Operator: Good morning, everyone, and welcome to Grupo Televisa’s Second Quarter 2023 Conference Call. [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, the call 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.

Alfonso de Angoitia: Thank you, Donna. Good morning, everyone, and thank you for joining us. With me today are Francisco Valim, CEO of Cable; Luis Malvido, CEO of Sky; and Carlos Phillips, CFO of Grupo Televisa. Before discussing our second quarter operating and financial performance, I’d like to welcome Francisco Valim as CEO of our Cable operations and share with you that we’re thrilled to having him join Grupo Televisa’s executive team. Valim is a seasoned executive with over 34 years of experience, including 20 years holding CEO positions, mainly in the telco, media and service industries in Brazil and abroad. Valim has led large and complex publicly listed and private companies and deeply understands the telco market and the broader telco ecosystem, including pay TV, broadband and fiber optics networks in highly competitive environments.

He is also very experienced in leading significant transformation and turnaround processes by delivering revenue growth acceleration, best-in-class cost reduction, increased profitability, CapEx optimization and free cash flow generation. Valim is fluent in Spanish, English and of course, Portuguese, which is his native language. We’re confident that Valim’s solid experience in the industry and strong track record will be extremely valuable to take our Cable operations to the next level in terms of revenue growth acceleration, enhanced profitability, CapEx efficiency and strong free cash flow generation. Having said that, let me turn the call over to Valim for a brief introduction.

Francisco Valim: Thank you, Alfonso. Good morning, everyone. I’m glad to speak with the markets again, but now from Mexico City. First, I want to thank Grupo Televisa for the opportunity to lead the largest Triple-play services provider in Mexico with a powerful combination of access to succeed. As you probably know, izzi has a pretty extensive and robust network capable of delivering very competitive Internet speeds, strong brand recognition and reputation. Great quality of service and a first-in-class customer care department, all of which are crucial to attract and retain good subscribers and therefore attain sustainable growth. Secondly, we are committed to implement the necessary measures to accelerate revenue growth at izzi, while going through structural reforms to improve profitability and enhance free cash flow generation.

As you may be aware of, this structural reforms have been under analysis over the last few quarters by an external consulting firm. So we use their extensive work as a basis to build upon and implement them as soon as possible. Before turning the call back to Alfonso, let me share with you that we are working on a detailed long-range plan to achieve our goals. We expect to share this plan with you over the coming months.

Alfonso de Angoitia : Thank you, Valim. Now I’ll walk you through Televisa-Univision’s second quarter results released last week. Let me remind you that our stake in Televisa-Univision is a very important value component for Grupo Televisa’s shares. Using proportionate consolidation, Televisa-Univision contributed with almost 40% of revenue and 35% of EBITDA during the second quarter, making it the second largest proportionate contributor to the group after our Cable operations. Televisa-Univision’s operating and financial performance were great during the second quarter, underscoring the power and resilience that come from our unique fully integrated ecosystem across complementary platforms and geographies. During the second quarter, Televisa-Univision delivered very strong revenue of $1.2 billion, growing by 11% year-on-year, mainly driven by our global streaming business, ViX, and our core operations in Mexico.

EBITDA of $374 million remained stable year-on-year after having financed all our streaming investments related to new original premium content, sporting rights, marketing and technology following the launch of ViX’s subscription service during the third quarter of last year. It is important to highlight that Televisa-Univision’s flat EBITDA during the quarter represents a sequential improvement for the second consecutive quarter as we have left behind the peak of streaming losses. Consolidated advertising revenue increased by 10% year-on-year. In the U.S., advertising revenue increased by 1% or 4% excluding political and advocacy. We continue to outperform the market, which according to Magna declined by 4.8% during the second quarter, leaving us with 6 percentage points of outperformance.

