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8/3/2019 Novatel PresentationGF
1/20
D I S C I P L I N E P A T I E N C E F O R T I T U D E
NOVATEL WIRELESS (NVTL): A TIMELY, COMPELLING INVESTMENT IDEAOne International Place
Suite 800 | Boston, MA 02110 | [email protected] | www.shaylorcapital.com
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8/3/2019 Novatel PresentationGF
2/20
D I S C I P L I N E P A T I E N C E F O R T I T U D E
Key Investment Metrics
Novatel Wireless (NVTL) is Shaylor Value Funds largest position:
Sweet spot: small cap, deep value stock trading for little more than cash on the balance sheet
Bottom-up analysis: MiFi launch reaching critical mass; M2M (machine-to-machine) business is
underappreciated by the market. Currently no value being assigned to core wireless mobile
business (~$330MM of Rev.)
Value creation opportunity: Verizon subscriber base will drive market share gains leading to
above average revenue growth in MiFi hotspot devices Novatel is a critical Verizon partner
Valuation: based on break-up analysis or looking at potential earnings power, Novatel is worth
conservatively $8-12/share By way of note, NVTL sold for over $25/share in 2007 and was north
of $11/share as recently as a year ago
Margin of safety: $3.86/current share price. 50%+ margin of safety
Short sellers overextend: 10.5% of shares outstanding are short with a small float
Catalysts: successful adoption of MiFi hotspot devices; improved operational performance
attracting analyst re-rating; almost no European exposure (95% of 2010 revenue in North Amer.)
SHAYLOR CAPITAL, LLC
Novatel Wireless, Inc. meets the critical value investment criteria for Shaylor Value Fund. It offers a
compelling risk/reward ratio and is a timely investment given the improved outlook for NVTL products
as recently noted by Verizon
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8/3/2019 Novatel PresentationGF
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D I S C I P L I N E P A T I E N C E F O R T I T U D E
Investment Thesis
Novatels MiFi product line is in the early stages of rollout and is the market share leader
The MiFi4082 offers fast 4G WiMAX mobile broadband and allows up to five devices to get access to
WiFi on the go
Teamed up with the right partner in Verizon: 1) heavily promoting NVTL product, 2) best 4G network
Riding the organic subscriber growth of Verizons 4G network (>20% CAGR)
Verizon conference call 10/21/11
($200 billion company, mentioning key strategic focus of product supplied by $48.5 million TEV, Novatel):
Internetdata devices have an ARPU of about $49. While the growth of these devices is diluting our postpaid ARPU growth atthis time, expanding this category remains a key strategic focus for us. We continue to see strong demand for our 4GLTE mobile Hotspot devicesand PC cards as well as tablets. This category of devices represents nearly 8% of all our retailpostpaid subscriber base. I would also note that these data-only devices typically carry a much lower subsidy than phones. Theyhave a very short payback period and contribute to profitability fairly quickly. In addition, the migration of data traffic fromour 3G to our 4G network will enhance our capital and operating efficiency and will help us drive improved returns
going forward. Substantial, unrecognized value in Novatels M2M business. The wireless metering business is in its
infancy; via its Enfora unit, NVTL has substantial exposure to this dynamic industry. This is a quiet
growth engine that we believe is worth at least the current TEV of the entire company.
At a $48.5 million TEV and $375 million of LTM growth revenues (0.1x LTM Rev.), Novatel represents one
of the cheapest growth stocks in the market today
SHAYLOR CAPITAL, LLC
Novatel represents an excellent opportunity to invest in a growth company at a stock price below
liquidation value. NVTL is a premiere player in the fast growing mobile hotspot industry which is
currently benefiting from the 3G 4G upgrade cycle
Major catalystfor the recentstock pricerise on Friday10/21/11(+16.6%)
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8/3/2019 Novatel PresentationGF
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D I S C I P L I N E P A T I E N C E F O R T I T U D ESHAYLOR CAPITAL, LLC
Current Stock Market Valuation
We believe the valuation has become very compelling for long-term investors based on a number ofvaluation metrics with approximately $2.30/share in cash on the B/S (60% of mkt. cap.)
