AP NEWS

NETSOL Technologies Reports Fiscal Fourth Quarter and Full Year 2018 Financial Results

September 26, 2018

CALABASAS, Calif., Sept. 26, 2018 (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, 2018.

Recent Operational Highlights

-- Additional cost savings in the fiscal fourth quarter mostly tied to reductions in costs of revenues and operating costs, bringing total savings to $8.5 million through fiscal 2018. -- 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. -- Received “First-Rate and Best-Selling Finance and Leasing Solution Provider” award at the China Leasing Summit 2018 for the sixth consecutive year. -- Secured a multi-million-dollar agreement with a leading Asian auto captive finance company to implement NFS Ascent’s Loan Origination System and Contract Management System. -- Appointed two new members to the Board of Directors, Malea Farsai and Henry Tolentino, to provide greater diversity and breadth of experience. -- NFS Ascent went live in South Africa, a new market, with German auto manufacturing giant as part of the ongoing international deployment associated with previously announced 12-country, $110 million contract.

Fiscal Fourth Quarter 2018 Financial ResultsTotal net revenues for the fourth quarter of fiscal 2018 were $16.6 million, compared with $14.5 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $122,000, an increase in total maintenance fees of $206,000 and an increase in total services revenues of $1.8 million.

-- Total license fees were $3.4 million, compared with $3.3 million in the prior year period. -- Total maintenance fees were $3.8 million, compared with $3.6 million in the prior year period. -- Total services revenues were $9.4 million, compared with $7.6 million in the prior year period.

Gross profit for the fourth quarter of fiscal 2018 was $8.5 million (or 51.2% of net revenues), compared to $4.6 million (or 31.7% of net revenues) in the fourth quarter of fiscal 2017. The increase in gross profit as a percentage of net revenues was primarily due to a decrease in costs of revenues of $1.8 million.

Operating expenses for the fourth quarter of fiscal 2018 decreased 6% to $7.4 million (or 44.6% of net revenues) from $7.9 million (or 54.7% of net revenues) for the fourth quarter of fiscal 2017. The decrease in operating expenses was primarily due to a decrease in provision for bad debts, which was offset by an increase in general and administrative expenses as well as research and development expenses.

GAAP net income attributable to NETSOL for the fourth quarter of fiscal 2018 totaled $1.2 million or $0.10 per diluted share, an improvement from net loss of $3.1 million or $(0.28) per diluted share in the fourth quarter of fiscal 2017.

Non-GAAP adjusted EBITDA for the fourth quarter of fiscal 2018 totaled $2.9 million or $0.26 per diluted share, an improvement from a loss of $851,000 or $(0.08) per diluted share in the fourth quarter of fiscal 2017 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At June 30, 2018, cash and cash equivalents were $22.1 million, an increase from $14.2 million at June 30, 2017.

Full Year Fiscal 2018 Financial ResultsTotal net revenues for fiscal 2018 were $60.9 million, compared to $65.4 million in fiscal 2017. The decrease in total net revenues was primarily due to a decrease in total license fees of $11.6 million, which was offset by an increase in total maintenance fees of $332,000 and an increase in total services revenues of $6.8 million.

-- Total license fees were $6.9 million, compared with $18.5 million in the prior fiscal year. -- Total maintenance fees were $14.8 million, compared with $14.5 million in the prior fiscal year. -- Total services revenues were $39.3 million, compared with $32.4 million in the prior fiscal year.

Gross profit for fiscal 2018 increased to $29.2 million (or 47.9% of net revenues) from $28.4 million (or 43.5% of net revenues) for fiscal 2017. The increase in gross profit as a percentage of net revenues was primarily due to a decrease in costs of revenues of $5.2 million.

Operating expenses for fiscal 2018 decreased to $26.2 million (or 42.9% of net revenues) from $29.4 million (or 45.0% of net revenues) for fiscal 2017. The decrease in operating expenses was primarily due to decreases in selling and marketing expenses and provision for bad debts, which was offset by an increase in research and development expenses.

GAAP net income attributable to NETSOL for fiscal 2018 totaled $4.3 million or $0.38 per diluted share, an improvement from net loss of $5.0 million or $(0.46) per diluted share for fiscal 2017.

