Globe Telecom, Inc. (GLO) Earnings Call Transcript & Summary

Thank you all for listening to that. Very impressive and highly insightful presentation as you transition to our -- for our Q&A session -- just trying to make sure we don't have any debt there at the moment. So, I'm thinking of something that some Oh, okay. [indiscernible] We just like to dispel that path... Okay. There... Thank you very much. Good morning again to all before we begin with the Q&A session. We'd like to introduce the management panel and ask them to join us here on or besides stage. First of all, we have, of course, our President and Chief Executive Officer, Mr. Ernest Cu and Mr. Rosemarie Maniego-Eala, Chief Finance Officer and Chief Risk Officer. [indiscernible] General Counsel, Froilan M. Castelo. And next, we have our Vice President of Consumer Mobile Business, Mr. Darius Delgado. And first from our trip to the U.S. President and CEO of Mynt Ms. Martha Sazon. Then we have our Senior Vice President for Network Planning Engineering, Mr. Joel Agustin [indiscernible]. Next, we have our Vice President for Global B2B Business Development, Mr. Raymond Policarpio. And of course, we have our senior adviser for our broadband business, Mr. Danny Theseira. And lastly about the miscast, the Chief Executive Officer of STTGDC, Mr. Carlo Malana. We will now begin with the planning session with questions set in advance to our e-mail address investor [email protected].

The first question is -- first set of questions come from Arthur Pineda of Citi. First question, I think, is for [ reason ]. The question is depreciation and amortization have declined, but only Q-on-Q. What is driving this? And how should we see this planning for subsequent quarters?

So in terms of depreciation -- So in terms of depreciation, this dropped Q-on-Q as 4Q 2023 included catch-up amortization related to our Capitan Ventures. Those contracts were just finalized in the end of 2023. On top of that, the usual 1Q drop in depreciation results from fully depreciated assets the previous years. Now if you look at the growth rate of depreciation in 2023, that was 4%. So, it's better to really look at an annualized basis, using the trends of our quarterly reports in the past 2 years and depreciation for this year should be slightly higher than the 4% growth last year, given that we have more assets on the books. On top of the fact that we are also closing all the tower sales this year.

The next question is on broadband. Of course, this is for Danny. Fixed wireless broadband contraction has accelerated Q-on-Q. Where do you see this as settling for the year?

Thanks, Jomari, and answer for the question. Recall last year, we set the guidance that the fixed wireless revenue well hover to around $600 million or so in the middle of this year. And so far, we've been tracking close to that guidance. And earlier in the presentation, we also showed that Q-on-Q, we've moved from a minus 15% Q-on-Q to about minus 8%. So we see that slower decline improving, and it's also coming from the stabilization of the home prepaid Wi-Fi business as well as the SIM card registration. And we see a higher trend going towards prepaid fiber as more and more customers are looking for more stable connection for the home. Still on a pay as you go, reloadable concept and more importantly, unlimited internet.

The next question again is for broadband. Can you please break down the fiber net adds between prepaid and postpaid? And where are the ARPU trending for fiber?

It's still too early to disclose the breakdown of the different net adds and the plans. However, if you look at the postpaid ARPU, performing stable at about MXN 1.5 -- and it's still early days on the prepaid fiber. But looking at the customers that we're getting, it's still on the concept of quality, and we see that [indiscernible] where it's the highest across prepaid products, and it's pretty stable. And the way that we approach it as well its purely digital. So customers are adopting through the GOne app as well as the GCash and you have the option to reload on both applications. So the convenience is totally there. And it's also a real-time experience for the customer. So the minute you load, you get Internet back up almost immediately.

The next set of questions come from [indiscernible] of Abacus. And the first question, I think, is for Darius. [indiscernible] do you mean by market repair efforts?

