Grupo Televisa, S.A.B. Q3 FY2023 Earnings Call

Good morning, everyone, and welcome to Grupo Televisa’s Third Quarter 2023 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 we will discuss in today’s call and in the earnings release. I will now turn the call over to Mr. Alfonso de Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead, sir.

Thank you, Sheila. Good morning, everyone, and thank you for joining us. With me today are Wade Davis, CEO of Televisa Univision; Francisco Valim, CEO of Cable; Luis Malvido, CEO of Sky; and Carlos Phillips, CFO of Grupo Televisa. Wade, Valim, and Luis will discuss the operating and financial performance of each business they manage in their remarks. But before doing that, I would like to ask Valim to give you an update on the outlook of Mexico's fixed telecom market and the cable strategy we are pursuing to achieve our goals. Under this plan, we are prioritizing free cash flow over an ongoing aggressive cable footprint expansion, particularly considering that we have the largest network in Mexico, excluding the incumbent, ending September with 19.5 million homes passed, or a coverage of over 55% of total homes in the country. Therefore, Valim’s mandate as the recently appointed CEO of our cable operations has been to improve the quality and lifecycle of our subscriber base, enhance profitability, optimize CapEx deployment, expand free cash flow generation, and, as such, increase returns on invested capital. Having said that, let me turn the call over to Valim, as he will elaborate on our long-range plan.

