NIS 281 Million Revenues; NIS 61 Million Adjusted EBITDA b PETACH
TIKVA, Israel, August 13 /PRNewswire-FirstCall/ -- Internet Gold
Golden Lines Ltd., (NASDAQ NMS and TASE: IGLD) today reported its
financial results for the second quarter ended June 30, 2008.
Highlights - Strong revenues and adjusted EBITDA despite the
negative impact of the shekel-dollar exchange rate and the decline
in wholesale international traffic (hubbing) revenues - Strong
cash-flow performance: operating cash-flow for the quarter reached
NIS 43 million ($12.8 million) - 012 Smile.Communications delivers
excellent performance in line with plan for growth: adjusted EBITDA
up 11% year-over-year; operating income (EBIT) up 22%
year-over-year; on-track growth of VOB domestic telephony
subscriber base; preparing to enter market for mobile services -
Smile.Media records a net loss due to MSN-Israel's reduced market
share: after the end of the quarter, an agreement was reached with
Microsoft which will improve the Company's cash position and
profitability - Additional share buy-back program put into place:
after investing NIS 68 million in buying back shares since November
2007, the Board of Directors has authorized the repurchase of an
additional NIS 70 million of ordinary shares in the open market -
Search underway for accretive M&A candidates Financial Results
for the Second Quarter Revenues: Revenues for the second quarter of
2008 were NIS 281.4 million ($84.0 million) compared to NIS 296.3
million in the second quarter of 2007. Revenues for the quarter
were impacted significantly by the decline in the shekel-dollar
exchange rate and 012 Smile.Communications' decision to reduce its
hubbing business. The average shekel-dollar exchange rate in the
second quarter declined by 19% compared year-over-year with the
second quarter of 2007, thus reducing the shekel value of
dollar-linked service contracts which represent approximately one
third of the Company's revenues. In addition, 012
Smile.Communications' decision, during late 2007, to reduce the
emphasis on its low-margin hubbing business resulted in a reduction
of approximately NIS 17 million in second quarter revenues compared
to the second quarter of 2007. Excluding these two factors, the
Company's revenues increased by approximately 8% on a
year-over-year basis. Adjusted EBITDA Adjusted EBITDA for the
quarter was NIS 60.8 million ($18.1 million) compared with NIS 65.0
million for the second quarter of 2007. The decline was caused by
the negative contribution of Smile.Media's largest Internet media
property, MSN-Israel Ltd. For more information regarding the use of
non-GAAP financial measurements, please see the notes in this press
release. Merger Related Expenses: During the second quarter, the
Company recorded final one-time expenses related to the merger of
012 Golden Lines and Smile.Communications of NIS 1.9 million ($0.6
million), bringing the total of all merger-related expenses under
the original budget estimate of NIS 25-30 million. Financing
Expenses: Financing expenses for the second quarter were NIS 32.6
million ($9.7 million) compared with NIS 14.3 million in the second
quarter of 2007. This high level of expenses was due primarily to
the 6% decrease in the average shekel-dollar exchange rate recorded
during the quarter (as compared with the exchange rate at March 31,
2008), which was responsible for the majority of the NIS 14 million
decrease in the shekel value of the Company's dollar-denominated
deposits, and was also due to CPI linkage expenses of NIS 22
million as a result of the quarter's 2.4% increase in the Israeli
CPI, to which the Company's bonds are linked. These non-cash
financial expenses did not affect the Company's cash position. Net
Results: On a U.S. GAAP basis, giving full effect to the decrease
in the shekel-dollar exchange rate on financing expenses, the
quarter's 2.4% increase in the Israeli CPI and one-time
merger-related expenses, the net loss for the second quarter was
NIS 8.1 million ($2.4 million), or NIS 0.37 ($0.11) loss per share,
compared to net profit of NIS 22.3 million, or NIS 1.05 per share,
in the second quarter of 2007. Excluding non-cash financial
expenses described above and one-time merger related expenses,
earnings for the second quarter was NIS 16.4 million ($4.9
million), or NIS 0.75 ($0.22) per share. Balance Sheet The
Company's cash, cash equivalents and short term investments as of
June 30, 2008 were NIS 706.0 million ($210.6 million), an increase
