NETSOL Technologies Reports Fiscal Third Quarter 2022 Financial Results

Rhea-AI Summary

NETSOL Technologies, Inc. (Nasdaq: NTWK) reported a 7.4% increase in total net revenues to $14.8 million for Q3 FY 2022, driven by a 16% rise in subscription and support revenues, totaling $6.6 million. Despite increased operational expenses, annual recurring revenue saw a significant boost to a $26.2 million run rate. The company is on track with its fiscal 2022 guidance of 10% top-line growth and 20% growth in recurring revenues. However, gross profit decreased to 39% of net revenues due to higher sales costs.

Positive

• Total net revenues rose by 7.4% to $14.8 million.
• Subscription and support revenues increased by 16% to $6.6 million.
• Annual recurring revenue run rate reached $26.2 million.
• Top-line growth of 10.5% for the nine months ended March 31, 2022.
• Management reiterates fiscal 2022 guidance for 10% revenue growth and 20% subscription revenue growth.

Negative

• Gross profit decreased to $5.8 million (39% of net revenues), down from $6.4 million (47%).
• Operating expenses increased to $6.4 million (43% of sales), compared to $6.0 million (43%).
• Net loss of $0.3 million or $0.02 per diluted share, improved from a loss of $0.6 million or $0.05 per share.

Total net revenues up 7.4% to $14.8 million in Q3 FY 2022

Annual recurring revenue (SaaS and Support) increased to a $26.2 million run rate

CALABASAS, Calif., May 12, 2022 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (Nasdaq: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal third quarter ended March 31, 2022.

Fiscal Third Quarter 2022 and Recent Operational Highlights

• Subscription (SaaS and Cloud) and support quarterly revenues increased 16% to $6.6 million.
• NETSOL’s U.S. based mobility startup Otoz expanded its digital automotive retail platform MINI Anywhere® for BMW® Group Financial Services in the U.S. for its key brand MINI®. MINI Anywhere is now live with 17 MINI dealerships, including 70%+ of the California MINI dealerships and 75% of all Pennsylvania dealerships. The Company now has dealerships enrolled in California, Florida, Texas, New York, New Jersey, and Pennsylvania. Long term, the solution has the potential to be rolled out to over 100 MINI dealerships across all 50 states.
• Successfully completed key activities related to GAC China contract with deliveries expected in May and July 2022.
• Completed required workshops for Ascent 2.0 implementation for Motorcycle Group US with development of enhancements underway for three major modules: POS, CTA, and CMS.

Fiscal Third Quarter 2022 Financial Results

Total net revenues for the third quarter of fiscal 2022 were $14.8 million, compared with $13.8 million in the prior year period. The increase in total net revenues was primarily driven by increases in subscription and support revenues of $0.9 million and services revenue of $0.6 million, slightly offset by a decrease in license fees of $0.5 million.

• Total license fees were $1.6 million, compared with $2.1 million in the prior year period.
• Total subscription (SaaS and Cloud) and support revenues were $6.6 million, compared with $5.7 million in the prior year period.
• Total services revenues were $6.6 million, compared with $6.0 million in the prior year period.
  

Gross profit for the third quarter of fiscal 2022 was $5.8 million (or 39% of net revenues), compared to $6.4 million (or 47% of net revenues) in the third quarter of fiscal 2021. The decrease in gross profit was primarily due to an increase in cost of sales of $1.6 million driven by increases in salaries and consulting costs of $1.4 million.

Operating expenses for the third quarter of fiscal 2022 were $6.4 million (or 43% of sales), compared to $6.0 million (or 43% of sales) for the third quarter of fiscal 2021. The increase in operating expenses was primarily due to increases in selling and marketing expenses, offset by a decrease in general and administrative expenses.

GAAP net loss attributable to NETSOL for the third quarter of fiscal 2022 totaled $0.3 million or $0.02 per diluted share, compared with GAAP net loss of $0.6 million or $0.05 per diluted share in the third quarter of fiscal 2021.

Non-GAAP adjusted EBITDA for the third quarter of fiscal 2022 totaled $0.4 million or $0.03 per diluted share, compared with non-GAAP adjusted EBITDA of $0.2 or $0.02 per diluted share in the third quarter of fiscal 2021 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At March 31, 2022, cash and cash equivalents were $30.6 million, a decrease from $33.7 million at June 30, 2021.

