Partner Communications Company Ltd (PTNR) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Second Quarter 2021 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to Mr. Amir Adar, Head of Investor Relations and Corporate Project. Mr. Adar, please begin.

Thank you, and thanks to you all, our listeners, for joining us on this conference call to discuss Partner Communications' second quarter results for the year 2021. With me on the call today is Avi Zvi, Partner's CEO; and Tamir Amar, our Deputy CEO and CFO. Avi will provide an update on Partner's business development. He will then hand over to Tamir, who will provide a detailed discussion of our quarterly financial and operational results. And then 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 provision 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 18, 2021 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 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 the previous safe harbor statement as of the date of this call. For your information, this call is also being broadcast now over the Internet and can be accessed through our website. If you have any further questions following the call, please feel free to contact me at 972-54-781-5051.

I will now turn the call over to Partner's CEO, Avi Zvi. Avi?

Thank you, Amir. Good morning, everyone, and welcome to our quarterly earnings conference call. In the second quarter, Partner continues to lead the Israeli communications market, both in innovation and business activity growth, while maintaining profitability even at a time when the impact of COVID-19, at least in Israel, is still noticeable.

Since I took office in June, a couple of months ago, I've been deep studying this incredible organization, getting to know its employees, strategy and its main operational mechanics. A new professional, creative and very diverse management is being set up to lead, together with our Board members, Partner into its future. I feel privileged to be a part of a company with an excellent human resource, a loved brand and the technological infrastructure that along with its financial strength, will advance Partner towards a new and significant project.

Along with the strategy refresh and Partner's new management, we have begun to take actual steps in order to promote even further, Partner's leadership in both customer service and to increase the profitability in product lines and operational segments of the company.

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

Thank you, Avi. In the second quarter of 2021, growth in revenues continued, while maintaining a cost structure that enabled growth in profit. A moderate return of roaming services revenues, along with an increase in subscriber base, led to cellular service revenues growth compared to the corresponding period last year. The fixed-line segment's growth trajectory continued along with an improvement in adjusted EBITDA.

Our cellular subscriber base totaled 2.97 million at quarter-end, an increase of 67,000 in the quarter. The churn rate in the quarter amounted to 7.2% compared to 7.5% in the corresponding quarter last year. ARPU in the quarter totaled ILS 48 compared to ILS 51 in the corresponding quarter last year, the decrease mainly reflecting the continued price erosion, although to a lesser extent, and the decrease in interconnect revenues, which were partially offset by a moderate increase in roaming services revenues.

Turning to the fixed-line segment, we continue to focus on connecting buildings to the company's fiber-optic infrastructure. The number of homes connected within buildings connected to our fiber-optic infrastructure was 571,000 at the end of the quarter, an increase of 57,000 in the quarter. Partner's fiber-optic subscriber base totaled 173,000 at the end of the quarter, an increase of 18,000 in the quarter and of 34,000 since the beginning of the year, reflecting a 30% penetration rate from potential customers in connected buildings.

Regarding our television services, the subscriber base grew by 10,000 in the second quarter of 2021, excluding the impact of the removal that we carried out of subscribers who had joined the company at various times and had remained in trial periods of over 6 months without charge or usage. Including the impact of the removal, the reported subscriber base decreased by 11,000 in the quarter.

The results for the second quarter of 2021 reflects the company's budgetary discipline. The level of OpEx remained stable, whilst our subscriber base increased and television content was expanded to include the SPORT ONE premium channels and others. Note that the OpEx level in the corresponding quarter last year was lower than usual due to a decrease in payroll and related expenses, mainly due to employees being placed on unpaid leaves during the quarter as a result of COVID-19.

In addition, the result of the second quarter of 2021 include a provision for the company's contribution to the governmental-mandated fiber incentive funds in an amount of ILS 6 million. We estimate that a similar amount shall be provisioned for the funds during the second half of the year.

Adjusted EBITDA in the second quarter of 2021 totaled ILS 213 million, an increase of 6% compared to the corresponding quarter last year and an increase of 10%, excluding the fiber incentive fund provision. Looking ahead, the company expects the moderate recovery in roaming services revenue, due to the continued increase in air travel, to continue in the third quarter of 2021. However, a retreat is possible, in view of the possible implication of the new COVID-19 variant for air travel.

Adjusted free cash flow before interest and including lease payments for the quarter totaled ILS 8 million and CapEx payments for the quarter totaled ILS 139 million. Net debt stood at ILS 670 million at the end of the quarter compared with ILS 658 million at the end of the corresponding quarter last year, an increase of ILS 12 million. The financial robustness of the company remains strong, with the company's net debt to adjusted EBITDA ratio at 0.8 at the end of the quarter.

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

(Operator Instructions) The first question is from Tavy Rosner of Barclays.

