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NETSOL Technologies Reports Fiscal First Quarter 2020 Financial Results

Company Positions Itself for Next Phase of Growth Through New Pricing Options for Core Business,
Renewed Focus in European and U.S. Markets, and Increased R&D and Collaboration Efforts within OTOZ Mobility Innovation Lab

CALABASAS, Calif., Nov. 12, 2019 (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, 2019.

Fiscal First Quarter 2020 and Recent Operational Highlights

  • 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 in Singapore, Malaysia, Hong Kong, India and Thailand.

  • Successfully implemented and launched NFS Ascent Wholesale platform with European tier-one global auto captive in China as part of $30 million contract signed in September 2018.

  • Announced the official Go-Live with mCollector application for a top tier multi-finance company in Indonesia as part of a larger contract originally signed in 2018.

  • Introduced Software-as-a-Service (SaaS) subscription-based pricing for new and existing customers as an alternative to the traditional license model, which is now available for all cloud-based NETSOL products and services globally, including NETSOL’s flagship offering NFS Ascent.

  • Secured a multi-million-dollar contract with a large independent used vehicle finance company in the UK for the implementation of the NFS Ascent Wholesale Finance Platform.

  • Successfully implemented NFS Ascent Retail Platform, including Omni-Point of Sale (Omni-POS) and CMS, for a major American auto captive in China, as part of a previously announced multi-million-dollar contract.

  • Acquired the remaining 49% stake of Virtual Lease Services (VLS), a UK-based portfolio and risk management servicing partner for business and consumer finance providers, after initially acquiring a 51% majority stake in VLS through a joint venture partnership with Investec in 2011.

  • Generated nearly $1.0 million by successfully implementing change requests from various customers across multiple regions.

  • OTOZ Mobility Innovation Lab initiated multiple engagements, and is in active discussions, with a number of current and potential NETSOL customers to provide proof-of-concepts for a variety of use cases related to new vehicle ownership models.

Fiscal First Quarter 2020 Financial Results
Total net revenues for the first quarter of fiscal 2020 were $13.6 million, compared with $16.4 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total license fees of $3.3 million and a decrease in services revenues of $199,000, which was offset by an increase in total maintenance fees of $652,000.

  • Total license fees were $2.7 million, compared with $6.0 million in the prior year period.

  • Total maintenance fees were $4.4 million, compared with $3.7 million in the prior year period.

  • Total services revenues were $6.5 million, compared with $6.7 million in the prior year period.

Gross profit for the first quarter of fiscal 2020 was $6.1 million (or 45.0% of net revenues), compared to $8.2 million (or 50.2% of net revenues) in the first quarter of fiscal 2019. The decreases in gross profit and gross profit as a percentage of revenue were primarily due to decreases in revenue by an amount that was greater than the related decreases in cost of revenues, respectively. The decrease in cost of revenues was predominantly driven by decreases in salaries and consultants’ costs, lower depreciation and amortization and other expenses, which were offset by an increase in travel expenses.

Operating expenses for the first quarter of fiscal 2020 decreased 1.5% to $6.5 million (or 48.2% of net revenues) from $6.6 million (or 40.5% of net revenues) for the first quarter of fiscal 2019. The decrease in operating expenses was primarily due to a decrease in general and administrative expenses, which was offset by an increase in sales and marketing and research and development expenses.

GAAP net loss attributable to NETSOL for the first quarter of fiscal 2020 totaled $(1.8) million or $(0.16) per diluted share, compared with GAAP net income of $963,000 or $0.08 per diluted share in the first quarter of fiscal 2019. GAAP net loss attributable to NETSOL included a $1.8 million loss on foreign currency exchange transactions in the first quarter of fiscal 2020, which was a significant increase compared with a gain of $11,000 in the prior year period.

Non-GAAP adjusted EBITDA loss for the first quarter of fiscal 2020 totaled $(1.1) million or $(0.09) per diluted share, compared with non-GAAP adjusted EBITDA of $2.2 million or $0.19 per diluted share in the first quarter of fiscal 2019 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At September 30, 2019, cash and cash equivalents were $17.6 million, an increase from $17.4 million at June 30, 2019.

Management Commentary
"We began the fiscal year where we left off at the end – in the middle of a decisive transition – as we work to build our business for its next phase of growth," said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “As the first major step in that process, we are now offering subscription-based pricing to serve as an alternative to the traditional license model, which should help us to build more consistent revenue streams into the future and also remove significant up-front costs for potential customers. With our renewed focus in both Europe and the U.S. markets, we expect to generate additional business from our flagship Ascent platform, now available in these regions for the first time and in our new, customer-friendly SaaS format. Going forward, despite the results from the quarter, the state of our core business remains strong. We have several significant Go-Live events on the horizon, which gives us a high degree of confidence in our ability to achieve strong operating results throughout the course of fiscal 2020.”

