Ness Technologies Announces First Quarter 2010 Financial Results
HACKENSACK, New Jersey, April 28, 2010 /PRNewswire-FirstCall/ --
- Ness Returns to Growth, With Quarterly Revenues up 6% Year-Over-Year and on-Target EPS
- Ness Strengthens Enterprise Focus With Expansion of BI Capabilities and Divestiture of Non-Core Operations
Ness Technologies, Inc. (NASDAQ: NSTC and TASE: NSTC), a global provider of IT services and solutions, today announced financial results for the quarter ended March 31, 2010.
First Quarter 2010 Highlights:
- The company delivered year-over-year quarterly revenue growth in each
segment, with sequential and year-over-year bookings growth.
- The company announced the acquisition of Gilon Business Insight, Ltd.,
a provider of business intelligence (BI) services in Israel, further
strengthening the company's position as a leading provider of
enterprise solutions. The acquisition is expected to close during
the second quarter.
- In connection with its previously announced streamlining of
non-strategic and/or unprofitable smaller operations, the company has
resolved to sell its software distribution operations in Europe. The
company has also signed an agreement to sell its Asia Pacific system
integration and application development operations, and the sale is
expected to close during the second quarter. Both operations have been
reclassified as discontinued operations.
- On a GAAP basis:
- Quarterly revenues were $133.3 million, up 6% year-over-year.
- Quarterly operating income was $2.4 million, down 43% compared to the
first quarter of 2009 (which included a net gain in operating income of
$5.1 million from commissions related to the 2008 sale of the company's
Israeli SAP sales and distribution operations and an insurance
settlement related to the company's 2007 arbitration expense).
- Quarterly net income from continuing operations was $0.7 million,down
72% year-over-year.
- Quarterly diluted net earnings per share from continuing operations
were $0.02, compared of $0.06 in the first quarter of 2009.
- On a non-GAAP basis ([1]):
- Quarterly operating income from continuing operations was $5.0 million,
down 27% year-over-year.
- Quarterly net income from continuing operations was $3.4 million, down
28% year-over-year.
- Quarterly diluted net earnings per share from continuing operations
were $0.09, compared to $0.12 in the first quarter of 2009.
- Operating cash flows for the quarter were $4.7 million.
- Cash, cash equivalents and short-term bank deposits were $64.9 million
as of March 31, 2010, and net debt declined to $1.4 million, with no
short-term debt.
- Backlog from continuing operations as of March 31, 2010 was $663
million, up 4% year-over-year and up 6% sequentially.
- Headcount for continuing operations was approximately 7,470 as of March
31, 2010.
"Our business gained additional positive momentum during the first quarter, with nice bookings growth and solid year-over-year revenue growth," said Sachi Gerlitz, president and chief executive officer of Ness Technologies. "We won a number of significant deals during the quarter, in all our major geographies. While returning to growth we are also continuing to gear up for margin expansion by focusing on our core, higher-margin service offerings and our core geographic regions. These efforts are supported by our shedding of smaller and non-strategic operations and projects, like our software distribution operations in Europe. We anticipate that our acquisition and the divestitures we announced will better align us with our growth strategy and support our plans for 2010."
- Results by operating segment:
- The company's Software Product Engineering segment, which provides
outsourced software product research and development services to
companies that build or rely on software to generate revenues,
continued to perform well in the first quarter, with solid operating
margins and sequentially growing revenues.
- The company's System Integration and Application Development segment
showed healthy year-over-year revenue growth, solid bookings growth and
an expanding deal pipeline - with much improved performance in the
United States and Israel, while it experienced continued weakness in
Central and Eastern Europe.
- The company no longer reports a separate Software Distribution segment,
as its European software distribution operations were reclassified as
discontinued operations and its Israeli software distribution
operations were reclassified to its System Integration and Application
Development segment, effective as of January 1, 2010.
