NetSol Technologies, Inc. (NTWK) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the NetSol Technologies Reports 2014 First Quarter Results Conference Call. [Operator Instructions] This conference is being recorded today, November 8, 2013. I would now like to turn the conference over to Patti McGlasson, Senior Vice President, Legal and Corporate Affairs, General Counsel and Corporate Secretary of NetSol Technologies, Inc. Please go ahead, ma'am.

Thank you. Good morning, everyone, and thank you for joining us today to discuss NetSol Technologies fiscal 2014 first quarter results. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; Naeem Ghauri, Head of Global Sales and CEO of NetSol Europe and Vroozi; and Shaz Khan, COO and Co-Founder of Vroozi. Following a review of the company's business highlights, financial results and discussion of the company's strategy, we will open the call up for questions. The call is scheduled for one hour. First some housekeeping issues before we start. Earlier today, NetSol issued a news release announcing the company's financial results for the first quarter of 2014. 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's 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 their most comparable GAAP measures. With that said, let me now turn the call over to Najeeb Ghauri. Najeeb?

Thank you, Patti, and thank you, all, for joining us today. I'm calling you from London, Naeem is in Bangkok, and Roger, Patti and Shaz are in Calabasas, California. I'll begin by discussing our results reported today, which is [indiscernible] the transition for the company, both from the product and operations standpoint. Our next-generation solution, NFS Ascent, which underwent 4 years of research and development, offcially launched at the Equipment Leasing & Finance Association Conference in Orlando, Florida last quarter -- last October, followed by our recent press release for the benefit of our investors, prospects and clients. For the remainder of this fiscal year, we will be marketing NFS Ascent across all the markets who serve as a solution provider, auto and asset finance leasing companies worldwide. NFS Ascent is already attracting widespread interest from both new prospects, as well as existing clients, who potentially can upgrade from the first-generation NFS platform to NFS Ascent, the next generation. In addition, through the launch of our beta version, we have been implementing NFS Ascent for a major auto capital in Thailand. It [ph] progressed and is expected to go live sometime this month, November. This implementation in major milestone for NFS Ascent establishes a reference line as a major brand in the global auto capital leasing market. In addition, NFS Ascent has been chosen by 2 additional major auto capital clients who are in the pre-launch phase of the project. As we progress into the project phase, over the next 6 months, we anticipate to see first significant NFS Ascent revenues within NetSol's total revenue mix. From the interest we are seeing in the 3 and the recent post-launch phase, NFS Ascent is proving to be a disruptive force and technology in our competitive landscape. NFS Ascent's design and architecture is the most advanced in its space, offering clients multiple deployment and procurement options. From a traditional on-site implementation for a lump sum license fee and capitalization model, we are fully cloud deployed on demand SaaS model, NFS Ascent can be delivered as a tailored package to our clients. As a result, as a direct result of this flexibility and the array of options now available for our sales team, we are able to cast a much wider net and capture a larger spectrum of clients of various sizes, locations and business processes. One of the major U.S. fees and attractions of NFS Ascent to our existing clients is the upgrade task available to the users for the first-generation NFS to seamlessly move data and processes into the new next generation platform, protecting their investments made throughout many, many years. We've been extremely conscientious of the investments made by our clients for the first-generation NFS solution and have been able to map a major cross-section of the features they regularly use in addition to numerous new features that help speed the transformation of a new state-of-the-art platform. In addition to the 3 projects underway, we are in a various stages of discussions with potential new global customers, discussions that are being underway for quite some time, including North America and Europe. I want to emphasize that we will still offer and support our first-generation NFS solution, which has been on the market for nearly a decade, and supports large and multinational auto finance captives and others, many of which rely on the solution to run their multibillion-dollar portfolios. Near term, we expect that the licensee -- the license revenues for the first-generation solution will begin to trail off, but will be offset in part as new and existing customers adopt NFS Ascent. This period of transition, as is typically the case when companies are in transition to new products and services, is clear in our results. As it relates to the top line, license sales in the third quarter were impacted by potential customers who waited for official launch of our next-generation solution. Again, something that is very typical of software product launches. In addition, this quarter reflected a cyclically slow new business period for NetSol, and the first half of the year typically is slower than the second half, as well as a concentrated effort posts new deals on our terms regardless of reporting schedules. On the bottom line, we incurred