Grupo Televisa, S.A.B. Q2 2023 Earnings Call Transcript

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July 26, 2023

There are 7 speakers on the call.

Operator

Good morning, everyone, and welcome to Grupo Television Second Quarter 2023 Conference Call. All participants will be in a 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 The call is being recorded. I will now turn the call over to Mr.

Operator

Afron Sobej Alwipia, Co Chief Executive Officer of Grupo Televisa. Please go ahead, sir.

Speaker 1

Thank you, Donna. Good morning, everyone, and thank you for joining us. With me today are Francisco Valin, CEO of Cable Luis Maldido, CEO of Sky and Carlos Phillips, CFO of Grupo Televisa. Before discussing our 2nd quarter operating and financial I'd like to welcome Francisco Balim as CEO of our cable operations and share with you that we're thrilled to having him join Grupo Televisa's executive team. Balim is a seasoned executive with over 34 years of experience, including 20 years holding CEO positions, mainly in the telco, media and service industries in Brazil and abroad.

Speaker 1

Valim has led large and complex publicly listed and private companies and deeply understands The telco market and the broader telco ecosystem, including pay TV, broadband and fiber optics networks In highly competitive environments, she is also very experienced in leading significant transformation and turnaround processes By delivering revenue growth acceleration, best in class cost reduction, increased profitability, CapEx optimization And free cash flow generation. Balim is fluent in Spanish, English and, of course, Portuguese, which is his native language. We are confident that Balin's solid experience in the industry and strong track record will be extremely able to take our cable operations to the next level in terms of revenue growth acceleration, enhanced profitability, CapEx efficiency and strong free cash flow generation. Having said that, let me turn the call over to Alim for a brief introduction.

Speaker 2

Thank you, Alfonso. Good morning, everyone. I'm glad to speak with Amicus again, but now from Mexico City. First, I want to thank Grupo Televisa for the opportunity to lead the largest triple play services provider in Mexico with a powerful combination of assets to succeed. As As you probably know, Easi has a pretty expensive and robust network capable of delivering very competitive Internet speeds, Strong brand recognition and reputation, great quality of service and 1st class customer care department, all of which are crucial to attack and retain good subscribers and therefore, attain sustainable growth.

Speaker 2

Secondly, we are committed to implement the necessary measures to accelerate revenue growth at Yeezy, while going through structural reforms to improve profitability enhanced free cash flow generation. As you may be aware of, these structural reforms have been under analysis over the last 2 quarters by an external consulting firm. So we'll use their extensive work as basis to build upon and implement them as soon as possible. Before turning the call back to Oponzo, let me share with you that we are working on a detailed long range plan to achieve our goals. We expect to share this plan with you over

Speaker 1

the coming months. Thank you, Valim. Now I'll walk you through Televisa Univision's 2nd quarter results released last week. Let me remind you that our stake in Televisa Univision is a very important value component for Grupo Televisa's shares. Using proportionate consolidation, Televisa Univision contributed with almost 40% of revenue and 35% of EBITDA during the Q2, making it the 2nd largest proportionate contributor to the group after our cable operations.

Speaker 1

Televisa Univision's operating and financial performance were great during the Q2, underscoring the power and resilience that come from our unique fully integrated ecosystem across complementary platforms and geographies. During the Q2, Televisa Univision delivered very strong revenue of $1,200,000,000 Growing by 11% year on year, mainly driven by our global streaming business, VIX, and our core operations in Mexico. EBITDA of $374,000,000 remained stable year on year after having financed All our streaming investments related to new original premium content, sporting rights, marketing and technology following the launch of ViX's subscription service during the Q3 of last year. It is important to highlight The Televisa Univision's flat EBITDA during the quarter represents a sequential improvement for the 2nd consecutive quarter As we have left behind the peak of streaming losses, consolidated advertising revenue increased by 10% year on year. In the U.

