NetSol Technologies, Inc. (NTWK) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the NetSol Technologies Reports 2013 Fourth Quarter and Year-End Results Conference Call. [Operator Instructions] The conference is being recorded today, September 12, 2013. I would now like to turn the conference over to Ms. Patti McGlasson, Senior Vice President of Legal and Corporate Affairs, General Counsel and Corporate Secretary. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining us today to discuss NetSol Technologies Fiscal 2013 Fourth Quarter Results. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, our recently appointed Chief Financial Officer; Boo-Ali Siddiqui, Chief Accounting Officer and CFO of NetSol Limited; Naeem Ghauri, President Global Sales and CEO of NetSol Europe and Vroozi; and Shaz Khan, COO and Cofounder of Vroozi. Following a review of the company's business highlights, financial results, and discussion of the company's strategy, we will open up the call for questions. The call is scheduled for 1 hour. First, some housekeeping issues. Earlier today, NetSol issued a news release announcing the company's financial results for the fourth quarter of 2013. If you have not received this news release, if you would like to be added to NetSol's email list to receive company information directly, or if you would like to change your contact information, please contact NetSol Investor Relations at investors@netsoltech.com. In addition, I'd like to remind everyone that today's call is being webcast at www.netsoltech.com. Following the conclusion of the call, the webcast may be accessed on the NetSol website, where it will be archived for 90 days. Please note that all of the information discussed on today's call is covered under the Safe Harbor Provisions of the Private Securities Litigation Reform Act. The company's discussion may include forward-looking information reflecting management's current forecast of certain aspects of the company's future and our actual results could differ materially from those stated or implied. These forward-looking statements are qualified by the cautionary statements contained in NetSol's press releases and SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. I would also like to point out that NetSol will be discussing certain non-GAAP measures and the release issued earlier today contains a reconciliation of these non-GAAP financial results to the most comparable GAAP measures. With that said, let me now turn the call over to Najeeb Ghauri. Najeeb?

