Bezeq Israel Telcm Un/Adr

Welcome, everyone, and thank you for joining us on Bezek's 2020 Five-Third Quarter Running Call. I'm Yochai Benitez, CEO of the Bezek Group. Joining us from the senior management team today, we have Mr. Tommy Ravid, Bezek Chairman, Mr. Amir David, Bezek's fixed-line CEO, and Mr. Ilan Sigal, CEO of Peloponnesus. Before we start the call, I would like to direct your attention to the safe harbor statement on slide 2 of our presentation, which also applies to any statement made during today's call. We would like to inform you that this event is being recorded. Following the presentation of our results, we will have a Q&A session. With that said, let me now turn the call over to Tomer for his opening remarks. After his introduction, I will continue the presentation of our group's financial highlights, followed by Nir, who will discuss BASIC fixed-line results, and Ilan, who will cover the results from Peloponnesus. I will conclude the presentation with BASIC international results. Tomer, please.

Thank you. Hi, and good afternoon. Good morning, everyone. Let's start on slide three. We continue to record stable and healthy growth across all of the group's strategic business segments, consistently meeting and beating our forecast. I am proud to announce that we have reached our 2.9 million home past target and have completed our network deployment across the vast majority of Israel. Accordingly, starting 2026, we expect to see a gradual decrease in COPEX. This is a historic milestone that will enable us to be fully prepared ahead of the AI revolution that will transform the economy, society, and the quality of life of every Israeli citizen. During this quarter, we continue to deliver significant growth in core revenues and double-digit growth in adjusted EBITDA and adjusted net profit that were also positively impacted by the YES improved valuation. Excluding the YES valuation impact, Adjusted EBITDA still grew by a healthy 4% this quarter. We continue to focus on new strategic initiatives in BEDEC 6-9, PEDAFON, and YES, which further strengthen the group's core pillars. On the regulatory side, there was further progress in the process for the removal of structural separation, with the MOC publication of a call for public comments. We are hopeful that the MOC will complete its process by year-end, as planned, and that we can start merging guests into Beldex 6.9 and further enhance value to customers, operational efficiency, and leverage our $1.2 billion significant tax asset. Moving to the next slide, our tech and business roadmap is on track to reach our midterm KPI, including at least 40% fiber take-up and consistent output growth across all verticals while leveraging our leading position in 5G and TV. On slide 5, you can see a good snapshot of our financial highlights for this quarter, both in top line as well as in profitability metrics. Core revenues grew by almost 2%, and now represents 93% of our total revenue. After adjusting for the change in years valuation, adjusted EBITDA grew 4%, in line and actually slightly above the group's targets. Turning to slide 6, let me point out that even in a year with a volatile geopolitical situation, our core business continued to perform well with outstanding growth in every KPI this quarter. Total fiber subscribers, as of today, reached 969,000. 5G subscriber plans reached 1.36 million. And so our output grew over 4%. Yes, our output was actually a highlight for this quarter, up 1% year over year, and stable output at 189 shekels. We are pleased to see the improvement in the macroeconomic environment, the ceasefire in the region, and the return of our hostages. These tailwinds, together with the Group's strong performance, are generating growing interest from investors in the Israeli, European, and US capital markets. We will continue to work to create significant value for our customers, employees, and shareholders. I will now turn the call over to Yochai, who will elaborate further on the Group's results.

Thank you, Thomas. Moving to slide 7, we show 1.7% increase in core revenues due to higher core revenues across all key group segments. Adjusted EBITDA grew 13.8% and adjusted net profit grew 56% due to the increase in the valuation of this. After excluding the impact of this updated valuation, adjusted EBITDA increased 3.9% and adjusted net profit was up by 0.1%. Starting to the next slide, we showed the 9-month trends, which were similar to Q3 revenues in profitability. Free cash flow was impacted by BEZEC fixed line assessment, tax assessment paid in the first quarter of 2025, and tax refund received in the corresponding period. Moving to the next slide, we show our operating expenses. Salary expenses decreased 8.9% due to the sale of BEZEC online and its deconsolidation as of Q2 2025. We recorded decreases in operating expenses and depreciation expenses, mainly due to the change in yes valuation. Other expenses were impacted by higher provision for legal claims and employee retirement at BAVC fixed line. The next slide shows our quarterly operational metrics. Broadband retail ARPU continued to grow ear over ear. In addition, we recorded increases in telephone ARPU as well as in yes ARPU ear over ear due to fiber growth. Compared to the previous quarter, cellular subscribers grew by 16,000 and TV subscribers grew by 3,000, representing the second consecutive quarter of growth. Slide 11 highlights our balanced capital structure with net debt at 4.6 billion shekels and a coverage ratio of 1.3 times. The decrease in coverage ratio was due to the increase in adjusted EBITDA as a result of the change in year's valuation. We remain committed to maintaining our high credit rating. Moving to the next slide, our 2025 outlook remains unchanged, and we are focusing adjusted EBITDA of 3.85 billion shekels, adjusted net profit of 1.45 billion shekels, and capex of 1.75 billion shekels. I will now turn the call over to Nir, who will share more detailed results from our fixed line operation.

