Good morning everyone and welcome to Grupo Televisa's First Quarter 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions] 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 discuss in today's call and in the earnings release. Please note, this event is being recorded. 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, Elsa. Good morning everyone and thank you for joining us. With me today are Francisco Valim, CEO of Cable and Sky; and Carlos Phillips, CFO of Grupo Televisa. As you may recall, one of the strategic pillars approved by our Board of Directors was to streamline Grupo Televisa's operations and simplify our asset structure. I am delighted by the progress we have achieved on this front so far this year. On February 20th, we concluded the spin-off of Ollamani and its listing on the Mexican Stock Exchange under the ticker symbol, AGUILASCPO, unlocking significant value to our shareholders. And on April 3rd, we announced that we reached an agreement with AT&T to acquire its minority stake in Sky Mexico, subject to regulatory approvals. Following the conclusion of these two milestones, Grupo Televisa will not only be a pure telecom company from a consolidated standpoint with massive opportunities to take advantage of Sky's exclusive sporting content rights in our Cable segment and generate significant synergies and efficiencies through the integration of these two businesses, but also the largest shareholder in Televisa Univision, the world's leading Spanish language media and streaming company through our unconsolidated 44% stake with huge potential to create value. Regarding the agreement with AT&T to acquire its minority stake in Sky Mexico, I would like to ask Valim to walk you through the plan that we will pursue to fully merge Sky with our Cable operations, materially strengthening the competitive and financial position of the combined company. Valim's mandate as recently appointed CEO of Sky as well as CEO of our Cable operations, is to completely integrate the two companies benefit from Sky's exclusive sporting content, to improve the competitive position of the combined company, extract as many OpEx and CapEx synergies as possible, expand free cash flow generation, and therefore, increase returns on invested capital. Having said that, let me turn the call over to Valim as he will elaborate on this restructuring plan.

Thank you, Alfonso. Good morning everyone. We view of integration of Sky with our Cable operations as a great opportunity to create value for Grupo Televisa's shareholders as there are significant synergies and efficiencies to be achieved from the revenue, OpEx, and CapEx standpoint. The proposed merger is something that we have been analyzing for some time already. Therefore, we have done extensive work to map the integration process and execute as quickly as possible. So far, we have outlined a new organizational structure for the combined company that will allow us to retain top talent and optimize duplicated roles. We have also identified several areas to implement synergies and efficiencies, including commercial, sales commissions, programming, IT, technology, marketing and others. The main enablers of savings will be the economies of scale, a wider offering of products and service, reduced overlap of commercial infrastructure and call centers as well as real estate and redundancies of duplicated systems and functions. This integration will also allow us to standardize regions, sales channels and commission schemes, have a better customer base management, increased productivity, achieved across selling and upselling, improved penetration of triple play services, reduced churn and leverage on Sky's exclusive sporting content in cable further differentiating our video packages from those of our competitors. All in all, after full implementation of our structure integration, most of which is expected to occur in the second quarter of 2024, we estimate potential savings of around 15% of Sky's combined annual OpEx and CapEx. We project these synergies will gradually be more evident beginning in the third quarter of 2024, when we estimate OpEx savings of approximately MXN 400 million. Moving onto the operations and financial performance of our cable operations, we ended March with a network of 19.7 million homes, after passing around…

Thank you, Valim. You're doing a great job. Given the operating and financial performance of our two consolidated businesses, Grupo Televisa's consolidated revenue reached MXN 16 billion, representing a decline of 4.8% year-on-year, while operating segment income reached MXN 5.9 billion, equivalent to a year-on-year decrease of 12.5%, mainly driven by the lower revenue and inflationary pressures. Now let me walk you through TelevisaUnivision's first quarter results released yesterday morning. The company delivered another solid quarter from a top-line perspective, with revenue of over $1.1 billion, growing by 7.3% year-on-year. However, EBITDA of $329 million fell by 8.9% due to continued streaming investments for VIX and the comp of a non-recurring bad debt expense reversal. Excluding the bad debt expense reversal, TelevisaUnivision's EBITDA would have only declined by 5%. It is important to highlight that TelevisaUnivision's direct-to-consumer losses continue to decline this quarter and that we are on track to deliver our goal of profitability in the second half of this year. During the quarter, revenue growth at TelevisaUnivision was driven by solid increases in consolidated advertising and subscription and licensing revenue of 7% and 9%, respectively. While consolidated advertising revenue increased by 7% year-on-year, in the US, advertising revenue was flat as growth in direct-to-consumer was offset by some softness in our linear networks. In DTC, we delivered exceptional growth as we were very effective in monetizing the increased engagement on VIX with strong sell-through rates of over 80% and significant CPM premiums to linear. At our linear networks business, our results were mixed. We saw strength in sports and certain categories where we have traditionally had low penetration, such as financial and pharma that contributed to solid scatter volume. However, we experienced softness in the CPG, retail, and tech categories, along with some pressure from ratings declines that…

