Comcast Corp - Class A (CMCSA) — Q2 2023 Earnings Call Transcript

Thank you, operator, and welcome to our second quarter 2023 earnings call. You'll first hear from Mike Cavanagh and Jason Armstrong. Then Brian Roberts and Dave Watson will join us and be available for Q&A. I will now refer you to slide two of the presentation accompanying this call, which can also be found on our Investor Relations website, which contains our Safe Harbor disclaimer. 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 schedule issued earlier this morning for the reconciliations of these non-GAAP financial measures to GAAP. With that, I'll turn the call over to Mike.

Thanks, Marci, and good morning, everyone. I'm very pleased with our second quarter results, which again demonstrate that our focused efforts to invest and innovate in businesses that offer significant revenue growth, while we carefully manage the contiguous areas with structurally lower growth is paying off. Total revenue grew 2%, and the six growth priority areas we have outlined: residential broadband, wireless, business services, theme parks, streaming, and premium content creation in our studios, grew nearly 10% year-over-year, and now represent 55% of total revenue. This revenue growth combined with careful management of margins across all businesses generated mid single-digit EBITDA growth and double-digit earnings per share growth. Looking farther into the future, we expect to continue to drive significant growth in these areas, and to continue to identify and invest in organic growth opportunities across our strong portfolio of businesses. We are also very clear about the challenges that we and our competitors face in other business lines and have established thoughtful plans which will enable these businesses to continue to meaningfully contribute both financially and strategically. Importantly, the net effect of this approach is a path to sustained future revenue growth for the company in total, driving strong earnings and free cash flow growth for what I expect to be many years to come. Significantly, we have by far the strongest balance sheet among our core competitors, which allows us to continue to invest for growth while returning substantial capital to shareholders through both dividends and buybacks that will drive excellent free cash flow and earnings per share growth. Now, let me call out a few highlights from the quarter. For the first time in the company's history, we generated over $10 billion in quarterly EBITDA. And while the diversification of our businesses means there were several significant contributors, I would highlight three that stand out to me in the quarter and reflect the consistency of our investments and the resulting durability of our growth profile. The first is broadband ARPU growth of 4.5%. Stepping back, I am confident we have a winning hand in convergence. We are the largest broadband provider with a high-quality ubiquitous network, and the most cost-efficient upgrade path to higher speeds. In addition, we can compete effectively in wireless with a capital-light approach, and a very strong value proposition for our customers. We also have a long history of consistently surrounding our products with industry-leading features and capabilities, ranging from the coverage and control aspects of our WiFi experience, to content aggregation through our X1 and Flex platforms, which is how we have been able to achieve near-record low levels of churn and grow ARPU consistently quarter after quarter. This second quarter's 4.5% growth was no exception and is a testament to our ability to appropriately balance rate and volume to effectively segment the market and surround our broadband product with industry-leading products and capabilities. The broadband market remains highly competitive, but we have and will continue to invest to sustain our position as a market leader. Second is our parks, which continues to be such a great story for us. Our teams have consistently introduced new and innovative attractions, leveraging both our owned or licensed IP. We opened Super Nintendo World at both Universal Hollywood and Japan, which helped drive the record results in the quarter. Later this summer, we will be opening a new Minion Land in Orlando, and we look forward to Donkey Kong in Japan next year, as well as starting the previously announced kids' theme park in Texas and the Halloween Horror experience in Las Vegas. And I couldn't be more excited about the opening of Epic Universe in Orlando in 2025. Third is the strength of our film studios and in particular our animation business. Super Mario Bros. crossed over $1.3 billion in worldwide box office to date, making it the second-highest grossing animated film ever. This is another incredible achievement by Illumination and Chris Meledandri. We also invest in successful franchises like Fast, highlighted by the successful launch of the latest installment with Fast X during the quarter. Of course, we just released Oppenheimer, which grossed about $180 million this past weekend to tremendous acclaim from critics and moviegoers alike. Oppenheimer is such a powerful and impactful movie, and we at Comcast couldn't be prouder to work with Christopher Nolan to bring such an important movie to audiences globally. We have the very best roster of creative partners, and these innovative filmmakers enable us to invest in a strategic slate, which is one of the keys to our continued box office success where we remain number two in box office year-to-date. All of these results and accomplishments, from broadband differentiation to studio leadership to our park success are a function of our focused leadership team, commitment to innovation, strong balance sheet, and disciplined approach to capital allocation. As I look at our company, I am extremely bullish on the durability of growth drivers we have invested in so consistently, and in our continued ability to invest and deliver through a variety of businesses and economic cycles. This was also my first quarter with direct responsibility for NBCUniversal. And I observed in a note announcing some organizational changes a few weeks ago, NBCU is a very special place with tremendous opportunities ahead. I could not be more impressed with the depth of talent, and particularly with our leadership team. And I am very confident that the new streamlined organization we have just put in place, and which has been very well received will help us move even faster and make even better decisions. As you know, NBCU operates a diverse array of businesses, each with leading market positions. In addition to film and parks, which I referenced earlier, we have the number one TV portfolio by total audience, and our TV studio is award-winning and prolific. We're the number one most-watched news organization in the U.S., and sports continues to be a huge driver, with the NFL, NASCAR, Golf, Premier League, the World Cup on Telemundo, including the Women's World Cup going on right now, Big Ten starting this fall, and the Paris Olympics coming up next year. I am also confident that we have the right strategy for the future. We produce premium content through our studios, distributed through our TV networks, Peacock and third parties, and further monetize this content with our theme parks and consumer products. In streaming, we launched Peacock as an ad-supported model that is an extension of our existing business. We set out a plan, which we have adapted as needed, and Peacock is strong and growing. We gained two million paid subscribers in the second quarter, going from 22 million to 24 million paid subscribers. This growth was largely driven by conversion of Comcast subscribers to paying relationships which started in June. And we're very pleased with the results so far. Without a doubt, consumer trends such as cord-cutting and new competitors, particularly from the technology sector present challenges for us. And we are facing an uncertain macro environment which continues to pressure linear advertising. But I firmly believe that we have the business strategy, management depth, and financial strength to emerge as long-term winners and value creators as the landscape evolves at NBCUniversal, and across the company. Another challenge in the near-term are the writers' and actors' strikes. We remain committed to reaching a fair deal as soon as possible so we can get back to doing what we do best, which is making great content together. With that, let me turn it over to Jason.