increased expenses as we increased our infrastructure to support the company's new state of growth. The large number of staffs we added in Q1 and are continuing to add clearly indicates where the business is going. No company would be making this type of investment in people and infrastructure if they were not confident in the direction of the business with visibility into the pipeline and the market opportunity. We are most confident in NetSol's direction, the strength of our solutions and the ability of our people to capture a large growing market in our space. The investment at nearly 200 global businesses, including some of the world's most prestigious automotive companies have made to manage the multibillion-dollar portfolios, is testament to our customers' confidence in us. Bottom line, the quarter's financial results are not indicative of the underlying strengths of our company or the reputation we have earned around the world. What the figures do reflect is a period of transition or perhaps, simply put, growing pains. During this time of transition, in fact, only our second major product launch in NetSol's history, we are ever more confident that NFS Ascent will open up opportunities to expand throughout the world and transform the company, bringing about a shift in our business model and building value for our shareholders. Let me briefly discuss some of our key developments in the quarter in each of our key regions. I will then turn the call over to Roger Almond, our recently appointed CFO. I'll begin my discussion with Asia Pacific, which accounts for the majority of our revenue and geography, focusing on China. During the quarter, we signed an agreement with a major Chinese auto manufacturer for implementation of the NetSol Financial Suite. And recently as we discussed on last quarter's conference call, we signed an agreement with a current client to roll out a Point of Sale mobile application across a dealer network in China. We continue to make progress in China with new customers despite some softness in the market related to delays in approval for new leasing and financing organization by the Central Board of Registered Company, which we discussed last quarter. No company has a footprint or the customer base that we have in China in our domain. This competitive edge allows us to not only win new business but also provides opportunity to grow with our current customer base. Moving on to Europe, we have a renewed sense of optimism about our opportunity in Europe. During the quarter, we commenced a LeaseSoft upgrade, an important project for a leading North American and U.K. leasing company specializing in broker-introduced entrepreneurial finance; we began a LeaseSoft implementation for a leading non-bank lender in Ireland; and we completed delivery of a web services-based branch integration project for one of the U.K.'s leading subprime vendors. We also energized about our VLS, our Virtual Lease Services division in London, which continues to show improvement and recently became the only Fitch-related, asset-backed security services in the U.K. In addition, moving forward with NFS Ascent, we had the opportunity to make inroads with our clients and help operation in Europe, many of which we already serve in multiple Asian countries. In fact, one of our key strengths as a company is that we have multiple multi-country implementations with clients and years of experience working together of building trust. These customers rely on our services and support and manage their entire leasing portfolios and the complex accounting that goes with it. This same expansion opportunity also plays in the North American market, where we continue to make progress on the multimillion-dollar implementation with the complete NFS suite for its global equipment manufacturer and its Mexico-based subsidiary. In addition, we are actively working to close additional deals, many of which are in late stages of discussions. With NFS Ascent, we believe that our market valuation was improved, opening of our solutions to many new potential clients. In addition, we will continue to support our current products, including LeasePak, where we sold 40 new seats, valued at more than 1/4 million dollars. Moving on to Vroozi, which operates in enterprise procurement space, the region signed 5 new customers through the Vroozi Purchase Manager, a platform that allows companies of any size to create purchase requests, initiate appropriate via mobile devices, securely collaborate with the suppliers for order processing and major social and sustainability initiatives using any device. In addition, we released a new supplier purchase order pick-up module for the Vroozi Purchase Manager and a new Vroozi Buy Route functionality and beta with a global customer. We remain optimistic about the Vroozi opportunity and we have Shaz Khan, the COO, on the call to answer any question you may have about the division. Lastly, I'm proud to announce that Atheeb NetSol, our joint venture partner in Saudi Arabia, recently won 3 projects in the area of network security, ISO standard implementation, with cybersecurity and consulting for a local group of hospitals, a governmental security department and a construction group. We're actively working to close additional IT-related projects and look forward to updating you on our progress in the future. So we are making progress and are excited about the next chapter in our growth, certainly for NFS Ascent. [indiscernible] into our other initiatives in each of the regions we serve. I'd like to now turn the call over to NetSol's Chief Financial Officer, Roger Almond, to review the company results for the first quarter. Roger?

