CONVERGE LAUNCHES FULL PRODUCT PORTFOLIO TO SERVE HOUSEHOLDS WITH VARIOUS INCOME LEVELS
MAINTAINS STRONG OVERALL RESIDENTIAL NET ADDS OVER THE SIX MONTHS AT 92,302 WITH PREPAID SUBSCRIBER NET ADDS DOUBLING FROM 1Q2023
INDUSTRY-LEADING TRIFECTA WITH CONSOLIDATED REVENUES GROWING YOY BY 8.1%, EBITDA MARGIN EXPANDING TO 57.9%, AND ROIC GROWING TO 15.4%
1H2023 Key Highlights
MANILA, Philippines, August 10, 2023 – The Philippines’ only pure-play high-speed fixed broadband operator, Converge Information and Communications Technology Solutions, Inc. (PSE: CNVRG) (“Converge” or the “Company”) ended the first half of 2023 with a total of 1,969,663 subscribers. This is comprised of 1,915,502 postpaid subscribers and 54,161 prepaid subscribers. Net additional subscribers reached 92,302 in the first half. Surf2Sawa prepaid subscribers grew to almost double its subscriber base since March 2023
The Company’s free cash flows to firm (FCFF)1 remains positive at P2,866 million. This 2023 is the first year that Converge expects to be full-year FCFF positive given the stable growth in operating cash flows with the lower capital expenditures for the year.
With the deepening of its presence in new areas, particularly in North Luzon, Visayas, and Mindanao, and its introduction of new products catering to low income households which comprised the broader segment of the market as well as the innovative solutions for enterprises, especially for small and medium enterprises (SMEs), the Company continued to see various potential for subscriber growth in the coming quarters and years as it is well-positioned to connect more underserved and unserved customers given its extensive infrastructure and innovative packages.
During the second quarter of 2023, Converge garnered 49,302 net adds, continuing a quarter-on-quarter net adds growth. FiberX garnered net adds of 20,459. The lower-cost postpaid flanker brand Bida Fiber had net adds of 9,567, or more than 14 times its contribution last quarter. The Surf2Sawa subsegment (or “prepaid”) contributed 25,166 net adds during 2Q2023, which is 77% higher than 1Q2023. The Company ended June with an active residential subscriber count of 1,969,663. In the second half of the year, Converge will leverage on the stable growth of FiberX and the momentum of Surf2Sawa to contribute to our full year targets.
Consolidated revenues grew by 8.1% from P16,053.9 million in 1H2022 to P17,362.1 million in 1H2023. Revenues from the residential business grew from P14,084.3 million in 1H2022 to P14,875.5 million in 1H2023. On the other hand, enterprise revenues grew from P1,969.6 million to P2,486.5 million during the same period, due to the strong overall revenue growth of all subsegments – small and medium enterprises (“SMEs”), large enterprise and corporates, and wholesale.
Across the board, enterprise subsegments continued to deliver outstanding growth in 1H2023. The SME segment continued to lead growth with YoY revenues increasing by 41.5%, followed by wholesale segment increasing by 28.6% in the same period. Revenues from large enterprise customers, making up the largest subsegment, grew by 18.5% YoY.
Converge achieved an EBITDA of P10,055.9 million in 1H2023, representing an increase of 9.5% from the previous year. As a result, Converge was able to improve its consolidated EBITDA margin to 57.9% in 1H2023, higher than the 57.2% in 1H2022.
Compared with 1H2022, network materials and supplies costs decreased by 92.4%. This is due to an improved capability to properly segregate costs of network materials and supplies according to usage. As such, network materials and supplies used in 1H2023 for last mile connections were deferred and amortized over the contract period with the subscriber. This partly contributed to the increase in EBITDA margin for the quarter.
Additionally, as a result of Converge continuing to draw down on its international capacity from the Telstra Indefeasible Right of Use contract, bandwidth and leased line costs decreased by 35.4% YoY, resulting in a corresponding decrease in cost margin from 3.2% to 1.9% over the same period. Amortization of deferred contract costs also declined by 13.0% due to the full recognition of the unamortized portion for churned accounts starting in 4Q2022. With increased operating leverage and transition to a managed services model in certain operating areas, Converge was also able to reduce the cost margin of total personnel costs from 7.2% in 1H2022 to 5.3% in 1H2023. Correspondingly, Managed Service Fees increased from 2.9% cost margin to 5.5% in the same comparative period. Rent and utilities expenses both grew due to the network expansion of our serviceable areas. These pertain to the rental of poles in new serviced areas, as well as electricity costs for new nodes installed.