"After a challenging 2009, I feel confident that the majority of our business is out of the woods. Also, in Central and Eastern Europe, where the recession is ongoing, we believe the worst is behind us," said Ofer Segev, executive vice president and chief financial officer. "We are developing and shaping the company, using M&A and divestitures to better leverage our global offerings, and we continue to focus on improving operations, cash flows and the balance sheet."
Business Outlook
The company believes the overall economic outlook is continuing to improve, other than in Central and Eastern Europe, where the timing of the recovery remains unknown. Ness continues to expect top line revenue growth and margin expansion in 2010, with a trend of sequentially increasing quarterly revenues and operating margins. The company expects that seasonal variations in its quarterly results will be reduced compared to historical levels, now that its European software distribution operations are not reported within continuing operations.
Ness is reiterating its full year 2010 guidance of revenues from continuing operations in the range of $575 million to $585 million with diluted net earnings per share from continuing operations in the range shown in the reconciliation table below:
Full year diluted net
earnings per share ($)
Low High
GAAP basis from continuing operations. $0.09 $0.17
Stock-based compensation;
amortization of intangible
assets; earn-out related to
prior-year acquisition;
amortization of intangible
assets and earn-out related
to the acquisition of Gilon 0.34 0.30
Non-GAAP basis from continuing
Operations $0.43 $0.47
The company's 2010 GAAP guidance excludes any unannounced future acquisitions or stock-based compensation grants; and the company's GAAP and non-GAAP guidance further assumes that outstanding diluted shares will average approximately 39.5 million in 2010 and that foreign currency exchange rates will remain at their average levels for April 2010.
For the reasons set forth elsewhere in this release, Ness' management believes that non-GAAP earnings per share financial guidance provides the best comparative basis for investors to understand and assess the company's on-going operations and prospects for the future.
Conference Call Details
Sachi Gerlitz, president and chief executive officer of Ness Technologies, and Ofer Segev, executive vice president and chief financial officer, will conduct a conference call to discuss the first quarter 2010 results. The call, which will be simultaneously webcast, will begin at 8:30 AM Eastern Time / 5:30 AM Pacific Time on Wednesday, April 28, 2010.
To access the Ness Technologies first quarter 2010 earnings conference call, participants in North America should dial 1-800-399-0427 and international participants should dial +1-973-200-3375. A live audio webcast of the conference call will be available on the investor relations page of the Ness Technologies corporate web site at http://investor.ness.com. Please visit the web site at least 15 minutes early to register for the teleconference webcast and download any necessary audio software. A replay of the call will be available on the web site approximately two hours after the conference call is completed.
About Ness Technologies
Ness Technologies (NASDAQ: NSTC and TASE:NSTC) is a global provider of IT and business services and solutions with specialized expertise in software product engineering; and system integration, application development, consulting and software distribution. Ness delivers its portfolio of solutions and services using a global delivery model combining offshore, near-shore and local teams. With about 7,800 employees, Ness has operations in North America, Europe, Israel and India, has customers in over 20 countries, and partners with numerous software and hardware vendors worldwide. For more information about Ness, visit http://www.ness.com.
Use of Non-GAAP Financial Information
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Ness uses various non-GAAP measures of net income and earnings per share, including adjustments from results based on GAAP to exclude (a) non-cash stock-based compensation expenses in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 718, "Stock Compensation" (formerly, FASB Statement 123R) and amortization of intangible assets, net of taxes; (b) an earn-out related to a prior-year acquisition; (c) an insurance settlement in the first quarter of 2009 related to a 2007 arbitration expense, net of related expenses, net of taxes; and (d) severance expenses in the first quarter of 2009, net of taxes. Ness' management believes the non-GAAP financial information provided in this release is useful to investors' understanding and assessment of Ness' on-going core operations and prospects for the future. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Management uses both GAAP and non-GAAP information in evaluating and operating the business internally and as such has determined that it is important to provide this information to investors.
Ness uses these non-GAAP measures also in the formulation of its financial guidance. This requires Ness management to make assumptions regarding certain factors that could affect future net income and earnings per share, such as the timing and size of future potential acquisitions (which could result in additional non-cash amortization of intangibles), the timing and size of future potential stock-based compensation grants (which could result in additional non-cash stock-based compensation expense), and the timing and size of any one-time income or expenses. The company discloses such assumptions in conjunction with its financial guidance.
