NetSol Technologies Inc. Q3 2023 Earnings Call
Speaker 2: Good morning. Welcome to NetSalt Technologies 3rd quarter 2023 earnings conference call. On the call today are Najib Gory, Chairman of Chief Executive Officer, Roger Almond, Chief Financial Officer and Petri McLaughlin.
Speaker 2: Please be advised that there is a live presentation accompanying today's call that is available as part of the webcast and also available separately on the company's website.
Speaker 2: I would not like to turn the conference over to Patty McLassen, who will provide the necessary questions regarding the four lucky statements made by management during this call. Please proceed.
Speaker 3: 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.
Speaker 3: I'll now provide the necessary cautions regarding the forward-looking statements made by management during this call.
Speaker 3: Please note that all the information discussed on today's call is covered under the Safe Harper provisions of the Private Security Obligation Reform Act.
Speaker 3: The company's discussion, including any accompanying slides, may include forward-looking statements reflecting management's current forecast of certain aspects of the company's future, and our actual results may differ materially from those stated or implied. These forward-looking statements are qualified by the cautionary statements contained inintervention.
Speaker 3: Nensol's 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 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.
Speaker 3: Finally, I would like to remind everyone that this call will be recorded and made available for replay at www.nutsaltech.com and via link available in today's press release. Now, I'd like to turn the call over to Najib.
Speaker 3: this call will be recorded and made available for replay at www.NutshellTech.com and via link available in today's press release. Now, I'd like to turn the call over to Najib. Najib?
Speaker 4: Thank you, Patty, and good morning everyone.
Speaker 4: It was a busy quarter headed net sold one in which we made a lot of progress driving key new initiatives. First, we are expanding our customer base with a focus on SAS.
Speaker 4: Second, we are expanding in North America, which is a key new market focus for us that offers considerable opportunity to leverage our success in Asia and Europe .
Speaker 4: And third, we are driving efficiencies in the business.
Speaker 4: In the third quarter, we expanded our already robust customer base that includes some of the most recognizable names in the global leasing and finance industry.
Speaker 4: and we continue to strategically partner with entities that help us to better support our customers and accelerate our organic growth.
Speaker 4: We signed a multi-million dollar agreement with Kubota, a Japanese company relating to its operation in Australia.
Speaker 4: Per the agreement, we will deploy our NFS Ascent Retail Platform, which consists of the Ascent Omni Point of Sale and Ascent Contract Management System, as well as selected NFS Digital Touchpoints, including Self Point of Sale, and Ascent Contract Management System.
Speaker 4: mobile point of sale and mobile account.
Speaker 4: Also in the third quarter, we live with Flex, our API first in cloud-based calculation engine for HIDOC Finance, a business finance provider in the United States. We are especially excited about this agreement as Flex is the first product that we've launched as a part of Nestle's new FX Now Marketplace.
Speaker 4: to see this product getting some early traction.
Speaker 4: On the partnership side, we extended our partnership with Amazon Web Services, or AWS, and became an API gateway delivery partner, allowing us to provide more robust and reliable solutions to our clients by enabling us to build secure, and Sutton impressedn me with how Shah.
Speaker 4: and scale APIs like Flex.
Speaker 4: We also signed a teaming agreement with digital intelligence systems allowing us to leverage their expertise in large resource pool of over 5000 US-based engineers to augment and complement our growing US presence.
Speaker 4: and jointly undertake large enterprise grade programs for existing and new US clients.
Speaker 4: Partnerships like these are crucial part of our business and allow us to offer better products and more efficient service to our customers.
Speaker 4: At the center of our agreements and partnerships is our suite of industry leading product offerings.
Speaker 4: Our core products consist of the next generation NFS Ascent platform, a highly adaptive retail and wholesale platform for the global finance and leasing industry available on the cloud via SaaS subscription-based pricing.
Speaker 4: NFS Digital is a combination of our core strengths, domain and technology, providing digital transformation solutions like self-PFS and mobile PFS to augment and enhance our customers' ecosystems.
Speaker 4: Autos is a fully digital white-label platform for lease, finance and cash transactions that delivers a frictionless customer experience.
Speaker 4: first strategy developed specifically for the global credit finance and leasing industry.
Speaker 4: Subsequent to the quarter, we also launched Hubex, an API library that enables companies to standardize all their API integration procedures across multiple API services through a single integration, and we are actively developing new products for launch under the Apex Now umbrella.
