NETSOL Technologies Reports Fiscal Third Quarter 2018 Financial Results
Further Significant Cost Reductions Lead to GAAP Quarterly Earnings per Share of $0.25, Up 300%+ Year-over-Year
CALABASAS, Calif., May 14, 2018 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (NASDAQ:NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal third quarter ended March 31, 2018.
- Reported quarterly cost savings of $1.8 million mostly tied to cost rationalization initiatives, bringing total savings to $6.2 million and with an anticipated reduction of at least $7.0 million through fiscal 2018.
- Signed a contract with a top tier multi-finance company in Indonesia to implement NFS Ascent’s suite of digital apps valued at approximately $3.0 million.
- Generated close to $2.0 million through successful implementation of change requests from various customers with expected year-over-year growth of up to 15% in this area thanks to increasing customer demand for greater complexity and customization.
- Sold additional legacy licenses valued at $1.0 million to a current Chinese customer due to the increase in its business.
- Received “Auto Finance Software System Leading Enterprise Award,” which acknowledges the top software solutions company within the auto finance sector in China.
Fiscal Third Quarter 2018 Financial Results
Total net revenues for the third quarter of fiscal 2018 were $17.0 million, compared with $17.9 million in the prior year period. The decrease in total net revenues was primarily due to lower license fees of $3.1 million, which was offset by an increase in services revenue of $2.0 million.
- Total license fees were $2.6 million, compared with $5.7 million in the prior year period.
- Total maintenance fees were $3.8 million, compared with $3.6 million in the prior year period.
- Total services revenues were $10.6 million, compared with $8.6 million in the prior year period.
Gross profit for the third quarter of fiscal 2018 was $9.2 million (or 53.9% of net revenues), compared to $9.0 million (or 50.1% of net revenues) in the third quarter of fiscal 2017. The increase in gross profit as a percentage of net revenues was primarily due to a $1.1 million decrease in cost of revenues for the quarter. The decrease in cost of revenues was primarily due to a decrease in salaries and consultants, travel and depreciation.
Operating expenses for the third quarter of fiscal 2018 decreased 10% to $6.4 million (or 37.8% of net revenues) from $7.2 million (or 39.9% of net revenues) for the third quarter of fiscal 2017. The decrease in operating expenses was primarily due to decreases in selling and marketing expenses, professional services, general and administrative expenses and depreciation.
GAAP net income attributable to NETSOL for the third quarter of fiscal 2018 totaled $2.9 million or $0.25 per diluted share, an improvement from net income of $700,000 or $0.06 per diluted share in the third quarter of fiscal 2017.
Non-GAAP adjusted EBITDA for the third quarter of fiscal 2018 totaled $4.3 million or $0.39 per diluted share, an improvement from $2.0 million or $0.18 per diluted share in the third quarter of fiscal 2017 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).
At March 31, 2018, cash and cash equivalents were $12.7 million, an increase from $10.0 million at the end of the prior quarter.
Stock Repurchase Program
On February 27, 2018, NETSOL’s board of directors approved a stock repurchase program that authorized potential repurchases of up to 500,000 shares of its common stock through June 30, 2018. 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. During the quarter, the company has repurchased 31,799 shares of its common stock at an aggregate value of $149,694.
"In the fiscal third quarter, we continued to improve our bottom line results and generated a solid amount of business through new wins as well as increased customization requests from longstanding customers," said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “While we are working diligently to advance some of the more significant deals within our expanded pipeline, we were still able to produce our second consecutive quarter of profitability thanks greatly to the outperformance of our ongoing cost reduction initiatives, which we are now projecting to result in at least $7 million of savings in fiscal 2018 alone. These initiatives have not only optimized our cost structure, but also created more headroom and capability to scale our business, which we believe can support a significant more amount of revenue without requiring meaningful incremental investment to support it.
“As we close out the balance of the fiscal year, we are increasingly motivated to capitalize on the greater opportunities in front of us despite the extended sales cycles our industry now faces. In the meantime, we will continue to devote the rest of our efforts to the areas where we have ability to directly impact and control our results. The renewal of our stock repurchase program is one such example that also reflects the sustained confidence and belief our leadership has in NETSOL’s future. In all, our focus remains, as ever, on generating long-term, sustainable value for our shareholders.”
