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spk03: Called today are Najeeb Ghori, Chairman and Chief Executive Officer, Roger Allman, Chief Financial Officer, Patty McGlasson, General Counsel and Senior Vice President, Legal and Corporate Affairs. I would now like to turn the call over to Patty McGlasson, who will provide the necessary cautions regarding the forward-looking statements made by management during this call. Please proceed.
spk00: Good afternoon, 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'll 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 provisions 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 10-K and quarterly reports on Form 10-Q. I would also like to point out that we will be discussing certain non-GAAP measures. The press release issued earlier today contains the reconciliation of these non-GAAP financial results to the most comparable GAAP measures. Finally, I would like to remind everyone that this call will be recorded and made available for replay at www.netsaltech.com and via the link available in today's press release. Now, I'd like to turn the call over to Najeeb. Najeeb?
spk02: Thank you, Patty, and good afternoon, everyone. In the second quarter, we continue to capitalize on the strong momentum built in fiscal 2021, and we remain firmly positioned to achieve our growth goals for fiscal 2022. Within our core business, the pipeline and mix of opportunities remain robust, particularly in our European and North American growth markets, giving us confidence in our ability to drive additional contract signings over the coming months. Within our more venture-based operations, we roll out of the auto digital platform in partnership with Mini Anywhere has been a resounding early success. We ended the December quarter with 12 dealerships subscribed, 11 in California and one in Texas, with additional states like Florida, Pennsylvania to follow soon. We are very encouraged by the initial response and total opportunities. Our employees continue to return to our global offices. We ended the quarter with nearly 50% of our employees back in our Lahore technology campus, which is home to the majority of our workforce and the heart of our technology operations. Additionally, since the start of the fiscal year, we have increased our headcount by nearly 70 employees, mostly stationed in Lahore, to support additional implementation work, and innovation initiatives. As you stated previously, we intend to make this year a return to meaningful growth, and we are confident that the investments we will be making in our leadership, workforce, technology, and expanded sales efforts will lead to outsized returns in the coming quarters. With this overview completed, I will now hand the call over to our CFO, Roger Almond, who will walk us through the financial results of the quarter. Roger?
spk04: Thanks, Najeeb. Turning to our fiscal second quarter 2022 results, for the period ended December 31st, our total net revenues for the second quarter 2022 were $15.5 million, compared with $13.1 million in the prior year period. The 18% increase in total net revenues was primarily driven by an increase in subscription and support revenues of $3.6 million offset by decreases in license revenue of $631,000 and total services revenue of $667,000. Total subscription and support revenues in Q2 were $9.4 million compared to $5.7 million in the prior year period. The increase in total subscription and support revenues for the quarter was primarily due to the recording of approximately $3.5 million as a one-time cumulative catch-up due to our amendment to our 10-year contract with Daimler Financial Services. Although this was a one-time adjustment, the amendment will also increase future subscription and support revenue by approximately $2 million annually beginning January 1, 2022. Moving forward, we anticipate subscription and support revenue to gradually increase as we implement both our NFS Legacy and NFS Ascent products. Total services revenue for the quarter was 4.1 million compared to 4.8 million in the prior year period. The decrease is primarily due to a decrease in implementation services as certain implementations are nearing completion or have gone live. Services revenue is derived from services provided to both current customers as well as services provided to new customers as part of the implementation process. Total cost of revenues was 7.8 million for the second quarter. an increase of $751,000 from $7.1 million for the second quarter of 2021. The increase in cost of sales for the quarter is primarily due to increases in salaries and consultancies of $367,000, travel costs of $124,000, and other costs of $260,000. Gross profit for the second quarter fiscal 2022 was $7.6 million, or 49.4% in net revenues compared to 6 million or 46% in net revenues in the second quarter of fiscal 2021. The 1.6 million increase in gross profit for the quarter was primarily due to the 2.4 million increase in net revenue offset by a 751,000 increase in cost of revenues. Operating expenses for the second quarter were unchanged at 6 million for the quarter. As a percentage of sales, operating expenses decreased to 38.7% of sales compared to 45.4% of sales in the same period last year. Operating expenses were impacted by increases in selling expenses and research and development costs, offset by decreases in general administrative expenses. Turning to our profitability metrics, our income from operations was $1.7 million for the