Record Results for 012 Smile.Communications; Smile.Media Returns to
Breakeven After Divesting MSN-Israel PETACH TIKVA, Israel, November
12 /PRNewswire-FirstCall/ -- Internet Gold Golden Lines Ltd.,
(NASDAQ Global Market and TASE: IGLD) today reported its financial
results for the third quarter ended September 30, 2008. Highlights
- Revenues remain stable at NIS 294 million, adjusted EBITDA
reaches NIS 80 million despite economic meltdown. - High financial
expenses attributable primarily to the increase in the Israeli CPI
to which the Group's bonds are linked and bond-related interest
expenses. - 012 Smile.Communications delivers new records for
revenues and operating income (EBIT), together with strong net
income. - After MSN-Israel disposition, Smile.Media's continued
activities return to operational breakeven. - Share buy-back
program continues. Financial Results for the Third Quarter
Revenues: Revenues for the third quarter of 2008 were NIS 293.8
million ($86.0 million), a 1.7% decrease compared year-over-year
with NIS 298.9 million in the third quarter of 2007, and a 4.4%
increase compared sequentially with NIS 281.4 million in the second
quarter of 2008. These revenues reflect the record results
delivered by 012 Smile.Communications. Adjusted EBITDA: Adjusted
EBITDA for the third quarter of 2008 was NIS 80.4 million ($23.5
million), a 28% increase compared year-over-year with NIS 62.9
million for the third quarter of 2007 and a 32% increase compared
sequentially with NIS 60.8 million for the second quarter of 2008.
This reflects the strong adjusted EBITDA recorded by
Smile.Communications together with the one-time impact of the MSN
transaction. For more information regarding the use of non-GAAP
financial measures, please see the notes in this press release.
Financing Expenses: Financing expenses for the third quarter were
NIS 47.5 million ($13.9 million) compared with NIS 19.4 million in
the third quarter of 2007 and NIS 32.6 million in the second
quarter of 2008. This high level of expenses reflects the effect of
changes in the Israeli CPI and interest rates on the Company's debt
instruments. Specifically, the Company recorded NIS 20 million in
CPI linkage expenses as a result of the quarter's 2.1% increase in
the Israeli CPI, to which certain of the Company's bonds are
linked. This was a non-cash financial expense that did not affect
the Company's cash position. Expenses associated with the interest
due on the Company's bonds during the third quarter totaled NIS
12.8 million ($3.74 million). In addition, some of the Company's
investments were downgraded due to the current global economic
uncertainty, obligating the Company, according to its conservative
investment policies, to realize them at current low prices. This
resulted in a loss of NIS 11.7 million ($3.4 million) that was
recorded in Financial Expenses. Net Results: On a U.S. GAAP basis,
the Company recorded a net loss for the third quarter of 2008 of
NIS (8.5) million ($2.5 million), or NIS (0.4) ($0.12) per share.
This compared to a net profit of NIS 3.9 million, or NIS 0.18 per
share, in the third quarter of 2007, and a net loss of NIS (8.1)
million, or NIS (0.37) per share, for the second quarter of 2008.
Balance Sheet The Company's cash, cash equivalents and short term
investments as of September 30, 2008 were NIS 673.0 million ($196.7
million), an increase of 37% compared with NIS 492.1 million as of
September 30, 2007. In addition, Internet Gold's bank debt
decreased by 72% from NIS 231 million as of September 30, 2007 to
NIS 64 million ($18.7 million) as of the end of the third quarter
of 2008. As of September 30, 2008 the Company's primary balance
sheet and operational ratios showed significant improvement as
compared to September 30, 2007: As of September 30, 2008 2007 Ratio
of Shareholders' Equity to Total Assets 18.5% *14% Ratio of Net
Debt to EBITDA 1.3 2.8 Adjusted EBITDA margin 27.0% 21.0% Current
Ratio (Current Assets divided by Current 2.03 1.68 Liabilities) *
Excluding NIS 85 million utilized in the buyback of the Company's
shares. Comments of Management Commenting on the results, Eli
Holtzman, Internet Gold's CEO, said, "We are pleased to report
steady progress and stable results for both of our operating
segments, especially given the poor economic climate. Our
communications segment achieved record revenues and operating
profits during the quarter, demonstrating the resilience of a
business that provides vital services to nearly a million
customers, and we are pleased to have returned our media segment to
operational breakeven, giving us more flexibility in charting its
future strategy. As an expression of confidence in Internet Gold's
long term prospects and a desire to enhance shareholder value, we
continue with our buy-back of both shares and convertible bonds."
