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Partner Communications Company Ltd. (NASDAQ:PTNR)
Q3 2019 Earnings Call
Nov 26, 2019, 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 Third Quarter 2019 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn over the call to Mr. Gideon Koch. Mr. Koch would you like to begin please.

Gideon Koch -- Head of Investor Relations

Yes, thank you. And thank you to all our listeners for joining us today on this conference call to discuss Partner Communications third 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 his quarterly update on the company's progress and its strategic initiatives. He will then hand over to Tamir, who will provide an overview of the financial and operational results for the quarter, and finally, we'll move over 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 November 26, 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 S-3 self 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 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 97254-781-5051.

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 earnings conference call. In the third quarter, Partner reported increase in revenues in cellular subscribers, in Partner TV subscribers and in the number of households that we reached with our fiber optic infrastructure, Partner Fiber.

In the cellular segment, our strategy of enhancing the value to customers and focusing on customer service led to a net increase of 35,000 subscribers this quarter, alongside of further decrease in the churn rate to 7.7%, the lowest rate in eight years.

As of today, Partner TV's subscriber base has reached more than 183,000. The majority of whom are in offerings, which also include Internet. Partner TV is the fastest growing TV service in Israel and is suited to the current era as a super aggregator of international content services open to the Israeli viewer, in addition to our multi-channel offering. Our groundbreaking collaborations with the world's largest content providers have started to be imitated by our competitors, and we are proud of the significant gap that we have opened compared to them.

Partner is leading today the fiber optic deployment field in Israel, with an independent infrastructure that is being rapidly deployed and has already reached over 540,000 households, approximately 28% of Internet-connected households in Israel.

Partner's vast fiber optic deployment supports the acceleration of the wholesale internet subscribers' migration to our independent infrastructure as well as the recruitment of new customers and the expansion of Partner's operations within the business sector across the country.

Partner's financial strength and the positive trends in the cellular segment enable the company to continue to implement our business plans for the fixed line segment, with the aim of improving profitability and customer loyalty while maintaining a stable level of debt.

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

Tamir Amar -- Chief Financial Officer and Vice President Economics Division

Thank you, Isaac. Good day, everyone, and welcome to our earnings conference call. The third quarter of 2019 ended with stability in service revenues, while continuing to report

growth in the fixed-line segment in terms of subscribers and revenues, relative stability in opex over time and a positive net profit.

In the cellular segment, where the intensity of competition continues to remain high, a clear trend of decreasing erosion in service revenues can be seen for several quarters, as a result of our strategy according to which we operate.

The churn rate totaled 7.7% in the quarter, continuing the declining trend from previous quarters. In addition, our subscriber base increased by 35,000 subscribers and ARPU for the quarter totaled NIS59, maintaining relative stability.

We see in these results a reflection of our continued efforts to increase value to our customers through value added offerings and to strive for continued improvement in our customer services, which lead to a decline in price erosion and churn rates. We believe that the steps that we are taking improve our competitiveness in a very challenging business environment.

Adjusted EBITDA this quarter totaled NIS225 million, demonstrating that the company continues to manage its opex responsibly, alongside revenue growth in the fixed line segment mainly reflecting the impact of the company's growth engine. In addition, adjusted free cash flow before interest was positive and totaled NIS13 million in the third

quarter.

Cash flow from operations totaled NIS230 million. Capex totaled NIS174 million and reflected the company's strategy to continue to be a technology leader while continuing to invest in its growth engines with a focus on deploying its fiber optic infrastructure and increasing penetration in the TV market. These investments are possible as a result of Partner's financial stability and strong balance sheet.

Accordingly, we report continued growth in the TV subscriber base which totaled 183,000 as of today, and in the rate of fiber optic deployment which remains high and reaches over 540,000 households as of today.

And now I will 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 Tavy Rosner of Barclays. Please go ahead.

