NetSol Technologies Inc (NTWK) 2007 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the NetSol Technologies fiscal year 2007 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Christopher Chu of Investor Relations. Thank you. Mr. Chu, you may begin.

Thank you, operator. Hello, everyone, and thank you for joining us on the NetSol Technologies Inc. fourth-quarter and fiscal year-end 2007 financial results conference call for the period ended June 30, 2007.

Please note we have prepared a PowerPoint presentation to accompany this call. The document may be found on the main page of the Investor Relations section of the NetSol website, www.netsoltek.com. In addition, I would like to remind you that we are webcasting today's call. The webcast archive of the call will also be available in Investor Relations section of the NetSol website.

Before we begin, please proceed to slide number 2, as I read a brief Safe Harbor statement. This conference call may contain forward-looking statements. These statements reflect the current beliefs of NetSol Technologies' management, as well as assumptions made by and information available to NetSol. Forward-looking statements are not guarantees of future performance and involve risk and uncertainties. Actual future results and developments could differ materially from those set forth in these statements due to various factors.

These factors include, among others, changes in the general economic and competitive situation, particularly in NetSol's businesses and markets. In addition, future results and developments could be affected by the performance of financial markets, fluctuations in exchange rates, and changes in national and supernational law, particularly with regard to tax regulations. The Company assumes no obligation to update forward-looking statements.

Moving to slide number 3, during today's call, Mr. Najeeb Ghauri, Chairman and CEO, will share an overview of the business and financial results for the fiscal fourth quarter and full year 2007. He will then hand the call over to Ms. Tina Gilger, Netsol's CFO, to review more specific details of the financial results.

We are also pleased to have Mr. Naeem Ghauri, President of NetSol Technologies Europe and Products, joining us on the call today. Najeeb, Tina, and Naeem will be available for Q&A after the prepared remarks. I would like to now pass the call over to Mr. Najeeb Ghauri. Najeeb, please go ahead.

Thank you, Chris. Good morning and welcome, everyone, and thank you for joining us today and listening to a very pleased CEO. I hope you found the PowerPoint presentation we prepared to supplement this call and will follow along with us. Slide numbers we refer to are found at the bottom line -- bottom of each slide.

As the press release this morning and slide number 4 demonstrates, I and extremely pleased to say that NetSol reported a record quarter in terms of top-line revenue and bottom-line net income, as NetSol returned to quarterly GAAP profitability, one of our key financial objectives. Fourth-quarter revenues increased an impressive 84% year over year to a record $8.6 million, driven by strength in our core enterprise software and IT outsourcing businesses. Full-year revenues increased [to] 57% to $29.3 million, also an all-time record high and just shy of our full-year target of $30 million.

Gross margin jumped 62% in the fourth quarter, up from 34% in the prior year. Positive fourth-quarter operating income and net income both posted significant year-over-year improvement over losses in the prior-year period. GAAP net income increased to a record $1.3 million, or $0.07 per share, against a $1.7 million loss, or $0.11 per share in the year-ago quarter.

EBITDA increased to $2 million, and I'm very pleased to see EBITDA jumping so much, better than in my own expectations. Our full-year [2000] (sic--see press release) performance was also marked by record revenue and significant gains in operating income performance. Tina will provide a more detailed walk-through of our full-year results later in the call.

As NetSol continues to expand its presence and customer base, as evidenced by the strength of our fiscal fourth-quarter and full-year financial performance, we are also taking steps to strengthen our corporate brand. Following the successful integration of our prior acquisitions, we are in the process of completing the overall integration effort and formally rebranding our key operating units under the NetSol brand by geography.

Our plan is to integrate all NetSol global entities into one, and present them as a seamlessly integrated company -- like NetSol Pakistan or NetSol PK would be named NetSol Asia-Pacific; NetSol McCue would be called NetSol North America; and NetSolCQ would be called NetSol EMEA.

Beyond rebranding, we intend to consolidate our global operations, presenting a unified regime under one entity, which we believe will increase our overall efficiency and will better leverage our strong offshore capabilities. Also, we believe these changes in global branding will be yet another incremental driver for long-term growth and trajectory.

Now let's review the operation details behind our robust fourth-quarter and full-year performance. Please turn to slide number 5.

Here, we take a look at the major fourth-quarter developments within our NetSol Asia-Pacific business and with our LeaseSoft product offerings. Our NetSol Asia-Pacific division turned in an outstanding fourth quarter, capping a year of strong revenue growth performance, with our LeaseSoft offerings signing several significant new multimillion dollar contracts with global blue-chip brand names in the captive finance sectors.

For those of you new to the NetSol story, LeaseSoft is an end-to-end [global] asset finance accounting and portfolio management solution, and is an industry standard in a growing number of countries. In total, we signed 11 new implementation contracts during fiscal 2007. Seven of those contracts were signed during the fiscal fourth quarter, including the contract with a new European automotive financial service company in Hong Kong, which will be a implementing a LeaseSoft retail suite comprised of our CAP and CMS applications.

In China, NetSol won its fifth major contract, signing a multimillion dollar LeaseSoft contract with a multinational auto company. Our recent launched LeaseSoft Fleet Management, or FMS, places NetSol in the high-growth fleet management vertical space. We continue to experience an upsurge in FMS activity from companies in the APAC and EMEA regions.

