Good morning everyone and welcome to Grupo Televisa's First Quarter 2024 Conference Call. All participants will be in listen-only mode. 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 discuss in today's call and in the earnings release. Please note, this event is being recorded. 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, Elsa. Good morning everyone and thank you for joining us. With me today are Francisco Valim, CEO of Cable and Sky; and Carlos Phillips, CFO of Grupo Televisa. As you may recall, one of the strategic pillars approved by our Board of Directors was to streamline Grupo Televisa's operations and simplify our asset structure. I am delighted by the progress we have achieved on this front so far this year. On February 20th, we concluded the spin-off of Ollamani and its listing on the Mexican Stock Exchange under the ticker symbol, AGUILASCPO, unlocking significant value to our shareholders. And on April 3rd, we announced that we reached an agreement with AT&T to acquire its minority stake in Sky Mexico, subject to regulatory approvals. Following the conclusion of these two milestones, Grupo Televisa will not only be a pure telecom company from a consolidated standpoint with massive opportunities to take advantage of Sky's exclusive sporting content rights in our Cable segment and generate significant synergies and efficiencies through the integration of these two businesses, but also the largest shareholder in Televisa Univision, the world's leading Spanish language media and streaming company through our unconsolidated 44% stake with huge potential to create value. Regarding the agreement with AT&T to acquire its minority stake in Sky Mexico, I would like to ask Valim to walk you through the plan that we will pursue to fully merge Sky with our Cable operations, materially strengthening the competitive and financial position of the combined company. Valim's mandate as recently appointed CEO of Sky as well as CEO of our Cable operations, is to completely integrate the two companies benefit from Sky's exclusive sporting content, to improve the competitive position of the combined company, extract as many OpEx and CapEx synergies as possible, expand free cash flow generation, and therefore, increase returns on invested capital. Having said that, let me turn the call over to Valim as he will elaborate on this restructuring plan.

