NETSOL Technologies Reports Fiscal Fourth Quarter and Full Year 2018 Financial Results
Quarterly Topline Improvement Driven by Continued Strength of Core Operations; Annual Cost Reductions of $8.5 Million Underscore Increase in Net Income of $9.3 Million and Increase in EPS of $0.84; Return to Full Year Profitability Providing a Prelude to Future Long-Term Growth
CALABASAS, Calif., Sept. 26, 2018 (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, 2018.
Recent Operational Highlights
- Additional cost savings in the fiscal fourth quarter mostly tied to reductions in costs of revenues and operating costs, bringing total savings to $8.5 million through fiscal 2018.
- Secured a five-year contract valued at roughly $30 million with a European tier-one global auto captive to implement both NFS Ascent™ Retail and Wholesale platforms in China.
- Secured a multi-million-dollar contract with major American multinational automaker to implement Ascent Retail Platform in China.
- Received “First-Rate and Best-Selling Finance and Leasing Solution Provider” award at the China Leasing Summit 2018 for the sixth consecutive year.
- Secured a multi-million-dollar agreement with a leading Asian auto captive finance company to implement NFS Ascent’s Loan Origination System and Contract Management System.
- Appointed two new members to the Board of Directors, Malea Farsai and Henry Tolentino, to provide greater diversity and breadth of experience.
- NFS Ascent went live in South Africa, a new market, with German auto manufacturing giant as part of the ongoing international deployment associated with previously announced 12-country, $110 million contract.
Fiscal Fourth Quarter 2018 Financial Results
Total net revenues for the fourth quarter of fiscal 2018 were $16.6 million, compared with $14.5 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $122,000, an increase in total maintenance fees of $206,000 and an increase in total services revenues of $1.8 million.
- Total license fees were $3.4 million, compared with $3.3 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 $9.4 million, compared with $7.6 million in the prior year period.
Gross profit for the fourth quarter of fiscal 2018 was $8.5 million (or 51.2% of net revenues), compared to $4.6 million (or 31.7% of net revenues) in the fourth quarter of fiscal 2017. The increase in gross profit as a percentage of net revenues was primarily due to a decrease in costs of revenues of $1.8 million.
Operating expenses for the fourth quarter of fiscal 2018 decreased 6% to $7.4 million (or 44.6% of net revenues) from $7.9 million (or 54.7% of net revenues) for the fourth quarter of fiscal 2017. The decrease in operating expenses was primarily due to a decrease in provision for bad debts, which was offset by an increase in general and administrative expenses as well as research and development expenses.
GAAP net income attributable to NETSOL for the fourth quarter of fiscal 2018 totaled $1.2 million or $0.10 per diluted share, an improvement from net loss of $3.1 million or $(0.28) per diluted share in the fourth quarter of fiscal 2017.
Non-GAAP adjusted EBITDA for the fourth quarter of fiscal 2018 totaled $2.9 million or $0.26 per diluted share, an improvement from a loss of $851,000 or $(0.08) per diluted share in the fourth quarter of fiscal 2017 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).
At June 30, 2018, cash and cash equivalents were $22.1 million, an increase from $14.2 million at June 30, 2017.
Full Year Fiscal 2018 Financial Results
Total net revenues for fiscal 2018 were $60.9 million, compared to $65.4 million in fiscal 2017. The decrease in total net revenues was primarily due to a decrease in total license fees of $11.6 million, which was offset by an increase in total maintenance fees of $332,000 and an increase in total services revenues of $6.8 million.
- Total license fees were $6.9 million, compared with $18.5 million in the prior fiscal year.
- Total maintenance fees were $14.8 million, compared with $14.5 million in the prior fiscal year.
- Total services revenues were $39.3 million, compared with $32.4 million in the prior fiscal year.
Gross profit for fiscal 2018 increased to $29.2 million (or 47.9% of net revenues) from $28.4 million (or 43.5% of net revenues) for fiscal 2017. The increase in gross profit as a percentage of net revenues was primarily due to a decrease in costs of revenues of $5.2 million.
Operating expenses for fiscal 2018 decreased to $26.2 million (or 42.9% of net revenues) from $29.4 million (or 45.0% of net revenues) for fiscal 2017. The decrease in operating expenses was primarily due to decreases in selling and marketing expenses and provision for bad debts, which was offset by an increase in research and development expenses.
GAAP net income attributable to NETSOL for fiscal 2018 totaled $4.3 million or $0.38 per diluted share, an improvement from net loss of $5.0 million or $(0.46) per diluted share for fiscal 2017.
Non-GAAP adjusted EBITDA for fiscal 2018 totaled $10.3 million or $0.92 per diluted share, compared with $2.8 million or $0.26 per diluted share in fiscal 2017 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).
