Ness Technologies Announces Fourth Quarter and Full Year 2009 Financial Results
11% Sequential Quarterly Revenue Growth With All-Time Record Operating Cash Flows; Ness Expands Scope of Previously Announced Q4 Restructuring of Selected Operations; Company Poised for Growth in 2010
HACKENSACK, New Jersey, February 3 /PRNewswire-FirstCall/ -- Ness Technologies, Inc. (NASDAQ: NSTC and TASE: NSTC), a global provider of IT services and solutions, today announced financial results for the quarter and full year ended December 31, 2009.
Fourth Quarter and Full Year 2009 Highlights: - The company delivered sequential revenue growth in all segments, supported by sequential bookings growth. - The company significantly expanded the scope of its previously announced fourth quarter restructuring activities, recording a charge for restructuring, severance and related project costs of $17.5 million compared to its previously stated expectations of $7 to $9 million, as it reorganized, reduced, sold or closed selected smaller operations that were unprofitable or that it determined were not strategic to its planned future operations and growth; and it also wrote off a deferred tax asset of $4.1 million. - Results are not comparable to previously provided guidance, as they exclude $7 million of 2009 revenues and $0.02 of 2009 diluted net earnings per share, which were reclassified as discontinued operations following the sale of the company's operations in the Netherlands. - On a GAAP basis: - Quarterly revenues were $145.9 million, up 11% sequentially and down 13% year-over-year; and full year revenues were $547.4 million, down 17%, about one third of which was due to foreign exchange re-measurement effects on non-dollar revenues. - Quarterly operating loss was $16.5 million, compared to income of $5.3 million in the fourth quarter of 2008; and full year operating loss was $9.4 million, compared to income of $49.2 million in 2008. - Quarterly net loss from continuing operations was $23.4 million, compared to income of $4.2 million in the fourth quarter of 2008; and full year net loss from continuing operations was $20.4 million, compared to income of $34.9 million in 2008. - Quarterly diluted net loss per share from continuing operations was $0.61, compared to earnings of $0.11 in the fourth quarter of 2008; and full year 2009 diluted net loss per share was $0.53, compared to earnings of $0.88 in 2008. - On a non-GAAP basis [1]: - Quarterly operating income from continuing operations was $5.7 million, up 15% sequentially and down 52% year-over-year; while full year operating income was $21.8 million, down 56% year-over-year. - Quarterly net income from continuing operations was $3.4 million, up 7% sequentially and down 63% year-over-year; while full year net income was $13.6 million, down 63% year-over-year. - Quarterly diluted net earnings per share from continuing operations were $0.09, compared to $0.23 in the fourth quarter of 2008; while full year diluted earnings per share were $0.35, compared to $0.93 in 2008. - Operating cash flows for the quarter and the full year were all-time records of $25.8 million and $60.2 million, respectively. - Cash, cash equivalents and short-term bank deposits reached $71.9 million as of December 31, 2009, up $13.2 million from December 31, 2008. - Backlog as of December 31, 2009 was $650 million, up 1% sequentially in constant currencies, net of discontinued operations, and down 12% year-over-year. - Headcount was approximately 7,835 as of December 31, 2009.
"2009 was not an easy year for Ness, but we emerged from it strengthened in several important ways," said Sachi Gerlitz, president and chief executive officer of Ness Technologies. "First, we delivered sequentially higher revenues in all operating segments in the quarter, indicating that we are back on a growth path. Second, excluding the cost of the restructuring, we showed sequential improvement in operating margins in all segments. And third, we are better prepared for 2010, having undertaken an important restructuring effort in the fourth quarter in which we dealt with several unprofitable or non-strategic delivery operations - thereby removing a drag on our performance. Our optimism for 2010 is supported by our improved book-to-bill ratio and by our resumption of backlog growth."
