NetSol Technologies, Inc. Price & Performance (NTWK)

Good morning, everyone, and thank you for joining us.

Following your review of the company's business highlights and financial results, we will open the call for questions. I'll now provide the necessary cautions regarding the forward looking statements made by management during this call. Please note that all the information discussed on today's call covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. The company's discussion may include forward looking statements reflecting management's current forecast, of certain aspects of the company's future and our actual results could differ materially from those stated or implied. These forward looking statements are qualified by the cautionary statements contained in NetSol's NetSol press release, and SEC filings, including our annual report on Form 10 ks, and quarterly reports on Form 10 Q. I would also like to point out that we will be discussing certain non GAAP measures. The press release issued earlier today contains a reconciliation of these non GAAP financial results to their most comparable GAAP measures. And made available for replay at www.netsaltech.com and via link available in today's press release. Now, I'd like to turn the call over to Najeeb. Najeeb?

Thank you, Perry, and good morning, everyone. Today, I'm happy to be dialing in from Lahore, Pakistan, Nestle office. This quarter, we made significant progress primarily on two fronts. One, we drove considerable growth our recurring revenues and two, we invested strategically our business, particularly in AI to position us as we drive long term sustained value for our customers and our shareholders. We achieved total net revenue growth in the second fiscal quarter of twenty twenty five driven primarily by a double digit percentage increase in recurring revenues at 26% increase in services revenues when compared to the second quarter of fiscal twenty twenty four.

The growth recurring revenue is in line with the long term strategy and it demonstrates the continued evolution of our business model that over time should drive enhanced [indiscernible] and profitability for our business. To drive this shift, we are investing in multiple opportunities across our diverse markets that we believe are in line with the long term strategy Accordingly, we recognized increased sales and marketing expenses in the quarter While these investments have had a short term impact on our profitability, they better position us to capitalize on the many growth opportunities in front of us, Specifically, AI or artificial intelligence continues to be an important initiative and a key strategic focus for our future growth. Have made encouraging progress advancing our AI initiatives in both the second quarter and year to end period which our Chief Marketing Officer Eric will elaborate on after my prepared remarks. Lastly, our existing markets are strong We are receiving considerable interest from leading automakers equipment providers, and financial institutions throughout APAC region where we have a leading market share and Europe where Nestle is both a well known respected name. During the quarter, we announced a multimillion dollar agreement with BMW Group in U. S. With the leading automotive furnaces in China expanding on a longstanding relationship between NetSol this customer that dates back to 02/2009.

After the close of the quarter, we also announced a go live of an existing agreement with Kubota a leading Japanese equipment financing company and a long standing customer for our Transcend Finance platform [indiscernible] their operations in Australia In addition, to their operations in New Zealand and other parts. Agreements like these demonstrate the depth of NetSol's NetSol customer relationships and are their validation of the superior products and service that we provide in a highly competitive market. Demand of our transcent platform is strong in The U. S. As well. As I have mentioned on previous calls, Transcend Retail our fully digital omni channel platform that seamlessly integrates into our customers' processes to manage entire appreciating journey is being used by MINI Anywhere USA independent brand of BMW Group to facilitate a quick and efficient purchasing journey for customers. In addition to Mini Anywhere USA, I'm excited to share with you that we are also in the process of integrating Transcend Retail with new customers USA expanding into more dealerships beyond the Mini U. S. A. NetSol. Taking the long term view of our business, I'm pleased with the progress we have made in this quarter I'm encouraging I'm encouraged by what's to come in the later half of fiscal 2025 are confident that the investments we are making in this business coupled with our shifting revenue revenue mix to include more recurring subscription and support revenues will translate into enhanced profitability and sustained value creation for our shareholders.

Before we go our financial results for the quarter, I'd like to turn the call over to Eric Wagner, our Chief Marketing Officer to take a deeper dive into our AI initiatives Eric, go ahead please.

