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NETSOL Technologies Reports Fiscal First Quarter 2019 Financial Results

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.

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