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.

Thanks, Wade, and good morning, everyone. We had a strong quarter, and it's great to be here today to share our second quarter results. Consolidated revenue grew by 11%. representing strong sequential acceleration. This includes growth of 6% in the U.S. and growth of 22% in Mexico, where we benefited from favorable FX rates. I'll talk about the results excluding the FX impact, but first I will address the FX exposure that we have. It is essentially all to the Mexican peso, which has strengthened over the past few quarters, representing economic benefit to us. Now, looking at advertising, consolidated revenue grew 10%. In the U.S., it grew 1% or 4% if we exclude political and advocacy. Our growth was driven by streaming, while linear revenues were roughly flat. The scattered market remains challenged. reflecting macro-driven softness that has persisted for a few quarters now. However, we continue to outperform the market as a result of our differentiated opportunity created through our growing and underserved audience. In Mexico, advertising revenue grew 29% or 14% excluding FX. We continue to add advertisers. A big percentage of new clients this quarter had never been on our platform before. We're also benefiting from a record-setting 2023 calendar upfront where we grew both price and volume. In addition, the strength in television viewership in Mexico increased our ad sales. Moving on to the other major components of our revenues, subscription and licensing, where consolidated revenue grew 14%. In the U.S., this growth was 10%, driven by the success of VIX's subscription tier. Linear revenue was soft again this quarter, reflecting weakness in total U.S. subscribers, which was driven by traditional NBPD sub losses in line with the industry. This partially was offset by growth in virtual NBPD subs and growth in pricing overall. In Mexico, subscription and licensing grew 27%. Excluding FX, it grew a stellar 16%, reflecting growth in both streaming and linear. On the traditional linear side, Mexico continues to show stability with modest subscriber growth and continued price increases. On the content licensing component, We're always looking for incremental monetization opportunities for our content, and we're beginning to see benefits of licensing VIX originals in other territories. Turning to expenses and profitability, expenses grew 17% in the quarter. This underscores the significant investments in VIX in the form of new original premium content, sports rights, marketing, and technology. Despite that, we held adjusted EBITDA flat as our core linear business continues to fully fund our investments in VIX. Now let's cover the balance sheets. We ended the quarter with $346 million of cash on our balance sheet with incremental liquidity available through credit lines. Our capex this quarter was $45 million, compared with $25 million a year ago. We expect the second half of this year to be lower than the first and for the full year 2023 to be roughly in line with 2022 at $150 million. Our leverage ratio ended the quarter at 5.9 times, flat with the prior quarter. Leverage remains elevated as we work our way through streaming losses. However, as we move towards profitability in streaming, we expect to reduce leverage. Looking more closely at our debt, our average maturity is now four years. We have $261 million maturing in Q1 of 2024. During this quarter, we made progress in addressing this maturity by refinancing $100 million with term loan aid. Looking holistically at our 2024 and 2025 maturities, we will be opportunistic about addressing these maturities. So in summary, we had a great first half of the year, and we're optimistic about the second half. Streaming is scaling, our content is working, and our two-tier ecosystem is producing economic benefits that are moving us forward in our path to profitability. Meanwhile, our linear business is healthy and is fully funding our investments in streaming. And with that, let's take your questions. Operator, please open the line.

At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star 2. Please ask one question and one follow-up. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. And we'll take our first question from Michael Nathanson with Moffitt Nathanson.

Thanks. Good morning, Wade. You sound very fired up, which is good. Can I ask you two on VIX? The first question is we're trying to understand how VIX would monetize advertising on a per sub basis. Anything you can help us, how you think about the ad ARPU on VIX in the US and Mexico. And then I think Carlos mentioned that you guys were starting to license your content outside of the core territories of VIX. Give me a sense of what markets you're looking at and who would the buyers be? Would it be other streamers or you think it's a local endemic broadcaster? Thanks.

Well, I am fired up, Michael. Thanks for being here. Thanks for your question. So let's start with the first one, and then I want to get a little clarification on your second question. So is your question on VIX monetization on the ad tier or the premium tier?

No, it's on the ad tier. So if you look at, you know, if we start trying to model out VIX on a per MAUD basis, how do we think about the ad ARPU per month on the VIX ad tier on a per user basis?

Yeah, well, we're not going to give you those exact numbers right now. I mean, as you said, we're going to kind of gradually start giving you, you know, more and more KPIs as the service continues to mature. As you know, we just, you know, made meaningful changes to the brand architecture, to the audience flow. But what I can tell you is that, you know, from an ad monetization standpoint, we're seeing amazing unit economics. You know, we're seeing 90% sellouts this quarter in the U.S. We're seeing pricing premiums that are 80% what we're seeing on linear. And from an ARPU standpoint, we've not only, you know, been growing ARPU on a per-user basis, you know, as we've been massively increasing the reach, which we, you know, reported on that growth as recently as our upfront. And, you know, the ads here, what I will say incrementally is that You know, generally speaking, you know, at, you know, at kind of full operation and scale, you know, we expect that the ads here on a monthly basis will be, you know, kind of somewhere between kind of 30 and 60% of subscription ARPU.

