Grupo Televisa S.A.B.

The Televisa Univision first quarter 2020.

Welcome to the Televisa Univision first quarter 2023 earnings call. At this time, all participants have been placed in a listen-only mode. Following management's prepared remarks, we will open the call for questions. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. We ask that when you pose your question, you pick up your handset to allow for optimal sound quality. Today's call is being recorded. I would now like to turn the call over to Betsy Frank, Head of Investor Relations. Please go ahead. Thank you.

Hello and welcome everyone to Televisa Univision's first quarter 2023 earnings call. I'm joined today by our CEO, Wade Davis, and our CFO, Carlos Ferreiro. This morning we issued an earnings press release, which can be found at investors.televisaunivision.com. A few notes about the content of our remarks today. You will refer to adjusted OIDDA as EBITDA. Unless stated otherwise, all financial comparisons will be on a pro forma, year-over-year basis. Pro forma comparisons are adjusted to include the Televisa content business for all prior periods. Unless stated otherwise, our U.S. ratings and market share figures refer to prime time audiences ages 18 to 49. And Mexico figures refer to prime-time audiences P4+. Some of the information discussed today will contain forward-looking statements. These statements involve risks and uncertainties, including those highlighted in our press release, and may cause actual results to differ materially from these statements. We are not obligated to update forward-looking statements. forward-looking information discussed on this call, except as may be required by law. Our press release and reporting package contain definitions and reconciliations of our non-GAAP measures to the most directly comparable GAAP measures. I will now turn the call over to Wade.