Thank you. Thank you, Patti. And thank you, all, for joining us today. We are very pleased to review our performance, which included record revenue for both the fourth quarter and fiscal year 2013, exceeding our own objectives. Clearly, the steps that have been taken to grow and capture market share are working, and nowhere is that more apparent than in Asia Pacific, where we have recently signed 2 agreements valued at more than $15 million with just 1 customer. This agreement is proof of the fundamental shift in momentum across the business that I've described over the past year and an indication in the market of the reputation of NetSol as a world-class end-to-end solution to leasing and finance industry, the NetSol Financial Suite applications. Before I talk about how we plan to accelerate growth and our strategy for the coming year, let me briefly discuss each of our key regions. I will then turn the call over to Roger Almond, our recently appointed CFO. We are pleased to have Roger join us during this time of significant growth, and I'd like to invite you in joining us to welcome him to the company. Now let me begin my discussion with Asia Pacific, which accounts for the majority of our revenue by geography, and starting with China, where our opportunity to expand is growing by leaps and bounds, despite what you might be hearing in the news about China's economy. Changing consumer dynamics and need for a robust solution in the banking, equipment leasing and the auto sector amongst others are fueling our growth. Demonstrated their market needs as it relates to the auto sector according to a recent Bloomberg article and Daimler-Benz China expansion, they plan to add 75 new showrooms this year, including 36 in cities where the brand hasn't been present before, the aim of supporting the introduction of about 20 new or upgraded models by 2015. And this expansion is just not limited to Daimler-Benz. In Ford's recent earnings call, CEO, Alan Mulally, said they were on track to grow from about 600 dealer outlets for the end of 2012, to more than 900 by 2015. This is truly impressive growth and signifies the importance of that market and opportunity for NetSol. That said, near-term, we are seeing some lumpiness in terms of new license growth in China, as the approval process for new leasing and financing organizations by the regulatory agency, known as CBRC, slows over the near term. However, long term, we are very optimistic on our market opportunities in China, specifically with our solution just recently being recognized by the Chinese Leasing Association as the first rate, best-selling leasing and finance solution. NetSol's NFS is the industry standard. In addition, as leasing and financing volume grows and as companies, not counting just our clients, expand their dealer networks, our ability to grow also increases with additional services, licenses and products. On that note, I'm very pleased to announce on the call today that we signed an agreement with a current client to roll out a point-of-sale mobile application across their dealer network adding an additional revenue stream for NetSol. This is a very exciting development and one that we alluded to earlier call this year. Later in the call, I will provide further details on mobile application development in context of our overall strategy. Now turning to the rest of Asia Pacific. Excluding China, during the quarter, approximately $8 million of revenue came from other APAC countries, a trend we fully expect to continue, as our presence, marketing initiatives and joint ventures efforts build across Thailand, Indonesia, Japan and other APAC countries. As an example, a majority of the recent agreements are outside China, including a global agreement signed in the fourth quarter with one of Australia's largest non-bank lenders. As I described in the last quarter, our pipeline across APAC has never been stronger as we offer customers an unparalleled level of on-the-ground support with the best product available. As such, we must be prepared to serve a number of potential large deals in the pipeline, which means investing in people. More on that in a moment. Now moving on to Europe. While the market there remains challenging, during the quarter, we secured 2 new LeaseSoft license upgrades, following 2 previous upgrades with other clients last quarter, and secured 1 new LeaseSoft license. In addition, we were selected by a U.K. merchant bank to provide a system solution to support a new line of consumer finance business, demonstrating our ability to provide value-added service through our domain expertise. Moving forward, we have increased confidence and a renewed sense of optimism, not just because of the EU emerging from recession, but also because of a resurgence in the asset finance sector, which increased by 6% in July 2013, compared with a year ago according to the latest figures from the U.K. Finance and Leasing Association or FLA. As it relates to our Virtual Leasing Services, our -- or VLS division, we experienced continued expansion of our customer base all through inbound leads. To remind you, VLS provides support to clients in business areas, including portfolio management, distressed portfolio analysis and recovery, standby servicing requirements and other customer-driven dealer servicing. VLS utilizes NetSol's LeaseSoft system's lease accounting administration as a key resource for its customer base. And that includes Tier 1 financial institutions, independent investment growth funding consortiums, [indiscernible] finance, houses, among others. With a minor restructuring and rebranding in the division completed during this year, we are now focused on outbound marketing, which I will discuss later in the call, as well as the opportunity for our core NFS solution in Europe as well. Conclude the retail discussion with North America, we continue to make progress on the multimillion dollar implementation for the complete NFS suite, the global equipment manufacturer at its Mexico-based subsidiary, which we announced the last quarter. This is a very important agreement and one that goes to the heart of our stated goals of doubling revenues from North America. We're actively working to provide the best service possible to extend this agreement to other parts of the world. Our pipeline of new business is building for both our NFS solution and our SaaS solution, and we have reason to be upbeat. As it relates to the auto sector, Experian Automotive reported this past week, lease penetration in the second quarter was about 28% of new vehicle retail volume, the highest levels since Experian started keeping track in 2006. Finishing out with Vroozi, which operates in the enterprise procurement space, revenue from the Vroozi division for the year was slightly down, which was a function of focusing more on subscription revenue and increased R&D on enterprise mobility solutions. The number of smartOCI customers at quarter end remained at 13, and we anticipate making announcements on the smartOCI front in the near future. However, I'm also pleased to announce today on this call that the division has registered 30 companies for the Vroozi Purchase Manager platform, a product we discussed launching last quarter. The Vroozi Purchase Manager platform allows companies of any size to create purchase requests, initiate approvals via mobile devices, securely collaborate with suppliers for order processing and make a social and sustainability initiative using any device, at any given time period, corporate executives have visibility into their office spend. Revenue from this new contract is not yet reflected in our results and should be part of as more of a second quarter event for the company. To help continue building Vroozi's pipeline, we recently signed 3 new general partners in North America, while at the same time, consolidating sales and marketing functions in both Vroozi and NetSol to achieve cost benefits and opportunities to cross-sell both Vroozi and our core NetSol Financial Solutions suites. We remain optimistic about our opportunity and have Shaz Khan, COO and Cofounder of Vroozi on the call to answer any questions you may have. As you can hear, we're very busy throughout the world and are working hard through service and closed new deals and are very excited about the next chapter on our growth. We are supercharged. Before I discuss our outlook and strategy, I'd like to turn the call over to NetSol's recently appointed Chief Financial Officer, Roger Almond, to review the company's results for the fourth quarter. As Roger is new to the company, Boo-Ali Siddiqui, who is now Chief Accounting Officer, as well as CFO of our NetSol Pakistan subsidiary, is also on the call to answer any questions. Roger?

