Earnings call transcript: Bezeq Q3 2025 beats EPS estimates, stock dips

Bezeq Israeli Telecommunication Corp Ltd (BEZQ) reported its Q3 2025 earnings, surpassing EPS expectations but falling short on revenue forecasts. The company posted an EPS of $0.16, exceeding the forecasted $0.123 by 30.08%. However, actual revenue of 2.15 billion USD missed the projected 2.18 billion USD, resulting in a negative surprise of 1.38%. Despite the EPS beat, Bezeq's stock dipped by 0.52%, closing at 686.8, reflecting a $3.6 decline.

Key Takeaways

• Bezeq exceeded EPS expectations by 30.08%.
• Revenue fell short of forecasts by 1.38%.
• Stock price declined by 0.52% following the earnings release.
• The company maintained its 2025 financial outlook.
• Bezeq continues to expand its fiber and 5G networks.

Company Performance

Bezeq demonstrated solid performance in Q3 2025, with core revenues growing by 1.7% to 991 million ILS. The company's adjusted EBITDA rose by 13.8%, and adjusted net profit saw a significant increase of 56%. Despite challenges from tax assessments impacting free cash flow, Bezeq maintained a net debt of 4.6 billion ILS with a coverage ratio of 1.3x.

Financial Highlights

• Revenue: 2.15 billion USD, a miss compared to the forecast.
• Earnings per share: $0.16, beating expectations by 30.08%.
• Adjusted EBITDA: Increased by 13.8%.
• Adjusted net profit: Grew by 56%.

Earnings vs. Forecast

Bezeq's EPS of $0.16 outperformed the forecasted $0.123, marking a positive earnings surprise of 30.08%. However, the revenue fell short by 1.38%, coming in at 2.15 billion USD against an expected 2.18 billion USD.

Market Reaction

Despite the EPS beat, Bezeq's stock declined by 0.52%, closing at 686.8. The stock's movement is within its 52-week range, with a high of 695.4 and a low of 486.1. The market's reaction suggests investor concerns over the revenue miss and potential future challenges.

Outlook & Guidance

Bezeq maintained its 2025 outlook, targeting an adjusted EBITDA of 3.85 billion ILS and an adjusted net profit of 1.45 billion ILS. The company plans to reduce CapEx from 2026 and anticipates potential regulatory changes that could impact its structural separation.

Executive Commentary

Tom Wetherbee, Chairman, highlighted the company's achievements, stating, "We have reached our 2.9 million home passed target and have completed our network deployment across the vast majority of Israel." He also noted, "The competitive Israeli market in cellular is very competitive with very low ARPU compared to the world."

Risks and Challenges

• Competitive market dynamics with low ARPU.
• Potential regulatory changes affecting structural separation.
• Ongoing tax assessments impacting free cash flow.
• Market saturation in the Israeli telecommunications sector.
• Economic uncertainties that could affect consumer spending.

Q&A

During the earnings call, analysts inquired about Bezeq's AI implementation plans and potential cost savings. The company also addressed the yes valuation impact on its financial metrics and explored the competitive dynamics in the mobile market.

Full transcript - Bezeq (BEZQ) Q3 2025:

Yochai Benita, CFO, Bezeq Group: Welcome, everyone, and thank you for joining us on Bezeq 2020 third quarter learning call. I'm Yochai Benita, CFO of the Bezeq Group. Joining us from the Senior Management Team today, we have Mr. Tom Wetherbee, Bezeq Chairman; Mr. Nir David, Bezeq Fixed Line CEO; and Mr. Ilan Sigal, CEO of Pelephone and yes. Before we start the call, I would like to direct your attention to the safe harbor statement on slide two 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 Tom for his opening remarks.

After his introduction, I will continue the presentation of our group's financial highlights, followed by Nir, who will discuss Bezeq Fixed Line results, and Ilan, who will cover the results from Pelephone and yes. I will conclude the presentation with Bezeq International results. Tom, please.

Tom Wetherbee, Bezeq Chairman, Bezeq Group: Thank you, Yochai, 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 passed target and have completed our network deployment across the vast majority of Israel. Accordingly, starting 2026, we expect to see a gradual decrease in CapEx. 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 Bezeq Fixed Line, Pelephone, 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 yes into Bezeq Fixed Line and further enhance value to customers, operational efficiency, and leverage our ILS 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 five, you can see a good snapshot of our financial highlights for this quarter, both in top line as well as in profitability metrics. Core revenue grew by almost 2%, and now represents 93% of our total revenue. After adjusting for the change in yes valuation, adjusted EBITDA grew 4% in line and actually slightly above the group's targets. Turning to slide six, 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 cellular output grew over 4%. Yes output was actually a highlight for this quarter, up 1% year over year and stabilized output at ILS 189.

