NETSOL Technologies Reports Fiscal Second Quarter 2021 Financial Results

  • Despite COVID-19 Related Challenges, Topline Improved Sequentially, Driven by Notable New Contract Signings, Ongoing Implementations Globally, Increased Demand within Existing Customer Base
  • Steady, Double-Digit, Subscription and Support Revenue Growth from $5.1 Million to $5.7 Million Leading to $23+ Million Run Rate Over Coming Twelve Months with Opportunities for Upside
  • Recurring Revenue Growth Accelerated by Further Cloud Adoption and Major Go Live Events as Customers Continue to Automate And Transform Business Processes In Response to Pandemic
  • Long-Term Growth Outlook Aided by Ongoing Financial and Operational Improvement Through the Balance of Fiscal 2021, Partnership Pilots Through Otoz Innovation Lab, Record Cash Position of $32 Million to Fund Rebooted Global Sales and Marketing Activities

CALABASAS, Calif., Feb. 16, 2021 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (Nasdaq: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal second quarter ended December 31, 2020.

Fiscal Second Quarter 2021 and Recent Operational Highlights

  • Appointed Co-Founder, President of Global Sales and CEO of Otoz, Naeem Ghauri to serve as President of NETSOL Technologies, Inc., a newly created role that is responsible for P&L for all subsidiaries as well as developing a cohesive strategy to grow the company’s SaaS revenues and cloud offerings through digital product development and new complementary solutions to existing core offerings. 
  • Secured an agreement with an existing tier one finance customer in China to upgrade to the NFS Ascent® Retail and Wholesale platforms as part of a contract expected to generate $9.0 million over the multi-year life of the agreement.
  • Successfully implemented the NFS Ascent® Retail Platform, including the Company’s proprietary Loan Origination System (LOS) and Contract Management System (CMS) for a tier-one German auto captive finance company in China in the second phase of a previously announced $30 million contract.
  • Announced the successful implementation of the NFS Ascent® Retail Platform with Allica, a rapidly growing U.K. bank serving small and medium-sized enterprises, marking the first “Go Live” of a cloud-based NFS Ascent® Retail client in the region.
  • Regarding previously announced 12-country, $110 million contract with German auto manufacturing giant, the Company made continued progress with respect to additional NFS Ascent® implementations. The Company had a successful October 2020 Go Live event in Thailand for its Retail Platform and is currently underway on implementation for the same offering in New Zealand.
  • Signed an agreement with a renowned financial services company in the U.S. to implement the Company’s North American LeasePak Cloud offering, which is expected to generate approximately $1.0 million over the multi-year life of the contract.
  • Subscription (SaaS and Cloud) and support revenues reached $5.7 million, a 12% increase over the prior year and a $23+ million run rate projected over the coming twelve months with opportunities for upside.
  • Generated nearly $1.5 million by successfully implementing change requests from various customers across multiple regions during the fiscal second quarter.
  • Introduced WRLD3D’s NXT: a COVID-aware smart workplace platform to support companies’ return to work safely.
  • Otoz nearing completion of a pilot launch for a U.S. tier one automotive company with expected Go Live in the next few months. Backlog of potential new customers continues to grow.

Fiscal Second Quarter 2021 Financial Results
Total net revenues for the second quarter of fiscal 2021 were $13.1 million, compared with $15.7 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total services revenues of $5.6 million, which was offset by an increase in total license fees of $2.4 million and an increase in total subscription and support revenues of $620,000.

  • Total license fees were $2.6 million, compared with $177,000 in the prior year period.
  • Total subscription (SaaS and Cloud) and support revenues were $5.7 million, compared with $5.1 million in the prior year period.
  • Total services revenues were $4.8 million, compared with $10.4 million in the prior year period.

