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July 29, 2009
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Today, Ness Technologies (NSTC) reported second quarter pro forma earnings of $0.09 per share, $0.02 better than the consensus estimate of $0.07 but down 64.0% from $0.25 in the year-ago period, and was well below our estimate of $0.14. Revenues fell 19.6% year-over-year to $137.2 million, slightly below the consensus estimate of $139.5 million and below our optimistic estimate of $150.0 million.
Almost half of the revenue decrease was due to unfavorable foreign currency translation effects for non-dollar revenues, with the remainder attributable mainly to slower sales in the company’s System Integration and Application Development segment, which fell 17.7% year-over-year impacted by the worldwide economic slowdown. Revenue also declined as Software Distribution segment underperformed significantly in the quarter and fell 61.6%, resulting in an operating loss for the segment, partially offset by a moderate 3.8% increase in the Software Product Engineering segment.
Non-GAAP gross margin for the quarter was 27.4% versus 31.0% in the year-ago quarter. This decline was due to lower-than-expected sales in the System Integration and Application Development segment and the Software Distribution segment.
Although, SG&A declined 18.9% and G&A expenses fell 12.5% year-over-year, non-GAAP operating income (excluding stock based compensation expenses and amortization of intangibles) was down 62.3% year-over-year to $5.0 million. This was due to higher cost of sales of 72.7% versus 69.2% in the year-ago period as a result of rising prices.
The company continued with its trend of poor results in the second quarter. Particularly the System Integration and Application Development segment has not been performing well over the last few quarters. Continued weakness in its business has led Ness to report lower-than-expected results in the first half of 2009.
Ness reaffirmed full-year 2009 guidance with non-GAAP EPS in the range of $0.40 - $0.60 and revenues in the $590.0 - $620.0 million range. This was in line with the consensus expectation of an EPS of $0.43 and revenue of $595.4 million.
Ness faces intense competition from large players in the IT industry such as Accenture Ltd. (ACN), International Business Machines Corp. (IBM), Hewlett Packard (HPQ) and Computer Sciences Corporation (CSC). We believe Ness is facing slow growth, and the risk of business execution remains.
Moreover, choppy equity markets, severe pricing pressure and an uncertain global economy have led to a significant fall in its stock price. We expect the company to post lumpy results in most of the quarters for 2009. We reiterate our Sell rating on the shares of NSTC.
Read the full analyst report on "NSTC"
Read the full analyst report on "ACN"
Read the full analyst report on "IBM"
Read the full analyst report on "HPQ"
Read the full analyst report on "CSC"
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