Patti McGlasson - SVP Legal & Corporate Matters, General Counsel and Corporate Secretary Najeeb Ghauri - Founder, Chairman and CEO Roger Almond - CFO

Howard Halpern - Taglich Brothers Mike Vermut - Newland Capital Management Sherli Looi - Garrison Bradford & Associates

Good day and welcome to the NetSol Technologies 2016 First Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Patti McGlasson, Senior Vice President of Legal and Corporate Affairs, General Counsel and Corporate Secretary. Please go ahead, ma'am.

Good morning everyone and thank you for joining us today to discuss NetSol Technologies' fiscal 2016 first quarter results. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; and Roger Almond, Chief Financial Officer. 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 would 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 web cast at www.netsoltech.com. Following the conclusion of the call, the web cast 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, Patti, and welcome everyone to those on the call here in the U.S. and North America, as well as those participating from Europe and Asia Pacific. We are off to an excellent start for the new fiscal year, posting solid top and bottom line, in what historically, tends to be a slower quarter for new business over the summer period. Let me share some highlights with you, which contributed to our results, including, the new wins in China for new Chinese auto manufacturer clients. We also had additional requests and increased utilization by current customers. We have seen impressive growth in our joint venture with the innovation growth. We also saw enhancement work for leaseback with a major auto captive company in the U.S. Also initial Ascent application testing or by way of model office for a prospective NFS Ascent client and continued delivery of multiple contracts, including our $16 million NFS Ascent deal for a major Japanese financial institution. We are making strong progress throughout the world, and fully expect this trajectory to continue. One such area highlighting this trajectory is our growth in China. It is a very exciting time to be in the finance and leasing sector there, and I believe that our opportunity today is stronger than ever before. Our confidence stems from our market leading position and China's stimulus efforts aimed at increasing consumption and encouraging leasing and financing. Interestingly enough, passenger vehicle sale in China increased at the fastest pace in seven months, after the government cut its tax on car purchases, and the fact, that for the first time, China's middle class outnumbered the U.S. These trends and emerging middle class and increased consumption, provide excellent opportunity for further utilization of our software. Let me share an example with you; on my recent trip to China, I met a few of our clients, including one of a key multinational auto finance company, that began operations less than three years ago in China, and now has nearly 0.5 million contracts on our NFS R1 solutions. They project their contracts to more than triple over the next three to four years, further growing their revenue share and top line with NetSol. Our team is very excited there about the role ahead and the two new clients we recently signed in China are the beginning of what we believe will be more to come. Given the strength of our global new business pipeline, we expect our growth trajectory to continue and to further accelerate, once new NFS Ascent contracts are executed; in Asia Pacific and in European markets. As we signed these new agreements, they build upon our existing revenue streams, providing for much more predictable growth. With that, I will turn the call over to Roger Almond, our CFO, to review our financials. Roger?

Thank you, Najeeb. We are pleased with both our top line and bottom line results, as we implemented some cost containment initiatives to offset some increases in new business marketing expenses. Our aim is to lock in long term projects to provide for a steady ramp-up in revenues, while optimizing our expenses to drive toward GAAP profitability, and ensure that as much as incremental revenue as possible drops to the bottom line, as we continue moving forward. Revenue for the first quarter was $13.3 million, again led by strength in service revenue and further growth with our joint venture, NetSol innovation. License fees were $1.2 million compared with $1.6 million last year. Total maintenance fees, which includes related party maintenance fees, increased 11% to $3.2 million from $2.8 million last year. Total services revenue, which includes related party services revenue increased 54% to $8.9 million from $5.8 million last year. We recognized $1.3 million related to the NFS Ascent Model Office and approximately $900,000 as it relates to the $16 million NFS Ascent project. As a percentage of total revenue, total cost of revenue decreased to 59% from 69% of total revenues for the same period last year. We expect cost of sales to remain relatively stable since most of the hiring is now complete. Gross profit for the quarter rose to $5.4 million from $2.2 million from last year. Operating expenses for the quarter were $5.5 million, nearly equal to last year, with an increase in selling and marketing expenses related to new business efforts. Offset by a decrease in general and administrative expenses as a result of cost containment initiatives and lower depreciation and amortization expense. As a result, GAAP net loss narrowed to $411,000 for the quarter, or a $0.04 loss per share, compared with a net loss of $1.8 million last year or $0.20 per share. Removing depreciation and amortization, as well as other items described in our press release issued today, EBITDA, a non-GAAP measure, was $1.4 million for the quarter. Or $0.14 per adjusted, diluted share compared with an EBITDA of $600,000 for last year's first quarter or $0.07 per adjusted diluted share. At September 30, 2015, cash and cash equivalents were $10.1 million versus $14.2 million at June 30, 2015. Accounts receivable and accounts receivable related party were $11.9 million, up from $10 million at June 30, 2015. The quality of our receivables remains strong. In addition, revenues in excess of billings were $6.6 million, up from $5.3 million at year end. That equates to approximately $18.6 million that we expect to turn into cash. We are in a very sound financial position to generate increased value for our shareholders as we execute on our growth plan. With that I would like to now turn the call back to Najeeb. Najeeb?

