NetSol Technologies Inc (NTWK) 2009 Q4 法說會逐字稿

Greetings and welcome to the NetSol fourth quarter fiscal year 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 fourth-quarter and full-year 2009 financial results conference call for the period ending June 30, 2009. I hope you have found the PowerPoint 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. The presentation may be found on the main page of the IR section of the NetSol website located at www.netsoltech.com. That's NetSol t-e-c-h -- 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 on 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 super-national law, particularly with regard to tax regulations.

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

Now 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. And Mr. Naeem Ghauri, President, Global Sales, 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. Najeeb, please go ahead.

Thank you Chris. Good morning and thank you for joining us today. If you join me on slide number four, I'll start with a topline overview of key perspectives on the fiscal fourth quarter 2009.

When we spoke on our last conference call, I expressed our confidence that the fiscal third quarter 2009 marked the bottom of the economic cycle for our global business, and we had begun to make the turn toward the new sequential topline revenue growth and improved bottom-line performance in the quarters ahead. I'm extremely pleased to report we delivered on these objectives, and our outlook continues to brighten.

NetSol's fiscal fourth-quarter revenues exceeded the high end of our sequential growth -- growth rate projection, rising 36%, driven by increased license demand and higher sales of IT services sales, while our full-year results reflect the challenges of the global economic downturn compared to a 2008 period, which was the strongest in the company's history. NetSol's fiscal fourth-quarter results provide clear evidence that our NetSol Financial Suite and global BestShoring IT services offerings are gaining fresh momentum.

The success of our comprehensive cost efficiency measures yielded an impressive 23% reduction in operating expenses from Q4 2008 to the same period in 2009, and when combined with our renewed revenue growth, drove material improvements in reducing the company's sequential quarterly GAAP net loss as well as the return to quarterly EBITDA profitability.

On the cash front I expressed last quarter was that it was our long-term goal to maintain a high level of cash, and I am pleased to say we executed on that goal, with cash and cash equivalents rising about $2 million sequentially.

Based on our improved financial outlook, let's move to slide number five, and let me provide some topline perspective around our expectations for NetSol's financial performance in fiscal year 2010.

Looking ahead to the fiscal 2010, we anticipate continuous improvements in revenue as well as our bottom line GAAP and EBITDA performance. This includes a strict focus on returning to GAAP profitability. If we couple our more efficient global operating structure with the fresh momentum on the sales side, we currently forecast a quarterly GAAP breakeven revenue run rate of approximately $8 million and about $6.5 million on a cash basis.

I'm very pleased to report we enter our fiscal year 2010 with a significantly stronger revenue backlog and pipeline, including a near doubling of the long-term sales pipeline sequentially. We are also seeing excellent new opportunities in the government and defense sectors.

Moving to number six, so what is driving the positive change? We see improvement being driven from two fronts. First, improved operational efficiencies and a strategic initiative within our global organization, and secondly, through improved customer demand appreciating trends.

Let me quickly walk you through the positive strategic changes implemented within NetSol that are helping drive our sequential performance gains. First, the streamlining of our global corporate structure under our previously announced comprehensive cost reduction measures is providing a highly efficient operating platform, bringing operating expenses in line with revenue and helping restore margins and profitability as revenue has begun to ramp again.

Second, our unified global sales and marketing structure under the leadership of Mr. Naeem Ghauri is providing improving sales effectiveness and improved visibility around new opportunities.

Also we successfully established two IT services joint ventures recently. First, Atheeb NetSol Limited, a software engineering and joint venture company focused in Saudi Arabia, Gulf States and the Middle East in general. The secondly, NetSol GK Latin America, an IT services and software development joint venture serving the broader Americas.

We also established a new Neptune Software plc partnership, extending the reach of the NetSol Financial Suite and LeaseSoft Evolve product in Africa, as leasing is rapidly expanding as a financial solution across the continent. Subsequent to the launch of this partnership, we announced our first joint customer win.