Good morning. On behalf of myself and my partners, Alfonso and Bernardo in Mexico, I'm happy to be here reporting our first quarter earnings results. One year ago, we held our first earnings call as the combined Televisa Univision, and I'm incredibly proud of the momentum we've built and what we've accomplished over the course of the year. We have integrated the two businesses and achieved our year one synergy objectives. We have aligned our content production pipeline across the US and Mexico, as well as across linear and streaming. We are now producing more and better content than we ever have before. We continue to optimize our core business, taking lessons from both sides of the border and driving sustained overperformance relative to the market. in ad sales and subscription and licensing revenue. And we launched VIX, which is already the largest dedicated Spanish-language streaming service in the world and continues to build momentum. This quarter was a challenging quarter from a macro perspective. The U.S. advertising market continued to be soft, led by the financial services category, on the heels of turbulence from the banking sector. We also saw challenging TV usage for our audience, which we believe was a hangover from the heavy World Cup viewing in the fourth quarter of last year. But despite these marketplace challenges, Televisa Univision delivered a strong quarter, with revenue growing across all lines of business in all geographies, culminating in 6% total growth. I'm looking forward to taking you through our results for the quarter, and I'll talk about some of the content highlights, the performance of our linear and streaming platforms, and then hit on our monetization across ad sales and subscription and licensing before handing it over to Carlos to take you through our overall financial performance in more detail. Starting with our content engine in Mexico, which continues to deliver incredible shows that are powering both our linear and VIX platforms. This was a great quarter from a franchise perspective. And remember, our library of hundreds of thousands of hours of premium entertainment is not only the largest in the world, multiples the size of any other library. but it's also home to the most powerful and iconic brands and franchises in the Spanish-speaking world. And this quarter is a fantastic reflection of the power of the franchises in the library and our ability to continuously reimagine and extend our beloved IP. We launched the fourth installment of the successful Vincere franchise, and the creators of our hit show, Mi Fortuna es Amarte, launched Mi Camino es Amarte. And we launched Cabo, a modernized version of our powerful hit drama from the late 90s. All of these shows performed extremely well and illustrate the power and relevance of our IP. On VIX, our internal productions, Mujeres Asasinas, Maria Felix, and La Mujer Del Diablo season three, as well as our co-production, Bolvera Caller, were the most powerful series this quarter, driving new subscribers to the premium tier. And our library of iconic shows like Rebelde, Teresa, La Fea Mas Bea continue to drive the vast majority of overall consumption on VIX. And beyond entertainment, we remain the leaders in Spanish-language news and sports. In the U.S., Desperate America continued its run as the number one morning news program among Hispanics for 20 years. 26 years. And our 24-7 news channel on VIX, Noticias Univision in the U.S., and Foro TV in Mexico are among our most watched channels. On the sports side, we have great momentum with League MX, which is the cornerstone of our sports offering. Viewership on Linear is growing. which is creating momentum heading into the summer of soccer in Q2 when we host both the Gold Cup and the League's Cup. Soccer also continues to perform well in VIX, driving between 20% to 30% of new subscribers. As a result, we're in the process of making incremental expansions to the soccer offering for VIX. Now let's talk about our platforms. It bears restating that our strategy is focused on programming the linear and streaming platforms as two distinct and complementary content propositions to allow us to maximize overall audience reach, cross-promote where appropriate, and of course, leverage linear and streaming to enhance the overall experience for our audience. We continue to believe in the power of linear TV and will continue investing in the experience while at the same time building out VIX to reach new audiences and super serve existing viewers. Our core linear business continues to lead in both the U.S. Hispanic and Mexican markets where we deliver a massive share of 60% in each region. In the US, we did have a challenging start to the quarter where we saw both usage declines and the strongest competitive entertainment lineup in years. Although the start of the quarter was challenging, we were able to respond quickly and definitively in a way that no other television network can. And coming out of the quarter, our response was bearing fruit as we began to retake some of the modest share shift that we saw early in the quarter. And I think it's useful to highlight these unique abilities to face and respond to competitive challenges in our U.S. networks business. Our content factory in Mexico is producing at a scale that delivers original content to four broadcast and 29 cable networks in Mexico. In the U.S., we're only programming first-run original content online. on big Univision and Unimas principally during the prime time block. The pipeline between Mexico and the US enables two unique capabilities for our US networks to operate more nimbly and react in real