NetSol Technologies Inc (NTWK) 2008 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the NetSol Technologies fourth-quarter fiscal year 2008 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, at which time instructions will be given. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your post, Mr. Christopher Chu, Global Consulting Group for NetSol Technologies, Inc. Thank you, Mr. Chu, you may now begin.

Hello, everyone, and thank you for joining us on the NetSol Technologies fiscal fourth-quarter and full-year 2008 financial results conference call, for the period ending June 30, 2008. We have prepared a PowerPoint presentation to accompany this conference call. The document may be found on the main page of the investor relations section of the NetSol Web site located at www.NetSoltech.com. In addition, I would like to remind you that we are recording and broadcasting today's call. The webcast archive of the call will also be available in the investor relations section of NetSol website.

Before we begin, please proceed to slide member two as I read a brief Safe Harbor statement. This conference call and presentation may contain forward-looking statements. These statements reflect the current belief 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 risks and uncertainties. Actual future results and development 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 super-national law, particularly with regard to tax regulations.

The Company assumes no obligation to update forward-looking statements.

Moving to slide number three, during today's call Mr. Najeeb Ghauri, Chairman and Chief Executive Officer, will share key achievements for the recently completed fiscal year 2008 as well as provide an overview of the strategic outlook for 2009. We then will hand the call over to Ms. Tina Gilger, Chief Financial Officer, to review more specific details of the financial results and forward-looking guidance. Mr. Naeem Ghauri, your division President, also joins today's call and will be available in the question-and-answer session.

I would now like to pass the call over to Mr. Najeeb Ghauri:

Good morning and thank you all for joining us today. On behalf of my Board and the global management team I'm extremely pleased to report truly impressive financial and operational results for fiscal year 2008, especially taking into account the challenging global economic environment. I hope you have found the part one presentation we prepared to supplement this call and will follow along with us. The slide numbers we refer to are found at the bottom of each slide.

As the press release issued earlier today and as slide number four illustrates, NetSol delivered an outstanding performance in fiscal 2008, delivering record financial results for the full fiscal year that met or exceeded our stated guidance ranges. Revenues rose 25% over year-to-year to $36.6 million, which is in line with our stated guidance range, driven by strong double-digit growth rates in licensing, service and maintenance fees on solid gross margins of 57%.

Operating income for the full year increased to [172%] to a record $7.2 million for an operating margin of 20%. We also successfully translated our robust top-line growth into record annual GAAP profitability and record EBITDA results, and our full year 2008 EBITDA margin topped our own guidance range, coming in at about 31% of the revenues. As you have seen, GAAP net income for the year increased to a record $7.2 million or $0.28 per fully diluted share, in line with our stated guidance range.

EBITDA came at a record $11.3 million for the whole year or about $0.44 per diluted share for the fiscal year, which we believe is the best metric to measure the underlying profitability of our business. Let's review some of the top-line strategic business highlights for the fiscal 2008.

If you'll flip to slide number five, one of the most important strategic milestones in fiscal '08 was the launch and rollout of NetSol's BestShoring and global business service strategy, representing an evolution of NetSol's core business offerings to be leveraged across our range of international client delivery centers.

The BestShoring business model and global business service platform reflect our continued focus in meeting our international clients' needs for local markets, IT services and software expertise matched with high-quality, low-cost offshore delivery capabilities. This forms a key foundation of our strategy for 2009 as we look to further grow our global footprint and expand the breadth of the international client base.

I'm extremely pleased with our success in securing significant new client relationships as we are seeing an upward trend in the size and value of the client wins we are recording. This trend was highlighted by several multi-million dollar contract wins announced in the fourth quarter of fiscal 2008. I'm proud of our regional operating divisions, who were successful in converting these opportunities our core NetSol financial suite of products into multi-million dollar contract wins. We saw significant new client wins in Asia and Europe as we continued to make headway in making our regional NetSol financial suite product offerings more compatible across geographic regions, providing a (inaudible) global solutions suite and creating a more flexible delivery platform for the customers.