Speaker 1

S, advertising revenue increased by 1% or 4%, excluding political and advocacy. We continue to outperform the market, which according to Magna, declined by 4.8% during the 2nd quarter, leaving us with 6 percentage points of outperformance. This reflects strength in national advertising And momentum in streaming, where we continue to see demands from advertisers and increased pricing as we leverage our new ad formats. In Mexico, advertising revenue growth of 29% was driven by strength in both linear and streaming. The 2023 calendar year upfront closed at the beginning of this year, where we secured record advertising commitments And the appreciation of the peso.

Speaker 1

In local currency terms, advertising revenue in Mexico increased by 14%. Consolidated subscription and licensing revenue increased by 14% year on year. In the U. S, Growth of 10% was driven by the success of ViX's premium tier along with pricing growth On the linear subscribers, partially offset by linear subscriber declines. In Mexico, growth of 27% was driven by VIX's premium tier, growth in linear subscribers, higher pricing and the appreciation of the Mexican peso.

Speaker 1

In local currency terms, subscription and licensing revenue in Mexico grew by 16%. This was a fantastic quarter for ViX as we continue to see solid sequential growth in revenue and usage. All the important KPIs of our streaming platform are going in the right direction. Engagement is up. Advertising ARPU is increasing.

Speaker 1

CAC is down and SAC is declining. This translates into revenue growth and profitability improvement. Our streaming EBITDA losses continued to decrease significantly, both sequentially and on a year on year basis. Today, we are even more confident that our streaming business will be profitable in the second half of twenty twenty four. By the end of the second quarter, we launched A programming strategy in Mexico that has become a cultural phenomenon in a way that would Have never been possible without our ability to conceive this content experience to leverage the best of platforms, both linear and streaming.

Speaker 1

In June, we launched our version of the reality show Casa de los Famosos. We launched the structured show on linear with 2 hearings a week. Immediately, we created multiple live streams that ran 24 hours a day uncensored in front of the paywall on VIX. After 2 weeks of building extraordinary engagement, We moved these 24 hour live streams behind the paywall onto the premium tier of VIX. The metrics for VIX around this property are on par with or better than many of the metrics we saw for the World Cup last year.

Speaker 1

As of last week, 20,000,000 people had engaged with the show on one of our platforms, lifting both VIX ad revenue and premium subscriptions as well as linear ratings and free to air ad revenue. Beyond the combined linear and VIX programming strategies, we continue to refine the unique content proposition on VIX. We continue to learn what resonates with our audience and refine our strategy accordingly. This quarter, we materially enhanced our Soccer proposition for ViXS Premium Tier. This quarter, we continue to expand upon our breadth of distribution partners.

Speaker 1

In the U. S, we launched VIX's premium tier on Roku Channel, the VIX app on LG's connected TV And we'll be launching Andisio later this quarter. These new partnerships have virtually doubled our connected TV footprint, Making VIX available on all major TV OEMs in the U. S. In Mexico, we partnered with AT and T to make VIX available with promotional pricing and seamless payment experience.

Speaker 1

To further enable cash payments, we expanded our OXXO partnership, and redesigned our cash product experience, Addressing a key consideration in Mexico where cash payments are far more popular than credit cards. And in Colombia, the next most important market in our expansion beyond our core operations in the U. S. And Mexico, We announced a partnership with RCN to hard launch VIX. Looking ahead, We're progressing towards closing our U.

Speaker 1

S. Upfront at a pace in line with the industry. Early data indicates Yet another year where we take share from English language broadcasters. In addition, we expect to fare better than market on pricing. Rectifying the pricing gap with the general market has been a huge area of focus for us, and we've made significant progress.

Speaker 1

Ultimately, we expect volume to finish up mid single digits, an incredible accomplishment In the market as challenging as the one we are facing as the rest of the industry. To sum up, we are very excited about the first half Of 2023 from both an operating and financial perspective at Televisa Univision. Once again, We grew revenue across all business lines and geographies, while we managed to keep reducing our streaming losses as we scale the business. We continue to expand our leadership in the massive and influential global Spanish speaking market and leverage our content powerhouse to program linear and streaming as complementary platforms, while we have a differentiated streaming platform that is aligned with our stable core business. This combination of factors should keep allowing us to deliver sustained above market financial performance at Televisa Univision.

