Q2 2022 NetSol Technologies Inc Earnings Call

Good afternoon, welcome to the net Salt technologies fiscal second quarter 2022 earnings conference call on the call today are in the Jeep Gari, Chairman and Chief Executive Officer.

Roger Almond, Chief Financial Officer, Patti Mcglasson General Counsel, and senior Vice President legal and corporate Affairs.

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 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.

I'll now 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 <unk>.

But securities Litigation Reform Act. The company's discussion May include forward looking statements, reflecting management's current forecast of certain aspects of the companys 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 tells 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 the most comparable GAAP measures. Finally, I would like to remind everyone that this call will be recorded and made available for replay at www Dot net sell tech dotcom and via the.

A link available in today's press release, now I'd like to turn the call over to new Jeep deep.

Thank you Paddy and good afternoon, everyone.

In the second quarter, we continued to capitalize on the strong momentum built in fiscal 2021.

And we remain firmly positioned to achieve our growth goals for fiscal 2022.

Those have been our core business.

Blaine and mix of opportunities remain robust.

Particularly in our European and North American growth market.

Giving us confidence in our ability to drive additional contract signing over the coming months.

We've been more venture based operations.

Oh on the auto digital platform in partnership with many anyway.

You're sounding early success.

We ended the December quarter with 12 dealerships subscribed.

And then one in California, and one in Texas.

Dave like Florida, Pennsylvania to follow soon.

We are very encouraging but the initial response and total opportunity.

Unemployment continued to return to our global offices.

We ended the quarter with nearly 50% of all of our employees back and our Lora technology campus, which is home to the majority of our workforce.

What technology operations.

Really the start of the fiscal year, we have increased our head count by nearly 70 employees, mostly patient in Lahore.

To support additional implementation work.

And innovation initiative.

You stated previously we intend to make this year in terms of meaningful growth.

We are confident.

The investments we've been making in our leadership.

Workforce technology.

And it feels effort will lead outside we've done in the coming quarters.

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

Walk us through the financial results of the quarter Roger.

Turning to our fiscal second quarter of 2022 results for the period ended December 31.

Our total net revenues for the second quarter of 2022 were $15 5 million compared with $13 1 million in the prior year period, the 18% increase in total net revenues was primarily driven by an increase in subscription and support revenues of $3 6 million.

Offset by decreases in license revenue of 631000 in total services revenue of 667000.

Total subscription and support revenues in Q2 were $9 4 million compared to $5 7 million in the prior year period.

The increase in total subscription and support revenues for the quarter was primarily due to the recording of approximately $3 5 million as a onetime cumulative catch up due to our amendment to our 10 year contract with Daimler financial services. Although this was a onetime adjustment the amendment will also increase.

Future subscription and support revenue by approximately $2 million annually beginning January one 2022.

Moving forward, we anticipate subscription and support revenue to gradually increase as we implement both our NFS legacy.

So San products.

Total services revenue for the quarter was $4 1 million compared to $4 8 million in the prior year period.

The decrease was primarily due to a decrease in implementation services of certain implementations are nearing completion or had gone live.

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 of $7 8 million for the second quarter, an increase of $751007 1 million for the second quarter 2021.

The increase in cost of sales for the quarter was primarily due to increases in salaries and consultant fees.

367000 travel costs of 124000 and other costs of 260000.

Profit for the second quarter fiscal 2022 was $7 6 million or 49, 4% of net revenues compared to $6 million or 46% of net revenues in the second quarter of fiscal 2021, $1 6 million increase in gross profit for the quarter was primarily due to the two.

$4 million increase in net revenue.

Set by 751000, an increase in cost of revenues.

Operating expenses for the second quarter were unchanged at $6 million for the quarter.

As a percentage of sales operating expenses decreased to 38, 7% of sales compared to 45, 4% sales in the same period last year.

Operating expenses were impacted by increases in selling expenses and research and development costs offset by decreases in general and administrative expenses.

