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NETSOL Technologies Reports Fiscal Second Quarter 2018 Financial Results
[February 13, 2018]

NETSOL Technologies Reports Fiscal Second Quarter 2018 Financial Results


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 MonthsThree Months Six Months Six Months
 EndedEnded Ended Ended
 December 31, 2017December 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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