- Results by operating segment: - The company's Software Product Engineering segment, which provides outsourced software product research and development services to companies who build or rely on software to generate revenues, continued to perform well in the fourth quarter, with solid operating margins on revenues that are beginning to ramp up again. - The company's System Integration and Application Development segment showed sequential improvement in revenues and non-GAAP operating margins, as bookings increased and the pipeline grew. On a GAAP basis, segment results were affected by the restructuring charges. - The company's Software Distribution segment, which resells third-party enterprise software licenses, was expected to perform well in its seasonally strong fourth quarter. Although revenues and non-GAAP operating margins increased sequentially, the results were below expectations as large license deals in this economically sensitive segme nt continued to be deferred. The company took action in the fourth quarter to adjust fixed costs, and, as a result, incurred restructuring charges in this segment as well.
"We continued to deliver excellent operating cash flows, despite the tough economic climate, thanks to strong customer relationships and effective collections efforts," said Ofer Segev, executive vice president and chief financial officer. "The strength of our balance sheet and cash flows allowed us to reduce our short-term debt, bringing our net debt to essentially zero. With the restructuring largely behind us, our strong balance sheet positions us well for growth going forward."
Business Outlook
The company believes the overall economic outlook is improving, though some uncertainties remain. Ness expects top line growth and margin expansion in 2010, with a trend of sequentially increasing quarterly revenues and operating margins, except for the third quarter, which is expected to be similar to the second quarter due to the effect of holiday and vacation seasonality.
Ness is establishing full year 2010 guidance for revenues in the range of $575 million to $585 million and diluted net earnings per share in the range shown in the reconciliation table below:
Full year diluted net earnings per share ($) Low High GAAP basis..............................................$ 0.21 $ 0.25 Stock-based compensation; amortization of intangible assets; earn-out related to prior-year acquisition........0.22 0.22 Non-GAAP basis..........................................$.0.43 $ 0.47
The company's 2010 GAAP guidance excludes any 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 January 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.
Goodwill Impairment Test
At the end of each calendar year, the company is required to perform an impairment test on its goodwill. The 2009 test is under way, and the company expects it will be completed by mid-March. If the company determines any portion of goodwill is impaired, it would recognize a non-cash charge that would impact GAAP earnings and earnings per share for the quarter and year ended December 31, 2009. Such a charge would not impact the non-GAAP financial information presented in this press release.
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 fourth quarter and full year 2009 results. The call, which will be simultaneously webcast, will begin at 8:30 AM Eastern Time / 5:30 AM Pacific Time on Wednesday, February 3, 2010.
To access the Ness Technologies fourth quarter and full year 2009 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; system integration, application development and 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 maintains operations in 18 countries, and partners with numerous software and hardware vendors worldwide. For more information about Ness Technologies, 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) a gain related to the sale of the company's Israeli SAP sales and distribution operations in the third quarter of 2008, net of related expenses and other charges, net of taxes; (c) a write-down of the company's Israeli severance pay fund assets in the fourth quarter of 2008, net of taxes; (d) an insurance settlement in the first quarter of 2009 related to a 2007 arbitration expense, net of related expenses, net of taxes; (e) severance expenses in the first quarter of 2009, net of taxes; (f) an earn-out in the fourth quarter of 2009 related to a prior-year acquisition; and (g) a charge in the fourth quarter of 2009 for restructuring, severance and related project costs, 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 16, 2009. 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 Year ended December 31, December 31, 2008 2009 2008 2009 (Unaudited) (Unaudited) (Unaudited) Revenues....................... $168,605 $145,907 $657,384 $547,352 Cost of revenues................ 120,604 116,009 470,009 410,794 Gross profit......................48,001 29,898 187,375 136,558 Selling and marketing.............15,184 14,781 55,806 49,323 General and administrative........27,498 31,652 100,706 101,750 Gain from sale of Israeli SAP sales and distribution operations, net..... - - (18,366) - 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..........42,682 46,433 138,146 145,929 Operating income (loss)............5,319 (16,535) 49,229 (9,371) Financial expenses, net...........(2,026) (884) (5,745) (3,404) Other expenses, net.................. - - (392) - Income (loss) before taxes on income.............................3,293 (17,419) 43,092 (12,775) Taxes on income (tax benefit). .... (894) 6,024 8,147 7,633 Net income (loss) from continuing operations....................... $4,187 $(23,443) $34,945 $(20,408) Income (loss) from discontinued operations (1)...................... 141 (1,560) 514 (1,183) Net income (loss)................ $4,328 $(25,003) $35,459 $(21,591) Basic net earnings (loss) per share from continuing operations. $0.11 $(0.61) $0.89 $(0.53) Diluted net earnings (loss) per share from continuing operations. $0.11 $(0.61) $0.88 $(0.53) Basic net earnings (loss) per share............................. $0.11 $(0.65) $0.90 $(0.56) Diluted net earnings (loss) per share............................. $0.11 $(0.65) $0.89 $(0.56) Weighted average number of shares (in thousands) used in computing basic net earnings (loss) per share..................39,429 38,436 39,321 38,598 Weighted average number of shares (in thousands) used in computing diluted net earnings (loss) per share..................39,543 38,838 39,674 39,100
(1) Includes write-off of goodwill associated with discontinued operations in the three months ended December 31, 2009.
