Patti McGlasson - SVP, Legal and Corporate Affairs, General Counsel and Corporate Secretary Najeeb Ghauri - Chairman and CEO Roger Almond - CFO Naeem Ghauri - President, Global Sales Jeffrey Bilbrey - President, NetSol Americas

Howard Halpern - Taglich Brothers Scott Reed - Vict10n Capital Strategies Mike Vermut - Newland Capital

Good morning and welcome to the NetSol Technologies’ First Quarter 2017, Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Patti McGlasson, Senior Vice President, Legal and Corporate Affairs, General Counsel, and Corporate Secretary. Please go ahead.

Good morning, everyone and thank you for joining us today to discuss NetSol Technologies’ fiscal 2017 first quarter results. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; Naeem Ghauri, President Global Sales; and Jeff Bilbrey, President NetSol Americas. Following a review of the company’s business highlights and financial results, we will open the call up for questions. The call is scheduled for one hour. 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 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 website, where it will be archived for one-year. With that, I will now turn the call over to Najeeb. Najeeb?

Thank you, Patti, and good morning, everyone. Thank you for joining us today on our first quarter 2017 earnings call. I’ll begin my remarks with some highlights from our first quarter results. The total net revenues for the first quarter were $15 million, representing an increase of 13% from the prior year period. Our growth in Q1 was driven by new implementations, change request from existing clients, as well as continued cross sales of additional solutions into our customer base. GAAP net loss was $1.8 million in the quarter or $0.17 per share compared with the loss of $400,000 or $0.04 in the prior year same period. Adjusted EBITDA was just about $180,000 in the first quarter; we are pleased with our first quarter results and what is typically and historically our slowest quarter of the year. Our results reflect continued solid demand for our solutions by new and existing customers and we believe we are well positioned to deliver strong financial results and operating performance in fiscal 2017 in line with our expectations. Overall I am pleased with the momentum we are building in our U.S. and European markets and the continued strong results we are generating in our Asia Pacific markets. I’d like to now provide you with some recent highlights, which demonstrate the progress we are making across our global footprint. APAC continues to be a market of considerable opportunity for NetSol and in particular the China, China market represents a significant runway for growth. As we have mentioned on prior calls, lower regulatory hurdles to form new leasing entities and a growing middle class, which has increasingly embraced leasing and financing options to purchase a vehicle have increased demands for our products and services in China. This powerful growth trend is driving a meaningful increase in our -- in both new client interactions, as well as interactions with existing multinational customers who are looking to scale in the Chinese market. Our pipeline in the region continue to expand through the first quarter across all customer types and we continue to expect to generate more business from leasing companies in China in fiscal 2017 than we did in fiscal 2016. I'm also pleased to say that to keep up with our level of growth in China we plan to double our office space in Beijing office and have already set up a new satellite office in Shanghai market in fiscal 2017. And just like Beijing we see Shanghai as a strong growth market that nearly 50% of our existing clients in China. Recently we announced a President to head our China operations and to position NetSol for aggressive growth. NetSol is a de facto leader, market leader in the Chinese market in the asset finance enterprise software space. In terms of market size of leasing, we believe it is a second biggest market after North America for NetSol. Our success in APAC of course extends beyond just China, as we announced last week our flagship NFS Ascent Solution went live in the New Zealand market for our largest auto manufacturing customer. This is the first implementation in our 12 country NFS Ascent contract with this customer that will signed in December 2015 and we expect additional market implementation will follow in the coming quarters. I'm extremely pleased to be talking to you about this today and want to thank the NetSol team worldwide and our partners for their work toward this implementation, which exceeded all expectations in terms of time to market. This is clearly an important program for NetSol and our customers of course not only from the standpoint of helping to transform the leasing and finance operations of one of the largest auto manufacturers in the world,, but also because this implementation continues to serve as a strong reference point when pursuing new NFS Ascent wins globally. In our Sydney operation in Australia we are steadily growing our new clients’ acquisition with a robust pipeline. Turning to Europe we continue to generate results in line with our expectations and our pipeline continues to expand in the region, despite increased uncertainties related to Brexit. In Europe, as with all our regions we continue to make strategic hires and organizational changes that we believe will improve our ability to further penetrate our significant addressable market. For example, we announced earlier this month that Tim O’Sullivan was appointed as Managing Directed of NetSol Technology Europe to oversee our growth initiatives in Europe for NFS Ascent. Additionally, we brought in Chris Tobey as Sales Director for Global Wholesale Financial Solutions responsible for overall strategy and creating relationship and executing sales for Ascent in the wholesale market. The leadership depth of experience and relevant market knowledge that both Tim and Tobey bring will be impotent, as we execute on our growth plans. This is representative of the types of targeted investments we have and we’ll selectively make at NetSol to take our business to the next level. While we also continue to level off the hiring of our development and delivery teams. Focusing now on the Americas market, the U.S. continues to represent tremendous opportunity for NetSol, which represent a total addressable market nearly equal to the size of the rest of globe, combined in terms of sales targets. With the addition of Jeff Bilbrey as the President and other key management hires we have significantly accelerated our efforts to expand our U.S. business and I’m pleased with the momentum we are gaining. I can save that excitement that currently we have a nine figure sales pipeline in North America. On the product front we have been increasing our capability and readiness to execute on NFS Ascent deals in the U.S. Tier-1 market, while also revitalizing some of our solutions to be offered both on on-premise a hosted in the cloud. In terms of market engagement, as we mentioned on our last call, we have increased our marketing and partner channel efforts to grow our visibility in the North American market. For example, we were a platinum sponsor at this year’s Equipment Leasing and Finance Association Convention. The U.S. equipment finance industry’s premier annual event. We were also a gold sponsor at this year’s auto finance summit, we were excited to share the NetSol suite of products and severances of these leading industry events and also to hear from some existing clients who tell us how much they like our products. Finally, I’d like to share with you how proud we are of the continued recognition we are receiving in the market. Just recently NetSol was awarded for the 11th year in a row Leading Company for IT exports in Pakistan by the Pakistan Software Houses Association or PSHA for short, this is reflective of not only the successful platform we have built, but the strong culture of excellence we have established at NetSol. With that I’d like now turn the call over to Roger -- Roger Almond to review our financial performance. Roger?

