NetSol Technologies, Inc. (NTWK) Q1 2018 Earnings Report, Transcript and Summary

Good morning and welcome to the NetSol Technologies’ Fiscal First Quarter 2018 Earnings Conference Call. On the call today are Najeeb Ghauri, Founder, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer, Naeem Ghauri, President, Global Sales, Jeff Bilbrey, President, North America and Patti McGlasson, General Counsel. I would now like to turn the call over to Patti McGlasson, who will provide the necessary cautions regarding the forward-looking statements made by management during this call. Please proceed.

Good morning, everyone and thank you for joining us. Following a review of the company's business highlights and financial results, we will open up the call for questions. 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 statements 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. The press release issued earlier today contains a reconciliation of these non-GAAP financial results to the most comparable GAAP measures. Finally, I would like to remind everyone that this call will be recorded and made available for replay on our website at www.netsoltech.com and via link available in today's press release. Now I would like to turn the call over to Najeeb. Najeeb?

Thank you Patti and good morning everyone. Before the market opened today, we issued a press release announcing our results for the fiscal first quarter ended September 30, 2017. And a copy of which is available in the investor relations section of our website. The fiscal first quarter was another productive period in our company development. Actually from an organizational perspective, while our top line results were impacted by the traditional quarterly seasonality and prolonged sales cycles. We continue to make progress executing on our plan to optimize and strengthen our organization. Perhaps most encouraging is that we realized some of the significant cost reductions related to our operation efficiency initiative that we implemented beginning of January this year. In fact, during the first quarter we achieved $2.3 million in cost savings directly tied to these measures with a total anticipated reduction of more than $6 million through fiscal 2018. In the short time since our previous call, I am proud to say that we are already in much leaner and more efficient organization and we look to improve on that aim to quarters ahead. In a minute, I'll come back to discuss our operational highlights and general business outlook in greater detail, but before I do I would like to point out that we announced our full year results, a little over a month ago, so our updates on this call will be tied to our progress since that time and therefore, less extensive than our previous call. I’ll now turn the call over to our CFO, Roger Almond, who will go over our financial performance for the first fiscal quarter. Roger?

