NETSOL Technologies (NASDAQ:NTWK) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Summary

NETSOL Technologies reported record quarterly revenue of $19.8 million, marking the highest in the company's history, with a 13% increase year-over-year.

The company executed a $50 million four-year contract extension with a major client, Mercedes Benz, contributing significantly to license revenue.

Recurring subscription and support revenue grew by 11.7% year-over-year, showing strong customer retention and expansion.

The company is focusing on unifying its products under the Transcend Platform and embedding AI into workflows, aiming for long-term customer value.

Future guidance reaffirms full-year fiscal 2026 revenue expectations of $73-74 million, with a strong pipeline and strategic focus on the Transcend platform and AI initiatives.

Full Transcript

OPERATOR

Good morning and welcome to the NETSOL Technologies third quarter and nine months ended March 31, 2026 earnings conference call. On the call today, our Founder and Chief executive officer of NETSOL Technologies, Najeeb Ghori, Chief Financial Officer Siddharth Abubakar and Senior Vice President, Legal and Corporate Affairs, General Counsel and Corporate Secretary Patricia McGlasson. Also available for the Q and A portion are Chief Accounting Officer Roger Allman and Chief Marketing Officer Erik Wagner. I will now hand the call over to Patty, who will provide the necessary disclaimers regarding the forward looking statements made during today's call. Patty, please go ahead.

Patty McGlasson (Senior Vice President, Legal and Corporate Affairs, General Counsel and Corporate Secretary)

Thank you. Good morning everyone and thank you for joining us today. After we review the Company's business highlights and financial Results for the third quarter and nine months ended March 31, 2026, we will open the call for questions. Before we begin, I'd like to remind you that our remarks today may include forward looking statements within the meaning of the federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform act of 1995. These statements reflect management's current expectations, risks and uncertainties, and actual results may differ materially from those expressed or implied. We encourage you to review the cautionary statements and risk factors contained in NETSOL's press release issued earlier today, as well as in our filings with the securities and Exchange Commission, including our Most recent Form 10K and quarterly reports on Form 10Q. I'd also like to note that today's discussion will include certain non GAAP financial measures. A reconciliation of these measures to their most directly comparable GAAP figures can be found in the press release issued earlier today. Lastly, please remember that this call is being recorded and will be available for replay on our [email protected] and through a link included in today's press release. At this time, all participants are in listen only mode. Following the prepared remarks, we will open the call for the Q and A session. I will now hand the call over to our Founder and CEO Najeeb Ghori.