We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Marcelo Santos with JPMorgan. Please go ahead.

Hi, good morning. Thanks for the opportunity for making questions. I have two. The first one is to Valim regarding cable. What was the average price increase that you executed in April and to how much of the base -- and do you expect a spike in churn because of that? That's the first question. The second question is to Alfonso regarding TelevisaUnivision. Alfonso, you had the biggest decline in EBITDA at TelevisaUnivision and the highest leverage since the merger, would you please tell us what you expect going forward, give a little bit more detail? Thank you very much.

Thank you, Marcelo. So Valim will take your first question.

So Marcelo, on average, we have increased around 4%, and it will impact almost all the customer base. There are quite a few exceptions, people that have joined the subscriber base later, so they are still under some sort of a promotion. So, obviously, those are not going to have a change in price. But that's the distraction, that's not the rule. In terms of churn, obviously, we started announcing -- part of a regulation here in Mexico, we announced the price increase early in March. And so we had some fluctuation around March early April time frame. But we think that it's still under control, its churn is at historical levels. So, we don't see that being a big negative impact. And as to your second question, Marcelo, can you hear a clearly because apparently there's an echo.

I can hear you. Thank you.

Okay. So, as to your second question, that has to do with the decline in EBITDA of Televisa innovation. I would say, first of all, there's an accounting issue in the first quarter because we are comparing a bad debt reversal that we had a year ago. So, excluding that benefit that took place in the first quarter of 2023, our EBITDA declined 5% and improved from 7% decline that we had in the fourth quarter of 2023. So, this is really a function of continued narrowing of our direct-to-consumer losses as we move forward that business towards profitability. So, I can say that in 2024, EBITDA and, therefore, leverage will really be a tale of two halves. For us, the second half should be dramatically better than the first half. Going into this year, we planned for this. So, we saw it. In the first half, we expect EBITDA to remain under pressure against a year ago, which contributes to higher leverage, of course. And in the second half and particularly the fourth quarter, we expect even growth and leverage reduction to below 6 times.

Perfect. Thank you very much.

Thank you, Marcelo.

The next question is from Carlos de Legarreta with ITAU. Please go ahead.

Thank you, Alfonso and team. Two quick questions on my side. The first one, if you can please go over your revised CapEx guidance. I understand the allocation can decree, but I missed the amount by how much? And on the second, we -- I would love to hear firsthand the opportunities to reap with the Sky acquisition and the timeline for those? Thank you.

Thank you, Carlos. As to our CapEx for 2024, we reiterate basically investments of $630 million in Cable. This is including the reconstruction of our network in Acapulco that basically was destroyed as a result of Hurricane. We expect to be reimbursed by the insurance company in respect to that reconstruction. So, excluding this reconstruction, our Cable CapEx will be closer to $600 million. As you know, most of our CapEx is sales related. And therefore, if we are able to keep subscriber growth additions at a reasonable level, which we expect and we further reduce churn, we should be in a position to have low single-digit subscriber base growth in the medium term with less CapEx intensity. So, we believe CapEx to sales should be in the low 20s going forward. And in 2023, CapEx to sales already declined to 23% from almost 27% in 2022. As to your second question that has to do with Sky -- with the CapEx of Sky and its deployment. Sky's investment of basically, MXN400 million in the first quarter fell 48% -- almost 49% year-on-year. Therefore, Sky's CapEx to sales ratio was 10% and it was 720 basis points below that of the first quarter of 2023. So our CapEx for 2024 budget for Sky was $145 million. This is equivalent to over 16% of sales. However, Valim can touch on the details. But given our restructuring and integration plan, now we think that Sky's CapEx to sales is more likely to be below 14% this year. And as to – I am sorry, to your second question has to do with the acquisition of AT&T, Valim can you just talk about it.

