NSTC Ness Technologies, Inc. (MM)

Quarterly Net Income Rises 42% Year-Over-Year on a 25% Increase in Revenues HACKENSACK, New Jersey, February 15 /PRNewswire-FirstCall/ -- Ness Technologies, Inc. (NASDAQ:NSTC), a global provider of IT services and solutions, today announced financial results for the fourth quarter and full year ended December 31, 2006. Fourth Quarter and Full Year 2006 Highlights: - Quarterly diluted EPS was US$0.25 vs. US$0.19 in the fourth quarter of 2005; Full year diluted EPS was US$0.82 vs. US$0.61 in 2005. - Quarterly net income was US$9.6 million, up 42% year-over-year; Full year net income was US$29.8 million, up 37% year-over-year. - Quarterly revenues were US$131.5 million, up 25% year-over-year; Full year revenues were US$474.3 million, up 23% year-over-year. - Backlog increased to a record US$606 million, up 35% year-over-year. - Global workforce increased to 7,515, up 26% year-over-year. "We had a very strong fourth quarter, once again establishing new records for revenues, net income and backlog," said Raviv Zoller, President and Chief Executive Officer of Ness Technologies. "For the second time this year, we realized value from the sale of intellectual property, with the sale of our share of dbMotion, the provider of a sophisticated virtual medical record management system, which was developed and spun out of Ness. The gain of US$5.0 million, before US$1.2 million of related tax expenses, was recorded in Other Income. We continued to sign large strategic deals, significantly expanding our offshore presence in the financial services and life sciences sectors. We remain optimistic in our outlook, given the strong demand environment, our record backlog and our strong strategic business model." Fourth quarter 2006 revenues totaled US$131.5 million, an increase of US$26.4 million or 25%, setting a new quarterly record, driven by both organic and non-organic growth, compared to US$105.1 million in the fourth quarter of 2005. Revenues for the full year ended December 31, 2006 were US$474.3 million, an increase of US$88.9 million or 23%, compared to US$385.4 million for the full year ended December 31, 2005. Fourth quarter operating income was US$8.1 million, an increase of US$0.1 million or 1%, compared to US$8.0 million in the fourth quarter of 2005. Operating income for the full year ended December 31, 2006 was a record US$33.6 million, up US$7.2 million or 27% compared to US$26.4 million for the full year ended December 31, 2005. The small increase in operating income in the fourth quarter was related to revenue recognition for the technology transfer component of the intelligence system deals announced in October. The revenue recognition will be over the life of the associated three-year project, rather than over the initial year. Because the gain associated with the technology transfer component of the revenue was significant, and was deferred from the fourth quarter, gross margin and operating margin were significantly lowered for the quarter, and modestly affected for the full year. The deferred portion of the technology transfer revenues and profit will be fully recognized over the next three years. Fourth quarter net income increased to a record US$9.6 million, an increase of US$2.8 million or 42%, compared to US$6.8 million in the fourth quarter of 2005. Fully diluted earnings per share were US$0.25 compared to US$0.19 in the fourth quarter of 2005. For the full year ended December 31, 2006, net income increased to a record US$29.8 million, up US$8.1 million or 37% compared to US$21.7 million in the full year ended December 31, 2005. Fully diluted earnings per share were US$0.82 compared to US$0.61 in the year ended December 31, 2005. Excluding extraordinary income in the fourth quarter of 2005, net income increased 53% for the fourth quarter and 41% for the full year, compared to the respective year-ago periods. These significant increases were achieved despite the deferral of income from the technology transfer. Backlog as of December 31, 2006 increased to US$606 million, up 35% compared to US$450 million as of December 31, 2005, on solid fourth quarter bookings. "We had very strong operating cash flow in the quarter, of over US$16 million, which helped increase our net cash position by over US$26 million, despite the acquisition of Selesta Espana at the end of the fourth quarter," stated Ytzhak Edelman, Chief Financial Officer and deputy to the President and CEO. "We continued to keep our financial expenses low, and in addition we kept the percentage of our staff that is billable high, at 87.8%. The effect of foreign currency exchange rates on our results in the fourth quarter was nominal, due to the efficient hedging of currencies through forward contracts. We remain focused on further increasing our operating and net margin, managing our debt-to-equity ratio and controlling our financial expenses." Guidance For the full year 2007, Ness expects to generate revenues in the range of US$560 million to US$570 million, representing year-over-year growth of 18% to 20%, and diluted net earnings per share in the range of US$1.00 to US$1.05. This guidance includes approximately US$0.07 per diluted share of one-time severance and transition expenses related to the previously announced executive transitions. The severance expenses will occur during the first quarter of 2007, when Ness expects to generate revenues in the range of US$123 million to US$129 million and diluted net earnings in the range of US$0.21 to US$0.23, excluding these one-time expenses. Guidance includes the effect of an anticipated increase in the number of outstanding diluted shares to an average of about 39.5 million in 2007. Conference Call Details Ness Technologies President and Chief Executive Officer, Raviv Zoller, Chief Executive Officer Elect, Sachi Gerlitz, and Chief Financial Officer and deputy to the President and CEO, Ytzhak Edelman, will conduct a conference call to discuss the fourth quarter and full year 2006 results, which will be simultaneously webcast, at 9:00 A.M. Eastern Time / 6:00 A.M. Pacific Time on Thursday, February 15, 2007. To access the Ness Technologies fourth quarter and full year 2006 earnings conference call participants in North America should dial 1-800-399-0427 and international participants should dial 1-706-634-5453. A live webcast of the conference call will be available on the investor relations page of the Ness Technologies corporate web site at http://www.