NetSol Technologies Inc (NTWK) 2009 Q3 法說會逐字稿

Greetings and welcome to the NetSol fiscal third-quarter 2009 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 Grayling Global. Thank you Mr. Chu. You may begin.

Thank you operator. Hello everyone and thank you for joining us on the NetSol Technologies fiscal third-quarter 2009 financial results conference call for the period ending March 31, 2009.

I hope you found the PowerPoint presentation we have 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. The presentation may be found on the main page of the investor relations section of the NetSol website located at www.NetSoltech.com. That's NetSoltech, all one word, dot com.

In addition, I would like to remind you that we are recording and webcasting today's call. The webcast archive of the call also will be available in the investor relations section of the NetSol website. Please proceed to slide number 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 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 supranational law, particularly with regard to tax regulations.

The Company assumes no obligation to update forward-looking statements. Moving to slide number three, we are pleased to have presenting today Mr. Najeeb Ghauri, NetSol Chairman and Chief Executive Officer. He is joined by Mr. Boo-Ali Siddiqui, NetSol Chief Financial Officer; Mr. Naeem Ghauri, Head of Global Sales; and Mitch Van Wye, Chief Operating Officer for NetSol North America, also joining 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. Please go ahead.

Thank you Chris, good morning and thank you all for joining us today. If you join me on slide number four, I will start the topline overview of key perspective of the fiscal third quarter.

Overall our fiscal third quarter 2009 results reflect the ongoing challenges of a severe economic downturn across the geographic regions, particularly in key sectors such as financial and automotive and (inaudible) remained on hold.

The macroeconomic environment showed no signs of improvement and customers large and small all focused on their own cost reduction initiatives. These historic economic conditions impacted our results from revenue down to our bottom line. In the midst of these most unprecedented and challenging times, we responded quickly to consolidate and streamline operating expenses in line with the revenue declines.

By moving quickly, we have positioned NetSol to improve profitability as the revenue starts to ramp up again. With the fiscal third quarter appearing to be the bottom of the cycle for NetSol, we're excited by our prospects for improved financial performance is in the current quarter and beyond.

Let's look at the significant progress we made during the fiscal third quarter on the several strategic fronts including one, reorganizing and streamlining our global corporate structure, including merging our North American and European business under the direction of Mitch Van Wye, NetSol's Chief Operating Officer; number two, concentrating our global sales and marketing efforts under Naeem Ghauri in his new role as the Head of Global Sales for NetSol; thirdly by reducing operating expenses, including 20 to 33% reduction on year-over-year salary and rate expenses. Our cost reduction initiatives are targeted to save the Company between $6 million to $8 million in the first 12 months and then as a key component of our plan to return to profitability; and finally, a significant progress towards strengthening our global reach and customer acquisition efforts through strategic joint ventures and partnerships. I'll walk you through these efforts later in today's call.

Most importantly we we stand almost halfway through the current quarter and I feel confident that the fiscal third quarter 2009 was our worst quarter. I believe we have begun to make a turn and now expect to see improved sequential topline and bottom-line performance in the quarters ahead.

Now moving to slide number nine, what gives me the confidence to say it appears we have made the turn? I base this on several key fronts.

First, based on our pipeline as we had spoken last quarter, our pipeline has remained robust throughout this downturn though it has been almost uniformly frozen or deferred in terms of (inaudible) on high-value software and services sales. I'm pleased to say again that the pipeline remains robust and we have begun to see some initial (inaudible) decisions.

Secondly, based on customer activity, we now are seeing some customers looking to release some IT budget dollars within areas of the global economy that are growing, particularly in regions such as China. We have seen good levels of customer and pipeline activity in China for our NetSol Financial Suite offering.

China recently surpassed the US in terms of monthly auto sales and continues to project GDP build for 2009 albeit lower than its historical double-digit levels. NetSol has an especially strong market presence in China and the broader Asia-Pacific region which is benefiting us now.

During the last two months, our existing global customers in China have aggressively resumed meetings with NetSol in order to pursue their growing needs through the be NetSol Financial Suite. We are also noticing serious interest in the Chinese banking and leasing companies.

Further, we have started to spread our sales and (inaudible) teams in our Beijing office in China. Third, our cost cutting and streamlining initiatives are flowing through our financials and creating a more efficient platform upon which to enter any [timing of an] economic recovery cycle.

