NETSOL Technologies Reports Fiscal Fourth Quarter and Full Year 2017 Financial Results

CALABASAS, Calif., Sept. 27, 2017 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (NASDAQ:NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal fourth quarter and full year ended June 30, 2017.

Recent Operational Highlights

Appointed former BMW, Mercedes and Tesla executive Georg Bauer and former Toyota Leasing executive Henry Tolentino to newly established advisory board.
Went live with new mobile point of sale system for PT. Mizuho Balimor Finance in Indonesia.
Released cloud version of LeasePak portfolio management solution in the U.S. market.
Went live with WFS Ascent for a global German auto manufacturing giant in Thailand.
Awarded “Best-Selling Finance and Leasing Solution Provider” in China for fifth consecutive year.

Fiscal Fourth Quarter 2017 Financial Results
Total net revenues for the fourth quarter of fiscal 2017 were $14.5 million, compared with $19.1 million in the prior year period. The decrease in total net revenues was primarily due to decreases in license fees of $1.1 million and services revenue of $3.4 million.

Total license fees were $3.3 million, compared with $4.4 million in the prior year period.
Total maintenance fees were $3.6 million, which were consistent with the prior year period.
Total services revenues were $7.6 million, compared with $11.0 million in the prior year period.

Gross profit for the fourth quarter of fiscal 2017 was $4.6 million (or 31.7% of net revenues), which was down from $10.3 million (or 53.9% of net revenues) in the fourth quarter of fiscal 2016. The decrease in gross profit was primarily due to a $4.6 million decrease in total net revenues and a $1.1 million increase in cost of revenues for the quarter. The increase in cost of revenues was due to an increase in salaries and consultant costs of $758,000 and business development-related travel expenses of $270,000.

Operating expenses for the fourth quarter of fiscal 2017 increased 9% to $7.9 million (or 54.7% of net revenues) from $7.3 million (or 38.0% of net revenues) for the fourth quarter of fiscal 2016. The increase in operating expenses was primarily due to an increase in the provision for bad debts.

GAAP net loss attributable to NETSOL for the fourth quarter of fiscal 2017 totaled $3.1 million or $(0.28) per diluted share, compared with net income of $2.1 million or $0.19 per diluted share in the fourth quarter of fiscal 2016.

Non-GAAP adjusted EBITDA loss for the fourth quarter of fiscal 2017 was $851,000 or $(0.08) per diluted share, compared with non-GAAP adjusted EBITDA of $3.6 million or $0.34 per diluted share in the fourth quarter of fiscal 2016 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At June 30, 2017, cash and cash equivalents were $14.2 million, an increase from $11.6 million at June 30, 2016.

Full Year Fiscal 2017 Highlights

The first implementation with a long-standing customer to deploy NFS Ascent™ in 12 countries was completed in Australia and New Zealand.
Secured $500,000 LeasePak license with Korean-based automotive captive for its U.S. operations.
Went live with major implementation of NFS legacy system with Tri Petch Isuzu Leasing in Thailand.
Implemented cost-cutting and operational efficiency measures in December 2016, which are expected to result in approximately $5 million in savings in fiscal 2018.

Full Year Fiscal 2017 Financial Results
Total net revenues for fiscal 2017 were a record $65.4 million, compared to $64.6 million in fiscal 2016. The increase in total net revenues was primarily due to a $8.5 million increase in license fees, offset by a $8.5 million decrease in service revenues.

Total license fees were $18.5 million, compared with $10.0 million in the prior fiscal year.
Total maintenance fees were $14.5 million, compared with $13.7 million in the prior fiscal year.
Total services revenues were $32.4 million, compared with $40.9 million in the prior fiscal year.

Gross profit for fiscal 2017 decreased to $28.4 million (or 43.5% of net revenues) from $30.8 million (or 47.7% of net revenues) for fiscal 2016. The decrease in gross profit was primarily due to a $3.2 million increase in the cost of sales.

Operating expenses for fiscal 2017 increased to $29.4 million (or 45.0% of net revenues) from $24.5 million (or 38.0% of net revenues) for fiscal 2016. The increase in operating expenses was primarily due to an increase in selling and marketing expenses of $1.9 million, an increase in the provision for bad debts of $1.2 million, and an increase in general and administrative expenses of $2.0 million.

GAAP net loss attributable to NETSOL for fiscal 2017 totaled $5.0 million or $(0.46) per diluted share, compared to net income of $3.4 million or $0.32 per diluted share for fiscal 2016. The GAAP net loss was primarily due to the increase in cost of sales of $3.2 million and the increase in total operating expenses of $4.9 million.

