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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