NetSol Technologies Reports Second Quarter Fiscal Year 2010 Financial Results
Second Quarter Revenue Increased 81% Year-Over-Year to $9.5 Million; Gross Margin Improved to 62%; Second Quarter License Revenue Grew 412% Year-Over-Year
CALABASAS, CA -- (MARKET WIRE) -- 02/10/10 -- NetSol Technologies, Inc. "NetSol" (NASDAQ: NTWK) (NASDAQ DUBAI: NTWK), a U.S. corporation providing global business services and enterprise application solutions to private and public sector organizations worldwide, today announced second quarter financial results for fiscal year 2010, for the period ended December 31, 2009.
SECOND QUARTER FISCAL YEAR 2010 CONSOLIDATED FINANCIAL HIGHLIGHTS
-- Revenues totaled $9.5 million, up 81% year-over-year and 25%
sequentially.
-- Service fees totaled $4.4 million
-- License fees totaled $3.3 million
-- Maintenance fees totaled $1.8 million
-- Gross margin increased to 62% compared to 27% in the same period a
year ago.
-- Operating income increased to $1.7 million as compared to an operating
loss of $2.8 million in the same period a year ago.
-- GAAP net loss applicable to common shareholders of $0.4 million, or a
loss of $0.01 per diluted share, compared to GAAP net loss applicable
to common shareholders of $3.3 million, or a loss of $0.12 per diluted
share, in the year ago period.
-- GAAP net loss applicable to common shareholders and operating income
include the impact of $1.1 million in expense, or $0.03 per diluted
share, related to the relocation of the Company's global and U.S.
operating headquarters from Emeryville to Alameda, California and
$0.6 million, or $0.02 per diluted share, in expense related to the
beneficial conversion feature of convertible securities.
-- The relocation of NetSol's global and U.S. operating headquarters to
Alameda, California is projected to provide savings of $5 million over
a five year period.
-- EBITDA totaled $0.9 million, or $0.03 per diluted share, versus an
EBITDA loss of $1.9 million, or a loss of $0.07 per diluted share,
in the year ago period.
-- The Company reiterated guidance for fiscal year 2010 projecting
revenues in the range of $33.0 million and $35.0 million, representing
full year revenue growth of between 25% and 32% versus fiscal year
2009. The Company projects a return to GAAP net income for fiscal year
2010, versus a GAAP net loss of $0.30 per diluted share for fiscal year
2009. License revenues for fiscal year 2010 are projected to increase
more than 100% versus fiscal year 2009.
Najeeb Ghauri, NetSol Technologies chairman and chief executive officer, commented, "Our fiscal second quarter 2010 financial results marked our third consecutive quarter of double-digit sequential revenue growth, highlighted by an 81% increase in sales versus the year ago period. NetSol also delivered material improvements in gross margin, operating income, GAAP net income, and EBITDA results versus the year ago period. These performance gains highlight the significant improvement in NetSol's core business as we continue to successfully convert our business pipeline to customer wins. Revenues from license fees resumed a pre-recession trajectory growing over 400% year-over-year as global customers began to further unlock spending and resume the purchase of large strategic software solutions, particularly in the automotive and financial sectors. Additionally, we continue to implement efficiency measures aimed at increasing our long-term profitability. Our efforts to continuously rationalize operating expenses included the relocation of our global and operating headquarters in the U.S., now under the leadership of Mr. Imran Haider, the recently appointed Chief Operating Officer of NetSol North America, Inc., to Alameda which is expected to save the company an estimated $5 million over a 5 year period.
"As NetSol continued to invest in its core NetSol Financial Suite (NFS)™ throughout the global economic downturn the company is well positioned to leverage the upturn in customer activity we continue to see, particularly in China, as NetSol begins the second half of its fiscal year 2010 with continued positive momentum. We are continuing to see increased interest among major customers as well as potential partners in the sector and see excellent opportunities for collaboration and strategic initiatives as we look ahead to the second half of our fiscal year 2010," concluded Mr. Ghauri.
