NSTC Ness Technologies, Inc. (MM)

Ness Generates Record Full Year Operating Cash Flows of $31 Million HACKENSACK, New Jersey, February 4 /PRNewswire-FirstCall/ -- Ness Technologies, Inc. (NASDAQ:NSTC), a global provider of IT services and solutions, today announced financial results for the quarter and full year ended December 31, 2008. Fourth Quarter and Full Year 2008 Highlights: - On a GAAP basis: - Quarterly revenues were $170.4 million, flat year-over-year; while full year revenues were a record $664.8 million, up 18.7% year-over-year. - Quarterly operating income, after a non-cash charge of $2.9 million from a write-down in the value of the company's externally managed Israeli severance pay fund, was $5.5 million, compared to a loss of $5.5 million in fourth quarter 2007; while full year operating income was a record $49.8 million, up 220% year-over-year. - Quarterly net income was $4.3 million, compared to a loss of $7.1 million in fourth quarter 2007; while full year net income was a record $35.5 million, up 252% year-over-year. - Quarterly diluted net earnings per share were $0.11, compared to a loss of $0.18 in the fourth quarter of 2007; while full year diluted earnings per share were a record $0.89, compared to $0.26 in 2007. - On a non-GAAP basis, excluding the write-down in the company's Israeli severance pay fund; a $13 million gain from the third quarter 2008 sale of its SAP distribution unit, net of related expenses and other charges; a $21 million fourth quarter 2007 arbitration charge, including related and other one-time expenses; stock-based compensation expenses; and amortization of intangibles, net of taxes (1): - Quarterly revenues were $170.4 million, flat year-over-year; while full year revenues were a record $668.0 million, up 19.2% year-over-year. - Quarterly operating income was $12.2 million, down 30.4% year-over-year; while full year operating income was a record $50.3 million, up 18.9% year-over-year. - Quarterly net income was $9.3 million, down 32.4% year-over-year; while full year net income was a record $37.2 million, up 8.8% year-over-year. - Quarterly diluted net earnings per share were $0.24, compared to $0.35 in the fourth quarter of 2007; while full year diluted earnings per share were $0.94, compared to $0.87 in 2007. - Cash and cash equivalents, restricted cash and short-term bank deposits totaled $58.7 million as of December 31, 2008. - Operating cash flows for the full year were a record $30.9 million, up 92% year-over-year. - Backlog as of December 31, 2008 was $736 million, down 3.7% sequentially on currency effects, and flat year-over-year, compared to $734 million as of December 31, 2007. - Headcount reached a new record of 8,425 as of December 31, 2008. - Fourth quarter revenues were impacted by foreign exchange headwinds resulting from the strengthening U.S. dollar versus third quarter average exchange rates, by about $7 million. Reported backlog was affected by the strengthening dollar by about $26 million. - Effective October 1, 2008, the company reorganized its reportable segments to correspond to its three primary service lines: software product engineering; system integration and application development; and software distribution. - The company's software product engineering segment, which provides outsourced software product research and development services to independent software vendors and other companies who depend on software R&D, performed very well in the fourth quarter. - The company's system integration and application development segment met or exceeded expectations in the fourth quarter, except in its U.S.-based financial services vertical, which recorded a loss in the fourth quarter and as a result the company restructured its U.S. and India operations to meet changing client demand. - The company's software distribution segment, which resells third-party enterprise software licenses, significantly improved its performance in the fourth quarter versus its unexpectedly weak third quarter, though it remained a little below historical norms. (1) See "Use of Non-GAAP Financial Information" below for more information regarding Ness' use of non-GAAP financial measures. "2008 was a year of growth and further implementation of our business strategy. We did well, considering the macro-economic climate, thanks to the solid fundamentals of our core business units and our beneficial geographic diversifica­tion," said Sachi Gerlitz, president and chief executive officer of Ness Technologies. "Like everyone else, we are tightening our belts for the challenges expected in the next few quarters until the economy begins to recover. This macro downturn, though challenging for some parts of our business, has introduced opportunities in our software product engineering segment as well as our defense and homeland security market, both of which should do well in 2009. I remain confident about the fundamentals of our business and its longer-term profitability, as we navigate through the uncertain economy of 2009." "We delivered on our non-GAAP earnings per share guidance, and produced operating cash flows that were better than expected," said Ofer Segev, executive vice president and chief financial officer. "Our balance sheet and cash position remain solid, and we expect to deliver positive cash flows in 2009. We are continuing to adjust our business to the new climate and to reorganize and strengthen our affected units. We believe that we will perform with relative strength in these uncertain times, following an adjustment period in the beginning of the year." Guidance In line with Ness' previously announced shift in financial guidance practices, for 2009 the company is providing earnings per share guidance on a non-GAAP basis only. 