PLDT Inc. (TEL) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us today to discuss the company's financial and operating results for the 9 months of 2024. A copy of today's presentation is posted on our website. For those who have not been able to do so, you may download the presentation from www.pldt.com under the Investor Relations section. Kindly note that this briefing is being recorded. A podcast of this event will be available on our website after. QR code for presentation on the screen and in the confirmation notices e-mailed to you. Joining us today is our Chairman, Mr. Manny Pangilinan; CFO and Chief Risk Officer, Mr. Danny Yu; Atty. Marilyn Aquino, our Corporate Secretary and Chief Legal Counsel. And also here with us today is our new Investor Relations Head, Mr. [indiscernible] as well as other members of the PLDT group's management team. At this point, let me turn the floor over to Mr. Yu to begin the presentation.

Good afternoon, everyone. Let me share with you highlights of PLDT's financial and operating results for the first 9 months of the year. Our net service revenues for the first 9 months hit a new high of PHP 144.9 billion, higher by 2% from last year. On gross basis, service revenue grew by 4% compared to the same period last year. Operating expenses remained stable at PHP 64.2 billion, Consolidated EBITDA increased by 3% to PHP 80.7 billion, with margins steady at 52%. Telco core income, excluding the impact of asset sales in Maya rose by 2% to PHP 26.6 billion. On segment basis, our individual business recorded a PHP 1.5 billion or 2% rise in revenues to PHP 62.1 million. Our Enterprise segment registered revenues of PHP 45.2 billion, 4% or PHP 1.3 billion higher than last year. While our home revenues were stable year-on-year at PHP 45.2 billion, Fiber Only revenues increased by 6% or PHP 2.4 billion to PHP 41.7 billion. We continue to highlight that there are underlying revenue streams, registering stronger growth than the headline numbers. This reflects the drag from legacy revenues. Overall, excluding the impact of legacy revenues, net service revenues rose by 5% with the growing segment revenues accounting for 88% of the total. For the individual business, mobile data, which represents 89% of total segment revenues grew 5% year-on-year, more than double the segment growth of 2% which reflects the drag from legacy SMS voice. The overall home segment, on the other hand, remains stable year-on-year by fiber-only revenues, which now account for 92% of the segment actually grew by 6%. Corporate Data and ICT accounting for 72% of the total enterprise revenues rose by 6% compared to the overall segment increase of 4%. Let me share more details of the respective business segments. Service revenues for the individual business rose by 2% in the first 9 months of 2024. With postpaid and prepaid revenues higher by 3% and 2%, respectively. Mobile data remained to be the growth driver, accounting for 89% of the segment revenues. Blended ARPU rose by 6%, mainly from a 7% rise in average usage and 10% growth in data traffic. Notable for the segment is the continuing increase in active mobile data users to 41.2 million from 40.5 million as of end of June. We are currently revitalizing the mobile data table to reaccelerate the segment's performance. Part of this includes subscriber acquisition through continued site rollout, capacity expansion and geo-targeted campaigns, upselling to higher value offers and further stimulating usage to enhance service offers and improve customer service. Fiber revenues, which account for 92% of our home business continues to rise steadily having registered a 6% year-on-year growth. We continue to focus on managing churn and accelerating fiber installations. Improvement in service delivery continued to register industry-leading fiber churn levels of 1.7% in 9 months of 2024 from 1.91% in 9 months of 2023. Fiber installation capacity continues to ramp up in 3Q 2024 fiber installs of 220,000, the highest since first quarter of 2023. All fiber ARPU remained at around 15,000 level with lower price plan offered selectively in areas where we have experienced capacity. There has been a strong market production of new broadband products, which includes our Fiber Unli-All Bundle, lower-priced postpaid Fiber plan and a home WiFi 5G plan. Other network initiatives include leveraging on our fiber and mobile networks to grow the segment, including expanding in green and brownfield areas as well as building a multi-dwelling unit fiberization. PLDT continues to enjoy strong brand equity and superior network quality, making it a formidable competitor in the market. Growth in the enterprise is driven by continued focus on pushing enterprise solutions. The enterprise segment registered a 4% growth with corporate data and ICT being the growth drivers having launched 6% during the period. Included among the revenue streams that recorded improvements were core connectivity, higher ICT revenues from managed IT services, cybersecurity solutions, data center and cloud services, plus A2P messaging services. Locators in our Santa Rosa data center, energized in July have started to come on board. Approximately 20 megawatts of a 36-megawatts IT load capacity are expected to be available by end of 2024. The Vitro Santa Rosa data center is well positioned to capture growth from a hyperscale and AI debt is ahead of competition. Amidst pressure from higher cost to operate, total OpEx for the period was marginally higher by PHP 300 million as we continue to identify and extract operating cost efficiencies. EBITDA at the end of September 2024 rose by 3% to PHP 80.7 billion on the band of higher revenues. EBITDA margin was steady at 52%. Telco core income for the first 9 months of 2024 grew by 2% to PHP 26.6 billion, reflecting the impact of higher EBITDA, partly offset by higher depreciation and financing costs. On a reported basis, PLDT income rose 1% to PHP 28.1 billion. Our share in losses from Maya continues to decline with Maya on track to achieve bottom line breakeven towards the end of 2024. PLDT's balance sheet remains healthy with net debt-to-EBITDA of 2.44x as at end of September. We remain focused on bringing down leverage to the 2.0x level, which we expect to obtain with the anticipated increase of EBITDA, reduction in CapEx and with the balance of the tower sales proceeds. Discussions for the potential monetization of our data center business are still ongoing. Gross debt stood at PHP 272.6 billion, of which 14% are dollar-denominated and 5% unhedged. The average interest cost for the period stood at 5% pre-tax with the average life of debt at 6.7 years. Total CapEx amounted to PHP 52.3 billion at the end of September, consisting of network and IT CapEx of PHP 46.7 billion and business CapEx of PHP 5.7 billion. CapEx intensity or CapEx to service revenue stood at 34% for the period versus 37% in 2023. Of the remaining PHP 33 billion commitment net of advances for major vendors, the remaining commitment has been reduced to PHP 4.2 billion for 2024. Our CapEx guidance is PHP 75 billion to PHP 78 billion, consistent with our aim to continue to reduce CapEx. The increase in the number of unique 5G devices and 5G data traffic continues into 2024, which we expect to be sustained at the price of 5G devices trends downward. 5G adoption is one of the emerging growth streams of our individual business. Moving on to Maya, our fintech investment. Maya Bank continues to be the Philippines #1 digital bank based on deposit balances, which grew by 52% to PHP 36 billion at the end of September. The bank continues to register robust growth in a customers and borders. Loans disbursed life to date stood at PHP 67 billion at the end of September. Maya takes pride in its unmatched speed to market, delivering multiple high-tech banking products for consumers, SMEs and micro enterprises. With the Landers Cash Everywhere credit card, a collaboration between Maya and Landers, Maya delivered the first digital bank credit card in the market. As mentioned earlier, Maya is on track to turn bottom line positive towards the end of 2024. We're also pleased to report that PLDT score in the S&P Global Corporate Sustainability Assessment jumped by 13 points to 71%, the highest in the Philippines as of November 2024. In October, PLDT also secured a PHP 2 billion social loan from HSBC for the expansion of its fiber network to reach the fourth and sixth class municipalities. This is in line with its commitment to narrow the digital divide and support the government's initiative to connect the unconnected. Our outlook for 2024 continues to be one of guarded optimism. We expect revenues from our data and broadband businesses to grow by mid-single digits, excluding the impact of legacy revenues. With our continued pursuit of operating efficiencies and cost rationalization, our EBITDA is anticipated to grow by mid-single digit. Telco core 2024 is expected to land north of PHP 25 billion, in line with our commitment to lower the CapEx headline number and topic intensity over time. Our CapEx guidance for 2024 remains at PHP 75 to PHP 78 billion. We remain committed to a 60% dividend payout to bringing leverage back to our target 2.0x net debt-to-EBITDA level and achieving positive free cash flow before dividends by 2025. Thank you.