Thanks, Najeeb. Turning to our fiscal first quarter 2018 financial results ended September 30, 2017, our total net revenues for the first quarter were $12.8 million, compared to $17.1 million in the prior year period. The decrease in total net revenues was primarily due to a decrease in total net revenues was primarily due to a decrease in license fees at $5.3 million, which was offset by an increase in services revenue of $1.2 million. Total licensees in Q1 were $370,000, a decrease of 94% from $5.7 million in the prior year period. The decrease in total license fees was primarily due to a decrease of license revenue recognized from the 12 country NFS has had contract. Total maintenance fees in Q1 were $3.6 million, compared to $3.7 million in the prior year period. The slight decrease in total maintenance fees was primarily due to select customers who did not renew the maintenance agreement for certain legacy products. We anticipate maintenance fees aggressively increase as we implement our products suite to new customers. Total services revenues for the quarter were $8.9 million, an increase of 16% from $7.7 million in the prior year period. The increase in total services revenue for the new quarter was primarily due to an increase in services revenue, associated with new implementations and change requests. Total cost of revenues was $8 million for the first quarter, a decrease of 10% from $8.9 million in the first quarter 2017. The decrease in costs of revenues was primarily due to a decrease in salaries and consultant costs of $429,000, related to the rightsizing of technical employees in Pakistan, Thailand, China, the U. K. and North America and the decrease in travel costs of $199,000. Gross profit for the first quarter of fiscal 2018 was $4.8million or 37.5% in net revenues, down from $8.2 million or 47.8% in net revenues in the first quarter of fiscal 2017. The decrease in gross profit was primarily due to a $4.3 million decrease in total net revenues, which was offset by $901,000 decrease in cost of revenues for the quarter that I just mentioned. Operating expenses for the first quarter were $5.9 million or 46.3% in net revenues, a decrease of $1.4 million or 19% from $7.3 million or 42.9% in net revenues in the same period last year. The decrease in operating expenses was primarily due to cost reduction in selling and marketing expenses, salaries and wages depreciation and professional services. Now turning to profitability metrics. Our GAAP net loss attributable to NetSol for the first quarter of fiscal 2018 totaled $369,000 or $0.03 per diluted share. This was an improvement from GAAP net loss of $386,000 $0.04 per diluted share in the first quarter of last year. As we mentioned earlier, during fiscal 2017, we implemented a cost reduction plan, as well as, other organizational transformation initiatives and that's what we are bottom line focused as much as we are top line growth driven. As I mentioned on our last call, we currently anticipate returning to get profitability in fiscal year 2018, predicated on the execution of new Ascent deals this fiscal year, which are currently in the negotiation phase with various new and existing customers. Moving to our non-GAAP metrics, our non-GAAP adjusted EBITDA for the first quarter fiscal 2018, a total of $970,000 or $0.09 per diluted share compared with non-GAAP adjusted EBITDA of $1.3 million or $0.12 per diluted share in the first quarter of last year. As we disclosing in our earnings release beginning with the fourth quarter fiscal year 2016, we revised our calculation of adjusted EBITDA to exclude the portion of adjusted EBITDA that is attributable to the non-controlling interest in our subsidiaries. We believe this supplemental disclosure provides additional insights into the two operational performance of our business. Please see the reconciliation schedules containing our earnings release for a revised calculations of adjusted EBITDA for the first quarter ended September 30, 2016 and 2017. Now turning to our balance sheet, at the quarter-end we had cash and cash equivalents of approximately $8.6 million or approximately $0.77 per diluted common share, which was down from $14.2 million or approximately $1.30 for diluted common share at the end of the prior quarter. Turning to our stock repurchase purchase program. On July 18, our board of directors approved a stock purchase program that authorizes repurchases of up to 1 million shares of our common stock through mid December of the calendar year. Our plan is to fund the repurchase of shares with our existing cash balance in cash generated from operations. To date, the company has repurchased 139,275 shares of its common stock at an aggregate value of $601,000. The purchase program reiterates our confidence in the strength in future growth potential of NetSol to our shareholders. And we plan to continue to act opportunistically on this program going forward. One final note, during this quarter, we amended our existing 12 country NFS Ascent contract, securing approximately $9.1 million in future revenues, in addition to what was previously projected for the customer. The revenue will be recognized over the contract term as a support services are performed. That concludes my prepared remarks; I'll now turn the call over to Najeeb, who will provide an update on our sales progress and key initiatives, as well as, the outlook for our respective regions. Najeeb.

