Ness Technologies Announces Fourth Quarter and Full Year 2010 Financial Results
Ness Delivers Record Quarterly Revenues, up 16% Year-Over-Year, With the Highest Operating Margin and Net Margin in Nine Quarters
HACKENSACK, New Jersey, February 2, 2011 /PRNewswire-FirstCall/ -- Ness Technologies, Inc. (NASDAQ: NSTC and TASE: NSTC), a global provider of IT services and solutions, announced today its financial results for the quarter and full year ended December 31, 2010.
Fourth Quarter and Full Year 2010 Highlights: - Quarterly revenues were a record $157.4 million, up 16% year-over-year; and full year revenues were $571.8 million, up 12% year-over-year. - Quarterly operating income was $7.3 million, compared to a loss of $11.3 million in the fourth quarter of 2009; and full year operating Income was $16.4 million, up from $0.3 million in 2009. On a non-GAAP basis[1], quarterly operating income was $10.1 million, up 87% year-over-year; and full year operating income was $27.7 million, up 11% year-over-year. On a GAAP and non-GAAP basis, quarterly operating income and operating margin improved sequentially, reaching the highest levels in nine quarters. - Quarterly net income from continuing operations was $5.3 million, compared to a loss of $17.4 million in the fourth quarter of 2009; and full year net income from continuing operations was $8.4 million, compared to a loss of $10.0 million in 2009. On a non-GAAP basis, quarterly net income from continuing operations was $6.7 million, up 109% year-over-year; and full year net income from continuing operations was $17.9 million, up 5% year-over-year. On a GAAP and non-GAAP basis, quarterly net income and net margin from Continuing operations improved sequentially, reaching the highest levels in nine quarters. - Quarterly diluted net earnings per share from continuing operations were $0.14, compared to a loss of $0.45 in the fourth quarter of 2009; and full year diluted net earnings per share from continuing operations were $0.22, compared to a loss of $0.26 in 2009. On a non-GAAP basis, quarterly diluted net earnings per share from continuing operations were $0.17, up from $0.08 in the fourth quarter of 2009; and full year diluted net earnings per share from continuing operations were $0.46, up from $0.44 in 2009. - In Central and Eastern Europe, operating margin continued to recover, hitting the highest level in eight quarters. - Operating cash flows from continuing operations for the quarter and the full year were $16.7 million and $9.3 million, respectively. - Cash, cash equivalents and short-term bank deposits were $41.5 million as of December 31, 2010. - Backlog from continuing operations as of December 31, 2010 was $635 million, up 1% year-over-year. - Headcount for continuing operations was approximately 7,710 as of December 31, 2010.
"We had a good fourth quarter and I am particularly proud of the operating margin expansion we delivered; this steady progress is a direct result of our strategy to focus on differentiation, global offerings and higher-margin revenue streams," said Sachi Gerlitz, president and chief executive officer of Ness Technologies. "As we continue our long-term priority to maximize margin expansion in 2011, we feel that we are on a solidly upward trajectory with a good outlook for the coming year."
- 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 fourth quarter, with a strong quarterly operating margin and good year-over-year revenue growth. - The company's System Integration and Application Development segment showed significant year-over-year revenue growth and operating margin improvement, with very good performance in Israel and continued improvement in Central and Eastern Europe. - As previously announced, 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.
"We are pleased by the major recovery we implemented in 2010, as seen in our strong fourth quarter numbers, which speak for themselves," said Ofer Segev, executive vice president and chief financial officer. "We will continue to focus on excelling in our operations, driving to increase the bottom line, generate good operating cash flows and maintain our strong liquidity."
Business Outlook
The company expects top line growth and operating margin expansion in 2011 with a trend of sequentially increasing quarterly revenues and operating margin, except for the second quarter, which is expected to be similar to the first quarter, especially in operating income, due to the seasonal effect of the lower number of working days during the quarter in Israel, one of our largest employee locations.
Ness is establishing full year 2011 guidance for revenues from continuing operations in the range of $595 million to $605 million and diluted net earnings per share from continuing operations in the range shown in the reconciliation table below:
Full year diluted net earnings per share ($) Low High GAAP basis from continuing operations $0.42 $0.48 Stock-based compensation; amortization of intangible assets; retention expenses related to prior acquisitions; net of taxes 0.15 0.15 Non-GAAP basis from continuing operations $0.57 $0.63
The company's 2011 GAAP guidance excludes future stock-based compensation grants; and the company's GAAP and non-GAAP guidance further assumes that outstanding diluted shares will average approximately 39 million in 2011 and relevant foreign currency exchange rates at their average levels in January 2011.