Thank you, Najeeb, and good morning, everyone. As the newest addition to the NetSol team, I'm excited to be part of what I see as a company that is poised for significant growth. I'm looking forward to a visit to Lahore, so I can see firsthand the Lahore technology campus, to meet the core management team and the engine that drives delivery and implementation. Now let's look at the fourth quarter. For the fourth quarter of fiscal 2013, total revenue grew 6% to $15.1 million, from $14.3 million in the comparable period last year, which was driven by increased maintenance fees and services. License revenue decreased to $6.2 million from $7.3 million in last year's fourth quarter, related to the timing of new business wins. For the year however, license revenue was up 33% from last year. Payments revenue grew 25% to $2.4 million from $1.9 million in the same period last fiscal year. Moving forward, we expect approximately the same level of maintenance revenue as fourth quarter until new projects are delivered. Fourth quarter services increased 26% to $6.5 million from $5.2 million last year. Services revenue remained strong as a result of customization and enhancement projects for the company's NFS solution, primarily with Asian-based clients, as their businesses continue to expand and their needs grow. We expect continued strength in services revenue, and over time, the mix to incrementally improve as we add additional revenue from our virtual leasing services subsidiary, and over the longer term, more revenue from our Software-as-a-Service offerings. Process sales for the fourth quarter were $5.8 million comparable to $5.4 million in the fourth quarter last year. Year-over-year difference primarily reflects an increase in staffing and new business activities. Incremental costs associated with new hires were approximately $400,000. Gross margin for the fiscal fourth quarter was 62% comparable to the fourth quarter of last year. Total operating expense for the fourth quarter of fiscal 2013 were $4.7 million, up from $4.2 million last year. We reported fourth quarter net income of $3.1 million, equal to $0.35 per diluted share, which included a $1.5 million deduction in noncontrolling interest. This is compared with net income of $1.9 million or $0.25 per diluted share, which included a deduction in noncontrolling interest at $2.6 million. The decrease in noncontrolling interest is related to the purchase of an additional 4.5% noncontrolling share of NetSol Limited, the company's Pakistan-based subsidiary. As of the end of the fourth quarter, NetSol shareholders own approximately 65.2% of NetSol Technologies limited, up from 60.5% last year. Adjusted EBITDA, a non-GAAP measure, was $5.2 million for the fiscal 2013 fourth quarter, or $0.58 per diluted share, compared with $3.4 million or $0.46 per diluted share for the fiscal 2012 fourth quarter. Weighted average number of diluted shares outstanding for the period was 9 million shares, compared with 7.5 million shares for the fourth quarter of fiscal 2012. We ended the quarter with $7.9 million in cash and cash equivalents, up from $7.6 million at June 30, 2012. During the year, we made equipment purchases and infrastructure enhancements at the NetSol Technology Campus and the Bangkok office as a result of increased workforce and system upgrades. Accounts receivable were $4.7 million compared with $13.8 million last year. Average days outstanding for the period were 106 days, an improvement over 127 days in the corresponding period last year. Now let me briefly sum up our 2013 results. Revenue for the fiscal year 2013 increased 28% to $50.8 million, from $39.8 million last fiscal year. This reflects a 33% growth in license fees, a 21% growth in maintenance fees, and a 27% growth in services. Operating income was $11.7 million, up significantly from $7.3 million from last year. EBITDA totaled $14.5 million or $1.75 per diluted share versus EBITDA of $7.9 million or $1.26 per diluted share in fiscal 2012. Net income attributable to common shareholders was $7.9 million for fiscal 2013, equal to $0.95 per diluted share, compared with $2.4 million or $0.39 per diluted share in fiscal 2012. Net income includes a deduction of $636,000 for amortization of finance cost due to the conversion of all convertible debt into equity. In fiscal 2012, this amount was $180,000. We ended the year with more than 832 technical employees, including more than 100 who are going through training right now. This is a leading indicator of where we see the business going and the demand for our solutions. I would now like to turn the call back over to Najeeb to discuss our outlook. Najeeb?

