RE:Will be 10 cents soon ! Toronto, ON / TheNewswire / April 25, 2019 - NTG Clarity Networks Inc. (TSX.V:NCI) reports its year end results for the fiscal year ended December 31, 2018 (all figures in Canadian Dollars).
Quarter over quarter revenues remained reasonably consistent for the first three quarters of 2018, however, Q4 2018 had a significant decrease in revenue, resulting in a 18% reduction to $11,706,467 compared to $14,359,523 reported in the prior year. Lower sales in KSA (32%) and Kuwait (27%) were partially offset by an increase in Egypt revenue. The contribution of product-related revenue was higher in 2018, and we anticipate this to continue going forward as we work to make product sales a more balanced part of the Company's revenue stream.
The gross margin for the year ended December 31, 2018 was 44% compared to 35% in 2017. Margins were stronger during the year largely as a result of our continuing efforts to optimize costs to our revenue. Realistic margins are anticipated to be between 35-40%, based on product mix.
NTG Clarity's operating expenses were down 21% to $4,211,666 in 2018, compared to $5,364,665 in the prior fiscal year. These cost savings were highlighted by lower marketing salary costs and a 32% decrease in selling and marketing activities that included fewer trade shows and significantly less travel for sales personnel. The company achieved a 17% decrease in G&A costs as we continue to optimize staff, salaries and consultants in Canada and KSA. The Corporation also recognized a foreign currency exchange gain of $260,104 in 2018, compared to a loss of $41,515 in the year ended 2017.
For the year ended December 31, 2018, the Corporation saw a significant progress toward profitability with a net loss of $(366,044) compared to a net loss of $(1,116,183) in 2017.
There was also a positive income from operations.
Income Statement Highlights for the Year Ended December 31, 2018 and 2017
| | December 31, 2018 | December 31, 2017 | |
| REVENUE | $ | 11,706,467 | $ | 14,359,523 | |
| COST OF SALES | | 6,571,900 | | 9,318,018 | |
| GROSS PROFIT | $ | 5,134,567 | $ | 5,041,505 | |
| Operating Expenses | | 4,211,666 | | 5,364,665 | |
| Other Expenses | | 1,276,374 | | 743,951 | |
| Net Income (loss) | $ | (366,044) | $ | (1,116,183) | |
| | | | | | |
| per share (basic) | $ | (0.01) | $ | (0.02) | |
| per share (fully diluted) | $ | (0.01) | $ | (0.02) | |
Balance Sheet Highlights
| | December 31, 2018 | December 31, 2017 |
| Current Assets | $ | 6,369,085 | $ | 6,529,437 |
| Current Liabilities | $ | 11,230,740 | $ | 11,520,133 |
| Long-Term Debt | $ | -- | $ | 8,927 |
| Shareholder's Equity | $ | (3,330,273) | $ | (3,065,862) |
Egypt
Egypt continues to be a challenging place to do business with ongoing restrictions on using foreign currency for business operations, and on moving funds out of the country. The inflation rate has continued to drop from a high of 17% in July to 11.9% at the end of 2018. Interest rates have remained steady for the last 8 months at 16.75%. Export Development Canada (EDC) continues to give Egypt a medium to high risk rating.
As many international companies are reluctant to do business in the local currency and are leaving the marketplace, the service gap has provided significant growth opportunities for NTG Clarity. Despite the continuing economic challenges in the region, NTG Egypt's revenue contribution continues to be strong. In 2018, Egypt contributed 24% of the Corporation's revenue (2017: 18%).
Kingdom of Saudi Arabia (KSA)
NTG has been doing business in KSA for over 13 years, and ongoing initiatives continue to show returns with 44% of our professional service work and 36% of our revenue being from KSA (2017: 55% and 44% respectively). NTG has developed good brand recognition and a solid track record over the years, which is an asset to our work in the region.
New KSA government policies implemented in 2018 increased the cost of doing business in the country. They include the introduction of a 5% Value Added Tax (VAT) on the majority of goods and services, new fees for companies with non-Saudi employees, and significantly higher costs for non-Saudi residency, all introduced in an effort to increase non-oil government revenue. The spending in the government sector was low in 2018, however this seems to be improving in 2019, and we look forward to winning new projects accordingly.
Kuwait
In Kuwait, we continue to pursue opportunities with existing and potential customers, however our contract with our major customer will be completed at the end of Q1 2019. In May 2018, we signed a Professional Services Frame Agreement with another new customer and started billing in Q3 2018.
Kuwait contributed 28% to NTG's revenue in 2018 (2017: 31%).
Oman
In 2018, we continued work for our customer in Oman, which is using our NTS Network Inventory and Project Management modules. We anticipate additional work into 2019 with change requests, ongoing support and additional product licenses, and request for new systems.
Oman contributed 11% to NTG's revenue in 2018 (2017: 7%). The product sales in the region have assisted with recurring revenues from maintenance and support, and extra licenses.
Outlook
In 2018, management continued its work with optimizing costs to be in line with incoming revenue. Focused collection activities have resulted in a more balanced cash flow, though legacy debt remains a challenge. These activities, along with new customers in Canada and KSA, and expanded projects in Egypt, have resulted in improved results.
Looking towards the future, we are on the road to returning to profitability in 2019. We are focusing on capitalizing on the goodwill we have with our existing customers to expand our business and increase our margins. We will concentrate on marketing our products NTS, and StageEM, which are currently in demand and have higher margins.
As in the past, our ability to generate positive operating cash flows, and report strong revenues and earnings are all critical to our success. We are confident that we have the management team with the experience and resources to fulfill our vision of growth and profitability.