For the reasons set forth elsewhere in this release, Ness' management believes that non-GAAP 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 2010 test is under way, and the company expects it will be completed before the filing of its Annual Report on Form 10-K. 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, 2010, which would be reported in the company's Annual Report on Form 10-K. 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 2010 results. The call, which will be simultaneously webcast, will begin at 8:30 AM Eastern Time / 5:30 AM Pacific Time / 3:30 PM Israel Time on Wednesday, February 2, 2011.
To access the Ness Technologies fourth quarter and full year 2010 earnings conference call, participants should dial one of the following numbers
North America 1-800-399-0427 Israel 1-80-924-5917 All other locations +1-973-200-3375
and provide the password "NESS" to the operator. 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.
[1] See "Use of Non-GAAP Financial Information" below for more information regarding the company's use of non-GAAP financial measures.
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 7,700 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) earn-out and retention expenses related to prior acquisitions; (c) an insurance settlement in the first quarter of 2009 related to a 2007 arbitration expense, net of related expenses, net of taxes; (d) severance expenses in the first quarter of 2009, net of taxes; and (e) acquisition and integration costs of its Gilon acquisition in the second quarter of 2010, 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 also uses these non-GAAP measures 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 on 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 Year ended December 31, December 31, 2009 2010 2009 2010 (Unaudited) (Unaudited) (Unaudited) Revenues $ 135,577 $ 157,407 $ 511,947 $ 571,787 Cost of revenues 109,380 111,422 386,061 412,934 Gross profit 26,197 45,985 125,886 158,853 Selling and marketing 12,242 11,754 41,168 41,187 General and administrative 25,253 26,948 89,592 101,242 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 37,495 38,702 125,616 142,429 Operating income (loss) (11,298) 7,283 270 16,424 Financial expenses, net (788) (686) (2,998) (1,826) Income before taxes on Income (12,086) 6,597 (2,728) 14,598 Taxes on income 5,266 1,341 7,271 6,189 Net income (loss) from continuing operations $ (17,352) $ 5,256 $ (9,999) $ 8,409 Net loss from discontinued operations. (38,514) (1,162) (42,455) (8,193) Net income (loss) $ (55,866) $ 4,094 $ (52,454) $ 216 Basic net earnings (loss) per share from continuing operations $ (0.45) $ 0.14 $ (0.26) $ 0.22 Diluted net earnings (loss) per share from continuing operations $ (0.45) $ 0.14 $ (0.26) $ 0.22 Basic net earnings (loss) per share $ (1.45) $ 0.11 $ (1.36) $ 0.01 Diluted net earnings (loss) per share $ (1.45) $ 0.11 $ (1.36) $ 0.01 Weighted average number of shares (in thousands) used in computing basic net earnings (loss) per share from continuing operations, basic net earnings (loss) per share, diluted net loss per share from continuing operations and diluted net loss per share 38,436 38,053 38,598 38,128 Weighted average number of shares (in thousands) used in computing diluted net earnings per share from continuing operations and diluted net earnings per share 38,838 38,433 39,100 38,733 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, 2009 2010 2009 2010 Segment Data (1): (Unaudited) (Unaudited) (Unaudited) Revenues from continuing operations: Software Product Engineering $ 26,248 $ 29,530 $ 102,523 $ 112,866 System Integration and Application Development 109,329 127,877 409,424 458,921 $ 135,577 $ 157,407 $ 511,947 $ 571,787 Operating income (loss) from continuing operations: Software Product Engineering $ 3,569 $ 4,410 $ 15,388 $ 16,326 System Integration and Application Development (9,125) 8,646 2,573 18,621 Unallocated Expenses (5,742) (5,773) (17,691) (18,523) $ (11,298) $ 7,283 $ 270 $ 16,424 Geographic Data: Revenues from continuing operations: Israel $ 45,254 $ 61,583 $ 174,800 $ 212,263 North America 44,676 46,724 172,814 188,911 Europe 43,830 45,049 155,723 160,663 Asia and the Far East 1,817 4,051 8,610 9,950 $ 135,577 $ 157,407 $ 511,947 $ 571,787 (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. NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Year