AP NEWS

NETSOL Technologies Reports Fiscal Second Quarter 2019 Financial Results

February 13, 2019

CALABASAS, Calif., Feb. 13, 2019 (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, 2018.

Second Quarter and Recent Operational Highlights

-- 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. -- Commenced implementation of NFS Ascent Retail platform at captive auto leasing company of a major US based auto manufacturer in China. -- Successfully began the implementation process of NFS Ascent™ Wholesale module in Japan for German auto manufacturing giant as part of the ongoing international deployment associated with the previously announced 12-country, $110 million contract. -- Initiated process to implement NFS Ascent Solution in Singapore, Malaysia, Hong Kong and Thailand as part of the previously announced 12-country, $110 million contract. -- Secured a mid-six-figure SaaS contract with a leading automotive leasing company covering all of Canada for a key automotive brand to provide access to the LeasePak Cloud product. -- Appointed industry veteran Hui Liang as company’s President of China to expand footprint in the region and improve existing relationships with key customers. -- Generated nearly $1.8 million through successfully implementing change requests from various customers across major business regions. -- Dedicated additional resources to data science and blockchain development initiatives in both Pakistan and Thailand to create new tools and products focused on machine learning and vehicle tracking as part of the company’s broader Innovation Lab efforts.

Fiscal Second Quarter 2019 Financial ResultsTotal net revenues for the second quarter of fiscal 2019 were $17.0 million, compared with $14.4 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $4.4 million, which was offset by a decrease in total services revenues of $1.8 million.

-- Total license fees were $4.8 million, compared with $453,000 in the prior year period. -- Total maintenance fees were $3.7 million, compared with $3.7 million in the prior year period. -- Total services revenues were $8.5 million, compared with $10.3 million in the prior year period.

Gross profit for the second quarter of fiscal 2019 was $8.9 million (or 52.1% of total net revenues), compared to $6.7 million (or 46.3% of total net revenues) in the second quarter of fiscal 2018. The increase in gross profit as a percentage of net revenues was primarily due to an increase in total net revenues of $2.6 million, which was offset by an increase in the cost of revenues of $386,000.

Operating expenses for the second quarter of fiscal 2019 increased 5% to $6.7 million (or 39.2% of total net revenues) from $6.4 million (or 44.1% of total net revenues) for the second quarter of fiscal 2018. The increase in operating expenses was primarily due to increases in salaries and wages, research and development expenses and professional services expenses, which were offset by decreases in selling and marketing expenses, depreciation, and general and administrative expenses.

Net income attributable to NETSOL for the second quarter of fiscal 2019 totaled $2.9 million or $0.25 per diluted share, an improvement from net income of $634,000 or $0.06 per diluted share in the second quarter of fiscal 2018.

Non-GAAP adjusted EBITDA for the second quarter of fiscal 2019 totaled $4.1 million or $0.35 per diluted share, an improvement from $2.1 million or $0.19 per diluted share in the second quarter of fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At December 31, 2018, cash and cash equivalents were $20.3 million, an increase from $10.0 million at the end of the prior year quarter.

Management Commentary“The second quarter was yet another period of strong, consistent performance for NETSOL, driven by various new business wins throughout our major operating regions as well as ongoing implementations for some of the larger contracts we’ve secured over the past few months,” said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “Financially, this healthy combination translated to 18% revenue growth year-over-year as well as our fifth consecutive profitable quarter. Operationally, with a number of significant near-term opportunities before us, we remain highly confident in our ability to generate healthy top and bottom line results for the remainder of the year and remain in solid positioning to achieve our previously stated goal of double-digit topline growth for fiscal 2019.”

Sales Outlook“NETSOL’s total global pipeline remains robust, especially in our APAC region, where we are seeing demand grow for both our products and services,” added President and Head of Sales Naeem Ghauri. “Additionally, we are continuing to benefit from our local business knowledge and strong relationships as many of our competitors struggle to establish a presence in the region. Going forward, we are cognizant of the various, emerging macro-economic challenges in China and will continue to monitor these issues closely. However, we are still seeing healthy interest from our existing customers who are investing in our systems to derive additional efficiencies that should aid them in addressing potential corrections in their respective markets. Looking ahead to the remainder of the year, we are currently in good positioning on a number of customer ‘shortlists’ for large-scale programs where we believe we have a good chance of success and remain bullish on our forecasts for fiscal 2019.”

Conference CallNETSOL Technologies management will hold a conference call today (February 13, 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 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 2:00 p.m. Eastern time on the same day through February 27, 2019.