Gross profit for the second quarter of fiscal 2021 was $6.0 million (or 46.0% of net revenues), compared to $7.8 million (or 49.7% of net revenues) in the second quarter of fiscal 2020. The decreases in gross profit and gross profit as a percentage of revenue were primarily due to a decrease in net revenue, offset by a decrease in cost of sales. The decrease in cost of sales was primarily due to a decrease in travel expense of $1.4 million, which was offset by an increase in salaries and consultant fees of $669,000.

Operating expenses for the second quarter of fiscal 2021 decreased 16.1% to $6.0 million (or 45.4% of net revenues) from $7.1 million (or 45.2% of net revenues) for the second quarter of fiscal 2020. The decrease in operating expenses was primarily due to decreases in selling and marketing expenses, professional services, research and development and general and administrative expenses.

GAAP net loss attributable to NETSOL for the second quarter of fiscal 2021 totaled $(242,000) or $(0.02) per diluted share, compared with GAAP net income of $586,000 or $0.05 per diluted share in the second quarter of fiscal 2020. GAAP net loss attributable to NETSOL included a $14,000 gain on foreign currency exchange transactions in the second quarter of fiscal 2021, which was a decrease from a gain of $61,000 in the prior year period.

Non-GAAP adjusted EBITDA for the second quarter of fiscal 2021 totaled $617,000 or $0.05 per diluted share, compared with non-GAAP adjusted EBITDA of $1.6 million or $0.13 per diluted share in the second quarter of fiscal 2020 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At December 31, 2020, cash and cash equivalents were $32.0 million, an increase from $20.2 million at June 30, 2020.

Stock Repurchase Program
On July 30, 2020, NETSOL’s Board of Directors approved a stock repurchase program that authorized potential repurchases of up to $2 million of its common stock over a six-month period. After the expiry of the original program, the Company’s Board of Directors approved the extension of the repurchase program through June 28, 2021. 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 December 31, 2020, the Company had repurchased 446,996 shares of its common stock at an aggregate value of $1,392,671.

Management Commentary

"Fiscal Q2 yielded incrementally improved results for our global business as we saw the early stages of return to work thanks to the initial rollout of COVID-19 vaccine treatments at the end of 2020,” said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “We have continued to lean into our technology strengths and are still operating remotely for the most part without missing a step. During the period we expanded our SaaS-based footprint through a multi-million-dollar upgrade as well as several large-scale implementations, driving our recurring revenue base close to $6 million for the quarter, nearly $11 million year to date. We also recorded nearly $1.5 million in change requests from current customers, another encouraging data point for the improving health of the industries we serve and the economy as a whole.

“Operationally, our recent appointment of Naeem Ghauri to President of NTI should allow us to accelerate progress within our core initiatives, namely driving more consistent topline growth through an increased focused on high-margin, SaaS opportunities which should also lead to sustained profitability. While the broader market cautiously begins to pick up in waves, we are continuing to execute against our near-term pipeline and current implementation schedule. We are being conservative in our cost structures, managing the business as owners, and will opportunistically look to deploy additional resources to high-value areas such as our Otoz Innovation Lab. We remain optimistic for the remainder of the year and even more bullish on the years ahead.”

Otoz Update

“Otoz is nearing completion of a pilot launch to fully digitize a U.S. tier one automotive company,” said Naeem Ghauri, President of NETSOL Technologies, Inc. and Otoz CEO. “This project has allowed us to create an amazing digital auto buying experience through a state-of-the-art app. Overall, this pilot is a door opener for Otoz to penetrate the rapidly growing digital mobility platform movement. Based on the sizeable prospect pipeline we have today, we are well on track to continue grow the Otoz client list by at least another few tier one mobility customers over the next twelve months.”

Conference Call
NETSOL Technologies management will hold a conference call today (February 16, 2021) 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 Gateway Investor Relations 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 March 2, 2021.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13715527

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 1300 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 finance and leasing lifecycle.

