Q2 2021 NetSol Technologies Inc Earnings Call
Good morning, and welcome to and that's all technologies fiscal second quarter 2021 earnings conference call on the call today are and a Jeep, sorry, Chairman and Chief Executive Officer named Gori President of net flow Technologies, Inc, and autos, Chief Executive Officer, Roger Almond Chief financial.
Officer, and Patti Mcglasson General Counsel I would now like to turn the call over to Patti Mcglasson, who will provide the necessary cautions regarding the forward looking statements made by management during this call.
And give us mcglasson. Please go ahead.
Good morning, everyone and thank you for joining us.
Following a review of the company's business highlights and financial results, we will open the call for questions.
I'll provide the necessary cautions regarding the forward looking statements made by management during this call. Please.
Please note that all of the information discussed on today's call is covered under the safe Harbor provision of the private Securities Litigation Reform Act. The company's discussion may include forward looking statements.
And the 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 and that sort of press releases and SEC filings, including our annual report on form 10-K, and quarterly reports on form 10-Q.
And we'd also like to point out that we will be discussing certain non-GAAP measures.
Yes released issued earlier today contains a reconciliation of these non-GAAP financial results for the most comparable GAAP measures.
And 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 total tech dot com and via a link available in today's press release now I would like to turn the call over to energy G.
Thank you Paddy and good morning, everyone today, I'm, calling in for Mike and the horrible phases and that's at all for the whole Pakistan.
I Hope you all listening are staying safe and in good health as we continue to this ongoing global health crisis, our team and that sold has been closely watching and latest developments from COVID-19 vaccine and Rollouts and that is adhering to the updated best practices promote and legislators and health.
For health care and regulatory bodies.
We are optimistic that things are slowly, but surely returning to normal.
Similarly, the fiscal second quarter of 2021 yielded incrementally improved results for our global business.
And you would know the early stages and returned to work for many businesses and even at some of our international campuses and infection rates and hospitalization and stabilize and vaccine access continues to expand.
On the whole we have continued to lean into our technology strength and I'm still operating remotely for the most part without missing and step.
During the period, we expanded our subscription base footprint through a multimillion dollar upgrades as well as several large scale implementations.
And our recurring revenue base close to $6 million for the quarter and close to $11 million year to date.
We are continuing to focus on growing these recurring revenues and the leading indicator of the health and driver of long term stability for net sold at.
For the same time, we also recorded nearly one and a half million dollar and change request from current customers and fiscal Q2 and.
And while these revenue streams are less predictable.
And our subscription business, we view this performance and another encouraging data point for the improving health of the industries, we serve and the economy and the whole.
With the recent appointment and named <unk>, President and President of N T. I the parent company and we believe that we can further accelerate progress within some of the current initiatives that I've just described.
Along with name and we're working to increase our focus on high ROI for us opportunities that we believe will strengthen our recurring revenue profile and significantly increase our margins and.
Gradually and refocus our attention to these newer opportunities we're still actively committed to meeting the rising needs of our customers.
And our objectives for the remainder of the fiscal year to maintain the conservative cost cutting structures that have help help us maintain stability during the past year, while making strategic investments and high value areas, such as our auto's innovation lab.
And many of you know from our December press release, and I'm glad he was recently appointed as President of N D. I b to the newly created position, but then that's all and this role and then you will know overseas company operations, both domestically and internationally and with reporting duties directly to myself and the.
And we'll also be responsible for P and L will all subsidiaries as well as overseeing the several key areas of our business.
For this reason name has joined our call today from Bangkok, and we'll be taking a more active role and communicating our strategy to investors.
And for name comes on and I'll first hand, the call over to our CFO, Roger Almond, who.
And would walk us through the financials for those for the quarter Roger.
Thanks for that Jean.
Turning to our fiscal second quarter 2021 financial results for the period ended December 31.
Our total net revenues for the second quarter were $13 1 million.
Compared to $15 7 million and the prior year period. The decrease in total net revenues was primarily due to a decrease in total services revenue.
$5 6 million, which was offset by an increase in total license fees of $2 4 million and.
And and increasing total subscription and support revenues at 620000.
Total license fees, and Q2 were $2 6 million compared to 177000 and the prior year period.
The increase and license fees was primarily related to a new agreement with an existing tier one finance company in China.
To upgrade to our NFS ascent retail and wholesale platforms.
As a reminder, subscription and support revenues are now included as a separate revenue line item in place of what was formerly referred to as maintenance revenues.
