NetSol Technologies, Inc. (NASDAQ:NTWK) Q2 2024 Earnings Call Transcript February 13, 2024
NetSol Technologies, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to NetSol Technologies Second Quarter 2024 Earnings Conference Call. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; and Patti McGlasson, General Counsel; and Naeem Ghauri, President and Founder. I would now like to turn the call over to Patti McGlasson, who will provide the necessary cautions regarding the forward-looking statements made by management during this call. Please proceed.
Patti McGlasson: 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 Form 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 their most comparable GAAP measures. Finally, I would like to remind everyone that this call will be recorded and made available for replay at www.netsoltech.com and via link available in today's press release. Now, I'd like to turn the call over to Najeeb. Najeeb?
Najeeb Ghauri: Thank you, Patti, and good morning, everyone. Like we began the fiscal year, our second quarter of fiscal 2024 was characterized by increases in total revenue, improved gross margins and profitability, which demonstrates both the strength of our business model and our ability to execute on our growth strategy. Revenue grew once again in the quarter, driven by solid performance across our business. As we continue to scale our SaaS business, our hybrid license and SaaS model has become a strong catalyst for our growth in both this quarter and throughout the fiscal 2024. We recognized substantial license fees of $3 million in this quarter as part of a new large contract in Asia with a major automotive company. We are thrilled.
We have distinguished ourselves from a highly competitive pool of candidates to win this contract, which we expect to officially announce in the coming weeks. Our selection reflects both our visibility and recognition in the market as well as the superior performance and reliability of our products that is required by major companies operating on a global scale. License fees are a key part of our business, and we expect them to continue to represent a significant portion of our revenue for the foreseeable future. That said, license revenues can be a bit lumpy, and a major focus for us is to continue to build on an already robust pipeline of potential licensing and SaaS opportunities to deliver more consistent results over the long term. We achieved growth in our recurring subscription and support revenues in the quarter.
At the heart of our SaaS business are products like the Otoz digital retail platform and our API-first marketplace, Appex Now. We are committed to the continuous innovation and improvement of these and additional SaaS offerings to meet the diverse demands of our customers, integrating a leading technology, such as deep learning AI algorithms, to ensure that we are positioned at the forefront of our industry. During the quarter, we unveiled Otoz 2.0, implementing major updates to our digital retail and mobility platform to expand on existing offerings, with a phased launch planned over the next year. The Otoz platform is a premier SaaS offering, powering services, such as MINI USA's MINI Anywhere retail platform since June 2021. Supported by Otoz, MINI Anywhere enrollment has doubled over the past 12 months and is now active across nearly two-thirds of the MINI USA dealership network in the US, enabling a 5 times increase in lead volume and vehicle sales.
Also in the quarter, we expanded our relationship with one of our key automotive clients by supporting the launch of AutoNation Mobility micro lease marketplace with Otoz's back-end technology. The automotive market is witnessing a significant shift towards short-term vehicle usage options in lieu of traditional long-term leases, and the Otoz 2.0 platform is ideally suited to support this new micro lease marketplace that allows customers to navigate the entire leasing process, from vehicle selection to deal configuration to finalizing each transaction. Overall, we're very excited and pleased with our second quarter results. As I said before, our performance is a demonstration of both the strength of our business model and our ability to execute on our growth strategy.
Moreover, we continue to strategically invest and allocate capital to further expand our presence across key high-growth markets like North America, and we are pleased to see steady progress across all three of geographic markets: North America, Europe and APAC. Given our recent results and trajectory, we expect to see strong double-digit organic revenue growth and improved margins in fiscal 2024 as we move into a period of more sustainability profitability. I'll now turn the call over to Roger Almond, our CFO, to go over our financials from this quarter. Roger?
A financial advisor looking intently at a computer screen, numbers and symbols running across it.
Roger Almond: Thanks, Najeeb. Our total net revenues for the second quarter of fiscal 2024 were $15.2 million compared with $12.4 million in the prior-year period. On a constant currency basis, total net revenues were $15.3 million. For the six months ended December 31, 2023, total net revenues were $29.5 million compared to $25.1 million in the prior-year period. On a constant currency basis, total net revenues were $29.6 million. License fees for the quarter ended fiscal 2024 were $3 million compared with $16,000 in the prior-year period. License fees on a constant currency basis were $3.1 million. In the first six months of fiscal 2024, license fees were $4.3 million compared with $266,000 in the prior-year period and the same on a constant currency basis.