The Total Enterprise Value of theCompany is $48.5 million; Novatelis expected to generate over $400million in revenues in 2011
Only 11 months ago Novatelacquired Enfora for approx. $83million
TODAY: all of Novatel is worth only60% of the price paid for Enfora;thus attributing zero value to theMiFi hotspot franchise
Investors have valuedNovatel at the bottom5% of Companies in thestock market in terms ofkey valuationparameters:
Price/Book ValueTEV/Forward EBITDATEV/LTMRevenue
Current Capitalization (Millions)
Currency USD
Share Price as of Oct-21-2011 $3.86
Shares Out. 32.1
Market Capitalization** 123.7
- Cash & Short Term Investments 58.1+ Long-term Inv. (Cash) 17.1
= Total Enterprise Value (TEV 48.5
Valuation Multiples based on Current Capitalization
For the Fiscal Period Ending
LTM
12 monthsJun-30-2011A
12 monthsDec-31-2011E
12 monthsDec-31-2012E
TEV/Total Revenue 0.1x 0.1x 0.1x
TEV/EBITDA NM - 3.3x
P/Diluted EPS (Cash adj.) NM - 7.0x
P/BV 0.8x 0.8x 0.7x
Price/Tang BV - -
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8/3/2019 Novatel PresentationGF
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D I S C I P L I N E P A T I E N C E F O R T I T U D ESHAYLOR CAPITAL, LLC
How much might Novatel be worth?
Sum of the parts:
M2M Segment conservatively worth price paid (i.e. $42.5MM)
Cash and long term investments ($75 million)
The Mobile Computing Segment and patents:
Comparable companies trade at 0.4-0.8x revenues ($150-$300 million)
TOTAL ENTERPRISE VALUE RANGE: $250-$400 million
SOP = $8-$12 share price
Novatel currenty trades for $3.86/share(not for long, in our opinion)
We believe on a sum-of-the-parts basis, Novatel is worth over $8/share
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8/3/2019 Novatel PresentationGF
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D I S C I P L I N E P A T I E N C E F O R T I T U D ESHAYLOR CAPITAL, LLC
How much might Novatel be worth?
Management is targeting 10% operating margins by 2013
Implies $40-$50 million of operating earnings power
Consistent with our analysis
Company is leveraged for high flow-through margin should volumes ofMiFi devices be greater than anticipated
At a conservative 15-17x LTM EPS in 2013, stock could be
$10-$15/share within 24 months (2-4x current price)
On an earnings basis, we believe Novatel has $0.60-$0.75/share in earnings power in the late-2012 to
2013 timeframe
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8/3/2019 Novatel PresentationGF
7/20D I S C I P L I N E P A T I E N C E F O R T I T U D E
Shorts have become overextended
SHAYLOR CAPITAL, LLC
With 10.5% of the shares outstanding already short and a significant block of long-term holders in the
stock, short sellers may find it hard to cover even at materially higher prices
Latest HoldersHolder CSE % Of CSO $MM
Royce & Associates, LLC 3,720,076 11.6% $12.3
Severn River Capital Management, LLC 2,619,021 8.2% $8.7
BlackRock, Inc. (NYSE:BLK) 2,514,320 7.8% $8.3
Wellington Management Company L.L.P. 2,078,100 6.5% $6.9
The Vanguard Group, Inc. 1,694,604 5.3% $5.6
Diker Management, LLC 1,085,818 3.4% $3.6
Brightfield Capital Management, L.L.C. 725,000 2.3% $2.4
Long-term value
investors (45% CSO)
invested at prices
>$5.50/share
As Fridays price action shows
(+16.6%), it is our experience
that when the stock moves, it
moves fast and powerfully
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8/3/2019 Novatel PresentationGF
8/20D I S C I P L I N E P A T I E N C E F O R T I T U D E
Potential Risks
Can the Company manage growth?
Servicing very demanding OEM customer base (i.e. Verizon, others)
Foreign competition over time Samsung MiFi product offering is competitive
Further delays in 3G 4G rollout
M2M is still in cash burn mode in order to grow the platform can management manage FCF well?
Always the risk of a poor acquisition when sitting on all that cash
Proliferation of embedded hotspot technology on the horizon when will smartphones have hotspot
technology embedded that can meet the small size and battery demands? (2014 will see greater
embedded penetration according to research done by InStat and ABI)
Will Novatel transition to be the leader in embedded technology too?
