Q4 2021 NetSol Technologies Inc Earnings Call
Good afternoon, welcome to the net so technologies fiscal fourth quarter and full year 2021 earnings conference call.
On the call today are no G. The gory chairman and Chief Executive Officer, Roger Almond, Chief Financial Officer.
Patti Mcglasson General counsel and will ratbag CIO of autos.
I would now like to turn the conference over to Patti Mcglasson, who will provide the necessary cautions regarding the forward looking statements made by management. During this call. Please proceed.
Good afternoon, 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.
Now I'll 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 and actual results could differ materially from those stated or implied. These forward looking statements are qualified by the cautionary statements contained in <unk> press releases and SEC filings, including our.
Annual report on Form 10-K, and quarterly reports on Form 10-Q.
Also I'd 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.
Additionally, the company has posted a presentation to accompany the remarks, we plan on making to make on today's call in the investors section of our corporate website. Finally, I would like to remind everyone that this call will be recorded and made available for replay at www Dot that's all tech dot com and via link available in today's press release.
Now I would like to turn the call over to the deep deep.
Thank you Paddy and good afternoon.
As I speak to you today, we find ourselves close to be on the other side of what has been an eventful month for everyone.
Of course, we are continuing to monitor the latest developments.
And the potential impact from the COVID-19 Delta variant, but.
But I do think we are.
Close to seeing light at the end of the tunnel.
I'm, calling in today from our headquarters.
Still running at a reduced capacity.
Over the past few months, we have implemented staggered.
On a day in office plan that has allowed us to keep moving along without missing a beat our offices around the globe are continuing to operate partly the mostly in the garden with regional mandates.
But I know I speak to our entire organization when I say I'm looking forward to a time soon when we can all be back to go together.
Looking at our operation, while we are still facing a number of industry and macroeconomic headwinds, we continued to make incremental progress across our businesses regions.
The global economy, and broader leasing and financing industry slowly, but surely begins to reopen.
Looking at the headline numbers, we improved our topline performance in each quarter of the year, all while making significant adjustments to our spending in the face of a travel restricted sales environment.
Our older centric emphasis on managing the business.
Has yielded positive results in several key areas.
Highlighted by a 140, 54% increase in operating income for the year and a record cash position position of nearly $34 million.
Additionally, subscription and support revenues have now eclipsed it $20 million annual run rate.
Further validating our investment in a recurring revenue model.
And providing us stronger visibility into future performance as well.
And while we are continuing to pursue high value larger deals with incumbent or E N a.
Our ability to grow at healthy recurring revenue base will allow us to grow our business more predictably over time, while still maintaining the opportunity for upside.
We also generated over two and a half million dollar during that period and more than seven 7 million dollar throughout fiscal 2021 by successfully implementing change requests from various customers across multiple regions.
These kind of data point support our belief that the long term industry trends remain in our favor and we have a diversified approach to growth that is now starting to materialize as the world begins to reopen.
Looking ahead with a leaner cost structure to support increased sales and marketing activities, we are making investments to build for long term success in our key growth markets.
We also entering fiscal 2022.
Record cash position of nearly $34 million and we'll be looking to deploy significant resources towards a number of high value projects in the coming months.
As one example, thanks to the effort of several key new hires made earlier in the year have you been able to improve our lead generation processes.
Our North American and European pipelines have shown continued continued outsized promise.
We are now starting to see some of these pending deals come to fruition, most notably as shown by our first and if its ascent contract in the U S, which we announced back in August.
The pandemic has made it clear that all business. This is a need to sell some digital strategy.
And we are confident that we will benefit from this transition as customers continue to transform processes and future proof their business.
I now hand, the call over to our CFO, Roger Almond, who will walk us through the financial results for the quarter and year.
After that I'll provide an operational update and outlook before turning the call over to question Roger.
Thanks, Jim turning to our fiscal fourth quarter and full year 2021 financial results for the period ended June 30, our total net revenues for the fourth quarter of fiscal 2021 or $19.0 million.
Compared with $19.0 million in the prior year period. The increase in total net revenues was primarily driven by an increase in total license fees of $1 million, an increase in subscription and support revenue of 212000 and an increase in total services revenue of 564000.