Thank you, Roger. Indeed, our results demonstrate our ongoing success and the dedication of our talented teams across the globe. I recently returned from Bangkok, where we held a strategic planning session with each of our regional heads, sales teams, implementation specialists, to review our planning for the next 3 years. The takeaway is that the health of our business could not possibly be better and that we are entering a period of strong growth. I can assure you, today, that our teams are supercharged with excitement and passions. Today, our pipeline includes multiple large multi-country implementations for our core NFS solution. Discussions are in various stages of negotiation with current and potential customers from North America, Asia Pacific, to Europe, which includes potential clients outside of the auto sector, including equipment finance. This creates a situation where our are delivering capability needs to not only match higher demand, but also meet increased demand from our current customers who are requesting additional services as their business is improving. To say it another way, we are reaching a point where demand for current and potential customers is outpacing our ability to service it, and we need to make sure that we provide the level of service that has built our reputation in the marketplace, while moving quickly to capture market share. Our plans call for adding at least 300 NFS-related personnel within 12 months, a key indicator of the game-changing project that are in our pipeline, as well as increased requests from our current customers. The majority of these new employees will be based in NetSol Pakistan, at the NetSol Campus. Today, this building is full. And we expect to invest approximately $5 million to $6 million in fiscal 2014 to build a decent infrastructure to house the new staff. As new staff is trained and deployed, growth and profitability should follow. The time is now to take -- to make this investment and do what is necessary to build the company to $225 million to $250 million in compounded annual revenue over the next 3 years. This is something we think is realistically achievable, if we do what is necessary now. Let me describe how. With a robust pipeline, and I'll refer to it again, a recent signed -- recently signed $15 million contract with 1 customer in just 1 country for our core NFS solution, we are really excited for the road ahead. Whether it's Europe or North America or APAC, we have the opportunity to leverage existing relationships and to expand our business in those markets. And this excitement is not just for our core NFS solution. As for the globe, across the globe, we have additional activities and potential revenue streams that are poised for significant growth. In Europe, our VLS division will be conducting outbound marketing in 2014, and encompassing existing markets and verticals, including an unsecured asset-backed securities and consumer debt. In North America, LeasePak-SaaS is building an impressive pipeline, and Vroozi is diligently working to close new larger value deals. We're also count -- continuing a soft launch of our next-generation solution in Europe and North America as well, increasing marketing of our NFS SaaS solutions. And we are very excited about our move into the development of mobile applications, which extends our domain knowledge to a wide variety of new customers, including potentially with auto manufacturers. In addition, our joint ventures also provide further room for growth over the coming years. With Pakistan increasingly recognized for its IT talent and an improving domestic outlook, as demonstrated by the recent elections of May 11, 2013, and a peaceful transition, we are in a position to connect our talent with the needs of the international market, specifically a joint venture with The Innovation Group from U.K., Extended Innovation, is growing steadily with the recent addition of nearly 30 more billable programmers, now total of 135 programmers we have dedicated to this JV based in Lahore. And the signs are very promising for further growth. Additionally, our joint venture with Atheeb Group in Riyadh, Saudi Arabia, NetSol Atheeb, is also poised to grow over the longer term as it wins new contract slated for IT services and other sectors. So you can hear, we are well-positioned for continued strong growth and with robust demand for our core NFS solution. However, obtaining this type of growth will largely depend on how fast we can train and then deploy our resources to service the demand across business, demand which I have consistently described today as being at an all-time high and more than what we can service with our current resources and infrastructure. At the same time, we want to make sure that we take the time to negotiate new agreements, a number of which we are working on to complete on the terms that our solutions and services deserve, that ultimately enhance shareholder value without feeling pressure to offer discounts, meet quarterly targets. We can't afford to be short-sighted. To this extent, we are no longer providing specific revenue and EPS guidance for the company, even though all signs point to continued growth and strength across the business. And we are ever confident in achieving our goals. Instead, we are giving more of a longer-term target and what's going to take to get there along with directional color on expense, CapEx and other items as we have discussed today. To put it simply, we want to make sure that we give our sales team optimal flexibility to negotiate prices that we deserve regardless of reporting schedule. I truly believe we have one of the most talented group of programmers and developers in the world, who are working tirelessly to accomplish projects at the highest level of professionalism and integrity, and becoming the undisputed global market leader in our space. Our cost arbitrage is second to none, and the teams are extremely supercharged. Whether you are new to NetSol or have been with us for a while, I would like to thank you for your continued support. We all have a vested stake in this company and our priorities will continue to enhance NetSol's long-term value. With that, we would like to open the call for the questions. Operator?

[Operator Instructions] The first question is from the line of Matthew Paul with Sidoti & Company. Matthew Paul - Sidoti & Company, LLC: Can you address the market specifically in the Asia Pacific territory you cover for your Net Financial Suite as a SaaS option?

Yes, sure. I'll ask Naeem to jump in.

Yes, in Asia Pacific, we are more focused on selling a traditional ERP model. We believe the value we can get in Asia Pacific in terms of per deal and in terms of total package is much higher. And we can also drive a higher license revenue upfront. But the demand for SaaS comes more from the Europe and U.S. and I believe, going forward, maybe Asia will catch up as well. For the time being, really, we have not had a major push from Asia for us to offer a SaaS model. Matthew Paul - Sidoti & Company, LLC: Okay. Next question is for Roger. If you could address the margin expansion for the fourth quarter sequentially as the largest expansion, but it did trace back to where we were fourth quarter last year. So I wanted to see if you could address that for me?

Are you talking about gross margins or the operating margins? Matthew Paul - Sidoti & Company, LLC: Gross margin, please.

Well, I think...

Can I pass it off -- Najeeb is going to pass it off to Boo-Ali since he was familiar with all of the fourth quarter. Is that okay? Matthew Paul - Sidoti & Company, LLC: Sure.

