Earnings call transcript: Bezeq sees 46% profit rise in Q2 2025

Bezeq Israeli Telecommunication Corp Ltd reported a robust second quarter in 2025, with significant improvements across key financial metrics. The company saw a 46% increase in adjusted net profit and an 11.3% rise in adjusted EBITDA, reflecting strong operational performance. The stock price surged by 2.73%, closing at 634.7, buoyed by positive investor sentiment following the earnings announcement. According to InvestingPro data, the company’s stock has delivered an impressive 63.83% return over the past year and is currently trading near its 52-week high, with a healthy financial score of 2.95 (GOOD).

Key Takeaways

• Adjusted net profit grew by 46%.
• EBITDA increased by 11.3% to NIS 3,850 million.
• Dividend per share increased by 50%.
• Stock price rose by 2.73% following the earnings report.

Company Performance

Bezeq demonstrated robust performance in Q2 2025, with core revenues climbing 3.1% to NIS 979 million. The company continues to lead in the Israeli telecom market, benefiting from its extensive fiber and mobile service offerings. With a strong position in infrastructure, Bezeq is capitalizing on the growing demand for high-speed internet and 5G services. The company maintains an impressive 78.01% gross profit margin, demonstrating strong operational efficiency. Notably, the stock shows a negative beta of -0.21, suggesting it often moves independently of broader market trends.

Financial Highlights

• Revenue: NIS 979 million, up 3.1% year-over-year.
• Adjusted EBITDA: NIS 3,850 million, an 11.3% increase.
• Adjusted net profit: 46% increase.
• Dividend: $583 million, a 50% increase in dividend per share.

Outlook & Guidance

Bezeq raised its 2025 adjusted EBITDA guidance to NIS 3,850 million, highlighting its confidence in sustained growth. The company expects at least a 2% compound annual growth rate in EBITDA and plans to reduce capital expenditures from 20% to 16-18% of revenue.

Executive Commentary

"We are very proud of our achievements and of our consistent ability to deliver on bottom line results," stated Tomer, Group Executive. This reflects Bezeq’s commitment to maintaining its market leadership and enhancing shareholder value.

Risks and Challenges

• Regulatory changes in the Israeli telecom sector could impact future operations.
• Competition from other telecom providers may pressure margins.
• Economic uncertainties could affect consumer spending on telecom services.

Q&A

During the earnings call, analysts inquired about Bezeq’s potential acquisition of HOT Mobile and its strategic focus on expanding 5G and fiber technology. The company also addressed questions regarding international cable infrastructure opportunities, highlighting its strategic initiatives to enhance connectivity and data center capabilities.

Full transcript - Bezeq (BEZQ) Q2 2025:

Call Moderator: Everyone. Good Following the presentation of our results, we will have a Q and 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 Bezek’s fixed line results and Ilan, who will cover the results from Telefonica. I will conclude the presentation with Bezek International results.

Tomer, Group Executive/CEO, Bezek Group: Thank you, Hi, and good morning, good afternoon, everyone, and welcome. Let’s start on Slide three. We had another busy quarter with excellent results and significant progress in our group strategy. With accelerated momentum across all our growth engines, including fiber, five gs and IPTV ATS. A key indicator for our successful quarter is the mid single digit growth in ARPU across all services, which led to 3% growth in core revenue and to double digit growth in adjusted EBITA and the net adjusted net profit, which were also positively impacted by the write ups at YES due to the Partner TV deal.

The group continued to report growth in total broadband retail subscribers, driven by accelerated fiber deployment, enhanced customer value and our ability to offer bundled services at YES. The infrastructure evolution led by the group positions the Israeli economy at a very high level of resilience and readiness for the AIR, where we, the group, serve as an enabler, as an adopter and also provider of AI services. As part of the group’s core strategy, we will continue to invest and identify future growth engines. Most recently, we announced we are reviewing a couple of potential synergistic acquisitions, the acquisition of Accelerate Telecom and HOT Mobile. In parallel, regulation in Israel continued to evolve and is gradually becoming more and more consistent with global trends.

