NETSOL Technologies Announces Fiscal 2017 Third Quarter

Third Quarter Total Net Revenues increased 12.4% year-over-year to a Q3 Record of $17.9 million
Third Quarter Net Income of $0.7 million and Diluted EPS of $0.06
Third Quarter Adjusted EBITDA of $2.3 million

- Conference Call Scheduled for Today at 9 a.m. ET (6 a.m. PT) -

CALABASAS, Calif., May 22, 2017 (GLOBE NEWSWIRE) -- NetSol Technologies, Inc. (Nasdaq:NTWK), a leading global provider of enterprise application solutions and business services to the finance and leasing industry, today announced financial results for the fiscal 2017 third quarter ended March 31, 2017.

Fiscal 2017 Third Quarter Financial Results

Total net revenues for the third quarter of fiscal 2017 were $17.9 million, an increase of 12.4% from the prior year period.

Total license fees were $5.7 million, an increase of 210.9% from $1.8 million in the prior year period.
Total maintenance fees were $3.6 million, an increase of 5.1% from $3.4 million in the prior year period.
Total services revenues were $8.6 million, a decrease of 19.5% from $10.7 million in the prior year period.
On-track to deliver record revenues in fiscal year 2017.

Gross profit for the third quarter of fiscal 2017 was $9.0 million, or 50.1% of net revenues, an increase of 21.7% from $7.4 million, or 46.3% of net revenues, in the third quarter of fiscal 2016.

Net income attributable to NETSOL for the third quarter of fiscal 2017 was $0.7 million, or $0.06 per diluted share, compared with $0.8 million, or $0.08 per diluted share, in the third quarter of fiscal 2016.

Adjusted EBITDA¹ for the third quarter of fiscal 2017 was $2.3 million, representing Adjusted EBITDA per diluted share of $0.21, compared with Adjusted EBITDA of $2.3 million, or Adjusted EBITDA per diluted share of $0.21, in the third quarter of fiscal 2016.

At March 31, 2017, cash and cash equivalents were $8.5 million, compared with $11.6 million at June 30, 2016 and $11.9 million at March 31, 2016.

_____________________

^[1] 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.

Management Commentary
“We are pleased to deliver solid revenue growth and margin improvement in the fiscal third quarter,” said Najeeb Ghauri, Founder, Chairman and Chief Executive Officer of NETSOL. “We had a strong quarter for NFS Ascent license and services revenue, and for the first time, Ascent revenue exceeded fees from our legacy NFS solution suite. Conversely, our legacy NFS-related revenue was lower-than-expected in the fiscal third quarter, driven by a slowdown in new license and services fees as several of our NFS clients are beginning to explore with us a migration path to our next-generation NFS Ascent platform. Looking ahead, we view this inflection point in our revenue growth mix as a long-term positive for NETSOL and believe we are well-positioned to continue to build off this solid foundation. Nevertheless, we expect this tactical shift in our clients’ demand will continue to impact our results in the fourth quarter. In addition, the non-conversion of some new client contracts also impacted our fiscal third quarter results. We have reduced our fiscal year 2017 guidance to reflect these factors. Despite our tempered outlook for fiscal 2017, the strong fundamental drivers of our business remain unchanged, and we remain very optimistic about NETSOL’s future growth potential. Finally, I am pleased with the progress we have made on our recently announced costs reduction initiatives, as this helped us to improve our bottom-line in the quarter. We are on track to deliver $1.5 million of cost savings in the second half of fiscal 2017 and $4 million on an annualized basis beginning in fiscal 2018.”

Naeem Ghauri, President of NETSOL Global Sales and Marketing, provided additional color on the Company’s sales pipeline, “We have a robust global pipeline of new business opportunities, including our NFS Ascent pipeline which continues to expand across the Americas, Europe and Asia Pacific. Ascent has become referenceable for new clients as several of the implementations are now live and being used by thousands of users across our APAC region. Our pipeline includes both upgrades from legacy NFS to NFS Ascent as well as organic opportunities from new prospects. Many of these potential opportunities represent multi-country, multi-million dollar implementations.” Naeem Ghauri continued, “While we are highly encouraged by the growth of our NFS Ascent pipeline, we are also experiencing elongated sales cycles that require in-depth evaluation and stringent procurement processes within tier-one organizations. However, we have extensive experience working within these processes, and expect to come out on the other end with positive outcomes.”