Thank you, Roger. As I mentioned earlier the first quarter was not without its share of challenges. Simply put our revenues are down on a year-over-year basis, due specifically to a significant drop in our license fee revenues. As a result, we experience what we are calling a ripple effect down the line in a lot of our financials. But I just want to point out that the reason for the decrease in our license fee figure was clearly tied to how those revenues are able to recognized, and it is not an indication of any lack of execution. In fact our maintenance revenue remained steady and services revenue expect to be up over 15% this quarter. NetSol has faced multiple economic hurdles and elongated sales cycle over the years, but we have survived because of our ability to adapt. We firmly believe the evolution to NFS Ascent from our legacy solutions provides the most meaningful opportunity for us, both now and for several years to come. Our existing customer base presents the most immediate cost effective and logical growth opportunity for Ascent which will ultimately drive gross margin and adjusted EBITDA expansion. And while we are still going through these early growing pinch, we have already made progress on our path towards becoming the faster growing and profitable company for the long haul. To that end as I mentioned in my opening remarks, we were able to significantly reduce our costs, which helps to mitigate the effects of the longer sales cycles we are experiencing. As Roger just pointed out, this quarter we cut our operating expense by almost 20% over fiscal Q1 2017. What's even more impressive is that this was merely a 40% reduction sequentially. As I said earlier, in total we reported cost savings of $2.3 million in this quarter. With these savings tied directly to the recent cost rationalization initiatives, we first began in January 2017 and going forward, we’re still projecting more than $6 million in total savings through fiscal 2018. And although we expect the sales cycle process to remain drawn out in the near term, it’s very encouraging that we are now finally seeing the effect of one of our key initiatives that will help build for the future. Shifting gears, we are continuing to get new business across the finish line, as well as, make significant progress with new and existing customers. So, along that line, I would like to provide an update on our APAC and European markets. Through the end of the fiscal year and now into Q1, we have continued to maintain our leadership position in the Asia Pacific regions. To that end we have a few updates related to our previously announced 12 country NFS Ascent contract. First, given Q1 we implemented the loan origination system and the wholesale financial system as part of the Thailand and Korea portion of the region. Additionally, as part of the same 12 NFS Ascent contract, we expect to deliver the first major release of NFS Ascent to China in December 2017. On top of this as Roger just mentioned, we amended the existing contract to account for approximately $9.1 million in future revenues, in addition to what was previously projected from the customer. The revenue will be recognized over the contract term as the support services are performed. Now moving to additional update in APAC region. Some of you may have seen from our press release that Mizhou Balimore a Japanese bank in Indonesia, went live with the first phase of its NFS Ascent digital solution this quarter. Additionally, signed a billable proof of concept agreement with one of the oldest and largest bank in Australia. We expect to be able to report eventual revenues from this and our other agreements in our coming calls. In total, our pipeline in the APAC region and European regions remains, increasingly robust and is an excess of $100 million for just Ascent alone. Moving to the North American region, we are continuing to pursue large, multi-billion dollar deals and are still devoting significant attention to our penetration efforts within that region itself. As we have said before, the $500 billion leasing market in North America alone. And we will continue to focus on our efforts there to capitalize on that major growth opportunity. I look forward to providing additional updates as they become available. So, looking ahead, we believe the global markets are performing and growing well in both the leasing and finance sectors and developing APAC markets like China and Australia, we are finding stronger leads due primarily to the robust overall growth in those markets. Additionally, the auto and banking sectors are holding strong to keep NetSol quite busy in Asia Pacific, with these a few years to come. In Europe, the markets are turning around, particularly in the U.K. and Germany. As a byproduct of that recovery, we are noticing increasing demand for our Ascent solution as the auto captive and banking sectors are right financial product and services. In North America, the markets are most mature, steady and lucrative of all. As such and due to the increased competition within the leasing space, as well as, the overall size of contracts, we see ourselves in a stronger position beginning in fiscal 2019 and onwards. Getting more general for a moment, as most of you know, over the last few decades, there has been major growth in innovation, particularly centered in the U.S., but elsewhere too. And in just the last few years alone, we have witnessed technological breakthroughs in areas not just limited to big data, cloud solutions, augmented commercial reality, artificial intelligence and rapid digital transformation. In recognition of the current global market environment, we now inhibit NetSol, has started various new initiatives, one of which is a new idea of lab, which will allow us to place more emphasis on R&D initiatives and new areas where we can stay ahead of the technology curve. Finally, as NetSol has evolved over the years to be able to provide next generation solutions. We are looking forward to reaping the rewards for our hard work. Ascent is the future and we are ambitiously and tirelessly working to turn this offering into a global leader. Our overall optimism and confidence stem directly from the robust demand we are seeing across our major markets. In the meantime, we remain a de facto leader in China, and to our impressive number of implementations and very strong loyal customer base. Looking more immediately ahead to fiscal Q2, we are expecting an improvement financially as we move beyond any seasonality affected business periods. While continuing with our cost reduction initiative, we will also be focused on returning our license revenues with more historically representative number. But together we expect improved financial performance through the balance of the fiscal year. On our last call, I said that the NetSol of the future would not be created in a day. I think that message there is repeating. It's only been a month since our last call and right now we are managing those things that are within our control, while working tirelessly to execute on key initiatives. Our ongoing stock repurchase program reflects our continued confidence in the future, future prospects of our business and our cost cutting measures are a clear example of our focus on what is directly within our control. We believe we have laid the necessary foundation for profitable growth over the long run, while making NetSol a much more efficient organization at the same time. Looking ahead, we remain very optimistic about NetSol’s prospects. The goal of our cost reductions, personnel enhancements and productive optimization is to ultimately ensure that we are in a position to capitalize on the significant opportunities ahead of us. We have the potential to transform into a much faster growing and more profitable company, build for many more years to come. But in order to do that, our focus has to be on positioning NetSol effectively capitalize on the significant long-term opportunities in the massive auto finance and global asset finance and leasing industry, while also profitably scaling our business. And with that, I'd like to open the call for questions. Operator?

