Good morning and good evening. Thank you all for joining this conference call. And now, we will begin the conference of the fiscal year 2024 Q3 earnings results by LG Uplus. This conference will start with a presentation, followed by a divisional Q&A session. Our call is being webcasted on our homepage, so then you can follow the conference simultaneously. Today's conference call will be presented for one hour, and due to schedule, we would appreciate if questions are limited to two per person. Now, we will begin the presentation on LG Uplus Q3 of fiscal year 2024 earnings results.
[Foreign language]
Good afternoon. I am Seong Hyun-mo, Head of IR at LG Uplus. Let us begin the Q3 2024 earnings presentation. Please refer to our Q3 earnings presentation and note that revenue breakdown of each business and details of operating expense are on the basis that excludes LG HelloVision for the benefit of ease of comparison. Also, as a disclaimer, all of the projections we are providing today may change, subject to macroeconomic and market backdrop. We will also be providing consecutive interpretation for the benefit of our overseas investors. So with that, we will begin with the Q3 performance highlights, and it will be followed by a Q&A. Without further ado, I will now turn it over to our CFO, Yeo Myeong-hee, who will run through the Q3 2024 earnings and business results.
[Foreign language]
Good afternoon. I'm Yeo Myeong-hee, CFO of LG Uplus. Thank you, everyone, analysts and investors, for joining our Q3 2024 earnings release. During the Q3 , we accelerated digital transformation to reinvent ourselves as AX Company, a company that brings innovation to customer value, as we harnessed AI technology, applying it to our core businesses to offer differentiated customer experience.
[Foreign language]
In our mobile business, we introduced ixi-O, which has a call agent powered by AI as a way to deliver new value to customers by innovating the way we use voice call services. ixi-O offers innovative customer experience through differentiated services like making summaries and recording telephone conversations, generating real-time captioning, AI voice reply, and warning messages for voice phishing scams. Once we integrate with third-party services and expand the service scope, ixi-O will evolve into AI service that brings greater convenience to everyday life of users.
[Foreign language]
Enterprise Infrastructure Business announced AI-centered growth strategy under the catchphrase of All in AI, which was launched in July in order to spur innovation across infrastructure, platform, and data domain as we scale up AI-applied services. Thanks to these efforts, we saw solid growth across IDC, solutions, and enterprise line, posting a steep growth of 8.6% year over year.
[Foreign language]
As such, we are channeling all our capabilities behind harnessing AI to enhance customer experience and drive top-line revenue growth. We will continue to secure distinctive competitiveness across all our business domains powered by AI and will work to deliver greater value to our customers.
[Foreign language]
With that said, let's take a quick look at our financials for Q3. LG Uplus's Q3 service revenue reported a growth of 2.9% on a consolidated basis and 3.5% on a standalone basis year over year. Cumulative separate basis service revenue was up 2.7% year over year as of the Q3 , overachieving the guidance.
[Foreign language]
Consolidated Q3 operating profit was down 3.2% year on year to KRW 246 billion, while net profit declined 13.9% on year, coming in at KRW 134.9 billion. Consolidated Q3 EBITDA was up 2.4% year over year, reaching KRW 920.5 billion, underpinning an improvement in operational cash flow generation.
[Foreign language]
That was a brief report on business highlight and the financials. Let's now move on to each of the earnings and outlook for each business.
[Foreign language]
First, on the mobile business, I am Lee Jae-won, Head of MX Digital Innovation Group.
[Foreign language]
Mobile service revenue for Q3 was up 2.6% on year, recording KRW 1 trillion 546.5 billion. Total mobile subscription count was up 17% on year, reaching 27,873,000 subscription lines, out of which 5G handset subscription count was 7,686,000, which accounts for 70.2% of total handset subscription. MVNO subscription count was up 40.3% year over year to 7,753,000, sustaining a steep upward trend.
[Foreign language]
Third quarter's marketing expense increased 0.5% year over year to KRW 556.1 billion.
