Earnings call transcript: NTG Clarity Q2 2025 sees revenue growth, stock dips

NTG Clarity Networks Inc. reported significant revenue growth for the second quarter of 2025, with a 51% year-over-year increase, reaching $18.9 million. This growth aligns with the company’s strong performance trend, as InvestingPro data shows a 35.28% revenue growth over the last twelve months. Despite these strong financial results, the company’s stock price fell by 17.05% to $1.80, reflecting investor concerns over increased operational costs and market uncertainties. According to InvestingPro analysis, the stock appears undervalued at current levels, suggesting potential upside for investors. The company remains optimistic about its strategic initiatives and future prospects, aiming for a full-year revenue target of $78 million.

Key Takeaways

• NTG Clarity reported a 51% increase in Q2 2025 revenue.
• Gross margin expanded by 380 basis points to 38%.
• The stock price dropped 17.05% post-earnings announcement.
• NTG Apps revenue surged by 1,600%, now contributing 21% to quarterly revenue.
• The company is focusing on geographic expansion in the Gulf region.

Company Performance

NTG Clarity demonstrated robust growth in Q2 2025, driven by strong demand in the Gulf region and strategic sector targeting. The company’s revenue grew by 51% year-over-year, marking a significant improvement over previous quarters. With a P/E ratio of 8.97 and a healthy gross profit margin of 21%, InvestingPro data indicates the company maintains profitable operations while trading at reasonable valuations. NTG Apps, a key product line, saw a remarkable 1,600% increase in revenue, underscoring the company’s successful innovation and market adaptation efforts. For deeper insights into NTG Clarity’s financial health and growth prospects, investors can access comprehensive analysis through InvestingPro’s detailed research reports, available for over 1,400 US-listed companies.

Financial Highlights

• Revenue: $18.9 million, up 51% year-over-year.
• Gross Margin: 38%, expanded by 380 basis points.
• Gross Profit: Increased by 68%.
• Net Income: $400,000, representing 2% of revenue.
• Adjusted EBITDA: $2.8 million, accounting for 15% of revenue.

Market Reaction

Despite impressive revenue growth, NTG Clarity’s stock price fell by 17.05% to $1.80 following the earnings announcement. InvestingPro analysis reveals the company operates with a moderate level of debt and maintains liquid assets exceeding short-term obligations, with a current ratio of 1.84. This decline reflects investor apprehension regarding the company’s increased general and administrative expenses, which rose to 17% of revenue from 8% in Q2 2024, and potential challenges in executing its expansion strategy. The stock’s volatility presents both risks and opportunities, with InvestingPro subscribers gaining access to real-time valuations and comprehensive financial health scores to make informed investment decisions.

Outlook & Guidance

The company maintains a positive outlook, targeting $78 million in annual revenue with an adjusted EBITDA margin of 16-20%. NTG Clarity is also exploring mergers and acquisitions in the Gulf region and continuing to expand geographically. The integration of AI into its software platforms is expected to enhance developer productivity and customer value.

Executive Commentary

Adam Zagwell, VP of Strategy and Planning, emphasized the company’s scalable and profitable model, particularly in the Gulf region. He stated, "Our model is scalable and profitable, and we really have a proven product market fit for the Gulf Region." He also highlighted AI’s potential, saying, "We see AI as an opportunity to increase our developer productivity and really provide more value to our customers."

Risks and Challenges

• Increased operational costs could pressure margins.
• Execution risks in geographic expansion strategies.
• Potential foreign exchange impacts on financial performance.
• Competitive pressures in the Gulf region’s digital transformation market.
• Dependence on successful integration of AI into products.

Q&A

During the earnings call, analysts raised questions about the impacts of foreign exchange fluctuations and the composition of NTG Apps revenue. Executives addressed concerns about margin expansion strategies and clarified the company’s plans for geographic expansion, particularly in the Gulf region.

Full transcript - NTG Clarity Networks Inc. (NCI) Q2 2025:

Ali Farooq, Analyst, NTG Clarity: Good morning, and welcome to NTG Clarity’s Q2 twenty twenty five 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 the three months ending 06/30/2025. We’ll then have a Q and A period, answering questions from covering analysts and investors. Note that the full published report with audited financial statements, notes and 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 the 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. If you have a question that doesn’t get addressed, please reach out to adam@ntgclarity.com, and we will get get you an answer after the call. With that said, I’ll be welcoming management for remarks shortly. But first, I’ll start with a quick disclaimer.