SHAYLOR CAPITAL, LLC
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8/3/2019 Novatel PresentationGF
9/20D I S C I P L I N E P A T I E N C E F O R T I T U D ESHAYLOR CAPITAL, LLC
BUSINESS DESCRIPTION AND COMPANY STRATEGY
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8/3/2019 Novatel PresentationGF
10/20D I S C I P L I N E P A T I E N C E F O R T I T U D ESHAYLOR CAPITAL, LLC
Novatel Wireless
Serving the burgeoning wireless market
Quality, reliable, innovative products that serve a broad audience
Partnering with wireless network operators, distributors, original equipment
manufacturers (OEMs), and vertical markets worldwide to offer wireless
connectivity solutions
An innovation leader
First to introduce USB in North America
Invented Intelligent Mobile Hotspot
First with mobile broadband solutions for all 3G-4G platforms
Significant technological and IP achievements
Leader and innovator in mobile broadband solutions
Smart M2M platforms with Enfora
Strong patent portfolio: 42 issued and 60 patent applications pending
Novatel Wireless, Inc. is a leader in the design and development of intelligent wireless solutions basedon 2G, 3G and 4G technologies providing wireless connectivity
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8/3/2019 Novatel PresentationGF
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Business Description
Mobile Computing Products Segment
Offers MiFi Intelligent Mobile Hotspots, which offer a connectivity option for Wi-Fi-enabled
devices, such as the iPad, Kindle, tablets, PCs, MP3 players, and gaming devices
USB and wireless PC-Card modems that are used to access wireless broadband networks
Embedded modules, which are used in a range of computing devices, including laptop PCs,
netbooks, and various other electronic products to provide wireless broadband access
MobiLink mobile communications software suite, an object-oriented application that enables a
user to gain access to connectivity features, such as SMS, multimedia messaging, and virtual
private networking.
M2M Products and Solutions Segment
Provides asset-management solutions utilizing wireless technology and machine-to-machine
(M2M) communications devices.
It offers Spider MT, SA, and AT integrated solutions and accessories for monitoring and managing
mobile and fixed assets, vehicle tracking and telemetric, and workforce tracking and management
N4A software and design services that include software, as well as design services primarily for
asset management solutions and custom product designs. This sub-segment serves transportation
companies, industrial companies, manufacturers of medical devices and geographical-location
aware devices, and providers of security systems.
SHAYLOR CAPITAL, LLC
Novatel has two business segments Mobile Computing and M2M - each offering a suite of products togrowth markets in the wireless space
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8/3/2019 Novatel PresentationGF
12/20D I S C I P L I N E P A T I E N C E F O R T I T U D E
Novatels MiFi Device has been well-received
SHAYLOR CAPITAL, LLC
Verizon Wirelesshas heavilypromoted theNovatel MiFi device
on TV
The more devicesVerizon can sell,the more wirelesscustomer contractsit can capture inorder to leverage
the fixed cost of itsinvestment in its4G network
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8/3/2019 Novatel PresentationGF
13/20D I S C I P L I N E P A T I E N C E F O R T I T U D E
Customer Reviews (n=293) have been strong
Average rating of 3.5/5 stars
Biggest pros:
Flies like the wind. Speed, Speed, Speed. Powerful. Easy to use Great signal and small Most frequent cons:
Drops connection Not as fast as I had hoped.
[These complaints are related to Verizons 4G rollout and are largely temporary network issues]
Battery life *we think this has a positive side it will be a long time before embedded technology
will reach the size requirements or battery life of Novatels wallet sized device]
Customer Reviews
SHAYLOR CAPITAL, LLC
Management
estimates thatNovatels MiFi
suite of productsare capturingapproximately70% of themarket[1]
1 Q2 Novatel conference call
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8/3/2019 Novatel PresentationGF
14/20D I S C I P L I N E P A T I E N C E F O R T I T U D E
M2M Segment: Enfora long-term growth engine
In December 2010, Novatel acquired Enfora for approximately $83 million
Provider of intelligent asset-management solutions utilizing wireless technology and machine-to-
machine (M2M) communications
Enable enterprises to access, analyze, and leverage information from geographically dispersed
assets via wireless metering technology
The price paid for Enfora less than one year ago is more than 1.7x Novatels current TEV
SHAYLOR CAPITAL, LLC
Enfora expands Novatels addressable market, broadens its range of complementary products,
diversifies its customer base and provides significant operating leverage
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8/3/2019 Novatel PresentationGF
15/20D I S C I P L I N E P A T I E N C E F O R T I T U D E
Enfora acquisition strategic rationale
Diversifies Novatel Wireless' customer base and product lines into adjacent markets
Advances the company's strategy of providing intelligent devices to all end markets
enterprise, consumer, and vertical applications
Enfora has developed differentiated solutions for key market segments, including
transportation, industrial automation, security, and healthcare
Creates a strong growth profile by bringing together long-term customer relationships with
wireless carriers, cable operators, distributors, retailers, MVNOs, leading OEMs in both mobile
computing and vertical markets, enterprises, and application service providers
Leverages the research and development, product portfolios, and geographic reach of the
combined company
SHAYLOR CAPITAL, LLC
[The acquisition ofEnfora] will strengthen our competitive position by leveraging our combinedresearch and development talent and customer relationships- Management
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8/3/2019 Novatel PresentationGF
16/20D I S C I P L I N E P A T I E N C E F O R T I T U D ESHAYLOR CAPITAL, LLC
HISTORICAL FINANCIAL PERFORMANCE
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8/3/2019 Novatel PresentationGF
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Novatel Wireless EPS
Source: Company presentation given at Cowen conference June 2, 2011; Q3E11 and Q411E based on CapitalIQ consensus estimates.