[Foreign language]
LG Uplus in Q3 expanded offerings of benefits to strengthen customers' convenience.
[Foreign language]
LG Uplus ran a promotion on roaming pass sharing plan that travelers can use to enjoy roaming services at reasonable cost when traveling overseas by sharing the roaming plan with their travel buddies. We also offered discounts on travelers' insurance for roaming pass customers, helping them benefit from enhanced convenience and safety.
[Foreign language]
We also released a bundle package combining YouTube Premium and Netflix, offering a good discount for the most popular service for users and lessened the cost burden for subscribers enjoying their content. We also strengthened customer convenience through Yudok Pick 2, which can be subscribed inside the Yudok app, broadening the scope of media service offered and expanding the Life Coupon lineup.
[Foreign language]
Our subscription service, which are Yudok and Youth, which is a brand for people in their 20s, have both received this year's brand awards. The fact that we put customer at the center when developing the subscription model, offering the benefit most wanted by the users, was the lever behind the increase in brand loyalty and preferences among the Gen Zs and Millennials. We will continue to strengthen communication with customers to precisely identify what customers need so as to deliver distinct value offerings to customers.
[Foreign language]
Next is Smart Home. I am Park Chan-seung, Head of Home Reverse Group. I will run through the key highlights of smart home business for the Q3 .
[Foreign language]
Q3 smart home revenue was up 5.7% on year, reporting KRW 650.9 billion.
[Foreign language]
Q3 IPTV revenue inched down 0.4% year over year, but on robust growth of giga internet subscribers, internet revenue posted a growth of 6.7% on year, reporting KRW 287.2 billion. Subscribers for IPTV and internet both demonstrated a growth trend year over year, with IPTV subscribers increasing by 2.2%, reaching 5,554,000, while internet subscriber count was 5,313,000, up 3.9%.
[Foreign language]
For the smart home business, we harnessed AI to improve service quality and strengthen competitiveness while releasing new devices to enhance customer experience.
[Foreign language]
We applied ixi-based on-device AI technology, ixi being our proprietary technology, and AI agent technology to IPTV, delivering hyper-personalized services, reinforcing our business competitiveness. Also, LG Uplus's flagship IPTV platform, Kids World, also uses ixi to recommend content that is customized for every child. We also launched Soundbar Black 2, equipped with a strong acoustic feature powered by AI.
[Foreign language]
Starting this year, we are incorporating AI into IPTV services. We are using AI to not only enhance user convenience but also to solve customers' pain points whenever they need help, as we gradually evolve distinctive transformation in the way people use media. We will endeavor to make U+tv take on a positioning as the first screen, a screen of choice for users for their most convenient avenue for enjoying content.
[Foreign language]
I'm Park, Seung-ryul, Head of Enterprise Business Innovation Group. I will now present on B2B infrastructure business and its key results for the quarter.
[Foreign language]
Q3 enterprise infrastructure business saw well-balanced growth across business segments, posting 8.6% year-over-year growth, with revenue reporting KRW 428.5 billion.
[Foreign language]
IDC business posted KRW 90 billion in revenue, sustaining high growth of 8.8% year-over-year, while solutions revenue was up 9.6% on year, reporting KRW 129.4 billion on the back of NI revenue growth. Enterprise line revenue was up 8% year-over-year to KRW 209.1 billion, driven by higher revenue from leased circuits.
[Foreign language]
In Q3, we expanded the market for MyShop Package AX solution for small-sized merchants, driving additional growth in sales while delivering distinct customer experience. Our plan is to provide MyShop AX solution package to 30,000 stores before the end of the year under the goal of achieving KRW 200 billion in revenue in 2027. Our market share in the merchant package service segment moved from 8% in 2021 to 15% in 2023, which was a steep rise, and we plan on digitalizing shops that small-scale vendors operate by applying the AI technology so as to enhance convenience for the merchants while improving customer satisfaction as we spearhead this market.
