Q1 2023 NetSol Technologies Inc Earnings Call
Good morning, and welcome to the nuts, all technologies fiscal first quarter 2023 earnings conference call on the call today are in the ZIP Gary Chairman and Chief Executive Officer, Roger Almond, Chief Financial Officer, and Patti Mcglasson General Counsel I would like to.
I'll 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 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 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.
No such that 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 <unk> 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 there'll be 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. Finally, I would like to remind everyone that this call will be recorded and made available for replay at www Dot net sell tech dot com.
N via link available in today's press release, now I'd like to turn the call over to the deep deep.
Thank you Patti and good morning, everyone.
In the fourth quarter, we capitalized on the strong momentum built over the course of the past year.
A few key takeaways from the quarter.
One is an international company like many companies, we saw the impact of currency swings in the quarter.
So it is important to look at the results on a constant currency basis.
For the quarter, we drove 6% revenue increase on a constant currency basis.
True a key focus of ours has been to drive long term growth in our recurring revenues.
It really says and support.
This grew 16, four 6% in the quarter a bit faster than consolidated revenue.
Three we invested in our people and our growth.
We have many exciting growth initiative that we will get into.
But importantly, they need the best people to make that happen.
So S DNA increase and investing in our people is one of the key reasons for this inflation.
Inflation also added to our costs.
Making sure our people are motivated as critical for long term shareholder value.
Overtime as the business continues to scale well.
Should be able to drive considerable profitability.
Number four much of our business is very long term contracts and we continue to build upon this aspect of the business in the quarter.
Looking forward our pipeline is encouraging on this front.
And five our balance sheet is a real competitive asset for us.
We do not have a need to capital capital and have a large cash position that enabled us to make a take a long term view of the business.
So even with the economic uncertainty our recurring revenues long term contracts and robust pipeline, coupled with our strong cash and liquidity position put us in a very strong position.
Within our core business, the pipeline and mix of opportunities remains robust, particularly in our European and North American growth markets.
Giving us confidence in our ability to drive additional contract signings over the coming months.
Within a more venture focused operations the continued rollout of <unk>.
Auto digital retail platform in partnership with many anywhere has been a resounding early success now with 38 dealerships.
Additional after the close of this quarter Q1 subscriber in 15 U S States.
This success validates our confidence in this platform as well as providing monthly said subscription revenue.
Approximately $1.
In addition to this early success autos has signed a contract with a tier one automotive company in the U S.
Our mobility solution to manage back office operations for vehicles subscriptions.
Across the company, we have expanded our footprint by opening a new office in Tianjin, China support both the ongoing delivery operations.
That is the professional services very good growth in China.
And Pakistan, China and in the U S. We have hired to not only expand our opportunities and increased sales efforts, but to fulfill implementation and delivery needs of current and new customers.
We are confident that the investments we have made in our dealership workflows technology and expanded sales efforts will bear fruit.
With that overview completed I'll now hand, the call over to our CFO Roger Almond.
Who will walk you through the financial results of the quarter Roger.
Okay.
Thanks, Jim turning to our fiscal first quarter 2023, <unk> financial results for the period ended September 30, yet.
Our total net revenues for the first quarter of fiscal 2023 were $12 7 million compared with $13 4 million in the prior year period.
The decrease in total net revenues was driven by the devaluation of the foreign currencies compared to the U S dollar on.
On a constant currency basis net revenues increased 15, 6% the $15 5 million they.
The increase in revenues on a constant currency basis was driven by an increase in license fees of 314000.
An increase in subscription and support revenues of $1 million and an increase in services revenue of 753000 <unk>.
<unk> revenue or subscription and support revenues were $6 million on a constant currency basis. This revenue grew 16, 6% to $7 3 million compared with $6 2 million in the prior year period.
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 2022, we.
We anticipate subscription and support revenue to gradually increase as we implement both our NFS legacy product and our NFS ascent product.
Total service revenues were $6 4 million and on a constant currency basis were $7 9 million compared with $7 2 million in the prior year period.
The increase in services revenue for the quarter on a constant currency basis was due to an increase in service revenue for an ongoing customers implementation in China.
Services revenue is derived from services provided to both current customers as well as services provided to new customers versus part of the implementation process.
Total cost of revenues.
It was $8 5 million for the first quarter, an increase of 500000 from 8 million in the first quarter of 2022.
On a constant currency basis total cost of revenues was $10 8 million or an increase of $2 8 million the.
