Grupo Televisa, S.A.B. Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 27, 2023

There are 8 speakers on the call.

Operator

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 Angotia, Co Chief Executive Officer of Grupo Televisa. Please go ahead, sir.

Speaker 1

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 Maldido, 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.

Speaker 1

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 19,500,000 homes passed or a coverage of over 55% of total homes in the country. Therefore, Valim's mandate as recently appointed CEO of our cable operations has been to improve quality and lifecycle of our subscriber base, enhance profitability, optimize CapEx deployment, expand free cash flow generation and as such increased returns on invested capital. Having said that, let me turn the call over to Valim as he will elaborate on our long range plan.

Speaker 2

Thank you, Alfonso. Good morning, everyone. Mexico's fixed income market has already reached a more mature stage with fixed Internet penetration at over 70% of homes. At the same time, customer needs have been shifting towards higher Internet speeds, improved service quality and digitized offerings. These changes in customer needs have led to a strategy of high speed fiber networks deployment widely adopted by all market participants, which typically occurs during expensive economic cycles.

Speaker 2

Such network expansions hinder financial returns, particularly under the current environment of high interest rates and intensified competition, implying that CapEx deployment must be strategic, prioritizing return on investments. Such market maturity combined with its current structure is likely to lead potential consolidation, where we think that easy with its strong competitive stance given our strong brand, the highest net promoter score in the market, Solid technological architecture and the 2nd largest customer base in Mexico is well positioned to play a leading role. The global macro environment and recent changes in the structure of the market where we operate call for reflection on our position and most importantly, our role in the upcoming years. Our conclusion was that we need a change in our company's management and strategy, which we have already started to implement. A deep assessment of our cable business suggests that going forward, We should not focus primarily on rapid expansion and deployment of our network, but rather on an optimization strategy to generate value in our existing businesses.

Speaker 2

Specifically, value generation in the market has been focused more on volume and less on sales quality, manifesting through aggressive promotions driven by competitive dynamics resulting in weak revenue growth, Pressure on profitability and soft free cash flow generation and promotions that accelerated gross adds, but have been a double edged sword as they have boosted churn and deteriorated sales quality. While some of our competitors continue to rely on this We firmly believe that this is in the path to maximize the industry value in Mexico, especially for easy. This model, which has led some of our competitors to financial challenges becomes unattainable in a competitive and mature market as we've experienced in recent quarters. In addition, our enterprise operations have failed to maintain one of its key contracts, While cost pressures due to inflation have hindered our profitability, this situation required immediate action to transform what has been a severe impact on our enterprise operations financials into an opportunity from 2024 onwards. Over the years, EZ has positioned itself as a leading player in the telecom market with the capabilities required to redefine the way in which value is created.

Speaker 2

Therefore, we believe that our strong brand having the highest NPS in the market and are almost 6,300,000 loyal customers provides us with a tremendous opportunity to create value by focusing on the following areas. 1st, focus on customers' retention and maintaining high satisfaction second, pursue sales quality with higher speeds up to 1 gigabit For 2nd, in competitive packages, thanks to our support network infrastructure. 3rd, proactively manage our subscriber base to maximize customers' ARPU 4th, enhance our video offering to complement our value proposition 5th, efficiently grow our SME business and 6th, carry out a full turnaround of our enterprise operations through an organizational restructuring and revamp commercial strategy and the renewed segmentation of our client base. These strategic pillars and the appointment of new hires to our Executive Committee with extensive experience in telecommunications, including myself as CEO Juan Vico as Chief Financial Officer Riccardio Nossa as Chief Commercial Officer of our Enterprise Operations and Nina Mason as Chief Marketing Officer. Changes in our top management team have been followed by an ongoing evolution of the company's operating philosophy supported by 5 strategic pillars.

Speaker 2

1st, product offering. We are shifting our focus to local rather than national strategies, Growing places where we have a competitive advantage, we are enhancing our sales quality aiming to provide higher speed bundles and we are creating a unique video value proposition focusing on a seamless aggregation of streaming platforms. 2nd pillar, subscriber based management and tools. We are boosting big data and artificial intelligence to have better management of subscriber base with a more for more strategy and handle churn with a more proficient execution prioritizing long term value. 3rd, sales channels.