Thank you, Najeeb. I’ll begin with the review of our fiscal first quarter financial results. Total net revenues for the first quarter were $15 million, representing a 13% year-over-year growth. Our revenue performance in the quarter was driven primarily by strong growth in license fees related to our new NFS Ascent implementations, as well as recurring maintenance fees. Total license fees for the first quarter were $3.7 million more than tripling our $1.2 million in the first quarter 2016. Our strong performance in the quarter reflects increased license fees from our NFS Assent implementation in the UK, and the 12 country Ascent contract with our largest customer. Maintenance fees for first quarter were $3.5 million, an increase of 11% from $3.2 million in the prior year period. Services revenue were $7.7 million for the fiscal first quarter, a decrease of 14% from $8.9 million in the prior year period. The year-over-year decrease in our service revenue primarily reflects a natural completion of certain customer implementations. Total cost of revenues were $8.9 million for the first quarter, an increase of 11% from first quarter 2016, primarily driven by higher salary and consultant cost and travel expenses, partially offset by lower depreciation and amortization. Gross profit for the first quarter increased 16% year-over-year to $6.1 million or 40.6% of total net revenues from $5.2 million or 39.5% of net revenues in the prior year period. Total operating expenses for the first quarter were $7.3 million, an increase of 38% from $5.3 million in the same period last year. The increase in our operating expenses primarily reflect higher selling and marketing expenses in support of increasing sales and awareness of our products and solutions and higher general and administrative expenses related to strategic hires and non-cash stock compensation expense. GAAP net loss attributable to the NetSol for the first fiscal quarter of 2017 was $1.8 million or $0.17 per diluted share compared with the net loss of $411,000 or $0.04 per diluted share in the prior year period. Our highest net loss in the first quarter 2017 compared to the year ago period reflects the revenue growth offset by higher operating expenses, as well as higher other expenses including an approximately $300,000 increase in foreign currency exchange transaction losses. Moving to our non-GAAP metrics, adjusted EBITDA was approximately $180,000 in the fiscal first quarter of 2017 compared with approximately $659,000 in the prior year period. On a year-over-year basis, the change in adjusted EBITDA reflects top-line growth offset by higher operating expenses driven by our strategic investments in support of our long-term growth objectives. At September 20, 2016 cash and cash equivalents were $11.2 million, compared with $11.6 million at June 30, 2016 and $10.1 million at September 30, 2015. Turning now to our fiscal 2017 guidance, we reiterate our financial guidance provided in the year-end call. With that I will now turn the call back over to Najeeb for some closing remarks. Najeeb?

Thank you, Roger. In conclusion, we remain excited about the future of NetSol. We will continue to leverage our best-in-class products and services, leading market position and strong relationship with hundreds of blue-chip customers to drive growth in all of our markets. In addition, we will continue to make strategic investments across our business and particularly in our regional leadership teams to help take NetSol to the next level and realize our next major milestone of achieving $100 million in annual revenue. With that I'd like to open the call for questions. Operator please?

