2014

Ness Technologies Announces First Quarter 2011 Financial Results Ness Continues to Improve Profitability, With the Highest Operating Margin in Ten Quarters

TEANECK, New Jersey, May 4, 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 ended March 31, 2011.

    First Quarter 2011 Highlights:

    - Revenues were $137.3 million, up 3% year-over-year.

    - Operating income was $6.9 million, up 186% year-over-year.

      On a non-GAAP basis [1], operating income was $8.9 million, up 79%
      year-over-year. On a GAAP and non-GAAP basis, operating margin improved
      sequentially, reaching the highest levels in ten quarters.

    - Net income from continuing operations was $4.2 million, up 497%
      year-over-year.

      On a non-GAAP basis, net income from continuing operations was $5.6
      million, up 66% year-over-year.

    - Diluted net earnings per share from continuing operations were $0.11,
      up from $0.02 in the first quarter of 2010.

      On a non-GAAP basis, diluted net earnings per share from continuing
      operations were $0.14, up from $0.09 in the first quarter of 2010.

    - In Central and Eastern Europe, operating margin continued to improve,
      hitting the highest level in nine quarters.

    - Operating cash flows from continuing operations were $9.7 million,
      setting a new first quarter record.

    - Cash, cash equivalents and short-term bank deposits were $35.8 million
      as of March 31, 2011.

    - Backlog from continuing operations as of March 31, 2011 was $690
      million, up 4% year-over-year.

    - Headcount for continuing operations was approximately 6,900 as of March
      31, 2011.

"We had a good first quarter and I am very proud of the continued operating margin expansion we delivered. Our steady progress improving operating margins is a direct result of record first quarter results in Israel as well as ongoing improvement in Central and Eastern Europe," said Sachi Gerlitz, president and chief executive officer of Ness Technologies. "We are making excellent headway on the strategic integration of our business units into one global entity, as manifested by our recent landmark contract with Barclays Capital. We are confident about the year ahead, and look forward to further improvements in our results."

    - 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 first quarter, with strong quarterly
      operating margin in its target range and good year-over-year revenue
      growth.

    - The company's System Integration and Application Development segment
      showed only modest year-over-year revenue growth, but with the best
      non-GAAP operating margin in eleven quarters, due to strong
      performance in Israel and ongoing improvement in Central and Eastern
      Europe.

"We are continuing to reap the benefits from the optimization of our operations as well as our improvement in billable utilization," said Ofer Segev, executive vice president and chief financial officer. "This is evident in our margin expansion, improved earnings and strong first quarter operating cash flows. Our balance sheet is strong, and we remain in our comfort zone regarding liquidity."

Business Outlook

The company continues to expect top line growth and operating margin expansion in 2011.

    Ness reiterates its 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 will remain at the average levels of April 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.

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 first quarter 2011 results. The call, which will be simultaneously webcast, will begin at 8:00 AM Eastern Time / 5:00 AM Pacific Time / 3:00 PM Israel Time on Wednesday, May 4, 2011.

To access the Ness Technologies first quarter 2011 earnings conference call, participants should dial one of the following numbers and provide the password "NESS" to the operator.

    North America             1-800-399-0427
    Israel                     1-80-924-5917
    All other locations      +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.

[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 6,900 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 ("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); (b) amortization of intangible assets; and (c) earn-out and retention expenses related to prior acquisitions; all 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 4, 2011. 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
                                                            March 31,
                                                        2010        2011
                                                     (Unaudited) (Unaudited)

    Revenues                                         $ 133,333   $ 137,309
    Cost of revenues                                    96,521      95,452
    Gross profit                                        36,812      41,857

    Selling and marketing                               10,053       9,201
    General and administrative                          24,342      25,744
    Total operating expenses                            34,395      34,945

    Operating income                                     2,417       6,912
    Financial expenses, net                               (209)       (609)
    Income before taxes on income                        2,208       6,303

    Taxes on income                                      1,510       2,135
    Net income from continuing operations                $ 698     $ 4,168

    Net loss from discontinued operations               (5,387)     (2,260)
    Net income (loss)                                 $ (4,689)    $ 1,908