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME U.S. dollars in thousands Three months ended Year ended December 31, December 31, 2008 2009 2008 2009 Segment Data (1) (2): (Unaudited) (Unaudited) (Unaudited) Revenues from continuing operations: Software Product Engineering $26,111 $26,248 $97,471 $102,523 System Integration and Application Development.......128,273 110,521 500,295 413,328 Software Distribution......... 14,221 9,138 59,618 31,501 ________________________________________________________________________ $168,605 $145,907 $657,384 $547,352 ________________________________________________________________________ Operating income (loss) from continuing operations: Software Product Engineering. $3,915 $3,569 $10,358 $15,388 System Integration and Application Development.........2,807 (9,951) 31,142 (3,585) Software Distribution....................3,105 (4,411) 21,422 (3,483) Unallocated Expenses.......................(4,508) (5,742) (13,693) (17,691) ________________________________________________________________________ $5,319 $(16,535) $49,229 $(9,371) ________________________________________________________________________ Geographic Data (2): Revenues from continuing operations: Israel....................... $53,529 $45,254 228,865 $174,800 Europe.........................64,259 49,435 222,300 174,767 North America........................44,653 44,676 178,113 172,814 Asia and the Far East............................6,164 6,542 28,106 24,971 ________________________________________________________________________ $168,605 $145,907 $657,384 $547,352 ________________________________________________________________________
(1) Effective October 1, 2008, the company reorganized its reportable segments to correspond to its three primary service lines. Prior period segment data has been reclassified 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 December 31, 2009. Quarterly segment data for prior periods is shown below:
Three months ended March 31, June 30, September 30, Segment Data: 2008 2009 2008 2009 2008 2009 (Unaudited) (Unaudited) (Unaudited) Revenues from continuing operations: Software Product Engineering..... $20,529 $24,966 $24,739 $25,688 $26,092 $25,621 System Integration and Application Development....... 122,815 101,797 124,581 102,520 124,626 98,490 Software Distribution.........14,630 8,043 19,300 7,410 11,467 6,910 _________________________________________________________________________ $157,974 $134,806 $168,620 $135,618 $162,185 $131,021 _________________________________________________________________________ Operating income (loss) from continuing operations: Software Product Engineering..... $1,201 $4,114 $2,061 $4,096 $3,181 $3,609 System Integration and Application Development....... 10,054 2,073 8,230 2,302 10,051 1,991 Software Distribution............967 2,220 4,082 (510) 13,268 (782) Unallocated Expenses............ (2,246) (5,156) (3,316) (3,893)(3,623) (2,900) $9,976 $3,251 $11,057 $1,995$22,877 $1,918 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Year ended December 31, 2008 2009 (Unaudited) Cash flows from operating activities: Net income (loss).......................................$35,459 $(21,591) Adjustments required to reconcile net income (loss) to net cash provided by operating activities: Stock-based compensation-related expenses.......................................3,034 4,073 Currency fluctuation of long-term debt..............................................62 - Depreciation and amortization..................................18,528 20,246 Arbitration settlement and related charges...................................... (9,452) - Loss on sale of property and equipment and impairment and sale of cost investments........... 262 23 Gain from sale of Israeli SAP sales and distribution operations,net........... (18,366) - Commissions related to the sale of Israeli SAP sales and distribution operations..................... - (2,534) Excess tax benefits related to exercise of options.........................................(296) - Impairment of cost investment.......................................304 75 Decrease (increase) in trade receivables, net..........................................(13,048) 43,988 Decrease in unbilled receivables................................... 6,769 12,324 Increase in other accounts receivable and prepaid expenses......................................