NETSOL Technologies Reports 14% Revenue Growth and EPS of $0.03 in Fiscal Third Quarter 2024

Rhea-AI Summary

NETSOL Technologies reported a 14% revenue increase to $15.5 million in Q3 2024, with a 60% rise in services revenue to $7.8 million. Gross margins improved to 48%, up from 35% in Q3 2023. The company achieved its third consecutive quarter of profitability, posting an EPS of $0.03. Operating expenses were $6.2 million, representing 40% of sales. GAAP net income was $328,000, down from $2.5 million in the previous year due to a foreign currency exchange loss of $964,000.

For the nine months ended March 31, 2024, total revenues were $44.9 million, with a net income of $767,000. The company aims for a revenue range of $60-61 million for FY 2024 and is targeting $28 million in subscription and support revenue. Notably, NETSOL is initiating AI integration to enhance internal efficiencies and client services.

Positive

• 14% revenue growth to $15.5 million in Q3 2024.
• 60% increase in services revenue to $7.8 million.
• Gross margins improved to 48% from 35% in Q3 2023.
• Third consecutive quarter of profitability with EPS of $0.03.
• Total revenues of $44.9 million for the nine months ended March 31, 2024.
• Target revenue range of $60-61 million for FY 2024.
• Initiation of AI integration to reduce costs and enhance services.

Negative

• GAAP net income decreased to $328,000 from $2.5 million in the previous year.
• Foreign currency exchange loss of $964,000 in Q3 2024.
• License fees fell to $558,000 from $2 million in the prior year period.
• Non-GAAP adjusted EBITDA declined to $810,000 from $3.3 million in Q3 2023.
• Operating expenses increased to $6.2 million, representing 40% of sales.
• Constant currency basis GAAP net loss of $(35,000) for Q3 2024.

Financial Analyst

NETSOL Technologies has reported a 14% increase in total revenues to $15.5 million for the fiscal third quarter of 2024, compared to the prior year period. This strong growth trend is a positive signal for investors, indicating that the company is effectively scaling its operations. Notably, services revenues surged by 60% year-over-year to $7.8 million, reflecting the strength of their service offerings. However, license fees have declined significantly to $558,000 from $2.0 million in the previous year. A key takeaway here is the transition in revenue streams, focusing more on services and subscription-based models which tend to offer more predictable and recurring revenues.

The gross margin improvement from 35% to 48% is an excellent indicator of operational efficiency and cost management. On the flip side, while the company has achieved a net income, the significant year-over-year decline from $2.5 million to $328,000 could be a concern, primarily influenced by losses on foreign currency exchange transactions. Investors should monitor how currency fluctuations impact NETSOL’s profitability and might also look into hedging strategies that the company might employ going forward.

Overall, the company’s on-track progress towards its fiscal year revenue target of $60-$61 million and the emphasis on AI integration suggests forward-looking growth initiatives. To maintain this momentum, managing operating expenses while expanding revenue streams remains crucial.

Tech Expert

NETSOL Technologies is taking significant steps towards integrating Artificial Intelligence (AI) across its operations, aimed at reducing internal costs and improving external quality. This strategic move, leveraging nearly three decades of internal program management data, positions NETSOL at the forefront of tech-driven business solutions. The utilization of deep learning AI algorithms for their service offerings can potentially enhance the operational efficiency of their clients, driving better business outcomes.

Moreover, the planned launch of new AI-based products within the calendar year can diversify NETSOL’s portfolio and potentially attract new customers. Investors should be aware that successful AI integration can lead to substantial long-term benefits by fostering innovation and maintaining the company’s competitive edge in a rapidly evolving tech landscape.

However, the success of these initiatives depends on execution and the real-world effectiveness of AI applications. There is also an inherent risk associated with new technology adoption, including initial costs and the learning curve for both the company and its clients. Therefore, it’s important for NETSOL to demonstrate tangible improvements and real value addition from its AI initiatives to justify the investment.

