PETACH TIKVA, Israel, February 26 /PRNewswire-FirstCall/ -- - Q4:
Revenues-NIS 298M, EPS-NIS 1.27 - 2008: Revenues-NIS 1,107M,
EPS-NIS 2.21 012 Smile.Communications (NASDAQ Global Market and
TASE: SMLC), an Israeli telecommunications service provider, today
reported record financial results for the three-month and
twelve-month periods ended December 31, 2008. Highlights - Record
results for both Q4 and 2008 across all metrics - revenues, EBIT,
EBITDA and net income - Continued strong cash flow from operating
activities, reaching NIS 209M (U.S. $55M) for the year, with NIS
153 million (U.S. $40M) free cash flow for the period -
Ahead-of-plan penetration of domestic telephony market: over 90,000
local telephony lines as of end of the year, representing growth of
12,000 lines in Q4 - Regulatory progress expected to pave entry
into mobile market by end of 2009 (in millions of Q4'08 Q3'08 Q2'08
Q1'08 Q4'07 2008 2007 NIS, except EPS) Revenues 298 282 264 263 271
1,107 1,103 Gross Profit 92 89 86 87 88 354 341 EBIT 35 34 33 31 27
133 115 Adjusted EBITDA 66 63 62 62 60 253 236 Net Income 32 12 6 6
6 56 40 EPS 1.27 0.49 0.23 0.22 0.28 2.21 2.05 Results for the
Fourth Quarter of 2008 Revenues: Revenues for the fourth quarter of
2008 were NIS 298 million (US $78 million), a 10% increase compared
with NIS 271 million for the fourth quarter of 2007, and a 6%
sequential increase over NIS 282 million for the third quarter of
2008. Revenues from broadband services increased by 13%
year-over-year, while revenues from traditional telephony services
increased by 7%. Operating Results: Operating Income (EBIT) for the
fourth quarter increased to a record NIS 35 million (US $9.3
million), a 32% increase compared with the fourth quarter of 2007,
and a 5% sequential increase compared to the third quarter of 2008.
The increase reflected the higher revenues, the efficiencies
achieved by the merger process, and the Company's ongoing
efficiency efforts. Adjusted EBITDA for the fourth quarter reached
a record NIS 66 million (US $17.3 million), a 10% increase compared
with the fourth quarter of 2007, and a 5% increase compared to the
third quarter of 2008. Adjusted EBITDA margin for the reporting
quarter was 22%, unchanged from its level in the fourth quarter of
2007. For more information regarding the use of non-GAAP financial
measurements, please see the notes contained in this press release.
Financing Income (Expenses), net: During the reporting quarter, the
Company recorded financing income (net) of NIS 12 million (US $3.2
million) compared to financial expenses (net) of NIS 14 million for
the fourth quarter of 2007 and NIS 18 million for the third quarter
of 2008. The shift from financial expenses to financial income
reflected the 11% rise in the level of the dollar/shekel exchange
rate as of the end of the fourth quarter as compared to the end of
the third quarter of 2008, reaching NIS 3.802 per dollar. This
increased the shekel value of the Company's substantial
dollar-denominated assets, with the resulting appreciation
accounted for as financial income. This effect was compounded by
the quarter's 0.5% reduction in the Israeli CPI (Consumer Price
Index), which reduced the linkage expenses due on the Company's
CPI-linked debentures. Net Results: With record operating income
and significant financial income (net), net income for the fourth
quarter of 2008 reached a record NIS 32 million (US $8.5million),
or NIS 1.27 (US $0.33) per share, compared with NIS 6.5 million, or
NIS 0.28 per share in the fourth quarter of 2007, and NIS 12.5
million, or NIS 0.49 per share, in the third quarter of 2008.
