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Edited Transcript of NTWK earnings conference call or presentation 9-Nov-17 2:00pm GMT

Q1 2018 NetSol Technologies Inc Earnings Call

CALABASAS Nov 30, 2017 (Thomson StreetEvents) -- Edited Transcript of NetSol Technologies Inc earnings conference call or presentation Thursday, November 9, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Naeem Ullah Ghauri

NetSol Technologies, Inc. - President, Head 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, Secretary and General Counsel

* Roger Kent Almond

NetSol Technologies, Inc. - CFO & Principal Accounting Officer

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Conference Call Participants

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* Michael David Vermut

Newland Capital Management, LLC - Founder

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Presentation

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Operator [1]

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Good morning. Welcome to NetSol Technologies Fiscal First Quarter 2018 Earnings Conference Call. On the call today are Najeeb Ghauri, Founder, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; Naeem Ghauri, President Global Sales; Jeff Bilbrey, President North America and Patti McGlasson, General Counsel. I would now like to turn the call over to Patti McGlasson, who will provide 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, 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 up the call for questions. Please note that all of 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 its annual report on Form 10-K and quarterly reports on Form 10-Q. I would also like to point out that NetSol will be discussing certain non-GAAP measures. The press release issued earlier today contains a reconciliation of these non-GAAP financial results to the 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 link 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. Before the market opened today, we issued a press release announcing our results for the fiscal first quarter ended September 30, 2017, and a copy of which is available in the Investor Relations section of our website. The fiscal first quarter was another productive period in our company development especially from an organizational perspective while our top line results were impacted by the traditional quarterly seasonality and prolonged sales cycles, we continue to make progress executing on our plan to optimize and strengthen our organization. Perhaps most encouraging is that we realized some of the significant cost reductions related to our operations efficiency initiative that we implemented beginning of January this year. In fact, during the first quarter, we achieved $2.3 million in cost savings directly tied to these measures with a total anticipated reduction of more than $6 million to the fiscal 2018. In the short time, since our previous call, I am proud to say that we're already a much leaner and more efficient organization and we look to improve on that investor quarters ahead. In a minute, I will come back to discuss our operational highlights and general business outlook in greater detail, but before I do, I would like to point out that we announced our full year results a little over a month ago so our updates on this call will be tied to our projects since that time and, therefore, less extensive than our previous call. I now turn the call over to our CFO, Roger Almond who will go over our financial performance for the first fiscal quarter. Roger?

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Roger Kent Almond, NetSol Technologies, Inc. - CFO & Principal Accounting Officer [4]

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Thanks, Najeeb. Turning to our fiscal first quarter 2018 financial results ended September 30, 2017. Our total net revenues for the first quarter were $12.8 million compared to $17.1 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in license fees of $5.3 million, which was offset by an increase in services revenue of $1.2 million. Total license fees in Q1 were $370,000, a decrease of 94% from $5.7 million in the prior year period. The decrease in total license fees was primarily due to the decrease of license revenue recognized for the 12-country NFS Ascent contract. Total maintenance fees in Q1 was $3.6 million compared to $3.7 million in the prior year period. The slight decrease in total maintenance fees was primarily due to select customers who didn't renew their maintenance agreement for certain legacy products. We anticipate maintenance fees to gradually increase as we implement our product suite to new customers. Total services revenue for the quarter were $8.9 million, an increase of 16% from $7.7 million in the prior year period. The increase in total services revenue for the new quarter was primarily due to an increase in services revenue associated with new implementations, and change requests. Total cost of revenues was $8 million for the first quarter, a decrease of 10% from $8.9 million in the first quarter 2017. The decrease in cost of revenues was primarily to a decrease in salaries and consultant costs of $429,000 related to the right sizing of technical employees in Pakistan, Thailand, China, the U.K. and North America. And a decrease in travel costs of $199,000. Gross profit for the first quarter of fiscal 2018 was $4.8 million or 37.5% of net revenues, down from $8.2 million or 47.8% of net revenues in the first quarter of fiscal 2017. The decrease in gross profit was primarily due to a $4.3 million decrease in total net revenues, which was offset by $901,000 decrease in cost of revenues for the quarter that I just mentioned. Operating expenses for the first quarter were $5.9 million or 46.3% of net revenues, a decrease of $1.4 million or 19% from $7.3 million or 42.9% of net revenues in the same period last year. The decrease in operating expenses was primarily due to cost reduction and selling and marketing expenses, salaries and wages, depreciation and professional services. Now turning to profitability metrics. Our GAAP net loss attributable NetSol for the first quarter of fiscal 2018 totaled $369,000 or $0.03 per diluted share. This was an improvement from GAAP net loss of $386,000 or $0.04 per diluted share in the first quarter last year. As we mentioned earlier, during fiscal 2017, we implemented a cost reduction plan as well as other organizational transformation initiatives. At NetSol we're bottom line focused as much as we are top line growth driven. As I mentioned on our last call, we currently anticipate returning to GAAP profitability in fiscal year 2018, predicated on the execution of new Ascent deals this fiscal year, which are currently in the negotiation phase with various new and existing customers. Moving to our non-GAAP metrics. Our non-GAAP adjusted EBITDA for the first quarter of fiscal 2018 totaled $970,000 or $0.09 per diluted share compared with non-GAAP adjusted EBITDA of $1.3 million or $0.12 per diluted share in the first quarter of last year. As we disclosed in our earnings release beginning with the fourth quarter fiscal year 2016, we revised our calculation with adjusted EBITDA to exclude the portion of adjusted EBITDA that is attributable to noncontrolling interest in our subsidiaries. We believe this supplemental disclosure provides additional insights into the true operational performance of our business. Please see the reconciliation schedules contained in our earnings release for revised calculations of adjusted EBITDA for the first quarter ended September 30, 2016 and 2017.

