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Ness Technologies Announces Second Quarter 2011 Financial Results

TEANECK, New Jersey July 27, 2011

Ness Technologies, Inc. (NASDAQ: NSTC and TASE: NSTC) June 30, 2011

Second Quarter 2011 Highlights:

  • June 10, 2011 $307 million $7.75 August 30, 2011
  • $55.2 million June 30, 2011 $1.4 million
  • $141.3 million
  • $49.4 million $3.0 million

    (1 ) $8.7 million

  • $52.3 million $0.9 million $4.2 million

    $4.9 million

  • ($1.37) $0.02 $0.11

    $0.13 $0.10

  • $15.6 million
  • $45.6 million June 30, 2011
  • June 30, 2011 $680 million
  • June 30, 2011

Sachi Gerlitz Eastern Europe

    • Software Product Engineering
    • System Integration and Application Development Israel Eastern Europe

Ofer Segev

Business Outlook

The company continues to expect top line growth and non-GAAP operating margin expansion in 2011.

$595 million to $605 million

                                                                 Full year diluted                                                            net earnings per                                                                share ($)                                                              Low      High     GAAP basis from continuing operations                 $ (1.04)  $ (0.98)     Goodwill impairment and transaction-related expenses;     stock-based compensation; amortization of intangible     assets; retention expenses related to prior     acquisitions; net of taxes                               1.61      1.61     Non-GAAP basis from continuing operations              $ 0.57    $ 0.63 

July 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.

1

Conference Call Details

Sachi Gerlitz Ofer Segev 8:00 AM Eastern Time 5:00 AM Pacific Time 3:00 PM Wednesday, July 27, 2011

NESS

North America

Israel

All other locations    +1-973-200-3375

http://investor.ness.com

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 ("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); (b) amortization of intangible assets; (c) earn-out and retention expenses related to prior acquisitions; (d) acquisition and integration costs of its Gilon acquisition in the second quarter of 2010; and (e) goodwill impairment and transaction-related expenses in the second quarter of 2011; all 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

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 are included under the heading " Risk Factors " in Ness filings with the Securities and Exchange Commission. 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.

                         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,                                   2010        2011        2010       2011                                (Unaudited) (Unaudited) (Unaudited)(Unaudited)      Revenues                   $ 139,701   $ 141,284   $ 273,034   $ 278,593     Cost of revenues             102,275      98,627     198,796     194,079     Gross profit                  37,426      42,657      74,238      84,514      Selling and marketing          9,838       9,587      19,891      18,788     General and administrative    24,551      25,925      48,893      51,372     Goodwill impairment and     transaction-related     expenses                           -      56,547           -      56,844     Total operating expenses      34,389      92,059      68,784     127,004      Operating income (loss)        3,037     (49,402)      5,454     (42,490)     Financial expenses, net         (442)     (1,324)       (651)     (1,933)     Income (loss) before taxes     on income                      2,595     (50,726)      4,803     (44,423)      Taxes on income                1,707       1,589       3,217       3,724     Net income (loss) from     continuing operations          $ 888   $ (52,315)    $ 1,586   $ (48,147)      Net loss from discontinued     operations                      (845)     (2,419)     (6,232)     (4,679)     Net income (loss)               $ 43   $ (54,734)   $ (4,646)  $ (52,826)      Basic net earnings (loss)     per share from continuing     operations                    $ 0.02     $ (1.37)     $ 0.04     $ (1.26)     Diluted net earnings     (loss) per share from     continuing operations         $ 0.02     $ (1.37)     $ 0.04     $ (1.26)      Basic net earnings (loss)     per share                     $ 0.00     $ (1.43)    $ (0.12)    $ (1.38)     Diluted net earnings     (loss) per share              $ 0.00     $ (1.43)    $ (0.12)    $ (1.38)      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     and diluted net loss per     share                         38,161       38,148     38,230      38,189     Weighted average number of     shares (in thousands) used     in computing diluted net     earnings per share from     continuing operations and     diluted net earnings     (loss) per share              38,592       38,748     38,672      38,773 

                         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,                                   2010        2011        2010       2011     Segment Data:              (Unaudited) (Unaudited) (Unaudited)(Unaudited)      Revenues from continuing     operations:     Software Product     Engineering                $ 28,060    $ 31,305    $ 54,457    $ 60,164     System Integration and     Application Development     111,641     109,979     218,577     218,429                               $ 139,701   $ 141,284   $ 273,034   $ 278,593     Operating income (loss)     from continuing     operations:     Software Product     Engineering                 $ 4,388     $ 3,828     $ 8,241     $ 7,980     System Integration and     Application Development       2,746     (48,358)      5,973     (40,448)     Unallocated Expenses         (4,097)     (4,872)     (8,760)    (10,022)                                 $ 3,037   $ (49,402)    $ 5,454   $ (42,490)     Geographic Data:      Revenues from continuing     operations:     Israel                     $ 51,327    $ 58,700    $ 98,966   $ 115,847     North America                48,381      42,066      93,630      84,408     Europe                       38,164      38,452      77,165      74,274     Asia and the Far East         1,829       2,066       3,273       4,064                               $ 139,701   $ 141,284   $ 273,034   $ 278,593 

