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Edited Transcript of NTWK.OQ earnings conference call or presentation 13-May-20 1:00pm GMT

Q3 2020 NetSol Technologies Inc Earnings Call

CALABASAS Jun 23, 2020 (Thomson StreetEvents) -- Edited Transcript of NetSol Technologies Inc earnings conference call or presentation Wednesday, May 13, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Asad Ghauri;Head of Global Sales and Group Managing Director of NetSol Europe

* 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, and welcome to the NetSol Technologies Fiscal Third Quarter 2020 Earnings Conference Call. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; Asad Ghauri, Head of Global Sales and Group Managing Director of NetSol Europe; and Patti McGlasson, General Counsel.

I'd 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. This call may contain forward-looking statements relating to the development of the company's products and services and future operation results, including statements regarding the company that are subject to certain risks and uncertainties, such as the effect of stay-at-home orders and social distancing imposed by COVID-19 and has resulted in impacts on our financials and the world economy, that could cause actual results to differ materially from those projected. The words expects, anticipates, variations of such words and similar expressions identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, but their absence does not mean that the statement is not forward-looking. These statements are not guarantees of future performance. And the company's actual results, including the progress and cost of the development of products and services and the timing of the market acceptance as well as the delay in recovery or the prolonged economic downturn that affects our company, our customers and the world economy.

The subject company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in the company's expectations with regard thereto or any changes in events, conditions or circumstances upon which any statement is based.

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 today available in today's press release.

Now I would 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, and thank you for joining us today. I'm calling in today from our offices in Lahore in Pakistan. To be honest, it is a bit of a weird feeling to be here right now. Our NETSOL technology campus is usually so full of life and activity, and, right now, it is largely empty. These are, no question, most unprecedented times for us. It is truly a unique occurrence to have one event affect nearly all members of our global community in such a meaningful way. My condolences go out to those affected by the pandemic directly or indirectly. And I extend my deepest thanks to those who continue to work the front lines, keeping us safe and healthy through these trying times.

As an international organization, NetSol directly witnessed the influence of COVID-19 as it quickly spread through many of our operations around the world, impacting families, our employees, communities and the global economy, of course. During this period of increased uncertainty, we have acted with clarity and judgment. Our people come first. The initial reports of the virus circulated earlier in the year, we acted swiftly in restricting all nonessential travel indefinitely and instituting a mandatory work-from-home policy. At present, any employees who are displaying flu-like symptoms are experiencing the onset of a potential sickness are being highly encouraged to seek medical attention to ensure the health and safety, first and foremost.

At the same time, we are closely monitoring the evolving situation through all available information channels, including the latest news, reports as well as updates from the CDC, the World Health Organization and other regulatory authorities.

The start of the calendar year has been a challenging time for many. Our operations in the fiscal third quarter were meaningfully impacted by the global slowdown occurring in many of the verticals we serve, including the greater leasing, finance and automotive sectors. While we expect this impact to remain an ongoing headwind for the foreseeable future, we are pushing ahead and continuing to operate efficiently in this new normal environment.

As a first response, we have put in place a business continuity plan to ensure that all implementations and deliveries remain on schedule. Our team has responded capably throughout this trial, and we've been able to operate uninterrupted since transitioning to a remote work environment. Additionally, our maintenance and support staff has been operating on a full schedule to all international customers. Our teams are still very busy in conducting virtual demos, presentations and negotiations. However, in the unpredictable environment we currently find ourselves, there have been understandable delays in decision-making from potential and new customers, both for our flagship NFS Ascent and OTOZ.

Second, we have moved swiftly and decisively in reducing our costs in a number of noncore areas, and have also elected to take salary reductions in the near term. Employees of NetSol and our subsidiaries have taken an average reduction in salary of nearly 20% company-wide, including our senior management team and Board of Directors. Strategic programs and new initiatives, such as OTOZ and our innovation labs, continue to operate on a reduced allocation budget.

Additionally, budgets for marketing, travel and other postponed operational activities have been substantially reduced. Through these combined efforts, we expect to realize cost savings of approximately $5 million on an annualized basis.

