NetSol Technologies - Q4 2024

Transcript

Operator (participant)

Good morning, and welcome to NetSol Technologies' fiscal fourth quarter and year-end two thousand and twenty-four 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 (Founder and President)

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 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 the link available in today's press release. Now I'd like to turn the call over to Najeeb. Go ahead, Najeeb.

Najeeb Ghauri (Chairman and CEO)

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-$61 million and driving full-year profitability with earnings per share of $0.06. We also met our fiscal 2024 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 as 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, for example, portfolio of product 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 seven 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 for NetSol this past 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 will continue to look for leaders in the AI industry that are aligned with NetSol's 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 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 One 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 for our SaaS-based offerings. Otoz, our omnichannel digital retail platform, has experienced strong demand in the U.S. among many Anywhere dealerships, which are a subsidiary of BMW Group. Additionally, subsequent to the close of the quarter, we signed a $16 million five-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, which includes the customization, implementation, deployment, and ongoing sales subscription of Otoz, is the largest deal to date by dollar value for NetSol in the U.S. We are still only beginning to scratch the surface of this market. The U.S. represents an extremely attractive opportunity for our business, and with a strong pipeline of potential deals for both our sales 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 a strong base of loyal, recurring customers. Over the last four 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 their operation in China that brings the total value of over $30 million over five 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 to say for now that I'm very excited about the work being done on this front. With that, I'll now hand over the call to our CFO, Roger Almond, to talk about the financial results. Go ahead, Roger.

Roger Almond (CFO)

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 revenues 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-$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 of 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 with $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 the 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 of 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 ending 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 $30.05 per share. That concludes my prepared remarks.

I'll now turn the call back over to Najeeb. Najeeb?

Najeeb Ghauri (Chairman and CEO)

Thank you, Roger. We are so pleased with these results and progress that we made in fiscal twenty twenty-four, and we look forward to carrying the momentum into fiscal twenty twenty-five and beyond as we drive continued growth and value for our shareholders. With that, I'd like to open the call for question and answers. Operator?

Operator (participant)

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 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. Thank you. Our first question comes from the line of Jeff Siegman with Siegman Capital. Please proceed with your, your question.

Jeff Siegman (Analyst)

Hey, guys. Thanks for taking the questions. 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 (Chairman and CEO)

Yeah, 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 adoption strategy in place where we have taken a holistic approach, firstly, by integrating 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 in a reasonable investment and people hired to work with the new initiatives. The company is really excited about the changes we make 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 move forward in the future.

Jeff Siegman (Analyst)

Got it. Understood. Thank you. 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 (Chairman and CEO)

We have a dominant position in China, especially, which is our biggest market so far. We have perhaps 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, which is also the two largest customers and many other names, I believe we have established a reputation over the last twenty years, since 2004. A very well-known name, 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 twenty years. So China market is looking pretty good for us.

Jeff Siegman (Analyst)

Got it. All right, that's helpful. Thank you. That's all for me.

Najeeb Ghauri (Chairman and CEO)

Thank you.

Operator (participant)

Thank you. Thank you. Ladies and gentlemen, as a reminder, it's *1 to join the question queue. Our next question comes from the line of Todd Felty with Aegis Financial. Please proceed with your question.

Todd Felty (Financial Analyst)

... Hey, guys. 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 (Chairman and CEO)

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

Todd Felty (Financial Analyst)

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

Najeeb Ghauri (Chairman and CEO)

It's too soon to predict that. But look, we have done a great job in the year we just reported. The company is doing... Make sure that we have efficiency and more leaner organization and drive gross margins, 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 Felty (Financial 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, you know, short-term treasuries, just to get some return off of it while it's sitting around?

Najeeb Ghauri (Chairman and CEO)

Quite frankly, we have good cash in different locations. We're basically investing in our technology, in 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're hiring people. We're building some new verticals. So I think the cash is used to really grow the business. Right now, we are 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. As you can see, the history, company has not raised any money in the market for the last 12 years -13 years.

So we want to make sure we have strong cash, we are not dependent on outside cash, and we continue to deploy cash to continue the business operation and grow the operation globally.

Todd Felty (Financial Analyst)

Okay. Thanks for taking my questions, and good luck in the next fiscal year.

Najeeb Ghauri (Chairman and CEO)

You're welcome.

Operator (participant)

Thank you. 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 emailing them at [email protected], or by calling them at 9495743860. I'd now like to turn the call over to Mr. Ghauri for any closing remarks.

Najeeb Ghauri (Chairman and CEO)

Thank you very much for joining us today. I wanna firstly 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 quarter earnings call. Thank you, and have a good day.

Operator (participant)

Thank you for joining us for NetSol's fiscal fourth quarter and year-end 2024 earnings call. You may now disconnect your lines.