Najeeb Ullah Ghauri - Chairman and Chief Executive Officer Roger Almond - Chief Financial Officer Naeem Ullah Ghauri - Director and President, Global Sales Matt Sheldon - Investor Relations

Howard Halpern - Taglich Brothers. Mike Vermut - Newland Capital Management Mike Hughes - SGF Capital

Good day and welcome to the NetSol Technologies 2015 Fourth Quarter and Year-end Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Matt Sheldon, Investor Relations for NetSol Technologies. Please go ahead.

Good morning, everyone and thank you for joining us today to discuss NetSol Technologies’ fiscal 2015 fourth quarter and full-year results. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; and Naeem Ghauri, President, Global Sales who will join us for the Q&A session. Following a review of the Company’s business highlights and financial results, we will open the call for questions. The call is scheduled for one hour. First some housekeeping before we begin. 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 information 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’d also like to point out that NetSol will be discussing certain non-GAAP measures. The release issued earlier today contains a reconciliation of these non-GAAP financial results to their most comparable GAAP measures. In addition, I’d like to remind everyone that today’s call is being webcast at www.netsoltech.com. Following the conclusion of the call, the webcast may be accessed on the NetSol Web site where it will be archived for 90 days. With that, I’ll now turn the call over to Najeeb. Najeeb?

Thank you, Matt, and good morning, everyone. We are very proud to achieve record revenue for the fourth quarter and year underscoring the momentum we build into our business. Over the past few years, NetSol has changed dramatically and today I believe that we’re stronger than ever before. From a financial standpoint, revenue surpassed our prior record not only for the fourth quarter, but also for the year as we continue to recognize revenue from the implementations of the $16 million NFS Ascent contract and build upon the base of contracts underway. Now the EBITDA improve to a gain of $5 million or $0.52 per adjusted share for the 2015 fiscal year from an EBITDA loss of $2.3 million or $0.25 per share and that does not take into account stock-based compensation. In addition, we ended the quarter with a strong cash balance of more than $40 million. With that as a backdrop, now consider that our client contracts are increasing both in value and in complexity. Where we were once signing a $1 million to $2 million deal and then to $4 million to $5 million contract, we’re now signing some agreement valued in the range of $9 million, $14 million and $15 million or more. These larger and more complex implementations occur over a longer timeframe, providing for steady revenue growth that is exactly what I mean when I refer to game changing deals. As we sign larger agreements for NFS Ascent, we also continue to have healthy demand for our first generation solutions, particularly in China which I will discuss later in the call. Along with the financial strength and a sizable new business pipeline with potential new agreements in various stages of discussion, we’re also stronger from an organizational standpoint. We invest in our delivery centers in Lahore and Bangkok, making a number of senior hirers in the U.K. and in Germany, along with addition in China, Australia and the U.S. An investment that was made not just to get back to where we were, but to greatly exceed it. As I’ve often articulated in past calls, our aim is to grow to a $100 million in revenue as soon as possible, while generating solid return for our shareholders. That piece of growth is expected to come from the large multi-year, multi-country contract we mentioned in the call last quarter. We are making solid progress on closing this agreement and can report that we were selected as a sole preferred vendor and have already implemented a complete installation of Ascent which is being used for training and familiarization by their internal users. The size and scope of the agreement and the fact that it covers a 10-year period, five for implementation and five for maintenance dictates that we take our time. I’d like to provide a specific date on closing; it is prudent that we do not put an artificial clock on negotiations. We will provide a further update at appropriate time. With that, I’ll turn the call over to Roger Almond, our CFO, to review our financial performance. Roger?

