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Partner Communications Company Ltd. (NASDAQ:PTNR)
Q2 2018 Earnings Conference Call
Aug. 15, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Second Quarter 2018 Results Conference Call. All participants are present in a listen-only mode. (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 over the call to Mr. Gideon Koch. Mr. Koch, please go ahead.

Gideon Koch -- Head of Investor Relations and Corporate Projects

Thank you. And thank you to all our listeners for joining us today on this conference call to discuss Partner Communications' second quarter results for 2018. With me on the call is Isaac Benbenisti, Partner's CEO; and Tamir Amar, our CFO. Isaac will present a number of operational highlights of the quarter and provide an 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 over to 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 and 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 August 15, 2018, 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 the information on this conference call relating 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 -- Chief Executive Officer

Good day, everyone, and welcome to our earning conference call. This is the 12th consecutive quarter in which we report growth in our cellular post-paid subscriber base. In the second quarter, we continued to grow in the post-paid subscribers with a net add of 9,000 subscribers totaling 25,000 net adds of post-paid subscribers since the beginning of the year. We continue to lead the market with added value offerings, unique services, wide network deployment, and excellent customer service for the group's customers. A year ago, we started the commercial phase of two strategic activities, TV services and Internet based on independent optic fiber infrastructure. With only one year, Partner TV caused a disruption in the multi-channel TV market and today, over 100,000 households are already connected to the service.

Partner TV is the fastest growing TV service in Israel, thanks to, among other reasons, the innovative viewing experience that it provides to viewers.

In July, we launched the wholesale market service based on HOT's infrastructure, with bundle and triple offerings and with this, the company was the first to offer Internet services over all the main platforms including our optic fiber, LTE, and the infrastructures of Bezeq and HOT. The launch of the wholesale market service based on HOT's infrastructure eases the transition from cable service to Partner's advanced TV service.

At the same time, Partner continues to deploy fiber optic infrastructure throughout Israel at a faster deployment rate compared to other companies. We have already reached more than 170,000 households in dozens of cities with fiber infrastructure enabling speeds of up to 1,000 megabits per second and with attractive offers, which also incorporate Partner TV. In addition, as part of the company's strategy, we continue to examine our new potential growth engines, among others, in the fintech and finance industries, including through company acquisitions or independent organic activity.

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

Tamir Amar -- Chief Financial Officer

Thank you, Isaac. Good day, everyone, and welcome to our earning conference call. The second quarter of 2018 was characterized by increased competition in the cellular market with the entry of a sixth operator to the market, as reflected in the increase in the level of subscriber porting between operators and overall price pressures in the cellular market, although these trends have slowed since the peak in May. Partner experienced an increase in the quarterly cellular churn rate, which increased from 8.8% in previous quarter to 10%. Nevertheless, even under current competitive market conditions, Partner reported an increase in the post-paid cellular subscriber base of 9,000 in the second quarter. In addition, our cellular ARPU, excluding a one-time provision for class action, totaled 59 shekel, an increase of NIS1 compared with the first quarter of the year.

In the fixed-line segment, Partner continued to report growth with recruitment of TV subscribers and this growth engine together with the growth in the Internet services resulted in a quarterly net growth in revenues of NIS8 million compared to the first quarter of 2018. This is the fourth consecutive quarter in which we report revenue growth from fixed-line services and compared to the second quarter of 2017, fixed-line services revenue increased by 9%.

Free cash flow for the quarter totaled NIS55 million, following investment in our fiber optic infrastructure and TV service investments, which we believe will constitute growth engines for the company in the coming years. The rapid growth rate in Partner TV households is already reflected in revenue growth. In addition, the accelerated fiber deployment reflected by growth of over 25,000 households from the end of the second quarter supports our TV offering and improves the economic returns compared with the wholesale market services, which is implemented today in addition to the technological advantage of this infrastructure compared to the alternatives.

On the debt side, we ended the quarter with a net debt of less than NIS0.9 billion and the effect of the decline in our debt during the past year as well as the decrease in our average interest rate is reflected in a decrease in our finance expenses. Our strong balance sheet structure continues to offer us the ability to examine additional growth opportunities as well to differentiate us from our competitors.

