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NETSOL Technologies Reports Fiscal Third Quarter 2019 Financial Results

NETSOL Technologies Inc.May 14, 2019

CALABASAS, Calif., May 14, 2019 (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, 2019.

Third Quarter and Recent Operational Highlights

-- Updates related to previously announced 12-country, $110 million contract with German auto manufacturing giant. o Successfully implemented the full suite of NFS Ascent™ modules in China. o Successfully implemented NFS Ascent Wholesale Finance System in Japan. o Made continued progress with respect to additional NFS Ascent implementations in Singapore, Malaysia, Hong Kong, India and Thailand. -- Made 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. -- Continued implementation of NFS Ascent Retail platform at captive auto leasing company of a major US based auto manufacturer in China. -- 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. -- Continued to build out capabilities in intelligent technologies such as artificial intelligence, machine learning, blockchain, IoT and cloud native architectures to help future proof core business and innovate around new opportunities, specifically car sharing and peer-to-peer sharing as well as subscription and data driven business models.

Fiscal Third Quarter 2019 Financial ResultsTotal net revenues for the third quarter of fiscal 2019 were $17.1 million, compared with $17.0 million in the prior year period. The increase in total net revenues was primarily due to an increase in total services revenues of $256,000, which was offset by a decrease in total license fees of $113,000 and total maintenances fees of $61,000.

-- Total license fees were $2.5 million, compared with $2.6 million in the prior year period. -- Total maintenance fees were $3.7 million, compared with $3.8 million in the prior year period. -- Total services revenues were $10.9 million, compared with $10.6 million in the prior year period.

Gross profit for the third quarter of fiscal 2019 was $8.6 million (or 50.0% of total net revenues), compared to $9.2 million (or 53.9% of total net revenues) in the third quarter of fiscal 2018. The decrease in gross profit as a percentage of net revenues was due to an increase in the cost of revenues of 719,000. 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, which are expected to be invoiced to clients and subsequently reimbursed. 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 $83,000.

Operating expenses for the third quarter of fiscal 2019 increased to $6.5 million (or 37.7% of total net revenues) from $6.4 million (or 37.8% of total net revenues) for the third quarter of fiscal 2018. The increase in operating expenses was primarily due to increases in research and development expenses and depreciation which were offset by decreases in selling and marketing expenses, salaries and wages, professional services, and general and administrative expenses.

Net income attributable to NETSOL for the third quarter of fiscal 2019 totaled $1.3 million or $0.11 per diluted share, a decrease from net income of $2.9 million or $0.26 per diluted share in the third quarter of fiscal 2018. The decrease in net income was primarily due to a decrease in foreign currency exchange transactions to $47,000 in the third quarter of fiscal 2019 compared to $2.6 million for the third quarter of fiscal 2018.

Non-GAAP adjusted EBITDA for the third quarter of fiscal 2019 totaled $2.2 million or $0.19 per diluted share, compared to $4.3 million or $0.39 per diluted share in the third quarter of fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At March 31, 2019, cash and cash equivalents were $17.0 million, an increase from $12.7 million at the end of the prior year quarter.

Management Commentary“In the fiscal third quarter, we continued to execute in all areas of our core business, enabling us to achieve certain major operational milestones that positively impacted our financial and operational performance,” said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “More specifically, our successful ‘Go Live’ in China this past March represented the greatest single deployment of our Ascent platform in the largest leasing market in the Asia Pacific region. We’ve now generated profitable results from operations for six consecutive quarters and have continued to sequentially improve our topline throughout the course of the fiscal 2019. In the near term, we remain on track to achieve our previously stated goal of double-digit revenue growth for the year. Going forward, we’re continuing to position ourselves effectively for the long term through new initiatives like our recently launched OTOZ Mobility Innovation Lab, which will allow us to expand reach of our existing platform into new growth opportunities.”