Gross margins for the fourth quarter 2013 and 2012 are almost the same. We have 62% gross margin in this year as compared to 60%, I think, last year, there's almost no difference, these are almost the same.

Actually, I think, it has improved in the fourth quarter. As you can see, we jumped from, I believe, 54% in Q3 to 62% in Q4. So it's mostly because of license sales in the Q4.

Your next question is from the line of Ashok Kumar with Maxim Group.

Just looking forward, Najeeb, while you're not giving any specific guidance, do you expect the revenue split to be about comparable to what you accomplished in this last fiscal year, about 45% service, 35% license and about 20% going on the maintenance side?

That's an excellent question. Naeem, do you want to give a little color?

Yes, sure. Ashok, what's happening is our service mandate rates are improving quarter by quarter. So just to put it in context, 2 years ago, we would be looking at an average mandate rate of under $400. Now we are close to $550 per day. So excellent services revenue is starting to become very profitable. Obviously, license income is the cream on the top. So what is the trend we're seeing is that license income will remain, from a quality point of view, continue to grow, but percentage-wise, it might come under pressure, as you know, traditional ERP, globally, the license income is on decline. However, we can easily offset that by our mandate rates on services and our cost arbitrage from Lahore, essentially means our profit margins are highest in the industry.

And also, if you could -- Najeeb or anyone from your team, could you comment on -- it seems that you are seeing a step up in these multimillion dollar deals, and the March quarter, you announced one with the U.S.-based global equipment manufacturer for its Mexico-based subsidiary. So is this -- could you just highlight what are the drivers behind this, just the increased brand awareness and the capability of your team that you're seeing with higher dollar opportunities come to fruition?

It's all of the above. I'll have also Naeem give specific color. But I really believe, Ashok, as I said in my prepared comments, that the demand is rising generally because the markets are improving in the U.S., especially Asia has been on the move for quite some time. And I think the brand acceptance is quite important in the last -- it has grown a lot, tremendously. We've seen recognition in the Chinese market and the English market, how the NFS is really catching on a lot of new companies. And the beauty of this growth is, really, some of our large existing customer, let's say Mercedes Benz, continue to expand their relationship and adding more location and more opportunity for the company. So I think, Naeem, do you want to just maybe add more, I'm sure you have a lot more to add.

Yes, sure. Mexico is interesting, Ashok, because really, we don't have any competition there. And once the brand was visible in Mexico, and we had several successful implementations in the U.S., and just across the border, we started to get more noticed and visibility. So in fact, we got sought out by this company. We don't have a presence in Mexico. And that said, it's a very good reference point for us to expand further in that market. So these markets are growing primarily for our business because of lack of investment for many, many years. They've been running on legacy platforms for 25-plus years, and the appetite for introducing new platforms is huge. So we are in the market at the right time with our next-generation solutions. And at the same time, the brand is more visible and with our continuous marketing and presence in the major industry events, we've had really a lot of exposures. So I see that trend to continue in Latin America. We've had interest from Brazil as well. So I just feel that our company is now recognized as one of the leaders in the space. So we do get a lot of unsolicited business now.

Okay. And one last question, Shaz, maybe you can elaborate on claims, comments on the SaaS opportunity in Europe and North America, right, given the value proposition of your platform and increased investments, do you feel you're at an inflection point in terms of adoption rate of your platform?

Shaz?

Ashok, thank you. Yes, Ashok, in [indiscernible] point right now, there's a definitive what we're seeing in the market, customers are falling behind on their technology platforms. Technology is changing very fast, and these systems are now that the customers are -- have been running for a number of different years have just been -- become too costly to maintain. And this is where NetSol's value proposition really resonates in the market is that we're building and bringing new technology to customers that allows them to run their businesses much more efficiently and at a better cost point so the total cost of ownership goes down. The brand awareness of the company is actually running very high now amongst multinationals, as well as localized companies that are just looking to actually build and deploy a leasing solution for their constituents and market. So we feel very good right now about North America. And Europe is, obviously, coming right behind it.

Your next question is from the line of Howard Halpern with Taglich Brothers.

In terms of, I guess, the people that you're going to hire, how many hires did you have last year that, I guess, increased cost by that $400,000?