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. For the full year 2009, Ness expects to generate non-GAAP diluted net earnings per share in the range of $0.65 to $0.85. For the full year 2009, Ness expects to generate revenues in the range of $665 million to $695 million, which represents 4% to 8% of constant currency revenue growth, net of acquisitions and divestitures. Guidance assumes average outstanding diluted shares of approximately 40 million in 2009. Goodwill Impairment Test At the end of each calendar year, the company is required to perform an impairment test on its goodwill. The 2008 test is under way, which the company expects 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, 2008. Such a non-cash 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 also conduct a conference call to discuss the fourth quarter and full year 2008 results. The call, which will be simultaneously webcast, will begin at 8:30 AM Eastern Time / 5:30 AM Pacific Time on Wednesday, February 4, 2009. To access the Ness Technologies fourth quarter and full year 2008 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) 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 over 8,300 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 SFAS 123R and amortization of intangible assets, net of taxes, (b) the company's non-cash write-down of assets in its Israeli severance pay fund, (c) the company's one-time gain in the third quarter of 2008 from the sale of its Israeli SAP sales and distribution division, net of related expenses and other charges, net of taxes, and (d) the company's one-time charge in the fourth quarter of 2007 from the settlement of an arbitration with a former customer, including related and other one-time expenses. 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 business internally and as such has determined that it is important to provide this information to investors. 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 17, 2008. Ness is under no obligation to, 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, 2007 2008 2007 2008 (Unaudited) (Audited) (Unaudited) Revenues......................$ 170,039 $ 170,377 $ 560,266 $ 664,806 Cost of revenues............... 120,273 121,788 399,356 475,118 Gross profit.................... 49,766 48,589 160,910 189,688 Selling and marketing........... 13,116 15,372 41,735 56,605 General and administrative...... 26,982 27,727 88,403 101,635 Arbitration settlement and related charges..................15,210 - 15,210 - Gain from sale of Israeli SAP sales and distribution division, net. - - - (18,366) Total operating expenses.........55,308 43,099 145,348 139,874 Operating income (loss)......... (5,542) 5,490 15,562 49,814 Financial expenses, net.......... (468) (2,032) (30) (5,667) Other expense, net.................(644) - (817) (392) Income (loss) before taxes on income.......................... (6,654) 3,458 14,715 43,755 Taxes on income (tax benefit).......446 (870) 4,628 8,296 Net income (loss)..............$ (7,100) $ 4,328 $ 10,087 $ 35,459 Basic net earnings (loss) per share...........................$.(0.18) $ 0.11 $ 0.26 $ 0.90 Diluted net earnings (loss) per share...........................$ (0.18) $ 0.11 $ 0.26 $ 0.89 Weighted average number of shares (in thousands) used in computing basic net earnings (loss) per share............................39,195 39,429 39,076 39,321 Weighted average number of shares (in thousands) used in computing diluted net earnings (loss) per share............................39,195 39,543 39,510 39,674 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS; WRITE-DOWN OF ISRAELI SEVERANCE PAY FUND ASSETS; ARBITRATION SETTLEMENT AND OTHER CHARGES; AND GAIN FROM SALE OF ISRAELI SAP SALES AND DISTRIBUTION DIVISION, NET OF RELATED EXPENSES AND OTHER CHARGES; NET OF TAXES AND OTHER NON-OPERATING EXPENSES U.S. dollars in thousands (except per share data) Three months ended Year ended December 31, December 31, 2007 2008 2007 2008 (Unaudited) (Unaudited) GAAP revenues................$ 170,039 $ 170,377 $ 560,266 $ 664,806 Write-off of trade receivables resulting from sale of Israeli SAP sales and distribution division....................... - - - 3,155 Non-GAAP revenues............$ 170,039 $ 170,377 $ 560,266 $ 667,961 GAAP gross profit.............$ 49,766 $ 48,589 $ 160,910 $ 189,688 Write-off of trade receivables resulting from sale of Israeli SAP sales and distribution division...................... - - - 3,155 Stock-based compensation...... 