Thanks, Mike, and good morning, everyone. We had a really strong second quarter. And to take you through it, I'll start with our consolidated results on slide four. Revenue increased 2% to $30.5 billion, while adjusted EBITDA grew 4% to $10.2 billion, a record level driven by continued operating leverage at our high-margin Connectivity & Platforms business, as well as strong growth at Studios and Theme Parks. We grew adjusted earnings per share by 12% to $1.13, and generated $3.4 billion of free cash flow, while returning $3.2 billion of capital to shareholders. Our healthy level of free cash flow in the quarter includes the significant investments we're making to support and grow our businesses in six key growth areas; our connectivity businesses including Residential Broadband, Wireless, and Business Services Connectivity, Theme Parks, Streaming, and premium content in our studios. Taken together, these areas generated more than half of our total company revenue in the quarter, and grew nearly 10% year-over-year, consistent with the first quarter. Now, let's turn to our individual business results, starting on slide five, with Connectivity & Platforms. As I get into these results, I'll refer to year-over-year growth on a constant currency basis. Revenue for total Connectivity & Platforms was flat at $20.4 billion. Our core connectivity businesses, domestic broadband, domestic wireless, international connectivity, and Business Services Connectivity increased 7% to over $10 billion in revenue, while video, advertising, and other revenue declined 7% to $9.8 billion. Our strategy continues to incorporate a strong focus on investing in and driving growth in high-margin businesses while protecting profitability in businesses with secular headwinds through disciplined cost management. This resulted in 170 basis points of margin expansion for Connectivity & Platforms in the second quarter, while margins for our domestic legacy cable business improved 240 basis points, reaching a record high of 47.3%. Diving deeper into the details, first, I'll unpack connectivity revenue growth. Residential Connectivity revenue grew by 8%, reflecting 4% growth in domestic broadband, 20% growth in wireless, and 26% growth in international, while revenue for Business Services Connectivity grew 4%. Domestic broadband continued to be led by very strong ARPU growth, which increased 4.5% for the second consecutive quarter. As we have said before, our goal is to protect ARPU by retaining the appropriate balance between rate and volume, and to serve our customers' constant demand for more from our network. We continue to see the use cases for better and faster Internet increase. Demand for higher speeds is increasing, as is average network consumption, and our customers are hanging more devices off our network in their homes. The average monthly data usage for a broadband customer that doesn't take video from us is nearly 700 gigabytes and continues to grow. In fact, this is nearly 70% more than the average usage from the comparable quarter in 2019, pre-pandemic. Additionally, nearly three quarters of our broadband customers are now in speed plans of 400 megs and above. That's up from less than 50% last year and less than 20% in 2020. We plan for our network and product capabilities to stay far ahead of demand, so that we maintain our position as the market leader, delivering the best broadband possible. To that end, our transition to DOCSIS 4.0 is progressing well. We are more than halfway through the year, and have implemented mid-split technology at 25% of our footprint and are on target to complete one-third of this build by year-end, with the first commercial launch of DOCSIS 4.0 in just a few short months. We are also hard at work when it comes to expanding our footprint. We've grown our homes and businesses passed by 1.5% year-over-year to 61.8 million, and we are on pace to meet or exceed our goal of 1 million new homes and businesses passed for 2023, with future footprint expansion remaining a high priority. Growth in domestic wireless revenue was due to higher service revenue, driven by continued strong momentum in customer lines, which were up $1.4 million or 30% year-over-year, to $6 million in total, including the 316,000 lines we just added in the quarter. This marked the seventh consecutive quarter of more than 300,000 line additions. We continue testing some new converged offers in the quarter, and we are encouraged by an increasing mix of new customers to Comcast. We will continue to experiment with different offers over time. With just 10% of our domestic residential broadband customers taking our mobile offering, we have a big opportunity and long runway ahead for growth in wireless. International connectivity revenue grew to $1 billion, a record high, and demonstrates the strength of the Sky brand and the ability to leverage a leadership position in video and extend that to connectivity with significant success. Broadband, which accounts for two-thirds of international connectivity revenue, continue to grow at a mid-teens level, benefiting from both an increase in customers and ARPU compared to a year ago. The remainder is wireless revenue, which tends to have more variable growth due to handsets, which contributed to the higher growth this quarter. Finally, on Business Services Connectivity, revenue increased 4%, reflecting stronger growth in enterprise and mid-market and a slight deceleration in growth from small businesses, where we are seeing a bit of macroeconomic pressure. The strong revenue growth overall in our connectivity businesses was offset by declines in video due to customer losses since last year, as well as declines in other revenue, reflecting similar dynamics in wireline voice. And finally, in advertising, which was impacted by lower political revenue in our domestic