NETSOL Technologies Announces Fiscal 2017 Third Quarter Financial Results

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Third Quarter Total Net Revenues increased 12.4% year-over-year to a Q3 Record of $17.9 million
Third Quarter Net Income of $0.7 million and Diluted EPS of $0.06
Third Quarter Adjusted EBITDA of $2.3 million

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

CALABASAS, Calif., May 22, 2017 (GLOBE NEWSWIRE) -- NetSol Technologies, Inc. (Nasdaq:NTWK), a leading global provider of enterprise application solutions and business services to the finance and leasing industry, today announced financial results for the fiscal 2017 third quarter ended March 31, 2017. 

Fiscal 2017 Third Quarter Financial Results

Total net revenues for the third quarter of fiscal 2017 were $17.9 million, an increase of 12.4% from the prior year period. 

  • Total license fees were $5.7 million, an increase of 210.9% from $1.8 million in the prior year period.
  • Total maintenance fees were $3.6 million, an increase of 5.1% from $3.4 million in the prior year period.
  • Total services revenues were $8.6 million, a decrease of 19.5% from $10.7 million in the prior year period.
  • On-track to deliver record revenues in fiscal year 2017.

Gross profit for the third quarter of fiscal 2017 was $9.0 million, or 50.1% of net revenues, an increase of 21.7% from $7.4 million, or 46.3% of net revenues, in the third quarter of fiscal 2016.  

Net income attributable to NETSOL for the third quarter of fiscal 2017 was $0.7 million, or $0.06 per diluted share, compared with $0.8 million, or $0.08 per diluted share, in the third quarter of fiscal 2016.

Adjusted EBITDA1 for the third quarter of fiscal 2017 was $2.3 million, representing Adjusted EBITDA per diluted share of $0.21, compared with Adjusted EBITDA of $2.3 million, or Adjusted EBITDA per diluted share of $0.21, in the third quarter of fiscal 2016.

At March 31, 2017, cash and cash equivalents were $8.5 million, compared with $11.6 million at June 30, 2016 and $11.9 million at March 31, 2016.

_____________________

[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.

Management Commentary
“We are pleased to deliver solid revenue growth and margin improvement in the fiscal third quarter,” said Najeeb Ghauri, Founder, Chairman and Chief Executive Officer of NETSOL. “We had a strong quarter for NFS Ascent license and services revenue, and for the first time, Ascent revenue exceeded fees from our legacy NFS solution suite. Conversely, our legacy NFS-related revenue was lower-than-expected in the fiscal third quarter, driven by a slowdown in new license and services fees as several of our NFS clients are beginning to explore with us a migration path to our next-generation NFS Ascent platform. Looking ahead, we view this inflection point in our revenue growth mix as a long-term positive for NETSOL and believe we are well-positioned to continue to build off this solid foundation. Nevertheless, we expect this tactical shift in our clients’ demand will continue to impact our results in the fourth quarter. In addition, the non-conversion of some new client contracts also impacted our fiscal third quarter results. We have reduced our fiscal year 2017 guidance to reflect these factors. Despite our tempered outlook for fiscal 2017, the strong fundamental drivers of our business remain unchanged, and we remain very optimistic about NETSOL’s future growth potential. Finally, I am pleased with the progress we have made on our recently announced costs reduction initiatives, as this helped us to improve our bottom-line in the quarter. We are on track to deliver $1.5 million of cost savings in the second half of fiscal 2017 and $4 million on an annualized basis beginning in fiscal 2018.”

Naeem Ghauri, President of NETSOL Global Sales and Marketing, provided additional color on the Company’s sales pipeline, “We have a robust global pipeline of new business opportunities, including our NFS Ascent pipeline which continues to expand across the Americas, Europe and Asia Pacific. Ascent has become referenceable for new clients as several of the implementations are now live and being used by thousands of users across our APAC region. Our pipeline includes both upgrades from legacy NFS to NFS Ascent as well as organic opportunities from new prospects. Many of these potential opportunities represent multi-country, multi-million dollar implementations.” Naeem Ghauri continued, “While we are highly encouraged by the growth of our NFS Ascent pipeline, we are also experiencing elongated sales cycles that require in-depth evaluation and stringent procurement processes within tier-one organizations. However, we have extensive experience working within these processes, and expect to come out on the other end with positive outcomes.”

