Name: NETSOL TECHNOLOGIES INC Q3 2025 Earnings Call
Start: 2025-05-14T13:01:00.000Z

Executive Summary

Q3 FY2025 delivered double-digit growth with total net revenues up 13% to $17.54M, gross margin expanded to 50%, and GAAP net income rose to $1.42M ($0.12 diluted EPS) versus $0.33M ($0.03) in Q3 FY2024 .
Services revenue surged 24% to $9.65M, aided by a ~$2.3M cumulative catch-up tied to a contract amendment; subscription and support grew 10% to $7.89M, though mix declined to 45% of sales (from 56% in Q1–Q2) .
Strategic wins and deployments (Kubota go-live in Australia, contracts in Oman and Indonesia) plus launch of Transcend AI Labs and appointment of a VP of AI bolster medium-term narrative; FX was a tailwind in Q3 (+$0.32M) versus a loss in Q2 .
No formal guidance issued; management signaled optimism and potential to provide guidance after year-end; watch for normalization post catch-up effects and subscription mix trajectory as near-term stock catalysts .

What Went Well and What Went Wrong

Services strength and margin expansion: Services up 24% YoY to $9.65M; gross margin rose to 50% from 48% in Q3 FY2024, with CFO citing a ~$2.3M services catch-up as a driver .
Commercial momentum: CEO highlighted Kubota’s finance operations go-live in Australia and new multi-million-dollar wins in Oman and Indonesia, reinforcing global delivery and sector credibility (“mission-critical solutions at scale”) .
AI strategy advancing: Launch of Transcend AI Labs and hiring of a VP of AI to embed intelligence across the portfolio; management emphasized becoming an AI-first organization .

Subscription mix and volatility: Subscription & support revenue grew 10% YoY but fell to 45% of sales (vs 56% in Q1–Q2), tempering recurring revenue narrative in the quarter .
License fees minimal: License revenue remained de minimis at $1.2K vs $558K in Q3 FY2024, underscoring reliance on services/subscription and inherent quarterly variability .
Opex still elevated: Operating expenses increased to $7.19M (41% of sales) vs $6.16M (40%) in Q3 FY2024, reflecting growth investments; cash declined sequentially to $18.77M, though working capital held at $23.7M .

Metric	Q1 2025	Q2 2025	Q3 2025
Total Net Revenues ($USD)	$14,598,498	$15,536,661	$17,543,957
Gross Profit ($USD)	$6,564,112	$6,920,341	$8,741,773
Gross Margin %	45%	45%	50%
Operating Expenses ($USD)	$7,324,270	$7,407,291	$7,188,375
Operating Expenses % of Sales	50%	48%	41%
Income from Operations ($USD)	$(760,158)	$(486,950)	$1,553,398
GAAP Net Income ($USD)	$70,795	$(1,147,042)	$1,423,968
Diluted EPS ($USD)	$0.006	$(0.10)	$0.12
Non-GAAP EBITDA ($USD)	$301,875	$(774,693)	$2,249,354
Adjusted EBITDA, net ($USD)	$203,873	$(788,867)	$1,778,196

Revenue Breakdown	Q3 2024	Q1 2025	Q2 2025	Q3 2025
License Fees ($USD)	$558,340	$1,229	$72,688	$1,198
Subscription & Support ($USD)	$7,140,358	$8,192,471	$8,642,629	$7,888,360
Services ($USD)	$7,765,818	$6,404,798	$6,821,344	$9,654,399
Subscription & Support % of Sales	46%	56%	56%	45%

KPIs	Q1 2025	Q2 2025	Q3 2025
Cash & Equivalents ($USD)	$24,525,956	$21,270,642	$18,774,739
Working Capital ($USD)	$24.2M	$23.0M	$23.7M
FX Gain/(Loss) ($USD)	$542,545	$(698,392)	$321,622
Accounts Receivable ($USD)	$5,936,063	$7,829,823	$5,443,498
Unearned Revenue ($USD)	$6,923,112	$3,320,286	$2,705,414