markets and the macro environment. Connectivity & Platforms total EBITDA increased 4% to $8.3 billion, and as I mentioned a moment ago, adjusted margin expanded 170 basis points. This is driven by the mix shift to our high-margin connectivity businesses coupled with very strong expense management. In fact every line of expense was down year-over-year, except direct product costs, which are success-based and directly associated with the significant growth in our connectivity businesses. Further on tracking our connectivity and platforms EBITDA results between residential and business, residential EBITDA grew 4% with margin improving 180 basis points to reach 38.9%, again, highlighting our favorable mix shift, while business EBITDA grew 5% with margin improving 40 basis points to reach 57.7%. Now, let's turn to Content & Experiences on slide six. Content & Experiences revenue increased 4% to $10.9 billion, and EBITDA increased 7.5% to $2.2 billion, driven by record results at parks and strong growth at studios, fueled by the success of Super Mario Brothers. Taking a closer look at the results, our media segment combines our TV networks and Peacock, matching our holistic approach to managing these businesses. As viewership shifts to streaming, our dual revenue strategy at Peacock, where we are growing advertising and distribution revenue, is offsetting declines in linear revenue. At the same time, we are managing costs at our linear networks and reallocating some of these resources to Peacock, with the goal of maximizing profitability over the long-term across our media portfolio. You see that in our media results this quarter was stable revenue, a strong growth in Peacock offset the performance at our linear networks. Immediate EBITDA decreased 18%, which included a $651 million EBITDA loss at Peacock. To get a little further into details, domestic advertising declined 5% with underlying trends consistent with prior quarters, reflecting continued softness in the overall market, partially offset by strong growth in advertising at Peacock, which increased over 75% driven by strong demand. We expect these overall results in advertising to continue in the third quarter. Domestic distribution increased 2% driven by Peacock distribution revenue growth of nearly 70%. Peacock paid subscribers landed at $24 million compared to $30 million a year ago and $22 million at the end of the first quarter. As Mike mentioned, in June we began an effort to transition Comcast bundled subscribers who received Peacock for free to a paid relationship. We've made some nice progress to date as the conversion activity drove Peacock's second-quarter subscriber growth. And we are bullish on further increasing our Peacock subscriber base through the balance of 2023, driven by both our continued conversion efforts as well as strong programming in the second half. Some highlights included a strong lineup of movies exclusively on Peacock in our Pay-One window, including Super Mario Bros. coming August 3rd; a day & date movie, Blumhouse, Five Nights at Freddy's coming at the end of October. And continued benefit from our next-day broadcast Bravo content along with a strong sports lineup including Sunday Night Football, and for the first time, Big Ten. Turning to Studios, we had a great quarter driven by our film business including the latest installment of the Fast franchise and a tremendous success of Super Mario Bros. While theatrical revenue growth was offset by lower content licensing at our television studios due to the timing of when we deliver content, the momentum in our film business led by the success of Mario fueled nearly $260 million in year-over-year growth in studio EBITDA. At Theme Parks, revenue increased 22% and EBITDA increased 32% to $833 million, a record level. Our park in Hollywood continued momentum from opening Super Nintendo World last quarter. The positive consumer reaction drove strong attendance and per cap growth, helping Hollywood to deliver its best quarterly EBITDA in its history. Our international parks are both experiencing a nice rebound post-COVID. Our park in Osaka delivered a record level of EBITDA for a second quarter as it continues to benefit from strong demand from Super Nintendo World. And our park in Beijing enjoyed its most profitable quarter to date, resulting in strong improvement compared to last year when the park was largely closed due to COVID. In Orlando, our comparisons were impacted by unprecedented levels of visitation last year. But underlying momentum remains healthy as attendance was relatively in line with 2019 pre-pandemic levels while revenue was substantially ahead of 2019 levels. I'll now wrap up with free cash flow and capital allocation on Slide 7. As I mentioned previously, we generated $3.4 billion in free cash flow this quarter, and achieved this while absorbing meaningful investments in our network and theme parks. These investments drove a 20% increase in total capital spending, primarily driven by higher CapEx which was consistent with the outlook that we provided on our last quarter call. At Connectivity & Platforms, CapEx increased to 11% with CapEx intensity coming in at 10.4%, primarily driven by investments to accelerate our homes passed as well as transition our U.S. network to DOCSIS 4.0. Content & Experiences CapEx increased by $344 million, driven by parks, with Epic accounting for the majority of this quarter's increase in spend. Turning to return on capital and our balance sheet, we repurchased $2 billion worth of shares in the quarter. In addition, dividend payments totaled $1.2 billion for a total return on capital in the second quarter of $3.2 billion. We ended the quarter with net leverage of 2.4 times, in line with our target leverage. With that, let me turn it over to Brian for a few words before we turn the call back to Marci.

