NTWK - NETSOL Technologies Reports Fiscal Third Quarter 2020 Financial Results

May, 13 2020 08:00 AM NETSOL Technologies Inc.

CALABASAS, Calif., May 13, 2020 (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, 2020.

Fiscal Third 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 and Thailand.
Regarding the same contract mentioned above, successfully implemented NETSOL’s full suite NFS Ascent Retail Platform, including its Omni Point of Sale (Omni POS) and Contract Management System (CMS), as well as the Wholesale Finance System (WFS) of its Wholesale Platform, for the same customer in Malaysia.
Signed contract with a leading bank in the UK for the implementation of the NFS Ascent Retail platform, including Point of Sale solution and Contract Management System, in the cloud.
Went “Live” with NETSOL’s LeaseSoft application for one of the largest independently-owned finance companies in the UK.
Otoz entered into a contract with the captive auto finance company of a leading German auto manufacturer in China to launch its pilot car sharing program in China.
Successfully delivered Retail system to the Company’s first Ascent customer in North America.
Delivered Ascent Retail platform to the captive auto finance company of a notable Japanese equipment manufacturer in Australia and New Zealand.
Implemented the i-OPS (i-operations) system with a leading captive finance company of a notable Japanese bank in Indonesia, allowing their call center workforce to contact prospects and act as an additional channel for lead generation.
Successfully upsold system enhancements worth approx. $4.0 million during implementation with the captive auto finance company of a leading German Auto manufacturer in China.
Generated nearly $2.0 million by providing additional services and change requests for various customers across multiple regions.
In response to the economic slowdown caused by the current global pandemic, implemented a series of cost reduction initiatives and temporary salary reductions, which are expected to generate approx. $5 million in annualized savings.

Fiscal Third Quarter 2020 Financial Results
Total net revenues for the third quarter of fiscal 2020 were $13.5 million, compared with $17.1 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total license fees of $2.2 million and a decrease in services revenues of $2.6 million, which was offset by an increase in total maintenance fees of $1.2 million.

Total license fees were $312,000, compared with $2.5 million in the prior year period.
Total maintenance fees were $4.9 million, compared with $3.7 million in the prior year period.
Total services revenues were $8.3 million, compared with $10.9 million in the prior year period.

Gross profit for the third quarter of fiscal 2020 was $6.0 million (or 44.5% of net revenues), compared to $8.6 million (or 50.0% of net revenues) in the third 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 a slight increase in salaries and consultants’ costs.

Operating expenses for the third quarter of fiscal 2020 decreased 1% to $6.4 million (or 47.3% of net revenues) from $6.5 million (or 37.7% of net revenues) in the third quarter of fiscal 2019. The slight decrease in operating expenses was primarily due to decreases in sales and marketing expenses, depreciation and amortization, and research and development costs, which were offset by an increase in general and administrative expenses.

GAAP net income attributable to NETSOL for the third quarter of fiscal 2020 totaled $1.0 million, or $0.09 per diluted share, compared with GAAP net income of $1.3 million, or $0.11 per diluted share in the third quarter of fiscal 2019. GAAP net income attributable to NETSOL included a $1.8 million gain on foreign currency exchange transactions in the third quarter of fiscal 2020, which was a significant increase compared with a gain of $47,000 in the prior year period.

Non-GAAP adjusted EBITDA for the third quarter of fiscal 2020 totaled $1.8 million, or $0.15 per diluted share, compared with non-GAAP adjusted EBITDA of $2.2 million, or $0.19 per diluted share in the third quarter of fiscal 2019 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At March 31, 2020, cash and cash equivalents were $15.7 million, a decrease from $17.0 million at the end of the prior year quarter.

Management Commentary
"The start of the calendar year has been a challenging time for many, but we are pushing ahead and continuing to operate efficiently in this new-normal environment," said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “Our operations in the fiscal third quarter were meaningfully impacted by the global slowdown occurring in many of the verticals we serve, including the greater leasing, finance and automotive industries. In direct response to this macroeconomic headwind, we’ve made strategic cost reductions in several key areas, which has allowed us to retain our entire workforce and should result in costs savings of $5 million on an annualized basis.