    Basic net earnings per share from continuing
    operations                                          $ 0.02      $ 0.11
    Diluted net earnings per share from continuing
    operations                                          $ 0.02      $ 0.11

    Basic net earnings (loss) per share                $ (0.12)     $ 0.05
    Diluted net earnings (loss) per share              $ (0.12)     $ 0.05

    Weighted average number of shares (in thousands)
    used in computing basic net earnings per share
    from continuing operations and basic net earnings
    (loss) per share                                    38,299      38,230
    Weighted average number of shares (in thousands)
    used in computing diluted net earnings per share
    from continuing operations and diluted net
    earnings (loss) per share                           38,722      38,688


                   NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                            U.S. dollars in thousands

                                                         Three months ended
                                                              March 31,
                                                          2010        2011
    Segment Data:                                     (Unaudited) (Unaudited)

    Revenues from continuing operations:
    Software Product Engineering                       $ 26,397    $ 28,859
    System Integration and Application Development      106,936     108,450
                                                      $ 133,333   $ 137,309
    Operating income (loss) from continuing
    operations:
    Software Product Engineering                        $ 3,853     $ 4,152
    System Integration and Application Development        3,227       7,910
    Unallocated Expenses                                 (4,663)     (5,150)
                                                        $ 2,417     $ 6,912
    Geographic Data:

    Revenues from continuing operations:
    Israel                                             $ 47,639    $ 57,147
    North America                                        45,249      42,342
    Europe                                               39,001      35,822
    Asia and the Far East                                 1,444       1,998
                                                      $ 133,333   $ 137,309


                   NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            U.S. dollars in thousands

                                                       Three months ended
                                                            March 31,
                                                      2010            2011
                                                  (Unaudited)     (Unaudited)
    Cash flows from operating activities:
    Net income (loss)                                $ (4,689)       $ 1,908
    Adjustments required to reconcile net
    income (loss) to net cash provided by
    operating activities:
    Net loss from discontinued operations               5,387          2,260
    Stock-based compensation                              829            808
    Currency fluctuation of restricted cash
    and short-term bank deposits                         (957)           (30)
    Depreciation and amortization                       4,169          4,185
    Loss on sale of property and equipment                 66            263
    Decrease in trade receivables, net                  7,163          9,094
    Increase in unbilled receivables                   (2,460)        (6,185)
    Decrease in other accounts receivable
    and prepaid expenses                                  964          1,753
    Decrease (increase) in work-in-progress             1,265         (3,219)
    Decrease (increase) in long-term prepaid
    expenses                                              (41)           772
    Deferred income taxes, net                            456            147
    Increase (decrease) in trade payables              (1,568)        13,580
    Decrease in advances from customers and
    deferred revenues                                  (3,747)        (7,781)
    Decrease in other accounts payable and
    accrued expenses                                   (4,204)        (7,734)
    Increase in other long-term liabilities               420            379
    Increase (decrease) in accrued severance
    pay, net                                              104           (479)
    Net cash used in discontinued operations           (2,655)             -
    Net cash provided by operating
    activities                                            502          9,721

    Cash flows from investing activities:
    Consideration from sale of a
    consolidated subsidiary                             1,711              -
    Proceeds from maturity of (investment in)
    short-term bank deposits, net                       5,662           (661)
    Proceeds from sale of property and
    equipment                                               -             73
    Purchase of property and equipment and
    capitalization of software developed for
    internal use                                       (1,744)        (3,543)
    Net cash provided by (used in) investing
    activities                                          5,629         (4,131)

    Cash flows from financing activities:
    Exercise of options                                     -            551
    Repurchase of shares                                 (611)        (1,181)
    Short-term debt, net                                 (500)        (5,271)
    Principal payments of long-term debt               (3,121)        (6,475)
    Net cash used in financing activities              (4,232)       (12,376)

    Effect of exchange rate changes on cash
    and cash equivalents                                 (923)           419
    Increase (decrease) in cash and cash
    equivalents                                           976         (6,367)
    Cash and cash equivalents at the
    beginning of the period                            40,218         29,973
    Cash and cash equivalents at the end of
    the period                                       $ 41,194       $ 23,606



