Earnings call transcript: NTG Clarity Q1 2024 reports strong growth

NTG Clarity Networks Inc. reported a significant increase in revenue and net income for the full year 2024, highlighting a 2% rise in revenue to $56 million and a 326% surge in net income to $9.9 million. Despite a slight dip in stock price by 1.68% to $1.79, the company remains optimistic about its future growth, particularly in the Middle Eastern market. According to InvestingPro analysis, the company maintains a FAIR financial health score of 2.01, with particularly strong profitability metrics.

Key Takeaways

• NTG Clarity’s revenue grew by 2% year-over-year, reaching $56 million.
• Net income increased by 326%, significantly boosting the net income margin to 18%.
• The company’s digital transformation platform saw an 18% revenue increase.
• NTG Clarity is expanding its market presence in Oman and Iraq, contributing 12% of revenue.

Company Performance

NTG Clarity demonstrated robust financial performance in 2024, with noteworthy increases in both revenue and net income. The company’s strategic focus on the Saudi Arabian market, which accounts for 95% of its revenue, has been pivotal. Additionally, the expansion into Oman and Iraq has begun to diversify its revenue streams. The company’s unique positioning in the Middle Eastern digital transformation sector continues to bolster its competitive advantage.

Financial Highlights

• Revenue: $56 million (2% increase year-over-year)
• Net Income: $9.9 million (326% increase)
• Net Income Margin: 18% (up from 8% in 2023)
• Adjusted EBITDA: $12.3 million (22% margin)
• Operating Cash Flow: $2.6 million
• Free Cash Flow: $1.6 million

Outlook & Guidance

Looking ahead, NTG Clarity aims for a revenue target of $75 million in 2025, representing a 34% growth. The company plans to maintain an adjusted EBITDA margin between 16% and 20%. NTG Clarity is also exploring potential mergers and acquisitions in the Gulf region to further stimulate growth. Based on InvestingPro’s Fair Value analysis, the stock currently appears slightly overvalued. Subscribers can access the detailed Pro Research Report, part of the extensive coverage available for over 1,400 US equities.

Executive Commentary

CEO Adam Zagwul highlighted the company’s achievements, stating, "2024 really was a breakout year for NTG Clarity." He emphasized the scalability of their business model, noting, "We’re really seeing the profitability and scalability of our business model." Zagwul also expressed confidence in the long-term growth prospects in the Kingdom, saying, "Saudi Vision 2030 is not the end of growth in the Kingdom."

Risks and Challenges

• Potential geopolitical tensions in the Middle East could impact operations.
• Fluctuations in oil prices might affect economic stability in key markets.
• The company faces competition from other digital transformation firms globally.
• Seasonal variations due to local holidays could affect quarterly performance.
• The introduction of a 26.5% Canadian corporate tax in 2025 may impact net income.

NTG Clarity’s strong financial performance and strategic market positioning suggest a positive outlook, despite the slight stock price decline. With a return on assets of 9.86% and gross profit margin of 22.36%, the company demonstrates solid operational efficiency. The company’s focus on digital transformation and expansion into new markets positions it well for future growth. For comprehensive analysis of NTG Clarity’s growth potential and peer comparison, explore the full suite of tools available on InvestingPro.

Full transcript - NTG Clarity Networks Inc. (NCI) Q4 2024:

Ali Farooq, Analyst/Moderator, NTG Clarity: Good morning, and welcome to NTG Clarity’s q four and full year twenty twenty four earnings conference call. My name is Ali Farooq, an analyst at NTG Clarity. On the agenda for today’s call, we’ll start with management’s prepared remarks on our financial and operating results for fourth quarter and year end twenty twenty four. We’ll then have a q and a period answering questions written in ahead of the call. Note that the full published report with audited financial statements, notes, management discussion is available on SEDAR and our website at www.NTGClarity.com.

This presentation aims to highlight and summarize the key information already reported there. We will be posting both the slides and the recording of their presentation on our website following the call, so make sure to subscribe to our mailing list on our investor page on our website to get notified when those are available. With that being said, I’ll be welcoming management with for remarks shortly. But first, I’ll start with a quick disclaimer. Certain statements in this presentation other than statements of historical fact are forward looking information that involves various risks and uncertainties.