Evidence of our success on this front included a new frame agreement with Daimler Financial Services, which extended NetSol's relationship with this longest standing customer in additional regions of Asia-Pacific, the Middle East and Africa as well as facilitating future market deployments. Our success in 2008 was also highlighted by a further diversification of our IT services and market verticals as we established or expanded our presence in verticals such as health care, e-government and in defense sectors.

We also experienced solid growth in 2008 from NetSol TIG, our extended innovation joint venture, which experienced double-digit year-over-year revenue growth as we expanded our billable resources in this joint venture to over 130 employees.

If we move to slide number six, we begin to look at diverse rate of growth drivers that are designed to position NetSol for additional revenue and profitability growth in 2009 and beyond. As detailed in our earnings release today, we are reiterating our fiscal year 2009 guidance, which Tina will walk through in a bit.

Let me point some perspective on what we believe will drive this significant growth in 2009.

I'll start with the Asia-Pacific region first, as our largest customer base now extends to over 35 customers and LeaseSoft positioned there remains the dominant player in the market for end-to-end leasing software. We believe the LeaseSoft position in the lease and asset-backed finance sector in the region will only grow stronger as we extend our reach with existing customers who wish to migrate their systems from legacy software platforms or choose to implement LeaseSoft in greenfield countries where they do not have an asset-backed finance software (inaudible) in-place.

While we saw little softness in the Chinese market in the last quarter, which we believe was largely a combination of reduced business activities around the Olympics in Beijing and some longer decision-making cycles, we continue to see China as a key market for our long-term Asian growth strategy as opportunities of our NetSoft Suite of financial services offerings in China remains vast. Overall, we remain very bullish on the strengths of our Chinese market position and growth prospects in this important region.

Our Chinese sales pipeline remains very healthy. Through our NetSol [PK] division, we were awarded a second LRMIS pilot project for the Islamabad capitol territory. While we still contend that NetSol is a frontrunner for this broader land management project, the ball is now in the government of Pakistan's hands. As an update to the overall LRMIS project, there is still a total of $300 million available by the World Bank to be shared by multiple service providers implementing this project. The incremental revenues that could be generated from receiving a partial award of a contract of this size would certainly bolster NetSol's top and bottom line.

But for now, we are not modeling this project into our 2009 forecast, due to the inability to predict the timing or scope of this potential award. While we remain positive and confident of Pakistan's newly elected government, we're now experiencing an extended decision-making time line for key government contracts as the new ruling party establishes its own time lines and projects due diligence processes. We have no doubt that NetSol continues to represent the premier IT services provider in Pakistan as a blue-chip IT service company, having recently received the best [exporter] performance of all for 2006 and 2007 with the highest export of IT services from Pakistan.

We are working closely with the new government to assess in the continued modernization of key government agencies' initiatives. As further evidence of our local expertise in pursuit of excellence, our Lahore development facility achieved ISO 37001 certification in 2008, which is a global benchmark for security controls on protecting information-based assets.

In North America we have made excellent progress in restructuring the business and repositioning the NetSol brand. As you may recall, in October 2007 we appointed Mitch Van Wye as the Chief Operating Officer of NetSol North America division. He has done an excellent job in making the necessary changes. We're continuing to invest in sales and marketing resources. Given the vast market opportunities and the largest IT service market in the world, we are moving our North American headquarters, as announced earlier this week, to our global operating headquarters in Emeryville, California, which is right in the heart of San Francisco Bay area.

This facility will serve as the primary center of operations for expanding global business as well as facilitating -- facilitate our entry into key new developing markets in Central and South America. We remain very bullish with outlook on the Americans as reflected by a media leaseback win in August valued at nearly $2 million.

Now, in our UK operations we have restructured also. This past February we appointed a new head of sales and marketing (inaudible) its strong track record for success from Asia-Pacific (inaudible) growth. Our increased traction in the European region was highlighted by our recent large-scale lease-up sale to a leading European bank, and we look forward to extending this traction to better penetrate the region.

