HACKENSACK, New Jersey,
October 27, 2010
/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 ended
September 30, 2010.
Third Quarter 2010 Highlights:
- Quarterly revenues were $141.3 million, up 15% year-over-year.
- Quarterly operating income was $3.7 million, down 5% year-over-year. On
a non-GAAP basis,[1] quarterly operating income was $6.6 million,
flat year-over-year. On a GAAP and non-GAAP basis, operating income and
operating margin improved sequentially, reaching the highest level in
three quarters.
- Quarterly net income from continuing operations was $1.6 million, down
41% year-over-year. On a non-GAAP basis, quarterly net income from
Continuing operations was $4.1 million, down 17% year-over-year. On a
GAAP and non-GAAP basis, net income and net margin improved
sequentially, reaching the highest level in four quarters.
- Quarterly diluted net earnings per share from continuing operations
were $0.04, compared to $0.07 in the third quarter of 2009. On a non-
GAAP basis, quarterly diluted net earnings per share from continuing
operations were $0.11, compared to $0.13 in the third quarter of 2009.
- In Central and Eastern Europe, operating margin was the highest in five
quarters, on a non-GAAP basis.
- Quarterly operating cash flows from continuing operations were ($11.1)
million, primarily due to slower collections during the summer quarter.
- Cash, cash equivalents and short-term bank deposits were $52.6 million
as of September 30, 2010.
- Backlog from continuing operations as of September 30, 2010 was $633
million, up 2% year-over-year, and down 4% sequentially on relatively
lighter bookings during the summer quarter.
- Headcount for continuing operations was approximately 7,825 as of
September 30, 2010.
"We delivered revenues and earnings on target in the third
quarter," said Sachi Gerlitz,
president and chief executive officer of Ness Technologies. "This
very solid quarter, in both our software product engineering and
system integration segments, follows the achievement of a new
record billable headcount in India
and the highest operating margin in five quarters in Central and
Eastern Europe, where we remain
optimistic about continued recovery. We remain focused on operating
margin expansion in 2011 with organic growth."
- 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 third quarter, with in-line operating
margin and sequential and year-over-year revenue growth.
- The company's System Integration and Application Development segment
showed significant year-over-year revenue growth and good sequential
operating margin improvement, with strong performance in Israel and
improving performance 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 improved the operations of our system integration and
application development segment, while we enjoyed the continued
strong performance of our software product engineering segment,"
said Ofer Segev, executive vice
president and chief financial officer. "Bookings were a little
light in the quarter, but we expect them to return to a normal
level in the fourth quarter. We are also working to improve our
collections from their temporary dip during the quarter. We
anticipate a good fourth quarter, historically our strongest
quarter of the year."
Business Outlook
Ness is reiterating its full year 2010 guidance of revenues from
continuing operations in the range of $575
million to $585 million with diluted net earnings per share
from continuing operations in the range shown in the reconciliation
table below:
Full year diluted net earnings
per share ($)
Low High
GAAP basis from continuing $ $
operations................................. 0.12 0.16
Stock-based compensation; amortization
of intangible assets; earn-out and
retention expenses related to prior
acquisitions; acquisition and integration
costs of Gilon acquisition....... ...... 0.31 0.31
Non-GAAP basis from continuing operations $ 0.43 $ 0.47
Based on the weakness of European currencies for much of this
year, Ness currently expects to be near the lower end of the
revenue guidance range.
The company's 2010 GAAP guidance excludes any unannounced 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 million in 2010 and that
relevant foreign currency exchange rates will remain at their
levels as of October 22, 2010.
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.
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
third quarter 2010 results. The call, which will be simultaneously
webcast, will begin at 8:00 AM Eastern
Time / 5:00 AM Pacific Time /
2:00 PM Israel Time on Wednesday, October 27, 2010.