Certain statements in this presentation and 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 and necessarily subjects 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 forward looking statements are based on the estimates and opinions of the management on the dates they are made and expressly qualified in their 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 non GAAP financial measures that management believe 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 reconciliation of non IFRS measures to IFRS measures. With that, I’d like to invite Adam Zagwell, Vice President Strategy and Planning, to begin his remarks.

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Alright. Right on. Thank you, Ali, and thank you to everybody who tuned in this morning for our earnings conference call. It really is great to see all of the, interest that you guys have and the support that you have taking a look at, our results coming out of q two. So, of course, I am Adam Zaggle, vice president of strategy and planning for NTG.

And, I wanted to start it just by saying, know, despite some headwinds that we faced from, some foreign exchange taxes as well as some investments that we made in our growth of our operations, q two twenty twenty five really was another quarter of really strong growth. You know, it makes 17 consecutive quarters of last twelve months revenue growth, bringing that last twelve months revenue up to a record level, about $70,000,000. And, we’re really seeing a continued tailwind from our key market of Saudi Arabia. They’re still investing heavily into IT infrastructure digital transformation as a part of their vision 2030 initiative to diversify their economy, and really technologize. And with all the growth in that sector, we’ve been growing along with them.

You know, q two, we grew our team again. We hired approximately a 100 new employees, bringing us up to 1,300 total employees. And the whole team has been working really hard to continue the growth that we’ve been seeing over the last few years, really. So I would say q two is another quarter of accomplishments. We entered 2025 really with a focus on, you know, three key strategic priorities.

You know, the first is to really embed ourselves in our customers’ digital transformation strategy to become an integral part and and expand with them and grow with them as they continue to invest in digital transformation. We also wanted to, expand our footprint by winning new customers. A lot of times, those come from word-of-mouth referrals from satisfied existing customers. And we did pretty well on those first two initiatives. Like, I can just, call out so far this quarter, you know, one of our three year contracts that we signed towards the 2024, this quarter got, expanded for a second time to the point where the first year’s billing is approximately 60% higher than we originally thought.

So definitely a lot of success in expanding our outsourcing business. I would say the standout for this quarter really is this third point, which is to increase the adoption of our in house built proprietary software platform, which is NTG Apps. This year, in q two, we saw amazing, year over year growth, about 1600% year over year in the revenue from the NTG Apps line, so absolutely incredible. I remember talking last quarter about how, you know, the team did a lot of work in 2020 for getting to the point where a lot of our customers were at least piloting the the NTG Apps product, about half of them. And I also talked about how those pilot projects were turning into real projects, and we definitely saw the engagements continue to expand in 2025 as well with this amazing growth.

Now I’ll just call out, you know, a lot of these early NTG Apps projects are sort of like more traditional bespoke software development and implementation projects. So a large proportion of the revenue is services based and implementation of the project, but there is a portion that is licensing maintenance support that can be considered that sort of recurring revenue style. So as we look to scale this line, we’ll also look to bring with it a larger base of that recurring SaaS style software license and revenue, which will come with it, you know, a higher margin as well. Talking about the top line in Q2, we really saw strong year over year revenue growth despite the FX headwind that we experienced, and I’ll talk a little bit more about that in a second. But revenue year over year is up 51%, bringing our revenue for the quarter to $18,900,000 The gross margin expanded by about three eighty basis points to about 38%, driving up our gross profit by about 68% as well.

So a great expansion in the gross margin. This was driven largely by the NTG Apps playing a bigger part in our revenue mix. This quarter, NTG Apps contributed about 21% of of the quarter’s revenue, so great performance from NTG Apps. But we also had strong performance from our offshore software development offering. Year over year offshore services, the revenue contribution increased by about 90%.

So we’re definitely seeing a clear trend of our customers choosing these sort of offshore and NTG app services, which, you know, from their perspective, they’re still getting the same great quality software development services delivered in their language, in their time zone, by our Egypt offshore center, but they’re also getting cost saves savings associated with it. But on the NTG side, these offerings are really scalable as well as higher margin for us, so it really is a win all around. Now I wanna talk a little bit about foreign exchange for the quarter. It’s definitely had a little bit of a headwind for us this quarter, and it makes sort of sequential comparisons between quarters a little bit tricky because of how it how it worked out for us. Just as a refresher, we bill our customers primarily in the Saudi real, which is pegged to the US dollar, but we report in Canadian dollars.

