NTG Clarity Networks Inc. (NCI) Earnings Call Transcript & Summary

Well, good morning, everybody, and welcome to NTG Clarity Networks Inc.'s Third Quarter 2024 Earnings Conference Call. My name is Adam Zaghloul. I am Vice President, Strategy and Planning for NTG Clarity, and I will be hosting and delivering this morning's session. So just real quick on the agenda for the session. I'll start things off by going over a few of the highlights around third quarter. We'll then go a little bit into NTG story, who we are, what's the market that we operate in, just for a little bit of background. I'll take you through some more of a deeper dive into the financials coming out of the third quarter and the results. And then we'll finish things off with a question-and-answer segment, where I'll answer a few of the questions that are written in by you, the audience. So thank you for anybody who's written a question. So just a quick note that the full report/financial statements as well as management's discussion is uploaded both to SEDAR and to our website, ntgclarity.com. The purpose of this presentation is just to summarize and give a little bit of the highlights around the information that's already been reported there. So to start things off, I need to start with a little bit of a disclaimer around forward-looking information. So 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 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, and these and all subsequent written and oral forward-looking statements are based on the estimates and opinions of the management on the dates that 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. And one other disclaimer that's new as of this quarter, this presentation also contains non-GAAP non-IFRS approved measures. Now they are namely EBITDA and adjusted EBITDA. They are outlined in our earnings press release, in the MD&A filed with the securities regulators and also in the appendix of this presentation. So when the slides are posted after this presentation, it will be there. But make sure to refer to that clarification to see how the non-GAAP measures are reconciled with proper IFRS reporting. With that out of the way, I want to say welcome once again to NTG Clarity's Third Quarter 2024 Earnings Conference Call. So third quarter 2024 really was another amazing quarter for NTG Clarity. We're seeing Q3 as our eighth consecutive record-setting quarter when it comes to revenue. Top line revenue is up 109% for the quarter compared to last year to $14.7 million. Year-to-date revenue is up 100% as well from last year, up to $38.9 million. And I would say the primary driver behind this is really our customers, right? Our customers are recognizing our ability to roll out quality digital transformation teams and services at competitive prices. And due to that, they're willing to sign on for larger contracts over longer periods of time. So a huge thanks to all of our customers. And the delivery of all of this growth is definitely due to all of the hard work and dedication from the entire NTG Clarity team. So thank you very much to the whole NTG Clarity team who's made this growth possible. And that includes about 100 new employees who were hired over the course of the quarter to fill positions, manage the existing growth and keep us going on our growth trajectory. So thank you very much to all the NTG Clarity employees as well. But like I mentioned, Q3 is our eighth consecutive quarter of record-setting revenues. Revenue's up 109% compared to last year for the quarter, year-to-date up 100%. But the growth continues far past the top line, right? We also set another record for net income in Q3. So Q3 net income is up 303% to $2.1 million. Year-to-date net income up 272% to $6.9 million. And new this quarter, we're starting to report adjusted EBITDA as a metric and a measure. Now this aims to get a measure on our profitability while normalizing for discretionary expenses and also fluctuations due to foreign exchange. So we have a pretty strong adjusted EBITDA coming out of Q3 as well. Adjusted EBITDA up 140% from this time last year to $3.2 million. That makes for a 22% adjusted EBITDA margin, up from 19% for the same time last year. And that's just a really solid 22% adjusted EBITDA margin when you compare to a lot of our IT services peers. So very strong profitability metrics and growth to go with our strong top line growth as well. When it comes to some of the big news events over Q3, definitely, one of the biggest news events is our largest ever 3-year $53 million contract that we announced towards the end of August. And when you roll that contract up with some of our other POs in our pipeline, we get our current work on hand of $83.5 million. So this includes unbilled POs and contracts on hand as of September 30, 2024. Another big event in Q3 was the closing of our brokered LIFE Offering. So the proceeds of that offering, combined with our positive operations cash flow leads to $5.4 million in cash on our balance sheet, which we're going to use in the future to continue funding our growth. So with our strong growth, our strong profitability, our strong pipeline as well as our cash on our balance sheet, I am proud to reaffirm our 2024 full year guidance of $55 million in revenue at a 14% net income margin. And that is fresh off the presses. Just in the last month, we increased our guidance from $50 million to $55 million and our net income guidance from 10% to 14%. So we're