Yayo. Yayo.
Since there are so many options of financials to review, I summoned a poll within the Wolf Den discord last night. NTG Clarity did not win, Kraken Robotics did. I’m vetoing that since Kraken’s Q2 financials do not include their splash acquisition that occurred on July 2nd, a couple of days after Q2 closed. Their third quarter will give us a better look at the combined entity, so it will receive higher priority there. NTG received the second number of votes. If I had my preference, I would be writing about the company who came in third, so we’ll call this a compromise.
By peak potential returns, NTG Clarity is my second best performing Wolf Pick. It came within the 2024 batch, selected at a mere three cents. They cleaned up their share table with a 5:1 reverse split shortly thereafter and then catapulted to $2.97 cents in the next eighteen months. It’s been on a steady decline since for various reasons that I’ll surely get into later. While I made some healthy profits here, I came far from maxing out on my returns when it was a nineteen bagger, and I no longer hold a position.
I briefly glanced at NTG’s financials late last night, and as I was trying to fall asleep, I couldn’t decide whether I wanted the theme of this review to be Rihanna’s, Bitch Better Have My Money, or Whitesnake’s, Here I go Again.
The company has had cash flow problems stemming from their accounts receivable for as long as I can remember, and I feel as if I have discussed that problem ad nauseam. Let’s go with a dual theme, because….
Balance Sheet:
On the surface, NCI has what appears to be a very healthy current ratio of 3.4. Most companies I review only dream of that number.
The company has $41M of current assets overtop of just $11.9M in current liabilities. 87% of their current assets are made up of accounts receivable, with just 7% in cash.
A quick ratio measures a company’s liquidity, and NCI looks very good there too. A quick ratio removes current asset items that couldn’t be “quickly” converted into cash - inventory for example.
When it comes to NTG, you simply cannot include their accounts receivables in their quick ratio, because there is nothing quick about their broken billings and collections.
The company’s problem is multi-faceted which just amplifies the problem.
Firstly, they delay billing their customers until well after the work is done, potentially in some cases up to three months. Look at the Contract Asset section below. NTG recognized $18.6M in service revenue in Q2. That figure matches their contract assets closing balance. For all the work they did between April 1st and June 30th, they didn’t send out one invoice during the quarter.
Second is NTG’s terms which are a ridiculous 30-180 days meaning that when they get around to sending you an invoice, they may allow you up to six months to pay it.
Lastly is the management of their collections. Only 42% of their receivables (that they have billed) are current. Those could be anywhere within that 30-180 day term window. My guess due to the history of their receivables is the majority of their billing is done closer to 180 days.
The company currently has $2.1M in the 91-180 day past due window. Here is a potential scenario of how old those $2.1M in revenues might actually be.
April 1st, 2025 (the start of Q2 2025), NTG makes a sale to a customer but that sale sits in contract assets until they bill the customer the following quarter - let’s say on July 5th of 2025.
NTG ends up granting this customer terms of 180 days, meaning they have until January 1st of 2026 to pay. Then they don’t pay on time and as of June 30th of 2026 it still hasn’t been paid. That $2.1M could technically date back as far as a sale from 16 or 17 months ago.
Is it that old? We’ll never know. But just due to the technical potential that it could means that their process if extremely broken.
Frankly I don’t give a shit about the rest of the balance sheet, so let’s move on.
Cash Flow:
Everything I mentioned above strongly suggests their operational cash flow was going to be problematic. And it is. NTG burned through $4.6M in the quarter and since they were cash flow neutral in Q1, their YTD burn rate is also $4.6M. That is double their burn rate at this stage last year. Their A/R problem is not new, it’s systemic.
After minor financing and investing activities, they ended Q2 with $2.85M of cash in the bank, depleting two thirds of their cash on hand they started their fiscal 2026 with.
A near or mid term raise is definitely on the table here. I would normally add debt as an option here but I’m not sure a bank would give them a loan with the state of their accounts receivable.
Share Capital:
48M shares outstanding, 14% dilution in the last 18 months
2.6M options with 1.5M ITM. None expire for more than one year
Approx 2M useless warrants at a $2.95 exercise price expiring in July of 2027
36% insider and 1.25% institutionally owned
Insiders have not had an activity in the open market since Sept of 2024, when they sold at $1.81
Income Statement:
I’m just going to talk to the YTD results as the quarters were quite similar. I’m also very eager to get to the summary.
Revenues came in at $41.4M, a 7% improvement over last year. Gross margin decreased by 270 basis points from 36% to 33.3%. Gross profit dollars were down 1% thereby not making any gains from that extra 7% of revenue.
Total expenses grew by 44%, but that includes a massive $816k birdie from foreign exchange to last year. When just looking at their cash burning expenses of Selling & Marketing and G&A, those costs rose by 56%. That level of spending on 7% more revenue with less gross profit dollars spells doom for the P&L.
Net Income before income taxes decreased by 98%, from $4.5M last year to under $75k so far this year. Even though revenue was up, when your gross profit dollars are down, those extra sales are meaningless. Therefore they get awarded the reverse Wolf Trifecta.
Summary:
B*tch better have my money. Pay me what you OWE me.
This should be the motto of NTG Clarity, but it’s not. I don’t believe there in an adult in the board room to make the decision that significant changes need to be made to their business model.
Below is the P&L for NTG Clarity in the first full year after they became a Wolf Pick. It was immaculate. 102% more revenue. Gross margins over 37% and growing which delivered 137% more gross profit dollars.
Spending was up then too to support that growth but the rate of those expenses grew at a lesser rate than revenue and gross profit. That’s how you achieve a Wolf Trifecta.
Most importantly, more than 17% of every revenue dollar funnelled all the way to the Net Income line.
Normally this would have easily been a four or more star performance. But I rated it at 3.5 stars due to their cash flow and receivable situation that I pointing out concerns with even back then.
When these financials were released back in April of 2025, they talked about getting very aggressive in their pursuit of higher revenue. That would require significant extra dollars in terms of payroll and training costs for new engineers and other staff. They also changed the way they issued market guidance. After guiding on net income previously, they were going to move to dreaded AEBITDA. Given that guidance I put a price target of $2.70 on the stock. Within six weeks it hit and surpassed that number and achieved that $2.97 ATH. In hindsight, this was the signal to take some significant profits off the table. I tried with a $2.99 ask and missed.
Since then they did admirably on their revenue guidance, but significantly missed the rest due to depressed margin and out of control spending.
The worst part about their performance continues to be their cash flow and that all stems from their complete and utter incompetence when it comes to their accounts receivables. Below I’ve added a chart that shows the history of their quarterly revenue performance, along side of the growth of their receivables.
When revenue is going through the roof, it’s understandable that your A/R will grow along with it, and often that can present some temporary operational cash flow issues. But that receivables line should be flattening long before the revenue line does. It does the opposite in NTG’s case and continues to rise significantly.
The worst part of this is, I still think management doesn’t get it. I first had these feelings after the company presented their 2025 annual financials in April.
Here is what I said after their conference call:
If feels like everything I said back in April has already come to fruition.
To add insult to injury, the company has also been significantly impacted by events in the Middle East. But it is my belief that even without the Iran conflict, we would probably be talking about the same things. Their revenue might be better, but their A/R would likely be an even bigger problem.
Bottom line is they need to re-tool. Cut some of the staff they hired. It’s not working. Most importantly, fix your broken A/R process. That includes billing, terms and collection.
Downgrading them all the way to two stars. Their lowest ever.
Bitch, go get your money.
Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from company’s I review.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.