NETSOL TECHNOLOGIES INC Q2 FY2024 earnings call

• Revenue grew in the second quarter of fiscal 2024, driven by solid performance across the business, with the hybrid license and SaaS model acting as a strong growth catalyst. - Recognized $3 million in license fees in the quarter as part of a new large contract in Asia with a major automotive company, to be officially announced soon. - Recurring subscription and support revenues increased during the quarter, with a focus on continuously innovating SaaS offerings like the Otoz digital retail platform and Appex Now, integrating deep learning AI algorithms. - Unveiled Otoz 2.0 with a phased launch planned, where the Otoz platform powers MINI USA's MINI Anywhere retail platform, with enrollment doubling and lead volume up 5 times over the past 12 months. - Expanded the relationship with an automotive client, supporting the launch of AutoNation Mobility micro lease marketplace using Otoz's back-end technology. - Strategically investing and allocating capital to expand presence in key high-growth markets such as North America, with steady progress in North America, Europe, and APAC.

Total net revenues for the second quarter of fiscal 2024 were $15.2 million compared to $12.4 million in the prior-year period. License fees for the quarter ended fiscal 2024 were $3 million compared with $16,000 in the prior-year period. Recurring 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. Total services revenue for the second quarter of fiscal 2024 was $5.4 million compared to $5.9 million in the prior-year period. 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.

• Expect strong double-digit organic revenue growth and improved margins in fiscal 2024 as the company moves into a period of more sustainable profitability.

• Currency exchange rate fluctuations: A decrease in the value of the US dollar compared to foreign currency exchange rates generally increases revenues but also increases expenses denominated in currencies other than the US dollar; conversely, as the US dollar gains strength relative to foreign currency exchange rates, it tends to reduce revenues but also reduces expenses denominated in currencies other than the US dollar.

Q: Could you elaborate a little more on those algorithms and how you're leveraging that AI to enhance your product offerings?

A: Naeem Ghauri stated they have a data warehouse of metadata from thousands of dealers globally, run algorithms based on that data to determine behaviors, trends, patterns like credit risk, etc., and build large language models for generative AI to enhance product offerings, with data from about $300 billion worth of assets across the globe.

Q: Can you quantify as to how much revenue that deals with MINI Cooper and AutoNation produce on a yearly basis?

A: Roger Almond said 60+ dealers bring about $100,000 per month ($1.2 million annually), and Naeem Ghauri mentioned AutoNation has generated over $1 million in implementation and tailoring for their use case, with the subscription model potentially growing significantly if targets are hit.

Q: Do you expect to reach the point where you don't need licensing agreements to have positive operating income, and when?

A: Naeem Ghauri said they're moving to SaaS with ARR offsetting lumpy license revenue, expecting the tipping point next year, and Najeeb Ghauri added the hybrid model is beneficial and growth is positive in coming quarters.

Q: Do you have any share buybacks going on now or plan to announce any in the near future?

A: Najeeb Ghauri said there's no immediate plan for share buybacks currently as the company is investing in key markets and new opportunities, but is open to it in the future.