"The fiscal fourth quarter was a solid end to an eventful year for NETSOL, both financially and operationally," said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. "From a financial perspective, we successfully achieved our third consecutive quarter of profitability, grew our topline 15% over the fourth quarter of the prior year as well as continued to improve our cost structure and efficiencies. In fact, our overall cost reduction initiatives have now resulted in $8.5 million of savings through fiscal 2018, which was a major driving factor in us realizing the $9.3 million increase in annual net income over last year. On top of this, in the fourth quarter alone, we were able to generate $1.8 million in savings on costs of revenues and another $500,000 from operating expenses. These initiatives have not only made NETSOL a more nimble and efficient organization, but they’ve also provided additional bandwidth, with minimal incremental cost, for us to scale our business in fiscal 2019 and beyond.”
"Operationally, we closed fiscal 2018 on a high note as well, demonstrated by the new and add-on sales we secured, which have continued and increased into the current year with a few notable wins,” continued Ghauri. “More recently, we won a five-year, $30 million deal with a European tier-one global auto captive and also secured a multimillion-dollar implementation with a major American multinational automaker in China. Going forward, we’re continuing to expand our strong pipeline of new projects, and we're now able to do so in an increasingly more efficient manner. Put another way, we are proactively focusing any newly available sales time and resources on more nascent deals we have specifically identified as being capable of progressing more quickly through the buying cycle. When coupled with the more mature deals we’ve been advancing over time, this combination presents a healthy and diverse mix of new win opportunities. Looking ahead, if 2018 was about transformation for NETSOL, then the beginning of 2019 has represented the inflection point that, we believe, will propel us to double-digit topline growth for the year.”
“Fiscal 2018 has been a turnaround year for sales and NETSOL as a whole with several tier-one clients entering into new IT selection processes and Ascent making the shortlist in each occurrence,” added President and Head of Sales Naeem Ghauri. “After closing out the previous fiscal year and starting the current one with back-to-back wins in China, we are upbeat and motivated to capitalize on this building momentum. We remain confident in our ability to finish strong and secure further wins in fiscal 2019.”
NETSOL Technologies management will hold a conference call today (September 26, 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 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 October 10, 2018.
Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13683245
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 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
|NETSOL Technologies, Inc. and Subsidiaries|
|Schedule 1: Consolidated Balance Sheets|
|As of June 30,||As of June 30,|
|Cash and cash equivalents||$||22,088,853||$||14,172,954|
|Accounts receivable, net of allowance of $610,061 and $571,511
|Accounts receivable, net - related party||3,374,272||1,644,942|
|Revenues in excess of billings||14,285,778||19,126,389|
|Revenues in excess of billings - related party||-||80,705|
|Convertible note receivable - related party||2,123,500||200,000|
|Other current assets||2,703,032||2,463,886|
|Total current assets||57,350,896||44,272,075|
|Revenues in excess of billings, net - long term||1,206,669||5,173,538|
|Property and equipment, net||16,165,491||20,370,703|
|Long term investment||3,217,162||3,057,020|
|Intangible assets, net||12,247,196||17,043,151|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accounts payable and accrued expenses||$||7,873,809||$||6,880,194|
|Current portion of loans and obligations under capitalized leases||8,595,919||10,222,795|
|Common stock to be issued||88,324||88,324|
|Total current liabilities||22,507,633||21,117,015|
|Loans and obligations under capitalized leases; less current maturities||330,596||366,762|
|Commitments and contingencies|
|Preferred stock, $.01 par value; 500,000 shares authorized;||-||-|
|Common stock, $.01 par value; 14,500,000 shares authorized;|
|11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018 and
|11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017
|Treasury stock (At cost, 205,853 shares and 34,779 shares
|as of June 30, 2018 and June 30, 2017, respectively)
|Stock subscription receivable||(221,000||)||(297,511||)|
|Other comprehensive loss||(24,386,071||)||(18,074,570||)|
|Total NETSOL stockholders' equity||62,789,635||63,394,471|
|Total stockholders' equity||76,936,052||78,193,553|
|Total liabilities and stockholders' equity||$||99,774,281||$||99,677,330|
|NETSOL Technologies, Inc. and Subsidiaries|
|Schedule 2: Consolidated Statement of Operations|
|For the Three Months||For the Year|
|Ended June 30,||Ended June 30,|
|License fees - related party||-||-||261,513||246,957|