(1,942) (3,188) Increase in work-in-progress.................................(84) (3,286) Decrease in long-term prepaid expenses.......................................1,793 631 Deferred income taxes, net............................................4,384 2,116 Decrease in trade payables......................................(8,501) (6,931) Increase in advances from customers and deferred revenues......................................10,601 13,868 Increase in other long-term liabilities....................................1,581 492 Increase in other accounts payable and accrued expenses...............................1,847 3,381 Increase (decrease) in accrued severance pay, net............................................ 964 (3,466) Net cash provided by operating activities................................... 33,899 60,221 Cash flows from investing activities: Net cash paid for acquisition of a consolidated subsidiary..................... (29,039) - Proceeds from sale of investment at cost.............................................219 - Proceeds from sale of Israeli SAP sales and distribution operations, net........................................ 14,863 - Additional payments in connection with acquisitions of subsidiaries in prior periods................. (7,627) (18,526) Investment in short-term bank deposits, net.......................................... (6,584) (19,257) Proceeds from sale of property and equipment....................................... 346 819 Purchase of property and equipment and capitalization of software developed for internal use. (15,995) (12,287) Net cash used in investing activities...................................(43,817) (49,251) Cash flows from financing activities: Exercise of options........................................4,317 - Repurchase of shares........................................(2,389) (2,299) Acquired subsidiary's dividend to its former shareholder....................(10,048) (1,430) Excess tax benefits related to exercise of options......................................... 296 - Short-term bank loans and credit, net...........................................14,278 (17,480) Proceeds from long-term debt..........................................25,483 15,085 Principal payments of long-term debt..........................................(3,134) (12,254) Net cash provided by (used in) financing activities....................................28,803 (18,378) Effect of exchange rate changes on cash and cash equivalents.........................(11,323) 100 Increase (decrease) in cash and cash equivalents....................................7,562 (7,308) Cash and cash equivalents at the beginning of the period.......................43,097 50,659 Cash and cash equivalents at the end of the period............................$50,659 $43,351 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December December 31, 2008 31, 2009 (Unaudited) CURRENT ASSETS: Cash and cash equivalents..................$50,659 $43,351 Restricted cash...........................2,331 2,613 Short-term bank deposits................... 5,703 25,939 Trade receivables, net of allowance for doubtful accounts.................... 200,118 155,175 Unbilled receivables................. 35,585 28,414 Other accounts receivable and prepaid expenses......... 31,344 36,442 Work in progress.......................1,532 5,710 Total current assets.......................327,272 297,644 LONG-TERM ASSETS: Long-term prepaid expenses and other assets.........................6,806 6,294 Unbilled receivables................... 9,220 4,654 Deferred income taxes, net........................... 8,356 6,174 Severance pay fund..........................46,478 53,145 Property and equipment, net.......................... 36,733 37,196 Intangible assets, net...........................22,073 14,005 Goodwill.................... 290,055 299,557 Total long-term assets.......................419,721 421,025 Total assets..................... $746,993 $718,669 CURRENT LIABILITIES: Short-term bank credit.......................$18,072 $500 Current maturities of long-term debt.................7,089 21,332 Trade payables......................47,072 36,897 Advances from customers and deferred revenues.............33,280 47,023 Other accounts payable and accrued expenses.............124,697 112,312 Total current liabilities..................230,210 218,064 LONG-TERM LIABILITIES: Long-term debt, net of current maturities............60,973 50,836 Other long-term liabilities....................6,444 6,689 Deferred income taxes......................... 