On the Middle East and UAE market we marked a major milestone in June as NetSol expanded its global market base and brand visibility as we became the first US NASDAQ Company ever to successfully dual-list its shares for public trading on the Dubai International Financial Exchange, or DIFX for short. We believe the UAE, which stands at a crossroads of Europe and Asia, represents an excellent opportunity to (inaudible) expansion and modernization of infrastructure in this cash-rich region, which we believe offers phenomenal new opportunities to NetSol.

We have positioned NetSol for increased brand visibility and recognition in the region, which is now in a learning curve for our services offering. We see very strong new business offerings by way of new clients, alliances and joint ventures that would leverage our NetSol PK center of excellence technology campus. This follows on the back of winning our first major contract in the dynamic Gulf region with one of the key Saudi Arabia's largest leasing companies.

We have already seen dividends from our Middle East initiative in terms of a wide range of new business leads and increased brand recognition among potential customers as well as shareholders. Overall, our long-term goal is for NetSol to be providers of offshore IT services to the Gulf region and the Middle East's leading provider of leasing solutions.

NASDAQ invited NetSol to its closing bell ceremony in New York this past June in appreciation of our pioneer move to a secondary market listing on the DIFX.

Based on the continued success of our NetSol TID joint venture, we're also exploring additional joint venture opportunities. To complement these organic growth drivers we're also carefully exploring new alliances and partnering opportunities. This is consistent with our broader growth strategy to expand our presence in new, complementary businesses, verticals, as well as strengthen our offshore customer delivery capabilities in new geographies that afford us additional and more diverse access to high-quality, low-cost IT services professionals.

To globally diversify, we're examining a range of potential new geographies for a regional programming development center in some newly emerging markets with significant labor cost arbitrage, such as Central or South America, among others.

And finally, we are [on lookout] on the recent developments. In the global financial markets, we are actively evaluating and monitoring the potential influences of the current economic slowdown on our business. While these are historic times in the financial markets in the US and other parts of the world, I can say our global management team is remaining vigilant, and we will continue to evaluate this on an ongoing basis.

In order to provider shareholders with some additional clarity in looking to provide some broad color on our contracted business backlog, which is another key component of our forecasting and we'll look to provide some basic color on our half-year and year-end conference calls. As of June 30, 2008, NetSol's contracted backlog to be executed in 2009 represents roughly 30% to 35% of our revenue forecast, giving us a solid base of contracted revenues. We currently believe this backlog and the combined contribution of our diverse range of growth drivers are, for NetSol, a broad foundation for our reiterated rated full-year 2009 financial forecast.

Overall, our increasingly diverse customer base, range of global delivery centers, product offerings and addressable markets accurately reflect our strategy to position NetSol as a truly global leader and better position us to leverage the global business opportunities we currently see before us.

Moving to slide number seven now, I would now invite our CFO, Tina Gilger, for a detailed review of financial results. Tina, please go ahead.

Good morning, everyone. Thank you for joining us today on the conference call.

As Najeeb noted, we had an exceptional year of financial performance in fiscal 2008. Let me walk you through some key perspectives, starting with the top line.

As you look at slide number eight, you will note that NetSol's top-line revenue growth remains consistent over the last five years, reflecting a robust compound annual growth rate of 58%, culminating in record annual revenues of $36.6 million this year. Full fiscal year 2008 revenues increased 25% year over year, which is in line with our projected full-year guidance range.

Looking ahead, we're positioning our global operations for additional growth via expansion in existing territories and penetrating new growth markets such as the Middle East as well as Central and South America.

Turning to slide number nine, we take a look at the major components of revenue for fiscal year 2008 as compared to the prior year. NetSol's top line for the year grew 25% year over year, driven by solid growth in IT consulting and service fees of roughly 26%, as well as solid growth in license fees of 30%, with these two segments representing the largest components of our revenue.

Maintenance fees grew 16% year over year. The year's licensing segment was highlighted by multi-million dollar contract wins and increased penetration in the business verticals such as finance, e-government and health care.

