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NETSOL TECHNOLOGIES INC (NTWK)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 revenue rose 2.8% YoY to $15.01M as subscription and support grew 9.4% to $8.96M; however gross margin compressed to 39.4% and GAAP EPS fell to $(0.20), driven by higher operating expenses and an FX loss, yielding an operating loss of $(1.84)M .
  • Mix shift to recurring SaaS/support continued (license fees just $0.07M), while services revenue was seasonally lower at $5.98M; cash increased to $22.69M quarter-end from $17.36M in June, offering liquidity to fund growth .
  • Management cited front‑loaded sales investments (+36% S&M), FX headwinds (Q1 FX loss ~$0.29M vs +$0.54M gain LY) and seasonality; they are targeting FY26 revenue growth of 5–7% despite a “slow start” .
  • Near‑term stock catalysts: recurring revenue momentum (Check AI launch; new U.S. retail engagement with Sonic Automotive) vs. watch-outs from margin compression and lower services activity this quarter; pipeline conversion and deal timing remain key swing factors .

What Went Well and What Went Wrong

  • What Went Well

    • Recurring revenue growth: Subscription and support +9.4% YoY to $8.96M, reinforcing the shift to a SaaS/Cloud model .
    • Liquidity improved: Cash and cash equivalents increased to $22.69M from $17.36M QoQ, providing funding for go‑to‑market and AI initiatives .
    • Strategic execution: Check AI (AI‑native credit decisioning) launched in October; U.S. digital retail momentum with Sonic Automotive discovery engagement; APAC expansion with a Chinese lessor go‑live in Indonesia .
    • CEO tone on durability of model: “Recurring revenue model is gaining traction and provides a solid foundation for long-term stability and profitability.” .

  • What Went Wrong

    • Margin compression and losses: Gross margin fell to 39.4% (from 56.2% in Q4 and 45.0% YoY), leading to operating loss $(1.84)M and GAAP net loss $(2.36)M; non‑GAAP EBITDA $(1.78)M and adjusted EBITDA $(1.86)M .
    • Higher OpEx intensity: Operating expenses rose to $7.75M (51.6% of sales) vs $7.32M (50.2%) LY; management highlighted a 36% increase in selling and marketing to build the sales org, pressuring near‑term earnings .
    • FX and seasonal/macro headwinds: ~$0.29M FX loss vs ~$0.54M gain LY; services revenue declined sequentially to $5.98M (Q4: $9.7M), with timing/milestones, European OEM challenges, and macro factors cited .

Financial Results

Metric (USD, unless noted)Q3 FY2025 (oldest)Q4 FY2025Q1 FY2026 (newest)
Total Net Revenues ($M)$17.54 $18.40 $15.01
Gross Profit ($M)$8.74 $10.30 $5.91
Gross Margin (%)50.0% 56.2% 39.4%
Operating Expenses ($M)$7.19 $7.20 $7.75
Operating Income (Loss) ($M)$1.55 $3.20 $(1.84)
GAAP Net Income (Loss) attrib. to NTWK ($M)$1.42 $2.60 $(2.36)
Diluted EPS$0.12 $0.22 $(0.20)
EBITDA ($M)$2.25 $4.70 $(1.78)
Adjusted EBITDA ($M)$1.78 $3.50 $(1.86)
FX gain (loss) ($M)$0.32 —$(0.29)

Segment revenue mix:

Revenue Component ($M)Q3 FY2025 (oldest)Q4 FY2025Q1 FY2026 (newest)
License Fees$0.001 $0.50 $0.07
Subscription & Support$7.89 $8.20 $8.96
Services$9.65 $9.70 $5.98
Total$17.54 $18.40 $15.01

Balance sheet/liquidity:

KPIQ3 FY2025 (as of 3/31/25)Q4 FY2025 (as of 6/30/25)Q1 FY2026 (as of 9/30/25)
Cash & Cash Equivalents ($M)$18.77 $17.36 $22.69
NETSOL Stockholders’ Equity ($M)$33.95 $37.83 $35.79
Working Capital ($M)$23.7 —$24.9

Versus S&P Global consensus (Q1 FY2026):

MetricConsensusActual
RevenueN/A*$15.01M
EPS (diluted)N/A*$(0.20)
*Estimates retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue growth (YoY)FY2026—5–7% growth target (management “targeting”) New

