NetSol Technologies Reports Sharply Higher Fiscal 2016 Second-Quarter Results; Issues Fiscal 2016 Guidance

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  • Total Q2 revenue rose 31% to $16.2 million
  • Records positive Q2 GAAP EPS of $0.08 per diluted share, versus a net loss of $(0.14) per share last year
  • Adjusted EPS increases to $0.32 per diluted share in the quarter, and adjusted EPS of $0.46 per diluted share for the first six months of 2016
  • Expects minimum total net revenue of $62 million for fiscal 2016, GAAP profitability and adjusted EPS growth for the fiscal year  

- Conference Call Scheduled Today at 9 a.m. ET (6 a.m. PT) -

CALABASAS, Calif. , Feb. 11, 2016 (GLOBE NEWSWIRE) -- NetSol Technologies, Inc. (Nasdaq:NTWK), a global business services and enterprise application solutions provider, today announced results for its fiscal 2016 second quarter ended December 31, 2015.

Total net revenues for the 2016 second quarter rose 31% to $16.2 million from $12.4 million in the same period last year.  The increase reflected strength in total services revenue, which includes growing services delivered to major clients as well as our joint-venture companies, rising to $12.2 million from $6.9 million last year.  License fees were approximately $710,000, compared with $2.1 million last year, with the year-over-year difference relating to sales mix. Total maintenance fees, which include related-party (joint-venture) maintenance fees, remained consistent at $3.3 million for both 2015 and 2014.

On a GAAP basis, net income for the second quarter improved to $875,000, or $0.08 per diluted share, as compared with a net loss of $1.4 million, or $(0.14) per share, in the second quarter of 2015.

Non-GAAP Adjusted EBITDA (which adds back stock-based compensation expense) for the second quarter of 2016 was $3.3 million, or adjusted EPS of $0.32 per diluted share, as compared with adjusted EBITDA of $1.4 million, or adjusted EPS of $0.14 per diluted share, in the second quarter of 2015.

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 at the end of this press release.
Following is additional detail for the quarter:

  • As a percentage of total revenue, total cost of revenue for the second quarter of 2016 decreased to 50% from 60% of total revenues for the same period last year;
  • Gross profit rose to $8.0 million from $5.0 million last year; and
  • Operational expenses were nearly flat year-over-year, with an increase in selling and marketing expenses related to new business efforts, offset by a decrease in general and administrative expenses as a result of cost rationalization initiatives. 

“NetSol is at an important inflection point, with leverage continuing to build in our business model as a result of multiple large contracts underway,” said Najeeb Ghauri, CEO of NetSol. “As we implement agreements already signed in Europe, along with the recently announced 12-country NFS AscentTM implementation, we anticipate a strong year ahead.”

Naeem Ghauri, president and head of global sales, commenting on the recent contract valued at more than $100 million said, “The new contract is just beginning to contribute revenue to our overall revenue mix, and is expected to ramp up steadily in the fiscal 2016 third and fourth quarter, and then sharply in fiscal 2017. Additionally, our sales pipeline is robust, benefitting from recent wins that provide strong reference points to leverage in our marketing efforts.”

For the first six months of fiscal 2016, total revenue advanced to $29.5 million from $22.6 million for the same period one year ago. The company reported GAAP net income of $464,000, or $0.04 per diluted share, for the first six months of fiscal 2016, versus a net loss of $3.2 million, or $(0.34) per diluted share, for the same period last year. Non-GAAP adjusted EBITDA rose to $4.8 million, or adjusted EPS of $0.46 per diluted share for the first six months of fiscal 2016, from $2.4 million, or adjusted EPS of $0.26 per diluted share, for the same period in fiscal 2015.

At December 31, 2015, cash and cash equivalents were approximately $14.0 million, versus $14.2 million at June 30, 2015. Accounts receivable and accounts receivable, net-related party combined were $11.8 million, up from approximately $10 million at June 30, 2015.  The quality of receivables remains strong. 

