NetSol (NTWK) Q1 2026 Earnings Call Transcript

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Date

Thursday, Feb. 12, 2026 at 9 a.m. ET

Call participants

• Founder and Chief Executive Officer — Najeeb Ghauri
• Chief Financial Officer — Roger Almond
• General Counsel and Corporate Secretary — Patti McGlasson

Takeaways

• Total net revenues -- $15 million, a 2.8% increase, driven by higher subscription and support revenue.
• Subscription and support revenue -- $9 million, up 9.4%, indicating ongoing transition toward recurring revenue streams.
• Services revenue -- $6 million, down from $6.4 million; constant currency services revenue was $5.9 million.
• Gross profit -- $5.9 million, representing a margin of 39.4%, a decrease from 45% in the prior year period.
• Operating expenses -- $7.8 million, equaling 51.6% of sales, reflecting a 36% increase in selling and marketing costs due to global sales organization expansion.
• Operating loss -- $1.8 million, compared to $760,000 in the previous year's first quarter, linked to increased expenses and macroeconomic conditions.
• GAAP net loss -- $2.4 million, or $0.20 per diluted share, contrasting with net income of $71,000 reported previously.
• Non-GAAP EBITDA -- Loss of $1.8 million, or $0.15 per diluted share, versus non-GAAP EBITDA of $301,000 in the prior year.
• Foreign currency impact -- Loss on foreign exchange transactions of $287,000, reversing a $543,000 gain from the previous year period.
• Cash and cash equivalents -- $22.7 million, up from $17.4 million as of June 30, 2025, providing liquidity for ongoing strategic initiatives.
• New customer engagement -- Partnership initiated with Sonic Automotive for an omnichannel digital retail solution discovery engagement, demonstrating continued U.S. market traction.
• Product launch -- Introduction of CheckAI, an AI-powered credit decisioning engine, integrated within the Transcend platform to improve credit underwriting automation and compliance.
• APAC regional milestone -- Signed a strategic cooperation agreement in China with Tianjin Binhai Smart Group and the Dongjiang Free Trade Port Zone Government, signaling deepening regional activity.
• Expansion in Indonesia -- Indonesian go-live of the Transcend Finance platform by a major Chinese leasing client as part of cross-border expansion support.
• Full year revenue guidance -- Management targets 5%-7% revenue growth, supported by a strengthened sales pipeline and AI-enabled platform investments.
• Stockholders’ equity -- Total equity reported at $35.8 million, or $3.03 per share, as of Sept. 30, 2025.

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Risks

• CEO Ghauri cited "intentional investments and a more challenging operating environment" as factors negatively impacting the bottom line.
• Operating expenses rose 36% in selling and marketing, resulting in higher operating loss and compressing gross margins to 39.4% from 45%.
• Macroeconomic uncertainty, including "credit tightening and rising auto loan delinquencies, tariff impacts and restructuring challenges among European automakers," contributed to a difficult operating environment and lower seasonality-linked fiscal first quarter revenue.
• Ongoing transition from a license-heavy to SaaS-based model "changes the timing of how revenue is recognized and can make quarterly growth pattern less linear," causing temporary increases in volatility and near-term losses.

Summary

NetSol Technologies (NASDAQ:NTWK) reported modest revenue growth supported by higher recurring subscription and support revenues, while bottom line results were pressured by increased operating expenses and external headwinds. Management detailed the launch of CheckAI, an AI-powered credit decisioning tool, and key customer wins in the U.S., China, and Indonesia, demonstrating execution on strategic geographic and product expansion. The company reaffirmed its commitment to SaaS transformation and provided full-year guidance for mid-single-digit percentage revenue growth, emphasizing its strengthened pipeline despite earnings volatility.

• Cash reserves rose by $5.3 million, indicating improved liquidity and capacity for further investment.
• Management identified exchange rate fluctuations as materially impacting quarterly results, with a $287,000 foreign exchange loss offsetting a comparable gain in the prior year.
• Operating loss widened from $760,000 to $1.8 million, with non-GAAP EBITDA also turning negative.
• Strategic engagement with Sonic Automotive and Chinese partners may contribute to future revenue diversification and market reach.
• Management affirmed an ongoing emphasis on investments that enhance recurring revenue streams and operational efficiency, despite recognizing the near-term pressure on margins and profits.

Industry glossary

• Transcend platform: NetSol's unified, AI-powered technology suite for digital automotive retail, asset finance, and lifecycle optimization.
• CheckAI: An AI-powered engine developed by NetSol for automating and improving credit decisioning and underwriting workflow consistency.
• SaaS: Software as a Service; a cloud-based delivery model emphasizing subscription revenue streams and recurring sales over perpetual licensing.
• Go-live: The point at which a software solution is fully deployed and operational for a customer.

Full Conference Call Transcript

Patti McGlasson: 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 first quarter of fiscal year 2026, we will open the call for questions. Before we begin, I'd like to provide the customary caution regarding forward-looking statements that may be made during today's discussion. Please note that all information presented on this call is subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our remarks may include forward-looking statements that reflect management's current expectations regarding future events and operating performance. These statements are subject to risks and uncertainties, and actual results may differ materially from those projected.