Management Commentary

“We remain on-track to deliver on our fiscal 2022 guidance,” said NETSOL Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “We previously forecasted 10% top-line growth and 20% growth in our recurring revenues. I am pleased to report that for the nine months ended March 31, 2022, our team has delivered top-line growth of 10.5% and increased our annual recurring revenues by nearly 34%. Our pipeline and mix of opportunities remain robust, particularly in our European and North American growth markets, giving us confidence in our ability to drive additional contract signings over the coming months. Additionally, we are now seeing accelerated adoption of our Otoz Digital Retail Platform, one of our more venture-focused operations, as it continues to expand through its MINI Anywhere partnership. We were just entering our second state at the end of the last quarter, and now we are serving customers in six states with the platform. Our vision of pushing the boundaries for new ownership and payment models is quickly becoming a reality as we continue to support our customers where they are today and where they want to go in the future, building value for our shareholders in the process.”

Company CFO Roger Almond added: “Our subscription and support segment were a key growth driver during the quarter. As our workforce continues to return across our global footprint, we expect growth will accelerate in the quarters ahead, which will require a related increase in expenses to support our increased business activity moving forward. Our cash position remains near record levels, providing the resources to support our core business growth as well as strategic investments in high-return, long-term opportunities, such as the promising work of the Otoz Innovation Lab. With these factors in consideration, we are reiterating our full year revenue outlook of 10% topline growth and 20% subscription revenue growth throughout the balance of the year.”

Conference Call

NETSOL Technologies management will hold a conference call today (May 12, 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 10 minutes prior to the start time. An operator will register your name and organization.

The conference call will be webcast live and available for replay here and via the Investor Relations section of NETSOL’s website.

For interested individuals unable to join the conference call, a dial-in replay of the call will be available until May 26, 2022 and can be accessed by dialing +1-844-512-2921 (U.S. Toll Free) or +1-412-317-6671 (International) and entering replay pin number: 13729917.

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 1300 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 such as the effect of disparate stay at home orders and social distancing requirements imposed internationally by COVID-19 and its resultant impact on our financials and the world economy 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:

Dave Gentry
RedChip Companies
407-491-4498
investors@netsoltech.com

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

			As of				As of
	ASSETS		March 31, 2022				June 30, 2021
Current assets:
	Cash and cash equivalents		$	30,573,312			$	33,705,154
	Accounts receivable, net of allowance of $208,547 and $166,231			7,054,468				4,184,096
	Accounts receivable - related party, net of allowance of $1,373,099 and $1,373,099			-				-
	Revenues in excess of billings, net of allowance of $84,209 and $136,976			14,610,725				14,680,131
	Revenues in excess of billings - related party, net of allowance of $8,163 and $8,163			-				-
	Other current assets, net of allowance of $1,243,633 and $1,243,633			2,864,742				3,009,393
		Total current assets		55,103,247				55,578,774
Revenues in excess of billings, net - long term				993,862				957,603
Convertible note receivable - related party, net of allowance of $4,250,000 and $4,250,000				-				-
Property and equipment, net				10,114,458				12,091,812
Right of use of assets - operating leases				1,238,713				1,345,869
Long term investment				2,893,700				3,155,852
Other assets				37,583				55,127
Intangible assets, net				2,178,128				3,904,656
Goodwill				9,516,568				9,516,568
		Total assets	$	82,076,259			$	86,606,261
	LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	6,317,127			$	6,696,035
	Current portion of loans and obligations under finance leases			9,622,669				11,366,171
	Current portion of operating lease obligations			706,684				857,729
	Unearned revenue			6,948,669				4,556,626
		Total current liabilities		23,595,149				23,476,561
Loans and obligations under finance leases; less current maturities				127,899				699,841
Operating lease obligations; less current maturities				570,871				564,257
		Total liabilities		24,293,919				24,740,659
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $.01 par value; 500,000 shares authorized;			-				-
	Common stock, $.01 par value; 14,500,000 shares authorized;
		12,191,570 shares issued and 11,252,539 outstanding as of March 31, 2022 and
		12,181,585 shares issued and 11,265,064 outstanding as of June 30, 2021		121,916				121,816
	Additional paid-in-capital			129,084,786				129,018,826
	Treasury stock (at cost, 939,031 shares and 916,521 shares
	as of March 31, 2022 and June 30, 2021, respectively)			(3,920,856	)			(3,820,750	)
	Accumulated deficit			(37,484,998	)			(38,801,282	)
	Other comprehensive loss			(36,740,406	)			(31,868,481	)
		Total NetSol stockholders' equity		51,060,442				54,650,129
	Non-controlling interest			6,721,898				7,215,473
		Total stockholders' equity		57,782,340				61,865,602
		Total liabilities and stockholders' equity	$	82,076,259			$	86,606,261

