NIS 280 Million Revenues; NIS 60.3 Million Adjusted EBITDA; 33%
Gross Margin; 22% Adjusted EBITDA Margin PETACH TIKVA, Israel, May
13 /PRNewswire-FirstCall/ -- Internet Gold Golden Lines Ltd.,
(NASDAQ NMS and TASE: IGLD) today reported its financial results
for the first quarter ended March 31, 2008. Highlights - Strong
gross profit and adjusted EBITDAb despite the negative impact of
the shekel-dollar exchange rate and the decline in hubbing revenues
- Improved cash flow from operations: operating cash flow for the
quarter reached NIS 48 million ($13.5 million) - 012
Smile.Communications core operations growing in line with business
plan: adjusted EBITDAb up 7% year over year; on-track execution of
VOB domestic telephony and mobile strategies - Acceleration of
share buy-back program; as of May 10, 2008, the Company had
invested approximately $16 million in this program - Continued
focus on search for accretive M&A candidates Financial Results
for the First Quarter Revenues: Revenues for the first quarter of
2008 were NIS 280.0 million ($78.8 million) compared to NIS 296.3
million in the first 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 as of the end of
the first quarter declined by 14% compared year-over-year with the
first 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
emphasis on its low-margin hubbing (wholesale international
traffic) business reduced its first quarter revenues by
approximately NIS 18 million compared to the first quarter of 2007.
Excluding these two factors, the Company's revenues increased by
approximately 6% on a year-over-year basis. Gross Margin: Despite
the reduction in revenues, gross margin increased to 33% from 31%
in the first quarter of 2007, reflecting the synergies of the
merger carried out in 2007 and the reduction of hubbing revenues in
012 Smile.Communications' mix of sales. Adjusted EBITDAb: Adjusted
EBITDA for the quarter was NIS 60.3 million ($17.0 million)
compared with NIS 62.8 million for the first quarter of 2007.
However, the Company's adjusted EBITDAb margin for the quarter
strengthened slightly, reaching 22.0% compared with 21.0% in the
first quarter of 2007, reflecting the improved gross margin. For
more information regarding the use of non-GAAP financial
measurements, please see the closing notes in this press release.
Merger-Related Expenses: One-time expenses related to the merger of
012 Golden Lines and Smile.Communications were NIS 4.8 million
($1.4 million) in the first quarter compared with NIS 0.5 million
in the first quarter of 2007. The Company expects that final
merger-related expenses of up to NIS 2 million ($600,000) will be
recorded in the second quarter of 2008. Financing Expenses:
Financing expenses for the first quarter were NIS 22.5 million
($6.3 million) compared with NIS 11.0 million in the first quarter
of 2007. This unusually high level of expenses was due primarily to
this quarter's 8% decrease in the average shekel-dollar exchange
rate (as compared with the rate at December 31, 2007), which
decreased the shekel value of the Company's dollar-denominated
deposits by approximately NIS 15 million. This was recorded as a
non-cash expense that 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
and one-time merger-related expenses, net income for the first
quarter was NIS 1.0 million ($286,000), or NIS 0.04 ($0.012) per
share compared to NIS 18.3 million, or NIS 0.93 per share, in the
first quarter of 2007. Excluding the decrease in the shekel-dollar
exchange rate and one-time merger related expenses, non-GAAP
earnings per share for the quarter were approximately NIS 0.61
($0.17). Balance Sheet The Company's cash, cash equivalents and
short term investments as of March 31, 2008 were NIS 800.3 million
($225.2 million), an increase of 958% compared with NIS 75.6
million ($ 21.3 million) as of March 31, 2007. In addition,
Internet Gold's bank debt decreased by 62% from NIS 414 million ($
116.5 million) as of March 31, 2007 to NIS 159 million ($44.8
million) as of the end of the first quarter of 2008. As of March
31, 2008 the Company's primary balance sheet and operational ratios
showed significant improvement as compared to March 31, 2007: As of
March 31, 2008 2007 Ratio of Shareholders' Equity to Total Assets
21% 17% Ratio of Net Debt to EBITDA 1.4 3.1 Adjusted EBITDA margin
22 21 Current Ratio (Current Assets divided by Current 2 0.6
Liabilities) Gross Margin 33% 31% Comments of Management Commenting
on the results, Eli Holtzman, Internet Gold's CEO, said, "The first
quarter was a period of both successes and challenges for Internet
Gold. Our 012 Smile.Communications subsidiary made important
progress during the quarter, delivering a record level of
profitability from its core businesses while continuing its
expansion into Israel's domestic telephony market and taking
initial steps towards penetrating the domestic mobile market. In
parallel, Smile.Media's performance did not meet our expectations
again in the first quarter. We have recently initiated plans to
boost revenues and cut costs, both aimed at bringing the subsidiary
back to operating profitability, while we continue to evaluate
longer term strategic alternatives. "We continue to seek attractive
M&A targets in both Israel and international markets. Suitable
candidates have to be of significant size, have operational
profitabalitiy, operate in a communications field that does not
compete with our current businesses and available at a reasonable
valuation. The search process is not simple and requires patience.