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 10-K and quarterly reports on Form 10-Q. 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 direct 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 website at netsoltech.com, as well as through a link included in today's press release. [Operator Instructions] I will now hand the call over to our Founder and Chief Executive Officer, Najeeb Ghauri. Najeeb?

Najeeb Ghauri: Thank you, Patti. Good morning, everyone, and thank you for joining NetSol Technologies Earnings Call to review our results for the first quarter ended September 30, 2025. For the first quarter, we delivered year-over-year revenue growth of 2.8%, driven by a 9.4% increase in subscription and support revenue as we continue to expand our base of recovering revenue. Our bottom line, however, reflected the impact of intentional investments and a more challenging operating environment. I'll spend a few minutes on key strategic developments and the drivers behind our results. And then I will turn it over to Roger for more details on the financials before we open the call for questions.

First, on strategic progress, we continue to strengthen our position as a trusted partner, a digital automotive retail for leading dealership groups in the U.S. During the quarter, NetSol was selected by Sonic Automotive, a Fortune 500 automotive dealership group, to lead a discovery engagement focused on defining the requirements and road map for an omnichannel digital retail solution powered by our Transcend Retail platform. The engagement will help Sonic Automotive further enhance the customer experience and streamline dealer operations across its EchoPark Automotive network. This new partnership reflects our increasing momentum in the U.S. market and highlights the trust major industry players place in our technology and expertise.

Second, our ongoing investments in artificial intelligence reflect our commitment to shaping the future of intelligent automation and asset finance and automotive retail. We recently announced the launch of CheckAI, our AI-powered credit decisioning engine designed to improve the speed and consistency of the credit underwriting process. CheckAI automates key workflows, accelerates decision-making and supports more accurate underwriting by leveraging data-driven intelligence. The platform combines intelligent automation with human-in-the-loop oversight to help ensure fairness, transparency and regulatory compliance. By integrating AI into our Transcend platform, we're not only enhancing decision-making and efficiency, but also creating new opportunities for innovation and long-term growth.

Third, in the Asia Pacific region, we achieved important milestones that demonstrates both our market reach and our deep understanding of regional customer needs. NetSol China participated in the Shanghai Cooperation Organization Summit in Tianjin, where we signed a strategic cooperation agreement with Tianjin Binhai Smart Group and the Dongjiang Free Trade Port Zone Government. This partnership focuses on integrated financial services for the automotive industry and cross-border data services, service areas that align closely with China's growing emphasis on digital transformation and global expansion. We have plan to maintain a sizable market share in the Chinese auto finance market. We also become the partner of choice with Chinese OEMs and asset finance companies who are looking to expand abroad.

We are one of the few vendors operating in the Chinese market who have a strong global resume. This is highlighted by a recent go-live in Indonesia where a major Chinese leasing company deployed our Transcend Finance platform as part of a greenfield implementations to launch its operations in that market. This deployment showcases NetSol's ability to support Chinese companies expanding internationally while highlighting our localized expertise and readiness to deliver solutions that meet regional regulatory and operational standards. Our long-standing presence in APAC region combined with our cultural fluency and proven technology continues to make NetSol a partner of choice with global OEMs and asset finance companies.

Now subsequent to quarter end, we hosted a summit in Beijing that brought together leading Indonesian and Chinese asset finance executives, reinforcing our role as a bridge between China and the broader international asset finance ecosystem. These important developments during the first quarter reflect solid strategic and operational momentum as we continue to strengthen our position in key global markets. As we move forward, we remain committed to executing our strategy with discipline, balancing investment and innovation with a continued emphasis on operational efficiency and long-term profitability. Despite these significant developments, I want to recognize that the first quarter has been a challenging one for NetSol.

While our total net revenue were up 2.8% year-over-year, our bottom line results reflect the impact of several strategic investments and external macroeconomic headwinds. On the expense side, we saw a 36% increase in selling and marketing costs, driven primarily by our decision to expand and strengthen our global sales organization. We made key hires at the senior level leadership, building the foundation needed to support future growth across our product portfolio. The timing of this decision reflects both the stronger demand environment we are seeing and our intention to invest ahead of that demand in a disciplined way.

We are seeing a meaningful increase in qualified leads and business opportunities, and we expect this expanded sales capacity to support higher bookings and revenue over time. Our reported revenue in Q1 is seasonally lower due to summer holidays combined with macroeconomic uncertainty, including credit tightening and rising auto loan delinquencies, tariff impacts and restructuring challenges among European automakers. The operating environment has been difficult. However, these dynamics also create opportunities where NetSol's offering can help clients to drive efficiencies. It is also important to note that we do not always have full control over when revenue is recognized as it depends on the timing of customer milestone and implementation schedules.

In addition, we continue to transition from a license-heavy model to a predominantly SaaS-based model. This shift improves the quality and visibility of our revenue over time, but it also changes the timing of how revenue is recognized and can make quarterly growth pattern less linear, especially in the near term. As this mix shift continues, we expect a higher proportion of recurring revenue and greater long-term predictability even if individual quarters can be uneven. For these reasons, we view the losses we experienced in the first quarter as primarily the result of front-loaded growth investments, seasonal patterns and foreign exchange volatility rather than a change in the fundamental earnings power of the business.