Non-GAAP adjusted EBITDA for fiscal 2017 totaled $2.8 million or $0.26 per diluted share, compared with $9.1 million or $0.86 per diluted share in fiscal 2016 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

Stock Repurchase Program
On July 18, 2017, NETSOL’s board of directors approved a stock repurchase program that authorizes repurchases of up to one million shares of its common stock through December 16, 2017. Under the program, the company may repurchase its common stock in the open market from time-to-time, in amounts, at prices, and at such times as the company deems appropriate, subject to market conditions and federal and state laws governing such transactions. NETSOL expects to fund the repurchase with its existing cash balance and cash generated from operations. As of August 31, 2017, the company had repurchased 111,780 shares of its common stock at an aggregate value of $500,000.

Management Commentary
“Fiscal 2017 was a pivotal year in NETSOL’s development, as we made meaningful progress on key initiatives designed to optimize our internal processes, reduce costs and accelerate growth,” said Najeeb Ghauri, founder, chairman and chief executive officer of NETSOL. “These measures have not only strengthened our organization in the near-term, but they have also laid the necessary foundation for profitable growth over the long run, all while making NETSOL a much more efficient organization as well.

“From an operational standpoint, these cost reduction and optimization initiatives we implemented in fiscal 2017 are expected to result in approximately $5 million of annualized cost savings beginning in fiscal 2018. And while we are continuing to lean out our operations in certain areas, we are also vigilantly looking to make key strategic additions to further strengthen our company. Our recent appointments of industry leaders Georg Bauer and Henry Tolentino to our newly formed advisory board are prime examples of this plan in action. The advisory board allows us to leverage proven industry experts like Georg and Henry to both refine and enhance our business and sales strategies.

“While we are encouraged with the operational progress we made throughout the year, our revenues came in lower than expected despite a significant increase in license fee revenues from NFS Ascent, our next-gen finance and leasing enterprise solution. Our topline was impacted because of two primary reasons: first, we experienced—and continue to experience—the effects of prolonged sales cycles related to our core NFS Ascent solution. Second, we experienced certain implementation delays associated with the increased customization required for certain large-scale rollouts with a tier one customer. Together, these two developments have also led us to focus our near-term sales efforts on nurturing and converting the highest priority prospects in our sales pipeline.

“We believe the evolution to our next-gen NFS Ascent provides the greatest near- and long-term opportunity for NETSOL. Ultimately, we believe the end result from these delays will be worth enduring. These early growing pains, while never easy, mark the beginning of our long-term growth strategy to profitably scale our business. There has been a general shift in our business whereby customers are now buying for longer terms and are also willing to pay for a premium product that will last. In this new environment, our existing client base of mostly Fortune 500 companies, presents the most immediate, cost-effective, and logical growth opportunity, which will also lead to long-term gross margin and adjusted EBITDA expansion.

“Looking ahead, we remain very optimistic about NETSOL's prospects. The goal of our cost reductions, personnel enhancements and process optimization is to ensure that we are ideally positioned to capitalize on the significant long-term opportunity in the massive global asset finance and leasing industry. What is equally important to note is that through this period, we have—and will continue to maintain—our leadership position in the large and growing Asia Pacific region, and are increasingly optimistic about furthering our penetration within the North American market as well. As we work diligently to advance in these growth markets, we expect to continue to reward shareholders along the way through proactive actions like our stock repurchase program, which we believe demonstrates our confidence in the strength and future growth potential of NETSOL. For nearly twenty years, NETSOL has been about global reach, consistent innovation, and quality people. The NETSOL of the future will not be created in a day, but, as we execute on our initiatives, we have the potential to transform into a healthy and sustainable growth company built to last for many more years.”

Conference Call
NETSOL Technologies management will hold a conference call today (September 27, 2017) at 5:00 p.m. Eastern time (2:00 p.m. Pacific time) to discuss these financial results. A question and answer session will follow management's presentation.

U.S. dial-in number: 1-877-407-0789
International number: 1-201-689-8562

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

The conference call will be broadcasted live and available for replay here and via the Investor Relations section of NETSOL’s website.

A replay of the call will be available after 8:00 p.m. Eastern time through October 11, 2017.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Conference ID: 13670574

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 is 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. NFS, LeasePak, LeaseSoft or NFS Ascent – help companies transform their Finance and Leasing operations, providing a fully automated asset-based finance solution covering the complete leasing and finance lifecycle.

