NETSOL Swings to Q1 Loss Amid Rising Costs, FX Headwinds

TL;DR

**NTWK's Q1 loss is a red flag; rising costs and FX losses are eating into revenue growth, making it a risky bet for now.**

AI Summary

NETSOL Technologies Inc. (NTWK) reported a significant net loss of $2,357,288 for the three months ended September 30, 2025, a sharp decline from a net income of $70,795 in the same period of 2024. Total net revenues increased slightly to $15,011,923 in Q1 2025 from $14,598,498 in Q1 2024, driven by a substantial rise in license fees to $72,225 from $1,229 and subscription and support revenue to $8,960,555 from $8,192,471. However, services revenue decreased to $5,979,143 from $6,404,798. The company's gross profit fell to $5,911,990 from $6,564,112 year-over-year, primarily due to an increase in cost of revenues to $9,099,933 from $8,034,386. Operating expenses also rose to $7,750,696 from $7,324,270, with selling, general and administrative expenses increasing to $7,536,353 from $6,964,321. A significant factor in the net loss was a negative gain (loss) on foreign currency exchange transactions of $(286,917) in 2025 compared to a gain of $542,545 in 2024. Cash and cash equivalents increased to $22,690,618 as of September 30, 2025, from $17,357,944 as of June 30, 2025.

Why It Matters

NETSOL's shift from a modest profit to a significant loss in Q1 2025, despite revenue growth, signals potential operational inefficiencies and exposure to currency fluctuations. For investors, this raises concerns about profitability and future earnings stability, especially given the increase in cost of revenues and SG&A expenses. Employees might face pressure if cost-cutting measures are implemented to improve margins. Customers could see impacts on service quality if the company struggles financially, though increased subscription revenue suggests continued demand for core products. In the competitive enterprise software market, sustained losses could weaken NETSOL's position against larger, more stable rivals.

Risk Assessment

Risk Level: high — The company reported a net loss of $2,357,288 for the three months ended September 30, 2025, a substantial decline from a net income of $70,795 in the prior year. This significant swing to a loss, coupled with increased cost of revenues ($9,099,933 vs. $8,034,386) and operating expenses ($7,750,696 vs. $7,324,270), indicates deteriorating profitability. Furthermore, a negative foreign currency exchange transaction impact of $(286,917) highlights exposure to volatile global markets.

Analyst Insight

Investors should exercise caution and consider holding off on new investments in NTWK until there's clear evidence of improved profitability and better cost control. Monitor future filings for trends in gross profit margins and operating expenses, as well as the impact of foreign currency fluctuations.

Financial Highlights

debt To Equity

N/A

revenue

$15,011,923

operating Margin

N/A

total Assets

N/A

total Debt

N/A

net Income

-$2,357,288

eps

N/A

gross Margin

39.4%

cash Position

$22,690,618

revenue Growth

+2.8%

Revenue Breakdown

Key Numbers

• $2,357,288 — Net loss attributable to NetSol (Significant swing from $70,795 net income in Q1 2024)
• $15,011,923 — Total net revenues (Increased from $14,598,498 in Q1 2024)
• $9,099,933 — Cost of revenues (Increased from $8,034,386 in Q1 2024, impacting gross profit)
• $7,536,353 — Selling, general and administrative expenses (Increased from $6,964,321 in Q1 2024)
• $(286,917) — Gain (loss) on foreign currency exchange transactions (Negative impact compared to a gain of $542,545 in Q1 2024)
• $22,690,618 — Cash and cash equivalents (Increased from $17,357,944 as of June 30, 2025)
• $72,225 — License fees (Substantial increase from $1,229 in Q1 2024)
• $8,960,555 — Subscription and support revenue (Increased from $8,192,471 in Q1 2024)
• $5,979,143 — Services revenue (Decreased from $6,404,798 in Q1 2024)
• $5,911,990 — Gross profit (Decreased from $6,564,112 in Q1 2024)

