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CST: 19/05/2019 21:37:01   

NETSOL Technologies Reports Fiscal Third Quarter 2019 Financial Results

5 Days ago

Sixth Consecutive Quarter of Profitability and Continued Topline Growth Driven by Core Business Strength, Successful Milestone Implementation In China for Previously Announced 12-Country, $110 Million Contract

CALABASAS, Calif., May 14, 2019 (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, 2019.

Third Quarter and Recent Operational Highlights

  • Updates related to previously announced 12-country, $110 million contract with German auto manufacturing giant.
    • Successfully implemented the full suite of NFS Ascent™ modules in China.
    • Successfully implemented NFS Ascent Wholesale Finance System in Japan.
    • Made continued progress with respect to additional NFS Ascent implementations in Singapore, Malaysia, Hong Kong, India and Thailand.
  • Made significant strides in the ongoing implementation process for the deployment of NFS Ascent Retail and Wholesale platforms with European tier-one global auto captive in China related to the $30 million contract signed in September 2018.
  • Continued implementation of NFS Ascent Retail platform at captive auto leasing company of a major US based auto manufacturer in China.
  • Officially launched OTOZ Mobility Innovation Lab, which has been designed to enhance reach of NETSOL Ascent platform into car-sharing opportunities with new and existing auto captive finance customers.
  • Announced strategic investment and partnership with Drivemate, the top car-sharing, peer-to-peer car rental service in Thailand, to implement new technology in exchange for future minority interest in the company, providing for a low-risk testing environment for OTOZ with a built-in customer.
  • Continued to build out capabilities in intelligent technologies such as artificial intelligence, machine learning, blockchain, IoT and cloud native architectures to help future proof core business and innovate around new opportunities, specifically car sharing and peer-to-peer sharing as well as subscription and data driven business models.

Fiscal Third Quarter 2019 Financial Results
Total net revenues for the third quarter of fiscal 2019 were $17.1 million, compared with $17.0 million in the prior year period. The increase in total net revenues was primarily due to an increase in total services revenues of $256,000, which was offset by a decrease in total license fees of $113,000 and total maintenances fees of $61,000.

  • Total license fees were $2.5 million, compared with $2.6 million in the prior year period.
  • Total maintenance fees were $3.7 million, compared with $3.8 million in the prior year period.
  • Total services revenues were $10.9 million, compared with $10.6 million in the prior year period.

Gross profit for the third quarter of fiscal 2019 was $8.6 million (or 50.0% of total net revenues), compared to $9.2 million (or 53.9% of total net revenues) in the third quarter of fiscal 2018. The decrease in gross profit as a percentage of net revenues was due to an increase in the cost of revenues of 719,000. The increase in cost of revenue was predominantly driven by increases in travel and other expenses associated with increased implementation needs for the significant new wins recorded in previous quarters, which are expected to be invoiced to clients and subsequently reimbursed. The increase in cost of revenues was offset by decreases in salaries and consultants’ costs, decreases in depreciation and amortization costs as well as an increase in total net revenues of $83,000.

Operating expenses for the third quarter of fiscal 2019 increased to $6.5 million (or 37.7% of total net revenues) from $6.4 million (or 37.8% of total net revenues) for the third quarter of fiscal 2018. The increase in operating expenses was primarily due to increases in research and development expenses and depreciation which were offset by decreases in selling and marketing expenses, salaries and wages, professional services, and general and administrative expenses.

Net income attributable to NETSOL for the third quarter of fiscal 2019 totaled $1.3 million or $0.11 per diluted share, a decrease from net income of $2.9 million or $0.26 per diluted share in the third quarter of fiscal 2018.  The decrease in net income was primarily due to a decrease in foreign currency exchange transactions to $47,000 in the third quarter of fiscal 2019 compared to $2.6 million for the third quarter of fiscal 2018.

Non-GAAP adjusted EBITDA for the third quarter of fiscal 2019 totaled $2.2 million or $0.19 per diluted share, compared to $4.3 million or $0.39 per diluted share in the third quarter of fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At March 31, 2019, cash and cash equivalents were $17.0 million, an increase from $12.7 million at the end of the prior year quarter.

