NETSOL Technologies Reports Fiscal Fourth Quarter and Full Year 2018 Financial Results

 

 

CALABASAS, Calif., Sept. 26, 2018 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (NASDAQ: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal fourth quarter and full year ended June 30, 2018.

Recent Operational Highlights

  • Additional cost savings in the fiscal fourth quarter mostly tied to reductions in costs of revenues and operating costs, bringing total savings to $8.5 million through fiscal 2018.
  • Secured a five-year contract valued at roughly $30 million with a European tier-one global auto captive to implement both NFS Ascent™ Retail and Wholesale platforms in China.
  • Secured a multi-million-dollar contract with major American multinational automaker to implement Ascent Retail Platform in China.
  • Received "First-Rate and Best-Selling Finance and Leasing Solution Provider" award at the China Leasing Summit 2018 for the sixth consecutive year.
  • Secured a multi-million-dollar agreement with a leading Asian auto captive finance company to implement NFS Ascent's Loan Origination System and Contract Management System.
  • Appointed two new members to the Board of Directors, Malea Farsai and Henry Tolentino, to provide greater diversity and breadth of experience.
  • NFS Ascent went live in South Africa, a new market, with German auto manufacturing giant as part of the ongoing international deployment associated with previously announced 12-country, $110 million contract.

Fiscal Fourth Quarter 2018 Financial Results
Total net revenues for the fourth quarter of fiscal 2018 were $16.6 million, compared with $14.5 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $122,000, an increase in total maintenance fees of $206,000 and an increase in total services revenues of $1.8 million.

  • Total license fees were $3.4 million, compared with $3.3 million in the prior year period.
  • Total maintenance fees were $3.8 million, compared with $3.6 million in the prior year period.
  • Total services revenues were $9.4 million, compared with $7.6 million in the prior year period.

Gross profit for the fourth quarter of fiscal 2018 was $8.5 million (or 51.2% of net revenues), compared to $4.6 million (or 31.7% of net revenues) in the fourth quarter of fiscal 2017. The increase in gross profit as a percentage of net revenues was primarily due to a decrease in costs of revenues of $1.8 million.

Operating expenses for the fourth quarter of fiscal 2018 decreased 6% to $7.4 million (or 44.6% of net revenues) from $7.9 million (or 54.7% of net revenues) for the fourth quarter of fiscal 2017. The decrease in operating expenses was primarily due to a decrease in provision for bad debts, which was offset by an increase in general and administrative expenses as well as research and development expenses.

GAAP net income attributable to NETSOL for the fourth quarter of fiscal 2018 totaled $1.2 million or $0.10 per diluted share, an improvement from net loss of $3.1 million or $(0.28) per diluted share in the fourth quarter of fiscal 2017.

Non-GAAP adjusted EBITDA for the fourth quarter of fiscal 2018 totaled $2.9 million or $0.26 per diluted share, an improvement from a loss of $851,000 or $(0.08) per diluted share in the fourth quarter of fiscal 2017 (see note regarding "Use of Non-GAAP Financial Measures," below for further discussion of this non-GAAP measure).

At June 30, 2018, cash and cash equivalents were $22.1 million, an increase from $14.2 million at June 30, 2017.

Full Year Fiscal 2018 Financial Results
Total net revenues for fiscal 2018 were $60.9 million, compared to $65.4 million in fiscal 2017. The decrease in total net revenues was primarily due to a decrease in total license fees of $11.6 million, which was offset by an increase in total maintenance fees of $332,000 and an increase in total services revenues of $6.8 million.

  • Total license fees were $6.9 million, compared with $18.5 million in the prior fiscal year.
  • Total maintenance fees were $14.8 million, compared with $14.5 million in the prior fiscal year.
  • Total services revenues were $39.3 million, compared with $32.4 million in the prior fiscal year.

Gross profit for fiscal 2018 increased to $29.2 million (or 47.9% of net revenues) from $28.4 million (or 43.5% of net revenues) for fiscal 2017. The increase in gross profit as a percentage of net revenues was primarily due to a decrease in costs of revenues of $5.2 million.

Operating expenses for fiscal 2018 decreased to $26.2 million (or 42.9% of net revenues) from $29.4 million (or 45.0% of net revenues) for fiscal 2017. The decrease in operating expenses was primarily due to decreases in selling and marketing expenses and provision for bad debts, which was offset by an increase in research and development expenses.

