NTWK - NETSOL Technologies Reports Fiscal Second Quarter 2020 Financial Results

February, 12 2020 08:00 AM NETSOL Technologies Inc.

Sequential Topline Growth of 16% Drives Profitable Quarter with $0.05 Earnings Per Share

Company Advances Three-Pronged Growth Strategy: Alternative Subscription Option Leads to Bolstered Pipeline; Advanced Discussions with Potential for New Engagements Through Otoz; Continued Progress and Technological Advancements in Innovation Lab

CALABASAS, Calif., Feb. 12, 2020 (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, 2019.

Fiscal Second 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, Malaysia, and Thailand.
As part of the above-referenced contract, achieved a successful Go Live in Hong Kong with the NFS Ascent® Retail Platform, consisting of Omni Point of Sale (Omni POS) and Contract Management System (CMS).
Introduced Software-as-a-Service (SaaS) subscription-based pricing for new and existing customers as an alternative to the traditional license model, which is now available for all cloud-based NETSOL products and services globally, including NETSOL’s flagship offering NFS Ascent®.
NETSOL North America secured a contract with SCI Lease Corp, a Canadian-based national automotive leasing company, for its Contract Management System (CMS) on the cloud, representing the first SaaS-based agreement for Ascent in this region.
Announced the official Go-Live with mCollector application for a top tier multi-finance company in Indonesia, as part of a larger contract originally signed in 2018.
Made significant progress towards the deployment of NFS Ascent® Retail Platform for a New Zealand-based captive equipment finance company.
Made significant progress towards the deployment of NFS Ascent® Wholesale Platform for a U.K.-based leading auction house.
Generated additional $2.0 million by providing additional services for various customers across multiple regions.
Appointed industry veteran Chris Mobley as the new Head of NFS Ascent® Wholesale operations in Europe with the goal of leading the rollout of NETSOL’s new, subscription-based pricing strategy, orchestrating the company’s European-focused growth plans and leading pre-sales of the company’s Wholesale operations globally.
Made further advancements in certain Otoz Innovation Lab initiatives, leading to multiple discussions, demonstrations, and potential engagements with a several tier one customers in the U.S. and Asia Pacific (APAC) regions.
Announced NETSOL’s “Cloud Readiness” campaign during the 20th anniversary of the company’s listing on Nasdaq as part of its participation at the closing bell ceremony in late January.

Fiscal Second Quarter 2020 Financial Results
Total net revenues for the second quarter of fiscal 2020 were $15.7 million, compared with $17.0 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total license fees of $4.4 million, which was offset by an increase in services revenues of $1.8 million and an increase in total maintenance fees of $1.3 million.

Total license fees were $384,000, compared with $4.8 million in the prior year period.
Total maintenance fees were $5.0 million, compared with $3.7 million in the prior year period.
Total services revenues were $10.3 million, compared with $8.5 million in the prior year period.

Gross profit for the second quarter of fiscal 2020 was $7.8 million (or 49.7% of net revenues), compared to $8.9 million (or 52.1% of net revenues) in the second 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 an increase in salaries and consultants’ costs.

Operating expenses for the second quarter of fiscal 2020 increased 6.4% to $7.1 million (or 45.2% of net revenues) from $6.7 million (or 39.2% of net revenues) in the second quarter of fiscal 2019. The increase in operating expenses was primarily due to increases in general and administrative expenses, which were offset by decreases in sales and marketing expenses, salaries and wages, and professional services.

GAAP net income attributable to NETSOL for the second quarter of fiscal 2020 totaled $586,000 or $0.05 per diluted share, compared with GAAP net income of $2.9 million or $0.25 per diluted share in the second quarter of fiscal 2019. GAAP net income attributable to NETSOL included a $61,000 gain on foreign currency exchange transactions in the second quarter of fiscal 2020, which was a significant decrease compared with a gain of $2.5 million in the prior year period.

Non-GAAP adjusted EBITDA for the second quarter of fiscal 2020 totaled $1.6 million or $0.13 per diluted share, compared with non-GAAP adjusted EBITDA of $4.1 million or $0.35 per diluted share in the second quarter of fiscal 2019 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At December 31, 2019, cash and cash equivalents were $22.1 million, an increase from $20.3 million at the end of the prior year quarter.

