NTWK - NASDAQ

Good morning. Welcome to NETSOL Technologies Fiscal First Quarter 2025 Earnings Conference Call. On the call today are Roger Almond, Chief Financial Officer; and Naeem Ghauri, Co-Founder and President. 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.

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 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 NETSOL'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 measure. Finally, I would like to remind everyone that this call will be recorded and made available for replay at www.netsoltech.com and via 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?

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. In the first quarter of fiscal 2025, we continue to build on the strong foundation that we laid throughout the 2024 fiscal year. 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. This growth demonstrates an important shift in our revenue mix, relying less on large onetime license fees, which are relatively unpredictable in nature and can fluctuate quarter-to-quarter. And more on our SaaS products, which generate revenue at a more consistent and predictable rate, thanks to the recurring nature of this segment. 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. Our growth strategy is focused on two key initiatives that we believe will position the company at the forefront of our dynamic industry that is constantly evolving to meet shifting customer demands. The innovation and integration of AI into our leading product suite and strategic geographic expansion into both new and existing markets. During the first quarter, we announced a new Transcend platform, an AI-powered digital retail and asset finance solution for automotive and equipment OEMs, auto captives, commercial lenders, dealers, brokers and financial institutions. This platform unifies NETSOL's 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, 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 demand of our growing client base. This transition represents a key strategic milestone for our business as we enter the next era of technology, where AI is at the forefront. 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 these initiatives. AI is prevalent across our entire product suite with one example being the interaction that customers have using our Transcend retail platform. 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 specific needs. AI is optimizing online car buying from discovery to final sale, and we remain committed to innovating integrating this technology across our product line. Growth in the United States continues to be a top priority, and we are making encouraging progress as we [indiscernible] this region. In the first quarter, we announced a 5-year, $16 million contract with a major automaker to revolutionize the digital car buying experience in the U.S. through Transcend retail. Our omnichannel digital retail platform that contributes to our recurring revenues. In addition to this contract, we have also been engaged in a long-standing agreement with MINI USA to leverage our cross-sell retail platform in their online purchasing operations. Over the lifetime of this contract, MINI has achieved a 33% increase in conversion rate from lead to sales. We are performing in our established markets as well, thanks to renewed opportunity for growth in regions like APAC, where we already have a leading market share. During the first quarter of fiscal 2025, we signed an expansion agreement with a major automaker in China, a longstanding metro partner increasing the total contract value to over $30 million and demonstrating our strength of customer relationships and ongoing demand for our products from Tier 1 names in the auto industry. As Najeeb mentioned last quarter, the stickiness of our customer base also complements our geographic expansion. We have developed a strong base of loyal recurring customers. Over the last 4 fiscal years, we have increased our customer retention rate from approximately 90% in 2021, to just below 95% in 2024, demonstrating the superior performance and reliability of our products and services. 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 his prepared remarks. As we've committed to execute on our growth strategy, we have also significantly enhanced our liquidity and strength of our balance sheet. 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, and an increase of approximately $8 million since the first quarter of 2024. 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 the many opportunities that continue to emerge in the market. Overall, we are encouraged by our first quarter results as we continue to build on the progress that we made in fiscal 2024. We expect this to be another year of strong growth for our business. 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. With that, I will now hand the call over to Roger Almond, Chief Financial Officer of NETSOL. Roger?

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. 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, while our service revenues were consistent with the first quarter of 2024. We did not recognizing any meaningful license fees in the first quarter of 2025 compared to license fees of $1.3 million in the prior year period. Recurring revenues, or subscription support revenues, increased 26% to $8.2 million in the first quarter. This includes a onetime catch-up of approximately $639,000 related to a new contract with an existing customer in China. This compares with $6.5 million in the prior year period. As a percentage of total net revenues, recurring revenues were 56%, compared with 46% of total net revenues in the prior year period, demonstrating encouraging growth in this segment. Total services revenue for the first quarter of fiscal 2025 were $6.4 million, consistent with $6.5 million in the prior year period. Gross profit for the first quarter of fiscal 2025 was $6.6 million, or 45% of net revenues, compared with $6.2 million or 43% of net revenues in the prior year period. Operating expenses for the first quarter of fiscal 2025 were $7.3 million, or 50% of sales, compared to $5.8 million, or 41% of sales in the same period last year. Loss from operations for the first quarter of fiscal 2025 was $760,000, compared to income from operations of $351,000 in the first quarter of fiscal 2024. Turning to our profitability metrics. The GAAP net income attributable to NETSOL for the first quarter of fiscal 2025 was $71,000 or $0.06 per diluted share, compared with GAAP net income of $31,000 or $0.03 per diluted share in the first quarter of fiscal 2024. 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. 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. 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, which was up from $19.1 million at June 30, 2024, demonstrating the enhanced strength of our balance sheet. Working capital was $24.2 million as of September 30, 2024, compared to $23.6 million at June 30, 2024. Total stockholders' equity at September -- total NETSOL stockholders' equity at September 30, 2024, was $34.7 million or $0.303 per share. That concludes my prepared remarks. I'll now turn the call back over to Naeem.

Thank you, Roger. Our first quarter results are a continuation of the growth and value that we have delivered in fiscal '24. We believe that we have a strong foundation from which we can continue to grow our business, and we're excited by the many opportunities that we are seeing from both new and existing customers as we innovate and enhance our products to meet the evolving demands of the market. With that, I would now like to open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of [indiscernible].

Can you provide any additional color on how your AI initiatives are progressing?

I'll take that, George. It is very much a key strategic initiative for us. And as you might have read the press releases around the launch of our Transcend platform and our updated website, 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 in the future impact of AI on our business platforms and products. And we also understand the impact on our clients having a strong AI strategy and a partner is very, very important. So really, we are kind of looking at different aspects of how to bring in to our organization as well as how we take AI to our clients. We also provide thought leadership to our clients and what should be their, AI plans and strategy.

[Operator Instructions] It appears we have no further questions at this time. I'd like to turn the floor back over to management for closing comments.

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.