time to competitive challenges. First, this massive volume of original production coming out of Mexico is more than we can use for our US networks. So we have options on the shelf should we need them. And second, since our shows air first in Mexico, we have a focus group of 128 million people. We can air, test, and modify for the U.S. if necessary. These unique capabilities were what allowed us to remix our grid and make multiple counter-programming attacks at a cadence that, frankly, no other U.S. network could. And it produced the desired results, with our Univision primetime retaking lost share points when it matters, heading into the U.S. upfront this coming quarter. In Mexico, Our audience delivery continues at extremely high levels, where we lead the market with an advantage of double that of our next largest competitor. In entertainment, this was a fantastic quarter. In fact, this was one of the highest first quarter prime time audience shares we've seen in eight years. For the total day, we delivered nine out of the top ten time slots per day, and 20 of the top 20 programs each week. News and sports saw similar results. Our primetime newscast was three to four times the audience of our next two competitors. And while there was a lighter sports calendar this quarter, we did beat the competition seven out of eight times on head-to-head programming. And in our Pay TV portfolio in Mexico, we gained 340 basis points of prime time share to deliver just under 30%, which is the highest Q1 share in the history of these channels. Now moving on to VIX, where we've been live with the full service now for about eight months. For a service this new, we have some incredible accomplishments under our belt and are now reaching a scale and duration of operation that allows us to see what's working and what's not and really begin to start turning the dials of optimization. One of the most encouraging things we're seeing is our sequential engagement growth. On a per-user basis, over the course of the quarter, we saw engagement grow a whopping 26%, which is remarkable given we're coming off the World Cup in Mexico. Our first-party content is driving about three-quarters of total streaming hours on the service, which is obviously encouraging from both a competitive advantage and a profitability standpoint. The product is also working extremely well. We've highlighted many times the uniqueness of our product with a fully free ad-supported tier and a paid premium tier inside the same service. We've also highlighted the strategic and operational reasons for this product design, the first of which is to create a product that has mass market appeal in markets with relatively low levels of financial services penetration. The second is to reduce customer acquisition costs. And third, to manage churn in markets that are intrinsically lower ARPU and higher churn than the general market. And as it relates to this design, we're increasingly encouraged that we have the right strategy. First, as we've highlighted previously, our free tier is the most significant source of subscribers for the premium tier. And we're seeing the percentage of subscribers coming out of this massive funnel accelerate, and it's now up to 60% of gross ads. And secondly, we're just starting to see the churn management benefits that we hypothesized. It's still obviously early, and we're only starting to see some churn from the early cohorts. where we're seeing meaningful reactivation from users who turned out of the premium tier, continuing to enjoy the free tier, and then reactivating back to premium. These early results are very validating of our two-tier product strategy. However, we always knew that this strategy would also bring some operational complexity that we'd have to work through. One of our main learnings from the past couple quarters relates to brand efficiency and customer confusion around the marketing of these two tiers as separate brands, VIX and VIX Plus. Separate campaigns and separate brands for two different tiers inside of the same service and a and confusing to the consumer and expensive for us. So based on everything we now know and significant incremental work around the brand, marketing, and consumer engagement strategy, we're going to quickly pivot to one brand, VIX, with two tiers inside the service, gratis and premium. I'm very excited. happy with how quickly the team learned, adjusted, and moved forward. With this adjustment, we're retooling marketing and we'll relaunch with a one-brand strategy, which will likely cause a month or two of slowing subscriber growth and inject some additional near-term expense associated with the rebrand. But in the medium to long-term, this is absolutely the right decision. This change, combined with macro-driven softness in the ad market, will likely push the break-even of our overall streaming business back a couple of quarters. We are continuing to see the quarter-over-quarter sequential improvement in streaming losses that we projected, including in this quarter, where we're following a blockbuster World Cup and absorbing the seasonally soft first quarter ad. Now let's move on to monetization and start with advertising, where we grew total worldwide ad revenue 6% in the quarter. In the US, advertising grew 2%, where strong national results were offset by the lapping of significant political and advocacy spend from Q1 of 22 in our local business. Excluding political and advocacy, we grew 5%. And we continued to significantly outperform the market. According to Magna, the overall U.S. advertising market declined 6% this quarter. Our 2% growth is an outperformance of 