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| 8-K - NESS TECHNOLOGIES INC | v220678_8-k.htm |
Press Release
Ness Technologies Announces First Quarter 2011 Financial Results
Ness continues to improve profitability, with the highest operating margin in ten quarters
Teaneck, NJ – May 4, 2011 – 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:
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·
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Revenues were $137.3 million, up 3% year-over-year.
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Operating income was $6.9 million, up 186% year-over-year.
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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.
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Net income from continuing operations was $4.2 million, up 497% year-over-year.
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On a non-GAAP basis, net income from continuing operations was $5.6 million, up 66% year-over-year.
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·
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Diluted net earnings per share from continuing operations were $0.11, up from $0.02 in the first quarter of 2010.
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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.
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In Central and Eastern Europe, operating margin continued to improve, hitting the highest level in nine quarters.
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Operating cash flows from continuing operations were $9.7 million, setting a new first quarter record.
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Cash, cash equivalents and short-term bank deposits were $35.8 million as of March 31, 2011.
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Backlog from continuing operations as of March 31, 2011 was $690 million, up 4% year-over-year.
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Headcount for continuing operations was approximately 6,900 as of March 31, 2011.
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“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.”
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Results by operating segment:
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§
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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.
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§
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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.
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“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 $605 million and diluted net earnings per share from continuing operations in the range shown in the reconciliation table below:
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Full year diluted net
earnings per share ($)
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Low
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High
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GAAP basis from continuing operations
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$ | 0.42 | $ | 0.48 | ||||
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Stock-based compensation; amortization of intangible assets; retention expenses related to prior acquisitions; net of taxes
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0.15 | 0.15 | ||||||
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Non-GAAP basis from continuing operations
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$ | 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.
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Ness Technologies First Quarter 2011
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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.
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North America
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1-800-399-0427
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Israel
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1-80-924-5917
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All other locations
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+1-973-200-3375
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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 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 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.
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Ness Technologies First Quarter 2011
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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.
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Media Contact:
David Kanaan
Intl: +972-54-425-5307
Email: media.int@ness.com
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Investor Relations Contacts:
Drew Wright
USA: 1-201-488-3262
Email: investor@ness.com
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Maya Lustig
Israel: +972-3-767-5110
Email: maya.lustig@ness.com
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Ness Technologies First Quarter 2011
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NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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U.S. dollars in thousands (except per share data)
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Three months ended
March 31,
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2010
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2011
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(Unaudited)
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(Unaudited)
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Revenues
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$ | 133,333 | $ | 137,309 | ||||
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Cost of revenues
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96,521 | 95,452 | ||||||
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Gross profit
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36,812 | 41,857 | ||||||
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Selling and marketing
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10,053 | 9,201 | ||||||
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General and administrative
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24,342 | 25,744 | ||||||
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Total operating expenses
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34,395 | 34,945 | ||||||
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Operating income
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2,417 | 6,912 | ||||||
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Financial expenses, net
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(209 | ) | (609 | ) | ||||
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Income before taxes on income
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2,208 | 6,303 | ||||||
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Taxes on income
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1,510 | 2,135 | ||||||
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Net income from continuing operations
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$ | 698 | $ | 4,168 | ||||
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Net loss from discontinued operations
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(5,387 | ) | (2,260 | ) | ||||
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Net income (loss)
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$ | (4,689 | ) | $ | 1,908 | |||
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Basic net earnings per share from continuing operations
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$ | 0.02 | $ | 0.11 | ||||
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Diluted net earnings per share from continuing operations
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$ | 0.02 | $ | 0.11 | ||||
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Basic net earnings (loss) per share
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$ | (0.12 | ) | $ | 0.05 | |||
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Diluted net earnings (loss) per share
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$ | (0.12 | ) | $ | 0.05 | |||
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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
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38,299 | 38,230 | ||||||
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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
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38,722 | 38,688 | ||||||
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Ness Technologies First Quarter 2011
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NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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U.S. dollars in thousands
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Three months ended
March 31,
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2010
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2011
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Segment Data:
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(Unaudited)
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(Unaudited)
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Revenues from continuing operations:
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Software Product Engineering
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$ | 26,397 | $ | 28,859 | ||||
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System Integration and Application Development
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106,936 | 108,450 | ||||||
| $ | 133,333 | $ | 137,309 | |||||
