Good morning, everyone, and welcome to Grupo Televisa’s Third Quarter 2023 Conference Call. Before we begin, I would like to draw your attention to the press release which explains the use of forward-looking statements and applies to everything we will discuss in today’s call and in the earnings release. I will now turn the call over to Mr. Alfonso de Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead, sir.

Thank you, Sheila. Good morning, everyone, and thank you for joining us. With me today are Wade Davis, CEO of Televisa Univision; Francisco Valim, CEO of Cable; Luis Malvido, CEO of Sky; and Carlos Phillips, CFO of Grupo Televisa. Wade, Valim, and Luis will discuss the operating and financial performance of each business they manage in their remarks. But before doing that, I would like to ask Valim to give you an update on the outlook of Mexico's fixed telecom market and the cable strategy we are pursuing to achieve our goals. Under this plan, we are prioritizing free cash flow over an ongoing aggressive cable footprint expansion, particularly considering that we have the largest network in Mexico, excluding the incumbent ending September with 19.5 million homes passed, or a coverage of over 55% of total homes in the country. Therefore, Valim’s mandate as recently appointed CEO of our cable operations, has been to improve quality and lifecycle of our subscriber base, enhance profitability, optimize CapEx deployment, expand free cash flow generation, and as such increased returns on invested capital. Having said that, let me turn the call over to Valim, as he will elaborate on our long-range plan.

Thank you, Alfonso. Good morning, everyone. Mexico's fixed income market has already reached a more mature stage with fixed internet penetration at over 70% of homes. At the same time, customer needs have been shifting towards higher internet speeds, improved service equality, and digitized offerings. These changes in customer needs have led to a strategy of high-speed fiber networks deployment widely adopted by all market participants, which typically occurs during expensive economic cycles. Such net network expansions hinder financial returns, particularly under the current environment of high interest rates and intensified competition. Implying that CapEx deployment must be strategic, prioritizing return on investments. Such market maturity combined with its current structure is likely to lead potential consolidation where we think that easy with its strong competitive stance. Given our strong brand, the highest net promoter score in the market, solid technological architecture, and the second largest customer base in Mexico is well positioned to play a leading role. The global macroenvironment and recent changes in the structure of the market where we operate call for reflection on our position, and most importantly, our role in the upcoming years. Our conclusion was that we need a change in our company's management and strategy, which we have already started to implement. A deep assessment of our cable business suggests that going forward we should not focus primarily on rapid expansion and deployment of our network, but rather on an optimization strategy to generate value in our existing businesses. Specifically, value generation in the market has been focused more on volume and less on sales quality. Manifesting through aggressive promotions driven by competitive dynamics resulting in, weak revenue growth, pressure on profitability, and soft free cash flow generation, and promotions that accelerated gross ads, but have been a double-edged sword as they have…

Thank you, Valim. You've put together a great plan and a great team. Now let me turn the call over to Luis Malvido, CEO of Sky.

Thank you, Alfonso, and good morning, everyone. I'm pleased to present an update on Sky's third quarter operating and financial performance. But before getting into the numbers, I'm thrilled to announce a significant milestone achieved by Sky. During the quarter, we introduce Sky Mass, a groundbreaking product from Sky Mexico. Sky Mass is an Android based streaming platform developed entirely in our own laboratories that seamlessly integrates all Sky TV, VOD and OTT content in a unified viewing experience on a single screen. Sky Mass eliminates the needs for a dish or specific installation requirements and can run over any broadband network. Besides leveraging on the power of artificial intelligence, our cutting-edge search and recommendation engine creates content for each member of the households, eliminating the need to switch between multiple OTTs. Furthermore, Sky Mass is the only platform in the market that offers live sports event in true 4K quality and provide the option to extend this experience to any mobile device including cell phones, tablets, and laptops. Sky Mass currently integrates Universal Plus, Disney Plus, Star Plus, HBO Max and VIX Premium, along with all linear channels and all partners entire libraries solidifying our position as the comprehensive and dynamic content provider in the ever-evolving digital landscape. Sky Maas stands as the premier broadband agnostic platform for the Mexican Sports Enthusia, offering a comprehensive collection of all major worldwide soccer leagues and tournaments in one place. Early this month, we successfully launched Sky Mass marketing campaign targeting new and existing Sky customers. This campaign not only boosted brand awareness, but it's also fueling promising sales growth. Today, we have added 36,000 units and the momentum is still on the rise. Shortly, our Sky mass offer will be boosted when bundle with Sky Internet. Our digital transformation strategy is…