 

                         NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                             U.S. dollars in thousands                                                      Six months ended                                                          June 30,                                                    2010             2011                                                (Unaudited)      (Unaudited)     Cash flows from operating activities:     Net loss                                 $ (4,646)        $ (52,826)     Adjustments required to reconcile net     loss to net cash provided by (used in)     operating activities:     Net loss from discontinued operations       6,232             4,679     Stock-based compensation                    1,600             1,270     Currency fluctuation of restricted cash     and short-term bank deposits                 (415)            1,581     Depreciation and amortization               8,631             8,463     Loss on sale of property and equipment         79               265     Goodwill impairment                             -            55,191     Decrease (increase) in trade     receivables, net                           (6,719)           24,909     Increase in unbilled receivables           (5,680)           (4,244)     Decrease in other accounts receivable     and prepaid expenses                        1,423             2,933     Decrease (increase) in work-in-progress     1,393            (1,492)     Increase in long-term prepaid expenses       (540)           (1,226)     Deferred income taxes, net                    847              (446)     Increase in trade payables                 11,473             8,258     Decrease in advances from customers and     deferred revenues                          (2,851)           (9,958)     Decrease in other accounts payable and     accrued expenses                           (8,369)          (13,510)     Increase in other long-term liabilities       882               290     Increase (decrease) in accrued severance     pay, net                                      266              (372)     Net cash used in discontinued operations   (3,712)                -     Net cash provided by (used in) operating     activities                                   (106)           23,765      Cash flows from investing activities:     Consideration from sale of consolidated     subsidiaries and business operations        1,711             3,273     Net cash paid for acquisition of a     consolidated subsidiary                   (16,259)                -     Cash paid for acquisition of intangible     assets                                       (513)                -     Additional payments in connection with     acquisitions of subsidiaries in prior     periods                                    (1,330)           (1,117)     Proceeds from maturity of short-term     bank deposits, net                         10,791               653     Proceeds from sale of property and     equipment                                       -                73     Purchase of property and equipment and     capitalization of software developed for     internal use                               (5,287)           (5,560)     Net cash used in investing activities     (10,887)           (2,678)      Cash flows from financing activities:     Exercise of options                             -               604     Repurchase of shares                       (2,169)           (1,181)     Short-term debt, net                        6,361               (81)     Proceeds from long-term debt               13,364                 -     Principal payments of long-term debt       (8,701)          (13,442)     Net cash provided by (used in) financing     activities                                  8,855           (14,100)      Effect of exchange rate changes on cash     and cash equivalents                       (2,987)             (611)     Increase (decrease) in cash and cash     equivalents                                (5,125)            6,376     Cash and cash equivalents at the     beginning of the period                    40,218            29,973     Cash and cash equivalents at the end of     the period                               $ 35,093          $ 36,349 
                         NESS TECHNOLOGIES, INC. AND ITS SUBSIDIARIES                       CONDENSED CONSOLIDATED BALANCE SHEETS                             U.S. dollars in thousands                                                           December   June                                                           31, 2010 30, 2011                                                                   (Unaudited)     CURRENT ASSETS:     Cash and cash equivalents                             $ 29,973 $ 36,349     Restricted cash                                          2,578    1,006     Short-term bank deposits                                 8,913    8,251     Trade receivables, net of allowance for doubtful     accounts                                               164,950  146,656     Unbilled receivables                                    34,850   41,847     Other accounts receivable and prepaid expenses          25,869   25,141     Work in progress                                         6,648    8,676     Total assets attributed to discontinued operations      22,475    3,734     Total current assets                                   296,256  271,660      LONG-TERM ASSETS:     Long-term prepaid expenses and other assets              6,252    7,592     Unbilled receivables                                     2,828    2,610     Deferred income taxes, net                               2,186    2,659     Severance pay fund                                      59,583   60,329     Property and equipment, net                             33,914   34,250     Intangible assets, net                                   9,481    7,834     Goodwill                                               282,383  238,187     Total long-term assets                                 396,627  353,461                                                                Total assets                                         $ 692,883 $625,121      CURRENT LIABILITIES:     Short-term debt                                       $ 16,543 $ 16,617     Current maturities of long-term debt                    26,160   27,901     Trade payables                                          25,009   35,469     Advances from customers and deferred revenues           38,772   30,413     Other accounts payable and accrued expenses            118,599  108,081     Total liabilities attributed to discontinued     operations                                              13,116    1,397     Total current liabilities                              238,199  219,878      LONG-TERM LIABILITIES:     Long-term debt, net of current maturities               36,756   24,469     Other long-term liabilities                              7,942    8,573     Deferred income taxes                                    2,195    2,536     Accrued severance pay                                   63,026   63,457     Total long-term liabilities                            109,919   99,035      Total stockholders' equity                             344,765  306,208      Total liabilities and stockholders' equity           $ 692,883 $625,121 
