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spk03: Good morning. Welcome to the Netsol Technologies Fiscal Third Quarter 2022 Earnings Conference Call. On the call 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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. Thank you, Patty. Please proceed.
spk00: 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'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 a 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.nedsaltech.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 morning, everyone. With our third quarter performance, we remain on track to achieve our fiscal 2022 growth targets of 10% top line growth and 20% growth in recurring revenues. Importantly, for the nine months ended March 31, our team has far exceeded our target, growing annual recurring revenues by 34%. Our pipeline and mix of opportunities in our core business 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. The rollout of our Autos digital platform in partnership with Mini Anywhere accelerated in the third quarter. We ended the March quarter with 17 dealerships subscribed, 11 in California, one in Texas, and expanded this to a total of six states, adding dealerships in Florida, Pennsylvania, New York, and New Jersey. In California, we're now live in 70% of the mini-dealerships, and in Pennsylvania, we've already captured 75% of all dealerships. In the long term, this solution for my U.S.-based monthly mobility startup, Autos, has the potential to be rolled out to over 100 mini-dealerships across all 50 states. Our employees continue to return to our global offices. We ended the quarter with nearly 40% 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 when nearly 70 employees mostly stationed in the Nestle Technology Campus in Lahore to support additional implementation work and innovation initiatives. Our results for the first nine months of fiscal 2022 clearly demonstrate we are delivering on our promise of returning 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 fiscal 2023 and beyond. With this overview completed, I'll now hand the call over to our CFO, Roger Armand, who will walk us through the financial results of the quarter. Roger.
spk04: Thanks, Najeeb. Turning to our fiscal third quarter 2022 results for the period ended March 31st, our total net revenues were $14.8 million compared with $13.8 million in the prior year period. The 7% increase in total net revenues was primarily driven by increases in subscription and support revenues of $900,000 and services revenue of $600,000, slightly offset by decrease in license fees of $500,000. Total subscription and support revenues in Q3 were $6.6 million compared to $5.7 million in the prior year period. The increase is due to the new subscription licensing deals and increased maintenance related to the change with our Diamond Financial Services contract discussed on last quarter's call. Total services revenue for the quarter was $6.6 million compared to $6 million in the prior year period. The increase is primarily due to an increase in implementation services revenue related to our GAC Sofinco contract, which increased from $927,000 in Q3 of fiscal year 2021 to $1.9 million in Q3 of fiscal year 2022, an offset by decrease of $400,000 among other customers. Total cost of revenues was $9 million for the third quarter. an increase of $1.6 million from $7.4 million for the third quarter of 2021. The increase is primarily due to increases in salaries of $1.4 million, travel of $105,000, and other expenses of $145,000. Gross profit for the third quarter for fiscal 2022 was $5.8 million, or 39% of net revenues, compared to $6.4 million, or 47% of net revenues in the third quarter of fiscal 2021. The decrease in gross profit was primarily due to an increase in cost of sales of $1.6 million, driven by increases in salaries and consulting costs of $1.4 million. Operating expenses for the third quarter fiscal 2022 were $6.4 million, or 43% of sales, compared to $6 million, or 43.3% of sales, for the third quarter fiscal 2021. The increase in operating expenses was primarily due to increases in selling and marketing expenses offset by decrease in general and administrative expenses. Our gap net loss attributable to net sold for the third quarter fiscal 2022 totaled 300,000 or 2 cents per diluted share compared with the gap net loss of 600,000 or 5 cents per diluted share in the third quarter fiscal 2021. As I mentioned on previous calls, it's important to point out that included in our net income this quarter was a gain of $500,000 on foreign currency exchange transactions compared to a loss of $1.8 million in Q3 of last year. Because we operate in several geographical regions, a significant portion of our business is conducted in currencies other than the U.S. dollar. A decrease in the value of the U.S. dollar compared to foreign currency exchange rate generally has the effect of increasing our revenues, but it also increases our expenses denominated in currencies other than the U.S. dollar. Similarly, as the U.S. 