NCI

• Guidance Withdrawal: Management withdrew fiscal 2026 financial guidance (previously $90M revenue floor and 13-16% adjusted EBITDA margin) due to uncertainty surrounding the Middle East conflict, not because of a consistent downward trend.
• Geopolitical Impact: The escalation of conflict in late February disrupted Gulf crude exports, causing Saudi oil activities to fall ~25% YoY and real GDP to drop ~5%. This reduced government technology budgets, leading customers to extend project timelines and delay renewals.
• Operational Resilience: Delivery teams, primarily based in Egypt, operated without interruption. No clients cancelled engagements; however, decision-making cycles lengthened, and some renewals were delayed or downsized.
• Q3 Recovery Signals: Purchase orders for Q3 reached $33.4 million, significantly higher than Q2's $12.3 million. July revenue and collections were materially higher than June, indicating a rebound in activity.
• Cost Structure & Leverage: Total cost base remained effectively flat (~$20M/quarter) over the last three quarters despite revenue declines. Approximately $1 million/month in salary costs are currently non-billable (in G&A) as resources await assignment. Profitability is highly sensitive to revenue utilization.
• Cash Flow & Collections: Q2 operating cash flow was an outflow of $4.6 million due to delayed invoicing and collections. Post-quarter-end (July), the company collected ~$8 million CAD, recovering half of Q2’s total collections and clearing most receivables aged over 60 days.
• Strategic Focus: Priorities include aggressive collection efforts via executive negotiations, converting the strong order book into recognized revenue, and maintaining delivery capacity to capture future growth while monitoring cash burn monthly.

• Withdrawal: Fiscal 2026 guidance ($90M revenue floor, 13-16% adjusted EBITDA margin) has been withdrawn indefinitely due to geopolitical uncertainty.
• No Replacement Guidance: Management will not issue replacement guidance until there is clarity on the resolution of the Middle East conflict and the return of Saudi economic growth.
• Forward Outlook: While no specific numbers are provided, management highlights that Q3 purchase orders ($33.4M) and July performance suggest a recovery trajectory, though the duration and magnitude remain uncertain.

NTG Clarity reported Q2 2026 revenue of $20.1 million, representing a 6.4% year-over-year increase from $18.9 million in Q2 2025 and a record first-half revenue of $41.4 million (up 7.3% YoY). However, revenue declined sequentially by approximately $1.2 million from Q1 to Q2 due to slowed project releases in June. Gross margin stood at 33.5%, up slightly from 33% in Q1 but down year-over-year as customers negotiated better pricing terms amidst the geopolitical backdrop. Adjusted EBITDA was approximately $5,000 (effectively 0% margin), compared to $800,000 in Q1 2026 and $3.8 million in Q4 2025, driven by operating leverage issues where fixed costs remained flat while revenue dipped.

• Geopolitical Instability: Continued conflict in the Middle East disrupts oil revenues, directly impacting customer budgets and delaying project approvals/renewals.
• Revenue Volatility & Operating Leverage: Fixed cost structure means any decline in revenue disproportionately impacts adjusted EBITDA margins. A sustained revenue drop could force difficult cost-cutting decisions.
• Cash Flow Constraints: Delayed client payments and extended billing cycles strain working capital. If collections do not improve, the company may need to reduce its cost base (layoffs) to preserve cash.
• Market Perception: Uncertainty regarding the timeline for Saudi economic recovery makes it difficult to forecast customer behavior accurately.

Q: Why did guidance withdrawal happen suddenly given stable March-May revenue? / A: June saw a significant slowdown in renewal conversions and new work recognition as customers became cautious due to falling oil revenues. July improved materially with stronger billings and collections, confirming this was a cyclical hesitation rather than a structural downtrend. The withdrawal reflects uncertainty about when the conflict will resolve and budgets will normalize, not a loss of business.

Q: What triggers a decision to right-size the cost base if bench staff costs are high? / A: The trigger is a balance between projected incoming POs and current cash runway. Management aims to retain senior talent critical for long-term growth and avoid dilution or debt. They monitor monthly cash balances against the ~$1M/month bench cost, planning to cut only if collections fail to support the gap until contracted work resumes.

Q: Is the gross margin decline driven by AI efficiency demands or competition? / A: No. The decline to low-mid 30% is solely due to geopolitical pressure forcing customers to seek savings across all expense lines, including IT services. There is no evidence of clients switching to cheaper competitors or demanding AI-driven discounts yet. Long-term goals remain mid-to-high 30% gross margins once stability returns.

Q: How much of the $33.4M Q3 POs is new versus renewal, and when will they be recognized? / A: Of the recent announcements, ~$1M was truly new work, with the rest being renewals/expansions. Recognizing revenue depends on billing profiles; typically, POs issued mid-year result in ~50% billing in the remainder of the year and 50% in the subsequent year. Precise quarterly splits are difficult to estimate due to variable timing.

Q: Why was demand softness delayed until Q2 if the conflict started in February? / A: Early expectations were for a quick resolution. By Q2, the reality of sustained lower oil output and GDP contraction set in, prompting medium-term planning adjustments. Customers extended timelines and paused expansions. However, management views this as a temporary disruption, noting that the conflict strengthens the strategic imperative for Saudi economic diversification and digital transformation.