Grupo Televisa, S.A.B. (NYSE:TV) Q4 2023 Earnings Call Transcript

Grupo Televisa, S.A.B. (NYSE:TV) Q4 2023 Earnings Call Transcript February 23, 2024

Grupo Televisa, S.A.B. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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

Alfonso de Angoitia Noriega: Thank you, Elsa. Good morning, everyone, and thank you for joining us. With me today are Francisco Valim, CEO of Cable; Luis Malvido, CEO of Sky; and Carlos Phillips, CFO of Grupo Televisa. Last year was marked by a more challenging global macro backdrop than initially expected. We also faced some operating issues, but achieved several milestones both at Grupo Televisa and TelevisaUnivision, which Bernardo and I are confident will allow us to improve free cash flow generation in 2024. At Grupo Televisa, we reorganized Izzi’s management structure, appointing new hires to our senior leadership team with extensive experience in our industry, including Francisco Valim, our CEO; Juan Vico, our CFO; Nina Mason as CMO; and Ricardo Hinojosa as Head of our Enterprise Operations.

We also implemented a corporate restructuring process at Issi, including a headcount reduction with savings of around 14% of our payroll. We redefined our business strategy, 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 last year with almost 20 million homes passed or a coverage of over 55% of total homes in the country. Under this new strategy, we intend to improve the quality and lifecycle of our subscriber base, enhance profitability, optimize CapEx deployment, expand free cash flow generation and as such increase returns on invested capital. At Sky, we launched an array of disruptive new products including Sky Plus that we are gradually gaining traction in the market.

This innovative portfolio not only underscores our commitment to innovation and our efforts to enhance our competitiveness, but also reflect our dedication to deliver the best to our customers. Our digital transformation strategy is underway and is intended to help us gradually stabilize our revenue base at Sky. In addition, we achieved significant progress in spinning off our other businesses, including the Soccer Team America, the Azteca Stadium, the gaming operations and the publishing and distribution of magazines. This allowed us to conclude the listing of a new controlling company called Ollamani under the ticker symbol AGUILAS on the Mexican Stock Exchange on February 20th. We also delivered progress on our corporate optimization process, including savings in corporate expenses of almost Ps.280 million for the full-year, contributing to a year-on-year decline in corporate expenses of around 18%.

Moreover, we continue to explore alternatives to keep reducing corporate expenses at Grupo Televisa on an ongoing basis. Lastly, we decreased our total leverage by around $340 million allowing us to have savings related to net interest expenses. At TelevisaUnivision, we’ve been showing that our strategy, our assets and our execution against a differentiated market opportunity can yield superior operation and financial results on a consistent basis. In the U.S., we continue to outperform growth of the broader advertising market in 2023 by around 850 basis points, even against the backdrop of ad market and macroeconomic softness. In Mexico, our ad business had another extraordinary year driven by the combination of a strong and growing economy and an excellent execution by our sales team.

This is the first time following a World Cup year that we have been able to deliver absolute year-on-year growth above and beyond the huge World Cup comp. In a market where we represent more than half of both prime time viewership and linear advertising dollars, our sales team continued to onboard new clients and find innovative ways to work with our advertising partners. Moving on to our direct-to-consumer business, our service is building and resonating with our audience. MAUs on the free AVOD tier continued to grow and in December we exceeded 7 million subscribers on our premium SVOD tier. But perhaps most importantly, as we continue to rapidly scale MAUs, we have increased the engagement of our audience. In 2023, we doubled the amount of total streamed hours and have been consistently increasing consumption per user, which grew 20% sequentially during the fourth quarter.