To access the Ness Technologies third quarter 2010 earnings
conference call, participants in North
America should dial 1-800-399-0427, participants in
Israel should dial 1-80-924-5917
and all other 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; 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 7,800 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 of 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 Nine months ended
September 30, September 30,
2009 2010 2009 2010
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues................. $ 123,202 $ 141,346 $ 376,370 $ 414,380
Cost of
revenues.................... 89,780 102,716 276,681 301,512
Gross
profit...................... 33,422 38,630 99,689 112,868
Selling and
marketing............. 10,033 9,542 28,926 29,433
General and
administrative........... 19,521 25,401 64,339 74,294
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.... 29,554 34,943 88,121 103,727
Operating
income........... 3,868 3,687 11,568 9,141
Financial expenses,
net...................... (388) (489) (2,210) (1,140)
Income before taxes on
income.................... 3,480 3,198 9,358 8,001
Taxes on income.... 826 1,631 2,005 4,848
Net income from continuing
operations................ $ 2,654 $ 1,567 $ 7,353 $ 3,153
Net loss from discontinued
operations........... (1,812) (799) (3,941) (7,031)
Net income (loss)... $ 842 $ 768 $ 3,412 $ (3,878)
Basic net earnings per
share from continuing
operations............ $ 0.07 $ 0.04 $ 0.19 $ 0.08
Diluted net earnings per
share from continuing
operations.......... $ 0.07 $ 0.04 $ 0.19 $ 0.08
Basic net earnings (loss)
per share........... $ 0.02 $ 0.02 $ 0.09 $ (0.10)
Diluted net earnings
(loss) per share... $ 0.02 $ 0.02 $ 0.09 $ (0.10)
Weighted average number
of shares (in thousands)
used in computing basic net
earnings per share from
continuing operations, basic
net earnings (loss) per
share and diluted net loss
per
share................ 38,451 38,001 38,653 38,230
Weighted average number of
shares (in thousands) used
in computing diluted net
earnings per share from
continuing operations and
diluted net earnings per
share............ 38,864 38,349 39,181 38,658
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands
Three months ended Nine months ended
September 30, September 30,
2009 2010 2009 2010
Segment Data (1): (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues from continuing
operations:
Software Product $ 25,621 $ 28,879 $ 76,275 $ 83,336
Engineering
System Integration and
Application Development.. 97,581 112,467 300,095 331,044
$ 123,202 $ 141,346 $ 376,370 $ 414,380
Operating income (loss)
from continuing operations:
Software Product $ 3,609 $ 3,675 $ 11,819 $ 11,916
Engineering.
System Integration and
Application Development. 3,159 4,002 11,698 9,975
Unallocated Expenses (2,900) (3,990) (11,949) (12,750)
$ 3,868 $ 3,687 $ 11,568 $ 9,141
Geographic Data:
Revenues from continuing
operations:
Israel..................... $ 41,905 $ 51,714 $ 129,546 $ 150,680
North
America................. 42,115 48,557 128,138 142,187
Europe.................. 36,819 38,449 111,893 115,614
Asia and the Far
East......................... 2,363 2,626 6,793 5,899
$ 123,202 $ 141,346 $ 376,370 $ 414,380
(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
Nine months ended
September 30,
2009 2010
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income
(loss)....................................... $ 3,412 $ (3,878)
Adjustments required to reconcile net
income (loss) to net cash provided by
(used in) operating activities:
Net loss from discontinued
operations............................. 3,941 7,031
Stock-based compensation....... 2,619 2,357
Currency fluctuation of restricted
cash and short-term bank deposits...... - (999)
Depreciation and
amortization.................................. 12,937 13,387
Loss (gain) on sale of property and
equipment and impairment and sale
of cost investments (138) 108
Commissions related to the sale of Israeli
SAP sales and distribution operations....... (2,534) -
Decrease (increase) in trade receivables,
net........................................ 53,444 (9,255)
Decrease (increase) in unbilled
receivables.................................... 3,549 (11,298)
Increase in other accounts receivable and
prepaid expenses............................. (4,293) (1,982)
Decrease (increase) in
work-in-progress............................ (754) 2,612
Increase in long-term prepaid
expenses........................ (414) (825)
Deferred income taxes,
net........................................... 395 1,437
Increase (decrease) in trade
payables.................................. (17,174) 2,372
Decrease in advances from customers
and deferred revenues........ (2,210) (9,518)
Decrease in other accounts payable
and accrued expenses............... (15,508) (15)
Increase in other long-term liabilities.. 677 902
Increase (decrease) in accrued severance pay,
net....................................... (2,570) 114
Net cash used in discontinued
operations.............................. ..... (1,279) (6,109)
Net cash provided by (used in) operating
activities.................................... 34,100 (13,559)
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................. (13,643) (1,330)
Proceeds from maturity of (investment in)
short-term bank deposits, net............ (16,822) 12,031
Proceeds from sale of property and
equipment.................................... 796 -
Purchase of property and equipment and
capitalization of software developed
for internal use. (9,395) (6,906)
Net cash used in discontinued
operations................................... (1,808) -
Net cash used in investing
activities............................. (40,872) (12,204)
Cash flows from financing activities:
Exercise of options....................... - 4
Repurchase of shares.......................... (2,037) (2,169)
Acquired subsidiary's dividend to its former
shareholder.................................. (1,430) -
Short-term bank loans and credit, net...... (2,960) 26,622
