Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• NETSOL Technologies Inc (NASDAQ:NTWK) achieved profitability in the first quarter of fiscal 2025 with a 3% growth in total net revenues.
• Recurring subscription support revenues increased by 26%, indicating a shift towards more predictable revenue streams.
• The company announced a five-year $15 million contract with a major automaker in the US, enhancing its recurring revenues.
• NETSOL Technologies Inc (NASDAQ:NTWK) signed an expansion agreement with a major automaker in China, increasing the total contract value to over $30 million.
• The company has significantly enhanced its liquidity, with cash and cash equivalents increasing to $24.5 million as of September 30, 2024.

Negative Points

• Operating expenses increased to 50% of sales in the first quarter of fiscal 2025, up from 41% in the same period last year.
• The company did not recognize any meaningful license fees in the first quarter of 2025, compared to $1.3 million in the prior year period.
• Loss from operations was $760,000 in the first quarter of fiscal 2025, compared to income from operations of $351,000 in the first quarter of fiscal 2024.
• Non-GAAP adjusted EBITDA decreased to $204,000 in the first quarter of fiscal 2025, compared to $466,000 in the prior year period.
• Despite the increase in recurring revenues, total services revenue remained consistent with the prior year period, indicating limited growth in this segment.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with NTWK.

Q: Can you provide any additional color on how your AI initiatives are progressing? A: Naim Gwai, Co-founder and President, responded that AI is a key strategic initiative for NETSOL Technologies. The company has launched the Transcend platform and updated its website to showcase AI efforts. They are focusing on improving internal efficiencies and product innovation through AI. NETSOL believes in AI's future impact on their business and clients, emphasizing the importance of a strong AI strategy and partnership.

Q: What are the main drivers behind the 3% increase in total net revenues for the first quarter? A: Roger Allman, Chief Financial Officer, explained that the growth was primarily driven by a 26% increase in recurring subscription support revenues. This shift in revenue mix reduces reliance on unpredictable one-time license fees and focuses on more consistent and predictable revenue from recurring sales products.

Q: How is the company performing in terms of customer retention and geographic expansion? A: Naim Gwai highlighted that NETSOL has increased its customer retention rate from approximately 90% in 2021 to just below 95% in 2024. The company is also making progress in geographic expansion, with a significant contract in the US and an expansion agreement with a major automaker in China, increasing the total contract value to over $30 million.

Q: Can you elaborate on the company's liquidity position and balance sheet strength? A: Roger Allman stated that NETSOL's cash and cash equivalents increased to $24.5 million as of September 30, 2024, up from $19.1 million at the end of June 2024. This enhanced liquidity provides flexibility for strategic investments in business growth, product innovation, and geographic expansion.

Q: What are the company's growth expectations for fiscal 2025? A: Naim Gwai mentioned that NETSOL is targeting double-digit revenue growth in fiscal 2025. This growth is expected to be driven by geographic expansion, enhanced sales performance, and increased market recognition of their products and services.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.