Such statements relating to, among other things, the prospects for the company to enhance operating results are necessarily subject to risks and uncertainties, some of which are significant in scope and nature. These uncertainties may cause actual results to differ from information contained herein. There can be no assurance that such statements will prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements. These and all subsequent written and oral look forward looking statements are based on the estimates and opinions of the management of the management on the dates they are made and ex and expressly qualified in their entirely entirety by this notice.

The company assumes no obligation to update forward looking statements should circumstances or management’s estimates or opinions change. In this presentation, we also make reference to non IFRS or or non GAAP financial measures that that management believes are useful supplemental measures, but not alternatives to net income and operating cash flow. Please see the non IFRS measures section towards the end of this presentation, our press release, and our MD and A for details and of non IFRS measures to IFRS measures. With that, I’d like to invite Adam Zagwul, vice president strategy and planning, to begin his remarks.

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Okay. Thank you very much, Ali, and thank you to everybody who’s tuning in now for our earnings call 2024. It was an exciting one for sure. I wanna start off by saying that, you know, 2024 really was a breakout year for NTG Clarity. We’ve been laying really a strategic and an operational groundwork for years, and we’re finally seeing that start to pay off in basically all of our operating and financial metrics as well.

Our key market, the the Kingdom Of Saudi Arabia, where about 95% of our revenue comes from, is continuing to invest heavily in the digital transformation initiatives as part of this vision 2030 strategy. And we’re really seeing that play out in both our customers’ budgets and also their sense of urgency. Full year revenue for 2024 was up a 2% year over year to $56,000,000. That exceeds our previously raised guidance of $55,000,000 and set us up for 15 consecutive quarter of last twelve months revenue growth as well as nine consecutive quarters of record breaking profit for NTG. What’s been especially rewarding has been being able to execute on that growth while maintaining and expanding our profitability as well.

For the full year, our net income was up 326% to $9,900,000. That give us a full year net income margin of about 18%. Now that more than doubles the net income margin of 2023, which was 8%, but it also significantly beats our full year net income margin guidance of about 14% as well. So we’re really seeing the profitability and the scalability of our business model shine through with some operating leverage there. Adjusted EBITDA for the year came in at $12,300,000 or about a 22% adjusted EBITDA margin, and we were able to generate $2,600,000 of operating cash flow and $1,600,000 of free cash flow.

And as we continue into 2025, we’re expecting our working capital to stabilize and be able to generate much more free cash flow as well. That trend of increasing cash flow, we’re expecting to continue. Definitely, amazing growth would not have been possible if it wasn’t for our NTG customers. I wanna say a huge thank you, for the trust and confidence from all of our customers as well. It really has been a pleasure serving you.

But, really, a key component of our growth strategy has been winning more and more of our customers’ digital transformation budgets. And in 2024, we really did a good job both winning new projects and increasing the size and scope of engagements that we’re working on with existing customers. 90% of our 2023 customers continued working with us into 2024, and more than half of them, about 54%, increased their level of service and the scope and size of their engagements. Our average revenue per customer will increase by about 75% for the year, And we also had a first in that we started to sign on multiyear deals with clients. Three separate contracts with three separate customers for three years added about about $80,000,000 of revenue to our backlog, again, with that visibility of over three years.

The overall trend that we saw in 2024 was customers are continuing to trust NTG as a long term strategic partner for the digital transformation journeys. Now our customers are also oftentimes our best advocates and salespeople due in large part to a strong referral network. In 2024, we had a 25% increase in the absolute number of customers that we were serving, And those customers accounted for about 15% of our 2024 revenue. So we’re definitely seeing some momentum from those net new logos. All of this contributed to reducing our overall customer concentration.

And as of 2024, our largest account now accounts for less than 20% of our overall revenue. So this really speaks volumes about the quality of the services and the products we’re providing, but also our team’s ability to scale. I really am proud of the entire NTG team, everyone from sales and account management to recruiting and fulfillment, and, of course, all of our talented technologists as well themselves. They really stepped up and showed that they have the skills to to scale up to the level of demand that we were seeing in 2024. So hats off to you as well.