of 617% compared with NIS 98.4 million ($29.3 million) as of June
30, 2007. In addition, Internet Gold's bank debt decreased by 182%
from NIS 237 million ($ 70.7 million) as of June 30, 2007 to NIS 84
million ($25.0 million) as of the end of the second quarter of
2008. As of June 30, 2008 the Company's primary balance sheet and
operational ratios showed significant improvement as compared to
June 30, 2007: As of June 30, 2008 2007 Ratio of Shareholders'
Equity to Total Assets* 20% *18% Ratio of Net Debt to EBITDA 1.6
2.7 Adjusted EBITDA margin 22 22 Current Ratio (Current Assets
divided by Current 2.0 0.7 Liabilities) Gross Margin 32.4% 31.7% *
Excluding NIS 68 million invested in the buyback of the Company's
shares. On July 14, 2008, the Company announced that Midroog Ltd.,
an Israeli financial rating company which is affiliated with
Moody's, reissued the A1 rating originally awarded to the Series A
debentures issued in 2007 by 012 Smile.Communications. Midroog
concluded that the A1 rating would continue if 012
Smile.Communications issues new debt of up to NIS 320 million
(approximately $95 million). Copies of the complete Midroog report
are available at http://www.midroog.co.il/. Comments of Management
Commenting on the results, Eli Holtzman, Internet Gold's CEO, said,
"Our results reflect the excellent performance of our
communications segment, representing the vast majority of our
current business. Consistent with its strategy for long-term
growth, during the second quarter, 012 Smile continued to build its
core businesses, to expand its base of VOB domestic telephony
subscribers and to move forward towards launching its mobile
services nationwide. This steady performance has enabled 012 Smile
to re-earn an A-1 rating for its debentures, a vote of confidence
that will enhance its ability to carry out its strategy for growth
over the next few years." Mr. Holtzman continued, "The market share
losses of our primary Internet media property, MSN-Israel,
continued to impact the revenues and profitability of Smile.Media,
and therefore of the entire group. To resolve the situation, we
recently reached an agreement to have Microsoft independently
operate the MSN Israel portal from October 2008. This new agreement
will result in a positive addition to our cash position and improve
our profitability, while having only a minor impact on our
revenues." "As we have previously indicated, and in light of the
recent changes in Smile.Media's properties, we have intensified our
search for appropriate properties and joint ventures through which
to deploy our significant cash reserves and our expertise in the
communications market place, both in Israel and abroad. We are
confident that, just as we succeeded in identifying the right
M&A target in the 012 transaction two years ago, we will be
successful in locating our next significant investment, thereby
taking our group to the next level. As a concrete expression of our
optimism regarding Internet Gold's future, our Board of Directors
recently authorized the repurchase of up to NIS 70 million of our
ordinary shares - in addition to the NIS 68 million that was used
since last November to purchase shares. Given the current level of
our share price, we strongly believe that the purchase of our own
shares is an appropriate use of our cash and that these purchases
will enhance long-term shareholder value." Mr. Holtzman concluded,
"Taken as a whole, we are optimistic about new opportunities in our
markets and believe that we are better positioned than ever to go
after them, taking our company to the next level. We look forward
to reporting our continued progress in the year ahead." Business
Segments 012 Smile.Communications Ltd. (NASDAQ and TASE: SMLC):
Revenues for the second quarter were NIS 264 million ($79 million)
compared with NIS 275 million for the second quarter of 2007,
representing 94% of the Group's revenues. Revenues were impacted by
the continued decline in the average shekel-dollar exchange rate,
which reduced the shekel value of service contracts linked to the
dollar, and Management's decision in late 2007 to de-emphasize the
low-margin hubbing business. Excluding these two factors, 012
Smile.Communications' revenues from core activities increased by
approximately 10% on a year-over-year basis. 012
Smile.Communications' profitability continues to improve due to the
synergies realized from the merger and the reduction of the
proportion in its revenues that is derived from hubbing activities.