As our LeaseSoft business continues to grow in terms of revenue and customer penetration, we are making key investments in our business to further strengthen our offering and value proposition. During 2007, we introduced a new marketing function, as well as enhanced customer service capabilities. We believe these investments will translate into increased pipeline opportunities and higher levels of customer satisfaction, furthering to support our growth.

Complementing our core LeaseSoft business, we also experienced solid growth from our NetSol TiG joint venture, with revenue growing by 60% year over year. NetSol TiG is a joint venture with The Innovation Group focused on outsourcing services with insurance markets, and working together with TiG's insurance lines to continue to get exposure to potential new business opportunities to help drive our pipeline going forward.

Moving on to slide number 6, we look at the IT services and e-Government offerings for our APAC, or Asia-Pacific division. IT services and e-Government have been excellent growth engines for NetSol, and we continue to see a powerful expansion of the various government sectors and verticals in which we are bidding and winning significant new IT services contracts.

Key fiscal fourth-quarter 2007 contract wins include the Punjab assembly automation, which is the biggest province in Pakistan; the automation of the Ministry of Health; the e-enablement of Establishment Division; and a unit management system for the Pakistan Army; and many, many more. Together with these e-Government developments, we are optimistic that our government experience will further result in major opportunities for the Defense Ministry of Pakistan. We will, of course, report any material inroads in this sector accordingly.

Our e-Government services have expanded their range of offerings as Pakistan strives to automate its public sector departments and ministries. Our offerings now cover motor transport management systems; land record management systems. Our first pilot project for land record is moving extremely well, and we are one of the leading candidates for a major win sometime in 2008. Another sector is computer-based training, enterprise content management, and unit management systems, specifically in the defense sector in Pakistan.

We also continue the diversification of our IT outsourcing verticals market to include finance, enterprise business, IT security, and defense. In addition to NetSol wholly managed implementations, NetSol is seeing more opportunities -- or good opportunities serving as a local implementation and IT services partner for large global office companies looking to access the Pakistan market.

These contracts are for pieces of business that NetSol would not have been able to service as independently. This is a win-win for NetSol and our partners, as they provide specialized sector application expertise and NetSol provides local market resources and services. We see this as yet another area for new business and new partners. We look forward to reporting back to you on this area in the future.

We expect to see strong growth in the public sector in Pakistan due to increased spending for e-Government initiatives. As the leading IT company in the country, we expect to continue to receive favorable response to bids made for multinational, multimillion dollar projects.

Now shifting our focus to NetSol EMEA, let's go to slide number 7, please. The EMEA division has a solid fourth quarter across many fronts. On the new business front, a leading French bank selected LeaseSoft for its end-to-end effort finance solutions -- software solution for lease lifecycle management, [for recognition] to disposal for its Netherlands operations. We expanded our offshore resources team, increasing our development and test capabilities.

On the customer front, we completed a major [EDI], an origination project for Investec Asset Finance, as well as went to live with credit card facilities enhancements for Kaupthing Singer & Friedlander.

To ensure we stay at the forefront of the captive finance market, we delivered a wide range of new products and modules in fiscal 2007, including LeaseSoft Porthole, LeaseSoft Document Manager, and LeaseSoft [Auto] Decision Engine, LeaseSoft EDI manager, and Evolve, an entry-level software package for brokerages and small- to medium-sized funders. We believe the EMEA division is well positioned to continue to penetrate the European brokering market segment, both organically and through strategic partnerships and alliances.

Now turning to slide number 8, let's now review the North American division. NetSol North America exhibited strong growth, highlighted by key LeasePak customer wins and the rollout of our IT outsourcing and customized development services to the North American equipment and finance market, leveraging our low-cost, high-value offshore development center of excellence.

Division revenue grew by almost 87% to nearly $1.7 million in the fourth quarter versus just about $900,000 in the quarter preceding -- that is quarter number -- quarter 3, '07. For those of you new to the NetSol story, LeaseSoft is an end-to-end asset finance accounting and portfolio management system that offers lessors the flexibility to streamline their operations across the full asset finance life cycles. With our integration of McCue Systems successfully complete, we are able to dedicate our full combined resources to expanding our presence in the North American market.

Our LeasePak offering currently supports customers in equipment finance portfolios in 17 countries across Europe and Asia, as well as nine currencies. The new 6.0 enterprise release offers improved navigation, integration, reporting, as well as stronger commercial lending and syndication capabilities. Deployments and upgrades to our LeasePak 6.0 enterprise editions have been accelerating, with nine commitments and two major deployments. These nine commitments include four captive finance companies, three independent companies, and two banks.

Our enhanced combined capabilities are being recognized with leading customer wins such as Terex Corporation in the US. Terex is a major diversified global manufacturer and distributor of capital equipment, with 2006 sales approximately $7.6 billion, and has more than 50 well-respected brands covering a broad range of equipment for the construction, infrastructure, recycling, mining, shipping, transportation, refining, and utility sectors.

