Ness Technologies Announces Third Quarter 2009 Financial Results
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HACKENSACK, New Jersey, November 3 /PRNewswire-FirstCall/ -- Ness Technologies, Inc. (NASDAQ: NSTC and TASE: NSTC), a global provider of IT services and solutions, today announced financial results for the quarter ended September 30, 2009.
Third Quarter 2009 Highlights:
- On a GAAP basis:
- Revenues were $132.7 million, down 19% year-over-year mainly due to
weaker than expected revenues in Europe. Approximately 30%, or $9.3
million, of the decrease was due to foreign currency translation
effects on non-dollar revenues.
- Operating income was $2.1 million, down 91% compared to the third
quarter last year (which included a net gain in operating income of
$18.4 million from the sale of the company's Israeli SAP sales and
Distribution operations).
- Net income was $0.8 million, down 95% year-over-year.
- Diluted net earnings per share were $0.02, compared to $0.41 in the
third quarter of 2008.
- On a non-GAAP basis, excluding stock-based compensation expenses,
amortization of intangibles and, in the comparative period, a gain
related to the sale of the company's Israeli SAP sales and distribution
operations in the third quarter of last year, net of related expenses
and other charges (1):
- Operating income was $5.1 million, down 58% year-over-year.
- Net income was $3.3 million, down 65% year-over-year.
- Diluted net earnings per share were $0.09, compared to $0.24 in the
third quarter of 2008.
- Cash and cash equivalents and short-term bank deposits were $71.1
million as of September 30, 2009, up sequentially from $59.2 million as
of June 30, 2009.
- Operating cash flows for the quarter were an all-time third quarter
record $16.1 million, with record year-to-date operating cash flows of
$34.5 million.
- Backlog as of September 30, 2009 was $655 million, down 4% sequentially
and 14% year-over-year. Excluding the negative effect of foreign
currency translation effects from the stronger U.S. dollar, backlog was
down 11% year-over-year.
- Headcount was approximately 7,780 as of September 30, 2009.
"The global economic downturn continued to impact our business in the third quarter," said Sachi Gerlitz, president and chief executive officer of Ness Technologies. "We continue to see signs of recovery, our pipeline continues to perk up and our focus remains on execution - including streamlining the parts of the business that were most affected by the recession such as Europe and Asia Pacific and investing in sales activity. A number of recent large wins give us confidence in improved conversion of pipeline to revenue in 2010 and returning to top line and bottom line growth."
- Results by operating segment:
- The company's Software Product Engineering segment, which provides
outsourced software product research and development services to
companies who build or rely on software to generate revenues, continued
to perform well in the third quarter, with solid operating margins on
flat sequential revenues.
- The company's System Integration and Application Development segment
continued to be impacted significantly in the third quarter by the
recession, especially in Europe and Asia Pacific, and higher than
expected costs in certain projects.
- The company's Software Distribution segment, which resells third-party
enterprise software licenses, underperformed in the third quarter,
turning in an operating loss on a moderate sequential revenue decline,
largely due to the continued deferral of large software licensing deals
in Europe.
"We delivered record operating cash flows," said Ofer Segev, executive vice president and chief financial officer. "Our balance sheet is strong, with an increasing cash balance and minimal net debt, and our liquidity is excellent. We are continuing to control costs very effectively, and we plan to fix certain small unprofitable operations in the fourth quarter - which will make us stronger in the future."
Business Outlook
The lingering recession is affecting the company's top line, especially in Europe. The resulting revenue contraction has also had a direct impact on the company's earnings.
Ness is lowering its 2009 full year guidance of revenues to the range of $540 million to $550 million to account for the company's revenue shortfall in the third quarter and anticipated top line pressure in the fourth quarter, both primarily attributable to the protracted deep economic recession in Europe.
This revenue level implies diluted earnings per share at the lower end of our prior guidance for the "business as usual" scenario for the fourth quarter. As the company prepares for a resumption of growth in 2010, it now intends to restructure some small business units which are not contributing due to their small scale, and also to restructure certain projects in order to expand profitability in the future. The company expects to take a restructuring charge of $7 to $9 million. This charge is excluded from the company's non-GAAP guidance.