For all of fiscal 2021 total net revenues were $63.0 million compared to $60.0 million in fiscal 2020. The decrease in total net revenues was primarily due to a decrease in services revenue of $10.0 million.
Which was offset by increases in subscription and support revenues of $10.0 million and license fees of $3 million.
Total license fees in Q4 were $6.0 million compared to 530000 in prior year period.
Full year total license fees were $8.0 million compared to 3.3 dollars 3 million in fiscal 2020.
The increase in license fees for both the quarter and year was primarily due to revenue being recognized from contracts to implement our NFS ascent retail platform.
Total.
Scripture and support revenues in Q4 were $11.0 million compared to $9.0 million in the prior year period.
For the year total subscription and support revenues were $24.0 million compared to $23.0 million in the prior fiscal year.
The increase in total subscription and support revenues for the year was a result of several customers who went live with our product in fiscal 2021, we anticipate subscription and support revenue to gradually increase as we implement both our NFS legacy product and NFS ascent.
Total services revenue for the quarter were $10.0 million compared to $14.0 million in the prior year period for the full year total services revenues were $31.0 million compared to $41.0 million in the prior fiscal year.
The increase in services revenues for the quarter was a result of services provided for a major contract that was entered into during fiscal Q2 as well as additional services revenue recognized for our ongoing 12 country contract with a German auto manufacturer.
The decrease in services revenue for the year is due to the decrease in 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 $16.0 million for the fourth quarter, an increase of $4.0 million from $12.0 million in the fourth quarter of 2020.
For fiscal year 2021 cost of revenues was $34.0 million a decrease from $33.0 million in fiscal 2020 increase.
The increase in cost of sales for the quarter were primarily due to increases in salaries and consultant fees of 885000 Dupree.
Depreciation of 104000 and other costs of 289000, the decreases in cost of sales for the year were primarily due to decrease in travel expenses of $8.0 million offset by increases in salaries and consultant fees of $3.0 million.
Gross profit for the fourth quarter of fiscal 2021 of $12.0 million or 48, 8% of net revenues compared to 7 million or 51, 8% of net revenues in the fourth quarter of fiscal 2020.
Gross profit for fiscal 2021 decrease of $30.0 million or 48% net revenues compared with $27 million or 47, 8% of net revenues in fiscal 2020.
The increase in gross profit for the quarter was primarily due to increases in revenue offset by increases in cost of sales of $4.0 million.
The decrease in gross profit for the year was primarily due to a decrease in revenue offset by a decrease in cost of sales of 841000.
Operating expenses for the fourth quarter increased eight 7% to $10.0 million or 41, 4% of sales.
Dollars or 43, 2% of sales in the same period last year.
Operating expenses for fiscal 2021 decreased eight 7% to $29.0 million or 43% of net revenues were $34.0 million or 49.45, 9% of net revenues in fiscal 2020.
The increase in operating expenses for the quarter was primarily due to increases in selling and marketing.
In research and development slightly offset by a decrease in general administrative expenses. The decrease in operating expenses for the year was primarily due to decreases in general and administrative expenses and research and development costs, and then offset by a slight increase in selling and marketing expenses.
Turning to our profitability metrics, our net income from operations was $2.0 million for the fourth quarter a decrease from our net income from operations of $3.0 million in Q4 last year and income from operations for the full year was $9.0 million an increase from net income from operations of $2.0 million in fiscal year 2020.
Our GAAP net income attributable to net sales for the fourth quarter of fiscal 2021.
Total $10.0 million or <unk> 17 cents per diluted share.
This compares with GAAP net income of $3.0 million or 10 cents per diluted share in the fourth quarter of last year.
GAAP net income attributable to net sulfur fiscal 2021 totaled $9.0 million or 15 says true diluted share and.
And this is compared to net income of 937000 or eight cents per diluted share for fiscal 2020.
The increase in GAAP net income attributable to net so for both the quarter and the year was primarily due to the increases in revenues previously mentioned at a greater rate than our related cost to support those revenues.