Thank you, Roger. So we are very excited and very optimistic. Our turnaround is real. Our results confirm that. All indications show that our growth is robust and has positive momentum and not relying on any one deal. Our focus is on consistent revenue growth at the same time to improve bottom line by optimizing [indiscernible] as well as economies of scale. I know we have a well thought-out, long-term growth strategy and business model that is working. Simply put, our teams across the globe are executing. So much so that our team throughout the world is energized like never before, morale is very high as we win new contracts and make steady progress on our growth and profitability objectives. With that, and the time remaining, I would like to open the call up for questions. Operator?

[Operator Instructions]. We will take our first question today from Howard Halpern with Taglich Brothers.

Congratulations, guys, great start to the year.

Thank you, Howard.

In terms of, I guess you talked about the cost of sales remaining steady, so by that measure we should see gross margin percentage continue to expand throughout the year?

Correct.

Yes, but Roger can expand more, so --

I think we reached our hiring that we'd done. If you look back at our cost of sales compared to like the 3rd quarter, our revenue is pretty similar to what we had in the 3rd quarter. And, I think our cost of sales are pretty, our salaries and consultant expenses were just slightly up in the 3rd quarter. So I think, because we have hit our hiring peak, we're, we have now, our cost of sales should be relatively stable going forward, and we expect it, as we continue increasing revenues, that more of that will be dropping down to the bottom line.

Okay. And, can you talk a little bit about, you talked about the strength in your global pipeline. Can you talk about that strength in terms of the geographic dispersion that you see out there?

Are you talking about overall business or any specifics?

Overall business. If you want to break it down into, you can. But geographically how, what is the strength in the pipeline?

Sure. Absolutely, last three quarters I believe, we seem consistent improvement in the pipeline and we've seen a lot of traction, not just for the legacy R1 solution but also, of course, for the Ascent. Our biggest revenue is coming from Asia Pacific primarily from China, which contributes almost 35% to 40% of the total revenue. I believe China has, the whole APAC region, which involves many other countries in the region, but we have sizable deals, deal flow, including one of the big contracts and some others that are Ascent-related as well as change requests, further new licenses. I have noticed, when I was in China last month, the improvement in our activities for the R1, simply because there's a lot of new auto manufacturers in China who are coming up so that really offers, that is a lot of opportunities for the R1 also. Asia-Pacific still speaks for close to 70% contribution and I think the pie is going to grow as we grow overall. But when you look at Europe market, we have very impressive activities. A few large deals in the Europe market for the Ascent and continuous improvement on the LeaseSoft operation and of course the change request. So, both markets are in a pretty good position for us, and I think we continue to see exciting development, especially in Asia-Pacific. In the US we've been reasonably very aggressive in two ways. One, we are seeing noticeable improvement on some enhancement change requests from some of the large auto customers because US auto sales have done very well, as you know, in the last 12 months or so. So that helps some of the customer to upgrade. We've also seen some activity in the mobility. Recently, we have been pretty, spending a lot of conferences and a couple of new hires in the US market to specifically focus on the mobility. So broadly speaking, we are in a pretty good position in terms of where the pipeline is going and how we converting and you can see some benefit in the last two or three quarters. But, I am very excited about the future outlook, how this thing is going to convert in all these markets.

Okay. You mentioned, I guess in the press release to, that you had existing customers coming to you for requests, doing further business. What type of size and timeline are we looking at in terms of those existing customers in their requests?

