NETSOL Technologies Reports Fiscal Second Quarter 2022 Financial Results

NETSOL Technologies Inc.

Total net revenues up 17.9% to $15.5 million in Q2 FY 2022

Q2 FY 2022 GAAP net income increased to $1.4 million or $0.13 per diluted share

Annual recurring revenue (SaaS and Support) increased to $25.0 million run rate

CALABASAS, Calif., Feb. 14, 2022 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (Nasdaq: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal second quarter ended December 31, 2021.

Fiscal Second Quarter 2022 and Recent Operational Highlights

• Subscription (SaaS and Cloud) and support quarterly revenues increased 64% to $9.4 million.

• Expanded strategic partnership with leading IT and business consulting services firm CGI in Europe; partnership offers NETSOL's premier, next-generation NFS Ascent^® platform to the global finance and leasing industry, supported by CGI's local business consulting, IT integration, and managed service solutions.

• NETSOL’s U.S. based mobility startup Otoz expanded its digital automotive retail platform MINI Anywhere® for BMW® Group Financial Services in the U.S. for its key brand MINI®. MINI Anywhere is now live with 12 MINI dealerships as of December – 11 in California and one in Texas; Otoz is also scheduled to onboard additional California- and Texas-based dealers before an expansion into Florida. Long term, the solution has the potential to be rolled out to over 100 MINI dealerships across all 50 states.

• Attained “Five-Star Premier Business Partner” of the American Financial Services Association (AFSA), supporting the Company’s efforts to gain a deeper and more consistent engagement with both the AFSA team and its member organizations as an industry thought leader.

• Achieved SOC 2 Type 1 compliance, attesting to NETSOL’s ability to protect client data; SOC 2 Type 1 compliance reinforces NETSOL’s commitment to ensuring the security of its clients’ (and their customers’) data and confirms that all system requirements were designed based on the trust services criteria relevant to the security standards set by the American Institute of Certified Public Accountants.
  

Fiscal Second Quarter 2022 Financial Results

Total net revenues for the second quarter of fiscal 2022 were $15.5 million, compared with $13.1 million in the prior year period. The increase in total net revenues was primarily driven by an increase in subscription and support revenues of $3.7 million, slightly offset by a decrease in license fees of $631,000 and total services revenues of $667,000.

• Total license fees were $1.96 million, compared with $2.59 million in the prior year period.

• Total subscription (SaaS and Cloud) and support revenues were $9.4 million, compared with $5.7 million in the prior year period.

• Total services revenues were $4.1 million, compared with $4.8 million in the prior year period.
  

Gross profit for the second quarter of fiscal 2022 increased 26.5% to $7.6 million (or 49.4% of net revenues), compared to $6.0 million (or 46% of net revenues) in the second quarter of fiscal 2021. The increase in gross profit was primarily due to an increase in revenue of $2.4 million, offset by a $751,000 increase in cost of revenues. The increases in cost of sales were primarily due to increases in salaries and consulting costs of $367,000, travel costs of $124,000, depreciation of $15,000, and other costs of $245,000.

Operating expenses for the second quarter of fiscal 2022 were $5.99 million (or 38.7% of sales), compared to $5.96 million (or 45.4% of sales) for the second quarter of fiscal 2021. The increase in operating expenses was primarily due to increases in selling expenses and research and development costs, offset by a decrease in general and administrative expenses.

GAAP net income attributable to NETSOL for the second quarter of fiscal 2022 totaled $1.4 million or $0.13 per diluted share, compared with GAAP net loss of $242,000 or $0.02 per diluted share in the second quarter of fiscal 2021. GAAP net income attributable to NETSOL included a $901,000 gain on foreign currency exchange transactions in the second quarter of fiscal 2022, which was an increase from a gain of $14,000 in the prior year period.

Non-GAAP adjusted EBITDA for the second quarter of fiscal 2022 totaled $2.1 million or $0.19 per diluted share, compared with non-GAAP adjusted EBITDA of $617,000 or $0.05 per diluted share in the second quarter of fiscal 2021 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At December 31, 2021, cash and cash equivalents were $25.6 million, a decrease from $33.7 million at June 30, 2021.