Our NetSol North America operation, which is much more leaner now, has stabilized after an internal consolidation. NetSol North America remains solid with 30-plus US-based clients, a sustainable maintenance revenue stream, and excellent growth potential for our SAP integration practice group. We also added $2 million in new customers including Nissan of Mexico.

Also our new joint ventures and partnership activities provide highly cost-efficient ways to penetrate new global markets with the assistance of a local partner with key relationships on the ground.

And finally and most importantly, we continue to have a powerful portfolio of products and services supported by CMMI Level 5 expertise and a global delivery platform that provides our customers high quality service and support.

If we now move to slide number seven, here we will walk through some key perspectives on this rising customer demand we are noticing, focusing here on the exceptionally strong activity we are seeing out of Asia, where our NetSol Financial Suite of solutions with a captive finance market stand as the de facto leader in the market.

During the fourth quarter, sales activity in China was exceptionally strong with several significant wins for licensing of the NetSol Financial Suite, including secure a new licensing agreement with a major Chinese captive finance company to implement the NetSol Financial Suite, including NetSol's flagship LeaseSoft solution; and a major international automotive manufacturer was signed, a LeaseSoft license contract for captive finance in China. China is now the world's largest single market for automotive sales, recently surpassing the US in terms of unit volume. This is an excellent opportunity for us based on our leadership in the automotive sectors.

Overall we are noticing excellent interest across customers verticals including banking, finance, leasing and automotive companies. Accordingly we are taking steps to strengthen our local market presence in China in terms of sales for marketing and IT services engineers.

We are also seeing excellent opportunities in the government and defense sectors, including a new contract with the government of Sindh -- province of Sindh in Pakistan.

Moving to slide number eight, here I would like to focus a little more on the defense space and our NetSol defense division. The defense division at NetSol has been providing military and defense organization customers since 2005 with software development, integration, and IT services.

Most recently we have teamed with a top-five US defense contractor for the digitization of the Pakistan military forces as well as an automated command-and-control system. We have jointly bid on a major product recently, and for NetSol the proposed work would focus on providing system development and local market integration support as well as follow-on services.

While very complex and big in scope, there are few other bidders competing with our defense partners. The client will go through their due diligence and evaluations of eight bidders and are expected to make some decision within the next few months, and the final decision rests in the hands of the Pakistan military forces. While we are cautiously optimistic, we are fully dependent on this potential client's own objective and choices. We look forward to reporting back on any material developments in the process.

This concludes my operational overview. If you turn to slide number nine for the financial review, I would like to pass the call to our CFO, Mr. Boo-Ali Siddiqui.

Thank you Najeeb. Good morning everyone, and thank you for joining us on today's call. I would like to kick off the financial review by moving to slide number 10 where we see NetSol's revenue performance over time.

For the full fiscal year, revenue totaled $26.4 million, which represents a year-over-year decline of 28%. The annual decline in revenue reflects the impact of global economic recession across our global business, particularly impacting the finance and automotive sectors where we are especially strong, as compared to the full year 2008, which was our strongest year ever.

From a historical backdrop, prior to the impact of global recession in 2009, NetSol's annual compounded growth rate was 58% over the past six full fiscal years. Most importantly of all has been our revenue performance in the most currently completed quarter. In the fiscal fourth quarter of 2009 revenues totaled $6.9 million, representing a 36% rise in sequential revenues.

Turning to slide number 11, we take a look at the major components of revenues for the fiscal fourth quarter as compared to the year-ago [as we'll add] sequential periods. In the year-over-year comparison, our fiscal fourth quarter 2009 results were negatively impacted by the global economic slowdown, resulting in significantly lower license sales and total revenues as customers worldwide spent at a slower pace than they did in 2008.