Thank you, Alfonso. Good morning, everyone. Mexico's fixed telecom market is now more mature, with fixed internet access exceeding 70% of households. Customer preferences are evolving towards faster internet speeds, better service quality, and digital offerings. These shifts in customer demands have prompted a widespread strategy among market players to deploy high-speed fiber networks, typically during costly economic periods. Such expansions can impact financial returns, particularly amid high interest rates and fierce competition, necessitating a strategic approach to capital expenditures that emphasizes returns on investment. The current market maturity and structure may lead to potential consolidation, and we believe our strong competitive position gives us an edge. With a well-recognized brand, a leading net promoter score in the market, robust technology, and the second largest customer base in Mexico, we are poised to take a significant role. The global economic landscape and recent market structural changes require us to reassess our position and, importantly, our role in the forthcoming years. We concluded that we need to modify our company management and strategy, which we are already in the process of executing. A thorough review of our cable business indicates that our focus should shift from rapid expansion and network deployment to optimizing our existing operations for value generation. Currently, market value generation leans more towards volume than the quality of sales, leading to aggressive promotions driven by competitive pressures, resulting in sluggish revenue growth, diminished profitability, and weak free cash flow. Promotions that have increased gross additions have also boosted churn rates and lowered sales quality. While some competitors continue this approach, we firmly believe it is not the optimal strategy to enhance industry value in Mexico, especially for ViX. This model has led certain competitors to financial challenges, which is unsustainable in a competitive and mature market, as we've witnessed in recent quarters. Additionally, our enterprise divisions have lost a key contract, while inflation-induced cost pressures have affected profitability. This situation necessitated immediate action to turn the significant impact on our enterprise operations’ financials into an opportunity moving forward from 2024. Over the years, ViX has established itself as a top player in the telecom sector with the capacity to redefine value creation. Consequently, we see strong brand attributes, including the highest NPS in the market and our nearly 6.3 million loyal customers, offering a huge opportunity to create value by concentrating on several areas. First, we will focus on customer retention and satisfaction. Second, we aim to enhance sales quality with internet speeds up to one gigabit per second and competitive packages supported by our excellent network infrastructure. Third, we plan to manage our subscriber base actively to maximize customer average revenue per user (ARPU). Fourth, we will upgrade our video offerings to complement our value proposition. Fifth, we will pursue efficient growth in our small and medium-sized enterprise (SME) business. Lastly, we will completely revamp our enterprise operations with an organizational restructuring, new commercial strategy, and renewed segmentation of our client base. These strategic pillars are central to ViX and have already been put into action with our management structure reorganization and the addition of new members to our executive team, including myself as CEO, Juan [indiscernible] as Chief Financial Officer, [indiscernible] as Chief Commercial Officer of our enterprise operations, and Nina Mason as Chief Marketing Officer. The changes at the top have prompted an ongoing evolution in our operational philosophy, guided by five strategic pillars. First, regarding our product offering, we are shifting our focus to local strategies where we have a competitive advantage. We are enhancing sales quality, aiming for higher-speed bundles and creating a unique video value proposition that emphasizes seamless streaming platform integration. The second pillar involves subscriber management and tools. We are enhancing our big data and AI capabilities to better manage our subscriber base with a more targeted strategy and improved churn management, prioritizing long-term value. The third pillar focuses on sales channels, where we are restructuring our distribution, emphasizing digital approaches to get closer to high-value clients while optimizing subscriber acquisition costs. The fourth pillar concerns our cost structure; we are conducting a comprehensive review at both operating and capital expenditure levels. On the operating expense side, we have made significant reductions in headcount, yielding about 12% savings in payroll starting from the fourth quarter, alongside a rationalization of third-party services. On the CapEx side, we are dedicated to improving inventory management, logistics, field operations, and real estate optimization, including a relocation to Grupo Televisa's corporate building to achieve substantial rental savings. The fifth pillar focuses on our enterprise and SME operations, where we see great potential to utilize our strong capabilities. We have reorganized our enterprise operations with new leaders in place, re-segmented our customer base, optimized costs by eliminating network redundancies, revamped our SME value proposition, and renewed our profit growth focus. These shifts in the company's philosophy are consistently partnered with a transformation in execution, exemplified by the implementation of a war room for agile strategy execution. These pillars form the core of our strategy, resonating well in our mature markets, particularly for players with comparable market shares, where value creation is about increasing wallet share within the existing footprint rather than pursuing aggressive expansions. We are confident that we will gradually recover our growth trajectory and that our turnaround strategy will yield results, already exhibiting sequential stability since the start of 2024. We aim not only to grow our subscriber base but also to enhance ARPU through improved management and sales quality. Moreover, challenges faced in recent quarters have been proactively addressed, and we expect them to return to historical levels, positioning us to capitalize better on our growth. Collectively, our cost restructuring and more strategic, data-driven capital expenditure processes will help maximize returns, gradually reversing EBITDA declines and leading to a compounded annual growth rate of around 10% in operating cash flow over the next three years. Our long-term plan for 2024 to 2026 anticipates revenue growth in the low to mid-single digits, consistent with more mature markets, driven by subscriber growth, price adjustments to mitigate inflation impacts, and product upselling. Profitability is projected to hover around 40% as initiatives addressing inflationary pressures take hold. Finally, a more focused and strategic network expansion plan aims for up to 400,000 new homes each year, while lowering subscriber intake as we concentrate on sales quality and reducing churn. This strategy will help bring our capital expenditure to sales ratio down to the low 20s from around 26% this year. Let me now detail our cable operating financial performance. We concluded September with a network covering 19.5 million homes, having reached almost 90,000 new homes during the third quarter. We added approximately 381,000 new subscribers or homes connected, indicating robust demand for our services. However, we opted to refine our subscriber base due to low-quality additions in recent quarters involving subscribers sensitive to price hikes who had missed monthly payments and had no consumption for an extended period, leading to their disconnection. This refinement resulted in net disconnections of over 392,000 subscribers. In the quarter, revenue from our residential operations grew by 1.8% year-on-year, though operating segment income decreased by 7.3%. Our residential operations margin decreased to 37.9%, reflecting a contraction of 380 basis points year-on-year, mainly due to inflationary pressures in labor and content-related costs. Nevertheless, headcount reductions implemented during the third quarter are projected to enhance our residential operations margin by about 200 basis points in the fourth quarter. Our enterprise operations, which comprise around 12% of our cable segment revenue and 7% of operating segment income, continue to encounter challenges. In the quarter, revenue declined by 24%, while our enterprise margin fell to 18.7%, down 680 basis points year-on-year. However, we believe the reorganization of our enterprise operations will position us to stabilize and increase both revenue and operating segment income from 2024 onward. In summary, revenue from our cable segment was Ps12.1 billion, a decline of 2% year-on-year, while operating segment income was Ps4.3 billion, down by 12%. Our cable segment margin decreased to 35.6%, reflecting a contraction of 400 basis points year-on-year.