Now turning to our balance sheet. At the quarter end, we had cash and cash equivalents of approximately $8.6 million or approximately $0.77 per diluted common share, which is down from $14.2 million or approximately $1.30 per diluted common share at the end of the prior quarter.

Turning to our stock repurchase program. On July 18, our Board of Directors approved a stock repurchase program that authorizes repurchases of up to 1 million shares of our common stock through mid-December of the calendar year. Our plan is to fund the repurchase of shares with our existing cash balance and cash generated from operations. To date, the company has repurchased 139,275 shares of its common stock at an aggregate value of $601,000. The purchase program reiterates our confidence in the strength and future growth potential of NetSol to our shareholders. And we plan to continue to act opportunistically on this program going forward. 1 final note. During this quarter be amended our existing 12-country NFS Ascent contract securing approximately $9.1 million in future revenues, in addition to what was previously projected for the customer. The revenue will be recognized over the contract terms as the support services are performed. That concludes my prepared remarks. I'll now turn the call over to Najeeb, who'll provide an update on our sales progress and key initiatives as well as the outlook for our respective regions. 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 earlier, the first quarter was not without its share of challenges. Simply put, our revenues were down on a year-over-year basis due specifically to a significant drop in our license fees revenues. As a result, we experienced what we're calling a ripple effect down the line in a lot of our financials. But I just want to point out that the reason for the decrease in our license fee figure was purely tied to how those revenues are able to be recognized and it is not an indication of any lack of execution. In fact, our maintenance revenues remain steady and services revenue are actually up over 15% this quarter. NetSol has faced multiple economic hurdles and an elongated sales cycle over the years but we have survived because of our ability to adapt. We firmly believe the evolution to NFS Ascent from our legacy solution provides the most meaningful opportunity for us. Both now and for several years to come. And our existing customer base presents the most immediate cost-effective and logical growth opportunity for Ascent, which will ultimately drive gross margin and adjusted EBITDA expansion. And while we are still going through these early growing pains, we have already made progress on our path towards becoming a faster growing and profitable company for the long haul. To that end, as I mentioned in my opening remarks, we were able to significantly reduce our cost, which helped to mitigate the effects of the longer sales cycles we are experiencing. And as Roger just pointed out, this quarter we cut our operating expenses by almost 20% over fiscal Q1 2017. What's even more impressive is that this was nearly a 40% reduction sequentially. As I said earlier, in total, we reported cost savings of $2.3 million in this quarter. With these savings tied directly to the recent cost rationalization initiatives, we first began in January 2017 and going forward, we're still projecting more than $6 million in total savings through fiscal 2018. And although we expect the sales cycle process remain drawn out in the near term, it's very encouraging that we are now finally seeing the effect of one of our key initiatives that will help us build for the future.