Management Commentary

“Our strong momentum continued in the second quarter, and we remain well on track to achieve our growth targets for fiscal 2022,” said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “Within our core business, the pipeline and mix of opportunities remains robust, particularly in our European and North American growth markets, giving us confidence in our ability to drive additional contract signings over the coming months. Our Otoz Digital Retail Platform, one of our more venture-focused operations, continued to expand through its MINI Anywhere partnership and is now employed by more than 65% of all MINI dealerships in California, with live operations beginning in a second state, Texas, in December; we remain encouraged by the initial response and total opportunity. We are committed to our vision of pushing the boundaries for new ownership and payment models, supporting our customers where they are today and where they want to go in the future, and creating new shareholder value in the process.”

Company CFO Roger Almond added: “Growth in recurring revenues from our subscription and support segment were a key driver of our strong financial performance during the quarter. Importantly, with a larger share of higher margin revenue contributions, our second quarter gross margin increased to nearly 50% of net revenues. We continued to welcome our workforce back across our global footprint during the second quarter, and we expect a return to sales growth with a related increase in expenses to support our increased business activity moving forward. Our cash position remains near record levels, providing the resources to support our core business growth as well as strategic investments in high-return, long-term opportunities, such as the promising work of the Otoz Innovation Lab. With these factors in consideration, we are reiterating our full year revenue outlook of 10% topline growth and 20% subscription revenue growth throughout the balance of the year.”

Conference Call

NETSOL Technologies management will hold a conference call today (February 14, 2022) at 4:15 p.m. Eastern time (1:15 p.m. Pacific time) to discuss these financial results. A question-and-answer session will follow management's presentation.

U.S. Dial-In: 877-407-0789
International Dial-In: 201-689-8562

Please call the conference telephone number 10 minutes prior to the start time. An operator will register your name and organization.

The conference call will be webcast live and available for replay here and via the Investor Relations section of NETSOL’s website.

For interested individuals unable to join the conference call, a dial-in replay of the call will be available until February 28, 2022 and can be accessed by dialing +1-844-512-2921 (U.S. Toll Free) or +1-412-317-6671 (International) and entering replay pin number: 13727026.

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 more than 1300 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 finance and leasing lifecycle.

About Otoz

Otoz, a division of NETSOL Technologies Inc. (Nasdaq: NTWK), provides business-to-business, white-label technology solutions for new mobility. The Otoz suite of agile and customizable mobility solutions ranges from car sharing and subscription products to AI-enabled chatbots, allowing businesses to engage consumers and facilitate the complete transaction lifecycle intelligently and digitally. Otoz technologies empower automotive companies and start-ups to launch digital retailing and new mobility models quickly and efficiently. The technology Otoz has developed is cloud-native and supported by artificial intelligence (AI), machine learning (ML), internet of things (IoT) and blockchain. Otoz technology drives utilization, while supporting robust and efficient operations.

Forward-Looking Statements

This press release may contain forward-looking statements relating to the development of the Company's products and services and future operating results, including statements regarding the Company that are subject to certain risks and uncertainties such as the effect of disparate stay at home orders and social distancing requirements imposed internationally by COVID-19 and its resultant impact on our financials and the world economy 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, as well as the delay in recovery or a prolonged economic downturn that effects our Company, our customers and the world economy. 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:

Dave Gentry
RedChip Companies
407-491-4498
investors@netsoltech.com

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

			As of				As of
	ASSETS		December 31, 2021				June 30, 2021
Current assets:
	Cash and cash equivalents		$	25,587,515			$	33,705,154
	Accounts receivable, net of allowance of $173,589 and $166,231			7,190,759				4,184,096
	Accounts receivable - related party, net of allowance of $1,373,099 and $1,373,099			-				-
	Revenues in excess of billings, net of allowance of $82,042 and $136,976			18,730,022				14,680,131
	Revenues in excess of billings - related party, net of allowance of $8,163 and $8,163			-				-
	Other current assets, net of allowance of $1,243,633 and $1,243,633			2,581,401				3,009,393
		Total current assets		54,089,697				55,578,774
Revenues in excess of billings, net - long term				985,772				957,603
Convertible note receivable - related party, net of allowance of $4,250,000 and $4,250,000				-				-
Property and equipment, net				10,265,385				12,091,812
Right of use of assets - operating leases				1,029,294				1,345,869
Long term investment				2,921,667				3,155,852
Other assets				33,204				55,127
Intangible assets, net				2,657,204				3,904,656
Goodwill				9,516,568				9,516,568
		Total assets	$	81,498,791			$	86,606,261
	LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	6,394,780			$	6,696,035
	Current portion of loans and obligations under finance leases			10,147,993				11,366,171
	Current portion of operating lease obligations			770,559				857,729
	Unearned revenue			3,719,348				4,556,626
		Total current liabilities		21,032,680				23,476,561
Loans and obligations under finance leases; less current maturities				120,277				699,841
Operating lease obligations; less current maturities				319,613				564,257
		Total liabilities		21,472,570				24,740,659
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $.01 par value; 500,000 shares authorized;			-				-
	Common stock, $.01 par value; 14,500,000 shares authorized;
		12,186,070 shares issued and 11,247,039 outstanding as of December 31, 2021 and
		12,181,585 shares issued and 11,265,064 outstanding as of June 30, 2021		121,861				121,816
	Additional paid-in-capital			129,042,021				129,018,826
	Treasury stock (at cost, 939,031 shares and 916,521 shares as of December 31, 2021 and June 30, 2021, respectively)			(3,920,856	)			(3,820,750	)
	Accumulated deficit			(37,206,528	)			(38,801,282	)
	Other comprehensive loss			(34,935,629	)			(31,868,481	)
		Total NetSol stockholders' equity		53,100,869				54,650,129
	Non-controlling interest			6,925,352				7,215,473
		Total stockholders' equity		60,026,221				61,865,602
		Total liabilities and stockholders' equity	$	81,498,791			$	86,606,261

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

			For the Three Months								For the Six Months
			Ended December 31,								Ended December 31,
				2021				2020				2021				2020
Net Revenues:
	License fees		$	1,955,331			$	2,586,504			$	1,966,047			$	2,589,979
	Subscription and support			9,374,869				5,724,802				15,605,258				10,896,665
	Services			4,142,762				4,810,154				11,322,418				12,282,194
		Total net revenues		15,472,962				13,121,460				28,893,723				25,768,838
Cost of revenues:
	Salaries and consultants			5,661,917				5,294,662				11,324,327				9,821,311
	Travel			282,836				159,174				496,968				262,926
	Depreciation and amortization			728,868				713,749				1,494,603				1,420,998
	Other			1,156,754				911,566				2,492,215				1,839,719
		Total cost of revenues		7,830,375				7,079,151				15,808,113				13,344,954
Gross profit				7,642,587				6,042,309				13,085,610				12,423,884
Operating expenses:
	Selling and marketing			1,807,162				1,558,027				3,427,155				3,167,631
	Depreciation and amortization			212,864				221,572				427,135				443,362
	General and administrative			3,733,303				4,065,788				7,706,442				7,493,424
	Research and development cost			235,390				110,419				510,620				196,408
		Total operating expenses		5,988,719				5,955,806				12,071,352				11,300,825
Income from operations				1,653,868				86,503				1,014,258				1,123,059
Other income and (expenses)
	Gain (loss) on sale of assets			(80,125	)			(52,531	)			(190,725	)			(74,273	)
	Interest expense			(90,808	)			(94,241	)			(191,821	)			(197,568	)
	Interest income			316,253				210,854				759,386				411,675
	Gain (loss) on foreign currency exchange transactions			901,016				13,981				2,185,164				310,022
	Share of net loss from equity investment			(79,818	)			(43,685	)			(240,783	)			(151,535	)
	Other income			19,668				45,365				22,697				132,637
		Total other income (expenses)		986,186				79,743				2,343,918				430,958
Net income before income taxes				2,640,054				166,246				3,358,176				1,554,017
Income tax provision				(201,506	)			(245,434	)			(369,133	)			(509,728	)
Net income (loss)				2,438,548				(79,188	)			2,989,043				1,044,289
	Non-controlling interest			(1,031,763	)			(162,916	)			(1,394,289	)			(568,839	)
Net income (loss) attributable to NetSol			$	1,406,785			$	(242,104	)		$	1,594,754			$	475,450
Net income (loss) per share:
	Net income (loss) per common share
		Basic	$	0.13			$	(0.02	)		$	0.14			$	0.04
		Diluted	$	0.13			$	(0.02	)		$	0.14			$	0.04
Weighted average number of shares outstanding
	Basic			11,244,539				11,580,030				11,249,372				11,683,631
	Diluted			11,244,539				11,580,030				11,249,372				11,683,631

