Partner in the first quarter: the EBITDA target raises the bar for 2026

Partner opened 2026 better than the fourth quarter suggested, but not yet well enough to settle the year’s test. Adjusted EBITDA rose to NIS 306 million, fixed-line EBITDA recovered to NIS 123 million, fiber and TV subscribers continued to grow, and the company is still far from covenant pressure. The more revealing number is not only the quarter’s result. It is the NIS 1.325 billion adjusted EBITDA target embedded in the CEO’s 2026 annual bonus mechanism. After a first quarter of NIS 306 million, the company needs an average of roughly NIS 340 million of EBITDA in each of the next three quarters to reach that threshold, a run rate higher than any reported quarter in 2025. The quarter therefore proves operating improvement, but not yet enough acceleration. The main friction remains the gap between a strong-looking EBITDA metric and a cash picture that weakened after a NIS 465 million dividend, a one-off tax refund and Bezeq IRU payments. The next reports need to show that fiber, TV+ and roaming recovery can lift the run rate without turning an additional distribution into an aggressive use of balance-sheet cushion.

The EBITDA Target Changes The Comparison Base

Partner is an Israeli communications group built around two main engines: cellular and fixed-line communications, including fiber internet, TV, business data and related services. This is no longer a classic growth company. Its economics depend on protecting a large subscriber base, improving revenue per customer, operating efficiently, investing heavily in the network and returning cash to shareholders.

The quarter’s economic map is clear. In cellular, service revenue excluding interconnect fees was flat at NIS 334 million, while adjusted EBITDA rose to NIS 183 million and operating profit rose to NIS 86 million. In fixed-line, service revenue excluding interconnect fees rose slightly to NIS 320 million, adjusted EBITDA rose to NIS 123 million and operating profit reached NIS 21 million. At the group level, revenue was NIS 770 million, operating profit was NIS 107 million and net profit was NIS 74 million.

A quick read would stop there: EBITDA up, net profit up, subscribers up, balance sheet still strong. That is accurate, but incomplete. Partner entered 2026 after a year in which the dividend question, TV+ and the Bezeq IRU agreement had already shifted the test from accounting profitability to a broader issue: how much of the improvement is a repeatable run rate, and how much is absorbed by capex, lease payments, IRU payments and shareholder distributions.

The most interesting number in the quarter does not sit in the results table itself. The CEO’s 2026 annual bonus mechanism is built around a NIS 1.325 billion adjusted EBITDA target. Full achievement entitles the CEO to an annual bonus of 18 monthly salaries, while 90% achievement entitles him to 80% of the bonus cap. This is not official investor guidance, but it is a quantitative performance threshold chosen by the board.

That creates a sharper test than the quarter on its own. Partner reported NIS 306 million of adjusted EBITDA in the first quarter. To reach NIS 1.325 billion for the year, it needs another NIS 1.019 billion across the next three quarters, or roughly NIS 340 million per quarter on average. The 2025 sequence was NIS 286 million, NIS 303 million, NIS 331 million and NIS 304 million. Even the strongest quarter in that series, Q3 2025, was below the average run rate required for the rest of 2026.

This does not mean Partner cannot close the gap. Quarters can be seasonal, roaming may recover if air travel normalizes, and the company continues to add customers in its core services. But Q1 does not prove that the full year is already on track. It mainly sets the starting point: from here, investors need to see acceleration, not only stability.

That is also why the quarter should be read through two filters at the same time. One filter is EBITDA, where the company looks directionally better. The other is cash, where the picture is less clean: adjusted free cash flow looked strong, but it was supported by an NIS 86 million tax refund, while the company has already paid a large dividend and continues to examine an additional distribution not out of profits.

Operating Improvement Is Real, But Not All Growth Has The Same Quality

Partner’s cellular business is more stable than headline segment revenue suggests. Total cellular revenue fell to NIS 461 million because interconnect fees disappeared and roaming revenue declined, but service revenue excluding interconnect fees remained NIS 334 million. Operating profit rose from NIS 76 million to NIS 86 million, and adjusted EBITDA rose from NIS 172 million to NIS 183 million. That is a useful efficiency and package-revenue story, not a breakthrough in revenue per subscriber.

The interesting weakness is cellular ARPU. Excluding interconnect fees, it fell to NIS 41, compared with NIS 42 in the parallel quarter and NIS 43 in the fourth quarter. The main reason was lower roaming revenue due to Operation Roaring Lion and the security environment, with an estimated NIS 7 million pre-tax profit impact versus a normal period. The cellular business therefore has two opposing forces: the subscriber base is growing, including 20 thousand net postpaid additions during the quarter and 928 thousand paying 5G subscribers, but revenue per subscriber still depends on roaming recovery and on the ability to move customers into higher-value packages.