Thank you, Luis. Given the operating and financial performance, our two core consolidated businesses, Grupo Televisa consolidated revenue reached Ps18.3 billion, representing a decline of 4.9% year on year. While operating segment income reached Ps6.4 billion, equivalent to a year on year decrease of 8.8%, mainly driven by the lower revenue and inflationary pressures. Below operating segment income, we had non-recurring severance expenses of around Ps830 million related to the headcount reduction implemented in cable during the third quarter. Still, this measure will bring savings of around 12% of our payroll, allowing us to expand the residential operations margin in cable by around 200 basis points in the fourth quarter. Moving on to Televisa Univision before getting into its third quarter operating and financial results released on Wednesday morning, let me remind you that our 44% stake in this company is a very important value component for Grupo Televisa's shares. Using proportionate consolidation, Televisa-Univision would contribute almost 40% of revenue and EBITDA during the third quarter, making it the second largest proportionate contributor to Grupo after our cable operations. The Televisa-Univision delivered another strong quarter of double-digit revenue growth, underscoring the strength and flexibility of our unique, fully-integrated ecosystem across complementary platforms and geographies. Having said that, let me turn the call over to Wade Davis, CEO of Televisa-Univision.

Thanks Alfonso. I am really happy to be here with you all and to spend some time discussing TU's performance. It was a great quarter for us, where we hit a number of high watermarks operationally, delivered significant progress on our strategic priorities, and therefore produced fantastic financial results. But I want to start by highlighting how unique our company is, and in particular, the unique economic opportunity we are pursuing. We are the only company at scale touching all Spanish-speaking media markets globally. This is an $8 trillion GDP, and over half of that is represented by the Mexican and U.S. Hispanic markets, where we are the definitive leaders, and both of these markets are seeing remarkable growth. In fact, The LDC and Wells Fargo released their annual U.S. Hispanic market report, which highlighted that the U.S. Hispanic GDP grew double-digits to exceed $3.2 trillion last year, making it the largest Spanish-speaking market in the world, the equivalent of the fifth largest national economy, but also the fastest growing economy in the world. And we are the only scaled company that's a pure play on the global Spanish-speaking consumer. Executing against this opportunity, we delivered double-digit revenue growth and an impressive 58% year-over-year improvement in D2C losses, which led to flat consolidated EBITDA. And underpinning these financial results was incredible success from an audience perspective. In Mexico, we held both the number one and number two networks for the first time in history. In U.S. our market share reached a nine year high of 65%. And in streaming, we surpassed 40 million monthly average uniques. This is the remarkable company we created, when we brought Univision together with Televisa's content business, a fully-optimized content engine that can power multiple platforms across the global Spanish-speaking market and deliver market-leading audience…

Thank you, Wade. To wrap up, the global macro backdrop has been more challenging than initially expected. Therefore, Bernardo and I, together with the rest of the executive team at Grupo Televisa have been putting a lot of effort on deep rethinking and restructuring of our consolidated businesses that will allow us to come out stronger from the current environment. These structural reforms are focused on protecting profitability, optimizing CapEx and enhancing free cash flow generation. At Televisa, Univision together with our partner, Wade Davis, we continue to execute our digital transformation strategy, which has been delivering outstanding results. Our top-performing content and high complementary linear and streaming ecosystem position as well to continue outperforming the market in both yield and financials. Moreover, we have successfully been scaling our DTC business with revenue approaching over $700 million annually and are on track to deliver profitability next year which is an unprecedented time frame for any major streaming service. Now we're ready to take your questions. Operator, can you please provide instructions for the Q&A?