As a result, in our direct-to-consumer business we have essentially built from scratch in less than two years. We closed 2023 with more than $700 million in revenue headed towards near term profitability. And this was the first full-year of operations of ViX. When we deliver a profitable streaming service in the second half of 2024, we will achieve the fastest horizon to profitability of any major streaming service in history. A testament to the power of our library, our content engine, promotional power and disciplined execution. 2023 was a critical year for ViX as we saw huge improvements across all major areas of the business. Content performance, product stability and features, marketing efficiency and distribution. We exit 2023 with a distribution footprint that is nearly complete in our core markets with a handful of significant partnership spending and in the later stages of execution.

The fourth quarter was critical in our distribution journey. In Mexico, we launched with a number one e-commerce platform MercadoLibre and expanded our cash payment network. In the U.S., after finalizing and launching distribution on all major CTV platforms, we launched our fast channel strategy with Samsung, Roku, and Amazon. And the pending majors are expected to follow soon. Our fast channel strategy not only provides incremental reach and monetization, but it expands the top of the free funnel, which we have used so efficiently to drive down subscriber acquisition costs from the SVOD service. On the content side, we now have sufficient audience scale and consumption data to scientifically redefine our content offering. In the fourth quarter, our new original series, El Gallo de Oro, was the strongest premier to date in terms of U.S. user engagement and one of our big original films Radical became the highest earning Spanish language movie in the United States in nearly four years, winning 11 awards including the Festival Favorite at Sundance.

Our 2024 content slate informed by our data will be the strongest yet. We have successfully concluded upfront negotiations with our customers in Mexico, with the upfront plan reaching the highest level in absolute terms in our history. We see this as a great base for the year. Moreover, with this being an election year in Mexico, we expect advertisers to hold some of their ad spend for the scatter market, which therefore should be higher than normal. Finally, looking more closely at TelevisaUnivision’s debt, the company now has no maturities until March 2026. Management has done an extraordinary job in refinancing $1.5 billion of debt during 2023 and an additional $341 million in January 2024. Moving on to Grupo Televisa’s consolidated financial performance.

In 2023, consolidated revenue reached Ps.73.8 billion representing a year-on-year decline of 2.3%. While operating segment income reached Ps.26.5 billion equivalent to a year-on-year decrease of 5.4%, mainly driven by lower revenue at Sky and inflationary pressures in labor and content-related costs. Turning to our fourth quarter results, consolidated revenue reached Ps.18.4 billion representing a year-on-year decrease of 3.8%, while operating segment income reached Ps.6.3 billion equivalent to a year-on-year contraction of 6% also caused primarily by the factors mentioned before. Valim and Luis will elaborate on the operating and financial performance of each of our core consolidated segments in their remarks. Now let me walk you through TelevisaUnivision’s 2023 results released last week.

The company’s full-year revenue increased by 5% year-on-year to $4.9 billion. Excluding non-recurring revenue of around $200 million in 2022 related to the sub licensing of the World Cup rights in Mexico and Latin America and political advertising around midterm elections in the United States, TelevisaUnivision’s full-year revenue grew by 9%. Full-year adjusted EBITDA of $1.6 billion declined by 4% year-on-year. Excluding the contribution from the $200 million of non-recurring revenue in 2022, Televisa’s Univision’s full-year adjusted EBITDA grew by 3%, reflecting a reduction in losses related to our direct-to-consumer business. Moving on to the fourth quarter, excluding non-recurring revenue in 2022, TelevisaUnivision delivered solid operating performance with revenue of $1.4 billion growing by 6% year-on-year, while adjusted EBITDA of $468 million increased by 16%.

On a reported basis, both revenue and adjusted EBITDA for TelevisaUnivision declined by 7% year-on-year due to tough comps on non-recurring revenue during the fourth quarter of 2022. During the quarter, excluding political and advocacy and the impact of divested radio stations, consolidated advertising revenue increased by 7%. In the U.S., recurring advertising revenue increased by 4% year-on-year, mainly driven by direct-to-consumer as we continue to see strong demand for ViX. In Mexico, advertising revenue increased by 10% year-on-year, driven by growth in both linear and direct-to-consumer across all sectors. Despite accounting for around 60% of the entire linear advertising market, our sales team continue to onboard new clients throughout the year.