Forward Looking Statement
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often are preceded by words such as "believes," "expects," "may," "anticipates," "plans," "intends," "assumes," "will" or similar expressions. Forward-looking statements reflect management's current expectations, as of the date of this press release, and involve certain risks and uncertainties. Ness' actual results could differ materially from those anticipated in these forward looking statements as a result of various factors. Some of the factors that could cause future results to materially differ from the recent results or those projected in forward-looking statements include the "Risk Factors" described in Ness' Annual Report of Form 10-K filed with the Securities and Exchange Commission on March 15, 2010. Ness is under no obligation, and expressly disclaims any obligation, to update or alter its forward-looking statements, whether as a result of such changes, new information, subsequent events or otherwise.
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands (except per share data)
Three months ended
March 31,
2009 2010
(Unaudited) (Unaudited)
Revenues $ 126,281 $ 133,333
Cost of revenues 94,359 96,521
Gross profit 31,922 36,812
Selling and
Marketing 9,212 10,053
General and administrative 23,585 24,342
Insurance settlement related to 2007
arbitration expense, net of related
expenses (2,610) -
Commissions related to the sale of
Israeli SAP sales and distribution
operations...... (2,534) -
Total operating expenses 27,653 34,395
Operating income 4,269 2,417
Financial expenses, net (1,156) (209)
Income before taxes on
Income 3,113 2,208
Taxes on income 642 1,510
Net income from continuing operations $ 2,471 $ 698
Net loss from discontinued operations (943) (5,387)
Net income (loss) $ 1,528 $ (4,689)
Basic net earnings per share from
continuing operations $ 0.06 0.02
Diluted net earnings per
share from continuing operations $ 0.06 $ 0.02
Basic net earnings (loss) per share $ 0.04 $ (0.12)
Diluted net earnings (loss) per share $ 0.04 $ (0.12)
Weighted average number of shares
(in thousands) used in computing basic
net earnings per share from continuing
operations, basic net earnings (loss) per
share and diluted net loss per share. 38,922 38,299
Weighted average number of shares
(in thousands) used in computing diluted
net earnings per share from continuing
operations and diluted net earnings per
share 39,515 38,722
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands
Three months ended
March 31,
2009 2010
Segment Data (1) (2): (Unaudited) (Unaudited)
Revenues from continuing operations:
Software Product Engineering $ 24,966 $ 26,397
System Integration and Application Development 101,315 106,936
$ 126,281 $ 133,333
Operating income (loss) from continuing
operations:
Software Product Engineering $ 4,114 $ 3,853
System Integration and Application Development 5,311 3,227
Unallocated Expenses (5,156) (4,663)
$ 4,269 $ 2,417
Geographic Data (2):
Revenues from continuing operations:
Israel $ 45,270 $ 47,639
Europe 36,473 39,001
North America 42,479 45,249
Asia and the Far East 2,059 1,444
$ 126,281 $ 133,333
(1) The company no longer reports a separate Software Distribution segment, as its European software distribution operations were reclassified as discontinued operations and its Israeli software distribution operations were reclassified to its System Integration and Application Development segment, effective as of January 1, 2010. Segment data for prior periods has been restated to reflect the current organization of the segments.