Recurring revenues or subscription and support revenues for the second quarter of fiscal 2024 were $6.8 million compared with $6.5 million in the prior-year period and the same on a constant currency basis. Recurring revenues for the first six months of fiscal 2024 were $13.3 million compared to $12.5 million in the prior-year period and the same on a constant currency basis. Total services revenue for the second quarter of fiscal 2024 were $5.4 million compared to $5.9 million in the prior-year period and the same on a constant currency basis. Total services revenues for the first six months of fiscal 2024 were $11.9 million compared to $12.3 million in the prior-year period and the same on a constant currency basis. Total cost of revenues were $8.1 million for the second quarter of fiscal 2024 compared to $9.2 million in the second quarter fiscal year 2023.
On a constant currency basis, total cost of revenues was $9.4 million. Gross profit for the second quarter of fiscal 2024 was $7.2 million or 47% of net revenues compared with $3.1 million or 25% of net revenues in the prior-year period. On a constant currency basis, gross profit was $5.9 million. Gross profit for the six months of fiscal 2024 was $13.3 million or 45% of net revenues compared to $7.4 million or 29% of net revenues in the prior-year period. On a constant currency basis, gross profit for the six months ended December 31, 2023, was $10.6 million. Operating expenses for the second quarter of fiscal 2024 were $6.1 million or 40% of sales compared to $6.2 million or 50% of sales in the same period last year. On a constant currency basis, operating expenses for the second quarter were $6.7 million or 44% of sales.
Operating expenses for the six months ended December 31, 2023 were $12 million or 41% of sales compared with $12.3 million or 49% of sales in the prior-year period. On a constant currency basis, operating expenses for the first six months of fiscal 2024 were $13.1 million or 44% of sales. Turning to our profitability metrics. GAAP net income attributable to NetSol for the second quarter of fiscal 2024 totaled $408,000 or $0.04 per diluted share compared with a net -- a GAAP net loss of $2.1 million or a loss of $0.19 per diluted share in the second quarter of fiscal 2023. GAAP net income attributable to NetSol for the first six months of fiscal 2024 totaled $439,000 or $0.04 per diluted share compared with a GAAP net loss of $2.7 million or a loss of $0.24 per diluted share in the prior-year period.
Included in our net income this quarter was a loss of $15,000 on foreign currency exchange transactions compared to a gain of $657,000 in the second quarter of fiscal 2023. On a constant currency basis, we realized a loss of $23,000 on foreign currency exchange transactions. Included in our net income for the six months ended December 31, 2023 was a loss of $149,000 on foreign currency exchange transactions compared to a gain of $2 million in the prior-year period. On a constant currency basis, we realized a loss of $197,000 on foreign currency exchange transactions. 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 an 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 US dollar. Moving to our non-GAAP metrics. Our non-GAAP adjusted EBITDA for the second quarter of fiscal 2024 was $725,000 or $0.06 per diluted share compared with a non-GAAP adjusted EBITDA loss of $1.3 million or $0.12 per diluted share in the second quarter of the previous fiscal year. Non-GAAP adjusted EBITDA for the first six months of fiscal 2024 was $1.2 million or $0.10 per diluted share compared with a non-GAAP adjusted EBITDA loss of $1.4 million or $0.12 per diluted share in the second quarter of the prior fiscal year. Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the quarters ended December 31, 2023 and 2022.
Turning to our balance sheet. At quarter-end, we had cash and cash equivalents of approximately $15.7 million or approximately $1.38 per diluted common share. Total NetSol stockholders' equity at December 31, 2023 was $34.5 million or $3.03 per share. That concludes my prepared remarks. I'll now turn the call back over to Najeeb. Najeeb?
Najeeb Ghauri: Thank you, Roger. This was an excellent quarter for NetSol. We're excited by our progress and are very optimistic for the journey ahead. We believe that we are well positioned on a path towards growth and sustainable profitability, and we look forward to driving value for our shareholders as we continue to execute on our growth strategy in the later half of 2024. With that, I'd like now to turn the call over to operator for questions. Operator? Is she there? Roger? [Technical Difficulty]