[Foreign language]
Following the unveiling of All in AI, which puts AI at the center of company's growth strategy, enterprise infrastructure business is bringing AI into customer experience as it seeks to scale up our B2B business. During the remaining period, we will accelerate digital transformation of B2B business as we solidify services of established business while making a foray into new business domains.
[Foreign language]
Next, I will invite back our CFO for the Q4 outlook.
[Foreign language]
In 2024, grounded on stronger fundamentals and our telecom business and its solid infrastructure, LG Uplus achieved growth in service revenue above what was guided.
[Foreign language]
Until the end of the year, we will continue to expand the share of digital channel from fixed and mobile business while operating the business with a focus on profitability. For B2B infrastructure, we will actively push ahead with businesses that have high potential, such as IDC, AX solution for small merchants, and AICC business, so as to further enhance top-line uptrend.
[Foreign language]
We are also planning to make a disclosure on the corporate value-up plan that strikes the right balance between longer-term growth and proactive shareholder return before the end of the year. We will come up with the best way forward for maximizing shareholder return and will communicate to the market once the plan is ready.
[Foreign language]
In Q4, LG Uplus will continue to exert its utmost effort to drive business performance and to enhance corporate value and shareholder return. Thank you.
[Foreign language]
That ends the opening presentation. We are now open for your questions.
[Foreign language]
Now, Q&A session will begin. Please press Star 1. That is Star and 1 if you have any questions. Questions will be taken according to the order you have pressed the number Star 1. For cancellation, please press Star 2. That is Star 2 on your phone. [Foreign language] .
The first question will be provided by Hwae-jae Kim from Daishin Securities. Please go ahead with your question.
[Foreign language]
Thank you. I'm Kim Hwae-jae from Daishin Securities. Thank you for taking my question. I have two questions I would like to ask. The first has to do with your profit outlook going forward. Starting last year up to this year, we see that the depreciation has pressured down on your profit. Do you think that by next year you will be able to regain your operating profit level of 1 trillion? Second question is, we'd like to understand the company's approach towards AI. Previously, it seemed that many companies were harnessing AI for the purpose of saving cost. Most recently, we see that many companies are partnering up with global tech companies and entering into alliances in order to be able to generate revenue. What is the approach that LG Uplus is taking?
[Foreign language]
As this is the CFO, I will respond to your question about next year's profit. Basically, first talking about this year's annual, yearly profit. And although our business planning has not yet been finalized, I will also provide a bit of color for the projections going forward. First of all, if you look at an accumulative basis, the service revenue up to the Q3 , we were able to report 2.7% growth, overachieving the initial year guidance of 2% growth. And on a per-year basis, we believe that this trajectory will continue.
[Foreign language]
Now, because we released mid to low-tier rate scheme and also on back of that, we've seen some slowing of the top-line revenue growth. Basically, we were unable to cover the increases in fixed cost. That's inclusive of labor cost and depreciation. So on a year-over-year basis, we see that the trajectory is towards a downward trend, but we are planning on improving this through reducing the variable cost, also by improving the profitability from each of our businesses.
[Foreign language]
Also, if you look at the cash flow for this year, per annum free cash flow we expect is going to improve, and we believe, therefore, we will have some leeway in employing different options that will help us improve on the shareholder value and shareholder value from a longer-term perspective.
[Foreign language]
So because we're right now in the process of developing our business plan, we won't be able to provide you with the definitive guidance, but we think that this year is going to form the bottom. And come 2025, we are looking forward to a top-line growth above what we've seen for this year.
[Foreign language]
Basically, for the B2C business, we are going to use personal agents that are powered by AI technology for us to expand our subscriber base and strengthen retention. On B2B side, we will expand not just the AIDC business, but by providing an AI total solution, we would like to secure long-term growth.
[Foreign language]
Also, we are going to power through with digitalization of telecommunications, which will help us save on marketing spending and also maximize productivity through the application of AX. And also, by gaining cost efficiencies, we will make sure that we can attain a turnaround in operating profit next year. So once our business plan is complete, we will come back to you with more detail beginning of next year during our Q4 earnings release.
