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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


2/20


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


3/20


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


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%)


4/20

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 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 - -


5/20


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


6/20


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


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


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



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?



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



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



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.


Novatel has two business segments Mobile Computing and M2M - each offering a suite of products togrowth markets in the wireless space



Novatels MiFi Device has been well-received


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



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


Management

estimates thatNovatels MiFi

suite of productsare capturingapproximately70% of themarket[1]

1 Q2 Novatel conference call



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


Enfora expands Novatels addressable market, broadens its range of complementary products,

diversifies its customer base and provides significant operating leverage



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


[The acquisition ofEnfora] will strengthen our competitive position by leveraging our combinedresearch and development talent and customer relationships- Management



HISTORICAL FINANCIAL PERFORMANCE



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



Financial picture improving


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


19/20


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


20/20


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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