NetSol Technologies, Inc. (NTWK) Earnings

Management highlights

### Customer Momentum - Secured a $50 million four-year contract extension with long-tenured Tier 1 global auto captive customer Mercedes-Benz, a relationship dating to 1997. Recognized $4.7 million in one-time license revenue from the renewal in Q3, with multi-year recurring subscription, support, and services revenue visibility locked in. - Completed successful go-lives for two new Transcend Finance clients: Northridge Finance (Bank of Ireland UK) in January and Ford China (Tier 1 global auto captive) in March, demonstrating Transcend Finance's cross-geography and cross-product scalability, both converting to recurring revenue going forward. - Renewed a multi-million dollar agreement for Transcend's finance and leasing platform with long-standing UK multinational banking partner Investec Bank, a relationship over 15 years old. ### Transcend Retail Growth - Experienced strong U.S. market demand for the digital retail solution serving BMW dealerships and OEMs, which is now a growing contributor to recurring revenue. - Targeting go-live for nearly 350 all U.S.-based BMW dealerships within a two-year timeframe, with robust pipeline activity and consistent new dealership closings across customer groups. - The product's fast go-live timeline, modern user experience, and integration with the broader Transcend platform have resonated with dealer groups, creating significant long-term growth runway in the U.S. dealer market segment. ### AI Product Development - Follows a core strategy of embedding AI directly into existing customer workflows on the Transcend platform, rather than building standalone AI features, to deliver measurable business outcomes. - Launched an AI-enabled credit decisioning engine for Transcend Finance earlier in fiscal 2026, which operates as an internal architectural layer to compress credit decision turnaround time and improve underwriting throughput, while retaining built-in human oversight. - Launched a new AI-native intelligent document processing solution for asset and commercial finance, combining OCR and large language model capabilities to extract and structure financial document data, reducing manual work and accelerating credit and compliance workflows. - Is currently collaborating with clients on the next wave of AI initiatives to deepen embedded intelligence across the platform.

Guidance

- Management reaffirmed its full-year fiscal 2026 total revenue guidance of $73 million to $74 million, maintaining the prior range with no upward or downward revision. - Management confirmed underlying business momentum across the Transcend platform remains solid, with core Transcend Finance performance holding strong and Transcend Retail growth on track in the U.S. market.

Segment performance

NetSol reports financial results across three core revenue segments for the third quarter of fiscal 2026: 1. Subscription and support: Revenue of $8.8 million, an 11.7% year-over-year increase, contributing 44.4% of total Q3 net revenue. For the nine-month period, this segment reached $26.9 million, an 8.6% year-over-year increase, contributing 50.1% of total nine-month net revenue. Annualized recurring revenue from all subscription segments hit $35 million exiting Q3, a 7% year-over-year increase. 2. License fees: Q3 revenue of $4.7 million, up from just over $1,000 in the prior year period, contributing 23.7% of total Q3 net revenue. For the nine-month period, license fees reached $4.9 million, up from $75,000 in the prior year period, contributing 9.1% of total nine-month net revenue. The large year-over-year increase is driven by one-time license revenue recognized from the $50 million four-year Mercedes-Benz contract renewal in Q3. 3. Services: Q3 revenue of $6.3 million, down from $9.7 million in the prior year period, contributing 31.8% of total Q3 net revenue. The decrease reflects a $2.4 million one-time revenue pickup in the prior year period and normal timing of implementation projects. For the nine-month period, services revenue reached $21.9 million, down from $22.9 million in the prior year period, contributing 40.8% of total nine-month net revenue.

Risks & headwinds

- Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from expectations, with detailed risk factors available in the company's SEC filings, including the most recent Form 10-K and Form 10-Q. - A one-time $0.4 million charge was recognized in Q3 due to a retrospective tax adjudication under Pakistan's super tax regime, a non-operating one-time item impacting multiple sectors, not unique to NetSol. - Foreign currency exchange rate movements created a $0.1 million loss in Q3, compared to a $0.3 million gain in the prior year period, and ongoing currency dynamics remain a consideration for business performance. - Macroeconomic weakness in China's auto finance market and broader global auto sales volatility represent potential headwinds, though management notes limited direct exposure due to the company's solid, diversified customer base. - Geopolitical instability across operating regions is a monitored risk, though management has not observed material negative impacts to date.

Analyst Q&A

• Q: A analyst asked whether the Q3 revenue and margin growth is driven only by the one-time Mercedes-Benz license fee, or if this stronger growth pattern can continue going forward. /

  A: Management responded that the current strong growth pattern is expected to continue, not just a one-time effect. They noted the company's sales pipeline is very healthy, with strong demand from both new and existing customers to support sustained growth. (198 characters)

• Q: An analyst asked if there are updated plans to fully acquire the 30% non-controlling stake in NetSol's Pakistani subsidiary, which would boost earnings per share. /

  A: Management confirmed that acquiring the remaining 30% stake remains a top strategic priority. They noted the company is still arranging appropriate financing to complete the purchase, which they expect will strengthen both the top and bottom line of the parent company. (212 characters)

• Q: A new analyst asked how exposed NetSol is to the current weakness in China's auto finance market and broader slowing global auto sales trends. /

  A: Management stated the company has very limited exposure to these headwinds. They noted NetSol has a highly diversified, locked-in customer base across three global regions, with strong local and back-office support for Chinese operations, and that customers are deeply dependent on NetSol's technology. (229 characters)

• Q: The analyst followed up by asking if there are non-automotive growth opportunities that could meaningfully increase revenue over the next several years. /

  A: Management confirmed the company expects continued double-digit organic growth, and is specifically focused on expanding its U.S. market footprint. They also noted the company is open to evaluating suitable M&A opportunities to accelerate U.S. business growth, and is actively monitoring available opportunities. (224 characters)