CONVERGE MAINTAINS SUBSCRIBER GROWTH ON THE BACK OF CONTINUED UPTICK IN DEMAND FOR NEWLY LAUNCHED RESIDENTIAL PLANS
4Q2023 CONSOLIDATED RESIDENTIAL NET ADDS OF 79,766, SUPPORTED BY ALL TIME HIGH QUARTERLY NET ADDS FROM BIDA AND S2S OF 25,706 AND 32,655, RESPECTIVELY
SUSTAINED INDUSTRY-LEADING FINANCIAL TRIFECTA; CONSOLIDATED REVENUE GROWTH FOR FY2023 AT 5% YOY; EBITDA MARGIN ENDED AT 60.9% AND ROIC AT 16.3%
MANILA, Philippines, March 18, 2024 – The Philippines’ only pure-play high-speed fixed broadband operator, Converge Information and Communications Technology Solutions, Inc. (PSE: CNVRG) (“Converge” or the “Company”) ended 2023 with a total of 2,128,052 subscribers. This is comprised of 2,013,216 postpaid subscribers and 114,836 prepaid subscribers. Net additional subscribers reached a total of 79,766 for the fourth quarter of 2023, representing 31.8% of total FY2023 net adds.
In 4Q2023, FiberX contributed 35,152 in net adds while BIDA Fiber and Surf2Sawa’s net adds amounted to 25,706 and 32,655, respectively. Consolidated subscriber count for BIDA Fiber and Surf2Sawa as of December 31, 2023 reached 174,672, exceeding the Company target of ~120,000 by year-end of 2023.
To grow and protect its base, Converge intends to undertake various initiatives for its Residential and Enterprise segments this 2024 and beyond. For Residential, the Company looks to further grow its sales partner coverage across the nation, and grow brand awareness by leveraging on omnichannel marketing. The Company also established a dedicated churn management team to drive long-term customer retention efforts and reign in churn. To ensure that customers are provided with world-class connectivity, the Company endeavors to provide best-in-class repair and service efforts so as to minimize connection downtime.
Various growth opportunities loom on the horizon for Enterprise this 2024. The international subsea cable systems Bifrost is expected to be completed this year, which will contribute to the Company’s wholesale segment. Converge also looks to foray into the data center space to be able to address the various needs of its enterprise customers. Strategic collaborations are also being explored with industry leaders in the broadband space. To provide enterprise clients with a seamless customer experience, the Company intends to take a more proactive account management approach and widen its product offering by exploring non-connectivity solutions.
Industry-Leading Revenue and Subscriber Growth; Highest Quarterly Adds for BIDA Fiber and Surf2Sawa
Consolidated revenues grew by 5% in FY2023 to P35.4Bn from P33.7Bn in FY2022 – cementing the Company’s position as the fastest-growing fixed broadband service provider in the Philippines.
Residential business grew to P30.3Bn during the same period. In the fourth quarter of 2023, BIDA Fiber and Surf2Sawa registered all-time-high quarterly gross adds of 29,844 and 38,810, respectively – a testament to the intact and growing demand for fiber broadband across all income segments. Converge increased its residential subscriber base by 79,766 net adds in 4Q2023, as a result of the growth momentum of BIDA Fiber and Surf2Sawa and maintained demand for FiberX. FiberX contributed 35,152 in net adds in 4Q2023 – 7% higher than the FiberX net adds in the same period last year. Meanwhile, BIDA Fiber’s net adds amounted to 25,706 and Surf2Sawa garnered 32,655 net adds in the quarter.
Consolidated churn rates have also improved QoQ in 4Q2023. The Company still aims to reduce this further. A dedicated churn management team was established to drive long-term strategic churn management initiatives in view of lowering churn further to more favorable levels.
Robust full-year enterprise performance with all sub-segments growing by double digits; SME remained the fastest growing sub-segment
Enterprise revenues increased by 19.9% in full-year 2023 to P5.1Bn from P4.3Bn owing to the double digit growth across all enterprise sub-segments. Excluding non-monthly recurring revenues, small and medium enterprise (“SME”) segment grew as much as 34.9% from FY2022. Enterprises and Corporate likewise grew by 13.0% in the same period, while Wholesale grew by 14.0% YoY.
EBITDA maintained growth trajectory
The Company’s EBITDA grew by double-digits at 11.2% to P21.5Bn in FY2023 from last year’s P19.4Bn. Consolidated EBITDA margin improved to 60.9% in FY2023.
Compared with FY2022, network materials and supplies costs in 2023 decreased by 84.0%. 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 2023 for last mile connections were deferred and amortized over the contract period with the subscriber. 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 18.9% YoY. Amortization of deferred contract costs also declined by 24.4% due to the full recognition of the unamortized portion for churned accounts starting in 4Q2022. Meanwhile, Repairs and maintenance costs increased by 57.8% YoY as a result of increased network-related repairs commensurate with our increase in subscriber count.
