NETSOL Technologies Reports Fiscal First Quarter 2019 Financial Results

Bay Street

6 years ago

Year-Over-Year Revenue Growth of 27% to $16.4 Million and EPS Increase to $0.08 from $(0.03) in Q1 2018 Driven by Major Contract Wins in China During the Quarter, Providing Catalyst for Fiscal 2019

CALABASAS, Calif., Nov. 13, 2018 (GLOBE NEWSWIRE) — NETSOL Technologies, Inc. (NASDAQ: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal first quarter ended September 30, 2018.

First Quarter and Recent Operational Highlights

Secured a five-year contract valued at roughly $30 million with a European tier-one global auto captive to implement both NFS Ascent™ Retail and Wholesale platforms in China.
Secured a multi-million-dollar contract with major American multinational automaker to implement Ascent Retail platform in China.
Selected by Speed Leasing to implement LeasePak Cloud™ SaaS platform and mAccount platform, powered by the NFS Digital™ suite.
NFS Ascent went live in South Africa, a new market, with a German auto manufacturing giant as part of the ongoing international deployment associated with previously announced 12-country, $110 million contract.
Received “First-Rate and Best-Selling Finance and Leasing Solution Provider” award at the China Leasing Summit 2018 for the sixth consecutive year.
Commenced data migration project for an existing customer, which is expected to generate approximately $500,000 in additional revenues over the next few months.
Established a new subsidiary and set up an additional office in London to support future growth for NFS Ascent in the European market.

Fiscal First Quarter 2019 Financial Results
Total net revenues for the first quarter of fiscal 2019 were $16.4 million, compared with $12.8 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $5.6 million and an increase of total maintenance fees of $163,000, which were offset by a decrease in total services revenues of $2.2 million.

Total license fees were $6.0 million, compared with $370,000 in the prior year period.
Total maintenance fees were $3.7 million, compared with $3.6 million in the prior year period.
Total services revenues were $6.7 million, compared with $8.9 million in the prior year period.

Gross profit for the first quarter of fiscal 2019 was $8.2 million (or 50.2% of net revenues), compared to $4.8 million (or 37.5% of net revenues) in the first quarter of fiscal 2018. The increase in gross profit as a percentage of net revenues was primarily due to an increase in total revenues of $3.6 million, which was offset by a minor increase in cost of revenues of $152,000.

Operating expenses for the first quarter of fiscal 2019 increased 12% to $6.6 million (or 40.5% of net revenues) from $5.9 million (or 46.3% of net revenues) for the first quarter of fiscal 2018. The increase in operating expenses was primarily due to increases in salaries and wages, research and development and general and administrative expenses, which were offset by decreases in selling and marketing expenses, depreciation, and professional services.

GAAP net income attributable to NETSOL for the first quarter of fiscal 2019 totaled $963,000 or $0.08 per diluted share, an improvement from net loss of $369,000 or $(0.03) per diluted share in the first quarter of fiscal 2018.

Non-GAAP adjusted EBITDA for the first quarter of fiscal 2019 totaled $2.2 million or $0.19 per diluted share, an improvement from $970,000 or $0.09 per diluted share in the first quarter of fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At September 30, 2018, cash and cash equivalents were $20.4 million, an increase from $8.6 million at September 30, 2017.

Management Commentary
“In the first quarter we produced solid operational and financial results, building upon the momentum established in the latter half of fiscal 2018,” said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “Most notably, we grew our topline 28% in Q1, which was driven by a major increase in license fees as part of the initial revenue recognition from some major contract wins during the quarter. Moreover, thanks to the inherent leverage in our operating model, we generated impressive gross profit and margin improvement leading to our fourth consecutive quarter of profitability. With the majority of our cost reductions and necessary restructuring now behind us, we’re primed to continue building on this initial quarterly growth as a leaner, more focused organization. Looking ahead, we remain confident in our ability to drive double-digit topline growth through fiscal 2019. At the same time, we remain focused on maintaining our consistent profitability as we scale our business, which should ultimately result in superior returns to our shareholders over the long term.”

