Q3 2022 NetSol Technologies Inc Earnings Call
Good morning, welcome to the Nets, all technologies fiscal third quarter 2022 earnings conference call on.
On the call today are Najib Lawrie, Chairman and Chief Executive Officer, Roger Almond, Chief Financial Officer, Patti Mcglasson General Counsel, and senior Vice President legal and corporate Affairs.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
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. Thank you Patti. Please proceed.
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 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 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 qualified by the cautionary statements contained in that sells press releases and SEC filings, including our annual report on 10-K and corn.
Early reports on Form 10-Q.
I'd 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.
W. W. Dot net Falkirk dot com via the link available in today's press release now I'd like to turn the call over to the Jeep did you.
<unk>.
Thank you Paddy and good morning, everyone.
Without third quarter performance, we remain on track to achieve our fiscal 2022 growth targets.
10% topline growth and 20% growth in recurring revenues importantly for the nine months ended March 31, our team has far exceeded our target.
Annual recurring revenues by 34%.
Our pipeline and mix of opportunities in our core business remained robust.
And our European and North American growth markets.
Giving us confidence in our ability.
To drive additional contract signing over the coming months.
The rollout of our autos digital platform in partnership with many anywhere accelerated in the third quarter.
We ended the March quarter with 17 dealerships subscribe.
Kevin in California, one in Texas and expanded this to a total of six states adding.
Adding dealership in Florida, Pennsylvania, and New York, and New Jersey.
California has a nose dive in 70% of the many dealerships.
Pennsylvania, we've already captured 75% of all dealerships.
In the long term this solution.
U S based monthly mobility startup autos has the potential to be rolled out to over 100, many dealerships across all 50 states.
Our employees continue to return to our global offices.
We ended the quarter with nearly 40% of our employees back and a lot technology campus, which is home to the majority of our workforce and the heart of our technology operations.
Since the start of the fiscal year.
We have increased our head count with nearly 70 employees, mostly station in the nascent technology campus in Lahore.
Support additional implementation work and innovation initiatives.
Our results for the first nine months of fiscal 2022, clearly demonstrate we are delivering on our promise of returning to meaningful growth.
And we are confident that the investments we've been making it a leadership workflows technology and expanded sales efforts.
Lead outsized returns in fiscal 2023 and beyond.
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.
Okay.
Thanks, Jim turning to our fiscal third quarter 2022 results for the period ended March 31.
Our total net revenues were $14 8 million compared with $13 8 million in the prior year period.
The 7% increase in total net revenues was primarily driven by increases in subscription and support revenues of 900000.
Services revenue was 600000 slightly offset by a decrease in license fees of 500000.
Total subscription and support revenues in Q3, or $6 6 million compared to $5 7 million in the prior year period.
The increase is due to the new subscription licensing deals and increased maintenance related to the changes or Daimler financial services contract discussed on last quarter's call.
Total services revenue for the quarter was $6 6 million compared to $6 million in the prior year period.
The increase was primarily due to an increase in implementation services revenue related to our GAC shifting to a contract which increased from 927000 in Q3 of fiscal year 2021 to $1 9 million in Q2 of fiscal year, 2022, and offset by a decrease.
400000, among other customers.
Total cost of revenues was 9 million for the third quarter, an increase of $1 6 million $7 4 million for the third quarter of 2021.
The increase was primarily due to increases in salaries of $1 4 million.
Pavel about having 5000 and other expenses of 145000.
Gross profit for the third quarter for fiscal 2022 was $5 8 million or 39% of net revenues compared to $6 4 million or 47% of net revenues in the third quarter of fiscal 2021.
The decrease in gross profit was primarily due to an increase in cost of sales of 1.6 million driven by increases in salaries and consulting costs of $1 4 million.
Operating expenses for the third quarter of fiscal 2022, or $6 4 million or 42% of sales compared to $6 million or 43, 3% itself for the third quarter of fiscal 2021.
The increase in operating expenses was primarily due to increases in selling and marketing expenses offset by a decrease in general and administrative expenses.
Our GAAP net loss attributable to net salt for the third quarter of fiscal 2022 totaled 300000 or <unk> <unk> per diluted share.
Compared with a GAAP net loss of 600000 or five cents per diluted share in the third quarter fiscal 2021.
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 500000 on foreign currency exchange transactions.
Compared to a loss of $1 8 million in Q3 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 rate generally has just actively 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 U S. Dollar.
Moving to our non-GAAP metrics, our non-GAAP adjusted EBITDA for the third quarter of fiscal 2022 totaled 400000.
Or three cents per diluted share compared with non-GAAP adjusted EBITDA of 200000 or two cents per diluted share in the third quarter of fiscal 2021.
Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the physical quarter ended March 31 2022.
