NESS TECHNOLOGIES, INC. 
By TEANECK, New Jersey, July 27, 2011 /PRNewswire/ --
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 June 30, 2011.
Second Quarter 2011 Highlights:
- On June 10, 2011, the company announced that it entered into
a definitive merger agreement under which an affiliate of Citi Venture
Capital International, a global private equity investment fund, will
acquire Ness in an all-cash transaction valued at approximately $307
million, or $7.75 in cash per share of common stock. The company has
scheduled a special meeting of stockholders on August 30, 2011 for the
purpose of obtaining stockholder approval for the merger.
- In connection with its entry into the merger agreement, the
company recognized a non-cash goodwill impairment charge of $55.2
million as of June 30, 2011, which brings its book value in line with
the transaction value. In addition, the company incurred expenses of
$1.4 million related to the transaction during the second quarter.
- Revenues were $141.3 million, up 1% year-over-year and up 3%
sequentially.
- The company reported an operating loss of $49.4 million, due to
the previously mentioned goodwill impairment charge and
transaction-related expenses, compared to operating income of $3.0
million in the second quarter of 2010.
On a non-GAAP basis (1) operating income was $8.7 million, up 44%
year-over-year, representing 6.2% of revenues.
- GAAP net loss from continuing operations was $52.3 million, due
to the previously mentioned goodwill impairment charge and
transaction-related expenses, compared to net income of $0.9 million in
the second quarter of 2010. GAAP net income from continuing operations,
adjusted for the goodwill impairment charge and transaction-related
expenses, was $4.2 million.
On a non-GAAP basis, net income from continuing operations was $4.9
million, up 32% year-over-year.
- GAAP diluted net loss per share from continuing operations was
($1.37), compared to $0.02 in the second quarter of 2010. GAAP diluted
net earnings per share from continuing operations, adjusted for the
goodwill impairment charge and transaction-related expenses, was $0.11.
On a non-GAAP basis, diluted net earnings per share from continuing
operations were $0.13, up from $0.10 in the second quarter of 2010.
- Operating cash flows from continuing operations were $15.6
million.
- Cash, cash equivalents and short-term bank deposits were $45.6
million as of June 30, 2011.
- Backlog from continuing operations as of June 30, 2011 was $680
million, up 3% year-over-year.
- Headcount for continuing operations was approximately 6,970 as
of June 30, 2011.
"We are proud to have delivered solid second quarter results, despite the distraction inherent in our transaction process, as we continued to execute successfully on our 2011 strategic business plan," said Sachi Gerlitz, president and chief executive officer of Ness Technologies. "Most of our businesses performed well in the quarter, while a few of our Central and Eastern Europe businesses, and others, remain on the path to recovery. We look forward to growth and additional operating margin expansion moving forward."
- 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, performed well, with 12% year-over-year revenue growth and
solid operating margins in line with second quarter expectations.
- The company's System Integration and Application Development
segment generated healthy non-GAAP operating margins on a 1% decline
in revenues year-over-year, in its seasonally weak second quarter,
with strong performance in Israel and lingering softness in Central
and Eastern Europe.
"Our focus on maintaining high billable utilization is paying off nicely, helping us to drive year-over-year operating margin expansion," said Ofer Segev, executive vice president and chief financial officer. "At the same time, we delivered another quarter of strong operating cash flows, demonstrating our tight financial management. Our balance sheet remains strong and we continue to be in our comfort zone regarding liquidity."
Business Outlook
The company continues to expect top line growth and non-GAAP operating margin expansion in 2011.
Ness reiterates its full year 2011 guidance for revenues from continuing operations in the range of $595 million to $605 million. The company is adjusting its GAAP guidance for diluted net earnings per share from continuing operations to account for the non-cash goodwill impairment charge recognized in the second quarter and for transaction-related expenses, to the range shown in the reconciliation table below. The adjustment does not revise the company's prior non-GAAP earnings guidance.