really looking forward to finishing out the year strong, making the investments we need to fulfill these new contracts that we have and our new contracts up in our pipeline and really keep the growth going. So if you're new to the NTG story or maybe you've been with us for a while and just need a little bit of a refresher, I want to take a little bit of time to go over who we are. So NTG was founded in 1992, and we've been performing IT digital transformation services and solutions for more than 30 years now. Recently, we've been focusing our efforts specifically in the Kingdom of Saudi Arabia, where we've also been operating for more than 20 years, servicing our large Tier 1 telecommunications, finance and government department customers. With more than 20 years' experience in the market, our team has definitely been able to build relationships with the CEOs, CTOs and other decision-makers in a lot of the large technical organizations and been able to drive the growth that we've been seeing just through brand recognition and recognition of the quality services that we provide for sure. One thing that definitely differentiates us from a lot of other IT services companies, especially companies that are trying to operate in Saudi Arabia is our workforce based out of Egypt. So our workforce right now, we employ over 900 IT network and engineering professionals. The majority of them are based out of Egypt. And when you think about outsourced IT digital transformation services, you can think about or at least you would usually think about offshoring to places like India or the Philippines. But like I mentioned, our workforce is based out of Egypt, which means that when we're working for our customers based out of Saudi Arabia, our workers often speak the same language. They're in the same time zone and in general, have the same cultural background as a lot of our customers in Saudi Arabia. So that turns out to be a very strong value proposition in productivity and performance for our offshore workforce while, of course, still having a lower cost base than workers hired locally in Saudi Arabia. And a final piece that differentiates us and is very, very hard to replicate is we've been working in Egypt, our delivery center for more than 20 years as well. And we've come to be known as one of the top employers in the technology space, especially an employer that can get you a job overseas in Saudi Arabia where a lot of people want to work. And we're also very committed to upskilling and education of both the community at large, but also, of course, our employees. So, we run programs like the NTG School, where there are two schools now in Egypt that run dual secondary school technology curriculums with time donated by NTG to prepare new secondary school students for potential jobs in the technology field. But we also run NTG Academies for university students and university new grads just topping up their skills and getting them ready for work in digital transformation. So we've essentially created a large pipeline of talent through all this community involvement that we're engaged in Egypt as well. When it comes to what specifically we do, our business is broken down into two lines. The first is the majority of our business, about 97% as of Q3, that's outsourced software development services. So this is basically one of our customers that could be a large telecommunications operator, could be a large bank or a government department. They have a software development project that they want to build, but they don't have the manpower and they don't have the expertise in-house to do it. So NTG will contract out its own employees to work for this customer. And it ends up being more cost effective, but also easier for our customers to outsource this IT service department to NTG instead of building it up from scratch themselves. So, in terms of what's actually performed, it is anything to do with the software development life cycle. So that could be front-end, back-end full stack developers, architects, analysts, designers, QA testers, project managers, really anything that's needed for the software development process can be contracted out to NTG. And the work itself can be performed either on site at our customers' offices usually in Saudi Arabia, but also offshore from our Egypt Offshore Center in Egypt. And that's especially notable because offshore services account for 37% of our revenue. And that's up from 0 back in 2021 when we first established our Egypt Offshore Center. So offshore services are growing extremely rapidly. Another 60% of our revenue comes from those on-site services, so it still is the majority of our revenue. Now the balance of the revenue, that remaining 3% comes from the second line of business that we have, which is our proprietary software products and solutions, namely NTGapps, which is our flagship digital transformation platform. We build NTGapps as a way for our customers to either deploy ready-made or build themselves from scratch enterprise-grade applications to help with their day-to-day operations. And some use cases examples are a full-scale end-to-end enterprise resource planning platform. NTGapps can be used as that, but it can also be used as more niche use cases like IT ticketing or telecom network service management, telecom field service management, those kinds of things. The main selling points around NTGapps are: one, customizability. NTGapps are able to be deployed and built