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NETSOL Technologies Reports Fiscal Second Quarter 2018 Financial Results

Cost Reductions Drive Non-GAAP Adjusted EBITDA of $2.1 million, or $0.19 per Diluted Share, and GAAP Net Income of $634,000, or $0.06 per Diluted Share

CALABASAS, Calif., Feb. 13, 2018 (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, 2017.

/EIN News/ -- Operational Highlights

  • Reported quarterly cost savings of $2.1 million directly tied to recent cost rationalization initiatives, bringing total savings to $4.4 million and with an anticipated reduction of more than $6.0 million through fiscal 2018.

  • An auto finance company of a leading bank in Indonesia, and an existing customer, launched its leasing project, further strengthening NETSOL’s relationship with this Indonesian business partner and paving the way for further success in the market.

  • Captive finance company of a leading truck manufacturer in China successfully went live with NetSol’s web Point of Sale (POS) solution and is now also offering NETSOL's mPOS solution to its clients.

  • Total consolidated pipeline of new business increased to approximately $175 million, driven by potential Ascent™ contracts across all three major NETSOL markets.

Fiscal Second Quarter 2018 Financial Results
Total net revenues for the second quarter of fiscal 2018 were $14.4 million, compared with $15.9 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in license fees of $3.3 million, which was offset by an increase in services revenue of $1.9 million.

  • Total license fees were $453,000, compared with $3.8 million in the prior year period.
  • Total maintenance fees were $3.7 million, compared with $3.6 million in the prior year period.
  • Total services revenues were $10.3 million, compared with $8.4 million in the prior year period.

Gross profit for the second quarter of fiscal 2018 was $6.7 million (or 46.3% of net revenues), compared to $6.7 million (or 42.0% of net revenues) in the second quarter of fiscal 2017. The increase in gross profit as a percentage of net revenues was primarily due to a $1.4 million decrease in cost of revenues for the quarter. The decrease in cost of revenues was primarily due to a decrease in salaries and consultant costs of $618,000 related to the reduction of technical employees at key locations, including Pakistan, Thailand, China, UK and North America, as well as a decrease in travel costs of $548,000.

Operating expenses for the second quarter of fiscal 2018 decreased 9% to $6.4 million (or 44.1% of net revenues) from $7.0 million (or 44.2% of net revenues) for the second quarter of fiscal 2017. The decrease in operating expenses was primarily due to cost reductions in selling and marketing expenses, salaries and wages, depreciation, and professional services.

GAAP net income attributable to NETSOL for the second quarter of fiscal 2018 totaled $634,000 or $0.06 per diluted share, an improvement from a net loss of $2.2 million or $(0.20) per diluted share in the second quarter of fiscal 2017.

Non-GAAP adjusted EBITDA for the second quarter of fiscal 2018 totaled $2.1 million or $0.19 per diluted share, compared with $299,000 or $(0.03) per diluted share in the second quarter of fiscal 2017 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At December 31, 2017, cash and cash equivalents were $10.0 million, an increase from $8.6 million at the end of the prior quarter.

Stock Repurchase Program
On July 18, 2017, NETSOL’s board of directors approved a stock repurchase program that authorized potential repurchases of up to one million shares of its common stock. The program expired on December 15, 2017. At the conclusion of the program, the company had repurchased 139,275 shares of its common stock at an aggregate value of $601,000. The board of directors will evaluate future stock repurchase programs both in the U.S. and Pakistan, but can make no guarantee as to the timing of specifics related to such decisions. 

Management Commentary
"The fiscal second quarter marked an improvement over Q1 in many ways, most notably in a return to profitability, but it was also affected by a continuation of the same prolonged sales cycles we have experienced over the past several quarters as well," said company Founder, Chairman and Chief Executive Officer Najeeb Ghauri. "Nevertheless, we are continuing to control and manage what we can to mitigate these matters in the near term, as evidenced by the sustained success of our cost-reduction initiative, which contributed to a $1.4 million decrease in our total cost of revenues and a more than $600,000 decrease in our operating expenses in Q2.

