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Edited Transcript of NTWK earnings conference call or presentation 23-Sep-19 3:00pm GMT

Q4 2019 NetSol Technologies Inc Earnings Call

CALABASAS Oct 11, 2019 (Thomson StreetEvents) -- Edited Transcript of NetSol Technologies Inc earnings conference call or presentation Monday, September 23, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Naeem Ullah Ghauri

NetSol Technologies, Inc. - Co-Founder, CEO of Innovation and OTOZ, President of Global Sales & Director

* Najeeb Ullah Ghauri

NetSol Technologies, Inc. - Founder, CEO & Chairman

* Patti L. W. McGlasson

NetSol Technologies, Inc. - Senior VP of Legal & Corporate Affairs, Corporate Secretary and General Counsel

* Roger Kent Almond

NetSol Technologies, Inc. - CFO

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Conference Call Participants

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* Anja Marie Theresa Soderstrom

Sidoti & Company, LLC - Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good morning. Welcome to NETSOL Technologies' Fiscal Fourth Quarter and Full Year 2019 Earnings Conference Call. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; Naeem Ghauri, President, Global Sales, and CEO, OTOZ; and Patti McGlasson, General Counsel.

I would now like to turn the call over to Patti McGlasson, who will provide the necessary cautions regarding the forward-looking statements made by management during this call. Please proceed.

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Patti L. W. McGlasson, NetSol Technologies, Inc. - Senior VP of Legal & Corporate Affairs, Corporate Secretary and General Counsel [2]

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Good morning, everyone, and thank you for joining us. Following a review of the company's business highlights and financial results, we will open the call for questions. Please note that all the information discussed on today's call is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. The company's discussion may include forward-looking statements, reflecting management's current forecast of certain aspects of the company's future, and our actual results could differ materially from those stated or implied. These forward-looking statements are qualified by the cautionary statements contained in NETSOL's press releases and SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q.

I would also like to point out that we will be discussing certain non-GAAP measures. The press release issued earlier today contains a reconciliation of these non-GAAP financial results to their most comparable GAAP measures. Finally, I would like to remind everyone that this call will be recorded and made available for replay on our website at www.netsoltech.com and via a link available in today's press release.

Now I'd like to turn the call over to Najeeb. Najeeb?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [3]

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Thank you, Patti, and good morning, everyone. The fourth quarter was a strong finish to another year of consistent performance from NETSOL. Operationally, throughout the year, we continued to win new contracts with the businesses of all sizes and also announced a number of major go-live implementations with some of our largest international customers.

Financially, we recorded about $68 million in the year, a record for NETSOL, and also made some major improvements to our cost structure, which allowed us to recognize an increasing amount on the bottom line. While we successfully reached our fiscal 2019 goals of growing the top line by double-digit percentage points, I'm even more encouraged by our ability to retain such a meaningful amount of the year-over-year improvement. For the year, we recorded operating income of $6.8 million, another record for our company, and an increase of 124% compared to last year. Further down the line, we nearly doubled our earnings on a per share basis to $0.74 compared to just $0.38 in fiscal 2018. And Q4 now marks the seventh consecutive quarter of profitable results for NETSOL.

Obviously, the most important component of these results is our continued ability to win new business and effectively service our customers once we have gone through an implementation. But this success is also the result of some hard decisions we made in the past, namely our major cost-reduction initiatives we put in place in fiscal 2018, which are now continually benefiting us in the present day. This theme of managing our business with an eye for the long term is a message I will come back to later in the call.

For our call this morning, I do plan to provide a high-level recap of the major events from the past year before spending the remainder of my remarks discussing our growth plan in fiscal 2020. From there, our President of Global Sales and CEO of OTOZ, Naeem Ghauri, will come on to discuss some of the exciting developments that have been occurring in our Innovation Lab before finally turning over to questions.

So now, I'll hand the call over to our CFO, Roger Almond, who will walk us through the financial results of the quarter and year. Roger?

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Roger Kent Almond, NetSol Technologies, Inc. - CFO [4]

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Thanks, Najeeb. And turning to our fiscal fourth quarter and full year 2019 financial results for the period ended June 30, our total net revenues for the fourth quarter were $17.3 million compared to $16.6 million in the prior year period. The increase in total net revenues was primarily due to an increase in total license fees of $71,000, an increase in total maintenance fees of $626,000, which was offset by a decrease in total service revenues of $26,000.

