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Executives

John Nesbett - IMS

Guy Nissenson – President and CEO

Niv Krikov – Chief Financial Officer

Analysts

Jennifer (Wolfords) – Comstock Partners

Xfone, Inc. (XFN) Q3 2011 Earnings Call November 15, 2011 10:00 AM ET

Operator

Greeting, and welcome to the Xfone third quarter 2011 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded.

It is now pleasure to introduce your host, John Nesbett, of IMS. Thank you, Mr. Nesbett, you may begin.

John Nesbett

Good morning, and welcome to our conference call to discuss Xfone’s financial results for the period, ended September 30, 2011.

On the call today we have Guy Nissenson, Xfone’s President and Chief Executive Officer, and Niv Krikov, Chief Financial Officer. Guy will review the company’s business operations, and Niv will review the financials. Immediately thereafter, we will take questions from call participants.

During this conference call, we may use forward-looking statements. The words or phrases "would be," "will allow," "intends to," "will likely result," or “expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify forward-looking statements. Xfone’s financial and operational results should not be construed by any means as representative of the current or future value of the common stock or bonds.

All information set forth in this conference call, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates and projections, which involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

These risks and uncertainties include issues related to rapidly changing technology and evolving standards in the industries in which the company subsidiaries operate, the ability to obtain sufficient funding for operations, maintain adequate cash flow, profitably exploit new business and license and sign new agreements; the unpredictable nature of consumer preferences; and other factors set forth in the company's most recently-filed annual report, quarterly reports and registration statement.

Call participants are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Call participants should carefully review the risks and uncertainties described in other documents that the Company’s files from time to time with the Securities and Exchange Commission.

Okay, with that I will now like to turn the call over to Guy Nissenson. Go ahead Guy.

Guy Nissenson

Thanks John, and good morning to everyone, and thank you for joining us today. This was a unquestionably, very good quarter for us on a multiple level. First and foremost, we began to see significant instruction in our new PRIDE markets that we are building out with the Federal Stimulus award. We launched Littlefield during the second quarter and have consequently launched Burkburnett and Brownfield.

In Littlefield, we have sold to more than 30% of the market in a very short period of time. To give you a sense of the pace of subscriber rates, half of our growth over the past year came in the third quarter alone.

Xfone is all about execution right now. We know that if we are successful building out our network and attracting subscribers, Xfone will be valued higher for our shareholders. There’s no magic formula, but a lot of focus and hard work right now.

Our fiber build out is proceeding on schedule and below budget, and we are getting very high take rates. This is very encouraging to see.

This execution in our numbers. Our Fiber business grew 30% compared to last year and 12.4% compared to the second quarter as we steadily increase our fiber customer base. Our strengthening fiber business also contributes it to a 24% increase in EBITDA.

Our Fiber business now represents approximately 23.4% of our overall revenue.

Our non-fiber business performed better than previous quarters primarily because of the inclusion of revenue from Cobridge Telecom. Our traditional Cobridge closed in July, and Cobridge contributes is approximately 24,000 cable customers for our non-fiber operation.

We also had a pending of traditional Reach Broadband, which is expected to close in December, and will bring approximately 18,000 non-private cable customer as well as equipment. The goal is to offer these new non-fiber customers our fiber offering. We see these as a great opportunity to accelerate market penetration, provide higher service to these valued customers, and increase our overall revenues and feasibility.

Following the close of the quarter, we completed our rights offerings, which raised approximately 6 million for our company. We also recently received funding of our 7.5 million loan agreement with ICON. This combined 17.5 million essentially makes the company working capital neutral, and puts us in a strong capital position going forward.

As I have stated to most of you personally, I would like to thank our shareholders for their participation in the rights offering. While it created some shortened confusion in concerning the market, most of our shareholders are understood that it was the best thing for our existing shareholders in the long run.

We have some great shareholders, and NCEO and as a shareholder myself, I do not take that for granted. We intend to use these additional resources to pay down our debt and expand our FTTP sales and marketing efforts to capture market share in new and existing markets.

With this, I’ll turn it over to Niv, to review the financials. Niv?