Fourth, the reduction in extraordinary expenses. In our fiscal third-quarter results, the Company recorded several notable expenses including a $1.8 million expense provision for the reserve for doubtful [account suspense.] Now this is not a real write-down but it is (inaudible) we feel it's prudent as we take a conservative approach towards Accounts Receivables in these critical times.

(inaudible) approximately $200,000 one-time redundancy expense and $1 million expense related to the modification of an existing convertible loan to the key investor. This modification will waive any right to participation in any future financing with this investor. Secondly, it raised anti-dilutive effect of any further financing and these are both favorable to NetSol.

With these items behind us, we have no extraordinary items forecast for the current fiscal fourth quarter 2009. And finally, and most importantly, we continued to have a powerful portfolio of products and services supported by CMM-level 5 expertise and a global delivery platform that provides our customers high quality service and support.

Our ability to grow are strengthened further by our latest joint venture and partnership announcement. That being said, let's move to number six please and walk through some key achievements during the fiscal first quarter.

While the sector has been under considerable pressure, we continue to have secured world-class implementations and currently foresee future growth in the sector. During the quarter, Toyota Motor Finance China Ltd. went live with NetSol's suite of financial products. Also we had a leading global automobile manufacture implement our NFS products with three other dealers in Latin America, reflecting our increased market penetration in the Latin American region, a region we see as an area for potential development.

On the lease LeaseSoft front, we also signed a contract with one of the leading leasing companies in Australia while LeaseSoft (inaudible) finance system. We also saw solid progress with NetSol's SAP practice growth with security of services contract during the quarter with the leading Europe-based energy and utility company representing in excess of $1 million in projected annualized revenue. And finally, we continued to expand our growing base of technology relationships and solutions (inaudible) partners.

As we move now to slide number seven, as I stated in our fiscal Q2 call, NetSol is purusing key new relationships by way of joint ventures and partnerships with major business groups in the leading emerging economies. With major progress made during the quarter, two of these relationships were formalized over the last six weeks.

Our [team of high-level side] capabilities and global footprint are attractive to these key global partners and these relationships position NetSol as a strong global IT company with increased capability to better penetrate key target markets. Through these relationships, we can deploy a cost-effective go-to-market approach that leverages NetSol's CMM level 5 and global software and IT services expertise with the combined support of high-quality partners who share our vision and are mutually motivated to succeed and grow.

Third, we look at our recently announced joint venture with Atheeb and NetSol Ltd. in which NetSol is the majority owner with 50.1% stake. The joint venture is focused on providing software engineering and IT services in Saudi Arabia and across the broader DCC and Middle East.

Saudi Arabia is a strong and cash rich country that offers vast new areas of growth in different sectors. Atheeb Group is a major diversified group with approximately 10,000 employees groupwide which is headquarted in (inaudible) Saudi Arabia serving business markets across the Middle East. The joint venture will target key customer market verticals such as telecom, defense, security, education, transportation, financial, and legal.

NetSol provides the JV with it's CMMI Level 5 certified Center of Excellence best practices project management and comprehensive delivery capabilities. Atheeb provides the joint venture with a strong local presence where Atheeb employees are supporting private, public and governmental customer business activities in the oil-rich Gulf region.

One of the reasons the economies have seen the impact of low oil prices, the prospects in the region remains among the brightest worldwide. In Saudi Arabia, where our JV partner Atheeb is based, the local economy is still projected to grow impressively in 2009, supported the energy sector increased government spending as well as the ongoing diversification of the economy beyond energy.

If we now move to slide number eight, we will look at our recently announced partnership with Neptune Software PLC. Our strategic partnership extends the reach of our NFS in the 12 countries across the African continent.

Neptune Software is a London-based provider of comprehensive system solutions for banking and financial service sector and was recently ranked as a global top-five provider of international core back office banking systems in the finance industry by International Banking Systems or IBS Journals. The partnership provides for marketing implementations and support of NetSol's financial suite solutions to banks and financial organizations that wish to offer asset finance and leasing facilities. We are seeing good levels of interest in conjunction with our Neptune partners to date and look for this to be a long-term growth driver.

We made significant progress working out another joint venture in an emerging Latin America location with a prominent partner that is expected to provide NetSol resources and infrastructure as another low-cost development and programming center of excellence catering to the Americas. This will be complementary to our NetSol PK Center of Excellence that NetSol PK will continue to deliver service and R&D to all of our Asia-Pacific and Middle Eastern client base.