Thank you, Najeeb. For the first quarter of fiscal 2014, total revenue was $9.1 million versus $11.1 million in last year's first quarter. The year-over-year difference is principally related to a decrease in our license and services revenue. License revenue decreased to $2.3 million from $3.2 million in last year's first quarter, reflecting the timing of new business wins, and as Najeeb described earlier, a delay in purchasing decisions as new customers held off on new implementations until the next-generation solution was officially launched. Maintenance revenue grew 16% to $2.4 million from $2 million in the same period last fiscal year. As projects in the way are delivered and as we begin tailing NFS Ascent, we expect maintenance revenue to continue to improve. First quarter services revenue was $4.4 million versus $5.8 million last year. The decrease is also related to the lower license sales. Cost of sales for the fiscal first quarter were $5.7 million compared to $5.8 million in the first quarter last year. Total operating expenses for the first quarter of fiscal 2014 were $4.9 million, up from $3.8 million last year. Operating expenses were in line with the fourth quarter of fiscal 2013 at $4.7 million. We reported a net loss of $1.1 million for the first quarter of 2014, equal to a loss of $0.12 per share, including a $634,000 deduction in non-controlling interest. Compared with net income of $929,000 or $0.12 per diluted share, which included a deduction in non-controlling interest of $323,000. As of the end of the first quarter, NetSol shareholders own approximately 64.23% of NetSol Technologies Limited, down from 65.19% last quarter and up from 60.52% in the first quarter of last year. The decrease during the quarter ended September 30, 2013 is due to employees of NetSol Technologies Limited exercising options during the quarter. Adjusted EBITDA, a non-GAAP measure, was $424,000 for the fiscal 2014 first quarter or $0.05 per diluted share compared with $2.5 million or $0.33 per diluted share for the fiscal 2013 first quarter. The weighted average number of diluted shares outstanding for the period was 9 million shares compared with 7.6 million shares for the first quarter of fiscal 2013. We ended the quarter with $6.8 million in cash and cash equivalents compared with $7.9 million at June 30, 2013. During the quarter, we made purchases of property and equipment of $2.7 million versus $1.5 million last year. Accounts receivable were $18.5 million compared with $14.7 million at June 30, 2013, reflecting the completion of certain project milestones that are now billable to the client. Revenue in excess of billings, a line item that reflects projects and progress but not yet billable for contract terms, decreased to $11.4 million from $15.4 million at June 30, 2013. We ended the quarter with approximately 1,200 employees, of which 153 were added during the first quarter and are currently going through training. As Najeeb mentioned, the addition of new employees reflects the confidence we have in our business and the direction of the company. I would like to now turn the call back over to Najeeb. Najeeb?

Thank you, Roger. Indeed, hiring is a leading indicator of where we see the business going and the demand for our world-class solutions. This investment will impact our financial performance over the near term and is necessary that we undertake this effort to bring the company to the next phase of growth. As you know, NetSol has invested heavily in developing our next-generation platform, and we are pleased to finally introduce NFS Ascent. This is our future and creates a stronger competitive edge for us and our customers. Looking at the big picture, we're absorbing short-term earnings losses, while we continue to enhance the [ph] week capabilities, expand sales and marketing activities, and hire and train new employees to support the first-generation NFS backlog, as well as position the company to support NFS Ascent's new sales pipeline. Today, our pipeline for NFS Ascent includes multiple large multi-country implementations, which speaks to the market's response to our new product. This, along with solid prospect in the other areas of our business, provides a larger opportunity to grow the company. We're taking the necessary steps to execute on strategy and have never been as more optimistic about the opportunity ahead now that we have finally newly launched NFS Ascent to market. One of the most significant milestones in our company's history. And I consistently stated, I truly believe we have one of the most talented group of programmers and developers in the world, working tirelessly to accomplish projects at the highest level of professionalism and integrity. At the same time, we have world-class customers that invest in us by purchasing our solutions, which above anything else should be the best indicator about our future. Whether you are new to NetSol or have been with us for a while, thank you for your continued support. We all have your vested stake in this company and our priority is to continue to enhance NetSol's long-term value. Stay tuned for progress as our transition proceeds. With that, I would like to call open for any questions. Operator?

[Operator Instructions] [Audio Gap]

[indiscernible] the old NFS solution, which is now old and now we have a new one, NetSol Ascent. [indiscernible] potentially -- one of the customer potentially will go live this November in Thailand. That is the first one.