And over the course of q two, you can see from the chart here that we saw about a 5% decline in the US dollar to Canadian dollar exchange rate, and that resulted in about a $1,000,000 headwind, to NTG. I wanna stress that, you know, the foreign exchange situation doesn’t have really any impact on our customers’ demand for our services or our backlog or our ability to really win work going into the future. But what it does have an impact on is the way that our revenue translates on these financial statements. But that being said, since quarter end, we have seen a stabilization in the US dollar, Canadian dollar exchange rate and even seen it improve, at least slightly. And we don’t expect future quarters to have, this much of a disturbance from foreign exchange going on into the future.

So with that point about foreign exchange in mind, I wanna stress that we’re still on track to meet our 2025 revenue tar target of $78,000,000 for the year. So definitely wanna reaffirm that revenue guidance. $78,000,000 for the year 2025 would be about 39 or 40% year over year revenue growth. And the confidence in that backlog really comes from a couple of places. It’s from our backlog of a $100,000,000 of POs and contracts on hand approximately, but also from the continued trend we saw in q two of our customers showing strong retention rates.

Like, customers are continuing to work with us, but not only that, they’re also choosing to expand the scope of their contracts with us as well. So we start to see a lot of contract expansions. That twenty two million dollar three year contract example is just one of many. So at the end of the day, while we’re not immune to currency fluctuations, we still see from boots on the ground that the demand in our markets is strong for the types of products and services that we’re offering. I’ll talk a little bit about operating expenses for the quarter, starting in the g and a line.

G and a this year represented about 17% of revenue, up from about 8% in q two twenty twenty four, but this is really because of an intentional increase in the g and a, what we expect to be over the short term, to support things like hiring, onboarding, and training resources to be deployed on future engagements. Now the types of resources that we’ve been hiring, there definitely is a bend towards more senior, harder to find, resources that are gonna help with the larger, more complex projects that we see coming down the pipeline as well. So we definitely rather hire and retain them, before we need them rather than be in a situation where we have to scramble for talent when we actually get those contracts coming through. So the majority of the increase in g and a was intentional hiring in preparation for the next leg of growth. There also was a decent amount of expenses in investing in our geographic expansion.

A good example is investments in expanding our operations in Iraq that contributed about 1% of revenues worth of expenses this quarter. So we’re doing things like hiring a sales team, consultants looking for office space as well to really keep the growth that we’ve been seeing in the region of Iraq going, which I’ll talk about in a little bit as well. But looking ahead on the g and a side, we really expect to be rolling out some of the resources that we’ve hired, moving their expenses from g and a to the cost of goods sold line when they’re billable, reducing that absolute g and a expense, and expanding the margins from there as well. Talking about sales and marketing as well. This quarter, q two twenty twenty five, we saw sales and marketing represent about 7% of revenue, up from about 5% in q two twenty twenty four.

This is about where we expect to see this expense land. You know, there could be some noise from things like extra travel expenses or commissions hitting or some extra investments in expansion. But in general, the sort of five to 6% of revenue target is where we wanna be, for the sales and marketing expenses. Talking about profitability for the quarter, net income before taxes and foreign exchange, this quarter was about $2,400,000, so very similar to the position we were in last year. But as you can see from the chart here, foreign exchange and taxes definitely had an impact on our net income this year.

We talked about the foreign exchange aspect of it. Taxes, just as a refresher, you know, we are as of 2025, we’ve run through our historical accumulated tax losses in Canada, so we are taxable here. This quarter, due to the compressed, net income margins, we didn’t provision for any Canadian taxes, but the expenses were, basically payments for Saudi corporate income tax, which we also pay in Saudi Arabia as well. So after foreign exchange and taxes, we were left with about $400,000 in net income or about 2% of our revenue for the quarter. Now the difference between net income and adjusted EBITDA is, of course, those foreign exchange and tax items largely.

And adjusted EBITDA for the quarter came in at about $2,800,000 or about 15% of revenue. But the reason is straightforward. As I was discussing with the g and a line, we’re consciously carrying more talent on the payroll this quarter in order to prepare for deploying them as billable in future quarters as well. I want to talk about our adjusted EBITDA guidance for the year. So I mentioned for this quarter, we came in at about 50 per 15% adjusted EBITDA.