In winning this contract, Terex cited our LeasePak 6.0 enterprise edition's robust ability to handle current U.S. business requirements and the scalability of managing a diverse global equipment finance portfolio. LeasePak will be used for managing Terex's worldwide capital equipment portfolio.

Our offshore development team devoted to North America now stands at 20 developers. This means that NetSol's offshore resources now represent approximately 50% of the North American division's development efforts. This team is progressing on track with their training and are supporting many of the maintenance and routine modification functions. A 6.0b release is anticipated for October which further improves the functional capabilities of LeasePak, with extended individual asset tracking capabilities.

Now turning to slide number 9, we look at our NetSol North America IT outsourcing offering. During the fourth quarter, we commenced the rollout of our North American IT outsourcing and customized development services for the equipment finance technology market. This offering presents the opportunity to cross sell higher value IT development services to clients in and beyond our North American customer base by leveraging our 30 plus years of equipment leasing and lending experience with (inaudible) expertise of our NetSol North America services team, which has managed and completed over 100 implementations to date in both equipment and vehicle leasing organizations, including (inaudible) Credit, KeyBanc, Bank of Tokyo, Mitsubishi, Cisco, and Yamaha Motor Corporation.

Our local onshore North American LeasePak services combined with our offshore CMMI level-five certified development resources offer concentrated domain expertise and provides NetSol a major differentiator as compared to other generic offshore development providers. We believe these combined resources and capabilities position us well to further penetrate and succeed in the North American market.

To help jump start our efforts, we launched our IT services at a NetSol users' group conference in June 2007, which was attended by all 30 U.S. clients, providing excellent visibility for our new offerings.

Looking at the slide number 10, we summarize some of the key growth drivers to NetSol going forward. We continue to drive market share gains for LeaseSoft in the Asia-Pacific region, Chinese and Australian markets. We are expanding market and product reach in EMEA and North America. We are opportunistically exploring strategic alliances and acquisitions to grow scale, improve productivity, and margins beyond our impressive core organic growth rate.

Cross-sell and market global solutions offering and IT consulting services to enterprise software customers, captive and noncaptive. We are further penetrating government and fleet management vertical markets, two very attractive areas of growth. NetSol stands as a strong candidate for premium IT solutions in major contracts funded by the World Bank, with over $300 million in grants.

The most significant project is the World Bank funded land record management information system, or LRMIS for short. NetSol has been given a pilot project in the province of Punjab in early '07, and we look forward to expanding our business in this area.

And finally, we continue to leverage gross arbitrage over rising costs in India and elsewhere. We are already seeing increased collaboration within NetSol across groups in responding to RFPs and new business opportunities which feature the strengths of one unified global organization. Sharing the relationships and coordinating proposals is showing initial promise of success for each division in the marketplace.

Looking ahead to fiscal 2008, we continue to expect NetSol to post strong results for the foreseeable future. Being a dynamic and a growth-stage global IT Company, we believe will attain strong revenue growth of approximately 30 to 40% top line year over year, with a distinct focus on profitability for fiscal year 2008. This is better than the average organic growth rate of 30% to date we exhibited in fiscal 2007, when excluding revenue contribution from McCue Systems acquisition.

We continue to opportunistically examine additional partnerships, joint ventures and potential acquisitions that will provide additive to the revenue growth rate and bottom line.

As you might already know, our fiscal year does have some seasonality to it with the quarter ending September 30, 2007, our first fiscal quarter being the slowest and each consecutive quarter ramping higher, culminating with the fiscal fourth quarter being our strongest.

Being that we are at the front end of the new fiscal year, we believe the 30 to 40% annual growth is an appropriate target range. As we are quickly approaching the end of our fiscal first quarter of 2008, we will look to update the outlook for fiscal '08 at the time of our fiscal quarter -- first fiscal quarter 2008 conference call, which we anticipate will take place in early November.

With this, I would now like to turn the call over to our CFO, Ms. Tina Gilder, for a detailed review of our fourth-quarter and the full-year 2007 financial results.

Thank you, Najeeb. Good morning, ladies and gentlemen. Thank you for joining us on the conference call today.

As you look at slide number 12, we highlight our top-line revenue growth over the last five years, reflecting an impressive compound annual growth rate of 98%, reflecting the growth and strength of our portfolio of products and services, and the high quality of our global employee base.

Turning to slide 13, we take a look at the major components of revenue for the fiscal fourth quarter and full year 2007 as compared to the prior-year periods. We see that NetSol experienced double- and in some cases triple-digit growth across all three revenue lines -- license fees, maintenance fees, and services.

License revenue was exceptionally strong, growing 137% quarter-over-quarter and 89% year-over-year. Overall, NetSol's top-line growth hit an impressive 84% in the most recent fiscal fourth quarter, and 57% for the full-year period. This is exceptional growth.

Slide number 14 shows the organic revenues by business in a pie chart. For the full-year period, IT consulting and services represented 45% of total revenue versus 54 in fiscal 2006. License fees represented 33% of total revenue versus 28 in fiscal '06. Maintenance fees represented 19% of total revenue versus 13% in fiscal '06. And our ISP provider business represented 3% of total revenue versus 5% in fiscal '06. Please note in the financial tables, our ISP provider business is consolidated under the services revenue line.