Shifting gears. We are continuing to get new business across the finish line as well as make significant progress with new and existing customers. So along that line, I would like to provide an update on our APAC and European markets. Through the end of the fiscal year and now into Q1 we have continued to maintain our leadership position in the Asia-Pacific region. To that end, we have a few updates related to our previously announced 12-country NFS Ascent contract. First, during Q1 we implemented the Loan Origination System and the Wholesale Financial System as part of the Thailand and Korea portion of the deal. Additionally, as part of that same 12-country NFS Ascent contract, we expect to deliver the first major release of NFS Ascent to China in December 2017. On top of this, as Roger has just mentioned, we amended the existing contract to account for approximately $9.1 million in future revenues in addition to what was previously projected from the customer. The revenue will be recognized over the contract term as the support services are performed. Now moving to additional update in the APAC region. Some of you may have seen from our press release that Mizuho Balimor, a Japanese bank in Indonesia went live with the first phase of its NFS Ascent digital solution this quarter. Additionally, we signed available proof of concept agreement with one of the oldest and largest banks in Australia. We expect to be able to report eventual revenues from this in our other agreements in our coming calls. In total, our pipeline in this APAC region and European region remains increasingly robust and is in excess of $100 million for just ascension loan.

Moving to the North American region. We are continuing to pursue large multi dollar – multimillion-dollar deals and are still devoting significant attention to our penetration efforts within that region as well. As we have said before, there is a $500 billion leasing market in North American alone and we will continue to focus on our efforts there to capitalize on that major growth opportunity. I look forward to providing additional updates as they become available.

So looking ahead, we believe the global markets are performing and growing well in both the leasing and finance sectors and developing APAC markets like China and Australia, we are finding stronger leads due primarily to the robust overall growth in those markets. Additionally, the auto and banking sectors are holding strong to keep NetSol quite busy in the Asia-Pacific for at least a few years to come.

In Europe, the markets are turning around particularly in the U.K., Netherlands and Germany. As the byproduct of their recovery, we are noticing increasing demand for our Ascent solutions as the auto captive and banking sectors are right for NetSol's product and services.

In North America, the markets are most mature, steady and lucrative of all. As such, and due to the increased competition within the leasing space as well as the overall size of the contract, we see ourselves being in a stronger position beginning in fiscal 2019 and onwards. Getting more general for a moment, as most of you know, over the last few decades, there has been major growth and innovation particularly centered in the U.S. but elsewhere too. And in just the last two years alone, we've witnessed technological breakthroughs in the areas not just limited to Big Data, cloud solutions, augmented virtual reality, artificial intelligence and rapid digital transformation. In recognition of the current global market environment we now inhabit, NetSol has started various new initiatives. One of which is a new ideas lab, which will allow us to place more emphasis on R&D initiatives and new areas where we can stay ahead of the technology curve. And finally, as NetSol has evolved over the years, to be able to provide next-generation solutions. We're looking forward to reaping the rewards for hard work. Ascent is the future and we're ambitiously and tirelessly working to turn this offering into a global leader. Our overall optimism and confidence stems directly from the robust demand we are seeing across our major markets. In the meantime, we remain a -- the effective leader in China thanks to our impressive number of implementation and very strong loyal customer base. Looking more immediately ahead to fiscal Q2, we are expecting an improvement financially as we move beyond any seasonality affected business periods, while continuing with our cost reduction initiative we will also be focused on returning our license revenues to a more historically representative number but together, we expect improved financial performance through the balance of this fiscal year. On our last call, I said that the NetSol of the future would not be created in a day. And I think that message bears repeating. It's only been a month since our last call and right now, we are managing those things that are within our control, while working tirelessly to execute on our key initiatives. Our ongoing stock repurchase program reflects our continued confidence in the future, future prospects of our business and our cost-cutting measures are a clear example of our focus on what is directly within our control. We believe we have laid the necessary foundation for profitable growth over the long-run while making NetSol a much more efficient organization at the same time. Looking ahead, we remain very optimistic about NetSol's prospects. The goal of our cost reductions, personnel enhancements and process optimization is to ultimately ensure that we are in a position to capitalize on the significant opportunities ahead of us. We have the potential to transform into a much faster growing and more profitable company built for many years -- many more years to come. But in order to do that, our focus has to be on positioning NetSol effectively capitalized on a significant long-term opportunity in the massive Auto Finance global asset finance and leasing industry. While also profitably scaling our business. And with that, I'd like to open the call for questions. Operator? Operator, you are there?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Mike Vermut with Newland Capital.

