Grupo Televisa S.A.B.

Welcome to the Televisa Univision second 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, 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.

Welcome, everyone, to Televisa Univision's second quarter 2023 earnings call. I'm joined today by our CEO, Wade Davis, and our CFO, Carlos Ferraro. 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. We will refer to adjusted OIDDA as EBITDA. Unless stated otherwise, all financial comparisons will be on a year-over-year basis. Unless stated otherwise, our U.S. ratings and market share figures refer to primetime audiences ages 18 to 49, And Mexico figures refer to primetime 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 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, everyone. On behalf of myself and my partners, Alfonso and Bernardo in Mexico, thanks for joining us. Q2 was a great quarter for Televisa Univision in which we delivered impressive financial and operational results, results that really underscore the power and resilience that come from our unique and highly integrated ecosystem across complimentary platforms and geographies. Before I get into the details, I want to reiterate the key elements that make TU such a special company and have allowed us to consistently outperform the broader media landscape since we created this company. First, we are the definitive market leader in a massive $8 trillion global market, and approximately half of this global economic activity is occurring here in our two primary markets, the U.S. and Mexico. Particularly in the U.S., there are unique demographic, economic, and behavioral tailwinds with Hispanics which don't exist in the general market. Second, our content engines. and the library it refreshes is unlike any other media business in the world in terms of scope and efficiency. The combination of our library, the volume of new original content at incredibly efficient price points, the scope of our news coverage, and our always-on portfolio of sports rights enable strategies that cannot be profitably replicated by anyone. Which brings me to the third point, where the best example of this is our streaming business. We have launched a unique streaming product that has grown to become the market leader in Spanish language streaming in under a year. The efficiency of this model has allowed us to fully fund these investments out of the growth of our core business and will see us deliver a profitable streaming business on a timeline never before seen in the industry. Fourth, we have a strong, stable, and growing core business. Linear is important to our audience, and we are investing in our core while our streaming strategy is designed to complement linear and vice versa. Lastly, all of these elements roll up to the delivery of a unique financial profile. These are the pillars that make us different from the rest of the media industry, and it's important to reiterate them because each one of these points is underscored and exemplified in our Q2 performance. Starting with our differentiated financial profile, we delivered impressive double-digit revenue growth this quarter, led by our global streaming business and our Mexico core business. We grew revenues across the board in all geographies and across all lines of business. And as we've done since the launch of VIX, we've held overall EBITDA flat with the growth and profitability of our core business continuing to fully fund our investments in scaling VIX. Before moving to the operational highlights of the quarter, it's important to note that we are nearing the conclusion of our integration, the U.S. and Mexican businesses. The strategic, operational, and financial synergies have exceeded our expectations. It has now been close to a year and a half since we closed the transaction to combine these two incredible businesses. And the timing of aligning the world's most populous Spanish-speaking market with the world's largest Spanish-speaking economy could not have been better. The Hispanic demo continues to grow in size, economic importance, and cultural relevance beyond anything we've ever seen in the United States. More and more, many of the country's largest cities are now majority Latino. Even the entire state of Texas recently crossed this threshold to become majority Hispanic. And there is no more relevant political bloc in America. Latin culture is increasingly mainstream culture, with the U.S. music charts being dominated by Spanish language songs, Time magazine featuring Bad Bunny on its first ever Spanish language cover. And from a macro perspective, the geopolitical significance and the alignment of the U.S.-Mexican corridor has never been more important. The construct of our company positions us extremely well in this regard, in which we obviously benefit when all tides rise, but we also benefit economically from an FX standpoint when the dollar strengthens against the peso and vice versa. A stronger peso versus the dollar benefits our overall growth, translating our Mexican performance into dollars as a U.S. company, as we saw this quarter. whereas we're largely hedged against a stronger dollar relative to the peso since the majority of our costs are in Mexico and the majority of our revenues are in the U.S. With that, let's get into the details of our operating performance for the quarter. It was a fantastic quarter for our streaming business as we continue to see rapid growth in revenue and in usage. All the important KPIs are going in the right direction. Engagement is up, ARPU is up, CAC and SAC are down, all of