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NETSOL Technologies Reports Fiscal Third Quarter 2020 Financial Results

Company Continues Operations Uninterrupted; Responds to COVID-19 Challenge with Plan to Realize $5 Million in Annualized Cost Savings

CALABASAS, Calif., May 13, 2020 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (Nasdaq: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal third quarter ended March 31, 2020.

Fiscal Third 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 and anticipates Go Live events in the coming months for the following countries: Singapore and Thailand.
  • Regarding the same contract mentioned above, successfully implemented NETSOL’s full suite NFS Ascent Retail Platform, including its Omni Point of Sale (Omni POS) and Contract Management System (CMS), as well as the Wholesale Finance System (WFS) of its Wholesale Platform, for the same customer in Malaysia.
  • Signed contract with a leading bank in the UK for the implementation of the NFS Ascent Retail platform, including Point of Sale solution and Contract Management System, in the cloud.
  • Went “Live” with NETSOL’s LeaseSoft application for one of the largest independently-owned finance companies in the UK.
  • Otoz entered into a contract with the captive auto finance company of a leading German auto manufacturer in China to launch its pilot car sharing program in China.
  • Successfully delivered Retail system to the Company’s first Ascent customer in North America.
  • Delivered Ascent Retail platform to the captive auto finance company of a notable Japanese equipment manufacturer in Australia and New Zealand.
  • Implemented the i-OPS (i-operations) system with a leading captive finance company of a notable Japanese bank in Indonesia, allowing their call center workforce to contact prospects and act as an additional channel for lead generation.
  • Successfully upsold system enhancements worth approx. $4.0 million during implementation with the captive auto finance company of a leading German Auto manufacturer in China.
  • Generated nearly $2.0 million by providing additional services and change requests for various customers across multiple regions.
  • In response to the economic slowdown caused by the current global pandemic, implemented a series of cost reduction initiatives and temporary salary reductions, which are expected to generate approx. $5 million in annualized savings.

Fiscal Third Quarter 2020 Financial Results
Total net revenues for the third quarter of fiscal 2020 were $13.5 million, compared with $17.1 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total license fees of $2.2 million and a decrease in services revenues of $2.6 million, which was offset by an increase in total maintenance fees of $1.2 million.

  • Total license fees were $312,000, compared with $2.5 million in the prior year period.
  • Total maintenance fees were $4.9 million, compared with $3.7 million in the prior year period.
  • Total services revenues were $8.3 million, compared with $10.9 million in the prior year period.

Gross profit for the third quarter of fiscal 2020 was $6.0 million (or 44.5% of net revenues), compared to $8.6 million (or 50.0% of net revenues) in the third 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 travel, depreciation and amortization and other expenses, which were offset by a slight increase in salaries and consultants’ costs.

Operating expenses for the third quarter of fiscal 2020 decreased 1% to $6.4 million (or 47.3% of net revenues) from $6.5 million (or 37.7% of net revenues) in the third quarter of fiscal 2019. The slight decrease in operating expenses was primarily due to decreases in sales and marketing expenses, depreciation and amortization, and research and development costs, which were offset by an increase in general and administrative expenses.

GAAP net income attributable to NETSOL for the third quarter of fiscal 2020 totaled $1.0 million, or $0.09 per diluted share, compared with GAAP net income of $1.3 million, or $0.11 per diluted share in the third quarter of fiscal 2019. GAAP net income attributable to NETSOL included a $1.8 million gain on foreign currency exchange transactions in the third quarter of fiscal 2020, which was a significant increase compared with a gain of $47,000 in the prior year period.

Non-GAAP adjusted EBITDA for the third quarter of fiscal 2020 totaled $1.8 million, or $0.15 per diluted share, compared with non-GAAP adjusted EBITDA of $2.2 million, or $0.19 per diluted share in the third quarter of fiscal 2019 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At March 31, 2020, cash and cash equivalents were $15.7 million, a decrease from $17.0 million at the end of the prior year quarter.

Management Commentary
"The start of the calendar year has been a challenging time for many, but we are pushing ahead and continuing to operate efficiently in this new-normal environment," said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “Our operations in the fiscal third quarter were meaningfully impacted by the global slowdown occurring in many of the verticals we serve, including the greater leasing, finance and automotive industries. In direct response to this macroeconomic headwind, we’ve made strategic cost reductions in several key areas, which has allowed us to retain our entire workforce and should result in costs savings of $5 million on an annualized basis.