Thank you, Yochai. We continue to deliver strong results in the third quarter, reflecting the successful implementation of our multi-year strategy focused on the core activities and the acceleration and advancement in advanced infrastructure nationwide. Turning to slide 13, fixed-line core revenues, increased 2.2% to 991 million shekels, driven by higher revenues from transmission and data communication, broadband and cloud and digital services. Broadband fiber customers reach 969,000 today and output rose 3.8% year-over-year to 136 shekels. We recently extended our IRU agreements with Gilad Telcoms. Together with partner agreements, these represent another significant milestone in our growth strategy, enabling us to better leverage the potential of our fiber networks and to expand our customer base nationwide. On the following slide, we show Q3 financial highlights. Adjusted EBITDA rose 0.5% due to higher core revenues, partially offset by lower telephony revenues. Adjusted net profit was down 10.5% to 214 million shekels, mainly due to higher depreciation and financing expenses. Free cash flow was down 3.1%, mainly due to timing differences in working capital. Turning to the next slide, we show continuous Fiverr deployment reaching out targets of 2.9 million homespots with over 969,000 active subscribers in our fiber network today, representing 65% of total broadband subscribers and resulting in a take-up rate of 34%. Moving to the next slide, we show the take-up trends. Retail subscriber take-ups reached 616,000 and also fiber take-ups reached 355,000 today. Fiber subscriber representing 62% of total retail subscribers. Turning to the next slide, broadband revenues were up 1.6%, driven by growth in ARPU and fiber subscriber. Transmission and data revenues grew 4.7% to 310 million shekels, and cloud and digital revenues grew 5.7%, driven by higher revenues from virtual exchange and cloud services. With that, I will now turn the call over to Ilan to discuss Pelafon NDS.

Thank you, Nir. Moving to slides 18 and 19, Pelafon delivers strong quarterly financial results together with sustained growth across key performance indicators. Service revenues grew 4.4%, reaching 381 million shekels for the highest-priced service revenues in a decade. Adjusted EBITDA grew approximately 6% to 202 million shekels for the highest adjusted EBITDA in two years. Revenue and profitability growth were driven by continued growth in post-pay subscribers, including 5G subscriber plans, as well as high roaming revenues. 5G post-pay subs plans grew by 33,000, reaching 1.36 million subscribers today. 5G max subscribers reached 115,000 today. Moving to the next slide, we show 5G post-pay subscriber plans reaching 1.36 million subscribers as of today, representing 59% of post-pay subscribers and Q3 service revenues showing consistent growth over the last few years. The next slide shows Q3 key operational metrics. We posted the highest ARPU in six years, reaching 48 shekels, up 4.3% of two shekels year over year. Turning to Yes on slide 22, Yes has demonstrated consistent increase in revenues and subscribers along with significant growth in all profitability metrics which have been driven by comprehensive efficiency and renewal initiatives and the completion of strategic transactions and measures we undertook. Revenues increased 1.3% to 321 million shekels due to higher revenues from the TV and fiber bundle. Performa adjusted EBITDA rose 69% to 59 million shekels, driven by an improvement in operations, including growth in subscribers and revenues and a reduction in expenses, resulting from the completion of transactions and strategic initiatives. Total TV subscribers increased by 3,000 this quarter, representing the highest quarterly increase in total subscribers since 2022. We posted quarterly growth with 12,000 net fiber subscribers, as reaching 111,000 as of today. Moving to the next slide, performer-adjusted net loss improved by 97% due to higher revenues and streaming of expenses. streamlining of expenses. On the next slide, I would like to highlight that this is the second consecutive quarter with a sequential increase in total TV subscribers. ARPA rose two shekels year-over-year growth due to higher revenues from the fiber plans. We should continue growth in IP subscribers reaching 489,000 today, representing 86% of total subscribers. With that, let me now turn the call back to Yochai.

