Delivering High-Speed Broadband to Millions of Philippine Households & Businesses Nationwide
3Q20 Results Update
October 2020
1 215 197 181 214 240 193 206 250 203 214 240 239 243 244 253 214 240 255
69 16 32 89 211 0 40 168 99 89 211 153 169 154 250 89 211 204
Legal Disclaimer
These materials have been prepared exclusively for information and disclosure purposes only. This does not constitute any offer to sell securities. These 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 of CNVRG to be 76 materially different from those expressed or implied in this release, including, but not limited to, changes in general economic, 57 157 political, governmental and business conditions in the Philippines and globally, as may be applicable; changes in interest rates; changes in inflation rates; changes in exchange rates; the level and speed of network construction generally; changes in raw materials and energy prices, changes in business strategies; and various other factors. Should one or more of these risks or 60 uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described 72 herein. CNVRG disclaims any obligation or undertaking to update or revise the information contained in these materials and 135 releases. This communication is not intended to be provided to, and may not be used by, any person or entity in any jurisdiction where the provision or use thereof would be contrary to applicable laws, rules, or regulations.
55 99 140
48 140 147
42 178 153
158 158 158
All rights reserved.
2 215 197 181 214 240 193 206 250 203 214 240 239 243 244 253 214 240 255
69 16 32 89 211 0 40 168 99 89 211 153 169 154 250 89 211 204
Today’s Speakers
76 57 157
60 72 135
55 99 140 Dennis Anthony Uy Grace Yao Uy Benjamin Azada Chief Executive Officer Co-Founder President, Co-Founder Chief Strategy Officer
48 140 147
42 178 153
158 158 158
Jesus C. Romero Matthias Vukovich Chief Operating Officer Chief Financial Office Advisor
3 215 197 181 214 240 193 206 250 203 214 240 239 243 244 253 214 240 255
69 16 32 89 211 0 40 168 99 89 211 153 169 154 250 89 211 204
3Q20 Results Key Takeaways
Rapid growth continues in 3Q20 with 71% YoY revenue growth and 79% YoY EBITDA growth 76 57 157 Continued to deliver the industry-leading trifecta with 60 72 67% revenue growth, 52% EBITDA margin and 20% ROIC in 9M20 135
55 Record monthly port roll-out and gross residential subscriber 99 140 additions of ~179k and ~74k respectively in September 2020
48 140 147 Continued upselling resulting in healthy residential ARPU growth of ~7% in 3Q20 (vs. 1H20)
42 178 153 Residential business delivered 90% YoY revenue growth in 9M20, driven by strong subscriber additions and healthy ARPU growth 158 158 158 Enterprise business continued to remain robust, with revenue growing 15% YoY in 9M20 despite COVID-19
4 215 197 181 214 240 193 206 250 203 214 240 239 243 244 253 214 240 255
69 16 32 89 211 0 40 168 99 89 211 153 169 154 250 89 211 204
Financial Update: Continuing to Achieve Trifecta of ~67% Growth, 52% Margin, ~20% ROIC
Revenue EBITDA (2) PHP MM (1) PHP MM (1)
($220) ($115) 76 5,576 57 ($188) 10,677 ($96) 157 9,140 4,665 2,264 ($132) ($66) ($104) 2,786 6,393 ($53) 3,205 60 ($86) ($47) 72 5,055 2,549 ($61) 1,964 2,262 135 ($51) 4,187 ($30) ($26) ($38) 1,904 8,413 ($18) 1,460 2,940 2,451 752 1,266 1,894 6,354 894 1,421 734 4,429 55 1,033 3,151 3,435 99 862 1,520 1,718 140 2016 2017 2018 2019 3Q19 3Q20 9M19 9M20 2016 2017 2018 2019 3Q19 3Q20 9M19 9M20 Residential Enterprise 48 EBITDA Margin (2) ROIC (3) 140 147 Annualized
52.2% 20% 42 178 51.0% 153 50.4% 50.1% 49.7% 12% 12% 158 158 47.2% 158 6%
(4) (4) (4) 2016 2017 2018 2019 9M19 9M20 APAC Broadband Phils Telco Global Broadband
Notes: 1. Based on an FX rate of 1 US$ to 48.510 PHP 2. Pro Forma Adjusted EBITDA is EBITDA adjusted for provision for contingencies, loss on direct write-off of network materials and supplies and loss on fire and Pro Forma Events 3. Return on Invested Capital is tax-adjusted (30% assumed effective tax rate) pro forma profit from operations divided by average invested capital. Invested Capital is the sum of our total equity and total debt (comprising loans payable (non-current and current portions)), less cash and cash equivalents and capital expenditures in progress 5 4. APAC broadband players includes Link Net, HKBN, and Time dotCom; Philippines Telco includes PLDT, and Globe; Global broadband players include Telenet, Altice, Altice N.V., Charter Communications and Liberty Global; Link Net and Time dotCom ROIC refers to LTM as of 1Q2020 215 197 181 214 240 193 206 250 203 214 240 239 243 244 253 214 240 255
