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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