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 third quarter fiscal 2022 totaled $400,000, or $0.03 per diluted share compared with non-GAAP adjusted EBITDA of $200,000 or $0.02 per diluted share in the third quarter of fiscal 2021. Please see the reconciliation schedules contained in our earnings release for revised calculations of adjusted EBITDA for the fiscal quarter ended March 31st, 2022. Turning to our balance sheet, at the quarter end, we had cash and cash equivalents of approximately $30.6 million or approximately $2.72 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 over to Najeeb regarding our financial outlook for fiscal year ending June 30, 2022. The company continues to expect total revenues to increase by at least 10%, and subscription and support or recurring revenues to increase by at least 20%. This guidance is based on existing contracts and recurring revenue from its current customer base. Performance results track through January this calendar year and have 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. Recurring revenues from our SaaS and support segment reached an annualized run rate of more than $26 million in the third quarter. As our workforce continues to return to onsite work across our global footprint, we anticipate this growth will continue to accelerate. As Roger just noted, our cash position remains strong, providing additional resources to support our core business, as well as strategic investment in high-return long-term opportunities, such as our work in the Autos Innovation Lab, and we are confident in the reiteration of our full-year revenue guidance of 10% top-line, or $61 million net revenue for the year, with 20% growth in our recurring subscription revenue. Another component of our growth strategy is in innovating new areas and looking to create technology and personnel with 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 quarters has undoubtedly been our partnership with Mini Anywhere. As a reminder, Autos has been working with BMW Group Financial Services in the North America through its key brand, Mini Anywhere, to provide many 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 Mini Anywhere has been featured across major publications, including Newsweek, Automotive News, and ABC News. Since the launch at the end of the fiscal 2021, the new platform has quickly gained traction. As of quarter end, Mini Anywhere was live with 17 Mini dealerships, up from just 12 at the end of December quarter. More importantly, we have now captured 70% of all California mini dealerships and 75% of all dealerships in Pennsylvania, a state we just entered in the third quarter. In fact, we are now operating in six states, up from just two at the end of December. In addition to Pennsylvania, We went live with dealerships in Florida, New York, and New Jersey during the third quarter. We expect this early momentum to accelerate in the months ahead. 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 third quarter, we've been able to generate a blended lead conversion rate of 22%, 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 1 to 6. 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 customers. 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 running out some major enhancements to the platform, including financing and insurance protection products with digital sales, as well as introducing additional support for use card inventory, which has been a popular request under current market conditions. 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 continue 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. Regarding Ascent. our flagship NFS solution, we signed a contract with a European bank with multiple countries in scope. The contract hinges on a discovery phase which is currently ongoing. This is Nestle Europe's newest client with strong potential of penetration in multiple countries in Europe. The New Zealand Kubota project went live with a soft launch last August and the project is currently under transition into maintenance. mapping for the australian computer project was completed during q3 and a proposal submitted our previously announced multi-year multi-million dollar upgrade with the global automotive financial services company gse sovenco in china continues to move forward Based on additional implementation configuration, we continue to anticipate a fall 2023 go-live and completed key activities during Q3 that set the stage for important delivery in May and July this year. Now finishing with our North American operation, Last July, we announced our first official sale of NFS Ascent in the U.S. market in agreement with Motorcycle Group to deploy the cloud-based version of our flagship platform across their entire operations, including our Omni 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 advisors. The project implementation began in July, and with all required workshops now completed, the expected go-live remains on track for 2022. Going forward, we will be looking to leverage this breakthrough agreement to prospective clients throughout North America market. 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 for a larger return to work across our global operations. Regarding our European and North American pipelines, these remain exciting new growth areas for NetSol, and we are strategically marketing our cloud and SaaS-based offerings in these regions, which is contributing to the growing subscription and support revenues as noted earlier. We have a few large opportunities of our flagship ascent in the U.S., as well as several new opportunities in Europe, specifically that are making their way through the sales cycles. 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. Our current pipeline of opportunity across North America remains the strongest 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 in 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 open the call for questions, operator.
