Good morning, and welcome to NetSol Technologies Second Quarter 2024 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; and Naeem Ghauri, President and Founder. 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 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 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 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 their 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. Like we began the fiscal year, our second quarter of fiscal 2024 was characterized by increases in total revenue, improved gross margins and profitability, which demonstrates both the strength of our business model and our ability to execute on our growth strategy. Revenue grew once again in the quarter, driven by solid performance across our business. As we continue to scale our SaaS business, our hybrid license and SaaS model has become a strong catalyst for our growth in both this quarter and throughout the fiscal 2024. We recognized substantial license fees of $3 million in this quarter as part of a new large contract in Asia with a major automotive company. We are thrilled. We have distinguished ourselves from a highly competitive pool of candidates to win this contract, which we expect to officially announce in the coming weeks. Our selection reflects both our visibility and recognition in the market as well as the superior performance and reliability of our products that is required by major companies operating on a global scale. License fees are a key part of our business, and we expect them to continue to represent a significant portion of our revenue for the foreseeable future. That said, license revenues can be a bit lumpy, and a major focus for us is to continue to build on an already robust pipeline of potential licensing and SaaS opportunities to deliver more consistent results over the long term. We achieved growth in our recurring subscription and support revenues in the quarter. At the heart of our SaaS business are products like the Otoz digital retail platform and our API-first marketplace, Appex Now. We are committed to the continuous innovation and improvement of these and additional SaaS offerings to meet the diverse…

Thanks, Najeeb. Our total net revenues for the second quarter of fiscal 2024 were $15.2 million compared with $12.4 million in the prior-year period. On a constant currency basis, total net revenues were $15.3 million. For the six months ended December 31, 2023, total net revenues were $29.5 million compared to $25.1 million in the prior-year period. On a constant currency basis, total net revenues were $29.6 million. License fees for the quarter ended fiscal 2024 were $3 million compared with $16,000 in the prior-year period. License fees on a constant currency basis were $3.1 million. In the first six months of fiscal 2024, license fees were $4.3 million compared with $266,000 in the prior-year period and the same on a constant currency basis. Recurring revenues or subscription and support revenues for the second quarter of fiscal 2024 were $6.8 million compared with $6.5 million in the prior-year period and the same on a constant currency basis. Recurring revenues for the first six months of fiscal 2024 were $13.3 million compared to $12.5 million in the prior-year period and the same on a constant currency basis. Total services revenue for the second quarter of fiscal 2024 were $5.4 million compared to $5.9 million in the prior-year period and the same on a constant currency basis. Total services revenues for the first six months of fiscal 2024 were $11.9 million compared to $12.3 million in the prior-year period and the same on a constant currency basis. Total cost of revenues were $8.1 million for the second quarter of fiscal 2024 compared to $9.2 million in the second quarter fiscal year 2023. On a constant currency basis, total cost of revenues was $9.4 million. Gross profit for the second quarter of fiscal 2024 was $7.2 million or 47% of net revenues compared…

Thank you, Roger. This was an excellent quarter for NetSol. We're excited by our progress and are very optimistic for the journey ahead. We believe that we are well positioned on a path towards growth and sustainable profitability, and we look forward to driving value for our shareholders as we continue to execute on our growth strategy in the later half of 2024. With that, I'd like now to turn the call over to operator for questions. Operator? Is she there? Roger? [Technical Difficulty]

Ladies and gentlemen, I apologize for the inconvenience. Please stand by. We will resume momentarily. Ladies and gentlemen, once again, we thank you for your patience. We will now be conducting our question-and-answer session. [Operator Instructions] Our first question is coming from the line of [indiscernible]. Please proceed with your question.

Hey, guys. Thanks for taking the question. You mentioned integrating deep learning AI algorithms into your technology. Could you elaborate a little more on those algorithms and how you're kind of leveraging that AI to enhance your product offerings?

Thank you for that question. Naeem, would you want to jump in?

Yeah. Sure, Najeeb. So, what we do is that we have access to a lot of data, and we actually build, if you like, a warehouse of metadata, and then we run our algorithms based on that data that's coming from thousands of dealers, and our installations are across the globe coming from different markets. So, what we are able to determine are behavior and trends and patterns on, for example, what type of products are sold in one market as opposed to another, credit risk, credit underwriting, residual values on cars, how they're moving. So that data is really a treasure trove in terms of -- if you like, we run about $300 billion worth of assets on our portfolios across the globe. So, you can imagine the amount of data that we get. And on that data, we can build large language models, which is -- primarily can be used for generative AI, and then that is how we actually build our algorithms based on data that can generate a two-way conversation with any consumer going directly on our platforms, as well as our dealers who are accessing systems are able to understand somebody's credit risk pretty quickly based on how that data presents itself. So really, we are at the -- literally the tip of the iceberg, if you like, in terms of exploiting and manipulating that data to just add so much more value into our tech stack. And going forward, you will be hearing a lot more about more specialized modules and more discrete modules that we can deploy just for AI based on the amount of data we have and how much information we have on behavioral patterns to credit risk and, in fact, down to even what type of cars are being sold, down to what color, which markets. So, really it's a very exciting time for us in terms of getting into the AI, if you like, generation and iteration to now building more use cases out of the data that we have. Hopefully, that answers your question.

Absolutely. Yes, understood. Thank you. That's all for me.

Thank you.

Thank you. [Operator Instructions] Our next question is coming from the line of Todd Felte with AGES Financial. Please proceed with your question.

Hey, guys. Congratulations on a great quarter there. Nice to see the improvement. Just had a few quick questions here. On the deals with MINI Cooper and AutoNation, I think, if I remember correctly, we're in 50 or 60 dealerships now. Can you quantify as to how much revenue that produces on a yearly basis for you guys?

