Partner Communications Company Ltd. (PTNR) Q3 2020 Earnings Call Transcript

Partner Communications Company Ltd. (NASDAQ: PTNR) Q3 2020 earnings call dated Nov. 25, 2020.

Corporate Participants:

Gideon Koch — Investor Relations Officer

Isaac Benbenisti — Chief Executive Officer

Tamir Amar — Chief Financial Officer and Vice President Fiber Optics Division

Analysts:

Chris Reimer — Barclays — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Third Quarter 2020 Results Conference Call. [Operator Instructions] Following management’s formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded.

I would now like to turn the call over to Mr. Gideon Koch. Mr. Koch, please go ahead.

Gideon Koch — Investor Relations Officer

Thank you. And thank you to all our listeners, for joining us on this conference call to discuss Partner Communications’ third quarter results for 2020. With me on the call today is Isaac Benbenisti, Partner’s CEO; and Tamir Amar, our CFO. Isaac Benbenisti will provide an update on Partner’s business developments and an overview of our results for the third quarter. He will then hand over to Tamir, who will provide a more detailed discussion of our financial and operational results. And finally, we’ll move onto the Q&As.

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 US Securities Act of 1933 as amended, Section 21E of the US Securities Exchange Act of 1934 as amended, and the safe harbor provisions of the US 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 the 25, 2020, as well as Partner’s filings with the US 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 broadcasted simultaneously over the Internet, and can be accessed through our website. And if you have any further questions following the call, please feel free to contact our Head of Investor Relations and Corporate Projects, Amir Adar, on +972-54-781-5051.

I will now turn the call over to Partner’s CEO, Isaac Benbenisti. Isaac?

Isaac Benbenisti — Chief Executive Officer

Thank you, Gideon. Good day, everyone, and welcome to our earnings conference call. Despite the effect of the coronavirus crisis, Partner’s results for the third quarter exhibit stability and resilience due to the consistent growth in the fixed-line segment, which contributes to a revenue mix that establishes long-term financial strength.

In the cellular segment, we added 54,000 subscribers net in the third quarter and continued to strengthen customer loyalty. Since the beginning of the year, we have added 105,000 subscribers net to Partner’s cellular services. In addition, we launched the 5G network and met the coverage goals that entitle us to a grant of tens of millions of shekels that is expected to be received from the Ministry of Communications.

The coronavirus crisis has increased the appreciation for quality communication services, with an emphasize on stable and fast Internet services. In recent months, there has been a significant increase in demand for the Partner Fiber service that provides an ultra-fast internet service over Partner’s independent fiber optic network, which already reaches approximately 700,000 households in 50 cities across the country.

Partner’s TV service has approximately 229,000 subscribers as of today, an addition of over 40,000 subscribers since the beginning of the year. Most of our TV subscribers subscribe to packages offering a combination of services, thus threatening Partner’s standing as a comprehensive telco group, which offers a variety of communication services among the most advanced in Israel.

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

Tamir Amar — Chief Financial Officer and Vice President Fiber Optics Division

Thank you, Isaac. Good day, everyone and welcome to our earnings conference call. As expected, the continued significant decline in international travel into the third quarter resulted in a material negative impact on the Company’s results of operation for the quarter compared with the Company’s normal seasonal trend. The Company did succeed in substantially mitigating the effects through proactive cost-cutting measures in a number of areas and also through making adjustments in a variety of business area, including capitalizing on the increase in demand for some of the Company’s services as a result of the crisis and shifting our focus towards alternative sales channels.

However, the overall net impact remained materially negative. Our cellular subscriber base increased by 54,000 subscribers net during the quarter, including an increase of 33,000 postpaid subscribers, together with a further increase in the quarterly churn rates to 7.3%, compared with 7.5% in the previous quarter. ARPU this quarter totaled NIS51, unchanged from the previous quarter and a decrease of NIS8 compared with the third quarter of 2019, largely reflecting the negative impact of the decrease in roaming revenues due to the coronavirus crisis.

Adjusted EBITDA this quarter totaled NIS204 million compared with NIS200 million in the previous quarter. The increase reflected among other factors an increase in services, in service revenues and in gross profit to support equipment sales, which were partially offset by the larger reduction of expenses in the second quarter.

Looking ahead, the Company expects that for the fourth quarter of 2020, the near complete cessation of international travel will continue to have a negative impact of those smaller in scale than in the third quarter. In addition, the Company will continue to take proactive cost cutting measures in a number of areas such that the overall net impact in the fourth quarter is not expected to be material. Adjusted free cash flow before interest totaled NIS21 million in the third quarter. Capex totaled NIS147 million, with investments also this quarter, reflecting the Company’s continued effort to expand the deployment of its fiber optic network and to further penetrate the TV market. These investments continue to be possible as a result of Partner’s financial stability and strong balance sheet and are continuing through the challenging period of the coronavirus crisis.