Results for the Full Year 2008 Revenues for 2008 reached a record
NIS 1,107 million (US $291 million), a 0.4% increase compared with
NIS 1,103 million for 2007 despite a 32% decrease in revenues from
hubbing services (wholesale traffic) during the year and a 12.7%
decline in the 2008 shekel/dollar average exchange rate as compared
to 2007, a factor which significantly reduced dollar-denominated
revenues. Revenues from broadband services during the period
increased by 15%, while revenues from traditional telephony
services declined by 11%. Excluding revenues from hubbing services,
and the effect of the decrease in the average shekel/dollar
exchange rate for 2008 compared to 2007, revenues from core
activities increased by approximately 9% during the year. Gross
margin for 2008 increased to 31.9% from 30.9% in 2007, reflecting
the change in the Company's mix of revenues, and the improved cost
structure. Operating income (EBIT) for 2008 increased by 15% to a
record NIS 133 million (US $34.9 million) compared with NIS 115
million in 2007. Adjusted EBITDA for the year increased by 7% to a
record NIS 253 million (US $66.5 million) compared with NIS 236
million in 2007, representing an Adjusted EBITDA margin of 22.8%,
compared to 21.4% in 2007. For more information regarding the use
of non-GAAP financial measurements, please see the notes contained
in this press release. Net income for 2008 increased by 40% to a
record NIS 56.0 million (US $14.7 million), or NIS 2.21 (US $0.58)
per share, compared to NIS 39.9 million, or NIS 2.05 per share
(using a weighted average number of shares) for 2007. Balance Sheet
The Company's cash, cash equivalents, short term and long term
investments as of December 31, 2008 totaled NIS 289 million (US
$76.1 million), compared with NIS 230 million as of December 31,
2007. In parallel, the Company's net financial debt decreased by 9%
to NIS 300 million (US $78.8 million) as of the end of the 2008
from NIS 329 million as of December 31, 2007. As of December 31,
2008, the Company's primary balance sheet and operational ratios
showed significant improvement as compared to prior years: As of
December 31, 2008 2007 2006 Ratio of Shareholders' Equity to Total
Assets 43.5% 42.1% 10.6% Ratio of Net Debt to EBITDA 1.2 1.4 7
Adjusted EBITDA margin 22.8% 21.4% 18.5% Current Ratio 0.8 1.2 0.2
(Current Assets divided by Current Liabilities) Segment Overview -
Broadband: Q4 revenues from core broadband activities totaled NIS
148 million (US $39 million) representing approximately 50% of the
Company's revenues. This is a 13% increase compared with Q4 2007
and a 6% sequential increase compared with Q3 2008. In 2008,
broadband service revenues increased by 15% to NIS 550 million (US
$145 million), representing approximately 50% of total 2008
revenues compared with 43% in 2007. The increase reflects: -
Continued expansion of the Company's local telephony subscriber
base. As of the end of the year, 012 Smile.Communications had
enrolled over 90,000 local telephony lines. This is ahead of the
Company's plan for reaching a 5% market share by the end of 2009. -
Continued expansion of Internet subscriber base in a stable pricing
environment. - Traditional telephony: Q4 revenues from traditional
telephony services were NIS 150 million (US $39.4 million),
representing approximately 50% of the Company's revenues. This is a
7% increase compared with Q4 2007, and a 6% increase compared with
Q3 2008. For 2008, traditional telephony services accounted for
approximately 50% of the Company's total revenues, compared with
57% in 2007. In February 2008 the Company merged its brands under
the 012 Smile umbrella, and throughout the year has succeeded in
strengthening the recognition of the 012 Smile brand. This reflects
the benefit of the merger, which enabled the consolidation of the
Company's sales and marketing efforts, as well as the Company's
strategic decision to continue its investments in sales and
marketing. Comments of Management Commenting on the results, Ms.
Stella Handler, CEO of 012 Smile.Communications, said, "The fourth
quarter was a strong end to a challenging year. Financially, we
delivered record revenues and profits and continued to generate
strong cash flow - all while completing a complex merger process,
beginning a successful penetration of the local telephony market
and preparing to enter the mobile market. Despite uncertain macro
markets, as strong believers in the resilience and long-term
potential of the Israeli communications market, we continued to
expand our marketing investments, thereby strengthening our brand
recognition significantly. In parallel, with the belief that our
shares and bonds are undervalued, at the end of the year we
initiated two buyback programs, a move that will further strengthen
our financial platform." Ms. Handler continued, "The combination of
these activities has improved our positioning significantly as we
enter 2009. Our goals for the year ahead include the further
increase in our penetration of the local telephony market, the
growth of our customer base, the continual improvement of our
customer support services and the entry into the mobile market as
soon as the MVNO regulatory environment allows. Given today's
uncertain macro-markets, we expect that the revenues of some of our
services will be impacted over the next few quarters. Nonetheless,
with a strong financial platform, efficient operations and proven
sales and marketing capabilities, we believe we are positioned to
continue building our business in all market conditions and to take
full advantage of the Israeli market's substantial long-term growth
potential." Buyback Programs - Share Buyback Program: On December
30, 2008, the Company's Board of Directors announced a share
buyback program under which Management is authorized to repurchase
up to US $10 million of 012 Smile.Communications' ordinary shares.