Industry-Leading ROIC and Strong Balance Sheet
The Company maintained its industry-leading Return on Invested Capital (“ROIC”) at 16.3%, As the Company further scales up its flanker brands, it expects ROIC to further improve as more ports are utilized. This performance is a result of the Company’s disciplined approach in deploying capital to expand its fiber network and improve its overall services.
Net income after tax grew from P7.4Bn in FY2022 to P9.1Bn in FY2023, resulting in a net income margin of 25.7% for FY2023, higher than FY2022 net income margin.
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 P23.1Bn as of September 30, 2023, to P21.5Bn as of December 31, 2023. The Company repaid a portion of its financial debt, reducing the balance to P35.2Bn as of December 31, 2023, from P36.2Bn as of September 30, 2023. The Company’s debt service coverage ratio (“DSCR”) was 2.4x and the net debt-to-total equity was at 0.5x, 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 December 2023.
Total cash CAPEX as of FY2023 amounted to P9.0Bn. Majority of spending was allocated towards Outside Plant, Inside Plant, and Customer Premise Equipment. Additionally, P 3Bn worth of CAPEX was carried over to 2024 due to late invoices received from submarine cable contractors and delays in construction for some assets.
With the official launch of BIDA Fiber and Surf2Sawa last 2023, the Company now endeavors to expand its sales network to better serve the target ~17 million addressable households whose connectivity needs can be addressed by these lower-cost brands.
Since its launch in March, Surf2Sawa was able to expand its reach. As of year-end 2023, Surf2Sawa reached over 600 municipalities, versus 500 in September. BIDA Fiber likewise expanded its reach to over 700 municipalities, an increase of 200 during the same period .
Also, the Company intends to widen its reach via an omnichannel approach to further tap customers. This includes leveraging online platforms such as Tiktok and the like, partnering with LGUs, and launching a new mobile subscriber app for our lower cost brands.
Additionally, the Company allied with gadget retailer TL Sales and Management Services, Inc. (TSLM), which operates over 200 stores nationwide located in various leading malls across the country, to sell Converge broadband products such as FiberX, BIDA Fiber, and Surf2Sawa. Aside from its business centers, Converge is being carried by the following retail partners among others: USSC (Western Union), Microgold Pawnshop (Tambunting Pawnshops), Sta. Monica Pawnshop, and ACM International (VIP Payment Center).
In a regular meeting held last February 1, the Board of Directors approved the designation of Mr. Benjamin Emilio B. Azada as Chief Commercial Officer, concurrent with his role as Chief Sustainability Officer. Mr. Azada’s new designation is a necessary evolution of his chief strategic role having laid down Converge’s strategic direction and framework as a necessary foundation for the Company’s success. Moving forward, he will focus on executing various revenue-generating initiatives, primarily steering the Company towards sustained commercial growth. As such, he will now oversee the sales and marketing efforts of the Company, and provide guidance and supervision to the Company’s regional general managers.
With the oversight of revenue-generating functions now under the purview of Mr. Azada, Mr. Jesus C. Romero’s role as Chief Operations Officer will now oversee Customer Experience, Information Technology, and Network Transformation. Given Mr. Romero’s years of experience and expertise in the ICT industry, he will be able to ensure that the operations are optimized to grow the business through innovation and determined customer-focus.
Converge continues to provide best-in-class connectivity as evidenced by its recent awardings for delivering on speed, reliability, and seamlessness. Last November 2023, the Company was hailed as Broadband Telecom Company of the year at the International Business Magazine (INTLBM) awards held in Dubai. INTLBM cited the Company’s efforts in expanding and improving digital infrastructure to better serve both its residential and business clients.
Additionally, Converge dominated the Ookla® Speedtest Awards™ in the second half of 2023 and has been declared as the *Fastest Internet Service Provider in the Philippines. Based on Ookla’s Speedtest Intelligence® data for the six-month period, Converge also hauled major awards in multiple categories bagging Best Internet Gaming Experience, Best Internet Video Experience, and Top-Rated Internet in the Philippines. Ookla® is the global leader in mobile and broadband network intelligence, testing applications, and related technologies.
“What we’re seeing is a changing of the guard in the industry and this comes as no surprise given our hard-earned investments into our fiber network. In the end, service excellence through innovation and technology ruled the day,” shared Converge President and Co-Founder Grace Y. Uy.
Also, the Company capped 2023 atop the Netflix Speed Index, solidifying its position as the best connectivity for high-quality and seamless video streaming. Converge occupied the top rank of the Netflix Speed Index Leaderboard for 11 months in 2023.