[Foreign language]
Hello. I am the CSO, Kim, Ji-hoon. I will respond to your second question.
[Foreign language]
So, regarding the question that you have posed, basically the core of LG Uplus's AX strategy lies in the growth based off of our customers. And we are well aligned with the growth in terms of our customer base. And we are seeing it having a positive impact on generating the revenues from our business and also improving the capabilities of the members of the company as well.
[Foreign language]
First, looking at B2C agent service under the name of ixi-O, we are at this point very much focused on making sure that this service actually enhances customer value and that it is well embraced and accepted by the user base. While we focus on that, we believe that this will lead to a greater number of subscribers as well as a higher level of usage of such services, which will then trigger a top-line growth. In terms of the direct revenue that's going to be generated from the service, we will first see that come through from AI data center and AICC business, which are the B2B businesses.
[Foreign language]
AI application is also helping us improve on the productivity of our employees and the work that they do. One of a very good case in point is the AX transformation that we are seeing in our customer service centers, the CS centers. For instance, the CS agents or the advisors, while they're counseling the customers, they are able to double-check on the information by receiving support from speech-to-text technology. After they complete a call and counseling with the customers, then the AI program will help them basically summarize what had been counseled and also summarize with a categorization of the service code. Because we were able to apply this, we were able to reduce the time that was spent by these advisors.
[Foreign language]
Also, we are expanding the application of such AI technologies out on the field as well and in applying that to operating our network as well.
[Foreign language]
We'll take the next question.
[Foreign language]
The following question will be presented by Aram Kim from Shinhan Securities. Please go ahead with your question.
안녕하세요. 질문 기회 주셔서 감사합니다. 두 가지 질문이 있는데 첫 번째는 앞선 질문이랑 연결되는 부분인데 그럼 저희 회사의 AI 전략은 수익화보다는 고객 경험을 강화하는 것에 초점이 맞춰져 있다고 보면 될까요? 그리고 두 번째로 모두발언 마지막에서 연내 기업 가치 제고 준비 중이라고 말씀 주셨는데 혹시 시점이나 어떤 내용이 담길지 공개 가능한 선에서 말씀해 주시면 감사하겠습니다.
Thank you for taking my question. First question is a follow-up to the previous question. So are you saying that for your AI strategy you're not focused on monetization but focusing more on creating customer experience? Is my understanding correct? Second question is, as you've mentioned during the opening presentation, you will soon be presenting your Value Up program. Can you tell us as to when specifically the timeline would be and what are some of the details that will be included in your Value Up plan?
계속해서 제가 답변드리도록 하겠습니다. 말씀 주신 고객 가치 혁신에 대해서 저희가 가장 우선적으로 생각하는 점은 고객 가치 혁신이 맞습니다. 다만 저희가 지금 좀 더 추가적으로 보충 설명을 드리자면 이런 고객 가치를 만들기 위해서는 저희 사업에서 가장 중요한 차별화 경쟁력은 익시전이라는 자체 SLLM을 기반으로 한다는 점입니다.
This is the CSO again providing you with some additional information. You are correct. Our priority is placed on innovating customer value. But just to elaborate a little more, in order for us to create that customer experience, we are leveraging our competitive edge, which is based off of what we call a small language SLLM, which is our proprietary language model under the name of ixi-GEN.
LG AI Research 기반의 생성형 AI 모델 ixi-GEN은 경량화된 도메인 특화 SLLM으로 경제성과 보안에 강점이 있습니다. 어제 출시한 ixi-O도 on-device 방식이 적용되어 통화 내용을 실시간으로 텍스트로 전환해 주거나 보이스 피싱을 감지하는 등의 기능이 단말 내에 제공됩니다.