Thank you, Alfonso. Good morning everyone. We view the integration of Sky with our Cable operations as a great opportunity to create value for Grupo Televisa's shareholders as there are significant synergies and efficiencies to be achieved from the revenue, OpEx, and CapEx standpoint. The proposed merger is something that we have been analyzing for some time already. Therefore, we have done extensive work to map the integration process and execute as quickly as possible. So far, we have outlined a new organizational structure for the combined company that will allow us to retain top talent and optimize duplicated roles. We have also identified several areas to implement synergies and efficiencies, including commercial, sales commissions, programming, IT, technology, marketing, and others. The main enablers of savings will be the economies of scale, a wider offering of products and services, reduced overlap of commercial infrastructure and call centers as well as real estate and redundancies of duplicated systems and functions. This integration will also allow us to standardize regions, sales channels and commission schemes, have a better customer base management, increased productivity, achieved across selling and upselling, improved penetration of triple play services, reduced churn and leverage on Sky's exclusive sporting content in cable further differentiating our video packages from those of our competitors. All in all, after full implementation of our structure integration, most of which is expected to occur in the second quarter of 2024, we estimate potential savings of around 15% of Sky's combined annual OpEx and CapEx. We project these synergies will gradually be more evident beginning in the third quarter of 2024, when we estimate OpEx savings of approximately MXN 400 million. Moving onto the operations and financial performance of our cable operations, we ended March with a network of 19.7 million homes, after passing around 137,000 new homes during the quarter. In the first quarter, we continued to execute our strategy to focus on value customers rather than volume, while improving customer retention and satisfaction. This contributed to achieving a sequential reduction in churn of around 5%. As a result, our first quarter net adds accelerated to 10,700 in broadband and 2,800 in video compared to 600 and 100 net adds, respectively, in the fourth quarter of 2023. As we keep working on further churn reduction, we project to gradually deliver stronger net adds over the coming quarters. During the quarter, net revenue from our residential operations decreased by 2.3% year-on-year as our subscriber base was 6.7% lower due to the cleanup that we did in the third quarter of 2023 and because of the ongoing negative impact from Hurricane Otis in Acapulco, given that an important amount of our customers are not paying their dues yet. On the other hand, net revenue from our enterprise operations increased by 4.1% year-on-year. To sum up, net revenue from our cable segment of MXN 11.9 billion fell by 1.8% year-on-year, while operating segment income of MXN 4.7 billion declined by 8.7%. Our cable segment margin of 39.2% contracted by 300 basis points year-on-year, mainly driven by inflationary pressures in labor and content-related costs but it expanded by 60 basis points sequentially due to ongoing efficiency measures that we have been implementing since the third quarter of 2023. Excluding the negative impact on revenue and EBITDA from Hurricane Otis in Acapulco, revenue from our cable segment would have declined by 1.2% year-on-year, while operating segment income would have been 7.6% lower. So our recurring cable segment margin would have been 39.5%. A better subscriber mix with an increased proportion of high-value customers, price increases implemented in April to pass through inflation and the phase-out of our subscriber-based agreement should allow us to recoup net revenue growth at our residential operations in the third quarter of 2024, while our cable segment profitability should remain relatively stable at current levels. With regards to CapEx, our cable segment investment of MXN 1.6 billion during the first quarter fell by 47.7% year-on-year. So, our cable CapEx to sales ratio of 13.7% was 1,200 basis points lower than that of the first quarter of 2023. Finally, operating cash flow for our Cable segment, which is equivalent to EBITDA minus CapEx, was MXN 3 billion in the first quarter, increasing by 52.1% year-on-year and accounting for 25.5% of our sales. This basically means our Cable segment operating cash flow margin increased by 1,000 basis points year-on-year. The 2024 CapEx budget for our Cable segment remains unchanged at $630 million, including $30 million for the reconstruction of our network in Acapulco, which we expect to be reimbursed by the insurance company. However, a more efficient CapEx deployment focused on higher investment returns and a relatively stable profitability at current levels led us to feel confident that our organic operating cash flow margin for 2024 will increase by around 300 basis points compared to that of 2023. Now let me walk through Sky's operating and financial performance. During the first quarter, we lost 251,000 revenue generating units, mostly coming from prepaid subscribers that have not been recharging their service. However, we expect integration with our Cable segment to gradually contribute to reduced churn, driven by better customer base management and cross-selling and up-selling opportunities, as previously discussed. Sky's first quarter revenue of MXN 4.1 billion fell by 12.3% year-on-year, slowing some from the 15.3% revenue decline experienced in the fourth quarter of 2023. The Sky's operating segment income of MXN 1.2 billion decreased by 24.4% year-on-year, while its margin of 29.8% contracted by 370 basis points. The Sky's first quarter operating income continues to be affected by the cost and expenses related to the launch of Sky Más, including the advertising campaign. Nevertheless, we experienced a sequential expansion of profitability of 250 basis points. We got CapEx deployment, the Sky's investments of MXN 0.4 billion in the first quarter fell by 48.9% year-on-year. Therefore, Sky's CapEx to sales ratio of 10% was 720 basis points below that of the first quarter of 2023. Lastly, Sky's operating cash flow was flat year-on-year at MXN 0.8 billion in the first quarter, representing 19.8% of sales. So Sky's operating cash flow margin expanded by 250 basis points year-on-year. Our 2024 CapEx budget for Sky was $145 million, equivalent to over 16% of sales. However, given our restructuring integration plan, now we think that Sky's CapEx to sales is more likely to be below 14% this year.