Thanks, Ivan. Moving on to BASIC International on slide 25, ICT business revenues grew 8.7% to 281 million shekels, mainly due to high revenue from the sale of business equipment as well as cloud activity. As a result, profitability metrics grew with adjusted EBITDA up to 2.6% and adjusted net profit up to 14.3% to 60 million shekels. We are continuing with our streamlining plan, including the implementation of the employee retirement agreement for the years 2025 through 2027. Finally, I would also like to mention that we will be attending the TMT conference this week in Barcelona. In addition, we will be attending the UBS Global Media and Communication Conference on December 9th in New York. For those attending, we look forward to meeting you there. With that, I will open the Q&A session. If you would like to ask a question, please raise your hand virtually. As you hear your name, please be sure to unmute your microphone and ask a question. For the benefit of the people in the room, please introduce yourself and share the name of the company you represent. We will address questions as we see the hand raised. I will now pause to poll for questions.

Yeah, hi, Chris Reimer from Barclays. Thanks for taking my question.

First question from Chris from Barclays.

Yeah, yeah, thank you. I wanted to ask about the guidance, the near-term 2% growth in adjusted EBITDA. How should we be looking at that in terms of the strong impact from the revaluation of YES?

Yes, so as I mentioned this quarter, the growth of EBITDA is 14%. If you exclude the yes impact, we're talking about 4% growth. We talked and we are targeting to be around the 2% EBITDA in our mid-term targets, but given the successful growth, growth in our core revenues and ongoing efforts driven by PEDVEC, YES, and PEDAPHONE. We're obviously trying to overachieve these numbers. You saw this year, we upgraded our guidance twice. And we are very confident of being at this number, maybe slightly above. But we are going to continue and push for at least 2% or more growth in EBITDA CAGR. And I would also share that in this coming March, we will share a revised midterm guidance as a result of a very successful business initiative across the group.

Yeah, thanks. That's good color. And also, just touching on YES, you announced the extension of the satellite program using their satellite. I'm just wondering how does that correspond to a positive impact on the segment

Okay, so as you mentioned, we did announce that we will keep some satellite business, but it will be very small compared to what we have today with lower cost structure. So what we communicated of significant saving starting the first quarter of 2026, we still see it as part of our forecast. So there is no material change from our view in this respect.

Got it. Okay, thanks. That's for me. I'll jump back to the queue.

Thank you. Next question is Sihi from Citi. Please.

Hello, thank you for taking my questions. I have two, please. The first one is really follow up on the topic on yes. And we see that yes, our pool has stabilized this quarter. Just wondering if you can give us, how do you think the ESR pool could develop, given that the fiber take-up continues to grow up? Should we expect the ESR pool to have run out? And the second question, just if you could give us some updates on the HOT mobile offer. I think you said that you just raised the offer by like 100 million. Just wondering if you could give us some updates on how that's been progressing and your thoughts on the pricing. Thank you.

Yeah, I'll touch quickly. Hi, C. Thanks for joining. The TV market is extremely competitive, yes, at a very unique and premium offering. And while the TV standalone ARPU continued to go down as expected, slightly better, slightly lower than expected, but still a very competitive market, with fiber, the company ARPU, and it's always significant, has stabilized and is growing gradually, as you can see. So with the growing take-up on fiber from Yes, you would expect the offsetting, the decline in TV standalone offerings to basically stay stable and slightly grow as a result of the fiber offering and additional offerings that Yes has opened up, like advertising and others that you will hear about soon.

I'll add only one thing that, yes, in the second quarter that we are gaining more customers, 3,000 this quarter and last quarter 1,000. In a competitive market, we are able to grow in our subscriber base, so also impacting the ARPU.

And on the question of Hot Mobile, so we submitted an offer on the process, 2 billion checkers. We submitted a revised indication of 2.1. We are in touch with Altice and their representative as part of the process for the past two months. We did update the street today on the revised offer, and we will update the street on any other development there. We are focusing only on the mobile unit. We believe the value to the Israeli seller market will be very significant, especially to the networks, if this consolidation happens.

Okay. Thank you, Sihi. Next question is from Christina Michael from UBS. Hi, Christina.

Hello. Hello, can you hear me? Yeah, we can hear you. Following up from the previous question, how do you see the competitive dynamic in general in the market and if there are any other specific actions you are taking in response to competitive dynamics and increased competition in the market?

What market? Which market are you referring to?

The mobile market.

The mobile.