Turning to slide number 10 shows the breakdown of revenue by business. For the full-year 2008 period, as a percentage of total revenue, IT consulting and services represented 48%, license fees represented 35% and maintenance fees stayed relatively stable at 17%. On a geographic basis for the fiscal year 2008 as a percentage of total revenue, Asia-Pacific represented 68%, Europe represented 21% and North America represented 11%.

On slide number 11, we NetSol's historical quarterly revenues culminating with a record revenue of $10.5 million generated in our most recent quarter, a 16% increase in revenues sequentially over third quarter fiscal 2008, and up 23% year-over-year.

Moving onto slide number 12, we look at NetSol's gross margin performance over time. NetSol achieved gross margins of 55% in fiscal fourth quarter, in line with NetSol's operating goal of maintaining gross margins within the high 50% to 60% range. On a forward note, our goal is to continue to balance our human capital and overhead while executing our strategic growth initiatives. Gross margin for the full year was at 57%, also in line with our operating goals.

Slide number 13 shows the breakdown of the operating expenses for the fiscal year 2008 as compared to the prior year. Total operating expenses increased a very modest 6% year over year compared to fiscal 2007, as our revenues over the same period grew at an impressive 25%. As you can see, we're continuing to invest in our global sales and marketing resources, up 18% year over year, to support our future growth expectations while keeping an eye on operating efficiency. This is allowing NetSol to tap the leverage within our global business and drive bottom-line profitability, which ought to set a full-year record. Going forward, we're continuing to invest in sales and marketing as well as expanding our base of global delivery centers to diversify our customer delivery platform and support our clients with regionally aligned, low-cost offshore development centers.

I would also note that our DIFX listing process added another $250,000 in nonrecurring expenses during the fiscal fourth quarter. As Najeeb mentioned earlier, this investment is starting to show returns and greater visibility in the area and new prospects. Balancing our growth and expansion while focusing on profitability is central to our strategy going forward.

Moving on to slide number 14 and a look at GAAP earnings per share, our fiscal fourth quarter marks NetSol's sixth consecutive quarter of GAAP profitability. NetSol's GAAP net income applicable to common shareholders increased to $2.1 million or $0.08 per diluted share versus a GAAP net income of $1.3 million or $0.07 per fully diluted share in the prior year. Fourth-quarter GAAP net income includes a foreign currency exchange gain of $1.4 million recorded by our Pakistan subsidiary, as the exchange rates around the globe fluctuated.

For the full fiscal year 2008, NetSol's GAAP net income applicable to common shareholders was a record $7.2 million or $0.28 per diluted share. This compares to NetSol recording a GAAP net loss of $4.9 million or a loss of $0.28 per diluted share for the full fiscal year 2007.

Minority interest income deducted was $1 million and $2.8 million, respectively, for the first quarter and full fiscal year 2008. Minority interest income is related to 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 15 illustrates NetSol's EBITDA performance on a quarterly basis over time. NetSol posted record and full-year EBITDA results.

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 similar 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 one of the best metrics to measure the underlying profitability of our business.

EBITDA for the fourth quarter was $3.3 million or $0.12 per diluted share, for an EBITDA margin of 31%. EBITDA for the full fiscal year 2008 was $11.3 million or $0.44 per diluted share. EBITDA margin as a percentage of total revenue increased to 31%. I'd like to point out that our fourth-quarter and full-year EBITDA margins exceeded our stated target range of 27% to 30% of revenue.

Briefly touching on our balance sheet, NetSol extended the full year with approximately $6.3 million in cash and cash equivalents. For more details, you can refer to our consolidated cash flow table in the earnings press release and in the Form 10-K [FB] that we will file with the SEC.

Before moving on to review our financial guidance, I want to highlight that NetSol has retained an affiliate in Pakistan of one of the big four accounting firms as our Sarbanes-Oxley section for our [forced] consultants. The firm has been assisting NetSol as consultants for the SOX 404 evaluation and documentation process of our internal controls ahead of our fiscal year 2010 audit. We believe our hiring of a big four firm with 40 years of advisory experience illustrates NetSol's commitment to proactively addressing SOX 404 internal control compliance requirements well in advance of the required time line. Our internal auditor in Pakistan, where the largest activity is presently located, is a certified internal auditor under both US and international standards and is facilitating the group's internal audits as we continue the SOX process in preparation for the audit due with our 10-K filing for June 30th, 2010.

