NETSOL Technologies Announces Fiscal 2017 Second Quarter Financial Results

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Second Quarter Total Net Revenues of $17.6 million
Second Quarter GAAP Diluted EPS of $(0.09)
Second Quarter Adjusted EBITDA of $1.0 million

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

CALABASAS, Calif., Feb. 14, 2017 (GLOBE NEWSWIRE) -- NetSol Technologies, Inc. (Nasdaq:NTWK), a leading global provider of business services and enterprise application solutions to the finance and leasing industry for 20 years, today announced financial results for the fiscal 2017 second quarter ended December 31, 2016. 

Fiscal 2017 Second Quarter Financial Results & Operational Highlights

Total net revenues for the second quarter of fiscal 2017 were $17.6 million, an increase of 9% from the prior year period. 

  • Total license fees were $5.4 million, up significantly from $0.7 million in the prior year period.
  • Total maintenance fees were $3.8 million, an increase of 17% from $3.3 million in the prior year period.
  • Total services revenues were $8.4 million, a decrease of 31% from $12.2 million in the prior year period.

Gross profit for the second quarter of fiscal 2017 was $8.4 million, or 47.8% of net revenues, an increase of 7% from $7.9 million, or 48.6% of net revenues, in the second quarter of fiscal 2016.

GAAP net loss attributable to NETSOL for the second quarter of fiscal 2017 was $0.99 million, or $(0.09) per diluted share, compared with net income of $0.88 million, or $0.08 per diluted share, in the second quarter of fiscal 2016. GAAP net loss attributable to NETSOL for the second quarter of fiscal 2017 includes $1.4 million of income attributable to non-controlling interest, compared to $0.88 million in the prior year period. The year-over-year increase in non-controlling interest was primarily driven by mix of profits between NETSOL’s wholly owned subsidiaries and joint ventures. GAAP net loss for the second quarter of fiscal 2017 was also impacted by approximately $0.6 million of loss from foreign currency exchange transactions.

Adjusted EBITDA1 for the second quarter of fiscal 2017 was $1.0 million, representing Adjusted EBITDA per diluted share of $0.09, compared with Adjusted EBITDA of $2.6 million, or Adjusted EBITDA per diluted share of $0.24, in the second quarter of fiscal 2016.

At December 31, 2016, cash and cash equivalents were $9.5 million, compared with $11.2 million at September 30, 2016 and $14.0 million at December 31, 2015.

In February 2017, NETSOL completed the implementation of NFS AscentTM for the Australian finance & leasing arm of a multinational German Auto Manufacturing corporation. This was the second implementation under an existing 10-year contract with this customer for the implementation, support and maintenance of NFS AscentTM in 12 countries.

At the end of the fiscal second quarter, NETSOL’s global pipeline exceeded $150 million. Pipeline highlights for the Americas included a leading software company based in the U.S., a global equipment manufacturer that is an existing NETSOL client in Asia Pacific, and several other smaller targets currently in discussions for NFS AscentTM, NFSTM, and LeasePakTM.  Pipeline highlights for Asia Pacific and EMEA included a few large multi-national clients in discussions for platform upgrades to NFS AscentTM, multiple potential new logos for NFSTM, and strong pipeline growth in the emerging Indonesia market.

Management Commentary
“Our fiscal second quarter results are highlighted by strong year-over-year growth in our license and maintenance revenues driven by new client implementations and cross-sales into our existing customer base,” said Najeeb Ghauri, CEO of NETSOL. “Demand remains solid across our solutions and geographies, our pipeline is growing, and our large twelve-country NFS Ascent implementation remains on track."

Ghauri continued, “In the past three months, we have initiated new productivity and cost reduction initiatives that we expect will drive additional margin expansion and earnings accretion beginning in the second half of fiscal 2017 and align our business with our strategy for long-term profitable growth. We currently expect these initiatives to result in approximately $1.5 million of cost savings in the second half of fiscal 2017, and approximately $4 million on an annualized basis beginning in fiscal 2018.”

Fiscal 2017 Financial Outlook
The Company’s financial outlook for the fiscal year ending June 30, 2017 is as follows:

  • Total net revenues of $73 to $75 million for fiscal 2017. 
  • Non-GAAP Adjusted EBITDA, net, of $9 to $10 million for fiscal 2017.
               
