NTG Clarity Networks Inc.

Good morning and welcome to NTG Clarity's Q1 2026 earnings conference call. My name is Ali Farouk, 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 March 31st, 2026. We'll then have a Q&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 CDAR and our website at www.ntgclarity.com. This presentation aims to highlight and summarize the key information already reported there. We'll be posting both the slides and a 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 answered, please reach out to adam at ntgclarity.com and we will get you an answer after the call. With that said, I'll be welcoming management for a remark 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 here in. 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 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&A for details and reconciliation of non-IFRS measures to IFRS measures. With that, I'd like to invite Adam Zaglow, Vice President, Strategy and Planning, to begin his remarks.

Right on.

Thank you for the introduction, Ali, and thank you to everybody who's tuning in to this Q1 2026 earnings call. I want to start off by saying that Q1 marked our 20th consecutive quarter of the last 12 months revenue growth. So we kept the growth going this quarter. And despite some continued conflict in the region, which I'll give a more detailed update on shortly, Really, our structural investment thesis hasn't changed. We have a growing and embedded client base that's executing long term, large scope, digital transformation initiatives across Saudi Arabia. And what Q1 results reflect really is a seasonal effect that we forecasted in Q4 meeting with a already established fixed cost base. So to get right into the revenue, Q1 revenue was $21.3 million up 8.1% from the 19.7 million that we posted in Q1 2025. And on the Q4 call, I signaled that Q1 would look similar to Q3 2025, which came in at 20.9 million. So there was a slight revenue beat on that from a revenue perspective there. So it's important to notice for Q1 that Ramadan and Eid al-Fitr both fell entirely within the Q1 this year. So that was late February to late March. And really what this means is working hours are reduced by law in Saudi Arabia. Decision making slows down, people take vacations, new project starts are delayed until after the holiday. So for a Saudi facing company like us, this is one of the most significant, if not the most significant calendar event of the year. So the revenue data definitely shows this pattern, but our gross margin data shows it as well. Even in past quarters where we saw revenue growth, so Q2 2024, Q1 2025, those both had gross margins of about 34%, and Q1 2026 had a gross margin of about 33%. So all three Ramadan quarters had that sort of same dynamics. And throughout 2025, we built a delivery system that's capable of supporting materially more revenue than we saw in Q1, 2026. So this quarter ran that base at lower utilization throughout this sort of seasonal drop. And that's really what compressed our margins year over year, not a change in the cost structure at all. So this base is largely in place and relatively fixed. So as revenue normalizes against it, we can expect some leverage to return as we progress through Q2 through Q4 this year. So I'll talk about the effects of Ramadan on our cost structure, Ramadan and Eid this quarter. So sequentially Q4 2025 to Q1 2026, Our combined cost base was essentially flat, so that's when you take into consideration basically all of our staffing costs, so cost of sales plus G&A plus sales and marketing. Altogether, they moved by less than 2%, and what really changed was our internal classification, so not the total of these sort of expenses. During Ramadan, a lot of our delivery staff, who are normally billable to clients, move from cost of sales to G&A, especially if they're on an extended holiday period. And at the same time, overall lower utilization with clients and lower revenue compresses the gross margin as well. So adjusted EBITDA ends up taking the full effect of this reduced revenue, but the cost did not grow. They were really just recategorized within our internal categories. So I just want to reiterate that this cost base is built around having larger revenue than we saw in Q1. And Ramadan pulled utilization down for a few weeks and moved some of our billable staff onto the bench. And the base itself did not change. So as those staff return to work with our clients and we start to see things pick back up in Q2 and beyond, we're expecting the incremental revenue to land against that already established cost base and convert at a higher profitability rate. Getting into the profitability in Q1, Q1 2026 adjusted EBITDA came in at about $757,000. That was about a 3.6% margin. Net income was $979,000 or a 4.6% margin. And what we're looking at is operating leverage. Again, not any sort of change to our underlying cost structure. Q1 ran at that low utilization I mentioned, so margin compressed. Q2 through Q4 2026 are expected to run at relatively the same cost base, but at normalized revenues. And we're expecting margin recovery without necessarily adding any additional costs. So this slide is intended to help you visualize the impact of this sort of revenue, seasonal revenue disruption. Q4 2025's EBITDA block is meaningful, while Q1's revenue drop results in a sort of smaller adjusted EBITDA. The cost amounts are essentially identical. But looking forward, the Q2 block here is illustrative of our expected results. So a similar cost base, revenue is expected to normalize and margin recovers that way. So the Q2 through Q4 recovery really involves three things moving in concert. It's revenue rebounds of billings picked back up after the holiday period, gross margin recovers as our utilization rate goes up, and G&A normalizes as bench staff return to cost of sales. So all three in the same direction against the same cost base. should result in some leverage there. Talk a little bit about tax structure. One of our goals over the last year was to fix our overall tax structure. In fiscal year 2025, NTG paid an effective tax rate of about 37%, and that's nearly double the Saudi statutory corporate tax rate of about 20%. And so, I mean, that was because Saudi revenue was taxed twice, you know, once in the Kingdom and again in Canada, all on the same earnings. But in November, twenty, twenty five, our Saudi branch office was converted into an. And that means that Saudi revenue approximately ninety five percent of our total revenue is now taxed only once in the kingdom at that twenty percent corporate tax rate. So, the Canadian tax layer is effectively eliminated for our day to day operations. Again, in fiscal year 2025, there was a 17-point excess above the Saudi corporate tax rate that represented approximately $1.5 million in excessive tax expense. And of course, that amount is going to grow as our earnings grow. So going forward, we expect that drag to be eliminated. Talking about collections and cash flow, Q1 operating cash flow was positive $43,000. It was positive for the second consecutive quarter, despite our lower net income. And we collected over 99% of our Q4 trade receivables during Q1. So that left only about $79,000 in remaining AR that's aged over 90 days as of the end of Q1. Talking about contract assets, that's revenue that we've earned, but we haven't yet invoiced. It was sitting at 14.6M at the end of Q1. That's down from 16.3M at the end of the year. And those are typically buildings collected shortly after the quarter closes. And again, that large step up at the year end 2025 was just due to offering a little bit more accommodating payment terms to some of our larger, more trustworthy clients. So overall, bad debt Pence remains zero and has been for over two years now. And we really see that every dollar of our more than $29 million in AR is performing with customers that have a long track record of prompt payment with us for sure.