About Otoz
Otoz provides business-to-business, white-label technology solutions for new mobility. Our suite of agile and customizable mobility solutions ranges from car sharing and subscription products to AI-enabled chatbots, allowing businesses to engage consumers and facilitate the complete transaction lifecycle intelligently and digitally. Otoz technologies empower automotive companies and start-ups to launch new mobility models quickly and efficiently. The technology Otoz has developed is cloud-native and supported by artificial intelligence (AI), machine learning (ML), internet of things (IoT) and blockchain. Our technology drives utilization, while supporting robust and efficient operations.

Forward-Looking Statements
This press release may contain forward-looking statements relating to the development of the Company's products and services and future operating results, including statements regarding the Company that are subject to certain risks and uncertainties such as the effect of stay at home orders and social distancing imposed by COVID-19 and its resultant impact on our financials and the world economy 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, as well as the delay in recovery or a prolonged economic downturn that effects our Company, our customers and the world economy. 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
Gateway Investor Relations
1-949-574-3860
investors@netsoltech.com



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

      As of   As of
  ASSETS December 31, 2020   June 30, 2020
Current assets:      
  Cash and cash equivalents $ 32,003,647     $ 20,166,830  
  Accounts receivable, net of allowance of $308,236 and $435,611   5,213,604       10,131,752  
  Accounts receivable - related party, net of allowance of $1,373,099 and $90,594   -       1,282,505  
  Revenues in excess of billings, net of allowance of $153,650 and $188,914   13,290,010       17,198,281  
  Revenues in excess of billings - related party, net of allowance of $8,163 and $0   -       8,163  
  Other current assets, net of allowance of $1,243,633 and $0   2,395,985       3,108,180  
    Total current assets   52,903,246       51,895,711  
Revenues in excess of billings, net - long term   356,059       1,300,289  
Convertible note receivable - related party, net of allowance of $4,250,000 and $0   -       4,250,000  
Property and equipment, net   12,209,500       11,329,631  
Right of use of assets - operating leases   1,937,907       2,360,129  
Long term investment   3,734,907       2,387,692  
Other assets   47,190       41,992  
Intangible assets, net   4,753,543       5,391,077  
Goodwill   9,516,568       9,516,568  
    Total assets $ 85,458,920     $ 88,473,089  
           
  LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
  Accounts payable and accrued expenses $ 6,327,192     $ 5,680,837  
  Current portion of loans and obligations under finance leases   10,383,572       9,139,561  
  Current portion of operating lease obligations   1,169,960       1,111,912  
  Unearned revenues   3,753,781       4,095,472  
  Common stock to be issued   88,324       88,324  
    Total current liabilities   21,722,829       20,116,106  
Loans and obligations under finance leases; less current maturities   1,554,317       1,539,975  
Operating lease obligations; less current maturities   962,724       1,339,965  
    Total liabilities   24,239,870       22,996,046  
Commitments and contingencies      
Stockholders' equity:      
  Preferred stock, $.01 par value; 500,000 shares authorized;   -       -  
  Common stock, $.01 par value; 14,500,000 shares authorized;      
    12,147,458 shares issued and 11,452,959 outstanding as of December 31, 2020 and      
    12,122,149 shares issued and 11,874,646 outstanding as of June 30, 2020   121,476       121,222  
  Additional paid-in-capital   128,823,181       128,677,754  
  Treasury stock (at cost, 694,499 shares and 247,503 shares      
  as of December 31, 2020 and June 30, 2020, respectively)   (2,848,640 )     (1,455,969 )
  Accumulated deficit   (40,104,089 )     (34,269,817 )
  Other comprehensive loss   (32,060,151 )     (34,085,047 )
    Total NetSol stockholders' equity   53,931,777       58,988,143  
  Non-controlling interest   7,287,273       6,488,900  
    Total stockholders' equity   61,219,050       65,477,043  
    Total liabilities and stockholders' equity $ 85,458,920     $ 88,473,089  

 


 