Industry Leading ROIC and Strong Balance Sheet
Industry-leading Return on Invested Capital (“ROIC”) improved to 15.4% with capital expenditures mostly attributable to the 800,000 new fiber ports deployed. This industry-leading performance is a result of the Company’s disciplined approach in deploying capital to expand its fiber network and improve its overall services.
Depreciation and amortization slightly decreased from P2,967.9 million in 1H2022 to P2,878.3 million in 1H2023. Net income after tax grew to P4,284.9 million in 1H2023 from P3,950.7 million in 1H2022, resulting in a net income margin of 24.7% for 1H2023.
Converge has been able to maintain its strong balance sheet and cash flows with ample liquidity and gearing comfortably within bank covenants. The Company’s net debt position (as measured by total financial debt less cash and cash equivalents) decreased from P26,602 million as of March 31, 2023, to P26,271 million as of June 30, 2023. The Company repaid a portion of its financial debt, reducing the balance to P37,531 million as of June 30, 2023, from P38,162 million on March 31, 2023. The Company’s debt service coverage ratio (“DSCR”) was 3.7x and the net debt-to-total equity was at 0.6x, well within the required financial covenants from its debt facilities. The weighted average cost of debt from drawn debt facilities remained at 5.1% as of June 2023.
As mentioned, starting 1Q2023, Converge has employed an improved capability to properly segregate costs of network materials and supplies according to usage. As such, network materials and supplies used in 1H2023 for last mile connections were deferred and amortized over the contract period with the subscriber. Prior to 2023, all Network Materials and Supplies are expensed outright. Starting 1Q2023, only incidental materials beyond standard installation costs paid for by customers are expensed outright.
Also, the estimated useful life of Inside Plant and Facilities Equipment was extended from five years to eight years starting 1Q2023. This was due to a significant portion of the asset class being deemed useable beyond the original estimated five-year life. Upon reevaluation, the Company estimates eight years as a reasonable length of usage period for Inside Plant and Facilities Equipment. This translates to approximately 15% less depreciation in 2023.
According to the Philippine Statistics Authority’s 2021 Family Income and Expenditure Survey, the country has approximately 26.4 million households with 70% at the lower income segments, which are still highly underpenetrated with reliable fixed broadband. As such, Converge has been working on a multi-segment strategy with tailored brands to cater to the unique needs of each segment of the residential market, while still maintaining the more premium features of the FiberX brand targeting upper- and middle-income households.
The Company launched the Surf2Sawa prepaid offering to cater to the Class D2 market of approximately 9 million households. Surf2Sawa is the lowest-priced prepaid fiber-to-the-home plan with various top-up options, for as low as P50 per day up to P700 for a 30-day unlimited connectivity. The modem limits concurrent users to only six devices, unlike the postpaid FiberX plans with no such limitations.
Alternatively, lower income households with a more consistent income can choose to avail of Bida Fiber, Converge’s economical postpaid brand targeting the Class D1 market composed of approximately 8 million households. This product is priced at P888 per month with the same limit of six concurrent devices. This limitation on features, as well as speed difference, creates significant product differentiation between Bida Fiber and FiberX.
Meanwhile, we continue our efforts to deepen our penetration of upper- and middle-income households through targeted offerings such as XCLSV (premium experience and personalized customer support), The Game Changer (specialized plans for gamers), and HomeBase (for home-based microbusinesses).
The Company believes that this segment of the market remains underpenetrated with quality fixed connectivity. With its nationwide backbone and more than eight million ports deployed across the country, Converge is well-positioned to capitalize on this opportunity with its expansive infrastructure.
In collaboration with prominent media and entertainment company TapDMV, Converge launched BlastTV on August 8, 2023. BlastTV is a streaming television service designed to elevate the entertainment, lifestyle, and sports viewing experiences for all Converge residential subscribers. BlastTV will be made available to every Converge residential subscriber as a complementary value-added service indefinitely under the first in the market “Watch Now, Pay Zero” initiative.
“BlastTV marks our latest stride in transforming the digital entertainment landscape in the Philippines,” stated Dennis Anthony Uy, Co-Founder and CEO of Converge. “We’re delighted to collaborate with TapDMV on this initiative, delivering a broad array of dynamic and high-quality content directly to our subscribers’ screens at no additional cost, as long as they are subscribed to any Converge fiber broadband plan.”
Global content partners of BlastTV include NBCUniversal, Paramount Pictures, Sony Pictures, MGM Television, and Lionsgate. Plus, in a first in Southeast Asia, BlastTV will be the streaming home of Studio Universal, launching for the first time in the Philippines on September 15, 2023. This partnership between NBCUniversal International Networks & Direct-to-Consumer and TapDMV will boast hundreds of blockbuster movie titles each year.