(2) All periods have been reclassified to exclude revenues and operating income (loss) from operations discontinued during the three months ended March 31, 2010. Quarterly segment data for prior periods is shown below:
Three months ended
March 31, June 30,
Segment Data: 2008 2009 2008 2009
(Unaudited) (Unaudited)
Revenues from continuing
operations:
Software Product Engineering $ 20,529 $ 24,966 $ 24,739 $ 25,688
System Integration and
Application Development 125,461 101,315 129,071 101,199
$ 145,990 $ 126,281 $ 153,810 $ 126,887
Operating income (loss)
from continuing operations:
Software Product Engineering.. $ 1,201 $ 4,114 $ 2,061 $ 4,096
System Integration and
Application Development 11,097 5,311 10,670 3,228
Unallocated Expenses... (2,246) (5,156) (3,316) (3,893)
$ 10,052 $ 4,269 $ 9,415 $ 3,431
- TABLE CONTINUED -
Three months ended
September 30, December 31,
Segment Data: 2008 2009 2008 2009
(Unaudited) (Unaudited)
Revenues from continuing
operations: $ 26,092 $ 25,621 $ 26,111 $ 26,248
Software Product Engineering 124,395 97,581 128,214 109,329
System Integration and
Application Development $ 150,487 $ 123,202 $ 154,325 $ 135,577
Operating income (loss) from
continuing operations: $ 3,181 $ 3,609 $ 3,915 $ 3,569
Software Product
Engineering 23,030 3,159 3,656 (9,125)
System Integration
and Application Development (3,623) (2,900) (4,508) (5,742)
Unallocated Expenses $ 22,588 $ 3,868 $ 3,063 $ (11,298)
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Three months ended
March 31,
2009 2010
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $ 1,528 $ (4,689)
Adjustments required to reconcile
net income (loss) to net cash provided by
operating activities:
Net loss from discontinued
operations 943 5,387
Stock-based compensation-related
expenses 928 829
Currency fluctuation of restricted
cash and short-term bank deposits - (957)
Depreciation and
amortization 4,203 4,169
Loss on sale of property and equipment
and impairment and sale of cost
investments 248 66
Commissions related to the sale of
Israeli SAP sales and distribution
operations (2,534) -
Decrease in trade receivables, net 22,906 7,163
Decrease (increase) in unbilled receivables 105 (2,460)
Decrease in other accounts receivable
and prepaid expenses 1,376 964
Decrease in work-in-progress 18 1,265
Increase in long-term prepaid expenses. (274) (41)
Deferred income taxes, net (945) 456
Decrease in trade payables (5,432) (1,568)
Decrease in advances from customers
and deferred revenues (420) (3,747)
Increase in other long-term
Liabilities 332 420
Decrease in other accounts payable
and accrued expenses (13,847) (4,204)
Increase (decrease) in accrued
severance pay, net (23) 104
Net cash provided by (used in)
discontinued operations (518) 1,578
Net cash provided by operating activities 8,594 4,735
Cash flows from investing activities:
Consideration from sale of a consolidated
subsidiary, net of cash-in-hand - 1,384
Proceeds from maturity of (investment in)
short-term bank deposits, net (11,082) 5,662
Proceeds from sale of property and
Equipment 171 -
Purchase of property and equipment and
capitalization of software developed
for internal use. (3,076) (1,744)
Net cash used by discontinued
Operations (3,114) (2,655)
Net cash provided by (used in) investing
activities (17,101) 2,647
Cash flows from financing activities:
Repurchase of shares (1,217) (611)
Short-term bank loans and credit, net. 207 (500)
Principal payments of long-term debt (1,731) (3,121)
Net cash used by discontinued operations (242) -
Net cash used in financing activities (2,983) (4,232)
Effect of exchange rate changes
on cash and cash equivalents. (1,273) (2,174)
Increase (decrease) in cash and cash
equivalents (12,763) 976
Cash and cash equivalents at the
beginning of the period 44,585 40,218
Cash and cash equivalents at the
end of the period $ 31,822 $ 41,194
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December March 31,
31, 2009 2010
(Unaudited)
CURRENT ASSETS:
Cash and cash
Equivalents $ 40,218 $ 41,194