Sales Outlook“We are continuing to generate a healthy mix of business opportunities, through both implementation execution and up-selling to our current client base as well as by expanding on our already-robust international pipeline,” added President and Head of Sales Naeem Ghauri. “NFS Ascent continues to be the main growth driver for our core operations, and we’re seeing great interest in upgrades from existing clients as well as RFPs from potential new clients.

“With the recent launch of our OTOZ Innovation Lab, there has been an incredibly strong response from the market, particularly around the platform’s capabilities in blockchain and artificial intelligence. As mobility becomes redefined, our industry is entering a period of significant evolution and also disruption. New, emerging models for car and ride sharing, where these technologies of the future should play a central role, will help define the leading solutions going forward. With Ascent and OTOZ together, NETSOL has established two major platforms that have the ability to address and leverage these new models for many years to come.”

Conference CallNETSOL Technologies management will hold a conference call today (May 14, 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: 1-877-407-0789International 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 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 May 28, 2019.

Toll-free replay number: 1-844-512-2921International replay number: 1-412-317-6671Replay ID: 13689882

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 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.

Investor Relations Contact:

Matt Glover and Tom ColtonGateway Investor Relations949-574-3860 investors@netsoltech.com

NETSOL Technologies, Inc. and Subsidiaries Schedule 1: Consolidated Balance Sheets As of March 31, As of June 30, ASSETS 2019 2018 - ----------- - - ----------- - Current assets: Cash and cash equivalents $ 17,014,590 $ 22,088,853 Accounts receivable, net of allowance of $373,329 and $610,061 15,971,676 12,775,461 Accounts receivable, net - related party 3,012,133 3,374,272 Revenues in excess of billings 13,381,205 14,285,778 Revenues in excess of billings - related party 61,822 - Convertible note receivable - related party 3,250,000 2,123,500 Other current assets 3,593,057 2,703,032 - ----------- - Total current assets 56,284,483 57,350,896 Revenues in excess of billings, net - long term - 1,206,669 Property and equipment, net 14,374,262 16,165,491 Long term investment 2,501,299 3,217,162 Other assets 23,994 70,299 Intangible assets, net 9,042,726 12,247,196 Goodwill 9,516,568 9,516,568 - ----------- - - ----------- - Total assets $ 91,743,332 $ 99,774,281 - ----------- - - ----------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 6,881,435 $ 7,873,809 Current portion of loans and obligations under capitalized leases 8,111,332 8,595,919 Unearned revenues 6,241,741 5,949,581 Common stock to be issued 88,324 88,324 Total current liabilities 21,322,832 22,507,633 Loans and obligations under capitalized leases; less current maturities 716,563 330,596 Total liabilities 22,039,395 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; 11,879,056 shares issued and 11,673,203 outstanding as of March 31, 2019 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018 118,791 117,085 Additional paid-in-capital 127,551,606 126,479,147 Treasury stock (At cost, 205,853 shares and 205,853 shares as of March 31, 2019 and June 30, 2018, respectively) (1,205,024 ) (1,205,024 ) Accumulated deficit (38,704,519 ) (37,994,502 ) Stock subscription receivable (221,000 ) (221,000 ) Other comprehensive loss (28,474,832 ) (24,386,071 ) Total NetSol stockholders’ equity 59,065,022 62,789,635 Non-controlling interest 10,638,915 14,146,417 - ----------- - Total stockholders’ equity 69,703,937 76,936,052 - ----------- - - ----------- - Total liabilities and stockholders’ equity $ 91,743,332 $ 99,774,281 - ----------- - - ----------- -