69 16 32 89 211 0 40 168 99 89 211 153 169 154 250 89 211 204
Record Pace of Network Roll-out: Currently Adding ~180k Ports per Month
Extensive and Fast-growing Network
Homes Passed (MM) (1)(2)(3)
76 2% 13% 21% 55% ~5.1MM homes passed as of September 2020, ~10x increase 57 8 190 353 157 15.1 from 2016 to Sep 2020 ~10x
60 72 5.1 ~21% household coverage nationwide as of September 2020 135 3.2 0.8 (~36% in Luzon) 0.5 0.8 4.3 2.4 (6) 2016 2019 Sep-20 2021E 2025E 55 Targeting 55% household coverage (~15MM homes passed) 99 FTTH Homes Passed HFC Homes Passed 140 by 2025E (4) Monthly Addition Run-rate (‘000s) Household Coverage (5) (for last month in the period)
48 140 Number of Ports (MM) (1)(2) 147 ~3.0MM ports as of September 2020, ~6x increase from 2016 5 100 179 7.5 - 8.0 to September 2020. Target 7.5-8MM ports by 2025E
42 ~6x 178 153 3.0 ~180k port additions in August and September 2020, which is expected to continue through to year-end 2021 2.0 0.8 0.8 0.5 2.1 158 1.2 158 158 2016 2019 Sep-20 2021E 2025E FTTH accounted for over 90% of port additions since 1Q19 FTTH HFC Monthly Addition Run-rate (‘000s) (4) and comprises ~72% of total ports as of September 2020 (for last month in the period)
Notes: 1. FTTH homes passed is derived from the number of homes within a 300 meter radius from a network access point (“NAP”) that we have installed in a coverage area. Each NAP has eight ports, and one port serves one home 2. HFC homes passed refers to the number of homes and other residential units that are within a 200 meter radius from our HFC ports, and can be connected to our network. 3. For FTTH, ratio of 1 port = 2 home passed; for HFC, ratio of 1 port = 1 homes passed 4. Run-rate based on additions in last month of each period (i.e. December for full-year and June for half-year) 5. Household coverage is calculated as total homes passed over total number of homes, which is 24.8 million as of 2019 6. Based on 2025E total households of 27.5 million according to MPA 6 215 197 181 214 240 193 206 250 203 214 240 239 243 244 253 214 240 255
69 16 32 89 211 0 40 168 99 89 211 153 169 154 250 89 211 204
Record Highs in Monthly Gross Adds: Run-Rate at 65-70k+ Monthly Gross Additions with Steady ARPU
Number of Subscribers (‘000) Market-Leading (1) Take-up Rates • ~60%+ port take-up rates in the long run, and ~40% within 12 months which are 4x faster than the industry • More recent vintages achieved significantly faster take-up compared to 3.7 22.7 73.6 901k subscribers as of September 2020, ~12x earlier vintages 76 growth since 2016; driven by FTTH subscriber growth • Regional areas e.g. Daet (which is less dense and less affluent compared 57 ~12x to Metro Manila) reported ~50% take-up in 8 months 157 12x • Significant investment to-date with port inventory sufficient to add ~1.5mm Increase in 901 new subscribers with minimal incremental capex Gross subscriber adds of 65k in July 2020, 70k in Subscribers 228 Key Success Factors Contributing to High Take-up Rates 60 530 August 2020 and 74k in September 2020. Expect Since 2016 • Careful site selection considering a wide-range of factors 72 199 run-rates to continue through to year-end 2021 135 673 • “Right sizing” port deployment to match market demand; phased 74 331 deployment to test market demand • Close internal coordination between sales and network teams 2016 2019 Sep-20 • Pre-marketing conducted months in advance of launch 55 Over 90% of gross adds are first-time fixed FTTH HFC 99 broadband users in 3Q20 (1) 140 Monthly Gross Addition Run-rate Rapid Growth • 814k subscribers as of July 2020, achieving ~11x growth since 2016 (largely driven by FTTH subscriber growth) 48 Blended ARPU 140 − 50%+ share of market net adds since 2018 (2) (3) 147 PHP (US$) Continued upselling resulted in healthy ARPU • Recorded gross subscriber addition run-rate of ~68k gross additions in +7% July 2020 growth of 7% in 3Q20 vs. 1H20 − Expect to at least continue at current pace of run-rate until the end of ($24.6) ($24.3) ($26.7) ($26.2) ($27.9) 2021 42 − Expect to continue gaining market share rapidly