Key Players & Entities

• NETSOL TECHNOLOGIES INC (company) — Registrant
• NASDAQ (regulator) — Exchange where Common Stock is registered
• Securities and Exchange Commission (regulator) — Regulatory body for filing
• FASB (regulator) — Issued accounting standards updates
• Federal Deposit Insurance Corporation (regulator) — Insures bank deposits in the United States
• NetSol Technologies Americas, Inc. (company) — Wholly owned subsidiary
• NetSol Technologies, Ltd. (company) — Majority-owned subsidiary
• September 30, 2025 (date) — End of the reported quarterly period
• June 30, 2025 (date) — End of the previous fiscal year
• November 5, 2025 (date) — Date for outstanding shares count

FAQ

Risk Factors

• Foreign Currency Exchange Rate Fluctuations [high — financial]: The company experienced a significant negative swing in foreign currency exchange, reporting a loss of $(286,917) for the three months ended September 30, 2025, compared to a gain of $542,545 in the prior year period. This volatility directly impacted profitability.
• Rising Cost of Revenues [medium — operational]: Cost of revenues increased by 13.2% to $9,099,933 from $8,034,386 year-over-year. This increase outpaced revenue growth, leading to a decline in gross profit.
• Increased Operating Expenses [medium — operational]: Total operating expenses rose to $7,750,696 from $7,324,270, primarily driven by a 8.2% increase in selling, general and administrative expenses to $7,536,353. This further pressured net income.
• Dependence on Key Revenue Streams [medium — market]: While license fees saw a substantial increase, services revenue declined. The company's overall revenue growth is sensitive to the performance of these distinct segments.

Industry Context

NETSOL Technologies operates in the enterprise software and IT services sector, focusing on solutions for the automotive finance and leasing industry. The industry is characterized by a shift towards cloud-based solutions and subscription models, demanding continuous innovation and robust customer support. Competition is intense, with established players and emerging fintech companies vying for market share.

Regulatory Implications

As a publicly traded company, NETSOL Technologies is subject to SEC regulations and reporting requirements. Fluctuations in foreign currency exchange rates, as seen in the recent reporting period, can impact financial reporting and investor perception, requiring clear disclosure and risk management strategies.

What Investors Should Do

1. Monitor the sustainability of the increase in license fees and its contribution to overall revenue and profitability.
2. Investigate the drivers behind the decline in services revenue and assess the impact on future revenue streams.
3. Analyze the company's foreign currency hedging strategies and their effectiveness in mitigating exchange rate volatility.
4. Evaluate the company's ability to control costs, particularly the rising cost of revenues and operating expenses, to improve margins.

Glossary

Cost of revenues

The direct costs attributable to the production or purchase of the goods or services sold by a company. (An increase in cost of revenues, from $8,034,386 to $9,099,933, significantly impacted NETSOL's gross profit.)

Selling, general and administrative expenses

Expenses incurred by a business that are not directly related to the production or procurement of goods or services, but are necessary for the overall operation of the business. (These expenses increased to $7,536,353 from $6,964,321, contributing to the company's net loss.)

Gain (loss) on foreign currency exchange transactions

The profit or loss resulting from changes in the exchange rates of foreign currencies during a reporting period. (A negative swing from a gain of $542,545 to a loss of $(286,917) was a major driver of the net loss in the current quarter.)

License fees

Revenue generated from granting permission to use intellectual property, software, or other licensed assets. (A substantial increase in license fees to $72,225 from $1,229 indicates a positive development in this revenue stream.)

Subscription and support revenue

Recurring revenue generated from customers paying for ongoing access to software, services, or support. (This segment showed healthy growth, increasing to $8,960,555 from $8,192,471, providing a stable revenue base.)

Services revenue

Revenue generated from providing professional services, consulting, implementation, or other related services. (A decrease in services revenue to $5,979,143 from $6,404,798 warrants attention regarding project pipelines or service demand.)