[Operator Instructions] Our first question comes from Mike Vermut with Newland Capital. Please proceed.

Hi, Najeeb, how are you doing?

Good.

Nice job on the cost side. So, I have a question as revenues now ramp, I guess, quarter-to-quarter going forward. How should we think about the incrementals and profitability? I assume you're going to be holding and possibly implementing additional cost savings. So, how do we look at incremental margins? How should we look at profitability going forward, increasing EBITDA. How should we try to model this?

Sure. First of all, Mike, the company has been programmed to process optimization and to constantly improving our processing system and the way we do business, in terms of getting better cost effectiveness across the company, not just in one place, but all over in different locations, especially in Lahore. So, that process will continue, it’s an ongoing exercise for us, so we want to find where possible efficiencies and much more cost advantages in terms of how we run business across the networks of the community we have worldwide, so this will be a continued effort. On the revenue side, as I mentioned in my prepared remarks, our pipeline is quite robust, we are very active in few leads in APAC that is a good region and now in U.K. Very busy, and Naeem will give you some color, but as these revenues start to come our way and when we sign the agreements and I think you will see. If we can manage these business and let’s say $13 million on a breakeven approximately, that's pretty good, I think message that we have been able to remove some of those legacy in its volumes and we’re supporting the older generation. Now we have next generation system in place. So, I think with this cost line, we are in a much better position to improve gross profit, improve of course operating margin, EBITDA and of course net income. So, it's all a function of as you know the top line at this stage. And we’ll continue to do everything in our power to execute and deliver those top line numbers in the coming quarters. However, as you know, we mentioned again and again that because this is a new generation and the new rather complex, large ready contract, it takes time. I think Naeem will give you a bit more color because he is of course global head of sales. Naeem.

Yeah, hi, Mike, I think the best news is that we have reduced the cost as to where it is that I remember a couple of quarters ago at $17 million, $18 million, we were just breaking even. So, here we are at $12.5 million and we have a very small loss. So, I think this is a good baseline to build from. Some of these contracts have taken a little bit longer, we are very cautious of that because we’ve been working on at least two of them on for a while now. But we are coming to the end of the process. So, I think we’re going to see some results coming through by the end of the year. As more opportunities come from the U.K., Europe as well it is starting to also get very interesting there. So, I think APAC and Europe together is going to give us a very strong end to the year, last two quarters are going to be quite strong.

Thanks. Can you, just round about, not saying that we're going to win these contracts or not win these contracts, there are two, and I know you spoke about them in the last call. Is there a rough number on contract size for those two? Obviously, who knows the probability of winning the contracts, but what's the rough size of these contracts that we're working on. I know we have a pipeline of $100 million. But the ones that are kind of at the forefront, just from modeling, so we can kind of look at what this may – what the company to look like in fiscal 2019 if we win these contracts. What's the potential there?

I can’t give you specific commentary, a couple of our that you mentioned that we said something even though we didn't give names, they are very cautious because we're working under NDA. So, as you reminded us, we cannot discuss their RFPs here. But I can give you like, if I say I have the top five. The top five between Europe and APAC alone would be about that number you mentioned because, a couple of them are multi country projects programs and there is one particular one in – going a little bit down under, that’s quite a significant one. And in Europe we have one kind of the auto captives as kind of an [indiscernible] of the process also. So, I think when you combine the top five, we're looking at something in the region of what we did with Daimler.