which translates into what most of you are all focused on, revenue growth and profitability improvement. And we continue to significantly narrow our losses on both a sequential and year-over-year basis and are now even more confident in the trajectory we highlighted last quarter in which we expect to have a profitable streaming business in the second half of next year. VIX has now been in the market for almost a year. We continue to learn and refine this unique service to better serve the world's Spanish speakers. As VIX matures, we are more and more confident that our strategy was correct and we're seeing meaningful economic benefits. I'll highlight three elements of the strategy that are different from other streamers and really starting to pay dividends for our overall business. First, the marketing efficiency of having free and paid peers inside of one product and under one brand. Second, the benefits of operating linear and streaming as a complementary content proposition to lift both platforms, reduce effective content costs, and strengthen our ecosystem. And third, The ongoing refinements that we're able to rapidly implement because of our massive content engine as we learn more about our customers' behavior on the platform. The control over the content and the speed which we can implement these changes significantly differentiates us from the competitive set. Last quarter, we discussed our pivot away from the VIX and VIX Plus brand architecture to one VIX brand with a free and premium tier inside the same product. This was absolutely the right move. And in doing so, we've reduced customer confusion and simplified the user journey. Obviously, we needed to pause to retool marketing and then reinvest in new brand campaigns. But now that we're back at full speed, we're seeing huge benefits. Our two-tier strategy was built to engage the mass market reduce effective subscriber acquisition costs, and manage churn in markets that have lower penetration of credit products, lower ARPU, and higher churn than the general market. We've been bringing SAC down considerably since launch and believe we are now well below comps because of our unique ability to leverage our owned and operated marketing machine across all platforms. And the benefits of the two-tier strategy are proving to be remarkable. Now, over half of our direct-to-consumer subscribers are coming from the free ad-supported funnel, which obviously cuts our already low SAC significantly, as free users are acquired at a much lower cost than paid users, and these free users generate meaningful, sellable inventory as they move through the funnel. It's incredibly gratifying to see our strategy really start to play out in the numbers. Obviously, what's most special about VIX is our content offerings. Because of our extraordinary content advantages, we've been able to pursue a strategy that no other diversified media company can reasonably implement given their relative content costs. As I've said before, we can program linear and streaming as complements to one another, leveraging what's good about both platforms to reinforce our overall ecosystem, importantly, including our distribution partners. This past 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 conceive of and execute this content experience to leverage the best of both platforms. In June, we launched our version of the reality show, La Casa de los Famosos. We launched the structured show on Linear with two airings a week. Immediately, we created multiple live streams that ran 24 hours a day, uncensored, free, in front of the paywall on VIX. After two weeks of building extraordinary engagement, we moved these 24-hour live streams behind the paywall under 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, Over 20 million people have engaged with the show on one or more of our platforms, lifting VIX ad revenue, VIX subscriptions, linear ratings, and linear revenue, which I'll get to in a moment. Beyond the combined linear and streaming program 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. In this quarter, we meaningfully enhanced our soccer proposition for VIX's premium tier. We secured rights to additional Liga MX teams in both the U.S. and in Mexico, and we now hold the rights to 17 out of the 18 teams in both countries. Liga MX is the most important soccer in North America, generating more viewership than any other soccer property over the course of a given year. Interestingly, since these rights are sold on a team-by-team basis, it has been a perennial source of frustration for soccer fans who have trouble navigating the fragmentation of these games across many different media outlets to find the games they want to watch. Now, for the first time in the history of Mexican soccer, viewers can see nearly all of the games in one place. As VIX gets better and better, sometimes for us, it gets lost that all of this wasn't even launched a year ago. And in order to launch as quickly as we did after closing our merger, over six months from close to launch, we launched the app without a complete distribution footprint, and we continued to execute against that gap. This quarter, we meaningfully expanded upon our breadth of distribution partners. In the U.S., we launched VIX's premium tier on the Roku channel, the VIX app on LG's connected televisions. We'll be launching on Vizio later this quarter. These new partnerships have virtually doubled our connected TV footprint, making VIX available on all major TV OEMs in the U.S. In Mexico, we partnered with AT&T to make VIX available with