So we're now ready to take your questions. [Operator Instructions] We have a raised hand from Luis Hilado.

Congratulations on the results. I just had 3 questions. The first one is we noticed that fixed line voice continues to be quite healthy in this quarter, just like the prior quarter. If you could remind us what's driving that? Second question is if we could get an update for the time line of the data center stake sale and whether you've made a decision whether to sell a majority stake or a minority stake? And last one is financing costs seem to be up double digit Q-on-Q and year-on-year. Is there any like one-off reason for that?

Jeremiah, take this first question.

I'll start by addressing I think, your first question, which was fixed line voice and the question was around what's actually driving that continued sort of revenue stream on the voice side. So that's predominantly, there's 2 parts of voice revenue, one is voice that's coming through from our core subscribers. And with that has actually remained quite steady. If you look at the total number of voice on the top of that decline that we're seeing quarter-on-quarter year-on-year has actually plateaued out now. So it is now into the long tail component. But the second part of voice is actually we do have some voice in our fiber business as well. As you would know, in our Unli-call product, which 1399 package. We have an unlimited [ telephony ] and unlimited broadband, 5 mobile sims as well as seasonal [indiscernible]. So when you factor all of that in, we actually do have a voice allocation as part of that package. And that's why you will see actually voice remain as part of the overall portfolio. And sometimes, actually, you'll see it grow a little bit because it's predominantly an allocation basis.