Management Commentary
"The fiscal second quarter was a positive step forward for our business as we continue to position NETSOL for its next phase of growth in the years ahead," said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “The 16% sequential improvement in our topline was the result of ongoing and significant implementation work within our core business, which also included an additional $2.0 million in change requests, yet another favorable data point that underlies the ongoing industry shift to more complex deployments. While our year-to-date results reflect our ongoing efforts to transition NETSOL towards a more diversified revenue mix, in Q2 we maintained our commitment to financial prudence, most notably evidenced in our return to profitability during the period.

“Operationally, we began the initial application of our three-pronged growth strategy, which has yielded already-favorable results. More specifically, in November we closed our first official sale of NFS Ascent® in North America, which also represented the first SaaS-based agreement for Ascent in this region. Additionally, our mobility-focused work within our Otoz Innovation Lab has garnered serious attention from potential and existing customers alike, which we expect to materialize in increased demos, more advanced development discussions, and even pilot projects in the coming months. Looking to the second half of the year, with our current pipeline as well as ongoing major rollouts with existing customers, we have strong visibility to reaffirm our expectations for sequential improvement throughout the balance of fiscal 2020.”

Sales Outlook
NETSOL President, Global Sales and Otoz CEO Naeem Ghauri added: “While we are continuing to sell add-on services and more licenses for existing contracts, we’re also now generating new opportunities at an increasing rate for our subscription pricing, or SaaS, model. While it remains early days, we are encouraged by the strong initial interest we’ve seen and believe our decision to diversify our offerings beyond the traditional license sales will lead to long-term, predictable revenue growth. Going forward, we have visibility into a growing pipeline within all three of our geographic regions, which we anticipate to result in sequentially improved results in the second half 2020. Further out, we’re working towards an eventual inflection point where annual recurring revenues, or ARR, can supplant our current license revenues and provide sustained profitability.”

Otoz Update
“We are actively discussing various partnerships and collaborations with several tier one customers to launch Otoz as a premium, white-labeled, shared mobility platform and believe we are close to announcing official agreements soon,” continued Ghauri. “While we continue to build out the platform according to our predefined product roadmap, interest in the platform is tracking ahead of internal targets and forecasts, which has us ramping up efforts to meet demand. We look forward to providing more updates on these roadmap developments as well as potential partnerships in the near future.”

Conference Call
NETSOL Technologies management will hold a conference call today (February 12, 2020) at 11 a.m. Eastern time (8 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 2:00 p.m. Eastern time on the same day through February 26, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13698709

About NETSOL Technologies
NETSOL Technologies, Inc. (Nasdaq: NTWK) is a worldwide provider of IT and enterprise software solutions primarily serving the global finance and leasing industry. The company’s suite of applications is backed by 40 years of domain expertise and supported by a committed team of more than 1,300 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
Certain 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 outlook or potential demand for new product lines and innovation such as for Otoz or NFS Ascent® SaaS, 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 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
December 31, 2019

June 30, 2019
Current assets:




Cash and cash equivalents
$
22,083,584


$
17,366,364


Accounts receivable, net of allowance of $351,431 and $192,786

8,401,835



12,332,714


Accounts receivable, net of allowance of $0 and $166,075 - related party

1,231,181



3,266,600


Revenues in excess of billings, net of allowance of $205,006 and $194,684

15,850,011



14,719,047


Revenues in excess of billings - related party

101,669



110,827


Convertible note receivable - related party

4,185,000



3,650,000


Other current assets

3,392,190



3,146,264



Total current assets

55,245,470



54,591,816

Revenues in excess of billings, net - long term

1,291,025



1,281,492

Property and equipment, net

12,668,689



12,096,855

Right of use of assets - operating leases

3,050,885



-

Long term investment

2,411,807



2,653,769

Other assets

24,301



23,569

Intangible assets, net

6,792,846



7,332,950

Goodwill

9,516,568



9,516,568



Total assets
$
91,001,591


$
87,497,019







LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:




Accounts payable and accrued expenses
$
7,927,523


$
7,476,560


Current portion of loans and obligations under finance leases

9,436,332



6,905,597


Current portion of operating lease obligations

1,182,850



-


Unearned revenues

3,135,721



5,977,736


Common stock to be issued

88,324



88,324



Total current liabilities

21,770,750



20,448,217

Loans and obligations under finance leases; less current maturities

417,824



564,572

Operating lease obligations; less current maturities

1,966,770



-



Total liabilities

24,155,344



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;





12,000,566 shares issued and 11,753,063 outstanding as of December 31, 2019 and




11,911,742 shares issued and 11,664,239 outstanding as of June 30, 2019

120,006



119,117


Additional paid-in-capital

128,197,589



127,737,999


Unexpected eval class (org.apache.poi.ss.formula.eval.MissingArgEval)




as of December 31, 2019 and June 30, 2019, respectively)

(1,455,969
)


(1,455,969
)

Accumulated deficit

(36,448,870
)


(35,206,898
)

Other comprehensive loss

(30,456,632
)


(33,125,006
)


Total NetSol stockholders' equity

59,956,124



58,069,243


Non-controlling interest

6,890,123



8,414,987



Total stockholders' equity

66,846,247



66,484,230



Total liabilities and stockholders' equity
$
91,001,591


$
87,497,019

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,



2019



2018



2019



2018

Net Revenues:








License fees
$
383,963


$
4,817,569


$
3,063,108


$
10,773,682


Maintenance fees

4,965,877



3,661,723



9,357,324



7,401,399


Services

10,282,755



8,348,843



16,701,646



14,819,468


Services - related party

57,424



174,492



140,357



404,623



Total net revenues

15,690,019



17,002,627



29,262,435



33,399,172











Cost of revenues:








Salaries and consultants

4,625,872



4,497,054



9,080,836



9,517,616


Travel

1,572,923



1,706,182



2,915,558



2,858,179


Depreciation and amortization

734,352



880,048



1,454,017



1,817,652


Other

954,912



1,060,772



1,899,436



2,109,096



Total cost of revenues

7,888,059



8,144,056



15,349,847



16,302,543











Gross profit

7,801,960



8,858,571



13,912,588



17,096,629











Operating expenses:








Selling and marketing

1,858,096



2,048,303



3,601,964



3,749,629


Depreciation and amortization

215,479



193,779



417,866



406,011


General and administrative

4,568,790



4,002,059



8,487,403



8,408,779


Research and development cost

454,605



424,652



1,127,575



742,807



Total operating expenses

7,096,970



6,668,793



13,634,808



13,307,226











Income from operations

704,990



2,189,778



277,780



3,789,403











Other income and (expenses)








Gain (loss) on sale of assets

528



(3,504
)


239



48,790


Interest expense

(88,006
)


(63,804
)


(151,669
)


(163,238
)

Interest income

435,682



230,421



834,911



479,385


Gain (loss) on foreign currency exchange transactions

61,061



2,536,755



(1,699,129
)


2,547,667


Share of net loss from equity investment

(164,796
)


(298,293
)


(354,020
)


(597,984
)

Other income

207,987



4,503



226,313



9,882



Total other income (expenses)

452,456



2,406,078



(1,143,355
)


2,324,502











Net income (loss) before income taxes

1,157,446



4,595,856



(865,575
)


6,113,905

Income tax provision

(610,510
)


(264,872
)


(848,748
)


(501,786
)
Net income (loss)

546,936



4,330,984



(1,714,323
)


5,612,119


Non-controlling interest

39,039



(1,475,355
)


472,351



(1,793,901
)
Net income (loss) attributable to NetSol
$
585,975


$
2,855,629


$
(1,241,972
)

$
3,818,218





















Net income (loss) per share:








Net income (loss) per common share









Basic
$
0.05


$
0.25


$
(0.11
)

$
0.33



Diluted
$
0.05


$
0.25


$
(0.11
)

$
0.33











Weighted average number of shares outstanding








Basic

11,724,606



11,586,507



11,694,423



11,542,877


Diluted

11,724,606



11,592,193



11,694,423



11,548,563

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





For the Six Months




Ended December 31,





2019



2018

Cash flows from operating activities:




Net income (loss)
$
(1,714,323
)

$
5,612,119


Adjustments to reconcile net income (loss)





to net cash provided by operating activities:




Depreciation and amortization

1,871,883



2,223,663


Provision for bad debts

(20,699
)


-


Share of net loss from investment under equity method

354,020



597,984


Gain on sale of assets

(239
)


(48,790
)

Stock based compensation

328,585



869,743


Changes in operating assets and liabilities:





Accounts receivable

4,554,558



4,208,751



Accounts receivable - related party

2,229,695



(219,538
)


Revenues in excess of billing

(1,088,693
)


(7,633,216
)


Revenues in excess of billing - related party

14,823



(91,279
)


Other current assets

(208,065
)


(1,409,746
)


Accounts payable and accrued expenses

490,875



139,331



Unearned revenue

(3,019,493
)


(1,094,375
)

Net cash provided by operating activities

3,792,927



3,154,647








Cash flows from investing activities:




Purchases of property and equipment

(785,999
)


(1,441,237
)

Sales of property and equipment

32,524



519,645


Convertible note receivable - related party

(535,000
)


(1,033,000
)

Net cash used in investing activities

(1,288,475
)


(1,954,592
)







Cash flows from financing activities:




Proceeds from the exercise of stock options and warrants

-



65,000


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

2,074,341



382,240


Payments on finance lease obligations and loans - net

(102,499
)


(289,027
)

Net cash provided by (used in) financing activities

62,845



(405,602
)
Effect of exchange rate changes

2,149,923



(2,562,502
)
Net increase (decrease) in cash and cash equivalents

4,717,220



(1,768,049
)
Cash and cash equivalents at beginning of the period

17,366,364



22,088,853

Cash and cash equivalents at end of period
$
22,083,584


$
20,320,804

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, 2019

December 31, 2018

December 31, 2019

December 31, 2018








Net Income (loss) attributable to NetSol
$
585,975


$
2,855,629


$
(1,241,972
)

$
3,818,218

Non-controlling interest

(39,039
)


1,475,355



(472,351
)


1,793,901

Income taxes

610,510



264,872



848,748



501,786

Depreciation and amortization

949,831



1,073,827



1,871,883



2,223,663

Interest expense

88,006



63,804



151,669



163,238

Interest (income)

(435,682
)


(230,421
)


(834,911
)


(479,385
)
EBITDA
$
1,759,601


$
5,503,066


$
323,066


$
8,021,421

Add back:







Non-cash stock-based compensation

164,292



437,695

-

328,585



869,743

Adjusted EBITDA, gross
$
1,923,893


$
5,940,761


$
651,651


$
8,891,164

Less non-controlling interest (a)

(346,644
)


(1,887,861
)


(155,409
)


(2,640,530
)
Adjusted EBITDA, net
$
1,577,249


$
4,052,900


$
496,242


$
6,250,634

















Weighted Average number of shares outstanding







Basic

11,724,606



11,586,507



11,694,423



11,542,877

Diluted

11,724,606



11,592,193



11,694,423



11,548,563









Basic adjusted EBITDA
$
0.13


$
0.35


$
0.04


$
0.54

Diluted adjusted EBITDA
$
0.13


$
0.35


$
0.04


$
0.54

















(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
$
(39,039
)

$
1,475,355


$
(472,351
)

$
1,793,901

Income Taxes

190,292



70,821



243,627



141,364

Depreciation and amortization

270,003



338,278



529,638



704,132

Interest expense

25,491



20,219



44,532



52,909

Interest (income)

(115,670
)


(54,247
)


(221,171
)


(121,115
)
EBITDA
$
331,077


$
1,850,426


$
124,275


$
2,571,191

Add back:







Non-cash stock-based compensation

15,567



37,435



31,134



69,339

Adjusted EBITDA of non-controlling interest
$
346,644


$
1,887,861


$
155,409


$
2,640,530

Company Name:	NETSOL Technologies Inc.
Stock Symbol:	NTWK
Market:	NASDAQ
Website:	netsoltech.com

Twitter