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions]. And the first question will come from Howard Halpern of Taglich Brothers. Please go ahead.

Good morning, guys.

Good morning.

One I didn't quite get the figure that you had said for your North American sales pipeline, could you give an actual number?

Yeah, so I said nine figure that means actually $100 million pipeline. And I think Jeff will give more color as you’re asking the specific question.

I guess with that figure if you could describe what’s the more color would be what's in the early -- how much is in the early stages, mid stages. And what maybe could we expect in the next 12 months or so?

Sure, I'll ask Jeff to jump in to give you more detail. Go ahead Jeff.

Hey, Howard this is Jeff, thanks for the question. So yeah when we said the nine figure pipeline, we really have done a great job in the last month of building that pipeline for net new sales. That represents sales of Ascent as well as some legacy platforms and it represents sales not just in the U.S., but across all of North and South America as well. So we really been expanding our footprint in terms of our attempted reach. We've using a lot of partners to try to help us reach out to additional new sales contacts. To answer your question about where we set in terms of the pipeline penetration, there are some that are very much at the early stages, as you know in these enterprise software markets it takes anywhere between 8 and 20 months to close the deal. However, we do have some that are penetrating closer to the bottom of the pipeline bottom of the funnel. And we do hope to see some of this pull through in this fiscal year for sure.

Okay, that sounds great. In terms of now I guess the investments and adjustments you've made personnel, what could we expect in terms of operating expenses? Is it going to remain in that $7 million to $8 million area per quarter for the balance of the year?

Yeah let me give you answer in two ways. One is of course that number is just about right. And because we believe that as we've said this in few times in the past previous call that we are not hiring the mass programmers and developers anymore. But we are focused on as I mentioned very clearly we've given some names of new hires that we’re focused on bringing the strong leadership teams whether they're in the North America markets or in Europe and also even China. And some key appointments in Pakistan which really impact our long-term strategy in a very positive way. So you will see from time-to-time a well-positioned, well selected role that we will use to grow our business to go to the bigger markets. And I think that will be ongoing thing. However we won't be hiring anymore programmers the way we used to in the past.

Okay. So you think that $7 million to $8 million range is a solid range to use for modeling purposes?

Yes I think so. Roger what do you think?

Yeah if you look at our cost for operating expenses and year-over-year compared to Q1 they were high. But if you compare those to Q4, they're right in line with what our expenses were in Q4. So we think that's probably a pretty good number to model going forward for fiscal year 2017.

Okay. And one final one, in terms of you expecting implementations now from the large contract to continue throughout the year, can we expect you to be able to drive gross margins towards that 50% area?

Actually that is our goal we did 47%, 48% last year. And Q1 was low because of the lower revenue, which was expected. But if we have achieve the numbers at the top-line I think that will be in line with our gross margins goals to meet 50% or so.

Okay. I look forward to the balance of the year. Thanks guys.

Thank you, Howard.

The next question will come from Scott Reed of Vict10n Capital Strategies. Please go ahead.

Hi good morning, gentlemen.

Hi, Scott.

Good morning, Scott.

So two questions I guess. First off it looks like normally I should say I expect to see license and service revenues sort of move in long step as you complete projects or as you do your initial implementations. And this quarter they seem to have diverged. You had real solid growth in licenses, but services revenue seem to lag a little bit. Is that indicative of a longer term trend?

You can answer Naeem if you want to or Roger either one of you is fine, jump in.

Yeah I'll jump in. So Scott as you rightly said, when we get into some closure in some of the projects we can pick up the license fee. And we did deliver a very large project in Thailand, Isuzu, the new release that we did. So really it's kind of a -- you can’t really have a straight line on this. What you would have are periods where one will exceed the other. But certainly the trend would be that the services should grow because we are undertaking this very, very large program in Australia, Asia-Pacific. And as we move forward in the program, service delivery will increase and revenue should also follow.

I see, pretty good. I guess my next question also take us back to the maybe lumpiness in revenue as well regarding specifically the recently announced New Zealand portion of the Daimler [ph] contract. Could you comment on the relative size of those revenues relative to the overall contract size or at least the license and service portion of that contract? And maybe also how that might affect your revenue recognition in this in your fiscal Q2 specifically, which I guess is also question about whether the revenue has been recognized more smoothly overtime, or we should expect to see a wider portion of revenue recognized this next quarter?