Fiscal 2017 Financial Outlook
The Company has revised its financial outlook for the fiscal year ending June 30, 2017 as follows:

  • Total net revenues of $66 to $67 million for fiscal 2017. 
  • Non-GAAP Adjusted EBITDA, net, of $5 to $6 million for fiscal 2017.

Revision to Prior Period Financial Statements
During the preparation of the Company’s Form 10-Q for the nine months ended March 31, 2017, misstatements were identified regarding the timing of revenue recognition for the complex 12-country NFS Ascent contract. NETSOL will amend its financial statements for the quarters ended September 30, 2015, December 31, 2015, September 30, 2016 and December 31, 2016. The cumulative impact to the Company’s financial results from the amendment is immaterial for the fiscal year ended June 30, 2016 and the nine months ended March 31, 2017. The Company has disclosed further in detail in its Form 10-Q for the period ended March 31, 2017, which will be filed today with the Securities Exchange Commission.

Fiscal 2017 Third Quarter Conference Call

     
When:   Monday, May 22, 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 10106843. The replay will be available through Monday, May 29, 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.

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 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, EBITDA, 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
investors@netsoltech.com 

 

 
NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets
           
       As of March 31,     As of June 30, 
  ASSETS    2017         2016   
Current assets:      
  Cash and cash equivalents $   8,450,115     $   11,557,527  
  Accounts receivable, net of allowance of $494,011  and $492,498      10,301,949         9,691,229  
  Accounts receivable, net - related party     4,414,635         5,691,178  
  Revenues in excess of billings     20,893,955         10,493,096  
  Revenues in excess of billings - related party     94,685         804,168  
  Other current assets     3,040,774         2,214,628  
    Total current assets     47,196,113         40,451,826  
Restricted cash     90,000         90,000  
Property and equipment, net     21,205,976         22,774,435  
Other assets     2,549,858         842,553  
Intangible assets, net     17,662,773         19,674,033  
Goodwill     9,516,568         9,516,568  
    Total assets $   98,221,288     $   93,349,415  
           
  LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
  Accounts payable and accrued expenses $   7,404,181     $   5,962,770  
  Current portion of loans and obligations under capitalized leases     5,650,475         4,440,084  
  Unearned revenues     4,025,642         4,739,214  
  Common stock to be issued     88,324         88,324  
    Total current liabilities     17,168,622         15,230,392  
Long term loans and obligations under capitalized leases; less current maturities     499,515         477,692  
    Total liabilities     17,668,137         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;      
    11,132,349 shares issued and 11,097,570  outstanding as of March 31, 2017 and      
    10,713,372 shares issued and 10,686,093  outstanding as of June 30, 2016     111,324         107,134  
  Additional paid-in-capital     123,693,569         121,448,946  
  Treasury stock (34,779 shares and 27,279 shares)     (454,310 )       (415,425 )
  Accumulated deficit     (39,177,897 )       (37,323,360 )
  Stock subscription receivable     (359,070 )       (783,172 )
  Other comprehensive loss     (18,797,496 )       (18,730,494 )
    Total NetSol stockholders' equity     65,016,120         64,303,629  
  Non-controlling interest     15,537,031         13,337,702  
    Total stockholders' equity     80,553,151         77,641,331  
    Total liabilities and stockholders' equity $   98,221,288     $   93,349,415  

 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 2: Consolidated Statement of Operations
 