                   NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                            U.S. dollars in thousands
                                                        December     March
                                                        31, 2010   31, 2011
                                                                  (Unaudited)
    CURRENT ASSETS:
    Cash and cash equivalents                           $ 29,973    $ 23,606
    Restricted cash                                        2,578       1,008
    Short-term bank deposits                               8,913      11,174
    Trade receivables, net of allowance for doubtful
    accounts                                             164,950     159,891
    Unbilled receivables                                  34,850      42,612
    Other accounts receivable and prepaid expenses        28,081      27,548
    Work in progress                                       5,613       7,996
    Total assets attributed to discontinued operations    20,263      16,774
    Total current assets                                 295,221     290,609

    LONG-TERM ASSETS:
    Long-term prepaid expenses and other assets            5,656       4,944
    Unbilled receivables                                   2,828       3,174
    Deferred income taxes, net                             2,186       2,380
    Severance pay fund                                    59,583      60,252
    Property and equipment, net                           35,545      37,826
    Intangible assets, net                                 9,481       8,716
    Goodwill                                             282,383     289,478
    Total long-term assets                               397,662     406,770


    Total assets                                       $ 692,883   $ 697,379

    CURRENT LIABILITIES:
    Short-term debt                                     $ 16,543    $ 11,301
    Current maturities of long-term debt                  26,160      27,541
    Trade payables                                        25,009      40,092
    Advances from customers and deferred revenues         38,772      32,129
    Other accounts payable and accrued expenses          118,599     113,530
    Total liabilities attributed to discontinued
    operations                                            13,116      11,361
    Total current liabilities                            238,199     235,954

    LONG-TERM LIABILITIES:
    Long-term debt, net of current maturities             36,756      31,009
    Other long-term liabilities                            7,942       8,571
    Deferred income taxes                                  2,195       2,207
    Accrued severance pay                                 63,026      63,230
    Total long-term liabilities                          109,919     105,017

    Total stockholders' equity                           344,765     356,408


    Total liabilities and stockholders' equity        $  692,883   $ 697,379


                   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; ALL NET
                                     OF TAXES
                U.S. dollars in thousands (except per share data)

                                                         Three months ended
                                                             March 31,
                                                         2010        2011
    Statements of Income Data:                        (Unaudited) (Unaudited)

    GAAP gross profit                                  $ 36,812    $ 41,857
    Stock-based compensation                                 39          21
    Amortization of intangible assets                        53           9
    Non-GAAP gross profit                              $ 36,904    $ 41,887

    GAAP operating income                               $ 2,417     $ 6,912
    Stock-based compensation                                829         796
    Amortization of intangible assets                     1,268       1,132
    Earn-out and retention expenses related to prior
    acquisitions                                            480          85
    Non-GAAP operating income                           $ 4,994     $ 8,925

    GAAP operating margin                                   1.8%        5.0%
    Non-GAAP operating margin                               3.7%        6.5%

    EBITDA                                              $ 7,895    $ 11,978
    EBITDA margin                                           5.9%        8.7%

    GAAP net income from continuing operations            $ 698     $ 4,168
    Stock-based compensation; amortization of
    intangible assets; earn-out and retention expenses
    related to prior acquisitions; all net of taxes       2,652       1,404
    Non-GAAP net income from continuing operations      $ 3,350     $ 5,572

    GAAP diluted net earnings per share from
    continuing operations                                $ 0.02      $ 0.11
    Stock-based compensation; amortization of
    intangible assets; earn-out and retention expenses
    related to prior acquisitions; all net of taxes        0.07        0.04
    Non-GAAP diluted net earnings per share from
    continuing operations                                $ 0.09      $ 0.14

    Segment Data:

    Software Product Engineering:
    GAAP operating income                               $ 3,853     $ 4,152
    Amortization of intangible assets                        38           -
    Non-GAAP operating income                           $ 3,891     $ 4,152

    System Integration and Application Development:
    GAAP operating income                               $ 3,227     $ 7,910
    Amortization of intangible assets                     1,230       1,132
    Earn-out and retention expenses related to prior
    acquisitions                                            480          85
    Non-GAAP operating income                           $ 4,937     $ 9,127




    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




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