So I'll answer one part and then I'll -- actually the larger program is a little bit more normalized in terms of how we’re recognizing revenue. So that one has we've got a pretty much a straight line in terms of how we can recognize revenue. Because we are working on person as we have complete. And it is a long-term program so we had to come up with the schedule that is right for this type of revenue. So you'll find that revenue to be quite smooth in terms of license and maintenance. However, the services part will spike or otherwise from time-to-time, but generally moving in the right direction because we are only at the moment engaging with four of the countries. We have another nine to go within five years. So that is certainly going to spike. And the biggest of those is China, which is already started, but it still has another year and half to go. So a lot of their revenue should also come in little bit back end loaded. So I think from the license perspective for the large program it's going to be very normalized and smooth. But in terms of other contracts that we signed that’s typical we take only small percentage of fund and then recognized bulk of it towards the end.

Great I think that will do it for me. Absolutely thanks a lot guys.

Thank you.

[Operator Instructions]. The next question will come from Mike Vermut of Newland Capital. Please go ahead.

Hi guys. I missed the beginning of the call. So just to follow on that last question, should we assume throughout the year now it's sequentially improving. Is it $17 million or $20 million or $23 million or is it more constant second, third and fourth quarter for modeling. And then I have a follow up as well.

Well I think as you know Mike Q1 is the slowest quarter historically. And the trend is that it does improve sequentially, Q2, Q3 to Q4. And the main thing is we have given the top-line guidance and we like to hit those numbers. So I think yes it should improve each quarter going forward.

Excellent. And then just I'm looking out into '18, '19, '20 when does that start unfolding and I assume you already have a portion that is booked for '18 already that you have a look into that from the current contracts the maintenance. How much roughly is that that you have in hand for 2018 and how much needs to be won going forward? Just so what's your base business and how is that step functioning up year-to-year.

Okay, very good question. Naeem you want to answer or should I ask Roger?

I can do one part and maybe Roger can give the other part. Look Mike the way that this large program works is that we are in the five years; we are still at the lower end of the revenue. So overall, the 10 year program is $100 million plus. So I think in the year that we've signed the contract we probably only picked up maybe less than $10 million, Roger will correct if I'm wrong. But I think it's roughly in that sort of area. So I think the long way to go and there is a lot more revenue to come. Although we are now trying to create a schedule with revenues kind of more normalized. But there is still lots of upside on services, and then year five when that finishes, we have a 70% jump. So we are now completed year one, so in four years we'd have a huge jump in our yearly revenue because that's part of the contract also. There is a fix part of that revenue that comes in. So I think there is a long way to go yet Mike, so we’re only just starting this.

Excellent, okay. And then so we have a very good visibility going out two, three, four, five years. And then the other question is can you kind of give us a good read or a look into some of the pipeline the bidding activity, what the U.S. looks like, what Europe looks like? Not necessarily how much is out there, but the type of contracts that we're looking at. The range of size that we're looking at, new customers, existing customers just what's out there? And then also if you can kind of touch on the margin differential for the U.S. and European contracts as those are landed what that does to our margin outlook?

These are lot of questions let’s break it one at a time Mike, but just generally speaking but I have again Naeem and Jeff come back. But generally speaking as you can see from our sales and marketing activities and some new hires, our activities are really surging in terms of building pipeline in an effort to close them in the respective period. So we’re really, really busy in all the markets all over the world. And that is a very positive fit and trend and I think that’s exactly how you see reflect in our cost line, but it is all investment. But Naeem can give you some color on APAC and Europe and then again Jeff will come back to give you some more details.

Yeah in terms of pipeline look I think where we are today what’s happening in Asia Pacific and Jeff will tell you about U.S. but certainly Asia Pacific there are new markets, which have just come out of nowhere like Indonesia where it’s kind of flood gates have opened and new interest since we have announced that deal with our large, large contract, which is certainly close to going live and in fact one part has gone live. So that was our $60 million deal that we signed two and half years ago. On the back of that the referenceability that has happened that’s just open a whole new set of clients which we just didn’t know even existed, this has come in. And so there is a lot of activity going on in Indonesia, which is one of the largest markets in Asia, next to China. And then we’re looking at some of the large auto captives from Europe who have also looked at the large program that we’ve done for the other client. There are a couple of companies in Europe who are similar size and scale and they’re as big in Asia. So we are now in the process of bidding for a couple of programs for those types of clients who are similar in size to the one that we signed. And so we are at the kind of the 30%, 40% completion at the moment. So we have still long ways to go, however in Asia as we all know that NetSol is the market leader. So we are the first stop for these types of clients. Now in Europe, so we have one large client which is going to go live in the next couple of weeks with the contract that we signed in the first phase. On the back of that we’ve had two other clients come in and we are now in the RFP stage. So between Asia and Europe there’s a lot of traction you see a lot of travel that’s happening as a results. And the other thing that I would just mention here which is on the revenue side this quarter which Najeeb mentioned is historically the lowest, but this is our record number. We never did $15 million in Q1 ever. So it’s really now the benchmark and the bar is higher and our cost base is pretty much static to what was in Q4. So we have scaled the organization, we optimized it, we’re keeping the cost in check, with revenues continuously moving on the right direction. And Jeff please feel free to jump in on the U.S.