Thanks, Jason. I am really pleased with our team and this outstanding performance for the first half of the year. It was a terrific quarter on all the great metrics you've just articulated. So, I would like to just zoom out a bit. And probably what's most exciting is the hopefully recurring and sustainable model that we are able to leverage our faster-growing businesses, which you laid out to generate revenue growth for the entire company. And then, we convert that all the way free cash flow per share that accelerates with the strength of our company and our balance sheet. I really couldn't be more proud of the team, excited about the future. So, Marci, let's turn it over to you for Q&A.

Thanks, Brian. Operator, let's open up the call please.

Thank you, good morning. Question on broadband, and then one on NBC, maybe for Mike and Dave, when you think about the converged offers you have in the market, I know you've been testing more the investments in the network. Those tailwinds, again the headwinds around competition and housing, fixed wireless, when you put that all together, how are you feeling about the ability for the company to return to consistent broadband customer growth, particularly when you look into maybe the seasonally stronger back-half or into next year? And then, Mike, you mentioned the strikes. There's a lot of different ways that those could impact your business depending on how long it lasts. But I'm particularly interested in free cash flow for the company, and also Peacock, where there's a lot of expectations around Peacock profitability improving or losses coming down, and continued growth. When you put the strike into context for us, how should we be thinking about the impact should this last longer than expected? Thank you.

Hey, Ben, this is Dave. Let me start with broadband and hand it over to Mike. I think talking about this environment; you have to start where the market is and where the customer is going. And the customers continue to be highly engaged in multiple broadband applications, streaming, gaming, all trending up. And you look at the other thing that is happening, just an increasing number of simultaneous device usage that's happening in peak moments. And now we have over a billion WiFi-connected devices on our network. So, from an overall perspective, that's just very encouraging. And you look at the results; non-video broadband customers are doing more than 700 gigabytes per month. And you take one key area, one major streaming part of the business, and that's sports. And it starts with just making it really easy to find the sporting event, so great voice search that we have in our platform, multiple ways to consume sports, in linear, DVR, streaming, all seamlessly connected. And then, of course, comes when big sports moments happen, you want reliability, fast speeds, great coverage, and capacity. And you look at just what happened in Thursday Night Football, Messi in MLS, Peacock has a fantastic sports slate that will be streamed and consumed that way. So, you need great broadband to be able to back all of that up. And so, I think that's a great driver, and over time. But in this environment, we are seeing continued lower move activity. Competition is still increased. And fixed wireless you brought out there, they're still pressing. However, we are seeing some rational promotional activity; it's early, no changes to any trending, but when you see that in the competitive environment, that is encouraging. Both voluntary and non-paid churn remain below pre-pandemic levels, and that has continued. So, our game plan in this environment is we're going to invest in our network, we're going to focus on upgrading, and the mid-split, all that activity is on track leading to 4.0 beginning the deployments and trialing activity starting at the end of the year. No change to our game plan. And we're going to segment the base. And we've consistently focused on the starting point high-end broadband activity in tiers, a third of our customers are on 1 gig, and we've launched our new 2-gig service to 25% of our footprint, and overall, 75% of our customers are for 100 megabits or more. So, we're going to continue to leverage mobile, and we're going to press aggressively with mobile, and even new broadband partners, like NOW TV, which is a great streaming video tier that showcases Peacock. And the net of this is a stable base, 32 million residential broadband customers, and while protecting residential broadband ARPU growth. You saw us do that in Q2 at 4.5% ARPU growth. But in this environment, we're still competitive in lower activity superior to flux, and in some quarters, we may report customer losses. That being said, to your question, we believe, over time, we will return to subscriber growth. And certainly, we're seeing more normalization. Back-to-school is going to happen in Q3. And most certainly, there's some seasonal normalization. But over time, I'm confident that we will be able to balance this formula of ARPU focus and over time, getting back to the subscriber growth. Mike?