Preliminary SOX work added approximately $100,000 in the cost to the fiscal fourth quarter.

Let's now move to our 2009 fiscal guidance on slide number 16. Based on our operating divisions' backlog, strong pipeline and financial forecasts, we are reiterating our existing fiscal year 2009 guidance. While it is early in the year and we will see growth vary by market, as Najeeb touched upon, we are currently maintaining our full-year expectations despite the current global economic slowdown. We do, however, expect to see a somewhat linear revenue from the first-quarter baseline as we proceed through the year, as well as the second half being stronger than the first half. We continue to forecast annual revenue growth of 30% to 35%. Our quarterly gross margin target remains between the high 50% to 60% range.

Our forecast for fiscal year 2009 diluted earnings per share is between $0.40 and $0.45, and the forecasted (technical difficulty) on margin in the range of 27% to 30% of revenue. We look forward to updating the market in our next conference call.

I would now like to turn the call back to Najeeb for some closing remarks.

Overall, fiscal '08 was an outstanding year for NetSol from a financial and strategic positioning perspective as we delivered on our stated goals despite the challenging economic conditions all over the world. I would like to thank our NetSol team for their hard work and dedication which made this possible. Looking ahead, I believe we have right foundation of growth drivers in place to best serve both our customers and our shareholders.

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

(OPERATOR INSTRUCTIONS). Joe Giamichael, Rodman & Renshaw.

Congratulations on the quarter. You've met and/or exceeded in regards to pretty much everything you've laid out. I just have a couple of quick questions for you.

First, I see that the service revenues decreased a bit year over year, while the license revenue growth has been exceedingly strong. Does this indicate a different demand pattern from your customers, or how should we think about this going forward as we're modeling out the revenue lines?

Naeem, do you want to answer the question?

Sure. License revenue has grown ahead of services because there is a time lag between when the license revenue kicks in to when the services revenue kicks in. So we've signed some quite significant deals in the last quarter. So what's going to happen is, as we delivered those products, the license revenue will catch up. So, proportionately, by the end of next year, we should be around the same level.

It doesn't indicate, by any chance, that there has been less customization demands and more -- almost, I guess, off-the-shelf demands, just from a products basis?

No, not really. In fact, it's good news that we have more license income, and then what happens is, as we deliver the product, the customization works projects get underway. So typically, we book our services revenue behind the license revenue, according to US GAAP. So you will see the impact of the services delivered against the license in the forthcoming quarters.

As you expand into these other markets, I know that finance is a big focus for you. Can you talk a bit about what sort of challenges or opportunities are presented by some of the more macro issues that the global economy is facing, I guess just the slowing global growth, global economic growth and the tightening of the credit markets, more specifically?

I can make a few comments and then I'm sure Naeem will also assist. The three key areas that I also mentioned in my presentation is really where we believe the bigger growths are coming. One is, of course, to China. China is a burgeoning market, and we are not only quite well settled there, but we're also seeing some new traction there. So, as a result, we're expanding our presence there.

Second is, of course, UAE, Middle East market is quite rich with cash and infrastructure-related expansion in the whole region. We believe that our offering by way of our now brand recognition is quite critical in helping us to really get into that market. And you'll hear more in the next few months all the new developments that we are working on.

Thirdly, of course, our expansion strategy in the North American business is quite strong. We believe in this market strongly, the whole region between Central and South America and North America. I believe that this is a market where all the big opportunities in the services and solutions and so forth are there for us. Despite of the difficult time we are positioning ourselves to really pick up the opportunities where companies don't have this kind of scalable offering where the cost is advantage, high quality of pool of labor of people, you know.

So I believe these three areas are quite strong for us in terms of growth opportunities now. Naeem, do you want to add some more?