“Additionally, our team has responded capably through this trial, and we’ve been able to operate uninterrupted since transitioning to a remote work environment. Between system enhancements and change requests with existing customers, we were able to generate an additional $2 million in revenue during the period with another $4 million to be recognized in the next few quarters, which is a testament to the commitment and skill of our implementation groups. While COVID-19 has also impacted our ability to travel and meet face-to-face with prospects, our teams are still very busy in conducting virtual demos, presentations and negotiations.

“Looking ahead, while we’re encouraged by the response we’ve seen in our Chinese operations, we also understand that the roadmap for the rest of the world’s re-opening remains opaque at best. We are continuously monitoring all aspects of our global operations to maximize the health and safety of our workforce while balancing our long-term growth initiatives. As a digital-first and SaaS-focused organization, we are also constantly evaluating innovative and flexible ways to manage our cost structures without impacting the delivery and implementations of projects in all markets.”

Sales Outlook
NETSOL President, Global Sales and Otoz CEO Naeem Ghauri added: “Traditionally, the fiscal fourth quarter is our strongest performance period, and we’re currently tracking in this direction with a backloaded end of the year. We expect to see sequentially stronger revenues and EBITDA, allowing us to close out the year on an upward trajectory. With the global economic outlook still uncertain, we are seeing initial signs of recovery and activity picking up. Overall, we are confident in our ability to grow in fiscal 2021.”

Otoz Update
“Otoz is continuing to gain interest and traction from many different types of prospects,” continued Ghauri. “Auto OEMs, finance companies and dealers are all types of businesses that are looking to deploy our technology to increase fleet utilization and provide more flexible auto ownership models during a time when traditional purchasing models are coming under intense pressure. We are witnessing consumer habits undergo a fundamental change in usage behavior. Otoz is extremely well positioned to benefit from this paradigm shift. Based upon cloud native architecture, our technology can be implemented through a SaaS subscription model, allowing for a low-cost entry point to a wider market.”

Conference Call
NETSOL Technologies management will hold a conference call today (May 13, 2020) 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: 1-877-407-0789
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 12:00 p.m. Eastern time on the same day through May 27, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13703209

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 more than 1300 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
This press release may contain forward-looking statements relating to the development of the Company's products and services and future operation results, including statements regarding the Company that are subject to certain risks and uncertainties such as the effect of stay at home orders and social distancing imposed by COVID-19 and its resultant impact on our financials and the world economy 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, as well as the delay in recovery or a prolonged economic downturn that effects our Company, our customers and the world economy. 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
March 31, 2020

June 30, 2019
Current assets:



Cash and cash equivalents
$
15,743,328


$
17,366,364

Accounts receivable, net of allowance of $364,383 and $192,786

12,900,412



12,332,714

Accounts receivable, net of allowance of $54,307 and $166,075 - related party

1,332,575



3,266,600

Revenues in excess of billings, net of allowance of $190,811 and $194,684

15,301,150



14,719,047

Revenues in excess of billings - related party

8,245



110,827

Convertible note receivable - related party

4,250,000



3,650,000

Other current assets

3,593,365



3,146,264

Total current assets

53,129,075



54,591,816

Revenues in excess of billings, net - long term

1,282,898



1,281,492

Property and equipment, net

11,553,814



12,096,855

Right of use of assets - operating leases

2,690,777



-

Long term investment

2,329,706



2,653,769

Other assets

23,066



23,569

Intangible assets, net

5,880,759



7,332,950

Goodwill

9,516,568



9,516,568

Total assets
$
86,406,663


$
87,497,019





LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities:



Accounts payable and accrued expenses
$
7,107,933


$
7,476,560

Current portion of loans and obligations under finance leases

8,794,858



6,905,597

Current portion of operating lease obligations

1,146,696



-

Unearned revenues

3,440,663



5,977,736

Common stock to be issued

88,324



88,324

Total current liabilities

20,578,474



20,448,217

Loans and obligations under finance leases; less current maturities

305,702



564,572

Operating lease obligations; less current maturities

1,635,866



-

Total liabilities

22,520,042



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;



