Second Quarter 2011 Highlights:
· On June 10, 2011, the company announced that it entered into a definitive merger agreement under which an affiliate of Citi Venture Capital International, a global private equity investment fund, will acquire Ness in an all-cash transaction valued at approximately $307 million, or $7.75 in cash per share of common stock. The company has scheduled a special meeting of stockholders on August 30, 2011 for the purpose of obtaining stockholder approval for the merger.
· In connection with its entry into the merger agreement, the company recognized a non-cash goodwill impairment charge of $55.2 million as of June 30, 2011, which brings its book value in line with the transaction value. In addition, the company incurred expenses of $1.4 million related to the transaction during the second quarter.
· Revenues were $141.3 million, up 1% year-over-year and up 3% sequentially.
· The company reported an operating loss of $49.4 million, due to the previously mentioned goodwill impairment charge and transaction-related expenses, compared to operating income of $3.0 million in the second quarter of 2010.
On a non-GAAP basis ([1]), operating income was $8.7 million, up 44% year-over-year, representing 6.2% of revenues.
· GAAP net loss from continuing operations was $52.3 million, due to the previously mentioned goodwill impairment charge and transaction-related expenses, compared to net income of $0.9 million in the second quarter of 2010. GAAP net income from continuing operations, adjusted for the goodwill impairment charge and transaction-related expenses, was $4.2 million.
On a non-GAAP basis, net income from continuing operations was $4.9 million, up 32% year-over-year.
· GAAP diluted net loss per share from continuing operations was ($1.37), compared to $0.02 in the second quarter of 2010. GAAP diluted net earnings per share from continuing operations, adjusted for the goodwill impairment charge and transaction-related expenses, was $0.11.
On a non-GAAP basis, diluted net earnings per share from continuing operations were $0.13, up from $0.10 in the second quarter of 2010.
· Operating cash flows from continuing operations were $15.6 million.
· Cash, cash equivalents and short-term bank deposits were $45.6 million as of June 30, 2011.
· Backlog from continuing operations as of June 30, 2011 was $680 million, up 3% year-over-year.
· Headcount for continuing operations was approximately 6,970 as of June 30, 2011.
“We are proud to have delivered solid second quarter results, despite the distraction inherent in our transaction process, as we continued to execute successfully on our 2011 strategic business plan,” said Sachi Gerlitz, president and chief executive officer of Ness Technologies. “Most of our businesses performed well in the quarter, while a few of our Central and Eastern Europe businesses, and others, remain on the path to recovery. We look forward to growth and additional operating margin expansion moving forward.”
· 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, performed well, with 12% year-over-year revenue growth and solid operating margins in line with second quarter expectations.
§ The company’s System Integration and Application Development segment generated healthy non-GAAP operating margins on a 1% decline in revenues year-over-year, in its seasonally weak second quarter, with strong performance in Israel and lingering softness in Central and Eastern Europe.
“Our focus on maintaining high billable utilization is paying off nicely, helping us to drive year-over-year operating margin expansion,” said Ofer Segev, executive vice president and chief financial officer. “At the same time, we delivered another quarter of strong operating cash flows, demonstrating our tight financial management. Our balance sheet remains strong and we continue to be in our comfort zone regarding liquidity.”
Business Outlook
The company continues to expect top line growth and non-GAAP operating margin expansion in 2011.
Ness reiterates its full year 2011 guidance for revenues from continuing operations in the range of $595 million to $605 million. The company is adjusting its GAAP guidance for diluted net earnings per share from continuing operations to account for the non-cash goodwill impairment charge recognized in the second quarter and for transaction-related expenses, to the range shown in the reconciliation table below. The adjustment does not revise the company’s prior non-GAAP earnings guidance.
|
Full year diluted net earnings per share ($) |
| 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 |
The company’s 2011 GAAP guidance excludes future stock-based compensation grants and any transaction-related expenses that may be recognized in the second half of the year; and the company’s GAAP and non-GAAP guidance further assumes that outstanding diluted shares will average approximately 39 million in 2011 and relevant foreign currency exchange rates will remain at the average levels of 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.
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 2011 results. The call, which will be simultaneously webcast, will begin at 8:00 AM Eastern Time / 5:00 AM Pacific Time / 3:00 PM Israel Time on Wednesday, July 27, 2011.
To access the Ness Technologies second quarter 2011 earnings conference call, participants should dial one of the following numbers and provide the password “NESS” to the operator.
North America 1-800-399-0427
Israel 1-80-924-5917
All other locations +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 and a transcript of the call will be filed with the Securities and Exchange Commission later that day.
About Ness Technologies
Ness Technologies (NASDAQ: NSTC and TASE: NSTC) is a global provider of IT and business services and solutions with specialized expertise in software product engineering; and system integration, application development, 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 7,000 employees, Ness has operations in North America, Europe, Israel and India, has customers in over 20 countries, and partners with numerous software and hardware vendors worldwide. For more information about Ness, visit 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.