“NETSOL continues to receive new RFP’s and is tracking several promising opportunities, which we expect to ultimately result in positive outcomes,” added President and Head of Sales Naeem Ghauri. “The Ascent platform has garnered strong traction, mainly with the tier one auto and asset captive finance companies in our major APAC markets. With more intelligence, sophistication and automation into the front office along with its unique toolset in the back office, Ascent remains the superior choice in its field. Moving forward, our pipeline remains very healthy, and we are looking forward to capitalizing on the more mature sales opportunities that will be reaching the finishing line in the near future.”
NETSOL Technologies management will hold a conference call today (May 14, 2018) 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.
A replay of the conference call will be available after 12:00 p.m. Eastern time on the same day through May 28, 2018.
Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13678643
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 approximately 1,350 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.
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 Tom Colton
Liolios Group, Inc.
NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets
|As of March 31,||As of June 30,|
|Cash and cash equivalents||$||12,711,983||$||14,172,954|
|Accounts receivable, net of allowance of $333,301 and $571,511||22,874,866||6,583,199|
|Accounts receivable, net - related party||3,412,346||1,644,942|
|Revenues in excess of billings||15,286,835||19,126,389|
|Revenues in excess of billings - related party||153,135||80,705|
|Convertible note receivable - related party||750,000||200,000|
|Other current assets||3,104,916||2,463,886|
|Total current assets||58,294,081||44,272,075|
|Revenues in excess of billings, net - long term||1,752,554||5,173,538|
|Property and equipment, net||17,526,227||20,370,703|
|Intangible assets, net||13,533,620||17,043,151|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accounts payable and accrued expenses||$||7,765,645||$||6,880,194|
|Current portion of loans and obligations under capitalized leases||9,099,822||10,222,795|
|Common stock to be issued||88,324||88,324|
|Total current liabilities||24,794,887||21,117,015|
|Loans and obligations under capitalized leases; less current maturities||296,211||366,762|
|Commitments and contingencies|
|Preferred stock, $.01 par value; 500,000 shares authorized;||-||-|
|Common stock, $.01 par value; 14,500,000 shares authorized;|
|11,457,673 shares issued and 11,251,820 outstanding as of March 31, 2018 and|
|11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017||114,577||112,254|
|Treasury stock (At cost, 205,853 shares and 34,779 shares|
|as of March 31, 2018 and June 30, 2017, respectively)||(1,205,024||)||(454,310||)|
|Stock subscription receivable||(221,000||)||(297,511||)|
|Other comprehensive loss||(22,005,245||)||(18,074,570||)|
|Total NetSol stockholders' equity||63,245,259||63,394,471|
|Total stockholders' equity||78,811,420||78,193,553|
|Total liabilities and stockholders' equity||$||103,902,518||$||99,677,330|
NETSOL Technologies, Inc. and Subsidiaries
Schedule 2: Consolidated Statement of Operations
|For the Three Months||For the Nine Months|
|Ended March 31,||Ended March 31,|
|License fees - related party||-||-||261,513||246,957|
|Maintenance fees - related party||105,325||51,698||309,539||233,674|
|Services - related party||1,284,417||1,959,095||4,374,802||5,954,076|
|Total net revenues||17,043,820||17,949,320||44,309,031||50,884,575|
|Cost of revenues:|
|Salaries and consultants||5,418,067||6,161,110||16,244,319||18,034,263|
|Depreciation and amortization||1,127,077||1,340,188||3,468,293||3,989,824|
|Total cost of revenues||7,851,101||8,953,115||23,616,150||27,062,104|
|Selling and marketing||1,962,402||2,439,948||5,605,838||7,497,464|
|Depreciation and amortization||231,308||284,642||699,966||825,224|
|Provision for bad debts||-||-||-||-|
|General and administrative||4,048,271||4,329,798||11,862,535||12,882,407|
|Research and development cost||197,643||101,193||572,619||285,732|
|Total operating expenses||6,439,624||7,155,581||18,740,958||21,490,827|
|Income from operations||2,753,095||1,840,624||1,951,923||2,331,644|
|Other income and (expenses)|
