LG Uplus Corp

KRX:032640

Q3-2025 Earnings Call

[Operator]

Good morning, and good evening. Thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2025 Third Quarter 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 that you can follow the conference simultaneously. Today's conference call will be presented for 1 hour. And due to schedule, we would appreciate if questions are limited to 2 per person.

Now we will begin the presentation on LG Uplus' third quarter of fiscal year 2025 earnings results.

[Sangheum Mun, executive]

Good afternoon. This is Sangheum Mun, Head of the IR team at LG Uplus. Thank you for joining our third quarter 2025 earnings report of LG Uplus. Please follow along the presentation that we've previously circulated. And for the benefit of ease of comparison, we're presenting revenue breakdown and operating expense on the basis that excludes LG HelloVision.

Also be reminded that all of the projections we are providing today are subject to change depending on macroeconomic and market backdrop. We will also be providing consecutive interpretation for the benefit of overseas investors.

We will now begin with Q3 performance highlights followed by Q&A. I will now turn it over to CFO, Yeo Myunghee, who will run through the third quarter '25 earnings and business results.

[Yeo Myunghee, executive]

Good afternoon. This is CFO, Yeo Myunghee. Thank you to analysts and investors for joining the third quarter 2025 earnings call for LG Uplus.

Driven by growth of its mobile business, LG Uplus in Q3 reported solid earnings. Although there was one-off labor cost following ERP, excluding this impact, operating profit sustained an year-over-year uptrend following the trajectory of the first half of the year.

The early retirement package forms part of accelerating trend of digital transformation along with voluntary participation of our employees. We will continue to make our business structure lightweight through digital innovation and make sure to bring visible improvements in profitability.

On top of profit-driven performance from our core businesses, we focused on strengthening business competitiveness by leveraging our AX capabilities while accelerating innovation based on our telecom infrastructure and customer touch points.

We are also making service upgrades to ixi-O, which is creating new customer experience driven by the use of voice call data and are tapping into global market expansion. For AICC, we're focusing on improving productivity of our own customer service centers. And based on the know-how, we're expanding business opportunities externally.

In IDC business, we brought tangible results through the DBO project. And internally, across the business workflow, we're deploying AI Agent for the dual benefit of operational efficiency and gaining of future competitiveness.

I will now move on to the details of Q3 '25 financials. Service revenue in Q3 posted 4.2% growth year-on-year on both consolidated and separate basis, respectively. Q3 consolidated operating profit was down 34.3% year-on-year to KRW 161.7 billion. But excluding the one-off impact following the ERP package, operating profit will be KRW 311.7 billion, up 26.7% year-over-year.

Consolidated net profit was down 63.6% Y-o-Y, reporting KRW 49.1 billion. This is due to non-recurring one-off items pushing down on net profit more so than the decline in operating profit.

EBITDA was also down by 9.7% Y-o-Y due to onetime labor cost impact reporting KRW 831.3 billion. Consolidated debt-to-equity ratio improved by 5.8 percentage points from end of 2024, recording 119%. Q3 '25 CapEx spend was KRW 438.1 billion, down 2.2% versus last year.

[Jin-Wook Kang, executive]

That was on the financials. Next on results and outlook from each business.

First, on the mobile business, this is Kang Jin-Wook, Head of Mobile and Digital Innovations Group. Q3 mobile service revenue posted 5.2% year-over-year growth, recording KRW 1,627.2 billion.

Total mobile subscription count was up 8.6% year-over-year to 30,259,000 lines, driven mostly by MNO and MVNO growth of 5.4% and 16.8%, respectively. 5G handset subscription sustained an uptrend with penetration reaching 81.6%.

Q3 marketing spend increased 5.2% year-over-year to KRW 585.2 billion on the back of subscriber growth. Share of marketing spend against service revenue came in flat Y-o-Y at 20.1% as we focused on gaining market cost efficiencies.

LG Uplus ranked #1 in mobile communication category for 2 consecutive years in the 2025 Digital Customer Experience Index hosted by the Korean Standards Association back in September. We received high ratings in the categories of customer-centric digital strategy and service innovation and was recognized for enhancing service offering through the digitalization of communication channels, enabling customers to tangibly experience improved convenience and new benefits.

Going forward, we will leverage AI to strengthen personalized digital experience by designing intuitive screen layout, bringing simpler and immersive changes to the users' digital journey.

We also introduced ixi-O 2.0 with more personalized features added to the AI call assistant ixi-O. We added AI dialogue search and AI smart summary to enhance user convenience as the agent provides answers to queries based on the contextual understanding, which go beyond simple recording or performing of repetitive tasks. With this update, LG Uplus will scale up its services to evolve ixi-O, not as a call assistant, but as a hyper-personalized AI agent.

LG Uplus will endeavor to provide comfort and convenience to our customers through AI innovation and development of differentiated services and will deliver a diverse range of meaningful value to our customers through rollout of services best meeting customer needs.

[Park Chan-seung, executive]

Next is on Smart Home business, and I'm Park Chan-seung, Head of Home Business Group.