Year-Over-Year Comparison

Compared to the prior year period, NETSOL Technologies Inc. experienced a significant deterioration in profitability, swinging from a net income of $70,795 to a net loss of $2,357,288. While total net revenues saw a modest increase of 2.8% to $15,011,923, this was offset by a substantial rise in the cost of revenues and operating expenses. A key factor in the negative performance was a sharp adverse movement in foreign currency exchange rates, which turned a gain into a significant loss.

Key Financial Figures

• $0.01 — nge on which registered Common Stock, $0.01 par value per share NTWK NASDAQ I

Filing Documents

• form10-q.htm (10-Q) — 1546KB
• ex31-1.htm (EX-31.1) — 14KB
• ex31-2.htm (EX-31.2) — 14KB
• ex32-1.htm (EX-32.1) — 6KB
• ex32-2.htm (EX-32.2) — 6KB
• form10-q_001.jpg (GRAPHIC) — 3KB
• 0001493152-25-021835.txt ( ) — 8587KB
• ntwk-20250930.xsd (EX-101.SCH) — 59KB
• ntwk-20250930_cal.xml (EX-101.CAL) — 82KB
• ntwk-20250930_def.xml (EX-101.DEF) — 198KB
• ntwk-20250930_lab.xml (EX-101.LAB) — 469KB
• ntwk-20250930_pre.xml (EX-101.PRE) — 369KB
• form10-q_htm.xml (XML) — 1765KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of September 30, 2025 and June 30, 2025 3 Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2025 and 2024 4 Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended September 30, 2025 and 2024 5 Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended September 30, 2025 and 2024 6 Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2025 and 2024 7 Notes to the Condensed Consolidated Financial Statements 9

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 28

Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk 41

Controls and Procedures

Item 4. Controls and Procedures 41

OTHER INFORMATION

PART II. OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 42

Risk Factors

Item 1A Risk Factors 42

Unregistered Sales of Equity and Use of Proceeds

Item 2. Unregistered Sales of Equity and Use of Proceeds 42

Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities 42

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 42

Other Information

Item 5. Other Information 42

Exhibits

Item 6. Exhibits 42 Page 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) As of As of September 30, 2025 June 30, 2025 ASSETS Current assets: Cash and cash equivalents $ 22,690,618 $ 17,357,944 Accounts receivable, net of allowance of $ 359,088 and $ 355,464 6,320,988 7,527,572 Revenues in excess of billings, net of allowance of $ 31,662 and $ 34,496 13,994,651 18,230,619 Other current assets 3,586,732 3,203,468 Total current assets 46,592,989 46,319,603 Revenues in excess of billings, net - long term 881,053 903,766 Property and equipment, net 5,188,592 5,073,372 Right of use assets - operating leases 653,418 809,513 Other assets 6,938 32,331 Goodwill 9,302,524 9,302,524 Total assets $ 62,625,514 $ 62,441,109 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 9,191,552 $ 8,010,844 Current portion of loans and obligations under finance leases 8,330,243 8,240,061 Current portion of operating lease obligations 401,655 433,242 Unearned revenue 3,735,828 3,029,850 Total current liabilities 21,659,278 19,713,997 Loans and obligations under finance leases; less current maturities 218,170 134,608 Operating lease obligations; less current maturities 224,417 333,374 Total liabilities 22,101,865 20,181,979 Stockholders' equity: Preferred stock, $ .01 par value; 500,000 shares authorized; - - Common stock, $ .01 par value; 18,000,000 shares authorized; 12,733,907 shares issued and 11,794,876 outstanding as of September 30, 2025; 12,700,465 shares issued and 11,761,434 outstanding as of June 30, 2025 127,342 127,008 Additional paid-in-capital 129,636,251 129,529,901 Treasury stock (at cost, 939,031 shares as of September 30, 2025 and June 30, 2025) ( 3,920,856 ) ( 3,920,856 ) Accumulated defic

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