Patti McGlasson - General Counselor Najeeb Ghauri - Chairman and Chief Executive Officer Roger Almond - Chief Financial Officer Naeem Ghauri - President Global Sales Jeff Bilbrey - President North America

Howard Halpern - Taglich Brothers Mike Vermut - Newland Capital

Good morning and welcome to the NetSol Technologies’ Fiscal 2017, Third Quarter 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, General Counselor. Please go ahead.

Good morning, everyone and thank you for joining us today to discuss NetSol Technologies’ fiscal 2017 third 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, North America. Following a review of the company’s business highlights and financial results, we will open up the call 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, 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 web site, 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 third quarter fiscal 2017 earnings call. I will begin my remarks with an overview of our third quarter results as follows. Total net revenues for the third quarter was about $18 million. This represents an increase of 12.5% from the prior year period. This was a record Q3 for NetSol and we are on track to deliver record revenues for the third consecutive year in fiscal 2017. Our adjusted EBITDA was $2.3 million in the third quarter and net income was $700,000 in Q3 or $0.06 earnings per share. From an overall market perspective, we continue to see solid demand for our solution across our geographic footprint, and we are executing well with both new and existing customers. We remain excited and very optimistic about NetSol's future growth prospects. And we believe we are well positioned to capitalize on the significant long term growth opportunity in the global finance and leasing industry. At the same time, we remain intensely [indiscernible] our goal of driving margin expansion and increasing our earnings per share growth. Looking closer at the fiscal Q3 results, we delivered a strong quarter for NFS Ascent license and services revenue driven primarily by our large 12-country contract. We remain on track with this multi-year, multi-country implementation and we continue to be pleased with our progress with this important client. On the other side, our legacy NFS revenue was softer than we expected in the third quarter. Several of our clients are now beginning to explore with us their migration path from legacy NFS to NFS Ascent, which has resulted in a greater than expected slowdown in NFS license and services revenues, especially in Asia-Pacific or China to be more specific. We believe this tactical shift in our clients demand towards Ascent from our legacy solutions represents a significant long-term opportunity for us as we believe our existing client portfolio represents the most immediate and logical new growth opportunity for our NFS Ascent solution. However, this positive long-term trend is also impacting our results in the near-term, contributing to our reduced fiscal year 2017 guidance that Roger will discuss later in the call. While we are tracking below are prior 2017 expectations, as I look ahead the momentum we are noticing in terms of global demand for our solutions suite, the progress we're making in our sales and marketing executions for NFS Ascent, and the advancement of our cost efficiency program gives me confidence in our ability to drive improved revenue and earnings growth in the years ahead. I like to now discuss with you some trend and highlights we are noticing in a business, which support our very positive outlook for NetSol. Beginning with our largest market Asia-Pacific, this is currently our most active market in terms of new NFS Ascent opportunities. In China, we are beginning to see a meaningful pickup in interest and increased activity from our existing NFS R1 clients who are now looking to potentially upgrade their platforms to NFS Ascent to address the future needs of their rapidly expanding portfolios. This trend is highly encouraging, since as I mentioned earlier, we believe our existing clients are the most logical and immediate opportunities for transition to NFS Ascent over the medium-term. Given our commanding market share with 29 clients, including both multinationals and local tariff companies, and the strength of our Ascent solution we believe we are in a position of strength as the auto leasing industry continues to expand in China. Looking outside of China in our other APAC markets such as Indonesia, Thailand, and Australia, we have a growing pipeline of Tier 1 and Tier 2 prospects for NFS Ascent, as well as new client opportunities for legacy product suite. In Indonesia, for example, we recently announced a five-year product license and maintenance service agreement with Mizuho Balimor Finance or MBF, one of Indonesia's largest multi-finance companies for our mobile or international or point-of-sale system and we were also named MBF’s preferred vendor in the region. Additionally during the quarter, we became a member of Indonesia's leading financial services association giving us access to the association’s large network of lease finance companies in the country, which has already led to increased interest and activity from prospects. Turning to the European market, we are noticing a decline in new license sales of our regional lease sales solution to both new and existing clients. While we continue to generate consistent maintenance and change request revenue from lease off, outlook for growth is limited. However, we believe the European market is ready for NFS Ascent. To help drive future sales of NFS Ascent we have realigned our European sales and marketing teams and are focusing dedicated resources towards driving increased penetration of Ascent into the region. In our North American market, we continue to have a healthy pipeline across our solution suite. While NFS Ascent is still relatively new to the North American market we are quite encouraged by the traction we are noticing and we are pursuing a handful of new potential opportunities. Alongside the work, we are going to drive ascent sales in the market. We recently strengthened our lease back SaaS offering and did re-launch at an industry lead event, which has resulted in substantial traction and lead generation for NetSol. Finally, I’m very pleased to say that we just recently went live with the NFS R1 Solution in the Mexico operations of a US-based Fortune 500 drug manufacturing company. This implementation in Mexico is an exciting milestone for NetSol as it opens the door to the Latin American market with a strong referenceable client. Before moving on, I would like to focus back on NFS Ascent specifically. Overall, I want to emphasize that we remain excited and highly optimistic about the long-term success of our next-generation platform. A meaningful penetration will take time, but we are seeing solid interest for multinational auto captive global equipment finance companies, banks, and existing customers for NFS Ascent. Our Global Accent pipeline currently includes many Tier 1 and Tier 2 auto asset finance companies. And the level of RFP, which is a request for proposals activity in number of ongoing conversation we're having continuously raise our level of confidence in the growth potential of this winner solution. Our pipeline includes both upgrades from legacy NFS to NFS Ascent, as well as organic opportunities from new prospects. Many of these potential opportunities represent multi-country multi-million dollar implementations. While we are encouraged by the momentum we are noticing in our Ascent pipeline, at the same time we are also experiencing longer than expected sales and delivery cycles, predominantly due to the complexities in the procurement process of a large client prospect. However, we have extensive experience working within these processes and remain confident in our success given our solid track record. Finally, I would like to address the productivity and cost reduction initiatives that we announced on our last quarterly call, and I’m pleased to say that we made strong progress on this plan and we are on track to deliver $1.5 million of cost savings in the second half of fiscal 2017 and $4 million on an annualized basis beginning in fiscal 2018. We will continue to evaluate opportunities for additional cost reduction through consolidation and streamlining our global operation. With that, I’d like now to turn the call over to Roger Almond to review our financial performance. Roger?