Q3 Smart Home revenue was up 3.5% year-on-year, reporting KRW 673.4 billion. On the persisting impact from home shopping and VOD revenue declines, IPTV revenue was down 0.4% year-over-year, while Internet revenue was up 8.4% year-over-year, reporting KRW 311.3 billion, driven by Giga Internet subscriber growth.

Subscriber count was up year-over-year for both IPTV subscribers growing 3.3% to 5,739,000 and Broadband Internet subscribers went up by 4.3%, reaching 5,54100.

In Q3, our Smart Home business ranked #1 in KSCI customer satisfaction assessment in Internet and IPTV categories, thanks to customer experience innovation, which was a testament to best-in-class service quality and value of experience. In

Broadband Internet, we strengthened preemptive care by delivering self-troubleshooting support based on early detection of potential user inconveniences by analyzing Wi-Fi quality using AI technology. Outcome of such efforts earned us 2025 WBA Industry Award in October.

We also improved workflow efficiency by using ixi-GEN based AI assistant at sites for home service installation and after-sales services. AI Assistant is trained on home service manual powered by AI and gives most optimal solutions through dialogue that happen real time. This in turn enables structured and professional customer services.

LG Uplus Smart Home business will prioritize customer-centric value to strengthen market competitiveness and continue to scale up services driven by AI technologies.

[HyurngGyoon Ahn, executive]

Next is on Enterprise Infrastructure, and I'm Ahn HyurngGyoon, Head of Enterprise AI business.

Q3 revenue for Enterprise Infrastructure was KRW 427.9 billion, up 1.8% year-on-year. AIDC revenue increased 14.5% year-on-year on the back of new customers moving into Pyeongchon number 2 Center, which drove up utilization and revenue recognition from DBO projects supporting the revenue stream. Enterprise Line revenue fell 2.2%, while Solutions business declined 0.7% due to the transfer of EV charging business despite growth in broadcast messaging.

Market interest and demand for data center infrastructures have been expanding steadily due to higher demand for AI cloud. As such, we've built new AI data center in Paju for our AIDC business as we continue to expand the colocation business.

For the DBO business, which we began this year, we entered into O&M contract for K Square Gasan Data Center with Koramco Asset Management, booking DBO revenue starting the third quarter. We will collaborate with Koramco on multiple number of future projects for building and operating data centers and expand the scope of AIDC business.

Enterprise Infrastructure business is planning to strengthen growth upside and profitability with AIDC as its core driver for growth. Amid the rapidly evolving AI-driven market, we will leverage our competitiveness in AIDC infrastructure and digital capabilities to flexibly respond to diverse customer needs and grow as a leading B2B partner in the AX era.

[Sangheum Mun, executive]

We will now invite our CFO back for outlook for Q4 and beyond.

[Yeo Myunghee, executive]

Overall, uncertainties persisted across the telco industry in Q3 due to changes in regulation and external factors. There were concerns over competition deepening in the wake of repeal of Handset Subsidy Act last July. But since July, market started to stabilize, and we are seeing moderate trend continuing. And through rigorous ROI analysis, we plan to maximize marketing spend efficiency and strengthen core competitive edge underpinned by innovation of digital-driven distribution system and service differentiation.

On the back of last year's corporate value enhancement plan, we are preparing for disclosure of implementation progress before end of November. Our goal of profit enhancement and stronger shareholder return, leading to sustainable shareholder value and corporate value enhancement remain unchanged.

For shareholder return policy, LG Uplus adopted progressive approach to total shareholder return and will maximize shareholder value by employing both share buyback and cancellation. By reducing number of free floats, we can gain additional upside in terms of DPS, and we will stick to the policy of not reducing total dividend payout.

We believe starting in 2026 as impact from efficiency gains on the cost side, including labor cost savings are expected to come through, we will have some visibility on dividend increase based on operational earnings improvement.

We will closely listen to the voices of investors and make decisions through a transparent process that benefits long-term shareholder value so as to grow into a company worth the trust.

LG Uplus will solidify our fundamentals, including service quality, safety and cybersecurity until the end of the year and carry on with profit-centric management for core businesses and drive AX innovation so that we can close the year with meaningful results. Thank you.

[Sangheum Mun, executive]

This ends the presentation. We are now open for questions.

[Operator]

[Operator Instructions] The first question will be provided by Hyun Yong Kim from Hyundai Motor Securities.

[Hyun Yong Kim, analyst]

I am Kim Hyun Yong from Hyundai Motor Securities. I would like to ask you 2 questions. First is on your outlook for earnings in Q4. Do you think that you will continue to benefit from the situation that your competitors are currently facing? It would be helpful if you could provide some guidance for that as well as for the 2026 annual guidance, at least in the rough range.

Second question is you've talked about the one-off labor cost items impacting KRW 150 billion in total. And if you convert that 2% against the total headcount of the company, what would that percentage be? And also next year, to what extent or what is the size of the savings you will be able to drive from such labor cost impact?

