Ness Technologies Announces Record
Second Quarter 2008 Financial Results
Operating income rises 107% and net income rises 94% year-over-year, to GAAP $0.21
per diluted share, on a 36% increase in revenues, with strong operating cash flows
Hackensack, NJ - July 29, 2008 - Ness Technologies, Inc. (NASDAQ: NSTC), a global provider of IT services and solutions, today announced financial results for the quarter ended June 30, 2008.
Second Quarter 2008 Highlights:
| | · | Revenues were an all-time record $170.6 million, up 36% year-over-year. |
| | · | Operating income was an all-time record $11.2 million, up 107% year-over-year. |
| | · | Net income was $8.1 million, up 94% year-over-year. |
| | · | GAAP diluted net earnings per share was $0.21, compared to $0.11 in the second quarter of 2007. |
| | · | Non-GAAP diluted net earnings per share was $0.25, compared to $0.13 in the second quarter of 2007 (1). |
| | · | Operating cash flows for the quarter were a second quarter record $13.0 million. |
| | · | Backlog as of June 30, 2008 was a record $799 million, up 23% compared to $650 million as of June 30, 2007. |
“We had a great quarter, executing well on our strategy and setting several new records, in what is normally a seasonally weak quarter for Ness,” said Sachi Gerlitz, president and chief executive officer of Ness Technologies. “Our Ness Europe and Ness Israel operations continued to perform well, while our Software Product Labs business improved markedly from first quarter. In this quarter, we also see the benefit from our increased focus on high-margin business around the world. With continued backlog growth and a strong sales pipeline, we remain optimistic about the future.”
“Second quarter did have some macroeconomic challenges, particularly in terms of currency headwinds; despite this, we did well - through good performance and efficient operations,” said Ofer Segev, executive vice president and chief financial officer. “We are particularly pleased about our record second quarter cash flows from operations. Our balance sheet and liquidity are strong, and we feel good about the future.”
(1) | See “Use of Non-GAAP Financial Information” below for more information regarding Ness’ use of non-GAAP financial measures. |
| Ness Technologies Second Quarter 2008 | Page 1 of 7 |
Guidance
For the full year 2008, Ness reiterates its guidance of GAAP diluted net earnings per share in the range of $1.00 to $1.05, and increases its revenue guidance to the range of $670 million to $695 million.
The recently announced sale to SAP AG of the company’s Israeli SAP sales and distribution division did not negatively impact guidance, as Ness anticipates that the future reduction in revenue and earnings will be offset by other factors, including stronger than expected revenue growth. These factors, as well as foreign exchange effects, account for the increase in revenue guidance.
In addition, Ness expects to recognize a gain of $0.18 to $0.23 per diluted share in the third quarter, upon the closing of the sale of its Israeli SAP sales and distribution division.
Conference Call Details
Sachi Gerlitz, president and chief executive officer of Ness Technologies, and Ofer Segev, executive vice president and chief financial officer, will also conduct a conference call to discuss the second quarter 2008 results. The call, which will be simultaneously webcast, will begin at 8:30 AM Eastern Time / 5:30 AM Pacific Time on Tuesday, July 29, 2008.
To access the Ness Technologies second quarter 2008 earnings conference call, participants in North America should dial 1-800-399-0427 and international participants should dial +1-706-643-1624. 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) is a global provider of end-to-end IT services and solutions designed to help clients improve competitiveness and efficiency. The Ness portfolio of solutions and services consists of software product development, including both offshore and near-shore outsourcing; system integration, application development and consulting; and software distribution. With over 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 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 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.