This is Chris Reimer on for Tavy. My first question is two parts. I was wondering if you could talk about cellular pricing and some of the dynamics around that, that you're seeing? And in following, if you could mention a little about how 5G is progressing and what needs to happen before we see more penetration of the market?

This is Avi speaking. Regarding the first part of your question, we see the pressure on pricing moderate. When we look at our customers in the home market, replacing their providers, their carriers, it's been going down steadily. And from around 70,000 to 80,000 almost [4Q] again a year ago, it's now around 30,000 to 31,000 per week, which means that the people are slowly -- they're less sensitive to pricing.

And you can see it in our ARPU. When you look at our ARPU this quarter versus last year's quarter, it's down 6%. And versus the previous quarter...

No change.

There's no change. It's the same number. The big question is what's going to happen with the deal in the market regarding Ericsson, a carrier that's mutually filed a Chapter 11 and it's in court right now. This carrier is one of the engines of pressing the pricing down. So the outcome within will probably affect things going forward. Do you want to say a few words about the 5G?

Yes, we are -- since the last August, when we won the auction for the 5G, we are establishing, in all our cellular basement, the 5G. It's progressing according to our plan. It's not in 1 year, but it's supposed to take, let's say, 2 to 3 years to penetrate the 5G in all our cellular base.

And accordingly, we started selling such programs and plans to our customers. And we see a lot of interest in it, but it's only the beginning. And we are about to see more and more, following the coming quarters.

Great. Great. That's helpful. And just one more. Now that we're at post-COVID, how should we be looking at operating expenses? If you could just mention any changes to any of the items that might specifically be affected, now that we're out of the COVID lockdown?

Okay. So first of all, I think that last year, when the COVID just started, it was a different situation. Last year, we did a lot of action in order to save a lot of money in the OpEx side, in order to handle the [disciplines] of the roaming and all other segments that hurt from the COVID-19.

I think that nowadays, although we are about to go to the fourth cycle of the COVID-19, the company already mitigated most of its OpEx in such way that we already are ready for this fourth cycle. We can see also in our results that although that we not -- we will see still the -- a big impact of the almost full cessation of air travel, we are still profitable in the company, although all the employees are working in the company.

So if you look at the OpEx, following the 8 quarters, maybe even more, you will see a stability in the OpEx, although we grow dramatically in the cellular segment and for sure, in the infrastructure segment and TV segment, which means that we are more efficient. And for that reason, we are quite ready to handle this COVID-19 fourth cycle.

(Operator Instructions) The next question is from [Elad Salamon of Sargot].

So actually, I would like to know if under your business plan, what is the expected, let's say, additional shekel to the ARPU regarding to the 5G?

It's too tough to answer that. And I think it's too early to answer that, more than tough. It's too early. We're at early -- relatively early stages of deployment of the technology, not only us, also the rest of the carriers.

From a gut feeling, not being mathematical for a second, it seems like there is a real upside in what will happen to the average revenue from a user, once the deployment will escalate. But to expect numbers at this stage, when we're around -- with less than 25% coverage, I think it's too early and it will be irresponsible to try and give a number.

Okay. And regarding to the fixed-line service revenue, so what is the reason that we see a slightly decline in this segment?

Decline in what, sorry? Fixed-line.

Fixed-line service revenue.

So first of all, the revenues from service of our fixed-line is increasing, not dramatically as the last quarter, but still increasing. You can see that according to quarter-to-quarter, each 2 quarters there is a jump. I will wait for the next quarter to see if this kind of trends. And year-over-year, of course, a 9% increase. So I really don't understand the question.

No, because if I say it's ILS 232 million in quarter 2 compared to the last quarter, which is ILS 260 million, so it slightly declined. So I wonder what would be a representative number for the whole 2021, 2022, so that the (inaudible)

I'm sorry, I don't see these figures. Maybe we'll take it offline, and we will manage it one-to-one, please. Any other questions?

Elad, just to answer that, the fixed-line is ILS 262 million, up from ILS 260 million the previous quarter, and up from ILS 244 million a year ago.

9% increase.

Increase here and the smaller increase from previous quarter.

I see. I got it. Maybe it's my mistake. I apologize.

There are no further questions at this time. Before I ask Mr. Zvi to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in 2 hours. In the U.S., please call 1-888-254-7270; in Israel, please call 03-925-5921; and internationally, please call 972-3-925-5921. The recording is also available on the company's website, www.partner.co.il.

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

Yes. Thank you all again for joining. We're, of course, at your service if you have any additional questions. I want to tell you that our management's attention in the coming weeks will be to focus on stabilizing our new management team and refreshing our core business strategy, while tightening our operational excellence.

The steps we are taking will ensure that Partner will have the resources for implementing its strategy in all operational areas, with an emphasis on customers, profitability and, of course, value creation. So I want to thank you again for joining us today, and we look forward to speaking to you next quarter. Have a good day.

Thank you. This concludes the Partner Communications Second Quarter 2021 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.