Forward-Looking Statements
Certain statements in this press release are forward-looking in nature, including, but not limited to, expected net revenue and the demand for and sales lifecycle of NFS Ascent and the benefit of certain cost savings undertaken in the past fiscal year, 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.

Use of Non-GAAP Financial Measures
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.

Investor Relations Contact:

Matt Glover and Najim Mostamand, CFA
Liolios Group, Inc.
949-574-3860
[email protected]


NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets

			As of June 30,			As of June 30,
	ASSETS			2017			2016
Current assets:
	Cash and cash equivalents		$	14,172,954		$	11,557,527
	Accounts receivable, net of allowance of $571,511 and $492,498			6,583,199			9,691,229
	Accounts receivable, net - related party			1,644,942			5,691,178
	Revenues in excess of billings			19,126,389			10,493,096
	Revenues in excess of billings - related party			80,705			804,168
	Convertible note receivable - related party			200,000			-
	Other current assets			2,463,886			2,214,628
		Total current assets		44,272,075			40,451,826
Restricted cash				90,000			90,000
Revenues in excess of billings, net - long term				5,173,538			-
Property and equipment, net				20,370,703			22,774,435
Other assets				3,211,295			842,553
Intangible assets, net				17,043,151			19,674,033
Goodwill				9,516,568			9,516,568
		Total assets	$	99,677,330		$	93,349,415

	LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	6,880,194		$	5,962,770
	Current portion of loans and obligations under capitalized leases			10,222,795			4,440,084
	Unearned revenues			3,925,702			4,739,214
	Common stock to be issued			88,324			88,324
		Total current liabilities		21,117,015			15,230,392
Loans and obligations under capitalized leases; less current maturities				366,762			477,692
		Total liabilities		21,483,777			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;
		11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017 and
		10,713,372 shares issued and 10,686,093 outstanding as of June 30, 2016		112,254			107,134
	Additional paid-in-capital			124,409,998			121,448,946
	Treasury stock (At cost, 34,779 shares and 27,279 shares
	as of June 30, 2017 and June 30, 2016, respectively)			(454,310	)		(415,425	)
	Accumulated deficit			(42,301,390	)		(37,323,360	)
	Stock subscription receivable			(297,511	)		(783,172	)
	Other comprehensive loss			(18,074,570	)		(18,730,494	)
		Total NetSol stockholders' equity		63,394,471			64,303,629
	Non-controlling interest			14,799,082			13,337,702
		Total stockholders' equity		78,193,553			77,641,331
		Total liabilities and stockholders' equity	$	99,677,330		$	93,349,415

NETSOL Technologies, Inc. and Subsidiaries
Schedule 2: Consolidated Statement of Operations

			For the Year
			Ended June 30,
				2017			2016
Net Revenues:
	License fees		$	18,218,912		$	8,352,441
	Maintenance fees			14,157,367			13,310,591
	Services			24,798,899			30,037,459
	License fees - related party			246,957			1,616,138
	Maintenance fees - related party			311,359			365,772
	Services - related party			7,632,774			10,867,792
		Total net revenues		65,366,268			64,550,193

Cost of revenues:
	Salaries and consultants			24,645,223			21,789,329
	Travel			3,137,671			2,334,019
	Depreciation and amortization			5,448,059			5,926,969
	Other			3,727,379			3,698,290
		Total cost of revenues		36,958,332			33,748,607

Gross profit				28,407,936			30,801,586

Operating expenses:
	Selling and marketing			9,746,229			7,823,916
	Depreciation and amortization			1,114,275			1,225,170
	Provision for bad debts			1,407,751			237,703
	General and administrative			16,747,550			14,727,313
	Research and development cost			393,345			485,783
		Total operating expenses		29,409,150			24,499,885

Income from operations				(1,001,214	)		6,301,701

Other income and (expenses)
	Gain (loss) on sale of assets			(30,147	)		23,930
	Interest expense			(310,044	)		(264,511	)
	Interest income			179,723			161,794
	Gain (loss) on foreign currency exchange transactions			306,819			(738,158	)
	Other income (expense)			50,378			224,931
		Total other income (expenses)		196,729			(592,014	)

Net income (loss) before income taxes				(804,485	)		5,709,687
Income tax provision				(931,951	)		(652,546	)
Net income (loss)				(1,736,436	)		5,057,141
	Non-controlling interest			(3,241,594	)		(1,654,380	)
Net income (loss) attributable to NetSol			$	(4,978,030	)	$	3,402,761