Okay. I'll touch on it and please further elaborate. The competitive market, the Israeli market in solar is very competitive with a very low ARPU compared to the world, given all the reforms that happened 10 years ago. ARPUs stand around 45 to 50 shekels across the street, or in euros, 12 to 13 euros, much lower than Europe. So we've seen recovery and output over the past two or three years thanks to the 5G offering. We expect to continue and see this trend happening. There are four MNOs and 20 MVNOs, very competitive market. We believe consolidation supports a better network development. Most markets are a two or three player market. This is a 24 player market. So we are glad to see the market recovering, but Israel is still behind. on cellular speed, number 70-ish in the world, while it's number 7 on fixed-line broadband. So we believe this type of transactions will support basically the country network and evolution into 5G and 6G.

I'll just add, the 5G network is still in the baby steps. We are around 33% of the antennas nationwide are 5G. And we believe that the nation needs to be 100% very fast. And also the market is very competitive, as Thomas said, 23, 24 players. And a lot of MVNOs and the pricing is very low. So that's the market. And we believe it will be still very competitive in the next few years.

Okay. Thank you. So if there are no further questions at this time, just a minute. We do have another question. Sabina? Hi, Sabina. Sabina?

Hi, so you had to unmute me first. First of all, congratulations on the quarter. Thank you. You've mentioned previously the long-term guidance, and I just was wondering whether it takes into consideration also potential developments In the regulatory landscape, you mentioned that the Ministry of Communication might decide regarding the structural separation, so I was wondering if it's in the numbers. And also, maybe you can provide us some additional color regarding the potential impact of AI implementation, considering the cost base and potential savings and the streaming measures in the company. Thank you.

Yeah, touching quickly on AI, and I promise you you'll hear a lot more, both from Nir and Ilan, very soon on AI initiatives. But we play de facto three roles, basically infrastructure for AI, so everything that's going on with higher bandwidth speed, data center connectivity. Locally and globally, what we are part of, given we are the incumbent, we adopted a lot of AI tools. We are ahead of the world, both in telephone and ES, and especially in basic fixed line. And we see cost savings and better customer service as a result. And you will also see a lot of AI solution at the customer premise. We're already offering cyber solutions, device management solutions, and more to come. That's on AI. You'll hear a lot more about this from us in the coming weeks. Regarding the regulatory front, we've seen a lot of activity on the regulatory front. Earlier this year, they talked about the wholesale and the removal of structural separation happening later in this year. They've been very active in the past two months with hearings and RFI across both, and they set a target date to decide on structural separation structure and removal by end of this year. We are in active conversation with them, and I think the rest of the street is as well, and we expect them to make a decision by year end.

What about now? I asked about if it's reflected, maybe re-suggested in their long-term, in your long-term guidance or aspirations.

Oh, we did not, sorry. Yeah, Sabina, we did not take into account any of the regulatory impacts on the long-term, especially not structural separation. It's not in our guidance.

So can we assume that in case there will be developments in this front in the next coming months, you will provide us more color in the annual report?

Yes, we will provide more color when we have better visibility. And as you know, the three main impacts, of course, are significant value to the customers on the service and on the price. So while putting revenues aside, there is a $1.2 billion check of tax asset that will be used over a course of 8 to 10 years, very significant free cash flow impact, as well as potential cost savings as a result of the Patek and EF merger. But we will provide specific numbers, hopefully during the annual statements.

Thank you very much.

Thank you. Next question is from Omri from .

Omri from . Hi. I want to add on the previous questions regarding the company's forecast. whether or not you're taking into account in the forecasts the ES re-evaluation. If I look at the EBITDA margin for the medium term, in my eyes, it seems like it didn't take it into account. It seems like the ES re-evaluation added like, I don't know, 400 million in adjusted EBITDA yearly. How can we think about it?

I'll respond, and you're highly free to add. We did not take into account any impact from yes in our initial guidance when we issued it in March. As a result of company better performance and the yes revaluation in Q2, we revised guidance and then did it again because there were two impacts on the yes revaluation. So both were taken into account in the revised guidance or in the second revised guidance, and that's one of the primary reasons for the revised guidance. So it's already in there, but we are not taking into account any future revaluation of yes into the guidance. I hope that makes sense.

Thanks. Okay. Thank you, Omri. If there are no further questions at this time, I would like to thank you all for taking the time to join us today. Should you have any follow-up questions, please feel free to contact our investor relations department. We look forward to speaking to you on the year-end 2025 founding call. Thank you.