Turning to our profitability metrics our income from operations was $1 7 million for the second quarter up from income from operations or just 87000 in Q2 last year.

Our GAAP net income attributable to attributable to <unk> for the second quarter of fiscal 2022 totaled $1 4 million or 13 cents per diluted share.

This compares with a GAAP net loss of 242000 or <unk> <unk> per diluted share in the second quarter last year.

The increase in GAAP net income attributable to net for the quarter was primarily a result of revenue increasing at a greater rate.

Cost to support those revenues.

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As I've mentioned on previous calls it is important to point out that included in our netting come this quarter was a gain of 901000 on foreign currency exchange transactions compared to a gain of 14000 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.

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 rate 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, our non-GAAP adjusted EBITDA for the second quarter of fiscal 2022 totaled $2 1 million or <unk> 19 per diluted share compared with non-GAAP adjusted EBITDA of 617000 or five cents per diluted share in the second 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 December 31 2021.

Turning to our balance sheet at quarter end, we had cash and cash equivalents of approximately $25 6 million or approximately $2.28 per diluted common share.

This was down from $33 7 million or approximately.

$2 93.

<unk> per diluted common share at June 32021.

One final note before I hand, the call back to the G is regarding our financial outlook for fiscal year ending June 32022.

The company expects total revenues to increase by at least 10% in subscription and support.

Our recurring revenues to increase by at least 20% the company's guidance is based on existing contracts and recurring revenue from its current customer base.

Performance results pack track through January of this calendar year.

On the information available as of the date of this call.

This concludes my prepared remarks, I'll now turn the call back over to <unk> for an overview of our business update the Jeep.

Thank you Roger.

I'll provide updates within the major components of our growth strategy, our strong financial performance during the second quarter.

As highlighted by an increase in SaaS and support our recurring revenues of 50% sequentially and 64% over the prior year.

And then annualized rate the quarter's performance equates to a nearly $25 million annualized laundry SaaS and support revenue.

The accounting impact for the DFS or Daimler financial services contract.

Tien tsin.

Roger just mentioned earlier.

With employees returning to onsite work across our global footprint.

Expect growth trends to strengthen moving forward.

Our cash position remains strong.

Additional resources to support our core business as well as strategic investments in high return long term opportunities, including our work in the auto inhibition lap.

With these factors in consideration is largely just noted.

We are reiterating our full year revenue guidance.

10% topline on $61 million.

With 20% plus growth in subscription subscription revenue.

Moving on to the second component of our strategy.

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

The other thing I'd like to take some time to provide it.

Date on our progress within the autos and it was an innovation lab.

Visible project within auto in recent months have undoubtedly been a partnership with many anywhere.

As a reminder, autos has been working with BMW group financial services.

<unk> brand and many anyway.

Many U S customers with a fully digital shopping experience and powering their marketing strategies and creating a new automated sales channel for dealerships and lenders.

The auto digital retail platform for many anywhere has been featured across major publications, including Newsweek automotive news and ABC news.

Since launch at the end of fiscal 2021, the new platform.

<unk> gained traction.

As of quarter end, many anyway. It was live with 12 many dealerships.

And in California, and one in Texas.

<unk> two of the biggest dealer groups in the U S.

On boarded in October you'll.

We will now captured 65% vault, California, many dealerships and we will be looking to build on this early momentum growing going forward.

Many months, we are expecting continued enrollment from dealers indexes.

Do you live in Florida, and Pennsylvania, and several other states following suit.

The success of this program can be attributed to several factors.

And I like to share one data point, we believe to be.

The most telling.

Through the fiscal second quarter, we have been able to generate a blended lead conversion ratio of approximately 125, meaning every five opportunities we identified through our platform. One of those leads will convert the vehicle field.

At the end of the first quarter. This ratio was one <unk>.

This performance in the <unk>.

The global and well documented inventory shortages.

The auto industry is a major reason why we are continuing to roll out other solutions to more and more dealers.

Weeks go by.