So it also adds to what Alfonso just said, there are several systems, for example, that are now duplicated and we can optimize and that reduces CapEx in terms of licenses and operating costs. We see lots of opportunities. We see a big opportunity to revenue increase. So we can now match the subscriber bases and be more aggressive. And at the same time, more targeted in how we approach the market with both technologies in areas where we have network, in areas where we do not have a network, so we can optimize our efforts in terms of approaching the market. We see a great value in still in the DTH products, especially the prepaid products that we have here in New Mexico that has a big take rate. So -- and obviously, there are back office synergies because there's a lot of overlap. And we think that when you compound that, we think that we should come closer to the second half to MXN 400 million of savings of synergies. Yes. So that's more or less the number that we're anticipating by the end of the year – for quarter.

As I mentioned, Valim’s mandate is to completely integrate the two companies. And of course, we're going to benefit on the easy side from Sky's exclusive sporting content to improve the competitive position of the combined company. And he will, as he has demonstrated at easy in the very short-term, expect as many OpEx and CapEx synergies as possible. And this will mean an expansion of free cash flow generation. And of course, that will result in increases in returns on invested capital.

Thank you all for your feedback

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

Hello. Good morning, all and thanks for taking our questions. We have two questions from our side. The first one, you touched on it a bit, but if you could give us some more color on how you are seeing commercial dynamics and sales performance in cable under your new strategy, that would be our first question. And our second question would be on TelevisaUnivision. How are you seeing the evolution in profitability for streaming at TelevisaUnivision streaming business? And how confident are you in the streaming business reaching profitability in the second half of this year? Thank you.

Vitor, thank you for your questions. Valim will take the first one to the commercial dynamics and cable, and I'll take the second one.

So, Vitor, back in those days when we had the very aggressive promotions, we were selling between 450,000 new gross ads per quarter. We are already at the 400,000 rate. So, that has not obviously, we had to retrain the sales force and that has had some little, let's say, step down that basically took place in the fourth quarter of last year. So as we see in this quarter and the coming quarter, we are seeing our sales activity in the 400 to 450 drop-downs per quarter as we were even with the very aggressive promotions. So we see the market is still active in that regard, and we see no deterioration of the volume other than the one I've just mentioned. But the flip side to that is because we have shorter promotions, our ARPU has been improving consistently and we have seen a retention of the clients that we have been selling now much higher than the ones we used to sell in the past. So when you combine the two, we are very optimistic about how we should be growing the subscriber base here in Mexico. Despite the fact that we do not understand exactly whether we add up some of the numbers that we have seen published, we have a hard time understanding some of the numbers we have seen given the very high volumes. We're still working around to see where those net ads come from to some of our competitors.

Yes, to that point, we don't know if they're net additions or they're just a consequence of transferring old network subscribers to the new networks in their cases. But numbers don't really add up if you sum all the net additions of all the companies. So that's an interesting thing we need to focus on.

If we do the math, we would come up with 2.4 million, 2.5 million net ads in 2024, which is higher than what the industry had during the pandemic, which was the highest ever in terms of net ads in telephone worldwide. So that's why, what you're saying, it gives us some push for thought, if I may.

Yes. And as to your second question, it has to do with our streaming service with ViX. What I can say is that we feel great about it. With a quarter of the year having passed, we see continued narrowing of direct-to-consumer losses, and we remain confident in our ability to reach profitability in the second half of this year. Our DTC business had a great start of the year. All major KPIs and the trends are moving in the right direction, many of which exceeded our expectations. I can say some of them on users, we continue to grow both MAUs and subscribers. On engagement, I can say that in the three years where it directly correlates with monetization, total streaming hours grew more than 50% versus the prior year to a new record high. On monetization in the US, our ad sales team is doing a fantastic job, basically maintaining significant CPM premiums to linear with sellouts above 80%. Churn also reduced significantly in the quarter to a record low. So with more data as the service ages, we are doing a better job at creating content that resonates with our audience. This quarter, we saw an increase in terms of engagement among our audience, which led us to a better retention and lower churn. We're also seeing the benefits from our two-tier ecosystem, and this is bearing fruit in terms of both churn and SAC. About a quarter of our gross net subscribers were reacquired users, and the free tier contributed a record high percentage of our gross net subscribers at nearly 70% in the quarter. So as you can imagine, this translates into significant marketing savings as we're using that funnel and allowed us to, again, narrow our DTC losses. So what I can say, we feel great about VIX. We're moving towards a profitable scale streaming service.

