Converge Reports Record Results in 4Q2020, Doubling its Residential Subscribers Base

Media Release

Doubled home subscribers base to more than one million resulting in 71% Y.O.Y revenue growth (FY2020, Y.O.Y.), and increased profitability with Php8.2 billion EBITDA (52.5% EBITDA) margin) and Php3.4 billion net income (21.6% net income margin)

FY2020 Key Highlights

  • Converge continued to accelerate growth and profitability in FY2020 with 71% YoY
    revenue growth, 76% YoY EBITDA growth and EBITDA margins expanding from 51.0%
    in FY2019 to 52.5% in FY2020
  • Strong subscriber growth contributed to 99% YoY residential revenue growth
    Enterprise business growing at 9% YoY in FY2020 as businesses are adapting to the
    new normal
  • Record roll-out of almost 1.5 million new FTTH ports in FY2020 resulting in 25%
    household coverage across the Philippines and 43% household coverage in Luzon
  • Continuous focus on capital efficiency resulting in 20% ROIC in FY2020
  • On track to complete nationwide backbone expansion in 1H2021 and do full commercial
    launch in new regions in Visayas and Mindanao in 2H2021

Part 2 of 2

MANILA, March 12, 2021 – The Philippines’ largest and only pure-play high-speed fixed broadband operator, Converge Information and Communications Technology (Converge ICT) Solutions, Inc. (PSE: CNVRG) (“Converge”) continued to deliver record results, doubling its subscriber base in 2020 and reaching approximately 1,038,000 residential subscribers by the end of December 2020.

Solid Performance of Enterprise Business Despite Challenges from Covid Pandemic

The Company’s enterprise business continued to grow with a net addition of 1,007 customers during FY2020, which represents an increase of 10%. Many of these new additional customers included multi-site branches (e.g., retail clients with multiple nationwide branches), which require less bandwidth than our traditional large enterprise clients (e.g., financial institutions, BPOs). This increase in the number of our branch customers drove the decrease in monthly enterprise ARPU from Php27,259 in 4Q2019 to Php23,002 in 4Q2020.

In the fourth quarter of 2020, our enterprise business benefited from new contract wins, which include a large government contract to enhance connectivity in underserved low-income regions and a corporate wholesale project with a large global carrier for the use of our domestic backbone. The Company also soft launched four new products, one of which was the “Dedicated Internet Access Time-of-Day” which offers more capacity at certain pre-set periods
of the day. This new enterprise product has been well received and was officially launched in February 2021.

Rapid Nationwide Expansion of Converge’s Leading Fiber Optical Network

The Company continued to accelerate the nationwide rollout of its leading fiber network throughout 2020. More than 28,300 kilometers of fiber optic cables were added during the year, expanding our backbone and distribution network by 106% from about 26,700 kilometers laid down at the end of 2019 to approximately 55,000 kilometers at the end of 2020. We started 2020 covering 167 cities and municipalities. With our network expansion, we were able to extend our coverage to additional 149 cities and municipalities by end of the year, reaching more areas in Rizal, La Union, San Juan, Pangasinan, Nueva Ecija, and many more.

The Company was able to install its highest number of ports in a year during 2020, with almost 1.5 million ports installed, 97% of which being FTTH ports. With our total 3.5 million deployed ports, our network coverage reached 25% of nationwide households. The Company continues to be on track to achieve its target of reaching approximately 55% of total households in the country by 2025.

Converge doubles subscribers base in 4Q2020.
Converge ICT Solutions CEO Dennis Anthony H. Uy. (Image: Converge ICT)

In FY2020, Converge’s expansion to the Visayas and Mindanao regions has been progressing as planned and we plan to substantially complete our backbone in these new regions in 1H2021, allowing us to fully commercially launch services by 2H2021. As of March 2021, we were able to secure approximately 80% of the necessary Environmental Compliance Certificates (“ECCs”) for the landing stations of our planned nationwide submarine cable network that will connect the main islands of the Philippine archipelago.

