Partner Communications Company Ltd.
Q3 2018 Earnings Call Transcript

Published: 21 Nov 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Third Quarter 2018 Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Gideon Koch. Mr. Koch, please begin.

[Gideon Koch:]

Thank you, and thank you to all our listeners for joining us on this conference call to discuss Partner Communications' third quarter results for 2018. With me on the call today is Isaac Benbenisti, Partner's CEO; and Tamir Amar, our CFO. Isaac will present a number of operational highlights of the quarter and provide the quarterly update on our strategic projects. He will then hand over to Tamir, who will provide an overview of the quarterly financial and operational results. And finally, we'll move on to the Q&As. Before we will begin, I would like to draw your attention to the fact that all statements in this conference call may be forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended; Section 21E of the U.S. Securities Exchange Act of 1934, as amended; and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Regarding such forward-looking statements, you should be aware that Partner's actual results might vary materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in Partner's press release dated November 21, 2018, as well as Partner's filings with the U.S. Securities and Exchange Commission on Forms 20-F, F-1 and 6-K as well as the F-3 shelf-registration statement, all of which are readily available. Please note that the information in this conference call related to projections or other forward-looking statements is subject to the previous safe harbor statement as of the date of this call. For your information, this call is being broadcast simultaneously over the Internet and can be accessed through our website. If you have any further questions following the call, please feel free to contact our Head of Investor Relations and Corporate Projects, Liat Glazer Shaft on 972-54-781-5051. I will now turn the call over to Partner's CEO, Isaac Benbenisti. Isaac.

[Isaac Benbenisti:]

Thank you. Good day, everyone, and welcome to our Earning Conference Call. The third quarter of 2018 results reflect encouraging figures in the cellular segment as well as the momentum in the company's new growth engine, TV and fiber optic infrastructure. In the cellular segment, we added 11,000 postpaid subscribers to our subscriber base on a net basis, along with growth in ARPU and decline in churn rates. This is the 13th consecutive quarter in growth in the number of postpaid subscribers. The growth in households connected to the Partner TV has accelerated during the third quarter, and as of today, Partner TV has 118,000 households connected to the service. Most of Partner TV's customers choose the service as part of a package, bundling TV and Internet services, and some of them are connected to Partner TV using Partner fiber optic infrastructure. Our fiber optics infrastructure, Partner Fiber, which was launched last year, reached over 250,000 households across Israel as of today. Our deployment proceed at a rapid pace, and Partner's optic fibers are available to more and more households who can connect to the Internet service at a speed up to 1,000 megabits per second. The business customer division is expanding as well, and in the third quarter, new customers have joined and existing customer services were expanded. This is attributable to Partner's integration capabilities and strategic collaborations with world-leading manufacturers. In addition, as part of the company strategy, we continue to examine new potential growth engines, among others, in the fintech and finance industries. I will now like to turn the call over to Tamir Amar for detailed review of our financial results. Tamir, please.

[Tamir Amar:]

Thank you, Isaac. Good day, everyone, and welcome to our Earning Conference Call. The third quarter results reflected the existing trends in the communications market and the progress in the company's strategies and ongoing projects. In the cellular segment, Partner recorded a decrease in churn rates to 8%, and for the 13th consecutive quarter, a net increase in postpaid subscribers as well as a net increase of 8,000 cellular subscribers overall. These results followed the entrance of a new competitor during the second quarter, which resulted in an increase in the churn rate and an intensification on the level of competition in the second quarter 2018. However, this effect was significantly moderated during the third quarter. In the fixed-line segment, adjusted EBITDA increased by 12% in the third quarter compared to the third quarter of 2017 and by 22% compared to the second quarter of 2018. This growth resulted from continued growth in the number of households connected to Partner TV, which led to an increase in revenues from Internet and TV services. In addition, we continue to deploy fiber optic to residential areas, reaching over 200,000 households by the end of the third quarter and over 250,000 households as of today. The deployment serves as a platform for the daily transfer of customers to our independent infrastructure, which is expected to significantly improve the profitability of our Internet and TV operations, enables a higher-quality TV viewing experience for Partner's customers and provides an enhanced Internet service. The company's free cash flow totaled ILS 70 million in the third quarter after taking into account all the company's investments, including in the fiber optic and TV, investments which remain relatively stable despite the increase in fiber optics deployment and the significant increase in the number of Partner's TV households. We succeeded in maintaining net debt at the level of -- at a level below ILS 0.9 billion while continuing the deploy -- the develop new growth engines and execute our buyback plan, which total ILS 67 million during the quarter. Overall, since the company announced its buyback plan in May 2018, we have acquired 6.5 million shares at a total cost of ILS 100 million, including commissions, at an average price of ILS 15.38 per share. And now I will be happy to open the call for questions. Moderator, please begin the Q&A.