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Michael David Vermut, Newland Capital Management, LLC - Founder [2]

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So I have a question. As revenues now ramp, I guess, quarter-to-quarter going forward, how should we think about the incrementals and profitability? I assume you are going to be holding and possibly implementing additional cost savings. So how do we look at incremental margins? How should we look at profitably going forward? Increasing EBITDA, how should we try to model this?

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

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Sure. First of all, Mike the company has been programmed to process optimization and to constantly improving our cost-saving systems and the way we do business in terms of getting better cost effectiveness across the company, not just in in one place, it’s all the works in different locations especially in Lahore. So that process will continue. It's an ongoing exercise for us. So we want to find where possible efficiencies and much more cost advantages in terms of how we run business across [(inaudible) metrics of the company we have worldwide. So this will continue -- continued effort. On the revenue side, as I mentioned in my prepared remarks, our pipeline is quite robust. We are very active (inaudible) in APAC, especially Asia-Pacific region and now in U.K. Very busy, I think, Naeem can give you some color, but as these revenue start to come our way when we sign the agreements and I think you will see if we can manage this business let's say $30 million on a breakeven proximity, that's a pretty good, I think, message that we have been to remove some of those legacy employees who were supporting the older generation. Now, we have next-generation system in place. So I think with this cost line, we are in much better position to improve cost profit, improve, of course, operating margin, EBITDA and of course net income. So it's all function of, as you know, the top line at this stage. And we'll continue to do everything in our power to execute and deliver those top line numbers, in the coming quarters. However, as you know, we mention again and again that, because this is a new generation and new rather complex, large value contract it takes time. And I think Naeem will give you a bit more color because he is the, of course, global head of sales. Naeem?

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [4]

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Mike, I think the best news is that we have reduced some cost (inaudible) as I remember couple of quarters ago at $17 million, $18 million we were just breaking even. So here we are at $12.5 million and we have a very small loss so, I think, this is a good baseline to move from. Some of these contracts have taken little bit longer. We are very conscious of that because we have been working on at least 2 of them for a while now. But we're coming to the end of the process. So I think we're going to see some results coming through by the end of the year. And as more opportunities come from the U.K., Europe as well, it is starting to also get very interesting there. So I think APAC and Europe together is going to give us a very strong end to the year, last two quarters are going to be quiet strong.

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Michael David Vermut, Newland Capital Management, LLC - Founder [5]

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Could you -- just around that, I am not saying that we're going to win these contract or not win these contracts. The two and I know you spoke about them in the last call. Is there a rough number on contract size for those 2? Obviously, who knows the probability of winning the contracts, but what's the rough size of these contracts that we're working on? And I know we have a pipeline of $100 million, but the ones that are kind of at the forefront? Just for modeling so we can kind of look at what this may -- what the company could look like in fiscal '19 if we win these contracts. What's the potential there?

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [6]

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I can't give you specific. (inaudible) a couple of times that you mentioned that we said something. Even though we didn't gave names they were conscious because we're working NDA. So as you reminded us we cannot discuss their RFPs here. But I can give you like a if I say are the top 5. The top 5 between Europe and APAC alone would be about that number you mentioned. Because couple of them are multicountry projects programs, and there's one particular one in -- going a little bit down under and that's quite a significant one. So in Europe, we have one kind of the auto captive kind of an end of the process also. So I think when You combine the top 5, we're looking at something in the region of what we did with Daimler.