Proceeds from long-term debt........... 15,000 13,364
Principal payments of long-term debt......... (4,411) (14,659)
Net cash provided by financing activities..... 4,162 23,162
Effect of exchange rate changes on cash and
Cash equivalents..................... (1,038) (2,385)
Decrease in cash and cash equivalents...... (3,648) (4,986)
Cash and cash equivalents at the beginning
of the period.................. 44,585 40,218
Cash and cash equivalents at the end of the
period...................................... $ 40,937 $ 35,232
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December September
31, 2009 30, 2010
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents...................... $ 40,218 $ 35,232
Restricted cash........................... 2,470 2,572
Short-term bank deposits......................... 25,939 14,802
Trade receivables, net of allowance for doubtful
accounts...................................... 131,452 146,683
Unbilled receivables......... 28,012 42,307
Other accounts receivable and prepaid
expenses....................................... 27,832 30,451
Work in progress............... 9,690 6,877
Total assets attributed to discontinued
operations....................................... 43,212 30,616
Total current assets............................ 308,825 309,540
LONG-TERM ASSETS:
Long-term prepaid expenses and other assets..... 6,083 7,209
Unbilled
receivables...................................... 4,654 3,508
Deferred income taxes,
net........................................... 3,608 2,704
Severance pay
fund........................................... 53,145 57,074
Property and equipment, net................ 35,739 33,813
Intangible assets, net..................... 10,016 11,129
Goodwill....................................... 263,541 279,875
Total long-term
assets.......................................... 376,786 395,312
Total assets.................................. $ 685,611 $ 704,852
CURRENT LIABILITIES:
Short-term bank
credit....................................... $ 500 $ 30,379
Current maturities of long-term
debt.......................................... 21,332 26,303
Trade
payables....................................... 30,914 33,796
Advances from customers and deferred
revenues........................................ 40,639 31,640
Other accounts payable and accrued
expenses....................................... 99,464 106,300
Total liabilities attributed to discontinued
operations....................................... 25,461 12,779
Total current
liabilities..................................... 218,310 241,197
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities...... 50,836 43,351
Other long-term liabilities...................... 6,689 7,722
Deferred income taxes........................... 2,045 2,477
Accrued severance pay............................ 56,443 60,670
Total long-term
liabilities................................ 116,013 114,220
Total stockholders'
equity......................................... 351,288 349,435
Total liabilities and stockholders' equity.. $ 685,611 $ 704,852
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 Nine months ended
September 30, September 30,
2009 2010 2009 2010
Statements of Income Data:(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GAAP gross profit...... $ 33,422 $ 38,630 $ 99,689 $ 112,868
Stock-based compensation........ 63 49 183 204
Amortization of intangible assets 205 140 581 329
Severance expenses........ - - 966 -
Non-GAAP gross profit......... $ 33,690 $ 38,819 $ 101,419 $ 113,401
GAAP operating income.... $ 3,868 $ 3,687 $ 11,568 $ 9,141
Stock-based compensation.... 863 751 2,619 1,911
Amortization of intangible assets 1,860 1,571 5,225 4,291
Earn-out and retention expenses
related to prior acquisitions.. - 557 - 1,534
Insurance settlement related to
2007 arbitration expense, net of
related expenses..... - - (2,610) -
Severance expenses.............. - - 2,646 -
Acquisition and integration costs
of Gilon acquisition............. - - - 728
Non-GAAP operating income... $ 6,591 $ 6,566 $ 19,448 $ 17,605
GAAP operating margin...... 3.1% 2.6% 3.1% 2.2%
Non-GAAP operating
margin......................... 5.3% 4.6% 5.2% 4.2%
GAAP net income from continuing
operations.................. $ 2,654 $ 1,567 $ 7,353 $ 3,153
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.................. 2,223 2,505 6,505 8,023
Non-GAAP net income from
continuing operations...... $ 4,877 $ 4,072 $ 13,858 $ 11,176
GAAP diluted net earnings per
share from continuing operations $ 0.07 $ 0.04 $ 0.19 $ 0.08
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..................... 0.06 0.07 0.17 0.21
Non-GAAP diluted net earnings
per share from continuing
operations...... $ 0.13 $ 0.11 $ 0.35 $ 0.29
Segment Data:
Software Product Engineering:
GAAP operating
income..........................$ 3,609 $ 3,675 $ 11,819 $ 11,916
Amortization of intangible
assets...................... 38 38 115 114
Non-GAAP operating
income........................ $ 3,647 $ 3,713 $ 11,934 $ 12,030
System Integration and
Application Development:
GAAP operating
income......................... $ 3,159 $ 4,002 $ 11,698 $ 9,975
Amortization of intangible
assets.................... 1,821 1,533 5,110 4,177
Earn-out and retention expenses
related to prior acquisitions. - 557 - 1,534
Insurance settlement related to
2007 arbitration expense,
net of related
expenses.......... - - (2,610) -
Severance
expenses................ - - 1,293 -
Acquisition and integration
costs of Gilon acquisition..... - - - 728
Non-GAAP operating income... $ 4,980 $ 6,092 $ 15,491 $ 16,414
[1] See "Use of Non-GAAP Financial Information" above for more
information regarding the company's use of non-GAAP financial
measures.
Media Contact:
David Kanaan
Intl: +972-54-425-5307
Email: media.int@ness.com
Investor Relations Contacts:
Drew Wright
USA: +1-201-488-3262
Email: investor@ness.com
Maya Lustig
Israel: +972-3-767-5110
Email: maya.lustig@ness.com
SOURCE Ness Technologies Inc