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Operating income (loss) from continuing operations:
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Software Product Engineering
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$ | 3,853 | $ | 4,152 | ||||
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System Integration and Application Development
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3,227 | 7,910 | ||||||
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Unallocated Expenses
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(4,663 | ) | (5,150 | ) | ||||
| $ | 2,417 | $ | 6,912 | |||||
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Geographic Data:
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Revenues from continuing operations:
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Israel
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$ | 47,639 | $ | 57,147 | ||||
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North America
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45,249 | 42,342 | ||||||
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Europe
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39,001 | 35,822 | ||||||
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Asia and the Far East
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1,444 | 1,998 | ||||||
| $ | 133,333 | $ | 137,309 | |||||
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Ness Technologies First Quarter 2011
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NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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U.S. dollars in thousands
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Three months ended
March 31,
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2010
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2011
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(Unaudited)
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(Unaudited)
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Cash flows from operating activities:
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Net income (loss)
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$ | (4,689 | ) | $ | 1,908 | |||
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Adjustments required to reconcile net income (loss) to net cash provided by operating activities:
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Net loss from discontinued operations
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5,387 | 2,260 | ||||||
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Stock-based compensation
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829 | 808 | ||||||
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Currency fluctuation of restricted cash and short-term bank deposits
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(957 | ) | (30 | ) | ||||
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Depreciation and amortization
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4,169 | 4,185 | ||||||
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Loss on sale of property and equipment
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66 | 263 | ||||||
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Decrease in trade receivables, net
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7,163 | 9,094 | ||||||
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Increase in unbilled receivables
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(2,460 | ) | (6,185 | ) | ||||
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Decrease in other accounts receivable and prepaid expenses
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964 | 1,753 | ||||||
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Decrease (increase) in work-in-progress
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1,265 | (3,219 | ) | |||||
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Decrease (increase) in long-term prepaid expenses
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(41 | ) | 772 | |||||
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Deferred income taxes, net
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456 | 147 | ||||||
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Increase (decrease) in trade payables
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(1,568 | ) | 13,580 | |||||
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Decrease in advances from customers and deferred revenues
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(3,747 | ) | (7,781 | ) | ||||
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Decrease in other accounts payable and accrued expenses
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(4,204 | ) | (7,734 | ) | ||||
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Increase in other long-term liabilities
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420 | 379 | ||||||
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Increase (decrease) in accrued severance pay, net
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104 | (479 | ) | |||||
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Net cash used in discontinued operations
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(2,655 | ) | — | |||||
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Net cash provided by operating activities
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502 | 9,721 | ||||||
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Cash flows from investing activities:
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Consideration from sale of a consolidated subsidiary
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1,711 | — | ||||||
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Proceeds from maturity of (investment in) short-term bank deposits, net
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5,662 | (661 | ) | |||||
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Proceeds from sale of property and equipment
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— | 73 | ||||||
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Purchase of property and equipment and capitalization of software developed for internal use
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(1,744 | ) | (3,543 | ) | ||||
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Net cash provided by (used in) investing activities
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5,629 | (4,131 | ) | |||||
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Cash flows from financing activities:
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Exercise of options
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— | 551 | ||||||
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Repurchase of shares
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(611 | ) | (1,181 | ) | ||||
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Short-term debt, net
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(500 | ) | (5,271 | ) | ||||
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Principal payments of long-term debt
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(3,121 | ) | (6,475 | ) | ||||
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Net cash used in financing activities
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(4,232 | ) | (12,376 | ) | ||||
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Effect of exchange rate changes on cash and cash equivalents
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(923 | ) | 419 | |||||
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Increase (decrease) in cash and cash equivalents
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976 | (6,367 | ) | |||||
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Cash and cash equivalents at the beginning of the period
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40,218 | 29,973 | ||||||
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Cash and cash equivalents at the end of the period
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$ | 41,194 | $ | 23,606 | ||||
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Ness Technologies First Quarter 2011
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NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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U.S. dollars in thousands
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December 31,
2010
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March 31,
2011
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(Unaudited)
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CURRENT ASSETS:
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Cash and cash equivalents
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$ | 29,973 | $ | 23,606 | ||||
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Restricted cash
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2,578 | 1,008 | ||||||
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Short-term bank deposits
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8,913 | 11,174 | ||||||
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Trade receivables, net of allowance for doubtful accounts
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164,950 | 159,891 | ||||||
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Unbilled receivables
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34,850 | 42,612 | ||||||
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Other accounts receivable and prepaid expenses
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28,081 | 27,548 | ||||||
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Work in progress
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5,613 | 7,996 | ||||||
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Total assets attributed to discontinued operations