second quarter up from income from operations of just $87,000 in Q2 last year. Our gap net income attributable to net sold for the second quarter of fiscal 2022 totaled $1.4 million or $0.13 per diluted share. This compares with a gap net loss of $242,000 or $0.02 per diluted share in the second quarter last year. The increase in GAAP net income attributable to net slow for the quarter was primarily a result of revenue increasing at a greater rate than the cost to support those revenues. As I mentioned on previous calls, it's important to point out that included in our net income this quarter was a gain of $901,000 on foreign currency exchange transactions compared to a gain of $14,000 in Q2 of last year. Because we operate in several geographical regions, a significant portion of our business is conducted in currencies other than the US dollar. A decrease in the value of the US dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues, but it also increases our expenses denominated in currencies other than the US dollar. Similarly, as the US dollar gains strength relative to foreign currency exchange rates, it tends to reduce our revenues but it also reduces our expenses denominated in currencies other than the U.S. dollar. Moving to our non-GAAP metrics, our non-GAAP adjusted EBITDA for the second quarter fiscal 2022 totaled $2.1 million, or 19 cents per diluted share, compared with non-GAAP adjusted EBITDA of $617,000, or 5 cents per diluted share in the second quarter of last year. Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the fiscal quarter ended December 31st, 2021. Turning to our balance sheet at the quarter end, we had cash and cash equivalents of approximately $25.6 million, or approximately $2.28 per diluted common share. which is down from $33.7 million or approximately $2.93 per diluted common share at June 30, 2021. One final note before I hand the call back to Najeeb is regarding our financial outlook for fiscal year ending June 30, 2022. The company expects total revenues to increase by at least 10% and subscription and support for our recurring revenues to increase by at least 20%. The company's guidance is based on existing contracts and recurring revenue from its current customer base, performance results tracked through January of this calendar year, and other information available as of the date of this call. This concludes my prepared remarks. I'll now turn the call back over to Najeeb for an overview of our business update. Najeeb?
spk02: Thank you, Roger. I'll now provide updates within the major components of our growth strategy. Our strong financial performance during the second quarter was highlighted by an increase in SAAS and support or recurring revenues of 50% sequentially and 64% over the prior year. At an analyzed rate, the quarter's performance equates to a nearly $25 million analyzed run rate of SAAS and support revenue. After accounting for impacts for the DFS or Dynamical Financial Services contract changes the that Roger just mentioned earlier. With employees returning to onsite work across our global footprint, we expect growth trends to strengthen moving forward. Our cash position remains strong, providing additional resources to support our core business, as well as strategic investments in high return, long-term opportunities, including our work in the Autos Innovation Lab. With these factors in consideration, as Roger just noted, we are reiterating our full-year revenue guidance of 10% top-line or $61 million with 20% plus growth in subscription revenue. Moving on to the second component of our strategy, we are innovating in new areas and looking to create technology and personnel partnerships which can be a major benefit to our customers as well as our own organization. To this end, I'd like to take some time to provide a brief update on our progress within the Autos Innovation Lab. The most visible project within Autos in recent months has undoubtedly been our partnership with Mini Anywhere. As a reminder, Autos has been working with BMW Group Financial Services through its key brand, Mini Anywhere, to provide Mini USA customers with a fully digital shopping experience, empowering their marketing strategies, and creating a new automated sales channel for dealerships and lenders. The auto's digital retail platform for many anywhere has been featured across major publications, including Newsweek, Automotive News, and ABC News. Since launch at the end of fiscal 2021, the new platform has quickly gained traction. As of quarter end, Mini Anywhere was live with 12 Mini dealerships, 11 in California and one in Texas. This includes two of the biggest dealer groups in the U.S. onboarded in October. We have now captured 65% of all California Mini dealerships, and we'll be looking to build on this early momentum going forward. In the coming months, we are expecting continued enrollment from dealers in Texas dealers in Florida and Pennsylvania, and several other states following suit. The success of this program can be attributed to several factors, and I'd like to share one data point we believe to be the most telling. Through the fiscal second quarter, we have been able to generate a blended lead conversion ratio of approximately one to five, meaning for every five opportunities we identify through our platform, one of those leads will convert to a vehicle sale. At the end of the first fiscal quarter, this ratio was one to six. This performance in light of the global and well-documented inventory