NetSol Technologies Inc (NTWK) 2024 Q1 法說會逐字稿

Greetings and welcome to the NetSol Technologies first quarter 2024 for our earnings call. At this time, all participants are in a listen only mode. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patti McGlasson, General Counsel.

Thank you, Patti, you may begin.

Good morning, everyone, and thank you for joining us. Following the review of the company's business highlights and financial results, we will open the call for questions. I will 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 is 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 press releases and SEC filings. Including our annual report on Form 10-K 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.

Finally, I would like to remind everyone that this call will be recorded, made available for replay at www.netsoltech.com and (technical difficulty) available in today's press release. Now I'd like to turn the call over to Najeeb. Najeeb?

Thank you, Patti, and good morning, everyone. We had a strong first quarter of 2024, which was highlighted by increases in total net revenues, improved gross margin and profitability. Revenue grew in the first quarter due to solid performance across our business. Each of our three complementary revenue streams contributed meaningfully.

Importantly, we recognized approximately $1.3 million in licensing revenues from Assisi motors, a multinational auto manufacturer based in Japan. Our goal going forward (technical difficulty) more consistent license revenue from quarter to quarter.

In addition to the licensing fees, we also continue to see consistent revenue recognition from subscription and support or SaaS-based revenue, as well as our services revenue, which is generated after a licensing deal is signed.

Also on display this quarter was the impact of increased cost discipline across the organization. Cost containment remains a priority as we focus on freeing capital to allocate to our two most vibrant growth opportunities.

The growth of our SaaS business and the penetration of the US market, our expansion in the US continues to progress as we focus on staffing a new office in Austin, Texas with the best talent available. Our goal with this facility is to aggressively expand NetSol into the United States, which is a largely untapped market for us.

In addition to organic growth in the US, we continue to carefully evaluate strategic acquisition opportunities in North America. We also now live with autos, our SaaS-based white-label platform providing long term on-demand mobility model and retail solution in 60 mini anywhere dealership across 37 US states. Demonstrating the demand of our SaaS products in this market.

On the business development front, we continue to see strong activity and remain focused on building a pipeline of potential licensing deals. In summary, we are very pleased with the results we delivered this quarter.

Our performance reflects the earnings potential of the NetSol business model, as we scale revenue. We are working diligently to drive more predictable revenue with additional licensing deals and continued expansion of our SaaS offerings, which we believe will drive improved and more consistent profitability and cash generation.

I'll now turn the call over to Roger Almond, our Chief Financial Officer, to go over our financials from this quarter. Roger?

Based achieve, our total net revenues for the first quarter of fiscal 2024 were $14.2 million compared with $12.7 million in the prior year period. On a constant currency basis, net revenues were $14.3 million. License fees were approximately $1.3 million compared with $250,000 in the prior year period. (technical difficulty) Recurring revenue or subscription support revenues for the first quarter were $6.5 million compared with $6 million in the prior year period and the same on a constant currency basis.

Total services revenues for the first quarter were $6.4 million compared with $6.4 million in the prior year period and $6.5 million on a constant currency basis. Total cost of revenues were $8.1 million for the first quarter compared to $8.5 million in the first quarter of fiscal year 2023.

On a constant currency basis, total cost of revenues was $9.6 million. Gross profit for the first quarter of fiscal 2024, was (technical difficulty) $6.2 million or 43% of net revenue, as a percent of net revenues in the prior year period.

On a constant currency basis, gross profit was $4.7 million. Operating expenses for the first quarter were $5.8 million or 41% of sales compared to $6.1 million or 48% of sales in the same period last year. On a constant currency basis, operating expenses for the first quarter were $6.4 million or 45% of sales.

Turning to our profitability metrics, our GAAP net income attributable to NetSol for the first quarter of fiscal 2024 total $31,000 or $0.003 per diluted share compared with a GAAP net loss of $621,000 or a loss of $0.06 per diluted share in the first quarter of last year. Included in our net income this quarter was a loss of $134,000 on foreign currency exchange transactions compared to a gain of approximately $1.3 million in the first quarter of last year.