Thank you, Najeeb. I will begin with a review of our fiscal third quarter financial results before discussing our fiscal year 2017 guidance. I will then turn the call back to Najeeb for closing remarks before opening the call for your questions. Total revenues for the third quarter were $17.9 million, representing an increase of 12.4% year-over-year. Total license fees for the third quarter were $5.7 million were then tripling the $1.8 million we delivered in the third quarter 2016. Our strong growth in the quarter primarily reflects increased license fees and the 12-country Ascent contract with our largest customer. Maintenance fees for the third quarter were $3.6 million, an increase of 5.1% from $3.4 million in the prior year period, primarily driven by new customer agreements that went live with our products during late fiscal 2017 and into fiscal year 2017. Services revenues were $8.6 million for the fiscal third quarter, a decrease of approximately 19.5% from $10.7 million in the prior year period. The year-over-year decrease in our services revenue, primarily reflects a decrease in implementation services, as well as lower revenue generated from our NetSol innovation joint venture with One Ensure [ph]. Total cost of revenues were $9 million for the third quarter, an increase of 4.4% from the third quarter of 2016, primarily driven by a higher salaries, consultant cost, and travel expenses. Gross profit for the third quarter was $9 million or 50.1% of total net revenues, up 21.7% from $7.4 million or 46.3% in net revenues in the prior year period. Total operating expenses for the third quarter were $7.2 million, an increase of 16.2% from $6.2 million in the same period last year. The increase in our operating expenses, primarily reflects increased spend in support of our product and solution sales effort and higher, general and administrative expenses related to strategic hires, which is partially offset by lower R&D cost and depreciation and amortization. GAAP net income attributable to NetSol for the fiscal third quarter 2017, inclusive of minority interest was $0.7 million or $0.06 per diluted share, compared with net income of $0.8 million or $0.08 per diluted share in the prior year period. Growth in our revenue and operating profit was primarily offset by higher non-controlling interest in the third quarter 2017, driven by a geographic mix of profits. Moving to our non-GAAP metrics, adjusted EBITDA was $2.3 million in the fiscal third quarter 2017 consistent with the $2.3 million in the prior year period. At March 31, 2017, cash and cash equivalents were $8.5 million, compared with $11.6 million at June 30, 2016 and $11.9 million at March 31, 2016. Before moving to our guidance I like to address the restatement of our prior financial report, which is also mentioned in our earnings press release. Based upon our new independent auditor’s position regarding the timing of revenue recognition for our complex 12-country NFS Ascent contract, we will amend our financial statements for the first and second quarters of fiscal 2016 and fiscal 2017. To be clear, the revisions related to the timing of when the revenue should have been realized and not the revenue itself is based primarily upon our auditor’s position on revenue recognition for this complex contract, which differs from our prior methodology. Importantly, the impact from these revisions are immaterial to our reported financial results for the year ended June 30, 2016 and in the nine months ended March 31, 2017. More specifically, the net impact from the amendments to our revenue and net income for the first six months of fiscal 2016 is zero. In addition, for the first six months of fiscal 2017 ended December 31, 2016, the total impact of the restatement to our net revenue is a positive 296,000, and impact to our net income is a positive 197,000. Further detail of the amendment can be found in our 10-Q, which will be filed later today. Now moving on to our guidance, as Najeeb mentioned, the slowdown in legacy NFS license and services revenues is expected to continue to impact our fiscal 2017 second half results. In addition, the non-conversion of some new client contracts that we expected to materialize in the second half of fiscal 2017 is also having an impact on our guidance. As a result, we are revising our full year fiscal 2017 guidance for net revenues down to $66 million to $67 million and our EBITDA guidance range down to $5 million to $6 million. With that, I will now turn the call back to Najeeb for some closing remarks.