| Ness Technologies Second Quarter 2008 | Page 2 of 7 |
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 17, 2008. 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 Second Quarter 2008 | 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 June 30, | | Six months ended June 30, | |
| | | 2007 | | 2008 | | 2007 | | 2008 | |
| | | (Unaudited) | | (Unaudited) | |
| Revenues | | $ | 125,762 | | $ | 170,586 | | $ | 251,540 | | $ | 330,318 | |
| Cost of revenues | | | 89,677 | | | 117,995 | | | 179,353 | | | 232,385 | |
| Gross profit | | | 36,085 | | | 52,591 | | | 72,187 | | | 97,933 | |
| | | | | | | | | | | | | | |
| Selling and marketing | | | 9,293 | | | 14,538 | | | 18,765 | | | 27,746 | |
| General and administrative | | | 21,367 | | | 26,817 | | | 41,281 | | | 48,922 | |
| Total operating expenses | | | 30,660 | | | 41,355 | | | 60,046 | | | 76,668 | |
| | | | | | | | | | | | | | |
| Operating income | | | 5,425 | | | 11,236 | | | 12,141 | | | 21,265 | |
| Financial income (expenses), net | | | (74 | ) | | (1,032 | ) | | 315 | | | (2,448 | ) |
| Other expense, net | | | (62 | ) | | — | | | (56 | ) | | — | |
| Income before taxes on income | | | 5,289 | | | 10,204 | | | 12,400 | | | 18,817 | |
| | | | | | | | | | | | | | |
| Taxes on income | | | 1,126 | | | 2,114 | | | 2,522 | | | 3,833 | |
| Net income | | $ | 4,163 | | $ | 8,090 | | $ | 9,878 | | $ | 14,984 | |
| | | | | | | | | | | | | | |
| Basic net earnings per share | | $ | 0.11 | | $ | 0.21 | | $ | 0.25 | | $ | 0.38 | |
| Diluted net earnings per share | | $ | 0.11 | | $ | 0.21 | | $ | 0.25 | | $ | 0.38 | |
| | | | | | | | | | | | | | |
| Weighted average number of shares (in thousands) used in computing basic net earnings per share | | | 39,041 | | | 39,214 | | | 38,957 | | | 39,208 | |
| Weighted average number of shares (in thousands) used in computing diluted net earnings per share | | | 39,314 | | | 39,426 | | | 39,325 | | | 39,462 | |
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
RECONCILIATION OF SUPPLEMENTAL FINANCIAL INFORMATION
U.S. dollars in thousands (except per share data)
| | | Three months ended June 30, | | Six months ended June 30, | |
| | | 2007 | | 2008 | | 2007 | | 2008 | |
| | | (Unaudited) | | (Unaudited) | |
| GAAP net income | | $ | 4,163 | | $ | 8,090 | | $ | 9,878 | | $ | 14,984 | |
| Stock-based compensation | | | 228 | | | 648 | | | 604 | | | 1,539 | |
| Amortization of intangible assets | | | 900 | | | 1,487 | | | 1,770 | | | 2,957 | |
| Taxes on stock-based compensation and amortization of intangible assets | | | (192 | ) | | (486 | ) | | (360 | ) | | (962 | ) |
| Non-GAAP net income | | $ | 5,099 | | $ | 9,739 | | $ | 11,892 | | $ | 18,518 | |
| | | | | | | | | | | | | | |
| GAAP diluted net earnings per share | | $ | 0.11 | | $ | 0.21 | | $ | 0.25 | | $ | 0.38 | |
| Stock-based compensation | | | 0.01 | | | 0.02 | | | 0.01 | | | 0.04 | |
| Amortization of intangible assets | | | 0.02 | | | 0.04 | | | 0.05 | | | 0.07 | |
| Taxes on stock-based compensation and amortization of intangible assets | | | (0.00 | ) | | (0.01 | ) | | (0.01 | ) | | (0.02 | ) |
| Non-GAAP diluted net earnings per share | | $ | 0.13 | | $ | 0.25 | | $ | 0.30 | | $ | 0.47 | |
| | | | | | | | | | | | | | |
| Weighted average number of shares (in thousands) used in computing non-GAAP diluted net earnings per share | | | 39,314 | | | 39,426 | | | 39,325 | | | 39,462 | |
| Ness Technologies Second Quarter 2008 | Page 4 of 7 |
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands
| | | Three months ended June 30, | | Six months ended June 30, | |