This reflects strength in national advertising and momentum in streaming, where we continue to see demands from advertisers and increased pricing as we leverage our new ad formats. In Mexico, advertising revenue growth of 29% was driven by strength in both linear and streaming. The 2023 calendar year upfront closed at the beginning of this year, where we secured record advertising commitments and the appreciation of the peso. In local currency terms, advertising revenue in Mexico increased by 14%. Consolidated subscription and licensing revenue increased by 14% year-on-year. In the U.S., growth of 10% was driven by the success of ViX’s premium tier along with pricing growth on the linear subscribers, partially offset by linear subscriber declines.

In Mexico, growth of 27% was driven by ViX’s premium tier, growth in linear subscribers, higher pricing and the appreciation of the Mexican peso. In local currency terms, subscription and licensing revenue in Mexico grew by 16%. This was a fantastic quarter for ViX as we continue to see solid sequential growth in revenue and usage. All the important KPIs of our streaming platform are going in the right direction. Engagement is up, advertising ARPU is increasing, CAC is down and SAC is declining. This translates into revenue growth and profitability improvement. Our streaming EBITDA losses continued to decrease significantly both sequentially and on a year-on-year basis. Today, we are even more confident that our streaming business will be profitable in the second half of 2024.

By the end of the second quarter, we launched a programming strategy in Mexico that has become a cultural phenomenon in a way that would have never been possible without our ability to consider this content experience to leverage the best of platforms, both linear and streaming. In June, we launched our version of the reality show Casa de los Famosos. We launched this structured show on linear with two airings a week. Immediately, we created multiple live streams that ran 24 hours a day, uncensored in front of the paywall on ViX. After two weeks of building extraordinary engagement, we moved this 24-hour live streams behind the paywall on to the premium tier of ViX. The metrics for ViX around this property are on par, with or better than many of the metrics we saw for the World Cup last year.

As of last week, 20 million people had engaged with the show on one of our platforms, lifting both ViX ad revenue and premium subscriptions, as well as linear ratings and free-to-air ad revenue. Beyond the combined linear and ViX programming strategies, we continue to refine the unique content proposition on ViX. We continue to learn what resonates with our audience and refine our strategy accordingly. This quarter, we materially enhanced our soccer proposition for ViX’s premium tier. This quarter, we continue to expand upon our breadth of distribution partners. In the U.S., we launched ViX’s premium tier on Roku Channel, the ViX app on LG’s connected TV and we’ll be launching Ambicion [ph] later this quarter. These new partnerships have virtually doubled our connected TV footprint making ViX available on all major TV OEMs n the U.S. In Mexico, we partnered with AT&T to make ViX available with promotional pricing and seamless payment experience.

To further enable cash payments, we expanded our OXO [ph] partnership and redesigned our cash product experience addressing a key consideration in Mexico where cash payments are far more popular than credit cards. And in Colombia, the next most important market in our expansion beyond our core operations in the U.S. and Mexico, we announced a partnership with RCN to hard launch ViX. Looking ahead, we’re progressing towards closing our U.S. upfront at a pace in line with the industry. Early data indicates yet another year where we take share from English language broadcasters. In addition, we expect to fare better than market on pricing. Rectifying the pricing gap with the general market has been a huge area of focus for us, and we’ve made significant progress.

Ultimately, we expect volume to finish up mid-single digits, an incredible accomplishment in the market as challenging as the one we are facing as the rest of the industry. To sum up, we are very excited about the first half of 2023 from both an operating and financial perspective at Televisa-Univision. Once again, we grew revenue across all business lines and geographies, while we managed to keep reducing our streaming losses as we scale the business. We continue to expand our leadership in the massive and influential global Spanish-speaking market and leverage our content powerhouse to program linear and streaming as complementary platforms, while we have a differentiated streaming platform that is aligned with a stable core business. This combination of factors should keep allowing us to deliver sustained above-market financial performance at Televisa-Univision.