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

      For the Three Months   For the Six Months
      Ended December 31,   Ended December 31,
        2020       2019       2020       2019  
Net Revenues:              
  License fees $ 2,586,504     $ 176,706     $ 2,589,979     $ 2,640,922  
  Subscription and support   5,724,802       5,104,736       10,896,665       9,711,112  
  Services   4,810,154       10,351,153       12,282,194       16,770,044  
  Services - related party   -       57,424       -       140,357  
    Total net revenues   13,121,460       15,690,019       25,768,838       29,262,435  
                   
Cost of revenues:              
  Salaries and consultants   5,294,662       4,625,872       9,821,311       9,080,836  
  Travel   159,174       1,572,923       262,926       2,915,558  
  Depreciation and amortization   713,749       734,352       1,420,998       1,454,017  
  Other   911,566       954,912       1,839,719       1,899,436  
    Total cost of revenues   7,079,151       7,888,059       13,344,954       15,349,847  
                   
Gross profit   6,042,309       7,801,960       12,423,884       13,912,588  
                   
Operating expenses:              
  Selling and marketing   1,558,027       1,858,096       3,167,631       3,601,964  
  Depreciation and amortization   221,572       215,479       443,362       417,866  
  General and administrative   4,065,788       4,568,790       7,493,424       8,487,403  
  Research and development cost   110,419       454,605       196,408       1,127,575  
    Total operating expenses   5,955,806       7,096,970       11,300,825       13,634,808  
                   
Income from operations   86,503       704,990       1,123,059       277,780  
                   
Other income and (expenses)              
  Gain (loss) on sale of assets   (52,531 )     528       (74,273 )     239  
  Interest expense   (94,241 )     (88,006 )     (197,568 )     (151,669 )
  Interest income   210,854       435,682       411,675       834,911  
  Gain (loss) on foreign currency exchange transactions   13,981       61,061       310,022       (1,699,129 )
  Share of net loss from equity investment   (43,685 )     (164,796 )     (151,535 )     (354,020 )
  Other income   45,365       207,987       132,637       226,313  
    Total other income (expenses)   79,743       452,456       430,958       (1,143,355 )
                   
Net income (loss) before income taxes   166,246       1,157,446       1,554,017       (865,575 )
Income tax provision   (245,434 )     (610,510 )     (509,728 )     (848,748 )
Net income (loss)   (79,188 )     546,936       1,044,289       (1,714,323 )
  Non-controlling interest   (162,916 )     39,039       (568,839 )     472,351  
Net income (loss) attributable to NetSol $ (242,104 )   $ 585,975     $ 475,450     $ (1,241,972 )
                   
                   
                   
Net income (loss) per share:              
  Net income (loss) per common share              
    Basic $ (0.02 )   $ 0.05     $ 0.04     $ (0.11 )
    Diluted $ (0.02 )   $ 0.05     $ 0.04     $ (0.11 )
                   
Weighted average number of shares outstanding              
  Basic   11,580,030       11,724,606       11,683,631       11,694,423  
  Diluted   11,580,030       11,724,606       11,683,631       11,694,423  
                   

 


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

             
        For the Six Months
        Ended December 31,
          2020       2019  
Cash flows from operating activities:      
  Net income (loss) $ 1,044,289     $ (1,714,323 )
  Adjustments to reconcile net income (loss)      
    to net cash provided by operating activities:      
  Depreciation and amortization   1,864,360       1,871,883  
  Provision for bad debts   (175,575 )     (20,699 )
  Share of net loss from investment under equity method   151,535       354,020  
  Loss on sale of assets   74,273       (239 )
  Stock based compensation   165,164       328,585  
  Changes in operating assets and liabilities:      
    Accounts receivable   5,479,516       4,554,558  
    Accounts receivable - related party   -       2,229,695  
    Revenues in excess of billing   4,540,271       (1,088,693 )
    Revenues in excess of billing - related party   -       14,823  
    Other current assets   (252,781 )     (208,065 )
    Accounts payable and accrued expenses   313,869       490,875  
    Unearned revenue   (554,077 )     (3,019,493 )
  Net cash provided by operating activities   12,650,844       3,792,927  
             