Segment Data: | | 2007 | | 2008 | | 2007 | | 2008 | |
| | | (Unaudited) | | (Unaudited) | |
Revenues: | | | | | | | | | |
| Ness North America | | $ | 26,313 | | $ | 30,595 | | $ | 52,414 | | $ | 57,662 | |
| Technologies & Systems Group (TSG) | | | 13,212 | | | 14,277 | | | 27,365 | | | 30,815 | |
| Ness Europe | | | 24,350 | | | 44,930 | | | 47,224 | | | 85,090 | |
| Ness Israel | | | 49,169 | | | 52,034 | | | 99,769 | | | 103,336 | |
| Other | | | 12,718 | | | 28,750 | | | 24,768 | | | 53,415 | |
| | | $ | 125,762 | | $ | 170,586 | | $ | 251,540 | | $ | 330,318 | |
Operating Income (Loss): | | | | | | | | | | | | | |
| Ness North America | | $ | 2,126 | | $ | 2,021 | | $ | 4,129 | | $ | 3,116 | |
| Technologies & Systems Group (TSG) | | | 1,404 | | | 894 | | | 3,774 | | | 3,109 | |
| Ness Europe | | | 1,737 | | | 4,491 | | | 3,188 | | | 8,974 | |
| Ness Israel | | | 2,557 | | | 4,962 | | | 5,646 | | | 9,656 | |
| Other | | | 815 | | | 2,184 | | | 1,408 | | | 1,972 | |
| Unallocated Expenses | | | (3,214 | ) | | (3,316 | ) | | (6,004 | ) | | (5,562 | ) |
| | | $ | 5,425 | | $ | 11,236 | | $ | 12,141 | | $ | 21,265 | |
Geographic Data: | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | |
| Israel | | $ | 63,307 | | $ | 59,979 | | $ | 123,940 | | $ | 120,502 | |
| North America | | | 29,368 | | | 45,006 | | | 63,756 | | | 86,920 | |
| Europe | | | 27,407 | | | 58,368 | | | 52,708 | | | 108,599 | |
| Asia Pacific | | | 5,680 | | | 7,233 | | | 11,136 | | | 14,297 | |
| | | $ | 125,762 | | $ | 170,586 | | $ | 251,540 | | $ | 330,318 | |
| Ness Technologies Second Quarter 2008 | Page 5 of 7 |
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| | | Six months ended June 30, | |
| | | 2007 | | 2008 | |
| | | (Unaudited) | |
Cash flows from operating activities: | | | | | |
| Net income | | $ | 9,878 | | $ | 14,984 | |
| Adjustments required to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | |
| Stock-based compensation-related expenses | | | 604 | | | 1,539 | |
| Currency fluctuation of long-term debt | | | 24 | | | 5 | |
| Depreciation and amortization | | | 5,853 | | | 8,426 | |
| Arbitration settlement | | | — | | | (9,452 | ) |
| Loss on sale of property and equipment | | | 101 | | | 6 | |
| Excess tax benefits related to exercise of options | | | (308 | ) | | — | |
| Decrease in trade receivables, net | | | 1,153 | | | 4,364 | |
| Increase in unbilled receivables | | | (7,930 | ) | | (3,372 | ) |
| Increase in other accounts receivable and prepaid expenses | | | (9,188 | ) | | (971 | ) |
| Increase in work-in-progress | | | (883 | ) | | (2,094 | ) |
| Decrease (increase) in long-term prepaid expenses | | | (771 | ) | | 159 | |
| Deferred income taxes, net | | | 454 | | | 3,674 | |
| Increase (decrease) in trade payables | | | (7,072 | ) | | 268 | |
| Increase in advances from customers and deferred revenues | | | 2,625 | | | 8,374 | |
| Increase in other long-term liabilities | | | — | | | 341 | |
| Increase (decrease) in other accounts payable and accrued expenses | | | 10 | | | (9,611 | ) |
| Decrease in accrued severance pay, net | | | (500 | ) | | (1,748 | ) |
| Net cash provided by (used in) operating activities | | | (5,950 | ) | | 14,892 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | |
| Net cash paid for acquisition of a consolidated subsidiary | | | (2,495 | ) | | — | |
| Proceeds from sale of cost investment | | | 1,866 | | | — | |
| Additional payments in connection with acquisitions of subsidiaries in prior periods | | | (10,241 | ) | | (5,973 | ) |