Fiscal 2017 Second Quarter Conference Call
  When:           Tuesday, February 14, 2017
  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 replay will be available one hour after the end of the conference call and can be accessed by dialing 1-877-344-7529 (domestic) or 1-412-317-0088 (international); the replay access code is 10099519. The replay will be available through Tuesday, February 21, 2017.

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.

1 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. Beginning with the fourth quarter of fiscal 2016, NetSol has revised its calculation of Adjusted EBITDA to exclude the portion of Adjusted EBITDA that is attributable to its subsidiaries that have a minority interest.

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 are backed by 40 years of domain expertise and supported by a committed team of 1,500+ professionals placed in eight strategically located support and delivery centers throughout the world. NFSTM, LeasePakTM, LeaseSoft or NFS AscentTM – help companies transform their Finance and Leasing operations, providing a fully automated asset-based finance solution covering the complete leasing and finance lifecycle.

Investors can receive news releases and invitations to special events by accessing our online signup form at http://ir.netsoltech.com/email-alerts.

Forward-Looking Statements

Certain statements in this press release are forward-looking in nature, including, but not limited to, expected net revenue and adjusted EPS amounts for the full fiscal year and the growing market need for 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.

Investor Contact

ICR
William Maina
(646) 277-1236
[email protected]

NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets
 
      As of December 31,   As of June 30,
  ASSETS   2016       2016  
Current assets:      
  Cash and cash equivalents $ 9,505,383     $ 11,557,527  
  Accounts receivable, net of allowance of $495,760  and $492,498   5,840,490       9,691,229  
  Accounts receivable, net - related party   4,303,380       5,691,178  
  Revenues in excess of billings   17,646,488       10,493,096  
  Revenues in excess of billings - related party   469,030       804,168  
  Other current assets   2,904,650       2,214,628  
    Total current assets   40,669,421       40,451,826  
Restricted cash   90,000       90,000  
Property and equipment, net   21,873,277       22,774,435  
Other assets   2,054,938       842,553  
Intangible assets, net   18,423,439       19,674,033  
Goodwill   9,516,568       9,516,568  
    Total assets $ 92,627,643     $ 93,349,415  
           
  LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
  Accounts payable and accrued expenses $ 7,373,097     $ 5,962,770  
  Current portion of loans and obligations under capitalized leases   4,368,930       4,440,084  
  Unearned revenues   2,806,804       4,739,214  
  Common stock to be issued   88,324       88,324  
    Total current liabilities   14,637,155       15,230,392  
Long term loans and obligations under capitalized leases; less current maturities   501,554       477,692  
    Total liabilities   15,138,709       15,708,084  
Commitments and contingencies      
Stockholders' equity:      
  Preferred stock, $.01 par value; 500,000 shares authorized;   -       -  
  Common stock, $.01 par value; 14,500,000 shares authorized;      
    10,993,054  shares issued and 10,958,275  outstanding as of December 31, 2016  and    
    10,713,372  shares issued and 10,686,093  outstanding as of June 30, 2016   109,931       107,134  
  Additional paid-in-capital   123,019,215       121,448,946  
  Treasury stock (34,779 shares and 27,279 shares)   (454,310 )     (415,425 )
  Accumulated deficit   (40,074,755 )     (37,323,360 )
  Stock subscription receivable   (450,220 )     (783,172 )
  Other comprehensive loss   (18,628,395 )     (18,730,494 )
    Total NetSol stockholders' equity   63,521,466       64,303,629  
  Non-controlling interest   13,967,468       13,337,702  
    Total stockholders' equity   77,488,934       77,641,331  
    Total liabilities and stockholders' equity $ 92,627,643     $ 93,349,415  
           

 


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,    
        2016       2015       2016       2015      
Net Revenues:                  
  License fees $ 5,350,086     $ 709,691     $ 8,849,946     $ 1,903,045      
  Maintenance fees   3,787,696       3,240,472       7,190,517       6,252,710      
  Services   6,984,084       9,574,104       12,790,801       16,327,977      
  License fees - related party   -       -       246,957       -      
  Maintenance fees - related party   51,345       31,755       181,976       189,986      
  Services - related party   1,464,901       2,635,675       3,379,473       4,823,083      
    Total net revenues   17,638,112       16,191,697       32,639,670       29,496,801      
                       
