Neo-Concept International Group Holdings Limited Q1 FY2026 earnings call

- Overall Financial Performance * Q1 2026 total revenue was $21.3 million, an 8.1% increase year-over-year from $19.7 million in Q1 2025, and a slight beat versus prior guidance that expected Q1 revenue similar to Q3 2025's $20.9 million. * Q1 2026 gross margin was 33%, consistent with historical Ramadan quarters (34% in Q2 2024 and Q1 2025). Margin compression was driven solely by seasonal lower utilization, not a change in underlying cost structure. * Q1 2026 adjusted EBITDA was $757,000 (3.6% margin), and net income was $979,000 (4.6% margin). * Q1 2026 operating cash flow was positive $43,000, marking the second consecutive positive quarter. Over 99% of Q4 2025 trade receivables were collected in Q1, leaving only $79,000 in aged receivables over 90 days as of quarter end. * Contract assets (earned but uninvoiced revenue) fell to $14.6 million from $16.3 million at the end of 2025. Bad debt expense has remained at zero for over two years.

- Tax Structure Update * The company completed conversion of its Saudi branch to a standalone local entity in November 2025, eliminating double taxation of Saudi-sourced revenue, which represented ~95% of total company revenue. * The effective tax rate will drop from 37% in fiscal 2025 to the 20% Saudi statutory corporate tax rate going forward, eliminating a $1.5 million annual excess tax drag that would have grown with earnings.

- Geopolitical and Operational Context * The regional ongoing conflict has not caused direct operational disruption: NTG's delivery teams are based in Egypt, outside of affected conflict areas, and the company signed two new client framework agreements after the conflict began. * The company has observed extended decision-making cycles for new project launches and regional cost-cutting trends, but existing contracted backlog has not been materially impacted. NTG's lower-cost offshore delivery model aligns with current regional cost discipline priorities. * Saudi Arabia's ongoing digital transformation mandate and diversification away from oil remains intact, with non-oil GDP reaching 55% of total Saudi output in 2026, up from 45% in 2016.

- Strategic Updates * NTG invested in a new joint venture with Positivside Consulting, a Saudi-based IT and digital transformation consulting firm. The JV pairs NTG's Egyptian offshore delivery center with Positivside's existing client base (including government exposure) and $2 million annual current revenue, creating upside potential for 2026 and beyond.

Only NTG Apps, the company's product segment, is broken out in the call. NTG Apps contributed 10% of total company revenue in Q1 2026, with total Q1 2026 company revenue of $21.3 million, meaning NTG Apps Q1 2026 revenue is approximately $2.13 million. The majority of NTG Apps revenue currently comes from bespoke software development projects, with a small portion from potential future license or SaaS-style revenue. All other revenue (90% of total Q1 2026 revenue, equal to $19.17 million) comes from core IT services and digital transformation work for Saudi enterprise clients.

- Management maintains its full year 2026 guidance that was provided in Q4 2025, with a full year revenue floor of $90 million and adjusted EBITDA margin in the 13% to 16% range. - To hit the $90 million revenue target, the company needs to generate $68.7 million in revenue across Q2-Q4 2026, for an average of $23 million per quarter. This is below the $23.9 million revenue the company generated in Q4 2025, and will be achieved against the already established fixed cost base built to support higher revenue levels than Q1 2026. - Management expects sequential revenue growth through the remainder of 2026: a recovery in Q2, followed by continued ramp up in Q3 and Q4, with only a minor seasonal disturbance from the second annual Eid holiday. - Gross margins are expected to recover to the mid-30% range for non-Ramadan quarters as utilization normalizes, with incremental revenue converting to profitability at a much higher rate than Q1 given the fixed cost base. - The $90 million revenue floor is based only on contracted purchase orders and high-confidence renewals, with no upside from recently signed framework agreements (which have no contractual minimum spending commitments and are not included in backlog) factored into guidance.

- Extended regional conflict has led to longer decision-making cycles for new project launches, which could delay revenue recognition relative to prior expectations. - Regional government and enterprise cost-cutting could create headwinds for new project spending, though management notes NTG's offshore model positions it to benefit from this trend rather than be harmed by it. - AI could pose long-term risks to IT consulting demand, though management has not seen any negative impact to date in the Saudi market. - Recent reports of potential Saudi consultant payment freezes could create collection risk, though management notes no impact to date and the company's focus on operational digital delivery rather than traditional management consulting puts it at lower risk. - Backlog has trended down in recent quarters as new multi-year framework agreements do not include contractual spending floors, so they cannot be added to backlog until purchase orders are issued.

Q: Of the $73 million total backlog, how much is contracted to be billed in 2026, and do you need significant new contract wins to hit the full year guidance? / A: Guidance is based on already contracted purchase orders for 2026 plus low-risk, high-confidence expected renewals. No large volume of new contracts is required to meet the $90 million revenue floor, which is set based on already committed or very likely revenue. Any new contracts will serve as upside above guidance.

Q: How should we expect working capital and cash flow to trend for the rest of 2026? / A: The company's top priority is maintaining strong cash collection discipline and delivering positive operating cash flow for full year 2026, an improvement over 2025's investment-focused cash profile. Better collections and moderated growth are expected to keep working capital drag low, with 2025 pre-working-capital operating cash flow of $6.5 million providing a benchmark for potential full year 2026 performance if working capital remains controlled.

Q: Could the reported Saudi freeze on consultant payments impact NTG's business? / A: A Saudi government spokesperson already clarified that all contractual payments will still be made per agreed terms, which is reassuring. The freeze referenced only applies to traditional management consulting, which is not NTG's core line of business. NTG focuses on operational digital transformation work to support Saudi Vision 2030, and its low-cost offshore model aligns with current Saudi priorities. No impact has been seen to date, and no material impact is expected.

Q: Why is the 2026 revenue growth floor lower than 2025's growth rate, and does this reflect slower demand? / A: The $90 million floor only includes contracted purchase orders and high-confidence renewals; recently signed large framework agreements do not have contractual minimum spending commitments, so they are not included in the backlog or the guidance floor. This does not reflect a slowdown in demand, and any revenue from these framework agreements will count as upside above the guidance floor.