Barry WRLS - ValueX

8/6/2019 Barry WRLS - ValueX

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Hidden InPlain View

Barry Pasikov

Managing Member

HAZELTONCAPITALPARTNERS

VALUExVail

June 15-17, 2011


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June 15-17, 2011 VAILVALUEX 2

Telular Corporation (WRLS) BackgroundArea ofExpertise M2M wireless monitoring

Machines communicate with one another wired/wireless

M2M (wireless) Industry Est. $8.4b & growing 22% Fleet, Home healthcare, Utilities, Security Alarms, Tanks

Telular focuses on two segments: Security alarms = 22m properties & ~ 15% cell communicator

Cellular communicators < 3% in 2007

Est. 26% Households no landline vs. 21% in 2007

25% of market share wireless communicators

Tanks ~4-5m market = ~ 200,000 monitored

10% of market share


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Where Telular Makes Its MoneyBreak even on units ASP $140 & GM 30% = $42

Cost to acquire new customer ~ $35 - $40

Dealer pay ARPU $4.10/mo WRLS pay AT&T $1.60 Dealer fragmented ~ 3,000 & top 5 = 50% / ADT 33% install 570,000 subscribers, 80 - 100k/yr & churn ~8-10%

Added Fire monitoring & Smartphone app Nov 10

Fire - ARPU $25.50 & GM 50% / App - ARPU $1.90 & 100%

TankLink similar business model 20,000 subscribers,ARPU $12.45 & GM ~60%

Tanks nascent segment less adopted & less fragmented


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IndustryKeyBarriers & MetricsBarriers

Market Share - Niche industry cant leverage CapEx

Economy of Scale - Years to build subscription base

Dealers very sticky if address needs

Product line, Fair ASP & ARPU margins costly switch units

Metrics

Dealer sell through # of dealers sold into per quarter ARPU ofADT actually increases company ARPU

Churn watch for increase industry 12-15%

Subscription base watch for slow down in growth


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Management CreatingShareholder Value?? 2008 1st mover digital communicator from analog

Positive impact on subscription @ 1 point 100% of sales

Oct 2008 expanded into tank monitoring $3.0m Rev = (20,000 * $12.45 * 12) = $3.0m with GM 60% = $1.8m

2009 repurchase 22% of shares @ $1.97 Market Cap = $37m, Cash = $21m, No debt

Nov 2010 ongoing div ($0.40) & special dividend ($1) Special Dividend = 26% yield, Ongoing Dividend = 10.25%

Ongoing Dividend = $6m, FCF = $10m bank $4m cash


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Key StatisticsCompany Snapshot

Market Capitalization $90 Million

Revenue $49 MillionFree Cash Flow ~$10 Million

FCF Yield 11%

Dividend Payment ~$6 Million

Dividend Yield 6.67%

Cash $9 MillionDebt $0 Million

Capital Expenditure $0.9 Million

Shares Outstanding 15.3 Million


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ValuationCan Telular get to $180 million Market Cap?

Dividend Valuation

S&P/DJI div yield ~ 2.0%, Telco ~ 5.5%, Cable ~ 2.0%

Value WRLS on 4% - 5% yield $10 - $8 ($150 - $120m)

Contribution from other segments

alarm subscription base & ARPU FCF

Fire & Smartphone App Subscriptions FCF New products - two-way voice GSM monitoring FCF

FCF $10 $13, Cash $9$23, Div $12, EV/FCF = 8x11x


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Barry WRLS - ValueX