Thanks Roger. While we are experiencing a softer than expected fiscal 2017 the strong fundamental long-term drive of our business remain unchanged. First, we are a leader in a large and growing market with significant opportunity for continued share gain, especially in the high-growth Asia Pacific market, and in North America where we see tremendous wide space for growth. Second, we see significant opportunities for growth driven by our industry leading NFS Ascent solution. As I mentioned before, we are very encouraged by the momentum we are noticing in our Ascent pipeline. We view every single one of our major multinational client as a potential target when upgraded to NFS Ascent. As our client's businesses continue to grow, we believe they will have a greater need to transition to our NFS Ascent solution to address the need for a more robust platform that has the ability to manage much higher volumes. And third, our broad suite of legacy products such as lease back in North America, our NFS R1 in few markets, and APAC in Latin America are right for these legacy solutions. Our wealth of knowledge gained from working with large multinational clients, our local expertise, and lower cost of delivery continue to enable us to serve multiple market segments in varying stages of maturity. In addition to our top line growth drivers, our ongoing focus on generating additional margin expansion through organizational transformation and cost reduction initiatives will help to drive increased EPS growth. We will continue to carefully review our cost that is specifically focused on optimizing them in order to drive a mentality of long-term profitable growth for our business. With that, I like to open the call for questions operator.

[Operator Instructions] The first question comes from Howard Halpern with Taglich Brothers. Please go ahead.

Good morning guys.

Hi, Howard.

Hi. In terms of, you talked about the sales cycle and could you sort of break it down between, I guess new potential customers, and what you believe the sales cycle is for the legacy customers that are likely to convert? And also in terms of that, what is the potential of, say half of your legacy customers would have eventually convert? What is that pool of potential revenue?

Yes, thank you for asking that question. I will have Naeem answer that please.

Hi, Howard. We have at least three of our existing legacy clients in China who have expressed interest, not only interest, we are under RFP, an evaluation process. And there is at least one more new prospect out of China, which is also evaluating the software. So between these four, we are very well-positioned. The sales cycles are long as you said in the press release, and the value process itself is quite stringent and there are several rounds of presentation and demonstration, the workshop that go on. Because typically these solutions last like 10 years to 15 years, and it is mission critical software. So, certainly they have a very, very regimented procurement process to evaluate the solution. So, it’s hard to predict the timing on these, but we are well into the RFP’s, I say prudentially we are about half way through and we started about two months to three months ago. So, I would say, we will start to make good progress by Q1, Q2 of next year in all of these.

Okay.

And your last question was on the revenue, I think that is the tough one, but these are typically multi-million dollars, they are very large deals. One of them is at least for multiple countries, for the new prospect and the others are for China at the moment, but these clients are also in other markets, so potentially can be multiple markets too.

Okay. Now in terms of the cost reduction that’s going on, is that going to primarily be felt in the gross margin because I did see in the fourth quarter G&A was up sequentially, so are we really focusing here on gross margin rather than G&A?

Yes. I think I will add one comment and then maybe Roger can comment. I think we concluded this first phase of our cost rationalization around the first quarter, I mean the third quarter, which was March, the one we just reported. So the impact of that is not showing, maybe showing partly in the P&L because in that period we also, it is routine annual increments for the core team in Lahore, which is almost 900 of them. So that is a little watch, but I think as I said, we are confident that by the time we finish the second half or when we report June 30, we would have seen at least $1.5 million of net impact from that cost-cutting initiative.