2,673 3,057 Accrued severance pay...........................55,014 58,035 Total long-term liabilities...... 125,104 118,617 Total stockholders' equity.......................391,679 381,988 Total liabilities and stockholders'equity.........$746,993 $718,669 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS; GAIN FROM SALE OF ISRAELI SAP SALES AND DISTRIBUTION OPERATIONS, NET OF RELATED EXPENSES AND OTHER CHARGES; WRITE-DOWN OF ISRAELI SEVERANCE PAY FUND ASSETS;INSURANCE SETTLEMENT RELATED TO 2007 ARBITRATION EXPENSE, NET OF RELATED EXPENSES; SEVERANCE EXPENSES; EARN-OUT RELATED TO PRIOR-YEAR ACQUISITION; RESTRUCTURING AND RELATED PROJECT COSTS; ALL NET OF TAXES U.S. dollars in thousands (except per share data) Three months ended Year ended December 31, December 31, 2008 2009 2008 2009 (Unaudited) (Unaudited) (Unaudited) (Unaudited) GAAP revenues.................. $168,605 $145,907 $657,384 $547,352 Write-off of trade receivables resulting from sale of Israeli SAP sales and distribution operations...................... - - 3,155 - Non-GAAP revenues................... $168,605 $145,907 $660,539 $547,352 GAAP gross profit...................... $48,001 $29,898 $187,375 $136,558 Stock-based compensation......................64 20 273 203 Amortization of intangible assets...........................438 210 1,105 791 Write-off of trade receivables resulting from sale of Israeli SAP sales and distribution operations........................ - - 3,155 - Severance expenses...........................- 380 - 1,346 Restructuring and related project costs..............................- 11,058 - 11,058 Non-GAAP gross profit.......................$48,503 $41,566 $191,908 $149,956 GAAP operating income (loss)........................$5,319 $(16,535) $49,229 $(9,371) Stock-based compensation.....................807 1,454 3,034 4,073 Amortization of intangible assets.........................2,941 2,259 7,263 8,499 Earn-out related to prior-year acquisition................. - 1,032 - 1,032 Gain from sale of Israeli SAP sales and distribution operations, net............... - - (18,366) - Costs and expenses resulting from sale of Israeli SAP sales and distribution operations and other charges............................- - 5,631 - Write-down of Israeli severance pay fund assets.........................2,929 - 2,929 - Insurance settlement related to 2007 arbitration expense, net of related expenses....................... - - - (2,610) Severance expenses...........................- 5,513 - 8,159 Restructuring and related project costs..............................- 12,003 - 12,003 Non-GAAP operating income.......................$11,996 $5,726 $49,720 $21,785 GAAP operating margin (loss)..........................3.2% -11.3% 7.5% -1.7% Non-GAAP operating margin..........................7.1% 3.9% 7.5% 4.0% GAAP net income (loss) from continuing operations....................$4,187 $(23,443) $34,945 $(20,408) Stock-based compensation; amortization of intangible assets; gain from sale of Israeli SAP sales and distribution operations, net of related expenses and other charges; insurance settlement in respect of 2007 arbitration expense, net of related expenses; severance expenses; earn-out related to prior-year acquisition; restructuring and related project costs; all net of taxes......................... 5,018 26,833 1,773 34,055 Non-GAAP net income from continuing operations................... $9,205 $3,390 $36,718 $13,647 GAAP diluted net earnings (loss) per share from continuing operations.........$0.11 $(0.61) $0.88 $(0.53) Stock-based compensation; amortization of intangible assets; gain from sale of Israeli SAP sales and distribution operations, net of related expenses and other charges; insurance settlement in respect of 2007 arbitration expense, net of related expenses; severance expenses; earn-out related to prior-year acquisition; restructuring and related project costs; all net of taxes......................... 0.12 0.70 0.05 0.88 Non-GAAP diluted net earnings per share from continuing operations.........$0.23 $0.09 $0.93 $0.35
[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
WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?
Newsrooms &
Influencers
Digital Media
Outlets
Journalists
Opted In
Share this article