|Maintenance fees - related party||108,905||77,685||418,444||311,359|
|Services - related party||1,282,954||1,678,698||5,657,756||7,632,774|
|Total net revenues||16,621,227||14,481,693||60,930,258||65,366,268|
|Cost of revenues:|
|Salaries and consultants||5,611,843||6,610,960||21,856,162||24,645,223|
|Depreciation and amortization||1,142,444||1,458,235||4,610,737||5,448,059|
|Total cost of revenues||8,107,191||9,896,228||31,723,341||36,958,332|
|Selling and marketing||2,014,638||2,248,765||7,620,476||9,746,229|
|Depreciation and amortization||262,771||289,051||962,737||1,114,275|
|Provision for bad debts||460,730||1,407,019||460,730||1,407,751|
|General and administrative||4,391,531||3,865,875||16,254,067||16,747,550|
|Research and development cost||281,377||107,613||853,996||393,345|
|Total operating expenses||7,411,047||7,918,323||26,152,006||29,409,150|
|Income (loss) from operations||1,102,989||(3,332,858||)||3,054,911||(1,001,214||)|
|Other income and (expenses)|
|Gain (loss) on sale of assets||(16,874||)||2,948||7,594||(30,147||)|
|Gain (loss) on foreign currency exchange transactions||(294,340||)||952,705||5,010,383||306,819|
|Share of net loss from equity investment||272,020||-||(262,556||)||-|
|Other income (expense)||26,923||22,214||42,847||50,378|
|Total other income (expenses)||92,986||943,420||4,968,094||196,729|
|Net income (loss) before income taxes||1,195,975||(2,389,438||)||8,023,005||(804,485||)|
|Income tax provision||(386,047||)||(491,588||)||(873,027||)||(931,951||)|
|Net income (loss)||809,928||(2,881,026||)||7,149,978||(1,736,436||)|
|Net income (loss) attributable to NETSOL||$||1,177,521||$||(3,123,493||)||$||4,306,888||$||(4,978,030||)|
|Net income (loss) per share:|
|Net income (loss) per common share|
|Weighted average number of shares outstanding|
|NETSOL Technologies, Inc. and Subsidiaries|
|Schedule 3: Consolidated Statement of Cash Flows|
|For the Year|
|Ended June 30,|
|Cash flows from operating activities:|
|Net income (loss)||$||7,149,978||$||(1,736,436||)|
|Adjustments to reconcile net income (loss)|
|to net cash provided by operating activities:|
|Depreciation and amortization||5,573,474||6,562,334|
|Provision for bad debts||460,730||1,407,751|
|Impairment of assets||172,505||-|
|Share of net loss from investment under equity method||262,556||-|
|(Gain) loss on sale of assets||(7,594||)||30,147|
|Stock based compensation||1,861,445||2,522,158|
|Fair market value of warrants and stock options granted||-||241,165|
|Changes in operating assets and liabilities:|
|Accounts receivable - related party||(2,735,846||)||2,803,520|
|Revenues in excess of billing||6,788,580||(13,966,522||)|
|Revenues in excess of billing - related party||77,128||211,615|
|Other current assets||(195,529||)||72,522|
|Accounts payable and accrued expenses||1,653,778||751,835|
|Net cash provided by operating activities||15,714,322||454,365|
|Cash flows from investing activities:|
|Purchases of property and equipment||(2,449,449||)||(2,203,203||)|
|Sales of property and equipment||943,252||781,018|
|Convertible note receivable - related party||(1,923,500||)||(200,000||)|
|Investment in WRLD3D||(230,000||)||(1,105,555||)|
|Purchase of subsidiary shares from open market||(33,987||)||-|
|Net cash used in investing activities||(3,693,684||)||(2,727,740||)|
|Cash flows from financing activities:|
|Proceeds from the exercise of stock options and warrants||312,311||866,438|
|Proceeds from exercise of subsidiary options||10,349||75,382|
|Purchase of treasury stock||(750,714||)||(38,885||)|
|Dividend paid by subsidiary to non-controlling interest||(417,853||)||(2,156,273||)|
|Proceeds from bank loans||1,365,250||6,184,635|
|Payments on capital lease obligations and loans - net||(1,626,109||)||(554,048||)|
|Net cash provided by (used in) financing activities||(1,016,766||)||4,377,249|
|Effect of exchange rate changes||(3,087,973||)||511,553|
|Net increase in cash and cash equivalents||7,915,899||2,615,427|
|Cash and cash equivalents at beginning of the period||14,172,954||11,557,527|
|Cash and cash equivalents at end of period||$||22,088,853||$||14,172,954|
|NETSOL Technologies, Inc. and Subsidiaries|
|Schedule 4: Reconciliation to GAAP|
|June 30, 2018||June 30, 2017|
|Net Income (loss) before preferred dividend, per GAAP||$||4,306,888||$||(4,978,030||)|
|Depreciation and amortization||5,573,474||6,562,334|
|Non-cash stock-based compensation||1,861,445||2,763,323|
|Adjusted EBITDA, gross||$||15,288,098||$||8,651,493|
|Less non-controlling interest (a)||(4,947,498||)||(5,841,143||)|
|Adjusted EBITDA, net||$||10,340,600||$||2,810,350|
|Weighted Average number of shares outstanding|
|Basic adjusted EBITDA||$||0.92||$||0.26|
|Diluted adjusted EBITDA||$||0.92||$||0.26|
|(a)The reconciliation of adjusted EBITDA of non-controlling interest|
|to net income attributable to non-controlling interest is as follows|
|Net Income attributable to non-controlling interest||$||2,843,090||$||3,241,594|
|Depreciation and amortization||1,817,367||2,168,249|
|Non-cash stock-based compensation||168,238||252,512|
|Adjusted EBITDA of non-controlling interest||$||4,947,498||$||5,841,143|
Released September 26, 2018