Just in addition to what Najeeb said, these macroeconomic indicators in these times, in this kind of adversity, there's opportunity for companies like NetSol because we're small enough and young enough to have not had the penetration. And what is happening at the moment is, a lot of these very large financial institutions are going to be cutting cost drastically. This kind of downturn doesn't mean there's less need for systems or IT. What it says is that they have less money available to spend. So naturally, they look for more efficient solutions, more cost advantages and so on. And with NetSol positioned the way we are, the rupee in Pakistan is devalued, so it makes us a lot more attractive in India as a destination for BestShoring.

So I think we are not seeing any slowdown or whatever the unfortunate events are happening in the US and the rest of the world. We're actually seeing a lot of interest in our products and services, and that's why we stuck with our guidance.

I think you actually just touched on the point I was leaning towards, which is just the fact that in more difficult times people do seek out these lower-cost options. So have the benefit of being the low-cost provider as well as what has been happening with the devaluation of the rupee, I guess, accentuating that. So -- okay, perfect.

Just to change subjects, I know that some of the US divisions of the auto makers have changed their stance a bit as it relates to the passenger car market. Some of them are exiting the lease business entirely. There has been some volatility around that announcement. I just wanted to have you explain the level of exposure you have there and what impact you foresee that decision having across other aspects of your business.

Let me just pick this up. Actually, that's a very interesting question. I think what a lot of people don't understand is our business is not linked to leasing. We are in credit decision-making. We actually run finance contracts as well as leasing contracts. What's happening is there's a big switch from leasing because of the huge losses within the residual values of these assets, because these assets have become, all of a sudden, less valuable than they used to be. So when they come off the leases after three years, a lot of these big companies like General Motors and Ford are writing off these assets.

So what they're doing now is that they are going more towards [finance -- high purchase] and loan finance rather than leasing. So I believe there is a big switch in the type of product, not any reduction in financing. All these captives still have to provide finance to be able to sell cars. That will never stop because, in fact, that will be a major, if you like, correction in their business if they stop offering finance. So let's separate the whole thing from leasing We are doing both -- leasing and finance.

I know you guys had addressed this when it first came out, but obviously this doesn't in any way impact your total market opportunity.

All these captive finance companies continue to offer products. Now what they are doing is they're subsidizing these loans. So rather than offering an attractive lease where the asset still remains on their balance sheet, what they are doing is they're actually selling the asset and being able to subsidize those interest rates with 0% or 2% or whatever. That's really where the shift is at the moment.

The maintenance fee that you recognize -- that's originally created as a percentage of the original licensing fee? Is that correct?

Yes.

Yes, that is correct.

Not just the license fee -- sorry -- it's both license fee and the services, the whole -- cost of the whole project.

Is that percentage a moving target, based on the complexity of the customization levels? Have you seen those percentages moving up or down in general?

This gets negotiated when you are signing a $3 million or $4 million contract and the customer says, instead of 22%, now pay 20%, we negotiate on that basis. So, depending from customer to customer. But we're still able to maintain certain level, and there's not really a lot of pressure on those.

Currently we are doing about 18% to 19% on the euro basis in terms of averages across the whole Company.

I think we touched upon this with my first question, but as you do see this expansion on the licensing side, you'll have the service and maintenance to follow, and that's the time line that you have addressed.

That is correct.

I know that you'd had a buyback in place in the past. Did you repurchase any shares at all during Q4? Could you update us as to what's left on the authorization?

We did purchase in, I believe, Q3, close to 14,000. Since then, obviously, we're watching our cash position quite carefully. And so far, we have not done anymore buying, since then.

What's left on the authorization?

I think it was six months, Tina, right? We started in --

Yes, it was --

-- 29th of March.

-- and it's 1 million shares.

1 million shares, six months (inaudible) [calling the SEC].

Just lastly, I want to apologize. It looks like our estimates had been posted incorrectly, and that may have created some confusion around the reiteration of what's very positive guidance levels for 2009, and it's an issue that we'll be adjusting when our note comes out this afternoon. You guys have done a great job, and I need to see something indirectly negatively impact you or the share price.

