Grupo Televisa S.A.B.

Good morning, everyone, and welcome to Group O Dell TVCO's third quarter 2025 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 discussed in today's call and in the earnings release. Please note this event is being recorded. I would now like to turn the call over to Mr. Alfonso de Ingoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead.

Thank you, Elsa. Good morning, everyone, and thank you for joining us. With me today are Francisco Balim, CEO of Cable & Sky, and Carlos Phillips, CFO of Grupo Televisa. Before discussing our third quarter operating and financial performance, let me share with you what we believe are the key milestones achieved this year, both at Grupo Televisa and Televisa Univision. At Grupo Televisa, let me touch on four major achievements. First, our strategy to focus on attracting and retaining value customers in cable has allowed us to grow our internet subscriber base in the first nine months of the year compared to the end of 2024. Second, we keep executing on implementation of OPEX efficiencies and the integration between Easy and Sky to extract further synergies. This has already contributed to expanding our consolidated operating segment income margin by 100 basis points in the first nine months of the year to 38.2%, driven by year-on-year OPEX reduction of around 7%. Third, we continue to keep a disciplined CapEx deployment approach to focus on free cash flow generation. So far this year, we have invested 7.5 billion pesos in CAPEX, which is equivalent to 16.8% of sales. In the fourth quarter, CAPEX deployment should remain at similar levels to those of the third quarter. Still, our CAPEX budget of $600 million for 2025 implies a reasonable CAPEX to sales ratio of less than 20% for the full year. We have been able to achieve this mainly because we have had successful negotiations with suppliers, resulting in more favorable terms. And fourth, during the first nine months of the year, we have generated around 4.2 billion pesos in free cash flow, allowing us to prepay a bank loan due in 2026 with a principal amount of around 2.7 billion pesos. This debt prepayment comes on top of the $220 million principal amount of our senior notes already paid on March 18th. Additionally, at the end of the third quarter, Grupo Televisa's leverage ratio of 2.1 times EBITDA compared to 2.5 times at the end of last year, mainly driven by our free cash flow generation. And at Televisa Univision, I will mention three key milestones. First, engagement and growth for VIX remain solid, with strong momentum across both our free and premium tiers. Moreover, the Gold Cup semifinals and finals, and the compelling entertainment and sports slate that included the third season of La Casa de los Famosos Mexico, and our broadcast of Liga MX and the NFL help drive a high single-digit increase in MAUs and robust demand for advertisers and VIX. Second, the efficiency plan to reduce operating expenses at Televisa Univision by over $400 million in 2025 is delivering outstanding results. In the first nine months of the year, our total operating expenses have declined by around 12% year-on-year, for total savings of around $300 million. This shows a disciplined execution of our cost savings initiatives, including lower content, technology, and marketing costs, and a normalization of our DTC-related investments. And third, looking at Televisa Univision's leverage and debt profile, the company ended the quarter at 5.5 times EBITDA, an improvement from 5.9 times in the fourth quarter of 2024 driven by growth. Moreover, so far this year, Televisa Univision successfully refinanced $2.3 billion of debt. As discussed in our second quarter earnings conference call, the company successfully issued $1.5 billion of new 2032 senior secured notes and refinanced over $760 million of term loan A now due in 2030. In addition, more recently, Televisa Univision extended its $500 million revolving credit facility and its $400 million accounts receivable facility. These transactions strengthened Televisa Univision's balance sheet, enhanced its liquidity, and extended its maturity profile with its nearest maturity now almost three years away. The leveraging remains a core strategic priority for Televisa Univision and management remains committed to further strengthening the capital structure of the company over the coming quarters. 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. As Alfonso mentioned, we had an excellent quarter in this third quarter. First, let me walk you through the operating financial performance of our cable operations. We ended September with a network of almost 20 million homes after passing around 20,000 new homes during the quarter. Our monthly churn rate has remained below our historical average of 2% for two consecutive quarters as we continue to execute our strategy to focus on value customers while working on customers' retention and satisfaction. Our broadband gross ads continue to improve on a sequential basis, allowing us to deliver 22,000 net ads during the third quarter compared to net ads of around 6,000 in the second quarter and disconnections of about 6,000 in the first quarter. In video, we also experienced strong gross ads than in the first two quarters of the year. and managed to reduce churn. Therefore, we lost about 43,000 video subscribers during the third quarter compared to 53,000 cancellations in the second quarter and 73,000 disconnections in the first quarter of the year. Moreover, we expect these improving trends to continue growing forward, influenced by our recently announced multi-year partnership with Formula One to provide live coverage of all Grand Prix via Sky Sports channels available through ESG and Sky. Beginning in the fourth quarter of this year and through the 2028 season, Formula One is one of the fastest growing and most passionate sports events in Mexico and around the world. And we definitely see this as a competitive advantage relative to our peers. Moving to mobile, our net ads of 94,000 subscribers during the quarter continue to gain momentum, beating the 83,000 net ads of the second quarter and doubling those of the first quarter. Our innovative MVNO service developed by ZTE, offering enhanced user experience is already making our bundles more competitive and allowing us to increase our share of wallet from our existing customers. During the quarter, net revenue from our residential operations of 10.6 billion pesos, which accounted for around 91% of total cable revenue, decreased by only 0.7% year-on-year. This marked the best quarter of the last two years at our residential operations from a revenue growth performance standpoint and compares well to a decline of 3% in the first half of the year. On a sequential basis, net revenue from our residential operations grew by 0.4%, potentially signaling an ongoing, gradual recovery. During the quarter, revenue from our enterprise operations of 1.1 billion pesos, which accounted for around 9% of our cable revenue, increased by 7.7% year-on-year. This also marks the best quarter of the last three years of our enterprise operations from a revenue growth performance standpoint and compares favorably to growth of 3% in the second quarter and a decline of 4.5% in the first quarter of this year. Moving on to Sky's operating and financial performance, during the third quarter, we lost 329,000 revenue-generating units, mostly coming from prepaid subscribers that had not been recharging their services. In addition, beginning in the second quarter, we started to charge an installation fee of 1,250 pesos to all satellite pay TV subscribers to increase the return on investment for this service. This translated into a slowdown of video gross addition for Sky that has been steady over the last two quarters. Sky's second quarter revenue of 3.1 billion pesos declined by 18.2% year-on-year, mainly driven by a lower subscriber base. To sum up, segment revenue of 14.7 billion pesos fell by 4.4% year-on-year, while operating segment income of 5.7 billion pesos declined by only 0.7%. making it the best quarter of the year as we appear to be very close to reaching operating segment income stabilization. Our operating segment income margin of 38.5% extended by 140 basis points year-on-year, mainly driven by the efficiency measures that we have been implementing and synergies from the ongoing integration between EC and Sky. Regarding CAPEX deployment, our total investments of 3.6 billion pesos account for 24.3% of sales during the third quarter. This shows a material sequential increase in CAPEX deployment, but it is in line with our updated CAPEX budget for 2025 of $600 million. Finally, operating cash flow for cable and sky, which is equivalent to EBITDA minus CAPEX, was 2.1 billion pesos in the third quarter, representing 14.2% of sales.