Thanks, Dave, so, hey, good morning, Ben. So, I think I'd just add a point, that if you look back at the first half of the year, what Dave and his team have been doing and continue to do in terms of setting the broadband business, which is obviously extremely important to the future of the company, up for long-term success by continuing to improve our product, add innovation around it, segment the base, extend the footprint, and all the things that you want to see happen, and while protecting pricing are all outstanding work in a competitive moment in time. But I think as you know, we here and Dave and his team, in particular, are thinking about what are the implications for the long-term as we think about how to compete in the short-term. Going to your question on the NBC side on strikes, I'll just repeat what I said earlier, which is that we are committed to reaching a fair deal with the guilds as soon as possible. Beyond that, I'd just say it's really for all involved in the industry broadly, a prolonged work stoppage and the longer it goes the worse it'll be. It's obviously going to have a negative impact all around. To your question about free cash flow, nothing to quantify in the context of our company, I mean it's all manageable. But it will shift studio working capital out of the near-term and into the future, so probably for 2023 a little bit of lower working capital, higher free cash flow, and the flipside of that in 2024. As you look at Peacock, I wouldn't point out anything in particular related to strikes and its effect in 2023 or second-half of the year. Obviously, the longer the strike the more that could have an effect as you look into 2024 and beyond, and that would be for ourselves and others, obviously. So, it's a level playing field. But to comment on Peacock in particular in the second-half, we've got a lot of strong content coming. So, we've got NFL coming back. Obviously then on top of that, we have an exclusive NFL wild-card game. We're going to have Big Ten for the first time, which is fantastic on Saturday nights. In the movie slates, we've got Super Mario Bros. coming to Peacock shortly, we've got Exorcist, Five Nights at Freddy's, as Jason pointed out, coming from Blumhouse. And then on TV side, some originals, including Continental, which is related to the John Wick franchise. So, we feel very good about the strength of what we have coming in the second-half of the year content-wise. And then beyond that, on Peacock, I think there'll be a continuation of the good work that we've done inside the company to convert Comcast subscribers over to a paying subscriber status, which we're not quite halfway through that as we only got started in June on that score. So, over the remainder of the year that will also be happening. So, when you look at the doubling of Peacock subs year-over-year, I'm optimistic about what the second-half of the year brings, and feel pretty good about Peacock.

Thanks so much.

Thanks, Ben. Operator, next question please.

Hi. Two questions, if I could, regarding your wireless business. One, there's been some talk in the market, and there was some discussion on the Verizon call yesterday, calling, if not fully into question, at least raising some eyebrows with respect to the permanence of that contract. So, I'm just wondering if there was anything that you can say about the durability of that relationship and your confidence that that is, in fact, an irrevocable contract? And then second, you've obviously now started to subsidize handsets more frequently in line with the way the whole market really operates. I wonder if you could just talk about that a bit and talk about your views on customer lifetime value that you're seeing with new customer acquisitions given the handset subsidies and expected churn?

Thanks, Craig. This is Dave. Let me start with the wireless MVNO situation. We have a solid MVNO and have maintained a positive approach to the business since the beginning, which remains unchanged. I believe that cable offers significant benefits to our partner. We have a strong relationship with Verizon, and that is ongoing. Importantly, we have continuous access to all the services we require from Verizon's network. Now, regarding handset subsidies, we frequently introduce various offers. We've consistently run promotions, which can include gift cards, direct discounts, or occasionally a free device, but these are not daily occurrences. We strategically vary these promotions. Our focus is increasingly on higher-end mobile tiers, and we have a strong lineup with options like by-the-gig, unlimited, and premium unlimited plans. We are committed to our core service offering, and our performance in wireless growth has been robust. We see a promising future ahead as we expand into the small business and wireless sectors. Our core wireless pricing allows customers to save between 30% and 50% compared to traditional telecom providers, which strengthens our position of combining mobile with broadband. With a strong WiFi offering and an effective MVNO strategy, we appreciate our capital-light approach and the focus on our core services.