Once it is legally formalized, we will make a public announcement accordingly. Overall, we continue to explore additional options for high-quality joint ventures as well as joint customer wins and believe these strategic relationships provide for the improved penetration of key market segments as well as driving pipeline development and future topline sales.

Finally, now we turn to slide number nine for the financial review. It is my distinct pleasure to turn the call over to Boo-Ali, NetSol's new Chief Financial Officer.

He's new to the (inaudible) role but Boo-Ali has been a valuable member of the NetSol team for over five years with us. Boo-Ali has been a CFO since 2005 for NetSol Technologies Pakistan Ltd. and overseeing Asia-Pacific regions where he has was responsible for the financial operating of NetSol's largest geographic business segment. He has worked with the (inaudible) team since 2005. Boo-Ali, please take us through the financial review?

Good morning everyone. Thank you for joining us today on the conference call. As CFO of NetSol Technologies, I look forward to serving NetSol and providing accountability and strict financial oversight of the Company and all of the NetSol shareholders. We will move now to slide number 10, we see NetSol's revenue performance over time.

First nine months of the fiscal year, we had revenue of $19.6 million which represents a year-over-year decline of 35%. This is against the backdrop of NetSol's compounded annual growth rate of 58% over the past six full fiscal years. Fiscal third-quarter revenue was $5 million and was flat sequentially with the fiscal second quarter, reflecting a relative stabilization of the topline. Year-over-year revenue declined 45%.

Turning to slide number 11, we take a look at the major components of revenue for the fiscal third quarter as compared to the year-ago period. (inaudible) fee, the largest component of revenue, declined 34% year-over-year. This area includes our SAP Practice Group which performed well in the quarter.

As in the past, services fee related to license contracts are recorded on a percentage of completion basis. As such, these revenues are spread out over several quarters as they (inaudible) that the conversion (inaudible) from the contract are completed. And on a bright note, maintenance fees increased 12% as compared to the year-ago period as we supported a larger base of installed customers. This clearly shows (inaudible) strength of our long-running customers worldwide.

A decline in net revenue this quarter was most significantly impacted by weakness in license sales where we experienced a steep decline year-over-year as the global economic downturn negatively impacted and in many cases froze or deferred customer projects especially for high-end software implementations and (inaudible).

As Najeeb spoke earlier, we are beginning to see initial signs of some budgets being released early in the third quarter which is quite encouraging. Slide number 12 shows the breakdown of revenue by business.

For the fiscal third quarter 2009 as a percentage of total revenue, IT consulting and services represented 60%, maintenance fee stayed relatively stable at 33% and license fee represented 7%. On a geographic basis, for the fiscal third quarter 2009 as a percentage of total revenue, Asia-Pacific represented 56%, South America 39% and Europe 15%.

Of note, we are seeing a visible improvement in our North American revenue contribution. Slide number 13 shows the breakdown of operating expenses for the fiscal third quarter of 2009 as compared to the year-ago period.

Total operating expenses decreased 45% year-over-year, primarily as a result of $1.8 million provision taken during the quarter established as a [bear] for doubtful accounts receivable. As Najeeb stated, we have not taken to write-down here but have taken a conservative accounting stance in light of current economic conditions.

Excluding the externally doubtful accounts receivables, total operating expenses totaled 9% year-over-year as the direct result of our cost-cutting initiatives. Our progress was most evident in a 30% decline in sales and marketing expense as well as a 25% decline in salary expense.

Professional services rose as our new SAP Practice Group utilized (inaudible) of some implementations and was not part of our business in the year-ago period. Moving to slide number 14 and a look at GAAP EPS.

NetSol's GAAP net loss applicable to common shareholders in the quarter was $4.8 million and a loss of $0.19 per diluted share versus GAAP net income applicable to common shareholders of $0.09 per diluted share in the year-ago period. Minority interest income deducted was $690,000 in the fiscal third quarter.

Net interest income is related to the minority interest in earnings in several of our subsidiaries as the aggregate of net income attributable to minority owners must be deducted from NetSol's earnings. Slide number 15 shows NetSol's EBITDA performance on a quarterly basis over time.

