Partner Communications Company Ltd. (PTNR) CEO Isaac Benbenisti on Q2 2019 Results - Earnings Call Transcript

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Partner Communications Company Ltd. (NASDAQ:PTNR) Q2 2019 Earnings Conference Call August 27, 2019 10:00 AM ET

Company Participants

Isaac Benbenisti - CEO

Tamir Amar - CFO

Conference Call Participants

Chris Reimer - Barclays

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Second Quarter 2019 Results Conference Call. All participants are present in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Ms. Tami Levi, Ms. Levi, please begin.

Unidentified Company Representative

Thank you and thank you to all of our listeners for joining us on this conference call to discuss Partner Communications' second quarter results for 2019. With me on the call today is Isaac Benbenisti, Partner's CEO; and Tamir Amar, our CFO.

Isaac Benbenisti will present an update on the company's progress and its strategic initiatives. He will then hand over to Tamir, who'll provide an overview of the financial and operational results for the second quarter, and finally, we'll move on to the Q&A.

Before we 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 August 27th, 2019, 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 statements 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, Tami. Good day everyone and welcome to our earnings conference call. Partner's Q2 2019 results present financial strength with the positive trend in KPIs, a strong balance sheet, and operational excellence at a time when our competitors in the telco market are facing instability and impairment. Partner today has an advantage in the range of services that it offers to over 3 million customers.

Cellular segment. Despite the ongoing competition, our ARPU has increased and churn rate has decreased to the lowest level since 2011. This is attributed to our choice to provide our customers with value-added services as part of our MORE Partner plans.

TV services. For over two years, Partner TV is the fastest-growing TV service in Israel. At the end of the second quarter, we report a net growth of 77,000 subscribers compared with Q2 2018; and as of today, Partner TV has over 170,000 subscribers.

Unlike all of our competitors, Partner is the only company that does not need to replace its subscribers' STBs to be prepared for the new viewing habits. 100% of Partner TV STBs broadcast with 4K quality, support Catch Up, and allow access to world-leading content applications.

Fiber Optics. Two years after the launch of Partner Fiber, our fiber optic infrastructure reaches over 480,000 households in Israel. We connect customers in dozens of cities nationwide to the fastest data Internet speed in Israel of up to 1 gigabyte per second. In addition, we are switching wholesale Internet customers to our independent fiber infrastructure in order to reduce dependency on monopolies and increase the company's profit.

The combination of all those services solidifies our status as a leading telco group, and the positive figures in this report reflect Partner's leadership in a range of services within the highly competitive Israeli telco market.

I will now like to turn the call over to Tamir Amar for a detailed review of our financial results. Tamir, please.

Tamir Amar

Thank you, Isaac. Good day everyone, and welcome to our earnings conference call. Partner completed a positive quarter, which was characterized by stability and even slight growth in cellular service revenues, alongside continued growth in the fixed line segment compared with Q2 2018 and Q1 2019, mainly reflecting the growth in our TV and Internet operations. The decline trend in our cellular churn rate continued as churn rate decreased to the lowest level since the third quarter of 2011, totaling less than 8%.

We continue to strive to maintain our customer base while creating value for our customers and limiting price erosion through our strategic focus on profit rather than market share. Despite the decline in revenues from equipment, we experienced only a slight decrease in gross profit from equipment sales.

The adjusted EBITDA increased this quarter and totaled ILS214 million compared with ILS197 million in the previous quarter and ILS172 million in the second quarter of 2018.

As we announced last quarter, the company has adopted the IFRS 16 accounting standard effective as of January 2019. The effect of the new standard totaled ILS38 million in this quarter; thus even after eliminating the effect of IFRS 16 on adjusted EBITDA, there was an increase compared with both periods. The increase was mainly a result of the increase in fixed-line segment adjusted EBITDA alongside stability in cellular segment adjusted EBITDA.

Cash flow from operating activities totaled ILS216 million, and adjusted free cash flow before interest totaled ILS31 million this quarter. As part of our investment plan, CapEx totaled ILS143 million this quarter. The company continues its investments in growth engines through both the continued rapid deployment of our fiber optic infrastructure as well as our increased penetration rate in the TV market. These deployments have all been pursued according to our strategic plan, while maintaining financial strength and a strong balance sheet.

