NetSol Technologies Reports Second Quarter Fiscal Year 2008 Financial Results
Operating Income Increases 284% Year-Over-Year to $1.4 Million; GAAP Net Income Increased to $1.1 Million, or $0.04 per Diluted Share, vs. ($ 0.32) Loss a Year Ago, Company Reiterates Revenue and Net Income Guidance for Fiscal 2008; Revenues Increased 16% Year-Over-Year to $8.4 Million
CALABASAS, CA -- (MARKET WIRE) -- 02/13/08 -- NetSol Technologies Inc. ("NetSol") (NASDAQ: NTWK), a multinational provider of IT services and enterprise software to the financial services industry, today announced financial results for the second quarter of fiscal year 2008, ending December 31, 2007.
Second Quarter Fiscal 2008 - Consolidated Financial Highlights
-- Revenues increased 16% year-over-year to $8.4 million
-- Services increased 29% to $4.0 million
-- License fees increased 5% to $2.9 million
-- Maintenance fees increased 10% to $1.5 million
-- Gross margin increased to 57% compared to 50% in the year ago period
-- Operating income rose 284% to $1.4 million compared to $377 thousand in
the year ago period
-- GAAP net income increased to $1.1 million or $0.04 per diluted share,
versus a GAAP net loss of $4.7 million or ($0.32) per diluted share in
the year ago period
-- EBITDA was $2.0 million, or $0.07 per diluted share, representing 24%
of revenues
-- Cash flows from operating activities during the quarter totaled $2.6
million
-- Company reiterates guidance for fiscal year 2008: Annual revenue growth
between 25% to 30% and diluted earnings per share between $0.28 and
$0.32.
Najeeb Ghauri, chairman and chief executive officer, commented, "NetSol continued to make excellent progress across its key financial and operational objectives during the fiscal second quarter of 2008. Our double digit top line growth was driven by strong demand for our IT service offerings and solid gains in license and maintenance revenue streams. The combined revenue growth provided a strong foundation for NetSol to post impressive gains in GAAP net income and EBITDA profitability for the quarter, as compared to losses in the year ago period. NetSol's bottom line profitability also benefited from the significant progress we continue to make in terms of improving operating efficiencies and managing costs. Our gross margins are improving, inline with our expectations, as gross profit increased an impressive 32% year-over-year while growth in total operating expenses was held to a mere 3% over the same period. Overall, I am pleased with the progress we made in the first half of fiscal 2008 and I stand optimistic on growth prospects for fiscal 2008 as the second half of our fiscal year is historically stronger than the first half.
"Our results during the fiscal second quarter were even more impressive when taking into account there were seven fewer billing days during the quarter for our largest business unit compared to the sequential first quarter of 2008, largely due to holidays, as well as the extraordinary events in Pakistan during the quarter. Government sector automation in Pakistan continues, albeit at a slower pace due to impending General election. However, the Company continues to have a strong pipeline of public sector projects and has seen no cancellations in any of the public tenders the Company is participating in. With organic revenue growth of 30% recorded for the first half of fiscal year 2008, NetSol stands well positioned to move into the second half of the year and on track towards meeting our full year organic revenue growth target of between 25% to 30% for fiscal 2008," concluded Mr. Ghauri.
NetSol reported consolidated revenues of $8.4 million for the second quarter of fiscal year 2008, a 16% increase compared to the $7.2 million in revenues reported for the same period in fiscal year 2007. Consolidated gross profit for the second quarter was approximately $4.8 million, or 57% of revenue, compared to $3.6 million, or 50% of revenue in the prior year period.
GAAP (Generally Accepted Accounting Principles) net income for the second quarter of fiscal year 2008 was approximately $1.1 million, or $0.04 per diluted share, compared to a GAAP net loss of $4.7 million, or a loss of ($0.32) per diluted share, reported in the second quarter of fiscal year 2007. EBITDA was $2.0 million, or $0.07 per diluted share, compared to negative EBITDA of $3.7 million, or ($0.21) per share in the comparative period last year.
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. The Company uses EBITDA as a measure of the Company's operating trends. Investors are cautioned that EBITDA is not a measure of liquidity or of financial performance under Generally Accepted Accounting Principles (GAAP). The EBITDA numbers presented may not be comparable to similarly titled measures reported by other companies. EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Consistent with the SEC Regulation G, the non-GAAP measures in this press release have been reconciled to the nearest GAAP measure, and this reconciliation is located under the financial table heading "Reconciliation to GAAP."