One of our key priorities in 2024 was introducing and promoting our NTG apps digital transformation platform. That’s our proprietary software product. The team really did a good job, getting out in front of customers and getting them to, start trialing in g apps, to the point where at the end of twenty twenty four, ’40 ’7 percent of all NTG customers at least had a trial or a proof concept going on NTG apps, and that includes our two largest customers. Now while NTG apps accounts for about 6% of our revenue right now, it’s still on the upswing. It is showing growth potential, growing 18% year over year in terms of revenue concentration.

And we’re confident that as the customers move through the trial and proof of concept stage, they’ll be willing to sign on for larger longer term engagements with NDG apps as they get a sense for where it fits into their overall digital transformation stretch. And with that, expecting it to bring a little bit of a higher gross margin, where our typical services are in the gross margin range of about 35 to 40%. NTG apps projects today are sitting at about a 50% gross margin for projects, and there’s still room to grow that, you know, given some scale and some operating leverage coming through as well. So overall, management is extremely excited. The prospect of NTT has bring some revenue growth and margin expansion to the future.

I wanna take a look at fourth quarter financials now. I’ll start with revenue. For the quarter, q four twenty twenty four, revenue was up a 9% to $17,200,000, and we achieved a 36% gross margin. Now that sits comfortably in the expected range of 35 to 40% where, we see as typical for our services business. And it also is much better than our q four twenty twenty three gross margin, which was about 18%.

Now in q four twenty twenty three, we had several factors impact our gross margin from, you know, project timing and revenue mixes favoring lower margin activities. But we also gave some discounts for customer acquisition and hired some higher cost contractors to fill some seats in contract short term. And none of those factors significantly impacted us in q four twenty twenty four, and we’re able to post, again, a healthy expected gross margin this year. Moving on to operating expenses. The main theme for OpEx in 2024 for NTG was reducing the overall proportion of OpEx in comparison to revenue.

So starting with the sales line item, sales expenses actually decreased year over year by 14% in twenty twenty four q four, going from 10% of revenue to 4% of revenue as well. So we definitely see the value of our highly referral based sales network as well coming through. For the g and a line, we saw g and a expenses rise 80% year over year, and that was largely due to the corporate investments need to keep our operation growing and to scale up our operation. But as a proportion of revenue, g and a expenses reduced from 12% of revenue to 10% of revenue. So we’re definitely seeing the scalability and operating leverage inherent in our business model coming through in the g and a as well.

On the net income side, net income came in at $3,000,000 or about 17% of revenue, and adjusted EBITDA came in at about $4,300,000 or 25% of it. And I wanna talk a little bit about the difference between net income and adjusted EBITDA. The big contributors and big drivers are probably, taxes, share based payments, and foreign exchange. On the tax side, q four twenty twenty four, saw an increase in taxes payable about $500,000 compared to the 11,000 in q four twenty twenty three. And what’s notable is that into the future, we are expecting taxes to be a more significant contribution because we have, as of the end of twenty twenty four, consumed all of our accumulated tax losses, and we’re expecting to have to pay Canadian corporate taxes going into 2025.

For share based payments, it came in for the quarter at $400,000 compared to $25,000 for q four of twenty twenty three. That was largely due to our share based compensation plan being impacted by the rapid and large share price appreciation that happened in 2024. So it’s definitely a good problem to have. But share based payments, we’re expecting to moderate with our growth moderating over the next few years, and we can come back down to a more reasonable level as well. The final item is foreign exchange, and foreign exchange was actually a tailwind for NTG in 2024 just because the strengthening of the US dollar to which the Saudi real is pegged that we built most of our customers in was strengthening against the Canadian dollar or operate or or operating and reporting currency and the Egyptian pound and other operating currency as well.

Now a question I get a lot from investors is about our cash conversion. So I wanna walk through the cash flow statement for a little bit. For the year 2024, we generated $12,100,000 in operating cash before the change in net working capital. And when it comes to drivers of that change in net working capital, the change in accounts receivable definitely stands out, which is a pretty natural byproduct of the rapid revenue growth that we’ve been seeing, over the year. So doing a little bit of a deeper dive into accounts receivable, which is possible, yeah, by looking at the notes of all of our financial statements.