Fiscal 2016 Business Outlook

The company currently expects minimum revenue of $62 million for fiscal 2016, with positive GAAP earnings per share and continued adjusted EPS growth.  NetSol is currently conducting its mid-year budget review, and will provide further detail at the appropriate time. 

Fiscal 2016 Second Quarter Conference Call
When:  Thursday, February 11, 2016
Time:  9:00 a.m. Eastern Time         
Phone:  1-844-868-9327 (domestic)
             1-412-317-6595 (international)
Note:  Once connected, please ask to be joined into the NetSol Technologies call.

A live webcast will be available online within the investor relations section of NetSol’s website at http://www.netsoltech.com . A replay of the webcast will be available one hour following conclusion of the live call, and will be archived for one year.

About NetSol Technologies

NetSol Technologies, Inc. (Nasdaq:NTWK) is a worldwide provider of IT and enterprise software solutions primarily serving the global leasing and financing industry. The Company’s suite of applications are backed by 40 years of domain expertise and supported by a committed team of more than 1000 professionals placed in eight strategically located support and delivery centers throughout the world.

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 “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.

(Tables Follow) 

NetSol Technologies, Inc. and Subsidiaries
 
Consolidated Balance Sheets
 
       As of December 31,     As of June 30, 
 ASSETS
 		   2015         2015   
Current assets:          
 Cash and cash equivalents  $   13,986,773     $   14,168,957  
 Restricted cash      90,000         90,000  
 Accounts receivable, net of allowance of $487,937  and $524,565      6,025,334         6,480,344  
 Accounts receivable, net - related party     5,749,523         3,491,899  
 Revenues in excess of billings      5,061,568         5,267,275  
 Other current assets      2,671,613         2,012,190  
 Total current assets     33,584,811         31,510,665  
Property and equipment, net       23,251,920         25,119,634  
Intangible assets, net         20,877,711         22,815,467  
Goodwill         9,516,568         9,516,568  
 Total assets $   87,231,010     $   88,962,334  
           
 LIABILITIES AND STOCKHOLDERS' EQUITY
 		     
Current liabilities:          
 Accounts payable and accrued expenses $   5,907,103     $   5,952,561  
 Current portion of loans and obligations under capitalized leases     3,767,193         3,896,353  
 Unearned revenues      3,546,819         4,897,327  
 Common stock to be issued      88,324         88,324  
 Total current liabilities     13,309,439         14,834,565  
Long term loans and obligations under capitalized leases; less current maturities     273,109         487,492  
 Total liabilities     13,582,548         15,322,057  
Commitments and contingencies        
Stockholders' equity:        
 Preferred stock, $.01 par value; 500,000 shares authorized;      -         -  
 Common stock, $.01 par value; 14,500,000 shares authorized;      
 10,418,350  shares issued and 10,391,071  outstanding as of December 31, 2015  and          
 10,307,826  shares issued and 10,280,547  outstanding as of June 30, 2015     104,184         103,078  
 Additional paid-in-capital      119,890,798         119,209,807  
 Treasury stock (27,279 shares)      (415,425 )       (415,425 )
 Accumulated deficit      (40,262,084 )       (40,726,121 )
 Stock subscription receivable      (1,139,672 )       (1,204,603 )
 Other comprehensive loss      (18,546,296 )       (17,167,100 )
 Total NetSol stockholders' equity     59,631,505         59,799,636  
 Non-controlling interest      14,016,957         13,840,641  
 Total stockholders' equity     73,648,462         73,640,277  
 Total liabilities and stockholders' equity $   87,231,010     $   88,962,334  


NetSol Technologies, Inc. and Subsidiaries
Consolidated Statement of Operations
 
       For the Three Months    For the Six Months
       Ended December 31,    Ended December 31,
        2015       2014       2015       2014  
Net Revenues:              
  License fees $   709,691     $   2,100,715     $   1,903,045     $   3,685,268  
  Maintenance fees     3,240,472         3,276,125         6,252,710         5,984,653  
  Services     9,574,104         5,378,584         16,327,977         9,627,664  
  Maintenance fees - related party     31,755         53,462         189,986         193,575  
  Services - related party     2,635,675         1,543,718         4,823,083         3,088,595  
     Total net revenues     16,191,697         12,352,604         29,496,801         22,579,755  
                   