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Michael David Vermut, Newland Capital Management, LLC - Founder [7]

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Very well. Excellent. And so when we say that we're -- this is for, I guess, Najeeb or Roger. When we're breakeven-ish on a cash flow basis at $12.5 million, and we should see -- and this should be the low point for the year I will assume. This quarter always is our low quarter for the year. We should see positive cash flow or EBITDA here on out for the year? And I'm not asking for guidance, I'm just saying, if we follow seasonal patterns, there's nothing in the cost structure that's going to change. So as our revenue increases, we would see incremental dollars dropping to the bottom line and we should stay positive cash flow from here on out?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [8]

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Let me come in. You can also add, Roger. But the main thing is, Mike, when you look at the fixed cost or the direct fixed cost, which we by increasing so many full-time employee. That was the biggest part of the cost reduction and savings. That is down and so I don't see any increase on that cost line. I mean, nothing major. If anything it will actually get more efficient. But the second thing is, because as we mentioned there is -- a lot had to do in the presales. And we're meeting the customers, back and forth. There is 1 customer in APAC and in London and in all those markets so those are the cost that which are, obviously, cost of doing business. Now that may grow a little bit in the second half perhaps, because it is again -- and next month is a holiday season so people don't travel that much during the holidays. But second thing is I believe our second half and we said clearly looks healthier. But again, we are depending on some of the large things we're working on. I'm confident some good news could come true, but company is very focused and trying to generate new revenue and new customers.

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Michael David Vermut, Newland Capital Management, LLC - Founder [9]

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Excellent. Now if these hit yes, I know we're already in the middle of fiscal 18. If these hit I assume the major effect will be on fiscal '19 starting in July?

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

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No, I think we expect to have some activity in the second half. I think we're pretty confident. Again sometimes we have the best...

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [11]

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I think we saw recognition, Roger -- I'll jump in. But even if we sign the contract, we have to be careful when we actually bring the revenue in. That's the thing. So we expect to sign something some of these deals in the second half, but Roger -- only Roger would be able to comment on how much revenue to expect from those deals.

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Roger Kent Almond, NetSol Technologies, Inc. - CFO & Principal Accounting Officer [12]

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(inaudible) determines -- once the contract is signed and see the implementation and what the components of the contract. So but I think to your point, Mike, I think if you sign something, let's say, in the end of this year, early beginning next year, then you probably are going to see most of that revenue is going to start hitting, like you say, probably in fiscal 2019 some would probably hit in the second half of 2018 with it then rolling into 2019.

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Michael David Vermut, Newland Capital Management, LLC - Founder [13]

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Excellent. And this is the whole point I was trying to get at. And then if we keep our cost structure fixed cost relatively mild, we get significant contracts coming in fiscal '19. You start to have significant incremental margins flowing to us, I assume. There is nothing incremental and we should see -- that's what I'm trying to get at. We should see on these new contracts, is it 55%, 60% type margin similar to what we've had in the past?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [14]

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Absolutely, I think we'd certainly like to be back but in olden days of gross margins and macro revenue and that's exactly the function of license revenues and the new services income, within the same cost and which we will strive to do that. I'm pretty confident, Mike, that it's now on the top line, the growth and we're absolutely focused on that. And that's -- when that starts to happen I think we will see potentially margins improve all the way top to bottom.

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Michael David Vermut, Newland Capital Management, LLC - Founder [15]

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Okay. Seems like this is the bottom here. So I also stress that the buyback is excellent and to -- and I guess a question for you, is the intension would be at $3 to buy back as much as we can while it's here?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [16]

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Well, we will like to, absolutely.

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Michael David Vermut, Newland Capital Management, LLC - Founder [17]

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And I know there was a -- there was a small window open last time, so we really couldn't take advantage of it. But the window is open for the next month or so, Roger?

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Roger Kent Almond, NetSol Technologies, Inc. - CFO & Principal Accounting Officer [18]

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Yes. We'll have a couple of days. We have like 48 hours then we can go to December 16.

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Operator [19]

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Our next question comes from Tim [, Sebas] private investor.