For all of fiscal 2019, total net revenues were a record $67.8 million compared to $60.9 million in fiscal 2018. The increase in total net revenues was primarily due to an increase in total license fees of $9.9 million and an increase in total maintenance revenues of $721,000, which was offset by a decrease in total service fees of $3.7 million.

Total license fees in Q4 were $3.5 million compared to $3.4 million in the prior year period. For the full year, total license fees were $16.8 million compared to $6.9 million in fiscal 2018. The increase in license fees for both the quarter and the year was primarily due to license revenue recognized on the previously announced 12-country NFS Ascent contract; the NFS Ascent contract signed with a Tier 1 auto captive finance company and a major American multinational automaker to implement our product in China; and from license revenues through the sales of our regional offerings in China, Australia, the U.S. and the U.K.

Total maintenance fees in Q4 were $4.4 million compared to $3.8 million in the prior year period. For the year, total maintenance fees were $15.5 million compared to $4.8 million (sic) [$14.8 million] in the prior fiscal year. The increase in total maintenance fees for the year was due to the start of new maintenance agreements from customers who went live with our product during the latter stages of fiscal year 2018 and into fiscal year 2019. We anticipate maintenance fees to gradually increase as we implement both our NFS legacy product and NFS Ascent across a broader long-term customer base.

Total services revenue for the quarter were $9.4 million compared to $9.4 million in the prior year period. For the full year, total services revenues were $35.5 million compared with $39.3 million in the prior fiscal year. And given the related party revenues from total services revenue for the year increased, which was primarily due to the new NFS Ascent implementations and change requests. The decrease in total services revenue for the year was primarily due to a decrease in revenues from joint ventures.

Total cost of revenues was $8.5 million for the fourth quarter, an increase of $394,000 from $8.1 million in the fourth quarter 2018. For fiscal year 2019, cost of revenues was $33.4 million, an increase of 5% from $31.7 million in fiscal 2018. Increase in cost of revenues for the year was predominantly driven by increases in travel and other expenses associated with increased implementation needs for significant new wins recorded in previous quarters, which were offset by decreases in salaries and consultant costs as well as decreases in depreciation and amortization costs.

Gross profit for the fourth quarter of fiscal 2019 was $8.8 million or 50.8% of net revenues, up from $8.5 million or 51.2% of net revenues in the fourth quarter of fiscal 2018. Gross profit for fiscal 2019 increased to $34.4 million or 50.8% of net revenues, which is up from $29.2 million or 47.9% of net revenues in fiscal 2018. The increase in gross profit for both the quarter and year was primarily due to increases in revenue by a now greater rate of increases in cost of revenues, respectively.

Operating expenses for the fourth quarter increased 5.9% to $7.8 million or 45.4% of net revenues, from $7.4 million or 44.6% of net revenues in the same period last year. Operating expenses for fiscal 2019 increased 5.6% to $27.6 million or 40.7% of net revenues, from $26.2 million or 42.9% of net revenues in fiscal 2018. The increase in operating expenses for the year was primarily due to an increase in research and development cost. Moving forward, we plan on continuing to judiciously allocate additional resources to our R&D budget as we focus increasingly on our innovation-related initiatives.

Turning to our profitability metrics, our net income from operations was $946,000 for the fourth quarter, a decrease from net income from operations of $1.1 million in Q4 last year. Net income from operations for the full year was a record $6.8 million, an increase from the net income from operations of $3.1 million in fiscal year 2018. Our GAAP net income attributable to NETSOL for the fourth quarter of fiscal 2019 totaled $3.5 million or $0.30 per diluted share as compared with GAAP net income of $1.2 million or $0.10 per diluted share in the fourth quarter of last year. GAAP net income attributable to NETSOL for fiscal 2019 totaled $8.6 million or $0.74 per diluted share compared to a net income of $4.3 million or $0.38 per diluted share for fiscal 2018. The increase in GAAP net income attributable to NETSOL for both the quarter and year was primarily due to increases in revenues previously mentioned by a greater rate than the related cost to support those revenues.