Speaker 4: Finally, in October 2022, we entered a partnership with Amazon Web Services, or AWS, to offer our customers innovative cloud solution services at scale with highly skilled AWS resources.
Speaker 4: in our Apex Now marketplace.
Speaker 4: with a robust geographic presence and deep experience in our field.
Speaker 4: Over the course of 40 years, Nessel has established a strong global presence, particularly in APEC and Europe .
Speaker 4: We have become synonymous with innovative, state-of-the-art business services and enterprise solutions that support the everyday operations of some of the largest and most recognizable companies in the world.
Speaker 4: While we are well known in our established markets, North America remains largely untapped under Seoul.
Speaker 4: The US represents a very exciting opportunity for us.
Speaker 4: and we are taking steps to position Nestle as a leading provider of leasing and finance software solution in this region. Already, we managed to achieve a year-over-year sales growth driven by a multi-million dollar contract with a Tier 1 automotive provider automation solution.
Speaker 4: and our Autos platform is currently live in 53 mini anywhere dealerships across the US demonstrating strong early traction for our products.
Speaker 4: As I mentioned last quarter we are also making good progress establishing a client support facility in Austin, Texas.
Speaker 4: which will accommodate all our sales and support staff based in North America and facilitate a growing customer base and we are actively identifying and evaluating M&A opportunities in this region to further accelerate our organic growth.
Speaker 4: pertains to our SaaS and cloud-based offerings that generate valuable and reliable recurring revenues for our business. And we are intently focused on building our presence in this region going forward.
Speaker 4: Speaking more on our SaaS and cloud-based offerings, we are currently in a very exciting part of our growth as we evolve toward a SaaS-based model and establish Nestle as a SaaS and fintech IT company. Recurring revenue is a very attractive and reliable model for our business.
Speaker 4: with sequential growth over the past three quarters, indicating a shifting demand for subscription-based products in place of our traditional licensing model.
Speaker 4: The benefits of shifting to a SAS model are plentiful, both for the customer and forallas' Sol.
Speaker 4: As I mentioned, SaaS and cloud-based products drive high-margin recurring revenue for our business and shift into a SaaS model also increases our customers' access to industry-specific generative AI or Artificial Intelligence learning technology.
Speaker 4: through our partnership with AWS and others like it.
Speaker 4: Consequently, we are implementing more and more out-of-the-box products on a pure SaaS model and deployed over the cloud. We are projecting over $25 million in subscription and support revenue for the full fiscal year need in 2021 and 2023.
Speaker 4: We expect the number to increase both as we continue our evolution to a SaaS model and as demand for SaaS and cloud-based products continues to grow.
Speaker 4: Because of this shift to a pure SAS model, our products and services will require significantly less manpower to deliver the same superior customer support and customization we are known for and we are adjusting our business accordingly. Last quarter, we announced cost reduction initiative.
Speaker 4: which we estimated would generate more than $4 million in savings across our business. To date, we have reduced our headcount by 10% and we are targeting a total headcount reduction of up to 25% with significant total savings that we expect to have a positive material impact on our revenue per employee, net profit and EBITDA.
Speaker 4: Overall, we now expect to reduce our total cost by over $7 million and our plan is to allocate more capital to our most attractive growth markets, namely our expansion into the North American market and the development of additional SaaS and cloud-based products that further strengthen our already robust offerings.
Speaker 4: This is an exciting time for Nestle as we significantly shift our business model and tap into new markets that provide us with a tremendous opportunity to exponentially grow our business. I will now turn the call over to Raja Amand, our CFO , who will walk us through
Speaker 2: financial for the quarter. Go ahead Roger. Thank you to Jeeb. Our total net revenues for the third quarter of fiscal 2023 were 13.5 million compared with 14.8 million in the prior year period.
Speaker 5: On a constant currency basis, net revenues were $14.1 million.
Speaker 5: License fees were $2 million compared with $1.6 million in the prior year period and were $2.1 million on a constant currency basis.
Speaker 5: Recurring revenue or subscription support revenues were $6.7 million compared with $6.6 million in the prior year period. On a constant currency basis, recurring revenues were $6.8 million.
Speaker 5: Local services revenue were $4.9 million compared with $6.6 million in the prior year period.