During the quarter, excluding revenue associated with sublicensing the World Cup rights, consolidated subscription and licensing revenue increased by 8%. In the U.S., growth of 8% was driven by ViX’s subscription tier, while linear subscription revenues decreased low-single digits because of subscriber declines that were partially offset by contractual rate increases. In Mexico, growth of 11% benefited from ViX’s subscription tier and linear subscription price increases, partially offset by modest subscriber declines. For the full-year, CapEx was $168 million including some elevated integration related costs. In 2024, CapEx is expected to decline to more normalized levels of around $125 million. To sum up, 2023 was a great year for TelevisaUnivision.

We outperformed the industry, accomplished many important milestones, set new records, and consolidated many aspects of our business for the future. We continue to benefit from our leading position in a massive and attractive market where the demographic and economic tailwinds are intensifying and the alignment between our two core markets, the U.S. and Mexico is increasing. While we are very encouraged by our operating and financial performance of 2023, we are even more excited about what is ahead in 2024. We are positioned to deliver a record political year from the ad sales perspective and a profitable streaming business in the second half of the year faster than any other major streaming service in history, which should then return our company back to overall EBITDA growth and allow us to continue to focus on strengthening our balance sheet through organic deleveraging and by extending and smoothing our maturities.

Now, let me turn the call over to Valim, CEO of Cable.

Francisco Valim: Thank you, Alfonso. During the fourth quarter, we continued to implement and execute our strategy to create value by focusing on customer retention and high satisfaction, sales quality with higher speeds and competitive packages, subscriber based management to maximize ARPU, enhancing our video offerings to improve our value proposition, efficiently grow our SME business and a full turnaround of our enterprise operations through an organizational restructuring, a revamped commercial strategy and a renewed segmentation of our client base. The implementation of our strategy will gradually bear fruit, but I’m glad to share with you that we have achieved significant developments on several fronts, for example. Churn already came back to our historical levels after experiencing a short lived increase during the second and third quarters of 2023.

ARPU already experienced low-single-digit sequential improvement due to the better subscriber mix. We relaunched the ViX Premium offer in our broadband packages with Internet speeds of 50 megabits per second or more, contributing to increased loyalty from our subscriber base and they continue to deliver competitive gross adds. And the headcount reduction implemented in the third quarter allowed us to expand our residential operations margin by 320 basis points sequentially in the fourth quarter. This was significantly better than the 200 basis points expansion that we initially expected despite a negative impact on revenue and EBITDA from Hurricane Otis in Acapulco. Adjusting for this, our residential operations margin would have been 370 basis points higher quarter-on-quarter.

Moving on to our operating and financial results, we ended December with a network of 19.6 million homes after passing almost 60,000 new homes during the fourth quarter or over 840,000 new homes passed during the year. Our net adds for the fourth quarter were modest despite having decent gross adds as we need to keep working on further churn reduction to achieve our goals. This will allow us to gradually deliver strong net adds over the coming quarters. During the quarter, revenue from our residential operations decreased by 0.3% year-on-year, while operating segment income fell by 6.7%. Our residential operations margin of 41.1% contracted by 290 basis points year-on-year, mainly driven by inflationary pressures in labor and content related costs.

However the headcount reduction implemented in the third quarter allowed us to expand our residential operations margin by 320 basis points sequentially in the fourth quarter. Excluding the negative impact on revenue and EBITDA from the Hurricane Otis in Acapulco, revenue from residential operations would have increased by 0.5% year-on-year, while operating segment income would have been 4.9% lower. Moreover, our residential operations margin of 41.6% would have expanded by 370 basis points quarter-on-quarter. Our enterprise operations accounting for roughly 13% and 6% of our cable segment revenue and operating segment income respectively continue to face challenges. During the quarter, revenue fell by 16.1%, while our enterprise operations margin of 17.8% contracted 140 basis points year-on-year.