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,
			2022				2021				2022				2021
Net Revenues:
	License fees		$	1,620,827			$	2,120,963			$	3,586,874			$	4,710,942
	Subscription and support			6,554,540				5,674,776				22,159,798				16,571,441
	Services			6,634,459				5,988,257				17,956,877				18,270,451
		Total net revenues		14,809,826				13,783,996				43,703,549				39,552,834
Cost of revenues:
	Salaries and consultants			6,756,898				5,372,302				18,081,225				15,193,613
	Travel			256,730				151,075				753,698				414,001
	Depreciation and amortization			741,587				759,768				2,236,190				2,180,766
	Other			1,220,041				1,075,403				3,712,256				2,915,122
		Total cost of revenues		8,975,256				7,358,548				24,783,369				20,703,502
Gross profit				5,834,570				6,425,448				18,920,180				18,849,332
Operating expenses:
	Selling and marketing			2,074,873				1,595,967				5,502,028				4,763,598
	Depreciation and amortization			206,346				272,075				633,481				715,437
	General and administrative			3,841,655				3,860,509				11,548,097				11,353,933
	Research and development cost			251,001				234,678				761,621				431,086
		Total operating expenses		6,373,875				5,963,229				18,445,227				17,264,054
Income (loss) from operations				(539,305	)			462,219				474,953				1,585,278
Other income and (expenses)
	Gain (loss) on sale of assets			8,770				(53,012	)			(181,955	)			(127,285	)
	Interest expense			(85,916	)			(98,656	)			(277,737	)			(296,224	)
	Interest income			364,161				231,979				1,123,547				643,654
	Gain (loss) on foreign currency exchange transactions			499,516				(1,825,349	)			2,684,680				(1,515,327	)
	Share of net loss from equity investment			(76,798	)			(80,953	)			(317,581	)			(232,488	)
	Other income			(30,296	)			521,758				(7,599	)			654,395
		Total other income (expenses)		679,437				(1,304,233	)			3,023,355				(873,275	)
Net income (loss) before income taxes				140,132				(842,014	)			3,498,308				712,003
Income tax provision				(157,604	)			(133,156	)			(526,737	)			(642,884	)
Net income (loss)				(17,472	)			(975,170	)			2,971,571				69,119
	Non-controlling interest			(260,998	)			351,939				(1,655,287	)			(216,900	)
Net income (loss) attributable to NetSol			$	(278,470	)		$	(623,231	)		$	1,316,284			$	(147,781	)
Net income (loss) per share:
	Net income (loss) per common share
		Basic	$	(0.02	)		$	(0.05	)		$	0.12			$	(0.01	)
		Diluted	$	(0.02	)		$	(0.05	)		$	0.12			$	(0.01	)
Weighted average number of shares outstanding
		Basic		11,249,606				11,343,406				11,249,449				11,571,878
		Diluted		11,249,606				11,343,406				11,249,449				11,571,878