We appreciate many believe in our product.

And team and are looking forward to the continued expansion of our regional partnership.

Looking ahead, we will be rolling out some major enhancements to the platform.

Including financing and insurance protection products.

Digital sales as well as as well as introducing additional support of us got inventory.

This has been a popular request under current conditions current market conditions.

Yes.

In the coming months, we're also anticipating the launch of a second OEM digital retail program.

Can you do engage with several other tier one Oems on potential partnerships.

The address and the strong interest we are seeing we have expanded our sales and partner success team to expand our sales funnel and ensure ongoing success, while growing litho dealer partners.

The final component of our strategy is exploring inorganic opportunities, including M&A and joint ventures, 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 strategic to our business.

With this overview completed I will now go over our operational updates for the quarter.

Starting in APAC.

With the previously announced Vulcan.

Contract with Daimler financial services, we continue to make considerable progress along our multiyear multi country implementation roadmap.

The implementation process in India, we began in the second half of two <unk>. One is expected to go live here.

In early calendar 2022.

To date, we are alive and 10 of the 12 countries, India will be the 11th country with Taiwan to follow.

And we continue to make progress on the remaining deliverables in our gardens without customer timeline.

Just to recap for the new industrial listeners Nevertheless, sign second largest contract with BMW and send in China. He is.

Go over $35 million value and it is going very well.

Our multimillion dollar NFS ascent implementation of the subsidiary of Japanese equipment Finance Company, New Zealand Rich soft launch in August last year is currently under transition into maintenance.

The eliminating work with the Australian subsidiary of the same.

Company has been completed and approvals are expected as the New Zealand production production nears.

Finally, our previously announced multiyear multimillion dollar upgrade with a global automotive financial services Company <unk>.

And China continues to move forward.

Additional implementation configuration, we continued to anticipate in fall 2023 go lives.

Looking ahead, our pipeline of opportunities within the APAC region continues to grow steadily.

Out of the pandemic induced halt and new business development.

Encouraged by the quality opportunities, we are seeing in our largest market and believe the ongoing recovery in this region to be emblematic of a larger return to work across our global operations.

Moving next to Europe , and North America.

These remain exciting new growth areas with Nashville.

So <unk> marketing cloud and SaaS based offerings in the region, which is contributing to the growing subscription and support revenues noted earlier.

We have a few large opportunity for our flagship ascent in the U S as well and several new opportunities in Europe , specifically that are making their way through the sales cycle.

While we can't control when some of these deals get signed we believe our current momentum combined with the critical mass of potential deal bodes well with meaningful gains in the coming months.

Now, finishing with our North America operations.

In July we announced the first official sale of NFS ascent in the U S market.

The agreement with motorcycle group to deploy the cloud base.

Cloud based version of our flagship platform across the entire operations <unk>.

Including our own need 0.1.

A lot of sale and contract management system to support retail lending and leasing.

<unk> group consisting.

Consisting of modeling and model loans than lease and loan offers.

Simultaneously to qualified applicants.

<unk> cycled in power sports dealers can maximize their skills enabled customers to prequalify and select their vehicle through motorcycle advisors.

The project implementation began in July the expected go live remained on track by what we got really two.

Going forward, we'll be we'll be looking to leverage a breakthrough agreement with prospective clients throughout North America market.

Our current pipeline of opportunity in the region remains the greatest near term growth opportunity for our business, which is why getting these first implementations under our belt also important.

In summary, our strong performance in fiscal 2022 continues <unk>.

We have seen healthy recovery in all our operating regions now, making investments today that will support sustainable growth for the future.

And with that we can now open the call for questions operator.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may.

Be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Okay.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, please press star one on your telephone keypad one moment, please while we poll for questions.

Ladies and gentlemen, there are no questions at this time and I'd like to turn the call back to <unk> for closing remarks.

Thank you very much for attending the call today I will see you in the next Q3 quarter. Thank you and have a good day.

Ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you all for your participation.

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