Thank you, Valim. Best quarter of the year indeed. Now let me take you through Televisa Univision's third quarter results. The company's third quarter revenue of $1.3 billion declined by 3% year-on-year, while adjusted EBITDA of $460 million increased by 9%. Excluding political advertising, revenue fell by 1% year-on-year, marking a sequential improvement compared to both the first and second quarters of this year. On the other hand, also excluding political advertising, adjusted EBITDA increased by 13% year-on-year, underscoring the scalability of a profitable DTC business and the sustained impact of cost reductions initiatives launched at the end of last year. Moving on to the details of Our revenue performance during the quarter consolidated advertising revenue decreased by 6% year-on-year or 3% excluding political advertising expenditure. In the U.S., advertising revenue was 11% lower as growth in VIX continued to partially offset linear declines. Within VIX, the Gold Cup semifinals and finals helped drive a high single-digit increase in MAUs and robust demand from advertisers. In Mexico, advertising revenue increased by 3% year-on-year, primarily driven by private and public sector ad sales that powered ARPU growth for VIX. Results this quarter benefited from a compelling entertainment and sports slate that including the performance of the third season of Casa de los Famosos Mexico, dramas such as Monteverde and Amanecer, and our broadcast of Liga MX and the NFL. During the quarter, consolidated subscription and licensing revenue increased by 3% year-on-year, driven by VIX's premium tier and higher content licensing revenue. In the U.S., subscription and licensing revenue grew by 11%, supported by VIX, and results included a mid-single-digit increase in linear subscription revenue and higher content licensing revenue due to timing of content delivery. In Mexico, subscription and licensing revenue fell by 17%. Excluding the impact of the renewal cycle, subscription and licensing revenue in Mexico grew by 5%, driven by VIX. To wrap up, Bernardo and I remain confident that our focus on value customers, efficiencies, and ongoing integration between Nisia and Sky at Grupo Televisa and further integration and operational optimization at Televisa Univision, now that our DTC business has gained scale and achieved profitability, will allow us to create greater value for our shareholders throughout this year. Now we are ready to take your questions. Operator, could you please provide instructions for the Q&A?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Marcelo De Santos with JP Morgan. Please go ahead.

Hi. Good morning, Alfonso, Aline. Thanks for taking my questions. The first question is if you could comment a bit the CAPEX outlook for 2026. How do you see this trending? And the second question is regarding the insurance claim you received. Was that related to Hurricane Otis? And is there something left to be received? Thank you very much.