• 14% increase in Total Revenues to $15.5 million in 3Q ‘24
• 60% increase in 3Q ‘24 Services Revenues to $7.8 million compared to 3Q ‘23
• 3Q ‘24 Gross Margins of 48% increased from 35% in 3Q ’23
• Third consecutive quarter of profitability
• On pace to meet target revenue range of $60 - $61 million for FY ‘24
• Targeting FY ’24 Subscription and Support Revenue of $28 million
• Establish AI integration as major company wide initiative
  

ENCINO, Calif., May 20, 2024 (GLOBE NEWSWIRE) -- NETSOL Technologies, Inc. (Nasdaq: NTWK), a global business services and asset finance solutions provider, reported results for the third quarter and nine months of fiscal 2024 ended March 31, 2024.

Najeeb Ghauri, Co-Founder and Chief Executive Officer of NETSOL Technologies, commented, “The third quarter of 2024 was another very strong quarter for our business highlighted by revenue growth and our third straight quarter of profitability. We demonstrated NETSOL’s ability to deliver profitable results without the recognition of significant license fees, showcasing the enhanced strength and reliability of our model as we continue to win new customers on a global scale.”

Fiscal Third Quarter 2024 Financial Results

Total net revenues for the third quarter of fiscal 2024 increased 14% to $15.5 million, compared with $13.5 million in the prior year period. On a constant currency basis, total net revenues were $15.6 million.

• License fees were $558,000 compared with $2.0 million in the prior year period. License fees on a constant currency basis were $577,000.
• Total subscription (SaaS and Cloud) and support revenues were $7.1 million compared with $6.7 million in the prior year period. Total subscription and support revenues on a constant currency basis were $7.2 million.
• Total services revenues were $7.8 million, compared with $4.9 million in the prior year period. Total services revenues on a constant currency basis were $7.8 million.
  

Gross profit for the third quarter of fiscal 2024 was $7.5 million or 48% of net revenues, compared to $4.7 million or 35% of net revenues in the third quarter of fiscal 2023. On a constant currency basis, gross profit for the third quarter of fiscal 2024 was $7.2 million or 46% of net revenues as measured on a constant currency basis.

Operating expenses for the third quarter of fiscal 2024 were $6.2 million or 40% of sales compared to $5.6 million or 42% of sales for the third quarter of fiscal 2023. On a constant currency basis, operating expenses for the third quarter of fiscal 2024 increased to $6.3 million or 41% of sales on a constant currency basis.

GAAP net income attributable to NETSOL for the third quarter of fiscal 2024 totaled $328,000 or $0.03 per diluted share, compared with a GAAP net income of $2.5 million or $0.23 per diluted share in the third quarter of fiscal 2023. Included in GAAP net income attributable to NETSOL was a loss of $(964,000) on foreign currency exchange transactions in the third quarter of fiscal 2024, compared to a gain of $5.4 million in the prior year period. As most contracts are either in U.S. dollars or Euros, currency fluctuations will yield foreign currency exchange gains or losses depending on the value of other currencies compared to the U.S. dollar and the Euro. On a constant currency basis, GAAP net loss attributable to NETSOL for the third quarter of fiscal 2024 totaled $(35,000) or $(0.003) per diluted share.

Non-GAAP adjusted EBITDA for the third quarter of fiscal 2024 was $810,000 or $0.07 per diluted share, compared with non-GAAP adjusted EBITDA of $3.3 million or $0.29 per diluted share in the third quarter of fiscal 2023 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

Nine Months Ended March 31, 2024 Financial Results

Total net revenues for the nine months ended March 31, 2024, were $44.9 million, compared to $38.6 million in the prior year period. On a constant currency basis, total net revenues were $45.2 million.

• License fees were $4.8 million compared with $2.2 million in the prior year period. License fees on a constant currency basis were $4.9 million.
• Total subscription (SaaS and Cloud) and support revenues for the nine months ended March 31, 2024, were $20.5 million compared with $19.2 million in the prior year period. Total subscription and support revenues on a constant currency basis were $20.5 million.
• Total services revenues were $19.6 million compared with $17.2 million in the prior year period. Total services revenues on a constant currency basis were $19.8 million.
  