12,038,697 shares issued and 11,791,194 outstanding as of March 31, 2020 and


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

120,387



119,117

Additional paid-in-capital

128,374,098



127,737,999

Treasury stock (At cost, 247,503 shares and 247,503 shares



as of March 31, 2020 and June 30, 2019, respectively)

(1,455,969
)


(1,455,969
)
Accumulated deficit

(35,448,063
)


(35,206,898
)
Other comprehensive loss

(34,065,385
)


(33,125,006
)
Total NetSol stockholders' equity

57,525,068



58,069,243

Non-controlling interest

6,361,553



8,414,987

Total stockholders' equity

63,886,621



66,484,230

Total liabilities and stockholders' equity
$
86,406,663


$
87,497,019

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,


2020



2019



2020



2019

Net Revenues:







License fees
$
312,133


$
2,536,320


$
3,375,241


$
13,310,002

Maintenance fees

4,934,635



3,704,756



14,291,959



11,106,155

Services

8,222,227



10,728,983



24,923,873



25,548,451

Services - related party

61,842



156,996



202,199



561,619

Total net revenues

13,530,837



17,127,055



42,793,272



50,526,227









Cost of revenues:







Salaries and consultants

4,850,438



4,833,611



13,931,274



14,351,227

Travel

1,052,033



1,793,964



3,967,591



4,652,143

Depreciation and amortization

737,637



874,654



2,191,654



2,692,306

Other

868,491



1,067,506



2,767,927



3,176,602

Total cost of revenues

7,508,599



8,569,735



22,858,446



24,872,278









Gross profit

6,022,238



8,557,320



19,934,826



25,653,949









Operating expenses:







Selling and marketing

1,587,821



1,864,990



5,189,785



5,614,619

Depreciation and amortization

206,035



252,442



623,901



658,453

General and administrative

4,151,394



3,833,209



12,638,797



12,241,988

Research and development cost

453,050



513,770



1,580,625



1,256,577

Total operating expenses

6,398,300



6,464,411



20,033,108



19,771,637









Income (loss) from operations

(376,062
)


2,092,909



(98,282
)


5,882,312









Other income and (expenses)







Gain (loss) on sale of assets

129



16,380



368



65,170

Interest expense

(94,395
)


(70,447
)


(246,064
)


(233,685
)
Interest income

448,368



201,084



1,283,279



680,469

Gain (loss) on foreign currency exchange transactions

1,770,894



47,218



71,765



2,594,885

Share of net loss from equity investment

(78,502
)


(245,389
)


(432,522
)


(843,373
)
Other income

17,012



3,116



243,325



12,998

Total other income (expenses)

2,063,506



(48,038
)


920,151



2,276,464









Net income before income taxes

1,687,444



2,044,871



821,869



8,158,776

Income tax provision

(218,351
)


(275,476
)


(1,067,099
)


(777,262
)
Net income (loss)

1,469,093



1,769,395



(245,230
)


7,381,514

Non-controlling interest

(468,286
)


(501,835
)


4,065



(2,295,736
)
Net income (loss) attributable to NetSol
$
1,000,807


$
1,267,560

#
$
(241,165
)

$
5,085,778

























Net income (loss) per share:







Net income (loss) per common share







Basic
$
0.09


$
0.11


$
(0.02
)

$
0.44

Diluted
$
0.09


$
0.11


$
(0.02
)

$
0.44









Weighted average number of shares outstanding







Basic

11,753,063



11,656,098

#

11,713,827



11,580,066

Diluted

11,753,063



11,691,342

#

11,713,827



11,615,310

NETSOL Technologies, Inc. and Subsidiaries

Schedule 3: Consolidated Statement of Cash Flows


For the Nine Months

Ended March 31,


2020



2019

Cash flows from operating activities:



Net income (loss)
$
(245,230
)

