NTWK Q2 Earnings Grow Y/Y on Service Strength, 2026 Guidance Raised

Core Viewpoint - NETSOL Technologies (NTWK) demonstrated strong performance in Q2 fiscal 2026, marked by significant revenue growth, improved margins, and a return to operating profitability, prompting management to raise its full-year revenue outlook [1][11]. Revenue Performance - Total net revenues for Q2 fiscal 2026 increased by 21.1% to $18.8 million from $15.5 million in the same quarter last year, driven primarily by a 40.9% rise in service revenues to $9.6 million [2] - Recurring subscription and support revenues grew by 5.1% to $9.1 million, accounting for 48.3% of total revenues, down from 55.6% in the prior year [2][3]. Margin and Profitability - Gross profit improved to $9 million, representing 48% of net revenues, up from 44.5% in the previous year, despite an increase in cost of sales to $9.8 million [4] - Income from operations reached $1.3 million, a turnaround from a loss of $0.5 million in the prior-year quarter [4]. Bottom Line Results - GAAP net income attributable to NETSOL was $0.2 million, or 2 cents per diluted share, compared to a loss of $1.1 million, or 10 cents per diluted share, a year ago [5]. - Non-GAAP EBITDA improved to $1.7 million from a loss of $0.8 million in the prior-year period [5]. Half-Year Performance - For the six months ended Dec. 31, 2025, total net revenues rose to $33.8 million from $30.1 million in the prior-year period, with recurring subscription and support revenues increasing by 7.2% to $18 million [6]. - Gross profit for the first half was $14.9 million, or 44.2% of revenues, but GAAP net loss widened to $2.1 million, or 18 cents per diluted share [7]. Balance Sheet Strength - NETSOL ended the quarter with cash and cash equivalents of $18.1 million, an increase from $17.4 million at June 30, 2025, and a current ratio of 2.3, indicating strong liquidity [8]. Strategic Initiatives - The company launched "Check," an AI-enabled credit decisioning engine, and secured a $50 million, four-year contract extension with a Tier 1 global auto captive, enhancing long-term revenue visibility [9][10]. - Management emphasized that AI investments are being utilized to improve efficiency and scalability across both product offerings and internal operations [10]. Fiscal 2026 Outlook - Management raised its fiscal 2026 revenue guidance to $73 million or better, citing multi-year contracts and continued investment in its AI-enabled Transcend platform as key growth drivers [11]. Summary - NETSOL's Q2 fiscal 2026 results indicate a significant shift towards operating profitability, supported by strong service growth and improved gross margins, with a positive outlook for sustained revenue and margin expansion in the latter half of the fiscal year [12].