NetSol ended the fiscal second quarter of 2008 with approximately $8.5 million dollars in cash and cash equivalents. The weighted average total number of basic and diluted shares outstanding for the quarter was 24,443,901 and 27,712,335 respectively.
Second Quarter Fiscal 2008 - Business Highlights
-- LeaseSoft won APICTA's (Asia Pacific ICT Alliance) award for 'Best
Financial Industry Application' for 2007.
-- Received the Federation of Pakistan Chambers of Commerce and Industry
(FPCCI) 'Best Export Performance Award' for 2006-2007 for the highest
export of IT Services from Pakistan.
-- NetSol was ranked 19th in the Deloitte's Fast 50 in Los Angeles,
California.
-- BMW Financial Services Hong Kong Ltd. went live with the NetSol's
LeaseSoft solution including the LeaseSoft Contract Management System (CMS)
and Credit Application System (CAP) components.
-- NetSol further penetrated the Healthcare Sector Automation space by
winning an IT Services contract from a major public sector hospital to
design and implement a Hospital Management System (HMS).
-- Completed branding transition from NetSol-McCue Systems to NetSol
Technologies North America, continued management restructuring in every
division across the globe.
-- Established a strategic partnership to address the IT market in Greece
and the adjacent region with Real Consulting Information Systems S.A.
-- Continued to implement internal cost reduction measures and corporate
streamlining initiatives focused on improving global business and operating
efficiencies.
-- Initiated the SOX 404 internal control compliance procedure across the
company and retained KPMG as consultants.
First Half Fiscal Year 2008 - Consolidated Financial Highlights
-- Revenues increased 30% to $17.0 million.
-- GAAP net income was $2.9 million, or $0.11 per diluted share, as
compared to a GAAP net loss of $5.9 million, or ($0.34) per diluted share
in the year ago period.
-- EBITDA for the first half was $4.8 million, or $0.18 per diluted
share, representing 28% of revenues.
NetSol Technologies, Inc. reported consolidated revenues of $17.0 million for the first half of fiscal year 2008, a 30% increase compared to the $13.1 million in revenues reported for the same period in fiscal year 2007. Consolidated gross profit for the first six months was $10.0 million, or 59% of revenues.
GAAP net income for the first six months of fiscal year 2008 was approximately $2.9 million, or $0.11 per diluted share, which compares to GAAP net loss of $5.9 million, or ($0.34) per diluted share, in the same period of fiscal year 2007. NetSol reported EBITDA of $4.8 million, or $0.18 per diluted share, for the first half of fiscal year 2008.
Conference Call Information
Following the distribution of the press release, NetSol will host a conference call at 11:00 a.m. ET (8:00 a.m. PT) to review the results. Najeeb Ghauri, chairman and chief executive officer, and Tina Gilger, chief financial officer, will host the call, which will be webcast live. The webcast and a supporting slide presentation will be made available online at http://www.netsoltek.com/investors/investor_relations.htm. Telephone access to the conference call is available in North America by dialing +1 (877) 407-8033 or internationally by dialing +1 (201) 689-8033.
An audio replay of the conference call will be available approximately one hour following the conclusion of the call and will be available for 30 days. To access the replay in North America dial +1 (877) 660-6853 or when calling internationally dial +1 (201) 612-7415, using replay account code # 286 and conference ID # 268055. An archived replay of the conference webcast will also be available on the NetSol Technologies web site at http://www.netsoltek.com/investors/investor_relations.htm.
About NetSol Technologies
NetSol Technologies (NASDAQ: NTWK) is a multinational provider of IT services and enterprise solutions to the financial services industry. By utilizing its worldwide IT design, development, quality assurance (QA), and project management resources, NetSol delivers high-quality, cost-effective portfolio management solutions for equipment and vehicle finance, as well as IT services ranging from consulting and application development to systems integration and development outsourcing. NetSol's commitment to quality is demonstrated by its achievement of both the ISO 9001 and SEI (Software Engineering Institute) CMMi (Capability Maturity Model) Level 5 assessments, a distinction shared by fewer than 100 companies worldwide. NetSol Technologies' clients include Fortune 50 manufacturers, global automakers, financial institutions, technology providers, and governmental agencies. Headquartered in Calabasas, California, NetSol Technologies has operations and/or offices in London, San Francisco, Adelaide, Beijing, Bangkok and Lahore, Pakistan.
To learn more about NetSol Technologies Inc., visit www.netsoltek.com.