NetSol reported consolidated revenues of $9.5 million for the second quarter of fiscal year 2010, representing an 81% increase as compared to the same period a year ago.
U.S. GAAP (Generally Accepted Accounting Principles) net loss applicable to common shareholders for the second quarter of fiscal year 2010 was approximately $0.4 million, or a loss of $0.01 per diluted share, which compares to GAAP net loss of applicable to common shareholders of $3.3 million, or $0.12 per diluted share, in the same period a year ago. U.S. GAAP net loss applicable to common shareholders for the second quarter fiscal year 2010 was primarily attributable to $1.1 million, or $0.03 per diluted share, in expense related to the relocation of NetSol's headquarters in California and the $0.6 million, or $0.02 per diluted share, in expense related to the beneficial conversion feature of convertible securities. The relocation of NetSol's global and U.S. corporate headquarters to Alameda, California is projected to provide savings of $5 million over a five year period.
NetSol reported EBITDA of $0.9 million, or $0.03 per diluted share, for the second quarter of fiscal year 2010 compared to an EBITDA loss of $1.9 million, or a loss of $0.07 per diluted share, in the year ago period.
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."
SECOND QUARTER FISCAL YEAR 2010 BUSINESS HIGHLIGHTS
-- NetSol global and U.S. operating headquarters relocated from Emeryville
to Alameda, California
-- Mr. Imran Haider appointed as the new Chief Operating Officer of NetSol
North America, Inc. bringing 8 years of product and sales expertise
from NetSol Asia Pacific as the Company strengthens its U.S. based
management team
-- Toyota Motor Finance China upgrades to a NetSol Financial Suite™
license
-- A major Chinese automotive finance company awarded NetSol a $2 million
contract
-- Expanded sales and delivery capabilities in China, leveraging fast
growing Chinese consumer and asset finance market
-- NetSol secured a major Information Security contract in the mobile
telecommunications sector
-- BMW Group Financial Services awarded NetSol additional services
contract
-- NetSol awarded IT Services contract in Saudi Arabia, further expanding
presence in the Middle East market
-- United Kingdom based bank awarded NetSol a $1 million major software
and IT services contract
-- NetSol IT Business Services awarded Information Security contract to
implement a data center security project in conjunction with a leading
solution integrator in Pakistan
FIRST HALF FISCAL YEAR 2010 CONSOLIDATED FINANCIAL HIGHLIGHTS
-- Revenues totaled $17.1 million, up 18% year-over-year.
-- Service fees totaled $7.7 million
-- License fees totaled $5.9 million
-- Maintenance fees totaled $3.6 million
-- Gross margin increased to 58% compared to 42% in the same period a
year ago.
-- Operating income increased to $2.8 million as compared to an operating
loss of $1.7 million in the same period a year ago.
-- GAAP net loss applicable to common shareholders of $0.7 million, or a
loss of $0.02 per diluted share, compared to GAAP net loss applicable
to common shareholders of $2.2 million, or a loss of $0.08 per diluted
share, in the year ago period.
-- GAAP net loss applicable to common shareholders and operating income
include the impact of $1.1 million in expense, or $0.03 per diluted
share, related to the relocation of the Company's global and U.S.
operating headquarters from Emeryville to Alameda, California and
$0.9 million, or $0.03 per diluted share, in expense related to the
beneficial conversion feature of convertible securities.
-- EBITDA totaled $2.2 million, or $0.06 per diluted share, versus EBITDA
of $0.4 million, or $0.02 per diluted share, in the year ago period.
CONFERENCE CALL & WEBCAST INFORMATION
Following the distribution of the fiscal second quarter 2010 financial results, NetSol will host a conference call today at 11:00 a.m. ET (8:00 a.m. PT) to review the quarterly financial and operational performance. Najeeb Ghauri, NetSol Technologies chairman and chief executive officer, will host the call, which will be webcast live. The webcast and a supporting slide presentation will be made available on the investor relations section of the NetSol corporate website at www.netsoltech.com. Telephone access to the conference call will be available in North America by dialing +1 (877) 407-0782 or internationally by dialing +1 (201) 689-8567.
