Hidden In Plain View

Barry Pasikov Managing Member

VALUE Vail
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HAZELTON CAPITAL PARTNERS

June 15-17, 2011

Telular Corporation (WRLS) Background

Area of Expertise 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
June 15-17, 2011

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Where Telular Makes Its Money

Break 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
June 15-17, 2011

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Industry Key Barriers & Metrics

Barriers
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 of ADT actually increases company ARPU Churn watch for increase industry 12-15% Subscription base watch for slow down in growth
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June 15-17, 2011

Management Creating Shareholder 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
June 15-17, 2011

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Key Statistics
Company Snapshot
Market Capitalization Revenue Free Cash Flow FCF Yield Dividend Payment Dividend Yield Cash Debt Capital Expenditure Shares Outstanding
June 15-17, 2011

$90 Million $49 Million ~$10 Million 11% ~$6 Million 6.67% $9 Million $0 Million $0.9 Million 15.3 Million
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Valuation
Can 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 = 8x 11x

June 15-17, 2011

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Key Takeaways
If you invest in Telular you get:
1) 2) 3) Strong Cash Generation Significant dividend stream Embedded ATM call and put option Free

Template for finding companies Hidden in plain view focus on signals

1) 2) Repurchase 22% of shares Used a Dutch tender Significant ongoing & special dividend yield

June 15-17, 2011

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