Apart from the regional expansion of our network, Converge is dedicated to improving the quality of services it provides to the existing coverage areas. The Company has invested in hardening the network to increase redundancy and network quality. Previously, the main network backbone of Converge was connected to two core nodes located in Metro Manila and Pampanga. With the completion of a third core network backbone node last December, the
Converge end-to-end pure fiber network became stronger and more resilient with a more efficient network traffic distribution and better ability to address outages. With the improvements we are implementing to our systems, Converge strives to ensure that subscribers can enjoy the benefits of quality internet services, including video streaming.

Converge again ranked first in Netflix’s ISP Speed Index for the Philippines in December 2020, which ranks internet service providers in terms of prime-time Netflix performance. “Netflix’s stories are best delivered on a strong internet network, which is not only about speed but also about latency, jitter and packet loss.” said Converge COO Jesus “Boboy” Romero.

Strategic Commitment to Leading Customer Experience

The Company continues to commit to providing a quality customer experience for both existing and potential new subscribers. Converge continues to be highly focused on enhancing the overall customer experience by strengthening its customer care functions and digitizing the journey of our customers.

“We have always been focused on giving our customers the best possible experience. Thus, we have doubled our customer contact agents, bringing our answer call rate to nearly 90% in the fourth quarter of last year. At the same time, we are continuously scaling up our installation and repair teams. All these initiatives are supported by sustained investments in our customer digital infrastructure to further improve customer experience,” said Converge President and Chief Resources Officer Grace Uy.

To be able to service the surge in demand for our products throughout 2020, the Company more than doubled the number of installation teams as compared to before the ECQ lockdown, enabling us to substantially reduce the backlog of installation in 4Q2020. In December 2020, Converge installed 86% of new NCR subscribers within seven days and 64% within one day of application, respectively. These augmentations, combined with improvements in the customer onboarding and installation process, will allow us to further increase rapid conversion from application to installation.

During the third quarter, the Company rolled out its mobile application Converge Xperience App, which offers a convenient channel for its customers to review and pay their bills, and also allows customers to log tickets online. As of December 2020, our Converge Xperience App has been downloaded more than 348,000 times, allowing us to communicate with approximately one third of our subscriber base through this new mobile customer engagement channel.

Converge also onboarded around 350 new outsourced contact center agents in FY2020, to respond to customer queries, leading to reduced drop call rates for both our customer care and service desk teams. In the fourth quarter of 2020, our Answer Call Rate stood at an average of 87%, up from 76% in the third quarter of the year.

2021 Consolidated Outlook

Converge is on track to reach its mid-term goal of approximately 55% nationwide household coverage by 2025. This outlook is supported by our “Go National” strategy, with the anticipated completion of the Company’s national backbone network expansion to Visayas and Mindanao within the first half of this year, and “Go Deep” strategy, where we continuously branch out and increase our distribution reach and last mile network within existing coverage areas. We expect to spend approximately Php20 billion of total Capex for FY2021, including the capital required
for the expansion of our backbone and the deployment of additional FTTH ports to reach approximately 35% of household in the Philippines by December 2021. We expect that strong demand for reliable high-speed broadband will result in continuous growth of our residential subscriber base to approximately 1.6-1.7 million by the end of 2021.

Similarly, we believe that enterprise represents a significant growth opportunity for Converge and we plan to further penetrate this segment. Demand from enterprise customers is projected to accelerate in 2021, notably driven by an expected recovery of the SME segment, resulting in total expected consolidated YoY revenue growth of approximately 10% in FY2021, subject to market recovery from Covid pandemic impact.

Driven by strategic cost initiatives and increased economies of scale, we believe that Converge will be able to continue to expand its EBITDA margins in FY2021. In addition, the Philippines Senate and the House of Representatives ratified the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill in February 2021, which will lower the corporate income tax rate for large corporates from 30% to 25%. We expect that increasing EBITDA margins together with the decrease in our corporate income tax rate, will further increase our Net Income
margins in FY2021.

Finally, Converge will continue to be highly focused on capital efficiency when rolling out its end-end fiber network. While we expect to incur some one-off capital expenditures in FY2021 from the construction of our domestic subsea cables, we will aim to keep our FY2021 ROIC in the high teens.

“Converge has built a fiber network that’s ready to serve the expected sustained demand for quality high-speed broadband. Our dream is to provide the majority of Filipinos with world-class internet services through our fiber network,” said Converge CEO Dennis Anthony H. Uy. (/)

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