800 basis points, which is on par with the rate we over-delivered relative to the market last quarter. Our team continues to execute extremely well against a U.S. ad opportunity that's fundamentally different than the general market. Our audience is 20% of the U.S. population, representing the GDP equivalent of the fifth largest economy in the world, with both population and economic growth rates that are among the fastest in the world. All here inside the U.S., all unified by language. And this opportunity for us continues to be defined by two main elements. Number one, the lack of penetration of major advertisers' spending in Spanish language against our audience. And number two, a price gap between what Univision has historically charged and prevailing prices in the general market. Fundamentally, we'll continue continue to outperform the market as we execute against these two considerations, bringing new advertisers to the platform and increasingly moving towards price parity with the general market. Closing the price gap and bringing U.S. advertisers and their spend closer to what our audience reflects in terms of population and purchasing power represents hundreds of millions of dollars of ad revenue upside for us, which will only grow as we continue to scale our streaming capacity and our portfolio advanced marketing solutions. Our comprehensive digital offering anchored by VIX continues to be a significant driver of growth for our overall ad business. Our attachment rates have continued to grow quarter over quarter, now reaching 70%. And although sellouts are a little lower than they were last quarter, they remain above 75%, and pricing continues to increase, currently commanding over 80% premiums to linear on a P2 plus basis. And looking at our results on a national versus local level, our national business grew 6% while local declined 5%. Although we're seeing some volume declines in the scatter market from last year's historic highs, we're still seeing premiums close to 30%, which is reflective of the premium nature of our products. On the local side, the declines were driven by the lapping of political and advocacy spend and the loss of revenues associated with the radio divestitures we completed at the end of 2022. So excluding political and excluding the impact from the station sales, local would have been up low single digits. In Mexico, our ad revenue grew 14%, including including a significant FX benefit. Most of this was driven by our record-setting 2023 upfront, where we saw both pricing and volume growth. The Q1 scatter market's typically very soft in Mexico, given that we've just reset to the new upfront, which tends to account for about 90% of any given year's revenue. However, we grew our client base in the scatter market which is reflective of exceptional execution by our Mexico ad sales team, particularly on the heels of an historic World Cup in the fourth quarter, which took a lot of volume out of the market and typically has a significant hangover effect into the following quarter. In addition, we continue to make great progress growing our streaming ad business in Mexico. As we've said previously, the long-form premium streaming video market is still relatively nascent. As VIX represents the first time there is an inventory of this type of any real scale outside of the YouTube ecosystem in Mexico. Now, moving on to our subscription and licensing line, where overall global revenue grew 7%. In the US, this revenue stream grew 5%, driven by the successful launch of VIX's subscription tier. Core US linear revenue was soft this quarter, reflecting overall US MVPD subscriber declines. But despite the softness this quarter, we remain optimistic about this part of our business for two reasons. First, we continue to have an incremental penetration opportunity with distributors that don't yet carry us. And second, we continue to have incremental packaging and pricing opportunities with our existing distributors around new products we're working on with them. And lastly, to state the obvious, we're in the very early days of growing VIX's subscription-based streaming tier. And over the course of the year, we're optimistic about our initiatives in the core part of our business, which the growing VIX subscriber base will further amplify. In Mexico, subscription and licensing revenue grew 13%, which included a significant benefit from FX. The market in Mexico continues to show stability and modest growth, where pay TV is still relatively under-penetrated and represents an attractive value proposition. In fact, the leading cable operators in Mexico saw some growth in the high single digits for the quarter, which combined with steady rate growth and favorable FX led to a great quarter. VIX subscription revenue was also a driver of growth in Mexico, but we're seeing very encouraging results from our growing portfolio of distribution partners. So in conclusion, This quarter was a great start to the year. We're hitting our stride as a combined company. Our core business is strong, and we're executing into the highly differentiated opportunity we have with our unique audience. We're moving quickly and leveraging the momentum that VIX has. We're learning and iterating and feel great about the progress we're making. and even better about how well the product and the content is resonating with our audience. I'm really proud of and grateful to the amazing team we have in both the US and in Mexico. And I'm excited for you all to see the incredible things this team is going to continue to deliver over the course of the rest of the year. And with that, I'll pass it over to Carlos.