Sales Outlook
“While we are executing on the large, multi-year deployments from contracts we’ve recently secured, we are also seeing the pace of new opportunities continue at a level that will allow us to meet or exceed our existing growth forecasts for the fiscal year,” added President and Head of Sales Naeem Ghauri. “Additionally, we have embarked on a number of product-specific innovations that will allow our customers to take their business to even greater heights. More specifically, we are looking at evolving traditional finance products into new areas like ride and car sharing models and are also evaluating and testing emerging technologies like blockchain that have tremendous potential to become an integral part of our future ecosystem.”

Conference Call
NETSOL Technologies management will hold a conference call today (November 13, 2018) at 9:00 a.m. Eastern time (6:00 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 12:00 p.m. Eastern time on the same day through November 27, 2018.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13683893

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 the benefit of certain cost savings undertaken in the past fiscal year, 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
investors@netsoltech.com

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

			As of September 30,			As of June 30,
	ASSETS			2018			2018
Current assets:
	Cash and cash equivalents		$	20,435,744		$	22,088,853
	Accounts receivable, net of allowance of $600,833 and $610,061			7,487,381			12,775,461
	Accounts receivable, net – related party			3,039,320			3,374,272
	Revenues in excess of billings			13,335,529			14,285,778
	Revenues in excess of billings – related party			70,250			–
	Convertible note receivable – related party			2,881,500			2,123,500
	Other current assets			3,438,861			2,703,032
		Total current assets		50,688,585			57,350,896
Revenues in excess of billings, net – long term				–			1,206,669
Property and equipment, net				15,650,128			16,165,491
Long term investment				2,958,692			3,217,162
Other assets				54,936			70,299
Intangible assets, net				11,465,925			12,247,196
Goodwill				9,516,568			9,516,568
		Total assets	$	90,334,834		$	99,774,281

	LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	7,153,778		$	7,873,809
	Current portion of loans and obligations under capitalized leases			8,433,675			8,595,919
	Unearned revenues			4,913,731			5,949,581
	Common stock to be issued			88,324			88,324
		Total current liabilities		20,589,508			22,507,633
Loans and obligations under capitalized leases; less current maturities				296,680			330,596
		Total liabilities		20,886,188			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;
		11,782,360 shares issued and 11,576,507 outstanding as of September 30, 2018 and
		11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018		117,824			117,085
	Additional paid-in-capital			126,918,319			126,479,147
	Treasury stock (At cost, 205,853 shares and 205,853 shares
	as of September 30, 2018 and June 30, 2018, respectively)			(1,205,024	)		(1,205,024	)
	Accumulated deficit			(42,827,708	)		(37,994,502	)
	Stock subscription receivable			(221,000	)		(221,000	)
	Other comprehensive loss			(24,649,274	)		(24,386,071	)
		Total NetSol stockholders’ equity		58,133,137			62,789,635
	Non-controlling interest			11,315,509			14,146,417
		Total stockholders’ equity		69,448,646			76,936,052
		Total liabilities and stockholders’ equity	$	90,334,834		$	99,774,281

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

			For the Three Months
			Ended September 30,
				2018			2017
Net Revenues:
	License fees		$	5,956,113		$	326,066
	Maintenance fees			3,638,327			3,473,725
	Services			6,418,634			7,017,737
	License fees – related party			–			44,408
	Maintenance fees – related party			101,349			102,963
	Services – related party			282,122			1,853,877
		Total net revenues		16,396,545			12,818,776

Cost of revenues:
	Salaries and consultants			5,020,562			5,464,160
	Travel			1,151,997			513,112
	Depreciation and amortization			937,604			1,173,113
	Other			1,048,324			856,582
		Total cost of revenues		8,158,487			8,006,967

Gross profit				8,238,058			4,811,809

Operating expenses:
	Selling and marketing			1,701,326			1,711,296
	Depreciation and amortization			212,232			245,873
	Provision for bad debts			–			–
	General and administrative			4,406,720			3,787,558
	Research and development cost			318,155			185,085
		Total operating expenses		6,638,433			5,929,812

Income (loss) from operations				1,599,625			(1,118,003	)

Other income and (expenses)
	Gain (loss) on sale of assets			52,294			(7,130	)
	Interest expense			(99,434	)		(118,071	)
	Interest income			248,964			136,911
	Gain on foreign currency exchange transactions			10,912			1,016,362
	Share of net loss from equity investment			(299,691	)		(67,562	)
	Other income (expense)			5,379			1,099
		Total other income (expenses)		(81,576	)		961,609

