Good afternoon. Welcome to the NETSOL Technologies Fiscal Second Quarter 2022 Earnings Conference Call.

On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; Patti McGlasson, General Counsel and Senior Vice President, Legal and Corporate Affairs. 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 afternoon, 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 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 the link available in today's press release.

Now I'd like to turn the call over to Najeeb. Najeeb?

Thank you, Patti, and good afternoon, everyone. In the second quarter, we continue to capitalize on the strong momentum built in fiscal 2021. And we remain firmly positioned to achieve our growth goal for fiscal 2022. Within our core business, the pipeline and mix of opportunities remain robust, particularly in our European and North American growth markets, giving us confidence in our ability to drive additional contract signings over the coming months. Within our more venture-based operations, rollout of the OTOZ digital platform, in partnership with MINI Anywhere, has been a resounding early success. We ended the December quarter with 12 dealerships subscribed, 11 in California and 1 in Texas with additional states like Florida, Pennsylvania to follow soon.

We are very encouraged by the initial response and total opportunity.

Our employees continue to return to our global offices. We ended the quarter with nearly 50% of our employees back in our Lahore technology campus, which is home to the majority of our workforce and the heart of our technology operations.

Additionally, since the start of the fiscal year, we have increased our headcount by nearly 70 employees, mostly stationed in Lahore to support additional implementation work and innovation initiatives.

As we stated previously, we intend to make this year a return to meaningful growth. And we are confident with the investments we will be making in our leadership, workforce, technology and expanded sales efforts will lead to outsized returns in the coming quarters. With this overview completed, I will now hand the call over to our CFO, Roger Almond, who will walk us through the financial results of the quarter. Roger?

Thanks, Najeeb.

Turning to our fiscal second quarter 2022 results for the period ended December 31.

Our total net revenues for the second quarter 2022 were $15.5 million compared with $13.1 million in the prior year period. The 18% increase in total net revenues was primarily driven by an increase in subscription and support revenues of $3.6 million offset by decreases in license revenue of $631,000 and total services revenue of $667,000. Total subscription and support revenues in Q2 were $9.4 million compared to $5.7 million in the prior year period. The increase in total subscription and support revenues for the quarter was primarily due to the recording of approximately $3.5 million as a onetime, cumulative catch-up due to our amendment to our 10-year contract with Daimler Financial Services.

Although this was a onetime adjustment, the amendment will also increase future subscription and support revenue by approximately $2 million annually beginning January 1, 2022.

Moving forward, we anticipate subscription and support revenue to gradually increase as we implement both our NFS Legacy and NFS Ascent products. Total services revenue for the quarter was $4.1 million compared to $4.8 million in the prior year period. The decrease is primarily due to a decrease in implementation services as certain implementations are nearing completion or have gone live. Services revenue is 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 $7.8 million for the second quarter, an increase of $751,000 from $7.1 million for the second quarter 2021. The increase in cost of sales for the quarter was primarily due to increases in salaries and consultancies of $367,000, travel cost of $124,000 and other costs of $260,000. Gross profit for the second quarter of fiscal 2022 was $7.6 million or 49.4% of net revenues compared to $6 million or 46% of net revenues in the second quarter of fiscal 2021. The $1.6 million increase in gross profit for the quarter was primarily due to the $2.4 million increase in net revenue, offset by $751,000 increase in cost of revenues. Operating expenses for the second quarter were unchanged at $6 million for the quarter.

As a percentage of sales, operating expenses decreased to 38.7% of sales compared to 45.4% of sales in the same period last year. Operating expenses were impacted by increases in selling expenses and research and development costs, offset by decreases in general and administrative expenses.

Turning to our profitability metrics.

Our income from operations was $1.7 million for the second quarter, up from income from operations of just $87,000 in Q2 last year.

Our GAAP net income attributable to NETSOL for the second quarter of fiscal 2022 totaled $1.4 million or $0.13 per diluted share. This compares with a GAAP net loss of $242,000 or $0.02 per diluted share in the second quarter last year. The increase in GAAP net income attributable to NETSOL for the quarter was primarily as a result of revenue increasing at a greater rate than the cost to support those revenues.

