NetSol Technologies, Inc. (NTWK) on Q3 2021 Results - Earnings Call Transcript
Operator: Good morning and welcome to NetSol Technologies Fiscal Third Quarter 2021 Earnings Conference Call. On the call today are; Najeeb Ghauri, Chairman and Chief Executive Officer; Naeem Ghauri, President of NetSol Technologies, Inc. and Otoz' Chief Executive Officer; Roger Almond, Chief Financial Officer; and Patti McGlasson, General Counsel. 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.
Najeeb Ghauri: Thank you, Patty and good morning, everyone. I have the pleasure of addressing you all today from our NetSol US office in Calabasas, California, where the statewide vaccine rollout is operating at full steam. We are fortunate to have begun a phased return to the office in NetSol US, China and European offices. Although we're still working at a reduced capacity, we are well on the way to reenergizing NetSol's collaborative culture. And I'm looking forward to seeing many of our valued team members whom I've missed over the last year plus period. I would be remiss if I neglected to comment on the state of our Pakistan office, which as you know houses our implementation and development teams. Out of an abundance of caution and to mitigate transition from our neighboring countries, law has entered into a temporary lockdown. Thankfully, our remote work architecture, which has supported our engineers throughout the pandemic is still in place and has left productivity unchanged on the back end. Getting to our results for the fiscal third quarter from the financial perspective, we recorded a sequential revenue increase for the third straight quarter, which was driven in large part by a meaningful year-over-year increase in SaaS and Cloud revenues. We also generated over $1 million during the period by successfully implementing change requests from various customers across multiple regions. These changes requests, why less predictable, underscore our ability to handle remote implementations, as well as our industry's overall shift to more complex bespoke next generation tools and technologies.
Roger Almond: Thanks, Najeeb. Turning to our fiscal third quarter 2021 financial results for the period ended March 31st, our total net revenues for the third quarter were $13.8 million, compared to $13.5 million in the prior year period. The increase in total net revenues was primarily driven by an increase in total license fees of $2 million and an increase in total subscription and support revenues of $521,000, which offset the decrease in total services revenues of $2.3 million. Total license fees in Q3 were $2.1 million compared to $93,000 in the prior year period. The increase in license fees is primarily driven by approximately $2.1 million related to a license agreement with an existing tier-one finance company in Thailand for our CAP and CMS solutions. As a reminder, subscription and support revenues are now included as a separate revenue line item in place of what was formerly referred to as maintenance revenues.
Naeem Ghauri: Thank you, Roger. Good morning. I'm looking forward to providing you with an update on a few key initiatives underway at NetSol as well as Otoz. From a high level, I'd like to outline the fundamental components of our growth strategy. First, we have a continued focus on organic growth within the core business. With the addition of key staff like James Freto in April, and Peter Minshall in last August, we are fulfilling our key senior leadership solutions in regions where we see unpenetrated market potential. We recorded encouraging early traction in North America, with several key wins for our subscription offering. Most recently, this quarter, we went live with the leasing division of a mid-sized regional bank in the US with our SaaS LeasePak solution. In APAC and elsewhere, we're continuing to secure implementation and renewal contract with new and existing customers. Most notably, in April, we signed a five-year single-digit multimillion dollar renewal of an existing agreement with a Japanese tier-one automotive customer in Thailand. As part of their agreement, will continue to license key components of our NFS Ascent retail platform, including the platform's Credit Application Processing system, and the Contract Management System. Our core business and the underlying technology assets that drive it have not changed. What has changed, though, are the underlying industry dynamics. We're finding new ways to future proof our business and adapt to a next generation digital strategy. And one of those is by accelerating our transition to the cloud. A moment ago, Roger reminded you that we have reclassified our revenues so that we can support 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 Q3, subscription and support revenues reached $5.7 million, which is a 10% increase over the prior year, and importantly, a $32 million-plus run rate projected over the next 12 months. With each new customer we sign, we add to our recurring revenue base, which drives both the top and the bottom line. Moving on to the second component of our strategy, we are innovating in new areas, and looking to create partnerships where technology and personnel can be a major benefit to other organizations as of our own. To this end, I'd like to take some time to provide a brief update on our progress within the Otoz Innovation Lab.
Operator: Thank you. At this time, we'll be conducting a question-and-answer session.
Najeeb Ghauri: So, Tom. What do you think? Shall we continue to wait?
Operator: Just one more prompt here.
Najeeb Ghauri: Okay. Is there any question coming?
Operator: No. This concludes our Q&A session. If your question was not addressed during the Q&A session, please contact NetSol Investor Relations team by emailing them investors@netsoltech.com or by calling them at 949-574-3860. I'd now like to turn the call back over to Najeeb Ghauri for his closing remarks.
Najeeb Ghauri: Thank you, everyone for joining us today. I especially want to thank our investors for their continued support, our loyal customers and our dedicated employees for their ongoing operations. We look forward to updating you on our next call for the year end fiscal 2021. Thank you, operator.
Operator: Thank you for joining us today for NetSol's fiscal third quarter 2021 earnings call. you may disconnect.
Najeeb Ghauri: Thank you and have a good day, guys. Good work. Thank you.