Najeeb Ghori

Najeeb thank you Patty Good morning everyone and thank you for joining NetSol's technologies call to review our results for the third quarter and nine months ended March 31, 2026. The third quarter was a record quarter for NetSol. Total net revenues were $19.8 million, the highest quarterly revenue in the history of the company. Recurring subscription and support revenue grew approximately 11.7% year over year. Income from operation was $3 million, up from $1.6 million in the prior year period and non GAAP adjusted EBITDA was $3.4 million compared with $2.3 million in the prior year period. For the nine months ended March 31, 2026, total net revenues were $53.7 million, an increase of approximately 12.5% over the period prior year period. This is further evidence that the strategy we have been executing unifying our products under the Transcend Platform, deepening our customer relationships and embedding AI throughout our origination workflows is delivering I would like to walk through three areas that define the quarter. First, I'd like to talk about customer momentum followed by the continued ramp of Transcend Retail and then I'll discuss our progress on artificial intelligence. First, on customer momentum as we discussed on our last quarter's call, in December we executed a $50 million four year contract extension with one of the longest tenured Mercedes Benz, a Tier 1 Global AutoCap customer, a relationship that we cherished since 1997. During the third quarter we recognized the one time license investment associated with that renewal which contributed approximately $4.7 million in license revenue. This extension reinforces the recurring nature of our most important customer relationships and provides multi year revenue visibility into our subscription support and services pipeline. The renewal also brought a significant annual maintenance billing event in January which our CFO Abubakar will discuss in more detail in the Financial Review as it is the principal driver of the working capital movements you will notice in the balance sheets this quarter. We also achieved meaningful customer milestones across our Transcend Finance footprint during the quarter. In late January we went live with Northridge Finance, a division of bank of Ireland UK on Transcend Finance. In March, a Tier one Global auto captive that is Ford China. went live on Transcend Finance in China. Both go lives reflect Transcend's finance ability to scale across geographies and product lines and both convert into recurring subscription support and services revenue going forward. Additionally, we renewed a multi million dollar agreement with the long standing partner Investec Bank for the continued use of our finance and leasing platform. They are a premium tier 1 multinational bank in the United Kingdom with whom we have had a relationship over 15 years. Second, on Transcend Retail in the US we have continued to see strong demand for our digital retail solution for BMW dealerships and OEMs and it is becoming a meaningful contributor to our recurring revenue. We have opportunity to go live in all US based BMW dealerships or almost 350 locations in two year time frame. Pipeline activity is robust and we continue to close new dealerships across group across customers. In the US we have continued to expand the presence in the US Dealer market through the third quarter. The combination of fast time to go live, modern user experience and integration into the broader transit platform is resonating with the dealer groups and we believe this is a market segment with substantial Runway over the next several years. In usa, subscription and support continue to perform well with double digit recurring revenue growth supported by GO lies and contract expansion across our customer base. Services revenue moderated this quarter compared with the prior year period which had benefited from a one time pickup associated with a customer contact amendment, contract amendment and from elevated implementation activity that has since transitioned into recurring revenue underlying services and products. Demand remains healthy across the globe and our pipeline for implementation work supports continued progress through the remainder of fiscal 2026 and into fiscal 2027. I'd like to now discuss the progress in artificial Intelligence or AI that continues to be essential to how we differentiate. Our approach is to generally embed AI directly into the workflows our customers run into the Transcend platform rather than build standalone AI features. The clearest example of this is our AI enabled Credit Decisioning Engineering within Transient Finance which we introduced earlier this fiscal year. It operates as an architectural layer that sits inside a lease and loan origination solution and uses deep reasoning and agentic workflows to accelerate the pace of credit decisions. With consistency and human oversight built in, customers running originations on transit finance can activate a credit decisioning engine to compress decision turnaround time and improve underwriting throughput. This is the model we will generally continue to follow as we extend AI across the platform. Deeper integration into existing customer workflows tied to measurable outcomes. We also introduced our AI Native Intelligent Document Processing solution for asset and financial commercial finance. It combines optical character recognition for short OCR with large language model capabilities to extract and structure information from financial documents, enabling faster credit and compliance workflows while reducing manual effort and improving operational efficiency. Looking ahead, we are partnering with our clients on the next wave of AI initiatives, embedding intelligence deeper into the decisions and interactions that drive long term value for our customers and their consumers. I now like to turn the call over to our very dynamic new cfo, Sir Darbhu Wakar. Thank you Najeeb.