Therefore, the company is lowering its diluted net earnings per share in the range shown in the reconciliation table below:
Full year diluted
net earnings
(loss) per share ($)
Low High
GAAP basis $ (0.14) $ (0.04)
Stock-based compensation;
amortization of intangible assets;
insurance settlement in respect of
2007 arbitration expense, net of
related expenses; severance expenses;
earn-out payment for prior acquisition;
net of taxes.... 0.27 0.26
Anticipated fourth quarter
restructuring charge 0.23 0.18
Non-GAAP basis $ 0.36 $ 0.40
The company's GAAP guidance assumes that no material acquisitions or stock-based compensation grants will be effected in the fourth quarter of 2009; and the company's GAAP and non-GAAP guidance further assumes that foreign currency exchange rates will remain at their average levels for October.
For the reasons set forth elsewhere in this release, Ness' management believes that non-GAAP earnings per share financial guidance provides the best comparative basis for investors to understand and assess the company's on-going operations and prospects for the future.
Goodwill Impairment Test
At the end of each calendar year, the company is required to perform an impairment test on its goodwill. If the company determines any portion of goodwill is impaired, it would recognize a non-cash charge that would impact GAAP earnings and earnings per share for the quarter and year ended December 31, 2009. Such a charge would not impact the non-GAAP financial information presented in this press release.
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 third quarter 2009 results. The call, which will be simultaneously webcast, will begin at 10:00 AM Eastern Time / 7:00 AM Pacific Time on Tuesday, November 3, 2009.
To access the Ness Technologies third quarter 2009 earnings conference call, participants in North America should dial 1-800-399-0427 and international participants should dial +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.
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; system integration, application development and 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 7,800 employees, Ness maintains operations in 18 countries, and partners with numerous software and hardware vendors worldwide. For more information about Ness Technologies, visit http://www.ness.com.
Use of Non-GAAP Financial Information
In addition to reporting financial results in accordance with generally accepted accounting principles, or 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 SFAS 123R and amortization of intangible assets, net of taxes; (b) a gain related to the sale of the company's Israeli SAP sales and distribution operations in the third quarter of 2008, net of related expenses and other charges, net of taxes; (c) an insurance settlement related to a 2007 arbitration expense, net of related expenses, net of taxes; and (d) severance expenses, 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 uses these non-GAAP measures also 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 of Form 10-K filed with the Securities and Exchange Commission on March 16, 2009. 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 Nine months ended
September 30, September 30,
2008 2009 2008 2009
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues.................. $ 164,111 $ 132,733 $ 494,429 $ 406,410
Cost of revenues............ 120,945 96,753 353,330 298,186
Gross profit................. 43,166 35,980 141,099 108,224
Selling and marketing 13,487 12,094 41,233 35,047
General and administrative. 24,986 21,809 73,908 70,740
Gain from sale of Israeli
SAP sales and distribution
operations, net (18,366) - (18,366) -
Insurance settlement related
to 2007 arbitration expense,
net of related expenses - - - (2,610)
Commissions related to the sale
of Israeli SAP sales and
distribution operations - - - (2,534)
Total operating expenses..... 20,107 33,903 96,775 100,643
Operating income 23,059 2,077 44,324 7,581
Financial expenses, net (1,187) (399) (3,635) (2,431)
Other expenses, net (392) - (392) -
Income before taxes on income 21,480 1,678 40,297 5,150
Taxes on income 5,333 836 9,166 1,738
Net income $ 16,147 $ 842 $ 31,131 $ 3,412
Basic net earnings per share $ 0.41 $ 0.02 $ 0.79 $ 0.09
Diluted net earnings
per Share $ 0.41 $ 0.02 $ 0.78 $ 0.09
Weighted average number of
shares (in thousands) used
in computing basic net
earnings per share 39,435 38,451 39,284 38,653
Weighted average number
of shares (in thousands)
used in computing diluted net
earnings per share 39,832 38,864 39,929 39,181
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands
Three months ended Nine months ended
September 30, September 30,
2008 2009 2008 2009
Segment Data (1): (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Software Product $ 26,092 $ 25,621 $ 71,360 $ 76,275
Engineering
System Integration and
Application Development. 126,552 100,202 377,672 307,772
Software 11,467 6,910 45,397 22,363
Distribution $ 164,111 $ 132,733 $ 494,429 $ 406,410
Operating Income (Loss):
Software Product $ 3,181 $ 3,609 $ 6,443 $ 11,819
Engineering
System Integration and
Application Development 10,233 2,150 28,749 6,783
Software Distribution 13,268 (782) 18,317 928
Unallocated Expenses (3,623) (2,900) (9,185) (11,949)
$ 23,059 $ 2,077 $ 44,324 $ 7,581
Geographic Data:
Revenues:
Israel $ 54,834 $ 41,905 $ 175,336 $ 129,546
Europe 55,092 42,177 163,691 130,297
North America 46,540 42,115 133,460 128,138
Asia and the Far East 7,645 6,536 21,942 18,429
$ 164,111 $ 132,733 $ 494,429 $ 406,410
(1) Effective October 1, 2008, the company reorganized its reportable
segments to correspond to its three primary service lines. Prior
period segment data has been reclassified to reflect the current
organization of the segments.
