Press Release
Ness Technologies Announces
Third Quarter 2007 Financial Results
Record Revenue, up 18%, and Record Backlog, up 22%, Year-over-Year
with Earnings In Line with Management Guidance
Hackensack, NJ - November 5, 2007 - Ness Technologies, Inc. (NASDAQ: NSTC), a global provider of IT services and solutions, today announced financial results for the quarter ended September 30, 2007.
Third Quarter 2007 Highlights:
| | · | Revenues were $140.7 million, an all-time record, representing an increase of $21.6 million or 18%, compared to $119.1 million in the third quarter of 2006. |
| | · | Operating income was $9.0 million, a decrease of $1.2 million or 12%, compared to $10.2 million in the third quarter of 2006. |
| | · | Net income was $7.3 million, a decrease of $0.6 million or 8%, compared to $7.9 million in the third quarter of 2006. |
| | · | Diluted net earnings per share were $0.19, compared to $0.22 in third quarter of 2006. |
| | · | Non-GAAP net earnings per share were $0.22, compared to $0.24 in the third quarter of 2006 (1). |
| | · | Backlog as of September 30, 2007 increased to a record $669 million, up 22% compared to $548 million as of September 30, 2006. |
“Ness North America and Ness Europe both turned in strong year-over-year revenue growth - as well as excellent new bookings,” said Sachi Gerlitz, President and Chief Executive Officer of Ness Technologies. “We continued to focus on organic growth, and our strong increase in total backlog further confirms our strategic direction toward offshore and near-shore IT services. We resumed strong billable headcount growth in India in the quarter, as expected, following the consolidation of our back-office operations there during the second quarter. Our strategy of leveraging our global reach continues to bear fruit, as we won a large new multi-national deal involving an offshore center in India, a near-shore center in Eastern Europe and domain expertise from our Israel operations. Overall, we delivered very good results in the third quarter, despite continuing headwinds, as our fundamentals continue to be strong.”
| (1) | See “Use of Non-GAAP Financial Information” below for more information regarding Ness’ use of non-GAAP financial measures. |
| Ness Technologies Third Quarter 2007 | Page 1 of 7 |
“We continued to focus on margin expansion and cash flow generation in the quarter,” stated Ofer Segev, Executive Vice President and Chief Financial Officer. “We continue to increase our selectivity on new engagements and on acquisitions. We are progressing steadily against our objectives of reducing DSOs and unbilled receivables, and we expect to make good progress on operating cash flows going forward.”
Guidance
Historically, Ness has included two components in its total guidance, representing its current operations and its future acquisitions.
For the full year, 2007, Ness narrows its guidance range for revenues from current operations (previously $542 million to $550 million) and diluted GAAP net earnings per share from current operations (previously $0.70 to $0.75) to revenues of $547 million to $550 million and diluted net earnings per share of $0.71 to $0.74. The company expects an additional contribution from future acquisitions in 2007 of $2 million to $5 million of revenues, and $0.01 to $0.03 of diluted GAAP net earnings per share.
On a non-GAAP basis, excluding stock-based compensation expenses and amortization of intangible assets, Ness expects to generate full year diluted net earnings per share from current operations in the range of $0.85 to $0.88. The company expects an additional non-GAAP contribution from future acquisitions in 2007 of $0.01 to $0.03 per diluted share.
In order to simplify its guidance, beginning in 2008 the company will no longer incorporate expectations from future acquisitions in its guidance.
Conference Call Details
Ness Technologies President and Chief Executive Officer, Sachi Gerlitz, and Chief Financial Officer, Ofer Segev, will conduct a conference call to discuss the third quarter 2007 results. The call, which will be simultaneously webcast, will be at 9:00 AM Eastern Time / 6:00 AM Pacific Time on Monday, November 5, 2007.
To access the Ness Technologies third quarter 2007 earnings conference call, participants in North America should dial 1-800-399-0427 and international participants should dial +1-706-634-5453. A live audio webcast of the conference call will be available on the investor relations page of the Ness Technologies corporate web site at www.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) is a global provider of end-to-end IT services and solutions designed to help clients improve competitiveness and efficiency. Ness specializes in outsourcing and offshore, systems integration and application development, software and consulting, and quality assurance and training. With over 7,700 employees, Ness maintains
| Ness Technologies Third Quarter 2007 | Page 2 of 7 |
operations in 17 countries, and partners with numerous software and hardware vendors worldwide. For more information about Ness Technologies, visit 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 non-GAAP measures of net income and earnings per share, which are adjustments from results based on GAAP to exclude non-cash stock-based compensation expenses in accordance with SFAS 123R and amortization of intangible assets, 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 business internally and as such has determined that it is important to provide this information to investors.
