Processing Content
Revenues Increase 8% and Backlog Rises 22% Year-over-Year With Earnings in Line With Management Guidance HACKENSACK, New Jersey, July 30 /PRNewswire-FirstCall/ -- NessTechnologies, Inc. (NASDAQ: NSTC), a global provider of IT services andsolutions, today announced financial results for the quarter ended June 30,2007. Second Quarter 2007 Highlights: - Revenues were $125.8 million, an increase of $9.1 million or 8%,compared to $116.6 million in the second quarter of 2006. - Second quarter results were affected, as guided, by normalseasonality in Israel; by exceptional expenses of about $2.1 million,including those associated with Ness' back-office consolidation in Indiaand with severance expenses; and by foreign exchange effects due to thestrength of the Rupee versus the U.S. Dollar. - Operating income was $5.4 million, a decrease of $2.0 million or 27%,compared to $7.5 million in the second quarter of 2006. - Net income was $4.2 million, a decrease of $1.8 million or 30%,compared to $6.0 million in the second quarter of 2006. - Diluted net earnings per share were $0.11, compared to $0.16 insecond quarter of 2006. - Non-GAAP net earnings per share were $0.13, compared to $0.18 in thesecond quarter of 2006 (1). - Backlog as of June 30, 2007 increased to a record $650 million, up22% compared to $532 million as of June 30, 2006. "Our results for the quarter were on target, as we largely completedthe reorganization planned for the first half of this year," said SachiGerlitz, President and Chief Executive Officer of Ness Technologies. "Withthese changes behind us, we are now better geared for future revenue andearnings growth. We have continued to win significant new deals, includingmore large deals than previously. Like the rest of the industry, we'reexperiencing challenges in India that will affect our 2007 revenues andearnings, and therefore we're adjusting our guidance for the remainder ofthe year. We continue to see India as an important engine for futuregrowth. Our strong backlog growth clearly reflects the future potential ofNess, especially in our key growth areas, and our fundamentals are strong." "Despite significant expenses on our cost of revenues line due to thesharp decline of the U.S. Dollar against the Indian Rupee, we were able tomaintain our gross margin and soften the impact on our operating margin andnet income through cost efficiencies resulting from our expense platformrealignment," stated Ofer Segev, Executive Vice President and ChiefFinancial Officer. "In addition, we made good progress on reducing unbilledreceivables and DSOs, which we expect to translate to strong operating cashflows in future quarters." Guidance Ness is adjusting its guidance for the second half of the year toaccount for slightly higher foreign exchange effects than previouslyestimated, and to account for the one-quarter delay in headcount growth thecompany experienced in India in the first half of the year. For the full year 2007, Ness expects to generate revenues in the rangeof $557 million to $565 million, and diluted GAAP net earnings per share inthe range of $0.77 to $0.82. For the third quarter 2007, Ness expects togenerate diluted GAAP net earnings per share of $0.17 to $0.21 on revenuesof $140 million to $145 million. On a non-GAAP basis, excluding stock-based compensation expenses andamortization of intangible assets, Ness expects to generate diluted netearnings per share in the range of $0.21 to $0.25 for the third quarter,and in the range of $0.91 to $0.96 for the full year. Conference Call Details Ness Technologies President and Chief Executive Officer, Sachi Gerlitz,and Chief Financial Officer, Ofer Segev, will conduct a conference call todiscuss the second quarter 2007 results. The call, which will besimultaneously webcast, will be at 9:00 AM Eastern Time / 6:00 AM PacificTime on Monday, July 30, 2007. To access the Ness Technologies second quarter 2007 earnings conferencecall, participants in North America should dial 1-800-399-0427 andinternational participants should dial +1-706-634-5453. A live audiowebcast of the conference call will be available on the investor relationspage of the Ness Technologies corporate web site at http://www.ness.com. Pleasevisit the web site at least 15 minutes early to register for theteleconference webcast and download any necessary audio software. A replayof the call will be available on the web site approximately two hours afterthe conference call is completed. About Ness Technologies Ness Technologies (NASDAQ: NSTC) is a global provider of end-to-end ITservices and solutions designed to help clients improve competitiveness andefficiency. Ness specializes in outsourcing and offshore, systemsintegration and application development, software and consulting, andquality assurance and training. With about 7,500 employees, Ness maintainsoperations in 16 countries, and partners