In addition to traditional maintenance revelation post contract customer support. This metrics also include subscription revenues from our software as a service or SaaS offerings, including the cloud based version of our flagship NFS ascent platform.
Subscription and support fees are recurring in nature, and we anticipate these fees to gradually increase as we implement both our NFS legacy products and NFS ascent.
As we continue to grow recurring revenue over time, 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.
For the period debt have just adjusted to make performance comparable on a year over year basis.
Total subscription and support fees, and Q2 or fight for $7 million compared to $5 1 million and the prior year period, the increase and subscription and support revenues was due to the start of new agreements from customers, who went live with our product this quarter.
As well as ongoing recurring revenue derived from prior sales of our subscription based offerings.
Total services revenue for the quarter were $4 8 million compared to $10 4 million and the prior year period.
The decrease in total services revenue for the year was primarily due to implementation revenue associated with customers, who have gone live with our products.
Services revenue is 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 $7 1 million for the second quarter, a decrease of 809000 from $7 9 million and the second quarter of 2020.
The decrease in cost of revenues for the quarter was probably predominantly driven by a decrease and travel expenses.
Gross profit for the second quarter and fiscal 2021 was $6 million for 46 per cent of net revenues compared to $7 8 million from 49, 7% and net revenue in the second quarter of fiscal 2020.
The decrease in gross profit and gross profit as a percentage of revenue was primarily due to a decrease in net revenues offset by decrease and cost yourselves. The decrease in cost of sales was primarily due to a decrease and travel expense of $1 4 million, which was offset by an increase in salaries and consultant fees.
669000.
Operating expenses for the second quarter decreased 16, 1% to $6 million or 45, 4% and net revenues from $7 1 million for 45, 2% net revenues and the same period last year.
The decrease in operating expenses was primarily due to decreases and selling and marketing expenses professional services research and development and general and administrative expenses.
Turning to our profitability metrics income from operations was 87000 and for the second quarter compared to income from operations of 705000 in Q2 last year.
Our GAAP net loss attributable to net salt for the second quarter of fiscal 2021, total 242000 or two cents per diluted share.
This compares with GAAP net income of 586000 or five cents per diluted share and the second quarter of last year.
The decrease and GAAP net income attributable to net so it was primarily due to the decrease in total net revenues.
Previously mentioned at a greater rate and the related decrease and total cost of revenues and operating expenses.
As I've mentioned on previous calls it's important to point out that included in our net income this quarter was a gain of 14000 and foreign currency exchange transactions compared to a gain of 61000 and Q2 of last year.
Because we operate and several geographical regions a significant portion of our business is conducted in currencies other than the U S. Dollar a decrease and the value of the U S 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 U S dollar.
Similarly, as the U S dollar gained strength relative to foreign currency exchange rate tends to reduce our revenues, but and it also reduces our expenses denominated in currencies other than the U S dollar.
Moving to our non-GAAP metrics non-GAAP adjusted EBITDA for the second quarter of fiscal 2021, total 617000 pay and I'm, sorry, 216000, or five cents per diluted share compared with non-GAAP adjusted EBITDA of $1 6 million or 13 cents per diluted share and the second.
Quarter of last year.
Please see the reconciliation schedules convenient contained in our earnings release for our revised calculations of adjusted EBITDA for the fiscal second quarter ended December 31 2020.
Turning to our balance sheet at quarter, and we had cash and cash equivalents of approximately $32 million for approximately $2.76 per diluted common share, which was up from 20, $20 2 million or approximately $1 71 per diluted common share at June 32020.
One final note before I hand, the call over to your name on July 32020, net sales board of directors approved a stock repurchase program debt authorized potential repurchases of up to $2 million of its common stock over a six month period.
After the expiry of the original program the company's board of Directors approved an extension of the repurchase program through June 28 2021.
Under the program the company May repurchase its common stock and the open market from time to time and amounts at prices and at such times as the company deems appropriate share.
Due to market conditions, and federal and state laws governing such transactions.
And that's all expects to fund repurchases with its existing cash balance and cash January.
Generation from operations.
And through December 31, 2020, the company repurchased 446996 shares of its common stock.
And in aggregate value of 1 million $392671 and.
And has purchased an additional 92000 and 440 shares at an aggregate value of 372003 hundred $38 since quarter end.
That concludes my prepared remarks, I'll now turn the call over to name names.
Thank you Roger.
I'm really excited to be done and you all today and for my first call as president.
And so Jim highlighted a few minutes ago.