Toll-free replay number: 1-844-512-2921International replay number: 1-412-317-6671Replay ID: 13687282

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 ColtonLiolios 949-574-3860 investors@netsoltech.com

NETSOL Technologies, Inc. and SubsidiariesSchedule 1: Consolidated Balance Sheets

As of December As of June 30, 31, ASSETS 2018 2018 - ----------- - - ----------- - Current assets: Cash and cash equivalents $ 20,320,804 $ 22,088,853 Accounts receivable, net of allowance of $376,178 and $610,061 7,852,296 12,775,461 Accounts receivable, net - related party 2,944,290 3,374,272 Revenues in excess of billings 13,832,654 14,285,778 Revenues in excess of billings - related party 62,323 - Convertible note receivable - related party 3,156,500 2,123,500 Other current assets 4,092,921 2,703,032 - ----------- - Total current assets 52,261,788 57,350,896 Revenues in excess of billings, net - long term - 1,206,669 Property and equipment, net 14,005,541 16,165,491 Long term investment 2,689,005 3,217,162 Other assets 35,470 70,299 Intangible assets, net 9,637,010 12,247,196 Goodwill 9,516,568 9,516,568 - ----------- - - ----------- - Total assets $ 88,145,382 $ 99,774,281 - ----------- - - ----------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 7,468,984 $ 7,873,809 Current portion of loans and obligations under capitalized leases 7,627,426 8,595,919 Unearned revenues 4,705,302 5,949,581 Common stock to be issued 88,324 88,324 Total current liabilities 19,890,036 22,507,633 Loans and obligations under capitalized leases;less current maturities 345,473 330,596 Total liabilities 20,235,509 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; 11,860,310 shares issued and 11,654,457 outstanding as of December 31, 2018 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018 118,603 117,085 Additional paid-in-capital 127,398,738 126,479,147 Treasury stock (At cost, 205,853 shares and 205,853 shares as of December 31, 2018 and June 30, 2018, respectively) (1,205,024 ) (1,205,024 ) Accumulated deficit (39,972,079 ) (37,994,502 ) Stock subscription receivable (221,000 ) (221,000 ) Other comprehensive loss (28,446,811 ) (24,386,071 ) Total NetSol stockholders’ equity 57,672,427 62,789,635 Non-controlling interest 10,237,446 14,146,417 - ----------- - Total stockholders’ equity 67,909,873 76,936,052 - ----------- - - ----------- - Total liabilities and stockholders’ equity $ 88,145,382 $ 99,774,281 - ----------- - - ----------- -

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

For the Three Months For the Six Months Ended December 31, Ended December 31, ------------------------------ ------------------------------ 2018 2017 2018 2017 - ---------- - - ---------- - - ---------- - - ---------- - Net Revenues: License fees $ 4,817,569 $ 235,932 $ 10,773,682 $ 561,998 Maintenance fees 3,534,693 3,568,448 7,173,020 7,042,173 Services 8,237,334 9,087,191 14,655,968 16,104,928 License fees - related party - 217,105 - 261,513 Maintenance fees - related 127,030 101,251 228,379 204,214 party Services - related party 286,001 1,236,508 568,123 3,090,385 Total net revenues 17,002,627 14,446,435 33,399,172 27,265,211 Cost of revenues: Salaries and consultants 4,497,054 5,362,092 9,517,616 10,826,252 Travel 1,706,182 287,901 2,858,179 801,013 Depreciation and amortization 880,048 1,168,103 1,817,652 2,341,216 Other 1,060,772 939,986 2,109,096 1,796,568 Total cost of revenues 8,144,056 7,758,082 16,302,543 15,765,049 Gross profit 8,858,571 6,688,353 17,096,629 11,500,162 Operating expenses: Selling and marketing 2,048,303 1,932,140 3,749,629 3,643,436 Depreciation and amortization 193,779 222,785 406,011 468,658 General and administrative 4,002,059 4,026,706 8,408,779 7,814,264 Research and development cost 424,652 189,891 742,807 374,976 Total operating expenses 6,668,793 6,371,522 13,307,226 12,301,334 Income (loss) from operations 2,189,778 316,831 3,789,403 (801,172 ) Other income and (expenses) Gain (loss) on sale of assets (3,504 ) (8,939 ) 48,790 (16,069 ) Interest expense (63,804 ) (109,675 ) (163,238 ) (227,746 ) Interest income 230,421 115,570 479,385 252,481 Gain on foreign currency 2,536,755 1,737,967 2,547,667 2,754,329 exchange transactions Share of net loss from equity (298,293 ) (203,336 ) (597,984 ) (270,898 ) investment Other income 4,503 14,511 9,882 15,610 Total other income (expenses) 2,406,078 1,546,098 2,324,502 2,507,707 Net income beforeincome taxes 4,595,856 1,862,929 6,113,905 1,706,535 Income tax provision (264,872 ) (200,927 ) (501,786 ) (225,798 ) Net income 4,330,984 1,662,002 5,612,119 1,480,737 Non-controlling interest (1,475,355 ) (1,027,581 ) (1,793,901 ) (1,215,814 ) Net income attributable to $ 2,855,629 $ 634,421 $ 3,818,218 $ 264,923 NetSol - ---------- - - ---------- - - ---------- - - ---------- - Net income (loss) per share: Net income (loss) per common share Basic $ 0.25 $ 0.06 $ 0.33 $ 0.02 Diluted $ 0.25 $ 0.06 $ 0.33 $ 0.02 Weighted average number of shares outstanding Basic 11,586,507 11,159,075 11,542,877 11,115,346 - ---------- - - ---------- - - ---------- - - ---------- - Diluted 11,592,193 11,171,543 11,548,563 11,127,814 - ---------- - - ---------- - - ---------- - - ---------- -

