NTG Clarity Networks Inc.

Good morning everyone and welcome to NTG Clarity's Q2 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 on the geopolitical situation and our 2026 outlook. We'll be giving our financial and operating results for the three months ended June 30th, 2026, starting with an update on the geopolitical situation and our 2026 outlook. We'll then have a G&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 CDER 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 does not get addressed, please reach out to Adam at ntgclarity.com and we'll get you an answer after the call. With that said, I'll be welcoming management for our remarks shortly. But first, I'll start with a quick disclaimer. Certain statements in this presentation, other than statements of historical fact and 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 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 Zaghloul, Vice President Strategy and Planning, to begin his remarks.

All right. Thank you very much, Ali, for the introduction, and thank you to everybody who is tuning in for our Q2 2026 Earnings Conference call. I want to start off The call before I get into the financial operating results, I want to announce that we are unfortunately withdrawing our fiscal 2020 financial guidance, and that includes both the $90 million revenue floor and the 13 to 16% adjusted EBITDA margin range. We're not going to be able to issue any sort of replacement guidance at this time, but the The outlook that we posted towards the beginning of this year assumed that clients would continue to renew and release their contracted project work throughout the rest of 2026 at the pace similar to what we've seen historically, but while revenue was stable From March, April and May. In June, clients definitely slowed their project releases and decision making, and June billings were below our expectations. So the outlook was last reaffirmed in late May before that observation had been taking place. So the geopolitical situation in the Middle East is definitely the driving force behind this, and I'll speak a little bit more about that in a moment. But without any sort of clarity on when this conflict is going to be resolved and when the Saudi economy can return to growth, really, it's hard for us to forecast our customer needs and our customer behavior. So some clients have continued full steam ahead on their plans or even expanded their, you know, renewed and even expanded their engagements with us. But others have taken a much more cautious and conservative approach. You know, our profitability is really dependent on the utilization of our resources as well as top line revenue. So any change in that sort of revenue profile really has a disproportionate impact on our adjusted EBITDA margins and our profitability. And that revenue trend throughout the rest of the year will be the main driving force behind our profitability, our adjusted EBITDA. I also want to highlight that while there was a little bit of a downtrend in June, Really quarter end in July, we had much stronger revenue billings and collections. So the reason behind withdrawing the guidance really is due to the uncertainty and not being able to put forward guidance that we can confidently stand behind and not because we're seeing a consistent downward trend. So I just wanted to make that clear off the top. I'll talk about the geopolitical situation specifically. Basically, in late February, the conflict escalated and crude exports from the Gulf region were pretty severely disrupted. The initial concern was a direct operational impact to our own Saudi work, but that did not happen. Our delivery teams really operate out of Egypt primarily, but even the ones in Saudi are operating outside of the affected areas, and we've been able to continue our work without interruption. What has happened is really the fiscal picture has changed. Saudi oil activities fell about 25% year over year in the second quarter, and Saudi real GDP fell by almost 5%. Now we're not technically an oil business, but there really are few businesses in Saudi Arabia that are immune to this kind of impact. Non-oil activities actually grew in Q2 about 0.6% year over year, but that's down 2.9% in the first quarter and it really was a down on a sequential basis for non-oil activity. Oil receipts fund the government and government affiliated technology budgets that we serve. So really, You know, these oil receipts set the large budgets that that our customers are setting for technology. And it's usually a tailwind for the economy that we've seen really in recent years. But when those receipts fall, like we've seen this year, our customers definitely get more cautious with cash. They extend their projects and payment timelines. And we've seen both of that in both of our revenues and collections this quarter. We're still receiving renewals and new purchase orders with our customers, and we're still receiving customer payments as well. A third quarter specific Purchase orders to date are about 33.4 million. That's more than the whole of second quarter by a large margin. And both revenue and collections were materially higher in July than in June, as I mentioned on the last slide too. But what we're seeing is a much more cautious approach to forecasting at both the duration and the possible conclusions to the conflict in the Middle East. So with that level of uncertainty really around, we don't think it's prudent to issue an updated guidance at this time. So we'll move over to the financial results here. Q2 revenue was $20.1 million, up 6.4% from $18.9 million in Q2 2025. So in one sense, it's reassuring to point out that NTG's revenue are growing year over year faster than the Saudi economy as a whole. The first half revenue was $41.4 million, up 7.3% year over year. That is a first half record for the company and another quarter of last 12 months revenue growth. However, revenue declined by about $1.2 million sequentially from Q1 to Q2. And back in Q1, we had a decline as well, which I had attributed to basically the slowdown around the holiday season, Ramadan and Eid al-Fitr. And we guided back in Q1 that revenue would recover a little bit back in Q2 and return to sequential growth. So that didn't materialize really due to a slowdown in the conversion of purchase orders issued against both our framework agreements and renewals and new work really in the last month or so of Q2. Now, I mentioned before a couple of times now revenue in July was materially higher than our June revenue, and we really are maintaining a strong base of work with our existing customers and even getting new work from new customers. So I want to stress that our withdrawal of guidance really is due to the uncertainty around the situation and the difficulty in forecasting. Also, gross margin for the order was 33.5%. That's up from 33% in Q1, but it is down year over