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 U.S. 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 results.

Yochai Benita, CFO, Bezeq Group: Thank you, Tom. Moving to slide seven, we show a 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 yes. After excluding the impact of yes updated valuation, adjusted EBITDA increased 3.9%, and adjusted net profit was up by 0.1%. Turning to the next slide, we show the nine-month trends, which were similar to Q3 revenues in profitability. Free cash flow was impacted by Bezeq Fixed Line 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 Bezeq Online and its consolidation as of Q2 2025.

We recorded decreases in operating expenses and appreciation expenses, mainly due to the change in yes valuation. Other expenses were impacted by higher provision for legal claims and employee retirement at Bezeq Fixed Line. The next slide shows our quarterly operational metrics. Broadband retail output continued to grow year over year. In addition, we recorded increases in Pelephone output as well as in yes output year over year 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 ILS 4.6 billion 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 yes valuation. We remain committed to maintaining our high credit rating.

Moving to the next slide, our 2025 outlooks remain unchanged, and we are focusing on adjusted EBITDA of ILS 3.85 billion, adjusted net profit of ILS 1.45 billion, and CapEx of ILS 1.75 billion. I will now turn the call over to Nir, who will share more detailed results from our Fixed Line operation.

Tom Wetherbee, Bezeq Chairman, Bezeq Group: 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 infrastructure and advancement in advanced infrastructure nationwide. Turning to slide 13, Fixed Line core revenues increased 2.2% to ILS 991 million, driven by higher revenues from transmission and data communication, broadband, and cloud and digital services. Broadband fiber customers reached 969,000 today, and output rose 3.8% year over year to ILS 136. We recently expanded our IRU agreements with Gila Telecoms. Together with partner agreements, this represents 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 Telephone revenues.

Adjusted net profit was down 10.5% to ILS 214 million, 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 fiber deployment reaching our targets of 2.9 million home passes 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 fiber take-ups reached 616,000, and wholesale fiber take-up reached 355,000 today. Fiber subscribers representing 62% of total retail subscribers. Turning to the next slide, broadband revenues were up 1.6%, driven by growth in output and fiber subscribers. Transmission and data revenues grew 4.7% to ILS 310 million, 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 Pelephone and yes.

Yochai Benita, CFO, Bezeq Group: Thank you, Nir. Moving to slides 18 and 19, Pelephone delivered strong quarterly financial results together with sustained growth across key performance indicators. Service revenues grew 4.4%, reaching ILS 381 million for the highest service revenues in a decade. Adjusted EBITDA grew approximately 6% to ILS 202 million for the highest adjusted EBITDA in two years. Revenue and profitability growth were driven by continued growth in post-paid subscribers, including 5G subscriber plans, as well as high roaming revenues. 5G post-paid 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-paid subscriber plans reaching 1.36 million subscribers as of today, representing 59% of post-paid 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 output in six years, reaching ILS 48, up 4.3% or ILS 2 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 ILS 321 million due to higher revenues from the TV and fiber bundle. Performer adjusted EBITDA rose 69% to ILS 59 million, 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, reaching 111,000 as of today.

Moving to the next slide, performer adjusted net loss improved by 97% due to higher revenues and 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. Output rose ILS 2 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, Ilan. Moving on to Bezeq International on slide 25, ICT businesses' revenues grew 8.7% to ILS 281 million, mainly due to higher 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 ILS 60 million.

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 9 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 your 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.

Chris Reimer, Analyst, Barclays: Yeah, hi, Chris Reimer from Barclays.

Yochai Benita, CFO, Bezeq Group: Okay.

Chris Reimer, Analyst, Barclays: Thanks for taking my question.

Yochai Benita, CFO, Bezeq Group: First question from Chris Reimer from Barclays.

Chris Reimer, Analyst, Barclays: Yeah, yeah, thank you. 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?

Tom Wetherbee, Bezeq Chairman, Bezeq Group: Yes. As I mentioned, this quarter, the growth of EBITDA of 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 figure in our midterm targets. Given the successful growth in our core revenues and ongoing efforts driven by Bezeq, yes, and Pelephone, 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. We are going to continue and push for at least 2% or more growth in EBITDA figure. I would also share that in this coming March, we will share a revived midterm guidance as a result of our very successful business initiative across the group.

Chris Reimer, Analyst, Barclays: Yeah, thanks. That's good color. Also, just touching on yes, you announced the extension of the satellite, using their satellite. I'm just wondering, how does that correspond to a positive impact on the segment?

Yochai Benita, CFO, Bezeq Group: Okay. 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. What we communicated of a significant saving starting the first quarter of 2026, we still see it as part of our forecast. There is no material change from our view in this respect.

Chris Reimer, Analyst, Barclays: Got it. Okay, thanks. That's for me. I'll jump back to the queue.

