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.

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