Q1 2025 NetSol Technologies Inc Earnings Call

Patti McGlasson, Naeem Ghauri,

Speaker Change: Good morning. Welcome to NetSol Technologies' fiscal first quarter 2025 earnings conference call.

Speaker Change: On the call today are Roger Almond, Chief Financial Officer, and Najeeb Ghauri, Co-Founder and President.

Speaker Change: I would 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.

Patti McGlasson: Please note that all the information discussed on today's call is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act.

Speaker Change: The company's discussion may include forward-looking statements reflecting management's current forecast.

Speaker Change: These forward-looking statements are qualified by the cautionary statements contained in NETSAL's press releases and SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q.

Speaker Change: 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 Change: Finally, I would like to remind everyone that this call will be recorded and made available for replay at www.Netzaltech.com and via a link available in today's press release. Now I'd like to turn the call over to Naeem Ghauri, who is kindly filling in for Najeeb Ghauri, who is traveling in China for business. Naeem.

Naeem Ghauri: Good morning everybody. Thank you Patti. As Patti mentioned, Najeeb is traveling in China meeting clients and spending some time with the teams over there.

Naeem Ghauri: In the first quarter of fiscal 2025, we continue to build on the strong foundation that we laid throughout the 2024 fiscal year.

Naeem Ghauri: We achieved profitability in the first quarter along with a 3% growth in total net revenues, primarily driven by a 26% increase in recurring subscription support revenues.

Naeem Ghauri: This growth demonstrates an important shift in our revenue mix to rely less on large one-time license fees, which are relatively unpredictable in nature and can fluctuate quarter to quarter.

Naeem Ghauri: and more on our SaaS products which generate revenue at a more consistent and predictable rate thanks to the recurring nature of this segment.

Naeem Ghauri: We continue to strategically invest in the growth of our business, which was demonstrated in our increased selling general and admin expenses in the first quarter.

Naeem Ghauri: Our growth strategy is focused on two key initiatives that we believe will position the company at the forefront of a dynamic industry that is constantly evolving to meet shifting customer demands.

Naeem Ghauri: The innovation and integration of AI into our leading product suite, a strategic geographic expansion into both new and existing markets.

Naeem Ghauri: During the first quarter, we announced a new trust fund platform and AI-powered digital retail and asset finance solution for automotive and equipment OEMs, auto captives, commercial lenders, dealers, brokers, and financial institutions.

Naeem Ghauri: This platform unifies NetSol product suite under one brand while offering a robust set of solutions that showcases our commitment to harnessing the transformative potential of AI.

like many leading companies.

Naeem Ghauri: We believe that AI is the future for technology, and as such, it was imperative for us to redefine our product suite to better meet the demands of our growing client base.

Naeem Ghauri: This transition represents a key strategic milestone for our business as we enter the next era of technology. AI is at the forefront. This transition represents a key strategic milestone for our business as we enter the next era of technology.

Naeem Ghauri: We remain committed to investing in the innovation and integration of AI into our products, as well as adding the best talent available to us as we further this initiative.

Naeem Ghauri: AI is prevalent across our entire product stream, with one example being the interaction the customers have using our custom detail platform.

Naeem Ghauri: With the help of AI, buyers can chat with the digital customer support agent in real time to browse new vehicles, financing options, promotions, and vehicle builds, providing options and insights to find the best vehicle and financing options to meet the customer's specific needs.

Naeem Ghauri: AI is optimizing online car buying from discovery to final sale and we remain committed to innovating, integrating this technology across our product line.

Naeem Ghauri: Growth in the United States continues to be a top priority and we are making encouraging progress as we penetrate this region. In the first quarter we announced a five-year $15 million contract with a major automaker to revolutionize the digital car buying experience in the U.S. through cars and retail.

Naeem Ghauri: Our omnichannel digital retail platform that contributes to our recurring revenues.

Naeem Ghauri: In addition to this contract, we've also been engaged in a longstanding agreement with MiniUSA to leverage our trust and retail platform in their online purchasing operations.

Naeem Ghauri: Over the lifetime of this contract, MINI has achieved a 23% increase in conversion rate from lead to sales.

Naeem Ghauri: We're performing in our established markets as well, thanks to renewed opportunity for growth in regions like Ithaca, where we already have a leading market share.

During the first quarter of Fiscal 2025,

Naeem Ghauri: We signed an expansion agreement with a major automaker in China, a long-standing network partner increasing the total contract value.

to over 30 million dollars.

Naeem Ghauri: and demonstrating our strength of customer relationships and ongoing demand for our products from tier one names in the auto industry.

Naeem Ghauri: We have developed a strong base of loyal recurring customers. Over the last four fiscal years, we have increased our customer retention rate approximately 90% in 2021 to just below 95% in 2024.

Naeem Ghauri: Demonstrating the superior performance and reliability of our products and services.

Naeem Ghauri: Before I hand the call over to our Chief Financial Officer, Roger Almond, I'd like to take a moment to highlight the enhanced strength of our balance sheet in recent quarters, which Roger will elaborate on, on his prepared remarks.

Naeem Ghauri: As you've committed to execute on our growth strategy, we have also significantly enhanced our liquidity and strength of our balance sheet.