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, ------------------------------ ------------------------------ 2019 2018 2019 2018 - ---------- - - ---------- - - ---------- - - ---------- - Net Revenues: License fees $ 2,536,320 $ 2,648,870 $ 13,310,002 $ 3,210,868 Maintenance fees 3,562,412 3,659,998 10,735,432 10,702,171 Services 10,519,219 9,345,210 25,175,187 25,450,138 License fees - related party - - - 261,513 Maintenance fees - related 142,344 105,325 370,723 309,539 party Services - related party 366,760 1,284,417 934,883 4,374,802 Total net revenues 17,127,055 17,043,820 50,526,227 44,309,031 Cost of revenues: Salaries and consultants 4,833,611 5,418,067 14,351,227 16,244,319 Travel 1,793,964 425,060 4,652,143 1,226,073 Depreciation and amortization 874,654 1,127,077 2,692,306 3,468,293 Other 1,067,506 880,897 3,176,602 2,677,465 Total cost of revenues 8,569,735 7,851,101 24,872,278 23,616,150 Gross profit 8,557,320 9,192,719 25,653,949 20,692,881 Operating expenses: Selling and marketing 1,864,990 1,962,402 5,614,619 5,605,838 Depreciation and amortization 252,442 231,308 658,453 699,966 General and administrative 3,833,209 4,048,271 12,241,988 11,862,535 Research and development cost 513,770 197,643 1,256,577 572,619 Total operating expenses 6,464,411 6,439,624 19,771,637 18,740,958 Income (loss) from operations 2,092,909 2,753,095 5,882,312 1,951,923 Other income and (expenses) Gain (loss) on sale of assets 16,380 40,537 65,170 24,468 Interest expense (70,447 ) (102,522 ) (233,685 ) (330,268 ) Interest income 201,084 142,356 680,469 394,837 Gain on foreign currency 47,218 2,550,394 2,594,885 5,304,723 exchange transactions Share of net loss from equity (245,389 ) (263,678 ) (843,373 ) (534,576 ) investment Other income 3,116 314 12,998 15,924 Total other income (expenses) (48,038 ) 2,367,401 2,276,464 4,875,108 Net income beforeincome taxes 2,044,871 5,120,496 8,158,776 6,827,031 Income tax provision (275,476 ) (261,182 ) (777,262 ) (486,980 ) Net income 1,769,395 4,859,314 7,381,514 6,340,051 Non-controlling interest (501,835 ) (1,994,869 ) (2,295,736 ) (3,210,683 ) Net income attributable to $ 1,267,560 $ 2,864,445 $ 5,085,778 $ 3,129,368 NetSol - ---------- - - ---------- - - ---------- - - ---------- - Net income (loss) per share: Net income (loss) per common share Basic $ 0.11 $ 0.26 $ 0.44 $ 0.28 Diluted $ 0.11 $ 0.25 $ 0.44 $ 0.28 Weighted average number of shares outstanding Basic 11,656,098 11,190,048 11,580,066 11,118,529 - ---------- - - ---------- - - ---------- - - ---------- - Diluted 11,691,342 11,268,842 11,615,310 11,152,365 - ---------- - - ---------- - - ---------- - - ---------- -