                         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;          ACQUISITION AND INTEGRATION COSTS OF GILON ACQUISITION; GOODWILL           IMPAIRMENT AND TRANSACTION-RELATED EXPENSES; ALL NET OF TAXES                 U.S. dollars in thousands (except per share data)                                   Three months ended       Six months ended                                        June 30,                June 30,                                   2010        2011        2010       2011     Statements of Income Data: (Unaudited) (Unaudited) (Unaudited)(Unaudited)      GAAP gross profit          $ 37,426    $ 42,657    $ 74,238    $ 84,514     Stock-based compensation        116           6         155          27     Amortization of intangible     assets                          136          44         189          53     Non-GAAP gross profit      $ 37,678    $ 42,707    $ 74,582    $ 84,594      GAAP operating income     (loss)                      $ 3,037   $ (49,402)    $ 5,454   $ (42,490)     Stock-based compensation        331         463       1,160       1,259     Amortization of intangible     assets                        1,452       1,054       2,720       2,186     Earn-out and retention     expenses related to prior     acquisitions                    497          35         977         120     Acquisition and     integration costs of Gilon     acquisition                     728           -         728           -     Goodwill impairment and     transaction-related     expenses                          -      56,547           -      56,844     Non-GAAP operating income   $ 6,045     $ 8,697    $ 11,039    $ 17,919      GAAP operating margin           2.2%      -35.0%        2.0%      -15.3%     Non-GAAP operating margin       4.3%        6.2%        4.0%        6.4%      EBITDA                      $ 8,327    $ 11,921    $ 16,222    $ 24,196     Acquisition and     integration costs of Gilon     acquisition                     728           -         728           -     Non-GAAP EBITDA             $ 9,055    $ 11,921    $ 16,950    $ 24,196      EBITDA margin                   6.0%        8.4%        5.9%        8.7%     Non-GAAP EBITDA margin          6.5%        8.4%        6.2%        8.7%      GAAP net income (loss)     from continuing operations    $ 888   $ (52,315)    $ 1,586   $ (48,147)     Goodwill impairment and     transaction-related     expenses                          -      56,547           -      56,844                                     888       4,232       1,586       8,697     Stock-based compensation;     amortization of intangible     assets; earn-out and     retention expenses related     to prior acquisitions;     acquisition and     integration costs of Gilon     acquisition; all net of     taxes                         2,866         708       5,518       2,014     Non-GAAP net income from     continuing operations       $ 3,754     $ 4,940     $ 7,104     $10,711      GAAP diluted net earnings     (loss) per share from     continuing operations        $ 0.02     $ (1.37)     $ 0.04     $ (1.26)     Goodwill impairment and     transaction-related     expenses                          -        1.48           -        1.49                                    0.02        0.11        0.04        0.22     Stock-based compensation;     amortization of intangible     assets; earn-out and     retention expenses related     to prior acquisitions;     acquisition and     integration costs of Gilon     acquisition; all net of     taxes                          0.07        0.02        0.14        0.05     Non-GAAP diluted net     earnings per share from     continuing operations        $ 0.10      $ 0.13      $ 0.18      $ 0.28 
                         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;          ACQUISITION AND INTEGRATION COSTS OF GILON ACQUISITION; GOODWILL           IMPAIRMENT AND TRANSACTION-RELATED EXPENSES; ALL NET OF TAXES                 U.S. dollars in thousands (except per share data)                                   Three months ended       Six months ended                                        June 30,                June 30,                                   2010        2011        2010       2011     Segment Data:              (Unaudited) (Unaudited) (Unaudited)(Unaudited)      Software Product     Engineering:     GAAP operating income      $ 4,388     $ 3,828     $ 8,241     $ 7,980     Amortization of intangible     assets                          38           -          76           -     Non-GAAP operating income  $ 4,426     $ 3,828     $ 8,317     $ 7,980      System Integration and     Application Development:     GAAP operating income     (loss)                     $ 2,746   $ (48,358)    $ 5,973   $ (40,448)     Amortization of intangible     assets                       1,414       1,054       2,644       2,186     Earn-out and retention     expenses related to prior     acquisitions                   497          35         977         120     Acquisition and     integration costs of Gilon     acquisition                    728           -         728           -     Goodwill impairment              -      55,191           -      55,191     Non-GAAP operating income  $ 5,385     $ 7,922    $ 10,322    $ 17,049 

David Kanaan

[email protected]

Drew Wright
USA
[email protected]

Maya Lustig
Israel
[email protected]

SOURCE Ness Technologies Inc

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