Yeah. We're trying to benchmark it to all the other annual services that are out there and have been around for a while. That's what I asked.

Okay, and then remind me your second question.

It's the licensing point that Carlos made off of VIX. So any update on which markets you're thinking about licensing, how significant is that, and who would the buyers be of your licensed content off of VIX?

Yeah, so we're only going to be licensing our premium VIX content outside of our core markets, which is to say that we are never going to be licensing that content inside of our major Spanish-speaking markets, the U.S. and Spanish-speaking Latin America. We are extremely happy to be licensing and or co-producing content with partners outside of those core territories. For example, we have an output deal with Globo in Brazil in which they take a significant portion of the VIX original slate into a second window in Brazil. It's obviously very early days, but we're seeing even in these early days, remember we've only had the premium service up and running for just under a year, right? So, it takes a little bit of time to kind of work that premium content through the first window on VIX into second windows in the other territories. But even inside of that, you know, very short window, we're seeing, we're actually seeing content licensing revenue that is having a measurable impact on the growth of our subscription and licensing. just coming from this new VIX premium line item.

Cool. Thanks, Wade. Of course.

And we'll take our next question from Jessica Reeve-Ehrlich with Bank of America Securities.

Thanks. I guess a couple of things. First, can you talk about what impact the strike would have on you since most of your content is coming from Mexico. On advertising, you talked about being up mid-single digits. Can you just talk about what your sellout would be this year versus last year and any signs of a turnaround in the overall market since most traditional media companies are hoping for a second-half rebound? And then my follow-up question is actually to Michael's question. Maybe just talk a little bit more about some of the key assumptions underlying VIX's path to profitability.

Great. Sorry, I'm just getting all those questions noted down here. So in terms of the writer's strike, I guess the first thing I would say is that I'm sad to see the conflict, and we hope that this gets resolved favorably and quickly for all the parties involved. That said, it has zero impact on us. Nearly 100% of our production is outside the US. Nearly 100% of our content is original and produced by our content engine, which is vertically integrated. In Q2 alone, we produced 24,000 hours of content across original entertainment, news, and sports. And the only real unionization we have in our infrastructure is the unionization of the physical production labor. So in terms of impact on the content and the pipeline, it doesn't have an impact on us. For our advertisers in the upfront, This matters a lot because they know there's not going to be any disruption to the full slate of original content that we have every night of the week, 365 days a year. On the other hand, the uncertainty in the general market really creates, I think, a lot of challenges for advertisers in the upfront who are being asked to make forward advertising commitments for a broadcast year without the certainty of knowing what that content slate is going to look like over the course of the year. And so I think some of those differences contributed to why we have seen thus far such good results in the upfront and expect to close the upfront. well above the rest of the market. In terms of sellout, both on linear and streaming, it remains extremely high. You know, I mean, sellout's a funny thing to try and report on for linear, because really, I guess, from my perspective, it's much more about um the inventory and sales cycle mix between upfront scatter and uh and direct response um and you know for us that's that's always been an important part of uh the u.s linear ad sales part of the business an important part of growing revenue which is improving mixed from driving higher scatter you know, through new client activations, which, as you know, is one of the big opportunities that we have. So it's a long-winded way of saying that we're always 100% sold out on linear, but because of strong demand, we continue to see mixed improvements that help contribute to the revenue growth on linear. And as I said a moment ago on streaming, You know, we have extremely high levels of sellout this quarter, 90%. That's an increase from the prior quarter. And pricing remains very strong. In terms of outlook for the quarter, look. you know, we're very focused on the market and what analysts are saying about the market, what's happening in the upfront, what's happening currently in the scatter market. I think analysts are currently predicting that national linear is going to get a little bit worse, with slight improvement across the other categories that we plan local audio and streaming. For us, We're going to continue to outperform the market across all of these categories, national linear, local linear, audio, and streaming. We're also, I think, going to see some good tailwinds above and beyond our continued baseline market outperformance. We're going to see some added tailwinds from the strong upfront that we referenced hitting Q4. And I guess the last question that you had was assumptions regarding path to profitability on VIX. You know, we're not going to get into too many of those details. You know, it reflects modest continued scaling in line with what we've seen thus far on MAUs. modest continued increases. Frankly, our assumptions, you know, to profitability are lower than what we've actually seen the trend lines be in terms of total consumption. You know, we're seeing pricing in the marketplace ahead of the underlying assumptions we would need to get to profitability. And then continued continued growth of the premium tier.

