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Ness Technologies Announces Fourth Quarter and Full Year 2010 Financial Results

HACKENSACK, New Jersey February 2, 2011 December 31, 2010

     Fourth Quarter and Full Year 2010 Highlights:      - Quarterly revenues were a record $157.4 million, up 16% year-over-year;       and full year revenues were $571.8 million, up 12% year-over-year.     - Quarterly operating income was $7.3 million, compared to a loss of       $11.3 million in the fourth quarter of 2009; and full year operating       Income was $16.4 million, up from $0.3 million in 2009.       On a non-GAAP basis[1], quarterly operating income was $10.1       million, up 87% year-over-year; and full year operating income was       $27.7 million, up 11% year-over-year. On a GAAP and non-GAAP basis,       quarterly operating income and operating margin improved sequentially,       reaching the highest levels in nine quarters.     - Quarterly net income from continuing operations was $5.3 million,       compared to a loss of $17.4 million in the fourth quarter of 2009; and       full year net income from continuing operations was $8.4 million,       compared to a loss of $10.0 million in 2009.       On a non-GAAP basis, quarterly net income from continuing operations       was $6.7 million, up 109% year-over-year; and full year net income from       continuing operations was $17.9 million, up 5% year-over-year. On a       GAAP and non-GAAP basis, quarterly net income and net margin from       Continuing operations improved sequentially, reaching the highest       levels in nine quarters.     - Quarterly diluted net earnings per share from continuing operations       were $0.14, compared to a loss of $0.45 in the fourth quarter of 2009;       and full year diluted net earnings per share from continuing operations       were $0.22, compared to a loss of $0.26 in 2009.       On a non-GAAP basis, quarterly diluted net earnings per share from       continuing operations were $0.17, up from $0.08 in the fourth quarter       of 2009; and full year diluted net earnings per share from continuing       operations were $0.46, up from $0.44 in 2009.     - In Central and Eastern Europe, operating margin continued to recover,       hitting the highest level in eight quarters.     - Operating cash flows from continuing operations for the quarter and the       full year were $16.7 million and $9.3 million, respectively.     - Cash, cash equivalents and short-term bank deposits were $41.5 million       as of December 31, 2010.     - Backlog from continuing operations as of December 31, 2010 was $635       million, up 1% year-over-year.     - Headcount for continuing operations was approximately 7,710 as of       December 31, 2010.  

Sachi Gerlitz

     - Results by operating segment:      - The company's Software Product Engineering segment, which provides       outsourced software product research and development services to       companies that build or rely on software to generate revenues,       continued to perform well in the fourth quarter, with a strong       quarterly operating margin and good year-over-year revenue growth.     - The company's System Integration and Application Development segment       showed significant year-over-year revenue growth and operating margin       improvement, with very good performance in Israel and continued       improvement in Central and Eastern Europe.     - As previously announced, the company no longer reports a separate       Software Distribution segment, as its European software distribution       operations were reclassified as discontinued operations and its Israeli       software distribution operations were reclassified to its System       Integration and Application Development segment, effective as of       January 1, 2010.  

Ofer Segev

Business Outlook

Israel

$595 million to $605 million

                                  Full year diluted net earnings per share ($)                                                  Low           High      GAAP basis from continuing operations      $0.42          $0.48     Stock-based compensation; amortization     of intangible assets; retention     expenses related to prior acquisitions;     net of taxes                                0.15           0.15     Non-GAAP basis from continuing operations  $0.57          $0.63  

January 2011

For the reasons set forth elsewhere in this release, Ness’ management believes that non-GAAP 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

December 31, 2010

Conference Call Details

Sachi Gerlitz Ofer Segev 8:30 AM Eastern Time 5:30 AM Pacific Time 3:30 PM Wednesday, February 2, 2011

To access the Ness Technologies fourth quarter and full year 2010 earnings conference call, participants should dial one of the following numbers

     North America            1-800-399-0427     Israel                    1-80-924-5917     All other locations     +1-973-200-3375  

http://investor.ness.com

     [1] See "Use of Non-GAAP Financial Information" below for more         information regarding the company's use of non-GAAP financial         measures.  