As mentioned on previous calls it's important to point out that included in our net income this quarter was a gain of 917000 foreign currency exchange transactions.
Compared to a gain of 327000 in Q4 of last year.
For the full year, we experienced a loss of 597000 compared to a gain of 399000 for all of 2020.
Because we operate in several geographical regions a significant portion of our business.
<unk> increased in 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, 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 rates it tends to reduce our revenues, but it also reduces our expenses denominated in currencies other than the U S dollar.
We plan our business accordingly by deploying additional resources to areas of expansion, while continuing to monitor our overall expenditures given the economic uncertainties of our target markets.
Moving to our non-GAAP metrics, our non-GAAP adjusted EBITDA for the fourth quarter of fiscal 2021 totaled $11.0 million or <unk>.
26 cents per diluted share.
Paired with non-GAAP adjusted EBITDA of 2 million or 17 cents per diluted share in the fourth quarter of last year.
For the full fiscal year 2021, non-GAAP adjusted EBITDA totaled $9.0 million or <unk> 47 cents per diluted share compared with $7.0 million or 37 cents per diluted share in fiscal 2020.
Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the fiscal year ended June 32021.
Turning to our balance sheet at quarter end, we had cash and cash equivalents of approximately $40.0 million.
Approximately $95.0 per diluted common share, which was up from $22.0 million or approximately $79.0 per diluted common share at June 32020.
On July 32020, net <unk> board of directors approved a stock repurchase program that authorized potential repurchases of up to $2 million of its common $2 million of its common stock over a six month period.
All shares permitted to be purchased under this July 2020 plan were purchased during the plant original date in prior to the conclusion of the extension of the plan.
Our May 21, 2021, the board of directors authorized an additional repurchase plan of up to $2 million worth of shares of common stock through November 22021.
Under the program the company May repurchase its common stock in the open market from time to time and amounts at prices and at such times as the company deems appropriate subject to market condition, and federal and state laws governing such transactions.
<unk> expects to fund the repurchase with its existing cash balance and cash generated from operations as of June 32021, We purchased 669018 shares of our common stock at an aggregate value of $2 million $364781.
One final note before I hand, the call back over to the Jeep on a go forward basis. The company will now be providing annual financial guidance for select key performance metrics.
Fiscal year, ending June 32022, the company expects total revenues to increase by at least 10% and subscription and support or recurring revenues to increase by at least 20% the.
The company's guidance is based on existing contracts and recurring revenue from its current customer base performance results track to August of this calendar year and other information available as of the date of this call.
That concludes my prepared remarks, I'll now turn the call back over to new Jeep is eve.
Thank you Roger.
From a high level I'd like to outline the fundamental components of our growth strategy.
Firstly, we have a continued focus on organic growth within the core business subscription and support revenue reached $24.0 million for fiscal 'twenty, 'twenty, one and nearly 10% increase over the prior year and $23 million plus run rate projected over the coming 12 months.
With each new customer we sign we add to our recurring revenue, which drives both the top and bottom line as you layer on post contract support through larger traditional enterprise contract and increase our SaaS based footprint, we expect to build this business over time, which provides more.
Predictable revenues with a more attractive margin profile.
Our initial entree.
Turning to guidance for 10% top line growth and 20% <unk>.
Growth underscores our.
I believe in this approach.
Moving on to the second component of our strategy.
Innovating in new areas and looking to create partnerships with technology and personnel, which can be a major benefit to other organizations as well as our own.
To this end and I do take some time to provide a brief update on our progress within the autos innovation lab.
Perhaps the most exciting recent development has been the launch of the auto digital automotive retail platform.
Which we announced in a few months ago.
It always has been working with BMW group financial services through its key brand many anywhere to provide many U S customers with a fully digital shopping experience and powering their marketing strategy and creating a new automated automated sales channel with dealerships and.
Lenders.
The development of many anywhere studied when both mini USA and many financial services came together during the pandemic looking for an end to end digital contracting contracting solution for many as many as 100 plus deals in the U S.
Absolutely if first for an off the shelf solution came up empty. The two entities decided it custom platform with needed to bring several complicated gaps and then in the automotive retail process.
