Internet Gold Reports Strong Third Quarter 2009 Financial Results

November 19, 2009

— Progress Towards Bezeq Acquisition: 012 Smile Communications Signs Agreement for Sale of Telecommunications Business

PETACH TIKVA, Israel, November 19, 2009 — Internet Gold Golden Lines Ltd., (NASDAQ Global Market and TASE: IGLD) today reported its financial results for the third quarter of 2009.

Highlights

  • Strong operating cash flow of NIS 62 million
  • NIS 141 million decrease in net outstanding financial debt compared to year-end 2008
  • Smile.Media continues to achieve positive cash flow and bottom line profitability
  • Share buy-back program completed successfully
  • Company’s 75.3%-owned subsidiary, 012 Smile Communications Ltd., continues process of acquiring the controlling stake in Bezeq, Israel’s largest telecommunications provider. Transaction expected to close as planned
  • 012 Smile Communications signed an agreement with a wholly owned subsidiary of Ampal-American Israel Corporation to sell its telecommunications business.

012 Smile.Communications: Excellent performance delivered while pursuing its growth strategy

  • Total revenues increased by 4% to NIS 294 million (US $78 million)
  • Broadband segment revenues increased by 6%
  • International Long Distance (ILD) segment revenues up on both a quarter-by-quarter and year-over-year basis
  • Operating income increased by 11% to NIS 37 million (US $10 million)
  • Net income increased by 19% to NIS 15 million (US $4.0 million) or NIS 0.59 per share (US $0.16 per share)
  • Total of 134,000 local telephony lines as of the end of the quarter
  • Cash flow from operations for the quarter increased by 36% to NIS 64 million (US$17 million)

Financial Results for the Third Quarter

Revenues: Revenues for the third quarter of 2009 were NIS 310 million (US $82.5 million), a 5.4% increase compared with NIS 294 million in the third quarter of 2008. The revenues were attributable primarily to the results of 012 Smile.Communications together with the minor contribution of Smile Media.

Adjusted EBITDA: Adjusted EBITDA for the third quarter of 2009 was NIS 69 million (US $18.4 million). This was a 14% decrease compared to NIS 80.4 million for the third quarter of 2008, which included a NIS 12.8 million one-time gain arising from the sale of Smile Media’s interest in MSN Israel. Excluding the income relating to the MSN transaction, adjusted EBITDA for the third quarter of 2009 increased by 2% compared to the parallel quarter of 2008. For more information regarding the use of non-GAAP financial measures, please see the notes in this press release.

Financial Expenses, Net: Financial expenses net, for the third quarter of 2009 totaled NIS 36.5 million (US $9.7 million) compared with NIS 47.5 million in the third quarter of 2008. Financial expenses, net, for the third quarter of 2009 included: (1) NIS 5.9 million (US $1.6 million) associated with the period’s decrease of the shekel-dollar exchange rate; (2) NIS 35.5 million (US $9.4 million) associated with the Company’s bonds, reflecting the period’s 2.4% increase in the Israeli CPI; and (3) financial income of  NIS 5.4 million (US $1.4 million) associated with the mark-to-market of certain marketable securities whose values have increased as a result of the global improvement in the capital markets.

Net Income: On a U.S. GAAP basis, net income for the third quarter of 2009 was NIS 2.8 million (US $0.7 million), or NIS 0.16 (US $0.04) per share on a fully diluted basis. This compares to a net loss of NIS 8.5 million, or NIS 0.4 loss per share on a fully diluted basis for the third quarter of 2008.

Capital Resources

The Company’s cash, cash equivalents and marketable securities as of September 30, 2009 were NIS 676 million (US $180 million). Total assets as of September 30, 2009 were approximately NIS 2.0 billion (U.S. $535 million) and total bank debt was NIS 56 million (U.S. $15 million). Shareholders’ equity as of September, 30 2009 was NIS 422 million ($112 million), representing 21% of total assets.