Thanks, Craig. Operator, next question please?

Yes, thanks for taking the question. Disney has said that they are looking for, potentially, a partner to help them transition ESPN to a more direct-to-consumer model. You have a really big sports franchise as well. How are you thinking about further transitioning NBC Sports to a business that is mostly streaming? Is it something you think you would need a partner for? And maybe broadly speaking, do you think as sports businesses become more streaming-centric, there is an opportunity or need for consolidation among those platforms? Thank you.

Thanks, Brett. It's Mike. I've seen speculation about us potentially swapping businesses in the sports sector, but I can say that's very unlikely due to the significant issues surrounding tax, minority shareholders, and overall structuring. So, I wouldn't expect any inorganic changes specifically related to ESPN. Regarding our sports business, I believe we have one of the strongest portfolios, which includes Saturday Night Football, Big Ten, EPL, NASCAR, WWE, and the Olympics next year. We also have a renowned team dedicated to producing high-quality content for these sports. This positions us as a valuable partner for leagues, as we are recognized for our contributions globally. We bring much more than just financial resources to discussions with rights owners about creating value. I think we are effectively leveraging our capabilities, especially through NBC on the broadcast side and our cable networks for various sporting events. Importantly, Peacock has seen significant subscriber growth driven by sports, enhancing the value of the subscription. The rights we stream, particularly with the upcoming Olympics, add substantial value for consumers, making sports on Peacock a compelling offering. We plan to continue our commitment to sports and maintain our presence in that area.

Thank you.

Thank you.

Thanks, Brett. Operator, next question please.

Hi, guys, thank you. Lots to talk about, one follow-up on Brett, do you think that you have the right sports rights next, or can you stretch your lead and Peacock's lead by taking more over time? And then, second, can you dig into the strong Hollywood and the weaker Orlando numbers? It looks like Orlando, just in general is little bit softer year-over-year, but we think you have been taking share, do you agree with that? And how do you see that going forward? Thanks very much.

Regarding sports rights, as I mentioned before, we are always exploring ways to enhance the value of our business and collaborate with our partners. The NBA is approaching, and while we may not require it based on our current portfolio, its significance and our past engagement in sports make it worth considering. We'll see how that develops. As for our theme parks, we experienced one of our best quarters, demonstrating strong momentum across the portfolio. We are optimistic about the parks business overall. Hollywood achieved record results following Nintendo’s opening, while Japan also performed excellently, setting a record for the second quarter. Beijing reached its highest profitability. In Orlando, we see good performance compared to pre-pandemic levels. Although attendance is down due to the unprecedented impact of COVID, we have better attendance numbers and spending per guest. We are encouraged by what we see in Orlando, despite international attendance being about 30% lower than pre-pandemic, likely due to a stronger dollar. This situation is expected to persist. Domestically, there is a shift occurring with cruise lines resuming and some people opting for international travel, which impacts dynamics in Orlando. Overall, we remain positive about the situation there. Brian, feel free to add your thoughts.

I just want to add that, you know, I'm really bullish on the parks as one of the six areas, Jason mentioned, that we feel are the growth driver of the company in the years ahead. We were just down in Orlando recently looking at Epic Universe; progress, and it's spectacular. What's coming in 2025, we have the two parks, the smaller parks in Vegas and outside Dallas. So, we are looking for growth in this area. We are pretty excited about the results that Jason and Mike have talked about, and I just draw your attention that the opportunity in Orlando with Epic is pretty massive, we believe.

Thanks, Philip.

Thanks, guys.

Operator, next question please.

Thanks. I have one maybe longer-term and one near-term, first on content, you just announced the restructuring in your content area, and with the current strike, which is kind of reminiscent of the pandemic for whole production and shutdown at least in the U.S., it seems like an opportune time to rethink your entire content strategy. So, are you thinking differently at all about how you produce, what you produce, what your costs are? And just anything you can say about how NBC you may change that approach to content in coming years? And then, on advertising, the upfront I guess is still dragging on, can you talk about what you are seeing, where there is strength and weakness, and where the dollars are being allocated to what platforms, and I think that Jason just said that Q3 advertising will be similar to Q2?