In addition to recent formal progress in the process to remove structural separation And following the completion of the copper switch off reform earlier this year, the MOC also published a wholesale tariff hearing, which marks an important and historical milestone given the suggestion to gradually remove most of the wholesale tariff supervision in Israel following a two year transition period. It reflects the regulators’ recognition that the market is competitive and mature enough for such a move with the understanding that Israeli consumers will continue to benefit from advanced services at competitive prices. Last week, we once again revised our 2025 outlook upwards, now expecting adjusted EBITDA of 3,850,000,000.00 and adjusted net profit of $1,450,000,000 Moving to the next slide. Our tech and business road map is on track to reach our midterm KPI targets, including the completion of fiber deployments this year and also reaching at least 40% take up in the midterm, continuing our consistent ARPU growth across all verticals and leveraging our leading position in five gs 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 strong profitability and free cash flow metrics.

We are very proud of our achievements and of our consistent ability to deliver on bottom line results. Turning to Slide six. Let me point out that you can really see how even in a year with volatile geopolitical situation, our core business continued to perform and outperform. Total fiber subs as of today reached nine and twenty four thousand with over 2,800,000 home passed. Five gs subs reached 1,300,000 and ARPU grew approximately 5%.

YES ARPU from subscribers, which includes TV and fiber, was up 3% and reached NIS189. I will now turn the call over to Yohai, who will elaborate further on the group results.

Call Moderator: Thank you, Thomas. Moving to Slide seven, we show a 3.1% increase in core revenues due to higher core revenues from all key group segments. Adjusted EBITDA grew 11.3% and adjusted net profit grew 46% due to the increase in the valuations of YES. Turning to the next slide, we show the half year trends, which were similar to Q2 in revenues and profitability. Free cash flow was impacted by basic fixed line tax assessment paid in the 2025 and a tax refund received in the corresponding period.

Moving to the next slide, we show our operating expenses. Salary expenses decreased 5.5 due to the sale of Bezek Online and its deconsolidation as of Q2 twenty twenty five. We recorded decreases in operating expenses and depreciation expenses, mainly due to the change in the valuation of DS. The next slide shows our quarterly operational metrics. Broadband retail ARPU continued to grow.

In addition, we recorded increases in telephone ARPU as well as in ES ARPU year over year due to fiber growth. Slide 11 highlights our balanced capital structure with net debt at 4,900,000,000.0 and a coverage ratio of 1.5x. We remain committed to maintaining our high credit rating. Moving to the next slide. In accordance with our 80% dividend payout policy, the Board of Directors recommended a distribution of $583,000,000 or NIS $0.02 1 per share, reflecting 50% growth in the dividend per share.

Moving to the next slide, we recently upgraded group’s guidance for 2025 for the second time this year. We are now focusing adjusted EBITDA of 3,850,000,000.00 and adjusted net profit of NIS 1,450,000,000.00. I will now turn the call over to Nir, who will share more detailed results from our fixed line operations.

Nir, Fixed Line Operations Executive, Bezek: Thank you, Ebrahim. I’m very proud for this quarter performance, thanks to our nationwide advanced network and the successful implementation of our strategy. Turning to Slide 14. Fixed Line core revenue increased 4.5% to NIS $979,000,000, driven by an increase across all core revenue items. Bordon retail fiber customer reached 592,000 today and ARPU rose 5.4% year over year to 136.

On the following slide, we show Q2 financial highlights with adjusted net profit down 8.1 to million, mainly due to higher financial expenses resulting from the impact of the dollar shekels exchange rate on hedging transaction. Free cash flow was up 20%, mainly due to timing differences in working capital. Turning to the next slide, we show continued fiber deployment reaching over 2,800,000 OMSaaS with over 924,000 active subscribers in our fiber networks today, representing 63% of total broadband subscribers and resulting in a take up of take up rate of 33%. Moving to the next slide, we show the take up trend. Q2 showed 29,000 retail fiber net adds and 15,000 wholesale fiber net adds.

Turning to the next slide. Broadband revenues were up 2.8% despite the decrease in the wholesale tariffs from using our passive network. Transmission and data revenues grew 5.5% to $3.00 9,000,000 and other revenues grew 14% due to higher revenues from infrastructure projects. With that, I will now turn the call to Ilan to discuss Telefon and BS.