About Ness Technologies

North America Europe Israel India 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 718, "Stock Compensation" (formerly, FASB Statement 123R) and amortization of intangible assets, net of taxes; (b) earn-out and retention expenses related to prior acquisitions; (c) an insurance settlement in the first quarter of 2009 related to a 2007 arbitration expense, net of related expenses, net of taxes; (d) severance expenses in the first quarter of 2009, net of taxes; and (e) acquisition and integration costs of its Gilon acquisition in the second quarter of 2010, 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 also uses these non-GAAP measures 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

March 15, 2010

                    NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES                    CONDENSED CONSOLIDATED STATEMENTS OF INCOME                 U.S. dollars in thousands (except per share data)                                    Three months ended          Year ended                                      December 31,            December 31,                                    2009        2010        2009       2010                               (Unaudited) (Unaudited)             (Unaudited)      Revenues                  $ 135,577   $ 157,407     $ 511,947  $ 571,787     Cost of revenues            109,380     111,422       386,061    412,934     Gross profit                 26,197      45,985       125,886    158,853      Selling and marketing        12,242      11,754        41,168     41,187     General and administrative   25,253      26,948        89,592    101,242     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     37,495      38,702       125,616    142,429      Operating income (loss)     (11,298)      7,283           270     16,424     Financial expenses, net        (788)       (686)       (2,998)    (1,826)     Income before taxes on     Income                      (12,086)      6,597        (2,728)    14,598      Taxes on income               5,266       1,341         7,271      6,189     Net income (loss) from     continuing operations     $ (17,352)    $ 5,256      $ (9,999)   $ 8,409      Net loss from     discontinued operations.    (38,514)     (1,162)      (42,455)    (8,193)     Net income (loss)         $ (55,866)    $ 4,094     $ (52,454)     $ 216      Basic net earnings (loss)     per share from continuing     operations                  $ (0.45)     $ 0.14       $ (0.26)    $ 0.22     Diluted net earnings (loss)     per share from continuing     operations                  $ (0.45)     $ 0.14       $ (0.26)    $ 0.22      Basic net earnings (loss)     per share                   $ (1.45)     $ 0.11       $ (1.36)    $ 0.01     Diluted net earnings (loss)     per share                   $ (1.45)     $ 0.11       $ (1.36)    $ 0.01      Weighted average number     of shares (in thousands)     used in computing basic     net earnings (loss) per     share from continuing     operations, basic net     earnings (loss) per share,     diluted net loss per share     from continuing operations     and diluted net loss per     share                        38,436      38,053        38,598     38,128     Weighted average number     of shares (in thousands)     used in computing diluted     net earnings per share     from continuing operations     and diluted net earnings     per share                    38,838      38,433        39,100     38,733                      NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME                          U.S. dollars in thousands                                Three months ended           Year ended                                  December 31,             December 31,                               2009        2010        2009           2010     Segment Data (1):     (Unaudited) (Unaudited)                (Unaudited)      Revenues from     continuing operations:     Software Product     Engineering             $ 26,248   $ 29,530    $ 102,523       $ 112,866     System Integration and     Application Development  109,329    127,877      409,424         458,921                            $ 135,577  $ 157,407    $ 511,947       $ 571,787     Operating income     (loss) from continuing     operations:     Software Product     Engineering              $ 3,569    $ 4,410     $ 15,388        $ 16,326     System Integration and     Application Development   (9,125)     8,646        2,573          18,621     Unallocated Expenses      (5,742)    (5,773)     (17,691)        (18,523)                            $ (11,298)   $ 7,283        $ 270        $ 16,424     Geographic Data:      Revenues from     continuing operations:     Israel                  $ 45,254   $ 61,583    $ 174,800       $ 212,263     North America             44,676     46,724      172,814         188,911     Europe                    43,830     45,049      155,723         160,663     Asia and the Far East      1,817      4,051        8,610           9,950                            $ 135,577  $ 157,407    $ 511,947       $ 571,787       (1) The company no longer reports a separate Software Distribution         segment, as its European software distribution operations were         reclassified as discontinued operations and its Israeli software         distribution operations were reclassified to its System Integration         and Application Development segment, effective as of January 1, 2010.         Segment data for prior periods has been restated 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                                                      Year ended                                                    December 31,                                               2009              2010                                                             (Unaudited)      Cash flows from operating activities:     Net income (loss)                     $ (52,454)            $ 216     Adjustments required to reconcile     net income (loss) to net cash     provided by operating activities:     Net loss from discontinued     Operations                               42,455             8,193     Stock-based Compensation                  4,073             3,227     Currency fluctuation of restricted     cash and short-term bank deposits             -            (1,067)     Depreciation and Amortization            17,838            18,097     Loss (gain) on sale of property and     Equipment                                  (138)              771     Decrease (increase) in trade receivables,     net                                      41,683           (26,867)     