Mr. Holtzman continued, "Regarding our M&A efforts, we always
have been conservative and patient in seeking out the right
investments, and, given the current market environment, have become
even more so. This approach led to the success of our investment in
012 Golden Lines two years ago- a transaction and process which
took our Group to a whole new level - and continues to serve us
well. In the meantime, we continue to manage our existing holdings
closely and to maintain steady control of our expenses." Business
Segments 012 Smile.Communications Ltd. (NASDAQ and TASE: SMLC): 012
Smile.Communications achieved record revenues and operating profit
(EBIT) together with strong net income for the third quarter,
demonstrating the steadiness of its business despite an economic
slowdown. Revenues for the third quarter were NIS 282 million ($82
million), a 1% increase as compared year-over-year with NIS 280
million for the third quarter of 2007, and a 7% increase compared
sequentially with the second quarter of 2008. This increase
reflected a 14% increase in revenues from the Company's broadband
services, which compensated for the 35% year-over-year decrease in
low-margin hubbing services (wholesale international traffic) and
the decrease in the average shekel-dollar exchange rate, which
declined by 16% compared to the average rate prevailing in Q3 2007.
Excluding the effect of the decrease in the shekel-dollar exchange
rate and the reduction in the Company's hubbing revenues, compared
to the third quarter of 2007, revenues increased by 12% on a
year-over-year basis. The subsidiary's adjusted EBITDA for the
third quarter was NIS 63 million ($18.4 million), a 2% increase
compared year-over-year with the third quarter of 2007, and
virtually unchanged as compared with the second quarter of 2008.
Adjusted EBITDA margin increased to 22.2% from 21.9% in the
parallel period of 2007. Smile.Media Ltd.: Smile.Media returned to
operational breakeven during the third quarter and recorded NIS
12.8 million in Other Income associated with the transfer of its
MSN-Israel activities to Microsoft Corporation. The segment's
revenues for the third quarter were NIS 13.0 million (US $3.8
million) and its adjusted EBITDA for the quarter (including
one-time net income) was NIS 19.4 million ($5.6 million). Other:
During the third quarter, Internet Gold incurred operating expenses
of approximately NIS 1.5 million (US $0.44 million). These expenses
were primarily for the continued investigation of potential joint
venture and M&A opportunities, and for activities related to
the Company's listing on public securities exchanges, including
expenses such as Investor Relations, Sarbanes Oxley compliance,
insurance and legal expenses. Buyback Programs - Share Buyback
Program: During the third quarter, the Company's Board of Directors
approved an increase to the Company's share buyback program,
authorizing the repurchase of up to an additional NIS 70 million
(approximately U.S. $20.5 million) of the Company's ordinary
shares. This program was undertaken after having completed the
repurchase of NIS 68 million in ordinary shares in fulfillment of
the program announced on November 29, 2007. The total shares
repurchased through both programs as of September 30, 2008 reached
2,639,925 shares, bringing the number of total outstanding shares
to 20,878,481 shares as of September 30, 2008. From October 1, 2008
to date, the total number of additional shares repurchased has
reached 3,451,629 shares, bringing the total number of outstanding
shares to 20,066,777 as of today. - Convertible Bond Buyback
Program: During the third quarter, the Company invested NIS 0.5
million ($0.15 million) in the repurchase of its convertible bonds,
bringing the total value of convertible bonds repurchased since the
initiation of the program on January 28, 2008 to NIS 9.2 million
par value. As a result of conversions of the convertible bonds, our
repurchase program and our redemption of 12.5% of these bonds, NIS
93.6 million par value of the bonds remain outstanding out of an
original issuance of NIS 220 million. Conference Call Information
Management will host an interactive teleconference to discuss the
results today, November 12, 2008, at 10:00 a.m. EST (17:00 Israel
time). To participate, please call one of the following access
numbers several minutes before the call begins: 1-888-281-1167 from
within the U.S. or 1-866-9586-867 from within Canada,
0-800-4048-418 from within the U.K., or +972-3-918-0687 from other
international locations. The call will also be broadcast live
through the company's Website, http://www.igld.com/, and will be
available there for replay during the next 30 days. NOTE A:
Convenience Translation to Dollars For the convenience of the
reader, the reported NIS figures of September 30, 2008 have been
presented in thousands of U.S. dollars, translated at the
representative rate of exchange as of September 30, 2008 (NIS
3.4210 = U.S. Dollar 1.00). The U.S. Dollar ($) amounts presented
should not be construed as representing amounts receivable or
payable in U.S. Dollars or convertible into U.S. Dollars, unless
otherwise indicated. NOTE B: Non-GAAP Financial Measurements We
present adjusted EBITDA as a supplemental performance measure
because we believe that it facilitates operating performance
comparisons from period to period and company to company by backing
out potential differences caused by variations in capital structure
(most particularly affecting our interest expense given our
recently incurred significant debt), tax positions (such as the
impact on periods or companies of changes in effective tax rates or
net operating losses or, most recently, our provision for tax
expenses) and the age of, depreciation expenses associated with,
fixed assets (affecting relative depreciation expense) and expenses
recorded for stock compensation in accordance with SFAS 123(R).