| Proceeds from maturity of short-term bank deposits | | | 1,036 | | | 2,655 | |
| Proceeds from sale of property and equipment | | | 222 | | | 102 | |
| Purchase of property and equipment and capitalization of software developed for internal use | | | (4,980 | ) | | (6,539 | ) |
| Net cash used in investing activities | | | (14,592 | ) | | (9,755 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | |
| Exercise of options | | | 2,273 | | | 165 | |
| Dividend to former shareholder of an acquired subsidiary | | | — | | | (10,048 | ) |
| Excess tax benefits related to exercise of options | | | 308 | | | — | |
| Short-term bank loans and credit, net | | | 3,979 | | | 4,523 | |
| Proceeds from long-term debt | | | — | | | 25,090 | |
| Principal payments of long-term debt | | | (2,069 | ) | | (1,972 | ) |
| Net cash provided by financing activities | | | 4,491 | | | 17,758 | |
| | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 2,100 | | | (1,525 | ) |
| Increase (decrease) in cash and cash equivalents | | | (13,951 | ) | | 21,370 | |
| Cash and cash equivalents at the beginning of the period | | | 46,675 | | | 43,097 | |
| Cash and cash equivalents at the end of the period | | $ | 32,724 | | $ | 64,467 | |
| Ness Technologies Second Quarter 2008 | Page 6 of 7 |
NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
| | | December 31, 2007 | | June 30, 2008 | |
| | | | | (Unaudited) | |
| CURRENT ASSETS: | | | | | |
| Cash and cash equivalents | | $ | 43,097 | | $ | 64,467 | |
| Restricted cash | | | 602 | | | — | |
| Short-term bank deposits | | | 2,361 | | | 206 | |
| Trade receivables, net of allowance for doubtful accounts | | | 182,281 | | | 196,527 | |
| Unbilled receivables | | | 37,634 | | | 45,281 | |
| Other accounts receivable and prepaid expenses | | | 31,249 | | | 33,105 | |
| Work in progress | | | 2,563 | | | 5,065 | |
| Total current assets | | | 299,787 | | | 344,651 | |
| | | | | | | | |
| LONG-TERM ASSETS: | | | | | | | |
| Long-term prepaid expenses and other assets | | | 8,014 | | | 8,230 | |
| Investments at cost | | | 564 | | | 655 | |
| Unbilled receivables | | | 8,919 | | | 11,860 | |
| Deferred income taxes, net | | | 7,806 | | | 12,949 | |
| Severance pay fund | | | 49,731 | | | 56,573 | |
| Property and equipment, net | | | 34,072 | | | 37,442 | |
| Intangible assets, net | | | 17,011 | | | 15,147 | |
| Goodwill | | | 263,444 | | | 284,643 | |
| Total long-term assets | | | 389,561 | | | 427,499 | |
| | | | | | | | |
| Total assets | | $ | 689,348 | | $ | 772,150 | |
| | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | |
| Short-term bank credit | | $ | 2,819 | | $ | 8,026 | |
| Current maturities of long-term debt | | | 1,662 | | | 3,084 | |
| Trade payables | | | 54,536 | | | 60,757 | |
| Advances from customers and deferred revenues | | | 27,297 | | | 40,378 | |
| Other accounts payable and accrued expenses | | | 120,113 | | | 108,255 | |
| Total current liabilities | | | 206,427 | | | 220,500 | |
| | | | | | | | |
| LONG-TERM LIABILITIES: | | | | | | | |
| Long-term debt, net of current maturities | | | 47,191 | | | 72,024 | |
| Other long-term liabilities | | | 4,864 | | | 5,808 | |
| Deferred income taxes | | | 2,228 | | | 1,855 | |
| Accrued severance pay | | | 57,465 | | | 63,377 | |
| Total long-term liabilities | | | 111,748 | | | 143,064 | |
| | | | | | | | |
| Total stockholders’ equity | | | 371,173 | | | 408,586 | |
| Total liabilities and stockholders’ equity | | $ | 689,348 | | $ | 772,150 | |
| Ness Technologies Second Quarter 2008 | Page 7 of 7 |