We can see that in q four, about 90% of our total accounts receivable was actually billed in q four. ’9 percent was billed in q three, and 1% was billed prior to q three. So overall, we’re doing a good job of, you know, billing and collecting receivables within about a quarter’s time frame. If you take a look at our days sales outstanding, which is a measure of the average amount of time between recognizing revenue and actually collecting the cash. We’re sitting at about seventy two days for the full year.

Our target is somewhere in the range of sixty to ninety days, which is a factor of, you know, the blue chip tier one customers that we’re dealing with, enterprise level customers that we’re dealing with in The Middle East have a little bit of a longer onerous payment cycle. So sixty to ninety days is where we’d expect that to come in, and we’re well within our range on that one. So that means the total operating cash flow for the year came in at $2,600,000 continuing down the cash flow statement. We also invested about a million dollars in PP and E, and this is primarily two new, real estate office locations as well as the required furniture and computer equipment to support all the growth and scaling that we did in 2024. And that produced a total of $1,600,000 in free cash flow.

And definitely as our working capital changes start to moderate in 2025 and growth stabilizes a little bit, we’re expecting more and more free cash flow, to come through from the net income there. One other point to note on the cash flow statement is that for the full year, we repaid $1,400,000 of debt. Now that includes loans payable, but also half of our outstanding bank indebtedness. And that really remains the plan into the future is to continue to use cash flow from operations where it permits to pay down some of our debts to both clean up the balance sheet and reduce our interest expenses that way. So looking on into 2025 and beyond, you know, basically between the contracts that we have on hand, the POC and contracts that we have on hand, combined with some renewables and some new work that we expect to come through for the rest of the year, we’re confident in proposing a targeted revenue for 2025 of $75,000,000.

Now that represents about $19,000,000 in incremental revenue or about a 34% year over year growth. Now that is smaller percentage wise than the growth we saw in 2024 for sure, but it is in the same ballpark of absolute dollar value additions. And we’re starting to see the law of large numbers start to come in with the the growth numbers that we’re seeing there. But all that is to say, we wanna make sure that we’re scaling fast, but not so fast that we run the risk of having any sort of quality in the in the work that we’re doing with the resources that we’re placing with customers start to come in. So definitely a balancing act when it comes to how fast you can scale a business like ours.

But that being said, you know, the market tailwinds are there. Saudi Vision 2030 spending, especially on digital transformation initiatives, remain strong. Our customer demand is there, which is definitely evident by our backlog of POs and contracts on hand of over a hundred and 5 million dollars. We’ve got the products and the services that our market seems to want as well as a team that’s really devoted to driving the growth into 2025 and beyond. So we’re very confident about growth continuing to be on the menu into 2025 and years after that as well.

In 2025, we’re shifting our profitability guidance to be from net income to adjusted EBITDA. There are a couple of reasons for that. I’ll walk through through them for you. The first reason is even though we are largely insulated and unaffected from the primary impacts of a lot of, you know, trade war and tariff issues that are hitting The United States and North America more broadly, we are still exposed to foreign exchange. So the Saudi real is what we bill our clients in primarily, which is pegged to the US dollar.

And our expenses are in addition to that Saudi real, Also, little bit of Canadian dollars and Egyptian pounds as well. Now the fluctuations between those different currencies are obviously a factor that’s outside of our control and not one that we necessarily have a very strong or unique stance on. So we thought it appropriate to strip out the effects of foreign exchange fluctuations from our profitability guidance. Now the second reason really is having to do with taxes. Like I had mentioned previously, in 2025, we’re expecting to have to pay Canadian corporate income tax because we have basically used up all of the accumulated tax losses from previous operations so that tax expense is gonna start hitting us.

And in order to have our profitability metrics be comparable, say, from 2024 and previously into 2025 and beyond, we thought stripping of the effects of tax would be appropriate as well. So those are sort of the two main reasons for adjusted EBITDA. But all that being said, our adjusted EBITDA guidance for the year 2025 is somewhere in the range of 16 to 20%. Now that’s obviously below the q four and full year posted results, for adjusted EBITDA. But I wanna walk through with the investors a couple of the reasons why we’re, why we’re posting this sort of guidance just to give you a sense of where our thinking is at.