No other quantitative guidance (margins, OpEx, OI&E, tax rate, dividends) was provided in the press release or call .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25 and Q4 FY25)Current Period (Q1 FY26)Trend
AI/Technology initiativesContinued investment; strong services/SaaS momentum highlighted in Q3; FY25 commentary emphasized innovation and Transcend platform Launched Check AI (AI-native credit decisioning) in Oct; reiteration of unified AI-powered Transcend platform strategy Increasing productization/AI focus
U.S. digital retailGrowing U.S. presence; operational wins highlighted (Q3) Sonic Automotive discovery engagement on omnichannel digital retail (Transcend Retail) Strengthening U.S. go-to-market
APAC/China expansionGo-lives and multi-million-dollar wins; FY25 services growth Strategic SCO cooperation in Tianjin; Chinese lessor go-live in Indonesia Sustained regional expansion
Macro/FXFX mixed: Q3 FY25 FX gain $0.32M FX loss ~$0.29M; macro headwinds incl. credit tightening, auto loan delinquencies, tariff impacts, EU OEM restructuring Less favorable in Q1
Revenue mix/seasonalityQ3/Q4 elevated services and strong gross margins (Q4 GM 56.2%) Seasonal/services timing softness; license minimal; subscription/support +9.4% YoY SaaS rising, services lower this quarter
Sales & marketing investmentOperating discipline in FY25 +36% S&M to expand global sales org; front-loaded growth investments Higher near-term OpEx to drive bookings

Management Commentary

  • CEO (press release): “Recurring revenue model is gaining traction and provides a solid foundation for long-term stability and profitability.”
  • CFO (press release): “First quarter reflects a higher operating expense ratio and a temporary compression in gross margins… cash position of $22.7 million provides ample liquidity… prioritizing investments that enhance recurring revenue streams and scalable digital solutions.”
  • CEO (call): “Losses… primarily the result of front-loaded growth investments, seasonal patterns, and foreign exchange volatility… targeting full-year revenue guidance of 5–7%… pipeline is stronger than it has ever been.”
  • CFO (call): “FX loss of ~$287,000 this quarter vs ~$543,000 gain in the prior year period… GAAP net loss attributable to NetSol $(2.4) million, or $(0.20) per diluted share.”

Q&A Highlights

  • No analyst Q&A; the call concluded without questions .
  • No further clarifications were provided beyond prepared remarks .

Estimates Context

  • S&P Global consensus for Q1 FY26 EPS and revenue was unavailable at the time of analysis; therefore, the quarter cannot be classified as a beat/miss versus Street estimates. Actuals: Revenue $15.01M, EPS $(0.20) .
  • Given limited microcap coverage, estimate updates may lag; focus likely shifts to FY26 top-line trajectory (management target +5–7%) and margin recovery path into 2H .
    *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Recurring revenue momentum continues (subscription/support +9.4% YoY), but services softness plus higher OpEx compressed margins, producing losses; watch for a sequential recovery in services and gross margin normalization as milestone timing improves .
  • Management is intentionally investing ahead of demand (S&M +36%), which should drive bookings over time; cash of $22.7M provides runway to execute .
  • FX moved against results (Q1 loss vs prior-year gain), and macro headwinds (credit tightening, auto delinquencies, tariff/EU OEM issues) added pressure; FX and macro sensitivity remain non-trivial to quarterly earnings variability .
  • Strategic catalysts: Check AI commercialization and U.S. digital retail opportunities (Sonic engagement) could accelerate SaaS mix and underpin ARR quality over the medium term .
  • FY26 setup: Despite a “slow start,” management targets +5–7% revenue growth; delivery discipline, deal timing, and pipeline conversion are critical to achieve the outlook .
  • Valuation narrative in near term likely hinges on evidence of services rebound and operating leverage from higher recurring revenue; lack of consensus coverage heightens the impact of company-specific news flow and contract wins on the stock.

Appendix: Additional Detail (Source Citations)

  • Q1 FY26 results detail: revenues $15.01M; gross margin 39.4%; OpEx $7.75M; operating loss $(1.84)M; GAAP net loss $(2.36)M; EPS $(0.20); EBITDA $(1.78)M; adj. EBITDA $(1.86)M .
  • Segment revenue Q1 FY26: license $0.07M; subscription/support $8.96M; services $5.98M .
  • Liquidity: cash $22.69M; equity $35.79M; working capital $24.9M (9/30/25) .
  • Prior quarter benchmarks:
    • Q4 FY25: revenue $18.4M; GM 56.2%; OpEx $7.2M; op inc $3.2M; GAAP NI $2.6M; EPS $0.22; EBITDA $4.7M; adj EBITDA $3.5M .
    • Q3 FY25: revenue $17.54M; GM 50.0%; OpEx $7.19M; op inc $1.55M; GAAP NI $1.42M; EPS $0.12; EBITDA $2.25M; adj EBITDA $1.78M .
  • Strategic press releases: Check AI launch (Oct 8, 2025); Sonic Automotive engagement (Aug 26, 2025); China/Indonesia go‑live (Jul 17, 2025) .