As I have mentioned on previous calls, it's important to point out that included in our net income this quarter was a gain of $3.8 million on foreign currency exchange transactions compared to a loss of $294,000 in Q4 of last year. For the full year, we experienced a gain of $6.3 million compared to $5 million for all of 2018. Because we operate in several geographical regions, a significant portion of our business is conducted in currencies other than the U.S. dollar. A decrease in the value of the U.S. dollar compared to foreign currency exchange rates generally has an effect of increasing our revenues, but it also increases our expenses denominated in currencies other than the U.S. dollar. Similarly, as the U.S. dollar gains strength relative to foreign currency exchange rates, it tends to reduce our revenues, but it also reduces our expenses denominated in currencies other than the U.S. dollar. We plan our business accordingly by deploying additional resources to areas of expansion while continuing to monitor our overall expenditures given the economic uncertainties of our target market.

Moving to our non-GAAP metrics, our non-GAAP adjusted EBITDA for the fourth quarter of fiscal 2019 totaled $4.4 million or $0.38 per diluted share compared with non-GAAP adjusted EBITDA of $2.9 million or $0.26 per diluted share in the fourth quarter of last year. For the full fiscal year 2019, non-GAAP adjusted EBITDA totaled $12.9 million or $1.11 per diluted share compared with $10.3 million or $0.92 per diluted share in fiscal 2018. So please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the fiscal year ended June 30, 2019.

Turning to our balance sheet. At the quarter end, we had cash and cash equivalents of approximately $17.4 million or approximately $1.49 per diluted common share, which is down from $22.1 million or approximately $1.97 per diluted common share at June 30, 2018.

I'd like to provide a brief update on WRLD3D of which NETSOL has been a strategic investor. Investing in WRLD3D was an opportunistic value proposition and is a non-core investment. To date, we've invested approximately $5 million in cash and convertible notes in equity. We've also invested approximately $2.8 million in services and [grew] approximately 18%. We are following the progress and it is gaining a lot of traction for growth and partnership and sponsorship by this very niche platform. Going forward, we will keep the market updated with any new developments.

One final note before I hand the call back over to Najeeb, on May 29, 2019, NETSOL's Board of Directors approved a stock repurchase program that authorized potential repurchases of up to $5 million of its common stock over a subsequent 12-month period. The planned repurchase program will occur in two 6-month phases. The first phase allows for execution of up to $2.5 million in share repurchases during an initial 6-month period beginning on May 20, 2019, and expiring on November 30, 2019. After the date of initial expiration, management will have the option to approve a secondary phase, which will cover up to $2.5 million in additional share repurchases for another 6-month period.

During the quarter, the company has repurchased 41,650 shares of its common stock at an aggregate value of $250,945. Under the program, the company may repurchase its common stock in the open market from time-to-time in amounts, at prices and at such times as the company deems appropriate, subject to market conditions and federal and state laws governing such transactions. NETSOL expects to fund the repurchase with its existing cash balance and cash generated from operations.

That concludes my prepared remarks. I'll now turn the call back over to Najeeb. Najeeb?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [5]

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Thank you, Roger. As I mentioned in my opening remarks, we had a strong fourth quarter, which capped off another great year for NETSOL. With record financial results in a number of key operating metrics, we enter 2020 with a full head of steam. We are continuing to implement some of the most difficult projects in our industry with a 100% success rate, which has been great for both winning additional business with current customers and as a reference for potential new customers.

Going forward, we are continuing to position ourselves effectively for the long term through new initiatives, like our recently launched OTOZ Mobility Innovation Lab, which will allow us to expand the reach of our Ascent platform into new growth opportunities. Put together, NETSOL remains in an increasingly strong position today and we are building to be in an even better, more diversified position for tomorrow. I made a comment earlier about how we are managing our business with an eye for the long term, and I'll get into how this is informing our go-forward plans in just a minute. Before then, I'll give you a recap of our new wins, implementations and general operational highlights.

Starting with our ongoing multiyear international deployment associated with the previously announced 12-country, $110 million contract with Daimler Financial Services or Daimler-Benz, which was signed in late December 2015. During the year, we finalized a number of major implementations for Daimler, most recently announcing in April successful go-live in Japan. To date, we've now deployed some portion of our services on this contract in 7 countries since first announcing the deal back in December 2015. Each new deployment in every location has so far been a success and we are even being able to outpace our originally anticipated time line for completion. I'm looking forward to making additional go-live announcements in some major markets in not-too-distant future. Next on this development road map, we have Singapore, Malaysia, Hong Kong, India and Thailand.