Now for the year in 2025, we are expecting our gross margin to stay relatively consistent. Now moving down the income statement, marketing and sales, while we do expect to make some investments on that line, to scale our operations and and increase our footprint, We do expect to benefit from some operating leverage and some economies of scale on that as well. The real deciding factor on our adjusted EBITDA from our point of view right now is expected to be g and a expenses. Now in 2025, we are expecting to make some corporate investments, be it, you know, in new systems and processes to help us scale, that kind of thing. But a large part of our g and a boils down to the ratio of the number of employees that we have in training and getting ready to be rolled out and the number of employees that we have actually billable with clients.

Now just as a refresher, you know, when employees are being hired and onboarded and trained, they are booked in the g and a line. And then when they’re rolled out and billable to clients, they are booked in the cost of goods sold line. So what we’re doing when, we’re guiding for an adjusted EBITDA margin of 20% is giving us a little bit of flexibility and breathing room to be able to onboard the resources and train the resources that we need to be able to fill the demand that we’re seeing going into 2025 and beyond, while at the same time not feel pressured to roll out these resources before we feel that they’re absolutely ready to impress our clients. Because at the end of the day, what matters strategically is continuing to uphold the high quality standards of the resources that we’re rolling out. So being able to onboard and train and be confident that the resources are gonna be able to fill the client needs is, in our view, worth a couple of extra points on the guided adjusted EBITDA.

But all that being said, you know, NTG has really had a fantastic year in 2024. You know, we’ve proven that we have a profitable and scalable business model. We’re serving products and services that customers, especially in our target market of The Kingdom Of Saudi Arabia, are, really looking for and can’t get enough of. Into 2025, we’re especially well positioned because we think we offer investors a pretty unique position and opportunity to get exposure to the rapidly growing Middle Eastern market that seems to be relatively insulated and unimpacted, at least from the primary effects of the volatility and tariff situations that’s going on in North America right now. But I think that concludes the presentation.

I wanna thank you for your time and attention listening to the presentation. I’d like to now open it up for some question and answer, written in from the audience and a few other investors ahead of the call. So I’d like to invite Abby back to the stage now for the first question, please, whenever you’re ready, Abby.

Ali Farooq, Analyst/Moderator, NTG Clarity: Alright. We’ll get right into it. Our first presentation comes from Aravinda, an analyst from Canaccord. He says, great quarter, guys. I wanted to ask about expectations around the changes in working capital going forward and the impact on operating cash flow.

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Okay. Right on. Thanks, Aravinda, for the question, and thanks for the congratulations as well. Yeah. Changes in in working capital and cash flow going in 2025.

I mentioned the the really, the key metric to take a look at is going to be that change in accounts receivable, which is going to remain a little bit elevated just because of the growth that we’ve been having. But that being said, you know, collections are still where we want them, you know, with the quarter time frame after they’ve been billed. Our day sales outstanding is right within the range that we’re expecting. So with that being said, we do expect to see a decent amount of cash conversion flow down into 2025 as a sort of working capital begins to stabilize.

Ali Farooq, Analyst/Moderator, NTG Clarity: Okay. Great. On to our next question from Chris, an analyst from Activate Capital. The margins in the fourth quarter was well above my forecast, which likely means that the implementation of the $53,000,000 contract didn’t drag on margins like I expected. So have you been able to smooth out the implementation costs, or should we be or should we expect one off cost to impact in the q one twenty twenty five results?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Hey, Rudolph. Thanks, Chris, for the question. I think you’re exactly right. You know, 2024 definitely was a good year. Like I mentioned before, the the main lever when it comes to where our adjusted EBITDA margin or at least net income margin is going to is going to land is going to be the g and a day expense and that ratio of employees being onboarded and training to be to employees being deployed.

In 2024, we definitely did a good job keeping that ratio where it should be, and we’re able to really showcase the power of our model and how high the margins could be. But the guidance that we gave in 2024, and, again, the guidance that we’re giving in 2025, have built in the, basically, the expectation of the flexibility to be able to, really front load and onboard resources when we need them, train them as long as they need to be up to our quality standards, and then, roll them out. So while, it could very well work out in 2025 similar to the way it did in 2024 where we get that ratio nice and clean and the adjusted EBITDA margins end up at the higher end of our range. But, if there is a possibility where we want to, you know, higher retain train resources to be able to serve our customers better going into 2025, which is the reason for the for the lower end of that range.