If you look at the sequential revenue comparison, we see significant growth in license and services sales as we see signs of customers beginning to open up their pocketbooks again. This includes a near tripling of license sales revenue and a 27% increase in IT consulting and services fee, which combined to push up total NetSol revenue by an impressive 36%, topping our projected range of topline growth for the quarter, which called for total sales to rise between 30% to 35%.

Slide number 12 shows the breakdown of revenue by business. For the fiscal year 2009, as a percentage of total revenue, IT consulting and services represented 57%, maintenance fees stayed relatively stable at 25%, and license fees represented 18%.

On a geographical basis, for the fiscal year 2009, as a percentage of total revenue Asia-Pacific represented 65%; North America, 20%; and Europe, 15%.

Slide number 13 shows operating expenses for the fiscal fourth quarter of 2009 as compared to the year-ago period and sequential periods. Q4 operating expenses decreased 23% year-over-year as a result of NetSol's comprehensive cost reduction program aimed at improving operational efficiencies across the globe, including a voluntary reduction in managements' wages and an overall reduction in the global force.

Full-year total operating expenses increased 15% year-over-year, primarily as a result of a charge taken for bad debt in the third quarter and the fact that our cost efficiency measures were not deployed over the full-year timeline.

Sequentially, in the fiscal fourth quarter of 2009, operating expenses declined an impressive 36%, partially benefiting from the absence of bad debt expense in the latest period. These cost savings set an excellent foundation for leveraging improved cost efficiencies across part our base of rising revenues.

Moving to slide number 14 and a look at GAAP EPS, NetSol's GAAP net loss applicable to common shareholders for the quarter was $906,000 or a loss of $0.03 per diluted share, versus GAAP net income applicable to common shareholders of $0.05 per fully diluted share in the year-ago period.

Minority interest deducted was $843,000 for the fiscal fourth quarter. Minority interest income is related to the minority interests in earnings in several of our subsidiaries, as relegated net income attributable to the minority owners must be deducted from NetSol's earnings.

Slide number 15 shows NetSol's EBITDA performance on a quarterly basis over time. Fiscal fourth quarter marks NetSol's return to quarterly EBITDA profitability with recorded EBITDA income of $562,000, or EBITDA of $0.02 per fully diluted share. EBITDA is defined as earnings before interest, tax, depreciation and amortization.

The company uses EBITDA as the measure of the company's operating change. Investors are cautioned that EBITDA is not a measure of liquidity or of financial performance in under Generally Accepted Accounting Principles. EBITDA numbers presented may not be comparable to the similarly titled measures supported 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 for some closing remarks.

Thank you Boo-Ali. At this point I want to thank and congratulate every employee for their dedication, support and their unwavering commitment. While fiscal year 2009 was no doubt a challenging time in the face of a historic global recession, we finished the year with 36% sequential revenue growth, a return to quarterly EBITDA profitability, a rise in sequential cash balances, and a near doubling of our pipeline over the course of the most recently reported fiscal fourth-quarter 2009.

We continue to see the license sale market in the automotive and banking sectors, particularly in the Asia -- Asia-Pacific markets are quite promising for the next few quarters. We also believe that the US market is the ultimate target market for our NFS and service offering as economies start to show some visible signs of recovery. Overall, we are quite optimistic on our outlook for our fiscal year 2010.

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

(Operator Instructions). Joe Giamichael, Rodman & Renshaw.

Good morning. Congratulations on the quarter. I just have a couple of quick questions for you. So the company has had a number of different contract announcements throughout the quarter. Do you mind just sort of walking us through what you feel are the most significant announcements, excluding the potential military contract and how that's been progressing?

Yes Joe, I will come in and mainly will answer more up-to-date. Definitely the announcement's been made (technical difficulty - background noise)

I'm sorry. Can you hear me?

There's some background noise, Joe. (technical difficulty)

Joe, I think you have some background noise.

I'm here. I'm sorry. I don't know where the interference is coming from.

Okay. Do you want me to pick this up?

Please go ahead.

