NETSOL Technologies Reports Fiscal First Quarter 2019 Financial Results

Year-Over-Year Revenue Growth of 27% to $16.4 Million and EPS Increase to $0.08 from $(0.03) in Q1 2018 Driven by Major Contract Wins in China During the Quarter, Providing Catalyst for Fiscal 2019

CALABASAS, Calif., Nov. 13, 2018 (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, 2018.

First Quarter and Recent Operational Highlights

  • 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.
  • Selected by Speed Leasing to implement LeasePak Cloud™ SaaS platform and mAccount platform, powered by the NFS Digital™ suite.
  • NFS Ascent went live in South Africa, a new market, with a German auto manufacturing giant as part of the ongoing international deployment associated with previously announced 12-country, $110 million contract.
  • Received “First-Rate and Best-Selling Finance and Leasing Solution Provider” award at the China Leasing Summit 2018 for the sixth consecutive year.
  • Commenced data migration project for an existing customer, which is expected to generate approximately $500,000 in additional revenues over the next few months.
  • Established a new subsidiary and set up an additional office in London to support future growth for NFS Ascent in the European market.

Fiscal First Quarter 2019 Financial Results
Total net revenues for the first quarter of fiscal 2019 were $16.4 million, compared with $12.8 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $5.6 million and an increase of total maintenance fees of $163,000, which were offset by a decrease in total services revenues of $2.2 million.

  • Total license fees were $6.0 million, compared with $370,000 in the prior year period.
  • Total maintenance fees were $3.7 million, compared with $3.6 million in the prior year period.
  • Total services revenues were $6.7 million, compared with $8.9 million in the prior year period.

Gross profit for the first quarter of fiscal 2019 was $8.2 million (or 50.2% of net revenues), compared to $4.8 million (or 37.5% of net revenues) in the first quarter of fiscal 2018. The increase in gross profit as a percentage of net revenues was primarily due to an increase in total revenues of $3.6 million, which was offset by a minor increase in cost of revenues of $152,000.

Operating expenses for the first quarter of fiscal 2019 increased 12% to $6.6 million (or 40.5% of net revenues) from $5.9 million (or 46.3% of net revenues) for the first quarter of fiscal 2018. The increase in operating expenses was primarily due to increases in salaries and wages, research and development and general and administrative expenses, which were offset by decreases in selling and marketing expenses, depreciation, and professional services.

GAAP net income attributable to NETSOL for the first quarter of fiscal 2019 totaled $963,000 or $0.08 per diluted share, an improvement from net loss of $369,000 or $(0.03) per diluted share in the first quarter of fiscal 2018.

Non-GAAP adjusted EBITDA for the first quarter of fiscal 2019 totaled $2.2 million or $0.19 per diluted share, an improvement from $970,000 or $0.09 per diluted share in the first quarter of fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At September 30, 2018, cash and cash equivalents were $20.4 million, an increase from $8.6 million at September 30, 2017.

Management Commentary
“In the first quarter we produced solid operational and financial results, building upon the momentum established in the latter half of fiscal 2018," said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri.  “Most notably, we grew our topline 28% in Q1, which was driven by a major increase in license fees as part of the initial revenue recognition from some major contract wins during the quarter.  Moreover, thanks to the inherent leverage in our operating model, we generated impressive gross profit and margin improvement leading to our fourth consecutive quarter of profitability.  With the majority of our cost reductions and necessary restructuring now behind us, we're primed to continue building on this initial quarterly growth as a leaner, more focused organization. Looking ahead, we remain confident in our ability to drive double-digit topline growth through fiscal 2019.  At the same time, we remain focused on maintaining our consistent profitability as we scale our business, which should ultimately result in superior returns to our shareholders over the long term.”

Sales Outlook
“While we are executing on the large, multi-year deployments from contracts we’ve recently secured, we are also seeing the pace of new opportunities continue at a level that will allow us to meet or exceed our existing growth forecasts for the fiscal year,” added President and Head of Sales Naeem Ghauri. “Additionally, we have embarked on a number of product-specific innovations that will allow our customers to take their business to even greater heights.  More specifically, we are looking at evolving traditional finance products into new areas like ride and car sharing models and are also evaluating and testing emerging technologies like blockchain that have tremendous potential to become an integral part of our future ecosystem.”

Conference Call
NETSOL Technologies management will hold a conference call today (November 13, 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.