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Unidentified Shareholder, [20]

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I am one of the -- I believe I'm one of the company's top 5 shareholders. On the cost reductions in maintaining a narrow loss for the quarter was very heartening, I must say. Is that a change in the estimate of cost savings? Did that number go up or was that $6 million -- that's unchanged from where we were at last quarter?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [21]

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Yes, I think the good thing is when we ended the quarter, things were happening as we implemented all the changes pretty much through June 30. And I just said earlier, we're continuing all these efforts across the company. And because now that we are getting more active and hoping to see some new deals in Ascent, that means we're just focusing on Accent and that is the future. So I don't think we have to deal with old legacy systems supporting that much. So that will give us a little more (inaudible) Jumpstart. And I think these -- the improvements on this total numbers, the fact that we have $2.3 million savings into Q1 I believe we just kind of did our own forecasting that we could probably hit $6 million or maybe better for the whole year.

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Unidentified Shareholder, [22]

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Okay. Now I also find the buyback very heartening and I want to thank you for your expression of faith in the future of the company, because it has been difficult here financially, obviously, last few quarters. As far as the buyback goes, you bought back 100,000 shares roughly of stock in August and then that window closed, which was almost 1% of the float and a 450 average as disclosed in your financial filings. Stocks down in the low 3s here, it sounded like the previous questioner that you like the stock in the low 3s. My question Najeeb is simply this, we've got -- we've bought back 140,000 shares. There's another 850,000 plus in the buyback, and yet it expires at -- 6 weeks -- 5 weeks from now, which it might be confusing to the street. Can you explain is -- if the stocks are still attractive, opportunistically, wherever that price is, can you institute -- will you reinstitute that plan as of the first of the year or why is that like that terminating in 5 weeks?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [23]

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Yes, I think maybe it has something to do with the company's governance that we chose 6 months and that doesn't mean that once this date expires that we cannot -- to your question, we will -- we could come back to and go renew it another 6 months. And right now what we're doing is because if you look at our balance sheet, there is significant receivables. And that -- those -- we need to get them a lot more money in the system so that we can and maybe resume the buyback and that's really the plan is. And if once period is over then we believe we could go back to [go] for another 6 months.

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Unidentified Shareholder, [24]

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And then finally yes, sorry.

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [25]

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So from those from it's time to (inaudible) everyone, even ourselves. And my family and my colleagues, everybody is tempted, but of course with a company you have to manage our cash in a way that operations come first and then we have surplus cash and we'll allocate that earmarked to further buying.

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Unidentified Shareholder, [26]

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Okay. And then finally, do you -- Najeeb do you still view the company or do you view the company -- we've had lumpiness, I guess, is the way to describe the company. One of my attractions is I think there's an incredible value-added proposition to NFS Ascent and the company not been recognized in the stock price. And that one day we'll see the holy grail of earning respectable returns on our investment. I believe that's going to come eventually that's why I'm here. Do you still view the company, or do you view the company as a long-term double-digit grower, in essence?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [27]

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Absolutely. Absolutely. Without a shadow of doubt. Look, we remember the names, we were founders and 20 years plus we've always bought shares. And you will never see it fail (inaudible) . Now, the reason is we're building this company as an institution because 1, there is a global opportunity for our business and Naeem will give you what is competitive landscape is, how many of the company will have (inaudible) solutions. And the name leads the customer every day, worldwide. So I think we're very confident and optimistic about the future of this company. It is embarrassing the stock is at $3 (inaudible) , it is absolutely. And I think probably we have announced -- we have not announced any major deals in the last 18 months or so and you know the reasons. It is a long cycle data value is longer cycles in multicountries and new customers. All those things have been there. All we need is 1 or 2 large customers and that does the job. And if you go back to the graph 2015 December when we announced a big contract, of course market responded very well. I think it almost doubled in the amount of few hours (inaudible) whatever [$7 to $8]. So I'm pretty confident. I think Naeem will give you some more color about what he thinks about the product and what the customer feels.

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Unidentified Shareholder, [28]

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Thank you. Sorry go ahead..

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [29]

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I was just going to add what Najeeb was seeing. In terms of the valuation of the company, it is just very strange when you -- when we look at some of the other competitors. I think what we are looking at and okay, regular story is not as well understood but really we are specialist vendor in the financial services space and it's a very complex space. It's not well understood, not many companies can do what we do and that's why one of our competitors is getting a huge premium. I don't know what that reason is for the discount that we get our price, but I think certainly some more business will help. And as the new product -- actually it has been very painful journey for the last 3 years to take the product to market and then we always knew it's going to be tough. But for a new product, to have signed those kind of contracts that we have, and what is in the pipeline, I think that this real story will start to come out. And then we won't have to say anything. It just the market will decide what it sees the kind of business we're going be signing. So I think we have been very -- working very hard and pursuant to get to this point. But we're not looking at years now, we're looking at a few months before the real story of this new product comes out into the market.

