NETSOL Technologies Reports Fiscal First Quarter 2018 Financial Results

CALABASAS, Calif., Nov. 09, 2017 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (NASDAQ:NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal first quarter ended September 30, 2017.

Recent Operational Highlights

  • Reported quarterly cost savings of $2.3 million directly tied to recent cost rationalization initiatives with an anticipated reduction of more than $6.0 million through fiscal 2018.
  • Amended the 12 country NFS Ascent™ contract for approximately $9.1 million in future revenues in addition to what was previously projected from the customer. The revenue will be recognized over the contract term as the support services are performed.
  • Implemented the Loan Origination System and the Whole Sale Financial System in Thailand and Korea, in connection with the 12 country NFS Ascent™ contract.
  • Delivered the first major release of NFS Ascent™ to China as part of the 12 country NFS Ascent™ contract.
  • Signed a proof of concept agreement with one of the oldest and largest banks in Australia. 
  • Mizhou Balimore, a Japanese bank in Indonesia, went live with the first phase of its NFS Ascent digital solution.  

Fiscal First Quarter 2018 Financial Results
Total net revenues for the first quarter of fiscal 2018 were $12.8 million, compared with $17.1 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in license fees of $5.3 million which was offset by an increase in services revenue of $1.2 million.

  • Total license fees were $370,000, compared with $5.7 million in the prior year period.
  • Total maintenance fees were $3.6 million, compared with $3.7 million in the prior year period.
  • Total services revenues were $8.9 million, compared with $7.7 million in the prior year period.

Gross profit for the first quarter of fiscal 2018 was $4.8 million (or 37.5% of net revenues), which was down from $8.2 million (or 47.8% of net revenues) in the first quarter of fiscal 2017. The decrease in gross profit was primarily due to a $4.3 million decrease in total net revenues offset by a $901,000 decrease in cost of revenues for the quarter. The decrease in cost of revenues was primarily due to a decrease in salaries and consultant costs of $429,000 related to the right sizing of technical employees at key locations including Pakistan, Thailand, China, UK and North America.

Operating expenses for the first quarter of fiscal 2018 decreased 19.1% to $5.9 million (or 46.3% of net revenues) from $7.3 million (or 42.9% of net revenues) for the first quarter of fiscal 2017. The decrease in operating expenses was primarily due to cost reduction in selling and marketing expenses, salaries and wages, depreciation, and professional services.

GAAP net loss attributable to NETSOL for the first quarter of fiscal 2018 totaled $369,000 or $(0.03) per diluted share, compared with net loss of $386,000 or $(0.04) per diluted share in the first quarter of fiscal 2017.

Non-GAAP adjusted EBITDA for the first quarter of fiscal 2018 totaled $970,000 or $0.09 per diluted share, compared with $1.3 million or $0.12 per diluted share in the first quarter of fiscal 2017 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At September 30, 2017, cash and cash equivalents were $8.6 million, compared with $14.2 million at the end of the prior quarter.

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. To date, the company has repurchased 139,275 shares of its common stock at an aggregate value of $601,000.

Management Commentary
“The fiscal first quarter, while historically our slowest due to traditional seasonality, was another productive period in our development, giving us increased optimism about the future for NETSOL and our core product NFS Ascent,” said company founder, chairman and Chief Executive Officer Najeeb Ghauri. “Despite continued elongated sales cycles, we remain encouraged with Ascent’s robust pipeline, making additional progress and receiving continued demand from many existing and new partners during the quarter. In the meantime, we are realizing significant cost reductions related to our operational efficiency initiatives, which we began last December. In fact, during the first quarter we achieved $2.3 million in cost savings directly tied to these measures.

“Moving forward, our focus remains on positioning NETSOL to be able to effectively capitalize on the significant long-term opportunity in the massive global asset finance and leasing industry while also profitably scaling our business.”

Conference Call
NETSOL Technologies management will hold a conference call today (November 9, 2017) at 9:00 a.m. Eastern time (6:00 a.m. Pacific time) to discuss these financial results. A question and answer session will follow management's presentation.