The subsidiary's adjusted EBITDAb for the second quarter increased
by 11% to a record NIS 63 million ($18.7 million) compared with NIS
57 million for the second quarter of 2007, and its adjusted EBITDA
margin for the quarter reached a record 24% compared with 21% in
the second quarter of 2007. Smile.Media Ltd.: Revenues for the
second quarter were NIS 18.1 million (US $5.4 million),
representing 6% of the Group's revenues. The segment recorded a
slightly negative adjusted EBITDAb for the quarter of NIS 0.2
million. The lower revenues and operating results derived from the
continued weak performance of the subsidiary's primary MSN-Israel
portal. On July 6, 2008, the Company announced that it had reached
an agreement with Microsoft Corp. under which Microsoft will
independently operate the MSN-Israel portal beginning in October
2008. The parties are currently discussing the terms of migration
and possible future cooperation. The msn.co.il portal will continue
to operate throughout the transition period and both parties are
working together to support employees, advertisers and users. In
2007, MSN Israel accounted for less than 3% of Internet Gold's
total revenues. Other: In addition to the operations of 012
Smile.Communications and Smile.Media, during the second quarter,
Internet Gold incurred operating expenses of approximately NIS 1.4
million (US $0.4 million). These expenses were primarily for the
development of new joint ventures 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. Share Buyback Programs After the end
of the second 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. $21 million) of the Company's ordinary shares. This is the
second repurchase program to be authorized by the Company's Board
of Directors and purchases will be made from time to time in the
open market on the NASDAQ Global Market and Tel Aviv Stock
Exchange. The timing and amount of any share purchases will be
determined by the Company's management based on its evaluation of
market conditions and other factors. The repurchase program may be
suspended or discontinued at any time. This new program is in
addition to the program announced by Internet Gold on November 29,
2007, when its Board of Directors authorized the repurchase of up
to NIS 70 million of the Company's ordinary shares. Management has
substantially completed the initial repurchase plan, having
repurchased 1,978,476 ordinary shares at a cost of NIS 68 million,
bringing the total number of outstanding shares to 21,539,930 as of
June 30, 2008. To date, the Company has repurchased 2,271,276
shares, bringing the number of the total outstanding shares to
21,247,130. Conference Call Information Management will host an
interactive teleconference to discuss the results today, August 13,
2008, at 10:00 a.m. EDT (17:00 Israel time). To participate, please
call one of the following access numbers several minutes before the
call begins: 1-888-281-1167 from within the U.S. or 1-888-604-5839
from within Canada, 0-800-917-9141 from within the U.K., or
+972-3-918-0687 from other international locations. The call will
also be broadcast live through the company's Website,
http://www.igld.com/, and will be available there for replay during
the next 30 days. NOTE A: Convenience Translation to Dollars For
the convenience of the reader, the reported NIS figures of June 30,
2008 have been presented in thousands of U.S. dollars, translated
at the representative rate of exchange as of June 30, 2008 (NIS
3.3520 = U.S. Dollar 1.00). The U.S. Dollar ($) 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. Our use of adjusted EBITDA is
detailed more fully in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Non-GAAP Financial
Measures" and reflects our belief that the non-GAAP financial
information is important for the understanding of our operations.
We define non-GAAP adjusted EBIT (earnings before interest and
taxes) as net income before interest and taxes net amortization
with regard to the intangible assets acquired as part of the
acquisition of 012 Golden Lines, non-recurring expenses relating to
charges incurred in connection with the merger of
Smile.Communications and 012 Golden Lines and expenses recorded for
stock compensation in accordance with SFAS 123(R). 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 growing 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 = NIS3.352 June
30 December 31 June 30 2008 2007 2008 (Unaudited) (Audited)
(Unaudited) NIS thousands $ thousands Current assets Cash and cash
equivalents 235,119 601,926 70,142 Short-term investments 470,915
162,884 140,488 Trade receivables, net 224,017 224,616 66,832 Other