Many USA and many financial services deemed up with autos, which has developed the platform is a true end to end and e-commerce experience.
For many dealers the tool can be set up in as little as 60 minutes and is supported but autos dedicated success team that provides online and onsite onboarding and training services.
Since its launch in late May of this year, the new platform has quickly gained traction.
Many anywhere is now live with five mini dealerships in California.
<unk> is also scheduled to onboard additional California based dealers before and an extension into Florida next.
Long term the solution has the potential to be rolled out to all the many dealerships in the United States.
We appreciate many believe in our product and team and I'm looking forward to the expansion of our regional partnerships.
We believe the potential for this many anywhere the deal pet film is limitless.
Our mission is no lesson to be an early leader in this fast evolving space digital will be the go to channel for auto sales and we are setting the benchmark adoption through cutting edge technology and by building compelling customer journey.
The final component of our strategy is 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 and complementary to our business.
With this overview completed I will now get into our operational updates from this quarter.
Starting in the Asia Pacific EBIT region, with the previously announced 12 country $110 million contract with Daimler financial services.
We are continuing to make considerable progress along our multiyear multi country implementation roadmap in August did you officially went live with the CMS module and New Zealand.
To date, we alive in 10 of the 12 markets and are making progress on the remaining deliverables and accordingly without customer timelines.
During the last quarter, we also recognized almost one $4 million associated with services provided under.
Under the restructured contract as a result of organizational changes.
In fiscal Q4, we also officially went live with one of the subsidiaries of a Japanese equipment Finance company of Kubota, Kubota tractors and New Zealand.
This multi million dollar contract with implementation of our flagship ascent retail solution had been signed pre Covid and was a major effort across our global organization organization to support.
Finally.
Our recently announced multiyear multimillion dollar upgrade with GIC. So think go global automotive financial service company in China.
As we move forward.
Additional implementation considerations. We are currently anticipating a fall 'twenty 'twenty three go lives.
Moving next to our European countries are N D.
Europe, and North America remain exciting new growth areas for <unk>, so, yes, or digitally and marketing cloud.
Cloud and SaaS based offering.
Specifically in these regions.
Which have contributed to the growing subscription and support revenues noted earlier.
Total contract size perspective.
Some of the highest value opportunities are currently coming out of them and the region.
Furthermore, N D. A N N D. Combined now represent a larger pipeline of contract opportunities compared to APAC and that gap has widened over the last quarter.
Many potential opportunities are progressing through the deal stage and we're looking forward to providing more material updates here in the coming months.
Finishing with our North American operations on our MTA in fiscal 'twenty 'twenty. One we made several key strategic hires with the goal of investing more meaningfully in the growth market.
And this good market with the with the.
<unk> of James Threadgill is India's new Vice President of sales and Peter Mitchell.
It could be vice President you have a solid team with strong industry relationships forged over many years to support these efforts.
We recently announced the first official sale and if its ascent in the U S market and agreement with motorcycle group to deploy the cloud based.
Version of our flagship platform across their entire operations, including our own need point of sale and contract management system to support retail lending and leasing.
Motorcycle group, consisting of model leaves and motor alone present lease and loan offer simultaneously to qualified up again, so it didn't motorcycle and power sports dealers can maximize their sale and enable consumers to prequalify and select their vehicles through motorcycle groups advisors.
This agreement validates a sense capability across the entire leasing and loan contract lifecycle at.
At the same time by leveraging the deployment of ascent on the cloud.
Motorcycle book will be enable to run their retail operations seamlessly and with the pricing flexibility to scale on demand model leads has been a natural client since 2013 in California and has been a leader in the field when it comes to modern technology adoption there.
The selection of ascend is further recognition of this commitment and we are proud to support the strategic business development with a fleet of modern solutions.
Our toy business and underlying technology assets that drive it have not changed.
Change, though are the underlying industry dynamics.
Finding new ways to future proof, our business and adopt to a next generation digital strategy and one of these is by accelerating our transition to the cloud.
In recent months the automotive industry has witnessed a significant push towards digital transformation in the retail space.
