Grupo Televisa, S.A.B. Q3 FY2025 Earnings Call

Good morning, everyone, and welcome to Grupo Televisa'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 Angoitia, 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 Valim, CEO of Cable and 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 TelevisaUnivision. 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 the implementation of OpEx efficiencies and the integration between Izzi 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 maintain a disciplined CapEx deployment approach to focus on free cash flow generation. So far this year, we have invested MXN 7.5 billion 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 MXN 4.2 billion in free cash flow, allowing us to prepay a bank loan due in 2026 with a principal amount of around MXN 2.7 billion. This debt repayment comes on top of the $220 million principal amount of our senior notes already paid on March 18. Additionally, at the end of the third quarter, Grupo Televisa's leverage ratio of 2.1x EBITDA compared to 2.5x at the end of last year, mainly driven by our free cash flow generation. And at TelevisaUnivision, 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 sports slate that included the third season of La casa de los famosos, Mexico, and our broadcast of Liga MX and the NFL helped drive a high single-digit increase in MAUs and robust demand for advertisers on ViX. Second, the efficiency plan to reduce operating expenses at TelevisaUnivision 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-saving initiatives, including lower content, technology, and marketing costs and the normalization of our DTC related investments. And third, looking at TelevisaUnivision's leverage and debt profile, the company ended the quarter at 5.5x EBITDA, an improvement from 5.9x in the fourth quarter of 2024, driven by growth. Moreover, so far this year, TelevisaUnivision 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, TelevisaUnivision extended its $500 million revolving credit facility and its $400 million accounts receivable facility. These transactions strengthened TelevisaUnivision's balance sheet, enhanced its liquidity, and extended its maturity profile with its nearest maturity now almost three years away. Deleveraging remains a core strategic priority for TelevisaUnivision, 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 Valim 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 and 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 customer retention and satisfaction. Our broadband gross adds continue to improve on a sequential basis, allowing us to deliver 22,000 net adds during the third quarter compared to net adds of around 6,000 in the second quarter and disconnections of about 6,000 in the first quarter. In video, we also experienced stronger gross adds 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 going forward, influenced by our recently announced multiyear partnership with Formula 1 to provide live coverage of all Grand Prix via Sky Sports channels available through Izzi and Sky. Beginning in the fourth quarter of this year until the 2028 season, Formula 1 is one of the fastest-growing and most passionate sporting 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 adds of 94,000 subscribers during the quarter continued to gain momentum, beating the 83,000 net adds 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 revenues from our residential operations of MXN 10.6 billion, 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 the 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 MXN 1.1 billion, 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 have not been recharging their services. In addition, beginning in the second quarter, we started to charge an installation fee of MXN 1,250 to all satellite pay TV subscribers to increase the return on investment for this service. This translated into a slowdown of video gross additions for Sky that has been steady over the last two quarters. Sky's second-quarter revenue of MXN 3.1 billion declined by 18.2% year-on-year, mainly driven by a lower subscriber base. To sum up, segment revenue of MXN 14.7 billion fell by 4.4% year-on-year, while operating segment income of MXN 5.7 billion 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 Izzi and Sky. Regarding CapEx deployment, our total investment of MXN 3.6 billion accounts 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 MXN 2.1 billion in the third quarter, representing 14.2% of sales.

Thank you, Valim, best quarter of the year indeed. Now let me take you through TelevisaUnivision'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 reduction 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 included the performance of the third season of La 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 the 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 Izzi and Sky at Grupo Televisa and further integration and operational optimization at TelevisaUnivision, 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.

Our first question comes from Marcelo dos Santos with JPMorgan.

The first question is if you could comment a bit on 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, Marcelo. I'll ask Valim to answer both questions.

We provided guidance of approximately $600 million, and we expect to stay within that range. Concerning the insurance claim, I believe this addresses the final part of the claim related to the Otis Acapulco incident. Therefore, we shouldn't anticipate anything further from that event.

Valim, just one question. The CapEx for 2026, so for next year, you're...

2026, no 2026 is so far away, Marcelo. No, no, no.