That's pretty clear.

Discussion on data centers are still ongoing. We hope to complete this by middle of next year. Remember, this requires PCC approval. Then to your last question -- what was sorry -- what is your last question.

Financing costs.

Yes. Financing costs for the quarter seem to be up double digit.

General -- the costs, the increase in financing costs is mainly due to the increase in the average interest rate by 50 basis points, plus, of course, towards the third quarter, we also had additional loan of about PHP 15 million.

There's a question on the status of the tower sales, what is the outlook at the completion of the tower sales?

Well, we still -- we're in the process of trying to sell a majority of the towers that are still -- that have not been purchased but have been covered by existing contracts. So that's for the rest of the year. I think we will be able to sell more or less 90% of the remaining towers that we contracted to the last 2 common tower providers that we have engaged with. But we continue to sell other sites that we have covered in previous contracts. And so that's what -- we may have to do that until next year. But for this year, we will grow around 90% of towers that we have contracted with the last 2 common towers providers.

It's a question on wireless. Can you describe the competitive situation in the wireless space? Mr. [ Martirez ]?

Well, I -- thank you for having me, guys. Let me start by giving my philosophy that while the situation is one where I would say is oversubscribed, the Philippines being 110 million population from subscription of phones numbering over 130 million makes you a subscriber in your banking terms probably, you call it overbank, isn't it? So in a situation like that, I think it doesn't make sense that players in this space compete on the basis of subscriber acquisition because that is going to be costly, that's disruptive and it's not healthy. In my view, what players should be doing, you should be adding value in their offerings. Put it that way, we all contribute to expanding the market. Then we just leave it to those who will work the hardest to get their fair share. That's my mantra. Is there [indiscernible].

Mr. [indiscernible], you can join.

Just one quick follow-up actually on mobiles. So -- so overall revenue actually dipped sequentially. And I think your competitor ascribe that to the impact of typhoons. I was wondering whether you saw the same for PLDT? More importantly, I think the net subscriber, there were net subscriber reductions also in the third quarter. So any color on that would be very helpful.

Well, I wish I can say that weather is a cause for problems in the business, but I'm not one who would like to say that. I think it's a matter of -- it's a matter of planning, planning your network, planning your business. So we don't have to blame the weather if we fall flat on our business. Does that make sense?

Yes, sure. But I think quarter-on-quarter, there was a dip in mobile revenue. So I was wondering what you think might have caused that also. And there was a I think 500,000 subscribers who churned out on a net basis. Any explanation for that would be helpful.

Well, generally, I think the other major player and us suffer the same kind of decline. But in our case, more than that, we did suffer a few months where in a series of days within that month, September that is, we had problems with network outages. So we look into that, we have made some quick fixes. But I think we are still going to make sure that we continue to have a more structural fix moving forward. So far so good. It hasn't come back and cross fingers, we'd like to end rest of the year on a high note.

Question on enterprise, on the data center. What is the take-up of the new data center in Santa Rosa? Jojo?

Sure. Good afternoon. Thank you for the question. So we've opened Vitro Santa Rosa, our 11th DC. It's -- and with on track, we fitted out for 20 megawatts of capacity before the end of the year and leading up to 36 megawatts by next year. So the DC is open. We have interest from enterprise customers and hyperscalers. We already have an anchor tenant testing in Vitro Santa Rosa. So there's already an active customer.

There's a question on the outlook for CapEx for 2025.

The CapEx for this year is around PHP 75 million to PHP 78 million. We're still in the planning stage right now. So we still don't have the numbers for 2025.

In line with Maya, are they on track to become profitable and what is the timeline for [ IP ]?

We committed to have a P&L breakeven by December of this year. So I guess they're going to be profitable in the whole year of 2025.

IPO time line.

There is no definite time line for the IPO.

Any more questions? There's a question that was received in the e-mail about the breakdown of our other expenses. We will deal with that offline, and we'll send the required information. The question on phone, what accounts with the for the better or record-breaking installs for the quarter? Jeremiah?