Yochai Benita, CFO, Bezeq Group: Thank you. Next question is Sihi from Citi, please.

Hello.

Hi, Sihi.

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

Tom Wetherbee, Bezeq Chairman, Bezeq Group: Yeah, I'll touch quickly, Haisi. Thanks for joining. The TV market is extremely competitive. Yes, it's a very unique and premium offering. While the TV standalone output continued to go down as expected, slightly better, slightly lower than expected, but still a very competitive market. With fiber, the accompanied output, and now it's significant, has stabilized and is growing gradually, as you can see. With the growing take-up on fiber from yes, you will expect the offsetting, the declining 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'll hear about soon.

Yochai Benita, CFO, Bezeq Group: I'll add only one thing that yes, and only 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 output.

Tom Wetherbee, Bezeq Chairman, Bezeq Group: On the question of HOT Mobile, we submitted an offer on the process, ILS 2 billion. We submitted a revived indication of ILS 2.1 billion. 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 revived 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 cellular market will be very significant, especially to the networks, if this consolidation happens.

Yochai Benita, CFO, Bezeq Group: 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 the competitive dynamics and increased competition in the market?

What market?

Tom Wetherbee, Bezeq Chairman, Bezeq Group: Which market are you referring to?

The mobile market.

Yochai Benita, CFO, Bezeq Group: The mobile. Okay.

Tom Wetherbee, Bezeq Chairman, Bezeq Group: Yeah, I'll touch on Ilan, please, for the elaborate. The competitive Israeli market in cellular is very competitive with very low ARPU compared to the world. Given the reforms that happened 10 years ago, ARPU stands around ILS 45-ILS 50 across the street. Or in euros, EUR 12-EUR 13, much lower than Europe. We have seen recovery in ARPU 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 better network development. Most markets are two or three-player markets. This is a 24-player market. We are glad to see the market recovering, but Israel is still behind on cellular speed, number 70-ish in the world, while it is number 7 on fixed-line broadband.

We believe this type of transactions will support basically the country network and evolution into 5G and 6G.

Yochai Benita, CFO, Bezeq Group: I'll just add the 5G network is still in the baby steps. We are around 33% of the antennas nationwide are 5G. We believe that the nation needs to be 100% very fast. Also, the market is very competitive, as Tom has said, 23, 24 players, and a lot of MVNOs, and the pricing is very low. That's the market, and we believe it will be still very competitive in the next few years. Okay. Thank you. If there are no further questions at this time, just a minute, we do have another question. Sabina. Hi, Sabina. Sabina.

Hi. 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. Like you've mentioned that the Ministry of Communications might decide regarding the structural separation. I was wondering if it's in the numbers. Also, maybe you can provide us some additional color regarding the potential impact of AI implementation, considering the cost base and potential savings and maybe streaming measures in the company. Thank you.

Tom Wetherbee, Bezeq Chairman, Bezeq Group: 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. We play de facto three roles based on the infrastructure for AI. Everything that's going on with higher bandwidth speed, data center connectivity, locally and globally, we are part of, given we are the incumbent. We adopted a lot of AI tools. We are ahead of the world, both in Pelephone and yes, and especially in Bezeq Fixed Line. We see cost savings and better customer service as a result. You will also see a lot of AI solutions 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 RFIs across both. 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. We expect them to make a decision by year-end.

What about now? I asked about if it's reflected maybe risk-adjusted in their 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.

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. As you know, the three main impacts, of course, there is significant value to the customers on the service and on the price. While putting revenues aside, there is an ILS 1.2 billion tax asset that will be used over a course of 8-10 years, very significant free cash flow impact, as well as potential cost savings as a result of the Bezeq and yes merger. We will provide specific numbers, hopefully during the annual statements.

Thank you very much.

Yochai Benita, CFO, Bezeq Group: Thank you. Next question is from Laurent Lapidotte.

Tom Wetherbee, Bezeq Chairman, Bezeq Group: Yeah.

Yochai Benita, CFO, Bezeq Group: Laurent Lapidotte from Yalin, sorry.

Tom Wetherbee, Bezeq Chairman, Bezeq Group: Yeah.

Laurent Lapidotte, Analyst, Yalin: Laurent Lapidotte from Yalin, hi. I want to add on the previous questions regarding the company's forecast and whether or not you're taking into account in the forecasts the yes revaluation. 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 yes revaluation added, like, I don't know, ILS 400 million in adjusted EBITDA yearly. How can we think about it?

Tom Wetherbee, Bezeq Chairman, Bezeq Group: I'll respond, and if I feel 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. 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. 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.

Laurent Lapidotte, Analyst, Yalin: Thanks.

Yochai Benita, CFO, Bezeq Group: Okay, thank you, Laurent. 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 earnings call. Thank you.

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