Thank you, Najeeb. Indeed, we were stronger than we have been in the past. Revenue for the fourth quarter was a record $15.4 million, led by total service revenue of $10.6 million which includes our joint venture services revenue referred to as services related party. We also reached a new revenue high for the year at $51 million compared with $36.4 million last year reflecting as with the fourth quarter strengthened total services revenue. Services revenue continues to be strong as a result of enhancement and change order requests along with NFS Ascent contracts which carry a larger service revenue component. License fees for the fourth quarter were $1.4 million compared with $606,000 last year. For the year license fees were $6.3 million compared with $5.4 million. We recognize approximately $900,000 in license revenue over the year from the $16 million Ascent deal with approximately $900,000 remaining. Maintenance fees were expected -- were as expected at $3.2 million compared with $2.6 million last year. Maintenance fees for the year came in at $12.2 million and are expected to gradually increase as we implement NFS Ascent and as other customers go live. Our cost of sales were $10.3 million for the quarter and $33 million for the year, up from $9.9 million and $27.7 million respectively. The increase was related to the hiring of new employees as well as higher amortization expense related to NFS Ascent. We expect cost of sales remain stable since most of the hiring is now complete. As you may recall, since 2013 we added nearly 370 technical employees across all disciplines and regions, serving NFS, NFS Ascent, NetSol innovation and along with other -- along with a few other areas. The hiring we are now conducting is primarily for senior staff in the U.K., Germany, and in the U.S. Gross profit for the quarter rose to $5.1 million from the loss of $350,000 last year. For the year, gross profit rose more than $9 million to $18 million from $8.6 million last year. Operating expenses for the quarter were $5.4 million, down from $7.3 million for the same period last year with the decline primarily related to a $1 million bad debt expense taken in the 2014 fourth quarter. For the year, operating expenses were $23.2 million, up from $21.8 million last year related to new business activities, employees conducting demos throughout the world and other marketing activities. GAAP net loss narrow to $707,000 for the quarter or $0.07 per share compared with the net loss of $7.2 million last year or $0.79 per share. Net loss for the year decreased by nearly half to $5.5 million or $0.57 per share from a net loss of $11.3 million or $1.25 per share, which included a $0.13 per share gain from the sale of Vroozi. Removing depreciation and amortization as well as other items described in our press release issued today, EBITDA and non-GAAP measure was $2.7 million for the quarter or $0.26 per adjusted diluted share and $5 million or $0.52 per adjusted diluted share for the fiscal year. This compares to an EBITDA loss of $2.3 million from last year’s fourth quarter or $0.36 per adjusted diluted share and $2.3 million or $0.25 per adjusted diluted share for last fiscal year. Cash and cash equivalents at year-end were $14.2 million, up from $11.5 million last year. With multiple large value contracts in our new business pipeline, we’re very optimistic about the year ahead. However, until we narrow the range and conclude exact timing of the new contracts, so that we don’t put an artificial time clock on negotiations, we are holding off on providing a specific guidance at this time. What I can’t say is that we do expect solid growth for the coming year and we look forward to updating you on our progress. With that, I’d like to now turn the call back to Najeeb. Najeeb?

Thank you, Roger. From Asia Pacific to Europe to North America, our new business pipeline is solid and growing, comprised of potential deals of various sizes and complexity, including conversions of existing NFS customers to NFS Ascent, new customers in variety of industry verticals as well as lease soft and lease back version upgrades. In APAC, we continue to extend our market share and remain confident about our opportunities in that region. As it relates to China, our confidence stems from the relaxing of new licenses from the Chinese regulatory body for new market entrants, along with changing consumer dynamics. The lowering of interest rates and a series of policy incentives recently announced. A recent Reuters’ article highlighted this development, stating exactly and I quote, “Beijing rolled out a series of policy incentives to shore up Chinese -- China's financial leasing business aiming to better serve the broader economy at home and increase competitiveness overseas. Domestic leasing companies are encouraged to improve competitiveness in their core quarter businesses, such as the leasing of aircraft, ships, and construction machinery and are also urged to explore new industries including waste water and sewage treatment, telecommunications, agricultural infrastructure and green vehicles”. Now we believe this is a big opportunity and that no other finance and leasing software provider is better positioned and equipped the NetSol deserve a growing need. Emerging markets in the region, including Thailand, Vietnam, and Cambodia, also are looking to make their presence felt in the asset finance industry providing further opportunity as well. In Europe, we’re making steady progress. We are now getting ready to kick off and upgrade project moving a customer from lease soft Ascent, which we discussed in the last quarter. And we’re actively marketing and demoing the solution to current and perspective clients. In North America, we’re also actively marketing our solution including NFS mobility and remain encouraged about our prospects as you look ahead. We are indeed very excited about our ability to deliver greater value to our customers and shareholders. Again we’re pleased with our progress to date and hard work and dedication for a team throughout the world. With that and for the time remaining, I’d like to open the call for the questions. Operator, please.