Gross profit for the nine months ended March 31, 2024, was $20.8 million or 46% of net revenues, compared with $12.1 million or 31% of net revenues in the prior year period. On a constant currency basis, gross profit for the nine months ended March 31, 2024, was $17.8 million or 39% of net revenues as measured on a constant currency basis.

Operating expenses for the nine months ended March 31, 2024, were $18.1 million or 40% of sales compared with $18.0 million or 47% of sales in the prior year period. On a constant currency basis, operating expenses for the nine months ended March 31, 2024, were $19.5 million or 43% of sales on a constant currency basis.

GAAP net income attributable to NETSOL for the nine months ended March 31, 2024, totaled $767,000 or $0.07 per diluted share, compared with a GAAP net loss of $(169,000) or $(0.01) per diluted share in the prior year period. Included in GAAP net income attributable to NETSOL was a loss of $(1.1 million) on foreign currency exchange transactions for the nine months ended March 31, 2024, compared to a gain of $7.4 million in the prior year period. On a constant currency basis, GAAP net loss attributable to NETSOL for the first nine months of fiscal 2024 totaled $(2.4 million) or $(0.21) per diluted share.

Non-GAAP adjusted EBITDA for the nine months ended March 31, 2024, was $2.0 million or $0.18 per diluted share, compared with non-GAAP adjusted EBITDA of $1.9 million or $0.17 per diluted share in the prior year period (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

At March 31, 2024, cash and cash equivalents were $12.3 million. Total NETSOL stockholders’ equity at March 31, 2024, was $35.3 million, or $3.10 per share.

Management Commentary

“These past several quarters have showcased our hybrid license and SaaS model at work,” Mr. Ghauri stated. “We recognized substantial license fees in the first half of fiscal 2024, and these contracts are now generating services revenues for our business with services revenues in the third quarter of fiscal 2024 increasing approximately 60% compared to the third quarter of fiscal 2023. We have a strong sales pipeline of licensing and SaaS opportunities in our established markets and are working diligently to expand our pipeline in the United States. As we continue to win new contracts, we expect to realize both license fees and services revenues on a more consistent basis which, based on our recent performance, we believe will drive enhanced profitability for our business.

“We continue to make progress advancing our initiatives in the U.S. market,” Mr. Ghauri continued. “We’re expanding our pipeline of opportunities in this region and remain committed to hiring the best talent available. We’re intently focused on the continuous innovation and improvement of our offerings to meet the diverse demands of our customers, and we’re integrating leading technology including deep learning AI algorithms.

“To that end, we have launched a company wide AI initiative to reduce internal costs and enhance external quality improvements. We have nearly three decades of internal program management data, which we intend to use to train our AI use cases. We are also in the process of creating industry leading AI use cases for our clients to help improve their business metrics with an anticipated launch of several new AI-based offerings in the calendar year.

“We’re very pleased with our performance in both the third quarter and the fiscal year to date and are beginning to realize the strength of our business model as we drive revenue growth and consistent profitability. Looking ahead, we’re encouraged by our pipeline of license and SaaS deals in our established markets, and we’re committed to allocating capital to our many growth opportunities, specifically the United States. Given our results, we remain confident in our expectation of double-digit organic revenue growth and improved margins and are on pace to reach our target revenue range of between $60 million and $61 million for the full year of 2024,” Mr. Ghauri concluded.

Conference Call

NETSOL Technologies management will hold a conference call today (May 20, 2024) at 9:00 a.m. Eastern Time (6:00 a.m. Pacific Time) to discuss these financial results. A question-and-answer session will follow management's presentation.

U.S. dial-in: 800-343-4849
International dial-in: 203-518-9848

Please call the conference telephone number 5-10 minutes prior to the start time and provide the operator with the conference ID: NETSOL. The operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Investor Relations at 818-222-9195.