“Looking ahead, we remain encouraged by the size and breadth of our overall pipeline of new business, which has increased to approximately $175 million, driven by strong demand for our Ascent solution across all our market regions. Despite these continued elongated sales cycles, we remain wholly focused on managing costs and executing on our more immediate prospects, so that we are ideally positioned to capitalize on our growing pipeline of opportunities beginning in the second half of the fiscal year and beyond.”

Conference Call
NETSOL Technologies management will hold a conference call today (February 13, 2018) 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 Liolios Group 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 February 27, 2018.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13675381

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 the benefit of certain cost savings undertaken in the past fiscal year, 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. Beginning with the fourth quarter of fiscal 2016, NETSOL has revised its calculation of Adjusted EBITDA to exclude the portion of Adjusted EBITDA that is attributable to its subsidiaries that have a minority interest.

Investor Relations Contact:

Matt Glover and Tom Colton
Liolios Group, Inc.
949-574-3860
investors@netsoltech.com

 

NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets
           
       As of    December 31,     As of June 30, 
  ASSETS    2017         2017   
Current assets:        
     Cash and cash equivalents $   10,004,650     $   14,172,954  
     Accounts receivable, net of allowance of $347,413  and $571,511      19,106,677         6,583,199  
     Accounts receivable, net - related party     2,582,403         1,644,942  
     Revenues in excess of billings     16,094,026         19,126,389  
     Revenues in excess of billings - related party     107,562         80,705  
     Convertible note receivable - related party     750,000         200,000  
     Other current assets     2,819,183         2,463,886  
        Total current assets     51,464,501         44,272,075  
Restricted cash       90,000         90,000  
Revenues in excess of billings, net - long term     6,668,854         5,173,538  
Property and equipment, net     18,443,494         20,370,703  
Other assets       3,543,315         3,211,295  
Intangible assets, net       14,810,605         17,043,151  
Goodwill         9,516,568         9,516,568  
Total assets $ 104,537,337     $   99,677,330  
           
  LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:        
Accounts payable and accrued expenses $   7,560,298     $   6,880,194  
Current portion of loans and obligations under capitalized leases     10,133,100         10,222,795  
Unearned revenues     10,082,346         3,925,702  
Common stock to be issued     88,324         88,324  
Total current liabilities     27,864,068         21,117,015  
Loans and obligations under capitalized leases; less current maturities     250,883         366,762  
Total liabilities     28,114,951         21,483,777  
Commitments and contingencies      
Stockholders' equity:        
Preferred stock, $.01 par value; 500,000 shares authorized;     -         -  
Common stock, $.01 par value; 14,500,000 shares authorized; 11,395,401  shares issued and 11,221,347  outstanding as of December 31, 2017  and 11,225,385  shares  issued and 11,190,606  outstanding as of June 30, 2017     113,954         112,254  
Additional paid-in-capital   125,354,035       124,409,998  
Treasury stock (At cost, 174,054 shares and 34,779 shares as of December 31, 2017 and June 30, 2017, respectively)     (1,055,330 )       (454,310 )
Accumulated deficit   (42,036,467 )     (42,301,390 )
Stock subscription receivable     (221,000 )       (297,511 )
Other comprehensive loss   (20,276,030 )     (18,074,570 )
Total NetSol stockholders' equity     61,879,162         63,394,471  
Non-controlling interest     14,543,224         14,799,082  
Total stockholders' equity     76,422,386         78,193,553  
Total liabilities and stockholders' equity $ 104,537,337     $   99,677,330  
           