Ilan, Telefonica Executive, Bezek: Thank you, Nir. Moving to Slide 19. Telefon posted 3.7% growth in service revenues, reaching three sixty one million, driven by continued growth in ARPU and postpaid subscribers, including five gs subscriber plans despite the impact on roaming revenues in June due to the war with Iran. Five gs postpaid subscriber plans grew by 39,000, reaching 1,330,000 subscribers today. Five gs MAX subscribers reached 80,000 today, and we raised our estimated and are now expecting to reach 150,005 gs Max subscribers by the end of the year.

This is another great example of Telefonica’s leadership position and technological advancement, which provides real added value to our customers. Moving to the next slide. Adjusted EBITDA and adjusted net profit were impacted by the war with Iran as well as the increase in frequency fees resulting from the termination of the MOC discount period. Free cash flow was up 59, reaching 43,000,000, mainly due to timing differences in working capital. Moving to the next slide.

We show five gs postpaid subscriber plans reaching over 1,300,000 subscribers as of today, representing 58% of postpaid subscribers, and Q2 service revenues showing consistent growth over the last few years. The next slide shows Q2 key operational metrics. As seen, we recorded an additional increase in postpaid subscribers. ARPU rose 4.5% or shekels year over year. Turning to YES on Slide 23.

First is truly outperforming in the past few quarters with innovation premium content, enhanced focus on free cash flow as most of the migration from satellite is near to completion. You can see all of this in the results and more to come. Revenues increased 1.3% to ILS $320,000,000 due to higher revenues from the TV fiber bundle. Pro form a adjusted EBITDA rose 30% to ILS 56,000,000, driven by higher revenues and streamlining of expenses. Total TV subscribers increasing by 1,000 this quarter, representing the first quarterly increase in total subscribers since Q1 twenty twenty three.

We posted quarterly growth with 9,000 net fiber subscriber adds, reaching 100,000 as of today. Moving to the next slide. Pro form a adjusted net profit was down 69% due to higher financial expenses resulting from a decrease in the value of hedging transition due to a decline in U. S. Dollar exchange rates.

On the next slide, I would like to highlight the year over year growth in ARPU from subscribers due to higher revenues from fiber plans. We showed continued growth in IP subscribers reaching 483,000 today, representing 86% of total subscribers. With that, let me now turn the call back to Yohai.

Call Moderator: Thank you, Ilan. Moving to Bezek International on Slide 26. Businesses revenues grew 6.4%, mainly due to higher revenues from cloud activities, the sale of business equipment and international telephone services. Adjusted EBITDA was down mainly due to lower revenue from consumers. We are continuing with our streamlining plan, including the implementation of the employee retirement agreement for the years 2025 through 2027.

With that, I will open the Q and A session. If you would like to ask a question, please raise your hand virtually. And 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 hands raised.

I will now pass to all for questions.

Chris Reimer, Analyst, Barclays: Chris Reimer from Barclays. Congratulations on the strong results also. I was wondering if we could talk about the Excelera proposed acquisition. And if you can talk about how you see the potential in that asset? And are you acquiring also a customer base?

Or is it just the asset?

Tomer, Group Executive/CEO, Bezek Group: Yes. So I’ll address that briefly. First, we submitted a nonbinding LOI for potential acquisition as reported. We started the initial diligence, so this is very preliminary stage. So I’m not going to comment on that transaction, but I will mention a comment on the strategy and the trends.

As previously mentioned, and I think we talked about this, and this is a good, great question. Today, most of the international cable from Europe to Asia go through the Suez Canal. The Arctic Line recently completed a project as a subcontractor for Google to lay down a new cable from Europe to Asia through Israel and Saudi Arabia. Given the regional developments and given the need for redundancy for all the global hyperscalers, we see a very big opportunity across data needs and capacity for additional terrestrial cables, and Israel sits geographically at the best intersection for these type of cables. And we’re probably going to see more and more, and we expect to be a player in that potential upside, but this is pretty early days.