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

For the Six Months Ended December 31, ------------------------------- 2018 2017 - ---------- - - ----------- - Cash flows from operating activities: Net income $ 5,612,119 $ 1,480,737 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,223,663 2,809,874 Share of net loss from investment under equity method 597,984 270,898 (Gain) loss on sale of assets (48,790 ) 16,069 Stock based compensation 869,743 833,530 Changes in operating assets and liabilities: Accounts receivable 4,208,751 (13,231,059 ) Accounts receivable - related party (219,538 ) (1,637,829 ) Revenues in excess of billing (7,633,216 ) 602,676 Revenues in excess of billing - related party (91,279 ) (32,308 ) Other current assets (1,409,746 ) (524,547 ) Accounts payable and accrued expenses 139,331 887,824 Unearned revenue (1,094,375 ) 6,469,146 Net cash provided by (used in) operating activities 3,154,647 (2,054,989 ) Cash flows from investing activities: Purchases of property and equipment (1,441,237 ) (543,123 ) Sales of property and equipment 519,645 193,241 Convertible note receivable - related party (1,033,000 ) (500,000 ) Investment in WRLD3D - (50,000 ) Net cash used in investing activities (1,954,592 ) (899,882 ) Cash flows from financing activities: Proceeds from the exercise of stock options and warrants 65,000 215,311 Proceeds from exercise of subsidiary options 2,650 7,755 Purchase of treasury stock - (601,020 ) Dividend paid by subsidiary to non-controlling interest (566,465 ) (417,853 ) Proceeds from bank loans 382,240 708,457 Payments on capital lease obligations and loans - net (289,027 ) (361,814 ) Net cash used in financing activities (405,602 ) (449,164 ) Effect of exchange rate changes (2,562,502 ) (764,269 ) Net decrease in cash and cash equivalents (1,768,049 ) (4,168,304 ) Cash and cash equivalents at beginning of the period 22,088,853 14,172,954 Cash and cash equivalents at end of period $ 20,320,804 $ 10,004,650 - ---------- - - ----------- -

NETSOL Technologies, Inc. and SubsidiariesSchedule 4: Reconciliation to GAAP

Three Months Three Months Six Months Six Months Ended Ended Ended Ended December 31, December 31, December 31, December 31, 2018 2017 2018 2017 -------------- -------------- -------------- -------------- Net Income (loss) before preferred dividend, $ 2,855,629 $ 634,421 $ 3,818,218 $ 264,923 per GAAP Non-controlling interest 1,475,355 1,027,581 1,793,901 1,215,814 Income taxes 264,872 200,927 501,786 225,798 Depreciation and amortization 1,073,827 1,390,888 2,223,663 2,809,874 Interest expense 63,804 109,675 163,238 227,746 Interest (income) (230,421 ) (115,570 ) (479,385 ) (252,481 ) EBITDA $ 5,503,066 $ 3,247,922 $ 8,021,421 $ 4,491,674 Add back: Non-cash stock-based compensation 437,695 405,721 869,743 833,530 Adjusted EBITDA, gross $ 5,940,761 $ 3,653,643 $ 8,891,164 $ 5,325,204 Less non-controlling interest (a) (1,887,861 ) (1,562,303 ) (2,640,530 ) (2,264,167 ) Adjusted EBITDA, net $ 4,052,900 $ 2,091,340 $ 6,250,634 $ 3,061,037 - ---------- - - ---------- - - ---------- - - ---------- - Weighted Average number of shares outstanding Basic 11,586,507 11,159,075 11,542,877 11,115,346 Diluted 11,592,193 11,171,543 11,548,563 11,127,814 - ---------- - - ---------- - - ---------- - - ---------- - Basic adjusted EBITDA $ 0.35 $ 0.19 $ 0.54 $ 0.28 - ---------- - - ---------- - - ---------- - - ---------- - Diluted adjusted EBITDA $ 0.35 $ 0.19 $ 0.54 $ 0.28 - ---------- - - ---------- - - ---------- - - ---------- - (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 $ 1,475,355 $ 1,027,581 $ 1,793,901 $ 1,215,814 interest Income Taxes 70,821 29,945 141,364 40,423 Depreciation and amortization 338,278 465,138 704,132 932,320 Interest expense 20,219 34,463 52,909 73,535 Interest (income) (54,247 ) (36,918 ) (121,115 ) (82,075 ) EBITDA $ 1,850,426 $ 1,520,209 $ 2,571,191 $ 2,180,017 Add back: Non-cash stock-based compensation 37,435 42,094 69,339 84,150 Adjusted EBITDA of non-controlling interest $ 1,887,861 $ 1,562,303 $ 2,640,530 $ 2,264,167 - ---------- - - ---------- - - ---------- - - ---------- -

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