[Operator:]

[Operator Instructions]. The first question is from Tavy Rosner of Barclays.

[Tavy Rosner:]

If we could talk first about fiber a little bit. In the past, you mentioned having talks with Cellcom with regards to a potential joint venture, but it's been a while since you gave an update on that, so I was wondering if this is still relevant. And then more generally speaking, if we could have your thoughts on the IBC venture.

[Isaac Benbenisti:]

Okay. I will answer this question in a very strict method. Our aim and our strategy is to deploy in the most efficient way, the most fast -- the fastest way and the cheapest way, the fiber optics in Israel. We prove till now that we have the best machine in Israel internally to deploy these fiber optics. We reached 200 and 500 households in -- 250,000, sorry, households. No, no, reached -- never mind, okay? And we talk now with Cellcom. If we'll see that the agreement that they have been reached in negotiating with IBC will serve our strategy, we'll join to them and we'll do it together in our internal abilities together with them. But we don't care what is the way to deploy. We will find the best way, the cheapest way and the fastest way to do it in order to cover the country and to provide our OTT services over the best infrastructure in Israel.

[Tavy Rosner:]

Okay, that's helpful. And then maybe if you can share any thoughts about your targeted deployments. Because, for example, the IBC set some numbers out there and we know that Bezeq has a universal coverage obligation. So right now, you pretty much cover 10% of Israeli homes. So did you set yourself a target of how many you would like to reach in your -- at your own pace?

[Isaac Benbenisti:]

We don't project these numbers. But I can tell you that when you go to such a project, you have to think from the beginning that to be successful, you have to cover a massive -- you have to have massive coverage of the country. So we have our targets. I think that what we have done till now surprised mostly everyone because we achieved it in a very tough year dealing with Bezeq and regulatory issues and so on, so forth. And despite all this, we achieved 250,000 households with our fiber optic project. We'll look to the future, and I think that despite the fact that we do -- we are not obliged to any regulatory deployment, we go in a wide range of countries -- cities in Israel. And we'll continue to do it. And our aim is to gain decent market share in this arena. But we do not project the number, how much we aim to do next year, for instance.

[Tavy Rosner:]

Right. And maybe lastly on that. So I know you guys don't disclose the number of connected homes at this stage. But maybe if you guided us through the general dynamics, you go into the building and you advertise that you have a fiber offering, what has been the customer reaction to it? It's like, do you have them jumping on it saying, "We want higher speeds." Or you still have some of them saying, "You know what, we're comfortable with our existing DSL offering. We don't need extra speed, so we don't want to pay extra." Do you have any thoughts on that?

[Isaac Benbenisti:]

Yes, I think that this question relates to the famous story about the egg and the chicken because the -- when we -- as long the way that we expand our coverage, the Israeli customers are aware of this solution. So the pace of connected houses that we actually have increase exponentially. I mean that at the beginning, it was hard because it was a bit difficult to explain what do we mean by 1,000 gigabytes and why the Internet at home now doesn't really serve the OTT. The demand was not there. But when we deployed more and more, we see that the demand increased rapidly. So it goes together in how much we deploy. In the last quarter, we see a massive increase in the number of households that connected to us together with our OTT TV solution.

[Operator:]

[Operator Instructions]. There are no further questions at this time. Before I ask Mr. Benbenisti to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the U.S., please call 1-888-326-9310. In Israel, please call 03-925-5929. And internationally, please call 972-3925-5929. The recording is also available on the company's website at www.partner.co.il. Mr. Benbenisti, would you like to make your concluding statement?

[Isaac Benbenisti:]

Yes, I'd like to thank you for joining the call and to say that I see that the Q3 results, I think, that they reflect accurately the strategy of the company dealing with -- dealing in a very good way with our core businesses and investing and being very successful in our growing engine activities. So thank you very much for doing -- joining us.

[Operator:]

This concludes the Partner Communications Third Quarter 2018 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.