NetSol Technologies, Inc. Q2 FY2025 earnings call

• Najeeb Ghauri mentioned the quarter saw significant progress with growth in recurring revenues and strategic investments in AI. Total net revenue growth was driven by double-digit percentage increase in recurring revenues and 26% increase in services revenues compared to Q2 2024. - Eric Wagner elaborated on AI initiatives: Transcend AI Labs focuses on building internal AI capacity, enhancing products (adding AI enhancements to Transcend Retail and Finance offerings), and enhancing Transcend Consultancy's AI services. Rolled out intelligent document processing (IDP) with OCR and NLP technology to transform document verification and data extraction, and an interactive AI assistant for real-time support throughout the asset finance lifecycle.

Total net revenue for the second fiscal quarter of 2025 was $15.5 million, compared with $15.2 million in the prior year period. License fees for the second quarter of fiscal 2025 were $73,000 compared with $3 million in the prior year period. Recurring revenues (subscription and support revenues) for the second quarter of fiscal 2025 were $8.6 million compared with $6.8 million in the prior year period, representing a 27% increase. Excluding a one-time catch-up of approximately $1 million, recurring revenue would have been approximately $7.6 million, a 12% increase over the prior year period. Total services revenue for the second quarter of fiscal 2025 was $6.8 million compared with $5.4 million in the prior year period, a 26% increase. Recurring revenues contributed a significant portion to total net revenue, with the growth in recurring revenue aligning with the company's long-term strategy.

• Management is encouraged by opportunities seen in markets and is taking a long-term approach. Confident that investments and shifting revenue mix to more recurring subscription and support revenues will translate to enhanced profitability. - Expect growth in North America, with efforts like hiring new talents in the Austin office and positive response from pipeline in digital retail market in the US.

• Foreign currency exchange rate fluctuations: A decrease or increase in the value of the US dollar relative to other currencies can impact revenues and expenses denominated in other currencies. - Short-term impact of investments in sales and marketing and AI initiatives on profitability.

Q: Can you give a quick breakdown of the geography of your revenues as far as North America, Europe, Asia?

A: This quarter, approximately 70-75% of revenues came from the APAC region, about 12.5% from Europe and the Americas. A higher percentage came from the US market due to the BMW deal, reducing the percentage from the APAC market.

Q: Where do you expect your growth to come from in the future?

A: We expect stronger growth in North America, with efforts like hiring new talents in the Austin office. Other markets like China and Europe are steady but North America is anticipated to perform better in percentage growth region-wise.

Q: Can you give details about the contract with AutoNation? Is it just a flat software subscription fee?

A: We've generated sizable income since signing the contract about 9-10 months ago, with integration stages ongoing. The BMW deal has created more opportunities in the digital retail market in the US, and the pipeline is healthy.

Q: With new investments into AI, are you going to be able to raise prices to your customers? What kind of pricing power do you have?

A: It's a sensitive matter. We are working on it in some cases, with prime premium customers, and there's good possibility of getting desired renewal terms, and finding ways to grow revenue from within customers.

Q: Is there a long-term goal of acquiring all of NetSol Pakistan? Or is there any plans about your increase in ownership there?

A: We started a buyback in NetSol Pakistan. The goal is to increase ownership, with the buyback plan aiming to take ownership close to 77% once completed, strengthening the parent company's financial and balance sheet. NetSol Pakistan's stock was at a peak and is now at a good buy time for the buyback plan.