Adjusted EBITDA should not be considered in isolation or as a
substitute for net income or other statement of operations or cash
flow data prepared in accordance with GAAP as a measure of our
profitability or liquidity. Adjusted EBITDA does not take into
account our debt service requirements and other commitments,
including capital expenditures, and, accordingly, is not
necessarily indicative of amounts that may be available for
discretionary uses. In addition, adjusted EBITDA, as presented in
this press release, may not be comparable to similarly titled
measures reported by other companies due to differences in the way
that these measures are calculated. Note C: Reconciliation Between
Results on a GAAP and Non-GAAP Basis Reconciliation between the
Company's results on a GAAP and non-GAAP basis is provided in a
table immediately following the Consolidated Statement of
Operations (Non-GAAP Basis). Non-GAAP financial measures consist of
GAAP financial measures adjusted to exclude amortization of
acquired intangible assets, as well as certain business combination
accounting entries. The purpose of such adjustments is to give an
indication of our performance exclusive of non-cash charges and
other items that are considered by management to be outside of our
core operating results. Our non-GAAP financial measures are not
meant to be considered in isolation or as a substitute for
comparable GAAP measures, and should be read only in conjunction
with our consolidated financial statements prepared in accordance
with GAAP. Our management regularly uses our supplemental non-GAAP
financial measures internally to understand, manage and evaluate
our business and make operating decisions. These non-GAAP measures
are among the primary factors management uses in planning for and
forecasting future periods. We believe these non-GAAP financial
measures provide consistent and comparable measures to help
investors understand our current and future operating cash flow
performance. These non-GAAP financial measures may differ
materially from the non-GAAP financial measures used by other
companies. Reconciliation between results on a GAAP and non-GAAP
basis is provided in a table immediately following the Consolidated
Statement of Operations. About Internet Gold Internet Gold is one
of Israel's leading communications groups with a major presence
across all Internet-related sectors. Its 72.4% owned subsidiary,
012 Smile.Communications Ltd., is one of Israel's major Internet
and international telephony service providers, and one of the
largest providers of enterprise/IT integration services. Its 100%
owned subsidiary, Smile.Media Ltd., manages a portfolio of Internet
portals and e-Commerce sites. Forward-Looking Statements This press
release contains forward-looking statements that are subject to
risks and uncertainties. Factors that could cause actual results to
differ materially from these forward-looking statements include,
but are not limited to, general business conditions in the
industry, changes in the regulatory and legal compliance
environments in the industries it is engaged, the failure to manage
growth and other risks detailed from time to time in Internet
Gold's filings with the Securities Exchange Commission, including
Internet Gold's Annual Report on Form 20-F. These documents contain
and identify other important factors that could cause actual
results to differ materially from those contained in our
projections or forward-looking statements. Stockholders and other
readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on
which they are made. We undertake no obligation to update publicly
or revise any forward-looking statement. Consolidated Balance
Sheets Convenience translation into U.S. dollars $1 = NIS 3.421
September 30 December 31 September 30 2008 2007 2008 (Unaudited)
(Audited) (Unaudited) NIS thousands $ thousands Current assets Cash
and cash equivalents 116,527 601,926 34,061 Short-term investment
556,434 162,884 162,652 Trade receivables, net 216,578 224,616
63,310 Other receivables 26,551 26,446 7,761 Deferred taxes 8,472
9,707 2,476 Total current assets 924,562 1,025,579 270,260
Investments Long-term trade receivables 3,700 3,460 1,082 Deferred
taxes 34 192 10 Assets held for employee 21,455 20,639 6,272
severance benefits Investments in investee companies 91 291 27
25,280 24,582 7,391 Property and equipment, net 165,562 163,949
48,396 Other assets, net 484,062 519,865 141,497 Goodwill 417,423
417,608 122,018 Total assets 2,016,889 2,151,583 589,562
Consolidated Balance Sheets (cont'd) Convenience translation into
U.S. dollars $1 = NIS 3.421 September 30 December 31 September 30