178 1,293 1,352 1,270 153 1,191 1,178 Key Success Factors Contributing to Increasing Subscriber Additions Steady 14% of FiberX 1500 subscribers had taken up the • Ability to attract subscribers from both sources: ARPU "10-for-99" promotion as of 3Q20 − First-time subscribers (over 50% of new subscribers in 2019) − Subscribers switching from other operators (60% of customers 158 contemplating a switch will choose Converge; 72% of respondents will 158 sign-up once Converge reaches their area) 158 Expect stable ARPUs going forward, with fiber • Strong growth despite <1% of revenue spent on marketing broadband viewed as a necessity in post-COVID − Providing a product offering that meets customers priorities (with Converge ranking #1 across the top 3 criteria) new normal − Effective customer acquisition strategy across multiple internal and 2017 2018 2019 1H20 3Q20 external sales channels − Capitalizing on word-of-mouth advocacy
Notes: 1. Run-rate based on additions in last month of each period (i.e. December for full-year and June for half-year) 2. Monthly ARPU for our Residential Business is calculated by dividing (i) the revenue generated during a period by (ii) the average number of subscribers during that period, then dividing the quotient by the number of months during that period 3. Based on an FX rate of 1 US$ to 48.510 PHP 7 215 197 181 214 240 193 206 250 203 214 240 239 243 244 253 214 240 255
69 16 32 89 211 0 40 168 99 89 211 153 169 154 250 89 211 204
Converge has Undertaken Multiple Initiatives to Enhance Overall Customer Satisfaction
Deeply Focused on Maintaining High Customer Satisfaction By Delivering High Quality Products
and Seamless End-to-End Customer Experience
76 57 157 Increased installation capacity by doubling the number of Customer installation crews since lockdown
60 Onboarding 72 and Installation Continue focus on strong and rapid conversion from 135 application to installation to activation
55 99 140 Onboarded almost 400 new outsourced call center agents to respond to customer queries, leading to a ~3x 48 140 Customer increase in calls answered by our service desk 147 Care Continue focus on high customer satisfaction, resolving customer inquiries and requests within the least amount of 42 time 178 153
Launch of our mobile application, Converge Xperience App 158 158 Reduce customer effort and increase customer satisfaction 158 Digitizing Our by digitizing the customer onboarding process Customer – Offering a frictionless payment experience Journey – Enhance self-management of customers’ accounts (E.g. monitor data usage ask questions, order new circuits / add-ons)
8 215 197 181 214 240 193 206 250 203 214 240 239 243 244 253 214 240 255
69 16 32 89 211 0 40 168 99 89 211 153 Philippine Satellite Luminosity 169 154 250 89 211 204
Operational Update on Network Initiatives
Converge Deployed in Areas with The Highest Population
More than 9,000km of terrestrial Densities in the Philippines backbone constructed in 3Q20 76 57 Converge’s Network Coverage Philippine Satellite Luminosity 157 Substantially completed the extension [ ] of its backbone to the Visayas area and Network Rollout begun constructing key segments 60 connecting Mindanao 72 135 273 towns and cities covered by our network as of September 2020 (from
55 167 cities as at December 2019) 99 140 Illustrative Bandwidth Converge’s International Bandwidth Capacity As of September 2020, activated Cost Savings 48 140 600Gbps out of 5Tbps of Gbps Meaningful 147 Draw down on international capacity purchased 5,750 As at September cash cost international 2020, Converge has savings from Telstra ~8x capacity from drawn 600GBps, 42 the Telstra IRU Material reduction of bandwidth and giving us access to 178 leased line cost from 9.9% of total 153 1,450 Gbps of 750 capacity revenues in 1H20 to 8.5% in 3Q20 Lease IRU Jun 20 Sep 20 158 158 158 Philippines’ Activated Philippines’ first 400GB metro backbone in July 2020 First Metro Backbone Can be further be scaled to higher 800GB capacity to support future growth.
9 Q&A
10