Our target for the year is 16 to 20%, so we came in just, slightly under that because of our focus on hiring and investing. But we expect to see g and a decrease as a share of revenue toward towards the back half of the year and allow our adjusted EBITDA margins to expand back towards our target as we roll off some of those, resources that we’ve hired into billable roles. So this is exactly the type of operating leverage leverage that we were able to demonstrate in the past, definitely towards the back half of 2024 comes to mind. So we feel confident in reaffirming that our full year adjusted EBITDA guidance will fall or our full year adjusted EBITDA margin will fall in the range between 1620%. On the cash flow for the quarter, three big impacts on cash flow in q two was the foreign exchange headwinds that I described earlier, the Saudi tax payments that we had to, make as well, but also seasonally slower collections that we experienced, in q two.

So we finished the quarter with about $900,000 in operating cash flow before change in net working capital. After the changes, we had an outflow of about $2,700,000 for bottom line operating cash flow. The main changes in net working capital were from accounts receivable, and that’s because q two collections, just like back in 2024, were impacted by a combination of holidays and summer vacation in The Middle East. You know, q two had, both of the two major Muslim holidays impact, sales cycle, billing cycles, and, of course, collections cycles in Saudi Arabia causing a rise in the accounts receivable. But if you take a look at our accounts receivable breakdown, approximately 95% of the accounts receivables age between zero and ninety days.

Another 5%, the balance is age older than ninety days, and that’s actually an improvement from q one. So definitely our accounts receivable is still in a very healthy state. And as we look forward into q three, just like last year, we’re expecting it to be a stronger quarter of collections to make up for the, slowdown that happened as a result of the holidays. But overall, last points on cash flow are probably, you know, we’re continuing to strengthen our balance sheet by repaying some of our bank debt, to the point where it’s just about almost gone at the ’2, and also continuing to make some payments towards, the long term debt as well to continue to strengthen that balance sheet. So at the post quarter time frame, we also closed an equity raise that I want to talk a little bit about.

Back in July, we closed gross proceeds about $9,000,000 in equity. The net proceeds were about 8,200,000.0. And I want to talk about a few of the reasons for why we thought now was the best time to do that. The first is, improvements to our balance sheet. We’re at a point where we’re negotiating with a lot of large clients, larger engagements, and it makes those clients more comfortable, engaging with us if they know that our balance sheet is in a strong position to be able to fund the the projects that they’re granting us at this point.

The second point is to provide us a little bit of flexibility to pursue some more growth opportunities that could be either organically, like our investments in more sales staff and more g and a staff to be rolled out to engagements in the future. But it could also be in getting a little bit more strategic about mergers and acquisitions, looking for some potential roll ups, which I’ll I’ll talk a little bit more about in a minute here. But the third reason really is we had the chance with this raise to bring on some pretty high quality institutional investors, which is important as we continue to grow and broaden our base of shareholders. Right? So investors definitely bring capital to the table, but they also offer pretty valuable perspective and guidance and can really act as strong advocates, to raise awareness for the company as well.

So we’re really excited to bring, some strong institutional investors to the table with this equity raise as well. So with the cash on the balance sheet from this equity raise, we it really gives us the opportunity to continue to invest in what we see as our medium to long term growth strategy. And at its core, it really to continue what we have been doing already. We’ve sort of defined this core growth model where we’ll start with relatively small engagements with new customers, a lot of times based from word-of-mouth referrals from existing customers, And then we will impress them with the quality of our work, the competitiveness of our pricing, and, really the cultural alignment of our team based with that Egypt offshore center. We’ll work with our embedded account reps with the with the customer to basically identify areas where we can continue to work even more, grow those engagements, expand them naturally over time, and really get to the point where the customers are happy to introduce us to their friends and provide us with referrals, and the cycle repeats itself from there.

So that really is the story behind all the growth that we’ve been seeing over the last few years organically in Saudi Arabia, but it also has started to result in some organic growth and expansion in neighboring geographies as well. Iraq and Oman are really good examples where we have an early stage operation there contributing about a few percent of our revenue. But in the Iraq and Oman markets combined, we saw in q two twenty twenty five about a 76% year over year increase in revenue. So that beat the company as a whole as well in terms of revenue growth. So really excited to to continue the geographic expansion, and that really is just the beginning.

There are other neighboring geographies, Kuwait, Qatar, The UAE, for example, that have similar vision style, digital transformation, and economic diversification strategies, and are looking to invest and digitize. So over the long term, I think, you know, our Egypt based operations can serve those markets just as well as in Saudi Arabia and in Iraq and in Oman as well. So the recent capital raise also gives us flexibility to start looking at the potential for some m and a roll ups. You know, if we can identify companies either in Saudi Arabia or in some of the neighboring Gulf geographies that are similar to where NTG was about five years ago. You know, they have a decade and a half track record of quality work in the region.

