Dennis Uy’s Converge Takes a Page From PLDT’s Old Playbook With More Debt, Growth Spending and Dividends
Dennis Uy’s Converge ICT Solutions Inc. is beginning to look more like the kind of telecom infrastructure company Philippine investors have seen before: one that borrows to fund network expansion while continuing to reward shareholders with generous dividends.
The resemblance is not exact. Converge remains far less leveraged than PLDT Inc. was during its heavier investment cycles, and its enterprise and data-center ambitions suggest it is still in expansion mode rather than simply defending a mature franchise. But its first-quarter 2026 results show a capital allocation pattern that is becoming harder to ignore: free cash flow fell short of dividends, debt increased, and management continued investing for growth.
Converge reported ₱11.19 billion in revenue for the first quarter of 2026, up 4% year-on-year from ₱10.80 billion. Net income, however, was essentially flat at ₱3.02 billion, while earnings per share stayed unchanged at ₱0.42.
That combination — modest revenue growth, flat earnings, rising investment needs, and continued dividends — is what gives Converge’s latest quarter its PLDT-like flavor.
The Dividend-Capex Squeeze
The clearest signal came from cash flow.
Converge generated ₱5.32 billion in net cash from operating activities in the first quarter, slightly higher than ₱5.15 billion a year earlier. But it also spent about ₱2.86 billion on property, plant, equipment, and intangible assets, leaving an estimated free cash flow of roughly ₱2.46 billion.
Against that, the company declared dividends of ₱3.55 billion, up from ₱3.12 billion in the comparable period last year.
That means dividends exceeded internally generated free cash flow by about ₱1.1 billion for the quarter.
The company also drew down nearly ₱7 billion in new borrowings, while repaying about ₱1.41 billion of debt. Total borrowings rose to ₱29.65 billion as of March 31, 2026, from ₱24.10 billion at the end of 2025.
In accounting terms, the company had ample liquidity. In economic terms, however, the pattern is clear: Converge is allowing leverage to rise while simultaneously funding expansion and paying dividends.
That is the old telecom playbook.
Echoes of PLDT, But Not a Replay
For Philippine investors, the comparison with PLDT is natural. PLDT, the country’s dominant telecom incumbent, historically balanced large network investments with regular shareholder returns. During heavy capex cycles, that meant leaning on its balance sheet while maintaining dividend expectations.
Converge appears to be moving in a similar direction — but from a very different starting point.
Its gross debt-to-EBITDA ratio stood at 1.2x, while net debt-to-EBITDA was only 0.6x as of the first quarter. The company’s debt service coverage ratio was 3.1x, comfortably above the required covenant threshold of 1.2x.
That makes the current strategy manageable. Converge is not yet in a balance-sheet stress position. It is underleveraged by telecom standards and still has the financial flexibility to fund growth.
The more important question is whether today’s borrowing is funding productive growth — or whether it marks the start of a more mature, slower-growth dividend model.
Residential Growth Is Losing Steam
The concern is that Converge’s original growth engine is no longer delivering the same punch.
Residential revenue reached ₱9.23 billion in the first quarter, only 1% higher than the prior year’s ₱9.11 billion. Management said the increase was supported by subscriber growth, particularly from the prepaid segment.
That is a sharp contrast to the company’s earlier post-IPO story, when fiber broadband penetration and subscriber additions powered rapid expansion.
Residential broadband remains Converge’s core business, accounting for more than 80% of revenue. So even if the enterprise segment grows quickly, weak residential growth still weighs heavily on the consolidated numbers.
The first-quarter results suggest Converge is entering a more mature phase of its household broadband business — one where incremental growth is harder, competition is more visible, and customer quality matters more.
Enterprise Becomes the Growth Story
The offset is enterprise.
Enterprise revenue climbed 16% year-on-year to ₱1.96 billion, from ₱1.69 billion in the first quarter of 2025.
That growth helped lift the enterprise’s share of total revenue to about 17.5%, compared with around 15.6% a year earlier.