On a geographic basis, for the full-year period, Asia-Pacific provided 64% of total revenue versus 60% in fiscal '06; North America provided 17% of total revenue; and Europe provided 19% of total revenue versus 40% in fiscal '06.

In terms of customer concentration, we continue to broaden the depth and breadth of our customer base. We're happy to report as of the year end, NetSol had just one globalized auto manufacturer company representing over 5% of revenues, and no customers representing 10% or more of revenues. As of June 30, 2007, NetSol had close to 200 customers worldwide, versus less than 140 in the same period in 2006.

Moving to slide number 15, we look at NetSol's gross margin performance over time. NetSol generated an impressive 62% gross margin in fiscal fourth quarter, the highest level since the first quarter of fiscal 2006, and a dramatic improvement of our gross margins of roughly 49% in their sequential comparison.

The primary drivers behind our fiscal fourth quarter 2007 strong gross margin performance were robust top-line revenue growth of our fixed cost infrastructure; the completion of the vast majority of our acquisition integration efforts with respect to CQ in the Q; and the successful migration of more development work from high-cost geographies such as the U.S. and UK to our lower-cost development center in Lahore.

As Najeeb mentioned earlier, we have expanded our business units within Pakistan to grow vertically in various areas. In order to do this successfully, we have hired the best people we could find with experience in these fields and have allowed them to grow the business units in a well-controlled fashion. It takes about 18 to 24 months for the new business units to become profitable.

We are now seeing the results in the last two quarters in many of these units, and expect to see more growth in the future. This investment in new directions has been a factor in our lower gross margins. Going forward, we would expect gross margins on a quarterly basis to be within our more historical levels, in the high 50s to 60% range.

Our highest line item in cost of sales, salaries and consultants, increased $2.7 million during the current fiscal year to $8.8 million from $6.1 million in fiscal 2006. However, as a percentage of sales, it actually only increased -- it actually decreased 3%. For the full-year period, net sales gross margin increased more than 150 basis points, from 51.7% in fiscal '06 to 53.4% in fiscal '07.

Slide number 16 shows the breakdown of the operating expenses for the fourth-quarter and full-year periods. Total operating expenses grew from $3.1 million in fourth quarter of fiscal '06 to roughly $3.4 million in the current period. As a percentage of sales, the current period expenses were 40% compared to 66% in the same period last year, a decrease of 26%, showing that we are controlling our costs with our growth.

Let's look at the same comparison for the full-year period. Total operating expenses grew from $9.9 million for fiscal '06 to roughly $13 million in fiscal '07. As a percentage of sales, the current year operating expenses were 44% compared to 53%, a decrease of 9%. What we see is net flow using the operating leverage inherent in our organization to drive a larger percentage of revenue down to the bottom line. Tight controls in G&A expenses helped reduce G&A from 14.2% of sales in fiscal 2006 to just 10.5% in fiscal 2007.

Although we have increased our expenditures in sales and marketing by $568,000 in the current year, we believe the payoff in future sales more than amply justifies this investment. We have grown our sales force in all of our geographic areas. Most notably, we increased the sales staff in the North American division from 1% to 4 during the year.

In addition we have continued to invest in our most valuable resource, our people. Not only have we hired the best in the related sales, we have rewarded their loyal service with competitive pay. This is reflected in the increase of salaries and wages. However, we have kept these costs at a very low increase as a percentage of sales -- only 1% over the prior year. Total headcount as of June 30, 2007 was 825 worldwide, as compared to 708 as of June 30 '06.

Now moving on to slide number 17. Here we look at NetSol's improvement in driving quarterly GAAP profitability. We are extremely pleased with our fourth-quarter GAAP net income performance, as NetSol improved from reporting a loss of $1.7 million, or $0.11 per share, in fiscal fourth quarter of '06, to reporting a net income of $1.3 million, or $0.07 per share, in the fiscal fourth quarter of '07.

For the full-year period, NetSol recorded a GAAP net loss of $4.9 million, or a loss of $0.27 per share for fiscal 2007, versus a loss of approximately $1.4 million, or $0.09 per share, in fiscal 2006.

It is important to note that NetSol recorded non-cash charges totaling approximately $5 million and an additional $372,000 in interest and other financing expenses in the first half of fiscal 2007 related to the acquisition of McCue Systems. Excluding the impact of these acquisition-related non-cash, non-recurring charges, NetSol would have reported $494,000 income in GAAP net income, or $0.03 per share.

As in previous quarters, our bottom line was negatively impacted by the minority interest in earnings in several of our subsidiaries, as the aggregated net income attributable to the minority owners must be deducted from NetSol's earnings.

Slide number 18 illustrates NetSol's EBITDA performance on a quarterly basis over time. And as you can see, NetSol posted strong quarterly EBITDA results in the fourth quarter fiscal of 2007. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. The Company uses EBITDA as a measure of the Company's operating trends.

Investors are cautioned that EBITDA is not a measure of liquidity or of financial performance under generally accepted accounting principles. The EBITDA numbers presented may not be comparable to similarly titled measures reported by other companies. EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP.