An audio replay of the conference call will be available approximately two hours following the conclusion of the call and for the following 30 day period. 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 # 344363. An archived replay of the conference webcast will also be available on the investor relations section of the NetSol corporate website at www.netsoltech.com.
About NetSol Technologies, Inc.
NetSol Technologies, Inc. (NASDAQ: NTWK) (NASDAQ DUBAI: NTWK) is a worldwide provider of global business services and enterprise application solutions. Since its inception in 1995, NetSol has used its BestShoring® practices and highly experienced resources in analysis, development, quality assurance, and implementation to deliver high-quality, cost-effective solutions. Specialized by industry, these product and services offerings include credit and finance portfolio management systems, hospital/healthcare information management systems (HIMS), SAP consulting and services, custom development, systems integration, and technical services for the global Financial, Healthcare, Insurance, Energy, and Technology markets. NetSol's commitment to quality is demonstrated by its achievement of the ISO 9001, ISO 27001, and SEI (Software Engineering Institute) CMMI (Capability Maturity Model) Maturity Level 5 assessments, a distinction shared by fewer than 100 companies worldwide. NetSol Technologies' clients include Fortune 500 manufacturers, global automakers, financial institutions, utilities, technology providers, and government agencies. With corporate headquarters in Calabasas, California, NetSol Technologies has operations and offices in Alameda, Adelaide, Bangkok, Beijing, Lahore, London, and San Pedro Sula.
To learn more about NetSol Technologies, Inc., visit www.netsoltech.com
To join the NetSol Technologies, Inc. email communications list, visit: http://www.b2i.us/irpass.asp?BzID=897&to=ea&s=0
NetSol Technologies, Inc. Forward-looking Statement
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 Three Months For the Six Months
Ended December 31, Ended December 31,
2009 2008 2009 2008
----------- ----------- ----------- -----------
Net Revenues:
License fees $ 3,318,936 $ 647,979 $ 5,870,529 $ 3,177,787
Maintenance fees 1,780,336 1,513,293 3,588,053 3,107,027
Services 4,420,535 3,109,737 7,683,299 8,287,162
----------- ----------- ----------- -----------
Total revenues 9,519,808 5,271,009 17,141,881 14,571,976
Cost of revenues:
Salaries and
consultants 2,005,845 2,382,877 4,019,598 5,023,590
Travel 329,008 226,964 389,207 712,900
Repairs and
maintenance 69,112 102,235 136,723 208,900
Insurance 36,030 59,073 72,709 91,912
Depreciation and
amortization 573,267 532,429 1,071,772 1,083,754
Other 585,157 540,146 1,467,495 1,291,214
----------- ----------- ----------- -----------
Total cost of
revenues 3,598,418 3,843,724 7,157,503 8,412,270
----------- ----------- ----------- -----------
Gross profit 5,921,390 1,427,285 9,984,378 6,159,706
Operating expenses:
Selling and marketing 526,751 880,846 1,020,381 1,850,364
Depreciation and
amortization 418,023 494,834 930,384 975,042
Bad debt expense 212,840 648,470 212,840 648,470
Salaries and wages 743,970 944,520 1,468,665 1,923,774
Professional services,
including non-cash
compensation 210,795 312,940 306,901 619,826
Lease abandonment
charges 1,076,347 - 1,076,347 -
General and
administrative 1,042,172 962,711 2,132,183 1,830,828
----------- ----------- ----------- -----------
Total operating
expenses 4,230,898 4,244,321 7,147,701 7,848,304
----------- ----------- ----------- -----------
Income (loss) from
operations 1,690,492 (2,817,036) 2,836,677 (1,688,598)
Other income and
(expenses)
Gain (loss) on sale
of assets (89,119) (14,960) (89,101) (180,698)
Interest expense (372,273) (296,578) (840,887) (500,470)