In addition, last week we completed the first tranche under our share buyback plan with the repurchase of approximately 3.6 million of the company's shares, in an amount of NIS50 million at an average price of NIS13.75 per share, which reflects a yield of approximately 2.2% to our shareholders. The company's Board of Directors approved yesterday the repurchase of a second tranche in accordance with the plan of up to an aggregate amount of NIS50 million of the company's ordinary shares.

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

Questions and Answers:

Operator

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 -- Barclays Capital -- Analyst

Hi. This is Chris Reimer on for Tavy. Thank you for taking my questions. You mentioned that Partner already reaches more than 170,000 households with fiber. Can you give us any targets relating to future deployment, for example, one to three years out? And can you share any indication of customer uptake?

Isaac Benbenisti -- Chief Executive Officer

What we can say about it and I think that this will help you to anticipate the future or to look at what we can do in the future is that we have to understand that the 170,000 households that we reached this year began in a very difficult competitive situation. As you can remember, we started to deploy the infrastructure on Bezeq deck, and the beginning was very hard because Bezeq didn't allow us to enter the deck and there was a lot of objections from their side, regulatory objections and actually their employees stood in our way literally speaking. In the -- as we were -- as we progressed with the deployment, it changed. Now Bezeq doesn't put so many obstacles in the way because the regulatory abstained them of doing so. And we got few releases from the regulatory in the first month that will allow us to even deploy faster and in a cheaper way the deployment in the -- of the fiber optic. So, the beginning was very tough and then the last month as we increased rapidly the deployment. So we look very optimistic for the coming year in our ability to deploy the fiber optic infrastructure of Partner.

Chris Reimer -- Barclays Capital -- Analyst

Okay. Also just touching on CapEx, do you see current CapEx levels as realistic for the short term or should we look at it more as steadily increasing?

Tamir Amar -- Chief Financial Officer

Regarding CapEx, beside the fact that we are aggregating the total CapEx that we mentioned in the balance sheet, we are not giving any anticipation or expectation regarding the future CapEx. So, I'm unable to answer this question.

Chris Reimer -- Barclays Capital -- Analyst

I see, alright. Well, thank you very much. That was helpful.

Isaac Benbenisti -- Chief Executive Officer

Thank you.

Tamir Amar -- Chief Financial Officer

Thank you.

Operator

(Operator Instructions) The next question is from Michael Klahr of Citibank. Please go ahead.

Michael Klahr -- Citibank -- Analyst

Hi. Thanks for taking my question. Well, I've got two questions. Firstly, you made a comment in your remarks that the competition -- the intensity of competition had resulted from the entrants -- the new entrants into the mobile market had slowed down a little bit or it improved I think in recent months. So I just wanted to hear what your thoughts were as to what was happening in the mobile market. My second question is -- refers to the various opportunities that you talk about. So obviously you're deploying infrastructure in -- on fiber infrastructure, which is one opportunity for you. You're buying back shares, which is another deployment of capital. I think you mentioned in your comments and also in your release about that potential entrance into fintech or into finance. I was just wondering if you look at all the various opportunities to deploy capital available to you, where do you see the best opportunities? Where's the best risk reward and how should we think about that as you deploy capital going forward? Thank you.

Isaac Benbenisti -- Chief Executive Officer

So in regards with the entering of we to the market, it started mid of April -- somewhere around mid of April and immediately we saw an impact with the rapid growth in the spinning doors in the Israeli market. We used to have something like 45,000 subscribers moving between the companies weekly. It immediately went up to 72,000 weekly and since then, it's coming back to the, around 48,000 currently. So, it created an impact. It made the market very nervous, but we see a slowdown in the -- As you can see in our results, we don't see a massive impact and even we managed by managing our current database with the special offerings and the things like Apple Music and so value-added service and so to increase the ARPU by NIS1 this quarter. This is in relate with the excellent (inaudible). Let me see the next question is regarding -- you talk about the opportunities that we have in the market. This is a wide question and we can't point one opportunity, say this is the best one with the best ROI and so.

