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In the Fast Lane

Every company needs a niche. And Calabasas technology firm NetSol Technologies Inc. has found one: software for car leases and financing. In the last 15 years, the company has transformed itself from an obscure holding company into a global provider of software and support for the financing divisions of auto manufacturers. It generated nearly $40 million in revenue last year and made a profit of $2.45 million. Company officials say they only see room for more. “We have a very good, strong organic growth,” said Chief Executive Najeeb Ghauri. “We’re looking at 25 to 30 percent growth each year. We believe we will double our revenue in the next few years.” Ghauri, who founded the company in 1997, has worked closely with his brother Salim, who developed the software and still oversees development of the product. A third brother, Naeem, oversees global sales from the firm’s Bangkok office. The brothers are all from Pakistan. The company recently signed contracts in Asia, where it has landed deals with South Korean automaker Hyundai Motor Group and two Chinese auto-leasing companies: Chongging Auto Finance Co. Ltd. and Minsheng Banking Corp. Ltd. While the firm does have secondary businesses in information security and software consulting, the company’s core product is its suite of financial software. The programs can process credit applications, manage existing accounts and generate contracts. The company has operations in Saudi Arabia, Beijing, London and Bangkok and employs hundreds of software developers and engineers at its offices in Lahore, Pakistan. The stock of the company has seen its ups and downs. Soon after its initial offering, the firm was riding high on the Internet bubble, when investors would buy just about anything tech-related. Shares in the company traded near $800 in the spring of 2000, on a pre-split basis, and the company had a $1 billion market cap. But by early 2011, shares were hovering just below $5 a share. But things have looked up, both as new markets emerged and the auto industry began to recover from a recessionary slump. For the firm’s second fiscal quarter, which ended Dec. 31, revenue was up 37 percent to $11.8 million, largely driven by the three new Asian contracts, which themselves generated $5 million. Net income was up 597 percent to $2.2 million and the shares are now trading around $12, giving NetSol a $95 million market cap. Few independent analysts follow the company, but the firm pays for monthly reports from New York brokerage Taglich Brothers Inc. whose president owns shares in the company. “As the emerging markets grow up, or grow up and slow down, people do more financing or leasing of their auto purchases,” said Howard Halpern, an analyst at Taglich. “These are markets that don’t yet have the infrastructure in place, and in that niche and in these markets, companies need NetSol’s technology.” The company is hoping to capitalize on its early entry into the Asian market, where financial leasing increased 66 percent in 2012, according to Taglich research. Exploring new streams Ghauri formed an early version of NetSol in 1997 primarily as a holding company for a retail business selling Pakistani and Indian clothing at a boutique in Santa Monica that he ran with his wife Aisha. Later that year, Ghauri brought his brother Salim, a software programmer, and his small Pakistan-based tech company into the fold through a $1 million acquisition. Salim already had a contract with Mercedes-Benz, a subsidiary of German automaker Daimler AG, to facilitate the company’s leasing software in parts of Asia. In 1997, the company secured Mercedes-Benz Thailand as a client, and other automakers soon followed suit. “Until then, we were really a holding company for our small retail shop in Santa Monica,” Najeeb Ghuari recalls. “But with the help of some smart lawyers, we had done the IPO and had money to invest. I saw a future in the software.” By 1999, the company moved from over-the-counter trading to listing on the Nasdaq. Ghauri says the company’s longevity has helped it figure out what works and what doesn’t. “We want to stay focused on our core technology. We made some bad mistakes many years ago, so we’ve learned the lesson to not try and do everything,” he said. “If you do that, you can never become specialists. Now we are specialists.” For its fiscal year 2012, which ended June 30, the company reported that nearly 40 percent of its $40 million revenue came from license fees, 35 percent from servicing its products, and 25 percent from maintenance fees. Rather than roll out additional products, Ghauri says the key to the firm’s growth is in the existing model. As fewer firms need to license the initial software, the company expects to see a rise in service and maintenance revenue. It is also looking at mobile applications and ways to upgrade existing customers to improved versions of its current software. And while Ghauri said the company is not actively seeking acquisitions, it has made one exception in recent years. In 2011, it acquired Vroozi Inc., an Encino startup that bills itself as an online marketplace focusing on business-to-business supplies. A small team of employees dedicated to Vroozi’s tech development moved into the firm’s headquarters last year, and the product launched to the public in January. It has signed on users including Southern California Edison Co., Warner Bros. Entertainment Inc. and Campbell’s Soup Co. Rich Chala, who co-founded Vroozi in 2007, says the company is a good investment for NetSol. “Users access our product and enter a simple search term and can see who has the best price. We have 8,000 users who could be using the system at any period of time,” he said. Halpern said Vroozi is a company that presents few risks for NetSol, even if it may not be a huge moneymaker. “With this sort of business-to-business model, all they need is a few customers to be profitable,” he said. “The rate of growth should be exciting, but it will be slow compared to what we expect to see from the (software).”

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