Turning to our balance sheet at quarter end, we had cash and cash equivalents of approximately $30 6 million or approximately $2.72 per diluted common share, which is down from $32 7 million or approximately $2 93 per diluted common share at June 32021.
One final note before I hand, the call back over to Nick <unk> regarding our financial outlook for fiscal year ending June 32022.
The company continues to expect total revenues to increase by at least 10% and subscription and support or recurring revenues to increase by at least 20%. This guidance is based on existing contracts and recurring revenue from its current customer base performance results track to January of this calendar year and other information available as it David This call.
<unk>.
This concludes my prepared remarks, I'll now turn the call back over to Nick <unk> for an overview of our business update and Dave.
Thank you Roger.
I'll provide updates within the major components of our growth strategy.
Revenue from our staff and support segment reached an annualized run rate more than $26 million in the third quarter.
As our workforce continues to return do onsite work.
Our global footprint, we anticipate this growth will continue to accelerate.
As Roger just noted our cash position remains strong.
Adding additional resources to support our core business as well as strategic investments in high return long term opportunities such as Oh broken the autos innovation lab and we are confident in the reiteration of our full year revenue guidance of 10% topline or $61 million.
Revenue for the year with 20%.
And our recurring subscription revenue.
Another component of our growth strategy is innovating in new areas and looking to create technology and personnel partnerships, which can be a major benefit to our cash.
<unk> as well as our own organization.
Did this and I'd like to take some time to provide you a brief update on our progress within the autos innovation lab.
The most visible project, but then autos in recent quarters has undoubtedly been a partnership with many anywhere.
As a reminder, autos has been working with B M. W Group financial services in.
In the North America through its key Brad me, many anywhere to provide 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 autos digital retail platform for many anywhere has been featured across major publications.
Newsy automotive news ABC news.
Since the launch at the end of the fiscal.
2021 the new platform has quickly gained traction.
As of quarter end, many anybody was liable so dean many dealerships.
From disclosure at the end of December quarter.
More importantly, we have now captured 70% of all California, many dealerships and 75% of all dealerships in Pennsylvania, a state would be we just entered in the third quarter. In fact, we are now operating in six states up from just two at the end of December .
In addition to Pennsylvania, we went live with dealership in Florida, and New York, and New Jersey during the third quarter.
Do we expect this early momentum to accelerate in the months ahead.
The success of this program can be attributed to several factors I'd like to show you one data point, we believe to be the most telling.
Through the fiscal third quarter, we've been able to generate a blended lead conversion rate of 22%, meaning every five opportunities we identify through our platform. One of those leads will convert to a vehicle sale.
We ended the first fiscal quarter. This ratio was 126.
This performance in light of the global and well documented inventory shortages within the auto industry is a major reason why.
We are continuing to roll out our solution to more and more.
Dealers as the weeks go by.
We appreciate and 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 insurance protection products with digital sales as well as introducing additional support for us got inventory, which has been a popular request under current market conditions.
The final component of our strategy is exploring in or the organic opportunity learning M&A and joint ventures, where it makes sense.
On this note I can share that we continue to evaluate opportunities in the marketplace that are highly accretive and strategic to our business.
With this overview completed I will now go over operational updates for the quarter.
Regarding event, our flagship NFS solution.
We signed a contract with a European bank with multiple countries and scope the current drug hinges on a discovery phase.
It is currently ongoing.
This is not so europe's newest blind the strong potential of penetration in multiple countries in Europe .
The news isn't Kabuto project Red light with a soft launch last August and the project is currently under transition and do maintenance.
Mapping to the Australian Kabuto project was completed during Q3 and have proposals submitted.
Our previously announced multiyear multibillion dollar upgrade with a global automotive, but I have a services company D. S. He used the word China continues to move forward.
Based on additional implementation configuration, we continue to do you anticipate if fall 2023 go lives and completed he activity during Q3 that set the stage of important deliveries in May and July of this year.
Now I'll finish up with our North American Operation last July we continued and we announced two first which was the sale of NFS ascent in the U S market.
In agreement with motorcycles.
Floyd the cloud based version of our flagship platform.
Crosby entitled patients, including the only point of sale and contract management system.
Support retail lending and leasing.
Motorcycle group consisting of motto leaves in Mato loans present lease and loan offers simultaneously to qualified applicants.
Motorcycle and power sports dealers can maximize their sales enabled customers to prequalify and select their vehicles through motorcycles advisors.
The project implementation that began in July and it all required workshops now completed.
The expected go live remains on track for 2022.
Going forward, we'll be looking to leverage this this breakthrough agreement to prospective clients throughout North America market.
Looking ahead, our pipeline of opportunities within the APAC region continues to grow steadily.
Out of the out of the pandemic induced halt and new business development.
We are encouraged by the quality opportunities we are seeing in our largest market and believe the ongoing recovery in this region to be a little magic put in larger return to work across our global operations.