As a result of the rapid deployment pace of the fiber optic project, we are expected to increase investment in the projects in 2019 compared with 2018. But overall CapEx is expected to remain unchanged from our original plans for 2019. In addition, in the coming years, investments in the fiber optic project are expected to return to 2018 levels.

Our investments place the company at the technological forefront in Israel and have enabled us to reach over 480,000 households with our fiber infrastructure and to connect customers to Partner TV and Fiber services.

And now I will be happy to open the call for questions. Moderator, please begin the Q&A.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions]

The first question is from Tavy Rosner of Barclays. Please go ahead.

Chris Reimer

Hi, this is Chris Reimer on for Tavy. Thank you for taking my questions. I'd like to ask about the traction you're seeing in fiber from customers specifically and if you're concerned by the competition that's out there considering, on the one hand, IBC and Cellcom, and on the other hand, HOT, which is investing in their network.

Isaac Benbenisti

Okay. Thank you for the question. This project involved increase -- increasing interest from the customers. The infrastructure in Israel -- the Internet infrastructure in Israel is very lousy. Compared to worldwide or to the Western countries, we were not in a good position before we launched our project. So, the interest is increasing.

And of course, as we do our project, it's not only that we deploy the fiber, it's we do it in a very strategic plan that after we connect the building, of course, we go to the building in all our marketing and sales forces to connect as much customers to our triple services or our fiber optic itself.

As I see the competition and we spoke about it when we launched this program -- this project, we do not -- we didn't think and we do not think that we'll be the only one in the market. Of course, we have four groups of telco companies currently in the market and we believe that starting from Bezeq to others, companies will deploy fiber optic projects.

We are leading this arena. I'm very happy that we started two years ago and we have such a wide coverage until now. I think it's even surprising what we've done until now, but we'll not be the only one.

As of others who will come to the market, I think that the interest of the customer will increase and the competition by the end of the day will be upon services, upon triple. And I believe that combining with our TV service, we have -- and we will have advantage in our services. So, we -- I think that we will be successful in the competition looking forward. But of course, we'll have -- well, I think that the landscape will be a competitive landscape. And I believe that we will maintain our leadership in this arena as well.

Chris Reimer

Okay. And regarding the 5G auction from the publishment of the Ministry of Communications, what is your take on that and how do you see the mobile competitive environment in, let's say, two to three years from now?

Isaac Benbenisti

Well, it’s hard to say what would be three weeks from now, not three years from now, but as I see it, it's early to speak about the 5G tender. We are not there yet. We got only the first papers to -- only to sign getting the information about it.

Generally speaking, all of us understands that the competition in the cellular market in Israel is high. And in the current situation, it's hard to believe that companies will be happy to invest more in 5G or I don't know what else.

I believe -- and I don't only believe, I know that the regulators in Israel are not only the Ministry of Communication. It's the Ministry of Communication, the Ministry of Finance, and the Antitrust. They're looking to it. They ask us question what do we think as a company, and I believe that they ask other companies as well. What do we think that has to happen in this market that the companies will have the eager to go and invest such investments in order to have return on investment when they deploy this 5G?

Generally speaking, I think that Israel as a country would not be able to be behind rest of the world with deploying 5G. But the Israeli nation -- the regulator in Israel will have to take care of the competitive landscape in order to make companies be able to invest in this business.

So, looking forward, I do believe that we'll see some changes that will help the companies to invest in 5G. Otherwise, I don't think that companies will have the ability to invest in 5G.

Chris Reimer

Okay. Thank you. That's it for me.

Isaac Benbenisti

Thank you very much.

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 1-877-456-0009. In Israel, please call 03-925-5928. And internationally, please call 9723-925-5928. The recording is also available on the company's website, www.partner.co.il.

Mr. Benbenisti, would you like to make your concluding statement?

Isaac Benbenisti

Yes. I'd like to thank everyone joining this conference and then say that I'm very pleased with this result because I do believe that we are very strict and we are very consistent in our messages the past year regarding our strategy we are going on.

We take care of our core businesses in terms of profit and we take care of our growing engines like the TV and the fiber. And we see that the figures, the P&L and operations figures, follow our strategy. And I do believe that we'll continue it and continue to define ourselves from the competitors into taking advantage of our trend in the coming quarters. Thank you very much.

Operator

Thank you. This concludes the Partner Communications second quarter 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.

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