NETSOL Technologies Reports Fiscal Third Quarter 2023 Financial Results

  • Net Revenue for the Quarter was $13.5 Million; $14.1 Million on a Constant Currency Basis
  • Expansion into North America Market on Track; Establishing Client Support and ‘Center of Excellence’ Facility in Austin, TX to Grow Revenues and Customer Base
  • Recurring Revenue (SaaS and Support) of $6.7 Million; $6.8 Million on a Constant Currency Basis; Expect Fiscal 2023 Annual Recurring Revenue (SaaS and Support) of over $25 million
  • Strategic Business and Cost Transformation in Place; 20-25% Reduction in Headcount and Significant Total Savings Expected
  • Integrating Generative AI and Machine Learning Capabilities into NETSOL Products through AWS Partnership
  • $15.3 Million in Cash and $3.63 per Share in Shareholders’ Equity at March 31, 2023

ENCINO, Calif., May 11, 2023 (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, 2023.

Fiscal Third Quarter 2023 and Recent Operational Highlights

  • Signed multi-million-dollar agreement with leading Japanese equipment finance company based in Australia for the deployment of premier NETSOL technology platform NFS Ascent Retail.
  • Went live with the Company’s API-first and cloud-based calculation engine, Flex, for Haydock Finance, a business finance provider in the United Kingdom.
  • Otoz, the Company’s fully digital, white label platform for lease, finance, and cash transactions, is live with 53 dealers across 24 U.S. states.
  • Entered into teaming agreement with Digital Intelligence Systems (DISYS) to leverage large resource pool of over 5,000 U.S.-based engineers to augment and complement NETSOL’s growing U.S. presence and jointly undertake large enterprise-grade programs for existing and new U.S. clients.
  • Extended partnership with Amazon Web Services (AWS) and became an API Gateway Delivery Partner, positioning NETSOL to expand capabilities and better serve clients across a variety of industries.
  • Generated approximately $1.0 million through successful implementation of change requests from customers across multiple regions.

Fiscal Third Quarter 2023 Financial Results

Total net revenues for the third quarter of fiscal 2023 were $13.5 million, compared with $14.8 million in the prior year period. The decrease in total net revenues was primarily due to a decrease of $1.8 million in services revenue and offset by an increase in license fees of $362,000. On a constant currency basis, net revenues were $14.1 million. The decrease in revenues on a constant currency basis was driven by a decrease in services revenue of $1.5 million compared to the prior year period.

  • Total license fees were $2.0 million compared with $1.6 million in the prior year period. The increase is primarily due to the recognition of $1.9 million in licensing fees in the third quarter of 2023 related to a new agreement with a leading Japanese equipment finance company based in Australia. Total license fees on a constant currency basis were $2.1 million.
  • Total subscription (SaaS and Cloud) and support revenues were $6.7 million compared with $6.6 million in the prior year period. Total subscription and support revenues on a constant currency basis were $6.8 million.
  • Total services revenues were $4.9 million compared with $6.6 million in the prior year period. The decrease in services revenues is related to an overall decrease in services provided for ongoing implementations and additional change requests. Total services revenues on a constant currency basis were $5.2 million.

Gross profit for the third quarter of fiscal 2023 decreased to $4.7 million (or 34.8% of net revenues), compared to $5.8 million (or 39.4% of net revenues) in the third quarter of fiscal 2022. On a constant currency basis, gross profit for the third quarter of fiscal 2023 decreased to $2.4 million (or 17.1% of net revenues as measured on a constant currency basis). The decrease in gross profit on a constant currency basis was primarily due to an increase in salaries and consultant costs of $1.7 million and an increase in travel costs of $700,000, reflecting an increase in travel as countries lifted travel restrictions.

Operating expenses for the third quarter of fiscal 2023 were $5.6 million (or 41.7% of sales) compared to $6.4 million (or 43.0% of sales) for the third quarter of fiscal 2022. On a constant currency basis, operating expenses for the third quarter of fiscal 2023 increased to $6.9 million (or 48.7% of sales on a constant currency basis). The decrease in operating expenses was primarily due to decreases in selling and administrative expenses and offset by an increase in research and development costs.