One of the examples I just mentioned, Howard, in my prepared remarks is a large auto captive company in China. It is a multinational. And I was, myself, surprised to see how they have grown in China. The top five performing in auto sales. And they have continuously dependent on NetSol, constant change requests because they're adding more contracts, the volume is growing. So, we see this is an instant revenue contributor. It does not take very long to support them and make the changes and enhance the capability. At the same time, if you look at the whole market in China to, we have seen that trend. And, I spent a lot of time with some of the customers and across-the-board they had the same opportunity, because it's a very young market and it's still growing, and it's going to grow for many, many years. Similarly in the US, we have the same opportunity. We just implemented a local system with the current customer where their business is also growing. So I think this is for us maybe low hanging fruit but it is consistent. You can predict the contribution in the coming quarters. We have a full support mechanism to support our R1 customers worldwide. And, as we start closing Ascent deal, this will have a better impact on our top and bottom line.

Okay. Well great job and keep up the great work, guys.

Thank you.

Thank you.

[Operator Instructions]. We'll go next to Mike Vermut with Newland Capital.

Great quarter there.

Thanks, Mike

A couple of quick questions here. Can you just kind of discuss your European pipeline, the size of the deals you are looking at, are they NFS, Ascent? What is the scope of them? What is it going to look like over the next few years? How much contribution we're going to be getting from Europe?

Yes, sure. We are really excited about the progress we have made in Europe, especially in the last 6 to 12 months. And, this is mostly to do with Ascent. We have successfully built a strong front-facing sales team based in the London office. They come from the industry. And, they are all Ascent driven and Ascent focused. So, we have seen a few middle-sized deals, bigger than the previous deals of $3 million or $4 million, but bigger than them in terms of size and scope. But the good thing is, they all our Ascent driven. It shows that some of the markets like the UK, Germany, Netherlands and of course in Italy, that there is a good traction for our system with the technology platform. So, I am very confident that UK business will turnaround and it is also showing in our results in the last few months. So, the sizes are much more improved. The current system, which at least saw it stable. We generate good, decent maintenance income but future is Ascent. Some capital finance companies, a couple of banks, some are existing customers, some are new. So we're not depending on any one deal in any market. We're depending on, in both Europe and Asia, and all the potential pipeline that we believe we can close in the coming months. So, I am very happy to say that, while some of the countries are struggling, but these markets I just mentioned are a good place for us to get some new contract, mostly Ascent driven. The team is extremely bullish in terms of what they are seeing out of the market and all the response they are getting, so I'm pretty pumped up that the new deals will really help grow our revenue in the Europe also, just like in Asia-Pacific.

Now, It's hard for us, you've been doing the last few quarters have been doing fantastic, the cash flow generation has been excellent. It's hard for us to kind of gauge, because we don't have insight into your pipeline, what the growth trajectory of the company should be over the next two, three, four years? Is this a 10% growth market? Are we at an inflection where we start to see 10%, 15%, 20% growth? Where are we on the product cycle and the growth of the industry for you? It was kind of stagnant and now we're starting to see the real growth and the translation on the bottom line. Where we going over the next two, three, four years with this company.

There are several parts of your question so let me address for the big picture. I believe what you've noticed in this quarter, Q1, jump from 30%, I believe, from the previous quarter, same, previous year, same quarter, and then the growth you've seen, pretty phenomenal in the year end 2015. But, I think the way of looking at this whole opportunity for us, we are very ambitious about the achieving the goal we have set for two, three years from now, maybe sooner. We know the budgets, in fact, internally we know what the revenue projections are, obviously. We're watching it very closely each quarter after quarter, and I think as we start to see closer on some of the large deals, and the deals I just mentioned, we can achieve our big number that I mentioned even the last quarter, which is, of course, the first milestone would be, and I'm very ambitious along with all my team, to hit the $100 million revenue at some point. When that happens, it has to be sooner than later. It all shows the continuity and the momentum we are built, Mike, not just Ascent, but I just mentioned about the services that come from Innovations Group for example, very strong. The change requests, but again the big picture is, continued momentum for the Ascent. And some of these contracts have high volume, multiple countries, value. Each country is bigger than in the past, simply because of the benefit our Ascent is providing to our customers, the ROI. One of the customer we mentioned, we announced about a year ago, a $16 million deal and I just mentioned the Japanese financial institution. It's right on track. Those kind of reference is bringing new potential customers to look at the system. I'm very confident, Mike, to see the growth away from $50 million, $60 million and really start hitting the number we all want to see. And that also ties to a bottom line, because essentially we are very focused and committed on improving not just the top line, but the gross margin and the net margin. As Roger just mentioned that we have control, rationalized our cost structure because now we want to ramp up. One of the things, which is in our benefit is really the economy of scale and optimizing the revenue per headcount in the technology space. So, there are a lot of things happening to the company, especially in Lahore, we spend a lot of time there. We've brought in some talented professionals from all over the, in a different sector to improve efficiencies and productivity. I think the company is in a great position right now. And, we're looking forward for a much stronger earnings in the coming quarters.

