Equity Research DAILY COMMENT

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1 Equity Research DAILY COMMENT NTG CLARITY NETWORKS INC. NCI-V, $0.275 October 24, 2014 Rating: STRONG BUY Target Price: $1.00 Market Capitalization: $9.9M Risk Profile: SPECULATIVE TECHNOLOGY SOFTWARE Ralph Garcea, P.Eng, MBA Analyst Chris Thompson Associate COMPANY PROFILE NTG Clarity provides telecom, network, IT, and infrastructure solutions to service providers, and medium and large enterprises. The Company s core product is NTS an onpremise Operations Support System (OSS)/Business Support System (BSS) solution that is targeted at large utility organizations, telecom service providers, and the oil and resource industry. NTG was founded in 1992, currently has ~200 employees and consultants, and is headquartered in Markham, Ontario. PRICE CHART Source: BigCharts.com REVISIONS Rating/Target Revised Prior Rating Unchanged Strong Buy Target Unchanged $1.00 Revenue (F14E) Unchanged $14.60 EBITDA (F14E) Unchanged $3.93 EPS (F14E) Unchanged $0.05 FINANCIAL SUMMARY Last Price $0.275 Price Target C$1.00, (+263.6%) Div / Yield $0.00 / 0% 52-week Range C$ C$0.60 S/O Basic (M) 35.9 S/O FD (M) 39.1 Market Float (%) 73.5 Market Cap ($M) 9.9 Net Debt ($M) 2.7 Enterprise Value ($M) $12.5 Avg. Weekly Vol. (M) 0.3 Fiscal Year End Dec-31 RECENT CONTRACT WINS AND Q314 PREVIEW EVENTS NTG announced that it received a $2.28M Letter of Intent (LOI) from a mobile operator in the Persian Gulf region to provide the operator with project managers, software developers, and telecom consultants. NTG also announced that it received a $994K Purchase Order (PO) from a global IT and communications services provider for the implementation and integration of its OSS and BSS products. IMPLICATIONS Positive. The LOI contract renewal is an example of NTG s success in establishing itself as a leading provider of telecom software products and services in the Persian Gulf region and its ability to win repeat business. The PO demonstrates NTG s ability to extend existing client contracts, its ability to successfully work with IT and communications services providers, and customer satisfaction with its products and services. The two contracts represent revenue of $0.9M in Q314 and $1.8M in Q414, or ~23% and ~46%, respectively, of our quarterly revenue estimates. NTG reports Q314 results in early November and we are looking for revenue of $3.8M, EBITDA of $1.1M, and EPS of $0.02. CATALYSTS NEAR TERM: Contract wins leading to a growing customer network and revenues. LONG TERM: Diversified geographical footprint and product portfolio, as well as inorganic growth. VALUATION NTG currently trades at a 2015E EV/Sales of 0.8x and EV/EBITDA of 2.5x, versus industry comparables of 1.2x and 6.8x, respectively. Thesis: NTG provides investors an opportunity to participate in the expanding OSS/BSS industry with growth driven by increased adoption of convergent billing systems and a growing telecom sector. In the near term, emerging market CSPs will need to significantly invest in their network infrastructure, transitioning from legacy systems to an open and flexible architecture in order to lower CSP churn rates, increase ARPU, and improve the customer experience. Forecasts E 2015E 2016E Revenue ($M) $5.00 $10.57 $14.60 $16.06 $17.99 EBITDA ($M) $1.34 $3.10 $3.93 $4.98 $5.50 EPS (FD) $0.02 $0.05 $0.05 $0.06 $0.08 EPS (basic) $0.03 $0.06 $0.06 $0.07 $0.09 CFPS $0.05 $0.07 $0.04 $0.10 $0.10 P/E 11.9x 5.0x 5.1x 4.4x 3.4x EV/Sales 2.5x 1.2x 0.9x 0.8x 0.7x EV/EBITDA 9.3x 4.0x 3.2x 2.5x 2.3x See back page for analyst certification and disclosures All figures in C$ unless otherwise noted.