We believe EBITDA is the best metric to measure the underlying profitability of our business. EBITDA for the fourth quarter was $2 million, or $0.10 per basic and diluted share, compared to a negative EBITDA of $672,000 in the fourth quarter of fiscal '06. EBITDA loss for fiscal '07 was approximately $1.5 million, or $0.08 per basic and diluted share, which compares to EBITDA of $2.2 million, or $0.15 per basic and diluted share, for fiscal '06.

As previously mentioned, during the first half of fiscal 2007, NetSol recorded non-cash charges totaling $5 million related to the financing of the acquisition of McCue Systems in June 2006. Excluding these non-cash, non-recurring charges, NetSol would have reported EBITDA for fiscal '07 of approximately $3.6 million, or $0.20 per basic and diluted share, compared to EBITDA of $2.2 million, or $0.15 per basic and diluted share, for fiscal '06.

Looking now to slide number 19, we look at the highlights from NetSol's consolidated year-end balance sheet. NetSol ended fiscal year 2007 with approximately $4 million in cash and cash equivalents, up from approximately $2.5 million at the end of fiscal year '06.

I would also like to point out that beginning with our fiscal fourth quarter '07 earnings release, issued this morning, we have begun to incorporate a consolidated cash flow table in the earnings press release in order to provide investors and analysts greater visibility into our business. The full statements may be found in the press release issued earlier today and in the Form 10-KSB we will file with the SEC.

I want to report that I am happy and pleased to be part of NetSol and the amazing growth that we are seeing. I would now like to turn the call back to Najeeb for some closing remarks.

Thank you, Tina. NetSol's core business continues to grow and we have demonstrated our ability to expand our market and extend our customer reach. I am extremely pleased with the strong quarter and full-year financial results we delivered, and would like to thank you -- thank our team of dedicated NetSol employees worldwide and my three presidents, Salim, Naeem, and John, for their contributions. I believe the strength we have exhibited this year will continue into fiscal 2008 and beyond.

With that, I would like to turn the call back to the operator to facilitate any question-and-answer session. Operator, please, the first question.

(OPERATOR INSTRUCTIONS) Matthew Weiss, Maxim Group.

Congratulations on a great quarter. Could you tell me the precise organic growth in the quarter?

You mean in Q4?

Yes, in Q4. I believe in Q3, it was about 35%. Was it about the same?

The organic growth for this quarter was 48%.

Oh, 48%. Okay.

And 30% overall for the year.

Okay, I misunderstood you. And then going forward, you spoke about a 30 to 40% organic growth great for fiscal '08. Can you maybe speak to what kind of growth you expect, particularly on the license line?

Yes, Naeem will answer that.

Yes, we feel that the license income from LeaseSoft and LeasePak will continue at the same rates as we had last year. So if you (technical difficulty) from last year to the year before, we expect continued growth -- similar percentages for this year or better.

Okay, then on a go-forward basis with respect to revenue mix, obviously, the service business is ramping nicely and the license number came in. Do we expect for fiscal '08 to have roughly the same revenue mix, license in the mid-30s, services pushing close to 50%, and then maintenance accounting for the remainder?

You know, the way the business is growing -- and if you look at the different segments and their growth -- we find the biggest upside in the next year or two would be from our major initiatives at the government level within Pakistan. So we feel that the licensing -- because there are components within the services and products we provide in Pakistan where there is license income as well. Because we -- for example, we own the motor vehicle system and the IP of it, so we charge a license fee for that as well.

So the growth from the license fees, combination of both LeasePak and other products that we own. So really the biggest growth is going to come over the next two years from some of the government initiatives we are part of at the moment.

I think also in addition -- this is Najeeb -- the continued -- the robust pipeline, especially in the China, Australia, Asian market, and now with the integration in the Europe especially we've seen -- of course, Eastern Europe -- we have seen a surge in demand for our services, solutions globally.

So that really gives us pretty good confidence that -- like we said, we will continue to move higher, as it has been. In addition to what Naeem just mentioned about the growth in the IT sector, especially in the Pakistan market.

Okay, great. That's helpful. Then, I appreciated the color on the gross margin. Obviously, the 62% print was very nice. On a go-forward basis, obviously, you are guiding to mid to high 50s -- I guess close to 60%. Can you give me an idea of -- I know you do not provide a specific breakdown --but what the gross margins are on the different revenue mix? Obviously, licenses is likely in excess of 90%, but can you give us an idea of what it is for services and maintenance?

Yes, Tina actually may have the precise number in front of her.

Actually, we do not by each revenue mix. We do it in total at this point.

But also, Matthew, what we know -- and of course anyone can back it up -- that in license sometimes you do 90% -- you're right; and sometimes you do 70%, depending upon any further [GAAP]. But on the services side, we're pretty consistent -- between 50 to 60%.

If you look at the model of the JV with TiG, that is about [55]%, I believe, in this year. So it is pretty much -- pretty steady in that area.

If there isn't any customization to the license, then the gross margin on that is pretty high. It depends on whether there is customization or not, that determines whether -- that may lower that percentage down.

Exactly.

Okay, great. Then if you could -- you spoke about how you are having success in terms of competition and win rates. Could you maybe speak to what your win rates presently are and who you are competing against most often? I guess that probably varies by region, but maybe if you could speak broadly to that.

In which segment -- solution or services?