In terms of content, I’m very pleased with the promotion of a couple of my partners at NBC, particularly Donna Langley, who is highly regarded in Hollywood, and Pearlena Igbokwe, who leads our TV Studios. I believe that establishing a content vertical that collaborates closely with Mark Lazarus in TV and platform operations, as well as Cesar Conde in News and Telemundo, will effectively leverage our company's strengths. We will continue to focus on producing excellent content, which we already excel at as evidenced by our movie slates and television productions for ourselves and others. Our strategy will not be limited to creating content solely for our platforms, but it is a significant advantage that our studios have access to multiple platforms for a considerable amount of the content we produce. This positions us well to collaborate with various talents and creators in Hollywood and beyond, enabling us to help realize their ideas. Regarding costs and strategy, we'll operate within the industry's context and respond to the needs of buyers. I feel confident about how our studio businesses are structured. On the advertising front, the ad market weakened compared to last year but stabilized at the beginning of this year and has remained steady, likely due to uncertainties about the economic outlook. Jason noted that we don’t anticipate a change in this condition as we approach the third quarter and the latter half of the year. We’re optimistic about our upfronts, despite the challenges, as our total cash and pricing levels were about the same as last year, with particularly strong results related to Peacock. Much of this success stems from the strength of our portfolio, which includes properties like Big Ten, Sunday Night Football, and Peacock, all of which have contributed positively to our performance.

Thanks, Jessica. Operator, next question please.

Thank you. Just two on the connectivity side of the business, maybe first on the broadband ARPU really strong at 4.5%, I was wondering if you could help us unpack that a little bit, maybe what in there is price increase, how much do you think you are getting from customers up-tiering to faster speeds, and maybe what might be coming from core cutting some of your double-play video subs going to single-play Internet or Internet plus mobile bundles? And then, on the international side, where revenue growth is really strong, can you just help us think through what kind of margin contribution you get on international? You talked about more headsets in the quarter, I'm guessing those are lower margin as is some of the U.K. connectivity stuff, but as we just think about that as a growth driver, how should we think about the margin or EBITDA contribution from international? Thank you.

Let me begin with ARPU, where we've witnessed strong performance, showing a 4.5% increase. There are several factors behind this. We implemented some rate adjustments earlier in the year, which contributed to the difference in our performance. Importantly, we have a significant portion of our customer base with gigabit-plus service; about a third fall into this category, and 75% of our customers are on 400 megabits or higher, which positively influences overall ARPU. Another key factor is our xFi Complete product, which 25% of our customers have. This offering includes a high-quality gateway that can be upgraded over time, advanced security features, unlimited access, and a coverage plan to ensure the entire home is connected. It's a valuable option for customers. Additionally, the bundled discount you mentioned plays a role; customers transitioning to HSD-only plans benefit from these discounts. All these elements contribute positively to our overall performance. We're seeing a stable customer base that is consistently using more services, which helps ARPU grow healthy over time. In terms of international connectivity and margins, this remains a strong growth area for us. Revenue increased by 26% this quarter, as noted earlier, with two-thirds coming from broadband, which continues to grow at a mid-teen percentage rate, driven by an increase in both customers and ARPU compared to the previous year. The remaining third comes from wireless, which can fluctuate more from quarter to quarter due to handset sales. Overall, this quarter has shown solid growth, which will affect margins. However, if we normalize for the mobile segment, the revenue growth for international connectivity is closer to 20%. This sector is a strong component of our portfolio and significantly contributes to both domestic and international broadband and mobile growth.

Yes, and I think Stephen, important for us as we came into this year with the re-segmentation, how we start to present it out to the world, this was an important category. So, international connectivity, as we think about Sky and taking the brand name and reputation that they sort of earned in video and taking that into other products like broadband and wireless, the way they have, this quarter $1 billion in revenue coming from connectivity international. So, kudos to the team, and I think it's important that we've been able to highlight that at the street.

Thank you.

Thank you.

Operator, next question please.

Great. Thanks, guys. Maybe a couple of questions on profitability, I think maybe for Jason, first, really impressive performance on the cable side 240 bps, 47%, I mean how is the visibility into further margin expansion from here, especially given, you know, you kind of gave a couple of mix-shift issues obviously more broadband-like video but also more wireless, so anything you tell us about sort of outlook there? And then, on the Peacock side, doing better in terms of losses there; is $3 billion losses for this year still the right number for Peacock? And anything you say about the sort of path to profitability beyond '23 would be great.