Still, the enterprise operations reorganization and implementation will position us well to stabilize and grow revenue and operating segment income from 2024 onwards. To sum up, revenue from our cable segment of MXN 12.2 billion fell by 1.8% year-on-year, while operating income of MXN 4.7 billion declined by 7.1%. Though our cable segment margin of 38.4% contracted by 220 basis points year-on-year, it expanded by 280 points sequentially due to the headcount reduction implemented in the third quarter. Excluding the negative impact on revenue and EBITDA from Hurricane Otis in Acapulco, revenue from our cable segment would have declined by 1.1% year-on-year, while operating segment income would have been 5.3% lower. Moreover, our Cable segment margin of 38.9% would have expanded by 330 basis points quarter-on-quarter.

Alfonso de Angoitia Noriega: Thank you, Valim. You’re doing a great job in the turnaround of IZZI. Now let me turn the call over to Luis Malvido, CEO of Sky.

Luis Malvido: Thank you, Alfonso. I’m pleased to present an update on Sky’s fourth quarter and full-year operating and financial performance. But before getting into the numbers, allow me to provide an overview of our business transformation. In 2022, Sky initiated a transformative journey guided by a new vision structure across three key stages. The initial phase focused on strengthening the core business, involved initiatives such as streamlining the product portfolio, now under the Unified Strong brand, modernizing the IT infrastructure to mitigate risks and transition to the cloud, enhancing the customer journey through digital technology utilization, diversifying sales channels by revamping the sales commission model and implementing a value based customer management approach to boost lifetime value.

All this while embarking on an ambitious efficiency and simplification program aimed at improving return on investment. In the second phase of our transformation journey, we focus on evolving the core business while persistently enhancing our operational foundation. In October ’23, we launched Sky Más, an Android based treatment platform that seamlessly integrates ViX Premium, Universal Plus, HBO Max, Disney Plus, Star Plus, Prime Video and Fox, along with our exclusive Sky Sports, featuring highly demanding content such as La Liga, Bundesliga and this year UEFA Euro 2024, among many others. It also includes all linear channels and our partners’ libraries into a unified viewing experience on a single screen. All this last content curated by our experts and a cutting edge recommendation engine based on Artificial Intelligence.

Sky Más also stands out as a market sole platform offering the live sports events in authentic 4K quality, with the added flexibility to extend this premium customer experience to any mobile device, including cell phones, tablets and laptops. Today, I’m pleased to report that as of yesterday, we have added 77,000 Sky Más customers, and the momentum in sales remains robust. Also as part of the second stage, early this year, we launched Sky Internet, a new high speed broadband offering collaboration with IZZI, Mexico’s leading Internet provider. Through this partnership, Sky can now provide customers with a bundle offering that combines the most advanced home entertainment TV platform with a reliable and competitive high speed broadband service.

And third, last phase of this strategic plan starts each year. In this stage, we capitalize on our new portfolio, customer experience enhancement and process digitalization to strategically leverage our entry into the broadband market. This shift will not only gradually offset the decline of the product facing competitive challenges like DTH, but also position us to meet households’ evolving needs by delivering entertainment and high speed broadband access to affordable prices. Now in terms of trading, we experienced a decrease of 161,000 revenue generating units during the quarter, mostly coming from prepaid. However, this decline was partially offset by the growth of Sky Más customer base, which reached 60,000 by the end of 2023, along with two consecutive quarters of net gain in Central America.