Okay. So I thought they were going to install the latest greatest, but really, the latest greatest Ascent is really just not available until just recently, is that right?

Yes.

Okay. In which case, if they're in the process of working on deals and they're in the later stage negotiations, can you give us any sense for what your anticipated timeframe for some of these to close and what kind of sizes they may be? I mean, are we talking 2 months, 6 months, 9 months? And relative size because the deal size has been growing, but I'm sure there's also smaller ones that you're working on, too. I just want to get a sense for how you perceive that opportunity mix.

Yes. I think that Naeem will give you the best color of the visibility and that's the question you've asked. Naeem, you want to jump in, please?

Yes, Greg, the deal size for Ascent is not dissimilar to our current generation. What we're trying to achieve is get 3 or 4 referenceable sites up and running. And so initial price points are, if you'd like, competitive, and as Najeeb said, we are about to go live with a major client in Thailand within the next couple of weeks. So that becomes our first referenceable site. Then we have 2 other clients who are in pre-launch phase. Basically, they are committed -- they have committed to take Ascent. And the only reason we have pre-launches, we're just getting resources allocated, and they have to do their own pre-launch phase with their own users. So essentially, we have 3 committed clients already, which we acquired through a soft launch period through our beta, if you like, versions, which we're demoing to clients for the last 6 months or so. So the picture is that as we were pre-launching, soft launching, actually the word gets out that we have a new product coming, and that essentially means a lot of the prospects who were looking our current platform, they wanted to wait. And they have -- most of them haven't made decisions and gone elsewhere. Essentially, they want to see how the product functions, and we go live with a few of these beta sites, and then we start committing. That's quite normal. I mean, this is our first major product transition in a very very long time. So we expected this, and that's why we were very careful of not guiding start of this fiscal, as we didn't have the visibility and we were still building the back end in anticipation for Ascent's resources we were hiring. And that actually panned out quite well, because we have not pre-committed projects and I am really pleased that we did start the hiring, because, otherwise, these things will be difficult resources to get, because they are different skill sets, software engineers that are .NET as opposed to our older technology. So really it's a very exciting time and we find this period, transition period. But we reach an inflection point where we start to see a rising and increasing revenue on Ascent, and the decline also -- then the current generation doesn't have anymore impact on revenues. So the deal size will grow from here. We are at least getting what we were getting for our current generation. But I think, as we get more and more clients, we are able to get a better price and bigger volumes.

So these 2 that are on a pre-launch, they haven't been announced at all even from NetSol, is that right?

No, we cannot, because the point is that we wanted to inform the market that the reason we are sharing with you that we have 2 pre-launch clients is purely because there should be some visibility of where Ascent is going.

I'm just thinking, if you talk about them classifying as pre-launch, it sounds like that -- I mean, I assume from hearing that, that it appears that it's very close to that launch where it could be a matter of weeks or months. Is that the right way to look at that?

Yes, absolutely. What's happening is that, again, we -- to get the better clients in, you have to price it competitively, you have to offer good terms and so on. So essentially, why we have this quarter as soft, and we expect maybe another quarter or so before we start picking up, so the commitment is there. And when we say pre-launch, by the way, by that I mean that the project hasn't started yet, but those contracts have been committed, yes. So we are not able to announce them because, really to re-launch and to re-start generating some revenues from these contracts we thought would be premature to make a big announcement. But certainly, we want to give you some color, visibility here, so that you know Ascent is tracking well and we really hope to see it grow. I think, by the end of this fiscal third quarter we start to see some real numbers to come in.

Okay. So the contracts are in place, but they aren't ready to really install, so you can't really announce or record revenues, and it may be another 2 quarters before those revenue are showed. Is that, right?

Well, Roger will be in a better position to explain revenue recognition side. But I can certainly tell you, in terms of implementation, we will start one in later this month, maybe early December, and another one early January. So -- and these are only constrained by the client side, embedded [ph] resources. We have our resources ready to go. So essentially, I save the question, and once we start building and start delivering, then we can start to get some revenue in.

And if these are some large orders that you had to build the staff for, is it safe to assume that these orders sizes would be similar to the Japanese bank date you announced about 6 months ago?