Total other income for the third quarter of fiscal 2023 increased to $5.4 million compared to $679,000 in the prior year period. On a constant currency basis, total other income for the third quarter of fiscal 2023 increased to $7.9 million. The increase in total other income is primarily due to foreign currency exchange transactions. As most contracts with NETSOL Pakistan are either in U.S. dollars or Euros, currency fluctuations will yield foreign currency exchange gains or losses depending on the value of the Pakistan Rupee compared to the U.S. dollar and the Euro. During the three months ended March 31, 2023, the value of the U.S. dollar increased 25.3% and the value of the Euro increased 27.3%, respectively.

GAAP net income attributable to NETSOL for the third quarter of fiscal 2023 totaled $2.5 million or $0.23 per diluted share, compared with GAAP net loss of $(278,000) or $(0.02) per diluted share in the third quarter of fiscal 2022. On a constant currency basis, GAAP net income attributable to NETSOL for the third quarter of fiscal 2023 totaled $1.2 million or $0.11 per diluted share.

Non-GAAP adjusted EBITDA for the third quarter of fiscal 2023 was $3.3 million or $0.29 per diluted share, compared with non-GAAP adjusted EBITDA of $359,000 or $0.03 per diluted share in the third quarter of fiscal 2022 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At March 31, 2023, cash and cash equivalents were $15.3 million, a decrease from $24.0 million at June 30, 2022. Total NETSOL stockholders’ equity at March 31, 2023 was $41.0 million, or $3.63 per share.

Management Commentary

NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri stated, “Our third quarter results demonstrated customer growth and our continued execution of strategic initiatives and projects. During the quarter, we signed and began recognizing revenue from a multi-million-dollar agreement with Kubota, a leading Japanese equipment company in Australia, for our NFS Ascent product. Additionally, we went live with Flex – our cloud-based calculation engine – for Haydock Finance, a business finance provider based in the United Kingdom. We also recognized considerable gain on foreign currency exchange transactions, which can have a meaningful impact on our results, depending on how the U.S. dollar and Euro fluctuate in a given quarter.”

“While we’re thrilled to see demand for NETSOL products in our established markets, perhaps what we’re most excited about is our opportunity in North America,” Mr. Ghauri continued. “Last quarter, we announced our plans to significantly expand our presence in this largely untapped region, beginning with the establishment of a sales and support facility in Austin, Texas. This facility will support our growing customer base in the United States as our Otoz offering has now gone live with 53 MiniAnywhere dealers across the United States, and our products like NFS Ascent gain traction in this market. We believe North America represents a tremendous opportunity for us, especially as it pertains to our SaaS and cloud-based offerings that generate valuable recurring revenue for our business.”

Mr. Ghauri concluded, “We are focused on driving enhanced profitability across our entire business. The reality is that as the Company evolves toward a SaaS model, we can provide the superior customer service we are known for with far fewer people. Last quarter, we announced cost reduction initiatives which we estimated would generate significant savings for our business. Our goal is to reduce our total headcount by 25% which we believe will have a materially positive impact on revenue per employee, net profit and EBITDA, and will enable us to allocate resources to new product development and our growing market share in North America. We look forward to sharing the results with you as we continue to make progress.”

Conference Call

NETSOL Technologies management will hold a conference call today (May 11, 2023) 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: 877-300-8521
International dial-in: 412-317-6026

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 Investor Relations at 818-222-9195.

The conference call will be broadcasted live and available for replay here and via the Investor Relations section of NETSOL’s website.

A telephone replay of the conference call will be available approximately three hours after the call concludes through Thursday, May 25, 2023.

Toll-free replay number: 844-512-2921
International replay number: 412-317-6671
Replay ID: 10178599

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 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.

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 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:

IMS Investor Relations
netsol@imsinvestorrelations.com
+1 203-972-9200


NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets
      As of   As of
  ASSETS March 31, 2023   June 30, 2022
Current assets:      
  Cash and cash equivalents $ 15,259,497     $ 23,963,797  
  Accounts receivable, net of allowance of $232,004and $166,231   9,223,484       8,669,202  
  Revenues in excess of billings, net of allowance of $43,334and $136,976   13,741,884       14,571,776  
  Other current assets   2,599,532       2,223,361  
    Total current assets   40,824,397       49,428,136  
Revenues in excess of billings, net - long term   -       853,601  
Property and equipment, net   6,871,036       9,382,624  
Right of use of assets - operating leases   1,102,729       969,163  
Long term investment   1,066,878       1,059,368  
Other assets   425       25,546  
Intangible assets, net   381,878       1,587,670  
Goodwill   9,302,524       9,302,524  
    Total assets $ 59,549,867     $ 72,608,632  
           
