NetSol Technologies Inc

NASDAQ:NTWK

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Operator]

Good morning, and welcome to NETSOL Technologies Fiscal Fourth Quarter and Year-End 2024 Earnings Conference Call. On the call today are Najeeb Ghauri, Co-Founder, Chairman and Chief Executive Officer; and Roger Almond, Chief Financial Officer.

I would now like to turn the call over to John Nesbett, who will provide the necessary cautions regarding the forward-looking statements made by management during this call. Please proceed.

[John Nesbett]

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 will 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 provision 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'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 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.netsoltech.com and via link available in today's press release.

Now I'd like to turn the call over to Najeeb. Go ahead, Najeeb.

[Najeeb Ghauri, executive]

Thank you, John, and good morning, everyone. Today, I'm calling from Riyadh, Saudi Arabia, which is one of the fastest growing economy in the world. In the full fiscal year 2024, we recognized a 17% increase in revenue to $61.4 million, exceeding our full year revenue target of between $60 million to $61 million and driving full year profitability with earnings per share of $0.06. We also met our fiscal '24 annual recurring revenue of $28 million. We are very proud of these results, which are in line with our growth strategy and validate our hard work and execution over the past several years, and we evolved and repositioned our business to meet the shifting demands of our customers and the markets in which we operate.

In parallel, with our revenue growth and profitability, a key focus for us this past year has been proactively managing costs, while investing in the growth areas of our business. Throughout the year, we increased our investment in sales and marketing to support our long-term growth goals in what we consider to be a favorable market environment. We also place an emphasis on new product development and introduction, as evidenced by a ramp-up of portfolio of products and service offerings. We have transcended the complex digital retail and financing processes. For example, we delivered an end-to-end digital retail experience for MINI USA in less than 7 months, virtually unheard of in our space, because we understand the e-commerce side of car buying as well as the financing complexities.

Another major focus of NETSOL this last year has been the innovation and integration of AI into both our products and services as well as our internal operations. As a global technology company with large presences in key markets, we are well positioned to take considerable advantage of the tremendous opportunity that AI presents to our industry and potentially expand into new verticals as we continue to innovate, adapt and improve our technology to meet customer and industry demands.

To that end, we are pleased to have added a top talent to our already impressive team of AI experts, and we'll continue to look for leaders in the AI industry that align to NETSOL goals and values and can help us to further innovate and enhance our AI capabilities.

As a global company, we place an emphasis on our presence in key geographic markets. As we've spoken to you on previous calls, our most vibrant market has historically been Asia Pacific or APAC, in which we possess a leading market share and service customers that include major Tier 1 automakers and banks throughout the region. Europe has also been a strong market for us, where we service a variety of different banks, financial institutions, and financing companies with our comprehensive portfolio of products and offerings.

We're also seeing considerable demand for our products and services in the United States, especially to our SaaS-based offerings. OTOZ, our omnichannel digital retail platform has experienced strong demand in the U.S. among MINI Anywhere dealerships, which are a subsidiary of BMW Group.

Additionally, subsequent to the close of the quarter, we signed a $15 million 5-year deal with the BMW in the U.S. to revolutionize the digital car buying experience for the customers in the U.S. This deal includes the customization, implementation, deployment and ongoing SaaS subscription of OTOZ. It's the largest deal to date by dollar value for NETSOL in the U.S. And we are still only beginning to scratch the surface of this market. U.S. represents an extremely attractive opportunity for our business. And with a strong pipeline of potential deals for both our SaaS and licensed products, we are very excited about the prospects that we are looking ahead of us.

Complementing our geographic expansion is the stickiness of our customer base. We have developed strong base of loyal recurring customers. Over the last 4 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 CFO, Roger Almond, I'd like to provide a sneak peek of what's in store for NETSOL as we move into fiscal 2025. We expect this to be another year of strong growth for our business as we build on the progress that we made in fiscal 2024, and we are targeting double-digit growth in fiscal 2025, driven by enhanced sales performance and market recognition of our products and services.

Our established markets are strong and we are experiencing renewed demand, specifically in APAC, as evidenced by our recent deal with a major automaker from the operations in China that brings the total value of over $30 million over 5 years. This activity, coupled with our opportunities in the U.S., positions us for a considerable growth in the year ahead.

Moreover, we are taking a fresh look at the portfolio of NETSOL products and how they fit together. We expect to be announcing shortly a comprehensive rebranding of our suite of products to more clearly differentiate and better align our brands with our target markets. So stay tuned as there is more to come on this front, but suffice it to say now that I'm very excited about the work being done on this front.