Speaker 5: The decrease in services revenue is related to an overall decrease in services provided for ongoing implementations and additional change requests.
Speaker 5: On a constant currency basis, total services revenue was $5.2 million. 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.
Speaker 5: Total cost of revenues was $8.8 million for the third quarter compared to $8.9 million in the third quarter fiscal year 2022.
Speaker 5: On a constant currency basis, total cost of revenues was $11.7 million.
Speaker 5: Gross profit for the third quarter fiscal 2023 was $4.7 million or 34.8% of net revenues, compared to $5.8 million or 39.4% of net revenues in the third quarter of fiscal 2022.
Speaker 5: On a constant currency basis, gross profit was $2.4 million.
Speaker 5: Operating expenses for the third quarter were 5.6 million or 41.7% of sales compared to 6.4 million or 43% of sales in the same period last year.
Speaker 5: $5.4 million on foreign currency exchange transactions compared to a gain of approximately $500,000 in the third quarter of last year.
Speaker 5: Because we operate in several geographical regions, a significant portion of our business is conducted in currencies other than the US dollar. A decrease in the value of the US 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 US dollar. Similarly, as the US dollar gains 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 US dollar.
Speaker 5: 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 market.
Speaker 5: Moving to our non-gap metrics, our non-gap adjusted evidoff for the third quarter physical 2023 was 3.3 million or 29 cents per diluted share compared with non-gap adjusted evidoff a 359,000 or 3 cents per diluted share in the third quarter last year.
Speaker 5: We see the reconciliation schedules contained in our earnings release for revised calculations of adjusted EBITDA for the quarters ended March 31, 2023 and 2022.
Speaker 5: According to our balance sheet, at quarter end, we had cash and cash equivalence of approximately 15.3 million or approximately $1.35 per diluted comment share.
Speaker 5: Total stockholders' equity at March 31, 2023 was $41 million or $3.63 per share.
Speaker 5: That concludes my prepared remarks. I'll now turn the call back over to Najib.
Speaker 4: Thank you Roger. In summary, we have a lot to be excited about for this business.
Speaker 4: We are expanding into perhaps the most vibrant and untapped market in the world in North America and specifically in the United States.
Speaker 4: We're also evolving towards a pure SAS model that allows us to generate higher margin recurring revenues with less manpower.
Speaker 4: and more support and customization for our customers.
Speaker 4: And we are strategically reducing our costs so that we can allocate capital to the parts of our business that make all of our opportunities possible. I'm very encouraged that what we are seeing on the horizon for NetSolve and I look forward to keeping you apprised as we continue to drive growth and value for our shareholders.
Speaker 2: With that, I would like to now open the call for questions operator. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
to withdraw your question, please press star, then two. At this time, we will pause momentarily to send our roster.
The first question comes from the line of Todd Seltzer from Aegis Financial Services. Please go ahead.
Oh, I'm Najee Brodger. Great to see the progress on the quarter. Nice to see the improvements there. Just had a couple questions. I know in the last two years, we've announced contracts with Yamaha North America, BMW, Mini Cooper, AutoNation, IKEA, and a lot of these other household names. We haven't really gotten kind of a ballpark revenue range on these contracts. So these are the RE?strands insensitive excessest Famous
There is at least a million dollar projected revenue each year.
These are owned, as you know, very prominent household names. We believe there's a bigger opportunity to grow with them as our history with some individuals.
previous names or bigger names in the auto sector. We've done so well so many years, but I believe in the US, these names are perfect for our pivot in the SaaS and cloud and mobility. So I'm pretty confident that the relationships will.
improve and grow as you continue to deliver the first phases of our contracts.
Okay, and also in the past you would always give kind of a range of the backlog. I think we are up to over 200 million, maybe even 250 million in backlog that you had announced on the last quarterly call. Can you give us a ballpark range of our backlog now? The reason, Todd, we chose not to...
I give a specific number because this industry has changed a lot in last, even recently, few months. I won't talk about years, but the last few months have been different. The world has changed a lot in many, many ways.
given all the macro challenges and the customers or potential new customer tend to take much longer time to make a decision. So we chose to focus on
the strategy which is the areas we are now entering, particularly our aim to become a much stronger player in the US market. So I think what is important is each quarter, what we deliver, what we report and...
clock. We have lots of deals in the play in China and US and Europe . I believe you know, we don't wait one minute when we have announced a new contract. But more importantly, the company is really transforming, becoming a fintech.
and really focus on SaaS, cloud, mobility, and I believe the US is the market for these new direction for the community. I'm pretty confident, I'm very excited and optimistic about our future, especially in the US because that's where we are very low in our market penetration, compared to our presence in.