Fiscal 2017 Financial Outlook
The Company has revised its financial outlook for the fiscal year ending June 30, 2017 as follows:

Total net revenues of $66 to $67 million for fiscal 2017.
Non-GAAP Adjusted EBITDA, net, of $5 to $6 million for fiscal 2017.

Revision to Prior Period Financial Statements
During the preparation of the Company’s Form 10-Q for the nine months ended March 31, 2017, misstatements were identified regarding the timing of revenue recognition for the complex 12-country NFS Ascent contract. NETSOL will amend its financial statements for the quarters ended September 30, 2015, December 31, 2015, September 30, 2016 and December 31, 2016. The cumulative impact to the Company’s financial results from the amendment is immaterial for the fiscal year ended June 30, 2016 and the nine months ended March 31, 2017. The Company has disclosed further in detail in its Form 10-Q for the period ended March 31, 2017, which will be filed today with the Securities Exchange Commission.

Fiscal 2017 Third Quarter Conference Call


When:		Monday, May 22, 2017
Time:		9:00 a.m. Eastern Time
Phone:		1-844-868-9327 (domestic)
		1-412-317-6595 (international)
Note:		Once connected, please ask to be joined into the NETSOL Technologies call.

A replay will be available one hour after the end of the conference call and can be accessed by dialing 1-877-344-7529 (domestic) or 1-412-317-0088 (international); the replay access code is 10106843. The replay will be available through Monday, May 29, 2017.

A live webcast will be available online within the investor relations section of NETSOL’s website at http://www.netsoltech.com. A replay of the webcast will be available one hour following conclusion of the live call, and will be archived for one year.

About NetSol Technologies
NetSol Technologies, Inc. (NASDAQ:NTWK) is a worldwide provider of IT and enterprise software solutions primarily serving the global leasing and financing industry. The Company’s suite of applications are backed by 40 years of domain expertise and supported by a committed team of more than 1,500 professionals placed in eight strategically located support and delivery centers throughout the world. NFS^TM, LeasePak^TM, LeaseSoft or NFS Ascent^TM – help companies transform their finance and leasing operations, providing a fully automated asset-based finance solution covering the complete leasing and finance lifecycle.

Investors can receive news releases and invitations to special events by accessing our online signup form at http://ir.netsoltech.com/email-alerts.

Forward-Looking Statements

Certain statements in this press release are forward-looking in nature, including, but not limited to, expected net revenue, EBITDA, and adjusted EPS amounts for the full fiscal year and the growing market need for NFS Ascent, 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.

Investor Contact

ICR
William Maina
(646) 277-1236
investors@netsoltech.com


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

			As of March 31,			As of June 30,
	ASSETS			2017			2016
Current assets:
	Cash and cash equivalents		$	8,450,115		$	11,557,527
	Accounts receivable, net of allowance of $494,011 and $492,498			10,301,949			9,691,229
	Accounts receivable, net - related party			4,414,635			5,691,178
	Revenues in excess of billings			20,893,955			10,493,096
	Revenues in excess of billings - related party			94,685			804,168
	Other current assets			3,040,774			2,214,628
		Total current assets		47,196,113			40,451,826
Restricted cash				90,000			90,000
Property and equipment, net				21,205,976			22,774,435
Other assets				2,549,858			842,553
Intangible assets, net				17,662,773			19,674,033
Goodwill				9,516,568			9,516,568
		Total assets	$	98,221,288		$	93,349,415

	LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	7,404,181		$	5,962,770
	Current portion of loans and obligations under capitalized leases			5,650,475			4,440,084
	Unearned revenues			4,025,642			4,739,214
	Common stock to be issued			88,324			88,324
		Total current liabilities		17,168,622			15,230,392
Long term loans and obligations under capitalized leases; less current maturities				499,515			477,692
		Total liabilities		17,668,137			15,708,084
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $.01 par value; 500,000 shares authorized;			-			-
	Common stock, $.01 par value; 14,500,000 shares authorized;
		11,132,349 shares issued and 11,097,570 outstanding as of March 31, 2017 and
		10,713,372 shares issued and 10,686,093 outstanding as of June 30, 2016		111,324			107,134
	Additional paid-in-capital			123,693,569			121,448,946
	Treasury stock (34,779 shares and 27,279 shares)			(454,310	)		(415,425	)
	Accumulated deficit			(39,177,897	)		(37,323,360	)
	Stock subscription receivable			(359,070	)		(783,172	)
	Other comprehensive loss			(18,797,496	)		(18,730,494	)
		Total NetSol stockholders' equity		65,016,120			64,303,629
	Non-controlling interest			15,537,031			13,337,702
		Total stockholders' equity		80,553,151			77,641,331
		Total liabilities and stockholders' equity	$	98,221,288		$	93,349,415