Congratulations. Great end to the fiscal year.

Thank you, Howard.

So when you talked about China, I just want to make sure I understand, even though sort of the global view, China is growing. Though we’re seeing industry in that -- asset finance industry is going from the Chinese government perspective, it’s going to be a tool that’s going to be used to start to rev up growth in China?

Yes, I will answer a few comments and then of course Naeem will also jump in. First of all, I believe -- we believe that the leasing industry in China is still very young and then beginning of growing stage -- growth stage and because of the fact that if the economy slows down, have you seen that it actually become the catalyst for the leasing and financing market. And I think when you heard the numbers in the past in some call that we talked about the penetration, the users shaped is really low. We’ve got it from 11% to 15% I think there is a bigger multi opportunity for us and we’ve not directly noticed any slowdown in our demand for our customer. As a matter of fact, some of the deals are large size are from China, so I think Najeem going to add more color, but I feel like comfortable about the opportunity for us. Naeem you want to jump in?

No. Yes, yes sure. Well, how would we started from a very low base in China, because the penetration levels for leasing and finance are still very, very low from a global perspective. So China really is still a very nascent market. The second thing is that, we actually had a slowdown when the regulators stopped issuing licenses for finance companies and they do that when the economy is booming, but they actually got to slowdown. So the market gets too heated, but when the market is starting to slow a little bit, they in fact are encouraging setting up more finance companies, so that they can counter the slowdown. And leasing and finance is really a bit of a Stimulus to the economy if some of the businesses can’t afford to buy equipment in cash, they can actually lease it. So really it’s a kind if -- if you like, contrarian through the through the market. And so we’re continuing to see good growth, a good amount of increase and lots of demonstration on. So reading at the moment things are going well in China.

Okay. Can you also talk about in terms of the service -- services revenue. Can you sort of break that down, I guess, between Ascent, NFS, and existing customers coming to you for new projects or expanding of what they have in their -- on their systems.

Yes, I think we did have a record service side of growth. This fiscal year, but now you want to break it down or anyone can jump in. I have enough information.

Roger would have the numbers.

Yes, let me chose in color on that four -- if you look at the NFS Ascent deal with $16 million deal We’ve kind of broken that app at $10 million is going to be service and licensing with about $1.8 million to $2 million being the license and the $8 million being services. So at this point we’ve recognized probably about $4 million in services related to that deal and about $900,000 of that has been to licensing portion. So the other servicing revenue would come from the change request and we’re also coming from some of the small implementations of the other NFS legacy product it was implemented during the time period. So just -- if you look at $4 million is going to be the NFS Ascent and then the other is going to be change request and then a small portion related to the other license deals that were sold into China during the year.

Okay. Now, I guess looking out a little bit because I mean you see what you have in the general pipeline. But can you sort of break down maybe over the next two years what you hope to see in terms of revenue distribution geographically between Asia Pacific, North America and Europe?

Yes. We believe Howard that Europe is looking very impressive for us. All the investment we made recently, I think the last fiscal year, this fiscal year the one we reported with the addition of some senior sales executives and the plan we have a few large potential NFS Accent deals, and probably one is already mentioned in the prepared remarks. So I believe Europe contribution will grow, at the same time I believe Asia Pacific market would still maintain, its not because of the, a lot of new markets that we are growing and potential pipeline that we talked about could potentially help increase further contribution in the Asia Pacific market. So region wise both Asia Pacific and Europe will continue to show pretty upbeat growth. At the same time the U.S. over here are gradually building our capability to support the lease back upgradation and of course Ascent. At the same time we have good traction for the legacy system in the Latin American market. So we are pretty excited about the growth in all these regions. However I believe overall if you look at the base number we’ve set up, in this results you can see the stage is really strong for us to expect stronger growth in the coming two years and even beyond that. I’m sure Naeem can add some more color in terms of what you feel about the pipeline.