       For the Three Months     For the Nine Months 
       Ended March 31,     Ended March 31, 
        2017       2016       2017       2016  
Net Revenues:              
  License fees $   5,730,222     $   1,358,469     $   14,953,574     $   3,076,541  
  Maintenance fees     3,538,996         3,388,526         10,651,692         9,826,209  
  Services     7,004,272         8,159,490         19,795,073         24,487,467  
  License fees - related party     -         484,644         246,957         484,644  
  Maintenance fees - related party     51,698         28,423         233,674         218,409  
  Services - related party     1,624,132         2,554,347         5,003,605         7,377,430  
    Total net revenues      17,949,320         15,973,899         50,884,575         45,470,700  
                   
Cost of revenues:              
   Salaries and consultants      6,161,110         5,691,530         18,034,263         15,936,191  
   Travel      764,867         543,672         2,313,002         1,779,134  
   Depreciation and amortization      1,340,188         1,483,695         3,989,824         4,419,396  
   Other      686,950         860,868         2,725,015         2,822,347  
    Total cost of revenues     8,953,115         8,579,765         27,062,104         24,957,068  
                   
Gross profit     8,996,205         7,394,134         23,822,471         20,513,632  
                   
Operating expenses:              
  Selling and marketing     2,439,948         1,896,295         7,497,464         5,597,689  
  Depreciation and amortization     284,642         321,230         825,224         898,018  
  General and administrative     4,329,798         3,808,327         12,882,407         10,391,844  
  Research and development cost     101,193         132,123         285,732         362,117  
    Total operating expenses     7,155,581         6,157,975         21,490,827         17,249,668  
                   
Income (loss) from operations     1,840,624         1,236,159         2,331,644         3,263,964  
                   
Other income and (expenses)              
  Gain (loss) on sale of assets     1,647         14,848         (33,095 )       642  
  Interest expense     (60,357 )       (56,070 )       (176,959 )       (196,399 )
  Interest income     27,229         29,673         81,085         117,084  
  Gain (loss) on foreign currency exchange transactions     390,897         12,955         (645,886 )       (235,291 )
  Other income (expense)     (219 )       25,258         28,164         200,256  
    Total other income (expenses)     359,197         26,664         (746,691 )       (113,708 )
                   
Net income (loss) before  income taxes     2,199,821         1,262,823         1,584,953         3,150,256  
Income tax provision     (61,604 )       (106,209 )       (440,363 )       (454,707 )
Net income (loss)     2,138,217         1,156,614         1,144,590         2,695,549  
  Non-controlling interest     (1,438,249 )       (307,135 )       (2,999,127 )       (1,382,033 )
Net income (loss) attributable to NetSol $   699,968     $   849,479     $   (1,854,537 )   $   1,313,516  
                   
                   
                   
Net income (loss) per share:              
  Net income (loss) per common share              
    Basic $   0.06     $   0.08     $   (0.17 )   $   0.13  
    Diluted $   0.06     $   0.08     $   (0.17 )   $   0.12  
                   
Weighted average number of shares outstanding              
  Basic     10,987,214         10,427,664         10,850,538         10,338,740  
  Diluted     11,121,620         10,643,479         10,850,538         10,554,555  

 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows
 
         For the Nine Months   
         Ended March 31,   
          2017       2016    
 Cash flows from operating activities:         
   Net income  $   1,144,590     $   2,695,549    
   Adjustments to reconcile net income         
     to net cash provided by (used in) operating activities:         
   Depreciation and amortization      4,815,048         5,317,414    
   Provision for bad debts      732         49,605    
   (Gain) Loss on sale of assets      33,095         (642 )  
   Stock issued for services      1,998,968         694,693    
   Fair market value of warrants and stock options granted      26,956         145,716    
   Changes in operating assets and liabilities:         
     Accounts receivable      (649,776 )       115,428    
     Accounts receivable - related party      405,009         (3,111,316 )  
     Revenues in excess of billing      (10,388,695 )       (3,078,655 )  
     Revenues in excess of billing - related party      553,767         15,507    
     Other current assets      419,704         (838,913 )  
     Accounts payable and accrued expenses      337,890         617,112    
     Unearned revenue      (715,880 )       (1,490,697 )  
   Net cash provided by (used in) operating activities      (2,018,592 )       1,130,801    
               