Not to be lost in all this is our successful go-live with DFS in China back in March. This implementation represented the greatest single deployment of our Ascent platform in the largest leasing market in Asia-Pacific region, making it one of the most significant events in the history of our company. China, in particular, has proven to be incredibly difficult to tackle for many of our competitors. Beyond the need for a highly technical and domain-specific skill set, accomplishing an undertaking of this size and scope also required a significant amount of dedication and sacrifice from countless members of our team. This successful deployment speaks to our deep industry knowledge and ability to form strong working relationship with Tier 1 international enterprises.

Overall, our existing presence in China and our ability to tout successful rollouts like this one has been invaluable in attracting new business to our largest market. For example, earlier this year, we announced another major deal in China, this time with a new customer, BMW Financial. We are continuing to make solid strides in both our retail and wholesale implementation. We are very close to going live here on the commercial Wholesale Finance System and expect to finish up with the retail component sometime in 2020 calendar year. And another proof point related to our China growth strategy with respect to our previously announced multimillion-dollar contract with an American multinational automobile manufacturer, in July, we successfully implemented the NFS Ascent retail platform, including Omni-Point of Sale and Contract Management System.

In China, the stats speak for themselves. We currently have 28 clients representing 25,000 dealerships and over 12 million end users or direct consumers. In total, our platform currently supports $100 billion of portfolio value in China alone. I want to be clear that while we are and have been the de facto leader in China for some time, we still see a significant growth opportunity in this market for us. Quite frankly, we don't feel that we have really unlocked the total potential for China yet. Within our current ecosystem, China represents 50% of our company's revenue. But beyond the financial contribution, we have also amassed an impressive store of data that informs our strategy in our other regions as well. We do not believe this access to certain valuable data has been properly understood and we are vigorously exploring new opportunities to effectively unlock the real value of these stores.

Moving to major highlights in our other regions. In July, we signed a multimillion-dollar contract with BCA, a large independent used-vehicle finance company in the U.K. for the implementation of our Ascent Wholesale Finance Platform. The total contract size is expected to be in the range of approximately $4 million with additional revenue opportunities available based on usage and contracts under management. Our implementation of the plan in the U.K. will mark the first rollout of the Ascent platform in the region and is a landmark achievement for our business. Going forward, we believe, this agreement will serve as a springboard to garner interest and eventual business for NFS Ascent with other finance leasing companies in the European region.

Also in July, we acquired the remaining 49% of stake of Virtual Lease Services, or VLS for short, a U.K.-based portfolio and risk management servicing partner for business and consumer finance providers. NETSOL initially had acquired a 51% majority stake in VLS through a joint venture partnership with Investec Bank of U.K. in 2011. Now VLS is a highly complementary business to NETSOL's core competencies and has substantially improved its financial profile over the past several years since our initial strategic investment. In the past 3 years, VLS has recorded a 3-year compound annual growth rate north of 20% and the company has been consistently and increasingly profitable over that period.

Beyond immediate monetary benefit we expect to receive from this accretive acquisition, VLS also provides us with a new opportunity to begin to convert existing many customers and marketing to new customers for our next-generation NFS Ascent. This partnership has already proven to be mutually beneficial over the past several years and we look forward to maximum additional growth opportunities, thereby expanding our footprint in the Europe and European markets.

With that overview now completed, I'd like to spend the rest of my time on the call discussing our plans for NETSOL's incoming fiscal year. For those of you who may not be as familiar with our company, we provide enterprise resource planning or ERP solutions for the global asset finance and leasing industry. We have been a leader for a number of years. A few years back, we made the conscious decision to invest heavily in updating our systems and planning for the future of our industry. In total, we invested over $25 million towards the development of a next-generation platform, which was launched in 2014 fiscal, and today is known as our flagship product offering, NFS Ascent.

Since the initial rollout, we have experienced tremendous success signing mega contracts with the biggest names in our industry, some of which I have mentioned today. In total, the $25 million investment has already yielded an estimated value of $200 million for our company with a lot of runway left to go. And while we continue to believe in the long-term value of this product, the reality for us is that the sales process is long, slow and unpredictable. Furthermore, as it stands right now, we're essentially a 1-product focused company.