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 14, 2007. Ness is under no obligation to, 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 media contact:
David Kanaan
USA: 1-888-244-4919
Intl: + 972-3-540-8188
Email: media.int@ness.com
Ness Technologies investor contact:
Drew Wright
USA: 1-201-488-3262
Email: investor@ness.com
| Ness Technologies Third Quarter 2007 | Page 3 of 7 |
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
U.S. dollars in thousands (except per share data) |
| |
| | | Three months ended September 30, | | Nine months ended September 30, | |
| | | 2006 | | 2007 | | 2006 | | 2007 | |
Statement of Operations Data: | | (unaudited) | | (unaudited) | |
| Revenues | | $ | 119,135 | | $ | 140,723 | | $ | 342,791 | | $ | 392,263 | |
| Cost of revenues | | | 85,095 | | | 99,730 | | | 244,792 | | | 279,083 | |
| Gross profit | | | 34,040 | | | 40,993 | | | 97,999 | | | 113,180 | |
| | | | | | | | | | | | | | |
| Selling and marketing | | | 8,391 | | | 9,854 | | | 25,615 | | | 28,619 | |
| General and administrative | | | 15,489 | | | 22,176 | | | 46,845 | | | 63,457 | |
| Total operating expenses | | | 23,880 | | | 32,030 | | | 72,460 | | | 92,076 | |
| | | | | | | | | | | | | | |
| Operating income | | | 10,160 | | | 8,963 | | | 25,539 | | | 21,104 | |
| Financial income (expenses), net | | | (492 | ) | | 123 | | | (1,130 | ) | | 438 | |
| Other income (expenses), net | | | (8 | ) | | (117 | ) | | 436 | | | (173 | ) |
| Income before taxes on income | | | 9,660 | | | 8,969 | | | 24,845 | | | 21,369 | |
| | | | | | | | | | | | | | |
| Taxes on income | | | 1,709 | | | 1,660 | | | 4,517 | | | 4,182 | |
| Equity in net losses of an affiliate | | | (13 | ) | | — | | | (103 | ) | | — | |
| Net income | | $ | 7,938 | | $ | 7,309 | | $ | 20,225 | | $ | 17,187 | |
| | | | | | | | | | | | | |
| Basic net earnings per share | | $ | 0.22 | | $ | 0.19 | | $ | 0.57 | | $ | 0.44 | |
| Diluted net earnings per share | | $ | 0.22 | | $ | 0.19 | | $ | 0.56 | | $ | 0.43 | |
| | | | | | | | | | | | | | |
| Weighted average number of shares (in thousands) used in computing basic net earnings per share | | | 35,910 | | | 39,130 | | | 35,471 | | | 39,035 | |
| Weighted average number of shares (in thousands) used in computing diluted net earnings per share | | | 36,897 | | | 39,399 | | | 36,427 | | | 39,548 | |
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES |
RECONCILIATION OF SUPPLEMENTAL FINANCIAL INFORMATION |
U.S. dollars in thousands (except per share data) |
| |
| | | Three months ended September 30, | | Nine months ended September 30, | |
| | | 2006 | | 2007 | | 2006 | | 2007 | |
| | | (unaudited) | | (unaudited) | |
| GAAP net income | | $ | 7,938 | | $ | 7,309 | | $ | 20,225 | | $ | 17,187 | |
| Stock-based compensation | | | 204 | | | 411 | | | 522 | | | 1,015 | |
| Amortization of intangible assets | | | 992 | | | 956 | | | 2,533 | | | 2,727 | |
| Taxes on amortization of intangible assets | | | (175 | ) | | (177 | ) | | (460 | ) | | (537 | ) |
| Non-GAAP net income | | $ | 8,959 | | $ | 8,499 | | $ | 22,820 | | $ | 20,391 | |
| | | | | | | | | | | | | | |
| GAAP Earnings per share (diluted) | | $ | 0.22 | | $ | 0.19 | | $ | 0.56 | | $ | 0.43 | |
| Stock-based compensation | | | 0.01 | | | 0.01 | | | 0.01 | | | 0.03 | |
| Amortization of intangible assets | | | 0.03 | | | 0.02 | | | 0.07 | | | 0.07 | |
| Taxes on amortization of intangible assets | | | (0.00 | ) | | (0.00 | ) | | (0.01 | ) | | (0.01 | ) |
| Non-GAAP Earnings per share (diluted) | | $ | 0.24 | | $ | 0.22 | | $ | 0.63 | | $ | 0.52 | |
| | | | | | | | | | | | | | |
| Number of shares (in thousands) used in computing Non-GAAP earnings per share (diluted) | | | 36,897 | | | 39,399 | | | 36,427 | | | 39,548 | |
| Ness Technologies Third Quarter 2007 | Page 4 of 7 |
NESS TECHNOLOGIES, INC. |
AND ITS SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