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 end-to-end IT services and solutions designed to help clients improve competitiveness and efficiency. Ness specializes in outsourcing and offshore, systems integration and application development, software and consulting, and quality assurance and training. With 7,500 employees, Ness maintains operations in 16 countries, and partners with over 100 software and hardware vendors worldwide. For more information about Ness Technologies, visit http://www.ness.com/. Forward Looking Statement This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often are preceded by words such as "believes," "expects," "may," "anticipates," "plans," "intends," "assumes," "will" or similar expressions. Forward-looking statements reflect management's current expectations, as of the date of this press release, and involve certain risks and uncertainties. Ness' actual results could differ materially from those anticipated in these forward looking statements as a result of various factors. Some of the factors that could cause future results to materially differ from the recent results or those projected in forward-looking statements include the "Risk Factors" described in Ness' Annual Report of Form 10-K filed with the Securities and Exchange Commission on March 15, 2006. 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, Statement of Operations Data: 2005 2006 2005 2006 US$ US$ US$ US$ Revenues 105,094 131,527 385,436 474,318 Cost of revenues 74,980 97,312 275,233 342,104 Gross profit 0,114 34,215 110,203 132,214 Selling and marketing 7,919 9,700 29,033 35,315 General and administrative 14,192 16,443 54,730 63,288 Total operating expenses 22,111 26,143 83,763 98,603 Operating income 8,003 8,072 26,440 33,611 Financial expenses, net (224) (150) (1,521) (1,280) Other income (expenses), net (232) 4,913 (243) 5,349 Income before taxes on income 7,547 12,835 24,676 37,680 Taxes on income 1,241 3,518 3,518 8,035 Equity in net losses of affiliates and gain from disposal of affiliate (37) 271 (65) 168 Minority interests in losses of a subsidiary - - 101 - Income from continuing operations. 6,269 9,588 21,194 29,813 Extraordinary income, net of taxes 495 - 495 - Net income US$ 6,764 US$ 9,588 US$ 21,689 US$ 29,813 Basic net earnings per share US$ 0.19 US$ 0.26 US$ 0.63 US$ 0.83 Diluted net earnings per share US$ 0.19 US$ 0.25 US$ 0.61 US$ 0.82 Basic net earnings per share excluding extraordinary income US$ 0.18 US$ 0.26 US$ 0.62 US$ 0.83 Diluted net earnings per share excluding extraordinary income US$ 0.18 US$ 0.25 US$ 0.59 US$ 0.82 Weighted average number of shares (in thousands) used in computing basic net earnings per share 34,708 37,589 34,413 35,999 Weighted average number of shares (in thousands) used in computing diluted net earnings per share 35,618 38,499 35,661 36,549 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, Segment Data: 2005 2006 2005 2006 Revenues: Managed Strategic Services (MSS) US$ 20,169 US$ 19,768 US$ 80,544 US$ 80,597 Technologies & Systems Group (TSG) 9,035 14,433 44,200 56,391 Ness Europe 27,230 29,325 63,554 88,223 Ness Israel 40,664 51,043 168,234 190,009 Other 7,996 16,958 28,904 59,098 US$ 105,094 US$ 131,527 US$ 385,436 US$ 474,318 Operating Income (Loss): Managed Strategic Services (MSS) US$ 2,805 US$ 2,015 US$ 7,927 US$ 9,645 Technologies & Systems Group (TSG) 665 1,462 5,617 6,929 Ness Europe 3,886 3,062 8,051 8,472 Ness Israel 3,324 4,996 13,148 14,154 Other (51) (838) (403) 1,627 Unallocated Expenses (2,626) (2,625) (7,899) (7,216) US$8,003 US$8,072 US$26,440 US$ 33,611 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December December 31, 31, 2005 2006 CURRENT ASSETS: Cash and cash US$ US$ equivalents 33,579 46,675 Short-term bank deposits..... 39,561 2,027 Marketable securities 2,651 - Trade receivables (net of allowance for doubtful accounts) 99,097 134,999 Unbilled receivables 21,500 31,985 Other accounts receivable and prepaid expenses 13,664 13,735 Inventories and work in progress 2,506 177 Total current assets 212,558 229,598 LONG-TERM ASSETS: Long-term prepaid expenses and other assets 4,848 6,480 Investments in affiliates at cost - 1,193 Unbilled receivables 7,045 15,865 Deferred income taxes 5,271 7,529 Severance pay fund 35,845 42,321 Total long-term assets 53,009 73,388 Property and equipment, net 21,308 28,279 Other intangible assets, net 7,938 8,336 Goodwill 159,421 201,718 Total US$ US$ assets 454,234 541,319 CURRENT LIABILITIES: Short-term bank loans and US$ US$ credit 1,011 4,869 Current maturities of long-term debt 6,862 4,420 Trade payables 35,259 42,839 Advances from customers and deferred revenues 14,651 30,364 Other accounts payable and accrued expenses 75,676 75,830 Total current liabilities 153,459 158,322 LONG-TERM LIABILITIES: Long-term debt, net of current maturities 6,294 3,311 Excess of losses over investment in affiliates 257 - Accrued severance pay 39,722 47,031 Total long-term liabilities 46,273 50,342 Total stockholders' equity 254,502 332,655 Total liabilities and stockholders' equity US$ 454,234 541,319 DATASOURCE: Ness Technologies Inc CONTACT: Media contact: David Kanaan, USA: +1-888-244-4919, Intl: +972-3-540-8188, Email: ; Investor contact: Drew Wright, USA: +1-888-267-8160, Email:

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