  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:      
  Accounts payable and accrued expenses $ 7,098,206     $ 6,813,541  
  Current portion of loans and obligations under finance leases   5,969,044       8,567,145  
  Current portion of operating lease obligations   421,223       548,678  
  Unearned revenue   4,167,655       4,901,562  
    Total current liabilities   17,656,128       20,830,926  
Loans and obligations under finance leases; less current maturities   215,243       476,223  
Operating lease obligations; less current maturities   651,443       447,260  
    Total liabilities   18,522,814       21,754,409  
Commitments and contingencies      
Stockholders' equity:      
  Preferred stock, $.01 par value; 500,000 shares authorized;   -       -  
  Common stock, $.01 par value; 14,500,000 shares authorized;      
    12,238,042 shares issued and 11,299,011 outstanding as of March 31, 2023      
    12,196,570 shares issued and 11,257,539 outstanding as of June 30, 2022   122,382       121,966  
  Additional paid-in-capital   128,536,955       128,218,247  
  Treasury stock (at cost, 939,031 shares as of March 31, 2023 and June 30, 2022)   (3,920,856 )     (3,920,856 )
  Accumulated deficit   (39,821,470 )     (39,652,438 )
  Other comprehensive loss   (47,192,994 )     (39,363,085 )
    Total NetSol stockholders' equity   37,724,017       45,403,834  
  Non-controlling interest   3,303,036       5,450,389  
    Total stockholders' equity   41,027,053       50,854,223  
    Total liabilities and stockholders' equity $ 59,549,867     $ 72,608,632  


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,
        2023       2022       2023       2022  
Net Revenues:              
  License fees $ 1,982,985     $ 1,620,827     $ 2,248,829     $ 3,586,874  
  Subscription and support   6,656,082       6,554,540       19,175,585       22,159,798  
  Services   4,867,322       6,634,459       17,178,452       17,956,877  
    Total net revenues   13,506,389       14,809,826       38,602,866       43,703,549  
                   
Cost of revenues:              
  Salaries and consultants   6,453,814       6,756,898       19,482,720       18,081,225  
  Travel   724,431       256,730       1,752,074       753,698  
  Depreciation and amortization   602,829       741,587       1,950,156       2,236,190  
  Other   1,020,286       1,220,041       3,318,427       3,712,256  
    Total cost of revenues   8,801,360       8,975,256       26,503,377       24,783,369  
                   
Gross profit   4,705,029       5,834,570       12,099,489       18,920,180  
                   
Operating expenses:              
  Selling and marketing   1,643,853       2,074,873       5,413,492       5,502,028  
  Depreciation and amortization   180,137       206,346       569,313       633,481  
  General and administrative   3,509,212       3,841,655       10,745,031       11,548,097  
  Research and development cost   302,262       251,001       1,244,793       761,621  
    Total operating expenses   5,635,464       6,373,875       17,972,629       18,445,227  
                   
Income (loss) from operations   (930,435 )     (539,305 )     (5,873,140 )     474,953  
                   
Other income and (expenses)              
  Gain (loss) on sale of assets   (84,838 )     8,770       (56,494 )     (181,955 )
  Interest expense   (188,137 )     (85,916 )     (512,110 )     (277,737 )
  Interest income   263,794       364,161       1,005,557       1,123,547  
  Gain on foreign currency exchange transactions   5,385,591       499,516       7,358,519       2,684,680  
  Share of net loss from equity investment   2,377       (76,798 )     7,510       (317,581 )
  Other income (expense)   21,897       (30,296 )     113,877       (7,599 )
    Total other income (expenses)   5,400,684       679,437       7,916,859       3,023,355  
                   
Net income before income taxes   4,470,249       140,132       2,043,719       3,498,308  
Income tax provision   (227,718 )     (157,604 )     (641,122 )     (526,737 )
Net income (loss)   4,242,531       (17,472 )     1,402,597       2,971,571  
  Non-controlling interest   (1,697,908 )     (260,998 )     (1,571,629 )     (1,655,287 )
Net income (loss) attributable to NetSol $ 2,544,623     $ (278,470 ) - $ (169,032 )   $ 1,316,284  
                   
                   
Net income (loss) per share:              
  Net income (loss) per common share              
    Basic $ 0.23     $ (0.02 )   $ (0.01 )   $ 0.12  
    Diluted $ 0.23     $ (0.02 )   $ (0.01 )   $ 0.12  
                   
