Q1 2021 NetSol Technologies Inc Earnings Call
Good morning, and welcome to Netsol technologies fiscal first quarter 2021 earnings conference call on the call today are net even before you see on I chose.
Roger Almond, Chief Financial Officer, Patti Mcglasson General counsel on the Sad gory global head of sales I would now like to trend. This call from this Patti mcglasson, who will provide the necessary cautions regarding the forward looking statements made by management. During this call. Please proceed.
Good morning, everyone and thank you for joining us.
Well on your view of the company's business highlights and financial results.
We will open the call for questions.
I'll now provide the necessary cautions regarding forward looking statements made by management during this call. Please.
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 managements current forecast of certain aspects of the company's future. Other actual results could differ materially from those stated or implied.
These forward looking statements are qualified by the cautionary statements contained in the press release isn't actually see fairly operating or annual reports on form 10-K, 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 the most comparable GAAP measures.
Finally, I would like to remind everyone that this call will be recorded and made available for replay on our website at www Dot net south Tech Dot com and yeah link available in today's press release.
Now I'd like to turn the call over 10 day right.
Thank you Patti and good morning, everyone.
Unfortunately, the Jeep gory on she wants you what's under the weather.
I couldn't make on call.
From a quick recovery.
The beginning of the fiscal year with an extension on the same business conditions, we have witnessed since.
Since the pandemic too cold.
We are continuing to operate efficiently on go on cost and execute on on long term strategic growth plan.
Fiscal Q1.
We saw year over year improvements to our gross profit.
Operating income and earnings per share, which would love to be driven by opens up interest cost management index.
On expense reduction efforts over the past few months.
Additionally, we now have more cash than at any point in our history.
On a company cash from non provides us with flexibility and security both of which are paramount in any environment, but especially so today.
We will continue to think and operate like owners emphasizing cash flow.
Much as top line.
During the period cash.
Cash flow from operations reached $4.7 billion.
The best cash flow generation quarter, you had since June 2019.
Well the overall sales environment continues to be challenging we are witnessing encouraging signs that have us optimistic about the remainder of the.
Operationally our views have been hard at work.
We Didnt project implementation deadline is leading to a few significant go live events during the quarter.
Most recently, we successfully implemented on NFS ascent retail platform, including on loan origination system and contact management system for a tier one German auto captive finance company in China.
Which was the second and final phase of a previously announced $30 million on track.
We've also seen very encouraging early traction from on a north American and European operations referred to as in P.A.M.T., respectively.
This quarter, we went live with a force cloud NFS ascent North American customer Sci These core in Canada.
As of today and.
And tea and then to eat combined represent essentially the same size pipeline of contract opportunities compared to impact.
Which has historically commanded the lion's share of our revenues.
For the rest of today's discussion I would provide a highly other recap on the past quarter more recent updates before spending the rest of my discussion on our current market outlook that lend itself on three pronged growth strategy.
But prior to that on handover the call just CFO Roger Altman.
Who will walk us through the financial results on the quarter.
Roger.
Thanks naive.
Turning to our fiscal first quarter 2021 finance results for the period ended September Thirtyth. Our total net revenues for the first quarter were 12 point sixmillion compared to 13.6 million in the prior year period did.
The decrease in total net revenues was primarily due to a decrease in total license fees of 2.5 million.
Which was offset by an increase in subscription and support revenues of 565000, an increase in total service revenues of 970000.
Total license fees in Q1, or 3500 compared to 2.5 million in the prior year period.
The decrease in license fees was primarily due to the absence of meaningful contribution from our 12 country 110 million contract as well as other contracts to that from met our NFS ascent platform, which had a more pronounced contribution in the prior year period.
Subscription and support revenues are now included as a separate revenue line items in place what was formerly referred to as maintenance revenues. In addition to traditional maintenance revenues from close contract customer support. This metric also includes subscription revenue from our software as a service or SaaS offerings, including.
On the cloud based version of our flagship NFS ascent platform.
Subscription and support fees on recurring in nature, and we anticipate DCC gradually increases in from at both our NFS legacy products and NFS ascent.
We continue to grow recurring revenue overtime. We believe this new category will become even more impactful portion of our business as well as a better way to judge our overall performance.
Results from the prior year period had been adjusted to make performance comparable on a year over year basis.
Total subscription and support fees in Q1, or 5.2 million compared to 4.6 million in the prior year period the.
The increase in subscription and support revenues was due to the started new agreements from customers, who went live with our product this quarter as well as ongoing recurring revenue derived from prior sales force subscription based offerings.
Total services revenue for the quarter were 7.5 million compared to 6.5 million in the prior year period.