Oh, that was not a Japanese bank. That was the Japanese auto captive. That was a captive. I think we are confusing that customer type. That is a very large auto captive plant who took our existing generation product, and that, again, obviously, was a very important milestone for us, because transition -- because it was coming during transition and it was key that we secured that business before we launch the next generation, and then we are facing all the classical, if you like, symptoms of transition for a software product launch. There is this time where we started...

Perhaps I'm not categorizing that -- the client properly, but I'm just thinking the size of that deal, would these 2 deals that you're working on, that would start implementing here in the December, January timeframe? Are they of a similar magnitude?

Now you're putting me on the spot. I don't know. Roger, you? I don't think I want to commit to that kind of a number. All I can tell you is these are significant size deals. They are very large companies. These are to give you a flavor. They are multinational companies with multibillion dollar portfolios. And they operate in several markets. These are not small clients. Both of them are very very large clients, so they do invest into software.

I appreciate that color. And then the delay process for those who you have been talking to and now that the new Ascent out, what do you perceive is there? They want to wait and see what -- the first installations, how they are proceeding or...? I'm trying to get a sense for what kind of time delay they may have, and also then subsequent to that is, what's the size of that group of prospects as to either numbers or dollar amounts?

We won't allow ourselves an amount of time that we can appropriately resource our own people, because, if you like, there is a learning curve, training schedule going on with the 150, 200 people that we've hired. And these are resources have to be very well trained before we put them on major projects. So that's where the main investment is going. What we're going to be careful of is that we don't take too much on too quickly also. So we are really carefully planning how we size the project. We match the team that's going to run the project, and then we make sure the timing is good for the client and for us. And it's not necessarily that the client, they want to see the product. It's not it, because the product is solid in terms of how it performed in beta, and in alpha testing internally, and these clients who have committed have benchmark testing and they have done a lot of touch and feel of the product. So I think it's not a question so much of how strong the product will be. It's a question of timing and committing to new technology. And I see that our clients, our existing clients are also very excited, because a lot of them had been on this platform for many years and they want to upgrade. There are a lot of upgrade opportunities within the client base, as well as new prospects. It's really going to be an exciting time, and by the end of this fiscal and early next year, really we should be charging ahead as we were.

Okay. Can you give a rough idea, though, of say, based on these 2 new implementations and the ones who you are likely to start implementation in this fiscal year, is that deal size still -- has it moved to that $4 million to $5 million range that may have some larger ones and smaller ones whereas the average -- prior years was below that? Is that still safe to...

What you will see though -- I mean, I think I can give you a different perspective. What you're going to see is that we are still selling the current generation, by the way. So it's very important to note. But there is a certain type of client, and typically in China and emerging markets, who don't really care about the platform. They want a robust solution that can get up and running pretty quickly, yes. And the pricing point now becomes very attractive, because we are pushing more traffic towards Ascent, and with the current generation now becomes very commoditized for us, we can put it in very quickly. So we'll see a lot of deals for current generation will still come but they'll be smaller size, yes. So they will be lower in value. However, the Ascent piece will start to get bigger, and I consider $5 million is kind of a benchmark we set ourselves and we don't want to undersell the product, yes. So we aim to get at least that much from a new client that will take Ascent. There is -- we fight a lot of battles to maintain that kind of level. But as I said, the current-generation, that's for us is real, our bread and butter, and is important revenue maintenance-wise, services, and if we can sell more licenses, we will continue to sell them. Or certainly, it's like an Apple phone sells a lot cheaper than the higher ends, right? So I think that's normal. But that's mostly profit for us, because if we continue to push that product, it's easy for us to implement it and it's easy license money. And so that will continue. But the deal size is going to go smaller as opposed to Ascent, which will grow bigger.

I just want to make one clarification, Greg, because so you're going to understand that our current is now the the NFS Ascent, the old one is NFS that we've been using for last 10 years. So basically, the main thing is the old one for last 10 years are the customers who are already using the system. We'll continue to serve them and offer them more. But then now the current -- now you know that's NFS Ascent, so there is no confusion there at all.

And our next question comes from the line of Matthew Paul with Sidoti & Company. Matthew Paul - Sidoti & Company, LLC: In regards to NFS Ascent, could you possibly review your strategy on rolling that out on a SaaS basis?