In recognition of this fact, we've been hard at work to develop a new strategy that will future-proof our own business in the way that we aim to do so for our customers. More specifically, thanks to the success of Ascent, we're now in a position to be able to explore new opportunities for growth and also more consistent revenue streams. Here is how we are going to do it. Going forward, NETSOL's growth strategy in fiscal 2020 and beyond will take a three-pronged approach. First, we will continue to grow our organic business much in the way that we have recently. As I've already reviewed a number of times, we still believe in the long-term viability of our flagship platform. As the organization continues to upgrade their operations from legacy solutions to the next-generation products, we will be there with a premium offering, flexible enough to serve SMB as well as the large multinational organizations we have served well in the last 2 decades.

As I also alluded to earlier, we have a significant opportunity remaining to be able to unlock further growth opportunities within our largest existing market, China. By leveraging the necessary ecosystems through alliances and partnerships, we will be looking to draw increasingly on our strong reputation. To address this future need, we also expect to incrementally grow our headcount with local Chinese staff, especially within our management-level positions in the region. We'd also look to bring on the right talent to grow our sales.

Beyond China, we will now look to increase our global penetration by focusing on the U.S. and Canadian markets for Ascent. As a first step in this initiative, we are in the process of mobilizing key global sales and operational resources by relocating a handful of key international personnel to our U.S. offices. These are domain experts and leading sales executives in our APAC markets. More recently, we have been busier than ever in our North American market having received several inquiries from Tier 1 captive finance companies and banks that are evaluating our flagship, Ascent, for the first time. Over the long term, we expect U.S. market can become a big revenue generator for the company.

Finally, we want to expand in our U.K. and European markets as well. I spent some time on this when I went over our VLS acquisition just a minute ago, so I won't repeat myself here. I will say that our future success in the U.K. and Europe will be specifically driven by our focus on employing smart technology solutions to remain both adaptive and prepared to capitalize on dynamic market conditions.

Moving on to the second point. We will continue to innovate in new areas and look to create partnership where our technology and personnel can be a major benefit to other organizations as well as our own. Our work within OTOZ will be the linchpin of this diversified strategy. While OTOZ is still less than a year old, we have made such great progress in that time frame and are exploring a number of exciting new opportunities I look forward to sharing in the coming months. Naeem will come on the line in just a minute to provide additional color here as well.

As it relates to partnerships, we are also focused on increasing our marketing efforts to aid in this endeavor. That means increased participation in a variety of industry events as well as concerted effort on marketing our platform globally. We also believe we can be doing more to leverage our strongest client references much in the way that I spoke to our China growth strategy. On the innovation side, we see a meaningful opportunity to pursue an increased SaaS pricing model in the U.S. market, where we have already generated encouraging initial traction. At the same time, we're always working to enhance our existing capabilities in Ascent to ensure we remain on the industry's cutting edge, employing new technologies within AI and IoT to increase functionality in our overall value proposition.

And third, we'll also be exploring inorganic growth opportunities where it makes sense. For context, at the end of this fiscal year, we had over $17 million in cash. As a general practice, we believe having a reasonable amount of cash on hand provides sufficient liquidity to win new customers and contracts, especially with the larger deals we now encounter. We believe stronger balance statement with liquidity is a big plus for our new clients to consider NETSOL. As an additional point of emphasis, I'd like to mention that NETSOL hasn't really engaged in a meaningful strategic partnership or M&A or similar activity since 2006.

We have continued to win new business on a purely organic strategy for the last 13 years. However, as I just noted, while the success of Ascent has put us in a position to be able to explore new opportunities for growth, we want to do so specifically with an eye to more consistent revenue stream. To be clear, we'll only be evaluating those opportunities we believe to be highly synergistic to our existing business, mostly cloud mobility-driven. We will only pursue inorganic growth opportunity where it makes absolute sense in growing our existing business.