Thank you, Marcelo. I'll ask Balim to answer both questions.

Marcelo, we gave a guidance of around $600 million, and we should be just within that range. Regarding the insurance claim, I think that's the last portion of the claim on the Otis Acapulco situation. So we shouldn't be seeing anything more from that event.

Thank you. Valin, just one question. The capex I asked is 2026. So for next year, you're... Ah, no, 2026?

No, 2026 is so far away, Marcello. No, no, no, I don't know.

Let's finish 2025 and then we can talk about 2026.

Okay, thank you. Thank you very much.

Our next question comes from Matthew Harrigan with Benchmark. Please go ahead.

Thank you. You've actually reached a point in the U.S. when you look at the entire TV industry, there's more consumption on streaming than on linear. And I know your linear is much more durable than your English language peers. But you've got tremendous local programming positions, particularly in news and some of the largest U.S. DMAs. Are you really taking a lot of our, you know, hopefully eventually almost all the news content on local stations and the distinctive content on the local stations and moving that to VIX over time because, you know, it feels like it would be a shame to, you know, lose the local identity you have of those stations because, you know, eventually Linear is going to fall off even for Hispanic audiences. And then secondly... You know, clearly a very dynamic situation in the U.S. and Mexico right now. Are you doing anything more on the VC side, you know, in relation to advertising for investments? And also, I can't help but ask, you know, what's your general perspective on the U.S. and the machinations with the administration on the terrorist side and the prospects for nearshoring? and everything going on. I know this is kind of a ridiculously open-ended question, but just any thoughts on the stability of the economic relationship with the U.S.? Thanks.

Yeah, thank you, Matthew, for your questions. I think as to your first one, local news is very important for us. We are very strong in the local places where we produce news and local programming. We are exploring the possibility of including that in our streaming platform. We haven't yet included all of that content, but we're exploring that. The good thing is that, as I was saying, the local content is very strong, so very popular. As to your second question, we have made media for equity deals with great companies, with great startups. We have assembled a great portfolio, I would say, and more companies are coming to us as they realize the importance of our platforms. And this is because of the strength of our platforms. We can position and grow their products and especially their brands when they're launching. Companies like Kavak, like Rappi, have become our ambassadors. At the beginning, we had doubts about the strength of linear television, and most specifically in Mexico, but now we have become ambassadors of ours. We will continue to do these deals as we generate value with unsold inventory, and these companies become regular clients, so it's basically a funnel for these startups to grow, to position their brands, to position their products, and we take equity, which is great, very good valuations, and then they become regular clients. And this is basically unsold inventory, so we're very happy with the portfolio we have been able to put together, and we'll continue to do this. As to your last question, I think that the Mexican government, President Sheinbaum has done an extraordinary job in dealing with the negotiations, the trade negotiations. I think that Mexico and the U.S. are key partners. If you look at the border region, it's one of the largest economies in the world by itself. The legal border crossings that happen every day are in the millions. So, I mean, it's an integrated region. It's an integrated economy. So, I believe that eventually we'll be able to get to the right deal for Mexico and for the U.S.

Great. Thank you. Appreciate it.

Our next question comes from Alex Azar with GBM. Please go ahead.

Hi, everyone. Thank you for taking my questions and good morning. A few ones on competition, Marlene, on cable, if you can share a little bit of color on short-term and medium-term dynamics, especially when seeing how competitors are adding 1 million, 1.5 million net ads per year. It seems that in two, three years, the market is going to be fully penetrated, so it's That would be my first question. And the second one is on Sky. With the levels of net discontent you have year after year, how should we think about the EBITDA contribution in the next couple of years from Sky? Thank you.

Thank you, Alex.

Alex, thank you also. Well, I agree 100% with you. With this amount of net ads on a yearly basis, the market is very close to being fully penetrated. That's why our strategy is not going after volume because we know that we will be fighting for prices at the lower end of the pyramid. So our aim is to focus on the higher end clients. That's why we have We are the only company in Mexico increasing ARPU consistently across the board. So I think that's the focus. So we think there's obviously a diminishing return of this fight for the volumes of subscribers. And that's why our strategy moved away from that, and we have been successful in doing that. Regarding Sky, Alex, the way I see Sky is very straightforward. This is a business that will eventually disappear. Why? The penetration of the fiber networks and the amount of OTTs and the availability of a linear TV through cable and fiber operators is something that will obviously position Sky to only subscribers that are outside of those covered areas. So it will, by definition then, keep on declining. So how we perceive it? We perceive it as a cash flow from existing subscribers minus the programming cost, minus the technological cost of the satellite and all that is involved in that, and then it generates a positive cash flow. That's the business. And it has been generating positive cash flow, and for the foreseeable future, we'll be seeing positive contribution from Sky as a cash flow perspective. Obviously, it has this negative optics on our revenue, but just the way we see it is we've got to segregate that from everything else and see that as an inflow of cash flow And everything else is more stable, growing businesses.