Thank you, Valim. You're doing a great job. Given the operating and financial performance of our two consolidated businesses, Grupo Televisa's consolidated revenue reached MXN 16 billion, representing a decline of 4.8% year-on-year, while operating segment income reached MXN 5.9 billion, equivalent to a year-on-year decrease of 12.5%, mainly driven by the lower revenue and inflationary pressures. Now let me walk you through TelevisaUnivision's first quarter results released yesterday morning. The company delivered another solid quarter from a top-line perspective, with revenue of over $1.1 billion, growing by 7.3% year-on-year. However, EBITDA of $329 million fell by 8.9% due to continued streaming investments for VIX and the comp of a non-recurring bad debt expense reversal. Excluding the bad debt expense reversal, TelevisaUnivision's EBITDA would have only declined by 5%. It is important to highlight that TelevisaUnivision's direct-to-consumer losses continue to decline this quarter and that we are on track to deliver our goal of profitability in the second half of this year. During the quarter, revenue growth at TelevisaUnivision was driven by solid increases in consolidated advertising and subscription and licensing revenue of 7% and 9%, respectively. While consolidated advertising revenue increased by 7% year-on-year, in the US, advertising revenue was flat as growth in direct-to-consumer was offset by some softness in our linear networks. In DTC, we delivered exceptional growth as we were very effective in monetizing the increased engagement on VIX with strong sell-through rates of over 80% and significant CPM premiums to linear. At our linear networks business, our results were mixed. We saw strength in sports and certain categories where we have traditionally had low penetration, such as financial and pharma that contributed to solid scatter volume. However, we experienced softness in the CPG, retail, and tech categories, along with some pressure from ratings declines that were not fully offset by price. In Mexico, advertising revenue growth of 19% year-on-year was driven by the appreciation of the Mexican peso, and because starting this quarter, we acquired some third-party ad inventory which contributed with 500 basis points of growth that will be accretive to bottom line. In Mexico, the public sector was impacted by advertising restrictions ahead of presidential elections in June. Still, this was offset by strength of private sector advertising as we kept adding new clients through the scattered market. In addition, we experienced strong advertising growth in our DTC business. FX-neutral advertising revenue in Mexico increased by 9% year-on-year. Consolidated subscription and licensing revenue increased by 9%, primarily driven by VIX's premium subscription streaming tier. In the US, revenue was flat as growth from VIX was offset by linear subscription revenue declines. In Mexico, growth of 34% was driven by the appreciation of the Mexican peso and by solid revenue increases from VIX and content licensing. FX-neutral subscription and licensing revenue in Mexico grew by 24% year-on-year. Looking ahead, we're very well positioned to deliver a record political year from an ad sales perspective and a profitable streaming business in the second half of the year. This should then return our company back to overall EBITDA growth for the full year and allow us to continue to focus on strengthening our balance sheet through organic de-leveraging and by extending and smoothing our maturities. To wrap-up, Bernardo and I are confident that the strategy to streamline our operations and simplify our asset structure at Grupo Televisa, and the execution of our digital transformation strategy at TelevisaUnivision will allow us to improve our operating and financial performance in 2024. At Grupo Televisa, we're putting a lot of effort into rethinking our corporate structure to unlock value, including the integration and restructuring of our consolidated businesses to come out stronger from the current environment. This strategy is focused on strengthening our competitive position, extracting as many OpEx and CapEx synergies as possible and enhancing free cash flow generation. The preliminary assessment of the Sky integration with our cable operations looks promising and is expected to be concluded very quickly to start benefiting from significant synergies during the second half of this year. And at TelevisaUnivision, we continue to be very excited about the prospects for 2024. Our DTC business is growing and scaling and our most important metrics are trending in the right direction. We added users, grew engagement, reduced churn and generated significant marketing savings as a result of our efficient customer acquisition funnel through our free tier. Looking forward, we have very clear objectives in place, a profitable DTC business in the second half of the year and to end 2024 with an organic reduction in leverage. Now we are ready to take your questions. Elsa, could you please provide instructions for the Q&A?

We will now begin the question-and-answer session. Our first question today comes from Marcelo Santos with JPMorgan. Please go ahead.

Hi, good morning. Thank you for the chance to ask questions. I have two. The first is for Valim regarding cable. What was the average price increase implemented in April and what portion of the base does that affect? Do you anticipate a rise in churn because of that? The second question is for Alfonso concerning TelevisaUnivision. Alfonso, you experienced the largest decline in EBITDA at TelevisaUnivision and the highest leverage since the merger. Can you share your expectations moving forward and provide a bit more detail? Thank you.

Thank you, Marcelo. So Valim will take your first question.

So, Marcelo, on average, we have seen an increase of about 4%, which will affect nearly all of our customer base. There are some exceptions for those who joined later and are still under promotional rates, so they won't experience a price change. However, that's not the norm. Regarding churn, we recently implemented a price increase in March due to regulations in Mexico, which did cause some fluctuations during that time. Nevertheless, we believe it's still manageable, and churn is currently at historical levels, so we don't anticipate it having a significant negative impact. Also, Marcelo, can you hear me clearly? There seems to be an echo.

I can hear you. Thank you.

Okay. So, as to your second question, that has to do with the decline in EBITDA of Televisa innovation. I would say, first of all, there's an accounting issue in the first quarter because we are comparing a bad debt reversal that we had a year ago. So, excluding that benefit that took place in the first quarter of 2023, our EBITDA declined 5% and improved from a 7% decline that we had in the fourth quarter of 2023. So, this is really a function of the continued narrowing of our direct-to-consumer losses as we move forward that business towards profitability. So, I can say that in 2024, EBITDA and, therefore, leverage will really be a tale of two halves. For us, the second half should be dramatically better than the first half. Going into this year, we planned for this. So, we saw it. In the first half, we expect EBITDA to remain under pressure against a year ago, which contributes to higher leverage, of course. And in the second half and particularly the fourth quarter, we expect even growth and leverage reduction to below 6 times.

Perfect. Thank you very much.