Okay, I will turn it back then.

Roger, you want to add anything more on this?

Well I think the answer to the question, I think you will see it in two places, but you do have the reduction of the personnel up in the - it will be part of your cost of revenue, you know we look across all areas of where we could maybe have some excess fat, I guess out there and we want to cut. So that would be in the G&A expenses also. So, I think at the end of the fourth quarter you will see both the cost of revenue number coming down in line and you will see some G&A decrease also as we look to cut cost in both those areas.

Okay, sounds good. I’ll jump back in the queue.

Thank you.

[Operator Instructions] The next question comes from Mike Vermut with Newland Capital. Please go ahead.

Hi guys. Got a few questions for you here. I guess kind of hitting on that same subject concerning the contracts we are currently bidding on, are a lot of these competitively bid, are they renewals and looking to upgrade to Ascent? Just looking at the probability that we will be the winner on those? And moving out of Asia into the Americas and Europe, what are the sizes of those deals and where are we in that process? I remember a little while ago we were one of the final, it sounded like one of the final bidders on the a few of them possibly and just how everything is progressing there.

Naeem, you want to answer that?

Yes, sure. So the one that we just mentioned in China and Asia, they are upgrade projects. They are three of them Mike. They are still competitive because all major Tier 1 companies buy their own internal compliance, the procurement compels them to go to market - go to tender. They cannot choose the incumbent, but that’s typically the compliance internally. However, switching to new vendor is always a big risk, and so there is a lot of hedging if they stay with the incumbent, so because we have distinct advantages in understanding the data and their business and their processes and any new vendor that comes in has to have a pretty steep learning curve, otherwise they cannot succeed. So that’s why we are in a very, very strong position, but we certainly still are in a competitive landscape. You know that wouldn't change. There is very, very few companies Mike that would award a contract and that kind of value without a competitive tender.

Right. Just before we go on to Americas and Europe, are we talking on these upgrades, multi-year $10 million, $20 million type contracts that we're looking at here? Is it, obviously it is not the Daimler size, but they are huge contracts that would kind of pad our growth for years to come? If we get them?

All the three clients we are dealing with for the upgrade, they are very large volume - they would be in the Tier 1 space in China. They have hundreds of thousands of cars on these and finance. So they would spend that kind of money. It would be difficult for them to not do, you know it is the other way around. So it is very well within the 20 to 20 million, for each of them. And then one of them is a multiple country, but they will start with China and they will want to then rollout to another seven or eight markets, similar to the other contracts that we have.

Okay. And I don't want to paint you in the corner, but you would say probability because we are incumbent it’s quite high that we win these over the next 6 to 9 months?

Well [indiscernible] probability a name because we have to cautious…

I didn't say probability, I didn't say a number, I said I high [ph] probability in your opinion?

I already said that Mike, we are in a very good position being the incumbent, you know.

Great, excellent. Okay. So, now Europe and the Americas.

Yes. So, Europe is, we are in the middle of an implementation for an SM client and we expect the go live is imminent, that’s going to make us very referenceable in Europe. So we have been waiting for that to happen and I think the first phase should be in the month of June, and we will definitely make an announcement when that happens. That suddenly opens the door to a number of new potential prospects. In the US, we have currently two opportunities that we're working on very diligently. There was two others where one of the companies have decided to not go ahead with the project anywhere, they just - it wasn't like we lost it to anybody else. So that project is put on hold and yes we were actually at the top of the list of the four or five vendors that they had. But unfortunately they have said, they want to probably differ it for six months to a year. So we will know then what happens. The other one, we are still waiting to hear. So there is one that is deferred, there is one we're waiting to hear and there is two more, which we are working on.

Okay. And from what you see, I guess what are the rough sizes of the - what kind of contracts are we talking about size wise in the US, and if you can give us some color into the competitive bidding process? Who are the others that were out there against and how those look for us in your opinion?

Do you want to have Jeff jump in of do you want…

Mike we don’t - Jeff you can come in a second, but I'm just going to say one point and then maybe Jeff can come with more color, but all of the Ascent deals that we are doing, we're not going to do anything south of $10 million because we - it is a premium solution with a huge amount of R&D into it and the kind of clients we are attracting would expect to spend that kind of money over 5 years to 10 years, you know. So, we would be, we would not be looking at anything less than that.