ended December 31, 2009 2010 (Unaudited) Cash flows from operating activities: Net income (loss) $ (52,454) $ 216 Adjustments required to reconcile net income (loss) to net cash provided by operating activities: Net loss from discontinued Operations 42,455 8,193 Stock-based Compensation 4,073 3,227 Currency fluctuation of restricted cash and short-term bank deposits - (1,067) Depreciation and Amortization 17,838 18,097 Loss (gain) on sale of property and Equipment (138) 771 Decrease (increase) in trade receivables, net 41,683 (26,867) Decrease (increase) in unbilled Receivables 11,184 (3,705) Increase in other accounts receivable and prepaid expenses (1,110) (5,110) Decrease (increase) in work-in-progress (7,317) 2,599 Decrease in long-term prepaid Expenses 415 125 Deferred income taxes, Net 1,772 1,517 Decrease in trade payables (6,677) (12) Increase (decrease) in advances from customers and deferred revenues 11,942 (4,374) Increase in other accounts payable and accrued expenses 2,368 14,605 Increase in other long-term Liabilities 809 1,180 Decrease in accrued severance pay, Net (3,322) (120) Net cash used in discontinued Operations (2,311) (6,843) Net cash provided by operating Activities 61,210 2,432 Cash flows from investing activities: Consideration from sale of a consolidated Subsidiary - 1,711 Net cash paid for acquisition of a consolidated subsidiary - (17,197) Cash paid for acquisition of intangible assets - (513) Additional payments in connection with acquisitions of subsidiaries in prior periods (14,395) (1,330) Proceeds from maturity of (investment in) short-term bank deposits, net (19,257) 17,982 Proceeds from sale of property and Equipment 796 41 Purchase of property and equipment and capitalization of software developed for internal use (11,841) (10,195) Net cash used in discontinued Operations (1,808) - Net cash used in investing Activities (46,505) (9,501) Cash flows from financing activities: Exercise of Options - 4 Repurchase of shares (2,299) (2,169) Acquired subsidiary's dividend to its former shareholder (1,430) - Short-term bank loans and credit, Net (15,470) 12,557 Proceeds from long-term Debt 15,085 13,364 Principal payments of long-term Debt (12,254) (21,198) Net cash provided by discontinued Operations 821 - Net cash provided by (used in) financing activities (15,547) 2,558 Effect of exchange rate changes on cash and cash equivalents (3,525) (5,734) Decrease in cash and cash Equivalents (4,367) (10,245) Cash and cash equivalents at the beginning of the period 44,585 40,218 Cash and cash equivalents at the end of the period $ 40,218 $ 29,973 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, 2009 2010 (Unaudited) CURRENT ASSETS: Cash and cash Equivalents $ 40,218 $ 29,973 Restricted Cash 2,470 2,578 Short-term bank Deposits 25,939 8,913 Trade receivables, net of allowance for doubtful accounts 131,452 165,623 Unbilled Receivables 28,012 34,850 Other accounts receivable and prepaid expenses 27,832 34,081 Work in Progress 9,690 5,613 Total assets attributed to discontinued Operations 43,212 31,626 Total current assets 308,825 313,257 LONG-TERM ASSETS: Long-term prepaid expenses and other assets 6,083 5,656 Unbilled Receivables 4,654 2,828 Deferred income taxes, net 3,608 2,186 Severance pay Fund 53,145 59,583 Property and equipment, net 35,739 35,545 Intangible assets, net 10,016 9,481 Goodwill 263,541 282,383 Total long-term Assets 376,786 397,662 Total assets $ 685,611 $ 710,919 CURRENT LIABILITIES: Short-term bank credit $ 500 $ 16,543 Current maturities of long-term Debt 21,332 26,160 Trade Payables 30,914 31,682 Advances from customers and deferred Revenues 40,639 36,921 Other accounts payable and accrued Expenses 99,464 120,450 Total liabilities attributed to discontinued operations 25,461 13,663 Total current liabilities 218,310 245,419 LONG-TERM LIABILITIES: Long-term debt, net of current Maturities 50,836 36,756 Other long-term Liabilities 6,689 7,942 Deferred income Taxes 2,045 2,246 Accrued severance pay 56,443 63,026 Total long-term Liabilities 116,013 109,970 Total stockholders' Equity 351,288 355,530 Total liabilities and stockholders' Equity $ 685,611 $ 710,919 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS; EARN-OUT AND RETENTION EXPENSES RELATED TO PRIOR ACQUISITIONS; INSURANCE SETTLEMENT RELATED TO 2007 ARBITRATION