promotional pricing and a seamless payment experience. To further enable cash payments, we expanded our OXO partnership and redesigned our cash product experience, addressing the fact that in Mexico, cash payments are far more popular than credit cards. And in Latin America, we announced a partnership with RCN to hard launch VIX in Colombia, the next most important market in our expansion beyond our core U.S. and Mexican markets. Now let's come back to our linear ecosystem, which continues to be stable and growing. This quarter, our core business grew mid-single digits. Why is our business bucking industry trends? From our perspective, it's a combination of factors that we've touched on over the past quarter. First, we have demographic tailwinds that other markets just don't. Second, we have 60-plus percent market share in our core markets. Third, our economic opportunity in the U.S. is fundamentally different, where advertisers and distributors have not caught up to the size of the Spanish-speaking market in the U.S. And lastly, as I said earlier, we built a streaming and littering strategy that's complementary and reinforcing. This quarter, these factors are most accentuated in Mexico, where we had an extraordinary quarter. We meaningfully grew ratings. In fact, the slate was so strong and our market presence is so significant that the viewership we attracted actually changed putt trends for the entire country from negative to positive. And as strong as viewership was, monetization was even stronger. We saw core business growth in the double digits across both advertising and subscription and licensing. From an ad sales perspective, the team is firing on all cylinders. Huge activation of new advertisers, growth in public sector, on top of a record-setting 2023 upfront, which we closed in Mexico at the beginning of the year. Beyond this, the team's accelerating innovative marketing solutions, the biggest part of which is unique product placement solutions. Because we own and produce nearly 100% of our content, we can integrate our advertisers' messages into our storylines at a pace and scale that no one in the world has been able to do. We write storylines that play out inside of Walmarts in Mexico. Our sports anchors use OPPO cell phones during the games to show how well the game can be viewed on a mobile device. A Google device can solve critical problems that avert disaster and a procedural drama. A consumer travel service can solve a travel emergency and get the team manager to the game on time for kickoff. Because of our scale, our cycle time, our content ownership, and our vertical integration, we can deliver these native solutions into premium entertainment experience like nobody else can. In the U.S., even though we saw seasonally low summer putts, we saw meaningful sequential improvements in market share from the competitive pressure we had in Q1, with our market share back above the 60% level. Sports in particular were a real bright spot this quarter, as we're currently in the middle of a successful summer of soccer with Gold Cup, UEFA, CONCACAF, and League's Cup. Most notably, we have great momentum with Gold Cup, where viewership has outperformed our English language finals this past Sunday, where we delivered over 2.1 million viewers, four times more than the English language airing. Beyond sports, our entertainment proposition continues to resonate especially well with younger viewers. For the quarter, Univision was the second most watched network on all of television, regardless of language, with viewers in the 18 to 34 demo. U.S. advertising performed well on a relative basis in a market that continues to be soft and suffer from comparisons to elevated political and advocacy spend in a midterm election year. We reported advertising revenue growth of 1%. The underlying growth here is really 4% if you exclude political and advocacy. But even without adjusting for these, our 1% reported growth outperformed the market to the tune of about 600 basis points this quarter, according to Magna's forecast. Our national business, which accounts for the majority of our U.S. advertising revenue, was strong this quarter, growing 7%, while local business was roughly flat, excluding political and advocacy. Looking ahead, From a timing perspective, we're progressing towards closing our U.S. upfront on the same timeline as the rest of the industry. The timeline is pretty much the only thing we'll have in common with the rest of the industry in the upfront. Early data indicates that we're going to have yet another year where we take meaningful share from English language broadcasters. In addition, we expect to fare better than the market on pricing. where 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 to finish with volume up mid-single digits, an incredible accomplishment in a broader market expected to be down. So, just to wrap up before I hand it over to Carlos to take you through our financial results, We are extending our leadership in one of the largest, most rapidly growing and influential markets in the world. We are leveraging our content powerhouse to program linear and streaming as complementary platforms, helping to drive our core business growth and propel our differentiated streaming product to market leadership and profitability on an unprecedented timeline. We're excited for what's to come. And again, all of this is rolled up into financial performance that continues to outpace the market. And with that, I'll turn it over to Carlos to take you through these amazing results in more detail.