Earnings Call Transcript - PHI Q1 2022

Operator, Operator

Good afternoon, and thank you for joining us today to discuss the company’s financial and operating results for the first quarter of 2022. A copy of today’s presentation is posted on our website. For those who’ve 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 broadcast of the event will be available on our website after the call. For today’s presentation, we have with us our Chairman, Manny Pangilinan; our President and CEO, Mr. Al Panlilio; and Anabelle Chua, Chief Finance Officer and Chief Risk Officer; Mr. Shailesh Baidwan, President of Voyager Innovations and PayMaya Philippines, as well as other members of the PLDT management team. At this point, let me turn the floor over to Mr. Panlilio to begin the presentation.

Al Panlilio, President and CEO

Thank you, Melissa. Good afternoon, and thank you for joining us today. Let me start by saying that I’m very proud to show you the performance for the first quarter of 2022. We are showing Telco Core net income of PHP 8.2 billion, which is a quarterly high since 2015. This is 9% higher than the same period last year or PHP 700 million higher than last year's PHP 7.5 billion. In terms of net service revenues, we also hit an all-time high of PHP 46.4 billion, a 3% growth versus the same period last year or an increase of PHP 1.5 billion. The major growth driver is Home at PHP 13.6 billion, with a 25% increase in revenues or PHP 2.7 billion. Wireless is down versus last year at PHP 20.4 billion due to the challenges of the lockdowns and Odette, but we are seeing a turnaround in the second quarter. The second quarter should bring improvements from first quarter moving forward with new programs and month-on-month increases in our top-ups. For Enterprise, we achieved an all-time high of PHP 11.6 billion, representing a 7% growth or PHP 800 million growth versus the same period last year. Carrier revenues remain small, totaling PHP 0.8 billion for the quarter. Regarding expenses, we have managed to reduce them by 3% compared to last year, and we aim to achieve positive free cash flow by the end of the year. Our EBITDA stands at an all-time high of PHP 25.5 billion or 10% growth from last year, translating to an increase of PHP 2.2 billion. Let me align my presentation to our five strategic pillars that we launched for company transformation. The first pillar focuses on growing profitable new growth. Highlights include an increase of Fibr customers. We added 213,000 net adds this first quarter, which is slightly above last year's first quarter. We've successfully added 480,000 new ports, totaling 6.25 million. On the Mobile front, we see an increase in average monthly data usage to 8.5 GB, with over 41 million data users on wireless. Additionally, we have 1.3 million customers using 5G daily, resulting in a 337% increase in their average usage. In Enterprise, we focus on cloud licenses, which increased by 36%, and we launched our data center in Santa Rosa, Laguna, which will help us address demand. Our total data revenues for this quarter are now up to 79%, reflecting demand growth. The second pillar emphasizes customer simplicity. We have improved customer interactions by optimizing our IVRS and implementing an automated credit validation process through TransUnion for new activations. We also deployed 76 PayBox kiosks for hassle-free payments while focusing on high-value transactions. Our goal is to deliver better customer experience continually. The third pillar focuses on operational excellence as a major thrust in our transformation. The key initiatives aim to improve our operating model, touching on installation, repair, maintenance, and CapEx management. The fourth pillar is the people-led transformation to shape a new culture at PLDT. We aspire to be the best place to work, and we have conducted various change management programs. Additionally, I’m pleased to share that LinkedIn has recognized Smart as the #1 Best Place to Work in the Philippines. The last pillar focuses on responsible business practices and sustainable operations, as evidenced by our partnerships for building energy-efficient data centers. Our overall goal is to deliver world-class service enabled by next-level technology. Our innovative focus aims to benefit all Filipinos, as reflected in our recent initiative on tower sharing, where we sold 5,900 of our towers for PHP 77 billion. This supports the government’s goal for improved tower density, significantly enhancing our operation efficiencies. Furthermore, we relaunched PayMaya as Maya, transforming it into an all-in-one money platform that includes savings and credit features. This integrated digital banking service demonstrates our dedication to providing users with comprehensive financial services.

