Ness Technologies Announces Second Quarter 2009 Financial Results

Share Name	Share Symbol	Market	Type
Ness Technologies, Inc. (MM)	NASDAQ:NSTC	NASDAQ	Common Stock

Ness (NASDAQ:NSTC)
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HACKENSACK, New Jersey, July 29 /PRNewswire-FirstCall/ -- Ness Technologies, Inc. (NASDAQ:NSTC), a global provider of IT services and solutions, today announced financial results for the quarter ended June 30, 2009. Second Quarter 2009 Highlights: - On a GAAP basis: - Revenues were US$137.2 million, down 20% year-over-year. Approximately half of the decrease, or US$17.3 million, was due to foreign currency translation effects on non-dollar revenues. - Operating income was US$2.1 million, down 81% year-over-year. - Net income was US$1.0 million, down 87% year-over-year. - Diluted net earnings per share were US$0.03, compared to US$0.21 in the second quarter of 2008. - On a non-GAAP basis, excluding stock-based compensation expenses and amortization of intangibles (1): - Operating income was US$5.0 million, down 62% year-over-year. - Net income was US$3.4 million, down 65% year-over-year. - Diluted net earnings per share were US$0.09, compared to US$0.25 in the second quarter of 2008. - Cash and cash equivalents and short-term bank deposits were flat sequentially at US$59.2 million as of June 30, 2009. - Operating cash flows for the quarter were US$6.5 million, with record year-to-date operating cash flows of US$15.1 million. - Backlog as of June 30, 2009 was US$682 million, flat sequentially and down 15% year-over-year. Excluding the negative effect of foreign currency translation effects from the stronger U.S. dollar, backlog was down 7% year-over-year. - Headcount was approximately 7,800 as of June 30, 2009. "Although second quarter conditions remained quite challenging, we are seeing signs that the demand environment is beginning to stabilize in some of our markets," said Sachi Gerlitz, president and chief executive officer of Ness Technologies. "We delivered earnings on plan and modest sequential revenue growth - on track with our planned recovery - thanks to significant ongoing efforts by our management and staff, and we are seeing pipeline growth again in some parts of the company. It feels good to be turning back from defense to offense." 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, performed well in the second quarter, with solid operating margins and moderate year-over-year revenue growth. - The company's System Integration and Application Development segment continued to be impacted in the second quarter by the worldwide economic slowdown, but it delivered sequentially higher operating margins on steady revenues. - The company's Software Distribution segment, which resells third-party enterprise software licenses, underperformed significantly in the second quarter, turning in a small operating loss on a moderate sequential revenue decline. "We continued to generate good operating cash flows and our balance sheet remains strong, despite the economic environment," said Ofer Segev, executive vice president and chief financial officer. "Our cost management during the last two quarters helped us remain profitable, and we are a much more efficient company now, which we believe will pay benefits in the future as we resume growth and margin expansion into a recovering economy." Guidance In line with Ness' financial guidance practices, the company provides earnings per share guidance on a non-GAAP basis only. 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. Ness reiterates its full year guidance of non-GAAP diluted net earnings per share in the range of US$0.40 to US $0.60 and revenues in the range of US $590 million to US $620 million. This guidance assumes that foreign currency exchange rates remain at July levels. 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 second quarter 2009 results. The call, which will be simultaneously webcast, will begin at 8:30 AM Eastern Time / 5:30 AM Pacific Time on Wednesday, July 29, 2009. To access the Ness Technologies second 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) 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) an insurance settlement related to a 2007 arbitration expense, net of related expenses, net of taxes; and (c) 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 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 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. (1) See "Use of Non-GAAP Financial Information" below for more information regarding Ness' use of non-GAAP financial measures. 