U.S. dollars in thousands |
| | | Nine months ended September 30, | |
| | | 2006 | | 2007 | |
| | | (unaudited) | |
Cash flows from operating activities: | | | | | |
| Net income | | $ | 20,225 | | $ | 17,187 | |
| Adjustments required to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | |
| Stock-based compensation-related expenses | | | 522 | | | 1,015 | |
| Equity in net losses of affiliates | | | 103 | | | — | |
| Currency fluctuation of long-term debt | | | 247 | | | 103 | |
| Depreciation and amortization | | | 8,594 | | | 8,948 | |
| Deferred income taxes, net | | | 1,383 | | | 2,756 | |
| Loss on sale of property and equipment | | | 105 | | | 198 | |
| Excess tax benefits related to exercise of options | | | 628 | | | (308 | ) |
| Decrease (increase) in trade receivables, net | | | 2,010 | | | (2,812 | ) |
| Increase in unbilled receivables | | | (18,554 | ) | | (1,506 | ) |
| Increase in other accounts receivable and prepaid expenses | | | (5,575 | ) | | (8,631 | ) |
| Decrease (increase) in inventories and work in progress | | | 1,824 | | | (1,977 | ) |
| Increase in long-term prepaid expenses and other assets | | | (1,026 | ) | | (1,384 | ) |
| Decrease in trade payables | | | (10,049 | ) | | (12,702 | ) |
| Increase in advances from customers and deferred revenues | | | 862 | | | 257 | |
| Decrease in other accounts payable and accrued expenses | | | (12,644 | ) | | (1,222 | ) |
| Increase (decrease) in accrued severance pay, net | | | (103 | ) | | 95 | |
| Net cash provided by (used in) operating activities | | | (11,448 | ) | | 17 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | |
| Net cash paid for acquisition of consolidated subsidiaries | | | (13,683 | ) | | (7,744 | ) |
| Proceeds from sale of cost investment, net | | | — | | | 1,866 | |
| Additional payments in connection with acquisitions of subsidiaries in prior periods | | | (5,162 | ) | | (10,241 | ) |
| Proceeds from maturity of short-term bank deposits | | | 35,211 | | | 107 | |
| Proceeds from sale of marketable securities | | | 2,779 | | | — | |
| Proceeds from sale of property and equipment | | | 597 | | | 240 | |
| Purchase of property and equipment and capitalization of software development costs for internal use | | | (9,396 | ) | | (7,699 | ) |
| Capitalization of software development costs | | | (255 | ) | | — | |
| Net cash provided by (used in) investing activities | | | 10,091 | | | (23,471 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | |
| Exercise of options | | | 9,376 | | | 2,920 | |
| Excess tax benefits related to exercise of options | | | — | | | 308 | |
| Short-term bank loans and credit, net | | | 1,128 | | | 987 | |
| Proceeds from long-term debt | | | — | | | 12,928 | |
| Principal payments of long-term debt | | | (4,038 | ) | | (3,822 | ) |
| Net cash provided by financing activities | | | 6,466 | | | 13,321 | |
| | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 1,498 | | | 2,602 | |
| Increase (decrease) in cash and cash equivalents | | | 6,607 | | | (7,531 | ) |
| Cash and cash equivalents at the beginning of the period | | | 33,579 | | | 46,675 | |
| Cash and cash equivalents at the end of the period | | $ | 40,186 | | $ | 39,144 | |
| Ness Technologies Third Quarter 2007 | Page 5 of 7 |
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, | |
Segment Data: | | 2006 | | 2007 | | 2006 | | 2007 | |
| | | (unaudited) | | (unaudited) | |
Revenues: | | | | | | | | | |
| Ness North America (1) | | $ | 22,627 | | $ | 26,556 | | $ | 69,748 | | $ | 78,970 | |
| Technologies & Systems Group (TSG) | | | 14,538 | | | 15,912 | | | 41,957 | | | 43,277 | |
| Ness Europe (1) | | | 22,015 | | | 33,324 | | | 67,050 | | | 80,548 | |
| Ness Israel | | | 50,652 | | | 47,947 | | | 138,966 | | | 147,716 | |
| Other (1) | | | 9,303 | | | 16,984 | | | 25,070 | | | 41,752 | |
