Revenue Growth of 18% to $17 Million and EPS of $0.25 Leads to Fifth Consecutive Quarter of Profitability

CALABASAS, Calif., Feb. 13, 2019 (GLOBE NEWSWIRE) — NETSOL Technologies, Inc. (NASDAQ: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal second quarter ended December 31, 2018.

Second Quarter and Recent Operational Highlights

• Made significant strides in the ongoing implementation process for the deployment of NFS Ascent™ Retail and Wholesale platforms with European tier-one global auto captive in China related to the $30 million contract signed in September 2018.
• Commenced implementation of NFS Ascent Retail platform at captive auto leasing company of a major US based auto manufacturer in China.
• Successfully began the implementation process of NFS Ascent™ Wholesale module in Japan for German auto manufacturing giant as part of the ongoing international deployment associated with the previously announced 12-country, $110 million contract.
• Initiated process to implement NFS Ascent Solution in Singapore, Malaysia, Hong Kong and Thailand as part of the previously announced 12-country, $110 million contract.
• Secured a mid-six-figure SaaS contract with a leading automotive leasing company covering all of Canada for a key automotive brand to provide access to the LeasePak Cloud product.
• Appointed industry veteran Hui Liang as company’s President of China to expand footprint in the region and improve existing relationships with key customers.
• Generated nearly $1.8 million through successfully implementing change requests from various customers across major business regions.
• Dedicated additional resources to data science and blockchain development initiatives in both Pakistan and Thailand to create new tools and products focused on machine learning and vehicle tracking as part of the company’s broader Innovation Lab efforts.

Fiscal Second Quarter 2019 Financial Results
Total net revenues for the second quarter of fiscal 2019 were $17.0 million, compared with $14.4 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $4.4 million, which was offset by a decrease in total services revenues of $1.8 million.

• Total license fees were $4.8 million, compared with $453,000 in the prior year period.
• Total maintenance fees were $3.7 million, compared with $3.7 million in the prior year period.
• Total services revenues were $8.5 million, compared with $10.3 million in the prior year period.

Gross profit for the second quarter of fiscal 2019 was $8.9 million (or 52.1% of total net revenues), compared to $6.7 million (or 46.3% of total net revenues) in the second quarter of fiscal 2018. The increase in gross profit as a percentage of net revenues was primarily due to an increase in total net revenues of $2.6 million, which was offset by an increase in the cost of revenues of $386,000.

Operating expenses for the second quarter of fiscal 2019 increased 5% to $6.7 million (or 39.2% of total net revenues) from $6.4 million (or 44.1% of total net revenues) for the second quarter of fiscal 2018. The increase in operating expenses was primarily due to increases in salaries and wages, research and development expenses and professional services expenses, which were offset by decreases in selling and marketing expenses, depreciation, and general and administrative expenses.

Net income attributable to NETSOL for the second quarter of fiscal 2019 totaled $2.9 million or $0.25 per diluted share, an improvement from net income of $634,000 or $0.06 per diluted share in the second quarter of fiscal 2018.

Non-GAAP adjusted EBITDA for the second quarter of fiscal 2019 totaled $4.1 million or $0.35 per diluted share, an improvement from $2.1 million or $0.19 per diluted share in the second quarter of fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At December 31, 2018, cash and cash equivalents were $20.3 million, an increase from $10.0 million at the end of the prior year quarter.

Management Commentary
“The second quarter was yet another period of strong, consistent performance for NETSOL, driven by various new business wins throughout our major operating regions as well as ongoing implementations for some of the larger contracts we’ve secured over the past few months,” said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “Financially, this healthy combination translated to 18% revenue growth year-over-year as well as our fifth consecutive profitable quarter. Operationally, with a number of significant near-term opportunities before us, we remain highly confident in our ability to generate healthy top and bottom line results for the remainder of the year and remain in solid positioning to achieve our previously stated goal of double-digit topline growth for fiscal 2019.”