So, excellent. And then so, when we say that we’re – this is, I guess, Najeeb or Roger, when we’re breakeven-ish on a cash flow basis at $12.5 million. And we should see, this should be the low point for the year, I would assume this quarter always is our low quarter order for the year, we should see positive cash flow or EBITDA here on out for the year. I'm not asking for guidance, I’m just saying if we follow seasonal patterns, there's nothing in the cost structure that's going to change as our revenue increases, we should see incremental dollars dropping to the bottom line and we should stay positive cash flow from here on out?

You know let me comment, he’s also add, Roger, but the main thing is Mike, when you look at the fixed costs or the direct fixed cost which by releasing so many full time employees that was of the biggest part of the cost reduction and savings. That is down, and so I don't see any increase on that cost line, I mean, nothing major. If anything, we’d like to get more efficiency. But the second thing is because as Naeem mentioned there is, the more effective due to – in the pre-sales. And we’re meeting with customers back and forth. Different customers from APAC and London and all those markets. So, those are the costs that which are – obviously cost of doing business. Now that may go a little bit in the second half perhaps because it is again and next month is a holiday season, so people don’t travel that much or when they take their holidays. But second thing is I believe our second half as we said clearly, looks healthier, but again these are dependent on some of the margin we’re working on, I am confident some of these deals could come through, but company is very focused and trying to generate new revenue and new customers.

Excellent. Now if these hit, I know we're already in the middle of fiscal 2018. If these hit, I assume the major effect will be on fiscal 2019, starting in July?

I think, we expect to have some activity in the second, right, Naeem, I think we’re pretty confident, but again sometime we have to depend more – I think with tall order revenue recognition, Roger, had to jump in, but even if we sign the contract, we have to be careful when we actually bring the revenue in, that's the thing. So, we expect to find some things – some of these deals in the second half. But only Roger would be able to comment on how much revenue to expect from those deals.

Right and then in turn, let’s say contract is signed and we see the implementation and what are the components of the contract. So, but I think to your point Mike, I think if you sign something, let's say in the end of this year or early beginning next year, then you’re probably going to see most of that revenue is going to start hitting like you say probably in fiscal year 2019, some would probably hit in the second half of 2018 with it then rolling into 2019.

Excellent. Okay. And this is the whole point; I was trying to get at. And then if we keep our cost structure, fixed costs relatively in line, we get significant contracts coming in fiscal 2019, you start to have significant incremental margins flowing to us, I assume. There's nothing incremental and we should see, that’s what I’m trying to get at, we should see on these new contracts is it 55%, 60% types margin similar to what we've had in the past?

Absolutely. I think we said, there like to that in older days of gross margins and I think revenue and that’s the function of license revenue and the new services income. If we went into the same cost, which we will, strive to do that. I'm pretty confident, Mike, that if now stop buying the growth. And focus on that and when that start to happen then I think we will be potentially, margins improved all level, top to bottom.

Excellent. Okay, it seems like this is the bottom here. So, I also stress that the buyback is excellent and this is I guess a question for you. The intention would be at $3 to buy back as much as we can while it’s here?

Well, we like to. Absolutely.

Okay. I know there was a very small window over the last time, you can take advantage of it, but the window is open for the next month or so, Roger?

Yeah, we’ll have a couple of days, like 48 hours and we can go to December 16.

Excellent. Okay, thanks guys. Good luck on closing these new deals.

Thank you.

Our next question comes from Timothy Stabosz, private investor. Please proceed.

Good morning gentlemen, I believe I'm one of the company's top five shareholders. The cost reductions and maintaining a narrow loss for the quarter was very heartening, I want to say. Is that a change in the estimate of cost savings, did that number go up or was that $6 million, that's unchanged from where we were at last quarter.