Okay. As you'll -- the most significant contract -- there's two of them in fact, almost equal size, they are from China. They're both are LeaseSoft/NFS contracts. And one of them is with the Minsheng Bank. There's a wholly-owned subsidiary called Minsheng Financial Leasing Company. So that's one. And the other one, we haven't named the client, but it's a captive auto finance company with a European bank as a partner, with a major automotive company in China.

Those are quite significant. We've only just started the actual implementation. So we believe that these two will actually grow in terms of revenue as they put in more and more phases. And so really that -- those two are the biggest. And then we have signed another good-sized deal in the UK with loans and finance company.

Those are the three that stand out. We also announced a deal in Mexico. So really all in all, they're all good-sized deals. The two which are the biggest of all, the first two, I see as (multiple speakers)

Okay. Great. And then just to touch upon the military contract, I know it is still in the competitive phase, but do you have any sense for what the time frame is prior to the decision?

Yes Joe. Let me answer that. As I said, it is a very competitive process, being all those bidders, and the client is obviously the military institution. Nobody can put any time frame here. But we are cautiously optimistic, and the good thing is we have not factored any impact of revenue in our outlook for 2010, the way we look at the outlook for the company. So if that happens within this year, then obviously we will come back and update our projections in a different way. But other than that we believe that we are comfortable with our continuous outlook on our existing product line.

Do you have a sense for what the I guess competitive variables are that will ultimately determine who is selected?

Yes, I think there is I believe strict technical requirements, base financial requirements, and could be the local partners available in this whole process, if any other global partner less -- or more qualified than we are, obviously we don't know who the other partners are. These are very confidential bids. But as I stated in the report on investor day I made about a month ago, that it is something that could potentially help the company in a big way if that happens.

So we will be again very cautious because we don't want to make a statement which we don't know where and when this would happen. If we are going to be the selected out of five or three, we don't know that yet. But we are in the running. And the scope is quite big. It's a very complex project. But the military is the ultimate decision maker of who are the lucky winners, whether they are there from the US or Europe, we don't know that yet. But we are in the running, so that's the main thing right now.

Good. Well, I mean, obviously that is a -- it's a tremendous opportunity, and it would be a huge game changer for you guys.

Absolutely. But the good thing is, Joe, like I said, we have not factored anything on our projections, our outlook for 2010. That's the good thing, because while we are -- the whole division has been working on it, but we are running our business as usual and are very good -- very excited about the prospect beginning now -- beginning last quarter. The team is very committed in holding deals in China and the US, in Europe and Asia. So our core businesses will be quite good now.

Exactly. And that's -- I guess that will lead me into my next question, and I apologize, it's just two more quick questions and I'll be out of the way. Just to better understand the guidance that you gave, so the company will be breakeven when you hit the -- at a run rate of $8 million in revenues, $6.5 million of EBITDA. That's basically what you're trying to get through -- get to rather through the communication, correct?

Yes. That's right. We're saying $8 million of EBITDA, GAAP basis, and -- or $6.5 million on a cash basis.

So I guess given those -- given all the recent announcements that we've talked to, coupled with the cost cutting efforts that you guys have been going through over the past year, are you in a position to provide revenue and/or operating guidance for the next 12 months?

No, we discussed it internally with the team and the Board. We believe although we see a turnaround here, as you know, believe that some of the sectors that we operate in [on the local exhibit]-- the auto, banking, insurance, they need to be more stabilized before we can really start giving some direction specifically as we used to do in the past. So it's best, I mean, look at the year outlook, which we believe already posed quite impressive growth from -- for 2009, and it is also prudent to stick to that principle until things are so stabilized that we can really put some kind of strong numbers. Naeem, what do you think? Do you want to make any comments?