Fiscal third-quarter recorded an EBITDA loss of $3.4 million or loss of $0.13 per share. EBITDA is defined as earnings before interest, taxes, depreciation and amortization.

The Company yielded EBITDA is 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. 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 one of the best metrics to measure the underlying profitability of our business.

I would now like to turn the call back to Najeeb to review the outlook and some closing remarks.

Thank you Boo-Ali. Moving to the next slide, before we turn the call open to our questions -- to your questions, I want to provide some additional color on our breakeven analysis, cash and forward-looking expectations.

Regarding breakeven on a GAAP EPS basis, based on the comprehensive cost-cutting and corporate streamlining initiatives implemented in recent months, we currently model our breakeven revenue run rate at about $6.5 million on a cash basis. This is a major reduction from approximately $7.5 million $8.5 million run rate in the past.

On the cash front, while our long-term goal is to maintain cash above the current level, we believe we have adequate operating cash as we move through what we believe is the bottom of the economic cycle for us. This analysis includes current cash balances, cash flows coming in from collections from large global customers, cash from current employee option exercises as well as the benefit from our improved operating cost structure.

While we have no current plans to raise any capital through the open market at current stock price levels, we have observed keen interest from some of our new joint venture partners to become stakeholders at premium levels. Should (inaudible) persist, we will analyze it carefully as to if and how best we can achieve value-added benefits while keeping a long-term perspective in mind.

Finally, we already have the option to introduce new capital by monetizing our currency through our NetSol PK subsidiary while still maintaining a minimum 31% shareholding. While we like to see our cash position above current levels on a regular run rate with our strong receivables, improved cost efficiencies and potential joint venture partnering interest; we are comfortable with our balance sheet.

And finally, looking to the future, as I stated earlier, we believe the fiscal third quarter will reflect the bottom of the current downturn cycle for NetSol as we passed the most challenging three months of the global recession. The world has changed in a matter of months and we have adapted in the face of adversity.

I believe we've made the turn and are now back on track for substantial new opportunities. From anecdotal evidence in terms of economic indicators, preliminary signs of response to various global governmental economic stimulus packages and actions, we are hopeful these signs reflect the beginning of the broader recovery.

These macroeconomic factors build upon the improved network specific customer and (inaudible) perspective I outlined earlier in today's call and support our expectations for sequential improvement in our top and bottom line performance in the fiscal fourth quarter 2009 and near-term. Overall, we are also quite optimistic on our outlook for fiscal 2010 versus fiscal 2009.

While we are quite optimistic of the outlook for the fiscal fourth quarter 2009 and onward, we maintain our position of holding off giving specific financial guidance at this time. At this time, I would like to deeply thank each of NetSol's 750 employees worldwide for their relentless efforts, dedication, belief and commitment in these most trying times and without their sacrifice, we would not be here today.

With this, I would now like to call to go back to the operator to facilitate a question-and-answer session. Operator, let's take the first call please.

(Operator Instructions) Matthew Weiss, Maxim Group.

A handful of questions here. First of all, is there any way you can possibly quantify the pipeline. maybe where it's gone quarter over quarter? Just trying to drill down further and get a better sense quantitatively versus qualitatively that this is sort of the low water mark quarter here and we are poised to see improvements in the top line. And then I have a follow-on but I'll have you take that first.

(inaudible) question, but as I said Matthew, that we are quite confident that we've hit the bottom in Q3. Q4, we have seen noticeable response from our customers in China, current customers and new customers.

We are seeing good traction in Latin America markets in some markets and some customers. And we're starting to see some improvement in the North American operations as a whole. So I don't know, can you really quantify if you have any specific number in mind?

I think we have to put the thing in perspective as compared to our previous two quarters because this is uncharted territory for us. With CAGR of 58% over the last six years, we were hit by almost a tsunami in the first Q -- sorry, second quarter, this fiscal, and then third quarter.

If you remember a conference call on the second Q conference call, we mentioned that we see revenues pretty static for Q3 as well. And so our visibility was limited, our deal flow was limited and backlog was also -- we weren't seeing any upturn.

I think what we are seeing as Najeeb and both Boo-Ali said in their comments, we're starting to see the bottom and the pipeline is improving. And in fact, we're seeing decisions being made as Opposed to no decisions being made last two quarters. So that's very, very encouraging.

We are especially happy with what's happening in China and two or three other countries in that region where we are finding that the economic downturn has not been as severe as it was in North America and in Europe. So that market is starting to open up.