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

Our next question comes from Matthew Harrigan with Benchmark.

You've reached a point in the U.S. where overall TV consumption on streaming has surpassed that of linear TV. I recognize that your linear programming is more resilient compared to your English-language counterparts. However, you have strong local programming, especially in news, and in some of the largest U.S. markets. Are you planning to gradually shift much of the news and unique content from local stations to ViX, as it seems important to maintain local identity? It's worth noting that linear TV will eventually decline, even among Hispanic audiences. Additionally, the current situation in the U.S. and Mexico is very dynamic. Are you taking any further steps in advertising and investments? Lastly, I am curious about your general views on the economic relationship with the U.S., especially concerning tariffs, near-shoring, and the current administration. This is a broad question, but I would appreciate any insights on the stability of this economic relationship.

Yes. 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 and Rappi have become our ambassadors. At the beginning, we had doubts about the strength of linear television, and most specifically in Mexico. But now they 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 start-ups to grow, to position their brands, to position their products. And we take equity, which is great at 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 border, the legal border crossings that happened 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.

Our next question comes from Alex Azar with GBM.

Few ones on competition, Valim, 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 adds per year. It seems that in two to three years, the market is going to be fully penetrated. So that would be my first question. And the second one is on Sky. With the levels of net disconnections you have year after year, how should we think about the EBITDA contribution in the next couple of years from Sky?

Thank you, Alex. Valim?

Thank you, Alfonso. Well, I agree 100% with you. With this amount of net adds on a yearly basis, the market is very close to being fully penetrated. That's why our strategy is not to go 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 high-end clients. That's why 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 from this fight for subscriber volumes. 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 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 see it as cash flow from existing subscribers minus the programming cost, minus the technological costs 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 see positive contribution from Sky from a cash flow perspective. Obviously, it has this negative optics on our revenue, but just the way we see it is we've kind of segregated that from everything else and see that as an inflow of cash flow, and everything else is more stable growing businesses.

Yes. And to add to your first question, to add on what Valim was saying, in Mexico, we have a four-player market, but it's a relatively 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 three— 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. And the other Megacable raised prices by around MXN 30 per month from the beginning of the year. So there, you can see that the industry is raising prices, except for Telmex. Totalplay also announced price hikes from April, particularly for 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 prices and ARPU, we feel comfortable and confident that this will remain like that.

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

No, 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 we have been seeing, and we'll 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 fewer competitors offering a fiber network or a cable network. And it is very stable. And like Mexico, where we are all deploying network and expanding our infrastructure. So yes, I don't think it will disappear. There will not be a day that it will just shut down. And I think there are just several hundred thousand 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 problem. We actually see this as an upside given the fact that we're generating positive cash flow.

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

Our next question comes from Ernesto Gonzalez with Morgan Stanley.

I understand it's early, but returning to the topic of broadband penetration in Mexico, do you have any expectations for cable growth rates next year? Do you think you can accelerate growth for that unit? Additionally, I'd like to know about the sustainability of margins for Cable Sky and TelevisaUnivision, as they performed well in the third quarter. How much more potential for growth do you see going forward?

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 adds will diminish for every player in the market. And you have already seen that. As you see quarter after quarter after quarter, we already see a diminishing number of net adds being added to the different players. So that's diminishing returns 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, but obviously, you're not going to be seeing high double-digit numbers because of the dynamic of the market. So like Alfonso just said, this is a very rational market. Nobody is flashing, prep is 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. This is significant and very significant. So I think that's a dynamic in a mature market 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, who have more disposable income available as opposed to the other end of the pyramid. And I think regarding margins of cable...

No. I think he asked about TU...

No, no, no. The answer is not over.

Okay. Go ahead.

So the idea here is we think that we keep on improving margins. This is an ongoing, never-stopping exercise that will go internally. And we find that through many different ways, mostly through technology. Obviously, we still are collecting a few synergies from Sky, 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.

Yes. Yes. And about — I mean, TU amazing margins. I think that was a result of the cost cutting and all that we did in terms of costs 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.

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

Well, 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 has now concluded. Thank you for attending today's presentation. You may now disconnect.