with numerous software andhardware 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 generallyaccepted accounting principles, or GAAP, Ness uses non-GAAP measures of netincome and earnings per share, which are adjustments from results based onGAAP to exclude non-cash stock-based compensation expenses in accordancewith SFAS 123R and amortization of intangible assets. Ness' managementbelieves the non-GAAP financial information provided in this release isuseful to investors' understanding and assessment of Ness' on-going coreoperations and prospects for the future. The presentation of this non-GAAPfinancial information is not intended to be considered in isolation or as asubstitute for results prepared in accordance with GAAP. Management usesboth GAAP and non-GAAP information in evaluating and operating businessinternally and as such has determined that it is important to provide thisinformation to investors. Forward Looking Statement This press release contains forward-looking statements within themeaning 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" orsimilar expressions. Forward-looking statements reflect management'scurrent expectations, as of the date of this press release, and involvecertain risks and uncertainties. Ness' actual results could differmaterially from those anticipated in these forward looking statements as aresult of various factors. Some of the factors that could cause futureresults to materially differ from the recent results or those projected inforward-looking statements include the "Risk Factors" described in Ness'Annual Report of Form 10-K filed with the Securities and ExchangeCommission on March 14, 2007. Ness is under no obligation to, and expresslydisclaims any obligation to, update or alter its forward-lookingstatements, whether as a result of such changes, new information,subsequent events or otherwise. NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME U.S. dollars in thousands (except per share data) Three months ended Six months ended June 30, June 30, 2006 2007 2006 2007 Statement of Operations Data: (unaudited) (unaudited) Revenues $116,614 $125,762 $223,656 $251,540 Cost of revenues 83,981 89,677 159,697 179,353 Gross profit 32,633 36,085 63,959 72,187 Selling and marketing 8,733 9,293 17,224 18,765 General and administrative 16,426 21,367 31,356 41,281 Total operating expense 25,159 30,660 48,580 60,046 Operating income 7,474 5,425 15,379 12,141 Financial income (expenses), net (577) (74) (638) 315 Other income (expenses), net 483 (62) 444 (56) Income before taxes on income 7,380 5,289 15,185 12,400 Taxes on income 1,340 1,126 2,808 2,522 Equity in net losses of an affiliate (90) - (90) - Net income $5,950 $4,163 $12,287 $9,878 Basic net earnings per share $0.17 $0.11 $0.35 $0.25 Diluted net earnings per share $0.16 $0.11 $0.34 $0.25 Weighted average number of shares (in thousands) used in computing basic net earnings per share 35,602 39,041 35,239 38,957 Weighted average number of shares (in thousands) used in computing diluted net earnings per share 36,718 39,314 36,335 39,325 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES RECONCILIATION OF SUPPLEMENTAL FINANCIAL INFORMATION U.S. dollars in thousands (except per share data) Three months ended Six months ended June 30, June 30, 2006 2007 2006 2007 (unaudited) (unaudited) GAAP net income $5,950 $4,163 $12,287 $9,878 Stock-based compensation 146 228 318 604 Amortization of intangible assets 773 900 1,541 1,770 Taxes on amortization of intangible assets (140) (192) (285) (360) Non-GAAP net income $6,729 $5,099 $13,861 $11,892 GAAP Earnings per share (diluted) $ 0.16 $ 0.11 $ 0.34 $ 0.25 Stock-based compensation 0.00 0.00 0.01 0.01 Amortization of intangible assets 0.02 0.02 0.04 0.05 Taxes on amortization of intangible assets (0.00) (0.00) (0.01) (0.01) Non-GAAP Earnings per share (diluted) $ 0.18 $ 0.13 $ 0.38 $ 0.30 Number of shares (in thousands) used in computing Non-GAAP earnings per share (diluted) 36,718 39,314 36,335 39,325 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Six months ended June 30, 2006 2007 (unaudited) Cash flows from operating activities: Net income $12,287 $9,878 Adjustments required to reconcile net income to net cash used in operating activities: Stock-based compensation-related expenses 103 604 Equity in net losses of affiliates 90 - Currency fluctuation of long-term debt 421 24 Accrued interest on long-term debt (1,207) - Depreciation and amortization 5,641 5,853 Deferred income taxes, net (586) 454 Loss (gain) on sale of property and equipment (139) 101 Excess tax benefits related to exercise of options - (308) Decrease (increase) in trade receivables, net (3,622) 421 Increase in unbilled receivables (11,581) (7,194) Decrease (increase) in other accounts receivable and prepaid expenses 332 (8,940) Decrease (increase) in inventories and work in progress 2,080 (945) Increase in