I'm also very proud to report that these measures and other proactive response efforts have allowed us to retain all employees at this time. We also have built a good strong cash position over the years, which gives us additional support going forward. All things considered, we are weathering the storm and controlling what we can. At the end of the day, we plan to emerge on the other side as a much stronger company. As a technology-enabled organization, we are well suited to respond to the current digital transformation happening right now, and we have a world-class team standing ready to continue onward in the face of adversity. I'm proud of our collective workforce for their dedication and sacrifice.

In a minute, I'll come back online to provide some operational updates from Q3 as well as our outlook for the remainder of the year. But before I do, I'm going to hand over the call to our CFO, Roger Almond, who will walk us through our results for the quarter. Roger, please?

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

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Thanks, Najeeb. Turning to our fiscal third quarter 2020 financial results for the period ended March 31, our total net revenues for the third quarter were $13.5 million compared to $17.1 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total license fees of $2.2 million and a decrease in services revenue of $2.6 million, which was offset by an increase in total maintenance fees of $1.2 million. Total license fees in Q3 were $312,000 compared to $2.5 million in the prior year period. The decrease in license fees for the quarter was primarily due to the absence of meaningful contributions from our 12-country $110 million contract, which had a more pronounced contribution in the prior year period.

Total maintenance fees in Q3 were $4.9 million compared to $3.7 million in the prior year period. The increase in total maintenance fees for the quarter was due to additional markets going live with NFS Ascent as part of the multi-country contract just mentioned. Maintainance fees begin once a customer has gone live with our product. We anticipate maintenance fees to gradually increase as we implement both our legacy products and NFS Ascent.

Total services revenue for the quarter were $8.3 million compared to $10.9 million in the prior year period. The decrease in services revenue was due to a decrease in services revenues associated with new implementation for 2 major contracts and change requests. Services revenues derived from services provided to both current customers as well as services provided to new customers as part of the implementation process.

Total cost of revenues was $7.5 million for the third quarter, a decrease of $1.1 million from $8.6 million in the third quarter of fiscal 2019. The decrease in cost of revenues was predominantly driven by a decrease in travel expenses as a result of COVID-19 and the decrease in depreciation and amortization expense as certain products became fully amortized.

Gross profit for the third quarter of fiscal 2020 was $6 million or 44.5% of net revenues, down from $8.6 million or 50% of net revenues in the third quarter of fiscal 2019. The decreases in gross profit and gross profit as a percentage of revenues were primarily due to decreases in revenue by an amount that was greater than the related decrease in cost of revenues. The decrease in cost of revenues was predominantly driven by decreases in travel, depreciation, amortization and other expenses, which were offset by a slight increase in salaries and consultants' costs.

Operating expenses for the third quarter decreased 1% to $6.5 million or 47.3% of net revenues from $6.5 million or 37.7% of net revenues in the same period last year. The slight decrease in operating expenses was primarily due to decreases in sales and marketing expenses, depreciation, amortization and research and development costs, which were offset by an increase in general and administrative expenses.

Turning to our profitability metrics. Our net loss from operations was $376,000 for the third quarter, a decrease from net income from operations of $2.1 million in Q3 last year. GAAP net income attributable to NetSol for the third quarter fiscal 2020 totaled $1 million or $0.09 per diluted share. This compares with GAAP net income of $1.3 million or $0.11 per diluted share in the third quarter of last year. GAAP net income attributable to NETSOL included a $1.8 million gain on foreign currency exchange transactions in the third quarter of fiscal 2020, which was a significant increase compared with a gain of $47,000 in the prior year period.

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 the 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 markets.

Moving to our non-GAAP metrics, our non-GAAP adjusted EBITDA for the third quarter of fiscal 2020 totaled $1.8 million or $0.15 per diluted share compared with non-GAAP adjusted EBITDA of $2.2 million or $0.19 per diluted share in the third quarter of last year. Please see the reconciliation schedules contained in today's release for our revised calculations of adjusted EBITDA for the fiscal quarter ended March 31, 2020.