With that, I'll now hand over call to our CFO, Roger Almond, to talk about the financial results. Go ahead, Roger.

[Roger Almond, executive]

Thanks, Najeeb. I'm pleased to report that for the fourth quarter and full year, we saw increased revenue with significant increases in our margins and profitability. We also exited the year with a stronger balance sheet with an increased cash position as well as improved shareholders' equity. Our total net revenue for the fourth quarter of fiscal 2024 were $16.5 million compared with $13.8 million in the prior year period. For the full year, total net revenues were $61.4 million compared with $52.4 million in 2023.

As Najeeb mentioned, our full fiscal year 2024 revenue exceeded our full year revenue target of between $60 million and $61 million. License fees for the fourth quarter of fiscal 2024 were $621,000 compared with $21,000 in the prior year period. Full fiscal year 2024 license fees were $5.5 million compared with $2.3 million in the prior year period. Recurring revenues or subscription and support revenues for the fourth quarter of fiscal 2024 were $7.5 million compared with $6.8 million in the prior year period. Recurring revenues for the full year 2024 were $28 million, in line with our annual recurring revenue target of $28 million in 2024. Full year 2023 recurring revenues totaled $26 million.

Total services revenue for the fourth quarter of fiscal 2024 were $8.4 million compared with $7 million in the prior year period. Total services revenue for the full fiscal year 2024 were $28 million compared with $24.1 million in the prior year period. Gross profit for the fourth quarter of fiscal 2024 was $8.5 million or 52% of net revenues compared with $4.8 million or 35% of net revenues in the prior year period. For the full fiscal year of 2024, gross profit totaled $29.3 million or 48% of net revenues compared with $16.9 million or 32% of net revenues in fiscal 2023.

Operating expenses for the fourth quarter of fiscal 2024 were $7.7 million or 47% of sales compared to $7.7 million or 56% of sales in the same period last year. Operating expenses for the full fiscal year totaled $25.8 million or 42% of sales compared to $25.7 million or 49% of sales in fiscal 2023.

Income from operations for the fourth quarter of fiscal 2024 was $798,000 compared to a loss from operations of $2.9 million in the fourth quarter of fiscal 2023. Income from operations in fiscal 2024 was $3.5 million compared with a loss from operations of $8.8 million in the prior year period.

Turning to our profitability metrics. Our GAAP net loss attributable to NETSOL for the fourth quarter of fiscal 2024 was $83,000 or $0.01 per diluted share compared with a GAAP net loss of $5.1 million or $0.45 per diluted share in the fourth quarter of fiscal 2023. For the full fiscal year, GAAP net income attributable to NETSOL totaled $684,000 or $0.06 per diluted share compared with a GAAP net loss attributable to NETSOL of $5.2 million or $0.46 per diluted share in fiscal 2023.

Moving to our non-GAAP metrics. Non-GAAP EBITDA for the fourth quarter of fiscal 2024 was $1.2 million or $0.11 per diluted share compared with a non-GAAP EBITDA loss of $4.5 million or $0.40 per diluted share in the fourth quarter of the previous fiscal year. For the full fiscal year 2024, non-GAAP EBITDA was $4.2 million or $0.37 per diluted share compared with a non-GAAP EBITDA loss of $426,000 or $0.04 per diluted share in fiscal 2023.

Non-GAAP adjusted EBITDA for the fourth quarter of fiscal 2024 was $674,000 or $0.06 per diluted share compared with a non-GAAP adjusted EBITDA loss of $4.2 million or $0.37 per diluted share in the fourth quarter of fiscal 2023. Non-GAAP adjusted EBITDA in the full fiscal year 2024 was $2.7 million or $0.23 per diluted share compared with a non-GAAP adjusted EBITDA loss of $2.3 million or $0.20 per diluted share in fiscal 2023.

Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the quarters and fiscal years ended June 30, 2024 and 2023.

Turning to our balance sheet. At the year-end, we had cash and cash equivalents of approximately $19.1 million, up from $15.5 million at June 30 last year. Total NETSOL stockholders' equity at June 30, 2024, was $34.8 million or $3.05 per share.

That concludes my prepared remarks. I'll now turn the call back over to Najeeb. Najeeb?

[Najeeb Ghauri, executive]

Thank you, Roger. We are so pleased with the results and progress that we made in fiscal 2024, and we look forward to carrying the momentum into fiscal 2025 and beyond, as we drive continued growth and value for our shareholders.