Full year diluted
net earnings per
share ($)
Low High
GAAP basis from continuing operations $ (1.04) $ (0.98)
Goodwill impairment and transaction-related expenses;
stock-based compensation; amortization of intangible
assets; retention expenses related to prior
acquisitions; net of taxes 1.61 1.61
Non-GAAP basis from continuing operations $ 0.57 $ 0.63
The company's 2011 GAAP guidance excludes future stock-based compensation grants and any transaction-related expenses that may be recognized in the second half of the year; 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 July 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.
(1) See "Use of Non-GAAP Financial Information" below for more information regarding the company's use of non-GAAP financial measures.
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 second 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, July 27, 2011.
To access the Ness Technologies second 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 and a transcript of the call will be filed with the Securities and Exchange Commission later that day.
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 7,000 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; (c) earn-out and retention expenses related to prior acquisitions; (d) acquisition and integration costs of its Gilon acquisition in the second quarter of 2010; and (e) goodwill impairment and transaction-related expenses in the second quarter of 2011; 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 are included under the heading "Risk Factors" in Ness' filings with the Securities and Exchange Commission. 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 Six months ended
June 30, June 30,
2010 2011 2010 2011
(Unaudited) (Unaudited) (Unaudited)(Unaudited)
Revenues $ 139,701 $ 141,284 $ 273,034 $ 278,593
Cost of revenues 102,275 98,627 198,796 194,079
Gross profit 37,426 42,657 74,238 84,514
Selling and marketing 9,838 9,587 19,891 18,788
General and administrative 24,551 25,925 48,893 51,372
Goodwill impairment and
transaction-related
expenses - 56,547 - 56,844
Total operating expenses 34,389 92,059 68,784 127,004
Operating income (loss) 3,037 (49,402) 5,454 (42,490)
Financial expenses, net (442) (1,324) (651) (1,933)
Income (loss) before taxes
on income 2,595 (50,726) 4,803 (44,423)
Taxes on income 1,707 1,589 3,217 3,724
Net income (loss) from
continuing operations $ 888 $ (52,315) $ 1,586 $ (48,147)
Net loss from discontinued
operations (845) (2,419) (6,232) (4,679)
Net income (loss) $ 43 $ (54,734) $ (4,646) $ (52,826)
Basic net earnings (loss)
per share from continuing
operations $ 0.02 $ (1.37) $ 0.04 $ (1.26)
Diluted net earnings
(loss) per share from
continuing operations $ 0.02 $ (1.37) $ 0.04 $ (1.26)
Basic net earnings (loss)
per share $ 0.00 $ (1.43) $ (0.12) $ (1.38)
Diluted net earnings
(loss) per share $ 0.00 $ (1.43) $ (0.12) $ (1.38)
Weighted average number of
shares (in thousands) used
in computing basic net
earnings (loss) per share
from continuing
operations, basic net
earnings (loss) per share
and diluted net loss per
share 38,161 38,148 38,230 38,189
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 38,592 38,748 38,672 38,773
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands
Three months ended Six months ended
June 30, June 30,
2010 2011 2010 2011
Segment Data: (Unaudited) (Unaudited) (Unaudited)(Unaudited)
Revenues from continuing
operations:
Software Product
Engineering $ 28,060 $ 31,305 $ 54,457 $ 60,164
System Integration and
Application Development 111,641 109,979 218,577 218,429
$ 139,701 $ 141,284 $ 273,034 $ 278,593
Operating income (loss)
from continuing
operations:
Software Product
Engineering $ 4,388 $ 3,828 $ 8,241 $ 7,980
System Integration and
Application Development 2,746 (48,358) 5,973 (40,448)
Unallocated Expenses (4,097) (4,872) (8,760) (10,022)