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, 2008 2009 2008 2009 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues $ 170,586 $ 137,243 $ 330,318 $ 273,677 Cost of revenues 117,995 99,839 232,385 201,433 Gross profit 52,591 37,404 97,933 72,244 Selling and marketing 14,538 11,792 27,746 22,953 General and administrative 26,817 23,474 48,922 48,931 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 41,355 35,266 76,668 66,740 Operating income 11,236 2,138 21,265 5,504 Financial expenses, net (1,032) (647) (2,448) (2,032) Income before taxes on income 10,204 1,491 18,817 3,472 Taxes on income 2,114 449 3,833 902 Net income $ 8,090 $ 1,042 $ 14,984 $ 2,570 Basic net earnings per share $ 0.21 $ 0.03 $ 0.38 $ 0.07 Diluted net earnings per share $ 0.21 $ 0.03 $ 0.38 $ 0.07 Weighted average number of shares (in thousands) used in computing basic net earnings per share 39,214 38,590 39,208 38,755 Weighted average number of shares (in thousands) used in computing diluted net earnings per share 39,426 39,149 39,462 39,333 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME U.S. dollars in thousands Three months ended Six months ended June 30, June 30, 2008 2009 2008 2009 Segment Data (1): (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues: Software Product $ 24,739 $ 25,688 $ 45,268 $ 50,654 Engineering System Integration and Application Development 126,547 104,145 251,120 207,570 Software Distribution 19,300 7,410 33,930 15,453 $ 170,586 $ 137,243 $ 330,318 $ 273,677 Operating Income (Loss): Software Product $ 2,061 $ 4,096 $ 3,262 $ 8,210 Engineering System Integration and Application Development 8,409 2,445 18,516 4,633 Software Distribution 4,082 (510) 5,049 1,710 Unallocated Expenses (3,316) (3,893) (5,562) (9,049) $ 11,236 $ 2,138 $ 21,265 $ 5,504 Geographic Data: Revenues: Israel $ 59,979 $ 42,371 $ 120,502 $ 87,641 Europe 58,368 45,096 108,599 88,120 North America 45,006 43,544 86,920 86,023 Asia and the Far East 7,233 6,232 14,297 11,893 $ 170,586 $ 137,243 $ 330,318 $ 273,677 (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 Six months ended June 30 2008 2009 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 14,984 $ 2,570 Adjustments required to reconcile net income to net cash provided by operating activities: Stock-based compensation-related expenses 1,539 1,756 Currency fluctuation of long-term debt 5 - Depreciation and amortization 8,426 9,281 Arbitration settlement and related charges (9,452) - Loss (gain) on sale of property and equipment 6 (280) Loss from impairment of cost investments - 75 Commissions related to the sale of Israeli SAP sales and distribution operations - (2,534) Decrease in trade receivables, net. 5,967 42,292 Decrease (increase) in unbilled receivables (6,519) 2,181 Increase in other accounts receivable and prepaid expenses (971) (1,838) Increase in work-in-progress (2,861) (355) Decrease (increase) in long-term prepaid expenses 926 (210) Deferred income taxes, net 3,674 145 Increase (decrease) in trade payables 268 (15,467) Increase (decrease) in advances from customers and deferred revenues 7,498 (683) Increase in other long-term liabilities 341 293 Decrease in other accounts payable and accrued expenses (7,191) (20,563) Decrease in accrued severance pay net (1,748) (1,542) Net cash provided by operating activities 14,892 15,121 Cash flows from investing activities: Additional payments in connection with acquisitions of subsidiaries in prior periods (5,973) (16,203) Proceeds from maturity of (investment in) short-term bank deposits, net 2,655 (15,920) Proceeds from sale of property and equipment 102 703 Purchase of property and equipment and capitalization of software developed for internal use (6,539) (5,045) Net cash used in investing activities (9,755) (36,465) Cash flows from financing activities: Exercise of options 165 - Repurchase of shares - (2,037) Acquired subsidiary's dividend to its former shareholder (10,048) (683) Short-term bank loans and credit, net 4,523 (6,361) Proceeds from long-term debt 25,090 15,000 Principal payments oflong-term debt (1,972) (2,161) Net cash provided by financing activities 17,758 3,758 Effect of exchange rate changes on cash and cash equivalents (1,525) 2,982 Increase (decrease) in cash and cash equivalents 21,370 (14,604) Cash and cash equivalents at the beginning of the period 43,097 50,659 Cash and cash equivalents at the end of the period $ 64,467 $ 36,055 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, 2008 June 30, 2009 (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 50,659 $ 36,055 Restricted cash 2,331 2,398 Short-term bank deposits 5,703 20,775 Trade receivables, net of allowance for doubtful accounts 200,118 153,710 Unbilled receivables 35,585 33,713 Other accounts receivable and prepaid expenses 31,344 34,864 Work in progress 1,532 2,808 Total current assets 27,272 284,323 LONG-TERM ASSETS: Long-term prepaid expenses and other assets 6,806 6,998 Unbilled receivables 9,220 8,553 Deferred income taxes net 8,356 7,338 Severance pay fund 46,478 46,910 Property and equipment,net 36,733 34,999 Intangible assets, net 22,073 18,271 Goodwill 290,055 290,654 Total long-term assets 419,721 413,723 Total assets $746,993 $ 698,046 CURRENT LIABILITIES: Short-term bank credit $ 18,072 $ 11,265 Current maturities of long-term Debt 7,089 18,928 Trade payables 47,072 27,935 Advances from customers and deferred revenues 33,280 31,571 Other accounts payable and accrue expenses 124,697 88,620 Total current liabilities 230,210 178,319 LONG-TERM LIABILITIES: Long-term debt,net of current maturities 60,973 61,999 Other long-term liabilities 6,444 6,469 Deferred income taxes 2,673 1,991 Accrued severance pay 55,014 53,512 Total long-term liabilities 125,104 123,971 Total stockholders' equity 391,679 395,756 Total liabilities and stockholders' equity $ 746,993 $ 698,046 NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS; INSURANCE SETTLEMENT RELATED TO 2007 ARBITRATION EXPENSE, NET OF RELATED EXPENSES; SEVERANCE EXPENSES; NET OF TAXES U.S. dollars in thousands (except per share data) Three months ended Six months ended June 30, June 30, 2008 2009 2008 2009 (Unaudited) (Unaudited) (Unaudited) (Unaudited) GAAP gross profit 2,591 $ 37,404 $ 97,933 $ 72,244 Stock-based compensation 63 57 145 120 Amortization of intangible assets 225 187 446 376 Severance expenses - - - 966 Non-GAAP gross profit $ 52,879 $ 37,648 $ 98,524 $ 73,706 GAAP operating income $ 11,236 $ 2,138 $ 21,265 $ 5,504 Stock-based compensation 648 828 1,539 1,756 Amortization of intangible assets 1,487 2,070 2,957 4,033 Insurance settlement related to 2007 arbitration expense, net of related expenses - - - (2,610) Severance expenses - - - 2,646 Non-GAAP operating income $ 13,371 $ 5,036 $ 25,761 $ 11,329 GAAP operating margin 6.6% 1.6% 6.4% 2.0% Non-GAAP operating margin 7.8% 3.7% 7.8% 4.1% GAAP net income $ 8,090 $ 1,042 $ 14,984 $ 2,570 Stock-based compensation; amortization of intangible assets; insurance settlement in respect of 2007 arbitration expense, net of related expenses; severance expenses; net of taxes 1,649 2,326 3,534 4,754 Non-GAAP net income $ 9,739 $ 3,368 $ 18,518 $ 7,324 GAAP diluted net earnings per share $ 0.21 $ 0.03 $ 0.38 $ 0.07 Stock-based compensation; amortization of intangible assets; insurance settlement in respect of 2007 arbitration expense, net of related expenses; severance expenses; net of taxes 0.04 0.06 0.09 0.12 Non-GAAP diluted net earnings per share $ 0.25 $ 0.09 $ 0.47 $ 0.19 Media Contact - United States: John Fitzsimmons USA: +1-781-223-5833 Email: Media Contact - Israel: David Kanaan Intl: +972-54- 425-5307 Email: Investor Relations Contact: Drew Wright USA: +1-201-488-3262 Email: DATASOURCE: Ness Technologies Inc CONTACT: Media Contact - United States: John Fitzsimmons, USA: +1-781-223-5833, Email: ; Media Contact - Israel: David Kanaan, Intl: +972-54-425-5307, Email: ; Investor Relations Contact: Drew Wright, USA: +1-201-488-3262, Email:

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NSTC Ness Technologies, Inc. (MM)