Now before I hand the call over to Naeem, I'll speak briefly to our outlook for the coming quarter. Historically, the fiscal first quarter has always been more subdued compared to the rest of the year. We expect this fiscal first quarter to be no exception. At a macro level, we are confronting to monitor the ongoing trade discussions between the U.S. and China. But what we are already seeing is that regardless of the outcome, this process could have negative ancillary effects on the automobile and lease industry at large. We've noticed what we would call hesitancy from businesses in making any major purchasing decision during this time of uncertainty. We are of the opinion that our solutions, which among other capabilities, enable for more efficient turnover of asset-heavy inventory, would be an essential tool in any economic environment.

However, this does not change the reality that there is a concern of uncertainty in the market as customers are taking longer to make decisions as a result. What the implications of the trade war have really crystallized to us is a need to diversify our income streams, which is why we are moving forward with our 2020 plans in the manner that I just outlined. Beyond Q1, we anticipate a sequential ramp throughout the course of the fiscal year. To be clear, we expect to continue to grow in fiscal 2020. In all our major markets, we also anticipate additional growth might come from new areas and alternate markets that are not currently included in our operations.

And with that, I'll now turn the call over to Naeem, who will provide us with an update on OTOZ. Naeem?

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - Co-Founder, CEO of Innovation and OTOZ, President of Global Sales & Director [6]

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Good morning, and thank you, Najeeb. While Ascent continues to be the market leader in our space with lots of growth still to come, OTOZ is our most exciting new initiative in a very long time. We believe all indications are from market research and client input that on-demand mobility, including car subscription, car sharing and ridesharing, are the fastest-growing segments in the global auto ecosystem.

It's with this in mind that we went to a drawing board a year ago and came up with the concept of OTOZ. OTOZ is the new enabling platform where OEMs, auto finance companies, car dealers and car users converge to create supply and demand for cars that are connected, insured, fueled, charged, cleaned, accessible and ready for all types of journeys an hour, a day, a week, a month or years. You can be provider or a user. Either way, a car will become a flexible, changeable service and not a liability that is not utilized 95% of the time.

On-demand mobility is the future of the car, and OTOZ will be its enabler. The OTOZ platform as well as the Innovation Lab of the same name is targeted towards auto captive finance companies within larger auto sector organizations, fleet operators, original equipment manufacturers and private car owners. It aims to maximize the lifetime value of an auto asset by harnessing the collective power of the shared economy. The underlying technology of the platform was conceptualized and built based on advances that are expected to have a material impact on the auto and fintech industry.

The basic point is we want to future-proof our operations and help our customers to do so at the same time. OTOZ is positioning itself right in the center of this paradigm shift with a cutting-edge platform that will enable all vested stakeholders within the mobility ecosystem to offer innovative solutions to their customers. In layman's terms, what we're seeing in the market is that the big auto captives and the OEMs are increasingly exploring the new platform options to ensure that they are not caught off guard when consumer habits shift in a way that achieves critical mass.

Internally, for us, that dynamic has also led to increased attraction in the OTOZ platform, both globally and in the U.S. As an example, we are pleased to report that we're currently engaged in exploratory and discovery phase discussions with a Tier 1 multinational auto manufacturer in the U.S. that is trying to discover potential ways in which OTOZ's capabilities can improve their go-forward plan for the ridesharing and car sharing economy. While these discussions are preliminary at this stage, we're excited about the potential it could have and what it means for the interest in the industry at large.

As we have built up a huge ecosystem of OEMs, over 100 auto finance companies, well over 25 million end customers and over $300 billion in auto assets and over 30 million cars in our ecosystems globally, OTOZ will leverage these assets and will help establish it as the largest player, increasing in on-demand share mobility. I believe none of the big players globally or any of our competitors can claim access to such a deep and broad ecosystem. Additionally, from a competitive standpoint, what we have also noticed is that our work in this new frontier has attracted some serious talent. We have assembled a world-class team of experts in blockchain, data sciences, AI and machine learning experts as well as app developers. We will continue to add more talent to the OTOZ team, and I look forward to sharing additional updates on our effort in the coming months.

I'll be happy to answer any questions on OTOZ in our Q&A. Thank you.

