NetSol Technologies (NASDAQ:NTWK) reported higher revenue and a return to profitability in its fiscal first quarter, as improved gross margin helped offset a decline in operating cash flow.
Revenue for the quarter ended September 30, 2026, rose 9.3% to $16.4 million from $15 million a year earlier. Net income attributable to NetSol was $160,000, or 1 cent per diluted share, compared with a loss of $2.36 million, or 21 cents per share, in the prior-year period.
Margins Improve, With Some Help From Cost Timing
Gross profit climbed to $8.3 million from $5.9 million, while gross margin increased to 50.5% from 39.4%. Operating income was $400,000, compared with an operating loss of $1.8 million a year earlier.
Chief Financial Officer Sardar AB attributed the margin improvement to revenue mix, delivery discipline and cost timing. He said the main cost-related factor was the capitalization of approximately $1 million in qualifying software development, compared with none a year earlier. Lower headcount, tighter resource and overhead management, and the timing of salary revisions also contributed. The salary timing benefit will not recur every quarter, he said.
Subscription and support revenue increased 6.1% to $9.5 million, or 57.9% of total revenue. Its share of revenue fell from 59.7% a year earlier because services and license revenue grew faster, Sardar said. Services revenue rose 6.3% to $6.4 million, while license revenue was approximately $550,000.
Consolidated adjusted earnings before interest, taxes, depreciation and amortization were $890,000, compared with a loss of $1.35 million a year earlier. Consolidated net income was $530,000, including $370,000 attributable to noncontrolling interests.
Working Capital Weighs on Cash Flow
Operating cash flow was negative $5.6 million, compared with positive $5.3 million a year earlier. Cash and cash equivalents fell to $19.7 million at September 30 from $27.1 million at June 30.
Sardar said the decline in operating cash flow reflected working capital timing, including a $3.4 million decrease in contract liabilities and a $2.6 million increase in contract assets. NetSol billed and collected ahead of delivery in the fourth quarter, then delivered against those billings in the first quarter, he said.
The company also invested $2 million in property, equipment and capitalized software development, up from roughly $500,000 a year earlier. Management expects a meaningful portion of the working capital timing differences to reverse during the rest of the fiscal year, although Sardar said the timing depends on customer milestones and payments.
Customer Upgrades and U.S. Expansion
Management highlighted BMO’s move from NetSol’s legacy LeasePak platform to Transcend Finance as an example of its strategy to upgrade existing customers. Asad Ghauri, global head of sales and group managing director of Europe, said BMO is in the implementation phase and declined to give a specific financial impact.
Discussing similar large-customer upgrades more generally, Asad Ghauri said the company sees an average of about $10 million in upside for an overall deal over five years.
NetSol also brought Transcend Retail live at two U.S. dealerships during the quarter: Atlanta Autos and Royal Coach RV. After the quarter ended, Mercedes-Benz USA approved NetSol as a digital retail provider for its dealer network, Najeeb Ghauri said.
Americas revenue grew 25.5% year over year and represented 16.1% of company revenue, Sardar said. He cautioned that the same growth rate may not continue. Asad Ghauri said the company has prospects engaged through formal request-for-proposal processes, but that sales cycles in its core business are long.
Headcount and Portfolio Review
NetSol had 1,272 employees at September 30, down from 1,370 at June 30 and 1,442 a year earlier. Asad Ghauri said the company was looking at a reduction of at least 20% from its current level over coming months and years, subject to resource requirements for major customer programs.
Sardar described that figure as illustrative and said NetSol would continue to assess where to invest or reduce headcount. He said the company has sunset or significantly reduced lower-margin, lower-growth service lines as it prioritizes resources.
NetSol is also reviewing strategic options for Virtual Lease Services Limited, including a potential sale or wind-down. No plan has been approved or agreement executed, Sardar said. The business represented 1.7% of consolidated revenue for the quarter and 1.3% of consolidated assets.
Separately, the board of NetSol’s Pakistan-listed subsidiary proposed a repurchase of up to $4 million of the subsidiary’s shares, subject to shareholder approval and regulatory requirements. Sardar stressed that the proposal is not a repurchase of NetSol Technologies shares and that the company is not assuming a financial benefit at this stage.
About NetSol Technologies (NASDAQ:NTWK)
NetSol Technologies, Inc. is a global provider of enterprise software and information technology services, with a primary focus on the asset finance and leasing industry. The company serves vehicle manufacturers, banks, financial institutions, equipment lessors and other organizations that manage commercial lending, leasing and financing operations. Its software offerings are designed to support the full lifecycle of financing transactions, including origination, credit and contract management, billing, accounting, asset management, collections and portfolio administration.