The conference call will also be broadcast live and available for replay here, along with additional replay access being provided through the company information section of NETSOL’s website.

A telephone replay of the conference call will be available approximately three hours after the call concludes through Monday, June 3, 2024.

Toll-free replay number: 844-512-2921
International replay number: 412-317-6671
Replay ID: 11155702

About NETSOL Technologies
NETSOL Technologies, Inc. (Nasdaq: NTWK) is a worldwide provider of IT and enterprise software solutions primarily serving the global leasing and finance industry. The Company’s suite of applications is backed by 40 years of domain expertise and supported by a committed team of professionals placed in ten strategically located support and delivery centers throughout the world. NETSOL’s products help companies transform their finance and leasing operations, providing a fully automated asset-based finance solution covering the complete leasing and finance lifecycle.

Forward-Looking Statements
This press release may contain forward-looking statements relating to the development of the Company's products and services and future operation results, including statements regarding the Company that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “expects,” “anticipates,” variations of such words, and similar expressions, identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, but their absence does not mean that the statement is not forward-looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Factors that could affect the Company's actual results include the progress and costs of the development of products and services and the timing of the market acceptance. The subject Companies expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in the company's expectations with regard thereto or any change in events, conditions or circumstances upon which any statement is based.

Use of Non-GAAP Financial Measures
The reconciliation of Adjusted EBITDA to net income, the most comparable financial measure based upon GAAP, as well as a further explanation of adjusted EBITDA, is included in the financial tables in Schedule 4 of this press release.

Investor Relations Contact:

IMS Investor Relations
netsol@imsinvestorrelations.com
+1 203-972-9200

NETSOL Technologies, Inc. and Subsidiaries Schedule 1: Consolidated Balance Sheets
			As of				As of
	ASSETS		March 31, 2024				June 30, 2023
Current assets:
	Cash and cash equivalents		$	12,338,642			$	15,533,254
	Accounts receivable, net of allowance of $414,745 and $420,354			15,826,210				11,714,422
	Revenues in excess of billings, net of allowance of $116,023 and $1,380,141			15,659,806				12,377,677
	Other current assets			2,398,403				1,978,514
		Total current assets		46,223,061				41,603,867
Revenues in excess of billings, net - long term				752,582				-
Property and equipment, net				5,505,609				6,161,186
Right of use assets - operating leases				1,490,669				1,151,575
Other assets				32,341				32,327
Intangible assets, net				-				127,931
Goodwill				9,302,524				9,302,524
		Total assets	$	63,306,786			$	58,379,410
	LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	6,707,937			$	6,552,181
	Current portion of loans and obligations under finance leases			6,047,511				5,779,510
	Current portion of operating lease obligations			635,168				505,237
	Unearned revenue			9,503,548				7,932,306
		Total current liabilities		22,894,164				20,769,234
Loans and obligations under finance leases; less current maturities				130,381				176,229
Operating lease obligations; less current maturities				837,756				652,194
		Total liabilities		23,862,301				21,597,657
Stockholders' equity:
	Preferred stock, $.01 par value; 500,000 shares authorized;			-				-
	Common stock, $.01 par value; 14,500,000 shares authorized;
		12,344,271 shares issued and 11,405,240 outstanding as of March 31, 2024,
		12,284,887 shares issued and 11,345,856 outstanding as of June 30, 2023		123,445				122,850
	Additional paid-in-capital			128,736,328				128,476,048
	Treasury stock (at cost, 939,031 shares as of March 31, 2024 and June 30, 2023)			(3,920,856	)			(3,920,856	)
	Accumulated deficit			(44,129,431	)			(44,896,186	)
	Other comprehensive loss			(45,505,920	)			(45,975,156	)
		Total NetSol stockholders' equity		35,303,566				33,806,700
	Non-controlling interest			4,140,919				2,975,053
		Total stockholders' equity		39,444,485				36,781,753
		Total liabilities and stockholders' equity	$	63,306,786			$	58,379,410