So when we see a market repair its only about monetization efforts some of which will be post apps of certain SKUs, but not the impact of the [indiscernible] institutional since [indiscernible] were that most customers who were unloading to actually related to higher demand. So that's how [indiscernible]. What we also have [indiscernible] effort to start. We [indiscernible] invest [indiscernible] in IT platform such that the customers even [indiscernible] are looking for our schemes, they [indiscernible] service that we are serving for it.

The next question, I believe again is for mobile. Notice that mobile data traffic was flat Q-on-Q. We attribute this to greater competition or to the overall macroeconomic environment or both.

In terms of the overall [indiscernible] this is how we saw it in most [indiscernible]. And so, what's a good sign capacity as customers have been improving or increasing. The quarter-on-quarter traffic [indiscernible] is actually posting seasonality because those are [indiscernible] actually growing traffic what we're seeing in Q1 versus Q4.

The third question, I believe, is for Rizza. May I clarify equity earnings from mid with and without ECP.

We actually don't give a breakdown of our port cost in terms of contribution to equity earnings outside what we have disclosed in both the slides and also in our filing. So, the net income disclosed already includes the impact of ECP since its acquisition versus last year wherein ECP was a consolidated entity in Globe's results.

The next question, I believe, is for Ernest and Martha. Are there any updates on the mid IPO in terms of time line and preferred exchange?

We really don't have a time lining as of now, given the conditions in the Philippine market. I'm sure you're all aware of it. All I can tell you is that we are propelling the company as we [indiscernible] setting up the proper governance structure in the company affectively by, I would say, later part of this year. We will be running the company as if it's a public company in terms of governance where there paper reporting, proper Board committees, a very [indiscernible] board members. So, it will be ready to go. It will be just a matter of finding the right time to get it down. As far as the preferred exchange, obviously, [indiscernible] based the preferred exchange for us given this are home base and the GCash is international, I would say, fintech champion in the Philippines. But we are exploring all other markets globally that would be a good match for the needs of the company and the shareholders.

There are no questions [indiscernible] at the moment. So maybe we can ask our friends here. [Operator Instructions] Thank you very much.

Steven here from China BancSecurities. A couple of questions for me. First is that do you see EBITDA margin pressures going forward given that you've reiterated your guidance even with EBITDA margin has outperformed your target in the first quarter? And the next question for me is that what's the driver of lower non-telco services even if we ship out the [ ECP ] consolidation?

So in terms of EBITDA, we are sticking to 50% as our guidance for the full year. So, I think that's like our minimum. Our first quarter is also better than 50%. Now if you -- on your second question, so one is on the deconsolidation of ECP from Globe. And then there are a few more of our portals who usually generate the larger momentum towards the back half of the year.

This is Derek from CLSA. So, I have several questions, first on the mobile side. To what extent are you comfortable in raising prices or monetizing on a per megabyte basis in light of more competition? Second, are you seeing more 5G adoption recently? And what are your thoughts about prepaid ECF in Globe is not yet doing it right now. Then on the data center side, regarding the power consumption, have you secured PPEs or RES contracts with power producers for data centers? Are they [indiscernible] or are they [indiscernible]? And lastly on GCash breakdown of revenues, is it more skewed now towards loan-related fees or interest or SKUs.

So I just remember the first question, so I'll go with it. So which [indiscernible] customers. But [indiscernible] do tell the customer there [indiscernible] that we analyze the [indiscernible] portfolio. If it makes sense, I mean [indiscernible] service that customers, depends on all the segments that we serve today or will [indiscernible]. On your second question, can you repeat for me.

So just regarding 5G, are you seeing any assessments?