But that’s the context of how we see this market evolve, given the need for redundancy in the regions.

Chris Reimer, Analyst, Barclays: Okay. Regarding salaries, you mentioned the decrease had to do with the disposal of the Besik online unit. But going forward, considering you’ve almost well, you’ve basically reached your rollout on the fiber, correct me if I’m wrong there, but how should we look at wages going forward considering the decrease in spend on the infrastructure as well as the ongoing employee agreements?

Tomer, Group Executive/CEO, Bezek Group: So we have collective union agreements across the boards, across the different subsidiaries. We this year, and we talked about this, we have the right under the current agreement with the fixed line union to let up to 300 people retire. We will use a significant amount of these people as we reach the end of the fiber project, which have both impact on headcount and non headcount CapEx given we finished the deployment. So it would have some significant impact on headcount costs fixed line business entering next year. So this year, Q4, you’ll see a provision cash flow impact, positive one next year, negative and positive.

And on one hand, on the other hand, at the international business, as Yohai mentioned, we have a new agreement to be able to retire up to 150 people in the next two to three years. That’s also something that would impact wages in the coming year or so.

Chris Reimer, Analyst, Barclays: Great. Thanks. That’s helpful. That’s it for me.

Call Moderator: Okay. Thank you. Next question from David Kaplan from Sagot. Hi, David.

David Kaplan, Analyst, Sagot: Hi, everyone. How are you? Sorry about that. I have a couple of quick questions. The first one is when I look at the results from this quarter and if we strip out the impact of the revaluations of yes, there wasn’t actually a great deal of growth in EBITDA.

So how should we think about the growth of Bezek going forward, keeping in mind that Bezek, while overall, is seeing subscriber growth as a group, we’re seeing some cannibalization of that user of those subscribers by STING on the television side and by YES on the broadband side from its higher revenue cousins, so to speak? That’s my first question.

Tomer, Group Executive/CEO, Bezek Group: I think it’s very straightforward. Our EBITA this quarter without the one off was, as expected, flattish. But if you look at the different categories of the businesses between FedEx, Clicklane and ES predominantly, you’ve seen growth in EBITDA, putting a sound accounting impact. You see some softness at Telephone given roaming and sector fees comparing to previous quarter last year. So you that’s very easy to explain.

But we this is very in line with our expectations, and we continue to expect at least 2% CAGR in our going forward EBITDA exactly as we communicated. And you see the different KPIs are actually above expectations. So we’re very happy with these results, even putting aside these one offs. YES alone, excluding all these accounting, grew 30% in EBITDA this quarter, okay, without all these accounting impact. So that speaks to some of the trends in the business.

David Kaplan, Analyst, Sagot: Okay. Besik International, we saw a drop in the revenues versus the previous quarter. What was that related to?

Tomer, Group Executive/CEO, Bezek Group: Bezek International actually grew its core revenues significantly this quarter compared to previous.

Call Moderator: Core revenue in Bezek International increased by ILS 14,000,000 versus the well, versus the parallel quarter?

Tomer, Group Executive/CEO, Bezek Group: Correct. 6% growth.

Call Moderator: Yes.

David Kaplan, Analyst, Sagot: But not versus the previous quarter. You lost 10,000,000

Tomer, Group Executive/CEO, Bezek Group: checkups. Correct. You will continue to see legacy going down, and you have some of the impact on the potential projects and integration business timing. But overall, you will continue to see significant growth and kind of mid to high single digits in the core revenue aspect of that. But profitability will still go down in the transition period given you’re losing the legacy ISP business, which is non core.

As you can see, core revenues growing, and this is timing definitely impacts the time of year impact of business given the large projects. But profitability will go down given the transition we talked about or transformation we talked about.

David Kaplan, Analyst, Sagot: Okay. Just a quick follow-up on the question that Chris asked about the cable business. You mentioned the data center growth or potential data center growth in Israel. Do you see Bezek being a player on the infrastructure side of that or more as a service provider in transmission?

Tomer, Group Executive/CEO, Bezek Group: We’ll continue to be a leading infrastructure player on connectivity, both terrestrial and hopefully also international. At this point, we are a big player in the collocation data center business and the hyperscaler business we’re currently in Autoclave.