Non-GAAP adjusted EBITDA for fiscal 2018 totaled $10.3 million or $0.92 per diluted share, compared with $2.8 million or $0.26 per diluted share in fiscal 2017 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

Management Commentary”The fiscal fourth quarter was a solid end to an eventful year for NETSOL, both financially and operationally,” said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “From a financial perspective, we successfully achieved our third consecutive quarter of profitability, grew our topline 15% over the fourth quarter of the prior year as well as continued to improve our cost structure and efficiencies. In fact, our overall cost reduction initiatives have now resulted in $8.5 million of savings through fiscal 2018, which was a major driving factor in us realizing the $9.3 million increase in annual net income over last year. On top of this, in the fourth quarter alone, we were able to generate $1.8 million in savings on costs of revenues and another $500,000 from operating expenses. These initiatives have not only made NETSOL a more nimble and efficient organization, but they’ve also provided additional bandwidth, with minimal incremental cost, for us to scale our business in fiscal 2019 and beyond.”

“Operationally, we closed fiscal 2018 on a high note as well, demonstrated by the new and add-on sales we secured, which have continued and increased into the current year with a few notable wins,” continued Ghauri. “More recently, we won a five-year, $30 million deal with a European tier-one global auto captive and also secured a multimillion-dollar implementation with a major American multinational automaker in China. Going forward, we’re continuing to expand our strong pipeline of new projects, and we’re now able to do so in an increasingly more efficient manner. Put another way, we are proactively focusing any newly available sales time and resources on more nascent deals we have specifically identified as being capable of progressing more quickly through the buying cycle. When coupled with the more mature deals we’ve been advancing over time, this combination presents a healthy and diverse mix of new win opportunities. Looking ahead, if 2018 was about transformation for NETSOL, then the beginning of 2019 has represented the inflection point that, we believe, will propel us to double-digit topline growth for the year.”

Sales Outlook“Fiscal 2018 has been a turnaround year for sales and NETSOL as a whole with several tier-one clients entering into new IT selection processes and Ascent making the shortlist in each occurrence,” added President and Head of Sales Naeem Ghauri. “After closing out the previous fiscal year and starting the current one with back-to-back wins in China, we are upbeat and motivated to capitalize on this building momentum. We remain confident in our ability to finish strong and secure further wins in fiscal 2019.”

Conference CallNETSOL Technologies management will hold a conference call today (September 26, 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: 1-877-407-0789International 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 October 10, 2018.

Toll-free replay number: 1-844-512-2921 International replay number: 1-412-317-6671 Replay ID: 13683245

About NETSOL TechnologiesNETSOL 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 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 StatementsCertain 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 MeasuresThe 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. Beginning with the fourth quarter of fiscal 2016, NETSOL has revised its calculation of Adjusted EBITDA to exclude the portion of Adjusted EBITDA that is attributable to its subsidiaries that have a minority interest.

Investor Relations Contact:

Matt Glover and Tom ColtonLiolios 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 2018 2017 --------------- --------------- Current assets: Cash and cash equivalents $ 22,088,853 $ 14,172,954 Accounts receivable, net of allowance of $610,061 and $571,511 12,775,461 6,583,199 Accounts receivable, net - related party 3,374,272 1,644,942 Revenues in excess of billings 14,285,778 19,126,389 Revenues in excess of billings - related party - 80,705 Convertible note receivable - related party 2,123,500 200,000 Other current assets 2,703,032 2,463,886 - ----------- - Total current assets 57,350,896 44,272,075 Revenues in excess of billings, net - long term 1,206,669 5,173,538 Property and equipment, net 16,165,491 20,370,703 Long term investment 3,217,162 3,057,020 Other assets 70,299 244,275 Intangible assets, net 12,247,196 17,043,151 Goodwill 9,516,568 9,516,568 - ----------- - - ----------- - Total assets $ 99,774,281 $ 99,677,330 - ----------- - - ----------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 7,873,809 $ 6,880,194 Current portion of loans and obligations under capitalized leases 8,595,919 10,222,795 Unearned revenues 5,949,581 3,925,702 Common stock to be issued 88,324 88,324 Total current liabilities 22,507,633 21,117,015 Loans and obligations under capitalized leases;less current maturities 330,596 366,762 Total liabilities 22,838,229 21,483,777 Commitments and contingencies Stockholders’ equity: Preferred stock, $.01 par value; 500,000 shares authorized; - - Common stock, $.01 par value; 14,500,000 shares authorized; 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018 and 11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017 117,085 112,254 Additional paid-in-capital 126,479,147 124,409,998 Treasury stock (At cost, 205,853 shares and 34,779 shares as of June 30, 2018 and June 30, 2017, respectively) (1,205,024 ) (454,310 ) Accumulated deficit (37,994,502 ) (42,301,390 ) Stock subscription receivable (221,000 ) (297,511 ) Other comprehensive loss (24,386,071 ) (18,074,570 ) - ----------- - - ----------- - Total NETSOL stockholders’ equity 62,789,635 63,394,471 Non-controlling interest 14,146,417 14,799,082 - ----------- - Total stockholders’ equity 76,936,052 78,193,553 - ----------- - - ----------- - Total liabilities and stockholders’ equity $ 99,774,281 $ 99,677,330 - ----------- - - ----------- -