$ 3,037 $ (49,402) $ 5,454 $ (42,490)
Geographic Data:
Revenues from continuing
operations:
Israel $ 51,327 $ 58,700 $ 98,966 $ 115,847
North America 48,381 42,066 93,630 84,408
Europe 38,164 38,452 77,165 74,274
Asia and the Far East 1,829 2,066 3,273 4,064
$ 139,701 $ 141,284 $ 273,034 $ 278,593
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Six months ended
June 30,
2010 2011
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (4,646) $ (52,826)
Adjustments required to reconcile net
loss to net cash provided by (used in)
operating activities:
Net loss from discontinued operations 6,232 4,679
Stock-based compensation 1,600 1,270
Currency fluctuation of restricted cash
and short-term bank deposits (415) 1,581
Depreciation and amortization 8,631 8,463
Loss on sale of property and equipment 79 265
Goodwill impairment - 55,191
Decrease (increase) in trade
receivables, net (6,719) 24,909
Increase in unbilled receivables (5,680) (4,244)
Decrease in other accounts receivable
and prepaid expenses 1,423 2,933
Decrease (increase) in work-in-progress 1,393 (1,492)
Increase in long-term prepaid expenses (540) (1,226)
Deferred income taxes, net 847 (446)
Increase in trade payables 11,473 8,258
Decrease in advances from customers and
deferred revenues (2,851) (9,958)
Decrease in other accounts payable and
accrued expenses (8,369) (13,510)
Increase in other long-term liabilities 882 290
Increase (decrease) in accrued severance
pay, net 266 (372)
Net cash used in discontinued operations (3,712) -
Net cash provided by (used in) operating
activities (106) 23,765
Cash flows from investing activities:
Consideration from sale of consolidated
subsidiaries and business operations 1,711 3,273
Net cash paid for acquisition of a
consolidated subsidiary (16,259) -
Cash paid for acquisition of intangible
assets (513) -
Additional payments in connection with
acquisitions of subsidiaries in prior
periods (1,330) (1,117)
Proceeds from maturity of short-term
bank deposits, net 10,791 653
Proceeds from sale of property and
equipment - 73
Purchase of property and equipment and
capitalization of software developed for
internal use (5,287) (5,560)
Net cash used in investing activities (10,887) (2,678)
Cash flows from financing activities:
Exercise of options - 604
Repurchase of shares (2,169) (1,181)
Short-term debt, net 6,361 (81)
Proceeds from long-term debt 13,364 -
Principal payments of long-term debt (8,701) (13,442)
Net cash provided by (used in) financing
activities 8,855 (14,100)
Effect of exchange rate changes on cash
and cash equivalents (2,987) (611)
Increase (decrease) in cash and cash
equivalents (5,125) 6,376
Cash and cash equivalents at the
beginning of the period 40,218 29,973
Cash and cash equivalents at the end of
the period $ 35,093 $ 36,349
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December June
31, 2010 30, 2011
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 29,973 $ 36,349
Restricted cash 2,578 1,006
Short-term bank deposits 8,913 8,251
Trade receivables, net of allowance for doubtful
accounts 164,950 146,656
Unbilled receivables 34,850 41,847
Other accounts receivable and prepaid expenses 25,869 25,141
Work in progress 6,648 8,676
Total assets attributed to discontinued operations 22,475 3,734
Total current assets 296,256 271,660
LONG-TERM ASSETS:
Long-term prepaid expenses and other assets 6,252 7,592
Unbilled receivables 2,828 2,610
Deferred income taxes, net 2,186 2,659
Severance pay fund 59,583 60,329
Property and equipment, net 33,914 34,250
Intangible assets, net 9,481 7,834
Goodwill 282,383 238,187
Total long-term assets 396,627 353,461
Total assets $ 692,883 $625,121
CURRENT LIABILITIES:
Short-term debt $ 16,543 $ 16,617
Current maturities of long-term debt 26,160 27,901
Trade payables 25,009 35,469
Advances from customers and deferred revenues 38,772 30,413