Moving on to Grupo Televisa’s second quarter operating and financial performance. Consolidated revenue reached Ps18.5 billion, remaining virtually flat year-on-year, while operating segment income reached Ps 6.8 billion, equivalent to a year-on-year decline of 3.3%, partially driven by inflationary pressures. Once again, revenue growth in Cable and our Other Businesses segment was offset by declining revenue at Sky. Since we announced Valim’s appointment, he has been fully engaged leading and familiarizing himself with the team at our Cable operations. These few weeks have already been very productive but have been mainly a transition period. So this time, I will explain the operating and financial performance of our Cable operations before turning the call over to Luis to discuss Sky’s.

In Cable, we ended June with a network of 19.4 million homes after passing more than 400,000 new homes during the quarter. We also delivered around 1.3 million fixed RGU gross adds, mostly in line with the average of the last three quarters, showing that demand for our services continues to be robust. However, a combination of factors, including the expiration of promotions for the fourth quarter of last year and price increases implemented in the month of April, led us to experience an increase in churn. This translated into over 26,000 fixed RGU net disconnections. In broadband, we lost 38,000 subscribers during the quarter, while in video, we had 46,000 net disconnections. This was partially offset by more than 57,000 voice net adds and 21,000 new mobile subscribers.

During the second quarter, revenue from our Cable operations of Ps12.3 billion, increased by 4.6% year-on-year, while operating segment income of Ps4.8 billion fell by 2.2%. Our Cable operations margin of 39.4% contracted by 270 basis points year-on-year, mainly driven by inflationary pressures in labor and content-related costs. Now let me turn the call over to Luis Malvido, CEO of Sky.

Luis Malvido: Thank you, Alfonso. Let me provide you with an update on Sky’s second quarter operating and financial performance. In terms of revenue generating units, we observed a decrease of 191,000 RGUs during the quarter. Although we improved churn rates for both prepaid and postpaid DTH, our subscriber base declined as a result of our program to enhance sales quality. The loss of RGUs in DTH was partially mitigated by new product offerings. Sky Celular, Sky mobile virtual operator service experienced a 7,000 RGU growth in the quarter. Additionally, as part of our digital transformation strategy, our enhanced OTT platform, Blue-to-Go [ph] contributed to an addition of 21,000 RGUs this quarter resulting in a net gain of over 95,000 units over the past 12 months.

Moving on to our broadband business, Blue Telecom. We faced a new decline in the subscriber base due to the limited Altan’s [ph] network availability, which restricted new sales. Nevertheless, alongside with the regular attrition of the business, we are optimistic about the launch of new fixed broadband services in partnership with izzi, the Sky Internet, will pave the way for recovery and growth in this lucrative market. Now let me walk you through the financial results for the quarter. Second quarter revenues declined 13.4%, reaching Ps4.4 billion. This decline was primarily driven by the before-mentioned subscriber base drop, partially offset by the price increase in post-paid video customers implemented in May. Furthermore, operating segment income decreased by 15.6%, reaching a margin of 32.4%.

This decline is attributed to lower revenues, which were partially offset by a drop of cost of goods sold and operating expenses due to the successful implementation of efficiency measures across our operations. As you may recall, last year, we developed an ambitious simplification program aimed at improving efficiency and streamlining operations across the entire organization. As of the current update, this program is projected to yield an impact of Ps790 million in 2023 and 60% of the initiatives have already have been executed while full savings will be reflected over the two coming quarters. Regarding capital expenditure, we invested $84 million year-to-date, indicating a substantial 26% decrease compared to previous years. This reduction in capital intensity can be attributed to the strategic measures we undertook to enhance return on investment along with the successful implementation of the simplification program mentioned earlier.

A key indicator reflecting the positive impact of these efficiency measures is EBITDA minus CapEx which has grown by 16% year-on-year, increasing from Ps1.3 billion to Ps1.5 billion. And before turning back to Alfonso, I would like to emphasize that despite the challenges posed by the top line downward trend, we remain confident in our ability to reverse this trajectory. This confidence is grounded in the comprehensive transformation measures we are implementing, including all new and disruptive video offer. The introduction of more competitive broadband services and customer license value management.