2008 2007 2008 (Unaudited) (Audited) (Unaudited) NIS thousands $
thousands Current liabilities Short-term bank credit 50,164 77,998
14,664 Current maturities of long-term obligations 10,084 10,734
2,948 Accounts payable 195,187 209,626 57,056 Current maturities of
convertible 14,898 15,354 4,355 debentures Current maturities of
debentures 95,279 - 27,851 Other current liabilities 89,012 91,131
26,019 Total current liabilities 454,624 404,843 132,893 Long term
liabilities Long-term loans and other long-term 4,224 32,265 1,235
obligations Liability for termination of employer- 35,264 35,918
10,308 employee relations Deferred taxes 46,680 59,104 13,645
Debentures 832,740 848,616 243,420 Convertible debentures 86,640
104,640 25,326 Total long term liabilities 1,005,548 1,080,543
293,934 Total liabilities 1,460,172 1,485,386 426,827 Minority
interest 184,403 180,410 53,903 Shareholders' equity 372,314
485,787 108,832 Total liabilities and shareholders' equity
2,016,889 2,151,583 589,562 Consolidated Statements of Operations
Convenience translation into dollars $1 = NIS 3.421 Nine-month
period Three-month Nine-month ended period ended period ended
September September 30 September 30 30 2008 2007 2008 2007 2008
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited) NIS
thousands NIS thousands $ thousands Revenues 293,846 298,885
854,901 891,447 249,897 Costs and expenses Cost of revenues 204,620
202,164 583,182 608,776 170,471 Selling and marketing expenses
43,446 44,967 125,996 133,382 36,830 General and administrative
expenses 16,800 17,858 53,644 50,373 15,681 Impairment and other -
3,073 6,922 4,978 2,023 charges Other income (12,791) - (12,791) -
(3,739) Total costs and 252,075 268,062 756,953 797,509 221,266
expenses Income from 41,771 30,823 97,948 93,938 28,631 operations
Financial expenses, 47,533 19,413 102,604 44,633 29,992 net Income
(loss) before tax expenses (5,762) 11,410 (4,656) 49,305 (1,361)
Tax expenses (815) 7,243 4,707 4,264 1,376 (income) Income (loss)
after tax expenses (4,947) 4,167 (9,363) 45,041 (2,737) Minority
interest (loss) in operations of consolidated subsidiaries 3,506
189 6,553 163 1,916 Net income (loss) (8,453) 3,978 (15,916) 44,878
(4,653) Income (loss) per share, basic Net income (loss) per share
(in NIS) (0.40) 0.18 (0.72) 2.13 (0.21) Weighted average number of
shares outstanding (in thousands) 21,191 22,130 21,986 21,027
21,986 Income (loss) per share, diluted Net income (loss) per share
(in NIS) (0.40) 0.17 (0.72) 2.10 (0.21) Weighted average number of
shares outstanding (in thousands) 21,191 22,351 21,986 21,378
21,986 Reconciliation Table of Non-GAAP Measures (NIS in thousands)
Convenience translation into dollars $1 = NIS 3.421 Nine-month
period Three-month Nine-month ended period ended period ended
September September 30 September 30 30 2008 2007 2008 2007 2008
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited) NIS
thousands NIS thousands $ thousands GAAP operating 41,771 30,823
97,948 93,938 28,631 income Adjustments Amortization of acquired
intangible assets 6,820 7,983 20,460 23,952 5,981 Impairment and
other - 3,073 6,922 4,978 2,023 charges Other income (12,791) -
(12,791) - (3,739) Other income in respect of MSN transaction
12,791 - 12,791 - 3,739 Stock compensation in accordance with SFAS
1,239 - 2,189 - 640 123(R) Non-GAAP adjusted operating income
49,830 41,879 127,519 122,868 37,275 GAAP tax expenses (income),
net (815) 7,243 4,707 4,262 1,376 Adjustments Amortization of
acquired intangible assets Included in tax 1,841 2,316 5,523 5,970
1,615 expenses, net Non-GAAP tax 1,026 9,559 10,230 10,232 2,991
expenses, net Net income (loss) as (8,453) 3,978 (15,916) 44,878
(4,653) reported Minority interest (loss) in operations of
consolidated subsidiaries 3,506 189 6,553 163 1,916 Tax expenses
(815) 7,243 4,707 4,262 1,376 (income) Impairment and other - 3,073
6,922 4,978 2,023 charges Other income (12,791) - (12,791) -
(3,739) Other income in respect of MSN transaction 12,791 - 12,791
- 3,739 Stock compensation in accordance with SFAS 1,239 - 2,189 -
640 123(R) Financial expenses, 47,533 19,413 102,604 44,633 29,992
net Depreciation and 37,404 28,948 94,398 91,704 27,594
amortization Adjusted EBITDA 80,414 62,844 201,457 190,618 58,888
For further information, please contact: Mor Dagan - Investor
Relations / Tel:+972-3-516-7620 Ms. Idit Azulay, Internet Gold /
Tel: +972-200-3848 DATASOURCE: Internet Gold CONTACT: For further
information, please contact: Mor Dagan - Investor Relations, /
Tel:+972-3-516-7620; Ms. Idit Azulay, Internet Gold, / Tel:
+972-200-3848
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