Speaker 2

We are implementing a structural shift in our distribution channels, emphasizing digitalization, bringing us closer to high value customers and optimizing our subscriber acquisition costs. 4th, cost structure. We have implemented an in-depth review of our cost structure, both at OpEx and CapEx levels. On the OpEx front, we have already implemented A material headcount reduction with savings of around 12% of our payroll to be effective from the 4th quarter and rationalization of 3rd party providers. Our CapEx side, we are working on improving inventory management, logistics, field operations, optimization of real estate and rationalization of network expansion.

Speaker 2

As an example of real estate optimization. In November, we will complete the relocation of our headquarters to Groupe Televisa's corporate building, allowing us to achieve significant rental savings. 5th and final pillar, Enterprise Operations and SME segment, where we see great opportunity to leverage our strong capabilities. So far, we have reorganized enterprise operations structure with the new leadership team already in place, carry out a resegmentation of our customer base, optimize our cost structure by enabling duplication of networks, revamp the value proposition of our SME segment and renewed our focus on revenue and EBITDA growth. These changes in the company's philosophy have also been accompanied by a shift in execution, launching a war room for the agile implementation of this strategy.

Speaker 2

These pillars, which represent the core of our strategy, resonate very well with our mature markets, especially for players with similar market share, where value creation lies in growing their share of wallet within their existing footprint and base, instead of having an aggressive and suboptimal market expansion. We are confident to gradually recover the growth path and that our turnaround strategy will deliver results by already having sequential stability since the beginning of 2024 and not only growing our subscriber base, but improving our ARPU through both customer base management and higher sales quality. Moreover, churn experience in the recent quarters has been proactively addressed and is expected to come back to our historical levels, allowing us to better capitalize our growth. Altogether, our cost restructuring and a more strategic data driven CapEx deployment process will contribute to maximize our returns, gradually translating into a reversal of EBITDA declines and substantial operating cash flow, compound annual growth rate of around 10% over the next 3 years. All in all, our 2024, 2026 long range plan Considers revenue growth in the low to mid single digits, which is in line with more mature markets, driven by subscriber based growth, Price increases to pass through inflation and product upselling.

Speaker 2

Profitability is expected to be at around 40% as The initiatives put in place to offset inflationary pressures gain more traction. Finally, a more focused and strategic network expansion plan of up to 400,000 new homes per year and lower subscriber intake as we focus on sales quality and churn reduction. We'll continue to gradually take our CapEx sales ratio down to low 20s from around 26% this year. Now, let me walk you through our cable operating financial performance. We ended September with a network of 19 point 1,000,000 homes after passing almost 90,000 new homes during the Q3.

Speaker 2

We also delivered around 381,000 subscribers or Homes Connected gross adds, showing that demand for our service continues to be robust. However, We decided to clean up our base given the low quality additions over the last few quarters with subscribers that are very sensitive to price increases. These subscribers have skipped their monthly payments deadlines and have zero consumption for an extended period, allowing us to disconnect them. This cleanup translated into net disconnections of over 392,000 subscribers. During the quarter, revenue from our residential operations increased by 1.8% year on year, while operating segment income fell by 7.3%.

Speaker 2

Our residential operations margin of 37.9 percent contracted by 380 basis points year on year, mainly driven by inflationary pressures in labor and content related costs. However, the headcount reduction implemented in the 3rd quarter With savings around 12% of our payroll, we will allow us to expand our residential operations margin by around 200 basis points in the 4th quarter. Our enterprise operations accounting for roughly 12% 7% of our cable segment revenue and operating segment income respectively Continue to face challenges. During the quarter, revenue fell by 24%, while our enterprise operations margin of 18.7 and contracted by 6 80 basis points year on year. Still, as we discussed earlier, the enterprise operations reorganization under implementation will position us well to stabilize and grow revenue and operating segment income from 2024 onwards.

Speaker 2

To sum up, Revenue from our cable segment of MXN12.1 billion fell by 2% year on year, while operating segment income of MXN4.3 billion declined by 12%. Our cable segment margin of 35.6% contracted by 400 basis points year on year.

Speaker 1

Thank you, Valim. You've put together a great plan and a

Speaker 3

great team. Now, let me turn the call over to Luis Malido, CEO of Sky. Thank you, Afonso, and good morning, everyone. I'm pleased to present an update on Sky's 3rd quarter operating and financial performance. But before getting into the numbers, I'm thrilled to announce a significant milestone achieved by Sky.