Moving to our financial results. Compared to last year, fourth quarter revenues declined 15.3% to MXN 4.2 billion and EBITDA decreased by less than 1%. Fourth quarter EBITDA was particularly affected by the cost of and expenses related to the launch of Sky Más, including of course, the advertising campaign. For the full-year, revenues declined 13.5% and EBITDA 10.7% compared to 2022 and EBITDA margin reached 32.4%. We expect revenues to gradually stabilize over the coming quarters as our new products gain momentum. Regarding our capital expenditures, we invested $149 million in 2023. This marks a 23% decline compared to the previous year and 39% decrease compared to 2021. This reduction in capital intensity can be attributed to the measures we implemented to enhance return on investment, along with the implementation of the efficiency and simplification program, which yields more than MXN 800 million in OpEx and CapEx savings during 2023 or four percentage points on revenues.

As a result, full-year EBITDA minus CapEx increased by over MXN 500 million reaching a 21% growth compared to the previous year. I’m now turning back the call to Alfonso. Thank you very much.

Alfonso de Angoitia Noriega: Thank you, Luis. Moving on, consolidated capital expenditures were $829 million during 2023, mostly in line with our guidance even though the Mexican Peso was more than 20% stronger than what we used to set our 2023 CapEx target. For 2024, our CapEx budget of $790 million includes $630 million in cable, including the reconstruction of our network in Acapulco after the hurricane, which we expect to be reimbursed by the insurance company to pass close to 400,000 homes with fiber, upgrade our network, increase our subscriber base and support growth. We also are including $145 million deployed in Sky and $15 million for corporate purposes. Finally, regarding share repurchases, we invested more than $65 million to buy back shares in 2023.

To wrap up, Bernardo and I are confident that execution of our digital transformation strategy at TelevisaUnivision and full implementation of our new value focused strategy at Grupo Televisa will allow us to improve our operating and financial performance in 2024. At TelevisaUnivision, we are very excited about the prospects for 2024. We are positioned to deliver a record political year from an ad sales perspective and a profitable streaming business in the second half of the year faster than any other major streaming service, which should then return our company back to overall EBITDA growth and allow us to continue to focus on strengthening our balance sheet through organic deleveraging and by extending and smoothing our maturities. And at Grupo Televisa, we have been putting a lot of effort into rethinking our corporate structure to unlock value and restructuring our consolidated businesses to come out stronger from the current environment.

This structural reforms are focused on protecting profitability, optimizing CapEx and enhancing free cash flow generation. Initial results have been encouraging and we expect the positive sequential trend to continue throughout 2024. Now, we are ready to take your questions. Elsa, could you please provide instructions for the Q&A.

Operator: We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from [indiscernible] with UBS. Please go ahead.

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Q&A Session

Unidentified Analyst: Hi, good morning everyone. Thanks for the time and for taking my questions. I have two on my end. Could you please elaborate on the company’s expectations involving the competitive landscape in Mexican Broadband? How do you see ARPU and net adds evolving throughout 2024? And the second question is about the margins of the company. We saw some sequential improvement. What measures are you taking to keep this momentum going forward? Thank you.

Alfonso de Angoitia Noriega: Hi, Andre. Yes, I will ask Valim to answer the question that has to do with the competitive landscape in the broadband industry.

Francisco Valim: So, Andre the competitive landscape as we have been seeing is very rational. What do I mean by that? We haven’t seen any significant price promotions in the market. Actually what we have seen is since September 2 last year, the promotions have been more rational, the discounts have been a lot less and the aggressiveness in the market with price related promotions is significantly less. Also we have seen competitors increasing prices. We saw Megacable in total play increasing prices in October. We already have an announcement for Megacable increasing prices now in March. We think that that just shows that the market is very rational in terms of how we should go about growing this market. It is a market that has a significant penetration and the different competitors are being very positioning ourselves — themselves not as a price war, but more as a service and quality of service offered.

So we don’t see the market deteriorating in terms of price wars, which is very good news for all of us. And in terms of margins, Andre, I would say that we’re working on the cost and expense side on all fronts, and of course we’re working to become more efficient and reduce those costs and expenses.

Unidentified Analyst: Yes, it was very clear. Thank you.

Francisco Valim: Thank you.