$
7,381,514

Adjustments to reconcile net income (loss)



to net cash provided by (used in) operating activities:



Depreciation and amortization

2,815,555



3,350,759

Provision for bad debts

75,437



-

Share of net loss from investment under equity method

432,522



843,373

Gain on sale of assets

(368
)


(65,170
)
Stock based compensation

565,287



980,682

Fair market value of stock options

-



43,612

Changes in operating assets and liabilities:



Accounts receivable

(651,991
)


(4,249,540
)
Accounts receivable - related party

1,979,232



(461,435
)
Revenues in excess of billing

(1,394,184
)


(6,862,451
)
Revenues in excess of billing - related party

106,592



(97,359
)
Other current assets

(824,068
)


(1,189,909
)
Accounts payable and accrued expenses

63,289



(540,615
)
Unearned revenue

(2,510,954
)


611,157

Net cash provided by (used in) operating activities

411,119



(255,382
)




Cash flows from investing activities:



Purchases of property and equipment

(1,011,285
)


(2,590,302
)
Sales of property and equipment

33,820



1,005,214

Convertible note receivable - related party

(600,000
)


(1,126,500
)
Net cash used in investing activities

(1,577,465
)


(2,711,588
)




Cash flows from financing activities:



Proceeds from the exercise of stock options and warrants

-



85,000

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

2,312,968



1,337,092

Payments on finance lease obligations and loans - net

(422,051
)


(298,610
)
Net cash provided by (used in) financing activities

(18,080
)


559,667

Effect of exchange rate changes

(438,610
)


(2,666,960
)
Net decrease in cash and cash equivalents

(1,623,036
)


(5,074,263
)
Cash and cash equivalents at beginning of the period

17,366,364



22,088,853

Cash and cash equivalents at end of period
$
15,743,328


$
17,014,590

NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP


For the Three Months Ended

For the Three Months Ended

For the Nine Months Ended

For the Nine Months Ended

March 31, 2020

March 31, 2019

March 31, 2020

March 31, 2019








Net Income (loss) attributable to NetSol
$
1,000,807


$
1,267,560


$
(241,165
)

$
5,085,778

Non-controlling interest

468,286



501,835



(4,065
)


2,295,736

Income taxes

218,351



275,476



1,067,099



777,262

Depreciation and amortization

943,672



1,127,096



2,815,555



3,350,759

Interest expense

94,395



70,447



246,064



233,685

Interest (income)

(448,368
)


(201,084
)


(1,283,279
)


(680,469
)
EBITDA
$
2,277,143


$
3,041,330


$
2,600,209


$
11,062,751

Add back:







Non-cash stock-based compensation

236,702



154,551

-

565,287



1,024,294

Adjusted EBITDA, gross
$
2,513,845


$
3,195,881


$
3,165,496


$
12,087,045

Less non-controlling interest (a)

(729,735
)


(959,955
)


(885,144
)


(3,600,485
)
Adjusted EBITDA, net
$
1,784,110


$
2,235,926


$
2,280,352


$
8,486,560

















Weighted Average number of shares outstanding







Basic

11,753,063



11,656,098



11,713,827



11,580,066

Diluted

11,753,063



11,691,342



11,713,827



11,615,310









Basic adjusted EBITDA
$
0.15


$
0.19


$
0.19


$
0.73

Diluted adjusted EBITDA
$
0.15


$
0.19


$
0.19


$
0.73

















(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
$
468,286


$
501,835


$
(4,065
)

$
2,295,736

Income Taxes

59,983



109,957



303,610



251,321

Depreciation and amortization

271,244



360,071



800,882



1,064,203

Interest expense

28,068



22,173



72,600



75,082

Interest (income)

(113,413
)


(43,905
)


(334,584
)


(165,020
)
EBITDA
$
714,168


$
950,131


$
838,443


$
3,521,322

Add back:







Non-cash stock-based compensation

15,567



9,824



46,701



79,163

Adjusted EBITDA of non-controlling interest
$
729,735


$
959,955


$
885,144


$
3,600,485

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

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