Turning to our balance sheet. At quarter end, we had cash and cash equivalents of approximately $15.7 million or approximately $1.34 per diluted common share, which is down from $17 million or approximately $1.45 per diluted common share from the prior year quarter.

As I conclude my remarks, I want to say how touched and humbled I am to see the hard work, the sacrifice and dedication of our NetSol team around the globe. Although striving to provide for themselves and their families, the employees are making financial sacrifices while still maintaining a relentless work ethic. To see us through these difficult times, it will be management's imagination, innovation and dedication, which will not only help keep NetSol afloat, but also remain resilient for the future. I believe our management team has continuously shown these qualities, and I'm honored to be part of this amazing organization.

With that, 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. I'll begin my remarks, as we always do by recapping some of the major operational highlights from the period. Starting in the Asia Pacific region with our previously announced 12-country, $110 million contract with a German auto manufacturer giant, we continue to make considerable progress along our multiyear, multi-country implementation road map. More specifically, just last week, we achieved a successful Go-Live in Malaysia. As part of the Go-Live, we implemented our full suite NFS Ascent retail platform, which includes our omni point-of-sale and contract management system, and separately, the wholesale finance system of our wholesale platform. Delivering all modules on time in the face of the current environment is a real achievement by our team. It is worth noting that this latest Go-Live represents the first remote implementation we have ever attempted. Based on this successful rollout, we are increasingly confident in our ability to continue executing through the later stages of this multi-country deployment in the coming months.

Moving forward, the next near-term Go-Live events to come will be in Singapore and Thailand. We have additional deployment schedule for new territories beyond these, and we also have more Go-Live events further on the horizon for areas where we are currently partially operational. But we expect those announcements to be made in subsequent calendar years. In all, we are continuing to proceed with under budget and on schedule.

Switching to other ongoing APAC projects in March, we delivered a Ascent regional platform to the captive auto finance company of a notable Japanese equipment manufacturer in Australia and New Zealand. Because of complications related to COVID-19, the Go-Live date has been temporarily paused, but we are looking forward to resuming operations as soon as conditions permit in those countries.

This quarter, we also implemented our i-operations system with a leading captive finance company of a notable Japanese bank in Indonesia, allowing their call center workforce to contact, prospects and act as an additional channel for lead generation.

At this point, I'd like to introduce Asad Ghauri, who is the Global Head of Sales and a Group Managing Director for European operations with NetSol. He is covering for Naeem Ghauri. He'll give you our strategy and outlook update. Asad?

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Asad Ghauri;Head of Global Sales and Group Managing Director of NetSol Europe, [6]

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Thank you, Najeeb. Good morning, everyone. Excited to be on this call for the first time and presenting to you guys. So I'll start off by covering the European operations. As you might know, the European operations are now based on 2 product offerings. One is the old generation product that we have, and one is the Ascent side, which we are pushing and focused on. I'm happy to report that on the previous generation product, the customer engagement and the customer base is quite strong and stable, and we expect an uptick based on the COVID-19 situation with services and other development tasks that are required by our client.

With that, I'll move on to Ascent, which is where we focused as an organization. As you might know, recently in the news, we had disclosed that we were able to sign a contract with a leading U.K. bank. This is on our SaaS and cloud model that we've made the market aware of. We see it tracking really well with further opportunities of engagement with the clients as we move along. This project as a whole is due to be delivered in 6 months and is tracking well, which has probably not been accomplished in the industry before. Usually, these projects are long, and they have their own time lines. So we are able to structure it in a way based on the Ascent platform, where we provide prebuild interfacing, regulatory frameworks and other preset business configurations that allows us to offer this to our customers, so they can implement it quickly and start their operations. It's been a great win for us, and we see momentum because of that with other prospects engaging with us. SaaS, as you know, is something we've made everyone aware of. And we've seen, on the other side, other engagements pick up on SaaS in Europe.

And finally, on the normal business side, which is the LeaseSoft, we just took an independent owned finance company in the U.K. live also in a short time frame. I think that's the focus for us, is to be short, quick and efficient and get people onto our SaaS models.