[Operator Instructions]. Today's first question comes from Fred Mendes with Bank of America. Please go ahead.

Good morning. I have two questions here on my side. The first one is related to cable and Valim already in the beginning of the presentation. You addressed some of the points. But the main one is the strategy, right? It looks like there has been a major shift in the strategy, which will agree with the new one. But I'm just -- I believe that should take some time because -- I would assume you don’t need change only the first layer of people. We need to change the second year. Previously, it was more growth, not something more related to cost and increasing free cash flow. So, the concern here just how long it's going to take for you to have this completely shifting strategy at the start to work out on the cable front. That would be the first one. And then the second one that goes to the mix, the numbers are increasing. It looks like it is performing well. Looking for 2024, what are the three main metrics that you'll be looking at and you should be looking at in your view? And in the long time, say, three years to five years, how do you see ViX? You think that's going to be a company that grows high single digits as the margin rate cash or is going to be more like a target for other players, larger players given the value in this niche player that ViX operates. Thank you very much.

Yes. Thank you, Fred, for your question. You're right, there has been a shift in our cable strategy, and I'll ask Valim to go that shift.

So, Fred, the idea here is because we have already done a lot of the layoffs that we are planning to do, and we're streaming every opportunity. We should see results materialize starting in 2024. So, this is -- this could be, very quickly. And the idea here is to maximize cash flow generation by still improving revenues in low middle single digits moving forward and maintaining margins around the 40% range, EBITDA margin, I mean, -- so I think this -- and the things we think will be accomplishing starting 2024.

So, it's all about CapEx optimization, free cash flow generation. That's a material shift in the strategy. And as to your second question, Wade has done an amazing job at the Televisa Univision and specifically at lounging ViX. So, I'll ask a way to go over, as you asked about the three main metrics.

Thanks, Anton. Thanks for the question. So, I think the first thing I would say is that you should focus on the overall performance of the business. As we've said a number of times, we think of and we run ViX as an integral part of a complementary linear and streaming ecosystem that's fully aligned. And so, the overall focus should be on the performance of the company as a whole -- from a revenue and EBITDA growth standpoint. ViX is going to continue to be a key engine for revenue and EBITDA growth of the consolidated business going forward. And so, as that emerged from reporting standpoint, focus on the core revenue and EBITDA of the D2C business inside the overall business will be important. But if you're looking for more specific the, I'd say the top three operating KPIs for the D2C business, I would probably put it in three categories. First is a metric focused on audience engagement. Second would be a metric focused on marketing efficiency. And third would be metrics focused on the effectiveness of our monetization of the audience. And as we get into 2024, we'll be rolling out metrics that cover those three areas, just to help investors understand the consistent and predictable march towards the profitability targets that we have laid out. There was a second part of your question about ViX, which I didn't understand. Could you repeat that?

No. Perfect. Basically, I mean, in the long term, do you see ViX projections you have, you see ViX as a stand-alone player, let's put that way, growing let's say, high single digits and generating cash? Or you believe that mutually in the future, ViX going to be of great value for other players, larger players given the niche of the Hispanic market that it operates and it could turn into a and M&A target from other players? Thank you.