Decrease (increase) in unbilled     Receivables                              11,184            (3,705)     Increase in other accounts receivable     and prepaid expenses                     (1,110)           (5,110)     Decrease (increase) in work-in-progress  (7,317)            2,599     Decrease in long-term prepaid Expenses      415               125     Deferred income taxes, Net                1,772             1,517     Decrease in trade payables               (6,677)              (12)     Increase (decrease) in advances from     customers and deferred     revenues                                 11,942            (4,374)     Increase in other accounts     payable and accrued expenses              2,368            14,605     Increase in other long-term     Liabilities                                 809             1,180     Decrease in accrued severance pay,     Net                                      (3,322)             (120)     Net cash used in discontinued     Operations                               (2,311)           (6,843)     Net cash provided by operating     Activities                               61,210             2,432     Cash flows from investing activities:     Consideration from sale of a consolidated     Subsidiary                                    -             1,711     Net cash paid for acquisition of a     consolidated subsidiary                       -           (17,197)     Cash paid for acquisition of intangible     assets                                        -              (513)     Additional payments in connection with     acquisitions of subsidiaries in prior     periods                                 (14,395)           (1,330)     Proceeds from maturity of (investment     in) short-term bank deposits, net       (19,257)           17,982     Proceeds from sale of property and     Equipment                                   796                41     Purchase of property and equipment     and capitalization of software developed     for internal use                        (11,841)          (10,195)     Net cash used in discontinued     Operations                               (1,808)                -     Net cash used in investing     Activities                              (46,505)           (9,501)     Cash flows from financing activities:     Exercise of Options                           -                 4     Repurchase of shares                     (2,299)           (2,169)     Acquired subsidiary's dividend     to its former shareholder                (1,430)                -     Short-term bank loans and credit,     Net                                     (15,470)           12,557     Proceeds from long-term Debt             15,085            13,364     Principal payments of long-term Debt    (12,254)          (21,198)     Net cash provided by discontinued     Operations                                  821                 -     Net cash provided by (used in)     financing activities                    (15,547)            2,558     Effect of exchange rate changes on     cash and cash equivalents                (3,525)           (5,734)     Decrease in cash and cash     Equivalents                              (4,367)          (10,245)     Cash and cash equivalents at the     beginning of the period                  44,585            40,218     Cash and cash equivalents at the end     of the period                          $ 40,218          $ 29,973                       NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES                      CONDENSED CONSOLIDATED BALANCE SHEETS                             U.S. dollars in thousands                                                December 31,                                             2009        2010                                                     (Unaudited)     CURRENT ASSETS:     Cash and cash Equivalents            $ 40,218    $ 29,973     Restricted Cash                         2,470       2,578     Short-term bank Deposits               25,939       8,913     Trade receivables, net of allowance     for doubtful accounts                 131,452     165,623     Unbilled Receivables                   28,012      34,850     Other accounts receivable and prepaid     expenses                               27,832      34,081     Work in Progress                        9,690       5,613     Total assets attributed to     discontinued Operations                43,212      31,626     Total current assets                  308,825     313,257      LONG-TERM ASSETS:     Long-term prepaid expenses and     other assets                            6,083       5,656     Unbilled Receivables                    4,654       2,828     Deferred income taxes, net              3,608       2,186     Severance pay Fund                     53,145      59,583     Property and equipment, net            35,739      35,545     Intangible assets, net                 10,016       9,481     Goodwill                              263,541     282,383     Total long-term Assets                376,786     397,662      Total assets                        $ 685,611   $ 710,919      CURRENT LIABILITIES:     Short-term bank credit                  $ 500    $ 16,543     Current maturities of long-term Debt   21,332      26,160     Trade Payables                         30,914      31,682     Advances from customers and     deferred Revenues                      40,639      36,921     Other accounts payable and accrued     Expenses                               99,464     120,450     Total liabilities attributed     to discontinued operations             25,461      13,663     Total current liabilities             218,310     245,419      LONG-TERM LIABILITIES:     Long-term debt, net of current     Maturities                             50,836      36,756     Other long-term Liabilities             6,689       7,942     Deferred income Taxes                   2,045       2,246     Accrued severance pay                  56,443      63,026     Total long-term Liabilities           116,013     109,970      Total stockholders' Equity            351,288     355,530      Total liabilities and stockholders'     Equity                              $ 685,611   $ 710,919                       NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES           RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION       EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS;                 EARN-OUT AND RETENTION EXPENSES RELATED TO PRIOR      ACQUISITIONS; INSURANCE SETTLEMENT RELATED TO 2007 ARBITRATION EXPENSE,                   NET OF RELATED EXPENSES; SEVERANCE