Yes. Thank you for this question, Todd. Both Roger and Naeem may help, but this is almost 60-plus dealerships that we have onboarded so far. Roger, you have specific numbers, right, for the annual revenue?

Yes. Currently, we have, as Najeeb said, 60 dealers, and it brings in about $100,000 a year with the 60 dealers, so that's...

No, $100,000 a month.

Sorry, $100,000 a month, which is $1.2 million a year currently with the 60 dealers.

Okay. That's great to hear. And on the AutoNation, I know you're growing really fast there. How much revenue is AutoNation contributing now? And what would you project for the current fiscal year?

Naeem, you want to jump in? Naeem is a champion of AutoNation and mobility products. Go ahead, Naeem, please.

I can pick that up. So Todd, this is a different use case to many. For many, we are doing digital retail. For AutoNation, we're doing subscription. And what they've done is that they have launched the subscription product, we did a soft launch. But in terms of the revenue, we have generated already just over $1 million in terms of implementation and just tailoring the platform for their use case. Going forward, we believe if they hit the targets, this could be big or as big, at least, if not bigger than what we're doing with MINI, subject to them hitting targets, because the subscription is based on certain tiers. If they hit those tiers in terms of usage, then the revenue starts to grow. So, it's an exciting model because it's a win-win. If they grow, when they grow, we grow with them. And it could -- there's no upper limit or ceiling to where the revenue can grow if they do grow the product with the right marketing and planning.

Okay. That's great to hear. And I assume that since it's set up, the margins on that AutoNation business, now that everything is set up, are extremely high for you?

I'm sorry, what's the question? It's all set up, yes.

Yes. So, the margins should be very high on that AutoNation as it continues to grow?

Well, what happens is that there is a setup cost, which the client pays for. And our product is deployed on the cloud, and it's very, very scalable. So, it's like we could grow the Otoz's revenue by fivefold, 5x, without having a major impact on cost. So, really, it's the adoption. The faster or bigger the adoption, the better the margins, because we do have a fixed amount of cost to run the platform, and we are already in profit in terms of what we bring from MINI and AutoNation. So, we're already in the black. However, as they scale and they grow and we get additional customers, so we have a pipeline of new customers we are bidding for. And as that happens, with scale, the profit margins would grow quite rapidly.

That's great to hear. I know your license agreement can be lumpy, and I know that currency exchanges or the currency gains and losses can affect your net income. But have you all reached the point yet where you're able to project positive operating income every quarter going forward? Or are you comfortable thinking that will happen?

I'll just give my take, then I'll leave it up to you.

Go ahead, Naeem.

My take, Todd, is that, ultimately, the future for us is SaaS, but we are operating on a hybrid model where license is still very attractive. And although it's lumpy, good news is that from where we were three, four years ago, we're depending completely on license, now we are offsetting a large portion of our revenue within ARR, which is annual recurring revenue, as opposed to the lumpy license revenue. So, even if we don't get a big license revenue or, if you like, a win, we continue to grow our SaaS revenue at a decent pace so that, at some point, we'll have a tipping point where we will get to a position where even without any license income, we are profitable as a company.

Also, let me add one more point, Todd, to Naeem. The beauty of our model is that, like Naeem said, it's a hybrid model. We do have a pretty good demand for our flagship Ascent in all three markets. Yes, it's a much longer sales cycle, then it goes through a lot of, I think, iteration. But combination is amazing with the license revenue and then, of course, with the SaaS, which is a growing trajectory for us. So all in all, I believe we are in a good position. If you look at the competitor, I think really, you see a company which has such an amazing history for license sales in all these 25 years. Now, we're managing both sides quite well effectively, and we believe, eventually, as I said in my prepared remarks, the growth is quite positive coming quarters and hopefully will continue in the following year. So I think overall, the higher revenue, whether it's license or, of course, SaaS, it just affects all the way to the gross margin and net income. And company has done a good job to be more efficient and a bit more leaner. That will impact all our metrics in the coming quarters.

That's great. And that tipping point that Naeem spoke about where you won't even need licensing agreements to achieve an operating profit, would you expect that to happen this year or next year? Or is there any sort of...

I believe next year is more probably because we're still building the sales trajectory here. So, I think, Naeem, next year is a better way to look at it, but to your question, specifically on the margins.

Look, I think in terms of when that tipping point is, I don't think we could predict that, but I think it's imminent. If you see a growth and if you see how subscription revenue has grown from single-digit millions to where we are in a relatively short time, I think we're reaching that point very soon. I don't -- I can't put a, if you like, a flag on exactly which quarter or which month, but I think we're not far off.

Okay. That's great to hear. And then my final question is, I know in the past, you've had several share buybacks going. You look at the stock now. I think we're right around $3 a share in book value, and we're doing over $5 a share in sales. Do you have any share buybacks going on now? Or do you plan to announce any in the near future?

Well, at this stage, we don't have any plan immediately in the short run, simply because, as I mentioned, we are investing in key markets, whether it's North America and some other regions, and there's a lot of activities in the new business opportunities, some new markets also, which we'll share with the market in the appropriate time. So obviously, we have done buybacks a few times in the past. And you're right, it is a very attractive price to do that, but we are very open about it, but we have not made the decision at this point.

Okay. Well, I really appreciate you all taking my questions and congratulations on a fantastic quarter.

Thank you, Todd.

Thank you. We have reached the end of our question-and-answer session. So, I'd like to pass the floor back to management for any additional closing remarks.

Thank you for joining us today, and I do apologize for this little glitch in the beginning of the Q&A. I especially want to thank all of our investors for their continued support, our loyal customers and our most dedicated employees worldwide for their ongoing contributions. And we look forward to updating you on our next call. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.