Operator: The next question comes from Alejandro Gallostra with BBVA. Please go ahead.

Alejandro Gallostra: Hi, good morning Alfonso. Good morning, everyone. It’s been three years since you announced the merger of Televisa innovation now. So, could you please share your thoughts on the integration between these two working cultures and management teams, please? That would be very interesting to hear that from you. And, the second question, that’s probably, for Valim. As part of the new cable strategy that you’re implementing, are you changing the socioeconomic level of customers that you are targeting now? Or how do you plan to decrease and keep the churn rates at low levels? Thank you.

Alfonso de Angoitia Noriega: Thank you, Alejandro. Well, as to basically culture and management of TelevisaUnivision, I can tell you that the way that [indiscernible] have been working diligently, we’ve spent a lot of hours in the integration of the two companies. There are two very different cultures and management styles at Televisa and Univision. We have moved in the right direction in these years. I believe that the production, audiences, networks and revenue teams in both countries, in both companies, and in both markets are fully coordinated and work as a team where we focus on our differentiated offerings and products. So I feel proud about accomplishing that. Wade has done a great job in leading TelevisaUnivision basically and leading into the future with the launching of ViX, which as I mentioned, has become a meaningful business with a revenue run rate of around $700 million in the first full year of operations.

And it’s a company that now has reached more than 7 billion subscribers and 40 million MAUs. So that’s the future and we’re working towards integrating the companies more, but we have moved a long way. To your second question, I’ll ask Valim to answer.

Francisco Valim: Thanks, Alfonso. So what we have been seeing is that because of our promotions have been more focused on more value-added, more service related, we have been able to extract from the market what we think are the best customers out there. So with the speed that we offer, with the content that we offer, with the service that we provide, we have been able to have better clients since we have changed the way we promote ourselves in terms of new subs. Regarding churn, what we have been seeing is since we had the spike in churn in the third and third Q quarters of last year, we are able to bring it down to historical levels. So as we see the churn levels that we are operating in December and January, they are historical levels back to when what it was back in 2021. So we are managing the acquisition of the subscribers better and we are managing and improving the retention of our existing clients in a very significant way.

Alejandro Gallostra: Excellent. Thank you very much. Also thank you Valim.

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

Vitor Tomita: Good morning all and thanks for taking our questions. Two questions from our side. The first one is if you following up on one of the previous questions, if you could give us some more color on the expected pace of margin improvement for MSO over the next few quarters, Could we see continued quarter-on-quarter improvement in the first quarter. And how might wage readjustments and other intra-year factors affect performance across quarters? And the second question on our side would also be a follow-up on one of the previous questions regarding ARPU for MSO cable. How are you changing the strategy for price readjustments for annual readjustments this year compared to last year, given all the high churn we saw post readjustments in the second quarter of ’23, but also these more benign competitive environments you mentioned for 2024? Thank you.

Alfonso de Angoitia Noriega: Thank you, Victor. I’ll ask Valim to answer, but I mean your questions are very good about the pace of margin improvement and ARPU. So we are seeing anticipating margin improvement sequentially quarter-over-quarter over the next several quarters. We have several initiatives in place from optimizing processes, reducing costs, renegotiating contracts. So all of those are taking place as we speak. And so we are anticipating the margin expansion over the quarters coming forward. On the how we manage the environment if I may, so we are also planning to increase prices. The way we are doing that is giving clients more for more. So we are giving them more service. We are adjusting prices so that we can have a better ARPU.

What we have been seeing in the market is that every player is basically doing the same or in other words, churn on average has been increasing quarter-over-quarter from all four players. So I think that’s a trend that we have seen in the market and the trend that we have seen in other markets that is now being reflected here in Mexico as well. Another thing that we are doing like I mentioned before is strongly managing the subscriber — the existing subscriber base and making sure that they have the proper value for the money that they are paying therefore with this in churn like I just mentioned before.