Management Commentary
“In the fiscal third quarter, we continued to execute in all areas of our core business, enabling us to achieve certain major operational milestones that positively impacted our financial and operational performance,” said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “More specifically, our successful ‘Go Live’ in China this past March represented the greatest single deployment of our Ascent platform in the largest leasing market in the Asia Pacific region. We’ve now generated profitable results from operations for six consecutive quarters and have continued to sequentially improve our topline throughout the course of the fiscal 2019. In the near term, we remain on track to achieve our previously stated goal of double-digit revenue growth for the year. Going forward, we’re continuing to position ourselves effectively for the long term through new initiatives like our recently launched OTOZ Mobility Innovation Lab, which will allow us to expand reach of our existing platform into new growth opportunities.”

Sales Outlook
“We are continuing to generate a healthy mix of business opportunities, through both implementation execution and up-selling to our current client base as well as by expanding on our already-robust international pipeline,” added President and Head of Sales Naeem Ghauri. “NFS Ascent continues to be the main growth driver for our core operations, and we’re seeing great interest in upgrades from existing clients as well as RFPs from potential new clients.

“With the recent launch of our OTOZ Innovation Lab, there has been an incredibly strong response from the market, particularly around the platform’s capabilities in blockchain and artificial intelligence. As mobility becomes redefined, our industry is entering a period of significant evolution and also disruption. New, emerging models for car and ride sharing, where these technologies of the future should play a central role, will help define the leading solutions going forward. With Ascent and OTOZ together, NETSOL has established two major platforms that have the ability to address and leverage these new models for many years to come.”

Conference Call
NETSOL Technologies management will hold a conference call today (May 14, 2019) at 11:00 a.m. Eastern time (8:00 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 2:00 p.m. Eastern time on the same day through May 28, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13689882

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 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
Gateway Investor Relations
949-574-3860
investors@netsoltech.com

    NETSOL Technologies, Inc. and Subsidiaries
    Schedule 1: Consolidated Balance Sheets
           
       As of March 31,    As of June 30,
  ASSETS    2019         2018   
Current assets:      
  Cash and cash equivalents $   17,014,590     $   22,088,853  
  Accounts receivable, net of allowance of $373,329  and $610,061      15,971,676         12,775,461  
  Accounts receivable, net - related party     3,012,133         3,374,272  
  Revenues in excess of billings     13,381,205         14,285,778  
  Revenues in excess of billings - related party     61,822         -  
  Convertible note receivable - related party     3,250,000         2,123,500  
  Other current assets     3,593,057         2,703,032  
    Total current assets     56,284,483         57,350,896  
Revenues in excess of billings, net - long term     -         1,206,669  
Property and equipment, net     14,374,262         16,165,491  
Long term investment     2,501,299         3,217,162  
Other assets     23,994         70,299  
Intangible assets, net     9,042,726         12,247,196  
Goodwill     9,516,568         9,516,568  
    Total assets $   91,743,332     $   99,774,281  
           
  LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
  Accounts payable and accrued expenses $   6,881,435     $   7,873,809  
  Current portion of loans and obligations under capitalized leases     8,111,332         8,595,919  
  Unearned revenues     6,241,741         5,949,581  
  Common stock to be issued     88,324         88,324  
    Total current liabilities     21,322,832         22,507,633  
Loans and obligations under capitalized leases; less current maturities     716,563         330,596  
    Total liabilities     22,039,395         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;      
    11,879,056 shares issued and 11,673,203 outstanding as of March 31, 2019 and     
    11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018     118,791         117,085  
  Additional paid-in-capital     127,551,606         126,479,147  
  Treasury stock (At cost, 205,853 shares and 205,853 shares      
   as of March 31, 2019 and June 30, 2018, respectively)     (1,205,024 )       (1,205,024 )
  Accumulated deficit     (38,704,519 )       (37,994,502 )
  Stock subscription receivable     (221,000 )       (221,000 )
  Other comprehensive loss     (28,474,832 )       (24,386,071 )
    Total NetSol stockholders' equity     59,065,022         62,789,635  
  Non-controlling interest     10,638,915         14,146,417  
    Total stockholders' equity     69,703,937         76,936,052  
    Total liabilities and stockholders' equity $   91,743,332     $   99,774,281  
           