David Kaplan, Analyst, Sagot: Okay, great. And my last question, there were the financing expenses were higher this quarter. I think that had something to do with hedging of the dollar. Can you explain how that impacts or is going to impact CapEx or finance going forward?

Call Moderator: Sure. So as part of the group’s hedging policy, part of the companies in the groups are hedging against the change in the Israeli shekel versus the dollar. This quarter, we saw the Israeli shekel strengthening versus the U. S. Dollar.

So we had to reevaluate this transaction, and it resulted in approximately million loss, which was all recorded in this quarter. So going ahead, I would assume that this kind of impact will not we will not be see in the coming quarters.

David Kaplan, Analyst, Sagot: And the strategy behind that, though, does it have an impact on CapEx in any way, shape or form?

Call Moderator: Yes. So it’s to hedge both CapEx and both operational expenses. Part of the expenses on group level are exposed to the U. S. Dollar, and we want to mitigate this risk.

David Kaplan, Analyst, Sagot: Great. Thanks very much.

Call Moderator: Thank you. Thank you. Next question from Andre from UBS.

Andre, Analyst, UBS: Hi. Thanks for the presentation. Two questions for me, please. One is on the other transaction that we haven’t spoken about yet. So your bid for the mobile assets of Holt.

I was wondering what the kind of process is there? And is it somewhat related at least in terms of who gets to decide on the final outcome of this to the removal of the structural separation? And I guess where I’m coming from is, in the past, we haven’t been used too many positive regulatory events around Bezac. So these two events could be potentially both very positive. So will it even be, I think I guess, where I’m coming from, will it even be allowed to happen at the same time because the time line kind of potentially coincides?

So that’s one question. And then the second question would be around the remainder of the assets, primarily the fixed asset. I was just wondering, should that, for example, be acquired in the case of a full exit of Altice from Israel? Should that be acquired by a private equity? Is there a risk you think to the overall competitive dynamics on the fixed side, assuming mobile can improve, but if there is some kind of risk to the fixed side of it, may be a new entrant coming in or you think that is not a concern at all?

Thank you.

Tomer, Group Executive/CEO, Bezek Group: The problem is that you know the markets too well. First, thank you for the questions. One important comment for specifically addressing, you mentioned about regulatory news. I would counter that Israel has been with relatively volatile regulatory environment in the previous decade. In the past four to five years, we’ve seen, it’s not all good news, but more constructive and rational regulatory decisions even with four different governments and five different ministers, very constructive and adopting more and more reforms that are consistent with European approach.

They removed structural separation between infrastructure and ISP. We saw the corporate switch off reform. We saw the wholesale hearing. We shared the prod and con, but it’s more consistent with regulatory approach in Europe. So overall, you see constructive rationale and not bad good news, but constructive one.

So just general comments for the reflecting on the past five years, maybe not fifteen years, but five years. Specific to your question, Altice is running a process, right, to sell Israeli assets. As part of that, we submitted an indication of interest to join the process. They are in a process. There are no time lines yet for a first run bid, if you will.

But we basically submitted an interest and also evaluation of 2,000,000,000 for the mobile unit only on behalf of telephone. It has nothing to do with structural separation. And we will update the market if there is anything to update. At this point, they are in a process. We have to join the process, and we are standing still.

The rationale for that and the synergies, I think, are obvious, but we think this will benefit significantly the mobile market. In Israel, the infrastructure level investment and the ranking of Israel in the mobile and cellular industry in terms of mobile speed and network efficiency nationwide. Structural separation, to your question, we did update the market on the progress on what the MOC is formally communicating. In April, they announced they will conclude their review and make a decision this way or another by end of this year. Recently, they also announced they hired an economic adviser and also some basically announced some sort of RFI to the market as part of the formal process.

So we see it progressing in a very formal way, and we hope to hear news in Q4 around that topic. The structural separation, the focus is better fixed line and yes, less relevant to the other subsidiaries in the business at this point.