Yeah, I think that, the good thing is that when we ended the quarter things were happening as we implemented all the changes pretty much through June 30. And I just said earlier we are continuing these new efforts across the company. And because now that we are getting more active in that, I’m hoping to see some new deals in the sense that means we’re just focusing on Ascent and that is the future. So, I don't think we have to do with all the legacy system supporting that much, so that would give us a little more for the jumpstart. And I think the improvement on these total numbers, the fact that we have $2.3 million savings in Q1, I believe, we just kind of did our own forecasting that we could probably hit $6 million or maybe better for the whole year.

Okay. Now I also find the buyback very heartening and I want to thank you for your expression of faith in the future the company because it has been difficult here financially obviously the last few quarters. As far as the buyback goes, you brought back 100,000 shares roughly of stock in August and then that window closed, which was almost 1% of the flow, at a (450) average as disclosed in your financial filings. Stocks down at a low 3's here, it sounded like the previous questioner that you like the stock in the low 3’s, my question Najeeb is simply this we've bought back 140,000 shares, there's another 850,000 plus in the buyback. And yet it expires at six weeks, five weeks from now, which might be confusing to the Street. Can you explain is the stock still attractive opportunistically, where that price is. Can you institute, will you reinstitute that plan as of the first of the year or why is that like terminating in five weeks?

Yeah, I think maybe it’s something to do with the company’s governance that we chose six months and that doesn't mean that once the period expires, that we cannot, to your question, we could come back and get back to board and renew further six months. And right now what we’re doing is because there if you look at our balance sheet, there is significant achievables and we need to get a lot more money in the system, so that we can – and easily resume the buy back and that's really the plan is. And if once this period is over than we believe we could go back to board for another six months.

Okay. And then finally, yeah, sorry.

I mean, you’re right, I was trying to [indiscernible] that is, practically in and ourselves and my family and a lot of my colleagues everybody attempted, but of course with the company we have to manage our cash in a way that, operations comes first and then if we have surplus cash then we allocate that amount to further buying.

Okay, thank you. And then finally, Najeeb do you still view the company or do you view the company we've had lumpiness, I guess, is the way to describe the company. One of my attractions is I think there's an incredible value-added proposition to NFS Ascent and the company, it's not being recognized in the stock price. And that one day we'll see the holy grail of earning respectable returns on our investment, I believe that's going to come eventually that’s why I'm here. Do you still view the company or do you view the company as a long term double digit grower in essence?

Absolutely, absolutely without a shadow of doubt. Look, we – Naeem we were the founders and 20 years has past, we have always bought share and you never see fail, the reason is we’re building this company as a institution because one, there is a global opportunity for our business, and, I mean, Naeem will give you what the competitive landscape is? How many other companies, who have this kind of solutions, I mean, these are the everyday, worldwide. So, I think we are very confident and optimistic about the future of this company. It is embarrassing the stock given to you all are at $3.50 and is absolutely. And I think probably –

Thank you for that comment.

We have not announced major deals in last 18 months or so, and you know the reasons, it is a longer cycle, bigger value, longer cycles in multi-countries and new customers, all those things have been done. All we need is one or two large customers and that does it all. And if you go back, the graph to 2015 December, when we announced the big contract, of course, market responded very well. I think it almost doubled in the few hours and came back whatever $7, $8. So, I’m pretty confident, I think Naeem, will give you some more color about what he thinks about the product and what the customer feels.

I was just going to add to Najeeb was saying in terms of the valuation of the company. It’s just very strange really when we look at some of the other competitors. I think what we are looking at is, okay, maybe the story is not as well understood, but really we have very specialist vendor in the financial services space and it's a very complex space. It's very well – it’s not well understood, not many companies can do what we do. And that's why one of our competitor is getting a huge premium. I don't know what the reason is for the discount that we get on our price. But certainly I think some more business will help. And as the new product actually has been very painful journey for the last three years to take the product to market and that we always knew it was going to be tough. But you know for new product, to assign those kind of contracts that we have and what is in the pipeline, I think the real story will start to come out. And then we won't have to say anything, it's just the market will decide, once it sees the code of business we’re going to be singing. So, I think we've been working very hard and we persevered get to this point. But we're not looking at years now, we're looking at a few months before the real story of this new product comes out into the market.

