Q1 2022 NetSol Technologies Inc Earnings Call

Good afternoon, and welcome to the Nashville Technologies fiscal first quarter 2022 earnings conference call.

The call today, or now Jeep, Gorbey, Chairman and Chief Executive Officer named Gori, President and.

In autos CEO, Roger Almond, Chief Financial Officer, and Patti Mcglasson General Counsel.

I'd 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 afternoon, everyone and thank you for joining us.

When you review of the company's business highlights and financial results. We will open the call for questions I'll now 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.

It may include forward looking statements, reflecting management's current forecast of certain aspects of the company's future and our actual results could differ materially from those stated or implied.

These forward looking statements are qualified by the cautionary statements contained in that sounds press releases and SEC filings, including our annual report on 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 their most comparable GAAP measures.

Additionally, the company has posted a presentation to accompany the remarks, we plan to make on today's call any 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 net sow tech dot com and via link available in today's press release now I'd like to turn the call over to Nicky, but did you.

Yeah.

Thank you Betsy and good afternoon, everyone.

In the first quarter, we capitalized on the strong momentum built over the course of the past year now firmly positioned to achieve our goals goals for fiscal 2022.

Within the hour Goldberg.

Flying and mix them up with generally remain robust, particularly in our European and North American growth mortgage giving us confidence.

You can drive additional content finding over the coming months.

Although more eventually operate changed the rollout of the auto digital platform in partnership with many anybody ever has been.

Resounding early success with.

At 10 dealership subscribed in additional states going online in the near future you're encouraged by the initial response and total opportunity.

Across the company, we had begun deliberate.

So you can really begin returning our employees to our global offices in the coming months, we are getting to a 40 to 50 person.

All of our employees back and on the whole campus technology Campbell.

Is home to the majority of our workforce and is at the heart of our technology and operations.

Although.

We started the fiscal year given to us, although head count or 30 employees. Most of these stationed in law to support additional implementation work and innovation initiatives.

Also made several strategic hires across our global operations to support our increased sales efforts.

And then maybe if you can't give meaningful growth and we are confident that the investments we've been making it a leadership low cost technology and extended sales efforts will lead to outsized returns in the coming quarters.

With that overview completed I'll now hand, the call over to our CFO, Roger Almond, who.

Walk us through with them.

Luke water Roger.

Thanks, Jim turning to our fiscal first quarter 2022 results for the period ended September 30, our total net revenues for the first quarter of 2022 were $13 4 million.

Paired with $12 6 million in the prior year period. The increase in total net revenues was primarily driven by an increase in subscription and support revenues of $1 1 million slightly offset by a decrease in total services revenue of 292000.

Total subscription and support revenues in Q1 were $6 2 million compared to $5 2 million in the prior year period. The increase in total subscription and support revenues for the quarter 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.

Services revenue for the quarter was $7 2 million compared to $7 5 million in the prior year period. The decrease in services revenue for the quarter was a result of services being decreased four completed implementations, which was offset by an increase in service revenue for an ongoing customer implementation in China.

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 8 million for the first quarter, an increase of $1 7 million from $6 3 million for the first quarter of 2021.

The increase in cost of sales for the quarter were primarily due to increases in salaries and consultant fees of $1 1 million travel costs of 110000 depreciation of 58000 and other costs at 407000.

Gross profit for the first quarter of fiscal 2022 was $5 4 million or 46% of net revenues compared to $6 4 million or <unk> 50.

5% of net revenues in the first quarter of fiscal 2021.

The decrease in gross profit for the quarter was primarily due to increases in cost of revenue of $1 7 million offset by a 773000 increase in revenue.

Operating expenses for the first quarter increased 13, 8% to $6 1 million or 45, 3% of cells from $5 3 million or 42, 3% of sales in the same period last year.

The increase in operating expenses for the quarter was primarily due to increases in general and administrative and research and development costs.

Turning to our profitability metrics, our net loss from operations was 640000 for the first quarter a decrease from net income from operations of $1 million in Q1 last year. Our GAAP net income attributable to net sold for the first quarter of fiscal 2022.

The 188000 or <unk> <unk> per diluted share. This compares with GAAP net income of 718000 or <unk> <unk> per diluted share in the first quarter of last year.

The decrease in GAAP net income attributable to net so for the quarter was primarily a result of cost to support revenues, increasing at a greater rate and increases in revenues.

As I've mentioned on previous calls at some point, it's important to point out that included in our net income this quarter.