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [7]

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Okay. We're now ready for Q&A, operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Anja Soderstrom from Sidoti.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [2]

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Congratulations on a solid quarter. So it was very good to see that you delivered a double-digit top line for the year. And you gave some sort of color on what you're trying to do with Asia, China and the U.K. and U.S. But can you give us a little bit more color on the actual pipeline you have that you might see come through for the next year?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [3]

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What was the last part of your question, Anja, please? It's not coming out clear.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [4]

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Yes. If you could talk a little bit about the actual pipeline that you have that might come through in the next year that could give us confidence in continued growth for the coming year?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [5]

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Naeem, do you want to answer that question?

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - Co-Founder, CEO of Innovation and OTOZ, President of Global Sales & Director [6]

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Yes. So Anja, yes, the pipeline is, as we said in the report, is very robust. And as Najeeb said earlier, these procurement cycles are traditionally very long, and we cannot fix the time line to when a certain cycle will complete into a contract. As was the case with the 2 very, very large wins we had, one was a year, 2 years ago and then one last year, which we already announced. We continue to engage with several clients for multi-country implementation, and these are prolonged, protracted discussions. There are several factors at play. We get evaluated amongst competitors and pricing is a consideration. And obviously, the platform evaluation is also key. So we are in mature stages in several of them while there's 2 or 3 which are at the decision-making stage and we hope that those will come to fruition in the next coming quarters. The pipeline continues to be stable and robust, and I think we carry more or less as much as we did last year, so we will see good results coming forward.

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [7]

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I want to add one more point, Anja, to what Naeem said. I think what is noticeable, which I already said in my prepared remarks, is that in the last few months we have seen more activity in the European market and also the U.S. for our flagship Ascent. So that's a very encouraging sign for us because while we've done so well in China or APAC, which we will continue to do that, but now that we have new markets where we have some good footprints, especially in the U.K., we've got a new office in Central London, which caters to the very big market in that area. But also in the U.S., we've seen without yet having the people on ground, we've seen some -- a lot of inquiries and RFPs that we're working on and they're looking into our new core solution. So that's very encouraging for our future.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [8]

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Okay. And is this -- I would assume since you also mentioned the auto industry, there's some uncertainties there due to the trade talks. So you're also sort of diversifying into more -- away a little bit from the auto segments there and then maybe more into the equipment leasing and other segments.

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [9]

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I'm sorry. Please, I'm just having a hard time hearing your question. Can you please repeat your question?

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [10]

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Okay. I'm sorry. Yes. So you mentioned that you had -- saw some maybe difficulties within the auto industry due to the trade negotiations. So then I would assume that you're diversifying into other segments as well and not just focusing on the auto. Like how should we look at that diversification?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [11]

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Yes. Thank you for doing that. Look, Anja, you're right, I've said that very clearly in my prepared remarks and then Naeem also mentioned about our innovation strategy, which is right on track. So there's many areas we want to make sure that we remain as a focused product solution company, which we have been for many years. But now we're also looking into partnerships, joint ventures and perhaps M&A that is synergistic, which could be complementary to our core business. It could be North America, it could be Europe, it could be Asia-Pacific. We're open to all these ideas and I think time has come for the company to look to beyond 1-product vertical only. I think that is exactly what, if you look at -- if you follow the trend for the last 1 year, all the activities in the OTOZ Innovation Lab to meet with the new direction that the market is telling us how to be ready for the wave which will help the company to make the right decision, to make our customers stronger, to grow our business both in the complementary, but also anything which makes a lot of sense for our business to have accretive growth, both top line, bottom line, we'll look into those opportunities from time to time. But I think many options are available to us and we're exploring all of them.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [12]

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Okay. And with your track record, I saw that Alfa was coming out now with saying that they had problems implementing their systems. So are you seeing that from other competitors as well? And do you hear clients coming to you because of this or...

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [13]

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Yes. Naeem will be the right person to answer that. Naeem?

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - Co-Founder, CEO of Innovation and OTOZ, President of Global Sales & Director [14]

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Well, I'm sorry, Anja, I really didn't understand the exact question. Can you please repeat?

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [15]

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Yes. So you have an excellent track record of implementing even ahead of time and 100% success rate while your competitors seem to have a little bit more troublesome -- succeeding in their promises. So are you seeing maybe -- are you hearing a lot of clients coming to you to sort of transfer into you? And how does that play into your competitive edge?