2 RECENT CONTRACT WINS AND Q314 PREVIEW $2.28M LOI On October 14, NTG announced that it received a $2.28M LOI from a mobile operator in the Persian Gulf region to provide the operator with project managers, software developers, and telecom consultants. NTG stated that ~40% of the revenue or $0.9M will be recognized in Q314 with the balance of the contract or $1.4M being recognized in Q414. This contract renewal is an example of NTG s success in establishing itself as a leading provider of telecom software products and services in the Persian Gulf region and its ability to win repeat business. $994K CONTRACT EXTENSION On October 22, NTG announced that it received a $994K PO from a global IT and communications services provider for the implementation and integration of its OSS and BSS products. This PO is an extension of a contract previously announced in June 2014 for the implementation of NTG s NTS solution. NTG stated the contract will start immediately and is expected to be completed by the end of Q115. The contract win demonstrates NTG s ability to extend existing client contracts, its ability to successfully work with IT and communications services providers, and customer satisfaction with NTG s products and services. The two contracts represent revenue of $0.9M in Q314, $1.8M in Q414, and $600K in Q115, or ~23%, ~46%, and ~19%, respectively, of our quarterly revenue estimates and these deals should support our revenue estimates accordingly. EXHIBIT 1 QUARTERLY ACTUALS AND ESTIMATES Forecasts Q114 Q214 Q314E Q414E 2014E Revenue ($M) $2.93 $3.90 $3.84 $3.93 $14.60 EBITDA ($M) $0.55 $1.21 $1.08 $1.10 $3.93 EPS (FD) $0.01 $0.02 $0.02 $0.02 $0.06 EPS (basic) $0.01 $0.02 $0.02 $0.02 $0.05 CFPS -$0.07 -$0.04 $0.09 $0.06 $0.04 Source: Company reports; GMCI Estimates Q314 PREVIEW NTG reports Q314 results in early November. We are looking for revenue of $3.8M, EBITDA of $1.1M, and EPS of $0.02. For 2014, we are estimating revenue of $14.6M, EBITDA of $3.9M, and EPS of $0.06. RATING AND TARGET We reiterate our Strong Buy rating and maintain our target price of $1.00 2

3 EXHIBIT 2 REVENUE; GROSS MARGIN; & EBITDA MARGIN Revenue Gross Margin EBITDA Margin Revenue ($000s) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, % 60% 40% 20% 0% -20% -40% Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314E Q414E Margins (%) Source: Company reports; GMCI EXHIBIT 3 PROFITABLE IN 30 OF LAST 36 QUARTERS Cash OPEX Adjusted EBITDA Margin Gross Margin Net Profit Margin Revenue ($000s) 1,200 1, % 60% 40% 20% 0% -20% -40% -60% -80% -100% Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314E Q414E Margins (%) Source: Company reports, GMCI 3

4 EXHIBIT 4 GLOBAL OSS/BSS COMPARABLES COMPARABLES Local Price Div. Mkt. Cap. Revenue (USD) P/E EV/Sales EV/EBITDA Ticker 23-Oct Target Yield (US$M) C14E C15E C14E C15E C14E C15E C14E C15E Ntg Clarity Networks Inc NCI-V Enghouse Systems Ltd ESL-T % Am docs Ltd DOX-US % 7,277 3,611 3, Convergys Corp CVG-US % 1,917 2,866 3, Teletech Holdings Inc TTEC-US ,187 1,248 1, Csg Systems International Inc CSGS-US % Comverse Inc CNSI-US NMF NMF Redknee Solutions Inc RKN-T NMF Tecnotree Oyj TEM1V-HE NMF Source: Thomson One; GMCI (NCI-V and ESL-T Target & Dividend estimates.) Mean (excluding NCI-V) 17.1x 14.5x 1.3x 1.2x 9.2x 6.8x Mean 15.2x 13.3x 1.3x 1.2x 8.5x 6.4x Median 13.5x 12.4x 1.0x 0.9x 7.8x 6.3x 4