However, we are confident that, just as we succeeded to identify
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. We believe these
efforts will generate significant returns and shareholders' value
over the next two-to-three years. With a firm belief that the
current price level of our share is far below the Company's value,
we have accelerated our share buyback program, investing a total of
approximately $16.0 million in this effort, repurchasing 1,714,116
shares." Business Segments 012 Smile.Communications Ltd. (NASDAQ
and TASE: SMLC): Revenues for the first quarter were NIS 263.4
million ($74.1 million) compared with NIS 276 million for the first
quarter of 2007. Revenues were impacted by the 14% year-over-year
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 first quarter increased
by 7% to a record NIS 62 million ($17.4 million) compared with NIS
58 million for the first quarter of 2007, and its adjusted EBITDA
margin for the quarter reached a record 24.0% compared with 21.0%
in the first quarter of 2007. Smile.Media Ltd.: Revenues for the
first quarter were NIS 16.9 million (US $4.8 million), with
slightly positive adjusted EBITDAb. The lower revenues and
operating results reflect a weaker-than-expected market share of
several of the subsidiary's e-Advertising business segments,
partially offset by a gain in revenues from e-Commerce activities.
Management has recently implemented a revenue-boosting strategy in
parallel with a cost-cutting plan aimed at assuring Smile.Media's
operating profitability, and is evaluating further strategic
alternatives. Other: In addition to the operations of 012
Smile.Communications and Smile.Media, during the quarter, Internet
Gold incurred operating expenses of approximately NIS 1.7 million
(US $0.5 million), a substantial portion of which is related to the
Company's Sarbanes Oxley compliance program which is nearly
completed. Management believes that its Sarbanes Oxley-related
expenses will be significantly lower during the remainder of 2008.
Share and Convertible Bond Buyback Programs During the first
quarter, the Company's Board of Directors has accelerated its
ordinary share and convertible bond buyback programs in view of
current market prices, which, it believes, are far below the
Company's true value and growth prospects. Share Buyback Program:
on November 29, 2007, the Board of Directors authorized the
repurchase of up to NIS 70 million (approximately $19.7 million) of
the Company's ordinary shares in both the Nasdaq Global Market and
Tel Aviv Stock Exchange. Management has been executing the
repurchase plan successfully, repurchasing 1,334,245 shares as of
the end of the first quarter of 2008, bringing the total number of
outstanding shares as of that date to 22,184,161. To date, the
company has repurchased 1,714,116 shares, bringing the number of
the total outstanding shares to 21,804,290. Convertible Bond
Buyback Program: On January 28, 2008, the Company's Board of
Directors authorized the repurchase of up to NIS 112 million
(approximately $31.5 million) of the Company's convertible bonds.
The Company has repurchased bonds valued at NIS 8,781,790 through
the end of May 10, 2008, thus decreasing the Company's current
bond-related debt to NIS 94.1 million ($26.5 million). Conference
Call Information Management will host an interactive teleconference
to discuss the results today, May 13, 2008, at 10:00 a.m. EDT. To
participate, please call one of the following access numbers
several minutes before the call begins: 1-866-860-9642 from within
the U.S. or 1-888-604-5839 from within Canada, 0-800-051-8913 from
within the U.K., or +972-3-918-0692 from other international
locations. The call will also be broadcast live through the
company's Website, http://www.igld.com/, and will be available
there for replay during the next 30 days. NOTE A: Convenience
Translation to Dollars For the convenience of the reader, the
reported NIS figures of March 31, 2008 have been presented in
thousands of U.S. dollars, translated at the representative rate of
exchange as of March 31, 2008 (NIS 3.5530 = U.S. Dollar 1.00). The
U.S. Dollar ($) 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 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, income tax expenses, depreciation and amortization.