Comments of Management

Commenting on the results, Eli Holtzman, Internet Gold’s CEO, said, “We are pleased to report another strong quarter, demonstrating the success of our telecommunications brands in a marketplace that continues to grow and strengthen. With great results, 012 Smile.Communications continues to generate significant cash flow, enabling us to continue decreasing our financial debt and to fund the next phase of our growth.”

Mr. Holtzman continued, “We are very excited about the rapid progress being made towards 012 Smile’s acquisition of a controlling stake in Bezeq The Israel Telecommunication Corp., Israel’s largest telecommunications provider (TASE: BZEQ). Earlier this week we announced that 012 Smile.Communications signed an agreement with a wholly owned subsidiary of Ampal-American Israel Corporation (Nasdaq: AMPL) to sell its ongoing telecommunications business for NIS 1.2 billion, or approximately $318 million. With this agreement in place, we believe 012 Smile is on track to close the Bezeq transaction prior to April 25, 2010.”

“Following the closing of the Bezeq transaction,” concluded Mr. Holtzman, “Internet Gold will become the undisputed leader of Israel’s telecommunications industry, a goal towards which we have been moving steadily for nearly two decades and which we believe will lead to significantly increased shareholder value.”

Business Segments

012 Smile.Communications Ltd. (NASDAQ and TASE: SMLC):

012 Smile.Communications reported improved quarterly revenues of NIS 294 million (US $78 million) for the quarter ended September 30, 2009, compared to NIS 282 million for the same period in 2008, a  4% increase. Revenue from broadband services increased to NIS 148 million (US $39 million) for the third quarter of 2009 compared to NIS 140 million for the third quarter of 2008, an increase of 6%.  Revenue from traditional voice services for the quarter was NIS 146 million (US $38.9 million) compared to NIS 142 million for the same period last year.

Operating income for the third quarter of 2009 increased to NIS 37.3 million (US $ 10 million) compared with NIS 33.8 million for the same period last year.

Adjusted EBITDA for the third quarter of 2009 increased to a record NIS 69.7 million (US $18.5 million) compared with NIS 62.6 million for the same period last year.

Smile.Media Ltd.: Smile.Media delivered another consecutive quarter of operating and net income. The segment’s revenues for the third quarter were NIS 16.4 million (US $4.4 million), derived primarily from its e-commerce businesses. The subsidiary’s operating income for the third quarter of 2009 reached NIS 0.4 million (US $0.1 million) compared with NIS 9.6 million for the same period last year, which result included  NIS 12.8 million of income from the sale of its interest in MSN Israel.

Other: During the third quarter of 2009, Internet Gold incurred operating expenses of approximately NIS 1.3 million (US $0.35 million). These expenses were primarily 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 and for the continued investigation of potential joint ventures and M&A opportunities.

Buyback Programs

Share Repurchase Program: The Company repurchased 111,191 of its ordinary shares during the quarter ended September 30, 2009. The total number of Internet Gold shares repurchased through the Company’s share repurchase programs as of September 30, 2009 reached 5,477,859 shares, bringing the total number of outstanding shares as of September 30, 2009 to 18,040,547 shares. This represents the successful completion of the buyback program approved by the Company’s Board of Directors.

  • Bond Repurchase Program: The Company did not repurchase any of its bonds during the quarter or to date. As of September 30, 2009, NIS 78,724,338 par value of Series A bonds and NIS 417,285,630 par value of Series B bonds, remain outstanding.

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 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 attributable to non-controlling interest, 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 September 30, 2009 have been presented in thousands of U.S. dollars, translated at the representative rate of exchange as of September 30, 2009 (NIS 3.758 = 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.

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.

About Internet Gold – Golden Lines Ltd.

Internet Gold – Golden Lines Ltd. is one of Israel’s leading communications groups with a major presence across all Internet-related sectors. Its 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.

For further information, please contact:

Ms. Idit Azulay, Internet Gold

idita@co.smile.net.il /  Tel: +972-72- 200-3848

Press here for Consolidated Balance Sheet