Very clear, thank you very much for the replies.

Thank you.

The next question is from Alejandro Azar with GBM. Please go ahead.

Hi. Good morning, and thank you for taking my questions. Three quick ones. The first one is, Valim, if you can talk more about the synergies on Sky on the CapEx side, if you could elaborate on those. And just to clarify, you mentioned 15.5% savings on the OpEx. That would be the other one. And how does profitability look like when you merge both companies, let's say in 2025 or in the third quarter? And the last one would be on your asset sale. If you can elaborate on which assets did you sell, the gain above MXN 2 billion. Thank you.

Thank you, Alejandro. Well, Valim will take your first question, and then Carlos Phillips will take your question that has to do with asset sales.

So we are anticipating, at Sky from 16% to 14% cut-back to sales ratio, okay, and that's our estimate at this point. It may be higher than that, but we are being conservative at this point. In terms of profitability, we are estimating high 30s, the combined entities to be at high 30s when we finalize the synergies, which should be toward the end of the year and the beginning of next year. So we think we can, like I mentioned before, there are lots of things that we can synergize both on the top side, traffic side, but also on the revenue side, which we are addressing as soon as we have regulatory approval. And Carlos?

Hey, Alejandro. On the game you saw from property sales, this is related to the Ollamani spin-off. As we're organizing the company to execute the spin-off, we had to do some asset sales from companies that were going to remain in Grupo Televisa, from companies that were going to be spun off by Ollamani. Since the date of when the spin-off became effective was the 31st of January that's when the fee base became accounting formal. But it's a non-cash gain on movement of properties from the American companies and Grupo companies.

Okay. Thank you Carlos and Valim.

The next question is from Luca Brainbim [ph] with Bank of America. Please go ahead.

Hi. Good morning. Thank you for taking my questions. I have two on my side. First, on Sky on the operational front, you said you also expect to see some improvement. So how can we think about the level of net disconnections, should they continue to diminish? And then when should it normalize or it come close to zero, how you're thinking about that? And then second, for cable, do you still see much room for an improvement in churn? Or are you already close to the target you have? And if there is some room, what initiatives and what you still have to do to get closer to this target? Thank you.

Yeah, Valim?

So in terms of disconnection of DTH, which is basically the technology you're referring to, we think that there is -- with more emphasis on that product in areas where DTH is basically the only solution and understanding that in terms of entertainment, DTH is the cheapest opportunity that people have in Mexico, especially in areas where they do not have access to other technologies, we think with a more focused sales efforts and marketing efforts, we'll be able to reduce the speed of cancellations in both prepaid and postpaid. As to how much, we are still in the making of those understandings and we will be launching new campaigns very soon. Regarding how low churn can go, I think that we are towards the mid-range, if I may, of the churn in terms of how low it can go. Obviously, having a subscriber base as large as ours, churn is always a factor and despite the fact sometimes the number percent-wise it's a smaller number, it is a significant number of subscribers. But we think that with the many things that we are doing and some of the additional things that we can do, we think we can still work towards lowering the churn and seeing that moving forward. We have already done that, we have brought down churn from numbers that were very high to historical numbers already, but we still think we can lower the churn, especially with some of the things that we have in the pipeline in terms of products and services that we will be launching between now and the end of the year.

Perfect, very clear. Thank you for the answer.

This concludes our question-and-answer session. I would like to turn the conference back over to Alfonso de Angoitia for any closing remarks.

Thank you, everyone, for participating in our call. And if you have any additional questions, give us a call. Have a great weekend.

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