“Additionally, our team has responded capably through this trial, and we’ve been able to operate uninterrupted since transitioning to a remote work environment. Between system enhancements and change requests with existing customers, we were able to generate an additional $2 million in revenue during the period with another $4 million to be recognized in the next few quarters, which is a testament to the commitment and skill of our implementation groups. While COVID-19 has also impacted our ability to travel and meet face-to-face with prospects, our teams are still very busy in conducting virtual demos, presentations and negotiations.

“Looking ahead, while we’re encouraged by the response we’ve seen in our Chinese operations, we also understand that the roadmap for the rest of the world’s re-opening remains opaque at best. We are continuously monitoring all aspects of our global operations to maximize the health and safety of our workforce while balancing our long-term growth initiatives. As a digital-first and SaaS-focused organization, we are also constantly evaluating innovative and flexible ways to manage our cost structures without impacting the delivery and implementations of projects in all markets.”

Sales Outlook
NETSOL President, Global Sales and Otoz CEO Naeem Ghauri added: “Traditionally, the fiscal fourth quarter is our strongest performance period, and we’re currently tracking in this direction with a backloaded end of the year. We expect to see sequentially stronger revenues and EBITDA, allowing us to close out the year on an upward trajectory. With the global economic outlook still uncertain, we are seeing initial signs of recovery and activity picking up. Overall, we are confident in our ability to grow in fiscal 2021.”

Otoz Update
“Otoz is continuing to gain interest and traction from many different types of prospects,” continued Ghauri. “Auto OEMs, finance companies and dealers are all types of businesses that are looking to deploy our technology to increase fleet utilization and provide more flexible auto ownership models during a time when traditional purchasing models are coming under intense pressure. We are witnessing consumer habits undergo a fundamental change in usage behavior. Otoz is extremely well positioned to benefit from this paradigm shift. Based upon cloud native architecture, our technology can be implemented through a SaaS subscription model, allowing for a low-cost entry point to a wider market.”

Conference Call
NETSOL Technologies management will hold a conference call today (May 13, 2020) 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 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 May 27, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13703209

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 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 provides business-to-business, white-label technology solutions for new mobility. Our 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 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. Our 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 operation results, including statements regarding the Company that are subject to certain risks and uncertainties such as the effect of stay at home orders and social distancing imposed 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:

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    As of
ASSETS March 31, 2020   June 30, 2019
Current assets:      
Cash and cash equivalents $ 15,743,328     $ 17,366,364  
Accounts receivable, net of allowance of $364,383 and $192,786   12,900,412       12,332,714  
Accounts receivable, net of allowance of $54,307 and $166,075 - related party   1,332,575       3,266,600  
Revenues in excess of billings, net of allowance of $190,811 and $194,684   15,301,150       14,719,047  
Revenues in excess of billings - related party   8,245       110,827  
Convertible note receivable - related party   4,250,000       3,650,000  
Other current assets   3,593,365       3,146,264  
Total current assets   53,129,075       54,591,816  
Revenues in excess of billings, net - long term   1,282,898       1,281,492  
Property and equipment, net   11,553,814       12,096,855  
Right of use of assets - operating leases   2,690,777       -  
Long term investment   2,329,706       2,653,769  
Other assets   23,066       23,569  
Intangible assets, net   5,880,759       7,332,950  
Goodwill   9,516,568       9,516,568  
Total assets $ 86,406,663     $ 87,497,019  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable and accrued expenses $ 7,107,933     $ 7,476,560  
Current portion of loans and obligations under finance leases   8,794,858       6,905,597  
Current portion of operating lease obligations   1,146,696       -  
Unearned revenues   3,440,663       5,977,736  
Common stock to be issued   88,324       88,324  
Total current liabilities   20,578,474       20,448,217  
Loans and obligations under finance leases; less current maturities   305,702       564,572  
Operating lease obligations; less current maturities   1,635,866       -  
Total liabilities   22,520,042       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;      
12,038,697 shares issued and 11,791,194 outstanding as of March 31, 2020 and    
11,911,742 shares issued and 11,664,239 outstanding as of June 30, 2019   120,387       119,117  
Additional paid-in-capital   128,374,098       127,737,999  
Treasury stock (At cost, 247,503 shares and 247,503 shares      
as of March 31, 2020 and June 30, 2019, respectively)   (1,455,969 )     (1,455,969 )
Accumulated deficit   (35,448,063 )     (35,206,898 )
Other comprehensive loss   (34,065,385 )     (33,125,006 )
      Total NetSol stockholders' equity   57,525,068       58,069,243  
Non-controlling interest   6,361,553       8,414,987  
Total stockholders' equity   63,886,621       66,484,230  
Total liabilities and stockholders' equity $ 86,406,663     $ 87,497,019  
       


