Q3 2021 NetSol Technologies Inc Earnings Call
Good morning, and welcome to <unk> Technologies' fiscal third quarter 2021 earnings conference call on the call today on our deep Gory, Chairman and Chief Executive Officer, nine Gori President of Muscle Technologies, Inc. And I chose Chief Executive Officer, Roger Almond, Chief Financial Officer, and how do you on the placement.
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. Please proceed.
Good morning, everyone and thank you for joining us from.
On your review of the company's business highlights and financial results, we will open the call for questions.
And I'll provide the necessary cautions regarding the forward looking statements made by management during this call.
Please note that all of 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.
Buffeted by the cautionary statements contained in that those press releases and SEC filings, including our annual report 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 them on their most copper.
Both GAAP measures.
Finally, I would like to remind everyone. On this call will be recorded and made available for replay on our website at www dot net to our tech dot com and via a link available on today's press release now I'd like to turn the call over to Jake Dubuque.
Thank you Patti and good morning, everyone.
I had the pleasure of addressing you all today from a net solely U S office in Calabasas, California.
Where the statewide racks and rollout is operating at full steam.
We are fortunate to have begun a phased return to the office and net for the U S China and European offices.
Although we're still working on to reduce capacity, we are well on the way to re energizing our sales collaborative culture and I'm looking forward to seeing menu value team members, whom I've missed over the last year plus period.
I would be I would be remiss, if I neglected to comment on the state of our packages on offense.
Which as you know houses on implementation and development teams outdoor.
Out of an abundance of caution and to mitigate transition from a neighboring countries la has entered into a temporary lockdown thankfully.
Thankfully, our remote work architecture, which has supported our engineers.
Throughout the pandemic is still in place and has left the productivity unchanged on the back end.
Okay.
Getting to our.
Results for the fiscal third quarter from a financial perspective.
We reported a sequential revenue increase for the third straight quarter.
Which was driven in large part by a meaningful year over year increase in says and club revenues.
We also generated over a million dollar during the period by successfully implementing change requests from various customers across multiple regions day.
These changes request why less predictable underscore our ability to handle remote implementations as well as our industry overall shift to more complex bespoke next generation tools and technologies.
During the period, we generated most of on new revenues from implementation and contract renewals within the APAC region, but have you also seen a significant increase in our pipeline of opportunities within the North America and European markets.
Collectively past, our APAC pipeline for the first time in our history.
We see this data point as validation of our company wide initiative focused on entering newer high growth markets.
That's part of our expansion efforts in North America.
We took another key step this quarter with our appointment of James Threadgill isn't.
And that's all technologies America's New Vice President of sales James along with our executive Vice President Peter Mitchell home be appointed last year will be focused on driving additional growth in the Americas and establishing inroads with key partners in the region.
James joined Us.
Okay.
On the long career on sales and customer relationship management spending many years in sales.
On the known Fortune 500 financial product company.
Please join me and the rest of the net 14 and welcoming James to the organization.
Looking ahead, we are working to assess the pandemic lingering effects on the leasing and financing industry, which will help guide or cash.
Cash allocation strategy in the coming years COVID-19.
Record cash position, we are looking at a number of high value product projects and initiatives.
We will believe will help drive growth in our core business and help scale our subsidiaries.
The pandemic has made it clear that all businesses need to have a strong digital strategy and we are confident that we will benefit from this transition.
Customers continue to transform processes and future proof their business.
With that I'll now hand, the call over to our CFO, Roger Almond, who will walk us through the financial results for the quarter. After the non phone president and Gary will provide an operational update and outlook before turning the call over for questions.
Could you please.
Thanks, Jim turning to our fiscal third quarter 2021 financial results for the period ended March 31, our total net revenues for the third quarter with $13 8 million compared to $13 5 million in the prior year period. The increase in total net revenues was primarily driven by an increase in total license.
These are 2 million and an increase in total subscription and support revenues of 521000, which offset a decrease in total services revenues of $2 3 million.
On a license fees in Q3 were $2 1 million compared to 93000 in the prior year period total.
Increase in license fees was primarily driven by approximately $2 1 million related to a license agreement with an existing tier one finance company in Thailand for cap and CMS solutions.
As a reminder, subscription and support revenues are now included as a separate revenue line item on place of what was formerly referred to as maintenance revenues. In addition to traditional maintenance revenues from post contract customer support. This metrics also include subscription revenues from our software as a service or SaaS offerings include.
The cloud based version of our flagship NFS ascent platform.
Description and support fees are recurring in nature, and we anticipate these fees to gradually increase as we implement both our NFS legacy product 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 own.
Yes.
Results for the prior year period had been adjusted to make them comparable on a year over year basis.
Total subscription and support fees in Q3 were $5 7 million compared to $5 2 million in the prior year period.