The increase in total services revenue for the year was primarily due to an increase in revenues associated with new implementations and change requests services revenues derived from services provided to both current customers as well as services provided to new customers as part of the implementation process.
Total cost of revenues was 6.3 million for the first quarter, a decrease of 1.2 million from 7.5 million in the first quarter of 2020. The decrease in cost of revenue for the year was predominantly driven by decrease in travel expenses.
Gross profit per the first quarter fiscal 2021 was 6.4 million.
D. from 50.5 per cent net revenues.
Compared to 6.1 million or 45% of net revenues in the first quarter of fiscal 2020.
The increase in gross profit was primarily due to a greater rate of decrease in total cost of revenues compared to the related total net revenues.
Operating expenses for the first quarter decreased 18.2% to 5.3 million from 42.3% of net revenues from 6.5 million or 48.2% of net revenues.
The same period in the same period last year. The decrease in operating expenses was primarily due to decreases in selling and marketing professional services research and development and general and administrative expenses.
Which are offset by minor increase in depreciation and amortization.
Turning to our profitability metrics or income from operations was one day again for the first quarter an increase from a net loss from operations of 427000 in Q1 last year.
Our GAAP net income attributable to Netsol for the first quarter fiscal 2021 totaled 718000 or six cents per diluted share. This.
This compares with a GAAP net loss of 1.8 million or 16 cents per diluted share in the first quarter of last year.
The increase in GAAP net income attributable to Netsol.
Well, it's primarily due to the decrease in cost of revenues previously mentioned at a greater rate didn't related decrease in total net revenues as well as significant decrease in total operating expenses.
As I mentioned on previous calls it's important to point out that included in our net income. This quarter was a gain of 296000 on foreign currency exchange transactions compared to a loss of 1.8 million in Q1 of last year.
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 the effect of increasing our revenues and it also increases on expenses denominated in currencies other than the U.S. dollar.
Similarly, as the U.S. dollar gained 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 U.S. dollar.
Moving on to our non-GAAP metrics on non-GAAP adjusted EBITDA for the first quarter of fiscal 2021 total 1.6, moving it from 14 cents per diluted share compared with a non-GAAP adjusted EBITDA loss of 1.1 million or nine cents per diluted share in the first quarter of last year.
Please see the reconciliation schedules are contained in our earnings release for a revised calculations of adjusted EBITDA for the fiscal first quarter ended September 32020.
Turning to our balance sheet at quarter end, we had cash and cash equivalents and approximately 24.9 million or approximately $2 from 11 cents per diluted common share.
Which was up from $20.2 million or approximately $1.71 per diluted common share at June 32020.
[noise] in June 2016, the fast to be issued asked you 2016 Dash 13, which introduced a new forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables contract assets and health.
Debt held to maturity debt securities.
Which requires a company to incorporate considerations on historical information current information and reasonable and supportable for cash.
As to 2016 debt 13 also expense disclosure requirements.
As a result, we were required to review our financial assets at June 32020, under the criteria and record any adjustments to equity based on the results of our evaluation, we incurred a one time cumulative effect adjustment to retained earnings at 6.8 million in.
Increasing our allowance for credit losses related to certain convertible notes receivable.
Interest receivable accounts receivable revenue in excess of billings and other receivables.
The one time non cash 6.8 million provision equates to 100% allowance for various financing in connection with the company's investment in world Three D.
The company needs to realize returns to attend various investments and won't three d. going forward and that it bad we would record those returns in subsequent reporting periods.
One final note before I hand, the call back over to name on it.
July 32020, Netsols Board of directors approved a stock repurchase program that authorized potential repurchases of up to 2 million of its common stock over subsequent five month period ending on December 24 2020.
The planned repurchase program will also be subject to an additional six month extension at the discretion of management.
During the fiscal first quarter. The company purchased a 147052 shares at an average price of $3 from 16 per share.
Subsequent to the quarter end the company purchased an additional 102023 shares at an average price at $2 or 94 cents per share in total the company is purchase 249075 shares at an average price of $3.07 per share on it.
On the program the company rate may repurchase its common stock in the open market from time to time in their mouths apt prices and at such times as we deem appropriate subject to market conditions in federal and state laws governing such transactions.
Total expects its on the repurchase with its existing cash balance and cash generated from our operations.
That concludes my prepared remarks, I'll now turn the call back over to name names.
Thank you Roger.
As I mentioned in my opening remarks.
But many current driven purchasing delays were beginning to move forward.
It was several catalysts on the horizon, we are optimistic about the prospects for the new fiscal year.
Furthermore.
A recent expansion from there into Europe, and North America is beginning to pay dividends through our steadily improving retiring revenue performance.