- Bond Buyback Program: On November 25, 2008, the Company's Board
of Directors announced that it had authorized the repurchase of up
to NIS 100 million of the Company's Series A bonds. As of December
31, 2008, the Company had utilized approximately NIS 16 million (US
$4.2 million) in the repurchase of these bonds. These transactions
generated a profit of approximately NIS 2.9 million, which was
recorded in financial income (net). As of today, NIS 408,848,857
par value of the bonds remain outstanding. Conference Call
Information Management will host an interactive teleconference to
discuss the results today, February 26, 2009, at 09:00 a.m. EST. To
participate, please call one of the following access numbers
several minutes before the call begins: +1-866-345-5855 from within
the U.S. or +1-866-958-6867 from within Canada, +1-800-404-1418
from within the U.K., or +972-3-918-0609 from other international
locations. The call will also be broadcast live through the
company's Website, http://www.012.net/, and will be available there
for replay during the next 30 days. Notes: Non-GAAP Measurements
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.
EBITDA EBITDA is a non-GAAP financial measure generally defined as
earnings before interest, taxes, depreciation and amortization. We
define adjusted EBITDA as net income before financial income
(expenses), net, impairment and other charges, expenses recorded
for stock compensation in accordance with SFAS 123(R), income tax
expenses and depreciation and amortization. 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 of
changes in effective tax rates or net operating losses) and the age
of, and depreciation expenses associated with, fixed assets
(affecting relative depreciation expense). 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.
Convenience Translation to Dollars For the convenience of the
reader, the reported NIS figures of December 31, 2008 have been
presented in thousands of U.S. dollars, translated at the
representative rate of exchange as of December 31, 2008 (NIS 3.802
= 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. Consolidated Balance Sheets Convenience translation into
U.S. dollars $1 = NIS 3.802 December 31 December 31 2008 2007 2008
(Unaudited) (Audited) (Unaudited) NIS thousands $ thousands Current
assets Cash and cash equivalents 60,652 229,895 15,953 Marketable
securities 76,742 - 20,185 Trade receivables, net 203,009 194,964
53,395 Parent company receivable - 6,553 - Related parties
receivables - 2,161 - Prepaid expenses and other 23,038 19,804
6,059 current assets Deferred taxes 10,851 9,396 2,854 Total
current assets 374,292 462,773 98,446 Investments Long-term trade
receivables 6,350 3,460 1,670 Assets held for employee severance
benefits 16,499 18,453 4,340 Marketable securities 152,020 - 39,984
Total investments 174,869 21,913 45,994 Property and equipment, net
169,406 160,211 44,557 Other assets, net 293,276 295,592 77,137
Other intangible assets, net 174,640 202,376 45,934 Goodwill
411,171 411,171 108,146 Total assets 1,597,654 1,554,036 420,214
Current liabilities Short-term bank credit - 2,407 - Current
maturities of long-term obligations and debentures 99,295 3,558
26,116 Accounts payable 141,055 164,535 37,100 Loan from the parent
company 111,344 105,733 29,286 Parent company payables 1,410 - 371
Related parties payables 2,228 - 586 Other payables and accrued
expenses 107,732 101,661 28,336 Total current liabilities 463,064
377,894 121,795 Long-term liabilities Debentures 381,141 437,460
100,247 Long term obligations and other payables 143 23,294 38
Deferred taxes 25,116 29,027 6,606 Liability for employee severance
benefits 32,430 32,318 8,530 Total long-term liabilities 438,830
522,099 115,421 Total liabilities 901,894 899,993 237,216
Shareholders' equity and parent company investment 695,760 654,043
182,998 Total liabilities, shareholders' equity and parent company
investment 1,597,654 1,554,036 420,214 Consolidated Statements of
Operations Convenience translation into U.S. dollars $1 = NIS 3.802
Year ended Year ended December 31 December 31 2008 2007 2006 2008
(Unaudited) (Audited) (Audited) (Unaudited) NIS thousands $
thousands Revenues 1,106,993 1,102,888 343,086 291,161 Costs and
expenses Cost of revenues 753,416 762,205 224,565 198,163 Selling
and marketing expenses 158,435 157,304 59,864 41,672 General and
administrative expenses 55,913 57,984 22,921 14,706 Impairment and
other charges 6,705 10,433 10,187 1,764 Total costs and expenses