with no code. So oftentimes, just business personnel are able to drag and drop interface build and drag-and-drop workflow build to get their applications up and running with a quick time to value, but also the integrability of NTGapps. So NTGapps can be connected and integrated with other NTGapps modules, but also to any other software platform, third-party that a customer may use as long as it has an API access point, right? So NTGapps can be integrated with third-party ERP platforms, but also other larger scale IT ticketing platforms to really get at individual gaps in our customers' processes and solve them extremely flexibly. Now it's worth noting that while NTGapps is only 3% of our revenue and the proportion has been declining quarter-over-quarter, the absolute contribution of this line of business has been increasing. It's just that the outsourced software development services line has been growing at a much more rapid pace. So that's where the majority of our demand is. So I want to go over a little bit about the environment and the market that NTG is operating in and maybe why an investor would want to choose NTG as a part of their portfolio. I think it really boils down to all of the economic tailwinds in the Gulf, specifically in Saudi Arabia, driving rapid growth for years to come. Now I mentioned NTG is focused on the Kingdom of Saudi Arabia. It's where 97% of our revenue comes from right now. And that's for good reason. Saudi Arabia is expected to be one of the three fastest-growing economies in 2024. And that's because of its Vision 2030 economic development plan. Saudi Arabia is seeking to diversify its economy away from its traditional oil and gas dependence and towards more of a balanced service-based economy. So huge investments are being made in infrastructure, tourism, becoming a financial hub for the region as well as sports and entertainment. And underneath all of these investments is digital architecture that's going to be needed to support them. The government itself has established its digital government authority, which seeks to transfer all of the citizens, government services like health care and banking on to digital apps. And they're engaging in partnerships with the private sector to do a lot of the telecommunications and IT work for them as well. All this with the goal to increase the portion of their GDP that comes from small and medium-sized enterprises. Now a lot of the times, when people think about the Middle East, they can oftentimes think about instability, but it's definitely not the case with Saudi Arabia where we operate. Pretty consistently, Saudi Arabia has proven itself to be a beacon of both political and economic stability. If you take a look at the U.S. news global ranking of political stability, Saudi Arabia ranks just a handful of spots lower than the United States for stability. So it definitely is a politically stable area. On the economic front, organizations like Moody's have graded Saudi Arabia's economic stability as A ratings, which puts it on par with economies like Japan. So all in all, Saudi Arabia is an extremely fast-growing economy, and it's extremely politically and economically stable. And as a result of that, we're starting to see many multinational companies choosing Saudi Arabia as their regional headquarters. More than 180 of these companies have moved their regional headquarters to Saudi Arabia just in the first half of 2024. And those are big ticket companies like PepsiCo, Google, Unilever and Siemens, right? All of this with the idea of investing more than $12 billion from foreign companies in 2024. So a huge, fast-growing company in a stable and growing economy, that a lot of multinational companies are moving in on. Now what's definitely notable is that NTG is not one of those 180 companies that moved in, in the first half of 2024 because we've been operating in Saudi Arabia for more than 20 years now. Like we've established ourselves as a provider of top-tier IT digital transformation services at competitive pricing. And a lot of the times, because we have this workforce based out of Egypt that shares the same cultural background, speaks the same language and works in the same time zone as our customers in Saudi Arabia, we're often seen as more of the hometown pick. And we're seeing this in our numbers, right? We're able to consistently put out quarters with 100% revenue growth while at the same time being profitable. So the growth prospects are definitely strong in Saudi Arabia, taking advantage of the growing economy. So that's a little bit of the background around who we are and what we do. I want to take the opportunity now to dive a little bit deeper into the financial statements for Q3. So I'll start with the income statement itself. Top line revenue, I want to stress again, it's been a good quarter for NTG. Revenue up this quarter, 109% compared to the same quarter last year at $14.6 million for the quarter and revenue up 100% year-to-date at $38.9 million as well. When you take a look at cost of sales and gross profit, our gross margin ended up being about 38% for the quarter. Now it's important to keep in mind that for NTG, our gross margin can fluctuate depending on a couple of factors. The primary one is the mix of revenue streams. Our software products and solutions tend to have a higher gross margin than our outsourced software development services. And within our outsourced software development services, gross