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 27, 2018.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13683893

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.

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.

Investor Relations Contact:

Matt Glover and Tom Colton

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

      As of September 30,   As of June 30,
  ASSETS   2018       2018  
Current assets:      
  Cash and cash equivalents $ 20,435,744     $ 22,088,853  
  Accounts receivable, net of allowance of $600,833  and $610,061   7,487,381       12,775,461  
  Accounts receivable, net - related party   3,039,320       3,374,272  
  Revenues in excess of billings   13,335,529       14,285,778  
  Revenues in excess of billings - related party   70,250       -  
  Convertible note receivable - related party   2,881,500       2,123,500  
  Other current assets   3,438,861       2,703,032  
    Total current assets   50,688,585       57,350,896  
Revenues in excess of billings, net - long term   -       1,206,669  
Property and equipment, net   15,650,128       16,165,491  
Long term investment   2,958,692       3,217,162  
Other assets   54,936       70,299  
Intangible assets, net   11,465,925       12,247,196  
Goodwill   9,516,568       9,516,568  
    Total assets $ 90,334,834     $ 99,774,281  
Current liabilities:      
  Accounts payable and accrued expenses $ 7,153,778     $ 7,873,809  
  Current portion of loans and obligations under capitalized leases   8,433,675       8,595,919  
  Unearned revenues   4,913,731       5,949,581  
  Common stock to be issued   88,324       88,324  
    Total current liabilities   20,589,508       22,507,633  
Loans and obligations under capitalized leases; less current maturities   296,680       330,596  
    Total liabilities   20,886,188       22,838,229  
Commitments and contingencies      
Stockholders' equity:      
  Preferred stock, $.01 par value; 500,000 shares authorized;   -       -  
  Common stock, $.01 par value; 14,500,000 shares authorized;      
    11,782,360 shares issued and 11,576,507 outstanding as of September 30, 2018 and    
    11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018   117,824       117,085  
  Additional paid-in-capital   126,918,319       126,479,147  
  Treasury stock (At cost, 205,853 shares and 205,853 shares      
  as of September 30, 2018 and June 30, 2018, respectively)   (1,205,024 )     (1,205,024 )
  Accumulated deficit   (42,827,708 )     (37,994,502 )
  Stock subscription receivable   (221,000 )     (221,000 )
  Other comprehensive loss   (24,649,274 )     (24,386,071 )
    Total NetSol stockholders' equity   58,133,137       62,789,635  
  Non-controlling interest   11,315,509       14,146,417  
    Total stockholders' equity   69,448,646       76,936,052  
    Total liabilities and stockholders' equity $ 90,334,834     $ 99,774,281  

NETSOL Technologies, Inc. and Subsidiaries

Schedule 2: Consolidated Statement of Operations

      For the Three Months
      Ended September 30,
        2018       2017  
Net Revenues:      
  License fees $ 5,956,113     $ 326,066  
  Maintenance fees   3,638,327       3,473,725  
  Services   6,418,634       7,017,737  
  License fees - related party   -       44,408  
  Maintenance fees - related party   101,349       102,963  
  Services - related party   282,122       1,853,877  
    Total net revenues   16,396,545       12,818,776  
Cost of revenues:      
  Salaries and consultants   5,020,562       5,464,160  
  Travel   1,151,997       513,112  
  Depreciation and amortization   937,604       1,173,113  
  Other   1,048,324       856,582  
    Total cost of revenues   8,158,487       8,006,967  
Gross profit   8,238,058       4,811,809  
Operating expenses:      
  Selling and marketing   1,701,326       1,711,296  
  Depreciation and amortization   212,232       245,873  
  Provision for bad debts   -       -  
  General and administrative   4,406,720       3,787,558  
  Research and development cost   318,155       185,085  
    Total operating expenses   6,638,433       5,929,812  
Income (loss) from operations   1,599,625       (1,118,003 )
Other income and (expenses)      
  Gain (loss) on sale of assets   52,294       (7,130 )
  Interest expense   (99,434 )     (118,071 )
  Interest income   248,964       136,911  
  Gain on foreign currency exchange transactions   10,912       1,016,362  
  Share of net loss from equity investment   (299,691 )     (67,562 )
  Other income (expense)   5,379       1,099  
    Total other income (expenses)   (81,576 )     961,609  
Net income (loss) before  income taxes   1,518,049       (156,394 )
Income tax provision   (236,914 )     (24,871 )
Net income (loss)   1,281,135       (181,265 )
  Non-controlling interest   (318,546 )     (188,233 )
Net income (loss) attributable to NetSol $ 962,589     $ (369,498 )
Net income (loss) per share:      
  Net income (loss) per common share      
    Basic $ 0.08     $ (0.03 )
    Diluted $ 0.08     $ (0.03 )
Weighted average number of shares outstanding    
  Basic   11,502,616       11,099,113  
  Diluted   11,507,730       11,099,113  