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

				For the Six Months
				Ended December 31,
					2021				2020
Cash flows from operating activities:
	Net income			$	2,989,043			$	1,044,289
	Adjustments to reconcile net income to net cash
		provided by (used in) operating activities:
	Depreciation and amortization				1,921,738				1,864,360
	Provision for bad debts				(33,815	)			(175,575	)
	Share of net loss from investment under equity method				240,783				151,535
	Loss on sale of assets				190,725				74,273
	Stock based compensation				28,292				165,164
	Changes in operating assets and liabilities:
		Accounts receivable			(3,243,348	)			5,479,516
		Revenues in excess of billing			(4,741,806	)			4,540,271
		Other current assets			304,464				(252,781	)
		Accounts payable and accrued expenses			56,539				313,869
		Unearned revenue			(749,249	)			(554,077	)
	Net cash provided by (used in) operating activities				(3,036,634	)			12,650,844
Cash flows from investing activities:
	Purchases of property and equipment				(773,953	)			(1,249,895	)
	Sales of property and equipment				201,773				123,194
	Investment in associates				-				(93,000	)
	Net cash used in investing activities				(572,180	)			(1,219,701	)
Cash flows from financing activities:
	Purchase of treasury stock				(100,106	)			(1,392,671	)
	Proceeds from bank loans				188,272				705,338
	Payments on finance lease obligations and loans - net				(715,121	)			(175,352	)
	Net cash used in financing activities				(626,955	)			(862,685	)
Effect of exchange rate changes					(3,881,870	)			1,268,359
Net increase (decrease) in cash and cash equivalents					(8,117,639	)			11,836,817
Cash and cash equivalents at beginning of the period					33,705,154				20,166,830
Cash and cash equivalents at end of period				$	25,587,515			$	32,003,647

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

	For the Three Months Ended				For the Three Months Ended				For the Six months Ended				For the Six months Ended
	December 31, 2021				December 31, 2020				December 31, 2021				December 31, 2020
Net Income (loss) attributable to NetSol	$	1,406,785			$	(242,104	)		$	1,594,754			$	475,450
Non-controlling interest		1,031,763				162,916				1,394,289				568,839
Income taxes		201,506				245,434				369,133				509,728
Depreciation and amortization		941,732				935,321				1,921,738				1,864,360
Interest expense		90,808				94,241				191,821				197,568
Interest (income)		(316,253	)			(210,854	)			(759,386	)			(411,675	)
EBITDA	$	3,356,341			$	984,954			$	4,712,349			$	3,204,270
Add back:
Non-cash stock-based compensation		25,289				74,169				28,292				165,164
Adjusted EBITDA, gross	$	3,381,630			$	1,059,123			$	4,740,641			$	3,369,434
Less non-controlling interest (a)		(1,293,037	)			(441,853	)			(1,881,916	)			(1,140,697	)
Adjusted EBITDA, net	$	2,088,593			$	617,270			$	2,858,725			$	2,228,737
Weighted Average number of shares outstanding
Basic		11,244,539				11,580,030				11,249,372				11,683,631
Diluted		11,244,539				11,580,030				11,249,372				11,683,631
Basic adjusted EBITDA	$	0.19			$	0.05			$	0.25			$	0.19
Diluted adjusted EBITDA	$	0.19			$	0.05			$	0.25			$	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 (loss) attributable to non-controlling interest	$	1,031,763			$	162,916			$	1,394,289			$	568,839
Income Taxes		61,761				44,233				114,427				92,882
Depreciation and amortization		273,822				264,535				561,453				529,100
Interest expense		26,682				28,824				56,082				60,344
Interest (income)		(101,385	)			(67,207	)			(244,729	)			(133,164	)
EBITDA	$	1,292,643			$	433,301			$	1,881,522			$	1,118,001
Add back:
Non-cash stock-based compensation		394				8,552				394				22,696
Adjusted EBITDA of non-controlling interest	$	1,293,037			$	441,853			$	1,881,916			$	1,140,697