Alfonso de Angoitia : Thank you, Luis. To wrap up, despite the macro challenges with relative soft GDP growth and still relatively high inflation rates globally, Bernardo and I are optimistic about the medium-term operating and financial growth prospects for our different businesses. At Televisa-Univision, we continue to grow revenue across all business lines and geographies, materially outperforming our peers driven by our leading Spanish language streaming platform, ViX, that has been growing both sequentially and year-on-year and our core media business that keeps growing at a healthy pace. ViX’s strong operating and financial performance led us to feel even more confident that our streaming business will be profitable in the second half of 2024.

This would be a major achievement as we estimate our streaming platform to be profitable only 2 years after launch, while most of our peers expect to turn profitable in 4 to 5 years. In Cable, our operating and financial performance is far from reaching its full potential. But we’re confident that under Valim’s leadership, we will be able to reduce churn, gradually delivered solid RGU net adds again and accelerate revenue growth. In addition, we are fully committed to implementing structural reforms to increase profitability, optimize CapEx and enhance free cash flow generation. Finally, at Sky, we continue to believe that transformational measures implemented during the second half of 2022 and the new telco services that we have been launching in 2023 under the Sky brand will allow us to gradually achieve sequential operating and financial improvement over the coming quarters.

Now we are ready to take your questions. Donna, could you please provide instructions for the Q&A.

Operator: Thank you. [Operator Instructions] Our first question comes from Carlos Legarreta with Itau. Please go ahead.

Carlos Legarreta: Hi, gentlemen. Good morning. Thank you for taking the questions. Just two quick ones. The first one, what was the driver behind the high margin in the Other business segment? And secondly, with the stronger MXN versus the U.S. dollar, are you revising your CapEx guidance for the year? Thank you.

Alfonso de Angoitia: Hi, Carlos, yes, so Other businesses, we had basically an increase in revenue in gaming of 22%. So it’s operating much better than during COVID, of course, where we had everything shut down. So revenue increase of 22%. Soccer had a growth in revenue of 13% and that was due to a strong attendance. The gains, the stadium performed better and also team sponsorships that we closed during the quarter. And that was partially offset by publishing where the continued headwinds, both in circulation and advertising of the magazines got us to a decline of 27% in terms of revenue. So that translated into the strong EBITDA growth that you saw. And I guess in terms of CapEx, even considering the exchange rate that – what we see is that we estimate that we will invest around $620 million this year.

And it’s important to take into consideration that the FX volatility as you were mentioning, it could translate into deviations [ph] But mostly without that, it’s meant to be around $620 million.

Carlos Legarreta: Thank you, helpful

Operator: The next question comes from Lucas Chaves with UBS. Please go ahead. Looks like Lucas’ line got disconnected. The next question comes from Vitor Tomita with Goldman Sachs. Please go ahead.

Vitor Tomita: Hello. Good afternoon, all. And thanks for taking our question. Two questions from our side. The first one is on MSO mass market margins. Are costs already fully reflecting this year’s inflation on labor content costs and other offending lines? Or could we see further impact through MSO margins in the next quarter? And the second question also on izzi regarding net disconnections. Were there any geographical areas that saw particularly high churn this quarter or any particular competitors that took in those churn customers. And in that context, has Telmex increased fiber deployments and increased commercial activity being an issue for izzi so far. Thank you very much.

Alfonso de Angoitia: Thank you, Vitor. I’ll ask Valim to answer your questions.

Francisco Valim: Good morning, Vitor. So in terms of MSO margins, all the costs have already been fully reflected. So we don’t expect any pass-through inflation moving forward as far as the MSO is concerned. In terms of disconnections, what we have been seeing is reflects – the reflection of a compound effect of obviously the increased prices. But most importantly, the promotions that were expiring over the last several months from sales done last year, it has been broadly across the board. So we don’t see any specific areas where churn is different or significantly different from what we were expecting.