Converge is not expected to incur any material operational or capital expenditures in this collaboration.
In June 2022, the Company initiated its Backbone 6Sigma project that aimed to reduce service-affecting ticket incidents experienced by subscribers. This program included aerial and underground redundancies and reducing potential single points of failure that will critically affect the service reliability of the network. Compared to 1H2022, unique customers affected by service outages were reduced by 28%. These continuous preventive and corrective measures allow our network to function and serve customers despite localized outages.
In addition, since the first quarter of this year, Converge has been developing its Network Intelligence and Automation Platform aimed to reduce time to escalate and repair infrastructure damages. The platform allows Converge to identify the exact location of network damage and raise this concern to the appropriate service team with minimal lead time. As a result, backbone mean-time-to-restore improved by 20% and outside plant mean-time-to-restore improved by more than 33% compared to 2022 average. Field network operations team was also able to repair damaged equipment 46% faster due to this initiative.
Converge has been prioritizing customer experience to improve take-up and reduce churn. Service reliability and overall customer experience are deemed as important metrics for customers when deciding on a provider. The Company will continue its efforts in pushing for network reliability improvements and making sure that the Company’s network performance is best-in-class.
Converge maintained its spot as the best internet service provider (ISP) for Netflix users based on the video streaming giant’s most recent ISP speed index report, tracking its performance for the first half of 2023. Netflix also ranked Converge as the top internet provider last year for having the fastest internet speeds based on its monthly speed ratings, garnering a full-year average of 3.42 Mbps.
Converge has been progressively embedding the management of its key sustainability impacts into its day-to-day operations. In an effort to continuously improve its Quality Management System (QMS), the results of stakeholder consultations and materiality assessment were used to identify risks and opportunities to be addressed by QMS processes. It is envisaged that this will strengthen adherence to the ISO9001:2015 standard.
Supporting the digitalization initiatives of the government and UN targets for universal and meaningful connectivity, the Company powered-up its first airport passenger terminal with free fiber WiFi. Converge fiber-powered NAIA Terminal 4 in Manila with 1Gbps bandwidth. The Company has signed an agreement with the Department of Transportation and the airport authorities to provide free WiFi to a total of nine airports across the country.
Converge is also keen on ensuring that diversity celebrated and encouraged in the Company. CEO Dennis Anthony Uy signed the Statement of Support for the Women Empowerment Principles (WEPs), signifying its commitment to promote gender equality and women empowerment. On top of this, during its most recent Annual Stockholders’ Meeting, Converge appointed former Senior Associate Justice Estela M. Perlas-Bernabe as an independent non-executive director to its Board of Directors, raising the percentage of females on the Board to approximately 29%. Chairman Jose de Jesus noted that the appointment of another qualified female member to the Converge Board improves its diversity and reflects the Company’s stance on gender equality.
In June, the Company launched the second phase of its #CountdownToZeroWaste campaign, targeting plastic waste in the workplace after its initial focus on e-waste. With its #BawalAngPlastik advocacy, employees were encouraged to use less plastic in the office. Used plastic bottles were also collected and recycled by its partner Green Antz Builders which produces construction materials from the plastic bottle. Initially targeting electronic waste, the Countdown to Zero Waste campaign is a company-wide initiative to reach its goal of zero solid waste to landfill by 2030.
Recently, Converge was awarded the Broadband Telecom Company of the Year at the Asian Telecom Awards 2023. The recognition marks the company’s second consecutive year of being recognized as the Philippines’ choice of network.
“We are honored to once again receive this accolade from the Asian Telecom Awards. This recognition is given at a very pivotal moment in our company’s journey towards digital democracy. Right now we are expanding the access of low income classes to digitalization through prepaid products, and awards such as this motivate us on our mission to bridge the digital divide and make sure that when it comes to world-class connectivity, we will leave no one behind,” said Converge CEO and Co-Founder Dennis Anthony Uy.
On top of these, the Company scored higher on Environment, Social, and Governance (ESG) metrics being tracked by global investment research firm MSCI in its latest review. Converge received a rating of ‘A’ (on a scale of AAA – CCC) in the MSCI ESG Ratings assessment from ‘BBB’ previously.
This press release may contain forward looking statements and information that are, by their nature, subject to significant risks, uncertainties, and assumptions. Many factors could make or cause the actual results, performance or achievements to be materially different from those expressed or implied in this release. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein.
For questions, please contact:
Owen Kieffer Ocampo
Vice President – Head of Investor Relations
Email: investors.relations@convergeict.com
Jay-Anne Encarnado
Vice President – Head of Corporate Communications and Public Relations
Email: corpcomm@convergeict.com
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