Ali Farooq, Analyst/Moderator, NTG Clarity: Okay. Awesome. Our next question comes in from Doug, an analyst from Beacon Securities. What does the company believe the sustainable growth rate is in Saudi Arabia after the majority of Saudi Twenty Thirty is complete?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: That’s a good question. Thanks, Doug, for the question. So I would say we definitely don’t believe that vision 2030 is the end of the growth in the Kingdom Of Saudi Arabia. The vision 2030 strategy, it its real aim is to diversify the economy and really set it up for a place for the financial sector, the technology sector, and the sports entertainment and tourism to to flourish in the future. You know, one concrete example of that is going to be the World Cup that Saudi Arabia is supposed to get in 2034 as well.

So we’re really not expecting, you know, the the growth or the demand for IT services to decrease after the vision. When I’m asked about the total size of the market, you know, the Saudi information and communications technology market is sitting at about a $50,000,000,000 a year price tag, and it’s growing at about an eight and a half percent compound annual growth rate going towards the end of the decade. I would expect, you know, barring the law of large numbers, that growth to remain intact and the same. And what we are expecting in reality is, you know, as we get closer to 2030 and beyond, any sort of decrease in activity from the ramping down of these government initiatives and these government spending is gonna be more than made up for in the increase in demand and activity from, you know, the burgeoning new and improved, digitized Saudi economy where technology is a much bigger, factor. So we definitely see growth to be continuing on the menu in Saudi Arabia, you know, through 2030 and even beyond there because of the effects of the, strategic vision.

Ali Farooq, Analyst/Moderator, NTG Clarity: Okay. Our next question comes in from Mac, a private investor. Will Trump’s tariffs impact your growth?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Alright. Thanks, Mac, for the question. I would say, you know, the silver lining in the situation or at least what’s good for us as a company is that we are we we see a very limited immaterial impact from at least from first principles impacts from Trump’s tariffs in The US. You know, just due to the geography and the types of companies that we’re working with in The Middle East, we don’t expect a lot of direct impact. That’s for sure.

Now it gets hard to say with, you know, what are the secondary and tertiary impacts later on down the line if it could lead to potential oil price dropping or global economic slowdowns where nobody would be immune. That being said, you know, even if there was a reduction in spending in Saudi Arabia, our experience has been that it’s focused more on the, you know, almost vanity projects or the high prestige projects, I guess you see less focused on the core digitization efforts that are so key to expanding Saudi economy right now. So that being said, you know, we think NTG’s operating offering is is well protected definitely from the primary impacts, but even the secondary and tertiary impacts of the, you know, the tariff situation as well.

Ali Farooq, Analyst/Moderator, NTG Clarity: Alright. Our next question comes in again from Aravinda, the analyst from Canaccord. I was wondering if we should expect any seasonality in q one driven by Ramadan.

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: That is a very good question. Thanks, Aravinda. So, cyclicality to the extent we have it comes around the major Muslim holidays in The Middle East. Aravinda, you’re right to point out that towards the end of q one, we did get into the holy month of Ramadan, where, you know, working hours are less maybe there’s a little bit of less sales activity. We would expect a little bit of a of an impact from Ramadan specifically itself.

But what I’d more expect is more in line with last year going into q two, which is where we see the major holidays, the the two Eid celebrations in The Middle East hit, both falling within q two. Last year, what it meant was a little bit of a delay in, billing cycles and collections for us. We definitely saw our accounts receivable rise, more than we expected throughout q two. I would say that we expect the similar trend to happen into 2025 where both of those holidays are falling in q two. There might be a little bit of a delay in the collections and the cash cycle for that quarter.

But just like in 2023, we’ll see it quickly or just like in 2024. Sorry. We’ll see it quickly collected in the following quarter, and that’s what we’d expect. And that’s just because, you know, the the eight holidays in The Middle East, it’s comparable to, in North America, the Christmas holidays. Things slow down, people spend time with their family, take time off work, and then things pick right back up, after the holidays as well.

So that’s a good question. We would expect to see a little bit of an impact from the cyclicality that way, but it would be quickly resolved in the following quarter.