shortages within the auto industry is a major reason why we are continuing to roll out our solution to more and more dealers as the weeks go by. We appreciate many's belief in our product and team and are looking forward to the continued expansion of our regional partnership. Looking ahead, we'll be rolling out some major enhancements to the platform, including financing and insurance protection products with digital sales, as well as introducing additional support for used car inventory, which has been a popular request under current market conditions. In the coming months, we're also anticipating the launch of a second OEM digital retail program, and we continue to engage with several other Tier 1 OEMs on potential partnerships. To address the strong interest we are seeing, we have expanded our sales and partner success team to expand our sales funnel and ensure ongoing success for a growing list of dealer partners. The final component of our strategy is exploring inorganic opportunities, including M&A and joint ventures, where it makes sense. On this note, I can share that we have continued to evaluate opportunities in the marketplace that are highly accretive and strategic to our business. With this overview completed, I will now go over operational updates for the quarter. Starting in APAC, with the previously announced $12310 million contract with Dambler Financial Services, We continue to make considerable progress along our multi-year, multi-country implementation roadmap. The implementation process in India, which began in the second half of 2021, is expected to go live here in early calendar 2022. To date, we are live in 10 of the 12 countries. India will be the 11th country with Taiwan to follow. And we continue to make progress on the remaining deliverables in accordance with our customer timeline. Just to recap for the new investors or listeners, Nestle had signed the second largest contract with BMW for Ascend in China three years ago for over $35 million value, and it is going very well. Our multi-million dollar NFS Ascend implementation of the subsidiary of a Japanese equipment finance company in New Zealand, which soft launched in August last year, is currently under transition into maintenance Preliminary work with the Australian subsidiary of the same company has been completed and approvals are expected as the New Zealand production nears. Finally, our previously announced multi-year, multi-billion dollar upgrade with the global automotive finance services company GAC Sofenco in China continues to move forward based on additional implementation configuration we continue to anticipate a fall 2023 go-live. Looking ahead, our pipeline of opportunities within the APEC region continues to grow steadily. Out of the pandemic-induced halt in new business development, we are encouraged by the quality opportunities we are seeing in our largest market and believe the ongoing recovery in this region to be emblematic of a larger return to work across our global operations. Moving next to Europe and North America, these remain exciting new growth areas for NetSol. We are strategically marketing our cloud and SaaS-based offerings in these regions, which is contributing to the growing subscription and support revenues noted earlier. We have a few large opportunities for our flagship ascent in the U.S. as well, and several new opportunities in Europe specifically that are making their way through the sales cycle. While we can't control when some of these deals get signed, we believe our current momentum combined with the critical mass of potential deals bodes well for meaningful gains in the coming months. Now finishing with our North American operations, last July we announced the first official sale of NFS Ascent in the U.S. market in agreement with Motorcycle Group to deploy the cloud-based cloud-based version of our flagship platform across the entire operations, including our OmniPoint point-of-sale and contract management system to support retail, lending, and leasing. Motorcycle Group, consisting of Moto Lease and Moto Loans, presents lease and loan offers simultaneously to qualified applicants so that motorcycle and power sports dealers can maximize their sales, enable customers to pre-qualify, and select their vehicle through Motorcycle Group's advisors. The project implementation began in July. The expected go-live remains on track by for 2022. Going forward, we'll be looking to leverage this breakthrough agreement to prospective clients throughout North America market. Our current pipeline of opportunity in the region remains the greatest near-term growth opportunity for our business, which is why Getting these first implementations under our belt are so important. In summary, our strong performance of fiscal 2022 continues. We have seen healthy recovery in all our operating regions and are making investments today. That will support sustainable growth for the future. And with that, we can now open the call for questions. Operator?
spk03: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. As a reminder, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Ladies and gentlemen, there are no questions at this time, and I'd like to turn the call back to Najeeb Ghari for closing remarks.
spk02: Thank you very much for attending the call today. I will see you in the next Q3 quarter. Thank you and have a good day.
spk03: Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.
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