Okay. Thank you both or everyone.

Welcome.

[Operator Instructions] Our next question comes from David Cagent, private investor. Please proceed.

Mr. Ghauri, I'm an investor in the company and well, I have no objection for you obtaining stock options and stock warrants. But I honestly think that they should be either projected further out when the company is making money and everybody is making money, rather than just adding stock to your portfolio and other people's portfolio and subtracting that from shareholder equity. As I said, you and your brothers deserve options and warrants. But there should be a proviso that you make money for the shareholders also. And I applaud you and the organization for cutting down on expenses in this past quarter. I just like to know your reaction to my question? And what you do anything to alleviate that problem in my mind?

Well, I appreciate your question. First of all, these options were granted almost three years ago, we’re creating another options. And we have been done exercise them, so right now they’re under the water. Certainly if you will notice the last, this quarters or last three quarters, the board has not and nor we have gone to board and then we have a plan to reach in the near future to add plenty more options or more grants. So, all these are spoken for last two, three years and some of them are – we’re going to employ, they’re really performing well and they’re coming across the board in some key locations. So, I understand what you're saying, we’re also very conscious of the dilution effect. And you will see a noticeable difference in our share grant declining. And you will see the number of shares issued in six months is a lot less than a year before. See, we are in a new – next generation technology platform here and there's a lot of people in the company who work extremely hard and they don't get paid as they will get paid unless they will work for a Microsoft or other bigger companies. But the incentive wise we give stock option or even some shares. So we can hold them and then give people own share that you know, they have more interest. And we have people who are working 18 hours, 20 hours to deliver and to pre-sales and help company bringing the new customer to the table. So, I think, these are all investment we are making. And it dilutes, ask here just yourself, we are largest group of shareholders as a family. But I take your point, we see [indiscernible] and we are very conscious and you will notice that from the number of shares we issued in the last two quarters.

Mr. Ghauri, what bothers me is that you give the shares out and some of these people are just throwing it right into the market. And that doesn't help us anywhere as far as stock appreciation goes. They get these free shares and they just throw them into the market and that will you’re your price down also.

You know, what I don't know if you have been reading the Qs and the Ks, which shares are you referring to, because insiders are not selling shares. Instead they’re buying shares. What shares are you referring to there?

How about when you have some vested shares that some of the executive officers. All of those shares that you've been giving out should be, all those shares that you’re giving out, they should be big shareholders by now. They should be closing in on a couple of the individual who just previously talked. But they're not, they remain at status quo. Their number as their vested shares begin to go out into the market and they throw it out at any price because it's free.

Patti, can you jump in and just explain it to the gentlemen, what if insiders have been selling any shares, which shares is he referring to, could you please shed some light on this. Patti or Roger? We don't know any insider. And I'm saying that in public forum and this is recorded that it’s selling. We don’t know anyone, whether the employees, of course, you can see the officers, Naeem is a board member, I’m an office, my lawyer is in the call and they never [indiscernible]. And so we don't know, of course, there is no retail investors. And the volume is low for quite some time and you won’t see large volume. When we were buying shares, buyback, then of course they were some volume increasing. So, I don't know where you’re getting the information that anyone is selling within the company or in [indiscernible] we have no knowledge of that.

There have been no filings, nobody has filed us at anything.

Thank you. We have follow-up question from Mike Vermut with Newland Capital. Please proceed.

Hi, guys, just a quick question, a follow-up here. Can you I'm trying to understand what the competitive landscape really. What's going on here? Not naming obviously customers or how the contracts are proceeding. Can you give us an insight as to the feedback from the potential customers? How the competitive landscape is stacking up to us here with Ascent being launched and I guess, the confidence we have in winning a lot of these deals. What you’re seeing on the ground. How we're stacking up to the competition on the pricing, on the functionality. It's hard for us to tell you what's going on outside of NetSol and just what you're seeing out there when you're going up for some of these large contracts?