Well, I think we have added -- I did mention we have about 100 or so in the training or in the bench, rather than in training right now. One thing that happened, Howard, in the last fiscal year is that we have improved our turnover rate impressively from almost 20% to 9% -- just about under 9%. So now in the beginning of the year, we were losing some people due to attrition or cost of salaries [ph] and so forth. But the company has really realized that the talent of this nature, of this caliber has to be priced properly and trained and put them to projects. So I think we have hired close to 150 all in all in the whole year. We will probably retain at least 120 of them. Going forward, as I said, Howard, that we need to look at the big picture when I gave the number of 3 years compounded revenue potential that we believe we can deliver if we have the capacity. And the whole event in Bangkok 2 weeks ago was all about how we can really meet the demand of our customers and a lot more. I mean, if we totally unleash sales organization and we will support with the delivery mechanism and capability, then I think it is -- could be a phenomenal opportunity for the growth. But right now, we are challenged to make sure that we are supporting properly all the new orders, the current solution, the maintenance, the change of credit and so forth. The company had to make a decision in last month that we had to really beef up and look at the big picture. Don't look at the 50 -- $50 million range but really look at 3 to 5 years from now. And for that, we have to have some cost built in, in our model in the coming next 2 years.

And the cycle to train like that, the class of 100, is it a defined cycle, or is it sort of up to how each one individual progresses?

Naeem, you want to answer that?

Yes, sure. Howard, what happens is a lot of these people come with some industry experience. So some are really good developers, others have had some exposure to the domain and financial services. So to train them, what we do is that we have internal training, as well as putting them on projects as understudies in the shadow of more experienced people. So we consider 6 to 9 months a reasonable time for them to start generating revenue, so they are on the bench for about that time. And after that, we expect them to be billable.

Okay. And you'd mentioned earlier to the building of almost basically like a new campus, I guess, in Pakistan. Is that going to be mostly funded through cash flow?

First of all, there the current sector has 5 stories, including the basement, and as I said, it's pretty much full. We actually have, from this trainee sitting in the training room, so the maximum capacity. The second structure which is the same property, we have a sizable lot that we bought many, many years ago, and we have almost created another 5 level of structure. It's already paid. It's already ran through the financial in the '13. But now what we're doing is, Howard, we are now making the final floors ready, which is all furnishing, interior decoration. And each floor can take up to 160 or so programmers. So the immediate goal is to have the first floor ready in the second structure, it's already ready, the grade [ph] stuff is all done, and I think we have a goal to finish that within the next 60 days at most and be able to put the new hires and the ones that's sitting with no room in the building -- in the current building, and they will be moving there. But going forward, as I said, I've given some kind of a calculated expense in the coming year or so, it's going to run up between $300,000 to $400,000 per month for the new hires. And as we progress, as Naeem said, there's a timeframe for their training and development before they move to the projects. Some will still remain on the bench because the challenge that Naeem has as head of sales, that at times he has -- he requires for bigger orders so that he has to make sure that can he match with the delivery capability. So for that reason, we decided to really invest in the future of this company. And that's what's really going to grow this company to the level that we all want to see in the next few years.

And one final one -- quick one on Vroozi. With the 30 companies, the Purchasing Manager platform signed up and going to happen probably mostly towards the second half of next year, what is the revenue source from that, just a monthly recurring fee, or is it a monthly recurring fee plus some other item?

Yes, Shaz, go ahead, please.

Yes, Howard, this is Shaz Khan. The registered companies, the subscription models in place, the pricing is actually made available online. So it's a price per user per month analogous to a sales force. While we've put the product out there and had a number of different companies start registering, a lot of these companies are starting using the platform to actually submit purchase orders to their suppliers. And now they're asking for more, more integration, more customization of the platform. And our platform allows for that.

[Operator Instructions] The next question is from the line of Greg Garner with Singular Research.

I wanted to just understand the -- make sure I'm understanding your forecast and your overall view in the next few years. You mentioned $225 million to $250 million revenue in the next 3 years. So that's almost $70 million to -- or mid-70s to $80 million average per year. If you straight line it, it might be, I don't know, $12 million, $15 million per year. But the reason why perhaps it seems like you might not want to be giving annual guidance because you're working on more -- larger deals at the timing of their signing is difficult to be accurate on. Is that the right way of looking at this?