Sales Outlook
“NETSOL’s total global pipeline remains robust, especially in our APAC region, where we are seeing demand grow for both our products and services,” added President and Head of Sales Naeem Ghauri. “Additionally, we are continuing to benefit from our local business knowledge and strong relationships as many of our competitors struggle to establish a presence in the region. Going forward, we are cognizant of the various, emerging macro-economic challenges in China and will continue to monitor these issues closely.  However, we are still seeing healthy interest from our existing customers who are investing in our systems to derive additional efficiencies that should aid them in addressing potential corrections in their respective markets. Looking ahead to the remainder of the year, we are currently in good positioning on a number of customer ‘shortlists’ for large-scale programs where we believe we have a good chance of success and remain bullish on our forecasts for fiscal 2019.”

Conference Call
NETSOL Technologies management will hold a conference call today (February 13, 2019) at 11:00 a.m. Eastern time (8:00 a.m. Pacific time) to discuss these financial results. A question and answer session will follow management’s presentation.

U.S. dial-in: 1-877-407-0789
International dial-in: 1-201-689-8562

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios at 1-949-574-3860.

The conference call will be broadcasted live and available for replay here and via the Investor Relations section of NETSOL’s website.

A replay of the conference call will be available after 2:00 p.m. Eastern time on the same day through February 27, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13687282

About NETSOL Technologies
NETSOL Technologies, Inc. (NASDAQ: NTWK) is a worldwide provider of IT and enterprise software solutions primarily serving the global Leasing and Finance industry. The company’s suite of applications is backed by 40 years of domain expertise and supported by a committed team of approximately 1,350 professionals placed in eight strategically located support and delivery centers throughout the world. NFS, LeasePak, LeaseSoft or NFS Ascent – help companies transform their Finance and Leasing operations, providing a fully automated asset-based finance solution covering the complete leasing and finance lifecycle.

Forward-Looking Statements
Certain statements in this press release are forward-looking in nature, including, but not limited to, expected net revenue and the demand for and sales lifecycle of NFS Ascent, and accordingly, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “expects,” “anticipates,” variations of such words, and similar expressions, identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, but their absence does not mean that the statement is not forward-looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Factors that could affect the Company’s actual results include the progress and costs of the development of products and services and the timing of the market acceptance. The subject Companies expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in the company’s expectations with regard thereto or any change in events, conditions or circumstances upon which any statement is based.

Use of Non-GAAP Financial Measures
The reconciliation of Adjusted EBITDA to net income, the most comparable financial measure based upon GAAP, as well as a further explanation of adjusted EBITDA, is included in the financial tables in Schedule 4 of this press release.

Investor Relations Contact:

Matt Glover and Tom Colton
Liolios
949-574-3860
[email protected]

NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets

			As of December 31,				As of June 30,
	ASSETS			2018				2018
Current assets:
	Cash and cash equivalents		$	20,320,804			$	22,088,853
	Accounts receivable, net of allowance of $376,178  and $610,061			7,852,296				12,775,461
	Accounts receivable, net – related party			2,944,290				3,374,272
	Revenues in excess of billings			13,832,654				14,285,778
	Revenues in excess of billings – related party			62,323				–
	Convertible note receivable – related party			3,156,500				2,123,500
	Other current assets			4,092,921				2,703,032
		Total current assets		52,261,788				57,350,896
Revenues in excess of billings, net – long term				–				1,206,669
Property and equipment, net				14,005,541				16,165,491
Long term investment				2,689,005				3,217,162
Other assets				35,470				70,299
Intangible assets, net				9,637,010				12,247,196
Goodwill				9,516,568				9,516,568
		Total assets	$	88,145,382			$	99,774,281
	LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	7,468,984			$	7,873,809
	Current portion of loans and obligations under capitalized leases			7,627,426				8,595,919
	Unearned revenues			4,705,302				5,949,581
	Common stock to be issued			88,324				88,324
		Total current liabilities		19,890,036				22,507,633
Loans and obligations under capitalized leases; less current maturities				345,473				330,596
		Total liabilities		20,235,509				22,838,229
Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $.01 par value; 500,000 shares authorized;			–				–
	Common stock, $.01 par value; 14,500,000 shares authorized;
		11,860,310  shares issued and 11,654,457  outstanding as of December 31, 2018  and
		11,708,469  shares issued and 11,502,616  outstanding as of June 30, 2018		118,603				117,085
	Additional paid-in-capital			127,398,738				126,479,147
	Treasury stock (At cost, 205,853 shares and 205,853 shares
	as of December 31, 2018 and June 30, 2018, respectively)			(1,205,024	)			(1,205,024	)
	Accumulated deficit			(39,972,079	)			(37,994,502	)
	Stock subscription receivable			(221,000	)			(221,000	)
	Other comprehensive loss			(28,446,811	)			(24,386,071	)
		Total NetSol stockholders’ equity		57,672,427				62,789,635
	Non-controlling interest			10,237,446				14,146,417
		Total stockholders’ equity		67,909,873				76,936,052
		Total liabilities and stockholders’ equity	$	88,145,382			$	99,774,281