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20,263 | 16,774 | ||||||
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Total current assets
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295,221 | 290,609 | ||||||
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LONG-TERM ASSETS:
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Long-term prepaid expenses and other assets
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5,656 | 4,944 | ||||||
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Unbilled receivables
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2,828 | 3,174 | ||||||
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Deferred income taxes, net
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2,186 | 2,380 | ||||||
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Severance pay fund
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59,583 | 60,252 | ||||||
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Property and equipment, net
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35,545 | 37,826 | ||||||
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Intangible assets, net
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9,481 | 8,716 | ||||||
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Goodwill
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282,383 | 289,478 | ||||||
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Total long-term assets
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397,662 | 406,770 | ||||||
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Total assets
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$ | 692,883 | $ | 697,379 | ||||
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CURRENT LIABILITIES:
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Short-term debt
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$ | 16,543 | $ | 11,301 | ||||
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Current maturities of long-term debt
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26,160 | 27,541 | ||||||
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Trade payables
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25,009 | 40,092 | ||||||
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Advances from customers and deferred revenues
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38,772 | 32,129 | ||||||
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Other accounts payable and accrued expenses
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118,599 | 113,530 | ||||||
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Total liabilities attributed to discontinued operations
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13,116 | 11,361 | ||||||
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Total current liabilities
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238,199 | 235,954 | ||||||
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LONG-TERM LIABILITIES:
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Long-term debt, net of current maturities
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36,756 | 31,009 | ||||||
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Other long-term liabilities
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7,942 | 8,571 | ||||||
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Deferred income taxes
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2,195 | 2,207 | ||||||
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Accrued severance pay
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63,026 | 63,230 | ||||||
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Total long-term liabilities
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109,919 | 105,017 | ||||||
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Total stockholders’ equity
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344,765 | 356,408 | ||||||
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Total liabilities and stockholders’ equity
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$ | 692,883 | $ | 697,379 | ||||
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Ness Technologies First Quarter 2011
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NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
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RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
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EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS; EARN-OUT AND RETENTION EXPENSES RELATED TO PRIOR ACQUISITIONS; ALL NET OF TAXES
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U.S. dollars in thousands (except per share data)
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Three months ended
March 31,
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2010
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2011
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Statements of Income Data:
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(Unaudited)
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(Unaudited)
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GAAP gross profit
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$ | 36,812 | $ | 41,857 | ||||
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Stock-based compensation
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39 | 21 | ||||||
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Amortization of intangible assets
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53 | 9 | ||||||
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Non-GAAP gross profit
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$ | 36,904 | $ | 41,887 | ||||
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GAAP operating income
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$ | 2,417 | $ | 6,912 | ||||
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Stock-based compensation
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829 | 796 | ||||||
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Amortization of intangible assets
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1,268 | 1,132 | ||||||
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Earn-out and retention expenses related to prior acquisitions
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480 | 85 | ||||||
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Non-GAAP operating income
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$ | 4,994 | $ | 8,925 | ||||
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GAAP operating margin
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1.8 | % | 5.0 | % | ||||
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Non-GAAP operating margin
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3.7 | % | 6.5 | % | ||||
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EBITDA
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$ | 7,895 | $ | 11,978 | ||||
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EBITDA margin
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5.9 | % | 8.7 | % | ||||
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GAAP net income from continuing operations
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$ | 698 | $ | 4,168 | ||||
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Stock-based compensation; amortization of intangible assets; earn-out and retention expenses related to prior acquisitions; all net of taxes
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2,652 | 1,404 | ||||||
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Non-GAAP net income from continuing operations
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$ | 3,350 | $ | 5,572 | ||||
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GAAP diluted net earnings per share from continuing operations
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$ | 0.02 | $ | 0.11 | ||||
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Stock-based compensation; amortization of intangible assets; earn-out and retention expenses related to prior acquisitions; all net of taxes
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0.07 | 0.04 | ||||||
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Non-GAAP diluted net earnings per share from continuing operations
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$ | 0.09 | $ | 0.14 | ||||
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Segment Data:
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Software Product Engineering:
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GAAP operating income
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$ | 3,853 | $ | 4,152 | ||||
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Amortization of intangible assets
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38 | — | ||||||
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Non-GAAP operating income
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$ | 3,891 | $ | 4,152 | ||||
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System Integration and Application Development:
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GAAP operating income
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$ | 3,227 | $ | 7,910 | ||||
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Amortization of intangible assets
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1,230 | 1,132 | ||||||
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Earn-out and retention expenses related to prior acquisitions
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480 | 85 | ||||||
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Non-GAAP operating income
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$ | 4,937 | $ | 9,127 | ||||
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Ness Technologies First Quarter 2011
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