The increase in 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 revenues for the quarter were 6 million compared to $8 3 million in the prior year period. The decrease in total services revenue for the year was primarily due to a decrease in implementation revenues associated with customers, who have gone live with our products.
Services revenues derived from services provided to both current customers as well as services provided to do cash versus part of the implementation process.
Total cost of revenues was $7 4 million from the third quarter, a decrease of 150000 from $7 5 million in the third quarter of 2020.
The decrease in cost of revenues for the quarter was predominantly driven by a decrease in travel expenses due to the travel restrictions associated with the COVID-19 pandemic.
Gross profit from the third quarter of fiscal 2021 was $6 4 million or 46, 6% on net revenues compared to 6 million or 44, 5% of net revenues in the third quarter of fiscal 2020.
The increases in gross profit and gross profit as a percentage of revenue were primarily due to a decrease in cost of sales of 150000 and a decrease in travel expenses of 901000.
Which was offset an increase in salaries and consultant fees of 522000.
Operating expenses for the third quarter decreased six 8% to 6 million or 43.3% net sales from $6 4 million or 47, 3% of sales for the same period last year.
The decrease in operating expenses was primarily due to decreases in general and administrative expenses and research and development costs.
Turning to our profitability metrics income from operations was 460 Tuesday house on the from the third quarter compared to a loss from operations of 376008 Q3 last year.
Our GAAP GAAP net loss attributable to net salt from the third quarter of fiscal 2021 totaled 623004 five cents per diluted share.
This compares with GAAP net income of 1 million or nine cents per diluted share in the third quarter of last year.
As I've mentioned on previous calls it's important to point out that included in our net income this quarter was.
What was the loss of $1 8 million on foreign currency exchange transactions compared to a gain of $1 8 million in Q2 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.
The decrease in the value of the U S dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues.
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 rates it tends to reduce our revenues, but 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 third quarter of fiscal 2021 totaled 197007.
7000, or two cents per diluted share compared with non-GAAP adjusted EBITDA of $1 8 million or 15 cents per diluted share in the third quarter of last year.
Please see the reconciliation schedules contained in our earnings releases for our revised calculations of adjusted EBITDA for the fiscal third quarter ended March 31 2020.
Turning to our balance sheet at quarter end, we had cash and cash equivalents of approximately $30 6 million or approximately 2.7 per diluted common share, which is up from $20 2 million or $1 71 per diluted share at June 32020.
One final note before I hand, the call over to naive on July 32020, and yes. Those board of directors approved a stock repurchase program that authorized potential repurchases of up to 2 million average common stock over a six month period.
After the X free 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 from the open market from time to time in amounts at prices and at such times as the company deems appropriate subject to market conditions, and federal law federal and state laws governing such transactions.
That's total expects to fund the repurchase with its existing cash balance and cash generated from operations.
Through March 31, 2021, the company purchased 603688 shares of its common stock at an aggregate value of <unk>.
$2 million 66 to $4799.
That concludes my prepared remarks, I'll now turn the call over to naive to provide an update on our operations line.
Thank you Roger and good morning.
I'm looking forward to providing you with an update on a few key initiatives underway at net salt as well as autos.
From a high level I'd like to outline the from the many components of our growth strategy.
First we have a continued focus on organic growth within the core business.
With the addition of key stuff like Jim spread over in April and Peter mentioned last August we are fulfilling all key.
Senior leadership positions in regions, where we see on penetrated market potential.
We recorded encouraging early traction in North America.
With several key wins for our subscription offering.
Most recently this quarter, we went live with the leasing division of our mid sized regional bank in the U S with SaaS based leaseback solution.
And if I could elsewhere, we are continuing to secure implementation and renewed contracts with new and existing customers.
Most notably in April we signed a five year single digit multimillion dollar renewal of an existing agreement with a Japanese tier one automotive customer in Taiwan.
As part of that agreement will continue to license key components.
All of our NFS ascent retail platform.
Including the platform's credit application processing system.
And the contract management system.
Our core business and the underlying technology assets that drive it have not changed.
What has changed though.
Unlike industry dynamics.
We are finding new ways to future proof, our business and adapt to a next generation digital strategy.
One of those is by accelerating our transition to the cloud.
A moment ago, you reminded you that we have reclassified our revenue so that we can support.
Descriptions on support revenues as a proxy for total recurring revenues.
As we layer on maintenance fees through larger traditional enterprise contracts.
An increase of SaaS based force footprint, we expect to build the space overtime, which provides more predictable revenues with a more attractive margin profile.
In Q3 subscription and support revenues these pipeline $7 million, which is a 10% increase over the prior year and importantly, a total 22 million plus run rate projected over the next 12 months.
With each new customer we sign we add two are we talking do you have any bad.
Both the top and bottom line.
Moving on to the second couple of Australia.