Okay. I have two more questions so bear with me for a minute here.

Sure.

When we look at your current, you have a Who's Who of a customer base, right? The blue-chip customer base, do you expect to see, and I think this is the whole everything you have been working up to now to accomplish, that we will see these Fortune, probably 100 most of them, companies start to roll out Ascent, country by country, whether it's year-by-year. Are they, is it your intention or understanding that we will get the majority of these large customers that have been on NFS, to roll out Ascent over the next two to three years?

That is a very good question. I'm glad you asked that. If you look at the competitive landscape, of course, it's hard to find because most of the companies are private. But we know our competitors. One thing, which is very, that stands out for NetSol, that is our delivery capability and, of course our delivery footprint. While we are in a pretty strong position in China, the de facto leadership, with close to 23, 25 customers and that trend has continued to grow. I believe when you look at many other big companies who are, use our system for the last 5, 10 or 15 years, they have no choice but to run, continue to do work with us, because they depend on NetSol's delivery capability and support from all of our delivery centers. B, they also have, as the companies are growing, some of the companies who are Fortune 100 companies in Asia and Europe, they have to either go to the next technology, which is Ascent, because it has much more, bigger capabilities, more features, more robust in our application, functionalities. It also improves their ROI and larger companies are all about ROI. If someone is using NFS Ascent a $2 billion or $3 billion portfolio, it matters to them who they are working with. The last thing anyone would do to, well 5, 10, 20 years with NetSol and then they decide to go elsewhere. Now that they get better platform, better support at a better cost, but they also have the comfort that they're dealing with a company that they've dealt with for many, many years. I think long-term these companies have limited options. Either they go with NetSol or a handful of few companies. What we have done is very intelligently, the board is very engaged in how we grow this company and how we grow our capability, is to really invest in our talent pool in Lahore, and London, and Bangkok, and China. This is how we believe the Company will go forward as we continue to bring bigger deals, because most of these deals are multi-country anyway. If we have a few global customers, and you don't need a large number of customer, you need larger customer where they have a global outreach and they want to use the same system in all the markets. So let's say Asia, or all the markets of the other ones, eventually will come to North America when we're fully ready, in terms of our capability to support local. You will see that happen. So, all those questions, I believe they are very relevant for us and exactly what we believe that long-term most of these companies will switch with Ascent, even the new customer because the reference matters. I just mentioned about the Japanese client, up in the, signed last year. It's going live in three or four stages, so that is very positive thing, so that what really brings a new customers.

Excellent. Now the last question is, you have a very good understanding of the trajectory of these revenues in your cash flows, and if I do the math on the billings over revenues and receivable increases and receivables, you have about $2 a share of cash in the company. Is there a point where the, certainly the Pakistani listed stock is not reflecting the value, or stock here is certainly not reflecting the value, that you take advantage of this before we really start to see the bottom line leverage and sales ramp? And aggressively, either increase the ownership of the subsidiary, or even take advantage of the valuation here considering that there is about $2 of cash in the stock.

Look, I agree with you. And we've discussed that a few times in the past. I believe ownership in PK stock is that amount to parent, to NTI. And, there is a benefit in every way, and I think the Company has a strategy in place, it's a question of timing and how best we can manage our cash flow. He mentioned, Roger, in his prepared remarks, that we have $18 million to $20 million revenue that we can convert into cash in the coming month or this year, plus more new revenue that we are expecting in the next three quarters. So, I think it is a strategy. Mike, I don't want to commit a timeline but believe you me, I am more anxious to see that happen.

I would just say do it before the market recognizes what you're doing.

Yes

It's an advantage for the company to take advantage of this if investors are not willing to.

I totally agree with you. We have the same, we think alike, actually.

Alright, well fantastic job and it's going to be an exciting next year.