Siddharth Abubakar

Thank you so much Najeeb and good morning everyone. I will begin with our financial Results for the third quarter of fiscal year 2026, followed by results for the nine months ended March 31, 2026. For the third quarter of fiscal 2026, total net revenues were 19.8 million, a record for the Company compared with 17.5 million in the prior year period, an increase of approximately 13%. The increase was driven primarily by higher license fees associated with the renewal of our $50 million four year tier one autocaptive contract together with continued growth in recurring subscription and support revenues. Overall, we continue to build on the double digit growth momentum from Q2. On a constant currency basis, total net revenues were 19.6 million. Subscription and support revenues increased approximately 11.7% to 8.8 million compared with 7.9 million in the prior year period. On a constant currency basis, subscription and Support revenues were 8.8 million. License fees for the third quarter were 4.7 million compared with just over $1,000 in the prior year period. Services revenues were 6.3 million compared with 9.7 million in the prior year period. The decrease primarily reflects the timing and composition of current implementation projects as well as a one time pickup of approximately 2.4 million in the prior year period. On a constant currency basis, services revenues were 6.1 million. Gross profit for the third quarter was 11 million or a 55.6% of net revenues compared with 8.7 million or 49.8% of net revenues in the prior year period. On a constant currency basis, gross profit was 10.9 million or 55.5% of net revenues during the quarter. We also recorded a one time impact related to Pakistan's super-tax regime. This relates to a retrospective adjudication of the tax for prior periods following recent cohort developments. As a result, we recognized a charge of approximately 0.4 million which impacted net income in the period. This is a one time non operational item relevant to multiple sectors and not NETSOL alone and does not reflect our underlying core operating trends. Non GAAP EBITDA was 3.4 million in the quarter, an increase of approximately 47.8% compared with 2.3 million in the prior year period. Non GAAP EBITDA margin expanded to 17.2% compared with 13.1% in the prior year period. Foreign currency movements resulted in a loss of approximately 0.1 million in the quarter compared with a gain of 0.3 million in the prior year period. GAAP net income attributable to netsold was 1.3 million or $0.11 per diluted share compared with 1.4 million or $0.12 per diluted share in the prior year period. Now coming to our Results. For the nine months ended March 31, 2026, total net revenues for the nine months ended March 31, twenty twenty six were 53.7 million compared with 47.7 million in the prior year period, an increase of 12.5%. On a constant currency basis, total net revenues were 52.9 million. Recurring subscription and support revenues for the nine months were 26.9 million, an increase of 8.6% compared with 24.7 million in the prior year period. On a constant currency basis, recurring subscription and Support revenues were 26.5 million. License fees for the nine months were 4.9 million compared with 75,000 in the prior year period. Reflecting the renewal recognition I described earlier, services revenues for the nine months were 21.9 million compared with 22.9 million in the prior year period. Annualized recurring revenue is forecasted to be approximately 35 million exiting the third quarter compared with approximately 32.9 million in the prior year period, an increase of 7%. Gross profit for the nine months was 26 million or 48.4% of net revenues compared with $22.2 million or 46.6% of net revenues in the prior year period. On a constant currency basis, Gross profit was $25.3 million or 47.9% of net revenues. Non GAAP EBITDA was $3.5 million, an increase of approximately 84.2% compared with $1.9 million in the prior year period. Non GAAP EBITDA margin expanded to 6.6% compared with 4% in the prior year period. Turning to the balance sheet cash and Cash equivalents were 14.7 million at March 31, 2026 compared with 17.4 million at June 30, 2025. The decrease in cash flow from operations during the period was primarily attributable to changes in working capital including the timing of customer billings and collections associated with certain large customer arrangements. Accounts receivable increased during the period due to the timing of collections on invoices issued under these arrangements. These receivable balances have since converted to cash in the normal course of business. Overall, the third quarter reflects a continuation of our focus on double digit top line growth year over year, underlined by consistent improvement in margins and ebitda, a healthy balance sheet and strong cash flow situation. I will now hand the call back to Najeeb.

Najeeb Ghori

Thank you Abubakar. Looking ahead, we are reaffirming our full year fiscal 2026 revenue guidance of approximately 73 to 74 million dollars. We are pleased with our nine month performance and underlying momentum we are seeing across the Transcend platform. Our core products Transient finance remains strong while our loyal and Long term partners could not be more pleased with their ROI on national solutions. Our focus heading into the fourth quarter and into fiscal 2026 is unchanged. Extend the depth of our largest customer responsibilities relationships continue to expand the unified Transcend Platform with embedded AI capabilities like AI driven credit decisioning, engineering and accelerate growth of transcend retail in the US Dealer market. While macroeconomic and currency dynamics remain a consideration, our diversified business model, our long term customer relationships and the underlying strength of our recurring revenue base provide a solid foundation for the remainder of fiscal 2026 and beyond. With that Operator Please open the line for questions.

OPERATOR

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, if you would like to ask a question, press Star one on your telephone keypad. One moment please while we poll for questions. Thank you. Our first question comes from the line of Todd Felty with StoneX. Please proceed with your question.

Todd Felty (Equity Analyst at StoneX)

Hey, congratulations to you and your team on a great quarter. It was really nice to see the revenue and margin improvement. My first question just deals with is this type of revenue and margin growth, can it be continued or is this mainly the result of the one time license fee that you collected in the quarter?