Ali Farooq, Analyst/Moderator, NTG Clarity: Okay. Great. Our next question question comes from Chris, an analyst at Activate Capital. It looks like the tax losses have been used up. What corporate tax rate should we be assuming going forward?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Right on. That’s right. Yes. So corporate, tax is definitely gonna be payable in Canada in 2025. We’ve used up pretty much all of our, accumulated tax losses coming out to the end

And, again, that’s one of the reasons why we shifted from net income guidance to adjusted EBITDA guidance just to keep that profitability metric consistent, with the changing tax situation. That being said, we expect to be paying 26 and a half percent, Canadian corporate taxes.

Ali Farooq, Analyst/Moderator, NTG Clarity: Okay. Our next question comes in from Doug, an analyst from Beacon Security. Is there any indication that other Gulf countries are embarking on their own large digitization strategy, and how could NTG take advantage of that?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: That’s a good question. Thanks, Doug. So our view is definitely basically, all of the Gulf countries have their own version of the vision 2030. You know, Kuwait, Qatar, Oman, they are all in the same boat of wanting to diversify their economy away from basically beating at the behest of the oil and gas cycle and really develop themselves into, you know, more diverse economies. That being said, our experience in other Gulf countries, which which we’ve also already expanded into a few of them.

You know, we have operations in Oman and Iraq, which contribute about 12% of our revenue together. But our experience has been similar to Saudi Arabia where it really requires years, if not decades, of focused relationship building in order to build the context into the network required to win a significant amount of business in those regions. We’re gonna continue working at at it like we have in Oman and Iraq. And our number one priority for the near future is gonna be taking full advantage of the Saudi information and communications technology market that we’re already fully ingrained in. So definitely expanding into the rest of The Gulf.

It’s a place that could be well serviced by our Egyptian offshoring nearshoring model, but it is going to be more of a midterm consideration as we really have to strike while the iron is hot and take as much of the Saudi market as we possibly can in the in the near term and immediate term.

Ali Farooq, Analyst/Moderator, NTG Clarity: K. Great. Our next question comes in from Doug, the another question from Doug, the analyst at Beacon Securities. NTG apps generated $3,400,000 in revenue in 2024 or plus 18%. What is the expectation for the growth of this segment in 2025 and 2026?

If NTG apps can reach 10% of total revenue, what is the impact on gross and EBITDA margins?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Right on. Yeah. We definitely are excited too, Doug, about the NTG apps offering, seeing the growth that it has 18% year over year in 2024. About half of our customers, you know, at least running a trial or proof of concept for NTG apps. So while I’m hesitant to give, yeah, you know, specific guidance around NTG apps since it is still in the relatively early stage, We do expect its growth and adoption to, you know, at least increase continue to increase into 2025.

And the interesting thing about NTG apps is, you know, the revenue model. Right now, NTG apps projects are, you know, structured similar to, you know, more traditional software development projects, but the long term vision is really akin to SaaS style revenue, you know, with recurring license fees, hosting fees, support fees as well. And, you know, even just today, the gross margins on NTG apps projects are in about the range of 50%. And we do think that there is definitely room to expand, you know, with scale and and operating leverage, get those margins up. You know, SaaS margins can even be in the 70% range even higher than that.

So if we were to, in the future, you know, get the growth in NTG apps that we expect it to to get, see the revenue share go from, you know, the 6% that it is today to 10%, like you mentioned, 15% even higher longer term. We’d see our gross margins also expand to meet that proportionality as well.

Ali Farooq, Analyst/Moderator, NTG Clarity: Alright. Our next question comes from Mac, a private investor. Based on your financials, I expect you to start generating significant cash flow next year. What is your plan with the cash? Do you offer a dividend?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Hey. Thanks for the question, Matt. That is a really good question. We are expecting some some more stabilizing of our working capital this year to see a little bit of cash flow, start to come through. When it comes to, you know, capital allocation really in that sense, I would say, you know, our number one priority is to continue to invest in our business and keep the organic growth that we’ve been seeing, going.

You know, if I mentioned before, the Saudi ICT market is at about $50,000,000,000 a year. If we just did over just over $50,000,000 this year, it puts us at about a point 1% market share. There really is a lot of room to grow within the Saudi market, and that’s our primary focus. So continue with the organic growth where we can get it. So that’s investments, you know, in hiring, training, onboarding new employees to fill the contract demand that we see coming, but also some corporate investments into, you know, the systems and processes that are going to allow us to scale more effectively as well.