Cost of revenues:                  
  Salaries and consultants   5,979,804       5,083,412       11,873,153       10,244,661      
  Travel   836,240       754,009       1,548,135       1,235,462      
  Depreciation and amortization   1,318,764       1,461,466       2,649,636       2,935,701      
  Other   1,065,727       1,022,682       2,038,065       1,961,479      
    Total cost of revenues   9,200,535       8,321,569       18,108,989       16,377,303      
                       
Gross profit   8,437,577       7,870,128       14,530,681       13,119,498      
                       
Operating expenses:                  
  Selling and marketing   2,713,478       2,002,990       5,057,516       3,701,394      
  Depreciation and amortization   271,485       285,616       540,582       576,788      
  General and administrative   3,933,413       3,378,829       8,552,609       6,583,517      
  Research and development cost   91,607       117,924       184,539       229,994      
    Total operating expenses   7,009,983       5,785,359       14,335,246       11,091,693      
                       
Income (loss) from operations   1,427,594       2,084,769       195,435       2,027,805      
                       
Other income and (expenses)                  
  Loss on sale of assets   (32,339 )     (2,333 )     (34,742 )     (14,206 )    
  Interest expense   (62,127 )     (72,156 )     (116,602 )     (140,329 )    
  Interest income   23,416       35,299       53,856       87,411      
  Loss on foreign currency exchange transactions   (621,887 )     (134,527 )     (1,036,783 )     (248,246 )    
  Other income   6,823       120,684       28,383       174,998      
    Total other income (expenses)   (686,114 )     (53,033 )     (1,105,888 )     (140,372 )    
                       
Net income (loss) before  income taxes   741,480       2,031,736       (910,453 )     1,887,433      
Income tax provision   (338,884 )     (273,275 )     (378,759 )     (348,498 )    
Net income (loss)   402,596       1,758,461       (1,289,212 )     1,538,935      
  Non-controlling interest   (1,388,272 )     (883,396 )     (1,462,183 )     (1,074,898 )    
Net income (loss) attributable to NetSol $ (985,676 )   $ 875,065     $ (2,751,395 )   $ 464,037      
                       
                       
                       
Net income (loss) per share:                  
  Net income (loss) per common share                  
    Basic $ (0.09 )   $ 0.08     $ (0.26 )   $ 0.05      
    Diluted $ (0.09 )   $ 0.08     $ (0.26 )   $ 0.04      
                       
Weighted average number of shares outstanding                  
  Basic   10,877,446       10,308,186       10,783,685       10,294,760      
  Diluted   10,877,446       10,548,922       10,783,685       10,535,497      
                       


 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows
 
        For the Six Months  
        Ended December 31,  
          2016       2015    
Cash flows from operating activities:         
  Net income (loss) $ (1,289,212 )   $ 1,538,935    
  Adjustments to reconcile net income (loss)        
  to net cash provided by operating activities:        
  Depreciation and amortization   3,190,218       3,512,489    
  Provision for bad debts   1,026       37,043    
  Loss on sale of assets   34,742       14,206    
  Stock issued for services   1,525,775       326,019    
  Fair market value of warrants and stock options granted   21,804       145,716    
  Changes in operating assets and liabilities:         
  Accounts receivable   3,678,110       111,967    
  Accounts receivable - related party   829,285       (2,383,828 )  
  Revenues in excess of billing   (7,219,089 )     520,071    
  Revenues in excess of billing - related party   285,791       15,866    
  Other current assets   585,147       (758,802 )  
  Accounts payable and accrued expenses   334,241       142,008    
  Unearned revenue   (1,908,440 )     (1,190,072 )  
  Net cash provided by operating activities    69,398       2,031,618    
               