[Scott Rothbaum], Maxim Group.

It's [Paul Cooney]. How are you? Just real briefly, number one, can you give me the breakup scenario for you guys again? Like NetSol Pakistan -- what percentage of your company does that represent?

Close to 60%.

What's the market cap of NetSol Pakistan right now?

Well, it has taken, obviously, a big hit. If you followed the market last two, three months, at about $40 million to $50 million right now, I believe.

$40 million to $50 million?

Almost $100 million. But of course, due to the economic situation in the region and the change of government, there is a bit of instability there right now. But I think the write-down was about $[45] million to $50 million right now.

And those numbers are tracking your numbers, pretty much? Right? As far as the growth and everything?

Yes.

Secondly, as far as this Pakistani land contract is concerned, I think you've adjusted earlier in your presentation. This doesn't impact your -- you haven't included any of the gains from this in your numbers?

We want to make sure we do it again. Thank you for reminding us, Paul. In the '09 guidance, we have not factored a model any gains from this contract. The reason being, as I said before, that we're depending on the governments when they decide to release this contract to either NetSol or other segment contender, although we stand the best [chance]. But I think, if that happens, obviously the Company will reassess and we'll have to come back.

How big could this potentially be for you guys?

Naeem, do you want to jump in? I've got some numbers, but really I think --.

Just to sort of add to that, it's a matter of degree of speculation as well, because you're dealing with a government, and they could choose many different ways of doing this. They could do it in stages. They could do it in phases, in a way the first two years is, they have an allocation. This is a three- to four-year project. So really, we don't want to guide the market on the size, but essentially there is an allocation from the World Bank which is in excess of $100 million, I believe. I think they will have to use this money in a certain time frame.

But that's what we've done is that we've been very careful in not factoring any of this in our guidance. And once this does get allocated and if we do win this project, then after we've assessed it, we will then update the guidance accordingly, if it is of material impact.

Can you give any kind of clue as to what type of timing -- or what's the earliest you could expect to hear something on this?

We have been updating -- we have been talking about this now for two years. I am sort of loathe to give another date, because I think you heard answers before of first half, second half, first half, second half. I think we need to -- except there is a bureaucracy. They are going through a transition in the government. After eight years, we have had a fully democratic government in place. They are really trying to just settle down and I think we should not expect anything at least for the next two quarters.

Thanks very much. Great quarter, guys.

Mike Vermut, Newland Capital.

Great quarter. Can you walk us through the guidance you gave where, obviously, where the stock is, the market has some kind of doubts about that because, you know, the valuation here. Could you just walk us through what you're seeing in you backlog, what the leads are and what gives you the conference, what you see growth wise in the US, in Europe and how you've built that guidance?

It will be two-party answers. I'll take one, and then Naeem will jump in. He's got very good, up-to-date, fresh on the pipeline. In terms of backlog, which we believe is a committed revenue that we believe that we can just bet on, it involves the maintenance revenue, the joint ventures of innovation growth and some more solid activity. I believe based on our calculation just like last week, we're looking at about 30% to 35% on committed revenue which translates to about $15 million to $18 million US. And then something that we are really very confident, and now we have to go from there.

In terms of pipeline, Naeem, why don't you just jump in -- what do you think of the (multiple speakers)?

The way our revenue picture works is that we look at is our committed revenue, which is what you call backlog, and what is revenue we expect from existing clients. So keep in mind the clients that we have, we have over 100 customers around the world that continue to enhance the software. So in any given year we get anywhere from 25% to 35% from existing clients as well. So what Najeeb has said, that he has visibility or backlog of around 35%, and we also expect another 30% to 35% from existing clients. That's about 70% of our guidance there.

So really, we're only looking to win about 30% over the next nine months, and we've already finished -- the first quarter I think we're nearly over -- for the first quarter, excuse me. And we have good visibility already in the first quarter that our guidance will be met. That's why we have not changed that guidance.

So you really only have to close another $8 million or so?