In license sales.

I will jump in, Najeeb, on that one. On LeaseSoft sales, actually in Asia-Pacific, we have actually more than an 85 to 90% success rate. So if I look at the seven or eight sales we've had in Asia-Pacific last year, I would say we won, out of the maybe nine deals we were in, we won seven or -- seven of them. So we have a very high conversion rate in Asia-Pacific.

In Europe and U.S., it is more competitive and it is a more mature market. But still, we are winning 50 to 60% of our -- the way we present and the way we propose.

And who are you competing against most often in those regions?

In Asia, actually there are no big competitors within Asia. Some of the U.S. companies and the European companies have tried to play in Asia, and they find it very, very difficult when they do not have a local presence. And they cannot compete with us on resource availability, on functionality -- richness of functionality, as well as our cost base. So really, in Asia, I do not want to be complacent about this, but I think there is very little competition.

In Europe, there's one or two companies, such as CHP, Linedata and (inaudible), who we compete against from time to time. In the U.S., there is Decision Systems -- IDS, International Decision Systems, who are a reasonable competition. But really, as we have a bigger presence now in the U.S. and more product offering, we feel that we can start to win more consistently against them as well.

Okay, great. Then one last one, and I will hop back in queue. On the EBITDA number, obviously you came in very nicely at about 23% here. On a go-forward -- I know you didn't really speak to specific EPS guidance, but is there maybe some kind of EBITDA target that you are looking at for fiscal '08?

You know, (inaudible) we believe for the -- and of course, for the fourth quarter, which was very strong. But I think for the year, basically, we believe we would like to see ranges between 15 to 20% of the revenue as a whole year, which I believe pretty strong. And as a growth company, as you know, we continue to do a lot of things to grow the Company. So I think if you achieve a level of 20% for the year end, that will be, I think, quite impressive.

Okay, great. Congratulations again.

Deborah Fiakas, Crystal Equity Research.

I wanted to return to the discussion started earlier about the growth expectations for this next year. You mentioned 30 to 40% growth, which is excellent. Is that -- is your growth estimate contingent or is it dependent upon winning some of those government contracts, specifically the land management contract that is a pilot (multiple speakers)?

I will answer one. Naeem, you go ahead and then I'll come back second.

This is Naeem. We have not factored any of the land record or any of the major wins in this projection. I think we need to be conservative. You know, we are dealing with bureaucracy, we're dealing with a bidding process, which is very transparent and can be protacted. So really, we cannot base projections and guidance on winning one major deal. Our prediction is based on winning consistently a number of medium- to large-sized deals, as we have been in the past few years. So really, if that happened, if we won a major deal, we may need to update our guidance.

Okay, excellent. Then turning to the gross margin, you did very well this quarter, but it does not sound like from your guidance that we will see margins going forward in the high 50s to 60%, that you think that you're going to move on from here. And yet you're projecting quite a bit of growth. It would seem that there would be even better coverage of fixed costs on the higher level of sales.

Is your gross margin expectation -- does that include maybe some cost increases somewhere along the say or some additional investment spending that show up at the cost -- the direct cost line?

Yes. It is obviously a question which is very complex to answer. But as we are growing quite tremendously and adding on new locations and adding -- hiring more people on [good basis], I believe this may be a bit conservative projection on the margin here. And the Company has now basically, with the integration of both entities in U.S. and UK, have got a better grip on the direct cost of sales. So I say this is a pretty good target based on what we have been doing for the last two years -- so 45, 50% is a realistic target, and we will obviously aim to better than that.

Okay, and are you anticipating hiring new people? Do you have a target headcount from the level that it is at right now? I think Tina provided that in her initial comments.

It is very dynamic, but we are growing quite nicely with our EI relationship. There's enough, I think, surge of LeaseSoft and licenses worldwide. As we launch the U.S. IT services, of course, our goal is to really build the U.S. market. This is the biggest market; this is the most mature market. And we believe long-term we will have a bigger piece of share from the U.S. market. So with that, it is all relative to the growth and the number you want to achieve.

Can I just add one point? You see, what you might have compared from last year to this year, you will find some of the costs are almost the same as last year in terms of some of the salaries -- management salaries and so on. So the (inaudible) organization is very scalable now. Literally, hiring is being done as the revenue grows; it is directly related to growth.

There is very little in terms of new initiatives that are just pure cost. A lot of these new initiatives return revenue fairly quickly. So I think as an organization, you are right to say -- I think the first question you said how the costs are going to relate to growth. I think you are right in assuming that a lot of the cost is on scale, and as we scale up, ramp up, the cost goes higher as revenue goes higher. But the percentage will be quite consistent to where we are.

Okay, very good. Then one last question in regard to new product development. You did quite a bit in this last year. Do you plan on maintaining the pace? Are there new products that are currently in the development pipeline? Could you tell us a little bit about your plans for this next year?

Yes, I think on the R&D side, let me just respond to that. As an IT company, it is very competitive world out there. We do not always disclose what we are developing at any given time until we're ready to announce. But as we already announced, we've been developing the Frazier product, and we have made significant improvement to existing product. So those are public knowledge, but we continue to develop some products.