And again, the pacing across those metrics are well within the parameters required to get us to profitability on the timeline that we talked about. And, you know, that's obviously ARPU, that's SAC. We talked a lot about I referenced in my prepared remarks some of the benefits that we've seen in increased market efficiency from the brand architecture changes that we've made, the conversion in the productivity from the free funnel to the paywall, continues to exceed our expectations and, you know, create a very, very low effective blended sack. You know, as we see the majority of our subscribers moving through the free funnel, and as I said in my prepared remarks, as they move through the free funnel, They're watching content, generating inventory, and we're making money on that. So I think those are some of the assumptions that we're seeing. Those are some of the assumptions that we have, and the pacing relative to those assumptions is all in line with what we need to achieve our profitability.

Thank you so much.

And we'll take our next question from Brett Feldman with Goldman Sachs.

Thanks for taking the questions. One on linear and one on streaming, if you don't mind. You know, you called out in the release and in your comment, that the linear ecosystem in the U.S. obviously is continuing to see declines in subscribers, which is obviously not new. I am curious if you could give us any color as to what the pacing of the pay TV subscriber declines looked like in the second quarter. Was it a lot like what you experienced in 1Q, or how does that rate of change adjusted at all. And then on the streaming side, obviously VIX has done great out of the box. That's a pretty big contrast to what we're seeing across a lot of the other big legacy media companies in the U.S. Many of them may actually lose streaming subscribers in this quarter based on our estimates. And I'm wondering if any of them have reached out to you about providing access to VIX content through their platforms, or if that's something you'd be interested in. In other words, are you looking for partnerships in the streaming space, or are you comfortable as sort of a go-it-alone model right now, just based on how unique your demo is? Thank you.

So, on linear, we saw about 100 basis point acceleration of the rate of decline for U.S. subs. That said, we saw good growth in Mexico, both in terms of rate and subs. In the U.S., as we said last quarter, core contractual increases across the portfolio are not fully offsetting the current levels of subscriber declines.

But what I would say is that in our most recent renewal, and obviously we don't talk specifically about our renewals, but in our most recent renewal, we received great increases that are meaningfully higher than the current level of sub-declines. So for us, we continue to be optimistic. about our core business as we've demonstrated the core continues to be very stable and in the aggregate growing across all lines of business and all geographies. On streaming, yes, we continue to see very, very strong sequential growth in revenue and improvement in the profitability profile of the business. You know, that differs from others because, as we've said many, many times, our opportunity is different than others. Right? Our streaming proposition is fundamentally different than others. We have a market that's enormous and underserved. We have a product that's unlike anything in the market, both in terms of the free and paid here inside the same product, but also in terms of content proposition. The content proposition, you know, on our free tier is 80% exclusive original content that you can't find anywhere else. That's in stark contrast to every other free ad supported product out there. which is almost exclusively deep library and non-exclusive content. On the paid part of the service, it's a far more robust content proposition that includes news, it includes massive volume of new original entertainment content, and of course a sports offering that's unlike anything else in the market, all at a price that is extremely attractive relative to anything else in the market. So, you know, we have a different opportunity set ahead of us with respect to the underserved market and we have a highly differentiated product and content proposition that maps to serving that underserved audience. In terms of partnerships, our focus there is principally on distribution partnerships. We've said many, many times that one of the things that is unique about our strategy is that we're investing in linear to take advantage of what linear is good at and that linear is a robust part of our ecosystem and our proposition.

And that streaming is something that we are investing in as complementary and reinforcing to the linear proposition. And so where we're really focused from a partnership standpoint is on the distribution side. Almost every one of our traditional linear distribution partnerships involve a VIX distribution element to them as well. We talked in my prepared remarks about the progress that we're making in terms of expanding our coverage on the connected television ecosystem in the U.S., We've nearly doubled that inside the quarter.

We're very focused in Mexico on unique partnerships across the mobile carrier ecosystem, the retail ecosystem, in particular our partnership with OXO to enable for smoother cash payments. in that territory. So really the focus is for the moment for us on VIX's distribution partnerships. We have been approached by others about content partnerships because of the unique nature of our proposition and their perspective around how complimentary it is to what others have to offer. We're absolutely having those discussions, but as I said, the first priority for us from a partnership standpoint is distribution. Thanks for that, Collin.