Restricted cash 2,470 2,925
Short-term bank
Deposits 25,939 20,776
Trade receivables, net of allowance
for doubtful accounts 131,452 124,130
Unbilled receivables 28,012 29,847
Other accounts receivable and prepaid
Expenses 27,832 27,187
Work in Progress 9,690 8,168
Total assets attributed to discontinued
operations 43,212 36,639
Total current
assets 308,825 290,866
LONG-TERM ASSETS:
Long-term prepaid expenses and other assets 6,083 6,151
Unbilled Receivables 4,654 4,904
Deferred income taxes,
Net 3,608 3,293
Severance pay fund 53,145 54,919
Property and equipment, net 35,739 34,699
Intangible assets, net 10,016 8,494
Goodwill 263,541 261,421
Total long-term assets 376,786 373,881
Total assets $685,611 $ 664,747
CURRENT LIABILITIES:
Short-term bank credit $ 500 $ -
Current maturities of long-term debt 21,332 23,194
Trade
Payables 30,914 28,955
Advances from customers and deferred
Revenues 40,639 36,734
Other accounts payable and accrued expenses 99,464 95,276
Total liabilities attributed to discontinued
operations 25,461 24,121
Total current liabilities 218,310 208,280
LONG-TERM LIABILITIES:
Long-term debt, net of current Maturities 50,836 43,071
Other long-term Liabilities 6,689 7,070
Deferred income Taxes 2,045 1,849
Accrued severance pay 56,443 58,348
Total long-term Liabilities 116,013 110,338
Total stockholders' Equity 351,288 346,129
Total liabilities and stockholders' equity $ 685,611 $ 664,747
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS;
EARN-OUT RELATED TO PRIOR-YEAR ACQUISITION; INSURANCE SETTLEMENT
RELATED TO 2007 ARBITRATION EXPENSE, NET OF RELATED
EXPENSES; SEVERANCE EXPENSES; ALL NET OF TAXES
U.S. dollars in thousands (except per share data)
Three months ended
March 31,
2009 2010
Statements of Income Data: (Unaudited) (Unaudited)
GAAP gross Profit $ 31,922 $ 36,812
Stock-based Compensation 63 39
Amortization of intangible Assets 189 53
Severance Expenses 966 -
Non-GAAP gross Profit $ 33,140 $ 36,904
GAAP operating Income $ 4,269 $ 2,417
Stock-based Compensation 928 829
Amortization of intangible Assets 1,636 1,268
Earn-out related to prior-year acquisition - 480
Insurance settlement related to 2007
arbitration expense, net of related expenses (2,610) -
Severance Expenses 2,646 -
Non-GAAP operating Income $ 6,869 $ 4,994
GAAP operating margin 3.4% 1.8%
Non-GAAP operating margin 5.4% 3.7%
GAAP net income from continuing operations $ 2,471 $ 698
Stock-based compensation; amortization of
intangible assets; earn-out related
to prior-year acquisition; insurance settlement
in respect of 2007 arbitration expense, net
of related expenses; severance expenses; all net
of taxes 2,197 2,652
Non-GAAP net income from continuing operations $ 4,668 $ 3,350
GAAP diluted net earnings per share from
continuing operations $ 0.06 $ 0.02
Stock-based compensation; amortization
of intangible assets; earn-out related
to prior-year acquisition; insurance
settlement in respect of 2007 arbitration
expense, net of related expenses; severance
expenses; all net of taxes 0.06 0.07
Non-GAAP diluted net earnings per share from
continuing
operations $ 0.12 $ 0.09
Segment Data:
Software Product Engineering:
GAAP operating Income $ 4,114 $ 3,853
Amortization of intangible
Assets 38 38
Non-GAAP operating
Income $ 4,152 $ 3,891
System Integration and Application Development:
GAAP operating
Income $ 5,311 $ 3,227
Amortization of intangible Assets 1,598 1,230
Earn-out related to prior-year
Acquisition - 480
Insurance settlement related to 2007
arbitration expense, net of related expenses (2,610) -
Severance Expenses 1,293 -
Non-GAAP operating Income $ 5,592 $ 4,937
([1]) See "Use of Non-GAAP Financial Information" below for more
information regarding the company's use of non-GAAP financial
measures.
Media Contact:
David Kanaan
Intl: +972-54-425-5307
Email: [email protected]
Investor Relations Contact:
Drew Wright
USA: +1-201-488-3262
Email: [email protected]
SOURCE Ness Technologies Inc
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