Net income (loss) before income taxes				1,518,049			(156,394	)
Income tax provision				(236,914	)		(24,871	)
Net income (loss)				1,281,135			(181,265	)
	Non-controlling interest			(318,546	)		(188,233	)
Net income (loss) attributable to NetSol			$	962,589		$	(369,498	)



Net income (loss) per share:
	Net income (loss) per common share
		Basic	$	0.08		$	(0.03	)
		Diluted	$	0.08		$	(0.03	)

Weighted average number of shares outstanding
	Basic			11,502,616			11,099,113
	Diluted			11,507,730			11,099,113

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

			For the Three Months
			Ended September 30,
				2018			2017
Cash flows from operating activities:
	Net income (loss)		$	1,281,135		$	(181,265	)
	Adjustments to reconcile net income (loss)
		to net cash used in operating activities:
	Depreciation and amortization			1,149,836			1,418,986
	Share of net loss from investment under equity method			299,691			67,562
	(Gain) loss on sale of assets			(52,294	)		7,130
	Stock based compensation			432,048			439,308
	Changes in operating assets and liabilities:
		Accounts receivable		5,136,381			(903,730	)
		Accounts receivable – related party		284,869			(1,251,994	)
		Revenues in excess of billing		(6,347,196	)		(3,230,619	)
		Revenues in excess of billing – related party		(70,102	)		(130	)
		Other current assets		(571,246	)		(478,390	)
		Accounts payable and accrued expenses		(680,147	)		231,645
		Unearned revenue		(1,202,420	)		(270,743	)
	Net cash used in operating activities			(339,445	)		(4,152,240	)

Cash flows from investing activities:
	Purchases of property and equipment			(563,413	)		(328,163	)
	Sales of property and equipment			184,032			116,023
	Convertible note receivable – related party			(758,000	)		(500,000	)
	Net cash used in investing activities			(1,137,381	)		(712,140	)

Cash flows from financing activities:
	Proceeds from the exercise of stock options and warrants			–			162,385
	Proceeds from exercise of subsidiary options			2,650			–
	Purchase of treasury stock			–			(500,663	)
	Proceeds from bank loans			119,895			–
	Payments on capital lease obligations and loans – net			(179,237	)		(148,707	)
	Net cash used in financing activities			(56,692	)		(486,985	)
Effect of exchange rate changes				(119,591	)		(266,774	)
Net decrease in cash and cash equivalents				(1,653,109	)		(5,618,139	)
Cash and cash equivalents at beginning of the period				22,088,853			14,172,954
Cash and cash equivalents at end of period			$	20,435,744		$	8,554,815

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

	Three Months			Three Months
	Ended			Ended
	September 30, 2018			September 30, 2017


Net Income (loss) before preferred dividend, per GAAP	$	962,589		$	(369,498	)
Non-controlling interest		318,546			188,233
Income taxes		236,914			24,871
Depreciation and amortization		1,149,836			1,418,986
Interest expense		99,434			118,071
Interest (income)		(248,964	)		(136,911	)
EBITDA	$	2,518,355		$	1,243,752
Add back:
Non-cash stock-based compensation		432,048			427,809
Adjusted EBITDA, gross	$	2,950,403		$	1,671,561
Less non-controlling interest (a)		(752,669	)		(701,864	)
Adjusted EBITDA, net	$	2,197,734		$	969,697


Weighted Average number of shares outstanding
Basic		11,502,616			11,099,113
Diluted		11,507,730			11,130,824

Basic adjusted EBITDA	$	0.19		$	0.09
Diluted adjusted EBITDA	$	0.19		$	0.09


(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	$	318,546		$	188,233
Income Taxes		70,543			10,478
Depreciation and amortization		365,854			467,182
Interest expense		32,690			39,072
Interest (income)		(66,868	)		(45,157	)
EBITDA	$	720,765		$	659,808
Add back:
Non-cash stock-based compensation		31,904			42,056
Adjusted EBITDA of non-controlling interest	$	752,669		$	701,864