In the recent Asian Telecom Awards, Converge won Broadband Telecom Company of the Year, AI Initiative of the Year, and Philippines and Technology Innovation of the Year. The Company’s receipt of the Broadband Telecom Company of the Year marks the third consecutive time Converge was awarded this. Additionally, as a result of the implementation of the Network Intelligence and Automation Platform (NIAP) the Company was awarded the AI Initiative of the Year.
Converge ICT Solutions Inc. and DITO Telecommunity Corp., a subsidiary of DITO CME Holdings Corp., entered into a landmark Master Facilities Provisioning Agreement (MFPA) which allows the two companies to share select terrestrial and submarine fiber optic cable assets, under terms and conditions to be mutually agreed upon by Converge and DITO Telecommunity.
This resource exchange arrangement is expected to strengthen the network of both operators as it translates to expanded coverage and increased redundancy. At the same time, the sharing of network assets will allow both firms to create savings from increased operational efficiencies and reduced capital expenditure requirements for redundancy.
“We want to leverage our respective existing facilities through this resource sharing agreement to bring us closer to our goal of empowering every Filipino home with quality broadband connectivity. Our collaboration will allow us to reach more customers and deliver a better service with increased resiliency,” said Converge Chief Executive Officer and Co-Founder Dennis Anthony H. Uy.
In Sustainalytics’ latest review in October 2023, Converge improved its overall ESG risk rating to ‘19.6/Low Risk’ from its ‘23.4/Medium Risk’ rating in the previous year. The Company was also rated ‘54.0/Strong’ in its ESG risk management, which measures the robustness of the Company’s ESG programs, practices, and policies. This also marks a significant improvement from its ‘43.7/Average’ rating in the previous year.
Also, the Company garnered an improved score from 2023 S&P Global, earning 50 out of 100, coming from 2022’s score of 40. Furthermore, Converge scored higher than the industry average on all three Dimensions of Governance and Economy, Environment, and Social. Converge saw the most improvement in the Environmental and Social Dimensions, increasing by 14 and 18 points respectively. Under the Social Dimension, Converge ranked high on the criteria of Privacy Protection and Occupational Health and Safety. In the Environment Dimension, the criteria of Climate Strategy received a boost of 32 points. S&P also recently introduced the ESG score where Converge attained a final ESG Score of 53, reflecting its commitment to sustainability and responsible business practices.
Converge also completed various sustainability-related projects in 4Q2023. In compliance with RA11898, the Company established and registered an Extended Producer (EPR) responsibility program with the DENR National Solid Waste Management Commission. The Company collaborated with accredited recyclers Jontrix Trading Philippines and Green Antz Builders with the dual goal of reducing environmental impact of products and services and promoting responsible product stewardship within our business communities. The Company also implemented a cloud-based ESG reporting platform to help ensure the reliability of sustainability-related data by preventing errors during data capture and computation. As an active participant in the UN Global Compact (UNGC), the Company strengthened its commitment by submitting its first Communication on Progress (CoP) Questionnaire. This submission underscores Converge’s unwavering dedication to uphold the United Nations’ Ten Principles and actively contribute to realizing the Sustainable Development Goals.
Converge also joined other business leaders in signing the Call-to-Action from Business to Governments on the 20th Anniversary of the UN Convention against Corruption (UNCAC), held last December 12, 2023. Some of the steps promoted by the signatories in the appeal include the strengthening of policies for business integrity in supply chains, promotion of transparency in public
private interactions, integration of corporate sustainability criteria into government decision-making processes, and the use of technology to manage corruption risks, among others.
Over the course of preparing its latest Sustainability Report, the Company referred to the recently released International Financial Reporting Standards (IFRS) S1 and S2, in preparation for a full adoption next year. Additionally, the Sustainability Report was subjected to internal audit assurance procedures and resulted in an increased level of external assurance. The 2023 Sustainability Report is expected to be released in tandem with the Company’s 17-A.
With an expanding sales network and a renewed blue-ocean strategy, the Company stands more ready than ever to meet the growing demand for fiber connectivity. The Company looks to grow consolidated revenues by 7% to 8% this 2024, supported by 6% growth in Residential, and 12% growth in Enterprise.
With various cost management efforts in place, EBITDA margins are expected to settle at the 58% to 59% levels. Additionally, ROIC is expected to reach 15% to 16% for FY2024. Due to upcoming international subsea cable payments, the inclusion of capital outlays for data centers, and delays in supplier invoices earmarked for 2023 payment, the Company now looks to spend P 17 to P 19 Bn in cash CAPEX this 2024.
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 shouldunderlying 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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