involved. We're looking forward to our relationship with Charter. However, it's still early for XUMO, but I anticipate more developments, and we'll keep you informed as we move forward. Mike?

On the cost actions we took in the course of the year, it's really to get our businesses set up to drive the results we gave some commentary on the outlook. We don't give guidance, but I think consider it all factored into the outlooks that Jeff, Dave and I have given thus far on the call, which is, again, continued opportunity for expanding margins and growth in EBITDA in the cable business and everything Jeff just described on the Media side, including growth in parks, growth in studios and the net dynamics with linear versus Peacock in the Media side.

Thanks, Mike. Operator next question, please.

Thank you, everyone. I have two follow-up questions. Your stance on new footprint expansion and broadband initiatives remains unchanged. Will state funding or subsidies expedite this further, or is the annual figure of 1 million the best estimate moving forward? Jeff, can you provide an update on advertising trends since your early December remarks? Lastly, could you discuss the $500 million in severance this quarter? Should we expect more? Mike, you mentioned that cable margins should keep improving. What impact do you anticipate on costs in the future? Thank you.

Let me start by discussing our expectations for footprint expansion. We have been making steady progress. In 2021, we achieved 813,000 and in 2022, we reached 840,000. This progress aligns with what we anticipated, and we believe we can accelerate to around 1 million passings in 2023. There are still opportunities within our footprint, including residential and what we describe as hyper builds in commercial growth. We're very enthusiastic about this, as it constitutes the majority of our footprint expansion. The newer initiatives will focus on rural edge-outs, which we expect to gain momentum. We're excited about it and are committed to pursuing it with a disciplined approach, aiming for returns that align with our historical levels. All our efforts, including network upgrades and footprint expansions, remain on track, maintaining what we previously indicated with around 11% Cable CapEx intensity since 2021. We are eager about our progress in both upgrading our infrastructure and expanding our footprint.

Thanks, Dave, and thanks, Phil. So on the ad market, I think in prior calls, the market — the ad market steadily worsened over the course of last year. It kind of feels like it bottomed out around late November, early December. And really since then, it hasn't gotten worse and maybe even a little bit better. I describe it really as shallow. There's parts of the market that are actually doing really well, Pharma, entertainment. Travel is on fire. There's parts of the market that feels uncertain, tech, auto, financial services, all are weak. It feels like the weakness is due less to businesses not doing well and more to just macro uncertainty. I mean none of us really know where the economy is headed, and I think some advertisers in those segments are really holding back. And when they do advertise, they're coming in later than usual. So I think we have — we're doing a little bit better than our peers for a couple of reasons. One is Peacock's growth is really helping to offset the linear weakness, which is fortuitous for us. And I think, secondly, we've made big investments in data and measurement, and we have the best team, and that's really helping. But I guess I would just summarize it by saying the ad market feels to me like it stabilized a bit. And we're assuming it's going to stay weak for the first half of this year and then recover. But who really knows based on the macro economy?

Looking ahead to 2023, there is a lot of uncertainty in the environment, similar to what many businesses are facing. We made some adjustments regarding severance, including offering voluntary retirement company-wide, which we do periodically. This initiative not only provides opportunities for younger talent but also helps us be more efficient in certain areas as we navigate these uncertain times. We have implemented these strategies as we move into 2023, so that phase is behind us.

Thanks, Phil. Operator, we’ll take our last question.

Great. Thank you. Maybe a couple of questions for Dave on wireless and on video. On wireless, you talked about the 9% penetration. I mean, are you seeing the positive impact on the broadband base from selling wireless into that? And then do you expect to continue to lean in? I think you guys don't really look at that as a separate profit pool but just sort of supporting the broadband business. And is that unlikely to change? That's number one. You also — Dave talked about selling into the business segments. Just anything, sort of any color on how you're doing that or what that opportunity is? And then lastly, on video losses, just they were a little better than what we expected. Anything different there in terms of maybe selling of skinny bundles or how we should expect that to trend as we look into '23? Thanks.

Craig, Dave. So I think the good news is we have a great portfolio of opportunities and business lines. So as you said, we have real strength in broadband and not only just solid broadband relationships with the ability to drive revenue in a healthy way. So residential broadband, I believe, will continue to be accretive not just revenue but margin. Business services is a real long-term opportunity has been, will continue to be. So when you look at top-line margin impact, including mobile, I think it's good — and video slowing down. On the top line, it contributes towards margin. The second thing clearly are the expenses. And just lower activity levels, our constant focus around the two big buckets of the transactional activity, the experience improvements that we have that really drive things like self-install and the apps that help people resolve issues independently. And then our focus around cost, just fixed cost ongoing. And so that all those things, I think, show that it's not a singular moment. This has been steady progress over a long period of time around margin. So I think we still have a good runway.

Thanks, John, and thanks, everyone, for joining our call.