U.S. dial-in: 1-877-407-0789
International dial-in: 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 conference call will be available after 12:00 p.m. Eastern time on the same day through November 23, 2017.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13672631

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
investors@netsoltech.com

                   
NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets
 
        As of September 30,     As of June 30,    
  ASSETS 2017     2017    
Current assets:            
  Cash and cash equivalents   $ 8,554,815       $ 14,172,954    
  Accounts receivable, net of allowance of $361,416  and $571,511 7,469,888     6,583,199    
  Accounts receivable, net - related party 2,611,562     1,644,942    
  Revenues in excess of billings 22,104,283     19,126,389    
  Revenues in excess of billings - related party 80,057     80,705    
  Convertible note receivable - related party 700,000     200,000    
  Other current assets 2,940,599     2,463,886    
      Total current assets 44,461,204     44,272,075    
Restricted cash 90,000     90,000    
Revenues in excess of billings, net - long term 5,225,260     5,173,538    
Property and equipment, net 19,646,592     20,370,703    
Other assets 3,400,418     3,211,295    
Intangible assets, net 16,139,921     17,043,151    
Goodwill 9,516,568     9,516,568    
      Total assets   $ 98,479,963       $ 99,677,330    
                   
  LIABILITIES AND STOCKHOLDERS' EQUITY  
   
Current liabilities:            
  Accounts payable and accrued expenses   $ 7,123,148       $ 6,880,194    
  Current portion of loans and obligations under capitalized leases 10,016,697     10,222,795    
  Unearned revenues 3,656,591     3,925,702    
  Common stock to be issued 88,324     88,324    
      Total current liabilities 20,884,760     21,117,015    
Loans and obligations under capitalized leases; less current maturities 307,629     366,762    
      Total liabilities 21,192,389     21,483,777    
Commitments and contingencies            
Stockholders' equity:            
  Preferred stock, $.01 par value; 500,000 shares authorized; -     -    
  Common stock, $.01 par value; 14,500,000 shares authorized;            
      11,333,129  shares issued and 11,186,570  outstanding as of September 30, 2017  and          
      11,225,385  shares issued and 11,190,606  outstanding as of June 30, 2017 113,331     112,254    
  Additional paid-in-capital 124,987,029     124,409,998    
  Treasury stock (At cost, 146,559 shares and 34,779 shares            
  as of September 30, 2017 and June 30, 2017, respectively) (954,973 )   (454,310 )  
  Accumulated deficit (42,670,888 )   (42,301,390 )  
  Stock subscription receivable (273,926 )   (297,511 )  
  Other comprehensive loss (18,663,149 )   (18,074,570 )  
      Total NetSol stockholders' equity 62,537,424     63,394,471    
  Non-controlling interest 14,750,150     14,799,082    
      Total stockholders' equity 77,287,574     78,193,553    
      Total liabilities and stockholders' equity   $ 98,479,963       $ 99,677,330    
                   


           
NETSOL Technologies, Inc. and Subsidiaries
Schedule 2: Consolidated Statement of Operations
           
      For the Three Months    
      Ended September 30,    
        2017       2016      
          Restated    
Net Revenues:          
  License fees $ 326,066     $ 5,453,795      
  Maintenance fees   3,473,725       3,523,797      
  Services   7,017,737       5,556,135      
  License fees - related party   44,408       246,957      
  Maintenance fees - related party   102,963       130,631      
  Services - related party   1,853,877       2,165,154      
    Total net revenues   12,818,776       17,076,469      
               
Cost of revenues:          
  Salaries and consultants   5,464,160       5,893,349      
  Travel   513,112       711,895      
  Depreciation and amortization   1,173,113       1,330,872      
  Other   856,582       972,338      
    Total cost of revenues   8,006,967       8,908,454      
               
Gross profit   4,811,809       8,168,015      
               
Operating expenses:          
  Selling and marketing   1,711,296       2,344,038      
  Depreciation and amortization   245,873       269,097      
  General and administrative   3,787,558       4,619,196      
  Research and development cost   185,085       92,932      
    Total operating expenses   5,929,812       7,325,263      
               
Income from operations   (1,118,003 )     842,752      
               
Other income and (expenses)          
  Gain (loss) on sale of assets   (7,130 )     (2,403 )    
  Interest expense   (118,071 )     (54,475 )    
  Interest income   136,911       30,440      
  Gain (loss) on foreign currency exchange transactions   1,016,362       (414,896 )    
  Share of net loss from equity investment   (67,562 )     -      
  Other income (expense)   1,099       21,560      
    Total other income (expenses)   961,609       (419,774 )    
               