As I mentioned on previous calls, it's important to point out that included in our net income this quarter was a gain of $901,000 on foreign currency exchange transactions compared to a gain of $14,000 in Q2 of last year. Because we operate in several geographical regions, a significant portion of our business is conducted in currencies other than the U.S. dollar. A decrease in the value of the U.S. dollar compared to foreign currency exchange rates generally has an effective increase in our revenues, but it also increases our expenses denominated in currencies other than the U.S. dollar. Similarly, as the U.S. dollar gains strength relative to foreign currency exchange rates, it tends to reduce our revenues, but it also reduces our expenses denominated in currencies other than the U.S. dollar.

Moving to our non-GAAP metrics.

Our non-GAAP adjusted EBITDA for the second quarter fiscal 2022 totaled $2.1 million or $0.19 per diluted share compared with non-GAAP adjusted EBITDA of $617,000 or $0.05 per diluted share in the second quarter of last year. Please see the reconciliation schedules contained in our earnings release for our revised calculations of adjusted EBITDA for the fiscal quarter ended December 31, 2021.

Turning to our balance sheet. At the quarter end, we had cash and cash equivalents of approximately $25.6 million or approximately $2.28 per diluted common share which is down from $33.7 million or approximately $2.93 per diluted common share at June 30, 2021. One final note before I hand the call back to Najeeb is regarding our financial outlook for fiscal year ending June 30, 2022. The company expects total revenues to increase by at least 10% and subscription and support or our recurring revenues to increase by at least 20%. The company's guidance is based on existing contracts and recurring revenue from its current customer base, performance results tracked through January of this calendar year and other information available as of the date of this call. This concludes my prepared remarks. I'll now turn the call back over to Najeeb for an overview of our business update. Najeeb?

Thank you, Roger. I'll now provide updates within the major components of our growth strategy.

Our strong financial performance during the second quarter was highlighted by an increase in SaaS and support or recurring revenues of 50% sequentially and 64% over the prior year. At an annualized rate, the quarter's performance equates to a nearly $25 million annualized run rate SaaS and support revenue, after accounting for impact for the DFS or Daimler Financial Services contract changes that Roger just mentioned earlier. With employees returning to on-site work across our global footprint, we expect growth trends to strengthen moving forward.

Our cash position remains strong providing additional resources to support our core business as well as strategic investments in high-return, long-term opportunities, including our work in the Otoz Innovation Lab.

With these factors in consideration, as Roger has just noted, we are reiterating our full year revenue guidance of 10% top line or $61 million with 20% plus growth in subscription revenue.

Moving on to the second component of our strategy.

We are innovating in new areas and looking to create technology and partnerships, which can be a major benefit to our customers as well as our own organization. To this end, I'd like to take some time to provide a brief update on our progress within the Otoz Innovation Lab. The most visible project within Otoz in recent months have undoubtedly been our partnership with MINI Anywhere.

As a reminder, OTOZ has been working with BMW Group Financial Services through its key brand MINI Anywhere to provide many U.S.A. customers with a fully digital shopping experience, empowering their marketing strategies and creating a new automated sales channel for dealerships and lenders. The Otoz digital retail platform from MINI Anywhere has been featured across major publications, including Newsweek, Automotive News and ABC News. Since launch at the end of fiscal 2021, the new platform has quickly gained traction.

As of quarter end, MINI Anywhere was live with 12 MINI dealerships, 11 in California and 1 in Texas. This includes 2 of the biggest dealer groups in the U.S., onboarded in October.

We have now captured 65% of all California MINI dealerships and we'll be looking to build on this early momentum going forward. In the coming months, we are expecting continued enrollments from dealers in Texas, dealers in Florida and Pennsylvania and several other states following suit. The success of this program can be attributed to several factors, and I'd like to share one data point we believe to be the most telling. Through the fiscal second quarter, we have been able to generate a blended lead conversion ratio of approximately 1 to 5, meaning, for every 5 opportunities we identified through our platform, 1 of those leads will convert to a vehicle sale. At the end of the first fiscal quarter, this ratio was 1 to 6. This performance in light of the global and well-documented inventory shortages within the auto industry is a major reason why we are continuing to roll out our solutions to more and more dealers as the weeks go by. We appreciate MINI's belief in our product and team. And I look forward to the continued expansion of our regional partnership.