974,469 987,926 317,537 256,305 Income from operations 132,524
114,962 25,549 34,856 Financial expenses, net 53,172 52,043 17,266
13,985 Income before tax expenses 79,352 62,919 8,283 20,871 Tax
expenses 23,384 23,027 10,315 6,150 Net income (loss) 55,968 39,892
(2,032) 14,721 Income (loss) per share Basic and diluted income
(loss) per share (in NIS) 2.21 2.05 (0.11) 0.58 Weighted average
number of ordinary shares used in Calculation of basic and diluted
earnings per share 25,360,000 19,493,329 18,370,000 25,360,000
Reconciliation Table of Non-GAAP Measures Year ended December 31
2008 2007 (Unaudited) NIS thousands GAAP operating income 132,524
114,962 Adjustments Amortization of acquired intangible assets
27,280 31,938 Impairment and other charges 6,705 10,433 Expenses
recorded for stock based compensation in accordance with SFAS
123(R) 3,429 - Non-GAAP adjusted operating income 169,938 157,333
GAAP tax expenses (benefit), net 23,384 23,027 Adjustments
Amortization of acquired intangible assets included in tax
expenses, net 7,365 9,262 Non-GAAP tax expenses, net 30,749 32,289
Net income as reported 55,968 39,892 Taxes on income 23,384 23,027
Non-recurring expenses 6,705 10,433 Expenses recorded for stock
based compensation in accordance with SFAS 123(R) 3,429 - Financial
expenses, net 53,172 52,043 Depreciation and amortization 110,054
110,243 Adjusted EBITDA 252,712 235,638 Combined and Consolidated
Statements of Cash Flows (in thousands) Convenience translation
into US dollars Year ended Year ended December 31 December 31 2008
2007 2006 2008 NIS NIS NIS US$ Cash flows from operating
activities: Net income (loss) 55,968 39,892 (2,032) 14,721
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 110,054 110,981
21,433 28,946 Stock-based compensation expenses 3,429 - - 902
Deferred tax benefit (485) (11,129) (94) (128) Accrued interest on
debentures 21,061 20,458 - 5,539 Increase in allowance for doubtful
accounts, net 436 5,931 1,102 115 Increase in employee severance
benefits, net 2,066 (34) (135) 543 Impairment and other charges - -
8,202 - Linkage and interest differences on long-term obligations,
exchange rate difference and other 42,922 24,592 (1,361) 11,289
Income from redemption of debentures (2,886) - - (759) Realized and
unrealized income (expenses) on marketable securities, net 9,518
883 (79) 2,503 Changes in assets and liabilities, net of effects of
acquisition: Trade receivables including non current portion
(11,371) (7,552) (8,489) (2,991) Prepaid expenses and other current
assets (1,931) 2,116 (364) (508) Other assets, net 483 (52) 1,234
127 Accounts payable (35,766) 7,102 18,947 (9,407) Receivables
(payables) from parent company, net 3,825 (5,274) (918) 1,006 Other
payables and accrued expenses 11,563 34,236 659 3,041 Net cash
provided by operating activities 208,886 222,150 38,105 54,941 Cash
flows from investing activities: Purchase of property and equipment
and other assets (56,135) (50,808) (11,175) (14,765) Purchase of a
subsidiary company, net of cash acquired - (585,636) (5,118)
Investment in marketable securities (358,224) - - (94,220) Proceeds
from sale of marketable securities 100,417 - - 26,412 Net cash used
in investing (313,942) (636,444) (16,293) (82,573) Activities Cash
flows from financing activities: Changes in short-term bank credit,
net (2,407) (329,232) 41,552 (633) Loan from parent company -
100,640 - - Payments in respect of long-term finance arrangement
(25,835) (50,247) (35,421) (6,795) Issuance of debentures, net of
issuance expense - 423,779 - Redemption of debentures (15,913) - -
(4,186) Contribution from Parent Company - 170,238 10,044 -
Proceeds from issuance of shares, net - 299,364 - - Net cash (used
in) provided by financing activities (44,155) 614,542 16,175
(11,614) Changes in cash and cash equivalents (149,211) 200,248
37,987 (39,245) Effect of exchange rate changes (20,032) (8,340) -
(5,269) Cash and cash equivalents at beginning of the year 229,895
37,987 - 60,467 Cash and cash equivalents at end of year 60,652
229,895 37,987 15,953 Supplemental information: Interest paid 3,564
11,463 382 937 Income taxes paid 12,480 8,000 - 3,282 Non-cash
investing activities: Acquisition of property and equipment and
other assets on credit 12,286 13,063 7,545 3,231 012 acquisition -
- 584,621 - For further information, please contact: Mor Dagan -
Investor Relations / Tel:+972-3-516-7620 DATASOURCE: 012
Smile.communications Ltd. CONTACT: For further information, please
contact: Mor Dagan - Investor Relations, / Tel:+972-3-516-7620
Copyright