margin is typically higher with our offshore services when compared to on site. So as our offshore services grow as they have been, our gross margin is expected to pick up a little bit in that respect. But then also in terms of any discounts that we give customers to attract new business or any temporary contractors that we onboard to fill seats and contracts, that can all play into how our gross margin lands. But this quarter was 38%. It's the same in the quarter as it is year-to-date, and it's very comfortable in our projected operating band of about 35% to 40%. So that's the gross margin. We take a look at our operating expenses. It went up a little bit this quarter to become 18% of revenue for operating expenses. And this was expected. If you're following us since Q2, you know that we expected Q3 and Q4 to involve investments into our Egypt Offshore Center and our Saudi sales office as well as new employees and equipping those new employees to service all these new contracts that we're getting and all this growth. So a little bit of increased operating expenses was expected and is expected to continue for the rest of the year. But if you take the operating expenses off of the gross profit, you arrive more or less at our adjusted EBITDA margin, which is a new metric that we are reporting this quarter. I've added that in at the bottom of the slide here. Adjusted EBITDA for the quarter, $3.2 million, up 140% from the same quarter last year. Again, this is a really strong adjusted EBITDA margin higher than maybe other players in the IT services space can definitely claim. If you continue down the income statement, you can arrive to the other exchange loss and gain on translation. Now this, of course, is the line item that accounts for foreign exchange between basically reconciling our Egypt operation with the rest of the company. This quarter, it was relatively low of a gain, $31,000 compared to a loss of $100,000 for the same quarter last year. Year-to-date, it's a pretty significant gain of $350,000 compared to a loss of $728,000 for the same period last year. And this is largely due to the devaluation of the Egyptian pound in the first quarter of 2024. Essentially, operating out of Egypt is a good hedge on the Egyptian pound because we're able to pay our expenses in the Egyptian pound, which has a history of being devalued, while collecting our revenue from our customers in Saudi Arabia who pay in the Saudi riyal, which is pegged to the U.S. dollar. So we're definitely able to make a little bit of money on devaluation of currency when that is the case. Now for Q2 and Q3, the currency has remained relatively stable, but we definitely picked up some gains in Q1 this year. So that brings us down to the total comprehensive income for the period. That's our net income. For Q3 2024, that was $2.1 million. That's up 303% from the same period last year. Year-to-date, we're at $6.9 million, and that's up 272% year-to-date compared to last year. So very strong despite our expected investments in growing our operations that we mentioned. That all trickles down to earnings per share of $0.05 for the quarter compared to nothing for the same quarter last year and $0.16 for the year-to-date compared to $0.01 for the same period last year. Now even when you take into consideration the share consolidation, the 5:1 reverse split that we performed earlier this year, that still more than tripled the earnings per share. So we're definitely seeing a lot of our strong growth trickle down into the earnings per share metric as well. So all in all, the billing that we've had so far this year, that $38.9 million along with our $83.5 million pipeline of deals on hand, puts us in a really strong position to meet our $55 million target for the 2024 year and also meet our net income projected target of 14%. Now you'll probably notice that net income year-to-date has been about 18%, but we're projecting 14%. And that's because we definitely expect in Q4 expenses around new office space for Egypt Offshore Center and our Saudi sales office, hiring of new employees and training them and equipping them to prepare them for these large contracts like the $53 million contract we got in August. We expect a lot of those expenses to hit in Q4, and that's why we're guiding towards a slightly lower net income margin. But still, we're very excited to keep the strong growth going. Okay. Now I'll move on to our third quarter balance sheet. And what I definitely want to highlight is in the current assets, $5.4 million of cash on hand. That's a combination of the proceeds from the LIFE Offering we closed in September as well as our cash from operations, which was positive for this quarter. So it puts us in a really strong position. Like the cash flow or the cash on our balance sheet that we've had is more definitely than NTG's had in the last 5 years, maybe even in its lifetime, and it's putting us in a really strong position to continue to make the investments to keep the growth going. Like the balance sheet as a whole is probably the best that it's been in NTG's history. So we're definitely really excited to present this quarter. We've got a positive working capital of $9.8 million as of the end of Q3 compared to a deficit of $2.1 million at year-end. So definitely making huge strides in our working capital improvement as well. In our assets as well, you'll probably notice that receivables have gone up about 150%. And it's safe to say that in