Net income (loss) before  income taxes   (156,394 )     422,978      
Income tax provision   (24,871 )     (39,875 )    
Net income (loss)   (181,265 )     383,103      
  Non-controlling interest   (188,233 )     (769,214 )    
Net income (loss) attributable to NetSol $ (369,498 )   $ (386,111 ) #  
               
               
Net income (loss) per share:          
  Net income (loss) per common share          
    Basic $ (0.03 )   $ (0.04 )    
    Diluted $ (0.03 )   $ (0.04 )    
               
Weighted average number of shares outstanding          
  Basic   11,099,113       10,697,425      
  Diluted   11,099,113       10,697,425      
               

 

             
    NETSOL Technologies, Inc. and Subsidiaries
    Schedule 3: Consolidated Statement of Cash Flows
             
           Ended September 30,   
          2017     2016  
                Restated  
 Cash flows from operating activities:           
     Net income (loss)    $   (181,265     $   383,103  
     Adjustments to reconcile net income (loss)           
     to net cash used in operating activities:           
     Depreciation and amortization    1,418,986       1,599,969  
     Share of net loss from investment under equity method    67,562       -  
     Loss on sale of assets    7,130       2,403  
     Stock issued for services    439,308       865,456  
     Fair market value of warrants and stock options granted    -       21,804  
     Changes in operating assets and liabilities:           
     Accounts receivable    (903,730     2,336,894  
     Accounts receivable - related party    (1,251,994     121,800  
     Revenues in excess of billing    (3,230,619     (4,821,828 )
     Revenues in excess of billing - related party    (130     93,208  
     Other current assets    (478,390     306,339  
     Accounts payable and accrued expenses    231,645       (780,569 )
     Unearned revenue    (270,743     (346,108 )
     Net cash used in operating activities    (4,152,240     (217,529 )
                   
 Cash flows from investing activities:           
     Purchases of property and equipment    (328,163     (554,873 )
     Sales of property and equipment    116,023       151,818  
     Convertible note receivable - related party    (500,000     -  
     Investment in WRLD3D    -       (555,555 )
     Net cash used in investing activities    (712,140     (958,610 )
                   
 Cash flows from financing activities:           
     Proceeds from the exercise of stock options and warrants    162,385       276,861  
     Proceeds from exercise of subsidiary options        -       14,013  
     Purchase of treasury stock    (500,663     -  
     Payments on capital lease obligations and loans - net    (148,707     (49,117 )
     Net cash provided by financing activities    (486,985     241,757  
 Effect of exchange rate changes    (266,774     533,292  
 Net decrease in cash and cash equivalents    (5,618,139     (401,090 )
 Cash and cash equivalents, beginning of the period    14,172,954       11,557,527  
 Cash and cash equivalents, end of period    $   8,554,815       $   11,156,437  
                   

 

           
NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP
           
  Three Months     Three Months  
  Ended     Ended  
  September 30, 2017     September 30, 2016  
        Restated  
           
 Net Income (loss) before preferred dividend, per GAAP  $   (369,498   $   (386,111
 Non-controlling interest    188,233       769,214  
 Income taxes    24,871       39,875  
 Depreciation and amortization    1,418,986       1,599,969  
 Interest expense    118,071       54,475  
 Interest (income)    (136,911     (30,440 )
 EBITDA  $   1,243,752     $   2,046,982  
 Add back:           
 Non-cash stock-based compensation    427,809       865,456  
 Adjusted EBITDA, gross  $   1,671,561     $   2,912,438  
 Less non-controlling interest (a)    (701,864     (1,633,243
 Adjusted EBITDA, net  $   969,697     $   1,279,195  
           
           
 Weighted Average number of shares outstanding           
 Basic    11,099,113       10,697,425  
 Diluted    11,130,824       10,861,290  
           
 Basic adjusted EBITDA  $   0.09     $   0.12  
 Diluted adjusted EBITDA  $   0.09     $   0.12  
           
           
(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 $   188,233     $   769,214  
 Income Taxes    10,478       13,874  
 Depreciation and amortization    467,182       825,866  
 Interest expense    39,072       18,342  
 Interest (income)    (45,157     (16,450 )
 EBITDA  $   659,808     $   1,610,846  
 Add back:           
 Non-cash stock-based compensation    42,056       22,397  
 Adjusted EBITDA of non-controlling interest  $   701,864     $   1,633,243  
           

Source: NETSOL Technologies Inc.