The increase in cost of sales for the quarter on a constant currency basis.
Primarily due to increases in salaries and consultant fees of $2 1 million.
<unk> costs of 293000 depreciation of 121000 and other costs of 350000.
Gross profit for the first quarter of fiscal 2023 was $4 3 million or 33, 5% of net revenues compared to four $5 4 million or 46% of net revenues in the first quarter of fiscal 2022.
On a constant currency basis gross profit was $4 7 million. The decrease in gross profit on a constant currency basis was primarily due to increases in cost of revenues of $2 8 million.
All set by a $2 1 million increase in revenues on a constant currency basis.
Operating expenses for the first quarter was $6 1 million or 48, 4% of sales compared to $6 1 million or 45, 3% of sales in the same period last year.
On a constant currency basis operating expense for the first quarter.
Were $7 4 million or 47, 6% of sales the increase of operating expenses on a constant currency basis for the quarter was primarily due to increases in selling and marketing expenses.
<unk> hundred 13000.
General and administrative expenses at 438000, and research and development costs of 347000.
Turning to our profitability metrics for the first quarter of fiscal 2023, we had a net loss from operations of $1 9 million.
On a constant currency basis net loss of $2 7 million.
Compared to a net loss of 640000 in Q1 last year.
Our GAAP net loss attributable to net so for the first quarter fiscal 2023 totaled 621000 or six cents per diluted share and on a constant currency basis, our net loss totaled 900 trucks.
Or eight cents per diluted share.
This compares with GAAP net income of 188000 or two cents 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 than increases in revenues.
As I've mentioned on previous calls.
It's important to point out that included in our net loss. This quarter was a gain of $1 3 million on foreign currency exchange transactions and on a constant currency basis $1 8 million.
Impaired to a gain of $1 3 million 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 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 first quarter of fiscal 2023 totaled a negative 28000.
Whereas zero cents per diluted share and on a constant currency basis at negative 136000, or one cent per diluted share compared with non-GAAP adjusted EBITDA of 770000 or seven 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 quarters ended September 32022 and 2021.
Turning to our balance sheet at quarter end, we had cash and cash equivalents of approximately $21 million or approximately $8 86 per diluted common share.
It'll net stockholders equity at September 32022 was $42 1 million or $3 73 per share.
That concludes my prepared remarks, I'll now turn the call back over to <unk> for an overview of our business updates the Jeep.
Thank you Roger I'll now take a minute to provide updates within the major components of our growth strategy.
We are seeing a return to sales growth with the related increase in expenses to support our increased business activity.
Our cash position remains healthy providing additional resources to support our core business.
Is it a strategic investment in high return long term opportunities, including our work in the autos innovation lab.
We are cautiously optimistic about our growth overall on a constant currency basis, but are cognizant of the macro and microeconomic challenges facing the world.
We hope to be in a better position to provide some financial guidance, when we announced second quarter 2023.
But that said, we anticipate continues and double digit revenue growth annual recurring revenue and Seth and support services.
Moving on moving all of a sudden component of our strategy. We are innovating in new areas and looking to create partnerships with technology and personnel.
Which can be a major benefit to our organization as well as our own.
To this end I like to take some time to provide you a brief update on our progress within the autos innovation lab.
Recent traction in the U S through autos offering has provided excellent validation of <unk> commitment to innovation.
Many anywhere program powered by auto digital retailing suite.
It has now been adopted by 38, many dealers across 15 states.
Which includes 10 additional enrollments post Q1.
At the end of Q1 monthly subscription and services revenue grew to just over $75000 with 28 do you lose lives on the platform and with the air dealerships enrolment today monthly recurring revenue, which is approximately $100000.
One of the main catalyst for the continued adoption and buy in from many U S C.
And as dealership is the blended.
Want to fly the lead conversion ratio that many any weird has achieved.
Meaning for every five opportunities.
We have identified through the platform one of those leads will convert to vehicle sales.
This is proof that despite recent inventory shortages e-commerce for big ticket purchases is a necessity for the next generation of consumers.
Another factor that has been a key to the platform success is the continuous addition of new features primarily driven by understanding dealer and customer needs through data we derived from analytics.
User forums interviews surveys and market research.
In the most recent update several enhancements were added including chat capability, allowing customers and dealers to communicate directly in app and enhanced sales enablement tools.
<unk> dealers to scent recommended.
He called and personalized deal structures.
Deep links for customers to transact on seamlessly.