year as we've seen customers push for better pricing terms with the conflict backdrop, really. We'll move on to profitability. Q2 adjusted EBITDA was about $5,000, effectively 0% margin. That compares to about $800,000 in Q1 of 2026. and that compares to about 3.8 million dollars in Q4 of 2025. So really operating leverage is the main driver behind our adjusted EBITDA. Across these three quarters, our total cost base, so that is the cost of sales plus the G&A plus the sales and marketing, really were effectively flat. You can see 20.1 million, 20.6 million, 20.2 million. But really over the course of those three quarters, we saw a little bit of a revenue decline from 23.9 million in Q4 down to 20.1 million in Q2. So that 3.8 roughly million dollar revenue decline against a flat cost base is really the entire movement in our adjusted EBITDA. So at the end of the day, over about a million dollars per month of salary costs are currently sitting in G&A because those staff are not assigned to billable work with our customers. When those resources are assigned, they're reclassified to cost of sales and there's no incremental expense for us to begin billing revenue. It's cost that we are already carrying. That really is consistent with what we've seen over the last two or three quarters where deleveraging of our revenue really impacts the adjusted EBITDA line basically on a one-to-one basis. Also talk about net income. Net income for the quarter was about $2.3 million, and that figure includes approximately $1.8 million of tax recovery from the conversion of our Saudi branch into an LLC. and you know that's basically to avoid having to pay double tax in Saudi Arabia and in Canada. That is really non-recurring so it shouldn't be taken as any sort of operating performance. We also benefited from foreign exchange a little bit in Q2 and that is also backed out of our adjusted EBITDA as well. Now, our Q2 profitability really begs the question, why are we carrying so much non-billable delivery capacity? And for that, we have to explore our order flow. I mentioned Q3 saw a great deal more POs than Q2. Q2 purchase order announcements was about $12.3 million. Third quarter announcements today were about $33.4 million. That includes some of the first purchase orders against that new framework agreement that we signed in March with a large real estate developer in Saudi Arabia following basically their full proposal and evaluation process. So engagements like that really start with a relatively small placement and grow over the course of their lifetime. And, you know, our thinking is guidance effectively needs us to be able to forecast when work is going to be built. but holding our capacity really only requires a view on cash flow and whether or not the work exists in the first place. We've signed these multi-year agreements with purchase orders still to come. We've got this Thank you for joining us today. We're winning engagements with some of the largest companies in Saudi Arabia. You know, these are ones that we've we have experience growing from a small amount to even tens of millions of dollars annually. They still have long term, robust digital transformation roadmaps ahead of them, and we're eager to work with them on that. Now, the macro environment is really undoubtedly negative right now, and that's driven primarily due to lower oil revenue and the sort of follow on impacts onto the economy because of that. But the region's ambitions to modernize, digitize, diversify its economy really have not gone anywhere. And we really believe that our onsite and offshore delivery models can help deliver on some of these roadmaps, even if the timelines have been shifted slightly. I'll turn to the cash flow now. Q2 operating cash was an outflow of about $4.6 million. And again, we're seeing our customers push billing really to the extent that they're allowed to under the terms of their contracts. That includes delaying the release of invoices, which we see reflected in a little bit of growth in our contract assets line to unbilled revenue line recently. But as of now, management has begun working with clients directly in sort of a focused effort to speed up those collections. And as a result, subsequent to quarter end in July, we collected about $8 million Canadian, and that's approximately half of Q2's total collections. So that includes also the majority of accounts receivable aged over 60 days as of the report of Q2. So our focus is definitely on repeating that result every month until the end of the year to sort of moderate that impact on our working capital there. So that brings me to where our attention is for the rest of the year. You know, first, just doubling down on the point from the last slide, we want to convert the receivables, focus on converting those receivables. Collections moved really to escalation at the client level, direct executive negotiations, including new contracts. We want to offer a little bit of early payment incentive on future work. The key metrics that we're going to be keeping our eyes on are really how that account will move sales outstanding, how much of receivables from last quarter we're going to collect in this quarter, for example. Our second focus is going to be on converting the order book and returning to our growth trajectory. You know, we're going to be watching purchase orders received. We definitely got good signal so far in Q3 and really watching to see that total contracted backlog grow, which so far it's a positive signal that it's grown from Q1 to Q2 as well. So our operating model is proven in the past. Our fixed costs are there. So accelerating revenue to really get that sort of one to one Profitability Leverage really is our top of mind. And our last focus or our last top priority is hold our expenses against our cash, right? So we're keeping our delivery capacity in place, as I mentioned, and we're reviewing it against cash every month. If collections don't support that sort of cost base or if any of our client negotiations sort of stall, we're going to have to explore cutting costs for sure. So we're going to watch the cost base against revenue and Cash Collections really every month. Well, that brings me to the end of prepared remarks. I want to thank you for taking the time to listen to it. We're now going to open things up to a Q&A session. We're going to start with questions from our covering analysts and then move on to a few questions written in from investors ahead of the call. So if Again, like Ali mentioned at the beginning of the call, if you don't get your question answered, feel free to reach out to me. My email is on the screen, adam.ntgclarity.com, and I'll be happy to respond to you via email. But I think we'll get things started with covering analysts. I see Amr Ezzat from Canaccord Genuity is on the line. Amr, are you ready for any questions?

Hi, good morning. Can you hear me?