NETSOL Technologies Reports Fiscal First Quarter 2023 Financial Results

0
17
  • Net Revenue for the Quarter Was $12.7 Million; On a Constant Currency Basis Net Revenue Increased 15.6% to $15.5 Million
  • Recurring Revenue (SaaS and Support) Was $6 Million; On a Constant Currency Basis Recurring Revenue increased 16.6% to $7.3 Million
  • Robust Sales Pipeline exceeding $200 million
  • New Partnership with Amazon Web Services
  • New Otoz Agreement with a Tier 1 Automotive Company in the U.S to Manage the Back- Office Operations for Vehicle Subscriptions
  • Company Launch of Flex Product Offering Reflects Ongoing Focus on Product Innovation

CALABASAS, Calif., Nov. 10, 2022 (GLOBE NEWSWIRE) — NETSOL Technologies, Inc. (Nasdaq: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal first quarter ended September 30, 2022.

Fiscal First Quarter 2023 and Recent Operational Highlights

  • Our sales pipeline continues to be strong with the addition of new prospects for NFS Ascent®, digital, and legacy solutions across various regions pushing the total pipeline size to approximately $200 million.
  • We signed a contract with a tier 1 automotive company in the U.S. for our Otoz mobility solution to manage the back-office operations for vehicle subscriptions.
  • We partnered with Amazon Web Services to offer cloud computing services, providing an innovative transformation for our cloud-based solutions. Since this launch, we have already signed our first customer, a software house based in the U.S.
  • We launched a new product offering – Flex, which is a cloud-based ready-to-use calculation engine that guarantees precise calculations at all stages of the contract lifecycle.   We successfully signed our first Flex contract with European Merchant Bank.
  • Otoz went live with its 28th dealer and is now with dealers in 13 states. The onboarding of these new dealers will help the business generate approximately $0.750 million to $1 million in annual recurring revenues.
  • We have expanded our footprint within China by opening a new office in Tianjin. This office will support both the ongoing delivery operations as well as the professional services vertical growth within China. Two new statements of work for professional services signed with BAIC and BYD will also be delivered and supported by the Tianjin team. 
  • We generated approximately $2.0 million by successfully implementing change requests from various customers across multiple regions.
  • We successfully renegotiated an existing maintenance contract with a leading finance company of a U.S.-based auto manufacturer in China increasing the annual maintenance fees to $500K from $280K. 

Fiscal First Quarter 2023 Financial Results

Total net revenues for the first quarter of fiscal 2023 were $12.7 million, compared with $13.4 million in the prior year period. The decrease in total net revenues was primarily driven by the devaluation of the foreign currencies compared to the U.S. Dollar. On a constant currency basis, net revenues were $15.5 million. The increase in revenues on a constant currency basis was driven by an increase in license fees of $314,000, an increase in subscription and support revenues of $1.0 million, and an increase in services revenue of $753,000.

  • Total license fees were $250,000, and on a constant currency basis were $325,000, compared with $10,700 in the prior year period.
  • Total subscription (SaaS and Cloud) and support revenues were $6 Million, and on a constant currency basis were $7.3 million, compared with $6.2 million in the prior year period.
  • Total services revenues were $6.4 million, and on a constant currency basis was $7.9 million, compared with $7.2 million in the prior year period.

Gross profit for the first quarter of fiscal 2023 decreased to $4.3 million (or 33.5% of net revenues), compared to $5.4 million (or 40.6% of net revenues) in the first quarter of fiscal 2022. On a constant currency basis, gross profit for the first quarter of fiscal 2023 decreased to $4.7 million (or 30.3% of net revenues as measured on a constant currency basis). The decrease in gross profit on a constant currency basis was primarily due to increases in cost of revenues of $2.8 million, offset by a $2.1 million increase in revenue on a constant currency basis. The increases in cost of sales on a constant currency basis were primarily due to increases in salaries and consulting costs of $2.1 million, travel costs of $292,000, depreciation of $121,000, and other costs of 351,000.

Operating expenses for the first quarter of fiscal 2023 were $6.1 million (or 48.4% of sales) compared to $6.1 million (or 45.3% of sales) for the first quarter of fiscal 2022. On a constant currency basis, operating expenses for the first quarter of fiscal 2023 increased to $7.4 million (or 47.6% of sales on a constant currency basis). The increase in operating expenses was primarily due to increases in selling and marketing, general and administrative, and research and development costs.

GAAP net loss attributable to NETSOL for the first quarter of fiscal 2023 totaled $(621,000) or $(0.06) per diluted share, compared with GAAP net income of $188,000 or $0.02 per diluted share in the first quarter of fiscal 2022. On a constant currency basis, GAAP net loss attributable to NETSOL for the first quarter of fiscal 2023 totaled $(912,000) or $(0.08) per diluted share. GAAP net loss attributable to NETSOL included a $1.3 million gain on foreign currency exchange transactions and on a constant currency basis a $1.8 million gain, in the first quarter of fiscal 2023, which was an increase from a gain of $1.3 million in the prior year period.