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

  For the Three Months   For the Nine Months
  Ended March 31,   Ended March 31,
    2020       2019       2020       2019  
Net Revenues:              
License fees $ 312,133     $ 2,536,320     $ 3,375,241     $ 13,310,002  
Maintenance fees   4,934,635       3,704,756       14,291,959       11,106,155  
Services   8,222,227       10,728,983       24,923,873       25,548,451  
Services - related party   61,842       156,996       202,199       561,619  
Total net revenues   13,530,837       17,127,055       42,793,272       50,526,227  
               
Cost of revenues:              
Salaries and consultants   4,850,438       4,833,611       13,931,274       14,351,227  
Travel   1,052,033       1,793,964       3,967,591       4,652,143  
Depreciation and amortization   737,637       874,654       2,191,654       2,692,306  
Other   868,491       1,067,506       2,767,927       3,176,602  
Total cost of revenues   7,508,599       8,569,735       22,858,446       24,872,278  
               
Gross profit   6,022,238       8,557,320       19,934,826       25,653,949  
               
Operating expenses:              
Selling and marketing   1,587,821       1,864,990       5,189,785       5,614,619  
Depreciation and amortization   206,035       252,442       623,901       658,453  
General and administrative   4,151,394       3,833,209       12,638,797       12,241,988  
Research and development cost   453,050       513,770       1,580,625       1,256,577  
Total operating expenses   6,398,300       6,464,411       20,033,108       19,771,637  
               
Income (loss) from operations   (376,062 )     2,092,909       (98,282 )     5,882,312  
               
Other income and (expenses)              
Gain (loss) on sale of assets   129       16,380       368       65,170  
Interest expense   (94,395 )     (70,447 )     (246,064 )     (233,685 )
Interest income   448,368       201,084       1,283,279       680,469  
Gain (loss) on foreign currency exchange transactions   1,770,894       47,218       71,765       2,594,885  
Share of net loss from equity investment   (78,502 )     (245,389 )     (432,522 )     (843,373 )
Other income   17,012       3,116       243,325       12,998  
Total other income (expenses)   2,063,506       (48,038 )     920,151       2,276,464  
               
Net income before income taxes   1,687,444       2,044,871       821,869       8,158,776  
Income tax provision   (218,351 )     (275,476 )     (1,067,099 )     (777,262 )
Net income (loss)   1,469,093       1,769,395       (245,230 )     7,381,514  
Non-controlling interest   (468,286 )     (501,835 )     4,065       (2,295,736 )
Net income (loss) attributable to NetSol $ 1,000,807     $ 1,267,560   # $ (241,165 )   $ 5,085,778  
               
               
               
Net income (loss) per share:              
Net income (loss) per common share              
Basic $ 0.09     $ 0.11     $ (0.02 )   $ 0.44  
Diluted $ 0.09     $ 0.11     $ (0.02 )   $ 0.44  
               
Weighted average number of shares outstanding              
Basic   11,753,063       11,656,098   #   11,713,827       11,580,066  
Diluted   11,753,063       11,691,342   #   11,713,827       11,615,310  