Well, ViX is an integral part of the business. There won't be a there won't be a Televisa Univision without ViX just like there won't be a Televisa without the linear business. They -- as we've always said, our strategy is designed around the two platforms, programming them for what they are good at and delivering a comprehensive programming solution that's relevant to the broadest possible consumer market. ViX long term is, as I said, going to continue to be an engine of growth on Televisa Univision earnings call, I highlighted that as we are in our core business, we believe that ViX will be delivering best-in-class operating margins for streaming. We will hit those best-in-class operating margins on a two year to three-year ramp following turn to profitability in the second half of next year. I guess there was the last part of question, I mean we don't think of this as a niche market, right? This is $8 trillion GDP on a global basis. There's never been a company in the history of Spanish language media that's been able to touch the Spanish language consumer on a global basis. As it relates to whether or not ViX would be an M&A target, I think the real question is that if anybody has aspirations for to be overall international media leadership. There is no way to truly accomplish that without leadership against the global Spanish language audience, which, as we've said before, represents the second most widely spoken language in the world. And we are over 60% market share in the U.S. Hispanic audience, which is the largest Spanish-speaking market in the world. And a similar level of market share in the country of Mexico, which is the most popular Spanish speaking market in the world. So, if anybody has aspirations to be a truly global media company, they can't do so without thinking about the Spanish language market. And the asset that we have is replicatable.

The next question comes from Vitor Tomita with Goldman Sachs. Please go ahead.

Hello. Good morning, and thanks for taking my question. Two questions from our side. First one, if you could give us some color on the percentage of your cable base that might still be benefit from temporary customer acquisition discounts following recent churn and cleanups. And second question would just be a quick clarification on the previous response to Fred. You mentioned in the previous response that cable results should improve starting in 2024. Does that mean you still anticipate some pressure in the fourth quarter of '23? Thank you.

Yes. We think there will be still some pressure on the third quarter because we are just starting to implement the adjustments. We just finalized the head count reduction and we still have a few things that we need to implement. And then after that, we are anticipating it to be, like I said, in the 40% range EBITDA, and we expect that to be revenue to grow low single digits for the next two years, three years. So, we see a sequential improvement at this -- for the foreseeable future.

The next question comes from Cesar Medina with Morgan Stanley. Please go ahead.

Thanks for taking my call. This is a great start or communicating the plan, the turnaround, but I had two questions. The first one is, you mentioned the potential for market consolidation in Mexico. Can you expand a little bit on that? I don't know if there is a room for revising some of the talks that you had that the firm had a while ago with Mega cable [ph]. That's the first question. And then the second, this is more a joint question to wait and to Alfonso. If you look at the capital structure of the joint venture, how do you see the path for raising capital? And what would be the position that Televisa will take into that strategy for capital basis? Thank you.

Thank you, Cesar. As to consolidation of the cable industry in Mexico. And I mean, you know we tried very hard to do that. We -- but on the table, a very attractive offer, a stock-for-stock deal, which would, I believe, be great for both the Grupo Televisa shareholders and the other shareholders. So, we tried very hard. However, we could not complete that transaction. And you may expand...

Yes. So, this market, as you know, a four-player market doesn't last very long. Some of our competitors are already facing financial challenges. So, we think that there will be a consolidation. When is a question that we would also would like to be able to answer. But conceptually, I think this will happen sooner rather than later, given some of the constraints that we have already seen. And some of the players are deploying fiber networks like crazy would not be equivalent growth to be able to pay back for those investments. So, we see a challenging market for whoever wants to be in that market. And then our strategy is like we have described just recently today is that we're going to be preserved cash and keep on focusing on our largest asset, which is our 6.3 million customers, high level, were the best clients in the country. And we think we can work with them and grow just not only the subscriber base but also very strategically and very focused our network. And so, I think that's the strategy moving forward and consolidation will happen in H1.

And as to your second question, we, look, our single-minded focus in everything that we've been doing we formed this joint venture and the transformative merger that created a fundamentally new and differentiated company is focused on maximizing shareholder value. So, when you think about whether or not the timing of raising incremental capital, the right time for us to maximize shareholder value from an equity raise standpoint will be once we've actually delivered direct-to-consumer profitability, which is right around the corner, as we've said a number of times. Pretty much every media company in the industry has talked about direct-to-consumer profitability. One only Netflix to date has delivered that. When we deliver profitability within the next nine months. That will -- as Alfonso has said, represent the fastest ramp of profitability of any major streaming service in the history of the industry, and that will be a very material in fashion point into of the company. We have plenty of cash and liquidity on hand at the moment as we reported. A couple of days ago, we have just under $300 million of cash on hand. We have $900 million of equity from our AR facility. And so, there's plenty of cash for us to be patient around what the right timing is for tapping the equity markets. When we do that, it will be focused on accelerating the deleveraging of the business. Obviously, as we turn streaming to profitability next year, the organic deleveraging of the business is going to start and accelerate moving forward. But at the right time, I think I've kind of outlined the parameters that go into that, we'll look at raising equity to accelerate the deleveraging of the business.