Thanks, Wade, and good morning, everyone. It's great to be here today to share our first quarter results. We started the year strong by delivering growth across all major revenue streams in both geographies. demonstrating confidence in our strategy to create a business without comparison in the global media landscape. Looking closer at our results for the quarter, consolidated revenue grew by 6%. This includes growth of 4% in the U.S. and growth of 12% in Mexico, where we benefited from favorable FX rates. Before we dive into the specifics, I want to speak holistically about how FX impacts our company. Our FX exposure is essentially all to the Mexican peso, and we are well-hedged to fluctuate in either direction. As we experienced in Q1, when the peso appreciated against the dollar, we record our revenue benefit that is partially offset by an expense increase. On the other end of the spectrum, when the peso depreciates relative to the dollar, we get a benefit related to our content costs that are tied to pesos. Whereas our monetization on a consolidated basis is mostly tied to the U.S. dollar. Now, moving to advertising. Consolidated revenue grew 6%. We're very happy with our results given the challenging macro environment the advertising market is facing. In the U.S., advertising grew 2% or 5% excluding political and advocacy. We're benefiting from a strong 22-23 upfront where we produced high single-digit pricing growth along with the highest volume in the past seven years. In addition, we continue to gain momentum in streaming with an attachment rate to our linear advertisers of 70%. In Mexico, Q1 advertising revenue grew 14% or 4% excluding FX. This was also our first quarter that benefited from the 2023 calendar year up front, where the company secured record volume commitments. Moving to subscription and licensing, consolidated revenue grew 7%. In the U.S., this growth was 5% and was driven by the launch of VIX's premium tier. On the linear side, we're experiencing subscriber declines, in line with the industry, as declines from traditional MVPDs are partially offset by increases from virtual MVPDs. In Mexico, subscription and licensing revenue grew 13% or 4% excluding Netflix. This growth was driven by both linear and streaming. On linear, we experienced modest growth in subscribers and benefited from price increases. Turning to expenses and profitability. Expenses grew 17% in the quarter, which reflects our significant investments in VIX, in the form of new original premium content, sports rights, marketing, and technology, most of which did not exist a year ago. As a result, our adjusted EBITDA declined by 10%. Adjusting for the impact of non-recurring revenue recorded in the fourth quarter of 2022, the EBITDA decline improved sequentially. This is driven by a narrowing of streaming losses versus the prior quarter. Now let's cover the balance sheet. We ended the quarter with $364 million of cash on our balance sheet. with incremental liquidity available through credit lines. Cash decreased from $539 million from year end, primarily driven by timing of some payments related to CapEx, content, and sports rights. Our CapEx this quarter was $52 million, and we continue to expect it to be similar or in line with 2022. Our leverage ratio ended the quarter at 5.9 times, up from 5.6 times at the end of the prior quarter due to the decline in EBITDA, which now includes four quarters of streaming investments. As we gain scale in streaming, we expect to reduce leverage. Looking more closely at our debt, our average maturity is now four and a half years. We will look to be opportunistic about addressing our near-term maturities and remain committed to deleveraging the company over time. I would also like to remind you that we have effectively hedged nearly 80% of our interest rate exposure at very attractive rates. Looking ahead, we're optimistic about the remainder of the year for the following reasons. We've just produced a record-setting upfront in Mexico, and we have momentum heading into the U.S. upfront next month. we will have a full year of streaming live in the market. We're mindful that headwinds around the macro environment may persist, and we will make changes as the environment requires. To that extent, we have a very disciplined approach to expense management and are able to react quickly if needed. And with that, let's take your questions. Operator, please open the line.

