NetSol Technologies, Inc. (NTWK) has demonstrated its ability to deliver consistent profitability, even without the recognition of material license fees. The company's third quarter of fiscal 2024 results showcased its strong services revenues and stable subscription and support revenues, contributing to earnings per share of $0.03 for the quarter.
Business Overview
NetSol's hybrid license and SaaS model has been working effectively, as evidenced by the company's performance over the past several quarters. In the first and second quarters of fiscal '24, NetSol recognized substantial license fees, which translated to consecutively profitable quarters to start the year as the company continued to build its customer base. These new contracts are now generating services revenues, with services revenues in the third quarter of fiscal 2024 increasing approximately 60% compared to the third quarter of fiscal 2023.
This ability to achieve profitability without significant license fees is a testament to the enhanced strength and reliability of NetSol's business model. The company has traditionally needed to recognize license fees in a given quarter to achieve profitability, but the recent quarters have demonstrated its ability to generate consistent profitability through its services and subscription revenues.
Growth Prospects
NetSol's management remains confident in the company's growth prospects, with a healthy sales pipeline of both license and SaaS deals in its established markets. The company is also intently focused on building similar pipelines in its more nascent markets, particularly the United States.
The U.S. market presents a significant opportunity for NetSol, as the company is noticing strong interest from U.S.-based customers, specifically in the Professional Services segment of its AWS cloud services, data analytics, and AI-based products. NetSol anticipates leveraging the finance service challenge in North America to create an additional revenue stream.
The company's auto digital, retail, and mobility platform is currently live in 58 MINI USA dealerships across the U.S., and it is powering the back end of AutoNation's recently launched micro lease marketplace. These successful implementations have opened new opportunities in the retail and mobility sector in the U.S., as the company believes there is tremendous potential for growth in this market.
NetSol's visibility into the future suggests that the company will be able to achieve at least $28 million in subscription and support revenues for the full fiscal year 2024. This confidence is further bolstered by the company's focus on continuous innovation and improvement of its products and offerings to meet the diverse demands of its customers.
Innovation and AI Initiatives
In addition to its core business, NetSol has also begun leveraging deep learning AI algorithms into its business processes and has launched a company-wide AI initiative. This initiative aims to reduce internal costs and enhance external quality improvements, leveraging the company's nearly 27 years of internal program management data to train its AI use cases and further enhance efficiencies for both NetSol and its customers.
Financials
The company's financial performance in the third quarter of fiscal 2024 was strong, with total net revenues of $15.5 million, compared to $13.5 million in the prior year period. On a constant currency basis, total net revenues were $15.6 million. License fees for the third quarter of fiscal 2024 were $558,000, compared to $2 million in the prior year period, while recurring revenues or subscription and support revenues for the third quarter of fiscal 2024 were $7.1 million, compared to $6.7 million in the prior year period.
Total services revenue for the third quarter of fiscal 2024 was $7.8 million, compared with $4.9 million in the prior year period. The increase in services revenue is due to the increase in fees associated with current implementations.
Gross profit for the third quarter of fiscal 2024 was $7.5 million or 48% of net revenues, compared with $4.7 million or 35% of net revenues in the prior year period. On a constant currency basis, gross profit was $7.2 million or 46% of net revenues.
Operating expenses for the third quarter of fiscal 2024 were $6.2 million or 40% of sales, compared to $5.6 million or 42% of sales in the same period last year. On a constant currency basis, operating expenses for the third quarter were $6.3 million or 41% of sales.
GAAP net income attributable to NetSol for the third quarter of fiscal 2024 totaled $328,000 or $0.03 per diluted share, compared with a GAAP net income of $2.5 million or $0.23 per diluted share in the third quarter of fiscal 2023. The decrease in net income was primarily due to a loss of $964,000 on foreign currency exchange transactions, compared to a gain of $5.4 million in the third quarter of 2023.
Non-GAAP adjusted EBITDA for the third quarter of fiscal 2024 was $810,000 or $0.07 per diluted share, compared with non-GAAP adjusted EBITDA of $3.3 million or $0.29 per diluted share in the third quarter of the previous fiscal year.
Liquidity
At the end of the third quarter, NetSol had cash and cash equivalents of approximately $12.3 million or approximately $1.08 per diluted common share. Total NetSol stockholders' equity at March 31, 2024, was $35.3 million or $3.10 per share.
Outlook
For the full fiscal year 2024, NetSol remains confident in its expectations of double-digit organic revenue growth and improved margins, and the company is on pace to reach its target revenue range of between $60 million to $61 million.
Conclusion
NetSol's performance in the third quarter and fiscal year-to-date showcases the strength of its business model, exemplified by consistent revenue improvement and three straight quarters of profitability. The company's focus on innovation, expansion into new markets, and leveraging of AI technologies positions it well for continued growth and value creation for its shareholders.