NETSOL Technologies, Inc. and Subsidiaries Schedule 2: Consolidated Statement of Operations For the Three Months For the Year Ended June 30, Ended June 30, ------------------------------ ------------------------------ 2018 2017 2018 2017 -------------- -------------- -------------- -------------- Net Revenues: License fees $ 3,387,386 $ 3,265,338 $ 6,598,254 $ 18,218,912 Maintenance fees 3,680,138 3,505,675 14,382,309 14,157,367 Services 8,161,844 5,954,297 33,611,982 24,798,899 License fees - related party - - 261,513 246,957 Maintenance fees - related party 108,905 77,685 418,444 311,359 Services - related party 1,282,954 1,678,698 5,657,756 7,632,774 Total net revenues 16,621,227 14,481,693 60,930,258 65,366,268 Cost of revenues: Salaries and consultants 5,611,843 6,610,960 21,856,162 24,645,223 Travel 549,254 824,669 1,775,327 3,137,671 Depreciation and amortization 1,142,444 1,458,235 4,610,737 5,448,059 Other 803,650 1,002,364 3,481,115 3,727,379 Total cost of revenues 8,107,191 9,896,228 31,723,341 36,958,332 Gross profit 8,514,036 4,585,465 29,206,917 28,407,936 Operating expenses: Selling and marketing 2,014,638 2,248,765 7,620,476 9,746,229 Depreciation and amortization 262,771 289,051 962,737 1,114,275 Provision for bad debts 460,730 1,407,019 460,730 1,407,751 General and administrative 4,391,531 3,865,875 16,254,067 16,747,550 Research and development cost 281,377 107,613 853,996 393,345 Total operating expenses 7,411,047 7,918,323 26,152,006 29,409,150 Income (loss) from operations 1,102,989 (3,332,858 ) 3,054,911 (1,001,214 ) Other income and (expenses) Gain (loss) on sale of assets (16,874 ) 2,948 7,594 (30,147 ) Interest expense (92,059 ) (133,085 ) (422,327 ) (310,044 ) Interest income 197,316 98,638 592,153 179,723 Gain (loss) on foreign currency exchange (294,340 ) 952,705 5,010,383 306,819 transactions Share of net loss from equity investment 272,020 - (262,556 ) - Other income (expense) 26,923 22,214 42,847 50,378 Total other income (expenses) 92,986 943,420 4,968,094 196,729 Net income (loss) beforeincome taxes 1,195,975 (2,389,438 ) 8,023,005 (804,485 ) Income tax provision (386,047 ) (491,588 ) (873,027 ) (931,951 ) Net income (loss) 809,928 (2,881,026 ) 7,149,978 (1,736,436 ) Non-controlling interest 367,593 (242,467 ) (2,843,090 ) (3,241,594 ) Net income (loss) attributable to NETSOL $ 1,177,521 $ (3,123,493 ) $ 4,306,888 $ (4,978,030 ) - ---------- - - ---------- - - ---------- - - ---------- - Net income (loss) per share: Net income (loss) per common share Basic $ 0.10 $ (0.28 ) $ 0.38 $ (0.46 ) Diluted $ 0.10 $ (0.28 ) $ 0.38 $ (0.46 ) Weighted average number of shares outstanding Basic 11,274,196 11,098,202 11,197,319 10,912,284 - ---------- - - ---------- - - ---------- - - ---------- - Diluted 11,274,196 11,098,202 11,197,319 10,912,284 - ---------- - - ---------- - - ---------- - - ---------- -