Thank you. At this time, if you would like to ask a question, please press the star and 1 on your touch tone phone. You may remove yourself from the queue at any time by pressing star 2. Please limit yourself to one question and one follow up. Once again, that is star and 1 to ask a question. We'll take our first question from Brett Feldman with Goldman Sachs.

Two about VIX. The first one is, as you observe what your VIX subscribers are watching on the service, to what extent is it substantial? the same programming that you have found is popular through your linear channels, but maybe now reaching audiences who wouldn't have gone to your linear channels, or do you find it's actually very different content? And then you also said that one of the reasons you're going to sort of move to a focus on just a singular VIX brand, as you said, it was creating a degree of confusion. I was hoping you could elaborate on that. You know, what was the evidence that you were seeing a degree of confusion? Did it have anything to do with the way people were moving in and out of the premium tier? And what would you hope would be evidence that the single brand is paying off as you get to the end of that rebranding process? Thank you.

Sure. Thanks, Brett. So just to start with your content question, What I would say is that it's, well, just remind everybody that fundamentally we think about the linear platform and the streaming platform as complementary. We are programming them completely differently. They are, for the most part, non-overlapping content experiences. In terms of what we're seeing, and I assume your question is really about the premium tier, the subscription tier of VIX. I'll focus on that. In terms of what people are really consuming on that subscription tier, it's sports, premium sports, our new original programming, and then really the third category is library and catch-up. And if you look at those three categories, I would say that they're largely similar in terms of consumption. but with sports and the library or catch-up proposition being slightly larger than the new original proposition. Now, new originals, at this stage, you should expect them probably to be a little bit lower, just given that there's a smaller volume of these new originals than there is either premium sports Since really the only conceptual overlap in terms of programming is from the library or the catch-up proposition, but it's important to remember that even this catch-up feature is an important part new value proposition for our audience for streaming. On linear, we see over 90% of our linear consumption is live. And remember that most of these novellas, the experience is new original programming every night of the week. And so, There really hasn't been a way for people to catch up and to state the obvious, sometimes it's difficult to maintain that level of engagement all five nights a week. And so, in fact, having this catch-up feature is another great example of how the streaming platform can be complementary to the linear platform because having that catch-up feature frankly makes it easier for our linear audiences to maintain a very high level of engagement in a novella over a long period of time where it might otherwise be difficult to see every single episode. So that is the answer to the question around content. On the brand change, The confusion was derived from a few different places. First, starting at the highest level, and some of this seems obvious when looking backwards, but in the marketplace, adding a plus to a brand really just signifies the differentiation between streaming and not streaming for a legacy brand. You see that in the marketplace. It's Paramount+, it's Disney+, BET+, Walmart+. All of those are powerful traditional brands, and a plus is added to that in order to signify that it's either a streaming brand or it's something that's now existing in the digital space. We created VIX to actually have a digitally-native unique brand that is naturally differentiated from our channels' brands. And so that was somewhat confusing to the consumer to have this new digital brand and also have a version of it with a plus next to it. You look at other digitally native brands that have multiple tiers, Spotify is the best example of that. It's just Spotify. There's not Spotify Plus for their premium service. It's one Spotify service, and they have free tiers inside of it, and they have premium tiers inside of it. And so that's really where we're moving with VIX. The VIX service and inside the VIX service, there's a gratis tier, which is our free tier, and a premium tier, which is our subscription tier. So that was at the highest level, the thing that was one of the things that was confusing to consumers. The other thing that was confusing to consumers and difficult for us is that we were essentially launching two new brands at the same time. And people were having a difficult, because these were not known brands, they were having difficulty differentiating what was in VIX Plus and what was in VIX. is in terms of the content proposition, ads versus no ads. So trying to establish a value proposition for two different brands that were only differentiated by this plus thing that is usually attached to a legacy brand, all of that was very confusing for the consumer. And, you know, with those messaging elements being confusing to the consumer, that actually laddered in, I think, to some user interface engagement challenges as well. So those were really the driving reasons behind that. trying to solve some of the consumer confusion issues. And then to state the obvious, it just was more expensive for us to try and message around these two different brands. And so we also think even though there's going to be – essentially a relaunch or an increase in marketing expenses as we move to this new messaging architecture. In the long run, that's going to be much more efficient for us from a marketing perspective. And in terms of what we expect to see in terms of benefits from this, first and foremost, we expect to see some marketing efficiencies going forward. And a big part of that is now we can really acquire everybody into the top of the AVOD funnel. And that's one of the best things about how we've conceived of this service is and having two tiers inside of the same product is really the subscriber and consumer acquisition costs and churn management benefits of these two tiers. And, you know, as we said in our prepared remarks, we're not only seeing the subscriber acquisition effectiveness out of the ABOD funnel above the level at which we initially assumed, we're actually seeing that accelerate. And so those marketing efficiencies in focusing all of our dollars in terms of a very simple proposition to get people to come to VIX, period. And in general, they enter through that AVOD funnel. We're able to generate engagement and inventory while they're in that funnel. and then very efficiently move them where appropriate to the paywalls. So ultimately that's what we hope to see is less consumer confusion, and that should be reflected from a financial point of view in more marketing efficiency.

And we'll take our next question from Jessica Reeve-Ehrlich with B of A Securities. Thank you. Good morning.

Mature, first on the upfront market, how different do you think it will be this year? Given that macro headwinds for everybody, but for a while, but you also have AVA competition, not just your own. I mean, AVA competition. coming from Netflix, Disney, Max, et cetera. So I just wonder how you guys are approaching the market and how different you think it will be. And then on VIX, I think you said that there's three hours of engagement. So maybe you could just parse out engagement, streaming, subscription, and advertising versus broadcast. And I guess if I could just throw one last one in. You said breaking even will be pushed out. Have you ever said or will you say what peak losses are on streaming?