[Yeo Myunghee, executive]

Responding to your question -- this is the CFO. Regarding the guidance for 2026, we will be able to respond to the question in the upcoming earnings call next time around. So moving on to the Q4 outlook. For this year, the guidance was on a consolidated basis, service revenue growth of above 2%. And as of Q3 on a cumulative basis, we've recorded 2.8%. So we believe that we can quite smoothly achieve the target that we set previously.

Now looking at each of the business areas, if you look at mobile service revenue, it grew by 5.2% on a year-over-year basis, actually recording the highest growth rate since 2021. If you look at our Smart Home business, the growth in the high-value Internet subscribers have actually driven that growth uptrend, posting a growth of 3.5% year-over-year.

For the Enterprise Infrastructure business, inside the AIDC business, we've seen expansion of the DBO business, which -- and also the increase in the utilization, which supported a solid growth trend.

Now talking about the profit side. In the third quarter, because of the ERP package, there was a one-off labor cost impact of KRW 150 billion. So on a consolidated operating profit basis, there was a decline quite significant on a year-over-year basis. But if you were to exclude this one-off impact, the earnings was quite similar Y-o-Y flat -- excuse me, Q-on-Q flat compared to the second quarter of this year. And we were -- we continued on with an uptrend of more than double digit on a year-over-year basis.

So as we move into the fourth quarter, we will ensure a steady top line growth and also realign our non-core businesses, focusing on the efficiency and optimizing our resource allocation so that we can overall drive-up business operations efficiency. That is the strategy that we are currently working under.

Especially if you look at AI technology, we're very proactively going to incorporate and adopt AI tech and speed up this digital transformation. So from a longer-term perspective, we will improve on our cost competitiveness, and we think that AI will play an important role in terms of the engine for growth into the future. So through such change, we're going to innovate our business structure so that we could drive improvement in profitability and really firmly lay the basis for future growth.

Regarding the ERP impact of KRW 150 billion, within the organization, we have a total headcount of 10,000, so those who took out the ERP represent about 6%. So if you do the calculation, that's 600. And if you once again do the calculation, you will be able to gain a rough idea as to how much of a cost reduction that will bring us next year.

[Operator]

The following question will be presented by Joonsop Kim from KB Securities.

[Joonsop Kim, analyst]

I'm Kim Joonsop from KB Securities. My 2 questions relate to AI business and AI technology. First is on AIDC. After the APEC Summit meeting, there's been heightened interest on data centers. I know that there's also a high level of interest on LG Uplus' for instance, Pyeongchon IDC number 2 center and DBO business. I would like to gain some understanding as to what we can expect going forward in the second half of the year. So if you could highlight some of the initiatives under your data center business, that would be quite helpful.

Second question is on your AI service strategy. It seems like that your AI strategy is in conflict with the company's approach to controlling cost and focusing on profitability. Is that the case? Or for the AI service, so would you not focus on expanding the AI services aspect? It would be helpful if you could provide some more color on what your strategy and approach is when it comes to AI strategy.

[HyurngGyoon Ahn, executive]

This is Ahn HyurngGyoon. I'm the Head of Enterprise AI business group. Now if you look at our AIDC business and Q3 earnings figures, we reported a 14.5% year-over-year growth. And the reason why we've seen elevated level of growth is because of the higher utilization coming from the Pyeongchon number 2 center as well as the DBO business that we are providing for the Gasan IDC center. So we started booking those revenues.

If you typically look at a data center, based upon the plan of the corporate tenants, they would be moving in -- they will be moving into the IDC center on a consecutive basis. So the moving in actually started from the first half of 2024. And by the first half of this year, 2025, we had large -- big corporates already moving into that IDC center and occupying the data center. And because of that, that has had an impact -- a positive impact that is, in the growth of the AIDC revenue starting the third quarter.

And also starting Q3, we started providing operational services for data center Gasan, which is owned by Koramco Asset Management, and we started booking DBO revenue. So driven by the increase in the utilization of our data center on top of the impact coming from the DBO business, we believe that going forward also for the second half of 2025, there will be a significant improvement in terms of top line versus the first half of the year.

[Yeo Myunghee, executive]

So in terms of our AI strategy, service strategy, you've asked what our strategic approach is. Are we to focus on profitability and margin or have we adopted a strategy of expansion? It will be hard to say that one over the other. But what I can say is when it comes to our AI services strategy, first on B2C, we will focus on ixi-O so that we could scale up and upgrade the services that we offer.

And in terms of the B2B, we will leverage our AI technology as well as AX capabilities to really beef up our business competitiveness. For instance, for AICC, within Uplus, we have our customer service centers, and we're at this point, really focusing to drive its productivity. And based upon the know-how that we will be able to build, we are at this point expanding business opportunities outside.

Also, last July, we entered into a partnership arrangement with OpenAI, and we are jointly developing an AICC product that is -- that adopt the subscription model. And also together with the government, we are participating in a project whereby we are working to develop a homegrown AI foundation model.

[Operator]

There are no questions in the queue right now.

[Sangheum Mun, executive]

Since there are no more questions, we would like to end the call for LG Plus' third quarter 2025 earnings presentation. We will be more than happy to respond to any unanswered questions, so please feel free to contact us at the IR team. Thank you very much for joining.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]