Metric	Period	Previous Guidance	Current Guidance	Change
Company Guidance (Revenue/EPS/Margins)	FY2025/FY2026	None issued; management expressed confidence in double-digit growth for FY2025 earlier in the year	No formal guidance issued in Q3; management expects to consider providing guidance post year-end	Maintained (no formal guidance)

Topic	Previous Mentions (Q1–Q2)	Current Period (Q3 2025)	Trend
AI/Technology Initiatives	Investing in AI; rebranding well received; targeting double-digit FY25 growth	Launched Transcend AI Labs; appointed VP of AI (Dario Morelli); “AI-first” strategy to embed intelligence across products	Accelerating
US Market/Product Performance	Signed $16M five-year U.S. automaker deal (Transcend Retail)	BMW USA retail platform rollout to 350 dealerships “on track”	Progressing
Japan/ANZ Regional Expansion	Subsequent to Q2, expansion to NZ/Australia noted	Kubota go-live in Australia; further regional digital solutions deployed	Implementation success
Middle East/SEA Growth	N/A	New multi-million-dollar contracts in Oman (Sindbad Management) and Indonesia (BYD-affiliate)	New geographies
Revenue Mix & Licensing Volatility	License minimal; subscription catch-up (~$1.0M) in Q2; underlying +12% YoY for subscription	Subscription & support +10% YoY; mix down to 45%; services boosted by ~$2.3M catch-up	Mixed (volatile)
FX Impact	Q2 FX loss $(0.70)M	Q3 FX gain $0.32M	Tailwind in Q3

“We delivered solid performance in the third quarter, with strong growth in our services revenue and continued momentum in our subscription business… transitioning toward a recurring revenue model” — Najeeb Ghauri, CEO .
“We also signed two multi-million-dollar contracts… in Oman and Indonesia… ability to consistently deliver mission-critical solutions at scale sets us apart” — Najeeb Ghauri .
“Services revenue increased 24%… primarily driven by a cumulative catch-up of approximately $2.3M related to a contract amendment… increased gross margins and significantly improved net income” — Roger Almond, CFO .
“Kubota… is now using our solutions… in both Australia and New Zealand” and “BMW USA retail platform rollout… is on track” — Najeeb Ghauri .

Subscription baseline and trajectory: Management expects subscription and support revenue growth to continue given positive momentum in SaaS and retail initiatives .
Guidance plans: Management indicated potential issuance of revenue/earnings guidance after year-end as profitability stabilizes; tone was optimistic on both top line and bottom line .
IR/coverage: Management currently favors in-house IR given business understanding; may revisit external coverage in next fiscal year budgeting .

Consensus EPS and revenue estimates from S&P Global were not available for NTWK for Q3 FY2025; therefore, beat/miss vs Street cannot be determined. Values retrieved from S&P Global.*

Metric	Q3 2025 Actual	Q3 2025 Consensus	Surprise
Revenue ($USD Millions)	$17.54	N/A*	N/A*
Diluted EPS ($USD)	$0.12	N/A*	N/A*
EBITDA ($USD Millions)	$2.25 (Non-GAAP EBITDA)	N/A*	N/A*

Sequential momentum with services-driven uplift and 50% gross margin expansion, but note ~$2.3M services catch-up that may not recur; monitor normalization in Q4 .
Recurring revenue narrative softened in Q3 (subscription mix to 45%); watch mix re-acceleration versus Q1–Q2’s 56% as key signal for valuation durability .
Contract wins (Oman, Indonesia) and Kubota go-live in Australia expand footprint; BMW USA rollout supports U.S. revenue ramp potential in retail .
Advancing AI roadmap (Transcend AI Labs, VP AI) could improve product differentiation and margins longer-term; track customer adoption of AI modules .
FX tailwind aided Q3 results versus Q2 headwind; exposure implies ongoing quarterly variability — focus on constant-currency disclosures and cost discipline .
No formal guidance; management may issue post year-end — near-term trading likely sensitive to subscription mix recovery, large implementation milestones, and margin trajectory .
Balance sheet remains solid with $18.77M cash and $23.7M working capital; supports growth investments while absorbing quarter-to-quarter variability .