Talking about the travel, Jeff is about to go in the plane so he can come in and answer the question. Go ahead Jeff you have a lot to say.

Yeah sure, no problem. Hey Mike good morning. I would say I’ll take a slightly different slice of the question and just answer. In the Americas the markets that are opening up to us in terms of pipeline and that is that we tend to focus on or a lot of companies in this space focus on either equipment finance or banks or automobile captives. And we have all of the above strategy not because we’re trying to cast a wide net but frankly because those are the opportunities that are very near and present for us. So we’re doing pretty well in all three of those key verticals if you will and we have some in the Tier-1 range that are in the pipeline as well as I’d call it Tier-2 and Tier-3 deals. The smaller deals are definitely going to be more of the SaaS and Cloud opportunity and in fact the last two clients that we signed in the U.S. were SaaS clients.

Got it. And then the pipeline, the size of the pipeline any comments on that?

Well, go ahead Jeff please.

No problem, I think we answered that one before. We’ve grown the pipeline from pretty small to over $100 million pipeline now. So obviously not all those things mature on the same day or at the same speed, but we certainly have enough volume in the pipe to pretend a good opportunity for us here in this market.

Great, okay. And guys I’ll go to another question here, we’re trading now I guess at 0.6 times our revenue estimate we are trading at 4 times true cash earnings, is there a point when we look at -- and there becomes a risk an odd risk that someone comes in and no other SaaS based software company trades at these multiples so that’s pretty clear. So is there a point where you take some cash we have enough cash on the balance sheet and you say this is an opportunity here at of certain multiples is there buying back stock here in the U.S.?

So that’s a discussion point all the time in this company and we can be positive about our fundamentals approach to keep the business in the way it should be, the way it’s growing and I think we’ve also beefed up some marketing activities and we even invested in new funds and some analysts. So I can’t say when we’re going to do this, but this is an ongoing discussion and again it’s always based on how best you can use cash. And I understand totally believe me, I'm just like you and all other shareholders that we are very undeveloped stock and we know that we fully recognize that and we’ll continue to do what we can do to improve the valuation in coming days and months.

Great. Okay all right well hopefully the seer continues, thanks guys.

Thank you, Mike.

Thank you.

And next we have a follow-up from Scott Reed of Vict10n Capital Strategies. Please go ahead.

Yes so one more quick one guys, just as I look at your outlook and your guidance for the year it seems that you’re projecting some pretty solid growth in revenue, but EBITDA you’re really maintaining pretty flat with the last fiscal year. And just could you give us a little bit color on how we should think about that sort of in addition to your cost structure. Is that really investing in North American sales type of market or do you or should we think about that in some other way?

Well just to recap again Scott no and I said that in my prepared remarks we are investing quite nicely, I won’t say heavily, but nicely to keep up with the growth vision in North America specially. We’ve brought in some senior people Jeff is the most senior we brought in, he came from our Board and he joined in the management team. And he has got a mandate to really execute upon on the [indiscernible] and go beyond North America to other Latin American market there is some opportunities there. Same thing is happening in China, I just came back from China last week and I was excited to see our customers and the visibility for our new potential customers in across China and four key markets especially Beijing and Shanghai. So we’re continuously expanding there, we just decided to double up our space in Beijing and then of course we have a small office in Shanghai. It shows that our opportunities are a lot more in China than we have shown actually we can double our revenue in China in the next two to three years-time. And Naeem gave a pretty good color on the European markets. So all-in-all we’ll continue to invest on a well product strategy basis and to grow our business in a way that we can also improve our bottom-line. There will be a point where you have a scale to support big numbers in all the markets. So we won’t be required to spend any more money as we go forward.

Great, thanks a lot.

And ladies and gentlemen this will conclude our question and answer session. I would like to hand the conference back over to Najeeb Ghauri for any closing remarks.

Thank you very much. I appreciate you joining us today; we are very bullish, really excited about our future outlook as always on behalf of our Board and management team, throughout the globe I want to thank our shareholders for their continued support. Operator you may end the call. Thank you so much. Have a good day.

Thank you. Ladies and gentlemen the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.