Net debt stood at NIS646 million at the end of the third quarter, compared with NIS956 million a year ago, a decrease of NIS310 million mainly due to the Company’s successful equity raise of NIS276 million net in January 2020. During the third quarter, the Company completed the partial early repayment of its Notes Series F in a total amount of NIS305 million, which led to one-time expenses of approximately NIS7 million being recorded under the Company’s financial costs net. In addition, in the third quarter, the Company expanded its Notes Series G in a total amount of NIS300 million. These measures lessened the duration of the Company’s debt.

Also in the third quarter, we participated in the Ministry of Communications’ tender for 5G frequencies and secured the frequencies anticipated, at a price which reflects the lowest cost of all contenders. In addition, in view of the Company’s compliance with the qualifying conditions for 5G, the Company, as a partner in PHI is expected to share together with another communications group the highest grant among all the groups that competed in the tender. In addition, the Company is expected to benefit from a significant discount with respect to frequency fees, provided that certain conditions are met in accordance with the terms of the tender.

Finally, following enquiries received from a number of potential investors, the Company announced that it is considering the possibility to solicit offers from a potential partner or partners to acquire up to 20% of the rights to use the Company’s existing and future fiber optic network for services to private households.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from Chris Reimer of Barclays. Please go ahead.

Chris Reimer — Barclays — Analyst

Hi, thank you for taking my questions. I’d like to get your view on the cellular market and the competitive environment especially in light of recent commentary in the press about Xphone not making its payments?

Isaac Benbenisti — Chief Executive Officer

Okay. So, indeed the cellular market is about to be changed. We hear all about Xphone and weakness to Cellcom to pay the debt. We understand that now the position of Xphone to compete in this market is becoming less and less competitive, but a partner besides leaving in this competition is focused on the strategy of value-added services to its customers and through this we are succeeding to retain the ARPU and even to increase it a little bit in this challenging period. Also, we faced huge decline in the ARPU because of the roaming services that they are not including within this period. We succeed also to stabilize the ARPU and also to increase it a little bit.

Chris Reimer — Barclays — Analyst

Okay. And then looking at fiber, considering the extensive deployment which your competitors are also undertaking Bezeq with 80% of the country and IBC advancing with their deployment, are you concerned with overbuild? And then just following on that, if you could just remind us about the whole process that you have, how much longer you may go along with your own deployment?

Isaac Benbenisti — Chief Executive Officer

Okay. So first of all, Bezeq is not 80% of the deployment is about 50% to 60%, but it’s not about to switch it on. Bezeq deployed the fibers six and seven years ago, and since then did not activated it. They need to qualify again all the fibers that have already deployed. It will take them, let’s say, between two years to four years according to what they already said. IBC according to their — what their — what they have already published through Cellcom reports, they already reached 500,000 households with the home pass.

Our deployment is also already 700 home pass — 700,000 home pass. We are the — according to this moment, we are the fastest and the most deployed company in the — in Israel. Of course, there are some different motivation between the companies that deploy the fibers. According to that, Partner is the only company in which holding the data fibers and does not have any other infrastructure that they will compete with it.

So, our interest is to reach any building that is according to our calculation is economic for us and compete with the other infrastructure that Bezeq and HOT or IBC have already deployed years ago or according to what they are deploying right now. So, the motivation is different. The pace of deployment is different between the companies and so far we reached above 30% of their household in Israel that are connected to internet these days and we are continuing doing that already.

Chris Reimer — Barclays — Analyst

Okay, thank you. That’s very helpful.

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 US, please call 1-888-326-9310. In Israel, please call 03-925-5925 and internationally, please call +972-3925-5925. The recording is also available on the Company’s website at www.partner.co.io. Mr. Benbenisti, would you like to make your concluding statements?

Isaac Benbenisti — Chief Executive Officer

Yes, thank you for joining the call. And just to summarize, I think this quarter represent the stability of the Company, the ability of adjusting our business and expenses to the coronavirus effects, because we have a significant effect due to the coronavirus on our roaming services and it’s significant. I think that what you can see from the results is the growing of the fixed line segment in the Company and the outstanding performance in the cellular by adding 105,000 subscribers as of the beginning of this year. So, I think by overall the results represent the stability of the Company, the ability to adjust ourselves and excellence in operation. So, thank you again for joining the call. Looking forward seeing you next quarter. Thank you.

Operator

[Operator Closing Remarks]