As Roger noted a moment ago, we're not reporting subscription and support revenues as a proxy for total recurring revenues.
As we layer on maintenance fees through larger traditional enterprise contract and increase on SaaS based footprint.
Back to build this base overtime, which provides a more predictable revenues with the more attractive margin profile.
In fiscal Q1, we grew these revenue was 13% year over year to $5.2 million.
On an annualized basis that equates to over to well over $20 million in total recurring revenue for the for this fiscal year, not including benefits from pending agreements or go live events scheduled for this year.
At this point I will be recapping some other major highlights on appeal.
But then on upstream major operating regions respect respectively.
Now with that overview finish I'll get some updates from our main operating regions.
Starting an impact with a previously announced total country on it and 10 million dollar contract with a German auto manufacturing giant dime.
On the financial services, we continue to make considerable progress.
Along with our multi year multi country implementation roadmap.
This quarter, we have successful go live events simple, Singapore and Thailand.
Which were all the more impressive due to the remote work and international travel constraints you had to work past.
Two day.
We have now gone live in some fashion within 10 of the 12 countries.
Continuing to work through the remaining deliverable according to our customers on line.
In the near term the most immediate go live events would be additional molecules with an already line countries income.
Moving use it and on Australia.
We will continue to provide updates as we make further progress.
Perhaps the most notable implementation over the past few months was on launch on the NFS ascent retail platform for BMW financial services in China.
[noise] those deployment is a second phase from previously announced 30 million dollar contract in Reais Netsol was selected as the vendor of choice after an extensive evaluation evaluation process.
I'm very proud on that's supposed to development and implementation teams as a world class central accidents in the hole, we were forced to switch true if you only remote work environment in the middle of this project.
After three years of dedication and continued on a hard work I.
Amid a challenging Corbett 90 day environment, we successfully implemented both the phone wholesale.
Retail suite, so far NFS ascent platform.
This deployment with the brand name like BMW is a big ticket project for Netsol.
Another major step forward from operations in the new fiscal year.
Importantly, with this major implementation completed we have been able to allocate additional resources to a number of other upcoming launches planned in the coming months.
One final note with an impact.
On the past few months, we have been working with a leading online retailer in New Zealand.
Who voluntarily put their net NFS ascent retail system implementation on hold earlier this year due to covert concerns.
I'm pleased to report that the project has now been resumed.
Spectra go live at the end of the calendar year.
Moving to our European operations Oriente.
We have been mentioned on many times before and already on this call.
Bush in this region as well as into game has been on cloud based offerings.
Late in 2019, that's on announced the introduction of a new subscription based pricing option put on its cloud based products and services, which is meant to work as a substitute but.
Not a replacement to the traditional license model.
Along with other value based on factors built into the model the new pricing plan is intended to decrease.
<unk> costs for new customers and provide an alternative to current customers seeking lower sulfur uses and maintenance costs.
Subscription based pricing is being offered on a monthly quarterly or annual basis.
Europe, and North America, our major areas of focus for US. We believe this new more flexible pricing GAAP shouldn't be a greater share for us to expand our initial footprint.
As a consequence, we realize the benefits from subscription pricing, we continue to see for the traction and demand for our products.
In April we signed a contract with a leading bank in the UK per cloud implementation over NFS ascent reach on a black hole.
Which include her up U.S. solution and CMS.
After months of collaborative what your non working on a soft launch with a full scale go live platform early next year.
In July 2019, we signed a multimillion dollar contract with a large UK vehicle finance company to employees.
Implement our NFS ascent wholesale platform.
Like many of the implementation I've discussed today.
Our time line have been pushed out due to cold weather related impacts to our customers business, but we are still making progress on our implementation and expect to go line early next year.
Moving on to North American operations or NT.
As part of on North American expansion efforts in August we appointed Peter Mitchell as on New E V. P 58.
We're really excited to have people come on board.
Brings on three decades of international experience in the financial services industry, but didn't accomplish background at a major blue chip enterprise.
Specific sector expertise and auto find on space.
Prior to joining Netsol feature held various senior leadership roles within the financial services and most recently, serving as director of operations Adopters Africa, and Asia Pacific Division, where he managed music on finance operations for a team of 250 across 11 different markets.
And the short on that he had been with us.
Peter has already done I mean, a tremendous boost to our operations and we're looking forward to seeing where he can take you over the next several years.
Moving to sales.
In August we announced a successful go live with the NFS ascent offering marking the first official go like for a center in North America.
They've never day, she wants perform for leasing.
Leasing call a Canadian based National Auto major automotive leasing company and also represents the force cloud and SaaS based on agreement from ascent in this region.