5 RESEARCH DISCLOSURES Analyst Certification The Global Maxfin Capital Inc ( GMCI ) research analyst whose name appears on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst s personal views about the company and the securities that are the subject of this report and all other companies and securities mentioned in this report and (ii) no part of the research analyst s compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by the research analyst in this report. Analyst Ethics As a condition of employment, analysts are required to adhere to the Code of Ethics and Standards of Professional Conduct of The CFA Institute. Analyst Trading GMCI permits analysts to own and trade in the securities and/or derivatives of those companies under their research coverage, subject to the following restrictions. No trades can be executed in anticipation of the initiation of coverage or a change in recommendation, until 48 hours after the dissemination of such information to our clients. A transaction against an analyst s recommendation can only be executed for a reason unrelated to the outlook for the stock and with the prior approval of the Chief Compliance Officer. Conflicts of Interest The research analyst and/or associates who prepared this report are compensated based on the overall profitability of GMCI, which includes the overall profitability of investment banking and related services. In the normal course of its business, GMCI or its affiliates may provide financial advisory and/or investment banking services for the issuers mentioned in this report in return for remuneration and may seek to become engaged for these services from any of the issuers mentioned in this report. GMCI may buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. GMCI, and/or its respective officers, directors or employees may from time to time acquire, hold or sell the securities discussed herein or in related securities or in options, futures or other derivative instruments based thereon. Dissemination of Research GMCI uses its best efforts to disseminate its equity research to all clients on a timely and effective basis in electronic form, via fax, mail and through its website ( Please contact your GMCI representative for more information. Equity Research Rating System The rating system is based on the stock s expected absolute total return over the next 6 to 12 months. STRONG BUY is expected to produce a total return of 25% or more, BUY a total return of 10% to 25%, HOLD a total return of 0% to 10%, and SELL a negative total return. The risk rating is a summary measure of the authoring analyst's subjective assessment of the underlying fundamental risks of the issuer and the business environment in which it operates. In general, we regard large capitalization stocks with a consistent dividend history as being at the low end of the risk continuum and small capitalization early stage companies as speculative. Our rating system has four categories: LOW, MEDIUM, HIGH and SPECULATIVE. 5

6 General Disclosures NCI-V The opinions, estimates and projections contained in this report are those of GMCI as of the publication date of this report and are subject to change without notice. GMCI endeavours to ensure that its research reports are compiled or derived from sources that it believes are reliable and contain information and opinions that are accurate and complete. However, GMCI makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. This report is not to be construed as an offer or solicitation to buy or sell any security. Applicable Disclosures for Issuer (NTG Clarity) (Yes / No ): NCI-V 1) As of the end of the month immediately preceding the date of issuance of this research report or the end of the second most recent month if the issue date is less than 10 calendar days after the end of the most recent month, GMCI and its affiliates collectively beneficially own 1% or more of any class of the issuer's equity securities. 2) The authoring analyst and/or an associate of the analyst are long/short in any of the issuer s securities directly or through derivative. 3) A GMCI partner, director or officer has provided services to the issuer for remuneration during the preceding 12 months other than investment advisory or trading services. 4) GMCI has provided investment banking services for the issuer during the 12 months preceding the date of issuance of the report. 5) List name(s) of any partner, director, officer, employee or agent of GMCI, who is also an officer, director or employee of the issuer. 6) The authoring analyst has visited the material operations of the issuer. 7) The authoring analyst received reimbursement for travel expenses. Distribution of Recommendations Strong Buy Buy Hold Sell Under Review Suspended The particulars contained herein were obtained from sources, which we believe to be reliable, but are not guaranteed by us and may be incomplete or inaccurate. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or an offer to buy or sell the securities mentioned herein. GMCI may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein, and may receive remuneration for its services. GMCI and/or its principals, officers, directors, representatives, associates may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever nor may the information, opinions or conclusions contained herein be referred to without in each case the prior written consent of GMCI. 6

7 CORPORATE DIRECTORY Equity Research Ralph Garcea, P. Eng, MBA Managing Director, Head of Equity Research Tel: (647) D. Joseph Mackay, CA, CFA Senior Vice President, Equity Research Analyst Tel: (647) Chris Thompson, CFA, P. Eng, MBA Equity Research Associate Tel: (647) Institutional Sales & Trading Fabiene Evans, CPA, CA Managing Director, Head of Institutional Sales Tel: (416) Steve Duenkler, CFA Managing Director, Head of Institutional Trading Tel: (416) Peter Byrne Senior Vice President, Institutional Trading Tel: (647) Nick Savona Senior Vice President, Institutional Trading Tel: (416) Jonathan Samahin, CFA, CMT Senior Vice President, Institutional Sales and Trading Tel: (647) Investment Banking Dean McPherson, MBA, CFA Managing Director, Head of Investment Banking Tel: (647) Lily Tran Analyst, Investment Banking Tel: (647) Electronic Trading Steve Burns Vice President, Electronic Trading Tel: (647) Kent Learoyd Vice President, Electronic Trading Tel: (647) Jennifer Russell Syndication Tel: (647) Bay Street, Suite 800 Toronto, ON M5H 2S6 7