Yes. Joe, you know what turmoil we have been through globally. And our own business has suffered. As you know, two previous quarters were pretty brutal. So I think we are a little bit hurt because of that. And although we are very excited, we just want to be sure before we put any numbers out we build the backlog. And then give the numbers out. So the momentum is extremely good. I think we will make progress on the last fiscal year. I'm pretty certain of that. Putting exact numbers at the moment, I think that would be premature. Give us until maybe the end of the first quarter, Q1. We will have better visibility. And I think we will update the market.

Fair enough. I think directionally we understand what you're saying. So I guess just as a management team then, given the trends that you're seeing in the -- I guess the recent announcements of the potential pipeline of opportunities, I'm assuming you guys are current -- are comfortable with the current capitalization structure and the ability to continue to service debt through your ongoing operations.

Yes we are. As you've seen, there is good improvement on our cash position from the quarter Q3 to Q4. And the company has taken some strides and taken some tough decisions in the last nine months, at the beginning of the recession time, when we were -- everybody was supportive in the company to take some cost cuts and some layoffs. But we are in a good position in terms of our cost base, operating expenses, and we believe that -- I don't expect to see any rise in expenses on the fixed expenses. China, which is actually quite on the move. But this could help us improve our net margins and boost our gross sales and top line.

Great. Well listen, I know it's been a very difficult turn, so congratulations on I guess crossing the inflection point back to profitability and on scaling the business despite a difficult environment.

Thank you, thank you.

(Operator Instructions). Matthew Weiss, Maxim Group.

Morning everybody. In terms of the revenue number, I'm trying to get a better handle on what we are seeing -- do you think that the number you put up this quarter is more reflective of seasonal strength in the fiscal fourth quarter? Or more reflective of a more notable improvement in business conditions in the macro environment? Or a combination of both? And sort of how should we look at that going forward? I know you're not giving specific guidance, but would we expect into the next quarter a seasonal dip in the revenue number? Or should we use a 6.9 maybe as a base case going forward?

Well, I'll let Naeem jump in, but I want to make a comment that we did beat the year estimate I believe, slightly. But Naeem, do you want to jump in and on the specific direction on the business environment?

Yes, sure. Matthew, as you say, the environment is difficult. So when like two quarters ago, if you'd asked me where will it end up in Q4, we were nowhere near this. But I think that we built up some momentum. I don't think that's our traditional seasonal momentum like we normally have, Q4. And as you rightly said, Q4 is normally the strongest. But I think our momentum happened because there was a number of deals which were sort of frozen. And as the clients started to feel a bit more comfortable, they actually then started signing contracts.

So there's a little bit of that, that there was some sort of Q4 seasonality in it. But essentially I think it was pent-up demand. And we are starting to see that. Especially in China and the UK we are starting to see a real, tangible feel for a change of sentiment. I'm not saying we have a total turnaround, but I'm certainly saying that the sentiment, where it was six months ago to what is now is quite different and a lot more positive. So we are seeing change not only in Asia but also in the UK, Europe.

Would that suggest then, and again, I know you're not giving specific guidance, but then if we look into fiscal first quarter, if this is based on pent-up demand and some of the budgets are being unfrozen, that you could maybe be flat to up in the fiscal first quarter, even taking into account seasonal weakness?

What we're saying is that we think we hit the bottom already, and we are only going to get better from there. So we are only going to get better. I don't know whether you want to benchmark this quarter as the bottom, or the previous, but certainly we said in our last statement the previous quarter was a benchmark in the bottom, and we're certainly going to improve from there.

And we've delivered a good set of numbers. Let's just build on that. Q1 is always our slowest quarter, so I would say you want to build in maybe a little bit of flexibility and then see if we can build it up from there.

That's helpful. Thank you. And then just quickly on the top line, you do mention again that you'd be breakeven on a GAAP basis on an $8 million run rate. That's something you threw out there. Is that something that you -- that $8 million number you think achievable at some point in fiscal '010?