And we'll take out next question from Sherli Looi with Garrison Bradford and Associates.

Yes, good day. Thank you. Congratulations on the good quarter. I need to clarify something that I heard early on. Did you say in China you currently have half a million contracts and will triple in three to four years. And, what are these contracts? That is what I'm not clear about.

Well, yes. The question is what are these contracts that we mentioned about one of the customer. So we have customers, quite a few of them in China, most of them are using our legacy systems for quite some time. And so when they buy our solution, which is end-to-end enterprise solution to run auto finance, leading portfolio or finance portfolio, as the, and in each contract with them we signed there is a threshold of how many contracts of leasing they can have based on the pricing when we initially signed the agreement. So as the business grows, as auto sales or whatever assets they are leasing, whether they are trucks or any asset based transaction, as that grows, they are required to enhance the capability to be able to deliver those lease agreements to their borrowers, or lessees. So they come to us to and they say, okay we want to grow through change requests, that means add more capability to do it. If they were allowed 200,000 contracts now they want 400,000 and then 500,000. It basically shows that these companies, particularly in China, and I was mentioning that as the auto sales are growing in the middle class across the country and expecting the bigger cities, the companies, multinational for example, let's say BMW or Volkswagen, but these companies, if they are doing well, or Mercedes-Benz, if they are doing well then they have to come to their vendor, which is it in this case NetSol, and say, well we want more capability to be able to sign more contracts. And then we give them that capability and then we charge for that. Each time they come to us to add more contracts, we have to charge them extra and that includes improvement revenue. And that is what I meant when I said one of the customer has grown from 0 to close to 500,000 contracts in less than three years. Now they're projecting maybe 3 times to 4 times in the next three to four years. So that will definitely help improve our top line and bottom line.

I see, thank you. And you did say that there are about 23 or 25 customers in China.

Yes, that is about right.

And what would this be in terms of market penetration, your market share?

In this domain, of course leasing and finance, we're pretty confident we have a leadership position. Because there is perhaps less than 30 to 35 multi-nationals, leasing companies, auto manufacturers and we have most of them as our customer. Of course, I'm not going to announce the name, because some of them are not announced publicly, but they are multi-nationals operating, doing business in China through manufacturing and through leasing. And then of course, a few local Chinese manufacturers are also going to lease, and as I just mentioned, two contracts that we signed, based in Hangzhou. They also are leasing and they are using our system. So we are in a pretty good, strong position in China and we want to continue to be in that position and grow by adding not only new customers for Ascent, but also continue to grow within the customer range, base that we have.

Great. I have one more question and this is pertaining to your income statement. I noticed that the license fees has dropped relative to the previous year. But your revenues have tremendously improved on the service related party and the services. Why is that and what is the services related party?

Yes, I think that my CFO will be better to answer that, but I can assure you that one of the reasons service revenue is growing is, of course I mentioned about the additional increment on the service change request and also our joint venture, Innovation Group, which is doing very, very well. And that's all service revenue. But the license fees and more, I think Roger can well explain.

Thank you.

Yes, exactly. What Najeeb said, if you look at services related party that is with Innovation Group and that continues to, we own it as a joint venture that we have with them. We own 51%. And that continues to be strong quarter after quarter. And so that is where you see the services related parties with that joint venture. Now with a license revenue, we did decrease of a bit. We did sign to deals in China this last quarter, but only one of them was able to be recognized into revenue, because we hadn't completed our requirements to recognize the license for the second one. So you will see that hitting in quarter 2. In Q1 we hit, we had the $16 million project that we continue to speak about. We recognized about $210,000 in this quarter related to that project and then we picked up about 700,000 related to the Chinese company. And then the difference is some within North America and Europe where we added additional seats, what they call it where we go in and, as Najeeb had mentioned earlier, where people increase the amount of contracts they had. They come to us and need more services or more licenses to be able to take care of those contracts. So that is the, what we recognized in license revenue this quarter.

Then also a very simple question. I noticed you have a relatively larger loss in foreign exchange currency. What are your major exposures, in terms of the currencies?

Well in Pakistan, is who we have the biggest exposure there. So they have contracts that are in euros, in pounds, in dollars, in renminbi. And the three biggest that they have are in dollars, euros and renminbis are the three. And so that is the exposure. And, you will see that, that will fluctuate up and down as most of our receivables are in those three and depending on what happens in, comparative to the valuation of the Pakistan rupee compared to those three currencies will fluctuate the foreign currency gain or loss.