And my new responsibilities will be to oversee company operations for domestically.
And internationally, including P&L for our subsidiaries as well as developing and cohesive strategy to market, our core business and new innovative solutions.
I appreciate this vote of confidence from the natural board and leadership team and I'm looking forward for the opportunity to increase my involvement and all.
Global operations on all levels.
And the same way, we saw an opportunity where 20 years ago.
Provide a leading technology solution for the medicine.
Auto finance market.
I believe we now have a great opportunity to do the same for the new mobility economy.
In addition to the innovative work we are continuing to do at autos, we continue to maintain some of the strongest industry relationships with international Blue chip organizations, using our core business.
Leveraging both of these competencies will be my main focus as you build net suite for its next phase of growth.
One of my immediate target is to continue to grow our subscription revenues.
Which are already emerging as our biggest growth segment.
Sensor revenues together and the wheat innovation initiatives would be up most exciting story and the cash.
And quarters.
To be clear the goal is to drive consistent top line growth it should lead to increased profitability.
As we look to expand our footholds in key regions outside of APAC, mainly Europe, and North America, and also increasingly focus on cloud and subscription offerings and almost all of our markets.
We expect to accelerate the initial progress you already see.
Early success in penetrating these geographies and bodes well for our future growth initiatives.
As we noted in our last call.
We have begun reporting subscription and support or cloud revenue and we will have the previously reported maintenance revenues.
We made the change represent the recurring nature of these revenues more accurately.
I'll try and the potential for our business to maintain and stable growing stream of predictable revenues year over year, and because that's maybe and focusing our efforts going forward.
And fiscal Q2 as well and.
Year to date from the segment.
The double digit rate.
On an annualized basis, this equates to well over 22 billion and annual recurring revenue for the fiscal year exclusive for the remaining ore can be added following the completion of go lives and Vince.
And the pending agreements.
We look forward to further highlighting the intrinsic value for our business and new ways and the coming quarters.
With that overview completed I will now get into our operational updates for the quarter.
Stopping and APAC with a previously announced for a country $110 million per contract with the German auto manufacturer and died.
For Nike services, we continued to make considerable progress and all of a multi year multi country implementation roadmap.
This quarter, we had a successful go live event and timing.
Which was accomplished and large part due to our principles and more.
Architecture.
We have non light in some fashion and then.
Total the 12 countries and are making progress towards the remaining deliberate boots in accordance with debt consumers timelines.
And the near term the most immediate gulag debt would be and additional will be for the additional module we use the lid.
<unk> already implemented our wholesale finance and dealer and auditor access solutions.
We will continue to provide updates as we make for the progress.
And you made mention of our law school and Bill.
And kind of time will begin to date during the quarter, we announced the official launch of the NFS ascent retail platform for the BMW financial services and China.
This deployment is the second page for previously announced $30 million contract.
Selected as the vendor of choice after an extensive evaluation process.
I'm very proud of debt towards development and implementation teams and have worked on center of excellence and the who maybe have maybe a force to switch to a purely remote work environment and the bid for this project.
And that's kind of the year, we announced that we signed 90 day contract with a global tier one auto captive and China to upgrade from a legacy and a consistent to the next generation and emphasis and platform.
The multi year agreement includes licensing support and services revenue components, which will be recognized prospectively over the life of the contract.
The longtime debt so customer provides automotive installment loans and credit loans and interest subsidies and other services and really conducts business domestically in China.
Thanks for the flexible architecture, we have built into our <unk>.
Total legacy and mix and platforms.
He used to be able to drive valuable data from the current system as well and integrate additional third party data sources into the new platform with high fidelity and without issue.
To further expedite distribution process and deploy.
And it will be carried out in three phases over the coming months, but our teams at all at home and at the heart and across the APAC region.
Yeah.
Moving next to our European operations are empty.
Europe and North America are major areas of focus for us and.
And we have made mention of many times before and already on this call and a big push and the European region.
And <unk> has been a cloud based offerings.
Subscription based pricing as people put on a monthly quarterly or annual basis, and we believe this new more flexible pricing options will be a great way for us to expand our industrial footprint.
As our customers realize the benefits from subscription pricing, we continue to see further traction and demand for our products and.
And therefore could you could be and as recently reported.
Industry publication called trade with the flow, we signed a contract with telecom and <unk>.
<unk> bank and the U K for cloud and interpretation of it and that France has been weaker platform, which included our point of sale and contract management systems.