With that, I'd like to open the call for questions and answers. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of [ Jeff Stegeman with Stegeman Capital ].

[Unknown Analyst]

A couple here. So first off, AI clearly continues to be a key focus. Can you kind of share any specific updates that you're especially excited about?

[Najeeb Ghauri, executive]

Yes. Thank you for asking the question. We are particularly excited about the early adoption of AI within our organization, as it positions us for a strong competitive advantage in the market. We have an AI adopting strategy in place where we have taken a holistic approach. Firstly, by attributing AI into our products and services, we are able to enhance customer experiences through personalization, automation and predictive analytics, which drive better outcomes. We have lots going on in this front. We have invested a reasonable investment and people hired to work with new initiatives. The company is really excited about the change we are making in AI.

Internally, we are focusing on training employees to effectively leverage AI tools, transforming our operations by improving efficiency, reducing manual effort and operational costs, and significantly boosting productivity. Bottom line is, our AI adoption is fast enough to make sure our customers are getting what they want as things go forward in the future.

[Unknown Analyst]

Got it. Understood. And just one more. So you mentioned renewed demand in your existing markets, especially Asia Pacific. Can you expand on the trends you're seeing there?

[Najeeb Ghauri, executive]

We have a dominant position in China, especially, which is our biggest market so far. We have 85% of the market share in this particular space. Our customers continue to adopt our flagship Ascent. There's more demand because the market has grown. We have customers who are still wanting more and more. So basically, with the BMW being our biggest customer in China, and Daimler-Benz, which is also the 2 largest customers, and many other names, I believe we have established reputation over the last 20 years since 2004.

Very well-known names, customers work with us closely with our teams and offices in Beijing and China and Shanghai. And of course, they work very closely with our back office team. So there's a lot of comfort and excitement of what we do for China and the customers everywhere. So the word gets out what is NETSOL doing. And I'm pretty confident to say that we are the leading company, without a doubt in the whole China and Asia Pacific, what we've done in the last 20 years. So China market is looking pretty good for us.

[Operator]

Our next question comes from the line of Todd Felte with AGES Financial.

[Todd Felte, analyst]

Congratulations on a great year. I missed the very first minute of the call. Do you have any updated guidance as far as revenue and earnings go for the next fiscal year?

[Najeeb Ghauri, executive]

Thank you for your compliment. I appreciate it. What we have said is, we're looking at double-digit growth in this fiscal year. And I think what we'll do is, we normally give specific guidance of the ranges in the Q1, so we have better clarity. But right now, we're looking at double-digit gains in the next fiscal year.

[Todd Felte, analyst]

Okay. That's with a positive earnings per share for the year. Is there any range on that?

[Najeeb Ghauri, executive]

Well, it's too soon to predict that. But look, we have done a great job in the year we just reported. The company is going to make sure that we have efficiency and more leaner organization and drive gross margin, which you see 47%, 48%. We like to keep that trend, or even better. So pretty confident we'll have a better year than this fiscal year.

[Todd Felte, analyst]

Okay. That's great to hear. And finally, I know you have a lot of cash deployed in many different countries. Are you using any of that cash just to invest in short-term treasuries just to get some return off of it while it's sitting around?

[Najeeb Ghauri, executive]

Well, quite frankly, we have good cash in different locations. We're basically investing around technology and our people in the new markets like North America, which is really, as you can imagine, how resilient, how big this market is. So we set up an office in Austin. We are hiring people. We're building some new verticals. So I think the cash is used to really grow the business.

Right now, we're ready to do any stock buyback. We did that a couple of years ago. Right now, it's time to keep investing and make sure we have enough cash. And as you can see the history, the company has not raised any money in the market for the last 12, 13 years. So we want to make sure we have strong cash, we are not dependent on outside cash, and we'll continue to deploy cash to continue the business operations and grow the operations globally.

[Operator]

At this time, this concludes our question-and-answer session. If your question was not addressed during the Q&A session, please contact NETSOL's Investor Relations team by e-mailing them at [e-mail] or by calling them at [phone].

I'd now like to turn the call over to Mr. Ghauri for any closing remarks.

[Najeeb Ghauri, executive]

Thank you very much for joining us today. I want to especially thank our investors for continued support, our loyal customers worldwide, and our most dedicated employees in every location we have. So we're very proud of them for their contribution and what we've done this year and the future years. We're looking forward to see you in the next earnings call. Thank you, and have a good day.

[Operator]

Thank you for joining us for NETSOL's Fiscal Fourth Quarter and Year-End 2024 Earnings Call. You may now disconnect your lines.