Thank you, Valim. You've put together a great plan and a great team. Now let me turn the call over to Luis Malvido, CEO of Sky.

Thank you, Alfonso, and good morning, everyone. I'm pleased to present an update on Sky's third quarter operating and financial performance. But before getting into the numbers, I'm thrilled to announce a significant milestone achieved by Sky. During the quarter, we introduced Sky Mass, a groundbreaking product from Sky Mexico. Sky Mass is an Android-based streaming platform developed entirely in our own laboratories that seamlessly integrates all Sky TV, VOD and OTT content in a unified viewing experience on a single screen. Sky Mass eliminates the needs for a dish or specific installation requirements and can run over any broadband network. Besides leveraging on the power of artificial intelligence, our cutting-edge search and recommendation engine creates content for each member of the household, eliminating the need to switch between multiple OTTs. Furthermore, Sky Mass is the only platform in the market that offers live sports events in true 4K quality and provides the option to extend this experience to any mobile device including cell phones, tablets, and laptops. Sky Mass currently integrates Universal Plus, Disney Plus, Star Plus, HBO Max, and VIX Premium, along with all linear channels and all partners' entire libraries solidifying our position as the comprehensive and dynamic content provider in the ever-evolving digital landscape. Sky Mass stands as the premier broadband-agnostic platform for Mexican sports enthusiasts, offering a comprehensive collection of all major worldwide soccer leagues and tournaments in one place. Early this month, we successfully launched the Sky Mass marketing campaign targeting new and existing Sky customers. This campaign not only boosted brand awareness, but it's also fueling promising sales growth. Today, we have added 36,000 units and the momentum is still on the rise. Shortly, our Sky Mass offer will be boosted when bundled with Sky Internet. Our digital transformation strategy is well underway, unveiling an array of disruptive new products that are quickly gaining traction in the market. This innovative portfolio not only underscores our commitment to innovation and our efforts to enhance our competitiveness but also reflects our dedication to delivering the best to our customers. Now in terms of trading, we experienced a decrease of 227,000 units during the quarter, mostly coming from prepaid. However, this decline was partially offset by 29,000 positive net ads of new products and 5,000 in Central America, where we scored positive net ads for the first time in many quarters. Now let me walk you through the financial results for the quarter. Third quarter revenues declined 13.8% year-on-year, reaching Ps4.3 million. This decline was primarily driven by the affirmation DTH's driver base drop, and a lower recharging frequency partially offset by the price increase in Postpay video implemented in May. Furthermore, operating segment income in Q3 decreased by 9.9% year-on-year, reaching a margin of 35.7%. The decline is attributed to lower revenues, mostly in prepaid, which were partially offset by a drop-in cost of goods sold and operating expenses due to the successful implementation of efficiency measures across our operations. As you may recall, last year, we developed an ambitious digitalization and simplification program aimed at improving efficiency and streamlining processes across the entire organization while enhancing the customer experience. As of the current update, this program is projected to yield an impact of Ps805 million in 2023, representing over 4% of full year revenues. Regarding our capital expenditure, we invested $114 million year to date, indicating a substantial 29% decrease compared to the previous year. This reduction in capital intensity can be attributed to the strategic measures we undertook to enhance return on investment and inventory rationalization, along with the successful implementation of the simplification program mentioned earlier. Finally, a metric that underscores the positive impact of these efficiency measures is a beta minus CapEx year to date; this indicator has witnessed a year-on-year growth of 16.7%, surging from Ps2.2 billion to Ps2.57 billion.