Alfonso de Angoitia: Clear. Thank you very much.

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

Marcelo Santos: Hi, good morning. Thanks for taking the questions. My first question is to Francisco Valim. If you could share perhaps your preliminary diagnostic of Televisa Cable. Do you see any kind of low-hanging fruits based on your experience? That’s the first question. And the second question also regarding Cable as we saw a strong pickup in the pace of deployment of homes passed. I think you reached almost 700,000 homes passed this year. Our view was that you’re going to add 800,000 to 1 million. So is there a space for upward revisions in this number? How should we think about the growth given the very strong first half of the year? Thank you.

Francisco Valim: Marcelo, good morning. Well, we have seen – what I have seen here since I started my transition period, is that we have several opportunities in terms of cost and structure reforms that were already in the making that we think that we can implement very quickly. So yes, there are some low-hanging fruits in terms of how we operate in terms of the cost structure and in terms of CapEx optimization. And that kind of ties into your next question. As I understand the plan, the plan was to be around 700,000, 800,000 new homes passed this year, and we are very close to that number. So we don’t anticipate any upward revisions on that number.

Marcelo Santos: Perfect. Very clear. Thank you very much.

Operator: [Operator Instructions] The next question comes from Fred Mendes with Bank of America. Please go ahead.

Fred Mendes: Hello. Good morning, everyone and congrats to Valim for the new opportunity. My questions are on Cable as well. The first one, just a follow-up from the last one, just trying to understand if you guys for some reason you raised the bar in terms of the credit of the clients and then eventually that led to a higher churn along with the promotions. So just trying to understand if you’re raising the bar now and then eventually, we could see an improvement as we move forward. This will be my first question. And then again on the – also on the Cable, these disconnections, did they happen mainly on fiber or mainly I would say, manly on cable? Or are you also seeing some disconnections on fiber? Just trying to see what we should expect for next quarters? Thank you.

Alfonso de Angoitia: Yes, I’ll ask Valim to expand as to your questions, Fred. Thank you. As we mentioned, the fixed RGU gross net adds were very strong once again this quarter at around 1.3 million, which is mostly in line with the average for the last three quarters. We brought over 5 million RGUs in the last 12 months or that’s 2.2 million broadband subscribers. So basically, izzi has 6.6 million subscriber base with a 35% penetration, which is very good. And we also have a network, as you know, of 19.4 million homes. So the demand for our services continues to be robust. However, as to your question, and Valim will expand on it, a combination of factors, including expiration of promotions that we have touched on from the fourth quarter of last year and the price increases that we implemented in the month of April, that led us to experience this increase in churn. So Valim, can you expand on the raising of the bar and Fred’s question.

Francisco Valim: Sure. So thank you, Alfonso. So what we see here is that churn, because of the reasons Alfonso just mentioned, has picked up in June. July is the occasion month in Mexico. So we anticipate also having a little bit more churn this month, not compared to the previous month, but compared to the annual average. And August is a great month. It’s back to school. So we see a lot of net adds potential – additional net adds on that. So churn, as we understand, has many, many reasons, and we are addressing several of those reasons. In terms of raising the bar, yes, we are – we try to scrutinize as much as possible new clients because we want to make sure that they stay for a longer period of time. And we see that moving forward.

So we want to be more targeting – more targeted and how we approach the market, making sure that we bring the best clients considering that we already have most of the best clients in this market. So retaining those clients is our top priority and bring in clients that are equivalent to those clients is what we are aiming to do moving forward.

Fred Mendes: Perfect. Very clear. Thank you. Thank you. Alfonso. Thank you, Valim.

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

Alfonso de Angoitia: Thank you very much for participating in our call. If you have any additional questions, please call us. Thank you very much.

Operator: This concludes our conference. Thank you for participating today. You may all now disconnect.

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