 Cash flows from investing activities:         
   Purchases of property and equipment      (1,315,922 )       (2,523,865 )  
   Sales of property and equipment      149,430         556,280    
   Purchase of treasury stock      (38,885 )       -    
   Investment      (905,555 )       (555,556 )  
   Purchase of subsidiary shares from open market      -         (767,397 )  
   Net cash used in investing activities      (2,110,932 )       (3,290,538 )  
               
 Cash flows from financing activities:         
   Proceeds from sale of common stock      -         64,931    
   Proceeds from the exercise of stock options and warrants      785,479         728,699    
   Proceeds from exercise of subsidiary options      54,377         16,744    
   Dividend paid by subsidiary to non-controlling interest      (968,657 )       -    
   Proceeds from bank loans      1,484,162         1,334,285    
   Payments on capital lease obligations and loans - net      (251,040 )       (736,405 )  
   Net cash provided by financing activities      1,104,321         1,408,254    
 Effect of exchange rate changes      (82,209 )       (1,536,315 )  
 Net decrease in cash and cash equivalents      (3,107,412 )       (2,287,798 )  
 Cash and cash equivalents, beginning of the period      11,557,527         14,168,957    
 Cash and cash equivalents, end of period  $   8,450,115     $   11,881,159    

 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP
 
  Three Months   Three Months   Nine Months   Nine Months
  Ended   Ended   Ended   Ended
  March 31, 2017   March 31, 2016   March 31, 2017   March 31, 2016
               
 Net Income (loss) before preferred dividend, per GAAP  $   699,968     $   849,479     $   (1,854,537 )   $   1,313,516  
 Non-controlling interest      1,438,249         307,135         2,999,127         1,382,033  
 Income taxes      61,604         106,209         440,363         454,707  
 Depreciation and amortization      1,624,830         1,804,925         4,815,048         5,317,414  
 Interest expense      60,357         56,070         176,959         196,399  
 Interest (income)      (27,229 )       (29,673 )       (81,085 )       (117,084 )
 EBITDA  $   3,857,779     $   3,094,145     $   6,495,875     $   8,546,985  
 Add back:               
 Non-cash stock-based compensation      478,345         368,674         2,025,924         840,409  
 Adjusted EBITDA, gross  $   4,336,124     $   3,462,819     $   8,521,799     $   9,387,394  
 Less non-controlling interest (a)      (2,045,028 )       (1,186,132 )       (4,860,826 )       (3,884,124 )
 Adjusted EBITDA, net  $   2,291,096     $   2,276,687     $   3,660,973     $   5,503,270  
               
               
 Weighted Average number of shares outstanding               
 Basic      10,987,214         10,427,664         10,850,538         10,338,740  
 Diluted      11,121,620         10,643,479         10,984,944         10,554,555  
               
 Basic adjusted EBITDA  $   0.21     $   0.22     $   0.34     $   0.53  
 Diluted adjusted EBITDA  $   0.21     $   0.21     $   0.33     $   0.52  
               
               
(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 $   1,438,249     $   307,135     $   2,999,127     $   1,382,033  
 Income Taxes      10,871         36,569         71,916         74,350  
 Depreciation and amortization      538,118         790,065         1,587,412         2,346,603  
 Interest expense      17,502         9,416         53,918         40,749  
 Interest (income)      (10,610 )       (31,715 )       (27,702 )       (83,112 )
 EBITDA  $   1,994,130     $   1,111,470     $   4,684,671     $   3,760,623  
 Add back:               
 Non-cash stock-based compensation      50,898         74,662         176,155         123,501  
 Adjusted EBITDA of non-controlling interest  $   2,045,028     $   1,186,132     $   4,860,826     $   3,884,124  
               

 

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 nine month periods ended March 31, 2017 and 2016 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 May 22, 2017