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

			For the Three Months						For the Nine Months
			Ended March 31,						Ended March 31,
				2017			2016			2017			2016
Net Revenues:
	License fees		$	5,730,222		$	1,358,469		$	14,953,574		$	3,076,541
	Maintenance fees			3,538,996			3,388,526			10,651,692			9,826,209
	Services			7,004,272			8,159,490			19,795,073			24,487,467
	License fees - related party			-			484,644			246,957			484,644
	Maintenance fees - related party			51,698			28,423			233,674			218,409
	Services - related party			1,624,132			2,554,347			5,003,605			7,377,430
		Total net revenues		17,949,320			15,973,899			50,884,575			45,470,700

Cost of revenues:
	Salaries and consultants			6,161,110			5,691,530			18,034,263			15,936,191
	Travel			764,867			543,672			2,313,002			1,779,134
	Depreciation and amortization			1,340,188			1,483,695			3,989,824			4,419,396
	Other			686,950			860,868			2,725,015			2,822,347
		Total cost of revenues		8,953,115			8,579,765			27,062,104			24,957,068

Gross profit				8,996,205			7,394,134			23,822,471			20,513,632

Operating expenses:
	Selling and marketing			2,439,948			1,896,295			7,497,464			5,597,689
	Depreciation and amortization			284,642			321,230			825,224			898,018
	General and administrative			4,329,798			3,808,327			12,882,407			10,391,844
	Research and development cost			101,193			132,123			285,732			362,117
		Total operating expenses		7,155,581			6,157,975			21,490,827			17,249,668

Income (loss) from operations				1,840,624			1,236,159			2,331,644			3,263,964

Other income and (expenses)
	Gain (loss) on sale of assets			1,647			14,848			(33,095	)		642
	Interest expense			(60,357	)		(56,070	)		(176,959	)		(196,399	)
	Interest income			27,229			29,673			81,085			117,084
	Gain (loss) on foreign currency exchange transactions			390,897			12,955			(645,886	)		(235,291	)
	Other income (expense)			(219	)		25,258			28,164			200,256
		Total other income (expenses)		359,197			26,664			(746,691	)		(113,708	)

Net income (loss) before income taxes				2,199,821			1,262,823			1,584,953			3,150,256
Income tax provision				(61,604	)		(106,209	)		(440,363	)		(454,707	)
Net income (loss)				2,138,217			1,156,614			1,144,590			2,695,549
	Non-controlling interest			(1,438,249	)		(307,135	)		(2,999,127	)		(1,382,033	)
Net income (loss) attributable to NetSol			$	699,968		$	849,479		$	(1,854,537	)	$	1,313,516



Net income (loss) per share:
	Net income (loss) per common share
		Basic	$	0.06		$	0.08		$	(0.17	)	$	0.13
		Diluted	$	0.06		$	0.08		$	(0.17	)	$	0.12

Weighted average number of shares outstanding
	Basic			10,987,214			10,427,664			10,850,538			10,338,740
	Diluted			11,121,620			10,643,479			10,850,538			10,554,555

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

			For the Nine Months
			Ended March 31,
				2017			2016
Cash flows from operating activities:
	Net income		$	1,144,590		$	2,695,549
	Adjustments to reconcile net income
		to net cash provided by (used in) operating activities:
	Depreciation and amortization			4,815,048			5,317,414
	Provision for bad debts			732			49,605
	(Gain) Loss on sale of assets			33,095			(642	)
	Stock issued for services			1,998,968			694,693
	Fair market value of warrants and stock options granted			26,956			145,716
	Changes in operating assets and liabilities:
		Accounts receivable		(649,776	)		115,428
		Accounts receivable - related party		405,009			(3,111,316	)
		Revenues in excess of billing		(10,388,695	)		(3,078,655	)
		Revenues in excess of billing - related party		553,767			15,507
		Other current assets		419,704			(838,913	)
		Accounts payable and accrued expenses		337,890			617,112
		Unearned revenue		(715,880	)		(1,490,697	)
	Net cash provided by (used in) operating activities			(2,018,592	)		1,130,801

Cash flows from investing activities:
	Purchases of property and equipment			(1,315,922	)		(2,523,865	)
	Sales of property and equipment			149,430			556,280
	Purchase of treasury stock			(38,885	)		-
	Investment			(905,555	)		(555,556	)
	Purchase of subsidiary shares from open market			-			(767,397	)
	Net cash used in investing activities			(2,110,932	)		(3,290,538	)