Q3, the reason for that is really due to our rapid growth. When you're putting 100% revenue growth on in a quarter, you definitely expect that to have an impact on your receivables for sure. If you've been following us since Q2, in Q2, we mentioned that just due to the fact that it was a summer and things go slower in the summer, but also due to two major Middle Eastern holidays falling in Q2, we were a bit behind in some of our receivables. But as of Q3, 92% of those delayed receivables have been collected and only about 1% of our receivables are past due. That's greater than 180 days. So we've made huge progress in our collections and reducing our receivables this quarter. And to the extent that our receivables are still high, it really is a function of the really extremely rapid growth that we've been seeing of our top line. We continue down to our liabilities. The important thing to call out is in the noncurrent liabilities. $6.1 million of long-term debt in there is, in fact, owned by NTG's CEO and NTG's President. So there are no specific repayment terms and the effective interest rate is really less than 1%. So it's extremely favorable debt to have on the balance sheet, and that's due to restructuring that was done in the company in 2019. But that being said, we're still committed to paying down long-term debt as cash flow permits, and that seems to work out to be about $150,000 of debt repayment every quarter, and that's what we did in Q3, and that puts us up to $450,000 in year-to-date debt repayment as well. And we expect that trend to continue going forward into the future. So overall, I just want to highlight again, this is the strongest that NTG's balance sheet has been probably in its entire history. We've got that $5.4 million of cash on hand to fund continued growth. We're just really excited about continuing to keep the growth going into Q4 and beyond. Okay. So let's now take a look at our Q3 cash flow statement. So I want to start off by highlighting the positive operating cash flow for the quarter and the year-to-date. You can definitely notice that both in the quarter and the year-to-date, the operating cash flow has been a little bit lower than it had been in the previous reporting period. And that's, like I mentioned in the receivable's discussion on the balance sheet, largely due to the top line growth that we've been seeing. It's due to the accounts receivable growth, which is in turn due to the top line growth that we've been seeing. So I mentioned that 92% of the outstanding receivables from Q2 had been collected in Q3. That amounted to $13.1 million of collections in Q3, which is our highest ever quarterly collections. And those strong collections continued into Q3 itself -- or after Q3 into Q4 itself. After quarter end, $7.2 million of collections happened in October, which was, in turn, our highest ever monthly collections. So to the extent that accounts receivable is acting on a drag on cash conversion, it's because of our rapid top line growth and not because there are any significant amount of aged receivables at this point. Continuing to cash inflow from financing, we see a significant change, $4.7 million compared to an outflow of $359,000 for the reporting period, similar numbers for the year-to-date as well. And this is largely due to the LIFE Offering that we closed back in September. So we're really excited to get this cash on our balance sheet to be able to make investments into continued growth of the company. The only other thing that plays into cash inflow from financing is our consistent long-term debt repayment, which I talked about on the balance sheet. It turns out to be $150,000 per quarter about, for $450,000 year-to-date for that specific debt owed to the management team. All in all, year-to-date, we've reduced our long-term debt by $540,000, which we're very excited about. And that takes us to the cash outflow from investing. Now we're seeing pretty similar numbers of outflow from 2024 to 2023. 2024 is a little bit less of an outflow, and that's primarily because as of the end of 2023, we stopped capitalizing the development of our NTGapps proprietary software product, and that's due to it reaching more or less a steady state in late 2023. Should customer requests come in the future, we can start development up again and potentially capitalize a little bit more, but we haven't seen the need during this quarter. So all in all, I only want to say is this quarter has been really strong. We've seen some cash flow come through. We're still cash flow positive from operations. We expect accounts receivable to still act as a drag on our cash conversion over the next little while as we continue our growth trajectory. But all in all, collections have been extremely strong. We're really excited about continuing to break our record for collections month after month and quarter after quarter. And now that we have this cash on the balance sheet, we can make some key investments into even further growth and taking full advantage of what the market in Saudi Arabia has to offer. So that concludes the presentation portion of this session. I now want to open up the floor to questions. So I got a lot of questions from investors and viewers like you. So thank you to anybody who's written for -- thank you to anybody who's written in a question. I'd now like to invite Ali Farouk, an analyst from NTG Clarity on to the stage to read the first question, please. Ali, over to you.