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

Hi, Wade, Carlos. Thank you for having me on. My first question is how meaningful a role did soccer play in the advertising strength in the quarter, particularly in Mexico. And is there anything on the sports side you would call out or we should be thinking about for either the current quarter or the rest of the year? And then secondly, if I could put my credit hat on for a moment as I think about leverage and the trajectory of bringing that down, obviously EBITDA growth will be a main organic driver. but wanted to follow up about the possibility of equity helping accelerate that effort. Perhaps the market isn't where you'd want it today, but how should we think about that lever and when it might play a role? I'll take... I'll take the first point on soccer, and then I'll turn it over to Carlos to talk about the second part of your question. Sports are super strategic for us. As you know, we have the largest volume of soccer across all of our platforms. more than anybody else in the world. You know, the portfolio we have is increasingly differentiated. As you've heard in my remarks, as you've heard in my remarks regarding the expansion of our League MX rights, and you U.S., we have close to 63% viewership of soccer in the U.S., regardless of language. That's closer to 85% in Spanish. In the quarter... Interestingly, you asked about Mexico.

Quarter in, quarter out, sports is a strong contributor in Mexico, but really the differentiator in Mexico this quarter was our entertainment portfolio. In terms of soccer in the U.S., it did make a big difference for us this quarter. Viewership on TV has been great. And it also continues to be a big driver of premium subscriptions on VIX. But in terms of television in the U.S., we saw great ratings performance for Liga MX, which is probably the most important property

In terms of consistency over the course of the year, we saw a 29% ratings gain for the Saturday night soccer property that we have. That was a 29% ratings gain despite usage declines. The biggest property that we had this past quarter and then in the early part of the third quarter was the Gold Cup. You know, we grew that 47% versus the last Gold Cup cycle that we had in 2021. And from a pricing standpoint, to amplify these great ratings and usage results, the pricing is amazing. We're driving CPMs that are more or less three times the CPMs that we see in general entertainment. And above and beyond that, we were able to achieve additional price growth around soccer and sports in this year's upfront. So soccer is a really important part of what we do, both on linear and streaming, and it's performing extremely well for us. Carlos? Hi, Aaron.

Thanks for the question. We're at 5.9 times leverage at the end of the second quarter. Leverage is It's higher than we would like it to be. However, we believe this impact is temporary. This is caused by our investments in streaming while we work our way towards profitability. However, we're convinced that the decision of investing in streaming is critical for the long term of the health of the business. Because leverage is a backward-looking metric, it will take time to lap these heavy investments and pick loss quarters. We're on the right path and saw sequential improvement in streaming losses in each of the past two quarters. I would also I'd like to note that 5.9 times leverage ratio is done significantly from 7.7 times before the merger. And finally, we definitely remain focused on deleveraging the company. We will look and evaluate all possibilities, including the equity markets, once they improve, which I believe we're seeing some shows of improvement lately. So that, I believe, answers the question, Aaron. I don't know if you have anything else.

No, that's great. I appreciate all the thoughts. Thank you.

And we'll take our last question from Ernesto Gonzalez with Morgan Stanley.

Hi. Thank you for taking our question.

Can you please comment on the margin trends for the quarter? Also, any indication on the total costs that are in MXN for the company? And then secondly, when do you expect markets to recover? to shoot the story for the second half of 24 or later. Thank you.

Sorry, the second part of the question is total cost in Mexican pesos. Is that right? Yes. Okay, great. Carlos, why don't you? Great. Why don't you handle it?

Thank you, Ernesto. As we become profitable and continue to gain scale in streaming, margins should increase. Remember that our core business is currently funding streaming and now is taking a temporary seat in margins. As to your second question, most of our production cost is denominated in pesos. As you know, we produce most and the bulk of our costs.

content in Mexico, which gives us a huge advantage compared to our competitors. We take advantage of a lower labor cost in Mexico. And the final question, wait. Can you repeat the final question, please, Ernesto? Yes, you've partially already answered it.

It's when you expect markets to recover. But is it the story for second half 24, or do you think it's later?

Well, markets will start to recover. Markets and markets. Oh, markets. Markets or margins. Markets. Margins should improve as we get closer to profitability. That's what I was saying. Definitely 24 will be a better year. Thank you. But I think it's important to point out in the margin discussion that, you know, the margin declines that we've seen have been a function of our revenue growth, right? And throughout this investment period, we've held our EBITDA constant. And so, you know, as Carlos says, Those margins will start to expand quickly back to historic levels as we cross the threshold into profitability next year on streaming. But we continue to have the highest margins in the media business, well in excess of 30%. So we're pretty proud of the discipline that we've had around holding EBITDA flat while continuing to deliver strong double-digit top-line growth. Shall there be any further questions? Great. Well, thanks, everybody, for joining our Q2 call. And have a great day.

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