On a constant currency basis, we realized a loss of $174,000 on foreign currency exchange transactions. Because we operate in several geographical regions, a significant portion of our business is conducted in currencies other than the US dollar.

A decrease in the value of the US dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues, but it also increases our expenses denominated in currencies other than the US dollar. Likewise, as the US dollar gains strength relative to foreign currency exchange rates, it tends to reduce our revenues, but it also reduces our expenses denominated in currencies other than the US dollar.

Moving to our non-GAAP metrics, non-GAAP adjusted EBITDA for the first quarter fiscal 2024 was $466,000 or $0.04 per diluted share compared with a non-GAAP adjusted EBITDA loss of $28,000 or $0.002 per diluted share in the first quarter of last year. Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the quarters ended September 30, 2023, and 2022.

Turning to our balance sheet at quarter end, we had cash and cash equivalents of approximately $16.6 million or approximately $1.46 per diluted common share. Total stockholders' equity at September 30, 2023, was $36.7 million, or $3.22 per diluted share.

That concludes my prepared remarks. I'll now turn the call back over to Najeeb. Najeeb? Thank you, Roger.

Thank you, Roger. This was an excellent quarter for us. Our focus is on more consistently delivering solid revenue growth, maintaining cost discipline across the Company and executing on our strategy to drive our SaaS business and penetrate the US market.

This is how we build long-term value for the shareholders. With that, I like to open the call for questions, Operator?

(Operator Instructions) Tyler Brown with Stonework Capital.

Yeah, hey, thank you for taking my question. So I was just wondering, could you talk a little more about the long-term strategy for the US market and whether you think you can replicate some of the success you had overseas?

Yes, I think it's a twofold question. One is, of course, what are we doing now short term, as you heard in the presentation, we have a focused on driving business from our pretty strong pipeline across the globe. As you know, these license deals are high in value, but they also take time to close if we win this deal. So that is mobility is quite, I think, impressive for us the way we look at it.

The long term, I think I'd be -- I feel continued to invest in North America, which is our -- we believe not least, untapped market, but also it's the very strong and resilient market for our business, given all the challenges across the globe. I feel both US and China are very strong markets for us. I was personally there just recently and met with customers and our employees and the environment is still very robust for our company.

So adding in the long term, we feel that our growth will come from the US -- North America, Canada and US. There's a quite of activities going on given the new office, will continue to invest in the new talent, we have been assembling some good people locally and all the key position, because I think for us to make a solid name in the market and scale our business.

We need to have a lot more new executive level positions. So that we are not dependent on people traveling regularly to US from different countries where we are now investing in building up our Austin, Texas office, the right talent, both in sales, marketing and client relations.

That is really to me is the future because once we have a bigger scale and capability on site, everyone knows our customers a new prospect that our amazing dependency on technology campus in lower package, which is the state of the art supports our customers worldwide and never missed our delivery commitments.

So we're pretty confident for our future outlook long term because investment in US continued growth in the US -- China and also looking at many other markets in Mexico, which we a lot of customers and North America, of course, combined China and Canada.

So I feel good about it, about the future outlook.

Got it. Thank you, for answering my questions and congratulations on the quarter.

Thank you.

Todd Felty with Asia Financial.

Hey, congratulations on the return to profitability, and thank you for taking my questions.

So thank you (multiple speakers)

Just had a few here. First of all, do you expect the margins and profitability to continue? And are you still standing by I believe it was the last quarterly conference call. You had estimated revenues for this year would be similar $60 million to $62 million. Are you still standing by that?

Yes. So far, we are living at this, and the best time would be to formally update in the second quarter, which will be half one, and we'll be in a better position to update or even improve the guidance, so I think, now pretty strong about it. And the profitability is a function of additional revenue, our margin improved to 43% this quarter versus almost 27% on a previous quarter.

So it's a sign that we are becoming efficient. We have cut down costs across the company, but we are investing in the right people, right talent and the revenue growth is number one focus, all the key metrics, bottom line will be the result of how --

So great to hear. And this is more of a general question. But as you're bidding for new customers, what percent would you say of customers that you bid on for software project? Do you actually land?