  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, 
                     
           2017        2016        2017        2016  
            Restated       Restated
Net Revenues:                  
  License fees   $   235,932     $   3,769,557     $   561,998     $   9,223,352  
  Maintenance fees       3,568,448         3,588,899         7,042,173         7,112,696  
  Services         9,087,191         6,619,158         16,104,928         12,175,293  
  License fees - related party       217,105         -         261,513         246,957  
  Maintenance fees - related party       101,251         51,345         204,214         181,976  
  Services - related party       1,236,508         1,829,827         3,090,385         3,994,981  
     Total net revenues        14,446,435         15,858,786         27,265,211         32,935,255  
                     
Cost of revenues:                  
   Salaries and consultants        5,362,092         5,979,804         10,826,252         11,873,153  
   Travel          287,901         836,240         801,013         1,548,135  
   Depreciation and amortization        1,168,103         1,318,764         2,341,216         2,649,636  
   Other          939,986         1,065,727         1,796,568         2,038,065  
      Total cost of revenues       7,758,082         9,200,535         15,765,049         18,108,989  
                     
Gross profit         6,688,353         6,658,251         11,500,162         14,826,266  
                     
Operating expenses:                  
  Selling and marketing       1,932,140         2,713,478         3,643,436         5,057,516  
  Depreciation and amortization       222,785         271,485         468,658         540,582  
  Provision for bad debts       -         1,026         -         1,026  
  General and administrative       4,026,706         3,932,387         7,814,264         8,551,583  
  Research and development cost       189,891         91,607         374,976         184,539  
     Total operating expenses       6,371,522         7,009,983         12,301,334         14,335,246  
                     
Income from operations       316,831         (351,732 )       (801,172 )       491,020  
                     
Other income and (expenses)                
  Loss on sale of assets       (8,939 )       (32,339 )       (16,069 )       (34,742 )
  Interest expense       (109,675 )       (62,127 )       (227,746 )       (116,602 )
  Interest income       115,570         23,416         252,481         53,856  
  Gain (loss) on foreign currency exchange transactions       1,737,967         (621,887 )       2,754,329         (1,036,783 )
  Share of net loss from equity investment       (203,336 )       -         (270,898 )       -  
  Other income       14,511         6,823         15,610         28,383  
    Total other income (expenses)       1,546,098         (686,114 )       2,507,707         (1,105,888 )
                     
Net income (loss) before  income taxes       1,862,929         (1,037,846 )       1,706,535         (614,868 )
Income tax provision         (200,927 )       (338,884 )       (225,798 )       (378,759 )
Net income (loss)         1,662,002         (1,376,730 )       1,480,737         (993,627 )
  Non-controlling interest       (1,027,581 )       (791,664 )       (1,215,814 )       (1,560,878 )
Net income (loss) attributable to NetSol   $   634,421     $   (2,168,394 )   $   264,923     $   (2,554,505 )
                     
 
Net income (loss) per share:                
  Net income (loss) per common share                
     Basic     $   0.06     $   (0.20 )   $   0.02     $   (0.24 )
     Diluted   $   0.06     $   (0.20 )   $   0.02     $   (0.24 )
                     
                     
Weighted average number of shares outstanding                
  Basic         11,159,075         10,877,446         11,115,346         10,783,685  
  Diluted         11,171,543         10,877,446         11,127,814         10,783,685  
                     


NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows
       
       For the Six Months 
       Ended December 31, 
        2017       2016  
          Restated
 Cash flows from operating activities:          
      Net income (loss)      $   1,480,737     $   (993,627 )
      Adjustments to reconcile net income (loss)           
          to net cash provide by (used in) operating activities:          
      Depreciation and amortization          2,809,874         3,190,218  
      Provision for bad debts          -         1,026  
      Share of net loss from investment under equity method          270,898         -  
      Loss on sale of assets          16,069         34,742  
      Stock based compensation          833,530         1,525,775  
      Fair market value of warrants and stock options granted          -         21,804  
     Changes in operating assets and liabilities:           
        Accounts receivable        (13,231,059 )       3,678,110  
        Accounts receivable - related party        (1,637,829 )       829,285  
        Revenues in excess of billing        602,676         (7,592,495 )
        Revenues in excess of billing - related party        (32,308 )       285,791  
        Other current assets        (524,547 )       585,147  
        Accounts payable and accrued expenses        887,824         334,241  
        Unearned revenue        6,469,146         (1,830,619 )
     Net cash provided by (used in) operating activities          (2,054,989 )       69,398  
           