spk03: Thank you, sir. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation sign will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys. One moment, please, while we poll for any questions. Our first question comes from the line of Todd Felty with Aegis Financial Services. Please proceed with your question.
spk01: Good morning, and thank you for taking my questions. I noticed in the last conference call that you had mentioned that we would be going live in India through the Daimler Financial Services Contract in early calendar 2022. You know, we're into May now. Is there any update on when that will occur?
spk02: Yes. Thank you for asking the question, Todd. Yes, we did go live about a month ago in India, so it's all live and running very well.
spk01: Okay. Appreciate the color on that. Also, I've been looking at the financials here, and it seems we're under a little bit of margin pressure. I know our revenue has gone up in the nine months a little over $4 million, but our gross profit is flat and our income from operations is down a little bit. Is there a plan to kind of deal with this and improve margins, or is this just kind of a temporary problem caused by inflation and increasing labor costs?
spk02: I think it's actually a couple points I want to add to that question, Todd. One is, as the company has pivoted almost over a year ago to SAS model, in addition to a license sale, so you'll notice that our sales revenue is growing, recurring revenue is growing. At the expense of sometimes large license implementations or contracts, that doesn't mean that we're not busy with the license opportunities in some regions like the U.S. and Asia that will continue to improve our revenue as well as gross margin. The second thing is As you notice, as Roger mentioned, we hired a few people in the last two quarters, primarily to support our new initiatives, whether they're innovative-related or ongoing business opportunities in North America. Particularly, we are on an investment mode in the U.S. and North America, especially both Canada and the U.S., by hiring new people to really position ourselves to be a stronger organization an operator in the US market, which we haven't been in the past. So I believe all these investments in hiring more technology-related personnel, paying better salaries because the market conditions are so much in demand for these technology professionals all over the world. Even in our home country where we have the major workforce. So it's the time to invest in people, bring new talent, and look at the future. So this is why the margins are a bit shrinking. But this is temporary. I think it will improve as sales grow to continue to improve and have you more, I think, economies of scale in this operation worldwide. So then I think we can really look at a much better gross margin. Historically, we've been over 55%, 50%. And I intend to improve that to that level in the coming quarters.
spk01: Okay, that's great to hear. And then finally, my last question, I look at the stock and we've got a, you know, a book value of around $5 a share. And, you know, the stock really hasn't done much. If you look at it, even going back a couple years to 20 years, it doesn't really seem like shareholder value is being maximized. Is there any update with the share buyback program, which I know we've had some of those in the past, or possibly the initiation of a dividend to a, you know, to return a little value to shareholders?
spk02: You know, look, we have done a very effective BiPAP program a year ago. We did almost close to a million shares, invested almost $3.5 million, maybe close to $4 million at that time. Right now, what we're looking at is two major, I think, opportunities and challenges. One is, of course, globally, all the difficult time the whole three regions are facing, North America and Asia and of course Europe, you know what those macro challenges are. And it also sometimes slows down the activity But at the same time, the cash we have in the bank is really, I believe, well served to invest in the company, invest in the right talent and in some new technologies. And we also, you know, no one knows what is out there six months from now, three months from now. Are we heading into recession or are we already in recession? So companies have to be very careful to preserve the cash, to invest in the right place. And the time will come if we see that we have enough cash that we can allocate to another buyback program that without disrupting or without continuing our growth strategy and other things we're doing, I think that's when we can go back to board and ask for an extension of a buyback. Right now we're really in a good place to invest. Carefully improve our cash flow reserve and make sure the company is strong financially to weather all the difficult times facing the world.
spk01: I appreciate that. Thank you very much.
spk02: Thank you.
spk03: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the queue. One moment, please, while we pull for any other questions. Okay, at this time, I'm not seeing any other questions. I'd like to pass it back over to Najeeb for any closing remarks.
spk02: Thank you, everyone, for joining our call today. I appreciate your support and your patience in this company, and I think we'll continue to do our good work and try to make better progress in the coming quarters and coming years. Thank you again, and we'll see you next time. Goodbye.
spk03: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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