Regarding our European and North American pipeline.
These remain exciting new growth areas for that so and we are strategically marketing our cloud and SaaS based offerings in these regions.
Which is contributing to the growing subscription and support revenues as noted earlier.
We have a few large opportunities of our flagship ascent in the U S as well as several new opportunities in Europe , specifically that are making their way through the sales cycles.
While we can't control when some of these deals get signed we believe our current momentum.
Combined with the critical mass of potential deals.
Bodes well for meaningful gains in the coming months.
Our current pipeline of opportunity across North America remains the strongest near term growth opportunity for our business.
Which is why getting these first implementations under our belt are so important.
In summary, our strong performance in fiscal two don't really do continues we have seen a healthy recovery in our other operating regions.
I'm, making investments today that will support sustainable growth for the future.
And with that we can open the call for questions operator.
Thank you Sir 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 queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys.
One moment, please while we poll for any questions.
Yeah.
Yeah.
Our first question comes from the line of Todd Southey was ages financial services. Please proceed with your question.
Good morning, and thank you for taking my questions I noticed in the last conference call that you had mentioned that we'd be going live in India through the Daimler financial services contract in early calendar 2022, you know we're into May now is there any update on when that will occur.
Yes. Thank you for asking the question Todd Yes. It did go live about a month ago in India, It's all been alive and running very well.
Okay I appreciate the color on that also I've I've been looking at the the financials here and it seems we're under a little bit of margin pressure I know are our revenue has gone up in the nine months, a little over $4 million, but our gross profit is flat and our income.
From operations is down a little bit is there a plan to.
Kind of a deal with us and improve margins or is this just a kind of a temporarily temporary problems caused by an inflation and increasing labor cost.
I think it's actually a couple of points to add to that question. Todd One is as company has pivoted almost over a year ago to SaaS model.
Software license sale, so you'll notice.
Our SaaS revenues growing recurring revenue is growing.
Expensive sometime large license implementation or contracts, but that doesn't mean that we're not getting a little busy with the license opportunities are.
Somebody just like the U S and Asia that will continue to improve our.
Revenue instead of gross margin in the second thing is I didn't notice as Roger mentioned, we hired a few people in the last two quarters, primarily to support our new initiatives.
Whether the innovative religion on ongoing businesses opportunities in North America, particularly we oney investment mode in the U S. In the North America, especially both Canada and in U S. A.
By hiring new people to really position ourselves to be stronger.
And operator in the U S market, which we haven't been in the past I believe all these investment and hiring more technology related personnel.
Paying better fill it because the market conditions are not so much in demand for this technology professionals all over the world Union in our home country, where we have made your workforce. So its the time to invest in people bring new talent and look at the future. So that's why the margins are a bit shrinking. So I put this as a temporary I think it will improve.
As the sales go to continue to improve and have you more I think that.
The economies of scale in the operation of always so there's nothing we can really look at the much better gross margin historically, we've been over 50, 550% and I intend to improve that to that level in coming quarters.
Okay, that's great to hear and then finally my my last question I look at the stock and we've got a book value of around $5 a share and you know the stock really hasn't done much. If you look at it even going back a couple of years to 20 years, it doesn't really seem like shareholder values being.
Maximized.
Is there any update with the share buyback program, which I know we've had some of those in the past or possibly the initiation of a dividend to our you know two to returned a little value to shareholders.
You know look we have done a very effective bypass program a year ago. They did almost close to a million shares and that's almost didn't have been and maybe it was a $4 million at that time.
Right now what we're looking at is two major I think our opportunities and challenges. One is of course globally. The all the difficult time the whole three deals are facing in North America and Asia of course Europe .
So what those macro challenges are and.
It also sometimes slows down the activity, but at the same time at the cash we have in the bank is really I believe well invest in the company and was in the right talent and in some new technologies and we also know no. One knows what is out there six months from now three months in the RV heading into recession or are we already in recession.
So you have to be very careful to preserve the cash to invest in the right place.
At the time will come if we see that we have enough guy to the weekend are allocated to it.
Another buyback program without disrupting or without continuing going.
Broad strategy and the other thing we're doing I think that that's the one where you can go back to borne in Asmara extension of a buyback right there'll be really in a good place place to invest.
Carefully.
Our cash flow and make sure the companies.
Strong financially to weather all the difficult time fifth in the world.
I appreciate that thank you very much.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the queue.
One moment, please while we poll for any other questions.
Yeah.
Yes.
Hmm.
Okay. At this time I'm not seeing any other questions I'd like to pass it back over to Nick <unk> for any closing remarks.
Thank you everyone for joining our call today I appreciate your support and your your patients and in this company and I think we will continue to do a good work and tried to make better progress in the coming quarters in coming years.
Thank you again and with you next time Goodbye.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yeah.
[music].
Yes.