Grupo Televisa S.A.B.

Good morning, everyone, and welcome to Grupo Televisa's second quarter 2024 conference call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything that we discussed in today's call and in the earnings release. I will now turn the call over to Mr. Alfonso de Ambrosia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead, sir.

Thank you, Elsa. Good morning, everyone, and thank you for joining us. With me today are Francisco Balim, CEO of Cable and Sky, and Carlos Phillips, CFO of Grupo Televisa. Before discussing our second quarter operating and financial performance, let me remind you the key corporate goals and strategic pillars Bernardo and I outlined for Grupo Televisa and Televisa Univision since the beginning of the year and the progress we have achieved so far. First, the corporate restructuring process at our cable segment, led by Francisco Balim, intended to improve profitability, optimize capex, increase free cash flow generation, and positioning us well to achieve sustainable revenue growth over the coming years. The key measures implemented so far have already allowed us to improve profitability by almost 400 basis points relative to the third quarter of 2023. And we are confident that our EBITDA margin will continue to expand gradually over the coming quarters due to ongoing efficiencies. Moreover, during the first half of the year, operating cash flow for our cable segment, which is equivalent to EBITDA minus CAPEX, was over 6.4 billion pesos growing by almost 50 percent year on year and accounting for around 27 percent of sales this implies that the operating cash flow margin of our cable segment has increased by close to a thousand basis points so far this year the second half of the year is expected to be heavier in terms of capex deployment but we are cutting our 2024 capex budget for our cable segment to $590 million, including $30 million for the reconstruction of our network in Acapulco, which we expect to be reimbursed by the insurance company. Therefore, we estimate that the organic operating cash flow for our cable segment will increase by around 16% year on year in 2024. The second pillar is the acquisition of AT&T's minority stake in Sky, which we accomplished at very attractive terms to integrate it with our cable segment and materially strengthen our competitive and financial position of the combined company. On this front, we have already implemented a new organizational structure for the combined company that allowed us to retain top talent and optimize duplicated roles. We have also started to implement synergies and efficiencies across several areas, including commercial, sales commissions, programming, IT, technology, finance, and marketing, among others. This integration will also allow us to standardize regions, sales channels and commissions, have better customer base management, increase productivity, achieve cross-selling and up-selling, improve penetration of triple play services, and reduce churn. It will also allow us to leverage Sky's exclusive sporting content in cable, further differentiating our video package from those of our competitors. Evidence of this is that for the first time, we already offered the Euro Cup 2024 to both our Sky and Easy video customers. All in, We are confident that our restructuring and integration process, most of which already occurred in the second quarter of this year, will allow us to deliver OPEC savings of approximately 400 million pesos in the third quarter relative to the first quarter of 2024. Longer term, we continue to forecast savings of around 15% of Sky's combined annual OPEC and CAPEX. The third pillar is related to the conclusion of the spin-off of Oyamani and its listing on the Mexican Stock Exchange under the ticker symbol AGUILAS.CPO on February 20th. This spin-off was not only intended to streamline Grupo Televisa's operations and simplify our asset structure, but also to unlock value for our shareholders through this new company that currently has a market cap of around $330 million. Under the Grupo Televisa's umbrella, we estimate the value assigned to the Oyamani assets was significantly lower. And our fourth pillar is to turn our direct-to-consumer business, VIX, profitable during the second half of this year. Our DTC business is growing and scaling, and our most important metrics kept trending in the right direction, with most of them ahead of plan. We added users and subscribers. grew engagement, reduced churn, and generated significant marketing savings driven by our efficient customer acquisition funnel through our free tier. Therefore, we are confident that we're on track to deliver the major milestone of a profitable DTC business in the second half of this year, only two years after launching the service compared to four to five years from our peers. Having said that, let me turn the call over to Alim as he will discuss the operating and financial performance of our consolidated assets. Thank you, Alfonso. Good morning, everyone.

First, let me walk you through the operating performance of our cable operations. We ended June with a network of 20 million homes after passing around 71,000 new homes during the quarter. In the second quarter, we continued to execute our strategy to focus on value customers rather than volume, while working on customer retention and satisfaction. However, price increases implemented in the month of April led us to experience a short-lived increase in churn, leading our second quarter broadband ad ads to remain sequentially stable at 10.7 thousand. In video, we disconnected 65.6 thousand subscribers during the quarter as in April we canceled the video package called Aficionados. Over the coming quarters, we expect to gradually deliver stronger net ads as we keep focusing on churn reduction. During the quarter, net revenue from our residential operations decreased by 3.8% year-on-year. as our subscriber base was 5.7 percent lower due to the cleanup that we did in the third quarter of 2023. We lost some revenue given to the cancellations of the Aficionados video package and because of the ongoing negative impact from Hurricane Otis in Acapulco, given that a still relevant amount of our customers are not paying their bills yet. On the other hand, Net revenue from our enterprise operations increased by 4.4% year-on-year. Now let me walk you through Sky's operating performance. During the second quarter, Sky's product portfolio was under review from a content and pricing standpoint, translating into a softer commercial activity. Therefore, we lost 262,000 revenue-generating units, mostly coming from prepaid subscribers that had not been recharging their service. However, we expect integration with our cable segment to gradually contribute to reduced churn, driven by having a better customer base management and cross-selling and upselling opportunities. Sky's second quarter revenue of 3.9 billion pesos fell by 13.3% year-on-year, accelerating from the 12.3% revenue decline experienced in the first quarter, mainly driven by the softer commercial activity. Still, during the second half of the year, we are looking to reactivate our commercial strategy, particularly after integrating our product portfolio, commercial regions, and sales channels. To sum up, Segment revenue of 15.8 billion pesos fell by 5.8% year-on-year, while operating segment income of 6.0 billion pesos declined by 7.7%. Our operating segment income margin of 37.7% contracted by 80 basis points year-on-year, mainly driven by inflationary pressures in labor and content-related costs. but expanded by 90 basis points sequentially due to the ongoing efficiency measures that we have been implementing since the third quarter of 2023. Regarding capex deployment, our total investments of 1.8 billion pesos during the second quarter fell by 51.1% year on year. So our capex to sales ratio of 11.2% was over 1,000 basis points lower than that of the second quarter of 2023. Finally, operating cash flow for Cable and Sky, which is equivalent to EBITDA minus CAPEX, was 4.2 billion pesos in the second quarter, increasing by 37.8% year-on-year and accounting for 26.6% of sales. This basically means that our operating cash flow margin increased by 840 basis points year-on-year. During the first half of 2024, we have invested around $220 million, equivalent to a capex to sales ratio of 12%. This amount represents less than 28% of our 2024 capex budget disclosed at the beginning of the year. A more efficient capex deployment focused on higher investment returns leads us to feel confident that our capex requirements for the full year will be significantly lower. so we are cutting our 2024 capex budget to 720 million dollars including 590 million dollars in cable with 30 million dollars for the reconstruction of the network in acapulco which we expect to be reimbursed by the insurance company 120 million dollars in sky and 10 million dollars of proper purposes thank you balim balim has been with us for less than