On a pro forma basis, we define adjusted EBITDA as net income
before financial income (expenses), net, impairment and other
charges, income tax expenses, depreciation and amortization and
income from discontinued operations. 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, 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 prospectus, 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 and non-recurring expenses relating
to charges incurred in connection with the merger of
Smile.Communications and 012 Golden Lines. 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, the failure to manage growth and other risks detailed
from time to time in Company's filings with the Securities Exchange
Commission. 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. Internet
Gold - Golden Lines Ltd. Consolidated Balance Sheets Convenience
translation into U.S. dollars $1 = NIS 3.553 March 31 March 31
March 31 2008 2007 2008 (Unaudited) (Unaudited) (Unaudited) NIS
thousands $ thousands Current assets Cash and cash equivalents
518,332 73,358 145,885 Short-term investments 282,013 2,245 79,373
Trade receivables, net 231,705 246,125 65,214 Other receivables
34,582 51,314 9,733 Deferred taxes 9,620 6,685 2,708 Total current
assets 1,076,252 379,727 302,913 Investments Long-term trade
receivables 3,150 2,065 887 Deferred taxes 18,804 178 5,292 Assets
held for employee 21,347 19,861 6,008 severance benefits
Investments in investee companies 200 200 56 43,501 22,304 12,243
Property and equipment, net 169,577 155,417 47,728 Goodwill and
other assets net, 925,164 910,243 260,390 Total assets 2,214,494
1,467,691 623,274 Internet Gold - Golden Lines Ltd. Consolidated
Balance Sheets (cont'd) Convenience translation into U.S. dollars
$1 = NIS 3.553 March 31 March 31 March 31 2008 2007 2008
(Unaudited) (Unaudited) (Unaudited) NIS thousands $ thousands
Current liabilities Short-term bank credit 109,922 358,904 30,938
Current maturities of long-term obligations 7,176 7,176 2,020
Accounts payable 203,597 209,397 57,302 Current maturities of
debentures 94,878 - 26,704 Other current liabilities 112,090 59,035
31,549 Total current liabilities 527,663 634,512 148,513 Long term
liabilities Long-term loans and other long-term obligations 43,675
53,995 12,292 Liability for employee severance benefits 34,974
34,084 9,843 Deferred taxes 70,419 38,972 19,820 Debentures 792,893
271,721 223,161 Convertible debentures 99,432 177,110 27,985 Total
long term liabilities 1,041,393 575,882 293,101 Total liabilities
1,569,056 1,210,394 441,614 Minority interest 183,923 1,565 51,766
Shareholders' equity 461,515 255,732 129,894 Total liabilities and
shareholders' equity 2,214,494 1,467,691 623,274 Internet Gold -
Golden Lines Ltd. Consolidated Statements of Operations Convenience
translation into U.S. dollars $1 = NIS 3.553 March 31 March 31
March 31 2008 2007 2008 (Unaudited) (Unaudited) (Unaudited) NIS
thousands $ thousands Revenues 279,632 296,304 78,703 Costs and
expenses Cost of revenues 188,322 204,420 53,004 Selling and
marketing expenses 42,077 42,685 11,843 General and administrative
17,308 15,921 4,871 expenses Impairment and other charges 4,860 460
1,368 Total costs and expenses 252,567 263,486 71,086 Income from
operations 27,065 32,818 7,617 Financial expenses, net 22,467
10,911 6,323 Income before tax expenses 4,598 21,907 1,294 Tax
expenses 2,030 3,620 571 Income after tax expenses 2,568 18,287 723
Minority interest (loss) in operations of consolidated subsidiaries
1,551 (55) 437 Net income 1,017 18,342 286 Income per share, basic
Net income per share (in NIS) 0.04 0.93 0.01 Weighted average
number of shares outstanding (in thousands) 22,935 19,658 22,935
Income per share, diluted Net income per share (in NIS) 0.04 0.74
0.01 Weighted average number of shares outstanding (in thousands)
22,935 24,928 22,935 Internet Gold - Golden Lines Ltd.
Reconciliation Table of Non-GAAP Measures (NIS in thousands)
Convenience translation into dollars $1 = NIS 3.553 Three-month
period ended Three months period March 31 ended March 31 2008 2007
2008 (Unaudited) (Unaudited) (Unaudited) NIS thousands $ thousands
GAAP operating income 27,065 32,818 7,617 Adjustments Amortization
of acquired intangible assets 6,820 5,705 1,920 Impairment and
other charges 4,860 460 1,368 38,745 38,983 10,905 Non-GAAP
adjusted operating income GAAP tax expenses, net 2,030 3,620 571
Adjustments Amortization of acquired intangible assets Included in
tax expenses, net 1,841 1,655 518 Non-GAAP tax expenses, net 3,871
5,275 1,089 Net income as reported 1,017 18,342 286 Minority
interest (loss) in operations 1,551 (55) 437 of consolidated
subsidiaries Taxes on income 2,030 3,620 571 Impairment and other
charges 4,860 460 1,368 Financial expenses, net 22,467 10,911 6,323
Depreciation and amortization 28,352 29,532 7,980 Adjusted EBITDA
60,277 62,810 16,965 For further information, please contact: Mor
Dagan - Investor Relations / Tel:+972-3-516-7620 Ms. Idit Azulay,
Internet Gold / Tel: +972-72-200-3848 DATASOURCE: Internet Gold
CONTACT: For further information, please contact: Mor Dagan -
Investor Relations, / Tel:+972-3-516-7620; Ms. Idit Azulay,
Internet Gold, / Tel: +972-72- 200-3848
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