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Operator [30]

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(Operator Instructions) Our next question comes from David (inaudible) , private investor.

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Unidentified Shareholder, [31]

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Mr. Ghauri, I'm an investor in my company and I have no objection for you obtaining stock options and stock warrants, but I honestly think that they should be either projected further out when the company is making money, and everybody is making money, rather than just adding stock to your portfolio and other people's portfolio and subtracting that from shareholder equity. As I said, you and your brothers deserve options and warrants, but there should be a proviso that you make money for the shareholders also. And I applaud you and the organization for cutting down on expenses in this past quarter. I just like to know your reaction to my question, and would you do anything to alleviate that problem in my mind.

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [32]

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But I appreciate your question. First of all, these options were granted almost 3 years ago, (inaudible) other options and we have been (inaudible) Exercise them. So right now they're under the water. And certainly, if you will notice, and last this quarter -- last 2 quarters, the board has not and now we've gone to board and then we have plan at least in the near future to exercising your options or filling more grants. So all these are spoken for in the last 2, 3 years and some of them are (inaudible) performing well in the company across-the-board in some key locations. So I understand what you're saying, we're also make very conscious of the dilution effect. You will see a noticeable difference in the -- our new share grants declining and received a number of shares issued in last 6 months is a lot less than the year before. See, we are in a next-generation technology platform here. And there's a lot of people in the company who work extremely hard and they don't get paid -- they don't get paid as -- they don't get paid unless they work Microsoft rather a bigger company. But incentive-wise we give them stock options or even some shares. So we can hold them and when these people owned shares as we know, They have more interest and we have people working 18 hours, 20 hours to deliver and to presale and help company bring the new customers to the table. So I think these are all investments we're making. And it deludes us too, just like yourself, and we're the largest group of shareholders as a family. But I take your point. We see (inaudible) objectively and we are very conscious and you can notice that from the number share issued in the last 2 quarters.

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Unidentified Shareholder, [33]

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Mr. Ghauri, what bothers me is that you give the shares out and some of these people are just throwing it right into the market, and that doesn't help us anywhere as far as stock appreciation goes. They get these free shares and just throw them right into the market.

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [34]

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That is not true.

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Unidentified Shareholder, [35]

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That (inaudible) also.

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [36]

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I don't know if you have been reading the Qs and Ks. Which shares are you referring to? Because insiders are not selling share, instead they've been buying shares. What shares are you referring to?

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Unidentified Shareholder, [37]

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How about when you have some vested shares that some of the executive officers, all of those shares that you've been giving out should be -- all of those shares that you are giving out, they should be big shareholders by now. They should be closing in on a couple of the individuals who just previously talked, but they're not. They remain status quo, their number as their vested shares begin to go out into the market. And they throw it out at any price, because it's free.

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [38]

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Patti, can you jump in and first explain to the gentleman what -- if insiders have been selling any shares. Which shares is he referring to? Could you please put some -- shed some light on this? Patti or Roger?

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Najeeb Ullah Ghauri, NetSol Technologies, Inc. - Founder, CEO & Chairman [39]

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We don't know any insider. And I'm saying that in public, recorded, about selling. And we don't know anyone, whether they're employees -- of course you can see the office, the name of the board member, I'm an officer, my lawyer is on the call. And we have never (inaudible) . And so we don't know of course there's more retail investors and the volume is low for quite some time. You don't see large volumes. When you're buying share buybacks then of course there was some volume increasing. So I don't know where you are getting the information that anyone is selling from within the company or insiders. We have no knowledge of that.

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [40]

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That have been no filings. Nobody has filed anything.

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Operator [41]

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We have a follow-up question from Mike Vermut with Newland Capital.