 Cash flows from investing activities:           
      Purchases of property and equipment          (543,123 )       (1,074,316 )
      Sales of property and equipment          193,241         181,087  
      Convertible note receivable - related party          (500,000 )       -  
      Investment in WRLD3D          (50,000 )       (705,555 )
     Net cash used in investing activities          (899,882 )       (1,598,784 )
           
 Cash flows from financing activities:           
      Proceeds from the exercise of stock options and warrants          215,311         429,452  
      Proceeds from exercise of subsidiary options      7,755         18,089  
      Purchase of treasury stock          (601,020 )       (38,885 )
      Dividend paid by subsidiary to non-controlling interest          (417,853 )       (968,657 )
      Proceeds from bank loans          708,457         -  
      Payments on capital lease obligations and loans - net          (361,814 )       (69,998 )
     Net cash used in financing activities          (449,164 )       (629,999 )
 Effect of exchange rate changes         (764,269 )       107,241  
 Net decrease in cash and cash equivalents         (4,168,304 )       (2,052,144 )
 Cash and cash equivalents, beginning of the period          14,172,954         11,557,527  
 Cash and cash equivalents, end of period      $   10,004,650     $   9,505,383  
           


NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP
             
  Three Months Three Months   Six Months   Six Months
  Ended Ended   Ended   Ended
  December 31, 2017 December 31, 2016   December 31, 2017   December 31, 2016
    Restated       Restated
             
 Net Income (loss) before preferred dividend, per GAAP  $   634,421   $   (2,168,394 )   $   264,923     $   (2,554,505 )
 Non-controlling interest      1,027,581       791,664         1,215,814         1,560,878  
 Income taxes      200,927       338,884         225,798         378,759  
 Depreciation and amortization      1,390,888       1,590,249         2,809,874         3,190,218  
 Interest expense      109,675       62,127         227,746         116,602  
 Interest (income)      (115,570 )     (23,416 )       (252,481 )       (53,856 )
 EBITDA  $   3,247,922   $   591,114     $   4,491,674     $   2,638,096  
 Add back:             
 Non-cash stock-based compensation      405,721       682,123     -     833,530         1,547,579  
 Adjusted EBITDA, gross  $   3,653,643   $   1,273,237     $   5,325,204     $   4,185,675  
 Less non-controlling interest (a)      (1,562,303 )     (1,550,729 )       (2,264,167 )       (3,183,972 )
 Adjusted EBITDA, net  $   2,091,340   $   (277,492 )   $   3,061,037     $   1,001,703  
             
             
 Weighted Average number of shares outstanding           
 Basic      11,159,075       10,877,446         11,115,346         10,783,685  
 Diluted      11,171,543       10,877,446         11,127,814         10,939,177  
             
 Basic adjusted EBITDA  $   0.19   $   (0.03 )   $   0.28     $   0.09  
 Diluted adjusted EBITDA  $   0.19   $   (0.03 )   $   0.28     $   0.09  
             
 
(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 $   1,027,581   $   791,664     $   1,215,814     $   1,560,878  
 Income Taxes      29,945       23,907         40,423         37,781  
 Depreciation and amortization      465,138       730,672         932,320         1,556,538  
 Interest expense      34,463       12,991         73,535         31,333  
 Interest (income)      (36,918 )     (34,947 )       (82,075 )       (51,397 )
 EBITDA  $   1,520,209   $   1,524,287     $   2,180,017     $   3,135,133  
 Add back:             
 Non-cash stock-based compensation      42,094       26,442         84,150         48,839  
 Adjusted EBITDA of non-controlling interest  $   1,562,303   $   1,550,729     $   2,264,167     $   3,183,972  

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