Speaker 1

Moving on to Grupo Televisa's 2nd quarter operating and financial performance. Consolidated revenue reached ARS 18,500,000,000, Remaining virtually flat year on year, while operating segment income reached ARS 6,800,000,000, equivalent to a year on year decline of 3.3%, partially driven by inflationary pressures. Once again, revenue growth in cable and our other businesses segment was offset by declining revenue at Sky. Since we announced Valeen's appointment, he has been fully engaged leading and familiarizing himself with the team at our cable operations. These few weeks have already been very productive, but have been mainly a transition period.

Speaker 1

So this time, I will explain the operating and financial performance of our cable operations before turning the call over to Luis to discuss Sky's. In cable, we ended June with a net worth of 19,400,000 homes after passing more than 400,000 new homes during the quarter. We also delivered around 1,300,000 fixed RGU gross adds, mostly in line with the average of the last three quarters showing that demand for our services continues to be robust. However, a combination of factors, including the expiration of promotions for the Q4 of last year and price increases Implemented in the month of April led us to experience an increase in churn. This translated into over 26,000 fixed RGU Net Disconnections.

Speaker 1

In broadband, we lost 38,000 subscribers during the quarter, While in video, we had 46,000 net disconnections. This was partially offset by more than 57,000 voice Net adds and 21,000 new mobile subscribers. During the Q2, revenue From our cable operations of ARS 12,300,000,000 increased by 4.6% year on year, while operating segment income of ARS 4,800,000,000 fell by 2.2%. Our cable operations margin of 39.4% contracted by 2 70 basis points year on year, mainly driven by inflationary pressures In labor and content related costs. Now let me turn the call over to Luis Mavito, CEO of

Speaker 3

Kai? Thank you, Alfonso. Let me provide you with an update on Sky's 2nd quarter operating and financial performance. In terms of revenue generated units, we observed a decrease of 191,000 RGUs during the quarter. Although we improved churn rates for both prepaid and postpaid DTH, our subscriber base declined as a result of our program to enhance sales quality.

Speaker 3

The loss of RGUs in DTH was partially mitigated by new product offerings. Sky cellular, Sky Mobile Virtual Operator Service experienced 7,000 RGU growth in the quarter. Additionally, As part of our digital transformation strategy, our enhanced OTT platform, BluetoothO, contributed to an addition of 20 1,000 RGUs this quarter, resulting in a net gain of over 95,000 units over the past 12 months. Moving on to our broadband business, Bluetooth Telecom. We faced a new decline in the subscriber base due to the limited Altan's network availability, which restricted news sales.

Speaker 3

Nevertheless, alongside with the regular attrition of the business, we are optimistic about the launch of new fixed broadband services In partnership with Izzi, this Sky Internet will pave the way for recovery and growth in this lucrative market. Now let me walk you through the financial results for the quarter. 2nd quarter revenues declined 13.4%, reaching MXN4.4 billion. This decline was primarily driven by the before mentioned subscriber base drop, partially offset by the price increase in postpaid video customers implemented in May. Furthermore, Operating segment income decreased by 15.6%, reaching a margin of 32.4%.

Speaker 3

This decline is attributed to lower revenues, which were partially offset by a drop of cost of goods sold and operating expenses due to the successful implementation of efficiency measures across our operations. As you may recall, last year, we developed an ambitious simplification program aimed at improving efficiency and streamlining Operations across the entire organization. As of the current update, this program is projected to yield an impact of ARS790,000,000 in 2023 60% of the initiatives have already have been executed, while Full savings will be reflected over the 2 coming quarters. Regarding capital expenditure, We invested $84,000,000 year to date, indicating a substantial 26% decrease compared to previous years. This reduction in capital intensity can be attributed to the strategic measures we undertook to enhance return on investment, along with the successful implementation of the simplification program mentioned earlier.