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Michael David Vermut, Newland Capital Management, LLC - Founder [42]

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Just quick question as follow up here. Can you -- I'm trying to understand the competitive landscape really, what's going on here. Not naming obviously customers or how the contracts are proceeding. Can you just give us an insight as to the feedback from the potential customers? How could the competitive landscape is stacking up to us here with Ascent being launched? And just I guess the confidence we have in winning a lot of these deals. What you're seeing on the ground. How we're stacking up to the competition on the pricing, on the functionality. It's hard for us to tell here what's going on outside of NetSol and just what you're seeing out there when you're going up for some of these large contracts.

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [43]

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I'll answer that. I'll answer that. So Mike, the product really is now becoming a leading product in the market so I can give you some perspective. So a lot of these large auto captive and some of these very large asset finance companies or banks, when they put tender up which is what we call an RFP, typically there is about 3 or 4 vendors, that's all there is. There is a $20 million, $30 million project out there will be 3 or 4 or companies they send it to. And there has not been 1 major RFP that we have not been involved in the last at least 1.5 years. So that's tell you how few vendors are there. So all of those 4 we are dominant in APAC. So literally, we make the shortlist down to 2 in most of them, because of our kind of footprint in the APAC and the auto captive sweet spot that we have, so literally we're market leading. And the next generation -- so we were already market-leading in the previous generation, but this is a game changer. So our -- look, it's really hard to sort of overemphasize this, but really the richness in the domain that we have and the people that we have or work with us for so many years, we have really created a blueprint for making an enterprise really cost-efficient and a lot of automation and digitization. We're going heavily into digital solutions now it's going beyond our current generation. In fact we already embarking on the digital front in a big way.

A lot of our companies want to have -- clients want to have paperless offices and so we really now is the cutting-edge of where the product should be and where we are in the marketplace. So these results will come out. The scrutiny that we go through is just pretty mind-boggling, because we're spending more money now. So typically a project would've been $5 million in the past and the process would be pretty quick, 6 months to 9 months you have deal. But now when you're spending $25 million, $30 million, $50 million, $60 million, they put you through the hoops like we've not experienced in the past. And we're getting better at this. So that's what we're up against. Anybody investing that kind of money is going do a high degree of due diligence on the product before they actually sign the contract.

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Michael David Vermut, Newland Capital Management, LLC - Founder [44]

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So then my next question would be the contracts are larger, more complex. I guess the customers want their vendors to have larger balance sheets, what not. Are we going to see consolidation in our, I guess, our sector? Does it make sense that there are 5 large vendors out there? Or are we going to see NetSol combining with #3 out there and are you going start to see over the next year or 2, real consolidation or is that something that would want to see? Especially -- it's hard for us to do it when we're at $3 at this crazy evaluation. But down the road, will there be consolidation out there to take out some of the competitiveness and build the strength of the company?

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Naeem Ullah Ghauri, NetSol Technologies, Inc. - President, Head of Global Sales & Director [45]

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Yes, the weaker companies probably -- I mean the weaker -- the weaker companies and products. The companies who are not delivering who are not able to complete projects and they don't have the product for the next generation will certainly -- are targets, but we are actually on the opposite end. So we're not looking at doing any M&A, but certainly at some point, something landed on our lap we will look at it. But 4 companies is not that big for the space that we're in. This is a multibillion-dollar space. I think 4 to 5 companies are too few. So consolidation is possible but -- you got to service a large market in a very specialized segment, you're going to need a few vendors. Because I don't think any one vendor is able to service the entire market or even 2. You probably need 3 or 4 good vendors out there. If you look at some of the reports that are out there, Mike, this is $1 billion a year serviceable market. It requires $1 billion worth of product and services a year. And there's only 4 or 5 companies, that's it. So a lot of these projects are not even coming to the market. They a lot of time they are turning to their own IT, because they -- some of the companies can't deliver. And so I think consolidation is possible, but I don't know who buys whom. That you can only guess.

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Operator [46]

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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@liolios.com or by calling them at (949) 574-3860. I would 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 [47]

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Thank you for joining us today. I especially want to thank our investors for their continued support, our customers for trust and believe in our products and our services and of course our dedicated employees for their ongoing contribution. We look forward to updating you on our next call. Thank you, goodbye.

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Operator [48]

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Thank you for joining us today for NetSol's fiscal first quarter earnings call. You may now disconnect.

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