Good morning. Welcome to NetSol Technologies Second Quarter 2023 Earnings Conference Call. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; and Patti McGlasson, General Counsel. Please note, this call is being recorded. 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 the 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 the call for questions. I'll now provide the necessary cautions regarding the forward-looking statements made by management during this call. Please note that all 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 and 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 our annual report on Form 10-K and quarterly reports on Form 10-Q. I would also like to point out that we 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 at www.netsoltech.com and via link available in today's press release. Now I'd like to turn the call over to Najeeb. Najeeb?

Thank you, Patti, and good morning, everyone. We've made a lot of strategic progress this quarter, which I look forward to sharing with you. That said, our second quarter financial results were not where we wanted them to be. There were various reasons for this, some within our control and some outside of our control. First, it's important to understand that in the second quarter last year, we had $3.5 million in onetime revenue due to onetime cumulative catch-up on a large contract, which impacted our comparisons. Second, approximately $2 million in revenue that we expected to realize in the quarter was delayed, and we expect to realize it in the third fiscal quarter. With this lower revenue, our margin and profitability were below our expectations. As such, we have reexamined our cost structure to not only better align it with today's revenue, but also reprioritize our capital allocation to the most attractive parts of our business with the greatest opportunity to drive sustained growth in revenue and profitability. We expect to at least $4 million in cost cut of the business by the end of the fiscal year. In short, we will be more focused company better positioned to achieve a return to positive cash flow for our shareholders. Before we get into the details of the quarter, let's keep a few things in mind. Number one, we have a hard fought market-leading position in Asia, a growing market share in Europe and a unique opportunity to grow in the U.S. Number two, the higher margin recurring revenue portion of our business is doing well, and there's opportunity for it to do better. And three, we are at the front end of some of the most innovative technology for our clients. For example, we were ahead of the curve…

Thanks, Najeeb. Turning to our fiscal second quarter 2023 financial results for the period ended December 31, 2022, our total net revenues for the second quarter of fiscal 2023 were $12.4 million compared with $15.5 million in the prior year period. On a constant currency basis, net revenues were $14.6 million. License fees were $15,900 compared with $1.9 million in the prior year period and were $16,200 on a constant currency basis. Recurring revenue or subscription and support revenues were $6.5 million compared with $9.4 million in the prior year period. The decrease in total subscription and support revenues for the second quarter of 2023 was primarily due to the recording of approximately $3.5 million as a onetime cumulative catch-up in the second quarter of 2022 due to our amendment to our 10-year contract with Daimler Financial Services. On a normalized basis, excluding the onetime cumulative catch-up in the same quarter of last year, we actually saw an increase in our total subscription and support revenue for the quarter on both a GAAP and a constant currency basis. Total services revenues were $5.9 million compared with $4.1 million in the prior year period. On a constant currency basis, total services revenues were $6.9 million. Services revenues derived from services provided to both current customers as well as services provided to new customers as part of the implementation process. Total cost of revenues was $9.3 million for the second quarter, an increase of $1.4 million from the second quarter of fiscal year 2022. On a constant currency basis, total cost of revenues was $11.3 million. Gross profit for the second quarter of fiscal 2023 was $3.1 million or 25.4% of net revenues compared to $7.6 million or 49.4% of net revenues in the second quarter of fiscal 2022. On a constant…

Thank you, Roger. As I mentioned earlier, we are implementing cost reduction initiatives that we believe will drive efficiency and better align our resources. We expect that our efficiency measures will at least -- will add at least $4 million in EBITDA in the next fiscal year and accelerate our bet to return to profitability. Perhaps the most exciting component in our growth strategy right now is our expansion into the North American market. This market represents a robust growth opportunity for our business, particularly as we exit the coronavirus pandemic, which created accelerated demand for modernization and digitization in the industry. Specifically, we are seeing demand related to customers that required a digital entry point to their financial services provider and employees who are certainly shifted to remote work and acquired the ability to digitally provide financial services to customers. As a result, our core customers, financial institutions, automotive and equipment OEMs and automotive dealers realize that their IT infrastructure needed to adapt to these changes and our products are ideally suited to meet their needs. Moreover, the increased demand for cloud-based services has positioned our NETSOL Cloud Services division to capture increased market share as we support both new and existing customers in modernizing their IT infrastructures. To that end, Otoz offerings continue to see excellent traction in the United States, which illustrates the power of NetSol's commitment to innovation. Since last quarter, Otoz has expanded its U.S. presence to include 37 dealers across the 16 states, showcasing the healthy and growing demand for SaaS and AI-based platform in this region. Additionally, in the second quarter of fiscal 2023, we entered into a new multimillion dollar agreement with a Tier 1 automotive company in the United States, which will implement and license our Otoz Mobility Solution to manage…

[Operator Instructions]. Our first question comes from the line of Todd Felte from AGES Financial Services.