|Gain (loss) on sale of assets||40,537||1,647||24,468||(33,095||)|
|Gain (loss) on foreign currency exchange transactions||2,550,394||390,897||5,304,723||(645,886||)|
|Share of net loss from equity investment||(263,678||)||-||(534,576||)||-|
|Other income (expense)||314||(219||)||15,924||28,164|
|Total other income (expenses)||2,367,401||359,197||4,875,108||(746,691||)|
|Net income before income taxes||5,120,496||2,199,821||6,827,031||1,584,953|
|Income tax provision||(261,182||)||(61,604||)||(486,980||)||(440,363||)|
|Net income (loss) attributable to NetSol||$||2,864,445||$||699,968||$||3,129,368||$||(1,854,537||)|
|Net income (loss) per share:|
|Net income (loss) per common share|
|Weighted average number of shares outstanding|
NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows
|For the Nine Months|
|Ended March 31,|
|Cash flows from operating activities:|
|Adjustments to reconcile net income|
|to net cash provided by (used in) operating activities:|
|Depreciation and amortization||4,168,259||4,815,048|
|Provision for bad debts||-||732|
|Share of net loss from investment under equity method||534,576||-|
|(Gain) loss on sale of assets||(24,468||)||33,095|
|Stock based compensation||1,281,763||1,998,968|
|Fair market value of warrants and stock options granted||-||26,956|
|Changes in operating assets and liabilities:|
|Accounts receivable - related party||(2,634,063||)||405,009|
|Revenues in excess of billing||5,904,161||(10,388,695||)|
|Revenues in excess of billing - related party||(85,743||)||553,767|
|Other current assets||(796,126||)||419,704|
|Accounts payable and accrued expenses||1,139,509||337,890|
|Net cash provided by (used in) operating activities||2,252,005||(2,018,592||)|
|Cash flows from investing activities:|
|Purchases of property and equipment||(1,107,732||)||(1,315,922||)|
|Sales of property and equipment||348,762||149,430|
|Convertible note receivable - related party||(550,000||)||-|
|Investment in WRLD3D||(50,000||)||(905,555||)|
|Purchase of subsidiary shares from open market||(33,987||)||-|
|Net cash used in investing activities||(1,392,957||)||(2,072,047||)|
|Cash flows from financing activities:|
|Proceeds from the exercise of stock options and warrants||215,311||785,479|
|Proceeds from exercise of subsidiary options||10,349||54,377|
|Purchase of treasury stock||(750,714||)||(38,885||)|
|Dividend paid by subsidiary to non-controlling interest||(417,853||)||(968,657||)|
|Proceeds from bank loans||696,936||1,484,162|
|Payments on capital lease obligations and loans - net||(961,901||)||(251,040||)|
|Net cash provided by (used in) financing activities||(1,117,872||)||1,065,436|
|Effect of exchange rate changes||(1,202,147||)||(82,209||)|
|Net decrease in cash and cash equivalents||(1,460,971||)||(3,107,412||)|
|Cash and cash equivalents at beginning of the period||14,172,954||11,557,527|
|Cash and cash equivalents at end of period||$||12,711,983||$||8,450,115|
NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP
|Three Months||Three Months||Nine Months||Nine Months|
|March 31, 2018||March 31, 2017||March 31, 2018||March 31, 2017|
|Net Income (loss) before preferred dividend, per GAAP||$||2,864,445||$||699,968||$||3,129,368||$||(1,854,537||)|
|Depreciation and amortization||1,358,385||1,624,830||4,168,259||4,815,048|
|Non-cash stock-based compensation||448,233||478,345||-||1,281,763||2,025,924|
|Adjusted EBITDA, gross||$||6,887,280||$||4,336,124||$||12,212,484||$||8,521,799|
|Less non-controlling interest (a)||(2,540,702||)||(2,317,246||)||(4,804,869||)||(5,501,218||)|
|Adjusted EBITDA, net||$||4,346,578||$||2,018,878||$||7,407,615||$||3,020,581|
|Weighted Average number of shares outstanding|
|Basic adjusted EBITDA||$||0.39||$||0.18||$||0.67||$||0.28|
|Diluted adjusted EBITDA||$||0.39||$||0.18||$||0.66||$||0.27|
|(a)The reconciliation of adjusted EBITDA of non-controlling interest|
|to net income attributable to non-controlling interest is as follows|
|Net Income attributable to non-controlling interest||$||1,994,869||$||1,438,249||$||3,210,683||$||2,999,127|
|Depreciation and amortization||449,828||790,065||1,382,148||2,346,603|
|Non-cash stock-based compensation||42,044||74,662||126,194||123,501|
|Adjusted EBITDA of non-controlling interest||$||2,540,702||$||2,317,246||$||4,804,869||$||5,501,218|
Released May 14, 2018