Telular fourth quarter results (ending 9/10) comments by D Klein 11/05/10


Telular again exceeded my expectations by a significant amount and surprised the market by announcing a special one-time cash dividend of $1.00 per share and initiated a quarterly dividend of $0.10 per share. The special one-time cash dividend and quarterly dividend will be payable on November 22, 2010 to shareholders of record on November 15, 2010.  On a side note the stock price will be adjusted down by $1.10 on the ex date which is usually about 2 days before the record date.  In a previous post I said “I’m worried they might feel compelled to attempt an expansion of the empire at shareholder value expense vs other means that may better increase value.” concerning their cash stockpile.  The dividend alleviated this concern for myself and probably many others.  The yield is attractive and should attract value investors considering the pristine, albeit small balance sheet.

Management continues to do a very good job managing costs, holding down overhead costs as revenues increased. Forward Telguard guidance remains unchanged (15,000 and 25,000 new Telguard units/quarter) and the TankLink segment appears to be gaining traction. Management stated this unit has now started to produce positive operating cash flow.

Telguard service revenue continues to grow sequentially. Telguard average recurring rev/unit month/subscriber (ARPU) was about $4.00 and the average product unit cost about $144.  Telular sold approximately 22,000 Telguard units and had 19,000 new Telguard activations bringing the total subscriber bas to approximately 568,000.  See chart below.

WRLS_subscribers

The TankLink billable tanks increased from 17,700 to 18,700 sequentially or about 6% (vs 4% last quarter). ARPU is $6.64 per month. See chart below (fyQ1 approx.)
WRLS_TL_Subscribers

They still have $4.7 million remaining in the stock repurchase program but given the commencement of a dividend its doubtful they will aggressively buy back shares until cash levels increase significantly after the dividend is paid.

So what does this mean as far as an investment?  The stock is a buy IMO and here is why:
1. Management projected fiscal year 2011 net income before non-cash items of $8.0 to $9.0 million, this cash flow generation more than covers anticipated $6.0 million of annualized, regular dividends, while still providing surplus cash for corporate development activities.
2. Commencement of an annual dividend of $0.40 per share yielding about 7% at the time of this writing.  This yield may be higher after the ex-date for the special dividend since the stock will open up to a dollar lower.  Some may wait and buy then to avoid any tax consequences of the special dividend although there is no guarantee the stock will open up a dollar lower on the ex-date.  This yield should attract value investors.
3.  Management appears to be conservative, very focused on costs and shareholder friendly, probably the best management team Telular has had since its inception.  The dividend implies high confidence by management going forward.
4.  Sustained growth going forward although not large.  High margins in the recurring revenue segments that may exceed 60% going forward.  There is potential in the M2M market which could drive growth higher but has yet to be realized.
5. Pristine balance sheet, no debt and excellent cash flow generation.

An updated model is at:
http://kleincody.web.officelive.com/Documents/WRLS_Projections.mht
and an excel 2010 xlsm version which allows some user input is can be downloaded from the bottom of the following web page:
http://kleincody.web.officelive.com/IIExstockvalues.aspx

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