These features together cater to more dynamic sales interactions.
That blend physical and digital touch points and facilitates the upselling of add on products or negotiation of deal terms.
As you progress in rolling out the platform across the nation, we continue to receive multiple dealer enrollments every month.
We look forward to continuing the journey without.
Our partners at many USA and we are very proud to be front and center or technology fit for the industry shift to digital sales models.
We started at least because you saw the beginnings of a fundamental change in consumer behavior, the not only the way they purchase after that also in the way they use assets.
Consumers seek flexibility affordability and convenience.
And then industrial responded by offering new mobility models and alternate usage option such as car sharing and car subscriptions, we formed a vision to provide Oems lenders and retailers with the technology backbone and tools to sustainably launch and scale. These new.
Types of models.
As further validation to that vision I'm excited to share that you'd find a new agreement with the tier one.
Automotive company in the U S to provide a good oh towards mobility platform, which will manage back office operations with their vehicles subscription business undoubtedly.
Our success in many ways a strong reference in winning this contract and we look forward the Walgreens boot partnerships over the coming months.
Looking ahead, we are taking the next step in our commitment to Fintech innovation.
And building sure sure placed as products under the umbrella of our newly formed ethics marketplace, starting with our most recent launch of flex and API be ready to use calculation engine that guarantees precise calculations.
All stages of the contract lifecycle through various calculation types flex.
Flex is a one stop solution, providing incident cloud base calculation engine and then out of the box integration that can be implemented.
And then organizations products.
This is an ecosystem.
We have already seen early traction with European merchant bank, becoming the first subscribers to flex solution.
Over the coming months, we will continue to market flex to the global credit industry indulge more pure play SaaS products like flex and there are effects marketplace.
With two leading automotive companies trusting the autos platform and early traction of our first pure SaaS play product flex.
All well positioned to be a leading provider of disruptive innovative and digital solutions complementing our flagship ascent offerings in the U S market.
And globally.
With this overview completed I'll now get into our operational updates from this quarter.
Starting in APAC.
And with the previously announced 12 country 110 million dollar contract with Mercedes Benz vans mobility.
We are continuing to make considerable progress along our multiyear multi country implementation roadmap I'm happy to report today that you have now successfully delivered 85% of the program.
The moment, we have ongoing implementations in Japan, Korea, Australia, and Taiwan that are expected to be completed within 2023.
Finally, our second largest flagship ascent contract.
With the end of the Blue fin services over $30 million.
Our global automotive and services company in China continues to move forward.
Based on additional implementation consideration we are currently anticipating a 2023 go lives.
With the recent execution of new and sort of abuse with different customers across the globe I'm happy to report.
There are professional services vertical has started growing nicely.
Demand for additional customization services from APAC clients continues to rise.
The quarter witnessed revenue earned in excess of $200 from these additional services alone.
Existing support revenues from our APAC lines.
Also expected to go up in the following year on account of renegotiations underway and additional services delivered epic lines.
Looking ahead, our pipeline of opportunities within the APAC region continues to grow.
We are encouraged by the quality of opportunities we are seeing in our largest core market and believe the ongoing recovery in this region to be emblematic of a dollar to return to work across our global operations.
Moving now to our European operations are N D E U.
Europe , and North America remain exciting new growth areas when that's all.
We are so digitally marketing our cloud and SaaS based offering specifically in these regions, which are contributing to the growing subscription and support revenues noted earlier.
We have several opportunities with Europe specifically.
They're making their way through the sales cycle.
Well, what we can't control when some of these deals get signed we believe our current momentum combined with a critical mass of potential deals bodes well for some future wins in the coming months.
During this quarter, we continue to implement NFS ascent with a major Scandinavian Bang. The plans were for countries go lives by 2024.
We anticipate considerable new work to be generated from the European market as you move through the process of these implementations.
Finishing with our North American operations on N T E. We previously announced the first official itself and if it isn't in the U S. The U S market and agreement with motorcycle group to deploy the cloud based version of our flagship.
For them across their entire operations, including our omni point of sale and contract management system to support retail lending and leasing.
What does that do group, it's consistent muddle leave and motor alone present lease and loan offers simultaneously to qualified applicants.
Motorcycle and Barbara sports dealers can maximize deerfield enables consumers to prequalify and selective but he can through motorcycles advisors.
Project implementation to begin in July , but then expected to go live in February 2023.
Going forward, we will be looking to leverage this breakthrough agreement to prospective clients throughout the North American market.