NETSOL Technologies, Inc. and Subsidiaries Schedule 2: Consolidated Statement of Operations
			For the Three Months								For the Nine Months
			Ended March 31,								Ended March 31,
				2024				2023				2024				2023
Net Revenues:
	License fees		$	558,340			$	1,982,985			$	4,829,242			$	2,248,829
	Subscription and support			7,140,358				6,656,082				20,480,382				19,175,585
	Services			7,765,818				4,867,322				19,635,014				17,178,452
		Total net revenues		15,464,516				13,506,389				44,944,638				38,602,866
Cost of revenues				7,989,696				8,801,360				24,132,064				26,503,377
Gross profit				7,474,820				4,705,029				20,812,574				12,099,489
Operating expenses:
	Selling, general and administrative			5,811,335				5,333,202				17,051,798				16,727,836
	Research and development cost			345,582				302,262				1,065,412				1,244,793
		Total operating expenses		6,156,917				5,635,464				18,117,210				17,972,629
Income (loss) from operations				1,317,903				(930,435	)			2,695,364				(5,873,140	)
Other income and (expenses)
	Interest expense			(289,677	)			(188,137	)			(856,016	)			(512,110	)
	Interest income			376,466				263,794				1,259,464				1,005,557
	Gain (loss) on foreign currency exchange transactions			(963,887	)			5,385,591				(1,112,757	)			7,358,519
	Share of net loss from equity investment			-				2,377				-				7,510
	Other income (expense)			21,634				(62,941	)			22,210				57,383
		Total other income (expenses)		(855,464	)			5,400,684				(687,099	)			7,916,859
Net income before income taxes				462,439				4,470,249				2,008,265				2,043,719
Income tax provision				(146,569	)			(227,718	)			(418,517	)			(641,122	)
Net income				315,870				4,242,531				1,589,748				1,402,597
	Non-controlling interest			11,679				(1,697,908	)			(822,993	)			(1,571,629	)
Net income (loss) attributable to NetSol			$	327,549			$	2,544,623			$	766,755			$	(169,032	)
Net income (loss) per share:
	Net income (loss) per common share
		Basic	$	0.03			$	0.23			$	0.07			$	(0.01	)
		Diluted	$	0.03			$	0.23			$	0.07			$	(0.01	)
Weighted average number of shares outstanding
	Basic			11,390,888				11,283,954				11,369,778				11,270,466
	Diluted			11,430,493				11,283,954				11,409,383				11,270,466

NETSOL Technologies, Inc. and Subsidiaries Schedule 3: Consolidated Statement of Cash Flows
				For the Nine Months
				Ended March 31,
					2024				2023
Cash flows from operating activities:
	Net income			$	1,589,748			$	1,402,597
	Adjustments to reconcile net income to net cash
		provided by (used in) operating activities:
	Depreciation and amortization				1,351,239				2,519,469
	Provision for bad debts				9,739				7,648
	Share of net (gain) loss from investment under equity method				-				(7,510	)
	(Gain) loss on sale of assets				(1,154	)			56,494
	Stock based compensation				260,875				198,559
	Changes in operating assets and liabilities:
		Accounts receivable			(3,922,773	)			(1,855,899	)
		Revenues in excess of billing			(3,904,609	)			240,324
		Other current assets			(1,525	)			(621,731	)
		Accounts payable and accrued expenses			77,541				1,321,289
		Unearned revenue			938,242				(696,621	)
	Net cash provided by (used in) operating activities				(3,602,677	)			2,564,619
Cash flows from investing activities:
	Purchases of property and equipment				(948,337	)			(1,575,059	)
	Sales of property and equipment				125,886				153,402
	Net cash used in investing activities				(822,451	)			(1,421,657	)
Cash flows from financing activities:
	Proceeds from bank loans				340,847				270,292
	Payments on finance lease obligations and loans - net				(307,235	)			(787,641	)
	Net cash provided by (used in) financing activities				33,612				(517,349	)
Effect of exchange rate changes					1,196,904				(9,329,913	)
Net decrease in cash and cash equivalents					(3,194,612	)			(8,704,300	)
Cash and cash equivalents at beginning of the period					15,533,254				23,963,797
Cash and cash equivalents at end of period				$	12,338,642			$	15,259,497