 

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, 
        2019       2018       2019       2018  
Net Revenues:              
  License fees $   2,536,320     $   2,648,870     $   13,310,002     $   3,210,868  
  Maintenance fees     3,562,412         3,659,998         10,735,432         10,702,171  
  Services     10,519,219         9,345,210         25,175,187         25,450,138  
  License fees - related party     -         -         -         261,513  
  Maintenance fees - related party     142,344         105,325         370,723         309,539  
  Services - related party     366,760         1,284,417         934,883         4,374,802  
     Total net revenues      17,127,055         17,043,820         50,526,227         44,309,031  
                   
Cost of revenues:              
   Salaries and consultants      4,833,611         5,418,067         14,351,227         16,244,319  
   Travel      1,793,964         425,060         4,652,143         1,226,073  
   Depreciation and amortization      874,654         1,127,077         2,692,306         3,468,293  
   Other      1,067,506         880,897         3,176,602         2,677,465  
    Total cost of revenues     8,569,735         7,851,101         24,872,278         23,616,150  
                   
Gross profit     8,557,320         9,192,719         25,653,949         20,692,881  
                   
Operating expenses:              
  Selling and marketing     1,864,990         1,962,402         5,614,619         5,605,838  
  Depreciation and amortization     252,442         231,308         658,453         699,966  
  General and administrative     3,833,209         4,048,271         12,241,988         11,862,535  
  Research and development cost     513,770         197,643         1,256,577         572,619  
    Total operating expenses     6,464,411         6,439,624         19,771,637         18,740,958  
                   
Income (loss) from operations     2,092,909         2,753,095         5,882,312         1,951,923  
                   
Other income and (expenses)              
  Gain (loss) on sale of assets     16,380         40,537         65,170         24,468  
  Interest expense     (70,447 )       (102,522 )       (233,685 )       (330,268 )
  Interest income     201,084         142,356         680,469         394,837  
  Gain on foreign currency exchange transactions     47,218         2,550,394         2,594,885         5,304,723  
  Share of net loss from equity investment     (245,389 )       (263,678 )       (843,373 )       (534,576 )
  Other income      3,116         314         12,998         15,924  
    Total other income (expenses)     (48,038 )       2,367,401         2,276,464         4,875,108  
                   
Net income before   income taxes     2,044,871         5,120,496         8,158,776         6,827,031  
Income tax provision     (275,476 )       (261,182 )       (777,262 )       (486,980 )
Net income       1,769,395         4,859,314         7,381,514         6,340,051  
  Non-controlling interest     (501,835 )       (1,994,869 )       (2,295,736 )       (3,210,683 )
Net income attributable to NetSol $   1,267,560     $   2,864,445     $   5,085,778     $   3,129,368  
                   
                   
                   
Net income (loss) per share:              
  Net income (loss) per common share              
    Basic $   0.11     $   0.26     $   0.44     $   0.28  
    Diluted $   0.11     $   0.25     $   0.44     $   0.28  
                   
Weighted average number of shares outstanding              
  Basic     11,656,098         11,190,048         11,580,066         11,118,529  
  Diluted     11,691,342         11,268,842         11,615,310         11,152,365  
                   

 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows
               
         For the Nine Months   
         Ended March 31,   
          2019       2018    
  Cash flows from operating activities:          
   Net income  $   7,381,514     $   6,340,051    
   Adjustments to reconcile net income         
     to net cash provided by (used in) operating activities:         
   Depreciation and amortization      3,350,759         4,168,259    
   Share of net loss from investment under equity method      843,373         534,576    
   Gain on sale of assets      (65,170 )       (24,468 )  
   Stock based compensation      980,682         1,281,763    
   Fair market value of stock options      43,612         -    
    Changes in operating assets and liabilities:          
       Accounts receivable      (4,249,540 )       (17,848,921 )  
       Accounts receivable - related party      (461,435 )       (2,634,063 )  
       Revenues in excess of billing      (6,862,451 )       5,904,161    
       Revenues in excess of billing - related party      (97,359 )       (85,743 )  
       Other current assets      (1,189,909 )       (796,126 )  
       Accounts payable and accrued expenses      (540,615 )       1,139,509    
       Unearned revenue      611,157         4,273,007    
    Net cash provided by (used in) operating activities       (255,382 )       2,252,005    
               