The deployment was achieved in a record eight months in the larger more work environment, which is a testament to the work on what team as well as the flexibility. We now have the cloud cloud based deployment.
What these initial sales of showing us is that the market for subscription based services.
This is real and growing.
The flexibility the flexibility on the smaller on allows from more diverse set of customers to access our products.
Effectively opening up a new market segment that was.
<unk> outright existing enterprise sales business.
I'll now provide some beef up its not progress, but they're not cheap on growth strategy.
As a reminder.
These other threeq area key areas, but that's what it's focusing on.
We believe we can generate outsize adult and propel our business to its next phase of growth.
Force continue to focus on the growth organic growth of our current core business.
Second investing in new areas and looking to create partnerships.
Technology and personnel can be a major benefit to other organization as the lateral as well as our own and current exploring inorganic growth opportunities where it makes sense.
Beginning with the core business as I mentioned earlier, we are continuing to operate efficiently.
Control costs and execute on on long term strategic growth plan.
During fiscal Q1, we were very active on the implementation front and on multiple successful go live events within our APEC region growth.
Yeah on major international auto manufacturers.
We're also getting traction with this size.
On a captive and on North American and European markets with the latter comprising a greater proportion of our on revenues compared to last year.
Potentially we generated roughly $1.3 million.
From change requests and reduce expenses by nearly 20% eating.
Moving to sustained profitability on a trailing 12 month basis.
We also grew on recurring revenue base by double digits to $5.2 million.
All told.
We are confident that the market is beginning to pick up in all global regions.
Sales discussions with a number of potential customers remain active.
We have a number of high value at near term opportunities in our pipeline.
And I'm cautiously optimistic about our growth outlook.
Moving on to innovation and partnerships beginning with autos.
Which has been super busy over the past few months.
For those of you that's familiar Autozoners and that's what's subsidiary and the digital got from that helps auto manufacturers auto captives fleet owners and startups to launch orchestrate SQL mobility businesses.
The autos platform is built on a cutting edge technology stack, which comprises of cloud native architecture, Microservices AI machine learning block chain.
So for developing an ideal operations in <unk>.
Although this has positioned itself from leap and this quickly evolving spaces on white label technology platform that enables mobility alternatives to deploy fast out of the box fully cloud native solutions without the need for heavy upfront licensing and customizing investments.
It is sold as a SaaS product that's facilitates companies of any size to be in business.
Rapid deployment at low upfront cost.
We have now entered in mature sales opportunities with a number of tier one on positions that are evaluating the autos back from.
Which has already been life without first line and partner and drive EBIT in Thailand since June of 2020.
We are also current you partnering to launch a digital automotive each other platform for U.S. based subsidiary operating known German auto manufacturer for one of its key brands.
Once deployed and product will be rolled out hundreds of auto dealers across the U.S. and expected to generate significant SAS revenue for our business.
This is a major breakthrough for autos.
And within the first year off disagreement.
Would be receiving up $2 million in pure recurring revenue.
Obviously this is a very exciting time for the oldest steam we're looking forward to making them more form on announcement soon.
With that overview on is completed I will not discuss on many growth areas as.
As it relates to provide a brief outlook for our business.
On Saturday to partnerships, well I can share any specific details in that area on today's call. What I can say this current came and said we are working with some of our existing large customers in an effort to align strategically from mobility related offerings.
And at what time find a growth area, we're continuing to evaluate opportunities in the market because that makes sense and being highly accretive and complementary to our business.
More updates will follow.
Looking ahead, we have an encouraging pipeline of opportunities that should support our plans for incrementally improving increment.
Incrementally improved performance this year.
We are incredibly appreciative of the efforts from our global teams, who continue to perform at an exceptional level, even in the face of technological and logistical challenges.
And with that we can now open the call for questions on.
Operator.
At this time, we'll be conducting a question answer session.
I'd like to ask a question. Please press star one on your telephone keypad a confirmation from indicate your line is it no question queue. You May Press Star two if you would like true Love. Your question from the Q from participants using speaker equipment. It may be necessary for you to pick up your handset before price seamless sarki.
One moment, while we poll for questions.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
One moment, well we poll for questions.
I would now like to turn this call back over to Mr. net you can go away for closing remarks.
Well, thank you very much on for listening in today.
I, especially want to tack on investors for their continued support.
Loyal customers and on dedicated employees for their ongoing contributions.
And we look forward to GAAP bidding you on on next call.
Thank you.
Operator thank.
Thank you for joining us today per net net sales those first quarter 2021 earnings Conference call. You may disconnect. Your lines at this time. Thank you for your participation.
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