59 64 173 273 Amortization of intangible assets........................ 196 418 258 1,021 Non-GAAP gross profit.........$ 50,021 $ 49,071 $ 161,341 $ 194,137 GAAP operating income (loss)..$ (5,542) $ 5,490 $ 15,562 $ 49,814 Stock-based compensation........ 596 807 1,610 3,034 Amortization of intangible assets......................... 1,842 2,941 4,569 7,263 Arbitration settlement and other charges....................... 20,574 - 20,574 - Gain from sale of Israeli SAP sales and distribution division, net.................. - - - (18,366) Costs and expenses resulting from sale of Israeli SAP sales and distribution division and other charges.................... - - - 5,631 Write-down of Israeli severance pay fund assets............... - 2,929 - 2,929 Non-GAAP operating income......$ 17,470 $ 12,167 $ 42,315 $ 50,305 GAAP operating margin........... (3.3)% 3.2% 2.8% 7.5% Non-GAAP operating margin......... 10.3% 7.1% 7.6% 7.5% GAAP net income (loss).........$ (7,100) $ 4,328 $ 10,087 $ 35,459 Stock-based compensation; amortization of intangibles; arbitration settlement and other charges; and gain from sale of Israeli SAP sales and distribution division, net of related expenses and other charges; write-down of Israeli severance pay fund assets; net of taxes, and other non-operating expenses..20,921 5,018 24,125 1,774 Non-GAAP net income.............$ 13,821 $ 9,346 $ 34,212 $ 37,233 GAAP diluted net earnings (loss) per share...................... $ (0.18) $ 0.11 $ 0.26 $ 0.89 Stock-based compensation; amortization of intangibles; arbitration settlement and other charges; and gain from sale of Israeli SAP sales and distribution division, net of related expenses and other charges; write-down of Israeli severance pay fund assets; net of taxes, and other non-operating expenses....................... 0.53 0.13 0.61 0.05 Non-GAAP diluted net earnings per share.......................... $ 0.35 $ 0.24 $ 0.87 $ 0.94 Weighted average number of shares (in thousands) used in computing non-GAAP diluted net earnings per share..................... 39,195 39,543 39,510 39,674 Adjustment to number of shares.... 149 - - - Weighted average number of shares (in thousands) used in computing non-GAAP diluted net earnings per share.......................... 39,344 39,543 39,510 39,674 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, Segment Data (1): 2007 2008 2007 2008 (Unaudited) (Unaudited) Revenues: Software Product Engineering................$ 20,064 $ 26,111 $ 78,341 $ 97,471 System Integration and Application Development.....131,618 129,151 434,870 504,975 Software Distribution...... 18,357 15,115 47,055 62,360 $ 170,039 $ 170,377 $ 560,266 $ 664,806 Operating Income (Loss): Software Product Engineering.............. $ 1,819 $ 3,915 $ 9,507 $ 10,358 System Integration and Application Development......(8,210) 2,978 7,693 44,862 Software Distribution...... 5,606 3,105 11,328 8,287 Unallocated Expenses........ (4,757) (4,508) (12,966) (13,693) $ (5,542) $ 5,490 $ 15,562 $ 49,814 Geographic Data: Revenues: Israel.....................$ 66,721 $ 53,529 $ 248,352 $ 228,865 Europe..................... 58,130 66,031 151,454 229,722 North America............... 37,665 44,653 134,800 178,113 Asia Pacific................ 7,523 6,164 25,660 28,106 $ 170,039 $ 170,377 $ 560,266 $ 664,806 (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, as shown below: Three months ended March 31, June 30, September 30, Segment Data: 2007 2008 2007 2008 2007 2008 (Unaudited) (Unaudited) (Unaudited) Revenues: Software Product Engineering.........$18,558 $20,529 $19,449 $24,739 $20,270 $26,092 System Integration and Application Development..........98,518 123,746 97,585 125,978 107,149 126,100 Software Distribution....... 8,702 15,457 8,728 19,869 11,268 11,919 $125,778 $159,732 $125,762 $170,586 $138,687 $164,111 Operating Income (Loss): Software Product Engineering........ $ 2,123 $ 1,201 $ 2,574 $ 2,061 $ 2,991 $ 3,181 System Integration and Application Development...........6,009 10,107 4,456 8,409 5,438 23,368 Software Distribution.1,374 967 1,609 4,082 2,739 133 Unallocated Expenses.............(2,790) (2,246) (3,214) (3,316) (2,205) (3,623) $ 6,716 $ 10,029 $ 5,425 $ 11,236 $ 8,963 $23,059 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Year ended December 31, 2007 2008 (Audited) (Unaudited) Cash flows from operating activities: Net income....................................$ 10,087 $ 35,459 Adjustments required to reconcile net income to net cash provided by operating activities: Stock-based compensation-related expenses..... 1,610 3,034 Currency fluctuation of long-term debt........ 87 62 Depreciation and amortization................. 13,572 18,528 Arbitration settlement and related charges.... 15,210 (9,452) Loss on sale of property and equipment and investment at cost.......... 224 262 Gain from sale of Israeli SAP sales and distribution division, net......... - (18,366) Excess tax benefits related to exercise of options..................................... (580) (296) Impairment of cost investment............... 