EXPENSES;     ACQUISITION AND INTEGRATION COSTS OF GILON ACQUISITION; ALL NET OF TAXES                U.S. dollars in thousands (except per share data)                                   Three months ended          Year ended                                      December 31,            December 31,                                   2009        2010        2009        2010     Statements of Income Data: (Unaudited) (Unaudited)(Unaudited) (Unaudited)      GAAP gross     Profit                      $ 26,197    $ 45,985   $ 125,886   $ 158,853     Stock-based compensation          20          56         203         260     Amortization of intangible     Assets                           210         152         791         481     Severance expenses               380           -       1,346           -     Restructuring and related     project Costs                 11,058           -      11,058           -     Non-GAAP gross Profit       $ 37,865    $ 46,193   $ 139,284   $ 159,594      GAAP operating income (loss)$(11,298)    $ 7,283       $ 270    $ 16,424     Stock-based Compensation       1,454         856       4,073       2,767     Amortization of intangible     Assets                         1,893       1,645       7,118       5,936     Earn-out and retention expenses     related to prior acquisitions  1,032         282       1,032       1,816     Insurance settlement related     to 2007 arbitration expense,     net of related expenses            -           -     (2,610)           -     Severance Expenses             1,301           -       3,947           -     Restructuring and related     project costs                 11,009           -      11,009           -     Acquisition and integration     costs of Gilon acquisition         -           -           -         728     Non-GAAP operating income    $ 5,391    $ 10,066    $ 24,839    $ 27,671      GAAP operating Margin           -8.3%        4.6%        0.1%        2.9%     Non-GAAP operating Margin        4.0%        6.4%        4.9%        4.8%      EBITDA                      $ (4,025)   $ 13,131    $ 23,213    $ 39,104     Insurance settlement     related to 2007 arbitration     expense, net of related     expenses                           -           -      (2,610)          -     Severance expenses             1,301           -       3,947           -     Restructuring and     related project costs         11,009           -      11,009           -     Acquisition and integration     costs of Gilon acquisition         -           -           -         728     Non-GAAP EBITDA              $ 8,285    $ 13,131    $ 35,559    $ 39,832      EBITDA Margin                   -3.0%        8.3%        4.5%        6.8%     Non-GAAP EBITDA Margin           6.1%        8.3%        6.9%        7.0%      GAAP net income (loss) from     continuing operations      $ (17,352)    $ 5,256    $ (9,999)    $ 8,409     Stock-based compensation;     amortization of intangible     assets; earn-out and     retention expenses related     to prior acquisitions;     insurance settlement in     respect of 2007 arbitration     expense, net of related     expenses; severance     expenses; acquisition and     integration costs of Gilon     acquisition; all net of     taxes                         20,574       1,464      27,079       9,487     Non-GAAP net income from     continuing operations        $ 3,222     $ 6,720    $ 17,080    $ 17,896                    NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES     RECONCILIATION OF SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION (CONTINUED)     EXCLUDING STOCK-BASED COMPENSATION; AMORTIZATION OF INTANGIBLE ASSETS;                EARN-OUT AND RETENTION EXPENSES RELATED TO PRIOR          ACQUISITIONS; INSURANCE SETTLEMENT RELATED TO 2007 ARBITRATION              EXPENSE, NET OF RELATED EXPENSES; SEVERANCE EXPENSES;     ACQUISITION AND INTEGRATION COSTS OF GILON ACQUISITION; ALL NET OF TAXES                U.S. dollars in thousands (except per share data)                                   Three months ended          Year ended                                     December 31,            December 31,                                   2009        2010        2009        2010                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)     GAAP diluted net earnings     (loss) per share from     continuing Operations       $ (0.45)    $ 0.14      $ (0.26)    $ 0.22     Stock-based compensation;     amortization of intangible     assets; earn-out and     retention expenses related     to prior acquisitions;     insurance settlement in     respect of 2007 arbitration     expense, net of related     expenses; severance     expenses; acquisition and     integration costs of Gilon     acquisition; all net of     taxes                          0.53       0.04         0.70       0.24     Non-GAAP diluted net earnings     per share from continuing     operations                   $ 0.08     $ 0.17       $ 0.44     $ 0.46      Segment Data:      Software Product Engineering:     GAAP operating Income       $ 3,569    $ 4,410     $ 15,388   $ 16,326     Amortization of intangible     Assets                           38         37          153        152     Restructuring and related project     Costs                           308          -          308          -     Non-GAAP operating income   $ 3,915    $ 4,447     $ 15,849   $ 16,478      System Integration and     Application Development:     GAAP operating income     (loss)                     $ (9,125)   $ 8,646      $ 2,573   $ 18,621     Amortization of intangible     Assets                        1,855      1,608        6,965      5,784     Earn-out and retention     expenses related to prior     acquisitions                  1,032        282        1,032      1,816     Insurance settlement related     to 2007 arbitration expense,     net of related expenses           -          -       (2,610)         -     Severance expenses.               -          -        1,293          -     Restructuring and related     project costs                11,870          -       11,870          -     Acquisition and integration     costs of Gilon acquisition        -          -            -        728     Non-GAAP operating income   $ 5,632   $ 10,536     $ 21,123   $ 26,949        Media Contact:     David Kanaan     Intl: +972-54-425-5307     Email: [email protected]      Investor Relations Contacts:     Drew Wright     USA: +1-201-488-3262     Email: [email protected]      Maya Lustig     Israel: +972-3-767-5110     Email: [email protected]    

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