| | | $ | 119,135 | | $ | 140,723 | | $ | 342,791 | | $ | 392,263 | |
Operating Income (Loss): | | | | | | | | | | | | | |
| Ness North America (1) | | $ | 2,653 | | $ | 2,451 | | $ | 8,804 | | $ | 6,580 | |
| Technologies & Systems Group (TSG) | | | 2,275 | | | 1,909 | | | 5,467 | | | 5,683 | |
| Ness Europe (1) | | | 1,364 | | | 2,769 | | | 5,700 | | | 5,957 | |
| Ness Israel | | | 4,621 | | | 2,139 | | | 9,158 | | | 7,785 | |
| Other (1) | | | 589 | | | 1,900 | | | 1,001 | | | 3,309 | |
| Unallocated Expenses | | | (1,342 | ) | | (2,205 | ) | | (4,591 | ) | | (8,209 | ) |
| | $ | 10,160 | | $ | 8,963 | | $ | 25,539 | | $ | 21,104 | |
Geographic Data: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | |
| Israel | | $ | 60,362 | | $ | 59,727 | | $ | 165,864 | | $ | 183,667 | |
| North America | | | 29,625 | | | 33,379 | | | 92,940 | | | 97,135 | |
| Europe | | | 24,970 | | | 40,616 | | | 70,849 | | | 93,324 | |
| Asia Pacific | | | 4,178 | | | 7,001 | | | 13,138 | | | 18,137 | |
| | $ | 119,135 | | $ | 140,723 | | $ | 342,791 | | $ | 392,263 | |
| | | | | | | | | | | | | |
| (1) | On January 1, 2007, we expanded our Managed Strategic Services (MSS) segment to include the non-financial services portions of Ness Innovative Business Services (formerly Innova), a component of our “Other” segment, and we changed the name of MSS to Ness North America; and we moved our Ness UK organization from our “Other” segment to our Ness Europe segment. 2006 results for these three segments have been reclassified to reflect the current organization of the segments. |
| Ness Technologies Third Quarter 2007 | Page 6 of 7 |
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
U.S. dollars in thousands |
| |
| | | December 31, | | September 30, | |
| | | 2006 | | 2007 | |
| | | | | (unaudited) | |
| CURRENT ASSETS: | | | | | |
| Cash and cash equivalents | | $ | 46,675 | | $ | 39,144 | |
| Restricted cash | | | 518 | | | 595 | |
| Short-term bank deposits | | | 1,509 | | | 1,514 | |
| Trade receivables, net of allowance for doubtful accounts | | | 136,934 | | | 156,613 | |
| Unbilled receivables | | | 28,635 | | | 40,913 | |
| Other accounts receivable and prepaid expenses | | | 15,628 | | | 26,215 | |
| Inventories and work in progress | | | 411 | | | 2,522 | |
| Total current assets | | | 230,310 | | | 267,516 | |
| | | | | | | | |
| LONG-TERM ASSETS: | | | | | | | |
| Long-term prepaid expenses and other assets | | | 6,480 | | | 8,295 | |
| Investments at cost | | | 1,193 | | | 1,274 | |
| Unbilled receivables | | | 14,985 | | | 12,130 | |
| Deferred income taxes, net | | | 7,529 | | | 5,347 | |
| Severance pay fund | | | 42,321 | | | 46,996 | |
| Total long-term assets | | | 72,508 | | | 74,042 | |
| | | | | | | | |
| Property and equipment, net | | | 28,279 | | | 31,668 | |
| Intangible assets, net | | | 8,336 | | | 9,060 | |
| Goodwill | | | 201,718 | | | 230,501 | |
| Total assets | | $ | 541,151 | | $ | 612,787 | |
| | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | |
| Short-term bank credit | | $ | 4,477 | | $ | 15,843 | |
| Current maturities of long-term debt | | | 4,420 | | | 1,644 | |
| Trade payables | | | 42,602 | | | 41,577 | |
| Advances from customers and deferred revenues | | | 30,135 | | | 33,919 | |
| Other accounts payable and accrued expenses | | | 76,128 | | | 80,641 | |
| Total current liabilities | | | 157,762 | | | 173,624 | |
| | | | | | | | |
| LONG-TERM LIABILITIES: | | | | | | | |
| Long-term debt and other liabilities, net of current maturities | | | 3,703 | | | 17,068 | |
| Accrued severance pay | | | 47,031 | | | 54,233 | |
| Total long-term liabilities | | | 50,734 | | | 71,301 | |
| | | | | | | | |
| Total stockholders' equity | | | 332,655 | | | 367,862 | |
| Total liabilities and stockholders' equity | | $ | 541,151 | | $ | 612,787 | |
| Ness Technologies Third Quarter 2007 | Page 7 of 7 |