Yes, thanks, John; good question. So, on mix and margins in the connectivity business, I think we have had a fairly consistent track record if you look at the last several years of margin expansion. If you look at the core sort of legacy cable business, as we mentioned this quarter, record margin over 47%. And the factors that have contributed to that historically are in place as we look forward. I think Mike's comment upfront about being able to grow revenue, being able to grow margins; that's a key part of it. So, to your question specifically on connectivity, there is a mix shift going on, when we talk about sort of the six key growth drivers across the company, three are core connectivity growth drivers, whether it's residential broadband, business services, or wireless, this is an accretive mix shift for us as we think about the way the categories are sort of shifting and what's growing versus what's not growing. So, I would look for more of the same. I think also importantly for the team for the second consecutive quarter, every expense line in connectivity and platforms was down year-over-year, except for direct product costs, and those are the costs that directly support the connectivity and platform revenue growth and the categories we talked about. So, our outlook is for more of the same in continued margin expansion out of the business. I think on Peacock, you are right, we came into the year and gave guidance for roughly $3 billion in losses, no change to that. And as you see, we are pacing to that over the first couple of quarters. We've got a lot of incremental content as we think in the back half of the year, as Mike said, so no change to that guidance.

Great, thanks a lot.

Thanks, John. Operator, next question please.

Good morning. So, I think Jason talked about future expansion of this footprint being a high priority, and the bid dollars by state have been sort of allocated. Can you just talk about, is that really going to be a big opportunity in terms of product stating in that, and driving that footprint? Thanks.

Yes, this is Dave. Let me address that. We operate in 39 states where we anticipate bidding for subsidy funds, and we are actively engaged at both the federal and state government levels. As the rules for bid participation are being developed, we are carefully evaluating them and making progress at all levels. Assuming favorable outcomes on the framework rules, we intend to fully participate in bids that align with our business objectives. However, it is still too early for us to specify where we will bid or our potential success rate. Currently, we are actively exploring and expanding our opportunities. As Jason mentioned, we will begin to expand even before any bidding activity takes place. The upcoming bid activity will clarify the rules, and we expect this to have an impact in 2025-2026 once things are finalized. In the meantime, we are proactively seeking profitable opportunities, and we expect to reach a million homes passed this year alone. We will pursue our goals aggressively, while closely monitoring developments, and with satisfactory outcomes, we will participate in the bidding process.

Operator, our last question today is coming from Jonathan Chaplin from New Street. Please go ahead.

Thanks, guys. Just to drill into broadband in a little bit more detail. The shift from 1Q to Q2 was quite different from what it has been historically in terms of broadband net ads. I am wondering if you can give just a little bit more color on how much of that was muted seasonality versus some of the initiatives that you guys have been pushing on the competitive front with low-end broadband offers and the wireless bundles? And in that context, you mentioned that wireless is starting to have a bigger pull-through impact on your broadband subs. There are more muted Comcast subs taking wireless. I am wondering if you can give us a little bit more context around that? And then, sorry to pile on. But one last one on wireless for Jason, when we look at Verizon's wholesale revenue, it seems to have flattened over the course of the last three quarters, which suggests that maybe you are getting some gross margin expansion in the wireless business. I am wondering if that's accurate. Thank you.

This is David. I'll begin with the broadband segment and touch on wireless as well. Our subscriber base remains stable at 32 million, consistent both sequentially and year-over-year for this quarter. We had mentioned last quarter that we anticipated a return to more typical seasonal patterns, leading to lower net additions compared to Q1. However, we also expected the decline in net additions from Q1 to Q2 to be less pronounced. This is due to reduced movement activity overall and the macroeconomic challenges we've faced during the past year. Additionally, we have been adjusting our offers strategically based on the segments we target, particularly focusing on the lower end of the market, which has yielded some positive results. We plan to remain opportunistic throughout the year. Regarding wireless, we are actively bundling mobile services with broadband for both new and existing customers. This strategy enhances our relationship with current customers who only use high-speed data and represents a valuable opportunity for growth in our mobile business, benefiting both our broadband service and our ability to attract new customers. It's a win-win situation for us. Jason?

Yes. Jonathan, thanks for the question on wireless; can't speak to Verizon and their revenue trajectory. I know they have got a few different things in the wholesale revenue category beyond just cable. But I can speak to obviously the economics of our business. We are happy with it. We think it's good business for Verizon. What they said yesterday as they think about traffic and ways to fill up their network. But for us specifically, we've got a revenue stream coming in from customers. We have a wholesale deal with Verizon to accommodate that traffic where there are outflows, but then we are also trying to offload as much traffic as we can on our own network. We've got a fairly efficient acquisition vehicle. And a lot of this is just marketed to our own broadband subscriber. So, in terms of acquisition cost, I think we are fairly efficient in the market. And then all the way down sort of closer to cash flow, this is a capital-light model, which we like. So, I will leave it there.

Thank you, Jonathan, and thank you everyone for joining us on our second quarter call.