Forward-Looking Statements
This press release may contain forward-looking statements relating to the development of the Company's products and services and future operation results, including statements regarding the Company that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words "believe," "expect," "anticipate," "intend," variations of such words, and similar expressions, identify forward-looking statements, 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.
NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the For the
Three Months Ended Six Months Ended
December 31, December 31,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Net Revenues:
License fees $ 2,866,807 $ 2,718,795 $ 4,770,359 $ 4,297,207
Maintenance fees 1,490,376 1,359,239 3,073,796 2,654,203
Services 4,049,287 3,149,087 9,215,552 6,138,271
------------ ------------ ------------ ------------
Total revenues 8,406,470 7,227,121 17,059,707 13,089,681
Cost of revenues
Salaries and
consultants 2,400,991 2,441,724 4,722,021 4,373,797
Travel 311,329 432,344 578,157 748,027
Repairs and
maintenance 119,032 133,818 233,186 179,553
Insurance 85,110 50,078 123,755 102,301
Depreciation and
amortization 271,729 221,201 530,636 414,298
Other 431,609 317,824 819,500 688,551
------------ ------------ ------------ ------------
Total cost of
sales 3,619,800 3,596,989 7,007,255 6,506,527
------------ ------------ ------------ ------------
Gross profit 4,786,670 3,630,132 10,052,452 6,583,154
Operating expenses:
Selling and
marketing 1,086,729 762,290 1,919,222 1,280,334
Depreciation and
amortization 479,904 456,529 944,551 905,903
Bad debt expense 838 51,690 3,277 117,498
Salaries and
wages 815,771 1,000,835 1,723,650 1,999,226
Professional
services,
including
non-cash
compensation 129,539 258,974 299,001 519,844
General and
adminstrative 826,033 722,336 1,495,194 1,542,423
------------ ------------ ------------ ------------
Total operating
expenses 3,338,814 3,252,654 6,384,895 6,365,228
------------ ------------ ------------ ------------
Income from
operations 1,447,856 377,478 3,667,557 217,926
Other income and
(expenses):
Gain (loss) on
sale of assets 70 (58) (32,153) (12,338)
Beneficial
conversion
feature - (2,208,334) - (2,208,334)
Amortization of
debt discount
and capitalized
cost of debt - (2,069,033) - (2,803,691)
Liquidation
damages - (133,833) - (133,833)
Interest expense (189,142) (211,615) (422,946) (459,523)
Interest income 41,575 128,303 75,438 219,049
Other income and
(expenses) 149,277 39,192 261,224 106,977
------------ ------------ ------------ ------------
Total other income
(expenses) 1,780 (4,455,378) (118,437) (5,291,693)
------------ ------------ ------------ ------------
Net income (loss)
before minority
interest in
subsidiary 1,449,636 (4,077,900) 3,549,120 (5,073,767)
Minority interest
in subsidiary (382,887) (558,571) (657,806) (805,845)
Income taxes 1,483 (16,141) (30,958) (68,965)
------------ ------------ ------------ ------------
Net income (loss) 1,068,232 (4,652,612) 2,860,356 (5,948,577)
Dividend required
for preferred
stockholders (40,368) (65,598) (111,525) (65,598)
Subsidiary dividend
(minority holders
portion) - - (817,173) -
Bonus stock
dividend (minority
holders portion) (545,359) - (545,359) -
------------ ------------ ------------ ------------
Net income (loss)
applicable to
common
shareholders 482,505 (4,718,210) 1,386,299 (6,014,175)
Other comprehensive
gain:
Translation
adjustment (653,396) 195,269 (490,993) 121,779
------------ ------------ ------------ ------------
Comprehensive
income (loss) $ (170,891) $ (4,522,941) $ 895,306 $ (5,892,396)
============ ============ ============ ============
Net income (loss)
per share:
Basic $ 0.04 $ (0.33) $ 0.12 $ (0.34)
============ ============ ============ ============
Diluted $ 0.04 $ (0.32) $ 0.11 $ (0.34)
============ ============ ============ ============
Weighted average
number of shares
outstanding
Basic 24,443,901 14,064,968 22,934,568 17,280,675
Diluted 27,712,335 14,444,665 26,203,002 17,280,675
NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - AS OF DECEMBER 30, 2007
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 8,543,109
Accounts receivable, net of allowance for
doubtful accounts of $168,512 7,787,339
Revenues in excess of billings 10,265,235
Other current assets 2,245,899
-----------
Total current assets 28,841,582
Property and equipment, net of accumulated
depreciation 8,371,547
Other assets, long-term 435,195
Intangibles:
Product licenses, renewals, enhancements,