Interest income 33,752 40,895 151,562 68,836
Gain on foreign
currency exchange
rates (3,247) (195,030) 380,577 1,812,852
FMV of options &
warrants issued - 117,300 - -
Beneficial conversion
feature (595,215) - (893,214) -
Other income/(expense) (50,825) 15,686 (81,975) 32,140
----------- ----------- ----------- -----------
Total other income
(expenses) (1,076,927) (332,687) (1,373,038) 1,232,660
----------- ----------- ----------- -----------
Net income (loss)
before non-controlling
interest in subsidiary 613,565 (3,149,723) 1,463,639 (455,938)
Non-controlling
interest (1,028,917) (32,062) (2,137,892) (1,661,823)
Income taxes (32,526) (50,855) (37,543) (58,037)
----------- ----------- ----------- -----------
Net loss (447,878) (3,232,640) (711,795) (2,175,798)
Dividend required for
preferred stockholders - (33,876) - (67,752)
----------- ----------- ----------- -----------
Net loss applicable to
common shareholders (447,878) (3,266,516) (711,795) (2,243,550)
Other comprehensive
loss:
Translation
adjustment (538,141) (962,258) (854,705) (3,857,568)
----------- ----------- ----------- -----------
Comprehensive income
loss $ (986,019) $(4,228,774) $(1,566,500) $(6,101,118)
=========== =========== =========== ===========
Net loss per share:
Basic $ (0.01) $ (0.12) $ (0.02) $ (0.08)
=========== =========== =========== ===========
Diluted $ (0.01) $ (0.12) $ (0.02) $ (0.08)
=========== =========== =========== ===========
Weighted average number
of shares outstanding
Basic 34,447,142 26,525,259 33,041,760 26,416,217
=========== =========== =========== ===========
Diluted 34,447,142 26,525,259 33,041,760 26,416,217
=========== =========== =========== ===========
NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of As of
December 31, June 30,
2009 2009
ASSETS Unaudited Audited
------------- -------------
Current assets:
Cash and cash equivalents $ 5,211,674 $ 4,403,762
Restricted Cash 5,000,000 5,000,000
Accounts receivable, net of allowance
for doubtful accounts 11,085,142 11,394,844
Revenues in excess of billings 7,803,936 5,686,277
Other current assets 1,974,048 2,307,246
------------- -------------
Total current assets 31,074,801 28,792,129
Property and equipment, net of accumulated
depreciation 9,063,503 9,186,163
Other assets, long-term - 204,823
Intangibles:
Product licenses, renewals, enhancements,
copyrights, trademarks, and tradenames, net 15,679,647 13,802,607
Customer lists, net 961,401 1,344,019
Goodwill 9,439,285 9,439,285
------------- -------------
Total intangibles 26,080,334 24,585,911
------------- -------------
Total assets $ 66,218,638 $ 62,769,026
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,244,176 $ 5,106,266
Current portion of loans and obligations
under capitalized leases 6,564,633 6,207,830
Other payables - acquisitions 103,226 103,226
Unearned revenues 3,153,926 3,473,228
Dividend to preferred stockholders payable - 44,409
Loans payable, bank 2,386,549 2,458,757
Convertible notes payable, current portion 1,131,115 -
------------- -------------
Total current liabilities 18,583,625 17,393,716
Obligations under capitalized leases, less
current maturities 878,586 1,090,901
Convertible notes payable, less current
maturities 4,227,517 5,809,508
Long term loans; less current maturities 969,536 1,113,832
Lease abandonment liability; long term 1,076,347 -
------------- -------------
Total liabilities 25,735,611 25,407,957
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, 5,000,000 shares
authorized; Nil; 1,920 issued and
outstanding - 1,920,000
Common stock, $.001 par value; 95,000,000
shares authorized; 35,436,777; 30,046,987
issued and outstanding 35,437 30,047
Additional paid-in-capital 84,702,035 78,198,523
Treasury stock (396,008) (396,008)
Accumulated deficit (41,940,459) (41,253,152)
Stock subscription receivable (2,347,930) (842,619)