We also are seeing in China a number of new finance companies applying for licenses. And if you followed our news in the past in China, we are the vendor of first choice. So really we're starting to see quite a bit of activity in those regions.

Only in the last couple of weeks we are starting to see some improvement in Europe and UK especially. We have started a number of new negotiations in the US as well and Central America and the US.

So overall I am happier to be in this quarter than I was in the last quarter. Hard to quantify it, Matthew, in terms of what revenue will actually come in, but certainly our backlog of signed contracts will be healthier. I'm very confident [that it was] last quarter.

Two follow-ons there. That was helpful. First, is there any way you can comment on some of the business, any notable deals signed in April or early May yet?

And then as a follow-up, you did mention the backlog. I know in the past that when you were giving revenue guidance, you had talked about what level of coverage your backlog provided into that revenue forecast.

Let's assume this is the low watermark here. Let's say for the next four quarters you put up the same quarterly revenue numbers, just assuming you put up $5 million. So you put up $20 million over the next 12 months -- extremely conservatively I know. Based on your current backlog now, what percentage of that say $20 million would you have covered? I know it's a hypothetical but --

It's -- hypothetical, quite speculative. As I said, I will reiterate. I think we are seeing actual tangible decision-making now rather than people delaying decisions to next quarter and not even giving us a timeline.

So just that fact alone where we are currently on the verge of signing one or two quite interesting contracts, that actually then says if we hit that trend, we are looking beyond $20 million for sure. We're looking north of $20 million as a baseline.

So I think going by the last two quarters, we are about 20 to $21 million. The future two quarters, I am looking at a much better improvement to that $21 million run rate. So I really cannot give you a number, Matthew, but I can tell you we will be very surprised if we don't do better this quarter than we did last quarter.

Okay, quickly -- what was the geographic breakdown? Did you give that or was that in the slides?

We gave about 59% for Asia-Pacific, close to 29% in North America which is really improving probably because we have now combined our new SAP services and improved maintenance in the US is quite impressive. The balance is about I believe 16, 17% from the UK.

Okay then you commented that you're confident this is sort of the trough here and you expect improved financial performance I would assume not only through the top line. But I wanted to drill down further.

On the gross margin here, are we supped to think about that going forward? I know a lot of the cost reduction filtered through down in the operating expense line, but without the revenues being put up, gross margins at 10, 11% -- I know in the past you've talked about 50 to 60%. Obviously that's not realistic over the near term. But can you talk a little bit about how I should be thinking about that for my model going forward?

I think obviously gross margins in this quarter and the Q2 was totally (inaudible) isolation because obviously the highest margins in IT sales and the Q3 we had the worst license sales quarter. That affected our lower margin.

And secondly, we had a few other items including new consultant (inaudible) for the SAP in the first quarter was quite high (inaudible) and then the (inaudible) third-party software that added to almost $600,000 cost in the cost of goods sold. But again, this was a very unusual quarter. And we believe as Naeem said that with the improved visibility for license sales in the different markets (inaudible) improve a lot, I'm pretty confident.

Najeeb, I will just add a couple points, Matthew. If you look at that slide number 11 -- I don't know if you have it in front of you -- you'll find that the license fees same quarter last year were $3 million as opposed to 300 and you can see these were just probably a couple of contracts just in that quarter.

So if you sign a couple of contracts similar value which is typically our benchmark is around the $1 million to $1.5 million, you see the whole picture just changes totally and then complementing the license is the services. Because against each dollar of license revenue, we get another $0.70, $0.80 of services and sometimes even another dollar.

So (inaudible) a license and then the services [customization] that goes with it just totally changes the picture. This is how you can actually now look at the next quarters, two or three quarters, where a couple of licenses each quarter just brings back to the 8, $9 million. Now I'm not saying we get that this quarter, but certainly the signs are we are getting back to similar type of interest as we had a year ago in our products.

Okay, but from an absolute standpoint, if you're just looking at dollar for dollar here, hypothetically if the revenues aren't coming in, then the gross margins will continue to be depressed around this level. You're not going to get a lot -- I guess my question is if the cost savings are mostly through operating expenses, the cost of revenues is going to stay pretty stable on an absolute basis.