Well, that's a very good question. (laughter) I think some of our listeners are -- investors who have been following us for some time. We own a very a unique business that have a niche business, a few companies are in competing with each other. Some are very big. Some are about same skill as we are, whether we are North America or Europe or Asia.

I think the pipeline is -- we don't we don't mention the pipeline, we have a robust pipeline, pretty large size. Some are, we believe we can achieve some successes in the near future some will take a bit more time. If I say if you have 10 deals out there and we closed three of them, they'll be the greatest for the company because it is a tough competition because very nice and few companies.

Secondly, I think we definitely are working (technical difficulty) diligently to improve our scale and capability in the US, which then as we get stronger in the US, our chances to win US business will only get better.

Okay. And so if you land about 3 out of 10 of the contract, (technical difficulty) you bid on what do you think is the number one reason why is it does it relate to this --

No I think, (multiple speakers) I think Todd, one thing for sure, like I said, whether investors long-term funds are our customers who know us well, our capabilities, our strengths and our opportunities that we have. US is the most challenging market, but also most incredible market to work in, and we are working on it diligently.

What happens is in every RFP, we get invited at least five top companies, sometimes five to seven, and then we become shortlisted and most because you do become shortlisted. Often time, the contracts are already large in size and value, then they prefer to look at to (technical difficulty) US company, which have very strong US presence.

And we understand that because these customers want to depend on a local company with 70,000 employees, for example, I'm not going to share the name here, and we compete with them. Sometimes we win over them, sometimes they win over us. In China, we have beaten them many times in a major contract. So I think companies look for scale capability, but there're companies which are mid-sized, mid-tier company, which is our right spot for us and most cases we win them.

So I think it's a mix thing, competition is good for us. It makes us better and stronger to be able to compete with the big guy. We have beaten many time. We once won over SAP many years ago in China because you were so strong in China, still are the number one company in China, in this space.

US is a very big market. We will do well in the coming three to five years. And positioning is the way that we get the right people, partners, joint ventures and lots going on some unknown deliberative shedding because they're not public information yet as a big material will, of course, disclose and share with the market. So overall, I'm very excited and bullish about the US market.

Great. That's helpful. And then my last question is, I noticed the dramatic improvement in the NetSol Pakistan, which I think you own over 60% of. But I've been looking at the minority interest or noncontrolling interest investments, and that seems like over the last year and a half that's cost you about $4 million. Can you kind of discuss that and what your plans are because that's a lot of money to a company that's just now breaking into profitability.

Okay, very good question. Look NTI the parent company, this company earns 67% of NetSol Pakistan. So minority interest about 33% of which. I think mostly funded institutions, some are like family ownership, which is not that much reimburse on a shipment, the parent company with NTI.

Secondly, I think, yes, it was a good quarter, continuously we are investing a lot because what happens is as you know, AI is a new revolution, our AWS and some other mobility platform. There are three very important new areas that we've been investing.

We hired some MIT, PhDs and AI specialists, helping us develop some solutions. We have built up some more scale. And as I said, in the US and in more Pakistan because we want to provide proactively some part of the AI tools to our customers because every customer eventually will embrace and adopt AI tools and technology.

So we are -- as small companies we are still ahead of the curve because we don't want to be left behind. So we are investing in those areas. And then, of course, we continue to invest in the younger and new generation because some are being retired and we bring in new fresh blood in programming, new tools, equip it all digital, mobility platform.

So there's lots going on, this company is not only a technology company, but also to have vision for the innovation. And the last thing we want to be is left behind in the curve. This company is always ahead of the curve, making the investment in the right place and that takes cash and investment.

But we are streamlining our headcount completely all over the globe, not just in Pakistan. So all in all, I feel very comfortable about our strategy. We will execute what we promised this year and will get stronger and, stronger and coming years.

I thank you for taking my questions. I have passion at you. Thank you.

Welcome, thank you.

If there are no further questions at this time, I'd like to hand the floor back over to Najeeb Ghauri for any closing comments.

Thank you for joining us today. I especially want to thank our investors for their continued support, our loyal customers and our most dedicated employees worldwide for their ongoing contributions.

We will look forward to updating our call -- our earnings call next call. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you, for your participation.

My team can stay for a minute.

John and Walter.

Thank you, Operator.