Okay. Well in terms of where we’re seeing the biggest opportunities at the moment, really Asia is still number one and I’d say the next would be Europe and then the U.S. So Asia is still continuing to be strong and most of these projects are typically multiple countries. So we’re recently in discussions with number of potential clients for multiple projects and the same is happening in Europe. There is at least two clients we’re talking about insulations in Europe as well as in the U.K. So really at the moment most action is in Asia, then Europe and then the U.S.

Okay. Well, guys keep up the great work and I look forward to seeing what transpires in the next couple of years.

Yes. Thank you, Howard.

Thank you.

We’ll go to our next question from Mike Vermut with Newland Capital.

Hi, guys. How are you doing? Great quarter.

Fine. Thank you Mike.

Can you just go over your, how we should look forward incremental margins as you start to land some of these larger more predictable deals. How much on the infrastructure you need to add or has that all been added already and cost should stay pretty constant and you get significant dollars dropping down for every incremental revenue dollar coming in?

Sure. Roger.

Yes. As we look through in the past, most of our hiring has been completed, so we don’t anticipate large costs being added to the cost structure. There always will be additional costs as there, as you’re doing yourselves with marketing, as we’re spending more efforts out marketing NFS Accent. But as we increase on the revenue side I would expect pretty much most of those dollars dropping down to the bottom line. Now what you do have to factor in however is that increases in innovation which we expect maybe 10% to 15% growth in our innovation which is our joint venture. Only 50% of that drops down to our bottom line because we own 50% of it and also with PK Tech or NetSol PK, we only own 65% of that company. And so as the dollars drop down there will be that non controlling interest portion that you have to make sure you factor in, but we do expect that most of our cost have been -- our infrastructure has been completed and so we wouldn’t expect large cost to incur as we increase our revenue to $60 million, $65 million what throughout the years.

Right, okay. Yes, then also when you look at it, you guys have a very good idea of the contracts that are in the pipeline, the probability of them getting done and the future cash flow, the cash flow this quarter is very impressive. Is there a point where you say, okay the stock isn’t reacting to this, you start to buy back the stock ahead of all of this inflection if it doesn’t react?

Well Mike, good question. We believe as we always watch our cash flow, cash levels regularly and it was still a growth stage company. We’ve invested a lot in the last two, three years as you’ve seen from the G&A and capital expenses to build a great product and of course I have a lot of people in the structure. While as Roger pointed out we don’t expect any bigger spending this year other than normal R&D, but its better that we use our cash to maintain the growth. I think it’s more prudent to invest in our growth and from time to time the opportunity present we will try to increase our ownership from Pakistan which we wanted to do that for some time, but I think that will be the wise thing to do. That will really improve our EPS if that happen. So for now we’ll watch our cash very closely and find the best way to use the cash and really continue the growth.

Okay. And then one more question here, when you look at your large embedded customer base. How many have already transferred over to the new Accent platform and then how many can we think are going to? Like what, just to get an idea of the pipeline out there.

Well the large deals as discussed I think maybe disclose the size of NFS Accent related deals is much larger. I think quite a few of them in pipeline and under negotiation and it almost made good progress in how soon we can close them. And they are much larger than the legacy R1 [ph] NetSol NFS Solution. So I believe the deals thus go open value take time to finalize. We’ll update accordingly as we believe when we can report the agreement signed up, but I believe these size are quite impressive. All the reason that we believe -- we’re so excited about all the growth opportunities and some reflection in this fiscal year. So we’re pretty confident our, the growth pattern is quite healthy with the robust pipeline. So I think you’ll see onward trend very positive.

Great. Okay, I appreciate. Keep up the great work guys.

Thank you.

Thank you.

[Operator Instructions] And we’ll take our next question from Mike Hughes with SGF Capital.

Thank you. Just a follow-up on your comments on China. Have you actually done deals outside the core auto leasing market; there you mentioned shipping equipment and planes. Is that all ahead of you at this point or you actually recorded revenue in those verticals?