Yes, I think so. Yes, surely. I think so. We have, like you said, in the earlier question, we really worked diligently to bring down our cost structure in the last 12 months or so. $8 million is on the GAAP basis and $6.5 million on cash basis, quite good numbers. Right Boo?

Yes, yes.

So are fearful as obviously this is the first 10-K delivered and you worked intently on the margins to see how you can set some kind of guideline, direction internally to achieve our breakeven. So these are quite good numbers.

The message, Matthew, we are trying to give is -- with that number is that we have made visible -- you can see how much we've cut in costs, and I think we are very scalable and very lean now. And so our fixed overhead is really at a level where we haven't seen it in a while. So we have had several quarters of above $8 million before, $9 million and $10 million. So we believe we can start to hit those numbers sooner rather than later and started to be more profitable and more -- be profitable on a GAAP basis.

That's good. On the gross margin front, obviously those came back nicely in the fourth quarter. Is it your expectation that those will continue to trend upwards into the 40 range?

Yes. I think, Matthew, a good observation. We are looking to do -- regaining our revenue position of 50-plus range we were used to, if you look back a year and a half, two years ago. It's the result of our global integration and using our BestShoring model in both onshore and offshore. So that will continue to help to improve our range. That's our goal actually.

And then you said in the release, qualitatively that your pipeline is significantly stronger. Maybe you can talk about what's that -- what that is comprised of, which geographic regions are maybe more resilient. Maybe -- obviously China has become a big market for you guys. I know you're making a bigger push in Latin America. Maybe you could talk about some of the dynamics there that are contributing to the larger pipeline.

Yes. I will make just make one comment, and Naeem will help me because he is obviously heading the Global Sales. The good thing about the last three months, the three months, is that we are noticing improved pipeline in all the continents including North America, and of course Central America. Our team is working on some good development into Central America also. There is a sustainable revenue stream in North America for maintenance and services, and that of course, which is the hottest right now, is quite strong, and I believe this is pretty much broad-based. Of course we are getting a lot more momentum in the Asian markets, especially in China.

And further Naeem, you may want to add some more addition.

Yes. Look, the pipeline is extremely healthy in Asia, especially in China and Thailand. We've had a number of opportunities in Australia and New Zealand as well. These are all -- sort of in and around the last three months they've built up. And as you know, we've closed some of these deals already. And keep in mind that the deals we've closed already will bring in additional revenues because we haven't picked up most of the revenue yet, so that is a backlog. So the new pipeline, quite strong in China and Asia-Pacific, and then UK, as I said to you, is building nicely. And recently in the US we've picked up a couple of very nice opportunities.

So this is just a -- quite a significant transformation to how things were. And when you were asking the same question last quarter, how difficult for us was it for us to give you an indication. But really we feel more confident, and you will see Q2 onward a lot of these licensing terms, a lot of these deals actually coming through, because stuff we sign now, this quarter, then revenue comes in a few months later. So you'll see this year tracking really nicely and with quite a big improvement on the license income side. So that will definitely push up gross profits. And where we are with the cost base I think bodes well for the overall P&L.

I would add one more thing. I'm sure you would like to use this information. What we're seeing is, as the economy is settling down, the CIOs and CEOs and CFOs or the world are moving out of their risk bask. They're looking for the best-cost solution in terms of how they can improve their bottom line. That's pretty much a global phenomenon now, whether you are in channels, whether you are US or UK or in Asia, everywhere they want to see the best prices and the best solutions. So I think in that respect, we are in extremely good position to offer those best practices, best quality, and the best pricing.

Great. Then two other quick ones. Maybe you could talk a little bit about the mix between new business with new customers and then repeat business with your installed base, sort of how that is tracking, if you'd give us a little color there.

Well -- this is Naeem. What really helped us in the bad times was that existing customers were still paying maintenance and support and were doing what they needed to do to keep going in business, and the new licensing, from historically, dropped off.

