1. VALUEx Vail Hidden In Plain View June 15-17, 2011
Barry Pasikov
Managing Member
Hazelton Capital Partners

2. 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
Vail ValueX

3. Where Telular Makes It’s 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, ↑ k/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
Vail ValueX

4. Industry Key Barriers & Metrics
Market Share - Niche industry can’t 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
June 15-17, 2011
Vail ValueX

5. 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 $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
Vail ValueX

6. Key Statistics Company Snapshot Market Capitalization $90 Million
Revenue $49 Million
Free Cash Flow ~$10 Million
FCF Yield 11%
Dividend Payment ~$6 Million
Dividend Yield 6.67%
Cash $9 Million
Debt $0 Million
Capital Expenditure $0.9 Million
Shares Outstanding 15.3 Million
June 15-17, 2011
Vail ValueX

7. 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
Vail ValueX

8. Key Takeaways If you invest in Telular you get:
Strong Cash Generation
Significant dividend stream
Embedded ATM call and put option – Free
Template for finding companies “Hidden in plain view”
– focus on signals
Repurchase 22% of shares – Used a Dutch tender
Significant ongoing & special dividend yield
June 15-17, 2011
Vail ValueX