Andre, Analyst, UBS: If I may, do you have any views on the potential future of the fixed market if the fixed asset is exited as well? I

Tomer, Group Executive/CEO, Bezek Group: don’t think I just forgot to answer this point. Sorry. So I don’t think the change in ownership changes the market dynamics. I do think if you look in the past few years, change in ownership benefited competition and level of investments and got this market a lot better in any shape or form. We are proud to be one of the leaders, but we’re not alone.

And this market evolved, thanks to the change in ownership in FedEx and Partner and Cellcom coming up IBC and probably hot follows, I think it’s only too good to the market to have rational shareholders with long term view.

Andre, Analyst, UBS: Thank you. And one quick follow-up, if I may, on the mobile side because I think part of your CapEx plans, I think you’ve mentioned, for the next several years is just the rollout of five gs where Israel maybe just like Europe maybe a bit behind some of the other economies that you would benchmark to, so like the North America, Asia, Middle Eastern economy to in The Gulf? And then so my question is basically, is the maybe underinvestment angle part of the rationale of even thinking of doing consolidation in Israel currently?

Tomer, Group Executive/CEO, Bezek Group: Look, I think the ARPUs in Israel and mobile are relatively low compared to the world and low to begin with. And I see there’s another upside there, and we talked about that in the context of five gs and telephone strategy. I think on a group level, we communicated a reduction in CapEx going forward that comes from end of fiber rollout. It does not come from lower CapEx for the cellular business. This will remain elevated given we expect to deploy more and invest more as part of our long term plan.

We never guided for reduced CapEx on the solar business. But on a group level, we do expect to go from the 20% CapEx to say level down to the 16% to 18% we have been talking about for the past year.

Andre, Analyst, UBS: Clear. Thank you very much, Tomer.

Call Moderator: Thank you. Next question we have is from Siyi from Citi. Hi, Siyi.

Siyi, Analyst, Citi: Hi, good afternoon. Thank you for taking my questions. I have two please and both of them are relating to your views your mid term guidance, hopefully different aspects. The first one is what I’m wondering if you can talk about the upselling opportunities that you saw in Israel on both five gs and our and and fiber. Because if I look at the growth rates of your ARPU in both fixed and mobile, it seems that you could be more than comfortable to to to reach the top end of your guidance.

So I’m wondering if we are look at the app selling opportunity, do you feel that your original it is according to original plan or it’s actually better than you expected? And my second question is on the midterm EBITDA CAGR. You you talk about that you expect to grow at 2%. But considering that the top line pressure is going to phase out on international and then you have the cost saving coming through. And just wondering what you think about this 2% CAGR.

Do you think that is conservative as well? Thank you.

Tomer, Group Executive/CEO, Bezek Group: I’ll start at a high level and for you guys to add. First, on the EBITA point, yes, we expect at least 2% CAGR. Obviously, we still have the legacy high margin revenue declining, which still 5% -plus of total GAAP revenues, which will still impact EBITDA. But you’re right that with the phasing out of fiber deployment and some of the headcount reduction, we will see better OpEx profile. We expect to hopefully get 2% or more than 2% in the coming years, but we have to take into account this legacy revenue reduction that will be with us in the next two to three years.

Secondly, to your question on ARPUs in general, I think you see across the board that our playbook does not come from raising prices, generally speaking. It comes from adding value to customers. And most of the ARPU growth on the fiber business came from migration from copper to fiber, which will continue over the next two years. And then the next evolution of that is multi gig, 2.5 gig, five gig, which will contribute in addition to other value add services. And I think it’s the same on the mobile business.

People are willing to pay more for five gs. But, Gary, if you have anything else to add on that?

Ilan, Telefonica Executive, Bezek: No, I can add that the 45 to 50 shekels on ARPU based on the transformation from four gs to five gs and now from five gs to five gs Max. So we are now in 46, and we have guidance from 45 to 50. So we are on track. We see now that we’ll see how the transmission will go from five gs to five gs Max, and then we’ll see if this index 45 to 50 is right. But now, as we see, this is the right plan for us, 45% to 50%.

Siyi, Analyst, Citi: That’s clear. Thank you.

Call Moderator: Okay. So 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 third quarter twenty twenty five earnings call. Thank you.

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