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

				For the Nine Months
				Ended March 31,
				2022				2021
Cash flows from operating activities:
	Net income			$	2,971,571			$	69,119
	Adjustments to reconcile net income to net cash
		provided by (used in) operating activities:
	Depreciation and amortization				2,869,671				2,896,203
	Provision for bad debts				6,897				(280,363	)
	Share of net loss from investment under equity method				317,581				232,488
	Loss on sale of assets				181,955				127,285
	Stock based compensation				78,225				239,333
	Changes in operating assets and liabilities:
		Accounts receivable			(3,404,247	)			(777,953	)
		Revenues in excess of billing			(385,971	)			7,485,646
		Other current assets			53,173				(791,849	)
		Accounts payable and accrued expenses			14,918				(69,021	)
		Unearned revenue			2,822,178				1,256,456
	Net cash provided by operating activities				5,525,951				10,387,344
Cash flows from investing activities:
	Purchases of property and equipment				(1,680,856	)			(2,109,058	)
	Sales of property and equipment				321,251				131,293
	Investment in associates				-				(155,500	)
	Net cash used in investing activities				(1,359,605	)			(2,133,265	)
Cash flows from financing activities:
	Purchase of treasury stock				(100,106	)			(2,064,800	)
	Proceeds from bank loans				312,467				2,109,572
	Payments on finance lease obligations and loans - net				(1,045,464	)			(533,344	)
	Net cash used in financing activities				(833,103	)			(488,572	)
Effect of exchange rate changes					(6,465,085	)			2,666,800
Net increase (decrease) in cash and cash equivalents					(3,131,842	)			10,432,307
Cash and cash equivalents at beginning of the period					33,705,154				20,166,830
Cash and cash equivalents at end of period				$	30,573,312			$	30,599,137

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

	For the Three Months Ended				For the Three Months Ended				For the Nine Months Ended				For the Nine Months Ended
	March 31, 2022				March 31, 2021				March 31, 2022				March 31, 2021
Net Income (loss) attributable to NetSol	$	(278,470	)		$	(623,231	)		$	1,316,284			$	(147,781	)
Non-controlling interest		260,998				(351,939	)			1,655,287				216,900
Income taxes		157,604				133,156				526,737				642,884
Depreciation and amortization		947,933				1,031,843				2,869,671				2,896,203
Interest expense		85,916				98,656				277,737				296,224
Interest (income)		(364,161	)			(231,979	)			(1,123,547	)			(643,654	)
EBITDA	$	809,820			$	56,506			$	5,522,169			$	3,260,776
Add back:
Non-cash stock-based compensation		49,933				74,169				78,225				239,333
Adjusted EBITDA, gross	$	859,753			$	130,675			$	5,600,394			$	3,500,109
Less non-controlling interest (a)		(500,805	)			66,659				(2,382,721	)			(1,074,038	)
Adjusted EBITDA, net	$	358,948			$	197,334			$	3,217,673			$	2,426,071
Weighted Average number of shares outstanding
Basic		11,249,606				11,343,406				11,249,449				11,571,878
Diluted		11,249,606				11,343,406				11,249,449				11,571,878
Basic adjusted EBITDA	$	0.03			$	0.02			$	0.29			$	0.21
Diluted adjusted EBITDA	$	0.03			$	0.02			$	0.29			$	0.21
(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	$	260,998			$	(351,939	)		$	1,655,287			$	216,900
Income Taxes		45,427				34,867				159,854				127,749
Depreciation and amortization		279,055				283,716				840,508				812,816
Interest expense		25,764				29,585				81,846				89,929
Interest (income)		(117,417	)			(71,440	)			(362,146	)			(204,604	)
EBITDA	$	493,827			$	(75,211	)		$	2,375,349			$	1,042,790
Add back:
Non-cash stock-based compensation		6,978				8,552				7,372				31,248
Adjusted EBITDA of non-controlling interest	$	500,805			$	(66,659	)		$	2,382,721			$	1,074,038

FAQ

What were the total net revenues for NTWK in Q3 FY 2022?

Total net revenues for NTWK in Q3 FY 2022 were $14.8 million.

How much did NTWK's subscription and support revenues increase in Q3 FY 2022?

Subscription and support revenues increased by 16% to $6.6 million in Q3 FY 2022.

What is the annual recurring revenue run rate for NTWK as of May 2022?

The annual recurring revenue run rate for NTWK reached $26.2 million.

What is NTWK's guidance for fiscal 2022?

NTWK's management has reiterated a fiscal 2022 guidance of 10% top-line growth and 20% growth in subscription revenues.

What was the gross profit margin for NTWK in Q3 FY 2022?

The gross profit margin for NTWK in Q3 FY 2022 decreased to 39% of net revenues.