We believe that our strategy is the right one to become a comprehensive telco company. I think we prove it by the figures that we represent today in the TV market, in the fiber optic deployment. We are riding very fast toward the -- to complete our mission to become a comprehensive telco company. Having said that, we do understand that we have other opportunities. We have the big data opportunities, we have the IoT opportunities -- opportunity and we look in the world to analyze what other opportunities we have that maybe are not in direct content with the telco or traditional telco solutions.

One of our big asset is the database that we have. We serve 3.5 million customers monthly. We have relation with them. We know what they do. We have a big data that we can analyze and by doing it, we can offer them maybe some other solutions that converge with our telco solution, one of it is the fintech. We analyzed what's going on in the world and we noticed the fintech is growing very fast and the mobile payment is growing very fast and we can leverage from this trend. We intend to buy (inaudible) but we were not successful, but it doesn't stop us from developing our Partner finance activities. Maybe we'll do it internally, organically, maybe we will buy a company, we examine all the opportunities and we're very happy that we have the ability to do it because our data -- our balance sheet allow us to raise loans and to deploy more investments in arenas that we can see a proven ROI.

Tamir Amar -- Chief Financial Officer

Regarding the buyback that you just mentioned, this action in which was approved for the total plan for the NIS200 million in the previous Board of Directors and -- in which split into few tranches in which the first tranche was already implemented, and yesterday we, the Board of Directors approved the second tranche of NIS50 million, it's part of the Board of Directors and management to express their faith in the company and its shares and it's kind of a message to the market that we are supporting the company and we are believing the company. It is very important for the Board of Directors to express this -- such a belief and the buyback is part of it.

Michael Klahr -- Citibank -- Analyst

Okay, that's very helpful, thank you. And if I just may, a follow-up to a previous question about the 170,000 homes passed. Can you give or when will you be able to give some indication of what the take-up or how many homes are actually connected to your fiber?

Isaac Benbenisti -- Chief Executive Officer

You mean how many households are connected to (multiple speakers).

Michael Klahr -- Citibank -- Analyst

Yes, how many connections do you have, yes?

Isaac Benbenisti -- Chief Executive Officer

This is of course something that we work very hard because we'd like to get in the earliest ROIs that we can have and we are very successful, but we do not expose this number due to the competitive arena that we were in, you know that we are negotiating with Cellcom about cooperation and so, when we'll find that it is suitable for us to expose this number, we'll share it with you, but we are very pleased with the numbers that we currently have.

Michael Klahr -- Citibank -- Analyst

Okay, that's helpful. And just one last question on the fiber. What's the -- you mentioned both in your release and also in your comments a big pickup in the number of households that you're passing. What is the barrier to or what are the obstacles, what are the bottlenecks to continue that growth rate? Is it capital? Is it manpower? Is it just a company decision? Is it you're waiting for more take-up on the homes you've already passed? How should we think about that as you move forward with that fiber deployment?

Isaac Benbenisti -- Chief Executive Officer

It's totally our decision. We have the ability. I think that we have the best tool in the market to deploy fiber optics and we proved it, better than any other companies in this early currently -- in this early market, it depends on our will to continue and of course in our ability to put the money and to make this investment. That is totally our decision and the last regulatory decisions enable us to do it in a better way, faster and cheaper.

Michael Klahr -- Citibank -- Analyst

Thank you. Thanks so much.

Operator

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, 1-866-276-1485. In Israel, please call 03-925-5945 and internationally, please call, 972-3925-5945. 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 -- Chief Executive Officer

Yes, thank you for joining and to finalize, I would like to say that Partner's transformation into a comprehensive communication group which we announced in 2016 is visible today with over 2.7 million cellular subscribers, our fast growth in the Partner TV subscribers, which includes already 100,000 households and our 170,000 households reach with Partner Fiber, both being growth engines for future growth. Thank you for joining us today.

Operator

Thank you. This concludes the Partner Communications' second quarter 2018 results conference call. Thank you for your participation. You may go ahead and disconnect.

Duration: 23 minutes

Call participants:

Gideon Koch -- Head of Investor Relations and Corporate Projects

Isaac Benbenisti -- Chief Executive Officer

Tamir Amar -- Chief Financial Officer

Chris Reimer -- Barclays Capital -- Analyst

Michael Klahr -- Citibank -- Analyst

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