Cash flows from investing activities:         
  Purchases of property and equipment   (1,074,316 )     (1,177,443 )  
  Sales of property and equipment   181,087       357,933    
  Purchase of treasury stock   (38,885 )     -    
  Purchase of non-controlling interest in subsidiary   -       (347,623 )  
  Investment   (705,555 )     -    
  Net cash used in investing activities    (1,637,669 )     (1,167,133 )  
               
Cash flows from financing activities:         
  Proceeds from sale of common stock   -       64,931    
  Proceeds from the exercise of stock options and warrants   429,452       194,680    
  Proceeds from exercise of subsidiary options       18,089       -    
  Dividend paid by subsidiary to Non controlling interest   (968,657 )     -    
  Proceeds from bank loans   -       306,750    
  Payments on capital lease obligations and loans - net   (69,998 )     (530,733 )  
  Net cash provided by (used in) financing activities    (591,114 )     35,628    
Effect of exchange rate changes    107,241       (1,082,297 )  
Net decrease in cash and cash equivalents    (2,052,144 )     (182,184 )  
Cash and cash equivalents, beginning of the period   11,557,527       14,168,957    
Cash and cash equivalents, end of period  $ 9,505,383     $ 13,986,773    
               


 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP
 
  Three Months   Three Months   Six Months   Six Months  
  Ended   Ended   Ended   Ended  
  December 31, 2016   December 31, 2015   December 31, 2016   December 31, 2015  
                 
Net Income (loss) before preferred dividend, per GAAP $ (985,676 )   $ 875,065     $ (2,751,395 )   $ 464,037    
Non-controlling interest   1,388,272       883,396       1,462,183       1,074,898    
Income taxes   338,884       273,275       378,759       348,498    
Depreciation and amortization   1,590,249       1,747,082       3,190,218       3,512,489    
Interest expense   62,127       72,156       116,602       140,329    
Interest (income)   (23,416 )     (35,299 )     (53,856 )     (87,411 )  
EBITDA $ 2,370,440     $ 3,815,675     $ 2,342,511     $ 5,452,840    
Add back:                
Non-cash stock-based compensation   682,123       393,985   -   1,547,579       471,735    
Adjusted EBITDA, gross $ 3,052,563     $ 4,209,660     $ 3,890,090     $ 5,924,575    
Less non-controlling interest (a)   (2,037,286 )     (1,642,461 )     (2,717,103 )     (2,697,992 )  
Adjusted EBITDA, net $ 1,015,277     $ 2,567,199     $ 1,172,987     $ 3,226,583    
                 
                 
Weighted Average number of shares outstanding                
Basic   10,877,446       10,308,186       10,783,685       10,294,760    
Diluted   11,032,938       10,548,922       10,939,177       10,535,497    
                 
Basic adjusted EBITDA $ 0.09     $ 0.25     $ 0.11     $ 0.31    
Diluted adjusted EBITDA $ 0.09     $ 0.24     $ 0.11     $ 0.31    
                 
                 
(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 $ 1,388,272     $ 883,396     $ 1,462,183     $ 1,074,898    
Income Taxes   53,397       23,907       61,045       37,781    
Depreciation and amortization   523,368       730,672       1,049,294       1,556,538    
Interest expense   18,725       12,991       36,416       31,333    
Interest (income)   (7,535 )     (34,947 )     (17,092 )     (51,397 )  
EBITDA $ 1,976,227     $ 1,616,019     $ 2,591,846     $ 2,649,153    
Add back:                
Non-cash stock-based compensation   61,059       26,442       125,257       48,839    
Adjusted EBITDA of non-controlling interest $ 2,037,286     $ 1,642,461     $ 2,717,103     $ 2,697,992    
                 

From time to time, NETSOL may refer to Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization and Stock-based Compensation) and “non-GAAP adjusted EBITDA per diluted share or Adjusted EBITDA per diluted share” 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 EBITDA per diluted share or Adjusted EBITDA per diluted share is not derived in accordance with GAAP and should not be considered by the reader as an alternative to reported GAAP diluted EPS.  The reconciliation of GAAP and non-GAAP financial measures for the three and six month periods ended December 31, 2016 and 2015 are included in the above table.  NETSOL’s management believes that Adjusted EBITDA and Adjusted EBITDA per diluted share 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 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.

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Source: NETSOL Technologies, Inc.

Released February 14, 2017