Sorry. Yes, I'm just trying to make some notes so I get it all. But keep me honest if I miss something there. So as it relates to the upfront and what we expect there, look, we're super excited. Obviously, what we're doing from an ad sales standpoint and from a content experience standpoint is working. we are continuing to outperform the market, particularly in soft macroeconomic times where advertisers are really seeing the ROI from shifting dollars away from an overspent general market to an underspent Spanish language opportunity. And so I don't see any reason why we won't continue to outperform in the upfront at or above the rates at which we've been outperforming the market in the most recent quarters. Our linear business continues to be very strong. We're 165% to 170% large. larger than our closest competitor. We have linear capacity, which is very unique in the industry as the rest of the industry sees declines. 90% of what's watched on television is live with the ads being watched. The average age of our audience on linear is 25 to 30 years younger than general broadcasts. So the dynamics are set up really, really well for us from a linear perspective. From an AVOD standpoint, yeah, we are seeing, obviously the market is seeing a huge influx of inventory. But frankly, it's just not competitive with us. All of that incremental streaming inventory is general market streaming inventory. And the only place you can get streaming exposure for your brands at scale in Spanish in a brand-safe way is on VIX. And so, look, we're seeing that reflected right now in the scatter market. is you see just real price divergence. Not surprisingly, in the general market, you're actually seeing massive streaming, massive pressure on streaming inventory prices. In fact, in a lot of the parts of the general market, you're seeing pricing declines or rollbacks, which is really something you would expect if it's a relatively undifferentiated market with massive increases in supply. For us, we're actually seeing the opposite. Although we've seen slight decreases in sellout this quarter, we're seeing double digit price increases on streaming. And so, you know, that's just a very definitive indicator of what we think we can expect going into the upfront from a supply demand standpoint around AVOD. I think your question around VIX consumption was versus broadcast. And that isn't something that we've talked about. But obviously, we did talk about engagement and engagement growing 26%. Frankly, engagement for a new service like ours is the most important metric to focus on. You can spend more marketing dollars to get people kind of in the door, but unless they're engaged, they're not gonna stay there and they're not gonna be profitable for you, particularly in the AVOD context. So the fact that we're seeing such significant increases around engagement is really encouraging around the health of the service, but obviously that is the single thing that drives inventory and therefore monetization from the standpoint of the free service. In terms of peak losses, We did say that last year peak losses were behind us. We didn't really give any guidance and nor do we intend to around quarter to quarter losses other than to say that we did see a narrowing of our streaming losses from Q4 to Q1. And so although we are pushing our expectations around profitability out a couple quarters, we feel very good about just the steady, sequential improvement around our losses as we work towards profitability.

Thank you. And we'll take our next question from Ozzie Steiner with J.P. Morgan.

Good morning. Thank you for taking the questions. First, just on the expense side, I want to make sure I understood the rebranding. I think you mentioned it's going to be a bump in expenses. I'm curious, is that one quarter or longer? And then I think you noted potential longer-term savings there and just related to the expenses. Plus 17 in the first quarter, obviously, that's comp-related, VIX versus not. But any kind of color or thoughts about expense cadence throughout the year would be very helpful. And then I've got one more. Thank you.

Yeah, I think the only thing to say on that is what I just said, which is that at a macro level, we do expect to see a sequential quarter-over-quarter narrowing of our losses or improvement. on that front. Now, the absolute expense will kind of travel up and down to some extent with variations in revenue on a quarter-by-quarter basis, but the thing I would focus you on is just that simple thing that we said, which is quarter-over-quarter improvement from a loss standpoint around streaming. I don't think that there's this The bump in marketing expense as we look to essentially relaunch the single brand strategy and the efficiencies that we expect to see, ultimately that will just play itself out inside the the horizon towards profitability that we've talked about, but there's nothing more material about those kind of intra-quarter shifts around marketing expense other than you can expect us to continue to improve that I would highlight.

Appreciate that. And then just on the balance sheet quickly, and thank you for the time, And maybe this is for you, Carlos, but just think about leverage here. Is this maybe the high watermark or how we think about leverage as we play out throughout the year? And then just near-term maturities, I know you kind of touched on it very briefly in your opening remarks, but any thoughts on how you're thinking about that would be great. And thank you all for the time.