Yeah, and to add to your first question, to add on what Valimo was saying, in Mexico we have a four-player market, but it's a pretty rational market, except for Telmex, which has kept its entry price unchanged for, I guess, more than 10 years. while also increasing internet speeds and offering Netflix now for free for six months. They don't seem to be really interested in the profitability of Telmex as they extract value from the lease of fiber owned by other subsidiaries of theirs. On the other hand, Megacable raised prices by around 30 pesos per month from the beginning of the year. So there you can see that The industry is raising prices, except for Telmex. Total Play also announced price hikes from April, particularly from broadband customers that are heavy data users. So even though it's a four-player market, it's a rational market, and if you look at the At the prices in ARPU, we feel comfortable and we feel confident that this will remain like that.

Thank you. Thank you both. If I can just add a follow-up on Sky's remarks. When you say Sky probably will disappear, I'm just thinking that there must be some some part of the population that, you know, where fiber is not around and they, you know, sky becomes the only thing that they can use, especially for video. Do you guys have an approximate of that? I don't know.

Yeah, you're absolutely right. I mean, there are rural areas where a satellite provider makes sense. I don't know.

No, I don't think they will disappear per se. It's obviously a diminishing volume like you have been seeing and will keep on seeing. But just to give an example, in Central America, we have close to 100,000 subscribers, basically flat, because in those areas, there are less competitors offering a fiber product. network or a cable network, and it is very stable. And like Mexico, where we are all deploying networks and expanding our infrastructure. So yes, I don't think it will disappear. There will be a day that will be just shut down. I think it will still have, and I think there are just 700,000 people living in areas where there's no other option for entertainment. and Sky will keep on being a solution. But that's why we don't see this as a... I understand some people see this as a problem. We actually see this as an upside, given the fact that we're generating positive cash flow.

Yeah, I think Valim is absolutely right. We see Sky as a cash flow, and... The more we extend, we prolong the life of the subscribers, it's going to be an amazing driver for our cash flow. Exactly.

Thank you. Thank you both.

Our next question comes from Ernesto Gonzalez with Morgan Stanley. Please go ahead.

Hi. Thank you for taking my question. Look, I know it's early, but going back to the discussion on wealth and penetration in Mexico, do you have any, or do you share any expectation for cable growth rates next year? Do you believe that you can accelerate growth for the unit? And the second question is on the sustainability of margins for cable sky, but also television. They were strong in the third quarter, so I want to get a sense of how much more room they have to grow going forward. Thank you.

Well, I think that, back to your point, Ernesto, I think that it's key to understand that, obviously, as penetrations go higher, the level of net ads will diminish for every player in the market. And you have already saw that. As you see quarter after quarter after quarter, we already see a diminishing number of net ads being added to the market. to the different players. So that's a diminishing return. In other countries like Brazil, for example, where the penetration is significantly higher even than Mexico, you see there's this dynamic as well. And companies find ways by selling more products to the same existing customers to keep revenues growing, growing. But obviously, you're not going to be seeing high double-digit numbers because of the dynamic of the market. But like Alfonso just said, this is a very rational market. Nobody is slashing prices down. The promotions are very reasonable. And everybody is actually making money in this market, like our cash flow generation that we have just presented. It's significantly different. is very significant. So I think that's a dynamic in mature markets that you'll see, and what happens is you add more products, better products, more speeds, and that's how you keep on increasing ARPU. And that's why we think the strategy of going after the high-end customers, they have more disposable income available as opposed to the other end of the pyramid.

I think you're regarding margins of cable. No, I think he asked about TU, but you can have it.

No, no, no, no. Both, both, let's both. So the idea here is we think that we keep on improving margins. This is an ongoing, never-stopping exercise. that we go internally. And we find that through many different ways, mostly through technology. Obviously, we still are collecting a few synergies from Skype, but mostly through technology and improvement in how we provide services and processes. So there is an ongoing effort to increase margins. I'm talking about cable.

Yeah, and about, I mean, TU, amazing margins there. I think that was a result of the cost cutting and all that we did in terms of cost and expenses in the fourth quarter of last year, which are being reflected in this year. We believe that we have the highest margins in the industry, and that has to do with that cost cutting, $415 million, and also it has to do with owning the largest library of content in Spanish in the world, more than 300,000 hours of content. It also has to do with the very efficient way in which we produce content, especially in our studios in Mexico. And that allows us to have these amazing margins. So I think those margins in the mid-30s are sustainable.

Thank you.

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

Thank you very much for participating in our call, and if you have any questions, please give us a call. Have a great weekend.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.