Cash flows from investing activities:      
  Purchases of property and equipment   (1,249,895 )     (785,999 )
  Sales of property and equipment   123,194       32,524  
  Convertible note receivable - related party   -       (535,000 )
  Investment in associates   (93,000 )     -  
  Net cash used in investing activities   (1,219,701 )     (1,288,475 )
             
Cash flows from financing activities:      
  Proceeds from exercise of subsidiary options   -       11,621  
  Purchase of treasury stock   (1,392,671 )     -  
  Dividend paid by subsidiary to non-controlling interest   -       (1,920,618 )
  Proceeds from bank loans   705,338       2,074,341  
  Payments on finance lease obligations and loans - net   (175,352 )     (102,499 )
  Net cash provided by (used in) financing activities   (862,685 )     62,845  
Effect of exchange rate changes   1,268,359       2,149,923  
Net increase in cash and cash equivalents   11,836,817       4,717,220  
Cash and cash equivalents at beginning of the period   20,166,830       17,366,364  
Cash and cash equivalents at end of period $ 32,003,647     $ 22,083,584  
             

 


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

  For the Three Months Ended   For the Three Months Ended   For the Six Months Ended   For the Six Months Ended
  December 31, 2020   December 31, 2019   December 31, 2020   December 31, 2019
               
Net Income (loss) attributable to NetSol $ (242,104 )   $ 585,975     $ 475,450     $ (1,241,972 )
Non-controlling interest   162,916       (39,039 )     568,839       (472,351 )
Income taxes   245,434       610,510       509,728       848,748  
Depreciation and amortization   935,321       949,831       1,864,360       1,871,883  
Interest expense   94,241       88,006       197,568       151,669  
Interest (income)   (210,854 )     (435,682 )     (411,675 )     (834,911 )
EBITDA $ 984,954     $ 1,759,601     $ 3,204,270     $ 323,066  
Add back:              
Non-cash stock-based compensation   74,169       164,292       165,164       328,585  
Adjusted EBITDA, gross $ 1,059,123     $ 1,923,893     $ 3,369,434     $ 651,651  
Less non-controlling interest (a)   (441,853 )     (346,644 )     (1,140,697 )     (155,409 )
Adjusted EBITDA, net $ 617,270     $ 1,577,249     $ 2,228,737     $ 496,242  
               
               
Weighted Average number of shares outstanding              
Basic   11,580,030       11,724,606       11,683,631       11,694,423  
Diluted   11,580,030       11,724,606       11,683,631       11,694,423  
               
Basic adjusted EBITDA $ 0.05     $ 0.13     $ 0.19     $ 0.04  
Diluted adjusted EBITDA $ 0.05     $ 0.13     $ 0.19     $ 0.04  
               
               
(a)The reconciliation of adjusted EBITDA of non-controlling interest              
to net income attributable to non-controlling interest is as follows              
               
Net Income (loss) attributable to non-controlling interest $ 162,916     $ (39,039 )   $ 568,839     $ (472,351 )
Income Taxes   44,233       190,292       92,882       243,627  
Depreciation and amortization   264,535       270,003       529,100       529,638  
Interest expense   28,824       25,491       60,344       44,532  
Interest (income)   (67,207 )     (115,670 )     (133,164 )     (221,171 )
EBITDA $ 433,301     $ 331,077     $ 1,118,001     $ 124,275  
Add back:              
Non-cash stock-based compensation   8,552       15,567       22,696       31,134  
Adjusted EBITDA of non-controlling interest $ 441,853     $ 346,644     $ 1,140,697     $ 155,409  
               

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Source: NETSOL Technologies Inc.