You’ve built the relationships that are fundamental to doing business in the region. We could look to basically exercise a roll up and bring them on board, bring in our Egypt offshore center and Talib pipeline, and really grow the engagements with the customers that they have as well. Now, like I mentioned, some extra capital gives us the flexibility to move more quickly, but I just wanna be upfront and honest with investors that we’re still in the very early stages of this MNA piece. So I don’t wanna set any specific expectations around timeline or anything related to to that piece. But overall, we’re really excited to continue this core growth model and see where the expansion can get us in Saudi Arabia and in the neighboring geographies as well.

But overall, to summarize, I would just say q two twenty twenty five was another great quarter of year over year growth. It makes 17 consecutive quarters of last twelve months revenue growth. And even though we had some headwinds from foreign exchange and taxes, and our EBITDA was tracking slightly below our target, it really was because we’re making deliberate investments to position us for longer term success. And we’re already seeing the early results of that success with the strong performance of our higher margin offerings like NTG apps and the offshore software development services, as well as in geographic expansion with the success in revenue growth in neighboring Gulf geographies like Iraq and Oman. You know, our model is scalable and profitable, and we really have a proven product market fit for the Gulf Region.

So as the region continues to prioritize its digital transformation as a part of its economic development and diversification plan, we have confidence that we can maintain the growth trajectory that we have been on so far. So with that, I wanna say thank you for listening to the prepared remarks, and I wanna change things over to the q and a period where we’ll welcome some questions first by our covering analysts and then from some investors as well. So I’ll invite Aravinda Galatapige from Canaccord onto the screen to start us off with some questions.

Aravinda Galatapige, Analyst, Canaccord: Thanks, Adam, and congrats on the quarter and the continued success. So I’ll start with, obviously, NTG apps. I mean, that was a kind of a headline, as you noted. To get a little bit maybe more granular, what proportion of that sort of $4,000,000 number should we think of as sort of implementation and sort of installment or setting up cost? And, you know, just so just so that we have a sense of what the the recurring component is.

And and what exactly is the model of the recurring component? Is it maintenance, or is it sort of an ongoing sort of almost a licensing fee type of structure?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: That’s a really good question. Thanks, Aravinda. So, yeah, the NTG apps, we are really excited about the growth we’ve seen this quarter for sure. But when I think about the breakdown between licensing and, you know, services implementation, it really is the majority of of the revenue is coming from those implementation services. I would probably say, you know, in excess of 80% is going to be from those sort of bespoke services implementation.

The benefit behind that is, you know, we get to make a really tailor made solution that works for our individual customers. So we can expect it to be very sticky and stay around for a long time with those customers and let us bill the remaining percentage of that sort of ongoing license maintenance support. And, ideally, over time, we start to see the customer base grow. I guess, number one, we’ll have to do less bespoke work because we’ll have a mature product line. But, also, number two, with scale and more customers, we’ll be able to increase the amount of just general ongoing license support and maintenance fees as well.

Now on the nature of those license license support and maintenance fee, they typically are sort of like a package bundle. So what comes with it is, yes, license to use the product, but, also, you know, access to support resources, in order to fix any errors or train users, that kind of thing. So it is sort of like a package deal between license and, user support as well.

Aravinda Galatapige, Analyst, Canaccord: Okay. And, also just to kinda get the FX, impact out of the way, Adam, the the 1,000,000 negative the headwind, is that at the top line? Mean, that’s at the bottom line level, right? I mean, top line, like, level math, you look at q two last year versus q two this year, the USD Canada rate hasn’t really exchange rate hasn’t changed too dramatically. Was your top line affected by the exchange rate as well year over year comparison?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: That’s a really good question for sure. You know, when we’re looking at basically, we get FX impacts on both the top line and the bottom line. Right? Like, we bill in that Saudi real pegged to the US dollars. A lot of our expenses are also in Saudi reals, but also, you know, some Egyptian pounds and Canadian dollars as well.

So we get the FX showing up at every line. Just as a point of comparison, you know, if the foreign exchange situation in q two was the same as it was in q one, for example, then we probably would have seen over a million dollars more in the top line. It probably would have been closer to a $20,000,000 quarter, but we would have had improved bottom line margins as well. You know, the net income probably would have been closer to, 1.3 or 1,400,000. So the FX shows itself up in in both lines for sure.

