NETSOL Technologies Reports Fiscal First Quarter 2019 Financial Results

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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.

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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. 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
Liolios
949-574-3860
investors@netsoltech.com


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 
      
 LIABILITIES AND STOCKHOLDERS' EQUITY   
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 
 

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