NETSOL Technologies, Inc. and Subsidiaries

Schedule 3: Consolidated Statement of Cash Flows

  For the Nine Months
  Ended March 31,
    2020       2019  
 Cash flows from operating activities:      
Net income (loss) $ (245,230 )   $ 7,381,514  
Adjustments to reconcile net income (loss)      
to net cash provided by (used in) operating activities:      
Depreciation and amortization   2,815,555       3,350,759  
Provision for bad debts   75,437       -  
Share of net loss from investment under equity method   432,522       843,373  
Gain on sale of assets   (368 )     (65,170 )
Stock based compensation   565,287       980,682  
Fair market value of stock options   -       43,612  
Changes in operating assets and liabilities:      
Accounts receivable   (651,991 )     (4,249,540 )
Accounts receivable - related party   1,979,232       (461,435 )
Revenues in excess of billing   (1,394,184 )     (6,862,451 )
Revenues in excess of billing - related party   106,592       (97,359 )
Other current assets   (824,068 )     (1,189,909 )
Accounts payable and accrued expenses   63,289       (540,615 )
Unearned revenue   (2,510,954 )     611,157  
 Net cash provided by (used in) operating activities   411,119       (255,382 )
       
 Cash flows from investing activities:      
Purchases of property and equipment   (1,011,285 )     (2,590,302 )
Sales of property and equipment   33,820       1,005,214  
Convertible note receivable - related party   (600,000 )     (1,126,500 )
Net cash used in investing activities   (1,577,465 )     (2,711,588 )
       
 Cash flows from financing activities:      
  Proceeds from the exercise of stock options and warrants   -       85,000  
  Proceeds from exercise of subsidiary options   11,621       2,650  
  Dividend paid by subsidiary to non-controlling interest   (1,920,618 )     (566,465 )
  Proceeds from bank loans   2,312,968       1,337,092  
  Payments on finance lease obligations and loans - net   (422,051 )     (298,610 )
   Net cash provided by (used in) financing activities   (18,080 )     559,667  
 Effect of exchange rate changes   (438,610 )     (2,666,960 )
 Net decrease in cash and cash equivalents   (1,623,036 )     (5,074,263 )
Cash and cash equivalents at beginning of the period   17,366,364       22,088,853  
Cash and cash equivalents at end of period $ 15,743,328     $ 17,014,590  
       



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

  For the Three Months Ended   For the Three Months Ended   For the Nine Months Ended   For the Nine Months Ended
  March 31, 2020   March 31, 2019   March 31, 2020   March 31, 2019
               
Net Income (loss) attributable to NetSol $ 1,000,807     $ 1,267,560     $ (241,165 )   $ 5,085,778  
Non-controlling interest   468,286       501,835       (4,065 )     2,295,736  
Income taxes   218,351       275,476       1,067,099       777,262  
Depreciation and amortization   943,672       1,127,096       2,815,555       3,350,759  
Interest expense   94,395       70,447       246,064       233,685  
Interest (income)   (448,368 )     (201,084 )     (1,283,279 )     (680,469 )
EBITDA $ 2,277,143     $ 3,041,330     $ 2,600,209     $ 11,062,751  
Add back:              
Non-cash stock-based compensation   236,702       154,551   -   565,287       1,024,294  
Adjusted EBITDA, gross $ 2,513,845     $ 3,195,881     $ 3,165,496     $ 12,087,045  
Less non-controlling interest (a)   (729,735 )     (959,955 )     (885,144 )     (3,600,485 )
Adjusted EBITDA, net $ 1,784,110     $ 2,235,926     $ 2,280,352     $ 8,486,560  
               
               
Weighted Average number of shares outstanding              
Basic   11,753,063       11,656,098       11,713,827       11,580,066  
Diluted   11,753,063       11,691,342       11,713,827       11,615,310  
               
Basic adjusted EBITDA $ 0.15     $ 0.19     $ 0.19     $ 0.73  
Diluted adjusted EBITDA $ 0.15     $ 0.19     $ 0.19     $ 0.73  
               
               
(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 $ 468,286     $ 501,835     $ (4,065 )   $ 2,295,736  
Income Taxes   59,983       109,957       303,610       251,321  
Depreciation and amortization   271,244       360,071       800,882       1,064,203  
Interest expense   28,068       22,173       72,600       75,082  
Interest (income)   (113,413 )     (43,905 )     (334,584 )     (165,020 )
EBITDA $ 714,168     $ 950,131     $ 838,443     $ 3,521,322  
Add back:              
Non-cash stock-based compensation   15,567       9,824       46,701       79,163  
Adjusted EBITDA of non-controlling interest $ 729,735     $ 959,955     $ 885,144     $ 3,600,485