long-term prepaid expenses (614) (771) Decrease in trade payables (13,844) (7,191) Increase in advances from customers and deferred revenues 2,802 2,633 Decrease in other accounts payable and accrued expenses (11,052) (1,302) Increase (decrease) in accrued severance pay, net (242) 877 Net cash used in operating activities $(19,131) $(5,806) Cash flows from investing activities: Net cash paid for acquisition of a consolidated subsidiary (13,683) (2,495) Proceeds from sale of cost investment, net - 1,866 Additional payments in connection with acquisitions of subsidiaries in prior periods (5,277) (10,241) Proceeds from maturity of (investment in) short-term bank deposits 16,089 1,036 Proceeds from sale of marketable securities 2,779 - Proceeds from sale of property and equipment 651 222 Purchase of property and equipment and capitalization of software development costs for internal use (4,514) (4,980) Capitalization of software development costs (255) - Net cash used in investing activities (4,210) (14,592) Cash flows from financing activities: Exercise of options 5,954 2,273 Excess tax benefits related to exercise of options - 308 Short-term bank loans and credit, net 20,014 3,587 Principal payments of long-term debt (1,487) (1,821) Net cash provided by financing activities 24,481 4,347 Effect of exchange rate changes on cash and cash equivalents (1,898) 2,100 Decrease in cash and cash equivalents (758) (13,951) Cash and cash equivalents at the beginning of the period 33,579 46,675 Cash and cash equivalents at the end of the period $32,821 $32,724 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME U.S. dollars in thousands (except per share data) Three months Six months ended ended June 30, June 30, Three months ended September December 30, 2006 31, 2006 Segment Data: 2006 2007 2006 2007 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Ness North America (1) $26,323 $26,313 $47,121 $52,414 $22,627 $23,611 Technologies & Systems Group (TSG) 12,635 13,212 27,419 27,365 14,538 14,434 Ness Europe (1) 23,949 24,350 45,035 47,224 22,015 31,031 Ness Israel 44,255 49,169 88,314 99,769 50,652 51,043 Other (1) 9,452 12,718 15,767 24,768 9,303 11,408 $116,614 $125,762 $223,656 $251,540 $119,135 $131,527 Operating Income (Loss): Ness North America (1) $3,567 $2,126 $6,151 $4,129 $2,653 $2,335 Technologies & Systems Group (TSG) 1,331 1,404 3,192 3,774 2,275 1,462 Ness Europe (1) 2,654 1,737 4,336 3,188 1,364 2,255 Ness Israel 1,401 2,557 4,537 5,646 4,621 4,996 Other (1) 311 815 412 1,408 589 (351) Unallocated Expenses (1,790) (3,214) (3,249) (6,004) (1,342) (2,625) $7,474 $5,425 $15,379 $12,141 $10,160 $8,072 Geographic Data: Revenues: Israel $52,577 $63,307 $105,502 $123,940 North America 34,989 29,368 63,315 63,756 Europe 24,603 27,407 45,879 52,708 Asia Pacific 4,445 5,680 8,960 11,136 $116,614 $125,762 $223,656 $251,540 (1)On January 1, 2007, we expanded our Managed Strategic Services (MSS)segment to include the non-financial services portions of Ness InnovativeBusiness Services (formerly Innova), a component of our "Other" segment,and we changed the name of MSS to Ness North America; and we moved our NessUK organization from our "Other" segment to our Ness Europe segment. 2006results for these three segments have been reclassified to reflect thecurrent organization of the segments. NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, June 30, 2006 2007 (unaudited) CURRENT ASSETS: Cash and cash equivalents $46,675 $32,724 Short-term bank deposits 2,027 1,102 Trade receivables, net of allowance for doubtful accounts 139,018 138,956 Unbilled receivables 28,846 41,857 Other accounts receivable and prepaid expenses 13,796 21,519 Inventories and work in progress 177 1,116 Total current assets 230,539 237,274 LONG-TERM ASSETS: Long-term prepaid expenses and other assets 6,480 7,451 Investments at cost 1,193 1,251 Unbilled receivables 14,985 9,540 Deferred income taxes 7,529 5,911 Severance pay fund 42,321 42,670 Total long-term assets 72,508 66,823 Property and equipment, net 28,279 29,733 Other intangible assets, net 8,336 7,449 Goodwill 201,718 204,143 Total assets $541,380 $545,422 CURRENT LIABILITIES: Short-term bank credit $4,477 $8,023 Current maturities of long-term debt 4,420 3,684 Trade payables 42,602 35,865 Advances from customers and deferred revenues 30,364 33,079 Other accounts payable and accrued expenses 76,128 64,867 Total current liabilities 157,991 145,518 LONG-TERM LIABILITIES: Long-term debt and other liabilities, net of current maturities 3,703 4,323 Accrued severance pay 47,031 48,226 Total long-term liabilities 50,734 52,549 Total stockholders' equity 332,655 347,355 Total liabilities and stockholders' equity $541,380 $545,422 (1) See "Use of Non-GAAP Financial Information" below for moreinformation regarding Ness' use of non-GAAP financial measures. 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