It was a gain of $1 3 million on foreign currency exchange transactions.

Compared to a gain of 296000 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, 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 developing 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 first quarter of fiscal 2022 totaled 770000 or seven cents per diluted share.

Compared with non-GAAP, adjusted EBITDA of $1 6 million or <unk> 14 cents per diluted share in the first quarter of last year.

Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the fiscal quarter ended September 32021.

Turning to our balance sheet as of quarter end, we had cash and cash equivalents of approximately $27 million.

We're approximately $2 40 per diluted common share.

Which was down from $33 7 million or approximately $2.93 per diluted common share at June 32021.

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 stock over a six month period.

All shares permitted to be purchased under this July 2020 plan were purchased during the plan's original date and prior to the conclusion of the extension of the plan.

On 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 20th 2021.

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 conditions, 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 September 32021. The company had repurchased 691528 shares of its common stock at an aggregate value of $2 million $464887.

One final note before I hand, the call back over to energy is regarding our financial outlook for fiscal year ended June 32022, the company expects total revenues to increase by at least 10% in subscription and support or recurring revenues to increase by at least 20%. The company's guidance is based on existing con.

Tracts in recurring revenue from its current customer base performance results track through October of this calendar year and other information available as of the date of this call.

This concludes my prepared remarks, I'll now turn the call back over to you.

Overview of our business update and the Jeep.

Thank you Roger.

Well provide updates within the major component of our growth strategy.

Our strong financial performance during the regular Roger.

It was highlighted by an increase in recurring revenues up 10% sequentially and 20% over the prior year respectively.

Annualized rate this quarter was the hormones equates to a nearly $25 million.

Annualized run rate, which we expect it improve throughout the balance of the year.

As we can give it to we've begun the process for welcoming our employees back to work across our global footprint, we expect it it can be sales related.

Related fees and expenses to support our increased business activity.

Our cash position remains strong providing additional resources to support our core business as well as strategic investments in high return long term opportunities, including our work in the auto innovation lab.

With these factors in consideration as Roger just noted we are reiterating our full year revenue outlook of 10% top line growth and 20% subscription revenue.

Throughout the balance of the year.

Moving on to the second component of our strategy.

Innovating in new areas and looking to create partnerships and technology and personnel, which can be a major benefit. Although the addition, as well as our own.

Cause this and I'd like to take some time to provide a brief update on our progress within our innovation lab.

The most visible project within auto in recent months has undoubtedly been our partnership with many anywhere.

A reminder, although it has been working with BMW.

Importantly, key brand many anyway to put right many U S customers.

Fully digital shopping experience and powering their marketing strategies, and creating a new automated sales channel the dealerships and lenders.

The digital retail platform for many anyway has recently been featured across major publications, including music automotive news and ABC news.

Since launching Nathan me, the new platform most quickly gain traction.

And of course in many anyway was live with eight and many dealerships and as of October <unk> grown.

The number to 10, including Onboarding of two of the biggest dealer groups in the U S.

Just a few short months, you'll now capturing 50% of all California, and many of the issue and we will be looking to build on this early momentum going forward in the coming months, we're expecting enrollment delays in both Florida and Texas with several other states following suit.

The success of this little game can be attributed to several factors, but I'd like to share one data point, but we believe to be the most telling.

To the fiscal first quarter, we have been able to generate the blended lead conversion ratio of approximately one distinct meaning well everybody has different opportunities we identified through our platform one of those and these will convert to vehicle sales.

This performance in light of the global and will document and when do we shortages within the auto industry is a major reason why we are continuing to rollout our solution to more and more dealers.

Goodbye.

We appreciate many believe in our product and team and I'm looking forward to the continued expansion of blood.

These new partnerships.

Looking ahead, we will be rolling out some major enhancements to the platform, including financing and insurance protection products with digital sale as well as introducing additional support for you Scott inventory, which has been a popular request on the current market condition.

In the coming months, we're also anticipating the launch of a second OEM digital retail program and not an early engagement with several new tier one OEM.

<unk> partnerships.

The strong interest you have seen we have extended our sales and partners to 15.

And our sales funnel and ensure ongoing for clothes, while growing list of dealer partners.

The final component of our strategy is exploring inorganic opportunities where it makes sense on this note I can share that we are continuing to evaluate opportunities in the marketplace.

They are highly accretive and complementary to our business.

With this overview completed I'll now getting to our operational updates for the quarter.