I would also like to cover our European North American operations from a global sales perspective here. We've had great traction as well in the U.S. based on our new and platform positioning. We signed our first customer in North America, SCI, which is expected to go live in the next 2 weeks. And again, this has been done completely remotely, which is not something which is done in the industry and the space we operate in. So it shows the capability of not just our people, but our product offering on your Ascent. And it's allowing us to really extend how we deliver, how we price and how we engage with customers.

I'll now move on to our strategic approach, which, as you all may know, is a 3-pronged approach. First, we continue to focus on organic growth of our current core business, which is tracking well. It's actually tracking better than what it was about 12 months ago. We see a lot of activity due to the situation where customers are looking at platforms which are open, easily connected to digital platforms and digital channels that are available. And the market understands that. And because of the situation, it's fast-tracking a lot of inquiries to us. And the engagement is high. And with the modeling and the packaging around the product with the SaaS offering, it's allowing us to get great traction. And we're cautiously optimistic of success in the coming quarters and potentially this quarter as well.

Secondly, we're focused on our innovation areas. We're looking to create partnerships where our technology and personnel can be a major differentiator to organizations as well as our own. Further, we're also exploring on our inorganic growth opportunities, where it makes strategic sense for us. I'd like to go over in some more detail around these strategies.

As we've mentioned previously, and Najeeb mentioned in his opening remarks, there was a pause because of the situation. But I think what we see is customers looking to not really have a pause, but to address the situation and the impact as we move forward. Even though we had purchasing decisions, which were delayed because of uncertain economic environment. On the flip side, because of what the platform offers, it's opened up a lot more possibilities, which were closed previously.

We're experiencing a high engagement with Tier 1 captives in North America and Europe, which are quite advanced, and we will hopefully be sharing news as it comes with these engagements. All of these engagements are virtual, and we've seamlessly adapted as an organization into a virtual one, where everything is done through communication tools. Nothing is stopping, and that's a very positive sign of what's to come.

Moving on. APAC remains sluggish for us, but, again, coming back to the same point, we see that opening up significantly just because of the situation and what entails what -- how it relies on technology and Ascent being a platform, which is cutting edge. It allows us to provide that flexibility to the client. So we're also seeing a lot of encouraging activity because of this with our Asia Pac customers. Existing customers, we're generating additional revenue streams based on the situation they face. And because of that, we're generating $2 million to $4 million in additional revenue over the next quarters just based on the situation. I think, possibly, that can grow, depending on when we come out of the situation. But no work is stopped. It's all done remotely, virtually. And adaptation on our side and the customer side is very high. So it keeps things moving.

In the longer term, we continue and we're confident that the plan we have in place will allow us to grow our business in a more stable environment. But we are definitely looking to address and benefit from the current situation, from a business perspective to offer services to the client that can help them address the situation that they're in.

Moving on to our second growth strategy area, which is innovation and partnerships. As you know, OTOZ has been quite busy over the last few months. Shortly, it has now grown to about 45 engineers, each with a focus on AI/ML blockchain and IoT applications. We officially launched the newly rebranded OTOZ Mobility website to better align with our marketing message. We are working on a number of projects across Mobility. We're seeing great traction with our technology spectrum, dynamic pricing, machine learning models, car recommendation engines and multi-lingual chatbots. We continue to see growing interest in OTOZ a smart and on-demand mobility platform from both new and existing customers alike. Mobility products allow customers to expand their current reach as an added option to the traditional product offerings, which gives them the potential to expand their total addressable market.

In March, OTOZ entered into a contract with a captive auto finance company, a leading German auto manufacturer in China, to launch its pilot car-sharing program in the country. As part of that program, thousands of their internal auto captive employees will be eligible to use flexible car-sharing products, all of which will be deployed through the OTOZ platform and the many use cases in trials being conducted will enable OTOZ to provide options for flexible car rentals as well as peer-to-peer car-sharing and other subscription-based programs. The underlying technology driving these innovations will be based on machine learning and blockchain and with broader application coverage of smart mobility and IoT ecosystems.