Other accounts payable and accrued expenses 118,599 108,081
Total liabilities attributed to discontinued
operations 13,116 1,397
Total current liabilities 238,199 219,878
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities 36,756 24,469
Other long-term liabilities 7,942 8,573
Deferred income taxes 2,195 2,536
Accrued severance pay 63,026 63,457
Total long-term liabilities 109,919 99,035
Total stockholders' equity 344,765 306,208
Total liabilities and stockholders' equity $ 692,883 $625,121
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;
ACQUISITION AND INTEGRATION COSTS OF GILON ACQUISITION; GOODWILL
IMPAIRMENT AND TRANSACTION-RELATED EXPENSES; ALL NET OF TAXES
U.S. dollars in thousands (except per share data)
Three months ended Six months ended
June 30, June 30,
2010 2011 2010 2011
Statements of Income Data: (Unaudited) (Unaudited) (Unaudited)(Unaudited)
GAAP gross profit $ 37,426 $ 42,657 $ 74,238 $ 84,514
Stock-based compensation 116 6 155 27
Amortization of intangible
assets 136 44 189 53
Non-GAAP gross profit $ 37,678 $ 42,707 $ 74,582 $ 84,594
GAAP operating income
(loss) $ 3,037 $ (49,402) $ 5,454 $ (42,490)
Stock-based compensation 331 463 1,160 1,259
Amortization of intangible
assets 1,452 1,054 2,720 2,186
Earn-out and retention
expenses related to prior
acquisitions 497 35 977 120
Acquisition and
integration costs of Gilon
acquisition 728 - 728 -
Goodwill impairment and
transaction-related
expenses - 56,547 - 56,844
Non-GAAP operating income $ 6,045 $ 8,697 $ 11,039 $ 17,919
GAAP operating margin 2.2% -35.0% 2.0% -15.3%
Non-GAAP operating margin 4.3% 6.2% 4.0% 6.4%
EBITDA $ 8,327 $ 11,921 $ 16,222 $ 24,196
Acquisition and
integration costs of Gilon
acquisition 728 - 728 -
Non-GAAP EBITDA $ 9,055 $ 11,921 $ 16,950 $ 24,196
EBITDA margin 6.0% 8.4% 5.9% 8.7%
Non-GAAP EBITDA margin 6.5% 8.4% 6.2% 8.7%
GAAP net income (loss)
from continuing operations $ 888 $ (52,315) $ 1,586 $ (48,147)
Goodwill impairment and
transaction-related
expenses - 56,547 - 56,844
888 4,232 1,586 8,697
Stock-based compensation;
amortization of intangible
assets; earn-out and
retention expenses related
to prior acquisitions;
acquisition and
integration costs of Gilon
acquisition; all net of
taxes 2,866 708 5,518 2,014
Non-GAAP net income from
continuing operations $ 3,754 $ 4,940 $ 7,104 $10,711
GAAP diluted net earnings
(loss) per share from
continuing operations $ 0.02 $ (1.37) $ 0.04 $ (1.26)
Goodwill impairment and
transaction-related
expenses - 1.48 - 1.49
0.02 0.11 0.04 0.22
Stock-based compensation;
amortization of intangible
assets; earn-out and
retention expenses related
to prior acquisitions;
acquisition and
integration costs of Gilon
acquisition; all net of
taxes 0.07 0.02 0.14 0.05
Non-GAAP diluted net
earnings per share from
continuing operations $ 0.10 $ 0.13 $ 0.18 $ 0.28
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;
ACQUISITION AND INTEGRATION COSTS OF GILON ACQUISITION; GOODWILL
IMPAIRMENT AND TRANSACTION-RELATED EXPENSES; ALL NET OF TAXES
U.S. dollars in thousands (except per share data)
Three months ended Six months ended
June 30, June 30,
2010 2011 2010 2011
Segment Data: (Unaudited) (Unaudited) (Unaudited)(Unaudited)
Software Product
Engineering:
GAAP operating income $ 4,388 $ 3,828 $ 8,241 $ 7,980
Amortization of intangible
assets 38 - 76 -
Non-GAAP operating income $ 4,426 $ 3,828 $ 8,317 $ 7,980
System Integration and
Application Development:
GAAP operating income
(loss) $ 2,746 $ (48,358) $ 5,973 $ (40,448)
Amortization of intangible
assets 1,414 1,054 2,644 2,186
Earn-out and retention
expenses related to prior
acquisitions 497 35 977 120
Acquisition and
integration costs of Gilon
acquisition 728 - 728 -
Goodwill impairment - 55,191 - 55,191
Non-GAAP operating income $ 5,385 $ 7,922 $ 10,322 $ 17,049
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