Despite these short-term challenges, I want to emphasize that our business fundamentals remain solid. Our sales pipeline is stronger than it has ever been, reflecting growing global demand for our solutions that are part of our unified AI-powered Transcend platform. Compared to the same quarter last year, we are noticing stronger momentum and more qualified opportunities. We expect to achieve new milestones. And despite a slow start, we are targeting full year revenue guidance of 5% to 7%, which is above last year's level, supported by a growing pipeline and the investments we made in our go-to-market and AI-enabled platform. NetSol has navigated many cycles of change in the past.

We are executing a clear strategy for growth, innovation and customer success, and I remain confident in our ability to deliver sustainable long-term value to our shareholders. Thank you. I will now ask Roger Almond to discuss the financial results in more detail.

Roger Almond: Thanks, Najeeb, and good morning, everyone. Let me share the results for the first quarter of fiscal year 2026. Total net revenues for the first quarter of fiscal 2026 increased 2.8% to $15 million compared with $14.6 million in the prior year period. This was driven by a 9.4% increase in subscription and support revenues. On a constant currency basis, total net revenues were $15.1 million. Total subscription, SaaS and cloud and support revenues increased 9.4% to $9 million compared with $8.2 million in the prior year period. Total subscription and support revenues on a constant currency basis were $9.1 million. Total services revenue were $6 million compared with $6.4 million in the prior year period.

Total services revenues on a constant currency basis were $5.9 million. Gross profit for the first quarter of fiscal 2026 was $5.9 million or 39.4% of net revenues compared to $6.6 million or 45% of net revenues in the first quarter of fiscal 2025. On a constant currency basis, gross profit was $5.9 million or 39.1% of net revenues as measured on a constant currency basis. Operating expenses for the first quarter of fiscal 2026 were $7.8 million or 51.6% of sales compared to $7.3 million or 50.2% of sales for the first quarter of fiscal 2025. On a constant currency basis, operating expenses were $7.8 million or 51.5% of net revenues as measured on a constant currency basis.

Loss from operations for the quarter was $1.8 million compared to a loss from operations of $760,000 in the first quarter of fiscal 2025. GAAP net loss attributable to NetSol for the quarter totaled $2.4 million or $0.20 per diluted share compared with GAAP net income of $71,000 or $0.006 per diluted share in the prior year period. It's important to point out that included in our net loss for this quarter was a loss on foreign currency exchange transactions to $287,000 compared to a gain of approximately $543,000 in the prior year period. Because we operate in several geographical regions, a significant portion of our business is conducted in currencies other than the U.S. dollar.

A decrease in the value of the U.S. dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues, but it also increases our expenses denominated in currencies other than the U.S. dollar. Similarly, as the U.S. dollar gains strength relative to foreign currency exchange rates, it tends to reduce our revenues, but it also reduces our expenses denominated in currencies other than the U.S. dollar. Moving to our non-GAAP metrics. Non-GAAP EBITDA for the first quarter of fiscal 2026 was a loss of $1.8 million or $0.15 per diluted share compared with non-GAAP EBITDA of $301,000 or $0.03 per diluted share in the prior year period. Turning to our balance sheet.

Our cash and cash equivalents were $22.7 million as of September 30, 2025, compared with $17.4 million as of June 30, 2025. Working capital was $24.9 million as of September 30, 2025, compared with $26.6 million as of June 30, 2025. Total Netsol's stockholders' equity at September 30, 2025, was $35.8 million or $3.03 per share. While the first quarter reflects a higher operating expense ratio and a temporary compression in gross margins, we remain committed to balancing strategic investment with cost discipline. Our cash position of $22.7 million provides ample liquidity to support ongoing growth initiatives and we continue to prioritize investments that enhance recurring revenue streams and scalable digital solutions.

The progress in subscription and support revenues underscores the resilience of our business model and we are taking proactive steps to optimize operational efficiency as we navigate short-term headwinds, keep our focus quarterly on long-term profitability and shareholder value creation. I'd like to now hand the call back over to Najeeb.

Najeeb Ghauri: Thank you, Roger. Although this quarter brought some challenges, our vision and priorities remain very clear. We are continuing to expand our global footprint via our unified AI-powered Transcend platform that is built to simplify and optimize every stage of the asset, retail and commercial life cycle. We are committed to improving operational efficiency and remaining focused on our customers' needs in the quarters ahead. We believe these efforts will drive stronger performance and long-term value creation. We remain deeply appreciative of our shareholders' continued trust and support as we execute our long-term strategy. Operator?

Operator: [Operator Instructions] As there are no questions in the queue -- go ahead, sir.

Najeeb Ghauri: Yes. That's fine. So we sincerely appreciate your participation in today's call and your continued interest in NetSol. We look forward to keeping you informed of our progress in the quarters ahead. Wishing you good health and all the best.

Operator: Thank you. Ladies and gentlemen, the conference of NetSol Technologies has now concluded. Thank you for your participation. You may now disconnect your lines.

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