APAC or China or Europe . The US is a very big field for us, wide open to grab bigger market share in the coming years.
Okay, that's great to hear and I know that you had talked about during the last quarterly call the a lot of these headcount reductions and cost savings really taking effect into the latter part of this year to where we might turn profitable from an operating standpoint. I know we had the large currency gain which is uh...
It's great to see. Is there any update on if we can achieve the operating profitability in the latter half of this year?
Yes Todd, this transformation to SAS and cloud and mobility has really given us some new light under the tunnel and that is...
don't rely too much on the license transaction which obviously takes a lot of
support in the back office. Yes, we make money while they're very long-term decision-making cycles with the customer but also it takes a lot of manpower to support them.
So we have come to a conclusion, a resolution rather, to cut down the headcount.
by at least 25% in totality. So we started with 10% in the current quarter. We believe in this next couple of three months, we must have achieved 25% total headcount. That would bring a substantial reduction of overhead because now you're focusing on quick play that is SAS model solution, which is ready to go. It won't require.
too much of the back office personnel engineers, but these flex products and those new solution or mobility for example, you can see we are up to 53 dealership in many anywhere and What can I stop starts to get into MBW in the US they have 400 dealerships?
So those kind of verticals and the new areas will keep us across much lower than what we've been doing because we've been supporting large implementation all these years, Daimler, BMW, you know all the names. We have pivoted and that way we will have a leaner organization much lower.
expenses, operating expenses, and of course it will improve our operating profit and net income and of course cash flow.
Okay, that's great to hear. And then my final question, I can hop back in the queue, is just, you know, it was nice to see the revenues even before the currency adjustment. They were the highest since June of last year. It looks like the subscription model is kicking in. Do we expect to see a continued smooth curve up with revenues increasing?
every quarter or is it going to be lumpy with ups and downs?
I think this is the whole idea is to avoid lumpiness in our quarter sales by getting into size and mobility and
solution which is really easy to implement and predictable. So I'm very confident we can show quarterly growth from quarter to quarter and sequentially as well as the year to year. So I'm pretty positive that there's so much happening here.
and all the new things we talked about in our prepared remarks that I think the direction is clear that we have to, I mean we did very well with the license model. We need to continue to get the RFPs working on the license deal. But the focus really is the US market, organic growth, partnership relationships, lots going on now then.
until six months ago. So I'm optimistic about continuous growth sequentially and year to year. Okay, well congratulations on a good quarter. I look forward to future announcements and to showcase the success of your company and thank you very much for taking my questions.
Thank you, Todd. The next question comes from the line of Carl Brooks with Pine Creek Capital. Please go ahead. Hey, guys. Thanks for taking my question. Just have a quick one here. Can you provide a bit more color around your market share in Asia and Europe ?
Thank you for your time. The next question comes from the line of Carl Brooks with Pine Creek Capital. Please go ahead. Hey guys, thanks for taking my question. Just have a quick one here. Can you provide a bit more color around your market share in Asia and Europe ? Yes.
Asia, if I focus just in China, which is our biggest market in terms of revenue, we are by far the majority leader in terms of market share in China because we boast the maximum number of customers in our space. Comparatives are few, but they have a tiny share compared to us.
Europe , we're doing quite well. I started to see some traction in the recent months and quarters.
There are a few companies, a handful of companies in our business which is a very niche business.
In Europe we are doing quite stable but in the US we have the biggest opportunity to grab bigger share in the coming years.
Got it. Great. Thanks, guys. Thank you.
As a reminder, if you wish to register for a question, please press star then 1. At this time, this concludes our question and answer session. If your question was not addressed during the Q&A session, please contact NetSOL Investor Relations.
Thank you for joining us today. I especially like to thank our investors for the continued support, our loyal customers, and our dedicated employees worldwide for their ongoing contributions.
We look forward to updating you on our next call. Thank you.
Thank you for joining us today for NetSolve's fiscal third quarter 2023 earnings call. You may now disconnect. Goodbye!
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