Thank you, Luis. Given the operating and financial performance, our two core consolidated businesses, Grupo Televisa's consolidated revenue reached Ps18.3 billion, representing a decline of 4.9% year-on-year. While operating segment income reached Ps6.4 billion, equivalent to a year-on-year decrease of 8.8%, mainly driven by the lower revenue and inflationary pressures. Below operating segment income, we had non-recurring severance expenses of around Ps830 million related to the headcount reduction implemented in cable during the third quarter. Still, this measure will bring savings of around 12% of our payroll, allowing us to expand the residential operations margin in cable by around 200 basis points in the fourth quarter. Moving on to Televisa Univision before getting into its third quarter operating and financial results released on Wednesday morning, let me remind you that our 44% stake in this company is a very important value component for Grupo Televisa's shares. Using proportionate consolidation, Televisa-Univision would contribute almost 40% of revenue and EBITDA during the third quarter, making it the second largest proportionate contributor to Grupo after our cable operations. Televisa-Univision delivered another strong quarter of double-digit revenue growth, underscoring the strength and flexibility of our unique, fully-integrated ecosystem across complementary platforms and geographies. Having said that, let me turn the call over to Wade Davis, CEO of Televisa-Univision.

Thanks, Alfonso. I am really happy to be here with you all and to spend some time discussing TU's performance. It was a great quarter for us, where we hit a number of high watermarks operationally, delivered significant progress on our strategic priorities, and therefore produced fantastic financial results. But I want to start by highlighting how unique our company is, and in particular, the unique economic opportunity we are pursuing. We are the only company at scale touching all Spanish-speaking media markets globally. This is an $8 trillion GDP, and over half of that is represented by the Mexican and U.S. Hispanic markets, where we are the definitive leaders, and both of these markets are seeing remarkable growth. In fact, The LDC and Wells Fargo released their annual U.S. Hispanic market report, which highlighted that the U.S. Hispanic GDP grew double digits to exceed $3.2 trillion last year, making it the largest Spanish-speaking market in the world, the equivalent of the fifth largest national economy, but also the fastest growing economy in the world. And we are the only scaled company that's a pure play on the global Spanish-speaking consumer. Executing against this opportunity, we delivered double-digit revenue growth and an impressive 58% year-over-year improvement in D2C losses, which led to flat consolidated EBITDA. And underpinning these financial results was incredible success from an audience perspective. In Mexico, we held both the number one and number two networks for the first time in history. In the U.S., our market share reached a nine-year high of 65%. And in streaming, we surpassed 40 million monthly average uniques. This is the remarkable company we created when we brought Univision together with Televisa's content business, a fully optimized content engine that can power multiple platforms across the global Spanish-speaking market and deliver market-leading audience outcomes. We can efficiently create a new streaming business with hundreds of millions of dollars of year-one revenue and nearly no consolidated EBITDA degradation. Our 11% revenue growth this quarter was supported by all geographies. In the U.S. business, we saw the highest Q3 revenue in the history of the company. In Mexico, we posted double-digit revenue growth, which we have done every quarter since our merger. If we adjust for the U.S.'s midterm political ad sales from last year, we saw growth across all lines of business in all regions. Although the overall U.S. ad market remained relatively soft this quarter, our U.S. ad sales rose by 3%, excluding political and advocacy, which represents an outperformance of the broader market by 800 basis points based on Magna's reports. This is an expansion from our 600 basis points of outperformance last quarter. In Mexico, we had an amazing ad sales quarter where the combination of new client activations and new advanced solutions coming online in Mexico, led by streaming inventory on ViX, drove strong continued growth. Subscription and licensing revenue grew 18% this quarter, and this was driven by ViX's premium tier, which more than offset some linear subscriber softness. We're also seeing early growth contributions from licensing our new original ViX programming outside of our core markets. Our singular focus on Spanish language presents us with significant licensing opportunities globally without putting any competitive pressure in our primary markets. This quarter, we narrowed our D2C losses by nearly 60%, and we continue to have a direct line of sight to our target of D2C profitability by the second half of 2024. This is now only nine months away, and when we deliver this, ViX will have had the shortest ramp to profitability of any major streaming service in history. We can do this because of the unique content costs and the powerful marketing advantages we've created with the combined Televisa Univision business. We have a massively scaled, fully vertically integrated business operating across multiple platforms and leading in the largest Spanish-speaking markets in the world. Our relentless focus on efficiency is reflected in overall consolidated basis with the highest operating margins in the industry. This will be further underscored as we continue toward D2C profitability where we believe our margins will also be best-in-class. We built one of the world's most efficient and prolific long-form video content engines. Our huge vertically integrated infrastructure has been constantly producing at full capacity guided by sophisticated analytics and insights and optimized to power all of our platforms through innovative windowing and production strategies and allowing us to maximize the value of our rights