A few times during the call, you referred to your market-leading position in Europe. I was wondering if you could give us kind of an estimate of your percentage of market share in Europe, Asia Pacific region and the North America.

Okay. Thank you for asking this question, Todd. As you know, this market is very fragmented in all the 3 regions. And it's very difficult to -- there's no, I think, any kind of monitoring or engaged to see what exactly is the market position. Nevertheless, the way we look at it, we've been in Europe since 2005 with office in Horsham [indiscernible] we have a sizable team there. We've been securing new contracts like the one we announced recently bought a Scandinavian bank. This is a new account, and there are many other progress in this area. I believe in Europe, we are growing our market share because we can see the number of companies operating as a competitor, and we have been invited in most of all the opportunities in RFPs, and we are participating in a lot of different new bids in the European market. APAC, in China, we are the leading company, still maintaining our leadership position. The way you look at it in the OEM, multinationals and leasing finance companies, according to CBRC, which is a regulatory authority in Beijing, China, we have been the leading company with a number of contracts we have. So by far, we are in a very strong position in China. Overall, in APAC, we still believe we're still in a leading position. Again, it's very hard to say what the percentage is but we can -- our position in Japan, in China, in Australia, in New Zealand and other markets in the APAC is very strong. So we're pretty comfortable. And as I mentioned in my comments, that our China market will continue to ramp up exactly because we have added a new vertical in -- to cater to the local Chinese market, which we call it professional services.…

Okay. I mean when I look at the 30,000-foot view, I see that we've hired on over 500 employees in the last few quarters. Our revenue has decreased last few quarters. But our sales pipeline has gone, I remember, it was under $200 million. Now we're at $250 million. So when we do finally have this breakthrough, do you expect the revenues to jump from $12 million? Are we going to start having $20 million, $25 million quarters, given that our pipeline is $250 million? And it's -- when can we see this occur, it's just a little frustrating that salaries and consultant expenses have now grown to over 50% of revenue. So we've got all these new employees on, and we're kind of hoping that the dam breaks, so to speak, and we see this jump in revenues. And I was hoping you could kind of add some color to that.

Todd, I really understand your frustration. And I think I recognize not just you, but all the investors, they really to me that they should see the real results and you could have an impressive ROI eventually at some point. The color on the hiring of the people, I think I'll give you 3 categories. And look, in the COVID period, things were really tough. You know the story. Everybody was going to the same thing. And now we are way over a year beyond the COVID pandemic. And what we have done is, there are 3 key areas that we added as a new additional verticals to grow revenue. We don't want to depend completely on the flagship Ascent. It is a long field cycle. You want to go into some more digital mobility platform, where you have more sales opportunities, more higher sales volumes. Now, AWS is one area. We hired almost, what, 75 or 80 people in the last 9 months. And we're investing them in their certification and the training and there's doors opening up. And that's brand-new investment within like 6 or 9 months. And so we hope to see some results and there's a lot of activity going on. Second area is the professional services. China is the key right now where we really invested in. We've never invested so much in the local Chinese sales force or team specialized in the professional services. What it does is that -- this is a time, I believe, to invest in growing the business in different verticals, which is linked to FinTechs and our core business. So China is another place we're investing. And of course, in the U.S., we will continue to bring people from across our company globally and hire local. You can imagine…

Okay. If I was trying to model this out, given the $250 million backlog, given the long sales cycle and also given all the exciting opportunities you just discussed, I mean a year from now, are we hoping to be doing $20 million to $25 million in revenue a quarter? Or is that too optimistic? Or is the growth going to be...

