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Partner Communications Company Ltd. (NASDAQ:PTNR)
Q1 2020 Earnings Call
May 27, 2020, 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 First Quarter 2020 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 -- Investor Relations Officer

Thank you, and thank you to all our listeners for joining us on this conference call to discuss Partner Communications' first 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 and strategic developments and an overview of our results for the first quarter. He will then hand over to Tamir, who will provide a more detailed discussion of our quarterly financial and opereational 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 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 May 27, 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 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

Thank you, Gideon. Good day everyone, and welcome to our earnings conference call. We concluded the first quarter of 2020 with increases in the subscriber base of the cellular segment and of Partner's growth engines with growth in the TV subscriber base and in fiber optic deployment, despite the impact of the coronavirus crisis.

Partner came into the coronavirus crisis with well prepared due to our financial strength, responsible management of costs and continued decline in our net debt with a successful equity raise at the beginning of the year, and the organizational flexibility, which enabled a quick transition to working from home. In the first quarter, we continued to grow in the cellular segment, with an addition of 19,000 subscribers, and despite the decline in the roaming revenues, we maintained relative stability in the cellular service revenues this quarter with a decrease of only 3% from Q4 '19.

In the fixed-line segment, revenues from fixed-line services continued to grow. A fiber optic infrastructure has proven to be essential at the national level, as demonstrated strongly during the period of restrictions on movement due to the coronavirus crisis, mainly in March and April. During this period, internet demand spiked by several dozen percent, which clearly demonstrates how critical communication infrastructures are to the economy and to the private and business consumers. For this reason, Partner's independent fiber optic infrastructure, which already reaches over 625,000 households in Israel, provides a significant advantage to our customers.

Partner TV continues to grow more than any other TV service in Israel, and as of today it totals 210,000 subscribers, while we added 58,000 new subscribers in the last year. In addition, we announced this month the expansion of Partner TV's strategic partnership with Netflix with the launch of joint TV packages, in a business model employed with only a few of Netflix's partners worldwide.

Partner's activities in the business sector focused in the first quarter on ensuring business continuity for our customers. The changes in business practices in the economy and the need for advanced communications infrastructures and services support the continued growth of Partner's business sector activities. As part of managing the current crisis, Partner has taken a series of steps aimed at addressing the effects of the coronavirus crisis, and is prepared for the day after, with the adjustment of the Company to the new reality.

This month, Partner was ranked as the best place to work in the Israeli communication market. The combination of a contented workforce, a clear corporate strategy and responsible financial management, is borne out in Partner's performance and achievements.

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

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

The results for the first quarter of 2020 continued to reflect the trends of the past few quarters, with further growth in fixed-line segment revenues and profit, and further stabilization in the cellular market.

The coronavirus crisis began to have a harmful effect on our business from the beginning of March 2020. The near-complete cessation of international travel caused a significant decrease in revenues from roaming services, the closure of shopping malls adversely affected the volume of sales of equipment, and the expected increase in bad debts due to the crisis led to an increase in doubtful accounts expenses.

Nevertheless, despite the fact that the crisis began to affect the business from the beginning of March, the overall impact on our results for the first quarter of 2020 was not significant, also reflecting the fact that the Company mitigated the impact with a set of rapidly implemented measures, including cutting costs and temporarily reducing the workforce by putting a significant number of employees on unpaid leave.

In the cellular segment, our subscriber base increased by 19,000 subscribers in the first quarter, including an increase of 14,000 post-paid subscribers, alongside a marginal increase in the churn rate, which increased from 7.2% in the previous quarter to 7.5% in this quarter, but decreased compared with 8.5% in the first quarter of 2019. ARPU totaled ILS53 this quarter compared with ILS55 in the previous quarter, the decrease largely reflecting the negative impact on roaming revenues from both the coronavirus crisis and seasonality effects.

Adjusted EBITDA this quarter totaled ILS215 million, compared with ILS217 million in the previous quarter. The stability in Adjusted EBITDA was achieved despite the impact of the coronavirus crisis and seasonality effects which were almost entirely offset by the refund of approximately ILS20 million of surplus payments to Bezeq for access to the wholesale internet infrastructure during the years 2017 to 2019.

Adjusted free cash flow, before interest, totaled ILS10 million in the first quarter. Capex totaled ILS151 million, reflecting the Company's continued efforts to expand the deployment of its fiber optic network and further penetration in the TV market. These investments continue to be possible as a result of Partner's financial stability and strong balance sheet, and have continued through the challenging period of the coronavirus crisis.

The level of net debt at the end of the first quarter stood at ILS673 million, compared with ILS957 million at the end of the previous quarter, a decrease of ILS284 million, which mainly reflected the Company's successful equity raise of ILS276 million, net, in January 2020.

As of today, revenues from roaming services continue to be significantly constrained by the coronavirus crisis, the shopping malls have reopened to a large extent, and our employees who were on unpaid leave have returned to work. Looking ahead, the Company does not expect the coronavirus crisis to have a significant harmful effect on profit for the second quarter of 2020.

The harmful impact on roaming services is expected to continue to a large extent through the second quarter, but its adverse effects on the business are expected to be mitigated by the cost cutting measures implemented by the Company. Looking further ahead, the Company cannot, at present, estimate the impact on the results for the year 2020 as a whole, since it will largely depend on the pace and extent of resumption of international travel and on the extent to which the Company is able to mitigate the adverse impact of the decrease in revenues from roaming services.

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

Questions and Answers:

Operator

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

There are no 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 1-877-456-0009; in Israel, please call 03-925-5901; and internationally, please call 927-3-925-5927. 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 -- Chief Executive Officer

Yes. Thank you. I wish to thank you very much for joining the call. I think that Q1 represents the ability of the Company to continue its strategic way to continue working on our core business, the cellular business and improving the segment and being prepared well for the crisis. I think that we face the crisis better than other companies in the market, the results shows it. The results shows the continued strategy of the Company and we are looking forward to the future. So thank you very much and [Indecipherable].

Operator

[Operator Closing Remarks]

Duration: 30 minutes

Call participants:

Gideon Koch -- Investor Relations Officer

Isaac Benbenisti -- Chief Executive Officer

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

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