In addition to providing another strong endorsement of our technology solutions, the partnership also enables OTOZ to further validate in a real-world environment with the ultimate goal of becoming a scalable solution in the Chinese market and beyond. So it's a great reference point for us.

We also had the ability, from an OTOZ perspective, to exhibit and present at MOVE 2020 back in February, which was when we had a different world. MOVE is a major and classic conference. The event was a great platform for us to demonstrate our technologies and what we've been working on and the innovation pieces. So we see a lot of traction and positivity around our OTOZ offering as an add-on or a stand-alone for customers as we move forward.

While we can't share specific details in the areas on today's call, what I can share is that, currently, we are working with some of our existing cloud customers in an effort to align strategically for mobility grade offerings.

For our third and final growth area, we are continuing to evaluate opportunities in the marketplace that makes sense and being highly accretive and complementary to our business. And at this time, we have no further updates on the specific area.

We are now covering some of the outlook. As I said earlier, we remain cautiously optimistic. We've seen a huge uptick in engagements based on the situation and customers realizing that they need open platform, which Ascent offers. So we're seeing great engagements. If I start with China, we see signs of recovery in the Chinese operations. They've dealt with, to a certain degree, with the COVID situation. And it's not been a gradual uptick. It's been quite a significant uptick in our minds in terms of how quickly things have started to get back to normal. And car sales, which is our predominant area, have come back at least by 80% to 90%. That just shows that the market is robust, and they will be requiring platforms as they move forward.

The rest of the world, again, is still not very clear. It's opaque at best. And -- but we see a lot of engagements there, too. That doesn't mean that we will see decision-making to be in line with how we see these engagements, but we are optimistic, based on our engagements, that we will see positive results and news coming out. We're continuously monitoring all aspects of our global operations. To be able to support all of these engagements and business as usual and the customers that depend on us, we are continuously monitoring health and safety of our global workforce, while balancing our long-term growth initiatives. As a digital-first organization, we're also evaluating innovative and flexible ways to manage our cost structures without impacting the delivery implementation of projects in all markets.

In this time of uncertainty and upheaval, we believe there are new opportunities out there for those companies that have the resource to adapt. Hard as that may be, the vision to innovate ahead of the pack our vision for NetSol remains the same. We want to be innovators of the future. No company in our space, which is the asset leasing finance space, is more well equipped than us to take advantage of the disruptive technologies that we have, the power to transform ownership models as we know it.

I'll hand over to Najeeb now.

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

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Thank you, Asad. I want to add, in my closing remarks, while our team under leadership of Naeem Ghauri and Asad Ghauri and many other people in sales all over the world are working very hard to bring and close new revenues, we, in the management side, are very focused on cost control efficiencies. We are following closely on the key metrics like EBITDA and gross margin and operating income. We believe those are very important numbers for us to stay strong on the cash side, at the same time, stay more lean and nimble.

I'd like to take this time to publicly thank our employees, global employees, partners, customers, investors and other key stakeholders for their continued support of NetSol through this very difficult period especially. For everyone listening today, I hope you and your families remain safe and healthy during the challenging time.

This time, I'll ask the operator to open up for the Q&A. Operator, please.

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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 with Sidoti.

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

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It seems like you're moving along nicely despite the challenging environment, and I hope you're all staying safe. Can you just give me some more color on the pipeline and especially how that is trending in SaaS versus the licensing opportunities?

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

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Anja, Asad Ghauri will handle that. He is the master of pipelines.

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Asad Ghauri;Head of Global Sales and Group Managing Director of NetSol Europe, [4]

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Anja, so as we said, we've got a core competency that you all know, which is our Tier 1 big deals, like the $110 million deal that we refer to quite often. So that business is looking strong. But if you specifically talk about the Saas, you see great traction with the way we've converted customers in Europe and SCI, for example. So we launched about 8 to 9 months ago. In our space, if you understand the depth and breadth of our product offering, it is a little bit different to package it under SaaS and the model that we're employing. Now the validation of that is coming from having a bank come in and start utilizing our platform even though their preference was going on a traditional model. So SaaS, for us, is tracking really, really well. We've got multiple engagements in Europe and the U.S., which have picked up significantly over the last 3 months. So very, very bullish in terms of conversion as we move forward. I can't give you specific names, but I can say to you that they're -- the engagements are in their dozens currently and at advanced stages.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [5]

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And would you say -- it sort of sounded like you alluded to on the call that the current environment is sort of helping your case since your technology is helping the companies to stay relevant. Is that sort of how it goes? Or is it more taking longer time to take because of the...