Najeeb Ghori

Thank you Todd for this question. I appreciate your long term relationship. I think we see a long term vision. We believe this pattern will continue and I think because the pipeline is strong, very healthy and we're getting a lot of interest from our new customers and of course the existing customer.

Todd Felty (Equity Analyst at StoneX)

Okay and also wanted to follow up. It looked like your Pakistani subsidiary had a really strong quarter and I know, I think you own 69 or 70% of them and you always take a non controlling interest loss based on that percentage you own. Has there been any further discussions about fully acquiring them? I know your earnings would have probably been around 20 cents a share if you had had full control of them.

Najeeb Ghori

Absolutely. Very right observation and I think we talked about it before a couple of times. Todd, we have this initiative in our mind as a top priority. We just have to manage our financing so we can completely buy out the remainder. 30%. Of course it would make NETSOL Solutions much stronger in the top line and bottom line. But this is the one key initiative we're still working on.

Todd Felty (Equity Analyst at StoneX)

Okay, that's all my questions. I'll hop back in the queue. And again, congratulations to you and your team on such a strong quarter.

OPERATOR

Thank you, Todd. As a reminder, if you would like to ask a question, press Star one on your telephone keypad. Our next question comes from the line of Michael Kobinski with Noble Capital Markets. Please proceed with your question.

Michael Kobinski (Equity Analyst at Noble Capital Markets)

Thank you. And I'm a little new to the story, but I have a couple of questions here. I was just wondering in terms of obviously a lot of geopolitical events going on, how exposed is the business to the China auto finance weakness and our broader global auto sales trends? I was just wondering if you can just give us some color there.

Najeeb Ghori

Well, thank you for this question. I think it is obviously a macro level. There's all kinds of things happening in this new world order. We're not that exposed. I think we have pretty solid customer base. They're highly dependent on NETSOL products and services. We have an excellent team in Beijing and Tianjin. Our customers are supported by the people over there and the back office in Lahore, Pakistan. So I think we're not concerned. Of course we watch follows conditions very closely. But I think our product is amazing, our technology amazing, our people are amazing and the customers are dependent not just to China but all across three global regions. So I feel comfortable about the situation. Of course I wish that things were a bit better in terms of Pakistan. It's one of the safest country to do business with. People are traveling comfortably, our people are enjoying, our customers are visiting us back and forth. So I think overall we are in a pretty good conditions.

Michael Kobinski (Equity Analyst at Noble Capital Markets)

And are there verticals outside of automotive that could materially move the needle for you over the next several years? I think so. I believe so. Can you identify what those might be?

Najeeb Ghori

Well, I think we are looking into pretty impressive quite frankly double digit organic growth in the coming years. We have some other ideas which obviously I can share right now in a positive way how we can further really expand our footprint in the US markets particularly of course we've done very well accretive revenue. We also open to looking into M and A opportunity eventually given the right opportunities to really grow the US business especially so I think there's lots happening in a macro level in the micro level the company is very vigilant alert on the opportunities in front of us. Of course so many years of this experience in this company in all three region we have enough I think understanding of different environment, how to manage situation. So our team has really fired up every location and really doing well for the company and the shareholders.

Michael Kobinski (Equity Analyst at Noble Capital Markets)

Thank you for taking my questions. Appreciate it.

OPERATOR

Thank you. Thank you. We have no further questions at this time. Mr. Ghori, I'd like to turn the floor back over to you for closing comments.

Najeeb Ghori

Thank you very much, my friend. My dear shareholders, we remain focused on executing against our strategic priorities and building on the momentum across our business. And we look forward to updating you on our continued progress as we close out fiscal 2026. I want to personally thank all of our shareholders, our global clients in the U.S. canada, Europe, China, Australia, Thailand, Indonesia and Pakistan, and all of our most dedicated nestolians worldwide. As a reminder, we will hold our AGM shareholders meeting on June, 18, 2026 at our Encino headquarters, which holders will be entitled to participate and vote on the resolution presented either in person or by proxy. We encourage all shareholders to vote upon receipt of their proxy materials with the Board's recommendation. Thank you for joining us today and for your continued interest in Netso. Have a good day.

Christina

Thank you, Christina. Have a good day, too.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.