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Nine months ended
September 30,
2008 2009
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net
Income $ 31,131 $ 3,412
Adjustments required to reconcile
net income to net cash provided by
operating activities:
Stock-based compensation-related expenses 2,227 2,619
Currency fluctuation of long-term debt 68 -
Depreciation and amortization 12,571 14,245
Arbitration settlement and related
Charges (9,452) -
Loss (gain) on sale of property and
equipment and impairment and sale of cost
investments 501 (138)
Gain from sale of Israeli SAP sales
and distribution operations, net (18,366) -
Commissions related to the sale of
Israeli SAP sales and distribution
Operations - (2,534)
Decrease in trade receivables, Net 10,393 62,996
Decrease (increase) in unbilled Receivables (8,525) 4,722
Decrease (increase) in other accounts
receivable and prepaid expenses 626 (3,516)
Increase in work-in-progress (1,101) (714)
Decrease (increase) in long-term
Prepaid expenses 1,193 (260)
Deferred income taxes, net 6,897 (92)
Decrease in trade Payables (5,845) (20,779)
Increase (decrease) in advances from
customers and deferred revenues 3,073 (3,305)
Increase in other long-term Liabilities 694 498
Decrease in other accounts
payable and accrued expenses (5,447) (19,969)
Decrease in accrued severance pay, net (2,253) (2,726)
Net cash provided by operating activities 18,385 34,459
Cash flows from investing activities:
Proceeds from sale of investment at cost 219 -
Proceeds from sale of Israeli SAP sales
and distribution operations, net 13,145 -
Additional payments in connection
with acquisitions of subsidiaries
in prior periods (5,973) (15,451)
Proceeds from maturity of (investment in)
short-term bank deposits, net 1,267 (16,822)
Proceeds from sale of property
and equipment 115 796
Purchase of property and equipment
and capitalization of software developed
for internal use (10,595) (9,746)
Net cash used in investing Activities (1,822) (41,223)
Cash flows from financing activities:
Exercise of options 4,317 -
Repurchase of Shares - (2,037)
Acquired subsidiary's dividend to
its former shareholder (10,048) (1,430)
Short-term bank loans and credit, Net 13,737 (4,970)
Proceeds from long-term debt 25,483 15,000
Principal payments of long-term debt (2,447) (4,411)
Net cash provided by financing Activities 31,042 2,152
Effect of exchange rate changes
on cash and cash equivalents (10,291) (93)
Increase (decrease) in cash and cash
Equivalents 37,314 (4,705)
Cash and cash equivalents at the
beginning of the period 43,097 50,659
Cash and cash equivalents at the
end of the period $ 80,411 $ 45,954
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December September
31, 2008 30, 2009
(Unaudited)
CURRENT ASSETS:
Cash and cash Equivalents $ 50,659 $ 45,954
Restricted Cash 2,331 2,398
Short-term bank Deposits 5,703 22,703
Trade receivables, net of allowance
for doubtful accounts 200,118 138,419
Unbilled receivables 35,585 36,278
Other accounts receivable and prepaid expenses 31,344 37,248
Work in Progress 1,532 3,445
Total current Assets 327,272 286,445
LONG-TERM ASSETS:
Long-term prepaid expenses and other assets 6,806 7,225
Unbilled receivables 9,220 5,238
Deferred income taxes, net 8,356 6,629
Severance pay fund 46,478 51,117
Property and equipment, net 36,733 37,903
Intangible assets, Net 22,073 16,836
Goodwill 290,055 299,019
Total long-term assets 419,721 423,967
Total assets $ 746,993 $ 710,412
CURRENT LIABILITIES:
Short-term bank credit $ 18,072 $ 12,983