Aravinda Galatapige, Analyst, Canaccord: Okay. And then just to kind of talk about margins in the second half. The obviously, the guidance suggests a fairly significant uptick in the second half. If I kind of break that down, I mean, we have a sense of what the revenues would be because of your very clear revenue guide. G and A was up about 240% year over year, and it’s really that salaries and wages piece.

Should we kind of anticipate sort of the absolute number for G and A stepping down from the Q2 level? Because that looks even considering the headcount increase, that salary and wages component looks like a bit of a step up. Just wanted to get a sense of the sequential, trend.

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Yeah. I would say definitely that’s a good question. The intention behind hiring these additional resources, again, they are the more senior resources that are a little bit more expensive, a little bit higher harder to find, is we wanna get ourselves prepared for the next leg of of projects that we’re gonna see coming down the pipeline. So we think we are in a pretty good spot of being staffed up right now, and what we’re expecting to see is sort of, like, this plateau of G and A expenses here. And as towards the back half of the year and into potentially 2026, we begin rolling more and more of these resources out with some of our clients, we’ll start to see some stepping down of the g and a expenses on an absolute sense and bring it more in line with what we’d expect to see from, that sort of 16 to 20% adjusted EBITDA guide that way.

So definitely expecting, you know, a plateau followed by stepping down of the g and a expenses.

Aravinda Galatapige, Analyst, Canaccord: Okay. Thanks. I’ll I’ll pass the line. Thank you.

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Okay. Thanks very much, Aravinda. Appreciate you having having you on the line. So next up, I’d like to invite, Doug Cooper from Beacon Securities up to the, screen to ask a couple of questions. Doug, if you’re ready.

Doug Cooper, Analyst, Beacon Securities: Yeah. Can you hear me, Adam?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Yeah. All good. Welcome.

Doug Cooper, Analyst, Beacon Securities: Okay. Just getting back to the prior question on margins, the gross margin in particular. So you you obviously, NTG apps implementation stage. But as that sort of matures in the higher software margin, what what do you expect the impact of that to be on gross margin? So you came in this quarter, you know, not in or I guess including the FX, which were just around 38, 39%.

What do you anticipate that to be over the next eighteen, twenty four months as MTG apps becomes

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: a bigger proportion of revenue? Good question. Thanks, Doug. So definitely really excited about having NTG apps, a larger proportion of the revenue, especially because that sort of licensing support and maintenance piece lends itself to inherently higher margins. I would say in the short term, you know, NTG apps, I like I mentioned when we were talking with Erwinda, the nature of the revenue from NTG apps is largely service based.

So it’s very similar to the sort of on-site offshore resources that we’ve been billing for as well. Now that’s just because, you know, early on, we’re making very bespoke software implementation projects for our customers. It still is a little bit better because they are project based, and it has that component of licensing and support and maintenance as well. But as of right now, it that little bit better has expanded our margins modestly. But over the longer term, you know, what we’re expecting to see happen is that sort of bespoke software services line to shrink and the just ongoing base of licensing support and maintenance that we have, we’re expecting that to grow and bring with it more traditional SaaS style margins.

You know? It could be up upwards of fifty, sixty. You know, some software platforms even achieve 70% gross margins. So that’s what we’re expecting over the longer term for the NTG apps line. But over the shorter term, it will probably end up closer to that high end of that 35 to 40% gross margin that we see as as typical, so probably closer to the 40% like we have been seeing.

Doug Cooper, Analyst, Beacon Securities: Okay. Just moving on to I thought it was interesting, your geographic expansion plans. Can you give us an an idea you know, Saudi’s got the vision 2030, obviously. Kuwait, think, some of these other countries you mentioned have similar type of projects. Can you give us an idea?

You you mentioned, you know, revenue is up 76% year over year, but can you put an absolute dollar number on that and, you know, what you think that can be sort of non Saudi Middle East revenue can be as a component of revenue over the couple of years?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Yeah. Definitely, it it is an exciting time to be in some of the neighboring geographies. You know, especially when it comes to Iraq is just such an amazing use case or such an amazing case study just because it’s in a very similar spot to maybe where Saudi Arabia was a decade or so ago. Right? They have a lot of revenue from oil and and gas or a lot of, yeah, funds from oil and gas, but, you know, they’re basically starting from scratch when it comes to anything digital transformation computational or or anything like that.

So there is a huge opportunity to grow and expand in the Iraqi market itself. That being said, as of this quarter, the Iraqi market contributed only about 2% of our our revenue even though there is strong year over year growth when it comes to that line offer. Over the the medium term, you know, there really is a lot of investment appetite. That’s why we’re focused so hard on, basically establishing a local presence there, looking for offices, hiring sales staff, that kind of thing. So, you know, our CEO always says, you know, it could be as significant as Saudi over the five to ten year time frame.