Cost of revenues:              
   Salaries and consultants     4,925,565         4,298,900         9,925,455         8,415,117  
   Travel     754,009         590,353         1,235,462         1,012,224  
   Depreciation and amortization     1,461,466         1,800,753         2,935,701         3,602,320  
   Other     1,022,682         662,046         1,961,479         1,336,909  
    Total cost of revenues     8,163,722         7,352,052         16,058,097         14,366,570  
                   
Gross profit     8,027,975         5,000,552         13,438,704         8,213,185  
                   
Operating expenses:              
  Selling and marketing     2,002,990         1,574,955         3,701,394         2,707,315  
  Depreciation and amortization     285,616         438,003         576,788         1,018,776  
  General and administrative     3,536,676         3,911,754         6,902,723         7,587,509  
  Research and development cost     117,924         80,437         229,994         146,702  
    Total operating expenses     5,943,206         6,005,149         11,410,899         11,460,302  
                   
Income (loss) from operations     2,084,769         (1,004,597 )       2,027,805         (3,247,117 )
                   
Other income and (expenses)              
  Loss on sale of assets     (2,333 )       (69,543 )       (14,206 )       (80,595 )
  Interest expense     (72,156 )       (47,265 )       (140,329 )       (120,358 )
  Interest income     35,299         106,078         87,411         163,997  
  Loss on foreign currency exchange transactions     (134,527 )       (421,082 )       (248,246 )       (341,862 )
  Other income     120,684         18,162         174,998         18,541  
    Total other income (expenses)     (53,033 )       (413,650 )       (140,372 )       (360,277 )
                   
Net income (loss) before  income taxes     2,031,736         (1,418,247 )       1,887,433         (3,607,394 )
Income tax provision     (273,275 )       (87,683 )       (348,498 )       (127,759 )
Net income (loss)      1,758,461         (1,505,930 )       1,538,935         (3,735,153 )
  Non-controlling interest     (883,396 )       138,764         (1,074,898 )       529,961  
Net income (loss) attributable to NetSol $   875,065     $   (1,367,166 )   $   464,037     $   (3,205,192 )
                   
                   
  Net income (loss) per common share              
    Basic $   0.08     $   (0.14 )   $   0.05     $   (0.34 )
    Diluted $   0.08     $   (0.14 )   $   0.04     $   (0.34 )
                   
Weighted average number of shares outstanding              
  Basic     10,308,186         9,654,334         10,294,760         9,433,829  
  Diluted     10,548,922         9,654,334         10,535,496         9,433,829  


  NetSol Technologies, Inc. and Subsidiaries  
  Consolidated Statement of Cash Flows  
     
         For the Six Months   
         Ended December 31,   
          2015       2014    
 Cash flows from operating activities:         
   Net income (loss)  $   1,538,935     $   (3,735,156 )  
   Adjustments to reconcile net income (loss)         
     to net cash provided by operating activities:         
   Depreciation and amortization      3,512,489         4,621,096    
   Provision for bad debts      37,043         -    
   Loss on sale of assets      14,206         80,595    
   Stock issued for services      326,019         606,536    
   Fair market value of warrants and stock options granted      145,716         311,244    
   Changes in operating assets and liabilities:         
     Accounts receivable      111,967         (2,279,774 )  
     Accounts receivable - related party      (2,383,828 )       40,907    
     Revenues in excess of billing      535,937         (765,672 )  
     Other current assets      (758,802 )       286,838    
     Accounts payable and accrued expenses      142,008         59    
     Unearned revenue      (1,190,072 )       4,857,469    
   Net cash provided by operating activities      2,031,618         4,024,142    
               
 Cash flows from investing activities:         
   Purchases of property and equipment      (1,177,443 )       (1,772,866 )  
   Sales of property and equipment      357,933         179,904    
   Purchase of non-controlling interest in subsidiaries      (347,623 )       (577,222 )  
   Net cash used in investing activities      (1,167,133 )       (2,170,184 )  
               