By various announcements of newly formed partnership major acquisition and E. Commerce pilots stakeholders are racing to meet the consumers' evolving expectation for online shopping option, including four traditionally in person big ticket items.
In summary, we are welcoming the return to normalcy, maybe you're starting to see around the globe and developing country comprehensive strategies to target high value customers in key geographies and in new formats. After.
After a challenging year, we have emerged stronger than before.
And we are entering fiscal 2020 to focus on our return to growth with a plan to get there.
And with that we can open the call for questions operator.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
If youre using a speakerphone please pick up your handset before pressing any keys.
Please limit your questions to one plus one follow up thank you.
To withdraw your question you May Press Star then two.
We will pause for a moment, let's call this joined the queue.
Yeah.
Yeah.
Yeah.
Our first question is from Todd Fowler with Advisory group of equity services. Please go ahead.
Congratulations on the G to hearing you and your team on a great quarter. It looks like net solves emerged nicely out of Covid and this was our strongest quarter for the company I've seen in the last couple of years.
I was really happy to see the guidance going forward and it looks like youre going to have an increasing revenues margins and profitability, but what I wanted to ask you about was a little bit of your investor relations going forward.
I see a company that has over a $55.0 per share book value was $33 million in cash and $53.0
<unk> 50 and assets for every dollar in liabilities and I just can't figure out why while your stock price is trading at such a discount. So I was hoping that you could discuss some upcoming investor relation activities and.
Hum.
Some ways that we can get more investors informed of your company.
Well. Thank you all for your comments I appreciate it I think that combination of reasons as I spelled out and Roger did about the numbers obviously loves.
18 months have been challenging to do any kind of aggressive investing activities going on road shows in different conferences, but I think our company has been focused on the fundamentals and we have demonstrated this quarter I mean once the fundamentals continue to improve which I have every confidence that this will.
Continue and the guidance, we've given I believe we will drive to new investors, New institution, and we will do some more activities in coming two years or so to see if he can really broaden our investor base and invite some people to look at the company will do many other things, but right now Todd we are so focused on new strategy.
Geez.
Looking at the new innovation, we're doing whether it's autos or our current business and the new new isn't happening at the company I think the market will see that with our.
Buyback strategy, which we have done quite successfully in last few months and the improvement of fundamentals.
The market will appreciate that this company is really exceptionally.
Doing well on the fundamentals and and we will work very hard to unlock the potential of the real potential.
Thank you I appreciate that and I know that you're continuing to do the stock buyback have you and your board considered a dividend for shareholders with some of that cash.
Well you know this has the thought is that come to mind. Many times got frankly buyback was really designed to really to make sure that we do understand the price was undervalued and that we have the ability now we have the cash and we have many investment opportunities and whether it's innovation or hiring more people or drive.
So maybe maybe M&A at some point.
So I think we will win very carefully what is the best way to invest and give it back to the shareholder and that option has never been ruled out but I think we have to be very careful how we deploy cash if we can invest to create.
Twice more opportunities and accretive revenue or maybe invest in the innovation that is moving so fast I think we'll do quite well and then eventually the investors will see the value in the private by performance by fundamental improvement.
Again I appreciate you taking my questions and congrats to you and your team on a great quarter again, and I look forward to witnessing the success in the future. Thank you. Thank.
Thank you again.
Once again, if you have a question. Please press Star then one on your telephone.
At this time. This concludes our question and answer session. If your question was not addressed during the Q&A session. Please contact <unk> Investor relations team by E mailing them.
And at Investor at net so tech dot com or by calling them at 9495743860.
I would now like to turn the conference back over to Mr. Corey for his closing remarks.
Thank you for joining us today, but I do want him to get correction. The dealers you sign in California at about $7 five I think I misread. The number. So it is seven dealership gone live in California for the many solution I, especially want to thank all of you investors for their continued support our loyal customers and our most dedicated employees worldwide.
For their ongoing contributions and look forward to a bidding you in our next call into Q1. Thank you.
Thank you for joining us today for <unk> fiscal fourth quarter and full year 2021 earnings call. You may now disconnect. Thank you.
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