Financial performance to-date has been disappointing as product successes have not translated into
profits: 3G 4G rollout has taken longer than many analysts and investors were expecting
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8/3/2019 Novatel PresentationGF
18/20D I S C I P L I N E P A T I E N C E F O R T I T U D E
Financial picture improving
SHAYLOR CAPITAL, LLC
Key Financials
For the Fiscal Period Ending
12 months
Dec-31-
2007A
12 months
Dec-31-
2008A
12 months
Dec-31-
2009A
12 months
Dec-31-
2010A
LTM
12 months
Jun-30-
12 months
Dec-31-2011E
12 months
Dec-31-2012E
Currency USD USD USD USD USD USD USD
Total Re ve nue 429.9 321.0 337.4 338.9 374.7 417.9 466.5
Growth Over Prior Year 97.2% (25.3%) 5.1% 0.5% 14.6% - 11.6%
Gross Profit 130.8 69.6 87.8 67.7 68.5 - -Margin % 30.4% 21.7% 26.0% 20.0% 18.3% - -
EBITDA 64.4 6.7 17.9 (8.7) (18.9) (3.9) 14.6
Margin % 15.0% 2.1% 5.3% (2.6%) (5.0%) - 3.1%
EBIT 53.4 (4.9) 4.9 (19.7) (34.2) (15.1) 20.6
Margin % 12.4% (1.5%) 1.5% (5.8%) (9.1%) - 4.4%
Earnings from Cont. Ops. 38.8 (1.2) 3.9 (33.5) (34.0) - -
Margin % 9.0% (0.4%) 1.2% (9.9%) (9.1%) - -
Net Income 38.8 (1.2) 3.9 (33.5) (34.0) (17.8) 7.3
Margin % 9.0% (0.4%) 1.2% (9.9%) (9.1%) (4.3%) 1.6%
Diluted EPS Excl. Extra Items 1.21 (0.04) 0.13 (1.06) (1.066) (0.587) 0.208
Growth Over Prior Year NM NM NM NM NM - -
Analyst coverage of the company is limited and we believe estimates are too lowwe expect upgradesbased on the recent Verizon conference callmedian price target of $5.50/share (+42% from today)
Note: Based on CapitalIQ estimates
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8/3/2019 Novatel PresentationGF
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D I S C I P L I N E P A T I E N C E F O R T I T U D ESHAYLOR CAPITAL, LLC
Novatels Stock Performance
Over the last two years, Novatels stock price has significantly underperformed the overall market and
has lost over 65% of its value many investors have lost patience with the story
PAGE 11
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8/3/2019 Novatel PresentationGF
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D I S C I P L I N E P A T I E N C E F O R T I T U D E
Key Investment Metrics
Novatel Wireless (NVTL) is Shaylor Value Funds largest position:
Sweet spot: small cap, deep value stock trading for little more than cash on the balance sheet
Bottom-up analysis: MiFi launch reaching critical mass; M2M (machine-to-machine) business is
underappreciated by the market. Currently no value being assigned to core wireless mobile
business (~$330MM of Rev.)
Value creation opportunity: Verizon subscriber base will drive market share gains leading to
above average revenue growth in MiFi hotspot devices Novatel is a critical Verizon partner
Valuation: based on break-up analysis or looking at potential earnings power, Novatel is worth
conservatively $8-12/share By way of note, NVTL sold for over $25/share in 2007 and was north
of $11/share as recently as a year ago
Margin of safety: $3.86/current share price. 50%+ margin of safety
Short sellers overextend: 10.5% of shares outstanding are short with a small float
Catalysts: successful adoption of MiFi hotspot devices; improved operational performance
attracting analyst re-rating; almost no European exposure (95% of 2010 revenue in North Amer.)
SHAYLOR CAPITAL LLC
Novatel Wireless, Inc. meets the critical value investment criteria for Shaylor Value Fund. It offers a
compelling risk/reward ratio and is a timely investment given the improved outlook for NVTL products
as recently noted by Verizon