Q3 2007 Comcast Corporation Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning, ladies and gentlemen, and welcome to Comcast's third quarter earnings conference call. At this time all participants are in a listen only mode. Please note that this conference call is being recorded. I will now turn the call over to Senior Vice President, Investor Relations Ms. Marlene Dooner. Please go ahead, Ms. Dooner.

MARLENE DOONER, SVP, INVESTOR RELATIONS, COMCAST CORPORATION: Thank you, operator, and welcome everyone to our third quarter 2007 earnings call. Joining me on the call are Brian Roberts, Steve Burke, Michael Angelakis and John Alchin. Before we start, let me refer everybody to slide number two, 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, in this call we will refer to certain non-GAAP financial measures. Please refer to our press release for the reconciliation of non-GAAP financial measures to GAAP. With that, I will turn the call over to Brian Roberts for his opening comments.

BRIAN ROBERTS, CHAIRMAN, CEO, COMCAST CORPORATION: Thanks, Marlene, good morning. The third quarter demonstrates that our business continues to perform well both operationally and financially. When you adjust for acquisitions on an apples-to-apples basis, we posted corporate revenue growth of 12% and cable revenue growth of 11%, and cable operating cash flow growth of 13% this quarter, pretty strong. We added 1.4 million RGUs, a slight decline from a record-setting third quarter in 2006. Year-to-date we have now added over 4.8 million RGUs, up almost 40%, and we are hoping to deliver about 30% growth in RGUs by the end of the year. Michael Angelakis will cover all of these results in more detail.

We are seeing increasing competition and a softer economy and as a result, a slightly slower growth rate. But as you step back and think about our business, I really like our position. Over the last 12 months we've added approximately $2.5 billion in revenue, which reached out and realized $1 billion of recurring operating cash flow growth. Having almost doubled RGU net adds last year, and as much as another 30% this year, we are now more comfortable than ever that 2007 represents our peak year in terms of capital expenditures as a percentage of revenue and that we will reaccelerate free cash flow growth in 2008.

We now have a more diverse lineup of products including fast-growing CDV, and we are establishing new businesses like commercial that will sustain healthy growth over the next several years. Steve Burke will cover all of these operational points. That is our formula, new products over one network that delivers double-digit revenue growth and has delivered for over 12% on average each of the last five years. We have the pieces in place to continue to deliver on our growth goals. Today we offer a package of residential video, high-speed Internet and phone to more than 40 million homes in our markets. That is more services to more homes than anyone else in the business, and we think that puts us in a great competitive position. We also have the potential to address 5 million businesses in the same footprint. And with one network, customer service and technical infrastructure we have the ability to continue to innovate while remaining the low-cost provider.

So I continue to like our hand and our ability to continually transform ourselves and grow. If you turn to slide four, you'll see that our management and our Board shares this view and has authorized a $7 billion increase to our share buyback program. We now have $8.2 billion available for stock repurchases. This increase is more than any previous authorization, and I hope demonstrates a focus on increasing this activity in the next few years. We believe our approach to capital deployment is prudent and balanced and optimizes our strategy and our financial goals.

This is particularly true given the current market values with the stock trading at near all-time historical lows in terms of EBITDA multiples and relative to expected growth rates. Additionally, our strategy will preserve our strong balance sheet and credit profile which we view as a critical asset, particularly in this current economic and competitive environment. So as I said a moment ago, we are very confident about the strength and long-term prospects of our business. We are realistic about some of the business challenges, but nowhere do I see a more fundamentally strong and growing company in the telecom and entertainment sector. I would like to now hand the call over to Mike Angelakis to review this quarter's results.

MICHAEL ANGELAKIS, EVP, CO-CFO, COMCAST CORPORATION: Thank you, Brian. I will begin with our consolidated results, so please refer to slide five. Driven by solid financial results in the impact of cable acquisitions, consolidated revenue for the third quarter of this year increased 21% to $7.8 billion while consolidated operating cash flow grew 20% to $2.9 billion. Year-to-date consolidated revenue has increased 28% to $22.9 billion, and consolidated operating cash flow is increased 27% to $8.7 billion.

Net income decreased 54% to $560 million, resulting in earnings of $0.18 per share compared to $1.2 billion or $0.38 per share in the third quarter of '06. However, for normalized comparison the third quarter of '06 included two particular items, representing $669 million of after-tax gains related to the Adelphia Time Warner transactions and the transfer of cable systems to Time Warner. Excluding these gains, adjusted net income for the third quarter of '06 would be $548 million or $0.17 per share. Please refer to table 7-B of our press release for this reconciliation.

Our programming division continues to perform well as revenue increased 27% in the third quarter to $330 million from $259 million. Programming division operating cash flow increased 11% to $97 million from $87 million. Year-to-date programming revenue increased 25% from $771 million to $966 million while operating cash flow increased 20% from $196 million to $237 million. This improved performance reflects higher viewership, higher advertising and increased distribution revenue.

For corporate and other, which consists of several other business units, revenue increased 89% to $51 million from $27 million in the third quarter of '06. This revenue increase is largely due to the activities of Comcast interactive media, including the acquisition of Fandango. Corporate and other operating cash flow loss for the third quarter was $143 million compared to a loss of $96 million a year ago. Included in this loss, however, is a $55 million charge related to the anticipated cost and settlement of the previously disclosed at home litigation, which we are very pleased to have now behind us.

Please refer to slide six as I now review the cable division's financial performance. As always, we are presenting cable results on a pro forma basis. Pro forma results adjust only for acquisitions and dispositions, including Susquehanna, Adelphia Time Warner, Houston, Sports Bay Area, SportsChannel New England and Patriot Media. Cable results are presented as if these transactions were effective on January 1 of 2006. Please refer to the press release and specifically to note 1 in table 7-A for details of our pro forma adjustments and reconciliation. As you can see from slide six the cable division's growth continues. Pro forma cable revenue for the third quarter of '07 increased 11% from $6.7 billion to $7.4 billion. Year-to-date pro forma cable revenue increased 12% from…