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 , 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."
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.
 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: firstname.lastname@example.org Investor Relations Contacts: Drew Wright USA: 1-201-488-3262 Email: email@example.com Maya Lustig Israel: +972-3-767-5110 Email: firstname.lastname@example.org
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