 Cash flows from financing activities:         
   Proceeds from sale of common stock      64,931         1,610,000    
   Proceeds from the exercise of stock options and warrants      194,680         116,400    
   Restricted cash      -         2,438,844    
   Dividend paid by subsidiary to non-controlling interest      -         (780,106 )  
   Proceeds from bank loans      306,750         57,405    
   Payments on capital lease obligations and loans - net      (530,733 )       (2,867,974 )  
   Net cash provided by financing activities      35,628         574,569    
 Effect of exchange rate changes      (1,082,297 )       (404,696 )  
 Net increase (decrease) in cash and cash equivalents      (182,184 )       2,023,831    
 Cash and cash equivalents, beginning of the period      14,168,957         11,462,695    
 Cash and cash equivalents, end of period  $   13,986,773     $   13,486,526    


NetSol Technologies, Inc. and Subsidiaries
Reconciliation to GAAP
 
  Three Months   Three Months   Six Months   Six Months
  Ended   Ended   Ended   Ended
  December 31, 2015   December 31, 2014   December 31, 2015   December 31, 2014
               
 Net Income (loss) before preferred dividend, per GAAP $   875,065     $   (1,367,166 )   $   464,037     $   (3,205,192 )
 Income Taxes     273,275         87,683         348,498         127,759  
 Depreciation and amortization     1,747,082         2,238,756         3,512,489         4,621,096  
 Interest expense     72,156         47,265         140,329         120,358  
 Interest (income)     (35,299 )       (106,078 )       (87,411 )       (163,997 )
 EBITDA $   2,932,279     $   900,460     $   4,377,942     $   1,500,024  
 Add back:              
 Non-cash stock-based compensation     393,985         471,996         471,735         917,780  
 Adjusted EBITDA $   3,326,264     $   1,372,456     $   4,849,677     $   2,417,804  
               
 Adjusted EBITDA margin   20.54 %     11.11 %     16.44 %     10.71 %
               
               
 Weighted Average number of shares outstanding              
 Basic     10,308,186         9,654,334         10,294,760         9,433,829  
 Diluted     10,548,922         9,654,334         10,535,497         9,433,829  
               
 Basic adjusted EBITDA $   0.32     $   0.14     $   0.47     $   0.26  
 Diluted adjusted EBITDA $   0.32     $   0.14     $   0.46     $   0.26  
                               

From time to time, NetSol may refer to Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization and Stock-based Compensation) and “non-GAAP adjusted diluted EPS or Adjusted EPS” in its conference calls and discussions with investors and analysts in connection with the company’s reported historical financial results.  Adjusted EBITDA does not represent cash flows from operations as defined by generally accepted accounting principles (“GAAP”), is not derived in accordance with GAAP and should not be considered by the reader as an alternative to net income (the most comparable GAAP financial measure to Adjusted EBITDA).  Non-GAAP adjusted diluted EPS or Adjusted EPS does not measure diluted EPS as defined by GAAP, is not derived in accordance with GAAP and should not be considered by the reader as an alternative to reported diluted EPS.  The reconciliation of GAAP and non-GAAP financial measures for the three and six month periods ended December 31, 2015 and 2014 are included in the above table.  NetSol’s management believes that Adjusted EBITDA and Adjusted EPS are helpful as an indicator of the current financial performance of the company. NetSol also adjusts for non-cash items, such as stock-based compensation as we believe these are not representative of our ongoing operating performance and we believe excluding these costs provide a useful metric by which to compare performance from period to period. Management strongly encourages investors to review the company’s consolidated financial statements in their entirety and to not rely on any single financial measure in evaluating the company.

Investor Contacts:

PondelWilkinson
Roger Pondel | Matt Sheldon
[email protected] 
 (310) 279-5980

Media Contacts:

PondelWilkinson
George Medici | [email protected] 
(310) 279-5968

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Source: NetSol Technologies, Inc.

Released February 11, 2016