Waiting on new areas.
Moving to create partnerships with technology and personnel can be a major benefit to other organizations as our own.
And I'd like to say it takes some time to provide a brief update on our progress within the autos innovation lab.
Yeah.
Last month, we announced the planned launch of a new automotive retail platform through auto subsidiary or tier one U S automotive OEM.
Since that time, we have been hard at work.
The new platform enables automotive companies to provide consumers with a complete end to end digital shopping experience.
Ultimately our goal is to deliver a best in class solution to a fully digitized normally cumbersome process of buying and replacing it with the seamless.
Based on experience.
All of those will be launching the platform with its first line and.
And this come the second quarter.
Beginning in California. The solution is intended to be rolled out.
Over 100 dealerships across all 50 states.
When complete we will be the first provider in the market to scale a tier one automotive company across all 50 U S States.
Moreover, despite it is a door opener for autos to penetrate a rapidly growing digital mortgage platform movement.
Based on the sizable prospect pipeline yesterday.
We are well on track to continue to grow the oldest client base by at least another few tier on mobility customers over the next 12 months.
Our mission is no less than to be an early leader on this possible space.
Digital will be the go to channel auto sales and we are setting the benchmark for its adoption through.
Cutting edge technology and by building compelling customer journeys.
I look forward to sharing more updates on this exciting new journey for nexon in the U S.
The final component of our strategy is exploring inorganic growth opportunities where it makes sense.
On this note I can share that we are continuing to evaluate opportunities in the marketplace that are highly accretive.
Complementary to our business.
With this overview completed I'll I'll get into our operational updates from this quarter.
Starting in APAC with the previously announced 12 country 110 million dollar contract.
With a German auto manufacturing giant GAAP.
Daimler financial services, we continue to make considerable progress along our multiyear multi country implementation roadmap.
This quarter, we made key progress.
Progress towards Green light with the seamless module in New Zealand, which is nearing completion.
In New Zealand, we have already implemented on Halston finance.
And dealer and origin access solutions, which we have already initiated.
But you have already industry positive feedback.
To date, we are live in 10 of the 12 countries and are making progress on.
On the remaining deliberate book in accordance with our customers' timelines.
As I mentioned briefly earlier.
We recently announced a renewal of the Japanese automotive tier one in Thailand.
This customer has long been a market leader in financing and leasing of commercial vehicles and pickups.
And we're looking forward to continuing building this relationship book within Thailand and abroad in the coming years.
We expect that this contract will generate in the single digit millions of dollars.
Its five year life span.
Moving next to our European operations, or LTE, Europe, and North America are perhaps the most exciting new growth areas for that zone. We.
We are strategically marketing cloud and SaaS based offerings specifically in these in these regions, which are contributing to the growing subscription and support revenue stream noted earlier.
At this time, we are continuing to work through current implementations we remain on schedule.
Could you share with our North American operations are in T H as.
As I mentioned earlier regarding autos announcements.
Oh, the launch of our U S digital retail platform in partnership with an automotive tier one.
Slowly, but surely expanding our geographic presence.
The U S with these early wins.
On new business into the pipeline.
Additionally, with the regional rollout of NFS ascent. This past year, we have a superior and differentiated product offering.
It meets the needs of todays market.
In summary, we.
We welcomed the return to normalcy that we are starting to see alone.
Round, the globe and developing comprehensive strategies to target high value customers.
Geographies and in new formats.
We are being conservative in our cost structures Madison with business owners.
It will opportunistically look to deploy additional resources to high value areas, such as our autos innovation that.
In the coming months, we'll be looking to accelerate progress within our core initiatives.
Mainly driving more consistent top line.
Through an increased focus.
On high margin SaaS opportunities, which should also lead to sustained profitability.
We remain optimistic for the near term recovery and even more bullish on the years ahead.
And with that we can open the call for questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
You May press star two if he would like to remove your question from Mchugh from.
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One moment, please while we poll for questions.
Yeah.
Yeah.
Yeah.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
Yeah.
So Tom what do you think should we continue to work.
Just one more prompt here as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
Okay, I think we can sign off.
Is there any question from Ing.
Yep.
This concludes our Q&A session. If your question was.
Not addressed during the Q&A session. Please contact <unk> Investor relations team by E mailing them at investors at net saw tech dot com or by calling them at 9495743860, I would now like to turn the call back over to on a Jeep gorey for his closing remarks.
Thank you everyone for joining us today, I, especially want to thank our investors for their continued support our loyal customers and our dedicated employees for their ongoing operations.
We look forward to updating you on our next call per year into fiscal 'twenty one.
Thank you operator.
Yeah.
Thank you for joining us today from <unk> fiscal third quarter 2021 earnings call you may disconnect.
Yeah.
Thank you and have a good day guys. Good work. Thank you.