Thanks Najeeb and good morning everyone. I'm excited to share with you today how NetSol Technologies continues to pave the way with our AI innovations, in our industry and how we are integrating AI across our products, services, and our own business operations to drive efficiency, intelligence and transformation Our journey with artificial intelligence began in 2019 when we began building our internal AI capabilities. In doing so, we've made several strategic investments that we believe position NetSol as an AI first organization In 2024, we took a major step forward in this initiative when we launched Transcend AI Labs. Our dedicated AI innovation company. Transcen AI Labs is focused on three core areas: First, are building out our internal capacity and understanding of AI to make sure that our team remains at the forefront of this rapidly evolving technology. We've invested heavily in building comprehensive curriculums to educate and enhance the skills of our staff and demonstrate how to apply this transformation transformative technology to achieve better outcomes. Second, we're leveraging our AI expertise to enhance our products. At present, we're adding major functional AI enhancements to our Transcend retail and Transcend finance offerings and we're exploring additional upgrades across our entire product suite.

And third, we're enhancing TransN Consultancy's AI services to better offer expert guidance across critical areas like information security, data engineering and cloud services. In short, we are providing specialized AI consulting solutions to help businesses achieve their goals. Taking things a step further, in the fall of twenty twenty four, we launched the Transcend platform. Our AI driven unified product ecosystem that revolutionizes how assets are sold financed and leased This quarter, we are rolling out several major AI advancements. And I want to highlight two key advancements that will have an impact immediately. The first enhancement is Intelligent Document Processing or IDP. This AI powered solution transforms multi document verification, data extraction and classification, handling bank statements, financial records, contracts and ID cards with OCR and NLP technology. IDP not only reduces manual intervention, but also integrates advanced analytics to assess cash flows, credit history and risk factors improving credit underwriting and real time decision making Automated compliance validation insurers extracted data meets regulatory and internal standards, reducing operational risk. With automated invoice and contract processing, businesses can accelerate approvals minimize errors, and optimize risk assessments, delivering a faster, more efficient financing Second, we have our interactive AI assistant, which provides real time support throughout the asset finance lifecycle assisting customers and internal teams with instant responses process guidance and intelligent recommendations.

This enhancement is designed to increase operational efficiency, improve customer interactions, and create a more intuitive and responsive experience. At NetSol, AI is not just a tool. It's a core part of our strategy. By integrating AI across the Transcend platform, we're enhancing efficiency, improving customer experiences and future proofing our business. As we continue expanding Transcend's capabilities, we look forward to sharing more about how AI is driving transport transformation and unlocking new growth opportunities for NetSol NetSol. That concludes my remarks. I will now turn the call over to Roger Allman, Chief Financial Officer of NetSol to go over our fiscal second quarter twenty twenty five results.

Roger? Thanks, Eric. Our total net revenues for the second quarter of fiscal twenty twenty five were $15,500,000 compared with $15,200,000 dollars in the prior year period.

License fee for the second quarter fiscal twenty twenty five were $73,000 compared with $3,000,000 in the prior year period. Recurring revenues or subscription and support revenues for the second quarter of fiscal twenty twenty five were $8,600,000 compared with $6,800,000 in the prior year period. Representing an increase of 27%.

Included in our recurring revenues this quarter was a one time catch up of approximately $1,000,000 These one time catch ups are a normal part of our business operation and occur during any of our reporting periods. Absent this one time catch up, our recurring revenue revenue in the quarter would have been approximately $7,600,000 or a 12% increase over the prior year period. More accurately reflects the increases in contract values for this segment. As Najeeb stated in his prepared remarks, we are confident that this growth in recurring revenues over time will benefit our business in the long term by driving more predictable and reliable results that generates a Total services revenue for the second quarter fiscal twenty twenty five were $6,800,000 compared with $5,400,000 in the prior year period or a 26% increase. Total cost of revenues was $8,600,000 for the second quarter of of of Gross profit for the second quarter of fiscal twenty twenty five was $6,900,000 dollars or 45% of net revenues compared with $7,200,000 or 47% of net revenues in the prior year period. Operating expenses for the second quarter fiscal twenty twenty five were $7,400,000 or 48% of sales compared to $6,100,000 or 40% of sales in the same period last year.