EXPENSE, NET OF RELATED EXPENSES; SEVERANCE EXPENSES; ACQUISITION AND INTEGRATION COSTS OF GILON ACQUISITION; ALL NET OF TAXES U.S. dollars in thousands (except per share data) Three months ended Year ended December 31, December 31, 2009 2010 2009 2010 Statements of Income Data: (Unaudited) (Unaudited)(Unaudited) (Unaudited) GAAP gross Profit $ 26,197 $ 45,985 $ 125,886 $ 158,853 Stock-based compensation 20 56 203 260 Amortization of intangible Assets 210 152 791 481 Severance expenses 380 - 1,346 - Restructuring and related project Costs 11,058 - 11,058 - Non-GAAP gross Profit $ 37,865 $ 46,193 $ 139,284 $ 159,594 GAAP operating income (loss)$(11,298) $ 7,283 $ 270 $ 16,424 Stock-based Compensation 1,454 856 4,073 2,767 Amortization of intangible Assets 1,893 1,645 7,118 5,936 Earn-out and retention expenses related to prior acquisitions 1,032 282 1,032 1,816 Insurance settlement related to 2007 arbitration expense, net of related expenses - - (2,610) - Severance Expenses 1,301 - 3,947 - Restructuring and related project costs 11,009 - 11,009 - Acquisition and integration costs of Gilon acquisition - - - 728 Non-GAAP operating income $ 5,391 $ 10,066 $ 24,839 $ 27,671 GAAP operating Margin -8.3% 4.6% 0.1% 2.9% Non-GAAP operating Margin 4.0% 6.4% 4.9% 4.8% EBITDA $ (4,025) $ 13,131 $ 23,213 $ 39,104 Insurance settlement related to 2007 arbitration expense, net of related expenses - - (2,610) - Severance expenses 1,301 - 3,947 - Restructuring and related project costs 11,009 - 11,009 - Acquisition and integration costs of Gilon acquisition - - - 728 Non-GAAP EBITDA $ 8,285 $ 13,131 $ 35,559 $ 39,832 EBITDA Margin -3.0% 8.3% 4.5% 6.8% Non-GAAP EBITDA Margin 6.1% 8.3% 6.9% 7.0% GAAP net income (loss) from continuing operations $ (17,352) $ 5,256 $ (9,999) $ 8,409 Stock-based compensation; amortization of intangible assets; earn-out and retention expenses related to prior acquisitions; insurance settlement in respect of 2007 arbitration expense, net of related expenses; severance expenses; acquisition and integration costs of Gilon acquisition; all net of taxes 20,574 1,464 27,079 9,487 Non-GAAP net income from continuing operations $ 3,222 $ 6,720 $ 17,080 $ 17,896 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION (CONTINUED) EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS; EARN-OUT AND RETENTION EXPENSES RELATED TO PRIOR ACQUISITIONS; INSURANCE SETTLEMENT RELATED TO 2007 ARBITRATION EXPENSE, NET OF RELATED EXPENSES; SEVERANCE EXPENSES; ACQUISITION AND INTEGRATION COSTS OF GILON ACQUISITION; ALL NET OF TAXES U.S. dollars in thousands (except per share data) Three months ended Year ended December 31, December 31, 2009 2010 2009 2010 (Unaudited) (Unaudited) (Unaudited) (Unaudited) GAAP diluted net earnings (loss) per share from continuing Operations $ (0.45) $ 0.14 $ (0.26) $ 0.22 Stock-based compensation; amortization of intangible assets; earn-out and retention expenses related to prior acquisitions; insurance settlement in respect of 2007 arbitration expense, net of related expenses; severance expenses; acquisition and integration costs of Gilon acquisition; all net of taxes 0.53 0.04 0.70 0.24 Non-GAAP diluted net earnings per share from continuing operations $ 0.08 $ 0.17 $ 0.44 $ 0.46 Segment Data: Software Product Engineering: GAAP operating Income $ 3,569 $ 4,410 $ 15,388 $ 16,326 Amortization of intangible Assets 38 37 153 152 Restructuring and related project Costs 308 - 308 - Non-GAAP operating income $ 3,915 $ 4,447 $ 15,849 $ 16,478 System Integration and Application Development: GAAP operating income (loss) $ (9,125) $ 8,646 $ 2,573 $ 18,621 Amortization of intangible Assets 1,855 1,608 6,965 5,784 Earn-out and retention expenses related to prior acquisitions 1,032 282 1,032 1,816 Insurance settlement related to 2007 arbitration expense, net of related expenses - - (2,610) - Severance expenses. - - 1,293 - Restructuring and related project costs 11,870 - 11,870 - Acquisition and integration costs of Gilon acquisition - - - 728 Non-GAAP operating income $ 5,632 $ 10,536 $ 21,123 $ 26,949 Media Contact: David Kanaan Intl: +972-54-425-5307 Email: [email protected] Investor Relations Contacts: Drew Wright USA: +1-201-488-3262 Email: [email protected] Maya Lustig Israel: +972-3-767-5110 Email: [email protected]
SOURCE Ness Technologies Inc
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