receivables 27,245 26,446 8,128 Deferred taxes 8,166 9,707 2,436
Total current assets 965,462 1,025,579 288,028 Investments
Long-term trade receivables 3,550 3,460 1,059 Deferred taxes 71 192
21 Assets held for employee 21,169 20,639 6,315 severance benefits
Investments in investee companies 291 291 87 25,081 24,582 7,482
Property and equipment, net 168,207 163,949 50,181 Other assets,
net 501,821 519,865 149,708 Goodwill 417,608 417,608 124,585 Total
assets 2,078,179 2,151,583 619,984 Consolidated Balance Sheets
(cont'd) Convenience translation into U.S. dollars $1 = NIS3.352
June 30 December 31 June 30 2008 2007 2008 (Unaudited) (Audited)
(Unaudited) NIS thousands $ thousands Current liabilities
Short-term bank credit 71,505 77,998 21,332 Current maturities of
long-term obligations 10,277 10,734 3,066 Accounts payable 187,285
209,626 55,873 Current maturities of convertible 14,592 15,354
4,353 debentures Current maturities of debentures 87,935 - 26,234
Other current liabilities 105,101 91,131 31,355 Total current
liabilities 476,695 404,843 142,213 Long term liabilities Long-term
loans and other long-term 6,503 32,265 1,940 obligations Liability
for termination of employer- 35,497 35,918 10,590 employee
relations Deferred taxes 57,547 59,104 17,168 Debentures 816,028
848,616 243,445 Convertible debentures 85,231 104,640 25,427 Total
long term liabilities 1,000,806 1,080,543 298,570 Total liabilities
1,477,501 1,485,386 440,783 Minority interest 183,719 180,410
54,809 Shareholders' equity 416,959 485,787 124,392 Total
liabilities and shareholders' equity 2,078,179 2,151,583 619,984
Consolidated Statements of Operations Convenience translation into
dollars $1 = NIS3.352 Six-month Three months Six months period
period ended period ended ended June 30 June 30 June 30 2008 2007
2008 2007 2008
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited) NIS
thousands NIS thousands $ thousands Revenues 281,423 296,310
561,055 592,562 167,379 Costs and expenses Cost of revenues 190,240
202,501 378,562 406,612 112,936 Selling and marketing expenses
40,473 45,624 82,550 88,415 24,627 General and administrative
19,567 16,596 36,844 32,515 10,992 expenses Impairment and other
2,062 1,445 6,922 1,905 2,065 charges Total costs and 252,342
266,166 504,878 529,447 150,620 expenses Income from 29,081 30,144
56,177 63,115 16,759 operations Financial expenses, 32,606 14,303
55,071 25,220 16,429 net Income (loss) before tax expenses (3,525)
15,841 1,106 37,895 330 Tax expenses 3,090 (6,501) 5,522 (2,981)
1,647 (income) Income (loss) after tax expenses (6,615) 22,342
(4,416) 40,876 (1,317) Minority interest (loss) in operations of
consolidated subsidiaries 1,497 18 3,047 (26) 909 Net income (loss)
(8,112) 22,324 (7,463) 40,902 (2,226) Income (loss) per share,
basic Net income (loss) per share (in NIS) (0.37) 1.05 (0.33) 2.0
(0.10) Weighted average number of shares outstanding (in thousands)
21,845 21,178 22,388 20,463 22,388 Income (loss) per share, diluted
Net income (loss) per share (in NIS) (0.37) 1.03 (0.33) 1.92 (0.10)
Weighted average number of shares outstanding (in thousands) 21,845
21,603 22,388 24,064 22,388 Reconciliation Table of Non-GAAP
Measures (NIS in thousands) Convenience translation into dollars $1
= NIS 3.352 Six-month Three months Six months period period ended
period ended ended June 30 June 30 June 30 2008 2007 2008 2007 2008
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited) NIS
thousands NIS thousands $ thousands GAAP operating 29,081 30,144
56,177 63,115 16,759 income Adjustments Amortization of acquired
intangible assets 6,820 10,264 13,640 15,969 4,069 Impairment and
other 2,062 1,445 6,922 1,905 2,066 charges Stock compensation in
accordance with SFAS 950 - 950 - 283 123(R) Non-GAAP adjusted
operating income 38,913 41,853 77,689 80,989 23,177 GAAP tax
expenses (income), net 3,090 (6,501) 5,522 (2,981) 1,647
Adjustments Amortization of acquired intangible assets Included in
tax 1,841 2,315 3,683 4,631 1,099 expenses, net Non-GAAP tax 4,931
(4,186) 9,205 1,650 2,746 expenses, net Net income (loss) as
(8,112) 22,324 (7,463) 40,902 (2,226) reported Minority interest
(loss) in operations of consolidated subsidiaries 1,497 18 3,047
(26) 909 Tax expenses 3,090 (6,501) 5,522 (2,981) 1,647 (income)
Impairment and other 2,062 1,445 6,922 1,905 2,065 charges Stock
compensation in accordance with SFAS 950 - 950 - 283 123(R)
Financial expenses, 32,606 14,303 55,071 25,220 16,429 net
Depreciation and 28,673 33,400 56,994 62,932 17,003 amortization
Adjusted EBITDA 60,766 64,989 121,043 127,952 36,110 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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