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [6]

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Yes. Sorry. Go on.

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Asad Ghauri;Head of Global Sales and Group Managing Director of NetSol Europe, [7]

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Yes, I would address. I don't want to be insensitive to the situation, but it has opened up a lot of opportunities for us. As I said previously, our platform allows us to be a lot more open to integrating with other systems, which allows customers to be flexible in terms of location and how they operate. They can take out business processes and they can expose them through digital apps and others. So because of that positioning, which wasn't obviously for COVID, it was just how we've built the application, it's allowed us to gain a lot of traction. And obviously, the situation has made companies think about how they need to react to this environment. As much as we want to go back to being normal, I don't see that happening anytime soon. But life has to go on. Things will change. So that's -- the platform is allowing us to provide that change easily. So that is why we're very bullish.

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

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Okay. And how do you compare them to your competition in terms of that? What's your competitors at?

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Asad Ghauri;Head of Global Sales and Group Managing Director of NetSol Europe, [9]

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If I'm being honest, I think our competition struggles there with some of the concepts. This is validated through our customer engagements, the wins that we've had over the last couple of months. In Europe, we've had strong competition from our big competitors on price, on others, but we've come out ahead. So that's validation for us.

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [10]

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Can I add one more point here? Anja, without naming the name of our very large customer, who has just complemented NetSol as the only vendor who is delivering in this environment. So that, to me, was a big boost I think to our employees who are without fail. Actually, their productivity has gone up because they're sitting home and working and working.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [11]

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All right. There's nothing else to do, right?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [12]

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Oh, definitely.

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Anja Marie Theresa Soderstrom, Sidoti & Company, LLC - Senior Equity Research Analyst [13]

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Yes, Yes. So -- and then the SaaS revenue that you're generating, that's included in the services fees line, right?

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Asad Ghauri;Head of Global Sales and Group Managing Director of NetSol Europe, [14]

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That -- I mean, if you heard Roger earlier, so, I mean, SaaS model is a monthly fee that comes in. Roger can explain more, but if you see, we've taken a hit on the licensing side, as Roger explained. That is because of us converting customer on the SaaS side, which is a monthly payment that they make rather than a lumpy payment they used to make for us. And that used to reflect automatically as soon as they came in.

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

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Okay. And then in terms of the 12-country contract, how many countries do you have left there to implement?

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Asad Ghauri;Head of Global Sales and Group Managing Director of NetSol Europe, [16]

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We have 4 countries left. So we've done 3 -- 4 of the major ones. We've done 2 of the smaller ones, Malaysia being the one that went live recently. We've got ongoing projects with 2 other smaller ones, which you should be hearing news of going live in the next 2 months. And then you've got 4 of the bigger ones left, like Australia, Japan and other markets, where we will -- we are already starting work remotely, obviously, which is a new reality. So that's ongoing. So we will have -- we've crossed the halfway mark successfully. Now we will be taking some of the smaller ones live imminently, and the bigger ones will then be following what we did in China and others.

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Operator [17]

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(Operator Instructions) Thank you. 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 investors@netsoltech.com or by calling them at (949) 5743860.

Now I'd 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 [18]

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Thank you for joining us today. I especially want to thank our investors, their continued support, our loyal customers and our dedicated employees for their ongoing contribution. I wish you safety and well for all of you. We look forward to updating you on our next call. Thank you.

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Operator [19]

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Thank you. This concludes today's call. Thank you for joining NetSol's Fiscal Third Quarter 2020 Earnings Call. You may now disconnect your lines.