Yeah, I’ll answer that. So, Mike, the product really is now becoming the leading product in the market, so I think to give you some perspective. So, lot of these large or captive and some of these very large asset finance companies or backs, when they put a tender up, which is what we call an RFP. Typically, there's about three or four vendors that's all there is. So, there’s a $20 million, $30 million project out there. There will be three or four companies they send it to. And there has not been major RFP that we have not been involved in the, at least, last 1.5 year. So, that tells you that how few vendors are there. So, out of those four, we are dominant in APAC, so literally we make the sharpest down to 2 in most of them because of our kind of footprint in the APAC. And the order captive sweet spot that we have, so literally we are market leading. And the next generation, so we were already market leading in the previous generation. But this is a game-changer. Look it's very hard to sort of over-emphasize this, but really the richness in the demand that we have and the people that we have, who have worked with us for so many years, we have really created a blueprint for making an enterprise really cost efficient and a lot of automation and digitalization. We’re going heavily into digital solutions, now it’s going beyond our current generation, in fact we’re already embarking on the digital front in a big way. A lot of our companies want to have – clients want to have paperless offices and so on. So, we really, now at the cutting edge of where the product should be and where we are in the marketplace. So, these results will – had come out because the scrutiny that we go through is just pretty mind boggling because they’re spending more money now. So, typically a project would have been $5 million in the past and the process would be pretty quick, six months to nine months, you have a deal. But now when they’re spending $25 million, $30 million, $50 million, $60 million, they put you through the hoops like we've not experienced in the past and we’re getting better at this. So that's what who we’re up against, anybody investing that kind of money is going to do a high degree of due diligence on the product before they actually sign the contract.

Excellent. So, my next question would be the contracts are larger, more complex, I guess, the. customer's want, their vendors to have larger balance sheets whatnot. Are we going to see consolidation in our, I guess, our sector. Does it make sense that there are five large vendors out there? Or are we going to see NetSol combining with number three out there? And are you going to start to see over the next year or two, real consolidation? Or is that something that you would want to see? Yeah especially, it's hard for us to do it when we're at $3. This is crazy valuation, but down the road will there be consolidation out there to take out some of the competitiveness and build the strength of the company?

Yeah, the weaker companies probably, I mean the weaker companies in products. The companies who are not delivering, who are not able to complete projects and they don't have the product for the next generation, certainly are targets. But we are actually on the opposite end. So, we’re not looking at doing any M&A, but certainly at some point, something that does not overlap, we will look at it. But you know four companies is not that big for the space that we’re in. This is a multi-billion dollar space, I think four to five companies are too few. So, consolidation is possible, but how many – I mean you've got to service a large market in a very specialized segment, you're going to need a few vendors. Because I don't think any one vendor is able to service the entire market or even two. You probably need three or four good vendors out there. If you look at some of the reports that are out there, Mike, this is a $1 billion a year serviceable market. It requires $1 billion worth of products and services a year and there is only four or five companies, that's it. So, a lot of these projects are not even coming to the market and they – a lot of time they turn into their own IT because they – some of these companies has not delivered. And so, I think consolidation is possible, but I don't know who buys who, that you can only guess.

Right. Excellent. Okay, I appreciate it. Thank you and good luck over the next couple of months on landing some of these.

Thank you.

Thank you.

At this time, this concludes our question-and-answer session. If your question was not addressed during the Q&A, please contact NetSol’s investor relations team by emailing them at ntwk@liolios.com or by calling them at 949-574-3860. I would now like to turn the call back over to Mr. Ghauri for his closing remarks.

Thank you for joining us today. I especially want to thank our investors for their continued support. Our customers for trust and belief in our product and our services and of course, our dedicated employees for their ongoing contribution. We look forward to updating you on our next call. Thank you and goodbye.

Thank you for joining us today for NetSol’s fiscal first quarter earnings call. You may now disconnect.