Vitor Tomita: Very clear. Thank you very much.

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

Marcelo Santos: Hi, good morning. Thank you for the call. I have two questions on the cable front as well. Just wanted to double click on the broadband net adds, the churn. You said that the churn already returned to historical levels, but that’s in the end of the quarter and beginning of the next quarter. So in the middle of the quarter, it was still high. Or is it the case that your gross adds are also a bit lower? Just wanted to understand why net adds were almost flat and if you plan to increase sales efforts to bring gross adds a bit up or it’s just a churn management that you need to do? Just want to understand that. And the second question is regarding the network reconstruction that you mentioned that you’re going to try to collect from insurance companies. How much could you receive back from insurance companies there? How much could we actually see the CapEx falling on this? Thank you.

Alfonso de Angoitia Noriega: Thank you, Marcelo. Yes, Valim will answer both questions about broadband net adds and churn and also the reconstruction in Acapulco and the insurance payments.

Francisco Valim: So, Marcelo, in terms of the market, before we used to be the most aggressive players in terms of price positioning for our promotions. As we changed that in September and positioned ourselves in more value for money and better services and more services to our clients. What we have seen is obviously there’s a slight decrease in gross adds because we are less focused on price and more focused on volume of services and content to our subscribers. And obviously, there’s a little decrease in terms of gross adds. But it was compensated, so we adjusted that. And obviously it comes very quickly the reduction on sales, because all the sales force were used to sell price and now they have to sell like I say a product.

So price is part of the product, but it’s not the only thing. Before it was just price. So there was a little reduction in terms of raw debt. But we were able to compensate all of that with a reduction in churn that made the net of those two effects close to zero. So the reduction of gross adds driven by less price oriented promotions gave us less sales, but compensated by lower churn. And we have been seeing churns like you just mentioned it has decreased from the September rates to October to November to December and now December, January has been stabilized around historical ratios just like I have mentioned. In terms of the Capuco [ph] network, we think that we’ll be recovering 100% of the new deployment of network or fiber network that we are doing in Acapulco.

So that should cover for 100% of the new construction. But obviously, as you account for that, you have the CapEx and the reimbursement doesn’t come on CapEx. So we don’t ask the CapEx out. It comes in another as below the EBITDA level in terms of where does it come back to us. So you’re not going to be able to see a reduction in CapEx because of that, but you’re going to be seeing a non-recurring income coming from insurance companies.

Marcelo Santos: Thank you. Just a follow-up on the first question. Going forward, do you think we’re going to see more churn reduction or more gross adds on the cable? I mean…

Francisco Valim: Thank you, Marcelo. We are anticipating increasing gross adds. We have been seeing gross adds increasing from every month from October, November, December, January and even February. We’re seeing the daily rate of new gross adds increasing almost on a weekly basis. So we anticipate going back to levels that are maybe not equal to what it used to be, but closer to what it used to be and churn leveling at historical levels, which we think will put us back into positive net gross positive net adds in every quarter of 2024.

Marcelo Santos: That’s very clear, Valim. Thank you.

Operator: The next question comes from Fred Mendes with Bank of America. Please go ahead.

Fred Mendes: Hello everyone. Good morning and thanks for the call. I have two questions here as well. The first one is a quick one on ViX. In the call of TV and Evogene, they were not giving at least or we don’t understand, if you guys are giving the breakdown of subscription and advertising from the $700 million recurring revenue, which seems interesting for the first year of operation of the company. So basically a breakdown here if you have this number, if you give it to the market and/or any trends that you could share? And then on the second one, just on this repurchase program $65 million, if I understood correctly. Is this a company repurchase program or that’s also related to the management buying back shares? I remember that I think at the beginning of the year, the company disclosed that management will be buying back some shares. So just wondering if this is already included here or not and if the management buyback was already concluded as well. Thank you.