So 5G [indiscernible] versus 4G. We've seen consistent traction such that we have almost 6 customers in 5G, 70% of that is actually using 5G. But it's [indiscernible]. So, what we're trying to do because there's no use case. So, it just so happened the [indiscernible] 5G strong and that's one of the priorities that will [indiscernible] 5G [indiscernible]. Only the 5G adoption is going slow. I think as all of you are noticing. However, in the higher income parts of the country here, BGC, Makati, we see an increase already in concentration of phones as a natural replacement cycle of mobile phones occurs, right? I mean the higher end segment when they buy new phones, they will not buy a 4G phone, but to [indiscernible] 5G phone and consequently start using the 5G network. It's just the lower and middle segment, of course, they'll go for the value phones today, which are still in the 4G category. Normally you're talking about maybe 10,000 to 8,000 kinds of phone. So, these are all still in the 4G category. But hopefully, as we see phones coming in and during technology and the chipset start below the pricing, then eventually, we'll get to that price range as well [indiscernible] adoption. Regarding eSIMs you can comment about. Just a clarification, we launched the prepaid eSim version late weeks ago. So, we started with the inbound travel eSim because we though inbound travelers is the best use case [indiscernible] after [indiscernible]. So that's the [indiscernible] eSim version that we have. Its gaining traction, not so much because it's also easy to actual approach a [indiscernible] sim [indiscernible] in terms of acquisitions and parts not so [indiscernible] Its just rotation [indiscernible] of the moment, but we can do a [indiscernible].

On the data centers, I think your question is regarding power, right? So in terms of power, all our data centers are currently operating with the exception of the very small ones that don't qualify for a retail energy supply contract or a risk contract. We do have renewable contracts. So over 95% of our energy consumption is green. And we continue to renew that and as well as supporting our commitments to all our parents, of course, including Globe, STT, GDC as well as any other corporation. In terms of our strategy moving forward, most of our rests are ready on the hydro and GO side at this point. But we are continuing to explore, especially for the new sites, alternative energy suppliers as well.

Lastly on the GCash.

So first of all, we don't disclose anything new that we haven't said that. What I can say is [indiscernible] payments space alone, we diversified as we increased diversity within in SIM space. More significantly in the financial services and see new [indiscernible] GCash, particularly lending, insurance and others. Also, the new businesses that we've recently [indiscernible] has started mentioning quite significantly. That led for sustainable revenue growth as we expect [indiscernible] momentum growth both in top line and bottom line.

Just a follow-up on GCash. Will you still be asset-light moving forward?

Definitely, yes.

We have another question here on queue regarding Mynt, but I believe so that been answered earlier by Martha. So, unless we have any okay.

I'm Jargo from AB Capital. Just a quick question on prepaid business given that it's just one of the main drivers for broadband, I believe, moving forward. Can you give me the type of profile that you are targeting for your prepaid business versus, say, fixed wireless?

So for the prepaid business, typically, you're looking at primarily the C2D segment with the D segment being the largest of the growth because it's 70% of the population. And that's where the broadband penetration is below the national average of 33%. So that's where the growth is. But even in the penetrating the D segment, there is subsegments within the D, and we're approaching this still fully digital. So that's why the approach is to come in via GCash and G1 being the enablement. But the product is pretty simple because it's appealing to the market segment of the D, where it's giving you unlimited Internet, pay as you go, reloadable and you need not worry about even the sign-up process because we're already tying in with the KYC on GCash. So that makes it a lot more seamless to get it. And more importantly, it's no contract, which is pretty daunting today, especially for the D segment, having to think about paying MXN 1,500 on a recurring basis for the next 24 months.

How do you see the competition in the prepaid space moving forward given you're targeting more price-sensitive customers, I would say?

I believe the growth in the Philippines would still be within that segment. So, it's low-cost network solutions entering into that segment. And prepaid further being the new category would be most appealing for that. So, if you look at the results of the different operators, it's still pretty much a bit converge on the foreside of that segment. I think the other competitors pretty silent about it now, but I strongly believe that, that's where the better ground will take place.

There are going to be no questions in the queue. And I believe there are no more questions here on the floor.

So just to add on prepaid fiber. What we've seen in the first quarter is that it's the -- it's really gaining traction such as its growth [indiscernible] in that category. Moving in Q2, it's much higher than that. So, we see a lot of potential. We've seen also the disposals of competition today I don't say [indiscernible] So based on being [indiscernible] it's substantially prepaid from prepaid segment. So that's also how we see the category growing in the coming quarters. So we're going to keep rising with the growth of fiber.