 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 2: Consolidated Statement of Operations

			For the Three Months								For the Six Months
			Ended December 31,								Ended December 31,
				2018				2017				2018				2017
Net Revenues:
	License fees		$	4,817,569			$	235,932			$	10,773,682			$	561,998
	Maintenance fees			3,534,693				3,568,448				7,173,020				7,042,173
	Services			8,237,334				9,087,191				14,655,968				16,104,928
	License fees – related party			–				217,105				–				261,513
	Maintenance fees – related party			127,030				101,251				228,379				204,214
	Services – related party			286,001				1,236,508				568,123				3,090,385
		Total net revenues		17,002,627				14,446,435				33,399,172				27,265,211
Cost of revenues:
	Salaries and consultants			4,497,054				5,362,092				9,517,616				10,826,252
	Travel			1,706,182				287,901				2,858,179				801,013
	Depreciation and amortization			880,048				1,168,103				1,817,652				2,341,216
	Other			1,060,772				939,986				2,109,096				1,796,568
		Total cost of revenues		8,144,056				7,758,082				16,302,543				15,765,049
Gross profit				8,858,571				6,688,353				17,096,629				11,500,162
Operating expenses:
	Selling and marketing			2,048,303				1,932,140				3,749,629				3,643,436
	Depreciation and amortization			193,779				222,785				406,011				468,658
	General and administrative			4,002,059				4,026,706				8,408,779				7,814,264
	Research and development cost			424,652				189,891				742,807				374,976
		Total operating expenses		6,668,793				6,371,522				13,307,226				12,301,334
Income (loss) from operations				2,189,778				316,831				3,789,403				(801,172	)
Other income and (expenses)
	Gain (loss) on sale of assets			(3,504	)			(8,939	)			48,790				(16,069	)
	Interest expense			(63,804	)			(109,675	)			(163,238	)			(227,746	)
	Interest income			230,421				115,570				479,385				252,481
	Gain on foreign currency exchange transactions			2,536,755				1,737,967				2,547,667				2,754,329
	Share of net loss from equity investment			(298,293	)			(203,336	)			(597,984	)			(270,898	)
	Other income			4,503				14,511				9,882				15,610
		Total other income (expenses)		2,406,078				1,546,098				2,324,502				2,507,707
Net income before  income taxes				4,595,856				1,862,929				6,113,905				1,706,535
Income tax provision				(264,872	)			(200,927	)			(501,786	)			(225,798	)
Net income				4,330,984				1,662,002				5,612,119				1,480,737
	Non-controlling interest			(1,475,355	)			(1,027,581	)			(1,793,901	)			(1,215,814	)
Net income attributable to NetSol			$	2,855,629			$	634,421			$	3,818,218			$	264,923
Net income (loss) per share:
	Net income (loss) per common share
		Basic	$	0.25			$	0.06			$	0.33			$	0.02
		Diluted	$	0.25			$	0.06			$	0.33			$	0.02
Weighted average number of shares outstanding
	Basic			11,586,507				11,159,075				11,542,877				11,115,346
	Diluted			11,592,193				11,171,543				11,548,563				11,127,814

NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows

			For the Six Months
			Ended December 31,
				2018				2017
Cash flows from operating activities:
	Net income		$	5,612,119			$	1,480,737
	Adjustments to reconcile net income
		to net cash provided by (used in) operating activities:
	Depreciation and amortization			2,223,663				2,809,874
	Share of net loss from investment under equity method			597,984				270,898
	(Gain) loss on sale of assets			(48,790	)			16,069
	Stock based compensation			869,743				833,530
	Changes in operating assets and liabilities:
		Accounts receivable		4,208,751				(13,231,059	)
		Accounts receivable – related party		(219,538	)			(1,637,829	)
		Revenues in excess of billing		(7,633,216	)			602,676
		Revenues in excess of billing – related party		(91,279	)			(32,308	)
		Other current assets		(1,409,746	)			(524,547	)
		Accounts payable and accrued expenses		139,331				887,824
		Unearned revenue		(1,094,375	)			6,469,146
	Net cash provided by (used in) operating activities			3,154,647				(2,054,989	)
Cash flows from investing activities:
	Purchases of property and equipment			(1,441,237	)			(543,123	)
	Sales of property and equipment			519,645				193,241
	Convertible note receivable – related party			(1,033,000	)			(500,000	)
	Investment in WRLD3D			–				(50,000	)
	Net cash used in investing activities			(1,954,592	)			(899,882	)
Cash flows from financing activities:
	Proceeds from the exercise of stock options and warrants			65,000				215,311
	Proceeds from exercise of subsidiary options			2,650				7,755
	Purchase of treasury stock			–				(601,020	)
	Dividend paid by subsidiary to non-controlling interest			(566,465	)			(417,853	)
	Proceeds from bank loans			382,240				708,457
	Payments on capital lease obligations and loans – net			(289,027	)			(361,814	)
	Net cash used in financing activities			(405,602	)			(449,164	)
Effect of exchange rate changes				(2,562,502	)			(764,269	)
Net decrease in cash and cash equivalents				(1,768,049	)			(4,168,304	)
Cash and cash equivalents at beginning of the period				22,088,853				14,172,954
Cash and cash equivalents at end of period			$	20,320,804			$	10,004,650

 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP

	Three Months				Three Months				Six Months				Six Months
	Ended				Ended				Ended				Ended
	December 31, 2018				December 31, 2017				December 31, 2018				December 31, 2017
Net Income (loss) before preferred dividend, per GAAP	$	2,855,629			$	634,421			$	3,818,218			$	264,923
Non-controlling interest		1,475,355				1,027,581				1,793,901				1,215,814
Income taxes		264,872				200,927				501,786				225,798
Depreciation and amortization		1,073,827				1,390,888				2,223,663				2,809,874
Interest expense		63,804				109,675				163,238				227,746
Interest (income)		(230,421	)			(115,570	)			(479,385	)			(252,481	)
EBITDA	$	5,503,066			$	3,247,922			$	8,021,421			$	4,491,674
Add back:
Non-cash stock-based compensation		437,695				405,721				869,743				833,530
Adjusted EBITDA, gross	$	5,940,761			$	3,653,643			$	8,891,164			$	5,325,204
Less non-controlling interest (a)		(1,887,861	)			(1,562,303	)			(2,640,530	)			(2,264,167	)
Adjusted EBITDA, net	$	4,052,900			$	2,091,340			$	6,250,634			$	3,061,037
Weighted Average number of shares outstanding
Basic		11,586,507				11,159,075				11,542,877				11,115,346
Diluted		11,592,193				11,171,543				11,548,563				11,127,814
Basic adjusted EBITDA	$	0.35			$	0.19			$	0.54			$	0.28
Diluted adjusted EBITDA	$	0.35			$	0.19			$	0.54			$	0.28
(a)The reconciliation of adjusted EBITDA of non-controlling interest
to net income attributable to non-controlling interest is as follows
Net Income attributable to non-controlling interest	$	1,475,355			$	1,027,581			$	1,793,901			$	1,215,814
Income Taxes		70,821				29,945				141,364				40,423
Depreciation and amortization		338,278				465,138				704,132				932,320
Interest expense		20,219				34,463				52,909				73,535
Interest (income)		(54,247	)			(36,918	)			(121,115	)			(82,075	)
EBITDA	$	1,850,426			$	1,520,209			$	2,571,191			$	2,180,017
Add back:
Non-cash stock-based compensation		37,435				42,094				69,339				84,150
Adjusted EBITDA of non-controlling interest	$	1,887,861			$	1,562,303			$	2,640,530			$	2,264,167