Current maturities of long-term debt 7,089 23,205
Trade Payables 47,072 23,830
Advances from customers and deferred revenues 33,280 30,348
Other accounts payable and accrued expenses 124,697 87,520
Total current liabilities 230,210 177,886
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities 60,973 57,434
Other long-term liabilities 6,444 7,375
Deferred income taxes 2,673 2,014
Accrued severance pay 55,014 56,781
Total long-term liabilities 125,104 123,604
Total stockholders' equity 391,679 408,922
Total liabilities and stockholders' equity $ 746,993 $ 710,412
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS;
GAIN FROM SALE OF ISRAELI SAP SALES AND DISTRIBUTION OPERATIONS, NET
OF RELATED EXPENSES AND OTHER CHARGES; INSURANCE SETTLEMENT RELATED TO
2007 ARBITRATION EXPENSE, NET OF RELATED EXPENSES;
SEVERANCE EXPENSES; ALL NET OF TAXES
U.S. dollars in thousands (except per share data)
Three months ended Nine months ended
September 30, September 30,
2008 2009 2008 2009
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GAAP revenues $ 164,111 $ 132,733 $ 494,429 $ 406,410
Write-off of trade
receivables resulting
from sale of Israeli SAP
sales and distribution
operations 3,155 - 3,155 -
Non-GAAP revenues $ 167,266 $ 132,733 $ 497,584 $ 406,410
GAAP gross profit $ 43,166 $ 35,980 $ 141,099 $ 108,224
Stock-based compensation 64 63 209 183
Amortization of intangible
assets 221 205 667 581
Write-off of trade
receivables resulting from
sale of Israeli SAP sales and
distribution operations 3,155 - 3,155 -
Severance expenses - - - 966
Non-GAAP gross profit $ 46,606 $ 36,248 $ 145,130 $ 109,954
GAAP operating income $ 23,059 $ 2,077 $ 44,324 $ 7,581
Stock-based Compensation 688 863 2,227 2,619
Amortization of intangible
Assets 1,365 2,207 4,322 6,240
Gain from sale of Israeli
SAP sales and distribution
operations, net (18,366) - (18,366) -
Costs and expenses resulting
from sale of Israeli SAP
sales and distribution
operations and other charges 5,631 - 5,631 -
Insurance settlement related
to 2007 arbitration expense,
net of related
expenses - - - (2,610)
Severance expenses - - - 2,646
Non-GAAP operating income $ 12,377 $ 5,147 $ 38,138 $ 16,476
GAAP operating margin 14.1% 1.6% 9.0% 1.9%
Non-GAAP operating margin 7.4% 3.9% 7.7% 4.1%
GAAP net income $ 16,147 $ 842 $ 31,131 $ 3,412
Stock-based compensation;
amortization of intangible
assets; gain from sale of
Israeli SAP sales and
distribution operations,
net of related expenses and
other charges; insurance
settlement in respect of
2007 arbitration expense,
net of related expenses;
severance expenses; all
net of taxes (6,778) 2,468 (3,244) 7,222
Non-GAAP net income $ 9,369 $ 3,310 $ 27,887 $ 10,634
GAAP diluted net earnings
per share $ 0.41 $ 0.02 $ 0.78 $ 0.09
Stock-based compensation;
amortization of intangible
assets; gain from sale of
Israeli SAP sales and
distribution operations,
net of related expenses and
other charges; insurance
settlement in respect of
2007 arbitration expense,
net of related expenses;
severance expenses; all net of
taxes (0.17) 0.06 (0.08) 0.18
Non-GAAP diluted net earnings
per share $ 0.24 $ 0.09 $ 0.70 $ 0.27
(1) See "Use of Non-GAAP Financial Information" below for more information regarding Ness' use of non-GAAP financial measures.
Media Contact:
David Kanaan
Intl: +972-54- 425-5307
Email: media.int@ness.com
Investor Relations Contact:
Drew Wright
USA: +1-201-488-3262
Email: investor@ness.com
SOURCE Ness Technologies Inc
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