Well the license fee is a major portion of our gross margins. So that really basically distorts the picture a little bit. As soon as license and services revenue come in, the gross picture changes. (inaudible) right.

You can only cut cost so much and I think we're reaching almost optimization here. There's always room but I think we are almost there now. We are focused not totally on top line and keeping the cost basis lows where we are. So I think the upside is not in cutting cost, it's in generating more revenue.

Okay, that's what I was trying to get at. That's helpful.

Also, Matthew, one more comment. This is Najeeb. Look, we are a solutions company and the license is our bread and butter but obviously we were hit with this big economic downturn and nobody was adding more licenses now as you can see as we have been saying that, things are looking quite promising versus the last six months.

Then just one sort of broad question and then I will get back in queue. It's been a while since I guess you talked about sort of the political climate going on back in Pakistan and I know you guys haven't made mention of the oft discussed land contract there. Can you just give us an update on sort of what's going on in that region and with that contract?

Yes, I will add something and I'm sure Naeem will add some color too. You know, these days we don't worry too much about the political climate because it is not new to us anymore unfortunately. Everybody knows about it. There's challenges there.

We keep busy with our business and delivery capabilities. And so far as the last 12 years, we have never been (inaudible) at all for anything. [They even give you a bit of an emergency] plan. In any case, we also have been pursuing as I said in my presentation an alternate in another region which is right in this part of the world, Central America.

That is to support (inaudible) support our US [requirement]. So really locally in Pakistan, things -- economy is still holding strong while political climate and (inaudible) is still challenging. So we have really stopped worrying about it. We try to keep -- make sure our facilities are protected in every manner and every respect and that's what we do best. Naeem, do you have any color on this?

The thing is that you know, not that we are complacent, that we're seeing this for years now. What you need to do as a company like ours, as long as you are mitigating your risk and you have very strong disaster recovery, planning and backup centers. Now we are very fortunate -- and I guess our planning was always that we diversify now.

We have a significant presence in the US and the UK and with additional support centers in Australia and China is growing quite rapidly. So I think there is a lot of redundancy here. If there was some kind of disruption in the [hope] although in 12 years of business, we've not lost a day's work as a result of any political issues.

But as I said, we're not complacent. We are very aware and our obligation is towards our employees first, their security, and we have very secure premises. We have lots of backup facilities in other parts of the world and as Najeeb said, we will imminently announce some kind of a presence in North Central America shortly. You know, that is something that is in the pipeline and that will further mitigate our risk in Pakistan.

Thank you for taking my questions.

Richard Molinksy, Max Communications.

First of all, want to say hopefully this is the bottom and we are going to see an improvement. I'm glad you addressed the situation about one of the questions is will you need to raise any more money at this point time and I'm glad you said no to that. But if you have a strategic deal that someone is willing to buy stock at, I would love to see that happen.

It would improve your balance sheet even more so and I am always impressed that you have always been buying stock and I think (inaudible) about over 100,000 shares in the last year or so in the open market. Do you expect that there'll be more insider buying coming in? And how has it been in China? Has it met your expectations and is it more difficult to get started in China?

You said China is doing very well for you at this point time. Has it gone better than expected in China or has it been really hard to get that going?

That's a two-pronged question. Let me answer the first one. Naeem (inaudible) to achieve China export there.

Richard I we've said that clearly -- and due to price level, we have no plans to raise capital in the public market. And secondly, we have a contingency interest from our very strong joint venture partners and if that ever happens, we will be a prudent and pursue it carefully at premium levels.

Thirdly, yes that is very possible. (inaudible) very attractive because we are the ones (inaudible) from day one and we have a strong team of incredible people who are working with our business under any circumstances. We believe a lot in our Company. Everyone believes in the company. So as (inaudible) you want to address China because you obviously have already visited there?

Actually China is quite a success story for us. We first went to China about 3.5, four years ago. There was an initial amount of interest in our product and we had to phase -- in the first two years, we had a lot of success.

And then you know in late 2007 and throughout 2008, we had two major events happening. One was the Olympics. The Olympics, basically Chinese government stopped all nonessential travel to China and getting a business visa into China during that period was almost impossible.

So what a lot of these finance companies did was they were all dependent on foreign experts to come and set up companies. So literally for seven or eight months, all finance companies that were setting up companies, new companies, absolutely stopped and waited for the Olympics to be over. Then we got hit by the economic downturn in general.