Weighted average number of shares outstanding              
  Basic   11,283,954       11,249,606       11,270,466       11,249,449  
  Diluted   11,283,954       11,249,606       11,270,466       11,249,449  



NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows
        For the Nine Months
        Ended March 31,
          2023       2022  
Cash flows from operating activities:      
  Net income $ 1,402,597     $ 2,971,571  
  Adjustments to reconcile net income to net cash      
    provided by operating activities:      
  Depreciation and amortization   2,519,469       2,869,671  
  Provision for bad debts   7,648       6,897  
  Share of net (gain) loss from investment under equity method   (7,510 )     317,581  
  (Gain) loss on sale of assets   56,494       181,955  
  Stock based compensation   198,559       78,225  
  Changes in operating assets and liabilities:      
    Accounts receivable   (1,855,899 )     (3,404,247 )
    Revenues in excess of billing   240,324       (385,971 )
    Other current assets   (621,731 )     53,173  
    Accounts payable and accrued expenses   1,321,289       14,918  
    Unearned revenue   (696,621 )     2,822,178  
  Net cash provided by operating activities   2,564,619       5,525,951  
             
Cash flows from investing activities:      
  Purchases of property and equipment   (1,575,059 )     (1,680,856 )
  Sales of property and equipment   153,402       321,251  
  Net cash used in investing activities   (1,421,657 )     (1,359,605 )
             
Cash flows from financing activities:      
  Purchase of treasury stock   -       (100,106 )
  Proceeds from bank loans   270,292       312,467  
  Payments on finance lease obligations and loans - net   (787,641 )     (1,045,464 )
  Net cash used in financing activities   (517,349 )     (833,103 )
Effect of exchange rate changes   (9,329,913 )     (6,465,085 )
Net decrease in cash and cash equivalents   (8,704,300 )     (3,131,842 )
Cash and cash equivalents at beginning of the period   23,963,797       33,705,154  
Cash and cash equivalents at end of period $ 15,259,497     $ 30,573,312  


NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP
  For the Three Months   For the Nine Months
  Ended March 31,   Ended March 31,
    2023       2022       2023       2022  
               
Net Income (loss) attributable to NetSol $ 2,544,623     $ (278,470 )   $ (169,032 )   $ 1,316,284  
Non-controlling interest   1,697,908       260,998       1,571,629       1,655,287  
Income taxes   227,718       157,604       641,122       526,737  
Depreciation and amortization   782,966       947,933       2,519,469       2,869,671  
Interest expense   188,137       85,916       512,110       277,737  
Interest (income)   (263,794 )     (364,161 )     (1,005,557 )     (1,123,547 )
EBITDA $ 5,177,558     $ 809,820     $ 4,069,741     $ 5,522,169  
Add back:              
Non-cash stock-based compensation   52,392       49,933   -   198,559       78,225  
Adjusted EBITDA, gross $ 5,229,950     $ 859,753     $ 4,268,300     $ 5,600,394  
Less non-controlling interest (a)   (1,971,516 )     (500,805 )     (2,363,688 )     (2,382,721 )
Adjusted EBITDA, net $ 3,258,434     $ 358,948     $ 1,904,612     $ 3,217,673  
               
               
Weighted Average number of shares outstanding              
Basic   11,283,954       11,249,606       11,270,466       11,249,449  
Diluted   11,283,954       11,249,606       11,270,466       11,249,449  
               
Basic adjusted EBITDA $ 0.29     $ 0.03     $ 0.17     $ 0.29  
Diluted adjusted EBITDA $ 0.29     $ 0.03     $ 0.17     $ 0.29  
               
               
(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 $ 1,697,908     $ 260,998     $ 1,571,629     $ 1,655,287  
Income Taxes   69,947       45,427       198,263       159,854  
Depreciation and amortization   219,759       279,055       713,676       840,508  
Interest expense   57,797       25,764       157,929       81,846  
Interest (income)   (77,988 )     (117,417 )     (303,489 )     (362,146 )
EBITDA $ 1,967,423     $ 493,827     $ 2,338,008     $ 2,375,349  
Add back:              
Non-cash stock-based compensation   4,093       6,978       25,680       7,372  
Adjusted EBITDA of non-controlling interest $ 1,971,516     $ 500,805     $ 2,363,688     $ 2,382,721  


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Source: NETSOL Technologies Inc.