NetSol's Q1 2026 Earnings Call: Contradictions in AI Strategy, Subscription Revenue Timing, and Global Revenue Mix

Date of Call: September 30, 2025

Financials Results

• Revenue: $15.0M, up 2.8% YOY (vs $14.6M prior year); $15.1M on a constant-currency basis
• EPS: GAAP net loss $2.4M, or $(0.20) per diluted share, compared with GAAP net income of $71,000, or $0.006 per diluted share in prior year
• Gross Margin: 39.4% of net revenues, compared to 45% in the prior year; 39.1% on a constant-currency basis
• Operating Margin: Loss from operations $1.8M; operating expenses 51.6% of sales vs 50.2% in prior year (prior-year loss from operations $0.76M)

Guidance:

• Full-year revenue growth targeted at 5–7%.
• Expect higher bookings and revenue over time supported by expanded sales capacity and investments in AI-enabled Transcend platform.
• Anticipate a higher proportion of recurring (subscription/support) revenue and greater long-term predictability as the business shifts toward SaaS.

Business Commentary:

• **Revenue Growth and Strategic Investments:
• NetSol Technologies reported a year-over-year revenue growth of 2.8% for the first quarter of fiscal 2026.

• The growth was driven by a 9.4% increase in subscription and support revenue, reflecting ongoing investments in AI, global expansion, and strategic partnerships.

• **Operational Challenges and Cost Increases:

• NetSol experienced a 36% increase in selling and marketing costs due to expanding its global sales organization and strategic investments.

• The increase in expenses was driven by key hires at senior levels and intentional investments to support future growth.

• **Impact of Currency Fluctuations and Global Economic Conditions:

• NetSol's financial results were impacted by a loss on foreign currency exchange transactions of $287,000, compared to a gain of $543,000 in the prior year period.
• The decrease in the value of the U.S. dollar affected revenues and expenses, contributing to the company's overall performance.

Sentiment Analysis:

Overall Tone: Neutral

• Revenue increased 2.8% YOY but GAAP net loss was $2.4M ($(0.20) per share). Management cited front-loaded investments (selling & marketing +36%) and FX impacts, while emphasizing pipeline strength and a 5–7% full-year revenue target, balancing short-term pressure with long-term growth plans.

Contradiction Point 1

AI Investments and Strategic Progress

It involves changes in the company's strategic focus and investments in AI, which are crucial for its product development and competitive positioning.

What strategic initiatives are underway in the U.S. market, and how is CheckAI's reception alongside other AI developments? - Analyst

2026Q1: The strategic progress in the U.S. involves partnerships like the one with Sonic Automotive for an omnichannel digital retail solution. CheckAI is well-received, automating credit underwriting and enhancing decision-making. AI investments continue to shape the future of intelligent automation. - Najeeb Ghauri(CEO)

Is this quarter an anomaly or a new upward trend? Are subscription revenues paid quarterly or annually? - Todd Felte (StoneX Wealth Management)

2025Q4: We continue to see strong execution across all regions and are extremely pleased with the significant momentum on our key accounts and global strategic initiatives. - Najeeb Ghauri(CEO)

Contradiction Point 2

Subscription Revenue Timeline

It involves changes in the company's revenue model and the timing of subscription revenue recognition, which are critical for financial forecasting and investor expectations.

Can you provide more details on strategic progress in the U.S. market? How is CheckAI being received, and are there other AI-driven developments? - Analyst

2026Q1: Subscription revenues are primarily paid quarterly, with some annual and monthly payments depending on the contract. - Najeeb Ghauri(CEO)

Is this quarter an anomaly or the start of a new upward trend? How are subscription revenues paid: quarterly or annually? - Todd Felte (StoneX Wealth Management)

2025Q4: Subscription revenues come in quarterly, annually, or monthly, depending on the contract terms. - Roger Almond(CFO)

Contradiction Point 3

Issuing Revenue and Earnings Guidance

The differing responses could affect investor expectations of corporate transparency and financial forecasting, which are crucial for decision-making.

Do you plan to engage an outside IR firm or analyst to inform investors about the company's future potential? - Analyst

2026Q1: I think we'll do that, absolutely. As we close the year in the next couple of months. - Najeeb Ghauri(CEO)

With stable profitability, do you anticipate issuing revenue and earnings guidance for next fiscal year? - Todd Felte (StoneX Wealth Management)

2025Q3: Well, I think let us deliver the year-end first, and we'll weigh in carefully. - Najeeb Ghauri(CEO)

Contradiction Point 4

Geographic Revenue Distribution

It involves differences in reported percentages of revenues from different geographic regions, which can impact investor perceptions and comparative analysis.

What strategic progress has been made in the U.S. market? How is CheckAI being received, and are there other AI-driven developments? - Analyst

2026Q1: The strategic progress in the U.S. involves partnerships like the one with Sonic Automotive for an omnichannel digital retail solution. CheckAI is well-received, automating credit underwriting and enhancing decision-making. - Najeeb Ghauri(CEO)

Can you provide a breakdown of revenue by region for North America, Europe, and Asia? - Todd Felte(Stonex Wealth Management)

2025Q2: In this quarter, 70-75% of revenues came from the APAC region, with 12.5% from Europe and 12.5% from the Americas. - Roger Almond(CFO)

Contradiction Point 5

AI Investment and Pricing Strategy

It involves the company's AI investment and pricing strategy, which can impact revenue growth and market positioning.

What strategic progress has been made in the U.S. market? How is CheckAI being received, and are there other AI-driven developments? - Analyst

2026Q1: We are very committed to North America, with new talents being hired in the Austin office. While other markets like China and Europe remain solid, we expect North America to perform better in percentage growth. - Najeeb Ghauri(CEO)

With your new AI investments and features, can you raise prices, and what pricing power do you have? Will these investments drive additional value and revenue? - Todd Felte(Stonex Wealth Management)

2025Q2: We are working with premium customers to maintain strong relationships and find ways to grow revenue within these customers. In some cases, we are discussing price increases. - Najeeb Ghauri(CEO)