Looking ahead, we'll be rolling out some major enhancements to the platform, including financing and insurance protection products with digital sales as well as introducing additional support to used car inventory which has been a popular request under current market conditions. In the coming months, we're also anticipating the launch of a second OEM digital retail program, and we continue to engage with several other Tier 1 OEMs on potential partnerships. To address the strong interest we are seeing, we have expanded our sales and partner success team to expand our sales funnel and ensure ongoing success for a growing list of dealer partners. The final component of our strategy is exploring inorganic opportunities, including M&A and joint ventures, where it makes sense. On this note, I can share that we are continuing to evaluate opportunities in the marketplace that are highly accretive and strategic to our business. With this all be completed, I will now go over our operational updates for the quarter. Starting in APAC, with the previously announced 12-country, $110 million contract with Daimler Financial Services, we are continuing to make considerable progress along our multiyear, multi-country implementation road map. The implementation process in India, which began in the second half of 2021, is expected to go live here in early calendar 2022. To date, we are live in 10 of the 12 countries, India will be the 11th country with Taiwan to follow. And we continue to make progress on the remaining deliverables in accordance with our customer timeline.

Just to recap for the new investors or listeners, NETSOL has signed the second largest contract with BMW for Ascent in China 3 years ago for over $35 million value and is going very well.

Our multimillion-dollar NFS Ascent implementation of the subsidiary of -- with Japanese equipment finance company in New Zealand, which soft launched in August last year is currently under transition into maintenance, preliminary work with the Australian subsidiary of the same company has been completed and approvals are expected as the New Zealand production nears.

Finally, our previously announced multiyear, multimillion-dollar upgrade with a global automotive finance services company, GAC-Sofinco [ph] in China continues to move forward. Based on additional implementation configuration, we continue to anticipate a fall 2023 go live.

Looking ahead, our pipeline of opportunities within the APAC region continues to grow steadily.

However, with the pandemic induced halt in new business development, we are encouraged by the quality opportunities we are seeing in our largest market and believe the ongoing recovery in this region to be emblematic of a larger return to work across our global operations.

Moving next to Europe and North America. These remain exciting new growth areas for NETSOL.

We are strategically marketing our cloud and SaaS-based offerings in these regions, which is contributing to the growing subscription and support revenues noted earlier.

We have a few large opportunities for our flagship Ascent in the U.S. as well and several new opportunities in Europe, specifically that are making their way through the sales cycle.

While we can't control when some of these deals get signed, we believe our current momentum, combined with the critical mass of potential deals bodes well for meaningful gains in the coming months.

Now finishing with our North America operations. Last July, we announced the first official sales of NFS Ascent in the U.S. market, an agreement with Motorcycle Group to deploy the cloud-based version of our flagship platform across their entire operations, including our omni point of sale and contract management system to support retail lending and leasing. Motorcycle Group consisting of motor lease and motor loans presents lease and loan offers simultaneously to qualified applicants so that motorcycle and power sports dealers can maximize their sales, enable customers to prequalify and select their vehicle through motorcycle group's advisers. The project implementation began in July. The expected go live remains on track by 2022.

Going forward, we'll be looking to leverage the breakthrough agreement with prospective clients through our North America market.

Our current pipeline of opportunity in the region remains the greatest near term growth opportunity for our business, which is why getting these first implementation under our belt are so important. In summary, our strong performance of fiscal 2022 continues.

We have seen healthy recovery in all our operating regions and are making investments today that will support sustainable growth for the future. And with that, we can now open the call for questions. Operator?

Thank you very much for attending the call today. And we'll see you in the next Q3 quarter. Thank you. And have a good day.

Ladies and gentlemen, this concludes today's conference.

You may disconnect your lines at this time. Thank you all for your participation.