Sales Outlook
"While our overall pipeline remains strong, the Company’s sales outlook remains under pressure due to a slowdown in the general finance and leasing industry as well as additional headwinds from the U.S. and China trade discussions and their effect on the overall auto industry,” added Global Head of Sales and Managing Director for NETSOL Technologies Europe Asad Ghauri. “Despite these macroeconomic factors, we remain confident in our prospects for the second half of the fiscal year and are anticipating sequential customer growth throughout the balance of the fiscal 2020. Our new SaaS-based pricing model has attracted a lot of potential interest, and our sales team is engaged in multiple, exploratory discussions, which have real potential for closing within a second half timeframe.

“In our European operations we’ve seen a steady buildup of sales activity, culminating in the first win for Ascent in the region with one of the largest auction houses in the U.K. In support of our European growth efforts, we’ve also made some major additions to our leadership team, information for which will be provided in the coming weeks. In North America, we are also witnessing excellent initial interest and potential adoption of Ascent, both from new customers and existing customers looking to upgrade to from our legacy LeasePak offering.”

OTOZ Update
OTOZ President and CEO Naeem Ghauri added: “OTOZ is continuing to attract interest from both existing clients and new prospects, alike. Smart and on-demand mobility have collectively become the fast-emerging paradigm for auto consumption. We are currently in discovery phase talks with three different Tier 1 auto captive finance companies in the U.S., China and Thailand, respectively. More specifically, these blue-chip organizations are asking OTOZ to create tools and technology that will empower them to enter the subscription and car sharing markets with dynamic new offering. We look forward to announcing some these initiatives as they come to fruition in the near future.”

Conference Call
NETSOL Technologies management will hold a conference call today (November 12, 2019) at 9 a.m. Eastern time (6 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 November 26, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13696121

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 more than 1,300 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
1-949-574-3860
investors@netsoltech.com

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

As of September 30,

As of June 30,

ASSETS

2019

2019

Current assets:

Cash and cash equivalents

$

17,621,379

$

17,366,364

Accounts receivable, net of allowance of $160,396 and $192,786

8,079,537

12,332,714

Accounts receivable, net of allowance of $172,485 and $166,075 - related party

3,225,787

3,266,600

Revenues in excess of billings, net of allowance of $220,820 and $194,684

16,345,384

14,719,047

Revenues in excess of billings - related party

48,145

110,827

Convertible note receivable - related party

4,085,000

3,650,000

Other current assets

3,351,698

3,146,264

Total current assets

52,756,930

54,591,816

Revenues in excess of billings, net - long term

1,246,660

1,281,492

Property and equipment, net

12,478,841

12,096,855

Right-of-use assets - operating leases

2,734,762

-

Long term investment

2,460,870

2,653,769

Other assets

25,329

23,569

Intangible assets, net

7,159,422

7,332,950

Goodwill

9,516,568

9,516,568

Total assets

$

88,379,382

$

87,497,019

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

7,377,985

$

7,476,560

Current portion of loans and obligations under finance leases

7,097,025

6,905,597

Current portion of operating lease obligations

920,115

-

Unearned revenues

4,424,652

5,977,736

Common stock to be issued

88,324

88,324

Total current liabilities

19,908,101

20,448,217

Loans and obligations under finance leases; less current maturities

493,403

564,572

Operating lease obligations; less current maturities

1,912,804

-

Total liabilities

22,314,308

21,012,789

Commitments and contingencies

Stockholders' equity:

Preferred stock, $.01 par value; 500,000 shares authorized;

-

-

Common stock, $.01 par value; 14,500,000 shares authorized;

11,972,109 shares issued and 11,724,606 outstanding as of September 30, 2019 and

11,911,742 shares issued and 11,664,239 outstanding as of June 30, 2019

119,721

119,117

Additional paid-in-capital

128,052,079

127,737,999

Treasury stock (At cost, 247,503 shares and 247,503 shares

as of September 30, 2019 and June 30, 2019, respectively)

(1,455,969

)

(1,455,969

)

Accumulated deficit

(37,034,845

)

(35,206,898

)

Other comprehensive loss

(32,221,661

)

(33,125,006

)

Total NetSol stockholders' equity

57,459,325

58,069,243

Non-controlling interest

8,605,749

8,414,987

Total stockholders' equity

66,065,074

66,484,230

Total liabilities and stockholders' equity

$

88,379,382

$

87,497,019

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

For the Three Months

Ended September 30,

2019

2018

Net Revenues:

License fees

$

2,679,145

$

5,956,113

Maintenance fees

4,391,447

3,739,676

Services

6,418,891

6,470,625

Services - related party

82,933

230,131

Total net revenues

13,572,416

16,396,545

Cost of revenues:

Salaries and consultants

4,454,964

5,020,562

Travel

1,342,635

1,151,997

Depreciation and amortization

719,665

937,604

Other

944,524

1,048,324

Total cost of revenues

7,461,788

8,158,487

Gross profit

6,110,628

8,238,058

Operating expenses:

Selling and marketing

1,743,868

1,701,326

Depreciation and amortization

202,387

212,232

General and administrative

3,918,613

4,406,720

Research and development cost

672,970

318,155

Total operating expenses

6,537,838

6,638,433

Income (loss) from operations

(427,210

)

1,599,625

Other income and (expenses)

Gain (loss) on sale of assets

(289

)

52,294

Interest expense

(63,663

)

(99,434

)

Interest income

399,229

248,964

Gain (loss) on foreign currency exchange transactions

(1,760,190

)

10,912

Share of net loss from equity investment

(189,224

)

(299,691

)

Other income

18,326

5,379

Total other income (expenses)

(1,595,811

)

(81,576

)

Net income (loss) before income taxes

(2,023,021

)

1,518,049

Income tax provision

(238,238

)

(236,914

)

Net income (loss)

(2,261,259

)

1,281,135

Non-controlling interest

433,312

(318,546

)

Net income (loss) attributable to NetSol

$

(1,827,947

)

$

962,589

Net income (loss) per share:

Net income (loss) per common share

Basic

$

(0.16

)

$

0.08

Diluted

$

(0.16

)

$

0.08

Weighted average number of shares outstanding

Basic

11,664,239

11,502,616

Diluted

11,664,239

11,507,730

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

For the Three Months

Ended September 30,

2019

2018

Cash flows from operating activities:

Net income (loss)

$

(2,261,259

)

$

1,281,135

Adjustments to reconcile net income (loss)

to net cash provided by (used in) operating activities:

Depreciation and amortization

922,052

1,149,836

Provision for bad debts

(38,621

)

-

Share of net loss from investment under equity method

189,224

299,691

(Gain) loss on sale of assets

289

(52,294

)

Stock based compensation

164,293

432,048

Changes in operating assets and liabilities:

Accounts receivable

4,836,183

5,136,381

Accounts receivable - related party

46,016

284,869

Revenues in excess of billing

(1,870,517

)

(6,347,196

)

Revenues in excess of billing - related party

66,330

(70,102

)

Other current assets

(278,677

)

(571,246

)

Accounts payable and accrued expenses

122,012

(680,147

)

Unearned revenue

(1,631,245

)

(1,202,420

)

Unearned revenue - related party

Net cash provided by (used in) operating activities

266,080

(339,445

)

Cash flows from investing activities:

Purchases of property and equipment

(321,125

)

(563,413

)

Sales of property and equipment

958

184,032

Convertible note receivable - related party

(435,000

)

(758,000

)

Net cash used in investing activities

(755,167

)

(1,137,381

)

Cash flows from financing activities:

Proceeds from exercise of subsidiary options

11,621

2,650

Proceeds from bank loans

-

119,895

Payments on finance lease obligations and loans - net

(147,376

)

(179,237

)

Net cash used in financing activities

(135,755

)

(56,692

)

Effect of exchange rate changes

879,857

(119,591

)

Net increase (decrease) in cash and cash equivalents

255,015

(1,653,109

)

Cash and cash equivalents at beginning of the period

17,366,364

22,088,853

Cash and cash equivalents at end of period

$

17,621,379

$

20,435,744

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

Three Months

Three Months

Ended

Ended

September 30, 2019

September 30, 2018

Net Income (loss) attributable to NetSol

$

(1,827,947

)

$

962,589

Non-controlling interest

(433,312

)

318,546

Income taxes

238,238

236,914

Depreciation and amortization

922,052

1,149,836

Interest expense

63,663

99,434

Interest (income)

(399,229

)

(248,964

)

EBITDA

$

(1,436,535

)

$

2,518,355

Add back:

Non-cash stock-based compensation

164,293

432,048

Adjusted EBITDA, gross

$

(1,272,242

)

$

2,950,403

Less non-controlling interest (a)

191,235

(752,669

)

Adjusted EBITDA, net

$

(1,081,007

)

$

2,197,734

Weighted Average number of shares outstanding

Basic

11,664,239

11,502,616

Diluted

11,664,239

11,507,730

Basic adjusted EBITDA

$

(0.09

)

$

0.19

Diluted adjusted EBITDA

$

(0.09

)

$

0.19

(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

$

(433,312

)

$

318,546

Income Taxes

53,335

70,543

Depreciation and amortization

259,635

365,854

Interest expense

19,041

32,690

Interest (income)

(105,501

)

(66,868

)

EBITDA

$

(206,802

)

$

720,765

Add back:

Non-cash stock-based compensation

15,567

31,904

Adjusted EBITDA of non-controlling interest

$

(191,235

)

$

752,669