But I can tell you there is not a major expense or a sort of cost associated with any large developments. I think we are trying to reap benefits of our products we've developed over the years and they're really starting to get traction. So we are enjoying really that revenue growth from existing products rather than go into some big investment into new development.

Excellent. And could I just follow up there and inquire about the Treasury product and when you anticipating bringing that out?

We're actually in the process of launching in the North America, now that the product pretty much already (multiple speakers) --.

Yes, the product, in banking -- again, like anything, it is a product that needed to have a lot of functionality. It is a very complex financial application. It is a lot more complex than LeaseSoft. So we have actually gone through the difficult period, and we have come over a barrier now where we are actually quite ready to launch in the U.S. as a pilot launch, and then maybe to grow into Europe as well over the next year.

Excellent, thank you.

[Bill Garrison], Ironworks Capital Management.

Congratulations as well on a nice quarter. I had just a handful of modeling questions here for you. I wondered if you might be able to give specific revenue for CQ and TiG during the June quarter.

Yes, Tina, you can.

Yes, we have that information in our MD&A section in our filing. So when we file that, that will be available, not only by each subsidiary, but by geographic region as well.

All right. And I guess with respect to the big bump-up in North America, the results have been a little bit volatile there. I should not say volatile, but obviously this is a big step-up. I guess I was just curious if you could provide any qualitative statements about how you view the June quarter results as kind of a steady-state going forward, or whether there was a particular onetime bump in North America on the licensing side.

I think, Bill, this is a considered effort by the team there. Obviously, first nine months have been challenging, as you know, with integration and training our developers and trying to put the new team together. But this is not a onetime, in my view. We have already improved our pipeline as a result of hiring some more salespeople in this division here. So there is a consistent growth in the pipeline and projects. You can see there's some good contracts in Q4, and Q1 is turning out to be -- they are busier.

So I think the trend will continue. I am pretty confident. And our focus is in the U.S. market, and we would like to grow the business tremendously, both in the license and, of course, the IT services side.

Okay. Just a couple more, if I may. CapEx, I guess, increased a little bit above my expectations in the fourth quarter. Would you be in a position to talk about your plans there for the coming year?

Well, because I think CapEx is the expansion of our current infrastructure in Lahore, Pakistan -- because we're pretty maxed out in our resources, utilization and accommodation there. So we have already started the process to grow the structure so that we eventually can have another 1000 programmers on top of 650 in that location only. Of course, we have some other facilities next door to that campus that leased.

So that is the biggest expense, I believe, and a little bit more on (inaudible) the marketing and sales infrastructure more aggressively, both in the UK and North American market.

Okay. And I guess -- those are impressive win statistics with LeaseSoft in Asia. Could you kind of describe the pipeline from an opportunity standpoint? You've got some big-name customers, and I guess I'm just trying to figure out where we are in that curve -- growth curve. Are there still lots and lots of opportunities out there, or does the market begin to mature a little bit as you just expand within some of those major OEMs?

I will take that. It is interesting, your question, actually, in the sense that LeaseSoft is purely just touching the tip of the iceberg in Asia, because Asia is very virgin territory. If you look at maybe eight or nine -- I'm sorry -- Asia-Pacific -- eight or nine major countries there, from Australia to Japan, Thailand, Singapore, China, seven or eight countries the are major users of asset finance software.

And in each of these countries, there are typically 15 to 20 major captive finance companies, like Toyota Finance, BMW Finance, Daimler. So you can imagine all the major auto manufacturers have a division of finance in all of these countries.

So if you just take that equation, like take 9 X 9, you know -- 9 X 12, maybe, so that's 108 sort of target customers just off the top of my head. And we have done even more -- a lot more deeper research. So in fact, there is a pipeline or prospect list of over 200 targets for us in these countries. And where are now? Literally less than 10% of that. So it is still quite a big market.

All right. Lastly -- I guess it can wait until the K, but would you be able to tell me -- did your minority interest position in NetSol PK change in the fourth quarter?

No, it did not.

It did not. All right, very good. Thank you.

[Ian Schaeffer, Galleon Capital].

Great quarter. Sorry, I just may ask you to repeat a question that may have been posed or a comment you made. Did you give guidance for '08 or Q1 '08?

We -- the top line, we said, we expect between 30 to 40% top-line growth in '08, '07.

You are saying after Q1, are you?

That is for all of '08, is that right, or --?

For '08.

For all of '08.

And you did not give any specific Q1 guidance, is that right?

No, because we almost are closing the quarter, so I think we will be announcing in the middle or actually early part of November this year.

Early November, okay. And did you commit to profitability on a GAAP basis for '08?

We said, I think, at the beginning that we are focused to have strong profitability, but I think is a bit early to give that number now. Maybe after Q1, we will be in a better position.

Okay. We're talking about for the year though, right?

Yes.

Okay, good. Thank you.

(OPERATOR INSTRUCTIONS) Jim (inaudible), Meadowbrook Capital.

Listen, I just want -- I did not hear before, if you could -- someone, another gentleman, asked a question about competition. Did you mention the names in Europe and North America that you regularly compete against?

Yes, in Europe, we have really got two competitors which we have respect for. There is the company called CHP, and there is another company called Linedata. They are sort of similar styles to us in Europe. But we are globally a lot bigger than them in terms of number of customers and so on.