Speaker 3

During the quarter, we introduced SkyMas, a groundbreaking product from Sky Mexico. SkyMas 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. Skymass eliminates the need 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 households, eliminating the need to switch between multiple OTTs. Furthermore, Skymass is the only platform in the market that offers live sports event in true 4 ks quality and provide the option to extend this experience to any mobile device, including cell phones, tablets and laptops.

Speaker 3

Skymass 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 a comprehensive and dynamic content provider in the ever evolving digital landscape. Skymass stands as the premier broadband agnostic platform for the Mexican sports enthusiasts, offering a comprehensive collection of all major worldwide soccer leagues and tournaments in one place. Early this month, we successfully launched Skymass marketing campaign, targeting new and existing Sky customers. This campaign not only boosted brand awareness, but is also fueling promising sales growth. Today, we have added 36,000 units and the momentum is still on the rise.

Speaker 3

Shortly, our SkyMaz 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, the decline was partially offset by 29,000 positive net adds of new products and 5,000 in Central America, where we score positive net adds for the first time in many quarters.

Speaker 3

Now, let me walk you through the financial results for the quarter. 3rd quarter revenues declined MXN 13.8 percent year on year, reaching MXN 4,300,000. This decline was primarily driven by the aforementioned DTH's driver base drop and a lower recharging frequency, partially offset by the price increase in postpaid 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.

Speaker 3

As you may recall, last year, we developed an ambitious digitalization and simplification program aimed at improving efficiency and field handling processes across the entire organization, while enhancing customer experience. As of current update, This program is projected to yield an impact of ARS 805,000,000 in 2023, representing over 4% on full year revenues. Regarding our capital expenditure, we invested $114,000,000 year to date, indicating a substantial 29 This reduction in capital intensity can be attributed to the strategic measures we undertook to enhance return on investment, inventory rationalization along with successful implementation of the simplification program mentioned earlier. Finally, as a metric that underscores the positive impact of these efficiency measures is EBITA minus CapEx. Year to date, this indicator has witnessed a year on year growth of 16.7 percent, surging from ARS 2.2 to COP 2,570,000,000.

Speaker 1

Thank you, Luis. Given the operating and financial performance, Our 2 core consolidated businesses Grupo Televisa's consolidated revenue reached ARS 18,300,000,000 representing a decline of 4.9% year on year. While operating segment income reached ARS6.4 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 ARS830,000,000 related to the headcount reduction implemented in cable during the Q3. 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 Q4.

Speaker 1

Moving on to Televisa Univision, before getting into its Q3 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 Q3, making it the 2nd 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.

Speaker 4

Thanks, Alfonso. I'm 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're pursuing. We are the only company at scale touching All Spanish speaking media markets globally.

Speaker 4

This is an $8,000,000,000,000 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.

Speaker 4

S. Hispanic market report, which highlighted that the U. S. Hispanic GDP Grew double digits to exceed $3,200,000,000,000 last year, making it the largest Spanish speaking market in the world, the equivalent of the 5th 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.

Speaker 4

Executing against this opportunity, we delivered double digit revenue growth and an impressive 58% year over year improvement And B2C 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 1 and number 2 networks for the first time in history. In the U. S, our market share reached a 9 year high of 65%.

Speaker 4

And in streaming, we surpassed 40,000,000 monthly average uniques. This is the remarkable company 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. And we can do it efficiently enough to create a new streaming business with 100 of 1,000,000 of dollars of year 1 revenue and nearly no consolidated EBITDA degradation. Our 11% revenue growth this quarter was supported by all geographies. In the U.

Speaker 4

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. And if we adjust for the U. S.

Speaker 4

Mid term 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.

Speaker 4

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 sub softness. We're also seeing early growth contribution from licensing our new original VIX programming outside of our core markets.

Speaker 4

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 direct line of sight

Speaker 2

to our target of

Speaker 4

D2C profitability by the second half of twenty twenty four. This is now only 9 months away and when we deliver this, VIX will have had the shortest ramp to profitability of any major streaming service in history. And we can do this because of the unique content costs and the powerful marketing advantages we've created with the combined Televisi 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. And our relentless focus on efficiency manifest on an overall consolidated basis with the highest operating margins in the industry.