Hello, everyone. As he mentioned, my name is Ali. And without further ado, we'll get straight into the questions. So our first question comes in from Matt from Canaccord Genuity Group regarding our $83 million backlog, how long will this take to convert into revenue? And how has this grown year-over-year?

Yes. Right on. Thanks for the question, Matt. So our current $83.5 million backlog really has visibility out 3 years at this time, which is a really significant achievement. Let's say, 1 year ago, NTG's backlog was probably in the neighborhood of $20 million. That's what it had been for the last little while. But the key thing to keep in mind is that backlogs typically only had 1 year visibility on them. Over time, our customers have gone from signing back in the day, month-to-month or quarter-to-quarter contracts to the point where we are now, where the typical contract is a year-to-year. And now into the future with these big contracts that we've received recently, the $53 million contract in August, the $7.5 million contract earlier in August being 3-year contracts. Our customers are willing to sign on for larger engagements over longer periods of time because they're recognizing the quality of our services and the competitive pricing involved. So whereas maybe this time last year, backlogs were around $20 million over 1 year. Now we're seeing this $83.5 million backlog with visibility out over 3 years.

Okay. Great. Our next question comes from Mark from LodeRock Advisors. NTG is highly concentrated in the Saudi Arabian economy. Are you looking to diversify?

Right on. Thanks for the question, Mark. We think about diversification in a couple of ways. I would say the primary way we think about it is that I mentioned in the presentation that Saudi Arabia's economy is expected to be one of the three fastest-growing economies in 2024. It really is our top priority to take full advantage of all the growth that we're seeing in Saudi Arabia. I don't think it would be a wise use of capital to spend too much money trying to diversify elsewhere. So I just want to reiterate that the #1 priority for the management team is to take full advantage of the growth that we're seeing in Saudi Arabia. Now the second way that we think about diversification is we have this business model where we have employees in Egypt that very well serve customers who speak the same language are in the same time zone and have generally the same cultural background. So we're able to find markets similar to Saudi Arabia to expand into. One good example is Iraq. Iraq is in a similar situation in Saudi Arabia. They have financing from their oil and gas sector, and they're looking to digitize. And we've had some luck selling our proprietary software products and solutions in Iraq itself. To date, it's about 1% to 2% of our revenue, but we're looking forward to, to the extent that we're diversifying and expanding, expanding into markets that we can serve using our tried-and-true business model. So when investors are looking at NTG, it should definitely be as a way to expose their portfolio to the growth in Saudi Arabia and specifically the Saudi Arabian tech market and potentially other markets like it in the same region.

Amazing. Our next question comes in from Navi, a private investor. Your team guided to a 35% plus gross profit margin on the recent large Saudi contract win. Could you provide some guidance for how that contract will impact cash flow? For example, is the contract billed monthly or quarterly? Is it a fixed bid or T&M?

Right on. Thank you, Navi, for the question. So that large $53 million 3-year contract that we received back in August, its structure is pretty typical of all of our contracts. So it is a fixed bid. For example, it's billed monthly. Those are some stats about it. But in terms of how it will impact cash flow, it will definitely have some start-up costs, right? Like I've talked a few times over the course of this presentation, a major theme has been we're making the investments now in Q3, Q4 to ramp up our office space, hire new employees, train those employees and get them ready to fulfill this contract. So in the short term, there will be a little bit of drag on our cash flow just due to these extra expenses. But over the long term, once this contract gets ramped up into early 2025, we don't -- we expect it to contribute positively to cash flow, right? Like we'll have it at a steady state, and there shouldn't be too much of an impact to our cash flow going forward.

All right. Our next question comes in from Chandler, a private investor, regarding the 22% adjusted EBITDA margins. Could you elaborate on the main factors driving this margin expansion? And do you expect these margins to be sustainable going forward?

Right on. Thank you, Chandler, for the question. So our adjusted EBITDA margin, yes, they are definitely more favorable than a lot of competitors, I would say, in the IT services realm. But I think the reason behind them and the reason why they -- we think they're going to be sustainable going forward is that we've set up our business model so that there aren't a whole lot of variable expenses flowing down to the bottom line. Now variable costs that flow down are G&A. So we have office space that we need for our employees. We have a marketing and sales team in the marketing and sales line item, but other G&A items are expenses for equipment for these employees. Those are really the only expenses that flow through to the bottom line from an operating standpoint. So because of that and management's strong cost control mentality that we try to employ, we're really looking forward to having these strong EBITDA margins flow through to the bottom line in the future.

All right. Great. Our next question comes in from Sergi, a private analyst. Your 14% net income margin on $55 million sales for 2024 compared to the 9 months figures assumes the Q4 2024 net profit is going to decline significantly compared to other quarters in 2024. Why are you expecting operating costs to increase that significantly to explain this net income reduction in Q4 2024? Or is it just that the guidance is too conservative?

Okay. Right on. Thank you, Sergi, for the question. I appreciate it. So when we're talking guidance for our margins going forward, the overarching philosophy, just to get it out of the way in the first segment of the answer is we want to give out guidance that we know we can reasonably achieve. So there's definitely that line of thinking within our philosophy for issuing guidance. That being said, a big theme, like I mentioned in one of the previous questions for this quarter is trying to be as transparent as possible around the investments that we're making to expand our operations to service the larger volume and larger sizes of contracts that we've been getting, that $53 million contract in August is a prime example. So we definitely are expecting some expenses to come through in Q4 around investments into office space and renovations of the office space and equipment for our new employees as well as hiring and training employees for a few weeks to months before they're ready to be placed with customers, especially on that large new contract. So as we ramp up over the next few months, we're definitely expecting some expenses to come through, and that really is the reasoning behind maybe a little bit of a reduction of guidance for this year, the second half of 2024.

All right. Our next question comes in from Sharif , a private investor. What effect do you expect the change of the Egypt segment business model to have on the ability to compare this segment's quarter to previous quarters?