But now, actually, I believe that a combination of new license sales and revenue from existing clients is actually driving in a similar way, because a lot of the customers who have held back projects are now actually approving budgets, and we've signed a couple of very interesting deals in the UK, which are from existing customers. They are quite significant in value. So they were holding back for nearly a year. And so all of a sudden, they feel more confident.

So I believe they go hand-in-hand, because when there is an improvement in sentiment, it's just a new spend. So if you need a new system, you'll spend money on it. If you need to make improvement to an existing system, you'll spend money. It's that sentiment that changes. It just changes our whole business outlook.

Do you guys have a -- like a number that you track internally? I don't know if you've ever given us in the past. I'm just curious if you have maybe what the split is in a given quarter, or if you look back at the last four quarters, what that split is between new business and repeat business.

Well, what happens is that our maintenance support, if you like, from an existing customer, we get 18% to 22%, right, in terms of year-on-year maintenance. So if you break this thing down, our maintenance is typically one third of total revenue. I'm talking purely about LeaseSoft, right? Only about the product, not the business outside of the product. So on the product side we have one third as maintenance. We try to target one third again on new business from existing clients, and one third is purely new business in terms of license.

Okay.

What is also interesting of our businesses is that we have not lost one single license customer, even in the worst time last year or this year. So it shows that the customers are truly dependent on our products -- that is [LeaseBack] in the US, or LeaseSoft in Asia, or (inaudible) out in Europe. So we lost not one customer due to the downturn or economic conditions. So it gives us a strength and a sustainability to continue to generate maintenance dollars and improve our development services business.

As then as a follow-on, I guess maybe you could speak to some aspects related to pricing. Have you guys been negotiable with that? Have you pretty much stuck firm with pricing? Or has that come -- I would assume it's maybe come down a little bit in order to facilitate the license growth. But could you talk a little bit there and then maybe what you're thinking about going forward now that things have stabilized?

With pricing, on licensing we found that when things were bad last two quarters, people not willing to sign deals at any price because they just didn't have the green lights. But the two deals that we signed in China, we got our price, close to what we normally charge, so we didn't discount it heavily, maybe 5%, 10% off the price. And in the UK we find that the pricing is under more pressure than it is in Asia, surprisingly.

So the other very interesting thing you may want to make a note of is that our daily man-day rates have really increased from average of 250 -- $250 a day to getting close to $500 to $600 a day, which is quite a strange phenomenon in a down market. We were finding that people are willing to pay more on the man-day rate if we negotiate a little bit on the license.

So we -- what we are doing is our tactics now is that, okay, we can discount the license, but we get the man-day rate, which is higher, and if you can double the man-day rates, that is an ongoing revenue. Even when the license income is gone, we stay engaged with the client for years. If we can set a higher benchmark on the daily rate for what we charge providing or developing software, then that's income -- perpetual income. So we are getting that now at a $500 to $600 a day. So every new business we are signing literally is coming in at that rate. So that impact of that will start to filter in over the next three, four quarters.

Okay. And then one last one -- sorry. Not to harp on the defense contract, but you threw out a timetable of a couple months there. Is that a timetable to short-list the number of bidders down to a couple? Are all the bidders that were in at the beginning of the process still around? Maybe just a little more color, whatever you can give there would be helpful.

What we know as a recent update is that all the bidders are still there, and the military has not decided when they will short-list, but they are in a meeting with all the bidders one-on-one. They have recently with us -- or with our partners. I think -- the reason I'm not giving you a specific time is because we'd don't know. We're dealing with a big institution, the army, and it would be the first time we are indirectly dealing with them on a project of this size and scope. So it looks promising, but we have to really wait and see how these things unfold in the next few weeks, so a couple of months.

I think even under normal circumstances, we -- you wouldn't put a news out, but because when we bid -- and these things do leak in the market -- so it become material, so we did make an announcement. But certainly it is at an early stage, and it will take time. So it's a bureaucracy as well as -- in dealing with the army. So really it's a tough one. But the announcement was made because we thought it might leak, and it won't be fair, so we put an announcement out.