Speaker 4

But this will be further underscored as we continue towards 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 the 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 The volume and efficiency of our content enables us to pursue a strategy of investing in and optimizing both linear and programming each platform for what it does best. Linear is designed around cultural and habituated viewing with live soccer, tent poles, high volume novellas and appointment viewing like morning and evening news. While Streaming is designed to deliver high intent viewing around our original movies and series, a massive volume of live exclusive soccer, It's indispensable for a serious soccer fan and a huge volume and range of niche content to service a more nuanced Latino audience.

Speaker 4

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 4 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.

Speaker 4

This quarter, our secondary network, Channel 5, Registered its highest viewership in 5 years and on a relative basis surpassed our main competitor for the first time in history, giving us both the number 1 and the number 2 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. And clearly, this strategy is working with massive year on year audience growth hitting over 40,000,000 monthly average uniques on the free tier this quarter, with 60% of that audience unique to the streaming platform. And importantly, our 2 tier ecosystem Continues to exceed our expectations in terms of productivity with the free funnel delivering a high watermark of 2 thirds of our gross new subscribers this While we have different programming strategies for each platform, we think of the ecosystem as a whole and how to use the 2 platforms to complement each other. And Q3 had some fantastic examples of these two platforms working in concert.

Speaker 4

On the entertainment side was La Casa de las Famosos, a Mexican reality show where we produced of different and complementary content for streaming and for linear. The linear show is a traditional twice weekly live reality show that aired on Channel 5. 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 2 platforms and experiences to create enormous reach and engagement on linear where the show propelled our Channel 5 network to the number 2 position in Mexico. And 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.

Speaker 4

The strategy also works really well for us with sports. As previously mentioned, 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. And as we got further into the tournament, we moved games behind the paywall And 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 playoff and final stage games to deliver the highest ratings for any soccer tournament this year.

Speaker 4

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 the 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.

Speaker 4

And that's causing the industry to evolve. The composition and positioning of our platforms is non overlapping and complementary, positions us extremely well for these dynamics. ViX 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. And we've continued to consistently roll out incredible original content, but we're also making significant progress And bringing the underlying product features to basic parity.

Speaker 4

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, bringing us to nearly 100% coverage of connected TVs. And this week, we're launching MercadoLibre.

Speaker 4

MercadoLibre 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 and industry leading profit margins. Our unique content engine continued to deliver hits at scale attracting record audiences across all platforms and all geographies. And our investments in streaming are paying off both in terms of revenue scale and in terms of improved profitability. It's a really exciting time to be at TU, incredibly proud of what our team has delivered this quarter And I'm even more excited for what lies ahead.

Speaker 4

And with that, I'll turn it back over to Rapunzel.

Speaker 1

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 on 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.

Speaker 1

Our top performing content and highly complementary linear and streaming ecosystem position as well to continue outperforming the market in both viewership and financials. Moreover, We have successfully been scaling our DTC business with revenue approaching over $700,000,000 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 and A?

Operator

Yes, of course. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Fred Mendez with Bank of America. Please go ahead.

Speaker 5

Hello. Good morning, everyone. I have two questions here on my side. The first one is related to cable and Valin already in the beginning of the The main one is the strategy, right? It looks like there has been a major shift in the strategy, which We do agree with the new one.

Speaker 5

But I'm just I believe that should take some time because I would assume you don't need to change only the first layer of people, you need The second layer previously was more growth, not something more related to cutting costs and increasing free cash flow. So the concern here is just how long it's going to take for you to have this completely shifting strategy and then start to work out on the cable front. That would be the first one. And then the second one that goes to A. Davis on the VIX.

Speaker 5

The numbers are increasing. It looks like it's performing well. Looking for 2024, what are the 3 main metrics that you'll be looking at that you should be looking at in your view? And in the long term, let's say, 3 to 5 years, how do you see Vixafind that's going to be a company that grows high single digits, has a margin, or it's cash? Or is it going to be more like a target for other players, larger players, given the value in this niche player that VIX operates.

Speaker 5

Thank you very much.

Speaker 1

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

Speaker 2

So, Fred, the idea here is because we have already done a lot of the layoffs that we're planning to do And we're streaming every opportunity. We should see results materialize Starting in 2024, so this could be very quickly. And the idea here is to maximize cash flow generation And by still improving revenues in low, middle single digits moving forward And maintaining margins around the 40% range EBITDA margin, I mean. So I think this and these are the things We think we'll be accomplishing starting 2024.