Cash flows from financing activities:
	Proceeds from sale of common stock			-			64,931
	Proceeds from the exercise of stock options and warrants			785,479			728,699
	Proceeds from exercise of subsidiary options			54,377			16,744
	Dividend paid by subsidiary to non-controlling interest			(968,657	)		-
	Proceeds from bank loans			1,484,162			1,334,285
	Payments on capital lease obligations and loans - net			(251,040	)		(736,405	)
	Net cash provided by financing activities			1,104,321			1,408,254
Effect of exchange rate changes				(82,209	)		(1,536,315	)
Net decrease in cash and cash equivalents				(3,107,412	)		(2,287,798	)
Cash and cash equivalents, beginning of the period				11,557,527			14,168,957
Cash and cash equivalents, end of period			$	8,450,115		$	11,881,159

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

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	March 31, 2017			March 31, 2016			March 31, 2017			March 31, 2016

Net Income (loss) before preferred dividend, per GAAP	$	699,968		$	849,479		$	(1,854,537	)	$	1,313,516
Non-controlling interest		1,438,249			307,135			2,999,127			1,382,033
Income taxes		61,604			106,209			440,363			454,707
Depreciation and amortization		1,624,830			1,804,925			4,815,048			5,317,414
Interest expense		60,357			56,070			176,959			196,399
Interest (income)		(27,229	)		(29,673	)		(81,085	)		(117,084	)
EBITDA	$	3,857,779		$	3,094,145		$	6,495,875		$	8,546,985
Add back:
Non-cash stock-based compensation		478,345			368,674			2,025,924			840,409
Adjusted EBITDA, gross	$	4,336,124		$	3,462,819		$	8,521,799		$	9,387,394
Less non-controlling interest (a)		(2,045,028	)		(1,186,132	)		(4,860,826	)		(3,884,124	)
Adjusted EBITDA, net	$	2,291,096		$	2,276,687		$	3,660,973		$	5,503,270


Weighted Average number of shares outstanding
Basic		10,987,214			10,427,664			10,850,538			10,338,740
Diluted		11,121,620			10,643,479			10,984,944			10,554,555

Basic adjusted EBITDA	$	0.21		$	0.22		$	0.34		$	0.53
Diluted adjusted EBITDA	$	0.21		$	0.21		$	0.33		$	0.52


(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	$	1,438,249		$	307,135		$	2,999,127		$	1,382,033
Income Taxes		10,871			36,569			71,916			74,350
Depreciation and amortization		538,118			790,065			1,587,412			2,346,603
Interest expense		17,502			9,416			53,918			40,749
Interest (income)		(10,610	)		(31,715	)		(27,702	)		(83,112	)
EBITDA	$	1,994,130		$	1,111,470		$	4,684,671		$	3,760,623
Add back:
Non-cash stock-based compensation		50,898			74,662			176,155			123,501
Adjusted EBITDA of non-controlling interest	$	2,045,028		$	1,186,132		$	4,860,826		$	3,884,124

From time to time, NETSOL may refer to Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization and Stock-based Compensation) and “non-GAAP adjusted EBITDA per diluted share or Adjusted EBITDA per diluted share” in its conference calls and discussions with investors and analysts in connection with the company’s reported historical financial results. Adjusted EBITDA does not represent cash flows from operations as defined by generally accepted accounting principles (“GAAP”), is not derived in accordance with GAAP and should not be considered by the reader as an alternative to net income (the most comparable GAAP financial measure to Adjusted EBITDA). Non-GAAP adjusted EBITDA per diluted share or Adjusted EBITDA per diluted share is not derived in accordance with GAAP and should not be considered by the reader as an alternative to reported GAAP diluted EPS. The reconciliation of GAAP and non-GAAP financial measures for the three and nine month periods ended March 31, 2017 and 2016 are included in the above table. NETSOL’s management believes that Adjusted EBITDA and Adjusted EBITDA per diluted share are helpful as an indicator of the current financial performance of the company. NETSOL also adjusts for non-cash items, such as stock-based compensation as we believe excluding these costs provide a useful metric by which to compare performance from period to period. Management strongly encourages investors to review the company’s consolidated financial statements in their entirety and to not rely on any single financial measure in evaluating the company.

NETSOL Technologies Announces Fiscal 2017 Third Quarter Financial Results