I understand. Thanks for taking all of my questions. Congrats.

[Dan Annai], TailWind.

Just a few quick questions. On your income statements, under your operating expenses, you've got a rather large line item that's ballooned from $548,000 to $1.1 million classified as other. Can you guys give me some clarity on that please.

Yes . You're looking at other, about $1.1 million, right?

Correct.

That was almost $600,000 of expense to do with a hardware purchase that we bid for a project of -- in the province of Sindh in Pakistan. And other has to do with the addition of SAP resources in this fiscal year.

Okay. So those are one-offs, basically?

Yes, yes. Of course. And of course, (inaudible) because we had won a project in the province of Sindh for more than $1 million, so we had to acquire the hardware for a special system.

Second question is, further down in your P&L you've got a gain on the sale of subsidiary shares. Have you been selling NetSol PK shares?

We had a little bit of activity because there were some lows and highs in the market, and we wanted to monetize just small percentage. It didn't affect our percentage as such, because what you've got is, this is a immaterial thing in terms of requirements in Pakistan. It had gone as low as 13 rupees, now up to 36 or something, so in order to get some bit of currency exchanges for the cash flow, but now we're still holding out about 59% -- 58 point something percentage for the period holding into the PK entity.

So how many shares did you sell?

Do you remember?

It was around 3 million shares. About 3 million or so.

Yes. And we also bought back, right?

Yes. We had bought around 6 million shares (multiple speakers)

This is actually not net of the effect of some dollars (inaudible). Total net is gains of about $[351,000] gain to the (multiple speakers)

Oh, I see. Because you bought and sold shares. Okay. That's fine. But your net position is zero?

Yes, exactly. We still are holding 58% plus ownership.

Then back to your topline revenues. You had quite a few contracts signed, which is great news. But your revenues -- but your license fees are only coming up gradually. What percentage of the $1.3 million in license fees comprised the new orders?

Pretty much I think -- Boo-Ali, what is the number? Because you're right, we did assign more business than that. But obviously we don't take all of it in one hit. It has to recognize over a period of time. So Boo-Ali, you might be able to share with Daniel what percentage have we taken in.

(inaudible) of the year the new business climbed during the quarter. We have around, the quarter, around 70% to 75% of the revenue. The remaining license revenue comes from deals already signed with the customers the previous quarters.

So you've recorded 75% of the license that -- of the contracts you've signed, you've recorded 75% of those licensee fees.

Or 70%.

70.

The licenses which came through in Q4.

Right. And the 30% is amortized over the period that you (multiple speakers)

We have to link to a delivery schedule. And then we start recognizing some of the services revenue, because that has to be based on delivery. So licenses are recognized as we deliver the software, but then as we deliver customization, then we'd recognize the services revenue.

I understand. And can you give me some indication of how your backlog looks?

Yes. Naeem, do you want to answer that?

Yes, sure. Backlog is actually healthier than at least the last six months, and because of the new business we've signed. So the new business is being signed both with entirely new license sales as well as business from existing clients. So for example in the UK with all the cuts we made, we literally have reached capacity in terms of the business we have signed, and so the backlog is quite healthy.

Here in Asia, again, quite strong, so I believe in the coming quarters we will be picking up quite a bit of that revenue as we deliver as well as any new license sales that will be coming through, so the backlog is healthy. I cannot give you -- I cannot quantify with a number.

Boo-Ali, are we privy to share that information?

I think we shouldn't have this data.

I think, Daniel, I don't know if we can share that information at the moment. But it is healthy.

Okay, gentlemen. Thank you.

(Operator Instructions). There are no further questions at this time. I would like to hand the floor back over to management for any closing comments.

Thank you again for joining us on the call today. We'll look forward to talking to you again next quarter to provide an update on our progress. Thank you, and have a good day.

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