NETSOL Technologies, Inc. and Subsidiaries

Schedule 3: Consolidated Statement of Cash Flows

        For the Three Months
        Ended September 30,
          2018       2017  
 Cash flows from operating activities:      
  Net income (loss) $ 1,281,135     $ (181,265 )
  Adjustments to reconcile net income (loss)      
    to net cash used in operating activities:      
  Depreciation and amortization   1,149,836       1,418,986  
  Share of net loss from investment under equity method   299,691       67,562  
  (Gain) loss on sale of assets   (52,294 )     7,130  
  Stock based compensation   432,048       439,308  
  Changes in operating assets and liabilities:      
    Accounts receivable   5,136,381       (903,730 )
    Accounts receivable - related party   284,869       (1,251,994 )
    Revenues in excess of billing   (6,347,196 )     (3,230,619 )
    Revenues in excess of billing - related party   (70,102 )     (130 )
    Other current assets   (571,246 )     (478,390 )
    Accounts payable and accrued expenses   (680,147 )     231,645  
    Unearned revenue   (1,202,420 )     (270,743 )
  Net cash used in operating activities   (339,445 )     (4,152,240 )
Cash flows from investing activities:      
  Purchases of property and equipment   (563,413 )     (328,163 )
  Sales of property and equipment   184,032       116,023  
  Convertible note receivable - related party   (758,000 )     (500,000 )
  Net cash used in investing activities   (1,137,381 )     (712,140 )
 Cash flows from financing activities:      
  Proceeds from the exercise of stock options and warrants   -       162,385  
  Proceeds from exercise of subsidiary options   2,650       -  
  Purchase of treasury stock   -       (500,663 )
  Proceeds from bank loans   119,895       -  
  Payments on capital lease obligations and loans - net   (179,237 )     (148,707 )
  Net cash used in financing activities   (56,692 )     (486,985 )
Effect of exchange rate changes   (119,591 )     (266,774 )
Net decrease in cash and cash equivalents   (1,653,109 )     (5,618,139 )
Cash and cash equivalents at beginning of the period   22,088,853       14,172,954  
Cash and cash equivalents at end of period $ 20,435,744     $ 8,554,815  

NETSOL Technologies, Inc. and Subsidiaries

Schedule 4: Reconciliation to GAAP

  Three Months   Three Months
  Ended   Ended
  September 30, 2018   September 30, 2017
Net Income (loss) before preferred dividend, per GAAP $ 962,589     $ (369,498 )
Non-controlling interest   318,546       188,233  
Income taxes   236,914       24,871  
Depreciation and amortization   1,149,836       1,418,986  
Interest expense   99,434       118,071  
Interest (income)   (248,964 )     (136,911 )
EBITDA $ 2,518,355     $ 1,243,752  
Add back:      
Non-cash stock-based compensation   432,048       427,809  
Adjusted EBITDA, gross $ 2,950,403     $ 1,671,561  
Less non-controlling interest (a)   (752,669 )     (701,864 )
Adjusted EBITDA, net $ 2,197,734     $ 969,697  
Weighted Average number of shares outstanding      
Basic   11,502,616       11,099,113  
Diluted   11,507,730       11,130,824  
Basic adjusted EBITDA $ 0.19     $ 0.09  
Diluted adjusted EBITDA $ 0.19     $ 0.09  
(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 $ 318,546     $ 188,233  
Income Taxes   70,543       10,478  
Depreciation and amortization   365,854       467,182  
Interest expense   32,690       39,072  
Interest (income)   (66,868 )     (45,157 )
EBITDA $ 720,765     $ 659,808  
Add back:      
Non-cash stock-based compensation   31,904       42,056  
Adjusted EBITDA of non-controlling interest $ 752,669     $ 701,864  


Source: NETSOL Technologies Inc.