Common stock to be issued 88,325 220,365
Other comprehensive loss (7,754,102) (6,899,397)
Non-controlling interest 8,095,729 6,383,310
------------- -------------
Total stockholders' equity 40,483,027 37,361,069
------------- -------------
Total liabilities and stockholders'
equity $ 66,218,638 $ 62,769,026
============= =============
NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended December 31,
2009 2008
------------ ------------
Cash flows from operating activities:
Net loss $ (711,795) $ (2,175,798)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,002,157 2,058,796
Provision for bad debts 212,840 648,470
Loss on transaction of debt 19,582 -
Loss on sale of assets 89,101 180,698
Non controlling interest in subsidiary 2,137,892 1,661,823
Stock issued for accrued interest on
convertible notes 27,825 -
Stock issued for services 300,329 159,867
Fair market value of warrants and stock
options granted 651,018 89,700
Beneficial conversion feature 893,214 -
Changes in operating assets and liabilities:
Increase/ decrease in accounts receivable 237,431 (3,563,977)
Increase/ decrease in other current assets (1,632,327) 1,344,525
Increase/ decrease in accounts payable and
accrued expenses 147,556 106,229
------------ ------------
Net cash provided by operating activities 4,374,822 510,333
Cash flows from investing activities:
Purchases of property and equipment (1,085,787) (1,551,217)
Sales of property and equipment 227,773 40,900
Payments of acquisition payable - (742,989)
Purchase of treasury stock - (360,328)
Short-term investments held for sale - (105,040)
Increase in intangible assets (3,118,094) (3,023,777)
------------ ------------
Net cash used in investing activities (3,976,108) (5,742,451)
Cash flows from financing activities:
Proceeds from sale of common stock 514,539 150,000
Proceeds from the exercise of stock options
and warrants 33,750 520,569
Purchase of subsidary stock in Pakistan - (250,000)
Proceeds from convertible notes payable 2,000,000 5,849,306
Redemption of preferred stock (1,920,000) -
Restricted cash - (5,000,000)
Dividend Paid (44,090) -
Bank overdraft (221,382) 130,436
Proceeds from bank loans 2,727,657 3,618,590
Payments on bank loans (352,887) (138,975)
Payments on capital lease obligations &
loans - net (2,183,189) (259,048)
------------ ------------
Net cash provided by financing activities 554,399 4,620,878
Effect of exchange rate changes in cash (145,201) (247,696)
------------ ------------
Net increase/ (decrease) in cash and cash
equivalents 807,912 (858,936)
Cash and cash equivalents, beginning of year 4,403,762 6,275,238
------------ ------------
Cash and cash equivalents, end of year $ 5,211,674 $ 5,416,302
============ ============
NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
RECONCILIATION TO GAAP
(Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
------------ ------------ ------------ ------------
Net Income (loss)
before preferred
dividend, per GAAP $ (447,878) $ (3,232,640) $ (711,795) $ (2,175,798)
Income Taxes 32,526 50,855 37,543 58,037
Depreciation and
amortization 991,290 1,027,263 2,002,156 2,058,796
Interest expense 372,273 296,578 840,887 500,470
------------ ------------ ------------ ------------
EBITDA $ 948,211 $ (1,857,944) $ 2,168,791 $ 441,505
============ ============ ============ ============
Weighted Average
number of shares
outstanding
Basic 34,447,142 26,525,259 33,041,760 26,416,217
Diluted 35,833,351 26,525,259 34,427,969 27,308,220
------------ ------------ ------------ ------------
Basic EBITDA $ 0.03 $ (0.07) $ 0.07 $ 0.02
============ ============ ============ ============
Diluted EBITDA $ 0.03 $ (0.07) $ 0.06 $ 0.02
------------ ------------ ------------ ------------
Contact - Investor Relations: Christopher Chu Grayling Phone: +1 646-284-9426 Email: [email protected]
Released February 10, 2010