So I mean, this is really where it gets exciting. The Ascent, we can actually deploy as a traditional in-sourced, in-house deployment where client will have their own infrastructure and they will pay a lump sum license fee, and we customize it and we then installed it, and they pay it as a normal license, service and maintenance. SaaS, with Ascent we are able to do both a cloud deployment as well as on-demand where they pay as they use it so as a software-as-a-service, and that is now out in the market. So there were certain clients in the past who could not afford to shell out like a $5 million contract, then we are able to capture a wider spectrum on the middle- to lower-end who actually can go on the cloud and who can actually just pay per user so much per month as a subscription. So that's an exciting space for us. And we have actually got a lot of learning. We did from Vroozi as our blueprint for SaaS, because Vroozi is a fully cloud-deployed SaaS model. And we have several clients who are on subscription. So we are able to price it also well. We know how to price an enterprise application as a SaaS rather than traditional. So certainly, that is a segment which will grow. I mean, obviously, at the moment, we have not been offering SaaS as aggressively, but we will now. So I mean, we see how that develops, and we will keep you posted as things develop. Matthew Paul - Sidoti & Company, LLC: A couple of follow-up questions on the 2 deals that were previously discussed that are pre-launch. Are those on the traditional license format, or are those cloud SaaS-based contracts?

They are traditional. I think, again, one thing to note here is very important. That is your typical large blue-chip, Tier-1 client. They will continue to buy and pay big lump sum licenses. Even if they go on the cloud, they may not go for the SaaS model. The SaaS model is more suitable for companies that are well-versed to putting large CapEx upfront, and so that we would capture that market. But certainly, these types of clients, really they don't show much interest. They ask a question and then they move away, and they just go for the lump sum license and the traditional model. Matthew Paul - Sidoti & Company, LLC: So for companies that choose to go with the SaaS or cloud-based option, how will you price it? Will you price it on their book of leasing business or maybe per -- I don't know per contract or per employee or something?

Okay. So there is a lot of metrics here, so we need to be very careful. If, for example, you have a client that sells -- that leases computers, okay, and there is another client that leases airplanes. So you cannot book for a contract, because one will be doing $1 million, the other will be doing maybe $2 million or $3 million a year. So you go by contract, by size. So you go both ways. You go -- you charge so much per contract, you charge so much per value of the contract, and then whichever is the higher. So we price it typically how many cloud clicks get activated in the system, and then at the end of the year what was the portfolio size and dollar value. And we have a kind of an algorithm we then choose, and we have the option to choose whichever. So, I mean, well, it doesn't make any sense if you just go by per-contract. So someone would be doing 20 contracts a month as opposed to somebody does 20,000 a month. Matthew Paul - Sidoti & Company, LLC: Moving forward, it's specific to your Asia-Pacific clients, or even more so China. Will you, as a company, kind of, I guess, make, in terms of pricing, kind of steer them towards SaaS contracts versus the traditional license, or do you think it'll be part of your strategy to kind of steer them towards the monthly revenue, the recurring revenue rather than the one-time lumpy license business?

What we don't want to do is cannibalize our license revenue, the costs of bringing SaaS. We don't want to go full-on SaaS overnight. That will be very risky or irresponsible. What we want to do is that we want to gradually have a mix of SaaS, as well as non-SaaS revenues. So China as an example, I can tell you there were a lot of very small clients, which could not even talk to us. I mean, their budgets are like $200,000, $300,000, right, so we never dealt with them. But those are the guys who can spend $15,000, $20,000 a month on a SaaS model. And you can just -- I mean, all you have to do is just deploy the system on the cloud and you just get them log on and just pay -- it's like salesforce.com. So I think that market opens up now on Ascent for us. That's the part I'm really excited about. So it potentially will not cannibalize our traditional revenue. That, for me, as the head of sales is the challenge that I want to have a mix which is the kind of gradual increment to this traditional revenue and then SaaS comes in as something that complements, not eats into it, yes. But that's a key.