Thank you for that question. Actually, it's multiple factors that have actually helped drive the improvement in our home business. I think at the beginning of this year, we mentioned this at the very, very get go, which was reaccelerating our rollout. 2023, we saw some challenges, and we actually had a very, very minimal roll out in 2023. In 2024, we have actually picked that up, and we have actually been able to roll out just over 400,000 ports, of which we're starting to see the impact from a revenue perspective. Combined with the rollout that we've actually reaccelerated, the second one is we've been able to increase the sales capacity. So coupled with more ports to be able to sell the new selling areas, we've been busy working with our sales partners to be able to ramp up the selling capacity, and we're starting to see that actually flow as well. Finally, the other major factor is in the second quarter, we made some major interventions. So we had a restructure in terms of our channel partner commissions and our engagement with our sales partners. And we also launched some new products. So you would have seen an enhanced Unli-all product proposition, where we provided more value, greater speeds and actually started to include mobile as part of the overall bundle. Second, we also introduced the 899 value plan. So it's the first time that we've actually been introducing a sub PHP 1,000 [ vessel ] plan from PLDT. And the third, we introduced prepaid fiber. So I think the combination of all of those things have actually held drive an improvement in our take-up in the third quarter. It's still off from where we want it to be. The marching orders are very, very clear, and that's to continue to ramp up to previous higher levels, and that's what we actually anticipate moving forward. So we're expecting to see an increase in our installations. Obviously, making sure that some of the weather does permit and I'm not hampered with some of the adverse typhoons, et cetera. But we are expecting and anticipating a continued ramp-up in the home business going in through to 2025.

Next question is could you provide more color on the press release this morning about the investment in Bayad. [indiscernible]?

We are increasing the investment in Bayad to 67%. So we're investing additional 67% in Bayad. But that is not -- that investment will require BSP approval and [indiscernible] approval. So we don't expect that to be implemented until after the second half of this year. So that is -- that's supposed to help in the development of the current payment rate in Bayad which we basically need for the Kayana business that were built.

Next question is possibly --

I can request [indiscernible] to input additional explanation on the commercial in [indiscernible].

Right. So this is [ Kat Abelarde ]. So I think a couple of months ago, we did mention our initial investment into Bayad at that point was just 10%. We made that investment alongside the full acquisition of Multi [indiscernible], another of our payment companies that exist with Group. Now within the past 3 months, we are very happy with what we saw and we feel that there is greater synergy that we can derive by bringing all of our payment companies or fintech companies together. So we understand that, that's going to take some time in the 3 years part of a longer process, but we want to start with Bayad it as a first mover into a bolder stance in the fintech space.

Just to mention that PLDT's interest in Kayana is 45%.

Yes. Next question is on the [ Dito ]. What is the impact of the operations? Mr. Doy?

What is the impact of [ Dito ] on the operations?

No. On our business.

Well -- Dito being a challenger, which I think unfortunately, comes with the challenge -- at this time when he's challenging 2 major players when the whole industry is [ overpacked]. It will be a different story. [ He ] comes in a challenging existing major players when let's say the penetration rate is maybe 50% or less. But he's coming in at a time when it's [ overpacked]. So anything he does, we know will be disruptive. But there is an elegant way of addressing this because now with technology, you can have [ clear ] targeting, you can be very selective. And that's exactly what we have been doing. So but credit to Dito, they have taken their own [indiscernible], but we make sure that they do not overstep the boundaries. We hope that we have caried out the message -- we sent the message to them enough that the way to compete is basically to add value, to make customers happy and to expand the market. And hopefully, in due time, they will actually align with it.

The next question what are your initiatives around AI? Jojo?

So AI continues to be a focus for the company. There's 2 main use cases or 2 main buckets of areas where it can really help the PLDT Group. First one is it improves our ability to deliver exceptional customer experiences. So we have a couple of, say, AI bots in the environment that help us be more efficient in collecting dues, for example, and we continue to work with the various business units to ensure that we nurture up-and-coming use cases be it voice or text-based, even videos. The second area where AI is important around operational efficiency. There's a couple of areas of that we're targeting, but a lot of that is actually hinged on our [ OSS ] transformation initiatives that would enable us to be more efficient in many areas with regards to network operations. Things like accuracy and the facilitation of how we roll out, identifying faults in the network, proactively doing troubleshooting. And so there's a lot of good work that throughout the outlook so that we can continue to nurture the power of AI.

Next question, also for you, Jo. What are the plans for a new data center?

So we've opened the 11th. We are looking already for the 12th location. So yes, we will build ahead of demand and continue to expand.

[Operator Instructions] There are no questions in the queue. There are no further questions. I'll hand the floor over to Mr. Yu to give his concluding remarks or Butch Jimenez, our COO for PLDT to give the concluding remarks.

Good afternoon. On behalf of MVP, I'd just like to thank everybody who joined the call today. I think we have a very challenging 2024, but looking forward to 2025, we expect a more robust performance for both PLDT and Smart. And we're seeing that in our second half numbers in our second half growth. And so we look forward to being able to share with you our plans for next year during the next call. But as Mr. Pangilinan said earlier, just a couple of days till Christmas, so Merry Christmas to everybody.

That concludes today's briefing. As always, should you have any further questions or clarifications, please reach out to PLDT Investor Relations at [email protected]. Thank you for your participation.