If we did nothing, we will be flat, if we find no new business. So that 70% gives you what we did last year. So our growth we're predicting is about 30% to 35%. So what we are seeing is that, over the next 12 months, starting from July 1st, we need to create about 30% new revenue. The rest, we feel very confident, is already in place.

Right, because it's pretty much reoccurring, just to keep you where you are.

That's right, that's right. That's how we do it.

How do we look at currency going forward?

That's the good news where our Asian operation is concerned because, as you know, there has been a depreciation in the rupee, and that has lowered our cost base. We don't see given the rupee rebounding in the near future. So we can see that that's going to be, if you like, level for this next nine months or so. And, that's going to have a positive impact on our cost base.

I know it's tight on cash, but how do you look at the stock coming back to $2.40. Where do you start triggering that buyback?

The management has to see first the business challenges and other growth that we are doing in different parts of the world, so we are really weighing in what is more critical right now. Cash obviously is king. But, of course, there is a pricing here that we have in our mind that we can step in. But for now, I believe that, let market decide. Based on our phenomenal numbers, we're quite pleased with the '08 results and quite excited about -- '08 is history now. We have to now move forward with '09. So, the market will see that we continue to deliver strong growth of 68% CAGR last four years, and fifth quarter in a row of profitability, in spite of these most challenging times. Perhaps it's the pressure overall in the market, but (inaudible) is a phenomenon. And with the fundamentals, [this] obviously stock is quite undervalued, and you see from time to time we exercise options and we buy in the open market and we'll continue that pattern.

Well, wonderful quarter.

[Scott Hodson], [Midsouth] Investor Funds.

This is just a bit of a follow-up on the previous caller's question. With respect to '09 guidance, how much of that is -- how much of the foreign currency gains or gains on subsidiary shares are you including in that? Can you give me a feel for that, or is it -- ?

If you can clarify your question? I'm not too sure if we got your question.

Are you trying to forecast currency gains in your guidance?

No, we are not. I don't think we've done that, no.

Larry Brookes, Moloney Securities.

I'm just new to this story, and I'm just looking at the financial table. I'm wondering if you could describe -- I see your income from operations is a certain amount, of course. Then, you have a gain on foreign currency to give you a net income of approximately a little over $2 million. Then, you see a translation adjustment which brings to you a comprehensive income loss. What is the translation adjustment, and what is the comprehensive income loss? And, why is that not used in the diluted share amount?

Tina, you want to answer that, please?

Sure. The translation adjustment on the financial statement is the change in because a lot of our subsidiaries use foreign currencies other than the US dollar as what they book, so we have to translate that (technical difficulty) to US dollars. And that currency just represents the change from quarter to quarter or year to year on what the translation adjustment would be. As that is not an actual income item or a loss item for us, it is not under US GAAP included in the calculation of earnings per share. Earnings per share is just based on pure net income.

As far as this translation adjustment, it looks like -- from a historical standpoint, it looks like it could represent a significant amount each quarter, $1 million dollars or even more, is it has this quarter.

Not really. I think this is maybe one exceptional quarter, in my view.

Yes.

Also, the way we look at it, it may offset a little bit of the minority interest now that we have to [part] away with the subsidiary in Pakistan. So I think it's not a regular thing. Because of the weakness of the rupee in Pakistan, this is why we have the gain.

Well, let me model it further, then. In you report, you show there is a gain on currency transactions of $1.4 million, and then a translation adjustment. I take it, those two are entirely separate items, then.

Yes, they are. Most of the gain that we're showing on the financials is in our Pakistan subsidiary, where they have seen the depreciation of the rupee, which has led to a gain. And the other is the Company on an overall basis, and it's just based on -- last year compared to this year as last quarter is compared to this quarter.

There are no further questions at this time.

Well, thank you again. I hope we were able to answer your questions to your satisfaction. I appreciate you all joining us. I look forward to talking to you again next quarter, which will be Q1, sometime in November. Meanwhile, you have a great day and we'll keep you updated with the progress. Thank you so much.

Ladies and gentlemen, this does include today's teleconference. You may disconnect your lines at this time, and thank you for your participation. May you all have a wonderful day.