Anabelle Chua, CFO and Chief Risk Officer

Thank you, Al. Let me recap the first quarter's overall top line results. Our service revenues reached a record high of PHP 46.4 billion, a 3% increase year-on-year. Home and Enterprise segments led the growth, with Home at PHP 13.6 billion, representing a 25% year-on-year growth. Specifically, our fiber-only revenues witnessed a remarkable 74% growth. Enterprise also performed well, showing a 7% year-on-year increase to reach PHP 11.6 billion. Individual contributions remain the largest at PHP 20.4 billion, with international revenues down to PHP 0.8 billion. In terms of our revenue growth trajectory, we moved from PHP 41.5 billion in the first quarter of 2020 to PHP 46.4 billion in the latest quarter, reflecting a steady increase. Our home business also shows a solid trajectory, growing from a PHP 9.2 billion base in 2020 to PHP 13.6 billion this quarter, with consistent subscriber additions. While we face headwinds in the individual segment from competitive pressures and inflation, we still see mobile data usage strong, with 41.6 million data users averaging 8.5 GB per month. Our mobile data traffic increased by 30% year-on-year. As the economy reopens, we anticipate further boosts in business activity and demand for corporate broadband, contributing positively to our enterprise performance. Our international segment remains soft due to travel restrictions, but it constitutes a smaller part of our overall revenue. On the whole, data broadband is driving growth, comprising 79% of total revenues for the quarter, and we have a strong performance across all segments.

Shailesh Baidwan, President of Voyager Innovations and PayMaya Philippines

Thank you, Anabelle. We expanded our core consumer business, reaching 47 million registered users through our e-wallet and on-ground networks. Our enterprise payment solutions remain the top choice in retail industries. With the relaunch of Maya Bank, we aim to enhance our all-in-one money platform with features like credit services and investment opportunities. We welcomed over 500,000 consumers to our early access program, reflecting strong interest.

Manny Pangilinan, Chairman

Looking at our outlook and guidance for the year, we expect service revenue growth to be in the mid-single-digit range, with home broadband leading revenue momentum. Home broadband is expected to grow in double digits for the year. The enterprise segment is poised for stronger performance supported by ICT and data center initiatives. While mobile revenues face ongoing challenges, we anticipate flat performance for the year. Our CapEx estimates have been raised to between PHP 80 billion and PHP 85 billion due to competition and business requirements. We expect to maintain below a 40% service revenue ratio for CapEx over the medium term. Starting from 2022, we anticipate improved cash flow, focusing on delivering positive free cash flows.

Operator, Operator

We’re now ready to take your questions. The first question is from Arthur Pineda. Arthur, you may unmute your mic. If not, we can move on to the second question. Hussaini, you have your hand raised. You can unmute your mic now.

Hussaini Saifee, Analyst

Yes, sure. I have multiple questions. First is on mobile competition. Is it possible to guide us on the decline in mobile revenues? What portion is attributed to the pandemic? As we are seeing some recovery, are we already at pre-COVID levels? What factors could be holding it back? Is it just competition or general purchasing power?

Al Panlilio, President and CEO

I guess I’ll take the first question. There are several factors at play here. Mobility is increasing as lockdowns have eased, and there are no longer any imposed restrictions. However, affordability remains an issue. We are not yet at pre-COVID levels, but we anticipate the second quarter to be closer to last year’s second quarter. We are cautiously optimistic about trends in mobile space improving.

Jane Basas, Operational Head

Indeed, revenue growth in the mobile wireless space has not yet reached pre-COVID levels. We faced challenges in the second half of 2021, primarily due to extended lockdowns. However, we are encouraged by the growth signals since January, with increasing subscriber activity, average basket size, and higher top-ups being noted due to our early year campaign initiatives.

Hussaini Saifee, Analyst

As a follow-up, how would you characterize the current competition? Has it remained stable compared to previous quarters, or has it escalated among operators?

Anabelle Chua, CFO and Chief Risk Officer

Competition has indeed been rational in terms of pricing. However, we have managed to maintain our pricing reactions due to the value-added services we provide to our subscribers. The entry of the third player has resulted in an increase in the number of dual SIM users, leading to challenges as our subscribers distribute their usage across both SIMs.

Unidentified Company Representative, Company Rep

In response to the tower-related questions, there’s no incremental spend for the towers. We are accelerating our capital expenditures to upgrade the towers to 5G in preparation for the sale, but this does not equate to additional, unplanned expenses.

Al Panlilio, President and CEO

Let’s address the PayMaya-related question next. SB?

Shailesh Baidwan, President of Voyager Innovations and PayMaya Philippines

Our investments have targeted three key areas: consumer and enterprise payment businesses, new services like crypto and insurance, and acquiring more users which drives future profitability. We’re focused on ensuring positive unit economics despite the initial cash burn.