Non-GAAP adjusted EBITDA for the first quarter of fiscal 2023 totaled ($27,000) or $0.00 per diluted share, compared with non-GAAP adjusted EBITDA of $770,000 or $0.07 per diluted share in the first quarter of fiscal 2022 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At September 30, 2022, cash and cash equivalents were $21.0 million, a decrease from $24.0 million at June 30, 2022.   Total NetSol stockholders’ equity at September 30, 2022 was $42.1 million, or $3.73 per share.

Management Commentary

NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri stated, “We drove double digit growth on a constant currency basis and the pipeline and mix of opportunities remains robust in North America and Europe. Our focus in the U.S. market is showing traction as we have been adding new talent from local and global markets to create scale and capabilities to support tier 1 companies. In addition, the rollout of the Otoz Digital Retail Platform in partnership with MINI Anywhere has been a resounding success — 28 dealerships have subscribed and additional states are going online in the near future. We are very excited by the growing response of these dealerships across many States in the U.S.”  

Conference Call

NETSOL Technologies management will hold a conference call today (November 10, 2022) 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: 877-407-0789
International dial-in: 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 Investor Relations at 818 222 9195.

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 p.m. Eastern time through November 24, 2022.

Toll-free replay number: 844-512-2921
International replay number: 412-317-6671
Replay ID: 13734311

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 1750 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, a division of NETSOL Technologies Inc. (Nasdaq: NTWK), provides business-to-business, white-label technology solutions for new mobility. The Otoz 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 digital retailing and 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. Otoz 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 operating results, including statements regarding the Company that 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, 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:

IMS Investor Relations
[email protected]
+1 203-972-9200

NETSOL Technologies, Inc. and Subsidiaries
Schedule 1: Consolidated Balance Sheets

  As of   As of
ASSETS September 30, 2022   June 30, 2022
Current assets:      
Cash and cash equivalents $ 20,922,948     $ 23,963,797  
Accounts receivable, net of allowance of $153,580and $166,231   7,319,856       8,669,202  
Revenues in excess of billings, net of allowance of $77,525and $136,976   13,347,524       14,571,776  
Other current assets, net of allowance of $1,243,633and $1,243,633   2,480,415       2,223,361  
Total current assets   44,070,743       49,428,136  
Revenues in excess of billings, net – long term   714,458       853,601  
Convertible note receivable – related party, net of allowance of $4,250,000 and $4,250,000          
Property and equipment, net   8,850,651       9,382,624  
Right of use of assets – operating leases   1,336,742       969,163  
Long term investment   1,059,368       1,059,368  
Other assets   529       25,546  
Intangible assets, net   1,110,617       1,587,670  
Goodwill   9,302,524       9,302,524  
Total assets $ 66,445,632     $ 72,608,632  
       
  LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:      
Accounts payable and accrued expenses $ 7,029,527     $ 6,813,541  
Current portion of loans and obligations under finance leases   7,426,972       8,567,145  
Current portion of operating lease obligations   531,021       548,678  
Unearned revenue   3,982,198       4,901,562  
Total current liabilities   18,969,718       20,830,926  
Loans and obligations under finance leases; less current maturities   292,456       476,223  
Operating lease obligations; less current maturities   836,891       447,260  
Total liabilities   20,099,065       21,754,409  
Commitments and contingencies      
Stockholders’ equity:      
Preferred stock, $.01 par value; 500,000 shares authorized;          
Common stock, $.01 par value; 14,500,000 shares authorized;      
12,209,230 shares issued and 11,270,199 outstanding as of September 30, 2022 and      
12,196,570 shares issued and 11,257,539 outstanding as of June 30, 2022   122,093       121,966  
Additional paid-in-capital   128,420,519       128,218,247  
Treasury stock (at cost, 939,031 shares      
as of September 30, 2022 and June 30, 2022)   (3,920,856 )     (3,920,856 )
Accumulated deficit   (40,273,167 )     (39,652,438 )
Other comprehensive loss   (42,281,135 )     (39,363,085 )
Total NetSol stockholders’ equity   42,067,454       45,403,834  
Non-controlling interest   4,279,113       5,450,389  
Total stockholders’ equity   46,346,567       50,854,223  
Total liabilities and stockholders’ equity $ 66,445,632     $ 72,608,632  
       

NETSOL Technologies, Inc. and Subsidiaries
Schedule 2: Consolidated Statement of Operations

  For the Three Months
  Ended September 30,
    2022       2021  
Net Revenues:      
License fees $ 249,960     $ 10,716  
Subscription and support   6,016,834       6,230,389  
Services   6,439,325       7,179,656  
Total net revenues   12,706,119       13,420,761  
       
Cost of revenues:      
Salaries and consultants   6,086,735       5,662,410  
Travel   392,345       214,132  
Depreciation and amortization   654,049       765,735  
Other   1,320,993       1,335,461  
Total cost of revenues   8,454,122       7,977,738  
       