Well, yes. Let me just give a further color on this. The main, I think, reason if you look at how strong we delivered this year, '13, to really excited about it, and we are doing this approach change at least for now, at least for this year, that we are doing in the heel of the strongest results. And I said and I repeatedly, Howard, that -- Greg, that we have a growth story here. We have to invest in our infrastructure, hiring, training to match the potential. Now when I said those numbers, what we're saying is, once we have a bigger capability, the engine we have in Lahore and other location has to be much bigger in capacity and size. So we really have to scale up. And it'll be progressive, obviously, and -- but the challenge we have right now is how many new orders can we take of a bigger value if we don't have the back end support to meet all those challenges. So the company has to make this decision to really focus on the long term, the big picture. And we don't want to be in a position where we have an order, an agreement, and we cannot deliver on that -- because we have never done that, we've always come through with our delivery capability. But the size is growing now, the markets are growing, they're responding very well in all the markets, even including U.K. also. So bottom line is that we are really excited about what we're doing, and I think we want my team to be focused in the big contract, the real value. And oftentimes, under pressure, they just give some discount that if they had a little bit more time, they would say, "Okay, we can get the maximum." So those are a bit of a lost opportunity, but we don't want to be in that position again. We believe that the company is strong, pipeline is strong, we have a good strategy in place and our demand for our products is growing worldwide and there are many, many other revenue stream, not just main core business, Vroozi and VLS and service sector. So I'm really excited about, Greg, just the way we're looking at this company now that we really want to go to the next level. And quite frankly, we have excellent analysts like yourself who are modeling estimate based on your independent analysis. And so, I think the market follows analysts anyway, and I think, to me, it's the healthy way of running the company where you're allowing both delivery and the sales to function to their maximum capacity for the long term and not be bogged down with the day-to-day results.

Yes, yes. Well, it certainly seems like a good long-term orientation, yes. My second question, I'll just talk -- ask you about some of the recent new projects of $20 million. I think that would most likely include the $5 million from the add-on order from the $10 million that was announced back in -- was it May or June? I'm wondering what the other $15 million was. And also, along with that, are there any deals that you're working on right now that you would be able to bring to signing if you had your new people fully trained already?

Sure. Yes, Naeem, why don't you jump in? I think you have this answer.

Yes, sure. We are in a position where we are building capacity ahead of the demand curve. So it's a good position to be in because we have great visibility on the demand. I think this is why we're going to invest in these people because otherwise, it makes no sense for the company to build a huge campus, another building and then to go hire another 300 people. So our visibility and our traction is so strong that we are able to commit to making these investments. And really, our sales cycles are such that we can build capacity ahead of the order. So for example, if I have an interest in the product today, that deal closes in 6 to 9 months. And as we track the deal and we go forward, we know how much capacity we're going to need. So essentially, we can do this if we can get it down to a certain methodology that the capacity is always ready when you sell. So we have never actually been in a position where we had to turn something away because we didn't have capacity, knock on wood. And in the future, as these deals sizes are growing, we certainly don't want to be in that position. So the fact is that unless we act now as we're signing this bigger deal, we could be in that position in 6 months, where we say, "Wow, okay, we have this $50 million order, but we haven't got capacity." So I think what Najeeb is actually saying is that, because of that visibility, we should not build this out and this is why we're not able to give an exact guidance. But if you follow the company, you know how our metrics are and you just split the license, services and maintenance. Some of those have already hit certain benchmarks, and we're not going to go below that. So I think the smart analyst will work this out and see how we're going to track this year as well.

Okay. And any other color on the $20 million of orders from new projects announced in the last 2 months?

Yes, well, those are our bread-and-butter projects. These are very much in our sweet spot of our core expertise. So for example, both these projects were order captives in APAC country, and both of them had very old systems, legacy, in fact, 25 years-plus. A major business transformation and surgery, in fact, was needed. So we provided both a business transformation program, as well as putting them on a new platform. That will essentially just change the way they do business. So these are very, very important clients that continue to add more referenceability to our business. And what I see in the pipeline is at least 3 or 4 deals like that in my pipeline, as well as some of the deals that Shaz talked about and the VLS deals as well. So we've got a nice spread and nice diversification in the business. The core business certainly continues to grow.

Our next question is from the line of Rag Sarathy with Dougherty & Company. Raghavan Sarathy - Dougherty & Company LLC, Research Division: Just a couple of quick questions. First, you talked about a $20 million order, couple of orders combined. In terms of the mix, is it reasonable to assume that the mix would be similar to your -- some of the corporate mix between license services and maintenance? And then, how would you recognize revenues [indiscernible] percentage of completion or how should we think about that and -- or what period of time? And my follow-up question is, when I looked at the unearned revenue of the balance sheet, it's down about 7% year-on-year. Is -- I presume these new orders is not reflected. Can you give us some color around that?

Naeem, you want to come in?

Yes, sure. By the way, the new orders are so new that a lot of that is not reflected yet. So in the unearned income, I think only the CFO can comment how is that recognized, but certainly these are fresh orders. We are mobilizing teams. Through revenue recognition, we're able to pick some revenue up. I don't know exactly how much, but certainly, there's a lot more to come yet. And what was the other question? Raghavan Sarathy - Dougherty & Company LLC, Research Division: I said I was looking at the mix of license services and maintenance, I think one of the comments you've -- someone made was the license revenue could be under pressure. Just looking at the $20-plus million, how long would it take for you to recognize, and is it going to be a percentage of completion and that the mix is going to be similar to the corporate average?