Operator, Operator

Arthur sent in questions regarding CapEx. What is driving the PHP 5 billion to PHP 9 billion increase in CapEx? How is it split between network CapEx and dollar-related CapEx?

Al Panlilio, President and CEO

The increase in CapEx is mostly linked to retrofitting our towers to make them salable, which accounts for most of our increased CapEx projection.

Anabelle Chua, CFO and Chief Risk Officer

The premium to book value includes the additional CapEx that we have factored into our future plans. So PHP 77 billion compares positively to the overall book value.

Operator, Operator

The second question from Arthur concerns why profit expectations are not being guided higher. Given the PHP 3 billion implied annual net savings from the deal, shouldn’t we expect recurring profit?

Anabelle Chua, CFO and Chief Risk Officer

The PHP 3 billion reflects the full-year impact, so the timing of when this realization will occur is a bit unpredictable. It will depend on the closing timelines of the deals.

Al Panlilio, President and CEO

We expect growth in the second quarter to be higher than in the first quarter, although we don’t foresee a significant spike in election spending.

Anabelle Chua, CFO and Chief Risk Officer

Overall, data adoption continues to grow, with our target being to increase the penetration of data usage among our subscribers.

Unknown, Analyst

Can you discuss expectations for the new data center and when we should expect to see contributions from this?

Al Panlilio, President and CEO

The new data center in Santa Rosa is targeted for completion in 2023, with contributions expected from 2024 onwards.

Anabelle Chua, CFO and Chief Risk Officer

We currently manage expectations for a continued strong growth rate from our existing data centers, with a 29% increase observed in Q1.

Hussaini Saifee, Analyst

In '21, Voyager registered PHP 2.3 billion in equity losses. With PHP 700 million in losses in Q1, do you expect similar levels this year? When will you reach profitability?

Al Panlilio, President and CEO

In 2022, we expect to maintain costs similar to 2021 while we scale our offerings. We anticipate moving towards potential breakeven by late 2023.

Unknown, Analyst

What percentage of fiber subs are over total fixed line subs? When will migration be completed?

Unidentified Company Representative, Company Rep

We plan to migrate all ADSL customers to fiber by the end of Q2. Post-migration, we will focus on our remaining copper customers, aiming for completion in 2023.

Hussaini Saifee, Analyst

I have a couple of questions regarding margins. Has there been a reduction in provisions, and is that level sustainable?

Anabelle Chua, CFO and Chief Risk Officer

Our provisions follow an expected credit loss approach. We've had to adjust provisions based on the actual collection experience. The reduction reflects a response to previous overestimations during the pandemic, given current macroeconomic factors.

Unknown, Analyst

Where is the revenue for our data center coming from? Is it enterprises or licenses?

Unidentified Company Representative, Company Rep

We are experiencing growth from both enterprise customers and hyperscalers, although the larger portion of growth is sourced from hyperscalers.

Unknown, Analyst

What is the latest update on Dito's market share? How does it compare to last year?

Anabelle Chua, CFO and Chief Risk Officer

Dito shares have increased to around 5%, compared to approximately 2.5% last year. We maintain a strong position in the market.

Unknown, Analyst

Regarding mobile data revenue, what is the growth expectation looking ahead?

Anabelle Chua, CFO and Chief Risk Officer

We aim to drive mobile data revenue through the increase in data penetration among customers. Anticipating a positive trend, we expect recovery toward a mid-single-digit growth in upcoming quarters.

Unknown, Analyst

Aside from Odette, is the slowdown in home net adds attributable to competition?

Unidentified Company Representative, Company Rep

The first quarter is typically slower due to various seasonal factors. While demand remains strong, our installation efforts were hampered by the restoration focus due to Typhoon Odette.

Manny Pangilinan, Chairman

Currently, we are well-funded for the foreseeable future through our most recent Series C funding. Focus remains on executing our plans without necessitating additional rounds imminently.

Operator, Operator

We have no further questions in the queue, and neither have we received any questions submitted via email. We will now turn the floor back to Mr. Pangilinan for his concluding remarks.

Manny Pangilinan, Chairman

Thank you for joining us this afternoon regarding the first quarter results. We look forward to updating you again with our interim results in a few months. Thank you, and please remember to vote on Monday.

Operator, Operator

As always, if you have further questions or clarifications, please reach out to Investor Relations. Thank you for your participation today. Stay safe.

Manny Pangilinan, Chairman

Thank you.

Al Panlilio, President and CEO

Thank you, Melissa.