730 304 Increase in trade receivables, net.......... (21,801) (13,048) Decrease in unbilled receivables............ 9,040 6,769 Increase in other accounts receivable and prepaid expenses................. (8,014) (1,942) Increase in work-in-progress................ (1,189) (851) Decrease (increase) in long-term prepaid expenses and other assets... (1,758) 2,560 Deferred income taxes, net.................. (4,856) 3,078 Increase (decrease) in trade payables....... 4,106 (8,501) Increase (decrease) in advances from customers and deferred revenues....................... (9,397) 10,601 Increase in other long-term liabilities..... 1,742 1,581 Increase in other accounts payable and accrued expenses.................... 7,032 193 Increase in accrued severance pay, net...... 286 964 Net cash provided by operating activities... 16,131 30,939 Cash flows from investing activities: Net cash paid for acquisition of a consolidated subsidiary.................... (36,890) (29,039) Proceeds from sale of investment at cost... 1,866 219 Proceeds from sale of Israeli SAP sales and distribution division, net..... - 14,863 Additional payments in connection with acquisitions of subsidiaries in prior periods.................................... (10,241) (5,973) Investment in short-term bank deposits, net.... (682) (6,584) Proceeds from sale of property and equipment... 293 346 Purchase of property and equipment and capitalization of software developed for internal use...............................(11,563) (15,995) Net cash used in investing activities..........(57,217) (42,163) Cash flows from financing activities: Exercise of options.......................... 2,957 4,317 Repurchase of shares......................... - (2,389) Dividend to former shareholder of an acquired subsidiary......................... - (10,048) Excess tax benefits related to exercise of options..................................... 580 296 Short-term bank loans and credit, net....... (11,931) 14,278 Proceeds from long-term debt....................46,226 25,483 Principal payments of long-term debt......... (4,423) (3,134) Net cash provided by financing activities................................. 33,409 28,803 Effect of exchange rate changes on cash and cash equivalents.................... 4,099 (10,017) Increase (decrease) in cash and cash equivalents................................ (3,578) 7,562 Cash and cash equivalents at the beginning of the year................................. 46,675 43,097 Cash and cash equivalents at the end of the year......................................... $ 43,097 $ 50,659 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands Year ended December 31, 2007 2008 (Audited) (Unaudited) CURRENT ASSETS: Cash and cash equivalents.................... $ 43,097 $ 50,659 Restricted cash.............................. 602 2,331 Short-term bank deposits..................... 2,361 5,703 Trade receivables, net of allowance for doubtful accounts................... 182,281 200,118 Unbilled receivables......................... 37,634 35,585 Other accounts receivable and prepaid expenses.................................... 31,249 31,360 Work in progress............................ 1,796 1,532 Total current assets........................ 299,020 327,288 LONG-TERM ASSETS: Long-term prepaid expenses and other assets...................................... 9,345 6,806 Unbilled receivables........................ 8,919 9,220 Deferred income taxes, net.................. 7,806 8,648 Severance pay fund.......................... 49,731 46,478 Property and equipment, net................. 34,072 36,733 Intangible assets, net...................... 17,011 22,073 Goodwill.................................... 263,444 286,329 Total long-term assets...................... 390,328 416,287 Total assets................................ $ 689,348 $ 743,575 CURRENT LIABILITIES: Short-term bank credit...................... $ 2,819 $ 18,072 Current maturities of long-term debt........ 1,662 7,062 Trade payables.............................. 54,536 47,072 Advances from customers and deferred revenues.................................. 26,917 33,280 Other accounts payable and accrued expenses. 120,493 120,972 Total current liabilities.................. 206,427 226,458 LONG-TERM LIABILITIES: Long-term debt, net of current maturities.................................. 47,191 61,000 Other long-term liabilities............... 4,864 6,444 Deferred income taxes...................... 2,228 2,673 Accrued severance pay...................... 57,465 55,014 Total long-term liabilities................ 111,748 125,131 Total stockholders' equity................. 371,173 391,986 Total liabilities and stockholders' equity.. $ 689,348 $ 743,575 Ness Technologies media contact: David Kanaan USA: 1-888-244-4919 Intl: +972-3-540-8188 Email: Ness Technologies investor contact: Drew Wright USA: +1-201-488-3262 Email: DATASOURCE: Ness Technologies Inc CONTACT: Ness Technologies media contact: David Kanaan, USA: 1-888-244-4919, Intl: +972-3-540-8188, Email: ; Ness Technologies investor contact: Drew Wright, USA: +1-201-488-3262, Email:

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