Roger Almond: Notably, our cash and cash equivalents have grown to $24.5 million as of September 30, 2024, an increase of $5.4 million compared to June 30, 2024.

Roger Almond: and an increase of approximately $8 million since the first quarter of 2024.

Roger Almond: This enhanced liquidity provides us with the flexibility to strategically invest in the growth of our business, from product innovation to geographic expansion, and allows us to pursue many opportunities that continue to emerge in the market.

Roger Almond: and we are targeting double-digit revenue growth in fiscal 2025 driven by geographic expansion, enhanced sales performance and market recognition of our products and services.

Speaker Change: With that, I will now hand the call over to Roger Almond, Chief Financial Officer of Nexon. Roger?

Roger Almond: Thanks, Naeem. I'll start by going over our financial results from the quarter before going over our balance sheet and liquidity, which, as Naeem mentioned, we have enhanced significantly over the past quarter and fiscal year.

Roger Almond: Our total net revenues for the first quarter increased 3% to $14.6 million compared with $14.2 million in the prior year period, driven primarily by an increase in subscription and support or recurring revenues.

Roger Almond: while our service revenues were consistent with the first quarter of 2024. We did not recognize any meaningful license fees in the first quarter 2025 compared to license fees of $1.3 million in the prior year period.

Roger Almond: Recurring revenues or subscription support revenues increased 26% to $8.2 million in the first quarter, which includes a one-time catch-up of approximately $639,000 related to a new contract with an existing customer in China.

Roger Almond: Total services revenue for the first quarter of fiscal 2025 was $6.4 million, consistent with $6.5 million in the prior year period.

Roger Almond: Operating expenses for the first quarter of fiscal 2025 are 7.3 million or 50% of sales compared to 5.8 million or 41% of sales in the same period last year.

Roger Almond: Loss from operations for the first quarter of fiscal 2025 was $760,000 compared to income from operations at $351,000 in the first quarter of fiscal 2024.

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Roger Almond: Turning to our profitability metrics, the Gap Net Income attributable to NetSol for the first quarter of FY 2025 was $71,000 or $0.006 per diluted share compared with Gap Net Income of $31,000 or $0.003 per diluted share in the first quarter of FY 2024.

Roger Almond: Moving to our non-GAAP metrics, our non-GAAP EBITDA for the first quarter of fiscal 2024 was $302,000 or $0.03 per diluted share compared with non-GAAP EBITDA of $805,000 or $0.07 per diluted share in the prior year period.

Roger Almond: Non-GAAP-adjusted EBITDA for the first quarter of fiscal 2025 was $204,000 or $0.02 per diluted share compared with non-GAAP-adjusted EBITDA of $466,000 or $0.04 per diluted share in the prior year period.

Roger Almond: Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the quarters ended September 30, 2024 and 2023. Now turning to our balance sheet, we increased our cash and cash equivalents to approximately $24.5 million at September 30, 2024.

Roger Almond: which was up from $19.1 million at June 30, 2024, demonstrating the enhanced strength of our balance sheet.

Roger Almond: Working capital is $24.2 million as of September 30, 2024 compared to $23.6 million at June 30, 2024.

Speaker Change: Total stockholders equity at September, total net stockholders equity at September 30, 2024 was $34.7 million or 3.03 cents per share. That concludes my prepared remarks. I'll now turn the call back over to Najeeb.

Speaker Change: Thank you, Roger. Our first quarter results are a continuation of the growth and value that we have delivered in fiscal 24.

Najeeb Ghauri: We believe that we have a strong foundation from which we can continue to grow our business. We're excited by the many opportunities that we're seeing from both new and existing customers as we innovate and enhance our products to meet the evolving demands of the market.

Speaker Change: With that, I would now like to open the call for questions. Operator?

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: A confirmation tome will indicate your line is in the question queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Once again, if you would like to ask a question, press star one on your telephone keypad. One moment, please, while we poll for questions.

Speaker Change: Thank you. Our first question comes from the line of George Melner with Melner Capital Management. Please proceed with your question.

Speaker Change: I'll take that, George. It is very much a key strategic initiative for us.

Speaker Change: and as you might have read the press releases around the launch of our Transcend platform and our updated website.

Speaker Change: where we have shared what we are doing in AI both internally to improve efficiencies inside the company as well as product innovation through AI.

We obviously strongly believe.

Speaker Change: on our clients of having a strong AI strategy and a partner is very, very important.

Speaker Change: So really, we are kind of looking at different aspects of how to bring AI in to our organization as well as how we take AI to our clients. We also provide thought leadership to our clients on what should be their AI plans and strategies.

Speaker Change: Got it. Understood. All right. Thank you. That's all for me.

You're welcome.

Speaker Change: Once again if you would like to ask a question press star 1 on your telephone keypad. One moment please while we re-poll for any additional questions.

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All right.

Speaker Change: Thank you. It appears we have no further questions at this time. I'd like to turn the floor back over to Management for closing comments.

Speaker Change: Thank you, operator, and thank you for dialing in to our fiscal Q1 call. And we look forward to talking to you again at the end of the next quarter.

Thank you.