and intellectual property. The volume and efficiency of our content enables us to pursue a strategy of investing in and optimizing both linear and streaming, programming each platform for what it does best. Linear is designed around cultural and habitual viewing with live soccer, tent poles, high volume novellas, and appointment viewing like morning and evening news. Streaming is designed to deliver high intent viewing around our original movies and series, a massive volume of live exclusive soccer that's indispensable for a serious soccer fan, and a huge volume and range of niche content to service a more nuanced Latino audience. For linear, this strategy continues to pay off across both geographies. In the U.S., our television networks delivered the highest primetime Spanish language market share in nearly a decade at 65%, a 500 basis points year-over-year improvement. This came from a clean sweep of all four primetime slots with our original scripted novellas and record-setting live events in both sports and music. In Mexico, our content was so compelling that we actually drew audiences back to television and saw levels of total television usage not seen since the pandemic lockdown. This quarter, our secondary network, Channel five, registered its highest viewership in five years and on a relative basis, surpassed our main competitors for the first time in history, giving us both the number one and the number two broadcast networks in Mexico this quarter. For ViX, this strategy is allowing us to expand our reach and serve younger audiences that have not been historically well served by linear television. Clearly, this strategy is working with massive year-on-year audience growth hitting over 40 million monthly average uniques on the free tier this quarter, with 60% of that audience unique to the streaming platform. In an important aspect of a two-tier ecosystem, we exceeded expectations in terms of productivity with the free funnel delivering a high watermark of two-thirds of our gross new subscribers this quarter. While we have different programming strategies for each platform, we think of the ecosystem as a whole and how to use two platforms to complement each other. Q3 had some fantastic examples of these two platforms working in concert. On the entertainment side was 'La Casa de los Famosos', a Mexican reality show, where we produced different and complementary content for streaming and for linear. The linear show is the traditional twice-weekly live reality show that aired on Channel five. For streaming, we produced separate content that was pitched from linear and included multiple live 24-hour feeds that drove always-on engagement for the super fan. We were able to produce a huge volume of content at incredibly low price points per hour, and we're able to cross-promote the two platforms and experiences to create enormous reach and engagement on linear, where the show propelled our Channel five network to the number two position in Mexico. On ViX, we saw free tier audience levels that rivaled the World Cup from last year and it drove the highest level of attributable new subscribers in both Q2 and Q3. The strategy also works very well for us with sports. As mentioned earlier, we had the Gold Cup this quarter. The rights fees for that property included a massive number of games. Some of the early games made sense to put on ViX free in front of the paywall to build awareness for the tournament. As we got further into the tournament, we moved games behind the paywall in ViX to drive subscribers. Having used ViX to build engagement and reach with games that we couldn't have otherwise aired on linear because of limited shelf space, we were then able to push a massive audience to linear for the playoffs and final stage games to deliver the highest ratings for any soccer tournament this year. Nearly everything we do from a content perspective contemplates a combined linear and streaming ecosystem. This helps with audience flow, cross-promotion, content efficiency while maintaining the integrity of an ecosystem with our distribution partners. Obviously, this quarter saw some tension between programmers and distributors in the U.S. around the levels of content overlap between linear and streaming. And that's causing the industry to evolve. The composition and positioning of our platforms are non-overlapping and complementary, which positions us extremely well for these dynamics. This has evolved significantly and progressed operationally since we launched it a little more than a year ago. Remember, we launched the service a handful of months following our merger, which meant that the underlying service was really launched as a minimum viable product, and our real focus at launch was on content quality and programming. We have continued to consistently roll out incredible original content, but we're also making significant progress in bringing the underlying product features to basic parity. Improved content recommendations, multiple profiles, and casting are all great examples of really important features that are only coming online now and already having big impacts on incremental engagement and retention. We also grew our distribution footprint this quarter. Previously, we only covered about 60% of the connected TV market. This quarter, we added Vizio, LG, and HiSense, granting us nearly 100% coverage of connected TVs. This week, we're launching Mercado Libre. Mercado Libre is the market leader in e-commerce in Latin America and is one of the largest sources of streaming subscriptions in the region. As one of the only pure-play companies delivering on the massive global Spanish-speaking consumer economy, we continue to deliver above-market levels of growth and industry-leading profit margins. Our unique content engine continued to deliver hits at scale, attracting record audiences across all platforms in all geographies. Our investments in streaming are paying off, both in terms of revenue, scale, and improved profitability. It's a really exciting time to be at TU, and I'm incredibly proud of what our team has delivered this quarter, and I'm even more excited for what lies ahead. With that, I'll turn it back over to Alfonso.