Speaker 3

A key indicator reflecting the positive impact of these efficiency measures It's EBITA minus CapEx, which has grown by 16% year on year, increasing from ARS 1,300,000,000 to ARS 1,500,000,000. And before turning back to Alfonso, I would like to emphasize that despite the challenges posed by the top line downward trend, We remain confident in our ability to reverse this trajectory. This confidence is grounded in the comprehensive transformational measures We are implementing, including all new and disruptive video offer, the introduction of more competitive broadband services And the Customer License Value Management.

Speaker 1

Thanks, Luis. To wrap up, Despite the macro challenges with relative soft GDP growth and still relatively high inflation rates globally, Bernardo and I are optimistic about the medium term operating and financial growth prospects for our different businesses. At Televisa Univision, we continue to grow revenue across all business lines and geographies, Materially outperforming our peers, driven by our leading Spanish language streaming platform, ViX, that has been growing both sequentially and year on year and our core media business that keeps growing at a healthy pace. ViX's strong operating and financial performance lead us to feel even more confident that our streaming business will be profitable in the second half of twenty twenty four. This will be a major achievement as we estimate Our streaming platform to be profitable only 2 years after launch, while most of our peers expect to turn profitable in 4 to 5 years.

Speaker 1

In cable, our operating and financial performance is far from reaching its full potential. But we're confident that under Valeen's leadership, we will be able to reduce churn, gradually deliver solid RGU net adds again and accelerate revenue growth. In addition, we are fully committed to implementing structural reforms to increase profitability, optimize CapEx and enhance free cash flow generation. Finally, at Sky, we continue to believe the transformational measures implemented during the second half of twenty twenty two And the new telco services that we have been launching in 2023 under the Sky brand will allow us to gradually achieve Sequential operating and financial improvement over the coming quarters. Now we are ready to take your questions.

Speaker 1

Donna, could you please provide instructions for the Q and A?

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Carlo Ligaretta with Itau. Please go ahead.

Speaker 4

Hi, gentlemen. Good morning. Thank you for taking the questions. Just two quick ones. The first one, what was the driver behind the high margin in the other businesses segment?

Speaker 4

And secondly, With the stronger MXN versus the U. S. Dollar, are you revising your CapEx guidance for the year? Thank you.

Speaker 1

Hi, Carlos. Yes, as to other businesses, we have basically an increase in revenue in daily Of 22%. So it's operating much better than during COVID, of course, Where we had everything shut down. So revenue increased of 22%. Software had a growth in revenue of 13 And that was due to strong attendance of the games, the stadium performed better and also team sponsorships That we closed during the quarter, and that was partially offset by publishing where the continued headwinds, Both in circulation and advertising of the magazines got us to a decline of 27% in terms So that translates into the EBITDA, the strong EBITDA growth that we saw.

Speaker 1

And I guess in terms of CapEx, even considering The exchange rate, what we see is that we estimate that we will invest around $620,000,000 this year. And it's important to take into consideration that FX volatility, as You were mentioning it could translate into deviations, but mostly without that, it's going to be around $620,000,000

Operator

The next question comes from Lucas Chavis with UBS. Please go ahead. Looks like Lucas' line got disconnected. The next question comes from Bodar Tomita with Goldman Sachs. Please go ahead.

Speaker 4

Hello. Good morning all and thanks for taking our question. Two questions from our side. The first one It's on MSO, mass market margins. Our costs already fully reflect in this year's inflation On labor content costs and other offending lines?

Speaker 4

Or could we see further impacts through NFFO margins in the next quarter? And the second question also on Izzy regarding ex disconnections. Were there any geographical areas that saw particularly high Churn this quarter or any particular competitors that took in those churned customers? And in that context, Has Telmex increased fiber deployment and increased commercial activity been an issue for Izy so far? Thank you very much.

Speaker 1

Thank you, Vito. I'll ask Valin to answer your questions.

Speaker 5

Good morning, Guilher. In terms of MSO margins, All the costs have already been fully reflected. So we don't expect any pass through inflation moving forward as far as MSO is concerned. In terms of disconnections, what we have been seeing is the reflection of A compounded impact of obviously the increased prices, but most importantly, the promotions that were expiring Over the last several months from sales done last year. And it has been Broadly across the board.