I think our mix is really healthy. If you look at some of the other ERP companies, SAP for example, their license revenue now is less than 20%, I think more like 10% or 15%. So they're getting a lot of business from services and professional services and so on. So really, we are still in a very healthy number. We believe, as a whole, the number will grow. As a percentage, I believe it could be some tempering over time. For this $20 million for example, we are not far off our traditional mix. The maintenance is generating 20% and licenses, 25% to 30%, and the rest is services. So that hasn't changed dramatically. But I was just only sharing with the color is that over time, it will erode. Over time, this is normal shift in our business that more business will eventually end up in SaaS and more professional services. And as we continue to have this close arbitrage, which we believe we will have this advantage going forward because of our facility in Lahore, we believe our revenue from services will more than offset any decline in license income.

I want to add one more point, Rag, is what Naeem said about the service business, I think what we're noticing in the last few months is that our demand for the change request from our customers, our existing customers, is really growing. And so the company is really faced with the challenges because we're busy in the core business, the current solution and the new development and many other things happening in the company, this is one area that we need to really be [indiscernible] so we don't lose any new orders for the maintenance and the change request. And that's a trend, which is very healthy for the company. And I think in the coming quarters and coming years, you'll see we'll do a lot more of those income that is out there for us as long as we can support it quite effectively.

Your next question is from the line of Michael Vermut with Newland Capital.

Quick question just on the backlog and the orders that you're looking at. I'm just trying to kind of -- I know it's difficult to give the outlook here, but are we still looking at that 20%, 30% top line growth with the orders that are, I guess, in the book now for you or that are in the pipeline? And are these orders in that $10 million to $15 million range still, or are they increasing?

Naeem, you want to answer it or should I answer it?

Yes, sure, sure, Mike. Look, the backlog is very, very strong. By backlog, I mean signed orders, right, which have not fully been recognized in revenue. So that is strong as ever, that I can share with you. How that pans out in terms of recognition and how it's recognized, again, it's a question for the CFO. But certainly, I have never seen it higher. And I have talked about this in the past and now, we've actually shown it with the numbers, but some of the backlog, obviously, has been recognized in the current quarter and the fiscal year that's why you see the growth. But going forward, what we are doing is continue to add more contracts in that price bracket range, which has now become, rather than $2 million to $5 million, it's become $5 million to $15 million. I continue to see, Mike, that being a very realistic range for us going forward. How and when these deals are closed and so that we can add them to the backlog, but timing is something which I cannot share with you because those orders have to be closed. And we are literally in the first few weeks of the first quarter of the fiscal year. So I think over the next couple of quarters, you'll start to see some interesting developments. And as we sign those deals, we certainly will share with you and that will reflect in our next future Qs.

Your next question is from the line of Gavin Ritchey with Rockwood Investment Partners.

What was that you said about CapEx earlier for the new building for the new hires as far as where that was going to be for the year?

We said about $5 million to $6 million in this 2014 fiscal. That includes completing all the 5 floors, which is just about close to $400,000 per floor and then, more importantly, the hires that we just kind of taken some calculation based on the going rate for our salary. So, yes, give and take, $5 million to $7 million -- $6 million this year. But that will add a lot more capacity by the yearend.

How does that compare to the roughly $9 million last year total CapEx?

Just about a little bit less, I think, than that. Because we spent a lot more money last year in the building itself, and so that the bulk of the expense or -- rather, CapEx is behind us. But now we're really finishing up the floors, all the furnishing and equipment and so forth and so on. And so, I would say the whole building can be ready [indiscernible] about $2.5 million, $3 million, roughly.

So CapEx should be down for '14?

I think so, yes.

That does conclude our question-and-answer session for today. If you have any additional questions, please contact Investor Relations at investorrelations@netsoltech.com. I'd now like to turn the call back over to management for closing remarks.

Thank you very much. I want to give special thanks to our colleague, Mr. Boo-Ali for his great services as the CFO for 5 years. He's with the company for 10 years. He'll remain as a bigger team now, assisting the corporate finance in the U.S. as the Chief Accounting Officer, while maintaining the role that he's been doing diligently as a CFO for Pakistan. So Boo-Ali, thank you so much. There is no replacement for you, but we have now Roger to work at the team. I want to thank both of you for your contribution and, of course, now Roger. I want to thank all the friends, supporters, analysts for listening to us. And we'll look forward to catching up next time. Thank you, all.

Ladies and gentlemen, this concludes the NetSol Technologies Reports 2013 Fourth Quarter and Year-End Results Conference Call. Thank you for your participation. You may now disconnect.