And now I'm back to the big question. Just now I heard the CEO say that the software is not quite ready for United States. Is that correct? Did I hear it right?

No --

Oh it's not. Please go on ahead.

No. I think what we did was by strategy, we were getting a lot of traction in Asia-Pacific when we rolled out Ascent over a year ago. So we were really busy in treating those customers. Some of them have already gone live, some are in the middle state of going live and then others are in pipeline. The same thing happened in Europe. So, we're going a market at a time. And if anyone, and we have entertained some of the requests in the US, in which we are already entertaining. So we are ready but it's just our own priorities, how we can manage the from the front and the back, because Ascent is a very complex application. It needs a lot of trained people in the US market, which is a much more saturated, a much more I think well-informed market. So for this you need to much more ready from the sales perspective, but from the product perspective. Anybody can come to us today and they can at look the product and then go with us.

I see. And if you do, when you feel like you are ready to set up the US market, do you need to make another capital investment on training the sales people and your technical people?

Well see, the way it works is that, like in the UK, about a year ago we hired some, three or rather four, key associates from the industry. They brought enough knowledge, the main knowledge for the new technology platform. They didn't need any training. They didn't need to understand how our business functions. So they are now, because of them, we have seen a very good pipeline activity and pretty confident some will convert within the fiscal year or maybe sooner. In the US, we just want to make sure that when we come to the US market we want to be fully ready in terms of delivery, support capability and meeting the customers and meeting the requirements. It may not require demonstrating because we have a lot of people but maybe in the front line, two or three, we did hire one person just two months ago from US. He is doing a great job. I think it's not going to require a lot of capital, we want to make sure that we are focused and able to manage the demand and not disturb any other major implementations that we're working on right now. The U.S. is a very big market for us. We've been here for many years. And I believe, long-term, medium to long-term, this market will do very well for us.

Oh, good. Do you have a timeline to be more exposed to the US market?

I would say by end of this year, fiscal year, yes. And like I said, there is already activity here. There is traction. We are fielding RFPs and RFIs and it's an ongoing thing. I mean, Ascent is available globally. We want to make sure that we have the capability in the US to support them and it's a very big market. It's not like Asia terms of size and volume. But definitely we want to make sure we can totally go after the big customers and make it happen. So this year we're building up.

Thank you. Congratulations.

Thank you.

Thank you.

[Operator Instructions]. We'll go next to John Serafini, a private investor.

Yes. Hello, gentlemen. Nice to talk with you again, Najeeb.

Thank you.

Great quarter, again. I'll echo the other comments that others have made. Just a quick question on potential capital inputs that you might see are necessary over the next few years. It seems like you built your building, and I assume that is being paid for over time, as opposed to all at once up front. You have also made your large investments, it seems, and your workforce and training them and you'll add incrementally to that. Are there any other capital inputs that are significant that you foresee coming up? Which could somehow impact the gross margin which you been able to get down to 59% which certainly is impressive.

Yes, John, I think we are quite comfortable actually. Our budget, again for internal, speaks for very little capital investment in this fiscal year. We are pretty committed to grow the revenue with stronger margins, both growth and operating margins for the current, existing infrastructure. What we do is, on a strategic basis, we'll hire some very senior talent from the different markets to meet specific long-term needs, but broadly speaking we have the right headcount makeup in all of our locations. So, I do not anticipate any further investment on the infrastructure, nothing to the level which will affect our margins. But also at the same time, we are right now focusing on optimizing our revenue including our productivity from the number of people we have. And that, to me, is going to be a bigger driver to see, not only improved revenue, but also improve the gross margin. So to answer your question simply, I don't think we see any major or even commitment to expand further infrastructure because we're pretty satisfied with what we have.

Good. And the second question on related -- Just in general business terms, there is a lot of talk in the financial press and otherwise about either a world slowdown in economic activity or perhaps an Asian focused on. Obviously, Europe has been slower and maybe coming out of it over time. It sounds like, counter to that trend, your sales in Asia, especially China, are going against trend and are accelerating. Is that a correct assumption? I mean, are you worried about some general slowdown in business that might impact what you are doing in Asia and/or China, or are you pretty much content to say, no, those are likely to grow regardless of whether the world economy or the particular Asia economies in general slowdown? Your particular segment is likely to be insulated and because of your position you are likely to increase your market share and your revenues?