So the number one priority definitely is that organic growth. Number two, there’s definitely opportunities to leverage the cash flow and engage in a little bit of, you know, corporate action corporate development, mergers and acquisitions. The thinking being, if we can get customers either in other geographies or in Saudi Arabia that we don’t have, that would be a good use of the cash. Priority number three is probably continuing the debt pay down that we have been for the most recent quarters, you know, cleaning up our balance sheet, really reducing our overall interest expense, saving money that way as well. Once we get pretty much a pretty solid foothold on those three priorities, we’d probably revisit the situation and, restrategize around capital allocation and think about returning a little bit of cash to shareholders.

But right now, the main priority really is, you know, continue the growth that we’ve been seeing, especially the organic growth in the market in Saudi Arabia.

Ali Farooq, Analyst/Moderator, NTG Clarity: Alright. Our next question comes in from Paul, a private investor. Congratulations on an outstanding year. One question. There is certainly a lot of organic growth opportunities ahead for the company.

Any thoughts on acquisitions to gain new customers, or does the company already have its hands full?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Okay. Right off. Very good question. I did sort of hint at the acquisitions, Paul. Thank you for the for the question.

When it comes to acquisitions specifically, you know, I mentioned, you know, after we get a handle on the organic growth, we would start taking a look at potentially acquisitions. What we’re thinking right now is, you know, in the acquisition world, it really would be an IT services company either within Saudi Arabia who services a customer that we don’t have or other places in The Gulf that we think would be equally well served by our Egyptian outsourcing and offshoring model. So acquiring a company who has that twenty year track record in the other in the other jurisdictions who get have the network to get us customers in those locales. So to the extent that we’re thinking about acquisitions, it is those are the high level thoughts. We still are, you know, probably on the first step of thinking about that sort of thing.

It really is a medium to long term type of consideration. But the second part of your question of having our hands full, like, numb the number one priority, as I mentioned, is taking full advantage of the organic growth that we that we see happening in in Saudi Arabia right now before we start thinking about things like acquisition.

Ali Farooq, Analyst/Moderator, NTG Clarity: Alright. Our next question question comes from Radik, a private investor. I’d like to ask about your general look Saudi Arabia market after Trump’s tariff announcement. Saudi Arabia looks optically optically like a winner in this situation, but the current disruption could have many unpredictable consequences like oil prices. Do you feel that your guidance for at least a few weeks ago is still relevant, or would it deserve some adjustment?

Adam Zagwul, Vice President of Strategy and Planning, NTG Clarity: Hey, Raynaud. Thanks for the question, Raj. Definitely, you know, just given the nature of our business, you know, we’re operating in Saudi Arabia where there are very few, if any, tariffs levied against, you know, the types of companies that we’re working with, the business that we’re working in. It definitely looks like we’re, if anything, coming out ahead of the current situation. That being said, you’re absolutely right about, you know, potential unintended consequences or second order consequences of the tariffs, be it a rise in oil prices or otherwise a global economic slowdown.

But that being said, like I mentioned earlier, right, you know, Saudi Arabia definitely is main I would say it’s it’s rigor and it’s a velocity of investment into the digital transformation in the IT world. We haven’t seen any signs of investment slowing down at least in IT. To the extent that they are sort of pulling back on investments due to any sort of economic concerns, it really is those sort of high prestige projects that they’re working on and and those kind of things. But we definitely see the IT market as continuing to grow as it is, you know, going to be a core pillar in the future Saudi economy wanting to technologize and digitize, in essence. So with that being said, you know, we absolutely still do reaffirm the the guidance that we gave earlier in the year and that we reaffirmed on this call of that $75,000,000 top line with adjusted EBITDA of 16 to 20%.

We do really think that that is still very reasonable. Okay. I think that is all of the questions. So thank you very much, Ali, for reading all reading off all the questions, and thank you to everybody who wrote in a question. It was great to be able to answer them live on the call.

And one final thank you to everybody who tuned in to this earnings call. It really was a transformative year for NTG, and we’re really excited to keep the growth going on into 2025 and beyond. But with that said, thank you again, and I’ll look forward to talking to you very soon for our q one release. But until then, thank you. Take care.

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