GAAP net income attributable to NETSOL for fiscal 2018 totaled $4.3 million or $0.38 per diluted share, an improvement from net loss of $5.0 million or $(0.46) per diluted share for fiscal 2017.

Non-GAAP adjusted EBITDA for fiscal 2018 totaled $10.3 million or $0.92 per diluted share, compared with $2.8 million or $0.26 per diluted share in fiscal 2017 (see note regarding "Use of Non-GAAP Financial Measures," below for further discussion of this non-GAAP measure).

Management Commentary
"The fiscal fourth quarter was a solid end to an eventful year for NETSOL, both financially and operationally," said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. "From a financial perspective, we successfully achieved our third consecutive quarter of profitability, grew our topline 15% over the fourth quarter of the prior year as well as continued to improve our cost structure and efficiencies. In fact, our overall cost reduction initiatives have now resulted in $8.5 million of savings through fiscal 2018, which was a major driving factor in us realizing the $9.3 million increase in annual net income over last year. On top of this, in the fourth quarter alone, we were able to generate $1.8 million in savings on costs of revenues and another $500,000 from operating expenses. These initiatives have not only made NETSOL a more nimble and efficient organization, but they've also provided additional bandwidth, with minimal incremental cost, for us to scale our business in fiscal 2019 and beyond."

"Operationally, we closed fiscal 2018 on a high note as well, demonstrated by the new and add-on sales we secured, which have continued and increased into the current year with a few notable wins," continued Ghauri. "More recently, we won a five-year, $30 million deal with a European tier-one global auto captive and also secured a multimillion-dollar implementation with a major American multinational automaker in China. Going forward, we're continuing to expand our strong pipeline of new projects, and we're now able to do so in an increasingly more efficient manner. Put another way, we are proactively focusing any newly available sales time and resources on more nascent deals we have specifically identified as being capable of progressing more quickly through the buying cycle. When coupled with the more mature deals we've been advancing over time, this combination presents a healthy and diverse mix of new win opportunities. Looking ahead, if 2018 was about transformation for NETSOL, then the beginning of 2019 has represented the inflection point that, we believe, will propel us to double-digit topline growth for the year."

Sales Outlook
"Fiscal 2018 has been a turnaround year for sales and NETSOL as a whole with several tier-one clients entering into new IT selection processes and Ascent making the shortlist in each occurrence," added President and Head of Sales Naeem Ghauri. "After closing out the previous fiscal year and starting the current one with back-to-back wins in China, we are upbeat and motivated to capitalize on this building momentum.  We remain confident in our ability to finish strong and secure further wins in fiscal 2019."

Conference Call
NETSOL Technologies management will hold a conference call today (September 26, 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 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 October 10, 2018.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13683245

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
949-574-3860
investors@netsoltech.com

 
NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets
 
   As of June 30,     As of June 30, 
ASSETS  2018     2017 
Current assets:      
Cash and cash equivalents $   22,088,853     $   14,172,954  
Accounts receivable, net of allowance of $610,061 and $571,511
    12,775,461         6,583,199  
Accounts receivable, net - related party     3,374,272         1,644,942  
Revenues in excess of billings     14,285,778         19,126,389  
Revenues in excess of billings - related party     -         80,705  
Convertible note receivable - related party     2,123,500         200,000  
Other current assets     2,703,032         2,463,886  
Total current assets     57,350,896         44,272,075  
Revenues in excess of billings, net - long term     1,206,669         5,173,538  
Property and equipment, net     16,165,491         20,370,703  
Long term investment     3,217,162         3,057,020  
Other assets     70,299         244,275  
Intangible assets, net     12,247,196         17,043,151  
Goodwill     9,516,568         9,516,568  
Total assets $   99,774,281     $   99,677,330  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable and accrued expenses $   7,873,809     $   6,880,194  
Current portion of loans and obligations under capitalized leases     8,595,919         10,222,795  
Unearned revenues     5,949,581         3,925,702  
Common stock to be issued     88,324         88,324  
Total current liabilities     22,507,633         21,117,015  
Loans and obligations under capitalized leases; less current maturities     330,596         366,762  
Total liabilities     22,838,229         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;      
11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018 and
     