But all that being said, you know, as as of right now and probably for the foreseeable future as Saudi Arabia continues to show strong demand, it it’s still going to be a relatively minor part of NTG’s revenue, I would say.

Doug Cooper, Analyst, Beacon Securities: K. Of the 1,300 employees, how many would be not, like, on non Saudi?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Of the 1,300 employees, I would say right now, it’s probably on the neighborhood of, 50 or 75.

Doug Cooper, Analyst, Beacon Securities: And just final one for me. Just the regional conflict, obviously, with Israel, Gaza. Any impact on, you know, what’s happening on the ground in Saudi or or, for that matter, any of the neighboring geographies? And I’ll leave it there. Thank you.

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Yeah. Good point. It’s always good to keep a touch on the geopolitics of the region for sure. I would say, you know, there hasn’t really been any change in the situation from our perspective, as has been the case in previous quarters. The Gulf States especially have remained focused on economic development and economic diversification, and every effort has been made to basically maintain peace and try and stay out of, as much as possible, the regional troubles.

So we’ve been seeing, you know, overall a philosophy of stability and economic growth in in The Gulf still, we expect that to remain the case. So thanks very much, Doug. Appreciate the questions. Thanks for coming on. And next up, we’ve also got Chris Northwood from Activate Capital on the line.

So I’d like to welcome Chris to the screen for some questions. Thanks, Chris.

Chris Northwood, Analyst, Activate Capital: Yeah. Thanks, Adam. I’m gonna go back to the FX rate. Looking at the charts today, the rate was down 5% in the second quarter. That’s obviously the million bucks on 20,000,000.

Pretty simple maths. But it’s also started to recover. Does that mean that we’ll see a recovery in third quarter, some of those losses potentially? Does it turn around that quickly? Or how long does it take to really impact?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Yeah. That’s definitely a really good question. And it’s really good to point out for sure, just as we saw in Q2, you know, how quickly the losses on FX can accumulate to the point of being about a million dollars, we we can expect the turnaround to be relatively rapid as well. And that’s what we’ve seen historically. Right?

Up until q two, foreign exchange has actually been a tailwind for us, we’ve actually made a significant amount of gains on FX, especially when, you know, the proportion of our revenue coming from the US dollar is extremely high as it has been, and the US dollar has been performing well. So I think, you know, if trends continue and the U. S. Dollar continues to show recovery as we’ve sort of seen the beginnings of in Q3, we can expect some of those gains or some of those losses to be offset by gains as we post future quarters. So that is a really good point.

Chris Northwood, Analyst, Activate Capital: Thanks. And then just on cash flow, obviously receivables sort of blew out a little bit. But can you give us any idea how things are going so far in the third quarter? Are we sort of catching up? And does that mean that we’re going to return to that positive operating cash flow in the third quarter also?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: So definitely saw some constriction in the cash flow due in large part to that increase in the accounts receivable in q two. But so far, q three, just as we saw last year, has been a a quarter of pretty strong collections. You know, people are coming back to work after being off on summer vacation and you know, Eid vacation in Saudi Arabia, and, you know, the billing and collection cycles are returning to where they’re going to be. So if, as of right now, you know, we’re on track in q three to make up the deficit of of collections, and hopefully we’ll have a dampened, if not, you know, net zero change in those account receivables going on looking into to q three. So we’re making good progress.

Chris Northwood, Analyst, Activate Capital: Okay. Great. That’s that’s all for me. Thanks.

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Alright. Great. Thanks very much, Chris. Appreciate the the questions. And looking at the time, it looks like we’ve got time for a couple more write in questions from some of our investors.

So I’d like to invite Ali back onto the stage to, read us a couple of those questions, please.

Ali Farooq, Analyst, NTG Clarity: Thanks, Adam. Okay. Our first question comes in from Murray, a private investor. Would you comment on your growth prospects for specific NTG product offerings in the context of both Saudi Arabia and nearby countries? Which particular segments of these countries do you visualize or target for sales penetration?

Are there many clients within petrochemical pipeline refining areas of the economy? Are you more focused upon communication, banking, and other monetary institutions?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Okay. Thanks for the question, Marie. Appreciate it. Yeah. So talking more about, NTG apps and the target market for NTG apps.