Gross profit   4,251,997       5,443,023  
       
Operating expenses:      
Selling and marketing   1,762,177       1,619,993  
Depreciation and amortization   190,954       214,271  
General and administrative   3,725,430       3,973,139  
Research and development cost   469,627       275,230  
Total operating expenses   6,148,188       6,082,633  
       
Loss from operations   (1,896,191 )     (639,610 )
       
Other income and (expenses)      
Gain (loss) on sale of assets   23,296       (110,600 )
Interest expense   (121,610 )     (101,013 )
Interest income   431,857       443,133  
Gain on foreign currency exchange transactions   1,315,705       1,284,148  
Share of net loss from equity investment         (160,965 )
Other income (expense)   2,320       3,029  
Total other income (expenses)   1,651,568       1,357,732  
       
Net income (loss) before income taxes   (244,623 )     718,122  
Income tax provision   (193,348 )     (167,627 )
Net income (loss)   (437,971 )     550,495  
Non-controlling interest   (182,758 )     (362,526 )
Net income (loss) attributable to NetSol $ (620,729 )   $ 187,969  
       
       
       
Net income (loss) per share:      
Net income (loss) per common share      
Basic $ (0.06 )   $ 0.02  
Diluted $ (0.06 )   $ 0.02  
       
Weighted average number of shares outstanding      
Basic   11,257,539       11,254,205  
Diluted   11,257,539       11,254,205  
       

NETSOL Technologies, Inc. and Subsidiaries
Schedule 3: Consolidated Statement of Cash Flows

       
  For the Three Months
  Ended September 30,
    2022       2021  
Cash flows from operating activities:      
Net income (loss) $ (437,971 )   $ 550,495  
Adjustments to reconcile net income to net cash      
provided by (used in) operating activities:      
Depreciation and amortization   845,003       980,006  
Provision for bad debts   (47,479 )     (45,274 )
Share of net loss from investment under equity method         160,965  
(Gain) loss on sale of assets   (23,296 )     110,600  
Stock based compensation   81,834       3,003  
Changes in operating assets and liabilities:      
Accounts receivable   815,132       (2,034,434 )
Revenues in excess of billing   337,996       (1,952,228 )
Other current assets   (340,390 )     (35,342 )
Accounts payable and accrued expenses   687,453       (43,293 )
Unearned revenue   (619,425 )     (1,086,151 )
Net cash provided by (used in) operating activities   1,298,857       (3,391,653 )
       
Cash flows from investing activities:      
Purchases of property and equipment   (1,347,601 )     (216,112 )
Sales of property and equipment   453,607       19,705  
Net cash used in investing activities   (893,994 )     (196,407 )
       
Cash flows from financing activities:      
Purchase of treasury stock         (100,106 )
Payments on finance lease obligations and loans – net   (445,737 )     (363,464 )
Net cash used in financing activities   (445,737 )     (463,570 )
Effect of exchange rate changes   (2,999,975 )     (2,653,648 )
Net decrease in cash and cash equivalents   (3,040,849 )     (6,705,278 )
Cash and cash equivalents at beginning of the period   23,963,797       33,705,154  
Cash and cash equivalents at end of period $ 20,922,948     $ 26,999,876  
       

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

  For the Three Months Ended   For the Three Months Ended
  September 30, 2022   September 30, 2021
       
Net Income (loss) attributable to NetSol $ (620,729 )   $ 187,969  
Non-controlling interest   182,758       362,526  
Income taxes   193,348       167,627  
Depreciation and amortization   845,003       980,006  
Interest expense   121,610       101,013  
Interest (income)   (431,857 )     (443,133 )
EBITDA $ 290,133     $ 1,356,008  
Add back:      
Non-cash stock-based compensation   81,834       3,003  
Adjusted EBITDA, gross $ 371,967     $ 1,359,011  
Less non-controlling interest (a)   (399,535 )     (588,879 )
Adjusted EBITDA, net $ (27,568 )   $ 770,132  
       
       
Weighted Average number of shares outstanding      
Basic   11,257,539       11,254,205  
Diluted   11,257,539       11,254,205  
       
Basic adjusted EBITDA $ (0.00 )   $ 0.07  
Diluted adjusted EBITDA $ (0.00 )   $ 0.07  
       
       
(a)The reconciliation of adjusted EBITDA of non-controlling interest    
to net income attributable to non-controlling interest is as follows      
       
Net Income (loss) attributable to non-controlling interest $ 182,758     $ 362,526  
Income Taxes   59,910       52,666  
Depreciation and amortization   238,333       287,631  
Interest expense   37,396       29,400  
Interest (income)   (132,489 )     (143,344 )
EBITDA $ 385,908     $ 588,879  
Add back:      
Non-cash stock-based compensation   13,627        
Adjusted EBITDA of non-controlling interest $ 399,535     $ 588,879