copyrights, trademarks, and tradenames, net 8,747,001
Customer lists, net 2,080,083
Goodwill 7,786,032
-----------
Total intangibles 18,613,116
------------
Total assets $ 56,261,440
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,415,167
Current portion of loans and obligations under
capitalized leases 3,251,443
Other payables - acquisitions 83,399
Unearned revenues 2,645,174
Due to officers 184,278
Dividend to preferred stockholders payable 33,876
Loans payable, bank 1,861,338
-----------
Total current liabilities 11,474,675
Obligations under capitalized leases, less
current maturities 232,008
Long term loans; less current maturities 582,402
------------
Total liabilities 12,289,085
Minority interest 4,211,222
Commitments and contingencies
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized;
1,920 issued and outstanding 1,920,000
Common stock, $.001 par value; 45,000,000
shares authorized; 25,133,650 issued
and outstanding 25,134
Additional paid-in-capital 75,080,435
Treasury stock (10,194)
Accumulated deficit (35,746,044)
Stock subscription receivable (630,907)
Common stock to be issued 89,132
Other comprehensive loss (966,423)
-----------
Total stockholders' equity 39,761,133
------------
Total liabilities and stockholders' equity $ 56,261,440
============
NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
December 31,
2007 2006
------------ ------------
Cash flows from operating activities:
Net income (loss) applicable to common
shareholders $ 2,860,356 $ (5,948,577)
Adjustments to reconcile net income (loss)
applicable to common shareholders to net
cash provided by (used in) operating
activities:
Depreciation and amortization 1,475,187 1,320,111
Bad debt expense 3,277 117,498
Loss on sale of assets 32,153 12,338
Minority interest in subsidiary 657,806 805,845
Stock issued for services 15,000 41,380
Stock issued for convertible note payable
interest - 311,868
Fair market value of warrants and stock
options granted 24,320 -
Beneficial conversion feature - 2,208,334
Amortization of debt discount and
capitalized cost of debt - 2,803,691
Changes in operating assets and
liabilities:
Decrease/(increase) in accounts
receivable 715,359 (2,141,889)
Increase in other current assets (1,749,271) (1,501,990)
(Decrease)/increase in accounts payable
and accrued expenses (1,450,545) 419,886
------------ ------------
Net cash provided by (used in) operating
activities 2,583,642 (1,551,505)
Cash flows from investing activities:
Purchases of property and equipment (1,556,424) (417,833)
Sales of property and equipment 16,076 131,775
Net proceeds of certificates of deposit - 1,739,581
Payment for acquisition (879,007) (4,027,753)
Increase in intangible assets (1,479,492) (935,439)
------------ ------------
Net cash used in investing activities (3,898,847) (3,509,669)
Cash flows from financing activities:
Proceeds from sale of common stock 1,500,000 -
Proceeds from the exercise of stock options 2,707,167 219,223
Reduction in restricted cash - 4,533,555
Proceeds from loans from officers - 165,000
Proceeds from bank loans 2,702,454 -
Payments on bank loans (323,488) -
Capital lease obligations & loans (net) (760,919) 390,128
------------ ------------
Net cash provided by financing activities 5,825,214 5,307,906
Effect of exchange rate changes in cash 22,936 (33,353)
------------ ------------
Net increase in cash and cash equivalents 4,532,945 213,379
Cash and cash equivalents, beginning of period 4,010,164 2,493,768
------------ ------------
Cash and cash equivalents, end of period $ 8,543,109 $ 2,707,147
============ ============
NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
RECONCILIATION TO GAAP
(UNAUDITED)
Three Months Six Months
Ended Ended
Dec. 31, 2007 Dec. 31, 2007
------------- --------------
Net income per GAAP (applicable to common
shareholders) $ 1,068,232 $ 2,860,356
Income taxes (1,483) 30,958
Depreciaiton and amortization 751,633 1,491,703
Interest expense 189,142 422,946
------------- --------------
EBITDA income $ 2,007,524 $ 4,805,963
============= ==============
Weighted average number of shares outstanding
Basic 24,443,901 22,934,568
Diluted 27,712,335 26,203,002
------------- --------------
Basic EBITDA EPS $ 0.08 $ 0.21
============= ==============
Diluted EBITDA EPS $ 0.07 $ 0.18
============= ==============
Contacts: NetSol Technologies, Inc. Tina Gilger CFO Tel : +1-818-222-9195, x112 Investor Relations Christopher Chu The Global Consulting Group Tel: +1-646-284-9426 Email: [email protected]
Released February 13, 2008