Speaker 1

So it's all about CapEx optimization, 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 lounging VIX. So I'll ask Wade to go over as you asked about the 3 main metrics.

Speaker 2

Thanks, Alfonso, and thanks for the question. So I think the first thing I would say

Speaker 4

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. And so 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 For revenue and EBITDA growth of the consolidated business going forward. And As that emerges from a reporting standpoint, focusing on the core revenue and EBITDA of the D2C business Inside the overall business will be important.

Speaker 4

But if you're looking for more specific, I'd say the top 3 operating KPIs for the D2C business. I would probably put it in 3 categories. 1st is a metric focused on audience engagement. 2nd would be a metric focused on marketing efficiency and 3rd would be metrics focused on the effectiveness of our monetization of the audience. And 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 that have laid out.

Speaker 4

There was a second part of your question about VIX, which I didn't understand. Could you repeat that?

Speaker 5

Perfect. Thank you, Ed. Basically, I mean, in the long term, do you see VIX The projections you have, you see VIX as a standalone player, let's put it away, growing, let's say, high single digits and generating cash? Or you believe that eventually in the future, VIX is going to be of great value for other players, larger players, given the niche of the Hispanic market that you operate that could turn into an M and A target from other players? Thank you.

Speaker 4

Well, VEX is an integral part of the business. There won't be a Televisi Univision without VEX, Just like there won't be a TeleVisit division without the linear business. They as we've always said, our strategy is designed around the 2 platforms, programming them for what they are good at and delivering a comprehensive programming solution that's relevant to the broadest possible consumer market. VIX long term is, as I said, going to continue to be an engine of growth On the Televisa Univision 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 2 to 3 year ramp following turn to profitability in the second half of next year.

Speaker 4

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 a 8 $1,000,000,000,000 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 or not VIX would be an M and A target, I The real question is that if anybody has aspirations for to be 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 2nd most widely spoken language in the world. And we are over 60% market share in the U.

Speaker 4

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 popular Spanish speaking So if anybody has aspirations to be a truly global media company, they can't do so without thinking about the Spanish language market And the asset that we have is irreplicable.

Speaker 5

Perfect. Very, very clear. Thank you. Thank you, Alfonso, everybody. Thank you.

Operator

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

Speaker 6

Hello, good morning and thanks for taking our questions. Two questions from our side. First one, if you could give us some color on the percentage of your cable base that might still benefit 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 Q4 of 2023?

Speaker 6

Thank you.

Speaker 2

Yes. We think there will be still some pressure on the Q3 because We are just starting to implement the adjustments. We just finalized the headcount reduction and still have a few things that we need to And then after that, we were anticipating it to be, like I said, in the 14% range EBITDA. And we expect to be revenue to grow low single digits for the next 2, 3 years. So we see a sequential improvement at this for the foreseeable future.

Speaker 5

Next question. Hello? Next question?

Operator

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

Speaker 7

Hi. Thanks for taking my call. Feedback, this is a great start communicating the plan, the Turn around, but I have two questions. The first one is, Billing, 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 you had that the firm had a while ago with Mercable?

Speaker 7

That's the first question. And then the second, this is more A joint question to Wade and to 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 raising. Thank you.

Speaker 1

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

Speaker 1

How do you see

Speaker 2

the market? Yes. So, Cesar, this market, As you know, a 4 player market doesn't last very long. Some of our competitors are already Facing financial challenges. So we think that there will be a consolidation.

Speaker 2

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 and some of the players are deploying fiber networks like crazy With not the equivalent growth to be able to pay back for those investments. So we see a challenging market for whoever Wants to be that, Mark. And then our strategy is, like we have described just recently today, is that we're going to be preserve cash and keep on focusing on the our largest asset, which is our 6,300,000 customers, high level, one of the best clients In the country and we think we can work with them and grow and not only the subscriber base, but also very strategically And very focused on our network. And so I think that's the strategy moving forward and consolidation will happen eventually. And as to your second question, Wade?