Good morning, Abby. Thanks for the question. Yes, in terms of leverage, we believe that this impact will be temporary. As Wade mentioned, the increase, the 17% increase in expenses is entirely caused by our streaming investments. which, by the way, we had nothing a year ago. Remember that the big A-boat was launched early in Q2 of last year. However, we believe that we're on the right path. As a matter of fact, we saw a sequential improvement in streaming loss of this quarter. We'd also like to remind you that at 5.9 times our leverage ratio is down significantly versus before we did the merger. And finally, on leverage, I would like to emphasize that as we continue to gain scale, we will improve leverage. That's a fact. Talking about your second comment on maturity, we do We have a small maturity in 2024. We have a lot of optionality around that. As you know, we have lines of credit and we're analyzing other alternatives. And while we're currently focused on the 2024 maturity, we will also look to be opportunistically on the 2025 maturity that we have. We have started working around that, and there are alternatives, and we'll take the best one when it makes sense economically to the company.

Appreciate the time, gentlemen. Thank you.

And we'll take our next question from Aaron Watts with Deutsche Bank.

Hey, everyone. Thanks for having me on. I appreciate the color on the upfront wave. I wanted to ask one follow-up around the current core ag conditions for your stations and networks here in the U.S. and Mexico as you sit today about to head into May. Have things remained relatively stable with performance in 1Q improved, weakened at all across local and national? And then Secondly, Wade, you've been consistent in mentioning the opportunity that gaining additional virtual carriage presents for the business. Can you help us understand the hurdles and timing around reaching those distribution agreements? Are they tied to your more traditional renewals? Are there other factors at play that dictate when you might be able to capture that upside? Sure.

So in terms of just insight into the core, okay, I'd say the great news is in a soft market, our linear TV was flat, excluding PAG volatility. Stronger on national TV. a little softer on local. And the local performance was really kind of further hurt by the divestiture of the radio stations that we concluded at the end of last year. you know, there was some revenue related to those stations in Q4, and obviously the comp Q1 from 22 that wasn't in this quarter. So, but in general, you know, linear TV flat, you know, but that probably doesn't really tell the whole story about the fact that we are still seeing very stable, strong core business. It was a relatively softer scatter market from a national standpoint, but really more than 100% percent of that was a function of softness in the financial category. If you take out the really, frankly, two large clients that weren't in the scatter market this quarter, overall scatter would have been up three, four percent. And in terms of overall pricing trends for linear Overall linear pricing was up mid-single digits, even though we saw in the softer scatter market some scatter over scatter declines that brought that average down. Even in a soft scatter market, we're still maintaining very, very attractive premiums. We're seeing scatter premiums, albeit on slightly lower volume, just under 30%, which we think that's probably three to four times the scatter premiums that that the general market is seeing right now. As it relates to incremental distribution, look, I would say that there aren't any real hurdles beyond just making sure that our businesses are aligned. Obviously, everybody's very focused in this macro environment about profitability. And so for us, we're continuing to work with distributors who don't currently carry us. I would say that for them, it's not fundamentally a different decision than what we're seeing in the ad sales front, where You know, advertisers who are shifting dollars away from an overspent general market towards focusing on an underpenetrated Spanish language market are seeing growth. And I think that the new emerging distributors are seeing exactly the same thing, which is the new virtual MVPDs that have decided to make an investment in Spanish language programming are have seen growth in subscribers around U.S. Hispanics, bilingual, Spanish-dominant, and Spanish-only. And given the demographic trends, that's really become a positive factor in their business. And so I think the opposite is true for people who don't carry Spanish language, which is you know, they're not able to take advantage of, you know, of the demographic trends of this huge audience. And I think at the margin, they're actually seeing white Spanish language viewers, so think of them as bilingual English dominant with some Spanish consumption, migrate off of their services to other alternatives where they are are able to see a more robust programming experience. And so I think that all of those factors are pretty clear to distributors. But as you know, the sales cycles in distribution are, to say the least, much longer than they are, for example, in the ad sales business.

Very helpful. Thanks, Wade.

Thank you. That concludes today's teleconference. Thank you for your participation. You may now disconnect.