Loss from operations for the second quarter of fiscal twenty twenty five was $487,000 compared to income from operations of $1,000,000 in the second quarter of fiscal twenty twenty four. Turning to our profitability metrics. GAAP net loss attributable to net sold for the second quarter of fiscal twenty twenty five totaled $1,100,000 or a loss of $0.1 per diluted share. Compared with a GAAP net income of $408,000 or $0.04 per diluted share in the second quarter of fiscal twenty twenty four. Included in our GAAP net loss in the quarter was a loss on foreign currency exchange transactions of 698,000 compared with a loss of approximately $14,000 in the prior year period. Because we operate in several geographical regions, a significant portion of our business is conducted in currencies other than the U. S. Dollar. A decrease in the value of the U. S. Dollar compared to foreign currency exchange rates generally has effect of increasing our revenue other than the U. S. Dollar. Likewise, as the U. S. Dollar gained strength relative to foreign exchange rates, tends to reduce our revenues, but it also reduces our expense denominated in currencies other than the U. S. Dollar. Moving to our non GAAP metrics.

Non GAAP EBITDA for the second quarter of fiscal twenty twenty five was a loss of $775,000 or $0.07 per diluted share compared with non GAAP EBITDA of $1,400,000 or $0.12 per diluted share in the prior year period.

Non GAAP adjusted EBITDA for the second quarter of fiscal twenty twenty five was a loss of $789,000 or $0.07 per diluted share compared with the non GAAP adjusted EBITDA loss of 7 and $25,000 or $0.06 per diluted share in the second quarter of the previous fiscal year. Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the quarters ended 12/31/2024 and 2023. Turning to our balance sheet, we increased our cash and cash equivalents to approximately $21,300,000 at 12/31/2024 compared with $19,100,000 at 06/30/2024, Working capital totaled $23,000,000 as of December 31, 2024, compared to $23,600,000 at 06/30/2024. Total net sales stockholders' equity at 12/31/2024 was $33,900,000 or $2.91 per share. Our strong balance sheet provides substantial cash and shareholders' equity reinforcing our business as we execute our strategy for future growth. Also on 01/30/2025, our subsidiary, Netsol Pakistan, approved the buyback of 10,000,000 shares of through 06/29/2025. If all 10,000,000 shares are repurchased, this would increase Nessel Technologies' ownership NetSol Nessel Pakistan by approximately 10%. The time of this call, NetSol Pakistan has repurchased approximately 2,400,000.0 shares at a value of approximately $1,300,000 concludes my prepared remarks. I'll now turn the call back over to Najeeb.

Thank you, Roger and Eric.

As I said before, I'm very pleased with the progress that we made in the second quarter We are hard at work innovating, investing in our products and services we are encouraged by the many opportunities As always, we are taking a long term approach to our business strategy and goals and we believe that we are positioning ourselves for solid growth in the later half of fiscal twenty twenty four, 2025 and beyond. With that, I'd like to now open the call for questions. Operator?

Thank you. We will now be conducting a question and answer session. Participants using speaker equipment, it may be necessary to pick up your handset The first question comes from the line of Todd Felty with Stonex Welt Management.

Appreciate you taking my questions.

Can you give a quick breakdown of the geography of your revenues as far as North America, Europe, Asia, do you have that available?

I think Rajesh should be able to do that. Rajesh, go ahead.

Yes. So it depends on each of quarter, but this quarter we had probably 70 usually 70%, 75% is coming out of the APAC region. With about 12.5% coming from Europe And The Americas. In this quarter, we actually had a higher percentage due to BMW here in The U. S. Where we had a higher percentage coming out of The U. S. Market and which reduced a little bit of the percentage out of the APAC market.

Okay. I appreciate that. And where do you expect your growth to come from in the future, if you could kind of pick a market Yes. I think Todd thank you for asking this question. We are really very committed and doing a lot of new things in North America, especially There's a lot of efforts going on. We've been hiring some new talents in the Austin office. So I believe North America is going to be performing better [indiscernible] While other markets are pretty solid as you heard about China and Europe, so they're pretty steady. But we believe that we are hoping that we'll do a lot better in North America going forward.