11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017
    117,085         112,254  
Additional paid-in-capital     126,479,147         124,409,998  
Treasury stock (At cost, 205,853 shares and 34,779 shares
     
as of June 30, 2018 and June 30, 2017, respectively)
    (1,205,024 )       (454,310 )
Accumulated deficit     (37,994,502 )       (42,301,390 )
Stock subscription receivable     (221,000 )       (297,511 )
Other comprehensive loss     (24,386,071 )       (18,074,570 )
Total NETSOL stockholders' equity     62,789,635         63,394,471  
Non-controlling interest     14,146,417         14,799,082  
Total stockholders' equity     76,936,052         78,193,553  
Total liabilities and stockholders' equity $   99,774,281     $   99,677,330  

 

 
NETSOL Technologies, Inc. and Subsidiaries
Schedule 2: Consolidated Statement of Operations
 
   For the Three Months     For the Year 
   Ended June 30,     Ended June 30, 
   2018     2017     2018     2017 
Net Revenues:              
License fees $   3,387,386     $   3,265,338     $   6,598,254     $   18,218,912  
Maintenance fees     3,680,138         3,505,675         14,382,309         14,157,367  
Services     8,161,844         5,954,297         33,611,982         24,798,899  
License fees - related party     -         -         261,513         246,957  
Maintenance fees - related party     108,905         77,685         418,444         311,359  
Services - related party     1,282,954         1,678,698         5,657,756         7,632,774  
Total net revenues      16,621,227         14,481,693         60,930,258         65,366,268  
               
Cost of revenues:              
Salaries and consultants      5,611,843         6,610,960         21,856,162         24,645,223  
Travel      549,254         824,669         1,775,327         3,137,671  
Depreciation and amortization      1,142,444         1,458,235         4,610,737         5,448,059  
Other      803,650         1,002,364         3,481,115         3,727,379  
Total cost of revenues     8,107,191         9,896,228         31,723,341         36,958,332  
               
Gross profit     8,514,036         4,585,465         29,206,917         28,407,936  
               
Operating expenses:              
Selling and marketing     2,014,638         2,248,765         7,620,476         9,746,229  
Depreciation and amortization     262,771         289,051         962,737         1,114,275  
Provision for bad debts     460,730         1,407,019         460,730         1,407,751  
General and administrative     4,391,531         3,865,875         16,254,067         16,747,550  
Research and development cost     281,377         107,613         853,996         393,345  
Total operating expenses     7,411,047         7,918,323         26,152,006         29,409,150  
               
Income (loss) from operations     1,102,989         (3,332,858 )       3,054,911         (1,001,214 )
               
Other income and (expenses)              
Gain (loss) on sale of assets     (16,874 )       2,948         7,594         (30,147 )
Interest expense     (92,059 )       (133,085 )       (422,327 )       (310,044 )
Interest income     197,316         98,638         592,153         179,723  
Gain (loss) on foreign currency exchange transactions     (294,340 )       952,705         5,010,383         306,819  
Share of net loss from equity investment     272,020         -         (262,556 )       -  
Other income (expense)     26,923         22,214         42,847         50,378  
Total other income (expenses)     92,986         943,420         4,968,094         196,729  
               
Net income (loss) before  income taxes     1,195,975         (2,389,438 )       8,023,005         (804,485 )
Income tax provision     (386,047 )       (491,588 )       (873,027 )       (931,951 )
Net income (loss)     809,928         (2,881,026 )       7,149,978         (1,736,436 )
Non-controlling interest     367,593         (242,467 )       (2,843,090 )       (3,241,594 )
Net income (loss) attributable to NETSOL $   1,177,521      $   (3,123,493 )    $   4,306,888      $   (4,978,030 )
                               
Net income (loss) per share:              
Net income (loss) per common share              
Basic $   0.10     $   (0.28 )   $   0.38     $   (0.46 )
Diluted $   0.10     $   (0.28 )   $   0.38     $   (0.46 )
               
Weighted average number of shares outstanding              
Basic     11,274,196         11,098,202         11,197,319         10,912,284  
Diluted     11,274,196         11,098,202         11,197,319         10,912,284  
 
NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows
 
   For the Year 
   Ended June 30, 
    2018       2017  
 Cash flows from operating activities:       
 Net income (loss)  $   7,149,978     $   (1,736,436 )
 Adjustments to reconcile net income (loss)       
 to net cash provided by operating activities:       
 Depreciation and amortization      5,573,474         6,562,334  
 Provision for bad debts      460,730         1,407,751  
 Impairment of assets      172,505         -  
 Share of net loss from investment under equity method      262,556         -  
 (Gain) loss on sale of assets      (7,594 )       30,147  
 Stock based compensation      1,861,445         2,522,158  
 Fair market value of warrants and stock options granted      -         241,165  
 Changes in operating assets and liabilities:       
 Accounts receivable      (7,735,582 )       2,292,980  
 Accounts receivable - related party      (2,735,846 )       2,803,520  
 Revenues in excess of billing      6,788,580         (13,966,522 )
 Revenues in excess of billing - related party      77,128         211,615  
 Other current assets      (195,529 )       72,522  
 Accounts payable and accrued expenses      1,653,778         751,835  
 Unearned revenue      2,388,699         (738,704 )
 Net cash provided by operating activities      15,714,322         454,365  
       
 Cash flows from investing activities:       
 Purchases of property and equipment      (2,449,449 )       (2,203,203 )
 Sales of property and equipment      943,252         781,018  
 Convertible note receivable - related party      (1,923,500 )       (200,000 )
 Investment in WRLD3D      (230,000 )       (1,105,555 )
 Purchase of subsidiary shares from open market      (33,987 )       -  
 Net cash used in investing activities      (3,693,684 )       (2,727,740 )
       
 Cash flows from financing activities:       
 Proceeds from the exercise of stock options and warrants      312,311         866,438  
 Proceeds from exercise of subsidiary options      10,349         75,382  
 Restricted cash      90,000         -  
 Purchase of treasury stock      (750,714 )       (38,885 )
 Dividend paid by subsidiary to non-controlling interest      (417,853 )       (2,156,273 )
 Proceeds from bank loans      1,365,250         6,184,635  
 Payments on capital lease obligations and loans - net      (1,626,109 )       (554,048 )
 Net cash provided by (used in) financing activities      (1,016,766 )       4,377,249  
 Effect of exchange rate changes      (3,087,973 )       511,553  
 Net increase in cash and cash equivalents      7,915,899         2,615,427  
 Cash and cash equivalents at beginning of the period      14,172,954         11,557,527  
 Cash and cash equivalents at end of period  $   22,088,853     $   14,172,954  

 

 
NETSOL Technologies, Inc. and Subsidiaries
Schedule 4: Reconciliation to GAAP
 
  Year   Year
  Ended   Ended
  June 30, 2018   June 30, 2017
       
       
 Net Income (loss) before preferred dividend, per GAAP  $   4,306,888     $   (4,978,030 )
 Non-controlling interest      2,843,090         3,241,594  
 Income taxes      873,027         931,951  
 Depreciation and amortization      5,573,474         6,562,334  
 Interest expense      422,327         310,044  
 Interest (income)      (592,153 )       (179,723 )
 EBITDA  $   13,426,653     $   5,888,170  
 Add back:       
 Non-cash stock-based compensation      1,861,445         2,763,323  
 Adjusted EBITDA, gross  $   15,288,098     $   8,651,493  
 Less non-controlling interest (a)      (4,947,498 )       (5,841,143 )
 Adjusted EBITDA, net  $   10,340,600     $   2,810,350  
       
 Weighted Average number of shares outstanding       
 Basic      11,197,319         10,912,284  
 Diluted      11,197,319         10,919,169  
       
 Basic adjusted EBITDA  $   0.92     $   0.26  
 Diluted adjusted EBITDA  $   0.92     $   0.26  
       
(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 $   2,843,090     $   3,241,594  
 Income Taxes      162,419         140,499  
 Depreciation and amortization      1,817,367         2,168,249  
 Interest expense      136,445         98,331  
 Interest (income)      (180,061 )       (60,042 )
 EBITDA  $   4,779,260     $   5,588,631  
 Add back:       
 Non-cash stock-based compensation      168,238         252,512  
 Adjusted EBITDA of non-controlling interest  $   4,947,498     $   5,841,143  
 

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NEXT SpeakEasy amends and restates April 30, 2018 interim financial statements