This is where Converge’s investment story diverges from a purely defensive telecom capex cycle. The company is not only adding fiber capacity; it is also building broader digital infrastructure.
Converge highlighted the expansion of its data-center footprint, including the Caloocan Data Center and the newly inaugurated Angeles Data Center, which it said is ready to house critical infrastructure and support enterprise customers. The Angeles facility is described as capable of handling data residency requirements and high-performance computing workloads, including AI and machine learning.
If enterprise connectivity, data centers, cloud, and public-sector demand scale meaningfully, the rising debt could be justified as growth capital. If not, investors may begin to view the borrowings as support for dividends in a slowing core business.
Margins Still Strong, But Operating Leverage Is Muted
Converge continues to produce enviable margins.
EBITDA rose 3% to ₱6.91 billion, from ₱6.69 billion a year earlier. That implies an EBITDA margin of roughly 62%, still extremely high for a telecom infrastructure business.
Gross profit also improved to ₱7.42 billion, from ₱7.14 billion, with gross margin holding around 66%.
But the income statement also shows why net profit failed to grow. General and administrative expenses rose 9% to ₱2.69 billion, outpacing revenue growth. The company cited higher promotions, managed service fees, depreciation and amortization, and repairs and maintenance.
Provision for impairment of trade and other receivables also remained elevated at ₱448 million, slightly above the prior year’s ₱435 million.
Finance costs fell 21% to ₱336 million, helped by loan repayments, but the savings were not enough to lift net income meaningfully.
The result is a company that remains highly profitable but no longer shows strong operating leverage.
Receivables Are a Watch Item
One of the less flattering details in the quarter lies in receivables.
Gross trade receivables stood at ₱6.04 billion, while allowance for doubtful accounts was ₱2.60 billion.
Credit-impaired residential receivables rose to ₱1.79 billion from ₱1.44 billion at the end of 2025, while credit-impaired enterprise receivables were ₱753 million, slightly above ₱748 million at year-end.
That does not necessarily signal a crisis, but it does suggest that subscriber quality and collections remain important variables, especially as residential growth slows and prepaid becomes a bigger part of the story.
For a company paying dividends above quarterly free cash flow, receivables discipline matters. Cash conversion, not just reported earnings, will determine whether the dividend can be sustained without gradually increasing leverage.
The Balance Sheet Gives It Time
For now, Converge has room.
Cash, cash equivalents, and short-term placements stood at ₱13.87 billion, while net debt was ₱15.79 billion as of March 31, 2026.
The company said its balance sheet and cash flows remain strong, with gearing comfortably within bank covenants. It also had ₱4 billion in unused credit lines from local banks.
Return on invested capital, however, slipped to 15.6% from 17.3% at the end of 2025.
That is still a healthy number, but the direction bears watching. The more capital Converge deploys into fiber, customer premises equipment, data centers, and enterprise infrastructure, the more investors will demand evidence that these investments are producing incremental returns.
A PLDT-Like Model, With a Growth Twist
Converge’s first-quarter results point to a company in transition.
It is no longer the pure hyper-growth broadband challenger of its early years as a listed company. Residential growth has slowed. Net income is flat. Capex remains material. Dividends are generous. Debt is rising.
That is why the comparison to PLDT’s past playbook is increasingly apt.
But Converge is still not PLDT. It remains much less levered, its enterprise business is growing faster, and its newer infrastructure bets — particularly data centers and enterprise digital services — could still extend the growth runway.
The risk is not that Converge is borrowing. The risk is that borrowing becomes a recurring bridge between slowing free cash flow and shareholder payouts.
For now, Dennis Uy’s Converge is walking a familiar telecom path: using leverage to fund growth while keeping dividends attractive. The difference is that it still has the balance sheet to do so.
Whether that remains a strength — or becomes a warning sign — will depend on how quickly enterprise and data-center revenues can grow into the capital being deployed.
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Disclaimer: This is for informational purposes and is not investment advice. Figures are taken from company disclosures and exchange data; valuation ratios include the author’s calculations based on cited inputs.
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