Yes, I think, absolutely I agree with you. It's exactly contrary to what is seemingly happen, there's some slowdown. And, I will just focus on China because I spent a few days this last month and spent a meeting with my key customers and my team and looked around what is really happening there. So if you look at the macro level, John, I will just spend a couple minutes. The macro level, the growth has rose from, let's say, 9% in the last so many years to down to 6.9% to 7% this year. And at 7% for a $12 trillion economy, that's a lot of the economy size there. So that is a macro picture. And when you look at the micro level in the leasing sector, which affects our space, I believe they have about 350 auto manufacturers, local companies in China. They have sizable population of middle class, which has outnumbered the US middle class, and they have motivation and ability to buy assets, whether they are buying smaller or bigger cars but they also are now getting into leasing option. And, this is where we believe for NetSol-like companies, regardless of where the market is, 7% or 5%, I believe that the sector is still very young and the market penetration, in terms of car ownership and lease ownership, is hardly 15% compared to 80% of the US market. So, we see that because of how young this economy and this market is, and how big the size is, I think NetSol will continue to, I believe, continue to progress, improve revenue because there are a lot of companies, small size, middle size and multinational. Now the multinational, they can easily, eventually switch. Some of them will switch to Ascent. They have no choice, you remember. Just recently, I saw a, some report that in the Chinese market, that Mercedes Benz had the record sale in China like never before. So, they are growing. Many other names I can't mention, all these customers that we are supporting, I think they have no reason to store down their demand if their people are buying cars. I believe, in short, our sector is very healthy. I think if overall global economies closed down, to us it's a catalyst, because if you can't afford cash, the economy's down, then you can certainly afford to lease or finance as you see in the US market. So I don't think I'm worried about the global economy. And focus, my team is focused on Thailand, Australia, Japan, China, South Korea, in the US and of course in the European market. I think we're in a pretty good spot and the demand is there and we are very busy supporting all our pipeline.

Well, that is great. Good job. Let's wish you good success and even better conference calls in the future. So, thanks again for all your work.

Thank you very much.

And we'll take our next question from Mike Vermut with Newland Capital.

Guys, one follow up there and you really said it about your pipeline. Could you just give us some insight into how the pipeline has developed over let's say the past six to nine months as you have launched Ascent? I guess was it nine months ago? A year ago?

Yes.

That it launched and how the pipeline looks now? Is it similar, is it 2 times, 3 times, 5 times? Are you seeing, just a sense as to what the landscape looks out there. I think that would be helpful for us.

Yes. Okay, so without a question, Mike, we have noticed, since we launched Ascent, we have seen much improved traction in the APAC markets, few sizable projects, we've seen improvement in the UK market. A few clients but, again, improved a lot. I believe, if I were to allocate percentage between Ascent and the services it could be 60/40 because if you look at the size, I'm not in the liberty or a position to give you a specific number of the deals we are working on, but I think if you look at the size based on multi-countries and the larger customer names, it could be quite a big chunk. So, I believe we have definitely improved our visibility, our pipeline, both markets, Europe and Asia. And so, I am seeing exciting development where the customers take time, they are taking time because there's layers of people involved in the decision-making. But, because of the size of these deals quite are impressive, that will really help, I believe, achieve our bigger number that we just talked about in your first questions. So, much improved. And also, surprise to us that, because the Chinese market or even so in the US, continue to demand more on the services so the existing legacy system, that also is a good trend. We've noticed that in the last 6 months. I could not say that a year ago, but you can see the way the services, I mean, has grown, in the last three, four quarters consistently. That is because the customers are doing well and if they do well our software is in more demand. So in a nutshell, I am confident that our pipeline that we just mentioned will translate into, convert into numbers that we all want to see and on a consistent basis. One thing I want to reiterate, Mike, is that companies are depending on one deal in UK or one deal in the nation. No, we are depending on all the picture that we believe is continuity and the momentum is there and we'll continue to make sure that we achieve our internal goals or beat our own internal goals to make this Company a very healthy and stronger earnings-based company.

Excellent. Thank you, Najeeb.

And at this time I'll turn the call back over to our speakers for any additional or closing remarks.

Well, thank you again for joining us today. And 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. We will see you next time.

Thank you and that does conclude today's conference. Thank you for your participation.