We have done one, few banking deals Naeem can mention though I think the R1 [ph] and of course where is the pipeline for the [indiscernible] vertical.

Yes, well in China we have one very, very large client which is a bank which only does aircraft and ships, so they already are a NetSol client and we have a sprinkling of other clients as we are predominantly auto-captive. But I would say maybe about 10% would be non-auto, they would be made big ticket asset leasing companies and some do planes and some do ships, some do both.

How would you compare the opportunity in big-ticket assets to your core auto leasing, because I would assume that’s a very large opportunity?

Well actually funny enough, the opportunities in terms of what we can get for our solution, not necessarily by the asset type or asset class, really it’s for volume business that generates more revenue for us. So an auto manufacturer if they do 500,000 contracts a year by leasing Mercedes or a Toyota is far more lucrative for us as a client than somebody who does five aero planes a year, because their system need is although complex in terms of the asset class but they don’t really have huge budgets for systems because they don’t have huge volumes. So, only this one client in China who developed a very very complex system, they spent a lot of money. But typically these big ticket asset companies they don’t write a lot of deals. The systems are not typically that sophisticated.

Okay, that makes sense. Thank you. And then Roger, do you have the geographic revenue mix for the year or the fourth quarter, either would be fine. Do you have that yet?

Yes. Yes, for the year North America is bringing in about 10%, 11% of the revenue, Europe is about 14%, then Asia Pacific about 75%, then that’s for the year.

For the year. Okay, great. And then on the salaries and consultant line it was $4.9 million in the March quarter and then it fell out close to $6 million in the June quarter. What accounted for that increase, because my impression from the last call and then some of your comments in this call was most of the hiring was behind you. So can you just speak to that increase?

Yes, there was some hiring during the fourth quarter, but what usually happens is in Pakistan they have -- when they do their salary increases they do one for the lower employees in January and then in April was when they give the management their salary increase. Then you have your year end bonuses, commissions et cetera that get pushed into the fourth quarter. If you look at the last year in 2014, when you compare the third quarter salary and consultant for the fourth quarter, salary and consultant expenses you’ll see the same dynamic of that increase in the quarter. So that’s where you’ll see that increase from third quarter to fourth quarter.

Okay. And then a similar question, the depreciation and amortization number was what nine [ph] in the March quarter then it stepped up to $2.8 million in the June quarter, what's going on there?

Yes, during the fourth quarter we -- there were three intangible assets that we, that were sitting on Pakistan’s books that we wrote off. We completely amortized, they were with some older non-core products, and -- so we just, there was $1.2 million associated with those three products that we just completely amortized to zero. So now the only intangible sitting on the books of Pakistan will be the NFS Accent going forward.

Okay. So the $2.8 million number will step back down to maybe the 1.7, 1.8 range?

Correct -- correct.

Okay. So that was somewhat one time in nature if I adjusted for that you actually would have been EPS positive in the quarter I think?

Exactly.

Okay. And I appreciate your comments about not giving guidance, so you certainly don’t want to give the clients too much leverage in the negotiating process, but you’re almost through the September quarter, so how should we think about revenue for the September quarter, will it step back down a little bit?

Yes, let me jump in. I think first of all Mike, the quarter is looking good, its shaping up quite nicely and we see strong growth year-over-year, and of course we’re building a good stage position to have stronger revenue for the whole year, and typically I don’t know how long you’ve been holding out share, but historically Q1 starts slow, then it builds up providing momentum each quarter and then by the time you see them have, in the first half you’ll see a much more improvement when you compare sequentially, but the quarter is looking good, definitely very stronger than the last year’s same period, and we’re comfortable the way its moving up and of course we still haven’t closed the quarter yet, so we can't really give exact numbers and all.

Okay. That’s all I had. Thank you very much.

Thank you, Mike.

Thank you.

And at this time we have no further questions. I’d like to turn the conference back to Mr. Najeeb Ghauri for any additional or closing remarks.

Thank you again for joining us today. As always on behalf of our board and management team throughout the globe I express my deep gratitude to our shareholders for their continued support and we’ll talk to you next time. Thank you very much. Have a good day.

That concludes today’s conference. We appreciate your participation.