Basically, it is a generative AI model that was researched and developed by LG AI Research. It is a domain-specific small language model SLLM that has both economic feasibility as well as very strong features in terms of security. As we announced yesterday, ixi-O is going to be a technology that's going to be mounted on the device, the handset device, which will help with speech-to-text conversion as well as provide different features. For instance, identifying potential signals for phishing scams, for example. All these features will be supported thanks to ixi-O.
B2C 사업에서는 ixi-O를 필두로 한 모바일 에이전트로 시작해서 미디어, 띵스 등 가정 내 에이전트 서비스를 연결하여 퍼스널 AI 에이전트로 진화해 나갈 계획입니다.
So it is a lightweight language model, and we will be applying that firstly to ixi-O, which is in the B2C segment. We will start off with mobile device and expand it to media and also different things within one's household, connecting different devices. And eventually, it will evolve into a personal AI.
B2B 사업에서는 업계에서 유일하게 국내외 빅테크사 모두를 고객으로 보유한 AI 데이터 센터와 ixi-GEN 기반의 기업력 토털 AI 솔루션인 ixi Enterprise를 강점으로 AICC와 같은 버티컬 단위로 사업을 확장해 나가고 있습니다.
On the B2B domain, we are the only company that is providing the AI data center to all of the big techs in the market. And also, we have ixi Enterprise, which is the AI solution that we are expanding to various different verticals, including AICC.
이를 위해 AI 기술 역량을 내재화해 나가는 동시에 빅테크를 포함한 다양한 파트너사들과의 협력을 확대해 나갈 계획입니다.
So through harnessing this technology, we are going to internalize this AI capabilities and also further expand our partnership with big tech companies.
두 번째 질문에 대해서는 제가 말씀드리겠습니다. 기업 가치 제고 계획에 대해서 말씀 주셨는데 경쟁사는 이미 어제하고 그저께 KT나 SKT가 공시를 했습니다. 저희도 마찬가지로 준비는 하고 있습니다. 그리고 내부적인 계획도 어느 정도 마련된 상태입니다.
This is the CSO responding to a question on Value Up. Our peers, KT and SKT, they've made relevant disclosures yesterday and the day before, and we at LG Uplus were also in the process of preparing that plan.
경쟁사에 비해서 시기가 다소 늦어진 것은 내년도 및 중장기 사업 계획을 먼저 좀 점검을 하고 이를 바탕으로 기업 가치 제고 목표 수준을 제시하기 위함입니다. 조만간에 최종 검토와 이사회 승인을 마친 후 공시하도록 하겠습니다.
So we have prepared the Value Up plan to quite a significant extent. But the reason why, compared to our peers, we're running a little behind is because we wanted to first finalize on our business plan based upon which we will be able to provide you with more specific goals in regards to enhancing the corporate value. So in the meantime, we will go through the deliberation by the BOD, and once we receive approval of our BOD, we will come back to you with a disclosure.
또한 기업 가치 제고 계획을 준비하면서 당사의 시장 지표와 시장 피드백을 면밀히 검토하고 있고 장기적인 재무 성과를 개선하고 기업 및 주주 가치를 높이는 방향으로 결정하도록 하겠습니다.
While coming up with this plan, we're very closely monitoring and observing different market measures as well as listening to the market feedback. We will make sure that our direction is set in good alignment with what the market is expecting in regards to improving our long-term financial standing and also enhancing shareholder value.
anyone currently waiting to ask a question?
현재 질문을 대기 중인 분은 없습니다.
네, 더 이상 질문이 없으시면 이것으로 LG Uplus의 2024년 3분기 실적 발표 컨퍼런스 콜을 마치도록 하겠습니다. 미흡했던 답변에 대해서는 추후에 IR팀에서 성실히 답변드리도록 하겠습니다. 다시 한번 금일 참석해 주신 모든 분께 감사드립니다.
Thank you. Since we do not have any additional questions, we would like to close the Q3 2024 earnings presentation by LG Uplus. If you have any unanswered questions, please feel free to contact us at the IR team. Thank you.