Chris Reimer -- Barclays -- Analyst

Hi, this is Chris Reimer on for Tavy. Thank you for taking my questions. I was wondering if you could share what you think about the MoC recommendations on fiber deployments? And relating to that, are you concerned about the level of competition that there will be once Bezeq turns on its network?

Isaac Benbenisti -- Chief Executive Officer

So, I will describe what the MoC -- what the blended MoC laid off. It's -- for us, I think it's good news, because what they say that Bezeq now, they are not deploying their fiber optic because the obligation of deploying all over the country. What they say to them is that they can decide -- Bezeq can decide what part of the country they will deploy, so it can be 60%, 50%, 70% upon to their decision.

While they decided what is the portion of the country that they're going to deploy, the other portion that will not be able to deploy, nothing there. So if they will decide to go for 60% of the country, the other 40% Bezeq will not be able to deploy for at least three years. So who will deploy there? Either Partner or IBC or others that will come to the Ministry of Communication and make fees for this area. And the Ministry of Communication will compensate the company that will deploy there with money that they will take mainly from Bezeq as a tax on the revenue. So what the Ministry of Communications says to Bezeq, you don't want to deploy all over the country, fine, you can decide where you want to deploy. The other portion, you will not deploy there, but you will subsidize the Partner or other company that will deploy. It will put Bezeq in situation that they will be forced to decide what portion of the country they're going to deploy. I'm not sure that this blend will take place because Bezeq will object it as we see today, but for us, it's good deal.

Finally for us, the entire situation is a good news because regardless by what Bezeq is doing, we're moving ahead and you can see that we reached 540,000 households with home packs of fiber optic and we're moving ahead, and you can see that last quarter Bezeq made a PR that while they will deploy it will take them at least four years to cover half of the country. And you can imagine that four years from now, we might cover as well 50% of the country, while now we cover almost 30% already. So we are very proud to be in a situation that when you analyze the fiber optic situation in Israel, we look at Bezeq eye-to-eye and we are competing them and we are now far ahead of them.

So regardless what they will do, we'll continue our deployment and we find it as a growing engine and a project with very solid ROI.

Chris Reimer -- Barclays -- Analyst

Okay, I see. And in the areas where you do deploy, how do you see your competitive position there? Are you alone? Is there anyone--

Isaac Benbenisti -- Chief Executive Officer

Some of the places we find IBC alongside to us, and some of the places, we are alone. But nobody else.

Chris Reimer -- Barclays -- Analyst

I understand. Okay. Just touching on operating cost for a minute, given the 6% total expense reduction this quarter. How should we be looking at operating costs over the long term and what kind of trends?

Tamir Amar -- Chief Financial Officer and Vice President Economics Division

This is Tamir. Due to the fact that we are still in a process while we are increasing dramatically our subscribers in the TV and of course also the fiber optic customers, we are still investing a lot of money in connecting those customers as part of our opex, also important for the TV. So now a days, we don't see actually decreasing the opex but parallel increasing the opex by increasing the subscribers. But you have to also understand that part of the opex that we see now saving money in 2019 compared to 2018 is due to the IFRS 16 that we started only in 2019.

Chris Reimer -- Barclays -- Analyst

Okay, that's helpful. Thank you very much.

Tamir Amar -- Chief Financial Officer and Vice President Economics Division

You're welcome.

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 1-888-782-4291, in Israel, please call 039-255-925 and internationally, please call 9723-925-5925. 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

Yeah. Thank you very much. So first of all, thank you everybody for joining this call. As I can say for now in summering this conference call is that we are very pleased that these reports reflects our long-term plan, it will become a multi or comprehensive telco company with a massive number of TV subscribers and the fiber optic deployment and we are very happy that the plan is on place and we'll continue to invest and continue to deploy our strategy. So thank you very much and see you next time.

Operator

[Operator Closing Remarks]

Duration: 17 minutes

Call participants:

Gideon Koch -- Head of Investor Relations

Isaac Benbenisti -- Chief Executive Officer

Tamir Amar -- Chief Financial Officer and Vice President Economics Division

Chris Reimer -- Barclays -- Analyst

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