Alfonso de Angoitia Noriega: Thank you, Fred. As to your second question, it’s the $65 million was repurchased by the company itself on top of what we as executives bought personally. So the $65 million is just what the company repurchased. As to your second question, we’re not breaking down streaming — on the streaming side, on the ViX side between subscription and advertising. However as to the last part of your question, I would say that in December, on ViX, we surpassed 40 million MAUs on the free ABAP tier. And as I mentioned before, we exceeded seven million subscribers on the premium tier. But perhaps most importantly, as we continue to rapidly scale MAUs, we have increased the engagement of our audience. This is really, really important and we feel very happy and proud about it.

In 2003, we doubled the amount of total streamed hours and have been consistently increasing consumption per user, which grew 20% sequentially during the fourth quarter. So as a result and as I also mentioned before, in direct-to-consumer a business that business we have essentially built from scratch in less than two years and we closed 2023 with more than $700 million in revenue headed towards profitability in the second half of 2024. So that is the future of the company and we’re moving in the right direction. As I mentioned, Wade and the team have done a great job. We are very proud of what we’re doing there, especially we have a tremendous advantage being vertically integrated having launched the platform, but also owning the largest library in Spanish content in the world, owning the IP to produce more content specific for our markets, of course, owning the factory in Mexico, which is the largest and most prolific factory of content in Spanish in the world where we produce large quantities of content with a very high quality at very, very attractive costs.

So all those advantages including also cross promotion, a fix on all our platforms makes it a unique opportunity for us.

Fred Mendes: Perfect. Very interesting. Thank you.

Alfonso de Angoitia Noriega: Thank you.

Operator: Next question comes from Ernesto Gonzalez with Morgan Stanley. Please go ahead.

Ernesto Gonzalez: Hi, thank you for taking the question. Just one. Can you provide some color on the trends you’re seeing so far in the first quarter and your expectations for the quarter, especially on Enterprise Cable and Sky since you already provided good details on residential cable? Thank you.

Alfonso de Angoitia Noriega: Yes. I’ll ask Luis to talk about the trends in the first quarter.

Luis Malvido: Yes, thank you for the question, Ernesto. Q1 is different from others. On the one hand, we continue to deploy Sky Más. Sky Más is a platform that brings everything together and it’s a completely different product from what is being offered in the market. On top of that, Sky Más can be — can play over any broader network which is an agnostic platform which give us an opportunity to sell to Telmex customers for example. And on top of that what I said about this month or this quarter is different because we have just launched Sky Internet. Sky Internet is based on IZZI network and it’s moving very fast and it’s growing very rapidly with the marketing campaign we just launched in February. We are offering bundle of Sky Más and Sky Internet but also we are offering Sky Más as standalone.

So this is the new offer we have in the market and we are seeing that as we saw in the last six months that prepaid recharges, prepaid revenues are stable has been flat for six months and we see the same trend at least in the first two months of this year. So as I said, this is a good start for the year. Very important news from the product perspective, but also from revenues coming from prepaid where we struggled last year to protect especially in Q2.

Ernesto Gonzalez: Thank you, Luis.

Operator: The next question comes from Matthew [indiscernible] with Citi. Please go ahead.

Unidentified Analyst: Hi, good morning and thanks for taking my questions. I have two more on the cable front. First, we discussed in the last call, it was mentioned a 200 basis points improvement sequentially into the workforce reduction and it came actually better than that. Can it be attributed to cost cutting like digitalization and can you mention any other efforts in that direction? And also maybe give some color as to how much headway you still have to improve margins in this year versus 2023? And was any of that impacted by expenses? So above the EBITDA line affected by expenses due to reconstruction from the hurricane or was it all booked on the other operational expenses? My second question, actually it’s not on cable. So what can explain the $215 million positive other operational income, considering that you had also expenses related to the hurricane reconstruction that were also booked there according to the press release?

Alfonso de Angoitia Noriega: Yes. Thank you, Matthew. Valim will answer your question.