Great. Okay.

Jeff, you want to say anything?

Yes, I could add to that a little bit. So, when we talk about these deals, it might help to contextualize a little bit further. A couple of them are in the finance or banking sector and over the course of a few years those are going to be worth millions of dollars, probably not north of 10. And one of them is with a multinational auto captive and that one is definitely north of $10 million in terms of values. So, these are all active pursuits. Obviously, can’t give names or anything like that, but very active pursuits, we are deep into the process again, and just to add some color to what names really was, you know one of those that we lost, just sort of flexibility at the Ascent platform, so I just mentioned auto captives and banks and the one that went on hold because of an internal reorg decision and they will come back in six months or a year, that was actually where the software company looking to finance their software products. It is one of the top three software companies globally. A brand name that we all know and we were the finalists there. Unfortunately, before we got to put ink on paper or anything like that they did have to go quiet because of an internal reorg.. So we are seeing good traction in the marketplace, we are seeing that the Ascent platform is broad and able to go across industries and whether that’s banking finance or other specialty, and so we are getting along and we're hopefully going to get one of these closed here.

Excellent. Then that takes us back to - I have a couple of more for you here, so based on what you see here, obviously it is taking longer to close, but these are large deals, right. So if we get a few of these closed like you said in the first, second quarter we should see and with the cost savings we should see decent revenue and EPS growth into 2018 and 2019. Right, if these things fall into place, nothing has stagnated here.

No, I think as I said in my prepared remarks I have looked at as quite promising Mike. We are quite encouraged and excited about the board outlook due to all these deal we just heard from Naeem and Jeff, and the good thing is, you are hitting more interest from our existing clients in China, especially, who wants to upgrade to Ascent. There are three or four of them and then Jeff just mentioned about the North America. I believe it is again a matter of timing when we can sign them, when we can book them, in which quarter, in which part of the - first half, second half, time will tell. I guess when we report year-end we will be in a better position to share some later at that time.

Excellent. And then my last question, this is more of a bigger picture, from other research we can do here, we have the best product out there, I think we have the best cost structure, right, we have - with the engineers in Lahore, our cost structure probably can't be replicated. Is it the company, and I know that there is a lot of leasing bids out there, is there anything in your opinion holding it back or is it just bad timing on all of this? Is there anything else competitively that’s changed out there, is it who we are going up against with their balance sheet, is it larger competitors or is it just timing and it is just taking longer?

Yes, go ahead.

I think the issue is not really some way the competition because from our own research Mike, when we embarked on the Ascent program we knew what was being offered by competitors. So, I can tell you one thing there is not even one company out there that have invested completely organically into a new product from ground up. What they have done is that they have taken the existing products and modernized them all, give them a good makeover. To fundamentally change architecture, your tech stack and go to market with the new product. It is more painstaking. However the results then actually position you at a different level from your competition. So we continuously meet prospects and clients who were surprised and quite frankly blown away with what they see with Ascent. So that’s why we are getting so much traction and some of those Tier 1’s, which never looked at as before are inviting us to tender and I don't know whether you read the news. One of our competitors, which is similar size, you should actually look them up. In the UK there is a company called Alpha, I don't know if you have heard about them or not, they are a similar size company and they just are going to do an IPO in June at 800 million sterling evaluation. And their revenue - so I am just saying, I believe we are grossly undervalued for whatever reasons. So, I think at some point we will get on the radar and then people will realize that what we have to offer is really quite compelling as opposed to some of our competitors.

Excellent. And then one last question. So the way I look at the balance sheet, as these start to hit and as the large contract out there starts to build, cash should start to increase on the balance sheet, looking forward collection wise, and then with the cost cuts coming in?

Yes, I think both will have positive impact, you are absolutely right.

Okay. So should this be a low point on the cash and then it is not - we are not in a bad position by any means, but should we assume cash starts to build from here?

I think we got pretty good sound receivables. If you look at pretty sizable receivables, but also excess revenue building, so we are pretty comfortable with those receivables.

Excellent. Okay. All right appreciate it and good luck on these wins there. I do believe it will change the dynamics of the company when they start landing.

Sure. Thank you, Mike.

Thank you, Mike.

Yes, thanks Mike.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Najeeb for any closing remarks.

Well, thank you again for joining us today. On behalf of our board and management team I want to thank the NetSol team throughout the globe for their continued hard work and their dedication to our clients. And I want to thank our shareholders for their continued support. We will see you next time. Thank you, operator. You can end the call now operator.

Okay. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.