It's not too optimistic. You're right on the money, it's not too optimistic. It is actually our own wish and goals to achieve those double the numbers. And I think when we talk about these high pipeline, look, I'm sure you're familiar -- I don't know how much you understand how long the field cycle in our kind of business. We're not all the shell company which has ready to make these customers spend days, weeks, months and narrowing shortlisting from 10 to 5 to 3 to now 2. I'm giving just a generic example. And now some of them want to visit Lahore, which is where you could sign. One of these deals or 2 of these deals in the next 6 months can hit the number that you're talking about, I'm pretty confident. One way to look at is our current revenue is pretty stable. Because this quarter, you didn't see any growth, and we obviously could not recognize at least $2 million in the Q2 because the timeline but the deal was signed and this is based in Australia and I think we can recognize that in the Q3. But the real excitement is the big deal we are working day and night. I mean Patti follows through with these customers and go through all these detailed legal agreements. So that means that across the globe. U.S. people sitting in Lahore or doing the calls day and night with these customers, 30, 40 at a time from other side and our side. So it is a very, very active office in Lahore right now. I'm here, and I can see that. So -- and then we need some good luck also. But we excite you, we're not missing any opportunity. And we not -- we like to turn the corner. I mean we know we have disappointed the market. I admit that. But sometimes you don't have a lot of control and you do your best and you think you're going to make it and then it's going to get delayed or something called to happen. So we are very confident, we will have some new contracts in the coming months that will change our numbers dramatically.

Okay. Well, that's great to hear on the potential upcoming revenue growth. I hope you keep us all informed and announce some of these contracts and revenue as they come in, and I'll get off the call. I've taken enough of your time and I thank you for answering the questions.

You are always welcome, Todd. Thank you and have a good day.

[Operator Instructions]. Our next question comes from the line of [indiscernible].

First one, could you just provide a little more insight concerning the timing of the implementation of the $4 million in cost reductions? Will this be immediate or implemented over the balance of the year?

We have started the process a few weeks ago and it really work in progress with our HR and our -- each head of departments have their been giving the targets to implement these across their division or the department and the companies. So I think the timeline is you'll see some value -- tangible value if not in the third in the fourth quarter by the time you have some severances and timeline, all that happened. But the real, I think, benefit will be in the fiscal 2024, beginning of 24, which is about 2 quarters from now.

Got it. Okay. And then just to make sure I'm understanding. So will the efficiency measures impact your strategic investment in the U.S.? Or are they mostly focused on other parts of your business?

No. U.S. is the one we're investing actually. We are very lean, both in my U.S. operation in North NTA, North America, and our corporate team is very lean. Actually, we're also downsizing our U.S. corporate offices to a bit more leaner instead of investing in the business side of it. Now we will be investing in people, in infrastructure, travel back and forth. So that is really I see and everybody knows and my team and the board. This is where the big opportunity in the U.S. market. And I'm very, very bullish in the U.S. simply because I know what is happening in Europe, this struggling a lot more than U.S. U.S. has the ability to control the inflation, they can control inflation in the European market. China is a bit better, but other parts of APAC are already struggling. Despite of that, I believe the U.S. is the only place we feel it is the market for us, and we'll put all our best talent, more energy and financial investment to get some penetration in this market and see on real results that we've been working for many, many years. The U.S. will continue to be investing and nothing will reflect in the U.S. as the investment continue.

Okay. Great. And then just my last question. So you mentioned AI and machine learning in your offerings. Just wondering if you could provide a little more color around how this technology is implemented into your solutions.

Well, AI is very popular worldwide, as you know, in our business, customers are benefiting from our different modules. So we implemented AI in machine learning into offerings on a case-by-case basis, depending on the need of the customers. Our algorithm is capable of identifying risk on application during the valuation process for lease or loan. And to that end, we are able to train our people and specific data provided by the bank or financing companies and so forth. So I think there's lots going on in this new tool that is becoming one of the hottest tool right now in all the developing and technology sector. So I am confident that AI will be a leading force in many, many ways to help our customers build into the product and make the product more quick and efficient. And of course, is what it's supposed to do is to create a different model altogether in this company. So customers are going to benefit very aggressively because we are in it. We've hired some couple of MIT PhDs, and we brought them to our facility in Lahore, and they're playing a big part in building this for our customer basis. So it's a very good thing happening for the company.

Thank you. At this time, this concludes our question-and-answer session. If your question was not addressed during the Q&A session, please contact NETSOL's Investor Relations team by e-mailing them at investors@netsoltech.com or by calling them at 949-574-3860. I did 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 loyal customers and our most dedicated employees for their ongoing contributions. We look forward to updating you on our next call. Operator?

Thank you for joining us today for NETSOL's Fiscal Second Quarter 2023 Earnings Call. You may now disconnect your lines.