Okay. Right on. Thank you, Sharif. So yes, that's a really interesting question. So just for context, back in 2021, management made the decision to transition NTG Egypt to more of a pure delivery center for our offshore and outsourced software development services. So what's involved in that is if you'll compare the Egypt segment reporting to the Canada segment reporting, the Egypt segment's revenue has definitely dropped recently, down from its more traditional 10% to 12% contribution down to probably about 1% to 2% where it is now, but that's totally expected, right? Like we want to, again, engage in the strategy where we're collecting as much revenue as possible in strong currencies like the Saudi riyal pegged to the U.S. dollar and paying as much of our expenses as possible into the Egyptian pound, which has a history of being devalued itself. So as we continue on through time, you can expect lower revenues from Egypt and higher expenses, but at the same time, higher revenues from the Canada segment as well as lower expenses as well. So I think to answer your question, Sharif, the proper way to look at our financials is now to pay more attention to the consolidated financials definitely because if you look at Egypt compared to Canada, you're going to see Egypt's finances being low revenue, high expense as is expected from a delivery center and the opposite to be the case for the Canada segment, which is where most of our sales are booked.

All right. Our next question comes in from Matt from Canaccord Genuity Group regarding the 2025 guidance. Can you provide any detail around this and/or any other large contracts or commitments in the pipeline?

Yes. Okay. Right on. So in terms of 2025 guidance, we definitely want to -- well, I guess when it comes to strict 2025 guidance, the plan is we're going to release like we did last year, some more in-depth guidance around Q1. But that being said, we expect to see continued momentum and growth from the Saudi Arabian market as we've been seeing this year. I mentioned in the presentation, Saudi Arabia is one of the three fastest-growing economies in the world or at least expected to be in 2024. Our customers are really recognizing our ability to mobilize digital transformation teams effectively and at a competitive price, and we're starting to see growth pick up like we've never seen before, right, posting 100% quarterly growth is a really amazing feat. So I can give directional guidance, and that is that we expect the growth to continue, but stay tuned for Q1 when we expect to be able to put out some more in-depth guidance for 2025.

Great. Our next question comes in from Mark from LodeRock Advisors. Do you think there will be any more dilution?

Okay, right on. Thanks, Mark. So in terms of dilution, right, like we're finishing off Q3 with about $1.6 million in cash flow from operations, combine that with the net proceeds from the LIFE Offering that we closed in September, we end the quarter with $5.4 million on the balance sheet. Like we're really confident that we've got the cash that we need to keep the growth going into 2025 and potentially beyond. So we don't really see the need for capital raising or any more dilution anytime in the near future.

All right. Our next question comes in from Navi, a private investor. Outside of working capital investment, what is the company's plan for free cash flow, dividends, increased salaries for management, share buybacks?

Okay, right on. Thank you, Navi. So our plan for cash flow primarily is -- I know you said outside of working capital investment, but that is the primary plan. Like our #1 priority is to reinvest as much as possible into the company to be able to continue on the growth trajectory that we're on right now. We really want to take full advantage of the growth that we're seeing in the Saudi Arabian market. Now when we get outside of working capital investments, I can knock off management salaries. Our goal is to keep management salaries in line with what's standard for the industry, and that's set by and reviewed by the independent Compensation Committee on our Board of Directors. So no plans to blow management salaries from that perspective. But when you talk about other plans like dividends and share buybacks, I want to double down on what I was saying towards the beginning of the answer to this question, which is if we have the option to allocate capital towards expanding our Egypt Offshore Center and our sales center and hiring more salespeople, hiring and equipping employees to be able to fill future contracts faster. That is where we want to allocate the capital. Right now, dividends and share buybacks don't really seem like they have the same return on investment as just straight reinvesting into the company's operations would have at least at this point in time. So outside of that, we're going to continue on our debt repayment schedule, which is probably a higher priority definitely than dividends and share buybacks. So that $150,000 a quarter or maybe a little bit more in total long-term debt repayment, that's still on the plan as cash flow permits. But again, #1 priority is to invest as much as possible into continuing our growth.

All right. Great. Our next question comes from Sergi, a private analyst. In the Q2 report, you said that in July, the company collected $6 million in receivables, which is 50% more of what was projected. Why am I not seeing this in the cash flow for this quarter?