NETSOL Technologies, Inc. and Subsidiaries Schedule 3: Consolidated Statement of Cash Flows For the Nine Months Ended March 31, ------------------------------- 2019 2018 - ---------- - - ----------- - Cash flows from operating activities: Net income $ 7,381,514 $ 6,340,051 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 3,350,759 4,168,259 Share of net loss from investment under equity method 843,373 534,576 Gain on sale of assets (65,170 ) (24,468 ) Stock based compensation 980,682 1,281,763 Fair market value of stock options 43,612 - Changes in operating assets and liabilities: Accounts receivable (4,249,540 ) (17,848,921 ) Accounts receivable - related party (461,435 ) (2,634,063 ) Revenues in excess of billing (6,862,451 ) 5,904,161 Revenues in excess of billing - related party (97,359 ) (85,743 ) Other current assets (1,189,909 ) (796,126 ) Accounts payable and accrued expenses (540,615 ) 1,139,509 Unearned revenue 611,157 4,273,007 Net cash provided by (used in) operating activities (255,382 ) 2,252,005 Cash flows from investing activities: Purchases of property and equipment (2,590,302 ) (1,107,732 ) Sales of property and equipment 1,005,214 348,762 Convertible note receivable - related party (1,126,500 ) (550,000 ) Investment in WRLD3D - (50,000 ) Purchase of subsidiary shares from open market - (33,987 ) Net cash used in investing activities (2,711,588 ) (1,392,957 ) Cash flows from financing activities: Proceeds from the exercise of stock options and warrants 85,000 215,311 Proceeds from exercise of subsidiary options 2,650 10,349 Restricted cash - 90,000 Purchase of treasury stock - (750,714 ) Dividend paid by subsidiary to non-controlling interest (566,465 ) (417,853 ) Proceeds from bank loans 1,337,092 696,936 Payments on capital lease obligations and loans - net (298,610 ) (961,901 ) Net cash provided by (used in) financing activities 559,667 (1,117,872 ) Effect of exchange rate changes (2,666,960 ) (1,202,147 ) Net decrease in cash and cash equivalents (5,074,263 ) (1,460,971 ) Cash and cash equivalents at beginning of the period 22,088,853 14,172,954 Cash and cash equivalents at end of period $ 17,014,590 $ 12,711,983 - ---------- - - ----------- -

NETSOL Technologies, Inc. and Subsidiaries Schedule 4: Reconciliation to GAAP Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018 -------------- -------------- -------------- -------------- Net Income (loss) before preferred dividend, $ 1,267,560 $ 2,864,445 $ 5,085,778 $ 3,129,368 per GAAP Non-controlling interest 501,835 1,994,869 2,295,736 3,210,683 Income taxes 275,476 261,182 777,262 486,980 Depreciation and amortization 1,127,096 1,358,385 3,350,759 4,168,259 Interest expense 70,447 102,522 233,685 330,268 Interest (income) (201,084 ) (142,356 ) (680,469 ) (394,837 ) EBITDA $ 3,041,330 $ 6,439,047 $ 11,062,751 $ 10,930,721 Add back: Non-cash stock-based compensation 154,551 448,233 - 1,024,294 1,281,763 Adjusted EBITDA, gross $ 3,195,881 $ 6,887,280 $ 12,087,045 $ 12,212,484 Less non-controlling interest (a) (959,955 ) (2,540,702 ) (3,600,485 ) (4,804,869 ) Adjusted EBITDA, net $ 2,235,926 $ 4,346,578 $ 8,486,560 $ 7,407,615 - ---------- - - ---------- - - ---------- - - ---------- - Weighted Average number of shares outstanding Basic 11,656,098 11,190,048 11,580,066 11,118,529 Diluted 11,691,342 11,268,842 11,615,310 11,152,365 - ---------- - - ---------- - - ---------- - - ---------- - Basic adjusted EBITDA $ 0.19 $ 0.39 $ 0.73 $ 0.67 - ---------- - - ---------- - - ---------- - - ---------- - Diluted adjusted EBITDA $ 0.19 $ 0.39 $ 0.73 $ 0.66 - ---------- - - ---------- - - ---------- - - ---------- - (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 $ 501,835 $ 1,994,869 $ 2,295,736 $ 3,210,683 interest Income Taxes 109,957 65,798 251,321 106,221 Depreciation and amortization 360,071 449,828 1,064,203 1,382,148 Interest expense 22,173 31,865 75,082 105,400 Interest (income) (43,905 ) (43,702 ) (165,020 ) (125,777 ) EBITDA $ 950,131 $ 2,498,658 $ 3,521,322 $ 4,678,675 Add back: Non-cash stock-based compensation 9,824 42,044 79,163 126,194 Adjusted EBITDA of non-controlling interest $ 959,955 $ 2,540,702 $ 3,600,485 $ 4,804,869 - ---------- - - ---------- - - ---------- - - ---------- -

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