Thank you, Marcelo.

The next question is from Carlos de Legarreta with ITAU. Please go ahead.

Thank you, Alfonso and team. I have two quick questions. First, could you please review your revised CapEx guidance? I understand the allocation can change, but I missed the amount by how much? Second, I would love to hear about the opportunities that may arise from the Sky acquisition and the timeline for those. Thank you.

Thank you, Carlos. For our 2024 CapEx, we expect investments of $630 million in Cable, which includes rebuilding our network in Acapulco that was significantly damaged by a hurricane. We anticipate receiving reimbursement from the insurance company for this reconstruction. Therefore, excluding this project, our Cable CapEx will be around $600 million. Most of our CapEx is related to sales, so if we can maintain subscriber growth and further reduce churn, we believe we will achieve low single-digit growth in our subscriber base in the medium term, with reduced CapEx intensity. We expect the CapEx to sales ratio to remain in the low 20s going forward. In 2023, this ratio already decreased to 23% from nearly 27% in 2022. Regarding your second question about Sky, its CapEx of approximately MXN400 million in the first quarter dropped nearly 49% year-on-year, resulting in a CapEx to sales ratio of 10%, which is 720 basis points lower than in the first quarter of 2023. Our budget for Sky's CapEx in 2024 is set at $145 million, which represents over 16% of sales. However, due to our restructuring and integration plan, we now believe Sky's CapEx to sales ratio will likely fall below 14% this year. Regarding your follow-up question about the acquisition of AT&T, Valim can provide more details. In addition to what Alfonso mentioned, there are several systems that are now duplicated, allowing us to optimize and reduce capital expenditures in licenses and operating costs. We see many opportunities for revenue growth. We can match subscriber bases and adopt a more aggressive but targeted market approach with our technologies, whether where we have a network or not, allowing us to optimize our market strategies. We still find significant value in our direct-to-home products, particularly the prepaid options in New Mexico, which have a strong take rate. Furthermore, we expect back office synergies due to considerable overlap, which we believe will lead us closer to MXN 400 million in savings from synergies by the second half of the year. That's the figure we're anticipating by the end of the quarter.

As I mentioned, Valim’s mandate is to completely integrate the two companies. And of course, we're going to benefit on the easy side from Sky's exclusive sporting content to improve the competitive position of the combined company. And he will, as he has demonstrated at easy in the very short term, expect as many OpEx and CapEx synergies as possible. And this will mean an expansion of free cash flow generation. And of course, that will result in increases in returns on invested capital.

Thank you all for your feedback.

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

Hello. Good morning, all and thanks for taking our questions. We have two questions from our side. The first one, you touched on it a bit, but if you could give us some more color on how you are seeing commercial dynamics and sales performance in cable under your new strategy, that would be our first question. And our second question would be on TelevisaUnivision. How are you seeing the evolution in profitability for streaming at TelevisaUnivision streaming business? And how confident are you in the streaming business reaching profitability in the second half of this year? Thank you.

Vitor, thank you for your questions. Valim will take the first one to the commercial dynamics and cable, and I'll take the second one.

So, Vitor, back in those days when we had very aggressive promotions, we were selling between 450,000 new gross ads per quarter. We are already at the 400,000 rate. So, that has not obviously, we had to retrain the sales force and that has had some little, let's say, step down that basically took place in the fourth quarter of last year. So as we see in this quarter and the coming quarter, we are seeing our sales activity in the 400 to 450 drop-downs per quarter as we were even with the very aggressive promotions. So we see the market is still active in that regard, and we see no deterioration of the volume other than the one I've just mentioned. But the flip side to that is because we have shorter promotions, our ARPU has been improving consistently and we have seen a retention of the clients that we have been selling now much higher than the ones we used to sell in the past. So when you combine the two, we are very optimistic about how we should be growing the subscriber base here in Mexico. Despite the fact that we do not understand exactly whether we add up some of the numbers that we have seen published, we have a hard time understanding some of the numbers we have seen given the very high volumes. We're still working around to see where those net ads come from to some of our competitors.

Yes, to that point, we don't know if they're net additions or they're just a consequence of transferring old network subscribers to the new networks in their cases. But numbers don't really add up if you sum all the net additions of all the companies. So that's an interesting thing we need to focus on.

If we do the math, we would come up with 2.4 million, 2.5 million net adds in 2024, which is higher than what the industry had during the pandemic, which was the highest ever in terms of net adds in telephone worldwide. So that's why, what you're saying, it gives us some push for thought, if I may.