Yes. Okay. Thank you, Sergi. So the cash flow is definitely like we mentioned back on the cash flow type, a little bit dragged by the increase in receivables. I know it can kind of be a head scratcher, right? Like we're seeing these record collections, how come the cash flow isn't coming through as much as you maybe would expect. But it really is due -- the vast majority of it really is due to the growth in our top line, right? Like putting 100% on our top line really significantly impacts the cash flow from operations for sure. I mentioned -- just to reiterate, this quarter, we had $14 million in booked revenue. And so that goes against once you add all of the expenses that we paid out over the quarter, including our debt repayment and investments into our Egypt Offshore Center and Saudi sales office, you're starting to see how that plus $14 million in collections can maybe start to put a little bit of a damper on the cash flow. But again, quarter 3 has been the strongest collections that we've ever seen in NTG's history, $13.2 million collected. And that carried forward after quarter end, I mentioned $7.2 million collected in October. So collections continue to be very strong, but it really just is -- the cash flow really just is a function of how fast we're growing our top line. And we expect the growth to continue as long as we possibly can. So while we continue to see this rapid growth, we're going to continue to see maybe a little bit of a compressed cash flow, but that's because of, again, of the top line growth and not due to any struggles with collection as well. Like even if you take a look at our financial statements, any value of aged receivables less than 90 days is billing during Q3. So when it comes to receivables that have carried over from Q2, there's probably $1 million or less on our balance sheet of that. And when it comes to receivables that are actually past due, like I mentioned before, it's in the neighborhood of 1% of our receivables, about $100,000. So we're actually really confident and really happy with how our collections have been performing, at least in Q3, and we're looking forward to keeping that up into the future.

All right. Amazing. Then our next question is from Mark from LodeRock Advisors. As a tech service provider, what are some of the challenges you face with 100% year-over-year growth?

Yes, right on. Thanks, Mark. So I guess 100% year-over-year growth is a nice problem to have. When it comes to challenges, when it comes to keeping up, it really is scaling our operations to meet the demand and to meet the servicing requirements of all the contracts that we're getting that go into the contribution of that 100% year-over-year growth. So we think about it in, I guess, 2 categories that go into scaling for this growth. The first challenge is definitely office space, where we're going to house all these offshore resources in Egypt. And we've done a really good job preparing for that, I think, in that the new office that we opened up around mid-late 2023. We got the first right of refusal on other floors in that same office building, so we can basically expand whenever we need to for the foreseeable future. We leveraged that first right of refusal back in this August when we opened up another floor in the same building in part to prepare for the large $53 million contract that we got back in August. But we continue to hold the first right of refusal on other floors in that same building. So we expect it to be a relatively straightforward process to scale our office space. So the other category is definitely recruiting and staffing, which is going to be a hot topic. It's definitely for anybody who's scaling, recruiting is always something to consider. Now NTG is in a good spot with recruiting. Number one, we operate out of Cairo, Egypt, which Cairo is a mega city. It has population in the tens of millions. And more than that, it has a focus on technology. There are a lot of great technology professionals that operate out of Cairo. And because NTG's operated in Egypt for more than 20 years now, we've built ourselves up a reputation of being a reliable and a good employer for technology professionals that are looking to work in Egypt, but do work for a company maybe in the Gulf where salaries might be a little bit more competitive for sure. So we have a long history of being a preferred employer for people in Egypt. But even more than that, we've also set ourselves up a really strong talent pipeline through a lot of our community involvement. And that's in the form of our NTG Schools, which are 2 high schools that are dual curriculum -- standard secondary school curriculum with technology to prepare secondary school students for jobs in technology in the future, but also our NTG Academies, which are training programs for our university students and our own hired new university graduates to train them up and polish and perfect those technical skills as they get ready to go out into the market. So I would say recruiting, NTG is doing a great job in keeping up with recruiting just because of our extensive and long pipeline of talent that we've built over our decades of experience in Egypt as well. So I would say the #1 challenge with 100% growth is definitely scaling the operations up, but we've done a good job on both the office space and the talent acquisition side of things for sure.

All right. That's all the questions that we have for today. Adam, I will pass it back on to you.

Okay. Right on. Thank you very much, Ali, and thank you again to everybody who wrote in a question. It was really great to be able to answer those live on the air. That is all I have on the agenda for this third quarter 2024 earnings conference call for NTG Clarity. I want to thank everybody for tuning in. Q3 was a really exciting quarter. The growth continues. Our collections are stronger than they've ever been. And we're just looking forward to keeping the growth going on into the future. So thanks again to our -- number one, our customers for trusting us and having the confidence in us to expand our relationships, but also thank you to all the NTG employees who have made this happen. And yes, onward and upward. I can't wait for Q4 year-end, which will be coming out in the next couple of months. But until then, I hope you take care, and we'll talk soon. Thank you.