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NETSOL Technologies Reports Fiscal Fourth Quarter and Full Year 2019 Financial Results

Double-Digit Topline Growth Drives Record Revenue, Combined with Increased Operational Leverage and Enhanced Cost Structures, Leads to Record $6.8 Million in Operating Income, an Increase of 124%, and Record Earnings Per Share of $0.74

CALABASAS, Calif., Sept. 23, 2019 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (NASDAQ: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal fourth quarter and full year ended June 30, 2019.

Fiscal 2019 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 (WFS) in Japan.

    • Successfully implemented NFS Ascent Contract Management System (CMS) in South Africa, a new market.

    • Made continued progress with respect to additional NFS Ascent implementations in Singapore, Malaysia, Hong Kong, India and Thailand.

  • Continued to make 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.

  • 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.

  • 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.

  • 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.

  • 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.

Fiscal Fourth Quarter 2019 Financial Results
Total net revenues for the fourth quarter of fiscal 2019 were $17.3 million, compared with $16.6 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $71,000 and an increase in total maintenance fees of $626,000, which was offset by a decrease in total services revenues of $26,000.

  • Total license fees were $3.5 million, compared with $3.4 million in the prior year period.

  • Total maintenance fees were $4.4 million, compared with $3.8 million in the prior year period.

  • Total services revenues were $9.4 million, compared with $9.4 million in the prior year period.

Gross profit for the fourth quarter of fiscal 2019 was $8.8 million (or 50.8% of net revenues), compared to $8.5 million (or 51.2% of net revenues) in the fourth quarter of fiscal 2018. The decrease in gross profit as a percentage of net revenues was primarily due to an increase in cost of revenues of $394,000. 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. 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 $672,000.

Operating expenses for the fourth quarter of fiscal 2019 increased 5.9% to $7.8 million (or 45.4% of net revenues) from $7.4 million (or 44.6% of net revenues) for the fourth quarter of fiscal 2018. The increase in operating expenses was primarily due to an increase in research and development costs.

GAAP net income attributable to NETSOL for the fourth quarter of fiscal 2019 totaled $3.5 million or $0.30 per diluted share, an improvement from net income of $1.2 million or $0.10 per diluted share in the fourth quarter of fiscal 2018.

Non-GAAP adjusted EBITDA for the fourth quarter of fiscal 2019 totaled $4.4 million or $0.38 per diluted share, an improvement from $2.9 million or $0.26 per diluted share in the fourth quarter of fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At June 30, 2019, cash and cash equivalents were $17.4 million, a decrease from $22.1 million at June 30, 2018.

Full Year Fiscal 2019 Financial Results
Total net revenues for fiscal 2019 were $67.8 million, compared to $60.9 million in fiscal 2018. The increase in total net revenues was primarily due to an increase in total license fees of $9.9 million and an increase in total maintenance revenues of $721,000, which was offset by a decrease in total service fees of $3.7 million.

  • Total license fees were $16.8 million, compared with $6.9 million in the prior fiscal year.

  • Total maintenance fees were $15.5 million, compared with $14.8 million in the prior fiscal year.

  • Total services revenues were $35.5 million, compared with $39.3 million in the prior fiscal year.

Gross profit for fiscal 2019 increased to $34.4 million (or 50.8% of net revenues) from $29.2 million (or 47.9% of net revenues) for fiscal 2018. The increase in gross profit as a percentage of net revenues was primarily due to a greater rate of increase in total net revenues when compared to the increase in costs to support those revenues.

Operating expenses for fiscal 2019 increased to $27.6 million (or 40.7% of net revenues) from $26.2 million (or 42.9% of net revenues) for fiscal 2018. The increase in operating expenses was primarily due to increases in selling and marketing expenses, salaries and wages and research and development cost.

GAAP net income attributable to NETSOL for fiscal 2019 totaled $8.6 million or $0.74 per diluted share, an improvement from net income of $4.3 million or $0.38 per diluted share for fiscal 2018.

Non-GAAP adjusted EBITDA for fiscal 2019 totaled $12.9 million or $1.11 per diluted share, compared with $10.3 million or $0.92 per diluted share in fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

Stock Repurchase Program
On May 29, 2019, NETSOL’s board of directors approved a stock repurchase program that authorized potential repurchases of up to $5 million of its common stock over a subsequent twelve-month period. The planned repurchase program will occur in two six-month phases. The first phase allows for execution of up to $2.5 million in share repurchases during an initial six-month period beginning on May 30, 2019 and expiring on November 30, 2019. After the date of initial expiration, management will have the option to approve a secondary phase, which will cover up to $2.5 million in additional share repurchases for another six-month period. During the quarter, the company has repurchased 41,650 shares of its common stock at an aggregate value of $250,945.