Our current pipeline of opportunities in disease in this region remains the greatest near term growth opportunity for our business.
In summary.
We had a strong start to the year.
Being held you to cover all our operation 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 well now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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.
Our first question comes from the line of Karl Phillips what.
<unk> Street capital. Please proceed with your question.
Yeah. Thanks for taking my questions. So my first question is I know that you invested in the business a bit this quarter and had some inflation pressure, but you know as you think about that business over the mid to long term.
How should I think about where margins could potentially go if you're able to continue to drive revenue growth.
I saw them just to be clear I'm not looking for guidance I know I just want to understand how youre thinking about this.
Oh, Thank you I think and historically, our gross margins have been very strong and 60% range in 30% to 40% for the operating margins in the past in the peak time, I think 2019 or so.
This business at least those margins again in the future, but aren't essential sustained basis I believe.
As we grow our revenue as these signed more contracts. This will naturally impact in a positive way of both margins and of course as you know we have pivoted to SaaS revenue model also in the last three years that is impacted in the beginning it wasn't in the revenue growth, but eventually as I said in my prepared.
Remarks, that's where the news the good side very impressively and we can see healthy growth in this fiscal year.
I'm pretty confident that the revenue grow the margin will improve and I think it's sustainable in the long term.
Got it okay.
And then your recurring revenue grew a bit faster than your consolidated revenue this quarter and I was just wondering is this a trend that we can expect to sustain.
Well I think look the signs are encouraging I mean, I've talked about openly about the challenges we have faced along with the whole world and our business space and I am pretty confident based on our very healthy pipeline activities are growing in every region North America Europe Asia Pacific We believe.
We've we can see an impressive sustainable revenue and a faster CAGR overall.
And the revenue this is a very positive sign and I believe.
We know why we are investing in people and technology and leadership simply because we see the opportunities are growing and it has taken time, but I think these are very encouraging sign to grow our revenue on a consistent basis.
Got it okay. Thank you that's it for me.
Thank you.
Thank you. Our next question comes from the line of Robert Green with Boston Partners. Please proceed with your question.
Hi, guys. This is Mike.
<unk> as well.
First off I'm sorry.
Concerning new cars affect your business.
Hello, I'm, sorry, we lost you Hello.
Hello can you hear me, yes, yes, you could place all over again, sorry, if I missed it.
Oh no worries.
So there's some sudden uncertainty concerning new cars types of business.
I think yes, or no I believe.
There's the shortage.
Fly chain worldwide, we're seeing a noticeable.
Activity in both fronts I believe the.
Particularly in North American market is quite resilient and strong we have more opportunities last few months than ever before that's a sign that the used market is healthy and strong and it is still in demand for all of our business our products our solutions, so I'm pretty encouraged with opportunities in the U S. So I don't see any threat any and.
He kind of further deterioration in the site.
Got it got it. Thank you our Memphis stuck on a it looks like North America did well. This quarter. This is a relatively new market for you could you expand on that in North America, a quick way to ensure global side of it.
Well actually a good question, there's another new market for US we have been by design.
It goes on APAC, because that's where we have really captured the majority share position, especially in China and tend to another box to the whole APAC region.
We contribute heavily from that.
The region and the U S was always a.
Market, which needed a lot more readiness in terms of the product team and experience in the other regions. So what we're doing is what with the success, we have in China, especially in the large tier one customers you're trying to replicate the same strategy in the US market. This is a big market. This is the.
The biggest market of all the <unk>.
The region. So we are not positioning ourselves with the right team.
Right strategy, and the new verticals as well as our core business. So I think that's all.
<unk> is the place we will see our biggest successes in the coming years, but it's been around for many years. He just said by choice, we decided to focus on APAC and in Europe and now we believe in the last three years very active in engaging with the new customers current customers and bringing the right people to be able to unlock this market.
I'm very impressed with you in the coming years. So this is really exciting for us in the U S and we hope we can sign some contracts in the coming months.
Great great.
That's all for me.
Thank you.
Once again as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment. Please when we poll for more questions.
No.
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 at investors at <unk> dot com or by calling them at 9495743860, I'd like to turn the call back.
Over to Mr. Gary for his closing remarks.
Thank you 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 contribution.
We look forward to a bidding going on next call operator.
Thank you for joining us today for <unk> fiscal first quarter 2023 earnings call you may now disconnect.
Okay.
Okay.
Yes.
Yeah.
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