Speaker 5

So we don't see any specific areas where churn is different from Significantly different from what we were expecting.

Speaker 4

Clear. Thank you very much.

Operator

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

Speaker 6

Hi, good morning. Thanks for taking the questions. My first question is to Francisco Valin. If you could share perhaps your Preliminary diagnostic of Televisa cable, do you see any kind of low hanging fruits based on your experience? That's the first question.

Speaker 6

And the second question also regarding cable is we saw a strong pickup in the pace of deployment of homes passed. I think you reached almost 700,000 homes passed this year. Our view was that you're going to add $801,000,000 to $1,000,000 So is there a space for upward revisions This number, how should we think about the growth given the very strong first half of the year? Thank you.

Speaker 5

Marcelo, good morning. What we have seen what I have seen here since I started my the transition period We have several opportunities in terms of cost and structure reforms that were already In the making that we think that we can implement very quickly. So yes, there are some low hanging fruits in terms of how we operate in terms of The cost structure and in terms of capital optimization. And that kind of ties into the your next question. As I understand, the plan was to be around 700,000, 800,000 new homes passed this year, and we are very close to that number.

Speaker 5

So we don't anticipate And we are pleased with revisions on that number.

Speaker 6

Perfect. Very clear. Thank you very much.

Operator

The next question comes from Fred Mendez with Bank of America. Please go ahead.

Speaker 4

Hello. Good morning, everyone, and congrats to rallying on the I have my questions are on cable as well. The first one, just a follow-up from the last ones, but trying to understand If you guys, for some reasons, you raised the bar in terms of the credit of the clients and then eventually that led to a higher churn along with the promotions. So just trying to understand if you're raising the ban on and eventually we could see an improvement as we move forward. This will be my first question.

Speaker 4

And then again, also on the cable, These disconnections, did they happen mainly on fiber or mainly, I would say, I would say, mainly on cable or you also see some disconnection Fiber, just trying to see what we should expect for the next for next quarters. Thank you.

Speaker 1

Yes. I'll ask Valin to expand to your questions, Fred. Thank you. As we mentioned, fixed RGU Gross net adds were very strong once again this quarter at around $1,300,000 which is mostly in line with the average For the last three quarters, we brought over 5,000,000 RGUs in the last 12 months, where that's 2,200,000 broadband subscribers. So basically, Yeezy has 6,600,000 subscriber base With a 35% penetration, which is very good.

Speaker 1

And we also have a network, as you know, of 19,400,000

Speaker 5

homes. So the

Speaker 1

demand for services continues to be robust. However, as to your question, and Valim will expand on it, A combination of factors, including expiration of promotions that we have touched on from the Q4 of last year and Price increases that we implemented in the month of April, that led us to experience this increase in churn. So Daniel, can you expand on the rating of the bar and the first question?

Speaker 5

Sure. So thanks, Alfonso. What we see here is that churn, because of the reasons that Montes just mentioned, It has picked up in June. July is vacation month in Mexico. So We anticipate also having a little bit more churn

Speaker 1

this month,

Speaker 5

not compared to the previous month, but compared to the annual average. And August is a great month. It's back to school. So we see a lot of net adds potential additional net adds on that. So Churn, as we understand, has many, many reasons, and we are addressing several of those reasons.

Speaker 5

In terms of raising the bar, yes, we are We try to strip and make as much as possible new clients because we want to make sure that they stay for a longer period of time. And we see that moving forward. So we want to be more targeting. We're targeted in how we approach the market, Making sure that we bring the best clients, considering that we already have most of the best clients in this market. So retaining those clients is our top priority and bringing in clients that are equivalent to those clients is what we are aiming to do

Operator

This concludes our question and answer session. I would now like to turn the conference back over to Mr. Of Jose and Oetia for any closing remarks.

Speaker 1

Thank you very much for participating in our call. If you have any additional questions, please call us.

Operator

This concludes our conference. Thank you for participating today. You may all now disconnect.

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Grupo Televisa, S.A.B. Q2 2023
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