Just on a sector basis right now, you know, our, historic focus has been on sectors like telecom, financial institutions, and and other IT companies. And we have found a strategy that seems to be working, which is working with our existing customers who fall into those sectors and use NTG apps as the sort of cross sell upsell opportunity with them. So, you know, maybe some of these customers might think that they want outsourced software development services, but it turns out that we have an NTG apps implementation that could meet all of their needs so we can upsell it like that, cross sell it like that. So what we expect to see happen is from a sector standpoint, we will remain focused on the financial institutions, telecom operators, and IT company. And as of right now, we don’t have a very strong presence in the oil and gas sector.

But I guess I can just throw in that, you know, one of the things that we’re going to be looking for when we start thinking about expansion and M and A rolling up some of these other companies is going to be companies who have exposure to the oil and gas sector. Because even though the region is trying to diversify away from oil and gas, it will still remain a large part of the economy as well. So I just wanted to throw that in there. But probably one other aspect is that, you know, not just in Saudi Arabia, but also in all of the neighboring geographies that we’re targeting as well, There is a focus on expanding the small and medium sized business ecosystem. You know, one of the core pillars of Saudi Arabia’s vision 2030 is basically a bustling SMB ecosystem that way.

So we’re also finding some success working with these small and medium sized businesses, offering them things like enterprise resource planning systems based on NTG apps, and really looking forward to growing with this growing segment. So overall, I would say the primary focus is serving our traditional sectors that we have been serving in Saudi Arabia and in the rest of The Gulf, followed by taking advantage of the growth in the SMB marketplace as well.

Ali Farooq, Analyst, NTG Clarity: Okay. Great. Our next question is written in of the day. How does AI impact your business?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: Thanks for the question. Appreciate it. AI is definitely a hot topic when it comes to world of software development right now. There definitely is a lot of news. I would say overall, NTG’s position on AI really is one of seeing it as an opportunity as opposed to a threat from threat to our business.

You know? What we don’t see happening anytime soon is the complete replacement of some of our software developers by by these AI tools. But at the same time, we recognize that tools like, you know, the Copilot or or Cursor, are going to be able to improve developer productivity. Because at the end of the day, what our customers get from us in terms of value and what we’re providing to them is, the results and the the systems that we’re building and the infrastructure that we’re building out. And these AI tools, we really see as an opportunity to increase our developer productivity and really provide more value to our customers.

So if anything, we see it, you know, all of the changes in AI as an opportunity to provide more value for our customers over the long term. So that’s sort of on the services side. On the software product side, we’re also working with a lot of the AI models to implement and integrate them into our software offering, to NTG apps. So there are a couple of early stage projects using AI to sort of, you know, train sales teams with a chatbot or crunch numbers on investment feasibility for some of our financial services customers. So overall, we’re just really excited about the possibility for AI to improve developer productivity and also augment and improve the value that’s offered from our proprietary software platforms as well.

Ali Farooq, Analyst, NTG Clarity: Okay. Amazing. And, our last question is written in from Megan, another prime investor. With NTG apps making up so much of the growth this quarter, does that mean some of the other segments are down?

Adam Zagwell, Vice President Strategy and Planning, NTG Clarity: That’s a good question. Thanks, Megan. And it’s it’s pretty perceptive too because, you know, NTG apps being up 1600% and the offshore services being up 90%, we actually did see a year over year decline in revenue from on services. It actually went down about 16%. But from our perspective, what we’re seeing happen is our customers are recognizing the value in offshore work and NTG apps.

You know, they’re still getting the same quality developers that they would have gotten on-site, but they’re at a fraction of the cost. And they’re still, you know, and very importantly, speak their language, work in their time zone, being based out of Egypt just across the Red Sea there. So what we’re seeing happen is our customers move some of their on-site work offshore, but also move towards NTG apps implementations instead of building the the software and, technical infrastructure from scratch themselves too. And NTG, you know, as a company is perfectly okay with this because the offshore services and the NTG app’s offerings are higher margin and more scalable than the on-site services as well. So very happy to move the proportions of revenue over to those lines.

Alright. And that being the last question, thanks very much, Ali, for reading off the questions. I just want to say thanks again to everybody who is tuning in and everybody who asked us a question. Again, I really think that Q2, despite a few headwinds and some investment, was a very strong quarter of continued year over year revenue growth. So we’re looking forward to keep this going into Q3 because the opportunity is there, our customers have the demand for our services, and we really think that there is a long way to grow yet, in the IT services market in Saudi Arabia.

But until q three, thank you again, and I’ll talk to you soon.

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