Starting in APAC.

And with the previously announced 12 country 110 billion dollar contract with Daimler financial services, we are continuing to make considerable progress along our multiyear multi you can give them implementation roadmap.

Oh, there's no official you went live with the theme of module and New Zealand and more recently the big.

The implementation process in India, which we expect to go live early in calendar 2022 to date. We are live in 10 of the 12 countries, except in India, and Taiwan and are making progress on the remaining deliverables in accordance with our customers' timelines.

In August.

We soft launched our NFS ascent digital startup with new well.

One of the subsidiary of a Japanese equipment Finance company in New Zealand. This multimillion dollar contract. The project is going to be under transition and do maintenance.

Finally, although diesel announced multiyear multimillion dollar upgrade with a global automotive financial services company for whom going China continues to move forward.

Just one additional implementation integration we are currently anticipating a fall 2023 go lives.

Looking ahead.

Pipeline of opportunities within the EBIT meeting continues to grow steadily out of the pandemic induced halt and new business development.

But the quality opportunity, we're seeing in our largest market and believe this ongoing recovery in this region to be Anvil medic.

We tend to work across our global operations.

Moving next to our European operations or LTE.

Europe, and North America remain exciting new growth it is a muscle.

Digitally marketing our cloud installed base offering.

Typically in these regions, which are contributing to the growing subscription and support revenues noted earlier, we have several opportunities with New York City.

To me that are making their way through the life cycle.

While we can't control when some of these deals get signed we believe our current moment, combining with a critical mass of potential deals bodes well for some children in the coming months.

We also made several key strategic hires to support our growth goals in the region.

Of note when I spoke the leasing industry veteran Mark Haywood will take will be taking over again, many director of.

Virtually.

Our wholly owned portfolio company in the UK.

Mike brings a proven record of creating and executing data driven marketing and product development initiatives.

Fintech and financial services.

Steve.

Resulting in the delivery of significant business growth and diversification of revenue stream.

We have long been a core component of our European region, and we're looking forward to seeing more take their business to new heights.

And then suddenly you also mentioned the expansion of our strategic partnership with leading it and business consulting service from CGI offer our next generation.

Platform supported by <unk> local business consulting it integration and managed service solutions CGI and muscle initially formed in Hawaii in 2019 to help muscle delivered the first end to end cloud managed services.

Same platform.

Kingdom based automotive wholesaler.

<unk> has long standing relationships with leading financial services provider in Europe based on in depth industry knowledge independent advice and a consistent delivery track record.

Dealing with a global service provider like CGI enables us to provide our customers with leading industry and applications specific IP solutions.

Gordon expanded partnership will be most impactful to our joint customers and in the <unk>.

Commercial finance and leasing sectors.

With T G I would expect and we expect to accelerate and maximize our value proposition from IGN Guzman and deliver the results our customers need the streamlined and grow their businesses.

Now, finishing with our North America operations, our NDA less last quarter, we announced the first official sale.

In the U S market.

Women with motorcycles.

Floyd the cloud based version of our flagship.

From across the entire operation.

Including our all new point of sale and contract management system to support retail lending and leasing.

Motorcycle consisting of modeling on motor alone.

Lease and loan officers.

No no first simultaneously to qualified applicants.

Motorcycle and power sports dealers can maximize the sales enabled customers to prequalify and select the eagle through most of that is good for advisors.

The largest implementation began in July of had been expected go live into 2022.

Forward, we've been looking to leverage the breakthrough agreement to prospective clients throughout the North American market.

Our current pipeline of opportunity in the region remains there just near term growth opportunity for our business, which is why getting these first new logo signed in implementation under our belt are so important.

In summary, we had a strong start to the year, we are seeing healthy recovery in all of our operating regions and are making investments today that will support sustainable growth for the future.

Then we can open the call for questions operator.

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There are no questions in queue at this time at this time. This concludes our question and answer session. If your questions were not addressed during the Q&A. Please contact <unk> Investor relations team by E mailing them at investors at <unk> dot com or by calling them at 9495743860 right now.

To turn the call back over to Mr. Gary for his closing remarks.

Thank you for joining us today, I, especially want to thank you our investors for their continued support our loyal customers our dedicated employees for their ongoing contribution when we look forward to updating you on our next call. Thank you.

Thank you for joining us today for net full fiscal first quarter 2022 earnings call you may now disconnect.

Thank you operator, thank you everyone.