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - Co-Founder, CEO of Innovation and OTOZ, President of Global Sales & Director [16]

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Yes. See, first of all, let me just focus on our own track record, which is in 22 years, we have never failed to deliver a single project. Every single project we -- and the contract that we signed, we delivered and our customers are using the system and live. And same is the case with Ascent and the new implementations we're undertaking. Recently, there was a very important, critical go-live in China with one of our premier clients. At the same time, our competitors continue to struggle. I think it's due to the complexity of the business that we are supporting. The auto finance business traditionally is a very complex business with a very complex back office and so on. So amidst the local conditions and local compliance and regulation and local business process, it is very hard to succeed.

And the reason we succeeded is that we have a very strong set of resources and domain experts who are really very, very experienced in all local challenges. So we have teams on the ground in China, Thailand, Australia, Indonesia. And when we compete against companies that just come in the market to implement and they don't really have a presence in those markets, they really struggle. And in fact, that continues to be the case. We have won several accounts where previous vendors could not deliver, we came in and then had success. And we think that is continuing to be the case because our competitors probably don't invest as much into the people or on the local presence as much as we do.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [17]

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Okay. So with all that being said, Najeeb, you gave some color on the first quarter outlook. Is there any -- could you give any sort of expectations for the full year? I know it's very choppy and uncertain. But with the insights you have of your pipeline and opportunities, how should we think about the full year growth for 2020?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [18]

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I think look, as a company management, I think it's very prudent and judicious to be mindful of the shifting dynamics in our industry all over the world plus all the macro challenges that I think everybody's facing. Nevertheless, as I said in my remarks that we have a healthy pipeline, we have a lot of activities in, not just in APAC alone, but also in the U.K. and, of course, in U.S. and Canada, that gives us a good signal, good hope that we can be very positive in terms of growth this fiscal year as well. And I think the better way to give specific ranges it would be to see how we're tracking in the H1, first 6 months. We have many deals out there in the final stages of their decision-making or some of the [mergers] and the further demos and discussions with the customers.

But the main thing is the more people, the more companies looking into our solutions, the main business, the flagship Ascent, than, say, a year ago, that is a much more, I think, compelling sign for us as we continue to grow both top line and the bottom line. But at the same time, the company is very proactive in making sure that we are looking at all of the opportunities that will make us a very dependable, predictable business by adding some new opportunities within the group. And the same technology gives us new ideas that we have maybe not focused in the past. And now we have ability and focus to generate new opportunities in the coming months and years.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [19]

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Okay. And then some housekeeping questions. So you mentioned you're looking to hire more. So should we look at your salaries going up? And also your G&A was up a bit sequentially for the fourth quarter. What drove that? And how should we look at that going forward?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [20]

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I think look, there's -- the good thing that I didn't mention, me and Roger, in our 10-Ks and Qs for the last couple of quarters, that this company is now looking at the very strategic positions hiring, whether they're in China or in the U.K. or in the U.S. And in Pakistan, where we have our delivery engine, we are at a pretty good efficiency level in terms of our strengths of the programmers, developers and so forth. The company is looking at very important positions, which should help us achieve our long target vision.

I don't think we have any other major expenses, other than OTOZ is a new trade we are investing. The Innovation Lab and the U.S. and other markets like U.K., we are constantly -- consciously investing to improve our position, the team in the local market. At the same time, we should be ahead of the competition because one thing good about the company is that we don't wait for things to happen, we always proactively respond back to the challenges facing the market and we make sure we are ahead of the curve in comparison with our competitors. That's one reason that Naeem said we have been very effective in meeting the need and time of our customers. And that reference for us is very important for us to continue to grow our revenue and control our cost structure.

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Operator [21]

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(Operator Instructions) At this time, this concludes our question-and-answer session. If your question was not addressed during the Q&A session, please contact NETSOL's Investor Relations team by e-mailing them at ntwk@gatewayir.com or by calling them at (949) 574-3860. I'd now like to turn the call back over to Mr. Ghauri for his closing remarks.

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [22]

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Thank you for joining us today. I especially want to thank our investors for their continued support, our loyal customers worldwide and our dedicated employees for their ongoing contribution in every location they work in. We look forward to updating you on our next call. Thank you and have a good day. Operator?

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Operator [23]

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Thank you for joining us today for NETSOL's Fiscal Fourth Quarter and Full Year 2019 Earnings Call. You may now disconnect.