There currently no more questions in queue and here on the floor. So well, I guess that would conclude the Q&A portion. But before we adjourn, I will now turn over the floor to Mr. Ernest Cu for his closing remarks.

Thank you once again to everybody for coming over and again to the hundred people in Zoom. Thank you again for attending and the interest in Globe. The last quarter, I think, showed the resilience of our Delta business for ramping, 8% in terms of mobile revenue growth is nothing to sneeze out if you look at the global averages, this is one of the highest in the world I believe, right? So, it bodes well for the industry because I saw competitors results were also quite good. So, we can, I guess, that's further evidence that the competitive environment is quite [ behind ] and that the 2 large telcos are doing very well. And that's really good to know and good to see [indiscernible]. Because I also know the past 10 years, you guys will be [indiscernible] us for being the most competitive 2-player market in the world, right? But hopefully, for investors, we can deliver long-term sanity in the market as I would say, right? On the broadband side, you're seeing a very good momentum as well for our fiber business, particularly broadband [indiscernible] prepaid fiber. We're seeing an increase in momentum. I think for the next quarter, we'll be able to tell a little bit more of that. I must often pleased with what I'm seeing in terms of the buildup. It is in purpose that we decided to build it slowly as opposed to go to [indiscernible] acquisitions and [indiscernible]. But this is a very sensitive segment in terms of payments, and we want to make sure we'll do proper and promoting acquisitions. Because remember, there is a fixed cost to installation. And we ensure these people stay. As Danny mentioned, the share rates are low, right? ARPUs are high. That's the great trending that we want to be compared to others who are on mass acquisition in the prepaid fiber space. On the fixed wireless side, pretty much that's a foreground business that's done, right? So [indiscernible] models, [indiscernible] which it is approaching. Focus on the fiber side of the business because that's we getting the business is going. On the corporate side, we are seeing a resurgence as well in corporate data. You see that it will be a [indiscernible] we are restrategizing our approach in this very, very difficult market in the Philippines. In enterprise side of our country is very, very small. It's not large [indiscernible] SME, it's very, very small in terms of the businesses there almost akin to the [indiscernible]. So I'm trying to figure out where we play in that particular space, but so far, so good. On the non-telco businesses, you can see that we are now increasing the share of the non-telco revenues and profitability. This is just really with a couple of engines, the primary engine being rent. I guess it's no secret to what the profitability and the revenue -- revenue is [indiscernible] when profitability is not. If you just do your math properly, you know what it is. And it's trending very nicely for the year and I think Martha [indiscernible] within GCash are now diversified. It used to be a single-play payment business, but [indiscernible] is becoming a good contributor. Of course, there's also the long tail of the other businesses. What we are seeing is continued momentum. Royalty has never [indiscernible]. The NPS continues to be at industry leading levels. So we're very optimistic about that. The data center business is supposed to be a big contributor once it got growing in the same time 2025, right? Maybe mid 2025 you will see us open the data centers, the big one, particularly in [indiscernible] and hopefully, that will become another contributor alongside Mynt [indiscernible] ECP and the other [indiscernible] contributing to the Globe effect. So with that, I think it's a good start to the year. We're very pleased with the performance of all the subsidiaries. We will continue to inch up as far as the pricing. What we can is concerned [indiscernible] got to demand very carefully. There is a seeming to what subs can afford. Obviously, [indiscernible] needs to be measured, right? And I guess that's it. So, thank you again. And if there are any further questions, the team is available after the session. Thank you so much.

Thank you. And on that note, we can close First Quarter 2024 analyst briefing Globe Telecom. We should thank again all of you joining us here and in the call. We hope you join us again for our second quarter 2024 earnings briefing in early August. Again, we wish everyone the pleasant good morning. Stay safe, everyone.