NTWK - NETSOL Technologies Reports Fiscal Third Quarter 2019 Financial Results

May, 14 2019 08:00 AM NETSOL Technologies Inc.

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.
- Successfully implemented the full suite of NFS Ascent™ modules in China.
- Successfully implemented NFS Ascent Wholesale Finance System in Japan.
- 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 Results
Total 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 Call
NETSOL 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: 1-877-407-0789
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 May 28, 2019.

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

About NETSOL Technologies
NETSOL 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 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 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
949-574-3860
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 party

142,344



105,325



370,723



309,539


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 exchange transactions

47,218



2,550,394



2,594,885



5,304,723


Share of net loss from equity investment

(245,389
)


(263,678
)


(843,373
)


(534,576
)

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 before income 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 NetSol
$
1,267,560


$
2,864,445


$
5,085,778


$
3,129,368































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, per GAAP
$
1,267,560


$
2,864,445


$
5,085,778


$
3,129,368


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 interest
$
501,835


$
1,994,869


$
2,295,736


$
3,210,683


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

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

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