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: [email protected]
Investor Relations Contacts:
Drew Wright
USA: 1-201-488-3262
Email: [email protected]
Maya Lustig
Israel: +972-3-767-5110
Email: [email protected]
SOURCE Ness Technologies Inc
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