Thank you, Wade. To wrap up, the global macro backdrop has been more challenging than initially expected. Therefore, Bernardo and I, together with the rest of the executive team at Grupo Televisa, have been putting a lot of effort into deep rethinking and restructuring of our consolidated businesses that will allow us to come out stronger from the current environment. These structural reforms are focused on protecting profitability, optimizing CapEx and enhancing free cash flow generation. At Televisa, Univision together with our partner, Wade Davis, we continue to execute our digital transformation strategy, which has been delivering outstanding results. Our top-performing content and high complementary linear and streaming ecosystem position us well to continue outperforming the market in both yield and financials. Moreover, we have successfully been scaling our DTC business with revenue approaching over $700 million annually and are on track to deliver profitability next year, which is an unprecedented timeframe for any major streaming service. Now we're ready to take your questions. Operator, can you please provide instructions for the Q&A?

Today's first question comes from Fred Mendes with Bank of America. Please go ahead.

Good morning. I have two questions. The first is about cable, which Valim addressed at the beginning of the presentation. It seems there's been a significant shift in strategy, which I agree with. However, I think it will take time since it likely involves changes beyond just the first layer of people; the second layer also needs adjustment. The previous focus was on growth rather than on cost management and increasing free cash flow. I'm concerned about how long it will take for this fully shifted strategy to take effect on the cable front. That's the first question. The second relates to the mix; the numbers are improving and seem to be performing well. Looking ahead to 2024, what are the three main metrics you plan to monitor? Additionally, in the long term, over the next three to five years, how do you envision ViX? Do you see it growing in the high single digits in terms of margins and cash, or will it be more of a target for larger competitors given its value in the niche it serves? Thank you.

Yes. Thank you, Fred, for your question. You're right, there has been a shift in our cable strategy, and I'll ask Valim to address that shift.

The idea is that since we have already implemented many of the layoffs we intended to, and are optimizing every opportunity, we should begin to see results starting in 2024. This process could be quite rapid. Our goal is to enhance cash flow generation while still achieving revenue growth in the low to mid-single digits and maintaining EBITDA margins around 40%. We believe these objectives will be realized beginning in 2024.

So, it's all about CapEx optimization and free cash flow generation. That's a material shift in the strategy. And as to your second question, Wade has done an amazing job at Televisa Univision and specifically at launching ViX. So, I'll ask Wade to go over, as you asked about the three main metrics.

Thanks, Anton. Thanks for the question. So, I think the first thing I would say is that you should focus on the overall performance of the business. As we've said a number of times, we think of and we run ViX as an integral part of a complementary linear and streaming ecosystem that's fully aligned. The overall focus should be on the performance of the company as a whole from a revenue and EBITDA growth standpoint. ViX is going to continue to be a key engine for revenue and EBITDA growth of the consolidated business going forward. And so, as that emerged from a reporting standpoint, focus on the core revenue and EBITDA of the D2C business inside the overall business will be important. But if you're looking for more specific metrics, I would probably put it in three categories. First is a metric focused on audience engagement. Second would be a metric focused on marketing efficiency. And third would be metrics focused on the effectiveness of our monetization of the audience. As we get into 2024, we'll be rolling out metrics that cover those three areas just to help investors understand the consistent and predictable march towards the profitability targets that we have laid out. There was a second part of your question about ViX, which I didn't understand. Could you repeat that?