Speaker 2

Look, our single-minded focus in everything that we've been doing since we

Speaker 4

formed This joint venture and the transformative merger that created a fundamentally new and differentiated company is focused on maximizing shareholder value. So when you think about whether or not 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, one of only Netflix to date has delivered that. When we deliver profitability within the next 9 months that will as Alfonso has said represent Fastest ramp of profitability of any major streaming service in the history of the industry and that will be a very material inflection point in the value of the We have plenty of cash and liquidity on hand at the moment. As we reported a couple of days ago, we have Just under $300,000,000 of cash on hand, we have $900,000,000 of liquidity from our revolver in our AR facility.

Speaker 4

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 kind of outlined the parameters that go into that. We'll look at raising equity to accelerate the deleveraging of the business.

Speaker 7

And For the intention of Televisa to participate on those transactions?

Speaker 1

We're not considering at this point putting More money into Televisa Univision. Of course, as Wade was describing, let's Wait and see, but that's what we're I mean, we're not considering that at this time.

Speaker 7

Crystal, clear gentlemen. Thank you so much.

Speaker 4

I mean Alfonso, it's going to be really expensive. That's I think the only thing you're going to need to think about. We

Speaker 1

already own 44%. So we're of course the largest shareholder and We feel great about our investment at the LaVisa Univision.

Speaker 7

Thank you.

Operator

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

Speaker 2

Hi. Thank you. I have two questions on my side. The first one on cable, can you please disclose the number of unique subscribers in the business after the base cleanup? And if possible, can you Close the household penetration between your legacy and new territory, please.

Speaker 2

And secondly sorry, if I may, just as a follow-up. So from what I gathered from your comments is that Televisa is not considering a larger stake in Televisa Univision in order to consolidate it, right?

Speaker 1

Carlos, as to your last question, we're not considering that at this time. And as to your first question.

Speaker 2

So we have Unique users of households 6,252,000 Unique users or households after the cleanup. And in terms of household penetration, The more, let's say, legacy, if you want, customers, We our administration is close to 40% and that represents around We're talking about almost 80% of our subscriber base with a high very high penetration. And then with the low in the newer cities, It's between just 10, 20, 15, 20. That's the penetration we have in the newer cities. Thank you so much for that.

Speaker 2

I think it will be fantastic to view this close-up word.

Speaker 1

Thanks.

Operator

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

Speaker 2

Hi, good morning. Thanks for taking my questions. I have two questions for Valeen. The first, if you could comment a bit on the competitive environment, if you have seen a deterioration in the regions Either your legacy regions or in the new regions that you have entered. And the second is, when you look at your network Structure and network infrastructure, do you see any need to upgrade parts of its cable to fiber?

Speaker 2

Or Or are you fully happy with what you have now? Thank you. So in terms of Market competition, what we have seen in the market is a very price wise, very stable market. So we compete on promotions, Which is basically what everybody does everywhere in the world in this business. So there is no price deterioration.

Speaker 2

There is 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 1.1 gigabit per second In terms of Internet speeds and 200 plus video channels. And I think that that's more than enough for the kind of clients we have. In very targeted deployments of fiber that we have already done in the past and that we'll keep on doing in the future For more affluent residential areas, we'll always be on our to do list and our CapEx. So that's how we see this is evolving.

Speaker 2

Perfect. Thank you very much.

Operator

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

Speaker 5

Hi, everyone. Thanks for taking my question. Could you please provide some color on the tax impact we saw this quarter and if we should account for further tax costs on next periods? And Santander, could you give more color on how we should see CapEx and leverage going forward please?

Speaker 2

Can you repeat the question again?

Speaker 1

The first one was about taxes. I'll answer that a lot. Okay. Eduardo, so as you saw in our press release, the income Tax line increased to $975,000,000 in the Q3. That's basically due to a non cash non recurring expense of approximately $988,000,000 and this expense was due to the reduction of a historic income tax deferred asset that we had on our books.

Speaker 1

So as I mentioned, it's non cash and non recurring.

Speaker 2

And the other question was the CapEx. The CapEx, we think it will Go from the 26% of revenue that is running today to close to 20%.

Speaker 1

So as we mentioned, it's all about CapEx optimization and generation of free cash flow.

Speaker 5

Okay. Thank you very much.

Operator

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

Speaker 1

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.

Operator

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

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Earnings Conference Call
Grupo Televisa, S.A.B. Q3 2023
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