Fixed-line looks more positive relative to the fourth-quarter starting point. Internet subscribers rose to 497 thousand, fiber subscribers to 475 thousand and TV subscribers to 207 thousand. Internet ARPU rose to NIS 95, compared with NIS 92 in the parallel quarter and NIS 94 in the previous quarter. Fixed-line adjusted EBITDA improved to NIS 123 million, after NIS 115 million in the fourth quarter.

Still, fixed-line should not be read through EBITDA alone. Segment operating profit was only NIS 21 million, versus EBITDA of NIS 123 million. The gap mainly reflects a large depreciation and amortization layer, including amortization of prepaid Bezeq IRU expenses following additional activated tranches. In business terms, fiber and TV are improving the revenue run rate, but a meaningful part of the infrastructure cost sits below EBITDA and appears in operating profit and cash.

The IRU And Dividend Keep Cash At The Center

The Bezeq IRU agreement remains one of the places where operating improvement meets the cash constraint. By the end of the quarter, Partner had exercised its option to activate 42 thousand additional lines out of 48 thousand additional lines in the agreement, and chose to spread payment for those lines over ten annual payments instead of five. First-quarter IRU payments were roughly NIS 63 million, compared with NIS 55 million in the parallel quarter.

Unpaid principal for the active tranches stood at roughly NIS 434 million at the end of March. The payment schedule includes roughly NIS 74 million in 2026, NIS 124 million in 2027, NIS 55 million in 2028 and NIS 181 million from 2029 onward. This is not ordinary financial debt like bonds, but for a capital-intensive communications company it competes for the same cash pool used for capex and dividends.

Two cash pictures need to be separated. The company’s adjusted free cash flow metric measures operating cash flow after purchases of property, equipment and intangible assets, and after principal and interest payments on leases. In the first quarter it was NIS 134 million. The all-in cash flexibility picture asks what happened after all actual cash uses during the period. There the picture is harsher: cash fell by NIS 325 million, mainly because of the NIS 465 million dividend, despite NIS 310 million of operating cash flow.

The NIS 86 million tax refund is critical. It improved operating cash flow and adjusted free cash flow in the quarter, but it does not settle the tax dispute. Alongside best-judgment assessments of roughly NIS 185 million, the company paid roughly NIS 45 million on account, received a roughly NIS 86 million tax refund in March and filed an objection. The company makes clear that the refund does not indicate the Tax Authority’s position or the final outcome of the dispute. There is therefore no basis to read the entire NIS 134 million as a clean recurring cash run rate.

Covenants are not the immediate problem. Net debt to adjusted EBITDA was roughly 0.4, compared with a covenant ceiling of 5 for two consecutive quarters, and equity was NIS 1.934 billion, far above minimum thresholds of NIS 600-700 million. Even after a theoretical additional NIS 500 million distribution, the formal equity cushion appears wide relative to the covenant limits. But that is exactly the point: the question is not whether the covenant permits it, but whether the 2026 cash run rate justifies further use of the cushion after a quarter in which cash fell to NIS 337 million and net financial debt rose to NIS 453 million.

Conclusion

Partner’s first quarter strengthens the operating side of the story, but raises the proof bar for the rest of the year. Fixed-line already looks better after Q4, fiber and TV+ are adding customers, and cellular managed to increase EBITDA despite the roaming hit. On the other hand, the EBITDA target embedded in the CEO bonus mechanism sets an annual threshold that is not met by the Q1 run rate. To reach it, the company needs three quarters stronger than the current quarter and stronger than almost all of 2025.

The current read is that 2026 is a required acceleration year, not just a stabilization year. The positive case rests on roaming recovery, continued improvement in internet ARPU, better contribution from TV+ and continued cost discipline. The counter-thesis is that the company is already balance-sheet strong, the rating is stable, covenants are far away, and the board can afford another distribution even if cash flow is not perfect in every quarter. That argument is formally reasonable, but it does not resolve the cash-quality test. In the next reports, the market is likely to care less about EBITDA rising in itself and more about whether the run rate moves toward NIS 340 million per quarter, whether cash flow remains positive without tax refunds, and whether an additional distribution avoids turning a strong balance sheet into financing for immediate shareholder yield.