Yes. And as to your second question, it has to do with our streaming service with VIX. What I can say is that we feel great about it. With a quarter of the year having passed, we see continued narrowing of direct-to-consumer losses, and we remain confident in our ability to reach profitability in the second half of this year. Our DTC business had a great start of the year. All major KPIs and trends are moving in the right direction, many of which exceeded our expectations. I can say some of them on users, we continue to grow both MAUs and subscribers. On engagement, I can say that in the three years where it directly correlates with monetization, total streaming hours grew more than 50% versus the prior year to a new record high. On monetization in the US, our ad sales team is doing a fantastic job, basically maintaining significant CPM premiums to linear with sellouts above 80%. Churn also reduced significantly in the quarter to a record low. So with more data as the service ages, we are doing a better job at creating content that resonates with our audience. This quarter, we saw an increase in terms of engagement among our audience, which led us to a better retention and lower churn. We're also seeing the benefits from our two-tier ecosystem, and this is bearing fruit in terms of both churn and SAC. About a quarter of our gross net subscribers were reacquired users, and the free tier contributed a record high percentage of our gross net subscribers at nearly 70% in the quarter. So as you can imagine, this translates into significant marketing savings as we're using that funnel and allowed us to, again, narrow our DTC losses. So what I can say, we feel great about VIX. We're moving towards a profitable scale streaming service.

Very clear, thank you very much for the replies.

Thank you.

The next question is from Alejandro Azar with GBM. Please go ahead.

Hi. Good morning, and thank you for taking my questions. Three quick ones. The first one is, Valim, if you can talk more about the synergies on Sky on the CapEx side, if you could elaborate on those. And just to clarify, you mentioned 15.5% savings on the OpEx. That would be the other one. And how does profitability look like when you merge both companies, let's say in 2025 or in the third quarter? And the last one would be on your asset sale. If you can elaborate on which assets did you sell, the gain above MXN 2 billion. Thank you.

Thank you, Alejandro. Well, Valim will take your first question, and then Carlos Phillips will take your question that has to do with asset sales.

So we are anticipating, at Sky from 16% to 14% cut back to sales ratio, okay, and that's our estimate at this point. It may be higher than that, but we are being conservative at this point. In terms of profitability, we are estimating high 30s for the combined entities to be at high 30s when we finalize the synergies, which should be toward the end of the year and the beginning of next year. So we think we can, like I mentioned before, there are lots of things that we can synergize both on the top side, traffic side, but also on the revenue side, which we are addressing as soon as we have regulatory approval.

Hey, Alejandro. On the gain you saw from property sales, this is related to the Ollamani spin-off. As we're organizing the company to execute the spin-off, we had to do some asset sales from companies that were going to remain in Grupo Televisa, from companies that were going to be spun off by Ollamani. Since the date of when the spin-off became effective was the 31st of January that's when the fee base became accounting formal. But it's a non-cash gain on movement of properties from the American companies and Grupo companies.

Okay. Thank you Carlos and Valim.

The next question is from Luca Brainbim with Bank of America. Please go ahead.

Hi. Good morning. Thank you for taking my questions. I have two on my side. First, on Sky on the operational front, you said you also expect to see some improvement. So how can we think about the level of net disconnections, should they continue to diminish? And then when should it normalize or it come close to zero, how you're thinking about that? And then second, for cable, do you still see much room for improvement in churn? Or are you already close to the target you have? And if there is some room, what initiatives and what you still have to do to get closer to this target? Thank you.

Yeah, Valim?

In terms of disconnecting DTH, which is the technology in question, we believe there is potential for improvement by focusing more on this product in regions where DTH is the sole option. We understand that in Mexico, DTH is the most affordable entertainment option, particularly in areas lacking access to other technologies. We think that by enhancing our sales and marketing efforts, we can slow down the rate of cancellations for both prepaid and postpaid services. The specifics of how much we can improve are still being assessed, but we will soon launch new campaigns. As for how low churn can go, we currently see ourselves in the mid-range of potential churn rates. Given the size of our subscriber base, churn is always a consideration. Even if the percentage appears small, it translates to a significant number of subscribers. However, we believe that with ongoing efforts and additional initiatives, we can continue to reduce churn. We have already decreased churn from historically high levels to more acceptable numbers, and we think we can lower it further with the new products and services we plan to launch by the year's end.

Perfect, very clear. Thank you for the answer.

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

Thank you, everyone, for participating in our call. And if you have any additional questions, give us a call. Have a great weekend.

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