NetSol Technologies, Inc. (NTWK) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to NETSOL Technologies’ Fiscal First Quarter 2021 Earnings Conference Call. On the call today are Naeem Ghauri, CEO of OTOZ; Roger Almond, Chief Financial Officer; Patti McGlasson, General Counsel; and Asad Ghauri, Global Head of Sales. I would now like to turn this call over to Ms. 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 the 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 forecasts 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.
Naeem Ghauri: Thank you, Patti. Good morning, everyone. Unfortunately, Najeeb Ghauri, our Chairman and CEO, was under the weather and couldn’t make the call. We wish him a quick recovery. The beginning of the fiscal year was an extension of the same business conditions we have witnessed since the pandemic took hold. But we are continuing to operate efficiently, control costs and execute on our long-term strategic growth plan. In fiscal Q1, we saw year-over-year improvements to our gross profits, operating income, and earnings per share, which were collectively driven by our conservative cost management and excess reduction assets over the past few months. Additionally, we now have more cash at any point in our history of our company, cash in hand provides us with flexibility and security, both of which are a paramount in any environment, but especially so today. We will continue to think and operate like owners emphasizing cash flow as much as top line. During the period, cash flow from operations reached $4.7 million, the best cash flow generation quarter we’ve had since June of 2019. While the overall sales environment continues to be challenging, we are witnessing encouraging signs that have us optimistic about the remainder of the year. Operationally, our teams have been hard at work, meeting project implementation deadlines leading to a few significant Go Live events during the quarter. Most recently, we successfully implemented our NFS Ascent Retail Platform, including our Loan Origination System and Contract Management System for a Tier-1 German auto captive finance company in China, which was the second and final phase of our previously announced $30 million contract. We are also seeing very encouraging early traction from our North American and European operations referred to as NTA and NTE, respectively. This quarter, we went live with our first cloud NFS Ascent North American customer, SCI Lease Corp. in Canada. As of today, NTA and NTE combined, represent essentially the same size pipeline of contract opportunities compared to APAC, which has historically commanded the lion share of our revenues.
Roger Almond: Thanks, Naeem. Turning to our fiscal first 2021 financial results for the period ended September 30, our total net revenues for the first quarter were $12.6 million, compared to $13.6 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total license fees of $2.5 million, which was offset by an increase in subscription and support revenues of $565,000 and an increase in total service revenues of $970,000. Total license fees in Q1 were $3,500 compared to $2.5 million in the prior year period. The decrease in license fees was primarily due to the absence of meaningful contribution from our 12-country, $110 million contract, as well as other contracts to implement our NFS Ascent platform, which had a more pronounced contribution in the prior year period. Subscription and support revenues are now included as a separate revenue line item in place what was formerly referred to as maintenance revenues. In addition to traditional maintenance revenues from close contract customer support, this metric also includes subscription revenue from our Software-as-a-Service or SaaS offerings, including the cloud-based version of our flagship NFS Ascent platform. Subscription and support fees are recurring in nature and we anticipate these fees to gradually increase as we implement both our NFS legacy products and NFS Ascent. As we continue to grow recurring revenue over time, we believe this new category will become a more impactful portion of our business, as well as a better way to judge our overall performance. Results for the prior year period have been adjusted to make performance comparable on a year-over-year basis. Total subscription and support fees in Q1 were $5.2 million, compared to $4.6 million in the prior year period. The increase in subscription and support revenues was due to the start of new agreements from customers who went live with our product this quarter, as well as ongoing recurring revenue derived from prior sales of our subscription-based offerings. Total services revenue for the quarter were $7.5 million, compared to $6.5 million in the prior year period. The increase in total services revenue for the year was primarily due to an increase in revenues associated with new implementations and change requests. Services revenues derived from services provided to both current customers, as well as services provided to new customers as part of the implementation process.
Naeem Ghauri: Thank you, Roger. As I mentioned in my opening remarks, with many COVID-driven purchasing delays beginning to move forward, there were several catalysts on the horizon. We are optimistic about the prospects for the new fiscal year. Furthermore, a recent expansion further into Europe and North America is beginning to pay dividends through our steadily improving recurring revenue performance. As Roger noted a moment ago, we are now reporting subscription and support revenues as a proxy for total recurring revenues. As we layer on maintenance fees through larger traditional enterprise contracts, an increase of SaaS-based footprint we expect to build this base over time which provides more predictable revenues with a more attractive margin profile. In fiscal Q1, we grew these revenues 13% year-over-year to $5.2 million. On an annualized basis, that equates to over – to well over $20 million in pure recurring revenue for this fiscal year, not including benefits from pending agreements or Go Live events scheduled for this year. At this point, I will be recapping some of the major highlights from the period within our three major operating regions respectively. Now, with that overview finished, I’ll get some updates from our main operating regions, starting in APAC with our previously announced 12-country, $110 million contract with a German auto manufacturing giant Daimler Financial Services we continued to make considerable progress along our multi-year, multi-country implementation roadmap. This quarter, we had successful Go-Live events in both Singapore and Thailand, which were all the more impressive due to the remote work and international travel constraints we had to work fast. To-date, we have now gone live in some fashion within ten of the twelve countries and are continuing to work through the remaining deliverables according to our customers’ timeline. In the near-term, the most immediate Go-Live events will be additional modules within already live countries including New Zealand and Australia. We will continue to provide updates as we make further progress. Perhaps the most notable implementation over the past few months was our launch of the NFS Ascent Retail Platform for BMW Financial Services in China. This deployment is a second phase of a previously announced $30 million contract in which NETSOL was selected as the vendor of choice after an extensive evaluation process.
Operator: At this time, we will be conducting a question-and-answer session. I would now like to turn this call back over to Mr. Naeem Ghauri for closing remarks.
Naeem Ghauri: Well, thank you very much for listening in today. I especially want to thank our investors for their continued support, our loyal customers and our dedicated employees for their ongoing contributions, and we look forward to updating you on our next call. Thank you. Operator?
Operator: Thank you for joining us today for NETSOL’s first quarter 2021 earnings conference call. You may disconnect your lines at this time. Thank you for your participation.