NETSOL Technologies, Inc. and Subsidiaries Schedule 4: Reconciliation to GAAP
	For the Three Months								For the Nine Months
	Ended March 31,								Ended March 31,
		2024				2023				2024				2023
Net Income (loss) attributable to NetSol	$	327,549			$	2,544,623			$	766,755			$	(169,032	)
Non-controlling interest		(11,679	)			1,697,908				822,993				1,571,629
Income taxes		146,569				227,718				418,517				641,122
Depreciation and amortization		391,290				782,966				1,351,239				2,519,469
Interest expense		289,677				188,137				856,016				512,110
Interest (income)		(376,466	)			(263,794	)			(1,259,464	)			(1,005,557	)
EBITDA	$	766,940			$	5,177,558			$	2,956,056			$	4,069,741
Add back:
Non-cash stock-based compensation		149,088				52,392				260,875				198,559
Adjusted EBITDA, gross	$	916,028			$	5,229,950			$	3,216,931			$	4,268,300
Less non-controlling interest (a)		(106,463	)			(1,971,602	)			(1,216,040	)			(2,363,774	)
Adjusted EBITDA, net	$	809,565			$	3,258,348			$	2,000,891			$	1,904,526
Weighted Average number of shares outstanding
Basic		11,390,888				11,283,954				11,369,778				11,270,466
Diluted		11,430,493				11,283,954				11,409,383				11,270,466
Basic adjusted EBITDA	$	0.07			$	0.29			$	0.18			$	0.17
Diluted adjusted EBITDA	$	0.07			$	0.29			$	0.18			$	0.17
(a)The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non-controlling interest is as follows
Net Income (loss) attributable to non-controlling interest	$	(11,679	)		$	1,697,908			$	822,993			$	1,571,629
Income Taxes		43,852				70,033				155,636				198,349
Depreciation and amortization		97,010				219,759				348,092				713,676
Interest expense		89,738				57,797				266,922				157,929
Interest (income)		(115,021	)			(77,988	)			(387,690	)			(303,489	)
EBITDA	$	103,900			$	1,967,509			$	1,205,953			$	2,338,094
Add back:
Non-cash stock-based compensation		2,563				4,093				10,087				25,680
Adjusted EBITDA of non-controlling interest	$	106,463			$	1,971,602			$	1,216,040			$	2,363,774

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/c489814a-b61e-41e3-a892-4156277383c3

FAQ

What was NETSOL Technologies' revenue growth in Q3 2024?

NETSOL Technologies reported a 14% revenue increase to $15.5 million in Q3 2024.

How much did NETSOL Technologies' services revenue increase in Q3 2024?

NETSOL Technologies' services revenue increased by 60% to $7.8 million in Q3 2024.

What were NETSOL Technologies' gross margins in Q3 2024?

NETSOL Technologies' gross margins improved to 48% in Q3 2024, up from 35% in Q3 2023.

What was NETSOL Technologies' EPS in Q3 2024?

NETSOL Technologies reported an EPS of $0.03 in Q3 2024.

What were NETSOL Technologies' operating expenses in Q3 2024?

NETSOL Technologies' operating expenses were $6.2 million, representing 40% of sales in Q3 2024.

How did foreign currency exchange affect NETSOL Technologies in Q3 2024?

NETSOL Technologies experienced a foreign currency exchange loss of $964,000 in Q3 2024.

What is NETSOL Technologies' revenue target for FY 2024?

NETSOL Technologies is targeting a revenue range of $60-61 million for FY 2024.