So what's happening is our customers and prospects are beginning to realize that we are the number one company in the world now in our space, and that gives us a lot of leverage when we're trying to win these larger contracts. Which we actually -- when CQ was on its own, without NetSol, was finding it hard to compete with those players. We are now regularly competing with them, and we have had several interesting wins against them, which actually CQ as a old company never was able to win a business against them.

Jim, just as a reminder, in our 10-K that we will be filing, we have a full list of competitors in our discussion.

Okay, very well. Then just a follow-up to the last gentleman's question about opportunity. Did you speak today about opportunity within the current customer base, how much is left there? You've got large customers. Can you just talk about that a little bit?

Yes, I will give you a rough idea. If we did $1 million in sales for LeaseSoft, of that, $330,000 will come from maintenance and support, and another one-third will come from revenue from existing customers. So you can easily see how that impacts the top line. Because existing customers continue to give you almost 66% of your revenue. So the bigger the customer base, the more of that 67% continues to come into revenue.

But in terms of new organic opportunities, there is, as I said, another couple hundred companies in Asia which we can come across over the next three or four years.

I guess I was -- maybe I have been confused a little bit. I was thinking more along the lines of more licensing deals, selling more seats to the same companies.

Yes, that is what I said. We are getting about 30% or more of our revenue from existing customers. That includes additional licenses, as well as more enhancements to their product.

I mean also, maybe - we deal with most of these multinational auto manufacturers, like Daimler, Toyota, and they have countries within countries within the region. That helps us go to different locations within the same customer group. So that really adds -- we've seen that happen all the time with Daimler, Toyota, and some other names.

Okay, all right. Then on the service side, the service revenue is a major part of your business. Yet is this component mainly on the installation services? How much -- how big a part of that service revenue is what I would consider recurring? What, if any?

It is about, I think, 30%.

As I said, maintenance and support from LeaseSoft is very consistent, and it is almost one-third of total revenue. And services to existing customers also provides another one-third. Then the rest is made up of licenses and customization to new customers.

Okay, all right. So my last question then is the political situation in Pakistan -- can you talk about that a little bit, as to how it affects your ability to run the Company and any disruption there when --?

Let me help that, and of course Naeem can also add a few comments. If you have not read the article that came on Wall Street Journal just day before yesterday, please read that, because it's a very positive article talking about the Pakistan economy as part of some short-term political changes that is happening now. We believe this will happen within 30 to 60 days, where the new president will be reelected or the same president will be reelected, followed by the parliamentary election to appoint the (inaudible) publisher.

I did not think this situation is causing any problem for us in our growth, in our customers, locally and internationally. So it will go away without affecting our business.

Najeeb just had two points there, Jim, that last quarter was a record quarter in our history. In 12-year history, this was the biggest quarter NetSol ever had. And the Pakistan division had the best piece of that -- it's about 8 -- how much of that -- $6 million, $7 million came from Pakistan. And these three months have been the most turbulent in Pakistan's history, almost, in terms of political uncertainty.

So you can see the two are detached. We continue to win business from international customers when they know the situation in Pakistan, so they are not overly concerned. Naturally, they ask the same questions as you do. But when they see the delivery is consistent and the quality is good.

Secondly, you'd also follow -- if you follow the stock market in Pakistan, and you see the economic fundamentals in Pakistan, you will see again those are now finally detached from the political side of things. Like any maturing economy, the economy has its own life and the fundamentals are very strong.

No doubt a jolt can shake the market for a day, but it very quickly recovers. So we have seen that happening over the last three, four months, day in, day out, that you get one surprise; the next day the market covers again.

I think also our customers look at this Company with amazing programming capabilities -- CMMI Level 5, which is -- we're the only company over there. And the commitment for the last 12 years in the servicing. So, another day we deliver and the customers keep coming to us, despite of what happens geopolitically or locally. So I think the proof is in the pudding, as Naeem said. Record quarter in the midst of the worst timing in Pakistan, and we have basically beaten the conditions there. So, we're pretty comfortable.

That is good news. The last question I have is did you mention a timing on when you expect to hear about some of these larger deals that are being bid out in Pakistan that we talked about earlier?

We did say actually sometime this fiscal year. Obviously, we are very anxious, and one of the pilots we are working on, the team has done a good job and the results are coming pretty good. So I think give and take this year. Although, like Naeem said, we have not really factored in those contracts in our projection.

But in any case, we believe that those contracts are placed or they're offered, that's like a very good chance in winning those because of our experience and our maturity.

Okay, that's it. Very good. I like what I am hearing. Thanks very much.

Thank you. There are no further questions in queue. I'd like to turn the call back over to management for closing comments.

Well, I guess, thank you very much. I appreciate your listening to us and questions. NetSol is committed to enhancing shareholder value for our investors and delivering growth and profitability essential to that process. I am extremely pleased with the strength of our fourth-quarter result and the progress we continue to make in terms of building out our strategic business model, providing leading-edge enterprise solutions for the financial sector, and expanding our IT services business.

I look forward to talking with you soon in the next quarter to provide updates on our progress. Thank you and have a good day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.