No. Perfect. Basically, I mean, in the long term, do you see ViX projections you have, you see ViX as a stand-alone player, let's put that way, growing let's say high single digits and generating cash? Or do you believe that mutually in the future, ViX is going to be of great value for other larger players given the niche of the Hispanic market that it operates and it could turn into an M&A target from other players? Thank you.

Well, ViX is an integral part of the business. There won't be a Televisa Univision without ViX just like there won't be a Televisa without the linear business. As we've always said, our strategy is designed around the two platforms, programming them for what they are good at and delivering a comprehensive programming solution that's relevant for the broadest possible consumer market. ViX long term is, as I said, going to continue to be an engine of growth on Televisa Univision's earnings call. I highlighted that as we are in our core business, we believe that ViX will be delivering best-in-class operating margins for streaming. We will hit those best-in-class operating margins on a two-year to three-year ramp following a return to profitability in the second half of next year. I guess there was the last part of your question. I mean we don't think of this as a niche market, right? This is an $8 trillion GDP on a global basis. There's never been a company in the history of Spanish language media that's been able to touch the Spanish language consumer on a global basis. As it relates to whether ViX would be an M&A target, I think the real question is that if anybody has aspirations for overall international media leadership, there is no way to truly accomplish that without leadership against the global Spanish language audience, which, as we've said before, represents the second most widely spoken language in the world. We have over 60% market share in the U.S. Hispanic audience, which is the largest Spanish-speaking market in the world, and a similar level of market share in the country of Mexico, which is the most populous Spanish-speaking market in the world. So, if anybody has aspirations to be a truly global media company, they can't do so without considering the Spanish-language market. The asset we have is replicable.

The next question comes from Vitor Tomita with Goldman Sachs. Please go ahead.

Hello. Good morning, and thanks for taking my question. Two questions from our side. First one, if you could give us some color on the percentage of your cable base that might still be benefiting from temporary customer acquisition discounts following recent churn and cleanups. And second question would just be a quick clarification on the previous response to Fred. You mentioned in the previous response that cable results should improve starting in 2024. Does that mean you still anticipate some pressure in the fourth quarter of '23? Thank you.

Yes. We think there will be still some pressure on the third quarter because we are just starting to implement the adjustments. We just finalized the headcount reduction and we still have a few things that we need to implement. And then after that, we anticipate it to be, like I said, in the 40% range EBITDA, and we expect revenue to grow low single digits for the next two to three years. So, we see sequential improvement from this point forward.

The next question comes from Cesar Medina with Morgan Stanley. Please go ahead.

Thanks for taking my call. This is a great start in communicating the plan, the turnaround, but I had two questions. The first one is, you mentioned the potential for market consolidation in Mexico. Can you expand a little bit on that? I don't know if there is room for revising some of the talks that your firm had a while ago with Mega cable. That's the first question. And then the second, this is more of a joint question to Wade and Alfonso. If you look at the capital structure of the joint venture, how do you see the path for raising capital? And what would be the position that Televisa will take into that strategy for capital basis? Thank you.

Thank you, Cesar. As to the consolidation of the cable industry in Mexico, you know we tried very hard to do that. We put on the table a very attractive offer, a stock-for-stock deal, which I believe would be great for both Grupo Televisa shareholders and the other shareholders. So, we tried very hard. However, we could not complete that transaction. And you may expand...

Yes. This market, as you know, a four-player market doesn't last very long. Some of our competitors are already facing financial challenges. We think that there will be a consolidation. When is a question that we would also like to be able to answer. But conceptually, I think this will happen sooner rather than later, given some of the constraints that we have already seen. Some players are deploying fiber networks aggressively and would not equivalent growth to repay those investments. We see a challenging market for whoever wants to be in that market. Our strategy is as we've described just recently today, is that we're going to be preserving cash and keep focusing on our largest asset, which is our 6.3 million customers, high level, being the best clients in the country. We believe we can work with them and grow not only the subscriber base but also, very strategically, our network. I believe that's the strategy moving forward and consolidation will happen in H1.