Also, you know, Matt, the larger customers as we have in Asia, all are the multinational and large auto captive finance companies, they are kind of custom-to-license deals and we are very happy with that because those are kind of the customers -- they are really Fortune 500 companies, and they are headed by this to expand each year on the new system, whatever. So we always push for the license revenue, obviously. What Naeem said, the smaller customer who cannot afford license fee, and then for them we will go with SaaS and those kind of, I think, pricing. But it's in our benefit to really see bigger revenue, traditional license-driven. But in North America, Naeem said, you will see some transition with Vroozi or through other local solutions. So we will see how that grow, but at least we see a better growth of revenue certainly now with NFS Ascent, again, is the milestone for the company and this is really, for us, we call it a game changer. They take time to get the transition, and we are really excited about it. Matthew Paul - Sidoti & Company, LLC: Sure. I guess, last question on this piece, because you guys have done a good job on responding. Traditional -- sorry, the customers who are currently licensed to the legacy product, do they now have the option to go to SaaS? I imagine that they wouldn't want to, but are you seeing any, I guess, any correspondence that tells you that they want to move towards the SaaS or...?

Traditional, what you mean the existing clients? No, existing clients already done and paid and they are just doing maintenance now. They have 2 options. They can go stay where they are, or they can upgrade to Ascent. And if they upgrade to Ascent, then they have an option to go SaaS or non-SaaS. But when we have -- when they are locked in to the current generation, which is our NFS generation, then really their only option is to either move to Ascent or -- and if they do it, then they have 2 choices, non-SaaS or SaaS. So I think we have no -- there's no risk here for the current client to go elsewhere. Matthew Paul - Sidoti & Company, LLC: If they do -- when they do upgrade to the Ascent product, are they still paying the same in maintenance fees, or is it any different pricing?

No, that's a new. Oh, it's a totally new deal. What we've done here is, Matt we have made the upgrade path kind of easier in terms of the data migration. Data is key. When you're running large portfolios, you want to make sure that they don't lose any of the data and it's reconciled. So we made it easy for them to transition. However, it will cost them. It will cost them like it will cost anybody else, a new client. There is no concession or reduction in the fees or license fees, or any of those fees. It's a new product. So we've put in a lot of investment into this, so we're not giving this away to anybody.

[Operator Instructions] Our next question comes from the line of Howard Halpern with Taglich Brothers.

In terms of hiring, is the first quarter operating expenses a good number to use as a run rate for the balance of the year, or do you think you'll be adding even more people?

Well, if you recall, in the Q4 year-end earnings, in September, we said that we need to at least budget for 300-plus new programmers and engineers to support not only the backlog for the whole system, but also what Naeem just talked about, Ascent by finally building. So we had to make sure that we are totally equipped with the right resources and trained. I think, you will see a run rate. We want to end up with a least total 350 to 400 in this fiscal year, that means June 30, 2014. We've added about, I think about 150 in Q1, and I think once you achieve that number, the company will be in a great position to reassess if we really have -- come to a position to support our new and existing customers with the new product, and then we'll be able to give a better paying courtesy [ph]. But right now I feel that this is kind of budget we have, being 300 to 400 maximum new addition.

Okay. And based on the previous question that you did have, do you have some rough idea on when -- or this would, I guess, be somewhat the seasonality in it, when do the maintenance contract, the new maintenance contracts will -- when do the bulk of them come up to where you could then pitch the upgrade to Ascent for existing customers?

Yes, Naeem will help with the best answer.

Yes, so the way it works is, most of the maintenance contracts are renewed every year, which is in our interest, because we have escalation, price escalation clauses built into the contracts. So when they renew, normally the price goes up. So, I think, typically a client who is happy with the level of automation they have and their business is not growing that fast, they would resist an upgrade for the time being. So the only motivation to upgrade would be when they're seeing really exponential growth, or they're not happy with the level of automation, or they need more mobility features. So that's when there is good motivation to upgrade, and then we normally know those clients, yes, who are the ones, since you have all the data, could be right for an upgrade. So we're already pitching to them. I mean, we've started this process many months ago, so we have a list of clients who we know are growing fast and who would -- in fact, they are waiting anxiously for us to come to them with Ascent. So we have a whole series of demos planned over the next 6 months, some with existing, some with new prospects. So really, that just goes on and on in the background, and we target where we feel we should be. And we leave alone the ones who are not ready, because they are producing good maintenance revenues. So we'd, obviously, don't want to hurt that revenue stream and just keep that growing.

And there are no additional questions at this time. I'd like to turn the call back to management for closing remarks.

Well, thank you, everyone, for listening to us. We are really excited about our new-generation product, and we believe this is a future of this company, and we would look forward to give you more color and development ongoing basis. Thank you, and have a good day.