  Cash flows from investing activities:          
   Purchases of property and equipment      (2,590,302 )       (1,107,732 )  
   Sales of property and equipment      1,005,214         348,762    
   Convertible note receivable - related party      (1,126,500 )       (550,000 )  
   Investment in WRLD3D      -         (50,000 )  
   Purchase of subsidiary shares from open market      -         (33,987 )  
    Net cash used in investing activities       (2,711,588 )       (1,392,957 )  
               
  Cash flows from financing activities:          
   Proceeds from the exercise of stock options and warrants      85,000         215,311    
   Proceeds from exercise of subsidiary options          2,650         10,349    
   Restricted cash      -         90,000    
   Purchase of treasury stock      -         (750,714 )  
   Dividend paid by subsidiary to non-controlling interest      (566,465 )       (417,853 )  
   Proceeds from bank loans      1,337,092         696,936    
   Payments on capital lease obligations and loans - net      (298,610 )       (961,901 )  
    Net cash provided by (used in) financing activities       559,667         (1,117,872 )  
  Effect of exchange rate changes       (2,666,960 )       (1,202,147 )  
  Net decrease in cash and cash equivalents       (5,074,263 )       (1,460,971 )  
 Cash and cash equivalents at beginning of the period      22,088,853         14,172,954    
  Cash and cash equivalents at end of period   $   17,014,590     $   12,711,983    
               


NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP
                 
  Three Months   Three Months   Nine Months   Nine Months  
  Ended   Ended   Ended   Ended  
  March 31, 2019   March 31, 2018   March 31, 2019   March 31, 2018  
                 
                 
 Net Income (loss) before preferred dividend, per GAAP  $   1,267,560     $   2,864,445     $   5,085,778     $   3,129,368    
 Non-controlling interest      501,835         1,994,869         2,295,736         3,210,683    
 Income taxes      275,476         261,182         777,262         486,980    
 Depreciation and amortization      1,127,096         1,358,385         3,350,759         4,168,259    
 Interest expense      70,447         102,522         233,685         330,268    
 Interest (income)      (201,084 )       (142,356 )       (680,469 )       (394,837 )  
 EBITDA  $   3,041,330     $   6,439,047     $   11,062,751     $   10,930,721    
 Add back:                 
 Non-cash stock-based compensation      154,551         448,233     -     1,024,294         1,281,763    
 Adjusted EBITDA, gross  $   3,195,881     $   6,887,280     $   12,087,045     $   12,212,484    
 Less non-controlling interest (a)      (959,955 )       (2,540,702 )       (3,600,485 )       (4,804,869 )  
 Adjusted EBITDA, net  $   2,235,926     $   4,346,578     $   8,486,560     $   7,407,615    
                 
                 
 Weighted Average number of shares outstanding                 
 Basic      11,656,098         11,190,048         11,580,066         11,118,529    
 Diluted      11,691,342         11,268,842         11,615,310         11,152,365    
                 
 Basic adjusted EBITDA  $   0.19     $   0.39     $   0.73     $   0.67    
 Diluted adjusted EBITDA  $   0.19     $   0.39     $   0.73     $   0.66    
                 
                 
(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 $   501,835     $   1,994,869     $   2,295,736     $   3,210,683    
 Income Taxes      109,957         65,798         251,321         106,221    
 Depreciation and amortization      360,071         449,828         1,064,203         1,382,148    
 Interest expense      22,173         31,865         75,082         105,400    
 Interest (income)      (43,905 )       (43,702 )       (165,020 )       (125,777 )  
 EBITDA  $   950,131     $   2,498,658     $   3,521,322     $   4,678,675    
 Add back:                 
 Non-cash stock-based compensation      9,824         42,044         79,163         126,194    
 Adjusted EBITDA of non-controlling interest  $   959,955     $   2,540,702     $   3,600,485     $   4,804,869    
                 

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