And a lot of these foreign -- because basically as you know, in China all of the international companies, multinationals are coming in setting up businesses like Toyota and Daimler Finance and so on. So they also stop because their parents were hurting. But then they started to see the China market is the only auto market in the world that's growing.

Even the figures we had last month, China saw 1.4 million cars in a month. So it's 18% growth over last year. So this is quite phenomenal that they continue to grow at this level and then all of a sudden, everything just fell into place because they opened the visas and these finance companies are now very, very aggressively trying to set up shop there because they believe they're losing market share.

So we hit this thing -- just our timing is just very, very fortunate that we hit this thing right now when the momentum is there. And we are the biggest selling software company in automotive and equipment leasing finance as far as solutions are concerned.

We have seven more installations than our competitor. So we have eight and the competitor has one, put it this way. So we have been in competition. We have a number of very strong deals in the pipeline. So you know, that gets (inaudible) very excited.

Sure, all right. Well I do appreciate it guys. Thank you very much.

Thank you.

(Operator Instructions) Paul Cooney, Maxim Group.

(multiple speakers) just a question -- I don't know if you can answer it or not. You guys stated on the conference call that $6.5 million revenue run rate was breakeven for you guys. Is that accurate?

That's about right.

Okay, can you give us an idea of how far out it is, whether you see that is achievable this quarter, next quarter, the following quarter? How far out do you think that is as far as being achievable?

Well two things. One is of course the Company has made an intense effort to bring the cost where it is now. The best effect of the cost effect will be Q4 because a lot of the (inaudible) cuts were implemented on March 1. So that means you will see the full impact on this current quarter and going forward.

Secondly as Naeem and I have said repeatedly, we are confident that our revenue should improve or must improve from Q3 and Q2. We had two flat quarters but we really see the light at the end of the tunnel here. But again, we don't give any guidance as you know Paul for obvious reasons. (inaudible) we can turn the corner.

Can I ask you what the obvious reason is? You're saying for obvious reasons, you're not giving any guidance. What's the obvious reason?

I think a lot of reasons. Simply because it is still a very uncertain time and the Company is really going in and expanding its business offering through joint ventures that I talked about. There's a lot of activities and some of those -- [when they realize this issue of timing] and then you know, the general conditions of it's not prudent for a company to put a number right now although you can hear from our (inaudible) confident that we've seen the worst quarter.

Right. I think that's the question I'm asking is you've already given the breakeven number of $6.5 million. I'm just asking how long do you think it will take to achieve that number either this quarter or next quarter? Do you think it's possible it could be this quarter? Do you think it's possible it could be next quarter?

I want to assure my every investor and analyst, we will do our utmost best to be back in profit again as quickly as possible. We don't like to be losing money. (multiple speakers) okay?

All right thank you.

(Operator Instructions) Matthew Weiss, Max Communications.

I guess just a quick follow-up, two quick ones. You know, maintenance is obviously a source of relative strength there. I don't know if you commented on this, but renewal rates have remained steady I assume?

You know, we actually improved. This quarter we improved almost by 13% and primarily we think our North American operation is (inaudible) some very long customers who have continued to of course mentioned (inaudible) done a superb job in meeting the requirements and of course there's some growth in Asia. So it is really pretty strong. As we sell more licenses, this will continue to grow.

Then as a follow-up, did you guys do any type of breakeven analysis for EBITDA? I know you did for GAAP EPS but on what level of revenues do you think you can turn EBITDA positive again?

It's about 5.5 to $6 million EBITDA -- $5 million (inaudible)

(inaudible) EBITDA losses was about $3 million this quarter. Of that, we know a lot of those were one-off. There's three items, major items in the EBITDA loss. Number one is the $1 million one-off payment. The other is the provisions and the third is the redundancy charges.

And if you back those out, you literally almost break even today before depreciation on an EBITDA basis and interest and taxes. So that's one point.

Second point is that our redundancies are only second to effect. So last quarter we got hit twice. One was the one payment for redundancies and secondly, their salaries were still being in the quarter. So this quarter we won't have the redundancy payments and we also have those less headcount. So there will be an additional cost reduction which will filter through this quarter.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you very much. Thank you again for joining us for the call today. We look forward to talking to you again in the next quarter to provide you an update of our progress. This will be year-end fiscal 2009. Thank you so much again and have a good day.

To this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.