The words and develop a paperless digital reported that allows the broker.
Brokers and 24, seven and they'll get access.
They're looking to lead in excess of $100 million. This year, sorry, 200 million pounds. This year and as one of the Uk's newest bags and moved at lightning speed to put them on the technological.
Technological roadmap with a mandate like that still isn't obvious partner.
After months of leverage and where we are proud to announce that we went live with the solution this quarter.
This implementation and particularly is monumental for us as it marks the first success from cloud based upon minutes and region.
Finishing with that North American operations or NPA.
After completing our first successful deployment of a cent and.
North America last August.
Cib's core we are pleased to announce and we have signed an agreement with Dow and financial services company and the U S.
Leaseback cloud offering.
The contract is expected to generate approximately $1 billion. When we spoke to you at night.
And we're still at an early stage with respect to our North American expansion. These initial sales have shown and I spent the market wants.
Subscription based service is real and growing.
I'll take a moment now to provide a brief update and our progress within the audience innovation that.
And as usual things ever made quite busy.
For those of you less familiar and addition to my duties duties as president and most of the CEO of this initiative.
Although it is a net subsidiary and our digital platform.
Auto manufacturers or the cash.
And as fleet owners, and startups and launched orchestrate and scalability businesses.
The older spectrum is built on a cutting edge technology stack, which comprises of cloud native architecture and micro services.
Machine learning blockchain software development and <unk>.
The operations and Apis.
Auto and has positioned itself for me and this could be it won't be space and the white label technology platform.
Enables mobile operators to deploy fast out of the box fully cloud native solutions without the need for heavy up for licensing and customizing and investments.
It is for purely as a standard.
Product that facilitates companies of any size to be and business with rapid deployment and more.
Upfront cost.
And as of today's call.
The re completion and provided launched and fully digitized as U S tier one automotive company.
This project has allowed us to create and amazing digital auto buying experience with.
State of the art at.
Overall this pilot is a door opener for autos to penetrate and rapidly growing digital mobility platform movement.
Based on the sizable prospect pipeline, we have today.
And then on track to continue to grow autos and with the oldest client base by at least another few tier what mobility customers over the next 12 months.
We don't and taking into the jewel sales opportunities with the number of people and organization.
And then do you think the oldest platform, which has been fully light either first line and to drive it and Thailand Since June 2020.
Obviously, the obviously this is a very exciting time for the Argus team and we're looking forward to making for more formal announcements from these initiatives.
One final update before we turn it over to questions and December of last year, we announced the partnership through <unk> to introduce next.
Moving to wear smartwatch based solution to help support companies return to work safely.
The next workplace and a flexible platform.
The cases within organizations HR and.
And building management hesitant, it's Iot productivity and when the systems to create a digital between office and office space and for what.
And real time book pays and intelligence.
True to Iot data sets, such and such a indoor positioning and occupancy sensors next helps employees to assign workspaces.
And book meetings, and real time like socially distancing within the office.
The technology, it couldnt be timelier and.
Early use at missiles operation headquarters and at leading credentials and media company headquartered in New York and it has enabled us to provide it.
And has enabled us to bring employees back to work for.
<unk>.
And somebody wants to go to market cautious he begins to pick up and ways. We have continued to execute against our near term pipeline and current implementation schedule.
We are being conservative and our cost structures management businesses owners and.
We will opportunistically look to deploy additional resources to high volume areas.
Such as autos and wishing that.
We remain optimistic for the remainder of the year and even more bullish in the years ahead.
And with that we can open the call for questions operator.
Thank you ladies and gentlemen, the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time.
A confirmation tone will indicate your line is and the question queue. You May press star two if he would like to remove your question from the queue.
And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
And once again that is star one to register questions at this time.
One moment, please while we poll for questions.
[laughter].
Once again, ladies and gentlemen that is star one to register questions at this time.
Okay.
At this time. This concludes our question and answer session for your question was not addressed during the Q&A session. Please contact <unk> Investor relations team by E mailing them at investors.
And so tech dot com or by calling them at for I'm, sorry, nine for 957 and for 380 I will now turn the call over to net sorry for his closing remarks.
Thank you for joining us today, and I, especially want and thank our investors for their continued support our loyal customers and a very dedicated employees worldwide for their ongoing contributions and look forward to have a bidding you and our next call. Thank you and goodbye.
Operator.
Thank you for joining us on net sales for fiscal second quarter 2021 earnings Conference. You May now disconnect your lines and have a wonderful day.
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