NETSOL Technologies, Inc. and Subsidiaries Schedule 3: Consolidated Statement of Cash Flows For the Year Ended June 30, ------------------------------- 2018 2017 - ---------- - - ----------- - Cash flows from operating activities: Net income (loss) $ 7,149,978 $ (1,736,436 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 5,573,474 6,562,334 Provision for bad debts 460,730 1,407,751 Impairment of assets 172,505 - Share of net loss from investment under equity method 262,556 - (Gain) loss on sale of assets (7,594 ) 30,147 Stock based compensation 1,861,445 2,522,158 Fair market value of warrants and stock options granted - 241,165 Changes in operating assets and liabilities: Accounts receivable (7,735,582 ) 2,292,980 Accounts receivable - related party (2,735,846 ) 2,803,520 Revenues in excess of billing 6,788,580 (13,966,522 ) Revenues in excess of billing - related party 77,128 211,615 Other current assets (195,529 ) 72,522 Accounts payable and accrued expenses 1,653,778 751,835 Unearned revenue 2,388,699 (738,704 ) Net cash provided by operating activities 15,714,322 454,365 Cash flows from investing activities: Purchases of property and equipment (2,449,449 ) (2,203,203 ) Sales of property and equipment 943,252 781,018 Convertible note receivable - related party (1,923,500 ) (200,000 ) Investment in WRLD3D (230,000 ) (1,105,555 ) Purchase of subsidiary shares from open market (33,987 ) - Net cash used in investing activities (3,693,684 ) (2,727,740 ) Cash flows from financing activities: Proceeds from the exercise of stock options and warrants 312,311 866,438 Proceeds from exercise of subsidiary options 10,349 75,382 Restricted cash 90,000 - Purchase of treasury stock (750,714 ) (38,885 ) Dividend paid by subsidiary to non-controlling interest (417,853 ) (2,156,273 ) Proceeds from bank loans 1,365,250 6,184,635 Payments on capital lease obligations and loans - net (1,626,109 ) (554,048 ) Net cash provided by (used in) financing activities (1,016,766 ) 4,377,249 Effect of exchange rate changes (3,087,973 ) 511,553 Net increase in cash and cash equivalents 7,915,899 2,615,427 Cash and cash equivalents at beginning of the period 14,172,954 11,557,527 Cash and cash equivalents at end of period $ 22,088,853 $ 14,172,954 - ---------- - - ----------- -

NETSOL Technologies, Inc. and Subsidiaries Schedule 4: Reconciliation to GAAP Year Year Ended Ended June 30, 2018 June 30, 2017 -------------- -------------- Net Income (loss) before preferred dividend, per GAAP $ 4,306,888 $ (4,978,030 ) Non-controlling interest 2,843,090 3,241,594 Income taxes 873,027 931,951 Depreciation and amortization 5,573,474 6,562,334 Interest expense 422,327 310,044 Interest (income) (592,153 ) (179,723 ) EBITDA $ 13,426,653 $ 5,888,170 Add back: Non-cash stock-based compensation 1,861,445 2,763,323 Adjusted EBITDA, gross $ 15,288,098 $ 8,651,493 Less non-controlling interest (a) (4,947,498 ) (5,841,143 ) Adjusted EBITDA, net $ 10,340,600 $ 2,810,350 - ---------- - - ---------- - Weighted Average number of shares outstanding Basic 11,197,319 10,912,284 Diluted 11,197,319 10,919,169 - ---------- - - ---------- - Basic adjusted EBITDA $ 0.92 $ 0.26 - ---------- - - ---------- - Diluted adjusted EBITDA $ 0.92 $ 0.26 - ---------- - - ---------- - (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 $ 2,843,090 $ 3,241,594 Income Taxes 162,419 140,499 Depreciation and amortization 1,817,367 2,168,249 Interest expense 136,445 98,331 Interest (income) (180,061 ) (60,042 ) EBITDA $ 4,779,260 $ 5,588,631 Add back: Non-cash stock-based compensation 168,238 252,512 Adjusted EBITDA of non-controlling interest $ 4,947,498 $ 5,841,143 - ---------- - - ---------- -

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