Okay. That's great to hear. You have a pretty impressive client list, AutoNation, BMW, MINI Cooper, Yamaha North America. I'm looking at some of these large companies AutoNation just two days ago reported over $6,000,002,000 in revenue and they originated over $1,100,000,000 in new loans last year. Can you maybe give us some details about your your contract with them? I mean, is it just a flat software subscription fee they're paying. I mean, if AutoNation will was to grow to $50,000,000,000 in revenue, would you be receiving millions of dollars from them? And or is it just a straight subscription contract?

I think we have actually generated sizable income in the last since we signed this contract. About nine, ten months ago. And now it is stages of integration going on think overall, if you look at the total number, I think we reported $18,000,000 something like that if I remember the number, Roger. But more importantly, Todd, because of this BMW deal, we have Very good interest from our pipeline is pretty healthy in this digital retail market in The U. S. Especially. So we've seen interest has risen since we announced the BMW contract last year. So that created more opportunities I can't share the name because we're still in negotiations in some cases. But it's a very promising, I think, achievement for the company in The U. S. Where we had this largest contract in the first time and that mean it just opens more doors whether it's AutoNation More business or other similar companies in this space in The U. So we're pretty excited about the opportunities in the retail, digital retail side in The U. S. And Eric, you may want to ask, you're pretty expert in these areas. Go ahead, Eric.

Yes. Agreed on that front. I mean, I think that we're definitely seeing some excellent growth within the Transcend retail. The pipeline is very strong. And just as a on that note, I think we're seeing some very encouraging activity on the RFP front. I think we've been invited to more RFPs over the past six months to a year than we've ever been before. So definitely some strong growth potential.

Okay. That's great. Recurring revenue is also very nice to see the growth in that. With your new investments into AI and all these new features, coming about? Are you going to be able to raise prices to your customers? What kind of pricing power do you have? And do you think this can bring more value and revenue to you?

Well, it's a valid comment Todd. It's also very sensitive matter because we obviously are making sure that we make sure our customers who are long term with us in some cases I can talk about two cases where things are happening in China, for example, large customer and our team is working to do just that exactly what you're saying. Good possibility that we'll get what we want for the renewal. But these are premium name blue chip customers and for us to maintain our strong relationship and find many other ways to grow revenue for within the customer is quite more possibility. Whether it is prices, I think it's also always discussed periodically. And in some cases, we are working on that. Our team is doing exactly what saying in some cases.

Okay. Thank you. My last question just has to do with your subsidiary in NetSol Pakistan. I know you have a lot of talented engineers there that are much cheaper than hiring US based engineers with your ownership I think was 67% with the recent buyback you may be in the 70s now. Is there a long term goal of acquiring all of NetSol Salt Pakistan or is that going to be just continue to be a separate entity or is there any any plans you can share about your increase in ownership there?

I think we started this buyback in PK, Pakistan a few months ago. That is the whole idea is to really NDI owns more. Right now with the buyback, we probably will end up 10% more ownership once we complete this buyback that will take us to close to 677%, which is a 10% jump We had that goal in mind that we can try to maximize the ownership by doing buyback or that's the only best time. So I think the goal is to really strengthen the parent company's financial and balance sheet and so for sure. It's a good opportunity because Nestle Pakistan stock was at the peak INR300, and now it's at about INR150 billion, I believe. So it's a good buy. Buy time and we continue this plan that we implemented a couple of months ago.

Okay. Thank you so much for taking my questions. Look forward to talking to you.

Strong quarters. Thank you. Thank you, Doug.

Thank you. Thank you. At this time, this concludes our question and answer session. Q and A session, netsolimsenmissorrelations.com NetSol. Or by calling them at (949) 574-3860. I would now like to turn the call back over to Mr. Gauri, closing remarks.

Thank you for joining us today. We look forward to updating you on our next call. You and have a good day.

Thank you.

For joining us today for NetSol's NetSol third quarter twenty twenty five earnings call. You may now disconnect.