Under the program, the company may repurchase its common stock in the open market from time-to-time, in amounts, at prices, and at such times as the company deems appropriate, subject to market conditions and federal and state laws governing such transactions. NETSOL expects to fund the repurchase with its existing cash balance and cash generated from operations.

Management Commentary
"Fiscal 2019 was characterized by the same, consistent financial and operational execution we’ve been generating for some time now," said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. "More specifically, we achieved our goal of double-digit topline growth, which led to record annual revenues. Even more encouraging has been our ability to retain a meaningful amount of the year-over-year improvement. Our annual operating income of $6.8 million was another record for NETSOL and an increase of 124% compared to last year. Additionally, we nearly doubled our earnings on a per share basis to $0.74, which was also our seventh consecutive quarter of profitability.

“Operationally, throughout the year we continued to win new contracts with businesses of all sizes and also announced a number of Go-Live implementations with some of our major international customers. While we continue to believe in the long-term growth opportunity provided by our next generation solution NFS Ascent, we are continuing to look for ways to augment that growth with additional, more consistent revenue streams. Going forward, our growth strategy in fiscal 2020 and beyond will take a three-pronged approach: continued focus on our core business and flagship offering with planned expansion into additional growth markets such as the US and Europe; additional energy and resources devoted to strategic partnerships and innovation-centric efforts outside our core operations, such as our OTOZ Mobility Lab; pursuing highly synergistic inorganic growth opportunities where it makes absolute sense in aiding our existing operations. We believe this new, diversified strategy will allow us to enhance our existing business while also future-proofing NETSOL in the rapidly changing auto leasing and asset financing landscape.”

Sales Outlook
“We are engaged in a number of exciting new opportunities to implement Ascent with both existing clients as well as new prospects,” added President, Head of Sales and CEO OTOZ Naeem Ghauri. “Ascent remains the first in its class platform for auto finance and leasing companies as demand for cutting-edge solutions continues to be robust.”

Conference Call
NETSOL Technologies management will hold a conference call today (September 23, 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 October 7, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13694239

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 June 30,

As of June 30,

ASSETS

2019

2018

Current assets:

Cash and cash equivalents

$

17,366,364

$

22,088,853

Accounts receivable, net of allowance of $192,786 and $610,061

12,332,714

12,775,461

Accounts receivable, net of allowance of $166,075 and $0 - related party

3,266,600

3,374,272

Revenues in excess of billings, net of allowance of $194,684 and $0

14,719,047

14,285,778

Revenues in excess of billings - related party

110,827

-

Convertible note receivable - related party

3,650,000

2,123,500

Other current assets

3,146,264

2,703,032

Total current assets

54,591,816

57,350,896

Revenues in excess of billings, net - long term

1,281,492

1,206,669

Property and equipment, net

12,096,855

16,165,491

Long term investment

2,653,769

3,217,162

Other assets

23,569

70,299

Intangible assets, net

7,332,950

12,247,196

Goodwill

9,516,568

9,516,568

Total assets

$

87,497,019

$

99,774,281

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

7,476,560

$

7,873,809

Current portion of loans and obligations under capitalized leases

6,905,597

8,595,919

Unearned revenues

5,977,736

5,949,581

Common stock to be issued

88,324

88,324

Total current liabilities

20,448,217

22,507,633

Loans and obligations under capitalized leases; less current maturities

564,572

330,596

Total liabilities

21,012,789

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;

11,911,742 shares issued and 11,664,239 outstanding as of June 30, 2019 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018

119,117

117,085

Additional paid-in-capital

127,737,999

126,479,147

Treasury stock (At cost, 247,503 shares and 205,853 shares as of June 30, 2019 and June 30, 2018, respectively)

(1,455,969

)

(1,205,024

)

Accumulated deficit

(35,206,898

)

(37,994,502

)

Stock subscription receivable

-

(221,000

)

Other comprehensive loss

(33,125,006

)

(24,386,071

)

Total NetSol stockholders' equity

58,069,243

62,789,635

Non-controlling interest

8,414,987

14,146,417

Total stockholders' equity

66,484,230

76,936,052

Total liabilities and stockholders' equity

$

87,497,019

$

99,774,281



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

For the Years

Ended June 30,

2019

2018

Net Revenues:

License fees

$

16,768,749

$

6,598,254

Maintenance fees

15,010,171

14,382,309

Services

34,185,992

33,611,982

License fees - related party

-

261,513

Maintenance fees - related party

511,242

418,444

Services - related party

1,343,029

5,657,756

Total net revenues

67,819,183

60,930,258

Cost of revenues:

Salaries and consultants

19,253,364

21,856,162

Travel

6,527,868

1,775,327

Depreciation and amortization

3,525,857

4,610,737

Other

4,066,443

3,481,115

Total cost of revenues

33,373,532

31,723,341

Gross profit

34,445,651

29,206,917

Operating expenses:

Selling and marketing

7,831,758

7,620,476

Depreciation and amortization

897,800

962,737

General and administrative

16,916,953

16,714,797

Research and development cost

1,971,228

853,996

Total operating expenses

27,617,739

26,152,006

Income (loss) from operations

6,827,912

3,054,911

Other income and (expenses)

Gain (loss) on sale of assets

81,455

7,594

Interest expense

(311,798

)

(422,327

)

Interest income

955,061

592,153

Gain on foreign currency exchange transactions

6,345,859

5,010,383

Share of net loss from equity investment

(841,845

)

(262,556

)

Other income

18,680

42,847

Total other income (expenses)

6,247,412

4,968,094

Net income before income taxes

13,075,324

8,023,005

Income tax provision

(1,057,784

)

(873,027

)

Net income

12,017,540

7,149,978

Non-controlling interest

(3,434,141

)

(2,843,090

)

Net income attributable to NetSol

$

8,583,399

$

4,306,888

Net income per share:

Net income per common share

Basic

$

0.74

$

0.38

Diluted

$

0.74

$

0.38

Weighted average number of shares outstanding

Basic

11,599,290

11,197,319

Diluted

11,621,990

11,197,319


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

For the Years

Ended June 30,

2019

2018

Cash flows from operating activities:

Net income

$

12,017,540

$

7,149,978

Adjustments to reconcile net income

to net cash provided by operating activities:

Depreciation and amortization

4,423,657

5,573,474

Provision for bad debts

474,516

460,730

Impairment of assets

-

172,505

Share of net loss from investment under equity method

841,845

262,556

Gain on sale of assets

(80,470

)

(7,594

)

Stock based compensation

1,131,013

1,861,445

Fair market value of stock options

43,612

-

Changes in operating assets and liabilities:

Accounts receivable

(1,836,962

)

(7,735,582

)

Accounts receivable - related party

(977,445

)

(2,735,846

)

Revenues in excess of billing

(10,764,428

)

6,788,580

Revenues in excess of billing - related party

(122,810

)

77,128

Other current assets

(861,128

)

(195,529

)

Accounts payable and accrued expenses

(47,819

)

1,653,778

Unearned revenue

692,089

2,388,699

Net cash provided by operating activities

4,933,210

15,714,322

Cash flows from investing activities:

Purchases of property and equipment

(2,726,558

)

(2,449,449

)

Sales of property and equipment

1,170,878

943,252

Convertible note receivable - related party

(1,526,500

)

(1,923,500

)

Investment in associates

(250,000

)

(230,000

)

Purchase of subsidiary shares

(317,500

)

(33,987

)

Net cash used in investing activities

(3,649,680

)

(3,693,684

)

Cash flows from financing activities:

Proceeds from the exercise of stock options and warrants

85,000

312,311

Proceeds from exercise of subsidiary options

2,650

10,349

Purchase of treasury stock

(250,945

)

(750,714

)

Dividend paid by subsidiary to non-controlling interest

(566,465

)

(417,853

)

Proceeds from bank loans

1,227,158

1,455,250

Payments on capital lease obligations and loans - net

(480,231

)

(1,626,109

)

Net cash provided by (used in) financing activities

17,167

(1,016,766

)

Effect of exchange rate changes

(6,023,186

)

(3,087,973

)

Net increase (decrease) in cash and cash equivalents

(4,722,489

)

7,915,899

Cash and cash equivalents at beginning of the period

22,088,853

14,172,954

Cash and cash equivalents at end of period

$

17,366,364

$

22,088,853



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

Year

Year

Ended

Ended

June 30, 2019

June 30, 2018

Net Income (loss) before preferred dividend, per GAAP

$

8,583,399

$

4,306,888

Non-controlling interest

3,434,141

2,843,090

Income taxes

1,057,784

873,027

Depreciation and amortization

4,423,657

5,573,474

Interest expense

311,798

422,327

Interest (income)

(955,061

)

(592,153

)

EBITDA

$

16,855,718

$

13,426,653

Add back:

Non-cash stock-based compensation

1,174,625

1,861,445

Adjusted EBITDA, gross

$

18,030,343

$

15,288,098

Less non-controlling interest (a)

(5,140,004

)

(4,947,498

)

Adjusted EBITDA, net

$

12,890,339

$

10,340,600

Weighted Average number of shares outstanding

Basic

11,599,290

11,197,319

Diluted

11,621,990

11,197,319

Basic adjusted EBITDA

$

1.11

$

0.92

Diluted adjusted EBITDA

$

1.11

$

0.92

(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

$

3,434,141

$

2,843,090

Income Taxes

351,778

162,419

Depreciation and amortization

1,397,613

1,817,367

Interest expense

99,696

136,445

Interest (income)

(229,802

)

(180,061

)

EBITDA

$

5,053,426

$

4,779,260

Add back:

Non-cash stock-based compensation

86,578

168,238

Adjusted EBITDA of non-controlling interest

$

5,140,004

$

4,947,498