Net income (loss) per share:
	Net income (loss) per common share
		Basic	$	(0.46	)	$	0.33
		Diluted	$	(0.46	)	$	0.32

Weighted average number of shares outstanding
	Basic			10,912,284			10,391,157
	Diluted			10,912,284			10,584,835

NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows

		For the Year
		Ended June 30,
			2017			2016
Cash flows from operating activities:
	Net income (loss)	$	(1,736,436	)	$	5,057,141
	Adjustments to reconcile net income
	to net cash provided by operating activities:
	Depreciation and amortization		6,562,334			7,152,139
	Provision for bad debts		1,407,751			237,703
	(Gain) Loss on sale of assets		30,147			(23,930	)
	Stock issued for services		2,522,158			1,264,618
	Fair market value of warrants and stock options granted		241,165			268,591
	Changes in operating assets and liabilities:
	Accounts receivable		2,292,980			(3,758,422	)
	Accounts receivable - related party		2,803,520			(2,564,819	)
	Revenues in excess of billing		(13,966,522	)		(4,987,772	)
	Revenues in excess of billing - related party		211,615			(884,738	)
	Other current assets		72,522			(729,359	)
	Accounts payable and accrued expenses		751,835			558,033
	Unearned revenue		(738,704	)		69,851
	Net cash provided by operating activities		454,365			1,659,036

Cash flows from investing activities:
	Purchases of property and equipment		(2,203,203	)		(3,335,921	)
	Sales of property and equipment		781,018			986,433
	Convertible note receivable - related party		(200,000	)		-
	Investment in WRLD3D		(1,105,555	)		(555,556	)
	Purchase of subsidiary shares from open market		-			(767,397	)
	Net cash used in investing activities		(2,727,740	)		(3,672,441	)

Cash flows from financing activities:
	Proceeds from sale of common stock		-			64,931
	Proceeds from the exercise of stock options and warrants		866,438			1,137,480
	Proceeds from exercise of subsidiary options		75,382			16,744
	Purchase of treasury stock		(38,885	)		-
	Dividend paid by subsidiary to non-controlling interest		(2,156,273	)		(1,003,853	)
	Proceeds from bank loans		6,184,635			1,333,406
	Payments on capital lease obligations and loans - net		(554,048	)		(950,529	)
	Net cash provided by financing activities		4,377,249			598,179
Effect of exchange rate changes			511,553			(1,196,204	)
Net increase (decrease) in cash and cash equivalents			2,615,427			(2,611,430	)
Cash and cash equivalents, beginning of the period			11,557,527			14,168,957
Cash and cash equivalents, end of period		$	14,172,954		$	11,557,527

NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP

	Year			Year
	Ended			Ended
	June 30, 2017			June 30, 2016

Net Income (loss) before preferred dividend, per GAAP	$	(4,978,030	)	$	3,402,761
Non-controlling interest		3,241,594			1,654,380
Income taxes		931,951			652,546
Depreciation and amortization		6,562,334			7,152,139
Interest expense		310,044			264,511
Interest (income)		(179,723	)		(161,794	)
EBITDA	$	5,888,170		$	12,964,543
Add back:
Non-cash stock-based compensation		2,763,323			1,533,209
Adjusted EBITDA, gross	$	8,651,493		$	14,497,752
Less non-controlling interest (a)		(5,841,143	)		(5,363,326	)
Adjusted EBITDA, net	$	2,810,350		$	9,134,426


Weighted Average number of shares outstanding
Basic		10,912,284			10,391,157
Diluted		10,919,169			10,584,835

Basic adjusted EBITDA	$	0.26		$	0.88
Diluted adjusted EBITDA	$	0.26		$	0.86


(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	$	3,241,594		$	1,654,380
Income Taxes		140,499			178,689
Depreciation and amortization		2,168,249			3,442,235
Interest expense		98,331			51,023
Interest (income)		(60,042	)		(98,638	)
EBITDA	$	5,588,631		$	5,227,689
Add back:
Non-cash stock-based compensation		252,512			135,637
Adjusted EBITDA of non-controlling interest	$	5,841,143		$	5,363,326

Source: NETSOL Technologies, Inc.

Released September 27, 2017

News & Press Releases

NETSOL Technologies Reports Fiscal Fourth Quarter and Full Year 2017 Financial Results

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