Niv Krikov

Thank you, Guy. Revenues from the company’s FTTP Triple Play business grew 30% to $3.4 million in the third quarter of 2011, as compared to approximately $2.6 million in the third quarter of 2010. Sequentially, fiber revenues grew by 12.4% from $3 million in the second quarter of 2011.

FTTP revenues represented approximately 23.4% of total revenues for the third quarter of 2011, as compared to approximately 17.6% of total revenues for the third quarter of 2010.

Consolidated revenues for the quarter were at $14.6 million, a decrease of 2.5% compared to $15 million in the same prior year period, relating primarily to efficient in the residential customers of our legacy non-FTTP business.

Sequentially, consolidated revenues increased 3.6% compared to second quarter of 2011. For the first nine months of 2011, revenues from the company’s Fiber-To-The-Premise business grew 29% to $9.4 million, from $7.3 million in the first nine months of 2010. Consolidated revenues for the first nine-months of 2011 were $43 million, a decrease of 2.3% compared to consolidated revenues of $43.9 million in the first nine-months of 2010.

EBITDAS was $2.4 million, an increase of 23.9% compared to EBITDAS of $1.9 million in the same quarter of 2010. EBITDAS margin in the third quarter of 2011 was 16.2% compared to EBITDAS margin of 12.7% for the third quarter of 2010.

The company recorded net financing income of $421,000 in the quarter compared to net financing expenses of $2.3 million in the same period of last year. The net financing income is primarily related to a favorable valuation of the U.S. dollar against the New Israeli Shekel.

In the third quarter of 2011, we recorded net income from continuing operation of $1 million or approximately $0.05 per diluted share, compared to a net loss of $1.5 million or a loss of $0.07 per diluted share, assuming 21.1 million fully diluted shares outstanding.

Average revenue per user at September 30, 2011, for residential FTTP customers was approximately $95 per month, with business FTTP customers at approximately $392 per month.

This concludes my reviews of the results. However, should anyone have any specific questions related to the company’s financial performance, I’d be happy to address them during the question and answer stage. Guy?

Guy Nissenson

Thank you, Niv. We are making excellent progress with the strategic rollout of our FTTP network and are very pleased to not only be executing the rollout on time and under budget, but also to be seeing stronger acceptance rates in the communities we are entering.

We are stratified to have successfully completed our rights offering, and to have received funding of our loan again with ICON, events which added a combined $13.5 million [inaudible]. We continue to have very favorable outlook for our FTTP business, and I look forward to keeping you up to date on the project we’re working on the way.

Thank you for your interest and support of our company. And with that, I would now turn the call over to questions.

Question-and-Answer Session

Operator

(Operator instructions). Our first question is coming from the line of Jennifer (Wolfords) with Comstock Partners.

Jennifer (Wolfords) – Comstock Partners

Hey, good morning, Guy. How are you?

Guy Nissenson

Good morning.

Jennifer (Wolfords) – Comstock Partners

You mentioned some of the growth in the fiber markets and I was curious if you could give us a little bit more description on how you’re marketing those markets and kind of what the sales force looks like and that kind of thing.

Guy Nissenson

Sure. In each and every market that we answer, especially the ones that they have significant amounts of market base, we actually open a sales office that has three or four sales people, sometimes more, sometimes less. And we do a lot of direct sales to the residential and the business markets.

We also run an ad in the local newspaper and other places. We have tried to build a good community relationship doing some kind of [inaudible] support with say football teams and soccer teams, and a lot of direct mailings. But for control, we are actually selling a product that people really need in the sales areas at a price that saves customers money. That’s why I think we are seeing a very good acceptance for our product and we hope that this will continue.

Jennifer (Wolfords) – Comstock Partners

Okay, great. Thank you.

Operator

(Operator Instructions). Gentlemen, it appears there are no further questions. I’ll turn the floor back over to management for any concluding remarks.

Guy Nissenson

Okay. I’d like to thank everybody for participating today, and hopefully see you again on the fourth quarter. Thank you very much, and good morning.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time, and we thank you for your participation.

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