As to your second question, our single-minded focus in everything that we've been doing, we formed this joint venture and the transformative merger that created a fundamentally new and differentiated company focused on maximizing shareholder value. When you think about the timing of raising incremental capital, the right time for us to maximize shareholder value from an equity raise standpoint will be once we've actually delivered direct-to-consumer profitability, which is right around the corner, as we've said a number of times. Pretty much every media company in the industry has talked about direct-to-consumer profitability, with only Netflix to date having delivered that. When we deliver profitability within the next nine months, that will represent the fastest ramp of profitability of any major streaming service in the history of the industry, and that will be a very material inflection point for the company. We have plenty of cash and liquidity on hand at the moment. We reported just under $300 million cash on hand. We have $900 million of equity from our assets. And so, there's plenty of cash for us to be patient around what the right timing is for tapping the equity markets. When we do that, it will be focused on accelerating the deleveraging of the business. Obviously, as we turn streaming to profitability next year, the organic deleveraging of the business is going to start and accelerate moving forward. But at the right time, I think I've outlined the parameters that go into that, we'll look at raising equity to accelerate the deleveraging of the business.

And for the intention of Televisa to participate in those transactions?

We're not considering putting more money into Televisa Univision at this point. As Wade mentioned, let's wait and see, but that's the situation as of now.

I mean units going to be really expensive. I think the only thing you're going to need to think about. We already own 44%. So, we're, of course, the largest shareholder, and we feel great about our investment at Televisa Univision.

The next question comes from Carlos Legarreta with Itau. Please go ahead.

I have two questions on my side. The first one on Cable. Please disclose a number of unique subscribers in the business after the base cleanup. And if possible, can you disclose the household penetration between your legacy and new territories group? And secondly, sorry, if I may, just as a follow-up. So, from what I got from your comments is that Televisa is not considering a larger stake in Televisa Univision in order to consolidate it, right?

Carlos, regarding your last question, we are not considering that at this time. As for your first question, we have 6,252,000 unique users or households after the cleanup. In terms of household penetration, for our legacy customers, it's close to 40%, which accounts for almost 80% of our subscriber base with very high penetration. In the newer cities, the penetration is between 10 and 20%.

The next question comes from Marcelo Santos with JPMorgan. Please go ahead.

Hi, good morning. Thanks for taking my question. I have two questions for Lin. First, could you comment on the competitive environment? Have you noticed any decline in the regions, whether your legacy areas or the new regions you have entered? And the second question is about your network infrastructure; do you feel there is a need to upgrade any of your cable to fiber, or are you satisfied with what you currently have? Thank you.

So, in terms of market competition, what we have seen is that, enterprise-wise, it is a very stable market. We compete on promotions, which is basically what everybody does all around the world in this business. There is no price deterioration. There are a lot of promotions, but we have seen prices very stable over the last several quarters. In terms of the network, we have a network that can deliver up to 1 gigabit per second in terms of Internet speeds and 200-plus video channels. And that’s more than sufficient for the clients we have. A tight deployment of fiber that we have already done in the past and that we'll continue to do in the future for more affluent residential areas will always be on our to-do list and on our CapEx. That's how we see this evolving.

The next question comes from Eduardo Ruby with UBS. Please go ahead.

Thank you for taking my question. Can you provide some color on the tax impact we saw discard and we should account for further tax costs on next period? And thankfully, could you give more color on how we should see CapEx and leverage going forward, please?

As you saw in our press release, the income tax line increased to $975 million in the third quarter. That's basically due to a noncash, nonrecurring expense of approximately $988 million and this expense was due to the reduction of a historic income tax deferred asset that we had on our books. So, as I mentioned, it's noncash and nonrecurring.

And the other question was, our CapEx we think it will go from the 26% of revenue that is running today to close to 20%. As we mentioned, it's all about CapEx optimization and generation of free cash flow.

This concludes our question-and-answer session. I would now like to hand the call back to Alfonso de Angoitia for closing remarks.

Thank you very much. Well, great. Thank you for participating in our call. Please give us a call if you have any additional questions or comments. Have a great weekend.

The conference has now concluded. Thank you for attending today's question. You may now disconnect your lines.