And for the intention of Televisa to participate on those transactions?

We're not considering at this point, putting more money into Televisa Univision. Of course, as Wade was describing, let's wait and see, but that's what -- I mean, we're not considering that at this time.

I mean units going to be really expensive. I think the only thing you're going to need to think about. We already own 44%. So, we're, of course, the largest shareholder, and we feel great about our investment at Televisa Univision.

The next question comes from Carlos Legarreta with Itau. Please go ahead.

I have two questions on my side. The first one on Cable. Please disclose a number of unique subscribers in the business after the base cleanup. And if possible, can you disclose the household penetration between your legacy and new territories group? And secondly, sorry, if I may, just as a follow-up. So, from what I got from your comments is that Televisa is not considering a larger stake in Televisa Univision in order to consolidate it, right?

Carlos, as to your last question, we're not considering that at this time. And as to your first question, so we have unique users of our households into 6,252,000 unique users or households after the cleanup. And in terms of household penetration, the more -- just, let's say, legacy, if you want customers, our penetration is close to 40% and that represents around -- we're talking about almost 80% of our subscriber base. With very high penetration. And then with the low in the lower cities, it's between just 10 and 20, 15, 20, that's the penetration we have in the newer cities.

The next question comes from Marcelo Santos with JPMorgan. Please go ahead.

Hi, good morning. Thanks for taking my question. I have two questions for Lin [ph]. First, if you could comment on the competitive environment. If you have seen a deterioration in the regions that either your legacy regions or in the new regions that you have entered. And the second is, when you look at your network structure -- network infrastructure, do you see any need to upgrade parts of its cable to fiber? Or are you fully happy with what you have now? Thank you.

So, in terms of market competition, what we have seen in the market is a very enterprise wise, very stable, Michael. We compete on promotions which is basically what everybody does everywhere in the world in this business. So, there is no price deterioration. There's a lot of promotions, but we have seen prices very stable over the last several quarters. In terms of the network, we have a network that can deliver up to 1 gigabit per second in terms of Internet speeds. And 200-plus video channels. And that's more the need for the kind of clients we have. Very tight deployment of fiber that we have already done in the past and that we'll keep on doing in the future for more affluent residential areas will always be on our to do list and on our CapEx. So that's how we see this evolving.

The next one comes from Eduardo Ruby with UBS. Please go ahead.

Thank you for taking my question. Can you provide some color on the tax impact we saw discard and we should account for further tax costs on next period? And thankfully, could you give more color on how we should see CapEx and leverage going forward, please?

Can you repeat the first question again was about taxes?

So, as you saw in our press release, the income tax line increased to $975 million in the third quarter. That's basically due to a noncash, nonrecurring expense of approximately $988 million and this expense was due to the reduction of a historic income tax deferred asset that we had on our books. So, as I mentioned, it's noncash and nonrecurring.

And the other question was, The CapEx we think it will go from the 26% of revenue that is running today to close to 20%. So, as we mentioned, it's all about CapEx optimization and generation of free cash flow.

This concludes our question-and-answer session. I would now like to hand the call back to Alfonso de Angoitia for closing remarks.

Thank you very much. Well, great. Thank you for participating in our call. Please give us a call if you have any additional questions or comments. Have a great weekend.

The conference has now concluded. Thank you for attending today's question. You may now disconnect your lines.